Pain Now

As 2010 comes to a close, the debt picture in the United States continues to look pretty grim. The President’s Deficit Reduction Commission has made a number of worthwhile recommendations to reduce national debt, but it’s unlikely that the incoming congress will have the political courage to implement them in a way that will actually help.

CNS.com reports:

The federal government has accumulated more new debt--$3.22 trillion ($3,220,103,625,307.29)—during the tenure of the 111th Congress than it did during the first 100 Congresses combined, according to official debt figures published by the U.S. Treasury.

That equals $10,429.64 in new debt for each and every one of the 308,745,538 people counted in the United States by the 2010 Census.

The total national debt of $13,858,529,371,601.09 (or $13.859 trillion), as recorded by the U.S. Treasury at the close of business on Dec. 22, now equals $44,886.57 for every man, woman and child in the United States.

Some economists on the Left (notably Paul Krugman and Robert Reich) argue that things aren’t so bad and that expanding government (with the additional spending that entails) is the right path. These economists, driven by an ideological zeal that clouds their ability to discern reality, exhibit a shocking ignorance of human history.

Jacques Attali addresses that history when he writes:

The history of public debt is the very history of national power: how it has been won and how it has been lost. Dreams and impatience have always driven men in power to draw on the resources of others—be it slaves, the inhabitants of occupied lands, or their own children yet to be born—in order to carry out their schemes, to consolidate power, to grow their own fortunes. But never, outside periods of total war, has the debt of the world’s most powerful states grown so immense. Never has it so heavily threatened their political systems and standards of living. Public debt cannot keep growing without unleashing terrible catastrophes.

Indeed, we and our children and grandchildren have become “slaves” to our ever accumulating debt. And as the debt load grows, we will degrade our ability to advance as a nation, to help those among us who really do deserve our support, and to provide programs that will lead to a better future for the generations that follow.

In this new year, I hope that the President and the 112th Congress will have the courage to follow the recommendation of the debt reduction commission in total and possibly do even more. As a nation, we can feel pain now or suffer potentially fatal pain later. I say we grit our teeth and suffer the pain now. In the end, it will have been worth it.

Going Galt

What do the small blue, Eastern state of Maryland and the large blue, Western state of Oregon have in common? In 2008, the state of Maryland’s voters decided that social justice and fairness required a special Millionaire’s tax. Immediately, the number of millionaires on the state’s tax roles went down and overall revenue collection from taxes was lower. This year, the state of Oregon’s left-leaning voters decided that social justice and fairness required a special Millionaire’s tax. The Wall Street Journal reports:

Oregon raised its income tax on the richest 2% of its residents last year to fix its budget hole, but now the state treasury admits it collected nearly one-third less revenue than the bean counters projected. ...

In 2009 the state legislature raised the tax rate to 10.8% on joint-filer income of between $250,000 and $500,000, and to 11% on income above $500,000. Only New York City's rate is higher. Oregon's liberal voters ratified the tax increase on individuals and another on businesses in January of this year, no doubt feeling good about their "shared sacrifice."

Congratulations. Instead of $180 million collected last year from the new tax, the state received $130 million.

A class warfare meme seems to resonate with those on the Left, but the harsh reality is that the rich have the option of “going Galt.”

That phrase is a reference to an Ayn Rand character in the book, Atlas Shrugged who simply disappeared (moved, earned less, etc.) once taxes became confiscatory.

Historically, lower tax rates tend to yield slightly higher tax revenues than higher tax rates do. But facts never seem to influence class warriors who are more interested in their unique ability to preen as they claim concern for those who have less. The only problem, their tax fairness arguments result in lower revenues (e.g., Maryland and Oregon) and therefore less money to those who really need it.

Oh, well, at least it feels good.

Update (12/25/10):

The The Wall Street Journal reports:

[T]he left wing of the Democratic Party remains passionate about making the U.S. tax system more and more progressive. ... Arguments for these retaliatory tax penalties invariably begin with estimates by economists Thomas Piketty of the Paris School of Economics and Emmanuel Saez of U.C. Berkeley that the wealthiest 1% of U.S. households now take home more than 20% of all household income. This estimate suffers two obvious and fatal flaws.

The first is that the "more than 20%" figure does not refer to "take home" income at all. It refers to income before taxes (including capital gains) as a share of income before transfers. Such figures tell us nothing about whether the top percentile pays too much or too little in income taxes. In The Journal of Economic Perspectives (Winter 2007), Messrs. Piketty and Saez estimated that "the upper 1% of the income distribution earned 19.6% of total income before tax [in 2004], and paid 41% of the individual federal income tax." No other major country is so dependent on so few taxpayers. A 2008 study of 24 leading economies by the OECD concludes that, "Taxation is most progressively distributed in the United States, probably reflecting the greater role played there by refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit. . . . Taxes tend to be least progressive in the Nordic countries (notably, Sweden), France and Switzerland."

A second fatal flaw is that the large share of income reported by the upper 1% is largely a consequence of lower tax rates. In a 2010 paper on top incomes co-authored with Anthony Atkinson of Nuffield College, Messrs. Piketty and Saez note that "higher top marginal tax rates can reduce top reported earnings." They say "all studies" agree that higher "top marginal tax rates do seem to negatively affect top income shares." What appears to be an increase in top incomes reported on individual tax returns is often just a predictable taxpayer reaction to lower tax rates.

Doodling in Math Class

Robert Krulwich of the NPR Science Blog points his viewers at an intriguing video presented by Vi Hart. Here’s how Krulwich describes her:

Vi Hart calls herself "a recreational mathemusician currently living on Long Island." She talks faster than a machine gun, loves math, and draws like a dream. Her newest video: "Doodling in Math Class: Snakes + Graphs" is eye-popping.

Enjoy.

Pain Now

I’ve watched in amazement as the same politicians who were profligate spenders not more than 3 months ago have now become self-proclaimed budget hawks. They loudly complain about the “cost” of not raising income taxes on the “rich” and castigate the President and more rational members of congress for their “budget-busting” tax compromise.

The last time I checked, costs are incurred when any entity spends money, does things that require the expenditure of money, or makes promises that lead to the future expenditure of money. Most entities—individuals, small business, and even the large corporations—recognize that income and expenditures must balance or a deficit results. But only those who worship at the alter of social justice seem to believe that government expenditures can continue without bound to achieve social justice while income (taxes) can be raised without bound to make up the difference.

Our budgetary crisis—make no mistake, it is a crisis—will be solved when the congress finally decides to reduce expenditures and pair down entitlements. That’s what is happening right now in Europe. After years of irresponsible spending and ballooning entitlements, the leaders of the U.K., France, Ireland, Greece, Spain, and Portugal have finally decided that pain now will avoid much more pain later.

We’ll see whether our leaders have as much courage as their counterparts across the Atlantic.

What Snow Is

Ten years ago in March of 2000, a London newspaper, The Independent, wrote:

The first two months of 2000 were virtually free of significant snowfall in much of lowland Britain, and December brought only moderate snowfall in the South-east. It is the continuation of a trend that has been increasingly visible in the past 15 years: in the south of England, for instance, from 1970 to 1995 snow and sleet fell for an average of 3.7 days, while from 1988 to 1995 the average was 0.7 days. London's last substantial snowfall was in February 1991.

Global warming, the heating of the atmosphere by increased amounts of industrial gases, is now accepted as a reality by the international community. Average temperatures in Britain were nearly 0.6°C higher in the Nineties than in 1960-90, and it is estimated that they will increase by 0.2C every decade over the coming century. Eight of the 10 hottest years on record occurred in the Nineties.

However, the warming is so far manifesting itself more in winters which are less cold than in much hotter summers. According to Dr David Viner, a senior research scientist at the climatic research unit (CRU) of the University of East Anglia,within a few years winter snowfall will become "a very rare and exciting event".

"Children just aren't going to know what snow is," he said.

Really?

Today The Mail reports that this December is to coldest ever recorded in the U.K. They note:

Swathes of Britain skidded to a halt today as the big freeze returned - grounding flights, closing rail links and leaving traffic at a standstill.

And tonight the nation was braced for another 10in of snow and yet more sub-zero temperatures - with no let-up in the bitterly cold weather for at least a month, forecasters have warned.

The Arctic conditions are set to last through the Christmas and New Year bank holidays and beyond and as temperatures plummeted to -10c (14f) the Met Office said this December was ‘almost certain’ to become the coldest since records began in 1910.

Looks like the little ones in the U.K. will have plenty of snow to look at.

But there’s a more important issue here. Climate change true believers repeatedly use transient weather phenomenon (recall Hurricane Katrina as a harbinger of more frequent hurricanes) to suggest broader climatic trends. This is both dishonest and unscientific. Worse, the MSM reports the claims of these true believers with critical assessment or context.

So the next time you hear that a very hot July is proof positive the humans are responsible for global warming, think about the poor children in Britain who in the year 2000 would never again see a snowfall and then cut to 2010.

Wall of Worry

All of us who have lived a relatively long life have seen many recessions come and go. We’ve seen unemployment near double digits, GDP drop precipitously, and politicians make myriad mistakes is addressing the underlying problems of an economic downturn. But with the exception of the very old (those who can still remember the great depression of the 1930s), none of us have seen anything like this current great recession.

Robert Samuelson gets past the numbers and accurately examines the bigger problem:

It is becoming clear that the Great Recession has left a deep and possibly lasting scar on the American psyche. From CEOs to ordinary families, we are a nation that is more cautious, more fearful and more risk-averse. This widespread and -- so far -- indestructible anxiety has hobbled the recovery and helps explain the slow pace of job creation. The economy's revival depends in part on risk-taking, but risk-taking is in eclipse.

There is a wall of worry, whose cause transcends the recession's severity. We now fear not only what we know but also what we don't. Things happened that were both unanticipated and unimagined: the collapse of major banks; the near-death of General Motors; the government's titanic economic rescue efforts -- the TARP, the Federal Reserve's massive lending, the gargantuan budget deficits. More surprises could loom. A full-scale European debt crisis?

It's possible, of course, to exaggerate pessimism and underrate Americans' traditional hopefulness. Even the weakened U.S. economy produces almost $15 trillion of goods and services a year and employs 139 million people. Still, the mass uncertainty and fright remain undeniable.

The problem, I think, is three-fold.

First, Americans who have relied on the fiduciary responsibility and maturity of major financial institutions and the government regulators who oversee them, now understand that these institutions are neither responsible or mature. In their rapacious grasp for big profits, these institutions and their leaders were perfectly willing to risk destroying the financial system. They almost did, and instead of paying a price, they were bailed out by the very people who suffered from their near-criminal failure.

Second, investment instruments that most American believed were stable became extremely unstable very, very quickly. Conservative 401-Ks lost 20 or 30 percent of their value in less than six months. Home prices that rarely declined into double digits lost 30 to 50 percent of their value over two years. This instability shakes the average person’s faith in the “system” and causes that person to become very risk averse.

Third, Washington’s complete failure of leadership during this crisis has reinforced the vague feeling that no one is in charge. The Obama administration and Congress have thrown money at the problem (e.g., cash for clunkers) without understanding the problem. They have bailed out institutions that should have been allowed to fail. They have exacerbated partisan politics when the citizens of this country want a concerted bipartisan effort to overcome this crisis.

Whether its adding still another 52 weeks of unemployment compensation to the 99 weeks already on the books, or reducing payroll taxes by 2 percent thereby increasing the fiscal instability of a massive entitlement program, or calling political opponents who have just negotiated a bipartisan compromise tax plan “hostage takers,” it again appears that we’re being led by venal children. This does not inspire confidence.

This economic malaise will continue until the American people regain their confidence. And that will not happen until they feel that there are adults in charge. Until then, the "wall of worry" will stand between us and a brighter future.

No Energy

I have, on many occasions in the blog, suggested that the United States must become energy independent. That we can do so over a 10 - 20 year period, and that energy independence is one of the few places where government incentives and programs are necessary for success. Energy independence is a matter of national security and real environmental responsibility.

I have watched in dismay as President Obama, a man who I did believe might actually launch a Kennedy-like national program for energy independence, did relatively nothing to foster such a program. He has missed an important opportunity and shortchanged the nation as a consequence. Sure, a corrupt Congress, influenced by energy industry lobbyists, shares substantial blame, but the President has a bully pulpit and has used it for far less important matters. His political capital now gone, it’s unlikely that the President can initiate such a program. Another 4 years wasted.

In an an-depth article entitled, No Strings Attached: The Case for a Distributed Grid and a Low-Oil Future ex-CIA director James L. Woolsey and his colleagues write:

Energy policy affects every human activity, from the heating of food to the production of microchips. And because of this pervasiveness and interdependence, energy policy affects a broad set of issues, from national security to international corruption. Pollution, health, climate change, and cost must all be taken into account when devising, as Amory Lovins put it, how to keep our beer cold and our showers hot—and much else besides. Moreover, the demand for new energy solutions worldwide is vast, particularly as the developing world catches up to the rest of the planet’s energy demands. Whatever new energy solutions meet the needs of the two billion emerging consumers will create a huge market, but also a challenge to find available and scalable solutions. Therefore, we believe it is necessary to find answers that at best alleviate multiple problems, and, at worst, don’t exacerbate one problem while curing another.

Woolsey et al go on to conjure the ghosts of George S. Patton, Rachael Carlson, and Mahatma Gandhi to explain how energy independence, not just for the U.S. but for developing countries as well, can be achieved. They bridge the gap between hard core protectors of our nation (Patton), environmental fundamentalists (Carlson) and champions of social justice (Gandhi) in a way that could be a blueprint for an energy independence program if only we had real leadership in Washington.

Read it in its entirety.