Tag Archives: government

Europe Can Spend Its Way to Growth

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That’s the claim made by Hannes Swoboda, an Austrian MEP and President of the Progressive Alliance of Socialists and Democrats in that European Parliament, in a recent Wall Street Journal op-ed.

Mr Swoboda said about German reluctance to support continued excessive government borrowing:

Should companies that seek to grow not be allowed to take out loans anymore?  Should states, in order to fight recession and unemployment, not assume debt?

The first, of course, is little more than a disingenuous red herring.  Companies are not governments.  When a company (spends and) borrows too much and cannot repay, only the company’s investors and creditors, and in the most extreme cases the company’s employees, lose.  When governments (spend and) borrow too much, it is that polity’s taxpayers…well, we’re seeing the results of this sort of government irresponsibility play out today in Greece, California, Illinois, the United States as a whole.

…austerity politics and…their antisocial character, proven by record unemployment figures.  The collapse of some governments…notably in France and Greece…further demonstrate the political danger.

Of course generations of dependency on, and addiction to, government handouts don’t have anything to do with the pain of the forced withdrawal that results from these governments’ having run out of OPM.  Not a bit of it.  In fact, though, the only real, long-lasting political danger is to the political incumbents who find at risk their ability to keep the handouts coming and the capacity of the resulting dependency to preserve their power.

Then Swoboda (to coin a phrase) doubled down.

The fact that the current recession was preceded by a decrease of public investment in measures and policies that produce growth and employment clearly indicates that these must be the starting point of an alternative strategy.  In the evaluation of national budgets,…[e]xpenditures for these purposes should not be integrated in calculations of structural deficits….

Italian Prime Minister Mario Monti has already called for policies that favor targeted public investments in growth and employment.…

We actually need to go a step even further. … The European institutions should enact legislation that requires all members to make public investments in growth and employment.

Those public investment measures are nothing more than the repeatedly failed Keynesian policy of “stimulus” spending at the expense of necessary fiscal discipline.  In fact, the current European recession also was not preceded by an increase in private investment—because the money wasn’t available due to excessive taxes and high government spending and borrowing for those dysfunctional spending and borrowing efforts.

Moreover, any remaining government expenditures, including any Keynesian “stimulus” (is there any serious economist who still thinks stuff is sound economics?), must strictly be on the books and in the public’s view.  If Swoboda thinks his policies are so wonderful, why does he demand to hide them behind locked doors and in the secrecy of off the books crony deals?

Finally, Mr Swoboda, not trusting the people to make their own personal and business decisions, demanded to codify in international law a permanent government interference with the market place.

No.  The answer to Europe’s—and the United States’—problems are for government to get out of the way of the private economy.  To get out of the way of the flower of individual ingenuity and out of the way of the collective wisdom of private citizens.

Mr Swoboda had more fanciful claptrap, but you get the idea.  One can only hope that we get the idea this fall.

Progressives Didn’t Get It then, Either

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[I]n a free enterprise economy, increased production increases the number of jobs.  It might be said that one job creates another, which is true as far as it goes, but open to misinterpretation; for only productive employment does that.  If a man were paid to pick up pebbles on a beach and throw them into the ocean, it would be just the same as if he were in a “government job,” or on the dole; the producers have to supply his subsistence with no return, thus preventing the normal increase of jobs.  Putting the unemployed on the dole does not increase “purchasing power.”  The dole divides up what is already in production.

Isabel Paterson understood this in 1943 in her The God of the Machine [the emphasis is hers], and FDR’s Secretary of the Treasury, Walter Morgenthau, had come to understand it as early as 1939.  But the Progressives then didn’t get it, and the Progressives today still don’t.

Keynesian economics simply does not work in the real world.  Government spending, whether on “jobs” programs or on other goals, is not stimulative; it is depressive of an economy, in no small part by crowding out private demand and private spending for products—and here by increasing the cost of private labor.  The taxes and the borrowing—which are future taxes—which must occur in order to pay for the spending are even more depressive.  The taxes take money out straight out of the hands of the people who have the most interest in its value and the clearest understanding their purpose for their money, and they give it to government bureaucrats for spending on government purposes, whose loftier goals are handed down from on high by fiat.  Meanwhile, the government’s borrowing drives up the cost of debt for private borrowers, who have more carefully thought out purposes for the loans and more carefully thought out plans for repaying those loans.

Paterson’s remarks about jobs and productive jobs, in particular, also were clear then, as she wrote in the era of FDR’s Civilian Conservation Corps.  The distinction is just as clear today, with the added fillip that at least the CCC laborers were doing something.  The present administration’s “jobs” programs have done nothing.  They haven’t even produced jobs, as this note illustrates.

These things were apparent in the latter stages of the New Deal, and they’re apparent today.  This fall, we will have an opportunity to confirm our choice of two years ago and to strengthen it, or to repudiate it.  This fall, we must choose wisely.

Forms of Subsidy

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I’ve disparaged the concept of federal government subsidies in other writings, so I thought I’d take a post and identify some types of government subsidy to illustrate the range of handouts for which our pocketbooks are impressed.  Most of the forms below are Federal subsidies; although I do mention a few state-level subsidies, also.

One form of subsidy is direct money transfers.  These can take the forms of block grants to states, and they usually come with federal strings attached governing the use of the money, or the amount of money the states must put up in order to get the grant, or the state laws that must be enacted (vis., speed limits) in order for all of the grant to be delivered.

These transfers also often are based on the services being offered, as is the case with Federal Medicaid transfers, which depend on how many state citizens are eligible under the state’s rules.

Another direct transfer is unemployment insurance and food stamps.  In these programs, recipients have only to apply for the subsidy, and they begin receiving either money ( unemployment checks, for instance) or vouchers (food stamps are an example).

Another form of subsidy is preferential tax treatment for the favored group.  These can take the form of tax deductions or credits or exemptions from taxes.

Examples of tax credits include the Earned Income Tax Credit, tax credits to consumers for installing energy efficient items (e.g., geothermal heat pumps, residential-sized wind turbines, solar energy systems, and so on).  Other tax credits are aimed at the ethanol industry and renewable energy equipment manufacturers.

Tax deductions are available for oil and gas producers and for renewable energy producers and equipment manufacturers.  Other deductions exist for home (or business plant) mortgage interest, charitable contributions, age and disability on personal income taxes, and so on.

Individuals whose income is below a threshold are subsidized through being exempt from income taxes altogether.  The interest on some government borrowing (municipal bonds, for instance) can be exempt from taxes, and certain non-profit organizations are exempt from a variety of taxes.

Another form of subsidy is in the form of government loan guaranties, which enable the borrower to get loans at more favorable rates than they otherwise could.  These include, among others, student loan guarantees, home mortgage guarantees, and renewable energy company loan guarantees (recall Solyndra, et al.)

Another form of subsidy occurs through regulation.  A major example here is the protected monopoly status that utility companies and drug manufacturers get.  Such status protects the company from competitive pressures for a period of time (drug manufacturers and, not too distantly related, patent, copyright, license, and so on, holders) or for so long as government objectives are met (e.g., utility companies, who must comply with their (state) government rate requirements and criteria).

Other regulations are aimed explicitly at putting certain entities out of business.  The EPA’s clean air regulations aimed at coal-fired power plants are an example.

Another form of subsidy occurs through government mandates.  An example of these are mandates to buy (or sell) certain products (which can occur only at the expense of not having that money available to buy other products, even unrelated ones; or at the expense of not having that capital equipment or staff available to produce/sell other products, including unrelated ones).  The Patient Protection and Affordable Care Act’s Individual Mandate and the requirement to provide contraceptive services and abortifacients are illustrations.

Another type of mandate is a manufacturing one: producers must use fixed per centages of ethanol in gasoline manufactured for sale.  This mandate exists solely to create a market for ethanol that otherwise might not exist.

Another form of subsidy consists of government preferences.  These include preferential hiring requirements (military veterans, minorities, disabled, and so on) and preferential contract award requirements.  Preferential contracting includes preferences for minority-owned small businesses, and for small businesses, generally.

Another form of subsidy occurs primarily at the state level, particularly in those states that have union shop laws.  Such laws subsidize the unions either by requiring individuals to join a union as a condition of employment or by allowing the union to collect union dues from all employees in a company whether the employees are union members or not.  Such laws represent a large source of income for the unions in the form of dues they wouldn’t otherwise be able to collect.

Perhaps the most insidious subsidy is in the form of government-mandated affirmative action programs.  Such programs require the government to give greater weight to some citizens in its hiring (which weight can only come at the expense of other citizens trying to compete for the same job) and to give greater weight in its contracts to some entities—which again can come only at the expense of other entities bidding on the same contract.  Note that while these are closely related to the government preferences noted above, they differ in a critical way: affirmative action is based solely on race, gender, or ethnicity.

This is not an exhaustive list, either of type of subsidy or examples within each type presented, by any means, but you get the idea.  Nor have I offered any judgment concerning the legitimacy of any of the subsidies; that’s for another post.

Some Government Health Mandate Fallout

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President Obama  insists, in response to religious organizations’ concerns, that the costs of birth control coverage can simply be shifted to insurance companies for those organizations with religious objections. This, though, simply demonstrates Obama’s cynicism.  The costs are far more than those of mere money.  The costs are moral, and shifting pecuniary costs to others (itself an egregious immorality) has no impact on this.

Some organizations recognize this moral cynicism and are demonstrating the courage of their convictions.  Vice President of Advancement at Franciscan University in Steubensville, OH, Mike Hernon told Fox News

We couldn’t believe the price (increase).  We had [their insurance company] go back and reconfirm it.  They said it was dictated by coverage limits that were released by the Obama administration.

The university had been excluding contraceptive services and related medications from its health insurance programs for its students.  The price increase that so shocked Hernon was a tripling: from $600 per year per student to $1200 for the fall semester and to $1800 the following year.  A large part of this increase was driven by the Patient Protection and Affordable Care Act’s mandate that the coverage available be increased to $100,000 for the students—for coverages that students don’t need.

As a result of the cost and of the moral violation the PPACA mandates demand, Franciscan University will be dropping its student health insurance coverage altogether.  This school cannot take part in a plan that

requires us to violate the consistent teachings of the Catholic Church on the sacredness of human life.

Hernon added that

This is putting people in a position where they are having to choose between their faith and their morality, and now an unjust cost.  These sorts of regulations from the government are forcing our hand in a way that’s really wrong. … At the end of the day, it’s the students who are hurt by this[.]

Franciscan University’s complete statement on the matter can be found here.

They’re not alone.  Ava Maria University, a private university in Florida is considering taking the same step for the same reasons.  University President James Towey says

My own sense is, I don’t see…how it makes sense for us to stay in this.

Towey noted that Ava Maria is looking at a cost increase of 65% – 85% from their current insurer.  He tried shopping the coverage, but other major insurers “wouldn’t even give us a quote.”

Do it my way, insists Obama.  Your moral objections don’t matter.  And never mind the cost, just pony up.  But this just demonstrates the failures: Obama not only is terrified of a free market in goods and services—dependency on government isn’t needed in such an economy.  But he’s also terrified of a free market in ideas.

Update: On Monday, Ave Maria University decided to go through with discontinuing its student health insurance plan.  University President James Towey said in a written statement

It is a sad day when Ave Maria’s students are forced to choose between enrolling in a health insurance plan that is both costly and offers morally objectionable benefits, and having no coverage at all.

Arms Reduction

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An “advocacy group” calling its self, not at all pretentiously, Global Zero, has begun arguing that the US only needs 900 nuclear weapons: 450 deployed and another 450 “stored.”

The group also wants the reductions to occur over the next ten years

with Russia in unison through reciprocal presidential directives, negotiated in another round of bilateral arms reduction talks, or implemented unilaterally.

and the reductions should include

a de-alerted operational posture requiring 24-72 hours to generate the capacity for offensive nuclear strikes, thereby relieving the intense pressure on nuclear decision-making that currently exists[.]

Then they argue that the deterrent value of large nuclear arsenals from the Cold War add no strategic value to vis-à-vis current threats.

Finally, they insist  that defense spending tight, a (claimed) savings of $100 billion over those 10 years would result.  And they justify this with

There is no conceivable situation in the contemporary world in which it would be in either country’s national security interest to initiate a nuclear attack against the other side.

Where to begin?

When did the Cold War end?  All that’s happened is that Russia and China have replaced the USSR, and we’ve had a multi-front shooting war thrust on us by terrorist organizations and their supporting nations.  Moreover, whence this magic number of 900?  That’s not many targets against sophisticated, powerful foes with dug-in weapons systems and deep bunkers connected by thousands of miles of tunnels within which to hide additional nuclear weapons.

Next, what “intense pressure on nuclear decision-making” do these folks think a President is facing with ICBMs inbound?  The pressure of fear certainly is real—of personal death, of the destruction of our country, of the surviving population delivered into slavery to a victorious enemy.  However, the choices are simple: to retaliate—and then go onto the offensive to win, and so our nation to survive—or to surrender.  This is no-brainer, not least because, with the missiles en route, it’s already too late to surrender.

GZ supports this position with the argument that a nuclear-armed, and increasingly so, Russia (a nation that already has threatened to attack our defensive installations if we actually emplace them on our allies’ soil) and a nuclear armed, and increasingly so, China (a nation that is increasingly aggressive against our allies) are not threats.

Leaving aside the foolishness of “tight defense spending” in a time of nuclear and conventional capability expansion by our enemies, $100 billion over 10 years is chump change.  That savings could be achieved by eliminating some of the FWA that “everyone knows” is present in—pick a—government department.

They’re also assuming that nuclear weapons development, deployment, and operation have no value in countering terrorist nuclear threats from Iran, northern Korea, and the terrorist organizations to which they will give nuclear bombs.

Moreover, the “either unilaterally or through negotiations” quest is naïve: it simply means unilaterally, since the position carries within it unilateral disarmament as an option.  And this is pre-emptive surrender.

In the end, the report is naïve or deliberately misleading.  It assumes that Russia and Chinaare interested in arms reduction.  They’re only interested in US arms reductions.  They’re already in the process of upgrading and updating their military forces, including their offensive nuclear forces.  They’re already in the process of increasing the numbers of those forces.