Congress: Massively Incompetent and the Resulting Budget Fiasco

The Democrats and the 2010 Budget Fiasco

BY Gary Andres

September 30, 2010

The 2010 federal fiscal year ended unceremoniously this week – a political and substantive fiasco for the Democrats. It included a cascade of miscalculations that could haunt the party in the November elections.  But that pales in comparison to the serious harm they’ve inflicted on the American economy.

Never before has a party so bungled fiscal policy in the United States, leaving citizens, businesses, and investors with head-spinning uncertainty.

Failure to pass a budget earlier this year began the debacle, but the cavalcade of missteps continued this week with the passage of a so-called Continuing Resolution (CR) to avoid an October 1 government shutdown.

Let’s start with the annual budget plan – or lack thereof.   Facing one of the worst long-term debt and deficit crises in the past half century, Democrats in Congress decided to kick the can and skip developing a blueprint this year.

This is truly unconscionable.  How can the Democrats – with large majorities in the House and the Senate – look voters in the eye and say, we have no plan – no long term schematic to ensure America won’t become another Greece.  The only thing  more unbelievable is that they apparently got away with it because no one seems to notice.

This dereliction of duty is unprecedented. Never in the history of the modern process – dating back more than a quarter of a century – have both the House and the Senate failed to pass a budget resolution.

Investors would dump shares of a business that projected massive amounts of future debt, but told shareholders, ‘Sorry, we don’t have a plan to deal with it.’ It’s one of the reasons political markets put a strong ‘sell’ signal on the Democratic majority.

The majority party’s ‘dog ate my homework’ approach means fiscal year 2011  spending bills languish; funding levels for all of next year’s programs is uncertain; and deficit projections rival faith healers in terms of their trustworthiness.

Because Congress failed to pass a budget or enact any appropriations bills this year, lawmakers will have to rely on a CR to avoid a government shutdown.

But even a CR, which some will pitch as a “freeze at last year’s spending levels,” is a fiscal charade – the second act in this year’s budget fiasco.

Freezing spending at current levels sounds good at first blush. But as the Heritage Foundation pointed out in an August report, non-defense discretionary spending already grew at 28 percent over the past two years.  The Congressional Budget Office estimates that non-defense discretionary spending is now at 4.5 percent of GDP – the highest level in 25 years.  A CR just “freezes” spending at these already higher levels.

Today’s politics demands a “melt,” not a freeze.  In other words, a CR should not just continue the status quo, but also acknowledge the public’s demand for a least some kind of fiscal belt-tightening.

Yet even modest cuts in spending offend many congressional Democrats’ ideological predispositions. Keynes is still king in their minds, particularly liberals in safe districts, insulated from distractions of viable Republican challengers or pesky swing voters concerned about the size of government.

The third act of the fiasco concerns tax policy’s future. The media focuses on whether or not rates should snap back to their 2001 levels for everyone or only those for individuals earning over $200,000 or families making over $250,000.

Republicans say no one’s taxes should go up; Democrats want to increase rates on individual, family and small business income over $200,000 (individuals) or $250,000 (families).  Why not schedule a vote to alleviate the uncertainty? Well, it’s Because the Republican position would likely prevail.  Speaker Pelosi and Senate Leader Reid are using their unchallenged rules powers to sidestep a vote.

Democrats’ budget fiasco also caused an avalanche of other tax ambiguity.  What are the taxes on inheritance (now zero because the old rates expired at the beginning of this year)?   How about rates on capitals gains and dividends?  Then there is the issue of the Alternative Minimum Tax and child tax credits.

This fiscal indecision has harmed businesses, individuals, and investors seeking certainty.  No one knows what they will pay in future taxes – confusion that freezes needed capital investments and job creation decisions.

Democrats this year presided over a fiscal policy catastrophe. Their inability to craft a sensible budget plan, their failure to use the CR to signal spending restraint, and the sea of confusion they created over tax policy, provides voters with a host of reasons to pull the plug on a congressional majority already in critical condition. 

Published on The Weekly Standard (http://www.weeklystandard.com)

U.S. In Decline

Forget a Recession, The Empire is Crumbling

Submitted by Phoenix Capital Research on 09/23/2010 12:50 -0500

I look around me and I see an Empire in Decline.

The US economy is clearly in a depression… not a recession, not a recovery, but a DEPRESSION. More than 40 million Americans (12%) are on Food stamps. Nearly one in five of us are unemployed of underemployed. Folks go to Wal-Mart at 11PM waiting for their government checks to clear at midnight so they can buy baby formula, milk and other necessities.

Three out of every five Americans are overweight. One in five are obese. Indeed, there are only two areas (one state, Colorado, and Washington DC) where obesity rates are under 20%.

Nearly three in four of us don’t get enough sleep.  Almost one third of us report having trouble falling asleep EVERY night. And almost half of us report that day-time sleepiness interferes with normal activities including work.

Half of marriages end in divorce. One out of ten married couples report sleeping alone. The average American watches 28 hours of TV a week (enough to qualify for a part-time job). Two thirds of us eat dinner while watching TV, preferring the fake, sensationalized lives of others to engaging with our own families.

The TV and media are filled with foul, ungodly images of sex, violence, and hate. The most watched shows of the last decade all feature ordinary folks becoming superstars in lottery-esque competitions (American Idol, Survivor, Who Wants to be a Millionaire, etc) OR crime sagas detailing the most sordid and disgusting elements of society (CSI, Law and Order, etc) OR amoral social dramas in which notions of personal responsibility, fidelity, and common decency are unknown (Desperate Housewives, the Bachelorette, etc).

Today, brain dead, vapid human beings who have contributed nothing to society are idolized and followed as though they invented the wheel.  We’ve actually got two industries devoted to presenting the illusion and reality of celebrity: Hollywood shows the photo-shopped, CGI-enhanced, scripted version, while the paparazzi and weekly glossies reveal the drug-addicted, affair-crazed, family breaking, soul-less emptiness.

Sex or violence are plastered on virtually every flat surface available. Even the check-out lines at the grocery store feature endless images of barely clothed women along with headlines sensationalizing gruesome behavior, right out in the open for children to see. And if the kid can actually read the headlines… God only knows what ideas this stuff is putting into their heads.

Financially, we’re all pretty much bust or going bust (except those on Wall Street).

New home sales in July were a RECORD low. Not record as in for the year, but the lowest since 1963. The talking heads are high fiving because sales improved in August, but failed to note that they were still DOWN 19% from August 2009 levels.

Americans two primary assets for retirement (stocks and their homes) have both been absolute disasters. Home prices are down 30%, stocks haven’t produced gains in over a decade. Every moron on TV talks about the Dow 10,000 like it’s a miracle. But when you adjust the Dow for inflation, (using the BLS’ ridiculous CPI measure) the Dow is SUB-500 in terms of purchasing power.

Our money system is controlled by an elite banking oligarchy fronted by academics who have never run a business, invented anything, or had any interaction with commerce aside from vying for tenure. Our currency is now worth less than 1/20^th of what it was a century ago. And we are ALL in debt up to our eyeballs on a personal, corporate, local, state, and federal level.

Heck, even USA TODAY (not exactly the cutting edge in financial research) notes that in order to pay off our current liabilities, every US family would have to pay $31,000 a year… for 75 YEARS!!!

And we’re talking about an economic recovery?

According to David Rosenberg of Gluskin Sheff:

·      Wages & salaries are still down 3.7% from the prior peak;

·      Corporate profits are still down 20% from the peak;

·      Real GDP is still down 1.3% from the peak;

·      Industrial production is still down 7.2% from the peak;

·      Employment is still down 5.5% from the peak;

·      Retail sales are still down 4.5% from the peak;

·      Manufacturing orders are still down 22.1% from the peak;

·      Manufacturing shipments are still down 12.5% from the peak;

·      Exports are still down 9.2% from the peak;

·      Housing starts are still down 63.5% from the peak;

·      New home sales are still down 68.9% from the peak;

·      Existing home sales are still down 41.2% from the peak;

·      Non-residential construction is still down 35.7% from the peak.

The American Psychological Association reports that 73% of Americans cite money as a source of significant stress. Personal bankruptcies have fallen 8% month over month from July to August. However, August 2010 bankruptcies are up 6% from August 2009… so much for the recovery.

And yet, despite all of this, assumedly intelligent people write op-ed articles and appear on TV claiming that things are swell in the US, that we’re actually OK and that the recession is over. Some of these people even have advanced degrees or have won international prizes for economics.

Let’s be honest. Forget recessions, forget even Depressions, the US is an empire in decline.

You can literally see it crumbling right in front of you. Just start looking at how people live, eat, and act on a day to day basis. Look at how our Government runs itself, how it manages our affairs, how it spends our tax Dollars. Look at how our justice system works, who it protects and who it punishes.

It’s all out there, right in the open for you to see. You don’t need an expert degree or some kind of advanced education. It’s OBVIOUS to anyone who bothers looking around.

The fact we don’t admit it doesn’t mean it’s not true.

The Failure of Obama's Stimulus

And who outside Washington, D.C. didn't see this one coming?

The Failure of Obama's Stimulus

Big spending has only produced bigger government.

Steve Chapman | September 23, 2010

No one spends money like the federal government. This year alone, it will shovel out $3.7 trillion, which works out to $7 million a minute. So it may surprise you to find out the clearest lesson from the Obama administration's fiscal stimulus program: The government is not very good at spending money.

On the contrary, it's slow and clumsy. Nearly a third of the $787 billion package, signed into law in February 2009, was assigned to infrastructure projects—from fixing roads and building bridges to weatherizing buildings and upgrading electrical grids.

The idea was to simultaneously improve our physical facilities while putting people back to work, which in turn would provide a badly needed surge of adrenaline to the overall economy. But it hasn't quite worked out that way.

The Wall Street Journal reports that 19 months after the plan was approved, federal agencies have managed to use only one-third of the infrastructure money. Federal contracting rules and labor requirements are among the hurdles that have slowed the process down.

This is not entirely unexpected. The Congressional Budget Office said before the program was approved that less than half the infrastructure money would be spent in the first two years.

That's always been one of the big problems with using fiscal policy—changes in spending and taxes—to manage the level of activity in the economy. By the time a policy takes effect, it may be too late to serve the original purpose.

Supporters insist there's no such danger this time, since the economic recovery has been feeble and promises to remain that way. A Bloomberg survey of economists found that most expect the unemployment rate to stay above 9 percent until 2012.

But if that's true, it doesn't say much for the potency of fiscal policy in boosting short-term growth. Obama's program, after all, is the biggest stimulus package, as a share of the economy, in our history. Yet it has landed with the force of a damp sponge.

If the slow-arriving infrastructure spending were the only component, the weak comeback might be understandable. But the other components of the American Recovery and Reinvestment Act were designed to get money out in a big hurry.

The program included $282 billion in tax cuts, which took effect immediately to boost the take-home pay of workers. It also furnished $140 billion in aid to state and local governments, so they could maintain programs and avoid mass layoffs of public employees.

What's wrong with those elements? For one thing, there is no compelling evidence that they function as intended. Tax cuts are supposed to induce consumers to spend more, but past experience indicates that people use most of the windfall to increase their savings or pay down debts—neither of which puts people back to work.

A recent study for the National Bureau of Economic Research, by Joel Slemrod and Matthew Shapiro of the University of Michigan and Claudia Sahm of the Federal Reserve Board, says that's exactly what happened with Obama's tax cut. The effect on spending, they concluded, was "modest at best."

Giving money to states and municipalities to spare them from firing teachers and slashing social programs undoubtedly achieves that simple purpose. But when it comes to generating economic activity, it's flying on a wing and a prayer.

Economists William Gale and Benjamin Harris of the Brookings Institution and Alan Auerbach of the University of California, Berkeley, note in a new paper that "while the argument for transfers to states being stimulative is plausible, there is surprisingly little evidence on the countercyclical effects of federal transfers to states."

It is safe to say, though, that they have a destructive impact on taxpayers. During good times, states and cities tend to enlarge their budgets, rather than put money away for a rainy day. Economic downturns serve as a corrective by forcing these governments to eliminate low-value programs to live within their new constraints.

When the federal government bails them out during a recession, it spares them this unpleasant obligation. It invites them to keep spending more than they can really afford.

Of course, the use of deficit spending as a cure for recession has the same effect at the federal level—reinforcing our leaders' habit of loading debt onto future generations.

As a way of expanding the economy, it's a proven failure. But as a way of expanding government, it's definitely a keeper.

COPYRIGHT 2010 CREATORS.COM