Current Commentary

Big Deficits Unless We Cut the Big 3

We could flat out eliminate, or cut to ZERO, every single program aside from entitlements, interest on the debt, and defense spending, and in the grand scheme of things, it wouldn’t amount to a hill of beans. Specifically, we would be left with a huge $600 billion a year deficit. For comparison, that would be bigger in dollar terms than anything we’ve ever had up until 2009, bigger in percentage terms than all but a handful of years since WWII, and even big enough to get us kicked out of the European Union.

In other words, unless Social Security or Medicare benefits fall under your definition of government waste, simply “cutting wasteful spending” is not going to get us out of this hole.

So what do we DO?

It would seem our choice is clear: We must cut the sacred cows, raise taxes, or face insolvency. Insolvency is the worst option, followed by raising taxes on an already over-taxed economy. Thus, as painful as it may be, cutting the sacred cows is our best option. While I’m open to any suggestions, my platform is to raise the full eligibility age for both Social Security and Medicare to 71 within the next 10 years and to bring all the troops home. In addition to the wars in Iraq and Afghanistan, we currently have troops deployed in over 150 countries around the globe, have over 700 permanent military bases in other sovereign nations, continue to occupy the Axis powers, spend 8 times as much as our #2 competitor, spend as much as the entire rest of the world combined, and have increased defense spending by a factor of 2.5 over the last decade. Fiscal conservatism and world police are intellectually inconsistent positions.

July 28, 2010

Constitutional Fundamentalist Hypocrisy over AZ Immigration Law

Two intellectually inconsistent arguments have resonated throughout the Arizona immigration debate:

1. It mirrors Federal law.
2. Many supporters of the law could be described as constitutional fundamentalists.

RE: 1, coming from a group of people well known for complaining about the Federal Government’s policies, it's odd that their principal support of this law would be based on its mirroring the law of such a flawed governing body.

RE: 2, Article 1 Section 8, calls for Congress to “establish an uniform Rule of Naturalization.” The US Supreme Court ruled that the power to regulate naturalization includes the power to regulate immigration. See Hampton v. Mow Sun Wong, 426 U.S. 88 [1976]. The Supremacy Clause asserts that when state law conflicts with federal law, federal law trumps. It is intellectually inconsistent for someone who refers to himself as a Constitutionalist to support a state attempting to disregard the supreme law of the land.

To address this on a more practical level: IF THE ECONOMY WERE NOT SO GOD AWFUL, THIS WOULDN’T BE HALF THE ISSUE IT IS. The principal blame lies on corrupt politicians who have created tax and regulatory barriers to entry that keep the economy and the job market in a choke hold and put even the employed at a distinct disadvantage. Rather than blame illegal immigrants, we need to unshackle our small businesses so they can grow, hire, and go on to one day compete with big businesses. Illegal immigration is a problem, but it’s not our #1, 2, or even #3 problem.

Finally, beacons of light don’t build fences or criminalize not having papers on you.

July 26, 2010

Robert Rizzo beats Sheila Dixon by a factor of 10

If you thought Baltimore citizens being forced to pay $83,000 a year for the rest of her life to a thief who stole from poor kids was bad, meet Robert Rizzo, the former city manager of Bell, CA.

Bell has been in the news lately because it is a poor, small town whose local government has gone klepto. The city manager was paying himself $800k/year (twice what the President makes); the chief of police was making half a million a year, and city council members who work part time were clearing a hundred grand.

Rizzo stepped down, just as our Dixon did, but Rizzo stands to keep his pension, just as Dixon did. The difference: RIZZO’S PENSION IS SLATED TO BE $700,000/YEAR. According to the law, short of malfeasance, he will keep his pension. If negotiating a back room deal like that in a small, poor town is not malfeasance, I don’t know what is.

July 26, 2010

70 Years of Federal Taxing and Spending Summarized

Do you like numbers? These numbers tell a story. Check out the Tax Policy Center's summary of Federal spending and Federal revenues from 1940 to 2015.

The following conclusions, and observations can be made:

1. Since 1957, spending has NEVER fallen and in fact has never even stayed the same year over year.
2. The Clinton tax cuts maintained positive revenue growth. These principally shifted the tax burden from the poor and middle class to the rich.
3. The Reagan tax cuts maintained positive revenue growth. These principally shifted the tax burden from the rich to the middle class and working.
4. The Bush II tax cuts absolutely lead to a loss of tax revenue. Unlike the Clinton and Reagan cuts, which did more to change the composition of tax revenue as opposed to reducing total tax revenue, the Bush cuts reduced the tax rates for all income spectrums.
5. As a percentage of GDP since 1955, revenues have held constant at about 17%, but spending has grown to an average of about 20% the last decade.
6. The projected estimates through 2015 assume that:
...A. All of the Bush tax cuts will expire.
...B. Interest rates on our national debt will remain unprecedentedly low.
...C. The economy will grow at a rate of 5-6%.

Deviation from any of these assumptions blow the budget hole out into Greek territory.

July 26, 2010

Comparing Sheila Dixon’s Pension to the Bank Bailouts

Why is there not more furor and outrage over the ongoing bank bailouts? I suspect the main reason is due to the successful mis-information campaign that has beguiled the public into thinking that (A) they are over, and (B) they were profitable. The truth is that they are still going on, still costing us hundreds of billions a year, and still paying mind boggling bonuses out of public funds.

The tidal wave of outrage and media coverage over a thief collecting a pension at the public’s expense (the Sheila Dixon situation) showed that most people have a strong moral compass and that the media is eager to play an activist role to satisfy the public’s sense of justice and common decency, both of which were flagrantly run over in the Dixon pension deal. The absence of continued outrage over the bank bailouts shows that both the public and the media are susceptible to the economic and financial propaganda of the ruling class.

So the next time you hear someone say that the bank bailouts were profitable, remind them that:

1. We allow big banks to borrow from the public at 0% and then loan that same money back to the public risk free at 3-4%. Fractional reserve banking rules allow them to multiply this risk free, taxpayer subsidized spread by up to a factor of 10.
2. Right now we are paying banks NOT to lend. This is part of the Fed’s exit strategy and is a direct public subsidy.
3. Big banks used Fannie and Freddie as garbage cans to dump their toxic loans in, and they are now bottomless pits into which taxpayers continue to throw hundreds of billions of dollars a year.
4. AIG is another bottomless pit that the taxpayer continues to throw money down, at last count almost $200 billion. AIG's CEO just approved himself a $10 million pay package -- THAT YOU PAID FOR!
5. Big banks raise capital under a “too big to fail” government guarantee. Note that the little banks, many of whom made more prudent lending decisions than the big banks, are struggling to raise capital. The cost here is the mal-investment these guarantees create by stealing investment dollars away from truly productive sectors of the economy.

In short, how would you react if you trusted someone, invited him into your home, and then he stole from you? While there are a few more moving parts, and the crime is hidden behind a smoke screen of economics/finance jargon, the bottom line is the same. It’s why if you ever hear me speak on this issue, I may come across as a little more animated and fired up than most.

July 22, 2010

Robbing tomorrow to pay for today: the cost of stimulus

Do you find yourself barely scraping by? Are you living paycheck to paycheck? Does the thought of losing your income, even for a month, terrify you? Does the term “wage slave” seem to fit your current circumstance? If so, allow me to explain how current policies of the Federal Reserve Board and Congress are conspiring against you.

One of the most basic, fundamental choices we make in our lives, both individually and collectively as a society or economy, is how much of our output to consume now and how much of it to save for later. You don’t need a PhD in economics to see that the more we consume now, the less we will have to consume later. There’s even a model for it that simply reads:

Growth = output - consumption - stuff that wears out & breaks

This is about as simple and universally accepted as gravity is in physics. Yet our zero-interest rate, print-it-like-it’s-going-out-of-style monetary policy of the Fed, and the spend-it-even-though-we-don’t-have-it fiscal policy of the Congress completely ignore this. What these “stimulative” policies share is the use of central planning to pull as much consumption forward as possible at the expense of saving for tomorrow. It makes sense that research by Harvard economist Robert Barro showed that the real world effect of government stimulus is that it actually SLOWS GROWTH. Boiled down to its bare essence, all it does is rob tomorrow to pay for today.

Back to how this directly contributes to turning you into a wage slave. Research has shown that under a free-market banking system (as opposed to the central-planner banking system we are currently under) wages for the average worker are higher. Phrased differently, you have to work more hours, and you have less money left over at the end of the month because of Fed policy. Other research has shown that higher wages past a certain point actually lead to people working fewer hours and thus reduce unemployment.

We wouldn’t allow a small group of elite men to control the price or quantity of orange juice, so why do we acquiesce to this for money?

July 21, 2010

Town of 38,000 pays city manager $800,000/yr

A poor municipality in California with a population of 38,000 is paying its city manager $800,000 a year with 12% annual pay raises, and it pays its police chief $457,000 per year. The town’s city council members make $100k/yr for part-time work.

The citizens of Bell, CA, are practically rioting over this, turning out in hundreds to protest. What will it take to reign in the 50% average spread that federal employees enjoy compared to similar jobs that exist in the private sector? What will it take to reign in federal contractors who steal from us using political connections and cronyism? Must it get to the extreme degree of Bell, CA, before we wakeup and fight?

July 21, 2010

Unemployment benefits = stimulus argument based on junk science

There’s a reason economics isn’t considered a hard science. In fact, much of it has more in common with a religion than it does even a soft social science. Preconceived dogmas are supported with unprovable theories. The recently touted “every dollar spent on unemployment benefits increases economic output by $1.61" is one such case.

The original source of this fountain of misinformation is Mark Zandi with Moody’s economy.com which he co-founded. Zandi used notoriously unreliable theoretical modeling, not real world historical analysis. At least 10 notable economists including the Council of Economic Advisors chair and the chief economist of the International Monetary Fund have analysed real world historical data showing the multiplier is closer to 0.4-0.6. A multiplier of less than 1.0 indicates a LOSS.

Zandi’s logic is based on the same “free lunch” theory that Keynesian economics is based. If we really could get a $1.61 of benefit from every $1.00 spent on unemployment benefits, the path to prosperity would be to make everyone unemployed and pay everyone not to work. This logical fallacy runs deep within economic academia and is based on the misconception that your contribution to this world is not what you produce, but what you consume. By this logic, the Paris Hiltons of the world would be our greatest economic assets, and anyone who works hard and lives below his or her means is a leach on society.

July 20, 2010

How to rob a man blind with him not knowing

Over a course of many years, you steal only his gains  He stays the same and is no worse off. For the most part, he is unaware that what rightfully belonged to him now belongs to those powerful enough to game the system for their own benefit.

As technology improves and as more and better things to produce stuff are built, our productivity as a society improves; we are able to enjoy more material “stuff” by working fewer hours to get it. Under a free market system, it's not likely that these productivity gains would be distributed perfectly evenly, but they would be distributed. Under our system, for the past 30-40 years virtually all of our productivity gains have gone to the top 10% and most of that to the top 1%. Since we left the gold standard in 1971, the typical hourly wage in this country when adjusted for inflation is FLAT. Thirty-nine years of no real wage growth during the same time when productivity has grown 215%.

How did this happen? Rather than allow these gains to be realized by the masses, big government colluded with big business through the use of monetary, tax, and regulatory policies, to rob these gains and to keep the gains for the few, the elite, and the politically connected.

Sadly, today’s Republican is mostly worried about top-down redistribution when it is really the bottom-up redistribution that we should fight. However, before we can fight it, we must recognize it:

1. Monetary policy: A falling overall price level is the natural result of productivity gains, yet a central planner banking system won’t allow for a falling overall price level. There is historical evidence that falling prices raise the average worker’s real wage. Central planner banking that denies the average worker these wage increases is bottom-up income redistribution.
2. Tax policy: Our entire system is set up so that people who work for their money pay a much higher rate than people whose money works for them. This is likely the result of those in the later group having more political influence.
3. Regulatory policy: The myriad of business regulations that we have in this country (and certainly in Maryland) act as a barrier to entry for new and small businesses and as a barrier to growth for new and small businesses. The regulations are disproportionately burdensome on smaller businesses and act as a castle wall and moat for the Walmarts and Bank of Americas of this world who hide protected behind them.

July 20, 2010

Dems jump to first lead in generic ballot -- Gallup

Dateline: July 19, 2020. Gallup poll shows a six-point lead for Democrats on a generic ballot.

Voters are waking up to the fact that the Republicans offer no ideas to solve our problems beyond cutting taxes for the rich. Unfortunately, the Democrats offer no ideas beyond spending money we don’t have.

I’m running on two main ideas:

1. We need to cut taxes on the middle class and on small business. That’s why I’m crusading to exempt the first 20 to 100 employees from the payroll tax. This would raise the take home pay for many middle class workers; it would increase hiring, and it would keep many struggling small businesses from shutting their doors.
   
   
2. If we eliminated everything in the federal budget other than transfer payments and defense spending, we’d still be sitting on a $600 billion a year deficit. Unless we want much higher taxes or insolvency, we MUST cut the sacred cows. Raising the full eligibility age to about 71 for Social Security and Medicare and ending "Team America World Police" would solve our impending insolvency.

The election of 2010 is the election for Republicans to try something different.

Sunday, July 19, 2010

Desperation abounds; we MUST cut the payroll tax

A New York Times story today illustrates the sheer desperation faced by millions in this abysmal job market

At a time when nearly 7 million have been officially unemployed for 6+ months, and when millions of others have given up even trying to find a job, we must cut the 10% surcharge on labor.

Retraining programs have proved worthless. Corporate tax cuts only help corporations with profits to begin with. The payroll tax is a tax on GROSS WAGES, not net profits. It directly increases the cost of labor, thereby also increasing unemployment and choking economic activity.

We could exempt the first 20 employees of every business in this country from complying with the payroll tax for a revenue hit of less than $160 billion. We could exempt the first 100 employees from complying with the payroll tax for a total revenue hit of less than $320 billion. That would exempt 85-95% of all businesses in this country from compliance with a regressive, burdensome, choking tax.

Monday, July 12, 2010

Cut payroll tax rather than extend unemployment compensation

At two years plus, longterm unemployment benefits are becoming a new welfare program, yet the unemployed would be better served by carving out an exemption to the payroy tax for small businesses. The amount of unemployment compensation assistance is unprecedented; some states are giving compensation for up to 99 weeks. Unemployment insurance was designed as temporary assistance during transition periods. To extend it past two years masks deep structural problems that need addressing. (Keep in mind that a person may stay on welfare for only 5 years.)

Rather than turn unemployment insurance into a new permanent welfare program, we should cut the payroll tax which functions as a 10% surcharge on labor. That would instantly slash small business' payroll costs by 10%, and that would induce hiring and growth. Few outside of small business owners or Human Resource managers even understand how it works, but it is widely recognized as the most regressive tax we have, and for that reason is about the only tax cut that has support from the progressive side of the spectrum.

Prosperity doesn't come from shuffling money around; it comes from people producing goods and services that other people want. Harvard's Robert Barro has shown that the real world Keynesian multiplier is less than 1.0, indicating that pump priming -- or spending for the sake of spending -- has a negative effect on growth.

Lowering rates to zero hasn't worked. The Krugman/Keynesian "spend money you don't have" plan hasn't worked. It's time to cut the 10% surcharge on labor.

Thursday, July 8, 2010

Why Vote for Josh Dowlut for Congress?

In an election that is sure to be about the interrelated storm of the economy, jobs, and the budget, I'm the best man for the job.

I'm the candidate who has:

• Served in the US Marines (with the Marine Corps Reserve).
• Owned and operated a small business and directly felt the effects of the payroll tax and government regulation.
• Written on economic, fiscal, and monetary policy matters.
• Been published in the Baltimore Sun multiple times.
• Been on every Baltimore TV station, on a major Baltimore radio station, and in the Baltimore Sun fighting against political corruption.

And I am the candidate who:

• Advocates exempting all businesses from complying with the payroll surcharge tax on its first 20 employees.
• Advocates encouraging states to deregulate small businesses.
• Advocates going toe to toe with government unions to cut bureaucrats' pay to parity and to phase-out unsustainable, unjust pensions.
• Advocates cutting government contractor spending by 5% per year until the ability to function is impaired, at which point it can level out.
• Advocates bringing all of the troops home. Policing the world is inconsistent with fiscal responsibility.
• Advocates the politically unthinkable but the solvently necessary actions to save Social Security: raise the retirement age, cut benefits, or raise taxes.
• Identifies that the bank bailouts were not profitable, are still ongoing, and have no precedent outside of pre-revolutionary France.
• Offers a well thought out, economically, and fiscally sound alternative to the bank bailouts: FDIC was staring us in the face all along. Transfer assets and liabilities from the failed to the unfailed, or to the new if necessary.
• Recognizes that the bank bailouts are the best battleground we have to unite to fight against incumbents who voted for it.
• Understands what must be done if we don't want another financial meltdown: Credit gatekeepers must not be allowed to divorce themselves from credit risk. The current financial regulation proposal treats symptoms, not causes.

Platforms of platitudes are not going to get it done. We need good, specific ideas, and I have them.

Sunday, July 4, 2010

Josh Dowlut for Congress

It's Independence Day, and I am announcing that my name will be on the ballot for the September 14th primary election. I am seeking the GOP nomination for Maryland's 2nd Congressional District. The 2nd District includes part of Baltimore City and parts of Anne Arundel, Baltimore, and Harford Counties.

Friday, July 2, 2010

Unemployment falls from 9.7% to 9.5%
as 652,000 give up

June headline: Unemployment fell 2/10ths of a percent because 652,000 people found job hunting to be an exercise in futility.  The Bureau of Labor Statistics only counts you as part of the headline (U3) unemployment rate if you were actively searching for a job within the last 30 days.  Those who gave up looking for a job are measured in the broader (often referred to as the real) U6 unemployment rate which increased from 16.1% to 16.7%.

Other numbers:  Total jobs fell by 125,000, primarily due to 225,000 part-time census workers being laid off, so not a real cause for concern. What is a cause for concern, however, is the abysmal 83,000 private sector jobs, still below the population growth stall rate of 100,000/month.

We have spent money we don't have.  We have lowered interest rates to zero and even pulled the debt monetization lever.  Biden was quoted saying the 8 million jobs lost are gone for good just days after Geithner was quoted saying that the world needs to give up on the US as the global economic engine.  Now it's time for something different.

Ending the labor tax on small businesses would spur hiring through small business creation and small business growth.  It could be paid for by phasing out pensions for federal bureaucrats.  Unbeknownst to most people other than small business owners and HR managers lies the incredibly burdensome and regressive employer-contributed payroll tax. In short, it is about a 10% tax on labor, charged to the business owner, and it comes with a maze of regulatory requirements.  Contrary to a traditional profits tax on net income after subtracting expenses, the payroll tax is on gross payroll.  It increases the cost of labor, thereby reducing the number of employed.  It can also put a borderline company in the red, something a traditional profits tax would never do.

A healthy labor market benefits all workers, even the employed, by strengthening bargaining positions.  It is in the interests of everyone other than a few powerful, large, politically connected employers to exempt small businesses, especially during times like these.

Thursday, July 1, 2010

Contract law versus moral law::
Goldman's $12.9 billion Geithner gift

Tim Geithner's gift to Goldman Sachs just won't stay swept under the rug.  At issue was whether it was right or wrong for Treasury to step into the middle of advanced negotiations that were about to payout at 50 cents on the dollar and decree that they be paid out at 100 cents on the dollar with tax money.  

Goldman's position is that "the government stepped into AIG's shoes" and therefore had to honor its contract with Goldman in full, as David Viniar, GS CFO, said in the midst of an inquiry today.  Unfortunately for Goldman and Treasury, there is absolutely no legal precedent for this. The RTC certainly didn't attempt to make S&L's whole in the 1990s. Everyone took a boot camp style haircut in the 1979 Chrysler bailout. Why the unprecedented treatment for Goldman?

Or is Viniar right?  When the government stepped in and essentially became AIG through an 80% equity stake, did the government inherit all of AIG's responsibilities at 100 cents on the dollar baring insolvency/inability to pay?  The key difference is that AIG lacked the solvency/ability to pay at 100 cents on the dollar, but the government had the ability to pay at 100 cents on the dollar and did pay at that rate. Perhaps an agreement between the government and Goldman prior to taking an 80% ownership could have averted any legal uncertainty and saved taxpayers $6 billion.

Without a prior agreement, Goldman may have a case.  But, by the same token, it was somewhere between grossly irresponsible and grossly corrupt for the government not to take the necessary legal steps to avert a 100 cents on the dollar payout the richest guys on Wall St.