Category Archives: Economics

Miscellaneous economy stuff

Some Government Spending

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Progressives in Congress and the White House are loathe to reduce spending—especially actual reductions, not just the reduced rates of growth that they, along with too many Republicans, masquerade as spending reductions.  This reluctance is part of why they’ve been so indisposed toward passing a budget, which would make their spending excesses even more apparent.

Bret Baier, of Fox News, though, has dug out some numbers illustrating the present excesses.  Just last November, for instance, the Federal government collected $5 billion in total revenue, while spending $11 billion, each day of the month, for a spending excess of $6 billion per day.  The table includes Baier’s numbers and provides some of the biggest spending sources.  (The Totals sums won’t agree  between across and down due to rounding.)

Spender Daily Tab ($billion) Monthly Tab ($billion) Projected Annual Tab ($billion)
Department of Health and Human Services

3

90

1,080
Social Security

2.5

75

900
Department of Defense

1.8

54

648
interest on the national debt

0.85

25.6

307.4
Totals

8.2

244.6

2,935

Notice that the two biggest spenders are Obamacare—HHS—and Social Security: two of the entitlements which the Progressives have already said are not negotiable—no matter the damage to our economy.

Notice further that those $300+ billion in debt interest are utterly withdrawn from our economy; it’s just the vig on our debt.  Those dollars don’t circulate.  Moreover, that vig doesn’t pay down the debt a single fēn (分).  Then, too, when interest rates revert to our historical levels in the neighborhood of 5% from our current roughly 0.25%, those interest payments will explode to the region of $6,148 billion—over $6 trillion.  Per year.

No wonder the Progressives are so reluctant to discuss spending or actual deficit elimination and debt reduction.  That would be hard.

The Fed’s Move

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In the last week, the Federal Reserve Bank has said that it’s going to keep on buying mortgage debt (euphemistically called “mortgage-backed securities (MBS)”), and that it’s actually going to increase the purchase rate.  In addition to buying up MBS at $40 billion per month, they’re also going to buy $45 billion/mo of T-bonds.  Astonishingly, they’re going to pay for both by issuing new reserves to banks.  The Fed will continue to do this until certain unemployment thresholds are crossed.

James Pethokoukis, writing for Ricochet, suggests in quoting Economist David Beckworth, that this is a good thing:

It makes very clear to the public that the Fed will not stop until these targets are hit.  Markets, in turn, should respond in anticipation of these goals being hit.  That is, the elevated demand for liquid assets should start declining as households and firms start moving their funds into higher yielding assets.  This rebalancing should raise asset prices, help repair balance sheets, and ultimately spur nominal spending.  In other words, by better managing expectations, the Fed should cause the public to do the heavy lifting—and they already have started.  If all goes according to plan, the Fed may not have to actually purchase that many additional assets.  Ironically, this means that had the Fed been doing this all along its balance sheet would be much smaller now

On the other hand, King Banaian, also for Ricochet, writes

This would induce private lenders to leave the MBS market and hopefully make loans to the business sector.  Meanwhile, short-term interest rates would rise.

…

Reserves eventually become money.  Currently, most reserves are held by banks who receive interest on them from the Fed.  In short, the Fed is using its profits from operating in money markets to induce banks not to lend the reserves they are printing with one hand, while manipulating interest rates to encourage borrowing with its other.  And this process threatens to debase our currency.  The lone dissenting vote from Wednesday’s meeting, Richmond Fed president Jeremy Lacker, noted the Fed had only a few years ago agreed with Treasury that steering credit is not a job for monetary policy. Yet now that’s precisely what they’re doing.

The problem is that the power of all that additional money in the economy, when it does start to get spent (assuming the Fed’s credit manipulation works and “higher yielding assets” do turn into increased spending)—and lent, which exponentially expands the capacity to spend—is explosively inflationary.  By the time that inflation is recognized to be on the horizon, though, it’s actually already in full throat.  That inflation will then destroy the value of all that extra money poured into the economy, leaving us all where we are today—only with three times as much money, each dollar of which is capable of buying only one-third as much.

Maybe the Fed should stop.  Maybe the Fed should simply get out of the way and let our economy recover without the strait jackets of Fed debt-buying and of Progressive Do-Good welfare pushing.  The Fed can’t do anything about the one.  But it doesn’t have to do the other.

And this doesn’t even get into the smoke and mirrorsexpectation management that the Fed now admits is the sum and total of all that it’s doing.

The Future of American Youth?

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In France, we’re seeing the impact on the nation’s youth of their government-managed economy, magnified by the union-driven difficulty (near impossibility, actually) of getting rid of extraneous labor (or even bad workers).  Spiegel Online International offers some insight.

Kafui Affram doesn’t feel at home in either environment, not in the suburb where the 22-year-old still lives in his childhood room in his parents’ little house [or in Paris, his suburb’s parent city].

Still living with his parents.  Just like America’s youth, especially in the Age of Obamacare.

Some 23 percent of the country’s 18- to 24-year-olds live in poverty, according to a study by the National Institute for Youth and Community Education (INJEP).

The poverty rate for America’s youth as recently as 2009 was 20%.  It’s not going to improve any time soon; the unemployment rate for America’s youth was 17.1% in July 2012, at the height of the summer season for employing our youth, and the unemployment rate for their parents has been hovering around 10% for the last four years after factoring in the effect of our shrinking labor participation rate.  Then,

Youth unemployment in France has been high for some time, but it has now climbed to 26%.  For decades, regardless of their political affiliation, lawmakers have been promising to create a better situation for young people.  But exactly the opposite has happened.  Labor laws protect those who already enjoy steady jobs, while the economic crisis and recession have limited the number of new jobs created.

On Socialist President François Hollande and his program for creating of “future jobs,” Affram says,

We’re used to politicians constantly coming up with new ideas.

Yeah, we’ve heard that, too, and from the same sort of source.  With the same degree of confidence that Affram has:

I know I should be optimistic and have goals, but it’s mostly all just bleak.

Misguided Conceptions

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Another example is “conservative” complaints that, with Obamacare here to stay (misconception number one; although its repeal has gotten harder), the states perforce must set up state health insurance exchanges, rather than leaving that to the Federal government.  One example is from Douglas Holtz-Eakin, Congressional Budget Office Director under President Bush the Younger, who has

repeatedly warned GOP officials that they will be “outfoxed and overrun” if they leave the exchanges to Obama administration officials.

He warned that the administration could impose too many regulations, ultimately ruining the exchanges and opening the door to a “Washington takeover of health care.”  He added, “If conservatives allow it to happen, they will be consenting to an unprecedented and potentially irreversible intrusion into states’ economies and health-care systems.”

Holtz-Eakin misunderstands, though.  With the Feds retaining the rules by which the exchanges will be allowed to operate—including what coverages must be offered and the rate bands within which they must be offered—and declining to discuss costs, a “Washington takeover of health care” is already in progress.  State-run exchanges, whose function is controlled by the Federal govenrment already represent “an unprecedented and potentially irreversible intrusion into states’ economies and health-care systems.”  That’s the primary misconception in this context: that the states have any useful control over “state-run” exchanges.

Moreover, any Federal funds allocated to state-run exchanges will be on the one hand, by design inadequate to cover the total cost of the exchanges and on the other hand are easily withheld or cancelled outright, leaving the whole of the expense to the states’ citizens to cover.  But this risk simply draws the states further into dependency on the Federal government.

The upshot is that these exchanges contribute to placing the states into the same relationship to the central government as counties are relative to their states: “merely as districts to facilitate the purposes of domestic order and good government,” in John Jay’s words.

The states are right to decline to share the costs, and they are right to decline voluntarily to participate in the continued derogation of their position vis-à-vis the Federal government.

Cynical Refusal to Negotiate

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Fox News has this example from the Progressives in Congress.  House Minority Leader Nancy Pelosi (D, CA) is refusing even to discuss the possibility of raising the initial eligibility age of Medicare, and Senator Dick Durbin (D, IL) echoes her no-negotiate position.

Raising the Medicare age represents more of the same.  For seniors nearing retirement, it means less security for themselves and their families.  It betrays the bedrock promise of Medicare: that Americans who work hard and take responsibility all their lives can know dignity in their later years.

Yet how can Americans know dignity in our later years?  An overweening government forces us onto the largesse of strangers for, in the present case, our health concerns, and it denies us our ability to set aside those funds for our own future welfare thereby denying us our ability to satisfy our duty to see to our own welfare to the maximum extent possible?  We are denied our dignity by an intrusive government, led by Progressives who refuse to negotiate reform.