Tag Archives: spending

Bailouts

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Spiegel Online International carried a disturbing story Monday on the subject of bailouts.

The proximate item is Greece’s economic strait, and this is what Spiegel is reporting about that.  The current troika—the IMF, the European Commission, and the European Central Bank—are proposing

[a]nother partial default.  That, indeed, would seem to be the conclusion that Greece’s main international creditors have come to.  According to information received by SPIEGEL, representatives of the so-called troika—made up of the European Central Bank, the European Commission and the International Monetary Fund—proposed just such a debt haircut at a meeting last Thursday held in preparation for the next gathering of euro-zone finance ministers.

But half-measures simply prolong the problem and continue Greece’s addiction to handouts while at the same time providing no mechanism for getting the Greeks to self-sufficiency other than leaving them to their own, already failed devices—both those that drove them to this strait and those of the last three years that have had no useful effect.

Worse, though,

This time around, public creditors would be involved, meaning that taxpayer money from those countries which have stood behind Greece would vanish off the books.

But where is the justice in this?  Indeed, where was the justice, originally, in forcing the taxpayers of entirely separate jurisdictions—other nations—to indemnify the Greeks (and the Irish, and by extension, the Spanish, Italians, and Portuguese) against their own foolish decisions?  Indemnify rather than help, since no meaningful accountability mechanisms were applied.

That’s in the past; those innocent taxpayers already are dragooned into the existing bailout.  The primary question remains, though: where is the justice in compounding that prior error by extending it, by forcing responsible taxpayers to pay for continuing this folly?  And how does this enabling help the Greeks (and Spanish, Italians, and Portuguese; although these three already are attempting preemptive measures so as to avoid their own humiliation)?

Indeed,

Athens has only introduced 60 percent of the reforms [already] demanded by the European Union.

Yet,

The troika has already agreed to give Greece two extra years to meet its austerity goals, a delay that will likely result in a need for up to €30 billion in additional aid, according to the ECB and European Commission.  The IMF believes the funding gap will be closer to €38 billion.

Thus, the EU and the IMF know they’re proposing throwing money down a rat hole, and they’re proposing that anyway.  It’s true enough that cutting the Greeks off from further bailout moves will jeopardize the taxpayers’ money already committed.  However, it’s the nature of bankruptcy—which the Greeks will be better off going through—that such debts get written off and the creditors lose out.  But that’s the only way to stanch the bleeding here.  There’s no useful purpose in committing additional taxpayer funds to this failed effort.

Take careful note of the similarities to our own situation.  Failures here, too, says the current administration, need to be propped up with taxpayer money and, in our case, favored investors protected from the consequences of their decisions.

The Current State

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…of our economic “recovery.”

Here are some numbers, from The Walls Street Journal.

  • GDP grew at a (preliminary) 2% rate in the third quarter…
  • That rate means that growth for the first nine months of this year was only 1.7%
    • Slower than last year’s 1.8%
    • Which was slower than the year before’s 2.4%
  • Consumer spending provided most of the third-quarter lift…but consumers can’t continue if the overall economy doesn’t grow fast enough to raise incomes faster
  • The other big third-quarter growth driver was Federal government spending
    • Rose 9.6%
    • Overall government outlays rose 3.7% and accounted for about 0.7 percentage points of that 2% GDP increase
  • Economist David Malpass calculates that growth in private output was closer to 1.3%. The private economy isn’t “doing fine…
    • Non-housing related investment contracted by 1.3%.
    • But business investment is a leading indicator of future job and wage growth.

Finally,

  • [T]he typical growth rate at this stage of the previous nine recoveries (13 quarters) averaged 16.8%
  • The rate for this recovery is 7.2%.
  • That’s about $1.2 trillion in foregone output.

Consumption and Inequality

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Some on the left worry about income inequality as though that matters.  It is, though, equality of opportunity that provides everyone the path to increasing prosperity.  Even though we begin life with an equal endowment of inalienable rights—including the right to seek our own happiness as John Adams described it—it is the implementation of those rights, equality of opportunity, that lets us capitalize on and so to maximize, our unequal endowments of ability, temperament, luck.

One way to assess the increasing prosperity of all is to look at consumption.  Hassett and Mathur do this in their paper, “A New Measure of Consumption Inequality,” a copy of which can be found here.

Some numbers will illustrate.  First, a snapshot of the general situation:

Per cent of Total US Consumption

 

Year 2000

Year 2010

Bottom Fifth of Households by Pretax Income

8.9%

8.3%

Middle Fifth

17.3%

17.1%

Top Fifth

37.3%

38.6%

That’s remarkably stable.

Now, the trend in consumption:

Increase in US Consumption from 2000 to 2010

Bottom Fifth

14%

Middle Fifth

6%

Top Fifth

14.3%

Despite the recessions of the early 2000s and since 2008, household consumption actually has increased, and the bottom fifth by pretax income increased their consumption by quite a bit, despite the claimed unfairness of income inequality.

Now, some illustrative items of consumption, focusing on the bottom fifth of American households:

Per cent of Households with the Indicated Item

 

Year 2001

Year 2009

Computer

19.8%

47.7%

Dishwasher

17.6%

30.8%

Microwave

74.9%

92.4%

Washing Machine

57.2%

62.4%

Air-Conditioning Equipment

65.8%

83.5%

6 Rooms (Other than bath) in the House

21.9%

30.0%

 

Odd, that—overall relative share, by those unequal income groups, of consumption of items like these has remained quite stable across over time.  Moreover, despite that income inequality (which has grown, as it typically does, during recessions, does not act as a limiting factor in consumption capacity.  Apparently unequal incomes don’t matter that much to well-being.  Household quality of life for is improving for all groups.

Of course, this does not mean that the lower income groups don’t need help—they often do, especially during economic dislocations; their resource margins are much thinner.  But that help is most effective as temporary hands up, not in the form of permanent wealth redistribution programs.  The latter simply address a non-existent problem.

Our Computers, Our National Security

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First it was Russia and the People’s Republic of China.  Now it’s…Iran?  How far behind are we falling in cyberspace, the core of a modern society?  Now we’re hearing from The Wall Street Journal that Iran has been conducting an active cyberwar against us for some months.  (Notice that: we didn’t hear about this war voluntarily from our government, but from a newspaper which had to tease it out of our government.)

Iranian hackers with government ties have mounted cyberattacks against American targets in recent months, escalating a low-grade cyberwar[.]

The Iranian effort culminated in a series of recent attacks against US banks as well as electronic assaults this year on energy companies in the Persian Gulf.  The attacks bore “signatures” that allowed US investigators to trace them to the Iranian government, [US government] officials said.

Here are some of the battles waged in this war since the start of the year:

  • January 2012: Potent but smaller-scale denial-of-service attacks against US banks
  • July 2012: Cyberattack at Saudi Arabian Oil Co. unleashes a virus called ‘Shamoon,’ destroying data on 30,000 computers
  • August 2012: Cyberattack at Rasgas, a Qatari natural gas company, disabled websites and email system
  • September 2012: A group called “Qassam Cyber Fighters” announced plans for cyberattacks on US banks.  Powerful denial of service strikes hit Bank of America Corp, JP Morgan Chase & Co., US Bancorp, PNC Financial Services Corp. and Wells Fargo & Co
  • October 2012: The Qassam Cyber Fighters issued announcements, followed by cyber strikes, involving other US banks, slowing or interrupting consumer websites

A “senior defense official” said,

They have been going after everyone—financial services, Wall Street.  Is there a cyberwar going on?  It depends on how you define “war.”

How very Clintonesque of him.

My own speculation is that these relatively small attacks are just probes, both to test us and to test Iran’s developing cybersystems.

How well prepared are we to defeat a serious, concerted cyberattack, and how well prepared are we to go over to the offense and crush our attacker?  Apparently not very well.  Defense Secretary Leon Panetta said this:

An aggressor nation or extremist group could gain control of critical switches and derail passenger trains, or trains loaded with lethal chemicals.
They could contaminate the water supply in major cities, or shut down the power grid across large parts of the country.
The most destructive scenarios involve cyber actors launching several attacks on our critical infrastructure at once, in combination with a physical attack on our country.  Attackers could also seek to disable or degrade critical military systems and communications networks.
The collective result of these kinds of attacks could be “cyber Pearl Harbor:” an attack that would cause physical destruction and loss of life, paralyze and shock the nation[.]

Panetta says the US is putting in place systems to defeat such cyberattacks, but I have to ask: how does that work in the face of Democratic Presidential Candidate Barack Obama’s trillion dollar cuts to our defense establishment from the combination of his spending cuts for Defense and his sequestration of further Defense funds scheduled for the turn of the year?

Lies of the Democrats, Part 2

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This is Part 2 of my series on the lies told by Democrats during the present administration’s term in office.  As I said earlier, I’m not concerned with his broken campaign promises so much as I am with the dishonesty while in office.

In this post, I’ll mention a few more economic lies.

The Democrats insist that their “Stimulus” spending and their diversion of part of the TARP funding “saved the American automobile manufacturing industry,” the latter itself of questionable legality, given the legislated purpose of the TARP funding.

This is nonsense.  In fact, only two car companies were at risk out of the seven major car companies that comprised, and still comprise, the American automobile manufacturing industry.  Those seven?  In no particular order, they are Ford, Honda, Hyundai, Toyota, Nissan, GM, and Chrysler.  But wait, you say, Ford, GM, and Chrysler are the only American car manufacturers; the other four are foreign—and two of those three were threatened with bankruptcy.  How is saving those two not saving the American automobile manufacturing industry?

The fact is, none of those seven car manufacturers manufacture anything in the US, including the American three.  All seven of those companies do have major plant complexes in the US whose function is to produce cars for sale in the US.  That production, though, is limited to final assembly.  Every plant, for every car manufacturer, imports all of their cars’ parts—chassis, body panels, engines, batteries, even tires and wheels—from other countries: Mexico, Taiwan, the People’s Republic of China, India, wherever the costs of parts production is lowest.  Thus, every automobile manufacturer in that American industry is on an even footing with every other auto manufacturer: they all do final assembly (and only final assembly), of imported parts, in the US, for sale to American customers.  Those seven, not only the American three, are the American automobile manufacturing industry.

Now, of those two car companies that were saved, what was the nature of the rescue?  Normal bankruptcy procedures were bypassed, and the Obama administration forced senior creditors to the back of the line—the funds went first to the auto manufacturing unions (vis., the United Auto Workers and the Canadian Auto Workers Unions), while those senior creditors wound up getting nothing.  This stood bankruptcy law and order of precedence for creditors on their collective head.

And the bailout of the two American car companies went so well that one of them—Chrysler—is now an Italian car company.