What kind of Congress do we want

Question for Voters - after what happened the last 4 years are you OK with the Republican's basing their campaign on the notion Barack Obama didn't do the job, so now let us try?

Since the day Obama entered office the Republican's were explicitly saying they were not going to cooperate with anything Obama did so they could replace him when his 4 year term was up. Regularly some Republican Congressional bigwig was publicly stating as a reason they were not negotiating about a jobs bill, or a budget deadline, was to defeat Obama. They basically put the countries business on hold to focus on gaining political advantage.

Is this what you want in Government? Are you ready to teach future Congress's that is the path to power?

Income inequality - Interesting facts from a book review

The Economist of June 23, 2012 (p.84) reviewed the book "The Price of Inequality:  How Today's Divided Society Endangers our Future" by Joseph Stiglitz.  

We hear frequently from politicians what a wonderful country we are because in no other country do the poor have such opportunity to rise to success.  The review begins by noting that while the American Dream may live on in Politics, as demonstrated by Barack Obama, it is much less evident in the rest of society.  In Denmark 75% of those born in families from the 20% of poorest circumstances and in Britain 70% of lower class British residents rise out of their humble beginnings.  In the US fewer than 60% manage to scramble up the ladder. 

It is also far less common for people in the lowest 20% in the US to rise into the top 20% than it is in Denmark or Britain.

The richest 1% in the US gained 93% of the additional income created in 2010.  But generally the public doesn't realize the extent to which the richest take the most in the US.  A survey in 2011 found that most American's thought that the richest 20% of Americans had 60% of the wealth, when in fact the they have 85%.  The average American thought the ideal was 30%.

Mr. Stiglitz argues this income inequality is a function of the richest shaping the law to their benefit.  Mr Stiglitz ask that we imagine that the world allowed free movement of labor, but not Capital (the reverse of the current situation).  Mr Stiglitz argues that countries would compete to attract workers with laws creating a fairer society.

The reviewer notes some weaknesses in Mr. Stiglitz's argument.  The review notes:
1.  That high income inequality has been the norm through much of human history, the period in the the developed world from 1950 to 1980 when western societies were much more equal was unusual.  
2.  That Spain and Ireland also went through property bubbles , and they are much more equal societies, so the housing collapse can't be pinned on income inequality,  and 
3.  That Mr. Stiglitz's solutions assume a Congress much more responsible than the one that has characterized the last decades.

The review ends by noting that regardless of whether Mr. Stiglitz has the right answers, the question is crucial. Income inequality is bound to have negative social and political consequences.

Comparing Economic Recoveries after a downtown

(Notes and comments sparked by an article in the Economist, 8/11/12, p.24)

Mr. Romney frequently compares the roaring recovery during Mr. Reagan's Presidency after the recession in the early 1980's with the tepid recovery that has followed the economic collapse of 2008-09 in arguing Mr. Obama has done a poor job.

The Economist notes it is a poor comparison.

The recession in the early 1980's was a result of high interest rates by the Fed trying to control inflation - at one point short term interest rates were at about 20%.  When inflation dropped, the Fed relaxed interest rates - dropping the short term interest rate by 12% in a fairly short period of time - followed by  the government starting to spend lots more money (defense spending under Mr. Reagan's arms race acceleration seeking to break the economy of the Soviet Union).  It was the perfect recipe for a booming recovery, much lower interest rates for businesses that had been starving for funds to borrow and invest, coupled with lots of Government spending to drive up demand for goods and services.

This downturn, on the other hand, has been characterized by extremely low interest rates because the private sector is already deeply in debt so there is not enough private sector demand for credit.  Couple that with major spending cuts in government spending at all levels and what you have is the worst possible recipe for jump starting growth. 

One other factor the Economist doesn't touch on is the difference in the population dynamics between the early 1980's and the current period.  In the early 1980's the biggest single age group in our population, the baby boomers were moving into their most productive and acquisitive years.  They (including me) are now moving into retirement, are less productive, less willing to take on debt to acquire things.

The Economist notes that Mr. Romney recently said Mr. Obama's suggestion for more stimulus for the economy was "a bad idea".  The Economist concludes by drolly noting that Mr. Romney's views on more stimulus " might evolve... if Mr. Romney wins the White House."

Watching Out for the "Big Government" Bogeyman

Politicians get a lot of mileage out of the term "big government."  It works well for them because it is a pretty meaningless glittering generality.  For most of us it's lack of a precise meaning encourages us to conjure up emotional memories of bad experiences with government - standing in line, paying our taxes, frustrating phone calls with government officials.  It allows the politician to touch our emotions without committing to anything at all.  So here are some questions to ask yourself when some politician starts talking about "Big Government."

So what is "big Government"?  Do we have a "big government"?  

Economists measure the size of government by looking at how much of each countries total yearly wealth is spent by Government.   As of 2010 of the twenty biggest economies in the world 14 countries spend a bigger percentage of their national income than the US.  We are down there with Brazil, Russia, South Korea, Mexico, India and China, in the low spending category.  Way above us in the spending are countries like Norway, Sweden, Germany, Japan and most of the rest of Europe (in short all the places we like to visit because they are so nice and safe).  

If you measure "big" by how much we spend per person, of the 20 biggest economy's in the world, the US spends per person slightly more than Russia, South Korea, Mexico, Brazil, India and China, but much less than residents of Norway, Sweden, Germany, Japan and the rest of Europe.  

But even these rankings are a little misleading, because they don't address how the Government spends its money.    The US spends far more on defense than any other country.  41% of the worlds defense spending is spent by the US.  We spend two to three times more on defense than the countries that are immediately below us on the list (including China)  and many times more than most of the countries in the world.  You couldn't find three countries in this world who, if you lumped all their defense spending together, would match the US.  So in terms of spending on things that improve the lives of citizens we spend less than every other large economy.  

So, factually, if we eliminate defense spending, we already have a very small government in comparison with the rest of the world.  And if you still think Government in the US is to big, ask yourself, what other government in this world do you think is better?

Even if you assume we have a "big government" what should we cut to shrink it?

Do we want to cut aid programs to the poor?  Let them starve or be homeless?  Sorry, even if we cut those programs, they are a miniscule part of overall Federal spending.  If we cut those programs we end up with more non-productive people in our economy, and little economic benefit, so to some degree we are cutting our nations economic future for little current benefit.  

Do we want to cut Social Security?  Make everyone give their money to Wall Street to fund their retirement?  Or rely on their employer to fund their retirement?  This country is full of people who lost much of their retirement in the 2008-2009 economic meltdown, even as Wall Street walked away doing just fine.  Even before the 2008-09 meltdown we had already seen lots of employee's of big corporations lose most or all of their retirement when the companies collapsed or got rolled into a bankruptcy reorganization in which the company was allowed to dump their pension obligations to employees (I checked with a friend who is a bankruptcy expert - he has never heard of a bankruptcy reorganization where executives of the company lost any of their retirement - only the workers).  What about people who don't bother to save for retirement?  Do we want to stand by and watch as millions of old people die destitute?  Social Security is a program good government does, and does pretty well - at least it would if Congress wasn't always stealing money out of the Social Security trust fund to pay for tax cuts for rich folks.  

Do we want to cut government spending on highways, and bridges and other infrastructure?  The infrastructure our economy depends on our ability to operate efficiently.  It wouldn't save much and would undermine our economy in the future.  Do we want to cut the environmental programs that have cleaned up our air and water?  Have we forgotten the days when our major rivers were prone to catching on fire because of all the pollutants?  Do we need to remind ourselves of the amount of money we save by reducing health care costs caused by ignoring the environment we live in?

In short do we want to turn into the US into the kind of country much of the third world is trying to escape from?  Where the amoral, powerful and aggressive do well at the expense of everyone else? Government is a big part of what makes life in the US better than life in much of the rest of the world.  

Federal programs exist because most people support those programs, so Politicians kill their chances of being elected if they start talking about cutting specific programs.  So instead, some years ago, politicians who don't really care if our country treats all its citizens humanly learned they can they haul out the 'big government" bogeyman to make it sound like they will actually do something without specifying what they mean or actually doing much.

Again, ask yourself what other government in this world do you think is better?  

But what about the deficit?

Politicians often imply our deficit is a result of social programs to benefit the poor or middle class.  This implication is false.

Do a search online for a timeline charting the United States Public debt.  What you will see is we ran up a huge debt in WW II, then the debt fell steadily between 1950 and 1980, the time when most of those social programs were enacted.  Then in the early 1980's public debt began to expand.  It was not caused by social programs, but as a direct result of Mr. Reagan's policy of cutting taxes without making offsetting cuts in programs, and in fact he greatly increased government spending by juicing up military budgets.  The debt trended up rapidly through the Reagan and Bush Sr. administrations, then began to reverse during the Clinton years.  But in 2003 the second President Bush followed Mr. Reagan's example, cutting taxes while increasing defense spending (he was the only President in history who did not increase taxes during war time).  The debt shot upward again.  Then in 2008-2009, when the financial world collapsed, first the Bush administration and then the Obama administration sought huge bailouts that, while they probably prevented us from sliding into a Depression, shot the deficit up further.

So bottom line our current deficit would not have happened without the two rounds of tax cuts accompanied by increases in military spending, and the financial collapse that capped off the 12 years Republican's controlled Congress.

Even now, the one place where cuts would really make a big difference would be to cut defense.  As noted above we spend more on defense than most of the rest of the world combined.  $.50 of every dollar we spend on items budgeted to be supported by our income taxes goes to defense spending.  Yet the Republican architects of the deficit still refuse to consider cuts in defense spending.

If one was of a conspiratorial persuasion one could make the case the people who really would like to turn the US into a third world country where the rich have everything and the poor scramble to survive, have for 30 years cut taxes and increased defense spending.  It is apparent to anyone with half a brain that if you cut your income and increase your spending, you are going into debt.  Yet the very politicans who most talk about "big government" have been the ones who cut taxes and increased spending.  Now we have a big deficit, and they are arguing we have to cut all these other programs because we can't afford them, but we can't touch defense spending.  So instead of having to come out and argue with voters that we need to cut these social programs because they think they are bad programs (an argument they would lose), they can now come to voters and say "we just can't afford them - look at our deficit!"

After all, cutting social programs is a win/win situation for many wealthy folks.  They personally don't need them; they make a lot of money off of their investments in defense companies; they  pay relatively little in taxes, and it generally isn't their kids who get killed or maimed for life on distant battlefields.