Monthly Archives: May 2013

Yeah, And?

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President Barack Obama, through his State Department, had this to say about al Assad’s massacre of Syrian civilians last Thursday [emphasis in the original]:

Massacre in al-Bayda
Press Statement
Jen Psaki
Spokesperson, Office of the Spokesperson
Washington, DC
May 4, 2013

The United States is appalled by horrific reports that more than 100 people were killed May 2 in gruesome attacks on the coastal town of al-Bayda, Syria.  Regime and Shabiha forces reportedly destroyed the area with mortar fire then stormed the town and executed entire families, including women and children. We extend our deepest condolences to the families of the victims of this tragedy.

We strongly condemn atrocities against the civilian population and reinforce our solidarity with the Syrian people.  As the Assad regime’s violence against innocent civilians escalates, we will not lose sight of the men, women, and children whose lives are being so brutally cut short.

We call on all responsible actors in Syria to speak out against the perpetration of unlawful killings against any group, regardless of faith or ethnicity.  Those responsible for serious violations of international humanitarian law and serious violations and abuses of human rights law must be held accountable.

So, what are you going to do, Ace?  Besides sitting on the sidelines whining about it all, I mean?  “[W]e will not lose sight of the men, women, and children whose lives are being so brutally cut short.”  No, we’ll watch the hell out of the butchery, while lowing meekly.

Smooth move, Ace.

 

h/t The Weekly Standard

The Party of Stupid, Again

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Mark Peters and Neil King, writing in The Wall Street Journal, described the party’s latest escapades, this time in state governments, late last week.

Republican lawmakers in several states are blunting plans by GOP governors to reduce or eliminate income taxes, putting the legislators at odds with figures many in the party see as leading voices on reshaping government.

Friction over tax policy within the GOP has flared in states such as Louisiana, Nebraska, Kansas and Ohio, as Republican lawmakers raise concerns over projected revenue losses from income-tax cuts.  Three of those states shelved big income-tax cuts that would be paid for by broadening the sales tax, and in Kansas, legislators will return next week to a continuing debate over the size and speed of proposed cuts.

And

What is playing out is a collision of long-held Republican Party ideals as lawmakers want to cut taxes to spur economic growth without running up deep budget deficits.  Most of the governors promoting cuts are first-termers who say the income tax damps consumer spending and business creation.  The boldest plans, however, can’t be done without expanding the sales tax and eliminating certain exemptions, a shift many legislators aren’t willing to embrace.

As I’ve pointed out many times, these beefs flow from the false premise that the (state) governments need the revenues.  No.  Cut spending to fit within the (lower) taxes—which actual revenues will increase, anyway, from the resulting stronger and growing state economies.  Reduce overdone services; eliminate the frivolous and/or duplicative ones (New Jersey has six separate services related to agriculture as well as an Arts Council and an Arts and Recreation service that are better done locally and/or in the private sector; Arizona’s descriptions of its state-run services run to 500 pages of…regulations); let the private sector do more with its own money; let private charity, church, community play more of their proper role.

Indiana House Speaker Brian Bosma (R, Indianapolis) said of a tax reduction plan generated by Governor Mike Pence (R)

You can’t just have a reaction and say, “Yep, we’re going to cut a tax.”  You have to look in the long haul—over a decade—to be sure it’s sustainable.

Yes, you can.  It’s sustainable from cutting spending commensurately.

Peters and King note

[t]he tax debate in Republican-dominated capitols comes as national party leaders see the states as a source of policy innovations and fresh faces following Republican election defeats on the federal level last November.  The Republican National Committee recently heralded its 30 GOP governors as “America’s reformers in chief.”

It’s hard to make this case, though, with the evident hypocrisy the Republican state legislators are showing.

Figure it out, guys.  Either you’re for low taxes, little spending, and limited government, or you’re not.  Do we need to generate a new party that takes shrinking government seriously?

The Value of Drill

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Halfway, OR, ran one at one of its school meetings.

Two masked men wearing hoodies and wielding handguns burst into the Pine Eagle Charter School in this tiny rural community on Friday.  Students were at home for an in-service day, so the gunmen headed into a meeting room full of teachers and opened fire.

Someone figured out in a few seconds that the bullets were not drawing blood because they were blanks and the exercise was a drill, designed to test Pine Eagle’s preparation for an assault by “active shooters” who were, in reality, members of the school staff.

The outcome of the drill was extremely valuable.  First, the principle and staff learned they weren’t as prepared for this sort of event as they thought they were.

Principal Cammie DeCastro said it became clear very quickly just how many of the school’s 15 teachers would have survived.  The answer: “Not many,” she said.

And

[T]he drill made [one teacher] aware that she would not have recognized the sounds of gunfire. “I would have blown it off as kids’ sounds in the hall,” she said.

The drill has since prompted her…to think of windows as escape routes[.]  But the biggest insight for her was the reminder that she is in charge of the youngsters in her classroom, and would have to remain calm in an emergency.

But the most valuable lesson of the drill was this, articulated by Elementary teacher Morgan Gover:

We are so remote we are going to have to take care of ourselves.

Indeed.  Even in the heart of a city (Halfway’s population is under 300), the police will need time to respond, while it’s the school’s teachers and staff that are immediately present.

Answering the Phone

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Adam Housley, writing for Fox News, had this on the Benghazi fiasco:

On the night of the Benghazi terror attack, special operations put out multiple calls for all available military and other assets to be moved into position to help—but the State Department and White House never gave the military permission to cross into Libya[.]

Normal ops in locations like Benghazi has the Chief of Mission in charge—Ambassador Chris Stevens in this case—who has procedures for calling for help and transferring authority in exigent circumstances.  With Stevens (and such protection as he was allowed to have) trapped, his “distress button” was pushed, and authority was transferred to State, where again in the Benghazi case, response oversight and authority transferred to then-Secretary Hillary Clinton and one of her Undersecretaries, Patrick Kennedy.

Housley cited some of his sources:

Sources said that shortly after the attack began around 9:40 pm, special forces put out the calls for assets to be moved into position.

“What that does is that enacts…every asset, every element to respond and it becomes a global priority,” one source said.  “I would tell you that was given and the only reason it was given is because of special operations pack.”

However, the source said, “Assets did not move.”

It seems apparent that when the phone rang at 4 am, Clinton said, “What difference does it make,” rolled over, and went back to sleep.

Federal Debt and GDP Growth

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In a speech by Federal Reserve Chairman Ben Bernanke to the Japan Society of Monetary Economics, a few short years ago, he said

In economics textbooks, the idea that people will save rather than spend tax cuts because of the implied increase in future tax obligations is known as the principle of Ricardian equivalence.  In general, the evidence for Ricardian equivalence in real economies is mixed, but it seems most likely to apply in a situation like that prevailing today in Japan, in which people have been made highly aware of the potential burden of the national debt.

The principle of Ricardian equivalence does not apply exactly to increases in government purchases (for example, road building) but it may apply there approximately.  If, for example, people think that government spending projects are generally wasteful and add little to national wealth or productivity, then taxpayers may view increased government spending as simply increasing the burden of the government debt that they must bear.  If, as a result, they react to increases in government spending by reducing their own expenditure, the net stimulative effect of fiscal actions will be reduced.

A part of what Bernanke intimates is that government debt and government spending are closely intertwined: debt is a function of that spending.  It’s also a function of taxes, since debt results from the accumulating excess of spending over tax collection, but the primary driver of debt is that spending and not the taxes or their collection.  After all, government has immediate and proximate control over its spending, but it has only indirect control over its tax collections—through tax rates which it sets and through the strength of the underlying economy, which is impacted by that spending.

But what is the impact on the US’ economy, for instance, from Federal spending and the associated national debt?  I have some graphs below which show that, but first I want to talk a little about our GDP.

Our Gross Domestic Product, the total value of the US’ economic output—our goods and services—is estimated by a simple, third grade arithmetic formula: GDP=C+I+G+(Ex-Im), or the sum of total consumer spending, business investment, and our net exports in our international trade.  Consumer spending and business investment together comprise the bulk of our private economy, the economy in which we and our businesses conduct our affairs.

Using this formula, many economists will insist that increases in government spending, perforce, increases GDP, and based on this formula they’re right.  However, the formula, far from being merely simple, is actually simplistic: it ignores the interactions between government spending and private economy activity—those interactions of which Bernanke spoke.

One further point: this formulation measures GDP in terms of the value of the goods and services, not the volume of production of these, which would be another measure of national economic activity.  By measuring GDP in terms of pricing, the measure is made susceptible to distortion through inflation.  By inflating prices, the value of GDP can be made to seem to increase, even if actual production is not rising as quickly, is stagnating, or even is contracting.

The first of these isn’t necessarily bad; a healthy economy will see production rise, after a lag, in response to (slowly) rising prices, and this can lead to more business investment and more jobs, and more consumer spending.  But the other two are plainly the result of a shrinking or even failing economy, disguised by that overall measure.

Now let’s return to Bernanke’s remarks and look at the effect of government spending and national debt on our private economy, the total of our spending and our business’ investment.  The graphs below were developed from data collected here, here, and here, and they cover US economic history from 1900 through 2012.

The first graph below shows the per cent change, year on year, in government spending and private sector activity.

It’s easy to see that while small changes in government spending from one year to the next have little impact on the private economy, large changes—the sharp increases during the two World Wars of the last century, for instance, and the avowedly stimulative spending of 2009 and since—actually have been counterproductive in terms of facilitating economic activity in the private sector.

Those sharp increases are associated with depressed private economic activity, while large drops in government spending are associated with increases in that private activity.  In Bernanke’s terms, taxpayers simply view government spending as wasteful (the present period) and/or as future debt to be borne by them (the two war periods), and reduced their own activity—were crowded out of the overall economy—by that spending.

A careful observer might notice the Depression period and wonder at the sharp increase in government spending there, followed by an increase in private sector activity.  This, though, is an example of price rises (here, smaller decreases than expected)—inflation*—increasing the price value of GDP while actual economic activity—the volume of production—remained depressed.  Unemployment, for instance, remained at historically high levels throughout the Depression, and prices were, by Federal policy, inflated (or not allowed to decrease IAW market forces) via FDR’s wage and (farm) price controls.

The next graph shows the relationship between year to year changes in government debt and private sector economic activity.

There’s not much difference between this debt graph and the spending graph above.  That’s to be expected, though, since government borrowing is a function of government spending.  The argument for the depressive effects of large changes in government debt on the private economy apply here, also.

This last graph shows the prolonged effects of large changes in government borrowing on private sector economic activity; it compares the year to year change in government debt with the two-year change in private sector activity, thereby illustrating a more prolonged effect from government borrowing.

Now the effect is even more pronounced.  The depressive effects of government (spending and) borrowing during the Depression become clearer, for instance.  Clearer, also, is the effect of large reductions in government borrowing: private sector activity picks up sharply after a reduction has lasted long enough for crowding out effects of the underlying government spending to have time to work out of the economy and as the players in the private economy—individuals and our businesses—start to believe that the borrowing and spending actually is reducing.

Finally, there’s this view of Larry Summers, President Barack Obama’s National Economic Council at the start of Obama’s first term and one of the architects of the destructive 2009 Stimulus package of spending moves:

Mr Summers says governments should borrow more now at near-zero interest rates to invest in future growth.

Summers is ignoring the fact that these low rates are artificially low due to Fed interference in the market for the purpose of keeping interest rates low.  These artificially low interest rates harm the economy, however: they’re future inflation, they’re future taxes—even these “low cost” borrowings have to be repaid—and they inhibit capital investment, house (and other big ticket item) buying, etc by making lenders less willing to lend—they can get better returns on their money elsewhere.

These artificially low rates are a future threat to our economy, also.  By encouraging profligate borrowing of the sort Summers favors, lenders—including sovereign lenders (e.g., The People’s Republic of China, Japan, the EU, and so on)—will lose faith in our ability to repay.  They’ll stop lending until the interest rates we’re willing to pay rise to fit that risk.  In addition to this, and separate from it, they’ll take their lending renmimbi, yen, euros, etc somewhere else where they can invest them at better rates of return.

 

*It was a depressionary period, certainly, but the government’s moves to artificially prop up prices during that time, rather than allowing the market to clear, was (relatively) inflationary: a smaller than to be expected drop in prices is as inflationary as is a larger than to be expected rise in prices.