Tag Archives: spending

#FreePonyBernie

The Bernie Sanders pledge is going around the internet in various forms. Judging by the reaction, promising free stuff has not lost its appeal. To our unending astonishment, Americans still cannot ask even the most basic questions:

  • Which trade policies sent American jobs to China, and how do you propose to fix them?
  • Is there really pay inequity and, if so, what in hell is the EEOC doing?
  • Do “the rich” have enough money to pay for all our roads, schools, and hospitals?

We have no doubt that Mr. Sanders is, quite sincerely, just as ignorant of basic economics as his young supporters. Go ahead and elect him, kids. You will live to see the results.

FreePonyBernie

See also: The People’s Ice Cream

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Let States Run Welfare

Regular readers know that Jeremiah does not oppose redistribution, per se.  What he opposes is the concentration of power in the central government.  There is no reason to suppose that Washington knows best how to help the poor, and plenty of reasons to believe they are making a hash of it.

The problem has led some parents to take the radical step of quitting jobs to regain eligibility, said Shalonda Murray, executive director for Auntie Mame’s Child Care

There is also the issue of moral hazard, and we don’t mean freeloaders who abuse the system.  We mean honest, hardworking people who – thanks to a hodgepodge of federal mandates – face a series of “welfare cliffs” as they struggle up the income scale.

By now you may have seen Gary Alexander’s famous chart of the welfare cliffs in his state of Pennsylvania.  The cliffs are formed by suddenly losing your eligibility when you get a better job.  For instance, once you hit $30,000, you lose your housing assistance (and your EBT).  You finally got that raise, and now you’re $7,000 poorer.

welfare cliffThis is not an abstract math problem.  Anecdotes, like Shalonda Murray’s above, show that real people struggle not to get that fateful raise.  They’re clinging to the welfare cliff.

We find a system that entraps parents and children in dependency while not improving their overall well-being or their chances of joining the middle class.

Alexander did a nice job with that chart.  He should know the numbers, because he is Pennsylvania’s Secretary of Public Welfare.  Obviously, the benefits curve should rise steadily to join the earned income curve – with no cliffs.

Alexander’s Senate testimony is here.  His complaint is not mainly about the cliffs.  His complaint is that he must administer all these programs, which produce the cliffs through “myriads of conflicting rules and regulations from a massively disorganized bureaucracy.”  Here is a chart depicting his interaction with various federal agencies:AlexanderIt’s clear that he could do a better job, and cheaper, if the feds would just give Pennsylvania a block grant.  Better yet, lower the federal tax burden and let the states run their own programs.

See also: President Guts Welfare Reform

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Consumer Economy

It makes Jeremiah crazy to hear America described as a “consumer economy.”  What is this supposed to mean?  Is the “producer economy” somewhere else?  We should thank them for all this cool stuff.

People who say “consumer economy” call themselves Keynesians, and they have the best imaginable fiscal policy.  All we have to do is spend more!  On credit!  Policy makers who talk like this are mostly crooks, who think you are dumb enough to keep voting for a gravy train which is now plainly off the rails.

The problem Sir John presented in the General Theory was, “what if aggregate demand is too low to support full employment?”  Since one man’s purchase is another man’s revenue, reduced consumption can hurt the jobs market.  Consumption, production, and employment go round in a circle. KeynesIf it’s a circle, though, how can aggregate demand be less than income?  It’s because people are putting money in the bank, making productive investments, and storing their capacity for future consumption.  That’s why we have added the electrical symbol for a capacitor.

Keynes described the problem of too much saving – hardly the problem we have today.  In this case, fiscal and monetary stimulus could be used to jump start the economy – inflation, to prise money out of the banks, and government spending to create jobs.

This is why people think, “the debt doesn’t matter because we owe it to ourselves.”  Once upon a time, our economy was a closed system, and  the national debt was held by American banks.  Keynes never imagined that we  would be in debt 100% of GDP, still spending, and still without jobs.

This brings us to our second electrical symbol, the one for “ground.”  No amount of stimulus is going to create jobs, if the money is used to buy foreign goods – at least, not jobs in America.

See also:  Essay on Protectionism

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I Really Need It, Man

The administration says Congress must raise the debt limit or risk default on our debts.  America is not a deadbeat nation, says President Obama.  This is a little confusing.  Ordinarily, default comes from too much debt, not debt limits.  If you call 1-800-DEADBEAT, the first thing they will recommend is a debt limit.

Addict

How is it that we must raise the debt limit in order to pay our debts?  It’s because we are not in primary budget balance.  That is, we must borrow continually to pay our basic expenses – including interest on the national debt.  Secretary Lew needs to borrow fresh money just to pay old debts.  It’s a little like that game Jeremiah plays with his credit cards.

Sooner or later, we will need an adult discussion about our spending problem.  The debt ceiling is an artificial limit, imposed by Congress.  The real debt limit is when our international creditors (China) stop lending to us.  We’ll call that an “intervention.”

See also:  Bonds and Discipline

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Book Yours Today

PricelineIt is hard to take the budget process seriously when they close the White House for tours.  This was clearly intended to be of symbolic, not financial, value.  Then, when the symbolism went bad, the administration blamed the Secret Service.

“Using the tours to send a message seemed like a surefire winner,” said Tobe Berkovitz, a professor of communications at Boston University

Jeremiah is impartial.  Regardless of the administration, he is going to side with the Secret Service.  By the way, it’s not smart to disrespect the agents who might someday have to save your life.

Meanwhile, Organizing for Action is brazenly selling access to the president for $500,000 – although we have heard you can get it cheaper on Priceline.

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Backdoor Spending

It’s always nice to find both political parties united in support of the same dumb idea – in this case, the idea that certain expenses are “special” and should be encouraged via the tax system.  Every tax deduction is nothing more than a transfer of wealth from one class of taxpayers to another.  Along the way, most of this wealth will be absorbed by a third party.

The right can’t talk about ending deductions because that sounds like a tax hike, especially if you’re Grover Norquist.  The left can’t talk about it because deductions “give” to deserving people by reducing their tax payments.  Jeremiah is guilty, too.  He likes the special treatment for capital gains.

For an example, consider the tax deduction for mortgage interest.  This deduction is sacred, because every home owner in America relies on it – but does it really work?  First, it encourages you to take out the biggest mortgage you possibly can, because Uncle Sam will help with the payments.  This sounds like the formula for a housing bubble.

Now, Uncle Sam still has to raise revenue, so renters must pay more tax.  This deduction is simply a wealth transfer from renters to homeowners.  Who else benefits?  Mortgage lenders!  They get more business and higher margins.  That’s right.  They know you have that deduction, and they set their rates accordingly.  House prices are distorted, too.

Does that sound like a dumb idea?  It sure does, but no one in Washington will dare change it.  You can apply this same formula to any tax preference in the code.  Help with college loans?  Tuition goes up!  Help with health care?  Fees go up!

The Simpson-Bowles commission found $1.1 trillion of tax expenditures, which they call “backdoor spending in the tax code.”  If you are watching the fiscal cliff debacle in Washington right now, figures 6 and 7 in this report are your best guide to a bipartisan solution.   Jeremiah’s cap gains exemption gets the axe, too.

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Health Care Disaster

Well, that was a partisan debacle.  Speaker Pelosi put too much energy into “making history” and not enough into reading it.   Johnson-era lawmakers could not predict that their programs would later drag America toward bankruptcy.  Today, we can, and House Democrats have pretended not to see the consequences.

So you pass a very unpopular bill.  You shove it down the throats of the American people and you lose your majority.  How smart is that? – Rep. John Boehner (R-OH)

In fairness, not all Democrats are profligates.  A list of the thirty-four who voted against the bill is posted here.  The other 219 have to go.  America desperately needs to stop spending, or we will be the next Greece.

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