After the Fed says they will Print More Money (QE3) Egan-Jones downgrades U.S. Sovereign Debt

Posted by PITHOCRATES - September 16th, 2012

Week in Review

Back when the Congress and the White House were battling it out to raise the debt limit the final compromise to raise the limit caused Standard and Poor’s to lower the U.S. sovereign debt rating for the first time in history.  The Left blamed the Republicans for refusing to raise taxes.  As if the excessive spending had nothing to do with it.  Well, another credit agency is downgrading the U.S. sovereign debt rating.  And this happened after the Fed announced QE3.  And nothing else (see Egan-Jones downgrades U.S. rating on QE3 move by Wallace Witkowski posted 9/14/2012 on Market Watch).

Egan-Jones Ratings Co. said Friday it downgraded its U.S. sovereign rating to AA- from AA on concerns that the Fed’s new round of quantitative easing, or QE3, will hurt the U.S. economy. The ratings agency said the Fed’s plan of buying $40 billion in mortgage-backed securities a month and keeping interest rates near zero does little to raise GDP, reduces the value of the dollar, and raises the price of commodities.

QE3 is Keynesian stimulus.  Printing money.  Which according to Egan-Jones won’t help the economy.  Apparently the people at Egan-Jones aren’t Keynesians.  Like in the Obama administration.  And at the Fed.  QE3 will devalue the dollar and raise prices.  While it may cause some short-term stimulus it will only make things worse in the long run.  Because of that inflation.  And it doesn’t address the real drag on the economy.  The anti-business policies of the Obama administration.  The biggest one being Obamacare.  With Taxmageddon right up there with it.  It’s the high taxes and costly regulatory policies that are holding back economic growth.  And devaluing the dollar doesn’t help these problems.  It only compounds them.  By raising prices.

QE3 will take a bad economy and make it worse.  Making the recession longer.  And the eventual recovery more painful.  Just like every recovery after a long period of inflation.  Just like after the Seventies.  Just like after the Nineties after the dot-com bubble burst.  Just like now after the subprime mortgage crisis.  There is a pattern here.  Easy money leads to irrational exuberance.  (Reckless spending encouraged by cheap money.)  And very unpleasant recoveries.  We got out of the early Eighties recession by cutting taxes.  Not with inflationary monetary policies.  We got out of the early 2000s recession by cutting taxes.  Along with some inflationary monetary policy.  The recovery wasn’t as long lasting as it was following the Eighties.  Now they are only proposing inflationary monetary policy without any tax cuts.  Which is why the Great Recession lingers still.  Proving tax cuts stimulate.  Not inflationary monetary policy.

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The Canadian Provincial Governments are ever Vigilant in Cutting High Taxes and Costly Regulations

Posted by PITHOCRATES - April 14th, 2012

Week in Review

How’s this for government?  A government that has a reputation of low taxes and sensible regulatory policies is attacked.  Not for raising taxes or passing more costly regulations.  But not being aggressive enough in cutting taxes and rolling back costly regulations.  How refreshing.  And how un-American of late (see Can Alberta regain its entrepreneurial advantage? By KATHERINE SCARROW posted 4/13/2012 on The Globe and Mail).

“At one time, Alberta was clearly a leader, whether it was tax reform, cutting red tape, or any other key issue affecting entrepreneurs. Unfortunately, in the past few years, the government has been stuck in neutral, as other provinces closed the gap.”

To restore the so-called ‘Alberta Advantage,’ Mr. Truscott proposes the following steps:

1. Long-term tax relief. He acknowledges that Alberta business owners have it pretty good overall, especially since they do not have to collect and administer provincial sales tax for the government. But But the fact that the other three Western provinces reduced their small business income tax rate leaves Alberta with a higher rate, eroding any advantage it may have had previously. “Staged reductions” in the small business income tax rate would go a long way, he suggests.

2. Commitment to cutting red tape. The province used to be a pioneer at ensuring rules and regulations made sense, and didn’t burden entrepreneurs, but the government has become complacent, emphasizing that the next leader must make regulatory reform a priority.

In Canada they understand that high taxes and excessive regulatory burdens on businesses hinder job creation.  And even though the tax burden on business owners was pretty good overall it still needs to be lowered.  Because other provinces had lowered their taxes.  In America those on the Left say that our taxes aren’t too high.  In fact they want to raise them further.  And cite the high taxes in Europe as their justification.  Instead of seeing it like the Canadians.  Who see NOT having the lowest tax rates is a disadvantage in job creation.

And while the Canadians worked at cutting red tape and worried about the affects of rules and regulations had on businesses the Obama administration has buried American small business under regulation after regulation.  The biggest one, of course, being Obamacare.  Which is scaring business owners out of hiring new employees.

It would appear the provincial governments in Canada understand business.  And the American federal government does not.  At least not the current one.  Based on its actions.  And its record.  So it’s no surprise that the Canadians have emerged from the Great Recession while the Americans still suffer in it.

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Tax Cuts, Gold Standard, Roaring Twenties, Great Depression, New Deal, Great Society, Stagflation, Ronald Reagan and Class Warfare

Posted by PITHOCRATES - February 28th, 2012

History 101

The Twenties saw one of the Greatest Explosions in Economic Growth in History despite being on a Gold Standard 

There is a duality in economics.  There is Keynesian economics.  And the Austrian School.  The Keynesians believe in central banking.  Forcing interest rates below market rates.  Purposely creating a permanent but ‘manageable’ inflation rate.  And other government interventions into markets.  The Austrians believe in a strong currency.  Even bringing back the gold standard.  Letting the markets set interest rates.  Are against purposely creating inflation.  And oppose government intervention into markets.  So these two schools are sort of the Yin and Yang of economics.  The dark and the light.  The wrong and the right.  The Keynesian and the Austrian.

So it’s not surprising to see periods of history where these two schools bump up against each other.  As we transition from good economic times to bad economic times.  And vice versa.  When politicians change policies for political reasons.  Or when politicians change policies for economic reasons.  When the Keynesians are out of power and want to get back into power.  Or the Keynesians are in power, have destroyed the economy and the electorate wants to throw them out.  Starting shortly after World War I.  When John Maynard Keynes’ ideas came to light.  Economic policies that used smart people and an active, benevolent government.  Exactly what Woodward Wilson and his progressives were looking for.  Who wanted to quantify human behavior and improve it.  With an activist and scientific government.  To bless the United States with their brilliance again now that the war was over.  And return to the new enlightened way.  Helping people everywhere to be better citizens.  And fixing all the ‘faults’ of free market capitalism.

But the progressives lost the 1920 election.  The voters favoring Warren Harding’s message to return to normalcy.  And rejecting the progressives and their new scientific ways of government.  They wanted jobs.  And that’s what Harding gave them.  By cutting taxes.  Thanks to the advice of his brilliant treasury secretary.  Andrew Mellon.  And getting out of the way of businesses.  When he died Calvin Coolidge continued his policies.  And the Twenties roared.  It was one of the greatest explosions in economic growth in history.  Where credit was plentiful.  Despite being on a gold standard.  As the United States electrified.  And modernized.  Electric power.  Telephones.  Radio.  Electric appliances.  Movies.  Even on the farm.  Where mechanization provided bountiful harvests and inexpensive food.  The Roaring Twenties were great times for consumers.  The average American.  Thanks to minimal governmental interference into the free market.  And capitalism.  But, alas, that wouldn’t last.

Ronald Reagan won in a Landslide based on an Economic Platform that was Austrian to the Core 

It was the mechanization of the farm that began the process that lead to the Great Depression.  The average American benefited greatly from those low food prices.  But not the farmers who went into debt to mechanize their farms.  And when those European World War I soldiers traded their rifles for plows the American farmers lost some valuable export markets.  Farmers were struggling with low prices.  And heavy debt.  Some defaulted on their debt.  Causing bank failures in the farming regions.  Which soon spread throughout the banking system.  And when president Hoover came to office he was going to help the farmers.  For Hoover, though a Republican, was a progressive.  He brought back activist government.  He interfered with the free market.  To fix these problems.  Price supports for farmers to import tariffs.  Raising costs for businesses.  And prices for consumers.  Then the Smoot-Hawley Tariff launched an all out trade war.  Crashing the economy.  And giving us the Great Depression.

The 1930s was a lost decade.  FDR’s New Deal policies increased the size of government.  And their reach into the free market.  Which prolonged the Great Depression.  But nothing they tried worked.  Despite trying their progressive brilliance for some ten years.  It took World War II to pull the United States out of the Depression.  When the government at last allowed businesses to pursue profits again.  And got out of their way.  This surge in economic activity continued after the war and through the Fifties.  And into the Sixties.  With none other than JFK cutting taxes in a very Austrian way.  Yes, Kennedy was an adherent to the Austrian school.  But LBJ wasn’t.  And when he took over things changed.  The progressives were back.  Calling themselves liberals now.  And instead of the New Deal they gave us the Great Society.  Which grew the government even larger than the New Deal did.  And the Great Society spent the money.  Along with putting a man on the moon and the Vietnam War, government spending exploded.  The Keynesians were hitting their prime.  For once they could do all of the great things they always said they could.  And in the process fix a ‘broken’ free market system.  Finally having brilliant people in all the right places in government.  Making brilliant policies to help people live better lives.

And then came the Seventies.  The government was spending so much that they turned to the printing presses.  Because they could.  Thanks to central banking.  Even if it was hamstrung by gold.  You see, at that time the dollar was convertible into gold.  And with the Americans printing so much money and depreciating the dollar countries holding U.S. dollars said, “Screw that.”  And converted their dollars into gold.  That great sucking sound they heard in the Seventies was the sound of U.S. gold reserves getting sucked out of the country.  Well, even though the Keynesians hated gold they didn’t want to see all their gold reserves disappearing.  So Nixon did something very Keynesian.  And decoupled the dollar from gold.  Freeing the government at last to spend as irresponsibly as the Keynesians wanted.  And spend they did.  Turning the printing presses on high.  Depreciating the dollar ever more and causing double digit inflation.  Worse, all that Keynesian spending did nothing for the economy.  There was high unemployment as well as inflation.  An unusual phenomenon as you typically had one or the other.  Not both.  But this was stagflation.  A Keynesian phenomenon.  And you measured how bad it was by adding the unemployment rate to the inflation rate.  Giving you the misery index.  And the misery was pretty high during the Keynesian Seventies.  It was so miserable that they joked about it on Saturday Night Live.  With Dan Aykroyd impersonating Jimmy Carter.  Joking about high nice it would be to own a $400 suit.  And how nice it was just to make a phone call to get the printing presses to print more money.  The people thought Aykroyd’s Carter was funny.  But they didn’t care for the real one all that much.  And made him a one term president.  As Ronald Reagan won in a landslide.  Based on an economic platform that was Austrian to the core.  Including a promise to return responsibility to government spending by reinstating a gold standard.  (Which was a political ‘bridge too far’.)

The Electorate paying Federal Income Taxes fell from 80% when Reagan was in Office to about 50% by 2009 

The Eighties were so prosperous that the Keynesians, liberals and progressives derisively call them the decade of greed.  They tried everything within their power to rewrite history.  Calling the exploding economic activity ‘trickle down’ economics.  But the figures don’t lie.  Despite the liars figuring.  The inflation rate fell.  Interest rates fell.  The unemployment rate fell.  And despite the cuts in tax rates the government was never richer.  Tax revenue collected under the reduced rates nearly doubled.  But there was little cutting in government spending.  Flush with all that cash they kept spending.  In part to rebuild the military to win the Cold War.  Which Reagan won.  But all the social spending continued, too.  Which led to some record deficits.  Not the trillion dollar deficits of the Obama administration.  But large nevertheless.  Which provided the meme to explain away the prosperity of the Eighties.  “But at what cost?” being the common refrain.  They talk about the deficits.  But very conveniently leave out that part of how tax revenues doubled at the reduced tax rates.

Well, as time passed the Keynesians got back into government.  In the late Nineties as they kept interest rates low again to stimulate the economy.  Creating the dot-com bubble.  And the early 2000s recession.  George W. Bush cut taxes.  Brought the economy out of recession.  But then the Keynesians went back to playing with those interest rates.  Kept them artificially low.  Creating a great housing bubble.  And the Subprime Mortgage Crisis.

Keynesian economics have failed throughout the last century of trying.  And taxpayers clearly saw this along the way.  Voting for Austrian policies every time economic policy mattered.  Especially after another failure of Keynesian policy.  Every time their policies failed, though, the Keynesians had an excuse.  Supply shocks.  Liquidity traps.  Something.  It was always something that caused their policies to fail.  But it was never the policies themselves.  Despite Mellon, Harding, Coolidge, Kennedy and Reagan proving otherwise.  So they had to try something else.  And they did.  Class warfare.  They transferred the tax burden to the wealthier.  Reduced the number of people paying federal income taxes.  And gave ever more generous government benefits.  This took the failed ideology out of the equation.  Making it easier to win elections.  For when Reagan was in office more than 80% of the electorate were taxpayers.  And Austrian economics won at the polls.  The Nineties ended with only about 65% of the electorate paying federal income taxes.  By 2009 that number shrunk to about only half of the electorate.  Which gave the tax and spend Keynesians an edge over responsible-governing Austrians.  Because people who don’t pay income taxes will vote for policies to increase taxes on those who do.  Not because of concern over economic policy.  But just to get free stuff.  Something Keynesians learned well.  When at first you fail just buy votes.  And then you can continue your failed policies to your heart’s content.

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FT92: “If government spending stimulates economic activity and tax cuts are government spending then tax cuts stimulate economic activity.” -Old Pithy

Posted by PITHOCRATES - November 18th, 2011

Fundamental Truth

The Keynesian School says when in Recession the Government should step in and Spend Money

Politicians lie.  Because they can’t do the things they want to do if they tell the truth.  And what do they want to do?  Accumulate money.  Our money.  To tax.  And spend.  To reward friends and cronies.  To make people dependent on government benefits.  To buy votes.  To secure their power.  And to live very comfortably on the taxpayer’s dime.

This comes at a cost.  The U.S. has accumulated a debt greater than most countries’ GDP.  And the deficit has surpassed the trillion dollar mark.  This irresponsible spending has caused Standard and Poor’s to downgrade the U.S. sovereign debt rating for the first time in U.S. history.  And the loose monetary policy to help put people into houses they couldn’t afford (to buy more votes) created the mother of all housing bubbles.  Leading to the Subprime Mortgage Crisis.  And the worst recession since the Great Depression.  The Great Recession.  That lingers on despite officially ending in 2009.  Economists no doubt fudged the numbers so they could call the Obama stimulus a success.  Which they did in the premature Recovery Summer.

Obama’s economic policies are Keynesian economic policies.  And the Keynesian school says when the economy goes into recession the government should step in and spend money.  To replace the economic activity that isn’t happening in the private sector.  This is supposed to prime the economic pump.  And restore the economy to good times.  But it doesn’t work.  It never has.  And it never will.  So why are they so insistent on Keynesian economic policies?  Because they empower the government to tax.  And spend.  And that’s what government wants to do.  Tax and spend.

If Keynesian Stimulus Spending Stimulates Economic Activity then so must Tax Cuts

Of course, this spending runs up massive deficits.  And debt.  As noted above.  And what do they want to do?  Well, they want to do the responsible thing.  And live within our means.  By cutting spending?  No.  By raising taxes.  To pay for this orgy of spending.  Because cutting spending would be irresponsible.  And hurt the economy.

Cutting taxes gives people more money to spend.  Which is good.  Because that is what stimulus spending does.  Gives people more money to spend.  But they oppose tax cuts.  Because the money doesn’t pass through their sticky fingers.  So they attack tax cuts.  Play with the meaning of words.  They call ‘tax cuts’ government spending.  Because spending reduces the amount of money in the national treasury.  Just like tax cuts.  Ergo tax cuts equal government spending.  And the only way to pay for government spending is, wait for it, with taxes.  That’s right.  The only responsible way to pay for tax cuts is with more taxes.  Circular logic of the first order.  But they use it.  And get away with it.

I say fine.  Let’s give them this perversion of the English language.  Tax cuts are government spending.  Just like Keynesian stimulus spending is government spending.  And if Keynesian stimulus spending stimulates economic activity then so must tax cuts.  Because they’re the same thing.  According to them.

100% of Tax-Cut Stimulus Stimulates Economic Activity

If spending and tax cuts are both spending then they’re both stimulative.  Given the choice I say choose tax cuts.  At least the bureaucrats won’t create the resulting debt by buying votes.  The private sector will.  As it generates more economic activity.  Which will create new jobs.  And new taxpayers.  Ultimately resulting in new tax revenue for the government.

Which is something Keynesian stimulus spending just won’t do.  For 100% of tax-cut stimulus stimulates economic activity.  And not a dime of it passes through a politician’s hand to a friend or crony to buy a single vote.

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Burning Down the American Economy to Rebuild it in a Silly Green Utopia

Posted by PITHOCRATES - September 16th, 2011

Increasing Spending that Balloons the Deficit is not Irresponsible but Cutting Taxes Is

Math is a relative thing.  In the Democrat world (see Boehner Says No Again by Patricia Murphy posted 9/15/2011 on The Daily Beast).

“Tax increases I think are off the table and I don’t think they are a viable option for the joint committee,” Boehner said. “It’s a very simple equation. Tax increases destroy jobs…”

Michigan Sen. Carl Levin, a high-profile Democratic proponent of tax reform, added on the Senate floor, “Real deficit reduction means revenues plus spending cuts. Those resisting additional revenues need to do the math.”

Funny.  These are the same people who passed Obamacare into law.  If you remember, that vote was along party lines.  The Democrats gave us Obamacare.  Not the Republicans.

The Republicans voted ‘no’.  Because they did the math on Obamacare.  The Democrats voted ‘yes’.  Because they said [deleted expletive] the math.

You see, increasing spending that balloons the deficit is not irresponsible.  But cutting taxes is.  Because they say we must consider the deficit first before even entertaining the thought of cutting taxes.  But when it comes to more spending these same people say [deleted expletive] the deficit.  A deficit I might add the Democrats took to record highs.  With their spending.  Such as the $800 billion stimulus plan.  Which the Democrats wrote.

Obama’s Leadership and Deft Economic Skills ended the Bush Recession with Investments like Solyndra

So how did all that stimulus spending work out?  Did it pull us out of recession?  Did it fix the economy?  By one measure, it may have.  But that same measure is foretelling a double-dip recession (see Up means down posted 9/17/2011 on The Economist).

The Economist’s informal R-word index tracks the number of newspaper articles that use the word “recession” in a quarter. The index has the advantage of being timely: data for the articles are available immediately, whereas first estimates of GDP are typically released four weeks after the end of the quarter. If not foolproof, it boasts a decent record: previous incarnations of the index pinpointed the start of American recessions in 1990 and 2007.

The latest iteration counts articles published in the Financial Times and the Wall Street Journal. It shows the index declining steadily from a peak in early 2009, with just a brief pause during the summer of 2010. September, however, has brought a change in the weather. Measured at a quarterly rate, the index has visibly turned up since the start of this month. The chances that a slowdown will become a recession still hang in the balance. But the hacks are getting anxious.

And you know what this means?  The president can’t blame this recession on George W. Bush.  Because they celebrated their Recovery Summer back in 2010.  That’s right, the Bush recession ended in 2010.  Thanks to Obama‘s leadership and deft economic skills.  Like investing a half billion dollars in the now bankrupt Solyndra.  If there’s a double-dip recession it can mean only one thing.  The second dip is the Obama recession.  Because it happened after he cured the economy of the Bush recession.

Government subsidizes Solar Panels because America can’t build them Competitively

Apparently, Solyndra wasn’t the only green company the Obama administration backed (see Solyndra Not Sole Firm to Hit Rock Bottom Despite Stimulus Funding posted 9/15/2011 on FOXNEWS).

At least four other companies have received stimulus funding only to later file for bankruptcy, and two of those were working on alternative energy.

Evergreen Solar Inc., indirectly received $5.3 million through a state grant to open a $450 million facility in 2007 that employed roughly 800 people. The company, once a rock star in the solar industry, filed for bankruptcy protection last month, saying it couldn’t compete with Chinese rivals without reorganizing. The company intends to focus on building up its manufacturing facility in China.

…In June 2009, SpectraWatt received a $500,000 grant from the National Renewable Energy Laboratory as part of the stimulus package. SpectraWatt was one of 13 companies to receive the money to help develop ways to improve solar cells without changing current manufacturing processes.

The company filed for bankruptcy last month, saying it could not compete with its Chinese competitors, which receive “considerable government and financial support…”

Another winner of stimulus who ultimately lost is Mountain Plaza Inc. Despite declaring bankruptcy in 2003, the company received $424,000 from the Tennessee Department of Transportation as part of a grant aimed at installing “truck stop electrification” systems that allow idling truckers to plug-in during extended stops and turn off their exhaust-belching, environment polluting diesel engines.

Mountain Plaza had filed for bankruptcy protection again in June 2010. TDOT, which received a $2 million stimulus grant from the Environmental Protection Agency for the project, said it didn’t learn about the bankruptcy until October, but it is closely monitoring the project.

Elsewhere, Olsen’s Crop Service and Olsen’s Mills Acquisition Co. also failed despite Olsen’s Mills receiving $10 million to increase employment, add equipment and machinery, refinance existing debts and work capital for operations and acquire land. The payout — part of a $64 million package to nine rural businesses in Wisconsin for economic development loan assistance — was delivered in January 2010, after Olsen’s Mills filed for bankruptcy protection for defaulting on a $60 million bank loan.

Detecting a common theme?  America can’t build solar panels competitively.  These companies cannot exist without huge government subsidies.  As it is in China.  Even with their dirt-cheap labor.

“Winning will require substantial investments. Last year, for example, the China Development Bank offered more than $30 billion in financing to Chinese solar manufacturers, about 20 times more than U.S.-backed loans to solar manufacturers,” Poneman wrote.

So why are we even trying?

This is the industry of the future?  More like the white elephant of today.  If it can’t compete in the market place without massive government subsidies then there is no market for it.  It’s just chasing dreams of a silly green utopia.

It may be the industry of the future.  But it’s the far distant future.  And best left for future generations.  When there are no cheaper and more reliable alternatives available to make electricity.  After we’ve “taken all the coal from the ground.”

Our Government: Implementing Policies that will do They don’t Know What and Hoping for the Best

Instead of trying to invent a new future we should focus on what works today.  Before the economy is completely destroyed by this incessant government meddling (see Home Depot’s Bernie Marcus Calls Dodd-Frank Regulations The “Bonnie & Clyde Bill” by Greg Hengler  posted 9/15/2011 on Townhall).

The Dodd-Frank Act goes on for 2,319 pages. Like Nancy Pelosi’s “pass it to find out what’s in the O’care Bill” statement, Senator Dodd said, “No one will know until this is actually in place how it works. But we believe we’ve done something that has been needed for a long time. It took a crisis to bring us to the point where we could actually get this job done.”

Perhaps this is why their economic policies fail.  Because they haven’t a clue about what they’re doing.  Implementing policies that will do they don’t know what.  And hoping for the best.  But the sad thing is this.  The Dodd-Frank Act is the simple one.  The complicated act is Obamacare.  So you know we’ll all be in for a load of surprises when they indoctrinate us into that government run program.  I don’t know why, but for some reason I think about this classic commercial when I think of that future world of Obamacare.

In this metaphor, the dull grey submissive world is the world of Obamacare.  The screen they’re watching that is brainwashing them to like their miserable existence is the Obama administration.  The free and heroic figure is the conservative Republican candidate for president.   And the hammer is the first act of the new conservative Republican president repealing Obamacare.

Donate $5 and you just might win the Grand Prize of Dinner with the President

But Obama is working feverishly on what’s most important.  Using the power of his office to maximum effect (see Obama Campaign: That Creepy Email From Us Wasn’t A Trick by Zeke Miller posted 9/16/2011 on Business Insider).

Donate $5 today and you’ll be automatically entered for the chance to have dinner with the President and three other supporters.

That’s right.  He’s running a lottery where the grand prize is a dinner with him.  To raise money for his reelection campaign.  So he can continue to work magic with the American economy in a second term.  God help us.

And while the American Economy burns Nero Fiddles

Is it any wonder why we’re in the mess we’re in?  Democrats spend to record deficits.  And then they lecture Republicans about the irresponsibility of tax cuts.  If that ain’t the pot calling the kettle black.  And then the Democrats pour money into an industry that the Chinese are pouring even more money into.  On top of China’s dirt-cheap labor.  I mean who looks at this and thinks this is the one?  This is where we beat the Chinese?  The same people who are giving us Obamacare.  That’s who.  Scary, isn’t it?  And these are the geniuses writing our future.

In the mean time we’re beating up coal.  And every other industry where America stood strong.  With job-killing legislation that even the legislators don’t understand.  If the damage wasn’t so bad it would be comical.

And while the American economy burns Nero fiddles.  And raffles himself off for dinner.  Because in these trying times one has to prioritize.  And nothing is more important to this president than his reelection.  Once he takes care of that then he can focus his attention on the secondary things.  Like governing.

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LESSONS LEARNED #83: “Those who don’t pay taxes will always approve higher tax rates on those who do.” -Old Pithy

Posted by PITHOCRATES - September 15th, 2011

To win Elections using Class Warfare you need lots and lots of Poor People

The Democrats want to tax the rich. To make them pay their fair share.  As determined by them.  And they accuse Republicans of cutting taxes for the rich.  Giving them tax breaks.  Credits.  And loopholes.  All paid for by the poor.  Or so they say.  The Republicans deny this, of course.  They want lower tax rates across the board.  For they believe lower tax rates create jobs.  By removing uncertainty for business.  Giving them confidence to invest.  And grow their businesses.  Thus creating those jobs.  The Democrats counter that lower tax rates just make more rich people.

We call this class warfare.  Getting the poor people to hate the rich people.  Blaming the rich for their poorness.  And making the poor understand that if it weren’t for the taxes the poor pay the rich couldn’t have their mansions.  Or their private jets.  Because the poor subsidize the rich in America.  As least according to the Democrats.  As nonsensical as this is.  For mansions and private jets are expensive.  So expensive that the poor can’t afford them.  Yet their taxes can buy them for the rich.  Silly argument, yes.  Then again, class warfare isn’t based on logic.  Or common sense.  It’s based on pure, raw emotion.  Feelings.  The rich are rich.  The poor are not.  And that’s all the poor need to know.

This is how Democrats win elections.  By promising to raise taxes.  Normally, anyone who says they will take more of your money will find it difficult to win elections.  But when you promise to take more of someone else’s money, well, that’s a different story.  You just need one thing.  Lots and lots of poor people.  Who you can make feel good by taxing the rich.  By punishing the rich.  Making sure the rich get their just deserts.  And I don’t mean some hoity-toity crème brûlée.  Which, incidentally, is delicious.  No.  We’re talking about a good ole fiscal smack-down.  A swift kick to the financial bonbons.  The wallet.  It won’t change your life.  If you’re poor.  But it’ll make you feel good.  And that’s what class warfare is all about.  Feelings.

Using the IRS Numbers to see who has been Paying the Bulk of our Federal Taxes

You get tired hearing the same old lies.  No doubt you agree with me.  Regardless of what side of the aisle you hail from.  Some of you are absolutely sure the Democrats are lying.  And some of you are absolutely sure the Republicans are lying.  Can’t be both.  Well, it can be both, I guess.  But one side has to be more truthful than the other.  Considering how diametrically opposed the two sides are.  So let’s ignore the arguments.  Let’s find our own truth.  Let’s go to the numbers.

The IRS breaks downs tax revenue in numerous ways.  One of which is by income groups.  So we looked at these breakdowns.  For the years 1995 – 2008.  This takes us from the midpoint in Bill Clinton‘s presidency.  Through George Bush‘s.  The IRS breaks down incomes across many income groups.  We’ve added some of them together to reduce their numbers down to four groups.  As shown here:

The percent of returns is from 2007.  This is the percentage of total federal income tax returns filed with the IRS.  We picked this year to show where income had trended to before the subprime mortgage crisis.  So, without further adieu, let’s see who has been paying the bulk of our federal taxes.  The rich.  The poor.  Or somewhere in between.

The Rich and Middle Class pay over 90% of all Federal Taxes

We’ve broken these numbers down into the four income groups.  Then we calculated the percentage each group paid of the total tax revenue.  And graphed the results.  As shown here:

(Source:  SOI Tax Stats – Individual Income Tax Rates and Tax Shares)

We can glean a couple of things from these numbers and this chart.  First of all, the middle class still makes up about half of all taxpayers.  And there are very few ‘rich’ people.  Only about 16% in 2007.  And that counts anyone earning $100,000 or more as rich.  Based on how few rich there are and the amount of federal taxes they pay, it’s hard to say that they aren’t paying their fair share.

People earning less than $14,000 virtually pay no taxes.  They hardly paid anything during the Clinton presidency.  And paid even less through the Bush presidency.  If we call these people poor, then the poor aren’t paying for the rich.  They’re not even paying their own way.

The next income group also shows a continuous decline.  Those who start to earn some serious money for the first time in their lives pay little in federal taxes.  Less than 10% for the last fifteen years.  And less and less as the years go by.  So, clearly, those earning less than $30,000 per year are hardly paying any federal taxes at all.  And are not subsidizing the rich in any shape, manner or form.  If anyone is being subsidized, it is those earning less than $30,000.  Some 33% of all taxpayers.  And who’s paying their way?  The rich and middle class.

So who’s paying the most in taxes?  The rich and middle class.  In that order.  In fact, they are paying about 90% of all federal taxes.  And have been for the last 15 years.  (Or more.)  During Clinton.  And Bush.  In fact, the rich paid a larger percent of all taxes under Bush (the Republican) than they did under Clinton (the Democrat).  Not exactly what you’d expect based on the political rhetoric.  And the middle class paid less under Bush than they did under Clinton.  In further fact, everyone except the rich paid less in taxes under Bush than they did under Clinton.  So whoever says the ‘rich’ aren’t paying their fair share are either lying.  Or grossly misinformed.

The more Rich People there are the Bigger Percent of Total Tax Dollars they Pay

Notice the top two graphs.  They’re almost mirror images of each other.  As the rich pay more in taxes, the middle class pay less.  This is a good thing, yes?  Transferring more and more of the tax burden to the rich?  It’s what the Democrats say they want.  So it’s interesting to see when the rich pay more in taxes.  During good economic times.  When policies are favorable to business.  And there are lower tax rates.  Never was more of the tax burden transferred to the rich than it was than after the Bush tax cuts.

There are a couple of things happening here.  During recessions (early 2000s and late 2000s), tax revenue from the rich fell.  Because businesses revenue fell.  So business profits were down.  As were income taxes.  On businesses.  And highly paid employees these businesses laid off.  So overall tax revenue was down.  Which made the middle class’ portion of tax revenue a greater percentage of the total.  Not because they were paying more.  But because the rich were paying less.  Which explains the mirror image of these two graphs.

But there’s something else happening, too.  Remember when the Democrats said tax cuts don’t create jobs?  They just create more rich people?  Well, they were partially right.  As the economy expands so does wealth.  Employees leave their companies and start their own businesses.  People advance in their careers and make a lot more money.  Entrepreneurs strike it rich with new innovation.  And you know what all of this means?  People leave the middle class.  And join the rich.  Where they pay more taxes than they ever did before.  Transferring more and more of the tax burden from the middle class to the rich.  Which also explains the mirror image of these two graphs.

The more rich people there are the bigger percent of total tax dollars they pay.  So if the Democrats were true to their word they wouldn’t punish the rich.  Instead, they would focus their energy on making more rich people.  To help the poor and middle class.

The Democrats sacrifice the Poor for Votes

Now it’s interesting how the different political parties interpret these graphs.  Republicans are interested in the top two.  They would like to make business friendly policies to grow business.  And create jobs.  Make as many rich people as possible.  So more and more of the tax burden can be transferred to them.  Not by high tax rates.  But by robust economic activity.

The Democrats, on the other hand, are interested in the bottom two graphs.  Those making $30,000 or less.  They want to see these graphs falling to zero.  And they want to increase the total number of people earning $30,000 or less.  Because those who don’t pay taxes will always vote for you if you promise to raise tax rates on the rich.  And the more poor there are the more political power the Democrats have.  I mean, that 33% who pays virtually no income taxes?  Who do you think they’re going to vote for?  That’s right.  Whoever promises to punish the rich.  And punish they will.  For they want to transfer as much of the tax burden to the rich as possible.  Not by robust economic activity.  But buy punitive tax rates.

This is class warfare.  Based on raw emotion.  Feelings.  Not logic.  Or common sense.  They get the poor angry.  And blame the rich for their poorness.  This is how they win elections.  They lie.  The Democrats.  And say they are punishing the rich.  When they are in fact punishing the poor.  And the middle class.

 www.PITHOCRATES.com

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Liberals are Exasperated by Republicans and their Responsible Governing

Posted by PITHOCRATES - July 2nd, 2011

If we can’t Afford Tax Cuts we can’t Afford more Spending

They’re still arguing about the budget.  And trying to strike a deal that will allow them to raise the debt limit.  Republicans are trying to get spending cuts from the Democrats.  The Democrats want to get the Republicans to say ‘yes’ to increasing taxes.  And President Obama is trying to broker a bipartisan deal where the Democrats get what they want.  And the Republicans let them get what they want (see Obama says ‘nothing can be off-limits’ in budget debate; Republicans say tax increases are by Associated Press posted 7/2/2011 on The Washington Post).

President Barack Obama said Saturday that “nothing can be off-limits” in the budget debate — even though Republicans have said tax increases are. The president said every tax break and federal program must come under scrutiny…

He also renewed his call for Congress to eliminate some tax breaks for the well-off as part of any agreement. Republicans want deep spending cuts without any tax increases while Obama and Democrats call for what they term a “balanced” approach. That means one that also includes new revenue in the form of higher taxes for some, though Democrats steer clear of using phrases like “tax increases” or “higher taxes.”

“Now, it would be nice if we could keep every tax break, but we can’t afford them,” Obama said. “Because if we choose to keep those tax breaks for millionaires and billionaires, or for hedge fund managers and corporate jet owners, or for oil and gas companies pulling in huge profits without our help — then we’ll have to make even deeper cuts somewhere else.”

Obama has a point.  The government can’t afford a lot of things.  So he should listen to his own advice.  And STOP spending so much.  It has a proven track record to cut deficits.  And it works every time.  Spending too much?  Well stop spending too much.  And presto, spending problem goes away.  Problem solved.  Without having to raise the debt limit.  Which would only make a bad situation worse.  Because if you’re spending too much spending more will only make your ‘spending too much’ problem worse.  Duh.  You don’t have to be an Ivy League trained economist to understand this.

Ignore the Man behind the Curtain

President Obama has had about enough of the Republicans’ obstructionism.  And their trying to govern responsibly.  Can’t the Republicans understand that he’s right?  And they’re wrong?  This representative government would be a whole lot easier if the Republicans would just shut up and do what they’re told.  To be good and mind their president (see Obama’s Risky Belittling Tactic by Lee Siegel posted 7/1/2011 on The Daily Beast).

The story of The One, the Messianic Figure, the Soulful Black Man Come to Redeem a Fallen America, the Quintessential Stranger Who Was Thus the Quintessential Figure of American Democracy—the thrilling, universal tale of Obama’s rise through a torn family with a world-wandering mother and an absent father had become tired and irrelevant. It was all used up.

Instead, you were left with the off-putting image of the dry, arrogant law professor, with his superior intellectual airs, that had occasionally appeared during the last presidential campaign. Back then, that unlovely side of the candidate was quickly eclipsed by The One’s universal tale. Now it has emerged as the only storyline the president can muster. Which means that Obama and the Democrats could be in big trouble.

I guess we should ignore the man behind the curtain.  For the president is no different that the Great and Powerful Oz.  More silly old man than messianic.  For he can play the role of philosopher king.  But he can’t be one.  And he sure doesn’t like when these young whippersnappers in the Republican Party play on his ideological lawn.

Or to frame it another way, imagine Obama as the right sees him, as a substitute teacher from another town who has no legitimacy in their classroom. He lectures, he scolds, he wants everyone to stay after school. He has no idea what the lives of his students are like: their parents looking for work; their early marriages and pregnancies and all the attendant difficulties and mishaps; the way they pour their frustrated ambitions into love and hope for their children. He sees them as kids who need the guidance of a grown-up. They see him as refusing to understand their grown-up problems.

So it is hardly surprising that so many of the current crop of Republican presidential hopefuls, or potential hopefuls, strike liberals as the equivalent of problem children. How many times have we read that Palin “didn’t do her homework” before a debate or a public appearance? Gingrich is portrayed as a juvenile delinquent. Herman Cain, we learn, is popular for speaking out of turn. With all her adopted children and her tragic pregnancy, Bachmann comes across like that teenage girl who dreamily draws hearts (and daggers) in her textbook while the teacher is talking. Even the more polished, informed, self-possessed Romney seems cursed with an Eddie Haskell air of insincerity and deceitfulness. “Hi, Ms. Obama! Don’t you look swell in that pretty new dress.”

Arrogant.  Condescending.  Professorial.  Elitist.  Ladies and gentlemen, I give you the president of the United States.  And his liberal base.

Tax Cuts are Recurring Stimulus

True liberals in America are only about 20% of the population.  But they have big mouths.  Or big bully pulpits.  So their politics seems more universally accepted than they really are.  Who are they?  College professors who live in a mystical fairyland outside the realm of reality (the college campus).  The guilty rich who’ve inherited their wealth.  Big Government politicians (liberal Democrats and RINO Republicans).  The mainstream media who yearn for Walter Cronkite celebrity.  Celebrities who haven’t a clue about economics, history or geopolitics but yearn to be seen as smart and enlightened.  (Just like those in the mainstream media who yearn for Walter Cronkite celebrity).  And most economists who bow down and worship John Maynard Keynes.  And his activist government policies to control the free market.  Because they’re smarter than the common, stupid masses.  At least they think they are.  Nay, in their minds they know they are.

Paul Krugman is a Keynesian.  And he likes to throw up a chart or graph on The New York Times to show how right he and Keynes are.  And how wrong the Keynesian-deniers are.  But it’s guys like him that Mark Twain had in mind when he said “figures don’t lie, but liars figure.”  For that’s something Krugman likes to do.  Use facts and figures to his advantage whenever he can.  No matter how wrong he is (see Cash Is Not the Problem by Paul Krugman posted 7/2/2011 on The New York Times).

These aren’t abstruse points. On the contrary, the fact that corporations aren’t investing as much as they could has become a major right-wing talking point, with repeated claims that companies are holding back because of political uncertainty. Actually, they’re holding back because they don’t see enough consumer demand — but in any case, cash is not the problem.

So it’s truly remarkable — an impressive case of doublethink — that the same people who decry the fact that firms and banks are sitting on cash insist that it’s totally vital that we give those firms and banks more cash, so that they can invest and create jobs.

Not investing as much as they could?  Give those firms and banks more money (by cutting taxes)?  Krugman is as much an arrogant, condescending, professorial elitist as Obama is.  I mean, who are they to deign to allow people to keep their own money?

Krugman is right about why they’re sitting on all that cash.  There is a lack of demand.  Because of the high unemployment and the depressing economic outlook.  But he’s wrong about the tax cuts.  As he always is.  As his type (Big Government Keynesians) always are.  They prefer federal stimulus spending.  Which always fails to stimulate.  Because it isn’t recurring.  Whereas tax cuts are.  Because they make bigger paychecks.  Week after week.  Whereas stimulus spending is more like a bonus check.  Once spent it’s gone.  So why would businesses invest in new capacity and hire more people for a temporary increase in consumer spending?  For after that stimulus is spent, what are they supposed to do then with all that excess capacity?

That’s why they’re sitting on all that cash.  Political uncertainty.  Especially about the government’s fiscal and regulatory policies.  Which determines what their costs will be.  And how much disposable cash consumers will have.  Because high taxes and costly regulations raise costs for businesses.  And prices for consumers.  Who ultimately always pay for the high cost of government.

The Laffer Curve gets the Last Laugh

Ronald Reagan wasn’t a Keynesian.  And he understood the power of tax cuts (see IBD’s Editorial: A Laffer Curve For Liberals posted 7/1/2011 on Investors.com).

Remember the left’s contempt for the Laffer Curve — which posited that certain tax cuts will pay for themselves by accelerating economic growth? Well, now they’re pushing their own version of voodoo economics.

Largely overlooked in the coverage of President Obama’s latest press conference was his call for another round of deficit-fueled stimulus spending as part of a debt reduction package.

Wait, what?  We can’t afford tax cuts but we can afford another round of deficit-fueled stimulus?  What kind of asinine logic is that?

Ronald Reagan based his economic policies on the Laffer Curve.  His Reaganomics cut tax rates.  The economy grew.  Federal tax receipts almost doubled.  Proving the Laffer Curve.  But because Congress spent money faster than Washington collected it, the deficit grew (which was a spending problem, not a revenue problem).  Because Big Government Keynesians hated that it worked, they belittled the policies as ‘trickle-down’ and ‘voodoo economics’.

That’s what the left’s favorite economist — Paul Krugman — argued in late 2009: “Spending more on recovery will lead to a stronger economy, both now and in the future — and a stronger economy means more government revenue.”

Krugman later wrote that “people like me have been hesitant to make this argument loudly, for fear of being cast as the left equivalent of Arthur Laffer.”

By spending more Krugman means that the government should spend more.  Tax and spend.  Borrow and spend.  Print and spend.  Just spend.  Run up huge deficits in the short term.  Because it will unleash a tsunami of economic activity that will rain money down on Washington.  Much like Reaganomics did with tax cuts.  And how has this worked?

Of course, this is the same Krugman who said that “the notion that tax cuts pay for themselves has no empirical support.”

Except there’s more evidence to support Laffer than Krugman. Reagan’s tax cuts helped power the ’80s boom, which eventually pushed down deficits. The cut in capital gains taxes under Clinton helped spark a market rally and a huge surge in tax revenues from investors.

And what do we have to show from Obama’s historic “pay for itself” stimulus spending spree? A recovery weaker than any since the Great Depression. A jobless rate that — two years after the recession ended — remains above 9%.  Three years of $1 trillion-plus deficits. A debt burden that’s climbed more than 40%. And no hope in sight of any of this getting much better.

Not well.  In fact, their policies have a track record of dismal failure.  But it’s never the fault of the policies.  It always because of some other misbehaving force.  Like employers who sit on piles of money instead of hiring.  Or consumers who sit on money instead of spending it with abandon.  For if they only would do what they’re supposed to do their policies would work.  So it’s not their fault.  It’s all these people who are just too stupid.

Apparently the people were smarter during the Eighties.  And the Nineties.  When there were economic booms.

Liberals are Arrogant, Condescending, Professorial Elitists

The problem with liberals is that they are arrogant, condescending, professorial elitists.  Whose idea of bipartisanship is for the Republicans to shut up and be their bitch.  They cannot conceive that they or their policies are wrong.  And when they are they blame everyone else.  Scolding American business and the American consumer for misbehaving.  They have had it up to here (hand under chin) with our impertinence and are this close (thumb and index finger about an inch apart) to taking away our toys.  And by toys I mean our wealth.  And our liberty.

The height of this audacity is their lecturing us on the irresponsibility of tax cuts while they argue for more spending.  That’s what the budget debate is all about.  To get the debt limit raised so they can spend more.  Talk about doublethink.  But this is what happens when your government is full of Keynesians.  And they listen to Keynesian economists.  They throw all reason out the window.  And double-down on bad ideology that has a track record of failure.  Because to do otherwise would diminish their power.  And return the government to the limited one envisioned by the Founding Fathers.  Which is something they could never have.

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The UK and Canada get Spending under Control while the USA is in Denial

Posted by PITHOCRATES - May 1st, 2011

Teacher Pensions too Generous in the UK, Too

It’s not just in Madison, Wisconsin.  Or Detroit, Michigan.  Those public sector benefits busting budgets in city and states throughout the United States are causing fiscal pain in the UK, too (see Heads vote for industrial action ballot over pensions by Angela Harrison posted 5/1/2011 on the BBC).

A review led by Lord Hutton called for final salary schemes to be replaced by those based on the average salary in a career and said public sector workers should retire later, in line with a rising state pension age…

Schools minister Nick Gibb recently told a teachers’ conference that public service pensions should remain a gold standard – but that rising costs and greater life expectancy meant reform was needed.

These generous public sector benefits are no longer sustainable.  There’s a cost to this kind of spending.  High taxes.  Which don’t create jobs.  Or economic activity.  Which is the source of all taxes.  So raising taxes to pay for this generous spending ends up reducing economic activity, job creation and total tax receipts.  Which creates unemployment.  And deficits. 

So conservative Prime Minister David Cameron is trying to reverse this trend.  He and his coalition government with the Liberal Democrats are implementing austerity programs throughout the UK.  A la Margaret Thatcher.  The great conservative from the Eighties.  Who helped to put the ‘great’ back into Great Britain.  By cutting taxes.  And spending.

The Canadian Government becoming more American

The trend is the same in Canada.  Where Stephen Harper may just win an outright parliamentary majority for his conservative party.  Courtesy of the New Democratic Party (NDP) no less (See Stephen Harper and that elusive majority by The Economist posted 4/28/2011 on The Economist).

THE hitherto sleepy campaign for Canada’s general election on May 2nd was jolted awake over the Easter weekend by a surprising surge by the New Democratic Party (NDP), a leftish amalgam of trade unionists and farmers…

So is Canada about to go socialist? Although the Canadian dollar wobbled this week, the answer is almost certainly not.   Indeed, by splitting the centre-left vote more evenly, the NDP’s rise—if sustained—may provide Stephen Harper, the Conservative leader, with the parliamentary majority that has eluded him ever since he became prime minister in 2006. In the ensuing years Canadian politics has become an unusually shrill, partisan and intransigent affair.  Frequent elections—this is the fourth since 2004—have seen falling voter turnout, while polls show that public trust in politicians is also declining.

This cynicism seems to have helped Jack Layton, the NDP leader. He is seen as the cheerful underdog, who, despite suffering from prostate cancer and hip problems that require he walk with a cane, appears relaxed and smiling. Although based in Toronto, he grew up near Montreal. In colloquial French he claims that “winds of change” are sweeping his native province. His message of higher corporate taxes, more social spending, green measures, and an early withdrawal of Canadian troops from Afghanistan goes down well in Quebec, a traditionally pacifist, big-government kind of place. Mr Layton seems to be successfully wooing disillusioned supporters of the separatist Bloc Québécois.

Once upon a time Canada was New France.  But the British changed French Canada to British Canada after winning the Seven Years’ War.  But the French never stopped being French in Quebec.  Even put ‘je me souviens‘ on their license plates.  So they would never forget their French past.  French tradition.  Or French culture.  The Bloc Québécois even wanted to get Quebec out of Canada.  It turned out that most Quebecers didn’t.  So the Bloc has been marginalized of late.  But if you ever traveled to the province of Quebec it is clear that they like their government big.  Which is why the NDP appeals to Quebecers.

The NDP is also profiting from the travails of Michael Ignatieff, the Liberal leader, who entered politics in 2006 after spending most of the three previous decades working as a journalist and academic in Britain and the United States. Although his campaign appearances have become more assured, he has failed to shake off the gibes of Conservative attack ads that he is an elitist from Harvard who is “just visiting” Canada in the hope of gaining power.

An elitist from Harvard?  Interesting.  For Ivy League elitists have ruled the US since George H. W. Bush.  The latest being perhaps the most elitist.  President Obama.  Who many criticize as being professorial.  And of talking down to the American people.  Which is what they teach you to do at Harvard.  And the other Ivy League schools.

The biggest problem for the Liberals, a centrist, big-tent party, is that Canadian politics has become less European and consensual and more American and ideological. Mr Harper has been the main cause and beneficiary of that process. After five years, he has earned Canadians’ respect if not their love. He is an astute political tactician: he is the longest-serving prime minister of a minority government in Canadian history. But he comes over as a cold control-freak. A headline on the website of the Globe and Mail, a Liberal-leaning paper, summed up popular sentiment when it described the prime minister as “nasty, brutish—and competent”.

Mr Harper’s campaign pitch is that he needs a parliamentary majority in order to sustain the country’s recovery from recession. His message of low taxes, small government and tougher treatment of criminals has won him support everywhere except Quebec…

Now this is very interesting indeed.  Becoming more American?  All the while the Americans, under the rule of those Ivy League elitists, are trying to become more European.  Where the big social democracies wield great power.  And budgets.  Meanwhile, America’s friends to the north are going low taxes and small government.  And however cruel and unfeeling that may be, the Canadian liberals even admit Harper’s government is competent.  Which is another way of saying responsible.  Or grown up.

Medicare Reform has had Bipartisan Support for Decades

The UK and Canada have little choice.  They have to be ‘grown up’ in light of their financial woes.  And it’s no different in the U.S.  Their financial woes just have taken a little longer to hit them.  Because they are the world’s largest economy.  But even size doesn’t matter in the long run.  And some have seen the writing on the wall since the early eighties (see GOP plan to change Medicare is rooted in bipartisan history by Amy Goldstein posted 5/1/2011 on The Washington Post).

There is a broad consensus that Medicare in its current form will be overwhelmed by the financial pressures of the aging baby-boom generation, longer life spans and sophisticated medical treatments. Various estimates say the fund that pays Medicare hospital bills will run short in a decade or two; the program’s trustees are to release new predictions in a few weeks.

The thinking about Medicare and market forces has long bipartisan roots. In the early 1980s, then-congressmen Richard A. Gephardt, a Missouri Democrat, and David Stockman, a Michigan Republican, proposed vouchers to help people on Medicare buy private health plans.

The term “premium support” was coined in 1995 by two respected health policy experts, neither a conservative: Henry Aaron, a Brookings economist, and Robert Reischauer, president of the Urban Institute. “The idea of vouchers was abroad in the land,” Aaron recalled. “We thought there was sort of a free-market-will-cure-all mentality.”

Their idea was to marry market competition in Medicare with regulation to ensure proper benefits and enough financial help. The Medicare commission’s work was an heir to their ideas. Proponents point out that the popular Medicare drug benefit created in 2003 relies on a such a model.

So America has had its grownups looking at the inevitable since the eighties.  Medicare will break unless it’s changed.  For three decades the grownups have been discussing this.  But the Ivy League elitists say ‘pish tosh’ and laugh with all knowing condescension.  For they don’t live in reality.  Their world is an insulated one where the privileged elite don’t work.  But spend their days pontificating.  Safe and snug in their universities.  Or in the federal government.  Where the consequences of their policies will never touch them.

Myopic Ivy League Pretentious Condescension

So we have unsustainable spending in the UK, Canada and the USA.  Concerned citizens in these countries voted in conservative governments.  Rising costs and greater life expectancy have made the state pensions and health plans in days of old no longer doable.  No, austerity is now the name of the game.  People are getting it.  Despite the lies of the politicians.  For the people live in the real world.  The world of paychecks.  And taxes.  Unlike the elite who like to pontificate from their lives of plenty and extreme comfort.  But that doesn’t stop the lying.  The myopic Ivy League worldview.  Or the pretentious condescension.  Case in point is the wonkish Paul Krugman. 

He posted a chart showing changes in revenue and spending from 2007 to 2010.   Spending is up.  And revenues are down.  Ergo, it’s not a spending problem.  We’re simply not taxing enough (see Origins of the Deficit by Paul Krugman posted 5/1/2011 on The New York Times).

Even on this crude calculation, it’s obvious that the slump is responsible for the great bulk of the rise in the deficit. Anyone who says otherwise is either remarkably ill-informed or trying to deceive you.

Budgets in cities and states across the country are facing their biggest deficits in history.  Why?  Recession.  Tax revenues plummet in times of recession.  Housing values tumble during times of recession (and with them property taxes).  People lose jobs during times of recession (the unemployed don’t pay income taxes or payroll taxes).  And it’s the same at the federal level.  Especially during the greatest recession since the Great Depression.  Sustained government spending during times of recession empties treasuries.  And creates deficits.

Federal spending has averaged approximately 20% of GDP since 1960.  It jumped to approximately 25% during the Obama administration.  That’s a huge spending increase.  No matter how you look at it.  And this is why the deficit is soaring into the trillion dollar territory for the first time.  Record spending during the worst recession since the Great Depression. 

“Anyone who says otherwise is either remarkably ill-informed or trying to deceive you.”

www.PITHOCRATES.com

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