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November 27th 2005 - More than a decade after the Republican Revolution, when Newt Gingrich became House speaker on the promise to downsize government, Republicans are facing another revolution.
This one is from within.
When Congress returns next month from its Thanksgiving recess, Republican leaders who have never failed to marshal their forces on big party-line votes face the prospect of defeat on tax cuts and spending restraint -- the core issues that have united the party since President Ronald Reagan and gave them their House majority in 1994.
They have lost some tax and spending votes already, and postponed others because of the specter of losing. After a five-year spending spree on everything from the Iraq war to Medicare, deficits are now jeopardizing the tax cuts that were the centerpiece of President Bush's first term.
A move to preserve tax cuts on capital gains and dividends -- the gemstone of the Bush tax cuts for conservatives -- is in trouble in both the House and the Senate. For the first time since George W. Bush took office, House Democrats are united against tax cuts, and Republican moderates are bucking their party leadership.
GOP leaders are pushing a measure to control entitlement spending by shaving Medicaid and food stamps for the poor. But the combination of investor tax cuts and reductions in poverty programs has already led to a series of embarrassing defeats in committee and on the House floor. Republicans are headed for a pre-Christmas showdown that could turn into a political disaster.
Hurricane topples plans
Hurricane Katrina last summer was a tipping point. The storm forced Republicans to ditch the estate tax repeal because it was deemed unseemly to end a wealth tax after poor people had lost their homes. Sensing a public relations disaster, Republican leaders also postponed extending the investor tax cuts until the end of the year.
Congress quickly passed $62 billion in emergency disaster relief. But Bush's promise to "do whatever it takes" to rebuild the Gulf Coast set off a rebellion among conservatives, who demanded spending cuts to pay the bill.
"I think they blinked after Hurricane Katrina," said Brad Woodhouse, a liberal activist who helped defeat Bush's Social Security overhaul and has turned his fire on the Republican budget, heading a liberal alliance called the Emergency Campaign for American Priorities.
"It was such an acknowledgment of how inappropriate these spending cuts to finance tax cuts are," Woodhouse said. "It was like blood dripping in the water for us."
The budget outlook -- and the problems facing the GOP -- promise to get much worse. Medicare's costly new prescription drug benefit, an $18 trillion unfunded liability sponsored by the White House and Republican leadership, starts in January. Just two years from now, in 2008, the enormous Baby Boom generation will begin retiring, ceasing income tax payments and starting to collect benefits, leading to a budget squeeze unprecedented in U.S. history.
"We're seeing the future," said Bruce Bartlett, a former Treasury official in the George H.W. Bush administration and tax-cut advocate. "The decisions that have been made over the last five years have resulted in the chickens coming home to roost."
Total spending increases under the current President Bush closely rival those of President Lyndon Johnson, a Democrat famous for conducting the Vietnam War while simultaneously increasing domestic spending.
Discretionary spending rose 48.5 percent in Bush's first term, according to an analysis by the libertarian Cato Institute, twice as much as in two terms under President Bill Clinton, when spending rose 21.6 percent. Adjusted for inflation, Bush has increased total spending at an annualized rate of 5.6 percent, compared with 1.5 percent under Clinton.
"It's only a matter of time before we stop talking about cutting taxes for a very long period of time and talk basically about increasing taxes," Bartlett predicted. "The end of the era of tax cutting is going to put tremendous strain on the Republican coalition, just as the end of the era of big spending put tremendous strain on the Democratic coalition" in the 1980s. "You're hearing more and more people on the Republican side talking about major losses in the congressional elections next year and about 2008 being a really, really bad year for Republicans."
In the two months since Republicans pulled their tax cut bills, the atmosphere has only gotten worse. Republicans lost two important off-year gubernatorial elections in Virginia and New Jersey. Bush's popularity has hit new lows, with the public now decidedly opposing the Iraq war. Leading GOP candidates, including Sen. Rick Santorum, a conservative member of the Senate leadership who faces a tough re-election fight in Pennsylvania, have refused to appear with Bush at campaign events.
"Republican members of Congress recognize that the president can't help them very much any more," said Cato Institute Chairman Bill Niskanen, a former Reagan administration economist. In addition, the indictment of former House Majority Leader Tom DeLay seriously weakened party discipline in the House and exposed deep divisions between fiscal conservatives and moderates.
"There is a substantial ideological split, particularly among House Republicans, on fiscal responsibility," Niskanen said. "A lot of them have gone along with a high rate of growth of spending but have done so without any enthusiasm."
As the post-Katrina conservative revolt gelled, the Republican leadership turned to Medicaid, food stamps and student loans for spending restraint. The Senate is proposing $35 billion in reductions and the House $50 billion; both chambers are also seeking between $56 billion and $59 billion in tax cuts.
Large gap to cross
There are enormous differences between the House and Senate on both measures. Reconciling them will be very difficult in the two weeks Congress has left before adjourning for Christmas.
Combined, the measures increase the deficit. The spending restraint appeased conservatives but provoked an outcry from Democrats and GOP moderates. Efforts to console moderates by dropping a measure for oil exploration in the Arctic National Wildlife Refuge and adding subsidies for home heating costs and dairy farmers have done little but stoke more controversy.
The Medicaid and food stamp cuts have attracted the most fire, and barely passed the House 217-215 before Thanksgiving, with no Democratic support. Republicans recessed before attempting to pass the tax cuts.
Much of the roughly $11 billion in cuts over five years proposed by the Senate for Medicaid, a health care program for the poor that many elderly use to pay nursing home costs, were recommended by state governors. They contend the program is becoming burdensome for the states, which must come up with money to match federal funding. Democrats have portrayed the reduction in the growth of Medicaid spending as dire, but even liberal analysts concede they are not severe. One provision would increase co-payments from $3 to $5, and another would allow elderly nursing home residents to shield $750,000 in home equity, raised from $500,000 after Republican moderates objected.
The cuts are "not awful," said Jason Furman, a former adviser to Democratic presidential candidate John Kerry now at the liberal Center for Budget and Policy Priorities.
"It's less about the magnitude and more about why should you be asking poor people to pay anything more for health care at the same time that you're giving brand-new tax cuts to the most fortunate," Furman said. "That is what is just completely wrong with this picture.
"A go-it-alone Republican strategy works when you're trying to cut taxes or increase spending, but when you're trying to make tougher choices, the only way to do it is to work together with the other party for shared sacrifice," Furman said. "Budget reality is starting to catch up with the Republican Party."
Heavy U.S. borrowing with much more on the horizon is stoking concern about a potential financial crisis. Any one of several big economic imbalances -- including looming pressures on the federal budget, the zero U.S. savings rate, the historically high trade deficit, a real estate boom that has supported consumer spending -- could provoke a sudden financial shift, economists say.
"It's not unrealistic to think that if we continue to delay -- and the Baby Boomers do start to retire as early as 2008 -- that sooner or later the lenders to this country may decide it's not the best place to park all their savings," said Maya MacGuineas, director of fiscal policy for centrist New American Foundation.
Bartlett warns of a "financial Katrina."
"It's just a matter of time before we have some kind of economic event that I think is just going to change the political situation 180 degrees and make deficit reduction the order of the day," he said. "I don't know what it will be. I just know that when you've got gasoline spilling onto the floor of your house, it doesn't really matter where the spark comes from."
2 Ekim 2012 Salı
Bush's Budget Sparks Bipartisan Protest
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February 7th 2006 - The administration defended President Bush's $2.77 trillion budget plan on Tuesday against congressional attacks that the cuts it sought to deal with exploding budget deficits would unfairly harm government efforts in education, health care and farm programs.
Treasury Secretary John Snow, among leadoff witnesses in a series of congressional hearings, said the administration had made the tough choices to fund programs that were working and eliminate those that were not.
"This budget represents the president's dedication to fiscal discipline, an efficient federal government and the continuation of a thriving U.S. economy," Snow told the Senate Finance Committee.
But critics noted that the deficit for the current budget year would rise to an all-time high of $423 billion and they questioned Bush's projections for declining deficits in future years.
Democrats said Bush's proposed budget for Fiscal 2007, beginning Oct. 1, was seriously understating spending that will be needed to fight wars in Iraq and Afghanistan and did not include the billions of dollars needed in future years to make sure the alternative minimum tax designed for the wealthy does not pinch more and more middle class taxpayers.
Sen. Max Baucus, D-Mont., said the explosion of federal deficits was adding to the national debt, requiring the administration to come to Congress in the next few weeks to raise the $8.18 trillion debt ceiling. He said all of that debt is being financed more and more by foreigners.
"America is borrowing 80 percent of the world's annual savings. We are handing our children and our children's children a set of obligations they will owe to foreign central banks," Baucus told Snow.
Sen. Kent Conrad, D-N.D., produced charts showing that the amount of federal government debt held by foreigners before Bush became president totaled $1 trillion and now in the first five years of his administration has more than doubled.
Snow said the ability of the United States to pay interest on the debt was a function of the economy's size and the vitality of the nation's bond markets.
"There is no doubt given the deep and liquid capital markets of the United States, that we will continue to attract capital from investors around the world," the Treasury secretary told the committee.
Testifying separately before the Senate Armed Services Committee, Defense Secretary Donald H. Rumsfeld said the military must continue to change in order to defend against terrorists who could get a nuclear weapon or launch a biological attack.
"No nation, no matter how powerful, has the resources or capability to defend everywhere, at every time, against every conceivable type of attack," Rumsfeld said. "The only way to protect the American people, therefore, is to provide our military with as wide a range of capabilities, rather than preparing to confront any one particular threat.
Bush's budget, which was sent to Congress on Monday, has faced predictable criticism from Democrats but it is also facing attacks from Republicans.
Sen. Arlen Specter, R-Pa., called Bush's proposed cuts in education and health "scandalous" while Sen. Olympia Snowe, R-Maine, said she was "disappointed and even surprised" at the extent of the administration's proposed cuts in Medicaid and Medicare.
Bush's spending blueprint for the 2007 budget year that begins Oct. 1 would provide large increases for the military and homeland security but would trim spending in the one-sixth of the budget that covers the rest of discretionary spending. Nine Cabinet agencies would see outright reductions with the biggest percentage cuts occurring in the departments of Transportation, Justice and Agriculture.
And in mandatory programs _ so-called because the government must provide benefits to all who qualify _ the president is seeking over the next five years savings of $36 billion in Medicare, $5 billion in farm subsidy programs, $4.9 billion in Medicaid support for poor children's health care and $16.7 billion in additional payments from companies to shore up the government's besieged pension benefit agency.
Senate Finance Committee Chairman Charles Grassley noted that Congress has just completed a yearlong battle to achieve far smaller savings in Medicaid and Medicare and "any more reductions of a significant scope could be difficult this year."
Bush's budget would meet his twin goals of making permanent his first-term tax cuts, which are set to expire by 2010, and cutting the deficit in half by 2009, the year he leaves office.
Democrats, hoping to wrest control of Congress from the Republicans in this year's election, charged that Bush was forced into an austere spending plan because of the estimated $1.35 trillion over the next decade that it will cost to extend his first-term tax cuts, which Democrats claim primarily benefit the very wealthy.
In addition to strict limits on most discretionary, non-security spending in the budget, Bush sought drastic cuts or total elimination on 141 programs that would produce savings of nearly $15 billion in 2007.
The targeted programs included 42 in the area of education ranging from drug-free schools to federal support for the arts, technology and parent-resource centers.
Even previously favored agencies such as the National Institutes of Health were not immune from the budget knife with overall funding essentially frozen and many individual programs seeing budget cuts. That brought objections from groups ranging from the American Heart Association to the American Diabetes Association.
Bush's budget submission is just the opening round in what opponents are promising will be a spirited fight in Congress over spending priorities.
"The president's budget slashes resources for exactly the priorities we should be supporting _ groundbreaking medical research, health care for our seniors, and education for our kids," said Sen. Tom Harkin, D-Iowa.
Treasury Secretary John Snow, among leadoff witnesses in a series of congressional hearings, said the administration had made the tough choices to fund programs that were working and eliminate those that were not.
"This budget represents the president's dedication to fiscal discipline, an efficient federal government and the continuation of a thriving U.S. economy," Snow told the Senate Finance Committee.
But critics noted that the deficit for the current budget year would rise to an all-time high of $423 billion and they questioned Bush's projections for declining deficits in future years.
Democrats said Bush's proposed budget for Fiscal 2007, beginning Oct. 1, was seriously understating spending that will be needed to fight wars in Iraq and Afghanistan and did not include the billions of dollars needed in future years to make sure the alternative minimum tax designed for the wealthy does not pinch more and more middle class taxpayers.
Sen. Max Baucus, D-Mont., said the explosion of federal deficits was adding to the national debt, requiring the administration to come to Congress in the next few weeks to raise the $8.18 trillion debt ceiling. He said all of that debt is being financed more and more by foreigners.
"America is borrowing 80 percent of the world's annual savings. We are handing our children and our children's children a set of obligations they will owe to foreign central banks," Baucus told Snow.
Sen. Kent Conrad, D-N.D., produced charts showing that the amount of federal government debt held by foreigners before Bush became president totaled $1 trillion and now in the first five years of his administration has more than doubled.
Snow said the ability of the United States to pay interest on the debt was a function of the economy's size and the vitality of the nation's bond markets.
"There is no doubt given the deep and liquid capital markets of the United States, that we will continue to attract capital from investors around the world," the Treasury secretary told the committee.
Testifying separately before the Senate Armed Services Committee, Defense Secretary Donald H. Rumsfeld said the military must continue to change in order to defend against terrorists who could get a nuclear weapon or launch a biological attack.
"No nation, no matter how powerful, has the resources or capability to defend everywhere, at every time, against every conceivable type of attack," Rumsfeld said. "The only way to protect the American people, therefore, is to provide our military with as wide a range of capabilities, rather than preparing to confront any one particular threat.
Bush's budget, which was sent to Congress on Monday, has faced predictable criticism from Democrats but it is also facing attacks from Republicans.
Sen. Arlen Specter, R-Pa., called Bush's proposed cuts in education and health "scandalous" while Sen. Olympia Snowe, R-Maine, said she was "disappointed and even surprised" at the extent of the administration's proposed cuts in Medicaid and Medicare.
Bush's spending blueprint for the 2007 budget year that begins Oct. 1 would provide large increases for the military and homeland security but would trim spending in the one-sixth of the budget that covers the rest of discretionary spending. Nine Cabinet agencies would see outright reductions with the biggest percentage cuts occurring in the departments of Transportation, Justice and Agriculture.
And in mandatory programs _ so-called because the government must provide benefits to all who qualify _ the president is seeking over the next five years savings of $36 billion in Medicare, $5 billion in farm subsidy programs, $4.9 billion in Medicaid support for poor children's health care and $16.7 billion in additional payments from companies to shore up the government's besieged pension benefit agency.
Senate Finance Committee Chairman Charles Grassley noted that Congress has just completed a yearlong battle to achieve far smaller savings in Medicaid and Medicare and "any more reductions of a significant scope could be difficult this year."
Bush's budget would meet his twin goals of making permanent his first-term tax cuts, which are set to expire by 2010, and cutting the deficit in half by 2009, the year he leaves office.
Democrats, hoping to wrest control of Congress from the Republicans in this year's election, charged that Bush was forced into an austere spending plan because of the estimated $1.35 trillion over the next decade that it will cost to extend his first-term tax cuts, which Democrats claim primarily benefit the very wealthy.
In addition to strict limits on most discretionary, non-security spending in the budget, Bush sought drastic cuts or total elimination on 141 programs that would produce savings of nearly $15 billion in 2007.
The targeted programs included 42 in the area of education ranging from drug-free schools to federal support for the arts, technology and parent-resource centers.
Even previously favored agencies such as the National Institutes of Health were not immune from the budget knife with overall funding essentially frozen and many individual programs seeing budget cuts. That brought objections from groups ranging from the American Heart Association to the American Diabetes Association.
Bush's budget submission is just the opening round in what opponents are promising will be a spirited fight in Congress over spending priorities.
"The president's budget slashes resources for exactly the priorities we should be supporting _ groundbreaking medical research, health care for our seniors, and education for our kids," said Sen. Tom Harkin, D-Iowa.
Bush's Legacy: Debt
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September 25th 2008
UNITED STATES - The Bush legacy is going to include a nasty four-letter word: debt.
On second thought, make that staggering, long-term debt, perhaps in excess of $11 trillion, that will tie the hands of the next president and Congress, to say nothing of imposing a crushing burden on taxpayers.
Just a few months ago, the Iraq war looked like the biggest thing in the eight-year era of the second President Bush, during which his party controlled Congress for six years.
Just a couple of Sunday mornings ago, Bob Woodward of the Washington Post said on national television that the war in Iraq “is probably the most important thing going on right now,” adding that in January the war in Iraq will be topic one in the next administration, and topic two will be the war in Afghanistan.
Now the country suddenly is facing a financial crisis fraught with the possibility of unprecedented economic disaster.
If that isn’t enough to make you reach for the antacid tablets, the president still has about three months left in office, plenty of time for yet another calamitous turn of events.
The national debt was about $5.7 trillion when Bush took office in January 2001. Today, after almost eight years and a couple of wars, the debt has risen to about $9.7 trillion.
And, by the way, that figure might rise another $1 trillion or so before Bush steps down on Jan. 20.
The national debt ceiling today is $10.6 trillion. Treasury Secretary Henry Paulson wants Congress to raise that to $11.3 trillion to clear the decks for massive borrowing to deal with the nation’s financial crisis.
A national debt of $11.3 trillion would come to more than $37,000 each for every man, woman and child in the United States.
And all this comes during an era of allegedly conservative, fiscally responsible Republican domination in Washington.
UNITED STATES - The Bush legacy is going to include a nasty four-letter word: debt.
On second thought, make that staggering, long-term debt, perhaps in excess of $11 trillion, that will tie the hands of the next president and Congress, to say nothing of imposing a crushing burden on taxpayers.
Just a few months ago, the Iraq war looked like the biggest thing in the eight-year era of the second President Bush, during which his party controlled Congress for six years.
Just a couple of Sunday mornings ago, Bob Woodward of the Washington Post said on national television that the war in Iraq “is probably the most important thing going on right now,” adding that in January the war in Iraq will be topic one in the next administration, and topic two will be the war in Afghanistan.
Now the country suddenly is facing a financial crisis fraught with the possibility of unprecedented economic disaster.
If that isn’t enough to make you reach for the antacid tablets, the president still has about three months left in office, plenty of time for yet another calamitous turn of events.
The national debt was about $5.7 trillion when Bush took office in January 2001. Today, after almost eight years and a couple of wars, the debt has risen to about $9.7 trillion.
And, by the way, that figure might rise another $1 trillion or so before Bush steps down on Jan. 20.
The national debt ceiling today is $10.6 trillion. Treasury Secretary Henry Paulson wants Congress to raise that to $11.3 trillion to clear the decks for massive borrowing to deal with the nation’s financial crisis.
A national debt of $11.3 trillion would come to more than $37,000 each for every man, woman and child in the United States.
And all this comes during an era of allegedly conservative, fiscally responsible Republican domination in Washington.
Obama's Achilles Heel: China
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UNITED STATES - The US National Debt continues to go up $3.87 billion USD per day and is currently hovering around $12.4 trillion.
The problem is its going to continue to skyrocket as long as the United States is fighting off a recession, two wars and high oil prices. US President Barack Obama thus has his work cut out for him, problems left behind by George W. Bush, and his problems are quantified by the statement that "Most Americans don't buy American, they buy Chinese."
That is peanuts when you realize the USA only exports an average of $65 billion to China annually. The end result is an annual trade deficit of $235 billion taken out of the American economy and bolstering China's economy.
China is not the only country that enjoys a trade deficit with the United States. Japan, South Korea and numerous other countries trade heavily with the USA, often in products that Americans "need" in terms of electronics, but also a lot of products that could be made in North America but has been outsourced instead.
What the USA needs is more factories inside America that is hiring people, making products Americans can use (preferably products and equipment that will make them more competitive internationally) and are priced fairly.
Otherwise what we're opening ourselves up to is to communism... Oh dear, I said it. The dreaded C-word.
If the USA cannot shake off the recession and high unemployment rate America's economy will continue to flounder and will eventually be forced to create a more socialist-based economy as capitalism falls apart. This means government "work-fare programs", huge cutbacks to arts & culture funding (including Hollywood), an increase in food stamp usage, and a skyrocketing crime rate as Americans become more desperate for survival.
The 1st thing the USA needs to do is put a halt on all free trade discussions with Asia. America isn't ready for such big trading partners. The economy is too fragile right now.
The 2nd thing the USA needs to do is find cheaper alternatives to expensive oil. Oil prices are simply too high and its hampering transportation costs of materials/products. Hydrogen power perhaps.
The 3rd thing the USA needs to do is cut taxes on the poor, increase taxes on the rich. The poor will spend every dollar they have anyway, whereas the rich have a tendency to stick their money in the bank and sit on it.
The 4th thing is create tax breaks for companies that operate solely in the USA. This will benefit small businesses and new startups.
The 5th thing the USA needs to do is enforce mandatory retirements. Old people who keep working when they should be retired are essentially stealing jobs from younger Americans. Exceptions can be made for industries that have a shortage (ie. doctors), but otherwise these people need to be put out to pasture.
The end goal is to get more Americans working and building things again, creating opportunities for a new generation of hard working Americans.
The problem is its going to continue to skyrocket as long as the United States is fighting off a recession, two wars and high oil prices. US President Barack Obama thus has his work cut out for him, problems left behind by George W. Bush, and his problems are quantified by the statement that "Most Americans don't buy American, they buy Chinese."
"Most Americans don't buy American, they buy Chinese."That is not completely true. What is true that on average the USA imports $2 trillion USD worth of products every year of which approx. $300 billion is from China (approx 15%).
That is peanuts when you realize the USA only exports an average of $65 billion to China annually. The end result is an annual trade deficit of $235 billion taken out of the American economy and bolstering China's economy.
China is not the only country that enjoys a trade deficit with the United States. Japan, South Korea and numerous other countries trade heavily with the USA, often in products that Americans "need" in terms of electronics, but also a lot of products that could be made in North America but has been outsourced instead.
What the USA needs is more factories inside America that is hiring people, making products Americans can use (preferably products and equipment that will make them more competitive internationally) and are priced fairly.
Otherwise what we're opening ourselves up to is to communism... Oh dear, I said it. The dreaded C-word.
If the USA cannot shake off the recession and high unemployment rate America's economy will continue to flounder and will eventually be forced to create a more socialist-based economy as capitalism falls apart. This means government "work-fare programs", huge cutbacks to arts & culture funding (including Hollywood), an increase in food stamp usage, and a skyrocketing crime rate as Americans become more desperate for survival.
The 1st thing the USA needs to do is put a halt on all free trade discussions with Asia. America isn't ready for such big trading partners. The economy is too fragile right now.
The 2nd thing the USA needs to do is find cheaper alternatives to expensive oil. Oil prices are simply too high and its hampering transportation costs of materials/products. Hydrogen power perhaps.
The 3rd thing the USA needs to do is cut taxes on the poor, increase taxes on the rich. The poor will spend every dollar they have anyway, whereas the rich have a tendency to stick their money in the bank and sit on it.
The 4th thing is create tax breaks for companies that operate solely in the USA. This will benefit small businesses and new startups.
The 5th thing the USA needs to do is enforce mandatory retirements. Old people who keep working when they should be retired are essentially stealing jobs from younger Americans. Exceptions can be made for industries that have a shortage (ie. doctors), but otherwise these people need to be put out to pasture.
The end goal is to get more Americans working and building things again, creating opportunities for a new generation of hard working Americans.
Krugman’s Anti-Austerity Madness
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Kicking Common Sense Down the Road
- By: Larry Walker, Jr. -
When one of today’s most brilliant liberal economists recently mentioned the European fiscal crisis, he said, “Spain is suffering the hangover from a huge housing bubble, which caused both an economic boom and a period of inflation that left Spanish industry uncompetitive with the rest of Europe. When the bubble burst, Spain was left with the difficult problem of regaining competitiveness, a painful process that will take years.”
Yet, when far less knowledgeable left-wingers, including the President, speak of America’s economic woes, they routinely regurgitate the meaningless thread, “We are suffering from 8 years of failed Bush policies.” But what does that mean? Aside from a flawed monetary policy which bails out cronies while treading on everyone else, and an out of control government which has become accustomed to borrowing and spending 50% more than its revenue, are we not also suffering the hangover from a huge housing bubble, which caused both an economic boom and a period of inflation that has left us uncompetitive with the rest of the world?
If it were possible for left and right to agree on our most pressing problems, perhaps we would have a chance of solving them, but when one ideology slovenly blames everything on the sum total of one man’s policies without distinguishing between what works and what doesn’t, we are condemned to the same infinite loop occurring in Europe. The only difference being that their fate ends with austerity, while ours ends with a plunge into a hyperinflationary abyss.
When referring to Europe’s current morass, economist Paul Krugman says, “But the truth is that the protesters are right. More austerity serves no useful purpose; the truly irrational players here are the allegedly serious politicians and officials demanding ever more pain.” Wait, austerity serves no useful purpose? It sounds like Mr. Krugman is saying that the protestors, fire bombers, and destroyers of personal property are the rational players, while serious politicians and officials seeking austerity are among the irrational. So what is austerity, and why would anyone in their right mind side with the protestors while deeming such measures irrational?
Austerity
In economics, austerity refers to a policy of deficit-cutting by lowering spending via a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to try to reduce their deficit spending and are sometimes coupled with increases in taxes to demonstrate long-term fiscal solvency to creditors. However, austerity policies don’t have to include tax hikes, and in fact as we shall see the optimal austerity policy actually involves a combination tax cuts paired with deficit reduction.
The key phrase above is “to demonstrate long-term fiscal solvency to creditors”. If there were no creditors, then politicians and government officials wouldn’t have to worry about austerity. If there were no creditors, nations could simply print their own currencies on an unlimited basis, and spend without consequence. But in the real world, since creditors exist, some measure of austerity is required no matter what emotions dictate. Besides, history itself teaches us that printing money without restraint is the surest path to the vicious spiral of hyperinflation, a large increase in the money supply not supported by gross domestic product (GDP) growth, which leads to rapid erosion of a nation’s currency and ultimately to ever more pain.
In the table below, I have summarized all the possible fiscal austerity combinations available to the United States and Europe. When viewed graphically the optimal policy choice should be clear. Although many Americans, including the President, think the way forward should involve some combination of spending cuts and tax hikes, credit ratings agencies disagree. For example, according to Fitch Ratings Co., “Fiscal Indecision Threatens US ‘AAA’ - Under current law, tax increases and spending cuts equivalent to about 5% of GDP will take effect in 2013 – if permanent, such a “fiscal cliff” could derail the US economic recovery…” Yet it’s not the spending cuts that are problematic, deficit reduction is a must, but rather the combination of tax hikes and spending cuts.
Following the Austerity Matrix, it turns out that:
Tax hikes lead to the fiscal cliff no matter what happens with spending. Why? Because tax hikes lead to private sector austerity, resulting in job and benefit cuts, which leads to lower tax revenues and less economic output. So tax hikes should be off the table. The only reason they’re still being discussed in the United States is because of Obama’s “fairness doctrine”, which if you ask me is total nonsense. Besides, raising taxes on 1% of taxpayers won’t change anything for the other 99%, where the main problem is the lack of opportunities.
Maintaining current tax rates can work, but only in conjunction with spending cuts. However, this only leads to slow growth, which is basically what we have now. Our current real gross domestic product (GDP) annual growth rate of 1.3% is not enough to change the trajectory of our ever increasing jobs deficit. If tax rates are maintained while spending levels are maintained or raised, we still wind up plunging over the fiscal cliff.
The optimal fiscal austerity policy involves a combination of tax cuts and deficit reduction, which leads to rapid growth, or exactly what is needed following an economic crash. But, cutting taxes while maintaining or increasing spending levels only hurtles us over the fiscal cliff.
So there is only one viable fiscal austerity alternative: Cut taxes and reduce government spending. But this always brings up the same old moth-eaten question from faithless do nothings. How will you pay for the tax cuts? The apparently not so obvious answer is -- with jobs.
Did you get that? Cutting tax rates across the board, which incidentally is included in the Romney-Ryan Plan, is not a way of giving anyone anything, since the government is merely enabling everyone to keep more of their own money. The dirty little secret is that this is how you grow an economy. When the government confiscates less money from the private sector, the economy eventually finds its footings and will dig its own way out of any hole. I challenge anyone to show me when this form of austerity has ever been implemented and failed to deliver greater revenues and higher levels of economic growth.
Because strait is the gate, and narrow is the way, which leads to life, and few there be that find it. ~ Matthew 7:14
At this point you’re probably thinking, “Well, Bill Clinton raised taxes and cut spending and everything was copacetic.” But according to history, that’s actually incorrect. Although it’s true that President Clinton raised taxes during his first term, government spending also increased, that is until 1995 when his Democratic party lost control of both Houses of Congress. It was actually during his second term when the austerity policy I’m talking about took place. That’s when Republicans passed the Taxpayer Relief Act of 1997, a reconciliation bill that reduced taxes and hence increased the deficit, paired with the Balanced Budget Act of 1997 (H.R. 2014 and H.R. 2015 respectively), each signed by President Clinton. Thus, it was actually tax cuts in conjunction with deficit reduction which produced the boom of the 1990’s, not the Clinton tax hikes.
The only differences between 1997 and today are that the United States wasn’t teetering on the edge of a fiscal cliff in the late 1990’s, and Republicans don’t currently control both Houses of Congress, but the solution to greater revenues, less spending and higher economic growth is the same.
Sophism
Austerity measures are the only way to avoid the bitter lessons of the Weimar Republic, and Zimbabwe. In this sense, serious politicians and government officials recommending the correct form of austerity, a combination of tax cuts and deficit reduction, are among the World’s most rational. But where are they? I actually agree with Mr. Krugman when he infers that the brand of austerity being practiced in Spain, tax hikes in conjunction with spending cuts, is detrimental, but that’s only one of nine possible fiscal austerity combinations, and as shown above -- it's one that doesn’t work. But, although Mr. Krugman has rightly identified the problem, his solution -- printing money, and continuing to borrow and spend -- is even more irrational.
Not all austerity programs are bad. Tax cuts paired with deficit reduction is the only austerity plan that works, and the only one any nation will ever need. Egging on protestors and attempting to create rifts between Germans and Spaniards solves nothing, nor does begging creditors to pour billions of dollars into a bottomless pit. Thus madmen like Mr. Krugman and those swigging from the same jar of Kool-Aid may be viewed as nothing more than facetious enablers of irrational whiners, crybabies and in some cases common criminals.
On June 7, 2012, Fitch Ratings downgraded Spain’s credit rating by three notches from A to BBB, or to just above junk bond status. So Spain skipped A (-), BBB (+) and sank straight to BBB with a negative outlook. This means that its borrowing costs went up, as investors demand higher and higher interest rates to compensate for the increased risk of default. It also means that fewer and fewer investors are inclined to funnel their savings into such improvidence, at least not until they see the fruits of a serious and meaningful austerity plan.
In the meantime, Spain’s loan delinquencies as a percentage of all loans continues to spike, its housing prices continue to deteriorate adding to the spike in loan delinquencies, and its unemployment remains at 24.63% further adding to its woes and the stressed loan market. If Spain follows the advice of Mr. Krugman, and rejects some form of austerity, it will continue on the course of a fourth-rate, junk bond servant, destined to borrow more and more simply to cover its debt service until it is eventually toppled by an adversary, plunges back into the Stone Ages, or otherwise succumbs to extinction.
Wrap
On September 14, 2012, Egan-Jones Ratings Co. downgraded its United States sovereign rating to AA (-) from AA on concerns that the Fed's new round of quantitative easing, or QE3, will hurt the U.S. economy. In a note, the ratings agency said, “From 2006 to present, the US's debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8%. In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5%.”
Technically, the United States is worse off than Spain; the only consolation being a lower unemployment rate. But then again we don’t count all of our unemployed. In the United States persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Thus, when someone is unemployed but wants to work, if they have not looked for work in the last 4 weeks they are no longer counted (i.e. not in labor force). In fact, according to the Bureau of Labor Statistics - Table A-16, a total of 7,018,000 working age persons have dropped out of the labor force since January of 2009. If they were counted, the number of unemployed would be 19,562,000, and the official unemployment rate would be 12.1% (19,562,000 / 161,663,000).
From my perspective, despite all of the distractions, the Romney-Ryan ticket is more serious about tackling the nation’s deteriorating debt and employment trajectories, than the Obama-Biden road show, which continues to make promises it knows it can’t deliver. Obama-Biden had a fair shot and only made our fiscal situation worse than it was four years ago. It was on Obama’s watch that, the United States sovereign credit rating was downgraded for the first time in history (with a negative outlook). Although not every ratings agency participated in the downgrade, those that haven’t are simply waiting for the outcome of the November elections.
What should be clear is that another four years of irrational fiscal policies won’t make things better. There are only so many combinations of fiscal austerity measures, and only one leads to rapid economic growth. The Romney-Ryan Plan, which involves a combination of across-the-board tax cuts paired with deficit reduction fits the bill. In contrast, the Obama-Biden script, which by law is already fixed on a Grecian-Spaniard style combination of tax hikes and spending cuts doesn’t. Vote Romney-Ryan for serious-minded fiscal leadership, or vote Obama-Biden for irrational, Weimarian, sophistic, subordination.
References:
Paul Krugman: Europe’s Austerity Madness - Here’s why the protesters in Spain and Greece are right that inflicting more and more pain serves no useful purpose.
Anthony B. Sanders: Spain’s Loan Delinquency Spike as House Prices, Unemployment Continue to Deteriorate
Photo Credit:
Mount Holyoke College - The photograph shows children playing with bundles of worthless money.
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1 Ekim 2012 Pazartesi
CBO Releases Findings: Obamacare Will Lead to Increased Costs and Decreased Access.
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by Sally Pipes -8/6/2012
The Congressional Budget Office (CBO) just rendered its latest opinion on the cost of Obamacare following the Supreme Court’s decision to uphold most of the law back in June.
The numbers aren’t pretty. Despite breathless media reports of additional “savings,” the government’s bean counters actually exposed several flaws in the law that will, in the long term, lead to higher costs and reduced access to insurance coverage.
The High Court upheld the contentious individual mandate on the grounds that it is constitutional under Congress’s power to tax but allowed states to opt out of Obamacare’s order that they expand Medicaid, the joint federal-state health insurance program for low-income Americans.
The law requires states to offer Medicaid to everyone making less than 138 percent of the poverty line — just over $30,000 for a family of four. In exchange, the federal government covers the cost of the expansion for the first three years — and 90 percent thereafter.
Sounds like a great deal for the states. But the administrative expenses involved in expanding the program will increase Medicaid costs for most states — even during the period when the government foots the bill, according to a new survey conducted by the Government Accountability Office.
Further, the federal “gifts” are only for the “newly eligible.” States would still have to pay for their share of the cost of coverage for those who were eligible for Medicaid before the passage of Obamacare but hadn’t enrolled. An estimated 14 million people fall into this category.
Thanks to the individual mandate, many of these previously eligible people will come “out of the woodwork” to sign up for Medicaid and comply with the law. That would add billions of dollars to already strained state budgets.
It’s this “woodwork effect” that scares states most. And it’s why several states have opted out of the expansion.
Texas Governor Rick Perry says he won’t be party to “bankrupting my state in direct contradiction to our Constitution.” Indeed, Texas would face $27 billion in additional costs through 2023.
Even a number of Democratic governors — in Delaware, North Carolina, Missouri, Kentucky, Montana, and West Virginia — have not yet decided whether to expand Medicaid in line with Obamcare’s dictates.
Virginia Governor Bob McDonnell has said that his state “simply cannot afford this expansion.” The Old Dominion would have to add 400,000 people to its Medicaid rolls.
If Virginia — which recently announced a $129 million surplus — can’t afford it, then how can states with huge deficits, like New York ($982 million) or Illinois ($43.8 billion)?
The rising number of states saying, “Thanks, but no thanks,” to Obamacare’s Medicaid money led the CBO to revise its estimate of the law’s costs. The agency estimates that the opt-outs will reduce federal spending by $289 billion.
Some of the folks that would have been eligible for Medicaid will seek coverage in the exchanges — where it’s 50 percent more expensive than under Medicaid. As a result, federal spending on subsidies for the exchanges will rise by $215 billion.
But only a third of those eligible for Medicaid under Obamacare’s intended expansion of the program will qualify for subsidies on the exchanges. The remaining two-thirds have incomes that are too low, according to the law.
That puts the Obama Administration in the uncomfortable position of subsidizing health coverage for the middle class — while leaving those with lower incomes to fend for themselves.
All told, the Supreme Court decision makes Obamacare $84 billion cheaper — a paltry 7 percent of the law’s total cost. Six million fewer people will be enrolled in Medicaid, and three million more will hit the exchanges. The three million remaining will be added to the uninsured rolls.
Obamacare’s champions have touted its efforts to expand access to health coverage, particularly for those at the bottom of the economic ladder.
The CBO report shows instead that the law subsidizes the health care of the middle class at the expense of those who are poorer — and spends a trillion dollars to do so. That sure doesn’t sound like the answer to our nation’s healthcare woes.
http://www.forbes.com/sites/sallypipes/2012/08/06/the-cbo-just-rendered-its-verdict-on-the-cost-of-obamacare-and-it-isnt-pretty/
by Sally Pipes -8/6/2012
The Congressional Budget Office (CBO) just rendered its latest opinion on the cost of Obamacare following the Supreme Court’s decision to uphold most of the law back in June.
The numbers aren’t pretty. Despite breathless media reports of additional “savings,” the government’s bean counters actually exposed several flaws in the law that will, in the long term, lead to higher costs and reduced access to insurance coverage.
The High Court upheld the contentious individual mandate on the grounds that it is constitutional under Congress’s power to tax but allowed states to opt out of Obamacare’s order that they expand Medicaid, the joint federal-state health insurance program for low-income Americans.
The law requires states to offer Medicaid to everyone making less than 138 percent of the poverty line — just over $30,000 for a family of four. In exchange, the federal government covers the cost of the expansion for the first three years — and 90 percent thereafter.
Sounds like a great deal for the states. But the administrative expenses involved in expanding the program will increase Medicaid costs for most states — even during the period when the government foots the bill, according to a new survey conducted by the Government Accountability Office.
Further, the federal “gifts” are only for the “newly eligible.” States would still have to pay for their share of the cost of coverage for those who were eligible for Medicaid before the passage of Obamacare but hadn’t enrolled. An estimated 14 million people fall into this category.
Thanks to the individual mandate, many of these previously eligible people will come “out of the woodwork” to sign up for Medicaid and comply with the law. That would add billions of dollars to already strained state budgets.
It’s this “woodwork effect” that scares states most. And it’s why several states have opted out of the expansion.
Texas Governor Rick Perry says he won’t be party to “bankrupting my state in direct contradiction to our Constitution.” Indeed, Texas would face $27 billion in additional costs through 2023.
Even a number of Democratic governors — in Delaware, North Carolina, Missouri, Kentucky, Montana, and West Virginia — have not yet decided whether to expand Medicaid in line with Obamcare’s dictates.
Virginia Governor Bob McDonnell has said that his state “simply cannot afford this expansion.” The Old Dominion would have to add 400,000 people to its Medicaid rolls.
If Virginia — which recently announced a $129 million surplus — can’t afford it, then how can states with huge deficits, like New York ($982 million) or Illinois ($43.8 billion)?
The rising number of states saying, “Thanks, but no thanks,” to Obamacare’s Medicaid money led the CBO to revise its estimate of the law’s costs. The agency estimates that the opt-outs will reduce federal spending by $289 billion.
Some of the folks that would have been eligible for Medicaid will seek coverage in the exchanges — where it’s 50 percent more expensive than under Medicaid. As a result, federal spending on subsidies for the exchanges will rise by $215 billion.
But only a third of those eligible for Medicaid under Obamacare’s intended expansion of the program will qualify for subsidies on the exchanges. The remaining two-thirds have incomes that are too low, according to the law.
That puts the Obama Administration in the uncomfortable position of subsidizing health coverage for the middle class — while leaving those with lower incomes to fend for themselves.
All told, the Supreme Court decision makes Obamacare $84 billion cheaper — a paltry 7 percent of the law’s total cost. Six million fewer people will be enrolled in Medicaid, and three million more will hit the exchanges. The three million remaining will be added to the uninsured rolls.
Obamacare’s champions have touted its efforts to expand access to health coverage, particularly for those at the bottom of the economic ladder.
The CBO report shows instead that the law subsidizes the health care of the middle class at the expense of those who are poorer — and spends a trillion dollars to do so. That sure doesn’t sound like the answer to our nation’s healthcare woes.
http://www.forbes.com/sites/sallypipes/2012/08/06/the-cbo-just-rendered-its-verdict-on-the-cost-of-obamacare-and-it-isnt-pretty/
The Role of Government
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The following is my post on The Political Insiders Report today:
“Sometimes you fall off of the ladder…there is a safety net there…liberals tend to believe that the safety net is a hammock, so you can stay there the rest of your life,” Rep. Allen West
It’s hard for me to find fault with the folks taking advantage of the government hammock. Whether it’s the generations of families living off of welfare, capable persons drawing unemployment longer than they need, or the wealthy taking advantage of tax loopholes; it is entirely legal, and human nature after all. The true fault lies with those who make it possible to live at other’s expense. Those who savor the “slavery” of making voters completely dependent for their basic needs because it equates to guaranteed votes.
What is the proper role of government?
Objectivists believe the only role of government is to protect its citizens. A police to protect from criminals, an army to protect from foreign invasion, and courts to protect property and contracts from breach or fraud. However, altruists believe the role extends to caring for those citizens who aren’t capable of caring for themselves. This noble view pervades most of American politics today.
The structure of philanthropy in government.
Two primary beliefs exist on how to go about helpingAmerica’s needy. One side believes in charity while the other in a redistribution of wealth often to fund entitlement programs. The two contrast each other.
As Davies and Antolin state in Friday’s Wall Street Journal, “Charity can only be charity when it is voluntary. Coerced acts, no matter how beneficial or well-intentioned, cannot be moral. If we force people to give to the poor, we have stripped away the moral component, reducing charity to mere income redistribution.”
Certainly, redistributing wealth to the needy in the form of entitlements is an effective form of philanthropy, but what happens when the government runs out of wealth to redistribute? This belief system eventually leads to a nation of poverty. There is an inherit danger in viewing wealth as a finite resource that must be shared. The “trickle down” philosophy is accurate. Just as wealth can be and is created, so too can it be destroyed. Progressive taxation aimed at redistributing wealth to the needy is well intentioned, but eventually succeeds only in destroying wealth and creating poverty.
The private sector does not flourish under high taxation. As Sen. Marco Rubio stated, “I have never met a job creator who told me that they were waiting for the next tax increase before they started growing their business.” And as goes the private sector, so goes the economy. As is evident, the needy suffer more under a poor economy. Unemployment is up, and with it the need for more welfare. Food stamp rolls have met record highs as has “real unemployment”.
The creation of wealth is vital to caring for our needy. As former Omaha Mayor Hal Daub stated, “You need wealth to have charity.” Economic policies that lead to wealth creation, combined with social policies encouraging charitable giving through tax credits not only lead to more effective social assistance, but guarantee the sustainability of that assistance. They do so while respecting the potential of the individual and encouraging the pursuit of life, liberty and happiness.
While entitlement programs destroy personal accountability and breed generations of dependence, charities encourage and motivate the individual to strive to reach their full potential rather than enabling dependence. They provide a true safety net for America’s needy.
The following is my post on The Political Insiders Report today:“Sometimes you fall off of the ladder…there is a safety net there…liberals tend to believe that the safety net is a hammock, so you can stay there the rest of your life,” Rep. Allen West
It’s hard for me to find fault with the folks taking advantage of the government hammock. Whether it’s the generations of families living off of welfare, capable persons drawing unemployment longer than they need, or the wealthy taking advantage of tax loopholes; it is entirely legal, and human nature after all. The true fault lies with those who make it possible to live at other’s expense. Those who savor the “slavery” of making voters completely dependent for their basic needs because it equates to guaranteed votes.
What is the proper role of government?
Objectivists believe the only role of government is to protect its citizens. A police to protect from criminals, an army to protect from foreign invasion, and courts to protect property and contracts from breach or fraud. However, altruists believe the role extends to caring for those citizens who aren’t capable of caring for themselves. This noble view pervades most of American politics today.
The structure of philanthropy in government.
Two primary beliefs exist on how to go about helpingAmerica’s needy. One side believes in charity while the other in a redistribution of wealth often to fund entitlement programs. The two contrast each other.
As Davies and Antolin state in Friday’s Wall Street Journal, “Charity can only be charity when it is voluntary. Coerced acts, no matter how beneficial or well-intentioned, cannot be moral. If we force people to give to the poor, we have stripped away the moral component, reducing charity to mere income redistribution.”
Certainly, redistributing wealth to the needy in the form of entitlements is an effective form of philanthropy, but what happens when the government runs out of wealth to redistribute? This belief system eventually leads to a nation of poverty. There is an inherit danger in viewing wealth as a finite resource that must be shared. The “trickle down” philosophy is accurate. Just as wealth can be and is created, so too can it be destroyed. Progressive taxation aimed at redistributing wealth to the needy is well intentioned, but eventually succeeds only in destroying wealth and creating poverty.
The private sector does not flourish under high taxation. As Sen. Marco Rubio stated, “I have never met a job creator who told me that they were waiting for the next tax increase before they started growing their business.” And as goes the private sector, so goes the economy. As is evident, the needy suffer more under a poor economy. Unemployment is up, and with it the need for more welfare. Food stamp rolls have met record highs as has “real unemployment”.
The creation of wealth is vital to caring for our needy. As former Omaha Mayor Hal Daub stated, “You need wealth to have charity.” Economic policies that lead to wealth creation, combined with social policies encouraging charitable giving through tax credits not only lead to more effective social assistance, but guarantee the sustainability of that assistance. They do so while respecting the potential of the individual and encouraging the pursuit of life, liberty and happiness.
While entitlement programs destroy personal accountability and breed generations of dependence, charities encourage and motivate the individual to strive to reach their full potential rather than enabling dependence. They provide a true safety net for America’s needy.
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