The big squeeze

The Thinker by Rodin

Job growth in March was a measly 88,000 jobs. The unemployment rate dropped to 7.6 percent, but this was largely because many people stopped looking for work. The economy had been looking pretty promising earlier in the year, with steady job growth well in excess of 100,000 jobs a month.

Now we will likely be watching the effects of austerity for the rest of this year and probably next year as well. It won’t seem familiar to many of us who were not impacted by the Great Recession, but it will look familiar to those who live in Europe. Austerity has failed to rectify Europe’s economy although it has caused two recessions. Austerity in Great Britain looks like it is causing a third recession. Yet for some reason in the United States we seem to want to emulate European austerity. The predictable results are starting to be seen in the jobs numbers for March.

To the extent the United States has had job growth over the last few years, it has been due to not following austerity. And this should not be rocket science. What exactly is austerity? It is not living at your means; it is living below your means. The hope is that through frugality one will glean efficiency, competitiveness and an eventual rebound in wealth. Austerity does not mean driving a used car, it means driving a very used car until it falls apart on the side of the road. And after it falls apart, maybe it means not replacing it.

Austerity is being enacted through sequestration, which cuts certain areas of federal spending. It will lead to the furlough of federal workers like me, actual cuts in pay that will give me less to live on and will decrease my standard of living. Some federal workers may have their pay cut as much as twenty percent through the end of the fiscal year. In some sense though federal workers are relatively lucky. At least they will have some income. It’s the vast food chain that feeds off federal spending where the impact is likely to be much greater. I have watched a friend struggle in this climate and my heart goes out to her. It means periods of unemployment, stringing together temporary jobs, working out of town in temporary housing and in general dealing with a lot of stress and anxiety. She is one of many in this situation and with the new pointless austerity trend is for more of it, because of a law posits that austerity is a good idea. For her it means no health insurance and wondering how you are going to pay the mortgage.

But at least she is partially employed, and may get a full time job again one of these days that pays actual benefits. She has some employment. Many other federal contractors are simply unemployed and trying to figure out what to do about it. The bottom line is when you have less money you have less of it to spend. Austerity breeds more austerity. Austerity does not trickle down, it cascades down. None of this should be the least surprising. Any economist could have predicted this. We can now expect modest job growth at best and a cooling economy, which was barely warm, for the remainder of the year, assuming we do not progress into a recession.

To quote Pogo, “We have met the enemy, and he is us.” We are choosing austerity and we are choosing to punish ourselves because we can. And that’s what the big squeeze is all about in a nutshell: some small minority of politicians from heavily gerrymandered districts is making it so because they control a slim majority in the U.S. House of Representatives.

In Europe the same economies practicing the austerity are at least as badly off as they were before they were told to be austere. In Greece and Spain, for example, the unemployment rate exceeds 25%. The real cost of planned austerity though is not money but the trail of wounds and wreckage that it causes. It’s in the excess student indebtedness because states won’t subsidize tuitions as much. It’s in young adults who, if they are lucky, can still live at home and try to fend off feelings of hopelessness as they search for good jobs that largely aren’t there. It’s in lives put on hold, if you are lucky, or watching the quality of your life diminish. It’s in putting off fixes to your car for another month, even though the engine needs to be fixed. Austerity multiplies fiscal and personal pain.

It amounts to a game of musical chairs except two chairs are being pulled with each round. In reality though it’s those who are in recession-proof jobs and who have sizable bank accounts that end up back in their chairs. Pain is distributed disproportionately to those not quite so fortunate or quite so prepared.

The multiplying effect is really the uncertainty. No one is quite sure how the sequestration will affect the economy, so they are hunkering down instead. They are not making investments, not hiring people and deferring spending just in case things go from bad to worse. You know you have a problem when Wal-mart is struggling with profitability. Between payroll tax increases, declining wages and poor job growth there is simply less for the least well off to spend, and Wal-mart, which is basically the retailer to the working class, thus has a hard time making profits. So they squeeze their employees some more, resulting in fewer employees, long checkout lines and empty shelves.

About all you can do is in good times to prepare for the bad times. The 401-K has proven a failure as a retirement system, but it is still a source of funds that in good times that I can put money too, and which can’t be taken away in the next round of austerity. And so I have been throwing as much money as I can into it, which includes now that I am over fifty special catch up contributions. The 16.3% of my income going into my 401-K means something else has got to give and that is our savings account, which needs a lot more money. Our daughter is on the cusp of a college graduation and it comes just in time. We really can’t afford to keep her in college much longer. The $1300 or so we pay for her room and board each month has to fatten our savings account instead. And like many Americans, I look for other sources of income: teaching and consulting. The latter has been reasonably good to me lately, even if it keeps me from blogging as often as I would like.

Like it or not we are all in the economy together. Our cheese is being moved and unless we have been hoarding cheese many of us are about to get caught in another pointless austerity experience. What it really will amount to will be more wealth moving toward the wealthy and our pockets will be picked clean.

If I was the president

The Thinker by Rodin

Gah! The amount of disinformation going on about the debt ceiling, the budget deficit and the economy continues to astound me. That so much of it is sticking goes to prove that money can buy pretty much anything. The oligarchy is clearly in charge, which is why closing loopholes for people who own private jets is viewed as anathema by the Republic Party. We’re talking freakin’ corporate jets, jets that cost tens of millions of dollars at least. Chances are if you or your corporation own one or more corporate jets, you are beyond rich. You are filthy rich and the last thing you need is yet another tax break aimed at your jet. It’s amazing Republicans aren’t laughed out of the room when they try to defend these and other outrageous tax breaks.

It’s probably a good thing I am not president right now because here is what I would say to Republicans: I dare you not to extend the debt ceiling. In fact, I double dare you. If you are anxious to end your party in one fell swoop, and make it as irrelevant as the Whigs, go right ahead. It’s not like we don’t already have a budget passed into law. You have already agreed how much we can spend through the end of the fiscal year but you won’t even pony up the money to pay for that? What does “law” mean to you? Is it a recommendation or something binding on the country? In any event, if we have another fiscal calamity because your party would not extend the debt ceiling just to cover the spending we already signed into law, your party will go straight over the cliff in 2012. It would be nice if the Senate could start first, but the constitution requires all spending bills originate in the House. The Senate could easily pass an extension of the debt ceiling under budget reconciliation rules. So go right ahead, Republican Party. Die by putting principle before pragmatism. The price may be horrendous to our livelihoods and economy, but at least the cancer of your party will be gone and saner heads can rule again.

Furthermore, I would not sign any omnibus spending bill into law until every current lawmaker who voted for the Medicare Part D legislation, the Bush tax cuts and two wars on borrowed money first said they were sorry and that they regretted their decision in writing. You cannot have it both ways. You cannot cause the problem in the first place and then refuse to raise taxes to address the problem you created. It’s one thing to say “I’m sorry”, it’s another to follow through with an act of contrition. I am interested in deeds, not words. Now is the time to pay for your mistakes not by just admitting they were wrong but helping us get out of them. You have to undo your mistakes. You must swallow hard and let the Bush tax cuts expire. You must agree to sizeable defense cuts because there is no way to be fiscally solvent otherwise.

And Democrats, you are not scot-free either. Medicare and Medicaid are a mess. They are definitely more efficient than private health insurance, but they cost way too much and Medicare in particular is riddled with incentives to cheat. It needs fundamental changes, not vouchers. It can be fixed by adopting proven best practices in other similar health care systems across the globe. Get to work.

And America, you don’t get off scot-free either. You are a mess and you need to shape up. Seniors, since you are on Medicare, you need to get annual physicals and follow your primary care physician’s guidance because in general you weigh too much, eat the wrong crap and don’t exercise, and this is costing the nation a fortune in outpatient and hospital care. If you miss the benchmarks in your physician’s action plan, you must pay a premium because it is people like you, being either stupid, or oblivious, who are driving up costs. You’re old enough to know that life is not free. If you want health care in retirement, you must do your part to restrain costs.

Doctors, you don’t get exempted either. You have to practice better medicine and work more efficiently. You have to stop billing for all these unnecessary tests and submit bills only when you have achieved an effective outcome. Yes, I know many of you are still paying off your loans from medical school. Deal with it. You have plenty of company.

Here’s some of our new rules of governing:

  • Unless you are severely disabled or destitute, you must contribute part of your income to the betterment of society. That means you must pay some percentage of your income in taxes.
  • Every single program in the federal government must meet goals written into its legislation and terminate after five years if they have not achieved those goals. We will empower the Government Accountability Office to find out whether the goals were met for the agreed upon budget. If it’s not working as planned and for the agreed upon cost, it’s gone. No more open-ended legislation is allowed. There must be a funding mechanism attached to all new spending, and it must be certified as reasonable by the Congressional Budget Office before it can be accepted as legislation.
  • We will borrow money to pay for war only, but we will also make it part of the Department of Defense’s mission to avoid wars in the first place. The agency will work intimately with the Department of State to ensure we avoid as many wars as possible. Wars are costly. Our military plans must include plans to limit the scope of a war as tightly as possible, and withdraw our forces as fast as possible.
  • Once we achieve a balanced budget, at least five percent of revenues annually will be dedicated to paying down our budget deficit.
  • We will not be afraid to raise taxes when needed. We need to repair the bridges and highways we got that are crumbling. Transportation taxes must be raised. Coincidentally, we will stimulate the economy and the middle class in a major way. This probably means increasing the federal tax on gas to at least fifty cents a gallon. Yes, it will hurt in the short term but it’s money that will be spent right here in America and will encourage more fuel efficient transportation.
  • No more partisan nonsense is allowed. Taxes are not evil. They are the cost of civilization. People who can afford to pay more should, because their wealth is due largely to those lower than them on the income scale.

I believe that this is what we need to make our country great again. President Obama, I hope you are listening.

How to achieve an accountable government

The Thinker by Rodin

After having spent decades largely ignoring the problem, the exploding federal deficit is suddenly on the minds of Congress. It’s so on their minds that they have forgotten to work on other things, like creating jobs. This new deficit fever is especially surprising given that Republicans are leading the bandwagon, since their deficit spending caused most of our debt. Moreover, one of their heroes, Dick Cheney, famously said deficits don’t matter.

While debt matters, I doubt our increasing indebtedness is what is driving these new deficit hawks. What matters is that a vote on the debt ceiling can be used to restrain the size of government, and Republicans passionately care about that. The same senators and representatives, who just a few years ago were voting for programs to increase the debt, and just last December agreed to extend tax cuts for the rich and lower social security withholdings, are now threatening not to extend the debt ceiling next month.

Something does need to be done about controlling our debt, but intelligently, not stupidly. I consider myself a fiscal conservative. That does not mean I am also ideologically aligned with “small government”.  I simply believe that, in general, government should to live within our means. To me this does not mean we necessarily cut spending to match expected receipts. If we as a nation decide we have priorities, like addressing global climate change, and that requires raising taxes, then I am okay with raising taxes. I suspect we would be long gone from both Iraq and Afghanistan had we had “pay as you go” wars. In fact, the Iraq war probably would never have started, and our debt would be at least a trillion dollars less.

There are times when reducing deficit spending is counterproductive, and that may still be true today. We know enough about economics now to know that spending money stimulates others to spend money, which helps the economy grow and creates jobs. If our federal deficit is about $1.5 trillion a year, taking that much spending out of our economy suddenly will be like throwing sand into our nation’s engine. This effect can be observed in Great Britain, which chose sudden and severe austerity. It is finding its unemployment rate soaring, its GDP declining and its taxes much higher. Perhaps they had no choice given how overextended they were. At least in the short-term, austerity is causing immense suffering for no obvious reward. In general, debt is undesirable, but is it more undesirable than negative growth and increased unemployment? Shocks to any system are rarely beneficial.

To me it makes much more sense to come to consensus on national deficit goals and systematically work toward them. A pragmatic goal would be to have a balanced budget in five years and a credible bipartisan law in place that gets us there. How to make it credible? It could be that the president’s budget has to meet the yearly goal, and first be scored by the Congressional Budget Office (CBO), which asserts it as financially sound. If the deficit is $1.5 trillion, reducing debt by $300 million a year should be doable, particularly if it allows for taxes to be increased if spending is also cut. While we are easing off the economy’s gas pedal, perhaps the country will perk up enough where that growth will provide more tax revenues, thus making spending cuts less draconian. Why put our nation through needless pain?

I think our debt speaks to two larger problems. The first is political dysfunction for which traditionally deficit spending has been the consequence. In addition, we often spend tax money inefficiently or on “nice to have programs” of marginal value. We already have organizations like the General Accountability Office (GAO) and the CBO that exist to inform policymakers on whether programs are effective or not. The problem is Congress rarely takes their advice.

We already know how to intelligently solve most of these problems; we just lack the will to do it. Medicare, for example, wastes tens of billions of dollars a year by paying fraudulent bills. It probably cannot be solved by audits alone, as the volume of billing makes it impossible to root out all fraud. Systemic change is needed instead. There is also a lot of waste when we pay providers for unneeded services and tests. Doctors complain they don’t earn enough from Medicare reimbursement to be profitable. The evidence is overwhelming that they make up for it by adding additional tests and procedures.  Consequently, Medicare needs to reward efficient health care based on satisfactory outcomes. Medical practices suspected of a lot of bogus billing should be audited, prosecuted when possible and publicly scorned if they bill for markedly more procedures per patient than most practices. Ironically, even with its waste, Medicare is still far more efficient and cost effective than private health insurance. If we could find effective and cost effective ways to deliver health care in the United States, and cap defense spending to inflation, then most of the other problems would solve themselves.

I favor automatic sunset provisions for all programs unless they can be independently shown to be achieving their objectives for the agreed upon budget. New programs should be established with clear goals, with expected outcomes required within defined timeframes. These accountability criteria should be part of the legislation. The CBO should provide language for objective criteria that the program would have to meet and it should be inserted into an accountability part of any spending legislation. The GAO should be the independent arbiter of whether the programs actually met their goals. If they did not, programs would automatically sunset unless Congress granted an extension. This too would do a lot to align our government toward being efficient by building efficiency into the system.

This is similar to how I manage my own financial life. Government is more complicated of course, but these principles are solid and should scale. If we could actually govern like this, then maybe no one would talk about out of control government again.

State of the Union

The Thinker by Rodin

President Obama gave a pretty good state of the union speech on Tuesday. He ended it with the usual rhetorical flourish that speaks more to our aspirations than to reality. He closed with:

We do big things. The idea of America endures. Our destiny remains our choice. And tonight, more than two centuries later, it’s because of our people that our future is hopeful, our journey goes forward, and the state of our union is strong.

I won’t be running for president so there is no chance that I will be giving a state of the union speech. However, if I were to give one it would read in part a lot like this:

Thank you very much. As you know it is my duty as president to annually report on the state of the union. Unfortunately, I have to report that the state of our union is fractious. At no time since the Civil War have we been so divided as a nation. Extremes on both sides of the aisle are pulling us apart as a country. This extreme polarity as well as refusal on both sides to move toward meaningful compromise are undermining our national security, economic growth and put our nationhood at jeopardy.

Barry Goldwater once famously said, “Extremism in the defense of liberty is no vice.” Goldwater was dead wrong. Our liberty is only sustained through finding and expanding our common ground. It happens by moving toward consensus rather than confrontation. At this critical time, true patriotism will be measured in our ability to come to consensus and make painful but necessary choices that one Congress and White House after another has punted.

We cannot undo these past damages, but we can move toward a sustainable and prosperous future for our country. Finger pointing no longer serves any national purpose. None of us here are blameless. We all contributed to our national problems. It includes me, Harry Reid, Mitch McConnell, Nancy Pelosi and new Speaker John Boehner. Many of us followed what we believed was the right and sustainable path. Sometimes an individual policy we advocated may have been right for the nation. However, if it is not congruent with our national needs it is still wrong. What can be said is that, in the aggregate, we were all wrong and have been mostly going in the wrong direction for decades.

For example, taking care of our senior citizens in retirement is a worthy national endeavor, but only if programs for them like Social Security and Medicare are put on a sound footing and are soberly and competently administered. It is scandalous that both Democrats and Republicans allowed Medicare costs to expand without addressing its inefficiencies and creating a plan to keep it solvent. Similarly, it is scandalous that both Democrats and Republicans allowed the last Administration to lead us into a war based on false pretenses. It was scandalous to offer tax cuts without offsetting these tax cuts with reductions in government services. My administration, previous administrations and previous Congresses failed to competently manage and govern our own country. Time and time again we put short-term thinking and ideology ahead of the national interest.

These are facts beyond any reasonable dispute. The evidence is overwhelming and can be found in record numbers of mortgage defaults, our bloated budget deficits, the high unemployment, the growing ranks of our homeless, our obesity epidemic and a fouled environment. By virtually any metric that you can use, our government has failed our job as national stewards. We, its leaders, have failed America.

The state of our union is fractious at best and alarming at worse. Now we must right-size our government so that it meets the needs of our nation. We need a new national strategy and we need sound tactics that align with our national strategy. Our strategy requires clear national goals, and both parties must agree on these national goals.

I offer six goals. Our most immediate challenge is not the budget deficit, as wrenching as it is in scope and size. It is to break the back of unemployment in this country, which has been dangerously high. In breaking the back of unemployment, we must do it in a way that creates good jobs that will restore our fading middle class. We don’t want to restore it by putting talented people to work flipping burgers or sweeping floors. Prosperity drives everything and makes anything possible. We can do this today by continuing to invest in common sense infrastructure projects, all of which will aid our current and future prosperity. To facilitate that our infrastructure investments are made wisely, we need an independent commission that places our money in investments that will create an improved infrastructure in the most productive ways possible.

That is our short-term goal and it should be easy for us all to agree on. However, infrastructure does not just happen. It will take money, and if we cannot agree on something simple like raising taxes on the rich to levels that were in effect in the Clinton administration, then we must keep borrowing the money. Projects that promote short-term employment and are most needed to improve our infrastructure should get the highest priority.

Our long-term goals should also not be controversial. I propose five long-term goals, in priority:

  1. Ending the extreme partisanship in this country
  2. Fix the federal government’s deficit spending
  3. Living in a sustainable way
  4. Making the United States the 21st century leader for new technologies and services
  5. Ensuring that all Americans receive quality health care

First, partisanship. Partisanship is not necessarily bad. However, our partisanship has reached extreme and dangerous levels. This did not happen by accident. It happened because we permit gerrymandering of our legislative districts where partisan interests are unduly represented and the interests of moderates were squeezed out. To solve this problem, Congress must pass and the states must ratify a constitutional amendment requiring all states to draw federal congressional districts in a politically impartial manner to be overseen by our federal judiciary.

Our government’s deficit spending has reached dangerous levels. We do not want America’s future to be like Greece’s present. To achieve fiscal solvency, a number of unpopular things must be done. Entitlements like Medicare must either have self-funding mechanisms in place or be limited to a percent of GDP or the federal budget by law. Both must be governed by independent and impartial commissions empowered to make changes to the system to ensure their viability. Medicare spending, for example, could be limited to twenty percent of federal expenditures or require premium increases annually to ensure that it remains solvent. Do these things and most of our other federal financial problems will take care of themselves.

America’s failure to live in a sustainable way increases the likelihood of war and suffering at levels so extreme they are hard to imagine, but are frighteningly real. Climate change and population growth are already causing wars, unrest and mass migration. It contributed to unrest in Tunisia. We must find a way to cap our population growth and live sustainably with nature. Our failure to get our environmental act together inside our country and with the rest of the world ultimately dooms not just our country but also our species. It will change life irretrievably here in our sacred home, the Earth. However, if we succeed we will do so by developing many of the products the world needs so that it too can live sustainably. Being green is not just good for the planet, it is good for our prosperity and it helps mitigate future wars and immense suffering.

To prosper, we must out innovate the rest of the world. Our prosperity rests in nurturing our human capital. Not only do we want to create business environments to allow companies like Google and Apple to flourish, we want to make sure that our children receive a first class education so when it is their time they can out innovate the rest of the world in the future. This cannot happen when we won’t pay teachers salaries that correspond to their importance to our nation, or when school districts in states like Oregon cannot afford to put their children in public schools five days a week.

Lastly, but certainly not least, we must make health care available and affordable to all, not just to those who can afford it. America cannot flourish unless we are healthy. There are plenty of examples in other countries of national health care systems that work. Some align very well with the American way. Japan’s health care system, for example, offers enormous competition at very reasonable prices. Let’s let an independent commission tell us which of these many plans will work best here in the United States, then let’s move aggressively forward to make it happen in our nation.

I am offering six steps toward a prosperous and sustainable future for our country. I need each of you to work in the common national interest. If you do so, you and this Congress will be forever revered in our national history.

Thank you and good night.

The age of limits

The Thinker by Rodin

The motto for the University of Central Florida (where I got my bachelor’s degree) is “Reach for the stars”. For a university less than an hour’s drive to Cape Canaveral it is an appropriate motto. While UCF will continue reaching for the stars, the world in general and America in particular is realizing that reaching for the stars is unaffordable.

I am not speaking specifically about the space program although we are “reaching for the stars” a lot less than we used to. For example, the Obama administration is trying (wisely, I think) to retire the space shuttle. It also has the novel idea that in the future, the private sector should provide the government with a service to get astronauts into earth orbit and back. High unemployment and exploding deficits seem to be generating a bipartisan consensus that we now have more government than we can afford.  Believe it or not, I agree.

It is my opinion that given our modern world we probably need more government, at least for select programs. However, I don’t see how to pay for these programs without cutting others. Granted, the government can be staggeringly inefficient. While certain agencies are very efficient and indeed innovative, others are hugely wasteful. This week’s Washington Post investigation into the proliferating and apparently overlapping authorities working in the murky and high-classified world of counterterrorism shows good intentions gone seriously awry. There appears to be no central authority managing all this. We do have a Director of National Intelligence but in reality, the DNI is more of a coordinator than a director, as he does not have budget authority. This explains the high turnover among DNIs. Even if he did have the authority, it would prove a Herculean task to align our counterterrorism priorities with this kudzu of agencies and contractors and their proliferating and overlapping missions.

The main reason the United States is not reaching for the stars is that a lot of genuinely needed government is squeezed by the steadily increasing costs of entitlements. These entitlements are principally Social Security, Medicare and Medicaid, although the list could also be expanded to include items like federal pensions. Arguably, we could actually get both health insurance costs under control, push it out on the private sector, pay a whole lot less and cover all Americans if we adopted the Japanese health care model. Perhaps we will get there someday but right now, we prefer to dither around the edges. The recently enacted health care legislation is a step in the right direction, but only a step.

Efficiencies in government programs are fine, but ultimately all government must be paid for with taxes. However, you can only pay taxes in relation to your income. With less income, less discretionary money to spend, and with more of it allocated toward health care, the consumer can no longer prop up the economy, which reduces economic growth. Moreover, if economic growth slows or halts, tax revenues must slow as well.

As Joe Bageant depressingly points out, future economic growth also assumes that nature will keep providing us with its bounty in endless supply. It assumes that we be able to find new affordable sources of mineral wealth and endless new tracts of land for agriculture and housing needed for a burgeoning population. Unfortunately, it appears that most of the easily available minerals have been extracted, which means the cost of living is going up. If our income does not keep pace then our standard of living is likely to be lower. Moreover, land is also finite. We cannot continue to grow forever by developing unspoiled land. Survival itself is predicated on the existence of nature. In short, growth is becoming more expensive. The more we grow, the more it costs to grow, and the less benefit there is to growth.

Thinking Americans seem to understand that we have reached a nebulous growth limit. If we can grow our way out of our economic problems, it will be at an unacceptable cost. We saw what the cost was recently with the Deepwater Horizon oil spill. Moving to an energy economy based on renewable energy is certainly more desirable than our current hydrocarbon-based economy, which among other things made June 2010 the hottest June on record. Our structural problems though are far larger than creating a clean energy future.

The real problem is we have reached a critical mass of people. Since 1970, the United States increased its population roughly by half: another hundred million people. From now on, population growth is going to introduce disproportionately negative effects. Unfortunately, at least in the short term, population growth is unstoppable. This means that the cost of living is going to increase, as more of us compete for fewer and more expensive resources.

The effects are being borne out not just at the federal government, but at state and local governments as well. As costs eat away at income, there is less revenue available for governments. Inevitably, this means fewer services. However, right now it seems impossible to come to consensus on how to address the problem. If government must be cut, what should be cut first? Since we essentially have government by corporation, it is likely that corporate interests will triumph over the needs of citizens.

Inevitably, something must give. In fact, that something is already giving. All sides seem to acknowledge our problems are structural, but parties are unwilling to move from ideology toward pragmatic solutions. Republicans will block any tax increases if they can, even if, as in the case of repealing tax cuts for the rich, there is plenty of ability to pay. Democrats seem loathe to admit that any part of the welfare state needs to be trimmed back. Most think that with the right mixture of pixie dust we can maintain the welfare state without raising taxes on the middle class. Right now Democrats are content with the delusion that health care reform will change the dynamics of runaway spending, when it will not. Even President Obama understands this. He has stated that it will only slow the growth of health care spending.

It won’t help in November if voters respond to their frustrations and visceral fears by electing more ideologues to Congress. This merely extends our national dysfunction, adding to the final bill. Perhaps Tea Partiers secretly hope that if elected they can effectively bring about the collapse of the federal government, thus allowing government to be reconstituted under a smaller federal model. Newt Gingrich tried it in 1995. Maybe it will work in 2011.

Even if they succeed, reducing the scope of the federal government will not really address the central issue. Reducing the scope of the federal government merely pushes costs back on state and local governments. For example, states already pay hefty shares of Medicaid services. If the federal government were simply to stop contributing to Medicaid, states would either need to pick up the slack, drastically cut Medicaid services or end Medicaid altogether. Unfortunately, ending Medicaid altogether does not solve the problem of treating poor people’s medical problems. It would simply extend lines at emergency rooms and push up already high health care premiums, which would make more people lose health care coverage. To “solve” this problem would mean to not solve it at all: simply not treat those who cannot afford to pay. Let ‘em eat cake, I guess.

Unless things are fundamentally realigned in a workable way, many of these sorts of horrible choices are in our future. If we acted united rather than divided, we could manage these problems with much less pain. Social security, for example, is not in much financial trouble and extending the retirement age can make it solvent with no increase in taxes. The real problems are in wasteful and hugely overpriced health care programs, which are exacerbated by our unwillingness to eat right and exercise, perhaps because lower income Americans simply cannot afford healthy food. Our choices here are stark: either do away with health insurance except for the increasingly smaller proportion of people moneyed enough to afford it, or institute the sort of “socialized” medicine anathema to so many on the right, whose effect might well be the rationing they fear. (We already have rationing based on ability to pay. What terrifies the right is that a physician might be required to put someone with less money but a more chronic condition ahead of their ability to get care.)

In an age of limits, other sacrosanct programs must now become touchable. Even Secretary of Defense Robert Gates understands that in a weak economy runaway military spending cannot be sustained indefinitely. Consensus seems to be forming that our War on Terror, or at least in Afghanistan and Iraq, are no longer affordable nor are they buying us national security.

There is plenty of general government bloat that could be removed if we could summon the nerve; it’s not just where a lot of politicians think it is. Bloat includes the excessive and overlapping national security programs The Washington Post documented, huge and wasteful agricultural subsidies, corporate welfare in general, Medicare and Medicaid payment reform, and even our manned spaceflight program. We should not be cutting those services that are vitally needed to run our complex and increasingly interconnected world. Some of these agencies arguably need more money. These include the FDA, FAA, FCC, NIH, TSA and the SEC, to name a few. These agencies in reality spend only pocket change yet provide invaluable and absolutely necessary services.

The glass half-full news is that we are hardly alone. Even China at some point will have to scale back its growth and limit its services. Countries like China less leveraged by debt will have more breathing room, but the dynamics of population growth and resource limitations are inescapable for all nations. The more we resist these dynamics, the harder things are going to be.

Nature is trying to tell us to live simpler. We need to start listening.

Education: Walk the Walk

The Thinker by Rodin

Some years back I opined that there are few places where we are more hypocritical than in our public schools. Therefore, I was not surprised when I heard this story today on NPR Weekend Edition Sunday. Texas, like many red states, is getting high from continually sniffing that Republican glue. Common sense is taking leave of its governor Rick Perry and its legislature. Apparently, it is more important to stand on a dubious principle than to do what is right for the children of Texas.

For those of you who do not want to listen to the seven-minute story here is a brief summary: Texas has no income tax. Its main forms of revenue are the state sales tax, already one of the highest in the country (which disproportionately affects the poor) and the property tax. The Republican legislature in its infinite wisdom requires that the portion of property taxes devoted to education must be capped at 1.5% of a house’s assessed value. Most school districts have hit the cap, but the student population in Texas is growing at around 80,000 students a year. Of course, this means that many more schools that need to be built and more buses have to be purchased. In general, the costs just to maintain the status quo have gone up. However, with property values leveling off, even wealthier districts are getting the squeeze. Large numbers of teachers are being laid off. Some school system superintendents are convinced that if the crisis continues the Texas public schools will be reduced to teaching reading, writing and arithmetic.

So why would this be a problem? From our current president and former Texas governor, these things matter. (Actually, in Texas, high school football trumps everything else.) If necessary, science, music, the arts, even gym are expendable. It is important to know how to read, write and do math. It is apparently not important to teach our children about the humanities and certainly not important at all to learn how to think critically. How do we know it is not important? When push comes to shove, we will not pay for them.

The school funding issue is a hot button one in Texas. The Texas legislature is back in session yet again to try to cough up more money to fund the schools. There is some discussion that the sales tax rate might need to be raised. However, it sounds like with the “no tax increases ever” mantra from the Republican controlled legislature that even this proposal is unlikely to go anywhere. School districts are getting so desperate that they are petitioning the Texas courts, hoping the courts will step in where the legislature fears to tread. So far the courts have been hands off, expecting (probably naively) that the legislature and the governor will do their duty and find the money somewhere.

You do not need an HP calculator to figure out the Republican’s strategy for dealing with the problem. Yes, you guessed it: they are going to expect school districts to make unspecified efficiencies and cut out the waste to solve the problem! Argh! I do not even live in Texas, but it is enough to make me want to repeatedly hit my head against a brick wall. How can our leaders grow up to be so stupid? The reality of the funding caps is already playing out in Texas schools. Teachers are being let go. Class sizes are increasing. Trailers are taking over school parking lots. The list of elective subjects is growing leaner. Still this does not seem to be enough. The obvious result if Texans are foolhardy enough to keep charging forward can be found near where I live. In Prince George’s County, Maryland back in the 1980s voters put in place a property tax cap called TRIM. The result? Twenty years of substandard education in Prince George’s County. By limiting funds for the schools, students predictably dealt with larger classes, mediocre teachers and inferior facilities. The county has consistently placed in the bottom two Maryland counties for educational test scores. It is currently on a state watch list because it is having difficulty meeting the requirements of President Bush’s No Child Left Behind law.

Perhaps the Texas legislature is apathetic because poor test scores are really not the big deal that they claim. While Texas certainly has its prosperous parts, it has many school districts that have always provided poor educations because they have never been adequately funded. Texas ranks 38th in teacher salaries ($32,426 per year) and 34th in expenditures per pupil ($5,267 per year). Despite the dubious “Texas Miracle”, Texas places in the middle of national educational rankings.

Nevertheless, Texas is hardly in unique in underfunding its schools. Nor is it unique in not doing much to actually prepare students for real life. I am willing to bet that you can graduate from high school in the vast majority of our states without ever learning how to balance a checkbook. I bet there is no requirement for students to spend time surveying the costs of independent living. As a result, I bet no student is required to put together a realistic financial and logistical plan mapping out their first five to ten years of adulthood.

Oy, this is but one of many egregious areas where students need some genuine education that they are unlikely to get from the public schools. Most school districts skimp on sex education. Students might absorb the practically compulsory lessons on abstinence but they will not know how use a condom should the need arise. (Why should it? When the times comes, the abstinence fairy will restrain their natural urges!) Moreover, there will likely be no classes on the psychological differences between men and women or relationship theory. There will probably be no course on personal finance, the dangers of credit cards and the wisdom of saving parts of your salary. Likewise, there will probably be no learning on early childhood education, parenting, insurance and financing an automobile. In short, a high school degree will continue to mean what it has always meant: a subset of skills that might make someone marginally marketable but will do little to prepare him or her for real life.

But by golly our students will be darn good at taking dumbed-down standardized tests. In my last entry I noted my wife’s experience teaching community college students. They want everything handed to them. And why shouldn’t they? Like Pavlov’s dogs, they know the drill. Have they not been heavily and repeatedly coached ad nauseum by their teachers so they could pass these standardized tests? When have they had the opportunity to apply any critical thinking or independent thought in the classroom? How many teachers have time for open discussions about the pros and cons of various lifestyle choices? How many of these students have learned from their parents and their churches that life is not squishy, only to find out in adulthood that real life is invariably complex and multifaceted?

We are doing serious injustices to our children who will someday run our country. Yes, it is good that they are at least getting some education. In many countries, there is no such thing as public education. However, we are not properly preparing our children for the real world. Reading, writing and arithmetic are foundations for learning, but they are not the result of education. They are tools used to allow us to engage and make sense of the rest of our complex world.

Like it or not we are sending some bad messages to our public school students. Do not think our students are not savvy enough to figure out the subtext. Here are some. Only the basics really matter because that is all we will give you. Low taxes for me are more important than giving you a quality education. We will expect you to be solid citizens and to manage your way in a complex world but we will not necessarily give you the straight facts or help you think through the complexities of the real world. Maybe your parents will help you and maybe they will not. Lastly, we will not give you many tools to deal effectively with the chaos into which you are about to be thrown. You are on your own. So do not be surprised if in adulthood that you bounce from one bad relationship to the next. Do not be surprised if you run up huge debts. Maybe if you are lucky in twenty years you will learn these for yourself. But we sure don’t care enough about you to warn you about these mega hurdles.

Sadly, our public schools have become a noxious experiment into which we inject our dubious values, philosophies and biases. Meanwhile graduate, here are ten dollars and a suit. Good luck, kid.

The chickens are still coming home to roost

The Thinker by Rodin

Lost in their euphoria over their victory on November 2nd Republicans are likely missing the bigger picture. Systemic problems don’t go away just because an election is won. Bad policy wreaks bad results that can’t be swept under a rug. By reelecting Bush, Americans have put the onus back on Bush and Republicans to fix problems that they created.

The most visible problem will be the quagmire in Iraq. We can expect a new application of American force in insurgent strongholds like Fallujah in the near future. But I don’t believe the fundamental situation in Iraq will change. I bet in November 2008 the situation in Iraq will be about the same or worse than it is now. The Iraq conflict requires new thinking yet the Administration has no plans on changing course. The fight against insurgents in Iraq is still being fought with 20th century methods. With insurgents refusing to wear uniforms it becomes impossible to tell friend from foe. Insurgents can slip out of places like Fallujah by masquerading as civilians fleeing for their lives. We can kill whatever insurgents choose to stay and fight. But these tactics won’t make much of a difference. As soon as the civilians are let back into these cities the insurgents can trickle in unnoticed, pick up their rifles, reopen their secret stashes of mortars and other explosives and go at us again. As I’ve stated before Iraq is an unwinnable war. Kerry would have been no more successful at ending it to our satisfaction that Bush will have. For some of us Iraq sure looks like the 21st century’s version of Vietnam. Four more years should convince even the most die hard skeptic.

Energy will cost more in the next four years. We may see periods where prices drop below $2 a gallon for gasoline but in general the days of cheap energy are behind us due to emerging economies in India, China and Indonesia. Barring a worldwide recession demand will increase. And petroleum supplies will not improve very much. As a result prices will rise or stay high. The waves of higher energy costs will continue to be felt throughout the economy. While it may not drive us back into recession the higher energy costs will continue to put a damper on growth. Our nation must find better ways to cope with rising energy prices. There is little in the Bush Administration’s approach that suggests they have much of a clue on how to really solve the energy problem. Even tapping oil that may exist in the Arctic National Wildlife Refuge would only increase our supply of oil by a tiny amount. We need to find new technologies for a post oil era. But the Bushies still think the future will allow us to drive our SUVs at dollar a gallon prices.

The Bush Administration talks about reducing the deficit in half during the next four years. That’s all it is likely to be. The most likely scenario: deficits will continue to increase over their current levels. Neither the Republican controlled Congress nor the Bush Administration has demonstrated any fiscal discipline. There is already talk of more tax cuts. In addition Bush has a plan to allow younger workers to invest part of their social security withholdings in stocks and bonds. However this diversion of cash from the social security system simply exacerbates the deficit since the government is currently borrowing from the social security trust fund.

Of course this assumes that people and institutions continue to be willing to loan the U.S. government money. In August a Treasury bill sale attracted no international investors. While this may be a fluke it is worrisome if it recurs periodically. If foreign institutions are unwilling to lend our government money then interest rates for government bonds will have to go up. If they go up too high we’ll be perceived as a “junk bond” country and the flow of foreign capital might stop. But if government bonds need higher interest rates in order to attract investors then the private sector will have to match the rate increases to attract the capital it needs. If government and private industry cannot attract foreign capital then growth is likely to falter or stop.

Health care costs are likely to continue to outpace inflation. More Americans will be uninsured. Drug prices will continue to go through the roof. As usual the Bushies “solution” doesn’t really solve the problem. Their solution is medical savings accounts (MSAs). It fails the common sense test. Most Americans are already living beyond their means. Each year Americans put more debt on their credit cards. Americans simply don’t have money to squirrel away into MSAs. Try to imagine a middle class family earning $40,000 a year putting away thousands of dollars into these accounts. How likely is that? Instead this family will be trying to make their mortgage payments and keep up with the increases in energy costs. In addition even with MSAs people still need health insurance; only the very rich can afford to self insure. MSAs are a utopian Republican idea, not a serious solution to the health care problem.

Hopefully sometime in the next four years the economy will finally perk up enough so that all those who lost their jobs in the Bush recession will have found new ones. But currently wage increases are not keeping pace with inflation. Also there are millions of workers who have been outsourced (like my wife) or downsized. They are making a fraction of what they made before. Bush was the first president since Herbert Hoover to lose jobs in his first term in office. Between spiraling deficits, the war in Iraq, potential terrorist attacks inside the United States and possibly higher interest rates the sustained recovery creating tens of millions of new jobs such as we saw under Bill Clinton are unlikely.

I am a big believer in karma. I think it exists on the macro level too. As much as I don’t like the idea of another four years of Bush and Republican domination of Congress unless both show leadership hitherto undemonstrated it will be impossible to dodge accountability during the next four years. The silver lining to Kerry’s defeat is that Kerry cannot be held accountable for the Bush and Republican screw-ups. Given Bush’s mess Kerry would have likely been a one-term president anyhow. Trying to fix their massive problems in the next four years would defeat anyone. The Republicans have made their bed. Let them have their brief moments of gloating. My sense is that they have created problems beyond their control.

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.

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.

Things Cost Money!

The Thinker by Rodin

I have startling news for the Republican Party and fiscal conservatives in general. Things cost money.

I generally vote Democratic and when I mention it to non-Democrats I get this horrified look like “So you are in favor of higher taxes, big government and wasteful spending?” Huh? What? When did I say this? I don’t want to pay one dollar more in taxes than I need to contribute. The difference is that I don’t want society to look like a slum. I’ve made the connection, which apparently a lot of people haven’t, that you get the society you pay for.

There are lots of examples of trying to have your cake and eating it too but I will pick today President Bush’s “No Child Left Behind” initiative. Even I can’t complain about the idea. Why should some poor inner city kid get an inferior education compared to someone here in Fairfax County, Virginia? The law that was passed is more accurately named “Leave no child behind, and make the states pay for it.” In other words, it’s an unfunded mandate. Last I checked almost every state government, including here in Virginia, is running deficits.

The states are starting to cry foul (I wonder what took them so long). Instead of a race to the top, it’s a recipe for failure. Why? Because for the most part states can’t or won’t summon the political will to raise taxes, and with the money remaining most are not going to throw more money automatically into education.

In fact when it comes to education we are a bunch of damned hypocrites. We say we want better teachers and smaller classrooms. When was the last time someone really decided to pay for it? Okay, there is the progressive state of Maryland, largely controlled by the Democrats. They “got” it. They’ve figured out it will cost serious money to leave no child behind and are paying for it. There are no income tax cuts in Maryland. Taxes may even have to be raised.

Pretty much every year, even here in Fairfax County which is renown for its schools, the class sizes increase, the number of trailers increases out in the play ground, teacher’s salaries are kept at or below the cost of living and everyone runs around trying to meet standards of learning benchmarks, teaching to a test instead of imparting valuable skills like critical thinking. This is politically correct “education”.

Here in Fairfax County our air is increasingly bad, our roads are forever more crowded but just recently we rejected an initiative to raise our taxes half a cent to solve some of these problems. It’s not like we’re exactly poor. We have the second highest per capita income in the country.

There is no way I’d become a public school teacher. Would you want to live in Fairfax County, where houses cost $300K on up on maybe $40,000 a year, teach in overcrowded classrooms, spend most of your off the job time doing lesson plans and grading homework, then be held accountable for bratty kids and their ability to score on some politically inspired standardized test? I’m not sure you can rent an apartment for $40,000 a year in this county any more. And yet we must be doing something better than most, which suggests that other school districts are spending far, far less. When it comes to education in general we talk a good talk but fund the schools as if we were Ebenezer Scrooge.

You want low taxes? Move to Angola. I’m serious. There are NO taxes in Angola; there is only anarchy. You may find that there are additional expenses, like hiring your own personal armies to do your shopping (owning a tank might get expensive), and you might have to build your own roads to get where you want to go. But it must be paradise right? No taxes at all! But what is that? You want low or no taxes AND great roads AND great schools AND minimal crime AND clean air AND you want to drive around in smog producing SUVs? This isn’t rocket science, folks. At best you can get two out of three. You won’t get all of them.

So Republicans and fiscal conservatives, stop being such damned hypocrites. Things cost money. If you want these things, pony up the dough. Pay your share. If you don’t, quit your bitching. Home school your brats. Put a fortress around your McMansions and lead your little xenophobic life detached from the real world. But if you value civilization then pay for it. Taxes are not evil. Taxes are the price of living in a civilized society. And apparently they aren’t nearly high enough.