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national debt

President Obama, Inexcusable

by adam on February 7, 2009 · 0 comments

Obama Calls Delays on Stimulus
‘Inexcusable and Irresponsible’

President Obama scolded critics of his economic plan on Friday, calling it “inexcusable and irresponsible” to delay the passage of the stimulus legislation in the Senate as he named a new White House economic board to help him respond to the recession.

Whatever your gut may tell you about the appropriateness of this legislation, it amounts to spending over nine hundred billion dollars… $900,000,000,000.00… so you’d think it should take time to perform some due diligence on the contents of the bill. Perhaps, if he wanted it approved faster, he should have included only direct stimulus-related items and saved unrelated stuff for later votes. But that assumes that “stimulus” is his actual goal, not a broad legislative coup that is in fact facilitated by the current crisis.  Furthermore, as Patrick Stephens points out,

It’s simply impossible for the federal government to spend $900 billion effectively, efficiently, or even sensibly. The numbers are too large and the opportunities for graft too numerous. The potential rewards for gaming the system are simply too large for us to imagine–for even a moment–that vast amounts of money won’t be completely and utterly wasted.

If a stimulus we MUST have, then why not a simple moratorium on tax withholding? Why not simply take less from the American public for two months?

Because that leaves no opportunity for graft, and Congress lives on graft.

Add to which, with its already gargantuan debt, where the heck is the federal government getting the money for this bill? According to the counter in my right column, the federal debt is approximately $10,700,000,000,000.00. However, according to President of the Dallas Federal Reserve, Richard W. Fisher, the actual U.S. debt is science-fiction disaster-scenario high.

“Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent.”

“I want to remind you that I am only talking about the unfunded portions of Social Security and Medicare. It is what the current payment scheme of Social Security payroll taxes, Medicare payroll taxes, membership fees for Medicare B, copays, deductibles and all other revenue currently channeled to our entitlement system will not cover under current rules. These existing revenue streams must remain in place in perpetuity to handle the “funded” entitlement liabilities. Reduce or eliminate this income and the unfunded liability grows. Increase benefits and the liability grows as well.”

“Let’s say you and I and Bruce Ericson and every U.S. citizen who is alive today decided to fully address this unfunded liability through lump-sum payments from our own pocketbooks, so that all of us and all future generations could be secure in the knowledge that we and they would receive promised benefits in perpetuity. How much would we have to pay if we split the tab? Again, the math is painful. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household’s income.”

In plain common sense terms, a policy of spending increases coupled with tax cuts makes absolutely no damn sense, but is an utterly predictable government tactic. How do you think we’ve accumulated this terrifying debt? The government keeps promoting the lethal pretense that free lunches are possible and Americans keep placing faith in that pretense. We’ll see where that leads. Meanwhile, the answer to the question of how Obama and Congress will pay for the $900,000,000,000.00+ “stimulus plan” is grotesquely, inexcusably familiar: they will raise the debt limit, borrow some from whomever they can, and print the rest out of thin air.

The exact excuse Obama offers for the current push to spend money the government doesn’t have is that action must be taken immediately “to jumpstart the economy.” Obama alleges that virtually all economists agree his stimulus bill is necessary (pernicious nonsense).

The economy does need rescuing, no doubt, but from titanic government expenditures and interventions not by them. The only sustainable path to economic growth is for the government to retract its claws and stop interfering with markets. The way to real prosperity is to allow the profit and loss system to function, restoring the job-creating vitality that only competition with accountability can generate. Markets create and markets destroy according to dynamic, constantly evolving factors, such as the development of more cost-effective production and distribution technologies or the adaptive insights of a single entrepreneur about a new way to solve a problem or meet a demand.

What would you or I have done with the wealth we earned but were deprived of so that politicians can diddle with it? Governments don’t create wealth; every government project costs us money on the one hand and opportunities on the other. President Obama and Congress cannot legislate discovery or insight or risk taking or voluntary trade. Wealth creation emerges from free human action not coercive bureaucratic planning.

But there are things Obama and Congress can and should do: repeal laws that artificially distort market prices, repeal taxes that penalize sales and income and hiring and investment, and stop making winners of losers and losers of winners.

Get the government the hell out of the way, President Obama, and you’ll receive the credit for having the courage to recognize the limits of government. Continue down the well-trodden path of those who came before you, and you will betray the promise of your presidency, which was always supposed to be about being practical instead of being partisan.

What possible excuse exists for perpetuating W’s policy of propping up failed firms? By doing so, Obama is overriding the will of consumers whose decisions about which businesses they will or will not patronize are the only “votes” that ought to count.

What is Obama’s excuse for the tragically inept response of his administration to the ice storm in Kentucky? And where is mainstream media on this story?

What is Obama’s excuse for not leveraging his personal experience with drug use to lead the way on reframing the drug war in this country? Would his life have been better if he had been incarcerated for the drug use he has admitted to? Of course not, and yet, there are hundreds of thousands of human beings rotting in U.S. jails for nonviolent crimes involving drug posession and use. What are you waiting for, President Obama?

What is Obama’s excuse for expanding grant support to W’s faith-based initiatives?  Religious groups generally have a hard time raising money from secular people, for obvious reasons, and yet Obama will increase grants to religious groups… as long as what they do with the grants is secular?!? This is completely unnecessary and it’s insulting. Let religious groups, like all other charities in this country, raise money from those willing to donate to them.

And again, what is Obama’s excuse for railing against Congress for not rushing to approve a massive inherently pork-laden spending bill designed with obsequiously partisan political opportunism at its core immediately after winning an election based on the promise of hope and change and the rejection of politics-as-usual?

President Obama’s self-righteous airs are inexcusable if he’s the leader he promised to be, and inexcusable if he’s merely an exceptionally skilled but otherwise typical professional politician.

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Public-Sector vs. Private Responses to Bad Decisions

by adam on January 6, 2009 · 2 comments

There are two news stories on the “front page” of nytimes.com today that make for an interesting exercise in juxtaposition.

First, there’s the suicide of an entrepreneurial billionaire.

Adolf Merckle, the German billionaire whose speculation in volatile Volkswagen stock had pushed his sprawling business empire to the edge of ruin, has committed suicide, his family said Tuesday.

A native of Dresden who made his way to western Germany after World War II, Mr. Merckle parlayed a family business in chemicals into one of the biggest pharmaceutical concerns in the world. Ratiopharm, a maker of generic medicines that nonetheless became a recognized brand itself, became the pride of the family.

Forbes estimated Mr. Merckle’s fortune at $9.2 billion in 2008, making him No. 94 on its list of the world’s richest.

“The distress to his firms caused by the financial crisis and the related uncertainties of recent weeks, along with the helplessness of no longer being able to handle the situation, broke the passionate family businessman, and he ended his life,” the family said in a statement.

More than any other single investment, Mr. Merckle’s poorly timed bet on Volkswagen shares caused the financial distress that led to his death.

In November, it emerged that Mr. Merckle had lost an amount of money in the “low hundreds of millions” by wagering that shares in Volkswagen would fall, a financial transaction known as short-selling.

The bet had put him up squarely against a positively world-famous family, the Porsches. The sports car manufacturer from nearby Stuttgart was in the process of taking over Volkswagen.

On Oct. 26, Porsche announced it had secured stock and options equivalent to about 75 percent of Volkswagen shares. Short sellers, who borrow shares and sell them, hoping to buy them back later at a lower cost, were caught in a bind, since the revelation implied a shortage of VW shares to “cover” the short-selling.

Sad story about a man overwhelmed by the consequences of his horrible decisions. He lost hundreds of millions of euros and was clearly moved to despair by the effects of those decisions on his family, his employees, his investors. Obviously one wishes that he had not taken his own life, and I won’t debate here the morality of that decision. However, I cannot help but think that Merkle felt, correctly, the weight of his responsibility for losing so much, and however maladaptive his response was to that feeling, it was the right feeling.

Then, there’s the headline story, Obama Warns of ‘Trillion-Dollar Deficits’

Mr. Obama also warned that the country faced the prospect of “trillion-dollar deficits for years to come, even with the economic recovery that we are working on.” He said he was troubled by the staggering $1 trillion figure, adding: “I’m going to be willing to make some very difficult choices on how we get a handle on this deficit.”

Mr. Obama said the $775 billion recovery plan was urgently needed to jumpstart the economy. He pledged to be a watchful steward over the money, offering the restriction on earmarks as an example of how he intended to be mindful of Republican criticism that the package could be too costly.

Of course, the deficits weren’t created by Obama and it’s possible to drive oneself crazy quoting W about his “advocacy” of free markets in light of his epic levels of deficit-driven government growth. But now look at Obama’s “plan,” his response to years of W’s deficit spending.

More deficit spending.

The government can’t pay its bills. It’s mortgaging the future earnings of taxpayers to the hilt and printing money out of thin air. It’s on proverbial life support. Will Obama’s plan reduce the size of the federal government? No, of course not. The government will become more expensive under Obama.  And taxpayers are being asked AGAIN to believe that it is necessary for the federal government to augment its already skyscraping, market-distorting expenditures (over a hundred BILLION to AIG, over $750 BILLION in additionally authorized spending, nearly half of which was given to banks [$25 BILLION to each of ~8 "big" banks], more BILLIONS to automakers whose cars are not being purchased, BILLIONS more to foreign banks and financial insurance companies).

I won’t go on at length about the intellectual bankruptcy of this approach. My focus here is on the public response by the president-elect to what have proved to be bad decisions. Deficit spending defers today’s tough decisions, rendering them tomorrow’s tougher decisions. It’s not a strategy for economic growth, it’s a tactic for delaying dealing with reality. And it’s based on people’s faith that politicians are operating on the premise of serving the taxpayers’ best interests.

Obama voted for all of the aforementioned spending packages, even those laden with pork, and they did not “turn the economy around.” And now he’s going to do more of the same thing, with impunity. He is saying that there will be no pork or earmarks in the planned spending, but a huge cut of his spending will involve infrastructure improvements and highways, which happen locally in states, so of course there will be lobbying for spending by interested parties in every state. It will be a feeding frenzy as coalitions of pols and builders jockey for position with their “shovel-ready” projects. The pork is built into his spending plan.

Just as one wishes somebody had been there to engage Merkle before he took his own like (ie, “you don’t have to do this, there are other ways, opting for death is not practical, c’mon, let’s give this second thought and come up with a better response), I’d love to stage an intervention with Obama, to implore him to start from scratch and check his premises about the underpinnings of economic growth. But if he’s unwilling to do that, if he’s firmly convinced that his plan will work, then Obama really must not only explain to us why it is “urgent” that the federal government spend $750,000,000,000.00 that it does not have, that it will have to borrow from foreign banks and/or print into existence, but also share with us his expectations of the effect of that spending. So that its impact can be measured and evaluated by all of us in the context of the originally intended target. How else can we know that Obama in fact has a plan with concrete goals? Hey it’s our money, right? Obama says the federal government “may” have to spend a trillion dollars over budget next year and the year after? Okay, why? And what exactly do we get for it? And if we don’t achieve those milestones, when will you, President “Learn From Mistakes Instead of Perpetuating Them” Obama, reverse this approach, pass deep tax cuts, reduce the size and expense of government, and spend only money that the U.S. Treasury has in hand?

Obama’s error is the same as Merkle’s. Both responses are maladaptive and irreversible. Once Obama authorizes another huge spending package, that wealth will be lost. All of the uses to which you and I and every other taxpayer, born and unborn, would have put that value will be obliterated out of deference for the spending preferences of bureaucrats in DC. The error is the same, but would Obama feel as responsible for making a horrible mistake as Merkle? Would any professional politician every feel as bad as Merkle for a failed, exorbitantly costly program he or she spear-headed?

And why not? Perhaps because Merkle lost what was his, and professional politicians only ever lose what was never theirs in the first place.

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Obama… Professional Politician or Magician?

by adam on January 5, 2009 · 0 comments

Check this out from Politico:

Obama plans to ask Congress for a stimulus package of $675 billion to $775 billion, so the planned tax cuts will total about $270 billion to $310 billion.

So Bush gave us tax cuts and record spending, and now Obama’s going to do the same damn thing. Government spending in excess of its revenue as a path to economic prosperity. Does anybody believe that this is possible? That wealth has ever been created in this way?  It’s preposterous, but will anyone in the mainstream media dare to say as much? Of course, Russell Roberts over at cafehayek has quickly identified the fundamental lie at the heart of this proposal:

An increase in spending coupled with lower tax collections is an INCREASE in taxes. AN INCREASE in taxes. NOT A TAX CUT. If I spend more money and collect less, the government is promising to collect more taxes in the future. It is not a tax cut. Not a tax cut. Not a tax cut. And when you don’t cut rates but rather give people a lump sum of $500, there are no incentive effects other than to increase the probability that the US Treasury will be unable to honor its obligations in the future.

What makes this level of basic deceit palatable to fellow citizens? Why are so few outraged by the essential dishonesty involved in a public policy that promises prosperity today at the expense of prosperity tomorrow?

I think it’s because many would prefer to believe the lie. They prefer the comfortable feelings that arise from their faith in the virtuous intent of the State and in its power to make good on its promises. And the quantification of that faith is the national debt and what it affords us.

Currently, the U.S. debt is over $50,000,000,000,000.00 (trillion!). One extraordinary leap of faith after another, and for what? Has the quality of health care improved? Is public education better today than it was two decades ago? Is our society better off with prisons swelling from drug use/possession arrests?

Obama’s asking us to tolerate another leap of faith with his proposed stimulus program. People seem eager to extend to him and his fellow professional pols more faith. They seem to think they can afford to do this as if their per capita share of the national debt is not ~$180,000.

Accepting propositions as true for which no evidence is demonstrable is the essence of faith. It is an evasion of reality to suppose that Obama is a magician instead of a professional politician, that wealth is created by targeted subsidies instead of voluntary trade. It is our culture’s thick-headed reliance on faith-based public policy that produces the success of our current batch of elected officials. Their power is a consequence not a cause of most American voters’ preference for fairy tales instead of facts.

What I wouldn’t do for a public policy approach guided by science instead of the whims of self-interested politicians. Though Democrats have always tacitly prided themselves on their secular sensibilities, in truth their faith in big government is as illogical and destructive as faith in the supernatural, if not moreso.

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