Tag: budget deficits

ObamaCare’s New Freedom

Earlier this month, President Obama’s HHS Secretary Kathleen Sebelius took to the Washington Post’s op-ed page to reassure everybody that ObamaCare “puts states in the driver’s seat” and “gives states incredible freedom to tailor reforms to their needs.” 

One grows weary of exposing the brazen falsehoods this administration incessantly and unconscionably peddles about its corrupt, unconstitutional, and irredeemable health care law.  But here I go again: the very idea that ObamaCare puts states in the driver’s seat is nonsense. States already had the power to enact all the taxes, mandates, and price controls that ObamaCare expects them to implement — and to make what few choices ObamaCare leaves them. 

If you want to know what Incredible Freedom really means, look to Wisconsin, where President Obama — who is evidently bored with the federal budget — has inserted himself into a state budget dispute, as David Boaz has noted

As it turns out, Incredible Freedom means you are free to do exactly what President Obama wants. 

The Washington Post reports on talk of federal bailouts for states (like Wisconsin) that are struggling with huge deficits and unfunded liabilities in their state pension and retiree health care programs.  However: 

The White House has dismissed such speculation, saying states have the wherewithal to raise taxes, cut programs and renegotiate employee contracts to balance their books

A startling admission.  Perhaps someone in the White House can pull Sebelius aside and explain that states also had the wherewithal to enact all the “reforms” that ObamaCare imposed on them.  States already were “in the driver’s seat.  They already had the power “to tailor reforms to their needs.” 

Then along came ObamaCare.

Gary Johnson and Drug Policy

As governor of New Mexico, Gary Johnson succeeded in eliminating New Mexico’s budget deficit, cutting the rate of growth in state government in half, and privatizing half of the state prisons. During Johnson’s term, New Mexico experienced the longest period without a tax increase in the state’s history. He vetoed 750 bills in eight years, more than all other governors combined. The Economist dubbed him “America’s boldest governor” – and that was before he took on drug prohibition. He discussed drug policy and other issues at the Cato Institute November 1, 2010 at a Cato on Campus forum.

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Postal Union Wants More

The finances of the U.S. Postal Service are deeply in the red. The agency faces a permanently reduced demand for its services and its labor accounts for almost 80 percent of its costs. Thus it is not a good time for postal employees to get an increase in wages and benefits, right?

According to one postal union, the USPS’s deteriorating condition isn’t relevant. The American Postal Workers Union, which represents more than 200,000 employees, has recently entered collective bargaining negotiations for a new contract. In an interview with Government Executive, APWU President William Burrus calls a pay increase for his members an “entitlement”:

“More – more control over activities at work, more money, better benefits – we want more,” said Burrus. “We will try to fashion our proposals to reflect the entitlement to more.”

An arbitrator will most likely determine whether APWU workers get their raises. Oddly, according to federal law an arbitrator can’t take the USPS’s financial condition into account when weighing a decision. This is like instructing the captain of a ship that’s struck an iceberg to ignore the gaping hole in the boat when deciding whether or not to abandon it.

USPS management has asked Congress to change the law, which Burrus preposterously calls “antidemocratic”:

Burrus said he resents the idea that an arbitrator should be required to take into account the Postal Service’s financial situation. He called the idea antidemocratic and said it interferes with free collective bargaining.

Having watched the unionized workforces at GM and Chrysler receive preferential treatment from the federal government, there’s little incentive for Burrus and the postal unions to not ask for more. The postal unions are likely betting that in a worst case financial scenario for the USPS, policymakers will tap taxpayers for a bailout. Unfortunately, if recent history is a guide, they’re probably correct.

Let’s Regulate Barney Frank’s Pay

“Rep. Barney Frank, chairman of the House Financial Services Committee, said Tuesday that he will hold a hearing this fall to examine whether regulators are being tough enough in curbing pay practices at Wall Street firms that can lead to excessively risky practices,” writes Zachary Goldfarb in the Washington Post.

Hmmm. “Pay practices that can lead to excessively risky practices.” Since Barney Frank entered Congress, federal spending has risen from $590 billion in 1980 to $3.7 trillion this year. (U.S. Budget, Historical Tables, Table 1.1) The annual deficit has risen from $74 billion to $1.5 trillion.  Gross federal debt rose from $909 billion to $13.8 trillion – and to over $15 trillion next year. (Table 7.1) And all this without a major war or depression during those 30 years.

Maybe we should adjust pay practices for members of Congress to give them an incentive to avoid risky, unaffordable, out-of-control borrowing and spending.

More Garbage-In-Garbage-Out from CBO

You don’t need to watch old Gunsmoke episodes if you want to travel into the past. Just read the latest Congressional Budget Office “research” claiming that Obama’s so-called stimulus “increased the number of full-time-equivalent jobs by 1.8 million to 4.1 million.” CBO’s analysis is a throwback to the widely discredited Keynesian theory that assumes you can enrich yourself by switching money from your left pocket to right pocket. For all intents and purposes, CBO wants us to believe their Keynesian model and ignore real world data. This is akin to the famous line attributed to Willie Nelson, who was caught with another woman by his wife and supposedly said, “Are you going to believe me or your lying eyes?”

Using its own Keynesian model, the White House last year said that wasting $800 billion was necessary to keep the unemployment rate from rising above 8 percent. Yet the joblessness rate quickly jumped to 10 percent and remains stubbornly high. We’ve already beaten this dead horse (here, here, here, here, and here), in part because the White House has embarrassed itself even further with silly attempts to find some way of turning a sow’s ear into a silk purse. This is why Obama Adminisration estimates have evolved from “jobs created” to “jobs saved” to “jobs financed.”

The CBO’s most recent ”calculations” are just another version of the same economic alchemy. But don’t believe me. Buried at the end of the report is this passage, where CBO basically admits that its new “research” simply plugged new spending numbers into its Keynesian formula. This sounds absurd, and it is, but don’t forget that these are the same geniuses that predicted that a giant new health care entitlement would reduce long-run budget deficits.

CBO’s current estimates of the impact of ARRA on output and employment differ slightly from those presented in its February 2010 report primarily because the agency has revised its estimates of ARRA’s impact on federal spending on the basis of new information. Outlays resulting from ARRA in the first quarter of calendar year 2010 were higher than the amount that CBO projected in February 2010 in preparing its estimate of the law’s likely impact on output and employment, primarily because a larger-than-expected amount of refundable tax credits was disbursed in the first quarter rather than later in the year. That change makes the estimated impact of ARRA on output and employment in the first quarter slightly higher than what CBO projected in February.

Thursday Links

A Fiscal Train Wreck

That is the title of a 2003 New York Times column by economist Paul Krugman. The gist of his column was that the Bush tax cuts and future entitlement program liabilities would usher in calamitous deficits. Setting aside the tax cut and entitlements issue, Krugman’s comments on the dangers of deficits are interesting considering seven years later Krugman is one of the most prominent supporters of massive deficit spending to stimulate the economy.

Here are some selected Krugman quotes from the column:

With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

Two years ago the administration promised to run large surpluses. A year ago it said the deficit was only temporary. Now it says deficits don’t matter. But we’re looking at a fiscal crisis that will drive interest rates sky-high. A leading economist recently summed up one reason why: ‘When the government reduces saving by running a budget deficit, the interest rate rises.’ Yes, that’s from a textbook by the chief administration economist, Gregory Mankiw.

But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar. It won’t happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.

Although this shouldn’t be construed as an endorsement of George Bush’s fiscal policies, the deficit for fiscal year 2003 when Krugman wrote his column was $378 billion. The Congressional Budget Office just reported that the deficit for the first quarter of FY 2010 was $434 billion.

The following chart shows the annual deficits from fiscal years 2002 through 2010 (projected). For 2009 and 2010 the first quarter deficit is also shown. In short, the two most recent first quarter deficits have been about $100 billion higher than the average annual deficits run from 2002 to 2008.

In FY2003, the deficit was 3.4 percent of GDP – for FY2010 it’s projected to be 10.6 percent. According to the President’s optimistic FY2011 budget, annual deficits won’t fall below 3.6 percent of GDP at any point in the next ten years.

Yes, Krugman believes that large deficit spending is necessary to turn the economy around. But that doesn’t change the fact that his dire warnings about deficits in 2003 should apply to today’s even larger deficits, especially now that we’re even closer to an entitlement crisis. However, Krugman recently penned a column warning against “deficit hysteria” in which he makes comments that are more than just a little at odds with his 2003 column:

These days it’s hard to pick up a newspaper or turn on a news program without encountering stern warnings about the federal budget deficit. The deficit threatens economic recovery, we’re told; it puts American economic stability at risk; it will undermine our influence in the world. These claims generally aren’t stated as opinions, as views held by some analysts but disputed by others. Instead, they’re reported as if they were facts, plain and simple.

Yet they aren’t facts. Many economists take a much calmer view of budget deficits than anything you’ll see on TV. Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates. The long-run budget outlook is problematic, but short-term deficits aren’t — and even the long-term outlook is much less frightening than the public is being led to believe.

Scratching your head?  I am too.