‘More Taxes, Regulations, Uncertainty and Spending’ is the Mantra of the Obama Administration

Posted by PITHOCRATES - September 21st, 2011

Obama’s Proposed Aviation Fees will Fall Predominantly on the People who can Least Afford It

In Obama‘s deficit reduction plan he plans to tax the rich.  Those who can most afford it.  Rich people.  And by rich people he means anyone who has any money to spend (see Airline groups attack Obama proposals to boost fees for aviation security, air traffic control by Associated Press posted 9/21/2011 on The Washington Post).

The aviation fees are part of Obama’s deficit-cutting plan that was released Tuesday. The plan would:

— raise the passenger security fee — now $5 to $10 per round trip — to $15 by 2017 and give the Homeland Security Department the power to push it higher.

— impose a surcharge of $100 per flight to help pay for air traffic control.

But college students fly.  Middle class families fly on vacation.  Non-rich people everywhere fly to visit family members that have moved away.  A lot of people fly.  And an interesting tidbit about the flying public?  They’re not all rich.

The rich people that Obama wants to tax?  Because they can most afford it?  Those well-to-do folk who fly those private jets?  Well, a lot of them do just that.  Fly private jets.  And, therefore, do NOT fly on commercial planes.  So they won’t be paying these new taxes/fees.  So these taxes/fees will fall predominantly on the people who can least afford it.  Imagine that.

The Air Transport Association, which represents large airlines, said it’s unfair for airlines and passengers to pay for security against terror attacks that target the U.S. and not the airlines themselves. The trade group says a typical $300 round-trip ticket already includes $60 in taxes and fees.

The Regional Airline Association, a group of smaller carriers, said the fees could lead to a loss of flights to smaller cities. The group’s president, Roger Cohen, said the $100 surcharge would cost more than regional airlines earned last year, threatening service to smaller cities.

The groups also complained that some of the money raised from airlines and passengers would be used to pay down the federal budget deficit and not to improve the air-travel system.

The airlines have a vested interest in protecting their planes.  Because they bought them.  And planes that blow up or crash in terrorist attacks don’t help the bottom line.  There’s the loss of an expensive airplane.  And the future revenue from that airplane.  The cost of replacing that airplane.  And the lost business from passengers who tend to shy away from an airline whose planes are easy pickings for terrorists.

So let them hire a security contractor to secure their planes.  Using the Israeli model.  Ask very pointed questions and observe people’s responses.  It works well for the Israelis.  Couldn’t be any worse than what the TSA is doing.  I mean, what passengers are going to complain about being groped less?

The administration estimated that boosting passenger security fees will raise $24.9 billion over 10 years. It proposed to spend $15 billion of that to reduce federal debt.

This is telling.  The airlines did not run up that federal debt. So there’s something really troubling about this.  Taking $15 billion from the airlines under the auspices of national security.  Just so they can continue their irresponsible spending ways in Washington.  This is no different than an addict stealing from his mother’s purse to support his habit.

This is Washington’s problem.  Not the airlines.  Washington has a spending problem.  And they can’t stop spending.  Or simply choose not to.  Instead they look for other people to steal from.  Like an addict.  While denying that they have a problem.  And always blaming others.  Like the rich who don’t pay their fair share.  And by rich they mean anyone that has any money to spend.

Tax Cuts Stimulate, not Keynesian Stimulus Spending Funded by Taxes

So how bad is this spending?  How much of a debt problem has it given us?  That the president is shaking down the airlines for $15 billion (see Committee Searches for Economic ‘Tipping Point’; Prefer Not to Find It by Jim Angle posted 9/20/2011 on Fox News)?

“We know that the debt is now 100 percent — approximately 100 percent of (gross domestic product),” said Allan Meltzer, a professor of political economy at Carnegie Mellon University in Pittsburgh. “That doesn’t include the unfunded liabilities. It doesn’t include (mortgage lenders)Fannie Mae and Freddie Mac. It doesn’t include a number of other things.”

By unfunded liabilities, Meltzer means entitlement programs. Social Security and Medicare alone have $46 trillion in unfunded liabilities, meaning that much more is promised in benefits than the government — and taxpayers — have as a plan to pay for them.

Oh.  It’s that bad.  We owe a dollar for every dollar our economy produces.  But it’s even worse than this.  All of those unfunded liabilities that don’t appear in the official budget.  Fannie and Freddie.  And let’s not forget the Social Security and Medicare trust funds.  Which are filled only with IOUs from Uncle Sam.  Because Uncle Sam spent our money.  That money we put aside with each paycheck.  Those FICA and Medicare withholdings.  That money they forced us to save.  Because we were untrustworthy with our own money.  As they apparently are, too.

Chris Edwards, Director of Tax Policy Studies at the Cato Institute, a libertarian think tank in Washington, argues that U.S. debt is so far out of control that it must be contained soon.

“We’ve had five trillion (in) deficit spending since 2008, the most enormous sort of Keynesian stimulus you can imagine, and yet we’ve had slower growth than any time since World War II. So I don’t think spending helps.”

So the government owes more money than taxpayers can fund.  And yet that didn’t stop them from spending $5 trillion more.  For stimulus.  Which is just code for throwing money at political cronies.  I mean, it’s obvious that it didn’t stimulate anything.  Because the economy is still in the toilet.

And there’s a very good reason for that.  Because tax cuts stimulate.  Not Keynesian stimulus spending funded by taxes.

Meltzer pointed to three “fiscal changes that really did enormous good.” One was the tax cuts from the Kennedy and Johnson administrations, the most effective part of which were business tax cuts.

“They got the biggest bang for the buck,” he said.

The second were the Reagan-era tax cuts which came in two rounds and boosted a flagging economy. Meltzer said a completely different option worked well too.

“(The) third policy that gave people confidence were the Clinton tax increases, which assured people that their future tax rates were not going to go up, that they had seen what they were going to have to take, and there wouldn’t be anymore.”

Meltzer said the increases gave people certainty about what tax rates would be, which reassured businesses they wouldn’t go higher, allowing employers to plan and create jobs with confidence.

The Clinton tax increases?  That’s not why the Nineties were booming.  It was because of greedy capitalists.  Looking to strike it rich in the dot-com boom.  The economy was smoking hot because of irrational exuberance.  Not higher taxes.  And the budget went into surplus when all those dot-com people cashed in their stock options.  And they paid a boatload of capital gains taxes.  Before the dot-com bubble burst.  And threw the economy into recession.

But he’s right on the Kennedy and Reagan tax cuts.  Both used good Austrian supply-side economics.  Which exploded economic activity.  And similar policies could do that again.  If we would just stop with the Keynesian nonsense.  And the belief that crippling regulations will spur economic growth.

Business Owners Hate Uncertainty because, Unlike Uncle Sam, they can’t Print Money

And speaking of regulation, remember the Dodd-Frank act?  Have you read it?  Probably not.  For I doubt anyone in Congress has read it in its entirety (see Dodd-Frank and Uncertainty by Veronique de Rugy posted 9/20/2011 on National Review).

Remember how President Obama promised that the Dodd-Frank bill would provide certainty, stability and growth…?

It’s 1,623 pages long. It is very heavy. If it could fit it in my purse, I could use it as a protective weapon. Whatever else this will do, however, it will not make lending cheaper or credit more readily available, and it will not protect us from another financial crisis. And it will not protect consumers or taxpayers.

What it will do, and already does, is continue injecting gigantic uncertainty into the economy, paralyzing entrepreneurship and job creation. Imagine how long it will take for all the rules to be written and for U.S. businesses to figure out how they are supposed to operate from now on. The vagueness of the law as written means that even business owners and consumers who have the courage to pick up this book and try to figure out what’s in their future won’t get the answers they are looking for.

Really, is there any doubt that some of the $2 trillion in cash that companies are sitting on is a direct result of this uncertainty?

That’s right.  If you don’t know what tomorrow may bring you save your money.  You deleverage.  Pay down debt.  And hoard cash.  Because cash is king.  It’s the only thing you can pay your employees with.  The only thing you can pay your suppliers with.  The only thing you can pay for your insurance with.  And it’s the only thing you can pay Uncle Sam with.  So if you don’t have enough of it around during bad times you may not be around for the good times.  When they return.  If they return.

Business owners hate uncertainty.  Because, unlike Uncle Sam, they can’t print money.  So they have to be very careful with what they have.  To survive things like recessions.  Depressions.  And Dodd-Frank.

In these Tough Economic Times, it is the People that are Suffering, not Rich Liberals

‘More taxes, more regulations and more uncertainty’ is the mantra of the Obama administration.  And, of course, more spending.  Always more spending.  Is it any surprise the economy is not responding well to Obama’s policies?

There is no way businesses will grow in this environment.  Or create jobs.  And without new jobs the economy will never recover.  People understand this.  That’s why Democrats are losing elections.  Even in New York.  It’s a repudiation of Obama.  And the liberal Democrat agenda.

For though the mainstream media has been a loyal propaganda outlet for the liberal elite, the people aren’t buying it anymore.  For in these tough economic times, it is the people that are suffering.  Because of Obama’s policies.  While rich liberal elitists are living well everywhere.  And continue to fly on their private jets.  While the common people will be paying Obama’s new aviation fees.

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LESSONS LEARNED #79: “Tax cuts stimulate. Not tax hikes.” -Old Pithy

Posted by PITHOCRATES - August 18th, 2011

With Bubbles the Ride Down is never as Enjoyable as the Ride Up

Bill Clinton dealt George W. Bush a horrible hand.  Clinton enjoyed the irrational exuberance.  He rode the good side of the dot-com bubble.  Saw the treasury awash in cash.  Dot-com people cashing in their stock options and paying huge capital gains taxes.  There was so much money pouring in that projections showed a balanced budget for the first time in a long time.  As long as the people stayed irrationally exuberant.  And that damn Alan Greenspan didn’t raise interest rates.  To rain on his parade.

But he did.  The days of free money were over.  (For awhile, at least).  Because people where bidding up stock prices for companies that hadn’t produced a product or provided a service.  Money poured into these dot-coms as investors were ever hopeful that they had found the next Microsoft.  These companies hired programmers.  Colleges couldn’t graduate enough of them.  To program whatever these companies would eventually do.  But with the spigot of free money turned off these companies ran out of startup capital.  As most of these businesses had no revenue they went out of business.  By the droves.  Throwing these programmers out onto the street.

And then the great contraction.  Which follows a bubble after it is a bubble no more.  Prices fell as deflation replaced inflation.  And as prices fell, unemployment went up.  The phantom prosperity at the end of the Nineties was being corrected.  And the ride down is never as enjoyable as the ride up. 

Easy Monetary Policy and lack of Congressional Oversight of Fannie Mae and Fannie Mac

And then there was, of course, 9/11.  Which further weakened an already weakened economy.  So that’s the backstory to the economic activity of the 2000s.  A decade that began with the aftermath of one bubble bursting.  And ended with an even worse bubble bursting.  The subprime mortgage crisis.  It was a decade of government stimulus.  George W. Bush used both tax cuts (at the beginning of his presidency).  And then a more Keynesian approach (tax rebates and tax incentives) at the end of his presidency.  In other words, tax and spend.

But the subprime mortgage crisis was so devastating that the 2008 stimulus urged by Ben Bernanke (Chairman of the Federal Reserve) to ward off a possible recession failed.  The easy monetary policy and lack of Congressional oversight of Fannie Mae and Freddie Mac caused big trouble.  And put far too many people into houses who couldn’t afford them.  The housing bubble was huge.  And because Fannie and Freddie were buying these risky mortgages and repackaging them into ‘safe’ securities, the fallout went beyond the housing market.  Pension funds, IRAs and 401(k)s that bought these ‘safe’ securities lost huge swaths of wealth.  The economic fallout was vast.  And global.

And then came Barack Obama.  A Keynesian if there was ever one.  With the economy in a free fall towards a depression, he signed into law an $800 billion stimulus package.  Not surprisingly, it turned out that about 88% of that was pure pork and earmarks.  Making his ‘stimulus’ stimulate even less than the George W. Bush $152 billion stimulus package.  And worked about as well.

Home Ownership was the Key to Economic Prosperity in the U.S.

So let’s look at the numbers.  Below is a chart graphing GDP, the unemployment rate and the inflation rate for the 2000s.  GDP is in billions of 2005 dollars.

(Sources: GDP, unemployment, inflation.  *Average to date (GDP – 2 quarters, unemployment rate – 7 months and inflation – 7 months).)

You can see the fallout of the dot-com bust.  The decade opens with deflation and a rising unemployment rate.  GDP, though, was still tracking upward.  After the bush tax cuts in 2001 (Economic Growth and Tax Relief Reconciliation Act of 2001) and 2003 (Jobs and Growth Tax Relief Reconciliation Act of 2003) you can see improvement.  Unemployment peaks out and then falls.  Inflation replaces deflation.  And GDP grows at a greater rate. 

Things were looking good.  But lurking in the background was that easy credit.  And federal policies to qualify unqualified people for mortgages.  To put them into houses they couldn’t afford.  All because home ownership was the key to economic prosperity in the U.S.

Which makes the rising rate of inflation a concern.  Rising inflation (i.e., expansionary or ‘easy’ monetary policy) created the dot-com bubble.  A rising inflation rate can be bad.  But at least during this period the growth rate of GDP is greater than the growth in the inflation rate.  Which indicates real economic growth.  Accompanied by a falling unemployment rate.  All nice.  Until…

Bernanke and Company Crapped their Pants

Those people approved for mortgages they weren’t qualified for?  Guess what?  They couldn’t make their mortgage payments.  And because Fannie and Freddie bought so many of these risky mortgages, these defaults weren’t the banks’ problems.  They were the taxpayers’ problems.  And anyone who bought those ‘safe’ securities.

Long story short, Bernanke and company crapped their pants.  He urged the $152 billion Economic Stimulus Act of 2008 to ward off a possible recession.  This was a Keynesian stimulus.  Remember that summer when you got those $300 checks?  This was that stimulus.  But it didn’t stimulate anything.  People used that money to pay down debt.  Because they were crapping their pants, too.

The good times were over.  That huge housing bubble was bursting.  And nothing was going to stop it.  Certainly not more of the same (Keynesian stimulus).  GDP fell.  Unemployment rose.  Inflation became deflation.  And Bernanke stepped in and turned the printing presses on.  Desperate not to make the same mistake the Fed made during the Great Depression.  When bad Fed policy caused all of those bank runs.

An Inflation Rate Greater than the GDP Growth Rate may Return us to Stagflation

The Obama administration (all Keynesians) pushed for a massive stimulus to fix the economy.  The best and brightest in the administration, Ivy League educated economists, guaranteed that if passed they could hold the unemployment rate under 8%.  So they passed it.  And Bernanke kept printing money.  In other words, more of the same.  More of what gave us the dot-com bubble.  And more of what gave us the housing bubble.  Inflationary monetary policy.  And more government spending.

Didn’t work.  It took a year for the deflation to end.  As the market corrected prices.  And readjusted supply to match actual demand.  The unemployment rate maxed out around 10%.  And the Obama stimulus didn’t move it much from that high. 

GDP growth resumed.  However, the growth of inflation is now greater than the growth of GDP.  A very ominous sign.  Indicating that GDP growth is not real.  And will likely collapse once the ‘free money’ Fed policies end.  Or the growth of inflation coupled with high unemployment return us to the Jimmy Carter stagflation of the Seventies.

Keynesian Stimulus is the way to go if you want Deflation and Recession 

Further Keynesian stimulus may only make a bad situation worse.  And prolong this economic ‘recovery’.  These policies make bubbles.  Which are fine and dandy until they burst.  Giving us deflation and recession.  And the bigger the bubble, the greater deflation and recession that follows.

Tax cuts stimulate.  They ended the dot-com recession.  All Keynesian attempts during the 2000s have failed.  Proving again that tax and spend doesn’t work.  Easy monetary policy and government spending does not end well.  Unless you want deflation and recession.  Then the Keynesian way is the way to go.  But if you want to stimulate economic activity.  If you want real GDP growth.  Then you have to go with tax cuts.  As their track record of success shows.

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FUNDAMENTAL TRUTH #79: “Tax cuts stimulate. Not tax hikes.” -Old Pithy

Posted by PITHOCRATES - August 16th, 2011

Government can only Spend what it Taxes away from the Private Sector

What stimulates?  Tax cuts?  Or tax hikes?  Ronald Reagan believed it was tax cuts.  But everyone one on the Left poo pooed Reaganomics.  ‘Trickle-down’ economics only stimulated rich people, they said.  Those on the Left prefer Keynesian stimulus.  Tax and spend.  To take some of that money the government pulls from the private sector.  And spend it to stimulate the private sector.

What did we learn from the great 2011 debt ceiling debate?  And the subsequent S&P credit downgrade?  This.  Government is spending beyond its means.  Those on the Left say this is due to insufficient taxation.  Those on the Right say we’re spending too much.  That’s neither here nor there for our purposes here.  I only mention it to emphasize a point.  Government can only spend what it taxes away from the private sector. 

For the government to stimulate the private sector economy, then, it must first tax money out of the private sector.  So let’s take a look at a proposed stimulus plan.  Let’s say the government revises the federal withholding tax rates so that there is a net 5% increase in the effective tax rate (tax revenue divided by income).  And let’s put these numbers into a chart like this:

 

Let’s say all numbers are millions of dollars.  The effective tax rate changes from 20% to 25%.  And tax revenue increases by $25,000.  (Effective tax in the above chart.)  That’s the additional amount they pulled out of the private sector.  That they will use for government stimulus spending.  Now the government has to process this.  Through a large bureaucracy.  Let’s say that these ‘overhead’ costs are 15%.  Subtract that from the stimulus amount.  And you have $21,230 left.  To stimulate the economy. 

So they pull $25,000 out of the private sector economy.  So they can inject $21,250 back into it.  Which means the net stimulus added is a negative $3,750.  That’s right.  They added money to the economy.  After removing a larger amount from it first.  And that’s Keynesian stimulus.

Keynesian Spending favors the Politicians, not the Private Sector

This is actually opposite of what a stimulus is supposed to do.  Which explains why Keynesian stimulus spending fails.  But it’s even worse than this.   Because those numbers above are for a best case scenario. 

They don’t take into account pork and earmarks that make up most of a stimulus bill.  Such as the Obama stimulus bill.  Which proved to be more a Democrat wish list of repressed wants for some 40 years than shovel-ready stimulus.  And the 15% overhead is something you see in the private sector.  Not in a government that pays $300 for a toilet seat.  So let’s factor these more realistic numbers in.

 

The numbers are much worse.  By increasing taxes 5% you actually pull 8.63% out of the private sector economy.  There is no stimulus.  That’s a net deficit.  And a lot of pork and earmarks for the politicians.  And to make things worse, this additional spending finds its way into baseline budgeting.  Which means that they increase the current deficit.  And all subsequent deficits. 

That doesn’t favor the private sector.  That favors the politicians.  Which is the goal of Keynesian stimulus spending.

The Beauty of Tax Cuts is that the Money doesn’t go through the Sticky Hands of Government

So we see that Keynesian stimulus favors the politicians over the private sector.  Is there another form of stimulus that actually favors the private sector?  As it turns out, yes.  Tax cuts.  Let’s look at cutting taxes instead of raising taxes. 

The beauty of tax cuts is that it doesn’t require the money to go through the sticky hands of government.  So a tax cut of $25,000 equals a stimulus of $25,000.  The money remains in the private sector.  And we pull no money out of the private sector.  So this is pure stimulus.

The net add to the private sector economy is 6.25%.  Which is 14.88% better than the Keynesian approach.  (Going from a 8.63% decrease to a 6.25% increase).  So it’s clear which way to stimulate is better.  It’s a no brainer.  So why don’t the diehard Keynesians admit defeat?  Simple.  Tax cuts don’t go through the sticky hands of government.

Tax Cuts stimulate the Private Sector, Keynesian Spending stimulates Government

The Keynesians will no doubt say this is an oversimplification of stimulus.  And it is.  But the fundamentals remain the same.  Government stimulus spending is funded by the private sector.  Either by higher taxes to pay for the stimulus.  Or by higher taxes to pay for the cost of borrowing the stimulus.  And if the government just prints the money for the stimulus, a depreciated dollar makes everything cost more in the private sector.  Whatever they do the private sector will lose in the long run.  Because they ultimately pay the bill.

Tax cuts don’t have this affect.  Because you don’t have to pay for tax cuts.  The money never belonged to the government in the first place.  So they don’t have to pay for it.  The private sector just gets to keep what is rightfully theirs.  But the Keynesians will cry that if you cut taxes you will increase the deficit.  Yes, you may.  But no more than you would by borrowing money to pay for Keynesian spending.  Either way the government is spending beyond its means.  The government should cut spending.  But if they don’t, they should at least pick the option that will stimulate the economy.  The option that grows the economy.

The goal of stimulus is to stimulate economic activity in the private sector.  And as the exercises above show, the best way to do that is to leave more money in the private sector.  Not less.  Tax cuts stimulate the private sector.  Unlike Keynesian stimulus.  Which only stimulates government.

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Reaganomics beats Keynesian Stimulus Spending every Time

Posted by PITHOCRATES - July 6th, 2011

Obama’s Policies Failing because they’re too Ronald Reagan

So President Obama is a supply-sider.  Just like Ronald Reagan.  Who’s a thunk it?  Funny, he doesn’t appear to govern like Ronald Reagan.  In fact, I believe Obama has said that we can’t go back to the failed policies of the past.  I’m pretty sure that meant Reaganomics.  But I could be wrong.  Because apparently the faltering economy is faltering because of supply-side economics (see The final nail in the supply side coffin by Andrew Leonard posted 7/6/2011 on Salon).

Ever since Ronald Reagan first attempted to make supply-side economics a reality and proceeded to inaugurate an era of persistent government deficits and growing income inequality, it has become harder and harder to make the trickle-down argument with a straight face. But we’ve never seen anything quite like the disaster that’s playing out right now.

Those persistent government deficits of Ronald Reagan?  They were about $200 billion.  The deficits under the Obama administration have been in excess of $1,300 billion (or $1.3 trillion).  The current projection for 2012 is $1,600 billion (or $1.6 trillion).  So the Obama deficits are over 5.5 times the Reagan deficits.  Or an increase of approximately 550%.  So deficits are worse under Obama.  Far worse.

As far as income inequality, the gap has grown consistently from Richard Nixon through Barack Obama (see The United States of income inequality by Andrew Leonard posed 9/28/2010 on Salon).  That included the 4 years of Jimmy Carter, the 8 years of Bill Clinton and about a year of Barack Obama.  Three Democrat administrations.  So the gap between the rich and poor is greater under Obama.  Far greater.

During the six quarters since the recession technically ended in the second quarter of 2009, real national income in the U.S. increased by $528 billion. But the vast majority of that income was captured as profit by corporations that failed to pass on their happy fortunes to their workers.

First of all, that’s now how business works.  They are not in business to produce wealth for their employees.  They pay employees to help them create wealth.  And they pay them whatever it takes to keep their employees from quitting to find a higher paying job.  If you think that’s wrong let me ask you something.  When you choose a store to shop at, do you pick the one with the highest prices so that store can pay their employees more?

What makes this “recovery” so different? Perhaps the simplest answer is that labor has been broken as a force that can put pressure on management, so there’s little incentive for employers to turn profits into wage hikes or new jobs. Instead, employers are squeezing more out of the workers that they’ve got, and investing in equipment upgrades and new technology instead of human assets — labor productivity has risen sharply since the end of the recession.

GM and Chrysler did not break labor.  Labor broke them.  Those generous UAW contracts saddled these companies with legacy costs that left them uncompetitive.  And insolvent.  The auto bailout screwed the bond holders and rewarded labor.  By giving them seats on the board of directors and stock to fund their underfunded pension funds.  This is why employers prefer investments in productivity.  They’re less political.  And are less likely to come back and bite you in the ass.

Globalization also plays a potent role — and not just as a source of cheap labor to undermine the bargaining power of American workers. The Journal notes that many companies “are benefiting from demand from emerging markets, where they are deriving an increasing share of their sales.” Job creation is probably following the sources of new demand. If the Chinese and Brazilians and Indians are the ones buying American goods and services, then it makes sense to staff up overseas. But with American consumers still shellshocked by the economic crash and dutifully obsessed with paying down their debts while trying to hold on to their homes, domestic demand is hardly a force to be catered to.

Interestingly, the emerging markets noted are making great strides toward free market capitalism.  Countries that are moving towards supply-side economics.  While the U.S. moves away from it.  Those emerging economies are doing well.  The U.S. is not.  It would appear, then, that a move towards supply-side economics is a move in the right direction.  And yet the pundits on the left continue to belittle the success of Reaganomics.  So you be the judge.  Let’s summarize Reaganomics as follows:

1.  Reduce Growth of Government spending.
2.  Reduce Income Tax and Capital Gains Tax.
3.  Reduce Government regulation.
4.  Control the money supply to reduce inflation.

Which president would you say followed these policies more?  Ronald Reagan?  Or Barack Obama?  The one who did would be the supply-sider.  And the one who didn’t would not.

The answer is clear.  President Obama is neither a conservative nor a student of the Austrian School of Economics (i.e., supply-side).  He’s a Keynesian.  His policies are Keynesians.  And Keynesians spend.  As demonstrated by his massive stimulus spending.  That failed to stimulate.   This economic train-wreck in the U.S. is a lesson in Keynesian economics.  Not supply-side economics. 

Keynesian Stimulus Spending is Wasted Money

Let’s take a closer look at Keynesian economics.  The theory that government can spend the economy into prosperity.  By looking at the Obama’s 2009 Stimulus.  One part of which was to expand broadband Internet into rural areas (see How Effective Was The 2009 Stimulus Program? by Nick Schulz posted 7/5/2011 on Forbes).

In an important and eye-opening new paper, Jeffrey Eisenach and Kevin Caves of Navigant Economics, a consulting firm, recently examined ARRA’s subsidization of rural broadband. The ARRA stimulus funds for broadband constitute “the largest Federal subsidies ever provided for broadband construction in the U.S.” An explicit goal of the program was to extend broadband access to homes currently without it.

Eisenach and Caves looked at three areas that received stimulus funds, in the form of loans and direct grants, to expand broadband access in Southwestern Montana, Northwestern Kansas, and Northeastern Minnesota. The median household income in these areas is between $40,100 and $50,900.  The median home prices are between $94,400 and $189,000.

So how much did it cost per unserved household to get them broadband access?  A whopping $349,234, or many multiples of household income, and significantly more than the cost of a home itself.

That’s a lot of money.  It would have been cheaper to buy these people a satellite Internet connection at their homes.  I’m not sure what it would cost, but I’m guessing it wouldn’t have cost more than their house.   

Sadly, it’s actually worse than that. Take the Montana project. The area is not in any meaningful sense unserved or even underserved. As many as seven broadband providers, including wireless, operate in the area. Only 1.5% of all households in the region had no wireline access. And if you include 3G wireless, there were only seven households in the Montana region that could be considered without access. So the cost of extending access in the Montana case comes to about $7 million for each additional household served.

Back in the 1980s there was an uproar over wasteful Pentagon spending. The Air Force spent $7,622 on a coffee maker and the Navy spent $640 per toilet seat. That’s extremely wasteful, but at least the Pentagon arguably needed coffee makers and toilet seats. The seven households in Montana for whom taxpayers just spent $7 million each to extend broadband access probably don’t even want it.

It just goes to show you that government can’t do anything well.  From buying coffee makers to buying toilet seats to providing broadband Internet access.  It just seems like they spend a whole lot more money than necessary.  Pulling more money out of the private economy.  And saddling the American people with more debt.  And for what?  What exactly did that stimulus do?  Not much.  Except make some broad Internet contractors very wealthy.  Which they no doubt are if they’re charging $7 million per installation.

This is Keynesian economics.  Wasteful government spending.  And a jobless economic recovery.  Which is only a recovery by the greatest stretch of the imagination.

Barbara Boxer Lies about Clinton Economy and Budget Surplus

And yet they still argue for more of the same.  In fact, they even go further.  They rewrite history.  And say that Bill Clinton’s tax hikes stimulated the economy and produced budget surpluses (see Barbara Boxer’s blatant rewriting of history by Glenn Kessler posted 7/1/2011 on The Washington Post).

“I think we ought to go back to the people and the party that was the only party and the only people to balance the budget in 40 years. I hate to break it to my Republican friends, but that is the Democratic Party. We are the ones who did it. We did it when Bill Clinton came into office. We did it after hard work. We did it after painful cuts. We did it with smart investments.”

— Sen. Barbara Boxer (D-Calif.), June 29, 2011

‘Investments’ is code for ‘tax hikes’.  As important as they are they still have to lie about them.  You’d think if tax hikes did everything she said they did that they wouldn’t lie.  They’d call them what they are.  Tax hikes.  And not investments.

Actually, neither Bill Clinton nor the Democrats meant to balance the budget in his 1993 budget deal.  Because before the 1994 midterm elections, he was still a liberal Democrat.  Don’t forget, they were still working on HillaryCare (the plan to nationalize U.S. health care) in 1993.

But here’s the important point: the Clinton plan was never intended to achieve a balanced budget. After the bill’s passage, the Congressional Budget Office estimated that the deficit would decline modestly — from $290 billion in 1992 to $200 billion in 1998. In the phrase of the era, there were still “deficits as far as the eye could see.”

He was still a big time Keynesian at this point.  And Keynesians spend money.  That’s why his projected deficits were as big as the Reagan deficits.  But then came the 1994 midterm elections.

Fast forward to 1995. The Democrats lost control of the House and the Senate, largely because of bruising budget battle. Clinton’s fiscal year 1996 budget again proposes $200 billion deficits every year for the next five years. So, again, the target in 1998 (when surpluses later emerged) was a deficit of $196 billion.

But Republicans immediately set the goal of achieving a balanced budget within seven years. After resisting for a few months, Clinton shocked many fellow Democrats by announcing that he, too, would embrace the idea of a balanced budget.

As The Washington Post editorial page put it at the time, Republicans had forced Clinton’s hand: “Mr. Clinton’s new position on the budget is much better than the old one. He should have taken it six months ago. The Republicans have driven him to say that he too wants, if not to balance the budget, at least to get the deficit into the neutral zone.”

The 1994 midterm elections were a huge vote of no confidence.  Which was a problem with the presidential election only 2 years away.  Enter Dick Morris.  Who pulled Clinton to the center.  Away from Big Government Keynesian spending.  Of course he had little choice with the Republicans in charge of both houses of Congress.  And then something happened.  He fell ass-backwards into some very opportune economic developments.

…the government ended up with a gusher of revenue that had little to do with Clinton’s 1993 budget deal:  capital-gains taxes from the run-up in the stock market, as well as taxes paid on stock options earned by technology executives. 

Clinton, in essence, was lucky to become president just as a revolution in computer and information technologies was unleashed.

From 1992 to 1997, CBO estimated, revenue increased at an annual average of 7.7 percent in nominal terms, or about 2.4 percentage points faster than the growth of the gross domestic product, the broadest measure of the economy. CBO Deputy Director James L. Blum in 1998 attributed only 1 percentage point of that extra tax revenue to the 1993 budget deal. The rest, he said, came from capital gains.

This is a very important point.  Where did that tax revenue come from that produced those surpluses?  Well, 1% came from the Clinton 1993 budget deal.  About 99% came from luck.  And the good luck just kept coming.

There were other factors as well, such as lower than expected health costs that reduced an expected drain on the budget. Clinton’s predecessor also had kicked in motion a huge decline in defense spending (which Clinton accelerated) and also had overseen a painful restructuring of the banking industry. Even a potential shock, such as the Asian financial crisis in 1997, brought the silver lining of lower oil prices that bolstered the U.S. economy.

The stars must have really aligned during the Clinton administration.  Because a lot of things well out of his control happened, giving him an extraordinary economy.  He truly fell ass-backwards into good times.  Which is why the Fact Checker basically calls Barbara Boxer a liar. 

Boxer literally wipes away any Republican contribution to the process — and also claims credit for creating 23 million jobs while ignoring broad historical changes in the U.S. economy that had little to do with inside-the-Beltway sausage-making. This is more than just spin; it is a rewriting of history that borders on the absurd.

Absurd indeed.  So is she lying?  Or is she just stupid?  It has to be one or the other.  As it must be for all of the other Democrats repeating this lie.

Stimulus Spending doesn’t Stimulate

Reagan’s supply-side policies posted some great economic numbers.  Keynesians point to the Clinton years as vindication for their policies.  But his economy had a lot more to do with the Republicans in Congress and dumb luck.  Barack Obama has outspent all Keynesian presidents to date and has the worst economy since the Great Depression

Even though the Great Recession has officially ended, they’re calling the recovery a jobless recovery.   Which should be comforting to those who are still unemployed.  The question is, of course, where are the jobs?  If government stimulus spending creates jobs, where are the jobs?

You can’t find them because they’re not there.  Because stimulus spending doesn’t stimulate.  It just makes a few people rich (like broadband Internet contractors in Montana).  Tax cuts stimulate.  And reducing government regulation stimulates.  Every time it’s tried.  In other words, supply-side economics stimulates.  Every time it’s tried.  And Keynesian economics fails every time it’s tried.  Including its latest failure under Barack Obama.

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LESSONS LEARNED #44: “Liberal Democrats have to lie because there are more taxpayers than tax consumers.” -Old Pithy

Posted by PITHOCRATES - December 16th, 2010

Lying to Make Future Liberal Democrat Voters

Ask anyone some questions about the Great Depression and they’ll probably get them wrong.  Why?  Because their history teachers revised history to make government look better.  Government wore the white hats.  And business wore the black hats.  Because their teachers were public school teachers.  And the teacher unions are one of the strongest unions in the country.  The government takes care of them.  And, in return, the public school teachers takes care of government.  By turning out as many future liberal Democrat voters as they can.

So what did our teachers teach us about the Great Depression?  Evil rich people caused it.  By speculating in the stock market.  And it was their speculation that caused the Great Crash which caused the Great Depression.  Rich business people bad.

Then Franklin Delano Roosevelt (FDR) rode into Washington and saved the day.  FDR expanded federal power and went to work to fix things.  He punished the rich (raised taxes).  Created a huge federal bureaucracy to manage the economy.  And spent money like there was no tomorrow.  Public works programs.  Even gave us Social Security.  He made everything better.  Big hearted government people good.

That’s the history in our history books.  The only problem is that it’s wrong.

Tax Cuts and the Roaring Twenties

This is the story told because it favors those who favor expanding government.  Big Government wants to tell us what’s best for us.  And our public schools want to shield our children from their parents.  Because they (and Big Government) are smarter than parents.  So they revise history.  And lie to our kids.

Really?  Come on, they’re not really lying to our kids.  I mean, what reason could they possibly have to lie to our kids?  Just look at the demographics.  The far Left, those in government who like to spend money and tell us how to live our lives, are about 20% of the population.  The other 80% have real jobs and pay taxes.  And this is a problem.  How do you convince 80% of the people (who pay taxes) to pay more taxes so the government can spend it against their wishes?  All the while having the government telling these taxpayers how they should live their lives?  Easy.  You lie.  And you lie to their kids.

There was an economic boom before the Great Depression.  The economy was roaring so strong that they called it the Roaring Twenties.  And it had nothing to do with speculation.  We were building automobiles.  Electrifying the country.  Selling electrical appliances.  And building radios.  This was no speculative bubble.  It was real and strong economic growth.  And guess what kicked it off?  Tax cuts.

Higher Tax Rates Shelter Wealth instead of Creating Jobs

They don’t talk about this in the history books.  Because no public school teacher or government bureaucrat likes tax cuts.  Because economic growth created by tax cuts sends a very simple yet powerful message.  We don’t need Big Government.

Following World War I, government was a bureaucratic behemoth.  With a huge federal debt.  Fighting world wars can do that.  The Progressives, who gave us Prohibition and other nanny-state-like things, liked that big bureaucracy.  They liked activist government.  But even they knew that a high debt was not good.  And being the zero-sum economists they were, they knew only one way to reduce that debt.  Higher taxes.  And their candidate for the 1920 election, James M. Cox, promised to do just that.  And he lost the election.  Proving that Progressives don’t understand economics.  Or the American people.  Those Americans who have jobs, at least.

Warren G. Harding won that election.  And his secretary of the treasury, Andrew Mellon, understood economics.  To find a better secretary of the treasury you have to go all the way back to our first one.  Alexander Hamilton.  Mellon understood business.  And understood rich people.  High tax rates did not bring in more tax money.  Why?  Because rich people know how to shelter their wealth.  But give them a lower tax rate where they can make and keep what they earn, they’ll invest that money and create jobs.  They’ll pay more in taxes (even at a lower tax rate) because they’re not sheltering their wealth.  Their employees will pay more in taxes because they’ll have jobs.  And this is what happened during the Roaring Twenties.  People were working.  Making durable goods (cars, electrical appliances, radios, etc.).  Times were good.  Very good indeed.

Government Activism Gives us the Great Depression

The United States became an economic juggernaut during the 1920s.  The Americans were eclipsing the Europeans.  We were not a superpower yet.  But the Europeans saw the writing on the wall.  They wanted to form their own union of European states to compete against the economic powerhouse that was the United States.  We were kicking ass and taking names.  And no one could hold a candle to us.  We were unstoppable.

Then Herbert Hoover became president.  He was a progressive republican.  He liked activist government.  Hoover was a Big Government Keynesian and wanted to use the powers of government to end the business cycle.  He believed high wages meant high prosperity.  And in parity between farm and nonfarm prices.  He was everything FDR would become.  In fact, the Hoover administration started a lot of the FDR New Deal programs.

Farmers had mechanized their farms.  They plowed more fields than ever.  And grew more than ever.  With bumper crops prices fell.  Normally not a problem.  You just sold more.  But the war was over.  European farmers were farming again.  Not only did they not need our crops, they slapped tariffs on our exports to protect their farm prices.  So farmers couldn’t sell enough to make a profit at the lower prices.  Farmers went bankrupt.  Farm loans went unpaid.  Farm banks failed.  The Federal Reserve failed to provide liquidity to help other farm banks in trouble.  More failed.  This rippled into the nonfarm banks.  Which contracted the money supply.  Business started to hoard their cash because of the tight credit market.  They cut back on production.  Laid people off.  Then the Smoot-Hawley Tariff went to committee in Congress.  Business responded, knowing that that higher tariffs on imported goods they used would increase their cost of production.   They hoarded more cash.  Cut back on production.  Congress passed the Smoot-Hawley Tariff.  Other nations respond by imposing their own tariffs.  This resulted in a trade war.  Business sales fell.  Production fell.  More banks failed.  Hello Great Depression.

Tax Cuts Stimulate Economic Activity

This is the part they don’t teach you in history class.  It was government involvement that killed one of the strongest bull markets in history.  And would prolong the Great Depression.  The growth of government and the anti-business climate created great uncertainty.  And that didn’t go away until World War II.  When James Byrnes (head of the Office of War Mobilization) allowed business to make fat profits if they could deliver the vast quantity of war material needed to defeat Hitler, Mussolini and Tojo.  And they did.  The Arsenal of Democracy won World War II.  Private business doing what they do best.  Business.

But liberals like to spend money.  Our money.  And tell us what’s best for us.  To do that, though, they need us to vote for them.  And telling us that they want to take more of our money while telling us what’s best for us won’t make us vote for them.  It didn’t help Cox to tell the truth in 1920.  And no other presidential candidate since.  Because the 20% of the population that agrees with them isn’t enough to win an election.  You need some of the 80% who have jobs and pay taxes.

History has shown tax cuts stimulate economic activity.  They did when Warren Harding cut taxes.  When JFK cut taxes.  And when Ronald Reagan cut taxes.  This truth doesn’t make a good argument for raising taxes, though.  So our public schools and Big Government revise that part of history.  And lie to our kids.  Until they bleat “Business bad.  Government good.”  Like good future liberal Democrat voters.

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Barack Obama Outspends George W. Bush and Ronald Reagan Combined

Posted by PITHOCRATES - October 20th, 2010

Spend Baby Spend

President Obama is the most liberal president ever to occupy the Oval Office.  Spending records have been set on his watch.  And he’s only been president for about 2 years.  This is quite the testament to his insatiable lust to spend.  The Left bitterly attacked Ronald Reagan for his $200 billion deficits.  Compared to Obama, though, that’s chump change.  He measures his deficits in a different kind of dollars.  He prefers trillions.  For billions are just too small.  See the sobering numbers in the Political Hotsheet blog article National Debt Up $3 Trillion on Obama’s Watch by Mark Knoller on www.cbsnews.com.

New numbers posted today on the Treasury Department website show the National Debt has increased by more than $3 trillion since President Obama took office.

If you divide this by the 2 years in office, that comes to about a $1.5 trillion deficit each year.  Or, to compare with Regan’s $200, billion, that would be $1,500 billion.  That about 8 times the deficit spending of Ronald Reagan.  All you hear from the Left about the Reagan deficits was that they were bankrupting the country.  Now that they are doing the spending, it’s spend baby spend.

Read My Lips – It’s George W. Bush’s Fault

And the numbers just keep getting bigger.

The Debt increased $4.9 trillion during President Bush’s two terms. The Administration has projected the National Debt will soar in Mr. Obama’s fourth year in office to nearly $16.5-trillion in 2012. That’s more than 100 percent of the value of the nation’s economy and $5.9-trillion above what it was his first day on the job.

Dividing Bush’s $4.9 trillion by his 8 years in office comes to about an annual $800 billion deficit.  Dividing Obama’s $16.5 trillion by the 4 years in his term ending in 2012, that comes to about an annual $4,125 billion deficit.  Holy crap!  That’s 5 times the Bush deficit.  And 20 times the Reagan deficit!  If Reagan was reckless and irresponsible with his spending, than so must be Obama.  All the bad the Left said about Reagan, then, must apply to Obama.  For his spending is 20 times worse.  Either that or the Left was wrong about Reagan.  Or lying.

Mr. Obama frequently lays blame for soaring federal deficits on his predecessor.

“By the time I got into office we already had a $1.3 trillion deficit and we had exploded the national debt,” he said last month during one of his backyard chats with Americans.

The blame George W. Bush argument doesn’t work here.  You’d have to be pretty blind, stupid or in denial if you can’t see that Obama will add another $3 trillion (or $3,000 billion) to what he ‘inherited’ from George W. Bush.  Such comments are either insincere.  Or deceitful.

Here Comes the Middle Class Tax Hike

And once again, the Left opposes those ‘unfunded’ tax cuts.  Yes, they look at a tax cut as a government benefit.  As if it wasn’t even our money in the first place.  But it’s our money.  And letting us keep our money is not a benefit.  So they don’t have to fund them.  But that’s the way the Left looks at it.  If they don’t take our money, the deficit will grow.  It’s never their out of control spending that grows the deficit.

The soaring deficit and Debt is one of the reasons Mr. Obama is adamantly opposed to extending tax cuts for Americans earning over $250,000 a year.

The ten year cost would total $700-billion and Mr. Obama says it would needlessly add to the deficit and Debt.

The ten year cost comes to $70 billion per year.  Or approximately 1.7% of his projected deficit.  This isn’t even chump change.  This is statistically insignificant.  Now, Obama denies being a socialist.  Says he believes in free-market capitalism.  But all of these numbers say otherwise.  A free-market capitalist knows that tax cuts stimulate the economy.  A free-market capitalist is against massive government spending.  Therefore, Barack Obama is not a free-market capitalist.  He’ll spend trillions on stimulus spending that doesn’t stimulate anything in our economy.  But he won’t approve tax cuts that have always stimulated economies whenever we’ve tried them.

President Obama and Congress await recommendations on ways to reduce federal deficits from the National Commission on Fiscal Responsibility and Reform.

The 18-member panel will report December 1st – after the midterm election.

And here comes the tax hikes.  The ‘bipartisan’ committee will report that there is no choice but to increase taxes.  This bombshell (Obama reneging on his no new taxes for anyone earning less than $250,000) won’t affect the midterm election result.  And they are no doubt hoping that 2 years will be enough time for the American people to forget this broken promise before Obama runs for reelection.  But I doubt anyone will forget in 2012 who gave us the 2nd Great Depression.  And that is exactly what he’s giving us with this out of control spending and massive tax hikes (coming sometime after November 2010).

There will be a middle class tax hike.  The rich just aren’t rich enough to pay for all of their spending.

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