Debt and Crisis

The CBO Director's Blog has an ominous assessment of the where our massively increasing national debt may be leading us in the coming decade.  While the brief is careful to note that there is no way to accurately predict when and if increasing debt will lead to financial crisis or collapse, history (and recent experiences in Greece and Poland) indicates that out-of-control debt leads to collapse.

'Unfortunately, there is no way to predict with any confidence whether and when such a crisis might occur in the United States. In a brief ("Federal Debt and the Risk of a Fiscal Crisis") released today, CBO notes that there is no identifiable “tipping point” of debt relative to the nation’s output (gross domestic product, or GDP) that would indicate that such a crisis is likely or imminent. However, in the United States, the ratio of federal debt to GDP is climbing into unfamiliar territory—and all else being equal, the higher the debt, the greater the risk of such a crisis.  Over the past few years, U.S. government debt held by the public has grown rapidly. According to CBO’s projections, federal debt held by the public will stand at 62 percent of GDP at the end of fiscal year 2010, having risen from 36 percent at the end of fiscal year 2007, just before the recession began. In only one other period in U.S. history—during and shortly after World War II—has that figure exceeded 50 percent.'

The full CBO report is here.  Standouts from the report include the following notes:

'In particular, when many workers are unemployed, and much capacity (such as equipment and buildings) is unused, higher government spending and lower tax revenues usually increase overall demand for goods and services, which leads firms to boost their output and hire more workers.4 But those short-term benefits carry with them long-term costs: Unless offsetting actions are taken at some point to pay off the additional government debt accumulated while the economy was weak, people’s future incomes will tend to be lower than they otherwise would have been.'

In other words, continuing to add one government spending program after another, without concern for the long-term economic impacts, and without a plan for retraction, will lead to individual impacts that are worse than if the government had let the economy self-correct.  Self-correction is of course not always desirable, and is frequently politically impossible, but wise leadership would apply only the remedy that is absolutely necessary, in a restrained, well-planned method, and with definitely plans for retraction.

'One impact of rising debt is that increased government borrowing tends to crowd out private investment in productive capital, because the portion of people’s savings used to buy government securities is not available to fund such investment. The result is a smaller capital stock and lower output and incomes in the long run than would otherwise be the case. The effect of debt on investment can be offset by borrowing from foreign individuals or institutions. But additional inflows of foreign capital also create the obligation for more profits and interest to flow overseas in the future. Thus, although flows of capital into a country can help maintain domestic investment, most of the gains from that additional investment do not accrue to the residents. ... Another impact of rising debt is that, as government debt grows, so does the amount of interest the government pays to its lenders (all else being equal). If policy makers wished to maintain government benefits and services while the amount of interest paid grew, tax revenues would eventually have to rise as well. To the extent that additional tax revenues were generated by increasing marginal tax rates, those rates would discourage work and saving, further reducing output and incomes. Alternatively, policymakers could choose to offset the rising interest costs, at least in part, by reductions in benefits and services.'

No matter how well-meaning policy-makers may be, the rapid growth of government involvement in the economy inevitably leads to long-term, unintended, negative consequences. Government expansion as a proscriptive against crisis may trigger the very event it seeks to avert.  Finally, the report cites a lack of flexibility in responding to other crises (e.g., national security crises) as an affect of massive debt.

'A large amount of debt, however, leaves less flexibility for government actions to address financial and economic crises, which, in many countries, have been very costly to the government (as well as to residents). A large amount of debt could also harm national security by constraining military spending in times of crisis or limiting the ability to prepare for a crisis.'

Finally, a little bit of historical summary:

'Fiscal crises around the world have often begun during recessions and, in turn, have often exacerbated them. Frequently, such a crisis was triggered by news that a government would, for any number of reasons, need to borrow an unexpectedly large amount of money. Then, as investors lost confidence and interest rates spiked, borrowing became more difficult and expensive for the government. That development forced policymakers to immediately and substantially cut spending and increase taxes to reassure investors—or to renege on the terms of its existing debt or increase the supply of money and boost inflation. In some cases, the crisis made borrowing more expensive for private borrowers as well, because uncertainty about the government’s policy response to the crisis raised risk premiums throughout the economy. Higher private interest rates, combined with reductions in government spending and increases in taxes, have tended to worsen economic conditions in the short term.'

The report on debt of course ties directly to the CBO's recent budget outlook report. The opening summary paragraphs lay out the same arguments noted above, largely from the perspective of government spending on health care, medicare/medicaid, etc.

'Recently, the federal government has been recording the largest budget deficits, as a share of the economy, since the end of World War II. As a result of those deficits, the amount of federal debt held by the public has surged. At the end of 2008, that debt equaled 40 percent of the nation's annual economic output (as measured by gross domestic product, or GDP), a little above the 40-year average of 36 percent. Since then, large budget deficits have caused debt held by the public to shoot upward; the Congressional Budget Office (CBO) projects that federal debt will reach 62 percent of GDP by the end of this year--the highest percentage since shortly after World War II. The sharp rise in debt stems partly from lower tax revenues and higher federal spending related to the recent severe recession and turmoil in financial markets. However, the growing debt also reflects an imbalance between spending and revenues that predated those economic developments. As the economy recovers and the policies adopted to counteract the recession and the financial turmoil phase out, budget deficits will probably decline markedly in the next few years. But over the long term, the budget outlook is daunting. The retirement of the baby-boom generation portends a significant and sustained increase in the share of the population receiving benefits from Social Security, Medicare, and Medicaid. Moreover, per capita spending for health care is likely to continue rising faster than spending per person on other goods and services for many years (although the magnitude of that gap is very uncertain). Without significant changes in government policy, those factors will boost federal outlays sharply relative to GDP in coming decades under any plausible assumptions about future trends in the economy, demographics, and health care costs.'

Daunting indeed.

Double Dip ... Polling

President Obama's poll numbers have dipped back into negative territory (actually, they've been there for most of the prior two weeks) in a big way with today's polling numbers.  The RCP average puts him at -3.3.  Only the Time Magazine poll (never a bell-weather) has him in positive territory at +4, and Rasmussen has fallen to -12 (likely voter poll).  Congress continues it's slow fall into the abyss at almost -50, while the Republicans are up over the Dems at +3.3.  The RCP average for direction of the country is -28.7.  Finally, the major toss-up elections are started to lean Republican, including major seats (e.g.: Boxer and Reid).  With less than 100 days to the mid-term election, the Democrats are fast-approaching a decision-point: stick with Obama or resist to save their own skins.  It's going to be an interesting Fall.

When Does Sympathy Become Something More?

The saga continues surrounding the release on The Daily Caller of Journolist archives and emails, that suggested remarkable cohesiveness at the best, collusion at the worst, among the liberal bloggers, journalists and academicians that were its members.  On the one end we have the argument that the Journolist members were only like-minded partisans who kicked ideas around but never followed through.  This argument, epitomized by HuffPo, winds up with sentiment that '... IT'S ONLY THE FINAL PRODUCT THAT GETS REVIEWED. You're not supposed to be held responsible for the things you test behind the scenes, and then never follow through on.'  This conclusion presupposes that once a central message is discussed and largely agreed upon, that message won't be promulgated.  Possibly this is true, but I doubt that many members of any profession would be so restrained.  Emails such as these have been used to push through settlements with companies in the past, on the presumption that they are incapable of refraining from following through on a plan for collusion once it has been thoroughly discussed.  Opinions expressed at the Dallas Morning News, NewsBusters, Politics Daily, RCP, and the LA Times have all expressed deep alarm at the apparent interest by liberal news-makers and analysts in bolstering the campaign of now-President Obama while finding ways to denigrate his opponents.  This is certainly not illegal, but it is also not ethical or honest.  While bloggers almost never pretend to objectivity, the journalists who participated do.  And citizens depend on them at least attempting to put aside their own biases and opinions to objectively report the news.  In reality, few would believe that this really happens - the very selection of which stories to report expresses bias and a worldview.  However, the emails already published on the Daily Caller (today's batch deals with nasty speculation about Trig Palin), clearly go beyond even the pretense of objectivity.  Nor does their release rise to the level of clever editing, a la Sherrod and Brietbart, although Tucker Carson certainly runs the Daily Caller based on his own opinion and background.  What they do show at best, is that many participants in media and messaging are unwilling to put aside their personal beliefs long enough to see where facts lead them.  David Warren at RCP called this mind-set 'Journolism,' and attributes it to the insular, not to say incestuous, nature of most media organizations:

'I would say, no, they don't have to. These are all things they (er, "we") can do instinctively, without any need of formal co-ordination. All that is required is a profession whose practitioners form a self-recognizing class; who share a settled (and rather conformist) view of the world; and who spend most of their lives in each other's company, hardly ever meeting, let alone mixing socially with, people of other classes with other points of view.'

Here is where the real problem lies - it's impossible to tell the difference after awhile between real collusion and simple sympathy when so little distance lies between the two.  Perhaps it would be better for the media to adopt the long-standing principle taught to military officers and government officials: avoid the appearance of wrong-doing as well as actual wrong.

Collusion

Sigh. Why I am not surprised by this.

'Excerpts published Tuesday by a conservative online news site suggest that a group of journalists from the mainstream media discussed ways to shield Barack Obama from criticism during the 2008 presidential election. Among the strategies put forward: call conservative critics racists. ... "The [JournoList] is troubling," says Jim Campbell, a political science professor at the State University of New York (SUNY) in Buffalo. "At one level it could be thought of as just colleagues throwing ideas out to one another, but from another standpoint it almost looks like collusion … where virtual talking points are shared and solidified in a group.”'

Not much new under the sun, is there?

Another Quarter - Another Afghanistan Mission

Per the AP and Fox News: 'Secretary of State Hillary Clinton is heading to South Asia on a mission aimed at refining the goals of the nearly 9-year-old conflict in Afghanistan as fears mount about the war.'  We have consistently failed to establish a clearly stated mission in Afghanistan, adapting tactics to the situation as necessary, and we have yet to properly and fully source any of the stated missions to date.  Instead, we keep redefining the mission, accomplishing little in the way of long-term success as a result.  These are failures of both the Bush and Obama Administrations, and must be rectified if we are to achieve success.  This is not to advocate that we blindly stick with a mission that we're unable to accomplish, or for which there is no political and public will, but we must find a mission that we can and will support.  Otherwise, there is little point to being there.

Monkey See No Evil

H/T TwiceRight:

That's right, when in doubt, deny, deny, deny. Hope and change in action folks.

The Public's Latest Sobriety Treatment for the Government

Oh my, my, my.  The President's RCP average is down to -1.9, Congress is at -49.4, the GOP is up to +1.7, and the country overwhelmingly feels that the country is going in the wrong direction.  Worse for the President and Democrats, Independents are abandoning them almost across the board.  I'd like to crow, but the reality is that it's too late for crowing - the country bought into a pile of hogwash and spin in 2008, and we're going to be reaping the consequences, particularly economic consequences, for long after this Administration.  That's too serious for enjoyment.  Additionally, while many GOP candidates are performing extremely well now (e.g., Fiorina is now tied with Boxer in a dead heat), there is no overall agreement on an economic recovery plan within the GOP.  Winning in 2010 will provide a short-lived celebration without one.

In short, the public would generally agree that many politicians on all side fit this fine quote from 'MI-5' ('Spooks' in the UK): "You're just another bureaucrat with erectile dysfunction."

Independence Day 2010

Unlike the political classes of today, on all sides, the Founding Fathers knew how to write with clarity, brevity and eloquence.  May God bless America.

The Unanimous Declaration of the Thirteen United States of America (July 4, 1776)
When, in the course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the laws of nature and of nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness. Prudence, indeed, will dictate that governments long established should not be changed for light and transient causes; and accordingly all experience hath shown that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same object evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security. --Such has been the patient sufferance of these colonies; and such is now the necessity which constrains them to alter their former systems of government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute tyranny over these states. To prove this, let facts be submitted to a candid world.

He has refused his assent to laws, the most wholesome and necessary for the public good.

He has forbidden his governors to pass laws of immediate and pressing importance, unless suspended in their operation till his assent should be obtained; and when so suspended, he has utterly neglected to attend to them.

He has refused to pass other laws for the accommodation of large districts of people, unless those people would relinquish the right of representation in the legislature, a right inestimable to them and formidable to tyrants only.

He has called together legislative bodies at places unusual, uncomfortable, and distant from the depository of their public records, for the sole purpose of fatiguing them into compliance with his measures.
He has dissolved representative houses repeatedly, for opposing with manly firmness his invasions on the rights of the people.

He has refused for a long time, after such dissolutions, to cause others to be elected; whereby the legislative powers, incapable of annihilation, have returned to the people at large for their exercise; the state remaining in the meantime exposed to all the dangers of invasion from without, and convulsions within.

He has endeavored to prevent the population of these states; for that purpose obstructing the laws for naturalization of foreigners; refusing to pass others to encourage their migration hither, and raising the conditions of new appropriations of lands.

He has obstructed the administration of justice, by refusing his assent to laws for establishing judiciary powers.

He has made judges dependent on his will alone, for the tenure of their offices, and the amount and payment of their salaries.

He has erected a multitude of new offices, and sent hither swarms of officers to harass our people, and eat out their substance.

He has kept among us, in times of peace, standing armies without the consent of our legislature.

He has affected to render the military independent of and superior to civil power.

He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his assent to their acts of pretended legislation:

For quartering large bodies of armed troops among us:

For protecting them, by mock trial, from punishment for any murders which they should commit on the inhabitants of these states:

For cutting off our trade with all parts of the world:

For imposing taxes on us without our consent:

For depriving us in many cases, of the benefits of trial by jury:

For transporting us beyond seas to be tried for pretended offenses:

For abolishing the free system of English laws in a neighboring province, establishing therein an arbitrary government, and enlarging its boundaries so as to render it at once an example and fit instrument for introducing the same absolute rule in these colonies:

For taking away our charters, abolishing our most valuable laws, and altering fundamentally the forms of our governments:

For suspending our own legislatures, and declaring themselves invested with power to legislate for us in all cases whatsoever.

He has abdicated government here, by declaring us out of his protection and waging war against us.

He has plundered our seas, ravaged our coasts, burned our towns, and destroyed the lives of our people.

He is at this time transporting large armies of foreign mercenaries to complete the works of death, desolation and tyranny, already begun with circumstances of cruelty and perfidy scarcely paralleled in the most barbarous ages, and totally unworthy the head of a civilized nation.

He has constrained our fellow citizens taken captive on the high seas to bear arms against their country, to become the executioners of their friends and brethren, or to fall themselves by their hands.

He has excited domestic insurrections amongst us, and has endeavored to bring on the inhabitants of our frontiers, the merciless Indian savages, whose known rule of warfare, is undistinguished destruction of all ages, sexes and conditions.

In every stage of these oppressions we have petitioned for redress in the most humble terms: our repeated petitions have been answered only by repeated injury. A prince, whose character is thus marked by every act which may define a tyrant, is unfit to be the ruler of a free people.

Nor have we been wanting in attention to our British brethren. We have warned them from time to time of attempts by their legislature to extend an unwarrantable jurisdiction over us. We have reminded them of the circumstances of our emigration and settlement here. We have appealed to their native justice and magnanimity, and we have conjured them by the ties of our common kindred to disavow these usurpations, which, would inevitably interrupt our connections and correspondence. They too have been deaf to the voice of justice and of consanguinity. We must, therefore, acquiesce in the necessity, which denounces our separation, and hold them, as we hold the rest of mankind, enemies in war, in peace friends.

We, therefore, the representatives of the United States of America, in General Congress, assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the name, and by the authority of the good people of these colonies, solemnly publish and declare, that these united colonies are, and of right ought to be free and independent states; that they are absolved from all allegiance to the British Crown, and that all political connection between them and the state of Great Britain, is and ought to be totally dissolved; and that as free and independent states, they have full power to levy war, conclude peace, contract alliances, establish commerce, and to do all other acts and things which independent states may of right do. And for the support of this declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our lives, our fortunes and our sacred honor.

New Hampshire: Josiah Bartlett, William Whipple, Matthew Thornton
Massachusetts: John Hancock, Samual Adams, John Adams, Robert Treat Paine, Elbridge Gerry
Rhode Island: Stephen Hopkins, William Ellery
Connecticut: Roger Sherman, Samuel Huntington, William Williams, Oliver Wolcott
New York: William Floyd, Philip Livingston, Francis Lewis, Lewis Morris
New Jersey: Richard Stockton, John Witherspoon, Francis Hopkinson, John Hart, Abraham Clark
Pennsylvania: Robert Morris, Benjamin Rush, Benjamin Franklin, John Morton, George Clymer, James Smith, George Taylor, James Wilson, George Ross
Delaware: Caesar Rodney, George Read, Thomas McKean
Maryland: Samuel Chase, William Paca, Thomas Stone, Charles Carroll of Carrollton
Virginia: George Wythe, Richard Henry Lee, Thomas Jefferson, Benjamin Harrison, Thomas Nelson, Jr., Francis Lightfoot Lee, Carter Braxton
North Carolina: William Hooper, Joseph Hewes, John Penn
South Carolina: Edward Rutledge, Thomas Heyward, Jr., Thomas Lynch, Jr., Arthur Middleton
Georgia: Button Gwinnett, Lyman Hall, George Walton