Federal Budget Explosion--Part 2

The New York Times reports on President Obama's proposed $3.7 trillion budget for 2013 with a viewer-friendly series of interactive graphics.

The president's budget projects a $901 billion deficit in 2013. The deficit represents spending in excess of revenues during the year. The deficit does not represent the national debt which, according to the U.S. National Debt Clock in real time, is $15,391,190,000 give or take. Call it $15.4 TRILLION dollars or $49,041 per citizen, $135,797 per taxpayer. Add in this year's deficit and the proposed deficit for 2013 plus interest and it is not a stretch to conjure up the kind of third world disaster currently stewing in Greece. All of this spending is before we begin gearing up for ObamaCare's $1 trillion spend-a-thon.

Especially noteworthy, Obama's budget calls for $2.5 trillion in "Mandatory Spending." This represents 70% of overall spending and includes "entitlements like Medicare, Medicaid and Social Security" and interest on the "public debt." The remaining $1.1 Trillion includes "Discretionary Spending." This is where defense spending is accounted for among other governmental agencies.

The big loser in the president's budget? Defense. The big winner? Entitlements which now dwarf all other spending in the federal budget.

The other big loser? The American taxpayer who is now on the hook for $135,797.00 of the national debt. And based on the president's proposed budget it looks the governmental spending machine is just getting warmed up.

http://www.nytimes.com/interactive/2012/02/13/us/politics/2013-budget-proposal-graphic.html?src=tp

Federal Budget Explosion--Part I

When politicians talk about the budget most of us listen with the best intentions until the caveats and accounting tricks conflate into a convoluted and polluted stream of rhetoric. For example, we learn that when politicians talk about a 5% cut in spending what that really mean is NOT that they are reducing spending by 5%, as those of us operating with a finite budget would assume, rather, they mean they are slowing the rise in spending by 5%. In fact, under a Congressional or Presidential 5% cut, spending could actually be rising by 5% or 10%. A cut is not a cut is often an increase. Huh?

Thankfully, the good folks at The Heritage Foundation have set out to explain the budget in pictures. Making the numbers accessible to us regular folks. We begin with the rate of growth of government spending versus the rate of growth of the median income of the Americans. It doesn't take a mathematician to deduce that the rate of growth of government is unsustainable. Since government is funded primarily by taxes paid by its citizens we can surmise that a growth rate in the income of those citizens of 27% over the last 39 years when compared to federal government spending growth of 299% is an equation for disaster.

And these levels of spending do not include the upcoming trillion dollar cost of Obamacare.

If is time to stop politicizing America's future and get serious about spending. The president submits his budget today. He has the opportunity to lead. Let's hope he does.

A Diversion?

In the last segment of The Lord of the Rings trilogy, during the final battle scene, Legolas, Elf of few words astutely assesses the opponent's strategy by declaring: "It's a diversion."

Frankly, the jobs numbers that fueled Friday's stock market euphoric surge feels a bit like a diversion to me.

First, when wrestling with the is the employment picture improving question it is imperative to consider that the numbers are seasonally adjusted. January is a notoriously awful month for jobs. According to Gene Epstein, in a recent Barron's article: "Over the past 20 years, January has never witnessed a decline of less than two million payroll jobs even in boom times...the unemployment rate always rises in January..." a fact for the last 64 years data has been available.

This January the loss of jobs actually came in at 2.7 million which is an improvement over recent years' losses. This difference--a decline in the number of jobs lost--resulted in the recorded improvement of "a rise in jobs by 243,000." To put it in the language of the real world: The jobs numbers reflect a slowing of jobs lost by 243,000 jobs over previous January periods rather than a growth in new jobs. For those of us who live in the reality an increase in jobs means there are more jobs not--as the calculation provides--a decrease in the loss of jobs.

Many of us play this game when we make a purchase we shouldn't have. "I saved $100!" we triumphantly declare. The remaining part of the transaction goes unmentioned. To save the $100 we had to spend $1,000. The savings is a phantom savings much as the rise in jobs reported Friday are phantom jobs.

That said, a slowing in decline is good news provided it holds up beyond seasonally adjusted January. But it is important to understand--as most media commentators don't--what the numbers actually mean before we begin the euphoric celebration.

Finally, the reporting of the jobs number which reflects the reality of the lives of tens of millions of Americans has risen to a distasteful level of political rhetoric. These are real people out of work. People who want to work and provide for their own families. The message should be clear. People are still hurting and a decline in the loss of jobs does nothing to help those who are without one. As mentioned in earlier blogs, the work force has declined from 66.1% at the end of 2007 to 63.9% at the end of 2011. When those people drop out of the work force, they cease being counted, understating real unemployment. That is why it is important to consider U-6, the employment number which counts those working part-time who are seeking full-time work and those who have simply stopped trying. That number weighs in at 15.6%.

Hardly a cause for celebration.

I've Had It!

On the Question of Whether Iran Should Obtain a Nuclear Weapon

An excerpt from today's The Wall Street Journal; all you need to know about Iranian leadership.

"Accommodationists argue that a rational Iran can be contained. Not the Iran with a revered tradition of deception; that during its war with Iraq pushed 100,000 young children to their deaths clearing minefields; that counts 15% of its population as "Volunteer Martyrs"; that chants "Death to America" at each session of parliament; and whose president states that no art "is more beautiful . . . than the art of the martyr's death." Not the Iran in thrall to medieval norms and suffering continual tension and crises."

Will the Real Unemployment Rate Please Stand Up?

Despite the breathless claims that the economy is getting better as witnessed by the supposed improving jobs numbers, it is important to note the relevant numbers.

If jobless claims are declining because the number of people seeking jobs is declining then the reduction is not a measure of economic improvement rather, the statistic reflects job seekers giving up and dropping out of the work force.

Art Laffer wrote in his January 5th report, Housing, GDP and the 2012 Election that today's unemployment rate stands at 8.6%. (U-6 which is the measure of those who have accepted a part-time job but are seeking full time work--the underemployed--is now at 15.6%). But, the most important measure is the labor force participation (those still looking for work) which has dropped from 66.1% in late 2007 to 63.9% (Laffer Associates). This decline is confirmed by the duration of unemployment which currently hovers at 41.1 weeks against a sixty year average of 14.4 weeks (Housing). In other words, since January, 1948 the average number of weeks an individual was unemployed is 14.4. Until now the previous peak was approximately 22 weeks during the early 80's recession. We currently sit at 41.1 weeks.

This is unsustainably bad news and should be reported as such by the media rather than lauded with selective statistics that do not reflect the reality of the lives of millions of Americans who simply want to get back to work.

Obama's Dogmatic Spending Spree

In her excellent history of the the Great Depression, author Amity Shlaes chronicles Roosevelt's inaugural speech in January 1937 where he claims, "Our progress out of the Depression is obvious" (298). This was FDR's proclamation to the people on the celebration of his re-election (for the second time) as president. Never mind that the unemployment rate now at 15% was on the rise again from the November 1936 low. In fact, the Great Depression would drag on until the mobilization of the war effort in response to the December 7, 1941 Japanese of Pearl Harbor would jumpstart the U.S. economy. The point was then--as it is now--not to let the facts get in the way of ideology. Not ever.

The parallels between the Roosevelt Administration and the Obama Administration are uncanny. Who can forget the Obama Administration's "Recovery Summer" in 2010? From Politico on June 17, 2010: "Vice President Joe Biden today will kick off the Obama administration’s “Recovery Summer,” a six-week-long push designed to highlight the jobs accompanying a surge in stimulus-funded projects to improve highways, parks, drinking water and other public works.

David Axelrod, a senior adviser to the president, said: “This summer will be the most active Recovery Act season yet, with thousands of highly-visible road, bridge, water and other infrastructure projects breaking ground across the country, giving the American people a first-hand look at the Recovery Act in their own backyards and making it crystal clear what the cost would have been of doing nothing” (Allen).

Despite the claims of recovery, there was not then and is not now a credible supporting fact for claiming so.

Mr. Obama entered office in January of 2009 with an unemployment rate of 7.6%. In February of 2009, with a sense of urgency borrowed from the FDR Great Depression handbook, Obama proposed and Congress passed the American Recovery and Reinvestment Act. $787 Billion in spending. $787 billion in tax-payer dollars. 787 Billion of them had to be spent. Immediately.

Christina Romer, the Administration's first Chairman of the Council of Economic Advisers argued that the spending was necessary because the “stimulus program would prevent unemployment from exceeding 8%. In fact, unemployment shot up to 10.1% in October 2009. The unemployment rate in September 2011 was reported at 9.1%, while Romer and Bernstein had predicted that if their “stimulus” plan passed (which, of course, it did), it would be 6.6%" (Forbes, Woodhill).

Using the presidential pulpit to dogmatically (definition: asserting opinion as though it were a fact) claim a particular political result is bad leadership, at best or akin to propaganda, at worst. We expect our presidents to rise above politics in the midst of a national crisis.

Rahm Emanuel, Obama's former Chief of Staff, boldly stated in the early days: "You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before."

In other words, everything is political. Even at the expense of the millions of Americans still out of work despite the unprecedented spending of $787 billion of your money and mine.