Doing the Same Thing, Expecting a Different Result

We are taking very much the same approach to resolving our fiscal problems that continental Europe has and which is being referred to as “austerity”: increasing tax rates and making some half-hearted attempts at slowing the rate of growth of spending without actually reducing spending. Why will that work better here?

25 comments… add one

  • jan

    Why will that work better here?

    This question has been asked, ad nauseam, by conservative thinkers, to no avail.

    Instead, dem retorts, tend to go with, “So, you want to go back to the Bush policies?” Unfortunately, Bush has been so demonized and discredited, that one fails to admit that the numbers — deficit, debt, employment, work force participants, GDP growth, standard of living, poverty — were all better in his era. Even Bush’s loathsome drug prescription policy is costing less than what was originally projected, rather than what the CBO is saying about the trajectory of where Obamacare is headed. BTW, just received my own increase in healthcare insurance yesterday. I thought Obamacare was to send those costs downward?

  • Sam

    The people at our monetary policy levers have distinctly different views on whether they are there to punish bad fiscal policy by piling on demand problems to structural problems. This is not an endorsement of our fiscal policy.

  • jan

    Then we have the optimistic CBO report that the deficit will shrink under a trillion dollars, to only $845 billion in the fiscal year of 2013. Bravo!!!

    But, hold on, this is with the caveat that, “Those figures assume that Congress will not pass any more “doc fixes” and cut Medicare/Medicaid reimbursements substantially, as current law requires. “ It also reasons, having a lower deficit, will be the result of “an improving economy and higher taxes paid by wealthy Americans.” But, wasn’t the sum of those higher taxes already spent in the recent larded-up ‘Sandy Relief Bill?” And, then of course, there is the sequestration outcome to consider, in any future financial recalculations.

    However, no matter what, we will still be adding $7 trillion more in debt in the next decade, under the sunniest of possibilities.

  • Icepick

    Why will that work better here?

    Again, are the leaders completely stupid, or are they know that what they’re doing won’t work but they don’t care?

  • Icepick

    jan, the Bush years were propped up by a property bubble of epic proportions, coupled with financial shenanigans. That should not be forgotten, or forgiven.

  • steve

    ” Why will that work better here?”

    Work for what? The goal of these programs is to reduce deficits, not improve the economy.

    Steve

  • “Why will that work better here?”

    Ummmmm ….. it won’t.

  • Drew

    Have just returned from from one of our company’s board meeting. 2012 financial review, 2013 forecast, strategic issues etc. It was actually factually and reality based. Its a fine performing company.

    Then I see that the CBO has re-scored ObamaCare spending from $.9 T (as sold to the public like, oh, I don’t know, mortgage backed securities?) to $1.3T. Let me get the trusty HP calculator out. Oh, that’s right, that’s a 44% increase in spending, in just a couple years. And more to come, when reality really sets in, no doubt. That’s government……..a not so fine performing entity.

    But I see hope springs eternal from certain commenters. Is it any wonder we are broke?

  • Icepick

    But I see hope springs eternal from certain commenters.

    Drew, you can assume they’re stupid and don’t understand what’s happening even when it is rubbed in their faces (and everyone else’s, for that matter) OR you can assume these are the kinds of results they want. No doubt it should be judged on a case-by-case basis. But those are your choices. Have a nice day!

  • steve

    “Then I see that the CBO has re-scored ObamaCare spending from $.9 T (as sold to the public like, oh, I don’t know, mortgage backed securities?) to $1.3T. ”

    I always wonder where this stuff comes from, especially when bright people say it. I read health care policy/economics nearly every day, andI had not heard this, so I chased it down. Link to actual CBO report.

    http://www.cbo.gov/sites/default/files/cbofiles/attachments/43907_Outlook_2012-2-5_Corrected.pdf

    Here is what they say on page 51.

    “The changes in CBO’s baseline include updates to the agency’s projections of the budgetary effects of provisions in the Affordable Care Act that involve health insurance coverage.2 Although several components of its estimates have changed since August, the difference in the net budgetary impact for the 2013–2022 period is less than $500 million.”

    So how do we get from 0.9trillion to 1.3 trillion? First, the update actually gives us expenditure through 2023, not just 2022. It adds an extra year. W/o the extra year it is about 1.15 trillion. How does it get from 0.9 to 1.15. AFAICT, people are citing the initial price tag that covered an earlier ten year period from when the ACA was first approved. That number also included time when the ACA was not fully implemented, so it was artificially low.

    Steve

  • jan

    Without reading any documentation, like Steve does, don’t the ACA calculations look better in the first couple of years, because the downside of implementation hasn’t gone into effect yet? When true expenditures, of running this program go into effect in 2014, isn’t that where a real financial analysis of cost to benefits can come into play?

    “jan, the Bush years were propped up by a property bubble of epic proportions, coupled with financial shenanigans. That should not be forgotten, or forgiven.

    Icepick

    The Bush years, included a lot of push-back by the democrats in Congress to promote more lenient qualification and lending standards in order to max out the number of people buying homes. Like I’ve referenced before, Bush tried to weakly intervene, legislatively, to add more oversight to these reckless lending practices, but to no avail. I’m not saying this to take away any culpability Bush had in the housing market (as he too supported home ownership for as many people as possible), but only to broaden the ownership of the sub prime housing debacle to being a bi-partisan failure.

    Also, in looking at bubbles propping up an administration’s economic numbers, one might also cast an eye over to the Clinton years, where the dot com tech bubble certainly aided and abetted his economic legacy, along with a dominate R. Congress who pushed through various fiscal reforms.

  • Icepick

    The Bush years, included a lot of push-back by the democrats in Congress to promote more lenient qualification and lending standards in order to max out the number of people buying homes.

    Back in 2002 and 2003 (especially) the Bush Administration made a big push to increase home ownership amongst Hispanics. This was done because it would make theses natural conservatives pure Republicans, of course. Anyway, they succeeded in their goals, at least as far as temporarily increasing Hispanic home ownership was concerned. Bush shouldn’t get any pass on this whatsoever – he wasn’t pushed into this, he flung himself into this.

    Also note how thoroughly successful were the efforts to turn Hispanics into Republicans. Yet another legacy brought to you by Karl Rove.

    You can go search through Steve Sailer’s archives if you want to read the depressing details.

  • steve

    “Without reading any documentation, like Steve does, don’t the ACA calculations look better in the first couple of years, because the downside of implementation hasn’t gone into effect yet? ”

    Yes, but that is also true of the upsides.

    Steve

  • steve

    “To be read in the voice of Paul Harvey.

    And on the eighth day God looked down on his planned paradise and said, “I need someone who can flip this for a quick buck.”

    So God made a banker.

    God said, “I need someone who doesn’t grow anything or make anything but who will borrow money from the public at 0% interest and then lend it back to the public at 2% or 5% or 10% and pay himself a bonus for doing so.”

    So God made a banker.

    God said, “I need someone who will take money from the people who work and save, and use that money to create a dotcom bubble and a housing bubble and a stock bubble and an oil bubble and a commodities bubble and a bond bubble and another stock bubble, and then sell it to people in Poughkeepsie and Spokane and Bakersfield, and pay himself another bonus.”

    So God made a banker.

    God said, “I need someone to build homes in the swamps and deserts using shoddy materials and other people’s money, and then use these homes as collateral for a Ponzi scheme he can sell to pensioners in California and Michigan and Sweden. I need someone who will then foreclose on those homes, kick out the occupants, and switch off the air conditioning and the plumbing, and watch the houses turn back into dirt. And then pay himself another bonus.”

    God said, “I need someone to lend money to people with bad credit at 30% interest in order to get his stock price up, and then, just before the loans turn bad, cash out his stock and walk away. And who, when asked later, will, with a tearful eye, say the government made him do it.”

    God said, “And I need somebody who will tell everyone else to stand on their own two feet, but who will then run to the government for a bailout as soon as he gets into trouble — and who will then use that bailout money to help elect a Congress that will look the other way. And then pay himself another bonus.”

    So God made a banker.

  • jan

    Steve,

    It was only with government’s little nod of approval, and their lack of official oversight, could the banker that God made could get away with these slimy practices.

    Government should help stop the bad, and encourage the good. It is kind of the opposite, though, these days.

  • PD Shaw

    Well done, steve. I don’t know if I agree with it all, but I don’t agree with everything that makes me laugh. I usually rather laugh.

  • TastyBits

    @steve

    Bankers are no more greedy than anybody in the insurance, pharmaceutical, hospital, or other healthcare industry, and this include ER physicians.

    The “millionaire’s tax” and the Fed’s easy money were large contributors to the stock-market bubble, and both of these were done under President Clinton. Stock options were used as compensation instead of a salary over $1,000,000.00. This made a rising stock price more valuable. 401(k)’s were another factor fueling the bubble, and low interest money from the Fed was the gasoline.

    The repeal of Glass-Steagall and the refusal to regulate the CDS market were prime contributors to the housing bubble and financial crisis. Fannie and Freddie were another factor, and low interest money from the Fed was the gasoline.

    The US is presently in a government spending bubble, and student loans are causing a bubble in higher education. I almost forgot about the low interest money from the Fed. I expect this is going to end as well as the previous bubbles. Obamacare is going to expand the healthcare bubble, but this is not Fed related.

    If I had the time, energy, and inclination to look into the healthcare industry, I am certain I would find similar practices as the financial industry, but at least Jamie Dimon does not claim to doing anything other than making a boatload of money. Everybody in the healthcare industry seems to think they are saving the world. Maybe, but they are making a boatload of money doing it.

    Bankers are not the problem. The problem is politicians who think they are geniuses and must solve problems that do not exist.

  • steve

    @PD- SOmeone else wrote it. Just noticed I forgot the link.

    Steve

  • Icepick

    Here’s a pair of headlines that encapsulates how the government is being run, and for whom:

    Panetta to propose military pay cut…

    Obama raised Joe Biden’s salary…

    Buried in the story is that the DOD cuts are actually just a reduction of the pay increase to 1%. Which is typical of government “cuts” since I was old enough to follow the stories. Given inflation this is a relative cut in pay. However when there are people that haven’t gotten any raise in years….

    Nevertheless, it rankles that Vice President Aneurysm and other members of the elected elite are going to get raises of any sort while others in the line of fire get effective pay cuts.\

    But hey, it’s very important that we have Shut-the-fuck-up-Joey traveling Europe, providing his gaffe-o-matic services to the country as a whole.

  • jan

    Icepick

    Cutting back on military pay increases, while increasing those for politicians is just another symptom of the confusing era we are experiencing. It dovetails into TastyBits’ closing statement:

    Bankers are not the problem. The problem is politicians who think they are geniuses and must solve problems that do not exist.

    Basically, our politicians and their ambitions/greed/over-inflated egos put themselves in front of everyone and everything else. They no longer see themselves as the people’s servants, but their masters.

  • steve

    “”The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” Lord Acton

    One of the founders of libertarian thought recognized that banks, hence bankers, are different. They control other people’s money. When they gamble with that money, they pretty regularly bring down economies. Look at the history of all of the recessions in the US. Look at the recession/depressions in other countries. Let the bankers do what they want or, as jan notes, provide “lack of official oversight” and they do not do what they are supposed to do, evaluate risk and allocate capital. If this most recent crisis was the first time they had created hugely leveraged risks to make money for themselves, we could cut them a bit of slack, but this is a recurrent problem.

    To be fair, this really should not be laid at the feet of local small town bankers. This is really a problem with investment bankers and the large internationals.

    Steve

  • TastyBits

    @steve

    One of the founders of libertarian thought recognized that banks, hence bankers, are different. They control other people’s money.

    Bankers enter into value for value transactions with their customers/investors, and as opposed to transactions with the government, these are voluntary. Hence, politicians are different.

    When they gamble with that money, they pretty regularly bring down economies. Look at the history of all of the recessions in the US. Look at the recession/depressions in other countries.

    No, they bring down their institutions, and their customers and investors lose money. When governments give them free money, that money may bring down economies, but this is a problem created by politicians.

    Let the bankers do what they want or, as jan notes, provide “lack of official oversight” and they do not do what they are supposed to do, evaluate risk and allocate capital.

    In a large, complex economy or society, reasonable regulations make many ordinary decisions easier. The government is able to provide a standard which can be expected when engaging in activity with an entity. Without this expectation, I must research each entity every time before I enter into a transaction. Food and health regulations give a reasonable guarantee of safety, and the FDIC gives me a guarantee my money will be safe.

    Glass-Steagall (Banking Act of 1933) provided a firewall between commercial banks and investment banks. It was weakened over the years, but it provided a reasonable regulation of the finance industry. The Commodity Futures Trading Commission regulations are designed to limit speculation, and by raising the capital requirements, speculation can be curtailed.

    Also note, the government began requiring Investment Banks purchase a credit rating from one of three (?) approved credit agencies. I will leave it to others to explain the stupidity (@Drew) or evilness (@Icepick), but once again, this problem was created by politicians.

    The politicians have rewired the system, and in the process they have cross-wired and short-circuited the feedback loops. The radio volume controls acceleration, and the accelerator controls the volume. When I step on the gas pedal, the radio gets louder, and when I turn down the radio, I slow down. I end up going nowhere, and I arrive with a splitting headache. Luckily, the politicians are ready with a solution – high speed rail and Obamacare.

    To be fair, this really should not be laid at the feet of local small town bankers. This is really a problem with investment bankers and the large internationals.

    Actually, they were carrying a lot of off-the-books trash in Special Investment Vehicles (SIV’s).

    With the exception of Jesus, Mother Teresa, Ghandi, and a few others, Bankers are no different than anybody else. We are all greedy – each in his own way. The difference is availability and ruthlessness. From the poorest to the richest, US citizens are greedheads by the standards of 90% of the world.

    ……………..

    I do not have much time, but here is a quick response to the Wall Street – Democrats statement.

    Political contributions for really rich folks are not an indication of their political leanings. Their friends and acquaintances, anonymous donations, and what they do not say are better indications. For the top people, publicly giving to Republicans while supporting Democrats is a business decision, and the opposite is also.

    In the game, nothing is as it seems. A player creates a convincing illusion, and the played see a convincing reality.

  • Really, bankers bring down economies.

    I don’t know I think the government is a partner in many of those instances such as the Great Depression. The attempt to return to the Gold Standard after WWI, the obstinacy in staying on the Gold Standard, and the benighted ideas of the New Deal helped lead up to, deepened, and prolonged the Great Depression. And the reason we went back on the Gold Standard was due to governments inability to handle a fiat money system early on.

  • Icepick

    Speaking of doing the same thing over and over again, Ray LaHood laments the fact that America is one giant pot-hole. I’d love to hear him and Schuler debate the merits of one more bridge over the Mississippi….

  • jan

    With the exception of Jesus, Mother Teresa, Ghandi, and a few others, Bankers are no different than anybody else. We are all greedy – each in his own way.

    This is a generalization, for sure, but for the most part taking advantage of a weakness in a person, system, government, academics, etc. is oftentimes too tempting for many. Through rationalization or denial people simply get what they can easily get. Maybe that’s why those stories of people turning in money, lost by someone, acts of random kindness are duly noted, as they are the rarities not the norm.

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