spending

 

DirectorBlue has provided a summary of the CBO report and its implications for this country. Sorry, there is no good news to be extracted, even from this ostensibly (but not really) independent monitoring agency. Their forecasts are almost always optimistic, if you can call this route to bankruptcy they have produced as optimistic. It will be compared to the roll out of the actual numbers.

Yesterday, January 31st 9:21pm

Jim Pethokoukis points us to a just-released report from the Congressional Budget Office (PDF) that includes some extremely troubling graphs.

Catastrophic budget deficits and unemployment levels (purposefully understated by the Bureau of Labor Statistics) as far as the eye can see. The good news? By 2022 the economy will have collapsed been “fundamentally transformed” under soaring interest rates and unpayable debts.

Obama can blame Bush, Martin Van Buren, or Mary Tyler Moore — but the facts are simple: those last four bars are owned 100% by the Democrat Party. The Stimulus package, which I like to call “the most audacious armed robbery in world history” continues to be spent every year as it is built into the baseline budget. Which somehow seems to escape legacy media’s attention as they discuss taxing “the rich”, “oil companies”, “doctors who charge $30,000 for an amputation“, and anyone else who tries to make an honest living.

…. Read the full report here.

 

 

To think that civilizations always progress is a sign of ignorance, if not stupidity.

Ludwig von Mises emphasized how proper institutions and incentives were necessary for progress. He knew that progress neither constant nor guaranteed. If institutions and incentives are damaged or destroyed, progress will cease and retrogression will set in.

Henry Hazlitt

History is replete with examples of how societies and civilizations revert to less prosperous times and conditons, often accompanied by rebellion and civil unrest. The Roman empire died from within. Oh, they were overrun but only after their empire had exhausted itself and its resources.

Mises used the phrase “time will run back” to describe the process of losing ground or retrogressing. Henry Hazlitt wrote a fictional novel using Mises’ phrase as the title in which changes in institutions, laws, incentives and freedom all combine to impoverish a previously prosperous and civil society.

Victor Davis Hanson details below how this process is already well underway in his home state. It is not limited to California. The same retrogression is underway in Michigan, Illinois and a number of other states. Inner cities in parts of the country have sections that are too dangerous to visit. The retrogression is underway and the regulatory apparatus and insolvency of Washington is destroying incentives. This process will not stop until the craziness that we call government is stopped.

Civilization in Reverse

In Greek mythology, the prophetess Cassandra was doomed both to tell the truth and to be ignored. Our modern version is a bankrupt Greece that we seem to discount.

News accounts abound now of impoverished Athens residents scrounging pharmacies for scarce aspirin — as Greece is squeezed to make interest payments to the supposedly euro-pinching German banks.

Such accounts may be exaggerations, but they should warn us that yearly progress is never assured. Instead, history offers plenty of examples of life becoming far worse than it had been centuries earlier. The biographer Plutarch, writing 500 years after the glories of classical Greece, lamented that in his time weeds grew amid the empty colonnades of the once-impressive Greek city-states. In America, most would prefer to live in the Detroit of 1941 than the Detroit of 2011. The quality of today’s air travel has regressed to the climate of yesterday’s bus service.

In 2000, Greeks apparently assumed that they had struck it rich with their newfound money-laden European Union lenders — even though they certainly had not earned their new riches through increased productivity, the discovery of more natural resources, or greater collective investment and savings.

The brief euro mirage has vanished. Life in Athens is zooming backward to the pre-EU days of the 1970s. Then, most imported goods were too expensive to buy, medical care was often premodern, and the city resembled more a Turkish Istanbul than a European Munich.

The United States should pay heed to the modern Greek Cassandra, since our own rendezvous with reality is rapidly approaching. The costs of servicing a growing national debt of more than $15 trillion are starting to squeeze out other budget expenditures. Americans are no longer affluent enough to borrow hundreds of billions of dollars to import oil, while we snub our noses at vast new oil and gas deposits beneath our own soil and seas.

In my state, Californians for 40 years have hiked taxes; grown their government; vastly expanded entitlements; put farmland, timberland, and oil and gas lands off limits; and opened their borders to millions of illegal aliens. They apparently assumed that they had inherited so much wealth from prior generations and that their state was so naturally rich, that a continually better life was their natural birthright.

It wasn’t. Now, as in Greece, the veneer of civilization is proving pretty thin in California. Hospitals no longer have the money to offer sophisticated long-term medical care to the indigent. Cities no longer have the funds to self-insure themselves from the accustomed barrage of monthly lawsuits. When thieves rip copper wire out of street lights, the streets stay dark. Most state residents would rather go to the dentist these days than queue up and take a number at the Department of Motor Vehicles. Hospital emergency rooms neither have room nor act as if there’s much of an emergency.

Traffic flows no better on most of the state’s freeways than it did 40 years ago — and often much worse, given the crumbling infrastructure and increased traffic. Once-excellent K–12 public schools now score near the bottom in nationwide tests. The California state-university system keeps adding administrators to the point where they have almost matched the number of faculty, though half of the students who enter CSU need remedial reading and math. Despite millions of dollars in tutoring, half the students still don’t graduate. The taxpayer is blamed in constant harangues for not ponying up more money, rather than administrators being faulted for a lack of reform.

In 1960, there were far fewer government officials, far fewer prisons, far fewer laws, and far fewer lawyers — and yet the state was a far safer place than it is a half-century later. Technological progress — whether iPhones or Xboxes — can often accompany moral regress. There are not yet weeds in our cities, but those too may be coming.

The average Californian, like the average Greek, forgot that civilization is fragile. Its continuance requires respect for the law, tough-minded education, collective thrift, private investment, individual self-reliance, and common codes of behavior and civility — and exempts no one from those rules. Such knowledge and patterns of civilized behavior, slowly accrued over centuries, can be lost in a single generation.

A keen visitor to Athens — or Los Angeles — during the last decade not only could have seen that things were not quite right, but also could have concluded that they could not go on as they were. And so they are not.

Washington, please take heed.

— Victor Davis Hanson is a classicist and historian at the Hoover Institution, Stanford University, and the author of the just-released The End of Sparta. You can reach him by e-mailing author@victorhanson.com.

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Doug Casey has a lengthy piece on government spending, what is wasted and what can be done about it. Sadly, he concludes as I have, that there is nothing we can do and nothing will be done:

So what can you do about it? Well, actually, there is nothing you can do about it. At least as far as changing the course of history is concerned. The best you can do is to speculate intelligently on further, new distortions that will be cranked into the system, as well as others that are inevitably going to be liquidated.

It seems to me that this is a trend that can no longer be turned around. The US government’s budget is, in fact, the biggest thing in the world; it won’t be turned around, because it is like a gigantic snowball rolling down a hill. It will only stop when it smashes into the village at the bottom of the valley. The best thing you can do is capitalize on it as well as you can and get out of its way while you do.

Mr. Casey sees what he describes as “The Greater Depression” ahead with dangerous implications for our form of government.

 

John Mauldin’s weekly (free) newsletter is among the best I read. This week’s letter, entitled “The End of Europe?” breaks down the Europe problem simply. Reading this letter will enlighten you why Europe (and the US) is hopeless against simple rules of arithmetic. Its problems may also trigger the financial debacle that collapses the developed world economies.

By the way, Mr. Mauldin’s example below is just as applicable to the US as it is Greece, Italy or any other country going down the debt death spiral. This excerpt is the simple model which Mauldin presents before dealing with specifics:

Let’s assume a country that has a gross domestic product (GDP) of $1,000. In the beginning it taxes its citizens about 25% of GDP and spends the money for the public’s benefit. But alas, it spends about 30% of GDP, so it must borrow the overage (about $50) from its citizens or from the citizens of other countries. Because the country starts out with relatively little debt, interest rates on this loan are low, because those who buy the debt can easily see that the the country can pay them back. If the debt of the country is only 5% of GDP ($50) and the interest rate is 4%, then the amount that must be paid as interest is only about $2 per year. Not a whole lot, about 0.2% of GDP.

But this goes on year after year. Sometimes the deficits get smaller and sometimes they get larger, depending on the economy; but government expenditures grow at the same rate as the country grows, and the debt keeps growing at an average of 5% of GDP per year. Now, if the country is growing at 3% a year, after 24 years the economy will have doubled to $2,000 GDP. That means the debt has grown (roughly) to a total of $1,800, which is now a debt-to-GDP ratio of 90%. Debt has grown faster than the country’s economy. Note that if the country had held its budget down to where it grew slower than GDP, thus reducing its need for debt, that ratio would be lower, even if the debt had grown. You can indeed grow your way out of a debt problem if the growth of government spending is less than the growth of the economy.

But what if the size of government grows to about 50% of GDP, rather than 25% or 30%, over the 24 years, as politicians decide to spend more money and voters decide they want more benefits? (Think France.) Then the private sector must pay about 50% of its production to the state – plus, the debt is now growing unwieldly. The private sector has Continue reading »

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