Daily Archives: 21 December 2011

Hypocrisy

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For some time, President Obama has been demanding that the payroll tax cut, due to expire at the end of this year, be extended for another year—the whole year, together with a blanket extension of the unemployment subsidy.  Leaving aside the wisdom of defunding Social Security as a means of providing a tax cut, or of paying the unemployed for not working, let’s explore what’s happened with Obama’s demand.

Obama and Senate Majority Leader Harry Reid have refused to pay for a one-year payroll tax cut and the unemployment subsidy extension with any means that doesn’t include a parallel tax increase elsewhere, as they demand a continuation of their class war programs.  Failing to get agreement for that for a complete year’s extension, the Senate passed a two month extension of the tax cut and subsidy—with, I’m embarrassed to say, the complicity of Senate RINOs who lack the character or courage required to fight this class war.  Certainly, at the end of those two months, the Progressive demand for tax increases on Americans of whom they disapprove will resume, even more loudly.

The House had passed, some time prior, a bill that would have extended the payroll tax cut for the entire year, extended the unemployment subsidy on a gradually decreasing schedule, and paid for all of it without tax increases anywhere else, but with spending cuts only.

When the Senate passed their two-month bill, they ran for the exits to start their precious month-long vacation, their personal welfare being more important to these Senators than the welfare of us Americans.  On the way out the door, they ordered the House to pass the Senate bill with no further argument.

The House rejected the Senate’s failure and voted, instead, to send the two bills to a House-Senate conference committee to resolve the differences, as is the normal way of doing business in the Congress.  “Let’s get this done today,” House Speaker John Boehner told Obama in an effort to enlist the President’s help to get the bill which Obama has been demanding passed.  However.

Reid is actively refusing to negotiate.  He’s actively refusing to bring the Senate back—or to send any Senators back to take part in the conference committee.  He demands that his two-month bill be passed by the House as a precondition to any negotiations.  And he’s castigated those evil Republicans for holding out for Obama’s year-long extension.

Obama is actively refusing to negotiate on the passage of his own bill.  He says:

Now let’s be clear.  The bipartisan compromise that was reached on Saturday is the only viable way to prevent a tax hike on January 1. The only one.

So, Obama, who has been demanding a year-long extension of the payroll tax cut for Americans, doesn’t really mean it.  The only bill he wants is his pet Harry Reid’s two-month extension.  And an opportunity to fight again for divisive tax increases on Americans whom he doesn’t like.

The Euro and the Economists

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Spiegel Online International interviewed two German economists on the future of the euro.  One has an (incomplete) approach to a solution, the other still can’t see the problem.  The split between the two mirrors the split among politicians (although along different dimensions than the politicians), and the existence of the split is a demonstration of the lack of coherence in reaching a solution.  Which bodes ill for the euro and for the European Union.

The interview opens with this; I’ll cite one economist’s response, as the other is saying substantially the same thing I’ve been writing, and so he’s to a large extent preaching to the choir.

SPIEGEL: Mr. [Joachim] Starbatty, Mr. [Peter] Bofinger, can the euro still be saved?

Bofinger: …The highly indebted countries must be able to borrow at moderate interest rates so they don’t go bankrupt. This could be achieved with euro bonds. And if they can’t be implemented that quickly, the ECB has to stabilize the system. In doing so, it would not create inflation but would in fact avoid deflation.

Mr Bofinger is wrong on two counts, and his first error demonstrates his plain lack of understanding of the nature of the problem.  Disastrously indebted countries do not need to “be able to borrow at moderate interest rates.”  They’ll never be able to borrow their way out of a debt-based bankruptcy.  Disastrously indebted nations instead must stop borrowing altogether and reduce their debt through annual budget surpluses.  Moreover, budget surpluses achieved by taking money away from their citizens and so out of their economies in the form of higher taxes will only guarantee continued economic failure.  The borrowing must stop and the debt reduced through reduced government spending.  Secondly, throwing money at the problem via the ECB certainly will avoid deflation—by leading to explosive inflation from too much money chasing too few goods from too little production.

Bofinger goes on in response to another question:

German politicians have not acknowledged that these countries have already reduced their deficits significantly. Compared to 2009, deficits have declined in all of the crisis-ridden countries…. The markets haven’t even noticed this.

It’s true that the deficits have shrunk.  What the markets have noticed, though, is that reduced deficits means continued deficits which means still increasing debt for nations with too much debt already.

On Spiegel‘s question of EU-wide increasing yields on sovereign debt (which means it’s getting ever more expensive for governments to borrow), the two economists had this:

Starbatty: Because the trouble spots in the euro zone are not being isolated, the sparks are jumping over to the healthy countries. Everyone knows that if the weaker countries are to be rescued, two countries — Germany and France — will ultimately be doing all the heavy lifting. So the most important question is: How long are the Germans willing to pay? And how long are the French in a position to pay?

Bofinger: You correctly describe how the euro zone behaves today, with 17 different countries trying to address the problems individually. In fact, the real question is whether Germany can be everyone’s guarantor in the end. That’s why we have to turn things around and say: We will now act as a unit. If Italy can go into debt through euro bonds, it will always be able to raise money, even it has to refinance €300 billion ($400 billion) in debt next year.

Mr. Starbatty exposes the false premise of the fiscal union on offer: that the “weaker countries” should be rescued at all, and if so, by whom.  The German citizens are tired of being everyone else’s piggy bank, and the French, while slower to the realization, are rapidly losing their capacity, even as they remain (sort of) willing.  Bofinger, on the other hand, misses the problem altogether: the fiscal union both allows an Italy (or a Spain, or a…) to continue to borrow profligately, rather than bringing its debt under control, and it traps Germany (and France) into being the union’s piggy banks.

Here’s this exchange, also:

SPIEGEL: So are the euro countries too different to be welded together in a single currency, as euro critics have claimed from the start?

Bofinger: There are also big differences in productive capacity in the United States. The problem is that we in Germany have tried to become even stronger by holding back wages….

Starbatty: The mistake lies in the fact that the weak countries in the monetary union have not changed their policies. They have used the low interest rates to have a party….  …which is why we now have a large divide in the monetary union. Some are overly competitive, while others can’t keep up anymore.

Both economists have it wrong.  The variability in productive capacity isn’t the problem for cohesiveness.  The lack of common social and philosophical imperatives and the vastly differing views of the purpose of money are what make a cohesive fiscal union of all 17 nations impossible and that are pulling the 27-nation EU apart.  Separately, “overly competitive!?”  Only in the fantasy world of too big to fail does this contradiction make sense.

The interview goes on in this vein.  Without even an understanding of the nature of the problem, there can be no hope of a solution.  But let’s expand government (here in the form of more power to the ECB and a fiscal union layered on top of national governments), as one economist and a gaggle of politicians insist, anyway.

Read the whole thing.

Expanding Government

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Fox News had a report about another move by Big Government to “guide” us for our own good.  It seems the EPA has a Green Book (called “Sustainability and the U.S. EPA,” commissioned in 2010 for $700 thousand, and published last August) that it wants to use sub rosa (EPA representatives were reluctant to discuss the principles espoused in this document in public) to

integrate sustainability “as one of the key drivers within the regulatory responsibilities of EPA.” The panel who wrote the study declares part of its job to be “providing guidance to EPA on how it might implement its existing statutory authority to contribute more fully to a more sustainable-development trajectory for the United States.”

Or, in other words, how to use existing laws to new ends.

EPA Administrator Lisa Jackson insists that the EPA’s “sustainability” approach represents

“a new opportunity to show how environmentally protective and sustainable we can be,” and would affect “every aspect” of EPA’s work.

Using this approach, the EPA can become even more pre-emptive“anticipatory” in how it instructs our businesses in how they must conduct themselves.  Indeed, the study itself urges the EPA to change its already activist culture even further:

“create a new culture among all EPA employees,” and hire an array of new experts in order to bring the sustainability focus to every corner of the agency and its operations. Changes will move faster “as EPA’s intentions and goals in sustainability become clear to employees[.]”

So what’s the big deal here?  It’s in that “sustainability” bit that is the point of the study.  The Green Book says that sustainability is

gaining increasing recognition as a useful framework for addressing otherwise intractable problems. The framework can be applied at any scale of governance, in nearly any situation, and anywhere in the world.

“[A]ny scale of governance, in nearly any situation….”  This is as naked as it gets: the Green Book advises the EPA that, under the guise of sustainability, it can exercise even more control—through sustainability regulations—over our businesses.

By the way, sustainability itself remains carefully undefined.  The Green Book takes for a working definition the one carried in President Obama’s 2009 Executive Order 13514, “Federal Leadership in Environmental, Energy and Economic Performance:”

to create and maintain conditions, under which humans and nature can exist in productive harmony, that permit fulfilling the social, economic, and other requirements of present and future generations.

This is a carefully generic definition that can be given any meaning at all, and so bent to any purpose at all.

We already see one goal of this Green Book, and of the EPA that bought it, as the EPA takes its advice in this “advance” in capability.

Environmental impact assessment tends to focus primarily on the projected environmental effects of a particular action and alternatives to that action[.]

But

[Sustainability impact assessment examines] the probable effects of a particular project or proposal on the social, environmental, and economic pillars of sustainability…[.]  The culture change being proposed here will require EPA to conduct an expanding number of assessments.

Plainly, all that’s being sustained here is Federal power.