The Era Of Trying To Cut Federal Government Spending Is Over

Why is the era of trying to cut federal government spending over?  The answer lies in the large number of zeros attached to the federal budget deficit, just the deficit itself, not total government spending.

The federal budget deficit for 2019 is estimated to exceed one trillion dollars ($1.092 trillion).  One trillion in words spelled out doesn’t look so bad.  Putting in numbers gives a wholly different look:  $1,000,000,000,000.00.  That’s a lot of zeros.  Per day, it comes to $3,000,000,000.00, also a lot of zeros.

Suppose some Members of Congress actually believe in cutting government spending and introduce legislation to that end.  Suppose further that any one measure, if enacted, would save several million dollars or several tens of millions of dollars.  Suppose even further that these members compile legislation that cuts spending by several billion dollars, no small achievement in the face of political pressure to increase spending.  Cutting spending by $3 billion amounts to a mere one day less of federal borrowing to finance the annual budget deficit, barely if at all noticeable.

What’s the point, really?  Why incur the wrath and enmity of your colleagues in Congress to have such little impact on government spending?  Perhaps virtue-signaling to get reelected in your district?  But the hard truth is almost nobody cares about budget deficits, certainly not now, especially in world of low real interest rates!

How Did This Happen?

Return with us to those thrilling days of yesteryear when the federal government ran a series of budget surpluses.  Bill Clinton was elected president in November 1992.  The budget deficit was $290 billion.  In November 1994, the Republican Party, led by Newt Gingrich’s Contract with America, won the House of Representatives.  Together, they enacted tax and spending measures that sharply reduced the deficit to $163 billion in 1995, $107 billion in 1996, and an almost inconceivably low $22 billion in 1997, the smallest deficit since 1974.

Then followed a string of budget surpluses:  $69 billion in 1998, $125 billion in 1999, $236 billion in 2000, and $128 billion in 2001.  Economists began expressing concern that sustained surpluses could pay down the national debt in full.  In particular, how would the Federal Reserve conduct monetary policy if there were no Treasuries to buy and sell?  Would it have to buy and sell corporate debt, or what?

That concern evaporated in short order as President Bush launched wars in Afghanistan in 2001 and Iraq in 2003.  In the years 2002-08, the deficit was successively $158 billion, $378 billion, $413 billion, $318 billion, $248 billion, $161 billion, and $459 billion.  Under Bush’s regime of two wars, the federal debt doubled from about $5 trillion to roughly $10 trillion.  So much for running out of Treasuries to conduct monetary policy!

On their own, Bush’s wars were bad enough for fiscal policy.  But under his watch (and that of his fiscal and economic advisers), the great financial crisis of 2008 erupted.  I vividly recall news reports of President Bush warning inside a raucous White House meeting on September 25, 2008, that if Congress did not approve a bailout package, “If money isn’t loosened up soon, this sucker [the U.S. economy] could go down.”

Out went Bush and in came President Barack Obama.  Obama inherited a crashing financial system and economy that sharply cut tax revenues and drove up spending on automatic stabilizers (social spending).  It was impossible to curtail spending in those circumstances.

As the economy recovered, the rise in tax revenues gradually reduced the deficit from $1.4 trillion in 2009 to $442 billion in 2015, a decline of 70%.

That was that.  Donald Trump eked out a victory over Hillary Clinton in November 2016 with small margins in key states.  A combination of increased defense appropriations and tax cuts produced deficits of $665 billion in 2017, $779 billion in 2018, and an estimated $1.091 trillion in 2019 (the last year with the support of the Democrat-controlled House of Representatives).

Some economists want to assign blame for deficits to ever-increasing entitlements and warn about the potential danger of a $21 trillion public debt should interest rates spike up.  No amount of research and public policy dissemination on these problems will make any difference.  Almost nobody is complaining about the $2.155 trillion in defense appropriations during 2017-19. 

2020

The 2020 campaign is in high gear.  The leading Democrat candidates are proposing trillions in new government spending and some, but not enough, additional taxes to cover costs.  President Trump’s key economic advisers are talking about a new middle-class tax cut for his second term.  The Federal Reserve says it sees no likely changes in interest rates during 2020.  Trade deals with China, Japan, Korea, and the new NAFTA, the USMCA Trade Agreement, should keep the U.S. economy humming along nicely in 2020.

Trump’s reelection does not imply meaningful cuts in government spending (hence reduced deficits).  A Democrat president in 2021, especially with a Democrat Congress, implies more spending, repeal of some or all of the 2017 Trump tax cuts, and who knows if and when the current business cycle will end with an economic downturn, maybe even the dreaded “R” word.

Economists blew the 2008 financial crisis.  They are not likely to predict the next downturn correctly either.

Whatever the election outcome, don’t expect a serious effort on the part of your elected officials to make a serious effort to cut spending.  It ain’t gonna happen.

Inconvenient Realities—2020 Edition

Diversity of Political Viewpoints

All universities say they value diversity in ideology and political points of view in addition to diversity in race, ethnicity, gender, etc.  Maybe so, but good luck finding more than a handful of Republicans among faculty.  Moreover, as older conservative , disproportionately male faculty members retire, they are being replaced with more leftist-leaning women and underrepresented minorities.  Political diversity on campus is nothing more than a slogan.  It’s only a matter of a decade or so until leftist political uniformity becomes the norm.

Social Justice

Social justice is wondrous precisely because of its splendid lack of specificity.  It means whatever those in power, or those who seek power, want it to mean in taking wealth and income from some and giving to others, with no clear goals or metrics.  Social justice is an unbounded recipe for tyranny.

Feminism

Fifty years of struggle to achieve equal rights for women went down the drain from one year of Transgender activism.

Sustainable

Sustainable typically refers to the planet, the environment, resource use, climate, and non-human species (animals, birds, insects, fish, etc.), to name a few.  Perhaps we should pay more attention to people.

Obesity is one of the fastest-growing problems in the United States.  Look at group photos from the 1950s-1960s and compare them with current group photos.  In 1960, 11% of men and 15% of women of all races and ethnic groups aged 20-74 were obese.  As late as 1980, the prevalence was only 13% for men and 17% for women.  By 2000, the respective rates had doubled to 27% and 33%.  In 2016, 93.3 million adults (39.8%) were obese (BMI  greater than 30).  It is estimated that 50% of adult Americans will be obese by 2030.

The trend for children and adolescents aged 2-19 is equally dramatic.  Between 1965 and 2014, the incidence of obesity for children aged 2-5 increased from 5% to 10%; for children aged 6-11, the rate increased from 4% to 18%, and for adolescents aged 12-19, from 5% to 22%.

By race and ethnicity, in 2017, the incidence of obesity was 47% for Hispanics, 46.8% for Blacks, 37.9% for non-Hispanic Whites, and 12.7% for non-Hispanic Asians.  Obesity-related conditions include heart disease, stroke, type 2 diabetes, and certain kinds of cancer.  The estimated medical cost for obese people is $1,429 higher than those of normal weight. 

What is being done about the epidemic of obesity?  Many organizations promote wellness, encouraging their employees to exercise and eat a healthy diet of fruits, vegetables, whole-grain foods, and fish.  Despite their efforts, obesity continues to rise.

Political correctness is part of the problem.  Emphasizing “normal” weight BMI less than 25, healthy-sized bodies constitutes a microaggression of fat-shaming.  It also implies criticism of Pacific Islander (Samoa, Tonga), Hispanic, and Black cultural dietary preferences.   It appears that posting signs has little to no effect.

Regardless of the reasons for obesity, it behooves policy analysts to give serious thought to slowing and reversing the trend.

Minimum Wage

Raising the minimum wage is akin to a tax on the consumption of labor.  Tariffs raise prices on goods and services, thus reducing demand for them.  By the same logic, raising the cost of labor by increasing the minimum wage (or, for that matter, the payroll tax) should reduce the consumption of (demand for) labor when the value of output produced by labor is lower than the minimum wage.  The result is that the unskilled are denied a chance for employment and learning job skills to move up the ladder of success.

Homicides

Americans decry mass shootings, whether in schools, hotels, government offices, or businesses.  Yet the number of dead and injured in mass shootings pales against the annual slaughter of inner city residents, who are poor and disproportionately people of color, in Chicago, Baltimore, St. Louis, and other urban areas.

Why can’t this epidemic be brought under control?  Because trying to do so brings charges of racism.  So, the slaughter continues.

Homelessness

To observe homelessness, look on the streets and under the bridges on your next visit to New York, San Francisco and Los Angeles, three cities with large concentrations of wealth and income.  What’s the problem?  Construction is heavily regulated to save the environment, reduce traffic, maintain open space, as well as keep up property prices for existing homeowners.  Reducing homelessness is no match for environmentalism and self-interest in local, state, and national politics.

Deficits and Debt

Deficits don’t matter is the new mantra, especially with much of the world at zero or very low interest rates.  All politicians love spending taxpayers’ money and borrowing whatever else is required to keep voters happy.  The ever-growing public debt also doesn’t matter in the new mantra, apart from a few economists who warn that someday, although perhaps not in our lifetime, it will all come crashing down around our heads.  But that’s for another place and time, far, far away.  Perhaps economists have learned enough from studying the 2008 financial crisis to prevent another one from happening.

French Political Culture.

Hundreds of French economists signed a letter endorsing then French Presidential candidate Francois Holland’s plan in 2012 to impose a higher tax rate of 75% on those earning over one million euros.  He did, but let it expire after two years.  After its failure in France, some of these French economists teaching in U.S. universities are proposing similar plans for the U.S.  Some serve as advisers to Elizabeth Warren and other Democrats.

Please take your terrible ideas back home to France with you and leave them there when you return here to resume your academic duties.

Centers for the Study of Inequality and Poverty Reduction

Centers for the Study of Inequality and Poverty Reduction have popped up in every university, which portend the Frenchification of U.S. thinking on taxes.  If professors are paid to study inequality, they will find it and propose a variety of new and additional taxes to redistribute income and wealth to reduce it.

Speaking of inequality, is it fair that a small number of universities win a disproportionate share of national athletic championships and garner an overwhelmingly share of federal research grants?  How about some redistribution to other colleges in these two areas.

Endless Wars

Afghanistan, Iraq, Libya, Syria, and who know what’s next?  Thousands dead, tens of thousands wounded, millions of civilians killed or displaced, trillions of dollars spent, and?

What does the United States have to show for all this military activity?  Does anyone think the generals will say enough is enough.  Trump has completed almost three years of his presidency and the most he can propose is pulling 4,000 troops from Afghanistan, over the opposition of current and retired generals.  We’ll see if and when those 4,000 return home or if they are  deployed elsewhere in the region.

November 2020

President Trump will be reelected.  Democrats, liberals, leftists, snowflakes, establishment Republicans, never-Trumpers, and EU politicians, to name a few, will caterwaul, whine, cry, rage, riot, moan, demonstrate, and suffer shock, pain, and mental turmoil for another four years.

Demand for mental health counselors will explode, especially on universities where students are already experiencing an epidemic of mental health illness.  Given that faculties and student bodies are overwhelmingly Democrats, universities and colleges will need to have thousands of mental health counselors on standby and, if necessary, close down for as long as it takes to give every student and faculty member the necessary counseling.

This would give a whole new meaning to schadenfreude for Trump supporters.  As Martin Luther King said, “I have a dream.”

Boris Johnson’s Conservative Party Blowout Win In Britain On December 12, 2019, Foretells President Trump’s Reelection in 2020

President Trump will be reelected in 2020.

The Hoover Institution lists 200 Fellows on its website.  Some are full-time, some part-time, some in residence, some off-campus, some short-term visitors, some long-term visitors, and so on.  Of the 200 or so affiliated with Hoover in 2016, I was the only Fellow to predict that Trump would win.  I did so in writing two weeks before the election.  My witnesses included Professor David Brady, General Jim Mattis, and a handful of others.

I based my prediction on what is known as “the shy Tory voter.”  When Prime Minister Theresa May’s June 2016 referendum on Brexit was approved, the result shocked almost all British pollsters and political experts.  The explanation was “shy Tory voters” who did not tell the pollsters their real voting intentions.

From Brexit, I surmised that Presidential Candidate Donald Trump would be the beneficiary of “shy Trump voters,” who would not tell American pollsters their true voting intentions.  I further surmised that Hillary Clinton would not do as well among Black voters as Barack Obama had done in 2008 and 2012.  I was right.  I put my money where my mouth was and won a spectacular one-star restaurant lunch.

Fast forward to December 12, 2019.  In the final days of the five weeks Parliamentary elections campaign, British polls showed Jeremy Corbyn’s Labor Party narrowing the lead of Johnson’s Conservatives.  Many headlines speculated on a ”Hung Parliament,” in which no party wins an absolute majority.

Once again, “shy Tory voters” turned out, this time in greater force than in the 2016 referendum.  Conservatives won constituencies that had been reliably labor for decades, in one case for a century.  Browse British media on December 13, 2019, and you will find lots of differing explanations.  I’m not a student of British politics, so I’ll let the experts fight it out.

Between now and November 2020, American pollsters, media, pundits, and professors will point to polls showing Trump losing supporters from all walks of life.  They will try to explain why 2020 is different from 2016, and that Johnson’s huge victory in Britain cannot be duplicated in America because conditions in the two countries are different.  They will be wrong again.

Trump will win at least as many electoral votes as in 2016, perhaps even more.  You can trust my forecast with a high degree of confidence.  After all, I was the only Fellow among 200 Hooverites who got it right.

Xi Jinping Thought Fails The Test Of Fighting Man-Made, Global Warming, Climate Change

Xi Jinping Thought consists of fourteen basic policies.

Number 4:  “Adopting new science-based ideas for ‘innovative, coordinated, green, open and shared development.’”  (bold added)

Number 9:  “Coexist well with nature with ‘energy conservation and environmental protection’ policies and ‘contribute to global ecological safety.’”  (bold added)

Coal is the dirtiest source of greenhouse gas emissions.  China is the world’s greatest user of coal and continues to add new plants at an enormous pace.

Here are the data.

Between 2006 and July 2019, China added 761,417 MW of new coal-fired capacity.  India is in second place with 164,814 MW.  The rest of the world outside China and India only added 167,037 MW of new coal-fired capacity.

The amount of new capacity added in China from January 1 through July 31 is 17,890 MW (annualized at 30,668 MW), again more than the rest of the world together.  This trend will continue for years to come.

A detailed analysis of China’s coal-fired capacity, showing it is out of step with the rest of the world, can be read here.

Watch what people or countries do, not what people or countries say.  As I have oft stated, I’m from Missouri, the “Show Me” State.

Xi Jinping Thought Fails The Test Of Diversity And Inclusion

Xi Jinping is the “core” of China’s leadership.  Xi Jinping Thought is the political foundation of the Chinese Communist Party and constitutes the governing principles of the Chinese government.  Xi Jinping’s leadership and Thought are not to be questioned or challenged in any way by the Chinese people.  It is only to be studied and elaborated in accordance with the Central Party School’s instructions.

Let’s change venues before explaining how Xi Jinping Thought fails the test of Diversity and Inclusion.  Open the web site of any American university and you will find a web page devoted to Diversity and Inclusion.  At Stanford, that page includes a statement by President Marc Tessier-Lavigne:

“Diversity and inclusion are essential to Stanford’s strength.  A university depends, at its core, on the free and open exchange of ideas in a culture of mutual respect.  It also depends upon the participation and inclusion of people of all backgrounds, races, genders, abilities, identities, ideologies, and ways of thinking.”  (bold added)

The free and open exchange of ideas is completely rejected in Xi Jinping Thought.  Western-styled democracy cannot be considered as an alternative to absolute rule by the Chinese Communist Party.

Xi Jinping Thought consists of fourteen basic principles. 

Number 1:  “Ensuring Communist Party of China (CPC) leadership over all forms of work in China.”  That is about as all-encompassing of a doctrine that can be formalized.  There is no sector of “work” that is or can be separate from CPC leadership.

Number 7:  “’Practice socialist core values,’ including Marxism, Communism, and Socialism with Chinese characteristics.”

Number 11:  “The Communist Party of China should have ‘absolute leadership’ over Chinas People’s Liberation Army.”

Number 14:  “Improve party discipline in the Communist Party of China.”

Are these four principles of Xi Jinping Thought compatible with President Tessier-Lavigne’s statement on the free and open exchange of ideas, which is the core of a university?  (bold added)

Stanford’s motto is “Die Luft der Freiheit Weht,” “The Wind of Freedom Blows.”  Can that motto be practiced by faculty and students studying or conducting research at Stanford Center at Peking University (SCPKU)? Can Stanford faculty give a lecture or organize a conference at SCPKU on criticizing Xi Jinping Thought?  Will Chinese participants at SCPKU events be willing to speak freely or even attend such an event?  Or will Xi Jinping Thought be strictly off limits?

Xi Jinping Thought Fails Its First Major Test

Xi Jinping Thought, short for Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, which has been incorporated in China’s Constitution, consists of 14 basic policies.

Number 12:  Promoting the “one country, two systems” model for Hong Kong and Macao with a future of “complete national reunification” and to follow the One-China policy and 1992 Consensus for Taiwan. 

The introduction by the Hong Kong government, most likely at the urging of the Central Government in Beijing, of an Extradition bill on March 29, 2019, set off a storm of protests now entering its ninth month. (seeprevious post)  Xi Jinping must have been appalled to see Hong Kongers waving American, British, and even former Hong Kong colonial flags on Thanksgiving after President Donald Trump signed a Hong Kong bill.

The Extradition bill was a bridge too far.  It set back the harmonious working of the “one country, two systems” model designed by Deng Xiaoping.  It deeply alienated Hong Kongers.  China’s hand-picked Chief Executive and Executive Councilors now face an unending period of anger and hostility from the people they try to govern.  The Extradition bill confirmed fears of what “one country, two systems” would mean for Taiwan people.

Someone or some people gave Xi Jinping bad advice on dealing with Hong Kong.  Or perhaps Xi decided on his own to force an Extradition bill on Hong Kong.  Regardless, he failed.

Will the scholars in any of the hundreds of Xi Jinping Thought Institutes in China report on this failure and recommend corrective measures?  Not likely.

Looking ahead to possible future failures, four of the fourteen principles in Xi Jinping Thought concern the centrality of the Chinese Communist Party over all walks of life in China and strengthening the Party’s internal discipline.  One of the four declares “people as the masters of the country,” the exact opposite of China’s top-down ruling system.  Two concern socialist core values of Marxism, Communism, and Socialism with Chinese characteristics.  Two are Xi’s version of the “Green New Deal (numbers 4 and 9),” which is hardly consistent with China opening a coal-fired power plant every week.

Authoritarian ideologies come and go.  Xi Jinping Thought is no exception.  Ask the former rulers of the Soviet Union and Eastern Europe.

Hong Kong People Vote Overwhelmingly For Freedom And Democracy, Repudiating Pro-China Establishment Politicians and Business Elites

On November 24, 2019, Hong Kongers went to the polls to elect 452 members who serve on 16 District Councils.  Turnout was 71% compared with 47% in 2015.  Compared with 2015, Pro-democracy candidates won 388 seats (+262), Pro-Beijing candidates 59 seats (-239), and Unaligned candidates 5 seats (-2).  Pro-democracy candidates won a majority in 15 of the 16 District Councils (+15).

On March 29, 2019, China’s hand-picked Chief Executive Carrie Lam and her appointed Councilors published an Extradition bill in the Legislative Council, which would allow the Hong Kong Government to extradite Hong Kong residents to China for trial. Hong Kongers first demonstrated two days later and continued demonstrating every week demanding the bill be withdrawn.  Hong Kongers know the difference between the Anglo-American “rule of law” and Chinese-Communist tyranny.

To put 2019 in perspective, Britain transferred sovereignty over Hong Kong to China at the stroke of midnight on June 30, 1997.  The demonstrations broke out three months before the 22^nd anniversary of the handover.  This means that every Hong Konger under 22 years of age had not lived under British administration.  Everyone under 32 was aged 10 and under in the new Hong Kong Special Administrative Region (HKSAR).  Everyone 40 years and under was no more than a teenager under British administration.

Amazingly, the youth of Hong Kong led the demonstrations.  The Joint Declaration and Basic Law of Hong Kong promised that Hong Kong people would govern Hong Kong, and that Hong Kong would maintain its separate social, economic, and political systems unchanged for 50 years to 2047.  In Xi Jinping’s worldview, Hong Kongers were supposed to welcome Chinese sovereignty.  Instead, they waved British and American flags, defaced the Communist Party’s Liaison Office in Hong Kong, and burned Chinese flags.

Let me repeat this.  Hong Kongers with little or no experience living under British rule clamored for the maintenance of British institutions.  They want universal suffrage which they were promised.  They want Western law and order.  They want private property, freedom of speech, freedom of assembly, freedom of religion, freedom of association, and all the other Western freedoms stipulated in the Basic Law.  Hong Kong voters repudiated the Chinese Communist Party.

Chief Executive Carrie Lam is tone deaf.  She reluctantly withdrew the proposed Extradition bill on October 23, 2019, after nearly six months of demonstrations.  Had she withdrawn it immediately, calm might have been quickly restored. Following the huge victory of the Pro-democracy candidates, she has again displayed tone deafness, only wanting to dialogue with the protestors.  Let’s face it.  She is a toady, having no authority except what Beijing allows her to exercise.  Her best option is to go abroad for medical care and not return.

Beijing’s best option is to restore the spirit and letter of the Joint Declaration and Basic Law and wait out the 50 years of autonomy until July 1, 2047.  Why provoke the world over a small territory that is steadily becoming less important to China?  Think of the long-term benefits to China if the nations of the world actually believe China’s promises and agreements.

Is there any way to persuade Xi Jinping to honor the Joint Declaration and Basic Law?  Would it be possible to assemble a coalition of leaders of a hundred countries to sign a statement endorsing a live and let live approach to Hong Kong?  That would be the ultimate win for everyone.