Tag Archives: political economy

An Obamacare Outcome

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Omaha, NE’s, WOWT television reports that an 11-restaurant Wendy’s franchise

has announced that all non-management positions will have their hours reduced to 28 a week.  Gary Burdette, Vice President of Operations for the local franchise, says the cuts are coming because the new Affordable Health Care Act requires employers to offer health insurance to employees working 32-38 hours a week.  Under the current law they are not considered full time and that as a small business owner, he can’t afford to stay in operation and pay for everyone’s health insurance.

The reduction will affect 100 Wendy’s franchise employees.  Here’s another example of Obamacare pricing those it claims to help out of the market.

Middle Class, Luck, and American Power

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George Friedman, writing for Stratfor (he’s also their Founder and CEO), has an article out concerning the American middle class and American global power.  The whole article is well worth reading, but for now, the relevant remark comes near the end:

It would seem to me that unless the United States gets lucky again, its global dominance is in jeopardy.  Considering its history, the United States can expect to get lucky again….

The luck to which Friedman refers concerns some fortuitous unintended consequences, and he offers three examples:

The GI Bill was designed to limit unemployment among returning serviceman; it inadvertently created a professional class of college graduates. The VA loan was designed to stimulate the construction industry; it created the basis for suburban home ownership. The Interstate Highway System was meant to move troops rapidly in the event of war; it created a new pattern of land use that was suburbia.

The threat to our status as a global power—and by extension to our freedom of action as a nation—stems from a generation of the failure of a long-standing belief in American culture—the faith in the availability of economic upward mobility.  For instance, median household income in 2011 was $49,000, just below the level in 1989 in real terms; it seems that upward mobility has stagnated.

Luck matters, but to a very large extent, we make our own luck.

Underlying this making is individual responsibility, individual initiative, and individual risk-taking.  In all of our past booms, including those in which fortune played a role through those unintended consequences, the freedom to exercise those individual characteristics was both broadly present and not very much circumscribed by government intervention.

Here’s a present example of the role played by fortune, this time negatively: those individual characteristics, and parallel ones in business, are severely circumscribed by government regulation in all aspects of our lives.  We’re restricted in what we’re permitted or required to buy or to throw away (see Obamacare and CFL bulbs), in the decisions businesses are permitted to make in their own interests rather than government’s (see Obamacare and Dodd-Frank with its CFPB abomination), in what businesses are permitted to release as by-products of production or sales.

Our ability to make our own luck, today, is severely limited by government.  Fortuitous unintended consequences are a lot less likely in an environment of rapidly increasing government control over the economic environment which underlies the making of that luck.

There’s another factor at play, too: those government restrictions also have the unintended consequence of restricting upward mobility.  The poor become trapped in their stratum and cannot move up into the middle class due to those restrictions’ effect on job creation and hiring.  This not only works to the detriment of those poor, it shrivels the remaining middle class.

National Default on the National Debt

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President Barack Obama and his Senators keep saying that House RepublicansCongress must raise the debt ceiling or the US will go into default.  The latest example of this claim came when Obama, through his White House Press Secretary, Jay Carney, said in response to the idea that the administration could simply mint a $1 trillion coin and then spend that,

There are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default[.]

Here’s what the Constitution says on the matter (you might recall that bit of paper—a document that Progressives insist ought to be scrapped or that already is useless and non-binding; maybe its inconvenient limits on government are why).  From Article I, Section 8, in relevant part:

The Congress shall have Power…to pay the Debts…;

To borrow Money on the credit of the United States;

Thus only the Congress can borrow—or create the conditions for paying what it has borrowed.  The President, as with all laws (nearly all of which, by the way, have his signature on them—he’s actively agreed with them, except in those very rare cases where his veto has been overridden), has only to execute them—here, to spend the money authorized, to collect the taxes authorized, to borrow according to the Congress’ budget and borrowing limit.  He’s Constitutionally, and by his oath of office, required to faithfully execute those laws.

(Incidentally, a later clause in that Section 8 says this:

To coin Money, regulate the Value thereof….

Thus, only Congress can mint a $1 trillion coin, not Treasury.)

The 14th Amendment, which some Progressives like to cite as a means for Obama to bypass Congress on the national debt, says in relevant part:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

Notice that confusing part—it being more than 100 years old—”authorized by law.”  The clause not only says that the US’ debt must be paid—no getting around that—but the only debt that must be paid is that authorized by law—that budget thing (from an even older and apparently even more confusing part of the Constitution), which must be passed by Congress and signed by the President or his veto overridden.  The president cannot (not may not—cannot) create debt on his own recognizance.

On the first part above, then, Obama has it right—Congress can agree to continue spending and borrowing, or it can decide not to act (or anywhere between the two extremes: cut spending enough to fit it into current revenues, thereby eliminating the deficit and stopping the growth in borrowing altogether, or cut spending to fit within projected revenues and raise the debt ceiling somewhat, with a view to gradually reducing spending, eliminating the deficit over time, and ultimately stopping the growth in borrowing altogether, for example).

What are the practicalities of the matter?  Say the debt ceiling is not raised; what results?

The interest on our current national debt (some $16+ trillion at the end of 2012, an explosion of 60% in Obama’s first four years) ran to $220 billion.  Total revenue collected from various tax sources (including payroll taxes for Social Security, et al.,) by the Federal government was $2.5 trillion—a shade over 10x those interest payments.

In short, there is no risk of default from Congressional inaction.  There is plenty of money with which to pay the interest, thereby keeping our debt current and not in default.  There’s plenty of money with which to roll existing debt that’s coming due—essentially to refinance by paying off that old debt with new borrowing—within the current debt ceiling.  This is the same as us refinancing our homes, which we must do within our own debt ceilings, values our lenders determine based on our credit rating.  There’s even plenty of money with which to begin in aggregate paying down that debt, reducing it below those $16 trillion, and to reduce it further in subsequent years.

Thus, if Congress declines to raise the debt ceiling at all, there would be spending cuts, but no default.  Federal spending in 2012 ran to $3.7 trillion, rather more than those $2.5 trillion in collections.  Progressive (and Conservative) favored programs would be drastically curtailed.  Welfare programs like food stamps, subsidies for “green” energy companies, farm price supports, and the like would be severely curtailed.  Entitlement programs like Social Security, Medicare, and Medicaid transfers to the States would be greatly circumscribed.  Withal, no default, and not even very many existing programs eliminated.

However, if Obama and his Senators truly are concerned about “not paying for our spending on the backs of our seniors and the middle class” (and the poor—that group these Progressives have been ignoring right along), they’ll get serious about spending cuts, the deficit, and the debt.  The cuts then could occur in a deliberate, controlled manner, across programs about which Conservatives and Progressives compromise on curtailing.

Obama and his Senators know what the Constitutionally mandated priorities are.  They simply are lying when they make their claim of debt default, and the NLMSM are complicit in the claim’s spread.  What these Progressives really mean is that, absent a debt ceiling increase, they will default on their vote buying promises.  And that terrifies them, since among those to whom they “owe” their vig are unions.

Some Graphs on Unemployment

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Here are some graphical illustrations of the ongoing devastation of the Obama Recovery, from The Big Picture. 

The U-6 unemployment rate includes the rate for folks who are underemployed as well as the folks who are unemployed but still looking for work.

Think of the damage done to that teen-aged and early-20s cohort in terms of work experience and earning power lost.  This loss is made all the worse for occurring at the start of their careers, where the opportunity cost is the greatest, and it leaves them permanently behind in what they could have accomplished compared to their peers in past, real recoveries and their peers in future, real recoveries.  This is nearly as devastating to our society and to our economy as the as the physically lost generations from war are to nations’ societies and economies.

It doesn’t look like it’s going to get any better, either.  The only upside for that youth cohort is that they have time in their lives for (some) recovery.  Older age cohorts have no such time.

The rapid reduction in the size of our labor force is not at all being helped by President Barack Obama’s economic policies.

Finally, just to put the Obama Recovery in perspective:

 

h/t Spirit of Enterprise

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.