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.

 

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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.

 

 

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.

 

 

 

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

 

Recovering From Obama’s Decade of Recovery

The improbable Trump presidential win has led to the most obvious of questions, which is – what can Trump do for the economy?

To answer that, let’s take a look at what’s left of the economy after 8 years of Barry’s version of “economics”, which seemed to largely consist of increased federal spending (to new record levels), massive increases in the regulatory state, and condemnation of those who pay over half the income taxes the federal gov’t seems to so happily gobble up.

It turns out that federal spending and the growth of the federal government does not increase GDP, even when federal outlays are a component of the GDP metric.  The spike in spending in 2008 (these are YOY percentage changes) and again in 2010 reinforce that conclusion – even if you assumed a causal relationship between spending in 2008 and the return from negative GDP in 2008/2009/2010, that conclusion becomes demonstrably false after 2010’s spending, which almost matches 2008, and GDP for that year is flat and decreases afterwards.

gdp-and-fed-spending

 

There’s virtually zero correlation to federal spending and economic growth, especially in this “recovery” as it pertains to job growth.  As an example, let’s look at YOY job growth by job category, October 2015 to October 2016 (from our friends at BLS.gov):

You can almost *taste* the deliciousness of job growth here. Almost.

You can almost *taste* the deliciousness of job growth here. Almost.

Health care and social assistance are largely funded by tax dollars – Medicare and Medicaid are an enormous component all health care spending, so the jobs “created” in health care, are, in part, funded by taxes.  Pensions, in the category below, includes Social Security, disability insurance, workers compensation, etc.  Health care in the category below, includes Medicaid, Medicare, and everything in between.  Over half the 2016 federal budget – $3.854 trillion – is consumed in these two categories.

 

2016-spending-snap

So while federal spending in the largest job-creating categories means that, well, we’re borrowing 40% or so of every dollar spent to create jobs in areas that are already funded by tax dollars, means we’re chasing a negative feedback loop if we think federal spending can simply fund an infinite amount of jobs, and/or increase incomes.

In fact, if you take a look at federal expenditures and median household incomes, there’s almost an inverse impact on incomes – federal spending goes up and median household incomes stay the same, or actually decrease.  When spending goes down, in 2013-2014, incomes actually go up.  Which should tell you all you need to know about using federal spending to increase incomes.

Not really a strong argument for Keynesian economics, that.

Not really a strong argument for Keynesian economics, that.

So, despite 8 years of the 2009 Recovery Summer, what were Obama’s results after assuring us that we needed to spend trillions we didn’t have, else the economy would crash?  A fairly wrecked economy that’s stumbled forward for 8 years – 8 years! – with incomes staying fairly flat, and frequently dipping into negative growth rates.

As Fortune points out in a recent article, it can be argued that for the first time in modern history, there has been no economy recovery.  At least according a Gallup study (linked from the Fortune article), titled “An Analysis of Long-Term US Productivity Decline“:

Rothwell (the study’s author – ed.) goes on to argue that regulatory and tax reform is the main culprit for America’s economic woes, and that the healthcare, housing, and education industries have been particularly harmed by the government. He points to statistics showing that despite rapidly rising costs in all three of these industries, the quality of the products and services offered has stagnated.

Growth in government spending just exacerbates the negative trends.  As an example, new firms per capita are half of what they were in 1981 – and new firms, and new jobs, are the engines that drive future business growth.  From page 73 of the study:

ENTREPRENEURIAL ACTIVITY HAS DECLINED

The escalating cost of healthcare may also have implications for the creation of new firms or startups. There is always an element of risk in creating a new business, but the rising costs of healthcare magnify that risk. In previous decades, an employed worker could quit his or her job and pay for healthcare expenses out-of-pocket if necessary. Now, out-of-pocket expenses for the non-insured are extremely high, so an employed worker who quits to start a business likely gives up a valuable healthcare plan and may have to impose those costs on his or her own fledgling business at a time when revenue is dangerously low. Provisions in the Affordable Care Act were designed to make it easier for the self-employed to purchase health insurance, but even in 2014, 23% of self-employed workers between the ages of 18 and 64 lacked health insurance, compared with 13% of wage and salary workers. For those who are self-employed and have insurance, only about half get it through their businesses.93 Whatever the reasons, people are much less likely to either be self employed or start firms with at least one employee. The number of new firms with at least one worker per capita has fallen by about half since the late 1970s. Although the downward trend has been going on for decades, it accelerated over the Great Recession and has not inched back up.

new-firms

If the United States is to recover from Obama’s Recovery Decade ™, a good place to start would be the dismantling of federal spending onditch a permanent basis, and a re-set in Congress in terms of what it can and should be doing to foster economic growth.  Instead of a decade of piling on regulations and costs in a recession, maybe it could start lifting those weights off of businesses’ backs, and see what happens.

Because whatever Obama’s been trying for 8 years is a perfect recipe for keeping the economy, and the people who do all the work in it, permanently in the ditch.

 

 

 

Leviathan Shrugged

pacific-rim-kaiju-otachi-more

Hmmm – I wonder what a boat filled with taxpayers tastes like?

As Americans set course on a journey that would net them two presidential candidates who are the least liked in what appears to be all of history, one or two or thirty things come to mind, regarding the general irrelevance of which party wins the presidency.  Let’s start at the top.

It does not matter who the next president is:  Federal spending will continue to grow faster than the pace of inflation, or population growth, GDP growth (even with federal spending as one of its components), or the growth of my 401k.  Just taking the last 25 years or so, what is reliably and consistently growing, so much so that if it were an investment option, people would be buying it like cakes that are really hot?

Spending.  Spending is king.

fed-spend-and-gdp

“But wait!” gasps the Keynesian.  “Federal spending is needed during recessions to jump-start the economy, and reduce unemployment”.

Sure – but those dollars spent come from somewhere, in the form of taxes and borrowing, and when that happens, those dollars aren’t available for capital spending, investment, savings, etc, all of which actually creates jobs in the private sector.  It doesn’t have the net effect of taking dollars from the private sector to spend them via the public sector, which gains nothing, other than votes for office and an increase in the debt and deficit.

Unemployment increases and decreases independent of expenditures - not because of them.

Unemployment increases and decreases independent of expenditures – not because of them.

The reality is that the unemployment rate is more closely tied to the dwindling labor force participation rate than it is to federal spending – which runs counter to the standard Democrat response to any kind of recession, consisting of mostly “let’s spend even more money than usual under the guise of helping”.

spend-unemp-and-lbr-force

Participation rate goes down at roughly the same pace as unemployment, independent of increases in federal spending.

In fact, if you go back to 2000, the labor force starts dropping dramatically when, exactly?  Let me check – ah, that’s right, as soon as Barack Obama assumed the presidency.  That drop in participation accounts for nearly all the unemployment reductions since the recession started.

Recovery 2009 never looked so good! Thanks Biden!

Recovery 2009 never looked so good! Thanks Biden!

But it does, of course, get worse.  If you look at unfilled job vacancies, going back to 2001 – we still have (slightly) fewer unfilled vacancies as of 2015 as we did in 2001 or so.  Yet federal spending doubled during that time.  If you use vacancies – jobs available – as a barometer of growth, we’ve doubled federal spending for no net gain in available jobs.

unfilled-gigs-and-spend

All of which is just another reason why the person occupying the White House can speak to different policies, preferences, and budget priorities, but every year, spending goes up.  The deficits, once deemed unpatriotic due to their size by Obama, yet doubled under his presidency, and the subsequent debt, are just choices being pushed onto future generations.

Or, better stated – a reduction of choices, for them.  Because they will be footing the bill for what we spend now, and they didn’t even get a chance to vote on the lesser of two evils, whoever you might end up choosing to vote for on Election Day.  The less they have to spend, the less free they are, to make their own choices.  We are choosing for them.

In other words, Leviathan, in the form of the federal government, doesn’t care who wins.  Leviathan will continue to feed off the labor of the citizens (those still working, anyway), and the borrowed future earnings of those not even born yet.  The only way to kill this beast is to starve it, and no modern president, or presidential candidate, seems interested in taking that one sane step forward.

 

 

The Power of No

What happens when you have the power to deny, to say “no”?  Then you are in control.  The person denied has no control, no power, no other option.  The power to say “no” is like being an umpire in a baseball game.  You can complain all you want, yell, kick some dirt (if you’re a

When good people hear the word "No". OK, marginally good people.

When good people hear the word “No”. OK, marginally good people.

former Yankee manager), or throw second base, but 99.9% of the time, you will not get what you want.  You’ll go back to the dugout (and like it), or you’ll get ejected.

Those are your two options.  That’s it.  Neither option satisfies the complaint.

In markets, competition means choices for the buyer, of whatever product or service they’re interested in acquiring.  With competition comes incentives for the business to provide a better service at a lower price, in order to gain more market share.  Choice erases the power to say “no”, because if you don’t like what you’re offered, you can take your business elsewhere.  Now the customer has the power to say “No”.

But what if you’re the only game in town?  A monopoly?  Those are generally illegal, which is why the government spends so much time enforcing antitrust laws.  In fact, they helpfully define them:

Many consumers have never heard of antitrust laws, but enforcement of these laws saves consumers millions and even billions of dollars a year. The Federal Government enforces three major Federal antitrust laws, and most states also have their own. Essentially, these laws prohibit business practices that unreasonably deprive consumers of the benefits of competition, resulting in higher prices for products and services.

But what the DoJ does not do is enforce antitrust laws against the US government, which has the market cornered (so to speak) on cornered markets, especially for health care, in Medicare and Medicaid, and other recipients of federal…care.

In fact, for some on the receiving end of the government’s monopoly on health care for their particular demographic, not being able to shop for better coverage means you’re stuck with whatever the government gives you.

In some cases, that means much more than sub-standard care.  It means catastrophically bad care, which is why only the US government could be the entity providing “care” to veterans, and have them die on their watch.  In the very place that’s been created and funded specifically for their needs.

Who has had the responsibility and oversight for this organization, the Veterans Administration?  Politicians.  More specifically, a politician who sat as the Chair of the Veterans Affairs committee from January 3, 2013, through January 3, 2015, and still sits as a member today?

Bernie celebrating his victory over Hillary Clinton.

Bernie celebrating his victory over Hillary Clinton.  (Ahem)

Bernie Sanders.  The politician that wants to expand the size of government, in order to expand its power – its power to say “no” to the people it’s supposed to represent.  The same politician who failed to oversee his own agency’s power to deny care.

But it’s not just veterans that fall before the power of “No”.  Medicaid and Medicare, both bright, shining examples of your government working for you (sort of), has a long and distinguished history of saying “no” to applicants, to people appealing decisions, and have gotten pretty good at saying “no”.

In fact, let’s take a look at the sweet KPIs HHS is compiling on appeals.  Looks like there might be one or two people out there unhappy with the one, single choice they have for health care, in Medicare (below).  For example, through FY2015, the average processing time for appeals decided (both for or against the person appealing) was 547.1 days.

That's a hot new trend in government service.

That’s a hot new trend in government service.

Now I’m no rocket surgeon, but a year and a half or so of waiting for the lumbering apparatus of those entrusted with tax dollars to disburse them to those who need them seems like, maybe, just a bit longer than is reasonable?  Especially if death is a more probable outcome if an issue goes untreated, thanks to your friends at HHS?  Especially considering those people on Medicare are typically retirees and the elderly?

So how does HHS measure itself against these appeals to power?  What do the results of these appeals look like – what are the outcomes? From the chart below, more than half are Unfavorable or Dismissed.  The power of “no” in action.

Kind of a "read 'em and weep" chart here.

Kind of a “read ’em and weep” chart here.

Even if one does receive a favorable appeal, there is one final, telling stat, the Average Processing Time.  A stat that if it was shown at a high enough leadership level internally in an organization other than one run by the USG, would result in one of the following:

  1. Firings of leadership.
  2. Money thrown at the problem to alleviate the downward trend and mediate loss of market share.
  3. Both #1 and #2.

Even if a favorable outcome is decided, the person appealing might have have outcomes other than favorable already.

As far as trends go, this is Not A Good One.

As far as trends go, this is Not A Good One.

Bernie Sanders, in order to fix what he thinks is wrong, wants the government to increase spending by 2X the current debt of the United States, or another 18 trillion in entitlements of one kind or another, but specifically in single-payer.  Given the examples above, and the power ceded to a government agency that can then tell you what you can’t have, how can Bernie argue on one hand that this is good for all Americans, while on the other, he’s removing choice from the equation?  How are people empowered when they have no choice?

Were veterans empowered while they sat on secret waiting lists for the care they deserved more than anyone else?  Or were they trapped in a

The Power of Choice - you're free to choose the one option.

The Power of Choice – you’re free to choose the one option.

system, one with no options, and left to suffer the consequences?

No.  If you can say no, that’s when you know you’re in charge.  Bernie wanted to be in charge of the biggest government apparatus in history, one with the largest and most expansive power, ever, to say “no”, and he effectively sold this idea to tens of millions of people.  The same politician who decided, on his own, that there are too many types of deodorant for sale, was telling everyone exactly what he thought of their power to choose.

Which begs the question:  Why let anyone make choices for you?

 

 

 

 

18 Trillion Oughta Do It

Bernie Sanders, a man whose entire existence has been funded by the earnings of people who work for a living, has famously proposed to spend even more of other peoples’ money, to the tune of $18 trillion or so, over the next 10 years.  This is in addition to what the USG is

In Bernie's mind, this is far too little spending. Wait. Did I say "mind"?

In Bernie’s mind, this is far too little spending. Wait. Did I say “mind”?

currently spending, which, as a percentage of GDP, is at WW2-era levels of spending, and last I saw, we weren’t driving Shermans through the Ardennes on the way to Berlin.  Call it an additional $1.8 trillion per year, over and above the 2015 benchmark spending level of $3.69 trillion per year.

A trillion here, a trillion there, pretty soon we’re talking serious money.

Well.  Where are all these massively underutilized dollars going to come from, anyway, so the federal government can correctly spend them for us?  Is $18 trillion sitting under a really large number of mattresses?

As it turns out, the answer to the mattress question is “No”, and even an economic simple Simon like Sanders (apologies to Simons everywhere, simple or otherwise, excluding an apology to Sanders) can look at the data and understand that, but he doesn’t want to.  Why?  Because he doesn’t have to, that’s why – he can easily peddle “free” to people who still believe in such things as, well, things not having a cost, to them or others, because there’s never a shortage of people who will line up for something they did not earn.

Bernie’s selling point is that The Rich ™ can and will pay for it, a canard that has been used by such other lovely humanitarians like Lenin and Mao, whose actions resulted in the deaths of tens of millions.  But instead of pointing out history to a reality denier like Sanders, let’s look at the actual income paid into the IRS at all income levels, and see what’s actually there to be taxed.  All data courtesy of the IRS.

In 2013, the modified taxable personal income total was $6.4 trillion.  Total taxes generated were $1.265 trillion.  But take a look at where the Taxable Incomes and taxes paid 2013 v2bulk of those tax revenues came from – they came directly from the middle class, not the “rich”.  Any plan of Sanders that involves increasing taxes to pay for additional spending will come directly out of middle-income pockets.

Why?  Because the “rich” often don’t earn a salary, they earn income off investments, which is taxed at a different rate, and is money actually risked in the economy.  Secondly, if someone has a million dollar home, they might be considered rich in assets, but you can’t install an ATM on the side of your house to give you cash from the asset on your way to the supermarket.  That asset can be converted to dollars (through a loan against the asset) or sold, but it’s not income that can be taxed.

In fact as a percentage of total taxes paid, the $100,000 to $200,000 bracket bears the biggest federal income tax smack of anybody.  Now, in Sanders’ world, $200,000 might sound like a “rich” person, but a married couple earning $75,000 apiece, for $150,000 in total household income, would probably not be perceived as rich by anyone who knows what a mortgage payment on a simple $200,000 home is, and if a child comes along, well, those incomes start looking even smaller.

The income brackets from $50,000 through $500,000 constitute 66% of all income taxes collected.  These brackets are the ones that are currently the hardest hit in terms of tax burden.  It’s where the potential income is to be taxed in the first place.

Soak the middle! Er, the rich!

Soak the middle! Er, the rich!

So anything Sanders proposes in terms of new taxes will be disproportionately burdened on the very families he preaches he’s going to take care of.

Where would Sanders get that additional $1.8 trillion of annual spending?  In order to generate that additional $1.8 from the $50K-$500K brackets, he would have to double the effective income tax rate.  Double it.  Raise your hand if you’ve seen Bernie mention doubling the middle-class income tax rates.

Now, Bernie wants a blend of additional tax increases and revenues, so it would not fall entirely on the middle-class, but since income taxes constitute about half the USG’s tax revenues, that’s where the biggest hit will have to come from.  It’s not a choice.

But to make it worse, half the country pays no net income taxes.  Yet they get to vote in the economic duferati like Bernie Sanders, who has promised to give that half something for nothing, again, and has ridden that mantra all the way through Iowa.  Greed sells, it seems, but only Bernie seems to think it’s corporations that are greedy.  When the people who are apparently not too busy to be working at an actual job rush out to see him on the campaign

Or the true cost of dependency, but go Bernie!

Or the true cost of dependency, but go Bernie!

trail, waving “Free College!” signs, it’s fair to ask:  Who’s the greedy one here?

Bernie’s Economic Babbling: Trotsky Style!

Bernie Sanders, Brooklynite-In-Exile in Vermont, has a long series of errors on his campaign website, mostly related to economics.

And you can start thanking Bernie now by voting in 2016!

And you can start thanking Bernie now by voting in 2016!

It’s unclear as to whether or not anyone in Bernie’s camp has had the time to point out the stupidity of these errors, so as a service to the aging comrade, I’ll do that work for him.  Because he seems almost purposefully incapable of understanding the errors himself.

Where to begin?  Oh, inequality, of course, because if big government was created to do one thing, it’s to assure the right to life, liberty….oh, wait.   It’s to make everything equal for everybody.  Got it.  To wit:

  1.  Today, we live in the richest country in the history of the world, but that reality means little because much of that wealth is controlled
Bernie charts: We tell almost half the story!

Bernie charts: We tell almost half the story!

by a tiny handful of individuals.

The issue of wealth and income inequality is the great moral issue of our time, it is the great economic issue of our time, and it is the great political issue of our time.

Well, actually, we’re not the richest country in the history of the world, depending on how you measure it.  In fact, by GDP on a per-person basis, the US ranges from 10th to 14th in several versions of this metric.  Since Bernie loves to separate the classes by income, he’s already missing the point, and making a mistake – we’re not the richest country in the world by standard comparative metrics.  If one family makes $200,000 per year with 5 people in the house ($40K/person), and a second family makes $100,000 per year with 2 people in the house ($50K/person), the first family is “richer” in aggregate, but on a per-person basis they’re poorer. And they likely have much larger expenses than the 2-person family.

Having the biggest pile of money in your house (or your country) doesn’t mean you’re rich.  Especially if you consider that unfunded liabilities like Social Security and Medicare are over $100 trillion dollars.

2.  The reality is that since the mid-1980s there has been an enormous transfer of wealth from the middle class and the poor to the wealthiest people in this country. That is the Robin Hood principle in reverse. That is unacceptable and that has got to change.

Thieves! Well, not really.

Thieves! Well, not really.

 

Here Bernie seems to miss the point entirely about wealth creation, and that the wealth “pie” is not a finite box of dollars, and the wealthy have somehow been sneaking in at night to take money out of the middle-class’s wallets without their knowing about it.  The dollars aren’t “transferring” from the middle-class to the 1%.  The economy has grown larger, and with it, incomes.  In fact, middle-incomes have grown in that same timeline, but so have incomes at the upper levels, just at a faster rate.

But massive and historically unprecedented increases in federal entitlement spending haven’t increased incomes.  In fact, incomes dropped,

Hmm - the govt spends more, yet people earn less? That's un-possible!

Hmm – the govt spends more, yet people earn less? That’s un-possible!

even prior to the federal spending expansion.  Why?  Because when you encourage people not to work, by providing enough support through entitlements so you don’t have to work, you will see a massive reduction in the workforce.

In this scenario, if the government is providing enough income to live without working, then whatever capital is owned and invested, risked in the marketplace, will inevitably grow larger as a larger share of a growing economy.  So those who work and invest will inevitably have more than those who choose not to.  Is it “fair” that I work two jobs at 60 hours per week to earn more income, only to have those additional hours be taxed at a higher rate because I then make too much money, as deemed by a politician who gets paid off the sweat of my labor?

So people leave the workforce and incomes drop? Shocking.

So people leave the workforce and incomes drop? Shocking.

The other piece Bernie seems to so easily forget is that money invested is money risked, which is something he never asks his followers to do – risk their own time, their own money, and their own futures, on investing in an idea, a stock, a project, that might pay dividends somewhere down the line.  Instead, he wants to take earnings from those who will willing to take risks, and be successful through hard work, and give it to those who risk nothing other than a mild hand-cramp when automatically pulling voting levers for people like Bernie who have sold them a bill of class warfare goods, and want to be paid for it, in votes, every few years.

There is something profoundly wrong when the top one-tenth of one percent owns almost as much wealth as the bottom 90 percent.

What’s wrong?  If you’re poor, and extremely poor, then obviously you’re not going to own a lot of assets.  It’s very likely that you own much less than zero assets, and are receiving entitlements of one kind or another, which would make you a net negative wealth “owner”.

In case Bernie missed it – half the country pays no net income taxes.  That’s the bottom of the bottom 90%.  Secondly, the top 50% of income earners pay 97% of all income taxes collected.  That means the biggest earners carried the biggest burden of wealth transferred since the history of these efforts has been kept.  We live in record-setting times, in that wealth is being transferred from the productive sector to the non-productive sector at larger and larger rates, every year.

There is something profoundly wrong when 58 percent of all new income since the Wall Street crash has gone to the top one percent.  

You can't win if you don't play.

You can’t win if you don’t play.

Actually, it makes complete sense that new income goes to those who risk their own money in the markets.  Would Bernie expect people to risk their money in order to earn less money?  Take a look at the labor force participation rate, Bernie – it’s gone down, dramatically, as people have shifted to consuming available entitlements.  Then Bernie complains that those who shifted to getting something from the government don’t earn as much as people who work for a living?  Really?  That’s like complaining about dinner without paying for the ingredients, and not making dinner.  See how that flies at the dinner table in your own home.

 

How’s re-distribution working out, historically?  Not so well.

People make less when the government takes in more tax dollars? Gasp! I repeat: Gasp!

People make less when the government takes in more tax dollars? Gasp! I repeat: Gasp!

In fact, the more money the government spends, the lower median incomes are.

Hm.  I wonder why?  The facts seem to fly in the fact of Bernie’s claim that the more government spends, the better off its citizens are.  The facts show that the opposite is true.  If taxes increase, and federal income goes up, how would those dollars translate, even on a one for one basis, to people earning the median incomes?  They’re working, so they don’t receive direct federal assistance.  In fact, you can make the claim that raising taxes, even on the wealthy alone (which won’t, in fact, be enough to cover annual federal expenditures), would have the opposite effect of increasing incomes – because you will have placed an increased tax burden on those earning the incomes in the first place.

As has been demonstrated, you would have to start raising the federal tax rate on middle-class earners in order to support any additional federal spending.  There just isn’t enough income lying around the country to feed the yawning chasm that is the federal maw, one that Bernie wants to continue to feed in order to keep his cushy lifestyle telling workers how much of their money he needs to re-distribute to buy votes.

Finally, Bernie tries conflating two things, on two different timelines, and tries to call that an argument:

Despite huge advancements in technology and productivity, millions of Americans are working longer hours for lower wages. The real median income of male workers is $783 less than it was 42 years ago; while the real median income of female workers is over $1,300 less than it was in 2007. That is unacceptable and that has got to change.

First, median household income, even inflation adjusted, has increased by $5,000 from 1976 to 2012.  This includes a massive increase in the labor force by women that began in the 1970’s and is still increasing today.  So no, median incomes aren’t decreasing, they are increasing.

Secondly, for female workers, Bernie chooses 2007 as a comparison, which was the highest female rate of earnings, ever.  He doesn’t go

Hey look! Women earn less now than their peak in 2007 - but more than they did in 2000! Now explain to me how that's bad, again?

Hey look! Women earn less now than their peak in 2007 – but more than they did in 2000! Now explain to me how that’s bad, again?

back 42 years for this metric, does he?  No, because he wants it to look worse than it is – but it’s going to look bad, regardless, due to the recession.  Incomes generally don’t go up much during recessions, but both male and female earnings did, after the bottoming-out of the recession trough.

Male earners followed the exact same pattern – their earnings dropped in the same fashion.  Why?  Because recession.

Did the increase in federal spending (as shown above) increase incomes?  No, because people who work for a living are rarely in line waiting for a handout.  So that wealth transfer has only a negative impact on them, via tax increases.

Finally, how would raising taxes, on the wealthy, on corporations, or anybody, increase incomes?  History has shown that incomes have actually decreased while federal spending increased, so why would even the simplest of dullards double down on a demonstrably losing bet?

Answer:  Because Bernie is not in it for incomes.  He’s in it for power, and for filling the empty spot where his soul used to be, before he sold it

This is Bernie's idealized world.

This is Bernie’s idealized world.

to a class warfare paradigm in order to live a life he could never have earned on his own dime.  He can only enjoy his lifestyle off the earnings, the work, of others.  A lifestyle, as Bernie should know, is what caused the Russian revolution in the first place, and put its 20th-century

heroes into power – and caused the deaths of 100 million people in the 20th century.

But hey – let’s raise taxes!