The Gloves Are Off

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Last week’s bipartisan budget deal was more than a ceasefire in the fiscal war between Republicans and Democrats. It also led to the first shot being fired in the long-awaited, long-postponed civil war within the Republican Party.

Emboldened by recent Tea Party defeats in special elections held in Alabama and Louisiana, and by polling data showing that the October shutdown of the federal government was deeply unpopular with voters, House Speaker John Boehner used the budget agreement as a pretext to come out swinging against the Tea Party wing of his party.

According to sources who spoke to The New York Times and other media outlets, in a meeting of House Republicans held on Dec. 11 Boehner castigated advocacy groups like Heritage Action for America and the Senate Conservatives Fund: “They are not fighting for conservative principles. They are not fighting for conservative policy. They are fighting to expand their lists, raise more money and grow their organizations.” These accusations in private were followed by Boehner’s public denunciation of the same groups for opposing the deal worked out between House Budget Committee chairman Paul Ryan and his Democrat counterpart in the Senate, Patty Murray of Washington. “I just think they’ve lost all credibility,” he said of the groups at a press briefing on Dec. 12. Implicitly of course Boehner was also criticizing the Tea Party supporters in his own caucus, as well as Ted Cruz and Co. over in the Senate. The smell of blood is in the air; the establishment’s fight to take back the GOP has begun in earnest.

At the same time the Speaker was attacking the far right, the executive director of the House Republican Study Committee, Paul Teller, was fired for leaking the content of private conversations to conservatives opposed to the party establishment. The dismissal amounts to a first step to wrest control of the Republican agenda from those sympathetic to the Tea Party and place it firmly in establishment hands.

So far the Tea Party and affiliated groups have responded with rhetoric only. It is difficult to see what they can actually do to hurt the establishment without damaging their own cause. They remain a minority — albeit an important one — within a minority, and as such can only go so far without committing political seppuku. It may very well be, however, that they will prefer to die “honorably” rather than compromise with the establishment. True believers rarely yield. How fanatical the Tea Partiers truly are will become clear over the next year or two.

The establishment is seeking to control the agenda and put forward candidates who will enable the Republicans to hold the House and win the Senate in 2014. It also wants to smooth the path for an establishment candidate (Scott Walker, or Jeb Bush, or perhaps Paul Ryan, who declared himself for the establishment when he put his name on last week’s budget deal) to gain their party’s nomination for president in 2016.

At the moment the tide is running with Boehner and the establishment. But the establishment’s ability to impose its vision upon the GOP is yet to be demonstrated. November’s special election in Louisiana, for example, was by no means a clear-cut establishment victory. And it is far from certain that the establishment, even if it triumphs in the intramural battle with the Tea Party, can win a majority of the electorate for its agenda. Demographic trends will continue to shrink the Republican vote, despite efforts by Republican-controlled state legislatures to suppress Democrat turnout. The recent decline in the Democratic brand has been caused by the disastrous rollout of Obamacare; there is no indication that it represents a secular trend.

In any case, the battle between Republicans has been truly joined, and it should be fun to watch. Pass the popcorn, please.




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Obamacare by the Numbers

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Let's say you were put in charge of Obamacare. It sounds like a daunting business — to provide affordable healthcare insurance for 30 million uninsured Americans. But what if you didn't have to make a profit and were handed $940 billion for giving your product away free to some customers and selling it at steep discounts to others? Throw in $5 billion more for web site development and a $700 million marketing budget to lure reluctant customers.

Too timid to give it a try? OK, let's double the size of the slush fund to $1.8 trillion, pass a law forcing everyone to buy health insurance, and write a regulation that makes the existing policies of perhaps 100 million Americans illegal. I know what you are thinking: even an idiot could sell healthcare insurance, at a discount, to people required by law to buy it. There must be a catch.

And you would be right. But the catch is not the intransigent website problems or greedy, uncooperative insurance companies or bitter Republicans with their feeble attempts to defund the program. The catch is Obamacare itself — an immense, overreaching, already tottering Rube Goldberg contraption that cannot possibly succeed, no matter how much money is thrown at it.

True, most of us would do a better job at salesmanship than President Obama, at least those of us with a couple of years of high school under our belts. We certainly wouldn't have lied to our customers, at least not as often. None of us would have botched the website. We would have had it working like a charm, on time, and for a small fraction of the cost of the three-year, $600 million hack job that still crashes regularly at every whim of its spaghetti code. The frugal among us would have had the insurance industry do it for free. Why not? Look at the profits insurance companies will receive from inflated Obamacare premiums — not to mention the revenues from more than 30 million new customers to be sent goosestepping their way.

Millions of people who thought they would get subsidies earn too little to qualify — another awkward messaging problem for Obamacare navigators.

Nevertheless, we too would fail. A secure, fully operational website will not help. Indeed, it will simply expose and magnify the defects of Obamacare more quickly. Delays to fix the rollout or extend the individual mandate will only postpone the inevitable. When Obamacare is finally deemed open for business, with its shiny, new "tech-surged" website at the floodgates, the deluge of customers qualifying for subsidies and free health insurance will no doubt be flawlessly processed. So too will be the trickle of paying customers. The numbers — provided by the government (the White House, Health and Human Services, the Congressional Budget Office [CBO]) and the insurance industry — are bad. They have always been bad; intentionally hidden or obscured, only to be dismissed as insignificant when becoming visible or clear. And, as emerging enrollment data and insurance cancellation notices reveal, they are getting worse. Much worse.

The paltry enrollment to date provides a mere glimpse of the actuarial havoc to come, as predominantly high-cost customers — the old, the sick, the poor, the unemployed, the desperate — flock to enroll, while the low-cost, young, and healthy customers stay away, as they should, in droves. For a plan purporting to rescue the uninsured by giving 51% of them free medical care and 39% of them subsidies, this should not be unexpected; nor should the shock that $1.8 trillion (already twice the estimate of the $940 billion celebrated only three years ago) is woefully inadequate. Always surprised, always last to know, Mr. Obama will soon be asking for more.

According to the CBO, Obamacare will reduce the number of uninsured by 14 million in 2014. This will be accomplished, courtesy of the individual mandate, by moving nine million uninsured into Medicaid and five million uninsured into the Obamacare exchanges. In addition, two million with "substandard" individual health insurance policies will be switched to the exchanges, creating a total of seven million Obamacare customers. With incomes between 100% and 400% of the federal poverty level (FPL), they will receive subsidies (averaging $5,290 in 2014) to make their new, government-mandated, "quality" health insurance "affordable." These seven million "partial-payers" will become America's next entitlement class. It will grow rapidly to 24 million by 2023. The average subsidy will also grow (to $7,900), costing taxpayers well over $1 trillion.

Of this initial seven million, 2.7 million must be healthy, in the 18-34 age range, and undaunted by the exorbitant premiums they will be charged to defray the cost of insuring the older and sicker. Snaring them will be no small feat. Apart from rate shock, there is the Obamacare provision that allows them to stay on a parent’s plan until age 26, shrinking the young Obamacare customer pool roughly by half.

People in the other half of the desired customer pool are told that they should be happy paying high rates today; they too will pay lower rates later, when they are old and need the benefits. Medicare is cited as a successful program exemplifying the beneficence of such inter-generational subsidization. It's an excellent example, ironically. Medicare is a program that pays benefits to the old, using taxes paid by the young, which is on track to become insolvent by 2026. This statement clearly applies to Obamacare, except that Obamacare premiums are extraordinarily higher than Medicare taxes and Obamacare will go broke long before 2026. Unfortunately, this poses a difficult messaging problem for Obamacare navigators, who will persuade few with the "Hey kid, sign right here. Sure you'll get screwed by Obamacare, but you're already getting screwed by Medicare" angle.

The nine million uninsured who are ushered into Medicaid are mostly childless adults living in poverty. They reside in the 26 states employing the Medicaid Expansion. When applying for Obamacare, they will be given Medicaid, right after being informed that they won't get a nickel in subsidy money. Alas, millions of people who thought they would get subsidies earn too little to qualify — another awkward messaging problem for Obamacare navigators, who, for example, must explain to an individual making $11,500 per year why he won't get a subsidy, while an individual down the block, making $24,000 a year, will get $1,500.

In apologizing for lying about the ability of people to keep their healthcare providers and plans, Mr. Obama lied again.

For residents of the 24 states that have not expanded Medicaid, HealthCare.gov blithely points out, "you may not have as many options for health coverage." If you are poor, your total number of options is one. And it's not good. For example, an Alabama resident with an annual income of $11,400 (99% FPL) must buy an Obamacare policy costing $3,030 per year, offset by a subsidy of $0.00. Where did the Obamacare wizards think that people with an annual income of $11,400 could come up with $3,030 for Obamacare, when even the $95 fine for declining it is beyond their reach?

The Obamacare Medicaid Expansion, projected to cost federal taxpayers $709 billion, will add 13 million Americans to Medicaid by 2023 — all nonpaying customers. Furthermore, it is likely that this group will consume its "free" healthcare at a much higher rate than normal. That is, the cost will be much greater than $709 billion.

Many of the two million previously insured are people who thought they would be able to keep their existing plans and doctors, if they liked them, period. They may find solace in not being the only ones to be fooled — as they are joined by millions of other individuals who have recently had their "substandard" health insurance plans cancelled. And let's not forget President Obama, the Democrats in both houses of Congress who passed Obamacare in March of 2010, and the tens of millions of other Americans who thought that Obamacare would also reduce the deficit, "bend the health care cost curve down," and shrink health insurance premiums by $2,500.

Amid the furor that he repeatedly and knowingly misled Americans with his incessant if-you-like-it-you-can-keep-it-period incantations, Mr. Obama submitted a most spurious apology (exquisitely characterized by Stephen Cox, in “What? When? Why?”). He expressed sorrow for those "finding themselves in this situation, based on assurances they got from me," right after dismissing the people receiving cancellations as "a small percentage of folks who may be disadvantaged."

But in June of 2010, the Obama administration knew that "66% of small employer plans and 45% of large employer plans will relinquish their grandfather status by the end of 2013” and that 40 to 66% with individually-purchased plans would suffer the same fate. For three and a half years, therefore, the White House has anticipated that as many as 100 million could lose their policies — hardly a "small percentage of folks." That is, in apologizing for lying about the ability of people to keep their healthcare providers and plans, Mr. Obama lied again.

To date, over five million individuals have already received cancellation notices. Together with millions more who will receive them by the time the Obamacare website is fixed, they will rush to the Obamacare exchanges, which have subsidy money for only two million. Where will Mr. Obama get the money for this "train wreck"? Then there is the second, much bigger, wreck arriving next year, when the employer mandate kicks in. And how much money will be needed to bail out health insurance companies, whose profits will shrink or vanish if Obama's youthful fan base doesn't show up in numbers large enough to prevent the so-called adverse selection "death spiral"?

The fallout from this follow-on wreck will peak just before the 2014 elections. What then will Mr. Obama and Democrat candidates have to say about the disruption and premium increases caused by Obamacare? With the Obamacare rollout last October, outrage was expressed by Republican and independent voters, while Democrat voters were silent. But their support was only apparent; they were in a sullen Obamacare transition from infatuation to familiarity. Next October they will be among many of the 100 million new and angry Obamacare customers clamoring for subsidy money. Many will be employed by insurance companies clamoring for bailout money.

How surprised will President Obama be when he is finally notified of the anger and unrest of more than "a small percentage of folks"? Whom will he blame for the mess this time? Doctors and hospitals, for charging too much? The old and the sick, for being too old and sick? What will be his solutions? What will he say they will cost? Will anyone believe him, or care about anything he has to say?




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Yet Another New Record

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Well, the autocrat occupying the White House got his way. President Obama, with the able assistance of his worshipers in the mainstream media — i.e., the mainstream media in totality — forced the Republicans to give in on both funding the government and raising the debt limit, with no cuts of any kind, especially to ObamaCare. Obama promptly celebrated with a gloating, moon-in-your-face news conference, in which he bragged about his achievement.

And he promptly set a new record. The first day the limit was raised, he added an eye-popping $328 billion to the national debt — yes, in one day. This was the greatest addition to the US debt in history, eclipsing the earlier record of $238 billion added in one day. That one was set in 2011, by none other than Obama himself.

Actually, the neosocialist nabob set two new records. The second was, for the first time, a thrust of the national debt to over $17 trillion — to be exact, $17.075 trillion. This is hugely ironic, considering the fact that the fiscally incontinent Obama accused his predecessor of being “unpatriotic” for incurring far less debt.

The lapdogs in the mainstream media have not touched this story, although they were willing to run phony stories about how the poor citizens were suffering under the government shutdown and the “threat” of default (the only threat, of course, came from Obama).

Unfortunately, however, the debt story is even worse than indicated above. According to the deal Obama pushed for and won, he can add as much debt as he wants until February 7 of next year. That gives him four months to keep adding hundreds of billions a day, if he chooses.




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Have You Tried Turning It Off and On Again?

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The following is a printout that fell from a garbage truck on Pennsylvania Avenue in DC when it ran over a protesting veteran.

[Welcome to the USA online support help chat. A representative will assist you shortly.]

[User BarryH is requesting support.]

[Agent PublicSupport is now online.]

PublicSupport: Hi, how can I help you?

BarryH: My government doesn't work.

PublicSupport: Can you describe the error?

BarryH: It has stopped running. Well, 85% of it still runs, but the rest is frozen.

PublicSupport: What did you do last?

BarryH: Nothing! Well, almost. I loaded the application ObamaCare while I had no more free space in my deficit, and the legislative branch went berserk. I should have gotten rid of it.

PublicSupport: One moment while I investigate . . .

BarryH: Well?

PublicSupport: It appears that the system is working as designed. This happened many times already, and users were not complaining. Have you checked the original specifications?

BarryH: Your specifications? You mean that old, musty, handwritten thing that starts with "We the people"? Couldn't read it, I threw it out.

PublicSupport: That's the source of your problems right there.

BarryH: So what? I won. Make it work.

PublicSupport: A new legislative branch is on its way. Estimate time of arrival is 2014. You might not like it. [End of transmission]

[User PublicSupport left the conversation in utter disgust.]

BarryH: What? Hello? Are you there? . . . Hello? . . .




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The Shutdown, and the Sickness at Our Core

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To me, the most ominous feature of this political moment is the fact that most of the American people appear to regard “shutting down the government” as so dangerous, so frightful, so morally detestable, that they will suffer virtually anything, including the horrors of Obamacare, to avert such Days of Doom.

Many of our fellow citizens do not realize, even after 20 years of threats and experiments in this field, that the real effects of the “shutdown” will be minimal. It will mean a short-term lapse of certain “non-essential government services” (there being thousands of such services deemed essential). But I think that most people do realize that. Nevertheless, they are unwilling to part with even a few of the alleged benefits of government, even temporarily, even for an important cause. In other words, they are willing to burden themselves and everyone else with trillions of dollars of debt, to support programs that most of them heartily dislike, at the behest of lawmakers whom they scorn and ridicule, merely to avoid . . . what? Not getting their mail on Saturday? But they probably will get their mail on Saturday.

I know many people who will fight almost to the death to avoid paying for some item they bought that turned out to be defective, but who rant against the Republicans for resisting Obamacare with the only weapons that are available. None of these people happen to be on the government dole, at least in any way that could conceivably be affected by a “government shutdown.” They all have their own, big beefs with government, and do not hesitate to talk about them. Yet this is how they behave.

The usual explanation for such behavior is “cognitive dissonance”: a clash between two attitudes, both of them devoutly held but each in opposition to the other. Yet in cognitive dissonance theory, people try to find some way of reconciling their opposing attitudes, or at least of rationalizing the opposition. That is not happening now. Our fellow citizens simply announce their hatred for government and their hatred for anyone who tries to act against government.

I am afraid that we are witnessing one of those phenomena that signal a deep sickness within a culture, a sickness for which no name or diagnosis appears to be available. You can see it, but you don’t know what it is.

The woodland Indians of North America valued an attitude of grave deliberation, often spending days or weeks in solemn meditation on the right course to take on issues of practical or moral import. Yet their favorite entertainment was the fiendish torture of other human beings, conducted amid scenes of riotous celebration and clinical interest in every detail of suffering. Something, clearly, was amiss — but nobody thought there was, or tried to reconcile the conflict.

Our fellow citizens simply announce their hatred for government and their hatred for anyone who tries to act against government.

When you watch reports of a political demonstration in the Middle East, what do you see? Usually it is a crowd of young men dressed in designer jeans and the latest sneakers, riotously denouncing Western culture and appropriating every possible Western means of communication to advertise their denunciations. Again, one can see the symptoms of some deep internal conflict, but the conflict inspires no reflection among the participants.

I would consider it wrong for someone on welfare, or Social Security, or a government payroll, to advocate strong government, lecture everyone about the virtue of following government orders, and denounce opponents of big government as anarchists. This would, however, be readily understandable, self-consistent, and in its way psychologically healthy: you benefit from big government; therefore, you openly advocate it. But so far, only Harry Reid, a creature from outer space, has done that; only he has called the opponents of big government “anarchists.” Tens of millions of other citizens lament the government and all its works, as if they themselves were anarchists, while simultaneously resenting and denouncing the very idea of “shutting” it.

In this way — this way alone, but it’s an important way — they are sick, and Harry Reid is healthy. There is something very wrong with this picture.




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Beware the Incredible Shrinking Deficit!

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As reported by the Congressional Budget Office, the federal budget deficit is shrinking – and fast. From a high of $1.4 trillion (10% of GDP) in fiscal 2009, it has shrunk to an expected $642 billion (4% of GDP) for fiscal 2013. In other words, the deficit has fallen by about 60% in only four years. Moreover, the CBO sees the deficit declining to about 2% of GDP by 2015. Good news, right? Well, let’s look a bit more deeply.

The brightened fiscal picture is the result of a recovering economy. In February the CBO estimated the deficit would be about $200 billion higher than it now projects. Better than expected revenues caused the CBO to revise its forecast in May. About $100 billion is accounted for by increased individual and corporate tax receipts. The other half comes from payments to the Treasury by Fannie Mae and Freddie Mac, the result of an improving housing market. A continued slow to moderate expansion of the US economy, together with the tax increases and spending cuts enacted earlier this year, will, the CBO says, get us to a deficit that’s only 2% of GDP by 2015.

Obviously, an annual budget deficit equal to 2% of GDP is preferable to one that equals 10% of GDP. But we will still be borrowing hundreds of billions of dollars every year, even during a time that is expected to be relatively peaceful and prosperous. The CBO has trimmed some $600 billion dollars from its ten-year (2014–2023) deficit projection. Under this rosy scenario we will still be borrowing a total of over 6 trillion dollars to keep the federal government running. That’s on top of the 16 trillion or so of government debt (federal, state, and local) that we have already accumulated. All of it is money that our children and grandchildren will have to pay back.

Already voices can be heard crying out that fiscal restraint has gone too far; that there is in fact no deficit or debt crisis; that changes in entitlements are not required; that more public spending, not less, is needed.

Worse, the CBO sees the deficit growing in the latter part of the next decade, reaching 3.5% of GDP by 2023. Rising entitlements and higher interest rates (which make it more expensive for the government to borrow) will cause deficits to expand in the future. Indeed, the current low cost of borrowing is responsible for both the economic recovery (tepid though it is) and the government’s ability to continue living beyond its means. Even a modest increase in rates would likely snuff out the recovery and cause deficits to soar once again.

We are, so to speak, temporarily becalmed, with a fiscal tempest on the horizon. Yet already voices can be heard crying out that fiscal restraint has gone too far; that there is in fact no deficit or debt crisis; that changes in entitlements are not required; that more public spending, not less, is needed if America is to sail into a brighter future. These voices are coming from the port side of the ship, with the irrepressible scribbler Paul Krugman shouting loudest.

The Krugmanite argument is not merely a call for steady as she goes, but an appeal to stoke the fires and sail full speed ahead into that tempest on the horizon. Steady as she goes is probably a justifiable short-term policy, given the iffy nature of the recovery. But stoking the deficit fires is a course pointed at eventual shipwreck. The Krugmanites see government, and specifically government spending, as the solution to our economic and fiscal problems. More spending, not less, is their mantra. But in reality we need to free up the American economy to promote growth and innovation. And that can only be done by shrinking government.

I’m no anarchist. I believe there are certain functions that government must perform in a civilized society. Moreover, I’m not opposed to any and all government spending to stimulate economic activity. For example, I would favor major spending on infrastructure, a crucial and long-neglected component of our economy. But such spending should be offset by major reductions and restructuring elsewhere. Entire government departments (Energy, Commerce, and Education, for example), should be radically modified or abolished. Entitlements must be means-tested. The tax code requires thoroughgoing reform, with rates lowered for both individuals and corporations, deductions capped, and loopholes and accounting gimmicks abolished completely, or almost so.

Finally, while we should not simply retire within our own borders, we must shrink the warfare state. We currently have bases in over 100 countries, and account for three-quarters of the NATO alliance’s military spending. A minimum 25–30% reduction in the US Defense budget, implemented over a five to seven year period, with concomitant changes in outlook and mission, would be most desirable. We have managed to ignore the crisis in the Congo, where some 7 million people have died in a civil war that began in 1997. If we can ignore those millions, why should we be exercised about the Syrians or the Afghans? No, the time has come (indeed, is well past) to admit that we cannot right every wrong in the world, that interventionism is too expensive and only rarely successful.

To continue as we have will almost certainly lead to fiscal and economic ruin in the 2020s or 2030s. The short-term shrinking of the deficit is an unexpected gift that we must not squander. We are being given a brief span — a few years only — to correct the errors of the past half-century. If we listen to the Krugmanites we may not become Greece writ large, but we will doom our descendants to less prosperity and a burden of debt that they had no part in creating, and that may, eventually, crush them.




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The Budget Charade

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On April 10 President Obama submitted his fiscal 2014 budget to Congress. Sixty-five days late and 2,400 pages long, it calls for $3.77 trillion in spending, with a projected deficit of $744 billion. It turns off the automatic budget cuts imposed by sequestration, and thus increases federal spending by some $160 billion over fiscal 2013. Its projections assume that over $5 trillion will be added to the national debt during the next ten years.

One never quite gets used to these figures; they boggle the mind. Only 50 years ago the federal government’s annual budget was under $100 billion (about $700 billion in today’s money), and deficits were small. Then the irresponsible policies of Lyndon Johnson (guns and butter: massive domestic spending increases and a major war fought without raising taxes) and Richard Nixon (fiat money replacing gold) began America’s descent into virtual bankruptcy. Johnson opened the floodgates of deficit spending. Nixon launched the lamentable decline of the once almighty dollar.

Deficit spending and fiat money have a symbiotic relationship; they march together on the path to fiscal doom. The policies of every succeeding president have only made these problems worse. Needless to say, Congress has been equally irresponsible, whether under Democrat or Republican leadership. It is the votes of Congress, after all, that transform bad economics into law.

Only 50 years ago the federal government’s annual budget was under $100 billion (about $700 billion in today’s money), and deficits were small.

The president’s budget proposals were preceded by those of the Senate and the House. In late March the Democrat-controlled Senate passed a budget that increases taxes by almost $1 trillion over ten years, while still adding over $5 trillion to the national debt. “The only good news is that the fiscal path the Democrats laid out in their budget resolution won’t become law,” said Senate Republican leader Mitch McConnell. That’s true, but on the other hand I can’t see the Congress passing a budget that will be much of an improvement over the Democrats’ plan. Certainly the Republican-led House provided nothing but faux leadership on the issue.

The Republicans in the House unveiled their budget a few days before the Senate acted. House Budget Committee chairman Paul Ryan produced a plan based on political impossibilities. It repeals Obamacare. It turns Medicare into a voucher program. Neither of these ideas has the slightest chance of becoming law anytime soon, and Ryan knows it. Ryan’s budget reduces the top tax rate from 35 to 25%, eliminates the alternative minimum tax, and repeals the tax increases contained in Obamacare, yet assumes that revenues will remain level. It says nothing about which loopholes it will close and which deductions it will eliminate to make the revenue projection real. In other words, it is a through-and-through political document, and not a serious plan designed to bring spending and deficits under control. Even if its fantastical proposals were enacted, it would still require ten years to bring the budget into balance.

Given the Great Recession, it is practically impossible to balance the budget in ten years’ time — the risk of sending the economy into a tailspin of 1930s proportions is just too great. But no officeholder has put forward a serious proposal to balance the budget on any timetable. The one attempt to do so, flawed though it may be, is the plan offered in 2010 by the Simpson-Bowles commission. Unfortunately, the politicians, led by the president (Obama) who created the commission, have done nothing to implement its recommendations. Simpson-Bowles allows 40 years to get to a balanced budget. Yet no politician will touch it, beyond giving it mild and passing praise. The “sacrifices” it entails are apparently too great for politicians to contemplate.

In his budget Obama proposed a change in the way in which cost-of-living increases for Social Security recipients are figured. This small, helpful step saves a few billion a year, but does not address the root problem, which is demographic. And while Obama claims he will cut $400 billion from Medicare over ten years, the savings are supposed to be found by cutting payments to providers, a sure recipe for reducing the number of doctors who will take Medicare patients. In any case, if this is all the Democrats are prepared to do on entitlement reform (and the left wing of the party is up in arms about even these small changes), then surely insolvency (for Medicare at least) is inevitable.

We have a spending problem. It’s a problem that cannot be resolved by simply raising taxes. Both the welfare and the warfare state require drastic reform, as does the tax code. And generational oppression — the old sucking up resources at the expense of the young — must be curbed. Yet where is the political will or wisdom to accomplish these necessary things? It is utterly lacking. What then does the future hold?

I predict that the idea of inflating our way out of debt will at some point take hold in political, academic, and media circles. Such a course would deal a death blow to the dollar, and leave wage earners, savers, and other responsible people even worse off than they are now. But it might get the politicians off the hook, at least temporarily. The pols will blame anyone and everyone but themselves for the inflation they have created, and retire on indexed pensions while the rest of us eat grass.

We seem set on this course already. In the 1980s Federal Reserve chairman Paul Volcker killed the inflationary dragon that had plagued the world economy for a decade and more. It has until now stayed dead; indeed, deflation is the worry of the moment. But in the wake of the Great Recession, central bankers, egged on by politicians, have been printing money like crazy. With the Federal Reserve, the Bank of Japan, the European Central Bank, and the Bank of England all engaged in “quantitative easing,” the return of the dragon looks inevitable at some point. A world awash in fiat money must suffer inflation eventually.

Where is the political will or wisdom to accomplish these necessary things? It is utterly lacking.

Central bankers believe that they will know when to turn off the printing presses. They envision themselves acting at just the right moment to prevent the outbreak of serious inflation. This seems about as likely as an investor timing the market correctly — that is, the chance of getting it right appears very small. The question of timing aside, turning off the presses is certain to cause a crash in the bond market and a rise in interest rates, with dire consequences not just for the arbitrageurs, but for the world economy. History provides little comfort for those who believe in the capacity of central bankers to prevent economic catastrophe. Volcker may have saved the world economy back in the early ’80s, but he stands almost alone. The behavior of central bankers today reminds one of Alan Greenspan’s abysmal performance during his last decade as Fed chairman. One may even be justified in comparing the central bankers of today to John Law.

A bargain (grand or otherwise) between Democrats and Republicans over the federal budget is unlikely to do more than put off the day of reckoning. The necessary, thoroughgoing reforms are so politically unpalatable that they will almost certainly never be enacted. The budget process in Washington is a charade. And so I ask myself, can I learn to like the taste of grass?




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Republican Rhetoric

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Previewing the Budget Deal

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Persuasive Definitions

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Charles L. Stevenson coined the term "persuasive definitions" (Ethics and Language, 1944). It means: to apply words with favorable or unfavorable connotations to things or actions in such a way as to substitute for actual argument. Examples abound in political discourse nowadays.

I'll focus on just one: "invest." Politicians repeatedly tell us Americans to "invest" in our children, education, job retraining, medical and other research, defense, infrastructure, a healthy environment, clean energy, energy independence, transportation, progress, the future — whatever. Here "invest in" means "have the government spend more money on." More fully, it means "have the government spend more money on such things — money raised by taxes and by increasing the national debt."

What further examples can readers contribute?




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