The Republicans have caved once again. The deal hammered out between Biden and McConnell is one more setback for the nation. It promises to put real brakes on the economic recovery because of the tax increases and makes no progress at all toward reducing the deficit that continues be the nation's number one economic problem.
Why Democrats support this is a mystery? This deal and others like it, soon to be agreed to, virtually guarantee that future beneficiaries of social security and medicare are in for a very unpleasant surprise. Those now 50 and under cannot expect much more than half of the promised social security and medicare. Those under 40 should not expect anything at all.
Now, while age limits can be increased and means testing can be implemented, we should do it. Doing it two years from now will effectively reduce future benefits more than doing it now. Putting these things off just make things much, much worse in the future. This was a squandered opportunity.
Republicans should replace Boehner as Speaker and every Republican who votes for this deal should receive a primary challenge. Hopefully, McConnell will be challenged in the primary in his upcoming bid for re-election. It gets harder and harder to see how Boehner and McConnell are an improvement over Reid, Pelosi and Obama. They all seem to get to the same place eventually. It doesn't do any good to win elections if this is the ultimate political outcome.
It's not clear what the Republicans are fighting for -- but they are definitely not fighting for smaller government and for economic growth. Nothing in this deal moves in those directions.
This is a good deal for Obama and a good deal for the media. They should be very happy. The steady decline of the US into a second rate status in the world economy proceeds apace. This seems to be what Obama and his fans in the media want to happen and they are getting their wish.
Monday 31 December 2012
What Happened to Curbing the Deficit?
In its extreme enthusiasm for Obama, the press has totally neglected the deficit issue, which was the entire reason behind the creation of the fiscal cliff in the first place. Instead the press has focused exclusively on Obama's absurd "tax the rich" gambit. Obama's plan will likely lead to lower, not higher, revenues from the top two percent. So, that part of the Obama agenda simply raises the deficit and provides disincentives to expand employment. Great policy!
Meanwhile, the $ 1.6 trillion deficit is getting larger. The real cliff lies ahead when the debt markets begin to balk at the continued explosion in US sovereign debt. We are now on "Greece watch." It is only a matter of time.
Meanwhile, the media continues to be irrelevant to the real issue of our time. For a brief period, the media and Obama can enjoy their "victory," but the long run, not so long run now, leads to insolvency. Watching Greece and Spain is instructive. The media should spend some time in Greece and Spain to see where their policies lead.
Let's hope that McConnell can resist Reid, Biden and Obama and let nature take it's course. Over the cliff we go.
Meanwhile, the $ 1.6 trillion deficit is getting larger. The real cliff lies ahead when the debt markets begin to balk at the continued explosion in US sovereign debt. We are now on "Greece watch." It is only a matter of time.
Meanwhile, the media continues to be irrelevant to the real issue of our time. For a brief period, the media and Obama can enjoy their "victory," but the long run, not so long run now, leads to insolvency. Watching Greece and Spain is instructive. The media should spend some time in Greece and Spain to see where their policies lead.
Let's hope that McConnell can resist Reid, Biden and Obama and let nature take it's course. Over the cliff we go.
Saturday 29 December 2012
Republicans for Tax Hikes
A number of Republicans have decided to vote for the restoration of the Bush tax cuts with an upper limit. Obama's upper limit is $ 250,000. Apparently, many Republicans are willing to sign on if the upper limit is moved up a bit to $ 400,000 or $ 500,000. If Republicans would simply refuse to sign on unless all the Bush cuts were restored, they would, without any doubt, get their way. But somehow they have become convinced by the media, the Democrats, and their reading of the polls that they must buy into the Obama tax hike.
Why would Republicans get their way? Because Obama would be forced to go along if the choice were that stark. Obama does not want to preside over a major tax increase that further damages an already weak economy. He would own it, not Republicans. After all, the Republican House passed a full extension of the Bush tax cuts last July. It is only Obama's petty insistence on raising rates on the top 2 percent, raising at best a trivial amount of revenue, that is holding up the extension. It is Obama's economy for good or evil. That is the leverage that the Republicans have. But, they seem intent on throwing away that leverage. They won't have this opportunity again if they let it slip away now.
Boehner, they say, will hold an "open vote" on any Reid-McConnell compromise so that House passage can be accomplished with a majority of Republicans voting no.
It's time to rev up the tea party. What good is a Republican who votes for tax and spending increases, which is what the Reid-McConnell compromise will amount to? If there were no Republicans at all in the House or Senate would the ultimate outcome be much different?
Various conservative pundits, Bill Kristol for one, have advocated that Republicans simply surrender and vote for the tax increase on the top 2 percent. Has Kristol forgotten the effect of higher marginal tax rates on job creation? Or is Kristol only concerned about pleasing the media?
Republicans should reject any compromise that involves raising taxes on anyone unless there are major cuts to social security and medicare. Boehner should be replaced as Speaker if he permits a vote on a bill that a majority of House Republicans are opposed to.
The country's future is at stake because of the exploding national debt. Going over the fiscal cliff is far, far preferable to a bad Reid-McConnell deal.
It looks for now like Republicans are planning to join their Democratic brethren in raising taxes, increasing spending, and further damaging the country's future prospects and economic vitality.
Deja vu.
Why would Republicans get their way? Because Obama would be forced to go along if the choice were that stark. Obama does not want to preside over a major tax increase that further damages an already weak economy. He would own it, not Republicans. After all, the Republican House passed a full extension of the Bush tax cuts last July. It is only Obama's petty insistence on raising rates on the top 2 percent, raising at best a trivial amount of revenue, that is holding up the extension. It is Obama's economy for good or evil. That is the leverage that the Republicans have. But, they seem intent on throwing away that leverage. They won't have this opportunity again if they let it slip away now.
Boehner, they say, will hold an "open vote" on any Reid-McConnell compromise so that House passage can be accomplished with a majority of Republicans voting no.
It's time to rev up the tea party. What good is a Republican who votes for tax and spending increases, which is what the Reid-McConnell compromise will amount to? If there were no Republicans at all in the House or Senate would the ultimate outcome be much different?
Various conservative pundits, Bill Kristol for one, have advocated that Republicans simply surrender and vote for the tax increase on the top 2 percent. Has Kristol forgotten the effect of higher marginal tax rates on job creation? Or is Kristol only concerned about pleasing the media?
Republicans should reject any compromise that involves raising taxes on anyone unless there are major cuts to social security and medicare. Boehner should be replaced as Speaker if he permits a vote on a bill that a majority of House Republicans are opposed to.
The country's future is at stake because of the exploding national debt. Going over the fiscal cliff is far, far preferable to a bad Reid-McConnell deal.
It looks for now like Republicans are planning to join their Democratic brethren in raising taxes, increasing spending, and further damaging the country's future prospects and economic vitality.
Deja vu.
Friday 28 December 2012
Was This By Design?
Listening to the media and democratic pundits ignore the exploding national debt to indulge in a dialogue about an almost irrelevant issue -- taxing the upper 2 percent -- makes one wonder? Do these folks not understand the arithmetic. Are they unaware of the $ 16.5 trillion national debt, growing by ten percent per year in an economy with just over $ 15 trillion in GDP? Why the focus on something that, at the most optimistic assessments, can only produce 0.08 trillion in revenues annually? Even that miniscule number is unlikely. Far more likely is that the increased tax rates on the upper 2 percent would drive down revenues from that group. But, even at the most optimistic assessment, it is a waste of breath.
So, why is that the entire conversation? Maybe these folks are untroubled by a US decline. They seem so fundamentally out of touch with traditional American values, maybe they are mainly interested in changing the culture to suit themselves even if that means economic decline. That's what redistribution seems to be all about. Maybe the media and the democratic pundits don't really care if economic growth is zero and the young have no future and old folks end up with nothing. Perhaps this is all by design, not simply gross stupidity.
So, why is that the entire conversation? Maybe these folks are untroubled by a US decline. They seem so fundamentally out of touch with traditional American values, maybe they are mainly interested in changing the culture to suit themselves even if that means economic decline. That's what redistribution seems to be all about. Maybe the media and the democratic pundits don't really care if economic growth is zero and the young have no future and old folks end up with nothing. Perhaps this is all by design, not simply gross stupidity.
Thursday 27 December 2012
Don't Blame the Economy on the Cliff
The economy is weak because of government policy -- not the ongoing fiscal cliff stalemate. The Obama Administration has waged war against the private sector free market from the day it took office. That war has borne fruit. This is the slowest economic recovery since the 1930s.
The slow pace of economic growth has nothing to do with the cliff. It has been going on since late 2009. There is not going to be any serious economic growth in the US given the regulatory and legal environment that has been imposed upon the US economy since Obama took office. The financial sector has been crushed, bank lending has been discouraged by the regulators, the energy sector has just barely survived the Obama onslaught, and employees are an endangered species.
Obamacare pretty much says it all. Another costly mandate on companies and ultimately on individuals was the final kicker. Along the way the elimination of the Keystone pipeline project was emblematic of the Obama strategy. Push government spending and expansion and crush the private sector.
Well, guess what. They have succeeded.
So, forget the cliff. The cliff, whether we go over it or not, won't matter. This is not an economy going anywhere. The only significance of the cliff is that if a deal is reached, US bankruptcy will be sooner not later. At 20 trillion in debt and an economy in the ditch, it is unlikely that bankruptcy can be avoided and we should reach that level in Obama's seventh year in office.
The slow pace of economic growth has nothing to do with the cliff. It has been going on since late 2009. There is not going to be any serious economic growth in the US given the regulatory and legal environment that has been imposed upon the US economy since Obama took office. The financial sector has been crushed, bank lending has been discouraged by the regulators, the energy sector has just barely survived the Obama onslaught, and employees are an endangered species.
Obamacare pretty much says it all. Another costly mandate on companies and ultimately on individuals was the final kicker. Along the way the elimination of the Keystone pipeline project was emblematic of the Obama strategy. Push government spending and expansion and crush the private sector.
Well, guess what. They have succeeded.
So, forget the cliff. The cliff, whether we go over it or not, won't matter. This is not an economy going anywhere. The only significance of the cliff is that if a deal is reached, US bankruptcy will be sooner not later. At 20 trillion in debt and an economy in the ditch, it is unlikely that bankruptcy can be avoided and we should reach that level in Obama's seventh year in office.
Wednesday 26 December 2012
Markets Like Going Over The Cliff
Why is the stock market so much higher than just a few weeks ago? Don't stocks know that we are headed over the fiscal cliff?
Going over the cliff is a good thing, not a bad thing. Higher taxes, lower spending is just the beginning. Much, much higher taxes and the virtual elimination of the military and other discretionary spending will be required just to get through the next 15 years of the entitlement programs. Going over the cliff will provide 15 years of breathing room against the collapse of the entitlement programs.
Not going over the cliff could force a crisis in treasury financing within the next two or three years. Going over the cliff gets you past the end of the Obama years with a national debt of 20 Trillion and eight years of a lost decade. But, it will get you to the end of the Obama years most likely.
Not going over the cliff will accelerate the national debt crisis with a good chance that we can't get through the Obama years without a treasury financing crisis, similar to that of Greece.
So, let's buy a few more years by going over the cliff. This is the price you pay for entitlement reform being "off the table."
Going over the cliff is a good thing, not a bad thing. Higher taxes, lower spending is just the beginning. Much, much higher taxes and the virtual elimination of the military and other discretionary spending will be required just to get through the next 15 years of the entitlement programs. Going over the cliff will provide 15 years of breathing room against the collapse of the entitlement programs.
Not going over the cliff could force a crisis in treasury financing within the next two or three years. Going over the cliff gets you past the end of the Obama years with a national debt of 20 Trillion and eight years of a lost decade. But, it will get you to the end of the Obama years most likely.
Not going over the cliff will accelerate the national debt crisis with a good chance that we can't get through the Obama years without a treasury financing crisis, similar to that of Greece.
So, let's buy a few more years by going over the cliff. This is the price you pay for entitlement reform being "off the table."
Sunday 23 December 2012
Why Pretend -- Let the Tax Cuts Expire
If there is no appetite for reforming entitlements, then our future is massive tax increases and a stagnant and depressed economy. Why not start this process now? The track that we are on will eventually lead to the kind of top tax rates that we see in Europe -- 70 percent in France, for example. And even those rates won't improve the national debt situation.
The truth is that the Democrats plan is to continue to raise tax rates by pretending that somehow tax revenues can catch up with entitlement spending. But there are no tax rates or revenues that can match the entitlement explosion. Our national debt will be a multiple of GDP within a few years and is probably already unpayable at any level of tax revenues.
It's time to let the public get a taste of their future -- high taxes, massive bureaucracy, a crushing of the private sector, high and permanent unemployment, and diminished employment and income prospects for younger generations. Within a dozen years, we will begin to back away from spending for the elderly -- not because we want to -- but because there is simply no money available to maintain these programs at existing benefit levels.
The problem we have is that a majority of Americans think all of this stuff is affordable. That's why entitlement reform is "off the table."
So, let taxes rise. Among Democrats, only Harold Dean seems to be aware of the arithmetic. He has made it clear that he supports letting all of the tax cuts expire. It's rare that I agree with Dean, but, on this one, I agree.
The public needs to get a taste of the future regime that they have voted for. If the entitlements are "off the table," then lets put the reality of the future on the table now before it is too late. Perhaps four years of economic stagnation, smothering regulations and high taxes will be enough of a taste of our future to bring our citizenry to its senses.
The truth is that the Democrats plan is to continue to raise tax rates by pretending that somehow tax revenues can catch up with entitlement spending. But there are no tax rates or revenues that can match the entitlement explosion. Our national debt will be a multiple of GDP within a few years and is probably already unpayable at any level of tax revenues.
It's time to let the public get a taste of their future -- high taxes, massive bureaucracy, a crushing of the private sector, high and permanent unemployment, and diminished employment and income prospects for younger generations. Within a dozen years, we will begin to back away from spending for the elderly -- not because we want to -- but because there is simply no money available to maintain these programs at existing benefit levels.
The problem we have is that a majority of Americans think all of this stuff is affordable. That's why entitlement reform is "off the table."
So, let taxes rise. Among Democrats, only Harold Dean seems to be aware of the arithmetic. He has made it clear that he supports letting all of the tax cuts expire. It's rare that I agree with Dean, but, on this one, I agree.
The public needs to get a taste of the future regime that they have voted for. If the entitlements are "off the table," then lets put the reality of the future on the table now before it is too late. Perhaps four years of economic stagnation, smothering regulations and high taxes will be enough of a taste of our future to bring our citizenry to its senses.
Saturday 22 December 2012
The Latest from Greece
Greek riots and demonstrations are now a daily event in Athens and other major cities. Civil disorder is common place -- looting and random thievery are accepted in modern day Greece.
Meanwhile, the Greek public still believes that they are beset by the evil greed of rich people and large corporations. If only....
For three generations, the Greeks have been told that the "middle class" deserves endless services, employment guarantees, free health care, and no taxes. They bought in.
It's always about "fighting for the middle class," until there is no longer a middle class. That's where we are in Greece. We now have a protracted battle between the protected class -- mostly government employees -- and everybody else. We now witness a civil war between the young -- who are supposed to support all of this nonsense -- and the old, who no longer can support much of anything.
Greece is the target. That's where the Obama policies take you. Substitute personal responsibility for government largess and you get modern Greece. Meanwhile, move the rhetoric over to demonizing the rich and you get the Obama plan. Freedom, free markets, hard work -- these are now outmoded notions to be replaced by "defending the middle class." One such defense is the announcement today that GM workers will receive $ 7,000 bonuses this year, thanks to the taxpayers, who have lost billions of dollars underwriting GM worker pension funds.
This is where it goes. Pit one group of Americans against another. It is no longer about merit and hard work. Those are outmoded notions. The Greeks don't believe any of that either. They have been carefully nurtured to believe that the government will take care of everything. Obama has taken heed. You can win a lot of elections and curry favor with an adoring media by simply pretending that effort is no longer required for the good life. These rich folks have enough for us all.
So, modern Greece is descending into chaos. Don't visit Athens as a tourist, because police protection has broken down. This is a society that no longer believes in civil order. Virtually all Greeks now believe that their problems are caused by rich people, German banks, and big corporations. They have been watching TV and listening to their leaders. They drank the koolaide.
Now, we are drinking the koolaide. What is the Obama plan to reduce the deficit? Tax rich people. How do you deal with a $ 70 trillion unfunded entitlement deficit. Raise $ 80 billion a year from rich people. This year alone that will reduce our deficit from $ 1.6 Trillion to $ 1.52 Trillion. That's what we are talking about. These terrible Republicans. If they would only agree to the Obama plan our national debt would rise a mere $ 1.52 trillion per year and the national debt would reach only $ 24 Trillion in six years instead of $ 25 Trillion. Thank you, Mr. President. That's a big help. No point in trying to deal with the entitlements, after all, $ 24 Trillion in six years isn't bad and that's only the beginning. We can do better than that (or more than that, if you like).
No need to worry about Greece with such a statesman-like President. The adoring media deserves some credit as well. If they get their way...just think. We can get to a mere $ 24 trillion in debt in six years. In 20 years, we should be able to scale the $ 40 Trillion mark. Hey, maybe Greece isn't that far way after all.
Meanwhile, the Greek public still believes that they are beset by the evil greed of rich people and large corporations. If only....
For three generations, the Greeks have been told that the "middle class" deserves endless services, employment guarantees, free health care, and no taxes. They bought in.
It's always about "fighting for the middle class," until there is no longer a middle class. That's where we are in Greece. We now have a protracted battle between the protected class -- mostly government employees -- and everybody else. We now witness a civil war between the young -- who are supposed to support all of this nonsense -- and the old, who no longer can support much of anything.
Greece is the target. That's where the Obama policies take you. Substitute personal responsibility for government largess and you get modern Greece. Meanwhile, move the rhetoric over to demonizing the rich and you get the Obama plan. Freedom, free markets, hard work -- these are now outmoded notions to be replaced by "defending the middle class." One such defense is the announcement today that GM workers will receive $ 7,000 bonuses this year, thanks to the taxpayers, who have lost billions of dollars underwriting GM worker pension funds.
This is where it goes. Pit one group of Americans against another. It is no longer about merit and hard work. Those are outmoded notions. The Greeks don't believe any of that either. They have been carefully nurtured to believe that the government will take care of everything. Obama has taken heed. You can win a lot of elections and curry favor with an adoring media by simply pretending that effort is no longer required for the good life. These rich folks have enough for us all.
So, modern Greece is descending into chaos. Don't visit Athens as a tourist, because police protection has broken down. This is a society that no longer believes in civil order. Virtually all Greeks now believe that their problems are caused by rich people, German banks, and big corporations. They have been watching TV and listening to their leaders. They drank the koolaide.
Now, we are drinking the koolaide. What is the Obama plan to reduce the deficit? Tax rich people. How do you deal with a $ 70 trillion unfunded entitlement deficit. Raise $ 80 billion a year from rich people. This year alone that will reduce our deficit from $ 1.6 Trillion to $ 1.52 Trillion. That's what we are talking about. These terrible Republicans. If they would only agree to the Obama plan our national debt would rise a mere $ 1.52 trillion per year and the national debt would reach only $ 24 Trillion in six years instead of $ 25 Trillion. Thank you, Mr. President. That's a big help. No point in trying to deal with the entitlements, after all, $ 24 Trillion in six years isn't bad and that's only the beginning. We can do better than that (or more than that, if you like).
No need to worry about Greece with such a statesman-like President. The adoring media deserves some credit as well. If they get their way...just think. We can get to a mere $ 24 trillion in debt in six years. In 20 years, we should be able to scale the $ 40 Trillion mark. Hey, maybe Greece isn't that far way after all.
Friday 21 December 2012
Road Signs on the Way to Greece
"Get something done....anything!" That seems to be the thinking of the financial and political pundits. Who cares if the outcome is further explosion in the national debt, more crushing taxes, and strangling regulations? That seems to be the "rise above" mentality. The ultimate policy is less important than the desire to get this episode behind us. This is known as "kicking the can down the road." The fact that the economy is getting a swift kick as well does not seem to concern the pundits.
The only thing that the President and his allies are willing to do is further the punish the free market and the private sector with increasing taxes and increasing regulation and creating further divisions between rich and poor and young and old. This is the strategy that Greek politicians used for the past three decades to get Greece to the place where it is now.
Blame rich people, blame the private sector and expand further government activity and the percentage of folks who are riding the stagecoach of government benefits.
When Greece was going down this road, the media strongly and vocally supported the trip. They are doing so again as the US follows the Greek path.
The only thing that the President and his allies are willing to do is further the punish the free market and the private sector with increasing taxes and increasing regulation and creating further divisions between rich and poor and young and old. This is the strategy that Greek politicians used for the past three decades to get Greece to the place where it is now.
Blame rich people, blame the private sector and expand further government activity and the percentage of folks who are riding the stagecoach of government benefits.
When Greece was going down this road, the media strongly and vocally supported the trip. They are doing so again as the US follows the Greek path.
Boehner and his Troops
John Boehner is doing his best, but it is hard to fault the House Republicans for refusing to go along. Boehner is playing tactics, while many House Republicans think it is too late for tactics. They are probably both right.
Boehner tried to push the ball back into the President's court, since the President has been unwilling to bend on anything. It is not unreasonable for those among Republican ranks to ask why they should vote to raise taxes on some folks absent any offer of spending cuts at all from the White House. This is especially the case given that Senate leader Harry Reid said that the Boehner plan was dead on arrival and Obama promised to veto it. Why capitulate pre-emptorily when there is nothing forthcoming from the other side?
Not that any of this matters much as long as entitlements are "off the table." No deal is of any significance without entitlement reform. Obama is perfectly willing to let the country go over the cliff and proceed on its way to Greece. Boehner is doing his best, but Obama and the Democrats are determined to continue the march to insolvency.
Boehner tried to push the ball back into the President's court, since the President has been unwilling to bend on anything. It is not unreasonable for those among Republican ranks to ask why they should vote to raise taxes on some folks absent any offer of spending cuts at all from the White House. This is especially the case given that Senate leader Harry Reid said that the Boehner plan was dead on arrival and Obama promised to veto it. Why capitulate pre-emptorily when there is nothing forthcoming from the other side?
Not that any of this matters much as long as entitlements are "off the table." No deal is of any significance without entitlement reform. Obama is perfectly willing to let the country go over the cliff and proceed on its way to Greece. Boehner is doing his best, but Obama and the Democrats are determined to continue the march to insolvency.
Thursday 20 December 2012
Don't "Rise Above"
CNBC keeps trumpeting the "rise above" slogan in reference to the "fiscal cliff" negotiations. Nothing could do more damage than "rising above." Rising above is how we got to this point. "Rise above" means "kick the can down the road." It is time, way past time, to not rise above. Face the reality. Don't duck reality by adopting the "rise above" strategy of the Jim Cramer no-nothings on CNBC.
Coming to a bogus agreement that does nothing to change the trajectory of medicare, medicaid and social security, accelerates the US on the path to bankruptcy. If you like modern Greece and want to get there as soon as possible, then "rise above."
If you want the US to return to fiscal solvency, then don't rise above. Instead fight the current media frenzy to get to a fiscal deal regardless of what it implies for our future.
Coming to a bogus agreement that does nothing to change the trajectory of medicare, medicaid and social security, accelerates the US on the path to bankruptcy. If you like modern Greece and want to get there as soon as possible, then "rise above."
If you want the US to return to fiscal solvency, then don't rise above. Instead fight the current media frenzy to get to a fiscal deal regardless of what it implies for our future.
Go For Plan B
John Boehner is on the right track. Passing an extension of the Bush tax cuts for as many people as possible is the best that can be accomplished at this point. The main virtue of Boehner's plan is that the Republicans are not tied to a deal with this approach. If Republicans agree to a tax hike deal and essentially no spending cuts -- the Obama approach -- then they will have nothing to run on in 2014. By committing themself to an extension of the Bush tax cuts for almost everyone, they are able to maintain their anti-tax posture.
Let the Senate turn it down. Let Obama veto it. No harm done.
Going over the cliff puts the issue of our looming national insolvency front and center. It is about time.
It is true that national defense is sacrificed and economic growth is probably jeopardized, but it would be anyway giving the current trajectory.
There is no time like the present to face what needs to be faced. Lets get on with it.
Let the Senate turn it down. Let Obama veto it. No harm done.
Going over the cliff puts the issue of our looming national insolvency front and center. It is about time.
It is true that national defense is sacrificed and economic growth is probably jeopardized, but it would be anyway giving the current trajectory.
There is no time like the present to face what needs to be faced. Lets get on with it.
Tuesday 18 December 2012
Without Medicare, There is Nothing There
The big driver of the national debt is medicare spending, made worse by Obamacare. This subject is "off the table" according to the White House. Put simply, the Obama administration is prepared for an exploding national debt and is unwilling to make any effort at all to slow that explosion.
Raising tax rates and tinkering with social security cost-of-living adjustments is a joke. Neither will reduce the future trajectory of the national debt and raising tax rates will actually make things worse.
If Republicans sign on to this deal, you have to wonder what they plan to run for re-election on in 2014. Why control the House of Representatives, if you intend to do nothing but cave to Obama? Where is the loyal opposition?
Raising tax rates and tinkering with social security cost-of-living adjustments is a joke. Neither will reduce the future trajectory of the national debt and raising tax rates will actually make things worse.
If Republicans sign on to this deal, you have to wonder what they plan to run for re-election on in 2014. Why control the House of Representatives, if you intend to do nothing but cave to Obama? Where is the loyal opposition?
Monday 17 December 2012
Boehner against Boehner
You have to feel for John Boehner. All the self-appointed conservative pundits -- Peggy Noonan, Bill Kristol, etc., are telling Boehner to give up on holding the line on tax rates. What happened to the argument that higher tax rates means slower economic growth? Did the laws of economics suddenly get suspended to accommodate the political situation?
Raising tax rates in the midst of a sluggish economy is absurd policy. Only a clueless President would suggest such a path. Unfortunately Republicans are now climbing all over themselves to jump on the "higher tax rates" bandwagon. If successful, many more Americans will be faced with a much more limited economic future. Is politics worth this?
So, Boehner keeps offering up one compromise after another -- mostly, one suspects, to appease his own troops who are running for cover.
It looks like Republicans may end up providing cover for Obama as they join hands to raise taxes and increase spending. They never learn.
So what are the Republicans going to run on in 2014, having given away the smaller government, lower taxes argument?
Raising tax rates in the midst of a sluggish economy is absurd policy. Only a clueless President would suggest such a path. Unfortunately Republicans are now climbing all over themselves to jump on the "higher tax rates" bandwagon. If successful, many more Americans will be faced with a much more limited economic future. Is politics worth this?
So, Boehner keeps offering up one compromise after another -- mostly, one suspects, to appease his own troops who are running for cover.
It looks like Republicans may end up providing cover for Obama as they join hands to raise taxes and increase spending. They never learn.
So what are the Republicans going to run on in 2014, having given away the smaller government, lower taxes argument?
Friday 14 December 2012
The Fed: What the Fed can do and What it Cannot Do
More ink and conversation is wasted on what the Fed is planning to do regarding interest rates. The Fed doesn't set rates other than it's own lending rate -- nothing else. Treasuries don't have low rates because the Fed wills it. Treasuries have low rates for the same reason the US economy is in shambles -- everyone is fearful of the future. As bad a bet as treasuries are, at the moment, most investors feel safer in treasuries than in other assets. That's why rates are low. The Fed has little or nothing to do with that.
What the Fed can do is change the money supply and they are doing that. They can also "monetize" the debt and they are doing that.
Sooner or later a panic will take place and the world will run from US treasuries. It won't be pretty and everyone will quit talking about the Fed and begin talking about the insolvency of the US, which is the real issue. The Fed is a sideshow.
Ben Bernanke, like lots of "political economists" is fighting the battle of the 1930s. He thinks we have a liquidity problem. That's why he indulges in Q1, Q2, and Q3. We don't have a liquidity problem which is why Fed policy is having no impact on employment and aggregate demand.
America has a debt problem and a regulatory problem and a tax problem. Unless you solve those things, the Fed and Obama and all the rest are completely irrelevant. Obama is relevant only as the maestro leading the US economy to disaster. But, don't look to the Fed. The Fed is just Obama's handmaiden in all of this.
What the Fed can do is change the money supply and they are doing that. They can also "monetize" the debt and they are doing that.
Sooner or later a panic will take place and the world will run from US treasuries. It won't be pretty and everyone will quit talking about the Fed and begin talking about the insolvency of the US, which is the real issue. The Fed is a sideshow.
Ben Bernanke, like lots of "political economists" is fighting the battle of the 1930s. He thinks we have a liquidity problem. That's why he indulges in Q1, Q2, and Q3. We don't have a liquidity problem which is why Fed policy is having no impact on employment and aggregate demand.
America has a debt problem and a regulatory problem and a tax problem. Unless you solve those things, the Fed and Obama and all the rest are completely irrelevant. Obama is relevant only as the maestro leading the US economy to disaster. But, don't look to the Fed. The Fed is just Obama's handmaiden in all of this.
Monday 10 December 2012
Debt -- The Perfect Storm
Treasury bill rates are barely above zero. This means that interest on the nearly $ 11 trillion dollars worth of funded debt are miniscule. Most states and local governments face low interest rates on funding as well. What happens when this changes?
Imagine that rates increase by a mere two percent on US treasuries, which would put such rates closer to their historical averages. Two percent of $ 11 trillion is $ 220 billion per year. Compare that to what Obama expects to receive from "taxing the rich" -- $ 80 billion per year.
But once rates start up, there is no reason for them to rise by a mere two percent. Rates have been as high as high double digits in the past -- try the early 1980s, for example. Lets suppose, to keep things simple, that once inflation takes hold, rates level off at ten percentage points higher than current rates. That would $ 1.1 trillion to annual spending. How does that compare to taxing the rich.
Add in the spiraling debt of state and local government and tack on much higher rates for those entities and you will reach spending levels that no tax rates can hope to catch.
All of this is before you try to fund the unfundable -- social security and medical care.
Don't imagine that the Federal Reserve can help. Bernanke isn't keeping rates low. Markets are keeping rates low, whether Bernanke likes it or not. People are petrified by the future and have crashed their way into the US treasury market for protection. In time, they will realize that there is no protection in US treasuries. When that happens, look out.
QE1, QE2, QE3 are massive increases in "high powered money." The money supply, currently growing at around eight percent, will eventually grow at a multiple of eight percent. When that happens, inflation and interest rates will shoot through the roof. That will be the Bernanke legacy.
None of current fiscal and monetary policy helps the economy recover from 2008. You have to even wonder if that is the purpose. Obama is on a redistribution crusade, the economy be damned. Bernanke is fighting the Great Depression. Unfortunately for Bernanke, his weaponry is doing no good.
At the end of the day, the economy needs desperately for the government to get out of the way. That's not going to happen with Obama as President and a Democratic Senate. Even the Republicans seem to be jumping on the out of control debt bandwagon.
Going over the fiscal cliff looks so much better than the available alternatives.
Imagine that rates increase by a mere two percent on US treasuries, which would put such rates closer to their historical averages. Two percent of $ 11 trillion is $ 220 billion per year. Compare that to what Obama expects to receive from "taxing the rich" -- $ 80 billion per year.
But once rates start up, there is no reason for them to rise by a mere two percent. Rates have been as high as high double digits in the past -- try the early 1980s, for example. Lets suppose, to keep things simple, that once inflation takes hold, rates level off at ten percentage points higher than current rates. That would $ 1.1 trillion to annual spending. How does that compare to taxing the rich.
Add in the spiraling debt of state and local government and tack on much higher rates for those entities and you will reach spending levels that no tax rates can hope to catch.
All of this is before you try to fund the unfundable -- social security and medical care.
Don't imagine that the Federal Reserve can help. Bernanke isn't keeping rates low. Markets are keeping rates low, whether Bernanke likes it or not. People are petrified by the future and have crashed their way into the US treasury market for protection. In time, they will realize that there is no protection in US treasuries. When that happens, look out.
QE1, QE2, QE3 are massive increases in "high powered money." The money supply, currently growing at around eight percent, will eventually grow at a multiple of eight percent. When that happens, inflation and interest rates will shoot through the roof. That will be the Bernanke legacy.
None of current fiscal and monetary policy helps the economy recover from 2008. You have to even wonder if that is the purpose. Obama is on a redistribution crusade, the economy be damned. Bernanke is fighting the Great Depression. Unfortunately for Bernanke, his weaponry is doing no good.
At the end of the day, the economy needs desperately for the government to get out of the way. That's not going to happen with Obama as President and a Democratic Senate. Even the Republicans seem to be jumping on the out of control debt bandwagon.
Going over the fiscal cliff looks so much better than the available alternatives.
Sunday 9 December 2012
Now Germany
The Bundesbank, Germany's central bank, released this statement yesterday:
"The cyclical outlook for the German economy has dimmed and there are even indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013."
This was less a prediction than a recognition of reality. German industrial output fell 2.6% in October.
By bankrolling Greece, Portugal and, implicitly, Spain, Germany has now joined the crowd. The debt problems in Germany are now beginning to catch up with the debt problems in Southern Europe. Why? The bailouts!
Bailouts always raise the indebtedness of the country or political entity doing the bailing. Germany is doing the bailing.
It is now time to start the clock on Germany. How soon before folks wake up to the fact that Germany can't pay its debts either.
The road to Greece is beginning to get crowded.
Who will be the first major country to follow the Greek script -- Japan, Germany, the US? It is just a matter of time now.
"The cyclical outlook for the German economy has dimmed and there are even indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013."
This was less a prediction than a recognition of reality. German industrial output fell 2.6% in October.
By bankrolling Greece, Portugal and, implicitly, Spain, Germany has now joined the crowd. The debt problems in Germany are now beginning to catch up with the debt problems in Southern Europe. Why? The bailouts!
Bailouts always raise the indebtedness of the country or political entity doing the bailing. Germany is doing the bailing.
It is now time to start the clock on Germany. How soon before folks wake up to the fact that Germany can't pay its debts either.
The road to Greece is beginning to get crowded.
Who will be the first major country to follow the Greek script -- Japan, Germany, the US? It is just a matter of time now.
Friday 7 December 2012
Shame on Geithner and Summers
Two guys who should know better are helping to lead the country into bankruptcy -- Tim Geithner and Larry Summers. They act as if the entitlements really aren't a problem. They are either deliberately misleading the public or they truly have no idea what the social security and medicare are all about. I suspect the former. Geithner and Summers are likely only thinking about preserving their relationship with our bizarre President. That means ignoring the fiscal issues that loom far larger than any short term fiscal cliff.
Both of these guys are focused on raising marginal tax rates which generally lead to lower tax revenues at the level rates are now. Thus raising rates expands the deficit and increases the national debt more than leaving rates alone. So, why are Geithner and Summers deliberately promoting policies that raise the national debt? To curry favor with the White House and to expand their own sphere of influence within the White House is the only logical explanation.
Both Geithner and Summers, by their public duplicity, have forfeited their roles as public leaders to wander into the mire of low level political rhetoric. "Soak the rich" is not a new slogan that began with Obama. The same slogan has been available to demagogues the world over and since the beginning of time. Free market capitalism is now being undermined by appeals to revenge, envy, and hatred. This is more of the Obama legacy and is actively promoted by Tim Geithner and Larry Summers. Washington, Jefferson, and Hamilton must be turning over in their graves if they are listening to the modern American political rhetoric.
Both of these guys are focused on raising marginal tax rates which generally lead to lower tax revenues at the level rates are now. Thus raising rates expands the deficit and increases the national debt more than leaving rates alone. So, why are Geithner and Summers deliberately promoting policies that raise the national debt? To curry favor with the White House and to expand their own sphere of influence within the White House is the only logical explanation.
Both Geithner and Summers, by their public duplicity, have forfeited their roles as public leaders to wander into the mire of low level political rhetoric. "Soak the rich" is not a new slogan that began with Obama. The same slogan has been available to demagogues the world over and since the beginning of time. Free market capitalism is now being undermined by appeals to revenge, envy, and hatred. This is more of the Obama legacy and is actively promoted by Tim Geithner and Larry Summers. Washington, Jefferson, and Hamilton must be turning over in their graves if they are listening to the modern American political rhetoric.
Thursday 6 December 2012
Kick the Can and Kick the Economy
The Obama plan is now pretty clear. Do nothing at all about the deficit or the looming national debt disaster and raise tax rates. If you asked what is the worst possible outcome for the American economy, this is it. Meanwhile corporate leaders and even some Republicans are genuflecting over this solution as a great bargain.
If you think the fiscal cliff is a crisis, wait until social security and medicare run out of money which is about a decade away. At that point, the national debt will be 25 or 30 trillion dollars -- unpayable at any tax rates. The outcome? Check out Greece -- civil disorder and political chaos.
As for the economy, we are now in the new normal -- staggeringly high unemployment, virtually zero economic growth and little or no hope for the younger generation in jobs or in future income. Politically, you now face class warfare and you will soon face the war between the young and old over scarce resources.
What is happening at the federal level in the US is compounded by identical policies at the state and local level. Defined benefit pension funds are beginning to run aground with inadequate funding and no hope for ultimately paying beneficiaries. States are unable to fund their share of medicare and medicaid. As for education and infrastructure, there is simply no money left for such things and what little there is wasted by excessive union contracts and political waste. A stagnant, no-growth, economy only makes all of this that much worse.
This is the Obama legacy.
If you think the fiscal cliff is a crisis, wait until social security and medicare run out of money which is about a decade away. At that point, the national debt will be 25 or 30 trillion dollars -- unpayable at any tax rates. The outcome? Check out Greece -- civil disorder and political chaos.
As for the economy, we are now in the new normal -- staggeringly high unemployment, virtually zero economic growth and little or no hope for the younger generation in jobs or in future income. Politically, you now face class warfare and you will soon face the war between the young and old over scarce resources.
What is happening at the federal level in the US is compounded by identical policies at the state and local level. Defined benefit pension funds are beginning to run aground with inadequate funding and no hope for ultimately paying beneficiaries. States are unable to fund their share of medicare and medicaid. As for education and infrastructure, there is simply no money left for such things and what little there is wasted by excessive union contracts and political waste. A stagnant, no-growth, economy only makes all of this that much worse.
This is the Obama legacy.
Wednesday 5 December 2012
"I Wlll Not Play That Game"
Obama laid down a new gauntlet today. Now he refuses to negotiate over raising the debt limit. "I will not play that game," he says. What Obama is saying is that he has no intention of making any concessions to reducing the national debt or the ongoing deficits. The road to bankruptcy is not going to be blocked by this President.
The only thing the President will consider is raising taxes on everyone above $ 250,000 in income. If he succeeds, revenues will be lower and the deficit will expand; economic growth will turn negative and the US will stagnate further. That's the President's plan. Just remember that when England did exactly this three years ago -- raising taxes on everyone making over $ 1 million, the number of tax payers filing returns over $ 1 million income dropped 60 percent and revenues from this income group collapsed. That's where the tax on "millionaires and billionaires" is headed.
Either Obama is woefully ignorant of economics or something worse is afoot.
The only thing the President will consider is raising taxes on everyone above $ 250,000 in income. If he succeeds, revenues will be lower and the deficit will expand; economic growth will turn negative and the US will stagnate further. That's the President's plan. Just remember that when England did exactly this three years ago -- raising taxes on everyone making over $ 1 million, the number of tax payers filing returns over $ 1 million income dropped 60 percent and revenues from this income group collapsed. That's where the tax on "millionaires and billionaires" is headed.
Either Obama is woefully ignorant of economics or something worse is afoot.
Monday 3 December 2012
Taxes Won't Matter
At the end of the day, it really doesn't matter what happens to taxes. There is no tax policy that can catch up with the entitlement promises. The only reason that taxes matter is the impact on economic growth and the answer to that is pretty simple. Higher taxes mean lower economic growth.
We are headed for bankruptcy as a nation, regardless of what happens to the Bush tax cuts. Double all current tax rates and revenues and even that doesn't help. We have a $ 66 Trillion unfunded medicare deficit. A trillion here or a trillion there in tax revenues is completely irrelectant.
So, why is the media so focused upon whether or not Republicans will agree to an increase in tax rates. Whether or not the Republicans cave only matters for economic growth. It is completely irrelevant to the issue of looming fiscal bankruptcy. If Republicans cave, we get lower economic growth, but no tax rate policy solves the nation's future bankruptcy.
The Obama folks are bound and determined to lead the US into bankruptcy. That's why taxes are the only subject up for discussion for them. The media is their Greek chorus. They know, and anyone remotely familiar with the numbers knows, that revenues are irrelevant.
Here's one policy that I would support. Let's take everyone with net wealth in excess of $30 billion and tax half of their wealth. That would catch Buffett and Soros and all of the left wingers who know they have nothing to fear from an income tax. You wonder if Buffett and Soros would be so sanguine about taxes if they knew they might have to pay some themselves.
We are headed for bankruptcy as a nation, regardless of what happens to the Bush tax cuts. Double all current tax rates and revenues and even that doesn't help. We have a $ 66 Trillion unfunded medicare deficit. A trillion here or a trillion there in tax revenues is completely irrelectant.
So, why is the media so focused upon whether or not Republicans will agree to an increase in tax rates. Whether or not the Republicans cave only matters for economic growth. It is completely irrelevant to the issue of looming fiscal bankruptcy. If Republicans cave, we get lower economic growth, but no tax rate policy solves the nation's future bankruptcy.
The Obama folks are bound and determined to lead the US into bankruptcy. That's why taxes are the only subject up for discussion for them. The media is their Greek chorus. They know, and anyone remotely familiar with the numbers knows, that revenues are irrelevant.
Here's one policy that I would support. Let's take everyone with net wealth in excess of $30 billion and tax half of their wealth. That would catch Buffett and Soros and all of the left wingers who know they have nothing to fear from an income tax. You wonder if Buffett and Soros would be so sanguine about taxes if they knew they might have to pay some themselves.
Phony versus Real
Taxing millionaires and billionaires is a slogan. There is an interesting story in today's WSJ about the results of England's recent experience of taxing the rich. They raised the tax on taxpayers making more than $ 1 million annually from 40 % to 50 %. Guess what? Tax revenues collapsed, while the number of tax returns reporting $ 1 million or more in income fell by more than 50 %? That is a preview of our future if Obama gets his way. Obama's soak the rich scheme will lead to lower revenues, a higher deficit, and a weakening economy.
Meanwhile, the entitlements march on. National debt, now at $ 16.3 Trillion will be $ 22 Trillion by the time Obama leaves office, if we are lucky. It could be $ 25 Trillion if the economy falls apart because of Obama policies. Taxing rich folks brings in $.08 Trillion per year, assuming you believe Obama's assumptions. That means the national debt will be only $ 24 Trillion by 2016, not $ 25 Trillion.. Big deal! Taxing the rich is a phony issue of no substance.
Meanwhile, the entitlements march on. National debt, now at $ 16.3 Trillion will be $ 22 Trillion by the time Obama leaves office, if we are lucky. It could be $ 25 Trillion if the economy falls apart because of Obama policies. Taxing rich folks brings in $.08 Trillion per year, assuming you believe Obama's assumptions. That means the national debt will be only $ 24 Trillion by 2016, not $ 25 Trillion.. Big deal! Taxing the rich is a phony issue of no substance.
Sunday 2 December 2012
The President Owns 2013
Whatever happens to the economy in 2013 belongs to the President. There is no way out of that regardless of how the media attempts to blame the President's critics. Congress has never been blamed for a recession. Hoover was in the first year of his first term as President when the Great Depression began. While Hoover had nothing whatsoever to do with causing the Great Depression, his name will forever be associated, in a negative way, with the Great Depression.
One suspects that 2013 is going to be a disaster quite independent of what resolution there may or may not be to the fiscal cliff. But, the President's proposals have the potential to make the situation far, far worse. One virtue of going over the cliff is that everyone will get a small taste of our future. Sooner or later the national debt, now over $ 16.3 Trillion and growing by ten percent per year, will simply overwhelm any realistic effort to bring it under control. Social security and medicare will default in part or in whole and the entire American government financial pyramid will collapse.
Avoiding this spectacle will not be easy. But the first step is simply to ignore the White House and proceed over the fiscal cliff. The next step will be to refuse to extend the debt limit and let nature take it's course. If these two steps are taken, the country's financial house would have a chance of being put back in order. Yes, it would be painful for a while, but at least the country would have a future. Now, the country only has a past.
So, who will be blamed? The first response is: who cares? If it takes steps one and two to save the country, then why not take them regardless of blame. But, the second response is that the President will be blamed. He presided over this entire fiasco. He came into office with sweeping majorities in the House and Senate. His policies prohibited any real economic recovery and his current proposals all but guarantee a renewed recession and higher unemployment.
Strap on your seat belts. Fiscal cliff -- here we come!
One suspects that 2013 is going to be a disaster quite independent of what resolution there may or may not be to the fiscal cliff. But, the President's proposals have the potential to make the situation far, far worse. One virtue of going over the cliff is that everyone will get a small taste of our future. Sooner or later the national debt, now over $ 16.3 Trillion and growing by ten percent per year, will simply overwhelm any realistic effort to bring it under control. Social security and medicare will default in part or in whole and the entire American government financial pyramid will collapse.
Avoiding this spectacle will not be easy. But the first step is simply to ignore the White House and proceed over the fiscal cliff. The next step will be to refuse to extend the debt limit and let nature take it's course. If these two steps are taken, the country's financial house would have a chance of being put back in order. Yes, it would be painful for a while, but at least the country would have a future. Now, the country only has a past.
So, who will be blamed? The first response is: who cares? If it takes steps one and two to save the country, then why not take them regardless of blame. But, the second response is that the President will be blamed. He presided over this entire fiasco. He came into office with sweeping majorities in the House and Senate. His policies prohibited any real economic recovery and his current proposals all but guarantee a renewed recession and higher unemployment.
Strap on your seat belts. Fiscal cliff -- here we come!
The Christmas Buying Surge
Is the surge in Christmas buying a good thing? Figures were released this week that American households have a lower net worth (corrected for inflation) on average than forty years ago. So, let's spend more and save less? That's good news?
American families are collapsing under their own sea of debt while the future of their children and grandchildren have already been sacrificed for the welfare needs of current generations. This is good?
It is a sign of the times that things that increase our level of debt and reduce our attention to thrift and responsible spending are now seen as good things? Look at CNBC news. They trumpet the "Rise Above" slogan, encouraging politicians to kick the can down the road by coming to any agreement, no matter how absurd, to avoid the fiscal cliff. "Rise above" means rise above sanity, one supposes.
President Obama is almost a caricature of how absurd our politics have become. What does he advocate? More spending, higher tax rates, and more regulation ... this for an economy that appears to be staggering back into recession territory.
Americans need to be saving and investing. That is what made America the wealthiest nation in the world in the first place. Both the private and public sector need to be saving, not running higher and higher deficits.
Americans should cool it on Christmas shopping.
American families are collapsing under their own sea of debt while the future of their children and grandchildren have already been sacrificed for the welfare needs of current generations. This is good?
It is a sign of the times that things that increase our level of debt and reduce our attention to thrift and responsible spending are now seen as good things? Look at CNBC news. They trumpet the "Rise Above" slogan, encouraging politicians to kick the can down the road by coming to any agreement, no matter how absurd, to avoid the fiscal cliff. "Rise above" means rise above sanity, one supposes.
President Obama is almost a caricature of how absurd our politics have become. What does he advocate? More spending, higher tax rates, and more regulation ... this for an economy that appears to be staggering back into recession territory.
Americans need to be saving and investing. That is what made America the wealthiest nation in the world in the first place. Both the private and public sector need to be saving, not running higher and higher deficits.
Americans should cool it on Christmas shopping.
Friday 30 November 2012
No Time Like The Present
Sooner or later the harsh realities have to be faced. Why not face it now? Obama thinks Republicans will be blamed. Maybe....maybe not. Obama is in the White House and his party controls the Senate. Why not fight the good fight right now. Go over the cliff and do not raise the debt ceiling. Force the country to come to grips with the debt situation while it is still possible to do something about it.
By coming to a fictitious agreement that may seem politically advantageous in the short run, such an agreement gives up on the country. Letting the national debt spiral out of the control, which is the Obama plan, destroys the American economy and potentially it's political fabric. Why not tackle the issue now while Republicans control the House and can block any further madness by the Obama Administration. The future isn't very bright either way, but there is no hope for the future if Republicans cave in here.
The time is now.
By coming to a fictitious agreement that may seem politically advantageous in the short run, such an agreement gives up on the country. Letting the national debt spiral out of the control, which is the Obama plan, destroys the American economy and potentially it's political fabric. Why not tackle the issue now while Republicans control the House and can block any further madness by the Obama Administration. The future isn't very bright either way, but there is no hope for the future if Republicans cave in here.
The time is now.
The Geithner Plan Bares All
According to Geithner, the President has no interest in reducing spending at all. In fact, he proposes major spending increases for infrastructure. As for taxes, the sky is the limit, apparently, to the President. So much for the economy. This is all about "revenge" after all.
As noted in a journal op-ed two days ago, the unfunded liability in social security and medicare increases by over $7 Trillion every single year. This $ 7 Trillion is not in the budget or under discussion. So, raising $ 1.6 Trillion in taxes over the next ten years does what? The only purpose of the Obama tax cut is to punish enemies. That's it. And if the American economy is condemned to stagnation for a generation or two, who cares? Certainly not the President.
Going over the cliff looks so much better than this. Let's hope the Republicans think of country first, strap on their seat belts, and take us over the fiscal cliff. Only in this manner can we ever hope to deal openly with the problems that the country faces. Avoiding the fiscal cliff, simply means avoiding have to face the issues squarely.
As noted in a journal op-ed two days ago, the unfunded liability in social security and medicare increases by over $7 Trillion every single year. This $ 7 Trillion is not in the budget or under discussion. So, raising $ 1.6 Trillion in taxes over the next ten years does what? The only purpose of the Obama tax cut is to punish enemies. That's it. And if the American economy is condemned to stagnation for a generation or two, who cares? Certainly not the President.
Going over the cliff looks so much better than this. Let's hope the Republicans think of country first, strap on their seat belts, and take us over the fiscal cliff. Only in this manner can we ever hope to deal openly with the problems that the country faces. Avoiding the fiscal cliff, simply means avoiding have to face the issues squarely.
Wednesday 28 November 2012
Buffett Should Study the Numbers
Warren Buffett opined today that a minimum tax of 30 percent should be placed on incomes north of $ 1 million, jumping to 35 percent for those with incomes above $ 10 million. In the same interview he seemed to be either (1) unaware of how Berkshire Hathaway pays corporate taxes; or (2) intent on misleading his audience about the taxes that Berkshire actually pays. You wonder if Warren is really doing his homework these days.
Buffett argues that the fiscal cliff is easy to avoid. Simply move tax revenues up to 21 percent and hold federal spending at 21 percent. Thanks, Warren, but that won't even come close to getting it done. The entitlements are on a trajectory to consume 40 percent of GDP within the next two generations (that 40 percent rises to over 100 percent eventually). What's the plan, then, Warrren -- raise rates to a minimum of 60 percent and 70 percent on the way to 100 percent?
Making tax revenues chase entitlement spending is a losers game and ends up with modern day Europe. There is no reason, Warren, for you to be collecting social security and receiving medicare. That is the problem. These programs apply to everyone. Such programs should be restricted to the truly needy, though, under what you advocate, Warren, the truly needy will be an ever growing percentage of the American population.
Buffett argues that the fiscal cliff is easy to avoid. Simply move tax revenues up to 21 percent and hold federal spending at 21 percent. Thanks, Warren, but that won't even come close to getting it done. The entitlements are on a trajectory to consume 40 percent of GDP within the next two generations (that 40 percent rises to over 100 percent eventually). What's the plan, then, Warrren -- raise rates to a minimum of 60 percent and 70 percent on the way to 100 percent?
Making tax revenues chase entitlement spending is a losers game and ends up with modern day Europe. There is no reason, Warren, for you to be collecting social security and receiving medicare. That is the problem. These programs apply to everyone. Such programs should be restricted to the truly needy, though, under what you advocate, Warren, the truly needy will be an ever growing percentage of the American population.
Sunday 25 November 2012
Giving Up on Economic Growth
Growing the economy is no longer an American policy objective. The Obama Administration rarely mentions the topic. They talk about the economy but do not seem to think that eononmic growth is really all that important. Somehow, according to Obama, you can get jobs and full employment with little or no economic growth. There are no prior historical examples of job creation without economic growth, but maybe Obama knows something that we don't know.
The main focus of the administration is to figure out how to put the economy into a straight jacket. The political rhetoric that garners support for this absurd economic program is to demonize the rich and successful. The media helps, of course. When was the last time you watched a television program where a businessman was anything other than a sleazy crook. The anti-business mentality not only infects the White House, it permeates our entire culture.
If business is the enemy and economic growth is irrelevant, then the future is clear. These are exactly the policy plans of Europe. Europe does not see economic growth as relevant and they are not facing their own fiscal cliff. There is no hope for Europe and political and economic stability are now unavoidable for Europe. That seems to be our future as well.
Only going "over the cliff," offers any real hope of facing up to the problems that America faces. Kicking the can down the road once more is not the solution. The media and the financial press will hail a "solution," but there will be no real solution, just more political rhetoric and a continued march down the path to Greece. Entitlements are not a "sustainable" economic policy. That's the true message of the European crisis.
The main focus of the administration is to figure out how to put the economy into a straight jacket. The political rhetoric that garners support for this absurd economic program is to demonize the rich and successful. The media helps, of course. When was the last time you watched a television program where a businessman was anything other than a sleazy crook. The anti-business mentality not only infects the White House, it permeates our entire culture.
If business is the enemy and economic growth is irrelevant, then the future is clear. These are exactly the policy plans of Europe. Europe does not see economic growth as relevant and they are not facing their own fiscal cliff. There is no hope for Europe and political and economic stability are now unavoidable for Europe. That seems to be our future as well.
Only going "over the cliff," offers any real hope of facing up to the problems that America faces. Kicking the can down the road once more is not the solution. The media and the financial press will hail a "solution," but there will be no real solution, just more political rhetoric and a continued march down the path to Greece. Entitlements are not a "sustainable" economic policy. That's the true message of the European crisis.
Friday 23 November 2012
Walmart and the Free Market
Walmart has provided low wage jobs for hundreds of thousands of Americans. None of those employees were promised a living wage, guaranteed health care, and a plethora of fringe benefits. If an employee did not want the low wage job that was offered, they could look elsewhere. That is still true. Nothing has changed.
Now the big unions want a new deal. The new deal is all about the living wage, health care coverage and host of other goodies not normally available to low-skilled, low wage employees. So, now Walmart is the bad guy, in the eyes of the unions.
Walmart should be free to offer whatever jobs they want to offer and if people don't want those jobs, then they can work somewhere else. This is an economic transaction, not a religious order. Any Walmart employees, unhappy with existing working arrangements, can leave and work somewhere else. That's what disgruntled employees of Walmart should do, instead of inconveniencing customers of Walmart with demonstrations. The customers of Walmart are well serviced by a company that provides products to the great middle class at lower prices than were previously available.
Walmart is a triumph of capitalism, not an icon to be pilloried by the liberal establishment. Those who want higher pay should develop the skill set and the energy level that can lead to a job with a higher pay level. Paying people more money than their skill set would justify will not encourage such people to develop the work ethic and skill set that would truly justify higher pay and all that goes with it. Long term, the effort to gut the essence of free market economics will lead to a poorer society with fewer opportunities for those who would like a step-up on the ladder of life.
Once again, a peek into the future is right in front of our eyes.....Greece.
Now the big unions want a new deal. The new deal is all about the living wage, health care coverage and host of other goodies not normally available to low-skilled, low wage employees. So, now Walmart is the bad guy, in the eyes of the unions.
Walmart should be free to offer whatever jobs they want to offer and if people don't want those jobs, then they can work somewhere else. This is an economic transaction, not a religious order. Any Walmart employees, unhappy with existing working arrangements, can leave and work somewhere else. That's what disgruntled employees of Walmart should do, instead of inconveniencing customers of Walmart with demonstrations. The customers of Walmart are well serviced by a company that provides products to the great middle class at lower prices than were previously available.
Walmart is a triumph of capitalism, not an icon to be pilloried by the liberal establishment. Those who want higher pay should develop the skill set and the energy level that can lead to a job with a higher pay level. Paying people more money than their skill set would justify will not encourage such people to develop the work ethic and skill set that would truly justify higher pay and all that goes with it. Long term, the effort to gut the essence of free market economics will lead to a poorer society with fewer opportunities for those who would like a step-up on the ladder of life.
Once again, a peek into the future is right in front of our eyes.....Greece.
Thursday 22 November 2012
Redistribution Economics
Casey Mulligan, an econ prof at the University of Chicago, has provided a fascinating analysis of why so many people have given up looking for work in the Obama economy. His new book, "The Redistribution Recession," lays out the "high marginal tax rates" that the unemployed and the poor in general face in the Obama economy.
Here's an example you might not have thought about. Under the Obama mortgage loan foregiveness rules, the amount of loan forgiveness depends upon your income. The higher your income, the less you can receive in loan forgiveness. This functions like a tax: if you work and receive income you lose the ability to receive loan forgiveness. So, why work? The same kind of disincentives are in place with food stamps, unemployment compensation and host of government programs to help the needy and the middle class.
The result: people rationally choose to leave the labor force and live off of the various pecuniary benefits that one can receive if one is not working. The point is that you lose these benefits if you choose to work for a living. That is essentially the same as a tax.
Mulligan's argument is that, as folks drop out of the labor force (as more than 6 million Americans have done since Obama was sworn into office), the economy deteriorates because those 6 million and more are no longer producing anything. That lost GDP is gone forever. Transfer payments, Obama's favorite economic policy, reduce GDP. The result is that we are all poorer. In the end, the middle class suffers, because the middle class depends, for economic improvement, on a vibrant economy.
The policy of redistribution makes the whole society poorer than the society would be otherwise. Of course, a weak economy, made weaker by Obama policies, has the most severe impact upon our lowest income citizens. The result: policies designed to help poor people end up impoverishing poor people.
Yes, the middle class has lost ground in the last couple of generations. But, not for the reasons you might think. The steady rise of government and the steady rise of redistribution schemes has created disincentives for a growing number of Americans, who simply drop out. These folks, an increasingly larger percentage of the population, become a burden to themselves and to the country.
Fast forward....Greece.
Here's an example you might not have thought about. Under the Obama mortgage loan foregiveness rules, the amount of loan forgiveness depends upon your income. The higher your income, the less you can receive in loan forgiveness. This functions like a tax: if you work and receive income you lose the ability to receive loan forgiveness. So, why work? The same kind of disincentives are in place with food stamps, unemployment compensation and host of government programs to help the needy and the middle class.
The result: people rationally choose to leave the labor force and live off of the various pecuniary benefits that one can receive if one is not working. The point is that you lose these benefits if you choose to work for a living. That is essentially the same as a tax.
Mulligan's argument is that, as folks drop out of the labor force (as more than 6 million Americans have done since Obama was sworn into office), the economy deteriorates because those 6 million and more are no longer producing anything. That lost GDP is gone forever. Transfer payments, Obama's favorite economic policy, reduce GDP. The result is that we are all poorer. In the end, the middle class suffers, because the middle class depends, for economic improvement, on a vibrant economy.
The policy of redistribution makes the whole society poorer than the society would be otherwise. Of course, a weak economy, made weaker by Obama policies, has the most severe impact upon our lowest income citizens. The result: policies designed to help poor people end up impoverishing poor people.
Yes, the middle class has lost ground in the last couple of generations. But, not for the reasons you might think. The steady rise of government and the steady rise of redistribution schemes has created disincentives for a growing number of Americans, who simply drop out. These folks, an increasingly larger percentage of the population, become a burden to themselves and to the country.
Fast forward....Greece.
Wednesday 21 November 2012
More Big Government Needed
Another economist for big government. We don't seem to run out of these guys. This time Eduardo Porter is in the spotlight. His article in today's NY Times argues that the middle class is losing ground because government isn't big enough!
No, that is not a joke. Porter really said that.
I guess he must think government has been shrinking over the past few decades. What rock has he been hiding under?
As government in the US at all levels has expanded without any apparent limit, the position of the middle class has deteriorated. Yes, that is true. Guess why?
The government is not the friend of the middle class. It is the government that has taken away the incentives that the middle class once had to save and provide for their future and the future of their children. Now, the middle class presumes, incorrectly it turns out, that the government is doing the saving for them and will provide for them in their old age. Wrong.
The government and the Democrats are simply trading the future of middle class Americans for power today for a few entitled Democrats. Nancy Pelosi is not a middle class American, nor is John Kerry, Chuck Schumer, Barrack Obama or any of these folks. They are all one percenters. Big government won't hurt them. They know how to play the game.
The folks that will be decimated by the continued expansion of the government and the middle class are the middle class and the poor. Their future opportunities are rapidly disappearing in the wake of an ever expanding government and entitled class of government employees.
The rulemakers are ruling out a future for the American middle class. Fast forward to Greece to get a view of how well big government solves the problems of the middle class. Waiting in the wings are Spain, France, Italy and yes, even Germany. The big government outcome is visible for all to see. Maybe economist Eduardo Porter should take a glance at the future. Porter, of course, is one of the entitled, so maybe he hasn't noticed the turn of events in Europe.
No, that is not a joke. Porter really said that.
I guess he must think government has been shrinking over the past few decades. What rock has he been hiding under?
As government in the US at all levels has expanded without any apparent limit, the position of the middle class has deteriorated. Yes, that is true. Guess why?
The government is not the friend of the middle class. It is the government that has taken away the incentives that the middle class once had to save and provide for their future and the future of their children. Now, the middle class presumes, incorrectly it turns out, that the government is doing the saving for them and will provide for them in their old age. Wrong.
The government and the Democrats are simply trading the future of middle class Americans for power today for a few entitled Democrats. Nancy Pelosi is not a middle class American, nor is John Kerry, Chuck Schumer, Barrack Obama or any of these folks. They are all one percenters. Big government won't hurt them. They know how to play the game.
The folks that will be decimated by the continued expansion of the government and the middle class are the middle class and the poor. Their future opportunities are rapidly disappearing in the wake of an ever expanding government and entitled class of government employees.
The rulemakers are ruling out a future for the American middle class. Fast forward to Greece to get a view of how well big government solves the problems of the middle class. Waiting in the wings are Spain, France, Italy and yes, even Germany. The big government outcome is visible for all to see. Maybe economist Eduardo Porter should take a glance at the future. Porter, of course, is one of the entitled, so maybe he hasn't noticed the turn of events in Europe.
Monday 19 November 2012
Are Their Limits?
Who should decide whether or not a driver, alone in his/her car, should wear a seatbelt? The government? Why?
What if the driver feels that they can drive more safely without the encumbrance and annoyance of a seatbelt? Does that count for anything?
The usual answer to this question is that if the driver sustains an injury the rest of society may have to pay for his/her injury. But, why is that? Why isn't the driver alone responsible for their own injury? Why is this the responsibility of someone down the street?
But what if the driver is correct? The driver may be a safer driver without the imposition of the seatbelt. What then? Aren't other people less safe if the driver becomes more, not less, accident prone because of having to wear a seatbelt?
It is not unreasonable to suppose that some people drive better when not encumbered by a seatbelt. Should we ignore that?
The requirement that a lone individual driving without passengers must wear a seatbelt or face the criminal justice system is an example of how out-of-control our regulatory regime has become in the US.
Individuals, when by themselves, should decide whether or not to wear a seatbelt without big government intervening. But, gradually, over time, the vast majority of Americans have come to believe that individuals, alone and by themselves, should be compelled to wear seatbelts. That shows just how far Americans have come from Thoreau's Walden Pond, where individuals controlling their own destiny was the over-riding principle.
Is there any limit to what the government can compel people to do when no one else is around nor even affected by their behavior?
What if the driver feels that they can drive more safely without the encumbrance and annoyance of a seatbelt? Does that count for anything?
The usual answer to this question is that if the driver sustains an injury the rest of society may have to pay for his/her injury. But, why is that? Why isn't the driver alone responsible for their own injury? Why is this the responsibility of someone down the street?
But what if the driver is correct? The driver may be a safer driver without the imposition of the seatbelt. What then? Aren't other people less safe if the driver becomes more, not less, accident prone because of having to wear a seatbelt?
It is not unreasonable to suppose that some people drive better when not encumbered by a seatbelt. Should we ignore that?
The requirement that a lone individual driving without passengers must wear a seatbelt or face the criminal justice system is an example of how out-of-control our regulatory regime has become in the US.
Individuals, when by themselves, should decide whether or not to wear a seatbelt without big government intervening. But, gradually, over time, the vast majority of Americans have come to believe that individuals, alone and by themselves, should be compelled to wear seatbelts. That shows just how far Americans have come from Thoreau's Walden Pond, where individuals controlling their own destiny was the over-riding principle.
Is there any limit to what the government can compel people to do when no one else is around nor even affected by their behavior?
Saturday 17 November 2012
The Price of Redistribution
Progressive taxation, income maintenance schemes, food stamps, public housing, and other redistribution schemes determine priorities. Given the level of redistribution in the US and Europe, there is no room left to provide for infrastructure rebuilding. Uwe Reinhardt's article in today's NY Times is another example, as if anymore were needed, of an economist off the rails.
Reinhardt laments the fact, undeniable, that US infrastructure is crumbling. Guess what, Uwe, there is no money available for infrastructure. Current tax revenues are mostly transfer payments going from one part of the US population to another. There is no room left to provide for basic needs like infrastructure, national defense, the court system, the schools, etc. Instead we need our tax revenues to provide things for people that they should be providing for themselves -- lunches for their own children is just one example.
The price of redistribution is that you will not have money available for basic services. Watch Greece. The Greeks can no longer even provide police protection for their citizens or deliver the mail. The Greeks perfected the Obama system -- massive redistribution and strangling government regulation. It worked. Capitalism and free markets were snuffed out in Greece and tax revenues were devoted to public employees and transfer payments to favored groups. Uwe Reinhardt, a Princeton professor, supports all of the anti-free market agenda and extols the virtue of the redistribution entitlement programs. He wonders why we have no money left for infrastructure.
Like a lot of things, the answer to our crumbling infrastructure, is not, as Uwe thinks, a matter of having the will. It is a matter of having the funds. You don't need a Princeton professor to do the math. It's pretty simple arithmetic. There is no money left for infrastructure. Forget about it. The road to Greece will have a lot of potholes.
Reinhardt laments the fact, undeniable, that US infrastructure is crumbling. Guess what, Uwe, there is no money available for infrastructure. Current tax revenues are mostly transfer payments going from one part of the US population to another. There is no room left to provide for basic needs like infrastructure, national defense, the court system, the schools, etc. Instead we need our tax revenues to provide things for people that they should be providing for themselves -- lunches for their own children is just one example.
The price of redistribution is that you will not have money available for basic services. Watch Greece. The Greeks can no longer even provide police protection for their citizens or deliver the mail. The Greeks perfected the Obama system -- massive redistribution and strangling government regulation. It worked. Capitalism and free markets were snuffed out in Greece and tax revenues were devoted to public employees and transfer payments to favored groups. Uwe Reinhardt, a Princeton professor, supports all of the anti-free market agenda and extols the virtue of the redistribution entitlement programs. He wonders why we have no money left for infrastructure.
Like a lot of things, the answer to our crumbling infrastructure, is not, as Uwe thinks, a matter of having the will. It is a matter of having the funds. You don't need a Princeton professor to do the math. It's pretty simple arithmetic. There is no money left for infrastructure. Forget about it. The road to Greece will have a lot of potholes.
Friday 16 November 2012
It's All About Revenues
As a percentage of GDP, revenues are at a lower level than they have been for years. Why is that? Because of the Bush tax cuts? No. The reason is that the recession of 2008 is still with us. The economy is in slow motion, so revenues have never recovered (as a percentage of GDP).
So, how do you get revenues up? That is where the rubber meets the road.
The democrats answer to that question is to raise tax rates. If so, why not raise them to 90 or 95 percent? That should raise revenues easily enough to solve the current deficit, if you take the democrat logic literally. A good beginning would be to tax Congressional pay at a 90 percent rate. I like that one.
Heck, 100 percent sounds even better. We could begin to make progress on reducing the national debt if we just confiscated everyone's income above $ 1 million.
Democrats believe that folks are indifferent to tax rates and will pay whatever the Congress decides without changing behavior. Thus, 100 percent rates really make sense. Lets do it. Economists like Austin Goolsbee don't believe that tax rates really matter. Folks are just as willing to work hard and produce jobs if you take all of their income and leave them with nothing as if you take 39 percent of the income. There is no difference, says Goolsbee. Maybe we should tax Goolsbee's income at a 90 percent rate and see if he still thinks that it doesn't make any difference.
The truth is that if democrats get their way and raise tax rates, the result will be further weakness in the economy and much lower tax revenues. The result: a further expansion in the deficit and a rising national debt. Combine that with economic stagnation and you get the Obama plan for our future.
Since tax rates are progressive, economic growth alone will dramatically raise tax revenues, just as economic contraction dramatically lowers tax revenues. These facts are true whether tax rates are increased, reduced or remain the same.
The main impact of raising tax rates is to signal a lower after-tax income for investments in the economy. Entrepreneurs and businesses, those greedy guys and girls, will pull in their horns by investing less, hiring less and generally taking an extended holiday. This is where the Obama "fairness" gambit leads -- a weaker economy, lower tax revenues, a ballooning deficit and economic stagnation for a generation or more.
So, yes, it is all about revenues and if you want to guarantee that revenues will decline, then begin by jacking up tax rates. That will definitely do the trick.
So, how do you get revenues up? That is where the rubber meets the road.
The democrats answer to that question is to raise tax rates. If so, why not raise them to 90 or 95 percent? That should raise revenues easily enough to solve the current deficit, if you take the democrat logic literally. A good beginning would be to tax Congressional pay at a 90 percent rate. I like that one.
Heck, 100 percent sounds even better. We could begin to make progress on reducing the national debt if we just confiscated everyone's income above $ 1 million.
Democrats believe that folks are indifferent to tax rates and will pay whatever the Congress decides without changing behavior. Thus, 100 percent rates really make sense. Lets do it. Economists like Austin Goolsbee don't believe that tax rates really matter. Folks are just as willing to work hard and produce jobs if you take all of their income and leave them with nothing as if you take 39 percent of the income. There is no difference, says Goolsbee. Maybe we should tax Goolsbee's income at a 90 percent rate and see if he still thinks that it doesn't make any difference.
The truth is that if democrats get their way and raise tax rates, the result will be further weakness in the economy and much lower tax revenues. The result: a further expansion in the deficit and a rising national debt. Combine that with economic stagnation and you get the Obama plan for our future.
Since tax rates are progressive, economic growth alone will dramatically raise tax revenues, just as economic contraction dramatically lowers tax revenues. These facts are true whether tax rates are increased, reduced or remain the same.
The main impact of raising tax rates is to signal a lower after-tax income for investments in the economy. Entrepreneurs and businesses, those greedy guys and girls, will pull in their horns by investing less, hiring less and generally taking an extended holiday. This is where the Obama "fairness" gambit leads -- a weaker economy, lower tax revenues, a ballooning deficit and economic stagnation for a generation or more.
So, yes, it is all about revenues and if you want to guarantee that revenues will decline, then begin by jacking up tax rates. That will definitely do the trick.
Wednesday 14 November 2012
Obama and I Agree
President Obama was quoted today at his news conference:
"Raising rates will not break the backs of the wealthy."
I agree. The wealthy are uniquely able to avoid these higher rates. The net effect of raising rates will be to lower the taxes paid by the wealthy, because they will take measures to reduce taxable income and pay less in taxes.
We are in agreement, Mr. President.
Higher rates will discourage investment, increase the ranks of the unemployment and inhibit economic growth.
What you should have said, Mr. President, and what is true is the following:
"Raising rates will break the backs of the middle class, not the wealthy."
"Raising rates will not break the backs of the wealthy."
I agree. The wealthy are uniquely able to avoid these higher rates. The net effect of raising rates will be to lower the taxes paid by the wealthy, because they will take measures to reduce taxable income and pay less in taxes.
We are in agreement, Mr. President.
Higher rates will discourage investment, increase the ranks of the unemployment and inhibit economic growth.
What you should have said, Mr. President, and what is true is the following:
"Raising rates will break the backs of the middle class, not the wealthy."
The Obama "Grand Bargain"
Obama proposes a $ 1.6 Trillion tax hike to solve a $ 66 Trillion unfunded liability. He then proposes another $ 2.8 Trillion in Spending cuts. This is the "Grand Bargain" that Obama seeks to strike.
Is this some kind of joke? Besides not making a dent in the entitlement disaster that looms ahead, the tax hike virtually guarantees an economy that will join the European race to the bottom. Why not cut to the chase? France just raised marginal rates to 75 percent. Why don't we follow suit? We will get to that point anyway, in time, with the President's logic.
Instead of fixing the spending imbalance that is causing our national debt to explode, the President has a temporary fix that makes the situation look better on paper for a few months. After a few months, the "Grand Bargain" will become the "National Straightjacket" as it becomes apparent that the higher tax rates reduce economic growth and dramatically lower tax revenues.
Since very little spending reduction takes place, the deficit will move from $ 1.6 Trillion to $ 2 to $ 3 Trillion annually. We will be staring at $ 22 Trillion in national debt by the time Obama leaves office with an unemployment rate within range of double digits. We will not be Greece yet, but we will be well on our way. That is what happens if we put in place Obama's "Grand Bargain."
So, why bother. Let's go over the cliff. The future will be much brighter than reaching for the "Grand Bargain." Let's deal with the emergency now while it has some hope of being dealt with. Time is not on our side in this one.
Is this some kind of joke? Besides not making a dent in the entitlement disaster that looms ahead, the tax hike virtually guarantees an economy that will join the European race to the bottom. Why not cut to the chase? France just raised marginal rates to 75 percent. Why don't we follow suit? We will get to that point anyway, in time, with the President's logic.
Instead of fixing the spending imbalance that is causing our national debt to explode, the President has a temporary fix that makes the situation look better on paper for a few months. After a few months, the "Grand Bargain" will become the "National Straightjacket" as it becomes apparent that the higher tax rates reduce economic growth and dramatically lower tax revenues.
Since very little spending reduction takes place, the deficit will move from $ 1.6 Trillion to $ 2 to $ 3 Trillion annually. We will be staring at $ 22 Trillion in national debt by the time Obama leaves office with an unemployment rate within range of double digits. We will not be Greece yet, but we will be well on our way. That is what happens if we put in place Obama's "Grand Bargain."
So, why bother. Let's go over the cliff. The future will be much brighter than reaching for the "Grand Bargain." Let's deal with the emergency now while it has some hope of being dealt with. Time is not on our side in this one.
Tuesday 13 November 2012
A "Balanced" Approach
"Balanced," according to whom. With federal and state marginal rates in excess of 50 percent in many locales, how is more taxation "balanced?"
Most Americans do not pay any federal income tax at all. Many Americans, off-the-books Americans, not only don't pay income taxes, they don't pay payroll taxes either, much less medicare taxes.
So raising federal income tax rates targets the dwindling minority of Americans who pay taxes. So this is balanced?
Instead of trying to develop government programs that help the truly needy, America has developed entitlement programs that make no distinction between Warren Buffett and his yardman. They both get social security and they both get medicare. I guess that is balance.
Over time Americans have grown accustomed to the idea that they need not pay for their retirements, health care, education, food -- frankly, much of anything. So, it is no surprise that American spending habits are incredibly reckless. Why not?
So, what exactly is balance. Balance is pretending that there is some political fix to the unfixable. Social security and medicare and Medicaid cannot be fixed. They can only be ended -- either because the money simply runs out or because they are ended voluntarily.
Snuffing out economic growth by raising tax rates (on the "wealthy," defined mostly as Americans with incomes less than $ 1 million and greater than $ 250,000) is not balance. It is foolish and cruel and will lead to a generation of economic stagnation.
The very people that the President professes to want to help will be the victims of this "balanced" program. Job prospects for folks on the way up are dismal in a no-growth economy. If this is balance, who needs balance.
Most Americans do not pay any federal income tax at all. Many Americans, off-the-books Americans, not only don't pay income taxes, they don't pay payroll taxes either, much less medicare taxes.
So raising federal income tax rates targets the dwindling minority of Americans who pay taxes. So this is balanced?
Instead of trying to develop government programs that help the truly needy, America has developed entitlement programs that make no distinction between Warren Buffett and his yardman. They both get social security and they both get medicare. I guess that is balance.
Over time Americans have grown accustomed to the idea that they need not pay for their retirements, health care, education, food -- frankly, much of anything. So, it is no surprise that American spending habits are incredibly reckless. Why not?
So, what exactly is balance. Balance is pretending that there is some political fix to the unfixable. Social security and medicare and Medicaid cannot be fixed. They can only be ended -- either because the money simply runs out or because they are ended voluntarily.
Snuffing out economic growth by raising tax rates (on the "wealthy," defined mostly as Americans with incomes less than $ 1 million and greater than $ 250,000) is not balance. It is foolish and cruel and will lead to a generation of economic stagnation.
The very people that the President professes to want to help will be the victims of this "balanced" program. Job prospects for folks on the way up are dismal in a no-growth economy. If this is balance, who needs balance.
Take the Plunge
It is time to take a ride "over the fiscal cliff." Any compromise is only likely to make matters worse by pushing the problem down the road. It will not be long before the only solution to our fiscal woes is the kind of economic and political chaos that is modern day Greece.
Far better to take the poison pill now. Yes, the economy will suffer. But, what happens in five years when the so-called compromise or grand solution unravels because it never had any substance anyway. Politicians will find a way to "extend and pretend." Why bother?
If we plunge over the fiscal cliff, then the implications of the entitlement state will be front and center for the body politic. Better to face it now than later. It is fixable now, if we see it as an emergency, which a plunge over the cliff will provide.
This Administration intends to insist on higher rates that will imperil our economic future and lead to a 1970s style economic stagnation or a 1930s style depression. Since that is the direction Obama intends to take, why not see the implications of that future sooner rather than later.
No one is pushing free market solutions. The nation has a negative savings rate (if you include government savings). There are no assets to provide income security for the elderly or bankroll the promised health care benefits. Nothing has been put aside and there is limited room to tax the middle class (where the bulk of the income is). So, why temporize?
America's problem is simple arithmetic. The great entitlement society is not affordable. It doesn't matter what tax rate "millionaires and billionaires" pay. Total confiscation won't get it done. The numbers just won't work.
Time to face the facts. Hang on to your seat belts. Lets go over the fiscal cliff, including no more increases in the debt limit ceiling. Lets go for it.
Far better to take the poison pill now. Yes, the economy will suffer. But, what happens in five years when the so-called compromise or grand solution unravels because it never had any substance anyway. Politicians will find a way to "extend and pretend." Why bother?
If we plunge over the fiscal cliff, then the implications of the entitlement state will be front and center for the body politic. Better to face it now than later. It is fixable now, if we see it as an emergency, which a plunge over the cliff will provide.
This Administration intends to insist on higher rates that will imperil our economic future and lead to a 1970s style economic stagnation or a 1930s style depression. Since that is the direction Obama intends to take, why not see the implications of that future sooner rather than later.
No one is pushing free market solutions. The nation has a negative savings rate (if you include government savings). There are no assets to provide income security for the elderly or bankroll the promised health care benefits. Nothing has been put aside and there is limited room to tax the middle class (where the bulk of the income is). So, why temporize?
America's problem is simple arithmetic. The great entitlement society is not affordable. It doesn't matter what tax rate "millionaires and billionaires" pay. Total confiscation won't get it done. The numbers just won't work.
Time to face the facts. Hang on to your seat belts. Lets go over the fiscal cliff, including no more increases in the debt limit ceiling. Lets go for it.
Sunday 11 November 2012
In The Spirit of Compromise
Obama and Boehner have made post-election comments stating forthrightly that they are both "open to compromise." The President insists on higher "tax rates" for everyone whose incomes are in excess of $ 250,000. The vast majority of such taxpayers have incomes well below $ 1 million per year, but the President labels them "millionaires and billionaires." You wonder why he doesn't lower the threshold to $ 100,000, since the label doesn't match the reality anyway.
Boehner has offered a true compromise. He will agreed to tax changes that promise "higher revenues." That is a significant change in the Republican position. Alas, there is zero change in the Obama position. Higher "tax rates" for "the wealthy," as Obama puts it, will lower tax revenues and stunt economic recovery. That doesn't bother the president, so long as he wins the rhetorical war. The election shows that you can, in fact, fool (a slim majority of) all the people some of the time and some of the people all of the time. Hopefully, Lincoln is right. Hopefully, Obama will not be able to fool all of the people all of the time.
So look for another sterile debate and much posturing. The Republicans would be foolish to relent on the "tax rate" issue. Tax rates need to be lowered not raised. The only reason the Clinton years were not an economic disaster when rates were increased was the one time event of the "tech bubble." Remember that one. From the mid 1990s to 2000, the US economy was propelled by the beginning of the commercialization of the internet. The tech bubble, not higher taxes, is what propelled the economy in the Clinton years.
Boehner has offered a true compromise. He will agreed to tax changes that promise "higher revenues." That is a significant change in the Republican position. Alas, there is zero change in the Obama position. Higher "tax rates" for "the wealthy," as Obama puts it, will lower tax revenues and stunt economic recovery. That doesn't bother the president, so long as he wins the rhetorical war. The election shows that you can, in fact, fool (a slim majority of) all the people some of the time and some of the people all of the time. Hopefully, Lincoln is right. Hopefully, Obama will not be able to fool all of the people all of the time.
So look for another sterile debate and much posturing. The Republicans would be foolish to relent on the "tax rate" issue. Tax rates need to be lowered not raised. The only reason the Clinton years were not an economic disaster when rates were increased was the one time event of the "tech bubble." Remember that one. From the mid 1990s to 2000, the US economy was propelled by the beginning of the commercialization of the internet. The tech bubble, not higher taxes, is what propelled the economy in the Clinton years.
Wednesday 7 November 2012
Oh Well
The election shows that a slim majority of Americans seem to think that either: 1) Europe is an appropriate destination for America; or 2) Somehow, we are not headed that way. There is, of course, the possibility that a majority of Americans are simply not paying attention.
The heart of the US problem is really no different than that of Europe -- can someone work for 30 years without saving anything and live comfortably for 85 years? That is the real issue. Social security and medicare assume that the government is doing the saving. But, as we all know, the government is always a dis-saver not a saver. So, in reality, no one is saving.
If none of the squirrels gather acorns, what happens in winter? That is the American dilemna and that is the current nightmare in Europe.
The debate about free markets is important mainly because only free markets permit savers to participate in the broader economy -- something threatened in the US by the Dodd-Frank legislation. Current government policy bristles with suggestions that savers are bad people who are only concerned about accumulating wealth. Well, that's right actually. That's why people save. But, in the aggregate, Americans no longer save. The politicians have won that battle. Only a handful of people really save any more and Obama seems determined to snuff out even that small amount of frugality.
So, winter will come. It has already come for Europe. It is only a matter of time until it comes to the US.
One consolation of the election is that free market politicians are in the ascendancy in the Republican Party. The John McCains and George Bushes are being replaced by the Paul Ryans, Mario Rubios, Nikki Haleys, Bobby Jindhals, etc. So there will be a free market voice in our future.
The heart of the US problem is really no different than that of Europe -- can someone work for 30 years without saving anything and live comfortably for 85 years? That is the real issue. Social security and medicare assume that the government is doing the saving. But, as we all know, the government is always a dis-saver not a saver. So, in reality, no one is saving.
If none of the squirrels gather acorns, what happens in winter? That is the American dilemna and that is the current nightmare in Europe.
The debate about free markets is important mainly because only free markets permit savers to participate in the broader economy -- something threatened in the US by the Dodd-Frank legislation. Current government policy bristles with suggestions that savers are bad people who are only concerned about accumulating wealth. Well, that's right actually. That's why people save. But, in the aggregate, Americans no longer save. The politicians have won that battle. Only a handful of people really save any more and Obama seems determined to snuff out even that small amount of frugality.
So, winter will come. It has already come for Europe. It is only a matter of time until it comes to the US.
One consolation of the election is that free market politicians are in the ascendancy in the Republican Party. The John McCains and George Bushes are being replaced by the Paul Ryans, Mario Rubios, Nikki Haleys, Bobby Jindhals, etc. So there will be a free market voice in our future.
Saturday 3 November 2012
171,000 is Pitiful
The Obama Administration is doing high fives over Friday's employment report reporting 171,000 net job additions in the month of October. I recall Bill Clinton accusing George Bush of "running the economy into the ditch" at a time when the economy was routinely producing in excess of 200,000 jobs per month. Maybe we would be better off if the Obama Administration would run the economy into the ditch instead of over the cliff.
Leave it to the NYTimes to celebrate the new normal. Cheering the October numbers, Catherine Rampell of the NY Times argues in today's business section that the economy "is looking a little stronger than had been feared just a few months ago." Rampell sees these numbers as helpful to Obama's re-election chances. That seems to be all that really matters to the NY Times these days.
In an otherwise enthusiastic endorsement of Obama policies, even Rampell was forced to admit the dismal truth: "The United States has now posted job gains for 25 consecutive months, but the increases have been barely large enough to absorb the increase in the working population."
Gone are the goals of 4 percent unemployment. That's so Reagan-like. Now 8 percent unemployment is acceptable as the new normal to the Obama Administration and it's pals at the NY Times.
On to the real issues -- like taxing the millionaires and billionaires (defined as folks with income above $ 250,000 a year). So what if there is anemic job creation thanks to the Obama policies.
Leave it to the NYTimes to celebrate the new normal. Cheering the October numbers, Catherine Rampell of the NY Times argues in today's business section that the economy "is looking a little stronger than had been feared just a few months ago." Rampell sees these numbers as helpful to Obama's re-election chances. That seems to be all that really matters to the NY Times these days.
In an otherwise enthusiastic endorsement of Obama policies, even Rampell was forced to admit the dismal truth: "The United States has now posted job gains for 25 consecutive months, but the increases have been barely large enough to absorb the increase in the working population."
Gone are the goals of 4 percent unemployment. That's so Reagan-like. Now 8 percent unemployment is acceptable as the new normal to the Obama Administration and it's pals at the NY Times.
On to the real issues -- like taxing the millionaires and billionaires (defined as folks with income above $ 250,000 a year). So what if there is anemic job creation thanks to the Obama policies.
Tuesday 30 October 2012
Sandy is a Negative
Don't believe the argument that natural disasters fuel economic growth. That argument is only true if what is being destroyed is something that should have been demolished in the first place. Otherwise, things like "Sandy" should be viewed as a net wealth loss. So, who steps up to make up for the wealth loss....the government?
Governments at all level are broke. Sandy will only exacerbate the problems of state and local governments and everyone knows the federal deficit is on a path to disaster. So, there is no silver lining here.
The loss is not confined to destruction. Shutting down New York City and much of the East Coast for two days is not going to be completely made up later. Some substantial loss is inevitable from the shutdown.
Sandy is a reminder that bad things can happen randomly. It is also a reminder of why people and governments should save for a rainy day. Sometimes it rains.
Governments at all level are broke. Sandy will only exacerbate the problems of state and local governments and everyone knows the federal deficit is on a path to disaster. So, there is no silver lining here.
The loss is not confined to destruction. Shutting down New York City and much of the East Coast for two days is not going to be completely made up later. Some substantial loss is inevitable from the shutdown.
Sandy is a reminder that bad things can happen randomly. It is also a reminder of why people and governments should save for a rainy day. Sometimes it rains.
Wednesday 24 October 2012
The Fiscal Cliff
The President, in the third and final debate with Governor Romney, said that sequestration was "not going to happen." Wonder what he knows that we don't? In any event, it has already happened in some sense. The expectation of increased tax rates and of sequestration are already playing into the economy.
Business folks don't wait until January to make decisions. They are making them now. Business has ground to a halt in the US, excepting a spurt in housing and the buoyant energy sector. The combined impact of Dodd-Frank, of Obamacare, of the expiration of the Bush tax cuts, and of the coming sequestration are enough to scare any self-respecting entrepreneur about America's future.
We are already careening down the fiscal cliff.
The question is, if the President loses his re-election bid, can we climb back out of the abyss. That depends upon what a President Romney would prioritize. In the short run, the economy needs the government to step back. Rolling back some of the draconian measures at the EPA would be a start. Giving the green light to the Keystone project would be a dramatic symbolic gesture that would also create a lot of high paying jobs almost immediately.
But, to get real prosperity, we will need real tax reform that lowers marginal rates, the repeal or gutting of Obamacare and the repeal or gutting of Dodd-Frank. Absent these items, the economy is not likely to ever be what it once was.
We've been going through one of the most anti-free market periods in American history (there have been others). Do Americans still believe in free markets? Does Romney?
Even a Romney presidency may not reverse the tide against free markets, but who knows? We can and should hope for the best.
Business folks don't wait until January to make decisions. They are making them now. Business has ground to a halt in the US, excepting a spurt in housing and the buoyant energy sector. The combined impact of Dodd-Frank, of Obamacare, of the expiration of the Bush tax cuts, and of the coming sequestration are enough to scare any self-respecting entrepreneur about America's future.
We are already careening down the fiscal cliff.
The question is, if the President loses his re-election bid, can we climb back out of the abyss. That depends upon what a President Romney would prioritize. In the short run, the economy needs the government to step back. Rolling back some of the draconian measures at the EPA would be a start. Giving the green light to the Keystone project would be a dramatic symbolic gesture that would also create a lot of high paying jobs almost immediately.
But, to get real prosperity, we will need real tax reform that lowers marginal rates, the repeal or gutting of Obamacare and the repeal or gutting of Dodd-Frank. Absent these items, the economy is not likely to ever be what it once was.
We've been going through one of the most anti-free market periods in American history (there have been others). Do Americans still believe in free markets? Does Romney?
Even a Romney presidency may not reverse the tide against free markets, but who knows? We can and should hope for the best.
Thursday 18 October 2012
Taxing the Rich As a Political Issue
It plays well to say that some hedge fund guru who makes $ 100 million per year should pay higher taxes. Who can't sympathize with the view?
But, of course, that is never what is actually proposed by the Obama folks.
Instead the "tax on millionaires and billionaires" is aimed at the very large group of Americans who make far less than a million dollars per year. The Obama "tax on the rich" aims it's bazooka at Americans who make $ 250,000 or more. How did that group get labeled "millionaires and billionaires?"
There are a lot more families with income between $ 250,000 and $ 1,000,000 than families with income above $ 1,000,000, so Obama's plan is to soak the folks that aren't millionaires and billionaires, but, perhaps, aspire to be. Worse, anyone aspiring to join the $ 250,000 plus crowd should take note. This bazooka is aimed at your economic future.
No point in starting that new business or hire that extra employee! The President is your new future partner and is planning to sell you a new "protection" scheme on your future income, reminiscent of Al Capone days, by taking a higher percentage of that future. Can't increase the number of millionaires and billionaires, can we? Heaven forbid!
This is the same rhetoric that recently led France to adopt a 75 percent tax rate on "millionaires and billionaires." The few such people remaining in France are planning their move to Luxembourg, Monaco, or Switzerland. Why remain in a country that doesn't want you?
The "fairness" argument put forward by Obama is really a direct attack on the very idea of free markets and property rights. The middle class gets its largest boosts in wealth and income when the economy grows and "fairness" takes a back seat to economic growth. Emphasizing "fairness" is a ticket to economic stagnation with an ultimate destination of modern Greece.
But, of course, that is never what is actually proposed by the Obama folks.
Instead the "tax on millionaires and billionaires" is aimed at the very large group of Americans who make far less than a million dollars per year. The Obama "tax on the rich" aims it's bazooka at Americans who make $ 250,000 or more. How did that group get labeled "millionaires and billionaires?"
There are a lot more families with income between $ 250,000 and $ 1,000,000 than families with income above $ 1,000,000, so Obama's plan is to soak the folks that aren't millionaires and billionaires, but, perhaps, aspire to be. Worse, anyone aspiring to join the $ 250,000 plus crowd should take note. This bazooka is aimed at your economic future.
No point in starting that new business or hire that extra employee! The President is your new future partner and is planning to sell you a new "protection" scheme on your future income, reminiscent of Al Capone days, by taking a higher percentage of that future. Can't increase the number of millionaires and billionaires, can we? Heaven forbid!
This is the same rhetoric that recently led France to adopt a 75 percent tax rate on "millionaires and billionaires." The few such people remaining in France are planning their move to Luxembourg, Monaco, or Switzerland. Why remain in a country that doesn't want you?
The "fairness" argument put forward by Obama is really a direct attack on the very idea of free markets and property rights. The middle class gets its largest boosts in wealth and income when the economy grows and "fairness" takes a back seat to economic growth. Emphasizing "fairness" is a ticket to economic stagnation with an ultimate destination of modern Greece.
Saturday 13 October 2012
The Uncertainty Trade-Off
The main reason that free markets struggle to achieve political legitimacy is that outcomes can be unpredictable. There can be booms, busts, cycles, and anxiety. In a regime like the old Soviet Union, there was no anxiety and no booms and busts. There was simply perpetual stagnation. Is there anything in between these two alternatives?
Probably not.
The idea of a 'mixed economy' is a common staple of university courses in economics and politics, but one wonders if a 'mixed economy' is a stable outcome. Once a large part of the population derives its income from government, then a 'mixed economy' has a tendency to move more toward a government-dominated economy. People vote their economic interests. Public school teachers, once the most conservative voters in America are now among the most liberal voters. Why? They vote their economic interests, which they identify with the liberal economic policies that expand government and boost the compensation for public employees generally.
The modern political debate is a debate about whether the current political dynamic will take the US in the direction of the old Soviet model or try to apply the brakes before things become irreversible. Unfortunately, there is no real political support for truly free markets (the acid test would be the public attitude toward abolishing minimum wage laws). The best that can be done is to try to slow the growth of the power of our government overlords.
The heavy hand of government has crushed our financial system and put our economy in a straight jacket. It can get worse.
But, things could get better. Just freeing up our financial system could spark a major economic recovery in the US. Whether a Romney administration would have the political courage to roll back the damage done by Sarbanes-Oxley and Dodd-Frank is debatable. But, there is no chance that the US economy can prosper if Obama is re-elected. Only government will grow in the Obama blueprint for America.
Probably not.
The idea of a 'mixed economy' is a common staple of university courses in economics and politics, but one wonders if a 'mixed economy' is a stable outcome. Once a large part of the population derives its income from government, then a 'mixed economy' has a tendency to move more toward a government-dominated economy. People vote their economic interests. Public school teachers, once the most conservative voters in America are now among the most liberal voters. Why? They vote their economic interests, which they identify with the liberal economic policies that expand government and boost the compensation for public employees generally.
The modern political debate is a debate about whether the current political dynamic will take the US in the direction of the old Soviet model or try to apply the brakes before things become irreversible. Unfortunately, there is no real political support for truly free markets (the acid test would be the public attitude toward abolishing minimum wage laws). The best that can be done is to try to slow the growth of the power of our government overlords.
The heavy hand of government has crushed our financial system and put our economy in a straight jacket. It can get worse.
But, things could get better. Just freeing up our financial system could spark a major economic recovery in the US. Whether a Romney administration would have the political courage to roll back the damage done by Sarbanes-Oxley and Dodd-Frank is debatable. But, there is no chance that the US economy can prosper if Obama is re-elected. Only government will grow in the Obama blueprint for America.
Friday 12 October 2012
Smirkin' Joe
Smirking and rolling his eyes as a substitute for discussing policy, Joe Biden showed why the US economy and foreign policy has been run into a ditch. Neither Biden nor Obama has any real interest in the issues of the day. The discussion of the catastrophe in Libya provided an excellent summary of the Obama Administration's approach to life: "We will get to the bottom of this!" Really?
Biden seemed to think that any real discussion of policy was unnecessary. His attitude was so condescending that it made one wonder what he and Obama really think of the American people. The idea that government knows everything and the people are sheep to be lead was so pervasive in Biden's attitude, that it is easy to see why the Obama Administration feels that it doesn't need to produce budgets, programs, plans or anything. Just smirk your way forward.
Biden constantly interrupted Congressman Ryan and talked over Ryan during Ryan's time. Biden's contempt for the democratic process was on display throughout the debate.
Ryan, on the other hand, was polite and stuck to message.
Hopefully, the American public can see who believes in free markets and free people and who doesn't after this remarkable debate.
Biden seemed to think that any real discussion of policy was unnecessary. His attitude was so condescending that it made one wonder what he and Obama really think of the American people. The idea that government knows everything and the people are sheep to be lead was so pervasive in Biden's attitude, that it is easy to see why the Obama Administration feels that it doesn't need to produce budgets, programs, plans or anything. Just smirk your way forward.
Biden constantly interrupted Congressman Ryan and talked over Ryan during Ryan's time. Biden's contempt for the democratic process was on display throughout the debate.
Ryan, on the other hand, was polite and stuck to message.
Hopefully, the American public can see who believes in free markets and free people and who doesn't after this remarkable debate.
Monday 8 October 2012
The Global Economy Weakens
The global economy is deteriorating. There are no real bright spots. The BRICs are slowing, Europe is in chaos, and the US is stuck in the mud. For all the promises that governments make, real economic progress for the average person comes only when economies are growing. Economies can only grow when markets are free and individuals are willing to take risks to make money.
Unfortunately, no modern politicians seem committed to free markets. Romney is probably better than the alternative, but even Romney sees government as an important player in the economy. His Massachusetts history gives one pause. The real problem is that Americans and Europeans generally believe that twenty or twenty five years in the work force deserves eighty years of compensation. The arithmetic doesn't work for that. Something has to give.
Things like social security and medicare are not affordable. No society can afford them. What is playing out in Europe and will someday play out in the US is the outcome of an unaffordable dream. Someone has to save and invest or eventually there will be nothing to consume. Free markets are the only institutions that can bring forth the necessary savings and investment to provide for our youth and our elderly. No other system can do it.
Economic growth is not a luxury good. It is an absolute necessity if we are to educate our children and take care of our elderly. Dividing up a stagnant pie -- the Obama plan -- is to give up on the future. Hopefully, Romney will win the election and the Paul Ryan influence will move the US back toward free markets and out of the quagmire that we find ourselves in.
Unfortunately, no modern politicians seem committed to free markets. Romney is probably better than the alternative, but even Romney sees government as an important player in the economy. His Massachusetts history gives one pause. The real problem is that Americans and Europeans generally believe that twenty or twenty five years in the work force deserves eighty years of compensation. The arithmetic doesn't work for that. Something has to give.
Things like social security and medicare are not affordable. No society can afford them. What is playing out in Europe and will someday play out in the US is the outcome of an unaffordable dream. Someone has to save and invest or eventually there will be nothing to consume. Free markets are the only institutions that can bring forth the necessary savings and investment to provide for our youth and our elderly. No other system can do it.
Economic growth is not a luxury good. It is an absolute necessity if we are to educate our children and take care of our elderly. Dividing up a stagnant pie -- the Obama plan -- is to give up on the future. Hopefully, Romney will win the election and the Paul Ryan influence will move the US back toward free markets and out of the quagmire that we find ourselves in.
Thursday 4 October 2012
Financial Literacy or Financial Capability?
There has been a lot of debate about the definition of financial literacy and whether policy and research should focus on financial literacy or on financial capability. Many institutions have opted for the latter arguing it is more encompassing and we should focus on behavior. I am going to argue in favor of financial literacy, for three main reasons.
First, nobody knows what financial capability really means. What are the set of behaviors that make a person financially capable? Is it that a person save? Well, there are times in the life cycle when we should borrow rather than save. Is it that a person is always paying credit cards in full? There are times when liquidity constraints are tight and borrowing on credit cards is appropriate. Is it that a person has a bank account? A bank account may be not practical if the bank is 50 miles away (think rural areas) and one cannot maintain a large enough balance to avoid paying a monthly fee. I could go on and on. The point I want to make here is that what is “good” behavior or, as we economists like to call it, “optimal” behavior, depends on a lot of factors, making it very hard to come up with a set of behavioral guidelines that are applicable to everyone. Moreover and most importantly, behavior depends on preferences in addition to economic circumstances, and this makes it very hard to judge what “good” behavior is and to recommend what people “should” do. For example, I should not invest in education if my passion is to tinker with tech devices in my garage, particularly if those devices one day become known as Macintosh computers. When policy tries to dictate behaviors, the risk of becoming paternalistic is very high. And mistakes have resulted from the trumpeting of “good behavior,” for example, the recommendation that everyone should own a house. (We saw what a good idea that was!)
The financial literacy approach recognizes that it is the individual who is in charge of making decisions and is the one we are putting at the center of the attention. It also recognizes that people are different and that one size is very unlikely to fit all, contrary to many recommendations that advocate for what we all “should” do. Empowering people may be a modest step, but even ice cream comes in many flavors (Italian gelato even more and very good too!), so it is not clear why we should have a single-flavor recommendation. We can choose according to our tastes.
Second, knowledge is power. Rather than focusing on behavior (whose optimality is in the eye of the beholder), financial literacy makes us focus on the inputs that shape behavior. One of those inputs is knowledge. We require and want knowledge in almost every field I can think of that requires some judgment, from driving a car to working in a factory to extracting a tooth (try that on my niece Giorgia and you will get a lesson!). The world has changed and we require new skills to be able to succeed in today’s society. I love the definition that the Programme for International Student Assessment (PISA) has used to measure students’ knowledge: “Are students well prepared for future challenges? Can they analyze, reason and communicate effectively? Do they have the capacity to continue learning throughout life? The OECD PISA answers these questions and more, through its surveys of 15-year-olds in the principal industrialized countries. Every three years, it assesses how well students near the end of compulsory education have acquired some of the knowledge and skills essential for full participation in society.” This is not a definition of financial literacy, but it could well be as it articulates what people need today to “participate in society.” Also, note that we are able to articulate what a financially literate person should know. As I have mentioned in a previous post, we have just finished writing a set of national standards, which will be soon be available from the Council for Economic Education.
Third, simply stated, the reason I favor financial literacy is because it is easy to understand, we know what we are talking about, and it is the term that successful organizations have used in describing their programs. One of the most successful countries with regards to financial literacy, i.e., New Zealand, has the “Commission for Financial Literacy and Retirement Income.” The OECD as well, which has been a pioneer in this field, is all about financial literacy and financial education programs.
Let me close by saying that we need to be humble when it comes to guiding individuals via policy and information. We need to respect people’s unique characteristics and their differences, but we must have the audacity to aim high, believe that we can empower people to make good decisions. In my view, this is what financial literacy is all about.
First, nobody knows what financial capability really means. What are the set of behaviors that make a person financially capable? Is it that a person save? Well, there are times in the life cycle when we should borrow rather than save. Is it that a person is always paying credit cards in full? There are times when liquidity constraints are tight and borrowing on credit cards is appropriate. Is it that a person has a bank account? A bank account may be not practical if the bank is 50 miles away (think rural areas) and one cannot maintain a large enough balance to avoid paying a monthly fee. I could go on and on. The point I want to make here is that what is “good” behavior or, as we economists like to call it, “optimal” behavior, depends on a lot of factors, making it very hard to come up with a set of behavioral guidelines that are applicable to everyone. Moreover and most importantly, behavior depends on preferences in addition to economic circumstances, and this makes it very hard to judge what “good” behavior is and to recommend what people “should” do. For example, I should not invest in education if my passion is to tinker with tech devices in my garage, particularly if those devices one day become known as Macintosh computers. When policy tries to dictate behaviors, the risk of becoming paternalistic is very high. And mistakes have resulted from the trumpeting of “good behavior,” for example, the recommendation that everyone should own a house. (We saw what a good idea that was!)
The financial literacy approach recognizes that it is the individual who is in charge of making decisions and is the one we are putting at the center of the attention. It also recognizes that people are different and that one size is very unlikely to fit all, contrary to many recommendations that advocate for what we all “should” do. Empowering people may be a modest step, but even ice cream comes in many flavors (Italian gelato even more and very good too!), so it is not clear why we should have a single-flavor recommendation. We can choose according to our tastes.
Second, knowledge is power. Rather than focusing on behavior (whose optimality is in the eye of the beholder), financial literacy makes us focus on the inputs that shape behavior. One of those inputs is knowledge. We require and want knowledge in almost every field I can think of that requires some judgment, from driving a car to working in a factory to extracting a tooth (try that on my niece Giorgia and you will get a lesson!). The world has changed and we require new skills to be able to succeed in today’s society. I love the definition that the Programme for International Student Assessment (PISA) has used to measure students’ knowledge: “Are students well prepared for future challenges? Can they analyze, reason and communicate effectively? Do they have the capacity to continue learning throughout life? The OECD PISA answers these questions and more, through its surveys of 15-year-olds in the principal industrialized countries. Every three years, it assesses how well students near the end of compulsory education have acquired some of the knowledge and skills essential for full participation in society.” This is not a definition of financial literacy, but it could well be as it articulates what people need today to “participate in society.” Also, note that we are able to articulate what a financially literate person should know. As I have mentioned in a previous post, we have just finished writing a set of national standards, which will be soon be available from the Council for Economic Education.
Third, simply stated, the reason I favor financial literacy is because it is easy to understand, we know what we are talking about, and it is the term that successful organizations have used in describing their programs. One of the most successful countries with regards to financial literacy, i.e., New Zealand, has the “Commission for Financial Literacy and Retirement Income.” The OECD as well, which has been a pioneer in this field, is all about financial literacy and financial education programs.
Let me close by saying that we need to be humble when it comes to guiding individuals via policy and information. We need to respect people’s unique characteristics and their differences, but we must have the audacity to aim high, believe that we can empower people to make good decisions. In my view, this is what financial literacy is all about.
Monday 1 October 2012
This is Austerity?
Why are France and Spain (and everywhere else in Europe) in deep fiscal trouble? -- Too many promises by government without any plans to come up with the money to pay for the promises.
So, what are France and Spain doing? Spain's recently proposed 'austerity' budget includes a one percent increase across the board to pensioners. Paying pensions is Spain's number one government expense. So, why not make it even higher? How about France? Newly elected Socialist President Francois Hollande took quick action to move France's retirement age to 60 from 62. He may as well have moved it to 40 for what little chance France has of paying future retirees.
No austerity plan in Europe touches things like retirement, public employee largesse, and laws that mandate hours and rule out employee terminations. So, in reality, nothing of any real significance is taking place except that the Eurozone is taking on more debt and rolling the printing presses.
You wonder why anyone thinks that anyone should work at all? Why not simply print Euros and Dollars and everything will be fine. That seems to be the mindset in Washington and Brussels.
So, what are France and Spain doing? Spain's recently proposed 'austerity' budget includes a one percent increase across the board to pensioners. Paying pensions is Spain's number one government expense. So, why not make it even higher? How about France? Newly elected Socialist President Francois Hollande took quick action to move France's retirement age to 60 from 62. He may as well have moved it to 40 for what little chance France has of paying future retirees.
No austerity plan in Europe touches things like retirement, public employee largesse, and laws that mandate hours and rule out employee terminations. So, in reality, nothing of any real significance is taking place except that the Eurozone is taking on more debt and rolling the printing presses.
You wonder why anyone thinks that anyone should work at all? Why not simply print Euros and Dollars and everything will be fine. That seems to be the mindset in Washington and Brussels.
Sunday 30 September 2012
And Our Cities?
The public is presumably aware that virtually all western economies are drowning in sovereign debt -- a problem that grows worse as the clock ticks. Nothing going on in Europe or the US (count Japan in there too, though they are not thought of as 'western') changes the dynamic of spiraling out-of-control debt and sluggish, if not collapsing, economies.
States within the US have their own problems. There is no way for California or Illinois to avoid bankruptcy and several other states are right behind them.
But, in all of this, we have forgotten about our cities. Almost without exception, American cities are headed down the road to bankruptcy. Their problems are similar to the problems of the states -- public pension and health care promises that have never been properly funded. We are already seeing policemen and teachers being laid off so that comfortable public employees can retire at twice the national average income or more. Expect more of that until the the schools and public safety concerns shift the debate.
Eventually, these lopsided obligations will drown city financing. The cities will look to the states. The states will look to the federal government. The federal government will look to the Federal Reserve. The Federal Reserve is busy printing money to bail out our national deficit. Soon, the Fed will be asked to print far more money to bail out our states and cities.
Why are we in this situation? Because politicians of both parties have mislead the public about the true cost of the public pension funds and health care programs enacted by state and local government. At the national level, politicians have consistently lied about the funding status of social security and medicare. So, where does this end?
The unwillingness to tell the truth about the funding status of the various entitlements that exist at all levels of government paves the road to Greece. The future can be observed daily on the streets of Athens and Madrid.
States within the US have their own problems. There is no way for California or Illinois to avoid bankruptcy and several other states are right behind them.
But, in all of this, we have forgotten about our cities. Almost without exception, American cities are headed down the road to bankruptcy. Their problems are similar to the problems of the states -- public pension and health care promises that have never been properly funded. We are already seeing policemen and teachers being laid off so that comfortable public employees can retire at twice the national average income or more. Expect more of that until the the schools and public safety concerns shift the debate.
Eventually, these lopsided obligations will drown city financing. The cities will look to the states. The states will look to the federal government. The federal government will look to the Federal Reserve. The Federal Reserve is busy printing money to bail out our national deficit. Soon, the Fed will be asked to print far more money to bail out our states and cities.
Why are we in this situation? Because politicians of both parties have mislead the public about the true cost of the public pension funds and health care programs enacted by state and local government. At the national level, politicians have consistently lied about the funding status of social security and medicare. So, where does this end?
The unwillingness to tell the truth about the funding status of the various entitlements that exist at all levels of government paves the road to Greece. The future can be observed daily on the streets of Athens and Madrid.
Saturday 29 September 2012
Feeding the Beast -- Who Are The Victims?
Higher education claims a higher and higher percentage of the nation's resources. No longer the land of the underpaid, it is routine for administrators to make high six figure incomes and many university presidents make well over seven figures. Sounds like Wall Street, only better. The work hours typically include six months vacation every year. Not a bad deal.
But not good enough, apparently, as colleges and universities demand more and more with higher tuitions and higher expenditures from government at all levels.
One of the more insidious parts of this disgraceful situation is the expansion of student loans by the Obama Administration. The main thrust of this is to increase the tuition levels at all schools to take advantage of this new source of funding. Knowing that students can borrow, schools have created internal departments that are designed to educate and encourage students to take on debt so that the schools can further boost their own tuition charges. Keep increasing the availability of student loans and the colleges and universities will continue to escalate tuition.
The results of all of this government largesse is the creation of a huge underclass in America -- young people strangled by student loan debt that they are increasingly unable to pay. Check out the Wall Street Journal story today on the rising default levels by young people on their student debt. This problem will soon rival the mortgage crisis.
This is the ultimate squeeze play. Strangle the economy so that job opportunities for young people disappear and jack up tuition to absurd levels and force students to take on debt that they have no real chance of paying off. This is the compassion of modern politics.
No one asks: why are college costs rising faster than any other cost in the economy. Are colleges doing something that involves increasing costs? If so, what? The colleges and universities have very successfully kept this question under wraps while they demand more and more resources to fund an elite group of employees who have huge incomes and net wealth and work less and less.
Not only are our youth saddled with massive debts to cover current recipients of social security and medicare, but now, as if that weren't enough, we are pushing them into massive indebtedness and an economy that provides no way out for them.
These kind of cruel policies often are cloaked by phrases like: "investing in education" or "investing in the future." But, what is really going on is a transfer of resources from our young people to elite, protected, typically tenured people who see themselves as entitled to massive income, benefits, and an ever-declining work load.
But not good enough, apparently, as colleges and universities demand more and more with higher tuitions and higher expenditures from government at all levels.
One of the more insidious parts of this disgraceful situation is the expansion of student loans by the Obama Administration. The main thrust of this is to increase the tuition levels at all schools to take advantage of this new source of funding. Knowing that students can borrow, schools have created internal departments that are designed to educate and encourage students to take on debt so that the schools can further boost their own tuition charges. Keep increasing the availability of student loans and the colleges and universities will continue to escalate tuition.
The results of all of this government largesse is the creation of a huge underclass in America -- young people strangled by student loan debt that they are increasingly unable to pay. Check out the Wall Street Journal story today on the rising default levels by young people on their student debt. This problem will soon rival the mortgage crisis.
This is the ultimate squeeze play. Strangle the economy so that job opportunities for young people disappear and jack up tuition to absurd levels and force students to take on debt that they have no real chance of paying off. This is the compassion of modern politics.
No one asks: why are college costs rising faster than any other cost in the economy. Are colleges doing something that involves increasing costs? If so, what? The colleges and universities have very successfully kept this question under wraps while they demand more and more resources to fund an elite group of employees who have huge incomes and net wealth and work less and less.
Not only are our youth saddled with massive debts to cover current recipients of social security and medicare, but now, as if that weren't enough, we are pushing them into massive indebtedness and an economy that provides no way out for them.
These kind of cruel policies often are cloaked by phrases like: "investing in education" or "investing in the future." But, what is really going on is a transfer of resources from our young people to elite, protected, typically tenured people who see themselves as entitled to massive income, benefits, and an ever-declining work load.
Friday 28 September 2012
Assume That We Have A Can Opener
There is an old joke about the doctor, lawyer and the economist, all three, stranded on a desert island with nothing to eat. They stumble upon a tin can of vegetables. How do you open the tin can? The doctor proposes to give it aspirin, the lawyer says 'file a brief.' The economist? The economist says: "assume that we have a can opener."
Economists have a well deserved reputation for assuming away difficulties. Simon Johnson's article in today's NY Times is a good example. Johnson correctly points to the US National debt as very serious problem that needs a solution and needs it now. His article suggests that there is an easy solution. In Johnson's own words:
"And American politicians could find other ways to restore federal government revenue to where it was in the late 1990s while also bringing health care spending under control."
Sure, just bring me that can opener. How does one "bring health care under control." Johnson doesn't tell us how to do that and that, sports fans, is the biggest single problem that the US faces in getting its national debt under control. Maybe, Obamacare's unelected panel that determines who lives and who dies in the brave new world of the future can accomplish that task. A simple law providing euthanasia for all citizens over 50 years of age might be the Obama secret plan to reign in health care. Why knows? Simon doesn't tell us.
As for restoring federal government revenue to where it was in the late 1990s, one assumes that a tech bubble, similar to that of the late 1990s, will be available to fuel the tax revenues necessary to temporarily produce that result. How does one do that with no economic growth? Ah, the Obama dilemma. Killing off the economy, which the Obama Administration has managed to do so well, conflicts with their other agenda -- maximizing tax revenues. You can't have it both ways.
The Johnson article gives a window into the answer to the question: why aren't economists facing the real economic issues of our time -- out of control national debt and economies mired in stagnation. Why aren't economists interested in these issues? So, what are they interested in?
Read Uwe Reinhardt's absurd article in today's NY Times and you will see what topics occupy the time of our federally-subsized economists these days. Redistribution. Ah, there's a real topic of interest. How do we slice up the declining pie? Guess what he concludes? Give more money to higher education! That sounds like an objective solution. I wonder why a Princeton academic thinks that the number one issue of our times is how to increase the salaries of Ivy League professors. Does this guy have a conflict of interest?
Economists are no different than other people. They are self-seeking folks trying to line their own pocket. Since their employer is the government, they speak up for expanding the interests of their employer, which translates into the interests of themselves.
So, don't expect economists to shed any serious light on the major economic issues of our times. They aren't interested.
Economists have a well deserved reputation for assuming away difficulties. Simon Johnson's article in today's NY Times is a good example. Johnson correctly points to the US National debt as very serious problem that needs a solution and needs it now. His article suggests that there is an easy solution. In Johnson's own words:
"And American politicians could find other ways to restore federal government revenue to where it was in the late 1990s while also bringing health care spending under control."
Sure, just bring me that can opener. How does one "bring health care under control." Johnson doesn't tell us how to do that and that, sports fans, is the biggest single problem that the US faces in getting its national debt under control. Maybe, Obamacare's unelected panel that determines who lives and who dies in the brave new world of the future can accomplish that task. A simple law providing euthanasia for all citizens over 50 years of age might be the Obama secret plan to reign in health care. Why knows? Simon doesn't tell us.
As for restoring federal government revenue to where it was in the late 1990s, one assumes that a tech bubble, similar to that of the late 1990s, will be available to fuel the tax revenues necessary to temporarily produce that result. How does one do that with no economic growth? Ah, the Obama dilemma. Killing off the economy, which the Obama Administration has managed to do so well, conflicts with their other agenda -- maximizing tax revenues. You can't have it both ways.
The Johnson article gives a window into the answer to the question: why aren't economists facing the real economic issues of our time -- out of control national debt and economies mired in stagnation. Why aren't economists interested in these issues? So, what are they interested in?
Read Uwe Reinhardt's absurd article in today's NY Times and you will see what topics occupy the time of our federally-subsized economists these days. Redistribution. Ah, there's a real topic of interest. How do we slice up the declining pie? Guess what he concludes? Give more money to higher education! That sounds like an objective solution. I wonder why a Princeton academic thinks that the number one issue of our times is how to increase the salaries of Ivy League professors. Does this guy have a conflict of interest?
Economists are no different than other people. They are self-seeking folks trying to line their own pocket. Since their employer is the government, they speak up for expanding the interests of their employer, which translates into the interests of themselves.
So, don't expect economists to shed any serious light on the major economic issues of our times. They aren't interested.
Wednesday 26 September 2012
Civil Disorder and Chaos on the Rise in Greece and Spain
Riots are now turning violent in Greece and Spain. Police surrounding the parliament building in Madrid last night were seen on videos beating demonstrators. The Merkel-Sarcozy-Hollande-Geithner-Bernanke-Draghi policy is bearing fruit. Civil society is breaking down in Greece and Spain. The NY Times has a lengthy, front-page story yesterday about formerly middle class Spaniards foraging for food from garbage trucks. That this is becoming a common scene in Spain was the thrust of the article.
This will only get worse. Unemployment and starvation is the ultimate outcome of the modern welfare state and it is now on display in the Eurozone with more yet to come. Spain is still dithering about whether to alter 'early retirements' under their social security schemes. This would be funny, if it weren't tragic. Who is going to fund those who are already retired? One might ask a similar question in Greece. Are American and German taxpayers going to provide the money? Obama suggests that this is a lively possibility. Long run, even the US and Germany do not have the resources to bail out these countries. The US and Germany suffer from the same disease that has lead to the current turmoil in Spain and Greece. They are just at a different place on the timeline. The ultimate destination is the same.
You can't solve debt problems by increasing the amount of the debt. That obvious truism is responsible for the current debacle, which will only get worse.
This will only get worse. Unemployment and starvation is the ultimate outcome of the modern welfare state and it is now on display in the Eurozone with more yet to come. Spain is still dithering about whether to alter 'early retirements' under their social security schemes. This would be funny, if it weren't tragic. Who is going to fund those who are already retired? One might ask a similar question in Greece. Are American and German taxpayers going to provide the money? Obama suggests that this is a lively possibility. Long run, even the US and Germany do not have the resources to bail out these countries. The US and Germany suffer from the same disease that has lead to the current turmoil in Spain and Greece. They are just at a different place on the timeline. The ultimate destination is the same.
You can't solve debt problems by increasing the amount of the debt. That obvious truism is responsible for the current debacle, which will only get worse.
Monday 24 September 2012
A national standard for financial literacy
I spent a lot of time on a beach in Italy in August building sand castles with my niece Giorgia. It was not an easy operation and required a lot of time and patience, particularly in my case, given that as I finished one part of a castle and started building another, the first part would collapse. But since it takes so much time and patience to build a sand castle, I had a lot of time to reflect on things that had been on my mind.
I thought a lot about the ideal content for a course in financial literacy. I had recently finished teaching just such a course (see my previous blog post), but it was a crash course with only four 3-hour classes. While it’s possible to pack a lot into those hours, a full-length course would provide much more time. What else could be added to such a course? What are the financial literacy topics we “must” teach?
When I started designing my short course, I searched for syllabi on the web. In browsing materials, including what is covered in high school classes, I was struck by how much material is out there and how many different courses there are and the variety of topics these courses cover. I also looked at books on personal finance (and it is a jungle out there—everybody, including people who have gone bankrupt, wants to tell their story and teach you how to be financially savvy). Some of the material I found seemed very good, some covered topics I thought would better be in a history course (for example, how to balance a checkbook), and some material was offered in the way you’d teach basic cooking or household plumbing—a lot of how-to’s that are supposed to make people smart.
I was also struck by how much courses differed, even though they were all supposed to cover financial literacy. Part of this is a reflection of the fact that we do not yet have a definition of what financial literacy is. This is a topic I will come back to in future posts, but differences in curricula across schools and states reflect the lack of a national standard on financial literacy.
I am, thus, very happy to report that the Council for Economic Education (CEE) has put together a team of experts to address this gap in the national standards. As I have mentioned in previous posts, financial literacy is no different in Vermont than it is in California, and it is not clear why we have so many different curricula in different states. A group of experts coordinated by the CEE will work together to create a single National Standard for Personal Finance. I am delighted to have been asked to participate in that work and very happy that many of the stakeholders involved with financial education are part of the teams of experts—not just academics but also high school teachers, representatives of not for profit institutions working to promote financial literacy, and so on.
My contribution to this initiative is twofold. First, I want to make sure that the financial literacy topics that are covered are rigorous and that we help students be decision makers. We need to give them tools to understand a world that continues to change. And we need to stay away from teaching rules, such as “you should save 3% of your salary”; teaching rules is not teaching, it is preaching. I also want to make sure we can use and incorporate some of the work done by the group of financial literacy experts in the Programme of International Student Assessment (PISA), which had the ambitious task of measuring financial literacy of high school age students across countries. The world is global and our students have to conform to standards not just in the United States but across the world.
This is the thinking I was doing while developing my sand castle building skills. And while I was admiring my finished work one afternoon, smiling with satisfaction, Giorgia—the little rascal—looked at my many hours of work and declared that my caste looked like “un gigante zoppo.” ( For those of you who don’t speak Italian, she said my sand castle looked like “a lame giant.”)
So, here are my three reflections:
1) Having national standards for personal finance will simplify the work of educators and help ensure the teaching of common concepts so that financial literacy is covered in a similar way across states and countries.
2) A unified national standard will likely result in the teaching of more rigorous concepts than we currently see in existing courses.
3) Never put a five-year-old on a team of judges at a sand castle building contest.
I thought a lot about the ideal content for a course in financial literacy. I had recently finished teaching just such a course (see my previous blog post), but it was a crash course with only four 3-hour classes. While it’s possible to pack a lot into those hours, a full-length course would provide much more time. What else could be added to such a course? What are the financial literacy topics we “must” teach?
When I started designing my short course, I searched for syllabi on the web. In browsing materials, including what is covered in high school classes, I was struck by how much material is out there and how many different courses there are and the variety of topics these courses cover. I also looked at books on personal finance (and it is a jungle out there—everybody, including people who have gone bankrupt, wants to tell their story and teach you how to be financially savvy). Some of the material I found seemed very good, some covered topics I thought would better be in a history course (for example, how to balance a checkbook), and some material was offered in the way you’d teach basic cooking or household plumbing—a lot of how-to’s that are supposed to make people smart.
I was also struck by how much courses differed, even though they were all supposed to cover financial literacy. Part of this is a reflection of the fact that we do not yet have a definition of what financial literacy is. This is a topic I will come back to in future posts, but differences in curricula across schools and states reflect the lack of a national standard on financial literacy.
I am, thus, very happy to report that the Council for Economic Education (CEE) has put together a team of experts to address this gap in the national standards. As I have mentioned in previous posts, financial literacy is no different in Vermont than it is in California, and it is not clear why we have so many different curricula in different states. A group of experts coordinated by the CEE will work together to create a single National Standard for Personal Finance. I am delighted to have been asked to participate in that work and very happy that many of the stakeholders involved with financial education are part of the teams of experts—not just academics but also high school teachers, representatives of not for profit institutions working to promote financial literacy, and so on.
My contribution to this initiative is twofold. First, I want to make sure that the financial literacy topics that are covered are rigorous and that we help students be decision makers. We need to give them tools to understand a world that continues to change. And we need to stay away from teaching rules, such as “you should save 3% of your salary”; teaching rules is not teaching, it is preaching. I also want to make sure we can use and incorporate some of the work done by the group of financial literacy experts in the Programme of International Student Assessment (PISA), which had the ambitious task of measuring financial literacy of high school age students across countries. The world is global and our students have to conform to standards not just in the United States but across the world.
This is the thinking I was doing while developing my sand castle building skills. And while I was admiring my finished work one afternoon, smiling with satisfaction, Giorgia—the little rascal—looked at my many hours of work and declared that my caste looked like “un gigante zoppo.” ( For those of you who don’t speak Italian, she said my sand castle looked like “a lame giant.”)
So, here are my three reflections:
1) Having national standards for personal finance will simplify the work of educators and help ensure the teaching of common concepts so that financial literacy is covered in a similar way across states and countries.
2) A unified national standard will likely result in the teaching of more rigorous concepts than we currently see in existing courses.
3) Never put a five-year-old on a team of judges at a sand castle building contest.
Merkel is a Failed Leader
Angela Merkel says the right things and does the wrong things. As a conservative leader, she and her conservative sidekick Nicolas Sarcozy, led the Eurozone down the bailout track while loudly proclaiming that responsibility for foolish behavior would not be rewarded. But rewards were soon forthcoming from Merkel and Sarcozy. Merkel still strikes the pose of frugal leader while steamrolling Germany toward the largest bailout in world history.
Merkel talks about saving the Euro. The issues in the Eurozone have little or nothing to do with saving the Euro. The Euro is doing fine. What is not doing fine is the fiscal situation of the Euro member states. They are all going bankrupt, including Germany. What currency is in place is of little importance if you cannot pay your debts and the Eurozone cannot pay their debts. What they have is a temporary reprieve and a lot of conversation. The endgame in this is all too obvious. But, it won't include Chancellor Merkel. She will be long gone by the time we get to the endgame. She will join her pal Sarcozy in the losers bracket.
Meanwhile, the left takes the podium -- Francois Hollande of France. His absurd policies will simply hasten the economic collapse of France. Somehow, all of the Eurozone seems obsessed with the idea that rhetoric is a substitute for policy. The conversation continues as the Eurozone slides into economic collapse. What once was a shining example of the fruits of capitalism has now become a monument to socialism and poor policy. All socialist experiments end in the same economic junk pile.
The cconomic end to all of this is obvious -- the collapse of the economies in the Eurozone. What will not happen is that Germany will emerge a strong economy while Greek collapses. Germany will be swept along with Greece. Germany's economic policies differ only in degree from the policies that are currently driving Greece into the economic ditch -- there is no difference in kind.
The more interesting question is: will democracy survive in the Eurozone? Based upon history, it is unlikely that democracy will survive. Demagogues thrive when democracy fails to deliver economic prosperity. Polls show that extremist political groups are benefitting from the chaos in the Eurozone. The first country to fall to the extremists will be Greece, but they won't be the last. The ultimate end to the welfare state is economic collapse and political chaos. We are at the earliest stages of that process.
Merkel and Sarcozy won election in their respective countries running as conservatives. Their policies are a tribute to the fact that conservatives are just as likely to support the welfare state as liberals. While there may be minor and insignificant differences between Merkel and Sarcozy and their liberal opponents, their policies are essentially the same -- extend and pretend. Misleading the public about the cost of the welfare state is common practice for all the major political parties in the western world, including the US.
Merkel talks about saving the Euro. The issues in the Eurozone have little or nothing to do with saving the Euro. The Euro is doing fine. What is not doing fine is the fiscal situation of the Euro member states. They are all going bankrupt, including Germany. What currency is in place is of little importance if you cannot pay your debts and the Eurozone cannot pay their debts. What they have is a temporary reprieve and a lot of conversation. The endgame in this is all too obvious. But, it won't include Chancellor Merkel. She will be long gone by the time we get to the endgame. She will join her pal Sarcozy in the losers bracket.
Meanwhile, the left takes the podium -- Francois Hollande of France. His absurd policies will simply hasten the economic collapse of France. Somehow, all of the Eurozone seems obsessed with the idea that rhetoric is a substitute for policy. The conversation continues as the Eurozone slides into economic collapse. What once was a shining example of the fruits of capitalism has now become a monument to socialism and poor policy. All socialist experiments end in the same economic junk pile.
The cconomic end to all of this is obvious -- the collapse of the economies in the Eurozone. What will not happen is that Germany will emerge a strong economy while Greek collapses. Germany will be swept along with Greece. Germany's economic policies differ only in degree from the policies that are currently driving Greece into the economic ditch -- there is no difference in kind.
The more interesting question is: will democracy survive in the Eurozone? Based upon history, it is unlikely that democracy will survive. Demagogues thrive when democracy fails to deliver economic prosperity. Polls show that extremist political groups are benefitting from the chaos in the Eurozone. The first country to fall to the extremists will be Greece, but they won't be the last. The ultimate end to the welfare state is economic collapse and political chaos. We are at the earliest stages of that process.
Merkel and Sarcozy won election in their respective countries running as conservatives. Their policies are a tribute to the fact that conservatives are just as likely to support the welfare state as liberals. While there may be minor and insignificant differences between Merkel and Sarcozy and their liberal opponents, their policies are essentially the same -- extend and pretend. Misleading the public about the cost of the welfare state is common practice for all the major political parties in the western world, including the US.
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