Americanly Yours

This past weekend, President Obama announced that he wanted to cut the deficit in half by the end of his first term in 2013.  You would think that this would make a deficit hawk like me happy.  It would–if it werent so misleading.

President Obama says that he wants to cut the $1,300,000,000,000 [$1.3 trillion] deficit that he inherited from President Bush down to a deficit of $533,000,000,000 [$533 billion] by 2013.  While this seems like a tough goal that will cut spending, this will actually result in increased spending.  The reason for this is simple:  the present massive deficit is an aberration from the normal, including hundreds of billions of dollars in spending that was supposed to be one time spending.  For example, included in the $1,300,000,000,000 [$1.3 trillion] deficit is the $700,000,000,000 [$700 billion] spent on the bank bailout, the additional billions spent on the bailouts of Bear Stearns and AIG, and last years stimulus plan that sent most Americans a $600 check.

In fact 2008’s deficit was $438,000,000,000 [$438 billion] a massive number, but a number that is dwarfed by the $1,300,000,000,000 [$1.3 trillion] deficit that is to be expected in 2009.  The vast majority of this money was supposed to be for one time things.  In fact, without adding the increased spending from the “one time items,” the deficit for 2009 looks a lot like the deficit for 2008.

President Obama’s 2013 budget deficit figure still represents an increase of over 21% from 2008’s number.  This “cut” looks more like an increase to me.

And Mr. Obama’s own numbers still admit that he will have a deficit of over $1,000,000,000,000 [$1 trillion in both 2010 and 2011].  No numbers were given by his office for 2012’s predictions, but lets give him the benefit of the doubt and assume that 2012’s deficit equals 2013’s deficit of $533,000,000,000 [$533 billion].  This means an increase in the national debt of at least $3,000,000,000,000 [$3 trillion]–equal to $10,000 per American.  I think the numbers will be much higher.

More on that later.

Americanly Yours,

Phred Barnet

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A year ago, America was completely different than it is now.  In the last year, the government has nationalized the banking industry, taken over the worlds largest insurer (wasting well over $100 billion in the process), and taken control of two iconic car companies.  Last week, Congress agreed to a plan that will cost nearly $800 billion.  Between actions by Congress and the Obama administration, as much as $3 trillion was pledged to government bailouts last week! This amounts to 21.7% of American GDP (US GDP is 13.7 trillion).  This new spending is more than government’s entire 2008 budget of just under $3 trillion.  Every penny of this money is being financed with debt.  This will raise the size of the national debt substantially.  Our national debt currently stands at roughly $10.7 trillion.  If we add another $3 trillion to the debt, our debt will increase by 28% and will be roughly equal to our GDP!

Of course, even Mr. Obama has admitted that there is no guarantee that these plans will work.  Even more interesting, he has said that these plans will have little effect before 2010.  This is particularly interesting because the non-partisan CBO recently estimated that the recession will supposedly be over in mid 2009 even if these “stimulus” plans werent passed, meaning that Mr. Obama’s plans wouldnt even begin working until after the economy has already started to heal itself.

But, lets pretend that Mr. Obama’s boldest predictions are correct and that this plan will create 4 million new jobs (although he says it will create or save 3-4 million jobs).  Let us also assume that each of these jobs is a high paying job of $100,000 a year and that these jobs are permanent jobs that will never go away in the future, regardless of future circumstances.  According to both H&R Block’s tax calculator and the Heritage Foundation’s much simpler tax calculator, a single person earning $100,000 pays $19,472 in Federal taxes.  So, the 4 million jobs that we are pretending this plan will create will return $77.888 billion in taxes per year to the federal government.  Excluding any interest (which will likely be a hefty sum and will go countries like China), it will take the government about 35.5 years to recoup the money!

If, however, this plan still creates 4 million jobs but these jobs pay $50,000 per year instead of $100,000, the government will collect $6,606 in taxes per person totaling $26.424 billion in taxes per year.   Under these circumstances, it will take the government 113.5 years to recoup the money!

However, I made a little Excel spreadsheet assuming that the government would have to pay 3% interest on these new loans.  This is a generous assumption, considering that the average rate on treasury bills has been much higher.  I used both of the above jobs assumptions in my calculations and found that the government will actually never be able to recoup this money if interest is factored in! Check it out for yourself.

Americanly Yours,

Phred Barnet

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The following story isnt true.  It is more of a “political joke” of sorts.

When Nikita Khrushchev was forced out of power in the Soviet Union he left his successor (Leonid Brezhnev) with two letters.  He told his successor to open the first letter when he came to his first major crisis and follow the instructions.   He was told that following the instructions would get him through the crisis.   He was also told that when a second major crisis stuck, he should open the second letter from Khrushchev and follow its instructions.

The inevitable crisis happened and Brezhnev became worried that the crisis could cause him to be removed from power.   He opened Khrushchev’s first letter which said “Blame everything on me.  The only way that you can stay in power is to blame everything on my poor leadership and announce that you have to reverse my policies in order to save the State.”

So, Brezhnev followed the instructions in the letter and things in the Soviet Union got better for a while.   However, after a few more years, the economy began to stagnate and Brezhnev once again became worried that he would lose power.  He realized that the advice from Khrushchev’s first letter had saved him once and that maybe it could do so again.

Brezhnev opened the second letter and it read “Sit down and write two letters.”

As I said above, this is not a true story.  It is however, a useful lesson on political survival.

I would argue that President Obama began reading his first letter during the campaign when he blamed everything wrong in the world on President Bush.  He has continued to beat up on President Bush’s record in a constant attempt to convince the public that the current crisis is not his fault.

He will likely continue to read from this letter for several years.

For example, if the situation in Iraq continues to improve and we can pull our troops out, Mr. Obama will undoubtedly take all of the credit, despite the fact that President Bush’s controversial Surge plan was a complete success and has effectively won us the war.  If on the other hand, the situation in Iraq deteriorates and we either do not leave within Mr. Obama’s promised 16 months or we end up leaving in disgrace, there can be no doubt that President Obama will blame Mr. Bush.

Similarly, if the economy turns around in the next year or two, Mr. Obama will take all of the credit.  If however, the situation worsens, the economy continues to contract, and unemployment approaches or reaches double digits, President Obama will claim that he inherited this mess.  In his speech last night President Obama said “I can’t tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans.  My administration inherited a deficit of over $1 trillion, but because we also inherited the most profound economic emergency since the Great Depression, doing a little or nothing at all will result in even greater deficits, even greater job loss, even greater loss of income, and even greater loss of confidence.” This was effectively Mr. Obama hedging his bet:  if the economy turns around, he can take credit, but if it doesnt work, he will say that things are still better than they would have been if the bill wasnt passed and besides, it is still President Bush’s fault.

This is why President Obama still sounds like his is running for President, rather than holding the office.  It is safe to say that President Obama was not elected to office based any past accomplishments that he had.   He was also not elected based on any future plans that he had.  Rather, he was elected because the American public was (and still is) fed up with President Bush.  The fact that Mr. Obama was elected President is really only an externality of the perceived failure of the Bush Administration.  Mr. Obama really didnt run against John McCain; he really ran against President Bush. How many times did you hear Mr. Obama refer to “8 years of failed policies?”   Because Mr. Obama was elected as an opposition candidate–a reactive candidate rather than a proactive candidate– he is likely to continue this course of acton.  Expect him to continue to beat up on President Bush’s record.  Furthermore, you can expect him to denounce Republicans who vote against his programs (in a manner that will probably become much more hostile in the near future).

The problem is that Mr. Obama cannot continue on this course for too long.  The American people are fickle and grow tired of things quickly.  Remember that when the War in Iraq started Bush (who was cheered on to war by the American public as well as the media) had an approval rating of near 70%.  At some point, the American public will grow tired of hearing Mr. Obama blame all of the country’s problems on the previous administration–especially if things get worse.  The people want solutions and when President Obama realizes that he cannot deliver them, he may have to reach for that second letter.

Americanly Yours,

Phred Barnet

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By effectively nationalizing the banking industry, our government has made a giant leap away from Capitalism and towards socialism.  Our government now owns large stakes in most of the Nation’s largest banks.  The government has already invested $271 billion of the $700 billion that it budgeted for “stimulating” private banks.  The have committed to funding another $30 billion.  The rest of the $700 billion will follow soon.  Additionally, some members of Congress are already saying that because the first half of the $700 billion isnt being spent “correctly,” more money may be “needed.”

Here is a really cool chart that lists how much each bank has received from the TARP program.  It is updated daily.

I absolutely refuse to put my money in a government owned bank.  I will not allow the government to take the profits it earns off of my deposits to fund any further bailouts.  By banking at a government run bank, you are encouraging these bailouts.  If you are against further (or existing) government bailouts, then it is your duty to remove your money from this bank and place it in an independent bank.  I used to bank at Washington Mutual which is now owned by JPMorgan Chase (which has received $25 billion from the government in exchange for ownership rights).  I removed my money from this bank as soon as I was able to identify a local bank that had not sold part of itself to our government.

I now bank at United America’s Bank in Chamblee.  This is a small bank with only a few locations in Atlanta, Chamblee, and Roswell, but it is a bank that is independent from government ownership.  Plus, it has the added convenience of being the closest bank to my house.  Whether you live in my area or somewhere else, if you oppose government bailouts and government ownership of businesses, you should consider putting your money in a small bank that is not owned by the government.  I would be glad to help you find a non-government owned bank in your area.

Americanly Yours,

Phred Barnet

I have been pretty critical of President Obama so far, and I will continue to do so for as long as he continues to push for policies which are bad for the economy and restrict economic liberty.  However, when he does something that I consider to be a good thing for this Nation, I will be one of the first to praise him.

Let me first start with the bad so that I can end with the good.

Yesterday, President Obama’s first public act was to limit the power of lobbyists in his administration.  He did this by creating a rule that prevents members of his administration from working as lobbyists and trying to influence the administration if they do leave his administration.  He also created a rule that prevents former lobbyists hired by the administration from working in their areas of expertise.

Lobbyists have been getting a very bad rap for the last decade, and while some of the criticism is needed, the truth is that lobbyists are essential to the proper functioning of American Democracy.  Lobbyists are experts in their fields who know pretty everything about their issue that can possibly be known.  They spend their careers specializing in studying one area of policy and make it their business to know everything about that subject that is possible. Now, because policy advisors in the administration cannot be experts on all fields, they often need to consult with lobbyists from all sides of an issue in order to get vital information.  An environmental lobbyists will know all of the effects of allowing a certain chemical into the water supply, and would be able to supply administration officials with needed data.  Administration officials meet with lobbyists on both sides of the issue in order to get a full perspective on the issue before crafting their policy–in the case of a new environmental regulation, administration officials will meet with a lobbyist who is lobbying on behalf of an environmental group, as well as a lobbyist who is lobbying on behalf of corporations.  As I said above, this is done because it is impossible for an administration to become an expert in all fields, so he outsources this part of his job.  Bringing in lobbyists with different opinions allows the official and the administration to be exposed to an array of differing opinions.

Mr. Obama is banning former lobbysts that he has hired from working on the same policy areas.  This does not make sense.  These people are experts in their fields and probably know more about the issues they previously represented than almost anyone else in the world.  Rather than excluding them from working in their fields, Mr. Obama should welcome these experts to put their knowledge of their areas of study into good use.  I think that this is a well intentioned rule that cause problems for the administration down the road.

Now, the good.  So far, Mr. Obama seems to be keeping his pledge for a more open and transparent government.  Yesterday, he announced that he was going to support a more loose interpretation of the Freedom of Information Act which would allow citizens to more easily obtain access to government files.  An open and transparent government is important in any highly functioning democracy, and I am glad that Mr. Obama has taken this step towards opening secret documents and records to the public.  Maybe soon we can find out about Area 51.

Americanly Yours,

Phred Barnet