True Patriots Stop Train Wrecks

Ted Cruz’s filibuster and the House Freshmen’s battle against Obama Care have drawn media derision and establishment Republican “I told you so’s.” Suicide-vest, unhinged, insane, extortionist, and Astroturf metaphors dominated political discourse as Democratic Schadenfreuders cited polls that Americans blame Republicans more for the government shutdown and debt ceiling near miss.

The Charge of the Light Brigade, led by Lord Cardigan as ordered by his commander Lord Raglan against an entrenched Russian artillery battery (and immortalized by Tennyson six weeks later),  has been pounced upon as the historical analogy for the “failed” Tea Party attack on Obama Care. Pundits say the Light Brigade, which symbolizes gratuitous loss (of life) for a futile cause exacerbated by poor planning and confusion, exemplifies the Tea Party’s huge political losses in pursuit of an impossible cause – the defunding or delay of Obama Care.

A more appropriate analogy is found in Jimmy Stewart’s 1951 classic film “No Highway in the Sky.” In it, Stewart plays an aeronautical engineer whose wind tunnel tests predict that a newly-introduced aircraft will break apart in mid air. Jimmy deliberately sabotages a doomed flight and is branded a mental case. His daughter even pleads to skip school because of teasing. Jimmy Stewart turns from goat to hero when the plane he sabotaged loses its tail section as it rolls down the runway for its next take off.

go to forbes.com

The Tea Party Victory

We cannot see the forest because of the trees. The prevailing wisdom “from the trees” is that the Tea Party lost. The Tea Party “kamikazes” in the Senate and Congress donned their “suicide vests” and fumbled the partial federal government shutdown and the debt ceiling negotiations.

I see it quite differently “from the vantage point of the forest:” The Tea Party has denied President Obama his long term goal of creating a positive-rights European-style entitlement state.  The Tea Party changed the conversation from fundamental change, massive second stimuli, investment banks, national value added, fuel, and carbon taxes to sequestration and haggling over nickels and dimes of federal spending, and forced the Obama administration to gamble its second term (and legacy) on the unlikely success of Obama Care, which every Democratic member of Congress now personally owns.

go to forbes.com

Some Facts on Food Stamps You’ll Not See Elsewhere

The House Republicans proposed to cut $2 billion a year for ten years from food stamps (a “drastic” 3% cut fro0m the $80 billion program). The Senate passed on a bipartisan basis a much smaller reduction over the same period. House Republicans understood that they could not pass a farm bill that included $2 billion annual cuts in food stamps, so the House tried but failed to pass a farm bill without food stamps, hoping to pass a separate food stamp bill later. Liberal Democrats condemned the House action in unison, claiming falsely House Republicans wanted to wipe out the food stamp program entirely.

The liberal blogosphere condemns any cut in food stamps on the grounds that poor hungry people, especially children, are hurt and that food stamps have become an essential (and apparently permanent) stimulus to keep our economy moving.

Currently, 48 million people receive food stamps, 17 million of which are classified by the USDA as families with very low food security, of which 5 million are children. The USDA’s “very low food security measure” is its feeble attempt to measure the number of hungry Americans.

The accompanying chart (taken directly from the Congressional Budget Office) provides some perspective on where we stand:

The chart shows that, in past years, the number of recipients and spending on food stamps move with the business cycle, as measured by the unemployment rate. However, starting in 2001, food stamp spending and participation rose despite low unemployment due to the use of EBT credit cards and enhanced enrollment efforts. (Thank you, George W. Bush?) Both enrollment and spending soared with the recession of 2008, but did not moderate with the recovery that began in late 2009/early 2010. Both food stamp spending and participation doubled between 2007 and the present!

Those who oppose any cuts in the food stamps program argue that food stamp spending and participation were driven up by the recession and we still need an extra boost. If so, they should accept the fact that food stamps should decline as the recovery continues. The chart shows that the CBO expects food stamp spending to drop by $11 billion over the next decade, and the number of recipients to fall by 13 million people (under current legislation) as a consequence of the economic recovery.

Using CBO projections, Congress should prepare for reductions in the food stamp program. Using the CBO figures, Congress should budget slightly over $1 billion less per year over the next decade even without any changes in food stamp rules. Although opponents of food stamp cuts warn that some 2 million people will lose coverage as a result of the proposed House bill, the CBO projects that a much larger 13 million will lose coverage as the recovery proceeds without any changes in the way food stamps are administered.

Let us remember that food stamps are an entitlement that is supposed to increase during bad economic times and decrease during good economic times. Supposedly, we are in a recovery, or at least that is what we are told.

Those who oppose any reduction in the number of beneficiaries and benefits paid have lost sight of the meaning of entitlements, just as those who argue for permanent stimulus have forgotten the basics of Keynesian economics. Instead of accepting the reductions that are supposed to accompany a recovery, they are making new arguments. One is that food stamps really do not fight hunger. Rather food stamps fight obesity, especially among children. (I do not know how food stamps affect recipients’ choice of food. Please enlighten me). Obesity is a growing problem, so we need more food stamps. Second, they argue that we need food stamps as a disguised form of stimulus, without which the recovery is jeopardized.

I guess obesity and deficient stimulus will always be with us. Therefore let’s have no cuts in food stamps.

In googling material for this piece, I found that the first 40 posts argued against any food stamps cuts of any kind and warned of horrendous consequences of cuts. I ran across a vast array of groups and lobbyists with vested interests in food stamps. I did not find one article supporting the food stamps cuts that must come according to the CBO. The one exception was an attack on Lou Dobbs for venturing to say food stamps need to be cut.

We have no lobby for cutting government spending. Let’s hope the Tea Party gets animated again. This is a good issue for them.

Harry Reid's Unicorn: The Left-Leaning Group Harassed By The IRS

Democrats on the House Committee investigating IRS targeting abuse of conservative groups have settled on their story, namely: Progressive groups were subject to targeting too. Left-leaning and right-leaning groups were treated equally. The IRS was fair to both sides.

Unfortunately for the democratic cover story, the Treasury Inspector General assigned to investigate IRS abuses specifically refutes their argument. I quote from his letter to democratic members of the House Committee dated June 26:

“The evidence only shows conservatives being systematically targeted by the IRS, not just flagged…but actually targeted….While we have multiple sources of information corroborating the use of tea party and other related criteria…we found no indication in any of these other materials that ‘progressives’ was a term used to refer cases for scrutiny for political campaign intervention.”   

I guess the Democratic recipients forgot to read that part of the letter.

go to forbes.com

The Timeline of IRS Targeting of Conservative Groups

The timeline shows the IRS’s targeting of conservative groups applying for tax-exempt status and of public statements about such tax-exempt groups by the President, White House officials, and the Democratic National Committee by date.

The main findings of this timeline:

The targeting of conservative groups  begins March 2010. It has lasted more than three years.

President Obama, White House,  and the Democratic National Committee publicly and repeatedly warn about nefarious and illicit activities of conservative groups, starting in August of 2010. There are eleven public warnings,  nine of which are issued by President Obama himself in public speeches.

Higher ups in the IRS learn about targeting  on June 29, 2011 but have three follow up meetings to define and expand the categories of targeted groups, the latest being January 25, 2012.

IRS officials deny the existence of targeting (or fail to mention it) before Congress March 22, 2012 and May 3, 2012.

April 24, 2013, White House Counsel learns of targeting and informs senior White House Staff.

The Timeline

March 1-17, 2010: The IRS’ Determinations Unit asks for a search of “tea party or similar organizations’ applications.”

go to forbes.com  

Berlin Journal September 26, 2011

What do Germans think of U.S. politics?

So far, there appears unanimity that Obama’s “good plans and intentions” are being held hostage by the evil Republicans. The Tea Party is universally hated as a bunch of suicidal kooks.  On state television, Tea Partiers are shown as clowns, racists, and idiots. These opinions appear to be shared across age groups and comes from relatively well educated people.  There is disappointment in Obama but only insofar as he has not been able to put his plans through.

German network television

German network television (prime time at least) is directed at a gray audience. I guess young people either nightclub or surf the web. I have yet to see a prime-time romantic comedy in which the man and woman are under fifty. In most case they are sixty and above.

The Pirate Party

Berlin just had its elections. The Pirate Party, whose agenda has something to do with personal privacy rights, received enough votes to enter the Berlin city government. Apparently, the German Green Party started the same way and now it is a part of mainstream German politics. And the Germans look askance at our Tea Party?

The Berlin Marathon

The Germans are usually a quiet people, but if you give them a chance to celebrate, they won’t shut up. They began their loud music and vuvuzelas at about 8 AM on Sunday and didn’t stop until four in the afternoon.

Psst: The Tea Party Is Mainstream Despite Everything You Hear

Democrat politicians paint the Tea Party as an extreme fringe of American politics. Vice President Joe Biden famously described Tea Party Republicans as “terrorists.” According to Democrat Sen. Jay Rockefeller, the Tea Party are “extremists” who have “hijacked” the Republican Party.  Other Democrats are less restrained, telling us: The Tea Party is like the Nazis or KKK, is a serious threat to our national security, and Tea Party members should “go straight to hell.”  Some even whisper the Tea Party “wants to lynch blacks.”

Establishment figures condescendingly describe the Tea Party as “an amorphous collection of individuals” which includes “affluent suburban libertarians, rural fundamentalists, ambitious pundits, unreconstructed racists, and fiscally conservative housewives.” They shudder to consider: What would happen to our foreign policy if those hicks got in charge!

The Democrats’ media allies either ignore huge Tea Party rallies or feature clown-like demonstrators dressed as Uncle Sam or revolutionary figures. They single out Sarah Palin and Michele Bachmann as representatives of the sinister free-market ideology of the Christian right.

National Public Radio and other “balanced” news organizations decry the plague on both parties. The beleaguered president must contend with his far-left, and noble moderate Republicans must bear their Tea Party cross. They ask plaintively: With extremists on both sides, how we can have civilized discourse and compromise?

Democratic politicians and their media allies can scarcely restrain their glee when national polls find the Tea Party’s popularity slipping. Given the onslaught from all sides, I personally find it remarkable that the Tea Party commands the large support it does.

The dominant narrative of the Tea Party as an extremist fringe group isolated from the American mainstream is distant from the truth. American public opinion polls, in fact, show that those who have “read, heard or seen anything about the Tea Party” are more supportive and majorities credit the Tea Party with energizing the political process and making government more responsive to the people.

If the Tea Party is a kook fringe, then its agenda should be far out of line with American public opinion. I surveyed a large number of Tea Party sites to distill what I consider to be its “core” platform. I then studied public opinion polls to determine whether the American people agree with the Tea Party’s core principles.

Here is what I found:

to read go to Forbes.com

It’s Not the Tea Party Stupid: Why the Bond Market Does Not Like What It Sees

Those who blame the kamikaze, hostage-taking tea party for ruining the U.S. credit rating do not see what the bond market sees. The last-second budget deal, which was really about nickels and dimes, underscored two things:

 First, it again revealed a political system unable to address the big issues. And if it tries to address them, it is likely to make things worse.

Second, it shows a nation that is no longer able to grow itself out of fiscal difficulties.

Experts know that the deficit and debt figures tossed around in public discussion are only the tip of the iceberg. The real iceberg is the unfunded liabilities of Social Security and Medicare. Their unfunded liability is how much money we would have to set aside to meet the future obligations of these two programs.  Our national debt, which may soon reach the size of GDP (say $17 trillion), is dwarfed by the unfunded Social Security and Medicare liabilities that may have already reached $100 trillion!

The bond market is looking at our deficits and our unfunded liabilities, and it does not like what it sees.  Moreover, it sees that any and all serious attempts to deal with these fiscal problems impose huge costs on potential reformers.

As examples, I would cite:

The savaging of George Bush’s attempt at the start of his second term to reform Social Security via partial privatization.

The demogoging of Paul Ryan’s plan to salvage Medicare and Medicaid by turning it into an insurance grant program.

The passage of Obama Care under the fig leaf of a deficit reduction plan, with all parties understanding it raises unfunded liabilities.

In the past, we have been able to ameliorate deficits and unfunded liabilities by economic growth. There is now doubt as to when or whether we will return to healthy growth. We have an economy that does not lend, does not take risks, does not buy, and is strangled by regulations. We have an administration that is perceived as anti-business and more interested in redistribution than growth and efficiency. If we are doomed to European-style growth, our fiscal woes will grow worse and worse and worse.

The S&P downgrade speaks to all these concerns. It surely did not help that the Obama administration ordered the free coverage of a wide variety of women’s health costs in its latest administrative guidelines for Obama Care. As more of these administrative rulings come out, the colossal unfunded mandates of Medicare will be better understood.

If things are so bad, you might ask, why is our federal government not already paying higher interest rates? The answer is that although things are bad here, they are worse elsewhere. It is like a marathon with some of the world’s slowest runners. We are running very slow but others are slower.

That’s not the way to win a race – by relying on the ineptitude of others.

Can We Stop the March To Fifty Percent? Facts on Why the Tea Party Is Right to be Alarmed

The European welfare state is a boogeyman for conservatives and a panacea for the left. It is defined differently by different people, but it has distinctive features on which most agree:

1) The state’s share of the economy (as captured by spending) is fifty percent or above,
2) The major portion of this spending is for welfare programs,
3) Regulation of the labor market is pervasive, and
4) The welfare state is largely paid for by taxes on labor.

Public spending in France, Italy and Sweden is in the mid fifties and half or more of that spending is for social welfare. The traditionally frugal Germany is currently at a “modest” 48 percent of GDP. Payroll taxes as a percent of labor costs are 39 percent in France, 33 percent in Germany and 31 percent in Italy. In these countries, unemployment benefits are an entitlement for the long-term unemployed, health care is paid for out of payroll taxes but is an entitlement for those not working, and there are extensive protections against firings and layoffs.

The European welfare states rank among the world’s richest. They are rich because of past economic growth. For the past three decades, they have been among the slowest growing nations of the world, and their populations are shrinking.

Using these measures, how far away is the United States from the European welfare state?

Our government share of spending (federal, state and local) last year was above 41 percent. Of this 40 percent was for social welfare spending. Payroll taxes were 14 percent of labor costs. Most health care costs are paid for by insurance at the place of work, but the non employed are not covered by insurance unless they are retired or poor. President Obama’s health care reform is supposed to change this latter feature. The unemployed are offered unemployment insurance whose duration is limited but which tends to be extended during periods of high unemployment.

The U.S. would therefore share the characteristics of the European welfare states if the current government share of GDP were to rise another ten points, if the share of social welfare spending of total spending would also rise another ten points, if social security taxes were to more than double, if our labor market were as strictly regulated as Europe's, and if unemployment insurance became an entitlement.

What are the chances of these things happening?

Of this list, the doubling of social security taxes appears the most unlikely given our political aversion to social security reform. However, credible economists have warned for more than two decades that substantial increases in payroll taxes must inevitably come about given the Ponzi-scheme nature of our social security system. If and when this happens, U.S. workers will suffer along with their European counterparts the competitive disadvantages of bloated labor costs in a world of cut throat competition.

The conversion of the U.S. into a European-style labor market with highly-restrictive firing restrictions, shop-floor worker rights, month-long mandated vacations, and short work weeks is also unlikely. In Europe, such labor market protections have a long history, going back to Bismarck’s Germany, to Europe’s codetermination laws, and to organized labor as a quasi political party. Another peculiarly U.S. factor that makes the Europeanization of our labor market unlikely is the declining labor-market share of labor unions, which are now largely restricted to public employees.

The conversion of unemployment insurance into an entitlement is more likely, especially as long-term unemployment rises to European rates. The entitlement nature of unemployment insurance may never be recognized in legislation, but legislators will lack the political will to cut off benefits for the chronically unemployed. By lowering the personal cost of long term unemployment, the U.S. unemployment rate will rise, hopefully not to European levels.

If we look at the history of government spending as a share of the economy over the past forty years, we see an increase from one third or below in the 1970s to the mid to upper 30s after 1980. We had only one noticeable decline in the government’s share (during Clinton’s second term with a Republican congress). Public social spending rose between 1980 and the present at a similar rate (from 13 to 16 percent).

The government share of spending is a race between the growth of government spending and of nominal GDP. Just to keep the government share from rising, nominal GDP must rise at the same rate as government spending. The growth of nominal GDP equals the inflation rate plus real GDP growth.

In this race, it is difficult to stay even. Over the past half century, government spending has risen, on average, 7.5 percent per year. Were it not for the incredibly slow government growth of the period 1990-2000, the growth of government would have been more than eight percent per annum. Political economists have devoted considerable research to explaining this inexorable growth of government spending, and past history says it can be reduced only during exceptional circumstances. Just to keep the government share constant with such growth of government (assuming a two percent inflation rate), the real growth of the economy has to be a remarkable five and a half percent per year! Such growth is highly unlikely to say the least. Even with a three percent inflation, we would still have to have a sensational 4.5 percent real GDP growth!

Thus, we either have to reduce the growth of government spending or face continuing increases in the share of government.

The Congressional Budget Office’s projections do not inspire confidence. They project a miserly three percent growth of nominal federal government spending over the next five years, with a projected decline (!) in 2012. Under this rosy scenario, the federal government’s share of GDP will decline from 24.2 to 22.3 percent between today and 2015.

In government spending, the past is usually a better guide than rosy projections of austerity, especially during a period when a vast new entitlement program is being put in place.

If we replace the CBO’s unrealistic projections with the rates of past history (and use their own projections for nominal GDP), we get the alarming result that the federal government expenditure share of GDP alone will rise by 2020 from the current 24.5 to 32 percent – an almost eight point increase. With this accomplishment, the US by 2020 would almost reach the spending levels of the European welfare states, even if state and local level spending does not increase its share of GDP.

As measured by spending, the United States will be a European-style welfare state without a historic permanent shift against spending growth. We will be a European welfare state, however, without its funding base of payroll taxes more than double our current levels. The only option will be to seek new funding sources, such as a national value added tax.

These figures sound the alarm for those who do not want the United States to become a European welfare state. They explain why we have a Tea Party movement, whose motto is “it’s the spending stupid” and the vociferous opposition to the new health-care entitlement. It also shows the crucial role of the Republican house freshmen in holding the line on spending. These figures show that we are at a turning point at which those who wish for a European welfare state for the United States see it in sight within a relatively few years.

Most of our attention has been focused on the deficit, and rightly so. However, it would be a mistake to overlook the effects of the spending component of the deficit on the way our economy is organized and functions.

Data sources: The data used in this report are from the OECD Factbook 2010, The Economic Report of the President, and the CBO’s Baseline Budget Outlook.