Wednesday, January 15, 2020

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.

Wednesday, January 8, 2020

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.”