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Archive for July, 2011

Two of my rules for fiscal policy are:

1) The details of any budget agreement will be to the left of what is first announced, and,

2) The “spending cuts” in any budget agreement will evaporate within two years.

With this in mind, I’m not expecting to be overjoyed when we get the details of the supposed agreement.

So let’s pass the time with some debt-ceiling entertainment (who knew such a genre even existed?).

We’ll start with one of the entries in Powerline’s debt contest. This video didn’t win a prize, but I urge you to share this post widely because the creator highlighted excessive spending and redistribution, thus putting the focus on the real problem of too much government rather than just looking at the symptom of too much red ink.

And the video also is entertaining.

And for downright cleverness, let’s look at the horrible things that happen, if Iowahawk’s predictions are accurate, if the government shuts down.

Beltway policy experts begin living by own wits; after 45 minutes there are no survivors.

Roving bands of outlaws stalk our streets, selling incandescent bulbs to vulnerable children.

Unregulated mohair prices at the whim of unscrupulous mohair speculators.

NPR news segments no longer buffered by soothing zither interludes.

Breadlines teeming with jobless Outreach Coordinators, Diversity Liaisons, and Sustainability Facilitators.

Cowboy poetry utterly lacking in metre.

General Motors unfairly forced to build cars that people want, for a profit.

Chaos reigns at Goldman Sachs, who no longer knows who to bribe with political donations.

Mankind’s dream of high speed government rail service between Chicago and Iowa City tragically dies.

Sesame Street descends into Mad Maxian anarchy; Oscar the Grouch fashions shivs out the letter J and the number 4

No longer protected by government warning labels, massive wave of amputations from people sticking limbs into lawn mowers

New York devolves into a dystopian hellscape of sugared cola moonshiners, salty snackhouses and tobacco dens.

At-risk Mexican drug lords forced to buy own machine guns.

Chevy Volt rebate checks bounce, stranded owners more than 50 miles from outlet.

WH communications office reduced to sending talking points to Media Matters via smoke signals and log drums.

Potential 5-year old terrorists head to boarding gates ungroped.

Defenseless mortgage holders forced to live in houses they can actually afford.

Without college loan program, America loses an entire generation of Marxist Dance Theorists.

Embarrassing state dinners, as Obamas are forced to downgrade from Wagyu to Kobe beef.

President Obama places tarp over Washington Monument to conceal from Chinese repo men.

With the Dept of Ed shuttered, national school quality plummets to 1960s levels.

Anthony Weiner is forced to pay for own sex addiction therapy.

Displaced teenaged policy wonks organize under Supreme Warlord Ezra Klein.

Nation’s freeway exits croweded with desperate bureaucrats waving ‘will regulate for food’ signs.

State Department diplomacy becomes 38% less diplomatic.

WH holds rummage sale Rose Garden; all HOPE merchandise, styrofoam Greek columns 95% off.

Iowahawk, by the way, is the creator of the funniest public policy video ever produced. You will watch it more than one time.

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I realize that national defense is one of the few legitimate functions of the federal government, but that doesn’t mean the Pentagon budget isn’t riddled with waste, fraud, and abuse.

Here’s a jaw-dropping example reported by Bloomberg.

A U.S. contractor in Iraq overbilled the Pentagon by at least $4.4 million for spare parts and equipment, including $900 for an electronic control switch valued at $7.05, according to a new audit. Based on the questionable costs identified in a $300 million contract with Dubai-based Anham LLC, the U.S. should review all its contracts with the company in Iraq and Afghanistan, which total about $3.9 billion, said Special Inspector General for Iraq Reconstruction Stuart Bowen. “The audit found weak oversight in multiple areas that left the government vulnerable to improper overcharges,” Bowen wrote in the forward to his 30th quarterly report, released today. The contract in question was funded with a combination of money earmarked for Iraqi Security Forces and Army operations and maintenance funds. Among the “egregious examples of overbilling” by Anham were $4,500 for a circuit breaker valued at $183.30, $3,000 for a $94.47 circuit breaker and $80 for a small segment of drain pipe valued at $1.41.

Those mark-ups are absurd, but I wonder whether this example from the story is even worse.

In other cases, Anham used subcontractors to purchase items that could have been bought directly from the manufacturer at lower prices, the report said. When Anham was asked to buy a loudspeaker system to alert warehouse employees of any danger, it chose not to buy the system directly from the manufacturer at the retail price of $44,615, the report said. Instead, Anham sought bids from subcontractors and paid a company called Knowlogy $90,908. That price included $20,000 for installation, even though the system setup meant little more than wheeling it into place and plugging it in.

I think I made a mistake becoming a policy wonk. I could have a great career as a loudspeaker installer.

On a more serious note, it would be nice if governments didn’t squander so much money. Maybe things wouldn’t be so bad if some people went to jail for these rip-offs of taxpayer money.

And let’s not forget that the bigger issue is whether the national security of the United States is advanced or undermined by nation building in the Middle East. Or remaining in alliances such as NATO that lost their raison d’être when the Warsaw Pact disappeared 20 years ago.

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Welcome Instapundit readers. If you want to get even more upset, here’s a big list of posts about waste, fraud, and abuse, including one about Social Security bureaucrats enjoying a $700,000 junket and another about a lawyer getting $25,000 of “stimulus” money for writing a two-sentence memo.

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While I’ve been somewhat critical of Senator Coburn’s willingness to raise taxes, I’ve never doubted that he is a sincere and tireless fighter for smaller government.

Indeed, his staff periodically share examples of government waste that boggle the mind, though I don’t share many of them on the blog since I’m afraid people will become desensitized to the sleazy boondoggles that are so beloved by lawmakers.

However, the last email from Senator Coburn’s office included a story that shows, in a rather remarkable fashion, how a bloated federal government has a corrupting impact on the rest of society.

According to a Wisconsin newspaper, a local governments is trying to “sell” federal funds, sort of like how I used to scalp football tickets as a student.

River Hills, Milwaukee County’s richest suburb, has found little use for what has become an annual allocation of about $20,000 in federal community development block grant money. So village leaders instead have cut deals with other suburbs to lend or transfer the grant money and have even sought unsuccessfully to sell the River Hills block grant allocation to another community. …Assistant Corporation Counsel John Jorgensen said selling the HUD allocation wouldn’t break any rules or laws, as long as the grant money is used for allowable projects. In a memo to county supervisors, Jorgensen said his opinion matched advice he’d gotten from local HUD officials. But Sullivan said the Milwaukee field office had questioned the practice in the past. Officials from the Milwaukee office of the Department of Housing and Urban Development declined to comment.

The Department of Housing and Urban Development has always been near the top of my list of government entities that should be shut down. This latest scam is merely the cherry on the ice-cream sundae of the argument to eliminate HUD as soon as possible.

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While driving home last night, I had the miserable experience of listening to a financial journalist being interviewed about the anemic growth numbers that were just released.

I wasn’t unhappy because the interview was biased to the left. From what I could tell, both the host and the guest were straight shooters. Indeed, they spent some time speculating that the economy’s weak performance was bad news for Obama.

What irked me was the implicit Keynesian thinking in the interview. Both of them kept talking about how the economy would have been weaker in the absence of government spending, and they fretted that “austerity” in Washington could further slow the economy in the future.

This was especially frustrating for me since I’ve spent years trying to get people to understand that money doesn’t disappear if it’s not spent by government. I repeatedly explain that less government means more money left in the private sector, where it is more likely to create jobs and generate wealth.

In recent years, though, I’ve begun to realize that many people are accidentally sympathetic to the Keynesian government-spending-is-stimulus approach. They mistakenly think the theory makes sense because they look at GDP, which measures how national income is spent. They’d be much less prone to shoddy analysis if they instead focused on how national income is earned.

This should be at least somewhat intuitive, because we all understand that economic growth occurs when there is an increase in things that make up national income, such as wages, small business income, and corporate profits.

But as I listened to the interview, I began to wonder whether more people would understand if I used the example of a household.

Let’s illustrate by imagining a middle-class household with $50,000 of expenses and $50,000 of income. I’m just making up numbers, so I’m not pretending this is an “average” household, but that doesn’t matter for this analysis anyway.

Expenses                                                        Income                                  

Mortgage           $15,000                        Wages                $40,000

Utilities               $10,000                        Bank Interest       $1,000

Food                     $5,000                        Rental Income      $8,000

Taxes                  $10,000                        Dividends             $1,000

Clothing               $2,000

Health Care         $3,000

Other                   $5,000

The analogy isn’t perfect, of course, but think of this household as being the economy. In this simplified example, the household’s expenses are akin to the way the government measures GDP. It shows how income is allocated. But instead of measuring how much national income goes to categories such as consumption, investment, and government spending, we’re showing how much household income goes to things like housing, food, and utilities.

The income side of the household, as you might expect, is like the government’s national income calculations. But instead of looking at broad measures of things such wages, small business income, and corporate profits, we’re narrowing our focus to one household’s income.

Now let’s modify this example to understand why Keynesian economics doesn’t make sense. Assume that expenses suddenly jumped for our household by $5,000.

Maybe the family has moved to a bigger house. Maybe they’ve decided to eat steak every night. But since I’m a cranky libertarian, let’s assume Obama has imposed a European-style 20 percent VAT and the tax burden has increased.

Faced with this higher expense, the household – especially in the long run – will have to reduce other spending. Let’s assume that the income side has stayed the same but that household expenses now look like this.

Expenses                                                       

Mortgage           $15,000

Utilities                 $9,000        (down by $1,000)

Food                     $4,000        (down by $1,000)

Taxes                  $15,000        (up by $5,000)

Clothing               $2,000

Health Care         $3,000

Other                   $2,000        (down by $3,000)

Now let’s return to where we started and imagine how a financial journalist, applying the same approach used for GDP analysis,  would cover a news report about this household’s budget.

This journalist would tell us that the household’s total spending stayed steady thanks to a big increase in tax payments, which compensated for falling demand for utilities, food, and other spending.

From a household perspective, we instinctively recoil from this kind of sloppy analysis. Indeed, we probably are thinking, “WTF, spending for other categories – things that actually make my life better – are down because the tax burden increased!!!”

But this is exactly how we should be reacting when financial journalists (and other dummies) tell us that government outlays are helping to prop up total spending in the economy.

The moral of the story is that government is capable of redistributing how national income is spent, but it isn’t a vehicle for increasing national income. Indeed, the academic evidence clearly shows the opposite to be true.

Let’s conclude by briefly explaining how journalists and others should be looking at economic numbers. And the household analogy, once again, will be quite helpful.

It’s presumably obvious that higher income is the best thing for our hypothetical family. A new job, a raise, better investments, an increase in rental income. Any or all of these developments would be welcome because they mean higher living standards and a better life. In other words, more household spending is a natural consequence of more income.

Similarly, the best thing for the economy is more national income. More wages, higher profits, increased small business income. Any or all of these developments would be welcome because we would have more money to spend as we see fit to enjoy a better life. This higher spending would then show up in the data as higher GDP, but the key things to understand is that the increase in GDP is a natural result of more national income.

Simply stated, national income is the horse and GDP is the cart. This video elaborates on this topic, and watching it may be more enjoyable that reading my analysis.

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In a perverse way, I’m glad that there are places such as Greece and Illinois. These profligate jurisdictions are useful examples of the dangers of bloated government and reckless statism.

There also are some cities that serve as reverse role models. Detroit is a miserable case study of big government run amok, so I enjoyed a moment or two of guilty pleasure as I read this CNBC story about the ongoing decay of the Motor City. Here are some excerpts.

Detroit neighborhoods with more people and a better chance of survival will receive different levels of city services than more blighted areas under a plan unveiled Wednesday that some residents fear may pit them against each other for scarce resources. …the boundaries of the 139-square-mile city aren’t receding. The plan also backs away from forcing the redistribution of what’s left of the population into areas where people still live and where the houses aren’t on the verge of caving in. …Detroit’s population of about 713,000 is down about 200,000 from 10 years ago, according to U.S. Census figures, and has fallen more than 1 million since 1950. Some areas have fewer occupied homes than vacant ones. …A 2010 survey found Detroit had 33,000 vacant houses and scores of empty, weed-filled and trash-cluttered lots.

How predictable, I thought. This is what happens when vote-hungry politicians adopt policies that reward people for riding in the wagon and punish the folks who are pulling the wagon.

But there was also something about this story that rang a bell. It took a few minutes, since I’m getting old and decrepit, but then I realized that “blighted areas” was an eerily familiar term. Didn’t Ayn Rand use that term in one of her books?

Indeed, she did. Thanks to the miracle of Google Books, here is one of several passages in Atlas Shrugged that mentions Detroit…oops, I mean “blighted areas.”

No railroad was mentioned by name in the speeches that preceded the voting. The speeches dealt only with the public welfare. It was said that while the public welfare was threatened by shortages of transportation, railroads were destroying each other through vicious competition, on “the brutal policy of dog-eat-dog.” While there existed blighted areas where rail service had been discontinued, there existed at the same time large regions where two or more railroads were competing for a traffic barely sufficient for one. It was said that there were great opportunities for younger railroads in the blighted areas. While it was true that such areas offered little economic incentive at present, a public-spirited railroad, it was said, would undertake to provide transportation for the struggling inhabitants, since the prime purpose of a railroad was public service, not profit.

Heck, this isn’t the first time real-world events seem to have come straight from the pages of Rand’s book. I wrote last month about the creepy similarity of the waiver process for Obamacare and the bond de-freezers in Atlas Shrugged.

Many people say that Rand’s books are not very good literature, despite the amazing sales figures. Others say her philosophy is flawed, despite the profound influence of her writings.

I’m not competent to comment on those debates, but I can say that Atlas Shrugged does an amazing job of capturing the statist mindset and it tells a compelling story of how excessive government is self-destructive.

Fifty years ago, the book was viewed as a dystopian fantasy. Today, Greece, Illinois, and Detroit are making Ayn Rand seem like a prophet.

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In the spirit of the budget battle, readers have to eat their peas (i.e., endure my analysis) before getting to the dessert menu of jokes from the late-night comics.

The big news today is that Speaker Boehner had to cancel a vote on his “Budget Control Act” last night. But other than the political-drama angle, I’m not sure why this is newsworthy.  Senate Democrats were united against the plan, with all 53 members signing a letter of opposition.

In other words, this was just a symbolic vote.

But I must admit that I’m puzzled why the GOP leadership decided to even bother going down this path. Republicans were beginning to make progress with the theme of “We’ve passed two proposals, where’s Reid’s plan or Obama’s plan?”

So why did they let the Democrats off the hook by launching an intra-party fight over a proposal that Senate Dems already have rejected? Beats the heck out of me.

In my conversations with folks on the Hill, I’ve suggested that GOPers should do three things.

1. Explain that they’ve passed a debt limit increase as part of cut, cap, and balance.

2. Explain that they look forward to hammering out a compromise deal in a conference committee as soon as the Senate approves its version of a debt limit increase.

3. Express disappointment that the Senate has failed to act, especially with time running out, and also reiterate that the White House has never put forward a plan.

These three steps won’t lead to anything wonderful. I’ve always been realistic about the GOP not having the power at this point to win a policy victory. But this approach sounds – and is – very reasonable and might help pressure the left into a reasonable deal.

Last but not least, I’m also curious about how the anemic growth numbers released today – flat in the first quarter and only 1.3 percent growth in the second quarter – will impact the debate. Given the low quality of debate in DC, I won’t be surprised if some hacks argue that the GOP’s failure to fully surrender on the debt limit issue somehow is responsible for how the economy performed in the first half of the year. Maybe time machines.

The only thing I can say for sure is that there is no risk of default, which is what I told the Canadian Broadcasting Company.

Now, for a bit of levity, here are a few jokes from the talk shows. I’ll give Conan the edge for this batch.

Leno

  • They say “Captain America” is successful because it takes place in a time when America could fight a war and get out of a depression at the same time. A whole different thing from today.
  • The Kardashian sisters made $65 million. Maybe they should be running the country.
  • Iowa Congressman Steve King says that if the country falls into default, President Obama could be impeached. Obama could stop that with three words: “President Joe Biden.”

Conan:

  • The government is less than a week away from not being able to pay its bills. We may have to move in with Canada for a while.
  • The debt ceiling debate is such a mess right now, al-Qaida is desperately trying to find a way to take credit for it.
  • If the debt ceiling isn’t raised by Aug. 2, the whole country can go into default and we won’t be able to pay our bills. Then we’ll have to ask our parents for money, which will be very embarrassing.
  • President Obama urged the American people to call Congress and demand that both parties work together on a compromise. The calls are 99 cents for the first minute, and a trillion dollars for each additional minute.

Kimmel:

  • John Boehner told Republicans to “get in line.” He was very angry. His face turned from orange to mandarin orange.
  • They say that the United States might default on its loans and China might foreclose. We’ll have to move into a cheap rental country or something.

Letterman:

  • The NFL lockout is over. All the parties agreed and we have a compromise. It’s too bad the national debt isn’t as important as football.

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A couple of years ago, Paul Krugman assured us that government-run healthcare was a good idea, writing that “In Britain, the government itself runs the hospitals and employs the doctors. We’ve all heard scare stories about how that works in practice; these stories are false.”

Well, if the stories are false, the British press must love to tell negative lies about their own nation, as I’ve pointed out in a series of often-horrifying blog posts here, here, here, here, here, here, and here.

And now there’s a new revelation that further demolishes Krugman’s assertion. But more troubling, it also provides a glimpse at America’s future with Obamacare. Here are some cheerful excerpts from a story in the UK-based Independent.

Hip replacements, cataract surgery and tonsil removal are among operations now being rationed in a bid to save the NHS money. Two-thirds of health trusts in England are rationing treatments for “non-urgent” conditions as part of the drive to reduce costs in the NHS by £20bn over the next four years. One in three primary-care trusts (PCTs) has expanded the list of procedures it will restrict funding to in the past 12 months. …According to responses from the 111 trusts to freedom-of-information requests, 64 per cent of them have now introduced rationing policies for non-urgent treatments and those of limited clinical value. Of those PCTs that have not introduced restrictions, a third are working with GPs to reduce referrals or have put in place peer-review systems to assess referrals. In the last year, 35 per cent of PCTs have added procedures to lists of treatments they no longer fund because they deem them to be non-urgent or of limited clinical value. ..Bill Walters, 75, from Berkshire, recently had to wait 30 weeks for a hip operation instead of the standard 18.

I’ve never pretended the American healthcare system is perfect, largely because of massive government intervention and control. And even a laissez-faire system doubtlessly would generate some horror stories.

But I feel very comfortable in stating that the United Kingdom is a good example of why more government is never the answer for problems created by government involvement in the first place.

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