Friday, April 15, 2011

The Big Budget Lie: How a bigger budget deficit is being sold as a "cut"

Rand Paul is, well, a Randian, but at least someone is pointing out that the Budget Emperor has no clothes. THE FEDERAL DEFICIT IS BIGGER THIS YEAR THAN LAST YEAR.

The Republicans failed the first test, which was putting people in place who meant business on fiscal responsibility in the House by appointing the King of Earmarks, Kentucky's own Hal Rogers, as head of the Appropriations Committee.

Now they have failed the second test: Standing up to Obama and insisting on real cuts in this year's federal budget.

Three strikes and you're out.

21 comments:

KyCobb said...

This is a stupid time to be worrying about the deficit anyway, when we still have massive unemployment. If Congress did nothing, and simply let the Bush tax cuts expire and the health care law take effect, the deficit would virtually disappear in a few years.

Lee said...

When will be a good time to worry? When we've defaulted on our debt payments? That ought to do the unemployed folks a lot of good when that happens.

KyCobb said...

Lee,

The US is not going to default on its debt payments. Getting millions of unemployed Americans back to work is vastly more important than slashing the debt right now; just getting people back to work will help reduce expenditures and raise revenue. And as I pointed out, Congress can solve the deficit "crisis" simply by doing nothing.

Lee said...

KyCobb, you're delusional. If deficit spending reduced unemployment, at the rate we're spending, unemployment should be half what it was under Bush; instead, it's twice.

The deficit is already up to our national GDP for a year. That's about a fourth of our national net worth. A better indication of whether we're going to default is to watch the current trepidation in the bond market. People who are betting with their own money aren't as confident as you are.

Our unfunded liabilities under Social Security, Medicare, Medicaid, you name it, are going to sink us. We will default if things aren't reformed, and reformed quickly, one way or the other. We'll either not pay, or inflate the currency until it's worthless. You do not want to live in a world where the U.S. cannot pay its debts, and I don't either. The hard part is getting liberals to see this before they do it to us. Once it happens, it will be too late.

Martin Cothran said...

Lee,

I think KyCobb is under the impression that this money actually grows on trees. He emphasizes what the money spent on jobs programs (I assume that's what he's talking about) will do. But, apparently, the private jobs that would have come into existence but now never will because the money will not be available for them (it will now got to future taxes to pay off the debt we are now incurring) are to be completely ignored.

Andrew said...

I'm sorry to do this, but I can't get my computer to allow me to post a reply under the Christopher Hitchens thread. So I'm going to address Singring here, hoping he sees it.

First, I'd like to request that we remove the hypothetical situation you raised from the discussion because of your recent reply to my question, namely that certainty is too high a standard to attain.

Since, as i understood it, certainty was the condition of the hypothetical (whether I would kill someone if I was sure God told me to), it seems to me that your statement that certainty is too high a standard makes the hypothetical meaningless.

With your permission, therefore, I'll stop discussing this hypothetical situation and address the other points, especially my contradiction about God being both ineffable and all-knowing, etc.

Do you accept this proposal?

Andrew said...

KyCobb,

On this matter, I'm not as confident as you are either. I have two serious concerns about what you are proposing:

1. The amount of government regulation it would require
2. The amount of money it would take out of the productive economy and put in the hands of the government

Each of these has multiple sub-points, but let me focus on the main ones.

Today, we have an absolutely horrible farm situation. The New York Times quoted a close friend of Earl Butts, the head of the Department of Agriculture during the 60's, as saying "Earl and I destroyed farming." I believe those were his exact words.

And how did they destroy it? By teaching farmers how to farm and by regulating and pressuring farmers to do it the way the government wanted them to do it.

I don't know if farming is a big deal to you, but among the consequences of the destruction of the family farm we can number these: that our soil is being depleted, our water polluted, and our food (I don't know the word, but it is something like) denutrified.

How could this have happened? Because the government had a big plan for farmers and they got it wrong. The reason they got it wrong is because they didn't think about farms as farms. They brought everything under their quantitative formulas, and thus they ignored anything that didn't fit their system.

The principle is this: there is a scale to wisdom and responsibility.

When the people making the decisions don't bear the consequences of the decisions, they will usually make bad decisions and, worse, not learn from the decisions they make.

continued (forgive me)

Andrew said...

The same thing has been happening to our schools for 80 + years. The decision makers are not the teachers or even the principles, but the higher paid and more important administrators. Only, they don't have to live as directly with the consequences of their decisions. So they continually make stupid ones, always hiding behind cries for equal justice and other noble themes that they ought not to use to manipulate us with.

I think you see what I mean. The internet is a mess but man is it innovative. Why? Because 1. innovation is messy and 2. the government has not been able to regulate it or impose their vision of the future on it yet.

That, I believe, is what would lead our economy into explosive growth.

continued again (please forgive me)

Andrew said...

I run a small business, an education consultancy. I can tell you, there is no administrator in my city, much less Washington, that knows what I need to do to solve my problems and make me prosper.

But when they tell me I have to add an elevator or file more forms, what they are telling me is that it's OK with them if my business and all those I employ cease functioning because they have some abstract value that competes with it.

Unless you run a business, you cannot imagine how hard it is to get started and how many extra expenses you have to incur to meet the requirements of the regulators. Honestly, it is more Byzantine than Byzantium. And many, many people right now are not starting businesses because they don't think they can succeed in the present "climate." Thus the vase corporations and the government take control of the economy and are the only ones who can hire.

To apply it to health care insurance:

You are asking an already Byzantine health care system to become even more Byzantine. What we need is to give responsibility back to doctors and to take it away from insurance companies. Maybe we can't do that, but if we can't we can't solve the problem.

Oh dear, there's more.

Andrew said...

2. My head spins when I think of the number of dollars it takes the government to create a job. If you want the government is going to tax us to create employment, then this is the comparison to reflect on:

If I need an employee, I recruit and hire that person based on my needs. I am hiring him because my business has been productive enough to benefit so many people that they want more of it. Everybody who buys my product is wealthier (by a little bit) for having it. I am wealthier (by a little bit) for each purchase. I can use that money to buy things that other people made and both of us become wealthier. Along the way, the state and federal governments collect taxes. So taxes are paid and jobs are produced and everybody involved - everybody involved - is wealthier.

It's a beautiful, responsibility driven system when run correctly.

On the other hand, for the government to create a job they have to take money from productive people, all of whom will be less wealthy after the money is taken from them (and very few of them are "the rich"), which requires one of the most inefficient, sprawling, and frightening bureaucracies in the history of mankind - the IRS.

Each payer has to spend hours applying a tax code that consumed thousands of hours to create because it is so complicated and full of graft. All of the time that is spent filling out the tax forms could have been spent making a product or providing a service that would have added wealth to the economy. instead, in order to get, say, 20% of my income, the government not only reduced my income potential by distracting me from productive work, it also put in place rules, regulations, and bureaucracies that cost far more than my total income just to deal with my very small pittance of income tax.

Then the money that is collected has to be sorted and distributed. Our government has hired tens of thousands of people to collect sort and distribute that money. And virtually nobody has any concrete knowledge of where the money goes. According to this video, 100 Billion dollars is unaccounted for. Say that to yourself seven times.

Now, we should feel good about all the jobs provided by the IRS, I am sure. But notice that none of those jobs add any wealth to the economy. They move wealth from a person who was adding wealth to the economy to a person who, by virtue of his/her job at least, is not.

Yes, it is true that the person who works for the IRS can buy things or save money (i.e. invest in something that makes money available for new business) and thus create jobs, but that would have happened anyway. By the time the money has gone through all the hands in the bureaucracy, it has done so much unproductive work that it hardly has any value, if any, compared to all the jobs it has diminished by negation.

Don't get me wrong, I'm no libertarian. I believe in a strong, vigorous, defined government. I believe in taxes. But right now, the taxes do so much harm to our economy that it might be too late to save it. Investors world wide are very worried about the American economy.

I totally agree with you that getting millions of unemployed back to work is more important than slashing the debt. The way to get the most possible people back to work is to optimize the tax code in such a way that we take in the most revenue while doing the least harm to the producers of long-term, stable jobs. How will we get people back to work?

By removing the obstacles to people who hire them. And how do we do that? What are the obstacles? Excessive taxes and excessive regulation, both of which would become worse with "Obamacare" and a tax increase right now.

One last thought: if you want a larger government, you have to remember that such a thing will attract people who don't have pure motives. When the people you don't want to rule you are elected they won't suddenly decide government should be smaller. They will impose their will on you. It is as inevitable as wind in a tornado.

KyCobb said...

Lee,

The overwhelming majority of economists agree that the stimulus spending saved millions of jobs; we would be in a great Depression right now without it. The tax rate is at its lowest in decades; there is plenty of money to create private jobs, but companies have been sitting on their cash because of the low level of demand, though now job creation is finally beginning to pick up. Simply allowing the Bush tax cuts to expire and the health care law to take effect will slash the budget deficit.

Thomas said...

"What we need is to give responsibility back to doctors and to take it away from insurance companies."

With health care costs in the US spiraling upwards, why would you want to give more control to those who profit from higher health care costs? At least insurance companies have an incentive to keep costs down (they're just really bad at it).

And, to the more general point, there is no such thing as a free market run without a legal framework. It's an abstraction and a fiction. The "free market" as we know it came to be because of a shift in the legal framework of Europe: loosening restrictions on usery, the alienability of property, the shift from status to contract, the creation of laws allowing legal fictions such as corporations, and so on. The "free market" depends for its existence on government regulations.

The crucial point is not the level of involvement the government has in the market. As long as contracts are being signed, corporations created, interest is being charged, and money is being deposited in banks or investments government regulations will provide the structure for economic activity. The crucial point is what the purpose of the government regulations that make a market possible aims at. Government regulations can either seek distributive justice, as Western political philosophy has held since its inception to the modern period, or it can set aside the question of justice and aim at maximizing individual autonomy, as Liberal tradition holds.

Andrew said...

I don't believe in the fantasy of a "free market" or any other political abstraction. Negotiation is of the essence of political life. What I'm saying is that every regulation has a cost that needs to be carefully considered. Now the costs are hidden and the people who pay them are far removed from the people who set them.

Lee said...

> The overwhelming majority of economists agree that the stimulus spending saved millions of jobs;

You mean, the overwhelming majority of liberal economists.

> we would be in a great Depression right now without it.

I think we would have been fine if they had left things alone. But of course they didn't, and they can't. No matter how much harm they do, they can't wait to do more.

> The tax rate is at its lowest in decades; there is plenty of money to create private jobs, but companies have been sitting on their cash because of the low level of demand, though now job creation is finally beginning to pick up.

One of the things that causes low demand is low faith in the future. One of the things that causes low faith in the future is a government that spend money like a drunken sailor. (A buddy of mine, former Navy, says, "Hey, I resent that! I was a drunken sailor, and I only spent my own money!") Something else that might make businesses less likely to hire is uncertainty -- not knowing what the liabilities will be when they hire new employees.

How could they have possibly gotten the idea that things are more uncertain than normal? Might have something to do with the fact that we have a huge new entitlement from a health-care bill that nobody understood. Might have something to do with the fact that the rules have changed regarding who wins and who loses in the business world, that bad decisions are rewarded with subsidies, and good decisions are punished by having to subsidize through taxes their competition. Might have something to do with the fact that the rules of borrowing have changed, as owners of secured debt were threatened by the Obama administration to hand over their money to the UAW. Maybe it's the fact that the federal government is now investing our money in the stock market, in an attempt to control prices in its low-volume state.

If I owned a business and all these things were happening at once, I'd be reluctant to hire anyone, too. And so would you.

> Simply allowing the Bush tax cuts to expire and the health care law to take effect will slash the budget deficit.

You're still delusional. Just for starters, you're ignoring the fact that people change their behavior when the incentives change. Raise tax rates if you want even less capital to be available for business.

Lee said...

> With health care costs in the US spiraling upwards, why would you want to give more control to those who profit from higher health care costs? At least insurance companies have an incentive to keep costs down (they're just really bad at it).

Are we supposed to ignore the role that federal entitlements such as Medicare and Medicaid have already played in driving up the cost of medical care?

The medical profession has always been a highly-regulated industry, same as insurance companies. Typically, government regulators work about ten or fifteen years for the government and then quit and go to work for the companies they once regulated, at handsome increases in salary. So the incentives of the situation favor special treatment at least for some companies, as their future employees have a good reason to want to please their future employers.

This incentive is documented very nicely by Thomas Sowell in his book, "Knowledge and Decisions."

Bottom line: regulation is no panacea.

> The "free market" depends for its existence on government regulations.

I concur, if you change "regulation" to "law". The free market depends on a solid and reasonably predictable base of common and property law, and a court system that is also reasonably predictable.

The problem starts when the government stops being the referee and starts to become one of the participants in the game, favoring existing business over potential business, or even one existing business over another existing business, or one sector over another -- i.e., when capitalism becomes crony capitalism, and the term "free market" becomes a cruel joke.

Regulation itself causes additional ills due to the opportunity for favoritism, and also because of its relatively unpredictable nature.

Government has a strong role to play. It must abide by the law. It must force corporations to abide by the law. It must settle disputes between corporations and other corporations, or other people, impartially.

> Government regulations can either seek distributive justice, as Western political philosophy has held since its inception to the modern period, or it can set aside the question of justice and aim at maximizing individual autonomy, as Liberal tradition holds.

We can also learn from experience and try to understand that everyone is better off, rich and poor alike, with a growing economy, and the "liberal tradition" (liberal in the sense of Adam Smith and John Stuart Mill, not Barack Obama and Barney Frank) performs much better both on its own terms and on the terms set by "redistributive justice."

That is, freedom tends to serve social justice and freedom; social justice serves neither. There is no redistributive justice if there is no wealth to redistribute.

Lee said...
This comment has been removed by the author.
Lee said...

I should clarify: the distinction I am drawing between law and regulation is that law is passed by Congress and signed into law by the President (or overriding a veto), whereas a regulation is anything from a law to what bureaucrat makes up on a given day.

In this sense, regulation comes very close to the rule of man, as opposed to the rule of law. It is arcane. It is arbitrary. It can be tyrannical. And it is overwhelmingly expensive for upstart companies to fight against. This is why big business does not fear regulation: they are better able to handle the costs of regulation than are small, upstart businesses. Plus, they are in a better position to lobby Congress, and to actually write the rules they will be governed by.

McCain-Feingold was an attempt to curtail the power of lobbyists. They were correct that it is a problem. Where they went wrong was in not examining the role played by over-regulation itself. Businesses have little choice but to participate in the Washington dance. Those who try not to, like Bill Gates in his early years, soon discover their folly; now, Microsoft lobbies with the best of them. The problem isn't their lobbying; it's the regulatory overreach.

Thomas said...

"In this sense, regulation comes very close to the rule of man, as opposed to the rule of law. It is arcane. It is arbitrary. It can be tyrannical"

This is actually quite incorrect when it comes to the American legal system. There's a principle of non-delegation that the judicial system enforces: the legislature may not give an agency carte blanche to issue regulations. They can only delegate if they give enough guidance to the agency so that a court can determine that the agency is following the directive of the legislature and not following its own policy agenda. (See Misretti v. United States.)

Adam Smith was absolutely correct in the Wealth of Nations when he argued at great length that the bigger, more specialized and complex an economy becomes the larger the government will become. We could shrink the SEC quite a bit if we simply prohibited many of the practices of investment banks, reducing the structural incentives for fraud and the complexities that make it difficult to tell when fraud is occurring. But as long as we allow complex lending practices that make fraud more difficult to detect, we will need a regulatory agency large and specialized enough to oversee it. (Or we can simply let fraud go, as the Obama administration seems willing to do.)

But there's a larger point here that comes down to values. The Christian views wealth (by which I mean money and resources beyond what one could use to live reasonably and modestly) not as something inherently good, but as a moral hazard. "And again I say unto you, It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God."

A Christian cannot consider an economy good insofar as it serves greed and materialism, and insofar as it produces people who have much more than they need. If we believe Jesus' words, such an economy creates hindrances to salvation. The only use of wealth we clearly see Christ endorse is its use for the poor. "Sell all that you have and give it to the poor."

If we believe Jesus' words, viewing excess wealth as a hazard and greed as an evil but considering the material care for the poor as a good, then an economy that creates the super-wealthy and rewards greed is contrary to Christ, while an economy that focuses its resources on the poor has practical values consistent with Christ.

Now a non-Christian won't be convinced by this, obviously. But a Christian cannot support both a system that values excess wealth and rewards greed, and at the same believe Christ's teachings on wealth. "You cannot serve both God and money."

KyCobb said...

Thomas,

a Christian cannot support both a system that values excess wealth and rewards greed, and at the same believe Christ's teachings on wealth. "You cannot serve both God and money."

And yet that is exactly the position many on the Religious Right take, explicitly teaching that progressive taxation, inheritance taxes, and the minimum wage are unbiblical.

Lee said...

> a Christian cannot support both a system that values excess wealth and rewards greed, and at the same believe Christ's teachings on wealth. "You cannot serve both God and money."

But wait. I thought that if, as a Christian, I were to support *any* type of government system -- be it capitalism or socialism or communism -- that would be somehow wrong, since I'm supposed to put aside my religious beliefs when I consider public policy. So is it okay if President Obama tries to push a socialist agenda by appealing to Christianity? But wait! He said this isn't a Christian nation! And so did you! It gets so confusing.

But on this issue, not to worry, anyway, because capitalism is not based on greed, but rather on the recognition that man is greedy. It is the system that best harnesses that greed and turns it into something useful for his fellow man. As Adam Smith said, it is not out of concern for his customers that the baker bakes bread or the butcher slices meat, but out of his concern for his own welfare. He thought this morally superior to a system based on coercion. Some of us still agree with Mr. Smith.

The system, by the way, does not "value" anything, since systems are not human and thus cannot hold a set of values. Like any system, capitalism tends to reward some behaviors and punish others. In capitalism, the rewards tend to fall to those who make something that people value and are willing to spend their money on, and to punish those who don't. As a byproduct, it does more to help the real poor than all the rhetoric the Left has ever produced. Do results matter? Or only intentions?

> And yet that is exactly the position many on the Religious Right take, explicitly teaching that progressive taxation, inheritance taxes, and the minimum wage are unbiblical.

They may be, but bear in mind that the ancient Israelites already had a voluntary system of altruism in place. I suppose it could even be called a form of socialism. Farmers were instructed to plant their fields in squares, but to harvest them in circles, and to take as much as they could in one pass, but not to go back for a second pass. This left the corners of the fields, and the dropped or overlooked tares, to the poor, who were allowed to glean the fields.

Lee said...

> This is actually quite incorrect when it comes to the American legal system. There's a principle of non-delegation that the judicial system enforces: the legislature may not give an agency carte blanche to issue regulations.

That may be true in theory, but it is not true in practice. Someone who has the money to take it to court may win. Many do not. One example that I remember explicitly was enforcement of the Wetlands Act. One of the problems landowners and developers had was getting a straight answer from the government. The law was sufficiently vague to give bureaucrats a wide swath of power. One Maryland developer was put in prison for moving a pile of fill dirt from one part of his property to another; he had been given the go-ahead before he started building, but that was then and this was now. One of the ironies was that the development plan was actually to add a net new amount of wetlands to the property.

I do remember reading about one lawyer, though, who became expert at defending his clients from the bureaucrats. A lot of farmers in the Midwest were in danger if any part of their fields were under water for only part of the year. This lawyer got many of his clients off by stressing the law, and making the government prosecutors explain how the plaintiffs had broken the law. All they could do, in some cases, was point at the regulations.

So it sounds like there is some truth to your point, Thomas, just that it is up to your lawyer to keep that defense in mind, and hope the judge and the jury can be swayed to your side.

> A Christian cannot consider an economy good insofar as it serves greed and materialism, and insofar as it produces people who have much more than they need.

I'm trying to think of an economic system that does not serve greed and materialism. In the capitalistic U.S., if you want a nice apartment, you earn some money and go rent one. In the old Soviet Union, if you wanted a nice apartment, you did something nice for the local commissar. In neither system did nice apartments go undesired.

> If we believe Jesus' words, such an economy creates hindrances to salvation. The only use of wealth we clearly see Christ endorse is its use for the poor. "Sell all that you have and give it to the poor."

Or that admonition was given to a specific rich man who asked if how he could get to Heaven, and that advice was given to him. We do know that sometimes Jesus approved of other uses of wealth, e.g., the time a woman used very expensive perfume to clean his feet. Some people suggested she should used the money to give to the poor, and Jesus rebuked them, saying that the poor would always be with them, but He would not be.

The basic point is taken: mammon is a spiritual problem and Jesus does not call us to get rich for His sake, and can indeed call on us to be poor, or even to give our lives completely. But none of this means that Jesus would have favored socialism, necessarily. Jesus never called on anyone to give someone else's money to the poor, but only his own.