paul krugman for budget director!

So Peter Orszag recently resigned as director of the Office of Management and Budget.  I figure that he wants to get out before the fiscal train wreck comes to a head, and I'm sure the director of the budget's job isn't any easier when Congress refuses to even pass a budget (as they have done this year).  There has been some speculation regarding who Obama will nominate to replace Orszag, but I recently found this article by Simon Johnson, the former chief economist at the International Monetary Fund.  It had the laughable premise of suggesting Paul Krugman as Orszag's replacement.  Right now Krugman is getting a lot of heat for his recent op-ed which suggested, if not promised, that the U.S. was doomed to slip into another great depression if the U.S. did not spend billions and billions of deficit dollars to stimulate the economy (article here).  Really?  A depression is inevitable without massive increases in government spending?  Now although I don't agree with the premise that government spending alone will turn the economy around, I don't think that anyone other than Krugman believes that it is the only way to avoid a depression.

Unfortunately this is a tough hypothesis to test; however, we do know that for the past two years almost everything that has been suggested by Mr. Krugman has been implemented as policy by Mr. Obama.  As has been outlined by The Wall Street Journal and others, Obama has followed Krugman's advice to spend, spend, spend in order to counteract the negative aspects of a lack of demand; Mr Krugman has stated numerous times that he believes that depressed demand is the main culprit for our current economic troubles.  In order to stimulate demand, the government needs to spend because private industry will not.  That is the Krugman economic fix.

President Obama has heeded his warning.  First there was Mr. Obama's first budget, in which overall federal spending rose 18%, or $536 billion.  And this doesn't even reflect the true increase in spending.  Thanks to low interest rates the feds were able to save about $65 billion on debt servicing, so the true increase in federal outlays was closer to 22%.  And that was only in ONE YEAR.  Throw in the $800 billion dollar stimulus (which was not included in the budget) and total spending increased by roughly $1.4 trillion.  This increased spending meant that total federal expenditures reached over 24% of GDP, a post-war record.  How much more spending does Mr. Krugman want?  Under Obama we already now have one in every four dollars earned by American redistributed by 535 people sitting in Washington, D.C.  And lest we forget, that spending will increase even more when the the trillion dollar plus health care entitlement begins running huge deficits. 

Despite all this spending and the promise of economic recovery that came with it, the results have not materialized.  And this isn't the only reason to question Mr. Krugman's credentials to run the Budget Office.  Check out this Krugman Article from 2003 when he blasted the Bush administration for increasing deficit spending.  According to Krugman, he refinanced to fixed rate mortgage because he was sure that interest rates were sure to rise.  The Bush administration's reckless spending and tax cuts — which increased the deficit to about 3% of GDP — would have to cause interest rates to sky rocket.  Here he is in his own words:

But what's really scary — what makes a fixed-rate mortgage seem like such a good idea — is the looming threat to the federal government's solvency.

That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 — make that 3, O.K., maybe 4 — percent of G.D.P. But that misses the point. "Think of the federal government as a gigantic insurance company (with a sideline business in national defense and homeland security), which does its accounting on a cash basis, only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting . . . is an accident waiting to happen." So says the Treasury under secretary Peter Fisher; his point is that because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest.

Oh wait I'm sorry.  I guess Mr. Krugman does understand that budget deficits can be a problem, although it is only when the party in power is one he does not agree with. He was worried when deficits were 3% of GDP, but now that it is almost 10% he insists on more spending.  Demand-siders (my new name for those insisting on government spending as the best way for economic recovery) will counter by saying the spending is needed now to avoid a recession, but regardless whether it is needed or not will not change the effects of those deficits.  Even if the spending is desperately needed, higher deficit levels coupled with the looming social security/medicare insolvency (which Mr. Krugman did rightly point out) can lead to tremendously bad consequences.  Most likely these will be soaring interest rates and the inflation that accompanies the monetizing of the debt.  Mr. Krugman can't have it both ways, and unfortunately I think his 2003 analysis was closer to correct.

All of this is just further evidence that Krugman isn't much of an economist anymore and is more just a liberal columnist.  He simply uses his economic background to attempt to justify typical liberal policies: increase spending and redistribution of wealth.  He loves to bash business and blames excessive risk as the major cause of the recession.  He has called long term unemployment a "slow-motion human and social disaster" that must be counteracted at almost any cost; however, he also called the Waxman-Markey Cap-and-trade bill "well short of what the planet really needs."  You don't have to be a economics professor at Princeton to recognize that increasing the cost of energy and more environmental regulation will slow economic growth, making it even harder for the unemployed to find work. When he attacked Senator Jim Bunning's block of the extension of unemployment benefits for people that have been out of work for up to two years, he claimed that it was "bizarre" that anyone would think that providing employment benefits in continuum would disincentivize people to work.  However, a textbook authored by Paul Krugman called "Macroeconomics" contains the following passage:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . .  In other countries, particularly in Europe, benefits are more generous and last longer.  The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job .  Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European Countries.

 Like I stated Krugman seems less and less like a economist and more and more like a typical political columnist.  This in and of itself is not a bad thing, however, when people try to defend Obama's economic policies they often point to Mr. Krugman for justification.  I refuse to defer to his diminishing authority.

$3.5 trillion and manny being manny

To most people $3.5 trillion is an un-immanginable amount of money.  Hell, to 99% of Americans, $3.5 million is more money than they will ever see.  That is what makes Obama's proposed FY2010 budget so ridiculous.  At at total bill of about $3.5 trillion, it will most likely be well over 25% of the U.S.'s GDP.  In other words, for every dollar created through private enterprise and entreprenuership the federal government will be shelling out a quarter (maybe even a quarter and an extra nickle and few pennies depending on how quickly the economy recovers).  This may not seem like a huge event, as over the past few decade Americans have become all too used to government spending trillions of dollars they don't have.  But unlike past extravagances for the first time in our history a full 50% of the federal budget or roughly $1.75 trillion will be financed through defecit spending and borrowing.  Even Mr. Obama admits that under the current plan the federal debt will be doubled within 10 years.  

What I just can't seem to understand is the lack of outrage over such a proposal.  Now I can understand why old farts like the members of the AARP are so enamoured by Obama; they will be long dead before we ever have to pay off any of our debt.  However, young people, most of whom are Obama's biggest supporters, don't seem to care at all that the debt that the government is currently building up will eventually have to be paid for.  Whether it is in the form of higher taxes or inflated money, the next generations will be poorer because of excesses of toady.  And I'm not even complaining about what the money is being spent on, just the fact that the federal government is so irresponsible that it will jeopordize the futures of millions of Americans so that it can pay for its political expenses and pet projects of the present. 

On an unrelated note Manny Ramirez was suppsended 50 games for violating the MLB's performance enhancing drug policy.  HAHA.  Let's see the Dodgers win all their home games without a cheating Manny.  I can't say I saw this coming, but it is a present suprise.  I bet if they did a hair follicle tesy on Manny it would come back positive for every drug known to man, considering his hairs have to date back to win he was 10 years old.  I'm all for a Manny suspension.  Anything that makes it easier for the WORLD CHAMPION PHILADELPHIA PHILLIES easier to repeat as world champions is fine with me.

specter and everything else that is wrong with the gop

As I'm sure most of you have heard, my Senator from the state of Pennsylvania, Arlen Specter, has decided to defect from the Republican Party.  Specter has stated that the reason for leaving was because the Republican Party has moved too far right while he has remained true to his moderate record.  That's some of the biggest bullshit I've heard in a long time.  First, Specter's move is a purely political one.  He's a lifetime politician, the scourge of the country.  He realized that Pat Toomey, who unsuccessfully ran for Specter's seat in the 2004 Republican primary, was leading him by 21 points in polls among likely Republican voters in 2010, and that he wasn't going to be renominated as the Republican candidate for Senate in the next election cycle.  He then made a deal with Democrats that he would caucus with them as long as they didn't put up a Democratic challenger in 2010.  Some ideological struggle indeed.  

Although this looks like a major defeat for the GOP, and it is in many respects, I think this could be a turning point for the party if they use this defection to begin moving in a better direction.  Many pundits are claiming that this is a huge loss because Democrats will now have a filibuster proof majority in the Senate.  In reality, Specter was already going to vote with the Democrats on many issues, so his switching party affiliations really didn't get them any more votes.  The real test of whether the Democrats can prevent a filibuster will come from moderate Democrats in traditionally Republican states like Kent Conrad of North Dakota, Evan Bayh of Indiana, and Ben Nelson of Nebraska.  Their votes on issues like cap-and-trade will determine whether it will become law because Specter was already going to vote with the Democrats.

Specter claimed that the Republican party has been moving too far right for his tastes.  Doubtful.  Republicans have abandoned the principles upon which the Reagan revolution was founded: belief in restraining government spending, pro-growth policies, tax reduction, sound national defense, and maximum individual liberty. First, when it comes to personal freedom as well as personal responsibility issues,  Republicans have betrayed their roots of classical liberal ideology.  In our current political environment, the question always seems to be, "How can the federal government fix the problem?"  If this is the question that is being debated in Washington, then Republicans are always going to lose.  Democrats are the party of government run solutions, and instead of offering a watered-down democratic solution, the Republican party needs to articulate free market and private solutions to the issues facing us as a nation.  

More than anyone, former President Bush is the most to blame for this destruction in fundamental ideology.  Far too often he caved to political pressures and rather than attempting to fundamentally reform government expenditures.  He expanded the size of government through programs like Medicare Reform, No Child Left Behind, and other federal economic regulation.  During Bush's term in office, the  Federal Registry, which contains the rules and laws for federal regulation of all types of industries, grew from 64,438 new pages in 2001 to 78,090 in new pages in 2007, a record amount of regulation. Economically significant regulations, defined as regulations which cost more than $100 million a year, increased by 70%.  Spending on regulation increased by 62% from $26.4 billion to $42.7 billion.  Now that's what I call a limited government voting record.

Not to mention a relatively new wing of the Republican party, the Christian Conservative, has come to dominate the GOP agenda.  Southern Republicans, who gain most of their political support from deeply religious conservatives, has caused the party to move away from a belief in limited government and personal freedom.  Instead of supporting individual rights, the GOP has demonized ethnic, racial and political minorities, believing that supporting the Christian conservative agenda is more important than protecting individual rights.  This has caused groups like gays, hispanics, african americans and jews to feel alienated from the party, preventing the GOP from winning even small minority support.  Until the GOP fundamentally restructures their view of how the government should be run, and what the appropriate role of the government should be, they will continue to lose support nationwide.

So what should the GOP do?  I am glad you asked.  Below are 5 points I believe would fundamentally overhaul the party and could make them into a majority party once again.  Not to  mention it will begin moving America back in the direction of freedom and prosperity.

1. Explain why government is not the solution.
   Government spending is wasteful.  Everyone knows it.  We can't let the the government pick economic winners and losers in America because it is only going to lead to entrenched bureaucracies with no objective other than attempting to force the government to continue giving them funding.  The deficits we are running are unsustainable, will lead to rampant inflation, and will destroy the financial system beyond repair.
   
   
2. Begin offering free market solutions to today's economic problems.
   Republicans are not articulating why Obama's policies are going to bankrupt America in the long term.  They need to stress that free market solutions are inherently more economically efficient than government spending programs, and that prosperity will be maximized, especially in the poorest classes, when government allows entrepreneurs to create new opportunities.  This sounds like a win-win, but they must also stress that free market solutions means allowing bad investments to fail.  In other words, no more bailouts for failing companies like the domestic auto industry.  Failures of these companies, although painful in the short term, create tremendous opportunities for new economic growth in the long term as new suppliers will emerge to meet the newly found surplus in demand created by the fall in supply.
   
   
3. Support individual rights and liberties.
   The federal government should have no role in deciding who should be allowed to get married, and Republicans need to recommit themselves to protecting individual liberties all all costs.  Rights belong to individuals, not groups, and that is the message they should stress.  By strengthening individual rights, they can meet two important goals: preventing future government encroachment of personal freedoms (including economic freedoms), and opening up the party to traditionally democratic voters like gays, pro-choice moderate women, and other minority groups who believe strongly in personal rights.  
   
   
4. Stress the importance of the citizen politician.
   Now this might just be a pipe dream of mine, but I think it could be a winning issue for Republicans.  They should push for term limits in both houses of Congress.  My recommendation would be you can be re-elected into the house three times (four terms totaling eight years), and as many times as you wished in the Senate, but you cannot run for re-election in the term directly after you served.  By rededicating themselves to the idea of citizen politicians, a notion strongly supported by the founding fathers, we can eliminate lifetime politicians, thereby limiting the control of special interests.  If politicians are not constantly running for re-election, there is no incentive for them to constantly raise money, greatly reducing the influence of special interest groups.  Unfortunately this is not going to happen.  Too many Republicans themselves are career politicians to support such a matter. 
   
   
5. Explain that Americans are not getting what they are paying for.
   The U.S. budget this year is in the trillions of dollars.  Many Americans are paying between 30-60% of the income in taxes of some kind, be it federal income tax, state income tax, local wage taxes, state sales taxes, etc.  In some cases, that is the equivalent of working Monday through Friday and only getting paid for working Monday and Tuesday.  And for what?  With the massive government spending, Very few people see any concrete benefits that come anywhere near the tremendous amount they put into the system.  These high tax rates destroy the incentive to work hard, not to mention they are fundamentally unfair.  Republicans should emphasize that when a government grows to the size ours has currently achieved, it is unable to effectively govern in an efficient way.  We essentially work half the time to support ourselves, and half the time to support the government.

Now I don't kid myself into thinking this is the path the GOP will follow.  Unfortunately I think they are in too deep at this point, and it is going to take a major economic collapse (and if you think the current recession is bad just wait until will have major negative economic growth coupled with skyrocketing inflation from unfunded debt - 2008-09 will look like rosy economic times) to overhaul the system.  Hopefully I'm wrong.  We are going down a path that will bankrupt the country.  Additionally we are taking away both economic and personal freedoms in the name of protecting the common good.  One of my favorite quotes is from Supreme Court Justice Louis Brandeis who in his dissenting opinion in Olmstead v. United States stated, "Experience should teach us to be most on our guard to protect liberty when the Government's purposes are beneficent. Men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers. The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding."

The Budget Part I and Education

President Obama announced the details of his 2009 budget late last week. Now I expected the growth in government to be significant, but even I did not expect what was released by the administration. The price tag is currently listed at $3.6 trillion for the fiscal year 2009, but many of the true costs are hidden because it will expand the federal government to unheard of levels, forcing us to continually fund this monster for years to come. The budget, in conjunction with the recently passed stimulus package, will take the national debt to unheard of levels, with the 2009 budget deficit being $1.75 trillion, which is roughly 12.3% of the total GDP of the United States. Even if the economy recovers as fast as Obama claims it will under his stimulus, which it won't (he projects 3.5% positive growth in the year 2010, after a decrease of over 1% this year, despite tax increases and growth restrictions on energy production from cap and trade), he only hopes to get the deficit down to $1 trillion by the end of his first term. Just to put these numbers in perspective, in President Bush's final year in office the deficit was a record $455 billion, which is slightly less than half the $787 billion stimulus that was just signed into law. People love slamming Bush for fiscal irresponsibility and the high costs of the war in Iraq (which I think they rightly should), but it is nothing more than drops in the bucket compared to what Obama has planned.

I don't think I would be so angry about all of this unless I wasn't so sure that this federal spending was going to be completely wasted. For example, the stimulus devoted $81.1 billion in "education" spending, while the 2009 budget confers another $46.7 billion (although neither of these numbers include Obama's increase in Pell grants that will be at least another $10 billion). Where is this money going? Are you telling me that with all of this spending, we can not increase the standard of education in America? The reason why this money doesn't help is because it really isn't going to initiatives designed to most effectively helped underprivileged youth. Instead it continually increases the size of the Department of Education, and the bureaucracy associated with it, and to special projects bought by the campaign money supplied by a variety of special interest groups.

What is truly lacking in our educational system in the U.S. is competition. Sure there is some competition between public and private schools, but it is skewed in favor of the public schools because selective monetary support from the government. For competition to truly effect positive change in the U.S. educational system, the government cannot implicitly decide that it can provide the public with the best possible education and only provide support to citizens who choose its failing schools. The counterargument, however, is that it is the duty of the government to provide all its citizens with a minimal level of education, and public schools are necessary otherwise no school would accept the poorest students. This is simply untrue.

The District of Columbia has one of the most progressive voucher systems in the U.S. Every year the federal government will provide up to a $7,500 voucher for students who wish to use that money on private education. This system has been a great success for everyone involved except the public school officials. They have continued to see falling test scores and decreased enrollment as the best and most determined students leave in order to get a chance at succeeding in life. The teachers at these public schools are not accountable at all, as the unions protect their members from discipline, even if the teachers themselves are failing. The only major problem with D.C.'s voucher program is its size. It's much too small. Last year only 1,700 students were approved for the program. The reason that it was so small was because of strong opposition from powerful teacher's unions because they can feel their monopoly grip on providing K-12 education slipping away.

Worst of all, President Obama and his congressional counterparts led by Congressman Dick Durbin plan on ending the D.C. voucher plan next year. For a story of how this move will adversely affect one underprivileged family whose children attend the same school as president Obama's children see the WSJ article found here. Bowing to the political power of the unions once again, Democrats are hurting one of their strongest constituencies while claiming they are doing it to protect them. Now I dare you to find one family who takes advantage the voucher program who has anything but good things to say about it (other than it should be expanded). That is the main reason why the democrats are ending the program using a procedural vote, so that the press won't pay it much attention.

Those citizens who are dedicated to succeeding can and will succeed if they are given the opportunity to do so. That's what a voucher system does. It allows the poorest Americans to choose whether or not to attend a failing, dangerous school with no future opportunities, or a school that will give them a chance at becoming productive citizens. President Obama and the other democrats want to spend tremendous amounts of money on failing public schools in an attempt to create an equality of outcome in terms of the education received by students across the country. This is an impossible task and goes in the face of the ideals America was founded on. America was founded on the principles equality of opportunity, which is provided by a voucher system, not equality of outcome, which is the major premise of Marx's communism.