Disagreeable Truths
Posted: Tue Aug 16, 2011 7:29 pm
Here is something I wrote for the local paper last night. I don't know if they will publish it.
Disagreeable Truths.
Our short-sighted Congress has allowed the problems with America's economics to grow so large that it is beyond the ability of the government to fix it without causing unacceptable pain. The bailouts and so called "quantitative easing" haven't fixed it. All that did was give the responsible villains a get-out-of-jail card and allowed them to keep their ill-gotten gains. Middle class and working Americans got nothing useful from it but saw their savings and house values tank. Many lost their jobs. Now talk has started about yet another quantitative easing. It is similar to telling someone who has maxed out all their credit cards that the answer is to take out another one.
Quantitative easing and zero interest rate don't work. Japan went through much the same thing as us in 1990 - 1992, with rising stock and real estate values, until the bubble burst. Government efforts like lowering of interest rates, monetary easing, capital injections, and fiscal stimulus has brought the gross debt-to-GDP ratio to 190% without kick starting the economy. More and more government revenue has to go in paying interest. They can only pay the interest by borrowing. Sound familiar?
Our Keynesian economists are banking on growing the economy to pay down this debt. They are clueless. These are the same people that told us there was nothing to worry about before the crash. These are the same people that said America should get out of manufacturing because the future was in services. Flipping hamburgers maybe.
We are borrowing 42% of what the government spends. That is about equal to our total discretionary spending. Actually we can't even borrow the full amount; some of the money is just printed. China is paying for our wars. One of these days we will have to pay them back.
Some government spending, on things like infrastructure would be helpful and good. The problem is that Pournelle's Iron Law of Bureaucracy (that states in time those running the department will work for the bureaucracy rather than its original purpose) has had time to operate, so the government agencies responsible for this have become inept. There is no known cure short of starting over.
What should be done is a mixture of government cuts and increased revenues. Of course our present Congress will not do this. Warren Buffet said. “I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.”
He also pointed out in a recent piece in the NY Times:-
"Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.
But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate."
The deficit is so large it will take major cuts to make much impression on it. For starters, we could end our various unnecessary wars, including the war on drugs. Why do we need 820 bases in 135 countries? Can we afford >$600 billion a year on “defense”? The best defense is a strong economy. If the entitlements like medical, government pensions and social security keep increasing at the present rate they will consume the whole budget. Our medical costs are at least double other western countries and the results no better according to the statistics. Our “No Child Gets Ahead” educational system is broken and again Pournelle’s Iron Law has done its work. There are alternatives that work, like the free Khan’s Academy. (www.khanacademy.org)
The real unemployment rate is around 20% the official figure of ~9% is contrived and false. It is likely that the real unemployment rate will not drop below 10% and will indeed rise in the future as automation is used more. China Business News reported on Monday that Foxconn Technology Group (the largest Chinese manufacturer of electronics) plans to use 1 million robots to replace simple working employees over a three-year span. So even where there is cheap labor, it is cheaper to make things automatically. We could do that here and save some jobs at least. The government should plan on supporting an increasing number of permanently unemployed.
We could do things that are already known to work, like build LFTR (fail safe, efficient, little radwaste, liquid thorium reactors) nuclear plants to reduce our dependence on foreign oil. We have lots of natural gas and could use that to power vehicles. There are some black swans flying around, like the EEStor ultra capacitor or Andrea Rossi’s E-Cat cold fusion reactor (1MW test scheduled for October, but the media are not interested enough to report it,) one of which may land. We could do with some help.
What makes the problem so difficult to solve is the reverse of Buffet’s suggestion. Any political party trying to do the right thing will suffer in the next election.
As Alexander Fraser Tytler said. “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”
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Disagreeable Truths.
Our short-sighted Congress has allowed the problems with America's economics to grow so large that it is beyond the ability of the government to fix it without causing unacceptable pain. The bailouts and so called "quantitative easing" haven't fixed it. All that did was give the responsible villains a get-out-of-jail card and allowed them to keep their ill-gotten gains. Middle class and working Americans got nothing useful from it but saw their savings and house values tank. Many lost their jobs. Now talk has started about yet another quantitative easing. It is similar to telling someone who has maxed out all their credit cards that the answer is to take out another one.
Quantitative easing and zero interest rate don't work. Japan went through much the same thing as us in 1990 - 1992, with rising stock and real estate values, until the bubble burst. Government efforts like lowering of interest rates, monetary easing, capital injections, and fiscal stimulus has brought the gross debt-to-GDP ratio to 190% without kick starting the economy. More and more government revenue has to go in paying interest. They can only pay the interest by borrowing. Sound familiar?
Our Keynesian economists are banking on growing the economy to pay down this debt. They are clueless. These are the same people that told us there was nothing to worry about before the crash. These are the same people that said America should get out of manufacturing because the future was in services. Flipping hamburgers maybe.
We are borrowing 42% of what the government spends. That is about equal to our total discretionary spending. Actually we can't even borrow the full amount; some of the money is just printed. China is paying for our wars. One of these days we will have to pay them back.
Some government spending, on things like infrastructure would be helpful and good. The problem is that Pournelle's Iron Law of Bureaucracy (that states in time those running the department will work for the bureaucracy rather than its original purpose) has had time to operate, so the government agencies responsible for this have become inept. There is no known cure short of starting over.
What should be done is a mixture of government cuts and increased revenues. Of course our present Congress will not do this. Warren Buffet said. “I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.”
He also pointed out in a recent piece in the NY Times:-
"Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.
But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate."
The deficit is so large it will take major cuts to make much impression on it. For starters, we could end our various unnecessary wars, including the war on drugs. Why do we need 820 bases in 135 countries? Can we afford >$600 billion a year on “defense”? The best defense is a strong economy. If the entitlements like medical, government pensions and social security keep increasing at the present rate they will consume the whole budget. Our medical costs are at least double other western countries and the results no better according to the statistics. Our “No Child Gets Ahead” educational system is broken and again Pournelle’s Iron Law has done its work. There are alternatives that work, like the free Khan’s Academy. (www.khanacademy.org)
The real unemployment rate is around 20% the official figure of ~9% is contrived and false. It is likely that the real unemployment rate will not drop below 10% and will indeed rise in the future as automation is used more. China Business News reported on Monday that Foxconn Technology Group (the largest Chinese manufacturer of electronics) plans to use 1 million robots to replace simple working employees over a three-year span. So even where there is cheap labor, it is cheaper to make things automatically. We could do that here and save some jobs at least. The government should plan on supporting an increasing number of permanently unemployed.
We could do things that are already known to work, like build LFTR (fail safe, efficient, little radwaste, liquid thorium reactors) nuclear plants to reduce our dependence on foreign oil. We have lots of natural gas and could use that to power vehicles. There are some black swans flying around, like the EEStor ultra capacitor or Andrea Rossi’s E-Cat cold fusion reactor (1MW test scheduled for October, but the media are not interested enough to report it,) one of which may land. We could do with some help.
What makes the problem so difficult to solve is the reverse of Buffet’s suggestion. Any political party trying to do the right thing will suffer in the next election.
As Alexander Fraser Tytler said. “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.”
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