Score One for Edwards

After Russ Feingold dropped out of the '08 sweepstakes I was a little bit surprised how quickly liberal bloggers (the Kossacks in particular) hitched themselves to John Edwards's wagon. I didn't care terribly for Edwards in '04, and I'm not that excited about his candidacy this time either. However, Edwards scored points with me when he made waves recently by stating that he would raise taxes to support his universal health care plan. I haven't seen much critical discussion of his plan, and the details I've seen reported are fairly vague. In other words, I don't know if his numbers are realistic or if the plan is a good one. But the mere fact that the man is willing to admit that it will cost money, and that those costs will have to be offset with higher taxes speaks highly to me of Edwards. We've been hearing about health coverage as a major issue for many election cycles at this point, but nothing has been accomplished (nor we have even come close to making progress), because delivering on health care promises will be expensive and painful, and while voters have expressed their desire for health care reform, they've never ratified any willingness to make sacrifices (in terms of taxes or other spending cuts) in order to make it happen. Of course, voters have never had a chance to do so, because politicians (on both sides of the aisle) are content to promise reform while pretending no sacrifice will be necessary. If real progress is to be made, we need to have a serious and frank discussion about what it will cost and how to pay for it. Edwards is the first candidate I've seen who seems to be willing to take part in that discussion. Kudos to him. I'm a long way from jumping on the Edwards bandwagon, but I'm now willing to start taking him seriously.

Finally Some Pushback on Earmarks

It's nice to see some happy news for a change. It is particularly nice to see this issue cross partisan lines. It will take a strong bipartisan coalition to make a real difference on the budget. On the other hand, the partisan aspects of the issue are are noteworthy and should be exploited to the fullest in the midterm elections. It's pretty clear from statistics like this from the story:

When Republicans took over the House in 1995, there were five earmarks in the Labor, Health and Human Services bill, amounting to $2.4 million. By FY 2005, the number of earmarks attached to this bill had soared to 3,014 or $1.18 billion.

If Democrats can use this stuff to their advantage it might light a fire under the fiscal conservatives remaining in the Republican party.

The Federal Government and Enron Accounting

I've blogged stories before about the questionable accounting used to tally the US federal budget deficit. A USA Today story is suggesting that even those more realistic assessments of the deficit (usually in the neighborhood of $700b) are far too low. They reached a similar number ($760b) just by applying some basic business accounting rules. But that assessment still does not account for social security and medicare liabilities. Standard corporate accounting practices require such liabilities to reported at the time they are incurred rather than when they come due. Using that system our annual budget deficits run around $3.5 trillion! By these measure the US should have reported $40t in losses over the past 9 years. The first step to solving a spending addiction is to admit you have a problem...

Deficits Matter

Here's a brief update on how we've lost control of our own interest rates, and now sacrifice our economic welfare to fund the federal deficit.

Controlling Military Spending (Sort Of)

While it would be nice to see some actual cuts in military spending, CSM is covering a report from the Task Force on a Unified Security Budget that recommends redirecting $62b in military spending from Cold War-based weapons programs to items more relevant to dealing with terrorism (including money for first responders and foreign relations). These are good recommendations and perhaps a first step to getting some rein on military spending.

Fiat Currency, Dollar Dominance, and the War on Terror

Texas congressman Ron Paul attempts to tie all the pieces together (and I do mean ALL the pieces). It's bit on the sketchy side, but there could be something to it... If nothing else, there's probably a top-selling novel in it.

Sidenote: I love this blog (the source of this link).

Exercises In Futility

I feel somehow obligated to blog articles where some poor idealistic fool writes about the budget deficit and fiscal discipline. As if anyone cared. I have to say I like the line about the House deficit reduction plan giving new meaning to the phrase "women and children first" (I wish Holt would have said who originated it).

Random thought: I know there are various organizations that send questionnaires to political candidates to survey their positions on various issues. I'd like to see one in the form of a spreadsheet that provides an extremely dumbed down version of the federal budget (ie. on the income side provide the rates of the major tax brackets (with built in calculations to reflect the revenue change that results from adjustments to the rates) and an "other" category encompassing everything else, on the spending side have military (including foreign interventions), social security, medicare/medicaid, homeland security, and "other" encompassing everything else). On one line have the actual numbers as of this year. On the next line invite the candidate to fill in the budget that they would institute if they were king. I'm tired of politicians talking about reducing the deficit, but never committing to any sacrifice (on either the tax side or spending) that would make it happen. This system would apply a very simple reality check to the usual B.S. rhetoric.

What Passes for Fiscal Discipline

Here's CSM's story on the budget reduction plan now circulating on the hill. Not that I have strong feelings on this or anything, but it's an insult to the American people. First off, as a effort at fiscal discipline, it's a non-starter. You're looking a reduction of the deficit over the next five years by 2% (Senate) or 2.5% (House). Completely inconsequential. And the House bill appears to be laser-targeted at items sure to infuriate liberals: student loans, child support enforcement, food stamps, etc. Then, just for fun, they tacked on the ANWR thing. And these people are still talking tax cuts... The only thing that infuriates me more than the federal government ignoring half trillion dollar deficits is that when they actually apply time and effort to dealing with it the results are a sick joke. This bill is a slap in the face to anyone who cares about actual fiscal discipline. Fortunately for proponents of the bill, that appears to be a vanishingly small number of people, and none that they are at risk of encountering in Congress.

Tom Delay: Smokin' the Dope

There's just nothing that can be said for this. I laughed 'til I cried...

Re: The Military Spending Debacle

Thanks to Joe for pointing out the continuing profligacy of US government spending, in particular on defense. I would also add that we could get rid of the failed/untested missle defense system. The Bush administration has already spent some $30 billion on this with more increases in spending requested. As Joe points out, however, who would be opposed to spending more money on the security of our nation? Worded as such, the answer is obvious. The problem of course is that government spending seems completely dissociated from the individual American. If Congress spends an additional $50 billion on defense, do I notice its impact on me? Perhaps a program elsewhere will be cut (in the ideal world) or perhaps the continuing debt will destabilize the dollar and eventually the economy. Yet I will have difficulty drawing the connection between the two. We need some mechanism to tie the effects of government spending to the individual American. If you raise my gas price by 10 cents per gallon, I would probably take notice. It is wishful thinking on my part that such an obvious link would ever be made by Congress or that they might impose spending restrictions (e.g. tying budget increases to inflation).

In the bigger picture, I worry about the ever increasing cost and size of our government. It reminds me of Windows and the ever-increasing amounts of code added without simplifying the existing code first. Inefficiency and waste only grow in this scenario. Are we reaching a point where government operations become compromised by their own complexity?

The Military Spending Debacle

CSM has an article with a broad discussion on current military spending and various proposed changes. It's really a fairly absurd situation. The article notes that we will spend $667b in the next year. It mentions that the Task Force on a Unified Security Budget proposes $53b in cuts, and $40.5b in additional spending. It also discusses the proposed base closings. In inflation adjusted dollars, we are spending more on defense than we have since WWII. Adding to the absurdity of the situation, Donald Rumsfeld does want to make cuts (as per the base closings) to manpower at a time when Iraq and Afghanistan have stretched manpower perilously thin, thus leaving Congress in the position of opposing the one budget-slimming measure of an otherwise aggressively spending administration (not to mention the always pork-barrel sensitive matter of base closures).

I think any analysis of the defense budget needs to start from the recognition that the U.S. military is light-years ahead of any other in the world. Our nuclear arsenal itself is enough to ensure that U.S. will never be attacked by any nation-state. And there is not a conventional military on the planet that the U.S. could not steam-roll over. In light of these things, Rumsfeld's plans for a lighter, slimmer military make a lot of sense. However, it doesn't seem feasible to make these cuts while we are digging deep into the reserves and National Guard to keep enough troops in Iraq.

But it seems there must be places to cut, given that we had 500,000 troops in south-east Asia with a lower defense budget than we have now. Perhaps there is something to the quote in the article that we're doing a very poor job of getting reasonable prices from defense contractors (on whom our military has grown increasingly reliant). Certainly there seems to be a disturbingly incestuous relationship between the public and private military sectors (starting in the VP's office). Some of the big ticket programs (nuclear bunker-busters) seem wasteful and unnecessary as well.

Unfortunately the current politics of national defense are such that neither party could feasibly propose any significant cuts. Moreover, it is difficult to see how this could change any time soon. There was no significant focus on fiscal problems in 2004 by either side, and it seems that budget deficits would need to take an immeasurably higher profile in order to compete with the terrorist-mania that governs politics. There is a very real argument that our fiscal situation poses a greater threat to American dominance and security at the present time than terrorists, but I don't see that as a politically salable idea. It's a bloody mess, no doubt about that.

Greenspan Barks at the Moon

Alan Greenspan appeared before the House Budget Committee today and declared that the current budget management was fiscally destabilizing, warning of economic stagnation and urging tax increases and spending cuts. Yeah right, Mr. Chairman. Dick Cheney says deficits don't matter. Who the hell do you think you are?

Partisanship at its Worst

The two hot topics these days, Social Security and the budget proposal, serve to illustrate the crippling partisanship gripping the federal government. There are real problems to be addressed, but both the Bush administration proposals and the Democratic responses are geared almost entirely towards partisan posturing with no apparent concern about results.

Social Security is not in a good state. There really should not be a great dispute about this. It is not an urgent crisis, but neither is everything fine and dandy. The real onset of problems is still years away, but this would be a great time where we could make relatively painless adjustments to get things back on a sound footing before things get too far out of whack. Unfortunately the Bush proposal for private accounts, while interesting, does not really appear to address the real problems. The issue of whether this system should be a pay as you go social welfare program or a government-supported private investment program is a good philosophical question. But for now the immediate problem is that future outlays exceed income. The basic issue is whether we will reduce benefits or increase revenues or some combination of the two. Meanwhile, Democrats, who until recently were willing to discuss and consider this issue, are now locked into deep denial that there is a problem at all. This is a silly tactic when there is, and for some time has been, a powerful public perception that there is a real Social Security problem. At this stage in the game, denial comes off as disingenuous and out of touch. And while both sides are brawling over this on the public stage, nobody is talking about the much larger problem that looms in Medicare.

Then comes the budget proposal which takes the shocking step of reducing 1% of a third of federal spending. We're running record deficits here, such a minor reduction in spending should not be a big deal. Unfortunately these cuts have been precision targeted to produce peak outrage among Democrats. I read somewhere that last year's budget proposed cutting 65 programs, only 5 which actually ended up being cut. Both sides understand how this game is played. The administration wants to come out and say they tried to cut spending, but were obstructed by congress. Congress wants to say that Bush tried to kill all their state's pet programs, but they valiantly save them from the axe.

The disheartening thing is that our long-term budget outlook (including the Social Security and Medicare impacts on the same) is a critical problem, one that I think should be the top priority for the federal government. It's sad to see so much effort spent by politicians, the press, and the public fighting over these issues when it all amounts to sound and fury, accomplishing nothing. And when everyone is exhausted from the fight, these issues will be returned, unresolved, to the back burner to simmer away until they explode into an all-out crisis that will threaten to crash the dollar and destroy the U.S. economy.

Re: You Spent $10b for What?!

Yeah, and if that wasn't enough, the original projected cost for the satellite was $5 billion. What's another $5 billion among friends?

You Spent $10b for What?!

Apparently a full quarter of the proposed $40 billion intelligence budget is for a stealth spy satellite to be launched sometime in the "next five years". Did we need this? Did someone not get these guys the memo that we've got a half a trillion dollar budget deficit? Says the CIA (paraphrased): it's classified, we can't talk about it. If you want $10b for a fricken satellite, I think you'd be obligated to at least explain why you'd need such a thing. This isn't lunch money we're talking about here...

More Questions on the Dollar Decline

There is a fascinating article on Asia Times by W Joseph Stroupe predicting doom for the dollar. I'm not sure who the guy is, and his web site looks pretty sketchy. But he throws out a ton of data, I just wish he would have cited his sources. Some of the interesting bits apparently come from this Japan Times story, but even there are only cited back to Morgan Stanley analyst Stephen Roach. So, while I take little of this at face value, the article suggests a number of interesting points to investigate.

• Stroupe asserts that the Fed is printing $1.5 trillion per year. This seems like an absurd amount of money. Is it true? How much does this vary from traditional levels?
  
• Stroupe adds $44 trillion in obligations to Social Security, Medicare, Medicaid, and other government spending to the existing $7 trillion national debt to come up with a "total national debt" of $51 trillion. He cites this number to Fortune magazine. I posted a story here some time back about a treasury department study (initiated by Paul O'Neill, before he got the boot) which found that the US had $44 trillion in unfunded obligations over the next four decades or so, which is probably where the $44 trillion comes from. This is a frightening number, but it strikes me as unfair to count long term obligations directly as existing debt.
  
• The article states that including off-budget items the current federal deficit is nearly $1 trillion per year. That sounds high to me. My impression has been that this number would be somewhere in the $500-700 billion area.
  
• Mentions heavy investment ($180 trillion) in derivatives as unstable investments. I have no idea what he's talking about here, but I'd like to find out.
  
• The article states that US consumer debt is $8 trillion. I was searching for this number myself a couple weeks back, without success. I'm curious where he got it.. Also what is the level of US commercial and business debt?
  
• Then there's the quote from Stephen Roach stating that the US currently has $38 trillion in debts. What exactly is being counted in this number?
  
• The article states that Warren Buffet has mostly pulled out of the US stock market. I know that he published an article a couple years back explaining, in great depth, why he was for the first time investing outside the US, citing many of these concerns about debt and the trade deficit. But has he really pulled out all of his US investments?
  
• One of the best parts of the article was the discussion of Russian economic policy. Here he talks about the possibility (which has been discussed here before) that the global oil market may shift from dollars to euros, with disatrous effects on the value of the dollar. Stroupe makes assertions about statements by Vladimir Putin hinting that this change is imminent. I should certainly like to see those statements. He also asserts that Russia has substantially shifted their currency reserves out of dollars. It would also be nice to verify that..
  

Anyway.. there are some very powerful numbers and assertions here, and if this guy is not a complete nut (which it's quite possible he is), disaster may be nearer than I expected.. There are also numbers published in another Asia Times story showing US personal savings as a percentage of income dropping over 15 years from about 7% to 0.2% (again without any cited source). Consumer spending may have kept our economy afloat so far, but that ride looks to be nearing its limit. We live in interesting times...

Update: I went hunting for more info on Stephen Roach's $38 trillion figure, and while I didn't find it, I did find an insightful recent column by Roach analyzing the economic prospects for the Bush administration's second term.

Re: Spending Addicts

I was not surprised at the news Congress was raising the debt ceiling, as that was a necessary consequence of the policies the Bush administration and the Republican Congress agreed to long ago (and it was not the first time in the last four years we had to raise the debt ceiling). What concerns me more is the fatalism with which most politicians approach the spending glut.

The notion that Democrats are the tax-and-spend party should be laid to rest--unless one is making the point that when Democrats spend, at least they have the courtesy of taxing to pay for it.

Michael Kinsey of the Washington Post crunched some numbers a few months back to explode the myth that Democrats are the bigger spending party.

I also came across this graph showing the national debt across presidential terms. I have no idea whether the data is reliable.

Glad to see a post from you, Ryan!

re: Spending Addicts

By the way, Ryan, nice to have you back! Robert Samuelson has a Washington Post column discussing the possibility of precipitous drop in the dollar. He absurdly dismisses the impact of budget deficits, and focuses purely on the $665b trade deficit (he still ends up with a scenario not so different from those theorized on at Boys' Weekends). When you consider that somewhere around half the $500b budget deficit is being financed by foreign investors (not to mention commercial and private debts), we're dumping nearly a trillion dollars (10% of GDP) onto the global markets each year. That is just unbelievable. Meanwhile, Bush claims he is going to fight for a strong dollar, not surprisingly the currency markets think he's full of shit.

Spending addicts

I am now convinced that the whole of Congress needs to be admitted to a rehabilitation program for spending addicts. They have just agreed to raise the debt limit for the government by another $800 billion, making the total allowable debt a whopping $8.18 trillion. Meanwhile, Mr. Greenspan is warning that the continuing trade deficit is likely to have dire consequences for the US economy and recommends reducing the federal budget deficit as a key component in stabilizing the economy. Not that his opinion matters; he is only the chairman of the Federal Reserve Board. Interestingly, the Democrats now appear to be taking up the cause of fiscal responsibility in asking for pay-go rules.
Apparently all of this extra spending is necessary to secure the American people in the war against terrorism. It looks like economic security has been left out of the equation.

Paying the Price for the Dollar

CSM is running a column that dismisses the frequently cited causes for rising oil prices (conflict in the Middle East, swelling demand, etc), and pins the blame on the falling dollar values. The authors point out that while the price of oil in dollars has risen 51% in the past two years, the price has only risen 4% in euros. They further tie the fall in the dollar to ruinous government budget deficits. While the popular political ploy is to blame rising prices on the greed of OPEC nations, it clearly would be worthwhile to consider the impact of our own budget decisions.