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In Forbes, Charles Kadlec comments on the looming debt crisis here and in the EU.
…In the U.S. at least, the looming debt crisis among states and municipalities also reflects a lack of diligence on the part of the citizenry. This can be attributed in part to a naïve assumption by the electorate that those in government, freed from the profit motive, could be trusted to do what was “right” for the community as a whole.
Instead, what we now can see is that elected officials, following a power motive, can be as greedy and irresponsible as anyone in the private sector. In many cases, officials from both parties have been captured by powerful interests, including public sector unions and recipients of transfer payments. As a consequence, they have willfully committed current and future taxpayer money to benefit those with political power at the expense of the community as a whole.
One lesson is that to live in liberty requires an elevated level of diligence, oversight and skepticism of our elected officials. Taxpayers and financial market regulators need to insist on more honest accounting and disclosure of the true costs of the government programs in general, and government employee pensions and benefits in particular.
The sovereign debt crisis now encircling Europe may well prove to be a preview of what lies ahead for the political class in the U.S. Like their European counterparts, they may be participants in an end-game in which capital markets force a reassessment of debt-financed government spending, especially on transfer payments, government pensions and wealth-destroying investments in bridges to nowhere, green energy and other government boondoggles with negative rates of return.
Walter Russell Mead looks over the edge.
The global financial crisis could be heading to a blue state near you: that is the latest grim news from the New York Times: “Mounting Debts by States Stoke Fears of Crisis.“ Normally a cheerleader for the free spending (in bluespeak, compassionate) policies of the public sector union dominated, high tax, high cost states like California, Illinois and New York, the Times now warns that fiscal ruin could be at hand.
…The Times story compares blue state debt to the subprime crisis and the Greek meltdown. A deeply disturbing graph shows a true panic underway as investors pull money out of mutual funds that invest in municipal bonds even faster than at the height of the market collapse in October 2008. With as much as $4 trillion in off-the-books pension and health care liabilities, the worst hit states may soon be unable to operate without massive federal support.
…Bond investors are much more skittish than stock buyers. Any risk of default sends them running for the exits. Without swift federal action, a crisis in the market for some cities and states would inevitably lead to sharp spikes in interest rates for other state and city governments whose positions suddenly looked risky. Massive layoffs of government employees would be inevitable in a widening range of affected states, throwing the weak recovery off course and quite possibly bringing on the much-feared second dip of the recession. Many banks and other financial institutions like insurance companies hold significant portfolios of state debt; if those bonds tank in value, we could go back to the darkest days of the financial crisis of 2008 as big banks and insurance companies come running to Uncle Sam for more bailouts. …
…Some Democratic voters, heavily dependent on state spending because they are state employees or because they rely on state and local spending for vital services, will want the party to fight for them. But very few non-affected Americans want to be taxed or for the federal government to take on large amounts of new doubt to bail out the cushy pensions of public employees. Nor will voters in the non-bankrupt states want to bail out the ne’er-do-wells without strict conditions and limits. …
Charles Krauthammer writes that Republicans just agreed to increase government spending to get the Bush tax cuts extended.
Barack Obama won the great tax-cut showdown of 2010 – and House Democrats don’t have a clue that he did. In the deal struck this week, the president negotiated the biggest stimulus in American history, larger than his $814 billion 2009 stimulus package. It will pump a trillion borrowed Chinese dollars into the U.S. economy over the next two years – which just happen to be the two years of the run-up to the next presidential election. This is a defeat?
If Obama had asked for a second stimulus directly, he would have been laughed out of town. Stimulus I was so reviled that the Democrats banished the word from their lexicon throughout the 2010 campaign. And yet, despite a very weak post-election hand, Obama got the Republicans to offer to increase spending and cut taxes by $990 billion over two years. Two-thirds of that is above and beyond extension of the Bush tax cuts but includes such urgent national necessities as windmill subsidies.
No mean achievement. After all, these are the same Republicans who spent 2010 running on limited government and reducing debt. And this budget busting occurs less than a week after the president’s deficit commission had supposedly signaled a new national consensus of austerity and frugality.
Some Republicans are crowing that Stimulus II is the Republican way – mostly tax cuts – rather than the Democrats’ spending orgy of Stimulus I. That’s consolation? This just means that Republicans are two years too late. Stimulus II will still blow another near-$1 trillion hole in the budget. …
Michael Barone comments on tax cuts and Obama’s surprising admission.
…The strongest part of the press conference came when Obama told liberal Democrats that robust economic growth will make everything easier. That’s true: Robust growth produces a boom in revenues far beyond what government statistical models predict. In 1995 President Clinton refused to even promise to balance the budget, but the tech boom generated enough revenue to do so a few years later.
But that raises the question of why the economy has been growing at such a limp rate two years into the Obama administration. The specter of higher taxes on high earners — delayed now for two years, but still threatened by the president — surely has done something to choke off growth.
So has uncertainty about the extent and cost of the administration’s regulatory policies — which are not limited by the deal on taxes. Extension of unemployment benefits, arguably good policy at a time when jobs are genuinely scarce, tends to perpetuate unemployment as the economy grows, by inducing some workers to hold out for higher-paying jobs.
…But the Democratic base seems more interested in expanding government than in stimulating the economy. They are bellowing with rage not so much at Obama but at the reality that he is grudgingly acknowledging. They had their time and now it’s gone.
Two weeks ago Thomas Sowell explained how historically tax cuts have increased economic growth, and therefore increased government revenues. Surprisingly, Peter Schiff says not always. His complaint is lack of spending restraint.
…While Democrats wanted more government spending,they were unwilling to vote for broad-based middle class tax increases to pay for it. Instead they want what Democrats have always wanted: higher taxes on the “rich.” Republicans want lower taxes, but as has become typical, they were unwilling to cut government spending to enable it.By running up the deficit both sides get what they want without any political sacrifice.Sure, they break their campaign promise to cut the deficit, but the political fallout that results will be far less costly than voting for the tax hikes or spending cuts.
In truth however, there are no real tax cuts in this proposal. The true burden of government is not measured by how much it taxes but how much it spends. Since this deal ensures that government will be more expensive next year than it was this year, American citizens will have to shoulder the added cost. Just because Congress has decided to deliver the bill with debt rather than current taxes does not mean that the spending will not be paid for. The only thing the plan accomplishes is to alter the means by which government spending is financed.
…Unfortunately, nothing in the plan addresses the fundamental economic imbalances that underlie our economy and that brought us to the brink of ruin in the first place. What we really need are massive cuts in government spending so we can have true tax relief. In addition, we need to remove the government-imposed barriers which make our economy uncompetitive, and which are preventing market forces from correcting the imbalances. By expanding government and increasing debt, the plan puts us farther than we have ever been from a real recovery. …
The WaPo editors say enough with the ethanol subsidies.
…In other words, the government pays the industry for the privilege of selling to a captive market, spending $6 billion in 2009 on the tax credits alone. Without the tax credits, the amount of corn ethanol produced would still increase over the next 10 years, the Agricultural Policy Research Institute at the University of Missouri calculates. Yet the Congressional Budget Office (CBO) estimates that taxpayers still pay $1.78 to replace a gallon of gasoline with its energy equivalent of corn ethanol. The numbers are far worse when put in terms of greenhouse gases. The CBO reports that it costs a staggering $750 to reduce annual greenhouse gas emissions one ton by burning corn ethanol – and the CBO makes some generous assumptions to get even that figure.
Yet because the policy directs cash to farm states that are rich in political influence, lawmakers are rallying to save this payoff from expiration. Sen. Kent Conrad (D-N.D.), who insisted Sunday that President Obama’s fiscal commission didn’t go far enough in its deficit reduction plan, has paired with Sen. Charles E. Grassley (R-Iowa) to press for renewal of the gratuitous corn ethanol tax credit and the ethanol tariff through 2015. Typically, the farm lobby has won out on such issues. But this year it’s meeting stronger than usual opposition from a bloc of fiscal conservatives and environmentalists, backed by such strange bedfellows as Tea Party organizer FreedomWorks and ultra-liberal pressure group MoveOn.org – even Sen. Jim DeMint (R-S.C.) and Al Gore. …
Proof God has a sense of humor; The Week highlights Cancun’s record low temps during the globalony confab.
The irony: As negotiators from nearly 200 countries met in Cancun to strategize ways to keep the planet from getting hotter, the temperature in the seaside Mexican city plunged to a 100-year record low of 54° F. …
The reaction: ClimateGate was “bad enough,” says Duncan Davidson in Wall Street Pit, but Cancun’s weather is particularly “inconvenient” for global-warming alarmists. It’s a reminder that global temperatures have “flatlined” despite rising carbon dioxide levels, “which is decidedly chilling against the concept of hampering economic growth to limit Co2 emissions.” …