Arizona’s new immigration laws remind me of the Apartheid in South Africa. No, Arizona isn’t proposing an outright segregation of Hispanics. But the legislation is, in fact, causing a segregation of civil rights. Now immigrants, and consequently anybody of Hispanic decent, in Arizona are required to carry their documents. This is strikingly similar to the pass laws that required blacks to carry the pass books in South Africa. Obviously, failure to produce the necessary paperwork is a crime and punishable as such. And just like the UN’s subsequent trade embargo as a result of the Apartheid of South Africa, various states and cities are already boycotting and cutting contracts from Arizona.
Now in reality, segregation was already a standard in South Africa since colonial times, but when they wanted put it into law the UN was forced to address the matter (although segregation still went on for a good 50 years). The same, more than likely, holds true in Arizona. I’m sure law enforcement was already racially profiling potential illegal immigrants. But now that it’s law, the country can’t help but to address the issue.
At any rate, I believe something should be done about the countries overall immigration policies. I don’t know what though. I’ve heard the amnesty and the “building a wall” arguments. I doubt building another Great Wall of China will work. It did a poor job of keeping the Mongols out. As an economist, I say make the illegal immigrants legal citizens, and then tax them. Beyond, that I have no opinion.
Are you tired of the incessant dribble that holds our political system hostage? Has the overall glibness of humanity finally pushed your last button? Well, chances are you found the right place. So come on in and take a seat. This blog is aimed to reach out to those of you who are in search of virtue and truth. But be prepared, this blog explores more faucets than right-left politics. It’s a doorway to philosophy and self sustainable thought, with a natural twist of cynicism!
Friday, April 30, 2010
Friday, April 2, 2010
My State of the Union Address
THE BUDGET IS OUT OF FUCKING CONTROL! OBAMA AND THE DEMOCRATS ARE BANKRUPTING AMERICA! I'm sick to death of hearing this incessant dribble. Newsflash people: Bush turned a $250 billion surplus into over half a trillion dollar deficit. He cut taxes for the rich, expanded entitlements to Medicare recipients for prescription drugs, started two wars, passed out stimulus checks, and allocated $700 billion to the Wall Street banks for CEO compensation and investment spending... and that's just the icing on the cake. Anybody who thinks the Obama administration, or anybody else for that matter, can miraculously rein in the deficit in one year is a victim of their own delusions.
Bush, Paulson, Greenspan, Bernake, AIG, the banking industry, and others generated what we now know as the Great Recession. The Fed kept interest rates artificially low for an extended period of time which set the stage for the inflated housing bubble and monumental consumer debt. The lack of banking regulation paved the way for sub-prime mortgages being wrapped up in A-rated mortgage-backed commercial paper securities and a derivative market driven by gambling. The consolidation of commercial banks after the savings and loan crisis during the 80s created banks “too big to fail.” All the indicators point to a pretty obvious failure in our banking system. And the partisan bickering and right-wing obstruction is only increasing the severity of the situation.
Sure, we will overcome this recession, but without increased oversight and regulations, there will just be another financial crisis within 10-15 years. It's beginning to look a lot like clockwork. It's not a coincidence that there weren't any major financial meltdowns for the 50 years between the New Deal regulations and the Reagan administration. Once the fibers of banking regulations started being plucked away the industry has transgressed into a frightening steady downward spiral.
For some reason (political gain perhaps?), the Republican obstructionists are only concerned with the increasing size of the deficit and not the inherent problems with our banking industry. I'm curious as to where these people were when Bush was making irresponsible budget decisions. Surely, the CBO cost projections told us that cutting taxes, increasing entitlements and starting two wars would increase the deficits and debt exponentially. Oh yea, the CBO did warn us.
Under normal circumstances, a balanced budget with a “pay-as-you-go” agenda is ideal. But in the midst of the Great Recession, the federal government must step in and pick up the slack in the economy. The automatic stabilizers we have in place are insufficient for the depth of this recession. I think the 10% unemployment, bleak outlook of job creation, and the 50 million Americans without health insurance speaks for itself. Fiscal policy is required to offset this catastrophe. With that said, the GDP is up, the stock market is regaining traction, and the unemployment rate is holding steady. Once the unemployment comes back down to the natural rate, then and only then, will balanced budgets be in order. As it stands right now, many state governments are legally obligated to run balanced budgets. So when a crisis hits and massive unemployment is hindering revenue, states are required to make detrimental cuts to schools, prisons, and the rest of their employees who participate in the basic functioning of government. Ergo, “fiscal policy is required to offset this catastrophe.”
Now, of course, we do need to worry about the government's debt/revenue ratio. If nothing else, this financial mess has illustrated the fact that the federal and state governments are overly reliant on income taxes. Once widespread unemployment hit most of the revenue vaporized. It is called putting all your eggs in one basket. Diversify! We could flatten the income tax structure and expand taxes to areas of consumption. This in-effect will spread the burden of taxes and in the long-run will ultimately help us the next time America has a crisis. However, tax reform is a very touchy subject and probably should not be overhauled in the current economic climate. It's just a little food for thought.
To bring down the deficit we MUST have a combination of increased taxes and spending reductions. Sorry people, but if the United States insists on having this little “War on Terror,” we the tax payers are required to fund it. There is no such thing as a free lunch. Otherwise, we need to reduce military spending on futile causes. However, the cuts cannot simply stop there. America has a huge entitlement problem and we need to start conducting means-testing in some of these programs. Rich people and groups should not be receiving federal subsidies (and more and more tax breaks). This is a disgusting misallocation of precious resources. We need to take a closer look at some of these special-interest subsidies in areas such as agriculture and reduce these useless entitlements. Something else I find interesting is the fact that state and federal employees receive pensions. Wouldn't it be more cost effective to put these people on 401k plans and be at the mercy of the markets like the rest of us? Some cities in California have had to declare bankruptcy (and many are on the brink) because they could no longer afford to pay exorbitant pensions to the retired state employees. However, these suggestions would only be the start to a controlled budget. Tough decisions, beyond my pay grade, would have to be made.
The following graph is a gross simplification of the federal budget. But a brief glimpse at it clearly defines the sectors draining our resources: defense at 23%, health at 22%, other + welfare at 35% (this is where the entitlements and special interest funds are allocated to), and pensions at 21%. Sorry folks, but our defense spending is what is OUT OF CONTROL. Sure, I highly value a strong country with our interests well protected. But how much of that 23% is being inefficiently allocated to defense contractors? This goes back to the age old “guns or butter” argument. In our current broken economy, I think we need more butter right now.
What about the 22% of the budget going to health? Believe it or not, the federal and state governments subsidize more medical insurance than the media would lead us to believe. Between all the state and federal employees, the military and the VA, those under Medicare and Medicaid and, of course, their entire immediate FAMILIES, a great portion of Americans are already receiving government funded health insurance. Although, I don't hear them complaining about their health insurance half as much as Faux news does. Quite the opposite actually... With that said, it is fairly obvious that the government is already spending quite a bit of money on health.
The tricky thing about health care is its inelastic demand (much like the demand for gasoline). What this means is that no matter how high the costs of health care rise people will still demand the services. This is the setting for a bubble that can withstand sustained growth. It's obvious that our medical industry is experiencing a market failure. The costs outweigh the benefits. Hell, my insurance went up 46% last year alone. And that's for bottom-of-the-barrel coverage.
The landmark health care reform bill that the Congress recently passed is a step in the right direction (but far from perfect). The bill will achieve its goal of increasing coverage and the CBO said it would reduce the budget deficit. However, the bill does little to thwart the long-term increasing costs of health care. I preferred a public option that would have created the necessary competition to put downward pressure on prices. Instead, we're given a plan that spreads the risk pool by mandating every citizen to purchase health care through exchanges. Theoretically, the scope of the exchanges will create competition. This assumes that the exchanges will eventually allow cross-state competition and break up the current health insurance monopolies and oligopolies of each state. But this plan still makes me feel uneasy because it requires us to purchase services in the free market. The Republicans should love this bill but they instead oppose it simply because it is Democrat initiative. Ironically, this plan is almost identical to Mitt Romney's health care scheme currently implemented in Massachusetts. And even though our current health care reform bill is greatly a republican vehicle, not one Republican voted for it. This goes to show how perverse and polarized our political landscape has become. Why weren't the “tea baggers” out in Massachusetts boycotting the pilot run of our health care reform?
Half of our nation is being force fed fear mongering by extremists. Rational republicans do still exist but they're a dying breed. Look at David Frum. Frum is a complete ideologue who praised Bush for the job he was doing in multiple books he's written. Ok, perhaps this guy isn't the best illustration of rationality, but recently Frum did have a ray of coherent logic. Frum has been arguing that the Republican legislative defeat in regards to thwarting health care reform was due to “follow[ing] the most radical voices in the party and the movement.” Furthermore, Frum acknowledges that the current health care reform package was basically created by conservatives. But because of the fiery conservative media no Republican leader would negotiate with Democrats to inject their ideas into the legislation. Instead, they went for all or nothing, and ended up with nothing. Frum also went on to say that the current “Repeal and Replace” scheme being voiced by party leaders will never work. Even if Republicans ended up winning every seat in Congress during the November elections they still wouldn't have the two-thirds vote in both houses to overturn the President's signature. And what was Frum's voice of reason greeted with? His Republican reality-check was not welcomed with gratitude. Instead, Frum was ejected from the American Enterprise Institute (AIE) the conservative think-tank with whom he was employed with for roughly seven years.
http://www.frumforum.com/waterloo
I would like to add something about the student loan changes made in the health care bill as well. The government will now make the loans directly instead of backing private loans made by banks. This will reduce spending by billions from cutting the subsidized interest payments made to banks on the behalf of students. Furthermore, the interest from the loans will help cover the costs of expanding coverage. I think this was a great move. The savings of this initiative will also be recycled back into the student-loan program in the form of increased Pell grants and increased size of loans. Bravo.
With that said, Obama really has not done or said much else to convince us that the budget deficit will be reduced significantly in the medium or long run. Obama's announced freeze to discretionary domestic spending seems completely like a “good faith” political stunt. However, the amount of the freeze is trivial to the size of the deficit. We must not forget that these deficits are not funded by student loans or borrowed money from Granny. China and Japan are capitalizing on our irresponsibility. Not to mention the amount of money we actually owe ourselves. The government has been siphoning money from the Social Security pot for ages.
Politicians lie, but the numbers do not. That is the beauty of economics. The dismal science adds objectivity for those who actually care about the truth. The politicians in office have only one goal: Get reelected and maintain their grasp on power. Short-term near-sighted bills and legislation are enacted to boost popularity. Organized groups and lobbyists control our politicians like puppets. They're the ones who bring in the money and votes. Furthermore, “survival politics” and partisanship divides Americans to the point where we actually vote against our own interests. I seriously want to bang my head against the wall.
These days it seems like the Republicans are trying to revert back to the cowboy capitalism that caused the Great Depression. They seem to prefer a world without accountability or regulations (especially on banks). That's not fiscal responsibility. That's a get-rich-quick scheme. However, thus far it does not seem like Obama is doing much for banking regulations either (although I hope he proves me wrong). Let us also not forget that Glass-Steagall was repealed under Clinton... There is a reason that our banking industry is the most heavily regulated. Lack of oversight created the cooked books in Enron-type scandals, the Savings and Loans crises and the subsequent consolidation of the banking industry, and of course, the current sub-prime mortgage-backed security scheme and shady derivative market. It blows my mind to see one of the major political parties campaigning on a platform of less (or no) regulation and actually convincing the lower and middle class that these laws aren't in place to protect them. Businesses need rules just like we as a society do. Without order there is chaos. Our society is too complex and the sectors of our economy are too interrelated with each other. Not to mention a world economy that shares the booms and busts. If we intend to continue the trend of leading the free world, we as a people and as a nation need to educate ourselves so that we're not oblivious to marginalization. America used to be a country where the working-class was protected. The leaders of industry recognized that the working-class were the primary consumers and the driving force of the economy. The average wage of the working-class steadily increased until the “logic” of the “Reagan Revolution” stagnated wages and began dismantling the middle-class. 70% of our GDP is personal consumption and with stagnant wages, in the face of inflation and the devaluation of our currency, this percentage is unsustainable and I worry about the day we will truly see this bubble burst.
The reality is that many traditional right-wing concepts do indeed adhere to economic theory and I welcome them into debate. The Republican Party needs more David Frums and less Faux News. The conservative movement is no longer driven by rationality and facts. Instead, the base is rallied through fear and hate. Actual debate from the Republican Party without asymmetric information is a thing of the past. For every one relevant argument there are four shifty talking points clouding the particular debate. In this political landscape the Republicans have drifted so far to the right that I find it difficult agreeing with them on any issue. The majority of their arguments simply aren't coherent. The Republicans won't even vote on legislation they themselves have created. Talk about a flip flop. I guess the only thing these people can agree on is contradicting everything the Democratic Party says.
And that's my State of the Union Address.
Bush, Paulson, Greenspan, Bernake, AIG, the banking industry, and others generated what we now know as the Great Recession. The Fed kept interest rates artificially low for an extended period of time which set the stage for the inflated housing bubble and monumental consumer debt. The lack of banking regulation paved the way for sub-prime mortgages being wrapped up in A-rated mortgage-backed commercial paper securities and a derivative market driven by gambling. The consolidation of commercial banks after the savings and loan crisis during the 80s created banks “too big to fail.” All the indicators point to a pretty obvious failure in our banking system. And the partisan bickering and right-wing obstruction is only increasing the severity of the situation.
Sure, we will overcome this recession, but without increased oversight and regulations, there will just be another financial crisis within 10-15 years. It's beginning to look a lot like clockwork. It's not a coincidence that there weren't any major financial meltdowns for the 50 years between the New Deal regulations and the Reagan administration. Once the fibers of banking regulations started being plucked away the industry has transgressed into a frightening steady downward spiral.
For some reason (political gain perhaps?), the Republican obstructionists are only concerned with the increasing size of the deficit and not the inherent problems with our banking industry. I'm curious as to where these people were when Bush was making irresponsible budget decisions. Surely, the CBO cost projections told us that cutting taxes, increasing entitlements and starting two wars would increase the deficits and debt exponentially. Oh yea, the CBO did warn us.
Under normal circumstances, a balanced budget with a “pay-as-you-go” agenda is ideal. But in the midst of the Great Recession, the federal government must step in and pick up the slack in the economy. The automatic stabilizers we have in place are insufficient for the depth of this recession. I think the 10% unemployment, bleak outlook of job creation, and the 50 million Americans without health insurance speaks for itself. Fiscal policy is required to offset this catastrophe. With that said, the GDP is up, the stock market is regaining traction, and the unemployment rate is holding steady. Once the unemployment comes back down to the natural rate, then and only then, will balanced budgets be in order. As it stands right now, many state governments are legally obligated to run balanced budgets. So when a crisis hits and massive unemployment is hindering revenue, states are required to make detrimental cuts to schools, prisons, and the rest of their employees who participate in the basic functioning of government. Ergo, “fiscal policy is required to offset this catastrophe.”
Now, of course, we do need to worry about the government's debt/revenue ratio. If nothing else, this financial mess has illustrated the fact that the federal and state governments are overly reliant on income taxes. Once widespread unemployment hit most of the revenue vaporized. It is called putting all your eggs in one basket. Diversify! We could flatten the income tax structure and expand taxes to areas of consumption. This in-effect will spread the burden of taxes and in the long-run will ultimately help us the next time America has a crisis. However, tax reform is a very touchy subject and probably should not be overhauled in the current economic climate. It's just a little food for thought.
To bring down the deficit we MUST have a combination of increased taxes and spending reductions. Sorry people, but if the United States insists on having this little “War on Terror,” we the tax payers are required to fund it. There is no such thing as a free lunch. Otherwise, we need to reduce military spending on futile causes. However, the cuts cannot simply stop there. America has a huge entitlement problem and we need to start conducting means-testing in some of these programs. Rich people and groups should not be receiving federal subsidies (and more and more tax breaks). This is a disgusting misallocation of precious resources. We need to take a closer look at some of these special-interest subsidies in areas such as agriculture and reduce these useless entitlements. Something else I find interesting is the fact that state and federal employees receive pensions. Wouldn't it be more cost effective to put these people on 401k plans and be at the mercy of the markets like the rest of us? Some cities in California have had to declare bankruptcy (and many are on the brink) because they could no longer afford to pay exorbitant pensions to the retired state employees. However, these suggestions would only be the start to a controlled budget. Tough decisions, beyond my pay grade, would have to be made.
The following graph is a gross simplification of the federal budget. But a brief glimpse at it clearly defines the sectors draining our resources: defense at 23%, health at 22%, other + welfare at 35% (this is where the entitlements and special interest funds are allocated to), and pensions at 21%. Sorry folks, but our defense spending is what is OUT OF CONTROL. Sure, I highly value a strong country with our interests well protected. But how much of that 23% is being inefficiently allocated to defense contractors? This goes back to the age old “guns or butter” argument. In our current broken economy, I think we need more butter right now.
What about the 22% of the budget going to health? Believe it or not, the federal and state governments subsidize more medical insurance than the media would lead us to believe. Between all the state and federal employees, the military and the VA, those under Medicare and Medicaid and, of course, their entire immediate FAMILIES, a great portion of Americans are already receiving government funded health insurance. Although, I don't hear them complaining about their health insurance half as much as Faux news does. Quite the opposite actually... With that said, it is fairly obvious that the government is already spending quite a bit of money on health.
The tricky thing about health care is its inelastic demand (much like the demand for gasoline). What this means is that no matter how high the costs of health care rise people will still demand the services. This is the setting for a bubble that can withstand sustained growth. It's obvious that our medical industry is experiencing a market failure. The costs outweigh the benefits. Hell, my insurance went up 46% last year alone. And that's for bottom-of-the-barrel coverage.
The landmark health care reform bill that the Congress recently passed is a step in the right direction (but far from perfect). The bill will achieve its goal of increasing coverage and the CBO said it would reduce the budget deficit. However, the bill does little to thwart the long-term increasing costs of health care. I preferred a public option that would have created the necessary competition to put downward pressure on prices. Instead, we're given a plan that spreads the risk pool by mandating every citizen to purchase health care through exchanges. Theoretically, the scope of the exchanges will create competition. This assumes that the exchanges will eventually allow cross-state competition and break up the current health insurance monopolies and oligopolies of each state. But this plan still makes me feel uneasy because it requires us to purchase services in the free market. The Republicans should love this bill but they instead oppose it simply because it is Democrat initiative. Ironically, this plan is almost identical to Mitt Romney's health care scheme currently implemented in Massachusetts. And even though our current health care reform bill is greatly a republican vehicle, not one Republican voted for it. This goes to show how perverse and polarized our political landscape has become. Why weren't the “tea baggers” out in Massachusetts boycotting the pilot run of our health care reform?
Half of our nation is being force fed fear mongering by extremists. Rational republicans do still exist but they're a dying breed. Look at David Frum. Frum is a complete ideologue who praised Bush for the job he was doing in multiple books he's written. Ok, perhaps this guy isn't the best illustration of rationality, but recently Frum did have a ray of coherent logic. Frum has been arguing that the Republican legislative defeat in regards to thwarting health care reform was due to “follow[ing] the most radical voices in the party and the movement.” Furthermore, Frum acknowledges that the current health care reform package was basically created by conservatives. But because of the fiery conservative media no Republican leader would negotiate with Democrats to inject their ideas into the legislation. Instead, they went for all or nothing, and ended up with nothing. Frum also went on to say that the current “Repeal and Replace” scheme being voiced by party leaders will never work. Even if Republicans ended up winning every seat in Congress during the November elections they still wouldn't have the two-thirds vote in both houses to overturn the President's signature. And what was Frum's voice of reason greeted with? His Republican reality-check was not welcomed with gratitude. Instead, Frum was ejected from the American Enterprise Institute (AIE) the conservative think-tank with whom he was employed with for roughly seven years.
http://www.frumforum.com/waterloo
I would like to add something about the student loan changes made in the health care bill as well. The government will now make the loans directly instead of backing private loans made by banks. This will reduce spending by billions from cutting the subsidized interest payments made to banks on the behalf of students. Furthermore, the interest from the loans will help cover the costs of expanding coverage. I think this was a great move. The savings of this initiative will also be recycled back into the student-loan program in the form of increased Pell grants and increased size of loans. Bravo.
With that said, Obama really has not done or said much else to convince us that the budget deficit will be reduced significantly in the medium or long run. Obama's announced freeze to discretionary domestic spending seems completely like a “good faith” political stunt. However, the amount of the freeze is trivial to the size of the deficit. We must not forget that these deficits are not funded by student loans or borrowed money from Granny. China and Japan are capitalizing on our irresponsibility. Not to mention the amount of money we actually owe ourselves. The government has been siphoning money from the Social Security pot for ages.
Politicians lie, but the numbers do not. That is the beauty of economics. The dismal science adds objectivity for those who actually care about the truth. The politicians in office have only one goal: Get reelected and maintain their grasp on power. Short-term near-sighted bills and legislation are enacted to boost popularity. Organized groups and lobbyists control our politicians like puppets. They're the ones who bring in the money and votes. Furthermore, “survival politics” and partisanship divides Americans to the point where we actually vote against our own interests. I seriously want to bang my head against the wall.
These days it seems like the Republicans are trying to revert back to the cowboy capitalism that caused the Great Depression. They seem to prefer a world without accountability or regulations (especially on banks). That's not fiscal responsibility. That's a get-rich-quick scheme. However, thus far it does not seem like Obama is doing much for banking regulations either (although I hope he proves me wrong). Let us also not forget that Glass-Steagall was repealed under Clinton... There is a reason that our banking industry is the most heavily regulated. Lack of oversight created the cooked books in Enron-type scandals, the Savings and Loans crises and the subsequent consolidation of the banking industry, and of course, the current sub-prime mortgage-backed security scheme and shady derivative market. It blows my mind to see one of the major political parties campaigning on a platform of less (or no) regulation and actually convincing the lower and middle class that these laws aren't in place to protect them. Businesses need rules just like we as a society do. Without order there is chaos. Our society is too complex and the sectors of our economy are too interrelated with each other. Not to mention a world economy that shares the booms and busts. If we intend to continue the trend of leading the free world, we as a people and as a nation need to educate ourselves so that we're not oblivious to marginalization. America used to be a country where the working-class was protected. The leaders of industry recognized that the working-class were the primary consumers and the driving force of the economy. The average wage of the working-class steadily increased until the “logic” of the “Reagan Revolution” stagnated wages and began dismantling the middle-class. 70% of our GDP is personal consumption and with stagnant wages, in the face of inflation and the devaluation of our currency, this percentage is unsustainable and I worry about the day we will truly see this bubble burst.
The reality is that many traditional right-wing concepts do indeed adhere to economic theory and I welcome them into debate. The Republican Party needs more David Frums and less Faux News. The conservative movement is no longer driven by rationality and facts. Instead, the base is rallied through fear and hate. Actual debate from the Republican Party without asymmetric information is a thing of the past. For every one relevant argument there are four shifty talking points clouding the particular debate. In this political landscape the Republicans have drifted so far to the right that I find it difficult agreeing with them on any issue. The majority of their arguments simply aren't coherent. The Republicans won't even vote on legislation they themselves have created. Talk about a flip flop. I guess the only thing these people can agree on is contradicting everything the Democratic Party says.
And that's my State of the Union Address.