The house of cards will crash. Call it peak government. The game is up.
If we will not impose discipline on ourselves, the market will do it for us.
– Monty
It amazes me that this far in the recession the only solution they have is to increase taxes. It doesn’t seem like any State of the Union or any of the European nations outside of Iceland and Finland have smaller operating budgets today than in 2007. Just tax, tax, tax and spend your way out.
Governments are choosing to do all they can to perpetuate the status quo – focusing on keeping things together just through the next quarter, through the next election cycle. And it’s clear that their best efforts are meeting with less and less as the situation worsens.
– Macleod
Example #1 – the last paragraph says it all:
Malloy’s strategy is flawed because he enacted the largest tax increase in Connecticut history and the state is still facing a deficit.
Example #2 – In January 2011:
Illinois lawmakers raised income tax rates by 46 percent on businesses and a record 67 percent on individuals. And with this flood of new tax dollars, urgent pressure to pass lasting structural spending reforms deflated. The state is still broke. Not only still broke, but they borrowed more money last year further ballooning state debt.
One of the problems for politicians is GDP. GDP in of itself isn’t bad. But insert a bureaucrat statistician and GDP becomes a numbers game.
Take for instance efficiency. Efficient producers such as the manufacturers and suppliers of electronic goods and services, who reduce their prices over time, see their output diminished as a proportion of the statistical whole, while those that maintain their prices by monopolistic or subsidized means keep and even increase their weightings.
Alasdair Macleod continues and spells it out:
if you try and measure an economy by GDP, all you are measuring at the end of the day is the amount of money in the economy. It is not a measure of economic progress and/or true economic growth.
You have money in the private sector where value is produced and competitive advantages are gained – Keynesians are taking money away from the productive economy and injecting it into something less productive or not productive at all.
The money from the productive area of the economy is the area that needs to progress for the world to move forward from this global malaise.
Not only have politicians completely deceived the public over economic growth, but they deceive themselves. For this reason they are unequipped to deal with the developing crises, which are the result of earlier interventions. They now claim that economic growth, the ultimate source of tax revenue and government solvency is jeopardized by spending cuts. Statistically, this is obviously true, because if you take away government costs and support for unwanted economic activities, GDP will fall. But the important point that is commonly missed is that a government which stops draining an economy of its private sector resources actually releases them to be deployed more effectively for the common benefit by those randomly-acting entrepreneurs.
– Alasdair Macleod
The next economic cycle? The Facebook ipo flop – this was as good as any confirmation that we are entering it. And this one is going to be nasty.
IMF Managing Director Christine Lagarde told Harvard graduates they faced one of the most challenging economic times since the 1930s…pointing out the inability of 75 million young people to find a decent job.
Barron’s has an article up about the Baltic Dry Index no longer being a relevant metric because of too many ships and not enough trade.
I read China defaulted on coal contracts this month.
Spain, France, and Germany just passed new border controls laws. When the EU collapses, people are going to attempt to flee with their money as this email from a family member in Europe illustrates:
Shortly after I arrived, the merchants did not want dollars or to be paid by credit cards issued from American banks (no Visa, no MasterCard etc) and they covered up the slots to swipe American credit cards on their machines and asked for cash or a bank card with a “chipknip” from a euro bank…The banks are undercapitalized, they are being asked to increase their capital requirements. … When we drove across the German border from Switzerland, there were armed border patrols.
Hattip – Brother Bob, TAB, ZeroHedge, Monty
Fact-filled and thorough essay, mossomo.
I noted to my husband, as we were preparing out Absentee Ballots for the California election, there sure do seem to be loads of special little tax hikes on small, less-organized constituents.
Like Obama’s planned tax hike on the ”rich.”
Or, in CA, on Prop 29, a new $1.00 tax on a pack of cigarettes.
Gee, only smokers will be affected.
I’ve never smoked BUT I oppose this cutting-the-weak-gazelle-from-the-herd approach to states getting more money.
The state has no intention of using the new money for anything but pensions of paper-pushers they already have.
The pastor Martin Niemöller said it first and best:
Every time governments raise taxes to pay for debt, they always end up spending more money and creating even more debt. Except for the “gimmie-more-handouts” society leaches, more and more voters are getting fed up with out of control debt & spending policies of both parties. The problem with elections is that these politicians bribe their constituents with pork-barrel-projects for votes, and the voters who support them can’t get it through their stupid, greedy heads that they are part of the problem. Election related corruption of all kinds is destroying this nation. Like a heroin addicts and crackheads, the bring-home the bacon crowd and entitlement handout junkies will not stop. Even when they have destroyed themselves, the future of their children, and everyone around them. We need fiscally responsible leadership who will “grow a pair”, speak the hard truth, force the government to live within it’s means, and save our nation from the corruption of greed. Statesmen who will say “No! the nation can not afford that!” Officials who will not just promise not to continue the pay to play backroom quid pro quo games of lobbys and special interests, but who will do real reforms and have the cahones to kick them out of their offices, and out those who open their doors.
Sadly, except for those who have tried to curry favor with the “Tea-Party” movement, I don’t see either big government Democrats, or establishment ‘free-trade’ globalist Republicans of either stripe doing a damn thing to change the Washington elite modus operandus.
A most excellent post. “Peak Government…” Brilliant!
Good old Mark Levin. The Bamster was lying again. Its takes Democraps to clean up the mess. The lowest rate of government increases of spending according to a nut job from Market Watch. Right. No budget for the last 3 years. The spending base has exploded because the porkulus still continues as part of the base. For example, you earn 50$ daily. You spend 100$. Next day you earn your 50$ and spend 110$. On the next day you earn your 50$ and spend 120$. The government has been doing this for the last 3 years. Its catastrophic. Mark explained this last night.
If you believe the Bamster crap, you are a fool. If he believes this crap, he is an idiot. This is just another exploding cigar.
Like I told/adked my local newspaper editor, who endlessly suppors Obama: I know we will not cut spending today or tomorrow. I fear that we will not cut it in 6 months. My question is, when will we cut it?
Democrats expect the people to believe that if they accept the tax raises, that fiscal spending reforms will follow. We see this here every time one of us writes about taxes, government spending, and federal fiscal policies. Invariably, one of our liberal/progressive friends defends the idea of tax hikes by telling us that a “balanced approach” is necessary to make the federal government fiscally sound, and that the first step should be raising taxes. One of the favorites is “to raise taxes to pre-Bush era rates”, or something like that.
What they fail to disclose, because it isn’t possible as there is no evidence of it ever happening, is that once taxes are raised, no spending curbs or reforms take place with Democrats at the helm. This is because they have no intention of doing so, despite the rhetoric one hears.
One cannot explain too much the severe difference between the revenue expected from tax hikes, and the actual deficits the federal government faces. It is due to this difference that tax hikes shouldn’t even be considered until actual spending reforms are accomplished, because without the spending reforms, no amount of tax hikes will ever bring the federal government anywhere close to a fiscally sound footing from which to conduct business.
In addition, why is it that the first and only spending cuts liberal/progressives are willing to consider enacting are those items spelled out specifically within the Constitution that the federal government is responsible for?
In my locality, our local US post office is being closed. Now, this isn’t some one-stop light, don’t blink and you’ll miss it town. This is a small city of over 100k people with several hundred thousand within the county itself. We have a state university here. Yet, our post office is being closed.
From Article I, Section 8 of the US Constitution;
Now, I know that even some of our conservative brethren and sisters scoff at the US Postal service, for being a money drain and unprofitable. Fine. It is. One cannot deny this, and no amount of letter rate hikes will ever make it so, for various reasons, including competition(email, UPS, FEDEx, etc.), employee salaries and pensions, cost to transport mail and packages, etc.
We, as a country, allow our federal government to spend so much on items and things that have little to no basis for existing when one reads our Constitution, yet we deem as acceptable, as a country, the shrinking of spending items related specifically to the Constitution. Why?
This wasn’t meant to be a support, necessarily, for the US Postal service. Merely a “bringing to light” of the absurd nature of the spending that our country accepts, and that spending it is willing to shed.
@johngalt: Good to see you back, amigo. To follow up on your last two comments, I wish you had jumped in on my scary post on what it would take to pay off the deficit.
@Brother Bob:
I wasn’t completely gone. I’ve read most of the articles and postings over the past few months, I just decided to take a break from responding to the ignorant idiocy of our leftist “friends”. As for paying down the debt, it isn’t something that can be done in a short time period. The first step is righting the financial ship towards budget balance or surplus, and then we can think about paying down the country’s massive debt. Of course, this takes more than a decade of fiscally sensible people running the show, without people like Obama, Pelosi, Reid, and the liberal GOP members reaching into the cookie jar every time they think someone isn’t looking. It also takes a serious change in the voting public, towards personal responsibility, rather than the “pass the buck, someone else will pay for it” mentality that many of us have now. A cynic might state that it will never happen, but I refuse to believe that there are more Lib1’s and Greg’s out there than there are sensible people.