Category Archives: News

How I would fix the government and, therefore, the economy

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Anyone reading this weblog knows by now that I blame the government for most of what is wrong with the economy. It spends way too much, arbitrarily regulates, makes promises it neither funds nor keeps, yet continues to grow in size and scope on an almost daily basis. None of these claims are to say that other elements have not contributed to the problems our economy faces, yet I cannot help but notice that everywhere there is a problem in our economy, there is also a government presence.

That said, I have been asked–more than once now–how I would fix the problem. Given that my ideal of a constrained-to-the-original-and-intended-limits-of-the-Constitution government would be almost impossible to implement in a meaningful way any time soon, I have tried to give the idea of a fix thought with the intent solutions that could be implemented now. Here is what I have come up with to date:

Replace the income tax with a national sales tax

One of the Constitutional mandates of the federal government is to regulate interstate commerce. Taxing individual income–that is taxing productivity–does nothing to fulfill that mandate. A national sales tax would, and would also function to fund the government in a way that could not be evaded by anyone. I agree that some amount of money should be exempted from such a tax to avoid the immediate impact it could have on lower income earners (in the form of a rebate, probably), and I think allowances should be made for certain kinds of wholesale business, but on the whole I would tax all sales at a nominal rate with targeted higher taxes on certain kinds of goods and services.

Abolish the IRS

With no income tax, there would be no reason to have an Internal Revenue Service, and it should be abolished.

Abolish the Fed

In my opinion, the Federal Reserve and the Reserve Bank system is one of the worst ideas ever conceived by modern man. Giving the government the ability to manipulate currency for its own gain, to control banks, and therefore to control every citizen’s money is immoral and unethical. Kill the Fed, and that action by itself could right the economy.

Institute an independent, judicially managed federal audit service

Our federal government is crooked. Anyone who has spent any time working for, studying, or being afflicted by our government knows this is true. It spends trillions of dollars every year, yet is constantly broke, fails to deliver promised services, constantly cuts back the services it does offer, even as those who fund it and maintain it continue to give themselves raises, make money from their positions, and pat the backs of their cronies. I would implement a quadrennial governmental review that would alternate with the presidential election cycle and that would deliver its report to the public before it delivers it to Congress as part of the budget cycle.

Thrift Social Security

Contrary to the claims of mafias like AARP, the current Social Security scheme is broken and cannot be fixed by mere tweaks. To fix the program, perhaps permanently, I would implement something very similar to the Thrift Savings Plan into which federal government workers invest as part of their retirement plans. If the system works for and has remained solvent for the government, why not for the rest of us?

Invest Medicare

I would replace the current Medicare scheme with individual medical savings accounts funded by pre-tax dollars with a government guarantee against most risk. Some sort of federally guaranteed catastrophic care insurance might be appropriate, but I think it would be rendered unnecessary by other reforms.

Abolish all federal subsidies

Yes, I mean all of them. Abolish everything from agriculture subsidies to student loans to unemployment, and instead focus on encouraging the growth of local and state entities to tackle any problems that might remain once the billions and billions of dollars currently tied up in handouts return to the economy.

Tort reform

I would reform and simplify our chaotic and unmanageable civil justice system so it favored justice over income for lawyers, especially with regard to medical, patent, and copyright lawsuits.

Reform the national incorporation system

Without an income tax, a lot of corporate law would no longer be necessary, but for what remained, I would implement a system that allowed for more categories of corporations in an effort to differentiate between small companies and the monstrous ones responsible for most of the abuse. I think I would make the consequences for breaking the law categorically far worse for larger corporations, and I would constrain the way larger corporations are allowed to function within the political and legal systems.

These are just several ideas that I think could go a long way toward improving our national situation in a short period of time, mostly by returning trillions of dollars to the economy. I am sure there are many people who would disagree, but then again, maybe they could offer their own solutions.

DLH

Readiness advisory

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I advise everyone to pay close attention to the economic news over the next several days. From the reading I have been doing over the past 24 hours, the S&P downgrade of the government’s credit rating has the potential to be just the first of several hammer blows to the economy over the next week. This news is coupled with drastically rising wholesale inflation numbers, significantly rising commodity prices,  the specter of rising interest rates, and the potential that S&P may only be the first to downgrade.

The potential outcome of this toxic brew of circumstances is that it could trigger yet another recession (or the second dip if the existing recession). This potential becomes most threatening in that a second recession will further reduce the revenue being collected by the federal government, increasing the size of the deficits at current spending levels just at the time when it became harder for the government to borrow money because of higher interest rates and more credit restraints. In the most extreme circumstance, the government may find itself unable to borrow sufficient amounts, forcing it to defund or reduce funding on programs in mid cycle.

Be ready before it is too late.

DLH

 

26 random things that could cease to function during a government shutdown

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Most people pay no attention to how many areas of everyday life our federal government is involved in. Many people believe a government shutdown will not affect them even as they depend on federal services almost every day of their lives. Granted, many of these things may not happen right away, as many federal agencies maintain capital reserves by federal law, but those reserves can be measured in days. I suspect a shutdown of more than 3 days could result in severe and, in some cases, permanent disruptions to federal functions.
  • A- Archives: the National Archives, Library of Congress, and the US Copyright Office would be forced to close.
  • B- Banks: all of the banks still dependent on TARP funds will lose their lifelines and FDIC insurance guarantees will become null because no one can disburse the money.
  • C- the Capitol: operation of the US capitol would cease and the capitol area would be forced to close down.
  • D- The Drug Enforcement Agency: the DEA will no longer be interdicting supplies of illegal drugs entering the United States.
  • E- Education: student loan disbursements and student loan rate guarantees will no longer function.
  • F- The Federal Bureau of Investigations: the FBI will no longer be available to assist in investigations of bank robberies and kidnappings. Domestic intelligence operations may cease or be cut severely back.
  • G- Governments: State and local government programs dependent on Federal money will be forced to reduce activities or shut down altogether.
  • H- Hospitals: medical programs dependent on federal grant money will cease to function.
  • I- IRS: the IRS will not be able to collect taxes, disburse refunds, or process returns.
  • J- Judges: the federal court system, including the Supreme Court, will be forced to shut down.
  • K- Khalid Sheikh Mohammed: KSM and the the other detainees at Guantanamo Bay will suddenly be guarded and cared for by people who are not being paid.
  • L- Land: farmers utilizing government land, especially for grazing, may discover that land is no longer accessible.
  • M- Medical: Medicare and Medicaid disbursements will cease, even for individuals undergoing treatment.
  • N- The National Aeronautics and Space Administration: NASA will not be able to fund its ongoing missions, including the International Space Station.
  • O- Open Skies: US enforcement of the Open Skies treaty would cease.
  • P- the President: While Barack Obama will still be our duly elected president, he will cease to have quite a bit of executive power because that power is derived from the authorization of Congress as part of the budget process.
  • Q- A government shutdown Q&A. And another.
  • R- Research: federal research grant money will cease.
  • S- Social Security: eligible recipients be able to apply for benefits and, if a shutdown goes on long enough, checks may not be issued.
  • T- Taxes: the federal government will not be able to collect taxes while it is shut down.
  • U- Unemployment: Federal unemployment benefits will cease.
  • V- The Veteran’s Administration: VA hospitals may not be able to see new patients and may have to discharge patients.
  • W- War: we have combat troops in harms way, but those troops will not be paid and they will have to depend on supplies already available because resupply will stop because those moving the supplies can no longer be paid.
  • X- X-rays: the TSA will no longer function.
  • Y- Yemen: the US embassy in Yemen, and all other US embassies, will have to cease providing services.
  • Z- Zoos: national parks will shut down, such as the National Zoo in Washington D.C.
This is hardly an exhaustive list, and the devil is always in the details. Some of these events could unfold differently than I describe here or not at all. But isn’t that part of the point: no one really knows what will happen, yet we will all be affected by whatever does happen.
DLH

An oil tale

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I doubt very many people give much thought anymore to the tired media adage that the United States is addicted to oil. Sure, people see the price of gas, and they understand that price is somehow tied to oil, but what they’ve never comprehended is that the price of almost everything else is also tied to the same price of oil.

I think about that addiction a lot these days, because I think both its existence and its end will come to define who we are as people here in the early 21st century. I think about it mostly because I wonder how any of us are going to succeed at providing for ourselves–and I’m not talking about whether or not the internet will still work or whether we’ll have cell phones, but whether we’ll be able to feed, clothe, shelter and protect ourselves–once the oil’s gone.

For me, this point is driven home by our precarious food system. Right now, virtually every part of the process most people depend on to feed themselves depends on oil to work, yet most people don’t even understand that it is true.

If we start with, say, seed corn produced to plant, the seed itself is already so laden with oil from the previous year that it’s kind of amazing it even exists, but for my purposes here, I will concentrate on this year. Most seed corn is grown hundreds, and sometimes thousands, of miles from where it is planted, so oil fueled, lubricated, painted, and upholstered semis must haul it from where it has been stored on oil-based tires across oil-paved roads to get it to the seed salesman.

Often, the seed bags are printed with oil-based ink, as are the shiny sales brochures and the price sheets, along with the oil-based dies used in the hats that were shipped from somewhere in the far east in oil-powered cargo ships. Farmers come to get their seed and paraphernalia in pickups as oil fueled, painted, upholstered, and tired as their semi brethren across similarly oil-paved roads.

Once back at the farm, the seed goes in the oil lubricated and painted planter, sometimes manufactured overseas and shipped to the States in oil-powered cargo ships and hauled on oil-powered locomotives and semis. But, before the farmer can use the planter, he must sometimes plow with his similarly oil-dependent plows using is oil-guzzling tractor, and then spray oil-based fertilizers, herbicides, and insecticides using the same tractor.

Then, finally, he’ll actually plant, using the same oil-dependent tractor, followed by more spraying throughout the spring and summer, all dependent on oil to even exist, let alone happen.

When fall comes, the farmer will pull out his oil fueled, lubricated, painted, upholstered, and tired combine, shipped via oil from who knows where, to harvest the corn and dump it into his oil fueled, lubricated, painted and tired semi to haul it to the elevator where oil fueled, lubricated, and painted locomotives will haul it to processing facilities where the corn will be rendered into its constituent parts, then packaged and shipped by other oil fueled, lubricated, painted, upholstered, and tired semis across oil-paved roads to other factories where those parts will be combined into other oil-soaked parts into what most people think of as food.

And, it doesn’t end there, because then the food, as they call it, will be packaged in oil-based ink printed cardboard and loaded on yet other oil fueled, lubricated, painted, upholstered, and tired semis to be hauled across more oil-paved roads to warehouses stuffed full of oil-saturated goods from all over, to then be hauled again to your grocery of choice, once again using oil.

And we’re not done yet.

Because, you will get into your oil fueled, lubricated, painted, upholstered, and tired car and drive, sometimes quite a distance, to get to your oil-filled grocery to by your oil-based things you call food, but on the way home you’ll be so tired that it’ll just be easier to burn some extra oil waiting in the drive-through of your favorite oil-saturated fast food joint that was actually five extra miles out of the way.

When you finally get home to eat your oily food–let’s face it, even most of the carbon dioxide the corn plant used to make whatever part of the corn ended up in your food came from oil somewhere along the line–you’ll do so unironically in your house on your couch in front of your television watching cable all of which could not exist without the consumption of billions and billions of gallons of oil.

And to think that, just a little over a hundred years ago, most people had no idea what oil even was. Most of them lived on farms, still farmed with horses, and planted seed corn they grew the previous year using the same horses they fed with grass from their own pastures. They hauled their corn to the local market in wagons drawn by the same horses, and the people who came to buy it walked or rode horses themselves.

Now, I’m not saying we should go back to how things were a hundred years ago, but then again, I don’t have to, because the question that should be on everyone’s mind is how expensive oil has to get before we won’t be able to afford to do it any other way than the way they did it a hundred years ago. And how many people will be able to even do anything like that living in their suburbian sprawl, floating in a sea of oil they depend on everyday for their very survival, yet are so unaware of that the fact that they are probably sitting on, touching, eating, drinking, even exhaling oil right now that the idea would be a shock to them if they bothered to notice.

No, Americans aren’t addicted to oil, they’re consumed by it, and they have no idea what is going to happen to them when the oil runs out.

DLH

Orders of magnitude

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$40,000,000,000,000 -- the total government indebtedness as of 2011
$25,000,000,000,000 -- the total state and local debt as of 2011
$14,590,000,000,000 -- the US GDP
$14,184,254,500,000 -- the total national debt as of 5 March 2011
 $3,550,000,000,000 -- the federal budget in 2011
 $2,300,000,000,000 -- the total federal tax revenue collected in 2010
 $1,300,000,000,000 -- the national deficit for 2011
   $695,000,000,000 -- total Social Security spending in 2011
   $663,700,000,000 -- total defense spending in 2011
   $528,000,000,000 -- total Medicare spending in 2011
   $500,000,000,000 -- expiring all the Bush tax cuts for 2011
   $125,000,000,000 -- the projected state deficits for 2011
    $90,000,000,000 -- expiring the tax cuts on income over $250,000
    $63,200,000,000 -- total local budgets in Ohio in 2011
    $46,300,000,000 -- total local indebtedness in Ohio in 2011
    $68,961,315,845 -- Ohio's total outstanding debt in 2010
    $56,600,000,000 -- Ohio's budget for 2010-2011
     $8,000,000,000 -- the projected deficit in Ohio in 2011
     $1,000,000,000 -- savings from SB5 in Ohio in 2011
           $400,000 -- presidential salary in 2010
           $286,686 -- average CEO salary in 2010
           $174,000 -- Congressional pay
            $46,326 -- average household income in the US

It’s all about magnitude.

DLH

My indictment against unions and the politicians trying to take their bargaining rights away

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I have maintained all along that both sides in the growing debacle over union collective bargaining rights are wrong, and as the situation continues to develop, I believe each side becomes more wrong than they were to begin with.

The unions have forgotten that, at some point, they need their employers to exist in order to have jobs to bargain over in the first place. The problem many public sector unions face is that their employers are broke, so even if they manage to win the collective bargaining fight, they may not have jobs because they have been laid off due to budget cuts. Nowhere is this problem more dramatically illustrated than by what is happening in public school districts, police departments, and fire departments around the United States. Districts and cities are laying off workers and eliminating positions rather than continue to pay then because the simple fact is that they cannot afford to continue to pay them what their contracts demand. Continuing the status quo with regard to collective bargaining will only ensure that this situation will continue and accelerate.

The politicians, on the other hand, have taken advantage of a turbulent time to score points with their base while also effectively failing to deal with the problems that created this mess in the first place. I think most Americans would agree that teachers, police officers, and firefighters are among the most important employees of the state, yet because of their importance they are also the most visible, and therefore the most vulnerable. While attacking the unions, especially because of some of the ridiculous benefits they have negotiated into their contracts over the years, seems like a way to deal with the problems facing the states, the politicians fail to realize those ridiculous benefits exist because they allowed them to. If politicians want to fix that kind of problem, they need to fix themselves, what motivates them, and what they think they’re supposed to be doing in their various offices.

Instead of fighting over collective bargaining rights, both sides should be focusing on how to survive the real problem: the budget is broken and cannot be fixed without cuts. Unions and politicians alike must face the fact that there is no more money. They cannot continue to spend, negotiate, and demand as they have in the past because there is noting to spend, negotiate for, or demand. Without reform, this whole debate will not even matter, because everyone involved in it will be unemployed anyway.

The first step in this process is to deal with reality:

  • The federal, state, and local budgets must shrink before the deficits riding on them overwhelm them. This means cuts–substantial cuts. If the unions want their bargaining rights, they should concentrate on working with the politicians to make the cuts as smart as they can be.
  • Politicians need to focus on getting rid of all the waste that seems to be endemic of modern government. The best money any government could spend right now would be to employ independent auditors with the authority to make cuts to review government spending and to get rid of duplication and waste.
  • Politicians must eliminate the ridiculous unfunded mandate. Unions must stop demanding laws their employers have no capacity to enact.
  • Unions should fight for a return to local control, especially where it involves school districts, police departments, and fire departments. Large scale standardization is an industrial lie that has saddled far too many localities with mandates that neither apply to them nor help them.
  • Ultimately, both public sector unions and politicians must realize they work for the people. If the people demand something should be done a certain way, then that is the way it should be done. Unions and politicians are not the people’s care takers, they are the people’s employees, and they can be fired at the people’s pleasure.
The second step is for everyone–the people, unions, and politicians alike–to realize things have changed. The same old tired processes that got us all to this point will not produce any other result than they already have. If we are going to solve these problems as a people and a nation, we have to do it by abandoning the things that got us here and by adopting approaches that work for the circumstances at hand.
The third step is for everyone to get ready for whatever happens next. Even if we solved every one of the problems we face today, there are still going to be consequences, potentially big ones, that may last for years, even decades. The milk is already spilled, now it’s just a matter of what the cleanup looks like.
Unless we deal with the problems we now face in all their complexity and reality, they are going to sweep us away whether we like it or not. There are only two solutions: stand and face reality or be swept away by it.
DLH
UPDATED: Fixed the spelling mistake in the title and in the body.

The cost of reality means sacrificing until it’s fixed

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One of the costs of putting one’s thoughts out in a public forum like a weblog is that one’s readers often expect both an opinion and a solution if the issue at hand is a problem that needs solving. The issue of budget deficits, most recently brought forward by the collective bargaining debates in Indiana, Ohio, Tennessee, and Wisconsin, is no exception.

Again, as I have stated several times now, I think the whole collective bargaining debacle is a tempest in a teacup that distracts everyone–legislators, governors, citizens, and union members alike–from the real and far more pressing issues our communities, states, and nation face.

And, chief among those issues is that we and our communities, states, and nation face a nearly insurmountable debt if we continue to spend the way we have until this point.

So, how do we solve this kind of a problem? From my point of view, not cleanly or easily. We have to face the fact that we cannot afford to continue to pay for the things we are doing the way we are doing them, even if we want to, because there’s simply not enough money to do it.

I know that many people will now shout a raft of ideas: tax the rich more, increase taxes in general, change the rules for how people access social programs, etc. And, I say, fine, do that, and it still won’t solve the problem. Increasing taxes beyond a certain point merely drives the rich away, puts those who can’t leave in greater need of social services, and decreases the amount of money in the economy creating tax revenue. Changing access to social services, especially in conjunction with increased taxes, only causes more people who need access because they can’t afford to do things on their own anymore not to have access to what they’re paying taxes to theoretically have. They’re all bad ideas if that’s all that’s going to be done.

In order to fix these problems, we have to start cutting: real, meaningful cuts that may very well force millions of people to change how they live their lives. Yes, this means cuts to Medicare, Medicaid, and Social Security. Yes, this means cuts to education and environment. Yes, this means cuts to the military and intelligence programs. It probably also means at least marginally higher taxes, at least at the local and state levels, until the issues at hand resolve themselves.

How these cuts and higher taxes come about is what this whole debate should really be focused on, not whether or not public employees have collective bargaining rights. We’re expending all of our effort as a nation around the edges without dealing directly with the heart of the problem. Until we reach the heart, we can’t kill the beast, and it still may just devour us.

DLH

The cost of reality: who do you believe in?

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I believe a significant part of the debate over everything from massive deficits to union bargaining rights centers around a question most people never consciously consider: who do they believe in?

In this case, I am not talking about belief or lack of belief in God, but rather whether they believe in themselves or the government.

I suspect that most people will immediately claim they believe in themselves and dismiss the question as irrelevant, yet in doing so, they will not have considered what the question really means.

For instance, do they believe that it is their responsibility or the government’s to pay down the national debt? Who do they believe is responsible for making sure they are provided for in their retirement? Who should be responsible for making sure they can afford health care? That they can afford gas? That they can afford food?

Too many people, even faced with those questions, will respond with something like, “Well, me, I guess,” even as they then say, “Someone should do something about…” without any sense of irony.

From my perspective, Americans have gone from a collection of people who depended on themselves to a collection of people who depends on the government. In transferring that dependence, only the surface of things has changed–that is, the government still depends on the people, but the people have given up the power to a proxy.

So, even as people depend on the government, what they depend on in a phantom parasite of their own creation, one they believe they can cleverly hide their excess in, yet one that progressively bleeds them dry as time goes on.

It has taken two generations–the Baby Boomers and Generation X–for the United States to go from the most prosperous and powerful nation that has ever existed to a teetering ruin built on ever expanding government and a debt a dozen generations will still not have paid off. That entire transition happened through the auspices of a single idea, that the people handed the government responsibility for aspects of their lives they no longer wanted to be responsible for themselves. The people stopped believing in themselves and started believing in their government, and their government started bleeding them dry.

This transition should be no surprise to anyone who has a decent view of history. Many of the world’s greatest civilizations broke and fell on the same premise. Reading the history of societies as diverse as the Roman Empire and the Middle Ages Chinese dynasties shows the effect of the same corrosive idea.

Our fate as Americans will be no different unless we somehow figure out how to do something that has never been done in history: reverse the trend. Until we, as a nation, return responsibility for the debt, our retirement, health care, our jobs, our well-being, and the well-beings of our most vulnerable citizens to ourselves, we have set ourselves on a path whose destiny is certain.

Yet, even if the destiny of our nation is certain because of our dependence on government, those of us who see this reality for what it is can take heart: something will come next and we can be prepared for it. Hope for the present and plan for the future, but do so knowing this could get ugly before its over.

DLH

The cost of reality: taxing ourselves out of debt?

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A comment on a previous post suggested that, rather than attack unions or cut spending, we should just raise taxes. My gut response was “raise taxes on what exactly?”

I’m pretty sure that most Americans have no idea who is paying taxes, how much taxes they are paying, and what effect those taxes have on the economy as a whole.

Before I go into more detail, let’s get one thing straight: you do not pay taxes if you get more money back from the government than you paid in. If you paid, say, $1000 in and get $1500 back because of credits and whatnot, you did not pay taxes. If your income is exempt from taxation, you did not pay taxes. If you can claim sales tax credits, you did not pay taxes.

Now, because of the fact that so many Americans get more back in taxes than they pay in, only about 53 percent of taxable Americans actually pay federal income taxes. And, since most states base a payer’s taxable income on what income was taxable, large numbers of people do not pay state taxes either. The issue is a little more muddled at the local level, but it is safe to say that there are tens of millions of Americans paying no or very little taxes.

That brings us to the 53 percent who are paying taxes. One of the battle cries of the progressive movement is to tax the rich, yet most reliable estimates place the amount of revenue gained from those taxes at around $90 billion per year, or about 7 percent of the projected deficit in 2011. Even if all of the tax cuts were eliminated, it would only gain around $500 billion a year, or about 38 percent of 2011′s deficit.

So, what about raising those taxes even higher? I can speak to that issue personally. I already pay about 40 percent of my income in total taxation–sales taxes, excise taxes (as on gas), income taxes, etc. Ending the current tax cuts would represent a 50 percent increase in my federal taxes (because the 10 percent tax rate would cease to exist, meaning the bulk of my income would be taxed at the 15 percent rate). Further, the expiration of current tax breaks would increase my taxable income, thereby exposing more of my income to state and local taxes. In the end, this method alone could increase my tax burden to as much as 50 percent of my income, and for most Americans the effect would be similar.

What would you do if you took a 10 percent pay cut, because that’s what those increased taxes would represent. What would you have to cut? What would you stop doing? What would you stop paying?

Now, imagine what would happen if the government actually raised those rates even higher.

And, keep in mind that 65 cents of every dollar you are paying in taxes already goes into someone else’s pocket, very likely someone else who is not paying taxes, at least at the federal level.

With that picture in mind, explain how raising taxes helps us get out of debt.

DLH