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astralis
21 Jul 06,, 19:56
http://www.msnbc.msn.com/id/13957467/site/newsweek/

Utterly Shameless
How could President Bush publicly brag about a federal budget with a $296 billion deficit?

By Robert J. Samuelson
Updated: 2:55 p.m. PT July 20, 2006

July 20, 2006 - For those who believe our leading politicians are utterly shameless, there was dreary confirmation last week. President Bush publicly bragged about the federal budget. Here's the objective situation that inspired the president's self-congratulation: with the unemployment rate at 4.6 percent (close to "full employment" by anyone's definition), the White House and Congress still can't balance the budget. For fiscal 2006, which ends in September, the administration projects a $296 billion deficit; for fiscal 2007, the estimate is $339 billion. How could anyone boast about that?

Easy. In February the administration projected a $423 billion deficit for 2006, so the latest figure is a huge drop. A skeptic might say that the first estimate was inept; some cynics argue that it was deliberately exaggerated to magnify any subsequent improvement. Naturally the president had a different story. The shrinking deficits, he said, proved that his tax cuts are working. The economy is great; the budget benefits. All around Washington, Republicans staged media events to hug themselves for their good work.

The tendency for politicians to claim credit for favorable news is as natural as flatulence in cows. Still, the Republicans' orgy of self-approval amounts to a campaign of public disinformation. It obscures our true budget predicament. Let's go back to basics. Here are two essential points.

First, budget deficits are not automatically an economic calamity. Their effects depend on their timing, their size and other economic conditions. During recessions, deficits may prop up the economy. In a boom, they may drain money from productive investments. Similarly, deficits are only one influence on interest rates; others include inflation, the demand to borrow, the supply of savings and Federal Reserve policy. At present the effect of deficits is modest; otherwise, rates would be higher than they are (about 5 percent on 10-year Treasury bonds).

What truly matters is government spending. If it rises, then future taxes or deficits must follow. There's no escaping that logic. The spending that dominates the budget is for retirees. Social Security, Medicare (health insurance for those 65 and over) and Medicaid (partial insurance for nursing homes) already exceed 40 percent of federal spending. As baby boomers retire, these costs will explode. Unless they're curbed, they'll require tax increases of 30 percent to 50 percent over the next 25 years.

Second, the budget should be balanced—or run a surplus—when the economy is close to "full employment," as it is now. Balancing the budget forces politicians to make uncomfortable choices. Which programs are sufficiently needed or popular to justify unpleasant taxes? Balancing the budget also lightens the debt burden. One figure Bush doesn't praise is the annual interest payment on the growing federal debt. Even by White House estimates, it will rise from $184 billion in 2005 to $302 billion in 2011.

Some conservatives rationalize their indifference to deficits as "starving the beast." If you cut taxes and create deficits, government will spend less because it has less—much like a teenager whose allowance is cut. But the theory doesn't fit the facts. Economist William Niskanen of the Cato Institute, who worked in the Reagan administration, examined the relationship between deficits and federal spending from 1981 to 2005. He found that, contrary to the theory, spending rises when deficits rise. Deficits are what they seem: a way for politicians to escape inconvenient choices.

I have reserved my harshest scorn for Republicans, who are (after all) in power. But Democrats aren't much better. The nub of the matter is spending. When Republicans passed the Medicare drug benefit—the biggest new program in decades—Democrats actually advocated a more costly version. Whenever anyone suggests curbing spending, Democrats screech: Spare Social Security and Medicare. But Social Security and Medicare are the problem.

Just as Republicans now say their policies have cut deficits, Democrats contend their policies produced budget surpluses from 1998 to 2001. Nonsense. Those surpluses resulted mainly from the end of the cold war (which lowered defense spending) and the economic boom (which created an unpredicted surge of taxes). In a $13 trillion economy, much of what happens has little to do with the White House's economic policies. The bipartisan reflex is to claim credit where little is due.

Sooner or later an aging society will force taxes up and benefits down. But later, not sooner. The oldest baby boomers don't turn 65 until 2011. Meanwhile, it is precisely because the deficits don't threaten immediate economic turmoil that they are politically appealing. Nothing significant will happen because it's in no one's interest for anything significant to happen. Republicans don't want to raise taxes or restrain their spendthrift habits. Democrats love big deficits as rhetorical grenades to lob at the Republicans. The present paralysis is perfectly understandable. But to brag about it is disgraceful.

lwarmonger
21 Jul 06,, 21:00
But bragging about it is also so very political!

gunnut
21 Jul 06,, 21:29
How to cure the budget problem? Easy. Outlaw public employees unions.

These political machines do one thing very well, exponential expansion of the government budget via lifetime pensions.

Government employment should be viewed as job security. Government should obey the same economic laws that govern the private sector. Spend what you have. If you spend more than what you have, better start cutting back on salary or services. If we have to deal with layoffs in the private sector, so should they.

ZFBoxcar
21 Jul 06,, 22:04
Government should obey the same economic laws that govern the private sector.

The private sector sometimes has to deal with collective bargaining which you want to outlaw in the public sector.

gunnut
21 Jul 06,, 22:31
The private sector sometimes has to deal with collective bargaining which you want to outlaw in the public sector.

Collective bargaining also should obey the law of economics.

What are these unions? Really? They are labor monopolies. We have laws against monopolies. Someone actually saw my argument way back at the beginning of the 20th century and tried to bring the labor unions under the control of the Sherman Antitrust Act. The court ruled against the plantiff.

What are public employees unions? They are monopolies in a monopoly.

The government is a vast monopolistic beast. It does whatever it wants and we can't establish services to compete against it. That's monopoly.

US Postal Service is the best example of a government monopoly. It and only it can deliver mail. No one else can compete against it. It then uses this monopoly to fund its other operations, mainly package delivery. UPS and FedEx can beat the USPS at package delivery any time, any where. USPS stays in the game by funding it with money from its monopoly of mail delivery.

Micorsoft does the same thing and look how much trouble they're in. They use their nearly monopoly in operating systems market to fund their free internet browser business. Microsoft was sued by 19 states and the EU.

ZFBoxcar
22 Jul 06,, 03:58
I am not supporting government service monopolies. I have no problem with the private sector either competing with or supplanting government services. What I am saying is that artificially lowering the cost of labour by banning organization (the labour market is a market after all) is just as wrong as government monopoly. Why not propose simply getting around unions by having government management contract out their labour privately through a bidding process? That way the unions will either have to be in perpetual strike at which point they can be completely replaced by contract workers or the unions will learn to become less bloated and more market oriented.

astralis
22 Jul 06,, 06:21
How to cure the budget problem? Easy. Outlaw public employees unions.

gunnut,

actually, running the federal gov't itself is relatively inexpensive in relation to the federal budget. the biggest drains on the budget are social programs, whose problem is that they do not change in accordance to the times (medical technology have allowed us to live longer, more productive lives well into what was once considered old age). this is of course compounded by the fact that the elderly who benefit the most from these programs are also one of the most politically powerful/active groups in the country.

also, regarding privatization, there's of course the political difficulty of getting the gov't to actually get rid of public employee unions, an altogether unpopular act with either party. past that, examples ranging from singapore to taiwan to even california also demonstrate that privatization is not necessarily a cure-all panacea, either! :eek:

gunnut
22 Jul 06,, 09:47
I am not supporting government service monopolies. I have no problem with the private sector either competing with or supplanting government services. What I am saying is that artificially lowering the cost of labour by banning organization (the labour market is a market after all) is just as wrong as government monopoly. Why not propose simply getting around unions by having government management contract out their labour privately through a bidding process? That way the unions will either have to be in perpetual strike at which point they can be completely replaced by contract workers or the unions will learn to become less bloated and more market oriented.

Fortunately I have this problem solved as well. :eek:

We'll make labor unions compete with each other.

Imagine that, actually competing for your business. Have multiple labor unions compete for a contract with a company. It's still "collective bargaining," just not a monopoly any more. :biggrin:

gunnut
22 Jul 06,, 09:50
gunnut,

actually, running the federal gov't itself is relatively inexpensive in relation to the federal budget. the biggest drains on the budget are social programs, whose problem is that they do not change in accordance to the times (medical technology have allowed us to live longer, more productive lives well into what was once considered old age). this is of course compounded by the fact that the elderly who benefit the most from these programs are also one of the most politically powerful/active groups in the country.

Actually you'll be surprised at how much we pay the government employees, for life, with health benefits, for life. We should cut back on social programs as well. I truly believe the government spends 90% of the budget in various social programs on all levels of administration. Only 10% of the money actually reach those who truly need help.


also, regarding privatization, there's of course the political difficulty of getting the gov't to actually get rid of public employee unions, an altogether unpopular act with either party. past that, examples ranging from singapore to taiwan to even california also demonstrate that privatization is not necessarily a cure-all panacea, either! :eek:

Have the courts split up the labor unions like how they split up Ma Bell into Baby Bells.

HistoricalDavid
22 Jul 06,, 13:14
Is it perhaps time to increase the retirement age across the Western world? (from its current level, in various countries, of 60 to 65.)

I'm probably going to be working until I'm 75+, ha.

gunnut
22 Jul 06,, 18:28
Is it perhaps time to increase the retirement age across the Western world? (from its current level, in various countries, of 60 to 65.)

I'm probably going to be working until I'm 75+, ha.

I believe the US is already at 67. That being the age one is allowed to receive Social Security checks. Private companies and insurance policies or whatever may be different and stays at 65.