Debt Ceiling Debate – The Beginning of the End

Posted by PITHOCRATES - July 31st, 2011

The Republicans will get Screwed

Politics is a murky business.  You hear a lot of sound bites from politicians.  And a lot of spin from the ‘objective’ media.  (I put ‘objective’ in quotes because it’s easier than writing that I’m winking.)  But you don’t know what’s going on behind closed doors.  What kind of deals they’re making. 

There’ve been a lot of news updates today on the negotiations to raise the debt ceiling.  From there was a deal to Nancy Pelosi saying the House Democrats may not support the Senate plan Harry Reid delivers.

So we don’t really know anything yet.  About the only thing we can know for certain is that the Republicans will get screwed.  As they always do in these types of deals.

Future Spending Cuts means no Spending Cuts

So what do we know?  Not a lot.  Word is that the Republicans are winning the tax hike fight.  There apparently will be no new taxes.  But they’re going to pay a steep price for that win (see Sen. Reid signs off on bipartisan debt-ceiling compromise by Alexander Bolton posted 7/31/2011 on The Hill).

It would cut about $1 trillion in spending up front and set up a select bicameral committee to put together a future deficit-reduction package worth $1.7 trillion to $1.8 trillion.

Failure of Congress to pass the future deficit-reduction package would automatically trigger cuts to defense spending and Medicare. An aide familiar with the deal said the Medicare cut would not affect beneficiaries. Instead, healthcare providers and insurance companies would see lower payments.

The last bipartisan agreement to cut spending happened over the negotiations to extend the Bush tax cuts last December.  And it was hell to agree on $100 billion in spending cuts.  And when the smoke cleared, that $100 billion was only about $30 billion.  So, yeah, I’m sure picking the $1 trillion in spending cuts will be easy-peasy with bipartisan love.  And no one will use the ‘taking hostages’ language like they did last December.

Future spending cuts?  Yeah, right.  You know what ‘future spending cuts’ mean in Washington?  No spending cuts.

And you couldn’t ask for worse triggers if you’re a Republican.  Gut defense spending?  It’s a dangerous world out there.  And most of the danger stays off our shores because the bad guys fear our military might.  Because our military protects and defends the United States against foreign enemies.  That’s in the Constitution.  One of the things the Commander in Chief is supposed to do.  But national health care isn’t.  And that’s where we’re heading with this trigger.

Provider reimbursements are already pushing providers out of Medicare.  This trigger will kill Medicare.  Which the proponents of Obamacare will love.  You can already hear the rhetoric.  “Oh, no.  Calamity.  Greedy providers dropping out of Medicare?  That’s just mean.  The government must step in and do something to provide for these seniors.  I mean, if no one else will provide for them then government should.”  And then Bob’s your uncle we have a national health service.

Health Care is easy when the Government runs It

And lest we forget the utopia of national health care, let’s take a look at a British newspaper (see NHS funding ‘moved away from poor areas’, says Labour posted 7/31/2011 on The Telegraph).

Changes to funding formulas means poor health rates will be given less consideration when cash is allocated, the party said.

It suggested areas like Manchester and the London borough of Tower Hamlets would lose out to parts of the wealthy south east, such as Surrey and Hampshire.

Labour based the claims on an assessment of funding reforms by public health bodies in Manchester.

But the government has disputed the allegations and claimed Labour’s figures were misleading.

Health care sure is a lot easier when government runs it.

This is the future that trigger gives us.  And if you thought the debate to raise the debt ceiling was bitter, you ain’t seen nothing yet.  The numbers will be bigger.  As will the stakes.  For they will be, after all, life and death. Who gets health care cash.  And who doesn’t.  And dies.

You know the Future is Bad when George Orwell’s 1984 is the Cheerful Option

When a deal is struck and the details come out, there’s a good chance the credit rating agencies aren’t going to be impressed.  Those future spending cuts are exactly the kind of thing they didn’t want to see.  So they will probably still downgrade U.S. sovereign debt.  Which will be a bitter pill to swallow.  After having to witness this farce.

So, without all the details available yet, here is my prediction.  Actually spending cuts will be less than $100 billion.  The credit rating agencies will downgrade the U.S. bond rating.  The trigger will activate the defense and Medicare cuts.  Defense spending will be gutted, leaving the United States the paper tiger it was at the end of the Vietnam War.  Medicare will collapse.  And Obamacare will morph into a full blown national health service.  Government spending will swell to beyond Greece levels.  There will be austerity riots.  Civil war.  Again.  And this experiment in self-government will come to an end.

Either that.  Or something more cheerful like George Orwell‘s 1984.

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FUNDAMENTAL TRUTH #76: “You know they’re governing against the will of the people when they play with the meaning of words to fool the people.” -Old Pithy

Posted by PITHOCRATES - July 26th, 2011

The More they Trust You the Easier it is to Lie to Them

People lie for one reason.  They don’t want you to hear the truth. Sometimes it’s done with good intentions.  “No, those jeans don’t make your butt look big.”  Most times it’s not.  “I am not having an affair.  And I can explain those earrings you found in the backseat.  And the underwear that’s not yours.  Just give me a minute.”

The truth about lying is the truth.  And someone’s attempt to hide it.  A husband doesn’t tell his wife about an affair.  Because he doesn’t want his wife to know about the affair.  For a variety of reasons.  But mostly so he can keep having the affair.

And this is why people lie.  To continue doing something they couldn’t otherwise do.  By misleading those people who know them.  Who love them.  Who trust them.  And the funny thing is, the more they trust you the easier it is to lie to them.  “Look, honey, I didn’t want to say anything before.  But the rumor at work was that John and Mary were having an affair.  I didn’t believe it at first.  I mean, they’re both married.  And they’re more than just my coworkers.  They’re my friends.  Then one day John had to borrow my car.  So I lent it to him.  The next thing Bill tells me is that he sees John and Mary in my car turning into an alley.  Guess I know what they were doing in that alley.”

See?  Easy.

Good Lying is about Creative Language and Class Warfare

So if you’re into lying it’s best to get yourself into a position where lots of people trust you.  Like elected office.  Because for some reason people tend to trust anyone in government.  Far more than those evil greedy people in corporate America.  Or rich people in general.  Even though it’s a given that politicians lie.  It is an interesting dynamic.  How this inherently dishonest institution is trusted first then questioned about their honesty later.  Long after the scandals that follow them.  So how do they do it?  How do these liars get to be so trusted?

It’s all about creative language.  And class warfare.  You need to get people to hate each other.  And then you stoke those passions.  Keep them burning hot.  So they feel more than think.  For the less they think the more they’ll fall for your soaring rhetoric.  You say the rich should pay their fair share (even though they pay a disproportionate high percentage of taxes).  And that rich CEOs shouldn’t get tax breaks to fly around in their private jets (even though they use them for legitimate business purposes).  You cast yourself as the protector of the little guy against rich and corporate interests.  Even though you’re anything but.  But that’s how it’s done.  And no one does it better than liberal Democrats.

For they are the king of liars.  Ivy League educated.  Arrogant.  Pompous.  Filled with an air of all-knowing condescension.  They just brim with loathing and self-confidence.  They loath you and I who are not their equals.  And they believe that there is nothing that they can’t do.  And what do they want to do?  Tax and spend.  Control the economy.  And tell us how we should live.  In the enlightened world they envision.  Of course, this has not proven to be a successful political platform.  People don’t want to elect people like this.  So they lie about what they want.  And who they are.  With a creative use of language.

Twisting the Meanings of Words

No one likes paying taxes.  No one will vote for someone who says they’re going to raise their taxes.  Which is a bit of a problem for a tax and spend liberal.  So they don’t use the ‘T’ word.  No.  Instead, taxes are called ‘contributions’.  Or simply ‘revenue’.  Because contributions sound voluntary.  And revenue sounds kind of warm and fuzzy.  In the business world, raising revenue is a good thing.  And they hate taxes in the business world.  Just like you.  So you feel less threatened about talks to raise revenue than you do about talks to raise taxes.  Even though they are the same thing.

With ever growing deficits, some people are growing a little skittish about excessive government spending.  At least, the people paying the taxes.  Those people with jobs.  They don’t want to pay more in taxes.  And they’re getting a little nervous about the huge federal debt.  So the responsible side in them tells them to say ‘no’ to more spending.  So the tax and spend liberal uses the word ‘investment’ instead.  They say we need to invest in infrastructure to rebuild our aging roads and bridges (even though gasoline taxes already pay for this work).  That we need to invest in education and research to keep America on the forefront of technology (even though we already spend a fortune on these already).  Investing in our future?  Well, yes, that sounds good.  And perhaps we should.  So we agree not to cut these investments.  But we’ll still resist excessive government spending.  Even though these are the same thing.

You see, the tax and spend liberal looks at the economy differently.  They see all money belonging to them.  Including ours.  They let us work.  Earn a paycheck.  But your net pay is only the portion of their money they begrudgingly let you keep.  In fact, what they don’t tax away from you they call government spending.  Or tax expenditures.  They’ll say things like, “We can’t afford to pay for these tax cuts.”  Of course, you don’t pay for ‘tax cuts’.  A tax cut is when the rightful owner of the money gets to keep it.  Instead of the government taking it away.  But calling this ‘government spending’ makes it easier to cut.  For cutting spending is a responsible thing to do.  But when they cut this spending they are actually raising taxes.  Clever, eh?  Talk about twisting the meaning of words.

Here are some other words and phrases they use and their translation:

  • Bipartisan = Republicans giving Democrats everything they want
  • Compromise = see bipartisan
  • Future spending cuts = no spending cuts
  • A balanced budget approach = higher taxes now and future spending cuts later (see future spending cuts above)
  • Get serious about deficit reduction = increase both spending and taxes
  • Blue ribbon panel/special commission = where you place an issue that you’re afraid to address
  • Failed policies of the past = the very successful policies of Reaganomics
  • Radical right wing = any Republican that doesn’t vote for more Democrat spending

 Republicans have Less to Hide

Liberal Democrats lie because no one wants what they’re selling.  But because they’re so much smarter than we are they’ve come up with a way to fool us.  By lying.  And using Orwellian language.  To make us accept things that we would normally not accept.

Just look at their campaigns.  And their language.  They campaign as moderates.  Then govern as liberals.  They want to raise our taxes.  But they don’t tell us that they want to raise our taxes.  Why?  Because taxpayers don’t share their Orwellian vision.  For if the people believed as they believed they would be honest.  But they don’t.  So they are less than honest.

Republicans, on the other hand, call ‘tax cuts’ tax cuts.  And ‘tax hikes’ tax hikes.  They run as conservatives.  And govern as conservatives.  Until they’re corrupted by Washington, at least.  But based on language usage alone even the most partisan hack would have to admit that the Republicans have less to hide.  And, therefore, govern more according to the will of the people.

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LESSONS LEARNED #74: “When negotiating it’s important to understand the ‘time value’ of promises. The longer out in time something is promised the less likely that promise will be kept.” -Old Pithy

Posted by PITHOCRATES - July 14th, 2011

Slaying the Inflation Beast

In Washington promises would make a poor currency.  Because they’re very inflationary.  Politicians make a lot of promises.  And they break almost as many as they make.  Promises just don’t hold their value over time.  Especially when it comes to spending cuts.  Any promise for future spending cuts will be worthless by the time that ‘future’ arrives.  Because things change.  The economic picture may change.  And they’ll write new legislation to eliminate those spending cuts.  To adjust for these unforeseen changes in the economy.  Just as those promising those spending cuts knew they would.  That’s why politicians (i.e., Democrats) can be generous when offering future spending cuts in any budget debate.  Because they have no intention of ever keeping those promises.  So Democrats can be very generous in offering ‘future’ spending cuts.  In exchange for tax hikes in the here and now.  It’s a con.  And one of the biggest such cons was the Tax Equity and Fiscal Responsibility Act of 1982 that Ronald Reagan fell for.

Reagan’s poor economy had its roots in the Sixties and LBJ‘s Great Society.  LBJ was a tax, borrow, print and spend liberal.  And he spent.  He exploded government spending for his Great Society.  On top of the massive war spending for Vietnam.  The economy limped into the Seventies.  A bad economy and high taxes left few options to pay for that spending.  So the Fed just printed money.  Which devalued the dollar.  The dollar then was still convertible to gold at $35/ounce.  With the depreciation of their dollar assets, foreign nations converted their dollars to gold, depleting U.S. gold reserves.  To stem this loss of gold Nixon suspended the dollar’s convertibility into gold (the Nixon Shock).  Free from the restraint of a quasi gold standard, Nixon turned the printing presses on high.  Devaluing the U.S. dollar in the process, giving us high inflation. Then the 1973 oil embargo came and made everything worse.

Gerald Ford did little to change things.  Or Jimmy Carter.  They were little more than Keynesians themselves.  And believed in the power of government spending to stimulate the economy out of recession.  So their policies remained Keynesian.  Tax rates were high.  As was government spending.  And then another oil crisis came thanks to the Iranian Revolution.  Things just went from bad to worse for Carter.  Inflation was killing the economy.  Until Paul Volcker came on board after a cabinet shakeup.  He slew the beast.  Eventually.  Starting in the Carter administration.  And finishing the job in the Reagan administration.  For one of the tenants of Reaganomics was a sound currency.  Which Volcker gave him by slaying the inflation beast.

Reagan was not a Keynesian

Inflation is the great big bad side affect of Keynesian economics.  For it’s the only economics system that tells governments that counterfeiting money is a good thing.  So governments do.  And find justification for their actions by the sweet nothings Ivy League economists whisper in their ears.  But once the inflation beast is unleashed it is not easily subdued.  Because the only true antidote for runaway inflation is a good, deep recession.  And a bit of a deflationary spiral to put prices back to normal.  So this was where the economy was in 1982.  In deep recession.  With high unemployment.  And double digit interest rates (reaching as high as 20% on occasion).

Tax receipts fell.  As you would expect them to during a deep recession.  Which increased the deficit.  And this was just a calamity.  The country was facing economic ruin.  They just had to raise taxes.  For it was the only cure.  And the Democrats demanded that Reagan do just that.  Raise taxes.  But being that it went against another tenant of Reaganomics, Reagan refused.  He was not a Keynesian.  His Reaganomics was more of the Austrian School variety.  Low taxes.  Less regulation.  Sound money.  And little government spending.  He believed that the massive government spending was the problem.  And you didn’t fix that problem by giving the government more money to spend.  No, Reagan wasn’t going to abandon principles easily.  They needed something to sweeten the deal.  To make him abandon his principles more easily.  And they came up with a pretty sweet lie.

“Okay,” they said to Reagan.  “You’re right.  We need to cut spending.  We’re all in agreement here.  But the recession is hurting the people.  We can’t hit them with spending cuts now.  We’ll have to ease them in over time.  To make it easier on the people.  So we’ll give you your spending cuts.  A lot of them.  Just not right now.  In the future.  When the people are back on their feet.  You win.  All we ask for in return is that we increase taxes now before this deficit causes some damage that we won’t be able to walk away from.”

Democrats are Liars

And they made a deal.  Tax hikes now.  For spending cuts later.  And a lot of them.  For every new dollar in taxes they would cut $3 of spending.  It was some unprecedented spending cuts.  So Reagan accepted the deal.  Tax hikes now for spending cuts later.  He signed the Tax Equity and Fiscal Responsibility Act of 1982 into law.  He only made one mistake.  He trusted the Democrats.  And didn’t see them twisting their evil mustaches while they were making their deal.  Nor did he see them rub their hands together as they made a sinister laugh.

A Democrat’s promise to cut taxes isn’t worth the paper it’s written on.  For it starts to depreciate before the ink even dries.  And the numbers prove this.  According to CBO, tax revenue in 1982 (the year of the tax hikes) was $617.8 billion dollars.  At the end of Reagan’s second term in 1988, tax revenue rose to 909.1 billion.  For an increase of $291.5 billion.  Supply-siders (of the Austrian School) will say it was Reagan’s massive tax cuts in 1981 (Economic Recovery Tax Act of 1981) and 1986 (Tax Reform Act of 1986) that that generated this tax revenue by creating more taxpayers.  Keynesians will say it was the Tax Equity and Fiscal Responsibility Act of 1982 that generated this revenue by taking more from each taxpayer.  For the sake of argument, let’s say the Keynesians are right.  And all that new tax revenue is from the higher taxes.  So, according to the deal he made with Democrats to get this tax increase, government spending for the same period should have gone down by three times this amount, bringing total outlays at the end of that period to a negative $128.8 billion. 

Now we know that didn’t happen.  Government spending didn’t go to less than zero.  So if they didn’t honor their 3-1 pledge, how much did they cut spending?  Well, in 1982 government outlays were $745.7 billion.  In 1988 that increased to $1.06 trillion.  For an increase in spending of $318.8 billion.  Clearly something is amiss here.  For this is not spending reduction.  It’s a spending increase.  For every new tax dollar Congress collected they increased spending by $1.10.  That’s not the promised spending reduction.  It’s quite the opposite.  More spending.  A lot more spending.  That $3 gain in spending cuts turned out to be a $4.10 loss.  The Democrats lied.  And Reagan would never fall for this trick again.  For he learned the hard way that there are no such things as future spending cuts with Democrats.  And that Democrats are liars.

Don’t trust Democrats when they Promise to make Spending Cuts 

Of course, we could say that the supply-siders were right in regards to that increase in tax revenue.  The reason the Democrats failed to follow through on their promise was due to the success of Reagan’s tax cuts.  It just created so much money above and beyond what the tax hikes brought in.  They may have delivered their promised cuts but you can’t see them looking at the aggregate numbers.  Because Reaganomics created such great economic activity that it showered Washington with dollars.

It is an interesting choice.  Either the Democrats are liars and renege on their promises.  Or they are incompetent and follow failed Keynesian economic policies.  Perhaps it’s a little of both.  They’re both liars.  And incompetent.  For it would explain a lot.  Such as how their policies never make the economy any better.

Either way the lesson learned is for certain.  Don’t trust Democrats.  Especially when they promise to make spending cuts.  Because whatever may happen, one thing is clear.  What won’t happen are the spending cuts.

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