Tag Archives: spending

Good News

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There really is some coming out of the election last Tuesday.

Reelecting President Obama notwithstanding, voters validated central conservative tenets:

  • Exit polls demonstrate that by a 51%-43% margin, Americans believe that today’s government already does too much that more properly belongs to the private sector.
  • By a 63%-33% spread, Americans said not to raise taxes as a means of cutting the Federal budget deficit.
  • Concerning the economy, the national debt, and the budget deficit generally, the voters preferred the Republican over the Democrat.
  • Voters also reelected an overwhelmingly conservative and Republican House, thereby explicitly and materially validating the House’s expression of those conservative tenets over the last two years.

There’s more.

In California, Democrats won voter approval to raise the top income tax rate to 13.3%.  More importantly, they also won a legislative supermajority.  California has in its state constitution an amendment requiring a two-thirds majority of both houses of the state’s government in order to raise taxes.  The Democrats have won that two-thirds majority in both houses.

Now we’ll have an object lesson, fresh in our minds at the time of the 2016 elections, about the outcome of Progressive policies implemented wholesale.  California will be that demonstration.  Watch carefully.

Compromise

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President Obama, in the aftermath of his reelection, says he wants bipartisanship and compromise in finding solutions to the nearby fiscal cliff and to the longer term problems of his deficits and his national debt.  Senate Majority Leader Harry Reid (D, NV) says the same.

But bipartisanship, the last several times around, has meant “be reasonable, do it our way.”

After all, it was Obama who said to the House (then-)Minority Leader Eric Cantor (R, VA), “Eric, I won” and to Senator John McCain (R, AZ), “John, the election’s over,” and generally, “Elections have consequences.”

It is Obama, too, who has announced that he’ll veto any cliff solution that doesn’t contain tax rate increases on that group of Americans whom he despises.

It was Reid who, last Congressional session (of which there remain a rump term lasting until the New Year), blocked nearly 40 jobs-related bills and two national budgets passed by the House and refused even to allow them to be debated, much less come to a vote in the Democrat-dominated Senate.

It was Reid, too, who said on the eve of the election that he’d never work with the Republicans if Romney won.

And it was Senator Patty Murray (D, WA), in a Fox News “Special Report with Bret Baier” interview Wednesday, who had this exchange with Baier:

Baier: So when you hear that [Speaker John Boehner (R, OH) saying that revenues could be increased through tax reform and closing loopholes], what do you hear?

Murray: First of all, I really appreciate the Speaker say that he understands that revenue needs to be on the table.

Baier: When you say “revenue,” you mean taxes, tax increases.

Murray: That’s correct.

She also said in that interview,

The President ran on making sure that the wealthiest Americans participate in solving this problem.  He won.  A number of our Senate candidates, in fact all of them, ran on the same thing; they won.  I think that puts us in a place where we can really move forward.

There’s that Democrat concept of “bipartisanship” and “compromise.”

On the other side, Majority Leader Cantor said in a letter to House Republicans on Wednesday (the letter can be found here)

This election was filled with good news, and bad news. The good news is that the American people responded to two years of House Republican leadership by sending us back with a strong majority. It is clear that our efforts to improve the economy and create the conditions for job growth were well-received….

Our task is to legislate based on our principles and forge the compromise that will be necessary to get our nation back on track.

This is entirely correct.  A man who would compromise his principles is a man who has no principles and so is a man who cannot be trusted.  While it’s true that a clash of principles can lead to an inability to compromise, at least one side of this debate is operating from principle.  For the other side, it’s only about power and ego, just as it has been these past four years.

Bailouts

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Spiegel Online International carried a disturbing story Monday on the subject of bailouts.

The proximate item is Greece’s economic strait, and this is what Spiegel is reporting about that.  The current troika—the IMF, the European Commission, and the European Central Bank—are proposing

[a]nother partial default.  That, indeed, would seem to be the conclusion that Greece’s main international creditors have come to.  According to information received by SPIEGEL, representatives of the so-called troika—made up of the European Central Bank, the European Commission and the International Monetary Fund—proposed just such a debt haircut at a meeting last Thursday held in preparation for the next gathering of euro-zone finance ministers.

But half-measures simply prolong the problem and continue Greece’s addiction to handouts while at the same time providing no mechanism for getting the Greeks to self-sufficiency other than leaving them to their own, already failed devices—both those that drove them to this strait and those of the last three years that have had no useful effect.

Worse, though,

This time around, public creditors would be involved, meaning that taxpayer money from those countries which have stood behind Greece would vanish off the books.

But where is the justice in this?  Indeed, where was the justice, originally, in forcing the taxpayers of entirely separate jurisdictions—other nations—to indemnify the Greeks (and the Irish, and by extension, the Spanish, Italians, and Portuguese) against their own foolish decisions?  Indemnify rather than help, since no meaningful accountability mechanisms were applied.

That’s in the past; those innocent taxpayers already are dragooned into the existing bailout.  The primary question remains, though: where is the justice in compounding that prior error by extending it, by forcing responsible taxpayers to pay for continuing this folly?  And how does this enabling help the Greeks (and Spanish, Italians, and Portuguese; although these three already are attempting preemptive measures so as to avoid their own humiliation)?

Indeed,

Athens has only introduced 60 percent of the reforms [already] demanded by the European Union.

Yet,

The troika has already agreed to give Greece two extra years to meet its austerity goals, a delay that will likely result in a need for up to €30 billion in additional aid, according to the ECB and European Commission.  The IMF believes the funding gap will be closer to €38 billion.

Thus, the EU and the IMF know they’re proposing throwing money down a rat hole, and they’re proposing that anyway.  It’s true enough that cutting the Greeks off from further bailout moves will jeopardize the taxpayers’ money already committed.  However, it’s the nature of bankruptcy—which the Greeks will be better off going through—that such debts get written off and the creditors lose out.  But that’s the only way to stanch the bleeding here.  There’s no useful purpose in committing additional taxpayer funds to this failed effort.

Take careful note of the similarities to our own situation.  Failures here, too, says the current administration, need to be propped up with taxpayer money and, in our case, favored investors protected from the consequences of their decisions.

The Current State

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…of our economic “recovery.”

Here are some numbers, from The Walls Street Journal.

  • GDP grew at a (preliminary) 2% rate in the third quarter…
  • That rate means that growth for the first nine months of this year was only 1.7%
    • Slower than last year’s 1.8%
    • Which was slower than the year before’s 2.4%
  • Consumer spending provided most of the third-quarter lift…but consumers can’t continue if the overall economy doesn’t grow fast enough to raise incomes faster
  • The other big third-quarter growth driver was Federal government spending
    • Rose 9.6%
    • Overall government outlays rose 3.7% and accounted for about 0.7 percentage points of that 2% GDP increase
  • Economist David Malpass calculates that growth in private output was closer to 1.3%. The private economy isn’t “doing fine…
    • Non-housing related investment contracted by 1.3%.
    • But business investment is a leading indicator of future job and wage growth.

Finally,

  • [T]he typical growth rate at this stage of the previous nine recoveries (13 quarters) averaged 16.8%
  • The rate for this recovery is 7.2%.
  • That’s about $1.2 trillion in foregone output.

Consumption and Inequality

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Some on the left worry about income inequality as though that matters.  It is, though, equality of opportunity that provides everyone the path to increasing prosperity.  Even though we begin life with an equal endowment of inalienable rights—including the right to seek our own happiness as John Adams described it—it is the implementation of those rights, equality of opportunity, that lets us capitalize on and so to maximize, our unequal endowments of ability, temperament, luck.

One way to assess the increasing prosperity of all is to look at consumption.  Hassett and Mathur do this in their paper, “A New Measure of Consumption Inequality,” a copy of which can be found here.

Some numbers will illustrate.  First, a snapshot of the general situation:

Per cent of Total US Consumption

 

Year 2000

Year 2010

Bottom Fifth of Households by Pretax Income

8.9%

8.3%

Middle Fifth

17.3%

17.1%

Top Fifth

37.3%

38.6%

That’s remarkably stable.

Now, the trend in consumption:

Increase in US Consumption from 2000 to 2010

Bottom Fifth

14%

Middle Fifth

6%

Top Fifth

14.3%

Despite the recessions of the early 2000s and since 2008, household consumption actually has increased, and the bottom fifth by pretax income increased their consumption by quite a bit, despite the claimed unfairness of income inequality.

Now, some illustrative items of consumption, focusing on the bottom fifth of American households:

Per cent of Households with the Indicated Item

 

Year 2001

Year 2009

Computer

19.8%

47.7%

Dishwasher

17.6%

30.8%

Microwave

74.9%

92.4%

Washing Machine

57.2%

62.4%

Air-Conditioning Equipment

65.8%

83.5%

6 Rooms (Other than bath) in the House

21.9%

30.0%

 

Odd, that—overall relative share, by those unequal income groups, of consumption of items like these has remained quite stable across over time.  Moreover, despite that income inequality (which has grown, as it typically does, during recessions, does not act as a limiting factor in consumption capacity.  Apparently unequal incomes don’t matter that much to well-being.  Household quality of life for is improving for all groups.

Of course, this does not mean that the lower income groups don’t need help—they often do, especially during economic dislocations; their resource margins are much thinner.  But that help is most effective as temporary hands up, not in the form of permanent wealth redistribution programs.  The latter simply address a non-existent problem.