Category Archives: Fiscal Policy

A few thoughts about last weekend’s Tea Parties

While I’ve not had enough time to take a comprehensive look at Tea Parties held around the nation on or around Independence Day, here are some quick observations from this full-time Tea Party enthusiast and part-time skeptic.

First of all, Senator John Cornyn (R-TX) was booed when he spoke in Austin, Texas.  The key reason reason seems to be that he voted for the Fannie Mae/Freddie Mac bailout in order to protect “free market capitalism, with our civil liberties, [which are] are the foundation of American exceptionalism.”  In the hyperlinked explanation for his vote, he quoted Senator Tom Coburn (R-OK) and former House Speaker Newt Gingrich in order to help spread the blame.  “This bill does not represent a new and sudden departure from free market principles…” explained Cornyn, who was quoting Coburn.

Coburn has also infuriated fiscal conservatives because, in his role as chairman of the National Republican Senatorial Committee, he sided with “establishment candidate, Florida Gov. Charlie Crist, in a Senate primary against young conservative leader, former Florida House Speaker Marco Rubio” in the Florida Senate race.

Coburn probably wasn’t the only Republican Party leader booed in Texas.  I’ve seen some video of Texas Governor Rick Perry speaking in San Antonio, but I’ve not seen any video with jeers from the audience from anywhere in Texas (he wasn’t allowed to speak at the major Dallas event).  However, there are multiple reports that he was booed for “his advocacy of toll roads to relieve traffic congestion.” I tried to obtain additional information on Twitter and it seems my suspicions were correct: He received some sporadic booing, not specifically because of toll roads, but that the road in question is the “NAFTA Superhighway” or “Trans-Texas Corridor”.  Based upon observations during my campaign work in east Texas in 2006, there are probably quite a few Birchers who still vehemently oppose this effort.

The least biased view of the Austin event which I’ve read comes from Robbie Cooper: » Read more

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BB&T One Of First To Return TARP Funds

BB&T, a regional southern bank, is a bit of a darling of the libertarian movement. After Kelo, they made it bank policy to not lend money towards projects utilizing eminent domain. Co-contributor Jason Pye suggested a desire to open an account there after BB&T began donating money to UNC-Greensboro to found a pro-capitalism and pro-markets program that is founded in morality as well as economics.

It was sad, of course, when I reported late last year that BB&T had decided to take TARP money. I pointed out that if the rules have changed and the government’s picking winners and losers, it’s possible that they had a fiduciary duty to their shareholders to take the money. But I was still sad.

So I’m much happier to see that BB&T is leading the charge to pay back the TARP funds. There are many banks who I believe are simply trying to get out of TARP due to the additional regulation imposed by the government, but BB&T’s previous commitment to principle is enough to give them the benefit of the doubt that it was done in earnest.

Hat Tip: Reason Hit’N’Run

Quote Of The Day

Krugman, in 2002:

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble.

Krugman said then that we needed to reinflate the bubble to save ourselves. We did, and we didn’t.

Now he says it’s time for Keynesian stimulus far bigger than what we’ve already done. He’s just as wrong as he was then.

Hat Tip: TJIC

$3 Bazillion Spent & 3 Jobs Created. That’s A Bazillion Per Job! OMG!!

First, let me state categorically that I don’t believe government statistics. When they talk about $X Billions of dollars spent and Y00,000 numbers of jobs created, it’s clearly BS. The government rarely knows (or cares) how much of allocated money is actually spent until they’ve run out, and I think we all know that the job count is inflated in any statistically possible way to make themselves look better.

But I just can’t get over the analysis (and sorry Jason, such as this post) that simply divide the number of billions of dollars of stimulus money spent by the number of jobs to come up with a “per job” cost. In this case it was $746K “per job”.

There’s an implicit charge there, suggesting that if you spend $746K “per job”, it’s a complete and total waste of money. The charge, of course, is that the labor cost is the “per job” amount — or should be if it weren’t “squandered”.

And let’s also be clear. I’m not suggesting this money was spent well or efficiently. But that’s not the point.

Let’s say, for example, that a multinational company wants to build a skyscraper. And building that bridge required hiring a general contractor who farms work out to a bunch of subcontractors who employ in total 1,000 workers on the building. The construction cost of the building was $1 Billion. You could easily suggest that the cost of the project was $1 Million per job. But would that matter in any way, shape, or form? Not only does it not really account for the capital costs of all the equipment — cranes, trucks, tools, etc that those workers must use, it doesn’t account for the capital costs of the building materials themselves!

If I want to build a skyscraper, the vast majority of the cost is for the steel, drywall, wiring, piping, elevators, etc — materials. The cost of the workers is a slight fraction of the total. Likewise, if the government wants to build a bridge, or construct 15 miles of freeway, or engage in pretty much any other infrastructure spending, far more money will be spent on materials than on actual workers.

Now, don’t get me wrong. I am not trying to defend the stimulus. I’m not trying to defend the government’s numbers on job creation (because, of course, borrowing the money they needed to pay for the project may have crowded out actual productive enterprises that could offset those “created” jobs). But simply dividing spending by # of jobs to come up with some arbitrary (and absurdly high) “per job” cost is a cheap rhetorical device. It might sound great on Rush Limbaugh’s show or whip up outrage amongst people who don’t know better, but it certainly isn’t a serious analysis of the policy.

California Department Of Real Estate Trust Fund Nearing Deficit!

The California Department Of Real Estate oversees and administers the state’s real estate agent and broker licensing program. During the big housing boom, the fees generated by the high level of real estate activity (and the agents/brokers who were licensed to enable that activity) has caused them to build up some a nice Trust Fund. But activity is down, and there may be trouble ahead:

DRE, as the department is called, gets all its money for its 344-person department from license fees, license exam fees and subdivision fees (which are going up, too). But all those things are down because fewer people are taking the license test or getting licenses. And development fees? Well, homebuilding has been all but mothballed.

All these things have taken a $13.7 million bite out of the department’s $44 million budget.

For example, license exams have dropped from around 22,000 in March 2005 to just under 2,900 this past March. And the number of licensees dropped in March for a 14th straight month.

But don’t worry! They’ve got a trust fund! They’ve lent their reserves to the state of California, so all is well!

To make matters worse, the state Legislature and the Govenator have borrowed about $10.9 million from DRE reserves. If the state doesn’t repay that loan, and if the fees don’t go up, DRE projects its reserves will dry up and it’ll run out of money next year. In just over four years, DRE would be almost $88 million in the hole.

Wait… How could that make matters “worse”? How can they just suggest that the state might not pay back that loan — or worse, the implicit notion that they might do so out of higher taxes on the rest of Californians? If they’ve loaned the money to the state of CA, what could possibly go wrong? After all, the State of CA and the California DRE have two different revenue streams, so loaning from one pocket to the other is not in any way a fiscal end-around!

If it’s such a bad thing for the state of CA to borrow money from the CA DRE reserves, why is it a good thing that the US Federal Government is borrowing the surplus generated by Social Security payroll taxes?

Valor Pleases You, Crom… So Grant Me One Request. Grant Me Revenge!*

The Governator is back. And this time, he takes no prisoners:

Declaring that “California’s day of reckoning is here,” Gov. Arnold Schwarzenegger said today the state should turn its dire budget straits into an opportunity to make government more efficient.

Speaking to a rare mid-year joint session of the Legislature and other constitutional officers, Schwarzenegger acknowledged the billions of dollars in spending cuts he has proposed to close a $24.3 billion hole in the budget will be devastating to millions of Californians.

“People come up to me all the time, pleading ‘governor, please don’t cut my program,'” he said. “They tell me how the cuts will affect them and their loved ones. I see the pain in their eyes and hear the fear in their voice, the lamentations of their women**. It’s an awful feeling. But we have no choice.

“Our wallet is empty. Our bank is closed. Our credit is dried up.”

I come to slash spending.  Yaargh!

I come to slash spending. Yaargh!


Governor Schwarzenegger was elected in a pretty rare phenomenon, the recall. His predecessor, Gray Davis, had worked long and hard to make a mess of Sacramento’s business, and was generally a smarmy and unlikable guy. When Davis attempted to hike a very public tax, the vehicle license fee, voters who were already upset with Sacramento pushed him out of office.

Schwarzenegger was elected to be a reformer. He was (fairly) seen as outside the political process, and carrying the force of popularity that would allow him to shake things up. He appealed to a lot of voters who professed small-l libertarian leanings***, as he billed himself more as a fiscal conservative and social moderate/liberal. He was seen as having the political capital and bipartisan likability to actually go in and clean up the mess.

He tried to enact reforms, and was rebuffed by the entrenched power structure. Given California’s ballot proposition, he decided to pull an end-run around the legislature and “take the agenda directly to the people.” He called a special election, putting propositions including redistricting, spending restraints, and others directly up for the people of California to enact. And he was rebuffed spectacularly in that election.

Ever since then, he’s been a lame-duck governor, unable to really do anything but show up on TV at every wildfire explaining how much he cares. He’s been ineffective and the legislature has run roughshod, failing to restrain spending at every turn.

I think, though, that Schwarzenegger may be feeling ready for a resurgence. He was rebuffed for trying to rein in the legislature, and the legislature predictably went on to make a mess of things. I’m not sure he’ll necessarily come out with an explicit “I told ya so”, but you can be sure that will be a part of his sell. California didn’t listen when he tried to hit the brakes back in the boom years around 2005, but perhaps they’ll understand that folly now that the state is in shambles.

California is a mess. It wasn’t politically possible to clean it up during the boom. I’m not sure what incentive it will require to get Schwarzenegger to try to gain back his political capital and start slashing and burning through the legislature, but if revenge motivates him, I’ll take it.

Hat Tip: SoCal Real Estate Bubble Blog
» Read more

Quote Of The Day

When I posted the below open thread, one of the data points used to suggest things were actually recovering was a rise in income that was 0.6% higher than expect (and actually positive — expectation was negative). But it appears that this might be an anomaly brought on by our Congress. From The Big Picture:

April Personal Income rose .5%, much better than expectations of a drop of .2% while Spending fell .1%, .1% better than forecasts. The revisions to March were modest. The factor in the surprise gain in income was related to the Government’s stimulus plan where transfer payments rose smartly and there was also reduced personal current taxes. The Commerce Dept specifically said the income component “was boosted as a result of provisions of the American Recovery and Reinvestment Act of 2009.”

So hey, the economy isn’t actually recovering, but boy we’re at least paying people to do government work with newly-printed money. Boy, how I love the New New Deal!

Let Us Fail

California’s in a world of hurt, exacerbated by the fact that we didn’t offer to give the state a whole bunch more money during our ballot propositions yesterday. There are a lot of reasons for our pain, but it really comes down to a state that never quite understood TANSTAAFL. They’ve been sold the lie that government can do everything they desire, and all of it “with NO MONEY DOWN!!!” Now the bill is due, and there’s going to be some trouble.

But the question is where we go from here. And I can tell you that there is going to be a cry to go to Washington DC, because the government of California is “too big to fail”. I’m not going to be one of the voices calling for this, but as Megan McArdle points out, there are quite a few who will:

There is a surprisingly sizeable blogger contingent arguing that we have to bail them out because however regrettable the events that lead here, we now have no choice. But actually, we do have a choice: we could let them go bankrupt. And we probably should.

If Uncle Sugar bails out California, California will not fix its problems. Perhaps you want Obama to make it fix the problems, using the same competence, power, and can-do spirit with which he has repaired all the holes in the banking and auto manufacturing sectors. But Obama is not in a good position to do this. California Democrats are a huge part of his governing coalition. All Obama can do is shovel money into the bottomless pit of California’s political system.

If California is bailed out by Washington, it will simply be another way to prop up a system that is fundamentally broken. California has spent decades building up the unsustainable and crushing tax & spending burden we now have. Income taxes are high (9.55% for most people above $40K), sales taxes are high, fees and regulations are high. About the only thing we have that isn’t high is property tax, and Sacramento keeps trying to change that.

Fundamentally, we need to be taught a lesson. We need to finally understand that you simply cannot live in perpetual deficit. Arnold Schwarzeneggar recently explained why:

“This is the harsh reality of the crisis we face. Sacramento is not Washington [DC]… We cannot print money.”

Maybe, just maybe, if we fail it will teach us a lesson. It will teach us that money doesn’t grow on trees, and that there is an economic limit to your ability to act in constant deficit. It will teach us that the abnormal — not the normal — scenario is one of constantly printing your way out of problems. Maybe, just maybe, it will restore some semblance of welcome economic sanity to California.

But I doubt it. Obama will find a way to paper over the problems, we’ll play kick the can because Sacramento is “too big to fail”, and wait until this becomes a problem so large that only a national collapse of our entire monetary system will teach us a lesson.

I need to start taking my piles of spare change to CoinStar — paper money will heat my house a lot better than coinage.

Fixing California Finances — Ignore The Voters!

California is not a well-governed state. But for a long time, I heavily blamed the voters on that one. After all, they did stupid things like voting for a $9B bond issue to start a high-speed rail line in the middle of a horrendous deficit.

But perhaps I spoke too soon. Yes, California voters are more than willing to vote for huge spending to be financed by bonds. That’s a big problem, if the spending (and thus the bonds) occur. But if Tim Cavanaugh of Reason is correct, it’s not the problem I once thought. Why not? The state isn’t spending the money:

One favorite trick for avoiding disaster at the level of state budgets is to keep authorized expenditures cooped up by never writing the checks. This practice can go on for years or decades, depending on the lobbying power of the people who stand to gain from the spending. A former California budget director once set my mind at ease when I asked about the hundreds of billions of dollars in bonded debt the ballot-initiative mobocracy has committed the state to. It turned out that only a small portion of those bonds had been issued. (And it’s pretty stunning to consider that the Golden State’s fiscal self-destruction would be even worse if anybody took an interest in honoring the will of the voters.)

So, that is good one one front. The state has shielded us from some of the stupidity inherent in democracy.

But there’s another worse aspect. The state has spent us into oblivion even without the voters’ help! I used to think it was a competition between idiotic direct democracy voters and idiotic gerrymandered politicos in an effort to bankrupt the state. It turns out I was wrong — the politicos want to hoard all the “glory” for themselves!

Nominal SSA/Medicare “Solvency” Dates Worsen Slightly; Journalists Apoplectic

As I’ve thoroughly explained here and here, the whole Social Security “trust fund” issue is a joke. It’s an accounting gimmick designed to push the supposed date of concern out into the future.

When does Social Security become “insolvent”? Well, let’s look at what the word means:

adjective
not solvent; unable to satisfy creditors or discharge liabilities, either because liabilities exceed assets or because of inability to pay debts as they mature.

Assets are a printing press, taxpayers, or the farce of a “trust fund” that contains nothing but promises to raid the printing press or taxpayers in the future. There is absolutely nothing tangible there. Nothing backs up the future liabilities of the system.

But the accounting gimmick is still there, and people still argue as to what year Social Security and Medicare will start running into trouble. They argue about this as a problem to be solved for the future, but those dates for both Social Security and Medicare are coming in a bit as the economy collapses:

The financial health of Social Security and Medicare, the government’s two biggest benefit programs, have worsened because of the severe recession, and Medicare is now paying out more than it receives.

Trustees of the programs said Tuesday that Social Security will start paying out more in benefits than it collects in taxes in 2016, one year sooner than projected last year, and the giant trust fund will be depleted by 2037, four years sooner.

Medicare is in even worse shape. The trustees said the program for hospital expenses will pay out more in benefits than it collects this year and will be insolvent by 2017, two years earlier than the date projected in last year’s report.

The trust funds — which exist in paper form in a filing cabinet in Parkersburg, W.Va. — are bonds that are backed by the government’s “full faith and credit” but not by any actual assets. That money has been spent over the years to fund other parts of government. To redeem the trust fund bonds, the government would have to borrow in public debt markets or raise taxes.

I credit this AP writer for pointing out the italicized text, and for hammering the point home later in the article. Very few journalists have understood or expressed the idea that the “trust fund” is not full of actual assets, only promises. This doesn’t mean the situation will be bad in another decade and only dire in the 2037 time frame; it means this situation is worsening every year.

To illustrate this [yet again], let’s pull out a business example. Let’s create a corporation, and we’ll call it Ubiquitous Spending & Aggravation, Inc. We’ll use USA, Inc. for short.

Let’s say USA, Inc. has three divisions. They have the General Products Division, the Depends Adult Diaper Business Unit, and the Viagra & Ensure Business Unit. As you’d expect, one is a general purpose spending group, another caters to the general needs of the elderly, and the final caters to the medical needs of the elderly.

So assume that the below are true:

Today:
USA, Inc. Today

So it looks to me like USA, Inc. is losing $20 Million per year, but two business units are profitable. Would you call that a healthy company? Would you invest in it?

Now, let’s project earnings into the future.

2017:
USA, Inc. 2017

So what’s happened here? The company is still losing $20M a year, and now the two previously profitable divisions are losing money, while the General Products division is actually earning money due to the CEO instituting his AMP – Advanced Mugging Policy. Does this now look like a healthy company? Does it now look investment-worthy? Unfortunately, you’re already invested, because their stock certificates are printed with the words “Federal Reserve Note”. And they’re going to be issuing new shares soon.

I’ve said it before and I’m sure I’ll say it again. This is all a shell game. As long as the government keeps borrowing money and the debt keeps going up, it doesn’t matter how the individual accounting entities are performing. They can raise payroll taxes, offset by a cut in the income tax, and if it’s overall revenue neutral, it doesn’t matter whether Social Security and Medicare are “saved”. About the only benefit to doing so would be that journalists could quit wasting ink arguing over whether 2016, 2017, 2137 or 2141 are the “important” milestones.

There are no “important milestones”. The feds are going to run a $1.8T deficit this year! The problems we have are far larger than a 4-year swing in projected “insolvency” of an entity that is completely insolvent right now. The only “assets” the Social Security administration has access to are the Federal Reserve printing press or our wallets, and you can be SURE they’re going to be reaching for both.

Richard Posner — The Bailout Saved The Economy!

Well, in my own mind, only until this bear market rally tanks, but I’ll get to that later. But here he goes:

The bailout worked. At a relatively modest, though by ordinary standards very large ($17 billion), cost to the government, the auto companies were kept out of bankruptcy until the acute psychological phase of the economic crisis had passed. Last December, and indeed until sometime in March, government officials, the media, and the public were understandably fearful that the economy was in free fall and might land somewhere near where the economy had landed in March 1933 (25 percent unemployment, output 34 percent below the GDP trend line, 18 percent deflation). Such a fear can constitute a self-fulfilling prophecy, because by causing consumers and producers to hoard cash rather than to spend, it can push the economy into a very deep downward spiral. That fear has now abated.

He’s following what some might call the “voodoo magick” economics, what Reason is alluding to is the “animal spirits” economics, and the general world knows as Keynesian economics. Centering around the understanding that we live in a credit-based economy entirely resting on fiat currencies and fractional reserve banking, the old question of MV=Py becomes very important. Posner is suggesting that because V was already in trouble, the bankruptcies in October/November of last year would have been devastating, but that today they’re much less significant.

He’s suggesting that the economy is based on confidence (as it’s been said all confidence games are), and that to allow the firms to go bankrupt when confidence is low is far worse than allowing it to happen when confidence is high. And it makes sense, if we’re in a recovery. But if we’re in a bear market rally, as I believe, and if you accept some of the negative impacts of the terms of the bankruptcy packages, I think the harm is yet to be felt.

So where are we? Do we take a DJIA that’s rallied to 8400 points from the March lows, largely on the backs of a financial sector rebound, as a sign of a recovery? I doubt the news from the Stress Test that banks need to recapitalize to the tune of $75B should be seen as good. In fact, Bill King writing for The Big Picture blog suggests that this is playing out according to Wall Street & Geithner’s plan, but that once they get a hold of that capital, the next shoe drops:

It is crystal clear that the scheme over the past two months has been to drive financial stock prices higher so banks could raise capital. Mission accomplished!

The Fed and the solons have accomplished the task of providing an environment, with ample patsies, for banks to raise needed capital. But once banks have procured that capital, watch out.

If Wells Fargo needs to raise $15B, it is far cheaper to raise it at $25 then $7. So once again solons via crony capitalism and smiley-faced fascism utilize massive rigs with taxpayer funds to bailout the elites.

Stocks are at their most overbought level since September 2007 as measured by the Commodity Channel Indicator (moment indicator). And S&P 500 stocks are at their most overbought level since 2006 as measured by percentage of stocks above 50-day moving averages (92%, 460 S&P 500 per Bloomberg).

So where are we headed from here? I can’t say, but look at something that Posner said:

…government officials, the media, and the public were understandably fearful that the economy was in free fall and might land somewhere near where the economy had landed in March 1933 (25 percent unemployment, output 34 percent below the GDP trend line, 18 percent deflation).

Now, count the months from October of 1929 to March of 1933, and then count the number of months from October of 2008 until now. If this thing is going to get worse to 1933 levels, it’s unreasonable to think it would have occurred this quickly. Oh, and while we’re at it, look at what the Dow did over the beginning of that period:

DJIA

Gee, what does that look like, starting in Nov 1929 and ending in April 1930? A bear market rally.

And despite the common narrative, all during Herbert Hoover’s administration he was desperately trying to find ways and interventions into the economy that would stop the slide. He was rewriting the rules of the game surprisingly similar to the way that Obama is today, showing all investors that their gains or losses were due to their ability to play the political markets. He was disincentivizing investment by constantly changing the rules, and thereby the odds of success in any given market play.

So Barack Obama’s policies are antithetical to investment, antithetical to sound business planning, and ensured to kneecap any attempt at recovery that our economy hopes for. If you’re looking for reasons to worry about the future of this economy — looking for justification that this is not a recovery and a bear market rally — you simply have to combine a few facts:

  1. Fundamentally, the bull market of the late 90’s and early 00’s was partly due to an extraordinary increase in financial system leverage.
  2. This bull market was pumped up by fractional reserve banking and a completely unsustainable rise in asset prices that fueled the above leverage.
  3. We are now at a point where leverage is unwinding and asset prices are still declining.
  4. Government props have supported a rise in financial sector stocks, but fundamentally the stress tests prove that banks need to raise capital based on even mild financial shocks.
  5. Any continued weakness in the economy will skewer this current rally.
  6. Asset prices, foreclosures, and jobs data show no signs of getting better, only (at best) signs of slowing their decline.
  7. Obama’s financial system meddling (auto bailout, TARP shenanigans, etc) is sure to provide more weakness than expected.

Richard Posner, and all the other cheerleaders, believe that if only they keep confidence high, all the fundamental problems in the economy will dissipate and we’ll start a recovery. But the fundamentals aren’t going away. The economy is over-leveraged just like it was in the late 1920’s and early 1930’s, and that leverage must unwind before we can reach a recovery, a recovery based on saving and investment rather than spending and debt. Posner thinks the collapse has been avoided by slowing down the decline, but in essence we’ve only delayed and extended the inevitable.

Let’s Talk, Barack.

So Barack Obama has a few snide remarks for the tea partiers:

Asked about fiscal discipline and entitlements reform, Obama seemed to be repressing a smile as he jabbed critics of his spending plans.

“Those of you who are watching certain news channels on which I’m not very popular, and you see folks waving tea bags around, Obama said, “let me just remind them that I am happy to have a serious conversation about how we are going to cut our health care costs down over the long term, how we are going to stabilize Social Security.”

“But,” Obama continued, “let’s not play games and pretend that the reason [for the deficit] is because of the Recovery Act.”

Well, a few options… We’ve all written quite a few words here on healthcare and Social Security here. I’d welcome a serious conversation. But I don’t think Obama actually wants a serious conversation if it involves a discussion of the policy proscriptions I’d recommend. For healthcare, I support expanding the free market through severing the tax advantage of employer-based healthcare and thus returning to a model where the patient is typically both the insurance purchaser and payer, giving them a much wider choice of providers and plans than a typical corporate plan full of state-mandated coverages will offer. I think that will do a great job of bringing down costs. For Social Security, my first thought is means-testing the benefits. I’d forego guaranteed benefits in the future if it meant that my SS taxes dropped from 12% of my income to 6% of my income. The nice thing about means-testing is that if my personal investment and retirement plans don’t pan out, the SS plan would be a true “safety net” rather than “entitlement” program.

But his final challenge is worthy of its own response. Obama is projecting a $1.75T deficit. He inherited several hundred billion from Bush, and the economic collapse probably gave him several hundred billion more due to revenue drops. So let’s charitably call half of his deficit, roughly $900B, not his fault. The other $850B, though, is his fault. He’s taking a rough fiscal position for the government and throwing fuel on the fire. For those of us who already feel overtaxed, we know that the endgame of this spending must, by logical necessity, be increased direct taxation or increased indirect (inflation) taxation, probably both. The Recovery Act is a big portion of it. There is a factual argument to support blaming most of the obscene deficits on his spending proposals.

Now, your median tea party protestor may not be ready for this discussion. That protestor realizes simply that spending is going through the roof, and that spending will eventually need to be paid for — with money collected from taxpayers, not from Congress. That protestor may not have the time nor energy to devote to policy wonk analysis of healthcare or Social Security, nor of in-depth fiscal management of government. But that protestor knows that going from spending $3T to nearly $4T, while projecting a drop in revenues, leading to a deficit the size of the 2000 budget, will not end well.

But there are those of us out here who have been paying attention for the last 8 years and longer, and who know the score. Obama may believe that he can flippantly dismiss the grassroots protestors because they may not always be “sophisticated” enough and informed enough to stand and fight for their position. But any time Obama wants to have a chat with us (or more likely our intellectual forebears like the guys from the Reason Foundation or Cato Institute), tell him we’d love to have a “serious conversation”.

Hat Tip: Below the Beltway

It’s time for libertarians to start taking Federal Reserve issues seriously

For years, a lot of libertarians and paleoconservatives have focused a lot of attention on the Federal Reserve.  Some have gone overboard, blaming the Fed on virtually every lost freedom in America.  Others have focused too hard at the wrong time; I remember one person speaking at a gun show looking pretty foolish because he was talking about Fed issues while everyone in the audience was concerned about the upcoming passage of Clinton’s Assault Weapons Ban.

On the other side of the coin, our recent economic situation has raised a lot of issues about the role of the Federal Reserve, what alternatives there are to it, and how the system really works in practice.  Ron Paul supporters are particularly well-versed on these issues and the general public is becoming more interested in them, as well.

On February 26, Ron Paul introduced legislation to audit  “the Board of Governors of the Federal Reserve System and the Federal reserve banks” before the end of 2010.  While bills introduced by Paul are often disregarded by the rest of Congress, this one is starting to show some legs. According to Paul’s website, the bill now has 71 co-sponsors.

I’ve taken a lot of heat over the years for trying to protect the movement from being disregarded by mainstream Americans because of our internal kook factors.  When Ron Paul can obtain 71 sponsors for a bill, it’s time for hesitant libertarians to jump on board the Federal Reserve bandwagon.  You might start by contacting your Representative today.

UPDATE: Just received the following on Twitter:

If you don’t think the Federal Reserve issue is too arcane, then I’m up for it! Heard it for a while-can’t pretend I understand it. Freedom!

Comment Of The Day

Yesterday, I linked an article about Obama “challenging” his cabinet to find $100M to cut from the budget. I suggested it would have to grow considerably to even be a drop in the bucket. One commenter named John suggested that he should do that every day for the rest of his term, and we might get somewhere. Akston suggested that might still not get us very far:

Actually at that rate (100 million a day), it’d take well over 100 years to compensate the recent 4 trillion in new spending. And that would only account for principal, not interest.

It’s one more point that shows just how foreign the entire concept of a trillion is.

I think it’s time to listen to some tunes

Obamessiah Pisses Away More of Your Money

In news that shocks absolutely no one, the Obamessiah found yet another way to piss away some more American taxpayer dollars, this time on a “national service” bill.

President Obama on Tuesday signed a bill authorizing a major expansion of funding to federal community-service programs, marking a rare example of Washington bipartisanship.

The legislation reauthorizes the Corporation for National and Community Service – the government agency that runs AmeriCorps and other service programs – for the first time since 1996. It calls for a 25 percent increase in funding, giving the CNCS $1.1 billion for next year and almost $6 billion through 2014, if the money is appropriated by Congress.

The legislation is named for Sen. Edward Kennedy (D) of Massachusetts, and it passed with strong support from both sides of the aisle – moving from proposal to passage in little more than a month.

“Programs like these are a force multiplier,” Mr. Obama said at the signing. “They leverage small numbers of members into thousands of volunteers.”

Currently, 75,000 Americans serve in AmeriCorps annually, and they train and manage some 2 million community volunteers. The legislation authorizes an expansion of the program over eight years to 250,000 people, which in turn will allow millions more Americans to volunteer.

There went the $100 million the Obamessiah saved.

Seriously, I thought the point of volunteering was doing something good while not expecting something in return. The United States government has no business paying “volunteers” to serve the volk.

What about those “fiscally-conservative” Republicans, well, they generally supported it. More than half the Senate Republicans and 70 GOP Congressmen supported this bailout of the Americorps, the remnants of Bush’s “compassionate conservatism”, and big government in general.

Remember these folks around election time.

I’m one of the original co-founders of The Liberty Papers all the way back in 2005. Since then, I wound up doing this blogging thing professionally. Now I’m running the site now. You can find my other work at IJ Review.com and Rare. You can also find me over at the R Street Institute.

An Open Letter To Jan Schakowsky

Dear Representative Schakowsky –

I’m a taxpayer.  The Tea Partiers are also taxpayers.  We are the people who make the enterprise of government possible.

People in government would object to that statement.  They would say that the US Government has multiple revenue streams:  the income tax, other federal taxes, the Social Security Trust Fund, other intergovernmental funds, external bond sales, bond sales to the Federal Reserve.  They’re right, on a technical level.  Year to year, the full burden of federal spending doesn’t rest on the taxpayers.

There’s more to the story, though.  Any money borrowed by the US Government is borrowed in the name of its taxpayers.  The more than $2 trillion that will be borrowed to close the deficit in Obama’s first budget is being borrowed in our name.  The same goes with the undisclosed billions borrowed to pay for the Bush bailout plan.  We currently have a national debt of $11,194,472,663,030 that the Congressional Budget Office projects will grow to over $20 trillion under the Obama spending plan.  As one of the approximately 138 million Americans who paid taxes last year, I look at the Obama deficit of $2 trillion and realize that almost $15,000 was borrowed in my name alone, just this year.  Over 10 years, the Obama plan will borrow over $65,000 in my name.  As scary as those numbers are in the aggregate, they are frightening when made personal.

I imagine it must be a pretty amazing job, being one of the 536 people that direct an enterprise with a limitless credit card that will be paid off by others.  Unlike every corporation and citizen in the country, Congress and the President don’t have to worry about where the money’s going to come from.  You have the authority to fund anything you want by pretty much any means you want.  Max out the credit card?  Just write a bill that increases the credit line!

From the perspective of this ordinary, hard-working taxpayer, that authority has gone to your heads.  You never bother to stop and ask us whether we want your spending anymore.  When Obama debuted his budget, it faced severe opposition from the taxpayers of this country.  Instead of wielding the power granted to him responsibly and reconsidering based on that opposition, he began moving to ram his budget down our throats without even a moments pause.  He tried to sic his campaign machine on us to “persuade” us that the irresponsible borrowing and spending was for our own good and that we should take it with a smile.

Between that and Bush’s TARP debacle, it became clear to ordinary taxpayers all across the country that we had no voice in Washington anymore.  Democrats and Republicans were spending all their time pandering to core constituencies and special interests while ignoring the people who pay the freight.  In fact, it’s gotten so bad that we taxpayers are not even perceived as an independent group anymore.  This is shown so clearly in your own comments on the Tea Party protests:

Rep. Jan Schakowsky (D-Ill.) blasted “tea party” protests yesterday, labeling the activities “despicable” and “shameful.”

“The ‘tea parties’ being held today by groups of right-wing activists, and fueled by FOX News Channel, are an effort to mislead the public about the Obama economic plan that cuts taxes for 95 percent of Americans and creates 3.5 million jobs,” Schakowsky said in a statement.

“It’s despicable that right-wing Republicans would attempt to cheapen a significant, honorable moment of American history with a shameful political stunt,” she added. “Not a single American household or business will be taxed at a higher rate this year. Made to look like a grassroots uprising, this is an Obama bashing party promoted by corporate interests, as well as Republican lobbyists and politicians.”

We are in an age of taxation without representation. The taxpayer has no voice in Washington. The charade of democracy fostered by the two major parties has no place at the table for ordinary, hard-working Americans.  If you’re a Wall Street executive or an ACORN organizer, you have a say in how much money is borrowed and spent in America.  If you’re a simple plumber, electrician, or office worker, you have none.

You and the rest of Congress are gambling with our futures and you couldn’t care less what we have to say about it.  That’s why the Tea Parties are happening.  You want to deny us our voice?  Our place at the table?  Fine.  We’ll take it back from you.  Tea Party after Tea Party, letter after letter, column after column, we will make ourselves heard again.

The only shameful and despicable thing here is the fact that we have to take back our voice at all.  You and the rest of the ruling class have ignored the people who make your existence possible for far too long.  I’m sure your comments will be the first in a long line of bleating on the part of the ruling class, that we will have to endure rhetorical slings and arrows far worse than yours before we are heard again, but it doesn’t matter.  We WILL be heard, whether you like it or not.

No more irresponsibility.  Not in our name.  Not without a fight.

Sincerely,

A Taxpayer

Keeping What What We Make Away From the Tax-man

The furor over the Tea Party movement has been quite exciting.  While I love watching government officials and their sycophantic propagandists energetically denounce people for daring to suggest that people should be permitted to keep their earnings,  I, like others, think the protests – in and of themselves – are insufficient to meaningfully change the vampire economy that has seized the U.S. in its fangs.

The people protesting are not, however, wrong.   The basis of a free society is the independence of the people: their ability to choose how to conduct their lives, what professions they will pursue, where they will live, how they will order their lives.  The more resources a person has at their disposal, the wider the range of choices available to them. Freedom from taxation is as fundamental a human right as choosing whom we love.

The protesters are, however, seemingly oblivious to the real problem, the control the state has over the institutions of finance, banking and trade.   It is this control that not only allows the state to plunder without any limits, but also encourages people to acquire wealth through dishonest means – through rent seeking, wealth distribution, or other forms of special privilege.

If we wish to be a free people, we must build the institutions and the cultural habits that encourage individuals to amass these resources through peaceful commerce and production. The fundamental act by which people stockpile these resources is called saving. In a simple economy, such as an agrarian one, the importance of having people stockpiling seed-corn, or hay for feeding their herds during winters or periods of famine is obvious to everyone.

In a complex economy, people typically stockpile money, since there is a degree of uncertainty as to how those savings will be put to use in the future, and money is provides them with the most options when looking to consume savings to satisfy some present need. Unfortunately, people have stopped saving, largely because the current monetary regime makes saving a sucker’s game. A dollar stuffed under a mattress exponentially loses its value. A dollar deposited in a bank also steadily loses value, albeit at a lower rate; the bank typically makes up much but not all of the losses do to inflation by paying interest.

The story of the 20th and 21st centuries are, if nothing else, the capture of the banking system by the state. It is becoming increasingly difficult for people to amass wealth that is securely theirs. Bank accounts can be confiscated. Their money can be held hostage via a banking holiday. Regulators can learn intimate details of the private affairs of individuals by reviewing the banks’ records.

Those of us who wish to reverse the trend towards an ever more powerful and intrusive state must take the lead to restoring the ability of people to stockpile savings.

How can we do this? There are several ways:

  • Create new forms of money that are easily stockpiled. This does not have to be gold and silver, but can be things like cell-phone minutes
  • Create new markets to trade without interference
  • Create new systems for storing forms of money safely

Building these institutions will not be easy. They cannot be imposed from outside. They cannot depend on some messianic leader to encourage their adoption. They must attract users who have no interest in the political agenda, but because they satisfy the users’ personal needs. It is important to bear in mind that this regime has existed so long that for most of us who are alive today have no idea that it could ever be otherwise. Furthermore, the public is the target of a pretty comprehensive propaganda campaign that pervades all forms of mass media that distorts history and aggrandizes the growth of the state. At this point, the vast majority of people are absolutely convinced that a free society is at best doomed to economic collapse and in all likelihood a violent, brutish, dog-eat-dog dystopia.

While I don’t have a particular “magic bullet” to restore the vital freedom to amass wealth without having to fear government confiscation or debasement, I do have some suggestions:

  • Accept as wide a variety of currencies and goods as payment as you can.
  • Likewise be prepared to proffer as wide a variety of goods and currencies as possible.
  • Store some of your savings in places that others do not have access to. Limit knowledge about the size of your savings on a strict need to know basis. Loose lips sink ships! (NB. Safety Deposit Boxes don’t count; FDR had his thugs systematically go through people’s safety deposit boxes throughout the country, confiscating the newly illegal gold) .
  • Do not cooperate with the state any more than your conscience, or willingness to engage in civil disobediance permits. Keep in mind, though, that principled non-cooperation with the state can easily lead to being thrown in jail, beaten, or even murdered.
  • Keep your eyes peeled for new ways of doing business, new products, and new marketplaces that increase your independence. When you find something, publicize it as widely as is appropriate.

In the end, the current system cannot last. The United States Government is consuming resources at a rate that is unsustainable. Using the collapse of other states as a guide, it is quite likely that its officers will wreck a large portion of the U.S. economy in their efforts to delay the inevitable. How destructive the collapse is, how vulnerable people are to the destructive edicts issued by government officials will be a function of how well we do in fostering the growth of alternate institutions. Shielding ourselves from harm is but a first step. If we wish to avoid experiencing that which Germans did 100 years ago - the destruction of an enlightened culture by a voracious predatory state leading to totalitarianism, death and war (see here for the illustrated version)- we must also figure out how to shield our neighbors too.

So I have a homework assignment for you, dear reader, what will you do to build the institutions that make it easier for you and your neighbors to keep what they make away from the tax-man?

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

The Tax Day Coalition

A lot of digital ink has been spilled on these pages over the tax day “Tea Party” protests. Not all of it has been supportive, but I think there’s to some extent a need to clear the air and explain our position. Granted, this is a group blog and I can’t quite speak for everyone here, but we’ve had some backroom discussions so hopefully I’ll give a general enough overview.

The Liberty Papers has signed up to be a part of the Tax Day Coalition.

There are a lot of conflicting thoughts about this. There is some concern over whether the Tea Party has been co-opted by the type of folks who had no problem with the big spending of the Republicans over the last 8 years, and only seem to have that “come to Jesus” moment when they realize that it’s the opponents who are holding the purse strings. To some extent, of course, the levels of spending we’re seeing are a pretty significant expansion on those of the Bush administration, and many of those on the Right applauded his big war spending and national security spending, and forgave the NCLB and Medicare Part D spending as politically necessary to keep “the agenda” moving forward.

Either way, we see a large group of people opposed to high taxes and high spending. And that’s a good thing. The art of politics is knowing where coalitions can be formed, and making use of them. We see the populist appeal of this movement, and we see this as the tangible reaction of a group of people who have been betrayed by their own party but were too internally conflicted to organize resistance until they were out of power. They’ve come back to the correct side of the debate now, so it’s a good idea to work together rather than fight them out of a libertarian purity purge.

The Liberty Papers has been fighting against this taxation and spending since we formed this blog in 2005. We’re not joining the Tax Day Coalition, we’re excited that the Tax Day Coalition is joining US.

You are “The Rich”, and you didn’t even know it

Video From Reason.TV:

A lot of folks hear numbers like “the top 5%” of income earners, and they think that means Bill Gates, and fortune 500 CEOs etc…

No, although that’s exactly what the government, and the media, would love for you to believe.

It’s how they pit us against one another. It is a very deliberate divide and conquer strategy for class warfare; and the fact that 52 million people voted for it shows just how well it’s working.

It works, because “The Rich” is always the other guy. You aren’t “The Rich” after all, you’re “working class” or “middle class” whatever those mean (and who exactly says the “middle class” don’t work?).

Nobody wants to pay more taxes (well, except some of the extreme left), and very few people would vote to increase their own taxes; so they employ this class warfare rhetoric to get you to support tax increases on “The Rich”, which will supposedly favor you, and “the less fortunate”.

The only problem is, according to the government, there’s a pretty good chance that You (yes You, with a capital “Y”) ARE “The Rich”.

How can that be? They’re always talking about the “top 1%” or the “top 5%”, and again people start thinking about Bill Gates, and bank CEOs, and Wall Street traders…

Actually, the top 5% likely includes a lot of folks you know. Theres a fair chance it includes you. It almost certainly includes people you interact with every day.

When we get down to as low as say, the top 15%, most folks would think that got to be people making like $250,000 a year right?

No, actually people who make $250,000 a year are the top 1% (in fact, anyone over about $180,000 a year is in the top 1%. $250,000 puts you into the top .8% or so).

Wait a sec… the top 1% is just $180,000 a year?

Yes, yes it is.

The estimated individual income numbers for 2008 (actuals wont be available for another two years. Also don’t confuse these with household numbers, which account for multiple incomes) look like this:

The “top 1%” of earners in this country, is everyone who makes over about $180,000 a year.

The top 5% is everyone who makes over about $152,000 a year

In case you were interested, $100,000 is the top 5.63%

The top 10% is everyone who makes over $76,000 per year.

The top 15% is everyone who makes over about $64,000 a year.

The top 25% is everyone who makes over about $46,000 a year.

The top 50% is everyone who makes over about $32,000 a year.

So when somebody says “we’re going to tax the richest 15% to pay for the other 85%” what they’re really saying is anyone who makes more than $32 an hour.

Ayup, if you make more than $32 an hour, guess what, YOU are “The Rich”.

If they say “we’re going to tax the richest 25%” that means anyone who makes more than $23 an hour.

So, let me ask you, are you rich?

The top 15% pay more than 85% of all income taxes.

The top 50% pay more than 96% of all income taxes.

The bottom 50%, pay less than 4%.

The bottom 40% pay nothing at all.

The bottom 30% are actually PAID BY THE GOVERNMENT (and I don’t mean civil servants).

Plumbers, carpenters, electricians, mechanics, pretty much anyone with more than 10 years experience in any mid-level or higher job, in any professional career field or trade; that most likely puts you into the top 15% or so. Are you rich?

If you own your own business, the government ALMOST CERTAINLY classifies you as earning in the top 10% or higher… of course how much of that you actually KEEP is another story. Are you rich?

If you’re reading this right now, demographically speaking, it’s very likely you are in the top 15%. Are you rich?

If you have a college degree, live in or near a major city, and have more than 10 years experience in your career field, you are very likely to be in the top 5%, and almost certainly in the top 15%. Are you rich?

I’ll tell you right now, I’m in the top 5% of income earners, and with my wifes income we’re in the top 5% of household earners (in fact, the top 3%); and we are very definitely not rich.

We don’t live an extravagant lifestyle. We have a 1600 square foot house in an old neighborhood in Scottsdale (not one of the McMansion areas), two used cars that were both under $30,000 each when we bought them, and we send our two kids to Catholic school that’s subsidized by the parish, or else we couldn’t afford it. We don’t have a vacation home; no RV, no boat, no vacations to Switzerland every six months…

We’re not rich.

As far as the government is concerned though, we are “The Rich”.

In fact, it’s very likely that you are “The Rich” too.

What they’re really saying when they talk about “taxing the rich”, is taxing you. Because as far as the government is concerned, unless you’re taking money from them, hey, YOU’RE RICH.

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

Andrew Sullivan, astroturfing Republicans and GOP hypocrisy

Andrew Sullivan gets it right, and wrong, at the very same time.  He scribed:

The remarkable thing about today’s partisan Republicans is their capacity to forget instantly and entirely anything that went on for the past eight years. And so suddenly we are rushing toward socialism, even though by far the biggest jumps in state power and debt occurred under a president they worshiped and worked hard to re-elect. There were no tea-parties to protest the $32 trillion Medicare prescription drug benefit. There was no Randian rumbling as Bush took over local schools. There was no defense of the Constitution as Bush and Cheney secretly suspended the fourth and first amendments. But put a moderate Democrat in office tackling a historic collapse in demand – and spending must be frozen! Reading the partisan right blogs, this ability to disappear the past is striking, and it helps explain base GOP loathing of Obama (even if the base is much smaller than it was).

Sullivan has noted what many of us have been complaining about since the Tea Party craze started. At this site (even as late as last night), and many others, we’ve been screaming about hypocritical, astroturfing, big-government Republicans.  So much so that it may be time to coin a new term: RINOturfing.

However, some of us have always been vocally and actively opposed to the very issues Sullivan raises. Ron Paul supporters, Libertarians, libertarians, paleoconservatives and even some (primarily) fiscal conservatives have been hitting the streets as well as the blogs for years.  That we are frequently ignored by publications like The Atlantic (Sullivan did cover Ron Paul fairly well) may have something to do with Sullivan’s apparent forgetfulness on the issue.

Essentially, Sullivan is disregarding publications like Reason and American Spectator, organizations like Cato (and Heritage on some days), candidates like Ron Paul and Bob Barr, personalities like John Stossel and Andrew Napolitano, parties like the Libertarian Party, elected officials like Ron Paul and Jeff Flake, conservative icons like Bruce Fein and Richard Viguerie, pretty much any self-described libertarian, ad infinitum.

A good definition of partisan is “a fervent, sometimes militant supporter or proponent of a party, cause, faction, person, or idea.”  It’s my opinion that all of the individuals and groups listed above indeed qualify.

There was plenty of  “Randian rumbling” and “defense of the Constitution” during the Bush years.  Perhaps Sullivan chose to ignore most of it.

In March, I wrote:

To be clear, I think it is cool that it appears that libertarians have some newfound friends on the small-government team.  However, it’s fair to color us a bit skeptical, as we are still licking our Republican-inflicted wounds.  It may take a bit of time for us to recover from the political PTSD we are suffering after fighting Republicans for the last eight years over government spending issues.

I still stand by these words.  It’s possible that April 15th may be the day that begins the healing process.  It could also be the day that the more cynical of us are proven correct.

UPDATE: I’d like to welcome our The Other McCain and The League of Ordinary Gentlemen readers.  I’d like to send a special medical marijuana smoking and lesbian loving shoutout to Moe Lane and our good friends at RedState.  I’m sort of curious about why the folks at RedState don’t approve of two women getting married to each other.  This sort of stuff is fantasy material for most red-blooded males that I know.

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