A tip of the hat, and greetings of the season to Bill Keezer for this:
Category: Economics
I, Pencil
Watch it, then send it to your liberal friends.
Could the USA Go the Way of Detroit?
Why not, given the incorrigible stupidity of reactionary liberals? Krauthammer:
But Detroit is an object lesson not just for other cities. Not even the almighty federal government is immune to Stein’s Law. Reactionary liberalism simply cannot countenance serious reform of the iconic social welfare programs of the 20th century. Nancy Pelosi and Harry Reid are pledged to their inviolability. President Obama will occasionally admit that, for example, Medicare cannot go on as is, but then reverts to crude demagoguery when Republicans propose a structural reform, such as premium support for Medicare or something as obvious as raising the retirement age to match increasing longevity.
On the contrary. Obama added one enormous new entitlement (Obamacare) and, in his last State of the Union address, proposed yet another (universal preschool).
Victor Davis Hanson on Generation Screwed
Here. Are the Obaminations of the current administration inadvertently building a libertarian-leaning youth movement that will unseat both the RINOs and the leftists? One can hope.
Many young people voted for Obama because they think him 'cool.' Well, he is one cool dude, no doubt about it, except that the criterion of cool is not germane. Appreciation of that truth, however, tends to come after the bloom of youth has worn off. In the meantime, opponents of nanny-statism need to front a cool candidate. Maybe the vigorous young Rand Paul can supply the cool the youngsters crave. But first they need to learn that they are only screwing themselves by supporting the fiscally irresponsible Dems.
Speaking of fiscal irresponsibility, I was pleased to see that the prolific Hanson has taken aim at Krazy Krugman in Krugman's California Dreaming. See also The Ahistorical Krugman.
'What-me-worry?' Krugman is an easy target, and I land some punches in Left, Right, and Debt and The Household Analogy.
Guns and Pensions
Thomas Sowell talks sense.
Fiscal Irresponsibility as Politically Rational: The Fiscal Prisoners’ Dilemma
Glenn Hubbard and Tim Kane, Regaining America's Balance. Excerpt:
There are two paths toward reducing deficits and debts of the magnitude we face: raising taxes or cutting spending. A balanced compromise would involve some amount of both, but the two political parties face strong electoral incentives to do neither. If Republicans push for reduced spending, they are criticized for taking away the benefits people rely on. If Democrats push for raising taxes, they are decried for swiping workers' hard-earned dollars. Both solutions are seen as taking money away from voters, and are thus fraught with political peril.
Consider the matrix above, in which both Republicans and Democrats in Congress have two policy choices. Republicans always promise lower taxes, so their choice is whether to cut or maintain spending levels. Democrats, in contrast, want to keep spending high, so their choice is whether to raise taxes or keep them low.
A close look at the matrix shows that it is politically rational for the Republicans to maintain today's unsustainable levels of spending when faced with either behavior from Democrats. And, campaign rhetoric aside, that is what they tend to do. Republicans have learned that whenever they actually legislate spending cuts, they are attacked by their opponents and tend to lose elections. They are not keen to do the fiscally responsible thing when the price is giving up power.
Likewise, whether Republicans cut or maintain spending, Democrats are politically better off if they allow taxes to stay low. This explains why, despite President Obama's rhetoric about raising taxes, he and other Democrats have generally refrained from actually doing so, especially at the levels needed to pay for their spending. That the expiration of the Bush tax cuts was postponed until after the 2012 election was not a coincidence.
To be sure, politicians in both parties make noises about good economic choices (from their perspectives) that balance the budget, but their actual behavior is what matters. President George W. Bush oversaw the expansion of spending on entitlements, as well as on defense, education, and other discretionary programs. President Obama serially preserved Bush's tax cuts. Politicians know what is best for the country in the long term, but they have no easy way to change their behavior now during a period of polarization in which the institutions and incentives are set up for imbalance.
This amounts to an institutional failure. For most of the nation's history, the rules of the budget game worked. Today, however, they no longer function. Politically rational behavior is now fiscally perverse. Addressing this institutional failure thus requires changing the rules of game. The only remedy to our political prisoners' dilemma, therefore, is to change those rules so that they in fact rule out structural fiscal imbalance — by imposing painful penalties on lawmakers for failing to budget responsibly.
Bad Economic Reasoning About the National Debt
When I study the writings of professional economists I sometime have to shake my shaggy philosopher's head. Try this passage on for size:
$16 trillion is the amount of Treasury debt outstanding at the moment. The more relevant figure is the amount of debt the federal government owes to people and institutions other than itself. If, for some reason, I lent money to my wife and she promised to pay it back to me, we wouldn’t count that as part of the debt owed by our household. The debt owed to the public is about $10 trillion these days.
What a brainless analogy! Suppose I loan wifey 100 semolians. She issues me a 'debt instrument,' an IOU. Has the family debt increased by $100? Of course not. It is no different in principle than if I took $100 out of my left pocket, deposited an IOU there, and placed the cash in my right pocket. If I started with exactly $100 cash on my person I would end the game with exactly the same amount.
But I do not stand to the government in the same relation that I stand to my family. Suppose I buy 100 K worth of Treasury notes, thereby loaning the government that sum. Has the Federal debt increased by $100 K? Of course it has. I am not part of the government. Whether the government owes money to U. S. citizens or to the ChiComs makes no difference at all with respect to the amount of the debt. The citizens plus the government do not form a "household" in the way my wife and I form a household. Citizens and government are not all one big happy family.
The analogy is pathetic.
The author would have you think that "the more relevant figure" is $16 trillion minus $10 trillion = $6 trillion. False, because based on a false analogy.
This shows how ideologically infected the 'science' of economics is. Only a leftist ideologue could make the collectivist assumption that I have just exposed. The Marxian "From each according to his ability, to each according to his need" is a viable principle at the level of the family, but it is pernicious nonsense on stilts when applied to the state in its relation to the citizenry.
It’s the Welfare State, Stupid
When one reads a piece by Robert Samuleson, one feels oneself in the presence of a clear, penetrating, and honest intellect:
By all means, let's avoid the "fiscal cliff": the $500 billion in tax increases and federal spending cuts scheduled for early 2013 that, if they occurred, might trigger a recession. But let's recognize that we still need to bring the budget into long-term balance. This can't be done only by higher taxes on the rich, which seem inevitable. Nor can it be done by deep cuts in defense and domestic "discretionary" programs (from highways to schools), which are already happening. It requires controlling the welfare state. In 2011, "payments for individuals," including health care, constituted 65 percent of federal spending, up from 21 percent in 1955. That's the welfare state.
Compare Samuelson to the leftist ideologue, Paul Krugman:
It’s not just the fact that the deficit scolds have been wrong about everything so far. Recent events have also demonstrated clearly what was already apparent to careful observers: the deficit-scold movement was never really about the deficit. Instead, it was about using deficit fears to shred the social safety net.
From Samuelson, we learn something. We get facts, figures, cogent arguments. From Krugman, we get an ad hominem attack. The fiscal hawks, we are in effect told, are motivated by a dastardly desire to "shred the social safety net," not by any objective economic considerations. Krugman impugns their motives while ignoring their arguments.
I am not opposed to the impugning of motives in all cases. It is legitimate to do so when the other side has no arguments or has transparently worthless ones. In earlier posts I impugned the motives of those who oppose photo ID at polling places, but only after I carefully argued for such ID procedures and refuted the flimsy 'arguments' of the oppostion.
Go read the two articles in question and decide for yourself who is talking sense.
Why We are Headed for a Fiscal Cliff
A short video. It explains the difference between discretionary and mandatory spending and why not even mandatory spending is covered by tax revenues. Mandatory spending comprises the entitlements and the interest on the national debt. A balanced budget is not possible given the way the government is currently structured. A re-design is needed. It must begin by a posing of the question: What is the proper role of government?
This philosophical question will be neither seriously posed by the people in power, nor answered. And so it is is to be expected that we will go off the cliff. I am talking about the ultimate cliff, not the one coming in early 2013 when $500 billion in tax increases and federal spending cuts are scheduled to kick in.
So you might think that Romney's loss is of no real consequence. It just doesn't matter who presides over the collapse. But if you are headed for a cliff and certain death, would you rather be mounted on a nimble Obama jackass or a plodding Romney elephant? In the long run we're dead. But later is better than sooner. There is more time to prepare.
And there is more time for the owl of Minerva to ascend and survey the passing scene until she too must pass away.
Does Government Create Jobs?
In their last presidential debate, President Obama strangely agreed with Governor Romney when the latter said that "Government does not create jobs."
But of course government does create jobs. There are all sorts of government jobs. That perfectly obvious point was underscored in a recent NYT op-ed piece. So both the president and the governor were wrong to claim that government does not create jobs.
But, as one would expect, the NYT piece missed the real point, which is what the governor had in mind but did not clearly state, namely, that government does not create economically productive jobs.
Where does the money come from to pay government workers? From taxes and loans. Such money is not available for consumption. The economy expands, and jobs are created, when people buy things. The point is made well by Robert Samuelson in Flat-Earth Economics.
So if the Obama Administration claims that it has created x jobs, ask yourself: what sort of jobs? The ones that count, the ones that will have a real effect on expanding the economy, are not government jobs. Private sector jobs are what we need and these are precisely the ones that government cannot create.
So if you have any sense, you will vote for Romney-Ryan.
Left, Right, and Debt
A reader writes, " I enjoy your philosophical and theological views, but unfortunately disagree with your political and economic views. I recommend large doses of Paul Krugman, beginning with Nobody Understands Debt. "
I got a kick out of that because I should think that the febrile Krugman is absolutely the last person to convince me of anything. I tend to see him as living proof that the Nobel Prize, except perhaps in the hard sciences, is a meaningless accolade bestowed by the politically correct upon their own. I consider the man a fool on the level of Nancy Pelosi, Harry Reid, and Joe Biden.
The column cited is one I read when it first appeared. Now, thanks to the reader, I have an opportunity to comment on it. But first we need to back up a step for a wide-angle view. Why is the national debt such a big deal to conservatives, but of relatively little concern to leftists? Dennis Prager provides a cogent answer in his new book, Still the Best Hope (Broadside 2012, p. 29, emphasis in original):
The Left's great fight is with material inequality, not with evil as normally understood. Thus, the Left has always been less interested in fighting tyranny than in fighting inequality. That is why Leftist dictators — from Lenin to Mao to Pol Pot to Ho Chi Minh to Fidel Castro and Hugo Chavez — have had so much support from Leftists around the world . . . .
This explains the Left's relative disinterest in creating wealth. The enormous and unsustainable debts facing the individual American states and the United States as a country from 2009 on have disturbed the American Right far more than the American Left [. . .] The reason is that the Left is not nearly as interested in creating wealth as it is in erasing inequality.
Prager's explanation fits Krugman well. The latter thinks that the focus on deficit and debt reduction is "misplaced." I disagree vehemently. Not only is this a very serious matter if we want to survive as a nation, but also one on which we all ought to agree. Left and Right will never agree about abortion, capital punishment, gun control, and a host of other issues, but one would think that when "money talks, ideology walks." Unfortunately our leftist pals will hold to their ideology even unto fiscal doom.
Krugman's 'argument,' if you want to call it that, consists in an attack on an analogy between individual and government debt:
Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.
This is, however, a really bad analogy in at least two ways.
Krugman's first reason is that families have to pay off their mortgages, but governments don't have to pay back what they borrow. First of all, it is false that mortgage holders have to pay back their loans. One can easily structure a mortgage in such a way that it is held indefinitely and passed on to heirs. One pays interest month by month without reducing the principal. There are also negative amortization loans in which the borrower digs his hole deeper month by month.
Ready for Krugman's second reason? It's a real winner: "Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves."
That's bullshit, which is presumably why nobody gets it except him of the simian countenance. It makes no clear sense to say that the debt is money we owe ourselves. So each of us owes a portion of the debt to every other one of us?
Suppose I decide to invest in treasuries, T-bills, say. I buy 10 at $10,000 a pop. What I have done is loaned the government $100 K. In return I get two things; a safe haven for my money and a bit of interest. There is probably no safer place to park your cash since it is, as they say, "backed up by the full faith and credit of the U. S. government," a phrase that means rather less than it used to, but still means something.
It is the government that owes me the money I lent it. The government, which is not to be confused with the citizenry. Furthermore it owes these debts only to those who loaned the government money by buying T-bills and T-bonds and such. It is simply not the case that we owe that money to ourselves. The government owes it to some of us. Only some of us get a return on that investment, and only some of us help the government out by loaning it money.
Now the interest paid by the government to foreign and domestic bond holders is money that is pissed away and can't be used for constructive purposes. The analogy with the homeowner is apt: money one spends on mortgage interest can't be used for constructive purposes. The truly foolish home buyer overextends himself and ends up losing his house to foreclosure. The U. S. does not of course face foreclosure, but it faces something analogously dire: turning into Greece — or California.
The homeowner analogy is pretty good.
No analogy is perfect, of course. A perfect analogy would be an identity, and you can't compare a thing to itself –except vacuously.
Krugman is a hate-America leftist whose fetishization of material equality blinds him to obvious realities.
Obama: Fiscally Clueless
You say the Republicans are not much better? I don't disagree. But think of it this way.
A jackass and an elephant are heading for a cliff, a fall from which will be fatal. The jackass, being a jackass, is moving faster towards disaster. The elephant is moving slower. You must choose to ride on one or the other. Upon which animal would you prefer to be mounted?
Obama is an utterly clueless jackass. With a 'Ryanized' Romney there is some hope that we can avert disaster or at least postpone it.
The Fallacy of Redistribution
The history of the 20th century is full of examples of countries that set out to redistribute wealth and ended up redistributing poverty. The communist nations were a classic example, but by no means the only example.
In theory, confiscating the wealth of the more successful people ought to make the rest of the society more prosperous. But when the Soviet Union confiscated the wealth of successful farmers, food became scarce. As many people died of starvation under Stalin in the 1930s as died in Hitler's Holocaust in the 1940s. [Professor Sowell is referring to the forced collectivization of the Ukraine. If you want to inform yourself of the horrors thereof, I recommend Robert Conquest, The Harvest of Sorrow: Soviet Collectivization and the Terror-Famine, Oxford UP, 1986.]
How can that be? It is not complicated. You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth — and that future wealth is less likely to be produced when people see that it is going to be confiscated. Farmers in the Soviet Union cut back on how much time and effort they invested in growing their crops, when they realized that the government was going to take a big part of the harvest. They slaughtered and ate young farm animals that they would normally keep tending and feeding while raising them to maturity.
Sowell is right of course. People typically do not allow themselves to be jerked around. If California is not business-friendly, business people will move to states like Texas, and the once 'Golden State' will sink deeper into the mire. (Bill Bennett in a recent speech referred to California as the "The Lindsay Lohan of states.") If you tax me at 100% for any amount earned above $100,000, I will arrange things so that my taxable income will be less than that amount. It is just human nature to resist being screwed.
The current debate about redistribution on shows like the O'Reilly Factor is close to moronic. O'Reilly talks as if Obama is for redistribution while Romney is not. But redistribution has been with us for a long time in the form of a progressive income tax code, and that is not going away any time soon. (And I am not even convinced that it should.) So the issue is not redistribution versus no redistribution. The issue is is whether we are going to have more of it, or less of it, or reduce the rate of its increase.
Under Obama we will most assuredly have more of it, a lot more. This will depress the economy, the national debt will increase even more, and we will be on the way to financial ruin.
Anyone who votes for the fiscally irresponsible Obama is a fool who does not understand his own long-term best self-interest. And anyone who thinks that it doesn't matter who is in the White House is also a fool, despite the fact that Romney is a milque-toast and a wimp.
Never forget: politics is always about the lesser of evils. Better a milque-toast and wimpy businessman who understands how the economy works than a incompetent leftist who doesn't.