The Local School Superintendent

There are two types of school administrators.

There is the type that plans for the future and controls costs.  This is the person that sets money aside for major renovations like a new roof.  They plan for growth by saving money for the new school that will be needed in 10 years.  They control costs by negotiating aggressively with every vendor and every labor resource.

And their districts have what they need.  They are trusted by the local community if a need for a additional funding comes along. 

And then there are the ones that spend it all.  These are the administrators that look at cutting school buses whenever local residents decline to support additional funding.  Their first tactic is to cut the things that inconvenience residents the most instead of economizing to minimize the impact of any cuts on the district.

Now those tactics are being writ large at the federal level due to the minimal reduction to the increase in federal spending by the "sequester".  As was reported elsewhere, the Department of Homeland Security released thousands of illegal immigrants and blamed the sequester.

Yet now we learn that the same agency is looking to hire close to 2,600 new federal employees.  Which leaves the reasonable suspicion that the release of illegal immigrants was more about political posturing than containing a bloated federal bureaucracy.

Those Little Cuts

I've observed this elsewhere, so it may as well go here, too.

When we had the so-called "fiscal cliff", we had roughly US$85billion in tax increases.  With the "sequester", we have had roughly US$85billion in spending cuts.  To be sure, those cuts are poorly focused.  If only we could get the Democrats to be responsible partners in passing a federal budget.

While I support an 80/20 ratio of cuts to tax increases, I also think that the above is "balanced".  Or at least, the perception of "balance" is a good test between a reasonable observer and a ideologue or a partisan.

It is hard to know exactly what the problem is with the Democrats in the Congress as well as our President.  I suspect that they see government spending as a means of power and control.  Anything that diminishes that power is something they oppose.

I also suspect that they may also suffer from a sense of denial.  Like every other person that has taken a real world look at our budgetary problems, they understand that the driving force behind our out of control spending is the unrestrained and unsustainable growth in social programs.  But because their "base" has been sold on the relative merit of those programs, they do not dare act as responsible legislators and begin limiting spending in that area.

Instead, we continue on an inexorable course towards national fiscal insolvency with plenty of pain for people that will find themselves dependent on government programs.

One disappointment is the lack of Presidential leadership on the issue.  Mr. Obama has said that we need to cut wasteful spending.  I have heard him issue such pronouncements in the past.

Yet he has not seen fit to demonstrate any leadership on the issue.  The White House has yet to issue a detailed list of programs to be cut.  Rather than work face to face with the Republicans to develop cuts that make sense, Mr. Obama has returned....again, and again...to the campaign trail.

The Democrats in the Senate are worse.  They haven't passed a budget for almost four years.  They won't pass their own budget.  They voted against Mr. Obama's budget in significant numbers.  And they refuse to bring any budget passed by the House to the floor of the Senate.

They are doing little more than closing their eyes and hoping that are nation's fiscal issues will somehow disappear.

Their eyes are closed. 

Ours are not.

They Just Are Not Serious

Recently, Mr. Obama signed a presidential order ending a current presidential order that freezes pay for all federal civilian employees.  As a result, federal wages will go up in April.  The cost per year is roughly US$1 billion.

And yet our federal deficit is running well past US$900 billion per year.

Apparently he is still not serious about solving our nation's deficit spending problems.  I'll start to take his proposals more seriously when he starts addressing the problem in a serious manner.

Making The Cut

This editorial cartoon was in our local rag recently.  I think it covers the issue nicely.  Have a look.

Spending Cuts Vs. Tax Hikes Explained

link

This pretty well encapsulates the current "negotiations" on our deficit spending problem.

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.

A Real Way 'Forward'

The Washington Post's Jonathan Rauch has suggested a path towards re-election for Mr. Obama.  While it isn't everything that I would hope for, it does represent modest real progress for the country.

The three elements that Mr. Rauch suggests are:

1.  Long term fiscal retrenchment - He suggests something along the lines of Simpson-Bowles; the national commission that Mr. Obama established to look at long term fiscal reform.  Given that he created the commission and established its objectives, it would be a pity to waste all that effort.

2.  Short term economic stimulus - Given the patronage and graft evident in the 2009 stimulus as well as the wholesale transfer of American funds to European banks, I have my doubts about Mr. Obama's ability to pull off a proper stimulus.  But if it were coupled with the other elements with an emphasis on the "fiscal retrenchment" now instead of in the ubiquitous "out years", then I am sure that we could survive another round of modest stimulus.

3.  A two-year extension on the debt ceiling - As with the stimulus, I think this is something that could be worked out if enough emphasis were placed on spending reductions.

But the problem is that Mr. Rauch has properly qualified his suggested course of action.

The president’s failure, so far, to show that he understands the scope of the economy’s problems and knows how to fix them does not stem from having nothing to say: investment in education, energy, innovation and infrastructure are reasonable things. But they are also slow-acting, small-bore stuff. Such talk does not include additional economic stimulus, an element that many economists, especially Democratic-leaning ones, consider crucial to prevent a double-dip recession. Nor does it deal realistically with long-term growth in spending.

Emphasis added.

The problem is that he does not understand how the economy works.  Instead he prefers to trade upon stoking class envy and the lust for unearned wealth. 

Unless that changes, Mr. Obama is doomed to be a one term President.

Let's Ignore Some More Inconvenient Facts

Social Security edition.  Using personal accounts for a national retirement system really does work.  The charts at the link are quite telling.

And yes, I understand that there is a modest amount of apples and oranges going on with the units.

I Am Tempted To Post This Once A Day

...until we elect a Congress capable of limiting spending until the deficit is eliminated.

And to respond to the query before it is offered, we can't afford to pay more than 20% of GDP without crippling our economy worse than it already is.  So..no new taxes.

Our Medical Future?

Consider Product X.  It costs a store owner $95 to get Product X into their store.  They sell Product X for for $100 and make $5 per sale; less the cost of their building, staff, electicity, etc.

What happens when they can only get $90 for Product X?  Most store owners would stop selling it.

What happens when someone needs Product X to survive?  Not a very nice question.

But this is precisely what is about to happen in California where the state has decided to cut Medicaid prescription reimbursements by 10%.  It isn't a 10% cut in the margin that the store owner earns.  It is a 10% cut in total reimbursements.


What does this bode for our nation's future?  Nothing good.

I hardly need to point out that we can expect a lot more stories like this one in the future.  Reimbursements currently have some give in them, which allows the highest-cost providers to operate, and the lowest-cost providers to make some profit.  The natural political tendency is to squeeze reimbursements to the level where the lowest-cost providers are pinched--or even beyond.  And the best-case result of this is that in the long-run, the lowest-cost providers get bigger, while in the short term, the disruptions among the higher-cost providers compromise at least some patients' access to care.

Are we willing to put up with that short term disruption?  Not so far, unless the service exclusively benefits the very poor.  Maybe we'll get more willing as the tax bite goes deeper.  But either way, with a dramatic Medicaid expansion on its way, and more and more of the rest of the health care system under the control of the government, the fights are going to get uglier.

A modest warning for language at the link.

Riding Or Pushing

What happens when there are more people riding in the wagon than there are people pushing the wagon?

Almost half of America pays no federal income tax.  Yet dependence on federal spending is at an all time high.  Farm subsidies, college loans, Medicare, Medicaid, Social Security, and welfare have grown so far over the last 40 years that we may soon discover what happens when we plumb the depth of Lady Thatcher's wise observation regarding the difficulties encountered when we run out of other people's money to spend.

At the very least, we are going to find out what happens when our spending on social programs exceeds the available income for the average citizen.  Click the image for the full report.

Sadly, the theoretic Chinese curse hoping that one lives in "interesting times" applies.

Pick A Spending Cut

There is a guide to the GOP candidates and their potential federal spending preferences over at the 10^th Amendment Center.

Sadly, Ron Paul is the most prolific as well as the most specific candidate when it comes to spending cuts.  Gary Johnson continues to be my candidate of choice even though his spending proposals are not as specific.

Mr. Obama is not listed.  Primarily because despite his protestations to the contrary, he has no intention of limiting federal spending.

A Reminder For Scale

Mr. Obama's "stimulus" and other spending is much more than was spent on the Iraq war.

Just in case anyone has forgotten.

An Unusual Source For Terrorism

Saturday Night Live writers??

h/t to the Blogfather....

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.

Keynesian? Really?

Nick Gillespie over at Reason makes the salient point that current federal spending is not really what John Maynard Keynes had in mind when he suggested that government spending in a down cycle might spur growth.

But Whalen isn't simply dumping on Keynesianism, he's bent on pointing out that even its latter-day adherents are straying far from their master's theory. And in this, he's surely correct. As Allen Meltzer has argued, Keynes was against the very sort of large structural deficits that characterize contemporary federal budgets and policy, believing instead that deficits should be "temporary and self-liquidating." And Keynes believed that any sort of counter-cyclical spending by government should be directed toward increasing private investment, not simply spending current and future tax dollars on public works projects.

Nick quotes Mike Whalen in an article posted at The Washington Times.  Mike suggests...

If the federal government announced a real road map to fiscal soundness, the impact would be truly stimulating. If American businesses and consumers saw that Washington was really cutting, not just reducing future increases, there would be tremendous relief and an increase in confidence across the country. Job creators would sing “hallelujah”; they would get off their wallets, start hiring, and then you’d see that Keynesian multiplier kick in.

Which is a point that the current Administration and their supporters keep passing over as if it did not exist.

A big part of the problem with the sluggish economy is that business owners can see current government spending, and future spending obligations as being capable of turning a sour economy into a really dismal economy.  Greco-Japanese dismal.

When they are convinced that their sidelined capital could be safely invested with the reasonable expectation of making a profit in the bargain, then they will begin investing.

All this talk of raising taxes on "the rich" and passing behemoth federal programs does nothing more than reinforce the idea that they are better off sitting on their cash.

In Which I Agree With Barney Frank.

It doesn't happen very often. Mr. Frank is someone that I generally hold in low regard. But from time-to-time, he is right. A stopped clock and all that.

The senior Democrat on the House Financial Services Committee says the biggest reason the United States is seeing its credit downgraded is that it spends too much money being "the military policemen of the world."

...

The liberal Massachusetts Democrat says $200 billion could be saved "without in any way endangering our security" by dialing back U.S. military involvement in the world, including operations in Western Europe.

Anyone that has taken a serious look at our spending issues will tell you that are defense spending is going to need to be cut to some extent. A much smaller force is really needed to "guard" Europe. There are other obvious cuts to be made as well.

The problem with Mr. Frank is that he is attempting to divert attention from the larger problem of ever expanding social spending. We are currently experiencing deficits to the tune of $1.4 trillion annually with future projected deficits to dip briefly towards $1 trillion before expanding ever upwards. That trend is being driven by Social Security and Medicare.

While $200 billion in spending cuts is a good start, where does Mr. Frank plan on finding the other $1.2 trillion? I have a few suggestions that would "break the mold" as well.

Fiscal Analogy

Most analogies fail at some point.  But sometimes they are quite useful.

As a country, we have a problem with debt and with deficits.  We are in a fiscal hole. Call it a 100 yard deep hole.

Wisconsin's Paul Ryan has presented a plan that is the fiscal equivalent of 80 yards of sturdy rope.

Harry Reid and the Democrats are offering the fiscal equivalent of 30 yards of light twine.  You couldn't start building a sturdy rope with it.

John Boehner are is negotiating for 60 yards of light twine.

You are at the bottom of that 100 yard deep hole.  Which option do you want coming to the rescue?

Hell Just Froze Over

How do you know that the Devil needs a heater?  When Socialists favor budget cuts!!

Throw your Euro stereotypes out the window: Last weekend, a Greek government that has cut public-sector pay and lowered pensions won a clear victory in local elections. Despite strikes and violence, despite the fact that Greece's debt is still growing and more cuts are coming, there will be a Socialist mayor of Athens for the first time in 24 years. (And, yes, in Greece, the Socialists favor budget cuts, and the conservatives oppose them.)

More seriously, I have maintained for a long time that we have far more government than is healthy for any nation.  Most people here in "flyover" country feel much the same way.  It goes without saying that my idea of a "healthy" level of government is well below almost everyone else's.

The rest of the world has looked over the precipice.  They have seen where the trail of ever growing government leads.  And they are now moving steadily and determinedly back down that trail.

While we march ever forward towards predictable disaster.

We remain, of course, the greatest propagandists for liberty and free markets. Our politicians - even President Obama - can be eloquent in the defense of these ideals. But we haven't practiced what we preach for a long time, much longer than we generally recognize. Americans may be from Mars and Europeans from Venus, but would we re-elect a president who cut government wages in half? I find it hard to imagine.

Emphasis added.

It is the one course of action that might get Mr. Obama re-elected.  And not unlike Mr. Nixon's trip to China, Mr. Obama may be the only person that can sell austerity to an American public that is wary of politics as usual.