Archive for the ‘federal budget’ Category

The Politics of Dependency

The Politics Of Dependency   <– PDF version

Our topic today is the policy that seeks to reduce poverty.  But before I address the modern particulars, first consider an extended passage from a book by the 19th century American economist Francis A. Walker [1].   I have indicated in square brackets some explanatory notes, mostly related to the calculation of dates.  It is very important to recall as you read this, that Dr. Walker was a white person talking about other white people.  In his 1884 book he writes [2]:

The Impotent vs. the Able-bodied Poor.  The relief of the impotent poor, whether by private or public charity, is, so far as political economy is concerned with it, a question relating to the consumption of wealth.  It is so much a matter of course, under our modern civilization, that the very young and the very old, the crippled and deformed, who are unable to earn their own maintenance, shall not be allowed to starve, that the matter of relief to these classes becomes one of administrative detail, that does not require even to be alluded to in an elementary treatise on economics.

The experience of that country from which we derive our law and much of our administrative machinery [Great Britain], is, however, so instructive as to the influence for mischief upon the entire laboring population and upon the future production of wealth which may be wrought by ill-considered provisions for the distribution of alms to the able-bodied poor, as to make it worth while briefly to recite that experience here; and thereupon to define the limits outside of which the consumption of wealth for this purpose becomes prejudicial to production.

We shall get at our subject most directly by inquiring why it is that the laborer works at all.  Clearly that he may eat.  If he may eat without it, he will not work.  The neglect or contempt of this very obvious truth by the British Parliament, during the latter part of the eighteenth and the earlier part of the nineteenth century, brought the working classes of the kingdom almost to the verge of ruin, created a vast body of hopeless and hereditary pauperism, and engendered vices in the industrial system which have been productive of evil down to the present day.

Establishment of the English Pauper System.  By the act of the 43rd year of Queen Elizabeth’s reign [1601], every person in the kingdom was given a legal right to public relief, if required; but voluntary pauperism was severely dealt with, and the able-bodied compelled to work.

The principle of requiring the able-bodied poor to work continued for generations to be fundamental in the English pauper system; and for the better enforcement of this requisition parishes or unions of parishes were, by an act of 9th George I. [1722], authorized to build workhouses, residences in which might be made a condition of relief.  Moreover, from the days of Elizabeth to that of George III, the spirit which actuated the poor laws was jealous and severe.  Doubtless in that administration unnecessary harshness was sometimes practiced; but, on the whole, the effect on the working classes was wholesome, for it was made undesirable to become a pauper.

Removal of the Workhouse Test.  On the accession of George III [1760], a different theory came to direct legislation relating to poor relief, and a widely different temper of administration began to prevail.  Six successive acts, passed in the first years of George III, intimated the changed spirit in which pauperism was thereafter to be dealt with.  In the 22nd year of that reign [1781], the act known as Gilbert’s act gave a fuller expression to this spirit.  By the act the workhouse was no longer to be used as a test of voluntary pauperism:

The 32nd section provided “That where there shall be in any parish, township, or place, any poor person or persons, who shall be able and willing to work but who cannot get employment, the guardian of the poor of such parish, etc., on application made to him by or on behalf of such poor person, is required to agree for the labor of any such poor person or persons at any work or employment suited to his or her strength and capacity, in any parish or place near the place of his or her residence, and to maintain, or cause such person or persons to be properly maintained, lodged and provided for, until such employment shall be procured, and during the time of such work, and to receive the money to be earned by such work or labor, and apply it in such maintenance as far as the same will go, and make up the deficiency, if any.”

By the repeal of the workhouse test, and by the additional most injudicious provision which we have placed in italics, a deadly blow was struck at the manhood and self-sufficiency of the working classes of England.

The Logical Outcome.   By 1832 the false and vicious principle on which Gilbert’s act was based had been carried logically out to its limits in almost universal pauperism.  The condition of the person who threw himself flat upon public charity was better than that of the laborer who struggled on to preserve his manhood in self-support.  The drone was better clothed, better lodged, and better fed than the worker.

All the incidents of this bad system were unnecessarily bad.  The allowance for each additional child was so much out of proportion to the allowance for adults, that the more numerous a man’s children the better his condition, and thus the rapid increase of an already pauperized population was encouraged; while the allowance in the case of illegitimate children was even greater than for those born in wedlock.  “It may be safely affirmed,” said the Poor Law Commissioners of 1831, “that the virtue of female chastity does not exist among the lower orders of England, except to a certain degree among domestic servants, who know that they hold their situations by that tenure and are more prudent in consequence.”

Such may be the effects of foolish laws.  The legislator may think it hard that his power for good is so closely restricted; but he has no reason to complain of any limits upon his power for evil.  On the contrary, it would almost seem that there could be no nation, of any race of men, which a few laws respecting industry, trade and finance, passed by country squires or labor demagogues in defiance of economic principles, could not transform within half a generation into a nation of beasts.

Poor Law Reform.   We have seen what a system the English squirearchy substituted for the economic law that he that would eat must work.  The natural effects of this system were wrought speedily and effectually.  The disposition to labor was cut up by the roots; all restraints upon increase of population disappeared under a premium of births; self-respect and social decency vanished before a prize for bastardy.  The amount expended in the relief and maintenance of the poor had risen, in 1832, to 7,000,000 [pounds sterling].

In this exigency, which, in truth, constituted one of the gravest crises of English history, Parliament, by the Poor Law Amendment Act (4th and 5th, William IV) [1833 and 1834], returned to the principle of the act of Elizabeth.  The workhouse test was restored; allowances in relief were abolished; paid overseers were appointed, and a central system was created for the due supervision of the system; illegitimacy was discouraged by punishing the father, instead of rewarding the mother; and the law of pauper settlement was modified so as to facilitate the migration of laborers in search of employment.

By this great legislative reform the burden of pauperism, in spite of the continuing effects of the old, evil system, was reduced in three years, by an average amount, the kingdom over, of forty-five percent.

The Principle that Should Govern Poor Relief.  The moral of this episode in the industrial history of England is easily drawn.  It is of the highest economic consequence that pauperism shall not be made inviting; but that, on the contrary, the laborer shall be stimulated to the utmost possible exertions to achieve self-support, only accepting relief as an alternative to actual starvation.  It is not, to this end, necessary that any brutality of administration shall deter the worthy poor who have no other resource; but it should be the prime object of legislation on this subject to make the situation of the pauper less agreeable than of the independent laborer, and that, by no small interval.

“All”, says Mr. George W. Hastings [3], “who have administered the Poor Law, must know the fatal readiness with which those hovering on the brink of pauperism believe they cannot earn a living, and the marvelous way in which, if the test be firmly applied, the means of subsistence will be found somehow.”

The white people of England between the 1780′s and the 1830′s showed that if you subsidize dependency, you get more of it.  If you reward illegitimacy and the breakdown of the family, you get more of it.  If you treat the idle better than the worker, you get more idle people, and a great deal of resentment from those who work and pay taxes to support the idle.  It turns out that the people of America, white and black alike, have demonstrated the exact same behavior in the last fifty years as the English did over a similar interval.  Ambition to work is generally down; illegitimacy and poverty are generally up among all the races in America.  But this problem cannot get the attention it deserves because those heavily invested in the current system will not allow a discussion of it.  Consider the similarity of Walker’s conclusions with the remarks of Congressman Paul Ryan (R-WI), on 12 Mar 2014:

“We have got this tailspin of culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working or learning to value the culture of work.”

To which Her Most High Indignancy Congresswoman Barbara Lee (D-CA) commented:

“Let’s be clear, when Mr. Ryan says ‘inner city’, when he says ‘culture’, these are simply code words for what he really means: ‘black’.”  She also called Rep. Ryan’s statement a “thinly veiled racial attack”.

By calling Ryan’s statement “a racial attack”, Her Imperial Righteousness Rep. Lee is implying that blacks and whites are somehow different; that black people do not want the same things as white people, and behave differently than white people.  That sentiment is foreign to true civil rights advocates, but typical for narrow-minded race-baiting bigots.  How can Congress correct the problem if one faction of Congress calls the other side racists just for stating the obvious?  But enough said about politicians.  What about the 7 million pounds sterling that Dr. Walker mentioned, and how does it relate to America today?

The data from two websites [4, 5] reveal the following statistics:

a.  Nominal GDP of the United Kingdom in 1832 was 459,000,000 pounds sterling

b.  Nominal GDP in the United Kingdom in 1832, measured in 2008 pounds sterling, was 45,087,000,000.

c.  Nominal GDP in England (to which Walker referred) was 36,837,000,000 measured in 2006 pounds sterling.

Ignoring the difference in 2006 vs. 2008 pounds sterling, we have the ratio of the GDP of England to GDP of the UK in 1832 as 36937 million / 45087 million = 81.7%. Hence the nominal GDP of England in 1832 pounds sterling was 81.7% of 459,000,000 = 375,012,376.  The 7 million pounds Walker referred to thus represents 7,000,000 divided by 375,012,376, or 1.86% of GDP, which Walker called a “grave crisis”.

The U. S. 2013 federal budget [6] contains the following entries under the category “Welfare” (all figures are in $ billions US).

a.  Family and Children:           269.8

b.  Unemployment:                      53.2

c.  Worker Compensation             8.0

d.  Housing:                                   53.9

for a total of $ 384.9 billion US.  This excludes $ 366.6 billion for “Vendor payments for health care (Welfare)”.  I have excluded the latter figure since the payments for poor relief in England likely did not include any medical expenses.

Using only the 384.9 figure, and the 2013 GDP of the U. S. [7] as  $ 15,684.8 billion US, it is seen that the $ 384.9 B represents 2.45% of GDP; even worse than the ratio under the English system.  If the medical costs of welfare were included, the total comes to 4.79% of GDP.

So where does it end?  It doesn’t.  We will have more of the same (dependency and resentment) because the race-baiting politicians want it that way.

References

[1]  Francis A. Walker (1840 – 1897); economist and statistician, officer in the Union Army in the Civil War; chief of the Bureau of Statistics 1869-1870, Superintendent of the 1870 Census, President of the Massachusetts Institute of Technology 1881 – 1897.

[2]  Francis A. Walker, Political Economy, NY: Henry Holt and Co., 1892, (copyright 1884), pp. 356 – 361

[3]  George W. Hastings (1825-1917), English Liberal politician, Member of Parliament from East Worcestershire 1880-1892.  He was expelled from the House of Commons for fraud.

[4]  http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/threecenturiesofdata.xls

[5]  http://www.measuringworth.com/ukcompare/

[6]  http://www.usgovernmentspending.com/federal_budget_detail_fy10bs12014n_4010#usgs302

[7]  http://www.tradingeconomics.com/united-states/gdp

 

 

 

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The Antics of the Government Shutdown, Oct 2013

AnticsOfTheShutdownOct2013  <– PDF version

So we’ve had another “partial shutdown” of the federal government.  As usual, the administration did what it could to inconvenience the people for political gain; “essential” government employees worked as usual; and “non-essential” government employees received a two-week taxpayer-paid vacation.  Meanwhile, non-government employees who suffered from slowdowns and furloughs went without.  Situation normal: the ruling elite always look out for themselves and their non-essential government colleagues, first and foremost.  Finally the Democratic faction of the ruling elite came up with a temporary fix on 16 Oct 2013 which will cause the same debate to recur in Jan 2014.  In return, the Republican faction received a promise to negotiate spending cuts from the elitist President that would not even talk to them during the partial shutdown.

This shutdown started when the Republican faction attempted to link de-funding of Obamacare to a continuing resolution; they later reduced their demands to a delay in the individual mandate, but failed in the end to achieve even that.  The Democratic faction spent the two weeks busily claiming the shutdown was a conspiracy by the Republican faction, whimpering non-stop that it was unfair to link Obamacare modifications to a continuing resolution.  But, in their never-ending hypocrisy, the Democratic faction ignored the fact that Obamacare was passed originally as part of a budget resolution.  Therefore every budget bill would naturally allow a challenge to Obamacare.  The blame-stream media of course castigated the Republican faction at every turn.  What else should be expected from institutions that behave as if they were entirely owned and operated by the Democratic faction?

But the Republican faction is equally hypocritical when they pretend that they would behave any differently than the Democrats if Obamacare had been their idea.  After all, the main purpose of the law is to transfer power to the government by regulating the distribution of health care services, and the Republican faction desires the expansion of government power just as much as the Democratic faction.  As always, it is the people who lose out; in this case, the people will, in the long run, end up with lower quality or lesser quantity at a higher cost, typical of every one-size-fits-all government program.  If the problems signing up for Obamacare so far are any indication, the law is even worse than the analysts concluded.  Good thing the Democrats didn’t read it before they passed it — now they have plausible deniability.

The ruling elite cannot or will not do their jobs because they do not have the discipline to impose a budget process, hence the need for continuing resolutions.  This is especially true of the Republicans, who control the House of Representatives from whence all funding bills must originate.  In this instance the budget problem was coupled with a need to raise the debt limit because the government would be technically unable to meet all its obligations around the 17th of Oct 2013.  Once again, the hypocrisy of the administration was in full vigor, claiming that the U. S. would have defaulted on Treasury obligations (i.e., to pay interest on the debt) on that date.  But there is sufficient cash flow from the never-ending cascade of federal taxes being paid every month to cover those interest payments.  What Mr. Obama really meant was that the government would not be able to both service the debt and make full payouts on all the social programs, corporate welfare, and excessive regulation which the ruling elite together has imposed on the people.

In reality, both factions wanted a shutdown.  The Republicans wanted it for two reasons: a) to embarrass the President into allowing a cancellation of his signature “achievement”; and 2) draw attention to the excessive government spending (except for the part they voted for).  The Democrats also wanted it for two reasons: a) to distract attention from the scandal-of-the-week; and b) let the blame-stream media paint the Republicans as extremists for political advantage.

Look no further to the ruling elites in Washington for “leadership” or “solutions”.  If it’s not in the Marxist Handbook, the Democrats cannot understand it.  If it requires working together for a sensible objective, the Republicans cannot pull it off.  The good news is that they get to do it all again in a few months.

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The Politics of the “Fiscal Cliff”

ThePoliticsOfTheFiscalCliff  <– PDF version

So the elections are finally over and our illustrious federal officials now turn their attention to the so-called “fiscal cliff”.  At issue here is whether the Bush-era tax cuts will expire, along with the Social Security withholding reduction enacted in 2010 as a temporary stimulus measure.  The “fiscal cliff” came about per an interim agreement reached last year, as a result of the debt-ceiling escalation in Aug 2011 and the subsequent failure of Congress to come to a consensus on a fiscal policy.  The idea behind the interim agreement was simple: impose across-the-board spending cuts of $1 trillion over ten years and let the Bush-era tax cuts expire on 1 Jan 2013 unless a long-term fiscal policy is enacted.  The $1 trillion in spending cuts, spread over ten years, result in $100 billion in cuts every year, split approximately equally between defense and non-defense.  This was regarded by its designers as so abhorrent that it would provide sufficient motivation for Congress and the President to actually make a deal.  But the negotiations since the election have not been going too well; and of course both sides are busy blaming each other.

I will review the situation, and show how the Republicans, contrary to conventional wisdom, actually hold all the cards here.  First, a few undisputed facts:

1.  The President campaigned successfully on two notions: that tax rates must go up for the wealthy, and must come down for the middle class.  He has said the marginal rates on the wealthy should go back to the 1990’s; in other words, from 35% now to 39.4% as they were in theClintonera.

2.  If the “fiscal cliff” occurs, tax rates will go up for both the wealthy and the middle class.

3.  The long-term fiscal problem of the nation cannot be solved by spending cuts alone, nor by tax increases alone; a combination of the two is necessary (i.e., a comprehensive package).

4.  The history of past “comprehensive” reforms, as enacted under Reagan and Bush, Sr., shows that the Democrats always insist on tax increases immediately, with a promise of spending cuts in the distant future.  Of course, politicians being who they are, those cuts never happen.  It is safe to say that no Democrat in Congress will ever vote for any bill that actually cuts spending in the near term unless he is forced to do so.

5.  No Democratic President will sign a bill that results in immediate spending cuts, unless he is forced to do so (like Bill Clinton).

6.  If anything bad happens to the economy, the propaganda wing of the Democratic Party (i.e., CNN, CBS, ABC, NBC, and PBS; plus the major newspapers led by The New York Times) will blame the Republicans; if anything good happens in the economy, they will give Mr. Obama all the credit.

7.  The Democrats and their propaganda wing have long held that the Republicans are the party of the rich (conveniently ignoring the fact that tax provisions favoring the wealthy were passed mostly by Democratically-controlled Congresses over the last 50 years).

8.  The Democrats and their propaganda empire have claimed that the Republicans are holding the middle class hostage to protect the rich.

9.  Mr. Obama has stated that he will only accept a “fiscal cliff” deal if it raises tax rates on the wealthy.  He has claimed the wealthy are those with incomes over $250,000.

10.  The Republicans have thus far admitted that revenue increases are necessary and are willing to do so by removing some loopholes used by the wealthy and limiting some deductions.  They do not want to raise tax rates on the wealthy due to a “tax pledge” made some years ago.

Here are a few observations and applications.  First, consider the cuts in the “fiscal cliff” legislation.  The cuts are across-the-board, without the necessary and prudent prioritization that rational people would do.  However, let’s be realistic: it actually imposes spending cuts immediately, and for that reason alone is probably the best that our ruling elite can do as things stand presently.

Secondly, the wealthy already pay a large portion of income taxes.  So, if revenues are to be increased via the Republican preference (closing loopholes and limiting deductions), or increased by Mr. Obama’s preference (raising marginal rates), the wealthy are going to pay more either way.  In reality, the best thing for the nation is the Republican way, since it will do more to promote fairness in the tax code, and limits the ability of Congress to punish their enemies and reward their friends through the tax code.

Third, if we go over the “fiscal cliff”, taxes will go up for those of us in the middle class.  So taxes will go up — what else is new; and how will it matter all that much?  State and local taxes of all types have been going up all along.  Recall that the Social Security withholding reduction was intended to be temporary anyway (it was also a bad idea).  The increase in taxation via federal marginal rate increases is small compared to the already-occurring increases in the cost of living due to the Federal Reserve’s currency-printing machine.  If either side truly cared about the middle class, perhaps they would take action to restrain Mr. Bernanke.

Fourth, although most Republicans were dumb enough to sign “no-tax” pledges at the urging of Mr. Grover Norquist, the simple fact is that both the expiration of the Bush-era cuts and the repeal of the Social Security withholding reduction are already accomplished facts if a deal is not made.  They cannot be accused of raising taxes if they allow law per a vote already taken in 2011 to occur.  Only a moron would sign such a pledge anyway; since when did Mr. Norquist assume the authority to supersede the needs of the nation and the powers of Congress contained in the Constitution?  If Mr. Norquist wishes to be emperor, perhaps he should run for the office.

Fifth, the “smart money” has known for months that our ruling elites are incapable of anything better than the impending “fiscal cliff”.  As for the future of the stock market, the “smart money” managers have probably already priced-in the effects.

Sixth, if one is going to be accused of something, one may as well do it.

With these facts and observations in mind, it seems to me that the Republicans hold all the cards here, and it is possible to get true reform that actually helps the nation.  Mr. Obama needs to score political points by raising taxes on the wealthy (it won’t solve the fiscal problem, but he needs to score points).  He won re-election, so let him have his political points.  The increases on the wealthy are his most famous political need, but not his most important one.  Many of his supporters are middle-class.  He needs a tax cut for them much more than he needs a tax increase on the wealthy.  The Republicans in the House should immediately pass legislation that raises marginal rates on the wealthy to 50%, with no corresponding demands for spending cuts and no other conditions subject to objection.  This is far above the rates that prevailed in the Clinton era.  In fact, they should pass a series of bills that raise rates on the wealthy to 60, 70, 80, or 90%, and let the Senate Democrats and the President choose the one they want.  This turns the argument around while costing the Republicans nothing: taxes are going up on the wealthy either way.  If the Democrats think those marginal rates are too high, it will be incumbent on the Democrats to negotiate lower rates for the wealthy to protect their friends in the tall buildings in Manhattan.  If the Democrats do not really want higher rates on the wealthy, by all means they shall have their “fiscal cliff”.  If they settle on the new rates for the wealthy, Mr. Obama will have his political points, but leaves the Republicans in control of what he needs more (the middle class tax cut).  Then the Republicans can actually do what they’ve been accused of: hold the middle class tax cuts hostage — not to protect the rich, but to get spending under control and thus stabilize and secure the nation’s long-term financial health.  They should demand immediate spending cuts in return for an immediate reduction in tax rates for the middle class, thus forcing the Democrats to do what is necessary but have never done before.

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How Obama Gets Re-Elected in 2012, Part 4

HowObamaGetsReElectedIn2012Part4   <–  PDF version

Governor Romney chose Representative Paul Ryan of Wisconsin to be his Vice-Presidential running mate.  This was a good policy choice on Mr. Romney’s part, since Mr. Ryan is known as a serious thinker on the nation’s debt and deficit problems.  Mr. Ryan had previously put forth a plan to reduce spending and promote economic growth, probably the two most serious problems facing the nation today.  Granted, it is only a plan, likely to have some defects, and no plan survives intact after budget negotiations.  But at least it is something in writing to talk to and debate.  Choosing Mr. Ryan shows that the Republicans are attempting to get serious about the nation’s finances: if Mr. Obama had a budget plan, surely we would have heard about it by now after more than three years in office.

But Mr. Romney is engaging in the most amateur sort of wishful thinking if he believes that Mr. Obama will allow himself or his supporters to be baited into having a genuine discussion about issues.  A discussion about facts is the last thing Mr. Obama and his Party want; they have never won on that basis before.

The attacks on Mr. Romney have proceeded apace, somewhat in line with my predictions in part 3 of this series (23 Apr 2012).  The most recent focus is on Medicare.  Mr. David Axelrod, Senior Advisor to Mr. Obama’s re-election campaign was all over the Sunday morning talk shows claiming that the Romney/Ryan budget plan would “end Medicare as we know it”.  This is earth calling Mr. Axelrod, repeat, earth calling Mr. Axelrod: Medicare “as we know it” has already been changed via Mr. Obama’s Patient Protection and Affordable Care Act (“Obamacare”), which decreases funding for Medicare by about $700 billion over the next decade.  Perhaps it is too much trouble for Mr. Axelrod to read the legislation his Party has already passed.  Mr. Axelrod went on to complain that Mr. Romney and Mr. Ryan were out of touch with regular Americans on the Medicare system.  He said on NBC’s Meet the Press (12 Aug 2012) that the basic issue facing the voters was to evaluate the Republicans on the basis of “do you believe in Medicare or do you not  …..  I don’t believe they [Romney and Ryan] believe in that program”.

Why should any voter believe in Medicare?  The members of Congress don’t (Republicans or Democrats), the President doesn’t (nor his predecessors, regardless of party), and neither do any of their senior staff.  Members of Congress are covered in retirement by the Federal Employees Health Benefit Plan, a system of private health insurance, same as they have while in office. How many of them will give up the private plan for Medicare after they retire?  It is worse than that: all of the aforementioned persons and their families are exempt from Obamacare as well (probably the only part of the bill they actually verified before voting for it).  Only when our ruling elites have demonstrated their faith in Medicare will they be eligible to sit on their high horses, look down their noses at us, and lecture us that it is our patriotic duty to “believe in Medicare”.  The only way to establish the true cost of anything is to let the market set the price.  When the government intervenes, as in Medicare, the true costs are distorted generally upward, and the government picks winners and losers to compensate.  Presently, it is the doctors and hospitals that are chosen to take the loss on caring for the elderly.

This is one example of the mindless hypocrisy that will further enable Mr. Obama to be re-elected, in this case, by scaring the elderly.  The pro-Obama mainstream media will of course pretend not to notice.  But we cannot blame the media entirely.  A suitably large number of American voters have bought into the free-lunch theory offered by Marxism; they vote accordingly, and we get the ruling elites we have.

I have outlined many reasons in this series why I think Mr. Obama will win re-election.  It seems he is vulnerable only if the U-3 unemployment rate goes back above 8.5%, or another financial meltdown occurs, or the stock market declines more than 20%.  The tide of Marxism in America is otherwise too strong.

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