Federal Budgeting: "The fiscal grand canyon"

Andrew Samwick is a professor of economics at Dartmouth. While I don't  agree with everything he has to say, I do greatly respect his opinions. One of latest of these is from the Jan 6, 2013 op-ed pages of the NY Daily News: "The fiscal grand canyon", which I suggest you read in its entirety. However, there is this section I wish to highlight (emphasis added):

There are only three ways across the fiscal canyon.

First, we could address the growth in the mandatory outlays directly.

Doubtful. We have had more than 15 years of advisory councils and special commissions studying Social Security reform. All of their recommendations have fallen on deaf ears. With health care, the Congress and Presidents have intervened more often than not to increase spending — on Medicare prescription drug benefits, on Obamacare’s expansions of coverage and in delaying the implementation of the “doc fix.”

With the transition of Baby Boomers from workers supporting these programs to beneficiaries collecting from them, future prospects for reform are even more unlikely.

Second, we could cut discretionary spending to make room for the growth of mandatory outlays. Also doubtful. If Congress and the President lost their nerve to implement the 10% cuts to discretionary outlays that were part of the fiscal cliff, how would they summon the will to do the much larger cuts required to offset the growth of Social Security and Medicare?

And even if they could, the relative sizes of mandatory and discretionary outlays mean that we could cut discretionary outlays to the bone and still not make enough room for the growth of mandatory outlays.

Third, we could — drum roll — actually have the courage and fiscal sense to raise revenues to pay for the growth of mandatory outlays. Sadly, the fiscal cliff drama showed how little political will there is in Washington to allow revenues to increase relative to their current levels. All our elected officials could manage was an increase for some of the households with incomes above $400,000 back to levels that prevailed before the Bush tax cuts. Just a drop in the bucket.

My quibbles with the piece include disputing the assumption Professor Samwick makes when he writes about the deficit issue being a " . . . fiscal canyon between the government we all asked for and the government revenue we’re generating to pay for it."

"We all asked for?" I don't remember asking for a lot of the "entitlement programs" - in fact, I specifically argued against "Obamacare," believe Social Security discourages savings and punishes higher income earners (yes, I would get rid of it as currently funded) and believe that the federal income tax should be replaced by the "Fair Tax" so that wage earners get to keep their wages and our economy could boom by getting the IRS/tax law stuff out of the way.

It seems to me that the entitlements issue is not being driven by what "all" of us want or need, but rather what will generate votes for many of those we send off to Congress and the "don't raise taxes" issue covers a chunk of the other elected official - which is why reform is so darn hard and there is this "fiscal grand canyon." However, when nearly 50% of the population is not paying income taxes it does seem that the income tax paying crowd properly might object to losing more of their hard won income to pay for programs that are perpetually demanding more and more (how long, exactly, are we going to wage a "war on poverty?").

So, let's go back to the first point that he dismisses - that " we could address the growth in the mandatory outlays directly." Is he really saying, "It's all the whining that makes this impossible?" Good gosh - time to throw out the wimps in office and get some people in there with more than getting re-elected on their minds.

The good professor's current blog can be found here.

"They Hate Your Job"

Fred Fry nails it with his post You're Not Going to Get Job Stimulus From Democrats - They Hate Your Job:

One of the hated jobs

Other than union jobs for private employers, all of the kinds of jobs that the Democrats like require the rest of us to pay taxes to that they have the money to pay the salaries for these workers. This is the heart of the problem. Government needs more private workers so that more tax revenue is collected to pay the salaries of Government employees. So it should be an easy task to pass a bill that will result in stimulating the creation of jobs. One problem, Democrats hate most kinds of private jobs.

Oh, you know those oil pipeline, offshore oil and gas shale jobs we could have? Those jobs are really hated by the crowd that is trying to "create" a market for more expensive "alternative" fuels - having failed to learn from the ongoing ethanol fiasco (in which, to be fair, the Republicans have played a large part).

Read Fred's post.

Three Fables - Again

Republished from February 2009. Still applicable to the "new" jobs bill/stimulation package.

There were once three fables that were taught in school.

One was about a little red hen and her hard work and it went like this:

The little Red Hen was in the farmyard with her chicks, when she found a grain of wheat.

"Who will plant this wheat?" she said.

"Not I," said the Goose.

"Not I," said the Duck.

"I will, then," said the little Red Hen, and she planted the grain of wheat.

When the wheat was ripe she said, "Who will take this wheat to the mill?"

"Not I," said the Goose.

"Not I," said the Duck.

"I will, then," said the little Red Hen, and she took the wheat to the mill.

When she brought the flour home she said, "Who will make some bread with this flour?"

"Not I," said the Goose.

"Not I," said the Duck.

"I will, then," said the little Red Hen.

When the bread was baked, she said, "Who will eat this bread?"

"I will," said the Goose

"I will," said the Duck

"No, you won't," said the little Red Hen. "I shall eat it myself. Cluck! cluck!" And she called her chicks to help her.

And the other fable from Aesop and was about a man with an amazing goose:

A Man and his Wife had the good fortune to possess a Goose which laid a Golden Egg every day. Lucky though they were, they soon began to think they were not getting rich fast enough, and, imagining the bird must be made of gold inside, they decided to kill it in order to secure the whole store of precious metal at once. But when they cut it open they found it was just like any other goose. Thus, they neither got rich all at once, as they had hoped, nor enjoyed any longer the daily addition to their wealth.

Moral: Much wants more and loses all.

Those fables taught hard work, responsibility, stewardship and the danger of greed. Then there was the fable about fear:

Chicken Little was in the woods one day when an acorn fell on her head. It scared her so much she trembled all over. She shook so hard, half her feathers fell out.

Chicken Little was so scared she started shouting: "Help! Help! The sky is falling! I have to go tell the king!"

So she ran in great fright to tell the king. Along the way she met Henny Penny.

Henny Penny asked, "Where are you going, Chicken Little?"

Chicken Little yelled, "Oh, help! The sky is falling!"

Henny Penny asked, "How do you know?"

Chicken Little replied, "I saw it with my own eyes, and heard it with my own ears, and part of it fell on my head!"

Henny Penny yelled, "This is terrible, just terrible! We'd better hurry up."

So they both ran away as fast as they could. Soon they met Ducky Lucky.

Ducky Lucky asked, "Where are you going, Chicken Little and Henny Penny?"

Chicken Little & Henny Penny yelled, "The sky is falling! The sky is falling! We're going to tell the king!"

Ducky Lucky asked, "How do you know?"

Chicken Little replied, "I saw it with my own eyes, and heard it with my own ears, and part of it fell on my head."

Ducky Lucky joined in the yelling, "Oh dear, oh dear! We'd better run!"

So they all ran down the road as fast as they could. Soon they met Goosey Loosey walking down the roadside.

Goosey Loosey seeing the group said, "Hello there. Where are you all going in such a hurry?"

Chicken Little shouted, "We're running for our lives!"

Henny Penny shouted, "The sky is falling!"

Ducky Lucky yelled, "And we're running to tell the king!"

Goosey Loosey asked, "How do you know the sky is falling?"

Chicken Little yelled, "I saw it with my own eyes, and heard it with my own ears, and part of it fell on my head!"

Goosey Loosey joined in the yelling and shouting, "Goodness! Then I'd better run with you."

And they all ran in great fright across a field. Before long they met Turkey Lurkey strutting back and forth..

Turkey Lurkey said, "Hello there, Chicken Little, Henny Penny, Ducky Lucky, and Goosey Loosey. Where are you all going in such a hurry?"

Chicken Little screamed, "Help! Help!"

Henny Penny shouted, "We're running for our lives!"

Ducky Lucky quacked, "The sky is falling!"

Goosey Loosey yelled, "And we're running to tell the king!"

Turkey Lurkey asked, "How do you know the sky is falling?"

Chicken Little yelled, "I saw it with my own eyes, and heard it with my own ears, and part of it fell on my head!"

Turkey Lurkey joined in the noise, "Oh dear! I always suspected the sky would fall someday. I'd better run with you."

So they ran with all their might, until they met Foxy Loxy.

Foxy Loxy slyly asked. "Well, well. Where are you rushing on such a fine day?"

Chicken Little, Henny Penny, Ducky Lucky, Goosey Loosey, Turkey Lurkey (together) all yelled, "Help! Help!" It's not a fine day at all. The sky is falling, and we're running to tell the king!"

Foxy Loxy was surprised, but asked, "How do you know the sky is falling?"

Chicken Little shouted, "I saw it with my own eyes, and heard it with my own ears, and part of it fell on my head!"

Foxy Loxy saw an opportunity and said, "I see. Well then, follow me, and I'll show you the way to the king."

So Foxy Loxy led Chicken Little, Henny Penny, Ducky Lucky, Goosey Loosey, and Turkey Lurkey across a field and through the woods. He led them straight to his den, and they never saw the king to tell him that the sky is falling.

As the latest "Economic Stimulus Plan" is being urged to end our current alleged economic "sky is falling" catastrophe, it might be a good idea to keep these three fables in mind.

Hard work, patience and courage will win the day over laziness, greed and fear. Especially fear mongered by foxes.

Don't panic. And don't follow any sly foxes offering quick solutions.

EAT THE RICH!

EAT THE RICH!, says the left. And then what are you going to eat tomorrow?



I think Aesop had a tale along these lines:

A COTTAGER and his wife had a Hen that laid a golden egg every day. They supposed that the Hen must contain a great lump of gold in its inside, and in order to get the gold they killed it. Having done so, they found to their surprise that the Hen differed in no respect from their other hens. The foolish pair, thus hoping to become rich all at once, deprived themselves of the gain of which they were assured day by day.

China: Shipyard shake out and consolidation

Jiangnan Shipyard Shanghai

Reported as Chinese shipbuilders to run aground in 2011:

Fueled by vigorous government support and cheap labour, the number of shipyards has grown exponentially in the past decade in China, reflecting its role as the world's top exporter and one of the biggest buyers of foreign oil, iron ore and grains.

But many small shipyards face a bleak year in 2011 as growing numbers of clients cancel orders to avoid floating unchartered vessels, and Beijing tightens credit in its fight to rein in inflation.

'There are too many shipyards. For the next couple of years, a number of them won't be able to survive on their own,' Robert Lorenz-Meyer, president of BIMCO, the world's largest shipowners' grouping, told Reuters. 'There will be consolidation, but hopefully some yards will refocus on scrapping,' he added.

Historian H.W. Brands at the Pritzker Military Library

While I found the entire discussion interesting, if you want to hear a great summary of why American economic dominance in manufacturing is not what it once was, go to 66:20 at the video of historian H.W. Brands at the Pritzker Military Library on November 4, 2010 where he spoke on his new book, American Colossus.

For those of you who lack the patience, here's an excerpt:


No special virtue? An anomaly? What happens in a world of trading party equals?

I think we're beginning to find out.

Of course, it's Dr. Brand's view of history . . .

Thank you, Congress!

Unemployment Rates by State, Seasonally Adjusted, Latest month available (Bureau of Labor Statistics): (click to enlarge)

 

Please let us spend our own money on things that would employ American workers.

It's comforting to know that some Americans can still afford vacations.

Chart of the Day - Obama's Non-Job Non-Recovery

Found at Chart of the Day - Job creation turns back down:

Today, the Labor Department reported that nonfarm payrolls (jobs) decreased by 125,000 in June -- the first decline in six months. Today's chart puts the latest data into perspective by comparing job losses following the beginning of the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1950-1999 (dashed blue line). As today's chart illustrates, the current job market has suffered losses that are more than triple as much as what occurs at the lows of the average recession/job loss cycle. Also, today's decline in jobs provides further evidence that the current economic recovery has begun to cool.

My suggestion: Cut taxes and cut the big ticket social programs. Stop the idiotic ethanol subsidies and reopen the Gulf of Mexico for oil drilling. Jobs, jobs, jobs. If you get welfare or unemployment, you need to be out doing some community service as an "employee of the the people." Lots of work like the CCC used to do in our parks, inner cities and learning how to repair highways and bridges. Make a condition of welfare some sort of education program.

Give up the silly high speed rail system, kill the U.S. Department of Education, etc.

Bring some sense of economic stability to the country. If all we have to look forward to is a string of way out of whack budgets (assuming we ever get a budget out of the Democrats) and an unknown but virtually certain series of tax increases - the new promise will be "no tax increases on anyone earning below $25,000"), it's a little hard to decide to invest in anything except your own saving against hard times to come.

Pass a law forbidding unionization of state and federal employees, including teachers. Make teachers test for their jobs and close state-run schools that aren't getting the job done.

UPDATE: Of considerable interest How to Make an American Job Before It's Too Late: Andy Grove:

. . . Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.

The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.

How Bad Was It? Worst ever...

Chart of the Day - After a 92% decline, S&P 500 earnings have ticked up:

With second-quarter earnings largely in the books (over 99% of S&P 500 companies have reported for Q2 2009), today's chart provides some long-term perspective to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today's chart illustrates how earnings declined over 92% since peaking in Q3 2007, which makes it easily the largest decline on record (the data goes back to 1936). On the positive side, S&P 500 earnings have moved off their lows - slightly."

So slightly as to be virtually not moving. Hope your income was not drive by stock earnings.

Lessons unlearned

From Groundhog Day | The Big Picture:

My point is that there is no precedent whatsoever of a country’s government printing money and spending its way to prosperity, especially in the face of a massive deleveraging.

Of course, if the goal is not prosperity . . .

Three Fables

There were once three fables that were taught in school.

One was about a little red hen and her hard work and it went like this:

The little Red Hen was in the farmyard with her chicks, when she found a grain of wheat.

"Who will plant this wheat?" she said.

"Not I," said the Goose.

"Not I," said the Duck.

"I will, then," said the little Red Hen, and she planted the grain of wheat.

When the wheat was ripe she said, "Who will take this wheat to the mill?"

"Not I," said the Goose.

"Not I," said the Duck.

"I will, then," said the little Red Hen, and she took the wheat to the mill.

When she brought the flour home she said, "Who will make some bread with this flour?"

"Not I," said the Goose.

"Not I," said the Duck.

"I will, then," said the little Red Hen.

When the bread was baked, she said, "Who will eat this bread?"

"I will," said the Goose

"I will," said the Duck

"No, you won't," said the little Red Hen. "I shall eat it myself. Cluck! cluck!" And she called her chicks to help her.

And the other fable from Aesop and was about a man with an amazing goose:

A Man and his Wife had the good fortune to possess a Goose which laid a Golden Egg every day. Lucky though they were, they soon began to think they were not getting rich fast enough, and, imagining the bird must be made of gold inside, they decided to kill it in order to secure the whole store of precious metal at once. But when they cut it open they found it was just like any other goose. Thus, they neither got rich all at once, as they had hoped, nor enjoyed any longer the daily addition to their wealth.

Moral: Much wants more and loses all.

Those fables taught hard work, responsibility, stewardship and the danger of greed. Then there was the fable about fear:

Chicken Little was in the woods one day when an acorn fell on her head. It scared her so much she trembled all over. She shook so hard, half her feathers fell out.

Chicken Little was so scared she started shouting: "Help! Help! The sky is falling! I have to go tell the king!"

So she ran in great fright to tell the king. Along the way she met Henny Penny.

Henny Penny asked, "Where are you going, Chicken Little?"

Chicken Little yelled, "Oh, help! The sky is falling!"

Henny Penny asked, "How do you know?"

Chicken Little replied, "I saw it with my own eyes, and heard it with my own ears, and part of it fell on my head!"

Henny Penny yelled, "This is terrible, just terrible! We'd better hurry up."

So they both ran away as fast as they could. Soon they met Ducky Lucky.

Ducky Lucky asked, "Where are you going, Chicken Little and Henny Penny?"

Chicken Little & Henny Penny yelled, "The sky is falling! The sky is falling! We're going to tell the king!"

Ducky Lucky asked, "How do you know?"

Chicken Little replied, "I saw it with my own eyes, and heard it with my own ears, and part of it fell on my head."

Ducky Lucky joined in the yelling, "Oh dear, oh dear! We'd better run!"

So they all ran down the road as fast as they could. Soon they met Goosey Loosey walking down the roadside.

Goosey Loosey seeing the group said, "Hello there. Where are you all going in such a hurry?"

Chicken Little shouted, "We're running for our lives!"

Henny Penny shouted, "The sky is falling!"

Ducky Lucky yelled, "And we're running to tell the king!"

Goosey Loosey asked, "How do you know the sky is falling?"

Chicken Little yelled, "I saw it with my own eyes, and heard it with my own ears, and part of it fell on my head!"

Goosey Loosey joined in the yelling and shouting, "Goodness! Then I'd better run with you."

And they all ran in great fright across a field. Before long they met Turkey Lurkey strutting back and forth..

Turkey Lurkey said, "Hello there, Chicken Little, Henny Penny, Ducky Lucky, and Goosey Loosey. Where are you all going in such a hurry?"

Chicken Little screamed, "Help! Help!"

Henny Penny shouted, "We're running for our lives!"

Ducky Lucky quacked, "The sky is falling!"

Goosey Loosey yelled, "And we're running to tell the king!"

Turkey Lurkey asked, "How do you know the sky is falling?"

Chicken Little yelled, "I saw it with my own eyes, and heard it with my own ears, and part of it fell on my head!"

Turkey Lurkey joined in the noise, "Oh dear! I always suspected the sky would fall someday. I'd better run with you."

So they ran with all their might, until they met Foxy Loxy.

Foxy Loxy slyly asked. "Well, well. Where are you rushing on such a fine day?"

Chicken Little, Henny Penny, Ducky Lucky, Goosey Loosey, Turkey Lurkey (together) all yelled, "Help! Help!" It's not a fine day at all. The sky is falling, and we're running to tell the king!"

Foxy Loxy was surprised, but asked, "How do you know the sky is falling?"

Chicken Little shouted, "I saw it with my own eyes, and heard it with my own ears, and part of it fell on my head!"

Foxy Loxy saw an opportunity and said, "I see. Well then, follow me, and I'll show you the way to the king."

So Foxy Loxy led Chicken Little, Henny Penny, Ducky Lucky, Goosey Loosey, and Turkey Lurkey across a field and through the woods. He led them straight to his den, and they never saw the king to tell him that the sky is falling.

As the latest "Economic Stimulus Plan" is being urged to end our current alleged economic "sky is falling" catastrophe, it might be a good idea to keep these three fables in mind.

Hard work, patience and courage will win the day over laziness, greed and fear. Especially fear mongered by foxes.

Don't panic. And don't follow any sly foxes offering quick solutions.

How low the Dow?

Asks TigerHawk of his readers and get some interesting thoughts in the comments:

Sirius Sir: "An Obama win is being preloaded into the market right now. Bottom between 6-7000"

Anonymous: "Betting on bottom in January (November Republican retirees dump stocks, December the press can't help but bewail the Oncoming Disastrous Christmas Holiday, January the Crowning of the King becomes the news headline of the day and investors get out of the MSM fueled panic mode they have been running) Probably 8000 or so."

Jummyk 01: "While everyone focuses the blame on the asset swap, 'err, Bailout, the real reason the markets continue tanking is the markets anticipate a Barry H. Obama White House, and a Demo House and Senate.

DJIA 7559, November 1st, 2008."

Are, as these comments suggest, some savvy investors voting with their feet as the other vote looms?

The Dow closed at 9258 yesterday.