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 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.”
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:
Total 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.
“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 Fed
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
4 Responses to “‘State of the Union’ or TOTALGOV”
Most read in the last 20 days:
- Alan “Bubbles” Greenspan Returns to Gold
Faking It Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961 He was in it for the power and the glory... Alan Greenspan gets presidential bling...
- End of an Era: The Rise and Fall of the Petrodollar System
The Transition “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
- European Banks and Europe's Never-Ending Crisis
Landfall of a “Told You So” Moment... Late last year and early this year, we wrote extensively about the problems we thought were coming down the pike for European banks. Very little attention was paid to the topic at the time, but we felt it was a typical example of a “gray swan” - a problem everybody knows about on some level, but naively thinks won't erupt if only it is studiously ignored. This actually worked for a while, but as Clouseau would say: “Not...
- Writing on the Wall
Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so. It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
- Gold – Eerie Pattern Repetition Revisited
Gold Continues to Mimic the 1970s Ask and ye shall receive... we promised we would update the comparison chart we last showed in late November in an article that kind of insinuated that it might be a good time to buy gold and gold stocks (see: “Gold and Gold Stocks – It Gets Even More Interesting” for the details). We are hereby delivering on that promise. A Lydian gold stater from the time of the famously rich King Croesus, approx. 570 BC. It seems they already had this...
- The Central Planning Virus Mutates
Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination. A...
- A Fully Automated Stock Market Blow-Off?
Anecdotal Skepticism vs. Actual Data About one month ago we read that risk parity and volatility targeting funds had record exposure to US equities. It seems unlikely that this has changed – what is likely though is that the exposure of CTAs has in the meantime increased as well, as the recent breakout in the SPX and the Dow Jones Industrial Average to new highs should be delivering the required technical signals. The bots keep buying... Illustration via...
- Destination Mars
Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks. If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical. But, in certain economies, this is now standard operating procedure. The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
- America Has Become a “Parasitocracy”
Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to. Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
- Fat People for Trump!
Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot. The protest vote attractor with the funny hair. Image credit: Liberty Maniacs Trigger warning: In the following ramble, we make fun of...
- Long Term Market Perspectives
Methuselah Tree When looking for a good theme for this post I pondered for a while and then decided to use a picture of a bristlecone pine, which are widely considered to be the oldest living trees in the world. Ye olde bristlecone Photo credit: Kosta Konstantinidis You can find them near the Nevada/California border and if you wind up traveling in the area then I strongly recommend that head over to Bishop and from there head up high up into the White...
- EU Sends Obsolete Industries Mission to China
“Tough Negotiations” The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”) and European Council president Donald Tusk, has made landfall in Beijing. Their mission was to berate prime minister Li Keqiang over alleged “steel dumping” by China and get him to cease and...