Tuesday, September 13, 2011 - The President's Speech
The President's Speech: As regular readers of this missive know, I am a lifelong Republican. Accordingly, I have never been to a Democrat campaign rally. That is to say at least until last week. Last Thursday, I attended one…..on the floor of the United States House of Representatives. President Obama made a special request to speak to a Joint Session of Congress and I assumed it would be a major policy address. Far from it. It was a campaign speech. There was scarcely little serious policy content present. The first indicator of this was when Obama asked us to "pass this right away", a line which appears on the first page of an 8 page speech, before saying what was in his plan. That's like demanding that someone buy something inside a box without telling them what is in the box. Another indicator of lack of substance was his repeated assertions that the $450 billion one-year cost of the bill would be "paid for". He also made this assertion on the first page of his address. Three pages later he says, "It will be paid for. And here's how: The agreement we passed in July will cut government spending by about $1 trillion over the next 10 years. It also charges Congress to come up with an additional $1.5 trillion in savings by Christmas. Tonight, I'm asking you to increase that amount so that it covers the full cost of the American Jobs Act."
Are you kidding me? He outlines $450 billion in new stimulus spending in one year and then says it will be "paid for" over 10 years by something the rest of you guys need to figure out later? This is ludicrous! He says it is "paid for", but in this speech had no proposal on how to do it? And, of course, he is trying to match one year's spending against 10 years of paying for it. But apparently, he can figure out how to spend the money in one year, but not how to save it over the next 10 years. This, of course, is part of how we got into this problem in the first place. Spend money right now and pay for it later over many years. It's like taking a 30 year mortgage out to buy groceries.
However, just yesterday, the President did outline his own “pay for” that may cover part of the costs. Naturally, it is a bunch of tax increases, largely on businesses, that he has already outlined in the past and used repeatedly to “pay for” many times more spending than said increases could ever raise. Now, he is using them again. And, the tax increases are permanent and take 10 years to “pay for” one year’s spending. And, of course, they are the same tax increases that Obama used months ago to make his budget look better, which budget, of course, did not include this new spending. Because he has previously used these tax increases in his baseline budget, this really is no proposal at all. But interestingly, all the “tax cuts” and spending and giveaways in his program will all occur before the next election and then stop. But, he has postponed all of his proposed tax increases until after next year's election when he will stand for reelection. So, a lot of people get money from the government before the election and no one pays any more taxes. Then, after the election, taxes go up literally for every single American by a lot and permanently. Coincidence? I’ll let you be the judge.
If he had been serious about seeking a bipartisan job creation agreement, maybe he should have included a few of the 13 job bills passed by the House so far this year that would each individually stimulate job creation in some sector of the economy without spending a single dime of taxpayer money. But no, despite at least 13 bills to choose from, he did not include a single proposal passed by the House in his "plan". In other words, he ignored every single Republican proposal, many of which have been out there for months.
This "proposal" (and I hesitate to dignify it even with that designation) is simply Stimulus II. And, since Stimulus I was $1 trillion spent over two years, this $450 billion spent over the one year until Obama's reelection is at about the same level. It is universally recognized that Stimulus I failed. It served only to deepen our debt crisis. Obama's Stimulus II would fail also, if enacted. In fact, with the exception of the trade agreements, I cannot readily point to a single element of his plan that I support separately or in combination with the others. Even the "tax cuts" are all one-year only. The economy needs certainty and permanence in tax policy, not more one-year only giveaways that will soon expire and be replaced by tax increases. But then again, it's not serious policy.
The really sad part here is not that the President used the House floor for a campaign speech. Or, that he made factual errors and misstatements and that his proposal doesn't add up and won't work. The real tragedy is that while this political theater is going on, the government actually needs to do some things to try to shake loose this stagnant to declining economy. We need to remove many of the uncertainties and government burdens that are holding back capital deployment, risk taking and job creation. The President did not try to reach across the aisle here. If anything, his lack of interest in any Republican proposal and the tone of his speech served to place further distance between the parties. We do need to take action. That action clearly must contain some Republican priorities and some Democratic priorities because the government is divided. Obama is clearly not ready to do that now. I certainly hope that he changes his position and his tone in the coming months and leaves the campaign trail to be president instead of candidate for a while.
One other thing stuck me during the campaign rally. At one point, he described Abraham Lincoln as the "founder of the Republican party". Interestingly, I could not find this remark in the pre-printed written text of the speech. Presumably, he ad-libbed it. Problem is, he is wrong. Lincoln was not even the first nominee for president of the Republican Party. That honor belongs to Californian John C. Fremont. This is not the first time this President has stood on the House floor or elsewhere and uttered "facts" that were blatantly wrong. As a "car guy", I remember when he said that we Americans "invented" the automobile. Well, we invented many things, but not that. No one is actually credited with said innovation although the first self-propelled, internal combustion engine, 4 wheeled vehicle is recognized as being built in Germany by Mercedes in 1886 - a fact that that the current Mercedes-Benz Corporation gently pointed out to the President after his remarks. I'm not upset that he made a mistake. We all make mistakes. What drives me crazy is how unequally the mainstream media (MSM) treats such errors. Every such error made by President Bush was treated to huge media coverage and proof of his supposed lack of intellect. But, when this President makes numerous and egregious factual misstatements, nary a word is uttered by the media lest it interfere with his carefully crafted image of intelligence and infallibility.
By the way, the President also said, "We have to reform Medicare to strengthen it.” I'm sure that will make a cold chill run up the spines of some more liberal readers of these missives. He is right about this. But, he has never proposed such reforms.
Sunday, September 11, 2011 - Remembering
Remembering: Any of you of my generation or older remembers where you were and what you were doing when you heard that President Kennedy had been shot. I think all of us, including two younger generations now, will always remember where we were and what we were doing when we heard about the attacks on 9/11/01. I was not yet in Congress, but was in my first year as a freshman Assemblyman in the California Legislature. I was at my home in Sacramento that morning reading the paper and quietly doing e-mails and preparing to write one of these missives, which I had already been regularly writing for a year to that point. My then Chief-of Staff called me at home to ask if I was watching the news. “No”, I replied. He said, “A plane crashed into the world Trade Center in New York”. “You mean like a Cessna or something?” I asked. “No”, he responded, “a big plane. You should turn on the TV”. I did. The State Capitol was closed that day as they assessed attack risks there. My house was under the flight pattern for Sacramento Airport and it was eerily quiet as all planes stopped flying for several days. When we went into the State Capitol the next day, I, along with a Democratic colleague of mine, was asked to lead the Assembly in singing "God Bless America" because I was a member of my church choir and they assumed I could carry a tune.
I wrote one of these missives the next day. It is below.
I said then and I will say now that we must always remember. We must remember, yes, to honor the lives of those who died in the attack. But, also to remain vigilant that there are still many evil people around the world who aspire to end our system of government, our way of life and our decision to choose our own religion. The fight against this evil has not and will not end.
September 14, 2001
This week, we are neither Republicans nor Democrats. Neither men nor women. Neither rich nor poor. The origin of our ancestry is insignificant. We are neither for one bill nor against another. We are Americans. We are unified. Unified not by a thread, but by an enormous unbreakable bond. A bond that was forged with courage in Philadelphia 225 years ago. A bond that was confirmed with courage in places like Shiloh and Gettysburg some four score years later. A bond further strengthened with courage more recently at Iwo Jima and Inchon and Khe Sahn. And through it all, a bond blessed by God.
Our sadness this week is matched only by our unity. Our shock matched only by our sense of purpose. Our grief matched only by our resolve. Our prayers for healing equaled only by our prayers for guidance.
On December 7, 1941, over 2,000 Americans in uniform lost their lives in a surprise attack by a foreign power. September 17, 1862 was the single day in American history when the most Americans lost their lives in conflict during the battle of Antietam in the Civil War. Nearly 20,000 Americans were killed, missing or wounded while in uniform, during a war in which Americans were on both sides.
It now appears that September 11, 2001, will rival if not surpass that greatest day of American loss. But we were not on both sides. And very few were in uniform. Most were just going to work. That puts the enormity of historical perspective on what has just happened.
The level of our response should reflect that historic magnitude. With the President we have, and the Vice President we have, and the Secretaries of State and Defense and the Attorney General we have, I am confident that our response will be appropriate.
As the surrender at Appomattox followed Antietam and signatures on the USS Missouri followed Pearl Harbor, so shall another day of victory come.
May God guide us as we write the history of the next year. May He give us wisdom. May He cause his face to shine upon us. May He give us peace.
And may God Bless America.
Assemblyman, 70th District
Thursday, September 8, 2011 - Socialism Has Failed.......Again
“The inherent vice of capitalism is the unequal sharing of its blessings. The inherent virtue of socialism is the equal sharing of its miseries.”
- Sir Winston Churchill
Socialism Has Failed………Again: The last month has not been a good one for the now highly interconnected world economy. Certainly, we have many problems in the US, with crushing debts and deficits and no job growth or really any growth in the economy at all. Expectations that the future looks bleak add to a lack of investment and risk-taking as more and more people stick their financial heads in the sand. But, it's even worse in Europe and other places around the world. The huge fiscal problems in countries like Greece, Portugal, Ireland, Italy and Spain may result in debt defaults and are affecting not just their growth, but ours as well.
If you look at the problems in this country and those in Europe, you find that they are really just differing degrees of the same problem. Our governments (federal, state and local) in the US have spent too much money and borrowed too much money and now don't have enough revenue to cover it. Exactly the same thing has happened in those aforementioned European countries with the distinction being that they are a few years farther down the path of economic ruin than we are. But, we will get there if we keep going.
In a macro sense, the similar debts on both sides of the Atlantic, again, have the exact same root cause. Both here and there, governments have edged closer to socialism by giving ever increasing benefits to the population without asking that population to pay for those benefits. This is an easy thing to do politically. As a politician, it is very easy to give voters something for free or, for that matter, even for half price. People everywhere like to get free stuff. Governments promise their populations free health care, free college tuition, choice retirement plans and the ability to retire earlier than their parents or grandparents did. And, those populations say, “Great….bring it on!” Such is the appeal of socialism.
But, the problem is that nothing is truly free. You can only get "free" health care (or anything else for that matter) from the government in one of 4 ways: (1) You pay for it, which obviously means it is not free. (2) Someone else pays for it. (3) The people providing the service (doctors, nurses, hospitals, drug companies) work for free. Or, (4) you borrow the money so that, in theory, no one has to pay for it.
The reason that socialism doesn't work, never has worked and never will work is that all 4 of these options are seriously flawed. Let's analyze each one of these options in order:
1. You can tax everyone in society roughly equally to pay for a roughly equivalent benefit. This option has a political problem because you are no longer offering the populace something for free. But, it has an economic problem, as well. The late, great economist Milton Friedman once postulated that it makes no economic sense to tax the middle class in order to give them their own money back because of the inefficiencies and overhead costs created by running that money through the government.
2. This is where socialists usually start out; promising the populace something and claiming that it will be paid for by some minority of the population, usually corporations, wealthy individuals or foreigners. Politically, of course, it sounds great to tax a few to give a bunch of free stuff to everyone else. The problem is that that minority of the population never has enough money to pay for everything. You can tax the rich to pay for the poor. But, you cannot take enough from the rich to pay for everyone - poor and middle class, as well. They simply don't have that much money. And, if most of what they earned is going to be taxed, they will move somewhere else or stop making money. The British experienced this during the 60s and 70s (before Margaret Thatcher) when Labour governments in the UK embraced socialism. But, governments (including many politicians in the US government like the current president) love to promise that they can do this. When it fails, because after they have taxed the minority into submission, there still isn't enough money for the benefits, then they resort to option #1 above to pay for things. History shows that the populace revolts at that point since the benefits they are receiving don't seem nearly as good when someone else isn't paying for them. Then the system promptly collapses.
3. This is an option to reduce the cost of benefits by having the providers be the ones who suffer by working for little or for free. Although this is technically an option, it is difficult to implement since providers can just do something else. Societies in the past have enslaved part of their populace (always a minority group, again) to accomplish this goal. But, that obviously is not an option in any society with any degree of liberty.
4. Borrowing money is the easiest solution to implement because it appears as though no one ever has to pay for it. The beneficiaries certainly don't have to pay for it, and it appears as though options #2 and #3 aren't utilized either. But, the reality is that all borrowed money gets paid for by someone eventually. Obviously, future generations can be forced to pay the debts of a prior generation either directly or through a lower standard of living. In many socialist societies over time (South American countries stand out here especially), the solution was to try and inflate the problem away, which means that everyone actually pays for it through greatly reduced wealth, earning power and living standards. The borrowing option is always only temporary because, at some point, no one will lend you money any longer. That is the case with Greece and to a lesser extent Italy and Ireland today.
Socialism just doesn't work in practice. But, there are many around the world still romanced by the theory. So, governments dabble with it, but never figure out how to pay for it. Lately, those governments, including this one, have borrowed that money utilizing option 4 listed above as the most politically viable one and the one which best shields them from charges of blatant socialism. That has led not only to the worldwide problems that we face today, but also to the limited range of options that said governments now have to get themselves out of their financial slump. If you have borrowed all anyone will lend you to pay for your daily expenses, then once a new problem or emergency arises, you are tapped out and have no new place to find cash. We certainly have problems. But, we have no margin for government spending or even major tax cuts to help us out. There is much we can do to change our situation, as I have outlined through proposals in this missive before and will do again in the future. But, anything that increases our deficits and debt now will hasten a deeper and more dangerous set of problems to come, not serve to correct our current ones.
We, and yes Europe and the rest of the world, must turn away from giving ourselves benefits without paying for them. And, we must institute policies that encourage risk-taking and reward investment and saving. We can provide safety nets for those who encounter problems in our society without moving the nation ever closer to socialism. We must understand that even a light form of socialism does not work and does great harm. Just look at the economic problems of the world today for proof.
Wednesday, August 3, 2011 - Radio Silence
Radio Silence: So, you haven't heard from me in a while. Maybe you thought my computer crashed or I don't love you anymore. But, neither is true.
The whole debt limit debate and compromise was very tense, very sensitive and very important. Going "over the cliff" was simply unacceptable. As I have explained before, we were never in danger of default. The government was going to pay interest on the debt and could issue new debt to pay off maturing notes. But, it would have required a 50% reduction overnight in non-interest government spending, which would have been very difficult to do. But, more importantly, fear heading towards panic was showing up in markets. That panic would have led to another financial meltdown, maybe not as bad as 2008, but certainly bad enough to plunge the nation and the globe back into deep recession. But, this time it would be completely government-made.
We could not let this happen. But, neither could we just extend the debt limit without showing the markets that we were making progress towards getting these deficits under control. If we did that, the markets would set their own debt limit by not lending us any more money at some point soon, and we would bring on a similar result, only worse.
Given the importance of these negotiations and their sensitive nature, I decided to stay quiet. It's not that I didn't have a lot to say. I did. I felt, though, that I needed to be a part of the solution and not paint myself or those with whom we were negotiating into a corner from which I or they could not emerge to find agreement. Unfortunately, the President held no such compunctions.
One of the skills you need to have in this job is to be able to oppose someone and still work with them. With a few exceptions, every Democrat wants every Republican to lose the next election and vice versa. But, to get anything done in a democracy, you must work with the other side because they get a vote too. So, you work with those whom you will oppose on Election Day. I think the President just doesn't have this skill. His engagement during the last few weeks was counterproductive towards reaching agreement. He ran to a teleprompter every chance he could get to excoriate the people with whom he was negotiating, rather than stay quiet as previous presidents have done in similar circumstances in order to facilitate a deal. That was counterproductive. Notice that a deal came together largely between Speaker Boehner and Majority Leader Reid last weekend once the President stepped out of the negotiations. This is not about ideology. The President has the right to advocate for his positions. This is about competency for doing the job or lack thereof.
I voted for the deal and advocated for it. Yes, it is inadequate. No, it is not near what I would have done were I King. But, one must put this in perspective. It was only about a year ago that we were still in the midst of a "stimulus" spending binge and in the aftermath of the "ObamaCare" vote. A year ago we were trying to stop the Democrats, then in control of the House, Senate and White House, from increasing spending even further and possibly putting forth "stimulus II" even as they increased deficits to new records every year. For the first time in my lifetime, we are about to see total government spending actually decline from year to year for the second straight year. We are no longer talking about reducing the rate of increase, but actually reducing spending.
This is real progress. The debate has been changed. Those of us who consider deficit reduction our primary objective have wrestled away the football from the spenders. We have the ball, but we are only on the 10 yard line with a lot of field yet to cover and many defenders of spending and the status quo on the field in front of us.
Congress is now thankfully out of session until after Labor Day. Over the next 4 weeks, I will give you a few thoughts on both what the rest of the year will bring in Washington as a result of this agreement and how we might advance the football another 10 or 20 yards closer to the end zone in which we are out of deficit and our debt no longer threatens our nation, its security and its future.
Tuesday, July 19, 2011 - More Facts, Ma'am
More Facts, Ma’am: Sergeant Joe Friday probably never said that, but you know what I'm getting at. With the debt limit debate getting close to the final days, you may wonder what happens if we actually go "over the cliff" and do not extend the debt limit by the supposedly magic August 2nd date? The following information is gleaned from a presentation made to the Republican caucus by a former Bush Administration deputy secretary at the Treasury Department who now works with a think tank called the "Bipartisan Policy Center" in DC:
There is general agreement that the federal government will have exhausted all alternative funding sources and will run out of cash on or about August 2nd. This date is largely driven by $23 billion worth of Social Security checks that are scheduled to go out on that day. At that point, the US government is on a cash basis with no ability to borrow more money. That means that it can only spend the same amount of money that comes in. And, this is not an annual issue, it is a daily issue. If $20 billion comes in on Thursday, then you can send $20 billion out. If only $10 billion comes in on Friday, then only that much can go out on Friday.
If you look at the period from August 3rd through August 31st, revenue to the government is projected to be $203 billion. Committed and appropriated spending during the same period is projected to be $363 billion, which results in a shortfall of $160 billion. This shortfall is greater than the annual projected deficit because the federal government's big months for receiving cash come when estimated tax payments are due from individuals and corporations. Those are the months of January, April, June, and September. Other months have lower revenues.
The US government will not default on its debt. That would affect the ability of the US government to borrow money for years, and maybe decades, in the future and be very, very costly. So, it is assumed that interest payments on the debt will be made on time. That is $29 billion for August. So, that means you have to cut the $160 billion out of the remaining $334 billion. That is a reduction of 48% of all federal spending in August.
Previous debt limit and government shutdowns have never gone "over the cliff", so there is no precedent for how to prioritize what 48% to cut. There is also no guidance in law or the Constitution that legal scholars believe would control that decision. There is a general thought that the Treasury Department may just pay them on a "first come, first served" basis, literally paying the morning bills until they run out of cash and can’t pay others.
It would be a day-by-day thing, but if you look at that $334 billion of non-interest spending in August, here is the breakdown of the larger items:
Social Security - $49 billion
Medicare/Medicaid - $50 billion
Unemployment Benefits - $13 billion
Defense Vendor Payments - $32 billion
Higher Education Pell Grants - $20 billion
Federal Salaries - $14 billion
Food/Nutrition Services - $9 billion
Housing Assistance to the Poor - $7 billion
Veterans - $3 billion
Special Ed Payments to K-12 Schools - $4 billion
Military Pay - $3 billion
IRS Refunds - $4 billion
FBI and Courts - $1 billion
Just this list adds up to $209 billion. There is a disproportionate amount of education spending because much of the year's funding comes out in August so that schools and students have it for the beginning of the school year. If you eliminate the rest of government (Congress, national parks, State Department, Department of Defense programs except for pay, every other federal department or program, etc.), you still have to get rid of $31 billion of that list. Not easy to do. And, of course, if you use a first come, first serve system, you don't get to choose who gets paid and who doesn't. It becomes a day-by-day thing and nearly random.
I will have a lot to say about these facts soon.
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