What a Joke

by Don Boudreaux on April 9, 2011

in Budget Issues, Current Affairs, Debt and Deficits, Not from the Onion, Other People's Money

Suppose that in a mere three years your family’s spending – spending, mind you, not income – jumps from $80,000 to $101,600.  You’re now understandably worried about the debt you’re piling up as a result of this 27 percent hike in spending.

So mom and dad, with much drama and angst and finger-pointing about each other’s irresponsibility and insensitivity, stage marathon sessions of dinner-table talks to solve the problem.  They finally agree to reduce the family’s annual spending from $101,600 to $100,584.

For this 1 percent cut in their spending, mom and dad congratulate each other.  And to emphasize that this spending cut shows that they are responsible stewards of the family’s assets, they approvingly quote Sen. Harry Reid, who was party to similar negotiations that concluded last night on Capitol Hill – negotiations in which Congress agreed to cut 1 percent from a budget that rose 27 percent in just the past three years.  Said Sen. Reid: “Both sides have had to make tough choices.  But tough choices is what this job’s all about.”

What a joke.

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{ 118 comments }

jjoxman April 9, 2011 at 8:21 am

What’s even funnier is that mom and dad aren’t spending their money – they’re spending their kids’ money!

DaveyNC April 9, 2011 at 8:50 am

Actually, they’re spending their Chinese neighbor’s money that they borrowed and will let the kids pay back. Otherwise known as “passing the buck”, “kicking the can down the road”, “voting present” or, as we used to say in high school, “pussing out”.

jjoxman April 9, 2011 at 8:51 am

True.

Fearsome Tycoon April 9, 2011 at 9:51 am

No, they have a counterfeiting press in their basement that they use to scrounge up the additional dough.

Deathknell April 9, 2011 at 12:03 pm

Actually, no they aren’t. The American People are the largest owner of federal debt.

Anonymous April 9, 2011 at 12:43 pm

The American people?!

The FED is the largest holder of US debt!!!

vikingvista April 9, 2011 at 3:26 pm

True. Some people forget the reason why a central bank exists at all.

DistinctPossibility April 23, 2011 at 9:41 am

DaveyNC, you should not make fun of our landlords like that! They may raise our rent!

Ike April 9, 2011 at 12:18 pm

Actually, the kids aren’t even old enough to generate income.

Instead, we’re filling out credit card applications for unborn grandchildren, maxing them out, then filing away all the past due notices in a lockbox labelled IOU.

vikingvista April 9, 2011 at 2:15 pm

They aren’t grandchildren, or even family, but unwilling strangers.

erp April 9, 2011 at 8:48 am

Why am I not laughing?

Daniel Kuehn April 9, 2011 at 8:56 am

The worry is not the debt, the worry is that because they are arguing over 1 percent of their spending the family was at very real risk of the power being shut off because the idiots couldn’t even agree to pay the bills over the 1 percent that was in dispute. I agree nobody deserves to be congratuled. But I withhold congratulation because these idiots aren’t even capable of agreeing to pay the bills, not because they weren’t interested in achieving Don Boudreaux’s policy objectives.

It is precisely that they haven’t embraced Don Boudreaux’s policy objectives during the recent depression that demonstrates they are at least marginally responsible… although it’s still tiresome that they can’t even pay the bills without a fight.

Methinks1776 April 9, 2011 at 9:21 am

What could be more responsible than using “stimulus” funds to mow down a large swath of forest along route 15 and replant it to look like it did in the early part of the 20th century?

And you think Don’s take on Keynes is parody.

raja_r April 9, 2011 at 9:29 am

They are not arguing about “paying the bills” – they are arguing about not buying more stuff. No one is saying that the govt should not pay for stuff they’ve already bought or promised.

Daniel Kuehn April 9, 2011 at 12:39 pm

When you buy “stuff” you traditionally get a bill.

The hold-up on this has been a trivial amount of money. The fact that that has caused such disruption is absurd. There is no reason this should have been so dragged out – it’s all for political gain. I don’t care who blinks, this should have been passed a long time ago so they can get on with the work of fighting over important stuff like tax reform and entitlement reform.

E.G. April 9, 2011 at 1:00 pm

If the Dems are incapable of accepting even a 1% cut, while the Repubs are too timid to push for more…what chance is there of addressing taxes or entitlements?

The whole point of this exercise was to show how far each side would go, and who was more serious and mature. If anything, the Dems showed once more that they are children in adult’s bodies.

Daniel Kuehn April 9, 2011 at 1:47 pm

Well part of this is strategic – the Dems did except earlier Republican cut proposals, at which point the Republicans demanded more. Part of it is just a “holding your ground” thing. It’s still frustrating, but I think there’s more strategy and history to it than saying “they were incapable of accepting the cut”.

As for cutting more, I don’t think your accusation holds water. They didn’t cut more for this fiscal year. And there’s a good reason for that! I don’t think they should have cut what they did cut, but that doesn’t mean I’m not in favor of tax and entitlement reform. Responsible fiscal policy in the short run is not necessarily the mirror image of responsible fiscal policy in the medium or long-run. I see nothing inconsistent with wanting no cuts now but being deadly serious about entitlement reform.

re: “If anything, the Dems showed once more that they are children in adult’s bodies”

How do you figure? The Dems made the most concessions over all (even though they both dragged it out. I blame both – I’m not trying to hold the Dems up as responsible. But if I had to highlight one guilty party, I don’t see how it would be them.

Daniel Kuehn April 9, 2011 at 1:49 pm

I suppose “the spitting image” is a better term than “the mirror image”. Mirror image implies an inversion.

E.G. April 9, 2011 at 2:19 pm

I have never heard of an instance when such a political body has ever made medium or long-run plans on such issues. All plans are short-term plans, because the longevity and memory in politics, is relatively short-term. So we’re supposed to take seriously people who didn’t even pass a budget, and who have such a hard time accepting even a 1-2% cut? Talking about “concessions” is pointless; when the concessions are in peanuts, they are hardly worth holding up as examples of “cooperation”.

It remind me of Molotov when he was speaking about the “concessions” the USSR made to Finland in its demands for 20% of its territory. Give me a break

Daniel Kuehn April 9, 2011 at 2:29 pm

What kind of tax reform do you want or expect? I think 1986 will do the trick. We don’t need a reform will last until time immemorial after all. This isn’t our last shot. As Jefferson would say, it’s not like we want to constrain future generations either.

re: “So we’re supposed to take seriously people who didn’t even pass a budget, and who have such a hard time accepting even a 1-2% cut?”

As I said earlier, you seem to have a very different view of serious and responsible fiscal policy than a lot of other people. I would trust someone who says “we should maintain spending at current levels until the recovery starts to pick up” a hell of a lot more to handle entitlements and taxes because that sentence alone suggests they have a better sense of how the economy and public finance work than someone like Paul Ryaan or Ron Paul. For some reason you seem to think not wanting to cut in the short term implies not wanting to cut in the medium or long term. Why do you think the former implies that latter? No need to drag in Soviet analogies.

E.G. April 9, 2011 at 3:15 pm

You didn’t quite provide me an example of medium or long-run fiscal planning or restrictions from this political body. Anyone? Anyone? You simply said that their failure to commit to a short-term plan, is evidence that they will do better long-term. And you made this statement with a straight face, and even found the time to say that it shows how much they understand how public finances work. What? (well actually yes, this does demonstrate that they know how to exploit public financing quite well)

This was indeed a political game; but a very important and telling one. It shows who are the children in the game. You seriously, and with a straight face, are saying that cutting fed. gov spending by 2% for the remained of the year, as opposed to 1%…is going to adversely effect “recovery”?

The Soviet analogy is actually quite good here….but a better one would be a drug addict who says “I’ll quit when my stash runs out! I’ve already bought the stash man…you expect me to throw it out?” All the talk about “freezing spending” and “concessions” etc are really silly when considering that Barry’s plan was an increase in spending (which shows how serious he is), after 2 years of massive increases in spending.,..and then declaring “victory” after making the “historic” agreement to cut 1%.

You should write for Pravda, sir. I’m not joking.

Daniel Kuehn April 9, 2011 at 3:47 pm

1. I said that the COMMITMENT to a responsible short-term plan suggested a fiscal responsibility that at least increases the likelihood of committing to solving long term problems as well. They took a while to commit, and they unnecessarily haggled over chump change, but this budget makes me more confident in getting a good long term solution than if they had passed a budget that cuts $500 billion.

2. I mentioned the 1986 tax reform, didn’t I? I think you are putting too much on “long-term reform”. Reform happens by a series of medium-term reforms like past Social Security adjustments and tax reforms. I don’t think we would want a republic that passes a big long-term reform that is just followed by subsequent generations. These things need to be solved in the medium term, and we shouldn’t impost a long-term plan so drastic that it prevents future generations from solving the problem how they see fit.

re: “You seriously, and with a straight face, are saying that cutting fed. gov spending by 2% for the remained of the year, as opposed to 1%…is going to adversely effect “recovery”?”

Marginally, but sure. I certainly would feel better about someone who agreed to cutting 1% but wanted to maintain or increase spending than I would about someone who agreed to cutting 1% but wanted to cut 5 or 10 or 20%.

re: “a better one would be a drug addict who says “I’ll quit when my stash runs out! I’ve already bought the stash man…you expect me to throw it out?””

You still haven’t answered me – why do you think short-term policies have to be of the same form as long-term policies to be consistent and responsible? Why is it so hard to grasp why wanting to maintain spending today does not in any way suggest that you don’t want to restrain spending in the future? The addict example is a non-sequitor. A better example would be someone drinking heavily at a party at their house, and you infering that because they are drinking in the short-term and in an environment where it’s appropriate that implies they will drink heavily for the entire next month during work hours. Short-term behavior does not have to be identical to long-term behavior to form a consistent pattern of behavior.

I couldn’t write for Pravda – I have far too much faith in markets, freedom, democracy, and elections for that.

carlsoane April 9, 2011 at 4:27 pm

Daniel:
Are you arguing that the budget prior to Republican cuts was perfect or that the government needs to spend more? If more, I’m curious what you think we should be spending more on.

E.G. April 9, 2011 at 4:40 pm

“I said that the COMMITMENT to a responsible short-term plan”

What is responsible about continuing to increase spending?

“I mentioned the 1986 tax reform, didn’t I?”

Any reform can be overturned by the next election; ie all political decisions are short-term decisions. So if you don’t act now…when do you act? You keep passing it on till next year or next election, at which point it becomes another “short-term” decision with DIRE negative implications, if enacted now and not in the “long term”

“I don’t think we would want a republic that passes a big long-term reform that is just followed by subsequent generations. ”

Thats not what I’m saying. I’m saying all political decisions are short-term…and your reply was “well they have a long term commitment”. What is long-term about political decision making? What is a long-term commitment if you can’t decide on starting now, but say “lets start next year”?

I hope you at least have a smile on your face as your write this. I’d hate to think you’re being serious.

“Marginally, but sure. I certainly would feel better about someone who agreed to cutting 1% but wanted to maintain or increase spending than I would about someone who agreed to cutting 1% but wanted to cut 5 or 10 or 20%.”

???? Where did you study economics again? So I guess since it marginally affects “recovery”, negatively, then the preferable alternative would be to INCREASE spending by 1%, or 10%, or 20%. That would speed up “recovery”. Right?

“You still haven’t answered me – why do you think short-term policies have to be of the same form as long-term policies to be consistent and responsible?”

Because there is no long-term policy. Because all policy is a series of short-term policies, and if you don’t start now when the problem is identified, fixable and doable…when do you start? Next year? 2 years from now? Won’t it be a “short-term” decision then… which will negatively affect “economic growth” once more?

This is the consistency of a cigarette addict: “I’ll quit when have kids!…I’ll quit when I start running!…I’ll quit in 2 years!”. Its a solid long-term policy.

“Why is it so hard to grasp why wanting to maintain spending today does not in any way suggest that you don’t want to restrain spending in the future? ”

??? Ask Papandreous and every other Greek politician. You are seriously asking, what is the problem with saying that we will continue down this road for a bit more, but we’ll change in the future…cross my heart and hope to die.

“A better example would be someone drinking heavily at a party at their house, and you infering that because they are drinking in the short-term and in an environment where it’s appropriate that implies they will drink heavily for the entire next month during work hours. Short-term behavior does not have to be identical to long-term behavior to form a consistent pattern of behavior.”

Wow! : ) What about long-term behavior of an alcoholic? Is THAT an indicator of future behavior?

“I couldn’t write for Pravda – I have far too much faith in markets, freedom, democracy, and elections for that.”

I meant the New York Times.

LowcountryJoe April 9, 2011 at 5:18 pm
raja_r April 9, 2011 at 10:04 pm

“When you buy “stuff” you traditionally get a bill.”

Ah ah…and what part of my reply don’t you understand?

Fearsome Tycoon April 9, 2011 at 9:53 am

Yeah, it’s so irresponsible to live within your means. That’s usually what people say when they watch the repo man haul off their neighbor’s car, TV, and furniture, and forclose on the house. “Wow, those people were really responsible.”

Daniel Kuehn April 9, 2011 at 12:39 pm

I’m not suggesting that they shouldn’t live within their means – of course they should. Living within your means does not mean “never use credit”.

E.G. April 9, 2011 at 1:01 pm

And who made the argument of “never use credit”?

Daniel Kuehn April 9, 2011 at 1:56 pm

I don’t know, who?

Who initially said they shouldn’t stick to living within their means, prompting Fearsome Tycoon to reply to me in the first place?

This is an “if the shoe fits, wear it” situation, E.G., not a “gotcha” situation. I’m just letting Fearsome Tycoon know I agree with him about living within your means. If you agree with me that that means utilizing credit markets, then the circle of agreement is even wider. Wonderful, isn’t it?

E.G. April 9, 2011 at 2:25 pm

It was a sincere question. Who said it? Since you brought it up as the alternative to your suggestion, someone somewhere along the line must have said it.

So yes of course we agree in the wider scope of the issue, but thats so wide it doesn’t really mean anything. Harry Reid and Barry also think we should live within “our means”; except that doesn’t tell us what that means. Papandreou(s) of all ages also through they should “live within their means”

Daniel Kuehn April 9, 2011 at 2:32 pm

And I gave you a sincere answer: I don’t know – who?

I never suggested we shouldn’t live within our means and Fearsome Tycoon posed a hypothetical. Fearsome Tycoon never suggested that we shouldn’t borrow and I posed a hypothetical.

Mark Anthem April 9, 2011 at 2:58 pm

There is no dignity quite so impressive, and no one independence quite so important, as living within your means.
Calvin Coolidge

E.G. April 9, 2011 at 3:16 pm

“And I gave you a sincere answer: I don’t know – who?

I never suggested we shouldn’t live within our means and Fearsome Tycoon posed a hypothetical. Fearsome Tycoon never suggested that we shouldn’t borrow and I posed a hypothetical.”

Its a pleasure talking to ya…

carlsoane April 9, 2011 at 9:59 am

The worry is the debt.

DaveyNC April 9, 2011 at 11:15 am

The worry is the spending. We can handle the debt if we just stop adding to it. When you find yourself in a hole, the first thing to do is stop digging.

carlsoane April 9, 2011 at 12:24 pm

The spending is a worry, too, because so much of it is counter-productive and destructive of liberty, but the debt itself is a worry. For instance, if we weren’t in such great debt, we wouldn’t, of course, be monetizing it.

SheetWise April 10, 2011 at 1:37 am

“When you find yourself in a hole, the first thing to do is stop digging.”

Also know as “The first rule of holes.”

vikingvista April 9, 2011 at 9:09 pm

Do you think there might be a correlation between debt and spending?

SheetWise April 10, 2011 at 1:39 am

What? Are you crazy? We’re all Keynsians now.

carlsoane April 10, 2011 at 12:37 pm

Yes spending and debt correlate.
But there is a qualitative difference between the dangers of spending a lot of money raised in taxes and spending a lot of money raised through debt. Let me quote James M. Buchanan on the subject:
“The real cost of public expenditure which is debt financed must rest on individuals other than those who participate in the social decisions made at the time of the approval or rejection of any proposed expenditure. . . . This destroys the individual comparison of benefits from public expenditures and the costs of these expenditures which is possible in the case of taxes. . . .
If any individual benefits at all are expected to accrue currently from a proposed public expenditure, the individual when making his choice between the public debt–public expenditure and the no debt–no expenditure alternatives will always tend to favor the former over the latter. In such cases, the choice processes usually embodied in democratic institutions cannot be expected to provide correct decisions, upon any criterion of correctness. The individual chooser cannot fairly compare benefits and costs. . . . The process of social decision making in a modern democratic state is complex at its best, and this process should not be forced into positions where its very operation must produce biased decisions.”

Citizen's Fed-up April 10, 2011 at 7:01 pm

Due to the length of this thread, I maybe missed where your questions were answered lucidly and with simple, straight-forward clarity.

So here you go.

>>>Q1. You still haven’t answered me – why do you think short-term policies have to be of the same form as long-term policies to be consistent and responsible?<<>>Why is it so hard to grasp why wanting to maintain spending today does not in any way suggest that you don’t want to restrain spending in the future?<<>>The addict example is a non-sequitor.<<<
You did not ask a question here, but your sentence can be refuted with the same answer above. Reread A1.

If you differ with my answers, please give an "historical" example that supports your claims that the Government has the ability to spend wisely and efficiently either in short or long term. Please give an exact example and not a theoretical statement that asks us to trust an opinion over history.

Historical past performance is the root of current dissent and disenfranchisement from the average American citizen right now. They are tired and worn out and look at history. A history of waste and debt. Talk is cheap right now. History is not.

For brevity here, I've not given examples of poor use of funds by the Govt. That is very easy to do and you are welcome to open that can of worms. But if you come up with a glowing example here, you might think about it carefully, as most any example presented can be shot down with ease.

By the nature of it's structure, Government is bureaucracy. Bureaucracy isn't a nimble machine and everyone in the chain has to be paid. Either politically, economically or both. That's not too hard to understand. Witness the past week of ridiculous haggling. The only way Government (or a business) is more efficient is by assigning a single Indian Chief, or King. But then you end up with the same inefficient spending because the King spoils himself and will waste a lot of money simply because he or she can.

History tells us a lot more than theoretical opinions, irrespective of whether the opinion is conservative, liberal, or middle-of-the-road.

And I place full faith and trust in history's mouth.
Not a person's mouth.

$00.02

Citizen's Fed-up April 10, 2011 at 7:08 pm

Response to Post Number 21 by
Daniel Kuehn April 9, 2011 at 3:47 pm

——————————————————-

Daniel,

Due to the length of this thread, I maybe missed where your questions were answered lucidly and with simple, straight-forward clarity.

So here you go.

——————————————————-
Q1. You still haven’t answered me – why do you think short-term policies have to be of the same form as long-term policies to be consistent and responsible?
——————————————————-

One word answer here.

A1. History

Irrespective of which party is in control , the government never runs a business more efficiently than the private sector. And our Government is a business. A business of bloated waste irrespective of short-term, or long-term spending.

——————————————————-
Why is it so hard to grasp why wanting to maintain spending today does not in any way suggest that you don’t want to restrain spending in the future?
——————————————————-

Same answer.

A2. Reread A1.
Pay particular attention to this part: “Irrespective of which party is in control”.

——————————————————-
The addict example is a non-sequitor.
——————————————————-
You didn’t ask a question here, but your sentence can be refuted with the same answer above. Reread A1.

If you differ with my answers, please give an “historical” example that supports your claims that the Government has the ability to spend wisely and efficiently either in short or long term. Please give an exact example and not a theoretical statement that asks us to trust an opinion over history.

Historical past performance is the root of current dissent and disenfranchisement from the average American citizen right now. They are tired and worn out and look at history. A history of waste and debt. Talk is cheap right now. History is not.

For brevity here, I’ve not given examples of poor use of funds by the Govt. That is very easy to do and you are welcome to open that can of worms. But if you come up with a glowing example here, you might think about it carefully, as most any example presented can be shot down with ease.

By the nature of it’s structure, Government is bureaucracy. Bureaucracy isn’t a nimble machine and everyone in the chain has to be paid. Either politically, economically or both. That’s not too hard to understand. Witness the past week of ridiculous haggling. The only way Government (or a business) is more efficient is by assigning a single Indian Chief, or King. But then you end up with the same inefficient spending because the King spoils himself and will waste a lot of money simply because he or she can.

History tells us a lot more than theoretical opinions, irrespective of whether the opinion is conservative, liberal, or middle-of-the-road.

And I place full faith and trust in history’s mouth.
Not a person’s mouth.

$00.02

P.S. Sorry for double posting. The form truncated by post probably due to the quote marks I used in my first post.

Mark Anthem April 9, 2011 at 9:35 am

The older you are, the funnier it gets. I’m sure Great-Great-Grandpa finds it hilarious his life savings are made nearly worthless by the commanders and chiefs of our conscripted American Families. He probably can hardly wait to make his required final donation to the greater good. It’s a real knee slapper, what Rudy Kipling’s poem called “the white man’s burden” has evolved into. White man now means elected and appointed imperial wealth eaters and designated beneficiaries. The punchline is all civilians are the “new-caught, sullen peoples,Half-devil and half-child in Uncle Sam’s planetwide fiefdom.

Fearsome Tycoon April 9, 2011 at 12:16 pm

The real lulz are found in the “Gods of the Copybook Headings.”

Mark Anthem April 9, 2011 at 2:42 pm

Just read it now. Epic!

Bob April 9, 2011 at 9:41 am

Now that women and children won’t be made to starve or die and families not thrown unto the street (LOL), the profligate miscreants in DC can continue on their mission to destroy our lives through their collectivist Nero like fiddling actions! Why aren’t institutions such as the Smithsonian privatized as they are in NYC so that they are not held hostage by these pompous jackasses!

toni voegeli April 9, 2011 at 10:46 am

ok jjoxman, what the hell makes you think their money is the kids money? Who the hell ever said that the money we make as parents is the kids money? Yes, we have a responsibility to raise our kids, feed ,clothe them, ect. but as far as the rest, sorry it’s their money and if you think your parents money is yours, that’s sad. Sounds like a spoiled little brat to me. Just speaking from the parents perspective.

carlsoane April 9, 2011 at 10:57 am

You’ve got it backwards. Our kids have to repay our debts because they have to pay off the government bonds that we are now issuing to pay for our spending binge.

jjoxman April 9, 2011 at 11:33 am

Wow, toni, are you not familiar with how metaphors work? Government is the parents in this case – governments don’t earn their own money therefore in this metaphor parents don’t either. Thus they are spending their childrens’ money because that’s who is earning it.

Apolloswabbie April 9, 2011 at 10:52 am

The astonishing thing is that these people have the capacity to say things like what Reid said without grinning in embarrassment. They can carry the pretense that they are not completely incompetent. And many Americans let them pull it off.

Mao_Dung April 9, 2011 at 10:55 am

Too much wasteful government spending is NEVER the problem. Pay attention to history and learn from it.

I guess I’ll have to quote from somebody that you are well acquainted with.

“Because we can expect future generations to be richer than we are, no matter what we do about resources, asking us to refrain from using resources now so that future generations can have them later is like asking the poor to make gifts to the rich.”

Replace “resources” with “government outlays”, which certainly are resources put to a particular use that you happen to disagree with.

That’s quote is from your late buddy, Julian Simon, in case you absentmindedly forgot.

Fearsome Tycoon April 9, 2011 at 12:18 pm

Fanfics are not “history.” Real-life history (i.e. what actually happened, not the random nonsense you make up) is littered with governments that bankrupted themselves.

Sam Grove April 9, 2011 at 12:23 pm

Unlike you, Simon understands the distinction between market transactions and government spending.

Voluntary market transactions result in an increase in wealth, while government spending results in a decrease.

LowcountryJoe April 9, 2011 at 12:28 pm

You are correct, of course. It will all work itself…after a default and plenty of broken promises. I sure hope that you aren’t counting on the unrealistic promises of the past to be fulfilled. Many people that you know probably are, though. But I guess this is going to be a problem…it’s never a problem.

SaulOhio April 10, 2011 at 6:48 am

Julian Simon was talking about creating wealth and building up the industrial infrastructure to actually make use of natural resources. Also, he was talking about CREATING natural resources. If you actually read his book, “The Ultimate Resource”, you would know that resources are created, not just used up.

But the government is talking about simply using up resources, without creating more. Its spending is benefits (if that) without paying the costs. It uses up resources without creating more.

Scott G April 9, 2011 at 10:59 am

Here’s my Facebook status for today (less than 420 characters).

“Suppose that in three years your family’s spending jumps from $80,000 to $101,600. You’re now worried about the debt you’re piling up as a result of this 27 percent hike in spending.”

“So mom and dad, with much drama and finger-pointing about each other’s irresponsibility, stage marathon sessions of talks to solve the problem. They finally agree to reduce the family’s annual spending from $101,600 to $100,584.”

Then I follow up with another post that says: “If you like my status today, you’ll like this post by Don Boudreaux at Cafe Hayek” and then of course link to the post.

Yesterday I did something similar with one of Dr. Robert’s posts and got 4 likes and three comments.

LowcountryJoe April 9, 2011 at 11:06 am

My Facebook update was something similar:

Wow, really?! Only 38 billion. That’s only .038 of a trillion not going to be spent. In 2007, federal spending was $2.73T and this year might be $3.82T. In four years spending increased $1.09T. And Republicans think they’re going to celebrate this [word omitted] as some kind of win?

What one trillion dollars could buy: five MILLION homes priced at $200,000
What 38 billion dollars could buy: 190,000 homes at that same $200,000 price level.

This year the federal government will spend the equivalent of what it would take to purchase over 17 million average priced homes in the U.S. after this so-called cuts. And they’ll likely do it again in 2012. These clowns were arguing over chump change these last few weeks in the grand scheme of things!

A visualization of one trillion dollars.

Mao_Dung April 9, 2011 at 11:20 am

The combined wealth of the richest 15 people in the world is around $530,000,000,000. That’s more than 1/2 a trillion dollars in case you are wondering. That’s over 2.5 million homes priced at $200,000 each.
Get a life!

http://en.wikipedia.org/wiki/Forbes_list_of_billionaires

LowcountryJoe April 9, 2011 at 11:56 am

Seize all of that and you could finance a mere 1/7 of the federal budget for one year only. Then where do you go after two months? How about the next two months? And the two months after that? And so on.

Get a clue!

tkwelge April 9, 2011 at 3:15 pm

The GWP is 62 trillion dollars at official exchange rates.

Let’s also remember that owning “wealth” means very little for the individual who owns it. Sure, you get a return on your wealth, but that doesn’t mean that one can use those resources for any purpose that they like. People don’t have much choice in what they do with their “wealth,” because they are forced to invest where the returns are highest, not where they could maximize their personal pleasure.

Saying that I have trillions of dollars of wealth certainly means that I’m rich, but it’s not like I have trillions of dollars that I can command at any given moment. It just means that I could theoretically liquidate those assets and have a certain amount of money in my pocket. Of course, once people start selling off assets en masse, those assets lose much of their value.

muirgeo April 9, 2011 at 11:21 am

But apparently spending billions on imports that are NOT matched by equivalent native production is ok? There seems to be some inconsistent logic going on here.

The public debt is a function more of a poor economy related to trade imbalances, underemployment and wage stagnation. Fix those and you fix the debt.

The economy will never be fixed by spending cuts … even if they were politically feasible…. NEVER!

LowcountryJoe April 9, 2011 at 12:36 pm

Except that so-called trade imbalances, by themselves, do not produce debt. The ONLY reason why foreign central bank buy up federal debt instruments is because they’ve been issued to finance the federal governments spending more than it takes in. You do understand this fact, right Ducktor? Absent federal government debt, foreign central banks (and other foreigners looking for something to do with their acquired USDs) would have to purchase equities, municipality debt instruments, real estate, or goods & services made here.

George, if you don’t have a deep understanding of the topic, it’s best to not comment…and remove all doubts.

E.G. April 9, 2011 at 1:09 pm

“But apparently spending billions on imports that are NOT matched by equivalent native production is ok? There seems to be some inconsistent logic going on here.”

You as a doctor (God help us!) go to the grocery store to buy some bananas. But you realized as you entered the supermarket doors…that you did not have any equivalent fruit to trade for those bananas. You only had these pieces of certificates. How you got them, amazes you (and me)…but you can’t think of a way in which a banana can be exchanged for a piece of certificate, as opposed to an apple. So you go home, quit your job as a doctor (praised be the Lord!), and devote yourself to planting apples year round, to trade for other food.

I understand now why they call you “progressives”

John V April 9, 2011 at 5:00 pm

Wow, you are so stupid. That drivel doesn’t even deserve a serious engagement.

JohnK April 9, 2011 at 6:40 pm

Village, idiot.

Idiot, village.

Economiser April 9, 2011 at 8:01 pm

*Like*

Ken April 9, 2011 at 7:22 pm

muirgeo,

“The public debt is a function more of a poor economy related to trade imbalances”

Today I bought a TV made by a company that is not a US company. I put it on my credit card. My debt load went up by $250 due to the usage of my credit card. Guess how much the public debt went up because of this purchase. The public did NOT increase AT ALL due to this purchase. My debt is NOT public debt, as the public debt is NOT my debt.

The public debt has gone up so much recently because of the following:

2007:
Fed Gov:
Revenue: $2.57T
Spent: $2.73T
GDP: $14.1T

2010:
Fed Gov:
Revenue: $2.38T -7%
Spent: $3.55T +30%
GDP: $13.37T -5%

In other words, while US GDP declined by 5% and US tax revenues declined by 7%, US federal government spending increased by 30%. The increase in spending while revenues decline is the reason for the increase in public spending.

Private debt that may or may no accrue is NOT public debt.

Regards,
Ken

Babinich April 10, 2011 at 6:15 am

Muirgeo says:
“The public debt is a function more of a poor economy related to trade imbalances, underemployment and wage stagnation. Fix those and you fix the debt.”

~~~

But spending is the problem: http://www.thebigquestions.com/2010/02/01/debt-and-taxes/#more-2087

Poor economy, rich economy it doesn’t matter. The problem of spending too much is curbed only when the problem is addressed head on.

RLH April 9, 2011 at 11:25 am

And to continue the analogy– “And $500 of the $1000 they agree to not spend this year is to not buy the same new couch for the den they bought last year.”

How many of these “cuts” were just taking credit for not spending again on one time earmarks from last year?

W.E.Heasley April 9, 2011 at 11:33 am

New from Insane Cuisine! The Scary Harry Pot Pie: high fat, high pork, seasoned with plenty of your tax dollars. Set your microwave to 2006-2011. Let cool for five decades or until cool to the touch.

Methinks1776 April 9, 2011 at 11:47 am

Mark Steyn’s op-ed in IBD today:

“Our biggest problem is Medicare and other “entitlements.” They’re the automatic pilot of Big Government. Whoever’s in the captain’s seat makes no difference. The flight is pre-programmed to hit the iceberg, if you’ll forgive me switching mass-transit metaphors in midstream.

For some reason, Obama, Reid, Pelosi, Harkin & Co. don’t seem to mind this. If you recall the smile on the face of the “automatic pilot” in “Airplane!” as he’s being inflated, that’s pretty much the Democrats’ attitude to binge-spending as a permanent fact of life.”

And our political overlords are so “in touch”. On the president’s blaming us for the price of oil (reminds me of Gorby blaming the dumb, lazy, drunk Soviet citizens for the decrepit state of the Soviet economy).

“America, 2011: A man gets driven in a motorcade to sneer at a man who has to drive himself to work. A guy who has never generated a dime of wealth, never had to make payroll, never worked at any job other than his own tireless self-promotion, literally cannot comprehend that out there beyond the far fringes of the motorcade outriders are people who drive a long distance to jobs whose economic viability is greatly diminished when getting there costs twice as much as the buck-eighty-per-gallon it cost back at the dawn of the Hopeychangey Era.”

http://www.investors.com/NewsAndAnalysis/Article/568585/201104081719/America-Its

muirgeo April 9, 2011 at 12:05 pm

“Our biggest problem is Medicare and other “entitlements.” Styne

He’s wrong and silly as well. Our biggest problem is not taxing excessive wealth. Until we do things will not get better. It’s that simple. Unless we are talking about Hedge fund managers, bankers and corporations… the stock market and corporate profits are going great. But they have little to do with the real economy.

The real economy will only get better when idle stolen wealth is re-introduced into it.

Krishnan April 9, 2011 at 12:20 pm

Good point … The world has lost it’s way by forgetting the wonderful world that eh Soviets created – where the wealth was in fact expropriated from all but a few chosen few … And the amazing growth in their economy is something we have forgotten.

Time to increase income tax rate to 97% and confiscate all deposits, all stock certificates, all bonds, all real estate, all assets – return to the people and watch the economy grow.

I am just jealous that I did not think of that first.

Methinks1776 April 9, 2011 at 5:18 pm

97%?

You’re thinking too small, Krishnan.

Chucklehead April 10, 2011 at 4:36 am

Lets confiscate all the earnings of the top 1%, plus all the profits of all the corporations, so we can finally have social justice and full employment as hunter gatherers.

Sam Grove April 9, 2011 at 12:28 pm

You still have no clue of the distinction between wealth, and the accounting of it. Much of that idle “wealth” is merely entitlement to wealth yet to be created. Have the government take all that wealth and it will never be created.

A prescription for an impoverished future.

Krishnan April 9, 2011 at 12:53 pm

There are some so dense, they will not understand what you mean … All they know is take from those that have and expect that the ones that created will keep on creating no matter what and no matter the abuse heaped on them …

Or perhaps they are not dense and are driven by envy of those that can create and innovate that they are determined to kill such and make sure the economy remains stagnant and morose – they are keen on distributing misery – they cannot stand those that do not have enough misery

Chucklehead April 10, 2011 at 4:39 am

Well said.

E.G. April 9, 2011 at 1:12 pm

“Our biggest problem is not taxing excessive wealth.”

You’re a doctor…you must have some of this! Lets start with you

Methinks1776 April 9, 2011 at 4:09 pm

Immortal stupidity.

Babinich April 10, 2011 at 6:27 am

Muirgeo says:
“The real economy will only get better when idle stolen wealth is re-introduced into it.”

At least you admit that you approve of stealing the wealth of others.

So how does your plan work? You confiscate the wealth of others, tax income & dividends to higher levels and give that stolen wealth away to the “poor”. How does stealing the property of others and giving it to others lead to growing and productive economic model?

Methinks1776 April 9, 2011 at 11:50 am
Krishnan April 9, 2011 at 12:55 pm

Yes, this is/was a joke.

The question is – What about 2012? Paul Ryan has made an excellent start – Are the Repubics going to fold – OR will they shut it down if there are no significant cuts in spending – to bring it back to historic levels?

jorod April 9, 2011 at 12:59 pm

Well, you know, we have to pay our neighbor’s mortgage and soon their health insurance. Can’t cut too much.

tms April 9, 2011 at 1:41 pm

Remember the “spending freeze”. I used a similar analogy:

“A college student gets $250/month spending money from his parents, and they promise to increase that amount each year to account for inflation. But then he goes ahead and spends $500/month, using his parent’s credit card to make up the difference.

The college student says to his parents: ‘Don’t worry, from here on out, I am going to freeze my spending at $500/month. You don’t have to give me that allowance increase that you promised. See, I am saving you money!’ “

vikingvista April 9, 2011 at 2:17 pm

It would be a joke if it were their money and their debt. Since it isn’t, it should be jail.

ohioralph April 9, 2011 at 5:28 pm

The entire system is broke. It is time for a reset. The linked video
discusses a private law society based on embracing human liberty.
Trying to reform the state is impossible

ohioralph April 9, 2011 at 5:42 pm

vikingvista April 9, 2011 at 6:26 pm

Well said.

sandre April 9, 2011 at 6:12 pm

Anyone who profits from people’s sickness(read muirgeo) should be taxed at 100%.

Ken April 10, 2011 at 12:22 pm

So doctors, nurses, EMT’s, hospitals, pharmaceuticals, lawyers, FDA officials, etc, all should be taxed at 100%? That’s a genius plan that’s guaranteed to help sick people.

ColoComment April 9, 2011 at 6:41 pm

Via Zero Hedge. His concluding para.:
“So, at a time where the government has demonstrated a complete lack of will over $38 billion, we are left in the hands of Ben to determine short term rates, influence the curve, and Timmy to determine what maturity profile that ‘best meets our needs’. The actions of either of these two unelected individuals could dwarf the $38 billion as every 1% of increased borrowing costs would cost $143 billion. Since the government could barely deal with $38 billion, how will they deal with increased borrowing costs? Does even congress know just how trivial their cuts look relative to the potential increases in debt cost?”
http://tinyurl.com/3w97uyg

Ken Royall April 9, 2011 at 9:57 pm

The cuts did fall short. But for the sake of accuracy, you are computing the percentage wrong technically. The only thing that can be cut at this point is discretionary spending. We all know the bulk of spending is in entitlements which cannot be cut without legislation.

Roughly the amount of discretionary spending is about 1.8 trillion. A 38 billion dollar cut it is 2% of that or thereabouts. As spending was headed for the sun a reversal of that, however small is still not a bad thing. The important thing is to build on that going forward.

Ken Royall April 9, 2011 at 9:59 pm

I correct myself, discretionary spending is about 1.36 trillion so 39 billion is a about a 3% cut. Not fantastic but it is better than the 1% you are reporting here.

Ken Royall April 9, 2011 at 10:04 pm

And let’s be honest, if you factor in the likely INCREASE the Democrats would have done if they had stayed in power, a 3% reduction looks even better. It is political math I know but accurate nonetheless. Figures of 80% of discretionary spending increases over the last 2 years have been bandied about. Republicans still have a long way to go to cut it back but it is better than spending going up another 50% or more…

Mesa Econoguy April 9, 2011 at 10:10 pm

Incredibly discouraging and despicable.

Richard Stands April 10, 2011 at 12:34 am

The federal government spends an average of about 10 billion dollars a day.

Tom April 10, 2011 at 12:41 am

And my roads still have holes!

SheetWise April 10, 2011 at 1:59 am

I’m not sure “spending” is the right word.

Sure they have revenue, the confiscations, the protection money, the tributes and such … that’s the “legitimate” money — but then there’s the juice to consider. How much of their spending is just to cover the vig on previous borrowing? I mean, if all of your income is just covering minimum payments to your creditors, are you really “spending”?

We’re way past “spending,” that’s in our past. The question now is whether we want to honor our debt or dilute our creditors. Today we found out.

Richard Stands April 10, 2011 at 12:02 pm

Excellent point.

On the other hand, cutting almost four day’s worth of that outflow from the inexorable growth this year…that’s a triumph, right? I mean, it’s almost four whole day’s worth!

They’ve turned the corner.

(cue hysterical doomed cackling)

Randy April 10, 2011 at 7:00 am

Thinking forward a few years… and I’m not seeing how anyone could ever actually repay the debt. That is, I see a default at some point in the future, a minor disruption likely no more serious than the current recession, and then a return to sanity. Bankruptcy isn’t all bad, is it. And the source of wealth will remain alive and well. So, I’m thinking that running up the debt as quickly and dramatically as possible is a good thing. Like a person on the verge of bankruptcy who buys a new truck – seriously, why not?

kyle8 April 10, 2011 at 9:49 am

Not really. As much as Dr. Boudreaux and others are disgusted in this, it represents something we have not actually seen in decades. That is a real cut in actual outlays. Modest as it is, it isn’t just a bookkeeping cut, it is an actual cut.

Now, if the House, which is only one third of the government, can get even more cuts in next years budget, then it becomes a trend.

Much more will have to be done, of course including entitlement reform, but the most important thing is to slow down the growth of debt service.

Now, the third ingredient will have to be economic growth. You are correct there is no way to pay off the total debt, but with real economic growth the amount of debt shrinks relative to the economy.
Furthermore, with growth, outlays decline and income increases.

I can foresee, with a little luck, that in a few years we could get to the point in which the percentage of debt service is trending downward, and that is all that is necessary.

Randy April 10, 2011 at 10:17 am

“Trend” is definitely the question. I believe that the historical trend is for political organizations to expand in good times, and to utilize police power to avoid shrinking in bad times. And only a collapse ever stops it.

So, am I just being flippant? I don’t think so. I think that the above could be the concluding paragraph of a very long book filled with charts, facts, figures, and examples. Its short because its obvious, not because its wrong.

SheetWise April 10, 2011 at 3:09 pm
SheetWise April 10, 2011 at 3:02 pm

“… it represents something we have not actually seen in decades. That is a real cut in actual outlays.”

If you can’t provide some evidence for that conclusion, at least share whatever it is that you’re smoking.

LowcountryJoe April 10, 2011 at 11:14 am

I was shocked to read this being actually posed as a question because it’s just that provocative. But the more I thought about it, the more I thought that there’s a limited amount of actual replies.

The United States government would not be able to borrow for a long long time. That’s not a bad thing by itself. It very well could result in war. It might test some international court and force repayment of some form. But how and why does this work, I don’t know. I know that Germany slowly but surely paid reparations for WWI and just finished paying it off last year, some 90 years later. Why did they continue to pay this? What was the threat mechanism that kept them paying?

Randy April 10, 2011 at 7:15 am

Followup thought…

As the debt cannot be repaid, there is no point in allowing the political class to raise taxes or cut benefits. Yes, we’re going down, but we all go down together.

Krishnan April 10, 2011 at 12:43 pm

Ah yes – WE are going down for sure … NOT the political class.

I imagine the political class is busy building moats around their castle to keep the riff raff out … The same people who call for higher taxes and more regulations will be finding ways to pay LESS taxes and make sure that the businesses THEY run are free of as many regulations as possible …

What is truly dangerous is that they are delusional – they really imagine that they can keep abusing the “making class” (as opposed to the “taking class”) and the “makers” will keep making any/all they need and demand. They are clever to protect some key members of the “makers” so their own needs are always met … We have too many crony capitalists that the ruling class can indeed get away with it, for a while – using the state security apparatus to keep people in line (No, I am not talking about the countries behind the iron curtain)

DG Lesvic April 10, 2011 at 9:51 am

Prof. Boudreaux,

A very sharp observation.

And, by the way, did you get it from some other culture, and could it have been different in some other culture?

PD April 10, 2011 at 5:21 pm

In the mean time, mom and dad have been borrowing money in order to spend. Some of these debt notes, as well as the accruing interest, is due for payment. Mom and dad have maxed out their credit card and have no money to make these payments. Their next step will be to see if they can get a higher credit limit on their credit card so they can borrow more to be able to make those interest and debt note payments that are soon due.

Once accomplished, this will call for another round of congratulations.

The kids, in the meantime, want to crawl into bed and cry.

Steve April 10, 2011 at 8:13 pm

What a great way to depict this sham(e). Politicians today are experts not in how to lead, but in how to point – all the while spending my daughter’s future hard earned income.

Nathaniel April 11, 2011 at 9:28 am

Calls to mind a certain Pulp Fiction quote by The Wolf…

doubting tom April 11, 2011 at 1:51 pm

If the United States goes down, our army goes down. Our allies go down. In particular, Israel. Ever heard of the Holocost? Or better yet, Armageddon? It’s coming. The Bible tells me so.

hawkhank April 12, 2011 at 6:43 pm

A gentleman named Drew Buchanan published this letter under his name – without any mention of Boudreaux as the original author – in the Northwest Florida Daily News. He said he didn’t do anything wrong because “that piece isn’t copyrighted and is free-use by anyone.” Is that accurate?

The letter (and Buchanan’s comment) can be found at: http://www.nwfdailynews.com/opinion/choices-39204-let-letter.html

Don Boudreaux April 12, 2011 at 6:50 pm

Thanks for alerting me to this theft of my intellectual property. By law, every original expression is copyrighted the moment it is expressed. It need not be formally copyrighted. Drew Buchanan is a plagiarist and a thief.

hawkhank April 12, 2011 at 7:23 pm

I made the same point to him in the comments of “his” letter. I assumed you wouldn’t mind the dissemination of your ideas, but with proper attribution. Either way, I didn’t want to let it go unnoticed.

vikingvista April 14, 2011 at 12:00 am

Regardless of the law, he deliberately misrepresented himself. That is deceitful and dishonorable. Thanks to the permanency of the Internet, the name “Drew Buchanan” will forevermore be associated with deceit to anyone taking the time to search his name. People should take more care over their reputations.

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