Tag Archives: political economy

Regulatory Reform

Posted on by
Reply

The eyes of Texas are upon us….

Competitive Enterprise Institute‘s OpenMarket.org describes regulatory reform, Texas style.  In 1977, Texas enacted legislation that automatically kills state-level agencies after a named duration unless a subsequent legislature explicitly votes to extend that agency.  More, the question of extension isn’t even permitted to come up for a vote unless a Sunset Advisory Commission favorably recommends it first.

OpenMarket notes the results:

Through this process, the commission [10 legislators and 2 members of the public] has abolished 78 state agencies and saved $945.4 million in a 29-year period [through 2006].  Since the Sunset Commission’s expenditures over this time period were just $32.8 million, every dollar spent on this program has yielded about $29 in return.

We don’t have a bloated government here.  And surviving agencies exist because they actually do their jobs, and so they’re capable of justifying their existence to the commission—and to the Texas citizenry through those two public members.

Maybe the Federal government needs a similar Act—not addressing only the agencies, but the Cabinet Departments, as well.

Texas’ law can be read here.

Progressive Policies and the Middle and Poorer Classes

Posted on by
Reply

I’m picking on California here, but only for concreteness’ sake—there’s nothing unique about California’s Progressivism.

  • [California’s] zoning laws, which liberals favor to control “suburban sprawl,” have constrained California’s housing supply and ratcheted up prices.  …land restrictions became common in high-income enclaves during the 1970s—coinciding with the burgeoning of California’s real-estate bubble—and have increased income-based segregation and inequality.
  • California’s staggering labor and energy costs—it has the nation’s most stringent fuel and renewable standards—have helped kill hundreds of thousands of manufacturing jobs in California’s interior.  Note: Those are jobs that traditionally served as entry points to the middle class. The Golden State has shed a third of its manufacturing base over the past decade.
  • California’s non-manufacturing businesses are also moving or expanding operations where labor, land, energy, and capital are cheaper.  Comcast announced in the fall that it is moving 1,000 call-center jobs out of California because of the “high cost of doing business.”  Facebook, eBay, and LegalZoom have opened up Texas offices in the past few years, while PayPal, Yelp, and Maxwell Technologies have pushed into Phoenix.
  • California’s small businesses that can’t leave…so easily have been slow to invest because they are financially squeezed.  Rents are prohibitive, and Sacramento takes 9.3% of every dollar over $49,000—and 13.3% over $1 million—that an individual or small business owner earns.

There’s more.

Suppose that the Fed raises interest rates to 5% over the next few years.  This is a reversion to normal, not a big tightening.  Yet with $18 trillion of debt outstanding, the federal government will have to pay $900 billion more in annual interest.

That’s money that could have been committed to actually paying down the debt Progressives have saddled our middle and poorer class grandchildren with: of those $18 trillion, nearly a third was added in the last four+ years.  That’s money that could have been committed to lower tax rates so our middle and poorer class families could keep more of what they earned for their own purposes.  That’s money that could have been committed to transitioning our Social Security and Medicare programs to defined contribution plans rather than defined benefit ones, so that our middle and poorer class families could have more control over their own families’ future and their own families’ retirement and health expenses.

But wait—there’s still more: consider our Social Security and Medicare programs.  They’re going broke—Social Security will be forced to reduce benefit payouts to 75% of current levels by 2035 because the Social Security Trust Fund will run out of money by then, and payouts will come entirely from then-current payroll taxes.  Or the government will borrow more (and so raise future taxes) to cover the difference.  Or it will raise taxes currently to cover that difference.  Either way, those taxes are money taken away from the middle and poorer classes, thereby preventing them from seeing to their own goals and needs as fully as they could.  And those future taxes, to cover present borrowing, will rob our children and grandchildren similarly.

Medicare’s Hospital Trust Fund will run dry by 2024, reducing hospital payments to 87% of their current level since these will be entirely dependent on current payroll taxes.  Unless the government borrows or raises taxes, with the same deleterious impact on our middle and poorer classes as with Social Security.

Progressives, though, won’t allow any reform for these programs, other than raising taxes on an already overtaxed American citizenry.

Market Indexes and Economic Strength

Posted on by
2

The Dow Jones Industrials closed at a new high last Tuesday, running over 14,250.  This performance is being touted as having put the vicissitudes of the Panic of 2008 behind us.

Certainly, the stock market has been good for investors like me, which I hinted at a while ago.  And guys like Chief Investment Officer Jack Ablin, of BMO Private Bank, which manages about $66 billion think so, too.

It really does represent an achievement that we have climbed out of this crater.

There is a dangerous misapprehension in this, though.  In fact, the damage done by the Panic remain with us in our failed recovery:

  • unemployment remains near 8%, and higher than when President Barack Obama took office
  • total lack of employment, in which term I include underemployed and those who’ve given up, remains near 14%
  • our labor force participation rate 63.8% which is down from 65.8% in Dec 2008
  • 12 million Americans remain without jobs, an historic high for “recoveries” as old as this one
  • 4.7 million Americans remain long-term unemployed; this is 38% of our total unemployed
  • nearly 48 million Americans are on food stamps today, a 70% increase over the roughly 28 million of us in Dec 2008
  • Americans below the poverty level number 46 million, or 15% of us, as of 2011, compared with 13%, or 39.5 million, at the end of the pre-Obama years
  • $6 trillion have been added to our national debt

And so on.

The failed recovery, the damage from the Panic, the real economy of real Americans are all still with us.  Pay no attention to the market behind the curtain.

Update: Today’s jobless report has the unemployment rate falling to 7.7%, the lowest in nearly five years.  Looking behind this number, though, the labor force participation rate, which governs the denominator in the unemployment rate calculation, fell to 63.5%.  This represents a loss of 130,000 Americans from that participation rate.  The fall in the unemployment rate seems a smaller drop when put in context.

Sessions on Progressive Obstructionism

Posted on by
Reply

Senator Jeff Sessions (R, AL) in his closing remarks preparatory to casting his vote on the Jack Lew confirmation last Wednesday, had this to say on a related matter.

I would also like to place this [confirmation vote] in a wider context.

Today is the 1,400th day since Senate Democrats passed a budget.  Why has this gone on so long?  Because they decided it would be better to offer no solution, no plan to help struggling Americans, and instead to tear down anyone who dared to offer a plan to solve our nation’s economic problems.

This is the heart of the problem here in Washington right now.  We have one political party that sees the budget debate as exercise in political warfare, not problem-solving.

At the center of this strategy is the White House.

In his campaign for re-election, President Obama repeatedly said that he had a plan to “pay down our debt.”  He even ran a campaign ad saying: “I believe the only way to create an economy built to last, is to strengthen the middle class—asking the wealthy to pay a little more so we can pay down our debt in a balanced way.  So we can afford to invest in education, manufacturing, and home-grown American energy, for good middle class jobs.”

But this is all totally false.

Again, this was the strategy: offer a plan that does nothing to alter our dangerous debt course while pretending the opposite.

Then, once you’ve done that, attack anyone who dares to reduce the size of the bureaucracy.  Attack anyone who suggests Washington is too powerful.  Attack, attack, attack—while never offering anything to help Americans who are struggling every day.

After the White House budget was submitted in 2011, President Obama spoke at George Washington University and, with Congressman Paul Ryan sitting in front of him, and said:

“One vision has been championed by Republicans in the House of Representatives….  It’s a plan that aims to reduce our deficit by $4 trillion over the next ten years….  But the way this plan achieves [that goal] would lead to a fundamentally different America than the one we’ve known throughout most of our history….  This is a vision that says up to 50 million Americans have to lose their health insurance in order for us to reduce the deficit.  And who are those 50 million Americans?  Many are someone’s grandparents who wouldn’t be able afford nursing home care without Medicaid.  Many are poor children.  Some are middle-class families who have children with autism or Down’s syndrome….  These are the Americans we’d be telling to fend for themselves.”

Majority Leader Reid said of one Republican reform effort that it was “a mean-spirited bill that would cut the heart out of the recovery that we have in America today….  It goes after little children, poor little boys and girls….  We want them to learn to read.”

This is how the White House and Senate Democrat leaders approach the budget debate.  It’s the same strategy with the sequester.  And Republicans, candidly, have not done enough to stand up to these egregious slanders.  Voting against Jack Lew would be a vote against these dishonest tactics. Misrepresentation of fact.

The painful truth is, the White House strategy has been largely successful up until now.  President Obama and his Senate Majority have blocked fiscal reform and continued our path to fiscal disaster.

It is time that we pointed out that the establishment they are shielding from cuts—the big-government apparatus they are defending—is hurting people every day.  Their policies, their endless support of the bureaucracy, has created poverty and joblessness and dependency.  In cities like Baltimore, Detroit, and Chicago—governed almost exclusively by Democrats at every level—good, hardworking people are hurt every day by the policies of the Left.

  • In the city of Baltimore, one in three children live in poverty.  One in three Baltimore residents are on food stamps.
  • In Chicago, there were roughly 500 homicides in 2012.  Fifty-one percent of the city’s children live in a single-parent family.
  • In Detroit, almost one in three households had not a single person working at any time in the last 12 months.  The city’s violent crime rate is among the worst in the country.  More than half of all Detroit children live in poverty.

This should not happen.  These are the consequences of leftist policies.  We are fighting to create jobs, to create rising wages, to create opportunity, to help more people earn a good living and care for themselves financially.  We are trying to lift people out of poverty, to strengthen family and community.  And we are trying to protect the good and decent people of this country from a debt crisis.

What he said.

This is Nonsense

Posted on by
Reply

The fourth quarter 2012 GDP growth rate was revised last week from -0.5% to +0.1% (of course it was, says the cynic in me), because trade contributed more to our GDP than had been originally estimated.

But in the opening paragraph, the WSJ‘s authors demonstrate a fundamental misunderstanding of what GDP growth is:

…the meager showing underscored that government spending cuts are slowing the recovery’s momentum.

They pursue this misunderstanding (I’ll ignore their euphemistic “momentum”) by citing carefully unnamed economists.  Noting that the fourth quarter performance includes “federal government outlays that fell at a 14.8% annualized rate,” they say that their anonymous economists

say restrained federal spending will continue to be a drag on GDP growth during the first half of 2013.

No.  GDP is the production of goods and services in an economy, it is not the spending of government in that economy.  Government spending impacts the reported GDP figure tautologically: it’s a line item in the GDP calculation.  Growth in production, though, can come only from the private sector, the private economy, in which our businesses and our citizens operate.  It is here that those goods and services are produced; work for those businesses on that production occurs; and spending or saving the sales revenue and the wages of the labor occurs.

Growth cannot come from government, including government spending.  Government spending, instead, comes at the direct expense of private production and spending.  Government has no money of its own, it can only spend money that it takes from the private sector today in the form of taxes, or tomorrow in the form of taxes to repay today’s borrowing.

Thus, the failure of the present “recovery” is caused by government spending, as the last four plus years have demonstrated empirically (along with FDR’s profligate spending, which contributed to prolonging the Great Depression), not from a reduction in government spending.  For instance,

Real final sales—GDP less changes in private inventories—increased 1.7% in the fourth quarter.

That’s still appallingly weak, but it’s much faster than the overall GDP growth, demonstrating that government spending isn’t necessary for the private sector—the real economy—to grow.