Tag Archives: spending

Some Remarks on Budget Negotiations

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Can the Progressives in this Congress and White House really be this…lacking in understanding?

The White House had suggested GOP willingness to let sweeping defense cuts take effect was the culprit [for the fourth quarter economic contraction just reported].

However, House Speaker John Boehner (R, OH) spokesman Brendan Buck had this:

These arbitrary, automatic cuts were a creation and demand of the White House in 2011.  Twice the House has passed legislation to replace them with common sense cuts and reforms.  If there was any uncertainty late last year about the sequester, it was because the Democratic-controlled Senate, per usual, never lifted a finger to pass a plan to replace it.

House Minority Leader Nancy Pelosi (D, CA) chimed in:

…today’s disappointing GDP report [of fourth quarter 2012 contraction] is a direct result of the economic uncertainty created by House Republicans’ strategy of obstruction and manufactured crises.

An exploding deficit, a destructive debt, stagnant and too-high unemployment, and a failed recovery from the Panic of 2008 aren’t crises at all—these are normal.  Congressman Sam Graves (R, MO), Chairman of the House Small Business Committee, noted

Is this stunt in economic growth really a surprise?  Anti-growth policies and an anti-business White House produce just that—a lack of growth[.]

Congressman Kevin Brady (R, TX), incoming Chairman of the Joint Economic Committee added

The bottom line is that America’s economy continues to struggle primarily due to President Obama’s penchant for political brinkmanship and the pervasive uncertainty caused by his focus on higher taxes, regulation and ObamaCare.

Unfortunately, yes.  And that’s to the severe detriment of our country.

Taxes and Spending

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…and how badly they’re misunderstood.  Texas Governor Rick Perry (R)

has for weeks called on the Legislature to cut taxes and continue to hold down government spending—even though Texas’ economy is booming.

The AP hasn’t a clue.  That should be “because,” not “even though” Texas’ economy is booming.  The anonymous reporter apparently thinks government owns our money, and when we have more, it should relieve us of it and spend it themselves….

Technology Transfer

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Is this the administration’s new paradigm?  Barnini Chakraborty, writing for Fox News, reports

More than a decade of advanced American technology could be handed over to one of the country’s top economic rivals unless the government intervenes to stop the sale, lawmakers say.

The concerns surround the sale of A123 Systems—a firm backed for years by U.S. taxpayers—to a company run by a Chinese multi-millionaire with deep ties to the Chinese Communist Party.

Chakraborty understates the case, though.  More than mere economic rivals, the People’s Republic of China are our political and military foes, also, as events in the South China Sea demonstrate, as the PRC’s active blocking of meaningful steps to prevent Iran from getting nuclear weapons and to prevent northern Korea from spreading their nuclear weapon technology demonstrate, as the angry words and covert threats of the PRC leadership against the US whenever we protest their misbehavior demonstrate.

This particular technology transfer

would essentially transfer sensitive battery technology with “key military applications….”

And

…the technology behind [A123 Systems’] ultra-light lithium-ion phosphate batteries being bought will play a major role in modernizing the way electricity is generated and distributed. The new tech could also be used in key military operations and to power satellites and unmanned military drones.

This is one example, and it hasn’t yet played out.  The transfer may still be blocked, at least officially and legally.

There are other examples wherein this administration has acted positively to prevent such transfers to the PRC.  It’s entirely possible that this isn’t a new paradigm (although it’s hard to understand why the question still is an open one and the transfer not already blocked), but merely an example, alongside those others, that shows this administration…has no clue of what it’s doing with American technology.

Americans, Deadbeats, and Bills

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President Barack Obama, the other day, announced that we’re a not a nation of deadbeats; we pay our bills.  What are the facts?

Brett Arends, in a recent Wall Street Journal Market Watch article offers some.

Far from paying our bills, the current generation of Americans—or some of them—have set records for default which probably have no parallel in the history of the human race.  During the last five years, US individuals have walked away from a staggering $585 billion in mortgages, credit card debts and other personal loans.  That works out at about $6,000 per household.

And if the numbers are to be believed, there is probably a lot more to come.

For instance,

According to the Federal Reserve, US household debts peaked five years ago at a gigantic $13.8 trillion.  Since then it has declined to $12.9 trillion—a decline of about 7%.  To put that in context, household debts today still exceed those seen at the end of 2006, near the peak of the bubble.  They are three times what they were in 1998.

The outcome includes

The total debt reduction from the peak, says the Fed, is $954 billion.  Loan write-offs [from those “walk aways”], at $585 billion, account for 60% of that.  In other words…in the last five years Americans have walked away from $3 in debt for every $2 they’ve paid off.

Does all of this make us a nation of deadbeats, though?  Let’s look at some more facts.  Arends notes

[T]his has occurred even while the federal government has bailed out bankrupt financial institutions, and flooded the economy with massive deficits, low interest rates and free money to make it all easier.

The policies have altered the incentives to make it easier to walk away from our debts.  But that’s not all there is to it.

Richard Vetter, in a same-day WSJ op-ed, offers some more facts.

From the mid-17th century to the late 20th century, the American economy grew roughly 3.5% a year.  That growth rate has since declined significantly.  When the final figures are in for 2012, the annual rate of real output growth for the first dozen years of this century is likely to be about 1.81%.

What accounts for the slowdown?  An important part of the answer is simple: Americans aren’t working as much today.  And this trend reflects more than the recession and sluggish economy of the past few years.

This chart, covering the last 65 years, illustrates the matter starkly.

Before continuing, a digression is in order.  Recall a couple of the dates Arends mentioned above.  Today’s household debt is greater than it was during the housing bubble peak in 2006.  At that time, we were already well on the way down in workforce participation, yet the Panic was still two years off.  Today’s household debt is three times what it was in 1998.  1998 is the 65-year peak in Americans’ workforce participation.  Fewer people are working today, relatively, than then, and that has nothing to do with our present economic malaise.

Back to the main program.  Vetter asked why fewer Americans are working today (after all, we have to earn an income in order to pay our debts.  Don’t we?).  After all,

[i]f today the country had the same proportion of persons of working age employed as it did in 2000 [the end of the peak in work force participation], the US would have almost 14 million more people contributing to the economy.  [Aside: so much for those 3-5 million jobs Obama’s policies have so proudly saved.]

It comes back to incentives.  The Obama administration’s Progressive policies encourage Americans to not work.  Some of those destructive policies are these:

Food stamps. Above all else, people work to eat.  If the government provides food, then the imperative to work is severely reduced.  [Food stamp program use] has grown considerably, but especially so in the 21st century: There are over 30 million more Americans receiving food stamps today than in 2000.
The sharp rise in food-stamp beneficiaries predated the financial crisis of 2008: From 2000 to 2007, the number of beneficiaries rose from 17.1 million to 26.3 million, according to the Department of Agriculture. That number has leaped to 47.5 million in October 2012.  The average benefit per person jumped in 2009 from $102 to $125 per month.
… But more is going on here.
Compare 2010 with October 2012, the last month for which food-stamp data have been reported. The unemployment rate fell to 7.8% from 9.6%, and real GDP was rising steadily if not vigorously.  Food-stamp usage should have peaked and probably even begun to decline.  Yet the number of recipients rose by 7,223,000.  In a period of falling unemployment and rising output, the number of food-stamp recipients grew nearly 10,000 a day.

Social Security disability payments. The health of Americans has improved, and the decline in the number of relatively dangerous industrial production and mining jobs should have led to a smaller proportion of Americans unable to work because of disability.  Yet the opposite is the case.
Barely three million Americans received work-related disability checks from Social Security in 1990, a number that had changed only modestly in the preceding decade or two.  Since then, the number of people drawing disability checks has soared, passing…6.5 million by 2005, and rising to nearly 8.6 million today.  In a series of papers, David Autor of MIT has shown that the disability program is ineffective, inefficient, and growing at an unsustainable rate.

Pell grants. Paying people to go to college instead of to work is traditionally justified on the grounds that higher education builds “human capital” that is vital for the country’s economic future.  But a study Christopher Denhart, Jonathan Robe and I did for the Center for College Affordability and Productivity (that will be released soon) shows that nearly half of four-year college graduates today work in jobs that the Labor Department has determined do not require a college degree.  For example, over one million “retail sales persons” and 115,000 “janitors and cleaners” are college graduates.
In 2000, fewer than 3.9 million young men and women received Pell Grant awards to attend college.  The number rose one-third, to 5.2 million by 2005, and increased a million more [one-fifth] by 2008.  In the next three years, however, the number grew over 50%, to an estimated 9.7 million.  … The result is fewer people in the work force.  Meanwhile the mismatch grows between the number of college graduates and the jobs that require a college education.

Extended unemployment benefits. Since the 1930s, the unemployment-insurance system has been designed to lend a short-term, temporary helping hand to folks losing their jobs, allowing them some breathing room to look for new positions.  Yet the traditional 26-week benefit has been continuously extended over the past four years—many persons out of work a year or more are still receiving benefits.

We don’t pay our bills.  But we’re not deadbeats, either; Progressive policies have simply altered the incentives.  It’s the rational (if not moral) choice to go the cheaper route—the route that welfare programs and Progressive excusals incentivize—the route of not working, and “walking away” from our debts.  Even bankruptcy itself has lost its moral stigma.  (That failure is on us, though, not our government.)  Obama is right—we’re not a nation of deadbeats.  But he’d like us to become a nation of government dependents for whom the rational, if not moral, choice is continued dependency.  And that makes it tough for us to pay our bills—individually or as a nation.

Debt Ceiling Negotiations

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President Barack Obama had some thoughts on this in a press conference the other day.  Surprise—I have some thoughts on his thoughts.

Obama said this in response to a question from CBS News‘ Major Garrett on how Obama reconciles his refusal to vote to raise the debt ceiling while a Senator (the raise would be a “leadership failure”) with his current refusal, as President, to negotiate his demanded raise of the debt ceiling:

And, you know, the fact of the matter is, is that we have never seen the debt ceiling used in this fashion, where the notion was, you know what, we might default unless we get 100 percent of what we want. That hasn’t happened.

Actually, we’ve seen this repeatedly in the recent past.  Under Presidents Ronald Reagan and Bill Clinton, for instance, spending cuts (or what passed for them—reductions in the rate of growth of spending) were explicit parts of the deal to raise the ceiling.

Obama then added this:

Now, as I indicated before, I’m happy to have a conversation about how we reduce our deficits further….

There are a couple of things about this one.  One is that bit about being “happy to have a conversation.”  A conversation is an “exchange of thoughts and feelings.”  It’s not a negotiation.  Obama is willing only to engage in idle chit-chat on this subject; he’s not willing to enter into serious negotiation.

The other thing is that nonsense, “reduce our deficits further.”  As a man of Obama’s learned education knows—as his economic advisors in the White House and in his Cabinet know—a reduced deficit is still a deficit, and so it still grows our nation’s debt.  Once again, Obama is unwilling to take our debt seriously.

Obama then concluded his evasion of the original question (he never did address Garrett’s question of how Obama reconciles his Senatorial “No” with his Presidential “Raise it now” demand on the debt ceiling) with this:

But what you’ve never seen is the notion that has been presented so far at least by the Republicans that deficit reduction will only count spending cuts, that we will raise the deficit—or the debt ceiling dollar for dollar on spending cuts.  …what we’re not going to do is put ourselves in a position where in order to pay for spending that we’ve already incurred, that our two options are; we’re either going to profoundly hurt the economy, and hurt middle-class families, and hurt seniors, and hurt kids who are trying to go to college, or alternatively we’re going to blow up the economy.

The first part of that is true.  Having seen the failure of tying reduced spending growth rates to raising the debt limit, the House Republicans now are tying actual spending cuts to raising the debt ceiling.

The rest, though, is exactly what Obama is threatening.  He’s holding out for “100% of what [he] want[s],”  or he’ll blow up our economy.  He’s the one demanding a debt ceiling raise with no strings attached (he’s even called for ceding borrowing authority to him) and refusing to discuss any alternative.  He’s the one who’s said he won’t negotiate at all on the debt ceiling.

Yet, it’s his demand for continued borrowing, for continued expansion of our debt, that is profoundly hurting the economy, the middle class, seniors, the poor (who are notably absent in his “concern” for the welfare of others).   The opposition has already agreed to raise the borrowing limit.  They just want real spending cuts, also, so as to break the DC addiction to spending, and so as to reduce—or even eliminate—the need to borrow more.