The Stories That Matter

Some encouraging news from last week.  It seems that more people were following the news of the "fiscal cliff" than were following the lurid details of the Petraeus affair.  In fact, the debacle in Benghazi and the latest between the Israelis and the Palestinians were also of more interest to the public than the ultimately private issue of Gen. Petraeus's sex life.

So What Changed?

One of the facts about our federal budget is that federal revenues have remained pretty consistent at about 18% of GDP.  I didn't realize exactly how consistent that was!

Pretty much, revenue as a percentage of GDP hasn't changed since 1950.  Yet today we face some pretty serious budgetary challenges.  So what changed?

Spending.

Back in the 1950s, we fought global communism and won.  We sent men to the moon, and brought 'em back, too!  We built a national highway system.  We were able to be a real force for good in the world.

Today, military spending is the lowest it has been ever!

Now a reasonable discussion of spending priorities ought to leave many options open.  But one thing that should be crystal clear is that those options are being limited by our fantastic growth in social spending.

Can't Read Or Won't Read

Those appear to the be the only options left for Paul Krugman. 

Newsweek recently published a piece by Niall Ferguson in which Mr. Ferguson makes the case that Mr. Obama has not earned consideration for re-election this November.  It is an interesting piece.

The NYTimes resident out-of-this-world economist cum opinionator, Paul Krugman took a few moments out of his day to suggest that Mr. Ferguson was factually challenged.  Mr. Krugman asserted that the ACA would provide a net reduction in the deficit.

Mr. Ferguson had the temerity to respond with facts and...gasp...math!  The bottom line for my valued readers is that the CBO report on the impact of the ACA indicates that the net effect of that law will be to increase the deficit by over $1 trillion over the next decade.

The only way that the ACA might have a less deleterious effect on the budget would be if it somehow managed to reduce the rate of inflation for Medicare expenditures from the 4% that is typical of the last 20 years to something much closer to 2%.  How it might do so at a time when the baby boomers are swelling the ranks of our nation's seasoned citizens is a bit of a mystery.

One option might include the use of magic wands.

Others include rationing of care or tax increases that are as fantastic as Mr. Krugman.  His fabulist inability to have an adult conversation using commonly known facts is one prime reason why I avoid Mr. Krugman's work.

Won't You Please Let Me In?

Via the Blogfather comes this excellent essay from The Volokh Conspiracy about the Occupy movements and the underlying socioeconomic forces that have created it.  The short version is that they have dutifully gotten their tickets punched and now expect the rewards to flow regardless of their actual talents or the collective need for their "abilities".  Such as they are.

The longer version....

Where To Cut First?

The GAO released a report earlier this year that identified $200 billion in wasteful spending.  Given our current annual deficits of roughly $1.4 trillion, cutting $200 billion in spending would represent a 14.3% reduction in the size of the deficit.

That is well short of 100%, but you take it where you can find it.

How many of those programs have the Republicans and Democrats in Congress cut?  None.

What agency was targeted to have its budget cut?  The GAO.

At Low, Low Rates!

Via Zero Hedge, and all of the unquantified credibility that the anonymity of the site suggests.

The group wondered aloud why the Treasury and the Congress were not being more opportunistic. Rates are at historical lows. Why aren’t we issuing 50 year or even 100 year treasuries? At these exceptional rates, that would allow us time enough and room enough to put the debt in order - a chance to structure the debt hodgepodge in an almost logical manner. It would give us a chance to hand off to our children something far less burdensome.

More ice cubes were marinated and the brain trust (ex me) concluded that the primary deterrent probably was that going to a 50 or 100 year might raise interest costs somewhat. That would yield, quickly, to political finger-pointing.

So, here it was again - politics. I don’t want to be accused of “busting the budget” by auctioning something that yields several basis points more. “The kids? The hell with the kids! They ain’t voting in this election.”

 I do not know if this conversation ever existed, but I think the idea is reasonably sound.  We use short term treasuries to access much lower interest rates.  But now long term interest rates are lower than short term rates were a few years ago.  Doesn't it make sense to lock in the low rates now?