Remembering 2006 - When $296 billion was a lot of money

Later today as President Obama submits a budget that will show a 4th consecutive year of $1 trillion plus deficts, it's helpful to put that into perspective.  Here is how ThinkProgress described President GW Bush's 2006 budget with a projected deficit of $296 billion:

Today, the Office of Management Budget projected a $296 billion federal deficit for fiscal year 2006. Bush held a press conference arguing that this is a vindication of his economic policies.
Actually, it would be the fourth largest deficit of all time. Here’s the top five:

1. 2004 (George W. Bush) $413 billion
2. 2003 (George W. Bush) $378 billion
3. 2005 (George W. Bush) $318 billion
4. 2006 (George W. Bush) $296 billion (projected)
5. 1992 (George H. W. Bush) $290 billion

In other words, Bush's 2006 budget (the last with a Republican majority) was not only on a downward trend over several years, but was similar to a budget deficit from 14 years prior. 

I will not be the first to defend Bush from the charge of being a big spender.  But despite the terrorists attacks and already burgeoning recession in 2001, policies were in place to bring spending under some modicum of control.  The following years of the Bush Presidency saw a democratic Congress, so the outlying years naturally told a different story even though it topped out at just under $500 billion.

What Obama proposes today will not be the actual budget that passes Congress.  Thankfully we now have a Republican Congress and a real hope of bringing the annual budget back under the $1 trillion mark.  But wouldn't it be nice if we could all be complaining about a record Obama deficit that was at least similar to any. other. President. we've. ever. had.  

Perhaps with a leader who actually cares about such things, we might even have a democrat-controlled Senate that would actually pass a budget - something that hasn't happened in three years.  Perhaps if the President could simply understand that free doesn't really mean free, we wouldn't have so many new "free" programs and mandates.  Perhaps if the President understood that the axiom "you have to spend money to make money" only works in the private sector.  Perhaps if the President wasn't too busy transforming America into something unrecognizable, he might notice we are in a perilous position.  Perhaps if the President cared about America as he does about himself.....well, nevermind.


UPDATE:  The budget has been released.  For an early analysis check out Veronique du Rugy's post on NRO's The Corner.

We Need an Economic "Gamechanger"

I've done my best over the past few days to emphasize that President Obama's "tax the wealthy" plan has the potential to do great harm to our floundering economy while doing nothing to overcome our pile of debt.  The idea that increased tax rates will result in associated revenue increases is not backed up by historical data. 

Throughout the past several decades, the top tax rate has fluctuated from as high as 91% in the early '60s to 28% at the end of the '80s to our current 35%.  Yet despite the huge difference between 91% and 28%, our revenue has consistently remained around 18% of GDP. 

The changes in actual tax revenue tracks more closely to economic contraction/expansion than tax rates.  In good economic times, even with an expanding GDP, revenue as a percentage of GDP increases, whereas as revenues decrease as a percentage of GDP during recession, despite a falling GDP.  During our current economic hard times, revenue sits at about 16% of GDP, but reached 21% at the height of the '90s tech bubble.

Conclusion #1:  If you want to increase revenue, you need to expand GDP.

It's time to toss aside the class warfare talk of what's fair and just talk about what works.  Raising tax rates is not stimulative and does not correlate with increased revenues or an expanding GDP, so there is no economic value in doing so.

But something must be done.  Doing nothing is not an option.  The following chart shows us that we can't just wait for something good to happen.

The biggest problem we face is not a true lack of revenue, but an explosion in our spending.  Even aside from the temporary spending measures put into place over the past few years, our entitlement growth will continue us on an unsustainable path.  Tax revenue in this chart is displayed at the historic average of 18% of GDP.

For those who believe that simply raising taxes will bring in enough additional revenue to fix this problem, here is another chart.

As it shows, even if we assume that we could hold revenue at our highest recorded percentage to GDP, we would still be swamped by the rising red ink.  What we are left with is this - we are not on a path to recovery, we have lagging revenue with no realistic plan to increase it and even if we could magically assume record revenues, it still wouldn't be good enough to bring our deficits under control.

The fact is we are at a crossroads.  We cannot continue down the path that we are on.  The same game of small adjustments here and there will not be sufficient.  It's at moments like this, that something drastic needs to happen.  What we need is a gamechanger and it is this - dramatically cut spending to expand the economy.

I can hear the collective gasp arising from the gallery, but wait a moment before you hit that "close tab" button.  I can show evidence of how this has worked before.

Our debt currently sits at 42% of GDP, the highest it has been since WWII.  But in the early '90s, Canada's overspending had put its debt at 53% of GDP.  At that point, they began a gamechanging plan.  They cut spending very dramatially and instituted new market reforms and tax cuts.  They consistently balanced the budget.  This chart shows the results.

The Canadian economy boomed as spending was cut.  Average growth matched the highs of the mid-90s U.S. economy until the 2009 recession took its toll.  Despite a small uptick, their debt is again on a downward trajectory and sits 10% less than before they changed course.  Their dollars are now more valuable than ours as our debt levels are heading in the opposite direction.

During that same time period, Japan was following the same Keynesian spending plans that Obama is proposing.  The results were atrocious.  Economists now refer to that time period as Japan's "Lost Decade".

The Keynesian economic model has been refuted time and again.  Look at how government spending affects states.  In data compiled from 1968-2008, here is a quick summary:

• When a state's Senator ascended to the chair of one of the top-three committees, earmarks in the following year increased between 40% and 50%, and discretionary state-level Federal transfers increased about 10%.  In the median case, that represented a $200 million increase in Federal spending directed to that state.

• In response, the average firm in the median state cut its employment growth rate by 3% to 13%, reduced capital expenditures by approximately 15% or $39 million, R&D expenditures by roughly 10% or $34 million and experienced a decline in sales.  They also increased their dividend payouts by 13%, suggesting fewer investment opportunities.  These results were even more pronounced for firms within industries targeted by the Federal spending and for firms that did not have overseas operations, and therefore were more exposed to the effects of the increase in Federal spending on their home state's economy.

Co-author Professor Coval says, "Our findings suggest that they (public policymakers) should revisit their belief that Federal spending can stimulate private economic development."

Conclusion #2:  Spending cuts expand the economy while increased government spending causes contraction.

In other words, cutting into the deficit by dramatically decreasing government spending can help grow the economy, producing jobs which will increase tax revenue helping pay down the (now reduced)deficit.

As Paul Ryan has stated many times, "We don't have a revenue problem, we have a spending problem".  They say the first step to recovery is understanding that you have a problem.  Getting both parties to admit that we have a problem can lead us to the real gamechanger that we need. 

Until then, expect more nonsense about what's fair as Congress and the President fight over who will be allowed to get in the lifeboats as the unsinkable United States of American slowly takes on more water.

Budget Nonsense & Hyperbole

As of 9:35 AM CST today, we still have no budget deal and are heading toward a government shutdown tomorrow night.  In an effort to head off a shutdown, the Republican house has proposed another Continuing Resolution similar to what has been done to keep the government funded up to this point.  This stop-gap bill also includes a measure that will fully fund the military for the rest of the year.  This would prevent any potential shutdown from affecting our soldier's pay or harming our military actions around the world.

For Senate majority leader, Harry Reid  (D-NV), every moment not spent sleeping or in negotiations is being used to make the most strangely ironic claims.  In a speech on the Senate floor yesterday, Reid said,

Now we learn that House Republicans are going to make another excuse, create another diversion, and avoid another tough choice. Instead of solving the crisis the way we should, instead of saying yes, they say in fact what they are going to do is pass what they will call another short-term stop-gap measure. They will say it is short term, but what that really means is it’s a shortcut, a short cut around doing our jobs. Instead of solving problems, they are stalling; they are procrastinating. That’s not just bad policy, it’s a fantasy. We all heard the president of the United States say yesterday that he won’t accept anything short of a full solution, and why should he? We’re six months into the fiscal year now.

Perhaps it should be brought to Sen. Reid's attention that his party controlled the House, Senate & Presidency last year when they chose to avoid solving problems, they stalled and they procrastinated. 

Ruminations From the Void

Strange things are afoot at the Circle K.

• Rhianna sings at a country music awards show.
• Russell Brand has seemingly become mainstream here in America.
• The University of Missouri apparently picked their new head coach by pulling a name out of hat, but no one remembers putting the name Frank Haith into the hat.
• A NYU group celebrates Stalin on April 1st, but they were, ironically, very sincere.
• Despite his seeming disinterest in the job, Obama has decided to run for re-election anyway.
• The Horizon League's Butler University Bulldogs will make back-to-back appearances in the NCAA Men's Basketball Championship.
• The temperature hit 90 degrees yesterday, but will drop back to the 30's tonight.

Every single item on that list can be traced back to Global Climate Change - just ask Al Gore.

>>  Speaking of the NCAA Tournament, did anyone notice this guy attending the Final Four in Houston Saturday night.



Dear Mohammed, I am blending in well with the infidels.

We're watching the games and they flash across the UConn student section during the pregame announcements and this guy caught my eye.  Aside from the collegiate gear, he had such a stereotypical Mideast Jihadi look, while surrounded by a sea of lily-white northeasterners, that is was hard not to notice him.

 

I'm guessing he probably got a little extra attention upon entering the stadium.  I attended the Final Four in Atlanta a few years back and they took great care inspecting us on the way in.  But keep in mind, that he appears to be a student dressed in full UConn gear sitting with a seat in the Student section, so maybe they took it a little easy on him.  Of course, in today's politically correct world, they might not have even gave him a second glance.  I can't say that would make me feel any better.

>>  Freshman Senator Rand Paul (R-KY) is causing trouble for the Democrat leadership in the Senate.  On Wednesday, he attached an amendment to a bill that condemns the President's Libya policy by having the Senate adopt the Senator Obama's words, "The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation." as the 'sense of the Senate'.

Still, during a testy floor exchange Wednesday with Sen. Dick Durbin (D., Ill.), the Kentucky freshman argued that his amendment deserves a vote, and fast. “In Afghanistan and Iraq, with all the complaints from many people on these wars that we were involved in, President Bush did come and ask for the authorization of force,” he said. “We’ve had two to three weeks of this issue. They had time to go to the U.N. They had time to go to the Arab League. They had time to go to everyone. I think you should be insulted the way I am insulted they never came to Congress.”

Durbin fired back that Bush, by coming to Congress, actually “broke precedent.” Paul looked on, bemused.  [h/t NRO's Corner]

I'm not sure how a flustered Durbin says that Bush broke precedent by following the constitution.  Well, unless he thinks that Clinton's failure to come to Congress created a new precedent.

Harry Reid seemingly had no interest in having his members forced to vote on this amendment, so he adjourned until Monday without scheduling a vote.  I guess we'll see what he does today.

>>  As I said above, the President has officially announced his re-election campaign.  Can't say I'm too happy about this. 

• Spending under Obama has nearly doubled (up 84%)
• He has tripled the annual deficit from $455 billion under President Bush to $1.6 trillion this year.
• Unemployment has jumped above and beyond even the White House's projections of what would happen without a stimulus package in 2009.
• The Obamacare legislation increases costs, raises taxes, decreases competition and harms research and innovation.  It's so bad that states are lining up to receive waivers from it's provisions as Maine has already done.  Over a thousand companies have received waivers.
• New regulations and policies have aided Big Business and Big Labor to the harm of small businesses and competition.
• Foreign policy has been consistently inconsistent, his first instincts tend to be wrong so he often tries to wait out the important issues that affect our nation, which means when he does speak and act, it's usually too little and too late.
• His current Energy policy includes increased costs & decreased supply, hurting job creation and pushing more businesses to send jobs overseas.
• He likes to say one thing, but his actions do another.  He says he's for more oil drilling and nuclear power, but no action.  He wants to cut the deficit, but raises it instead.  He wants to lower spending, but raises it instead.  He wants to lower corporate taxes, but no has no proposal.  He wants to follow science, yet ignores science.  He's personally against gay marriage, but suddenly finds it unconstitutional.  He gives a speech outlining how we will cut oil imports after returning from a trade mission where he agreed to import oil from Brazil. (I won't complain about the contradictions between his words and actions as to our homeland defense since I'm fine with those)

>>  On a related note, I don't have any idea who will be the Republican candidate against him.  Michelle Bachman raised more money than Mitt Romney in the first quarter, but neither one of them can win.  Michelle is not the idiot the press makes her out to be, but I can't see her as Presidential material at present.  Myself, I'd prefer one of the Indiana guys, Mitch Daniels or Mike Pence, but neither are running.

I do like Godfather's Pizza, so I'll be giving Herman Cain, the former CEO of the pizza chain, a good look.  Is that a good way to pick a candidate?  No, but neither was using one good speech, which worked for Barack Obama.  At least we know Cain has some executive experience, which we are definitely lacking at the moment.

>>  Pastor Terry Jones finally does the stupid deed of burning the Koran.  It was stupid, dumb, idiotic, unecessary and unproductive, but is it worse than burning an American flag?  No and of course, we Americans don't flip out no matter who is holding the match when that happens.  While the twin towers were still smoldering, we saw clips of our flag burning all across the Mid East. 

So, no, Jones isn't to blame for the needless deaths caused by his actions.  At least not anymore than the press who happily reported the news and made the actions known to the murderous thugs.  Senator Lindsey Graham (R-SC) is way off base when he talks of the need to limit free speech on this issue. 

I'm not much on the rape defense that she had it coming, so I don't want to hear anyone try to say that a group that commits murder on one continent, because some random person commits an act of political speech on another continent is somehow justified in their actions. 

That just doesn't fly with me.  But that doesn't mean that the parents of our overseas troops aren't justified in walking up to Jones and punching him in the nose.

>>  Negotiations between the Senate Democrats and House Republicans on a 2011 budget continue.  The House has sought $62 billion in spending cuts and the Senate has agreed to as much as $33 billion if some reports are to be believed.  The last time spending has been cut from year to year was during the Clinton presidency under a Republican led Congress.  We can raise the question of taxes during a Presidential election, but we all must understand that the real issues of our budget are decided in Congress.

Take a look at budget deficits over the past few decades and you will see a better correlation by the party leading Congress than which party holds the White House.  In good times and bad, Congressional Democrats never ask whether we need to spend the money; they just ask how much more (excluding defense of course).

>>  Tonight I am pulling for Butler as any proper conservative should.  Seeing the underdog rise up and conquer the evil Power (BCS) Conferences is the epitome of what we want to see take place in our economy.

Conservatives want small businesses to succeed against Big Business.  But that only works on a level playing field.  Just like the NCAA committee often give spots in the tournament to questionable BCS conference schools while overlooking many deserving mid-major squads, Washington regulations inhibit competition from small business by favoring the Bigs.

Remember, small businesses create lots of jobs on their way up the ladder until they become big and achieve market saturation.  After that, they maximize profits by cutting jobs and downsizing.  Then they lobby Washigton to protect them from competition. 

Sounds pretty much like the BCS/NCAA to me.

Enjoy the game tonight.  Plenty of food at my house, so come on by...

Tell Them About the Twinkie

I love Washington DC math.  I'm already a math geek as it is, but when you throw in a certain amount of creativity, math can really be a lot of fun.  I just wish there was a tangible use for Washington math in the real world.  Balancing my household budget would be a piece of cake.  If only...

This week, HHS Secretary Kathleen Sebelius testified before a House subcommittee.  She was questioned on an obvious budgetary fudge of double counting money saved from cuts to Medicare Advantage.  During questioning Rep. John Shimkus (R) asked her,

What’s the $500 billion in cuts for? Preserving Medicare or funding the health-care law?

Sebelius’ reply? “Both.”

By the sheer force of her will power, Secretary Sebelius is able to take $500 billion in cuts and double that into $1 trillion.  Her talents are being wasted in HHS.  Surely the ability to double money on a whim could be used more productively in other areas.