Free and clear

The Thinker by Rodin

Protestors on Wall Street and elsewhere are occupying spots in major cities, trying to make the top one percent acknowledge the ninety nine percent. Many are without jobs. Those with jobs may have taken pay cuts, or were forced to go part time, or were required to contribute more toward health care or retirement. Many of those protestors also carry the burden of underwater mortgages. Others are saddled with burdensome student debt.

They are the unemployed, the underemployed, the over leveraged, the disenfranchised and the generally pissed off. If you are one of them, at a certain point you might as well pitch a tent in Zucotti Park. The weather may be too hot or too cold. You may have to wait in a line at McDonalds at 3 AM to use a toilet. You may suffer from insomnia from the din of a city that never sleeps and smell like a bus depot. But at least you are in the presence of fellow compatriots. You have known relentless misery, you are knowing more misery but at least you can talk with someone who really understands. And once a day or so you can shout out your lungs at the largely tone-deaf moneyed class who might, if the weather is nice, toast you with champagne from the balcony of the New York Stock Exchange.

Mortgage rates are at record lows, but little good this does someone who is underwater on their mortgage. Because they had the flawed judgment to misjudge the future, they are no longer credit worthy, so certainly no respectable lender is going to let them renegotiate their mortgage. The Sword of Damocles shall always be pressed against their chests. No, only good people, really special people, i.e. those with actual equity in their house and good jobs get to refinance their mortgages at crazy low interest rates. In that sense, maybe I am one of the one percent.

No, not really. Our income is not that lofty. We’d need $343,927 in adjusted gross income to fall into that bracket. We’re not quite in the top five percent either. We’d need $154,653 in AGI to qualify. We come close though, so we are definitely in the top ten percent, which is good enough for many of us with mortgages to get one of those sweet refinance deals. Unlike those with underwater mortgages, our property had about twenty years to mostly appreciate, so that when prices finally fell we still had plenty of equity. Plus, over nearly two decades we have chipped away at our house’s principle. The current balance on our mortgage is $64,211.24. We paid $191,000 for the house in 1993 and took a mortgage for $171,900 of the amount. It was not until two years ago that we managed to get the balance below $100,000.

Despite our current 6.875% interest rate, our credit union is still happy to refinance the balance of our mortgage, if we don’t mind giving them $2581 in various fees for the privilege. In exchange they will pay off our 30-year mortgage and give us a new 10-year mortgage at 2.875%. We should save $372 a month in interest, once we pay off the fees, which will take about seven months.

As for those of you with underwater mortgages, sorry, you are largely out of luck. I’d like to say we possessed some sort of genius, buying low in good neighborhoods but the truth was we were just lucky. My wife and I could easily have been underwater on our mortgage too. By chance and perhaps date of birth we rolled double sixes.

Please don’t be angry with us. Yet there must be some sort of element of unfairness here. Someone must be getting shafted when we start accumulating $372 more a month. Rest assured that just like the brokers on Wall Street this extra income will be unearned. I did not have to take a part time job at a Wal-Mart to bring home this extra bacon. I just had to fill out some papers, tidy up the house for the real estate appraiser and endure yet another loan closing ceremony. This will be our fourth, since we first owned a townhouse and already refinanced once. The only deficiency to our refinanced loan is that I will have less mortgage interest to write off on my taxes. Still, I would rather pay more taxes than pay a lender extra interest. Perhaps some of it will trickle down to some of you. I would not hold your breath. I don’t plan to hire a gardener, and I already got a service that mows the grass.

Granted, owning a house comes with all sorts of other expenses not factored into the principle, interest and escrow. The entire outside of our house with the exception of three doors has been replaced. Every appliance has been replaced, sometimes more than once. Still, I can remember the days when I was living on a marginal income and rented. Once a year like clockwork you could count on the rent being raised, generally well above the cost of living. Soon we will be paying less per month in principle and interest than we paid thirty years ago per month when we lived in an apartment. It makes no sense. Meanwhile, as the downsized give up houses and end up back in apartments, extra demand is making rents go up. This crazy disparity makes no sense to me. It probably does to a Republican like Herman Cain. After all, they are loooosers.

The day is not that far off (I am hoping less than five years) when we will make that final mortgage payment. Then there will be no more mortgage payments ever. We will own the house, not to mention our cars, free and clear. Moreover, for the first time since I was age twenty or so I will be able to honestly say that I won’t owe anyone a dime. I can lay down the heavy burden of debt from my shoulders at last. I plan a party on that day, and drinking a lot of expensive champagne. I might even get drunk.

Being free of debt won’t mean our lives will be free, of course. I don’t know what I will do with all that extra money every month. Perhaps with my decent pension and retirement saving I will truly retire and never work another day in my life. Perhaps it will get eaten up in ever more egregious health care premiums or long-term care insurance. For a while though I hope I can at least revel in being free from the burden of debt.

Perhaps I will pitch a tent in Zucotti Park.

America begins its death throes

The Thinker by Rodin

My federal salary has been frozen for two years by law because previous administrations and congresses failed in their duty as national stewards. I am not happy about it, but a frozen salary beats unemployment. Republicans are anxious to do a whole lot more than just freeze federal salaries. They want to cut government, not intelligently like a surgeon with a scalpel, but like a medieval soldier with a battle-axe. Apparently, just freezing salaries is for weenies. Cutting federal salaries shows manhood. Republicans have all sorts of ways they want to show their manhood. Most of them actually suggest insanity. Many are actually hoping to put the federal government into default. They will do this by not extending the federal debt ceiling in the spring. Why? Because they say they were elected not to increase the deficit, but mostly because they can and because inflicting pain on people is fun.

Tea Party Republicans want to cut $100 billion from non-defense discretionary this year, for a fiscal year that ends September 30. Apparently they think a trail of unprocessed social security checks and furloughed air traffic controllers are going to improve us. In fact, a Republican plan calls for a fifteen percent reduction in the civil service and a five-year freeze on federal salaries. One Republican congressman wants to furlough federal employees for two weeks a year. Naturally there is nothing like a plan for doing these things intelligently. They goal is to maim with the hope of killing altogether. It’s like setting fire to your crazy neighbor’s house. It’s quite a belly laugh and it feels so good. Only defense spending is sacrosanct.

Governments everywhere are having problems matching revenues with needs and obligations. The State of Illinois is raising taxes dramatically to do minor things like pave its roads and house its prisoners, after papering over its deficits with accounting tricks for many years. Virtually every state with the possible exception of North and South Dakota are not just tightening belts, but also often dramatically cutting services. States are thinking of doing things that were previously unthinkable, such as releasing minor offenders from state prisons to save money. Some Oregon school districts can’t even afford put their children in school five days a week. The children have to hope that four days of education will allow them to adequately compete in adult life. More likely, they will be competing for positions of stock clerks and cashiers at Wal-Mart. Cities are not exempt either. Harrisburg, Pennsylvania, which hosts the state’s capital, is bankrupt and the financially stressed state government will not bail them out. Meanwhile, to make the new health care reform law work, the federal government is requiring states to add more poor people to its Medicaid roles, which requires more revenue. The states are resisting.

States cannot go bankrupt because they have the power to tax. Those state employee pension plans may be expensive, but to make them solvent states could simply raise taxes. This doesn’t sit well with taxpayers, of course, which is why state bankruptcy holds appeal for some. Everyone sort of assumed that the economy would expand forever, with a few hiccups here and there. When the money got tighter, legislatures did what they often did: they rolled the die and hoped for the best.

Where some see crisis, others see opportunity. “Others” would include former disgraced House speaker Newt Gingrich, who wants the federal government to allow states to declare bankruptcy. He figures it will work the same magic on those evil state and local employee unions that it worked on the auto unions. By freeing states from their pension obligations, states can rapidly get back into solvency. Of course there is the minor matter of state employees, who joined the public sector for inadequate wages on the promise that compensation would come in the form of a decent pension. If Gingrich has his way, they will be eating dog food in their retirement, assuming they can even afford that.

Federal employees like me are not necessarily immune either. A law can make anything retroactive. If a law can freeze my pay for two years, it can reduce my pay by ten percent or find other ways to cut my retirement income. I am eligible to retire in May 2012. Looking at Greece as a worst-case model, I figure a twenty five percent cut in my pension in the name of fiscal solvency is possible, if not probable. It might be more. Some future Congress, citing a grave financial crisis that previous congresses inflicted, may just defund our pensions altogether. (Somehow, I’m betting tax cuts for millionaires would keep going.)

Changing this depends on whether we can keep growing as a nation. If we can then tax revenues eventually start gushing in. Curiously, despite all the rhetoric coming out of Washington, politicians don’t seem to care that much about creating growth, at least the kind that puts money into the pockets of ordinary working people. The House of Representatives, sent to create jobs, is focused on the impossible task of repealing “Obamacare” instead. They are also giving priority to tightening abortion laws, by trying to outlaw abortion coverage in private sector health insurance plans. (So much for getting the government out of our business.) Former Pennsylvania senator Rick Santorum, rumored to be angling to run for president in 2012 has prioritized protecting blastocysts in a petri dish above the life of an actual two-year-old girl.

Collectively, our nation is dealing with the repercussions of thirty years of prioritizing ideology and short-term thinking over the nation’s long-term needs. Our new Congress could, for example, be working on ways to make Medicare solvent. That might indicate that they are actually earning their salaries. Instead, at least in the House of Representatives, they are more concerned about investigating all aspects of the “corruption” in the Obama Administration. These actions point to putting axes to grind ahead of the needs of the nation. No end is in sight.

What we need is not a Congress of short-term ideologues, but a Congress willing to address the long term needs of the nation. You know, people charged with being stewards of our nation, looking beyond reelection in two years to making sure the nation is secure, solvent and prosperous twenty and fifty years from now. In short, we need politicians who care as much about our nation fifty years from now when they are dead than two years from now.

I can’t see how to possibly sell this to a political set of ideologues and voters only concerned about the short-term. Other nations, like China, do not have these problems. They instead have long-term strategies and systematically execute them. That we can no longer do this points to the real reason for our national decline. Unless we can collectively envision and work toward the same common future, our national decline is guaranteed. American exceptionalism? Hardly. Instead, America has evolved into a nation that promotes systemic national dysfunction.

And unless you care a whole awful lot about our future and demand these kinds of politicians, your future, your children’s future and our nation’s future will only get bleaker. As for my pension: I had best not count on it, or Medicare, and maybe not even Social Security.  The sad truth appears to be that our nation’s glory days are over and we are in for a long and painful decline. In fact, it is already well underway.

My plan to reduce our deficits

The Thinker by Rodin

Over at Daily Kos, many are calling President Obama’s bipartisan commission to recommend was to achieve fiscal stability, “The Cat Food Commission”. If enacted, a proposal released yesterday by the commission’s co-chairs Erskine Bowles and Alan Simpson would certainly require a lot of austerity and painful choices. This is why it doomed to go nowhere. However, it is useful to underscore what it might take to actually achieve a balanced budget.

It’s like Bowles and Simpson tried to produce a document they knew could not possibly garner any support. Even some members of the commission, who were surprised when the co-chairs released it, found they could not support it. Outgoing House Speaker Nancy Pelosi quickly rejected its suggestions for changes to Social Security and Medicare. There are some good ideas in the recommendations. Simplifying tax rates, for example, would make a lot of sense and make it harder for some to avoid paying a fair share of taxes. Overall, the proposal requires too many sacred cows to be slain. As one example, it says that we should stop the home mortgage interest deduction. Good luck on getting that one through Congress. You can bet if it came to a vote, the real estate lobby would target for defeat any member of Congress that voted for it.

So I know a few things already. Congress will not pass some massive, comprehensive budget reform law. That is as likely to happen as a single payer health care plan was likely to pass in this Congress. No, if it happens at all, there will be all sorts of backroom wheeling and dealing, with the big winners likely big business and the big losers ordinary, income-challenged Americans. Most likely, Congress will choose to punt any real reform until sometime past 2012 and hope an improved economy keeps voters from focusing on the problem. While our budget deficit has been a long-standing and chronic problem, what citizens really want from our government now are jobs and some semblance of the prosperity they had ten years ago. The budget deficit issue was mostly fodder whipped up by Republicans and Tea Partiers to add to our anxiety level so they could win political power.

No question about it: our budget deficit is bad. However, it is not nearly as bad as some would suggest. Our debt, as a percentage of gross national product, has been much higher than it is now. Toward the end of World War 2, public debt hit around 110% of GDP. Now we are about 50% of GDP. This number would be a lot less intimidating if we were still not painfully climbing out of a recession. If you produce less output, then of course your debt as a percentage of GDP will be higher. After World War 2, the government generally lived within its means or racked up only modest deficits. We reached a post World War 2 low during President Nixon’s term of office. It has skyrocketed under Republican presidents since that time. As a nation, we have endured much higher levels of relative debt before and came through it, and have done it without draconian solutions like cutting social security benefits.

What disturbs me the most about the Bowles-Simpson proposal are some of its assumptions. One assumption is that tax rates should be as low as they are now. If anything, our current tax rates are too low and need to be higher. In order to keep taxes at that low a level and shrink the deficit, it proposes all sorts of unpopular ways of cutting expenditures, most of which are impossible to pass. Moreover, since they are politically impossible to pass, at some point you must raise taxes to make up the difference.

Their proposal to reduce social security benefits and extend the retirement age is very unpopular with the public, who are happy to pay higher withholding rates in order to keep the current retirement ages. Then there is the good news from the system’s trustees that Social Security is solvent for at least the next fifteen years with no changes to the law. Solvent means that Social Security’s accumulated assets (in U.S. Treasury Bills) won’t be exhausted for at least 15 years, and it only just recently started to draw down from them. In short, Social Security is not causing a drain on the treasury and for now its surpluses reduces our budget deficits. So it needs tweaks rather than the draconian solutions in this proposal. Rather, it appears that the Bowles-Simpson proposal wants to monetize the Social Security surplus to further reduce the deficit. This can happen if the retirement age increases because the U.S. Treasury makes money as long as Social Security collects more than it pays out. Frankly, this and similar “reform” proposals are a scam and taxpayers should be up in arms about it. Many of the new Tea Party members of Congress were elected promoting the false claim about the imminent bankruptcy of the Social Security system.

What are feasible ways to really get to a balanced budget again? The fastest way is to have an economy that is rapidly growing with near full employment, because that means more taxes are collected, obviating a whole lot of painful deficit reduction choices. Arguably, the fastest way to do this is to borrow more money to stimulate the economy some more. That’s not likely to happen and even I agree that the odds it would work at creating lasting growth are dubious. This, combined with modest tax rate increases, say to levels during the Clinton Administration, would do a lot to bring in more revenue and close the deficit gap.

Since Social Security is solvent, the three biggest factors driving the deficit are Medicare, Medicaid and defense spending. (Too low tax rates should go without saying.) The new health care law will, if it is not overturned, squeeze cost savings from Medicare and Medicaid, slowing their rate of growth but not to the point where they keep up with general inflation. It would not be popular, but legislative caps on these programs to a percent of the GDP would be a sane approach. If anything should stimulate efficiency, this should. Caps could be raised, but only if revenues were raised as well, i.e. it was deficit neutral.

Then there is the Department of Defense, which even its secretary admits is a vast, inefficient and bloated bureaucracy, feeding an ever-expanding military industrial complex. Our military is also vastly overleveraged. Frankly, we cannot afford the military we have. It needs to be shrunk. As a nation, we need to make hard choices about where to spend our defense dollars. The Bowles-Simpson proposal at least does us a favor by pointing this out. Reducing our military presence overseas and closing many of our overseas bases makes a lot of sense.

If you look at the drivers for deficit spending, along with entitlements, elective wars also drive up debt. Bush’s two wars in Iraq and Afghanistan will cost at least three trillion dollars, and probably more like four to five trillion after all the costs are paid out. Our current debt is about 13 trillion dollars, which means just these two wars have bloated our debt by nearly 25%. Elective wars have huge financial consequences so they must be much harder to start and need to be paid for. Here is my proposal: strengthen Congress’s right to declare war or any major military incursions. Require that all wars be paid for in higher taxes, unless two thirds of both houses of Congress agree to suspend the rule. Another lesson: diplomacy is a lot cheaper than war!

Do these things and many of the other problems will take care of themselves. Any new entitlement needs to go through a process to ensure it is deficit neutral (which is the case with the health care law, by the way). Congress’s recent pay-go rules need to be codified into law, which will probably require a constitutional amendment.

Politicians often find it more expedient to cut discretionary spending, but excluding defense, this is a small portion of the federal budget. In 2009, non-defense discretionary spending was only 12% of the federal budget, or about $437 billion dollars out of a $3.5 trillion dollar budget. This spending rarely rises much beyond inflation. Entitlements and defense spending are driving up the debt. While there is wasteful non-defense discretionary spending, it’s likely not a lot, and certainly not enough to solve our deficit problem. For most of us giving up our space program, food and drug safety, air traffic control system, national parks, the weather service and such are not negotiable anyhow.

In short, we don’t have to retire at age 69 in order to solve our fiscal problems, but we do have to seriously contain costs for entitlements, decide defense spending is not sacrosanct, keep ourselves out of elective wars, and, yes, raise taxes to something reasonable but not too burdensome. Why would we choose to spend our senior years eating cat food when it is not necessary?

Let’s get to it.

Looking out for Number 1

The Thinker by Rodin

I hope I am wrong, but I am predicting a mean decade ahead, particularly here in the United States. Americans may be voting their bum out of office on November 2nd, hoping for real change or genuine bipartisanship, but at least through 2012 they will not get it. Political paralysis over the next couple of years is easy to predict, with a high probability that a Republican House of Representatives will try a reprieve of its 1995 government shutdown. The results of the 2010 census will encourage governors to draw congressional districts even more tightly to ensure even higher partisanship in Congress.

In addition, there are structural problems with our economy that are going to linger, particularly high unemployment. The “government is spending too much” mantra combined with businesses sitting on huge piles of cash but unwilling to use it to actually hire people simply means a prolonged period of high unemployment. And since Republicans in general will block spending on infrastructure and high tech investments, those jobs that will be created are mostly going to pay less. Add to this mess our massive foreclosure problem, wars in Afghanistan that will linger, massive climate change and the natural disasters that they will cause and it is hard for me to be optimistic about anything.

The Glenn Beck’s of the world would have me running to buy gold at inflated prices as a hedge against all this uncertainty and potential turmoil. The problem with gold is that it is not fungible. In any event, the world now runs on electronic currency. I am not worried about a currency collapse, but it’s clear that government is not going to look out for me, the little guy. And due to the Supreme Court’s incredibly bad Citizens United decision, we can expect even more extreme government by and for the corporation. Unless you are very agile and smart, you are going to be screwed.

Since I like prefer to live in the real world, I have been running “what if” scenarios with my financial future. I happen to be a federal employee who can retire in less than two years. Until recently, I assumed that I would never have to worry about my pension. It is as solid as the United States government and its sterling ability to print money, right? However, using Greece as an example, at some point if in the opinion of its creditors a state is insufficiently well managed, the creditors will show who is really in charge. In Greece, the effect has been a sudden reduction in the wealth of its citizens in general and government pensioners in particular.

While the social security system is fully solvent for at least twenty years, Medicare is not and Congress seems unwilling to do much more to make it more solvent. Larger structural issues remain to be solved but of course, there is nothing close to consensus on how to do this, and the situation will only get worse. It’s easy to see that even for a vested civil servant like myself, my pension may be on someone’s chopping block.

While I don’t see my pension going away altogether, I can see the federal government devolving into something like California. I can see mandatory cuts in pensions as well as many other programs in order to make creditors and Wall Street happy. How do you survive this new reality when the assumptions you made for your life plan change fundamentally?

Answer: not very well, as many unemployed and overleveraged Americans have discovered over the last few years. While I have escaped it through the virtue of steady employment, watching what has happened during the Great Recession to those caught in its vice is instructive. It has had me sending emails to my financial adviser, who all along has warned me that the solvency of some of my retirement benefits was questionable.

To some extent, I may worry too much. My wife and I are fortunate because we have mostly lived within our means. We do not carry a credit card balance. Our homeowner’s equity line of credit is now paid off as well. All our cars are paid off too, although we are dealing with the major expense of shepherding a daughter through college. It’s not today I am worried about. It’s my standard of living ten years or more from now when I am living on a fixed income that causes me concern. It’s when Uncle Sam’s creditors are forcing austerity and all that austerity means they are raiding my pension fund and scaling back my benefits. I think it is unlikely that my pension will disappear altogether. However, I do think it is prudent to assume a worst case of a 25% reduction in my pension, 10% reductions to my social security income and a lot higher premiums for health insurance. I am having my financial adviser run the numbers. What would my retired life look like? How can I mitigate now some of these potential serious financial consequences to my future?

Here’s the gist of what I am learning. You may want to take notes. I need to save as much as I can and pay off debt as fast as I can as well. For me, saving more is actually difficult to do. The federal Thrift Savings Plan is essentially a 401-K and I have maxed out my contributions into it. The one thing I can do is put money into an IRA as well, but that is limited to $5000 a year. I could save more as a financial cushion, but there are no tax benefits for doing so, and I must report interest as income.

The second thing I am learning is that I need to get out of debt. We are doing very well there, but we still have $85,000 for so left on the mortgage. This seems the wisest place for me to park any extra income. I have been chipping away at it the seventeen years we have been in the house, but need to be more aggressive. I am looking at strategies like applying all leftover income to paying off the principle on our mortgage.

So basically, to reduce our impact to any financial shocks, we need to be debt free as soon as possible, and save and invest as much money as possible. There are also other strategies that may seem not particularly patriotic. My financial adviser has had me move most of our funds into international stocks, where economies that are growing and the legislatures have more common sense. While Wall Street remains one of the few bright spots in our economy, investing too much money with Wall Street may be unwise, at least over the course of the next decade or so, because it will be buffeted by shocks to federal and state governments that seem likely to continue and exacerbate.

With luck, at some point, Democrats and Republicans will agree on a common path forward. It’s not hard to see what that future will be because it is likely to be laid out for us by events. Eventually we will all find that our lives will become more austere and we will be paying more in taxes. There is no way to escape this reality indefinitely, and no amount of vitriolic partisan clamoring otherwise can change it.

However, if our mortgage is paid off, we have a new real asset: our house. Washington Post financial columnist Michele Singletary made an excellent point recently: those of us who think having equity in our house means we are homeowners are fooling ourselves. We are homeowers, and our home as a permanent as our ability to keep sending mortgage payments every month. You are only a homeowner when the mortgage is paid off. Only then can you truly count your house as an asset and as part of your net worth.

We do own our investments free and clear. Properly managing that so it grows but does not lose value when we retire, that matters and is something we can control. Unfortunately, there are so many other variables that I cannot control. I can change those variables within my control and lessen my overall financial risks, and I can do that by saving like the Japanese, investing wisely and getting out of debt.

You are welcome to follow these strategies as well, which are sound and should be much more viable than buying gold from Goldline. I suspect many of you are younger, start with many more liabilities and have less in the way of income. In general, we all need to acquire the painful habit of living beneath our means to the extent we can and save or invest the difference. In addition, we need to become educated if we are not and continually keep our education relevant to the job market. The unemployment rate for college graduates even during these tough times is about five percent. It’s those with less education who are bearing the brunt of these times. Education in a decently paying field is the key, as well as mastering the social skills to get and retain these jobs.

It’s clear that no one is willing to look out for you anymore. Our safety net is collapsing. So much about the future is uncertain, but following these principles should greatly increase the odds that you will emerge with most of your standard of living intact.

Haiti is our harbinger

The Thinker by Rodin

Perhaps it is just winter, always a dark time of year. Or perhaps I have spent too much time reading Joe Bageant who lives life without the rose colored glasses on so well he makes my head groan. Republicans winning a special election for Ted Kennedy’s seat didn’t help either. I am finding it hard to escape the feeling that our species is toast. We are rearranging the deck chairs on our Titanic. The ship is going down but conventional wisdom is it is good somehow. “You know, we are ten feet deeper in the water than we were an hour ago. But it’s good. It gives us more ballast. Gives the crew something to do pumping out all that bilge water. Another margarita anyone?”

Then terrible tragedies like the Haitian earthquake occur that reinforce that not only are bad things happening all around us but also that they are getting worse. The human toll from the earthquake is but a wild estimate at this point, but 200,000 deaths seem to be the current working number. For many Americans, or at least some Americans like that usual jackass Rush Limbaugh, it’s like who cares about the freakin’ Haitians? Oh, and by the way, Obama is using this for his political advantage. But what else would you expect from Rush? This same guy checked into a hospital in Hawaii recently complaining of chest pains. Of course, he used it as an opportunity to gush about how we have the most wonderful health care system in the world, at least for self insured multimillionaires. As for the rest of us, well since we are not multimillionaires I guess we don’t count. In Rush’s mind, we’re just Haitians. If a 7.0 magnitude earthquake struck downtown Washington D.C., Rush would doubtless be calling for us to do no more than bulldoze the whole city under. God bless his compassionate soul.

Our world is rapidly devolving into the dystopia Neal Stephenson chronicled back in 1992 in his prophetic novel Snow Crash. Unable to afford to live in our own homes, or even an apartment, how long will it be before we, like Hiro Protagonist, call a room in a U Store It home. In fact, newspapers periodically chronicle people in my area doing just that. Ask any homeless Haitian and they would be thrilled to call a room in a U Store It a home. At least it is clean and in many cases heated. Those Haitians who are still alive are fleeing the capital Port-au-Prince. Tent cities full of refugees are emerging, but international aid can address just a tiny portion of the overwhelming need. Those who survived for the most part cannot find clean water and food. If the earthquake didn’t kill them, perhaps the cholera and dysentery which will soon be rampant will do the trick. It sounds like it would make Rush Limbaugh happy.

Meanwhile, Pat Robertson believes Haitians made a pact with the devil. That’s why they died in such large numbers. Seriously. This is what religion can do otherwise sensible people. And this guy somehow runs his own university. I guess that long established fault line running though Haiti had nothing to do with the earthquake. Or God told all the sinners to build houses right above it. Any illiterate and starving Haitian has more sense than this Robertson fool, including those who believe in Voodoo.

The sad reality is that hardly anyone without relatives in Haiti gives a shit about Haiti. We do our best to keep Haitians out of the country so their impoverished relatives won’t join us in the states and lower our property values. To the extent that we have cared over the years, we have used Haiti as an experiment in our capitalist values. Organizations like the International Monetary Fund loaned money to Haiti then turned the screws, making repayment virtually impossible.

It’s not like in the best of times their lives were not already miserable. They have the lowest standard of living and life spans in the Americas. They also sit in the middle of hurricane alley. When hurricanes arrive, like earthquakes, they tend to collapse an already fragile infrastructure. Now this: half of the buildings in and around the capital are destroyed or unusable. Of course, they could be rebuilt to modern building codes. Think that is going to happen? In your dreams! Building codes take money you can’t afford living on a dollar a day or less, and Rush Limbaugh certainly doesn’t want to give the ingrates any more. As for Robertson, it would be the same as giving money to the devil. After a year or so, we will have largely forgotten all about their plight, but they will still be as miserable and hopeless as always. Incredibly, when there seems no possible way to make their lives any more miserable, a subsequent disaster proves us wrong.

No, we will soon go back to ignoring Haiti, as will most of the world, because we will need to become xenophobic. As the health care debate has demonstrated, in America we believe in every man for himself, come hell our high water. We are not far from a time when we will leave the uninsured bleeding to death outside our emergency rooms because we won’t want to shoulder even their emergency room costs. With our national wealth quickly moving overseas to countries like China, America continues to be one big fire sale. Soon we are going to emerge from our collective hangover to discover that we are no longer a first world power. This is what happens when you neglect your infrastructure and human capital costs long enough because you are intoxicated by ever lower taxes. The whole neighborhood just goes to hell. We will realize that we can no longer afford our military, our international commitments, or even Social Security and Medicare because our creditor China says we can’t. And that means when we have no more means to beg or borrow, we move toward second-class status, which is sort of like Mexico. America will become a harder, meaner, more intolerant, more polluted place that will border on anarchy. The gated communities will go up just like in Snow Crash, but this time there will be armed guards patrolling the fence and manning the gates.

What we can do, like almost every country in the world, is keep adding recklessly to our population, which today guarantees a lower standard of living. More natural wilderness is transformed into ugly sprawl. With more mouths to feed, we have more reasons to punt issues like global warming because trying to maintain our standard of living will always trump over serious action on the environment. We are already there. The social contract is fraying. Living on social security alone means you are living in wretched poverty. At best, so long as you do not get sick you can afford to inhabit that trailer somewhere. However, there won’t be enough left over to fix that hole in the rusted trailer roof, let alone buy your heart medicine.

I see it in my own in-laws. To the extent they have a middle class lifestyle, it is thanks to a reverse mortgage on their house in a burb outside of Phoenix. It was not worth that much to begin with and is worth even less now. Most likely their equity is gone. When their air conditioner broke down, they were looking under the sofa cushions for money to get it fixed. About the only thing they can count on is Medicare and getting that monthly social security check. They allow them to exist, but certainly not to live. It’s been more than a decade since they took a real vacation. Instead, you eat light and watch a lot of Fox News.

A chain always breaks at its weakest point. In the western hemisphere, that has traditionally been Haiti. The conditions that caused Haiti are leaching all over the hemisphere. This includes here in the good old United States of America. As is well documented, in the 2000s when we had the bliss of Republican rule, our wages stayed flat, our net worth declined, our stocks lost value and we added no more jobs to the economy. Naturally, upper class Republicans did well. Their plan worked great, for them, as it always does because they are experts at screwing those who make less than they do and getting applause for doing so. Those jobs that we did add were at Wal-mart instead of IBM. However, our waists expanded. Perhaps that’s progress. All that extra eating and lack of exercise though helped cause health costs to explode.

No wonder that these days we prefer to escape reality, if not in traditional vices like booze and drugs, then, like Hiro Protagonist, in our virtual worlds in cyberspace. There we make our own pretend reality. We kill demons online in multi-user role-playing games while our first world status crumbles around us. It’s true in the U.S.A. but is also worldwide: collectively we have exceeded our resources which means we are all driven to figure out how to get a bigger share of a smaller pie. We already sense the truth. There is no magic technological fix. Anyone whiz bang new technology invariably brings with it other hidden costs. Nuclear power begat vast quantities of nuclear waste and tragic nuclear accidents. More recently, our new compact fluorescent lights carry the burden of all their mercury vapors, most of which leaches back into our already toxic atmosphere.

We are doomed and we are in denial, but in Haiti, denial is not an option. Eventually we too will have to acknowledge the truth. If we ever reach that point, it’s unlikely that we will be able to summon the nerve to actually change our situation for the better. Instead, we’ll be eyeing our neighbor trying to figure out how to make his life more miserable so we can profit from his misery. This is the new American way: ask not what you can do for your country; ask how you can profit at your neighbor’s expense.

We should weep not just for the Haitians, but also for ourselves for Haiti is our destiny too. The more we deny our connection to Haiti, the worse it will be for us and the sooner we will share their misery. We have already laid out that path in front of us.
Continue reading “Haiti is our harbinger”

Are the United States a bad investment?

The Thinker by Rodin

Back in February I wrote that the United States would be in a heck of a fix if foreign creditors decided to stop loaning us money. Now there is convincing evidence that foreigners are starting to see United States government bonds as chancy investments and U.S. stocks as poor investments.

Today’s Washington Post has an article titled Bearish on Uncle Sam. If it is not alarming it should at least be ringing a few bells. For example the article notes that a September 9th auction for $9B in long term U.S. Treasury Bonds failed to attract any international investors.

In addition U.S. stocks in general are looking a lot less attractive to foreigners. The Post reports that stock purchases by foreigners are down from $9.7 billion in July to $2.1 billion in August. Looking at just who owns our foreign debt should be sobering too. Since 2000 for example the undemocratic and totalitarian Chinese government has purchased $172B of our debt. But lately it has been finding more attractive places to invest its money, including many projects inside China. If one were to look at the United States Government as just another company, increasingly its stockholders are foreigners. The current total federal debt is about $7.4 trillion dollars. Of that “intragovernmental holdings” (the Treasury’s words for our debt held by foreigners) was about $3.1 trillion dollars. In other words foreigners own about 42% of the federal debt. In 1997 foreigners owned about 30% of the federal debt.

In the short term it is unlikely that foreigners will stop investing in the United States. But foreigners may well demand higher interest rates because they may see us as a country unable to live within its means. With federal deficits currently over $1B a day the cost of our borrowing money at all levels in the United States could rise markedly. In the longer term this trend is very bad news. If our country is perceived as living indefinitely off the future it may be perceived as a junk bond country. If the flow of overseas capital stops the government will still probably find the money to finance government. It will do so by offering higher and higher interest rates. And this will mean the capital needed by businesses for expansion will either dry up or also become a lot more costly. And that in turn will mean that inflation will no longer be a mild problem but a severe problem. Inflation will drive an economic downturn that will put people out of work and could slide us into a recession or worse.

The United States is skating on fairly thin financial ice. But except for us fiscal conservatives no one seems to notice nor care. They think, “It can’t happen here. We won’t be another Argentina.” Oh but it can happen here. If our levels of deficit spending continue into the stratosphere and our insatiable desire for cheap foreign goods continues at its current insane levels then the day of reckoning is much closer than it appears. What is needed is some good old-fashioned austerity and modest tax hikes. Leadership, in other words. Unfortunately I don’t see that sort of sober leadership happening regardless of who gets elected in two weeks. Both parties have sold to the public, almost as if it is a right, that we can have our cake and eat it too. Even Kerry is promising more tax cuts for the middle class, not less.

It appears we’d rather live in fantasyland. Most likely sometime in the next four years our day of reckoning will arrive sharply and painfully.

Your Hidden Taxes

The Thinker by Rodin

Are we all happy with the lower withholding rates and federal tax cuts? This means more money in our paychecks. And that certainly seems good. Otherwise we’d just be giving more money to the government. And for most of us giving Uncle Sam more of our hard earned tax dollars is not something we’d choose to do voluntarily.

And clearly that extra money in our paychecks will probably get spent. That can only help, not hurt the economy, right? But most of us are aware that what the government gives with one hand it often takes away with the other hand. For instance: here in Fairfax County state money to the counties has been reduced due to reduced collections. Revenues from sales taxes are also flat. The pressure on counties is to increase local taxes to make up the difference. I live a desirable spot: close to high paying jobs where land is at a premium. My assessments increase every year. Even though the county cuts the tax rate I end up paying more property taxes every year. This year it will amount to a couple hundred dollars, as it usually does. I don’t particularly like it, but I understand it. Unlike some of my tax phobic neighbors I’m not willing to let the roads deteriorate or to shove fifty kids in a classroom in order to save a couple hundred dollars in taxes.

So most of us understand this painful necessity even if we don’t like it. But a lot of us are unaware of hidden taxes. The best example I can think of happens at the gas pump. And I’m not talking about those federal, state and local taxes tacked on to the price of gasoline.

Doubtless you are aware that gas prices are at record highs. I paid $1.88 a gallon for 87 octane last weekend. Ten years ago, according to the EPA, the average price of a gallon of gasoline was $1.04. Now it is $1.88. Arguably gas prices are still a bargain. It’s hard to find a country in the world where it can be procured so cheaply. To have an accurate comparison today’s prices need to be adjusted for inflation. In 1968 gas cost about 35 cents a gallon. Add inflation and that would be about $1.90 a gallon today. So overall gas costs about as much in real dollars as it always has. The notion that OPEC has us over a barrel of oil is somewhat fallacious. Oil prices have proven to be very inelastic, to use an economics term. Naturally we don’t tend to think of gas prices in those terms. We can spend $3.50 for a cafe latte at Starbucks without giving it a second thought. But we will go out of our way to save a couple pennies a gallon for gas, particularly when prices are as high as they are today. I suspect that the cost of gasoline is actually a much smaller percentage of our budget today than it was in 1968.

But you may have read that OPEC wants to increase its benchmark price for oil. Actually OPEC doesn’t really set prices; that is determined by supply and demand. But they do try to encourage member nations to price their product in a range. And the current benchmark range is $22-$28 a barrel. However with demand high as economies recover the average price of a barrel of crude oil is hovering around $34 at the moment — about as high as it has ever been. Certainly this has an effect on the price you pay at the pump.

But here’s the kicker: oil prices in Europe are steady. How is that possible? Have vast new deposits been found off the coasts of France and Spain? Is OPEC cutting Europe a special deal? The answer is they are paying the same rates as everyone else. But they have an advantage. Oil is traded in U.S. dollars. And the U.S. dollar has been sinking against all major currencies, including the Euro. When George W. Bush assumed office one U.S. dollar bought 1.07 Euros. Today, one U.S. dollar buys .82 Euros.

Taxes on gasoline are much higher in Europe than in the United States. No doubt about that. But let’s assume that taxes were the same. That would mean that the gallon of gas I bought last weekend for $1.88 a gallon could be purchased in Europe for the equivalent of $1.45 in Euros.

In short because our dollar is now weak we pay a penalty. If the dollar had the same exchange rate with the Euro as it did at the start of the Bush presidency, that gallon of gasoline I bought would be priced at $1.55 a gallon instead of $1.88 a gallon. In these terms then the penalty for a weak dollar is thus currently $.33 a gallon. Now of course all things are never equal and currency rates are always fluctuating. But assuming you put 12 gallons into your automobile once a week this adds up. That’s $205.92 per car per year. If you have two cars, that’s $411.84. All because of a weak dollar.

Now you’re probably asking yourself “How did our dollar get so weak?” Again there are lots of factors that influence exchange rates but in this case there is the 800-pound gorilla that makes the other factors rather moot. And that is the United States continues to live beyond its means. To finance our needs, including government, we need money we don’t have. So we get it from overseas. Other countries lend us hundreds of billions of dollars annually. Certainly not all of the federal debt is financed from overseas, but with federal deficits running $300B to $500B a year that’s a lot of dough crossing the ponds so you can have that tax cut. So I think there is a clear link between deficit spending and the fall of the U.S. dollar. Arguably more deficit spending will just make the dollar weaker.

So what does this have to do with taxes? In this case a weak dollar is a hidden tax. A weak dollar has some positive economic effects in making our products cheaper to buy. But it also means that imports cost a lot more than they otherwise would. The current grumbling from oil producing countries is that they are losing gobs of money because oil is traded in dollars. In effect oil-producing countries are selling oil at a considerable discount. This sucks when they want to exchange those oil dollars for their local currency.

But actually we are benefiting. If OPEC decided suddenly to stop selling oil in dollars and demanded, say, Euros instead we’d be in a hell of a fix. That gallon of gas might cost us $2.50.

My point is that deficits do matter, as much as Dick Cheney would argue otherwise. Consequently balanced budgets matter. They drive low inflation and increase confidence in the United States. That’s exactly what happened during the Clinton years. The economy became a self-sustaining proposition. Why? Because that economy was built on the solid foundation of fiscal discipline. (The end of the Cold War certainly didn’t hurt either.)

So maybe if you’ve been to college you are thinking, “Hey this isn’t news. I studied economics. Inflation is a tax.” This is true. It’s also very abstract. We just don’t think of it as a tax. And sometimes, particularly in times of historically low inflation like now, inflation is still there although it may not be obvious.

The Federal Reserve is seeing signs that inflation is making a come back, spurred in part by the rising cost of foreign good and oil prices. We now see that much of this is a result of the low value of the U.S. dollar. As a result the Fed is likely to raise interest rates at its next meeting. And this will be a tax too. Anyone who borrows money will feel the ripples. Money that would otherwise go to buy things will instead go to creditors, the majority of which will probably be overseas. The Fed is trying a little medicine here. Their interest rate increases are designed to keep cause mild short-term inflation at the benefit of reducing the long-term inflation. In the short term the effects may be higher unemployment. It may mean higher mortgage payments. It may mean some won’t be able to buy that first home at all.

My conclusion: there is no free lunch. As much as the Bush Administration would like us to believe it we cannot spend ourselves into true prosperity. We can perhaps live high on the hog for a while, but the piper will have to be paid. If we can stop this foolish deficit spending habit perhaps those glorious economic days of the Clinton 90s can return. But first we need to put people in power again who truly understand economics. It is time to stop buying into the lie that Democrats are big spenders. Republicans, particularly George W. Bush and today’s Republican Party with their lock on all branches of government are the true big spenders. They are charging our national charge card to the maximum and don’t want to pay back any principle.

If you truly value your economic future you should pull the lever for Democrats this fall.

Greenspan tries to sober up Congress

The Thinker by Rodin

This just in: Chairman of the Federal Reserve Alan Greenspan says the government should consider cutting benefits for social security recipients.

Buh wah hah hah! Those of us living in or near Washington know exactly where this idea is going to go. Drag this sucker directly into your Congress’s virtual shredder. Snowballs will survive in hell before Congress reduces social security checks.

Oh they may get cut in less visible ways. Perhaps the retirement age will be allowed to gradually creep up again. This sort of a creative accounting technique is familiar to us federal employees. We’ve seen it before when it came time for our cost of living raises (“Let’s just move the date a bit and drop the costs into another fiscal year. We’ve just saved tens of billions of dollars!”) Put an older retirement age far enough in the future and most people likely won’t complain because they are too far from retirement to raise a fuss.

But even these tricks won’t seriously solve the problem of all of us baby boomers planning to retire soon. All Alan Greenspan is really doing is reinforcing that those fiscal chickens are coming home to roost for Congress as well as for the Bush Administration.

Remember in the 2000 campaign Al Gore proposed putting a lock box on the social security trust fund? It seemed an idea on which both sides could agree. Until, of course, we went into recession, 9/11 occurred and we started to give obscene tax cuts to the wealthiest Americans. Then it became important to show that our deficits were not as bad as they looked. So of course the government “borrowed” from the Social Security Trust fund. It did this by depositing its wonderful IOUs into the funds account with a promise to pay back the money with interest some time in the future.

What does this mean? Well, in actuality the social security fund is currently running a surplus. The surplus was $164B last year. Assuming the same surplus this year, and assuming Bush’s plans for a $521B deficit this year are correct (they are likely to be larger when the supplemental spending bill for the Iraq occupation and reconstruction is introduced) this means that the real government’s operating deficit for this year is going to be at least $685B.

But the surplus in the trust fund is projected to continue to shrink until the baby boomer retirements reach critical mass. At that point the fund begins to run a deficit. That’s when we borrow a lot more money, raise a lot more taxes, cut benefits to social security recipients or try some combination of all of them.

Unless we radically change our representation in Congress the federal government is going to be borrowing a hell of a lot of money in the future.

Yes, we will borrow in mega quantities, but only if we can get anyone to lend it to us. Have you looked at the value of the dollar against other currencies lately? Today one Euro is worth $1.25. A year or so back a Euro cost around eighty cents. There are short-term benefits from a low dollar. It makes our products cheaper to purchase and has a stimulative effect on our economy. But the long-term trend is not good because our financing is largely coming from overseas capital. In fact a lot of this money is coming from other governments anxious to make sure their currencies and their products don’t get too expensive. By buying dollars they are in effect taking their capital and putting it to work in the United States, instead of in their own country where it might otherwise be used. But at some point our deficits may become so bloated that foreign investors lose confidence that they will get a return on their investment.

If that happens our house of cards falls. Countries say “Well, no point throwing our good money after a bad return, we’ll use it ourselves.” If the United States cannot borrow enough money from overseas to finance its deficits then the government must drastically increase interest rates to attract domestic money. And when that happens money becomes more expensive for businesses and consumers to borrow. And that most likely has severe and negative consequences for our economy. The worst result would be a wave of inflation and economic stagnation, recession or depression familiar to many countries in South America, but not seen here since the Depression.

Greenspan is being a good fiduciary. We need someone to impartially tell us the truth. Our government must change its ways and stop foisting off costs of these magnitudes on future generations. It’s really sad though that instead of being responsible our government will tinker around the edges a little bit but do nothing to really solve the underlying problem. Congress can’t say no to anyone. Not to the businesses that finance their campaigns, not to us constituents who want more federal benefits, low taxes and increased services, and not to the president who wants to please his party base and reward his cronies.

The smart investor should be quietly moving more funds out of American companies and into solid overseas growth companies and funds. Unfortunately, even that is not a great hedge. And that is because if the American economy tanks, so will most of the world economy.

So the health of the world economy is in large measure dependent upon whether our Congress can stop pandering and start swallowing the castor oil.

I don’t wish to sound bleak but really: God help us. For those who believe in the power of prayer it’s time to go into prayer overdrive.

The chickens have come home to roost

The Thinker by Rodin

I must confess I am enjoying Bush’s decline. Finally the American people are waking up from their lethargy. Now that we are awake we are realizing that this Bush presidency has been a disaster on pretty much every level. The press is starting to analyze critically what this president is saying. Finally even Bush’s conservative base is waking up and discovering they put into office a man who is not the least bit fiscally conservative. In fact, he’s increased discretionary spending more than any president in recent history. As a nation we seem to have finally sobered up. Now we can see that our house has been trashed, the neighbors are pissed, the air smells bad, the roof is leaking and our charge card has been maxed out.

It’s been a long time coming. Only now is the glow of the post 9/11 commander in chief truly fading. For the first time Bush is polling at or below 50% approval ratings. Most Americans would rather elect an unnamed Democrat this year than Bush. Bush’s likely opponent John Kerry is polling six percentage points above Bush in a hypothetical election match up.

We can now pinpoint the day when the deck of cards finally fell: January 28th, 2004. This was the day that our former chief arms inspector David Kay (having spent months in Iraq searching for weapons of mass destruction that did not exist) told the Senate Armed Services Committee that our emperor had no clothes. It was one thing for a politician to criticize the president; a politician could always be portrayed as partisan. It’s another thing when Bush’s right hand man on the issue candidly admitted that he and everyone in the Bush Administration had been spectacularly wrong. The American people reacted strongly. It was as if as a nation we were all saying, “But you said there were weapons of mass destruction there! We were lied to!” Within days Bush’s poll numbers sank six to eight percent. Bush’s strong leadership on national security was shown to be so much spin and hot air. The American public is pissed.

With the blinders off we can now see lots of truths that we swept under the rug. For example, during Bush’s tenure we’ve lost (mostly for good) two and a half million jobs. We realize now that Ross Perot was right on NAFTA. The great sucking sound we hear is now our high tech jobs being outsourced in India. We are realizing that we can look forward to a future of being a nation of Wal-Mart greeters, one of the few jobs that can’t be outsourced. We realize that instead of job growth, the unemployed are playing a very large game of musical chairs. We realize from callous remarks from Bush’s own chief economic advisor that this administration holds the American worker in contempt.

In addition we’ve looked at our general ledger and it looks really bad. We went from the biggest budget surpluses in history to the largest deficits. We realize one of the primary culprits was the obscene and repeated tax breaks we lavished on our richest citizens who didn’t need them. The economy rebounds but jobs do not. The oligarchy swells in wealth; and the gap between rich and poor accelerates. Health insurance for seniors gets passed only when Republicans insist on minimal competition for the drug companies.

Meanwhile the numbers of Americans without health insurance continues to grow. Those of us who still have health insurance pay increasingly astronomical costs. The Bush Administration’s response is to try to set up Medical Savings Accounts. If only the average American has the disposable cash to put in these accounts in the first place. This is particularly hard to do when you’ve been reduced from IT Worker to Wal-Mart greeter or 7-Eleven clerk.

As Rod Serling might say: “Portrait of an Administration out of touch with reality.”

Last year I suggested Bush was a one term president. I argued that the long term trends just didn’t favor him. I am glad the American public is beginning to agree with me. Bush cannot erase two and a half million jobs before the November elections. He can’t turn Iraq into a success story. He can’t win back by November all the friends we lost internationally in our reckless pursuit of a preemptive war. He can’t turn around $530B annual deficits. And he can’t provide more citizens with health insurance by giving those who can already afford it Medical Savings Accounts.

The chickens have come home to roost. The law of karma has not been repealed. Bush will lose this election. My fondest hope is that it causes the American public to do a wholesale reevaluation of Republicans in general. People who manage this badly do not deserve to represent us. Let us hope against the odds that we not only get a Democratic president again but a Democratic congress as well.

I’m a fiscal conservative!

The Thinker by Rodin

Yes, as hard as it is to believe I, a good liberal, am a fiscal conservative! I realized this yesterday when I read stories of President Bush rushing to Ohio to push for his $550B tax cut, calling a few Republican senators like neighboring Senator George V. Voinovich of Ohio weenies for agreeing “only” to a $350B tax cut.

All these tax cuts are in addition to massive tax cuts made over the last few years. Those tax cuts were made to make the economy grow. They didn’t seem to do the trick so naturally we need more and higher tax cuts that will do the trick. How deep do we want to dig our own grave? The economy is not improving George. Maybe it’s because of the reckless way you are steering our economy? Well, duh!

Let’s look at what worked. Let’s look at your father who also fought a war against Iraq but failed on the economy. He lost reelection largely because he didn’t do what was needed for the economy and us citizens, who were sick of high unemployment. Bill Clinton came in to office. Did he cut taxes right and left to stimulate the economy? No, in one of those increasingly rare shows from a politician, Bill Clinton developed a spine and did the right thing. He got a marginally Democratic congress to approve tax increases that were needed to bring the government’s expenditures in line with its income. I don’t think a single Republican voted for them.

What happened? Maybe it was just coincidence, maybe it was all those low interest rates but Wall Street got confidence and the economy improved. It seems that not knowing from year to year how much money the government is going to borrow is bad for the economy. Business likes to have reasonable certainty about capital. We all know the rest. During Clinton’s eight years of pragmatic leadership the economy boomed, tax revenues poured in, deficits dropped and record surpluses emerged.

One would think Bush and his Republican party would learn from the experience but no, it’s back to cut those evil taxes while spending more and more. And let’s have faith in his, his father’s and Reagan’s voodoo economics that we can build a prosperous economy through deficit spending. This is Keynesian economics, for crying out loud. Bush and the Republicans are advocating the same sort of logic pushed by JFK. Is there role reversal here?

I’m a fiscal conservative. I am by no means anti-tax. I think taxes pay for us to have a civilized society and I think civilization beats the heck out of the alternative … look at Angola for a sterling example of the benefits of zero taxes. However I do believe the government should live within its means. Yes, I think we probably should have national health insurance and it will cost a lot of money. So let’s find taxes to make it a reality. But if we don’t have a political consensus to do it then it let’s certainly not borrow the money and spent it anyhow.

In just a couple years we went from record surpluses to record deficits. Unbelievable. Yeah, there’s a war on but even factoring in the cost of the war these deficits would still be in the stratosphere. It was those unwise tax cuts, George. But another $90B down payment to rid Iraq of weapons of mass destruction it apparently didn’t possess didn’t help either.

Hey, let’s all follow the government’s example. Here is real leadership for you. You have vital needs too. The United States needs to protect its national security. You need to protect yours. You need, for example, an armor plated SUV just in case of a terrorist incident. Don’t have the money now? No matter, charge up those credit cards to the max. No sense in being unprepared. Oh but wait a minute you also deserve a break today. You work too hard, poor dear. You don’t need that full time job. Cut your hours. Make it a 32 hour week instead of a 40 hour week. You deserve it.

That’s what Bush is doing to the nation. We are simply living beyond our means. If your income were cut you would probably feel it might be wise to cut back on frivolous expenses. Perhaps you would defer that armor plated SUV purchase, or maybe target more modest expenses like going out to dinner or the cable TV. You might look at used cars and a cheaper apartment. Not the US of A. We want it all first class! We deserve it! And if we don’t do it one of our neighbors across the channel will get that armor plated SUV and maybe pick a fight with us and then where will we be? Horrors! (Never mind we spend more on “defense” than the rest of the world combined.)

Enough! There is no free lunch, folks. It works the same way for the federal government as it does for the rest of us. Republicans are hoping with enough chants and incense their deficit spending will buy us prosperity, even though the evidence is scant it has worked in the past. This is about ideology; it is not grounded in much economics and it certainly isn’t grounded in the real world. Maybe in a way it’s just naked vote buying: give people a big enough tax cut and they’ll overlook those massive, record deficits they will have to pay with interest later. But maybe it is time for the government to go on a diet because its income will be lean until the economy improves. But hey we can’t go on a national “diet” while porking out every night with all you can eat specials at the Red Lobster.

You will get the government you pay for. If you want more government then cough up more taxes. If you don’t want more government, pay the price and drive on crappy and congested roads and let services lapse. But you can’t lower your income and keep spending for very long and not have problems pop up elsewhere as a reaction to it. We’re seeing it now in the form of a flat economy and a business climate full of uncertainty. And that’s because what purports to be our leadership is out on the quarterdeck drinking the evil rum of don’t tax and spend more instead of competently steering the ship.

Come 2004 we the citizens must sober up and throw these winos off the poop deck. We need new and sober management.