Easy Opinions

Mar 28, 2011

Family Budget

Bob: Like the government, I have promised to help out my family members when they retire.
Mike: Why the grim face? How much did you promise?
Bob: About $1,500,000 above my after-tax income of $50,000, while I repay $210,000 that I have borrowed.
Mike: Just break it to them gently.

( This is Version 3 of this post. What changed?After clicking this link, you can come back here with the "Back" button of your browser. )

Spending Cuts of 1.8%

Republicans have approved cutting $61 billion from government spending of $3,500 billion this year, a 1.8% cut. The government accounting year 2010 (the 2010 fiscal year) is the 12 months ending September 30, 2011.

The numbers are huge and hard to grasp.

	$2,200 billion	in taxes received
+	$1,300 billion	of borrowing (the deficit)
=	$3,500 billion	in government spending

The government borrows 60% above its income of $2,200 B.
The government spends 1.6 times its income.
The proposed cut is 4.7% (1/21st) of the borrowed money.

For your reference,

$1 billion =	1,000	× $1 million
$3,500 billion =	3,500,000	× $1 million	= $3.5 trillion

Family Sized

The numbers above are too big to really understand. Here is what our government's spending and financial situation would be when reduced in proportion to the spending of (say) Bob's family:


Bob has	$50,000	of yearly income to spend after-tax.
He borrows	$29,900	more, 60% of his income.
He spends	$79,900	1.6 times his income, not saving anything.
Proposed cut	$1,400	is 1.8% of Bob's total spending,
		or just 4.7% of Bob's yearly borrowing.

Bob's debt is	$210,350	at 2.2% interest, a low current rate.
Bob pays	$4,550	yearly interest in his spending above.

Democrat Bob responds: "No way. I can't live with that drastic cut of $1,400. You are threatening my family. Think of my children!"

The proposed cut is only 1/21st of what is needed to balance the current budget and stop increasing U.S. debt.

Super-Sized Promises

Bob is a soft-hearted and generous guy. He has made additional promises to his parents, uncles, and cousins for Social Security, Medicare, Prescription Drugs, Medicaid, and more. He hasn't yet set aside $1,525,650 to provide the complete funding for those promises. Bob does not want to disappoint or worry his family, so he has not fully explained the situation to them.

Bob currently spends everything he earns and borrows. He pays $4,550 for the yearly interest on his debt, but he is not paying down the balance of $210,350. Amazingly, he is borrowing $29,900 more each year.

Taxes × 1.76

Here is the additional income Bob would need to pay for all of his promises.


Promise	Amount	Income
Entitlements	$1,525,650	$20,342
SS/Med Income		20,000
SS/Med Payments		-33,100
Federal Debt	210,350	772
Borrowing		29,900
Total Extra		$37,914

Current Income		$50,000
Total Needed		$87,914
Multiple of Income		× 1.76

This means collecting 1.76 times as much tax as at present. That huge amount must come mostly from the middle class. Only part would come from the rich.

You might think that a growing economy will make it easier to pay these promises. But, the official government analysis already assumes 3% yearly growth in the economy and taxes. Bob needs 76% more income (tax collections) today, and his total income and payments must increase yearly by 3%.

You can skip these details without missing much.

$1,525,650 is the lump-sum value, earning 3% per year, needed to pay for unfunded Entitlements over the next 75 years. The first payment, this year, would be 1/75th of that amount, $20,342. This is in addition to the funded portion, $20,000 this year. The funded + unfunded need is $40,342. Bob is paying $33,100 of that. Bob needs to save $7,242 more to meet his promises. All payments increase by 3% each year.

The payment of $772, increasing by 3% yearly, is enough to pay off Bob's proportional part of the national debt of $210,350. We assume that debt does not increase yearly. Interest on that debt is already being paid from other borrowing and taxes.

Is it reasonable to suppose that the national debt will not increase? Yes, because we are calculating here the additional income that Bob needs to pay for his promises, stop borrowing, and pay off the national debt.

Last, Bob must have additional income of $29,900 to stop borrowing each year, increasing by 3% yearly. He needs that income because every dollar of that borrowing is now being used to pay for something.

See the Excel worksheet FamBudget.xls for all of the calculations.

Who Will Pay?

In 2006 the the top earning one-quarter of taxpayers paid 86% of all personal income taxes. They paid an average of 16% of their incomes. That is not their top tax rate, but the total part of their adjusted gross income (AGI) paid in income tax. The figures for 2008 are not much different. I haven't done a detailed analysis for those more recent figures.

They are also paying payroll taxes, state taxes, and sales taxes along with everyone else. To collect an additional 76% from them, they would have to pay 28% of their total income toward income taxes alone, and also increasing payroll taxes as explained below.

The lower-earning three-quarters of taxpayers would also have to come up with 1.76 times their current taxes. This applies to their payroll taxes as well as income taxes. The payroll tax rate would go from about 15.3% of salary up to about 26.9%. This would hurt.

See below You Pay All Payroll TaxesAfter clicking this link, you can come back here with the "Back" button of your browser. for more explanation of this.

The 76% increase on business and "other" taxes (about 20% of tax collections) would discourage investment and raise prices for goods. The general public would pay those increased taxes in an indirect way. The government likes to impose indirect taxes which are hard for the average person to understand.

Taking more tax from the economy and from those who are most productive would lower economic output, and would create unemployment and/or reduced incomes. See also the separate post The Deadweight Loss of TaxesEO 12/2008 - The deadweight loss caused by increasing tax rates above current levels may exceed $2 per $1 of revenue increase. When the government collects $1 more in taxes, the economy loses at least $2 in production and jobs. .

Maybe taxes can't be raised enough. The government might find that raising tax rates brings in far less money than the simple multiplication above. The reduced take-home pay and high unemployment rate resulting from high taxes may make those taxes politically impossible.

This comparison of our government's finances to Bob's income, spending, and obligations is not perfect. But, the amounts are proportional to Bob's $50,000 of spendable income.

We and Bob are in deep trouble.

Rising Interest Expenses

Every family meets sudden expenses. These can be catastrophic when a family is living on the edge. We can predict a large increase in interest payments.

Our government debt is $9,100 billion (4.2 times total tax receipts). These are loans made to the government by Americans, foreign individuals, and foreign governments, but not including other parts of the government. For example, US savings bonds are loans to the government. Most loans are made by paying cash for US Treasury bonds. These bonds are promises by the government to pay back a fixed amount of cash in the future.


	U.S.	Bob	Income
Debt and Interest	Billions	$	%

Debt	$9,100	$210,350	421%
Interest at 2.15%	196	4,500	9%
Interest at 3.70%	337	7,800	16%

The US currently pays an average of 2.15% interest on its debt, an historic low. The average rate over the last 30 years has been 6.4%.

Analyst Mary Meeker (below) estimates that the average rate on the debt will be 3.7% by 2016, requiring a yearly interest payment of $337 billion, (an increase of $141 billion, 7% of income). That will increase the financial pressure on the government.

The proportional burden on Bob would be $3,300 more in interest payments, 7% of his $50,000 spendable income.

Probable inflation would produce interest rates that are even higher, and government interest expenses that are higher than estimated above.

For more details, see Debt and InterestAfter clicking this link, you can come back here with the "Back" button of your browser. below.

The Data

Mary Meeker is a partner at Kleiner Perkins, a large and respected venture capital fund. Her work is analyzing and investing in businesses.

She has analyzed U.S finances as she might do for a large corporation. Busines Insider talks about her report A Summary of America's Financial Statements (pdf). A web "slide show" of some of her report is here. My post uses mostly Meeker's figures.

These are charts of U.S. income and spending from page 9 of the report. "B" indicates billions (1,000 million). "T" indicates trillions (1,000 billion, or one million million).

The Figures

The column for Bob is proportional to the data for the United States. US tax revenue is about 43 million times Bob's after-tax income of $50,000. Bob's numbers are rounded to the nearest $50. You can view or download the Excel 2003 worksheet for these figures.


	U.S.	Bob	% of
Family Budget	$ Billions	$	Income
Income to Spend	2,163	50,000	100%
Borrowing	1,294	29,900	60%
Total Spending	$3,457	$79,900	160%
GOP Cut	61	1,400	2.8%
		Of Spending	1.8%
		Of Borrowing	4.7%


	U.S. Tax	Bob	% of
Income	$ Billions	$	Income
SocSec / Medicare	865	20,000	40%
Individual Tax	899	20,800	42%
Other Tax	208	4,800	10%
Corporate Tax	191	4,400	9%
Total Income	$2,163	$50,000	100%
Exclude SSec/Med	$1,298	$30,000	60%


	U.S.	Bob	Multiple of
Promises	$ Billions	$	Income
Social Security	7,900	182,600	3.7
Medicare	22,800	527,050	10.5
Medicaid	35,300	816,000	16.3
Total Unfunded	66,000	1,525,650	30.5
Federal Debt	9,100	210,350	4.2
Federal Pensions	2,100	48,550	1.0
Veteran Benefits	3,700	85,550	1.7
All Other	1,600	37,000	0.7
Total Benefits	7,400	171,100	3.4
Total Promises	$82,500	$1,907,100	38.1


	U.S.	Bob	% of
Spending	$ Billions	$	Income
Defense	694	16,050	32%
Non-Defense	431	9,950	20%
Tarp, Bailouts	152	3,500	7%
Total Discretionary	1,277	29,500	59%
Interest on Debt	196	4,550	9%
Social Security	707	16,350	33%
Medicare + Medicaid	724	16,750	33%
Unemploy't, Other	553	12,800	26%
Total Entitlements	2,180	50,400	101%
Total Spending	$3,457	$79,900	160%

Unfunded Promises

The above "Total Unfunded" Promises are the major promises of our government above any current income from taxes. Repayment of the National Debt is required by legal contract; the others are government programs continued from year to year by Congress. All payments to these programs come from current taxes and borrowing. There are no assets or savings set aside to pay for any of these promises.

Many people believe that trust fund "savings" are set aside for the Social Security program and for Medicare. Actually, those trust funds hold only special US Treasury Bonds. These bonds are promises by the government to pay back cash in the future.

Taxes collected for Social Security are first used to pay current Social Security checks. Remaining amounts have bought those special US Treasury bonds and went into the US Treasury. Those amounts plus borrowing have been spent each year on government activities. The situation for Medicare is similar.

This year, payroll tax collections for Social Security are less than the amounts paid out. The government is "cashing in" some of those accumulated bonds. In reality, the government must now find some more real tax revenues (or more borrowing) to write Social Security checks in full.

No Real Assets

There is no gold, corporate stock, or anything of independent value set aside. There is only a promise from the government to repay to itself the money owed to future retirees. Only higher taxes on the public or our children can supply that value.

This is like an insane person saving up for his child's college education. He puts $100 each Friday into his savings account. Each Monday he withdraws that $100 and spends it on wine and entertainment, but he carefully records in his "college trust fund" what he has taken out. He increases the fake-reality of the fund by adding 3% as interest each year to the total on paper.

When his child is 18, he tells him that he saved $50,000 over the years, plus interest. He only has to pay back what he took out, with the help of his child to supply the money.

Amazingly, this is exactly like the government accounting of the Social Security (and Medicare) trust funds. The funds hold only promises from the government, in the form of special Treasury bonds. The government duly issues additional bonds as interest each year, adding more to the total.

CBO: Trust Funds Are Only Promises

Some people argue that these bonds are real assets, as good as any Treasury bond owned by the public. They indeed would be, if the taxing power of the entire government were not in doubt. The promises of the government are so large that all of its bonds may lose some or all of their value, including the bonds in the Social Security and other accounts. The bonds represent a part of the promise, but they don't help to pay for the promise.

Don't take my word for it. Here is the written statement of the Congressional Budget Office - October 2002 [edited from the Summary]:

The money that the government owes to itself has no impact on the economy because it represents debt owed from one Treasury account to another, mostly held in federal trust funds.
Trust fund holdings are not assets of the government and do not represent money owed to program recipients individually. Payments to Social Security recipients (like other social insurance programs) are based on rules set by law unrelated to trust fund holdings.
A federal trust fund is an accounting device that measures the difference between the income designated for a program and the expenditures made to its beneficiaries. The accumulated balance often represents the future "spending authority" for the program, but it is not a reserve of money for making payments.

The National Debt

Meeker reports the National Debt as $9,100 billion. The usual figure in the news is $14,500 billion. $9,100 billion is the "debt held by the public", the amount of Treasury bonds sold to people outside of the US government.

The higher figure includes "inter-governmental debt", the amount of bonds sitting in trust funds within the government as an accounting device.

$9,100 billion is held by people with a legal, formal right to sue the government for payment. The other $5,400 billion is held by government agencies which are a part of the government. The government can not effectively sue itself.

The $5,400 billion of trust fund debt causes confusion. It totals money collected in the past and long since spent on government activities, without any saving. Including this as part of the National Debt is mostly a bad thing. The fixed, definite quality of that figure gives the impression that "this is what we owe". But, government's promises are not much related to that amount.

Government spokesmen point to that relatively small $5,400 billion, but the unfunded promises are approximately $66,000 billion, 12 times as much, according to Meeker's accounting. Other sources calculate the unfunded promises as $86 trillionConcord Coalition - Stop 2011.org - p.18 to $106 trillionNational Center for Policy Analysis - Figure II

This video clip estimates the unfunded promises of the US at $120 trillion, 8 years of total US production.

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Why Do We Take Politicians Seriously?
02/22/11 - Cafe Hayek by Professor of economics Don Boudreaux

[edited] The Social Security “trust fund” is indeed filled with ample quantities of interest-bearing U.S. treasuries. But, who pays the principal and interest to Uncle Sam when the treasuries are cashed in? Answer: Uncle Sam, who must raise taxes on flesh-and-blood people to get the dollars that he pays to himself, so that he can then pay out promised Social Security benefits.
Promises written to yourself are not assets. They are only pathetic reminders of gross financial irresponsibility.

Government Accounting
An XTraNormal video (2:12) by Prof. Boudreaux.

Fred: You loaned me $10,000. I have $10,000 in bonds in my desk drawer to guarantee that I can repay you.
Mary: What institution wrote the bonds? Are they good for the money?
Fred: I wrote the bonds. I will pay $10,000 to myself when they come due.
Mary: You are an idiot. That is not proper accounting.
Fred: No? It is the accounting our government uses for Social Security.

Obamacare Bails Out Medicare
09/2009 - EasyOpinions
Obama's healthcare reform is a huge increase in taxes combined with rationed medical services.

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Who Pays Payroll Taxes?

Why do I say above that your Social Security taxes would rise from 15.3% to 26.9% ?

The Social Security tax is described as 6.2% and the Medicare tax as 1.45% paid by each of the employee and employer. This description suggests that you are paying 7.65% of your income and that your employer is paying an equal amount.

Actually, you generate all of the wealth that pays your salary and the taxes associated with your employment. The employer writes the check, but you earned that money, and it would be part of your take-home pay if the burden did not exist on your employer. Competition for skills sets salary levels and arranges the maximum you can negotiate as your pay.

Here is a rough example. What would happen if the government charged employers an additional $10,000 per employee as a "social benefits" tax?

If your take-home pay was $50,000, employers would quickly shift to offering you only $40,000. Whatever value you were creating would have to support that extra $10,000 expense. You would get less salary because that extra expense would immediately make you less valuable to the company.

Similarly, your value to your company is currently supporting all of the taxes and expenses associated with your employment. The following is how your employer sees it.

Bob's Yearly Production	$110,000

For the Employer	-30,000
Expense managing Bob	-10,000
Human Resources	-1,000
Medical Plan	-8,000
Payroll Taxes	-4,051	(1)

Bob's Gross Salary	56,949
Bob Pays to Medical Plan	-4,000
Social Security Wages	52,949
Payroll Taxes 7.65%	-4,051	(1)

Bob's Cash Salary	$48,898

The lines marked (1) are the payroll taxes for Bob and his employer. Both of those payments reduce what Bob receives as a cash wage. They are both subtracted from Bob's total production, which has to pay for everything associated with his employment and also for a profit to his employer.

That is how Bob pays for all of his payroll taxes, even though his employer writes a check for him. If payroll taxes go up, Bob's salary will go down to pay for almost all of that tax, including the "employer's part".

See The Economics of Tax Incidence for a more detailed discussion.

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Interest on the National Debt

Our National Debt is $9,100 billion (4.2 times total tax receipts). These are loans made to the government by Americans, foreign individuals, and foreign governments, and not including other parts of the government. For example, US savings bonds are loans to the government. Most loans are made by paying cash for US Treasury bonds. These bonds are promises by the government to pay back a fixed amount in the future.

The US currently pays an average of 2.2% interest on this debt, about $196 billion per year (9% of tax receipts). This interest rate is at an historic low. The average rate over the last 30 years has been 6.4%. Analyst Mary Meeker (below) estimates that the average rate will be 3.7% by 2016, and the yearly interest payments would be $337 billion.

The goverment will pay $141 billion more (7% of income), and Bob would pay $3,300 more in proportion from his $50,000 of spendable income. That will increase the financial pressure on the government and Bob.

The interest rate is not set by the government. It comes from the market price for US government debt at an auction. Yes, the government borrows money by asking a crowd, "What will anyone offer for these Treasury bonds, which will pay back $100,000 in (say) 2 years?". For convenience and efficiency, only certain companies are allowed to buy at these auctions, and the auctions are done electronically. Most bonds are bought for clients.

When there is low inflation, and depending on the world economy, buyers will pay about $96,000 for a $100,000 bond due in 2 years. That is our current situation. This gives the buyer a $4,000 profit in two years, about 2% interest on his investment.

These days, bond buyers see the US government borrowing huge amounts, collecting less tax, having high unemployement, and putting money into the economy as "stimulus". Analysts fear that there will not be enough tax revenue to pay back the huge debt. They expect the value of money to fall as the government prints more money to pay back what it borrowed. So, they want more profit from Treasury bonds to replace the declining value of the dollars they will receive in 2, 5, or 10 years.

When buyers offer only $88,000 for a 2-year, $100,000 bond, the interest rate is about 6%, $12,000 over two years.

Government debt is made up of bonds that come due over time periods from a few months to 10 years or more. The government must pay back the short-term bonds first, and must borrow more to continue (refinance) the debt. As the interest rate increases, short-term debt will first be refinanced at the higher rates. In the following years, all of the debt will be refinanced at higher rates. The average cost of maintaining the National Debt will increase greatly over time.

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Meeker's Report

I used the following parts of Mary Meeker's financial report in this post. Page numbers are to the document, not the PDF display pagination.

9. Pie charts showing income, spending, and entitlements (promises).

71. The effective interest rate on Treasury debt is 2.2% in 2010.

76. There is no economic value in the Social Security trust funds.

77. 08/2004 - Statement by the Congressional Budget Office (CBO): "The Trust funds are basically an accounting device. Their balances provide no resources to the government for meeting future funding commitments, even if they are "invested" in Treasury securities.

82. Definition of the unfunded liabilities of Social Security, Medicare, and Medicaid.

107. Overview of healthcare spending.

143. Effective interest rates are at an historic low of 2.2% in 2010, vs. the 30-year average of 6.4%. The rate will rise with the federal funds target rate and long-term Treasury yield as our economy recovers. Long-term debt (10+ year bonds) in 2010 is only 10% of total debt. The average interest rate on US debt will change quickly following changes in interest rates.

166. Effective interest rates are 2.2% in 2010, and will be 3.7% in 2016.

465. Appendix

Links

Federal Hospital and Medical Insurance Trust Funds
8/5/2010 - 2010 Annual Report of the Board of Trustees

Tax Burden of Top 1% Exceeds Bottom 95%
7/29/09 - Tax Foundation - 2007 figures

Income tax paid by AGI threshold
National Taxpayers Union - Tax years 1999 to 2008

Normal Interest Rates Would be a Disaster for U.S. Debt
03/14/11 - LesJones.com
The US currently pays about 2%. If rates were to return simply to that historical average, it would involve an increase to our overall interest bill of $640 billion — to be paid immediately. “An impossible situation,” in US Sen. Coburn’s words.

Social Security and Medicare Liabilities
06/11/09 - National Center for Policy Analysis - NCPA
The estimated Social Security and Medicare liability as of 2009 is $17.5 trillion.

Social Security Administration Trust Fund Assets
01/31/11 - Social Security Administration On-Line
The Social Security trust fund holds $2,600 billion in special US government bonds.

The 2010 Budget (pdf) - By the Concord Coalition
Many clear charts explaining the US budget, showing debt and spending in 2010, and estimates for the future.

FamBudget.xls - 03/2011 - Excel 2003 worksheet.
The calculations for this post. You are welcome to open or download it.

2006 Tax Comparisons - 04/2009 - Easy Opinions
Analysis of who pays taxes based, on income slices, from the US 2006 tax data.

The Economics of Tax Incidence
08/2010 - Economists View
The government makes businesses pay taxes, but where does the money really come from? Almost all of it comes from offering lower salaries or charging higher prices. The working public pays those taxes, one way or another, and their real prosperity suffers.

The Deadweight Loss of Taxes - 12/2008 - Easy Opinions
The deadweight loss caused by increasing tax rates above current levels may exceed $2 per $1 of revenue increase. When the government collects $1 more in taxes, the economy loses at least $2 in production and jobs.

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Version 3 - What Changed?

The GOP in Congress settled on a $61 billion proposed spending cut, rather than the $70 billion used in Version 2.
Version 2 calculated a need for 2.6 times current tax revenue to pay for all promises. This post calculates 1.76 times current tax revenue.
This post uses a consistent "3% interpretation". It calculates what tax revenues would need to be today, increasing at 3% yearly, to pay the unfunded promises of the next 75 years. The government and independent analysts use this same interpretation (a 3% discount rate) to calculate the lump-sum amount today that represents government promises in the future.
A payment that increases at 3% yearly over 75 years can start at much less than a fixed payment (like a mortgage payment) that pays off the same amounts in the future.
This post eliminates some double-counting of future unfunded liabilites. Unfunded liabilities in Social Security and Medicare are estimated above the current revenues from dedicated payroll taxes.
The government is currently paying more for Social Security and Medicare than is collected. So, I assume that the overage is currently applied toward some part of the unfunded amount estimated by analysists. This reduces the remaining unfunded liability which will require increased tax revenue.
More of the numbers are easier to read and compare in charts, along with general editing, additional sections, and a list of links and referencees.

Edit History
02/21/11 - V1 Posted
03/03/11 - V2 Expanded without change in figures
03/28/11 - V3 Expanded, new figures as described above

Jan 23, 2011

Metaphorically Speaking

Progressive: Your military metaphors break civility and encourage violence.
Conservative: Your side uses them all the time.
Progressive: We are fighting in a revolution to break the power of our capitalist oppressors. So, we're justified.

MEMO

From: Right-Wing Cabal Central
To: You know who you are

The ~~forces~~ discussion groups of the Left are leading their most effective ~~attack~~ ~~advance~~ pressure ever. Our military language, metaphors, and symbols are under ~~attack~~ respectful pressure. Soon they will be removed from us. Without them, we will be unable to create any enthusiasm, and will be swept before the ~~Leftist~~ Progressive ~~advance~~ insistent argument.

Without "target", we will only be able to "direct our attention to". Without "attack", we will be left with "raise our concerns in respectful ways". We will sink below the waves of hyper-civil discourse, while our ~~opposition~~ friends of differing viewpoint use these same ~~weapons~~ symbols against us with ~~devastating~~ more than a bit of uncomfortable effect.

We have prepared for this eventuality. We now implement Contingency Plan 36.

Turn your official word processor to mode "P36". All uses of "target", "attack", "oppose", "crush", "eliminate" and numerous other military metaphors will automatically be replaced with "bunny". This will seem awkward and ungrammatical at first, but you will quickly adapt.
Instead of crosshairs, circles, pointers, or sharp angles, use the supplied cute bunnies for graphic emphasis.

Remember also that one of the allowed meanings of bunny is "to love and be best friends with", according to context. Report this meaning if you are captured and questioned.

Thus rhetorically prepared, we will go forth to bunny those who disagree with us politically.

Remember the words of Winston Churchill at a time of great challenge (as converted by P36): "We shall respectfully hinder the invasion of our island, whatever the cost may be, we shall bunny on the beaches, we shall bunny on the landing grounds, we shall bunny in the fields and in the streets, we shall bunny in the hills; we shall never surrender."

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Another False Narrative About the Tucson Shooting

01/16/11 - Legal Insurrection gives the context for my post above.

[edited] The first false narrative was that Sarah Palin, Tea Parties, and conservatives were directly or indirectly responsible for the shooting. That narrative has been thoroughly debunked in the past week, although writers such as Paul Krugman and political figures such as Clarence Dupnik cling to the fantasy.

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Mobilizing the Jobless
01/23/11 - The Nation by Frances Fox Piven
- Via The PJ Tatler and Instapundit

Piven is an intellectual beacon for the Progressive movement. Her call for violence is Progressive, unless there is widespread condemnation of her advice.

There is widespread Progressive and liberal criticism that metaphors and symbols used by conservative speakers must be stopped, because such metaphors supposedly, might encourage violence. In contrast, direct calls for violence by Progressive leaders are acceptable, even when the call is to repeat violence which has already happened.

Piven [edited]: Local protests have to accumulate, spread, and become more disruptive, to create serious pressures on national politicians.
An effective movement of the unemployed will have to look something like the strikes and riots that have spread across Greece in response to the austerity measures forced on the Greek government by the European Union. Or, they will have to look like the student protests that recently spread with lightning speed across England in response to the prospect of greatly increased school fees.

The British and Greek protests were violent, and riots are violent by definition.

Three Reported Killed in Greek Protests
05/06/10 - New York Times

[edited] ATHENS — Swarms of violent groups in the city center overtook a general protest against austerity measures. Police report that demonstrators hurled gasoline bombs, setting fire to a bank building and killing three bank workers.

British protests over increased tuition turn violent
11/10/10 - Deseret News

[edited] LONDON — Demonstrators protested government proposals to cut education spending and steeply increase tuition for university students. The demonstration turned violent when protesters attempted to storm the building that houses the Conservative Party.
The protesters scuffled with police officers, set off flares, burned placards, threw eggs, bottles, and other projectiles, and shattered windows at the building. A small group of demonstrators, some wearing ski masks, climbed to the roof of a nearby building, waved anarchist flags, and chanted "Tory scum."

Jan 3, 2011

Titanic

Director: Our new carbon regulations go into effect today. A great day. All of those old power plants will either clean up or shut down.

Assistant: With permission. Many of them say these regulations go too far. They don't want to invest more when the Agency is suing them. They will probably shut down.
Director: Good riddance.

Assistant: What will their workers do?
Director: Anything they do will be better than working for evil. Anyway, that is the business of the Department of Labor.

Assistant: By chance, do you know where our building power comes from?
Director: No, why do you ask?

Consider these scenes from the movie Titanic.

Ismay (imperious president of White Star Lines): So you've not yet lit the last four boilers?
Captain: No, I don't see the need. We are making excellent time.
Ismay: The press knows the size of Titanic. Now I want them to marvel at her speed. We must give them something new to print! This maiden voyage of Titanic must make headlines!
Captain: Mr. Ismay, I would prefer not to push the engines until they've been properly run in.
Ismay: Of course, I'm just a passenger. I leave it to your good offices to decide what's best. But what a glorious end to your final crossing, if we were to get to New York on Tuesday night and surprise them all! Make the morning papers. Retire with a bang, eh E.J.?
Captain: (nods reluctantly)
Ismay: Good man.
- -
(The Titanic has hit an iceberg. The Captain reviews the damage.)
Ismay: Most unfortunate, captain!
Captain: (perspiring and trembling) Water fourteen feet above the keel in ten minutes. In the forepeak, in all three holds, and in the boiler room six.
Ismay: When can we get underway, damnit!
Captain: That's five compartments! She can stay afloat with the first four compartments breached, but not five!
(pause) Not five. As she goes down by the head, the water will spill over the tops of the bulkheads at E deck from one to the next. Back and back. There's no stopping it.
Smith: The pumps... if we opened the doors...
Captain: The pumps buy you time, but minutes only. From this moment, no matter what we do, Titanic will founder.
Ismay: But this ship can't sink!
Captain: She's made of iron, sir! I assure you, she can and she will. It is a mathematical certainty.

Many people see the prosperity of the US as a given. They think many things. That we float on air because of luck, or location, or whatever. That one person earns more money than another because he is only lucky or privileged. That this lucky and undeserved wealth should be taken in taxes and redistributed. That businesses can be restricted at will, and can be made agents for the social good, in detail.

They believe that our country can't sink, no matter what laws or policies are implemented. But, the iron laws of incentive, energy, and economy cannot be abolished. People will not work hard if their income is taxed away. Investors will not risk their money if they cannot make more money. Great doctors will not work in a profession that requires half of their time to be devoted to paperwork at no benefit to the patients.

Our great ship can sink. It is kept afloat by well organized effort and private initiative. It will float for a while as damage increases. We are floating now at a tilt, after reckless government policies created more housing than people could pay for. Now we are all paying. How much more arbitrary and wishful policy will the government impose? Flood the fifth compartment, and our country will sink. It is a mathematical certainty.

- -
Caring and Reality

A conversation in San Francisco.

[edited]: I pointed out that California and San Francisco were both hemorrhaging money, destroying jobs, and were fundamentally unsustainable systems.
She said “I know, I know. I’ve heard all that. But, you know, I just love it here so much and I don’t want anything to change. Something will come up and it will get fixed. I just have to believe it.”

- -
And, Best of All, It's FREE
01/01/11 - Insure Blog

The government has declared that certain unproven treatments for autism are now covered by health insurance, up to $40,000 per year in each case. But, care is not free, and the providers will be paid. All people buying insurance will pay the providers through increased premiums and taxes.

This is just one cause for insurance premiums to go up. If you think that insurance benefits are free, to be mandated by the government, then you might think anything. You might think that iron will float regardless of the damage to the ship.

- -
The Wreck of the Edmund Fitzgerald
01/27/11 - A Brief History
Video (6:38) and song by Gordon Lightfoot.

The S.S. Edmund Fitzgerald was an ore carrier, 729 ft long, 75 ft wide, weighing 13,632 tons empty. That is big. It broke up and sank in a storm on Lake Superior on November 10, 1975. All 29 of its crew were lost.

Large, stable, systems can be broken by the chance forces of nature. You never know. Prudent men manage with a wide margin of safety; even then, it may not be enough. So, it is troubling that our politicians are managing our country at the edge of stability. We are currently in a storm, and we don't know what will be lost.

Dec 9, 2010

Property and Pigs

Official: I see that you have a large income. We need more of it.
Mike: I work legally for my income and I pay 35% at the top tax rate. Isn't that enough?

Official: The economy is bad now. We need to take your money and pay other people. They will spend it and improve the economy.
Mike: Why do you think the economy will improve?

Official: 10 years ago the top rate was 39.6% and the economy was good.
Mike: Those things aren't related. How would higher tax rates produce a growing economy?

Official: I don't have time to discuss philosophy with you. You have the money. We want the money.

Property ...

12/09/2010 - Neo-Neocon [edited]:

Dowd: It’s easy to explain to Americans in distress that the protection of vast fortunes should not be the priority of government.

That may be the most revealing sentence in Dowd's column. Dowd seems to imply that an income of $250,000 a year is vast wealth. Given the circles in which she moves, does she believe that?
More importantly, a main function of government is to protect the property of everyone. Wealth belongs to the person who earned it, if that wealth is amassed without robbing anyone or breaking any laws, whether the wealth be vast, middling, or small.
The rich pay taxes, as well they should. But there is nothing special about being rich that entitles others to take more and more of their money just because those others are "in distress.” A government is in big trouble when it sees the money of the rich as not worthy of being protected, and even as fruit ripe for the picking.

... and Pigs

From a comment by Artfldgr: How to Catch Wild Pigs [edited]:

An exchange student explained that he had been shot while fighting communists in his native country. They wanted to install a communist government. In the midst of his story he asked "Do you know how to catch wild pigs?" He explained that this was not a joke.
Put corn on the ground in the woods. The pigs will come every day to eat the free corn. When they get used to that, put a fence along one side of the area. When they get used to the fence, they will resume eating the corn. Then, put up another side of the fence. They will get used to that and resume eating.
Continue until you have all four sides of the fence with an open gate. The pigs will soon come through the gate to eat. Slam the gate on them, and catch the whole herd.
Suddenly, the wild pigs have lost their freedom. They will run around and around, but they are caught. Soon, they will go back to eating the free corn. They are used to it and have forgotten how to forage for themselves, so they accept their captivity.

- -
Public Tax Meeting - We Voted On It

Are taxes fair just because the majority voted? The social compact of the United States is for economic and personal freedom. The Constitution is not a suicide pact nor an agreement that the government can take what it wants.

The Congress has discovered (for the moment) that it can issue unlimited guarantees and borrow unlimited amounts. This does not give the Government moral authority to exploit those loopholes. This cannot lead to a better society, because the government must take from some and give to others, without creating a stable, prosperous society.

The government says that its deficit spending is "stimulus", but this is an excuse for paying supporters. The government will levy higher taxes on the people who organize jobs in the private sector, to pay back the borrowed money with interest. The private sector knows this, and refuses to work harder only to see their incomes taxes away. That is one cause of our jobless, stagnant economy.

Would you want to work hard for a better future, and then have the government decide you were too successful? With a government like that, who needs robbers?

Dec 7, 2010

Your Dog Owns Your House

Bob: You put out the fire. I can't thank you enough.
Official: Hand over the keys. We own that house now. It would have burned to the ground without us.
Bob: But, I already paid taxes for your help.
Official: I apologize. You have a point. Instead, pay us in tax half of what you produce. That is for our effort in providing all of our vital services.

Your Dog Owns Your House
April 2002 - Econlib.org by Anthony de Jasay
- Via Cafe Hayek

Jasay presents and then criticises the following flawed argument for government redistribution of wealth and control of all property and business [edited].

Your dog owns some part of your house. This is obvious when you consider the ethics and economics of redistribution.
Your dog may have repeatedly protected your possesions from being stolen. The actual value of your home minus its unguarded value is the contribution of your dog, even if not exactly known.
We might consider: who owns anything? The fire brigade keeps your house from burning down, and deserves some ownership of your house. The house would be worth much less without water and electricity, so some value can be assigned to the utility companies. And, without the protection of society, you would have nothing.
Your house and other possessions really belong to society as a whole, and so do the possessions of everyone else. Everybody has a rightful stake in your holdings and you have a rightful stake in everyone else's holdings. Society is alone entitled to decide how big everybody's stake ought to be, to take from Peter and give to Paul, and to regulate production, commerce, and consumption.
Here is some contemporary thinking [edited]:
A medical researcher might have worked terribly hard to discover something of great commercial value. But, who trained him? Who worked before him to make the discovery possible? Who built, operates, and pays for the lab in which he worked? Who maintains the enduring social institutions that give him commercial opportunities? He has cleverly exploited the social framework, but he has to thank that framework."

Why the above argument is wrong ...

Jasay presents reality and the flaws in the above argument.

A minor point. You cannot owe a debt to a "framework"; it is not a natural or legal person. "Institutions" do not act, and "society" has no mind or will, and makes no contributions. Only people do these things. You cannot assign credit for accumulated wealth, current production, and well-being to entities that have no mind or will. Individuals have a mind, but not a collection of individuals.
The major point. All contributions by others to building your house were paid for at each link in the chain of production. All current contributions to its maintenance and security are likewise being paid for. Value has been and is being given for value received. That value is not always money and goods, but is sometimes affection, loyalty, or duty. In the exchange relation, a giver is also a recipient, and the reverse.
In a voluntary exchange, the parties are quits after each side has delivered and received the agreed contribution. Seeking to credit and debit them for supposed outstanding claims is double counting.

Cooperation and Price

People exchange things in cooperation, and they voluntarily place a value on what they exchange. The exchange creates value for both sides.

Say that I start with two toasters and you have 40 loaves of bread. After I trade you a toaster for 20 loaves, we both go home to have breakfast toast. Our cooperation and trade has made us both better off and has created value for us. This is the basis for all specialized production and trade.

At the extreme, I might have been willing to trade two toasters for the bread, and you might have been willing to trade 40 loaves for a toaster. But, we don't hold out for the extreme, because each of us is free to walk away and find a better deal. Other people make toasters and bake bread.

A socialist says "I'm from the government. We provide protection to you, so we have a right to everything that you produce. Without us you would be nothing." This denies your individuality and personal worth. You have the natural right to find your protection from private sources or a different government. You have the natural right to assert that you do not owe the government everything merely because it provides a vital service.

Say a man points a gun at you and declares: "Believe me, you will be worth nothing if you don't hand over the money. This contribution to me will make you better off. It is well worth it." This is a crazy argument supporting a crime.

How is this different from a government official saying: "Believe me, we will put you into jail unless you give us half of what you produce. This contribution to us, I mean society, makes your life possible. We need the money to provide vital services to you. Anyway, we voted on it."

A free people owe each other the option to walk away and to make better arrangements in their life whenever it is at all possible. They owe each other cooperation which is determined by competition, not by the highest price that a person would pay at the extreme. If at all possible.

- -
Public Tax Meeting
09/2009 - EasyOpinions
Most of the citizens in a small town visit the richest man in town to ask for more help. They say it is only fair. After all, they voted on it.

Nov 22, 2010

The Five Stages of Understanding the TSA

Fred: I loved flying. I wanted to fly everywhere.
Mike: That was before the TSA.
Fred: I can't change the TSA. I must accept it.
Mike: Maybe you should change the government that created the TSA.
Fred: That hope supports my will to go on.

Psychologist Elisabeth Kübler-Ross described the five stages of grief when coming to understand and accept a great loss. This process may help to accept the Transportation Security Administration.

Denial: This can't be as stupid as it seems. The TSA must have thought about this, and it must have come to a sensible determination of what is needed for our safety. I will show that I am strong by complying with the rules.

Anger: This is so degrading, useless, and a waste. Why me? It is obvious that I am not a terrorist. I'm travelling with my family. My 3 year old isn't a terrorist. Don't they have eyes, or a bit of common sense? What is the sense in these rules? I'm flying from New York to Kansas, for crying out loud.

Bargaining: OK, I'll go through the machine. Just don't pick me out for special treatment. If I'm very cooperative, I can hold on to my 3 year old, right? And you won't fondle her, right? I'll give you my toothpaste if you let her keep the teddy bear, right?

Depression: This is terrible, but what can I do? I will comply. I will just think happy thoughts as (ugh, oomph) he does what is required, and not more I hope. Is anyone looking? It doesn't really matter. This will all be over in a little while. I can't do anything about this. I will just hope that they improve their policy in the future. I'll wait. It might get better, or maybe not, who cares.

Acceptance: I see. The TSA is part of bigger government policy. Beyond the TSA, there is a government that wants to do so much good. And, now they are doing it to me. I wanted a government which would "nudge" people into proper choices. I now see they have that power, and no restraint.

They won't stop themselves, and I don't have the power to stop them. Even "we" don't have that power for now. My concern can't be just the TSA. I must be concerned about government power in general.

This is an example of what the government is willing to do to thousands of citizens in the open. What must government agencies be doing behind the scenes in thousands of ways?

I must endure the TSA for now. My fellow citizens must endure all of those government agencies for now. If I accept that government always goes too far, I will have the courage to take away most government power. Instead, I will support policies that I can accept or reject as an individual. I want a choice other than government management, and I will support politicians who will limit the government.

Seriously

The TSA is over-defending against visible, political threats. They are not motivated to do things more efficiently or to guide the public to a rational evaluation of threats. So, the expense for "security theater" grows without limit, as real safety remains constant. They are always fighting the last threat.

A bureaucrat has only one fear, that he will be responsible for the same attack twice and be fired. He can spend any amount of money on any number of different failures without penalty.

Front-facing TSA security looks for things, not to identify people. Even pilots are searched. The point is, the TSA doesn't know that the person in the uniform is really a pilot. They consciously ignore any information such as country of birth. They explain that identification cards can be forged or stolen.

The approach in Israel is to examine each passenger for identiy and demeanor. That system has done a great job without strip-searching everyone in line.

TSA's double standard
11/22/10 - Salon.com. The TSA relies on ID cards when it applies security to airfield workers.

[edited]: All airfield workers are fingerprinted, checked for a criminal background, and checked against terror watch lists. They are subject to random physical checks by the TSA.
However, a Kennedy airport worker told me: "All I need is to swipe my Port Authority ID through a turnstile. The door to the 'sterile area' is not watched by TSA or any hired security. I have not been randomly searched in three years. We only see TSA people when they get food at the cafeteria."

Time to abolish the TSA as we know it
01/07/10 - Washington Examiner (Search for $7 billion)

[edited]: One concerned bystander in Newark, N.J. told an (absent, sleeping?) TSA worker that someone just walked past him when he wasn't looking. That forced 10,000 people to go back through a security line and shut down air traffic all along the East Coast.
Jeffrey Goldberg demonstrated that anyone can print a fake boarding pass and carry a bottle labeled "saline solution", then enter our "secure" terminals with dangerous chemicals.

Airport Security: Bin Laden's Victory 03/03/10 - Forbes.

[edited]: We have paid hundreds of billions of dollars in lost time and productivity.
I am willing to go through some inconvenience and expense to stay safe. But we have to ask:
• Are all these extra security policies keeping us any safer?
• Assuming yes, are they worth the time, hassle and cost? Could something else be done without so diminishing our productivity [and personal liberty -ag] ?

Yearly Cost of Airline security

Passengers: 615 million
TSA budget:  $7 billion
Passenger Waiting time at $30/hour: $20 billion 
Personal "cost" of scanning and searching: ?

Direct cost per passenger:   $7 B / .615 B  = $11.38
Including indirect costs :  $27 B / .615 B  = $43.90

Expert Bruce Schneier: TSA Scans Won't Catch Anybody
11/19/10 - Popular Mechanics interviews Bruce Schneier [edited]:

PM: Has there been a case since 9/11 of an attempted hijacker being thwarted by airport security?
Schneier: None that we've heard of. The TSA says "Oh, we're not allowed to talk about successes." But, they talk about successes all the time. If they had caught someone, especially during the Bush years, you could be sure we'd know about it. That means there weren't any. Because the threat was imaginary.
It's not much of a threat. As excess deaths go, it's way down in the noise. More than 40,000 people die each year in car crashes. That is a 9/11 every month. The threat is highly overblown.

Most of the costs of airport security "theater" would be better spent on anti-terror intelligence. That would make us all more secure from all types of possible attack.

Bruce Schneier has collected links to his posts about the TSA and airline security. Some of the links:

• Airport Pasta-Sauce Interdiction Considered Harmful
• The TSA's Useless Photo ID Rules
• Airline Security a Waste of Cash
• Airplane Security and Metal Knives
• Interview of TSA Director Kip Hawley (2007)

The Brains of TSA

An anecdote about a past head of the TSA, Kip Hawley. A long line for food at a barbeque stumped him. How about those long TSA lines at the airport?

Nov 20, 2010

Health Insurance Thirst Mandate

His Benevolence: I have decided to banish thirst from the land.

Advisor: Of course Sire. Tell me more.

His Benevolence: All health insurance will henceforth include unlimited purchases of refreshing drink, like Coke, Pepsi, and 7-Up. The peasants will slake their thirst and be reimbursed by the insurance companies. No co-pay.

Advisor: Your name will be legend. Sire, will you be paying for this bounty?

His Benevolence: The insurance companies will pay.

Advisor: Yes Sire. To do so, they will have to collect more from the peasants. Probably much more, to satisfy the peasant's unbounded thirst. Will you be lightening your taxes?

His Benevolence: Shall you feel the whip? The taxes remain.

Advisor: Of course Sire. The peasants will have to do their best in their gratitude.

His Benevolence: Whatever. Let it be so. I now grow tired of this subject.

Advisor: I will inform the scribes.

- -
Medical Necessity vs Mandates
11/18/10 - InsureBlog
Washington state mandated birth control as "a medical necessity" to be covered by health insurance. So, premiums for everyone will go up to pay for the additional services.

- -
Free Birth Control
07/26/11 - John Goodman's Health Policy Blog

Free birth control isn’t really free. It will raise insurance costs. How mandates for free services work in reality.

[edited, restated]: New individual policies sold under ObamaCare would offer new benefits used by more participants. This would increase the average premium by 27-30%, assuming other factors are constant.
The new coverages will cost 18-21% in added premium, and lowered cost-sharing (no copay) will increase use of these services for an additional 9% in premiums.

- -
Company Paid Health Insurance is Part of Your Salary

People are already personally paying for their "employer-paid" insurance. They don't buy it directly so (1) it doesn't attach to them when they change jobs, (2) and they can't shop for the insurance they might want.

Nov 14, 2010

Fed Imposes $600 Billion Tax

Fred: I see you collect coins.
Mike: They are more valuable when more rare.
Fred: What if the government produced some more of the rare ones, so you couldn't tell the difference?
Mike: They would be devaluing the coin market. I would lose money.
Fred: You can relax. The government is only creating more dollars.
Mike: Bummer! I collect dollars too.

Quantitative Easing is a $600 Billion Tax Increase
11/13/10 - Chicago Boyz by Shannon Love

[edited excerpt]: The Fed (Federal Reserve Bank) is taking (stealing) $600 billion dollars of real value from your pocket and using that value to buy US Treasury bonds. This funds the Federal government without saying the word "tax".
The transfer of real value goes from You, to the Fed, to the Government. It’s a damn tax increase craftily carried out using the finance system.
Instead of taxing just American citizens or those doing business in America, it taxes everyone who holds either dollar bills or bank accounts denominated in dollars.
Worst of all, it’s stupid. You can’t fix the economy by tricking people into taking economic action against their own self-interest

Money is a Bit Mysterious

Money is hard to understand because it does not really represent a specific, real value. You can exchange it for many things, but you don't have a guarantee about what it will buy. For example, you can use money to buy a coffeemaker. You will have a choice of many prices and styles in a free market, but you have no guarantee that you can buy what you want at the price you expect.

Money can keep a constant value if it is treated with respect and honor by the government and banks which create the money.

The exchange of money and goods in a free market is a bit mysterious. This exchange is the result of the productivity and preferences of millions of people. Pure reason does not tell us what prices should be. But, we observe that money and goods settle into a balance (an equilibrium) where prices and preferences are fairly stable.

Nov 11, 2010

Eliminate Earmarks

Lobbyist: Earmarks of $16.5 billion are a tiny part of the deficit, about 1%.
Congressman: Yeah, I'll just take a tiny $20 million for my friends and myself.

Eliminating Earmarks
11/10/10 - Cato@Liberty by Jim Harper

[edited]: Earmarks are not a huge part of the federal budget, but we should end them. Senator Tom Coburn (R-Okla.) calls them a “gateway drug to federal spending addiction,” which is a folksy way of talking about political “log-rolling.” Former Congressman Joe Scarborough (R-Fla.) has seen it first-hand. He explains (video 4:00) how House and Senate leaders use earmarks to buy votes on legislation they want passed.
If earmarks go away as a tool for wheeling-and-dealing in Congress, members and senators will be less likely to sell out the country as a whole with bloated spending bills and Rube-Goldberg regulatory projects for the benefit of some local interest or campaign contributor.

- -
Earmarks Are the Gateway Drug to Big Government Addiction
11/22/10 - Cato@Liberty by Daniel Mitchell
See also the 5:40 video at the link.

For Earmarks

Washington Post by Mark Greenberg [edited]

The $16.5 billion Congress spent on earmarks in fiscal year 2009 is only about 1% of the $1.4 trillion deficit in 2009. [About 1/1000th of total yearly spending.]
Party leaders must appeal to lawmakers’ interests as well as their principles to get votes. They must offer incentives like earmarks to win votes on difficult issues.

An amazing argument. Party leaders need earmarks to buy the votes of congressmen where reason and principle are not enough motivation. Probably the fundamentals of the proposed law are lacking. Earmarks keep congressmen from much caring.

Against Earmarks

Daniel Mitchell [edited]: Earmarks increase indirectly the upward pressure on federal spending. Lawmakers support their party leaders on the spending committees in order to get earmarks. Earmarks seduce members into treating the federal budget as a good thing to be milked for their state and district projects.
Yes, it is possible that congressional leaders will use earmarks to pass legislation shrinking the burden of government. I’m not holding my breath.
Earmarks are utterly corrupt, although legal. They finance a racket of big payoffs to special interests, who give big fees to lobbyists, who give big contributions to politicians. Everyone wins except the taxpayers. Those lobbyists are often former staffers and Members.

- -
Transparency Killed The Earmarks
12/17/10 - Hot Air by Ed Morrissey (via Instapundit)

[edited] Porkbusters helped to kill these earmarks. The porkers abandoned their earmarks when the outrage became high enough and transparency identified the offenders.
As a result, we will see a reduction in spending, thanks to the new GOP majority in the House. The omnibus spending bill was chock-full of earmarks and funding for big-government programs.
It won’t be passed into law now. Legislators have no incentive to pass massive new spending if they cannot promote their own home-district projects. The overall spending will become the focus, as it should have been all along.

- -
The Political Manual: Adequate Compensation

There is a bit of risk arranging for extra compensation, but not out of line with the other risks you have taken. A few unlucky politicians go to jail. You could be in an auto accident tomorrow, or have a nasty confrontation with a deranged constituent. It may help to imagine your friends and competitors pointing and laughing if you manage to be poor when you retire from politics.

Nov 7, 2010

Comment - Caring and Reality

11/07/10 - Comment by Anonymous at Daily Pundit:

[edited]: I remember talking to a colleague from San Francisco at a meeting right after the 2008 elections. She was all excited about the Democratic takeover because she cared about the poor and believed that all the world should provide social services the way San Francisco does.
I pointed out that California and San Francisco were both hemorrhaging money, destroying jobs, and were fundamentally unsustainable systems.
She said “I know, I know. I’ve heard all that. But, you know, I just love it here so much and I don’t want anything to change. Something will come up and it will get fixed. I just have to believe it.”
And I’m the one who is supposed to be an illiterate, stupid, conservative who just doesn’t understand how anything works.

Nov 5, 2010

Quip - Why more taxes for Obama?

Obama has repeatedly promised that families earning less than $250,000 will see no increase in their taxes. He does want taxes increased on wealthier families.

I notice that all of his proposed programs and policies are supposed to save money. Even the TARP and GM bailouts are supposed to be paid back with interest.

So I wonder, how is Obama going to use those extra taxes? He won't need them.

Oct 31, 2010

Why the Stimulus Package Failed

Obama: All economists agree that we needed the stimulus and that it has saved our economy.
Cato: At least 200 economists disagree.
Obama: I don't care about fringe economists.
Cato: They include Nobel Prize winners.
Obama: I don't care about fringe Nobel Prize winners.

Why the Stimulus Package Failed
10/31/10 - Open Market by Hans Bader

A roundup of articles by prominent economists who report that the $800 billion stimulus was doomed from the start. The stimulus was misapplied, even if you believe the economic justifications for doing it. The links and edited comments below are from Bader's article. See the article for even more information.

The Case Against The Fiscal Stimulus
2010 - Harvard economist Jeffrey Miron (pdf)

Dr. Miron shows the stimulus failed, even if you take for granted Keynesian liberal assumptions about economic policy. Congress spent wastefully while failing to revive the economy. Miron concludes that the stimulus was designed to reward politically connected constituencies and special-interest groups like public-employee unions.

Oct 28, 2010

Stimulus Produces Stagnation

Treasury Official: The Fed Bank will print lots of money for us to spend.
Assistant: We will construct more federal buildings, and the people will feel rich. Then what?
Treasury Official: We will collect all of that money back in higher taxes.
Assistant: Will that dampen their enthusiasm?

A Deficit-Financed Stimulus Leads Only to Stagnation
09/29/10 - Investors.com by Jerry L. Jordan
- Via Cafe Hayek

Mr. Jordan is a past president of the Federal Reserve Bank of Cleveland and a member of President Reagan's Council of Economic Advisers.

Soviet Realism

Leonid Brezhnev was General Secretary of the Communist Party and leader of the Soviet Union from 1964 until his death in 1982. He spoke at the Soviet Union Communist Party Congress in 1972:

The fundamental problem we face is that we can only distribute and consume what is actually produced.

Imagine the grandeur of the event. Communist Party leaders from throughout the Soviet Union were seated before Brezhnev in a large convention hall. This was similar to a US national political convention, but somber and powerful. The Party controlled all aspects of Soviet life. They listened in deep respect to every word of their totalitarian ruler.

Brezhnev made the above statement. It was the equivalent of saying with heavy meaning, "Gentlemen, the fundamental problem we face is that
2 + 2 = 4".

Imagine the country-wide failure which required an all-powerful leader to emphasize such a simple fact. The simple fact that you can eat a hamburger which is on the plate in front of you, but that you cannot eat a picture of a hamburger, and you cannot benefit from the promise of a hamburger unless you can exchange that promise for a real hamburger on the grill.

I think Brezhnev faced the problem that we face now in the US. The wierd economic ideas followed by the Soviet government were not working and had produced a crisis. Brezhnev had to reset policy. The Soviet Union had to face simple reality, rather than follow abstract theory. And, that is what we must do in the US.

The article which I link above provides an economic description of simple reality, nicely written. I think you will understand a reasonable economic explanation when you see one. You should be skeptical of any economic statements that are superficial or disconnected. Be especially wary of appeals to elite authority such as, "My program has the support of all the economists who I respect and who I have talked to."

Remember that entire nations can be misled, to such an extent that the rulers need a reminder of the simplest facts.

Summary of the article and other links ...

Summary of the Article

This is a summary of Mr. Jordan's three page article, with some added explanation. The article is worth reading in full.

Permanent Income

Households must decide what goods they can enjoy today and how much they must save or invest for the future. They estimate their long-term "permanent" income, and decide to consume (spend) some part of it. They don't spend all of a temporary windfall (eg. a bonus), and they don't cut back by the full amount of a temporary loss (eg. losing work for a short time).

Estimates of permanent income are relatively steady, but long-term changes in the overall economy will raise or lower those estimates over time.

Prosperity

Long periods of steady employment, increasing salary, and steady investment gains (eg. increasing values in 401K plans and house prices) may convince people that they are permanently more wealthy, and can afford to spend more now and in the future.

People will borrow against a plush future, to immediately enjoy such things as a bigger home or a vacation. This produces a low or negative savings rate. This is rational, and not a problem to be changed by government economic policy.

Businesses see opportunities and want to use current resources to meet the needs of a prosperous future. Real interest rates rise as individuals borrow for current enjoyment and businesses borrow to build more production capacity.

Higher interest rates direct borrowing away from low-yield projects, keeping those resources available for more profitable (more desireable) projects. Higher rates allocate resources to the best uses in the competitive markets of a healthy economy. This is also not a problem to be changed by government policy.

Recession

Decreasing employment, lower investment income, and falling housing prices produce an estimate of lower permanent income. Unfunded government pensions, large budget deficits, and growing government debt all promise higher taxes and lower after-tax personal income.

Government budgets are always balanced in real terms. The true burden of taxation is whatever the government spends. Citizens will pay for that spending, either now or later, either through explicit taxes or the effects of inflation (see below).

Future paychecks will be smaller or they will buy less. After higher taxes and/or inflation, people expect to be less well off.

A lower estimate of permanent income prompts people to consume less, to pay down current debts, and not acquire new debt. They doubt that they will have enough future income to both pay off their debts and spend as much as before. People want to avoid ruining their credit rating in the future. Paying down debt and keeping more cash in savings accounts increases the national savings rate.

The prospect of higher taxes and increased regulation lower the expected real, after-tax returns from new business projects. Fewer projects can return the needed minimum, real profit. Lower numbers of projects require fewer workers, affecting the least skilled workers the most. The lowered demand for both personal and business borrowing lowers real interest rates.

AMG: Low interest rates are not usually a sign of opportunity. Government interference to lower rates does not spark a recovery. People and business reduce borrowing because of their rational view of the future, not because already low rates are not low enough.

Government efforts to stimulate the economy by deficit spending are utterly useless. Government spending maintains some employment. But, businessmen know that tax increases (or inflation) will be used to pay back higher government debt and interest. They estimate their future customers will have lower real income to spend. So, they cut back on new projects, investment, and employment. This rational response of business and individuals cancels out any positive effects of that government spending.

Taxes, Deficits, and Inflation

There are three choices.

Tax Now. Limit government spending to the taxes being collected now, or raise taxes to cover increased spending. The US government for 40 years has almost always spent more than it has collected in taxes in any year.
Deficit Spending. Borrow the money needed to support spending above the amount of current tax collections (the additional deficit). The government sells US Treasury bonds to raise the money needed. Those bonds are promises to pay back that money after say 1, 5, 10, or more years, depending on the bond. The government pays interest to the bondholders as the cost of borrowing the money.
The government sells bonds every month to support new spending and to pay off older bonds that have come due. Taxes must be increased to pay interest on the bonds, and to eventually pay off the debt.
Every bond sold by the government is a loan to the government by someone with cash looking to make an investment. The government gets to use (or misuse) those resources, instead of a business receiving those funds for startup or expansion. This is called "crowding out" private investments. Ironically, huge government borrowing creates the risky business outlook which encourages investment in the supposedly riskless government bonds.
Inflation. The Federal Reserve Banks (the US central banks) create money by buying US Treasury bonds. This is a last resort by government to acquire more money to spend. This is typically done when the government does not want to pay increasing interest rates on the bonds it might sell to the public, or to avoid increases in those interest rates.
This is a hidden tax. The government acquires real resources by being the first spender of that new money. Later spenders find that prices for everything rise slowly as the new money is traded for an unchanged supply of real goods. The last people to spend are those who have money in bank savings accounts. They find that their money buys less real goods when they eventually use that money to buy things, such as buying their food in retirement.

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Why Spending Stimulus Plans Fail
11/2008 - Easy Opinions

The money isn't free. It is taken from the people who plan and invest in productive organizations. This destroys jobs and lowers everyone's income. The money is then given to government agencies which increase budgets. This is a form of government consumption. Investment is turned into consumption, and job expansion is killed.

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A Tested Stimulus Plan
02/2009 - Easy Opinions

The economic crisis is the result of a giant six year stimulus provided by housing loans. As we now know, it worked for a while and ended in disaster. What will the current stimulus plans produce when the money runs out? We know the answer: an economy like the current one, but somewhat worse.

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Stimulus Does Not Cure a Recession
11/2008 - Easy Opinions

Jobs change when people change what they want to buy or can afford. It is possible to keep people at their low-value or unneeded jobs for a bit longer, only by wasting the savings that should be financing a real recovery.

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Daniel J. Mitchell reports on a few cases where governments realize that stimulus doesn't work.

04/26/12

- Switzerland caps spending

04/15/12

- Sweden shifts to the right on spending

11/02/12

- Germany decides not to be Keynesian

04/24/12

- Portugal declares that stimulus didn't work

Oct 14, 2010

Selling Us What We Won't Make

Fred: We must prevent Americans from buying cheap Chinese clothes and women's purses, and so encourage ...
Mike: ... our bright young people to sew cheap American clothes and women's purses.

The Choice
10/14/10 - Cafe Hayek by Don Boudreaux

Mr. Boudreaux posts about the value of free trade.

[edited] By buying products such as textiles, footwear, and luggage from China and other foreign countries, workers and resources in America are freed to work in fields such as bioengineering and artificial intelligence.
If we prevent the importation of “cheap Chinese goods,” we would require American industries to produce – what? – cheap American goods. How bleak.

The problem for the United States is not that the Chinese and others are supplying inexpensive goods to us. The problem is that we are preventing business development in the US that would employ our people to produce many things that we would like. We don't need to limit trade, we need to free ourselves from suffocating restrictions on being productive.