Category archives: Economics

Amid Capital Folly, Some Good News from Washington

by Robert Morrison

October 4, 2013

One of our friends teaches at a government institution. When the sequester came, some of the professors and staff were furloughed. Our friend said he could work around the sequester because all of his classes are on one day. He could take his furlough day on another day of the week, he volunteered. He was told, in no uncertain terms, you will now rearrange your schedule to work through this. This has got to hurt. Cancel all your classes and take a furlough.

I’m reminded of the cynical view that H.L. Mencken took of democracy a hundred years ago. The man they called “The Sage of Baltimore” said democracy was the theory that the people should get what they want — and get it good and hard.

Such cynicism was clearly behind the decision to close down the National Mall at the time of the government shutdown. It is good to have knowledgeable guides from the Park Service to help interpret the monuments, to be sure, but many of us have led tours of the Mall ourselves and would be honored to pitch in. I know I will be happy to volunteer.

Closing the Mall was sparked by the same age-old tactic of entrenched bureaucrats called “Closing the Washington Monument.” That tactic says that whenever Congress fails to cough up as much dough as the bureaucrats want, they can respond by closing down the capital’s most popular tourist attraction. But now, of course, the Washington Monument is already closed. This is because of earthquake damage, not bureaucratic bloody-mindedness.

The White House, too, has been closed. President Obama’s administration made that decision for reasons that are hard to recall. We’re sure that his many guests and campaign donors will be able to access the historic halls of what Harry Truman called the People’s House.

My favorite tour guide for the National Mall was the man who starred in the first presidential inauguration to be held on the West Front of the Capitol. In Ronald Reagan’s First Inaugural Address, January 20, 1981, he pointed to the vast expanse and the impressive monuments laid out before him and showed the country and the world what being American means.

I’m told that tens of thousands of prayer meetings are being held on this day, and for that I’m deeply grateful. We are a nation under God, and I believe God intended for us to be free. It would be fitting and good, I think, if on each Inaugural Day in future years it should be declared a day of prayer.

This is the first time in our history that this ceremony has been held, as you’ve been told, on this West Front of the Capitol. Standing here, one faces a magnificent vista, opening up on this city’s special beauty and history. At the end of this open mall are those shrines to the giants on whose shoulders we stand.

Directly in front of me, the monument to a monumental man, George Washington, father of our country. A man of humility who came to greatness reluctantly. He led America out of revolutionary victory into infant nationhood. Off to one side, the stately memorial to Thomas Jefferson. The Declaration of Independence flames with his eloquence. And then, beyond the Reflecting Pool, the dignified columns of the Lincoln Memorial. Whoever would understand in his heart the meaning of America will find it in the life of Abraham Lincoln.

Hearing Washington thus described as a man of humility “who came to greatness reluctantly,” we are led to wonder how things have come to this sad day. We have been told that our current president is one who “hovers over the nations, like a sort of god.” (Newsweek editor Evan Thomas) He is, says presidential historian Michael Beschloss, the smartest man ever to occupy the White House. So how did we get in this mess?

With all the folly evident in Washington, D.C. these days, we can use some good news from George Washington. There’s at least one historic site is still open and welcoming Americans: George Washington’s home at Mount Vernon. This stately mansion is about twenty miles from downtown Washington and it’s one of the best investments you will ever make.

The estate is the property of The Mount Vernon Ladies Association of the Union. It’s been privately owned for its entire existence. Several years ago, a new $187 million Visitors Center was opened that houses theaters, exhibits, gift shops and dining. Most recently, Mount Vernonadded a new feature, the Fred W. Smith National Library for the Study of George Washington. Now, scholars will be able to access old and new materials on the life and influence of George Washington. The George Washington Library cost $106 million — all privately funded. Another great feature is George Washington’s own handsome leather-bound copy of the Constitution with the Bill of Rights. In the margins of this 222-year old document you can see Washington’s neat, handwritten notes on the powers and the duties of the President. This volume cost $9.8 million at auction and was purchased for Mount Vernon, again using all private funds.

Another piece of good news from Washington is the forthcoming (Oct. 23-26) Hillsdale Hostel conference on “The Character and Statesmanship of George Washington.” With lectures, discussions, and presentations, Hillsdale College’s Alan J. Kirby, Jr. Center for Constitutional Studies and Citizenship will work to inform and inspire attendees about the life and work of our first president. I’m planning to attend this event and to report on it.

In 2009, The New Yorker published a most interesting cover portrait for President Obama’s First Inauguration.

It remains my favorite portrait of Barack Obama. It reminds us of the great promise and the greater responsibility that rests on the shoulders of every man who has stood in the place George Washington stood. It shows us how Washington was and remains the model for what a President of the United States should be. For liberals and conservatives, it’s a sobering thought.

Adding Insult to Injury: The Latest Shoe to Drop in Today¿s College Scam

by Chris Gacek

September 12, 2013

It used to be that the quality of an American university or college degree spoke for itself.  An employer could evaluate one’s academic achievement by looking at a transcript and making a fair assessment.  Well, those days appear to be fading fast.  Decades of academic bureaucratic bloat, grade inflation, and dumbing down curricula have had such a profound effect that a standardized, online college exit exam is being introduced in the spring of 2014.  The 90-minute test, produced by the non-profit Council for Aid to Education, is called the Collegiate Learning Assessment Plus (CLA+), and its scores can be shared with employers.

This article and this letters column (“Dear Joyce”/ Joyce Lain Kennedy) from the Chicago Tribune provide good background information on the CLA+.  From these articles it becomes clear that “grade inflation” has destroyed the value of the college transcript.  Here is another interesting observation:

Additionally, some employers are rethinking the value of famous-name institutions.  Is a degree from Harvard or Stanford really worth multiple times that of a solid state university? That rethink is why the CLA+ could level the hiring field by valuing the individual over the institution.

Wow.  So, these bloated educational bureaucracies are producing wildly overpriced educations that may soon have to be validated by a $35 national test that assesses “analysis, problem solving, writing, quantitative reasoning and reading.”  Now that is adding insult to injury.

Food Stamps and Stewardship

by Nathan Oppman

August 23, 2013

In a few months there will once again be the usual chatter regarding the debt ceiling, fiscal cliffs, and heightened rhetoric as interest groups vie for Federal money. The debates often center around the dollars with little to no regard for the actual problems those dollars are supposed to solve.

Consider “food stamps” which now come in the form of a debit card. If one has a debate about whether or not the hungry should be fed, virtually all of us agree that they should. We may disagree on who is actually in need and how they should best receive aid, but we agree that they should be fed. Advocates for increasing federal spending on food aid will argue that the economy has caused many more people to be without jobs and that these people need help. If a policy maker even so much as mentions cutting a dime from such programs he will be immediately vilified by many as “uncompassionate” at best, or “evil” at worst.

My own experience argues for a cautious approach, and why we need to be able to have discussions that go beyond mere rhetoric.

At a previous job, our rear parking lot was near some woods that were often filled with homeless people. They frequently came to us for water and my colleagues and I spoke with many of them on a semi-regular basis. Some of them were genuinely needy, while others stated that they liked being homeless because they were free from responsibility. Many of them had cell phones; all were well-clothed.

Over time I noticed a significant number of them asking for one of my employees. When they asked for him, they did so usually with an appearance of deep concern and seemed to want to see him immediately. I soon discovered the sad reason for their urgency. My employee would take their food stamp debit cards and exchange them at something like a 50% rate for booze. In other words for a $200 card my employee would buy roughly $100 in alcohol for the homeless and then use the card to purchase groceries for himself or others. This system was very efficient and profitable for all parties involved. The homeless were able to continue their habit using government funds and my employee was able to make a 50% return on investment for his trouble.

You may think this kind of thing is rare or hard to do. It is not. This “ring” of fraud is operated largely in the open and there was very little that could be done to stop it. If I were a legislator and suggested there is waste and fraud in the food stamp program, I would be labeled as uncaring.

For the record, I believe strongly in giving to charity and regularly give a portion of my income away. But I also believe in responsibility and stewardship. God has called us to love our neighbors and give to the needy while at the same time wisely managing what he has given us.

It is a wonderful thing that Americans care for the poor, and Christians have a special duty to help them. However, we should not allow that care to cause us to be blind to systematic abuses that actually hurt those the system is intended to help. Love demands that we provide for those around us, but wisdom demands that we not give to those who wantonly throw away what we are entrusting to them. Good stewardship requires honesty and honesty requires us to admit that good intentions are not enough.

What an Overview of the President’s Budget can Tell Us about our Country

by Henry Potrykus

April 10, 2013

The chart above gives the change in federal outlays (spending) and receipts (taxation in normal times) in constant dollars. The use of constant (i.e. not-inflated) dollars allows us to compare these fiscal changes to realGDP growth.

GDP growth gives the overall baseline for where we are going economically - including, relative to the overall economy, where we are going fiscally. GDP growth gives an absolute marker for the above trends: Grow outlays faster than GDP growth and you are guaranteeing to the outlays’ recipients (federal program participants) a larger and larger part of the economy’s produce. Grow receipts faster than GDP growth and you are banking on taxes (or other mechanisms for transferring a monetary share to the government; in the past governments used seigniorage) taking in a larger and larger part of the economy.

For these cases, outlays or receipts grow faster than the overall economy itself sustains.

GDP growth was 3 percent in the past; in our new economy it is now 2 percent. See our recent paper for why.

Now let us prove our bottom line – that things are not getting better for the United States.

Here’s how to know: First, the hoped-for receipts are: A) calling for a lot more taxes, B) based in wishful thinking, or C) some of both.

For (A), see the chart for tax growth over 2013 to 2014: 15 percent + 10 percent = 25 percent total growth in taxes.

On (B), the “longer term” numbers (2015 et seq.) – 5 percent increases in revenue – are not anywhere near what our new economy can deliver from its growth (2 percent increase per year).

Combining the periods 2013 to 2014 and 2015 et seq., we notice some of both the phenomena we listed: Massive tax growth (A; 25 percent) is hoped to begin to put us back into fiscal alignment (that is, tighten down our massive deficit), but (B) longer term calibrations (5 percent growth in receipts) are not aligned with the anemic economic reality the United States now finds itself in (because of the “second demographic transition” – see, again, the hyperlink above and here). Thus, taxes or other means (like seigniorage) must continue to grow and grow and all the while our fiscal picture must continue to degrade and degrade. This signals calamity.

Second, the [weak] receipts recovery seen in 2010 and 2011 (the “real,” not estimated numbers of the chart) is in actuality worse than presented. In the wake of fiscal 2009, the Federal Reserve has been buying up and claiming interest payments on a few trillion dollars in US government debt (through “quantitative easing,” “twists,” and buying other securities). Yes, interest payment [to the Fed] is an outlay. But this payment is remitted back to the Treasury, so it is also a receipt. This has been explained in congressional testimony. Interest that the Fed is paid goes back to the Treasury, after a dividend is paid to certain banks. If this weren’t enough, there is plenty of ambiguity as to who may claim what (this is called “exposure” or “delta” and is a consequence of complicated derivative agreements on this debt – including repos and swaps – between the Reserve and its primary trading partners). Anyway, call this debt $3 trillion Fed-owned paper at 2 percent interest (our Treasury has been paying exceptionally low interest rates), or a $60 billion outlay-receipt per year. This $60 billion is a large share of the receipt growth seen in 2010 and 2011. Receipts are right around $2 trillion. The charted receipt growth of 2 percent in 2010 is $40 billion; the receipt growth of 4 percent in 2011 is $80 billion. Over those years the Fed has been buying more government debt hence claiming more interest payments hence remitting more interest payments. Splitting this growth in remittance, $60 billion, as $20 billion (2010) + $40 billion (2011), it is not hard to see half of the growth in receipts (the “recovery” in receipts) as coming through an act involving money movements (Fed buys debt, remits interest).

Receipts from the economy have not recovered. They cannot reach the levels hoped-for through growth of the economy. Massive (and increasing) taxation is how the current proposal hopes to close an ever-widening chasm in the fiscal landscape. It is, however, the opening of this chasm that exposes the real problem, the weakness of the State: http://marri.us/fiscal.

A Nice Summary of the College Debt Mess

by Chris Gacek

March 9, 2013

Charles Blow of the New York Times has written a very helpful analysis of recent statistics and realities pertaining to the College Debt Crisis.  His column appeared in the March 9th print edition (“A Dangerous ‘New Normal’ in College Debt.”)  See the online article with excellent links to a number of studies, reports.  He begins with the observation, “We are reaching a crisis point in this country’s higher education system.”  A statement that is undeniable. 

He concludes as follows: “Our national educational aspirations and the debt crisis that they’re creating are colliding. We are on an unsustainable track. This will not end well.”  Again, undeniable.

I don’t know if this is sequester-driven brinksmanship or part of a larger budgetary trend, but the Army Times writes that “[t]he Army’s popular Tuition Assistance program is being suspended because of the budget squeeze, although the many thousands of soldiers currently enrolled in courses will be allowed to complete those courses.”  The shutdown began at 5 p.m. EST on March 8th.  If it is the former, it is despicable.  However, I fear that even if sequester-driven politics is in play, the long-term outlook for military budgets keeping up with ever-escalating college tuition is not great.

Debt Doesn’t Take a Holiday

by Chris Gacek

January 24, 2013

I don’t think we are even approaching the point at which American government’s love of debt will shatter, but a couple of noteworthy events took place this week that may indicate that a new day is dawning.

First, the New York Times article described a bond-ratings agency’s actions this way:

Standard & Poor’s removed the United States government from its list of risk-free borrowers for the first time on Friday night, a downgrade that is freighted with symbolic significance but carries few clear financial implications.

If this had happened ten years ago, this announcement would probably have meant more and produced a greater effect.  Maybe.  Unfortunately, the bond-rating agencies’ credibility was shattered after their complicity in the mortgage debt debacle of the late-2000s was exposed. Now, so much of what they say sounds like Charlie Brown’s teacher: Wah-wah-wah-wah…. That will change eventually.

The second event was described in an AP article by Justin Pope:

Moody’s Investors Service on Wednesday downgraded its outlook for the higher education sector to negative across the board, saying even prestigious, top-tier research universities are now under threat from declining enrollment, government spending cuts and even growing public doubts over the value of a college degree.

There has been a great focus on student indebtedness, but much less attention is given to the decades-long binge of building and bureaucracy construction that has taken place at institutions of higher learning.  That doesn’t appear to be Moody’s focus either – or the article’s.  That is why did tuition increases need to exceed inflation for decades?  Moody’s is looking at revenue shortfalls as if spending levels were set atop Mount Sinai.  That’s OK, we will figure it all out, and many schools are going to go broke.  To borrow a phrase: Academia’s chickens are coming home to roost.

It just may be that debt is not so harmless as the Keynesian ethos would lead us to believe.

Strolling Along the Fiscal Cliff

by Rob Schwarzwalder

January 2, 2013

Of all the onerous provisions of the just-passed “fiscal cliff” legislation, one of the most aggravating is the lifting of the “tax holiday” on the payroll tax. This tax is used to supply daily infusions of cash into the Social Security system.

The Social Security program is badly broken. Instead of even discussing how to remedy the program’s devastating fiscal maladies, Congress and the Administration instead have given it another emergency transfusion that briefly forestalls urgently needed change.

As of October 2012, median household income in the United States was $51,378. Households with this income will be paying more than $1,000 in new taxes as the payroll tax. Whatever your income is, the payroll tax hike means you will realize two percent less of it in the coming year (find your own payroll tax hit courtesy of the Wall Street Journal here.

Additionally, the new law will result in a severe penalty on marriage and massively higher deficits, according to the Congressional Budget Office. It will impose new burdens on families and businesses of all types.

America’s political leaders did not punt on the economy – they drop-kicked fiscal integrity, sustained economic growth, and fairness to taxpayers far out of sight, employing their legislative might not to fix problems but to propel them down the road. They did not address how to improve our collapsing entitlement programs or even breathe a word about a question that requires true political courage: What should the federal government be doing, according to the U.S. Constitution?

Until this is answered definitively, we will continue to tax and spend our way into oblivion. If we cannot have an honest national debate about government’s role and what it should fund, how can we determine what revenues are needed?

As FRC President Tony Perkins put it, “President Obama and Congress have had months to take care of what has been dubbed the fiscal cliff of massive tax increases, the looming debt crisis and devastating cuts to our U.S. military. This dysfunctional Congress literally waited until the last minutes of 2012 to propose a deal that fails to address these real concerns.”

For a brief but thorough review of the whole “American Taxpayer Relief Act” – who needs George Orwell when you have the U.S. Congress, right? – read my colleague Tom McClusky’s assessment here.

Important Article on the College Debt Scene & Is the Bubble Exploding

by Chris Gacek

December 3, 2012

Recently released statistics by the Federal Reserve are causing some to wonder if the rapidly escalating rate of troubled college loans indicate a bursting debt bubble. Tyler Durden of Zero Hedge has this post; John Hayward at the Human Events Blog has this excellent comment on the Zero Hedge analysis.

* * *

Student debt is a problem that is hurting many people over age sixty:

In the first three months of this year, the number of borrowers of student loans age 60 and older was 2.2 million, a figure that has tripled since 2005. That makes them the fastest-growing age group for college debt. All told, those borrowers owed $43 billion, up from $8 billion seven years ago, according to the Federal Reserve Bank of New York.

Almost 10 percent of the borrowers over 60 were at least 90 days delinquent on their payments during the first quarter of 2012, compared with 6 percent in 2005. ….

Some are losing part of their Social Security retirement benefits. Read about a “boomerang” parent – in this case, a mother who had to move in with her daughter due to college loans assumed by the parent on behalf of the child. See the story. (The focus here is “Parent Plus” loans not co-signed loans.)

* * *

Another story discusses the drag that student loan debt may have on the housing market:

Naroff said another major factor weighing on young adults is student loan debt, which is approaching $1 trillion by some estimates. The burden of those monthly payments may be keeping some younger adults from paying the rent on their own, let alone buying a house, even if they do have a job.

You have a lot of the kids coming out with debt, and they’re not going out and buying houses, and that may be pushing out the whole process,” he said.

Naroff said it’s not yet clear how much of the problem is a cyclical one, caused by the high unemployment rate among young adults, and how much is a structural problem caused the increased burden of student loan debts leaving less money for things like homes.

You can find the NBC News story by Alison Linn here.

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