Tag Archives: political economy

A Whole Eight Years

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Social Security’s disability trust fund will be bankrupt in three years, and all those folks currently on disability will see their payments slashed.  Those coming onto disability will see far smaller payments than they were expecting.  Whether or not there should be a disability program, if so at what level of payment, or who should fund it are separate issues.  Let’s talk about what we have, and how we got here.

With the Panic of 2008, unemployment spiked, reaching above 10%.  President Barack Obama’s economic policies have slowed our recovery to the point of not recovering at all.  Even the current unemployment rate of 7.8% both is as high as it was when he took office and misleading in itself since it’s based on a far smaller work force than when he took office.

On top of this unemployment rate, whose primary effects here are to reduce the tax monies going into the disability fund and to increase the number of people going onto disability—anything to get enough money for an unemployed person, or someone who’s given up trying to find work, to put food on his family’s table or to pay the rent/mortgage—we have the following.

Obama is actively making it easier to apply for disability with no parallel move to make funds available to make the payments.  Indeed, Obama has steadfastly refused to allow any of our entitlement programs to be fixed, or revamped, or changed in any way so as to enable them to survive (again, whether they should as Federal programs is a separate discussion).

His Lieutenant in the Senate, Chuck Schumer (D, NY), insists that Social Security, Medicare, and Medicaid are off the table in any debt, deficit, or budget discussion.  Obama said in his inaugural address last week that

the commitments we make to each other—through Medicare, and Medicaid, and Social Security—these things do not sap our initiative; they strengthen us.

Leaving aside the vapid ignorance of this remark, the statement demonstrates his refusal to touch them in any way.

And we have this nonsense from a tired old man, Senate Majority Leader Harry Reid (D, NV), about entitlements generally, using Medicare as his example:

…savings from cutting wasteful spending and fraud will extend the solvency of the Medicare trust fund by an additional eight years….

Let’s ignore the fact that Reid cannot name a single instance of actual wasteful spending or of fraud—or explain why those have not already been rooted out, if he knew of them—Medicare’s (for instance) lifetime could be extended for a whole eight years, he says, like he’s proud of that fact.

Then what?

Out of Control Regulations

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This time at the state level.  The Daily Caller has the story of Louisiana overregulation.

Fresh Markets was selling gallons of milk for $2.99 as part of a weekly promotional deal.  Louisiana requires that retailer price markups be at least six percent above the invoice and shipping costs of the product.

You read that right.  It turns out that $2.99 was less than 6% above the state-allowed minimum price for milk.  Louisiana regulators actually put a floor under the price at which milk is allowed to be sold.  No matter what the private business’ imperative might be for setting a lower price.  No matter how much forcing inflated prices hurts the poor.

State Agriculture and Forestry Commissioner Mike Strain said this with a straight face:

They can sell it six percent over cost all day long.  It’s when they sell it below cost that it becomes a problem[.]

Because selling at cost is actually selling below cost.  Because selling below cost—below actual cost—is a decision poor, dumb businessmen shouldn’t be allowed to make—even as a loss leader.

Takers vs Doers

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Nicholas Eberstadt has the call.

A growing body of empirical evidence points to increasing dependency on state largess.

Then he enumerates [emphasis his]:

  • Over the 50-plus years since 1960, according to the Bureau of Economic Analysis, entitlement transfers—government payments of cash, goods and services to citizens—have been growing twice as fast as overall personal income.  Government transfers now account for nearly 18% of all personal income in America—up from 6% in 1960.
  • According to the BEA, America’s myriad social-welfare programs (the federal bureaucracy apparently cannot determine exactly how many of these there are) currently dispense entitlement benefits of more than $2.3 trillion annually.  Since those entitlements must be paid for—either through taxes or borrowing—the burden of entitlement spending now amounts to over $7,400 per American man, woman and child.

To pay for this, every child is born with a $7,400 debt.  Including those who will be recipients of this welfare.  Which means, as a practical matter, the other children are born with an even greater debt.

  • In 1960, according to the Office of Management and Budget, social-welfare programs accounted for less than a third of all federal spending. Today, entitlement programs account for nearly two-thirds of federal spending.  In other words, welfare spending is nearly twice as much as defense, justice and everything else Washington does—combined.  In effect, the federal government has become an entitlements machine.

Yet President Barack Obama insists that entitlements don’t sap us, they strengthen us.  He’s partially right: they strengthen those who control the handouts from these entitlements.  Politically.

  • According to the latest data from the U.S. Census Bureau, nearly half (49%) of Americans today live in homes receiving one or more government transfer benefits.  That percentage is up almost 20 points from the early 1980s.  And contrary to what the Obama White House team suggested during the election campaign, this leap is not due to the aging of the population.  In fact, only about one-tenth of the increase is due to upticks in old-age pensions and health-care programs for seniors.
  • As entitlement outlays have risen, there has been flight of men from the work force.  According to the Bureau of Labor Statistics, the proportion of adult men 20 and older working or seeking work dropped by 13 percentage points between 1948 and 2008.
  • In recent years, the biggest increases in disability claims have been for “musculoskeletal” problems and mental disorders (including mood disorders).  But as a practical matter, it is impossible for a health professional to ascertain conclusively whether or not a patient is suffering from back pains or sad feelings.  The government’s disability-insurance programs were intended to address genuine need.  On the current trajectory, the Social Security disability fund is projected to run out of money during Mr Obama’s second term.
  • The president and others describe Social Security and Medicare as “social insurance” programs rather than transfer schemes.  True, the eventual beneficiaries of these programs contribute payroll taxes to the Social Security and Medicare trust funds during their working lives.  But “insurance” programs are meant to pay for themselves; Social Security and Medicare cannot do so.

Moreover, insurance programs pay the premium payer or the payer’s designated beneficiary later, not some stranger currently.

And who’s paying for all of this?  Slightly over half, and dwindling, of those Nancy Kress called mules in her Beggars novels.  And those of our children who are picking up the debt.

Recovery

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Here, from Zero Hedge, are some graphs illustrating the ongoing failure that is the Obama Economic Recovery.

As ZH notes (his emphasis), this is

the worst in US history, having just dipped below the heretofore lowest on record.

This one shows the effervescent fluffiness of this failed recovery:

There are actually those who tout gains like this as meaningful (Federal Reserve Bank President Ben Bernanke among them*).  They speak of the Dow Jones Industrial Average, or of the S&P 500, or of some other market index as proof of the efficacy of President Barack Obama’s policies.  The indices have been doing quite well; the DJIA is at a five year high, for instance.

The indices, though, are not the real economy.  They’re just a measure of how well investors like me have been doing; they have nothing at all to do with how poorly folks who actually work for a living—or who would like to work for a living—are doing.  And that real economy is what underlies those indices.  Heads up.

*Certainly, that’s a two-year old op-ed, but I’ve seen nothing to indicate he’s altered his views—not about the (ir)relevance of stock prices in assessing our recovery, and not about any of the several other misapprehensions he included in his piece (but which are the topics of other posts).

The Cost of Price Supports

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They’re disastrous for our food costs, which harms our poor especially, and they drive the “need” for food stamps.  Here are some numbers, from a recent op-ed by Burleigh CW Leonard in The Wall Street Journal.  The parity prices for some farm products are these:

  • corn: $12/bushel vs actual market price of $7.01
  • wheat: $18.30 vs $8.33
  • rice: $42.20 per hundred weight vs $14.80
  • milk: $52 vs $21.10.

We care about parity prices because the Agriculture Adjustment Act of 1938 and the Agricultural Act of 1949 require, unless other temporary support prices  are specified by subsequent Congresses, that farm support prices be set to parity according to a formula based on farm prices extant in 1910-1914 [sic].

Notice that: farmers (read: agribusiness, who are the vast majority of our modern farm industry, not the mom and pops over whom our politicians shed so many crocodile tears) can get three times the market price of rice from those supports so they produce to their heart’s content and sell the excess to the government.

This doesn’t actually happen to a great extent, though, because of an epicycle in the government’s Ptolemeic orrery of controls: the government imposes on each farmer (agribusiness) limits on how much (rice) he can produce.  I won’t get into the inconsistent manner in which such limits get applied across farm products.  Nor will I get into the interference such controls represent in each man’s right to choose for himself what he will produce with his labor (and what price he will charge for that produce, or that labor).  (Nor will I get into the mandatory diversion of food into fuel products, which is what the ethanol mandates are.  That’s for another discussion entirely.)

It’s sufficient, here, to see that the price distortion remains.  And the “need” for food stamps remains.

Leonard is on the right track with the solution he offers:

…craft a new long-term farm bill.  Its first step should be to repeal permanent law that governs commodity price support programs.  Then the default setting for US agriculture would be a free market….

He goes too far, though.  There’s no need for a new “long-term bill.”  His proposed bill’s first step is nearly sufficient by itself: repeal the Agriculture Adjustment Act of 1938, the Agricultural Act of 1949, and associated laws.  Then take the only additional step necessary: stop instituting other price support legislation.

Watch the need for food stamps fall precipitously.

There is nothing to fear from free market competition but fear itself.