I would like readers to consider two charts.
The first shows the U.S. federal deficit as a percentage of GDP. Please note that the deficit is about 60 percent of GDP now — the highest since World War II — and is scheduled to grow to record levels in 14 years.
The second shows the primary cause of the deficit: Social Security, Medicare and Medicaid. Yes, the wars in Iraq and Afghanistan are expensive. Personally, I’m in favor of cutting defense spending significantly. But there’s only one problem: even if you cut defense spending in half, you still have to deal with the entitlement problem, ie, the uncontrolled growth of Social Security, Medicare and Medicaid.
This post will argue that the tea party movement, with its many defects, is an overwhelmingly positive response to this problem. Let the fun begin.
Any thinking person can acknowledge we have a problem. The problem is that we are spending more — a lot more — than we are bringing in in revenue. The bigger problem is that this deficit is scheduled to get worse unless something is done.
Why is this a problem? We have been running deficits for decades and Ross Perot types have been scaring us about these deficits, and nothing really bad has happened. Here is why this situation is different:
1) The U.S. is running extremely high deficits, by any measure. The total deficit for fiscal 2009 was $1.42 trillion, a $960 billion increase from the 2008 deficit. Estimated tax receipts for fiscal 2010 are $2.3 trillion, spending is $3.5 trillion, for an estimated deficit of $1.2 trillion. The 2009 budget deficit was 12.3% of gross domestic product, the largest share since World War II.
As a percentage of actual revenue, the 2009 deficit was a staggering 42% of all revenues.
2) U.S. external debt is roughly $14 trillion, or about equal to the gross domestic product.
External debt is that part of the total debt in a nation that is owed to creditors outside the country. This is not “debt we owe ourselves,” it’s debt we owe others outside the U.S. The $14 trillion includes both public debt (the debt owed by the federal government), local and state government debt, plus private debt such as corporate loans.
3) The U.S. Treasury divides the public debt into two categories, which can create some confusion about the size of the federal debt. The Treasury calls the federal debt owned by other governments’ central banks, mutual funds and individuals the “debt held by the public.” That is currently about $7.8 trillion.
Another $2.2 trillion is IOUs issued to the Social Security Trust Fund. In essence, the government “borrows” the annual surpluses from Social Security and issues a non-marketable bond to the trust fund as an IOU. But since the security isn’t marketable, it has no real value and is just an accounting placeholder to keep track of how much money the government has transferred of the Social Security surpluses.
4) Of that $7.8 trillion in debt held by the public, about half ($3.95 trillion as of April 2010) is held by foreign central banks. That’s up from $3.3 trillion in May 2009.
5) Nations with high savings rates such as Japan can have a very large national debt, but the amount of that debt held by foreigners is modest (external debt is about 42% of GDP in Japan and a mere 7% of GDP in China, which has a savings rate of 38%).
So far this post has had a lot of numbers. Let me see if I can put this in the simplest terms possible before I lose you.
There are two factors that make this situation extremely dangerous. The first is that we are borrowing from the Social Security trust fund to finance the deficit. Now remember Social Security was intended to be self-financing. People pay into a trust fund (that is the amount that is taken out of your pay for Social Security) and when they retire that trust fund is around to finance your retirement. So, the first point is that we see a real situation where there will be no money in the trust fund.
Let me be very clear: unless something is done urgently there really will not be any money left in Social Security when you retire.
The other problem is related to how we finance our debt. We are spending $1 trillion a year more than we are taking in in tax revenue. Now imagine that your annual after-tax income was $40,000 but you were spending $60,000. How would you come up with the extra $20,000? Well, you’d have to borrow it from someplace. You’d run up credit card debt, borrow from your relatives, take out a second mortgage. Well, the government does this by getting other people to lend us money. About half comes from the domestic market (U.S. investors) and about half comes from overseas. What these investors are doing is buying U.S. bonds. These investors are saying that the yields on these bonds are worth buying because they are safer than other investments.
Now, what happens when these investors decide to stop buying our debt? This is unimaginable, but what if investors can get a better yield buying something else?
We default. We cannot pay off our debts. It is as if, to use the family comparison, we already have maxed out all of our credit cards and run out of people to borrow from. Well, that is what happened to Greece earlier this year, which is one reason the stock market has been flat for months.
The U.S. defaulting on its debt is unimaginable. The repercussions would cause a worldwide Depression that would make the 1930s look like a picnic in comparison. The stock market would collapse. Your 401k would disappear. Companies would retrench and fire most of their workers. If you have a government job, you would almost certainly be fired because the government would no longer have the ability to get any money to pay you. It would take the world years to recover.
So, have I convinced you that you should take the debt situation seriously?
It seems to me there are several different ways that you can respond to this situation.
1)Denial. There is nothing to worry about, we can continue to borrow and nothing very serious will happen. This is basically the position of Paul Krugman and many of the president’s advisors. I completely reject this position, but I’m willing to bet there are many Mormons in the Bloggernacle who feel this way. Let’s hear their arguments.
Before you respond, take a look at this Wikipedia article for some of the counter-responses to Krugman’s position. In addition, you might want to consider the fact that Krugman was very worried about the debt when a Republican president was running up a much smaller debt. Partisanship is Krugman’s middle name.
2)Ignore the problem.
3)Get involved to resolve the problem in one way or another. Now we get to the heart of the matter.
Now, set aside everything you have heard about the tea party. I’m talking to you Mark Brown. Yes, you. What would a movement trying to resolve the deficit look like? Would it be frustrated with both parties, which are both responsible for getting us in this mess? Would this group of citizens spontaneously take to the streets as the deficit exploded in 2008-2010 due to TARP and the stimulus bill?
Now, let’s admit that there are a lot of people in the tea party movement that have weird views. But if we’re going to do that, let’s also discover what is their primary motivation. This CBS poll clearly shows that their primary concerns have to do with the economy and spending.
Alright, let’s take a step back. Most people agree we have a problem with spending. Most people agree something has to be done about it. Is there any evidence that politics as usual will resolve the problem? Have the majority of recently elected Republicans or Democrats shown any real desire to deal with the deficit?
Republicans were in power during the early Bush years. What did they do? They massively increased spending. Democrats have been in power in Congress since 2006 and have had both branches of government since 2008. They doubled down on Republican spending, and the deficit has soared.
So, clearly politics as usual is not getting us anywhere.
I lived through the late-1960s, early 1970s protests against the Vietnam war. The tea party movement reminds me in many ways to the spontaneous uprising against the war. The powers in Washington — both Democrat and Republican — were not responding to the American people, who opposed the war. Yes, there were crazies — and much more violent crazies, by the way — who were part of the anti-war movement. But the mainstream of the movement was nonviolent and, in my opinion, on the right side of history, just as the tea party movement is today.
People in 1969 who concentrated on the SDS and the Weathermen as representative of the larger anti-war movement missed the point. The vast majority of people in the anti-war movement were nonviolent and were loyal Americans trying to save the country from itself. People today who claim tea party supporters are birthers or who spend their time happily replaying youtubes of Christine O’Donnell discussing pornography also miss the point. The vast majority of people in the movement are motivated to cut deficit spending and are trying to save the country from itself.
I therefore argue that the tea party movement is, overall, a healthy response to an intractable problem. I say this as somebody who is pro-immigrant, pro-New York mosque, against the death penalty and against the wars in Iraq and Afghanistan. I say this as somebody who wants defense spending cut in half.
And I leave you with this: if you have a better idea of how to deal with the deficit problem, let’s hear it.
Oh, by the way, raising taxes by doing away with the Bush tax cuts for the wealthy is not a solution. At most, you’re talking about $1 trillion in additional revenue over the next 20 years. That is the size of the annual deficit now, and that deficit is programmed to grow, as detailed in the charts above.
I agree that Medicare, Medicaid, and Social Security costs are a problem, and need to be reduced. Unfortunately, I don’t think the Tea Party is going to help fix that problem. Why? Remember the “death panel” incident? A move that probably would have saved a large sum of Medicare money, and Palin shot it down by calling it a “death panel.” End-of-life care is horribly expensive, and yet the Tea Party has opposed even small steps to reduce the cost.
A large percentage of the Tea Party is made up of the 60+ crowd–the group least likely to support reducing Social Security and Medicare. I don’t have high hopes for Social Security and Medicare reform any time soon, even if (especially if) the Tea Party takes control.
Medicare has a projected surplus.
Social Security is solvent until 2027 and even after that requires only less than a 2% raise in current rates (or a higher cap on earnings) to stay solvent after that.
You are only telling half the story, and by doing so, you are drawing exactly the wrong conclusions.
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Tim, I think your point that many people, especially seniors, are avoiding taking on Social Security and Medicare is valid. Just to back up your point, Republicans attacked Obamacare because it called for Medicare cuts. Of course, this is ridiculous because there are dozens of other reasons to oppose Obamacare, and we should agree that changing Medicare should be on the table.
The problem with your “death panels” example is that this truly is a valid criticism of where people like Berwick want to take Medicare, which is why Berwick could not get appointed except as a recess appointment. You are correct that end-of-life costs take up a huge (and unfair) percentage of total health care payments. I saw a 60 Minutes show that indicated $50 billion a year is spent keeping seniors alive for the last few months of their lives. There are two possible ways of approaching this. One is rationing care, which is what happens in the UK and Canada, and is a form of death panels. A government agency would decide that money should not be spent on granny because she has no way of surviving her disease. This is a death panel — bureaucrats are making a decision on who gets to live and die based on actuarial tables. Another approach would be to follow Paul Ryan’s roadmap, which turns more and more responsibility over to individuals. Patients would spend more time negotiating with providers. The 60 Minutes report I saw said the primary cost problem was that hospitals have a huge incentive to give terminals patients every possible test, and more than half of these tests have nothing to do with the disease at hand. If patients and their families questioned every test — because they were responsible for costs, not Medicare — costs would come down precipitously. So, once again we see when you bring consumers closer to their providers, and decrease middlemen, costs go down.
You can read more about Ryan’s Roadmap here:
Tim, the other point is that it is precisely the real tea party candidates who ARE discussing changes in Social Security and Medicare. And of course the fact that they even mention this in any way is jumped on by Democrats as an excuse to demagogue them. My question to you would be: where is the Democratic plan to deal with the entitlement problem, which you admit is a problem? There is no plan because the Democratic plan is to use any attempt to address these issues into a campaign tactic to win elections. So, to summarize, you may be correct that individual tea party members have not embraced entitlement reform as much as they should, but you also must admit that tea party heroes (Joe Miller, O’Donnell, Rubio and Angle and Paul Ryan) ARE discussing this issue and are being attacked from the left for doing so.
Once again, the tea party at least provides some adult leadership on a vitally important issue.
Djinn, I wrote you a lengthy response that got eaten by our software. I don’t have the patience to write it again right now. Give me a day or two.
I don’t think the reason O’Donnell is being attacked (by the left AND right) has anything to do with her stance on entitlement reforms.
Jjohnsen, it is the establishment right (which is really Rove, Gerson, ie, former Bush admin people) who are criticizing O’Donnell. Krauthammer joined in, and I usually like him, but I disagree with him on this issue. The bottom line is this: Castle would have done nothing to resolve the entitlement problem. He would have gotten into the Senate and then joined Chuck Schumer for a press conference on a bipartisan bill to make sure the tea party “didn’t destroy Social Security,” which means just letting the current system muddle along until armegeddon. What was Castle’s position on the 2005 Bush proposal to reform Social Security? Against it. That was our most recent chance to do something about the entitlement problem, and Castle was right there with the Dem demagogues. On the most important issues, I see no difference between Coons and Castle, so therefore I see no reason to support Castle.
“I therefore argue that the tea party movement is, overall, a healthy response to an intractable problem. I say this as somebody who is pro-immigrant, pro-New York mosque, against the death penalty and against the wars in Iraq and Afghanistan. I say this as somebody who wants defense spending cut in half.”
I agree with you on all points. I also agree that the biggest problem with the Tea Party are the groups of social conservatives who are trying to force their agenda (not to mention some of the true wackos in the movement).
PS. I’ve seen a lot of different Debt vs. GDP charts and none of them agree on the percentages or whether today is worse than WWII, etc. I don’t know who to trust on that, but either way they all agree that today the debt is very very high—and since we don’t have the same economic advantage today that we had immediately following WWII, I see it as more concerning even if we haven’t hit those levels yet.
Also, it’s a technicality, but the chart you linked to shows debt, not deficit.
I agree that for the most part mainstream Republicans and Democrats are not taking needed steps. However, the attempt to encourage seniors to speak with their doctors about end-of-life care, by having Medicare pay for discussions between seniors and their doctors about end-of-life care, was unfairly labeled “death panels” by Palin (a figure that most identify with being a Tea Party leader) and, as a result, the move failed. Unfortunately, many seniors never discuss end-of-life care with anyone, and by the time they need it, it’s too late–they no longer have the mental capacity to pass on their wishes to their doctors. Encouraging them to speak with their doctors beforehand by having Medicare pay for the consultation places the “death panel” more easily into the patient’s own hands–where it belongs. An important step, which would have saved an immense amount of money (plus giving people more of an opportunity to choose, at least a little bit, how they die) stopped by Palin, a leader of the Tea Party.
Nice words about balancing the budget–yes. Unfortunately, the track record speaks for itself.
I have no training in economics, but I don’t believe you have fairly characterized Krugman’s position. Your link treats him like a flip-flopper, but as Ecclesiastes might put it, there is a time to spend, and a time to save. Here’s an analogy for how I understand Krugman’s position.
Let’s say that you’ve been less than careful in your finances and now you have some credit card debt. Then one day you lose your job and your major source of income is gone. Worse, there aren’t many opportunities for work in your field near where you live. It seems clear that you will be unemployed for the foreseeable future. It’s time to tighten the belt and decrease spending.
However, across the country there are some companies hiring in your field. In fact, you’ve got a job offer, but it will require that you move at your own expense. So now you face a choice: stay put and try to hold down your debt, knowing that you probably won’t have a job for a while. Or, accept that your credit card debt is going to need to go up quite a bit in order to finance your re-location across the country–but you’ll have a good job which will enable you to pay down your debt.
Krugman’s point, as I read him, is that holding down the debt is likely to worsen employment as government workers are laid off, contracts with companies are put on hold, etc, thus lessening demand for products, reducing the tax base, and so on in a vicious cycle. Temporarily increasing the debt through government spending will help keep people employed until the economy gets going again, and the new prosperity will allow us to pay down the debt as the tax base expands again.
I am not in a position to judge whether Krugman’s position is economically sound, or has a good chance of working. It seems logical to me. But I don’t ever recalling him argue that the deficit doesn’t matter or is good in and of itself.
If the Tea Party gets Congress to take money more seriously, then I am inclined to agree that it may ultimately be a good thing. But I have real reservations about actually putting them in power. Letting the economy possibly collapse in the name of fiscal conservatism (e.g. not passing TARP) is foolishness in my view.
I LOVE the Tea Party.
I don’t doubt that Chris! LOL!
Brian, no worries, I love you more.
The reason why passing TARP was probably a good idea was because in our system, commercial banks only continue to exist by virtue guarantees provided by the federal government. A fractional reserve banking system is unsustainable without government bailouts every few decades.
If we don’t want the government to be in the position guaranteeing one of the riskiest businesses on the planet, primarily for private gain, we should make commercial banks treat “deposits” like deposits, rather than loans. That means a 100% reserve requirement. Not a gold standard necessarily (that is a separate issue), but 100% reserves.
Tim, I have no problem with end of life consultations, and I agree with you that that particular issue was unfairly overemphasized during the health care debate. However, the NHS in Britain does have real death panels, and that is where Berwick and others want to take us, and personally I don’t think that’s the direction we should be heading.
Jared*, I think you are understanding how Krugman would want to spin his approach to the economy. The reality, however, is that he wrote literally dozens of columns during the Bush years telling us that deficit spending was the end of the world, but now he has no problem with deficit spending. His description of the Bush economy, which he always saw as in recession (really — go back and read some of his columns from 2005 in which he turned 4 percent GDP growth into a recession), was exactly the same as what he admits the economy is today, ie, slow. Yet his prescription today is deficit spending, and lots of it. He believed the stimulus should have been several trillion dollars instead of about $800 billion. There is no way to spin Krugman’s many prevarications because his columns are there to read.
Djinn, let me respond in a shortened form to your number 2 above. I read the linked article several times and could not understand the claim that Medicare as a whole would somehow be in the black. I would encourage you to read the many links that show the opposite. But let’s take a stab at basic common sense. We all know medical costs are going up, right? And we all know that the pool of people who are going to pay from Medicare is going down compared to the 1950s and 1960s when Medicare was designed, right? The fertility rate today is 2.1 percent compared to more than 3 percent a few decades ago.
So, bottom line: more expensive care and less revenue. Doesn’t it make sense that Medicare would have a severe deficit and that the problem would get worse with time?
As for Social Security, yes, there is enough money in the trust fund to last another 15 years or so. But this money was never intended to be spent. What will happen when the Social Security trust fund is depleted? The consequences for the economy are devastating. The only solution is to either: 1)massively raise the 12.4 percent Soc. Sec. tax or 2)massively cut benefits or 3)adopt some of Paul Ryan’s suggestions, linked above and supported by the tea party. I support number 3).
Krugman’s point of view is classic Keynesianism, which empirically speaking, is the most discredited economic theory on the planet. As in it has never actually worked, not anywhere. There are no Keynesian success stories, except as the most dubious of counterfactuals.
In the nineteenth century, we had financial crises ever few years due to fractional reserve banking, and the recessions were hard and deep. But they rarely lasted more than a year. Keynesian policies throughout the world have proven extraordinarly effective at changing a hard and deep eighteen month recession (like the one in 1921) into something where the economy drags along the bottom for years and years.
After a while countries that practice Keynesian policies get into a state where they have a permanent recession, endemic budget deficits. And everyone says we just need one more fix, and it will all be okay. That is nice in theory, and no one can prove that such policies haven’t made some recessions milder, but generally speaking such policies are never associated with robust, lasting recoveries. Not in the United States, not anywhere. Lasting recoveries start with personal and governmental austerity and a painful re-establishment of sustainable patterns of specialization and trade. A typical stimulus plan just perpetuates the cause of the recession in the first place, which everywhere and always is too many people invested in producing the wrong thing. Houses, websites, ethanol, Dutch tulips, whatever.
Jjohnsen, this is for you — you should take the Jimmy Carter/Christine O’Donnell quiz. Which one should the left be accusing of being a crazy Jesus freak?
Here is an excellent article by Arnold Kling that explains why Keynesian economics doesn’t work very well, for those who are curious:
You are completely and totally a patsy for very very rich people that have the money to buy not only absurd tax cuts but entire laws. They are hurting you immensely. are you aware how the middle class has fallen a how the tippy tippy top of the income brackets hold an insanely large amount of the wealth? No middle class means no economy, and that’s the way we are headed. You are shilling for rich oil executives which think nothing of destroying the enviroment your children will be required to live in to make a few more pennies.
You might also check out the US GINI index.
While I’m not a tea party fan… I confess I have to agree with your analysis. It seems very likely that the radical tea party will ultimately not be able to enact even one crazy idea and will only be able to make changes to financial problems that are in fact real.
So you’ve convinced me.
I actually think the deficit and CO2 emissions have a lot in common. No, I’m not joking. I think the problem with both is that you have unsustainable growth in something that is known to eventually cause problems but because you can never really directly show a connection between the cause and the effect it’s nearly impossible to get people to act responsibly. Here were are, just coming out of the ‘great recession’ and we still think it was primarily caused by evil bankers.
The root cause of all our problems is our debit and deficit. Okay, I admit it was largely caused by private non-governmental debt this last time around. But we have an unsustainable growth in debt in both private and public sectors and no one thinks it’s causing any problems so we can’t get up the political motivation to act on it. Even when it does cause problems we explain those problems as being caused by something else and attempt local fixes.
Let me take this chilling comment Geoff made:
Would it surprise you if I admit that I think this is a realistic possibility? I am hoping not within my life time. I’m hoping not at all. But this is not an unthinkable situation to me. Go read the Black Swan. The fact that it’s unthinkable doesn’t mean it won’t happen or even that it’s unlikely.
Okay, maybe they won’t actually ‘default’ on their debt. Maybe instead we’ll just stagnate for years. That would be sooooo much better. Maybe this is even more likely than a default. I’m not prepare yet to get out of government bonds and still think they are safer than anywhere else you can imagine. But nothing really feels safe to me long term. Not even gold.
Another comment from Geoff:
Okay, while this statement is technically true, it’s maybe a bit misleading. If we don’t do ‘something,’ yes Social Security will go bankrupt within a decade (I think less than that.) But doing ‘something’ doesn’t have to be drastic. (Again, the CO2 emissions analogy.) Namely, a reduction in payout fixes the problem overnight. A gradual reduction at least slows the problem down.
But both also gets you and your party unelected for the next generation, even though it’s actually, by definition, more the other party’s fault that didn’t make the cuts. Ah, democracy at work.
Oh, by the way, your graph looks like a hockey stick to me. 😛
Mark D. said it much better than I, so I’ll just add one thing.
Part of the problem lies in this line Jared* (#10) wrote (and which is a classic Krugman sort of thing to say):
How exactly is it supposed to get going again? No explanation is ever offered because Keynesians’ unshakeable faith in growth as the natural order of things is not derived. It is a postulate. It is also incorrect. Thus the whole structure collapses.
I actually do have faith in the postulate that growth is the natural order of things.
But I do not have faith that if we do nothing the debt will magically disappear on it’s own. The republicans were the first party to push that point of view, weren’t they? (Ronald Reagan). Wishful thinking about a future magical fix just does not work out in real life. It’s incompetent risk management to start with the assumption the problem will fix itself.
Growth may help reduce the problem in the future, but if we don’t take it seriously now (i.e. act now on something) by the time we get there we’ll be convinced we can handle even more debt since the last batch caused no problems. So growth can only save us if we honestly believe debt to be a problem in the first place.
Oh, one other thing. During the Clinton era we were told we had a balanced budget.
This is true, but only from a certain point of view. Here are the problems with that point of view:
1. It counted social security borrowing from the ‘surplus’. As Geoff points out, we were on our way to Social Security bankruptcy even at the time. So this seems a bit fishy to me. Normal people (i.e. non-governments) would not consider this to be a balanced budget.
2. It was funny money. It was based on the fact that there was a lot more tax revenue coming in then anticipated and a projection that that much taxes would continue to come in forever. But we now know that we were in a stock bubble back then. The extra tax revenue was coming from stock options that never should have been worth a penny. It was literally all funny money so that’s why it evaporated with the crash of the bubble.
I’ve had people claim the Clinton era proves you can grow out of huge deficits. But it seems this isn’t the case. You still have to actually believe you have a priority to use any extra funds to pay down your debt. I believe this has to be the priority even before tax breaks.
Djinn, regarding your number 19, I’m not sure if that’s aimed at me. But let’s take a look at what actually happens in the real world. High economic growth and low inflation are actually the two things that most help the middle class and the poor. One small example: India spent from independence until the 1990s with a socialist system. The economy stagnated. There was a small group of super-rich, a tiny middle class and a massive group of the poor. In the 1990s, India began adopting free-market reforms. The economy boomed and inflation was stabilized. There are plenty of rich people, more than before, but there are also 100 million new members of the middle class that did not exist 20 years ago. Yes, 100 million people. And for the first time in Indian history the lower classes have a chance of moving up to the middle class. The same process took place in China.
So, the lesson is: if you really want to help the poor and middle class, adopt policies that encourage economic growth and keep inflation low (the poor pay a larger percentage of their salaries for food and rent, so inflation always hits them the hardest). The exact same phenomenon happens in the United States. The poverty rate goes down during boom periods and up during recessions like we are in now.
So, who is the patsy for the very, very rich? I want everybody to benefit and to work their way out of poverty. Unfortunately, policies that would help the poor are not being adopted now, but plenty of policies that help the extremely wealthy with good connections are being adopted.
Bruce, good comments, but you have been inhaling way too much CO2.
The issue is not to what degree we believe the debt to be a problem, but rather to what degree our creditors believe it to be a problem. We are getting warning signs from many of them right now.
The way these things usually work out is one day a consensus will finally develop that we are a bad credit risk, and no one will lend us money anymore. That will put the government at risk of not being able to make payroll, or issue Social Security checks. Then we will be appealing to the International Monetary Fund for some sort of temporary bailout. Assuming we don’t try to print our way out of the problem first. The IMF will then agree to lend us a limited amount of money, and reschedule all our debt payments, as long as we immediately enter into an austerity plan so severe that we could have rioting in the streets and thirty percent unemployment.
Or we could default on all our foreign debts and no one would want to trade with us for years. Same result.
Repeat after me: “Growth is an illusion.”
By that I mean that growth fueled by an explosion of credit is not meaningful growth, it’s simply *mountains* of IOUs. It’s actually worse than that. Due to the nature of fractional reserve banking and the various complex securities instruments, each bit of real wealth has multiple claimants, but only one of them will be holding it at the end of the day. That’s not growth; that’s a recipe for impoverishing 9 out of 10 people.
Our civilization is unsustainable, and as Herbert Stein’s eponymous law quips, “If something cannot go on forever, it will stop.” There are compelling arguments for the approaching end of the “American Empire” on 1) economic grounds (the Austrian school via people like Nicole “Stoneleigh” Foss of The Automatic Earth blog), 2) anthropological and energy economics grounds (Joseph Tainter, Stoneleigh), and 2) historical grounds (Sir John Glubb in The Fate of Empires).
I don’t necessarily believe the Tea Party movement as a whole will accomplish much good RE the US economy. Its major players are much too myopic to understand the magnitude of the challenges before us.
“Bruce, good comments, but you have been inhaling way too much CO2.”
I’m trying to cut back.
To be clear: are you saying the very concept of growth is an illusion or that our current crop of growth was?
The former I can’t agree with. In fact, I think it can be proven false. The later is largely or maybe even wholly true.
Assuming for the moment that the Bush tax cuts are repealed, but only for those making over $250,000 a year, do you believe that will significantly hurt the economy?
You only said it won’t help much. That’s probably true. But then again, if it at least doesn’t hurt growth much, then it might still be worth it if only for symbolic reasons.
(I have no opinion on this subject and I am undecided. This is a query for other opinions and information.)
The US is not defaulting. We are a sovereign nation; we print our own currency, and there has been tremendous US wealth destruction in the last few years. For example, the value people had in their homes has declined by trillions of dollars as has the value in the stock market–currently at the same level it was in 2000–all that added value that disappeared can be considered dollar destruction. Bring on the new dollars–they are merely replacing those that have been lost.
PS. For more info, read up on 1990’s Japan.
PS. Geoff B’s analysis has been brought to you by the Koch brothers; two of the richest people in the US. They got their money, mostly, from oil (by way of their father) and now are pushing policies using their massive wealth such as “no global warming (bad for the oil business” and “eeek deficits” (they in no way wish to pay their fair share of taxes) designed to eviscerate the middle class and leave them even richer. To my utter astonishment, it’s working.
No one is going to stop buying US treasuries. Where else would people put their money? US treasuries are so valuable they’ve been sold on the secondary market for negative interest rates. (Only slightly, but still, pretty impressive.) Where’s this money going to go? The Euro? Not hardly, with the crises looming in Spain, Portugal and Ireland, not to mention the current Greece problem. The Yuan? Pegged to the dollar, essentially. The Riyadh? Dollars again. I realize telling people to read doesn’t make me popular, but read.
Due to the nature of fractional reserve banking and the various complex securities instruments, each bit of real wealth has multiple claimants, but only one of them will be holding it at the end of the day.
That is not strictly true – if the loans backing the money supply all pan out, no one will lose a thing. Even if they do not “depositors” will get most of their money back, eventually.
Suppose there was no federal deposit insurance and a bunch of banks went under. Under normal bankruptcy rules, we might expect everyone to get ninety cents on the dollar or so in real claims to real assets. Worst case (short of outright malfeasance) perhaps sixty or seventy cents. That is what happened when a bunch of state chartered banks failed in Utah a few decades back.
The fraud underlying fractional reserve banking is the use of the term “deposit” when a “deposit” is nothing of the kind. A “deposit” is nothing other than an interest free loan to an inherently risky and unstable institution.
The US is not defaulting. We are a sovereign nation; we print our own currency
Sovereign nations can effectively default in one of two ways – they can default against loans made in a currency other than their own, or they can print money making the value of loans made to them in their own currency less valuable.
Suppose you buy U.S. Treasuries, and the government decides to devalue the currency by 50% or so. Now in real terms your investment is worth half of what was before. What’s the real difference between that and the government defaulting on 50% of a non-depreciated obligation?
Where else would people put their money?
Banks might need US Treasuries for technical and regulatory reasons. As for everyone else, in an inflationary period people buy any real asset they can find. Houses, furniture, cars, commodities, works of art, real estate, gold, etc.
If there are stronger currencies (i.e. the world’s major fiat currencies are not tanking collectively) a flight to those currencies will generally occur much earlier. That flight is reflected in exchange rates, which adjust to the new consensus valuation of the depreciated currency. The mere whiff of banking or fiscal difficulty in any country will cause its exchange rates to fall.
If the US dollar is strong today against other currencies, that is because they are worse. Relative to something like gold, the dollar (and every other fiat currency) has been tanking for about a decade now. The only reason why anyone in his right mind would make a long term investment in gold is as a hedge against the risk of devaluation of fiat currencies.
The current price of gold indicates that investors consider that risk extraordinarily high, sufficient to drive the price of gold up to a point where it is considered an equally risky investment again. Four times higher than it was just over a decade ago.
The only serious presidential candidate I ever believed cared about deficit spending was Paul Tsongas. All the others (Dem. and Repub.) say all the right things, but he was the only one who built his entire campaign around balancing the budget. So, though he was an abortion rights-loving liberal, I was going to support his campaign.
Is he an icon of the tea party, or would they mostly scratch their puzzled heads wondering why I would ask such a thing?
For the last 30 years we’ve been stimulating the economy. Republicans say now that the Bush tax cuts can’t be allowed to expire during a recession, but is there any time past or future that they wouldn’t claim tax cuts are essential to our wellbeing? If pressed to the wall to choose one, tax cuts or deficit reduction, which does the tea party support?
That was my point about the massive wealth destruction. It’d take a huge amount of money printing to make up for the trillions and trillions of dollars already lost.
Oh, enough with the “fractional reserve banking” hate (not that I’m a real big fan) but the creation of such vehicles tracks disturbingly closely the end of the dark ages and the beginning of the renaissance.
“The US is not defaulting. We are a sovereign nation; we print our own currency.”
Djinn, have you ever heard of Argentina, a sovereign nation that prints its own currency? They’ve defaulted several times.
The issue you have to deal with is: what happens when people stop buying the debt? Argentina and many other nations always thought other countries would continue to buy their bonds, but at the end of the day they didn’t when other, safer investments came along. The result was, exactly as you suggest, Argentina printed its own currency. When I lived there, they had just gone through a few years when inflation averaged 2000 percent a year. So, yeah, printing your own currency is not going to get you anywhere.
Where else are they going to put their money? There are literally dozens of different scenarios where putting your money somewhere else might bring better returns. I agree it is not likely to happen in the foreseeable future, and frankly I don’t want to imagine it, but it is possible.
Djinn, the new meme that the Koch brothers are buying everybody is not likely to work too well in a world where George Soros just bought himself a president and Congress. Just a bit of friendly advice.
John M, I think you make a decent point, and, actually, I think many rank-and-file Dems and certainly the majority of independents are being drawn to the tea party movement expressly because of the message of fiscal responsibility.
Bruce, to answer your question on the Bush tax cuts, I would prefer to do that in another post. I don’t think I can do it justice in a comment this far down in this post.
If pressed to the wall to choose one, tax cuts or deficit reduction, which does the tea party support?
Neither. The Tea Party’s reason to exist is to solve the problem by reducing the size of government, meaning lower spending. Certainly a public movement demanding tax increases to close the deficit while preserving the current size of government would be similarly well received, at least on the left. Call it the “Tax Party”.
Geoff B., the Koch brothers do actually fund the Tea Party under such umbrella groups as the Americans for Prosperity Foundation–a big Tea Party seeder, the National Center for Policy Analysis, the Cato institute; (Mercatus Center at George Mason University with a budget of over $300M. It calls itself as “the world’s premier university source for market-oriented ideas—bridging the gap between academic ideas and real-world problems.” A few for a start.
These are all interests that directly support themselves by weakening environmental regulation and lowering doing their best to increase income inequality in the US. The Koch brothers want to get even richer on your dime, while leaving us with a destroyed planet. George Soros, on the other hand, wants to save the environment. That won’t help him financially. And, how dare he.
You’re just some rich guy’s fool who’d just as soon see you dead in a ditch.
Sorry about the terrible formatting above; I’m having terrible keyboard problems and I have no idea what happened.
Mark D., a Goldwater-style “less government, more liberty” movement sounds great, but Geoff’s post is all about deficit-spending worries.
Regarding deficit-spending worries, by the time you have to raise the spectre of defaulting, I think the cause is lost. The reason defaulting is bad is that . . . you can’t continue borrowing. The cure to avoid that fate is . . . stop borrowing. It is similar to promoting conservation because of Peak Oil. “If we don’t use less oil now, we’ll use up reserves and that would be bad, because then we won’t be able to use as much.” When the cure so closely resembles the problem, then sit back and let happen what will happen; it’s simpler.
Djinn, I read the entire New Yorker article on the Koch brothers and even listened to the entire Fresh Air interview with the author, Jane Mayer. I found the article and the interview incredibly insipid. In addition to funding some causes that help them financially, the Koch brothers are also big supporters of the arts in New York. They like to fund causes they believe in. I say: more power to them. I can’t imagine anything less controversial than a rich guy funding a political cause he believes in. Which is why the first time I even wrote the name George Soros is on this thread, because, again, Soros funds causes he believes in, so I have no problem with the fact that rich guys fund causes they believe in.
Well, what have those Soros-funded causes given us? Unemployment stuck at 9.6 percent. A new underclass. New record levels of poverty in 2009. Literally millions of families devastated by the Democratic and establishment Republican agenda. ACORN. Environmental movement causing thousands of people to lose their work in the California Central Valley to save some fish, a push for cap and trade that would have enriched a few wealthy investors (like Soros and Al Gore) while impoverishing an additional tens of millions.
You are just some rich guy’s fool who would like you to remain a dupe for liberal causes while he sucks you dry of money and, yes, leaves you unemployed and in a ditch (probably one caused by the environmentalists throwing thousands out of work in California’s central valley).
The reason defaulting is bad is that . . . you can’t continue borrowing. The cure to avoid that fate is . . . stop borrowing
That is like saying the reason going bankrupt is bad is because you can’t continue borrowing, so there is no reason to avoid bankruptcy if the solution involves quitting borrowing money.
What about all the people who lent it to you? What about all the individuals whose retirement savings get wiped out? Especially the individuals who were told to invest in treasuries as safe investments for widows and orphans?
So now it’s a responsibility of government to provide widows and orphans with secure investments? So much for reducing the size of government.
One more point about the Koch brothers and their funding of tea party groups and libertarian causes: in a free society, no matter how much money the Koch brothers and George Soros throw at their pet causes, it is the better ideas that will eventually win out. What America is learning now, and this is extremely relevant because it is at the heart of the tea party movement, is that government spending and government takeover of industry doesn’t work. It doesn’t bring more employment, it doesn’t stimulate growth, and it brings more poverty. So no matter how much Soros tries to convince us otherwise, the proof is that when you elect Obama and a Democratic Congress you get a sinking middle class, a small group of well-connected winners and spreading poverty. This is the same lesson we learned from 1976-1980 and from 1992-1994. Each generation needs to learn this lesson again, unfortunately.
So now it’s a responsibility of government to provide widows and orphans with secure investments?
Now you seem to be trolling. The answer is absolutely not – the government does not have an obligation to borrow money. That does not mean it doesn’t have an obligation to pay back money it has already borrowed – money borrowed at very low interest rates on the promise that the obligations were backed by the “full faith and credit” of the United States government.
“Now you seem to be trolling.”
Guilty as charged with that last comment of mine. I do think though that a bigger deal has to be made about why deficit spending is harmful without resorting to the spectre of default. If default is a serious possibility, we’re already a basket case whether we avoid default or not.
But if the Koch brothers use their massive influence to pay people to vote for the Koch brother’s pet projects then we are quite a long ways from your “gold” standard of a free society; rather we are a plutocracy with fancy branding.
Having read both the New Yorker article and listened to Jane Mayer’s interview, there is absolutely no evidence that the Koch brothers are “paying people to vote.” However, there is a raft of evidence that George Soros through ACORN and other projects has indeed paid people to vote and invented long lists of fake voters and engaged in other forms of voter fraud. And the Koch brothers’ ideas are still winning!
There are other reasons of course. There are a handful of things worth borrowing for. Roads and other critical shared infrastructure are the classic example. But long term borrowing for anything resembling consumption is the highway to poverty, an excellent way to pay twice as much for everything.
Advocates of every government program like to claim that it is an “investment” even when long experience demonstrates that increased expenditures on such programs show no visible results at all. Except interest payments extending out to the horizon of course.
Another serious problem is that when we owe large sums to foreign countries, our international influence, leverage, and credibility is reduced.
Worse than that, deficit spending brings a false sense of prosperity, very similar to that experienced by people running up a credit card. It feels like at payment level X we can have benefit two times X. The payments are pushed off to later years, when the electorate will no longer have the power to reconsider whether the programs entered into were really worth the level of obligation they and their representatives entered into. In that sense deficit spending is fundamentally corrosive of democracy. Instant gratification, transitory benefits on dubious programs now, and all the pain later, pain hopefully experienced by people who aren’t even born yet.
*FOLLOW UP POST REQUEST*
I clicked on this from my RSS feed with relief. My mother and I were discussing this just this weekend but the post lacks the insight that I was looking for.
I request a post that deals with “how to love the tea party _movement_.”
I need some way as a Christian and as a Mormon to make sense of the desperate rancor of tea party boosters in my ward and here in Nevada.
Babylon the great is falling. This is not surprising news. What is surprising is the rush by those of us who new it was coming to be reduced to acrimony and seige-politics.
Whatever its policies, can America prosper without righteousness?
“I invite each one of us individually to recognize that how we disagree is a real measure of who we are and whether we truly follow the Savior. It is appropriate to disagree, but it is not appropriate to be disagreeable.”
Geoff B., your reliability just took a huge hit. Acorn? really? Try reading the actual transcripts of what happened–in short, a boy in traditional ivy league garb showed up pretending to try to get his friend out of the clutches of a pimp. Everything else is a lie. Here’s as vanilla reproting you could hope for.
Those guys lied. You are again believing rich people who want to hurt you. Stop it. Or don’t,
Plus Acorn themselves turned in people they thought were falsifying voter registration lists.
Here’s (way conervative) rupert Murdoch’s newspaper on the deliberately desceptive Acorn tapes:
“The video that unleashed a firestorm of criticism on the activist group ACORN was a “heavily edited” splice job that only made it appear as though the organization’s workers were advising a pimp and prostitute on how to get a mortgage, sources said yesterday.
The findings by the Brooklyn DA, following a 5½-month probe into the video, secretly recorded by conservative provocateurs James O’Keefe and Hannah Giles, means that no charges will be filed.
Many of the seemingly crime-encouraging answers were taken out of context so as to appear more sinister, sources said.”
Quandmeme, that is something I hear a lot from left-leaning Mormons on the Bloggernacle. But I have seen no evidence of what you are describing either in my ward or in fact anyplace in the Church. Could you tell me exactly what people are doing that you object to?
In my area, we have tea party protests every few months. Many people from my ward go. They hold up signs and stand on the street waving to passersby. Some of them wear tricorner hats and wave American flags. Nobody shouts or gets in arguments. The signs they hold say things like, “No to socialism” and “Down with Obamacare.” I fail to find anything objectionable in this, but yet I hear people all over the Bloggernacle complaining about “lack of civility.” Where is the lack of civility? I would argue that most of it is coming from people who can’t stand the fact that people dare to disagree with the current president and Congress.
Now, having said that, I saw that you are from Nevada. I know there are a lot of Mormons who don’t like Harry Reid, and we even had a ground-breaking post a few months back about some of the political opposition to Sen. Reid among Nevada Mormons. Apparently a fireside was canceled for political reasons. As I said at the time, I find that completely unacceptable. I wrote at the time that Harry Reid as a person and a son of God deserves love and respect, and I would welcome him to my HP group with open arms. I recognize that there are many Nevada Mormons who have not shown him that same love and respect, and that is truly unfortunate.
Is the unfortunate disrespect shown Sen. Reid a result of the tea party phenomemon? I am sure most liberal Mormons would say yes because they have a caricature of angry, out-of-control quasi-militia types preaching hatred. Well, I simply have not seen any of that in Colorado. All of the supposed “hatred” involving the tea party that I have seen on the internet has been exaggerated or invented or the random acts of one or two crazies (which is going to happen anytime you have a large group of people get together).
I used the 1960s peace movement as a comparison for a reason. You need to judge a movement based on the motivations of the majority of its members. The 1960s peace movement had fringe groups that truly were violent, radical and literally were trying to overthrow the U.S. government. But the majority of the anti-war groups were nonviolent and focused on ending the war. History will show that their movement was successful and, I believe, positive for the country. I believe the same thing applies to the tea party, ie, the vast majority (I would argue more than 95 percent) of the people involved are peaceful, motivated everyday citizens who are concerned about govt spending. History will show that the fringe groups were not important to the tea party story, and people who concentrate that are missing the point of the movement, at least some of them deliberately for political reasons.
Djinn, you are missing the point. The videos were good in that they brought ACORN down, but ACORN’s real problems started much earlier. You are really drinking the leftist Kool-Aid if you refuse to acknowledge ACORN’s problems with voter registration, which are discussed here:
You are again believing rich people who want to hurt you. Stop it.
rich people have systematically and very cleverly bought and paid for politicans (a very well-worn field that has existed as long as politicians) that has given us the currrent depression. They’ve succeeded in eviscerating the middle class, that is most of us; with no middle class, no American empire, because no one to buy stuff. Ooops.
Very good point. John Kerry, Al Gore, George Soros and their ilk are ruining this country. The Democrats are the party of the rich, and it is causing us a lot of problems.
“…the vast majority [of the Tea Party movement members](I would argue more than 95 percent) of the people involved are peaceful, motivated everyday citizens who are concerned about govt spending.”
I guess the post that I wanted to read was about coming to terms with the “movement.” I can’t equate, as I think that you do, everyone who approves more restrained governmental stewardship with a tea party membership.
It seems dishonest to made a statement in this climate by holding a sign saying: “No to socialism”: there is a point where caricature is so false that it is bearing false witness. False witness is not an appropriate standard of civility in my book. I understand that the natural man is turned on by conflict and wants his team to win at all costs. Unpatriotic partisanship is centuries old in this country and I accept that. But I have trouble when the exaggeration is stated as truth; when it is incorporated by a teacher or one bearing a testimony.
Not to diminish what I said above by going to an extreme, and I think that you’d agree that Beck does not represent the tea party, but if the Glenn Beck standard of sensationalism is sufficient basis for action and becomes the standard of truth in my Sunday School class, then what does it mean when the person who teaches both Glenn Beck and the gospel tries to bear testimony?
Without sounding defeatist, what is the tea party fighting for in the end? Don’t we have the script wrong? When “the time cometh that he curseth your riches, that they become slippery, that ye cannot hold them; and in the days of your poverty ye cannot retain them.” Aren’t we supposed to say: “O that we had repented in the day that the word of the Lord came unto us; for behold the land is cursed, and all things are become slippery, and we cannot hold them.” We shouldn’t be saying: let me keep seeking all the days of my life for that which I cannot obtain, I want to seek for material happiness and stability regardless of iniquity. Of all the movements we should be part of, why do so many pick the one that would enable consumerism and materialism. If we want the prosperity and the good of our country, shouldn’t we focus on the parts of the tea party principles that are in harmony with a sustainable society such as stewardship and accountability and turn away from the movement with its contaminating extremism?
Re: “No to socialism”
This is a mere technical quibble. When a government gets sufficiently deep into regulating, subsidizing, and guaranteeing an industry, the difference between that and socialism is more superficial than real.
Fannie Mae, Freddie Mac, GM, AIG, most of the clean energy industry, much of agriculture, the entire commercial banking system, the major investment banks, the entire higher education system, the entire health care industry, residential real estate, and most of the non-profit world are all incestuously dependent on government subsidies and often practically have to ask the government for permission to do anything. GM wasn’t allowed to move its headquarters out of downtown Detroit, to mention a recent and particularly egregious example.
Any industry that does not depend on government subsidies for its short term survival, government guarantees for its long term survival, and isn’t micromanaged by government regulators far beyond what is reasonably necessary to protect the public I will grant is not socialistic in character.
I have to agree with you Geoff B., that the Democrats are, for the most part, bought and sold by the same folks that run the tea party. The tea party is scary, though. Democrats are just wimps.
Countries rise and fall on their middle class. Ours is being systematically eviscerated, due, in large part to the dismantling of the tax structure, more or less, starting under reagan (keyboard prob keeps me from capitalizing the name) that kept the ultra rich (who can buy the neighborhood politicians) from paying their fair share of the taxes that we need to support our infrastructure and our military (and everything else). Now we are reaping the whilrlwind, and the poor tea partiers don’t know what is continuing to kneecap them.
Specifically, the reagan, Bush, Bush (Clinton and Obama get a nod too) extreme slashing of the top income tax rates combined with the absurd rewrite of the probate code, offshoring of jobs, sigh, whatever, indicate that unless we do what all world powers do (ex. rome, France, the UK, etc.,) when it dawns on them that they are no longer world powers (i.e., take troops out of foreign lands), we’re sunk.
What are you planning for your kid’s careers?
What does “the entire commercial banking system, the major investment banks, the entire higher education system, the entire health care industry, residential real estate” have to ask the government permission to do? Examples, please. As a illustrative example on the other side, the derivatives market (part of the commercial banking industry and the major investment banks) is entirely unregulated.
Please give examples. The derivative market (from London, no less!) took us down once before, and it’s going to happen again. Or please tell me why not.
The entire commercial banking system is guaranteed by the government and regulated in its very fundamentals (i.e. what kinds of investments and loans it can or must make) by the Federal Reserve and the FDIC, to say nothing of several international treaties.
Without that guarantee a fractional reserve banking system tends to implode every few decades. cf. the history of banking in the United States during the nineteenth century, among many other historical examples.
As a consequence a modern commercial bank is effectively a branch of the federal government. The government guarantee is not sustainable without the strictest of supervision, and whenever the government supervisors fall down on the job, we get to clean up the fallout.
All that is aside from the manipulation of the money supply the Fed engages in part to keep the entire house of cards from going under. Are you aware of any other industry that has money printing authority?
By the way, banks guaranteed by the federal government shouldn’t be allowed to invest in derivatives. Financial weapons of mass destruction and all that. The repeal of Glass Steagall was a mistake.
Quandmeme, let me address your comment:
“I guess the post that I wanted to read was about coming to terms with the “movement.” I can’t equate, as I think that you do, everyone who approves more restrained governmental stewardship with a tea party membership.”
Nobody is saying that. There are tea party members who actively go to meetings, demonstrations, etc, and then there are sympathizers, who, recent results show, are at least 10 times the number of people who are activists. But there are all kinds of people who are not either who also want restrained govt. The point of this post is that like-minded people who want restrained govt should join together to find out-of-control spending. That would include people who are not tea party people.
“It seems dishonest to made a statement in this climate by holding a sign saying: “No to socialism”: there is a point where caricature is so false that it is bearing false witness. False witness is not an appropriate standard of civility in my book. I understand that the natural man is turned on by conflict and wants his team to win at all costs. Unpatriotic partisanship is centuries old in this country and I accept that. But I have trouble when the exaggeration is stated as truth; when it is incorporated by a teacher or one bearing a testimony.”
Socialists run the gamut from Marxists socialists to Bernie Sanders, and actual socialist in the Senate who caucuses with the Democrats. The Obama agenda shares many things in common with Sanders’ agenda. Govt ownership of two of our largest auto companies is socialism. This is not bearing false witness — it is only an indication of how far gone we are as a country that we allow it to happen in the first place.
“Not to diminish what I said above by going to an extreme, and I think that you’d agree that Beck does not represent the tea party, but if the Glenn Beck standard of sensationalism is sufficient basis for action and becomes the standard of truth in my Sunday School class, then what does it mean when the person who teaches both Glenn Beck and the gospel tries to bear testimony?”
Actually, Beck is a key tea party organizer. There are so many problems with this statement that I don’t even know where to begin. Beck is a son of God. He is capable of receiving personal revelation and saying things that may be true. Harry Reid is a son of God. He also is capable of receiving personal revelation and saying things that may be true. Personally, I would avoid discussing either of them in Sunday School, but just because somebody does does not mean there is anything wrong with their testimony. All kinds of people have politics that I strongly disagree with — the Bloggernacle is full of them. But I don’t doubt their personal testimonies because a)to do so would involve making a claim that I know what is in their heart, which we know only the Lord can do and b)it is incredibly self-righteous. I would strongly discourage you from making statements like this.
Your last paragraph is standard boilerplate “if you defend conservative politics you aren’t a real Mormon” language. I hear it all the time. Again, self-righteous and biased. And very, very tiresome. I would encourage you to read some scriptures that are not part of that boilerplate. Such as D&C 134:2. “No government can exist in peace, except such laws are framed and held inviolate as will secure to each individual the free exercise of conscience, the right and control of property, and the protection of life.” So, from that perspective your average tea partier is exactly following modern-day revelation that makes it clear that the “right and control of property” is central to good govt. Obama and the Democrats want to take away your property and give it to others that they deem more worthy. (“spread the wealth around.”) They want to force people to buy a product (health insurance) or face the loss of their property. But of course the boilerplate only sees one side of the discussion, ie, they are bad Mormons if they dare to stand up to what they consider bad govt.
To sum up, quandmeme, the discussion you want is yet another lengthy diatribe against Mormons who dare to watch Glenn Beck or disagree with you politically. Such posts abound in the bloggernacle, so just wait a week or so and I’m sure you’ll find one. Isn’t it more interesting to actually find a different view, something that you haven’t read 100 times before?
You go Mark D.
On the topic of deficit reduction, I suggest the first thing we should do is get rid of any and all instances of corporate welfare. Agricultural subsidies and “clean energy” subsidies top the list.
The second thing we should do is adopt Paul Ryan style entitlement reforms, to put Social Security and Medicare on a sustainable track.
Then we should devolve most of the functions of the departments of energy, education, labor, agriculture, and health and human services back to the states where they belong.
When those three things are done, we should eliminate the employer health care deduction and the mortgage interest deduction on a revenue neutral basis, rationalize the corporate tax system, and repeal Sarbanes-Oxley.
Mark D, excellent list. The only thing I would change is that I would put repealing Obamacare first. That alone would spur tremendous economic growth. The rest of your list is stellar.
djinn, We should end corporate welfare in part because it is a major transfer of wealth from the middle class to the wealthy. Excessive government regulation also tends to transfer wealth from small businesses (and their employees) to large ones, because the latter can handle it better.
Large government programs transfer wealth from ordinary folks to the government employees necessary to run them. Job security to a fault and _much_ higher total compensation, when all benefits are counted. Government employees are the new privileged class.
The mortgage interest deduction transfers wealth from renters to homeowners, and more especially owners of relatively large homes. The employer health care deduction transfers wealth from part time workers to full time ones, and from the self employed to those that work for large enterprises. And on and on…
The way our tax system is currently structured highly favors transferring wealth out the door in the form of unusually high salaries than actually returning any of it to stock holders in the form of dividends. That hurts the overall health and stability of the economy much more than the relative pittance of extra tax it brings in. All those high ranking bank employees aren’t going to give any of the money they earned in bonuses on imaginary profits back.
“Then we should devolve most of the functions of the departments of energy, education, labor, agriculture, and health and human services back to the states where they belong.”
Those last four make sense, but I can’t see turning the Department of Energy’s stewardship of nuclear weapons over to the states, nor most of its other applications of science in the national interest.
John M, I said “most” for a reason. Although I don’t think the DoE has stewardship over nuclear weapons. Nuclear waste, yes. Weapons, no.
I forgot to add the department of housing and urban development (aka HUD) to my list. If the political consensus within particular states is to continue the same programs at the same level, that is fine.
At the very least, though, there will be one level of bureaucracy instead of two, at that will make for significant savings. To say nothing of the fact state governments (at least for smaller states) are far more responsive than the federal government is.
In addition, the function of states as “laboratories of democracy” will produce optimal versions of various social policies (that other states can adopt) far faster than a one size fits all approach in Washington, based on laws passed seventy years ago as interpreted through thousands of pages of regulations. Medicare and Medicaid ought to be devolved to the states too. With the right kind of reforms (mandatory savings into personal accounts with a safety net guarantee), Social Security too.
I believe that the DoE does nuclear weapons research for some reason or another, by the way, but I am pretty sure that they do not actually hold, maintain, and control the nuclear weapons themselves. That is what the DoD is for.
Mark, I worked a couple years at the Department of Energy’s Los Alamos National Laboratory. Half the budget was nuclear weapons.
What I meant by stewardship particularly, is that it is the responsibility of the directors of the DOE’s Los Alamos and Sandia labs to certify that our nuclear weapons systems work. DOE is the one that exploded nuclear weapons at the Nevada Test Site (another DOE facility) back when that was allowed (not DoD), and now does what it can in lieu of actual explosions since then.
I forgot Livermore when I mentioned Los Alamos and Sandia. Also, it is DOE that designs and manufactures nuclear weapons, loans them to DoD for deployment, receives them back, and dismantles them.
That is interesting. I am curious why in the world they don’t have the DoD do that though.
It goes back to immediately after WWII when it was felt there should be civilian oversight of such weapons rather than leaving it entirely in military hands.
Geoff, I don’t have time to address much of what you wrote right now, but those early charts in the post seem faulty. I had thought that the Defense budget was the biggest single thing in the federal budget (bigger than everything else put together). So I don’t understand how it could be 4% of GDP and then the entitlements could be 9% of GDP. Now, maybe those entitlement programs aren’t included in the federal budget. That might explain it, I suppose.
John C, I hope you get some time to discuss this.
This might help.
Some people like to talk about the discretionary budget, because defense is technically “discretionary” while entitlements are not. That makes defense look like a much bigger share of the budget than it actually is.
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