Tag Archives: Government

Liberals trying to convince you there is a free lunch in government.

Over at Marketwatch, Rex Nutting lists “The 10 best things government has done for us“:

  1. Protecting our freedoms
  2. Giving away the land
  3. Educating everybody
  4. Helping us retire with dignity
  5. Improving public health
  6. Building our transportation networks
  7. Investing in communications
  8. Building our energy supply
  9. Inventing the future
  10. Defeating totalitarianism

Yet, Nutting writes that “everyone knows that the government can do a lot to create the right conditions for prosperity” and “Our democratic government — along with you, me and our ancestors — created the conditions that have allowed private citizens and companies to build a great nation.” But many of these are simply government handouts–redistribution of wealth–not the creation of conditions.

Did we really want the government to give away land? (I write about this very issue in Angry Mobs and Founding Fathers.) Funny, now the government takes land away from private individuals instead of giving it to them.

And why should the government invest in the future, building our energy supply, invest in communications, build our transportation networks (I also write about this  in Angry Mobs and Founding Fathers), etc.? Aren’t those the domain of private enterprise?

But why shouldn’t the government provide these free goods and services to us? Yes, I said FREE! Because the author, Rex Nutting, not once mentions taxes. He fails to mention that the resources used by the government to do these things took resources away from the private economy, which would have made use of them to provide the same or different goods and services to us.

Thus, Mr. Nutting provides us with just half the picture, and a distorted half at that.

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…

In case you thought the sovereign debt crisis was over: “Portugal yields soar, underline euro worries”

The sovereign debt crisis is back! Actually, it never went away…

Portugal yields soar, underline euro worries
ECB comes off THE sidelines to buy Portuguese bonds

Proving that the euro zone’s sovereign-debt crisis is yet to be vanquished, yields on Portuguese government bonds continued to climb to levels viewed as unsustainable on Thursday, prompting the European Central Bank to intervene.

Yields on the 10-year bonds soared to a euro-era high of more than 7.6% at one point Thursday morning, according to strategists. The European Central Bank later intervened to buy Portuguese bonds, several analysts said, after staying out of the markets amid relative calm in recent weeks.

Read the rest of the article here…

Electoral College: What the Founders Thought

Adam Smith and Alexander Hamilton on income and sales taxes.

Back in the 1700s, income taxes were rare, yet more countries were adopting such revenue generating schemes. Adam Smith minced no words in attacking such “absurd and destructive” taxes. In a section of The Wealth of Nations titled “Taxes upon the Wages of Labour,” Adam Smith wonders why countries institute such income taxes:

Absurd and destructive as such taxes are, however, they take place in many countries.

Just a decade later, the Founding Fathers recognized that limits needed to be placed on government. One such limit would be to make it more difficult for government to raise our taxes. In Federalist #21, Alexander Hamilton argued that a consumption tax would effectively limit the size of government:

It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty, that, “in political arithmetic, two and two do not always make four.” If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.

We have seen how the income tax has accomplished the growth of government that duties were unable to do previously. I return to this chart of the size of government excluding defense dating back to 1910. Remember, the income tax amendment to the Constitution was ratified in 1913.

Click on image to zoom in:


Seeing the growth of government since the income tax appeared a century ago, Smith and Hamilton were correct in their assessments. Based on the above quotes and their other writings, Adam Smith and Alexander Hamilton would support a switch to a consumption tax, more commonly called a sales tax today or the proposed Fair Tax.

Doctor Evil’s solution to the sovereign debt crisis

There are three stories out this morning regarding the sovereign debt crisis in Europe.

First off is Ireland:

Ireland is likely to end up tapping a loan worth “tens of billions” of euros as a result of talks between the government and officials from the European Commission, European Central Bank and the International Monetary Fund, the head of Ireland’s central bank said Thursday.

The talks aren’t about a bailout, but will lead to a loan to Ireland that the government would have to accept, Central Bank of Ireland Governor Patrick Honohan said in an interview, according to Irish state broadcaster RTE.

The yield on the 10-year Irish government bond fell to around 8% this morning from 8.3% Wednesday, strategists said. European equity markets rallied, with the Irish ISEQ stock index gaining 1.4%.

I don’t see how this changes anything. It may stave off immediate default, but Ireland is simply borrowing more money, exactly what got it into this mess in the first place. This simply buys them time to get their house in order, but will they?

Now, over to Spain:

Spain sold 3.654 billion euros ($4.943 billion) in 10- and 30-year bonds, but was forced to pay higher yields than two months ago as worries about fiscal problems on the periphery of the euro zone push up borrowing costs. The Spanish Treasury offered 3 billion to 4 billion euros of 10- and 30-year bonds. The government paid an average yield of 4.615% on the 10-year bond, up from 4.144% at a September auction, Dow Jones Newswires reported. The 30-year bond auction produced an average yield of 5.488% versus 5.077% in September. The 10-year auction produced a bid-to-cover ratio of 1.84, versus 2.32 in September, the report said.

The market is relieved that Spain was able to sell its bonds. Again, great news that Spain was not forced to default, but it doesn’t change Spain’s fiscal situation. In fact, one can argue that by lending to Spain is simply enabling one is enabling their addiction.

And over to Greece:

The Greek government on Thursday submitted to parliament a budget plan that it said would allow to stick to its target of reducing its deficit to 7.4% of gross domestic product in 2011 despite a sharp upward revision to its 2009 and 2010 deficit levels. The European Union statistics agency Eurostat earlier this week upwardly revised Greece’s 2009 deficit by nearly two full percentage points to 15.4% of GDP. The government raised its estimate of the 2010 deficit to 9.4% of GDP. The finance ministry said it would further cut spending and boost revenues to meet the 2011 deficit target, taking measures that include a rise in the lower value-added tax rate to 13% from 11%, a levy on highly-profitable firms, cuts in government operating expenditures and a nominal pension freeze.

Greece was forced to take more austerity measures because the economy did worse than expected. I am not surprised by this because the austerity itself hurts the economy, like a medicine that tastes bad but is required to kill an infection. I expect more such bad news over the following years. Government forecasts of narrowing deficits in Europe’s at-risk countries and here too in the United State rely on solid economic growth over the next three to four years. Yet, this optimistic economic outlook will only reduce their deficits, or so they hope, to about 3 percent of GDP. Why aren’t they trying to eliminate their deficits entirely? Why are they relying on optimistic economic growth rates? Has government never heard of “expect the worst, hope for the best?” Instead, they hope for the best and trap themselves in a corner if that does not occur.

All this reminds me of a scene from Austin Powers. Doctor Evil finally captures his nemesis Austin Powers:

Dr. Evil: Scott, I want you to meet daddy’s nemesis, Austin Powers.

Scott Evil: What? Are you feeding him? Why don’t you just kill him?

Dr. Evil: I have an even better idea. I’m going to place him in an easily escapable situation involving an overly elaborate and exotic death.

Later in the scene:

Dr. Evil: Come, let’s return to dinner. Close the tank.

Scott Evil: Aren’t you going to watch them? They’ll get away!

Dr.Evil: No, we’ll leave them alone and not actually witness them dying, and we’ll just assume it all went to plan.

Scott Evil: I have a gun in my room. Give me five seconds, I’ll come back and blow their brains out.

Dr.Evil: No Scott. You just don’t get it, do you?

These bailouts, loans, and austerity measures in Greece, Spain, Portugal, and Ireland are “an easily escapable situation involving an overly elaborate and exotic death.” Instead of eliminating the deficit immediately, they have convoluted plans to reduce it over a five-year period. Will these plans work? Nobody knows. But that’s okay because “we’ll just assume it all went to plan.”

Our governmental leaders may not be evil like Dr. Evil, but they certainly are as naive in assuming their plans will work. And they think we are too naive to notice their plans’ inadequacies.