Category: national politics & policies

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national politics & policies too much government

Default by a Thousand Cuts

Alan Greenspan half-smilingly argues that U.S. Treasury bonds will never be defaulted because “we can always print money.” How reassuring.

It’s one thing to pull money out of the proverbial magic cookie jar and place it in bank ledgers (“high-powered money,” or QE1, QE2) while people are substituting consumption with saving, fearful of the near-term prospects (increasing their “demand for money”). It’s quite another to do that while people expect prices only to rise. Massive increase in the supply of money (“printing money”) while people anticipate inflation (lowered “demand for money”) can lead to runaway inflation, hyperinflation.

America hasn’t experienced that since the Civil War. But Germany has (after World War I), as has Zimbabwe (just recently). It can ruin a whole way of life.

After Germany’s hyperinflation, Nazism arose.

Greenspan may have been trying to make a subtle point, but the blunt point remains: Default is likely, for inflation itself serves as a form of default. Under Greenspan’s scenario, the Federal Reserve, conspiring with Treasury, would, by “simply” printing money, pay debt with decreased-value dollars.

The ancient Chinese had a perverse form of torturous execution: Death by a thousand cuts. Inflation is like that, it’s torture for almost everyone, default by a . . . gazillion devaluations.

The only way around this is to make very different cuts — in federal spending.

That’s not torture, that’s the road to recovery.

It’s unlikely, of course, because, to politicians and insiders, cutting spending seems like torture.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets national politics & policies too much government

Big Government Bigger Than All Else

No sooner had the president signed the new debt limit, and then up went federal debt — to $14.58 trillion.

Brave new world, that has such numbers in it.

What’s so amazing about this number is that it is larger than last year’s GDP of $14.53 trillion.

I know, Gross Domestic Product figures are a mess, and don’t measure exactly what we think they measure. But they are the most popular form of national income accounting, and indicate, in a very rough sense, “the size of the economy” for a given year.

And, boy, for our federal government to owe the amount of the whole economy it rules, and more — what a milestone!

The last time debt was more than GDP? The late 1940s.

Recovery happened swiftly, then. This should give us hope: There is a way out.

But remember: World War II didn’t bring us out of the Great Depression, the end of the war did.

And remember, further: Most of the big names in economics — by then, Keynesians all — had predicted a huge economic downturn as government spending plummeted and wartime regulations (chiefly wage and price controls) hit the dustbin.

Bad prediction. The economy soon took off.

Why? Less government spending, less regulation.

Alas, I don’t see that happening, today or tomorrow. With the budget deal, overall spending is now set to rise still further. The medical industry — a huge growth sector for government spending as well as private spending — is set for increasing regulation.

Brace yourself.

This is Common Sense. I’m Paul Jacob.

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national politics & policies too much government

Fiddling in the Flames?

The president and congressional leaders came to some sort of an agreement last night. It sounded a tad vague to me. Apparently, politicians still fear taking pride in identifying actual cuts.

Harvard economist Jeffrey Miron, writing last week, argues that the deals then on the table amounted to “fiddling while Rome burned.”

The only thing surprising about the above sentence, to savvy readers, might be the suggestion that “Harvard economist” is not a contradiction in terms. But hey: Judge for yourself.

“The problem with the Democratic position is that it regards redistribution, rather than economic productivity, as the prime goal of government policy,” Miron reasonably asserts. The problem with the Republicans? A “refusal to distinguish between the tax revenue that comes from higher rates and that which comes from fixing tax loopholes that inappropriately privilege certain consumption or production.”

Higher tax rates won’t work, because “the available revenue from the wealthy is far too small. And higher taxes discourage economic growth, making deficits worse.”

But Obama’s idea of closing some loopholes is not a horrible idea, Miron argues. These so-called loopholes are bad policy to begin with, integral, as they are, to bipartisan folly, favoring some folk at the expense of the rest. Picking winners — what some tart up as “industrial policy,” but most of us identify as “buying votes.”

Miron says that Medicare, though, is the biggest ongoing fiscal destabilizer. Cuts must be made there.

Those will likely be the hardest to secure.

This is Common SEnse. I’m Paul Jacob.

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free trade & free markets insider corruption national politics & policies

The Clipping and Culling Crisis

I just came across a paper on an old bout of hyperinflation — the “Kipper- und Wipperzeit” financial crisis in 17th century Germany — worth studying, considering that today’s smart money is on the radical debasement of today’s already-undermined dollar.

The Kipper- und Wipperzeit hyperinflation started out as a government program to bilk the people of wealth, but got out of hand. It became a free-for-all.

Back before credit money and fiat money, governments made special deals with miners and minters and the like, to coin money to spec. Those insiders put less metal into the coins than before, but called the coins the same. Debasement, pure and simple: Theft — fraud, to be exact.

It helped make a few major fortunes, fund some wars and the like.

But apparently moneylenders caught on, and began “clipping” the coins. Minters employed subcontractors to look for better-quality coins in circulation, paying for them in clipped coins. Soon everyone was clipping coins, and then culling them (hence the term “Kipper- und Wipperzeit” — “clipping and culling time”) to hoard the highest-value coins (with the most metal) and pawn off into the general circulation the lowest-value coins (with the least). Gresham’s Law in action led to spiraling prices and the breakdown of trade.

A great example of calculated, “clever” government policy spilling into the general population, leading first to rampant moral corruption and then ruin.

Something to remember, as clever folks contemplate “monetizing” today’s sovereign debt.

This is Common Sense. I’m Paul Jacob.

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national politics & policies too much government

A “Progressive” Reform

The money’s running out; the government is on a timeline. Something must be done before going into default.

Of course, the Executive Branch could prioritize spending, fiddle with accounts and still pay the interest on the federal debt as well as pay Social Security recipients — to year’s end. But it looks like the Obama Administration is just as committed to brinksmanship as the (heroic!) Tea Party folks who refuse to raise the debt ceiling.

And now the infamous “Gang of Six” re-emerge with a cockamamie proposal to “solve” the problem, mostly by saying they’ll “cut in the future” but keep mum, for now, what those cuts would be. It’s the typical lily-livered politician’s move.

The worst of the Gang of Six proposal, as fed-spending watchdog Dan Mitchell noticed, is that the alleged spending cuts don’t actually cut spending overall, just (get ready for it…) cut spending over planned increases.

We’ve been hearing this since the Carter era.

Something I haven’t heard from anyone (except my colleagues, of course — nothing from politicians, naturally) is a real cut that could substantially help.

Since the government is running out of money, cut federal wages across the board.

And make the cuts “progressive.”

How? Take any current federal government salary. Exempt the first (say) $60,000. And then cut the remaining salary level above that by (say) 20 percent. The exemption makes the rate cut in effect progressive. The “rich” would face greater income reductions.

Progressives should like that, no?

This is Common Sense. I’m Paul Jacob.

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media and media people national politics & policies

A Surplus of Slant

The Washington Post Metro section headline seems to tell a story: “Virginia taxes yield $311 million surplus.”

Odd, though: Virginia’s legislators didn’t raise taxes; they cut spending. The article, thankfully, reveals this, reporting that there was “no general tax increase” and “hundreds of millions of dollars in cuts.”

But if you just read the headline and moved on, you might have been misled.

Later that day, CNN charges Congresswoman Michele Bachmann with “again” characterizing “a settlement to black farmers as fraud.” No explanation as to why. Then CNN presents John Boyd (or Dr. John Boyd?), president of the National Black Farmers Association.

Boyd denies all talk of fraud. “I just don’t understand why people like Ms. Bachmann . . . have continued to criticize this settlement,” he explains, before figuring it might be to “divide and conquer America.”

Rep. Bachmann is shown saying 94,000 people were given settlement money even though the census showed only 18,000 black farmers. But CNN avoids that obvious math problem. CNN also neglects the testimony of Jimmy Dismuke, a black farmer who claims the lawyers told potential plaintiffs that “if you had a potted plant, you can be a farmer.”

Then CNN anchor Kyra Phillips asks, “Do you feel that she’s racist?”

Boyd responds, “She’s going to have a hard time proving to America that she’s not racist if she continues to make these kinds of comments.”

Media folks are going to have trouble proving to America that they don’t slant the news.

This is Common Sense. I’m Paul Jacob.

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free trade & free markets national politics & policies

Who Wins With Faith-based Money?

A fascinating Wall Street Journal profile of one of this age’s pre-eminent investment advisors, Jim Grant, provides more than the usual “business interest.” Mr. Grant proves to be a very thoughtful man, not given following the Yes Men crowd.

He notes, for example, how deflation fears have unhinged the minds in charge of the financial sector. “The Fed, in assaulting a phantom deflation, precipitated an actual one.”

And this “inflation/deflation” problem is only the tip of a very large and scary monetary iceberg. He calls our fiat money system a marvel — “astounding,” in his exact wording — but that’s not necessarily a good thing:

That a currency of no intrinsic value is accepted as money the world over is an achievement that no monetary economist up until not so many decades ago could have imagined. It’ll be 40 years next month that the dollar has been purely faith-based. I don’t believe for a moment it’s destined to go on much longer. I think the existing monetary arrangements are so precarious, so ill-founded and so destructive of the economic activity they are supposed to support and nurture, that they will be replaced by something better.

Let’s hope so.

But why has the system survived so long?

Mr. Grant has an answer: It serves Wall Street and “its supporting ‘interest group’” of “nimble, market-savvy, plugged-in folks.”

Exactly: Many of our biggest institutions don’t serve “the people” so much as the select few.

This is Common Sense. I’m Paul Jacob.

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education and schooling insider corruption media and media people national politics & policies

Cheaters Never Prosper?

The cheating scandal in the Atlanta Public Schools is ugly — 178 administrators, principals and teachers were caught changing answers on standardized tests. Nearly 80 percent of the schools investigated were found to be guilty.

One school held weekend pizza parties to organize the fraud. Former Superintendent Beverly Hall — named the National Superintendent of Year in 2009 — “is accused of encouraging the cheating.” Hall made hundreds of thousands of dollars in bonuses for the fraudulent test scores.

Meanwhile, one teacher fearing retaliation if she blew the whistle, declared, “APS is run like the mob.”

Yet much of the media spin is excuse-making:

  • On NBC’s Nightly News, Brian Williams called it “the risk of high-stakes testing.”
  • CBS Evening News informed us that, “Educator Diane Ravitch blames it on a federal law that links funding with test performance.”
  • ABC News reported that, “Many in the community are pointing the finger at No Child Left Behind, the federal policy that made test scores king.”
  • One expert said, “[S]ome educators feel pressured to get the scores they need by hook or by crook.”

I’ve been a consistent critic of No Child Left Behind and deplore the federal micro-managing of schools. But cheating is wrong. And the fault lies with the cheaters — not with those demanding better performance.

Paul Landerman, a former Atlanta teacher fired for reporting the cheating, told NBC, “The greatest value inside that system is loyalty to the system.”

System first. Your kids? Somewhere after that.

That’s the opposite of Common Sense. I’m Paul Jacob.

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media and media people national politics & policies too much government

What a Deal!

David Brooks, writing in the New York Times on Independence Day, cajoles Republicans to accept the deal that allegedly now faces them: Raise a few taxes (just a few!) in exchange for the Democrats going along with “a debt reduction measure of $3 trillion or even $4 trillion.” After all, he writes,

If the Republican Party were a normal party, it would take advantage of this amazing moment. It is being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred million dollars of revenue increases.

And then Brooks goes off on how unreasonable the Republicans have become, how abnormal.

Well, we can only hope.

There’s good reason for recalcitrance in the Republican party. Our beloved congressfolk do not have a revenue problem, they have a spending problem. They keep increasing spending, year by year, no matter what the revenue actually is.

Increasing revenue — which is still not certain even if marginal tax rates get upped or “loopholes” get closed — does not solve the base problem, which is spendaholic politicians.

Besides, the “trillions” in cuts are in the future, while the taxes would be immediate. We’ve been burned on such deals before, like Lucy and Charlie Brown’s football.

There was a reason the New York Times chose Brooks for its “conservative.” He can always be counted to chatter “kick the ball.”

Don’t fall for it, Charlie Brown.

This is Common Sense. I’m Paul Jacob.

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national politics & policies too much government

Cold, Hard Reality

Yesterday President Obama declared that no one is arguing for government default. But isn’t it amazing to see so many politicians work so hard to ensure that un-argued-for goal?

There are two parts to a default. The first is running up debt; the second is not paying it back. Like it or not, advocate it or not, sovereign debt repudiation comes closer as American politicians lumber on with the first part.

Of course, there are folks who think the American people should simply repudiate their government’s debt. Over at the Mises Institute, Justin Ptak provides citations from more than one economist advocating just that.

Gary North states that the day is fast approaching when the phrase “full faith and credit of the United States government” will “provoke universal laughter. . . .” He insists that “the credit rating of the United States government will be marked down from AAA to AA. It will then be marked down to A.” What’s more, he says this is a good thing: “For every notch down that it falls, the national day of deliverance draws closer.”

Paranoid? Fringe? Hopeful? No matter how you categorize such talk, it’s not crazy to think about, since the probability of default grows as the debt increases.

A default could have a beneficial effect on America’s politicians: They would be unable to finance further deficits. Reality’s cold, hard fist — that is, un-amused investors — would rein them in.

This is Common Sense. I’m Paul Jacob.