Minor Thoughts from me to you

I was making exactly this point, while driving home last night.

For the Tea Party Republicans who make up a significant part of the House GOP caucus, Boehner's proposal is a significant retreat from "Cut, Cap and Balance." Those who support the Boehner proposal, which is formally known as the Budget Control Act, consider it a major compromise -- something they are backing only after being convinced that their first choice could never pass the Senate.

… While Obama preaches the virtues of compromise, his Democratic allies and surrogates are bashing Republicans for rejecting what the White House characterizes as earnest, good-faith efforts to find common ground. "I hope that Speaker Boehner and [Minority] Leader McConnell will reconsider their intransigence," Senate Majority Leader Harry Reid said a few days ago. "Their unwillingness to compromise is pushing us to the brink of a default." (At the same time, Reid has been issuing absolute, inflexible statements like, "I will not support any short-term agreement.")

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Keith Hennessey explains what the McConnell debt limit proposal is, how it works, and what its political motivations are.

I still support “Cut, Cap, and Balance” as the best long-term plan. While I’d love to see it enacted, I don’t see it happening with this Senate and this President. I’d initially been disposed to strongly dislike the McConnell plan. I actually changed my mind after reading his explanation. I now, reluctantly, support it as the best plan that we’re likely to get past this President and this Congress.

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Keith Hennessey explains the “Cut, Cap, & Balance Act”.

The key to understanding this bill is that it focuses on government spending, rather than on taxes or deficits. The bill would achieve significant deficit reduction through cutting and limiting spending, and all of its mechanisms use spending rather than deficit targets.

Surprise, surprise: the bill consists of three parts.

1. Cut – The bill provides specific numbers to limit both discretionary and mandatory spending for FY12. These numbers would drive further Congressional action this year or else force a Presidential sequester. (I explain a sequester below.) The intent of this section is to force Congress and the President to cut spending immediately.
2. Cap – The bill would establish a new enforceable limit on total federal spending as a share of the economy. The new caps are designed to phase federal spending down to just below 20% of GDP by FY17 and then hold it there through the end of a 10-year budget window in FY21. Put more simply, this is a new enforceable aggregate spending cap.
3. Balance – The bill would increase the debt limit by $2.4 trillion after the House and Senate have passed a Balanced Budget Amendment (of a certain type).

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Reason columnist and Mercatus Center economist Veronique de Rugy explains the truth behind some of the myths in the current debt ceiling debate.

1. If a deal is not reached by August 2, the U.S. will default on its debt.
2. If the debt ceiling isn’t raised the government won't be able to pay Social Security benefits.
3. The Treasury cannot use the Social Security Trust Fund to delay a default past August 2.

You can either read her explanations or watch her explanation on video.

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Zygi Wilf, Minnesota governor Mark Dayton discuss new Minnesota Vikings stadium - ESPN

When Gov. Mark Dayton and state lawmakers announced that the outlines of a new budget deal were in place, the Minnesota Vikings were hoping that the door was finally open to discuss their plan for a new $1 billion stadium in the Twin Cities suburbs.

It may not be quite that simple.

Vikings owner Zygi Wilf spoke with Dayton on Friday, telling him in a phone conversation that the team wants a stadium bill to be considered in a special legislative session expected to begin next week, according to Vikings vice president for stadium affairs Lester Bagley.

"He made the case that now is the time," Bagley said. "We've done everything that has been asked of us. It's time to do it. We're down to months left on our lease and every day that goes by, the cost of the project goes up."

… Arden Hills is about 10 miles north of the Metrodome in downtown Minneapolis. The new facility would be located at the site of a former Army ammunition plant with plans to open in spring 2015.

Wilf and the Vikings have pledged more than $400 million to the project, which also calls for a half-cent sales tax in Ramsey County that would contribute another $350 million and $300 million in state money.

This is just disgusting. Depending on where you Google, Zygi Wilf is worth somewhere around $300 million and the Vikings franchise itself is worth around $700 million. If he wants a new stadium, he has several options:

1. invest more of his own fortune and the team’s worth into the new facility
2. ask the team’s fans to invest into the facility in exchange for benefits (priority access to available tickets? special access to memorabilia?)
3. Get banks or investors to loan or invest the needed funds

The Vikings are a cash generating franchise. If a new stadium is a good investment, Wilf shouldn’t have any problems obtaining the funding he needs. If a new stadium isn’t a good investment, Wilf shouldn’t be demanding that the Minnesota taxpayers fund his boondoggle.

It’s disgusting the way that he’s demanding that a state that’s struggled to close a $5 billion budget hole turn around and give $300 million in state money and $350 million in county money to his privately owned business. I hope the state legislature smacks him down and shuts the door on his demands.

As changes to collective bargaining powers for public workers take effect today, the Kaukauna Area School District is poised to swing from a projected $400,000 budget shortfall next year to a $1.5 million surplus due to health care and retirement savings.

“These impacts will allow the district to hire additional teachers (and) reduce projected class sizes,” School Board President Todd Arnoldussen wrote in a statement Monday. “In addition, time will be available for staff to identify and support students needing individual assistance through individual and small group experiences.”

The district anticipates that elementary class size projections for next year will shrink from 26 students to 23 students. Class sizes for River View Middle School are expected to fall from 28 students to 26 students.

Kaukauna High School classes could be reduced from 31 students to 25 students.

Huh. That’s certainly … unexpected.

(Hat tip to Glenn Reynolds, Ann Althouse, and the Milwaukee Journal Sentinal.)

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The Tax Foundation crunches the numbers to see if it’s true that “the economic downturn, President Bush's tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.”

1) Tax revenues have fluctuated largely with the economy, dropping precipitously in the aftermath of the 2008 recession, but are projected to remain close to historical norms with or without expiration of the Bush tax cuts in 2012.

2) Entitlement spending has roughly doubled in the last 40 years as a percentage of GDP and is projected to remain there through 2021, pushing total spending well above any historical precedent. Thus, the CBO projects deficits as far as the eye can see.

Should we blame Bush (or rather, all that happened during his presidency) for this? In a sense, yes, but not for the reason the CBPP would have us believe; the role of Bush-era policies in the projected deficits is mainly on the spending side of the equation, not the tax side.

We have a spending problem, not a revenue problem.

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William Voegeli takes on the idea that “it’s absurd to cut spending because we tax the wealthiest Americans less today than we did in 1955”.

First he illustrates that today’s rich pay more in taxes than the rich of 1955 did. (They pay more in real dollar terms, even if they do pay less in percentage terms.) Then he cuts to the core of the moral argument.

If the principle is that the rich should pay higher taxes because they can more easily bear the rates, then we should keep raising tax rates until the rich can no longer bear them—until, that is, they're no longer rich. One need not be rich to find this prospect disquieting. A government that can take whatever it wants strikes a lot of people as unfair, and unfree.

He also points out that (many) blue states are net federal taxpayers while (many) red states are net federal tax recipients because “states with wealthier residents pay higher federal taxes per capita thanks to the progressive structure of the income tax”. If you don’t like the idea of states subsidizing each others’ residents, you need to scale back (or eliminate) the progressivity of the federal income tax.

I like this welfare reform idea too.

Buckley would confine eligibility for [Federal] welfare state programs to Americans living in states whose median income was below the national average. Because Buckley thought it was economically and politically debilitating to "turn the skies black with criss-crossing dollars," his reform would ground a lot of those dollars. Federal welfare expenditures would shrink, as the number of people eligible for them was limited, and prosperous states would pay for their own welfare programs without the transit and administrative fees of sending them on to Washington and then back to the states.

This reform would do much to take power away from Washington, D.C.

Only the poorest states would receive moneys from Washington. The more well to do states would spend their own money on welfare programs. Of course, they do that today too. But right now, that money goes through Washington (in the form of federal income taxes), where policitians get to attach rules and conditions to it, before sending it back to the states (as Medicaid payments or transportation funds or something else). If this reform were implemented, policitians would have many fewer opportunities to meddle and states would have a much greater freedom of action. That’s what I call a win-win scenario.

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I was disappointed to see that state Representative Robin Vos is undoing one of the good reforms that Governor Doyle put into place.

In the bad old days, Milwaukee police officers had cut a sweet deal that allowed them to keep collecting paychecks and benefits when they were fired by the police chief until a final ruling on the dismissal was made by the Milwaukee Police and Fire Commission.

That meant, of course, that it was in the best interest of a fired officer - even a guilty one - to challenge and delay a dismissal as long as possible. Keep those paychecks rolling in, pardner.

And it was like that for a quarter of a century, under a law that treated Milwaukee cops differently from those in the rest of the state. When they were fired, Milwaukee police officers appealed - 96 percent of the time. And they collected salaries and benefits during that appeal time - appeal time that was dragged out. For the 26 years that the law was in effect, the appeal time for police officers in Milwaukee was double that of fired firefighter dismissals.

Back in October 2004 that cushy deal blew up, after off-duty Milwaukee police officers viciously beat Frank Jude Jr. at a house party, and three fired officers collected more than $500,000 in pay while awaiting trial. The Legislature cut off the continued pay for police accused of felonies and Class A and B misdemeanors, and in 2009 extended the cutoff of salaries and benefits for all fired officers.

That did not mean that officers who were mistakenly fired were without recourse: if they appealed their dismissals and won they were entitled to back pay - in a lump sum. That has been the standard for the past three years. It is a fair standard.

So why, early in the morning last week, did Vos and the Joint Finance Committee move to reinstate the 2008 law that would keep officers fired for things other than felonies or Class A and B misdemeanors on the payroll during the appeals process? In 2006, we noted that over the years the City of Milwaukee had paid out more than $2.5 million to officers who were ultimately fired.

Bad move, Representative Vos. It's wasteful and it assumes the wrong that: that police are blameless, that complaints are generally baseless, and that police need to be protected against the general public. Those assumptions aren't always right and acting as those they were is a good route to making sure that the police and the public view each other with hostility and distrust.

Jeremy Shown does his part to "explain to the kids" what Governor Walker's education cuts are and how students will be affected by them.

The student/teacher ratio here in Wisconsin is about 15 students for every teacher.  I suspect your class may have more than 15 students because this ratio probably includes teachers who specialize in small groups of students that need extra help.  Regardless, a ratio of 15 is right at the national average.  A political ad that is running on TV here in Green Bay alleges that the Governor's cuts to education could increase class size to "35 to 40 kids in a class."  Again, this sound like it is intended to scare people into opposing the governor.  It's too bad that so many people will be convinced by an accusation that is almost certainly untrue.

Worth a read and something I agree with.

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The U.S. ran a $233 billion deficit, just in February alone. Fun fact:

As noted in the Washington Times, the GOP's proposed $61 billion in spending cuts is about 27 percent of the monthly deficit, while the Democratic plan — $6 billion — is just 3 percent of that figure.

Senator Rand Paul wants to cut $500 billion from the budget. No one in Washington is taking him seriously. And, yet, his proposal would still leave us with a budget deficit for 10 months out of the year.

Are there any adults in Washington? Any at all?

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Scott Walker has intended to cut state spending by $2.4 billion all along. The Budget Repair Bill, that limits collective bargaining, was intended to give local governments more tools to reduce costs besides just eliminating programs.

Christian Schneider details some of the ways that Walker's repair bill will help cut costs.

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Should (a) the "Cadillac tax" on employer-sponsored plans not be implemented as scheduled in 2018, and should (b) half of the Medicare savings provisions be repealed or otherwise not implemented the law will increase the deficit by up to $500 billion in its second decade.

That doesn't look good. Raise your hands if you think the government will really implement the "Cadillac tax", given that it would apply mostly to union benefits. And raise your hand if you think that the government will really crack down on Medicare, when old people are the most reliable voters in existence.

Anyone?

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A look at the top 10 political donors.

That's five unions to two businesses and three other groups. Five out of ten is half, by my always-suspect English-major math. And who are those other groups? ActBlue is a Democratic clearinghouse, the trial lawyers are super-lopsidedly Democratic, and four out of five of the Realtors' top campaign-cash recipients are Democrats.

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I was wrong last night. I was attempting to argue a point about stimulus spending and whether or not government spending actually helped an economic recovery. To offer some support for my position, I tried to relay from memory a point that David Henderson made over at EconLog. To wit, Keynesian economists predicted that the end of government spending after World War 2 would precipitate a massive rise in unemployment and a return of recession.

David Henderson quoted Paul Samuelson's prediction, from before the war ended.

When this war comes to an end, more than one out of every two workers will depend directly or indirectly upon military orders. We shall have some 10 million service men to throw on the labor market. [DRH comment: he nailed that number.] We shall have to face a difficult reconversion period during which current goods cannot be produced and layoffs may be great. Nor will the technical necessity for reconversion necessarily generate much investment outlay in the critical period under discussion whatever its later potentialities. The final conclusion to be drawn from our experience at the end of the last war is inescapable--were the war to end suddenly within the next 6 months, were we again planning to wind up our war effort in the greatest haste, to demobilize our armed forces, to liquidate price controls, to shift from astronomical deficits to even the large deficits of the thirties--then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced. [italics in original]

Samuelson predicted that the government would act to avoid this catastrophe by slowly ramping down spending and acting to increase public employment.

For there is every reason to believe that we shall not be lulled into a feeling of false security by the last war's experience or by the half-truth that the end of the war will witness a boom. No doubt, we shall retain direct controls for a period after the conflict ends. We shall taper off war production gradually. We shall undertake income maintenance in the form of dismissal pay for soldiers, unemployment compensation, direct and work relief expenditure. It is probable, although less certain, that, in addition, the Federal government will initiate employment maintenance measures such as large scale public works, etc. But even these will not be adequate to maintain full employment or any approach to it.

Here's what Henderson said actually happened:

This reinforces the lesson from the far more extreme U.S. experience after World War II: Between FY 1945 and FY 1947, federal government spending was cut by 61 percent. This was a 27-percentage-point drop from 41.9 percent of GDP to 14.7 percent of GDP. Yet the unemployment rate over that same time rose from 1.9 percent to only 3.6 percent. The postwar bust that so many Keynesians expected to happen never did.

History shows that it's possible for government to sharply slash spending without sending the economy into a tailspin. So far, so good. This I remembered last night. Then I tried to remember what David Henderson said about the GI Bill. What I remembered reading was that comparatively few people took advantage of the GI Bill and that it didn't have a huge effect on the company. What Henderson actually said was that comparatively few people took advantage of it in any one year.

Of course, direct controls were removed relatively quickly, certainly within a year and a half of the end of the war. War production did not taper off gradually but plunged. I don't think there was any dismissal pay for soldiers. You could see the GI Bill as a form of relief expenditure, but if I recall correctly, at any given time only about 500,000 people were taking advantage of the GI Bill to get education. [italics mine]

Oops. As I learned last night, 7.8 million veterans eventually took advantage of the G.I. Bill.

Thanks to the GI Bill, millions who would have flooded the job market instead opted for education. In the peak year of 1947, veterans accounted for 49 percent of college admissions. By the time the original GI Bill ended on July 25, 1956, 7.8 million of 16 million World War II veterans had participated in an education or training program.

Now I'm intrigued by the qualification "education or training program". If we're going to count the G.I. Bill as stimulus, I think it makes a difference whether someone went to an actual 2-4 degree program or whether they just went to a training program and then entered the workforce.

Is David Henderson right? Were only about 500,000 people at a time taking advantage of the G.I. Bill? I don't know. I've been having a hard time tracking down the number of students enrolled in college during the 1940's. According to a 1947 Census report, 62.2% of the 6-24 year old population was enrolled in school. Of the 18-29 year old cohort actually enrolled in school, 75.1% of them were veterans. But I'm having a hard time tracking down the actual absolute number of people enrolled in school.

Answers.com has an estimate, but I'm not sure where it's sourced.

Initial expectations for the number of veterans who would utilize the educational benefits offered by the G.I. Bill were quite inaccurate. Projections of a total of several hundred thousand veterans were revised, as more than 1 million veterans were enrolled in higher education during each of 1946 and 1947, and well over 900,000 during 1948. Veterans represented between 40 and 50 percent of all higher education students during this period.

While the G.I. Bill also had an impact on home sales following the war, its unemployment provisions were little used.

Millions also took advantage of the GI Bill's home loan guaranty. From 1944 to 1952, VA backed nearly 2.4 million home loans for World War II veterans.

While veterans embraced the education and home loan benefits, few collected on one of the bill's most controversial provisions--the unemployment pay. Less than 20 percent of funds set aside for this were used.

Job training and higher education certainly took off after World War II, much of it aided by the jobs bill. But overall government stimulus was negative as government spending was cut sharply and as millions of service men and women returned to the civilian workforce. In contrast to Keynesian predictions, the economy responded with a surge of growth and not another slump into recession.

For decades now state and local governments have been content to turn taxation over to the Federal governmnet. It's a pretty sweet gig. The Feds raise taxes -- capital gains, income, tarrifs, gasoline, whatever -- and get all of the voter anger and contempt. Then the Feds turn around and give the money back to the state in the form of grants, road spending bills, earmarks, or other forms of largesse.

It's an arrangement that gives State and local lawmakers the thrill of spending without the pain of actually, themselves, being responsible for taxing that much out of their residents.

It's an arrangement that does have some downsides. The biggest is the complete lack of local control. Remember the golden rule: he who has the gold makes the rules. A local Madison neighborhood is finding that out the hard way.

The pedestrian walkway under University Avenue at Spring Harbor Drive may be old and spooky. But school and neighborhood officials say it's necessary to keep kids and residents safe when they cross that roadway, where drivers routinely exceed the posted 35 mph speed limit.

Now they're worried that plans for a $7 million reconstruction of 1.9 miles of the avenue -- from North Segoe Road in Madison to Allen Boulevard in Middleton -- next year don't include re-building the tunnel.

... Madison officials say it would cost $1 million just to build a new tunnel because federal laws would require it to be accessible for people with physical handicaps -- unlike the current walkway -- and so far the money isn't available.

City officials say they'd love to make the passage's users happy, and staff engineer Christy Bachmann said the city has applied several times for federal money to redo the tunnel, but the project always ranks low and loses out on the grants. Ald. Mark Clear, whose 19th District includes the underpass, said the city has to do something with the passage come next spring.

"Because the reconstruction project is federally funded, they require that the pedestrian underpass at University Avenue and Spring Harbor Drive be brought into ADA compliance or removed," Clear said, referring to the federal Americans with Disabilities Act.

Glen Yoerger, an engineer for the city of Madison, said the reconstruction of the street, 80 percent of which will be paid for with federal funds with the remainder coming from local funds, will install curb and gutters and medians where needed along University Avenue, among other improvements.

Well, better luck next time kids. Your Aldermen, County Board members, state Assemblymen, state Senators, and Governor long ago gave up the right to actually govern this state. As a result, they're powerless to help you now.

Speaking personally, I'd love to see a State legislature and a State governor stand up to the Feds and fight to keep tax dollars. Then, take responsibility for collecting the money for local needs and spending the money in a way that will best serve local needs. The Feds are never going to be as good at knowing what your State needs as you. Quit dodging responsibility and start doing your jobs.

Greg Mankiw explains the spending problems with the healthcare bill through a short, imagined dialog between two friends. Here's the kicker:

Even if you believe that the spending cuts and tax increases in the bill make it deficit-neutral, the legislation will still make solving the problem of the fiscal imbalance harder, because it will use up some of the easier ways to close the shortfall. The remaining options will be less attractive, making the eventual fiscal adjustment more painful.

With the President's current budgeting trends (spend as much as you can, as fast as you can), we're facing an $11.3 trillion deficit by 2020. By that time, the federal debt will be a staggering $20.3 trillion. (The debt was $5.8 trillion at the end of 2008.)

It's not enough to be happy that we're maintaining the current levels of spending or -- even worse -- that we're managing to spend more in a "deficit neutral" way. It's serious business and it's time we stopped "kicking the can down the road to future generations", as the President likes to say.

The Myth of the Recovery

The gains on Wall Street have been goosed largely by government spending and guarantees, not the usual private sector–funded growth. And federal spending cannot continue indefinitely without deficits and debt service spiraling out of control. John Silvia, chief economist for Wells Fargo, says, “We have seen a recovery, but it’s driven primarily by federal spending and special federal projects. The character of this recovery is very different than we’re used to.”

Consider that 37 percent of the third-quarter GDP growth was due to motor vehicle purchases, which were stimulated almost entirely by the Cash for Clunkers program. “The third quarter was really just a lot of Cash for Clunkers spending that won’t be sustained in the foreseeable future,” Silvia says. (Final statistics for fourth quarter spending were not available at press time.)

The car scheme, an attempt to jump-start the bankrupt auto industry, offered consumers a government-funded credit of up to $4,500 if they traded in their gas guzzlers for more eco-friendly vehicles. But since most participants probably were already planning to buy a new car, the program essentially shifted future demand for automobiles to the third quarter of 2009. Instead of continuing to grow, car sales dropped 34 percent immediately after the program ended. Figure 1 shows U.S. auto sales in 2009 largely following the 10-year average month-to-month change until the Cash for Clunkers credit jolted demand, followed by a subnormal drop.

This is not real growth. It’s the national equivalent of a credit-card buying spree, with the bills—in the form of debt service and unfunded liabilities—to be paid off later. It is a faux recovery.

"Let me be clear. If you like the health plan you have, you can keep it." President Obama has made this claim multiple times about healthcare reform. But it's simply not true. Let me offer one small example.

My wife and I enjoy our Flex Spending Account. We put in enough money each year to cover the various drugs we'll need to buy (both prescription and non-prescription), a new pair of glasses, and money to cover any other medical expenses we anticipate. Next year, I'm planning on putting in an extra $4000 for corrective laser eye surgery, so that I can finally stop wearing glasses. We like the plan we have.

Well, under the Senate healthcare bill, we'll no longer have that plan.

Both the House and Senate bills include a change in the definition of a “qualified medical expense” that impacts reimbursements and withdrawals under all types of health care accounts (i.e., FSAs, HRAs, HSAs, and Archer MSAs). As of 2011, expenses incurred for over-the-counter (OTC) medications and products will no longer be eligible for payment or reimbursement from any of the health care accounts. The House bill definition appears to apply to all OTC medications. However, the Senate bill would still allow OTC medicines obtained with a prescription and insulin to be reimbursed or paid tax-free from the health care accounts.

The most significant change likely to be enacted is an annual limit on contributions made by employees to flexible spending arrangements (FSAs) for health care. Both the House and Senate versions of health reform legislation would limit contributions to no more than $2,500 annually. The limit would be indexed to inflation for future years. Under the House bill, these changes would not take effect until 2013. In the Senate bill, these changes would take effect in 2011.

If the current "reform" bills, I wouldn't be able to buy OTC drugs -- Sudafed, Mucinex, ibuprofen, Tylenol -- tax free. If the "reform" bills pass, I wouldn't be able to save tax free for corrective eye surgery. I would no longer have the plan I like.

It's just one more broken promise from a president that's building quite a pile of them. Apparently, "yes we can" act just like any other politician.

President George W. Bush was the biggest spending U.S. President since President Lyndon Baines Johnson. He "he presided over an 83-percent increase in overall federal spending, which includes defense, domestic, entitlements, and interest. Even without TARP and Fannie/Freddie, spending was up a huge 70 percent under Bush over eight years. By contrast, total spending under eight years of President Clinton increased just 32 percent."

Voters were justifiably angry about this massive increase in government largesse. In reaction, they threw out the sitting political party and vote en-masse for the candidate who promised a return to responsibility, a turn away from reckless credit card fiscal policies and a return to fiscal discipline. Voters wanted government spending reined in and they were determined to get it. Both the 2006 Congressional elections and the 2008 Presidential election were about spending, to some degree.

So why are voters now so angry at President Barack Obama? Surely they don't blame him for the high levels of government spending? Well, why shouldn't they? Since taking office in January, 2009, he's proposed massive amounts of new spending: a stimulus bill, a cap and trade energy bill, a massive expansion of healthcare, a "cash for clunkers" stimulus, a housing stimulus, and more. For voters weary of out of control spending, the Obama administration's first year has looked remarkably like a left turn into an all-you-can-eat spending buffet.

But don't believe me. Believe the Congressional Budget Office and the Washington Post, who put together this informative little graphic.

Note the $400 billion line, that President Bush's deficits barely managed to creep over. Note that President Obama's deficits aren't projected to get anywhere near this low a level over the next 10 years.

With all of the voter anger about President Bush's deficit spending, why shouldn't the voters be angry about President Obama's much higher levels of spending? Voters don't need to have a short-term memory to be first angry about President Bush's spending and then angry about President Obama's spending. They just need wide open eyes. Apparently, it's President Obama and Congressional Democrats that have the short memory.