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Journal of No. 118


February 10th, 2010

Usually I blog my flaming social liberal side - here's my grumpy fiscal conservative side @ 07:12 am

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This image encapsulates what's wrong with the government's fiscal policy:
Funny Facebook Fails

For a less funny analysis, check out Time's article on the deficit.

Let's look more closely at budget revenue and outlays. In a normal year, our federal tax system takes in around 17% of GDP — less in the current recession and more in years of financial bubbles, when capital-gains-tax collections are high. It's important to understand what that revenue buys us. Military spending accounts for around 5% of GDP. Health spending (including Medicare, Medicaid and veterans' health) is around 5% of GDP, as is Social Security (retirement, disability and veterans' benefits). Interest payments on the debt will soon reach 2% of GDP. In short, the Federal Government collects tax revenue sufficient to cover just four budget items. The rest of the budget is funded by borrowing.


Assuming we want the government to do something other than these four things, this is not sustainable. We need to cut expenditures, or raise revenues, or both. That is all.
 
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From:notjenschiz
Date:February 10th, 2010 03:43 pm (UTC)
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I don't think you understand economics, man. Just like Cara said, "It's not our money!" Money you borrow is free! I don't know why we pay for anything with revenues. We should just borrow EVERYTHING! I've heard some theorists argue this could be bad *later,* sort of like the environment or whatever, but I think the important thing is that it won't impact me now.
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From:essentialsaltes
Date:February 10th, 2010 03:47 pm (UTC)
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It's quite true I don't understand economics. Math, I'm pretty good at.
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From:essentialsaltes
Date:February 10th, 2010 03:46 pm (UTC)
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Just to bloviate further, a crude-yet-eerily-accurate picture of our political parties shows that one side of the aisle is "Think of the Children" (do not want to cut expenditures) while the other is "Read My Lips" (do not want to raise revenue). All too often the 'compromise' is:

Hey, everybody (i.e. the electorate) likes services. Let's keep services!
Hey, everybody (i.e. the electorate) likes tax cuts. Let's cut taxes!

High fives all around the Capitol.
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From:ajax
Date:February 10th, 2010 03:47 pm (UTC)
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Left out of that analysis, a favorite lectern for fiscal conservatives to pound, is that those "four budget items" comprise two-thirds of the total budget. So we're putting the cable bill and restaurant meals on plastic, yes, but it's not really a crisis except in theory. We still buy the most crap and have the most nukes, so the idea we will have to face the same consequences as Chile or Botswana would if we don't set our fiscal house in order without delay is rather overwrought.

I don't disagree with the premise that we should raise taxes and cut defense spending. If you can suggest a way to do that with one of our two relevant political parties having spent two generations on an all-out effort to prevent either one from happening and feeding the public a bunch of wishful-thinking falsehoods about marginal tax rates, I am all ears.

Realistically, I see this problem being solved when the outsized Baby Boom generation dies off. "In the long run, we're all dead" is actually a message of hope for the future in this particular case.

--- Ajax.
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From:essentialsaltes
Date:February 10th, 2010 03:56 pm (UTC)
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Naw, I haven't a solution, other than to suggest that the parties start to compromise in a way that they spend a little more effort doing the thing they don't want to do.

Even though it was no use, Cassandra still had to tell what she knew.
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From:ian_tiberius
Date:February 10th, 2010 05:46 pm (UTC)
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The core of the problem, as Ajax suggests, is that the public refuses to countenance any actual solution to the problem.

That will not change until they start to hurt badly enough to stop listening to the Limbaughs and Becks and Hannitys. I don't know exactly what that point of pain will be or when it will occur, but I see it coming and it will be ugly.
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From:gbsteve
Date:February 10th, 2010 03:53 pm (UTC)
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You don't pay enough tax in the US to support the infrastructure and population. The highest income tax is 11%, in Europe (not counting silly little countries), the lowest is probably around 18%.

This is fine for the rich who can afford private health, insurance, security, jets and fences. But everyone else, who presumably still aspires to be rich, can go hang with substandard social care.

I like the idea of a Tobin tax to restrict to speculation in capital and redirect some of the stupid profit to where it's needed.

But of course, you live a socialist state now so you're going to get all this redistribution and death panels.
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From:ajax
Date:February 10th, 2010 03:56 pm (UTC)
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Also, while Miss $1800 Cellphone Bill is indeed a twit, I will say that the recent proliferation of "click this to make somebody else donate money for this cause" apps on the web intersecting with the recent proliferation of "use your cellphone to pay for services" features may necessitate some stronger consumer protection/education efforts going forward.

--- Ajax.
From:(Anonymous)
Date:February 11th, 2010 03:24 am (UTC)
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Mike,

Glad to hear that you have a fiscally conservative side! Here are some statistics that should aggravate you...

In 2008, US government spending per capita was $17,824. 50 years before that, in 1958, US government spending per capita -- adjusted for inflation, of course -- was $5,739. That's an increase of 211%. Again, that's per capita and adjusted for inflation. Note that prior to 1933 -- except for two years of WWI -- spending per capita was fairly flat. (Don't even get me started on the Depression and Roosevelt!)

What's even more surprising is what that money's being spent on. Here are the comparisons between 1958 and 2008:

Category          1958     2008    Increase
--------------   ------   ------   --------
Health Care        $195   $2,967    1,422%
Education          $717   $2,896      304%
Pensions           $418   $2,850      582%
Defense          $2,205   $2,458       11%
Other              $702   $1,647      135%
Welfare            $340   $1,606      372%
Protection         $112   $1,207      978%
Transportation     $460     $755       64%
General            $108     $362      235%

Notice a) that Health Care, Education, and Pensions cost more than Defense and b) that Defense hasn't changed much in 50 years while the previous three have skyrocketed. Lest someone think I cherry-picked the data, let me mention that between 1947 and 2008, defense spending has fluctuated between $1,203 (1948) and $2,906 (1968). During WWII, defense spending jumped to $8,013 (1945), dropping back to $1,529 after the war (1947).

Defense spending was eclipsed by pensions in 1991, by education in 1993, and health care in 1994. Given that government spending has been steadily rising since the late 1920s, my recommendation would be to cut expenditures...

Donovan
(Statistics courtesy of USGovernmentSpending.com)
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From:essentialsaltes
Date:February 11th, 2010 04:43 am (UTC)
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Yes, well, per capita income from 1967 to 2006 grew (in 2006 dollars) grew 107%, so a 211% increase in per capita spending from 1958 to 2009 doesn't scare me all that much, especially when we consider the passage of the Civil Rights Act of 1965 (adding Medicare & Medicaid, contributing to that whopping 1422% increase). Repealing Medicare would be pretty helpful for getting expenditures down, and would be a bold step in reforming healthcare in the US. But I don't think either party is going to step up to the plate on that one.

(What's protection? Are we paying the Mafia or something? "It'd be a shame if Nebraska fell off the shelf and broke, eh?")
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From:rizwank
Date:February 12th, 2010 06:58 pm (UTC)
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What exactly is 'Protection'?
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From:essentialsaltes
Date:February 12th, 2010 07:09 pm (UTC)
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It's police/prisons/fire department
From:(Anonymous)
Date:February 11th, 2010 03:11 pm (UTC)
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Mike,

Wait a minute -- are you saying that if wages go up 100% that it's okay for the government to raise taxes by 200%? What happened to the "grumpy fiscal conservative"?

Donovan
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From:essentialsaltes
Date:February 11th, 2010 04:09 pm (UTC)
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Well,the wage data only went back to 1967. And since corporate taxes also contribute, maybe it's fairer to use per capita GDP.

1958: $14802 (in 2005 $)
2008: $43714 (ditto)

An increase of 195%. Quite close to the increase in spending you decry. Over 50 years, the growth rate of spending has been 2.269%, while the growth in GDP has been 2.164%. (So the actual increase in tax rate amounts to 0.1% annually. If only we'd avoided that, the world would still look like Leave it to Beaver.)


Anyway, fiscal conservative means different things to different people. When I use a word, it means just what I choose it to mean -- neither more nor less.

To many it means to be a pre-transformation Scrooge. To me it means that you should not spend more than you earn. There is nothing inherently wrong with spending a lot of money for something you want very much. But there is something wrong with doing so without a viable plan to pay for it.

Edited at 2010-02-11 04:12 pm (UTC)
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From:rizwank
Date:February 12th, 2010 07:04 pm (UTC)
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The Economist did a great wrap up this week. (And the Economist endorsed Obama - it's not part of the Obama-hating universe.)

But by 2012 the threat posed by deficits will loom large. The annual deficit will still be above 5% of GDP, and public debt will exceed 70% of output. With this persistent flow of red ink, rising interest rates may become a threat to continued recovery. Mr Obama would have been wiser to carve out resources for job creation by trimming back waste elsewhere.

That concern aside, this budget provides a needed lift to the labour market at an acceptable cost to the short-term budget picture. But none of Mr Obama’s plans may survive scrutiny by Congress, especially one where the Democrats are starting to lose their grip.

The longer budget view is far bleaker. The president’s challenge in the 2011 budget was clear—begin the push towards medium-term deficit stabilisation, with an eye towards a long-term budget fix. Here he has come up woefully short.

A substantial amount of deficit reduction—from 10% of GDP to 5% by 2015—is baked into the budget, based on the hoped-for economic recovery and the ending of the stimulus. It is in cutting from 5% to 3% of GDP that the tough decisions must be made. Mr Obama had hoped to get most of the way there through economic growth and reforms to the health-care system. The passage of any health bill now looks highly doubtful (see next story), but this did not stop the administration from writing $150 billion in health-care savings over ten years into its budget. Many analysts doubt whether those savings would have materialised anyway. Even if all miraculously went right, the product of a year’s worth of back-breaking legislative work would amount to about 1.5% of the total 2010-20 deficit—a drop in the ocean.


This graph scares the crap out of me :




Journal of No. 118