July 30, 2011 § Leave a comment
Some useful information on the debt ceiling. First, this is why it is a really, really bad idea to lose the triple A rating on the world’s reserve currency:
America’s AAA-rating on our sovereign debt is useful to the American people. But it also plays a crucial role in the global economy as a whole. People and firms want access to safe sovereign debt for a variety of purposes. If we lose that rating, can people just start using German debt instead?
Basically, no. There’s not nearly enough German or French or British AAA-rated debt out there to play the kind of global role that U.S. Treasuries currently play. The world’s second largest economy, China, doesn’t have liquid capital markets, and the third largest economy, Japan, has already lost its AAA-rating.
[UPDATE] Incidentally, the “other” AAA-rated countries are the Netherlands, Australia, Austria, Norway, Singapore, Switzerland, Sweden, Denmark, Finland, Luxembourg, and Hong Kong. So the issue, as you can see, isn’t so much a shortage of non-U.S. AAA-rated sovereigns, it’s that these are all small countries who are highly rated in part because they don’t have very much debt outstanding.
The most important thing to understand about what we are going to cut is that there is no way that discretionary spending cuts, with no change to the tax code, military or entitlements, are not ever going to fix our deficit. In fact, you could cut the entire discretionary budget to zero (minus defense) and it still wouldn’t eliminate the deficit. Here is a good breakdown of what we’d need to cut if we leave all tax expenditures, interest on the debt, Social Security, military pay, and Medicare untouched:
- You just cut the IRS and all the accountants at Treasury, which means that the actual revenue you have to spend is $0.
- The nation’s nuclear arsenal is no longer being watched or maintained
- The doors of federal prisons have been thrown open, because none of the guards will work without being paid, and the vendors will not deliver food, medical supplies, electricity,etc.
- The border control stations are entirely unmanned, so anyone who can buy a plane ticket, or stroll across the Mexican border, is entering the country. All the illegal immigrants currently in detention are released, since we don’t have the money to put them on a plane, and we cannot actually simply leave them in a cell without electricity, sanitation, or food to see what happens.
- All of our troops stationed abroad quickly run out of electricity or fuel. Many of them are sitting in a desert with billions worth of equipment, and no way to get themselves or their equipment back to the US.
- Our embassies are no longer operating, which will make things difficult for foreign travellers
- No federal emergency assistance, or help fighting things like wildfires or floods. Sorry, tornado people! Sorry, wildfire victims! Try to live in the northeast next time!
- Housing projects shut down, and Section 8 vouchers are not paid. Families hit the streets.
- The money your local school district was expecting at the October 1 commencement of the 2012 fiscal year does not materialize, making it unclear who’s going to be teaching your kids without a special property tax assessment.
- The market for guaranteed student loans plunges into chaos. Hope your kid wasn’t going to college this year!
- The mortgage market evaporates. Hope you didn’t need to buy or sell a house!
- The FDIC and the PBGC suddenly don’t have a government backstop for their funds, which has all sorts of interesting implications for your bank account.
- The TSA shuts down. Yay! But don’t worry about terrorist attacks, you TSA-lovers, because air traffic control shut down too. Hope you don’t have a vacation planned in August, much less any work travel.
- Unemployment money is no longer going to the states, which means that pretty soon, it won’t be going to the unemployed people.
WHERE THE US SPENDS IT’S TAX DOLLARS:
The US government spends money on programs in 2 ways. The first is direct payments from taxes collected. The government sends out about 80 million checks per month to citizens, contractors and other businesses. The second method is subsidies in the tax code. Here, rather than collect a tax and send a check, the government rebates the amount of taxes owed. Here is a chart showing where our direct payment tax money goes
That amounts to about 2.4 trillion dollars/year. There is another 1.2 trillion/year in tax subsides that go to businesses and individuals. For thes government programs, rather than send out a check, the amount of the government subsidy is rebated through a tax deduction. In effect, some pay a lower tax rate while others pay more to make up the difference. These so-called “Tax Expenditures” are government subsidies designed to encourage certain types of investment( like R&D or home ownership) or behavior (like retirement saving or having children). Some of these programs are nearly as large and every bit as popular as Social Security. For example, a self employed renter with no kids, no 401k and no employer provided health insurance pays lots of extra income tax so that people who do have kids and mortgages and tax free health insurance from their employer can pay less. A worker pays more in income tax so that an investor can pay less in capital gains tax. And a small business pays a corporate tax rate 10x higher the GE or Exxon Mobile because of all the breaks and subsidies they have acquired over the years. Its important to remember that a cost is a cost no matter how it shows up on the books or if there was a middle man or not to write a check. Here is some info on the size of these tax expenditures:
Treasury Tax Expenditures by Sector (History and Projections, $ Billions)
Source: Subsidyscope analysis of data
A list and explanation of the top 10 most expensive tax expenditure programs is available from Forbes here. And here is a look at how big those programs are compared to some other government programs:
July 28, 2011 § Leave a comment
Robin Hanson has a post up about the futility of opinion survey’s. Most people have no consistency at all in their answers; we seem to make up an opinion just because the question was asked, not because we had ever thought about it before. He quotes the paper:
Perhaps the most devastating problem with subjective [survey] questions, however, is the possibility that attitudes may not “exist” in a coherent form. A first indication of such problems is that measured attitudes are quite unstable over time. For example, in two surveys spaced a few months apart, the same subjects were asked about their views on government spending. Amazingly, 55% of the subjects reported different answers. Such low correlations at high frequencies are quite representative.
Part of the problem comes from respondents’ reluctance to admit lack of an attitude. Simply because the surveyor is asking the question, respondents believe that they should have an opinion about it. For example, researchers have shown that large minorities would respond to questions about obscure or even fictitious issues, such as providing opinions on countries that don’t exist.
This is one of those observations that really does seem painfully true and made me think of this quote from Emerson’s Sef Reliance:
But why should you keep your head over your shoulder? Why drag about this corpse of your memory, lest you contradict somewhat you have stated in this or that public place? Suppose you should contradict yourself; what then? It seems to be a rule of wisdom never to rely on your memory alone, scarcely even in acts of pure memory, but to bring the past for judgment into the thousand-eyed present, and live ever in a new day. In your metaphysics you have denied personality to the Deity: yet when the devout motions of the soul come, yield to them heart and life, though they should clothe God with shape and color. Leave your theory, as Joseph his coat in the hand of the harlot, and flee.
A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. With consistency a great soul has simply nothing to do. He may as well concern himself with his shadow on the wall. Speak what you think now in hard words, and to-morrow speak what to-morrow thinks in hard words again, though it contradict every thing you said to-day.
It is just our nature to bullshit.
July 25, 2011 § Leave a comment
From a brilliant post at Esquire, published the day before the violence in Oslo:
“… At the beginning of this year, not long after they’d found the bomb on the bench in Spokane, a journalist named David Neiwert put together a list of nearly thirty acts of right-wing political violence that had taken place, or had been foiled, in the United States since the summer of 2008 — or roughly since Barack Obama’s presidency began to be seen as a genuine possibility. The list began with Jim David Adkisson, who killed two people in a Unitarian church in Tennessee because he was angry at how “liberals” were “destroying America.” It included two episodes in April 2009, one in Pittsburgh and one in Florida, in which men who were sure that Barack Obama’s government was coming for their guns opened fire on law-enforcement officers who had come to investigate them on other matters.
Some of the crimes on the list were briefly sensational — Scott Roeder’s murder of Dr. George Tiller in Wichita, or Joseph Andrew Stack’s flying his small plane into a building in Austin in protest of the Internal Revenue Service, or the incoherent array of violent crimes committed by the “Sovereign Citizens Movement.” But most of them barely made the national radar at all. In December 2008, a woman in Belfast, Maine, named Amber Cummings shot to death her sleeping husband, James, who’d been savagely abusing her. Upon arriving at the Cummings home, investigators found Nazi paraphernalia and a stash of chemicals indicating that James Cummings was preparing to make a “dirty bomb” that he planned to detonate at Obama’s inauguration. Except in the local media, that aspect of the case disappeared completely. James Cummings and his bomb had nothing to do with Scott Roeder’s handgun or Joe Stack’s airplane.
It is a fertile time for such things. The country elected a black president with an exotic name. The economy, wrecked by a rigged game at the highest levels, continued to grind through a jobless recovery. The national dialogue grows coarser and wilder, and does so at a pace accelerated by technology. People sense the fragmentation — things are falling apart — even while they take refuge in those fragments of life that seem safest and most familiar…
The bomb in the bag on the bench in Spokane was a shrapnel bomb, a direct descendant of Henry Shrapnel’s original brainchild. It was specifically designed and carefully placed to create an expanding killing zone, a sideways rain of lethal fragments. A child could have been killed by the blast itself, or by a piece of the bench, or by a chunk of the child’s own father. After all, shrapnel is nothing more than undifferentiated fragments with sufficient force applied.
That the bomb did not do what it was designed to do was a combination of luck and human agency. (It was a triumph for public employees, to put it in the context of our current political argument.) That the events of January 17 largely have faded from the news has nothing to do with luck at all. That is all human agency — how a fragmented country gathers the pieces of an event like this and tries to construct from them, not necessarily the truth of what happened, but a story that the country can live with, one more fragment among dozens of others that the country has remembered to forget.
Don’t talk, then, about the wildness in our rhetoric today, and its undeniable roots in that deep strain of political violence that runs through our national DNA, on a gene that is not always recessive. Don’t relate Centennial Park in Atlanta in 1996 to Oklahoma City to murdered doctors to Columbine, and then to Tucson and to the bag on the bench in Spokane. Ignore the patterns, deep and wide, that connect each event to the other like a slow-burning fuse to a charge. That there are among us rage-hardened, powerless people who resort to the gun and the bomb. That there are powerful people who deplore the gun and the bomb, but who do not hesitate to profit from their use. And when the gun goes off or the bomb explodes, the powerful will deplore the actions of the powerless, and they will reassure the rest of us that We are not like Them, who are violent and crazy and whose acts have no reason beyond unfathomable madness. But above all, they will say, Ignore the fact that there is still a horrible utility in political violence, the way there was during Reconstruction, or during the labor wars of the early twentieth century. If there were not, it wouldn’t be so hard to get an abortion in Kansas, and assault weapons would not have been accessories of choice at recent rallies purportedly held to discuss changes in the way the country organizes its health-care system.”