The Prez’s budget: higher taxes and higher spending

You read that right: the president’s ten-year budget plan calls for higher spending over the next ten years.

Patrick Brennan (Corner) provides the details on the tax side, and finds that the total tax increase actually comes to just over $1 trillion.

That means less than of the “$1.8 trillion in additional deficit reduction” is actually spending “cuts” (about $800B). Why did I put “cuts” in quotes? Because the president’s budget also cancels the sequester, meaning that $1.2T in cuts are “replaced.”

Thus, actual deficit reduction is roughly $600B, and with the $1T in tax hikes, spending actually rises by $400 billion over the next decade under the president’s budget.

Maddening.

The President, the deficit, and Keynesian theory

During last week’s scare session on the sequester, the president said something very revealing about himself (via Peter Kirsanow):

Lay offs and pay cuts means (sic) that people will have less money to spend at local businesses. That means lower profits. That means fewer hires. So every time that we get a piece of economic news over the next month, next two months, next six months, or as long as the sequester’s in place, we’ll know that that news could have been better if congress had not failed to act. (Emphasis added.)

This paragraph reveals, in a nut shell, how the president sees the economy. “Local businesses” don’t make decisions on their own. Their “profits” and “hires” are driven solely by consumer demand, and nothing more. This is known as the Keynesian school of economics. Under the Keynesian theory, the economy is driven entirely by what consumers, businesses, and government spend (otherwise known as aggregate demand). In particular, government spending benefits the economy through purchases and hires, with that money rippling through the economy multiple times over (in fact, the measure of this rippling is called the “multiplier effect”). The more direct the spending is, the larger the effect.

This last part is critical to the Keynesian theory, because it explains Keynesian politics. For Keynesians, government spending is always better than consumer spending (because consumers save some, that money “leaks” out of the economy). Thus, tax cuts, which under the Keynesian school effects only consumption, is never better than government spending. Likewise, tax increases are always less damaging than spending cuts. Thus, Keynesian adherents are drawn towards permanently growing government, and an ever expanding tax burden.

Of course, there is much that Keynesian theory completely ignores – such as the incentives firms face when they choose to do business. Because Keynes himself was rebelling against a pre-Depression “Walrasian” consensus, he ignored much of the microeconomic theory regarding how businesses respond to costs. Due to this, there are no impediments to production in the Keynesian world; it reacts to demand, period.

As one might expect, Keynesian theory had no response to the events of the 1970s, where dramatic increases in resource costs had dramatic effects on business production (a.k.a., aggregate supply). It was to bridge this dramatic gap in economic theory that the “supply-side” school was born. Supply-siders focused on uncertainty, taxes, regulations, and other cost to businesses, and how they impact both production decisions at the microeconomic level and growth at the macroeconomic level.

In short, the taxes that Keynesians felt were least troubling (income and investment taxes, because they do not affect consumption directly) were exactly the ones supply-siders found most troubling (because they reduced the incentives to provide capital to business, and thus increased business costs of financing). Other taxes and regulations that would impact mainly firms were of great concern to supply-siders, but largely thought benign by Keynesians.

In short, the economic arguments that divide the two parties are largely driven by these differences in economic views. Naturally, the government-friendly Democrats move more towards Keynesianism, while business-friendly Republicans drift closer to supply-siders.

Moreover, this explains, at least in part, the president’s insistence on new tax hikes despite the old tax hikes only coming two months earlier. For this president, tax hikes are always better than spending cuts.

It’s not about cynical politics or tactics (or, to be precise, not just those); the president really believes this stuff.

The ironic effect of the President’s foreign policy…the recolonization of Africa

Fraser Nelson (Telegraph) notes an irony few in America are noticing…and few in Europe can believe:

In his inauguration speech last week, Barack Obama assured America that “a decade of war is now ending”. Just three hours earlier, the Prime Minister had told the Commons that a “generational struggle” against the jihadis was only just beginning. British and US foreign policy has indeed become detached – but not in the way most people expected.

Nelson goes into greater detail about Prime Minister Cameron’s surprising turn towards a more active foreign policy, not only in Libya, but also in Mali, where an Algerian terrorist group that signed up with al Qaeda is battling a military regime that, in theory, will return the country to democracy.

In both Libya and Mali, Britain and France worked together to defeat Qaddafi and al Qaeda, respectively. In Mali itself, I should note, the fight is far from over. That said, Britain’s geopolitical ambitions are, if anything, growing (Spectator Coffee House):

On the Sunday Politics, William Hague confirmed that the greatest terrorist threat to the British homeland come from Somalia, Pakistan and Afghanistan. But he argued that without intervention, the Sahel could become as dangerous to Britain.

Please note that Mali is in the Sahel region of Africa.

What is remarkable about all of this is how quickly Great Britain and France moved into the void Washington was creating. Given that France ejected Nicolas Sarkozy (who provided the greatest push for the Libya operation) in favor of Socialist Francois Hollande, France’s continuing involvement is a tremendous surprise.

However, France and Britain have long, colonial histories in Africa, histories that were largely ended due to heavy American influence after World War II. By withdrawing that influence, President Obama has unwittingly invited the colonial powers back into Africa in order to protect their own homelands from an al Qaeda threat to their south.

The fact that the president who enabled the de facto recolonization of Africa is himself the first American leader of African descent makes it all the more painfully ironic.

My reaction to the fiscal cliff debacle: the GOP caved, and will again

So while I was on vacation, the Republicans did what I expected them to do in the “fiscal cliff deal” – they caved.

They did not attempt to explain why tax increases are a bad idea. Instead, they tried to minimize the damage as much as they could, and yet even in doing that they have managed to make things worse.

It is now abundantly clear that the Republicans in Washington are terrified only of being “blamed” when the plans for ever-larger government goes off the rails. They will have the same fear – and thus cave in the same manner – when the debt-limit and sequestration debates arise over the next two months.

Meanwhile, the president – having gotten a deal that reduces 10 cents in spending for every dollar in projected revenue increases (One News Page) – keep in mind that the actual revenue raised will be smaller, most likely far smaller – is demanding even higher taxes (Forbes).

From a national perspective, it is difficult not to demand a new party on the right to replace the Republicans.

Yet locally, it is a very different story. The entire Republican delegations in Virginia and Maryland voted against this debacle (House Vote). Even recently defeated Congressman Rob Bartlett voted no. Given that in Virginia, the number of Republican Congressmen is eight (to Maryland’s two), this is a much bigger deal south of the Potomac. It shows there may yet be a future for conservatives in the GOP in the Old Dominion.

Cross-posted to Virginia Virtucon

The reason Romney lost (odds are, you haven’t heard it yet)

The three most prevalent answers for what happened last night are, in order: Romney’s flaws, demographics, and the Democrats’ ground game. All of them certainly had a role (the second of them still fuels my flirtation with rebooting the right with a different party), I think there is one “fundamental” that was more important at the end of the day.

Usually, an incumbent presiding over an economy as bad as what we’ve seen since January of 2009 is sent packing – emphatically. The president’s argument was, essentially, that 2008 was so bad and so out of character in economic terms that the normal rules of judging his record don’t apply.

Now where could the president possibly get this idea?  Well, in 2008, a whole slew of Republicans insisted…things were so out of character in economic terms that they needed send $700 billion to major Wall Street banks. Among the GOPers who violated free market principles out of “necessity” were President Bush the Younger, his cabinet, now-Speaker Boehner, most of his caucus, Senate Minority Leader McConnell, most of his caucus…and both Mitt Romney and Paul Ryan.

Now, it helps that I fervently believe the bank bailout (a.k.a. TARP) was a terrible economic mistake (and yes, I said it back in 2008, too). That said, a candidate who opposed TARP could explain why it made a touchy economy much worse, how the deepest part of the Great Recession came during the bailout’s passage and implementation, and that those who backed it (Bush and Obama) made a serious and critical mistake.

That would have separated the candidate from TARP and Bush (the latter still blamed by 53% of the voters for the current stagnation – Fox News). Instead, Obama’s argument about the dangers of 2008 were echoed – however subtlely – by Romney and Ryan themselves.

Simply put, those of us who picked Romney over Santorum or Gingrich (both of whom opposed TARP) made a mistake. Could Obama have beaten either of them? Perhaps, but he certainly wouldn’t have been able to use the “inheritance” argument, because both of them would have insisted the economy did not need the bank bailout; that the president made things worse by his support for the bailout as a 2008 candidate; and that as such, the economic hardships from 2009 on should be placed solely at his feet.

Whatever the Republican party chooses to do in 2016, if they wish to win back the White House, they must nominate an outspoken opponent of TARP – preferably a member of Congress who voted against it.Otherwise, voters will continue to hold the Democrats innocent of their economic record until the next peak in the economic cycle – which could be as late as the mid 20′s.

Cross-posted to Virginia Virtucon

African-American Unemployment up 12.5% since Obama took office

One of the rather desperate arguments of some supporters of the president is that no African-American should even consider voting against him. I can understand the appeal to ethnic pride, but facts are stubborn things. Such as…

According to the Bureau of Labor Statistics, African-American unemployment was 12.7% in January of 2009 – and it is 14.3% now – an increase of 1.6 percentage points, or 12.5%.

I’d say that’s reason enough.

Cross-posted to Virginia Virtucon

Obama’s plan for a second term begins with a $1-trillion-plus tax increase

After an initial kerfuffle with the editors of the Des Moines Register regarding his interview with them, the president has revealed what he told them – mainly his plans for a second term. First and foremost on the list is a tax increase of over $1 trillion.

In the interview, the president talks about meeting “the target that the Bowles-Simpson Commission established of $4 trillion in deficit reduction” with a ratio of “$2.50 worth of cuts for every dollar” in tax increases.  If you do the math, that translates to a tax increase of $1.143 trillion – easily the largest tax increase in American history (and, it should be noted, far, far more than would supposedly come in from reverting to Clinton-era tax rates on wealthier Americans).

No wonder the president didn’t want this interview to be released at first: he openly acknowledged his first order of business would be a massive tax increase. He even goes so far as to trumpet the “Bush tax cuts expiring” – for everyone - and the “sequestration in place” – something he insisted on Monday would never happen – as stepping stones. The Romney ads practically write themselves.

The fact that the president thinks he can say one thing to the editors of the Register and another thing entirely to the American people in a presidential debate is bad enough. However, this is more than just a political error, more even than a damaging example of terminological inexactitude; this is a serious policy mistake that must be averted at all costs.

For starters, the economic damage done by tax increases is almost always underestimated.Taxes are a cost to businesses, and increasing them (especially on the scale of $1-trillion-plus) will have a crippling effect on the supply side of the nation’s economic equilibrium (in fact, this is the fundamental argument of the “supply-side” school of economics). Keynesian, demand-driven analysis never takes this into account, and thus the damage done by tax hikes is simply ignored out of most projections by economists among Democrats.

As a result, tax increases never meet their revenue projections.This was one of the reasons I have repeatedly insisted that tax hikes have no place in an deficit reduction plan. Because the damage to the economy is understated, the impact of the economic damage on government revenue is also underestimated. We saw this throughout the 1980s and 1990s. This also has its own secondary effects – the largest one being that deficit reduction plans usually end up being junked before the spending cuts take effect, in exchange for new plans that include even more tax increases, creating a vicious cycle.

Normally, this would be bad enough from a policy perspective, but in this case there are two other factors that make the president’s plans even worse.

First, $4 trillion in deficit reductions – even if that figure is reached (and given the above, it won’t be) – leaves $11 trillion on cumulative deficits over 10 years. In other words, the president is trying to claim deficits averaging $1 trillion a year as the fiscal equivalent of “mission accomplished.” Now, one could say in response that much of that deficit would be covered by a return to normal growth patterns, which would return revenue to its usual 19% of GDP and cut the deficit in half all by itself. All that does, however, is bring us back to the damage done to the economy by the $1-trillion-plus tax hike the president is demanding.

Secondly, the president’s reliance on Simpson-Bowles as a model is horrifically flawed.As I revealed earlier, S-B makes a dramatic error in revenue assumptions (they assume 21% of GDP, not 19%) that creates a $900-billion hole in annual projections. That’s right: Simpson-Bowles is more likely to result in deficits of $900 billion a year than in balanced budgets.

So, just to summarize: the president – in complete refutation of what he’s told the American people for months – wants to start his second term with a $1-trillion-plus tax increase that will do massive economic damage he refuses to see and won’t come to close to the deficit reduction he wants, based on a plan that’s off by $900 billion a year in its projections.

I can think of no better rationale for ensuring the president never sees that second term.

Cross-posted to Virginia Virtucon

Univision didn’t get the MSM memo and blows the lid off Fast and Furious

In what could be one of the surprise events of the campaign, the Administration’s attempt to avoid Operation Fast and Furious was destroyed by Univision, which ran a massive expose on the “gunwalking” fiasco. Bob Owens at PJ Media has the details (h/t Small Dead Animals):

On Sunday night, Spanish-language station Univision— one of the only networks to provide critical coverage of President Obama’s failures in office instead of cream-puff interviews — broke open the Fast and Furious investigation, revealing new evidence of weapons smuggling and displaying shocking new images of the bloody aftermath of the government-supported gun-smuggling program.

The Univision report undermines the integrity of the recently released DOJ inspector general report on Operation Fast and Furious, already heavily criticized as an attempt to whitewash criminal activity within the Obama administration.

The hour-long Univision report revealed the existence of another 57 guns recovered by Mexican authorities, including some of those used in the mass-murder at a party just one year after Obama’s inauguration:

On January 30, 2010, a commando of at least 20 hit men parked themselves outside a birthday party of high school and college students in Villas de Salvarcar, Ciudad Juarez. Near midnight, the assassins, later identified as hired guns for the Mexican cartel La Linea, broke into a one-story house and opened fire on a gathering of nearly 60 teenagers. Outside, lookouts gunned down a screaming neighbor and several students who had managed to escape. Fourteen young men and women were killed, and 12 more were wounded before the hit men finally fled.

Indirectly, the United States government played a role in the massacre by supplying some of the firearms used by the cartel murderers. Three of the high caliber weapons fired that night in Villas de Salvarcar were linked to a gun tracing operation run by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), according to a Mexican army document obtained exclusively by Univision News.

These 57 recovered weapons discovered are in addition to the 122 weapons referenced in a congressional report.

Now, the gunwalking scandal has been known among political junkies for a good while now, but Univision is the first network to bring it to the fore since 2010. This is big news for two reasons. The first, not surprisingly, is that it brings the scandal to center stage with five weeks to go until Election Day. The second reason, however, may end up being more important.

Conventional wisdom likes to bleat that President Obama is winning handily over Romney among “Hispanic voters” – a lazy generalization if there ever was one. In fact, Romney is likely winning Cuban-Americans, and is very competitive with Salvadoran-Americans, Nicaraguan-Americans, and Honduran-Americans. The president probably has an advantage among Dominican-Americans and Puerto Ricans (who have been American citizens since the island was wrested from Spain in 1898).

However, all of these groups are dwarfed by Mexican-Americans – the largest group of ethnic Latin Americans in the U.S., and a group that heavily favors the Democrats. Fast and Furious in particular hit Mexico like a body blow (as the quote from Owens shows), and I would be stunned if that doesn’t cause problems for the president in the Mexican-American community.

With the race as tight as it is (Rasmussen has the race at 48-47 as of this morning), anything that hits the president’s base could be a problem for him. For the reasons above, this could be doubly painful.

Cross-posted to Bearing Drift

Will the people of Venezuela be able to rescue themselves from the Chavez dictatorship?

Amidst the brouhaha over our election next month, there is one next week (Sunday, to be exact) that could be more groundbreaking.

In Venezuela, Hugo Chavez has built a left-wing tyranny based on his personal charisma, seizure of private property whenever it suits him, ties to other antidemocratic regimes such as Khomeinist Iran, Communist Cuba, and Communist China, and finding ways to divide and demoralize his opposition. That last part of the puzzle isn’t here this time, as the opposition has united behind Miranda Governor Henrique Capriles, who might just defeat Chavez in Sunday’s presidential election.

Capriles talked to the Telegraph about the campaign, and the nature of what he confronts – and it’s more than just getting more voters to back him than Chavez:

And for all the carnival atmosphere of the rallies, there is a violent undercurrent. Chavista hot-heads attacked a recent opposition rally, stoning and setting fire to vehicles, and security analysts have warned of the dangers of post-election violence if the president is ousted.

In fact, Chavez and his “Chavistas” have routinely used violence to prop up his regime – and at least one referendum (2004) was “won” by Chavez due to fraud.

Naturally, Chavez has already endorsed Barack Obama for re-election, and is sure Obama would back him (Telegraph).

More to the point, however, is that Chavez has ruined his country (first Telegraph link):

“We have so many problems here in Venezuela, but Chavez’s priority is to create his own world revolution,” he said.

“His land reform programme (UK sp) has been a disaster and he sends billions of dollars of oil abroad each year, but there are hundreds of thousands of Venezuelans who have problems putting food on the table.”

The “oil abroad” refers to the “gifts” sent to fellow left-wing tyrants.

Venezuela once had a functioning democracy. Chavez has thoroughly ruined both that democracy and his country. I am hopeful that the beginning of the end of the Chavez fiasco comes on Sunday.

Cross-posted to Bearing Drift

Bill Clinton slays the truth again in Obama ad

If you live in Virginia, you’ve seen the Bill Clinton ad about “the choice” – in fact, you probably couldn’t avoid the ad if you tried. What you didn’t see, or hear, was the truth.

Clinton begins by artful denigrating “the Republican plan,” which he defined as “to cut more taxes on upper-income people, and go back to deregulation” (Politico). He promptly opines, “That’s what got us in trouble in the first place.” There’s only one problem with that – it isn’t true.

In fact, “to cut more taxes on upper-income people, and go back to deregulation” isn’t “the Republican plan,” it was Clinton’s policy. In 1997, Clinton signed into law a capital-gains tax cut, which lopped off the highest-income rate from 28% to 20%. Two years later, he signed into law the most emphatic financial deregulation since the Great Depression (the repeal of Glass-Steagall). By contrast, the Republican Administration that followed him enacted re-regulation (to an extent) of the financial sector with Sarbanes-Oxley.

This is not to say deregulation was a mistake, or to defend Sarbanes-Oxley – in fact, Clinton’s deregulation expansion was much stronger and had a far milder end than the Bush/Sarbanes-Oxley version. It is to say that Clinton is deliberately fudging the record in order to defend a president whose reckless spending and regulatory zeal is far closer to the “Republican” who “got us in trouble in the first place” then anything he actually did as President.

Of course, Clinton would tell you that his 1997 upper-income tax-reduction was just part of a broader tax cut for everyone. You know who else has that idea? Mitt Romney. But Clinton probably doesn’t want to talk about that either.

So, to sum up, Bill Clinton fudged his own record as president; transformed George W. Bush from the actual big-government Republican he is into a fictitious anarchist strawman; and pounded Romney for proposing…something he himself did while in the White House.

Bill Clinton says voters have “a choice.” Now at least they have the truth, too.

Cross-posted to Bearing Drift