Tag Archives: economics

The Wages of…Bailouts

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Having been “protected” from the outcomes of their own economic decisions and given an EU bailout instead, Ireland seems to have become dependent on the largesse of others and incapable of working through their own problems toward their own prosperity.

Here’s what’s going on now, as described by Christoph Pauly of Spiegel Online International [emphasis added].

Ireland’s demands are very precise—and could be costly for the Germans.  At stake are the €31 billion that the country received from the system of European central banks to save two crisis-ridden Irish financial institutions in 2010 [Note: this is the original bailout].  The country is expected to pay this money back in installments over the next 10 years.

Already last year, the Irish pushed long and hard until they were allowed to pay back the first installment with the help of a new loan.  But that was not a long-term solution.  Starting this year, the state will explicitly be liable for the debts of Ireland’s nationalized banks.  This has prompted the Irish to look for a more creative solution this year.  “We would like the payback period for the debts to be extended and the interest rates to be cut to a reasonable level,” European Affairs Minister Lucinda Creighton told SPIEGEL.

… For [ECB President Mario] Draghi, the simplest solution would be for the European Stability Mechanism (ESM), the euro zone’s €700 billion permanent backstop fund, to step into the breach and take over the debt.

Kenny would ideally like to use the ESM as a way of getting European taxpayers to shoulder the risks associated with all the debts of the Irish banking sector.

The “European taxpayer” should no more be in the business of indemnifying the Irish (or the Greeks, or anyone else) from the consequences of their own decisions today than they should have been put on the hook via the first bailout.  However, having been addicted to OPM for their own problems, the Irish government is finding that addiction hard to break.

It’s important to note another factor.  The Irish did not did not want that original bailout, and they did not voluntarily ask for  it.  They were dragged kicking and screaming into it, the money forcibly injected into the veins of their banks.  The dependency of the bailout is no less powerful for that, however.

What He Said

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President Barack Obama said from his vacation home in Hawaii that if the two parties

focus on the interests of our country above the interests of party, I’m convinced we can cut spending and raise revenue in a manner that reduces our deficit and protects the middle class[.]

Indeed.  If the Progressives will heed the President’s advice and work toward cutting spending, we can not only “protect the middle class,” but we also can restore upward economic mobility to our poor—a group of Americans whom the Progressives ignore as assiduously as they disparage successful Americans.

Moreover, such a move will unburden our economy, allowing it to grow and thereby raise revenue for the government in, to coin a phrase, a responsible way.

So—when are you going to start, Ace?

On Raising the National Debt Ceiling

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Mr President, I rise today to talk about America’s debt problem.

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure.  It is a sign that the US.   Government can’t pay its own bills.  It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.

Over the past 5 years, our federal debt has increased by [$5.7 trillion to $16.4 trillion.] That is “trillion” with a “T.”  That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers.  And over the next [4 years, between now and 2017, the President’s budget will increase the debt by almost another $3.5 trillion].

Numbers that large are sometimes hard to understand.  Some people may wonder why they matter.  Here is why: This year, the Federal Government will spend [$483] billion on interest.  That is more money to pay interest on our national debt than we’ll spend on Medicaid and the State Children’s Health Insurance Program.  That is more money to pay interest on our debt this year than we will spend on education, homeland security, transportation, and veterans benefits combined.  It is more money in one year than we are likely to spend to rebuild the devastated gulf coast in a way that honors the best of America.

And the cost of our debt is one of the fastest growing expenses in the Federal budget.  This rising debt is a hidden domestic enemy, robbing our cities and States of critical investments in infrastructure like bridges, ports, and levees; robbing our families and our children of critical investments in education and health care reform; robbing our seniors of the retirement and health security they have counted on.

Every dollar we pay in interest is a dollar that is not going to investment in America’s priorities.  Instead, interest payments are a significant tax on all Americans—a debt tax that Washington doesn’t want to talk about.  If Washington were serious about honest tax relief in this country, we would see an effort to reduce our national debt by returning to responsible fiscal policies.

But we are not doing that.  Despite repeated efforts…the Senate continues to reject a return to the commonsense Pay-go rules that used to apply.  Previously, Pay-go rules applied both to increases in mandatory spending and to tax cuts.  The Senate had to abide by the commonsense budgeting principle of balancing expenses and revenues.  Unfortunately, the principle was abandoned….

As a result, tax breaks have not been paid for by reductions in Federal spending, and thus the only way to pay for them has been to increase our deficit to historically high levels and borrow more and more money.  Now we have to pay for those tax breaks plus the cost of borrowing for them.  Instead of reducing the deficit, as some people claimed, the fiscal policies of this administration and its allies in Congress will add more…debt for each of the next 5 years.  That is why I will once again cosponsor the Pay-go amendment and continue to hope that my colleagues will return to a smart rule that has worked in the past and can work again.

Our debt also matters internationally.  My friend, the ranking member of the Senate Budget Committee, likes to remind us that it took 42 Presidents 224 years to run up only $1 trillion of foreign-held debt.  This administration did more than that in just 5 years.  Now, there is nothing wrong with borrowing from foreign countries.  But we must remember that the more we depend on foreign nations to lend us money, the more our economic security is tied to the whims of foreign leaders whose interests might not be aligned with ours.

Increasing America’s debt weakens us domestically and internationally.  Leadership means that “the buck stops here.”  Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren.  America has a debt problem and a failure of leadership.  Americans deserve better.

I therefore intend to oppose the effort to increase America’s debt limit.

Senator Barack Obama (D, IL) 16 Mar 2006, Congressional Record Volume, 152, Number 34 (Thursday, March 16, 2006)] [Senate] [Pages S2236-S2241]

What he said.  Figures in brackets updated to 2013.

Some Miscellaneous Tidbits on Our Economy

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Update: And here’s the actual post [sigh]:

The Wall Street Journal a short time ago printed an updated graph that’s been around for a while; here it is:

That same article pointed out that we currently have 4.2 million fewer employed than we had four years ago—that’s the strength of the failed recovery under President Barack Obama’s policies.  Somebody else also talked (here, here, and here) about where we’d be today were this administration’s policies focused more on employment and economic recovery and less on naked redistribution and outcome equalization.

A rule of thumb, as the WSJ also notes, says that unemployment generally falls by a half per centage point for every per centage point of growth above the long-run trend.  Note, though, the graph above.  We’re not even getting back to our trend, much less getting above it.   Which emphasizes the effect of our shrinking labor force as more and more Americans continue to give up hope of changing their situation and finding an actual job.

Now, the Federal Reserve Bank has cut its long-term growth forecasts: in early 2011, they put the long-term US growth rate at 2.5% to 2.8%.  Now they’re expecting a trivial 2.3% to 2.5%–which is not going to get us back to the long-run trend, much less above it so we can start bringing down our true unemployment rate and actually get Americans back into the labor force and back to work.

Excuses

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During the Great Depression, in an effort to help farmers, the FDR administration got legislation passed that put a floor under the prices farmers could collect for their produce.  At roughly the same time, in order to help out the working man in a time of enormous unemployment (ranging from nearly 16% to over 25%), FDR got legislation passed that put a floor under the prices a man could charge for his work.  With this combination of artificially inflated food prices and a unemployment exacerbated by artificially inflated labor prices, it became exceedingly difficult for Americans to buy food for their families.

The FDR administration “cured” this, not by removing their harmful pricing controls, but by inventing and issuing food stamps—subsidies for purchasing food.

Fast forward to the present, and look at Oregon.  In an era of government mandates for fuel efficiency in our cars (not all of which originated in Oregon, to be sure), governments are seeing falling tax revenue from decreasing private sector fuel purchases.  In Oregon, in particular, though, folks are buying fuel-efficient automobiles, with some vehicles getting over 55 mpg.  The Oregon state government is looking at “curing” this, not by stimulating its economy tax and spending reductions, but instead at creating a new tax.

Beaver State lawmakers, in their upcoming session, are expected to consider legislation that would impose a charge on vehicles that get at least 55 miles per gallon of gasoline, in an effort to make up for lost gas-tax revenue[.]

After 2015, owners of these high-efficiency vehicles would either have to pay an undetermined per-mile tax calculated by GPS technology, or some alternative flat rate option.

Hmm….

Any excuse to grow government, it seems, is a good excuse to grow government.