View 685 Tuesday, July 26, 2011

The Deficit Dance

I hate to keep writing on this subject.

Budget Cuts: we will increase spending, but we will reduce the rate of increase. We just spent $9 Trillion we didn’t have, but we will make a $1.1 Trillion cut – over ten years. Which is to say we will cut $100 Billion a year, having spent $9 Trillion. The deficit will continue to grow. So the only choice is to raise taxes or the nation is finished, the elderly will not get their Social Security checks, the Veterans will not get their benefits. Inspectors in the Department of Agriculture will continue to get “cost of living” raises and step increases in their civil service ratings. Department of Education SWAT teams will get their raises including full health and pensions. The deficit will grow, and there will be another financial crisis. The EPA will continue to impose regulations, the courts will continue to accept lawsuits to harass anyone who intends to open a mine, drill an oil well, or create a business.

The only remedy will be to raise taxes. We must have shared sacrifices so that the Washington elites can go about business as usual. Washington public schools will continue to deteriorate but none of the elites will send their children to those public schools so that won’t be a problem.

In other words, the Dance goes on, and we are being played. Nothing much has changed. What’s called a cut is in fact merely a small decrease in the rate of increase, so that “cut” means spending more money. There will be a $1.1 Trillion cut spread over ten years, with a Commission of 12, 6 Republicans and 6 Democrats, to propose more cuts. If 7 of them can agree on a “cut” – which may be an actual cut but is more likely to be a reduction in the rate of increase – then both Houses of Congress have to approve the “cut”. This may amount to $2 Trillion spread over ten years, or $200 billion a year.

The government will continue to borrow $100 Billion a month. That amount will go up as the deficit rises. We will then be told that gollies, we did everything we could, but it’s not working, we have to have more revenue or we are in default, give us more money. When we point out that they promised cuts and didn’t deliver, we will be told that, well, yeah, but look at that guy with the private jet over there! Tax him, tax him! Look, that company made obscene profits last year! Tax them, tax them!

There is a way out. It starts with cuts in Entitlements. Begin this way: from this moment, you are entitled to only 99% of what you were previously entitled to. That includes Social Security, Welfare, your pension, Medicare. Meanwhile all government salaries and benefits are reduced by 1%. Once again, these are real cuts.

Set up the 12-person joint Congressional Commission, but its purpose is to identify programs that we can no longer afford to fund. Those will simply be eliminated or deferred until we have budget surpluses. They include a great number of regulatory agencies and enforcements. We set up a second Commission whose job it is to determine which regulations we can afford to put off until there is a budget surplus. In other words, determine what we can afford and must have even if we have to borrow money to do it. Everything else stops until we can afford it at which time we can debate the desirability of inspections of stage magicians to be certain they have a permit to use their rabbits in their acts. We can determine whether we have to reduce ozone emissions so drastically when we can afford to do that: but we don’t need to borrow money from the Chinese in order to cripple our ability to compete with the Chinese who don’t pay any attention to our environmental regulations.

We could try liberty. Leave the money to those who make it and get out of the way.

Or we can continue to Dance. Spend and spend, pretend to cut, spend and spend, pretend to cut, and when the next crisis comes, raise taxes.

Birth of Fire, a science fiction action adventure novel by Jerry Pournelle, is available on Amazon now, and will presently be available for the Nook.

Birth of Fire by Jerry Pournelle is now available for Nook as well as Amazon.

View 685 Monday, July 25, 2011

Niven is coming over to discuss fiction so this will be brief.

The Deficit Dance grows more frantic. Obama wants to scare everyone until they pressure the Republicans into giving Obama what he wants, which is to get past the Deficit Limit Kabuki and postpone the next crisis until 2013. And of course he insists on “revenue increases” as part of deficit reduction. The formula is new revenue now – either by “Closing loopholes” like deductions for state taxes and mortgage interest, or outright raises in taxes – while the budget “cuts” will be referred to committees or commissions or some other entity: there won’t be any cuts. The Bunny Inspectors and the NEA SWAT Team and the NASA SWAT Teams will continue. We won’t cut spending levels back to , say, 1998 or 2000 levels (where they were already far too high). We won’t eliminate programs and actions that may or may not be desirable for government to do in times of prosperity but are almost certainly not worth borrowing money to do. In fact, not much will happen except that there will be new Commissions which will require staffs of New Government Employees.

And if we don’t do that, then the Social Security checks won’t go out, and a lot of people will be ruined because they can’t make their mortgage payments. Obama is making it clear that he prefers Bunny Inspectors to paying the Army.

Actually the Social Security Trust Fund holds well over a trillion dollars in US Treasury bonds. The Social Security trustees are legally obligated to cash in those bonds to make Social Security payments. The Trust Fund has plenty of money, more than enough to make Social Security payments for years. The money is in the form of Treasury Bonds, but those are as good as cash. If Social Security needs to send checks, they cash in their bonds. When a bond is cashed in, the Debt is diminished by the amount of the bond: meaning that they can then sell another bond and not go over the debt limit. Social Security payments have no effect on the National Debt. You don’t have to raise the Debt Limit to pay Social Security.

And of course if the government were really worried about running out of money, it could stop spending so much. Every Bunny Inspector laid off is another Social Security check that can be written. And of course Obama is telling us that if we don’t keep borrowing and spending we won’t be able to “invest in education.” I presume that paying the Department of Education SWAT Team is a really good investment in education.

I really don’t like to ascribe malice to people, but when everyone in Washington acts as if they are ignorant of basic facts that they absolutely have to know, it becomes harder to understand.

The way to reduce deficits is to stop borrowing money to do things you don’t have to do. Every beginning writer and family understands the concept of “eating money.” You’d think at least a few of those in Congress would. Obama has probably never met anyone who had to pay his own bills. Even so, one can be pretty sure that they are aware of these things both on Capitol Hill and in the White House. We don’t hear them acting as if they did.

It sounds as if the best the Republicans hope for now is to raise the debt limit so that spending can continue until April. A Commission will go find some cuts to make, and it will get around to doing that Real Soon Now, after which both the House and Senate will have to agree with the cuts recommended: in other words, there will be rejoicing among the political consultants and lobbyists who will become rich, and many people in Congress will receive campaign donations, and some symbolic “cuts” will be made – the NASA SWAT Team to guard Canaveral might well be one of them since not much will be going on there now – and the spending will go on. We will continue to “invest” in bunny inspectors, enforcers of the Americans with Disabilities Act, regulators who harass business until they leave the country. The beat goes on.

View 684 Sunday, July 24, 2011

Amazon has quietly launched Birth of Fire by Jerry Pournelle. That’s not strictly correct. Of course I uploaded it – thanks to Eric Pobirs and Rick Hellewell who got it into proper Kindle formatting so it looks good, a task that is tougher than most eBook publishers seem to realize – but Amazon still officially lists the book as under consideration in its reports to me. But Amazon also tells me that a dozen or so copies have already been sold, and when I went looking for it I found it listed for sale despite their not telling me that it has been published. Apparently all the departments at Amazon aren’t quite in synch.

Life at Chaos Manor has been chaotic over the weekend and we continue to be an interrupt driven system. I hope to recover from that and get some real work done shortly, but I didn’t get much done today. Alas.

The Saturday Wall Street Journal has an important article/interview with Bill Gates on education. Gates has spent a lot of money trying to improve American public education. The article, “Was the $5 Billion Worth It?” asks a significant question: could Gates have spent that $5 Billion on improving education in some better way? The answer is a bit more complex than it seems. My own theory is that $5 Billion distributed as prizes with specific goals could change the way education is done in this country; but it would have to be very carefully done. The stakes are enormous. And Gates did learn a lot for his $5 Billion.

I intend to write a lot more on this subject, and to reference this article again; but if you missed it, it’s worth looking up and reading. There is a sense in which there is no more important question facing this country. The public school system consumes an enormous part of government budget, and is responsible for the lion’s share of public deficits in many states. It’s the biggest item in the California budget. All that money is spent now with the primary goal of satisfying unions, which is to say, keeping every teacher employed regardless of competence, even minimum competence, down to the point of insanity. In the Los Angeles School District some 7 teachers have been dismissed for incompetence in a dozen years. Another hundred or so have been isolated from all contact with students, but are still paid full salary. Make it 200 in 10 years and it’s still a tiny number for a system that employs tens of thousands of teachers. Of course some of them are incompetent. Some started incompetent, some achieved incompetence, and some may have had incompetence thrust on them by an accident or just plain burnout. However they became incompetent, they are: and one of the things Gates’ research has shown – although he doesn’t like to say it flat out because he is trying to maintain some level of civility with the teacher unions – is that you can improve most schools by a factor of two by firing the 10% least competent teachers. This shouldn’t be surprising: it’s the case with most organizations. Weeding out the worst is always an effective means of increasing the efficiency of an organization. Gates has also shown conclusively something that honest education theorists have know for fifty years: class sizes don’t matter much, and spending more money seldom improves schools.

The single most effective thing you can do to improve a school is to fire the worst teachers and distribute their students among the remaining teachers. The increased class size won’t matter much: the school will improve quickly and visibly.

With many schools it can be quite dramatic. Most teachers know it. Most teachers know who the incompetent teachers are. Yet incompetent teachers are seldom if ever removed. Any attempt to get rid of the worst – and the worst can be really really bad, obviously bad, hilariously bad, and everyone knows it – and any attempt to get rid of them is met with implacable opposition and fanatic resistance by the teacher unions who are willing to sue school districts into bankruptcy if that’s what it takes to protect the incompetent. That’s hardly surprising, nor is it astonishing that the unions will at the same time claim that all they want is to protect the best interests of the kids; but it is a bit surprising that parents never catch on, and the best teachers, who are thoroughly aware of all this, almost never speak out. Of course they don’t dare. Teachers unions may claim to be professional associations, but many of them are more than willing to employ tactics that might shock even a mob-controlled garbage collector union. Bring a good teacher is hard enough: it’s a bit much to ask good teachers also to be crusaders against the system at the same time.

And so, like the Deficit Dance that results in delayed Social Security checks while the Bunny Inspectors continue with their inflated salaries, generous benefits, and high benefit pensions, the beat goes on. Better to protect the incompetent than help the kids learn something. Just as it is better to hold up a Veteran’s check than to eliminate the Department of Education SWAT team. (And now I am informed that NASA has a SWAT team. One wonders how long that will go on.)

The purpose of government is to hire and pay federal employees. It does that first, before paying debts, before paying out Social Security benefits that the recipients paid into for years, before – well, before anything. We’ll default before we begin serious cuts that eliminate needless departments and agencies of government even though we can live without what those agencies do and we have to borrow the money to let them go on doing it. But that’s a familiar rant, and it’s late.

Bill Gates seriously wants to change the world for the better, and he has the largest single Foundation in the land, larger than the next three combined. He has shown his willingness to spend money to get results. And mostly he has found that the politics are just too tough, even given his fortune. “It’s hard to improve public education—that’s clear. As Warren Buffet would say, if you’re picking stocks, you wouldn’t pick this one.” Give money to alleviate AIDS in Africa and everyone will say you’re a fine fellow. Try to induce real educational reform and you will soon find you are denounced as a villain.

One of Gates’ problems is egalitarianism. Gates has said often that every American child deserves a world class university prep education. That goal is unattainable even in Lake Wobegon where all the children are above average, because not even all those who are above average can or should go to university, and a world class university prep education doesn’t necessarily equip them to do much in the real world. I understand that there can be real value in a university prep education coupled with some practical instruction, and if all the children were really above average this might be a goal worth striving for; but everywhere except in Lake Wobegon half the children are below average, and condemning all the children to a world class university prep education dooms about half of them to a school life of hell followed by being thrust out into the School of Hard Knocks unprepared to do anything anyone would pay you money to have done. OK – I exaggerate. But not by all that much.

But that leads toward the essay I need to write, and this is not the time to write it.

I do commend the article/interview to your attention.

The same issue of the Wall Street Journal has Peggy Noonan saying “Out of the Way, Please, Mr. President”. She seems to believe that Obama is sincere but misguided. I hope she is right. The Deficit Dance continues and moves ever closer to the edge; once the US actually defaults on its debt – which it does not have to do, since the government takes in more than enough money each month to service the debt and pay the military, and pay enough people to write the checks – once default actually happens, interest rates will soar. At that point we won’t be able to borrow enough to roll over the debt.

At this point it begins to look as if the best we can hope for is a short interim “solution” in which we kick the debt can down the road a bit further. We won’t default, but the bunny inspectors need not fear for their jobs. Nor need needless employees of the Department of Education, cosmetic inspectors, those who enforce the Disabilities Act, and all the others who do things that we just might be able to live without borrowing money to pay for. When it’s over they’ll be safe. The President wants to get past the 2012 election. So do the public employee unions. And we sow the wind.

View 684 Saturday, July 23, 2011

The news from Washington is depressing. The President has determined that he’ll continue the Deficit Dance, and he won’t accept any “temporary” solution. He wants something that will get the Debt Limit out of the way until after the 2012 election. I note that CBS News last night had linked features: a long screed about how awful losing Social Security would be to some very nice people, coupled to a replay of Obama saying he couldn’t guarantee Social Security payments after August 2 without a raise in the Debt Limit. There was no mention of the fact that the government has an income and could make the Social Security payments without borrowing more – provided that it made heavy cuts in government salaries and laid off some government employees. There was no mention of the fact that failing to make Social Security payments is defaulting on a government loan: the Federal Government is both the loan source (the Social Security Trust Fund) and the borrower (we have been taking the money out of the Trust Fund and “investing” in Treasury Bonds for generations), and thus Social Security payments are part of necessary debt servicing to avoid default. The story was simply about how awful it would be for these nice people when the government stops making Social Security payments.

Then, no big surprise, the next big advertisement was from the AARP.

When BYTE was at McGraw Hill there was a rigid wall between editorial and sales, and that kind of linkage between a big “news” item and an advertisement would have been cause for investigation. It was legitimate for editorial to let sales know about upcoming features. In this case, though, the two items were thoroughly linked. One should not be surprised, I suppose.

The President is behind in the polls. If the election were tomorrow he would lose to nearly anyone the Republicans could nominate. Rush Limbaugh insists that he would lose to Elmer Fudd, which may be an exaggeration, but the point is that Obama is desperate. He’s now playing for the highest stakes imaginable. He is certainly correct when he proclaims that a US default would raise the interest rates for everyone, US government and everyone else, costing us all money: and that the effect on the rich would be worse than more taxes. So give in: let taxes be raised. You’ll feel better. Those rich guys aren’t paying their fair share. We need more money and they are not paying it, and it’s all their fault. Of course we can’t get out of this mess with spending cuts alone, so give us some more money or everyone’s going to get hurt. Don’t make me do this to you!

In any context but this it would be called extortion. It’s a variation on the mob’s favorite game, protection racket. But when applied by the President of the United States it is, in these times, business as usual.

We continue to sow the wind.

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