“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Friday, December 31, 2010

Wonderboy's Curious & Selective Sense of History

Tuesday's Wall Street Journal included an interesting piece by Fouad Ajami, director of Middle East Studies at The Johns Hopkins School of Advanced International Studies, entitled Obama's Presidency Joins the Fray.

Mr. Ajami provided an very insightful view into Wonderboy's warped and biased use of history while president. For example, the First Rookie dismissed parallels between Afghanistan and Vietnam, because he declared himself to be young enough not to have 'baggage' from the latter US involvement.

The current US president then selectively took the comparisons to JFK and FDR which he likes, but eschewed JFK's combat experience and tough-minded attitudes on defense and anti-communism.

Ajami reminds us of Wonderboy's self-description, in Cairo, "as a student of history," thus making his selective attention to it the more troubling. One suspects the only history in which the president is interested is his own, so expansively detailed in his many autobiographies.

How does one write so much about a life devoid of real accomplishment, outside of, with a nod to that other Illinois resident who became president, 'fooling some of the people some of the time?'

Mr. Ajami writes,

"our president would have known that a command economy is alien to the American temperament, that unfettered government spending was bound to arouse the antagonism of the American people...."

He concludes by contending that "the real Obama presidency has just begun."

Many believe Wonderboy will now tack to the center and effect a self-rescue. No less an esteemed conservative pundit than Charles Krauthammer seems to believe this.

Personally, I don't see it like that. I just don't think Wonderboy has it in him to be another Clinton. Clinton was never an ideologue, whereas that's all Wonderboy really seems to be. And a self-involved, self-referential, egotist, at that.

But, as Mr. Ajami suggests, we'll have the next two years to find out if the current Oval Office occupant really understand history, or cares.

Thursday, December 30, 2010

Biggs, Hassett & Jensen On Budget Balancing

Three people from the American Enterprise Institute wrote an impressive piece in yesterday's Wall Street Journal entitled The Right Way to Balance the Budget.

As I noted in yesterday's post concerning Howard Dean's recent delusional rant on CNBC, it's not simply a matter of tax hikes or spending cuts being apparently arithmetically equal. The authors begin,

"In new research that builds on the pioneering work of Harvard economists Alberto Alesina and Silvia Ardagna, we analyzed the history of fiscal consolidations in 21 countries of the Organization for Economic Cooperation and Development over 37 years. Some of those nations repaired their fiscal problems; many did not. Our goal was to establish a detailed recipe for success. If the United States were to copy past consolidations that succeeded, what would it do?

The data also clearly indicate that successful attempts to balance budgets rely almost entirely on reduced government expenditures, while unsuccessful ones rely heavily on tax increases. On average, the typical unsuccessful consolidation consisted of 53% tax increases and 47% spending cuts.

By contrast, the typical successful fiscal consolidation consisted, on average, of 85% spending cuts. While tax increases play little role in successful efforts to balance budgets, there are some cases where governments reduced spending by more than was needed to lower the budget deficit, and then went on to cut taxes. Finland's consolidation in the late 1990s consisted of 108% spending cuts, accompanied by modest tax cuts."

That's pretty riveting. No qualitative arguments about income redistribution philosophy. Instead, it's black and white. Raise taxes and you'll fail to regain fiscal integrity. Cut spending, and you may. They continue,

"Consistent with other studies, we found that successful consolidations focused on reducing social transfers, which in the American context means entitlements, and also on cuts to the size and pay of the government work force. A 1996 International Monetary Fund study concluded that "fiscal consolidation that concentrates on the expenditure side, and especially on transfers and government wages, is more likely to succeed in reducing the public debt ratio than tax-based consolidation." For example, in the U.K's 1997 consolidation, cuts to transfers made up 32% of expenditure cuts, and cuts to government wages made up 21%.

Likewise, a 1996 research paper by Columbia University economist Roberto Perotti concluded that "the more persistent adjustments are the ones that reduce the deficit mainly by cutting two specific types of outlays: social expenditure and the wage component of government consumption. Adjustments that do not last, by contrast, rely primarily on labor-tax increases and on capital-spending cuts."

The numbers are striking. Our research shows that the typical successful consolidation allocates 38% of the spending cuts to entitlements and 25% to reductions in government salaries. The residual comes from areas such as subsidies, infrastructure and defense."

Again, very deterministic evidence. And sensible. Cutting recurring government spending, e.g., salaries/jobs, is a recurring benefit to fiscal rectitude. Cutting entitlements gets at the heart of why, as I argued in yesterday's post, we arrived here in the first place. Spending on promises that never should have been made in the flawed manner that they were, with no contingent limits.

The editorial's authors conclude,

"Why is reducing entitlements and government pay so important? One explanation is that lower social transfers spur people to work and save. Reducing the government work force shifts resources to the more productive private sector.

Another reason is credibility. Governments that take on entrenched, politically sensitive spending show citizens and financial markets they are serious about fiscal responsibility.

While tax hikes slow revenue growth, policies that credibly reduce government spending in the long run boost economic growth by more than their simple effects on deficits might imply. Any attempt to address the federal government's budget shortfall that relies on less than 85% spending cuts runs too large a risk of failure. The experience of so many other countries shows that it's crucial for the U.S. to get this right."

That's another hard datapoint. The federal government needs to be cutting spending to the tune of 85% of the gap needed to be closed. That leaves precious little for tax increases.

Perhaps the new GOP House is up to the task. Let's hope so. We may not have a second chance at this.

Wednesday, December 29, 2010

Howard Dean's Taxation Delusions On CNBC

I happened to view an exchange this morning on CNBC between former CBO head Douglas Holz-Eakins and former Vermont governor and DNC chair Howard Dean. It was most illuminating.

In a discussion regarding fiscal responsibility and tax policies, Dean railed against 'giving tax cuts to the rich' while borrowing the money for them from China.

It was truly laughable that Dean didn't see the warped perspectives embedded in his comments. To wit, Dean, being an uber-liberal, naturally assumes all of your income is, in reality, the government's. Letting you keep any of it is a gift for which you should be on bended knee, kissing the feet of your political masters.

Thus, letting you keep any more of your income than you already do, while liberals- and conservatives- spend more than the government collects in taxes, and cover the difference by borrowing from our enemies, like China, is considered folly by said uber-liberals, Dean included.

When confronted by co-anchor Joe Kernen and Holz-Eakins with the reality that soaking the income of the upper percentiles of income-earners still only generates about $94B, assuming no changes by said wealthy in declared income, against the trillions in deficits, Dean only continued to wail that we were borrowing from the Chinese to 'give tax breaks to the rich.'

Standard far-left stuff, but ludicrous when contrasted with the fact that all of the incomes of the wealthy still won't make a dent in the spending binge on which our liberal Democratic Congress and Wonderboy have been.

If you think about it, aren't our wealth-transfer payment programs the ones which are deemed 'non-discretionary' and breaking our budgets? Social Security, Medicare, Medicaid, and related transfers, enacted with no global or macro budgetary conditionality? As communal, unlimited spending pots, the withdrawals from which are on individual eligibility bases, not apportioned and pro-rated based upon budgetary limitations?

It's ridiculous! Thanks to Congressional idiocy in the 1930s and 1960s, we've elevated the poor and destitute ahead of every other need of our Republic. They never are required to share in the economies and belt-tightening shared by our other national governmental spending and taxation realities.

I don't think I've ever seen so clear a picture of the nonsensical liberal ethos and belief system than in Howard Dean's hysterically comical attitude and comments this morning on CNBC. It was straight out of Socialism 101.

'All income belongs to the people. The government is the people. The poor receive first consideration for spending by the government, on behalf of the people, i.e., the government.'

The actual value-producing income-earners are simply presumed to be fatted cattle to be milked and, in time, through death taxes, slaughtered for the benefits of the non-working and/or poor.

Monday, December 27, 2010

More Horrific State Budget Games

The Manhattan Institute's Steven Malanga wrote a chilling editorial in last Friday's Wall Street Journal entitled State House Shell Games.

In it, he detailed the budgetary games US states have played to fool voters while continuing to spend beyond their means. For example, apparently federal funds for upgrading 911 emergency systems is a fairly common source for misallocation of resources. These funds are used for other purposes with seeming impunity.

Then there are cases of states like Arizona mortgaging its government buildings in such a way as to effect a 'sale' which escapes constitutional strictures. Then there's New York State, where, according to Malanga, one-third of the bridge and highway trust fund is being used to pay state debt service.

Essentially, writes Malanga, states are using elaborate shell games to shift funds inappropriately among various special purposes and their general funds, the better to obscure the true indebtedness of said states.

California's Schwarzeneggar promised that $10.9B in deficit bonds issued early in his governorship would be the ticket to his state's budget woes. Instead, the legislature and governor simply went on spending, leaving the state with a current $25B budget shortfall over the next year and a half.

Voters are beginning to notice. Even my liberal Democratic squash partner voiced alarm after seeing Meredith Whitney's recent appearance on CBS' '60 Minutes.' For a guy who never saw a spending program he didn't like, he's truly fearful that some states, like ours, won't be able to fund all of their liabilities.

Seems like the endgame on state budget tricks and deficits, in defiance of notional balanced budget rules, is coming soon.