Tag: Deficit spending

The Bernie Pill

The amazing thing about the Bernie Sanders campaign is that his ideas are so … tired. Nothing he has proposed — “free” healthcare, “free” college, “free” daycare — is particularly original or innovative. Sanders admits as much, saying that he wants is to imitate the model of the social democracies of Scandinavia. Of course, that itself is an indication of how outdated his ideas are. Many of those social democracies have moved beyond Sander’s 1970’s ideal of what they really are, privatizing and shrinking government and now enjoying comparable or even superior economic freedom compared to the United States.

Matt Welch has a thorough rundown of just how bad many of his ideas area. A lot of them are things I’ve hit on these pages: how expensive socialized medicine would be, how ineffective “universal pre-K” is, how bad a federal minimum wage of $15 would be. But it also hits a few topics I haven’t gotten around to such as Sanders’ opposition to reforming the VA:

Sanders was lucky the question wasn’t about his actual track record as chairman of the Senate Committee on Veterans Affairs. As The New York Times reported in February, “a review of his record in the job…shows that in a moment of crisis, his deep-seated faith in the fundamental goodness of government blinded him, at least at first, to a dangerous breakdown in the one corner of it he was supposed to police.” Ouch.

What was Sanders doing in May 2014 instead of holding oversight hearings and sounding the alarm bell over a national disgrace? Complaining to The Nation magazine about “a concerted effort to undermine the V.A.,” led by “the Koch brothers and others,” who “want to radically change the nature of society, and either make major cuts in all of these institutions, or maybe do away with them entirely.”

(The VA, incidentally, was long upheld as the shining model of what single payer healthcare would be like in this country. Well … they weren’t entirely wrong about that. Much of Sanders’ blind support for the VA was precisely because he wanted it to be the example for single payer.)

You should read the whole thing.

So why is Sanders so popular? Is it because America loves his crackpot ideas? No.

First, like Trump, he really isn’t that popular. He’s drawing about half the votes in a Democratic primary, which means about 10% of the vote. If he were the nominee, he’d have to get a lot more independent and conservative votes, which I don’t see materializing unless Trump is the Republican nominee.

Also, like Trump, he’s appealing to economic populism. Sanders supporters hate it when you compare Trump to Sanders (which is one of the reasons I like doing it). But they both harp on a similar message — trade is bad, Washington doesn’t work, you’re being rooked, vote for me. That sort of populism traces through a long and diverse array of politicians from Roosevelt I to George Wallace to Trump/Sanders. It never has worked out.

(Both also prefer a more isolationist foreign policy; another key element of populism).

But I think the main reason, as I’ve said before, is that Sanders isn’t Clinton. Sanders is honest about what he thinks, has stayed positive and his earnestness is almost refreshing contrasted against the calculated fumbling of Clinton. Last week, the Clinton camp said she wouldn’t debate Sanders any more unless he changed his “tone”. Even for Clinton supporters, like the ever-reliable Vox, this was laughable. Sanders’ tone has been very respectful toward Clinton. The only thing she could complain about is that he’s called her out — accurately, as it happens — on such things as her Wall Street ties, her support for the Iraq War and her role in runaway criminalization.

In any case, I don’t expect Sanders to be the nominee. But I do expect that his success will lead to an insistence that his ideas are awesome and that this country is ready for socialism. Don’t be fooled. Single payer healthcare failed to gain support in Sanders own state once it became obvious how much it was going to cost. Even Clinton’s plans are going to require big tax increases that I don’t see the public swallowing.

So let the socialists enjoy their moment. Once the extent and cost of their ideal system becomes clear, support for it will evaporate. Because it’s one thing to promise the moon; anyone can do that. It’s another to actually deliver it.

(PS – Speaking of Vox, Yglesias has another article arguing that the Democrats shouldn’t be too concerned with how to pay for their pipe dreams. Since interest rates are low, he argues, we should be borrowing to pay for “investments”.

Yglesias is usually a reasonable voice but this is one area where he, and many liberals, have lost their minds. Interest rates will not remain low forever. And when they come up, we’ll not only have $19 trillion in debt to roll over, but massive structural deficits for all this new spending. Any increase in spending increase the baseline for future spending. Deficit spending now because interest rates are low is a long walk off a short plank.

Besides, it’s not like the deficit isn’t about to explode anyway.)

Appropriate Corporate Tax Obligations

It’s no secret that the cause de jour lately in Obamatown has been deficit deduction, or at least paying lip service to deficit reduction. Whether it is discussions on raising the debt ceiling or lowering unemployment, reining in runaway spending seems the cure for many federal maladies. The link between the lack of jobs and the deficit is clear, who wants to expand their business and hire more people if your tax liabilities are onerous, the bureaucratic regulations keep you hobbled and the uncertainties of both getting worse increase with each passing day as government keeps kicking that can down the road.

It is interesting to see how each state has attempted to tackle both their deficit spending and their unemployment problem. The great(?) state of California has it worse then most. If the national unemployment rate is roughly 9%, ours is 11.9%, and why is it higher then the national average, here is one answer:

California currently ranks #49 among U.S. states for “business tax climate” (Tax Foundation) and #48 for for “economic freedom” (Mercatus). It shouldn’t be any surprise then that companies are leaving the “Golden State” in record numbers this year (see chart above) for “golder pastures” and more business-friendly climates in other states.

You would think that businesses would be flocking here, perfect climate, abundant food and resources, cutting edge technology, proximity to the Far East, and myriad leisure activities to satisfy even the most finicky of clients. It would take something pretty cataclysmic to chase away all these businesses (and in the process skyrocket the unemployment rate) stifling taxation and regulation will do that, see, the bottom line is profits and if you can make more money in another state (increasing that state’s coffers with your tax dollars and increasing that states job markets), moving is elementary.

The capital directed to out-of-state or out-of-country, while difficult to calculate, is nonetheless in the billions of dollars. The top five destinations are (1) Texas, (2) Arizona, (3) Colorado, (4) Nevada and Utah tied; and (5) Virginia and North Carolina tied.

If we look at the tax date chart, we can see why. Further below in the chart you can see how the individual states stack up against foreign countries again, we hobble ourselves needlessly.

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If we look at the above chart we can see that although our personal tax rate is moderate compared with the rest of the world, our corporate tax rate dwarfs all others except for Japan.

I am willing to concede that lowering the personal tax brackets does nothing for job creation, Bush and Obama proved that (although, to be fair, when in the throws of a recession as both were, income tax rates no matter where they are is insufficient for this) but what about corporate taxation? How many decades have we seen Japan’s inability to get out of it’s own way in growing it’s economy, think that high corporate tax rate has anything to do with that?

Obama has flirted with this idea and Ryan’s plan has this as part of it’s tax strategy, if the individual states can show a correlation between the corporate tax rate and productivity, maybe Washington should pay attention.

The Rainy Day

How often do you find Matt Yglesias and Megan McArdle agreeing on something? Yglesias, talking about the need to be conservative with future budget projections, says:

The other thing, of course, is that “stuff happens.” Nobody sitting down in 1925 to write a 25-year budget forecast would have made the funds available to win World War II. It’s nice to think that you have a plan that leaves headroom to engage in some deficit spending if it turns out a meteor is going to strike the earth, or Jack Layton is the leading edge of a Viltrumite invasion.

We don’t even need to go back to World War II. We can go back to 2001, when we had a projected surplus. So we spent and cut taxes. And … suddenly we didn’t have the money for a trillion dollar war. We can look at Japan, which invested zillions in “stimulus” spending, got themselves into massive debt and then got hit by one of the biggest natural disasters in history. Hell, we can look at our current situation, where we were pushed to the maximum sustainable debt and suddenly had an economic collapse. We see it in states that cut back on snowplow budgets in warm years, then scream for help when they get a blizzard.

McArdle makes the comparison to people’s personal finances.

Have you ever known anyone who got into trouble with credit cards? I don’t mean someone who had something go wrong and ended up deep in credit card debt because they had to pay the rent somehow; I mean someone who wakes up one day with $21,000 in debt, a closet full of shoes, and no idea where the money went?

The way they get into that trouble is often that they don’t budget. They consider each purchase in isolation: “can I afford these shoes? Can I make the payments on that television?” And in fact, they can afford each of their purchases. They just can’t afford all of them.

We hear this constantly on the spending side. “What kind of country are we if we can’t afford education?” “Surely, this country can afford to provide healthcare to everyone!” “Farm subsidies are such a small part of the budget!” Yes, we can afford some of these things; the problem is that we’re trying to afford all of them simultaneously.

And we’re setting ourselves up to make the same mistakes again. The liberal plans to sort of balance the budget all have taxes rising to historically high levels. The problem is that you now have no room if something really bad happens. Technically, yes, you’ve “balanced the budget”. But you’ve put yourself into such a tenuous fiscal position that a war, a disaster or an economic downturn is ruinous.

A time of peace and prosperity is not the time to be pushing your taxation level to the “break glass in case of emergencies” level. You have to leave some room for the unexpected.