If you’re not scared off by two-thousand word essays, read this to understand why Washington, DC Democratic Mayor Vincent Gray staged a photo-op stunt to beg Senate Democrats to end the standoff over Obamacare, while the usually Republican-leaning National Chamber of Commerce pleaded with Congress to add some more headroom to the debt ceiling.
Shorter than 2,000-word version:
DC Mayors represent government workers who are the major casualties of temporary government shutdowns, while business groups represent big business, which depends on government spending fueled by even deeper debt.
UPDATE: (Delegates representing DC too.)
ALSO: Establishment GOP lashes out at Tea Party
Economists like to talk about the multiplier effect of government spending. The theory is that if the government spends a dollar buying products, services, or even spending it on welfare, the money is transmitted through the economy many times over when the original recipient buys things which then put extra money in the pocket of another recipient, who then buys things, and so on.
Keynesian estimators of the multiplier effect often focus on the spending and thus only predict a positive multiplier. This, however, analyzes only one half of the equation: ”that which is seen,” in the words of Frederic Bastiat. That which is unseen is where the money came from. In the case of government spending, it can only come from higher taxes, meaning that someone else is unable to spend himself that which the government spent, or from higher borrowing, meaning that someone else in the future is unable to spend the amount of money borrowed plus interest. The multiplier effect, therefore, can only be positive when viewed through the double entry accounting method, if the government spending today has a higher multiplier than the multiplier effect of private spending, whether today or in the future. Depending on their political stripes, economists latch onto data that buttress their belief that government spending is more or less efficient than private spending.
Today comes data that point substantially in the direction of anti-Keynesians who argue that government spending is a bigger drag on the economy than if the spending decisions were to be left in private hands.
The ranking member of the Senate Budget Committee produced this chart showing that over the last two years, the government added $2.4 trillion in debt and saw GDP increase by only $1.2 trillion. Keep in mind that government spending is part of the equation used to calculate GDP. So this chart implies a negative multiplier of 50%–meaning that for every government dollar spent through debt, the economy shrank 50 cents. Even if we were to use the pre-2009 deficit of $400 billion a year as a baseline, this would mean that the extra government deficit spending of $1.6 trillion over the last two years resulted in a GDP increase of only $1.2 trillion and a negative multiplier effect of 25%.
No company in the world would borrow money if they expected a negative return on investment as this chart implies. And yet we are told again and again that the economy will collapse if we don’t extend what is clearly counterproductive deficit spending.
MORE: This chart dovetails nicely with John Tamny’s column from yesterday:
“First off, there’s no such thing as fiscal stimulus of the spending kind. Though it’s well known at this point, governments can only spend money they’ve first taken from the private sector. In short, governments can at best merely steal demand from certain economic sectors in order to fund generalized waste and a bigger state. There’s no economic growth to speak of, rather there’s decline.”
Read the whole thing.
UPDATE: Thanks to John Tamny’s RealClearMarkets for the link. While you’re here, take a look around.
To be “sovereign” means that there is no higher legal authority. This is why, historically, sovereign debt is a bad risk: if the sovereign doesn’t want to pay back the debt, there is no authority that can order the debt repaid.
Francis Menton briefly describes Argentina’s journeys through the United States court system as the South American company attempts to evade debt issued in New York. The end game is near and Argentina’s lawyer told the judge what it will be: ”We would not voluntarily obey such an order [to repay the debt].” The Argentinians are essentially echoing Andrew Jackson’s rebuke of the Supreme Court: “They have made their decision, now let them enforce it.”
I suppose that the courts could seize whatever meager assets the broke country might have in American banks, but American courts have no real means to force Argentina to repay the debt. What the court can do is to deny Argentina access to future New York credit markets, which causes Menton to remark:
” . . . getting cut off from credit would probably be the best thing that could ever happen to Argentina, finally forcing a reduction in its wildly bloated state sector and out-of-control crony capitalism.”
The same would be true for the United States, but I fear that we’re going to have to get a lot closer to Argentina’s miserable state of affairs before we accept it.
How is it possible that both President Obama and the “Tea Party” hold an advantage in the budget standoff? It isn’t a contradiction if you understand that one side has a tactical and operational advantage, while the other side has the long-term strategic advantage.
For the next two weeks President Obama is at a tactical disadvantage as he is sacrificing the interests of his own forces in order to secure a greater goal. So far those most hurt by the government shutdown are government workers who are denied a paycheck. They are, in effect, on strike. But unlike an ordinary strike, where a union’s rank and file walk off the job and accept a temporary loss of income in exchange for a negotiating advantage to secure a bigger benefit, in this strike the workers out of work don’t want the benefit that their union’s leadership (national Democrats) want to secure. That’s because the benefit in question is Obamacare, which no government worker wants and many actual unions have exhaustively tried to avoid. (more…)
Every time the United States gets ready to bump up against another debt ceiling limit, the old 14th Amendment canard seems to make an appearance.
I’ve previously devastated that argument. So too have others. But let me sum up why usurping powers supposedly granted by Section 4 of the 14th Amendment is not just unconstitutional, but counter-productive:
1. Section 8 of Article I exclusively grants to Congress the power “to borrow money on the credit of the United States.”
2. The obligation to repay all debt supposedly set by Section 4 of the 14th Amendment only exists if you leave out three significant words in that very amendment: ”The validity of the public debt of the United State, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” The debt ceiling is the authorization that allows the Treasury to issue more debt. Without it, there is no “authorized by law.”
3. Even if that isn’t clear enough, Section 5 of the 14th Amendment re-emphasizes that point: ”The Congress shall have power to enforce, by appropriate legislation, the provisions of this Article.”
4. The whole reason purportedly given for arguing that the President should use this non-existent power is so that the world’s bond markets won’t be spooked and call into question whether or not debt issued by the Treasury is valid. However, the Constitutional uncertainty of debt issued under such circumstances induces the very market spookiness that those making the argument supposedly wish to avoid.
5. In a contest between violating a law and violating the Constitution, the Constitution wins. The Constitution demands that only Congress can authorize debt. The Constitution also demands that the President must repay debt. It is a mere law (and a relatively recent one) that requires the President to spend every dime that Congress authorizes. The Constitution, therefore simply demands that the President simply prioritize debt repayment over other spending. Sure, that means that he has to violate the 1974 Anti-impoundment act, but it would now be unconstitutional to follow that law without an increase in the debt ceiling. (Plus, it was a stupid law in the first place.)
There’s more from the way-back-machine here and here. Plus this three-year-old anti-anti-impoundment piece from Daniel Henninger.
MORE: From John Hinderaker: “The Federal Government Can’t and Won’t Default on its Debt Obligations.” My five points above tell you why the federal government can’t. To understand why the President won’t default, read this long piece to understand how operationally dependent the Democratic Party is upon debt.
The nearly four-year-long stalemate of the Great War ended only because fresh American troops arrived on the front lines in the summer of 1918 at the rate of 10,000 a day. Twenty-one years later the Allies envisioned another lengthy trench-style war when they relied upon a line of interconnected, powerfully-fortified concrete bunkers named after French Minister of War, Andre Maginot. A generation after the First World War, and only six weeks after the second war began in earnest, the whole of France was under German rule.
A mere 100 hours after the American-led offensive to liberate Kuwait began, the war was over. A dozen years later a similar ground offensive was nearly as quickly concluded . . . but that war was only beginning.
It is human nature to extrapolate linearly from the past. Investment advisers in the 1920s and the 1990s, as well as real estate professionals in the oughts, forecasted incredible and continuous increases in value. Climatologists 30 years ago observed sharply colder winters of the late-seventies and forecasted a new ice age; a generation later many of those same scientists watched temperatures climb and extrapolated that to a future of rising seas and scorched lands.
Here we are today, eighteen years after the last government shutdown and Democrats blithely predict a certain public relations victory while many Old Guard Republicans, still snakebit by the past, fear for their electoral futures.
Life has a way of not staying on script.
Conventional wisdom holds that military service disproportionately attracts minorities and men and women from disadvantaged backgrounds. Many believe that troops enlist because they have few options, not because they want to serve their country. Others believe that the war in Iraq has forced the military to lower its recruiting standards.
. . . studies that examined the backgrounds of enlisted personnel refute this interpretation.
I have to admit that in 2001 I accepted the CW that the militarily disproportionately accepted poor minorities. And then I checked for myself. I did a very similar analysis to this Heritage Foundation study and discovered a very similar result: Americans from the poorest backgrounds are the least likely to join the Army.
A few notes about my study:
1. It was three computers ago and I’ve lost all the raw data, but the results are still clear in my mind. Take that for what it’s worth–yes I encourage skepticism–but to partially allay that, I posted the same thing back in 2005.
2. I looked at FY 2001 Active Army enlistments, USMA enrollees, and ROTC contracts. That was before September 11th for all but the last three weeks of the year. Additionally, it was only Army data. Sad for an Army man to admit: of the services, the Army has the worst record when it comes to marketing to high quality applicants. In other words: if the Army looked good, the other services (especially Marines and Air Force) are bound to look even better.
3. I didn’t break my data down into census tracts, but to zip codes, which is a less discrete variable. However, I did look at individual zip codes with which I was personally familiar, and I found that evidence from those areas matched the results of the overall study.
4. I looked at census data for 17-24 year olds, which is a the usual target market for Army recruiters. It’s unclear from the Heritage study how they accounted for age.
Bottom line results of my study: the least likely quintile of zip codes to send recruits into the active Army, was the economically lowest-ranked quintile. By far. In other words, the 20% of poorest neighborhoods were the least likely to send people into the Active Army (the easiest of the four services to enter). My going-in hypothesis was the opposite. I expected the poorest neighborhoods to provide the most recruits. I was wrong.
Instead, I suppose, that the poorest neighborhoods are those that are the most likely to produce 17-24 year olds who are ungraduated from high school, with a disqualifying criminal record, and/or unable to pass a drug test.
More to the point: One-fifth of our nation’s children are growing up in neighborhoods where they don’t even have the military as a realistic possible path to betterment. Ouch.
*Standard disclaimer to tell you that these are my opinions only and not those of DoD, and cetera.
When determining if we should do anything about global warming, I propose a four-step approach:
1. Are global temperatures warming?
2. Do the negative consequences of the change outweigh the positive consequences?
3. Can we do anything that will reverse the change?
4. Do the net positive consequences of the action outweigh the net negative consequences of doing nothing?
Notice, the steps have nothing at all whatsoever to do with whether or not global warming is anthropogenic. The climate’s “naturalness” is actually irrelevant. If a 10 kilometer-wide asteroid were hurling toward earth at 100,000 km per hour, it would be a completely natural event. However, just because the meteor wasn’t anthropogenic doesn’t mean that we wouldn’t take actions to deflect it.
Notice also, that we could change question 1 from “warming” to “cooling” and the four-step approach still works. And quite frankly, cooling is probably a more historically problematic situation.
If the answer to any one of the above four questions is “No,” then we should do absolutely nothing about a changing climate. If the answer to all of the questions are “Yes,” then, and only then, should we take any actions.
This is not the discussion we have been having for twenty years. Instead, we have been chased onto an anthropogenic side path well worn by Rousseauian “modern man is bad” theorists. The discussion over naturalness is not only, as I have already said, irrelevant, it is also self-destructive, as the question itself presupposes that natural is good and that anything that deviates from it must be returned to a state of nature.
Peter Ferrara: Global Cooling is Here
Thanks to Glenn for the link. It’s nice to see something I wrote a month ago still relevant today. Also here and here.
Edited to add the word “net” to question #4 per a comment from a reader.
Two Boston area immigrants who fell under the spell of a radical ideology that espoused the use of bombs against innocents were allegedly behind the violent April 15 multiple murders.
But it’s not who you think it is. The year was 1920 and the two men were Ferdinando Nicola Sacco and Bartolomeo Vanzetti. Aside from the date and the location, there are other parallels too. And they speak more about us than they do about either Sacco and Vanzetti or the Tsarnaev Brothers.
The nineteen-teens and twenties was a period of great tumult in the United States. After the First World War, which was widely viewed as disastrous mistake for having gotten involved, Americans rejected all things associated with the outside world. The aftermath of the Great War brought upheaval to Europe. Replacing failing empires and monarchies was Russian communism, German socialism, and varying amounts of anarchy seemingly everywhere else.
Today there is the ongoing collapse of the Euro and the demise of Middle Eastern strongmen, and so we fear radical islamism and economic contagion from Cyprus and Greece.
Eight decades ago the end of the war brought economic troubles too. High unemployment, which was widely and mistakenly thought of as a normal post-war adjustment to a lack of military demand and a surplus of returning soldiers, was actually just a result of the post-war continuation of the ongoing de-agriculturalization of the world economy. Regardless of the cause, greater unemployment turned American workers against more recent immigrants who were looking for work too. In 1917 America passed its first immigration restriction laws barring the entry of “idiots, imbeciles, epileptics, alcoholics . . . ” and Asians. Just a year before, an influential eugenicist wrote The Passing of the Great Race that became widely popular. By 1924 America had its first immigration quotas that attempting to freeze in place the country’s racial composition.
Today unemployment is higher than normal as the world deals with the fallout associated with becoming a post-manufacturing economy. Pat Buchanan hawks The Death of the West: How Dying Populations and Immigrant Invasions Imperil Our Country and Civilization. Politicians from all sides rail against “illegal” immigration but very often demagogue all immigration.
Both periods were characterized by big fights over petty tangential issues that many prudes insisted contributed to unrest and crime. The Volstead Act passed in the wake of the 18th Amendment gave us Prohibition, while today the President and many Democratic leaders want to outlaw guns. Were those laws to pass, more, not less, crime would be the result, just as more crime was the result of Prohibition too.
Certainly I could carry the parallels further, but let me just conclude with a few questions:
- Was it really necessary to quarantine an entire city to capture a couple criminals whose bombing victims numbered one-one-thousandth of those killed on 9/11?
- Does it not speak volumes about the limits of power and the power of people that the police were unsuccessful during their hours of uninhibited manhunt, but as soon as the house arrest was lifted a citizen found the suspect?
- Is it realistic to expect that among millions of immigrants there won’t be a few criminals, when we have millions of native Americans locked up here at home?
- Is not labeling violence as “terrorism” or “an act of war” just another form of “hate” crime, which attempts to characterize criminals by their thoughts instead of their acts?
- If three dead bombing victims is enough to rescind an American citizen’s constitutional rights, is two? Or one? Or none?
Now that the Supreme Court has ruled with Obamacare that the federal government is limited in what it can mandate that the states legislate, I’d like to see one or more of the states lower the drinking age back to 18 this year. If you are old enough to vote and old enough to serve in the military, you should be old enough to buy a drink.
Still on the subject of alcohol, I’d like to to see more states join Washington’s lead and remove the mandatory second tier of alcohol distributors that serve as legally required monopolies that raise prices and reduce the selection available to the wine-buying public in the other 49 states.
Not that I would like to see continued violence in the Middle East, but since it is a near certainty anyway, I’d like to see it happen in 2013 without any hint that America will get even remotely involved.
I’d like to see no calls this year for any sort of extension to American involvement in Afghanistan.
I’d like to see Congress and the White House continue to be at loggerheads throughout all of 2013. Since every meaningful compromise in recent decades has resulted in higher taxes, greater spending, bigger debt, and diminished freedom, doing nothing is Washington’s best course of action.
I’d like to see the Department of Defense deal seriously with sequestration by eliminating commands, agencies, directorates, and staffs instead of reducing either the number or effectiveness of ships, wings, and brigades.
I’d also like to see DoD kill a few hideously expensive major weapons programs this year–especially the F-35.
I’d like to continue to see the collapse of the legacy broadcast and print media. CNN, NBC, Time, and the New York Times each have brands far larger than their real contemporary influence; it only follows that the economics of that untenable situation will catch up to them–hopefully in 2013.
I’d like to see 2013 produce no viral videos that spark any more line-dancing crazes. The Chicken Dance, the Electric Slide, and the Macarena were each bad enough before Gangnam Style. Please, let’s not do this again. Ever.
And since I will have a college student in 2014, I’d like to see the higher education bubble burst in 2013.