The EU Again

In a remarkably destructive bit of policy making, the EU announced that it will not sign any agreements with countries that are not party to the Paris Climate Accords. That includes free trade agreements. And of course, the country in the EU’s gunsights is none other than the United States. Which means that the EU has told the U.S. in no uncertain terms that in order to trade with Europe, America must surrender its sovereignty to the central planners that populate the EU bureaucracy.

Fat chance.

Issue linkage is a tool commonly used by diplomats to get to agreements that might not otherwise be reached. The log rolling inherent in this sort of thing allows each side of a negotiation to come out claiming victory, thus greasing the skids. This however is something entirely different. It is an ultimatum. As such, it sets up a test of wills that structurally resembles a game of chicken in which each side has an incentive to escalate rather than resolve the conflict.

In this, the EU is rather obviously overplaying its hand, and the consequences could very well be catastrophic. Consider the fact that various forms of nationalism are sweeping the globe, so that very few politicians have an incentive to be seen as neo-liberals to begin with. Britain has already had its Brexit vote; Macron has conceded that if France had a referendum on the EU, French citizens would vote to withdraw; Scotland is once again making noise about exiting the UK, and Spain only managed to keep the Basque region from seceding by the use of police truncheons.

Also consider what the U.S. response to all this may be. Donald Trump for one has already made clear that he has little use for either free trade or NATO. Suppose his response is to escalate further and say that the U.S. is just fine without a trade agreement with the EU, and by the way, the U.S. is going to begin withdrawing troops from Germany in preparation for leaving NATO. Without benefit of the U.S. nuclear umbrella, Europe can feel free to devise its own foreign policy for dealing with the Russian Bear, a prospect that Vladimir Putin would surely relish. That this would be a geopolitical catastrophe is an understatement.

The irony of all this is that it probably has little to do with the purported issue of climate change. Over the last several years the U.S. has become the largest energy exporter in the world, largely due to fracking. The U.S. is now largely “energy independent” in that it exports more than it imports. And because of fracking U.S. manufacturing has developed significant energy cost advantages over European firms. The EU’s latest gambit probably represents old fashioned protectionism gussied up as concern over the never quite defined issue of climate change.

Regardless of motive, the EU’s announcement was reckless in the extreme and could very well have far reaching consequences whose deleterious effects are likely to fall most heavily on the Europeans themselves, and stay with us for a long time. That, after all, is the story of European colonialism, and World Wars I and II. Perhaps they should give up playing empire and mind their own back yard which is in serious need of repair.

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The Great Washing Machine Threat of 2018

Donald J Trump, certified stable genius, has launched his trade war. He has done so to protect America from the clear and present danger posed by foreign made washing machines and solar panels. To this end he has decided to impose added taxes on their purchase. The result is that the prices of washing machines and solar panels will be higher than they would otherwise be, thus reducing the quantity sold. Effectively, the tax will be paid by consumers in the form of higher prices and by workers who lose their jobs as a result of reduced consumption.

What is fascinating about this particular piece of policy idiocy is that it runs exactly opposite the (correct) economic reasoning that went into the recently passed reduction in the corporate tax rate. Which is to say that corporations do not pay taxes; they merely collect them. Consequently, a reduction corporate taxes benefits the corporation’s owners (stockholders), workers and customers in the forms of higher returns to capital, increased wages and lower prices. About this there is little dispute among economists; the only question is the distribution of the benefits.

In the process of making America great again by saving us from the scourge of foreign washing machines the Trump Administration has apparently forgotten the logic of its own tax bill. Increasing taxes on washing machines and solar panels will simply raise prices and costs while reducing consumption, thus punishing workers, consumers and stockholders.

The Trump Administration has barreled ahead with this because it views trade as a zero-sum game (which it manifestly is not). Trade is a plus-sum gain in which each side benefits. After all these are voluntary transactions. People and firms do not continue to engage in transactions that make them worse off. Only governments do that. Moreover there are positive spillovers from trade in the form of faster economic growth coming from increased efficiency in the allocation of capital.

What is especially striking is Republican silence in the face of this. In the very recent past Republicans were ardent free traders. That apparently has gone by the boards, as has the Republican insistence that character matters. Perhaps the Republican Party is reverting to its prior preference from the 19th century for tariffs designed to protect domestic businesses from foreign competition. Back then it was the Democratic Party that had adopted the more hands-off approach, at least until FDR and the New Deal arrived on the scene.

And to boot, Treasury Secretary Steve Mnuchin has now decided to start talking down the dollar in FX markets. This is simply the beginning of an attempt to lower the prices of American goods in foreign markets, at the cost of raising prices for American consumers. To pull a stunt like this at a time when the U.S. government owes trillions of dollars to foreign investors, including foreign governments, simply mixes ignorance with incompetence.

That said it seems unlikely that free-traders are going to make a serious appearance in the Democratic Party of 2018. That is a shame because such a development would at least slow down the gallop toward more central planning and bureaucratic control over the U.S. economy. (Apparently the Trump Administration suffers from the delusion that it can loosen regulations on business conducted inside the U.S., but tighten regulations on external trade coming into the U.S. and never the twain shall meet.) So, we are faced with the unappetizing prospect of a bipartisan consensus in favor of using the police power of the state to attempt to impose higher prices on consumers and lower returns on investors. All at a time of enormous budget deficits and accumulated public debt.

Tired of winning yet?

JFB

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A Giveaway to the Rich they Say

The reaction of progressives to the passage of the recent tax bill tells you all you need to know about what progressivism is really all about. The tax bill is, they repeat endlessly “a giveaway to the rich and to big corporations”. Let’s think about that for a moment.

It is, or ought to be, glaringly obvious that to give something away you have to own it to begin with. So, what progressives are really saying is that the state owns all of your income except for what it allows you to keep. And let’s not kid ourselves about this. It is what they truly believe.

The point of taxation is supposed to be about financing legitimate government activities—like the production of public goods, the classic being defense. And there are other public goods like the highway system, public health, and the courts to name a few. But by and large, that is not where the federal government concentrates its efforts. The focus of the federal government is on income redistribution. The numbers are published by the Office of Management and Budget. They can be accessed at this link:

https://obamawhitehouse.archives.gov/omb/budget/Historicals

Progressives can pretend all they like that they can achieve some sort of optimal income distribution, but it is impossible. It simply denies human nature, not that it has ever stopped them before. They can reduce income inequality, though. All they have to do is adopt the policies that are working so well in Venezuela. Otherwise they will simply continue on with their traditional vote buying operation,the time tested modus operandi of welfare state politicians.

Something like 72% of FY 2017 federal spending was budgeted for Human Resources, which as a practical matter means Medicare, Medicaid, Social Security, Social Services and other welfare payments. Net interest on the debt is another 7 percentage points. Medicare and Social Security are gargantuan programs that (largely) benefit those over 65 and are funded by the current generation of taxpayers. (The Trust fund is simply an accounting fiction; it has no actual money). Since wealth is highly and positively correlated with age, these programs redistribute money to the relatively well-off (older people) from the relatively less well-off (younger people).

For perspective consider this. In 1980 defense spending accounted for 22.7% of the budget and 4.8% of GDP. Today defense spending has shrunk enough so that it accounts for only 14.7% of the budget and 3.2% of GDP. On the other hand, Human Resource outlays soared from 53% of outlays to 72% today. In 1980 it was 11.2% of GDP; now it is 15.4% of GDP. So over the years, the federal government has essentially become a giant check writing operation, paying the most to the most powerful and politically well-connected people. That is the nature of progressivism.

And then there is the argument about the deficit. When the deficit exploded something like $9.3 trillion over the Obama years, progressives were strangely silent. But the prospect of an extra $1.5 trillion over 10 years provokes hysterical caterwauling, never mind that they want to spend even more on Social Security. All of which suggests that they believe they can tax their way out of the fiscal nightmare that is the welfare state.

In McCulloch vs. Maryland (1819) Daniel Webster argued that “The power to tax is the power to destroy”. Chief Justice John Marshall agreed, saying “That the power to tax involves the power to destroy…[is] not to be denied”.

We are clearly at the point where the tax burden, which is properly measured in terms of outlays and promised future outlays rather than collections, is destructive. The present value of promised future outlays for Social Security, Medicare, Medicaid and debt service is estimated to be between $100 and $200 trillion. This with a GDP of $20 trillion. It is obviously not sustainable, and the only way to get it under control is to reform entitlements. Which is what progressives simply refuse to do, preferring instead to yammer on about taxing the rich to squeeze $100 trillion in taxes from a $20 trillion economy. Quite a trick that would be.

JFB

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Asides…About North Korea

In October of 2002, North Korea admitted to having a clandestine nuclear weapons program. About 2 years later, in 2004, former Secretary of State Madeline Albright caught on and admitted that North Korea had cheated on the “Agreed Framework” negotiated during the Clinton years. In October of 2006 North Korea successfully performed its first nuclear test, after having successfully tested some short-range missiles. In so doing North Korea became a nuclear state, or at the very least, a nuclear threshold state. By September of 2016 the Obama Administration was busy insisting that the U.S. would “never accept” North Korea as a nuclear state, even though it already was one, and had been for quite some time.

 
North Korean Rocket Launch

Fast forward a year later to the present. North Korea has successfully tested both a hydrogen bomb and an ICBM capable of hitting anywhere in the United States. You would think that this would cause policy experts to reconsider their assumptions, but you would be wrong. The U.S. still gamely claims that it will not tolerate a nuclear North Korea. Moreover, the bipartisan group of North Korea policy makers who presided over this fiasco, one of the most spectacular U.S. foreign policy failures of the last 50 years, is now urging that we find ways to accommodate North Korea as a nuclear state.

 

And let’s not forget that foreign policy with respect to Iran is largely built on the assumptions of the North Korean model.

 

JFB

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Asides…

One of the favorite progressive hobby horses is to wail about voter turnout, or the lack thereof. And so periodically we are treated to assertions that Republicans systematically suppress the vote, especially of minorities, as an electoral strategy. Needless to say, there is zero evidence that this is actually the case. But it helps to whip up the base.

 

Given the professed concern over voter turnout you would think that there would be progressive angst over the results of New York’s recent mayoralty race in which progressive hero Bill de Blasio cruised to re-election. In that race, slightly under 22% of registered voters actually showed up to cast their ballots. But somehow or other that turnout didn’t seem to bother progressives, perhaps because turnout is not the real concern. The real concern is progressive turnout.

 

And then there is the case of Judge Roy Moore, social warrior, Steve Bannon acolyte and Republican Senate nominee for a special election that will be held December 12, 2017. To refer to Moore as “Judge” is a bit of a stretch since he was twice removed from the court for refusing to follow the orders of superior courts. As if that isn’t enough, it seems that when he was in his 30s one of his favorite pastimes was (allegedly) cruising the malls to pick up teenage girls, some as young as 14. The National Republican Party, with the notable exception of faux Republican Donald Trump, has essentially disavowed his candidacy. Both Mitch McConnell and John Thune have publicly called for Moore to step aside so that the party can get behind a write-in candidate. Not surprisingly, Roy Moore has shown no inclination to do so.

 

In the meantime, Senator Al Franken, past and current comedian, has been credibly accused of the “unwanted groping” of at least 5 women, as if there were a such thing as wanted groping. In the event, the oh so progressive defender of women’s rights has been on an apology tour, but has indicated that, like Moore, he has no intention of stepping down. To be sure, Franken’s behavior is not as grotesque as Moore’s, inasmuch as Franken apparently restricted his assaults to women over 21.

 

When the story about Franken first broke, the conventional wisdom was that he might survive the scandal if no other stories of assault turned up. After the second story turned up, the third would be deemed dispositive. After the third, it would be the forth. We are now at 5 and counting.

 

Now it turns out that fresh from settling sexual harassment complaints against him in 2014 with taxpayers paying the bill, Representative John Conyers is at it again, defending himself against a complaint filed in 2015. He, like Moore and Franken, indicated that he has no intention of stepping down. On “Meet the Press” Nancy Pelosi ducked and weaved as she attempted to defend the indefensible in the Conyers case, calling him an Icon. A clip from the show is below.

 

 

In Washington, they call this leadership.

 

JFB

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All the President’s Men

Now that the first indictments have been handed down in the Mueller investigation of Russian meddling in the 2016 elections, the path forward will be determined by the presentation and evaluation of actual evidence. These charges almost certainly represent the first of more to come in the weeks and months ahead. But there should be no mistaking the significance of what is happening here. The primacy of the rule of law is being asserted and it must prevail if the U.S. is to remain a free, liberal and democratic society.

 

The indictments named Paul Manafort, ex-Chairman of the Trump campaign and an associate of his named Rick Gates. They were charged with money laundering (as predicted) and making false statements to the FBI. Manafort is also charged with tax evasion. The money laundering and tax evasion charges are related to Manafort’s lobbying work in Ukraine. Neither of the men, now under house arrest, was charged with crimes directly related to the Trump campaign.

 

However, a third player named George Papadopoulus who is described as a Trump foreign policy advisor, pleaded guilty to lying to the FBI about contact with a professor with ties to the Kremlin.

 

With indictments handed down, partisans of every stripe are going to spend considerable time in the days ahead trying to frame the debate in ways designed to flatter their respective sides. But there is only one side that matters: Truth. The facts need to come out—all of them—in court. Let us not forget that the Nixon White House may have contained the Watergate affair but for Judge John J. Sirica’s refusal to accept (the bought off) plea agreements of the defendants. In so doing he set in motion the final unmasking of the conspiracy.

 

That said, there is a long distance standing between the indictment of campaign staffers and the criminal culpability of a President. If it turns out that the charges in the indictment are true, they still may not have any bearing on the underlying question as to whether Trump himself actually colluded, cooperated or coordinated his campaign activities with agents of the Russian government. That remains to be seen. But the indictments are a big first step in the path to find out. And Mueller obviously means to squeeze all the information he can out of Manafort and Co.

 

Now that these matters are going to be tried in the courts where they belong, it is probable that very few of the players are going to emerge unscathed, included those who were not named in the original indictments. For instance, it now turns out that Mueller is investigating Tony Podesta, brother of Hillary Clinton campaign manager John Podesta. Together they founded the lobbying firm Podesta Group, with Tony Podesta operating as CEO. It seems that the powerhouse K Street firm worked with Manafort on the Ukraine account. That caught Mueller’s attention, and now there is a criminal inquiry considering whether the Podesta firm violated the Foreign Agents Registration Act. In the event, Podesta announced he was stepping down for the duration of the inquiry.

 

It is also the case that John Podesta had an investment in Joule Unlimited, a firm that received significant financial assistance from a company called Rusnano, a Kremlin backed investment fund founded by none other than Vladimir Putin. Rusnano ponied up about 30% of Joule Unlimited’s financing needs after John Podesta was named to its board. Also on the board: a senior Russian official named Anatoly Chubais and oligarch Ruben Vardanyan, who was appointed to a Russian economic modernization council by—Vladimir Putin. And, oh yes, Vardanyan used to serve as the head of the investment banking division of Russia’s largest bank, Sberbank, which also had a $170,000 contract with—the Podesta group. After Hillary Clinton lost the election, Joule Unlimited closed up shop as their Russian backers walked.

 

It should be noted that none of this proves that anyone committed a crime. But it is easy to see how the Podesta firm wound up in the cross hairs.

 

Before this is all over, it would not be in the least bit surprising to see officials from both of the campaigns, related party organizations and perhaps even principals, facing criminal indictments for corruption in various forms. If the evidence is there, those officials should be prosecuted to the fullest extent of the law. But if the criminal law is simply turned into a political weapon, we will be in even worse shape than we are now. And that’s pretty bad.

 

JFB

 

 

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Where’s the Outrage?

In 1996 the GOP candidate for President, Senator Bob Dole of Kansas, used to tick off a laundry list of horribles mostly having to do with charges that President Clinton was sleazy and that a biased liberal press was protecting his Administration. After reeling off the particulars he would then go on to ask rhetorically: “Where’s the Outrage?”

 

He lost the race, and lost it decisively. Perhaps it was a harbinger.

 

Today we have no shortage of outrage. In fact we have a surplus of it. And it is constantly being stoked by cynical political operators who rely on confirmation biases to arouse the passions of their respective political bases in order to win the tribal contests we call elections. These elections have increasingly become exercises in identity politics and grievance mongering. The result is that rational governance, nuance and compromise are tossed out the window; policy disputes are criminalized, and mob rule is becoming the order of the day.

 

 

The cynicism of the players and the naiveté of the marks (generally the most passionate followers) can be seen by watching how quickly the players change their arguments and how easily their credulous followers swallow them. Consider, for instance, the FBI. They go from black hats to white hats in the blink of an eye, depending on whose ox is being gored.

 

The truth is that any objective analysis of the FBI’s performance over the years—make that decades—would have to conclude that the FBI has been highly politicized from the outset, and incompetent to boot. J. Edgar Hoover ran the place like it was his private police force, and he had no regard for citizens’ Constitutional rights. Long withheld documents being released today on the Kennedy assassination make it pretty clear that the FBI destroyed evidence after the fact. Robert Hanssen, a senior intelligence officer for the FBI, acted as a spy for Russia from 1979 until 2001 when he was finally caught. Time magazine described the Hanssen case as one of the most damaging in U.S. history.

 

Then there were the scandals at the FBI crime labs. In 2015 the FBI got around to admitting that almost every examiner in one of its elite forensic crime labs gave flawed testimony over more than two decades in the years before 2000. Of 28 examiners 26 overstated evidence of forensic matches of hair that favored prosecutors 95% of the time in 268 trials reviewed by the Association of Criminal Defense Lawyers and the Innocence Project. These cases included 32 death sentence cases. Of those, 14 defendants were either executed or died in prison.

 

The FBI is still up to its neck in cover-ups to protect the politically powerful. Consider the Lois Lerner / IRS saga. Just yesterday, on October 26, 2017, the DOJ and IRS settled some of the outstanding Tea Party cases in which the IRS deliberately targeted conservative groups in order to incapacitate them for the 2012 elections. The settlements included payments to the plaintiffs and an apology from the IRS.

 

It turns out that in the Tea Party cases the IRS handed 21 computer disks to the FBI that contained 1.23 million pages of confidential IRS returns from 113,000 non-profit 501(c)(4) groups, although federal law generally forbids the IRS from sharing such data. By means of Freedom of Information Act lawsuits, Judicial Watch, a conservative watchdog, was able to establish that the IRS, DOJ and FBI met on October 10, 2010 to discuss legal theories about how to criminally prosecute groups “posing” as tax-exempt non-profits, which is to say, Tea Party groups.

 

And then there is the infamous mishandling of the case of Hillary Clinton’s private e-mail server. In this particular comedy of errors the FBI, through the offices of FBI Director James Comey, ran interference for Clinton to make sure she wasn’t prosecuted even though it is perfectly obvious to anyone who can read that Clinton violated federal law on handling defense information, specifically, 18 US Code 793 (f). The sentence for this crime, by the way, includes up to 10 years in prison.

 

It is not necessary to belabor the point by citing more cases. It is crystal clear that the FBI has for decades been both politically corrupt and stunningly incompetent. And what has the political establishment done about it?

 

Nothing.

 

And what does the commentariat of the left and right have to say? They either cheer or hiss from the bleachers depending on the identity of the FBI’s latest target. Left wing activists were horrified that the FBI infiltrated radical left-wing groups in the 1960s and 1970s. Right wing groups thought it was just swell. Now left wing groups think it’s just great that the FBI is infiltrating “hate groups” and right-wingers have suddenly discovered the fourth and fifth amendments. But do we hear a principled argument from either side that is neutral in its application? Of course not.

 

And the same goes for the first amendment, particularly with respect to speech and the free exercise of religion. Do the mobs of the left or right defend these fundamental freedoms?

 

No.

 

It depends on whose ox is being gored.

 

So let’s turn to the ever-expanding Russia investigation. What is going on here?

 

After the smelling salts were duly administered, it finally dawned on the Democratic Party establishment that the country voted to give the keys to the White House to a witless reality TV star by the name of Donald Trump. So the Democrats immediately began the campaign to delegitimize the Presidency of Trump, pretty much before it even got started, which is pretty much what the Republicans did in 1992 to then President elect Bill Clinton. The centerpiece of the campaign was (and is) the charge that but for collusion between Russia and Trump, Hillary Clinton would have been elected President.

 

Thanks in part to Trumpian buffoonery, there is now a special investigator in the person of Robert Mueller conducting a wide-ranging investigation into possible collusion, as well as Trump’s associates, the Trump campaign, and Trump’s business empire. As a result it appears likely that Paul Manafort, Trump’s campaign manager for a brief period, will be criminally charged, probably with money laundering and various other financial crimes. The other Trump associates in the drama will probably be charged with being stupid, which while true enough, is not yet a felony.

 

The saga has now taken a new and wholly unexpected turn. It centers on an infamous dossier filled with salacious and unconfirmed reports that circulated widely in the press, which was then published by Buzz Feed. It turns out that none other than Hillary Clinton’s campaign and the DNC financed the dossier, but only after Trump’s Republican opposition stopped doing so when he secured the nomination.

 

Digging up dirt on the opposition, also known as opposition research, (oppo research) is nothing new. It has been going on forever. That said, there are two factors that come into play here. The first is that this type of stuff is typically low quality and consists largely of rumor-mongering. Second, and more importantly, plenty of the information for the dossier came from Russian operatives, which is to say it may very well have been part of a larger disinformation campaign designed to sow political discontent in the U.S. generally. If so, it succeeded brilliantly—with the help of the FBI.

 

It succeeded with the help of the FBI because Director James Comey has already admitted that the dossier was one of the reasons he launched the initial investigation into the Trump campaign. So the investigation may be attributable to a Russian disinformation campaign that the FBI fell for like the Keystone Kops. Moreover, if so, it would be the Clinton campaign and the DNC that inadvertently financed the Russian effort.

 

Apparently the Clinton campaign and the DNC used a law firm as a cut out to pay Fusion GPS to produce the dossier. The idea is that Clinton and the DNC could protect their anonymity while the law firm could argue attorney client privilege. Needless to say, no one at either the Clinton campaign or the DNC has fessed up to authorizing or even being aware of the payments to the law firm. After all, it’s pretty difficult to squawk about collusion with foreign powers when you are funneling cash to operatives of a foreign power to do oppo research.

 

And speaking of collusion with a foreign power, there is more news about the Uranium One deal. That’s the one where Hillary Clinton, among other cabinet officers, voted to OK the sale of uranium assets to a company that was taken over by a Russian concern, giving Russia a large chunk of U.S. uranium assets. It turns out that while this was going on, the FBI was investigating the companies involved and was prepared to criminally charge them, which would have killed any deal. But they didn’t. Instead they waited for a few years and quietly settled the case with a slap on the wrist. The FBI had an informant in the case who was prepared to testify about it. But the informant had to sign a gag order as part of the settlement deal, and so was not allowed to tell his story.

 

The informant’s lawyer, Victoria Toensing, has said that there is “on the record quid-pro-quo” around the deal that includes Bill Clinton getting paid $500,00 for making a speech at a Russian Bank, and the Clinton Foundation receiving tens of millions of dollars from people with an interest in the Uranium One deal. For his part, Donald Trump told the Justice Department to lift the gag order so that the informant can testify before Congress. He, the one who refused to release his tax returns, claims it is part of an effort to achieve transparency.

 

And, by the way, the Director of the FBI was Robert Mueller when the settlement, complete with gag order was negotiated.

 

Needless to say the argument is now being made that the independence of the DOJ is being threatened by Trump’s order to lift the gag order. There are a number of problems with that argument, not the least of which is that the DOJ is not now and never has been, independent. The Department of Justice is a part of the Executive Branch and answers to the President. And to argue that Justice is independent and apolitical by tradition requires believing that Bobby Kennedy was not Jack Kennedy’s brother; that John Mitchell was not Richard Nixon’s chief defender and an architect of Watergate; that Eric Holder was not Obama’s point man, and that Loretta Lynch and Bill Clinton merely discussed the grandkids on the tarmac.

 

So what can we conclude from all this?

 

  1. All the facts have yet to be revealed and it is still too early to determine whether collusion with a foreign power(s) or other crimes have been committed by any of the major players, and if so by whom.
  2. However, it is reasonably certain that both Donald Trump, Hillary Clinton and their sycophants have been lying through their teeth about various aspects of these (and other) affairs.
  3. Most important and in some ways most distressing is the fact that large swaths of the population are so partisan and emotionally invested that they simply do not care who is lying about what. They have picked their side and they are sticking with their side’s story—even as the story changes.
  4. There is plenty of outrage, but the blinders remain on and firmly fastened.
  5. There are almost no principled arguments being offered by the combatants. The sole point of the debate is to skewer the other team. It’s probably a reasonable guess that they are all afraid of what the truth may be, because it will show just how craven for the most part, they all are.

 

Finally, how and why we have arrived at this point is the more interesting question. But that’s another day.

 

JFB

 

 

 

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The Tax Reform That Isn’t

It is now tax reform season, which means that politicians are poised to unleash even more nonsense on the public than is customary. So perhaps it makes sense to frame some of the underlying issues that are involved. First and foremost: There is not a snowball’s chance in hell that taxes—properly understood—are going to be reduced. I repeat: there is no chance—none, nada, zero—that the total tax burden is going to be reduced. It is merely going to be redistributed, and to boot the total burden next year will be larger than this year, and the same condition will hold the year after that, and the year after that. Until the unavoidable default.

 

To see this it is imperative to define terms and do it properly because words that politicians and their sycophants use are designed to obfuscate rather than clarify. This, by the way, is not unique to arguments about the tax code. They do it all the time, pretty much about everything. So: how should we define the tax burden?

 

Definition: The tax burden is equal to the resources that government commands that would otherwise have remained in the private sector. That means that the real tax burden is not simply equal to the cash government collects from income taxes, sales taxes, other excise taxes, user fees, payroll taxes and various other sources. The real tax is equal to the total amount of money government spends plus the cost of regulatory compliance.   This definition differentiates between the government’s demand for economic resources and how it finances the demand.

 

The Income Statement: Revenues are equal to the cash taxes government collects directly plus the regulatory compliance costs it imposes on business that government would otherwise have to bear if it did the job itself. Expenses are cash disbursements. But government spends far more cash than it collects in direct taxes, so it has to make up the difference, which it does by borrowing the difference.

 

The Balance Sheet: Here is where it gets exceptionally tricky, because the government doesn’t publish a balance sheet. And it doesn’t do so for a very good reason. The Government is insolvent and doesn’t care to admit it.

 

Let’s consider: conceptually speaking what would the government’s balance sheet look like if it published one?

 

Assets = Implied taxing power, otherwise known as the tax base.

Liabilities = All the payments it has promised to make in the future. These include debt service and transfer payments, the largest being Social Security, Medicare and Medicaid. The present value of these unfunded liabilities (plus accumulated debt on the books) ranges from a relatively modest estimate of $100 trillion (from the optimists) to about $200 trillion from the not-so-optimistic. According to the Fed, total net worth of U.S. households is about $85 trillion. That leaves us short somewhere between $15 trillion and $115 trillion. (Corporate assets are largely included in household wealth through stock ownership.)

 

Since U.S. GDP is about $20 trillion, there is no possible way that the U.S. can grow its way out of this. In fact, its liabilities in the form of promised entitlement payments are growing at an increasing rate of speed, so the situation is getting worse rather than better.

 

The only reasonable conclusion is that the U.S. is inevitably going to default on its promises. The only question is when and to whom.

 

 

This conclusion is both inescapably correct and studiously avoided. Progressives have spent the last 100 years or so building a welfare state that is careening toward default by obfuscating the nature of the problem, which is, as Margaret Thatcher put it, Socialists eventually run out of other people’s money to spend.

 

Consider the current discussion over “tax reform” currently taking place. The discussion will carefully ignore the indisputable fact that total government spending and therefore the tax burden, is going to rise. The entire discussion about tax reform / tax relief is entirely distributional without so much as a nod to the underlying structural problem.

 

The Republicans will claim, as they always do, that reducing marginal tax rates a few percentage points will lead to an increase in economic growth sufficient to offset the loss from lower rates. They will propose taking a smaller piece of a much bigger pie. The problem is that there is scant evidence that the modest Republican reforms will have the desired effect because they are not going to address the underlying entitlements beast, which is in the process of devouring everything in its path.

 

 

For their part, the Democrats are still intent on increasing spending for entitlements and “paying” for it by taxing “the rich”. Here we note in passing that Progressives have exactly two solutions for all problems. Tax the rich, and appeal to “the international community”.

 

But let’s go on from here. The great project of building the welfare state, seemingly paid for by taxing the rich, has created a situation in which the financing of the welfare state is divorced from the actual cost of running the welfare state, at least in the public mind. And inevitably that means the public will insist on getting more and more “free” stuff. And because Progressives have convinced otherwise sensible people that they are victims of corporations and the rich, they will continue to demand all this apparently free stuff as a matter of right. It will not end well. They are rapidly running out of other people’s money to spend.

 

 

JFB

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Tired of Winning Yet?

Well, that was fast.

 

Donny and Chucky and Nancy are now BFFs. And Donny is in a good mood because he got some good press; Chucky and Nancy said nice things about him, and he thinks he may have put one over on Mitch McConnell. In the meantime, the Resistance (remember them) is about to snuggle up to Donny because they may get to keep the spending machine cranked up for as long as the eye can see. Or the creditors ask for their money back, which may be sooner than anyone thinks. Especially the borrowers, who seem to think that there is an endless supply of free money out there.

 

Meanwhile Bernie Sanders (Democratic Socialist, VT) has introduced legislation for mandating a “single-payer” Medicare for all scheme. One of its truly unique features is that it is even more boneheaded than Obamacare, which is quite a feat when you think about it.   At last count 16 Democratic Senators (not yet declared Socialists) were on board as co-sponsors of the measure, largely because when they look in the mirror they see a President.

 

When Senator Sanders last ventured into this territory he was in the middle of his ill-fated attempt to wrest the Democratic Presidential nomination away from Lady Clinton. The Urban Institute, hardly a den of right wing extremism, did a fiscal analysis of his plan. Normally these green eyeshade affairs are fairly dreary but this one is a real thigh slapper. The Urban Institute found that, all told, Sander’s plan would increase federal spending by about $32 trillion from 2017 through 2026. That is trillion with a capital T.

 

Sander’s tax proposals would raise an estimated $15 – $16 trillion leaving him about $15- $16 trillion shy of “paying for” his plan. The Urban Institute estimates that state and local spending would drop by about $22 trillion, and private spending would fall about $4 trillion, still leaving a deficit of $6 trillion after making the heroic assumption that for the first time in history the plan would cost what its sponsors say it would. This also makes the patently absurd assumption that the gargantuan tax hikes needed to finance this monstrosity would not have a negative impact on economic growth.

 

But the economics are the least of it. The heart of the problem is that single payer means, well, single payer. There would be no competition. None. Government would essentially fix the prices it would pay for health care services by executive fiat. Health care professionals would not be able to offer services on their own, because government would be the monopoly supplier. (Technically government would be a monopsony, and would control the system by acting as the sole buyer of health care services.)

 

The next step is rationing care. This would take the form of the bureaucracy (not your doctor) deciding who gets what services based on cost-benefit analysis. Inevitably that means that older patients will be tossed overboard because their prospective earning power is lower and life expectancy shorter than younger patients. That’s what happens in England and Canada and other places that have single payer government systems. Those patients whose governments refuse to provide treatment often come to the U.S. for treatment if they can afford to. Otherwise they just die.

 

Needless to say, individual freedom is essentially non-existent if the citizens are dependent on the federal bureaucracy for health care. Just ask Lois Lerner.

 

The conventional political wisdom is that this latest single payer plan is going nowhere. I wouldn’t be so sure. Donald Trump is quite capable of jumping on board with his new friends if they give him a fig leaf or two. After all, up until the time he launched his hostile take-over of the Republican Party, Donald Trump was essentially an outer borough Democrat (from Queens), which is what he remains. And since he is above all a committed narcissist, he will go wherever flattery leads him.

 

And so the question remains for the 62,979, 879 people who voted for him: Are you tired of winning yet?

 

JFB

 

 

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Merrily We Roll Along: A Play

Act 1, Scene 1: Candidate Donald Trump strides to the stage and stands behind a lectern. There is not a teleprompter in sight. A Greek style chorus of Trumpkins stands in the wings.

Donald Trump: We are going to build a wall and it’s gonna be beautiful.

Trumpkins (in unison): Build the Wall! Build the Wall! Build the Wall!

Donald Trump: Who’s gonna pay for it?

Trumpkin Chorus: Mexico! Mexico! Mexico!

Act 1, Scene 2: President Donald Trump wakes up early in the morning, grabs the remote and turns on Fox News. He reaches for his smart phone and logs into his Twitter account.

President Trump Tweets: The country needs a good shutdown.

Trumpkin Chorus: “Brilliant, Strategy! Build the Wall! Shut it Down! Brilliant!

Act 1, Scene 3: President Trump is standing at a lectern in Phoenix Arizona.

President Donald Trump: The obstructionist Democrats would like us not to do it. But believe me, if we have to close down our government, we’re building that wall

Trumpkin Chorus (fist pumping): Build That Wall, Build that Wall. Brilliant! Strategy. Shut it Down! Democrats are bad! Bad, Bad, Bad! Brilliant! Brilliant!

Act 1, Scene 4: Aboard Air Force One headed for Nebraska. President Trump is making a statement to reporters. Chuck Schumer and Nancy Pelosi are chatting, grinning and sipping coffee. Mitch McConnell appears comatose. Paul Ryan is strapping on a parachute.

President Trump: We had a very good meeting with Nancy Pelosi and Chuck Schumer. We agreed to a 3-month extension of the debt ceiling. We’re gonna keep the government open.

Trumpkin Chorus: Brilliant! Brilliant!

Wolf Blitzer from CNN: Is funding for the wall included?

Sarah Huckabee: Doesn’t anybody want to talk about Russia?

Wolf Blitzer: A follow up question—is funding for the wall included?

Sarah Huckabee: Sorry Wolf, we’ve run out of time

Trumpkin Chorus: Brilliant! Brilliant! 8 dimensional chess! Brilliant! Brilliant! Brilliant!

Intermision

A Note to Theatre Patrons

During the Intermission the Donald J Trump Choir will be in the Lobby singing “Such a Brilliant Man” which many have compared favorably to the Lennon/McCartney Classic “Fool on the Hill”.

Alcohol will be served during the intermission. New Gingrich will be tending bar. Chris Christie will be checking IDs.

 

JFB

 

 

 

 

 

 

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