Birthrates and Welfare States

Posted by PITHOCRATES - October 22nd, 2013

History 101

Birth Control and Abortion hurt the Welfare State because Babies become Taxpayers

People typically have fewer children during bad economic times.  Because you have to feed and clothe kids.  Which is very hard to do during bad economic times.  Especially if you lost your job during a period of high unemployment.  Such as the Great Depression.  Or if you’re going through a period of high inflation.  Like during the Seventies.  We can see this if we look at the birthrate over the years.

Number of Children per Woman R1

(source: Population Reference Bureau)

Bad economic times (Great Depression) fewer births.  High inflation (the Seventies) fewer births.  Of course, there was something else happening during the Seventies.  Which followed the Sexual Revolution.  Women were having more sex outside of marriage.  But they were using birth control and recently legalized abortion to avoid having children.  Women were liberated.  The feminists were moving into careers once reserved for men.  And because they were having careers they were not being stay-at-home mothers raising a family.

Also during the Seventies there was the zero population growth movement.  Among many other movements.  As the hippies turned antiestablishment.  And anti-capitalist.  Preferring a communal life.  Where there was no greed or profits.  Where everyone was equal and had an equal share.  Like the communists enjoyed.  Or, rather, suffered.  The zero population growth movement protested against having babies.  And the threat they posed to the limited resources of the earth.  So they were quite happy to see the birthrate fall below the replacement birthrate (about 2.1 children per woman in the United States).  Because below this rate future generations will be smaller than previous generations.  Which will burden the limited resources of the earth less.  But it created a big problem for those who wanted a large socialist state to provide cradle to the grave welfare.  For babies become taxpayers.

Because of the War on Poverty it takes Two Incomes to raise a Family Today

We just emerged from a government shutdown that ended with an agreement to raise the debt ceiling.  Why?  Because they can’t raise tax rates high enough to pay for all of the government’s spending.  At least not without putting most everyone below the poverty line after taxes.  Which makes that declining birthrate a big problem.  For the fall in the birthrate coincided with the expansion of the welfare state in the Sixties.  As can be seen in the explosion in welfare spending following LBJ’s launching of his War on Poverty.

Total Welfare Spending 1950 - 2010 R2

(source: The Heritage Foundation)

So just as women were having fewer babies so following generations would be smaller LBJ’s Great Society gave us a new expanding welfare state.  That is, once our tax base began to grow smaller with each subsequent generation federal expenditures were growing larger with each subsequent generation.  Resulting in higher tax rates on the smaller tax base to pay for it.  And massive new borrowings to pay what our taxes won’t.  As the government took more of our earnings away median household income stagnated.

Federal Spending and Median Income

(source: The Heritage Foundation)

If you’ve ever wondered why we can’t raise a family on one income these days this is why.  It’s the growth of federal spending.  Paid for with a growth in tax revenue.  Leaving us less money to raise our families.  Requiring that second income.  This is what the Great Society gave us.  And it’s what birth control and abortion gave us.  But it gets worse.

This Year Adult Incontinence Pants outsold Baby Diapers in Japan for the First Time

The Sexual Revolution gave us a baby bust generation.  Following a baby boom generation.  Giving us an aging population.  Where more people are leaving the workforce than are entering it.  So more people are consuming taxes (Social Security, Medicare, Medicaid, etc.) than are paying taxes.  Causing a massive wealth transfer from the young to the old.  So an aging population makes it even harder to raise a family.  Especially for the young just starting their families.  Because of the higher tax rates on a shrinking workforce required to pay for that aging population.  Which can lead to worse things than a collapse of the welfare state (see Why have young people in Japan stopped having sex? by Abigail Haworth posted 10/19/2013 on The Guardian)

Japan’s under-40s appear to be losing interest in conventional relationships. Millions aren’t even dating, and increasing numbers can’t be bothered with sex. For their government, “celibacy syndrome” is part of a looming national catastrophe. Japan already has one of the world’s lowest birth rates. Its population of 126 million, which has been shrinking for the past decade, is projected to plunge a further one-third by 2060…

Fewer babies were born here in 2012 than any year on record. (This was also the year, as the number of elderly people shoots up, that adult incontinence pants outsold baby nappies in Japan for the first time.) Kunio Kitamura, head of the JFPA, claims the demographic crisis is so serious that Japan “might eventually perish into extinction”.

This is the zero population growth movement on steroids.  The Republicans in the United States shut down the government in an attempt to curtail federal spending.  As the public debt is approaching 100% of GDP.  Very dangerous territory to be in.  But if you think that’s bad it’s far worse in Japan.  As their public debt is approximately 214% of GDP.  To support a massive welfare state.  In a country where the taxpayer is fast becoming an endangered species.

This is the ultimate end of any democracy that learned it could vote itself the treasury.  As taxes rise people cut back on their spending.  And a big cost item is children.  So we have declining birthrates in developed countries with expansive welfare states.  And immigration problems.  Immigrants who come for those generous state benefits.  And governments that want to grant them citizenship.  To make them taxpayers.  To make up for that declining birthrate.  And prevent their own extinction.

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The City of Detroit Bankruptcy

Posted by PITHOCRATES - July 22nd, 2013

Economics 101

There is nothing more Dangerous to a City’s Finances than a Shrinking Tax Base

The federal debt is at record levels.  Because federal spending is at record levels.  But those on the left say there’s nothing to worry about.  And try to expand federal spending further.  With more government benefits to hand out to the people.  And an ever growing federal bureaucracy.  Full of new jobs with generous pay and benefits.  All funded by the taxpayer.

Businesses in the private sector cannot operate like this.  Because businesses have to pay their costs with the things and/or services they sell.  That people willingly buy.  So there is a limit on the costs a business can incur.  But not so with government.  For the government has the power to tax.  To forcibly take more money from the people against their will.  Something businesses just can’t do.  And when that fails they can borrow money by issuing bonds.  Which are generally easy to sell.  Because governments have the power to tax.  All but guaranteeing that they will repay those bonds.  And when that’s not enough the federal government has one other benefit businesses don’t have.  They can print money.  Further guaranteeing that they will be able to redeem their bonds.  Making them that much easier to sell.

Government below the federal level, though, doesn’t have that last option.  So when they want to spend more money than they have they have no choice but to borrow.  And hope that their tax base doesn’t erode over time.  For there is nothing more dangerous to a city’s finances than a shrinking tax base.  Especially when the city has a huge and growing public sector.  Enjoying generous pay and benefits.  Especially pension and health care benefits for retirees.  Where promises made must be kept decades into the future.  During which time a lot of things can happen.  Such as that tax base shrinking.

Detroit’s Tax Base plummeted while the Size of the Public Sector did not for Government Never grows Smaller

This is the problem the City of Detroit has.  And it is why they filed the largest municipal bankruptcy in U.S. history.  Thanks to the automotive industry and World War II destroying most of the industrial economies of the world, Detroit became an economic power house.  And one of America’s grandest cities in the 1950s.  Paris of the Midwest they called Detroit.  Automotive capital of the world.  The Motor City.  The mecca of American manufacturing.  Having one of the richest middle class.  And one of the largest black middle classes.  Everyone was doing well in Detroit.  So the City of Detroit did the only rational thing a city could do with a swelling tax base.  They exploded the public sector.  All paid for with higher taxes.  Including a new city income tax.

But that growing public sector soon turned Detroit into a business unfriendly city.  With more red tape, regulatory costs and a corporate income tax.  And rising union demands during contract negotiations made it even less business friendly.  So businesses started leaving the city.  Taking their jobs with them.  And people followed.  Then the race riots hit in 1967.  Five days of unprecedented violence.  Thus beginning the great white flight from the city.  And the great population decline of the City of Detroit.  Culminating in the nation’s largest municipal bankruptcy in history.

At Detroit’s peak her population topped out at about 1.8 million people.  Today there are but 680,000 people remaining.  A loss of 1.12 million people.  About 62% of her peak population.  So Detroit’s tax base plummeted.  But the size of the public sector didn’t.  For government never grows smaller.  So Detroit continued on with the overhead expenses of a city with a population of 1.8 million people.  With the tax revenue of a city with a population of 680,000 people.  Making bankruptcy inevitable.

The Problems of the City of Detroit are the Problems of the Nation Writ Large

At the height of Detroit’s industrial might there were approximately 300,000 automotive or manufacturing jobs in the city.  Today there are a mere 27,000.  That’s a loss of 273,000 jobs.  That’s 273,000 breadwinners whose families are no longer in the city.  If each of them had on average 2.5 children who remained in the city with their parents that would have added about 1.2 million to the city’s population.  Which corresponds pretty closely to the 1.12 million the city actually lost.  So we can see how the loss of the jobs devastated the population.  But we can also see what it did to the city’s finances.

Let’s assume these breadwinners had their children when they were in their 20s.  So the breadwinner was still in the workforce when their children were 20 and had entered the workforce.  Let’s say this happened over a 40-year period.  So, on average during that 40-year period, there were an additional 136,500 jobs per year.  Let’s say they each owned a house and paid property tax of $750.  Over 40 years that’s about $4.1 billion in lost property tax revenue.  If each of these workers earned $35,000 on average over those 40 years and paid a 3% city income tax that’s about $9.8 billion in lost personal income tax revenue.  Finally, if we figure a 50-50 split between labor and material, a 15% overhead and a 2% net profit we can extrapolate that $35,000 average personal income into approximately $448 billion in lost corporate revenue over those 40 years.  At a city corporate income tax rate of 2% that’s about $9 billion in lost corporate income tax revenue.  Adding these all together we see a total loss of tax revenue to the city of approximately $18.8 billion due to the loss of 273,000 jobs.  Plus or minus.

This is a crude guesstimate with an emphasis on crude but it could be close enough to explain what happened in Detroit.  For with the falling tax base Detroit turned to borrowing more and more money to pay for an oversized public sector.  To service a disappearing population.  With those pension and retiree health care benefits being especially burdensome.  Which forced the city to borrow so much it left them with a debt of $18.5 billion (very close to the $18.8 billion in our little exercise above) that they don’t have a chance in hell of ever repaying.  Leaving bankruptcy as the only option.  Unless the federal government steps in.  Which probably won’t happen.  And shouldn’t happen.  For Detroit is not the only government suffering under the weight of unfunded pension obligations and retiree health care benefits.  If they bail out Detroit then they’ll have to bail out all other states and municipalities.  Which they can’t afford to do.  For the federal government has its own problems with pensions (Social Security) and retiree health care benefits (Medicare).  And they’ve just added a new government benefit that will dwarf the costs of Social Security and Medicare.  Obamacare.  All while burdening the economy with a slew of anti-business regulations that has chased jobs out of the economy.  And out of the country.

So the federal government can’t step in to save Detroit.  For the federal government is working to ‘out Detroit’ Detroit.  As the problems of Detroit are the problems of the nation writ large.  What’s happening in Detroit will happen in other states and cities across the country.  That are spending more money than they have to support an oversized public sector.  And in time what’s happening in Detroit will happen to the federal government.  Bailing out these states and cities will only hasten the downfall of the federal government.  Which the federal government will do whatever it can to prevent.  For while the nation can survive a city like Detroit going bankrupt the nation cannot survive a federal bankruptcy.  Because the numbers are just too big at the federal level.

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President Obama has made Real Spending Cuts…in the Office for Bombing Prevention

Posted by PITHOCRATES - April 21st, 2013

Week in Review

At first the Left was blaming the Republicans for the Boston Marathon bombings.  For their ‘anti-government’ views.  And causing President Obama’s proposed sequester to go into effect.  Then they were blaming white rightwing extremists because of the symbolism of the day.  Now that the bomber have been captured and we’ve learned who they are we see that perhaps those in government could have done a better job in preventing this particular terrorist attack (see Obama administration has SLASHED budget for domestic bombing prevention by 45 per cent, says former Homeland Security Assistant Secretary by David Martosko posted 4/16/2013 on the Daily Mail).

Barack Obama’s administration has cut the budget nearly in half for preventing domestic bombings, MailOnline can reveal.

Under President George W. Bush, the Department of Homeland Security had $20 million allocated for preventing the use of improvised explosive devices (IEDs) by terrorists working inside the United States. The current White House has cut that funding down to $11 million.

That assessment comes from Robert Liscouski, a former Homeland Security Assistant Secretary for Infrastructure Protection, in the wake of the Boston Marathon bombings on April 15 that killed three Americans and injured at least 173 others.

He told MailOnline that the Obama-era DHS is, on the whole, about as well-positioned as it was during the Bush administration to handle the aftermath of the April 15 bombings in Boston, ‘but the Obama administration has continued to cut the budget for offices such as the Office for Bombing Prevention from $20 million started under Bush, to $11 million today…

The Office for Bombing Prevention (OBP) was created in 2003 when the Department of Homeland Security was founded. Its original name was the WMD/Bombing Prevention Unit, and it was part of the department’s Information Analysis and Infrastructure Protection Directorate…

Today the OBP describes its mission as ‘enhanc[ing] the Nation’s ability to prevent, protect against, respond to, and mitigate the terrorist use of explosives against critical infrastructure, the private sector, and Federal, State, local, tribal, and territorial entities.’

Its website says it works to ‘coordinate national and intergovernmental bombing prevention efforts’ and ‘enhance counter-IED capabilities.’

But little is known about what role OBP actually plays in attempting to prevent bombings at public events that could be considered target-rich environments…

On February 26 the Obama White House issued a lengthy National Policy for Countering Improvised Explosive Devices. Obama wrote in an introduction to that document that ‘we have no greater responsibility than providing for the safety and security for [sic] our citizens, allies, and partners … The use of improvised explosive devices (IEDs) threatens these interests by killing, injuring, and intimidating citizens and political leaders around the world.’

‘We must not become complacent,’ he wrote.

Even when the president writes he sounds like he is campaigning.  Sounds good.  But one day you have to stop campaigning and actually do your job.  And actually get results for policy actions.  Not just keep talking in lofty tones. And blaming continued failures on the opposition.

So we have a governmental agency that exists to prevent what happened in Boston this past April 15.  Well, we can assume that’s their job.  It sounds like it’s their job.  But no one really knows what this agency does.  Other than spend $11 million a year.  Reduced from $20 million under President Bush.  Hey, how about that?  The president can cut federal spending.  As long as it’s not for something important he can cut federal spending.  Green energy investments and studying why lesbians are generally more overweight than gay men are really important so he continues to spend on them.  But something less critical to the well-being of the nation, like preventing domestic terrorist bombings, that he can cut.

The mainstream media was blaming these bombings on some angry rightwing white guy before the dust settled.  And they gave their reasons why.  It was April 15th.  Tax day.  And angry white rightwing extremists hate paying taxes.  It was Patriots’ Day in Boston.  Another day of symbolic importance to white rightwing extremists.  It was near the anniversary of the fiery end to the government’s Waco siege.  And the Oklahoma City bombing.  So it was just dripping with white rightwing extremist symbolism.  So if the mainstream media could understand this within minutes of the bombings you’d think the government who spends a lot of time attacking those white rightwing extremists would have, too.  And used their OBP to take it up a notch in the weeks leading up to that day in Boston.  Such as stopping people weighed down by very large and heavy backpacks to search what’s inside.  A woman can’t see a concert these days without security searching her purse.  You’d think they’d have a backpack search policy on a day just dripping with white rightwing extremist symbolism.

Yes, hindsight is always 20-20.  But we’re learning there were some serious clues that we should have acted on.  The Russians asked us to look into bomber #1 in 2011 who was in the U.S. on a Green Card.  Due to his ties with radical Islamist groups in his homeland.  The FBI did.  But found no cause for concern.  Then he spent 7 months in Russia.  And visited his father in the Republic of Dagestan.  Which is next door to Chechnya.  A hotbed of Islamist terrorism.  Upon returning to the United States he got kicked out of a Boston mosque for being too radical.  He was in contact with radical Islamist groups.  And his YouTube channel was full of anti-American, Islamist and terrorist videos.  You’d think that the federal government would have been watching this guy very closely during the run-up to the Boston Marathon.  Perhaps even monitoring his purchases.  For if the OBP were not watching people like him just who were they watching?

The federal government’s primary job is to protect this country from its foreign and domestic enemies.  Perhaps we should be doing a little more of that and spending a little less on green energy investments.  And researching why lesbians tend to be heavier than gay men.  Had they there was a chance they could have prevented this one terrorist attack.  For Bomber #1 was leaving a trail of clues behind him for us to follow.  You can’t look into everyone doing one of the things he did.  But someone doing all of the things he did should have popped up on someone’s radar.  Hopefully we can learn from this intelligence failure.  And make it harder for the next domestic terrorist.

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Political Promises, Lies and the Advancement of an Political Agenda

Posted by PITHOCRATES - April 11th, 2013

Politics 101

Government Helps the Poor by Keeping them Poor so they Remain Dependent on Government

Politicians lie.  Everyone knows this.  It’s a running joke in comedy movies and television programs.  And a common plotline in dramas.  Because politicians will say and promise anything to get elected.  Which is their primary and only objective.  Winning an election.  And the needs and wants of the people are secondary.  Things they can easily brush aside once ascending to elected office.  Because they don’t really care about the people.  At least, they don’t care for them as much as they care for themselves.

And once they’re in office the promises keep coming.  To help them win the next election.  And to keep the size of government growing.  As well as the amount of taxes they collect.  Which gives them wealth.  And power.  The ultimate goal in running for elected office.  That’s why they sneer at the concept of limited government.  And tax cuts.  Because the less government we have the less wealth and power they enjoy.  For if we really are the self-reliant people of the Founding what need do we have for an expanding government?

Of course the answer to that question is we would have little need for an expanding government.  For we can earn our pay and take care of ourselves.  And our families.  The way Americans did before Woodrow Wilson, FDR, LBJ and Barack Obama.  Men who do not like that independent spirit.  And will use a host of arguments to condemn it.  It’s not fair being their favorite.  Because who can argue against being fair?  So everything they do is about leveling the playing field.  To make sure the rich pay their fair share.  And to help the little guy.  By making him dependent on government.  And perpetually poor.  So they will remain dependent on government.  So they can keep taking care of these poor.

Government rarely chooses Tax-Cutting for Stimulus as Cutting Taxes doesn’t Increase the Size of Government

LBJ declared a War on Poverty.  Justifying a huge increase in federal spending starting the Sixties.  And after spending untold billions to eradicate poverty what did we get?  Not much.  We still have poverty.  And the government spends more with each passing year to alleviate the suffering of the impoverished.  But it never goes away.  Poverty.  And the government nurtures it.  Protects it.  By making it more attractive to stay on a meager government assistance instead of going to work.  And building a career.  Doing something you love.  While leaving your mark on the world.  Instead we get ever increasing federal spending.  And a permanent underclass the government can be savior to.  You see they don’t want to win the War on Poverty.  Because if they win it then we won’t need them anymore.

The greatest killer of poverty is a job.  People gainfully employed can provide themselves food, shelter, etc.  They can have clean drinking water.  And heat in the winter.  It’s only the unemployed who look at food, shelter and heat as sought after luxuries.  For people with jobs are those self-reliant people.  Who provide tax dollars instead of consuming them.  This is no secret.  So it would follow that the best thing to do during a recession is to make it as easy as possible to create jobs.  You do that by lowering taxes.  And cutting regulations.  Not by raising taxes.  Or adding regulatory costs.  And you sure don’t pass a quasi national health care plan like Obamacare.

Also, history has shown that Keynesian stimulus spending does not pull economies out of recession.  If it did Ronald Reagan would not have won in a landslide against Jimmy Carter.  And Europe would not be in a sovereign debt crisis.  Keynesians know this.  But they can’t pass up the opportunity to increase federal spending.  So they promise lower unemployment rates and higher GDP numbers if only Congress does the right thing and “pass this stimulus bill.”  And when it doesn’t work they have two predictable explanations.  They didn’t spend enough.  And that even they didn’t realize how bad their predecessor destroyed the economy.  Calling the recession du jour the worst since the Great Depression.  Covering their lies about ending the recession with statements like “things would have been worse if we didn’t act.”  And though they didn’t reduce unemployment they’ll make incredulous claims like “we saved 800,000 jobs with this bold action.”  Predictable.  For their primary objective isn’t to end any recession.  It is to exploit the crisis to advance their agenda.  Basically, increasing the size of government.  And we know this because there are two ways to put more money into people’s pockets to stimulate the economy.  You can cut taxes so they have more money to spend.  Or you can tax, borrow and print money so the government can spend more.  Very rarely do they ever choose the tax-cutting route.  Because the tax-cutting way works against their agenda of increasing the size of government.

Politicians Promise and Lie to the Young and Naïve to Advance a Political Agenda

And speaking of Obamacare President Obama promised the American people that if you liked your private health insurance plan you could keep it.  And the cost of that health care plan would go down.  Because they had a massive convoluted health care plan that was going to give health care to everyone.  Increase the quality of health care from what it is now.  And it was going to be less expensive.  Which was a lie.  Because you can’t have more of anything for less money.  Life just doesn’t work that way.  As they implement Obamacare its taxes and regulations are forcing business owners to push people from full-time to part-time.  So they aren’t forced into providing mandated health insurance plans.  Some even have no choice but to drop their health care coverage for all of their employees.  Because their health care costs went up.  Not down.  And they’re predicting doctor shortages.  Because the only cost savings they can get is by forcing people to work for less in the health care industry.  So they’re leaving.  Under Obamacare there will be higher costs, longer wait times, rationing, denial of services and lower quality.  Everything they promised wouldn’t happen.  And everything critics said would happen.  So are the proponents of Obamacare just so utterly ignorant?  Or were they lying through their teeth because they just wanted to take over one-sixth of the U.S. economy?  With an agenda to increase the size of government one has to go with lying through their teeth.

President Obama blamed George W. Bush for the world hating America.  When he became president he no longer projected American power.  Instead he wanted to talk to our enemies.  To negotiate with them.  He even dropped words from official usage.  Like the War on Terror.  To make our enemies like us.  Because people like people who aren’t bullies.  And that was what George W. Bush was.  A bully.  So President Obama warmed up to the Islamic world.  So the Islamic world would warm up to us.  Even announcing withdrawals from Iraq and Afghanistan early in his administration.  Ending the war on you-know-what.  So he could use that money for Obamacare.  Promising the American people the world would be a safer place.  Even passing on an opportunity to help overthrow the government in Iran.  America’s greatest enemy.  Instead, he helped people overthrow a couple of our allies.  Hosni Mubarak in Egypt.  And Muammar Gaddafi in Libya.  Who since the Iraq war had been an ally in the War on Terror.  And the thanks for this new Islam-friendly American policy?  They killed our ambassador in Benghazi along with three other Americans.  Al Qaeda is now in Libya.  And the Muslim Brotherhood is in Egypt.  And it looks like al Qaeda is now in Syria.  Another enemy of the United States the people were trying to overthrow that President Obama chose not to help.  The Middle East may burn now.  Making the world a more dangerous place.  But the president got what he wanted.  All that money we were spending overseas they can now spend at home.  Rewarding friends and campaign contributors.  As well as buying votes.

And now they are calling for tighter gun control measures.  Greater background checks.  And a national gun register.  To protect the kids they say.  So another Newtown massacre doesn’t happen.  Even though they themselves will admit that every measure they proposed thus far would not have stopped the shooter at Newton.  Aurora.  Tucson.  Virginia Tech.  Or any other shooting where some mentally unsound person killed random strangers.  These people didn’t kill because guns made them kill.  They killed because they were sick.  And we didn’t protect society by institutionalizing these people.  The only thing we could have done to stop them once they started shooting we didn’t do.  Having someone armed in these ‘gun-free’ zones.  For these sick people shoot unarmed innocents until someone with a gun arrives on the scene to shoot back.  So arming teachers may save children from another Newtown.  While everything they proposed thus far will do absolutely nothing to prevent a future Newton.  Yet they press for further restrictions on gun ownership.  And if it won’t make children safer one wonders why they want to exploit these shootings to advance their anti-gun-ownership agenda.  As they are interested in acquiring greater wealth and power one would have to assume it’s the power.  Perhaps making them feel more all-powerful if they can actually nullify the Second Amendment.

So politicians promise and lie to advance an agenda.  Which is why the young typically vote for those who promise and lie so much.  The liberal Democrats.  As the young are naïve and easy to lie to.  While older people tend to vote Republican.  For they are older.  They have heard all of the promises and lies before.  And they’re wiser.  Which comes with age.  Which is why the liberal Democrats get them while they’re young. For it’s hard to keep them once they gain knowledge and experience.

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Disposable Income, Federal Taxes, Federal Debt and our Spending Problem 1940-2012

Posted by PITHOCRATES - February 27th, 2013

History 101

Excessive Federal Taxes reduce Disposable Income which reduces New Economic Activity

The key to economic growth is disposable income.  The more disposable income people have the more economic activity they will create.  So the key to a healthy economy is maximizing disposable income.  And we can do that in a few ways.  First of all we need jobs.  And we can create more jobs with fewer costly regulations.  And lower taxes.  If we make it less costly to hire people businesses will hire more people.  Which they aren’t doing right now.  Primarily because of Obamacare.  Which is so costly to businesses that they’ve frozen new hiring.  And are pushing some full time employees to part-time.  As well as investing in capital equipment wherever they can.  Replacing people with machines.  Because machines don’t incur Obamacare costs, taxes or penalties.

For those lucky few who haven’t been replaced by machines they can earn some disposable income.  Depending on their skill level.  A low-skilled person who never graduated from high school cannot earn as much disposable income as a thoracic surgeon.  So if you want stuff.  And you want to stimulate the economy.  Become a thoracic surgeon.  Or something else that takes years of college and years of on the job training.  And hundreds of thousands of dollars of student loan debt.

But earning a good income isn’t enough.  Because from that income we must pay an enormous amount of taxes.  Greatly reducing our disposable income.  Some of the taxes we can see.  Such as those itemized on our paycheck stubs.  Federal and state income taxes.  And Social Security and Medicare taxes.  But there are a lot of taxes we don’t see.  Such as excise taxes on the things we buy from gasoline to liquor to cigarettes.  And then there are property taxes.  Sales taxes.  And the list goes on.  All of which take a bite out of our disposable income.  Siphoning away real economic activity over the years as the federal government added new taxes.  And increased the tax rates of the old taxes.

The Federal Government came up with the Withholding Tax to Prevent an all out Tax Revolt

When the Founding Fathers ratified the Constitution there weren’t many taxes.  Mostly custom duties and tariffs.  Which was enough to fund the limited government they created.  But ever since the Founding some in the federal government have been trying to destroy what the Founding Fathers created.  And replace it with what they fought so long to get rid of.  A very large government that reaches into all parts of our life.  Like a monarchy.  Where those in the federal government belong to a new aristocracy.  Who are more equal than everyone else.  And live a far, far better life.  If you don’t believe this just check out property values around Washington DC.

With the American Civil War killing a generation of fathers a lot of boys grew up with over protective and doting mothers.  When these boys came of age and entered politics they weren’t as manly as their father’s generation was.  Because they grew up without fathers to teach them to hunt and fight.  Instead, they grew up with mothers who taught them to be more nurturing.  Giving us the progressive movement.  Woodrow Wilson gave us a permanent federal income tax.  And tried to expand the federal government to be more of a monarchy with a powerful executive that can govern against the will of Congress.  And the people.  After World War I we returned to normalcy.  And Warren Harding and Calvin Coolidge gave us the Roaring Twenties.  And the modern world.  Then Herbert Hoover and other progressives caused the Great Depression.  With a crisis too good to let go to waste FDR picked up where Woodrow Wilson left off.  Exploding the size and reach of the federal government.  And the great surge in federal taxes began.  Over the years they added more and more.  Such as these (see Table 2.1—RECEIPTS BY SOURCE: 1934–2017).

Income Payroll Excise and Other Taxes Key

Some of these you are no doubt familiar with.  The biggest bite is the individual income tax.  Something most of us have received our W-2s for and have just prepared our federal income tax returns.  Or are about to.  Dreading it.  Unless we’re getting a refund.  Those who owe money will probably take their sweet time.  As they hate writing a check to the federal government.  Which is why the federal government came up with the withholding tax.  For if people had to write a check for the full amount of their federal income taxes each year there would be an all out tax revolt.  And probably a lot more imprisonment for people not paying their federal taxes.  For no one has that kind of money sitting around.  Which is why the government takes it from you before you can spend it yourself.

Excessive Federal Spending requires ever Higher Taxation and ever more Borrowing to Feed

The big debate in Washington now is the sequester.  And the automatic cuts of the sequester.  Which were proposed by President Obama.  Which Congress wrote into a bill.  And the president signed into law.  In hopes that Republicans and Democrats would come together and find a way to reduce the record high deficit.  The Republicans want to do the obvious.  Cut the spending that caused the record deficit.  Democrats want to do what they always want to do.  Raise taxes.  Saying that we don’t have a spending problem.  That the four years of trillion dollar deficits isn’t because we’re spending too much.  It’s because we’re not taxing enough to pay for that spending.   That rich people aren’t paying their fair share.  But that’s not what you see when you look at the numbers.

Income Payroll Excise and Other Taxes

These taxes are identified in the above table.  As government spending grew so did taxes.  In particular personal income taxes which provide the majority of federal tax revenues.  Which exploded after LBJ’s Great Society added a lot of new federal spending.  And after President Nixon decoupled the dollar from gold in 1971.  Unleashing inflation.  Note that personal income taxes are greater than corporate income taxes.  That’s because there are more people than corporations.  For example, Siemens AG is an international corporation that employs about 360,000 people.  Who all pay personal income taxes.  After personal income taxes comes old-age and survivors insurance.  Otherwise known as Social Security.  And all of these taxes have continued to grow.  Taking a bigger and bigger bite out of disposable incomes.  Putting a drag on new economic activity.  Note that the only falls in federal tax revenue were due to two Democrat-caused recessions.  Bill Clinton’s dot-com bubble burst causing a bad recession in 2000.  And his subprime mortgage lending bubble he started with his Policy Statement on Discrimination in Lending burst causing a bad recession in 2007.  Apart from these, though, the pattern has been more spending.  Not less.  Which would suggest that we do have a spending problem.

Also included on this chart is the federal debt.  Note how it spiked up during World War II.  Then settled down at a constant rate for about 30 years.  Until LBJ’s Great Society spending increased federal spending.  But these massive new taxes weren’t enough.  For that’s when the big deficits started.  Adding on to a growing federal debt.  With the only decline in this growth coming during President Clinton’s presidency.  President Clinton’s dot-com boom (before the bubble burst), the peace dividend from President Reagan winning the Cold War, the Asian financial crisis and Japan’s Lost Decade all helped the American economy shower the treasury with cash.  Putting the nation into a surplus for a year or so.  But that didn’t last.  As federal spending continued to outpace tax revenue.  Culminating with President Obama’s trillion dollar deficits.  With federal tax revenue at the highest since President Bush’s record high just before Clinton’s subprime mortgage bubble burst into the subprime mortgage crisis.  And the Great Recession.

So yes, Virginia, we have a spending problem.  A spending that requires ever higher taxation and ever more borrowing to feed.  Taking an ever bigger chunk out of disposable incomes.  Leaving less and less for new economic growth.  Explaining why the economy has never recovered from the Great Recession.  For President Obama’s policies only increase taxes and the cost of doing business.  And do nothing to create disposable income.

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FT158: “Journalists are more partisan than wise.” —Old Pithy

Posted by PITHOCRATES - February 22nd, 2013

Fundamental Truth

The Mainstream Media sacrifice their Journalistic Integrity to help the Obama Administration Advance their Agenda

The president has warned that the $85 billion in spending cuts of the sequester will gut government programs leaving Americans at great peril.  This despite baseline budgeting automatically increases spending every year.  From 1974 (after Nixon decoupled the dollar from gold and the government adopted baseline budgeting) through 2008 (before the spending orgy of the Obama administration) federal spending increased approximately 7.5% each year.  Crunching the numbers for the spending increase from 2012 to 2013 we get $284.7 billion.  Applying the cuts of the sequester reduces this increase in spending to $199.7 billion.  We will spend more in 2013 than we did in 2012.  Even AFTER the sequester cuts.  So all the peril the president is warning us about is not real.  He’s lying for political gain.

Yet the mainstream media is discussing this issue as if there are real cuts in spending.  That we will reduce spending in the numerous government programs the president warns about if we let the sequester happen.  Less food inspection.  Less airport security.  Fewer police officers.  Fewer firefighters.  Fewer teachers.  Fewer flu vaccinations.  And less childcare.  In their reports they discuss these as a matter of fact.  When they are just not true.  And it’s no secret.  Anyone can do what we did and look at federal outlays and see the automatic spending increases each year.  And see that we will still spend more in 2013 after the sequester cuts than we did in 2012.  You’d think a journalist would study the facts.  The historical record.  And then question the president and his administration.  Ask them why they are lying.  But they don’t.  Why?

Because they are partisan.  Committed to the leftist agenda the president is trying to pass.  So they either help spread the lie.  Being complicit in the lie.  Or they spread the lie because they are victims of the lie.  They are so committed to the leftist agenda that they don’t question anything coming from the liberal left.  Because they want to believe.  They sacrifice their journalistic integrity to help the administration advance their agenda.  More a propaganda arm of the administration than a free press.  The kind of journalism they practice in Venezuela.  Cuba.  China.  North Korea.  And the kind of journalism they practiced in East Germany.  The Soviet Union.  And Nazi Germany.  Where there was no free press.  Only state propaganda.  Propaganda in a totalitarian regime is one thing.  They already oppress their people and their news is more for the benefit of outsiders.  Where they lie about record harvests.  And record gains in industrial production.  Things their people have long stopped believing as they suffer through the misery of the reality.  But it’s different in a free country.  For it lends legitimacy for illegitimate actions of government.  And allows them to overstep the restraints of their constitutional authority.

The Mainstream Media helped Downplay the Resurgent al Qaeda in Benghazi to help President Obama win Reelection

In 2010 the greatest cause of accidental deaths for children age 5-15 was motor vehicle accidents.  In 2010 there were 806 deaths.  Representing 49.1% of all deaths.  The number two cause was drowning with 251 deaths.  Or 15.3% of the total.  Next came fire/burn at 135 deaths.  Then death by suffocation at 79 deaths.  Then death by other land transportation at 68 deaths.  Then poisoning at 54 deaths.  Then came firearms at 37 deaths.  Yet many in the mainstream media actively support the Obama administration in their push for gun control.  Especially a ban on assault weapons.  Even if (as they say so often) it saves only one child.  But guns aren’t the leading cause of death for children.  In fact, as horrific as scenes like the Newtown shooting are they are very rare occurrences.  Far more children die in automobile accidents each year.  No doubt because we are driving smaller cars to save the planet (lighter cars means greater gas mileage and less pollution).  But the journalists don’t report this fact.  Because they endorse the leftist agenda of saving the planet.  And more gun control.  Even if saving the planet means the death of more children from driving in smaller and less safe cars.  While more gun control probably won’t save a single child.

The Obama administration’s foreign policy record has been a poor one.  The greatest threat to peace and stability in the Mideast and North Africa is Iran.  Yet the Obama administration did not support the Green Revolution protesting the 2009 Iranian election results that most felt were unfair.  There are few bigger enemies of the United States.  The Iranian supported insurgency killed or wounded a lot of U.S. military in Iraq.  Our strongest allies in the region (Israel, Egypt and Saudi Arabia) all feared growing Iranian influence in the region.  But given an opportunity to support an uprising that could overthrow a great enemy to peace and stability the Obama administration did nothing.  But when the Arab Spring swept through Egypt the president abandoned one of America’s most stalwart allies and the anchor to stability in the region.  Hosni Mubarak.  Now the Iranian influence in Egypt is stronger than ever.  When the Arab Spring spread to Libya the Obama administration supported that movement, too.  Despite Colonel Muammar Gaddafi having denounced terrorism and supported the Americans in the war against al Qaeda.  When the Arab Spring spread to Syria the president did not support that protest.  Despite Syria being Iran’s strongest ally in the region.  A sponsor of terrorism.  And a nation with a chemical arsenal likely manufactured by Iraq (those weapons of mass destruction that Saddam Hussein had used on his people but had disappeared when the Americans arrived on the scene, likely having skedaddled across the border into Syria).  As bad as the ruling regime was in Syria we did nothing to help Syrians overthrow their oppressor.

Now civil war engulfs Syria.  Elements of al Qaeda have joined the opposition.  Making sure Iran wins however things turn out there.  And the Iranian influence is stronger than ever in Libya.  When al Qaeda killed the American diplomat in Benghazi the Obama administration made up a story about a YouTube video causing spontaneous protests that led to the ambassador’s death along with three other Americans.  To downplay a resurgent al Qaeda during the 2012 election campaign.  As they had refused to beef up security in Benghazi as the ambassador requested.  Because it would look bad in the 2012 election.  Yet the mainstream media did not question these very poor decisions the Obama administration made for political reasons.  Instead accepting their position that there was nothing newsworthy in Benghazi.  Which they wholeheartedly reported.  Refusing to even ask questions.  Such as why did they refuse the ambassador’s request for more security?  Who edited the talking points for Ambassador Rice used for the Sunday morning shows?  Or why is al Qaeda now stronger in the Middle East, North Africa and West Africa after 4 years of the Obama administration that they were during 8 years of the Bush administration?  No.  They showed no journalistic curiosity.  Or integrity.  Simply accepting the administration’s statements as fact.  While the Middle East and Africa become more dangerous places.

The Mainstream Media is no longer a Free Press for the People but a Propaganda Arm of the Obama Administration

Obamacare is the most sweeping change to the American economy since LBJ’s Great Society.  Which was the most sweeping change since FDR’s New Deal.  The American Left has always wanted a national health care system.  Just like what they have in the United Kingdom.  The Left likes to point to their National Health Service (NHS) as the right way to do health care.  As does the mainstream media.  Yet if you read the British papers their NHS is not all the American Left says it is.  Britain’s aging population has caused health care spending to explode.  The UK is in the midst of massive budget cuts to bring down health care spending.  While the NHS has long tried to deal with chronic problems of long wait times.  Rationing.  A shortage of doctors and nurses.  Even ambulances.  Their emergency rooms are overflowing with people with non-emergencies as the NHS closed their neighborhood clinics to reduce costs.  And the quality of care has been falling in their hospitals.  The problems in the NHS are no secret.  All you have to do is pick up a British paper and read about them.  For they are ongoing.  Yet the mainstream media never reported these problems during the Obamacare debate.  Or what passed for a debate.  No.  They never asked how Obamacare was going to avoid all the problems they were having in the NHS.  Which they should have.  As the US has an aging population, too.  Worse, they have about five times the population the UK has.  Guaranteeing any problems they have will be five times worse in the US.  Serious questions a good journalist should have asked.  But no.  They didn’t.  Because they support the liberal agenda more than they believe in journalistic integrity.  So they only report what helps the administration.  While avoiding anything that is critical of them.  Or their agenda.

When it comes to economics the mainstream media are all supporters of Keynesian economics.  Despite their record of failure.  When Nixon decoupled the dollar from gold in 1971 it allowed the government to go all in with Keynesian economics.  And they did.  Printing so much money that it led to excessive inflation, high unemployment and economic stagnation.  Ronald Reagan reversed those Keynesian policies.  His administration stopped printing money.  And got the government out of the private sector economy.  Cutting regulations.  As well as tax rates.  And economic activity exploded.  There was so much economic activity that tax revenue nearly doubled.  Even at those lower tax rates.  But the mainstream media doesn’t report this.  Instead, they revise history.  Always supporting Keynesian economic policies as they allow government to expand.  So they can implement their leftist agenda.  Which is anti-business.  Pushing higher regulations.  And higher taxes.  And whenever anyone talks about Reaganomics they say those cuts in tax rates only increased the deficit.  When the historical record clearly shows tax receipts increased.  Which they could easily look up (see Table 2.1—RECEIPTS BY SOURCE: 1934–2017).  But they don’t.  Or chose not to.  Preferring to support the liberal agenda.  Instead of having journalistic integrity.

The mainstream media today is no longer a free press for the people.  They are an extension of the Democrat Party.  At least the liberal wing of the Democrat Party.  More of a propaganda arm of the Obama administration.  That is more interested in changing the country than keeping our politicians honest.  Or reporting the facts.  They are fiercely partisan.  Or they are just not very smart.  Either woefully ignorant of the material they report on.  Or so in the bag for the Obama administration that they will report falsehoods as truth.  The kind of thing that isn’t a big deal in a totalitarian regime.  But a pretty big deal in a free country with a government that continues to try to exceed its constitutional authority.  For a free press is the vanguard of a free country.  Keeping the politicians honest so they can’t exceed their constitutional authority.  And if the journalists aren’t going to do their job by the time we find out what our politicians are doing it will be too late.  As we now have Obamacare as law.  Which passed on partisan lines.  With enough moderates and independents voting for Obamacare as few in America knew of all the problems the British were having with their national health care.  Today it’s Obamacare.  Tomorrow it may be gun control.  Or a war in the Middle East thanks to a resurgent al Qaeda.  And a growing Iranian influence.  Thanks to such a poor job in foreign policy that if the mainstream media had reported it honestly President Obama may not have won reelection.  And four Americans may not have died in Benghazi.

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Baseline Budgeting, Sequestration and Lies

Posted by PITHOCRATES - February 21st, 2013

Politics 101

The Sequester Automatic Spending Cuts equal about 2% of Current Federal Spending

If you heard the president speak recently we’re all doomed.  The automatic spending cuts in the sequestration he proposed and signed into law will take food away from children.  And lead to the collapse of society as we know it.  Ushering in the end of the world.  For he warned…

Border Patrol agents will see their hours reduced. FBI agents will be furloughed. Federal prosecutors will have to close cases and let criminals go. Air traffic controllers and airport security will see cutbacks, which means more delays at airports across the country. Thousands of teachers and educators will be laid off. Tens of thousands of parents will have to scramble to find child care for their kids. Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings.

President Obama gave this speech in front of some first responders.  Police officers.  And firefighters.  Always the first they threaten with layoffs when the government can’t raise taxes.

Amazing what $85 billion can buy today.  And if it can buy all that you’d think we wouldn’t have to spend $3.8 trillion at the federal level.  For if we can get all of that for a little over 2% of all federal spending it makes you wonder what else that 98% is buying.  What’s even more remarkable is that the federal government doesn’t even pay police officers, fire fighters or teachers.  We pay for these with property taxes.  At the city and county level.  Which the federal government cannot cut.  Because they don’t pay for these.  Yet the president says the sequester will even cut these.  Remarkable.

The Important Thing to understand about Baseline Budgeting is that Spending Cuts don’t Cut Spending

To understand sequestration you have to first understand baseline budgeting.  Which goes back to the Congressional Budget Act of 1974.  When we stopped being responsible.  And set government outlays to forever increase.  The baseline is the starting point for the following year’s budget.  And the baseline is last year’s outlays.  This year’s spending will be last year’s spending plus an additional amount based on inflation and population growth.

So spending always increases from year to year.  Automatically.  No one has to request an increase in appropriations.  And no one has to cut spending elsewhere for new spending someplace else.  Because all of last year’s spending is approved.  No matter how wasteful and pointless it may have been.  And on top of that spending there is new spending.  Always.  Guaranteeing that federal spending will always grow greater.  There will always be deficits.  And always a growing federal debt.

Now the important thing to understand about baseline budgeting is the meaning of ‘spending cuts’.  In a household if a family decides to cancel the family vacation because things are a little tight that is a spending cut in the real world.  Because it results in less spending.  But a cut in baseline budgeting doesn’t result in less spending.  For the only thing they cut is the amount they will increase future spending by.  For example, if spending for ‘X’ is scheduled to increase by $100 million but will only increase by $75 million that is a $25 million spending cut.  Even though spending will still increase by $75 million.

The President’s Sole Objective now is to destroy the Republican Party

President Nixon decoupled the dollar from gold in 1971.  Taking American off the gold standard.  Unleashing the inflation monster.  Allowing government to spend more.  As they paid for that additional spending by printing money.  And with the addition of baseline budgeting added in 1974 they spent more.  A lot more.  Total federal outlays from 1974 to 2008 increased on average 7.5% each year.  Total federal outlays in 2012 were approximately $3.8 trillion.  So the scheduled increase in spending (thanks to baseline budgeting) for 2013 is approximately $284.7 billion.

The spending cuts of the sequester are $85 billion.  Which President Obama says will usher in the end of the world as we know it.  But these ‘cuts’ are not cuts per se.  They are not like the cuts a household makes when they cancel the family vacation.  These are cuts that reduce the increase in future spending.  So instead of increasing future spending by $284.7 billion they will only increase by $199.7 billion.  Which is 2.3 times greater than the amount of the sequester.  Now President Obama said the sequester cuts would be the end of the world as we know it.  Even though total federal outlays will actually increase by an amount 2.3 times the sequester.  So one cannot but ask the question how will this sequester usher in the end of the world as we know it when we are actually increasing spending?

Because it is not the end of the world.  The president is lying.  Everything that we can pay for today we can still have after the sequester.  Because there are no real spending cuts.  We’re just increasing spending less than the original baseline projection.  Which means all the jobs we will lose will be future jobs.  But talking about losing future jobs doesn’t put the fear of God into people like telling them they won’t have any police or fire protection anymore.  Or telling them that their children’s teachers will lose their jobs.  You see, the president’s sole objective now is to destroy the Republican Party.  The only thing standing between the country and the liberal agenda he wants to impose on the country is the Republican opposition.  Which is why the sequester that he proposed and signed into law is now the fault of the Republicans.  This is the reason for all of this theater.  To get people to hate Republicans.  For why else would the president call a spending increase a spending cut?  If it wasn’t to demonize the people who keep demanding spending cuts?

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State of the Union, Benghazi, Sequestration and the Politics of Spending

Posted by PITHOCRATES - February 14th, 2013

Politics 101

President Obama’s Idea of Compromise and Bipartisanship is Unconditional Surrender

President Obama’s State of the Union Address was a little light on details.  But the general gist is no spending cuts.  And more taxes.  Which makes the sequestration about to hit a crisis in the making for the president.  For it was sort of his idea.  And he did sign it into law.  But to him it was more like playing a game of chicken.  Confident that the Republicans would cave and roll over.  Giving him whatever additional tax increases he wanted to prevent cuts in defense spending.  But the Republicans aren’t blinking.  Because this is the only way they’re going to get any spending cuts.  Even if it means gutting defense spending.  Something the president didn’t consider.

Despite being an architect of the sequestration he called it a stupid idea during the State of the Union.  He doesn’t care about the cuts in defense spending.  He is, after all, a leftist liberal.  And they hate defense spending.  He even denied Ambassador Stevens’ request to beef up security in Benghazi.  Which led to Ambassador Stevens’ death.  Along with three other Americans.  But it’s the equal cuts in things he does care about that has him worried.  That social spending.  The kinds of things that buy votes.  And makes people dependent on government.  Helping to endear the Democrat Party to the American people.  While making them hate the Republican Party.  Who want to take away the great things the Democrats so generously give them.  Even if the government can’t afford to give these things to the American people.

President Obama may talk about compromise and bipartisanship but he doesn’t mean it.  His idea of bipartisanship is unconditional surrender.  He has no interest in meeting Republicans halfway.  He wants to destroy the Republican Party.  And undo the Reagan Revolution.  And bring back the Big Government of the Sixties and Seventies.  When the Democrats ruled supreme.  And you do that with spending money.  Not cutting spending.  Which is why the sequestration bothers him so much.

Running Deficits is OK if it provides for Senior Citizens, Our Children and Clean Stuff

Leading Democrats are saying we don’t have a spending problem.  We’re just not paying enough for the stuff we want.  Which also happens to be the stuff that buys votes.  So the excess spending to buy votes is not the problem.  The problem is that we’re not raising taxes enough to pay for this orgy of spending that is the problem.  We’re not taxing rich people enough.  Or corporations.  And once we do then we won’t be taxing the middle class enough.  And once we do that it probably won’t matter what we do as the country will be so deep in debt that no amount of new taxes will help.  Unless they figure out a way to tax away more than 100% of a person’s earnings.

So low tax revenue is the problem.  Well, that, and spending money on the wrong things.  On things that don’t buy votes.  Things that weren’t on the laundry list President Obama rattled off during the State of the Union that we need to spend more on.  Defense spending.  And…, well, defense spending.  Which is the only thing the Obama administration is willing to consider cutting.  Because we can get a lot of free things by gutting defense.  New programs that won’t add a single dime to the deficit.  Something he said more than once during the state of the union.  Obamacare, for example, will be deficit neutral.  Because the money we were going to spend on the wars in Iraq and Afghanistan will pay for it.  So even though the spending will still add to the deficit it’s now Obamacare spending.  Not defense spending.  Which is OK.

You see, running deficits is OK if it provides for senior citizens.  Our children.  If it gives us clean water.  And air.  Invests in clean energy.  And in those jobs of the future.  If it builds roads and bridges.  For less face it, we would be nothing without our government-provided roads and bridges.  Which we simply could not have it if it weren’t for government.  (Then again railroads build and maintain their own roads and bridges.  With funds they earn operating their railroads.  But I digress.)   In fact, any deficit reduction that comes from cutting this spending is just about the worst thing in the world we could do.  According to those on the left.  So we should tax rich people and corporations more.  And cut defense spending more.  Because we spend way too much on defense spending anyway.  And for what?  It’s not like we’re going to use it for anything.  Such as protecting our ambassadors in hostile lands.

Defense Spending is the only Spending growing at a Rate less than Total Federal Outlays

If you listened to the State of the Union (and didn’t fall asleep during it) you’ve learned that we don’t spend enough on our social spending.  And too much on defense spending.  That’s what the president said.  But what do the numbers say?  To find out let’s look at federal outlays (see Table 3.1—OUTLAYS BY SUPERFUNCTION AND FUNCTION: 1940–2017).  The following chart graphs the historical data from 1958 to 2011 and the projection for 2012.  We look at 4 areas of spending: defense; education, training, employment and social services; Medicare; and Social Security.  We calculate the spending as a percentage of total spending and graph the results.

Percent of Total Federal Outlays

The one area we spend too much on that the Obama administration is willing to cut is the one area that has seen the greatest decline in spending.  Defense spending.  Which as a percentage of total outlays has fallen while non-defense has trended up or held steady.  This tells us the government has pulled money from defense to pay for these other things.  But this chart doesn’t tell the whole story.  For although Medicare and Social Security have trended up they haven’t taken as big a piece of total spending as defense gave up.  And education spending has been pretty flat.  Perhaps giving credence to President Obama’s claim that we’re not spending enough on education.  But if you look at the year-to-year growth in spending you see a different picture.

Federal Outlays as a Percentage of 1958 Outlays

Here we divide each year’s spending by the spending in 1958 (or 1966 for Medicare).  Showing the increase in spending over time.  This chart also includes total federal outlays.  Which tells a startling story.  Not only is defense spending being gutted to pay for other spending it is the only spending growing less than the growth rate of total federal spending.  While the other three areas are growing at greater rates.  In 2011 Social Security spending was 8,892% of the spending in 1958.  Medicare, which came into existence in 1965, grew at an even greater rate.  In 2011 it was 17,673% of the spending in 1966.  More than twice the growth in less time.  And education spending tracked pretty close to Medicare spending.  In 2011 it was 15,744% of the spending in 1958.  While defense spending in 2011 was only 1,509% of the spending in 1958.

Note that the general trend of increased spending holds regardless of who is in power.  That’s because of baseline budgeting.  Which provides for automatic increases in spending.  When government talks about spending cuts it not really spending cuts.  It a cut in the rate spending increases.  You can see some dips in the graphs and where they may have cut the rate of growth.  But nowhere is there really a cut that results in reducing net spending.  Except for defense.

Increases in spending on education (and training, employment and social services) has grown at a rate greater than most other spending.  And what can we learn by throwing money at education?  Well, based on the president’s remarks, it doesn’t work.  It doesn’t increase the quality of education.  At least based on the great increases year after year that only give us the need to spend more money.  And this spending doesn’t even include the bulk of education spending.  That generated from property taxes.  Which can mean only one thing.  If we’re paying more and need to spend even more the quality of education is not as good as it should be.  Or all that money is going to teachers’ salaries, pensions and health care benefits.

Of all this spending the only sustainable spending is defense spending. For it is the only one growing at a rate less than total federal outlays.  While increases in the other spending is going off the chart.  With the slopes of these graphs getting ever steeper.  And the closer they get to vertical the more impossible it will be able to pay for these programs.  That’s why Medicare is near crisis mode.  With the cost of our aging population pushing that graph closer and closer to vertical.  Where our spending obligations will approach infinity.  Which is, of course, impossible to sustain.

Of all this spending the only sustainable spending is defense spending. For it is the only one growing at a rate less than total federal outlays.  While increases in the other spending is going off the chart.  Contrary to what the president said we are increasing spending in these areas so much that we won’t be able to sustain it.  For there just won’t be enough money to tax away from the people.  Unless we figure out a way to tax away more than 100% of their earnings.

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War Debt, Seven Years War, Revolutionary War, Articles of Confederation, U.S. Constitution, Central Government, Federal Spending and Fiscal Policy

Posted by PITHOCRATES - February 7th, 2012

History 101

Americans don’t like Paying Taxes

Americans don’t like paying taxes.  A dispute over taxation without representation led to American independence from British rule.  For Britain had been fighting for many years in many wars.  And ran up an enormous war debt.  Which they had to repay.  Because some of that debt was incurred protecting the American colonists from the French and Indians during the Seven Years War, some had a bright idea.  “Here’s a thought,” they said, “Let’s have the Americans pay their fair share.  I mean, fair is fair, right?  Besides, it’ll be a lot easier getting money from the Americans than it will be getting it from Parliament, eh wot?” 

The Seven Years War, though, was a world war.  Fought in many countries and on many seas.  Costing lots of money.  Which Parliament was financing with lots of taxes.  But the British taxpayer had tax fatigue.  And felt they had no more taxes to give.  Or wanted to give.  As they had a say in Parliament raising taxes further was a nonstarter.  But the Americans had no representation in Parliament.  So what could they do?  Turns out they could do a lot.  Now the Americans weren’t unreasonable.  They just didn’t appreciate the, “Oh, by the way, here’s your share of the war debt.  We’ll tax you accordingly.”  Which the British did.  Without so much a by-your-leave.  Rubbed the Americans the wrong way.  If the British had shown them the numbers and gave them a chance to agree on what their ‘fair share’ was they probably would have paid.  And stayed loyal to the Crown.  But the British didn’t.  So the Americans didn’t.

Now fighting wars is expensive.  Especially long ones.  And the Revolutionary War was a long one.  Eight years until they penned their names to the Treaty of Paris (1783) officially ending it.  In these eight years the Americans ran up a great war debt.  And needed to repay it.  Just like the British.  The very thing that started the Revolutionary War.  Now it was the Americans’ turn to raise taxes.  They tried taxing whiskey.  Which led to another tax rebellion.  The Whiskey Rebellion.  For Americans still didn’t like paying taxes.  This time, though, it was a tad different.  Because those they were taxing had representation.  And the new ‘nation’ (a confederation of ‘equal’ states) had the legal authority to impose this tax.  And to put down the rebellion.  Which General Washington did.  To the howls of liberty-loving patriots everywhere.  The tax quietly went away.  But it didn’t solve the nation’s problems.  They were broke.  Needed money.  And they had to get a handle on the massive sums they owed for the world of nations to take them seriously.

Hamilton thought both Jefferson and Burr were Scoundrels but at least Jefferson was a Principled Scoundrel

The new ‘nation’ (that confederation of ‘equal’ states) was the problem.  Just as the world of nations didn’t take the Americans seriously these ‘equal’ states didn’t take the new national government seriously.  There was no taxing authority.  So the federal government could only ask for contributions from the states.  Which often came in late.  And when they did they were often less than they requested.  Some states even refused to pay anything.  Worse, the states were making their own treaties with other nations as well as the Indian Tribes.  Or reneging on the treaties the federal government made with other nations and the Indian Tribes.  The confederation wasn’t working.  They needed something new.  And once George Washington was onboard they called a meeting in Philadelphia (1787) to rework the Articles of Confederation.

Of course they didn’t rework the Articles of Confederation.  They replaced them with a new U.S. Constitution.  And a new nation.  The Preamble to the U.S. Constitution began with “We the people.”  The sovereignty of the new nation wasn’t with the states.  It wasn’t with the new federal government.  It was with the people.  It was a nation of the people, by the people and for the people.  To borrow some words from Abraham Lincoln.  Which meant that although the thing they created had more power than the confederation of states it replaced, its power was limited.  Very limited.  The Framers designed it to do only those things the states could not do well individually.  National defense.  Coin uniform money.  Establish post offices and post roads.  Make national treaties with other nations and Indian Tribes.  Declare war.  Create a standard of weights and measures.  But little more.  In fact, the Constitution listed more things the new government couldn’t do than listed what it could do.  To quell everyone’s fear that they just replaced one far away central power (the British Crown) with another far away central power (the central government of the United States).  Especially when it came to taxes.  Raising taxes required approval by two houses of Congress and by the President.  Making it difficult to raise taxes.  The way Americans liked it.  For Americans didn’t like paying taxes.  And still don’t.

Getting the new Constitution ratified wasn’t a walk in the park.  The size and power of the new central government appalled those Patriots who worked so hard during the Revolution.  James Madison, the Father of the Constitution, joined forces with Alexander Hamilton and wrote a series of articles arguing for ratification.  The Federalist Papers.  And were successful.  Then when Alexander Hamilton was putting the Constitution into action as Secretary of the Treasury in the Washington administration, Madison didn’t like what he saw.  For Hamilton wanted to use the power of government to make the United States an economic superpower like Britain.  His opponents, though, saw a man who wanted to be king.  So Madison joined the opposition.  Led by Thomas Jefferson.  And the politics got ugly.  Before it was done the Jefferson camp would write about an affair Hamilton had.  And the same muckraker who exposed this affair would later write about a Jefferson affair with a slave.  Sally Hemming.  The people in the different camps hated each other.  Especially Hamilton and Jefferson.  They hated each other with a passion.  But they were principled men.  For when the election of 1800 came down to either Thomas Jefferson or Aaron Burr, Hamilton backed his archenemy.  Thomas Jefferson.  Both Jefferson and Burr were scoundrels as far as Hamilton was concerned.  But at least Jefferson was a principled scoundrel.  Burr took great offense to some things Hamilton said about him around this time.  And challenged him to a duel.  In which Hamilton suffered a mortal wound.  Pity.  For Hamilton was a true Patriot.  And perhaps the greatest treasury secretary the United States ever had.

It’s not the Spirit of Alexander Hamilton, Thomas Jefferson or James Madison that lives on in Politics but Aaron Burr

Funny how things change.  The new nation almost didn’t survive because of the opposition towards a strong central government.  And towards federal taxes.  Now federal spending includes just about everything under the sun.  Most of which the Framers excluded from the Constitution.  And the taxes!  They have reached a level none of the Founding Fathers thought would ever be possible.  Even Hamilton.  He was ‘big government’ for his day but he would be disgusted to see what became of his beloved Treasury Department.  And the money they pull out of the private sector economy.  Not to make America an economic superpower.  But to buy votes.  And for personnel gain.  The true underbelly of democracy.  Where people come to public service not to serve.  But to enrich themselves at the expense of the taxpayer.  Like that scoundrel that killed him.  Aaron Burr.

Even worse they use fiscal policy to further their spending ways.  The federal debt grows.  And now whenever a recession rolls around they use Keynesian fiscal policy to ‘lessen’ the affects of the recession.  Which is just a clever way to keep on spending after they’ve run out of money.  Because this spending is now stimulus.  And if the government stops spending it will make the recession worse.  Clever.  And it’s just coincidental that friends of the administration benefit most by this Keynesian stimulus spending.

It would appear it’s not the spirit of Alexander Hamilton that lives on in Washington.  Or Thomas Jefferson.  Or James Madison.  It’s the spirit of Aaron Burr.  Scoundrel extraordinaire.  And role model for the political elite.

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Fiscal Policy

Posted by PITHOCRATES - February 6th, 2012

Economics 101

The Constitutional Convention in Philadelphia (1787) was about Money and Unity at the National Level 

Once upon a time in America federal taxes were small.  As was federal spending.  The Constitution called for little.  The only big ticket items being an army and a navy.  To protect the new nation.  But Americans didn’t like paying taxes then any more than they do now.  There wasn’t even a federal income tax until the 16th Amendment (1913).  So even maintaining an army and a navy was difficult.  Which led to a lot of problems.  For a nation that couldn’t protect herself got pushed around in the rough and tumble world.  And the U.S. took its share of swirlies and wedgies in her infancy.  Figuratively, of course.

Just as kings needed money to maintain their kingdoms, the Americans needed money to maintain their new nation.  Which was the point of the Constitutional Convention in Philadelphia (1787).  It was about the money.  And unity.  Which the new nation (that just gained its independence from Britain) had little of.  So we got a new constitution.  And a new nation.  And the federal taxing and spending began.  Which was small at first.  Too small for Alexander Hamilton.  But far too much for Thomas Jefferson.  In fact, Jefferson thought any federal spending above zero was too much.  And when he was president he slashed government spending.  To the point that it hurt the safety of the United States.  But he also bought the Louisiana Territory.  And used the Navy and the Marine Corps to protect American interests abroad.  These two items alone required enormous amounts of federal spending.  And borrowing.  Another thing Jefferson was dead set against.  And we’re talking sums of money that not even Alexander Hamilton had proposed.  Yet here was Jefferson, the limited-government president, spending and borrowing unlimited funds. Being more Hamilton than Hamilton himself.

Of course, things change.  Even for Jefferson.  The Louisiana Purchase was a deal that no president should have passed up.  Thankfully, Jefferson took that opportunity to more than double the size of the United States.  Without a war.  Unlike Napoleon who was conquering Europe.   But he was burning through money.  And he needed money more than he needed the Louisiana Territory.  Hence the Louisiana Purchase.  Which turned out to be quite the bargain in the long run for the U.S.  And the antimilitary Jefferson flexed America’s might by teaching the Barbary pirates a lesson.  By deploying the U.S. Navy and Marines to the Shores of Tripoli.  The first U.S. victory on foreign soil.  Giving the U.S. respect.  And a cessation of those swirlies and wedgies.

Keynesian Stimulus Spending may lessen the Severity of Economic Recessions

These things cost money.  And the lion’s share of the federal budget was defense spending.  Per the Constitution.  For that was one of the main things the several states could not do well.  Maintain an army and a navy.  Because they needed unity.  One army.  And one navy.  To protect one nation.  So the states and their people could pursue happiness without foreign aggressors molesting them.  So this is how federal spending began.  But you wouldn’t know it by looking at fiscal policy today.

Fiscal policy is the collection of policies that government uses to tax and spend.  But it’s more than just defense spending these days.  Federal spending had grown to include things from business subsidies to Social Security to Medicare to food stamps to welfare to income redistribution to farm subsidies.  And everything else you can possibly imagine under the sun.  None of which was included in the Constitution.  Because neither Jefferson nor Hamilton would have agreed to these expenditures.  But it doesn’t end with this spending.

Fiscal policy also ‘manages’ the economy.  Or tries to.  By trying to maintain ‘full employment’.  Which means they adjust tax and spend policies so that anyone who wants a full time job can have one.  Based on Keynesian economics.  And the business cycle.  The business cycle is the cyclic economic transitions between economic expansions and contractions.  The inflationary and recessionary boom-bust cycles.  No one likes recessions.  Because people lose their jobs.  And have to get by on less money.  So Keynesian economists say to lessen the severity of recessions the government can take action to stimulate economic activity.  They can cut taxes.  Because when people pay less in taxes they have more disposable income to spend on economic activity.  Which they say will keep people from losing their jobs.  And create new jobs.  Or the government can spend money.  Picking up the slack from consumers who aren’t spending money.  Thus saving and/or creating jobs.  Which stimulus depends on the political party in office.  In general, Republicans favor tax cuts.  And Democrats favor spending.

All Keynesian Stimulus Spending is Deficit Spending

But it’s not as simple as that.  Because during recessions tax revenues fall.  When people earn less they pay less in taxes.  Far less.  Especially if an interruption in their income puts them into a lower tax bracket.  And if you run through all of your unemployment benefits, it will.  So there’s more to economic stimulus than meets the eye.  For to stimulate a government must borrow money.  Or print money.  Because all stimulus spending is deficit spending.

Keynesians say this deficit spending is not a problem.  Because once the stimulus turns the economy around there will be plenty of new tax revenues to pay back the money they borrowed.  But that rarely happens with a tax and spend government.  Because they like to spend.  As is evident by the ever increasing federal debt.  And when they get more tax revenue they spend that tax revenue.  On anything and everything you can possibly imagine under the sun.  Often times cutting defense spending to help pay for all that other spending.  Despite defense spending being one of the few things enumerated in the Constitution.

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