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Archive for November 18th, 2011

Yesterday, I unloaded on supposed conservatives who are toying with a tax increase to enable more government spending.

Why would they take that route in the “Supercommittee” deliberations, I wondered, when they can deliver a guaranteed victory for taxpayers by holding firm and allowing a sequester to occur, which would automatically slow the growth of federal spending?

Many of the beltway elites seem to think a sequester would be catastrophic, leading to “savage” and “draconian” budget cuts.

This is nonsense. As I’ve already explained, a sequester simply means that spending climbs by $2 trillion between now and 2021 rather than climbing by $2.1 trillion (see this chart).

If that’s “savage” and “draconian,” then I suppose we should hospitalize 300-pounders for anorexia when they trim their toenails.

The Wall Street Journal’s editors are equally dismissive of the anti-sequester hysteria among the politicians, lobbyists, bureaucrats, and special interest groups. Here’s some of what they had to say.

…the sequester does have the virtue of imposing reductions in spending that Congress rarely agrees to on its own. …This would yield $68 billion in savings in 2013, and more savings in future years by ratcheting down the baseline level of spending. …Total domestic discretionary spending doubled to $614 billion in 2010 from $298 billion in 2000. Even if there were a 10-year $1.2 trillion “cut,” total discretionary spending would still rise by $83 billion by 2021 because those cuts are calculated from inflated “current services” projections. …If the super committee choice is between a tax increase that would hurt the economy or letting the sequester strike in 2013, go with the sequester.

And in a column on the editorial page of the Wall Street Journal, former Senator Phil Gramm, along with a Capitol Hill budget expert, Mike Solon, echoed these sentiments. Here are some key passages.

As markets and the media conclude that the congressional super committee on deficit reduction is likely to fail, public attention is increasingly focused on the “draconian” across-the-board cuts that will ensue. …Across-the-board cuts are clearly inferior to rationally setting priorities, but they’d be far from debilitating. Spending has grown so fast in the last five years that even if the cuts are triggered, total spending in 2013 would still be a whopping $3,582 billion—32% more than projected by the Congressional Budget Office in January 2007. Even after adjusting for inflation, real nondefense discretionary spending would be up $41 billion, or 7.6%, and real defense discretionary spending would be up $77 billion, or 13%. …The super committee should write a good plan now if it can do so, but it should not take a bad deal that could hurt the economy and further Hellenize America’s debt crisis. The committee members should bear in mind that help is just an election away.

Gramm and Solon also explain that it will be very easy to modify a sequester after the 2012 election, so pro-defense hawks should not be fearful of a sequester – which was the point I made in an earlier post.

For all intents and purposes, the Supercommittee fight is a battle to see whether the GOP has shed the corrupt big-spending mentality of the Bush years. This should be an easy choice for a party that believes in limited government. The fact that we’re even having this discussion is not an encouraging sigh.

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Earlier this month, I took part in an online debate for U.S. News & World Report about whether Europe or the United States was in deeper fiscal trouble.

I wrote that Europe faced a bigger mess, though I warned that the United States was making the same mistakes of costly and inefficient welfare-state policies and that we would follow them into fiscal crisis if we didn’t reform programs such as Medicare and Medicaid.

More important (at least to my fragile ego), I asked people to vote for the best presentation and I’m happy to say that I now have a huge lead in the voting.

Now there’s a new debate topic. I have squared off against a statist on the topic of bailouts. Here’s some of what I wrote.

The Bush-Obama policies of bailouts and regulation have been bad for taxpayers, but they’ve also been bad for the economy. A vibrant and dynamic economy requires the possibility of big profits, but also the discipline of failure. Indeed, capitalism without bankruptcy is like religion without hell. …Especially when the government adopts bad policies that cause a housing bubble, such as easy money from the Federal Reserve and corrupt subsidies from Fannie Mae and Freddie Mac. …Some people argue that America had no choice but to bail out Wall Street and the financial services industry. …Either through ignorance or corruption, they falsely assert that company-specific bailouts were necessary to recapitalize the financial sector. Nonsense. It is a relatively simple matter for a government to put a financial institution in receivership, hold all depositors harmless, and then sell off the assets. Alternatively, the government can pay a healthy institution to absorb an insolvent institution. This is what America did during the savings & loan bailouts 20 years ago. It’s also what happened with IndyMac and WaMu during the recent financial crisis. And it’s what the Swedish government basically did in the early 1990s when that nation had a financial crisis. …If this policy makes sense and has worked before, why does the crowd in Washington prefer bailouts? At the risk of being cynical, the politicians don’t like the FDIC-resolution approach because it means no giveaways for shareholders, bondholders, and senior managers. And that would require stiff-arming big campaign contributors.

If you agree, you can vote for me by clicking the “mic” button near the top of the page. And, to be fair, you can also vote for bailouts and regulation on the page featuring my opponent’s article.

The debate just started yesterday and I’m currently trailing 14-12 (as of 8:57 EDT), so get your Chicago voter registration cards and vote early and vote often.

If I can win this debate, it will help ease the trauma of losing the stimulus debate in New York City.

Though I’m not sure what this would say about me. I got a big win last year in my US News & World Report debate on the flat tax, so perhaps the lesson to be learned is that I should only take part in online debates rather than appear in person.

Sort of like having a face for radio, I guess.

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