The End is Nigh

September 4, 2012

According to data from the Federal Reserve Bank of Philadelphia we are about to enter another recession.  Of course, one would be hard-pressed to convince the over 20 million Americans who remain unemployed or underemployed that the last recession ever ended.  But, I suppose, according to economists it technically did.

Given the circumstance we are in, what can be concluded firmly is what this commentator has maintained all along, namely that Keynesianism is a complete and utter failure.  Yes, it made many Americans feel like the political class cared about them because it spent so much money on their behalf in an attempt to “stimulate” the economy back to good health.  And all the money infused into the economy either by government appropriations, monetized debt, or artificially low interest rates did indeed forestall an economic collapse.  But, like the old Chiffon margarine commercial which warned its viewers that impending doom would befall those that fooled Mother Nature, doom is now ours because Bush, Bernanke, Geithner, Obama, and many members of Congress dared to fool the Free Market.

Naturally, Keynesian diehards will claim that the problem is that not enough money was spent to revive the declining economy.  Well, that is an easy out given that more money could always be spent.  In any event, more money spent would have probably forestalled the next recession even farther into the future, but it wouldn’t have solved the systemic problems in the economy – namely price fixing by the Fed, government spending crowding out private investment, and overregulation.  In fact, with the spending we have had an even worse recession than the last is on the horizon; if more money had been spent the next downturn would be that much larger.

The fact of the matter is that since 2008 we have racked up close to six trillion dollars more in debt with nothing to show for it.  The big spenders responsible will blame the greedy rich who they say do not pay their “fair share” of the tax burden.  But, according to the IRS, in 2007 the richest one percent earned 22 percent of national income while paying 40 percent of all personal income taxes; the top five percent earned 37 percent and paid 61 percent of all income taxes; and the top 10 percent earned 48 percent and paid 71 percent of all income taxes.  Meanwhile, the bottom 50 percent earned 12 percent of the nation’s income but only paid three percent of the nation’s income tax.  So, I am not sure what the President and his coterie are talking about when they claim the rich need to be taxed more in order for them to pay their “fair share”?

I know one thing and that is that the disastrous policies of the U.S. government are responsible for not only the loss of our industrial base, but the current trend of America’s young enterprisers leaving for greener pastures overseas.  High taxation, overregulation, inflation, and the prospects of even higher healthcare costs through Obamacare are the reason for the exodus.

With all of these productive entities fleeing our borders and given that the federal government is close to $16 trillion in debt and unfunded future liabilities, specifically for Social Security and Medicare, adds 10s of trillions more to that total, how is America ever going to meet her future obligations?  To make matters even worse, should interest rates rise to their historic long-term average the annual interest payment on the national debt would more than double.  Using current numbers, the total would eat up 41 percent of revenues collected.  The massive increase in that line-item would require even larger annual budget deficits at a time when America can least afford it.

The problem is that Americans want their Social Security, Medicare, and all the other goodies politicians promise them.  And they don’t seem to mind the endless wars and corporate favoritism coming out of Washington either.  This can be concluded because they continue to reelect the same policymakers that have produced the mess we are in.

On the eve of another recession, leading policymakers in Washington are not discussing what needs to be done to turn the economy around.  Very few are talking seriously about addressing the debt crisis.  Lastly, most Americans who will vote this November are poised to send these same politicians back to Washington.

And that is why the end is nigh.  The end of what you ask?  The end of everything we have come to expect as Americans since the 1970s.  It will be the end of militarism and endless wars.  This time it will truly be the end of welfare as we know it.  It will be the end of political favors to every special interest group under the sun.  Finally it will be the end of living off accrued wealth by producing less and less while at the same time spending like drunken sailors to acquire cheap Chinese goods.  All these things will end because we simply can no longer afford them.  The real question is can we afford what will come after the end?

Article first published as The End is Nigh on Blogcritics.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina

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Colorado Springs is a Model for the Rest of the Country

July 16, 2010

A story to keep an eye on as the “Great Recession” continues to unfold is the city finances and cutback in services of Colorado Springs, Colorado.  While many local governments and states are facing bankruptcy due to spending levels that cannot be met with dwindling tax revenues, the city that is home to the U.S. Olympic Committee is maintaining its low tax rates and living within its means.  Colorado Spring’s experience just could have many Americans wondering why we rely on government for so much.

Now, I should fess up.  I first heard of this story while watching the Ed Show hosted by far-left radio and TV political pundit Ed Schultz.  I do occasionally like to amuse myself with the laughable commentary of the likes of Ed and his other MSNBC comrades Keith Olberman and Rachel Maddow. 

Nevertheless, at issue in Colorado Springs was a desperate plea from city officials about 7 months ago to the voters asking for approval to raise taxes to pay for routine services.  It was the same old story – the recession had caused a decline in tax revenues and the city faced a shortfall of around $24 million.  Without an increase in the local sales tax, city services would have to be curtailed.  With the result of the referendum, the people had spoken – city government, you will get no tax increase; do what you can with current revenue levels.

Unlike California, where for years the electorate demanded more from government without the obligation to pay for it, the good folks of Colorado Springs not only rejected higher taxes but took it upon themselves to remedy their own problem.  Private citizens volunteered to pick up trash in parks.  Swim clubs took over public pools.  Churches and private organizations, like the U.S. Olympic committee, raised money to keep community centers and city fountains running.  Admirably, one anonymous woman donated $37,000 to keep Nancy Lewis Park green and clean.  Of course, Ed Schultz neglected to report these positive facets of the story dwelling instead on how aghast he was that voters would vote down tax increases to fund non-essential government services like museums, parks, and pools.  As a good statist it is inconceivable to him how normal people could live without being dependent on government for these needs.

And that should be the question raised by Colorado Springs’s experience – why do Americans rely so heavily on government even to the point of extreme bankruptcy for needs that could be taken care of by the private sector?  Perhaps it’s because we have been so socialized by public schools, the so-called mainstream media, and the likes of Ed Schultz to believe that our greatness comes from government and not from within each one of us as citizens.  That’s why Schultz deliberately ignored the volunteerism and charity of the folks in Colorado Springs that confronted the budget cuts head on.  Or maybe Americans have gotten so use to the Federal Reserve monetizing debt at the federal level that we have become oblivious to the limits of state power.  After all, Uncle Sam has run up over $13 trillion in debt with the help of the printing presses at the Fed and it is hard to see how that has negatively affected our lives.  But it has.  All one has to do is buy one of those novelty cards that lists what things cost in the year of your birth.  As I looked at the cost of a slice of pizza ($.15) in the year of my birth, I became incredulous since I had just spent $2.50 for a slice on Saturday.  Why has the cost of things increased so much over time?  It is because of the inflationary policies of government and the Federal Reserve in particular.

Government does have limits as we are seeing in this most recent economic crisis.  Even when times are good, government at all levels feel pressure to raise additional revenue to cover the increased costs of services produced by the Fed’s inflationary policies.  To break this endless cycle Americans must wean themselves off of their dependence on government.  If some services cannot function without government subsidies then perhaps they should be done away with.  For instance, because budget cuts have forced the buses to stop running at 6:15 p.m.in Colorado Springs indicates that the bus line is not self-sufficient after that time (for the sake of argument let’s assume it is self-sufficient before 6:15 p.m.).  After the budget crisis ends why should the city spend money on running buses at night?  Wouldn’t that be a misallocation of scarce resources since demand for bus service at night is not at the level where the bus line can at least pay its bills?  Would a restaurant knowingly stay open beyond a time that is profitable? – Of course not.  I know that restaurants and public transit are not exactly the same animal.  But they are alike in that they both must deal with scarce resources.  Like the restaurant owner, city managers must make decisions with the least amount of waste possible or face financial hardship. 

User fees could be used for services like parks, pools, and libraries.  Whoever said these services should be “free” anyway?  Like the gas tax is to roads, fees to use parks, pools, and sign out books is more just than forcing homeowners to subsidize the leisure activities of others. 

By cutting services that do not make economic sense and imposing user fees on others, could local governments drastically reduce taxes?  Would this provide for a better allocation of scarce resources to more urgent needs?  How many fixed-budget seniors would avoid losing their homes because of ever-increasing taxes?  How many young homeowners, just starting out, would be able to afford health care if they didn’t have to pay for fountains, parks, libraries, and other non-essential services?  As we have seen in Colorado Springs, would local citizens fill the void left by government?

These are just a few of the questions that need to be explored.  On the other side of this current economic crisis the American people are going to have to change and come up with more creative ways to operate.  The system is broke and broken at all levels of government.  Colorado Springs could offer a glimpse of what is to come.  We should all stay tuned to this unfolding story for the good and the bad aspects of it.  That’s assuming the mainstream media and the Ed Schultz’s of the world report it accurately.

Article first published as Colorado Springs is a Model for the Rest of the Country on Blogcritics


There’s No Recovery, Just More Hard Times Ahead

July 7, 2010

It’s comical to watch the financial channels’ pundits and Obama Administration officials almost on a daily basis tell us that we are well into an economic recovery.  Yes, there have been times when the economic data looked promising.  During some weeks first time unemployment claims have been down.  The economy has grown between two and three percent some months.  And there have even been some months when new home sales have swelled and the prices of houses in general have increased.  But the fact of the matter is that the worst of the crisis is yet to come and of course like the initial crisis which has lasted for close to three years already it will be Washington’s fault.

So, what are the indications that we are not well into an economic recovery and the worst of the economic pain is yet to come?  For one thing, the National Bureau of Economic Research (NBER), the government’s official judge of economic expansion and contraction, has not pronounced the recession that began in 2007 to be over.  Additionally, just yesterday the government announced the economy lost 125,000 jobs last month.  The real unemployment rate which takes into account discouraged and underemployed workers is still north of 16 percent.  Food stamp usage has skyrocketed to a record high of 40.2 million recipients.  Bank repossessions are still a massive problem.  They hit a record 93,777 in May which represented a 44 percent increase over May of the previous year.  Worst yet, all 50 states are experiencing year-over-year increases.  Banks still aren’t lending; consumers aren’t spending; and the national deficit and debt is in outer space with nothing good to show for it.

In all fairness, as mentioned above, there has been some good economic news from time to time.  For instance, housing prices did increase in April.  But most analysts attribute the rise to the rush to take advantage of the government tax credit for homebuyers which expired at the end of that month.  Since the tax credit expired almost all housing market barometers have dropped significantly.

Then there were those months that jobs were produced.  But, again, this had more to do with government gimmicks – 2010 census hiring and government spending then real economic progress. 

To be sure, some Americans are doing quite well in this recession and this might account for the president’s insistence that the recession is over and prosperity is just around the corner.  Who is doing well?  Well, folks that live close to Washington and Wall Street are doing very well.  Forbes Magazine has reported that 12 of the 25 riches counties in the country border the nation’s capital and financial headquarters.  It’s no wonder since government workers receive 45 percent more in pay and benefits than their private sector counterparts.  This is pretty good when you consider that it’s almost impossible to lose a government job even in economic recessions.  Of course, given the huge taxpayer bailouts to Wall Street bankers and the generous Federal Reserve policies towards the same it is also easy to see why suburban New York City is riding high in these tough times.

Besides the bureaucrats and bailout recipients several political cronies of the president have cashed in during this recession.  According to Floyd Brown and Lee Troxler in their book, Killing Wealth, Freeing Wealth, Larry Summers, chair of Obama’s Council of Economic Advisors, made $5.2 million in 2008 through his hedge fund.  Tom Donilon, a deputy National Security Advisor, made $3.9 million in legal fees representing Citigroup and Goldman Sachs.  As members of Obama’s inner circle, they are uniquely positioned to guarantee that federal policies continue to favor their interests.

And let’s not forget Obama’s huge financial supporter and billionaire buddy, George Soros.  According to Brown and Troxler, the financier pulled in $1.1 billion in trading profits in 2008.  After helping to finance Obama’s White House run, the president has wasted little time in rewarding his benefactor.  It is ironic that their partnership involves deepwater drilling.

The president and his cohorts in the media can spin economic news anyway they wish.  But, after 17 months in office and trillions of dollars spent to stimulate the economy the only thing the president’s policies have produced is more debt and predictions from many analysts that we are headed for a double-dip recession.  This should be no surprise – since similar economic policies deepened and prolonged the recession of 1929.  Then, Americans had to wait about 16 years for good economic times to return.  Given this president’s current propensity to spend there’s no telling how long it will take for this recession to end.