Saturday, December 31, 2011

Baseline budgeting: legalized fraud in Congress

This past summer, the government reached a debt-limit deal where they agreed to cut federal spending by $2 trillion over the next 10 years. However, federal spending is still expected to increase by $7.5 trillion over that period. Keep in mind that the total expenditures for 2011 were about $3.4 trillion. How can it be, then, that after $2 trillion in so-called cuts, federal spending is still projected to triple in the next 10 years?

Part of the answer is a nefarious scheme called baseline budgeting. In baseline budgeting, every part of the budget automatically increases based on predictions by the Congressional Budget Office (CBO). For example, let's say that the budget for Health and Human Services (HHS) is scheduled to increase by 10% according to CBO projections. After a budget battle, fiscal conservatives in Congress successfully argue for a smaller 6% increase in the HHS budget. This would be reported as a 4% cut (and would result in much wailing and gnashing of teeth from progressives)--even though spending actually increases by 6% compared to the previous year.

On a larger scale, the CBO's "baseline" for the next 10 years includes a federal spending increase of $9.5 trillion. Say that Congress agreed to keep spending exactly the same for the next 10 years. That would be reported by the CBO as a $9.5 trillion budget cut. Democrats would be up in arms, vilifying Republicans for slashing social services and destroying the safety net--when in fact, not a cent of nominal federal spending would actually be cut. 

Some people have proposed zero-based budgeting (i.e. starting each year's budget from scratch) as an alternative, which would be preferable in theory. But that would greatly increase the time and complexity of the budget process because each line item would have to be re-approved every year, and the already terrible level of partisan gridlock would probably escalate by several orders of magnitude. A simpler solution would be to eliminate the automatic increases--in other words, the baseline for 2011 would be exactly the same as 2010 spending adjusted for inflation. This is how most corporations do their budgets. 

Now, it may be perfectly reasonable to occasionally increase some parts of the budget by a few percent due to population increases or higher costs. But that should be reported as a spending increase. Reporting it as a cut (because the baseline called for an even higher increase) is simply legalized fraud. If any business tried to report a 6% spending increase as a 4% cut (or vice versa), they would be thrown in jail right next to Bernie Madoff and the Enron execs.

Wednesday, December 28, 2011

As America gets poorer, Congress gets richer

In a previous post, I commented on how the president and Congress seem to primarily be working for the big guys. Big government has seen its power grow dramatically; Wall Street has been raking in dough; wealthy individuals and corporations can take advantage of numerous tax loopholes. Meanwhile, middle class jobs are being scuttled by powerful special interests such as the NLRB (in the case of Boeing) and the green lobby (in the case of Keystone XL).

One probable reason for this? Congress is populated overwhelmingly by the rich--and is getting richer while the country gets poorer. As you can see from the chart to the right, between 2004 and 2010 the median net worth of Congress grew by 15 percent while the median net worth of all Americans fell by 8 percent. Even more blatantly, the richest 10% of Congress saw their net worth increase by 33%, while the net worth of the richest 10% of Americans was essentially flat. In other words, if the Occupiers think that Congress currently favors the 1 percent, it is probably because Congress is the 1 percent.

Why is Congress getting so much richer? One obvious reason is that they can basically vote themselves a raise every two years regardless of their performance or that of the economy. But the huge windfall for the richest members of Congress is more a result of crony capitalism and insider trading. For example, during the Obamacare debates, John Kerry invested $200,000 in the healthcare company ResMed--and when Obamacare cut Medicare reimbursements, Kerry dumped his holdings in an insurance company that was heavily dependent on Medicare. Similarly, Dick Durbin liquidated a large chunk of his investments in September 2008 after Ben Bernanke warned him of a possible financial crisis. Rep. Darrell Issa (R-CA) once obtained $800,000 in federal earmarks for a road-widening project next to his land holdings.

Clearly, the rising cost of a political campaign (the average successful Senate run cost $10 million in 2010) is a major factor keeping the non-rich out of Congress, as well as giving significantly more power to special-interest donors. But sometimes I feel like we need a third elected branch of government, whose job is to investigate members of the executive and legislative branches and mete out penalties. In sports, athletes who take steroids are suspended for large portions of a season, and colleges that accept illegal donations are forbidden from competing in postseason games. If lawmakers who engage in business or land deals involving a conflict of interest, they need to be fined--or, for repeat offenders, banned from the next election.

Monday, December 26, 2011

Riots, fights break out among shoppers in line for $180 sneakers

On Christmas Eve, fights broke out at shopping malls across the country as people lined up before dawn to buy the new Air Jordan Retro XI shoes, which cost upwards of $180.

A crowd busted down the doors of a mall outside Detroit. Shots were fired around 6 am at a mall in Richmond, CA. Police were forced to use pepper spray in Seattle. People were trampled in Indianapolis. A woman in Atlanta left a 5-year-old and a 1-year-old in her car for over an hour while she went in to buy the shoes.

These actions seem even more disturbing to me considering the recent nationwide wave of protests over income inequality and against the so-called "1 percent." I doubt many of these shoppers were Wall Street executives, oil magnates, Fortune 500 CEO's, or their families. Yet these people are literally trampling each other in order to buy a pair of ridiculously overpriced sneakers (my last pair of sneakers cost about $35). According to Obama's logic, these shoppers are clearly not paying their fair share in taxes.

As I have said in many previous posts, I have no doubt that serious income inequality exists in this country. But something is wrong when people claim to be impoverished and then start tweeting on their iPhones. In fact, when I was a student teacher at a poor inner city high school, 100% of the students had smart phones. I feel like it would help a lot if people had better priorities, more responsible spending habits, and were not so addicted to consumerism.

Friday, December 23, 2011

Republicans nearly shoot themselves in the foot on payroll tax

Congress has agreed on a two-month extension of the payroll tax holiday, which prevents payroll taxes from going back up from 4.2% to 6.2% on January 1. However, this only happened because House Republicans finally gave up their bitter fight against the extension. The reasoning for their resistance made sense only from a pure economic-growth perspective. Historical data shows that stimulus payments and temporary tax cuts do little in terms of sustainable job creation or GDP growth. Long-term tax cuts, like those under JFK in 1961 or Reagan in 1981, have done much better at reviving the economy. A two-month extension could also create problems for businesses trying to budget their costs.

From a political perspective, however, repeatedly voting down the payroll tax extension was a colossal mistake. Ever since they gained back control of the House in January, Republicans have been stubbornly--and often understandably--resisting any and all tax increases. Most of the tax increases they fought against were, predictably, income tax hikes on the wealthy. Some Republicans, devotees of Grover Norquist, even fought against ending asinine tax breaks for special interests like ethanol because they considered that to be "raising taxes." 

Given that history, by trying to block the payroll tax extension the Republicans were simply asking to be portrayed as heartless, plutocratic buffoons. After fighting tooth and nail to extend the Bush tax cuts for the wealthy (warning of the dangers of raising taxes in a bad economy), the GOP was suddenly eager to let middle-class tax cuts expire. It seems like someone should have realized that putting themselves in a position to be blamed for millions of shrunken paychecks in a stalled economy was a really, really bad idea. Besides, I've mentioned in several previous posts about how destructive the payroll tax is--it's regressive for workers, and it directly discourages hiring. Better to just get rid of it completely and replace it with a national sales tax or something.

Saturday, December 17, 2011

Levin: Obama REQUESTED authority to detain US citizens

I would like to apologize for what appears to be a mistake in my last post.

I assumed that since Sens. John McCain and Carl Levin were the chief architects of the NDAA bill, and since McCain has been arguably the leading hawk in Congress for the past two decades, that they were responsible for writing the bill so that it would not exempt US citizens from indefinite detention. As for Obama, I assumed that withdrawing his veto threat was yet another example of his lack of courage--similar to delaying the Keystone decision or deferring entirely to Pelosi on the 2009 stimulus bill.

However, according to Carl Levin (see the video below), the original bill--which passed the committee--contained language that DID exempt US citizens from indefinite detention, but the Obama administration requested that that language be taken out. Unless Levin is lying through his teeth here, Obama is about to perpetrate the worst assault on civil liberties since McCarthyism and the Japanese internment.

And now I can only wonder why Obama--who was once so critical of the war on terror that he attempted to close Guantanamo and try Khalid Sheikh Mohammed in civilian court--would basically take a blowtorch to the Sixth Amendment.

Thursday, December 15, 2011

Congress passes act that could authorize indefinite detention of US citizens; Obama takes back veto threat

A new threat to civil liberties looms on the horizon. Congress recently passed the National Defense Authorization Act, which would open the door for indefinite detentions of anyone, including US citizens, that is considered to be "allied with al-Qaeda."

According to Forbes, the act allows for someone the government says is "a member of, or part of, al-Qaeda or an associated force" to be held in military custody without trial "until the end of the hostilities authorized by the Authorization for Use of Military Force." The hostilities it refers to are the conflict with al-Qaeda; in other words, the end of the hostilities is not in the foreseeable future. And there is nothing in the act that excludes US citizens from the authorization of military detention.

This is crazy. This act seems to completely throw away the protection of the Sixth Amendment in the name of security and the war on terror. Infinite detention of foreigners accused of terrorism is morally dubious; infinite detention of US citizens is appalling.

Earlier, Obama threatened to veto the act, which makes sense given his campaign promises to protect civil liberties and his earlier desire to close Guantanamo. But now Obama says he will not veto it. Instead of protecting civil liberties, Obama seems to be taking Bush's disregard for civil liberties even further. It is also saddening, but not surprising, that a majority of both houses of Congress voted for this bill. Congress' approval rating is in the single digits for a reason.

And finally, the sponsor of the bill? John McCain. I can only wonder if he would have gone even further with these draconian "security" measures had he won the 2008 election.

Wednesday, December 14, 2011

The case for a scaled tariff

Obviously, the jobs situation in the United States right now is not pretty. Unemployment remains high (and of course that does not include people who have stopped looking for work). Median inflation-adjusted wages have been stagnant for at least the past 10 years, if not the past 30. Income inequality is at an almost all-time high. Part of the current employment crisis stems from the Great Recession and the stalled recovery, but things have been trending badly for lower-middle-class workers since well before then.

Those on the right tend to blame excessive taxes and regulations which have hurt business, and they definitely have a point. But it's only half the picture. The other half is simple economics: if business owners can reduce costs by using automated labor or outsourcing their labor overseas instead of hiring American workers, they probably will. And they have. The manufacturing sector, in particular, has declined from 26% of all employment to 13% in the past 40 years, largely a result of technology and outsourcing. Some on the left gloomily predict that technology and globalization will lead to a steady decline in working-class jobs (leaving only a middling number of higher-paying jobs for well-educated or highly trained people) and result in cataclysmic income inequality. Predictably, they call for a large federal entitlement for everyone to "solve" the problem.

Clearly, a large new entitlement would result in much more centralized power, less economic freedom, and less incentive to work. Trying to curtail technological innovation would have the same effect. And according to classical economic theory, high tariffs only serve to protect inefficient import-competing industries while inviting retaliatory tariffs that hurt more efficient exporting industries.

The thing is, that theory only holds when trade is fairly balanced. The problem is that the US has a massive trade deficit with a number of developing countries (led by China) who limit their imports. So while we lose lots of jobs to outsourcing and imports from countries with lower labor costs, because of the trade deficit we gain a comparatively tiny number of jobs in exporting industries.

One possible solution, proposed by two authors at the American Thinker, is called a scaled tariff (look at the end of the article). In a scaled tariff, the tariff rate for each country is proportional to our trade deficit with that country. Thus the tariff would disappear once trade is balanced. Balancing trade might be one way to preserve our manufacturing jobs and our status as the world's dominant economic power.

Saturday, December 10, 2011

A three-man race: Mouch vs. Scrooge vs. C3PO

As we approach the Republican primaries, it is looking more and more like there are three clear front-runners in the race to be the next President of the United States. (Warning: this post is satire)

On the left, we have Wesley Mouch, the bureaucrat and orator whose goal is to "spread the wealth around." Every morning one can see a long line of special interest representatives in front of his desk, hoping that it is finally their turn to receive a waiver or special tax break from Mouch. He is hated by the 1%, who regularly check their closets and under their beds at night for fear that his ACORN minions will snatch their wealth away from under their pillows as they sleep. Small business owners have been seen stocking up on tea and fleeing into the Rocky Mountains, knowing the health-care penalties that await them if they dare to hire more than 50 employees. Mouch has a particular talent for delaying tough decisions until after the next election. Then again, since he was given a Nobel Prize for doing nothing, perhaps he is merely trying for a second one.

On the right, we have Ebenezer Scrooge. A tight-fisted hand at the grindstone, he is well remembered for the 1995 government shutdown, which caused much weeping and gnashing of teeth from lobbyists across the country and a large number of legitimate complaints as well. Miserly to the core, he has called for schools to save money by putting poor children to work as janitors. He maintains that he "cannot afford to make idle people merry"--and to him, the poor are all idle people, an inevitable result of growing up in neighborhoods where people have no work habits unless they are doing something illegal. He is also an outspoken proponent of "starving the beast". This angers many liberals who believe that the "beast" is really Prince Charming who was transformed into a beast by an evil Republican sorcerer sometime during the Reagan administration.

And finally, in the middle we have C3PO, protocol droid. He has a squeaky-clean appearance but a rather stiff demeanor. He also has a special talent for abruptly changing his programming in order to appeal to any particular constituency he wishes. However, he has struggled to convince evangelicals that he was in fact created by God and not by a young Darth Vader on Tatooine. Few doubt his competence, but he lacks charisma and sometimes displays a paranoia that causes him to flee from confrontations rather than engage political opponents head-on at debates. The presumptive Republican front-runner since 2008, he has nevertheless failed to put any distance between himself and his primary opponents, leading many of his supporters to admit that they "have a bad feeling about this."