Fund Your Utopia Without Me.™

16 June 2012

The Rain Of Greek Pain May Have Ended On A Plain In Spain...But, Only Temporary Will Be The Gain



M2RB:  The GoGo's







Vacation
All I ever wanted
Vacation
Had to get away
Vacation





"Germans are not prepared to pay for anyone's 'vacation from reality'." 

- Der Spiegel



By Gwynne Dyer
Published in the Japanese Times as "Greek election decided in Spain"


It's probably the first time that events in Spain have decided the outcome of a Greek election. Last weekend the European Union agreed to loan Spain's nearly insolvent banks €100 billion on relatively easy terms. Syriza, the hard-left protest party that came from nowhere to dominate last month's election in Greece, will therefore almost certainly emerge from next Sunday's rerun of that election as the biggest party in parliament.

The party that wins the largest number of votes in a Greek election gets an extra 50 seats, so Syriza will probably lead the next Greek government. It would then demand a renegotiation of the EU's much harsher terms for bailing out the Greek economy — and it might even get it. 


That would prolong the agony of the euro, but it wouldn't actually save it. The common currency is doomed, at least in its current form, precisely because countries like Greece and Spain were allowed to join the euro.


It's not that they were more reckless and improvident than the Northern European countries who were really guaranteeing the common currency's value (though the Greeks certainly were). What dooms the euro is the fact that the Southern European economies are far less efficient.

The fundamental mistake was made in 1999, when the political attraction of a common European currency triumphed over the economic rationality that said countries with radically different economies should not be trapped in a single currency. The current financial crisis, which threatens to destroy Europe's prosperity and even its unity, is an inevitable consequence of that original error.

The economic logic argues that less productive economies should have their own currencies, which they can devalue from time to time in order to stay competitive. But the political imperative of European unity is still seen as linked to the euro (though it doesn't have to be). Endless dithering over bail-outs is the result.

What happened to Spain illustrates the problem. Spanish governments were responsible in their euro borrowing: they never ran a deficit of over 3 percent before the world financial crisis hit in 2008. The euro did, however, let Spanish consumers and companies borrow money at a very low rate of interest, since everybody assumed that the powerhouse economies of northern Europe were the ultimate guarantors of euro debt.

The result was one of history's biggest housing bubbles, a mountain of corporate debt as Spanish companies went in for headlong expansion — and huge exposure to bad risks by the Spanish banks that lent the money.

In 2008 the inflated property values crashed and the foolish investments came home to roost. The Spanish government's borrowing ballooned as it poured money into saving the banks — and when it could not raise any more funds either, the European Union stepped in last week with €100 billion to stave off a default.

Well, it had to. A Spanish default would bring the whole rickety structure crashing down, and nobody has yet figured out how to dismantle the euro without a huge amount of collateral damage. The EU is merely doing crisis management and has no strategy for fixing the euro (other than a unified European state, which is not going to happen). But what interests the Greeks is the terms of the EU loan to Spain.

Or rather, the lack of any restrictive conditions in the EU loan: 


It imposed no obligation for the Spanish government to raise taxes or cut spending further. That is exactly the deal that Alexis Tsipras, the charismatic leader of the Syriza party, says he can get for Greece, and in this last week before the Greek election he will use the evidence from Spain to good effect. He will, of course, make no mention of the fact that Spain's crisis and Greece's are very different.


From the day the euro was launched in 2002, Greek governments borrowed like there was no tomorrow, and lied to the EU both about the scale of the country's indebtedness and the purposes of the loans. (Much of the money went into the pockets of their own cronies and supporters.) The entire country was living far beyond its means, which is why the decline in Greek living standards since the crisis struck has been so steep.

Greek voters don't want to hear about that. They just want the pain to stop, and many of them believe Tsipras' promise that a new government led by the Syriza party can renegotiate the terms of the bail-out so it hurts less.

He may be right, at least in the short run. Even if there were some super-secret team of financial experts in Frankfurt working out how to wind the euro up without too much damage to the German economy, they would need to time their move very carefully. They would not want a Greek default to cause the euro to unravel prematurely, and a flat "no" to Tsipras could bring that on very fast.

In fact, there almost certainly is no such team. There is no "Plan B," and all the EU authorities are doing is endless day-to-day crisis management. One day it will fail, but they're not ready to admit that yet. So the Greeks may actually win some short-term relief by giving Syriza a mandate.

Gwynne Dyer is an independent journalist whose articles are published worldwide.



Vacation - The GoGo's

Can't seem to get my mind off of you
Back here at home there's nothin' to do
Now that I'm away
I wish I'd stayed
Tomorrow's a day of mine
That you won't be in

When you looked at me
I should've run
But I thought it was just for fun
I see I was wrong
And I'm not so strong
I should've known all along
That time would tell

A week without you
Thought I'd forget
Two weeks without you and I
Still haven't gotten over you yet

Vacation
All I ever wanted
Vacation
Had to get away
Vacation
Meant to be spent alone

Vacation
All I ever wanted
Vacation
Had to get away
Vacation
Meant to be spent alone

[Instrumental Interlude]

A week without you
Thought I'd forget
Two weeks without you and I
Still haven't gotten over you yet

Vacation
All I ever wanted
Vacation
Had to get away
Vacation
Meant to be spent alone

Vacation
All I ever wanted
Vacation
Had to get away
Vacation
Meant to be spent alone

Vacation
All I ever wanted
Vacation
Had to get away
Vacation
Meant to be spent alone

15 June 2012

Robbing The Future To Pay For Promises Of The Past





M2RB:




 

 A live wire, barely a beginner
But just watch that lady go
She's on fire, 'cause dancin' gets her higher than-uh
Anything else she knows

Ooh, baby baby
Won't-cha turn your head my way?
Ooh, baby baby
Well don't skip romance 'cause
You're old enough to

Dance the night away
Oh-oh-oh (Ah) Come on g-girl, dance the night away






 There Are No Winners In The War Against The Young



By Walter Russell Mead


That’s the reality, writes Matt Miller in the Washington Post:

You [younger Americans] are in big trouble. You don’t even know it. You’re busy trying to get a degree, land a job, start a family, save for a home. You don’t follow the news. But trust me—you’ve been taken for a ride by your elders. . . .

The job market for young people is a disaster, the toll of a burst financial and housing bubble that both parties let fester. The crisis has reached the point where years of unpaid labor (in the form of internships) have become a way of life for millions of Americans in their 20s.

Our K-12 schools have slid from the best in the world to mediocre under both Republican and Democratic presidents and governors. That’s largely because for decades we’ve embraced a bipartisan policy of recruiting middling students to become teachers.

Our roads, bridges, sewers, airports and power grids desperately need upgrades. Our investments in research and development as a share of our economy trail that of our peers. Republicans don’t seem to care. Democrats care enough to propose token sums that would fund a fraction of the need.

There’s no cash for such investments in the future because pension and health-care programs for seniors (plus a bloated Pentagon) take up so much of the budget. At the federal level, seven dollars go to programs supporting elderly consumption for every dollar invested in people under 18. Nationally (after taking account of the fact that most education is paid for at the state and local level), the ratio is still 2 1 / to one…

Want more? For years, states have let public pension managers assume their investments would grow 7.5 or 8 percent a year, when 3 to 6 percent has been more realistic. This bipartisan ploy hides trillions more in pension shortfalls, funds that will have to be forked over one day by (you guessed it) younger Americans.

Read the whole thing. Miller echoes arguments Via Meadia has been making for some time. The evidence is devastating, but as Miller concludes, young people haven’t woken up to the dangers, even as the policies that turn the screws on them have gone on for years.

In 1995, when I was a (younger) generational equity worrywart, I asked then-Sen. Alan Simpson how to fix what was clearly coming. Simpson told me nothing would change until someone like me could walk into his office and say, “I’m from the American Association of Young People. We have 30 million members, and we’re watching you, Simpson. You [mess with] us and we’ll take you out.”

Will the kids wake up one day soon? Will anything be done to save them from paying their elders’ bills in addition to the hefty bills for other responsibilities and desires like having a family or buying a home?

This is partly because we’ve had two generations of older people behave with extreme shortsightedness and selfishness: the Boomers and their immediate heirs have been chasing unicorns and building their self esteem while neglecting their basic duties. But as Miller acknowledges it’s also partly because the challenges we face today are unusually hard. Many of our core systems — government, education, health care — are becoming impossibly expensive and unproductive given the demands that contemporary life puts on them.

America needs an upgrade, and young people need it more than anybody else. The old ways of doing things are gradually choking the life out of the country and making it harder and harder for people to do very simple things — like starting a family, raising, kids, preparing for retirement.

Generational equity is one of the reasons America has to change the way it does business; but every generation — including those not yet born — has a stake in breaking the chains that hold us back.

The IT revolution and globalization shouldn’t be impoverishing us; they offer unparalleled opportunities to give Americans the chance to live richer, more interesting and more fulfilling lives than ever before. But it’s raining soup, and America is still standing there with a fork — a blue model fork, and it’s just not what we need.




+++++++++++++++++++++++++++++++++++++


Sophie:

As I wrote in "'Lies' About Social Security and Medicare Pandering Politicians Never Told You," the demands that will be made on today's young to pay for promises made to seniors will grow to such an oppressive degree that it is entirely delusional for anyone to believe that it will not provoke widespread unrest and, perhaps, outright violence between generations.

It is true that the government made promises to pay Social Security and Medicare.  It is also true that when those promises were originally made demographics were on its side -- at least to a degree.  They no longer are:

Fact:  There were 159.4 workers for each Social Security recipient in 1940.

Fact:  There were 16.5 workers for each Social Security recipient in 1950.

Fact:  There were 5.1 workers for each Social Security recipient in 1960.

Fact:  There were 3.7 workers for each Social Security recipient in 1970.

Fact:  There were 3.2 workers for each Social Security recipient in 1980.

Fact:  There were 3.4 workers for each Social Security recipient in 1990.

Fact:  There were 3.4 workers for each Social Security recipient in 2000.

Fact:  There were 3.3 workers for each Social Security recipient in 2005. 

Fact:  There were only 1.75 full-time private-sector workers in the United States last year for each person receiving benefits from Social Security, according to data from the Bureau of Labor Statistics and the Social Security board of trustees.

Furthermore:

Fact:  The average senior receives in Social Security about a third of what the average worker makes.

Fact:  In 1940, the average worker had to pay only 0.2% of his salary to sustain the seniors of his time.

Fact:  In 1950, the average worker had to pay only 2% of his salary to sustain the seniors of his time.

Fact:  In 2011, the average worker has to pay 11% of his salary to sustain the seniors of his time.

Fact:  In 2131, the average worker will have to pay 17% of his salary to sustain the seniors of his time.  This is a staggering sum, considering that it is apart from all the other taxes he pays to sustain other functions of government, such as Medicare, whose costs are exploding. 

Projection: When today's college students reach retirement (about 2054), Social Security alone will require a 16.6% payroll tax, one-third greater than today's rate, according to the non-partisan Peterson-Pew Commission on Budget Reform.

Projection: When Medicare Part A is included, the payroll tax burden will rise to 25.7% - more than one of every four dollars workers will earn that year.

Projection: If Medicare Part B (physician services) and Part D are included, the total Social Security/Medicare burden will climb to 37% of payroll by 2054 - one in three dollars of taxable payroll, and twice the size of today's payroll tax burden, according to the non-partisan Peterson-Pew Commission on Budget Reform. 

Projection: More than one-third of the wages workers earn in 2054 will need to be committed to pay benefits promised under current law. That is before any bridges or highways are built and before any teachers' or police officers' salaries are paid. 

Projection: By 2030, about the midpoint of the baby boomer retirement years, the Medicare will require nearly half of all income tax dollars, according to the non-partisan Peterson-Pew Commission on Budget Reform. 

Projection: By 2060, Social Security and Medicare will require nearly three out of four income tax dollars. 

No one is arguing that the Greatest Generation didn't earn their due, but they were able to come home and start families, work to buy homes, and have decent lives.  Compare the life following the war to that what we would demand of American workers in the future:  A full 37% payroll tax to pay for the promises made by long-dead politicians in a completely different economic and geo-political environment.   The amount of money necessary to fulfill the promises made yesterday and today would cost future workers the ability to enjoy the very lifestyle that their forebears returned to create after freeing the world from the threats of Naziism, Fascism, and Japanese Imperialism.



Dance The Night Away - Van Halen
 
Have you seen her? So fine and pretty
Fooled me with her style and ease
And I feel her from across the room
Yes, it's love in the third degree

Ooh, baby baby

Won't-cha turn your head my way?
Ooh, baby baby
Ah come on! Take a chance
You're old enough to

Dance the night away

Whoa-oh (Ah) Come on g-girl, dance the night away

A live wire, barely a beginner

But just watch that lady go
She's on fire, 'cause dancin' gets her higher than-uh
Anything else she knows

Ooh, baby baby

Won't-cha turn your head my way?
Ooh, baby baby
Well don't skip romance 'cause
You're old enough to

Dance the night away

Oh-oh-oh (Ah) Come on g-girl, dance the night away

Oh, oh-oh-oh oh yeah


Dance (oh) the night away. Hey, hey, yeah!

Dance, dance, dance the night away
Ah come on baby (Dance the night away) Hey, hey yeah!
Dance, dance, dance the night away
Uh, come on baby, baby , Dance the night away Ooh, ooh, yeah
Dance, dance, dance the night away. Ah, ha ow!



Pic of the Day: Shovel-Ready BS



M2RB:  Guns 'n Roses






'Cause you're crazy
You're fuckin' crazy
Ya know you're crazy
I said you're crazy



h/t Legal Insurrection:








"Shovel-ready was not as ... uh .. shovel-ready as we expected." 


- President Barack Obama, smiling beside a laughing Jeffrey Immelt, Chairman of the Coard and CEO of General Electric and Chairperson of President Obama's Council on Jobs and Competitiveness, 13 June 2011





You're Crazy

I been lookin' for a trace
Lookin' for a heart
Lookin' for a lover in a world that's much too dark
You don't want my love
You want satisfaction
You don't need my love
You gotta find yourself another
Piece of the action
Said where you goin'
What you gonna do
I been lookin' evrywhere
I been lookin' for you
You don't want my love
You want satisfaction
You don't need my love
You gotta find yourself another
Piece of the action
'Cause you're crazy
You're fuckin' crazy
Ya know you're crazy
I said you're crazy
Say boy where ya comin' from
Where'd ya get that point of view
When I was younger
Said I knew someone like you
And they said
You don't want my love
You want satisfaction
You don't need my love
You gotta find yourself another
Piece of the action
'Cause you're crazy
You're fuckin' crazy
You know you're crazy
I said you're crazy
Ooh you're crazy
You know you're crazy
Well you're crazy
You know you're crazy
You know you are
Bring it down
You're fuckin' crazy

President Obama: The Biggest Government Spender In World History



M2RB:  Queen







 The minute you walked in the joint
I could see you were a man of distinction,
A real big spender,
Good looking, so refined.
Say wouldn't you like to know what's going on in my mind?

Let me get right to the point,

I don't pop my cork for every girl I see.
Hey, big spender,
Spend a little time with me.






By Peter Ferrara


The U.S. has never before had a President who thinks so little of the American people that he imagines he can win re-election running on the opposite of reality. But that is the reality of President Obama today.

Waving a planted press commentary, Obama recently claimed on the campaign stump, “federal spending since I took office has risen at the slowest pace of any President in almost 60 years.”

Peggy Noonan aptly summarized in last weekend’s Wall Street Journal the take away by the still holding majority of Americans living in the real world:

“There is, now, a house-of-cards feel about this administration.  It became apparent some weeks ago when the President talked on the stump – where else? – about an essay by a fellow who said spending growth [under Obama] is actually lower than that of previous Presidents.  This was startling to a lot of people, who looked into it and found the man had left out most spending from 2009, the first year of Mr. Obama’s Presidency.  People sneered: The President was deliberately using a misleading argument to paint a false picture!  But you know, why would he go out there waiving an article that could immediately be debunked?  Maybe because he thought it was true.  That’s more alarming, isn’t it, the idea that he knows so little about the effects of his own economic program that he thinks he really is a low spender.”

What this shows most importantly is that the recognition is starting to break through to the general public regarding the President’s rhetorical strategy that I’ve have been calling Calculated Deception.  The latter is deliberately using a misleading argument to paint a false picture.  That has been a central Obama practice not only throughout his entire presidency, but also as the foundation of his 2008 campaign strategy, and actually throughout his whole career.

Rest assured, Ms. Noonan, that the President is not as nuts as he may seem at times.  He knows very well that he is not a careful spender.  His whole mission is to transform the U.S. not into a Big Government country, but a Huge Government country, because only a country run by a Huge Government can be satisfactorily controlled by superior, all wise and beneficent individuals like himself.  That is why he is at minimum a Swedish socialist, if not worse.  Notice, though, how far behind the times he and his weak minded supporters are, as even the Swedes have abandoned Swedish socialism as a failure.

The analysis by Internet commentator Rex Nutting on which Obama based his claim begins by telling us “What people forget (or never knew) is that the first year of every presidential term starts with a budget approved by the previous administration and Congress.”  Not exactly.

The previous administration, or President, proposes a budget.  The previous Congress approves a budget.  And what Congress approves can be radically different from what the President proposes.

As Art Laffer and Steve Moore showed in the Wall Street Journal on Tuesday, President Bush began a spending spree in his term that erased most of the gains in reduced government spending as a percent of GDP achieved by the Republican Congress in the 1990s led by former House Speaker Newt Gingrich, in conjunction with President Clinton.  But for fiscal year 2009, President Bush in February, 2008 proposed a budget with just a 3% spending increase over the prior year.  Fiscal year 2009 ran from October 1, 2008 until September 30, 2009.  President Obama’s term began on January 20, 2009.

Recall, however, that in 2008 Congress was controlled by Democrat majorities, with Nancy Pelosi as Speaker of the House, and the restless Senator Obama already running for President, just four years removed from his glorious career as a state Senator in the Illinois legislature.  As Hans Bader reported on May 26 for the Washington Examiner, the budget approved and implemented by Pelosi, Obama and the rest of the Congressional Democrat majorities provided for a 17.9 percent increase in spending for fiscal 2009!

Actually, President Obama and the Democrats were even more deeply involved in the fiscal 2009 spending explosion than that.  As Bader also reports, “The Democrat Congress [in 2008], confident Obama was going to win in 2008, passed only three of fiscal 2009’s 12 appropriations bills (Defense, Military Construction and Veterans Affairs, and Homeland Security).  The Democrat Congress passed the rest of them [in 2009], and [President] Obama signed them.”  So Obama played a very direct role in the runaway fiscal 2009 spending explosion.

Note as well that President Reagan didn’t just go along with the wild spending binge of the previous Democratic Congress for fiscal year 1981 when he came into office on January 20 of that year.  Almost no one remembers now the much vilified at the time 1981 Reagan budget cuts, his first major legislative initiative. Then Democrat Rep. Phil Gramm joined with Ohio Republican Del Latta to push through the Democratic House $31 billion in Reagan proposed budget cuts to the fiscal year 1981 budget, which totaled $681 billion, resulting in a cut of nearly 5% in that budget.  Obama could have done the exact same thing when he entered office in January, 2009, even more so with the Congress totally controlled by his own party at the time.

Reagan then ramped up the spending cuts from there.  In nominal terms, non-defense discretionary spending actually declined by 7.1% from 1981 to 1982.  But roaring inflation at the time actually masks the true magnitude of the Reagan spending cut achievement.  In constant dollars, non-defense discretionary spending declined by 14.4% from 1981 to 1982, and by 16.8% from 1981 to 1983.  Moreover, in constant dollars, this non-defense discretionary spending never returned to its 1981 level for the rest of Reagan’s two terms!  By 1988, this spending was still down 14.4% from its 1981 level in constant dollars.

Even with the Reagan defense buildup, which, remember, won the Cold War without firing a shot, total federal spending as a percent of GDP declined from a high of 23.5% of GDP in 1983 to 21.3% in 1988 and 21.2% in 1989.  That’s a real reduction in the size of government relative to the economy of 10%, a huge achievement.

In sharp contrast to Reagan, Obama’s first major legislative initiative was the so-called stimulus, which increased future federal spending by nearly a trillion dollars, the most expensive legislation in history up till that point.  We know now, as thinking people knew at the time, that this record shattering spending bill only stimulated government spending, deficits and debt.  Contrary to official Democrat Keynesian witchcraft, you don’t promote economic recovery, growth and prosperity by borrowing a trillion dollars out of the economy to spend a trillion dollars back into it.

But this was just a warm up for Obama’s Swedish socialism.  Obama worked with Pelosi’s Democratic Congress to pass an additional, $410 billion, supplemental spending bill for fiscal year 2009, which was too much even for big spending President Bush, who had specifically rejected it in 2008.  Next in 2009 came a $40 billion expansion in the SCHIP entitlement program, as if we didn’t already have way more than too much entitlement spending.
But those were just the preliminaries for the biggest single spending bill in world history, Obamacare, enacted in March, 2010.  That legislation is not yet even counted in Obama’s spending record so far because it mostly does not go into effect until 2014.  But it is now scored by CBO as increasing federal spending by $1.6 trillion in the first 10 years alone, with trillions more to come in future years.

After just one year of the Obama spending binge, federal spending had already rocketed to 25.2% of GDP, the highest in American history except for World War II.  That compares to 20.8% in 2008, and an average of 19.6% during Bush’s two terms.  The average during President Clinton’s two terms was 19.8%, and during the 60-plus years from World War II until 2008 — 19.7%.  Obama’s own fiscal 2013 budget released in February projects the average during the entire 4 years of the Obama Administration to come in at 24.4% in just a few months.  That budget shows federal spending increasing from $2.983 trillion in 2008 to an all time record $3.796 trillion in 2012, an increase of 27.3%.

Moreover, before Obama there had never been a deficit anywhere near $1 trillion.  The highest previously was $458 billion, or less than half a trillion, in 2008. The federal deficit for the last budget adopted by a Republican controlled Congress was $161 billion for fiscal year 2007.  But the budget deficits for Obama’s four years were reported in Obama’s own 2013 budget as $1.413 trillion for 2009, $1.293 trillion for 2010, $1.3 trillion for 2011, and $1.327 trillion for 2012, four years in a row of deficits of $1.3 trillion or more, the highest in world history.

President Obama’s own 2013 budget shows that as a result federal debt held by the public will double during Obama’s four years as President.  That means in just one term President Obama will have increased the national debt as much as all prior Presidents, from George Washington to George Bush, combined.

But this 2012 election is defined for the voters by the future, not the past.  And that future is fully revealed by the stark contrast between President Obama’s spending, deficits and debt projected under his proposed 2013 budget, and the projections under House Budget Committee Chairman Paul Ryan’s budget, adopted by the Republican House, and endorsed by presumptive Republican Presidential nominee Mitt Romney.

Despite all the controversy in Washington and in the media over Ryan’s budget, what it all adds up to is just to restore federal spending to its long term, postwar, historical average of 20% of GDP.  That stable level of federal spending, with some modest variance, prevailed for over 60 years after the end of World War II, until 2009.  Ryan’s budget reduces federal spending from an average of 24.4% of GDP during the Obama years to 20.1% after just 3 years, by 2015.

By contrast, under the budget policies supported by President Obama and Congressional Democrats, federal spending soars to 30% of GDP by 2027, 40% by 2040, 50% by 2060, and 80% by 2080.  Obama’s 2013 budget proposes to spend $47 trillion over the next 10 years, the most in world history by far, increasing federal spending by $1.5 trillion above the current CBO baseline.  Ryan’s budget proposes to cut that by $6.8 trillion.  By 2022, Ryan’s budget would be spending nearly a trillion dollars less per year than President Obama’s budget.

Ryan proposes tax reform to consolidate the current 6 individual income tax rates, ranging up to 35%, to just two rates of 10% and 25%.  His budget would otherwise retain the Bush tax rates of 15% for capital gains and 15% for corporate dividends, and repeal the Alternative Minimum Tax.  Ryan also proposes corporate tax reform, closing loopholes and reducing the federal corporate tax rate from 35% to 25%, which is roughly the international average.  CBO scores these reforms, even with the rate cuts, as again restoring federal revenues to their long term, postwar, historical average of 18.3% of GDP by 2015.

Obama’s budget, in sharp contrast, proposes to increase federal taxes by nearly $2 trillion over the next 10 years above the CBO baseline.  The budget projects that under Obama’s tax policies federal income tax revenues will double by 2020, federal corporate tax revenues will double by 2017, and federal payroll taxes will double by 2022.

Next year, under President Obama’s policies, the top tax rates of virtually every major federal tax are already scheduled to increase under current law.  That is because the Obamacare tax increases are scheduled to go into effect, and the Bush tax cuts expire, which President Obama proposes refuses to renew for singles making over $200,000 a year, and couples making over $250,000.  President Obama is now proposing on top of that the Buffett Rule, which would increase tax rates on capital gains and dividends even further.  Counting that, next year the top tax rate for capital gains would increase by 100%, the top tax rate on corporate dividends would increase by 100%, the top two income tax rates would increase by nearly 20%, and the Medicare payroll tax again for singles making over $200,000 and couples making over $250,000 would increase by 62% (under Obamacare).

This is all on top of the corporate income tax rate, which counting state corporate rates is nearly 40%, the highest in the world now, except for the socialist one party state of Cameroon.  Under the Buffett Rule, America’s capital gains tax rate would be the fourth highest in the industrialized world.  Based on historical precedent, these tax rate increases are unlikely to raise anywhere near the revenue projected by CBO, meaning even higher future deficits and debt.

Under Ryan’s budget, even with CBO’s static scoring, the federal deficit in actual nominal dollars would be reduced to $182 billion by 2017, the fifth year of the budget.  That compares to $1,327 billion, or $1.327 trillion, today.  So in just 5 years, the deficit would be reduced by at least 86%.  The deficit under Ryan’s budget would be less than 1% of GDP by 2017, at 0.9%, where it stabilizes for 6 years to the end of the 10 year budget window.  Most importantly, given the sharp tax rate cuts in Ryan’s budget, with dynamic scoring the budget would probably be balanced by 2017.  That is because in the real world the rate cuts will not lose nearly as much revenue as CBO scores.

Under President Obama’s budget, his own projections show the deficit never gets anywhere near balance.  Indeed, the deficit never gets below or anywhere near the former all time record in 2008.  By 2022, his own budget projects the deficit rising over the previous 5 years to $704 billion.  But if Obama’s comprehensive tax rate increases throw the country back into recession next year, the deficits will soar much higher for several years, to new all time records.

Even under CBO’s horse and buggy static scoring, Ryan’s budget does serve to get federal debt under control and avoid any debt crisis, putting federal debt held by the public on a declining path from 77% of GDP in 2013 to 62% by 2022.  That debt continues on a sharp decline from there, as the long term effects of Ryan’s structural entitlement reforms phase in.  Debt held by the public is reduced to 53% of GDP by 2030, 38% by 2040, and 10% by 2050.  That means the national debt is all but paid off by 2050, and would be soon thereafter.  In fact, under dynamic scoring it probably would be paid off by then.

In stark contrast, on our current course, under President Obama’s budget policies, federal debt held by the public rockets to 140% of GDP by 2030, 220%by 2040, and 320% by 2050, on its way to over 700% by 2080.  That would undoubtedly create a Grecian style sovereign debt crisis for America before that point.

So which course will you choose America?



Big Spender - Queen

The minute you walked in the joint
I could see you were a man of distinction,
A real big spender,
Good looking, so refined.
Say wouldn't you like to know what's going on in my mind?

Let me get right to the point,
I don't pop my cork for every girl I see.
Hey, big spender,
Spend a little time with me.


Chicago: The Second-Rate City?







As a crowd gathers 'round, an angry young man
face down on the street with a gun in his hand
In the ghetto

As her young man dies,
on a cold and gray Chicago mornin',
another little baby child is born
In the ghetto
And his mama cries






Chicago’s swift, surprising decline presents formidable challenges for new mayor Rahm Emanuel.



By Aaron M. Renn

Chicago’s leaders tout it as a global city.

In the 1990s, Chicago enthusiastically joined the urban renaissance that swept through many of America’s major cities. Emerging from the squalor and decay of the seventies and eighties, Chicago grew for the first time since 1950—by more than 100,000 people over the decade. The unemployment rate in the nation’s third-biggest city was lower than in its two larger rivals, and per-capita income growth was higher. Chicago’s metropolitan area racked up 560,000 new jobs, more than either New York’s or Los Angeles’s in raw numbers and over twice as many on a percentage basis. A rising Chicago spent lavishly to improve itself, investing in a new elevated line to Midway Airport, a major street-beautification program, and new cultural facilities costing hundreds of millions of dollars. The capstone was Millennium Park, a $450 million showplace featuring work by such celebrities as architect Frank Gehry and sculptor Anish Kapoor.

The idea was to portray Chicago as a “global city,” and it was successful, to judge from the responses in the national media. As Millennium Park opened (a few years late) in the mid-2000s, The Economist celebrated Chicago as “a city buzzing with life, humming with prosperity, sparkling with new buildings, new sculptures, new parks, and generally exuding vitality.” The Washington Post dubbed Chicago “the Milan of the Midwest.” Newsweek added, “From a music scene powered by the underground footwork energy of juke to adventurous three-star restaurants, high-stepping fashion, and hot artists, Chicago is not only ‘the city that works,’ in Mayor Daley’s slogan, but also an exciting, excited city in which all these glittery worlds shine.”

But despite the chorus of praise, it’s becoming evident that the city took a serious turn for the worse during the first decade of the new century. The gleaming towers, swank restaurants, and smart shops remain, but Chicago is experiencing a steep decline quite different from that of many other large cities. It is a deeply troubled place, one increasingly falling behind its large urban brethren and presenting a host of challenges for new mayor Rahm Emanuel.

Begin with Chicago’s population decline during the 2000s, an exodus of more than 200,000 people that wiped out the previous decade’s gains. Of the 15 largest cities in the United States in 2010, Chicago was the only one that lost population; indeed, it suffered the second-highest total loss of any city, sandwiched between first-place Detroit and third-place, hurricane-wrecked New Orleans. While New York’s and L.A.’s populations clocked in at record highs in 2010, Chicago’s dropped to a level not seen since 1910. Chicago is also being “Europeanized,” with poorer minorities leaving the center of the city and forced to its inner suburbs: 175,000 of those 200,000 lost people were black.

The demographic disaster extends beyond city limits. Cook County as a whole lost population during the 2000s; among America’s 15 largest counties, the only other one to lose population was Detroit’s Wayne County. The larger Chicago metropolitan area grew just 4 percent—less than half the national average. What little growth Chicagoland had, then, was concentrated in its exurban fringes, belying the popular narrative of a return to the city. And even that meager growth resulted almost entirely from new births and immigrants, rather than domestic migration: over the decade, the Chicago metro area suffered a net loss of more than 550,000 people to other parts of the country.

Chicago’s economy also performed poorly during the first decade of the century. That was a tough decade all over the United States, of course, but the Chicago region lost 7.1 percent of its jobs—the worst performance of any of the country’s ten largest metro areas. Chicago’s vaunted Loop, the second-largest central business district in the nation, did even worse, losing 18.6 percent of its private-sector jobs, according to the Chicago Loop Alliance. Per-capita GDP grew faster in New York and L.A. than in Chicago; today, Chicago’s real per-capita GDP ranks eighth out of the country’s ten largest metros.

Fiscal problems are commonplace these days among local governments, but Chicago’s are particularly grim and far predate the Great Recession. Cook County treasurer Maria Pappas estimates that within the city of Chicago, there’s a stunning $63,525 in total local government liabilities per household. Not all of this is city debt; the region’s byzantine political structure includes many layers of government, including hundreds of local taxing districts. But pensions for city workers alone are $12 billion underfunded. If benefits aren’t reduced, the city will have to increase its contributions to the pension fund by $710 million a year for the next 50 years, according to the Civic Federation. Chicago’s annual budget, too, has been structurally out of balance, running an annual deficit of about $650 million in recent years.

As dire as Chicago’s finances are, those of Illinois are in even worse shape. The primary cause, once again, is pensions, which are underfunded to the tune of $83 billion. Retirees’ future health care is underfunded an additional $43 billion. There’s a lot of regular debt, too—about $44 billion of it. And Illinois, like Chicago, has run large deficits for some time. Despite raising the individual income tax 66 percent and the corporate tax 46 percent in 2011, the state is projected to end the current fiscal year with an accumulated deficit of $5.2 billion. While California has made headlines by issuing IOUs to companies to which it owes money, Illinois has taken an easier route: it just stopped paying its bills, at one point last year racking up 208,000 of them, totaling $4.5 billion. Some businesses have gone unpaid for nine months or even longer. Unsurprisingly, Illinois has the worst credit rating of any state. Unable to pay its bills, it is de facto bankrupt.

What accounts for Chicago’s miserable performance in the 2000s? The fiscal mess is the easiest part to account for: it is the result of poor leadership and powerful interest groups that benefit from the status quo. Public-union clout is literally written into the state constitution, which prohibits the diminution of state employees’ retirement benefits. Tales of abuse abound, such as the recent story of two lobbyists for a local teachers’ union who, though they had never held government jobs, obtained full government pensions by doing a single day of substitute teaching apiece.

If the state and city had honestly funded the obligations they were taking on, their generosity to their workers would be less of a problem. But they didn’t. As City Journal senior editor Steven Malanga has written for RealClearMarkets, Illinois “essentially wanted to be a low-tax (or at least a moderate-tax) state with high services and rich employee pensions.” That’s an obviously unsustainable policy formula. The state has also employed a series of gimmicks to cover up persistent deficits—for example, using borrowed money to shore up its pension system and even to pay for current operations. At the city level, Mayor Richard M. Daley papered over deficits with such tricks as a now-infamous parking-meter lease. The city sold the right to parking revenues for 75 years to get $1.1 billion up front. Just two years into the deal, all but $180 million had been spent.

The debt and obligations begin to explain why jobs are leaving Chicago. It isn’t a matter, as in many cities, of high taxes driving away businesses and residents. Though Chicago has the nation’s highest sales tax, Illinois isn’t a high-tax state; it scores 28th in the Tax Foundation’s ranking of the best state tax climates. But the sheer scale of the state’s debts means that last year’s income-tax hikes are probably just a taste of what’s to come. (Cutting costs is another option, but that may be tricky, since Illinois is surprisingly lean in some areas already; it has the lowest number of state government employees per capita of any state, for example.) The expectation of higher future taxes has cast a cloud over the state’s business climate and contributed to the bleak economic numbers.

But that isn’t the whole story. Many of Chicago’s woes derive from the way it has thrown itself into being a “global city” and the uncomfortable fact that its enthusiasm may be delusional. Most true global cities are a dominant location of a major industry: finance in New York, entertainment in Los Angeles, government in Washington, and so on. That position lets them harvest outsize tax revenues that can be fed back into sustaining the region. Thus New York uses Wall Street money, perhaps to too great an extent, to pay its bills (see “Wall Street Isn’t Enough,” page 12).

Chicago, however, isn’t the epicenter of any important macro-industry, so it lacks this wealth-generation engine. It has some specialties, such as financial derivatives and the design of supertall skyscrapers, but they’re too small to drive the city. The lack of a calling-card industry that can generate huge returns is perhaps one reason Chicago’s per-capita GDP is so low. It also means that there aren’t many people who have to be in Chicago to do business. Plenty of financiers have to settle in New York, lots of software engineers must move to Silicon Valley, but few people will pay any price or bear any burden for the privilege of doing business in Chicago.

Chicago’s history militates against its transforming itself into a global city on the scale of New York, London, or Hong Kong. Yes, its wealth was built by dominating America’s agro-industrial complex—leading the way in such industries as railroads, meatpacking, lumber processing, and grain processing—but that is long gone, and the high-end services jobs that remain to support those sectors aren’t a replacement. Chicago as a whole is less a global city than the unofficial capital of the Midwest, and its economy may still be more tied to that troubled region than it would like to admit. Like the Midwest generally, parts of Chicago suffer from a legacy of deindustrialization: blighted neighborhoods, few jobs, a lack of investment, and persistent poverty. Chicago is also the “business service center of the Midwest, serving regional markets and industries,” Chicago Fed economist Bill Testa wrote in 2007; as a result, “Chicago companies’ prospects for growth are somewhat limited.”

It’s easy to understand why being a global city is the focus of civic leadership. Who wouldn’t want the cachet of being a “command node” of the global economy, as urbanists put it? It’s difficult, too, to think of a different template for Chicago to follow; its structural costs are too high for it easily to emulate Texas cities and become a low-cost location. But just because the challenge is stiff doesn’t mean that it shouldn’t be tackled. Chicago isn’t even trying; rather, it’s doubling down on the global-city square. Senator Mark Kirk wants to make O’Hare the most “Asia-friendly” airport in America and lure flights to central China, for example. A prominent civic leader suggests that the city should avoid branding itself as part of the Midwest. One of Mayor Emanuel’s signature moves to date has been luring the NATO summit to Chicago.

Another reason for Chicago’s troubles is that its business climate is terrible, especially for small firms. When the state pushed through the recent tax increases, certain big businesses had the clout to negotiate better deals for themselves. For example, the financial exchanges threatened to leave town until the state legislature gave them a special tax break, with an extension of a tax break for Sears thrown in for good measure. And so the deck seems to be stacked against the little guys, who get stuck with the bill while the big boys are plied with favors and subsidies.

It also hurts small businesses that Chicago operates under a system called “aldermanic privilege.” Matters handled administratively in many cities require a special ordinance in Chicago, and ordinances affecting a specific council district—called a “ward” in Chicago—can’t be passed unless the city council member for that ward, its “alderman,” signs off. One downside of the system is that, as the Chicago Reader reported, over 95 percent of city council legislation is consumed by “ward housekeeping” tasks. More important is that it hands the 50 aldermen nearly dictatorial control over what happens in their wards, from zoning changes to sidewalk cafĂ© permits. This dumps political risk onto the shoulders of every would-be entrepreneur, who knows that he must stay on the alderman’s good side to be in business. It’s also a recipe for sleaze: 31 aldermen have been convicted of corruption since 1970.

Red tape is another problem for small businesses. Outrages are legion. Scooter’s Frozen Custard was cited by the city for illegally providing outdoor chairs for customers—after being told by the local alderman that it didn’t need a permit. Logan Square Kitchen, a licensed and inspected shared-kitchen operation for upscale food entrepreneurs, has had to clear numerous regulatory hurdles: each of the companies using its kitchen space had to get and pay for a separate license and reinspection, for example, and after the city retroactively classified the kitchen as a banquet hall, its application for various other licenses was rejected until it provided parking spaces. An entrepreneur who wanted to open a children’s playroom to serve families visiting Northwestern Memorial Hospital was told that he needed to get a Public Place of Amusement license—which he couldn’t get, it turned out, because the proposed playroom was too close to a hospital!

And these are exactly the kind of hip, high-end businesses that the city claims to want. Who else stands a chance if even they get caught in a regulatory quagmire? As Chicagoland Chamber of Commerce CEO Jerry Roper has noted, “unnecessary and burdensome regulation” puts Chicago “at a competitive disadvantage with other cities.” Companies also fear Cook County’s litigation environment, which the U.S. Chamber of Commerce has called the most unfair and unreasonable in the country. It’s not hard to figure out why Chief Executive ranked Illinois 48th on its list of best states in which to do business.

Chicago’s notorious corruption interferes with attempts to fix things. Since 1970, 340 officials in Chicago and Cook County have been convicted of corruption. So have three governors. The corruption has been bipartisan: both Governor George Ryan, a Republican, and Governor Rod Blagojevich, a Democrat, are currently in federal prison. A recent study named Chicago the most corrupt city in the United States.

But an even greater problem than outright corruption is Chicago’s culture of clout, a system of personal loyalty and influence radiating from city hall. Influencing the mayor, and influencing the influencers on down the line, is how you get things done. There is only one power structure in the city—including not just politicians but the business and social elite and their hangers-on—and it brings to mind the court of Louis XIV: when conflicts do arise, they are palace intrigues. One’s standing is generally not, as in most cities, the result of having an independent power base that others must respect; it is the result of personal favor from on high. One drawback with this system is that it practically demands what columnist Greg Hinz calls a “Big Daddy”–style leader to sustain itself.

Another is that fear of being kicked out of the circle looms large in the minds of important Chicagoans. Beginning in 2007, Mayor Daley launched an ultimately unsuccessful bid for the 2016 Olympics. Later, commentator Ramsin Canon observed that Daley “was able to get everybody that mattered—everybody—on board behind the push. . . . Nobody, from the largest, most conservative institutions to the most active progressive advocacy group, was willing to step out against him.”

These organizations have good reason to fear reprisal for not toeing the line. When Daley signed his disastrous parking-meter deal, an advocacy group called the Active Transportation Alliance issued a critical report. After a furious reaction by the Daley administration, the organization issued a groveling retraction. “I would like to simply state that we should not have published this report,” said executive director Rob Sadowsky. “I am embarrassed that it not only contains factual errors, but that it also paints an incorrect interpretation of the lease’s overall goals.” Sadowsky is no longer in Chicago.

It’s easy to see how fiascoes like the parking-meter lease happen where civic culture is rotten and new ideas can’t get a hearing. Chicago’s location already isolates it somewhat from outside views. Combine that with the culture of clout, and you get a city that’s too often an echo chamber of boosterism lacking a candid assessment of the challenges it faces.

Some of those challenges defy easy solutions: no government can conjure up a calling-card industry, and it isn’t obvious how Chicago could turn around the Midwest. Mayor Emanuel is hobbled by some of the deals of the past—the parking-meter lease, for example, and various union contracts that don’t expire until 2017 and that Daley signed to guarantee labor peace during the city’s failed Olympic bid.

But there’s a lot that Emanuel and Chicago can do, starting with facing the fiscal mess head-on. Emanuel has vowed to balance the budget without gimmicks. He cut spending in his 2012 budget by 5.4 percent. He wants to save money by letting private companies bid to provide city services. He’s found some small savings by better coordination with Cook County. Major surgery remains to be done, however, including a tough renegotiation of union contracts, merging some functions with county government, and some significant restructuring of certain agencies, such as the fire department. By far the most important item for both the city and state is pension reform for existing workers—a politically and legally challenging project, to say the least. To date, only limited reforms have passed: the state changed its retirement age, but only for new hires.

Next is to improve the business climate by reforming governance and rules. This includes curtailing aldermanic privilege, shrinking the overly large city council, and radically pruning regulations. Emanuel has already gotten some votes of confidence from the city’s business community, recently announcing business expansions with more than 8,000 jobs, though they’re mostly from big corporate players.

Chicago also needs something even harder to achieve: wholesale cultural change. It needs to end its obsession with being solely a global city, look for ways to reinvigorate its role as capital of the Midwest, and provide opportunities for its neglected middle and working classes, not just the elites. This means more focus on the basics of good governance and less focus on glamour. Chicago must also forge a culture of greater civic participation and debate.

You can’t address your problems if everyone is terrified of stepping out of line and admitting that they exist. Here, at least, Emanuel can set the tone. In March, he publicly admitted that Chicago had suffered a “lost decade,” a promisingly candid assessment, and he has tapped former D.C. transportation chief Gabe Klein to run Chicago’s transportation department, rather than picking a Chicago insider. Continuing to welcome outsiders and dissident voices will help dilute the culture of clout.

Fixing Chicago will be a big, difficult project, but it’s necessary. The city’s sparkling core may continue to shine, and magazines may continue to applaud the global city on Lake Michigan—but without a major change in direction, Chicago can expect to see still more people and jobs fleeing for more hospitable locales.

It's About Reality, Not Austerity










A state cannot run an economy and a state-run economy cannot sustain its state.



Today's European debate isn't about governmental austerity, it's about governmental reality. Ultimately, the argument is not whether governments can keep trying to stimulate their economies, but when their creditors will quit financing it. Somehow, Europe's governments, teetering on tilting economies, have missed this point; we can only hope that Washington hasn't.

We are witnessing a prolonged domino-effect among the world's economically intrusive states. It began over two decades ago with the fall of the USSR and communism across Eastern Europe. Now the dominoes are falling into Western Europe -- Greece, Portugal, Spain, and Italy, all are threatened with economic collapse.

By now, the obvious should be axiom: A state cannot run an economy and a state-run economy cannot sustain its state. The more of its economy a government consumes, the less productive its economy becomes. And the more dependent its subpar economy then becomes on its government.

This vicious cycle creates a widening gap between what the government promises and what its economy can deliver. The government resorts to spending more, while its economy responds by producing increasingly less of the revenue needed to finance the government's increasing spending.

The only reconciliation possible between the over-demanding government and its under-producing economy is borrowing. Once this pattern becomes firmly and deeply established, the conclusion becomes inevitable. Political oppression -- as in both former and current communist countries -- can temporarily extend the contradiction, but it cannot extinguish it.

Of course, there are liberals who dispute this scenario -- just as they dispute anything that questions the state's efficacy. They claim that governments can and should do more -- that government spending actually stimulates the economy.

There is no more than a limited truth to this: Simply because of the way that GDP is calculated, government spending can make the official numbers look better… temporarily.

However, over a sustained period, this amounts to merely cooking the books. The problem remains that nagging gap between governmental demand and economic production: someone has to finance what the economy cannot.

Nor are the government's demands static either. Once political promises of increased economic benefits are made, voters demand that they not only be met, but expanded.

Equally important, as crisis looms, the economically interventionist government finds itself less able to address it -- precisely because of its now routine expanded intervention.

In 1930, the year after the Great Depression began, federal spending was 3.4 percent of GDP. By 1936, as FDR and the New Deal faced reelection, federal spending was 10.5 percent -- a threefold increase -- insufficient to end the Depression but still a sizable proportional increase. According to the Congressional Budget Office, over the last 40 years, federal spending has averaged 21 percent of GDP. To proportionally match the New Deal boost, federal spending would need to be over 63 percent of GDP -- a politically and economically impossible figure.

We therefore find ourselves dealing with quantitative, not qualitative differences when it comes to economically intrusive governments. All else being equal, the more intrusive will fall first, yet even in the case of the less intrusive, it is not a question of "if," but "when."

The gap is remorseless and must be financed. Capital is mobile, while the government's clientele is stationary -- if not expanding. The "demand" stays and increases, while the "means" flees to where it is most rewarded and it takes ever increasing borrowing costs to bribe it back.

Over the last four decades, the federal government has averaged spending roughly one-fifth of everything America produces. Over the last three years, it has averaged almost one-quarter -- spending an equivalent of 24.5 percent of America's GDP.

America is approaching a point where it must ask what road it wants to follow.

One is the politically easy, but economically impossible, route of attempted government-induced prosperity. If this is the one chosen, then Washington needs to start arranging its lines of credit quickly. Which should be relatively simple at the moment, since so many lenders now are fleeing Europe's collapsing economies.