Vermont: The Hapless Blue State

Vermont, fresh off the news that the state’s idea of fixing its legacy of opposition to business and economic growth is to pay people to stay there, now has at its disposal other states’ models for economic growth that actually seem to work.

And maybe those models correlate to the political leanings of the individual states.  In a recent CNBC article, they built a chart that shows one-year change in employment (in aggregate and by industry), and the Trump vote margin.  In what can only be a surprise to Vermont’s political leadership, states with low or negative Trump margins (meaning they didn’t vote for Trump) tend to show weaker job growth compared to the states that voted for Trump.

Now a host of reasons exist for why and how jobs get created, and correlation does not equal causation, but when you see some consistent patterns, it just might be an indication that something is consistently wrong with the direction Vermont’s been going in, for decades, in terms of its economy.

Overall, Vermont is at the worst part of the 4 quadrants.  The voting results are obvious, but the economic gains in total job growth are almost the worst in the country.  Only one or two states have worse economic results, but Vermont is in there, vying for the lead in the worst of the worst.

Vermont leads the way! To an economic backwater.

But if you look at specific industries, Vermont does manage to become the leader.  The last place leader, mind you, but the leader.  To wit:  Manufacturing – Vermont, in dead last.

Best of the worst!

Construction:  Nearly the worst.  But don’t worry, Vermont is striving to lead the way in negative job growth in this category!

We’re constructing the worst economy in the country. In that, we’re #1!

But take heart, taxpayers.  There’s some good news for Vermonters amidst all the bad.  Government jobs are increasing!

Nowhere to go but up for taxpayer-supported jobs!

And if you’re interested in a high-paying, lucrative career waiting tables or manning chair lifts at the ski resorts, the sky’s the limit!

Vermont almost leads the way in tip-related employment.

This is the type of data that Vermont’s Department of Labor carries, but doesn’t publicize much, other than the unemployment number as a stand-alone.  Why?  Because Vermont’s unemployment rate is low, primarily due to Vermont’s decreasing labor participation rate, a rate that’s ticked up a bit in the last year or two.  But it went on a steep dive from 2009-2016, which seems to inexplicably coincide with a prior administration’s term.  It’s almost as if incentives were put in place for a specific number of years that encouraged people to drop out of the labor force, and now those incentives are gone.

It may be that the state doesn’t need to pay people to participate in Vermont’s economy.  It could be that, absent the 8-year overhang of higher taxes, a higher regulatory burden, and a demonization of the profit motive, Vermont’s animal spirits rise again.

Now if Vermonters could only keep the politicians from trying to help them, maybe there is a path forward, out of the economic quagmire.

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Bernlandia

Bernie Sanders, technologist, recently used The Twitter to make what he considers to be a valid argument in the “Is there anything we can’t make free?” campaign, which is probably a warm-up for yet another nauseating series of lectures while he again runs his mouth for something.  Like a public office.

Bernie extols us to “take a look” at Finland, which I can’t easily do without socialized medicine providing me with telescopic peepers with which I will look across at least one really big ocean to peer, mindfully, at the Land of Fin.

Finland.  Happiest place on earth, according to the UN.  This is the same UN that ignored a really unhappy place called Rwanda a few years ago, and I think some hundreds of thousands of people died, but we’re not here to talk about the utility of the UN, are we?  We’re here to learn what Bernie Sanders thinks we should all do.

Bernie asks, understandably, because he doesn’t really understand math or even actually want to, why can’t the US be more like Finland?

Well, hey, let’s look at the data:

Finland:

Population: 5.50 million (2016)

GDP: $251.48 billion USD (2018)

Area: 130,559 sq miles (338,145 km²)

United States of Finland, er, America:

Population: 323.13 million (2016)

GDP: $20.20 trillion USD (2017)

Area: 3.80 million sq miles (9.83 million km²)

So, in comparison:

Population:  The US has 64.6 times more people than Finland does.  New York City alone has more people than all of Finland, even if you threw in a couple of extra million theoretical Finns.

GDP:  The US economy is 79.5 times larger than Finland’s.   In terms of GDP, the US is 2nd.  Finland is 63rd.  Maybe comparing two incomparable countries isn’t a great idea, as a starting point to ask a question on Twitter.  It’s like comparing, oh, I don’t know, Karl Marx to Alexis de Tocqueville, and wondering why these two would be unlikely to get along.

Area:  From a logistics standpoint, this is relevant – the US is much larger than Finland (sorry, Finland, but size matters), and so trying to draw comparisons to how things work when they’re so different as to be incomparable means you’re Bernie Sanders, the Logical Fallacy Master.

Net migration:  What’s not mentioned by Bernie, in his Ode to Finnish Joy, is that, despite Finland’s happiness meter pinging off the charts,

The finest in Finnish fjords. For free. Theoretically.

about a quadrillion more people emigrate to the United States each year, I guess because it’s awful and they like to be unhappy in the United States.  In fact, from 2007 to 2012, the US had a net migration of just over 5 million people.  Finland’s population is 5.4 million.  In other words, the United States assimilates a Finland, every 5 years.

Except, of course, that we don’t – Finland is almost 100% native Finlanders.  The United States is not.  The United States is a melting pot of different ethnicities, with millions of people from all over the world moving here.  If Finland is so fantastic, why aren’t millions moving to Finland?  Why doesn’t Sanders criticize Finland for its lack of diversity?

Lastly, why is Finland so happy when it’s got an 8.8% unemployment rate?  One that was over 10% just a year ago?  One of the reasons might be that Finland decided to give all its citizens money, in support of the idea of a basic income:

The basic income program in Finland, which was praised as cutting edge when it was announced, pays $690 to 2,000 Finns each month, with no conditions.

Well, that’s toast:

Finland’s social security institution, Kela, selected participants at random from people ages 25 to 58 who were unemployed. Initially, the program was supposed to be expanded this year to include workers as well as non-workers, but instead the monthly payouts to these individuals will end in 2019.

Why would Finland think a basic income would be a great idea?

The basic income experiment was proposed as a solution to the unemployment rate in Finland, which reached a 17-year high of 10% in 2015. The payouts were designed to support citizens while encouraging them to find work, since the country’s other welfare benefits don’t apply to people once they are employed.

But in December, the Finnish parliament passed a bill that requires jobseekers to work 18 hours minimum for three months, making unemployment benefits contingent on finding some work.

“Right now, the government is making changes that are taking the system further away from a basic income,” Kela researcher Miska Simanainen told the Swedish daily Svenska Dagbladet.

While 70% of Finns supported the idea of basic income, surveys show that number drops to 35% when respondents are told that already-

Pull my finger, fellow Socialists!

high income taxes would have to increase in order to cover the cost of the program.

Oh.  Well.  Looks like money can’t buy happiness.

Bernie’s idea of a utopian United States, a United States that emulates a country that’s rapidly moving away from the same kinds of ideas Bernie espouses in Congress, seems to be a logical fallacy that even the dimmest bulb on the planet might perceive.

But when you’re living in Socialism Fairyland ™, where each Senator gets what he wants, according to his needs (and Bernie needs 3 houses), then reality doesn’t matter.  All that matters is that he can sell these ideas, for votes, and support from people who really don’t understand how wrong Sanders has been, on everything, his entire life.

Bernie Sanders: Too Big And Failed

A couple of weeks back, Communism’s own Bernie Sanders took time out of his failed presidential bid to sit down with Jake Tapper on CNN,

Watch out! Highly efficient business model coming in hot!

because a lack of more pressing political dumpster fires meant CNN had a slot to fill that day.

As part of that interview, Bernie took the opportunity to note that Amazon is getting “too big”, which means, as usual, that Bernie is still obsessed over size:

Sen. Bernie Sanders thinks Amazon has gotten so large that it requires closer scrutiny of its “power and influence.”

On CNN’s “State of the Union” on Sunday, the anchor Jake Tapper asked Sanders whether Amazon had gotten too big.

“Yeah, I do, I do,” said Sanders, the independent senator from Vermont who ran as a Democratic presidential candidate in 2016.

“This is an issue that has got to be looked at,” he added. “What we are seeing all over this country is the decline in retail. We’re seeing this incredibly large company getting involved in almost every area of commerce. And I think it is important to take a look at the power and influence that Amazon has.”

Funny, Bernie seems to have no problems at all hawking his dog-eared revolutionary garbage on Amazon, so he can make a buck on it.  One can only assume Bernie takes his evil, capitalistic profits from his Amazon sales and spends them at the local retail shops near any one of his three houses.  Or donates his earnings to charity.  “Charity” being the secret code name of the lake house he and his wife bought.

As a rule of thumb, when politicians start talking about things getting “too big”, they are never, ever, talking about government spending.  To that, they are helplessly unaccountable.  Then, it’s only a question of how much more additional spending, and what it’s being spent on, that drives their support.

For example, in 2008, Bernie had harsh words for those who opposed stimulus spending, or as others might call it, vote buying with taxpayer dollars and borrowed money:

It is extremely disappointing that President Bush and most of the Senate Republicans are playing political games with our economy and the needs of the American people. This economic stimulus package provides a tax rebate not only to working families and their kids, but to millions of seniors on Social Security and disabled veterans. It also increases funding for home heating assistance and other important programs.

So, even though Sanders has recently voted against Trump’s budget, historically, Bernie has been quite happy to determine what industries are OK to be too big to fail, and which ones aren’t.  In other words, he believes it’s his job to pick the winners and losers in the economy, as long as it benefits him politically.  Which is why he supported bailing out the auto industry, instead of calling it too big to fail, because there are automobile unions, you see, and where there’s a union, there’s Bernie, hawking his vote so he can stay in office and tell us all what’s too big to fail, or not.  In Bernie’s words:

The problem is if you don’t act in the midst of a growing recession what does it mean to create a situation where millions of more people

An example of the Detroit Renaissance, courtesy of union bailouts.  Changes from 2008-2013.  Photo courtesy: https://ijr.com/2014/06/145906-watch-city-detroit-fall-apart-eyes/

become unemployed and that could spread and I have serious concerns about that I think it would be a terrible idea to add millions more to the unemployment rolls.

By this thinking, we should borrow trillions to pay people to dig holes and fill them back in, so the unemployment rolls would remain low.

But let’s get back to Amazon, and Bernie’s consistent misunderstanding of economics.  In his words:

“When you have companies like Amazon that have extraordinary power, when you have companies like Facebook that to a significant degree control discourse, am I concerned about monopoly power? Absolutely,” he told the news outlet. “We need to have the kind of discussion that Congress has not had yet.”

Yet Bernie is quite fine with socialized medicine, which does, in fact, monopolize power over one of the most important services people consume in their lifetimes.  Bernie’s quite happy with a monopoly in that situation. Why does he have a problem with a company that sells everything from toothbrushes to tacos, but not one that will decide whether or not you get a heart bypass?

Because Bernie is fine with the aggregation of power, as long as it’s in a centralized government, that he himself is a participant in.  That kind of size, Bernie is in love with.  It means more houses for him, more control over Americans’ lives, and more self-justification for what Bernie indulges himself in, daily, in terms of aggrandizing power – his innate selfishness, and desire to control what he himself never could have earned out in the real world.

 

Tax Plan, Schmax Plan: It’s The Spending, Stupid

Why can’t we just stretch the federal budget a bit…bigger?

The GOP has recently been working on tax reform, and both the House and Senate have versions of tax reform that are currently being hashed out in conference between the two houses.  Aside from the caterwauling on the left side of the house, predictions of our moon exploding and destroying all life on the planet because taxes might be cut, reform of one kind or another is inevitable.  Why?

Because it’s not really the revenue side of the equation that’s the bulk of the problem.  It’s the spending.

Why does spending go through the roof, annually?  Because the government can.  Because politicians are rarely penalized for spending money.   They’re typically rewarded for it, by being re-elected.  They’re rewarded because they brought some of that federal pork back to their home states, and not coincidentally, their names are often found on the outsides of buildings that other people paid for.  Some states are even proud of their Congressional representatives “bringing home the bacon” for them, as if there’s just a pile of magical money in DC and the job of Senators and Representatives is to back U-Hauls up to the pile and shovel as much in as they can (or pay their staffs to shovel), then call it a day.

The result of all this shoveling is $20 trillion in debt.  That’s a $170,000 debt burden for every taxpayer – not every American, mind you, but just those who actually pay net income taxes.  As the debt has doubled in the last 8 years, and the annual federal government’s spending has followed that same doubling, what’s happened to economic activity?  Based on the hysteria of the left over tax reform, our very lives depend on government spending, because apparently all economic activity will come to a halt if we spend one less dollar next year.

But the reality of the economy is much different from those idiotic rants.  In fact, if you take a look at the data, the opposite is true.  As federal spending goes up, the M2 velocity of money goes down.

What’s the velocity of money?  Let’s let Fred tell you.  He’s got all the answers here:

The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.

 

If you take a look at federal debt alongside the same M2 indicator, the idea that federal spending is what keeps the economy going (according to permanently-ensconced chowderheads like Nancy Pelosi), goes “poof”.  It’s an idiotic assumption, that all federal spending is a net positive, and to even challenge that piece of it is something that’s off the Left’s table.

So as spending and debt go up, economic activity goes down.  This is apparently news to Democrats in Congress.

But that’s the crux of the argument.  You can’t have tax cuts, because we’ll be able to spend less, even though spending goes up, annually, regardless of tax revenues.  The gap between spending and tax revenues is a permanent one, and any change to the status quo is Armageddon.

As the tax bill currently stands, the corporate tax rate reduction to 20% would put the United States on a much more level playing field with other countries, even if the effective rate is always lower than the official rate (which is another argument to strip down the tax code and carve-outs, but that’s a longer conversation).  If you’re looking to free up capital that companies would use to expand and invest, that’s a very quick way to do it.  At the very least, it would bring our rate nearer to the average of the G20 countries, which improves the ability to compete:

 

While the tax reform bills are a small step forward, the really tough work is on the other side of the table, and not the ideological one.  The toughest challenge will be spending, and reducing it, so the debt above doesn’t crowd out all other economic activity, and dampen growth.  Since debt is now over 100% of GDP (below), and the economy, while growing, is growing at historically low levels, especially coming out of recession, one is left wondering if Congress has the ability to stop this descent into madness.  They don’t seem to be willing to even slow it down.

It’s an abdication of responsibility.  Considering the incumbency rate, we are going to continue to let them fail, and not hold them accountable.  Then it becomes our fault, not theirs.

 

Tax Cuts: Worse Than Hitler!

Tax cuts, often championed by Democrats (when they want to take credit for economic growth), are Bad, Horrible, Awful Things again, because, well, Trump and Congress

Take *that*, tax cuts! Er, Hitler!

are working on them.

As a fine example of a histrionic and economically illiterate analysis of the recently-proposed tax cuts, I give you the The Washington Post, that long-standing bastion of Austrian economic theory.  How will the Post provide its readers with details around a policy that will impact the half of the country that actually pays taxes?  Standing in as the sharp end of the Post’s analytic spear, the Post offers up Ruth Marcus, for the delightfully (and, one might guess, purposefully) limited take on the impacts of tax cuts and tax increases:

Yes, the economy grew robustly after John F. Kennedy proposed and Lyndon B. Johnson signed a tax cut in 1964 (the top rate went from 91 percent to 70 percent) and after Reagan cut taxes in 1981 (he later raised them, because of fears of the ballooning deficit). But the economy also grew robustly after Bill Clinton raised taxes in 1993 and anemically after George W. Bush cut taxes in 2001 and 2003.

What’s missing in Ruth’s cursory review of the economy, after tax cuts and tax increases, is telling.  Clinton, for example, after raising taxes in 1993 (which included an increase in the taxable portion of Social Security benefits, because, y’know, he’s a dude of the people), signed an enormous tax cut in 1997, which spurred even larger and more consistent growth.  These tax cuts are consistently attributed with spurring the growth in the 1990s – not the primary driver, but certainly a major contributor.  From the study:

From 1993 until 1997, the economy grew at 3.3 percent per year.4 While solid, this growth was certainly not exceptional. During that same time, real wages declined, despite the perception that the 1990s were an era of unmitigated abundance.

It was not until after a 1997 tax cut, passed by Congress—a tax cut President Clinton resisted but ultimately signed—that the spectacular growth kicked in. While small in static revenue impact, the 1997 cuts included a reduction of the capital gains rate from 28 percent to 20 percent. This opened the capital floodgates necessary for entrepreneurs to develop, harness, and bring to market the wonders of the new information technologies. business investment skyrocketed after the tax cut,6 and the economy grew at an annualized rate of 4.4 percent—33 percent faster than after the Clinton tax hike—from 1997 through the end of the Clinton presidency. Real wages reversed their downward trend and grew 1.7 percent per year during the same time.

Oh, and as for George W. Bush’s tax cuts – I’d also like to add that something else happened in 2001 that dramatically affected the country, and the economy, but hey, tax cuts didn’t spur growth.  I get it.

But because we’re having trouble finding people who are for tax increases, here’s the former tax-increaser himself, Bill Clinton, calling for a corporate tax cut rate, in 2011.  Which runs kind of counter to Ruth’s argument above.  But let’s let the Hayek (not Salma) – loving President call it in his own words.

“When I was president, we raised the corporate income-tax rates on corporations that made over $10 million [a year],” the former president told the Aspen Ideas Festival on Saturday evening.

“It made sense when I did it. It doesn’t make sense anymore — we’ve got an uncompetitive rate. We tax at 35 percent of income, although we only take about 23 percent. So we should cut the rate to 25 percent, or whatever’s competitive, and eliminate a lot of the deductions so that we still get a fair amount, and there’s not so much variance in what the corporations pay.

Bill’s point isn’t a new one.  The US is at a competitive disadvantage with foreign corporations that pay a much lower rate

One of these things is not like the others.

than the current 40% we’re sporting here in the US.  In fact, if you stack us up with the EU, etc., the disparity becomes starkly clear:

Simply put, if you believe that the real engine for growth isn’t the government, but rather the people choosing what to do with their money, what to buy, invest in, or save, then you’re probably not a Democrat.

The sad fact is, though, that the other party, the Republicans, isn’t much better on this front, and have voted for massive spending increases, and have justified those increases in much the same way that Democrats do, which is that they try to pitch the spending to the groups that vote for them, to demonstrate the ways that spending benefits that specific group.  In other words, they’re buying votes, with tax dollars.

As Ruth Marcus continues, though, apparently now we’re supposed to care about debt, when Republicans offer a way to improve the economy.  I’m guessing Marcus’ track record as being a deficit or debt hawk was a weak one from 2008-2016:

Meanwhile, the national debt is 77 percent of the economy, the highest since the end of World War II. It is on track to exceed the entire gross domestic product by 2033. That is even without a $1.5 trillion tax cut, the amount envisioned in the just-passed budget resolutions.

The debt doubled in 8 years under Obama.  It took 240 years to get to $9 trillion in debt or so, and in 8 years, that debt doubled.  But even that misses the point – it’s not

So – we’re just going to spend, regardless of revenue.

the tax revenues we’re collecting that drives the debt, it’s the spending.  The enormous gap between revenues and spending is startling – not just the gap, but how much more money we’re both collecting and spending.

Not one peep from Marcus about spending.  Not one mention in her article about the enormous leap in federal spending.  If the tax cut decreases revenues, which it should, of course the gap will widen.  But is the problem revenues?

Or is it, eternally, the unshakeable belief that all spending is a net good, that people keeping more of the money they earn is bad, that rich people (who pay 97% of all income taxes collected) are bad, only those who would spend the money other people earn are inherently, and by default, good.

It’s this sort of acquiescence to a large, centralized, and politicized government that’s caused the deaths of tens of millions in the 20th century, and as the hoary governments of places like Venezuela demonstrate, the catastrophes will continue, no matter how many times the lesson is thrown in our faces.

That reality doesn’t change Marcus’ conclusion, though – that tax cuts are reckless.

Trump wants tax cuts — the biggest ever! — because he promised them. Republicans take tax cuts as a matter of faith; they are desperate for a legislative win, any win, to take to voters next year. So deficit-financed tax cuts may be a political imperative. As an economic matter, they are simply reckless.

No word yet on Marcus’ forthcoming article that might state why the spending is reckless, or the debt incurred under the last administration might also be reckless, and

It’s not just 80’s hairstyles that can be reckless.

how the biggest drivers of future economic disaster are Social Security, Medicare, and Medicaid, and their unfunded liabilities in the trillions.  Those are not even

mentioned, en passant, in her article.

Maybe that was just an oversight in her article.  Or maybe it was just reckless.

 

 

…And Medicare For All

Bernie Sanders, “independent” Senator who’s not from Vermont but owns two houses there, has recently found the time in

What a Senator looks like when you explain the phrase “unfunded liabilities” to him.

his busy schedule to suggest yet another unworkable, ill-conceived, and destructive way to increase federal power and reduce the choices people can make.  Whoops.  I meant “Give everyone something for free, again, without figuring out how in the hell to pay for it”.

Bernie even conveniently slaps a group of meaningless statements on the splash page of his shiny, new, taxpayer-funded website, where such complex ideas as payer mix and 4,000 pages of the tax code are easily, casually batted aside in favor of putting words up on the internet and hoping they mean something when he tries to run for President again in 2020.

Which really means he hopes they’ll buy him some votes.  But I repeat myself.

Bernie’s solution to a multi-trillion dollar health care problem is…more cowbell!  In the form of more (not less) Medicare!

But wait.  I thought Medicare had unfunded liabilities in the trillions of dollars ($28-35 trillion, but what’s ten or twenty trillion amongst friends?).  Why would a sitting (mostly sitting, but frequently kvetching) US Senator want to run up the credit card on US taxpayers, and worse, run it up on taxpayers who aren’t even born yet?

Let’s let some of Bernie’s ideas speak for themselves – these ideas should guide our thinking, and convince us that he’s got the best idea ever, right?  Here’s one:

You mean Obamacare didn’t do this already? Fail.

We must ensure all Americans can access the health care they need regardless of their income.

It’s great to have someone who can afford 3 houses keep the little people of America in mind while he’s posting insipid graphics on a taxpayer-funded website.  But, to address his statement:  Everyone already has access to health care.

I’ll repeat it:  Everyone already has access to health care.

What they don’t have is a government-issued insurance card, which does not guarantee access to health care, or hire or train one more doctor, nurse, or anesthesiologist.

So the issuance of a new “Medicare For Everyone!” insurance card won’t increase access for anyone.  Anywhere.  In fact, given the reality that many providers won’t take Medicare patients, because this version of single-payer does not reimburse providers at cost, it will likely mean even fewer people will have access to health care, which really means access to a provider.

By “our”, does Bernie mean he’s going to be treating patients? One assumes he won’t be checking party affiliations when choosing which patients to see.

We must get our runaway health care spending under control by eliminating waste and focusing on our patients.

Health care spending is “running away” for a host of reasons, very, very little of which has to do with waste.  The rate of private insurance price increases has everything to do with the cost-shift from Medicare (and Medicaid) to private insurers, which results in even less access to care.  From the link:

Once again, each round of Medicare cost shifting to non-Medicare patients routinely shows up in higher insurance premium costs for younger workers and their families, who are already paying the bulk of Medicare bills through their taxes. The level of Medicare cost shifting and the impact on private health insurance will vary from year to year, but these additional costs are in the tens of billions of dollars annually.

In sum, today Medicare imposes financial obligations on most taxpayers in three ways: (1) through their payroll taxes, (2) through their general revenue subsidies of Part B and Part D, and (3) through higher premium costs in their own private coverage to offset Medicare payment policies. For upper-income Americans, the new Medicare tax of 3.8 percent on their “unearned” income, such as stocks and bonds, is earmarked for funding the provisions of the PPACA, not Medicare.

Oh, and that Mayo Clinic picture, above, that Bernie uses on his website?  Here’s some revealing Medicare text directly from the Mayo Clinic:

Although Mayo Clinic doesn’t participate with Medicare Part B, Medicare will help pay for services provided by Mayo Clinic. Claims will be filed to Medicare Part B and supplemental or secondary insurance companies on your behalf. Medicare Part B and supplemental or secondary insurance payments may be sent directly to you. Patients will be responsible for reimbursing Mayo Clinic for any payments they receive and any balances not covered by their insurance.

In other words, Medicare doesn’t cover everything the patient is charged.  It’s not a free medical cost deflector shield.

But let’s have just one more bite at Bernie’s Medicare apple:

Do we need a system that covers people who only own 1 house?

We need a system that works not just for millionaires and billionaires, but for all of us.

Providing “Medicaid for All” would not change a millionaire or billionaire’s ability to pay for their own insurance, or handle out of pocket expenses.  Assuming, again, by this statement, that the system only works for rich people is hilarious on its face, if you’ve ever worked at a hospital.  Or been rational in your thinking.

And since Bernie seems to forget economic reality as part of his morning wake-up routine (after eating his taxpayer-funded breakfast), let’s remember that the richest people in the United States pay the vast majority of income taxes collected.  In fact, the top 10% of earners pay 70% of all income taxes collected.  And half the country pays no net income taxes, at all.  77.5 million households don’t pay any income tax.  Inevitably, Bernie will want to tap the incomes of the people he seems to hate the most, regardless of how much of a burden they already carry.

So what does Bernie really want?  More power, centralized, in the government, to be controlled by him and the rest of the

Free “Wellness”, America. Step inside. Carefully.

clownshow that thinks it’s qualified to make decisions on your behalf.  When the country drowns in debt and unfunded liabilities, and a recently failed presidential candidate thinks we should double down on that destructive debt strategy, then we clearly have put the wrong clowns in positions of power.

We need new clowns.

 

 

 

The Mask Drops: Sanders Unchained

Brooklyn’s own Bernie Sanders (Vermont Senator but really a flatlander with 3 houses, which really, really makes him a flatlander)

Not pictured here: The new chains Bernie wants to put on all of us.

has let slip the dogs of….single-payer?  Not that this is any surprise, but Bernie has stated that he will be introducing a single-payer bill, which he describes as “Medicare for All”.

What an enormous favor Bernie’s doing for Americans!  Why didn’t anyone think of this before?  A truly brilliant analysis and solution provided by a US Senator who didn’t receive his first paycheck until he was 40 years old!

What sort of delights will US citizens receive when Bernie puts us all on Medicare?  Let’s take a look:

Medicare Part A will go bankrupt in 13 years.

Medicare’s Hospital Insurance (HI) or “Part A” Trust Fund ran a cash flow deficit of $8.1 billion in 2014. Expenditures from the Part A trust fund exceeded annual income every year between 2008 and 2014. The Medicare Trustees estimate that the Part A trust fund will generate surpluses between 2015 and 2023 due to recently enacted legislation and an assumed continuation of the economic recovery. Specifically, the Medicare Part A trust fund income is expected to exceed expenditures by about $2 billion in 2015. This surplus continues for the next 8 years – through 2023. Deficits are projected to return in 2024 and will continue until the Part A trust fund is officially bankrupt in 2030, at which time the Medicare program will no longer be able to pay full benefits for seniors.

Medicare Part B will consume a quarter of all federal income taxes by 2089:

The Supplementary Medical Insurance (SMI) or “Part B” trust fund pays for physician care, outpatient services, and prescription drugs. According to Medicare’s actuaries, SMI spending is growing at a rapid rate. The Trustees report evaluates the long term implications of escalating SMI cost growth by comparing it to total Federal income taxes (personal and corporate) during the same fiscal year. The Trustees now predict that, if future federal taxes maintain their historical average level (relative to the national economy), then SMI general revenue financing in 2089 will represent 26 percent of total Federal income taxes.

The Independent Payment Advisory Board – an unelected board that sets target levels for spending on Medicare – will set “savings

Bernie brainstorming.

targets” annually, which means cuts to reimbursements to hospitals and providers.

The health care law created a 15-member Independent Payment Advisory Board (IPAB) charged with making recommendations to cut Medicare spending if and when the program’s spending exceeds specified economic growth targets. Since 2013, the CMS Chief Actuary has been required to calculate both the projected and target growth rates. If the Chief Actuary determines that the projected Medicare per capita growth rate exceeds the per capita target growth rate in a given implementation year, then the Chief Actuary must set a savings target for that year. For determination year 2013 through 2015, target growth rates have not been exceeded.

The Trustees now predict that Medicare’s per capita growth rate will exceed the per capita target growth rate in 2017 – five years earlier than projected in last year’s report. Legislation (S. 141, the “Protecting Seniors Access to Medicare Act”) has been introduced in the Senate that would repeal this unelected, unaccountable IPAB board. The House of Representatives approved a companion measure, H.R. 1190, on June 23, 2015.

Unfunded obligations in the tens of trillions of dollars:

Medicare Part A is financed by a 2.9 percent payroll tax that is split between employers and employees. The health care law (starting in 2013) mandated an additional 0.9 percent payroll tax on wages over $200,000 for single filers and $250,000 for married filers. There is no upper limit on earnings subject to the tax. Income deposited into the Part A trust fund is credited using interest-bearing government securities. Expenditures for medical services and administrative costs are recorded against the fund. Securities represent obligations the government has issued to itself. The Medicare Trustees estimate the Medicare Part A total unfunded obligation over 75 years is $3.2 trillion. Using the Centers for Medicare and Medicaid Services (CMS) Actuary’s alternative projection, which looks at Medicare’s financial footing using more realistic assumptions, the Part A unfunded obligation over 75 years climbs to $7.9 trillion.

Unlike the Medicare Part A trust fund which has a dedicated revenue stream (the HI payroll tax), Medicare Part B and Medicare Part D (prescription drug benefit) are funded by beneficiary premiums and general revenue. As a result, the Medicare Trustees estimate that the amount of taxes collected over the next 75 years that will be spent to pay for Medicare Part B and Part D services equals $24.8 trillion.

Assuming current law remains unchanged, the Trustees project Medicare’s 75 year total spending in excess of dedicated revenues is $27.9 trillion. Again, using the CMS Actuary’s more realistic alternative scenario, that figure soars to $36.8 trillion.

All of this is just the start for “Medicare for All”.  Because Medicare reimburses providers below the cost of providing that service, and there would be no more private insurance to push the costs onto (via increased rates in the private market), the inevitable result of underpaying for services is a reduction in services provided – or, as users of Great Britain’s NHS are enjoying right now – the rationing of health care.

Since Sanders currently enjoys a tasty exemption from the Obamacare mandate, through a subsidy provided to Congress and their staffs, I would also expect the Senator, once full ensconced in the warm, loving embrace of Medicare For All to ditch his subsidy and wallow in the results of his legislation, like the people he’s planning to foist it upon.

But the larger question remains:  If Sanders thinks Medicare For All is the solution to the nation’s health care problems, what, out of

Bernie looks great in a hat here.

the above, makes him think he’s doing anything other than setting us on a path that a) reduces access to care, and b) increases the rate at which the federal budget implodes?

And this is his best idea of a fix?  Then I’d hate to see the ideas he discarded as being unworkable.  His latest is another example of what happens when politicians are put in charge of our lives, and their only accountability to the impacts they make on us is whether or not they can sell 50% of the voting populace on the idea that they’re giving them something they need, for free, paid for by someone else.

 

 

 

The Fallacies of the New Economy

As Vermont’s economy continues down its relentless path toward the ashbin of history, at least, um, several Vermonters are advocating for a “new” economy.  What’s the under-pinning of this new economy?  Innovation?  A removal of existing regulatory overheads so high that the state won’t finish building a road it started three decades ago?  A restructuring of its tax burden to entice businesses to move to or invest in the state, to grow an economy that ranks 2nd worst in the country?  A job climate that doesn’t scare college graduates into leaving the state at one of the highest rates in the country?

Nope.  Instead of those things, a group of concerned Vermonters calling themselves “Vermonters for a New Economy” have decided that the primary answer to the problems above is a bank.

Yep.  A bank.  But not just any bank.  A state bank.  Meaning a bank that is funded, and backed, to one degree or another by public funds (the funding issue is just another one of those thorny details that no one really needs to think about, just yet).  Which means, of course, that any risk or liability falls directly upon the shoulders and wallets of those who pay taxes.

And what is their mission statement?  Their raison d’etre?  Here it is:

Vermonters for a New Economy is a coalition of organizations, businesses, and individuals working to create a new economy for Vermont. You can work with us to design and enjoy the new ways we are owning and operating businesses, banking, exchanging goods and services, financing projects, and earning income.  This work enables us to pursue regenerative economic activities that strengthen our food systems, build renewable energy, reuse and recycle byproducts, and foster creativity, culture, and healthy lifestyles.

I must have missed Banking 101, but I’m pretty sure the bank didn’t ask me about my healthy lifestyle choices when I applied for a mortgage.  They wanted some details around income, liabilities, etc., because they’re crazy like that.  But no mention of how their capital would foster my creativity.  Which is mildly disappointing.  It’s also fantastic that they’re allowing Vermonters to work with these New Economists as to how Vermonters earn their own incomes.

That’s generous of them.

But let’s let the New Economy Vermonters provide more of their own detail, in terms of why they think we need a state bank:

Our Planet —  a VT state bank can provide the game-changing, long-term, low-interest financing that will power a transition to a just and sustainable future

Students — to access low interest education loans.

Homeowners — to get mortgages and home loans from the bank.

Entrepreneurs — who need credit lines, loans, and other forms of finance to help their businesses succeed.

Municipalities – the bank can offer competitive interest on public deposits and lower cost financing for public works.

Taxpayers — who will benefit from both the profits the bank makes and the services the bank offers

Well, that’s quite a bit to digest, so let’s take it one at a time:

1.  Our Planet —  a VT state bank can provide the game-changing, long-term, low-interest financing that will power a transition to a just and sustainable future.
The planet.  So the planet needs a Bank?  How did the planet exist, then, before humans evolved?  Did Gaia patiently wait for first humans to evolve, then banking, in order to provide a high enough state of enlightenment before asking for funding?  Gaia’s patience here with us is considerable.
2.  Students — to access low interest education loans.
You mean like those low interest student loans current and former students enjoyed, courtesy of one of the biggest central banks in the world?  Loans that are at higher rates that mortgage rates, but worse, are also subsidized rates?
The last large effort to nationalize the student loan program fell afoul of the same issues around health care, and that plan has now been shelved.
So the federal government can’t do it, with virtually limitless resources, but Vermont can, now, because of one bank?
In fact, VSAC has said it’s “agnostic” on the idea of a state bank.  So why list student loans as a justification, when the one institution that has historically provided student loans doesn’t see the need?

When the CEO of VSAC says they don’t need additional access to capital, maybe you should remove that selling point from your website.

3.  Homeowners — to get mortgages and home loans from the bank.
You can already get loans from banks, easily – they’ll happily lend you money for a house, or equity loans.  It’s how they make money.  For FHA loans, you only need 3.5% down.  Rates for fixed 30-year FHA loans are well under 4%.  Do Vermonters not know how to apply for a loan, and the state bank will save them from their own ignorance?
And why the incentive to increase – via public funds – the number of mortgage lenders, increasing competition, when, in many cases, the same people who tout this state bank (like Bernie Sanders) want to decrease competition in other markets, like health care?  Why is it a good thing to increase competition in one place, but not the other?
4.  Entrepreneurs — who need credit lines, loans, and other forms of finance to help their businesses succeed.
They can get this already from existing banks and investors.  What would a state bank provide that does not already exist?  Other than offering riskier loans that will be backed by taxpayers?  There’s a federal Small Business Administration that offers many channels for funding.  What would this bank offer that’s not already available?
5.  Municipalities – the bank can offer competitive interest on public deposits and lower cost financing for public works.
Municipalities already have access to funding through banks and bonds.  Like the Vermont Municipal Bond Bank, which has been in place since 1970.  If municipalities already have access to low-interest funding source, why do they need another one?
6.  Taxpayers — who will benefit from both the profits the bank makes and the services the bank offers.
You mean like the benefits current federal taxpayers enjoy, like $20 trillion in debt?  The profit the bank makes is the interest on the loan, which, for the federal government, increases as a percentage of total spending, and if the rates increase, even a little bit, will start to crowd out all other discretionary spending.
Which is really the heart of the matter.  The supporters of the state bank are looking for a way to finance spending now that someone else will have to pay for later.  It’s like giving a college student a credit card with no limit.  Sooner or later that bill will come due, and the people who want to create and support that state bank will then be asking taxpayers to bail it out, just like some other large financial institutions, like Freddie and Fannie.  Which have become, more or less, nationalized.
But the worst of the justifications for the proposed bank’s existence are in its own supporting documents, which make a few claims of fact that aren’t supported by reality.  A few examples (page 6):

Assumptions made reality by simply writing them down.

Sub-prime mortgages are what Fannie and Freddie specialized in, and still continue to be the largest generators of these types of loans in the industry.  Taxpayers had to bail out their poor business practices and the fact that they were understating their sub-prime exposure; there is nothing in the call for a state bank that would prevent this from recurring.
Secondly, citing Vermont’s low unemployment rate as evidence of economic stability means they either a) willfully ignore the reality of Vermont’s declining workforce participation rate, or b) don’t understand what they’re talking about.  If they’re using this conclusion (below) as one of the underpinnings of the justification for the need for a state bank, they’re making a significant error:
 That Vermont’s housing prices didn’t tumble doesn’t mean anything about “integrity” of anything, and neither does unemployment.  As has been repeatedly shown, Vermont’s unemployment is low primarily because the workforce is shrinking, not because of new jobs created.  As the report’s earlier statements argue, correlation does not equal causation.

Well, it does when we argue that the state’s economy is in great shape based on unemployment data. Then it’s ok to make that correlation argument.

If anything, the state’s demographics and the general leveling off of already-high housing prices won’t require a state bank to support increased demand for mortgages.   In fact, the reason housing prices are (relatively) level is because demand isn’t increasing.  There are simply fewer Vermonters looking to buy homes:
Vermont’s economy, and its housing market, are clearly not divorced from national trends. But our housing market seems to be under performing the national housing market, which is worrisome. Over the last two years, Vermont’s housing market, at least measured by prices, has gone nowhere. Nationally, prices are up 7 percent over the same period—not great, but at least it’s a positive number.

One of the reasons for our weak housing market is our underlying demographics. First-time home buyers tend to be in their 30s and early 40s. That’s precisely the demographic that’s shrinking in Vermont. And if there are fewer first-time home buyers, people trying to sell their houses and trade up to more expensive homes can’t find buyers. That clogs up both sides of the home-buying and home-selling market, limiting both sales and price appreciation.

The New Economy site also encourages readers to read the study that justifies the new state bank.  Hilariously, the study recommends that the state not implement a state bank.  That the capital needs are already met.  That the current options available for financing are just fine.  From page 3:

So…we *don’t* need a state bank, then?  Oopsy!

Then what is the purpose of the New Economy site?  To ignore the realities of Vermont’s business climate, Vermonters’ incomes, the demographic changes, and historical policy overhangs that make the state a lousy place to do business?  Another bank won’t fix that.  Another bank can’t fix that.
Only Vermonters can fix Vermont, by dismantling the policies and governmental apparatus that have put them in the place they are today.  If that’s part of the New Vermont Economy, then maybe things will start to change.

Squeals On Wheels

Recently, a small part of the Trump administration’s budget proposal generated a series of high-pitched squeals across the United States.  Said squeals which could mostly be found in such squeal-oriented places like Facebook, Twitter, and college campuses, where squeals propagate like hippies at a free lunch buffet, and where economic reality enjoys a permanent holiday.

And the root cause for the squealing?  A complete misunderstanding of the federal budget and how some non-profits are funded .  But the squeals of anguish were not rallies to the cause of federalism.  No.  Instead, they were cries of outrage that Trump was cutting the Meals on Wheels program.  A program that relies, so heavily, on government grants.

 

Oh, wait.  It doesn’t.  It’s 3% of their budget (page 18).

And…..it’s 3 percent.

As Reason has noted, the issue is much less about the individual programs that receive grants.  What Meals on Wheels does is a fantastic example of what local effort, and local control, can do to positively impact lives, and help people who need just a little bit of help, a meal, and even a wellness check, when no one is doing that for them.  It’s the vehicle that spends billions per year on administering and doling out dollars that is the source of the issue, and ultimately some level of corruption – the Community Development Block Grant Program.

What’s the result of lading a trough filled with pork in front of politicians eager to buy votes?  The quick appearance of dollar-guzzling politicians, seeing an opportunity to buy something (votes) with someone else’s money (yours and generations of unborn saddled with federal debt):

You don’t need to look far in the past to see this sort of corruption taking place. In June, the Department of Housing and Urban Development (HUD) sent a scathing letter to the Mayor of Honolulu Hawaii, calling on the city to return nearly $8 million in CDBG funds that it gave to Opportunities and Resources Inc. (ORI), a nonprofit redevelopment organization in central Oahu. The Aloha Gardens Wellness Center and Camp Pineapple 808 both were projects developed by ORI with federally issued CDBG money meant to serve elderly and disabled persons, but since completion, the projects haven’t exactly been used for their advertised purpose.

The HUD report claims ORI had been marketing the centers to the public as venues for weddings, parties, banquets, fundraisers, corporate retreats, conferences and family reunions. The city also lent ORI nearly $1.2 million in CDBG funds between 1989 and 1995, which it decided to forgive back in 2010. HUD found that this decision was made by city employees who were running for elected office while receiving campaign donations from ORI representatives.  The report states:

“ORI has maintained significant support over many years by the direct involvement of high ranking City and State officials…The direct involvement of the officials’ appears to have placed pressure on staff resulting in the City ignoring regulatory violations in favor of completing the project and satisfying ORI’s requests.”

In other words, the funding becomes the driving policy directive, not the service that the funding might itself provide.  The funding model subverts the local control because the dollars are critical to a political outcome, less so in addressing a local need.

Local control, and local accountability for dollars spent, should be the watchwords.  But because the federal government throws billions around, annually, in thousands of programs, it would be extremely difficult to say no to those funds if you’re sitting in a small municipal office, wondering how you’re going to affect some local change.  Which then creates the puppet strings that federal agencies, and ultimately politicians, use to buy votes, and influence voters.  Once the city or state becomes hooked on the federal dollars, they can no longer say no to them – and are adversely affected when funding for those programs becomes a political football.

The accretion of these programs, in the federal budget, is what has given rise to the outsized spending and record deficits seen during the last 8 years.  This growth isn’t directly attributable to one administration, but the Obama administration stomped down hard on entitlement spending, then tried to laughably claim that it reduced deficits – record deficits the administration itself had set in the years preceding its final year.

The result was a doubling of national debt in 8 years, a doubling of the debt that took over 200 years to first accumulate.  We have had 4 years of trillion-dollar deficits.  The first year the government started spending over a trillion dollars per year was 1987.  30 years later, we have deficits bigger than the total annual spend in 1987.  Today we’re borrowing more to fund an annual deficit than our total spend was 30 years ago.

I’m noticing a trend here.

 

Hey, what’s a trillion in borrowing, amongst friends?

The historical record doesn’t show any sign of slowing down in spending, which means a further erosion of local control, leave alone any kind of spending efficacy metric that would allow for decision-making regarding the growth or reduction of spending on a program.  Once a program is established, whether or not it’s doing something good or bad (if you can even quantify those outcomes), it will never, ever go away.  It’s too late now.

And any call to reduce spending is met with the squeals.  The self-agonized cries of those who believe, fervently, that it’s up to the federal government to fix local problems, address local needs, through taxation.  Which is, in a way, a tithe of the conscience – that one is off the hook to get off the couch on a Sunday to help someone else, because the government is doing it for them, through their income taxes.

Or, more to the point, through the taxes of those filthy, evil rich people.  The same people who pay 97% of all income taxes collected.  Which will never, ever be enough to pay for the programs that help politicians get elected, to grow the spending of government again next year.  When politicians have a credit card with a $1.5 trillion dollar limit on it, what’s their incentive to not spend more than we have?  For them, the downside to spending less is not getting re-elected.

Until those political incentives change, you’ll continue to see the growth in federal outlays, and a continuing reduction in incomes relative to that spending growth, as the weight of spending and borrowing drags the economy into a perpetually smaller cycle of growth.  It’s already happening.

Trump’s budget, while flawed (like every budget before his), is actually looking to address an issue around federalism, which is:  Why do you need a federal government to sink its controlling claws into a local effort to help those in need?  Why not just cut the check to your local charity of choice and avoid the federal middleman?

Why give more control to someone else over your own choices?  Hopefully the answer to that isn’t “Because then I don’t have to think about it”.

 

 

 

 

 

 

Barrynomics: Keynes Unchained

What a difference 8 years can make – if you’re interested in holding public debt.  The Obama administration leaves office just inches away from a $20 trillion dollar debt, when in 2009 that administration inherited $10 trillion in debt.  It took the US a couple hundred years to get to $10 trillion; Obama created almost that much debt in 8 years.

debt-2

Trillion-dollar deficits became the norm from 2009-2012, as “stimulus” spending was touted as the fix to everything that ails the economy.  A question never asked in those conversations might be “If federal spending fixes recessions, and federal spending goes up every year, without fail, why do we ever have recessions?”

Because the answer would be “I don’t know”, and historically there’s no correlation between increased federal spending and increases in GDP – even with federal spending as a component of GDP.  As shown below, federal expenditures continue to increase, debt increases, and GDP bounces all over the place, but in a downward direction.

Finally! Evidence that federal spending fixes everything.

Finally! Evidence that federal spending fixes everything.

In fact, in 2014 it was predicted that the shorter-term positive impacts would inevitably give over to negative growth impacts:

“In contrast to its positive near-term macroeconomic effects, ARRA will reduce output slightly in the long run, CBO estimates — by between zero and 0.2 percent after 2016,” the analysts said in their new report.

They said the cause is all of the borrowing for the $830 billion program, which dramatically boosted the federal debt.

“To the extent that people hold their wealth in government securities rather than in a form that can be used to finance private investment, the increased debt tends to reduce the stock of productive private capital. In the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital,” the CBO estimated.

As icing on the Obama administration’s economic cake, GDP in the 4th quarter of 2016 came in at a whopping 1.9%.  For 2016, the annual rate came in at 1.6%, down from 2.6% the year before, which seems to correlate to the CBO estimates above.  So instead of going out with a bang, Barrynomics goes out with an agonized whimper.

What is interesting, though, is that there’s a correlation between incomes and deficits – but in an unexpected direction.  As deficits get bigger (meaning gov’t spends more than it takes in), incomes decrease, at precisely the time when deficit spending is supposed to improve negative income trends through stimulus spending.

So stimulus spending has a negative effect on incomes? That's not the America Joe "Recovery Summer 2009" Biden described to me. He told me I'd be able to buy a Camaro soon!

So stimulus spending has a negative effect on incomes? That’s not the America Joe “Recovery Summer 2009” Biden described to me. He told me I’d be able to buy a Camaro soon!

The smaller the deficits, the larger the incomes.  The bigger the deficits, the smaller the incomes.  Even if federal spending during recessions is designed to offset income reductions through job losses, etc, it apparently does not have that effect.  At all.

Which runs entirely counter to the basic ideas espoused by Keynes, and that federal spending (including significant deficit spending) could dampen recessionary effects in the short run, and in the longer run help grow the economy.

biden-camaro

Want to go for a ride, big fella?

But there’s no real way to account for the disparate impacts of that spending, which has to grind through the political mill and get disbursed through the bureaucracy via changes to funding, grants, etc, which then has to be actually spent by the receiving agencies.  That spending can’t ramp up to full speed on a dime, and if it’s a larger multi-year project, any benefits of that spending (through new hires and their subsequent income increases, impacting aggregate demand) would be delayed, at best, for an unknowable period of time.

Finally, because the civilian labor force participation rate is at historical lows (below), and seems to correlate to the drop in GDP, it seems that any incentives one has to drop out of the labor force – increases in unemployment benefits, expanded entitlement spending, etc – might have as its final result an unanticipated reduction in economic growth.

A reduction that would apparently come as a surprise to both Keynes and Obama.

 

gdp-and-civ-labor-force