It’s Only Money

TimeBankruptI have through my blog shared ideas – mostly things I’ve read.  I read mostly materials related to Orthodox Christianity, but do peruse other things.  I read the article, “The United States of Insolvency”, by James Grant in the 28 April 2016 issue of TIME.  THE 2016 United States debt is

$13,903,107,629,266.00.

As Grant writes, “Let us pause to reflect that a billion is a thousand million, and that a trillion is a thousand billion – or alternatively, a million million.  It’s a measure of fix we’re in that the billions hardly seem worth talking about.”  Them’s lots of dollars.  The magazine reports that currently every man, woman and child in the US would have to pay $42,998.12 to erase the national debt.  As another comparison, Grant says if the US government were a typical American household it would have an annual income of $54,000/year and it would be spending $64,000 a year and carrying a credit card outstanding balance of $233,000.  Most of us can understand that math doesn’t work.    Grant goes on:

“I merely observe that sound money and a balanced budget were two sides of the coin of American prosperity.

Then came magical thinking. Maybe you had a taste of modern economics in school. If so, you probably learned that the federal budget needn’t be balanced–it’s nothing like a family budget, the teacher would say–and that gold is a barbarous relic. To manage the business cycle, the argument went, a government must have the flexibility to print money, to muscle around interest rates and to spend more than it takes in–in short, to “stimulate.”

Oh, we have stimulated.”

moneyissuecover1I actually never took economics in college.  The idea of a balanced budget for the government always made sense to me.  But I’ve not found many politicians to vote for, who seemed to share that idea.  Rather what I heard was that President Hoover was criticized for trying to balance the budget at the time of the Great Depression, and his actions are even blamed as the cause of that depression.  When Reagan was president, I heard many say a balanced budget wasn’t needed as long as the economy was growing.  So apparently whether the times are economically good or bad it is never a time for a balanced budget.   That doesn’t make sense to me.

Eight years ago there was all kinds of talk about the growing national debt and what to do to stop it, but this year it has not been the main focus of the presidential candidates.  Candidates probably are glad that Americans have attention deficit minds when it comes to politics.  The hot issues of a few years ago are put on the back burner even if they need to be a main issue for the country now.  Bringing down the debt may be too painful for politicians to advocate for it as it might have noticeable consequences for all of us – higher taxes and fewer entitlements.  The trouble is we manage to postpone dealing with the problem which makes some think it doesn’t have to be dealt with – and currently few are willing to pay the price for the level of government services we’ve come to expect and few are willing to give them up.  Of course if we think again about Grant’s framing the national debt in terms of an average household, we can easily see that what is required is for the the average household to cut spending by $20,000 and start paying $10,000/year on the debt.  Most householders can understand how difficult and painful that would be and probably wouldn’t want to do it either, especially if it seemed possible to keep deficit spending going until some vague future reckoning.

In the 23 May issue of TIME a new analysis of American capitalism is offered by Rana Foroohar excerpted from her book, Makers and Takers: The Rise of Finance and the Fall of American Business.   Foroohar says there is a reason why American capitalism is sick:

capitalism-finalDebt is the lifeblood of finance; with the rise of the securities-and-trading portion of the industry came a rise in debt of all kinds, public and private. That’s bad news, since a wide range of academic research shows that rising debt and credit levels stoke financial instability. And yet, as finance has captured a greater and greater piece of the national pie, it has, perversely, all but ensured that debt is indispensable to maintaining any growth at all in an advanced economy like the U.S., where 70% of output is consumer spending. Debt-fueled finance has become a saccharine substitute for the real thing, an addiction that just gets worse. (The amount of credit offered to American consumers has doubled in real dollars since the 1980s, as have the fees they pay to their banks.)

As the economist Raghuram Rajan, one of the most prescient seers of the 2008 financial crisis, argues, credit has become a palliative to address the deeper anxieties of downward mobility in the middle class. In his words, “let them eat credit” could well summarize the mantra of the go-go years before the economic meltdown. And things have only deteriorated since, with global debt levels $57 trillion higher than they were in 2007.

Easy money and debt maybe just too tempting for Americans to resist – the instant benefits have fed a monster whose insatiable appetite keeps demanding more.  And we become slaves of feeding the monster because it seems to perpetuate the system.  Maybe we really do believe the myth of the ouroboros  and believe the system is self-perpetuating.  We will be surprised to find it really is a myth and not sustainable at all.

 

 

 

The Economy: Could it get worse?

The economy is stalled, Obama’s approval ratings are sagging.  The Gallup organization is wondering whether it is going to have to use negative numbers to measure Congress’s approval ratings.

Could things get worse?

As the Pessimist says, “Things are never so bad as they can’t get worse.”

This Labor Day, I’ve labored to find some humor in our sad state of affairs.

So time for a comic moment of relief, and since we can’t blame him for conditions any more (or so political wisdom says), here is a quote from memory lane.  Just to remind us of where we were and why we’re here, a quote from President G W Bush, 24 February 2001:

“My plan reduces the national debt, and fast.  So fast, in fact, that economists worry that we’re going to run out of debt to retire.”

I guess that was just politically speaking – a little spin for the party faithful.

But maybe there is yet hope!    Maybe his plan hasn’t fully taken effect yet – I think Congress has kept the Bush tax cuts.  Maybe this is the year they’ll reduce the debt.

And just to add a little more humor, 3 days after promising to reduce the debt on 27 Februrary 2001 GW gave us this Bushism:

“My pan plays down an unprecedented amount of our national debt.”

Ah, those were the days and we thought they’d never end.  Playing down the national debt became a political pastime in America.  Now we are paying for all that pleasure.

So, if the economy has got you down, lighten up a bit, the politicians are promising they will fix it.

Happy Labor Day!

Representing Public Opinion or the Public?

Rutgers University Professor David Greenberg wrote an article about President Teddy Roosevelt, “Beyond the Bully Pulpit”, in the Summer 2011 issue of THE WILSON QUARTERLY.  Greenberg credits (or blames!) TR with being the president who made “spin” “a fundamental part of the American presidency.”   The article is a worthy read.

In our current political crisis of dealing with the US budget deficit and the growing national debt and the need to raise the debt ceiling, we can watch our politicians spinning the events every which way as part of the blame game.   They more often seem to have their eyes on the next election and what is good for their political party (what appeals to their party’s base) rather than on what is needed for America.  Greenberg writes about President T Roosevelt:

“Unlike most of his predecessors, Roosevelt saw himself as an instrument not of the party that elected him or of the coalition of blocs, but of the will of the people at large.  Deriving his power from the general public, however, did not mean slavishly following mass sentiment; TR, like Wilson after him, wanted to discern with his own judgment which policies would truly serve the electorate as a whole.  ‘I do not represent public opinion,’ he wrote to the journalist Ray Stannard Baker.  ‘I represent the public.  There is a wide difference between the two, between the real interests of the public and the public’s opinion of these interests.’  He spoke of the common good as if such a unitary thing were not hard to identify, at least for him.

Modern politicians are finely tuned to public opinion.   This certainly makes it seem that they place their own re-elections and the interests of their political parties ahead of what is needed and good and right for the country as a whole.  They too narrowly focus on things that have an immediate impact because that can help (or hurt) in the upcoming election, whereas long term solutions may be of no immediate help to their immediate re-election needs nor to their party’s gaining power now.  No doubt that is why we have the national debt problems we have – short term popular decisions are made with no regard to their long term consequences to the nation.

Our current debt crisis demands long term solutions, some of which may not benefit either major political party now and in fact might be so unpopular as to hurt both or either party now.  Voters want as many entitlements as they can get (and this includes wealthier voters who get all kinds of tax break entitlements and other benefits) and want all kinds of government benefits without having to pay for them or to bear the burden of the cost of them.  (Founding Father James Madison, for example, argued that the cost of all wars should be born by the generation that called for the war and these costs should not be postponed and then laid on future generations).   As a result of these wishes, public opinion often demands more from the government while simultaneously expecting less taxes.  The end result is politicians finely attuned to public opinion who find it easy to approve more government programs while simultaneously reducing the tax burden (This certainly was the formula followed by GW Bush and continued to this present day).

I’m still hoping to see our elected officials do the hard thing – adopt a 4 trillion dollar budget, deficit and debt reducing plan that has long term implications rather than a short term “fix”.  

To our congressman I say:  Serve the public interest not the fickleness of public opinion.  Be willing to sacrifice your re-election by making the hard decisions that must be made today for the US to have a stronger financial tomorrow.

Government by the Consent of the Governed

In the U.S. budget debates, I certainly favor a balanced budget.  It is an idea I felt was right even when Reagan was president and some conservatives were confident that debt wasn’t bad for the nation especially if the economy was growing.  That thinking seemed odd to me since Herbert Hoover got criticized for stopping government spending during the depression.  So the logic seems to be that whether good times (Reagan) or bad (Hoover), it is always time for deficit spending.  That’s how we went from a balanced budget (Clinton) to the debt we have today (Obama).

At the moment I certainly wish the congress would agree on the larger $4 Trillion dollar reduction in the U.S.’s spending habits. I am OK with some tax increases or eliminating some tax breaks/cuts.  Balancing the budget and using all of our tools to do it is more important to me than not raising taxes.  Getting the budget balanced more quickly justifies some tax increases in my mind.

Of course the problem with tax increases of any kind is that it can be treated by politicians as a quick and easier way to deal with things.  They don’t have to make the painful and painfully needed spending cuts if they can keep increasing taxes.

I just happen to think both are needed:  we need big time spending reductions, but we also need to pay for those programs that we all like.  If people want to keep Social Security and Medicare, I think we are going to have to ante-up more in taxes.  We must pay for these programs if we want the benefits we derive from them.  And there is polling evidence that Americans want to keep certain government programs funded.

Joe Klein writing in the 25 July 2011 issue of TIME (“The Power Broker”)  made a few concluding comments which make sense to me.  Writing about the anti-tax fervor among conservatives, Klein notes:

“Indeed, increasing taxes in a reasonable way doesn’t seem to have much effect on the economy at all. Reagan signed a tax increase — yes, a stiff tax increase, the first of three by the Gipper — as a deep recession was coming to an end in 1982 … and the economy boomed. The same thing happened after Bill Clinton’s 1993 tax increase. Confronted with the tax history of the past 30 years, Norquist concedes immediately, ‘Even if it’s a toss-up on that question, there’s still the question of liberty. Taxes are a limitation on liberty. You are stealing money from some people to give it to others.’

Stealing? Actually, in this democracy, there is something called the consent of the governed. If the public wants to provide health care for the elderly, as Newt Gingrich opined in the first Republican presidential debate, it is probably a good idea. In normal times, the corollary principle should be: if you decide to spend the money (on all but long-term capital investments), you have to figure out how to pay for it. That defines a brand more powerful than either party. It used to be called the American way.”

“The consent of the governed” is an operative phrase here which though enshrined in the Declaration of Independence is sometimes forgotten in the polarizing politics of America.  In American democracy, the governed – not just the ruling class or the wealthy or those of a particular political ideology – give certain powers to the government.  But if “we the people” want to keep certain government services, then we have to be willing to pay for them through taxes.  Such government is still according to President Lincoln, “of the people, by the people, and for the people” if it is in fact the consent of the people.

The Constitution limits the government but empowers the governed.  The problem of course is that the governed are sometimes unruly and unwise.   So if the people consent to government services like Social Security and Medicare it becomes the problem of the congress to raise enough taxes to fund the programs.  When the people decide they have had enough taxes they might decide to cut those programs they don’t want to fund.   That seems to be the nature of government run by the consent of the governed.

One word which has some negative overtones in our politically polarized times is “compromise.”  The concern is that compromise got us what we got, and so ideologues refuse to compromise.   They do have a point – it has been the endless series of compromises which led to our nation’s overspending, and deficit spending yields the burgeoning national debt.  We cannot afford to allow this to continue.  On the other hand, democracy by nature demands negotiations, coalitions and compromises.   The “consent of the governed” doesn’t translate into unanimity, but into majority.  We have a representative form of government which necessitates our representatives working out a budget plan that can get approval of the majority.  It will be a compromise.  For the “government” (namely, the representatives we elected) to do their job and govern with the consent of the governed, they are going to have to reach a deal.  The pain is it cannot be a deal that continues past bad habits.   It has to be a deal that not only shrinks the national debt, but also brings about fundamental change in how our elected representatives choose to spend our tax dollars.

Our civil authorities need the wisdom of Solomon and the courage of David to make the hard decisions and do the right thing for the American economy:  shrink the national debt and eliminate the yearly deficit (deal with the past) and curtail future spending so that “we the people” live within our means.    If we don’t deal with the past, the future will be bleak indeed.  If we fail to remember that the economy does go through cycles of good and bad, we also are doomed to repeat our mistakes and make very bad economic decisions.  If we try to reach national prosperity through government spending we will find ourselves at the bottom of an awfully deep and dark hole.

Whether good times or bad, it is always the right time to pray for our elected representatives that they may have the courage to make the hard decisions to correct the imbalances in our government today.

Tax Cuts: a Painful Way to Keep Bleeding

The Co-Chairmen of the bipartisan commission to reduce the deficit released a proposal for the commission members and general public to consider as to what is needed to reduce the national debt.  In their comments they bluntly make it clear the reduction can only come with pain to the American people; there is no other way.  Of course Americans have never taken kindly to pain when it comes to economics and thus politicians who vote on policies which affect the nation’s economy tend also not to make the hard decisions in fear of being voted out of office. 

The U.S. Congress is going to take up the issue of making permanent the Bush era tax cuts.  This is being done while simultaneously there are calls to shrink the national debt.  These are the tax cuts that Mike Kimel and Michael Kanell in PRESIMETRICS characterize in this way:

Consider, for instance, that less than two months after taking office GW laid out a plan to aggressively pay down the debt while simultaneously cutting taxes and boosting military spending.  The plan was titled, ‘A Blueprint for New Beginnings: A Responsible Budget for America’s Priorities.’  One can only wonder what an irresponsible budget might have looked like to GW’s advisors. 

According to what I’ve read, making the Bush-era tax cuts permanent will add $4 Trillion (that’s $4,000,000,000,000.00) to the national debt.  One wonders whether any Americans are really fiscally responsible or conservative who can advocate this right now.

Christmas is a time when kids tell Santa what they want and adults pay for it.  Deficits are when adults tell government what they want and their kids pay for it. (Richard Lamm)

The push for the tax cuts at this point seem to be the usual American nearsightedness when it comes to fiscal issues: we want immediate gratification and don’t want to be troubled by the fact that what we do today will have  future repercussions.  

“… a president who cuts taxes while at the same time driving up the debt is not really ‘cutting taxes.’  He is merely transferring taxes from now until some later date.”  (Mike Kimel & Michael Kanell, PRESIMETRICS)

A president who cuts the national debt, on the other hand, saves you from having to make interest and principal payments on that debt in the future, and therefore reduces you tax bill later. Unfortunately, most people don’t seem to make the connection between fiscal irresponsibility today and increased taxes later on.  (Mike Kimel & Michael Kanell, PRESIMETRICS)

We would do well to remember how we got into the national fiscal mess we are in and not perpetuate those same mistakes and then magically hope for a different result.  We might consider the words of U.S. founding father James Madison

“… war should not only be declared by the authority of the people, whose toils and treasures are to support its burdens, instead of the government which is to reap its fruits: but that each generation should be made to bear the burden of its own wars, instead of carrying them on, at the expense of other generations.”

It is we the people, or at least we through our elected political leaders, who got US into the current financial mess.  It is the current and past president and the current and past congresses which have made the decisions to  bury us in debt.

Somehow, some keep singing the song to reduce taxes, as if that is the panacea for all that ails the American economy.  Yet the national debt also ails the economy and we are not going to reduce the national debt by reducing taxes,  anymore than someone can reduce their credit card debt by reducing their income.  If we are serious about reducing the national debt, we are going to need a different remedy than reducing taxes to pay down the current debt.

I do not know where the idea that reducing taxes is the best way to grow the economy comes from – but if PRESIMETRICS  measures the data right, then reducing taxes isn’t the panacea needed.  Consider the following based on Kimel and Kanell’s analysis of the data available from 1952-2008 (Presidents Eisenhower to GWBush):

“in recent decades, higher tax burdens have been associated with faster, not slower, economic growth.” (p 120)

“there doesn’t seem to be any evidence here for the proposition that lower taxes result in higher incomes  … lower taxes- at least by themselves- are not the way to increase economic growth.”   (pp 124-125)

“The numbers are pretty compelling.  Lower average tax burdens do not produce faster economic growth, or more jobs, or bring in more tax revenues.  Similarly, tax cuts also do not produce faster economic growth, faster income growth, or more jobs, or bring in more tax revenues.  … Unexamined faith in a principle that is demonstrably false is no way to run a country.”  (pp 129-130)

So, is the idea that tax cuts are beneficial to the economy based upon intuitive assumptions rather than on any statistical analysis?    It seems like it should be true that lowering taxes would benefit tax payers in every way, but the data which PRESIMETRICS studies doesn’t uphold what is a cornerstone of political beliefs for many.

This may be a case where we need to stop believing what we think, and actually examine the data to see what in fact will bring down the national debt and help the economy.  Maybe we actually are going to have to do some of the painful things the bipartisan commission is considering, including both raising taxes and cutting spending.  Ouch!

Or maybe we will continue to pretend there is some magical and painless way to reduce the budget deficit and keep doing all the things we currently are doing. 

Any magic left in these contenders?

In the Harry Potter books and movies, ultimately it is not magic that saves the day and defeats evil, but rather the courage and persistence of its “all too human” heroes to do the right thing despite their weaknesses, even when it is very painful.

Our politicians need to learn a bit of that magic called courage.

B is for Bankruptcy

The economic plague which began in 2008 and has swept the planet is not finished with its decimation of national and state economies yet.   Greece and other European countries still may be crippled by its effects and the 28 June 2010 issue of TIME reports the next phase in the United States is going to be what happens to individual states as the economic plague grips them (New York and California both in budget crises have economies far larger than Greece).   The massive influx of federal money into the economy has given the U.S. a huge debt well into the future, and yet may not have been enough to stem the weakening effects of the world economy on state and local governments.   Thirty one states anticipate a budget shortfall in 2011 of 10% as compared to their 2010 budgets leaving them with a projected $55 billion debt.

David von Drehle wrote a few comments in the Time  magazine article which I will quote:

All kinds of real estate dreams can go up in smoke in hard times

When times were good and the future seemed bulletproof, all sorts of grand ventures were floated on waves of debt. No one cared, because everyone planned to be richer when the bills came due. The arbitrageurs of leveraged derivatives, the cash-strapped subprime home buyers, the government grandees issuing bonds and boosting pensions — all were versions of the same doom-shadowed figure. Only if the bubble burst would the bills become unpayable. How did so many people forget all at once that the bubble always bursts?

Ahh, yes, and they say Christianity promises only pie in the sky – the states all banked on a miraculous Shangri-La future forgetting that meanwhile they still had to survive on this earth, and that “tomorrow never comes.”

It also is notable (to me at least) how often and to what extent real estate plays into economic and banking woes and collapses.   Real estate is linked to those false expectations that the future promises that when it comes we all will be richer, and then everyone banks on that dream.   It is also amazing the extent to which the U.S. economy relies on real estate sales and value to drive the economy – we always are relying on “the American DREAM” to build our economic present and future.  Why are we then surprised time and again  to wake up and realize we were living a dream, but now reality says the debt is due?

Tales of lavish retirements for relatively youthful public servants have been making a lot of headlines lately. The New York Times reported that some 3,700 retired New York State public employees earn more than $100,000 a year in pension payments, including a former policeman in Yonkers at the ripe old age of 47. California’s pension poster boy is a Bay Area fire chief who, at 51, was collecting more than $241,000 a year in retirement pay.

See the NY TIMES article, “In Budget Crisis, States Take Aim at Pension Costs” for more information on this crisis.

In sun-drenched San Diego, meanwhile, a grand jury probing that city’s troubled finances found a recurring practice of skipping required payments to the city’s pension fund while simultaneously awarding ever more generous pensions to public employees. Legal? Apparently. Prudent? Nope. A once solvent system is now billions of dollars in the red.

The amazing thing is people seem to forget that the future turns into reality, and when that reality doesn’t match what we were banking on, how unprepared we are for reality! 

The great reckoning of 2010 took us years to create and will be years in the fixing. It’s not as if the economic crisis isn’t plenty painful already. In government, as in life, there are cuts that injure and cuts that heal. As they continue to slog through the wreckage of the Great Recession, state and local leaders have a challenge to be surgeons rather than hacks and make this era of crisis into a season of fresh starts.

To what extent the economic problems were caused by economists mis-guessing  where things were headed is no doubt going to be debated in years to come.  I found interesting (and I can’t deny his writing style is entertaining as well) David Freedman’s “The Streetlight Effect” in the July/August 2010 issue of DISCOVER MAGAZINE.  Freedman is addressing the issue of why there is so much dubious science, and uses as his metaphor of explanation the old  joke about a drunk searching for his lost keys where the streetlight is, rather than where he lost the keys.  “Researchers tend to look for answers where the looking is good, rather than where the answers are likely to be hiding.”

Freedman examines research in several fields including physics, medicine and economics and the resulting claims by “experts.”   The relevance to this blog? 

“In 1992 a now-classic study by researchers at Harvard and the National Bureau of Economic Research examined papers from a range of economics journals and determined that approximately none of them had conclusively proved anything one way or the other.  Given that dismal assessment—and given the great influence of economists on financial institutions and regulation—it’s a wonder the global economic infrastructure is not in far worse shape. (Of course, scientific findings that point out the problems with scientific findings are fair game for reanalysis too).”

Over Feeding the Glutton While Hoping He’ll Lose Weight

I continue to marvel at the economy, mostly because I don’t understand it.  I see on the Internet:   Federal Budget Deficit Hits April Record.

Could deifying a president ever go wrong?

There is of course an alarming reaction to this soaring problem.  But then I read in this article:

So far the government has been able to pay low interest rates on the borrowing because foreign investors still see U.S. Treasury securities as a haven in times of turmoil. That was apparent last week when global markets were hit by fears over an expanding debt crisis in Europe.

Officials in China, the largest foreign holder of U.S. debt, have said it will be important for the administration to put together a credible plan for getting control of future deficits.

The mystery to me is that “investors” including China continue to be willing to take on the risk of U.S. debt because they see the U.S. government as a good place to invest money.   That is incomprehensible to me.  The investors are enabling the world’s biggest debtor to increase its debt – like offering free booze to alcoholics in the belief that eventually that will get satiated which will help them then control their excessive drinking.

Let’s see, insanity is said to be doing the same thing over and over and yet expecting different results. 

The investors seem like they don’t want the government to quit going deeper into debt.  Or are they addicted to this as well?   When everything crashes everyone will be scratching their heads saying, “What went wrong?”  and “It wasn’t our fault.”  

This all still reminds me very much of years ago when in Reaganomics people kept saying government debt is not a bad thing.  

As long as there is no tomorrow, I suppose, this thinking works.

“Investors” obviously are not sober enough to stop buying U.S. securities – risk taking (=gambling) is too addictive – and thus will never help the U.S. stop its gluttony.  The government apparently feels it is safe as long as investors are willing to keep taking the risk of buying more and more U. S. securities.  Both investors and the U.S. seem very aware of the risk involved of the soaring debt, but the co-dependency leads to denial and other reality defying thinking.

National Debt: It’s Greek To Me

Watching American politics makes me wonder how the country can continue on its current path without serious and painful changes to government programs and layout.  Americans want many things from their government (military, roads, social security, health care, rapid & massive response to manmade and natural disasters) while simultaneously not wanting to pay the taxes needed to support the government.

“Most of the public thinks, ‘If only the darn politicians could get their act together to cut waste, fraud and abuse, and to make tax avoidance go away and so on,’ ” Mr. Greenstein, head of the Center on Budget and Policy Priorities, says. “But the bottom line is, there really is no avoiding the hard choices.”

David Leonhardt writing in The NEW YORK TIMES Economic Scene, In Greek Debt Crisis, Some See Parallels to U.S., describes the problem exactly.  Any politician who ever tells the American public hard news is likely to find an unsympathetic electorate (One can think of President Carter telling Americans something has to change in our oil consumption habits).  Leonhardt writes:

And politicians, spendthrift as some may be, are not the main source of the problem.

We, the people, are.

I-80 Bridge

We can blame government and politicians, but our government is chosen by we the people, and we keep putting people in office who create what we’ve got.

As societies become richer, citizens tend to want better schools, better medical care and other government services. This country is following that pattern, but without paying the necessary taxes. That combination has us on a course to Greece-like debt.

What kind of spending cuts or tax hikes are we talking about?  Current estimates say we need to come up with $1 Trillion in such changes today and in today’s dollars.  Leonhardt points out:

Seven percent of G.D.P. is about $1 trillion today. In concrete terms, Medicare’s entire budget is about $450 billion. The combined budgets of the Education, Energy, Homeland Security, Justice, Labor, State, Transportation and Veterans Affairs Departments are less than $600 billion.

So a plan is needed that would completely eliminate those departments and programs, or their equivalent!   This is where I think those who say they favor reducing the size of government need to start presenting the hard realities of what they would reduce to stop the out of control deficit increase.   Leonhardt’s proposal for coming up with $1 Trillion:

Pentagon

A plan that included a little bit of everything, and then some: say, raising the retirement age; reducing the huge deductions for mortgage interest and health insurance; closing corporate tax loopholes; cutting pensions of some public workers, as Republican governors favor; scrapping wasteful military and space projects; doing more to hold down Medicare spending growth.

 

In my estimation we need people to make concrete proposals with real numbers that total $1 Trillion, not just alarmist arguments for reducing the budget.  We the people have to give courage to our politicians to start now proposing the $1Trillion in budget changes.  If their ideas (spending cuts for example) don’t add up to $1 Trillion,then they are offering only pie in the sky and  we need to tell them, it isn’t good enough.

Bailout: No Avoiding the Pain

According to the dictionaries, the word “bailout” as a term applying to corporate financial rescue was coined in the early 1950’s.  I am not sure what was happening at that point in the U.S. economy that such a term became necessary, but perhaps it was the post-WWII economic boom that created companies that grew too fast and needed then to be bailed out.   An old parental adage which says, “little kids, little problems; big kids, big problems,”   apparently also applies to the corporate world and to the U.S. economy as a whole.

The unprecedented “growth” of the U. S. economy beginning some 30 years ago was enjoyed by many, especially those at the top.   It was based in sectors of the economy who boomed or ballooned and then in recent years we began to experience these sudden growth spurts for what they were – empty bubbles that burst.  Much of the unparalleled spending spree by Americans, which was a driving force in this supposedly robust economy, was actually resting upon an unparalleled growth in personal and corporate debt – the booming economy’s foundation was an ever ballooning debt.  The huge vaporous emptiness which the debt represents was somehow thought of as both our wealth and also was the supposed bedrock on which the entire structure called the U.S. economy was being built. 

Not being an economist, I can’t understand how these things came to be believed, but they were, and the banking, stock market and real estate booms were inflating the voluminous bubble that couldn’t sustain the weight of the skyrocketing economy.   Apparently it was addicting to watch the economy grow in this way because people kept looking up at the unlimited growth rather than down at the foundation upon which this growth was being built.   Too bad some economic structural engineers weren’t called in to offer a safety opinion on whether in fact debt could bear the load of the economic building.

So I found listening to  Morning Edition, February 27, 2009, painful as the title of the story implied:  Taxpayer Beware: Bank Bailout Will Hurt.   The entire 30 year economic boom was a big party to which I did not attend, and yet I am going to be stuck with the bill.  I have no credit card debt.  I have faithfully paid by mortgage.  Admittedly, I have had very few vacations, do not have an expensive car and do not own a brand new spacious home with all of the modern devices others couldn’t live without.  I don’t have a lot to show for the 30 year economic boom – no investments, no savings account, but a mortgage and some college loans I had to take out to keep kids in college.

One of the factors that got us into our current problem is debt, pure and simple.   For most years, the amount of debt Americans owed was about 50% of the value of the entire U.S. economy.  But then between 2000-2008 (where were the fiscal conservatives?), our debt skyrocketed and equaled the value of the gross domestic product of the U.S.:  13 trillion dollars.  The last time that happened was 1929. 

David Beim, a former banker who is now a professor at the Columbia Business School has an explanation for what happened.

We have overborrowed, Beim says: “We’ve been living very high on the hog. Our living standard has been rising dramatically in the last 25 years. And we have been borrowing much of the money to make that prosperity happen.”

In other words, the problem the banks are facing is the problem we, as a society, are facing: We all have too much debt. And getting rid of it is going to be painful.

If you want a solution in which those who bear the most guilt for the financial crisis pay the most to fix it, while the innocent don’t have to pay anything, that’s not going to happen.

It seems that the U.S. economy is way past that point. Americans are going to spend a lot of money. The government may bail out some banks that some people wish it wouldn’t. There is no magical solution where the U.S. gets out of this mess without any pain.

While they might disagree on who will bear the brunt of that pain, all the experts interviewed for this report say the longer the U.S. waits, the worse it will be for everyone.

So whether you participated in the problem or not, you are going to have to pay these economists say.  No wonder web pages such as Stop the Mortgage Bailout have arisen;  for it does seem as if the prudent taxpayer is being forced to pay for the excesses of those who over borrowed, those lenders who promoted over borrowing for their own profit, and those who inflated housing prices and their corporate bottom lines.    The economic boom was based on an economic balloon over inflated  by excessive borrowing and lending.  Now we are seeing the price tag for this.  Who could have known we would have to pay our debt?   I mean as Christians don’t we pray “forgive us our debts”?

Madison on Peace, Conscience, Industry, and National Debt

madisonwI began reading earlier this year the collected WRITINGS of  James Madison.  My original interest in him was because some historians think he was the most influential of the Founding Fathers in establishing the relationship between church and state in our country.  Madison wrote copiously on a wide variety of topics, but as I’ve discovered, his comments on religion are few and far between.  Nevertheless, I continue to enjoy reading him, and will offer a few of his thoughts of which I took note.   In 1792, Madison addressed the issue of universal peace, which he thought was a philosopher’s dream but worth hoping for since war is folly.   Madison thought the temptation for a nation to go to war could be curtailed if war could only be declared by the will of the people – not by their government,  and if all the costs of the war were carried by the generation declaring the war – no national debt could be incurred and no taxes raised on future generations to pay for the debt.

“… war should not only be declared by the authority of the people, whose toils and treasures are to support its burdens, instead of the government which is to reap its fruits: but that each generation should be made to bear the burden of its own wars, instead of carrying them on, at the expense of other generations.”

Madison usually connects religion to the rights of personal conscience – people should be free to act accoring to their own consciences, not according to the dictates of a monarch or a majority.   His desire to protect personal liberty is both rooted in and the justification for individualism.  He, however, also had a very profound sense of the individual being rooted in society.  It is hard to know what he would have made of modern absolute individualism and notions that society has no rights above the individual’s. 

“Government is instituted to protect property of every sort; as well that which lies in the various rights of individuals, as that which the term particularly expresses.  This being the end (i.e., purpose – my note) of government, that alone is a just government, which impartially secures to every man, whatever is his own.  …  Conscience is the most sacred of all property…”

Writing in 1792 at the pre-dawn of England’s Industrial Revolution, Madison took note of how fashion could have a negative effect on the lives of thousands.  The buckle and button manufacturers in Birmingham, England and environs put out of work 20,000 employees, who were thereby made destitute, because fashion had changed and now people were using shoestrings and slippers and no longer using as many buttons and buckles.   The numbers left unemployed give us a sense that that buckle manufacturing was labor intensive work in the day before workers were replaced by machines.  Madison notes that while fashion itself is capricious and therefore an evil, what is worse is that a great many people (the working poor) are dependent for their employment on manufacturing items which another class of people (the wealthy) are not dependent on for their existence.  Madison writes that America is somewhat spared of this dependency on manufacturing unnecessary but fashionable items because it is mostly agrarian in nature.  Madison sees an ever greater danger when one nation becomes dependent for the sale of its manufactured goods on another nation.  He certainly would have been dismayed at 21st Century global economics, free trade, the automotive industry, and America’s trade deficit due to its addiction to the newest electronic gadgetry.   

Madison was a tireless defender of small government, few taxes, and no public debt.  To him, this was the basis of republicanism and the best way to prevent monarchical government from arising.  Trust the people to govern themselves, not the government to defend their liberties.  He wrote that

the real FRIENDS to the Union are those,  …  Who are friends to the limited and republican system of government  …. Who considering a public debt as injurious to the interests of the people, and baneful to the virtue of the government, are enemies to every contrivance for unnecessarily increasing its amount, or protracting its duration, or extending its influence.