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Got trillions?

The total net worth of all the households in the United States is around $70 trillion. Yes, that’s a lot.

However, a family of viable-looking estimates regarding the obligations of the United States government across the next thirty years put the country between $72 trillion to $107 trillion to $120 trillion in the red. (“You know,” Buck Turgidson would say, “depending on the breaks.”) That is, those red numbers are the projected deficits/debts after you’ve paid your taxes.

That’s a lot of red ink. But is it enough for a modern red scare?

Remember that things that can’t continue forever won’t.

Watch where they spend and not what they say

While words have effect, actions speak louder than words.

And while politicos may ramble on about what’s important (and at the end of the day, it seems everything is important), one can parse out what’s essential by observing where the money is spent.

For individuals, priorities are established via spending, saving, and investment decisions. And for politicos, priorities are established via spending and borrowing decisions. Yet for many in political office, there is one simple priority: re-election.

As the President and his minions have capably steered America towards the rocky shoals of sovereign default, it’s important to understand this: re-election rates are not any sort of reasonable measure of how well our nation is doing. From the above WSJ link:

As historian John Steele Gordon has written, our nation’s ability to issue debt helped preserve the Union in the 1860s and defeat totalitarian governments in the 1940s. Today, government officials are issuing debt to finance pet projects and payoffs to interest groups, not some vital, let alone existential, national purpose.

Read the whole article about how the Fed has become a fourth branch of government and the world’s de facto money market. The lesson is simple: something that can’t continue forever—like a command and control economy with unending deficit spending—won’t.

Wanted: analysts who can analyze

The irrepressible Ezra Klein—I mean that in a derogatory way; think of an irrepressible Charles Barkley at an all-you-can-eat seafood spread—has a piece at Bloomberg (which op-ed wise, tends to be a reflection of its nanny state founder). The thesis? That raising taxes can be a political winner for Barry Oh!

…polls consistently show that increasing taxes on the wealthy is hugely popular. In the same Gallup poll, 62 percent of respondents said “upper-income people” were paying too little in taxes. In a CNN/ORC International poll, also conducted in April, 68 percent of Americans agreed that “the present tax system benefits the rich and is unfair to the ordinary working man or woman” and 72 percent said they support changing the tax code “so that people who make more than one million dollars a year will pay at least 30 percent of their income in taxes.”

What Klein ignores is the fundamental issue that should be driving discussions on tax rates: government spending. How big an issue is spending versus taxes? Charles Barkley big. Consider the nonsensical Buffett Rule of a few months ago:

[Obama’s] Buffett [tax] Rule would cover just 0.7% of all of Obama’s debt and .1% of Obama’s spending.

Instead the Klein focus is on protecting Obama, attempting to offer political advice to the Administration, and improve Obama’s re-election prospects while the nation continues towards a fiscal cliff based largely on one factor: the government spends way too much.

Help the poor with more government

By Dana Milkbag, Published: March 20

Look, you know, I know, we all know: I’m a liberal Democrat. I write from a liberal Democrat’s point of view, I see the world through unflinchingly liberal (in the current sense of the word and not the traditional use) mindset, and yes, all writing is autobiographical.

As such, I’m compelled to attack Paul Ryan for performing his “Congressional duty” in providing a budget plan. Ryan said the Republican presidential nominees “are cool” with any reasonable plan that moves the nation away from so-called “financial suicide.” (I just wish you could see the sneer I’m typing with. It’s an awesome sneer; bold yet righteous, much like George Clooney would do if he were to play me in a movie about my life.)

“Do you wholeheartedly believe they will accept your budget?” NPR’s Duke Nooghat tweeted from the audience.

“Of course,” the House Budget Committee chairman tweeted back, in three parts, and without hesitation. “We’ve offered something. The President’s plan is nonsensical and delusionary; the Senate hasn’t had a budget in a thousand days, and in the real world, something beats nothing. So yes, I’m confident.”

Because I’m viscerally opposed to Mitt Romney, the likely Republican nominee, I have no problem in using one sentence of his, taken totally out of context, when he said “I’m not concerned about the very poor.” As it turns out, Ryan has provided the very plan that supports Romney’s disgraceful and dirty position.

Ryan’s plan would—according to him—cut the deficit. A world-class scaremonger, Ryan says the government’s financial situation threatens to enslave future generations, will destroy trust in government promises, and when America is bankrupt, will completely cease to provide any safety net function for our truly needy citizens. Whatever.

How does a man like Ryan even become a Congressman? He appears to have not learned the first rule of government spending. Doesn’t he know We can’t be out of money because there are still checks in the checkbook?

On top of all this, Ryan would then give most of the savings to America’s haves: some $4.3 trillion in tax cuts, compared with current policies, according to the non-partisan National Socialist Citizens for Tax Justice.

Incredibly and further offending all progressive sensibility, Ryan chose to use the Bible as a source of moral justification, dropping the line “If a man does not choose to work, neither shall he eat.” There is, he said at the reactionary American Enterprise Institute later Tuesday, an “insidious moral tipping point, and I think the president is accelerating this.” Too many Americans, he (Ryan, certainly not the President) said, are receiving more from the government than they pay in taxes.

Again, Ryan’s position is not only absurd, it’s cruel: all Americans have the right to receive more from the government than they pay in taxes. Except Republicans.

Ryan’s plan also forgets the fact the entire market-based system as we now know it is severely broken. As proof, I offer the fact our internal analysis shows no one, not one at all, not one person in America, will read my column if it’s put behind the proposed Washington Post-It paywall.

Ryan’s family, who immigrated from Ireland generations ago, apparently instilled in him a belief in the false-virtue of people who “pull themselves up by the bootstraps.” Certainly these simple people–of which Ryan appears to be one still–could not possibly understand the living-breathing form of democracy we’re evolving to where the government is the grantor of rights and the determinant of all. Instead, Ryan (who should be played by Javier Bardem in that movie about me) said a too-generous safety net “lulls able-bodied people into lives of complacency and dependency, which drains them of their very will and incentive to make the most of their lives. It’s demeaning.”

How very kind: to protect poor Americans—that’s practically all of us anymore, except the Koch brothers, all thanks to George W. Bush—from being demeaned, Ryan is cutting their anti-poverty programs and using the proceeds to give the wealthiest Americans a six-figure tax cut. The idea that it might be their money to begin with is antithetical to all that I am.

I’ve already worked up a headline for Ryan’s plan, should it come to pass. It goes like this, and I think you’ll agree, is stunning in both its originality and its simplicity: Republican spending plan put in place; poor, women, and minorities hardest hit.

And Ryan thinks the eventual Republican presidential nominee will campaign on his plan? Apparently. “I’ve spoken to all these guys,” Ryan assured reporters, “and they believe that we are heading in the right direction.”

This, and strident partisanship (not Democrats, thankfully), explains a lot about the Republicans’ difficulty. It also explains why our nation’s most important writers and thinkers, men and women of noble character to include your humble scribe, remain firmly opposed to anything Republicans offer.

Copyright 2012, Washington Post-It Corporation

(If you must, read the original here.)

Besides Climate Science, Has Anyone Been As Wrong As Economists?

The predictive powers of my magic 8-ball are terrible, but it could be worse: I could be a global warmer or an economist.

And I could be worst still: I could be a global warmer or an economist and it could be raining.

The warmers deserve their own post (many, actually), but the economists have missed the boat so badly and for so long that they no longer seem to know whether they’re coming or going, and none more so than Brad DeLong.

In fact, DeLong’s latest column is to clarity as the Unabomber’s Manifesto was to coherency. Where to start? How about from the beginning?

Across the Euro-Atlantic world, recovery from the recession of 2008-2009 remains sluggish and halting, turning what was readily curable cyclical unemployment into structural unemployment. And what was a brief hiccup in the process of capital accumulation has turned into a prolonged investment shortfall, which means a lower capital stock and a lower level of real GDP not just today, while the recovery is incomplete, but possibly for decades.

“A brief hiccup”?! Is that what that was? With that kick off, DeLong has attempted to set the stage for his solution to the “sluggish and halting” recovery from the recession. And by golly, we’d better deal with it right now or else this might last… decades.

I’m sure you’re way ahead of me if you’ve guessed DeLong thinks this crisis can be cured if (wait for it)… if only governments will add more spending and more debt reverse declining investment.

One legacy of Western Europe’s experience in the 1980’s is a rule of thumb: each year that lower labor-force attachment and reduced capital stock as a result of declining investment depresses production $100 billion below normal implies that productive potential at full employment in future years will be $10 billion below what would otherwise have been forecast.

Jargon and gibberish lack explanatory power. This means there are definitional questions about what DeLong means by “lower” labor-force attachment, “reduced” capital stock, which “depresses” production at $100 billion below “normal.” What I can take from the above is that depressed production equals normal minus $100B (as a result of lower labor force attachment and reduced capital stock). That DeLong offering is not really an epiphany of mathematical precision. 

The fiscal implications of this are striking. Suppose that the United States or the Western European core economies boost their government purchases for next year by $100 billion. Suppose further that their central banks, while unwilling to extend themselves further in unconventional monetary policy, are also unwilling to stymie elected governments’ policies by offsetting their efforts to stimulate their economies. In that case, a simple constant-monetary-conditions multiplier indicates that we can expect roughly $150 billion of extra GDP. That boost, in turn, generates $50 billion of extra tax revenue, implying a net addition to the national debt of only $50 billion.

So Brad, how does a “core economy” purchase anything from the government? Are you trying to say they (and not the Fed) purchase the government’s debt?

If so, your offering is still lacking the beautiful lucidness of a Terrence Malick flick, but I think what you’re trying to say this: just increase government spending (that is, borrowing) by $100B and reap the benefit of $150B of GDP; since $50B of it comes back to the government in taxes, only $50B of debt has “really” been added.

Yes, we all know and appreciate the legacy “rule of thumb” from Econ 101 and its associated property, “assume government borrowing creates a GDP multiplier effect.”

However, a skeptic might say “Come on Brad, does the borrowed money ever have do get repaid? If so, is there then a ‘de-multiplier’ effect?”

Is it any wonder no one pays any attention to economists, except perhaps to mock them? As the Black Swan guy has said, get rid of the Nobel Prize for economics for one simple reason: having such a prize implies there is some science to the field.

Do our profound economists ever ponder what happens when the music (better, Ponzi scheme) stops? Traditionally, those holding government notes (nation-states, citizens, businesses, corporations) expect to be repaid and without the value of that note being destroyed by inflation. In this case, just be sure you can find a seat (or better, buy a seat) when the music stops, otherwise you might end up like a Chrysler bondholder.

And it would seem by DeLong’s implied definition that the US and Western “core economies” are in fact their governments, which is said more clearly towards the end:

Today the global economy is, as Ricardo Cabellero of MIT stresses, still desperately short of safe assets. Investors worldwide are willing to pay extraordinarily high prices for, and accept extraordinarily low interest rates on, core-economy debt…

Let’s back DeLong’s sophisticated example into the President’s stimulus package. Using the DeLong rule of thumb, the stimulus has generated an extra $1.2T in GDP. And of that extra $1.2T, $600B came back to Uncle Sugar via taxes. This is, of course, laughable.

The real lesson of DeLong and his ilk is that government borrowing is really a form of alchemy: it can turn two dollars into three by the simple power of the economic miracles sciences.

Finally, DeLong needs something to get off the stage with:

Given the need to mobilize idle resources in the short run in order to maintain productive potential in the long run, a larger national debt would be, as Alexander Hamilton, the first US treasury secretary, put it, a national blessing.

Mobilize idle resources to do… what? Make things people aren’t interested in buying or provide services that add little or no value?  Maybe build a shovel-ready government building, a venture socialist solar panel plant, or a rent-seeking e-car factory? Start a college (after all, knowledge is good), as long as it isn’t for-profit?

So DeLong closes by trying to assign a ridiculous position to a long-dead guy who would likely find our current circumstance inconceivable: that the fair-share of the federal debt for a child born today will be over $1.5 million. 

The economists of the left are making Ted Kaczynski, Terrence Malick, and even the Soviet Central Planners of old look brilliant by comparison.