Tag Archives: political economy

The State of Our Nation’s Economy

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Senator Jeff Sessions (R, AL), Ranking Member of the Senate Budget Committee, had some in his opening remarks at last Wednesday’s Committee hearing on the President Barack Obama’s FY2015 budget proposal (Treasury Secretary Jack Lew was the opening witness here).

Thank you, Secretary Lew, for appearing before us today.

In 2009, the Administration wagered America’s financial future on the idea that a record increase in government spending and debt would revive the economy.

Since then, government debt has increased 64% and is on track to double by the end of the President’s second term.  What are the results?

  • America is in the midst of slowest recovery since the end of World War II.
  • Workforce participation has shrunk to a nearly 40-year low.
  • The Labor Department reports that most occupations pay less today than they did when the President took office.
  • Government debt has leaped from roughly $10 trillion to $17 trillion, yet median income has dropped $2,268 per household over that same time, and the decline has actually accelerated.

This is a huge disaster.

The justification for this unprecedented accumulation of debt was the claim that it would lead to prosperity.  And yet now, we have none of the prosperity and all of the debt.  This plan has proven to be one of the most costly failed gambits in American history.  The White House’s average 2013 growth projection in their 2009 through 2012 budgets was 3.9%.  Economic growth is critical for America’s workers-translating into higher wages and better jobs with benefits.

But actual growth last year came in at half what was projected, 1.9%—a huge difference with real impact on millions of Americans.  For example, CBO has repeatedly said that the Administration’s $870 billion stimulus bill would be a long-term drag on the economy.

So what does the President propose in his new budget?

The plan increases spending growth by almost $1 trillion, bursting through the Ryan-Murray spending caps he signed into law only two months ago.

So, while the military gets hammered, other agency budgets soar.  The White House proposes the following increases next year:

  • A 45% increase for the Department of Housing and Urban Development
  • An 18% increase for the Legal Services Corporation
  • A 15% increase for the Department of Energy
  • A 30% increase for the Commodity Futures Trading Commission, and
  • A 7% increase for the Bureau of Consumer Financial Protection.

The plan also raises taxes more than $1 trillion—in addition to the $1.7 trillion in taxes he’s already enacted.  New proposed taxes include:

  • Limit the value of itemized deductions to raise taxes by almost $600 billion.
  • Raise the death tax and reduce the exclusion to increase taxes by over $100 billion.
  • Increase taxes on unemployment insurance by $78 billion.
  • Increase taxes on energy production by $49 billion.

So the President raises taxes to increase spending.  It is a tax-and-spend budget that will never pass. Altogether, the White House budget plan would add another $8 trillion to our $17 trillion debt.

The seriousness of the situation is demonstrated by this fact: last year, we paid our creditors $221 billion in interest on our federal debt.  Under the President’s plan, according to his own numbers, annual interest payments will nearly quadruple to $812 billion.

Rising interest payments represent arguably the gravest threat to our nation’s financial security.

Should interest rates increase even slightly above projections, the costs of financing our debt would quickly surge to emergency levels.  As the Director of the Congressional Budget Office warned, we face “the risk of a fiscal crisis.”

Clearly, we must pursue a new course that creates jobs and that does not add to our debt.  Here’s how:

  • Produce more American energy to create jobs right here in the US
  • Streamline the tax code and lower rates to make America more globally competitive
  • Eliminate every unnecessary regulation that destroys jobs
  • Adopt a trade policy that defends the legitimate interests of US workers
  • Enforce an immigration policy that serves American workers
  • Turn the welfare office into a job a training center
  • Make government leaner, doing more with less
  • Balance the budget to restore confidence and growth

A couple of idle thoughts: That addition of $8 trillion to our debt by the Obama budget is an optimistic figure, depending on interest rates not rising, despite the Fed’s OEx programs and easy money position.

For perspective on how the Obama budget debt payment growth fits in with the other growths projected from his budget, see here.  [Note: the article is behind Ricochet‘s pay wall.  I strongly recommend you subscribe; it’s well worth the $29.95 per year.]

Other than that, what Senator Sessions said.

A Twist on Sanctions

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It turns out that all Crimean fresh water, 75% of its electricity, and—wait for it—a third of its natural gas run through the Ukrainian province of Kherson, which sits just on the mainland side of the peninsula that connects Crimea with the mainland.

Last week, Kherson’s regional legislature overwhelmingly passed a motion supporting the preservation of Ukraine’s territorial integrity.

Kherson’s leadership also said they’ll shut everything off if the referendum on joining Russia goes forward this weekend.

Hmm….

Fannie and Freddie “Restructuring”

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Federal National Mortgage Association—Fannie Mae—and Federal Home Loan Mortgage Corporation—Freddie Mac—are at the heart of the US housing industry, since they play a central role in guaranteeing a major fraction of the mortgage loans through which we Americans buy our homes.  They also lie at the heart of the housing bust that was a major cause (albeit not the only one) of the Panic of 2008.  Their role in the bust stems from their decision functionally to waive credit standards and to encourage anyone with two nickels to rub together to borrow to buy a house, whether those borrowers could afford to make the loan payments or not.  And too often Fannie and Freddie waived the two-nickel standard, too.

The mortgage industry cries out for major reform, and now some of that reform might be in the offing.  A plan worked out by Senate Committee on Banking, Housing, and Urban Affairs Chairman Tim Johnson (D, SD) and Committee Ranking Member Mike Crapo (R, ID) and preliminarily agreed by President Barack Obama looks do away entirely with Fannie and Freddie and to replace them with a system of Federally insured “mortgage securities” whose private insurers would be required to take initial losses before any government guarantee would be triggered.

Of course, Senate Majority Leader Harry Reid won’t like the bill because it has Republican fingerprints on it.  House Republicans won’t like the bill, either, since they’re opposed to any government backstop in the private economy.  This isn’t a done deal.

This is, though, a valuable and needed step in the right direction.

There’s no arguing with a tired old man who insists on clinging bitterly to his hatred of all things Republican; Senate Democrats need to lose their fear of him and bypass him on this matter.

On the other hand, the chuckleheads in the House do have a chance to get smarter all on their own.  They’re right to insist that there be no Federal backstop in the housing market, much less in private economy, generally.  However, they also need to understand that this deal isn’t the final step, and that if they hold out for everything all in one fell swoop, they won’t get anything at all.

They should pass this deal, if it gets to them in substantially this form, and then they should begin working on a follow-on bill that withdraws that Federal backstop.  After all, if the free market wants such a thing—in the insurance industry, it’s called reinsurance—a market for mortgage reinsurers will develop.  If such a market doesn’t develop, it’ll be because the free market doesn’t need one.  If the governments of the individual States think such a thing is a good idea for their citizens, they can face their citizens and propose such a thing.  If the citizens of those States demure, then a State government backstop isn’t useful.

Step by step.  Slowly, and so surely.

EU Trade Protectionism

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Now the EU is looking to claim that cheeses originally made in Europe cannot be made anywhere else and marketed under those European generic names: feta and parmesan cannot be made in the US, but only in Greece and Italy, for instance.  Never mind that it’s the same cheese made here, the manufacturers have to use different terminology to market their cheeses, the EU is demanding.  The EU even is (mendaciously, say I) claiming that feta, for instance,

is so closely connected to Greece as to be identified as an inherently Greek product.

As if that original connection matters at all in a global market.  And, never mind that feta produced elsewhere is plainly competitive, if not superior, or there’d be no market for that produced-elsewhere feta.

The AP says that this sort of thing is

important for the EU as Europe has tried to protect its share of agricultural exports and pull itself out of recession.  The ability to exclusively sell some of the continent’s most famous and traditional products would prevent others from cutting into those markets.

Never mind that Europe does not own any share of any market; the market is possessed (not owned) by the aggregation of individual buyers and sellers that choose to operate in it.  Europe—as with any participant—earns a share of a market by competing effectively in it.

No, this is an issue that needs to be dragged out until after the 2016 elections, and we get a President that has the moral courage to stand up for American, if not free market, interests.