Government programs & regulations, spending, deficit, and budget process

[Crafty_Dog]

Serious consequences for our military , , ,

http://www.washingtontimes.com/news/2013/jan/30/let-the-sequesters-begin-some-republicans-say/?page=all#pagebreak

[Crafty_Dog]

E. Fuller Torrey: Fifty Years of Failing America's Mentally Ill
JFK's dream of replacing state mental hospitals with community mental-health centers is now a hugely expensive nightmare..
By E. FULLER TORREY

On Feb. 5, 1963, 50 years ago this week, President John F. Kennedy addressed Congress on "Mental Illness and Mental Retardation." He proposed a new program under which the federal government would fund community mental-health centers, or CMHCs, to take the place of state mental hospitals. As Kennedy envisioned it, "reliance on the cold mercy of custodial isolations will be supplanted by the open warmth of community concern and capability."

President Kennedy's proposal was historic because the public care of mentally ill individuals had been exclusively a state responsibility for more than a century. The federal initiative encouraged the closing of state hospitals and aborted the development of state-funded outpatient clinics in process at that time.

Over the following 17 years, the feds funded 789 CMHCs with a total of $2.7 billion ($20.3 billion in today's dollars). During those same years, the number of patients in state mental hospitals fell by three quarters—to 132,164 from 504,604—and those beds were closed down.

From the beginning, it was clear that CMHCs were not interested in taking care of the patients being discharged from the state hospitals. Instead, they focused on individuals with less severe problems sometimes called "the worried well." Federal studies reported individuals discharged from state hospitals initially made up between 4% and 7% of the CMHCs patient load, and the longer the CMHC was in existence the lower this percentage became.

It has now become politically correct to claim that this federal program failed because not enough centers were funded and not enough money was spent. In fact, it failed because it did not provide care for the sickest patients released from the state hospitals. When President Ronald Reagan finally block-granted federal CMHC funds to the states in 1981, he was not killing the program. He was disposing of the corpse.

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Meantime, during the years CMHCs were funded, Medicaid and Medicare were created and modifications were made to the Supplemental Security Income and Social Security Disability Insurance programs. None of these programs was originally intended to become a major federal support for the mentally ill, but all now fill that role. The federal takeover of the mental-illness treatment system was complete.

Fifty years later, we can see the results of "the open warmth of community concern and capability." Approximately half of the mentally ill individuals discharged from state mental hospitals, many of whom had family support, sought outpatient treatment and have done well. The other half, many of whom lack family support and suffer from the most severe illnesses such as schizophrenia and bipolar disorder, have done poorly.

According to multiple studies summarized by the Treatment Advocacy Center, these untreated mentally ill are responsible for 10% of all homicides (and a higher percentage of the mass killings), constitute 20% of jail and prison inmates and at least 30% of the homeless. Severely mentally ill individuals now inundate hospital emergency rooms and have colonized libraries, parks, train stations and other public spaces. The quality of the lives of these individuals mocks the lofty intentions of the founders of the CMHC program.

Perhaps the most remarkable aspect of this 50-year federal experiment is its inordinate cost. In 2009, 4.7 million Americans received SSI or SSDI because of mental illnesses, not including mental retardation, a tenfold increase since 1977. The total cost was $46 billion. The total Medicaid and Medicare costs for mentally ill individuals in 2005 was more than $60 billion.

Altogether, the annual total public funds for the support and treatment of mentally ill individuals is now more than $140 billion. The equivalent expenditure in 1963 when Kennedy proposed the CMHC program was $1 billion, or about $10 billion in today's dollars. Even allowing for the increase in U.S. population, what we are getting for this 14-fold increase in spending is a disgrace.

Including President Kennedy, five Democratic and five Republican presidents have presided over the 50-year federal experiment. Jimmy Carter and George H.W. Bush appointed presidential commissions to examine the failed programs, but nothing useful came from either.

Nor is President Obama likely to do anything, since his lead agency, the Substance Abuse and Mental Health Services Administration, has essentially denied that a problem exists. Its contribution to the president's response to the Dec. 14 Newtown tragedy focused only on school children and insurance coverage. And its current plan of action for 2011-14, a 41,000-word document, includes no mention of schizophrenia, bipolar disorder or outpatient commitment, all essential elements in an effective plan for corrective action.

The evidence is overwhelming that this federal experiment has failed, as seen most recently in the mass shootings by mentally ill individuals in Newtown, Conn., Aurora, Colo., and Tucson, Ariz. It is time for the federal government to get out of this business and return the responsibility, and funds, to the states.

The federal government, perhaps through the Institute of Medicine, would be responsible only for evaluating and rating state programs, much as it now does for education. The ultimate responsibility would rest with state legislatures and governors. Then, for the first time in 50 years, somebody could be held accountable for what has become an ongoing disaster.

Dr. Torrey is founder of the Treatment Advocacy Center and author of "American Psychosis: How the Federal Government Destroyed the Mental Illness Treatment System," forthcoming from Oxford University Press.

[Crafty_Dog]

Second post of morning:

The GOP's ObamaCare Flippers
How the law's perverse incentives—and the health lobby—captured Arizona's Governor. .
 
As D-Day looms for ObamaCare, one big question is how many states will sign up for its Medicaid expansion. The recent and spectacular flip-flop of Arizona Governor Jan Brewer is a case study in the political pressure and fiscal gimmicks designed to get states to succumb. It's also a study in the arcane and perverse ObamaCare incentives that are intended to gather ever more health-care spending under federal control.

***
Arizona's current Medicaid program is well run by the program's standards—a low bar—but it is also too large. The program now finances one of every two in-state births and two of every three days seniors spend in nursing homes. Spending tripled in the last decade to $9 billion a year.

That's despite $1.8 billion in cuts since 2009. The state fisc was such a mess that in 2010 Arizona Medicaid banned paying for several types of organ transplants. In March of that year, Ms. Brewer wrote to Mr. Obama calling the Affordable Care Act "a vast new entitlement program that our country does not have the resources to support" and also one that "makes our situation much worse, exacerbating our state's fiscal woes by billions of dollars."

Arizona argued before the Supreme Court that the Medicaid mandate was unconstitutional, anti-federalist commandeering—and seven Justices agreed it was "a gun to the head" and allowed states to opt out without penalty.

But so much for that. In her State of the State address last month, Ms. Brewer pulled a political 180°—or maybe 540°—and said expanding Medicaid would "inject $2 billion into our economy and "save and create thousands of jobs." (Is Larry Summers moonlighting as a Brewer speechwriter?)

One secret of her switcheroo is Medicaid's "matching rate" formula, in which the feds pick up 67% of Arizona's existing spending and 100% (and later 90%) of the costs of ObamaCare's newly eligible population. The state supposedly no longer needs to spend "billions" but merely an extra $154 million in 2014—then bank $1.6 billion from Washington, which her budget documents call "a return on investment of more than 10-to-1."

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Arizona Governor Jan Brewer
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How can the state conjure such money from nothing? The answer is that Ms. Brewer and Arizona hospitals have cooked up a spending scheme to rip off national taxpayers to avoid even the $154 million the state would at first pay. The hospital lobby first floated this scheme in 2011 "for the specific purpose of generating matching federal Medicaid funds."

Here's how it works: Arizona will tax hospitals and insurers for the $154 million. Then it will return $154 million to the health industry via more Medicaid business that will cover the cost of the tax and then some. The money needs to make a round trip from providers to the state and back to providers to game that 67% federal matching rate.

So Arizona takes (say) $3 from a hospital and then turns around and pays the $3 back, using one of the hospital's own dollars that Arizona converted to "revenue" plus two dollars courtesy of Washington for its 67% federal share of the $3 payment. Arizona can then use the hospital's remaining $2 of the original $3 to pay for another $6 of Medicaid expansion.

Some 49 state now use this trick of so-called provider taxes to goose federal spending, up from 21 in 2003. (Alaska is the exception.) But the practice is so abusive that even Mr. Obama proposed new limits in his last two budgets.

This subsidy honeypot can't last forever, which is why other Governors are more skeptical about this Obama Medicaid windfall. When the money inevitably runs out, states will retain permanently larger obligations and lose budget autonomy for a generation or two as health care crowds out other priorities like education and roads.

Ms. Brewer was nonetheless besieged by health-industry lobbying, especially from hospitals that want more government money and the insurers that administer Medicaid. The campaign is orchestrated by Chuck Coughlin, Ms. Brewer's former political strategist, and Peter Burns, a former Brewer budget consultant.

Providers are especially powerful at the state and local level, and the goal now is to rush the Brewer-Obama condominium through the Phoenix legislature with little debate. A particular offender is the Arizona Hospital and Healthcare Association, a trade group whose 2012 agenda includes "Oppose Taxpayer Bill of Rights-style legislative referendums or bills that arbitrarily limit state spending."

Ms. Brewer's other rationale is that everybody else is doing it, and that if Arizona opts out of a larger Medicaid then "Arizona's tax dollars would simply be passed to another state." Well, no, Washington would simply spend less money that it doesn't have. In any event Arizona is already a net tax beneficiary—pulling down $1.19 from the feds for every dollar it sends to D.C., according to the Tax Foundation.

Ten other GOP Governors have rejected Mr. Obama's Medicaid bribe, with another 20, Democrats and Republicans, undecided. Twenty are expanding, including Republicans Brian Sandoval of Nevada, Susana Martinez of New Mexico, Jack Dalrymple of North Dakota and even, on Monday, Ohio's John Kasich. Thus does modern government create the carrots and sticks of ever-larger government.

[Crafty_Dog]

Ryan: CBO Report is a Warning of the Challenges Ahead
 The President and Senate Democrats need to get serious about spending.
 February 5, 2013









 WASHINGTON—Today, the Congressional Budget Office released its Budget and Economic Outlook, which projected an $845 billion deficit for fiscal year 2013. In response, House Budget Committee Chairman Paul Ryan of Wisconsin issued the following statement:
 
“The CBO’s report is yet another warning that we need to get spending under control. The deficit is still unsustainable. By 2023, our national debt will hit $26 trillion. We can’t let that happen. We need to budget responsibly, so we can keep our commitments and expand opportunity.
 
“Unfortunately, the President has yet to produce a budget—in violation of federal law. And Senate Democrats haven’t passed a budget in nearly four years.
 
“This isn’t a partisan issue. It’s math. Unless the President and the Senate offer a credible plan to close the deficit, we will have a debt crisis—and the country will suffer.
 
“House Republicans have offered their solutions. Now the President and Senate Democrats must do the same.”
 

CBO’s Key Findings
 • The CBO projects an $845 billion deficit for fiscal year 2013.
•In 2023, the federal government will collect twice as much revenue as it did in 2012. Even so, the deficit will hit $978 billion.
• The CBO projects the total debt will rise by $10 trillion by the end of the budget window (debt held by the public will rise by $8.7 trillion). By 2023, total debt will equal $26 trillion.

[Crafty_Dog]

WSJ

Don't Count on China to Bail Out the U.S.
Beijing's net investment in U.S. Treasurys over the past two years is essentially zero..
by TIMOTHY BEARDSON
Hong Kong

With the U.S. likely to continue running substantial deficits, Americans wonder if China is going to continue buying up U.S. Treasurys.  The short answer is yes, China will continue to buy U.S. Treasurys—but Beijing will not likely finance America's mounting deficits and debt.

China's holdings of $1.17 trillion in U.S. Treasurys in November 2012—the most recent date for which we have a figure—are virtually unchanged from two years earlier, when they stood at $1.16 trillion. Beijing has purchased a lot of Treasurys over this period but many have been redeemed. Net new investment is essentially zero.

The largest buyer of new U.S. Treasurys during the past three years has been not China but the U.S. Federal Reserve. In fiscal year 2011, for example, the Fed bought more than three-fourths of all new Treasury debt.

Some additional perspective: China's holdings of U.S. Treasury securities in November 2012 were barely more than those of Japan and represented just over 7% of total U.S. public debt. Moreover, the rate of interest that Beijing is getting on its on its Treasury holdings—0.33%, according to an estimate in a study published by the Peterson Institute for International Economics—is well below its estimated 2.13% domestic cost of borrowing at home in China.

As much of China's holding of U.S. Treasurys is financed by issuing higher-interest debt to domestic investors, China incurs losses estimated to be $66 billion annually, according to the Peterson Institute study, "The Internal Cost of China's Currency Policy." The renminbi, China's currency, has been steadily rising against the dollar since 2005—by 33% from mid-2005 until 2013. Every upward movement in the Chinese currency creates a capital loss on Beijing's holdings in U.S. dollars. These are uncomfortable circumstances for China to be invested in Treasurys.

Nor is Beijing's financial position as strong as is often suggested. Its ratio of tax revenue to total GDP is one of the lowest of any major country. The ratio of total government revenue to GDP in 2011 was an estimated 34% in the U.S., 52% in France and 23% in China. The Chinese state extracted a smaller share of the country's GDP than any other significant country.

One reason for low government revenue is low business taxes. China's export industries often operate on very thin profit margins. For example, China had $4.6 billion worth of iPhone exports in 2009, of which just over 3.5% represented value added in China. The rest of the value represented in these exports arose from components manufactured elsewhere and imported to China for assembly.

With thin profit margins, overall tax revenues aren't sufficient to build up the military as fast as the government would like. Moreover, state spending on health care, education and care for the elderly has been held back. And yet—with hospitalization impossibly expensive for many, no university in the world's top 100 at a time of state-mandated innovation, and a tripling in the elderly to over 300 million before 2040—spending on these matters are of growing concern.

The International Monetary Fund estimated in 2011 that China's public debt was 26% of its GDP. The reported budget is normally balanced and its debt is mostly in domestic currency. However, the off-balance-sheet liabilities of provincial and municipal government are hard to quantify: Official estimates exceed $1 trillion and unofficial estimates reach as high as $4 trillion. In addition, ministries such as the railway ministry have found ingenious ways of accumulating off-balance-sheet debt. There is also the unquantified level of village debt, which has started to attract attention. One estimate from the Ministry of Finance is that village debt alone amounts to 10% of GDP.

No one seems to know the real total debt-to-GDP ratio of China, but a more reasonable estimate could be 60%. I believe what this will mean is that—rather than ride to the rescue of the Western world's financial system—China will devote more attention to managing carefully its own debt. While Beijing may continue to roll over its maturing U.S. Treasurys, it is unlikely to substantially increase its exposure.

Mr. Beardson founded and ran Crosby Financial Holdings, the largest investment bank in the Far East. His book "Stumbling Giant: The Threats to China's Future" will be published by Yale University Press in May 2013

[Crafty_Dog]

Don't Fear the Sequester To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 2/19/2013

The double dip that never was, is certain this time…right? When automatic federal spending cuts – the sequester – takes place on March 1st, just say Sayonara to economic growth.

That’s the conventional wisdom these days. And, by the way, this is the third time these spending cuts have hit the pouting pundits’ radar screen. Back in August 2011, politicians made a deal to raise the debt ceiling, which set up a special “super committee,” made up of six Democrats and six Republicans, which was supposed to make a deal to cut the deficit. Standard and Poor’s cut the US debt rating to AA+ from AAA, but the super committee failed. Big surprise, right? As a result, across-the-board spending cuts were scheduled to go into effect on January 1, 2013 – the spending sequester.

But, of course, that didn’t happen either. As part of the “fiscal cliff” deal at the start of the year, they agreed to postpone the sequester until March 1st.

Since then, Republicans have allowed the debt ceiling to rise again, thinking it was a loser politically, and instead have focused on the sequester as the appropriate vehicle to gain leverage on Democrats. They want to use the sequester as a tool to get broader spending reduction, especially reform of entitlement programs that are really at the core of our long-term budget problems. But this will not happen, and the sequester is highly likely to go into effect, as scheduled, on March 1.

The first thing to realize is that implementing the sequester is not the end of the world. Not by a long shot.

According to the Congressional Budget Office, if the sequester goes into effect as scheduled, it will reduce spending from its current path by $43 billion over the last seven months of this fiscal year – March to September. While this is 2% of all federal spending over that timeframe, it’s only 0.5% of GDP and it’s not an actual cut in the level of spending.

Many pundits throw around a figure of $85 billion in “cuts” for the remainder of this year, but that refers to “budget authority,” not outlays. (Budget authority is what an agency can spend, outlays are what it actually spends.) Yes, if the sequester stays in place, outlay cuts would catch up to cuts in budget authority. And, contractors could lay-off people today if they don’t see the authority for future spending.

But the reduction in planned spending increases of just $43 billion will not be as catastrophic as many fear. The phase-out of the payroll tax cut of the last two years, all by itself, is supposed to raise revenue by more than $100 billion per year. And, so far, we’ve yet to see evidence of a downturn.

Most importantly, this whole argument about spending cuts is based in Keynesian economics and misses the point. Federal spending is way too high. And every dime the government spends must be paid for by the private sector, in the form of taxes or debt (which is just taxes at a later date). The bigger the federal government, the smaller the private sector, the less dynamic the economy is and the fewer jobs are created.

As a result, we believe the sequester could be good for the economy and job creation. Unfortunately, a large share of the sequesters’ budget cuts fall on the military (particularly defense procurement) instead of the entitlement programs that are driving our long-term spending problems. But, hey, this is what they agreed to and maybe it will force some lawmakers to get serious about actually fixing our problems rather than just kicking the can down the road.

Our biggest worry is that after March 1, President Obama makes a simple request to add back to military spending without finding budget cuts elsewhere to pay for it – or worse, with tax hikes – and Congress goes along. That would reverse the positive impact of the sequestration.

The bottom line is that the supposed negative impact of spending cuts is a figment of the exaggerated and fearful nature of the punditry. Don’t fear the sequester; lean into the wind and pray that someone in DC is willing to do the right thing.

[G M]

A bit of reality from Westbury, for once.

[Crafty_Dog]

Hysterics Over 'Cuts'
February 20, 2013        
The Foundation
"We must not let our rulers load us with perpetual debt." --Thomas Jefferson
Editorial Exegesis
 

"During the summer 2011 debt ceiling battle, President Obama's White House came up with the idea of sequestration. It is a mechanism designed to trigger automatic spending cuts in the event that a congressional 'super committee' couldn't agree to at least $1.2 trillion in deficit reduction. Congress passed the White House proposal, and Obama signed it into law. And in November 2011, Obama vowed, 'I will veto any effort to get rid of those automatic spending cuts to domestic and defense spending. There will be no easy offramps on this one.' How times have changed. With the automatic spending cuts scheduled to go into effect March 1, it's now Obama who is imploring Congress to undo them. As is his wont, he's resorting to demagoguery to make his case. Surrounding himself with first responders during a speech on Tuesday, Obama predicted a virtual apocalypse if the cuts he once supported now go into effect. 'Emergency responders like the ones who are here today -- their ability to help communities respond to and recover from disasters will be degraded,' he said. 'Border Patrol agents will see their hours reduced. FBI agents will be furloughed. Federal prosecutors will have to close cases and let criminals go. Air traffic controllers and airport security will see cutbacks, which means more delays at airports across the country. Thousands of teachers and educators will be laid off. Tens of thousands of parents will have to scramble to find child care for their kids. Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings.' ... Over a decade, the $1.2 trillion in scheduled cuts are barely more than a rounding error when compared with the $48 trillion the federal government would otherwise spend, according to the Congressional Budget Office. To say the sequester will not be painful for many would be untrue. But if Obama wants to preserve his credibility, he should probably stifle the Chicken Little routine. The historical and continued growth in government spending will not even stop to take a breath, because the 'cuts' in spending are actually just reductions in the projected growth of government spending. ... If Obama can't manage an ever-growing budget like this one without turning criminals loose on the population, then perhaps he's out of his league serving as president." --The Washington Examiner

Upright

"When the Budget Control Act ... was adopted, it called for the automatic cuts to begin on January 1, 2013 -- three months into the [U.S. Government] fiscal year. To the surprise of no one, the House and the Senate and the President didn't want to live with the fruits of their fruitlessness, and so on January 2, 2013 they passed a quick law delaying the effects of sequestration until March 1, 2013 -- five months into the fiscal year. That bill was grandly named the American Taxpayer Relief Act of 2012. That's the one that raised income taxes on rich people and payroll taxes on the rest of us thus providing tax relief to no one. ... You might have noticed that the House, the Senate and the President are so worried about this looming March 1 deadline that they are -- all 536 of them -- on vacation. ... Here's what we know: The Congress and the President are incapable of cutting anything from any program, ever. If the only way to reduce spending is by instituting automatic cuts, then I am for allowing the sequester to take effect and see what happens." --columnist Rich Galen

"Instead of letting obsolete government programs die, bureaucrats come up with new excuses to keep spending. ... The Washington Post reports on a federally supported program that is so bad that even President Obama wants it cut. The Christopher Columbus Fellowship spent 80 percent of its money on overhead. Three Republicans introduced legislation to end it, but the subsidy lives on, because one senator, Thad Cochran, R-Miss., likes it. So America continues to move toward bankruptcy. Instead of addressing that, the politicians will spend more. Instead of announcing 15 new 'manufacturing' hubs, the president should just announce 300 million 'do whatever you want with your own money' hubs. Then American citizens can do as they please. That would actually do some good." --columnist John Stossel

"Many lawmakers view commitment as nothing more than a marriage of convenience that lasts only through Election Day. Where else can a presidential candidate run for office proclaiming 'Read my lips: no new taxes' and within months of assuming office, support a massive tax hike on the American people? Politicians including President Obama, Vice President Joseph R. Biden Jr. and Sen. Robert P. Casey Jr. of Pennsylvania pledged fidelity to the Second Amendment during their campaigns, yet now these Democrats propose and support the most comprehensive attack on gun ownership in generations." --The Washington Times

"I am unalterably opposed to a bunch of billionaires financing a boss to pick candidates in 50 states. This is the opposite of the Republican tradition of freedom and grassroots small town conservatism. No one person is smart enough nor do they have the moral right to buy nominations across the country. That is the system of Tammany Hall and the Chicago machine. It should be repugnant to every conservative and every Republican." --Newt Gingrich on Karl Rove's new PAC
Insight

"The further a society drifts from truth, the more it will hate those that speak it." --English novelist and journalist George Orwell (1903-1950)

"The more rules and regulations, the more thieves and robbers there will be." --Father of Taoism Lao-Tzu (570-490 BC)

[DougMacG]

George Will hits Obama's slow hanging curve ball out of the park:

http://www.washingtonpost.com/opinions/george-will-the-manufactured-crisis-of-sequester/2013/02/22/d22d4466-7c81-11e2-82e8-61a46c2cde3d_story.html

George F. Will
    Opinion Writer, Washington Post

The manufactured crisis of sequester

The sequester has forced liberals to clarify their conviction that whatever the government’s size is at any moment, it is the bare minimum necessary to forestall intolerable suffering. At his unintentionally hilarious hysteria session Tuesday, Obama said: The sequester’s “meat-cleaver approach” of “severe,” “arbitrary” and “brutal” cuts will “eviscerate” education, energy and medical research spending. “And already, the threat of these cuts has forced the Navy to delay an aircraft carrier that was supposed to deploy to the Persian Gulf.”

“Forced”? The Navy did indeed cite the sequester when delaying deployment of the USS Truman. In the high-stakes pressure campaign against Iran’s nuclear weapons program, U.S. policy has been to have two carriers in nearby waters. Yet the Navy is saying it cannot find cuts to programs or deployments less essential than the Truman deployment. The Navy’s participation in the political campaign to pressure Congress into unraveling the sequester is crude, obvious and shameful, and it should earn the Navy’s budget especially skeptical scrutiny by Congress.

The Defense Department’s civilian employment has grown 17 percent since 2002. In 2012, defense spending on civilian personnel was 21 percent higher than in 2002. And the Truman must stay in Norfolk? This is, strictly speaking, unbelievable.

The sequester’s critics correctly say it is not the most intelligent way to prune government; priorities among programs should be set. But such critics are utopians if they are waiting for the arrival of intelligent government. The real choice today is between bigger or smaller unintelligent government.

Obama, who believes government spends money more constructively than do those who earn it, warns that the sequester’s budgetary nicks, amounting to one-half of 1 percent of gross domestic product, will derail the economy. A similar jeremiad was heard in 1943 when economist Paul Samuelson, whose Keynesian assumptions have trickled down to Obama, said postwar cuts in government would mean “the greatest period of unemployment and industrial dislocation which any economy has ever faced.”

Federal spending did indeed shrink an enormous 40 percent in one year. And the economy boomed.

Because crises are government’s excuse for growing, liberalism’s motto is: Never let a crisis go unfabricated. But its promiscuous production of crises has made them boring.

Remember when, in the 1980s, thousands died from cancers caused by insufficient regulation of the chemical Alar sprayed on apples? No, you don’t because this alarming prediction fizzled. Alar was not, after all, a risk.

Remember when “a major cooling of the climate” was “widely considered inevitable” (New York Times, May 21, 1975) with “extensive Northern Hemisphere glaciation” (Science magazine, Dec. 10, 1976) which must “stand alongside nuclear war as a likely source of wholesale death and misery” (International Wildlife, July 1975)? Remember reports that “the world’s climatologists are agreed” that we must “prepare for the next ice age” (Science Digest, February 1973)? Armadillos were leaving Nebraska, heading south, and heat-loving snails were scampering southward from European forests (Christian Science Monitor, Aug. 27, 1974). Newsweek (April 28, 1975) said meteorologists were “almost unanimous” that cooling would “reduce agricultural productivity.”

Today, while Obama prepares a governmental power grab to combat global warming, sensible Americans, tuckered out with apocalypse fatigue, are yawning through the catastrophe du jour, the sequester. They say: Cry “Havoc!” and let slip the hamsters of sequestration.

[Crafty_Dog]

"More Americans need to become familiar with the concept of baseline budgeting. In simple terms, if an agency's budget is $100, and they are expecting an increase of $10.00 next year, but they only get $8.00, politicians characterize that as a $2.00 cut in spending. Concerning the entire $1.2 trillion in 'cuts' engendered by the sequester, it must be understood that they are not really cuts at all. They are really a lowering of the projected increase in federal spending going forward. The CBO cuts through the fog. 'For the 2014-2023 period, deficits in CBO's baseline projections total $7.0 trillion. With such deficits, federal debt would remain above 73 percent of GDP -- far higher than the 39 percent average seen over the past four decades,' it reports. Thus, over the next decade, we are 'cutting' our way to adding another $7 trillion of debt to the $16-plus trillion we have already amassed. As far as the administration, Democrats and their media enablers are concerned, any attempt to mitigate that 'paying-for problem' will turn America into a Third World nation of vegetable eaters. Yet the simple truth remains inarguable: absent the genuine entitlement reform critically necessary to get our spending under control, we are headed for national bankruptcy. At that point, even vegetables may be a luxury item." --columnist Arnold Ahlert

[G M]

I sure feel silly now, having been so worried about the nat'l debt. WHEW!

http://politicker.com/2013/03/mayor-bloomberg-dont-panic-about-the-sequester/

Bloomberg: Don’t Panic About the Sequester


By Colin Campbell 10:08am


Mayor Bloomberg in Washington earlier this week. (Photo: Getty)
 
At midnight tonight, a bevy of steep spending cuts will hit the federal government unless Congress and the White House agree to an alternative deficit-cutting proposal. Although the national media has been relentlessly focused on this deadline, Mayor Michael Bloomberg said it will only affect New York City if the so-called “sequestration” continues for a significant length of time.
 
“It depends on how long,” Mr. Bloomberg said on his weekly WOR radio show with John Gambling. “If it lasts a few weeks, no. If it does, yeah. We get 10 or 12 percent of our budget from the federal government, not all of that is going to be cut back, but there would be effects–not good effects. But in the context of, ‘Is anything going to change tomorrow? Are we going to run out of money tomorrow?’ I’m sure I’ll get that question at the [next] press conference. No.”
 
Furthermore, while saying the federal deficit does indeed need to be curtailed, Mr. Bloomberg argued the United States could owe “an infinite amount of money” and there is no specific amount that would cause the country to default.
 
“We are spending money we don’t have,” Mr. Bloomberg explained. “It’s not like your household. In your household, people are saying, ‘Oh, you can’t spend money you don’t have.’ That is true for your household because nobody is going to lend you an infinite amount of money. When it comes to the United States federal government, people do seem willing to lend us an infinite amount of money. … Our debt is so big and so many people own it that it’s preposterous to think that they would stop selling us more. It’s the old story: If you owe the bank $50,000, you got a problem. If you owe the bank $50 million, they got a problem. And that’s a problem for the lenders. They can’t stop lending us more money.”
 
Nevertheless, Mr. Bloomberg said it wouldn’t be easy to find the spending cuts that do emerge. Accordingly, when Mr. Gambling suggested cutting “waste” could solve a significant portion of the deficit, Mr. Bloomberg flat-out disagreed.
 
“Listen, I’ve worked now in government for 11 years,” he said. “One of the problems is the definition of ‘waste.’ You think the programs that I want are waste. And I think the problems that you want are waste. It’s not like somebody is taking wheelbarrows full of dollar bills and throwing them out the window. It’s a question of definition, what is ‘waste’ and what is not. Everything we have was put in by Congress, signed by the president. There was a reason for it, or a constituency for it. Most of the tax breaks are designed to encourage or discourage economic activity.  There’s a reason for it.”
 

Follow Colin Campbell on Twitter or via RSS. ccampbell@observer.com

[DougMacG]

A home owner would not want one year mortgage, yet the Treasury keeps doing that even though we know interest rate will return to normal adding interest costs of perhaps a trillion a year to our spending.

WSJ today: http://online.wsj.com/article/SB10001424127887323978104578330320974074546.html?mod=WSJ_Opinion_LEADTop

...the maturity structure of U.S. debt is quite short. I estimate that our government rolls over 40% of its debt every year, and 65% within three years, accounting for Federal Reserve holdings, coupon payments and use market values.
-----------------------

Short term at near zero interest is GREAT if you plan to pay it off soon.  Bernancke, Geithner, Obama and Lew are doing more damage to our country right now that what we can immediately measure.

[G M]

[DougMacG]

That is a great graph GM!  It tells so much more context than the 2 1/2 french fries out of Big Mac meal analogy which is the calorie cutback from the baseline up from the extreme, make temporary spending permanent, peak.
http://www.powerlineblog.com/archives/2013/02/how-much-would-the-sequester-cut-into-a-big-mac-extra-value-meal.php

How about spending at Bill Clinton levels if that was the last great, Democratic, fiscal President who cared and truily felt our pain.  We would have a trillion dollar surplus right now.
http://www.usgovernmentspending.com/year2000_0.html

[Crafty_Dog]

Forgive me for hammering on this point again:

As utterly valid as the point being made is, the left side of the graph is set in a way that visually confuses:

An increase of 1.0 to 1.5 is a 50% increase yet the same .5 increase from 3.0 to 3.5 is a 16.67% increase.

[G M]

Forgive me for hammering on this point again:

As utterly valid as the point being made is, the left side of the graph is set in a way that visually confuses:

An increase of 1.0 to 1.5 is a 50% increase yet the same .5 increase from 3.0 to 3.5 is a 16.67% increase.

Hey, I don't make 'em, just post them here.

[Crafty_Dog]

Not a criticism of you GM-- indeed I make a point of saying the the point of the graph is quite correct-- I simply am sharing with one and all the visual overstatment created when graphs are not , , , what's the word I'm looking for? , , , logarithmic?

[Crafty_Dog]

Here Wesbury takes on some points I have made.  IMO his analysis is not without plausibility , , ,

Rising Interest Rates Won't Cause Fiscal Armageddon
       
       
               
                       
                               
                                        Monday Morning Outlook
                                       
                                       
                                        Rising Interest Rates Won't Cause Fiscal Armageddon To view this article, Click
Here
                                       
                                        Brian S. Wesbury - Chief Economist 
 Bob Stein, CFA - Senior Economist
                                       
                                        Date: 3/4/2013
                                       

                   

                                       
The fiscal situation in Washington is still a mess; deficits and spending are still
way too high, but both spending as a percent of GDP and annual budget deficits are
declining. After peaking at more than $1.4 trillion in 2009 our forecast for this
year is a deficit of about $830 billion, or 5.1% of GDP. At the same time spending
has fallen from over 25% of GDP at its peak to near 22%.

Long-term, that’s not good enough. Even if deficits keep falling in the next
few years, spending on Social Security and Medicare is set to soar. If those
programs aren’t reformed, we will eventually be swamped with either too much
debt or growth-killing tax hikes.

For those who need a more immediate threat to satisfy their economic hypochondria,
some bears have been harping on a different budget threat. The idea is that
Bernanke’s artificially low interest rates have covered up a serious problem.
And once those rates go back to normal, interest costs are going to soar and –
poof! – there goes all the progress on the deficit.

Right now the federal debt is $16.5 trillion, so, in theory, a 1 percentage point
increase in rates mean an extra $165 billion in annual interest payments.
That’s a huge potential jump considering net interest for the federal
government was $223 billion last year.

But this theory has holes. First, the relevant debt for calculating the impact of a
change in rates is not the total $16.5 trillion debt. That includes debt the
government owes itself (like for the Social Security Trust Fund) plus debt owned by
the Fed (the interest gets paid back to the Treasury). Excluding these, leaves
roughly $10 trillion, which means an extra 1 point in rates would add $100 billion
to the deficit, not $165 billion.

Second, investors would be wrong to assume “normal” rates must be many
multiples of what Treasury now pays. New Treasuries have very low rates. But much
Treasury debt was issued back when rates were higher. As a result, the average
interest rate on marketable debt is now around 2%.

The Fed thinks short rates will eventually go to a 4% average while long-term rates
rise to 4.5%. Let’s split the difference and say Treasury will eventually have
to pay 4.25%, rather than 2%. If so, net interest, which is now 1.4% of GDP will
rise to 3% of GDP, roughly the same as it was for much of the 1980s and 1990s, when
the economy was doing quite well.

Last, and often overlooked, is that if interest rates are rising then the economy is
probably stronger. This would mean tax revenue is rising faster as well. So any
boost in interest costs would be offset somewhat by higher receipts. For example, an
extra 1 point in real GDP growth for only one year should add more than $30 billion
per year in revenue.

On the downside, it’s true that rates may go even higher than the Fed now
thinks, but with an average debt maturity of about 5 years, it also takes time for
higher rates to feed through to higher interest costs.

Again, we are not suggesting things are fine with our country’s fiscal
situation. But among all our fiscal challenges, the last one we should obsess about
is a crisis happening when the economy is better and the Fed is finally raising
rates. The pouting pundits of pessimism are over-reacting once again.

[G M]

"Right now the federal debt is $16.5 trillion"

I wish that were true. It's not.

[G M]

http://www.deseretnews.com/article/865571048/The-real-national-debt-is-far-worse-than-you-think-critics-say.html?pg=all

The real national debt is far worse than you think, critics say
By Eric Schulzke, Deseret News

Published: Friday, Jan. 18 2013 10:30 p.m. MST
   
   
   
 
 
With the U.S. government now poised to hit a $16.4 trillion legal federal debt barrier, another fiscal and constitutional crisis looms. Nobel laureate economist Paul Krugman has called for a $1 trillion coin. Others think the coin idea is absurd. Last week, the Obama administration, after dancing around it for days, officially disavowed it.

Shutterstock

Enlarge photo»
Summary While everyone focuses on raising the debt ceiling past $16.4 trillion, a handful of accountants and policy activists argue that the real debt is much, much higher and is only hidden by irregular accounting practices that hide the truth.
 Goodbye fiscal cliff, hello debt ceiling.

With the U.S. government now poised to hit a $16.4 trillion legal federal debt barrier, another fiscal and constitutional crisis looms. Nobel laureate economist Paul Krugman has called for a $1 trillion coin. Others think the coin idea is absurd. Last week, the Obama administration, after dancing around it for days, officially disavowed it.

But still others think the coin idea simply misses the point.

“Congress doesn’t even know what the real numbers are,” said Rep. Jim Cooper, D-Tennessee. “The real national debt isn’t $16 trillion. I wish it were that low. The real national debt is closer to $60 or $80 trillion.”
“The federal government is the last accounting-free zone in America,” Cooper said.

Cooper belongs to a small but vocal band of policy advocates who argue that the entire fiscal reform debate ignores the scope of unworkable promises made to one generation and unbearable burdens placed on the next.

That chorus includes two former GOP congressional leaders, Christopher Cox and Bill Archer, who in November published an op-ed article in the Wall Street Journal calling for “real accounting.”

“The U.S. Treasury ‘balance sheet’ does list liabilities such as Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits,” Cox and Archer wrote. “But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations.”

Bipartisan fiasco

The trouble, critics argue, is that the government uses “cash accounting” for its largest liabilities — which mean they only score Medicare and Social Security obligations on the books as debt as payments come due.

Real accounting — the “accrual accounting” used by private industry — scores debt burdens the moment obligations are made.

The IRS does not allow any corporation that makes more than $5 million to use cash accounting, said Sheila Weinberg, who heads the Institute for Truth in Accounting, “because it is so unreliable and possibly misleading.”

ITA is a nonpartisan advocacy group that lobbies to change the way state and federal governments do their bookkeeping. Over the years, Weinberg has been a close ally of Cooper on this issue.

Cooper, a Democrat, says that both parties are fully culpable. Bush administration officials in 2007 and 2008 blocked a push to put social insurance obligations on the federal books. And Cooper calls the 2003 Medicare prescription drug benefit, a pet project of Bush adviser Karl Rove, “quite possibly the worst piece of legislation in American history.”

At the Institute for Truth in Accounting’s website, two debt clocks rapidly click upward. The official clock listed now exceeds $16.5 trillion, already past the legal ceiling. The other clock is labeled “The Truth.” That clock now stands at more than $72.5 trillion.

“If we had good financial statements,” said Michael Scott, a veteran of the Treasury and the Security Exchange Commission, “you would understand that every plan that exists today — whether Simpson-Bowles, or Paul Ryan, or others — does nothing to balance the budget on a fully costed, accrual basis.”

No free goods

Until 1990, private management teams “would give labor generous pensions and post-retirement benefits because they saw these as free goods,” said Scott, who has worked extensively with both private companies (United Airlines) and public entities (the Postal Service) to restructure fiscal failure.

Corporations stressed for cash, he said, would make vague promises payable in the distant future and leave them off the books. “But once they started to put it on the balance sheet and had it flow through the income statement, people started to see how expensive the benefits were.”

In 1990, accounting standards for private business changed, requiring them to put pensions and post-retirement health care on their books. “This caused enormous problems for companies like Ford, Chrysler, the legacy airlines and the steel industry,” Scott said, leading to several bankruptcies and even radical pension restructuring in the private sector.

But for the government, loose accounting continues.

Like Cooper, Scott sees the 2003 Medicare prescription drug benefit, which narrowly passed with Republican support, as a watershed moment in fiscal irresponsibility.

Both the Congressional Budget Office and the Office of Management and Budget, which answers to the White House, priced the bill at $395 billion over a 10-year window, Scott said. But the Medicare actuaries, whose job is to predict the future using today’s data, looked at the same bill and decided that over 75 years it was a $16.6 trillion unfunded liability.

The unfunded liability is the amount of unpaid bills that would remain if current tax and benefits policies continued without change.

"Would a congressman have voted for it if the price tag had said $16.6 trillion?” Scott asked.

What surplus?

A mild-mannered accountant, ITA’s Sheila Weinberg has been fighting the budget transparency battle since the 1990s, when she realized that both parties were making promises they could not fulfill. In 2000, she became incensed when Al Gore wanted to put the budget “surplus” into a lockbox, while George W. Bush wanted to return it to the voters.

“What surplus?” Weinberg asked.

Weinberg really gets piqued when members of Congress “guarantee” Social Security benefits. “It’s a crime to promise people benefits and then not put money aside to pay those benefits,” said Weinberg. In fact, she notes, Social Security by law cannot make payments once the money has run out.

Last year, Weinberg catalogued 42 such “guarantees” on congressional websites. “Social Security benefits may be modest,” reads the website of Rep. Jan Schankowsky, D-Illinois, “but they are guaranteed — unlike retirement savings lost in the Great Recession.”

House Ways and Means Committee Chairman Sander M. Levin, D-Missouri, issued a similar statement on the 75th anniversary of the Social Security Act. "On this 75th Anniversary, millions of Americans can attest to the strength, and value, of Social Security’s guaranteed benefits,” Levin said.

If Weinberg had her way, Levin, Schankowsky and scores of other representatives and senators would be taken to the woodshed for “guaranteeing” to taxpayers benefits the federal financial statements view as not binding obligations.

Skeptical auditors

The real numbers are hiding in plain sight, but to find them you have to look in the fine print of the “Nation By the Numbers” table in the federal government’s Consolidated Financial Statement.

That table shows “total liabilities” of $17.5 trillion in 2011, which combines debt held by the public and binding commitments to veterans and federal employees. But underneath that line in smaller font is a line for social insurance. That item adds $33.8 trillion to the tab. Another miscellaneous line adds $6.4 trillion.

“If you want to see what the total burden that every child born has to pay his share of, it’s the $17.5 trillion plus the $33.8 trillion plus the $6.4 trillion,” said Hal Steinberg, a member of the Federal Advisory Accounting Standards Board, which sets federal accounting standards.

Even the $33.8 trillion is hotly disputed, as auditors, who want real bookkeeping, find themselves at odds with bureaucrats, who want lower numbers.

The 75-year unfunded liability for total social insurance liabilities in the federal financial statement are pegged at $30.9 trillion in 2010 and $33.8 trillion in 2011 — both a huge drop from 2009, when the burden stood at $45.9 trillion. Why the sudden drop?

The reason, Steinberg said, is that “The Affordable Care Act is assuming there will be tremendous savings in Medicare costs,” savings won through “productivity gains” and by slashing doctors’ fees.

But many experts doubt either of these savings will materialize, and among the skeptics are Medicare’s own actuaries and the external auditors. “The numbers through 2009 got an unqualified opinion from the auditors,” Steinberg said. “In 2010 and 2011, the auditors had to qualify their opinion, because the actuaries said that they did not think those cost projections would necessarily hold up.”

A letter from Medicare actuaries in May 2011 said, “In our view, the scheduled physician payment reduction is implausible and there is a strong likelihood that the productivity adjustments will not be sustainable in the long range.”

No promises

Medicare and Social Security obligations are not included alongside veterans and employee benefits in national debt figures, Steinberg said, because FASAB has determined that Social Security and Medicare are not binding commitments.

“Current law says that when the Social Security trust fund runs out of money, which would be in the year 2033, they are prohibited by law to continue to make payments of the full amount," Steinberg said. "They can only make payments to the extent that they have contributions coming in."

“There is no exchange transaction here,” Steinberg said, as when an employee works in exchange for guaranteed benefits. In essence, Social Security is a government benefit that can be changed at any time. And because there is no contract to break, there is no accounting liability.

“When the (FASAB) board was looking at the best way to report this,” Steinberg said, “the feeling was not to put this on the balance sheet as a liability. It really wasn’t a liability.”

Perhaps equally to the point, he added, “The number would end up being so large that no one would be able to relate to it.” For both reasons, Steinberg said, FASAB chose to separate the social insurance liabilities in a separate location in the report.

Weinberg at the Institute for Truth in Accounting said she could live with scoring Medicare and Social Security off the books, but only if policy leaders made it clear there is no commitment.

She gets her hackles up when policymakers try to have it both ways, treating these programs as sacred promises for political gain — but hiding the cost in the books.

Weinberg said the no-promises-day-to-day approach would work if a few criteria were met. Payroll taxes should be treated as a “tax,” she said, not a “contribution.” Politicians and government officials must stop referring to “trust funds” and “guarantees.” If they do, she wants it legally treated as fraud. Personalized annual Social Security statements must no longer be mailed to taxpayers. Finally, Weinberg wants a serious education campaign undertaken to correct the record in taxpayers’ minds.

Weinberg is not holding her breath. “Politicians aren’t stupid,” she said. “They do these books on a cash basis because they don’t want to increase the deficit but they want to get re-elected.”

Eric Schulzke writes on national politics for the Deseret News. He can be contacted at eschulzke@desnews.com

[G M]

http://online.wsj.com/article/SB10001424127887323353204578127374039087636.html

Cox and Archer: Why $16 Trillion Only Hints at the True U.S. Debt
Hiding the government's liabilities from the public makes it seem that we can tax our way out of mounting deficits. We can't. By CHRIS COX AND BILL ARCHER

A decade and a half ago, both of us served on President Clinton's Bipartisan Commission on Entitlement and Tax Reform, the forerunner to President Obama's recent National Commission on Fiscal Responsibility and Reform. In 1994 we predicted that, unless something was done to control runaway entitlement spending, Medicare and Social Security would eventually go bankrupt or confront severe benefit cuts.

Eighteen years later, nothing has been done. Why? The usual reason is that entitlement reform is the third rail of American politics. That explanation presupposes voter demand for entitlements at any cost, even if it means bankrupting the nation.

A better explanation is that the full extent of the problem has remained hidden from policy makers and the public because of less than transparent government financial statements. How else could responsible officials claim that Medicare and Social Security have the resources they need to fulfill their commitments for years to come?

As Washington wrestles with the roughly $600 billion "fiscal cliff" and the 2013 budget, the far greater fiscal challenge of the U.S. government's unfunded pension and health-care liabilities remains offstage. The truly important figures would appear on the federal balance sheet—if the government prepared an accurate one.

But it hasn't. For years, the government has gotten by without having to produce the kind of financial statements that are required of most significant for-profit and nonprofit enterprises. The U.S. Treasury "balance sheet" does list liabilities such as Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits. But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations.

As a result, fiscal policy discussions generally focus on current-year budget deficits, the accumulated national debt, and the relationships between these two items and gross domestic product. We most often hear about the alarming $15.96 trillion national debt (more than 100% of GDP), and the 2012 budget deficit of $1.1 trillion (6.97% of GDP). As dangerous as those numbers are, they do not begin to tell the story of the federal government's true liabilities.


The actual liabilities of the federal government—including Social Security, Medicare, and federal employees' future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.
Why haven't Americans heard about the titanic $86.8 trillion liability from these programs? One reason: The actual figures do not appear in black and white on any balance sheet. But it is possible to discover them. Included in the annual Medicare Trustees' report are separate actuarial estimates of the unfunded liability for Medicare Part A (the hospital portion), Part B (medical insurance) and Part D (prescription drug coverage).

As of the most recent Trustees' report in April, the net present value of the unfunded liability of Medicare was $42.8 trillion. The comparable balance sheet liability for Social Security is $20.5 trillion.

Were American policy makers to have the benefit of transparent financial statements prepared the way public companies must report their pension liabilities, they would see clearly the magnitude of the future borrowing that these liabilities imply. Borrowing on this scale could eclipse the capacity of global capital markets—and bankrupt not only the programs themselves but the entire federal government.

These real-world impacts will be felt when currently unfunded liabilities need to be paid. In theory, the Medicare and Social Security trust funds have at least some money to pay a portion of the bills that are coming due. In actuality, the cupboard is bare: 100% of the payroll taxes for these programs were spent in the same year they were collected.

In exchange for the payroll taxes that aren't paid out in benefits to current retirees in any given year, the trust funds got nonmarketable Treasury debt. Now, as the baby boomers' promised benefits swamp the payroll-tax collections from today's workers, the government has to swap the trust funds' nonmarketable securities for marketable Treasury debt. The Treasury will then have to sell not only this debt, but far more, in order to pay the benefits as they come due.

When combined with funding the general cash deficits, these multitrillion-dollar Treasury operations will dominate the capital markets in the years ahead, particularly given China's de-emphasis of new investment in U.S. Treasurys in favor of increasing foreign direct investment, and Japan's and Europe's own sovereign-debt challenges.

When the accrued expenses of the government's entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.

Nothing like that $8 trillion amount is available for the IRS to target. According to the most recent tax data, all individuals filing tax returns in America and earning more than $66,193 per year have a total adjusted gross income of $5.1 trillion. In 2006, when corporate taxable income peaked before the recession, all corporations in the U.S. had total income for tax purposes of $1.6 trillion. That comes to $6.7 trillion available to tax from these individuals and corporations under existing tax laws.


In short, if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn't be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities. Some public officials and pundits claim we can dig our way out through tax increases on upper-income earners, or even all taxpayers. In reality, that would amount to bailing out the Pacific Ocean with a teaspoon. Only by addressing these unsustainable spending commitments can the nation's debt and deficit problems be solved.

Neither the public nor policy makers will be able to fully understand and deal with these issues unless the government publishes financial statements that present the government's largest financial liabilities in accordance with well-established norms in the private sector. When the new Congress convenes in January, making the numbers clear—and establishing policies that finally address them before it is too late—should be a top order of business.

Mr. Cox, a former chairman of the House Republican Policy Committee and the Securities and Exchange Commission, is president of Bingham Consulting LLC. Mr. Archer, a former chairman of the House Ways & Means Committee, is a senior policy adviser at PricewaterhouseCoopers LLP.

[Crafty_Dog]

You are entirely correct about the deception in the failure to discuss the magnitude of unfunded liabilities.

That said, does not Wesbury also make a number of fair points in that he is discussing the consequences to interest payments on the $16.6T?  There are no interest payments to be made on unfunded liabilities.

[G M]

You are entirely correct about the deception in the failure to discuss the magnitude of unfunded liabilities.

That said, does not Wesbury also make a number of fair points in that he is discussing the consequences to interest payments on the $16.6T?  There are no interest payments to be made on unfunded liabilities?

Gee, our catastrophic debt isn't as catastrophic as some would say? I feel much better now.

So, every American alive right now just needs to come up with a spare quarter million dollars and not worry about the interest rates.

[Crafty_Dog]

His article addresses specifically the potential consequences of an increase in interest rates on the cost of financing the $16.6T debt.  This is very much a concern I have raised specifically a number of times here.  His analysis of the concerns that others and I have raised in this regard raises a number of points that I had not considered.

Please note the editing replacement of the question mark of my final sentence with a period.  Thus

"There are no interest payments to be made on unfunded liabilities."  Your points, as correct as they are, address a different point.

[Crafty_Dog]

Whether we agree with Wesbury or not, he is a serious economist and I trust that he gets these numers right.

"both spending as a percent of GDP and annual budget deficits are
declining. After peaking at more than $1.4 trillion in 2009 our forecast for this
year is a deficit of about $830 billion, or 5.1% of GDP. At the same time spending
has fallen from over 25% of GDP at its peak to near 22%."

That $1.4T was about 11% of GDP and now we are at less than half that?

Is that not a BFD? 

Is not a 3% drop in federal spending as a % of GDP a BFD as well?

Who amongst us knew this?  I'm guessing not a one.  Why is that?  We search for truth around here and if we can't answer that and then don't find out the answer to that then , , ,




And, changing subjects, this is how to fight our Alinskyite president!

http://www.weeklystandard.com/blogs/senator-obamas-golf-weekend-tiger-cost-much-341-federal-workers-furloughed_704915.html

[G M]

When we refinance our debt these days, who is buying it?

Even if we are not racking up debt on unfunded liabilities, those continue to metasticize at incredible rates.

[Crafty_Dog]

The answer is in one of the other pieces you posted tonight: foreigners.   As I pointed out in my response to that posting of yours, I found the piece in question frustrating in its absence of analysis as to why they do that and what might cause them to change doing that.

We are in complete agreement on the ongoing matasticization of unfunded liabilities.  Indeed, IMHO it is the very heart of the problem.  The danger to our republic is great.

[G M]

I'd like to see the source of the numbers he cites. I'm not buying it.

[DougMacG]

Thomas Sowell:

"Back in my teaching days, many years ago, one of the things I liked to ask the class to consider was this: Imagine a government agency with only two tasks: (1) building statues of Benedict Arnold and (2) providing life-saving medications to children. If this agency's budget were cut, what would it do?

The answer, of course, is that it would cut back on the medications for children. Why? Because that would be what was most likely to get the budget cuts restored. If they cut back on building statues of Benedict Arnold, people might ask why they were building statues of Benedict Arnold in the first place."

http://www.realclearpolitics.com/articles/2013/03/05/budget_politics_117268.html#ixzz2Mfmw6iyv

[DougMacG]

"An increase of 1.0 to 1.5 is a 50% increase yet the same .5 increase from 3.0 to 3.5 is a 16.67% increase."

I believe the left side of the graph is spending in trillions, since close to zero in 1913.  Adjusted for inflation, but otherwise I think it is not manipulated.  Please take a look again.  You are correct on the way percentages can be used in different ways, like when Wesbury says something is up 1% three years in a row from a horribly depressed level instead of saying it is still down 30% from 5 years ago.
--------

"The Fed thinks short rates will eventually go to a 4% average while long-term rates
rise to 4.5%."

Wesbury here is accepting what the Fed is saying to make his point.  Looks like rosy scenario to me.  If our worst fear after multi-trillions of quantitative easing and when real economic growth returns is that interest rates might hit 4%, I wouldn't be worried either.  I don't buy it.  Interest rates could be twice that and have been far worse not that long ago, after much less 'quantitative easing' than now.
--------

"does not Wesbury also make a number of fair points in that he is discussing the consequences to interest payments on the $16.6T?  There are no interest payments to be made on unfunded liabilities."

True.  He makes a good point that paying interest to ourselves isn't much of a cost, but the quantitative easing and future devaluations of our currency have other hidden costs yet to reveal themselves.  

Unfunded liabilities mean future deficits, future debt, future interest, future impossibilities of balancing budgets or lowering tax burdens.  I said interest costs could go to a trillion, but I mean at debt levels that will inevitably be higher than today (and interest rate FAR above 4.5%) before we get a handle on all this, if we ever do.
--------

"both spending as a percent of GDP and annual budget deficits are
declining. After peaking at more than $1.4 trillion in 2009 our forecast for this
year is a deficit of about $830 billion, or 5.1% of GDP. At the same time spending
has fallen from over 25% of GDP at its peak to near 22%."

That $1.4T was about 11% of GDP and now we are at less than half that?
Is that not a BFD?

Is not a 3% drop in federal spending as a % of GDP a BFD as well?

Who amongst us knew this?  I'm guessing not a one."


I think we knew that, we can check the threads.  On the first point, a deficit of 1.4T is mind-boggling.  As that shrunk, it still was 4 deficits in a row all over a trillion.  (Then we measure it as a percentage of the entire economy to make it look smaller!?) The damage of that is cumulative and that has been the focus.  From the disastrous lows, the economy has been growing slowly.  We know that mostly from the Wesbury posts you bring to the board, against all ridicule.  The truth is good to know no matter what it is and you deserve credit.  

I, for one, believe we could survive 16 trillion in debt and 4 trillion in quantitative easing - if we would get our act together today but we aren't.

Don't forget that the control in the increases in spending happened under these horrible PR disasters for the Republican House.  Boehner with his cigarette and his tan who none of us think puts a good face or words on our message surrendered to spending a trillion above where it should be has won the argument from there in the sense that the slope of the spending curve is no longer straight up.  Obama didn't do that, but he 'succeeded' in making a trillion more in temporary, emergency spending permanent.

Federal Spending at 22% of GDP when most people pay zero is still abominable.  At 25% we were at amazingly depressed levels of GDP so the 22% is with no cut in spending.  Yes 22% is better than ratios during utter collapse when we were losing tens of trillions in wealth but if we compare this to 'normal' we are still way off track.  18% of GDP is where spending should have been capped in the Balanced Budget Amendment, maybe 19% in compromise with big government liberals, with super majorities required to ever anything above that level (IMHO).  

Misleading in those numbers (the 22%) is that it takes the measurement after the world's largest entitlement ever (?) Obamacare has been passed but has no spending, speaking of unfunded liabilities!  Also it is the last year of tax receipts before a multitude of new GDP killing tax rate increases, federal and state, apply.  We can't really follow that trend line forward when we know we have already changed the rules.  

We make healthcare more affordable by levying a new tax on medical devices and strive to reach full employment by nailing every company that hits 50 full time employees.  Cause spending to go up and relative GDP growth to go down.  Nothing but cognitive dissonance if getting a handle on spending was anyone's objective.

A simpler way than dollars of changing value is look at the ratio of people who will be pulling the wagon versus how many will ride in it.  We are gaining in population while we are losing people from our workforce.  We are making more and more rules to worsen that and reelecting the people who are causing it.  We are offering to pay for far more of people's basic living expenses to not work, not work full time or to not maximize their income while we increase the penalties on the dwindling numbers who do.  We are chasing existing businesses overseas while putting concrete barriers in front of our would-be startups, the big employers of tomorrow.  Take all current trend lines forward and the budget problem doesn't get solved; it only gets worse.  

[G M]

The answer is in one of the other pieces you posted tonight: foreigners.   As I pointed out in my response to that posting of yours, I found the piece in question frustrating in its absence of analysis as to why they do that and what might cause them to change doing that.

We are in complete agreement on the ongoing matasticization of unfunded liabilities.  Indeed, IMHO it is the very heart of the problem.  The danger to our republic is great.

http://www.marketplace.org/topics/economy/final-note/who-are-biggest-holders-us-debt

Who are the biggest holders of U.S. debt?

Mark Wilson/Getty Images
Flags fly over the Federal Reserve Building in Washington, D.C.

by Kai Ryssdal
Marketplace for Monday, June 4, 2012

Story.This final note today, an observation about U.S. government debt. Treasury bonds -- now that interest rates on the 10 year are the lowest they've ever been.

You know how we always talk about foreigners -- China, especially -- being the ones who hold all our debt?

Not true at all. We saw an item on CNBC's website today listing the top 15 buyers of Treasuries. There's China, of course at No. 3. Japan at No. 5. That's it for countries in the top 10.

The biggest holder of U.S. debt? The Social Security Trust Fund. And No. 2?

C'mon, any guesses?

Yep, the Fed. Can you say 'quantitative easing'?

**So, how long are we going to be able to pay our Visa with our Mastercard?

[Crafty_Dog]

A very, very good question.  I would couple it with my wonderment that we have been able to do so at all for so long.  Truly it is something I cannot explain.  How can we have negative interest rates?  Even as we acknowledge govt. manipulation of inflation data, why is inflation not higher?

In a moment of ego, I might note that this point about the Fed financing the deficit is a point that I have been making here for quite some time with quite some vigor when I hammer on 40% of spending being borrowed and over 70% of it financed by the Fed.

Following the logic a bit further and applying it to GM's posted piece (and please note, I do feel it was worthy of being posted) we can say that it missed this central point entirely when it said we were being financed by foreigners and the excrement would hit the fan when they ceased lending us money.

As GM adds to my knowledge, after the Fed in number one position, that SS is #2.

I acknowledge the various points made in response to my underlining of the Wesbury data about deficit as a % of GDP and fed spending as a % of GDP.  Yes our Republic and our economy are in grave danger, and our foe is slippery indeed and my point here should not be misunderstood as diminishing that in any degree. 

That said I repeat that but for my posting of the Wesbury piece I do not think that most/any of us here realized the extent of the improvement.  Indeed, although he was too stupid and too in love with the sound of his interruptions to realize it, Hannity got spanked tonight by BO econ advisor Oglesby with exactly these points.

[objectivist1]

Minimum Wage Mandates: The Tools of Racists Everywhere

Posted By Walter Williams On March 6, 2013 - www.frontpagemag.com

Let’s work through an example. Suppose 100 yards of fence could be built using one of two techniques. You could hire three low-skilled workers for $15 each, or you could hire one high-skilled worker for $40. Either way, you get the same 100 yards of fence built. If you sought maximum profits, which production technique would you employ? I’m guessing that you’d hire one high-skilled worker and pay him $40 rather than hire three low-skilled workers for $15 each. Your labor costs would be $40 rather than $45.

Suppose the high-skilled worker came into your office and demanded $55 a day. What would be your response? You’d probably tell him to go play in the traffic and hire the three low-skilled workers. After all, hiring the three low-skilled workers for $45, to get the same 100 yards of fence, would be cheaper than the $55 a day now demanded by the high-skilled worker.

The high-skilled worker is not stupid and knows that’s exactly what you’d do. He will do a bit of organizing first, convincing decent, caring people that low-skilled workers are being exploited and not earning a living wage and that Congress should enact a minimum wage in the fencing industry of at least $20. After Congress enacts a minimum wage of $20, what then happens to the chances of a high-skilled worker’s successfully demanding $55 a day? They go up because he’s used the coercive powers of Congress to price his competition out of the market. Because of the minimum wage, it would cost you $60 to use the three low-skilled workers.

The minimum wage not only discriminates against low-skilled workers but also is one of the most effective tools of racists everywhere. Our nation’s first minimum wage came in the form of the Davis-Bacon Act of 1931. During the legislative debate over the Davis-Bacon Act, which sets minimum wages on federally financed or assisted construction projects, racist intents were obvious.

Rep. John Cochran, D-Mo., supported the bill, saying he had “received numerous complaints in recent months about Southern contractors employing low-paid colored mechanics getting work and bringing the employees from the South.” Rep. Miles Allgood, D-Ala., complained: “That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.” Rep. William Upshaw, D-Ga., spoke of the “superabundance or large aggregation of Negro labor.” American Federation of Labor President William Green said, “Colored labor is being sought to demoralize wage rates.” The Davis-Bacon Act, still on the books today, virtually eliminated blacks from federally financed construction projects when it was passed.

During South Africa’s apartheid era, the secretary of its avowedly racist Building Workers’ Union, Gert Beetge, said, “There is no job reservation left in the building industry, and in the circumstances, I support the rate for the job (minimum wage) as the second-best way of protecting our white artisans.” The South African Nursing Council condemned low wages received by black nurses as unfair. Some nurses said they wouldn’t accept wage increases until the wages of black nurses were raised. The South African Economic and Wage Commission of 1925 reported that “while definite exclusion of the Natives from the more remunerative fields of employment by law has not been urged upon us, the same result would follow a certain use of the powers of the Wage Board under the Wage Act of 1925, or of other wage-fixing legislation. The method would be to fix a minimum rate for an occupation or craft so high that no Native would be likely to be employed.”

Whether support for minimum wages is motivated by good or by evil, its effect is to cut off the bottom rungs of the economic ladder for the most disadvantaged worker and lower the cost of discrimination.

[G M]

I think we need to raise the minimum wage to 100.00 an hour, so everyone can be rich!

[DougMacG]

"Whether support for minimum wages is motivated by good or by evil, its effect is to cut off the bottom rungs of the economic ladder for the most disadvantaged worker and lower the cost of discrimination."

Walter Williams and Obj have this right.  The media judges our minimum wage argument by how it polls, not how it cuts off employment.


GM: "I think we need to raise the minimum wage to 100.00 an hour, so everyone can be rich!"

It would be interesting to see a big government liberal try to explain why a 100/hr minimum would not be a good idea.  'Well if you set it too high no one would hire the less skilled workers...'  Yes, that's right.


It comes down to who owns the discussion.  If the question is minimum wage at 6 or 7 versus 9 or 10, why not choose higher?  If the question was to let people work versus leaving 20 or 25 million black or minority youth out of the workforce, maybe fewer locked out of the productive workforce would be better.  The question isn't how much pay but how should we value work.  Should we value it in a free and open marketplace or have Soviet style central planners take care of it? 

The real way wages and prosperity rise is to allow more businesses with more money compete to make the very most productive use of a limited supply of labor.  Instead we discourage that. We are blocking out with all means available the formation of new businesses and the expansions of existing ones that would otherwise drive up the demand for labor.

[G M]

Every lefty I talk to rejects the 100.00 an hour minimum, but can't explain why or give me what a "living wage" should be.

[DougMacG]

"Every lefty I talk to rejects the 100.00 an hour minimum, but can't explain why or give me what a "living wage" should be."

That's right.  If they tell you why 100/hr is absurd to pay for unskilled labor of limited value then they would also be telling you why $9 is also absurd to pay someone producing less than that.

Minimum wage, to belabor the point, is what you pay someone before they develop significant productive skills of value to the organization.  Should a person with no experience, knowledge or skills be paid on the first day enough to support a family of four comfortably?  Not in the real world.

Livable wage today in America is near zero.  People almost do not have to work to support a family of four and still risk obesity with the excesses.

What livable wage implies is the level of income would you need to earn in order to require no assistance from the government and live acceptably.  In America today, that might be reaching the 51st percentile of income or more, roughly 50,000 per household, not per person. 

Should we require all people to be paid above average income??  Only in Lake Wobegon are all the people above average.

The government should focus on getting government sector pay and benefits up or down to market levels.

[Crafty_Dog]

Good debate tactic that $100 minimum wage thing-- I will be using that!

[DougMacG]

The wars and national defense did not cause our trillion dollar deficits or the 16.5 trillion dollar debt, but measured in tenths of trillions, cutbacks and wars winding down are at least a little help in curbing spending growth:

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/30/why-defense-spending-dropped-22-last-quarter-and-shrunk-gdp/

Government defense expenditures dropped by a staggering 22.2 percent annual pace between October and December. According to the Bureau of Economic Analysis, the Pentagon spent significantly less on just about everything except military pay.

[DougMacG]

I don't dine at Dunkin Donuts nor care what they choose to serve.  What I care about is their freedom to make those decisions.  Actual sign explaining new regs:
http://www.powerlineblog.com/admin/ed-assets/2013/03/BloombergCity.bmp
(image too large to post)

Because of new laws, you will have to add your own sugar and you will have to add your own flavor with different rules for different sizes depending on whether your beverage is hot or cold.  Understand?  No one does.

Artificial sweeteners just found to be dangerous in the latest research are not regulated.  Yet.

Good f-ing grief.  Do they think health nuts go into these places?  After cigarettes, we joked about what is next.  The old joke of ordering 6 glazed doughnuts and Diet Coke has become the law.

They can prohibit from buying a toilet large enough to flush but allow you to have a 500 gallon hot tub.  Prohibit sugar in drinks but not in donuts.  Ban Mercury emissions from coal, then require it in light bulbs.  Ban 100w incandescent bulbs but allow unlimited use of specialty bulbs.  Stop the hitting in Football while subsidizing the stadiums where people love that.   Eliminate headers in soccer but allow martial arts. 

Don't joke about what they will regulate next.

[DougMacG]

Interesting observation by Stephen Moore that the reason the Senate has not passed a budget in 4 years in violation of their own law is because the Senate Budget committee was run by Kent Conrad, a moderate Dem from a liberty state (we don't use re-blue designations) who was spending hawk more than a tax raiser.

With Patty Murray in charge now, expect a budget and expect trillions in tax increases coming out of the Dem Senate.  Only 51 votes is required to pass a Senate budget, contrary to what Jack Liar Lew recently said.

http://online.wsj.com/article/SB10001424127887323628804578344801727234218.html?mod=WSJ_Opinion_MIDDLESecond

[DougMacG]

http://www.realclearpolitics.com/video/2013/03/10/paul_ryan_2013_gop_budget_assumes_repeal_of_obamacare.html

Paul Ryan: Republican budget assumes repeal of Obamacare

Chris Wallace: Well, that's not going to happen.

Doug: Who originates appropriations bills for fiscal year 2014, the Pelosi-Reid congress of 2009?

[DougMacG]

Rep. Andy Harris of Maryland:  "So let me get it — let me get it straight. Under the president’s cut of $58 million to the 317 program, you think you could get around that to avoid cutting vaccines to children, but under a sequester ($30 million 'cut'), that the president blames on Republicans, you don’t know if you can do that?"

Tom Frieden, Director of the Centers for Disease Control: We’re going to do everything we can to limit any damage that occurs because of the across-the-board cut, but it reduces our flexibility significantly.

http://washingtonexaminer.com/the-gop-congressman-who-destroyed-obamas-sequester-scare-story/article/2524071

[DougMacG]

Dem Senators want to raise taxes by a trillion and a half and still never balance the budget even working with a ridiculously long ten year time frame.

Kick the can down the road.  Who lives down the road?  Our children.  What American generation would leave their children worse off than themselves?  Only our own as far as I know.

http://www.powerlineblog.com/archives/2013/03/do-we-have-a-debt-crisis.php
http://www.investors.com/editorial-cartoons/michael-ramirez/647968

[DougMacG]

As the number receiving disability checks approaches 12 million and the number of new recipients growing faster than job growth, it seems to me we should either:  a) fire the surgeon general for completely ignoring the known cause of this epidemic, or b) celebrate the fact that we now have the healthiest disabled workers to ever walk this planet, helping to support our restaurants, bars and golf courses across the fruited plain.

http://www.theatlantic.com/business/archive/2013/03/disability-insurance-americas-124-billion-secret-welfare-program/274302/
http://apps.npr.org/unfit-for-work/
http://economics.mit.edu/files/7388

Obama's economy is empirically causing American disability, more than heart attacks or strokes, cigarettes or sodas:

[Crafty_Dog]

I'd love to see the data for 2011-12 as part of the graph , , ,

[DougMacG]

I'd love to see the data for 2011-12 as part of the graph , , ,

It would appear that both the SSDI new application rate and the unemployment rate are in a flat line pattern right now, both at unacceptably high levels:  http://www.ssa.gov/oact/STATS/dibStat.html

What should be shocking, and isn't, is that disability is more closely tied to economic not medical condition.

[Crafty_Dog]

By DAMIAN PALETTA
WASHINGTON—President Barack Obama's budget proposal next week will include a number of tax and spending changes, including new limits on the growth of Social Security benefits, that he offered to House Republicans in December, a senior administration official said.

The White House will also propose higher tobacco taxes to help pay for early-childhood education, new limits on tax-preferred retirement accounts for the wealthy and rules that would prohibit Americans from simultaneously collecting disability and unemployment benefits.


The budget changes would amount to roughly $1.8 trillion in deficit reduction over 10 years, with close to $700 billion coming from changes to the tax code and the rest coming from spending cuts and lower interest payments on government debt. This would lower the deficit, as a share of the economy, to 2.8% by 2016 and 1.7% by 2023, the senior administration official said.

In contrast, the Congressional Budget Office has estimated that if current policy stayed in place, the deficit would reach 2.5% of the economy by 2016 and then rise to 3.8% by 2023. House Republicans say their budget proposal, which wouldn't increase taxes but would cut spending deeply and overhaul entitlement programs, would cut the deficit to 0.4% of the economy by 2016 and then eliminate it entirely by 2023.

The White House budget blueprint, which will be released Wednesday, will include several items that many Democrats detest, notably using a different version of the consumer-price index to slow the growth rate of federal benefits such as Social Security.

Republican leaders are expected to welcome the spending cuts but reject the tax increases Mr. Obama will propose. The Social Security changes alone would likely reduce spending by $130 billion over 10 years.

The budget also would propose $400 billion in cuts to health programs over 10 years, including reduced payments to drug companies, among other things. The plan would also make changes to programs like farm subsidies and federal pensions to achieve more deficit reduction.

These changes would replace the so-called sequester, the across-the-board spending cuts that began March 1 and are affecting a range of military and other government programs.

The central tax change would limit the value of tax breaks that upper-income Americans can claim on their taxes, which the White House has previously estimated would bring in close to $600 billion over 10 years.

Many Democrats have fretted that the White House would include these changes in the budget, essentially locking the proposals into Mr. Obama's official vision for the country and the economy.

The proposed cuts to future Social Security payments are already causing consternation among Democrats, with many liberals saying they will oppose such changes. Liberals were heartened by comments made by Vice President Joseph Biden in August, when he said he could "flat guarantee you there will be no changes in Social Security." He told voters they could take that to the bank.

But Mr. Obama has always been more careful when talking about the program, saying some changes would be needed to ensure long-term solvency.

Proposing such changes is a calculated risk for Mr. Obama. Many Democrats fear House Republicans could swiftly move to try to implement the spending cuts proposed by the White House and put Democrats in the awkward position of voting against things Mr. Obama proposed. To address this, Mr. Obama is expected to make clear next week that the spending cuts and tax increases are part of a package and that the proposal can't be split into pieces.

But White House officials felt that they had already—quite publicly—proposed many of these changes and it would hurt them in negotiations to backpedal now. (See related White House document. ) On Wednesday evening, just hours after the budget is offered to Congress, Mr. Obama plans to dine with a number of Senate Republicans to talk about the budget and other issues.

Lawmakers and budget watchers will also be monitoring other parts of the budget, particularly areas in which Mr. Obama has promised to increase spending without adding to the deficit. The senior administration official said, for example, that the White House would propose expanding access to early-childhood education by raising taxes on cigarettes and other tobacco products.

Another proposal likely to draw attention would block individuals from accumulating more than $3 million in tax-preferred retirement accounts such as IRAs. Administration officials believe amounts above this threshold enable people to take advantage of tax rules.

"The budget would limit an individual's total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year in retirement, or about $3 million in 2013," the senior administration official said. "This proposal would raise $9 billion over 10 years."

The White House will also wade into the thorny issue of disability- and unemployment-insurance benefits. It will propose barring Americans from collecting unemployment benefits and disability benefits that cover the same period of time. Americans collecting unemployment benefits are supposed to be able to prove they are looking for work, and Americans collecting Social Security disability benefits are supposed to be able to prove they are unable to work. Social Security administrative law judges have complained in recent years that a number of people seeking disability benefits are simultaneously either applying for or collecting unemployment checks.

[Crafty_Dog]

Workers Stuck in Disability Stunt Economic Recovery .
By LESLIE SCISM and JON HILSENRATH

 
Former truck driver James Ottesen, of Mason, Ohio, said being on disability "kind of reminds me of welfare.'

The unexpectedly large number of American workers who piled into the Social Security Administration's disability program during the recession and its aftermath threatens to cost the economy tens of billions a year in lost wages and diminished tax revenues.

Signs of the problem surfaced Friday, in a dismal jobs report that showed U.S. labor force participation rates falling last month to the lowest levels since 1979, the wrong direction for an economy that instead needs new legions of working men and women to drive growth and sustain a baby boomer generation headed to retirement.

Michael Feroli, chief U.S. economist for J.P. Morgan, JPM +0.88%estimates that since the recession, the worker flight to the Social Security Disability Insurance program accounts for as much as a quarter of the puzzling drop in participation rates, a labor exodus with far-reaching economic consequences.

The unemployment rate in Friday's report fell to a four-year low of 7.6%, which most times signals job growth. This time it reflected workers leaving the workforce, a problem that could persist: Economists say relatively few people are likely to trade their disability checks for paychecks, in part because the program doesn't give much incentive to leave.

Former truck driver James Ottesen, who began receiving monthly payments in 2009, said, "I'm not real happy" about being on disability. "It kind of reminds me of welfare." He said he would "like to get re-educated to do something" because "my body is broke but my mind is not."

 .
But even if the 53-year-old Ohio man learned of a job he could do with herniated discs, he said, the government disability program feels like "a blanket covering you, and to walk out from it…at my age, it's a little intimidating."

Federal Reserve Chairman Ben Bernanke has worried that the financial crisis would lead to a permanent loss of workers, setting up what economists call hysteresis, a term borrowed from physics to describe temporary market changes that lead to permanent economic losses.

It is no longer a theoretical problem, said David Autor, a professor at the Massachusetts Institute of Technology, who has studied the disability program. The economy has a case of hysteresis, he said, created by the permanent transfer of workers to disability rolls.

Many newcomers to the disability roster are low-wage earners with limited skills, Mr. Autor said, and they are "pretty unlikely to want to forfeit economic security for a precarious job market."

More
More Claimants in Private Plans Return to Work
Real Time Economics: Disability Fund to Be Depleted by 2016
.
Payments, tied to a worker's wage history, average $1,130 a month, which totals $13,560 a year. That is about $2,000 a year more than the federal poverty level for a single person and about $2,000 less than full-time wages at the federal minimum of $7.25 an hour. After two years, people on disability are eligible for Medicare health insurance—another government benefit that encourages recipients to stay put.

Between December 2007, when the recession started, and June 2009, when it ended, the number of Americans receiving federal disability benefits grew to 7.6 million from 7.1 million. Then the rolls swelled, reaching 8.9 million in March, about 5.4% of the civilian workforce ages 25 to 64, according to J.P. Morgan estimates. That compares with 1.7% of the U.S. workforce in 1970.

Economic growth is driven by the number of workers in an economy and by their productivity. Put simply, fewer workers usually means less growth.

Since the recession, more people have gone on disability, on net, than new workers have joined the labor force. Mr. Feroli estimated the exodus to disability costs 0.6% of national output, equal to about $95 billion a year.

"The greater cost is their long-term dependency on transfers from the federal government," Mr. Autor said, "placing strain on the soon-to-be exhausted Social Security Disability trust fund."

Last year, Social Security paid nearly $137 billion to 8.8 million disabled workers and 2.1 million of their spouses and children; related Medicare costs were about $80 billion. Program trustees estimate that by 2016, Social Security won't be able to pay all of its disability claims.

In past recessions, discouraged workers dropped out of the labor force but returned when the economy picked up steam. About two-thirds of Americans ages 16 and older were either working or looking for work at the start of the current recovery in 2009.

But rather than expanding, the proportion of workers has since fallen to 63.3%, according to the government's March statistics, released Friday.

Enlarge Image


Close.
With overall participation down, the labor force—a measure of people working and people looking for work—is barely growing. In March it was up just 0.2% from a year earlier and has grown by just 318,000 people since the recession ended in June 2009 to 155 million workers. In the decade before the recession, the labor force grew on average by 1.2% per year.

Some lawmakers and public-policy analysts are calling for an overhaul of the disability program. Senate and House panels held hearings last year addressing shortcomings, including the failure to return more people to work.

The White House released details of its proposed budget Friday that called for closing loopholes that allow people to collect full disability and unemployment benefits over the same period.

The federal program provides a safety net to workers with severe illnesses and injuries. To obtain an award, workers must prove they haven't worked substantially for at least five months, and Social Security must determine that a medical impairment will prohibit work for at least a year.

With an expanded list of disabilities added by Congress in 1984, more than half of people awarded benefits now qualify because of musculoskeletal problems—including back pain—mood disorders and other mental problems, according to Social Security data. Such claims can take a year or more to assess because of their often-subjective nature.

Economists have found that more people apply for disability during periods of high unemployment, partly because they can't find work. Ailments they might endure during good times are instead used as an avenue out of the labor force.

The economic downturn drove about 2.2 million additional applications for disability, relative to what would have occurred in the absence of the slump, according to estimates by Mark Duggan, an economics and public-policy professor at the University of Pennsylvania's Wharton School, who has co-written research on the disability program with Mr. Autor.

About one million of those applicants likely remain out of the labor force, either because they got benefits or their applications were pending, Mr. Duggan said. Private disability insurance returns workers in far greater proportion.

In recent years, about a third of applicants have been accepted at the initial stage, which typically takes more than four months. Those rejected can appeal to administrative law judges for decisions that can take nearly two years, according to Messrs. Duggan and Autor.

With the economy improving, the disability roster is now expanding at a slower pace, though many economists expect its share of working-age people to continue growing.

The boom in disability is part of a longer-term trend that places the burden of economic casualties on the federal government. Some states use the program to reduce welfare costs, according to congressional testimony last year by David Stapleton, director of the Center for Studying Disability Policy at nonpartisan consulting firm Mathematica Policy Research.

States save money when federal disability checks replace state-paid benefits. Workers on federal disability also can switch from state-supported health insurance programs—such as Medicaid—to Medicare, he said.

The nation's burgeoning disability roster stems partly from the aging workforce: Baby boomers' bodies are breaking down, and some economists believe that the problem will level off once they reach retirement.

But boomers aren't the only ones seeking help, Of the nearly nine million former workers receiving federal disability payments, more than 2.5 million are in their 20s, 30s and 40s.

"It is difficult to overstate the role that the SSDI program plays in discouraging" employment among these young people, Messrs. Autor and Duggan said in one of their research papers, urging reform.

With its origins in the 1950s, the government disability program has for decades paid little attention to getting people back to work, largely because when it was created, medical treatments rarely improved the prospects of older factory workers in physically demanding jobs, the professors noted.

In 2011, the latest data available, fewer than 0.5% of beneficiaries left disability rolls to work again. Most leave the program by advancing to the Society Security retirement program, or they die.

The Social Security Administration has run an initiative since 1999 called Ticket to Work that offers vocational rehabilitation, career counseling and job-placement help. But the Government Accountability Office, the investigative arm of Congress, has repeatedly faulted the agency for failing to substantially boost participation: About 3% of those eligible were enrolled, a 2011 GAO study found.

Social Security Chief Actuary Stephen Goss said in an interview that the agency, by law, was geared toward providing "benefits to those with a longer-term, by-and-large permanent disability."

Social Security is committed to improving Ticket-to-Work, he said. In general, he said, his administrators are doing "a very good job with the staffing and resources that are available," given the surge in applications after the financial crisis.

Some disability experts suggest the government try tailoring special services and training for applicants most likely to return to work. "Right now, we have an income benefit that is not based on what you can do," said David Mann, a Mathematica researcher.

Mr. Mann, age 30, said many disabled people can work with the right help, and he included himself. Paralyzed in a diving accident as a teenager, he graduated from Princeton University and earned a doctorate in economics from the University of Pennsylvania. He uses a motorized wheelchair to navigate Mathematica's Princeton, N.J., offices.

Social Security administrators have been unable to keep up with periodic medical evaluations of SSDI beneficiaries, according to the program's inspector general. The backlog of required assessments shrank last year to 1.3 million people from 1.5 million, according to government data.

Such medical reviews in 2011 found 23,271 people able to return to work out of more than 345,000. The inspector general estimated that overdue medical reviews between 2005 and 2011 cost taxpayers $1.9 billion to $3.7 billion in benefits that shouldn't have been paid.

Mr. Ottesen used to drive trucks for a Cincinnati produce business until he flunked a job-required physical exam and lost his job. He said he had been driving despite his back pain.

He was initially denied federal disability benefits, and, like many applicants, he hired a lawyer, at government expense, to appeal.

Social Security pays for such legal help, based on the idea that experts help move cases faster, helping hold down the application backlog. Last year, Social Security paid $1.4 billion in fees to disability advocates.

After Mr. Ottesen was approved for a monthly disability payment of about $1,100, he considered looking for another line of work, he said, but "I don't know anything but driving a truck."

[Crafty_Dog]

By WILLIAM POOLE
President Obama will release his overdue budget on Wednesday. It will doubtless project a reduction in the federal budget deficit—a projection that journalists, commentators and policy makers should ignore. To do otherwise is to be complicit in fraud. Strong statement? Not really.

For 50 years or so the federal government has deliberately and to an increasing extent misstated probable future budget deficits. Democrats and Republicans are guilty. The White House is guilty. And so is Congress. Private firms that deliberately misrepresent their financial statements in this fashion would be guilty of a crime.

The magnitude of the misrepresentation is breathtaking. For one example, the bitterly contested "fiscal cliff" legislation (the American Taxpayer Relief Act of 2012) raised the top income tax rate to 39.6%. However, the Congressional Budget Office's latest (early February) deficit projection for 2013-22 is now $4.6 trillion higher than the baseline deficit it projected in mid-2012. After the tax increase, how can that be?

Easy. Congress requires the CBO to present its baseline budget projections on the basis of "current law." Congress then manipulates current law to understate probable future outlays beyond the present year, and to overstate probable future revenues. These manipulations change CBO baseline budget projections based on current law. Voilà, actual deficits exceed projections, and the previous budget projections are rendered meaningless.

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 .Congress can misrepresent the effects of any given piece of legislation in complex ways. It does not do so by entering, say, $800 million when the correct number is $900 million. Instead, Congress enacts certain tax and spending measures as "temporary" when it has no intention of allowing the provision to lapse; or it assumes legislative provisions in current law that would cut spending will be made, when Congress knows they never will.

Fortunately, some years ago the CBO began to present "alternative scenario" budget projections, in which differences from current-law projections are explained in detail. In its early February update, one example is that the 25% cut in physician Medicare reimbursements scheduled for next Jan. 1 will not occur. That adjustment increases the projected deficit in 2023 by $16 billion, and cumulatively by $138 billion from 2014-23. Congress has overridden the scheduled cut in physician reimbursements every year since 2003, in a legislative provision known as the "doc fix."

Another item in CBO's February "alternative" budget projection notes the effect on the deficit of extending certain expiring tax provisions in current law; that adjustment raises the projected 2014-23 deficit by $954 billion. In a footnote, the CBO says that "[t]hese estimates reflect the impact of extending about 75 provisions. Nearly all of those provisions have been extended previously; some, such as the research and experimentation tax credit, multiple times."

Keep in mind that these provisions may be extended piecemeal, and for differing periods, in various pieces of legislation over the course of the year. The American Taxpayer Relief Act of 2012 had about 30 of these so-called extenders.

What are traders, portfolio managers, journalists and citizens to do in the face of such practices? My recommendation is to ignore the official current-law scoring estimates of the federal budget, unless you have sufficient analytical resources to sort through the legislative details, line by line, and figure out what is really going on.

Some Republican commentators are too harsh on the CBO, saying or implying that it is complicit in the misleading projections. Federal law requires that CBO present current-law budget projections. To make that point clear, in its most recent budget update—a document 77 pages long—a search turns up 61 occurrences of "current law," "current laws," and "current-law."

The CBO goes out of its way to emphasize the problems with the budget projections it presents. Its "alternative scenario" projections are featured prominently. You may not like these alternative projections, because you would specify the alternative differently, but they are the only truly honest and useful effort in town.

The House and Senate budget committees could assist us by requesting that the CBO score all proposed legislation according to its alternative scenario as well as according to current law. If the committees won't do so, the ranking minority member of each committee could do so by sending a letter to the CBO.

U.S. fiscal policy is in a chaotic state. Policy decisions are wrapped around the convoluted budget accounting that Congress and the White House use to obfuscate, dissemble and hide what is really being done. That is a tragedy, and our democracy is worse for it.

Mr. Poole is a senior fellow at the Cato Institute and a former president of the Federal Reserve Bank of St. Louis.