Tens of Thousands of NHS Patients waiting up to 12 Hours on A&E Gurneys for a Hospital Bed

Posted by PITHOCRATES - August 19th, 2012

Week in Review

There are times in American emergency rooms where patients are waiting on hospital gurneys (or trolleys) for a bed to open up in the hospital.  Sometimes emergency rooms get overwhelmed one day.  While another day they have empty beds and time to kill.  For it is hard to forecast health emergencies.  In the UK, however, it appears budget problems are exasperating their problems.  And they are trending in the wrong way (see 67,000 NHS patients forced to wait up to 12 hours on A&E trolleys by Telegraph Reporters posted 8/15/2012 on The Telegraph).

Almost 67,000 patients during the first half of this year endured long waits for emergency beds, an increase of nearly a third, according to the government statistics…

Over a six-month period to June, 66,845 patients were found to have waited for between four and 12 hours for a bed once doctors decided they needed to be admitted.

During the same period the previous year, nearly 51,000 patients endured similar waiting times, the equivalent of a 31 per cent rise, according to the DoH…

Tim Curry, the assistant head of UK nursing at the Royal College of Nursing, described the scale as “startling”.

He blamed the rise in the figures on a “perfect storm” of increased patient expectations, financial pressures and NHS reforms.

“You need skilled nurses and vacant beds, and both of those are under huge pressure,” he said.

To be fair they just don’t park these patients up against a wall while they wait.  Doctors and nurses are still assessing and treating them while they wait in Accident and Emergency (A&E) departments.  But there is a trend.  And it’s going in the wrong way.  Longer waits.  Because, of course, of financial pressures.  Caused by an aging population that is stressing their health system at the same time fewer workers are entering the workforce to pay the bills.  Fewer dollars (or pounds in this case) being spread out to cover more patients.  You don’t need to be a financial analyst to see what this will result in.  Longer wait times.  And rationing.  Including a shortage of skilled nurses and vacant beds.

The NHS has the same problem the Americans have with Social Security and Medicare.  All three of these programs were set up during a time of an increasing population growth rate.  People were having babies.  More workers were entering the workforce than were leaving it.  So each retiring generation had more workers in subsequent generations to pay the bills.  But after the baby boom this all changed.  People stopped having babies.  And throttled back the spigot of new taxpayers entering the workforce.  Which is causing budget deficits and mushrooming debt in every social democracy.  And until the baby boomers leave this world governments will struggle to provide for them with fewer resources.

So this would be the absolute worst time to introduce a new large government program.  Indeed only a fool or one blind of history and utterly ignorant of economics would propose a new massive entitlement program in this day and age.  Which, incomprehensively, the American Left did.  Giving the Americans Obamacare.  The biggest government program in American history.  And the Americans will have no hope of ever paying for it.  Not with an aging population.  And they did this while Social Security and Medicare are already projected to go bankrupt.  In fact, Obamacare even takes some $700 billion from Medicare.  Talk about your perfect storms.  If the Americans don’t repeal Obamacare (and reform their entitlements) their spending obligations will bankrupt them and transform America into a shell of her former self.

Some would say we should learn by Britain’s mistake.  The folly of national health care, especially with an aging population.  Instead the Obama administration seems intent on being the example of ‘what not to do’ for others to learn by.  For Obamacare is clearly something the Americans should not have done.

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The UK is Burning because they have too much Socialism and Class Warfare

Posted by PITHOCRATES - August 10th, 2011

You Simply can’t Keep Increasing the Burden on the Productive Class Forever 

The UK is burning.  Thanks to socialism.  And class warfare.  For people are rioting because they’re not getting enough stuff.  So they’re correcting that inequity by stealing stuff from others (see As rioting spreads UK’s Cameron vows crackdown by Stefano Ambrogi and Angus MacSwan posted 8/10/2011 on Reuters).

Youths fought running battles with police in the northern cities of Manchester and Liverpool as well as in the Midlands.

They smashed shop windows, carted off televisions and designer clothes, and torched buildings as police armed with shields and batons struggled to maintain control…

Gangs of youths in hooded tops battled police in Manchester, smashing windows and looting shops, and setting fire to a clothes shop.

In nearby Salford, rioters threw bricks at police and set fire to buildings. TV pictures showed flames leaping from shops and cars, and plumes of black smoke billowing across roads…

In Liverpool’s Toxteth district, rioters attacked two fire engines and a fire officer’s car, police said. Earlier, some 200 youths throwing missiles wrecked and looted shops…

Cars were burned and stores looted in West Bromwich and Wolverhampton in central England; and in Nottingham a gang of young men set fire to a police station. There were also disturbances in Birmingham and Leicester in central England, and Milton Keynes north of London…

In Birmingham, police launched a murder inquiry after three Muslim men died after being run over by a car in the mayhem there. A friend of the men told BBC radio they had been part of a group of British Asians protecting their area from looters after attending Ramadan prayers at a mosque.

“The car swerved toward them. It was cold-blooded murder,” the friend said. The father of one of the men tried to save his dying son with CPR.

They’re not doing this in the US.  Yet.  Because the US is not quite the social welfare state the UK is.  Yet. 

These UK riots illustrate the problem with socialism.  ‘From those according to ability to those according to need’.  The youths rioting have no ability.  And have shown no effort to learn any ability.  Content to remain on the dole.  And it’s a very generous dole in the UK.  Well, it used to be.  Hence the rioting. 

The rioters have needs.  Great needs.  Widescreen televisions.  Designer clothes.  Seeing buildings and cars burn.  So they attended to their own needs.  Took from those having ability.  And burned the mother up.  Destroyed the property of the very people who pay taxes and fund the welfare state.  And provide jobs.  So it looks like the rioters haven’t helped their employment prospects in the community.

Getting a permanent underclass dependent on government benefits provides loyal voters at election time.  But it comes with a price.  The spending required to maintain this underclass eventually becomes unsustainable.  Because you simply can’t keep increasing the burden on the productive class forever.  They may just say screw this and go on the dole, too.  And let someone else put up with the high taxes.  And the looters.

“This disturbing phenomenon has to be understood as a conflagration of aggression from a socially and economically excluded underclass,” the liberal Independent newspaper said.

“These youths live in the heart of British cities but they do not feel part of them. Far too little has been done by successive generations of politicians and public servants to integrate these individuals into normal society. The fuse for this explosion has been burning down for many years.”

Oh, society’s to blame.  Not the people smashing windows and stealing stuff.  Or the people setting fires.  It’s the people who have been living by the rules, the law-abiding people, who are to blame.

Critics say government policies of chopping public spending and raising taxes to cut a huge budget deficit have aggravated the plight of urban youth as the economy struggles to grow and unemployment rises.

The awarding of huge bonuses to bankers has become emblematic of a culture of flashy consumption for the elite.

Corruption scandals within London’s police force and a 2009 scandal over parliamentarians’ expenses have also fueled the notion that greed is a motivating factor across the spectrum of British society.

“Everyone’s heard about the police taking bribes, the members of parliament stealing thousands with their expenses. They set the example. It’s time to loot,” a youth in the riot-torn London district of Hackney told Reuters.

“It’s time to loot.”  That says it all.  They don’t want to sit down and discuss socioeconomic issues.  They just want to get stuff while the getting is good.  I mean, there are protests.  And there is theft.  Labor standing in a picket line is a protest.  Smashing windows and stealing stuff is theft.

Is State Welfare so Generous that People don’t want to get off of State Benefits? 

Of course, some are politicizing this violence.  To make the case for more social spending.  Because if you don’t pay these thugs off they’ll come and smash your windows and take your stuff (see Do Budget Cuts Cause More Riots? by Bouree Lam posted 8/10/2011 on Freakonomics).

A couple weeks ago, Jacopo Ponticelli and Hans-Joachim Voth put out their working paper “Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009.” It uses cross-country data in the 90-year period to examine whether riots and civil unrest increase as governments cut spending. They found a positive correlation between social instability and budget cuts.

I think the real question is this.  Is state welfare too generous?  Is it so generous that people don’t want to get off of state benefits?  And when said benefits are cut they riot?  Are they so lazy and have such a state-induced entitlement mentality that the thought of having to provide for themselves is so disagreeable that they prefer burning their own neighborhoods? 

And so they riot.  They torch their oppressors.  Probably drive these stores out of their neighborhoods.  And discourage anyone from opening a new store in such a violent and riot-prone neighborhood.  Now what?  Where are they going to shop with no stores?  Who will they riot against then?

The Balance of Power has always Determined whether there will be Peace or War 

As bad as all of this is, some are saying the US should follow the UK’s example.  Stop being a world superpower.  And enjoy harmonious bliss at home.  Like they have in the UK.  When they’re not rioting and burning the place down (see Three Cheers for Decline by Charles Kenny posted 8/9/2011 on Foreign Policy).

Of course, the United States still possesses greater military strength than any other country in the world. But what good has being the world’s policeman done for Americans? Wielding that might meant the United States saw more combat deaths overseas last year than any other country, according to data from Uppsala University. Beyond the blood is the treasure: U.S. military spending increased 81 percent between 2001 and 2010 and now accounts for 43 percent of the global total — six times its nearest rival, China. The U.S. military burden is equivalent to 4.8 percent of GDP, the largest economic burden of any OECD country.

Everyone attacks U.S. defense spending.  Something, by the way, called for in the Constitution.  Unlike entitlements.  Now 4.8% of GDP is too high and should be cut.  Whereas entitlement spending is twice that amount and yet no one calls for any spending cuts there.  So it’s not a money thing.  It’s a ‘let’s weaken the U.S. thing’.

Freed from the distractions of colonial oversight and global leadership, it could retire its planet-spanning chain of military bases, shrink the Royal Navy, and devalue the pound without fears that the world would come to an end. And the country learned to collaborate without feeling equal status was a slight to its dignity — joining the European Union, for example, and signing the Kyoto Protocol.

Could the United States go down the same track toward contented (well, most of the time), pretty-good-power status?

But let’s not forget something.  When the sun never set on the British Empire the world was a more peaceful place.  We call it Pax Britannica.  Latin for British peace.  The British Empire was a benign one as far as empires go.  There was prosperity and peace.  And little war.  Something only a powerful military can give you.  When in British or American hands, at least.

The world is a dangerous place.  Always has been.  And the balance of power has always determined whether there will be peace.  Or war.  When the Nazis had it there was war.  When the British had it during the Pax Britannica there was peace.  Yes, the US and UK have made some mistakes.  But ask yourself this.  Who would you feel more comfortable having the kind of military might the US has?  China?  Iran?  Russia?  I think not.

So the US should give up its national security interests.  And take that money and spend it on more state benefits.  Like the UK did following the end of her empire.  So the permanent underclass can grow larger.  And more restive.  Demanding ever more benefits.  And rioting when they don’t get what they want.  Not a very good tradeoff for living in a less safe world if you ask me.

People Dependent on Government Benefits tend to vote for Candidates who Promise more of the Same

The rise of the welfare state has created a permanent underclass dependent on government.  Because overly generous benefits made it attractive to remain in the underclass.  Happy not to be productive.  Living off the labors of those who are.  It’s good politics.  People dependent on government benefits tend to vote for candidates who promise more of the same.

But there is a limit to how much wealth you can transfer from the productive class to the nonproductive.  If you take too much away the productive class may just join the ranks of the nonproductive.  Because that’s where the incentive is.  So the government can only tax up to a certain point.  Then they have to start borrowing.  Until the borrowing creates deficits too great to borrow anymore.  So then the spending cuts begin.  And, of course, the rioting.

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Raising the Debt Ceiling may be Worse than Default

Posted by PITHOCRATES - July 30th, 2011

Despite U.S. Debt Crisis, U.S. still the World’s Safe Asset of Choice

As Congress debates over the debt ceiling…blah blah blah…Armageddon.  Funny thing is, the U.S. debt problem is not that bad.  When compared to the debt problem in Europe (see Err, over here by Schumpeter posted 7/29/2011 on The Economist).

AS THE August 2nd deadline for a resolution of America’s debt-ceiling row approaches, other news is being drowned out. America’s debt debacle provokes rubber-necking fascination but the euro crisis is still the bigger threat to financial stability.

The chances (admittedly diminishing with time) are that America will get its house in order and avoid default; and that a ratings downgrade will happen but not threaten the pre-eminence of Treasuries as the world’s safe asset of choice. In contrast, the euro area’s crisis is already in full swing and policymakers, as this week’s issue of The Economist makes plain, have not found a way to stop it.

Things are worse in the European Union.  Especially the Eurozone.  And though Armageddon is at hand in the U.S., we’re still the “world’s safe asset of choice.”  So the end of the world as we know it may not be at hand.  But the out of control government spending and debt is fast approaching European levels.  So if we don’t cut our spending and reduce our deficits, we will follow lockstep behind Europe into fiscal ruin.  And then, of course, Armageddon.  

Partisan Democrats decry Republican Partisanship

So this Republican partisanship needs to end.  They need to be bipartisan.  Like the Democrats.  That is, when they’re not being partisan themselves (see For Reid, Durbin, and Obama, a (very) partisan record on debt ceiling by Byron York posted 7/30/2011 on The Washington Examiner).

A look at Reid’s record, however, shows that in the last decade his own voting on the issue of the debt ceiling is not only partisan but perfectly partisan. According to “The Debt Limit: History and Recent Increases,” a January 2010 report by the Congressional Research Service, the Senate has passed ten increases to the debt limit since 2000.  Reid never voted to increase the debt ceiling when Republicans were in control of the Senate, and he always voted to increase the debt ceiling when Democrats were in control…

At look at Durbin’s record shows that he, too, has voted along absolutely partisan lines.  In the last decade, Durbin never voted to increase the debt ceiling when Republicans were in control and always voted to increase the debt ceiling when Democrats were in control.  As for Obama, there were four votes to raise the debt ceiling when he was in the Senate.  He missed two of them, voted no once when Republicans were in charge, and voted yes once when Democrats were in charge.

So the Democrats have a history of being just as partisan as the Republicans.  Even now, as they decry the Republican’s partisanship, they refuse to compromise at all on what they’ve always wanted.  More taxes.  And more borrowing.  So they can spend a lot more.

Democrats open to Compromise, as long as it’s the Republicans doing the Compromising

And they’ve drawn a line in the sand.  No meaningful cuts without new taxes (see Senate Kills Debt Bill, Bipartisan Talks on Hold by Steven T. Dennis posted 7/29/2011 on Roll Call).

“We’ve got a closet full of triggers,” he said. But, he added, “I came to the conclusion that we are negotiating with ourselves. The Republicans will not agree to any triggers that have any revenues in it.”

And Reid noted that Democrats have drawn a line in the sand against any cuts to entitlement programs without revenue.

The Republicans refuse to raise taxes because America is still wallowing in the Great Recession.  Democrats refuse to drop their request to raise taxes.  And flat out refuse to cut entitlements.  Like Social Security.  Medicare.  And the new Obamacare.  Because, though fiscally responsible, it’s not politically expedient.  Which is going to become a BIG problem soon.

Repeal Obamacare and all our Current Troubles go Away

Health care spending will take the U.S. to European levels of spending and debt (see CMS Projections Confirm Runaway Health Care Spending by Kathryn Nix posted 7/29/2011 on The Foundry).

As the economy recovers and the major provisions of Obamacare kick in, national health spending is projected to grow at quite a clip—increasing, on average, 5.8 percent each year. By 2020, the nation will spend $4.54 trillion on health care, or close to 20 percent of GDP. (For the sake of comparison: In 2010, federal tax revenue totaled 14.9 percent of GDP, and all federal spending combined amounted to 23.8 percent of GDP.)

Of course, every cloud has a silver lining.  An S&P report calls for real spending cuts of $4 trillion or more over 10 years to avoid the credit downgrade.  And look at this.  Obamacare will cost $4.54 trillion over some 10 years.  Imagine that.  Save the AAA bond rating.  Leave Social Security and Medicare intact.  And all you have to do is cut one program that no one is receiving any benefits from yet.  Repeal Obamacare.  And all our current troubles go away.

Or you can Devalue the Currency

Of course, that’s one way of solving the current crisis.  There appears to be another.  One that is a bit more destructive (see Answers to the 7 big “what-ifs” of debt default by Lauren Young posted 7/30/2011 on Reuters).

Traders say Asian central banks, among the world’s biggest dollar holders, have been steady buyers of alternatives to the dollar such as the Singapore dollar and other Asian currencies as well as the Canadian, Australian and New Zealand dollars. “Foreigners are at the vanguard of the drop in the dollar,” says Dan Dorrow, head of research at Faros Trading, a currency broker/dealer in Stamford, Connecticut. “I don’t think anyone expects a catastrophic U.S. default. But a downgrade will make them more aggressive in moving away from the dollar…”

The bottom line? It will be more expensive to travel overseas, drink French wine or buy Japanese cars.

A little trade war anyone?  A weak currency is like a tariff.  It makes imports so expensive that we stop buying them.  And buy American instead.  Thus increasing U.S. GDP.  And there is a corollary to this.  Can you guess what that is?  Here’s a hint.  It does something to our exports.  And our vacation market.

Fixing our Economy by Destroying other Economies

A weak currency not only makes your imports more expensive, it also makes your exports less expensive.  Which helps your export market.  And encourages people to vacation in your country because those stronger, foreign currencies can buy so much more (see U.S. Economy: Growth Trails Forecasts as Consumers Retrench by Shobhana Chandra posted 7/29/2011 on Bloomberg).

The improvement in the difference between imports and exports added another 0.6 point [of U.S. GDP].

Overseas sales will remain a backstop for factories. Dow Chemical Co. (DOW), the largest U.S. chemical maker, said demand is “strong” in markets abroad.

“We captured strong growth in Latin America, and the emerging geographies more broadly, while North America experienced moderate growth,” Andrew Liveris, chief executive officer, said on a July 27 conference call with analysts.

So perhaps this is the grand plan.  Increase spending to unsustainable levels.  Incur record debt.  This spending and debt triggers a downgrade of U.S. sovereign debt.  Which devalues the U.S. dollar.  Which places a de facto tariff on imports.  And provides a subsidy for our exports.  And it makes the U.S. a vacation destination.  Until our trading partners retaliate for fixing our economy by destroying their economies.  Like everyone is saying the Chinese are doing by keeping their own currency weak.

Repealing Obamacare would Please the Credit Rating Agencies

So the only bright spot in the U.S. economy is other economies.  Where they’re experiencing growth.  And can easily afford U.S. goods.  Which is about the only market buying them these days.  But for the world’s largest economy (for now) to rely solely on exports can be a bit risky.  Especially if it triggers a trade war.  Which, incidentally, helped trigger the Great Depression.

No, it would probably be more prudent to keep that AAA rating by cutting spending.  Before we spend ourselves to European ruin.  That’s the key to everything.  In particular cutting the fastest growing government expenditure.  Health care.  Which makes repealing Obamacare made to order.  No one is benefitting from it yet.  So no one will even notice this cut.  Other than the credit rating agencies.  Who will stand up and applaud this action. 

For just raising the debt ceiling doesn’t solve the real problem.  In fact, raising the debt ceiling without the $4 trillion in spending cuts will just push us closer to European ruin.

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Government as Usual, Making a Bad Financial Situation Worse

Posted by PITHOCRATES - June 8th, 2011

The Federal Debt is Bad; what we’re Adding is Worse than can be Imagined

If you thought the debt was bad, you ain’t seen nothing yet (see U.S. funding for future promises lags by trillions by Dennis Cauchon posted 6/7/2011 on USA Today).

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.

This gap between spending commitments and revenue last year equals more than one-third of the nation’s gross domestic product.

The current outstanding U.S. debt is $14 trillion and change.  So, in addition to that debt, the U.S. has to borrow an additional $61.6 trillion sometime in the future.  Meanwhile they debate deficit reduction in Washington.  And the Obama administration is desperately trying to get the Republican-controlled House to raise the legal debt ceiling.  By a whopping $2.4 trillion.  You don’t have to be a whiz kid to see that something bad financially is coming this way.

Medicare alone took on $1.8 trillion in new liabilities, more than the record deficit prompting heated debate between Congress and the White House over lifting the debt ceiling.

Social Security added $1.4 trillion in obligations, partly reflecting longer life expectancies. Federal and military retirement programs added more to the financial hole, too.

It’s those social democracy things.  The same things that are bankrupting countries in the European Union.  Free health care.  And free pensions (with everyone living longer people are collecting far, far more than they ever paid into these programs).  Which just goes to show that free things are very expensive.

The $61.6 trillion in unfunded obligations amounts to $527,000 per household. That’s more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

Imagine yourself living as you are.  Working hard to pay your bills (mortgages, car loans and other debt).  And then adding another mortgage to the mix for a magnificent half-million dollar home.  Only without the home.  Just the mortgage payments.  If you’re not good at imagining that’s okay.  Because you’ll be living it within 20 years.  Can it get worse?

The government has promised pension and health benefits worth more than $700,000 per retired civil servant. The pension fund’s key asset: federal IOUs.

Why, yes.  It can.  While you struggle to pay these enormous bills you can think about this.  Your civil servants.  The people that work for you.  They will be making about $173,000 more in retirement than you.  Their boss.  That ought to put a smile on your face.  And a skip in your step.

Here Comes National Health Care

And it’s going to get worse.  Because national health care is coming (see Study Sees Cuts to Health Plans by Janet Adamy posted 6/8/2011 on The Wall Street Journal).

A report by McKinsey & Co. has found that 30% of employers are likely to stop offering workers health insurance after the bulk of the Obama administration’s health overhaul takes effect in 2014.

The findings come as a growing number of employers are seeking waivers from an early provision in the overhaul that requires them to enrich their benefits this year. At the end of April, the administration had granted 1,372 employers, unions and insurance companies one-year exemptions from the law’s requirement that they not cap annual benefit payouts below $750,000 per person a year.

But the law doesn’t allow for such waivers starting in 2014, leaving all those entities—and other employers whose plans don’t meet a slate of new requirements—to change their offerings or drop coverage.

Bill Clinton lost the 1994 midterm election because he campaigned as a moderate and governed as a liberal.  With Hillarycare being the poster child of his liberal agenda.  Barack Obama lost the 2010 midterm election because he campaigned as a moderate and governed as a liberal.  With Obamacare being the poster child of his liberal agenda.  The people spoke.  Then.  And now.  They don’t want national health care.  That’s why Hillarycare failed.  And why they watered Obamacare down to be something short of national health care.  But Obamacare will serve its purpose.  It will kill the private health insurance market.  Setting the stage once and for all for national health care in the United States.

In surveying 1,300 employers earlier this year, McKinsey found that 30% said they would “definitely or probably” stop offering employer coverage in the years after 2014. That figure increased to more than 50% among employers with a high awareness of the overhaul law.

The Obamacare legislation was something like a thousand pages long.  Guaranteed to confuse.  In fact, it was so confusing that Democrats voted for it without reading it.  Republicans read as much of it as they could.  And because they saw what was in it they voted against it.  Those who take the time to read it don’t like it.  Including the 50% of employers surveyed.

The nonpartisan Congressional Budget Office, in a March 2010 report, found that by 2019, about six million to seven million people who otherwise would have had access to coverage through their job won’t have it owing to the new law. That estimate represents about 4% of the roughly 160 million people projected to have employment-based coverage in 2019.

So let’s crunch some numbers.  Private insurers can’t cap benefits below $750,000 per person per year.  Some 6-7 million people will lose their insurance because of Obamacare.  So if the government has to pick up the costs for half of the lower amount (3 million) of these people consuming $750,000 each that comes to…$2.25 trillion.  That’s a lot.  Now let’s say the 160 million who have employment-based coverage lose it.  And that half of them need $750,000 in benefits.  That comes to…$60 trillion.  How about that?  That’s about the same as the amount of the government’s unfunded financial liabilities. 

So, in addition to the $14 trillion or so in debt, there may be another $120 trillion that we’ll have to borrow.  And that’s a little more than the $2.4 trillion the Obama administration is desperately trying to get the House to approve.  And warn about dire consequences if the Republicans refuse to do so.  This reminds me of that scene in Jaws where Chief Brody was throwing out that chum to attract the shark.  It worked.  The shark appeared.  Only it was a lot bigger than Brody thought it’d be.  He told Captain Quint, “You’re gonna need a bigger boat.”  Because fighting a $120 trillion debt with a $2.4 trillion dingy is going to lose the battle.  And by ‘lose the battle’ I mean the United States will end up like Greece.  Only without anyone big enough to bail her out.

OPEC not increasing Oil Production, no Help for Depressed Economies

That’s some pretty doleful news.  Maybe there’s a white knight rushing to the rescue.  Perhaps the economy will rebound and go gang busters.  Maybe the United States will grow itself out of this debt sinkhole (see OPEC Keeps Lid on Oil Production Targets by The Associated Press posted 6/8/2011 posted on The New York Times).

OPEC decided on Wednesday to maintain its crude oil output levels and meet again within three months to discuss a possible production increase.

The decision was unexpected and reflected unusual tensions in an organization that usually works by consensus.

Saudi Arabia and other influential oil-producing nations had pushed to increase production ceilings to calm markets and ease concerns that crude was overpriced for consumer nations struggling with their economies.

To quote a line from Planes, Trains and Automobiles, they have a better chance of playing pickup sticks with their butt cheeks.  The moratorium on oil drilling in the Gulf of Mexico put pressure on supply.  Then the unrest in the Middle East and North Africa added more.  The recession had kept oil down for the last year or so.  But with supply being squeezed that wasn’t going to last.  It’s back up.  With an assist from Ben Bernanke.  Whose quantitative easing devalued the dollar and sparked some inflation.  For we buy and sell the world’s oil in U.S. dollars.  So consumer prices are up.  While high unemployment and flat wages continue to make life hard for the American consumer.

Those opposed were led by Iran, the second-strongest producer within the Organization of the Petroleum Exporting Countries…

Iran and Venezuela came to the meeting opposing any move to increase output, which would have probably lowered prices for benchmark crude from the present levels of around $100 a barrel.

But OPEC powerhouse Saudi Arabia, which favors prices of around $80 a barrel, wanted higher production levels — and served notice that it was prepared to raise production unilaterally, to close to 10 million barrels a day from its present daily production of about 8.7 million barrels.

How about that?  Our enemies want to keep the price of oil up.  While our friends want to bring it back down to $80 per barrel.  Yet the Obama administration demanded that Mubarak step down from power in Egypt (a move the Saudis did not like as Egypt was anti-Iran and kept a lid on radical Islam like the Muslim Brotherhood) while doing nothing to help the democracy movement in Iran.  And Obama himself has a close and personal relationship with the Venezuelan dictator.  Hugo Chavez.

Policies like these will do little to bring the price of oil down.  Or make the economy rebound and go gang busters.  So there’s little hope of the U.S. growing its way out of their unfunded financial obligations. 

Monetary Policy doing more Harm than Good

And it doesn’t help to have Big Government Keynesians trying to fix things (see Sizing up the Fed’s few options by Cyrus Sanati posted 6/8/2011 on CNNMoney).

At the time the Fed began its second round of quantitative easing, inflation was low, so Bernanke felt comfortable instituting a program that would see $600 billion injected into the economy. After all, how much inflation can $600 billion cause when the country has a national debt load of $14 trillion and a personal debt load of $30 trillion?

Inflation has jumped in the last three months at a much faster pace than historical averages. The consumer price index rose by 6.1% annually during the April quarter, and core CPI, which excludes food and energy, rose by 2%. Such an accelerated move in inflation would be explainable if there was strong economic growth, but that’s not the case.

Higher prices without economic growth.  We saw this in the Seventies.  Under Jimmy Carter.  His treasury secretary, Paul Volcker, raised rates to reduce inflation.  Interest rates soared.  But he tamed inflation.  And he didn’t do it with quantitative easing.  He did it by doing the exact opposite.  Bernanke could learn a lesson from Volcker.

“If you’re Bernanke and you are seeing this rapid acceleration in core inflation and a high unemployment rate, you got to be thinking to yourself, ‘Gee, my models aren’t working right,'” says Drew Matus, senior U.S. economist at UBS Investment Research. “This should cause more caution in the part of the Fed and it is this caution that will keep them from doing QE3.”

Yes.  The models don’t work.  They’ve never worked.  And never will.  Because monetary policy is not the be all and end all of economic activity.  Think of it this way.  Say there is a restaurant not doing well.  The Keynesian would help that restaurant with monetary policy.  It would lower prices on the menu.  To make the menu items cheaper (like making money cheaper to borrow from a bank).  The only problem is that this restaurant has problems.  People aren’t going there.  The food is bad, the service is poor and it’s dirty.  Lowering the menu prices isn’t going to fix those problems.  So lowering prices is not going to bring the people back.  Just as making money cheap to borrow won’t bring the consumers back to the market.

People need Disposable Income and Responsible Government

Unemployment is high.  A lot of people have no jobs.  Or disposable income.  Meanwhile, prices are going up.  Leaving even less disposable income.  Businesses aren’t going to borrow cheap money to hire people to expand production.  Because current production levels are already in excess of current demand.

People need disposable income.  Inflation is taking that money away from the people.  And two things are driving inflation.  High oil prices (demand greater than supply).  And bad monetary policy (a devalued dollar increases the price of oil and everything else).  We need to fix these things.  We need to drill.  We need to increase American production of oil.  And we need to stop printing money.  We need to do these two things ASAP.

Then we need to address the insanity of spending money we don’t have.  And stop it.  Sooner or later, we have to address entitlements.  Actually, later may no longer be an option.  With $60 trillion in unfunded liabilities in the pipeline.  And with Obamacare potentially adding another $60 trillion.  That’s just too much.  Trying to pay this will kill economic activity.  It will require more taxes, more borrowing and more printing.  Everyone of which will increase the cost of doing business or investing.  Which will ultimately kill jobs.  Giving people even less disposable income.

Benjamin Franklin warned, “When the people find that they can vote themselves money, that will herald the end of the republic.”  That’s why they designed the republic to have disinterested, responsible people between the treasury and the people.  But that was then.  When disinterested, responsible people were in government.  Perhaps not everyone, but enough to keep the republic solvent.  Today most serve themselves.  The treasury is just a tool to buy votes.  And to hell with the consequences because most of them will be dead by the time the republic ends.

So don’t expect them to do the right thing anytime soon.  Because doing the right thing will not make their lives better.  Only ours.

www.PITHOCRATES.com

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The Obama Budget: High Taxes, Reckless Spending and Lies

Posted by PITHOCRATES - April 18th, 2011

Is it how Much we Give or how Much we Could Give that Counts?

Imagine, if you would, two people standing in front of an orphanage.  There’s a donation box there.  And we can see these caring people actually count out their money before placing it in the donation box.  One counts out $20.  The other counts out $100.  Who is more generous?

Is this a trick question, you ask?  Well, yes, I guess it is.  You see, normal people, like you and me, are inclined to say the person donating the $100 is more generous.  I mean, $100 is more than $20.  $100 buys more than $20.  $100 will do more for orphans than $20.  So it sure looks like to us, the normal people, that the $100 donation is the more generous donation.  But that’s not the way government would see it.  For I left out one important piece of information.  I didn’t say how wealthy these people are.  So let’s do that now.  The $20 donation is from a UAW line worker.  The $100 donation is from a rich business owner.  Now who is more generous?

$100 will still buy more than the $20 for the orphans, but $100 is a smaller percentage of the business owner’s salary.  The $20 donation is a larger percentage of the UAW line worker’s salary.  So, people in government, and those on the Left, will say the $20 donation is the more generous donation.  Even though it will buy less for the orphans.

We Pay Tax Dollars, not Tax Rates

This is a big problem clouding the debate over ‘fair’ taxation.  Devious politicians point to tax rates and cry that the rich aren’t paying their fair share.  When, in fact, they are paying far more tax dollars than those less rich.  Even in an attack on these rich bastards shows this (see Only Little People Pay Taxes by Dave Gilson posted 4/18/2011 on Mother Jones).

Leona Helmsley’s distaste for paying taxes eventually landed her in federal prison. But the rich have little need to break the law to avoid the tax collector. As Martin A. Sullivan of Tax.com recently calculated, a New York janitor making slightly more than $33,000 a year pays an effective tax rate of nearly 25%. And the effective tax rate for a resident of the Park Avenue building named after Helmsley, earning an average of $1.2 million annually? A cool 14.7%.

And the chart following this shows the income and taxes of the Janitor and the millionaire.  And even though the millionaire pays only 14.7% in taxes, the actual tax dollars paid in income taxes is $159,515.  And how much did that janitor pay?  Just $3,168.  The cheap bastard, the millionaire, paid $156,347 more in income taxes.  That’s 4,935% more than the janitor paid in income taxes.  Yes, 14.7% is a smaller percentage than 25%, but there’s no math in the world that says the janitor paid more in income taxes than the millionaire.

There’s a difference between tax dollars and tax rates.  And tax rates don’t pay the bills.  Tax dollars do.  And the rich pay more of them by far.  Anyway saying otherwise is fostering class warfare for political purposes.  Because if it was about tax dollars to pay for federal spending, $159,515 pays for a lot more spending than $3,168. 

Low- and Middle-Income Families don’t Pay their Fair Share of Taxes

So if the rich aren’t paying their fair share of taxes, who is?  And are there others, too, not paying their fair share?  Of course, that can’t be.  Because only the rich can get away with cheating the…  Hello, what’s this?  Low- and middle-income families aren’t paying any federal income taxes?  Really?  How can that be?  Wasn’t it the rich blankity blanks that were screwing the poor?  Not the other way around (see Nearly half of US households escape fed income tax by Stephen Ohlemacher, Associated Press Writer, posted 4/7/2011 on Yahoo! Finance)?

About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That’s according to projections by the Tax Policy Center, a Washington research organization…

In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

Really?  They’ve told us that people flipping burgers for minimum wage were poor, but even people earning $50,000 are poor?  No wonder we have so many people in poverty.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment…

In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.

No wonder the Democrats win elections.  You know there are a lot of Democrats in that 49% not paying federal income taxes.  That makes the Democrats a modern day Robin Hood.  Stealing from the rich.  And giving to the low- and middle-income.  And when you’re on the receiving end of this bounty, you’re all for class warfare.  Screw the rich, you’ll shout.  Until, God forbid, you become rich.  Just ask Nicholas CageSinbadWesley Snipes.  Or Willie Nelson.  And anyone who won the lotto.  Or a car.  Who did not realize that their bounty came with a hefty tax obligation (there’s no tax withholding for these people.  They have to write a check for all the taxes they owe).  People are stunned to learn the amount of their money the government wants.  And that isn’t fair.  But before they were rich, that was a different story.  Then nothing was fairer than sticking it to the rich.

The Rich aren’t Rich Enough to Pay all our Taxes

If the poorest half of all Americans aren’t paying any taxes, then who, exactly, is?  I mean, if the rich aren’t paying their fair share and the poor aren’t paying anything, who does that leave (see Where the Tax Money Is posted 4/17/2011 on The Wall Street Journal)?

Consider the Internal Revenue Service’s income tax statistics for 2008, the latest year for which data are available. The top 1% of taxpayers—those with salaries, dividends and capital gains roughly above about $380,000—paid 38% of taxes. But assume that tax policy confiscated all the taxable income of all the “millionaires and billionaires” Mr. Obama singled out. That yields merely about $938 billion, which is sand on the beach amid the $4 trillion White House budget, a $1.65 trillion deficit, and spending at 25% as a share of the economy, a post-World War II record.

That’s funny.  I thought the rich weren’t paying their fair share.  And in 2008 the top 1% paid 38% of all taxes.  I don’t know, but 38% sounds like a lot more than the 0% paid by the poorest 50%.  So the rich are paying a lot.  Can they pay more?  Can they pay all of our taxes?  Well, even if you confiscate all of the top 1%’s income, no.  They can’t.  They simply aren’t rich enough.

Say we take it up to the top 10%, or everyone with income over $114,000, including joint filers. That’s five times Mr. Obama’s 2% promise. The IRS data are broken down at $100,000, yet taxing all income above that level throws up only $3.4 trillion. And remember, the top 10% already pay 69% of all total income taxes, while the top 5% pay more than all of the other 95%.

The richest 10% of all Americans, including everyone making $100,000 or more, won’t do it either.  At least, they can’t fund a $4 trillion budget.  Which means there’s no way no how you can pay for government by taxing the rich.  Even if you tax them at 100%.  You see, these rich simply aren’t rich enough.  You know who is, though?  The middle class.

So who else is there to tax? Well, in 2008, there was about $5.65 trillion in total taxable income from all individual taxpayers, and most of that came from middle income earners. The nearby chart shows the distribution, and the big hump in the center is where Democrats are inevitably headed for the same reason that Willie Sutton robbed banks.

This is politically risky, however, so Mr. Obama’s game has always been to pretend not to increase taxes for middle class voters while looking for sneaky ways to do it…

Keep in mind that the most expensive tax deductions, in terms of lost tax revenue, go mainly to the middle class. These include the deductions for state and local tax payments (especially property taxes), mortgage interest, employer-sponsored health insurance, 401(k) contributions and charitable donations. The irony is that even as Mr. Obama says he merely wants the rich to pay a little bit more, his proposals would make the tax code less progressive than it is today.

The $100-200 thousand earners are the largest group of earners in the country.  They may each make less than each of the top 1%, but their numbers are far greater.  And it adds up.  If you drop that low end to $50 thousand and the total pot of income is close to $3 trillion dollars.  That’s a lot of money to tax.  And a lot of tax deductions to disallow.  That’s the sweet spot.  The $50-200 thousand earners.  They’re just one plump, stuffed, cash piñata.  And oh how they want to whack it open.  But how to do it?  And blame the Republicans?  That is the question that faces them.

Only the Middle Class can Fund a $4 Trillion Budget

And you do this, of course, by lying.  In his speech to offer his ‘budget’ in a response to the Ryan budget, Obama said he would cut the deficit by $4 trillion over the next 12 years.  How?  In part with $2 trillion in spending cuts.  Which aren’t exactly all spending cuts.  They’re actually tax increases.  You see, he sees tax breaks and credits as federal spending.  Because it costs government by not having that money collected as a tax.  So he will cut that ‘spending’.  By eliminating those tax breaks and credits.  Resulting in you paying higher taxes.  And that additional money the government is ‘taking back from you’ will lower the deficit.  Confused?  You should be.  This is about as devious as it gets.

And he also said he would save $1 trillion by not renewing the Bush tax cuts.  So that’s another $1 trillion in new taxes (see Obama’s $2 trillion stealth tax hike by James Pethokoukis posted 4/17/2011 on Reuters).

If you’re keeping score, what Obama is actually proposing is $1 trillion in new taxes on wealthier Americans (and small businesses) and $1 trillion in higher tax revenues by reducing tax breaks and subsidies for a total of $2 trillion in new taxes over 12 years. That means total debt reduction, not counting interest, would be $4 trillion, 50 percent of which would come from higher taxes. The econ team at Goldman Sachs ran a similar analysis and found that 56 percent of Obama savings over ten years could come from higher tax revenue.

So that’s $2 trillion in new taxes.  And where do you think that will come from?  Not the 1%, that’s for sure.  If you took all of their money it would only get you half way there.  To raise that kind of money, you have to go to the sweet spot.  The middle class.  Including those making far less than $200,000.  You have to tax everyone making $50,000 or more.  And take away their tax breaks and credits.  Where it will really hurt.  And be political suicide.  So why promise to do just that?  Simple.  He’s not. 

The Obama plan is a non-plan.  It’s just a political tool for the 2012 election.  To show that it is the Republicans that want to cut Social Security, Medicare and Medicaid.  Not him.  He’ll say he fought like a dog to save these entitlements.  Because he cares for you.  Unlike those nasty mean Republicans.  And entitlement spending will continue to grow unchecked.  Making it that much harder to save these programs down the road.  But this is what politicians do.  Kick the can down the road.  For someone else to worry about.  For by that time, many of the Democrats will be dead.  And won’t care anymore.

It’s not the Taxes, Stupid.  It’s the Spending.

There’s a difference between tax rates and tax dollars.  And it’s the tax dollars that are important, not the tax rates.  The rich may have a lower effective tax rate but they pay an awful lot in tax dollars.  And as tax dollars go, they’re paying more than anyone else.  Far more than half of all Americans.  Who pay $0.00 in federal income taxes.  If anyone is screwing anyone, it’s the lower 50% screwing the top 10%.  And the top 10% probably wouldn’t mind so much if we weren’t constantly demonizing them despite their generosity.

When you can’t pay for your spending by taxing everyone making $100,000 or more at 100%, you’re spending too much.  This is a spending problem pure and simple.  It’s not that the rich aren’t paying their fair share in taxes.  They are.  And then some.  It’s that government is just trying to buy too many votes.  If there is any greed here it is in Washington.  Their spending is out of control.  Even Standard & Poor’s Ratings Service thinks so.  They just lowered our rating from “stable” to “negative” because of the “ballooning deficit.”   Because our out of control spending threatens our future ability to service our debt.

But the Democrats have other pressing concerns on their minds.  Like winning elections.  And you win elections by spending.  Not living within your means.  And if they play it just right, the day of reckoning will come conveniently in the future.  When they’re dead.  Problem solved.  For them, at least.  Their children and grand children?  Guess they just don’t care about them.

www.PITHOCRATES.com

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LESSONS LEARNED #48: “Government benefits aren’t from the government. They’re from the taxpayers.” -Old Pithy

Posted by PITHOCRATES - January 13th, 2011

Defense Spending is in the Constitution, Entitlements Aren’t – And it’s Entitlement Spending that’s Growing

People like to bitch about defense spending.  And I can understand why.  It’s a lot of money.  Just to kill people and break things.  People would rather see that money spent on education.  Health care.  Food assistance for the poor.  Entitlements.  Those nice, generous, government benefits.  The kinder, gentler side of government spending. 

People like the free stuff.  They want to get something for all those taxes other people are paying.  And it just kills them to see it spent on the military.  Because they’d rather see that money spent on them.  Of course if you read the Constitution, you’ll find defense spending in there.  It’s in the preamble (provide for the common defense).  You’ll find it in Article I.  In Article II, too.  Defense spending is pretty conspicuous in the Constitution.  Conspicuous by their absence, though, are entitlements.  Did the Founding Fathers overlook this?  No.  It was the whole point of federalism.  They designed the central government to do only those things that the states couldn’t.  To establish credit for the new nation, to treat with foreign nations, to coin money, etc.  And, of course, to provide and maintain a military force.  Alexander Hamilton wanted it to do more.  And he stretched the “necessary and proper” clause in Article I for some of the things he wanted the central government to do (to try and make the nation rich and powerful like Great Britain).  Pity, too.  For the Left has been stretching that clause ever since.

All right, defense spending is a constitutional requirement of the federal government.  Entitlements aren’t.  So how much are we spending on these?   In 1962, defense spending was 49% of all federal spending (see Federal Spending by the Numbers 2010).  Social Security and Medicare (the two biggest entitlements) were 13%.  Current baseline projections show that, in 2020, defense spending will drop to 14%.  And Social Security and Medicare will rise to 36%.  Medicare is the real cost driver here.  In the decade from 2000 to 2010, Medicare spending has jumped 81%.  It is outgrowing Social Security and Medicaid.  The runaway costs of Social Security, Medicare and Medicaid (the Big Three) are projected to equal total current tax revenues in the year 2020.  That means the total federal budget today will only pay for the Big Three in 2020.  Concerned?  You should be.  Especially if you’re a taxpayer.

You can pay Uncle Sam with the Overtime.  And will.

Taxpayer, beware.  The government is feeling especially generous.  With your money.  By 2020, Washington will be spending $35,604 per household.  That’ll take almost $5,000 in additional taxes per household for the Big Three alone.  That is projected to jump to $12,636 in 2050.  And that doesn’t include Obamacare.  When that is factored in, it’ll cost you as much as paying cash for a new car each and every year.  And a nice one, not a subcompact with a sewing machine for an engine.  Can you afford that?  I hope so.  Because you won’t have a choice.  You’ll be buying it.  But not for yourself.  No.  That nice beautiful car you’ll be buying each and every year?  You don’t get to drive it.  It will be for someone else.

The entitlement spending is getting so out of hand that we have record deficits.  Compounding this problem is the 2008 recession corresponding with a huge jump in entitlement spending.  It’s opened a rather large gap between revenue and spending.  And that gap isn’t going anywhere soon.  Unless they cut entitlements.  Or raise taxes.  And you know they won’t be cutting entitlements.  So, guess what?  You can pay Uncle Sam with the overtime.  Because that’s all you’ll get for your money (borrowed from Billy Joel’s Movin’ Out (Anthony’s Song)).  So get used to it.  Paying Uncle Sam.  Because Sam is going to raise your taxes.  He has no choice.  Because he won’t cut entitlements.

And they’ll have to raise taxes.  Because we’re running out of creditors to borrow from.  I mean, the Chinese only have so much money to lend.  And we can’t keep printing money.  They’ve been doing that.  Quantitative easing, they call it.  But they can’t keep doing it.  Anyone alive during the Seventies will know why.  Or anyone who has done some reading outside the public school curriculum.  In a word, stagflation.  That’s a phenomenon where you have both high inflation and high unemployment.  It’s usually one or the other.  The normal rules of economics don’t allow both to happen at the same time.  Unless you’re printing money like there’s no tomorrow.  Which they were in the late Sixties and Early Seventies.  To pay for the Vietnam War.  NASA’s Apollo program (to the moon and back).  And, of course, entitlement spending.  The biggest to date was a group of programs we called the Great Society.  Inflation was so bad that they joked about it on Saturday Night Live.  Dan Aykroyd played President Jimmy Carter, joking about the pleasure of owning a $400 suit.  And how easy it was to just call the treasury to have them print off another sheet of hundred dollar bills.  (Or something like that.)

The Reagan Deficits were Bad, but they Make the Obama Deficits look Good

The Seventies were a bad time.  Economically speaking.  Printing money was bad.  Quantitative easing was bad.  Easy money was bad.  So Paul Volcker started tightening monetary policy.  And Ronald Reagan cut taxes. And the Eighties were like a glorious spring following the bleakest of winters.  But you can’t teach an old dog new tricks.  The liberal Democrats weren’t going to roll over and cry ‘uncle’.  For they knew there was more spending left that they could do. 

So the spending continued.  Reagan had a Democrat Congress.  They fought him tooth and nail.  But he spoke directly to the American people and got his tax cuts.  And Reagan’s tax cuts resulted in a windfall of revenue.  And the Dems in Congress couldn’t spend the money fast enough.  Actually, they could.  They spent it so fast that surpluses soon turned into deficits.  They blamed Reagan’s defense spending.  So he made a deal.  He agreed to increase taxes.  If they would cut some of their entitlement spending.  To get the deficits under control.  So they did.  Increased taxes.  But they never cut spending.  Which just goes to show you that you can’t trust liberal Democrats.

You youngsters probably have no memory of these times.  But Ronald Reagan was attacked more than George W. Bush.  Hell, he was attacked almost as much as Abraham Lincoln.  The Seventies were the high-water mark of liberalism.  Then it went head to head with Reagan’s limited government supply-side economics in the Eighties.  And lost.  The hatred for Reagan knew no bounds.  For he was the man that repudiated liberalism.  So they attacked him ruthlessly. Screamed about his defense spending.  And yet his deficits were only around $200 billion.  Obama’s, on the other hand, are around $1,500 billion.  But they’re okay with that.  It’s no big deal, they say.  Just raise the debt ceiling.

It’s Spending, not Tax Cuts, that’s Causing those Record Deficits

But they can’t just raise the debt ceiling to keep spending.  Because spending is the problem.  Our debt is approaching 100% of our GDP.  When you’re borrowing money at record levels, you’re doing this because you just can’t raise taxes anymore.  You put the two together and it’s destroying the economy.  Taxes kill economic activity.  And the interest on the debt is soaring.  It’s projected to be approximately $760 billion in 2020.   That’s more than 70% of the projected budget deficit.  That means that most of the money we’ll be borrowing will go to pay the interest on the money we’ll be borrowing.  At that rate we’ll never pay down our debt.

Revenue averaged 18.0% of GDP from 1960-2009.  During the same period, spending averaged 20.3% of GDP from 1960-2009.  Not good.  But not too bad.  That’s a small, somewhat manageable deficit.  But spending takes off in 2010.  It’s projected to rise to 26.5% of GDP.  Meanwhile, revenue is projected to rise only to 18.2% of GDP.  That’s a projected deficit of 8.3% of GDP.  That’s fricking huge.  And that’s all runaway spending causing this mammoth deficit.  It ain’t tax cuts causing this.  It’s those entitlements.  Those fat, generous government benefits.

By this time there won’t be anything left to cut from the defense budget.  So they will have to turn to the generosity of the taxpayers.  And hope they enjoy personal sacrifice.  Because they’re going to be doing a lot of that.  To pay for these generous benefits.  These benefits for other people.

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Excessive Spending on the Public Sector and Entitlements Explode Debt to Unsustainable Levels

Posted by PITHOCRATES - January 12th, 2011

Our Debt as a Percentage of GDP Growing to almost ‘Greece’ Levels

US Federal Debt As Percent Of GDP ranged from about 32% to 52% during Ronald Reagan‘s 2 terms.  It ranged from about 56% to 67% during Bill Clinton‘s 2 terms.  It ranged from about 56% to 69% during George W. Bush‘s 2 terms.  After Barack Obama‘s first year in office it jumped to about 83%.  After his second year, it jumped to about 94%.  Our federal debt almost equals our Gross Domestic Product.  And President Obama wants to raise our debt ceiling so they can borrow more.  So they can spend more.  So how do these numbers compare to other nations?  Not good (see Same as the Old Boss? by John Stossel posted 1/12/2011 on Creators.com).

Last year, I reported that the United States fell from sixth to eighth place — behind Canada — in the Heritage Foundation/Wall Street Journal’s 2010 Index of Economic Freedom. Now, we’ve fallen further. In the just-released 2011 Index, the United States is in ninth place. That’s behind Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Ireland and Denmark.

The biggest reason for the continued slide? Spending as a percentage of gross domestic product. (State and local spending is not counted.)

The debt picture is dismal, too. We are heading into Greece’s territory.

And we all know what happened in Greece.  They had a debt crisis in 2010.  They tried to cut spending.  Cut government benefits.  And the people rioted.  So, is it too late for us?  Perhaps not.  Because Canada pulled themselves back from the brink.  And if they can, can’t we?

Economist David R. Henderson points out that our neighbors to the north faced a similar crisis. In 1994, the debt that Canada owed to investors was 67 percent of GDP. Today, it’s less than 30 percent.

What did Canada do? It cut spending from 17.5 percent of GDP to 11.3 percent.

This wasn’t merely a cut in the growth of spending, a favorite trick of congressional committees. These were actual reductions in absolute spending.

“If a cabinet minister wanted a smaller cut in one program, he had to come up with a bigger cut in another program,” writes Henderson in “Canada’s Budget Triumph,” published by the Mercatus Center. All but one of Canada’s 22 federal departments experienced real cuts in spending. While Canada raised taxes slightly, spending was cut six to seven times more.

These supposedly painful cuts didn’t cause terrible pain. In fact, there was much more gain than pain. Unemployment dropped, the economy boomed, and the Canadian dollar — then worth about 71 cents U.S. — today is about equal to the American dollar.

Real spending cuts, eh?  Who are we kidding?  We can’t do that.  It just may be that Canada is more fiscally responsible than us.  And, dare I say, more capitalistic?

Debt Crises Hit Greece, Ireland and now Portugal

So how are things over there in Europe?  Everything hunky-dory now that the European Central Bank bailed out Greece and Ireland, saving them from their financial crises?  Well, they were talking about another EU nation that was in danger of following them.  Portugal.  So far, though, they’re still treading water.  They pulled themselves back from the brink of bankruptcy with a successful bond auction.  Unfortunately, the interest they have to pay on those bonds may bankrupt them (see This little piggy went to market posted 1/12/2011 by The Economist online).

But it is unsustainably high for a country with such so much public debt relative to its GDP. If Portugal is to remain solvent, its borrowing costs will have to fall much further. It is hard to imagine what might push its bond yields down other than concerted buying by the ECB, a de facto bail-out. It therefore seems likely that Portugal will eventually have to seek rescue funds from its euro-zone partners and the IMF, as Greece and Ireland have had to.

Yeah, it doesn’t look good for Portugal.  Or the European Union.  It’s kind of ironic.  The EU and the common currency, the Euro, were supposed to unite Europe and make it an economic superpower to compete against the United States.  But, instead, that noble idea is its own worst enemy.  Because of the common currency, one member’s fiscal mismanagement is a problem for all members in the union.  And social democracies just don’t give up those fat government benefits.  They spend until they can borrow no more.  Then they let the more fiscally responsible members bail them out.

Some of the EU members could learn a lesson from Canada.

New Jersey, New York, California and Illinois Having their own Debt Crises

And the U.S. could learn a lesson from Canada.  Because we just don’t know how to cut spending.  Illinois is “swimming in debt” and ranks 48th in job creation (see Illinois: Thank Goodness For Michigan… Or We’d Be Last In Everything by Tabitha Hale posted 1/12/2011 on RedState.com).  And what are they doing?  Cutting spending?  No.  They’re raising taxes.

In California, Jerry Brown will cut entitlements and raise taxes (see Jerry Brown’s Budget Gambit by Allysia Finley posted 1/12/2011 on The Wall Street Journal).  California, like Illinois, is sucking air.  And you need a supermajority to raise taxes in California.  And how does he plan to persuade the good people of California to agree to the tax hike?  By threatening to cut education if they don’t approve it.

Dick Morris writes that public sector unions are bankrupting New Jersey, New York, California and Illinois (see TO SAVE THE STATES: LET ‘EM DECLARE BANKRUPTCY posted 1/12/2011 on DickMorris.com).  He argues they should go bankrupt to break those unsustainable public sector union contracts.

Debt Crises the Norm unless Government takes on the Public Sector and Entitlements

Excessive spending leads to debt crises.  We all know this.  And yet no one wants to cut spending.  Except Canada (go figure).  Even though everyone knows this, no state will go up against the public sector.  Or entitlements.  For two reasons.  First, they just don’t have the stones.  Second, these are the most important demographics that keep these politicians in office.

So if you’re wondering what our future will be like just take a look at what happened to Greece in 2010.  For that may very well be our future.  Or it can be worse.  It can be like New Jersey, New York, California or Illinois.

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Out of Control State Spending – Greece, France, the U.K. and the U.S.A.

Posted by PITHOCRATES - December 15th, 2010

Greece Burning – Public Sector Pay and Pensions Bankrupting the Nation

Things got ugly in Greece during their 2010 financial crisis.  At least three died one day during rioting (see Greek financial crisis explained posted 5/6/2010 on The BBC).

Three people, including a pregnant woman, have been killed during riots in Athens.

And why were the Greeks rioting?

Many of the protesters are public service workers, whose salary comes from the tax payer…

They object to their government’s plan to get Greece’s economy back under control.

It includes a freeze on public sector pay, raising the tax on fuel, and cutting pensions.

And why did Greece find herself in a position to take these austerity measures?

For years, Greece has been spending money it doesn’t have.

The government there took advantage of the economic good-times to borrow money and spend it on pay-rises for public workers and projects such as the 2004 Olympics.

France Burning – Early Retirement Age Bankrupting the Nation

Things weren’t much prettier in France.  They, too, were facing out of control state spending.  So they, too, tried to cut their spending.  And it didn’t go over well with the people (see Proposed retirement age change prompts riots in France by The Associated Press posted 11/4/2010 on The Chicago Sun-Times).

Workers opposed to a higher retirement age blocked roads to airports around France on Wednesday, leaving passengers in Paris dragging suitcases on foot along an emergency breakdown lane.

Outside the capital, hooded youths smashed store windows amid clouds of tear gas.

Riot police in black body armor forced striking workers away from blocked fuel depots in western France, restoring gasoline to areas where pumps were dry after weeks of protests over the government proposal raising the age from 60 to 62.

And what was their greatest fear of these austerity cuts?

Many workers feel the change would be a first step in eroding France’s social benefits – which include long vacations, contracts that make it hard for employers to lay off workers and a state-subsidized health care system – in favor of “American-style capitalism.”

The United Kingdom Burning – Cheap College Tuition Bankrupting the Nation

Meanwhile, in the U.K., they’re having their own riots.  And the rioters attacked the Royal Family.  Fortunately for Prince Charles, his car took the brunt of the attack (see Prince Charles’s car kicked in tuition riot by The Associated Press posted 12/9/2010 on CBC News). 

“We can confirm that the royal highnesses’ car was attacked by protesters on their way to their engagement at the London Palladium this evening. The royal highnesses are unharmed,” a statement from Prince Charles’s press secretary said.

And why were the people rioting?  Much like in Greece and France, the U.K.’s generous social benefits are bankrupting the nation.

Cameron’s government describes the move as a painful necessity to deal with a record budget deficit and a sputtering economy. To balance its books, the U.K. passed a four-year package of spending cuts worth $129 billion, which will lead to the loss of hundreds of thousands of public sector jobs and cut or curtail hundreds of government programs.

The government proposed raising the maximum university tuition fees in England from $4,780 a year to $14,000. Students reacted with mass protests that have been marred by violence and have paralyzed some campuses.

Not Burning Yet – Social Security and Medicare Bankrupting the Nation

Social Security and Medicare are going broke.  And will.  It’s just a matter of time.  When they came into being, there was an expanding birth rate.  Actuaries counted on those birth rates to continue.  But they didn’t.  The baby boom generation had only about 3 children per family.  Whereas their parent’s generation often had 10 kids or more.

Social Security is like a Ponzi Scheme.  There are no retirement accounts.  Payroll taxes from workers today pay the retirees of today.  Think pyramid scheme.  As long as the base of the pyramid (those workers paying taxes) grows at a greater rate than the tip of the pyramid (those collecting benefits) the scheme works.  But with the reduction in birth rates and our aging population, the pyramid has inverted.  The tip of the pyramid is growing at a greater rate than the base is.  As the ‘size’ of the tip and the base approach each other, eventually one worker will support one retiree.  And if a retiree lives on, say, $30,000 a year, do the math.  In a two-income family, one income will support a retiree.  And nothing else.  And that just ain’t sustainable.  Ergo, Social Security will go broke.

Ditto for Medicare.

Obamacare – Tinder, Gasoline and a Match

All right, we’ve seen how out of control state spending has led to austerity measures throughout Europe.  And rioting.  We have two huge entitlement programs pushing our county down the same path.  Europe is cutting costs (even when cities are burning in the process).  And what do we do?  We double down.  We add a third entitlement behemoth that will make Social Security and Medicare look tiny in comparison.

Obamacare.  Affordable health care for everyone.  Because the government is going to force everyone to buy health insurance.  Because the more people who pay premiums, the lower each premium needs to be.  Think pyramid scheme.  You need more to pay in (the base) than collect benefits (the tip).  Because this ain’t insurance.  It’s the mother lode of welfare entitlements.  And it’s also something else.  Unconstitutional (see Opposition to Health Law Is Steeped in Tradition by David Leonhardt posted 12/14/2010 on The New York Times).

On Monday, a federal judge ruled part of the law to be unconstitutional, and the Supreme Court will probably need to settle the matter in the end.

But that doesn’t stop the Obamacare cheerleaders.

We’ve lived through a version of this story before, and not just with Medicare. Nearly every time this country has expanded its social safety net or tried to guarantee civil rights, passionate opposition has followed.

The opposition stems from the tension between two competing traditions in the American economy. One is the laissez-faire tradition that celebrates individuality and risk-taking. The other is the progressive tradition that says people have a right to a minimum standard of living — time off from work, education and the like.

Yes, the two competing traditions.  The individuality and risk-taking that has defined America until Woodrow Wilson and the Progressives came along.  And the entitlement mentality.  Also known as European Socialism.  Like they have, had, have in Greece, France and Great Britain.  And we’ve seen how that has worked.  But we don’t learn from the lessons of history, do we?

The federal income tax, a senator from New York said a century ago, might mean the end of “our distinctively American experiment of individual freedom.” Social Security was actually a plan “to Sovietize America,” a previous head of the Chamber of Commerce said in 1935. The minimum wage and mandated overtime pay were steps “in the direction of Communism, Bolshevism, fascism and Nazism,” the National Association of Manufacturers charged in 1938.

When my dad worked gross pay meant something.  Today it’s all about net pay.  What’s left after taxes.  Taxes have grown so great that a single wage earner has trouble raising a family.  Unlike those families back before the baby boom.  When a single wage earner could raise 10 kids.  So, yes, the federal income tax has greatly changed the American experiment in individual freedom.

Social Security has ‘Sovietize’ America.  Retirees live in fear of losing their state benefits.  And they know that it’s in their ‘best interest’ to support the state.  And they do.  At the voting booth.  Potato.  Tomato.  The only difference is that we don’t have gulags in Siberia here.  But we don’t need them.  Because the threat of cutting a retiree’s benefits scares them enough to toe the party line.

And now we want to add national health care to the mix.  Because every other rich country has jumped off that bridge.

It is clearly one of the least radical ways for the United States to end its status as the only rich country with millions and millions of uninsured.

There’s a reason why the U.S. does not pay for millions and millions of uninsured here.  Why?  See Greece, France and the U.K. above. 

Guaranteeing people a decent retirement and decent health care does more than smooth out the rough edges of capitalism. Those guarantees give people the freedom to take risks. If you know that professional failure won’t leave you penniless and won’t prevent your child from receiving needed medical care, you can leave the comfort of a large corporation and take a chance on your own idea. You can take a shot at becoming the next great American entrepreneur.

With every previous major expansion of the safety net, history has had a chance to prove the naysayers wrong. It may yet in the case of universal health coverage. But the decision now seems to rest with the nine members of the Supreme Court.

Again, see Greece, France and the U.K. above.  As nice and compassionate as it sounds, it just doesn’t work.  European Socialism.  If it did, it would have worked in Greece, France and the U.K.  But it didn’t.  And that should scare the hell out of us here.  Because we’re heading down the same road.

And history may just prove the naysayers were right.

www.PITHOCRATES.com

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