Tag Archives: Federal government of the United States

Life before the social welfare state

In 1779, before the advent of the welfare state or even a federal government in the US, when taxes were virtually non-existent, François de Barbé-Marbois wrote: “Begging is unknown in America. There are, in almost all towns, hostels which take in old people or those who are unable to work. As for the unemployed, there are other institutions where care is taken that they lack neither work nor food.” Barbé-Marbois, Our Revolutionary Forefathers 71

The status quo results in socialism

Is America heading toward socialism? Is President Obama taking us there? Will the tea party save us?

I think the first question that must be asked is: What will happen if American does nothing? Forget about all the proposals for new government spending. Forget about tax policy for a second. What will happen if America simply maintains the status quo, without growing or reducing the size of government?

According to the Congressional Budget Office’s 2011 Long-Term Budget Outlook, the federal government will consume 34.1 to 75.9 percent of GDP in 2085. The lower number is called “The Extended-Baseline Scenario” while the higher number is “The Alternative Fiscal Scenario,” which includes the extension of the tax cuts set to expire, rising debt levels, and “spiraling interest payments.”

Add in current state and local spending, subtracting out governmental transfers, (that assumes state and local government do not grow, as they have done for the last 100 years) government at all levels will consume 49.7  to 91.5 percent of GDP in 2085.

Even with the CBO’s optimistic forecast, government will account for half of all economic activity. Currently, government accounts for about 40.9 percent of our economy. But the pessimistic outlook from the CBO has the government controlling nearly all of the economy. We will be fully socialist!

Unfortunately, I lean toward the more pessimistic outlook. And I’m not alone. The CBO writes:

Many budget analysts believe that the alternative fiscal scenario presents a more realistic picture of the nation’s underlying fiscal policies than the extended-baseline scenario does. The explosive path of federal debt under the alternative fiscal scenario underscores the need for large and rapid policy changes to put the nation on a sustainable fiscal course.

Looking at the accompanying spreadsheet, the CBO has unemployment falling to an average of 8.4% next year, then falling to 7.6% in 2013, 6.8% in 2014, 5.9% in 2015, 5.3% in 2016, 5.2% in 2019, 5.1% in 2026, and 5.0% in 2030 where it stays forever. Oh really? They really expect unemployment to average 5.0% from 2016 to 2085? Has the United States or any country ever had sustained low unemployment uninterrupted by recession for 70 consecutive years? I don’t think so!

Certainly, the Baseline Scenario is too optimistic. This means that even with no new government programs, government will account for well over half of all economic activity by 2085. In this Alternative Scenario, the CBO estimates that government at all level would consume nearly all of economic output.

Socialism is in our future if we do not change. Doing nothing–merely blocking new government programs–is not enough. We must undo the damage that has already been done and fix the government programs that are already eating up a growing percentage of our national production.

– Michael E. Newton is the author of the highly acclaimed The Path to Tyranny: A History of Free Society’s Descent into Tyranny. His newest book, Angry Mobs and Founding Fathers: The Fight for Control of the American Revolution, was released by Eleftheria Publishing in July.

What Would James Madison Say About Our Legal Code?

The only thing that has grown faster than the national debt is the number of laws and regulations with which a bloated federal government has burdened its beleaguered citizenry.

The Obamacare bill ran 2,471 pages long, not including the thousands more pages of regulations (created by unelected bureaucrats) that come along with the new law.  The recent Dodd-Frank financial reform bill was 2,323 pages long.  Each year the federal government adds about 80,000 pages to the Federal Register. The tax code alone is over 70,000 pages long.

What would the Founding Fathers say about this?

Read the whole thing at What Would the Founders Think?

Do we have a problem with our federal government? Or with government in general?

We often complain about the excessive spending of our federal government, and for good reason. We even argue for “states’ rights” as a way to restrain the federal government. But are the states any better than the federal government?

This first chart clearly show that the federal government spends, on average, as a percentage of GDP, more than our state and local government. But notice that state and local government spending caught up to the federal government back in 2001 (after the fiscal responsibility of the 1990s).

Obviously, the chart above has two large spikes representing World War I and World War II. What would it look like if we excluded volatile defense spending?

Doing this, it looks like the state and local government spend more money than the federal government. More important, states and local government has grown from about 15 percent of GDP in 1980 to 22 percent today. The federal government has “only” grown from 15 percent to 19 percent.

Looking at these chart, I have no confidence that the states will act with more restraint than the federal government. If our governments are incapable of fixing the problem, that only leaves you and me. We have to replace the people running and governments. We have to teach them and ourselves the value of small governments designed to protect our rights of life, liberty and pursuit of happiness. Everything else government does is an infringement of our rights and they should leave us alone.

 

Where’s my magnifying glass? I’m trying to find the budget cuts.

The Washington Times reports:

The federal government posted its largest monthly deficit in history in February at $223 billion, according to preliminary numbers the Congressional Budget Office released Monday morning.

That figure tops last February’s record of $220.9 billion, and marks the 29th straight month the government has run in the red — a modern record. The last time the federal government posted even a monthly surplus was September 2008, just before the financial collapse.

Last month’s federal deficit is nearly four times as large as the spending cuts House Republicans have passed in their spending bill, and is more than 30 times the size of Senate Democrats’ opening bid of $6 billion.

Actually, those figures overstate the cuts because it is comparing a yearly cut to a monthly deficit. In reality, the annual deficit of about $1.6 trillion is 26 times as large as the Republican budget cuts and 267 times the size of the Democrats’ proposed cuts.

I’m glad to see Washington is taking this problem seriously…

Worldwide backlash against quantitative easing.

Apparently, I’m not the only one concerned about the Fed’s quantitative easing.

Yesterday, I wrote a piece: Quantitative easing. What is it good for? Absolutely nothing!

Today, we get similar sentiments from around the world:

Could this move turn out to be a modern-day Smoot-Hawley? For those of you who are too young to remember, the Smoot–Hawley Tariff Act was passed in 1930, raising tariffs, and being a major contributor to the Great Depression.

Quantitative easing. What is it good for? Absolutely nothing!

The Federal Reserve “unveiled plans to purchase $600 billion of Treasurys by the end of June 2011 to revive the economy.

Maybe one of my readers can explain to me how the Federal Reserve buying Treasury bonds will “revive the economy.” I just don’t get it. The Federal Reserve will be doing nothing more than printing Dollar bills and exchanging those Treasuries. Nothing of value will be created. No new goods will appear on the market. No jobs will be created. Simply put, Treasury bonds owned by individuals or corporations will be replaced by Dollar bills.

Owners of Treasury bonds own them because they want to save/invest their money. Buying the bonds from these people won’t convince them that they need to spend what they had been saving. They will simply invest their money elsewhere: in stocks, corporate bonds, overseas, gold, or in cash. No real wealth will be created through this so-called quantitative easing and it will not encourage any wealth-creating activities. It is simply moving money from one pocket (Federal Reserve cash) to another (Treasuries bonds) from the government’s perspective and the converse from Treasuries to cash from the people’s perspective.

The argument is that buying Treasuries will help keep interest rates low. But who benefits from this? Investors/savers will earn less on their deposits/bonds, but creditors (corporations, mortgages) will pay less interest. But those two will largely offset each other. No net benefit.

In the end, there is one entity that has so much debt that it will be the largest beneficiary: the United States government. Instead of paying interest on bonds, the government is choosing to print money instead. On $600 billion of intermediate-term debt yielding between 0.33 (2-year yield) and 2.57 (10-year yield) percent, the government would “save” about $600 million a month. That’s it? With a deficit running at about $125 billion a month, that’s just 0.5% if the deficit. Again, what for?

The Federal Reserve is simply manipulating the economy for no real purpose. Oh yes, it has the purpose of enabling the government to spend with reckless abandon and run large deficits because it now has a ready market for its debt. But to do so, it must print all those Dollars, and that is driving down the value of the Dollar which is very evident by the huge rally in gold since the “Great Recession” began.

The government is destroying OUR long-term prosperity for ITS short-term gain. A good deal for the Federal Reserve and the Treasury Department, but not for you and me.