We Must Cut the Deficit and Somehow Still Spend a Lot

Yesterday the president held forth on the ‘state of the union’. It is impossible for us the review the entire tedious and quite longish speech (admittedly, no-one can hold a candle to recent Venezuelan presidents regarding the length of political speeches; which is in a way a comment on quantity and quality). So we are only going to pick out a few morsels that caught our eye and either respond to questions the CiC asked or comment on a few statements, or where necessary, translate them. Readers looking for a cheap cure for insomnia can read the entire thing here. Lettuce begin:


“Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion – mostly through spending cuts, but also by raising tax rates on the wealthiest 1 percent of Americans. As a result, we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.”


Which economists say so? Opinions between economists on this topic vary rather widely (from Krugman to Kotlikoff). We also think the president is a bit confused about the cause-effect chain here. The main reason for the slightly lower deficit was the most recent bubble blown by the Fed. It printed more than $1 trillion last year, remember? A secondary reason was the ‘sequester’, the only flaw of which was that is was way too small. Right after the above statement he asked:


“Now we need to finish the job. And the question is, how?”


The lot of you could resign for starters …


“That’s why Democrats, Republicans, business leaders, and economists have already said that these cuts, known here in Washington as “the sequester,” are a really bad idea.”


Au contraire, it was the best idea ever. The above (and the paragraph preceding it, in which he listed all his favorite programs that must under no circumstances suffer spending cuts) can be translated as : “we urgently need to find a way to be able to continue to spend like drunken sailors.”


“Already, the Affordable Care Act is helping to slow the growth of health care costs.”


Stand-up comedians can use this quote without alterations. Comedians had it very easy with Bush, but his successor is making an effort too.


“To hit the rest of our deficit reduction target, we should do what leaders in both parties have already suggested, and save hundreds of billions of dollars by getting rid of tax loopholes and deductions for the well-off and well-connected. After all, why would we choose to make deeper cuts to education and Medicare just to protect special interest tax breaks? How is that fair? How does that promote growth?”


You’d be surprised. As Mises once said, ‘loopholes are what allows capitalism to breathe‘ (see our previous article on loopholes for more on this). It follows logically that closing them will suffocate it, unless tax rates are reduced considerably (we would propose the levels of taxation and spending of 1904 as a good starting point. Government represented less than 4% of the economy at the time and hence was a mere footnote in most peoples’ lives. Which is as it should be).


“Every day, we should ask ourselves three questions as a nation: How do we attract more jobs to our shores? How do we equip our people with the skills needed to do those jobs? And how do we make sure that hard work leads to a decent living?”


Answers: 1.: cut taxes and regulations to a fraction of what they are today. 2. & 3.: Get the hell out of the way.


A Plea for Numberless Boondoggles and Subsidy Schemes

Instead he wants to do this:


“So tonight, I’m announcing the launch of three more of these manufacturing hubs, where businesses will partner with the Departments of Defense and Energy to turn regions left behind by globalization into global centers of high-tech jobs. And I ask this Congress to help create a network of fifteen of these hubs and guarantee that the next revolution in manufacturing is Made in America.”


Right, not three but 15 government boondoggles are needed to get all those manufacturing jobs back! Has anyone notified the president of the fact that manufacturing employment has fallen by nearly three quarters while output almost tripled? It’s called progress.


“But for the sake of our children and our future, we must do more to combat climate change. Yes, it’s true that no single event makes a trend. But the fact is, the 12 hottest years on record have all come in the last 15. Heat waves, droughts, wildfires, and floods – all are now more frequent and intense. We can choose to believe that Superstorm Sandy, and the most severe drought in decades, and the worst wildfires some states have ever seen were all just a freak coincidence. Or we can choose to believe in the overwhelming judgment of science – and act before it’s too late.”


Good grief, the warming non-threat again. There has been no ‘warming’ in more than 17 years. Neither are heatwaves, floods or storms more frequent or intense than they used to be – the exact opposite is actually the case. And even if they were more intense, it would be nothing we could do anything about. As to the ‘overwhelming judgment of science’ – even most of the AGW supporters among scientists admit that the weather has absolutely nothing to do with the renamed ‘climate change’. Even the freaking IPCC admits it! If anyone really thinks it is important for us to freeze our behinds off, just send Al Gore in a continuous loop around the planet – wherever he goes, snowstorms and blizzards follow.

The above was naturally followed by assertions that subsidizing ‘green energy creates jobs’. Balderdash. It is simply malinvestment of scarce resources (that’s why subsidies are needed to ‘make it work’). In fact, it isn’t even working with subsidies. The empirical record on specifically the Obama administration’s ‘green stimulus’ efforts is an utterly appalling account of waste. Europe is just trying to bail on its various green energy schemes, mainly because they are such a costly economic failure (a collection of links to articles discussing this can be found here). Even the US energy department – i.e., the US government itself – has published data that show what a huge waste these schemes are:


energy subsidiesEnergy subsidies – the ‘dollars per megawatt hour’ are the decisive figure.


However, these subsidy schemes are a great way of shifting tax payer funds into the pockets of various cronies.

Next he mentioned “infrastructure investment”, always a safe topic for a tax-and-spender, so it is held. This is why we have frequently discussed here why it shouldn’t be regarded as such. There is no way for bureaucrats to judge opportunity costs. They have no yardstick by which to determine which projects are economically sensible. The erection and running of infrastructure should be fully privatized.


“Part of our rebuilding effort must also involve our housing sector. Today, our housing market is finally healing from the collapse of 2007. Home prices are rising at the fastest pace in six years, home purchases are up nearly 50 percent, and construction is expanding again.

But even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected.”


(emphasis added)

Translation: we gotta blow a new housing bubble somehow! We’re already half-way there apparently. And we need more, not less, housing socialism. It hasn’t occurred to the president that the first sentence highlighted above is the main cause of what he bemoans in the second highlighted sentence.


“These initiatives in manufacturing, energy, infrastructure, and housing will help entrepreneurs and small business owners expand and create new jobs.”


Comedians can use this one ‘as is’ too. What these initiatives will do is move tax payer funds to politically well connected firms, while impoverishing everyone else.

Next he announced another governmental malinvestment effort, this time in human capital, by further directing education from the top down. The crowning sentence was however this one:


“Through tax credits, grants, and better loans, we have made college more affordable for millions of students and families over the last few years.”


We actually spilled some of what we were drinking when coming across this one (comedians … you know the drill by now). It seems hardly necessary to comment on this, let us just present a chart instead:


totalgovTotal consumer loans (more than 95% of this are student loans) owned by the federal government. With not a hint of irony, it was decided to abbreviate this data series as ‘TOTALGOV’ – click to enlarge.


“But taxpayers cannot continue to subsidize the soaring cost of higher education. Colleges must do their part to keep costs down, and it’s our job to make sure they do.”


They will be coerced? What other way is there ‘to make sure’ they obey? Frankly, a far more promising approach would be to abolish the Fed and return to honest money. That is however not on the presidential agenda as far as we could tell.


Economic Laws Be Damned …


“Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour.”


Yes, let’s pretend that economic laws don’t exist and we can order nature around. Just look at France, it works splendidly there! While we’re at it, let’s price millions of low-skilled or unskilled workers out of the labor market, by criminalizing all attempts to offer one’s labor at a price the market will bear. Why didn’t we think of this before? Wait, we actually did …


“So here’s an idea that Governor Romney and I actually agreed on last year: let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.”


He and Romney actually agreed on lots of things, including the principles of Obamacare. It mainly demonstrates the futility of voting. The above idea would even kill the remote chance that the effects of the Fed’s money printing might one day price unskilled laborers back into the market.


Mission Accomplished


“Tonight, we stand united in saluting the troops and civilians who sacrifice every day to protect us. Because of them, we can say with confidence that America will complete its mission in Afghanistan, and achieve our objective of defeating the core of al Qaeda.”


The mission in Afghanistan was so extremely successful, that it will soon be possible to once again visit public stonings of adulterers there. Not only that, since the invasion, Afghanistan’s opium production has increased from 185 tons a year to almost 6,000 tons. There can be no doubt: the enterprise was a smashing success. ‘Defeating the core of Al Qaeda’ should pose no great difficulties, since it was recently reduced from three completely isolated aging reactionaries to two. However, the CiC’s beloved ‘drone war’ has created thousands of potential successors to them, and defeating those might be a slightly bigger challenge. A good start would however be to stop producing new ones.


“As we do [fight Al Qaeda, ed.], we must enlist our values in the fight. That is why my Administration has worked tirelessly to forge a durable legal and policy framework to guide our counter-terrorism operations. Throughout, we have kept Congress fully informed of our efforts.”


We should really not drink anything while reading this stuff. This is almost on a par with the ‘I welcome this discussion’ clunker in connection with the NSA scandal. We are aware that the psychopathic class takes us all for idiots, but there should be limits.


“I will continue to engage with Congress to ensure not only that our targeting, detention, and prosecution of terrorists remains consistent with our laws and system of checks and balances, but that our efforts are even more transparent to the American people and to the world.”


What exactly does ‘more transparent’ mean? That the constitution will be trampled more openly than is already the case? As to checks and balances, a great many of those have been done away with with the PATRIOT Act and several other pieces of legislation that followed. Not one of these abominable laws has been repealed. And there remain quite a few guys who would dearly like to know more about these checks and balances.


“America must also face the rapidly growing threat from cyber-attacks. We know hackers steal people’s identities and infiltrate private e-mail. We know foreign countries and companies swipe our corporate secrets.”


Err … the biggest collection of hackers ‘infiltrating private email and swiping corporate secrets’ is actually employed by the federal US government and goes by the shorthand ‘NSA’. We’re mentioning this in case he’s wondering where to start swinging his eager broom. And no, we don’t want him to get a ‘Kill Switch‘.


“We will invest in new [military, ed.] capabilities, even as we reduce waste and wartime spending.”


Good luck with that one. The Pentagon is the biggest black hole for tax payer funds ever devised by man. Its accounting has a hole several trillion dollars large. Whether or not a war is underway, this remains hands-down the biggest racket ever.


Improving the Experience


“[…], tonight, I’m announcing a non-partisan commission to improve the voting experience in America.”


Allow us to point out that even with an ‘improved experience’ there is little hope that the choices presented will be getting any better. As Butler Shaffer reminds us, voting is largely an empty ritual. He inter alia quotes Emma Goldstein, who brought it to the point by saying: “if voting changed anything, they’d make it illegal.”


“Of course, what I’ve said tonight matters little if we don’t come together to protect our most precious resource – our children.”


No longish political speech would be complete without dragging the children in to push some agenda. In this case, you probably guessed it, it’s gun control. Of course the president is only proposing small and sensible sounding reforms (otherwise people would be, well, up in arms). But that’s how these things always start. As a reminder, when they introduced the income tax a little over a century ago, the highest rate was at 7% for annual incomes amounting to $10m. in today’s money.

The speech concluded with a few sappy anecdotes of people demonstrating altruism, which has however little to do with government or the State, as these individuals engaged in voluntary acts, whereas the State employs coercion.


Table by: Energy department / WSJ, chart by: St. Louis Federal Reserve Research



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4 Responses to “‘State of the Union’ or TOTALGOV”

  • Too bad we couldn’t watch him eat what he spit out last night? The lies told about the weather should have caused him to bite his tongue. Maybe the updates he has read have stated this. I heard one the other day out of a government agency about how last year was the 4th hottest year on record, dating back to 2003. Double speak of 1984 going on all the time out of government agencies. Think of it, 4th hottest out of 11. 4th hottest and 4th coldest puts only 3 years in between, meaning last year was roughly in the middle.

    The older I get the more I realize that the primary purpose of the state is to steal for the benefit of a few. Senator Coburn of Oklahoma found $200 billion of duplication in government programs. Seems there is no interest in saving $200 billion, which probably employs close to 1 million overpaid government workers, likely cronies of others in government. I would imagine the subsidies for energy will reach such political cronies as Terry McAuliffe and some of the Clinton and Gore family.

  • easypilot:

    As my friend Doug Casey like to say: “politicians are famous not only for doing the wrong thing, but the exact opposite of the right thing”

  • No6:

    Economically illiterate, scientifically illiterate, arrogant, bullying drivel.
    The downward trajectory of the USA is assured.

  • jimmyjames:

    We should really not drink anything while reading this stuff.


    I have to read it with a bottle in front of me- or i go with a frontal lobotomy-

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