Tag Archive: Federal Budget


After a long hiatus due to spring job searches and summer moves, we are back to continue the blog! It has been quite a summer at that, with a lot of political action at the state, national and international levels and with intrigues within an empire decaying from the inside out as one half of its duopoly fiddles while the rest of the nation burns.

The story of protests and recalls continues from Wisconsin, where
Governor Scott Walker has continued his pogrom against state employees, including teachers and nurses. Despite the Republicans setting fake Democratic candidates against real Democrats to force primaries, and despite attempts to recall Democratic Senators with the help of convicted felons from out of state, Walker lost two of his cohort in the Republican-led State Senate to recalls. While the Republicans were able to retain a one-seat majority, Governor Walker lost a natural majority, due to the fact that one Republican, Sen. Dale Schultz (R-Richland Center), had voted ‘No’ on Walker’s Budget “Repair” Bill and has sided with the Democrats on a number of issues since. The process continues, of course, as Scott Walker himself now faces recall. Petitions are already canvassing the state that should force a January recall election on the Governor.

Elsewhere in the United States, Tea Party-led legislatures have enacted a number of pieces of legislation that have attack workers, women, immigrants, education and voters. Many of these measures are facing public backlash. Perhaps the drive in a number of states to reinstitute child labor was a bit much.

Yet the greatest spectacle within the country must have been the summer budget debates in which numerous Republicans lined up on the airwaves to proclaim that allowing the United States to default on its debt was a good thing. Of course some Republicans, such as Eric Cantor, were found to have hedged against the collapse of the American economy that would surely have resulted from such a default.

Progress has continued to pick up pace, however. First blood was drawn in Wisconsin with the recall of two State Senators, but a number of Tea Party provisions were overturned during the elections last week as well. Across the world, the Occupy Wall Street protests have given publicity to issues affecting the majority of Americans, whose voice has not been heard on the airwaves or in print among the media elites. For their part, major news sources have seen the Occupiers as a curiosity – in a predictable and curious way. One can now begin to see clues that might indicate that the thundering herd of regressive legislation that has been written by wealthy CEOs and dropped on the public by the Tea Party may be reversed.

Sure, there is certainly a lot of material to report on, but it is becoming clearer and clearer as time goes on that the state of affairs in the United States will not improve so long as its public continues to use mass media as its primary source for news. So – we’re back.

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“They are patriotic in time of war because it is to their interest to be so, but in time of peace they follow power and the dollar wherever they may lead.”
– Henry A. Wallace

The actions by the Republican Party in Wisconsin since January have been playing out across the country at the same time. In Wisconsin, the attack was led by stripping public unions, the strongest remaining unions, of their right to collectively bargain. Hidden in the budget bill are provisions to sell state assets so that they can be purchased by large companies and their services can be sold back to the state at a higher price. In Michigan, the Republicans are passing unconstitutional laws that can be used to eliminate elected local governments, fire all union staff and give control of the municipality over to large corporations under the guise of a fiscal crisis. Arizona sold their statehouse so that they can rent it for a higher price in perpetuity! The current political instability in the US is due to a coordinated attack on American public institutions and infrastructure by billionaires and the companies that they run. What is playing out is an attempt to replace representative democracy with corporate control of the like we have not seen since the time of the Robber Barrons during the Gilded Age. During the past few evenings, Rachel Maddow has aired a number of pieces that make an excellent primer to what is taking place, who is funding it, and what the outcomes are. These pieces are a must see for anyone in the middle class that cares about their own standard of living, the future for their children, access to education, and the rights of human beings.

Part I: The Koch Brothers – the billionaires who are funding the Tea Party and directing Republican policy.

The Koch Brothers are behind the Tea Party and they are pulling strings, 7 March, 2011 (The Rachel Maddow Show)

Part II: One of the things that the Right does when they receive hundreds of million dollars from billionaires is to hire people to misinform people on internet discussion sites and to place attack ads on air against popular causes and liberal politicians.

Rachel Maddow discusses Astroturf campaigns, 7 March, 2011 (The Rachel Maddow Show)

Part III: Despite the fact that all of the Republican Governors and Congressmen claim that the problem is one of fiscal insolvency, the actions that are taking place right now have very little to do with the budget and everything to due with taking political control from the people. All of the fiscal problems in the country are easily fixed by raising taxes on the wealthy (the people who created the problem) and state and national budgets are being used as a ruse.

Rachel Maddow on the Tea Party's use of financial crises to drive draconian legislation, 8 March, 2011 (The Rachel Maddow Show)

Part IV: Naomi Klein discusses how the Right uses the threat of disaster to gain control all…the…time. She describes how the current state and federal budget crises are no different.

Naomi Klein discusses Disaster Capitalism and Michigan's Financial Emergency Law with Rachel Maddow, 8 March, 2011 (The Rachel Maddow Show)

Part V: Rachel Maddow announces the Wisconsin State Senate’s illegal vote on collective bargaining rights.

9 March, 2011: Wisconsin Senate illegally votes to remove collective bargaining rights (The Rachel Maddow Show)

Part VI: How did this mess all begin? Remember when a group of billionaires collapsed the economy through their own financial irresponsibility and criminal behavior? Well, neither the irresponsibility nor the criminal behavior have stopped, but now the billionaires want control.

We should focus on the people who created the current economic crisis: The billionaires. 9 March, 2011 (The Rachel Maddow Show)

Part VII: Rachel Maddow announces the new Michigan law that allows the Governor to choose which local governments are in financial crisis… and to pick which corporation can run the town once he invalidates the local elected governments.

A new Michigan law gives the governor the power to overturn local elections and grant control of municipalities to corporations. 9 March, 2011 (The Rachel Maddow Show)

Part VIII: Michael Moore discusses the pro-labor and pro-democracy movements in Wisconsin and how people can rise up against the class war and the loss of democracy in their own state.

Michael Moore discusses the current attack on the Middle Class and what can be done about it. 9 March, 2011 (The Rachel Maddow Show)

Part IX: What is at stake and the need to act to stop the corporate takeover of the country.

Michael Moore: "We can win this, but we have to do something" 9 March, 2011 (The Rachel Maddow Show)

Michele Bachmann (Alan.com)

As the winter clouds slowly give way to springtime sun, the United States is waking up to a nightmarish political climate. The Republicans have taken over more state legislatures than at any time since the Great Depression, and well… It looks like that is where we are heading there again. Why? Because the GOP, rebranded by the Kochs’ Tea Party after the intense failures of the Bush Administration plummeted the country to new depths, has retaken control in a November 2010 election in which liberals stayed home.

Uh... wah?!

The Tea Partiers have never been much for civil discussion – here are Tea Baggers waiting to get in at a Health Care Town Hall event in Missouri. Of course, these people were encouraged to behave abysmally by the Tea Party itself – and some were even paid to do it! (Learn how!)

Buoyed by a self-declared national mandate, the Tea Party is now beginning hard work on important new legislation across the country – all guaranteed to either send the U.S. backward to a preliterate tribal society or a post-industrial, pre-Rapture apocalyptic nightmare state. Let’s take a quick look at some of the bills making their way through some state legislatures around the country.

Montana

We have already reported on some of the interesting bills under consideration in Montana. These include important issues such as legalizing hunting with spears and guns with silencers. Tea Partiers like guns… a bit too much… so they have decided that the state government should allow guns in schools, in the state Capitol, and as if that was not enough safety, there is also a proposal to create armed militias in every town.

Tea Partiers do not like regulations very much because the Tea Party benefactors, the Koch Brothers, pollute a lot. So it should not be much of a surprise that there is an attempt to nullify federal laws, including federal environmental regulations. The state is also planning to eradicate incentives to promote the development of wind power and it would also like the government to demonstrate that it has obtained National Park land legally, lest glaciers be allowed a chance to be conserved.

South Dakota

Tea Baggers do not like women very much either. Women in South Dakota may soon be forced to listen to a Christian sermon about abortions prior to obtaining one – of course – it was not as if the decision was tragic enough in and of itself.

Another bill, an interesting and creative combination of Tea Party misogyny and love for guns would have legalized killing abortion doctors as well as defund Planned Parenthood. This law has been tabled… for now…

Texas

And then there is Texas. They do stupid in Texas BIG! Its Board of Education is a joke and it is difficult to understand how students that go through their schools will have the knowledge that they will need to thrive in competitive, technical fields such as biomedical engineering, much less pass a college entrance exam with the state’s reinforcement of creationism in the schools and rewriting of American history in the state educational standards. Oh, and despite the fact that Thomas Jefferson had written the Declaration of Independence and that as president, he doubled the size of the United States in the Louisiana purchase (including some territory in Texas itself) he is no longer recognized as a founding father because he also happened to be suspiciously liberal and agnostic.

Only weeks after the Gabriel Giffords shooting and with shootings on college campuses in the news annually, Texas has decided to allow concealed guns on college campuses within the state.

While we’re discussing guns, there are also bills that will enable guns on party boats and bills that nullify (there is that word again!) federal laws that apply to guns and ammo made in Texas. That should make it easier for the Branch Davidians to regroup in Waco without any pesky ATF interference.

But how can one be satisfied with guns and treating women like trash alone? There are plenty of other groups to discriminate against! That’s why Texas may make it illegal to be gay in the National Guard (Virginia is trying this one too). Sorry gays, no playtime with guns for you in this middle finger to that Kenyan guy. A bill by Leo Berman would make it illegal to run for president in Texas unless it was possible to see your original, legal birth certificate. But the question is would they believe it is real if the candidate has dark skin?

And there are Tea Partiers in Texas who believe that the immigration situation should be remedied. Why? Because the Arizona bill does not go far enough because it does not have the death penalty for illegal immigration.

Oklahoma

In neighboring Oklahoma, where the public passed an amendment to the state constitution banning the adoption of shariah law, because that was apparently a problem with muslims comprising 0.16% of the state.

Of course, there are new gun proposals, too. Because people may soon be able to carry guns everywhere: College classes, grocery stores (watch out! that pineapple looks OVERRIPE!), and even bars! They deserve bonus points for combining guns and booze.

Don’t worry – illegal immigration proposals were scuttled when the Chamber of Commerce intervened! And women have already been forced to listen to ultrasounds and hear a discussion of a fetus before having an abortion – even if you were a rape or incest victim.

New Hampshire

In New Hampshire, there is a new bill to make it very difficult for students to vote! A new law would allow students to vote in New Hampshire if their parents happened to have a previously established residence in the town where the student lived. Since students generally move away from home and live in the town where they go to school, that means they may be barred from voting at all if they go to school in New Hampshire. And if that were not enough, Election Day registration would also be banned for students that did not understand that their voting rights have been infringed. According to the Republican House Speaker, William O’Brien, well here is a clip from the Washington Post:

New Hampshire’s new Republican state House speaker is pretty clear about what he thinks of college kids and how they vote. They’re “foolish,” Speaker William O’Brien said in a recent speech to a tea party group.

“Voting as a liberal. That’s what kids do,” he added, his comments taped by a state Democratic Party staffer and posted on YouTube. Students lack “life experience,” and “they just vote their feelings.”

Ohio

In Ohio, Republicans have turned on police and firefighters. This is all about union busting. (They have already gone for state employees including teachers).

Tennessee

In Tennessee, Tea Partiers are all about pooh-poohing slavery. Speaking of slavery, the Tea Party there is also gunning for teachers’ collective bargaining rights.

Missouri

In Missouri, a new proposal would eliminate child labor laws for children under 14. Children looking to earn a buck could work up to 80 hours a week! Just think of all of the wonderful free-market capitalism that they could enjoy during their formative years without an education! The bill also specifically allows children under the age of 16 to work in the hotel industry, after hours. Yes, it specifically goes out of its way to mention that. Oh, and the law would bar the Missouri Division of Labor Standards from making sure that employers of children provide safe working conditions.

Missouri is also considering a compact with Arizona and Tennessee that would oppose the adoption of federal Health Care Reform, in another nullification move.

Utah

The same month in which a U.S. Congressional Representative was shot in the head just to the south, the state of Utah voted on a state firearm. They picked a Browning M1911 semiautomatic pistol. How tasteful!

And with guns comes hating women. Did you know that miscarriages are like natural abortions? That is why it is now possible that a woman who has a miscarriage will face murder charges.

Georgia

Oh, and Utah was a lightweight – women who have a miscarriage in Georgia could get the death penalty.

The Georgia Tea Party would also like to enact a few other provisions, including: The “Energy Freedom of Choice Legislation”, which would prohibit cap-and-trade limits to greenhouse emissions; an Arizona-style anti-immigration law (papieren bitte!); tax cuts everywhere, including property taxes!

Arizona

Arizona is the home of crazy. They have already sold several state buildings, including the state Capitol, to private firms so that the state can rent from them at higher cost in perpetuity!

It is possible to carry concealed weapons to bars now. But don’t think of buying beer, cigarettes of any “niceties of life” if you are welfare – you will lose your funding. Oh, and a children’s health insurance program has been repealed for 38,000 kids. This means that billions of dollars in Medicare money may be withheld by the federal government. In other words, Arizona is keeping the government out of Arizonan Medicare – we’ll see how that goes amongst the geriatric population there.

There is now also a law that requires abortion doctors to report the names of women who undergo abortions.

And there is the anti-immigration law that allows anyone caught while brown to be arrested if they are not carrying their documentation at all times.

Minnesota

In Minnesota, the new Tea Party legislature is not happy with the Democratic Governor’s plan to raise taxes on the wealthy.

Michele Bachmann and other Republican Congressional delegation members are planning to defund the EPA

In attacks on women, Republicans have decided to ban abortions after 20 weeks of pregnancy, regardless of wether the child will survive more than a few minutes anyway. The bill will be vetoed by the governor, but you can’t blame them for making a statement, can you?

Another Republican, Senator John Carlson of Bemidji, decided that he would introduce a bill that would repeal pay equity for women. Why is it that the Tea Party hates women so much? Here is what he said, from the Minnesota Independent:

“That bill’s been pulled and it won’t see the light of day,” Carlson said Saturday at an Education Minnesota event, the Bemidji Pioneer reports. “I would admit I didn’t do my homework very well.”

“So I author the bill, put it in the hopper, and the next thing I know, all hell breaks loose,” he said. “And I deserve it for being naïve. Quite honestly, I deserve that. I did it with good intentions.”

“Obviously, I’ve been married for 32 years, I have a daughter out in the workforce, and I have a granddaughter — I can’t believe anyone would think I would harm that relationship,” Carlson said.

I wonder just what those good intentions were that would have lowered wages for half of the human race for the simple fact they were not male.

Not to be outdone with misogyny, the Tea Baggers want to get the gays too! They plan to introduce an anti-gay marriage amendment.

Federal Government

With the 2012 elections coming up and the Republicans hoping that Obama will fail, they are planning a budget that is a poison pill for the current economic recovery.

Republicans also plan to send us back a century or two, by cutting scientific researh – especially climate change science and monitoring. The Corporation for Public Broadcasting and Planned Parenthood also take political hits from the government. Meanwhile, nearly a million jobs are on the line with draconian cuts aimed at breaking unions, eliminating programs for the poor. If that were not enough, the GOP plans dire cuts to education and infrastructure development.

The Republicans would also like to defund the EPA for their Koch brother masters. They have even replaced recyclable food containers in the Congressional dining room with non-recyclable styrofoam, provided by an affiliate of Koch Industries. Since they are also planning to slash funding to toxicology clinics, one blogger suggests that the GOP is simply trying to poison America. Considering their impact on the nation so far, it seems that it is safe to say “Mission Accomplished”.

George W. Bush - Mission Accomplished (Wikipedia)

War Room (Clay Bennett, Chattanooga Times Free Press)

This article is Part III in a series of articles regarding government spending. To read the other related pieces, go to my U.S. Federal Debt: Sources and Solutions page.

The Gripes and Wrath

Of all of the portions of the longstanding American dissonance over the U.S. Federal Budget, the king of all disagreements lies in taxation. It should not be a surprise then to understand that it is in taxation where the information regarding the Federal Budget is the most suspect due to all of the myriad political influences involved.

During the 2010 election cycle, the airwaves were filled with Tea Partiers railing against government spending and the need for lower taxes. We often heard of corporate taxes being too high and how they should be lowered. We heard of the economic benefits of reducing taxes. The Tea Party floated on a crimson tide of red ink into Washington D.C. and is now trying to drive the Republican agenda even further toward tax decreases, regardless of what happens with federal spending.

What is the current status of taxes in the United States? Who pays taxes in the U.S.? How do various taxes affect the population and job growth? We will investigate each of these questions in this article. These are rarely addressed in the news, despite the fact that the current budget battles are on the TV all of the time. We will address some of the political motivations of the Media that prevent them from accurately reporting issues of federal finance in a later article.

Tax Rates: The U.S. vs. the World

Considering the invective that can be overheard at any Tea Party rally, one would think that the people in the crowd are being taxed within an inch of their lives. The mere mention of the word ‘tax’ results in a bitter, emotional spew of slogans and booing – a visceral, angry reaction that is fueled by the rhetoric of Republican political candidates. It is one version of their five-minute hate. But is it realistic?

Figure 1 shows the 2006 rate of taxation in the U.S. relative to the world. This includes the total federal, state and local taxes or their equivalents in each case.

Fig. 1: Total Tax Burden by Country (OECD, via Get Rich Slowly)

As you can see, the total tax rate is much lower than that of most other developed countries, and it is roughly half that of nations like Denmark and Sweden.

“Ah, that’s SOCIALISM!”shouts the Tea Partier. Yes, Denmark and Sweden do have socialist economies. But given that information, we should at least see whether there is a benefit. Below are lists of the top 10 nations in terms of Gross Domestic Product (GDP) per capita from the International Monetary Fund (IMF). Other lists can be found as well on Wikipedia.

Rank IMF (2010) GDP per capita ($)
1. Luxembourg 104,390
2. Norway 84,543
3. Qatar 74,422
4. Switzerland 67,074
5. Denmark 55,113
6. Australia 54,869
7. Sweden 47,667
8. United Arab Emirates 47,406
9. United States 47,132
10. Netherlands 46,418

Excepting Qatar and the United Arab Emirates which do not have income taxes due to the fact that those nations are run on revenues from their oil reserves, each of the countries with a higher GDP per capita has higher taxes than the United States.

In addition, as we will find, considering the higher tax rates, each of those countries has a lower Gini Coefficient, a measure of income inequality. World Gini Coeffficients are found in Figure 2.

Fig. 2: Income disparity (dark red =worst, dark blue = best) (Wikipedia)

Economies with higher Gini Coefficients can face instability and corruption in government as lower classes tend to be crowded out of the political process by wealthy and powerful individuals. Considering that the Gini Coefficient of the United States is actually worse than that of nations like Egypt, there should be no surprises that labor demonstrations are taking place in America.

The Purchasing Power Parity (PPP) index is a measure of the relative purchasing power of currencies around the world. This index is dependent on the development in an economy, the strength of the currency and also on the wages of the people. Nations with a higher Purchasing Power Parity are able to more easily afford a similar, pre-described “basket” of everyday goods (food, clothing, etc.) and services in countries with lower PPP indices. In essence, the PPP is one measure of the wealth of a country in slightly different way than GDP per capita. The GDP per capita describes how much money someone earns on average in a country where the PPP indicates how much one could do with that money.

Remember those countries whose citizens earn more than Americans? All of them – and even the Netherlands, which also has far higher tax rates than the U.S. – have higher PPP than the U.S. This can be seen in Figure 3. It essentially means that when someone travels from Norway to the U.S., they consider prices to be cheap in the way Americans find prices to be lower in Mexico.

Fig. 3: 2003 Adjusted Purchasing Power Parity (Wikipedia)

There are several great reasons for this. Well, taxes actually raise incomes. Progressive radio host Thom Hartmann explains:

When I was in Denmark in 2008 doing my radio show for a week from the Danish Radio studios and interviewing many of that nation’s leading politicians, economists, energy experts, and newspaper publishers, one of my guests made a comment that dropped the scales from my eyes.

We’d been discussing taxes on the air and the fact that Denmark has an average 52 percent income-tax rate. I asked him why people didn’t revolt at such high taxes, and he smiled and pointed out to me that the average Dane is very well paid, with a minimum wage that equals roughly $18 per hour. Moreover, what Danes get for their taxes (that we don’t) is a free college education and free health care, not to mention four weeks of paid vacation each year and notoriety as the happiest nation on earth, according to a major study done by the University of Leicester in the United Kingdom.

But it was once we were off the air that he made the comment that I found so enlightening.

“You Americans are such suckers,” he said. “You think that the rules for taxes that apply to rich people also apply to working people, but they don’t. When working peoples’ taxes go up, their pay goes up. When their taxes go down, their pay goes down. It may take a year or two or three to all even out, but it always works this way—look at any country in Europe. And that rule on taxes is the opposite of how it works for rich people!”

My Danish guest was right. So before we get into the larger consequences of tax increases or tax cuts for the nation’s economic health, let’s parse this business about what tax increases or cuts mean for the rich and for the not-so-rich.

Why is this so? It is a matter of an economic phenomenon called tax incidence that essentially describes how the laws of supply and demand work with taxes on wages. If a government introduces a tax on worker salaries, it happens that those workers will need a little more money in order to be able to purchase food and supplies necessary for daily life. In the very short term this can be a slight problem, though after about a year it means that a number of workers who are taking new jobs would have negotiated higher wages than they would have without the tax increase. The increased wages they receive mean a higher demand for jobs, and that increases wages even more. When all is said and done after a year or two, wages more than make up the amount of money lost to the tax increase!

Companies in the United States understand this quite well – why else do you think that the “business-friendly” party, the Republicans continually asks for tax cuts? Not only does this help Republicans pretend they are on the side of workers, but it is one way of forcing labor prices lower for the wealthy while being able to retain more money for themselves.

But taxes are not fun to pay, you say. Well, then one would expect that people who live in countries with high tax burdens would be unhappy. Yet in 2011, Forbes reported a survey conducted by the Legatum Institute in which they asked citizens around the world about their happiness and standards of living and compiled these into a “Prosperity Index”. Their results were interesting. The United States fared alright at #10. But it was beaten by strong social democracies that each have higher taxes! Here is the top ten, with total tax rates listed just for fun:

Rank Legatum Prosperity Index Rank (2011) Total Tax Rate (%)
1. Norway 43
2. Denmark 49
3. Finland 42
4. Australia 31
5. New Zealand 38
6. Sweden 49
7. Canada 32
8. Switzerland 30
9. Netherlands 39
10. United States 28

Sure, the United States did alright, but the odds are very low that every country ranked higher than the U.S. would have higher taxes by coincidence. In fact the U.S. is ranked more highly than it otherwise would be due to the fact that it holds the world’s reserve currency, which offers the U.S. a extra wealth that other countries do not have access to.

A Tea Party person might interject here once again: But the U.S. has FREEDOM! Let us take a look at that idea a little bit more carefully. What does freedom mean? Of course it can mean things like freedom of speech and freedom of assembly, but it can also mean upward mobility. After all, failing other freedoms, being wealthy can often result in a very different perception of a person by the government. How likely is it for a person in the lower classes to rise up to the higher classes? Two Social scientists, Dorling & Henning have done a study on the relative (im)mobility of citizens in a variety of nations, especially the U.S. and other countries that are listed in the lists above. Their results are in Figure 4, where it can be seen that

Fig. 4: Upward immobility (higher numbers = lower mobility) (Views of the World)

the countries that pay higher taxes all have greater ease in moving from the lower classes to the higher ones in economic status and this may be correlated with income disparity. The U.S. does shine here in terms of educational mobility, though this amazing feature of American society is currently under attack.

At this point, the recalcitrant Tea Partier mutters, “Well, you still have not talked very much about taxation.” This is largely true, though so far we have discussed some of the possible results of taxation when it is done right. We will discuss taxation itself and some more of the side-effects in the next section, in which we specifically look at the history of taxation in the United States.

Taxes in the American Economy

Another farce about taxes, yet it is a commonly held belief that taxes in the United States are high right now even when compared to historical rates. In a recent article, Richard Wolff shows a plot that displays the historical income tax rates in the highest and lowest tax brackets in the U.S. (Figure 5).

Fig. 5: Highest and lowest bracket income tax rates in the U.S. (Richard Wolff)

Taxes on the wealthy had been at recent lows just prior to the Great Depression, but one of the policies that the Roosevelt Administration pursued was to raise income taxes on the wealthiest Americans to 90%. “How draconian!” you may say, “How could he do that?” Roosevelt was quite wealthy himself but his relationship with organized money was quite different from that of President Obama’s. For example, on the eve of the 1936 election FDR gave a speech at Madison Square Gardens. Here is a quote:

For twelve years this Nation was afflicted with hear-nothing, see-nothing, do-nothing Government. The Nation looked to Government but the Government looked away. Nine mocking years with the golden calf and three long years of the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that Government is best which is most indifferent.

For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.

We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.

I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.

(This speech is truly worth a listen as the mere words do not quite carry FDR’s oratory. He knew how to give a speech. Here is the link once again.)

Can you imagine President Obama saying something similar? During the week before an election?!! He had the perfect opportunity to do so when he was elected. Instead, he hired Timothy Geithner, one of the people who created the mess as his Secretary of Treasury and kept Ben Bernanke on at the Federal Reserve. The Tea Party may not believe so, but Obama is owned by Wall Street. Goldman-Sachs was one of his largest benefactors during his election.

The 90% tax rates on the wealthy by FDR were intended in part to break the political power of the most wealthy individuals in the country, whose unregulated financial speculation resulted in the Great Depression. (Sound familiar?) In part, the taxes were high in order to fund programs like Social Security and, yes, to redistribute wealth.

But wait a second! Redistributing wealth is bad for the economy, right? Well, let’s take a look. Figure 6 shows annual growth in U.S. GDP since 1929.

Fig. 6: Annual U.S. GDP growth rate, 1929-2009 (Wikipedia)

GDP growth rates in the United states were far higher during the times when the top income tax rates were REALLY high than they are today. In fact, the growth rates tend to be highest when top income tax rates are also highest. This is primarily due to two things.

First, the high tax rate created the Middle Class. With many more people able to purchase products that American companies produced, the economy boomed during the 40’s, 50’s and 60’s.

Second, it turns out that productivity increases during times when the top tax rate is highest. Higher taxes mean higher federal spending and higher spending boosts the economy.

Of course there is that caveat that one can not allow the federal debt to go too high, otherwise it is possible to create stagflation as I mentioned in Part II. Considering this, I was excited to see the correlation between National Debt and the income tax rate that Greg Hollingsworth put on his blog, shown in Figure 7.

Fig. 7: Income Tax Rates and National Debt (CBO data, via Greg Hollingsworth)

Did you notice how as the top income tax rate drops, the U.S. Federal Debt skyrockets? Well, the top tax rate on the wealthy seems rather high, but recall that wealthy people only earn a portion of their money in the form of income. They also earn a lot of money through capital gains. Those taxes are rather low, too. But as you can see lowering taxes has had a profound effect on the American economy. Not only is it running less efficiently than it once had, but the national debt is going through the roof, too.

There is also a growing problem of the income disparity that we mentioned earlier. One problem with having a billionaire is that the billionaire does not invest all of his or her money into the economy. Rather, there is always a sizable portion of those assets that is rather illiquid, meaning that it does not circulate through the economy. This effectively reduces the money supply for everyone else and a BILLION is a very large number, so it represents a rather large loss of capital in the economy. The more billionaires, the greater this problem becomes and this is a motivating factor for the high tax rates on the highest income brackets. The wealthy are, after all, most able to afford the taxes and they have certainly benefitted from having been born and raised in the American economy, so it is a way of paying back to society.

Still, the income disparity is continually growing. In fact, thanks to tax loopholes that are available to the wealthy (but not the Middle Class), the world’s third richest man, Warren Buffet, famously complained that he pays a lower tax rate than his middle-class secretary. He has class, so he asked the Bush Administration and the Obama Administration after that to raise his taxes. He even argued that it would be good for the economy. He is still waiting for that to happen. In fact, the disparity in incomes in the U.S. is at its greatest size ever – bigger than the disparity at the beginning of the Great Depression, as is seen in Figure 8.

Fig. 8: Share of pre-tax household income received by the top 1%, 0.1% and 0.01% incomes, 1917-2005 (Wikipedia)

Right now 1% of the population earns more than 20% of all of the income in the country. Much of that money sits idle when it could be re-invested into the economy.

Figure 9 shows just how bad the situation is. The three bars in the plot show the Real, Estimated and Ideal fractions of income held by each quintile of the population according to a survey of the U.S. population by Michael Norton of Harvard Business School.

Fig. 9: U.S. Income Distribution: Real, Estimated and Ideal (The Atlantic)

The results show that the actual income disparity is far worse than the perceived one, and very very far from the ideal held by the average American. In fact the American ideal has the top 20% of income earners only earning 30% of income! That is even more socialist than Denmark!!

People are beginning to realize this and they are beginning to wake up out of the hypnotized slumber they have felt since Ronald Reagan and they are getting angry about this. Especially when they take a look at the relative growth rates of each income bracket over time (Figure 10) But there is one more thing that REALLY makes people mad.

Fig. 10: Growth in US Wages by Tax Bracket (Discover Magazine)

Something is still missing, though… Hmm…

Corporate Taxes

…and that missing thing is the corporations. Now I know what a Tea Partier would say: “We can’t have high corporate taxes because companies will just move away.” Regulations could prevent that, and corporations should pay their share because they use and abuse our natural resources and national infrastructure all of the time.

If you were to ask the Heritage Foundation, they would show you this diagram (Figure 11):

Fig. 11: Corporate Tax Rates in OECD Countries (Heritage Foundation)

Oh no! America’s corporate tax rates are among the highest in the world! America is doomed!! All the companies will move away!

Not so much… Those are the official tax rates, not the actual ones. There are lots of tax loopholes for companies. Rachel Maddow did a great piece in October, 2010 in which she mentioned that GE, Bank of America and Citigroup (the latter two playing a significant role in starting the Great Recession) paid $0 in corporate taxes. Yes, companies that earn billions of dollars per year pay less than you do in taxes and that is closer to the rule than the exception, though most small businesses do not share in those benefits. And yet, the Republicans keep asking for tax breaks for the rich and for corporations – out of fear that tax loopholes might be closed. It is possible for them to make the argument for lower taxes because the current tax rate is ostensibly so high. That is why the difference between the official tax rate has not been lowered so that it reflects reality.

There is more.

The pre-New York Times FiveThirtyEight blog posted an entry with a plot, Figure 12, that is the coup de grace.

Fig. 12: Taxes as share of GDP by type, 1935-2014 (Tax Policy Center, via FiveThirtyEight)

Look at Figure 12. Look at the Corporate Tax Rate. Look at the Social Security Income & Retirement Tax Rate. The reason that corporations now pay very little in actual taxes now is that since the time of Eisenhower, the decrease in the corporate tax rate has been funded by the increase in taxes on entitlements as a direct result of Republican federal policy.

Corporations extract resources that are owned by the public. They make a profit for themselves from those resources and they do not repay the public. That is where tax policies are today. So when you see that the budget deficit has swelled and that the middle class is doing poorly, it is a direct result in the drop in high-income taxes and corporate taxes. The effect is so profound that wealthy industrialists like the Koch brothers will save money by spending hundreds of millions of dollars to corrupt the political process so that they can buy the policies that they would like. They get a free ride with billions of dollars in the bank, but you get to pay for their exploits with middle class wages. Isn’t it about time that we had a discussion with our Tea Party friends? I thought so.

References and Links

Views of the World: Income Mobility

Wikipedia: Income Disparity

Wikipedia: Legatum Prosperity Index

Wikipedia: GDP per capita

Wikipedia: Purchasing Power Parity

Wikipedia: Tax Incidence

Wikipedia: U.S. Recessions

Budget Battle (Clay Bennett, Chattanooga Times Free Press)

This article is Part II in a series of articles regarding government spending. To read the other related pieces, go to my U.S. Federal Debt: Sources and Solutions page.

Current status

Buoyed by their 2010 election success, the Republicans (who ran on jobs and the economy) have come to Washington to take it down. House Majority Leader, John Boehner (R-OH), has called for $100 billion in cuts to discretionary spending. Ron Paul has suggested not raising the U.S. federal debt limit, which would precipitate a worldwide crisis as the nation defaults on $14.3 trillion in debt. The fervor does not end there: Iowa’s Steve King (R) even suggested we should “kill the government” should Obama fail to kill health care reform – a move that would add up to $1 trillion to the federal debt after 10 years. The cuts that are proposed are standard: Education, unemployment benefits, housing and (oddly) also cuts to entitlements that are not discretionary spending. Social security and Medicare have long raised the ire of Republicans who would love to privatize the systems and transfer the wealth they contain to the private sector. The largest portion of federal discretionary spending, the military, remains largely untouched through all of this.

So where do all of these cuts leave the jobs issue? Well, the “strange” unemployment numbers from January were not strange at all. The current situation is entirely consistent with the viewpoint in which so many people have been unemployed for so long that not only are they no longer eligible for unemployment benefits, but they are also giving up their jobs searches. That is prior to pending federal budget cuts. The forecasts for the currently proposed GOP cuts will involve the layoff of around 650,000 federal employees alone and the decrease in federal spending will bring the total to nearly 1 million jobs after 2011. This clearly does not jive with the Republican platform of helping jobs, but it is entirely consistent with the Republican mantra of “small government” that has been sweeping that nation and is most evident in the events taking place in Wisconsin.

We will take a look at the history of federal spending in order to find new methods to reduce the federal budget deficits in a what that will encourage growth in the national economy.

U.S. Federal Spending

Fig. 1: US Federal Outlays and GDP since 1901 (Wikipedia)

The U.S. Federal Government spent roughly $3.6 trillion in 2010. Big Government, you protest? Figure 1 shows the history of federal spending since the beginning of the 20th Century (please note that this is a logarithmic plot). The spending on the federal budget has grown in rough proportion to the growth of the economy since the time of FDR, though GDP numbers were not taken prior to that time and the rate of growth of government spending was much lower prior to 1900 because government undertook very few social spending initiatives before then. Also note the point of inflection at 1980. Prior to that time, the rate of GDP growth was accelerating as opposed to the deceleration we have seen since Reagan’s election.

Fig. 2: U.S. Spending and Revenue in %GDP (Bureau of Economic Analysis, via Carried Away)

Figure 2 shows the full level of spending by state and federal governments in the U.S. as a fraction of GDP since the beginning of the Great Depression. It clearly demonstrates that while there is growth in spending during the expansion of the military and programs such as Social Security, the overall spending per GDP by states has held roughly steady since the early 1970s and in the federal government since the election of Ronald Reagan in 1980. This essentially means that the cost per person of the federal government would have remained constant since the early 1980s, provided that middle class incomes would have tracked with the growth of the economy. This has not been the case. As a result, federal programs since the time of Reagan have become more expensive for the middle class while the middle class receives fewer services.

Fig. 3a: Total U.S. Spending, 2010 (Congressional Budget Office, via Wikipedia)

Fig. 3b: U.S. Discretionary Spending, 2010 (National Priorities Project)

That last point on the middle class receiving fewer services is doubly demonstrated by the proportion of military spending relative to total discretionary spending. I will discuss that in a moment, but I will first make a side observation. While researching U.S. discretionary spending, I noticed that the spending is usually displayed either of two ways. The first is the “Federal Pie Chart” in Figures 3a and 3b that show the relative sizes of various categories of total and discretionary spending respectively. The second form of presentation can be found in Figure 4. In short, the portrayal of discretionary spending in either mode is almost always the same and it has the effect of creating a politically expedient frame within which to understand the data.

Figures 3a and 3b represent to shares of total and discretionary spending (respectively) that are spent on a number of different budget categories. This is useful if you were concerned about how much money is spent on programs such as entitlements like Medicare, Medicaid and Social Security or how much is spent on paying off interest on the debt. But the pie charts do not indicate what fraction of the “Discretionary Budget” in Figure 3a are actually spent on Homeland Security or other non-Department of Defense national security areas however. So one gets the impression that defense spending is not so large relative to the entitlement programs shown in 3a.

Figure 3b show us a little more detail, essentially expanding the blue and orange sections from Figure 3a. Here we see just how much of the discretionary budget is taken up by the military but it does not include, say transportation programs that are geared to beefing up Homeland Security. This leads one to the conclusion that military spending is somewhat lower than it really is.

Furthermore, the pie charts only represent funding from a single year. It is impossible to tell how much spending might have changed either from the previous year or from a time several decades ago. And if the accounting is done right, then as I mentioned in the previous two paragraphs, it is easy to give the impression that everything is normal and there are no imbalances in the budget.

Nor would we get that that impression if we were to look at the other way in which the data is displayed: Historically. Figure 4 shows the relative proportions of military and non-military spending, with the caveat that the data is broken down in essentially the same way that it was in Figure 3b (the Department of Homeland Security is not part of the Department of Defense). However, the earliest date for the data is very important. It occurs at a time when the U.S. was in an arms race with the Soviet Union and at a time when it was becoming actively involved in the Vietnam War. The center panel of Figure 4 gives the strong impression that defense spending is under control, but only because it ignores the times prior to 1962 (the 1950s and prior to World War II when the fraction of military discretionary spending was about 30%) when spending on defense was much lower. And keep in mind that we are not including all national security spending in the defense sector – a trend that became worse and worse during the 2000’s. In fact current national security spending comprises nearly half of the “non-defense” discretionary outlays.

The bottom panel in Figure 4 drives home another convenient point that mandatory spending is out of control as well, but this is only due to the fact that defense spending has been considered a high priority among neo-conservatives. But the story behind Figures 3a, 3b and 4 is that even among discretionary spending, the military is consuming a larger and larger share even while spending on social discretionary programs becomes more expensive for the middle class and even while the middle class is expected to carry an increasing responsibility for funding these programs.

Fig. 4: U.S. Military and Non-military Discretionary Funding since 1962 (Office of Management and Budget, via Congressional Quarterly)

Another thing to consider is that all of the social programs that make life easier and demonstrably improve the quality of life for people who live in the United States (i.e. Education, Income & Labor Security, the EPA, Transportation and the Federal R&D) make up a very small fraction of the budget overall.

The take away message here is that despite the initial outward appearances, Figure 5 (the misspelling in the Figure is due to the Economist, not me, though the numbers are sound) shows that discretionary social spending has been very squeezed as a fraction of GDP over the past 40 years, ending with a brief and temporary counterpoint that corresponds to President Obama’s stimulus package. This overall decline has been due to the tax cuts that we will discuss later on which have limited the amount of money that can be spent on social discretionary programs, out of deference to mandatory spending and defense and national security.

Fig. 5: Non-defense Discretionary Spending as a function of GDP (The Economist)

Things are no different in either the current Republican or Democratic proposals for the upcoming budget deal. Social discretionary spending, comprising a small fraction of the total budget, will take the biggest lumps in upcoming budget cuts. That means housing programs, unemployment benefits, research and development, infrastructure investments, clean energy and environmental protection are going to lose funding relative to continued spending on the U.S. Military. The Republicans are aiming for broad cuts of $100 billion to the $660 billion non-military discretionary budget but the cuts are not planned to go toward the national security components of that budget.
The Minnesota Independent has a brief summary of some of the expected cuts which correspond to a roughly 30-50% hit to social programs that are used by everyone in the country and the regulatory agencies that protect our physical and fiscal environments, while the military budget of $689 billion will remain virtually untouched even though the U.S. spends the same amount on its military as the rest of the world combined (Figure 6). Feeling safe yet?

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.

–President and Five-Star General Dwight D. Eisenhower, From a speech before the American Society of Newspaper Editors, April 16, 1953

Fig. 6: World military expenditures of every nation in the world, 2009. The tall bar on the far left is the United States, which spends more than 6 times as much as its nearest rival, China. Click to access a larger version. (Global Security, via Think or Thwim)

Impacts of Federal Spending on the Economy

Despite conservative beliefs and mantras, government spending has a legitimate place in the national economy if for no other reason than the fact that, according to the U.S. Census, the U.S. federal government has 2.5 million employees in addition to the military which has 1.5 million active and 1.5 million reserve personnel. That corresponds to nearly 5.5 million total employees, not including part time civilian staff, and that corresponds to more than 3% of the U.S. workforce.

More importantly, Figure 1 shows that current federal spending is at a level of roughly 20% of GDP so it can act as a strong lever arm to encourage economic growth, industrial development, support workers wages and to develop public infrastructure, especially in concert with the government’s regulatory powers. Yet here is what House Speaker John Boehner (R) says about spending:

“This is where cutting spending will create jobs because it is going to bring greater fiscal responsibility here in Washington, DC, end some of the uncertainty, and allow jobs to be created in America.”

Even Cliffs notes will tell you that decreased government spending shrinks the demand for labor in the economy. During times of economic crisis, this can lead to a downward spiral because a smaller workforce leads less consumer purchasing that, in turn, leads to lower corporate profits and less investment and possibly more layoffs which feed back into the system. The Keynesian economic view argues that the Government can borrow money maintain spending levels despite a drop in tax revenue in order make up for the consumer demand that is lost to unemployment.

One could in principle spend money on just about anything, but the most effective approach is to make investments into public infrastructure that essentially build new efficiencies into the national economy that everyone can share in the future. This is the idea behind financial stimulus, but some forms of stimulus are better than others because some forms of spending allow the money to pass through more hands in the economy in a relatively short period of time and that encourages economic growth.

Mark Zandi, Chief Economist for Moody’s, published a study that modeled the effects of various forms of stimulus to see which would provide the greatest impact per dollar invested. You may find the results rather surprising in Figure 7.

Fig. 7: Effective rates of return on each dollar invested in various forms of stimulus (Moody's via Huffington Post)

Surprised? Perhaps it is because the best form of stimulus shown is investing in Food Stamps and Extending Unemployment Benefits! These are anathema to the laissez-faire Trickle Down Economics favored by the Republicans, who tend to be acolytes of Milton Friedman. The Bush Administration, in contrast, strongly favored Capital Gains Tax Cuts, Tax Rebates and Tax Cuts on the wealthy, in keeping with the notion of Trickle Down.

So why would food stamps be better stimulus than tax cuts on the wealthy? The reason is that poor people will spend the money as soon as they get it while wealthy individuals will typically save a windfall for a rainy day. In the latter case money is taken out of circulation so it does not typically provide a positive economic benefit. But there is another important benefit. When people become unemployed and can not feed themselves, they die. When that happens, not only does society lose their productivity, skills and knowledge that those people once had, but society also loses the investment it made to train and educate them. That was the situation in the United States during economic disasters like the Panic of 1893 and the early years of the Great Depression, before Roosevelt’s New Deal. Other forms of stimulus are not listed.

The military, for example returns roughly $0.40 on every dollar because every dollar spent on a bomb is a dollar spent on something that was designed to be wasted. Scientific research provides a quick infusion of cash with a return to the tune of approximately $1.60 on the dollar.

One is forced to wonder why the Bush Administration supported non-stimuli such as tax cuts because, despite the conservative propaganda, Friedmanian economics tends to lead to a reduction in tax revenues over the long term. (This is an indication that the middle class becomes poorer over time.) Nevertheless, the Friedmanians do (rarely) have a point. In the event of too much borrowing, there can be a set of diminishing returns. If the federal debt levels require steep payments on the debt, the government can respond by making money to pay it off. This results in depreciation, which if taken too far can drastically increase interest rates and lead to accelerated depreciation in the value of the dollar and a sticky mess for the economy: Stagflation. That was the situation during the 1970s during an economic slowdown that occurred while the U.S. was balancing the debt it racked up during the Vietnam War. War is expensive.

Another way of looking at this is that, as in Figure 8, various forms of stimulus act on the economy over differing lengths of time and some forms even have a longer lasting impact than others. These factors must be considered in preparing a viable stimulus package.

Fig. 8: Cumuluative Effects of Policy Options on Unemployment (Rachel Maddow Blog)

Obama’s stimulus package was considered by some economists such as Nobel Prize Laureate Paul Krugmanas too small to completely repair the economy, and the U.S. economy is still at risk for a double-dip recession as the stimulus has now worn off while unemployment remains quite high. Part of the reason for this is that the stimulus contained a combination of approaches including non-stimulative tax cuts due to political expediency. While enacting the stimulus package, Obama also failed to raise taxes on the wealthy, which would have given more budgetary cover for a larger stimulus package, but it is also unlikely that would have been accepted by Blue Dog Democrats who were already leery about the federal stimulus package.

Obama’s hands are now tied because of the size of the federal budget deficits due to the wars in Afghanistan and Iraq as well as the reduction in tax revenue due to the Bush tax cuts. Having missed his chance and having failed to include enough stimulus required to fix the economy, the U.S. labor force is now locked in a political game of prisoner’s dilemma. If Obama and the House Republicans can find a compromise, then everyone loses (in this version of the game, this is the best possible scenario), but everyone loses a lot if an agreement is not made soon or if Congress fails to increase the federal debt limit. In that case, the U.S. could eventually be forced to use money locked in the Social Security Trust Fund to pay off existing debt. This is considered a goal by some conservatives because it may force the privatization of Social Security.

What to expect from a short-term federal shutdown

Here we are: In a situation in which the recently elected representatives to Congress care far less about stimulus and investment into the economy than spending money on special interests – especially the anti-stimulative military – and ensuring that “Obama fails”.

So if the current budget impasse continues due to the stark divide between the emerging conservatism of the White House and the bottomless pit of nihilism of the Congressional Republicans, what are we likely to see in a short-term federal shutdown? The Minnesota Independent has summarized a 1999 Congressional Research Service report on past federal deadlocks. (Note, there is a typo in he Minnesota Independent report. The November 2005 shutdown should read November 1995.) A 5-day shutdown caused the furlough of 800,000 federal workers while a subsequent 21-day shutdown led to 284,000 furloughs and 475,000 others were forced to work in critical positions without pay. This of course means lost tax revenue for the government in addition to the extra costs that are incurred by the need to pay additional contract extensions and fees. (Cutting programs often results in similar additional costs.)

The Congressional Research Service also described the impact on the public:

“Health. New patients were not accepted into clinical research at the National Institutes of Health (NIH) Clinical Center; the Centers for Disease Control and Prevention ceased disease surveillance (information about the spread of diseases, such as AIDS and flu, were unavailable); hotline calls to NIH concerning diseases were not answered; and toxic waste clean-up work at 609 sites stopped, resulting in 2,400 “Superfund” workers being sent home.

Law Enforcement/Public Safety. Delays occurred in the processing of alcohol, tobacco, firearms, and explosives applications by the Bureau of Alcohol, Tobacco, and Firearms; work on more than 3,500 bankruptcy cases was suspended; cancellation of the recruitment and testing of federal law-enforcement officials occurred, including the hiring of 400 border patrol agents; and delinquent child-support cases were suspended.

Parks/Museums/Monuments. Closure of 368 National Park Service sites (loss of 7 million visitors) occurred, with local communities near national parks losing an estimated $14.2 million per day in tourism revenues; and closure of national museums and monuments (estimated loss of 2 million visitors) occurred.

Visas/Passports. 20,000-30,000 applications by foreigners for visas went unprocessed each day; 200,000 U.S. applications for passports went unprocessed; and U.S. tourist industries and airlines sustained millions of dollars in losses.

American Indian/other Native Americans. All 13,500 Department of Interior Bureau of Indian Affairs (BIA) employees were furloughed; general assistance payments for basic needs to 53,000 BIA benefit recipients were delayed; and estimated 25,000 American Indians did not receive timely payment of oil and gas royalties.

American Veterans. Major curtailment in services, ranging from health and welfare to finance and travel was experienced.

Federal Contractors. Of $18 billion in Washington area contracts, $3.7 billion (over 20%) were managed by agencies affected by the funding lapse; the National Institute of Standards, was unable to issue a new standard for lights and lamps, scheduled to be effective January 1, 1996; and employees of federal contractors were furloughed without pay.”

Some federal agencies such as those related to defense would continue to operate even under a government shutdown.

Coming soon

In the next segment, we will discuss tax policy in relation to the information that we have covered in Parts I and II. Stay tuned.

References and Links

The Economist: “Outrageous Cuts”

U.S. Census: Federal Government Civilian Employment

U.S. Department of Commerce Bureau of Economic Analysis National Income and Product Accounts

Wikipedia: List of countries by level of military equipment

Wikipedia: United States Federal Budget

Artist depiction of Michele Bachmann's inner thoughts (yo2boy)

US Federal Budget

Fear not! Michele Bachmann know’s who to turn to to solve the Federal Budget Deficit! Sure, we all know that the Tax Code is a Weapon of Mass Destruction, but who better to handle WMDs than Glenn Beck? Do not get all of the apocalypse porn get to you and do not let the fact that he can not tell the difference between a socialist and a fascist bother you, but he is full of … it.

Returning to the real world, the US Budget is a big point of contention, with Republicans gearing up to defund everything that makes America a modern nation. Rachel Maddow has a great piece on how the GOP is defunding the Corporation for Public Broadcasting but how it wants to give more money ($40 billion) to big oil. Meanwhile, Representative Anthony Weiner (D-NY) asks the GOP why they want to get rid of government health care for the middle class, but they do not want to get rid of their own government health care. Current Office of Management and Budget (OMB) estimates suggest that the Tea Party/Republican proposal to cut $100 billion in discretionary spending would kill nearly 1 million jobs and cause the second Republican-induced recession in three years.

News from Abroad

A number of people are dead after a shallow 6.3-magnitude earthquake strikes Christchurch, New Zealand. The earthquake was followed by magnitude 5.5 and 5.6 aftershocks as well.

Fired upon in a sneak attack Thursday evening, protestors swelled in numbers Friday as they took back Pearl Square in Manama, Bahrain. They had been calling for a constitutional monarchy and now they are calling for the king’s head. After the king told hospitals not to treat demonstrators, Britain and France have stopped exporting crowd control weapons to Bahrain, but will the US do the same in the nation where it holds a huge naval base?

While students protest in Algiers, Trade Unions continue to protest in the streets in Tunisia. Workers are also calling for higher wages in Egypt, though the mention of the labor movements that brought down dictatorships in these two countries is simply called a “democracy” movement by the corporate American press.
Cracks appear in the Gadhafi regime as the military attacks jets to attack the crowds. Violence against the nonviolent protests has been fruitless throughout the Middle East and Libya is no different: Demonstrators now occupy several major cities, including the second largest city Banghazi, despite reports of heavy casualties there and in Tripoli. Two Libyan military jets also landed in Malta seeking asylum rather than fire on civilians.

In Pakistan, an American arrested for murder in Lahore is a CIA covert agent. Relations with Pakistan are already tense due to numerous civilian deaths after a large number of American drone attacks on its supposed ally. This also comes just a day after American airstrikes in Afghanistan kill 64 civilians, according to the Kunar provicial governor.

Labor protests in America – On Wisconsin!

Protests continue strong in Wisconsin as Egyptians purchase pizzas for state employees over the internet, saying ‘We Stand With You As You Stood With Us’ in a beautiful statement of solidarity. The protests in Madison met for the eight day as another round of mammoth protests are scheduled for Tuesday across the country.

Tea Party New Jersey Governor Christie faces the possibility of protests as he plans to force staff to pay more toward benefits. Labor unions have already marched in Trenton in solidarity with demonstrators in Wisconsin. Angry union workers filled the Statehouse in Indianapolis as Tea Partiers in a legislative committee approved a measure to eliminate collective bargaining rights for state employees, approving a Chamber of Commerce-supported “Right to Work” bill. The Tea Party Governor of Michigan will not push for a similar measure, saying he won’t “pick fights” with unions by following the same path as Wisconsin’s Walker. In nearby Illinois, workers from Chicago are joining the Madison protests. More workers joined protests across the state of Nevada in solidarity with the Wisconsin state employees, while hundreds gathered in Helena, MT to argue against state budget cuts, crazy legislation and for solidarity with Wisconsin.

More protests are scheduled around the country Tuesday, including:

Little Rock, Arkansas
Phoenix, Arizona
Palmdale, California
Sacramento, California
Denver, Colorado
Des Moines, Iowa
Annapolis, Maryland
Boston, Massachusetts
Springfield, Massachusetts
Saint Paul, Minnesota
Santa Fe, New Mexico
New York, New York
Columbus, Ohio
Providence, Rhode Island
Montpelier, Vermont
Madison, Wisconsin

Ohio state employees pack the Statehouse, Feb. 17 (AP Photo/Terry Gilliam)

Pro-labor protests

Huge rallies, vigils and protests are scheduled across the United States this week as the movement to support the middle class continues to grow. See the bottom of this post for locations and check here for details on the events. Show your support because the Republicans have a national strategy to repeal workers rights state by state. In Wisconsin, Governor Walker threatens dissenting Democratic Senators that the Republicans may pass non-spending bills in their absence. In response, the Dems say they will stay away until Walker decides to negotiate. Protests Sunday were smaller than the roughly 70,000 that showed up Saturday due to a blizzard, but protests will continue through next week. Tea Party counter-protests were outnumbered 35-1 Saturday. One anti-Walker protestor says “Thank you” for bringing back the labor movement.

Protests are scheduled to continue on Tuesday in Ohio, where nearly 4,000
people packed the Statehouse last Thursday.
Floridian teachers begin to weigh their options as their Tea Party Governor once again asks educators to pay for the deficit brought on by bankers and low taxes on the wealthy. Democratic Governor Cuomo is facing rebellion against his budget proposals in New York that could trap him between a Republican legislature and his own supporters. And New Jersey is ripe for new protests to begin as well.

Where the national discussion is not on worker cutbacks, it is on privatization. This includes concerns about the privatization of libraries across the country in which patrons find the standard privatization scenario: Fewer services for a higher price. Check Privatization Watch for more information on corporate attempts to take over public infrastructure near you.

Federal Budget

Robert Reich explains why there is not anything wrong with Social Security and why it should not be cut to help the federal budget deficit. (Cutting Social Security would actually increase the deficit.) The truth is that Republicans have been creating big budget deficits to shrink social programs for years. They want control and they want government to fund corporations, not people (and yes, they are different). Meanwhile, the Republicans are aiming to shut down the Federal Government which will give companies a while to work regulation-free. The House Republicans are looking for draconian cuts to social programs while leaving the military out of the fray while Obama wishes to “out-educate, out-innovate and out-build” the rest of the world. This brings about the prospect of a default on American debt which would usher in a Great-er Depression, according to Timothy Geithner, who also believes the Republicans are pyromaniacs playing with fire on the issue.

International News

Dissidents in China, buoyed by the demonstrations spreading through the Middle East have found it tougher going as the Chinese government begins arresting dissadents as plans begin to get underway. In Egypt, 15,000 are still striking at the nation’s largest factory for better wages as the military warns it may take action. Bahraini demonstrators retake the square in Manama after an attack by government forces kill several and wounded over 100. Libya and Yemen attempt to crack down on protestors in their countries. Museveni wins another election in Uganda, despite a rejection of the result by opposition as ethnic tensions rise and concerns over human rights resurface.

Protests and Demonstrations Monday 21 February – Saturday 26 February. (Sites listed in order by state.)

Show your support, even if you are not in Wisconsin so that the Tea Partiers do not come looking for your benefits too! We’re all in this together!

Monday
Chicago, IL
Indianapolis, IN
South Bend, IN
Helena, MT
Raliegh, NC
Carson City, NV
Las Vegas, NV
Salem, OR
San Juan, PR
Austin, TX
Olympia, WA
Charleston, WV
Madison, WI

Tuesday
Juneau, AK
Phoenix, AZ
Palmdale, CA
Sacramento, CA
San Diego, CA
Denver, CO
Des Moines, IA
Boston, MA
Springfield, MA
Annapolis, MD
Lansing, MI
Saint Paul, MN
Santa Fe, NM
Canton, OH
Cleveland, OH
Columbus, OH
Providence, RI
Salt Lake City, UT
Montepelier, VT
Madison, WI

Wednesday
Little Rock, AR
Hartford, CT
Atlanta, GA
Scranton, PA
Madison, WI

Thursday
Trenton, NJ
Pittsburgh, PA
Statewide, PA
Madison, WI

Saturday
Dallas, TX

Koch Industries (Green Market)

Koch Industries is a private company, the second largest one in the U.S. behind Cargill, and it has revenues on the order of $100 billion per year. Yet you may not have heard of the company because it keeps a rather low profile. Why might this be, you ask? Here is a rundown of the industries they are involved in: Petrochemicals, mining, lumber, fertilizers and distribution (trucking) and several others. You see, Koch Industries is one of the largest, most heavily polluting companies in the world and it is completely wedded to the use of fossil fuels.

According to Wikipedia, their subsidiaries include:

Georgia-Pacific paper and pulp company, maker of Brawny paper towels, Angel Soft toilet paper, Mardi Gras napkins and towels and Quilted Northern toilet paper.

Invista, a polymer and fibers company that makes Stainmaster carpet, and Lycra fiber, among other products.

Koch Pipeline Company LP, that owns and operates 4,000 miles of pipeline used to transport oil, natural gas liquids and chemicals.

Flint Hill Resources LP, that operates oil refineries in six states.

Koch Fertilizer, LLC, owns or has interests in fertilizer plants the United States, Canada, Trinidad and Tobago, Venezuela, and Italy, among others. In October 2010, a plant in Venezuela was nationalized by the government.

The company was founded by Fred C. Koch in 1940 and his sons, Charles G. Koch and David H. Koch now run the company and they are both billionaires. The family has long been very politically active. Fred Koch was a huge ultra-right-wing libertarian and he was an original member of the John Birch Society (now headquartered in Grand Chute, Wisconsin), which worked on things like distributing flyers entitled “What’s Wrong With Civil Rights?” in which it used Red Scare tactics to attempt to convince people that the 1960s Civil Rights Movement was, you know, a bad and scary thing. They said it would lead to Communists infiltrating the highest levels of government. Sound familiar? They also argued against the Civil Rights Act because they claimed that it violated the Tenth Amendment (essentially state’s rights) and that it should be countered by Nullification. So that was the father and the sons have sprouted from the same roots.

Owning a heavily polluting company with a poor record on labor, the Koch Brothers would be forced to pay a few billion dollars in carbon taxes if a carbon regulation mechanism were adopted by the Environmental Protection Agency. As a result, they seek to end the EPA, which regulates companies through the Clean Air and Clean Water acts, among other regulations.

Why do we have the EPA? So that the sky over our cities does not look like this one did circa 1970. It was also because the Cuyahoga River started on fire a few times in Cleveland by the 1960s. Rivers, normally constituted of water are not typically meant to burn.

Anyway, the Koch Brothers have found that it is cheaper for them to wreck the American political system than it is to clean up their companies or to seek to improve labor standards. By simply doling out a few hundred million dollars to PACs and political organizations that intend to create “smaller government”. Otherwise, they would have to pay billions to convert to more sustainable practices. Why do they like smaller government? Because governments that do not have much funding can not regulate wealthy billionaires with highly polluting companies.

The Koch Brothers also hate paying the taxes that they can easily afford. So the Koch Brothers are very active in politics these days. Below is a list of the conservative foundations and political organizations that they have founded, that they fund, and that they run. Each of these organizations hires people to go onto cable TV to misinform the public. If you see a pundit on cable news from one of these groups, you know that they are trying to convince you to agree to something that is bad for you. They talk about “small government”, they spread the lie that Climate Change is not real, to misinform the public on health care by shouting “Death Panels!”, and try to convince people that they should allow Social Security to be handled by the same banks that should have gone bankrupt two years ago, and the list goes on and on.

Americans for Prosperity (David Koch is Chairman of the Board of Trustees, this organization spent $40 million on Tea Party candidates including Scott Walker. They also paid people to shout down Congressional Representatives who were trying to talk about health care reform with their constituents.)

Patients United (Fought against a single-payer health care system)

Citizens for a Sound Economy (Co-founded by D. Koch and funded with millions for activities including campaigns in the 1980s that argued that acid rain was a hoax – this spun off to form Citizens for the Environment)

Cato Institute (The Kochs founded it – this organization intends to privatize Social Security, they oppose the Kyoto Protocol, and claim Climate Change is a hoax)

Federalist Society (The Kochs are key donors for this organization which wants to see an “originalist constitution” – remember the original constitution did not allow women’s suffrage and african americans were slaves, but most of all they like Supreme Court Rulings that claim big companies are people like you and me.)

Mercatus Center (This group believes that truckers should not have limited hours behind the wheel, nor should drinking water have EPA-regulated arsenic limits, and they did not believe the US government should have cleaned up the Gulf Coast after Hurricane Katrina)

Institute for Humane Studies (They think government should not regulate the environment and that private companies can police themselves)

Institute for Justice (They support originalist judges and seek greater rights for private companies)

Alexis de Tocqueville Institution (Fights taxes on corporations, denies climate change, and promotes military spending by the U.S. government)

Institute for Energy Research (Seeks to create a privatized, free market and unregulated energy system in the U.S. they also support off-shore oil drilling)

Foundation for Research on Economics and the Environment (Another group that believes that big corporations can protect the environment on their own, free of regulations that make them do it)

Heritage Foundation (A group that sought to halt nuclear nonproliferation, supports the invasion of Afghanistan, Chile and Haiti, promotes war profiteering, and seeks the privatization of public infrastructure and entitlement programs, they do not like unions either, but they love free, unregulated markets.)

Manhattan Institute (Promotes free-market (unregulated and private) solutions to the economy, energy, education and health care)

George C. Marshall Institute (A conservative think tank – they supported the Star Wars defense initiative, deny climate change, denied acid rain and did not believe in the ozone hole)

Reason Foundation (They believe in free markets, no unions and commercial education)

American Enterprise Institute (They believe in privatized and unregulated everything, war profiteering, ending labor right, they deny global warming, seek to repeal environmental regulations, and for the kicker Dick Cheney is a trustee)

Aspen Institute (here, the Koch brothers wine and dine with politicians in person. After a meeting last year with Supreme Court Justices Antonin Scalia and Clarence Thomas, the two justices wrote an opinion for the Citizens United ruling giving companies the right to spend an unlimited amount of money on public elections. That money, funneled through the U.S. Chamber of Commerce and Americans for Progress gave you all of the Tea Party candidates that are trying to break unions, privatize Social Security, deregulate Wall Street, defund the Department of Education, end the EPA and reinstitute child labor.)

You should do your best to boycott each of the above products and institutions. The only way to regain politcal influence for live, breathing human beings and to eliminate corporate control of elections is to make it more expensive for companies to mess with our political system. If a company supports policies that are bad for the public, the public should make them pay a high premium in the form of lost revenue. Good luck!

Demonstrations under the Rotunda of the Wisconsin State Capitol (AP Photo)

Labor rights are coming to the fore in the United States as the Tea Party begins the work that Conservative corporations paid for in the November election to dismantle labor rights and privatize public services across the country. Nothing is to be left untouched, not even the children as Tea Partier and Missouri State Senator Jane Cunningham (R-of course) seeks to end her state’s prohibition on the employment of children under the age of 14. The full text of her bill can be found on the Missouri State Senate website but here is the Summary:

SB 222 – This act modifies the child labor laws. It eliminates the prohibition on employment of children under age fourteen. Restrictions on the number of hours and restrictions on when a child may work during the day are also removed. It also repeals the requirement that a child ages fourteen or fifteen obtain a work certificate or work permit in order to be employed. Children under sixteen will also be allowed to work in any capacity in a motel, resort or hotel where sleeping accommodations are furnished. It also removes the authority of the director of the Division of Labor Standards to inspect employers who employ children and to require them to keep certain records for children they employ. It also repeals the presumption that the presence of a child in a workplace is evidence of employment.

That’s right, underage children can work in hotels and motels – and they can be asked to work hours as late and long as the management deems fit – sounds like a great idea, right? Hey, when push comes to shove these are Republican family values. This kind of hypocrisy is not new. Find out how Republicans Tom Delay and Jack Abramoff supported the sex trade in the Northern Marianas Islands on NPR and at Tom Paine.com.

In Washington, the GOP is planning to limit the new Federal Consumer Protection Agency that is intended to protect people against predation by credit card companies, bad mortgages and other types of corporate fraud. Now why would anyone want to prevent the prevention of fraud? Meanwhile, the Center for American Progress estimates that Republican spending cuts will cost about 1 million jobs in 2011. “So be it,” says John Boehner. And Jon Stewart catches Republican Jeff Sessions in a little bit of budgetary hypocriscy.

Despite some small cuts to it, both Obama and the Republicans plan to significantly cut spending on social programs rather than the bloated military. Though some legislators are beginning to consider cuts to the roughly 1,000 military bases that the U.S. runs overseas. Yet the national security state is very…well…secure. Just ask Bradley Manning who has been kept in solitary confinement for months, without being allowed to exercise. The U.S. military is trying to get him to admit a connection to Julian Assange – if only Bradley would just say the words…

There is a political war on labor and public and regulatory institutions in the country. It is being financed by the Koch Brothers, who own Koch Industries. The Koch Brothers fund the Tea Party and they run astroturf campaigns to repeal the Clean Air Act, ending labor rights, and being rather heavy polluters, they are aiming to defund the EPA. They are a big reason why we have politicians like Michele Bachmann, who is currently at war with Michele Obama over breastfeeding. The Koch Brothers also make the claims of socialistic fascism through people like Glenn Beck. Are you a Commie-Nazi? And it is all possible because the Republicans already live rich fantasy lives.

Wrecking Democracy is big business. Learn more about the right-wing corporate groups who hire crazy people to talk about “death panels” and deny climate change while we should be discussing relevant issues.

By contrast: In Minnesota, Democratic Governor Mark Dayton, a rather wealthy individual, has decided to balance the state budget by taxing wealthy Minnesotans. He is also planning to increase funding for K-12 education and to repay the loans the state took from schools under Republican Governor Pawlenty. Mark Dayton is also increasing the state’s Medicaid program by tapping federal money that Republican Pawlenty rejected. This will allow the state to save some money in health and human services.

But Minnesota has it’s share of kooks. Michele Bachmann refuses to acknowledge that President Obama is a U.S. Citizen and a Christian, even when asked directly by George Stephanopoulos. And Republican State Representative Mike Beard claims that Minnesota should resume coal mining because as he mentioned to MinnPost, “God is not capricious. He’s given us a creation that is dynamically stable. We are not going to run out of anything.” That is right, Earth – a planet of finite size – has infinite resources because Mike Beard says that God says so. Mike Beard, another Tea Partier, has an opinion on the issue that is diametrically opposed to many who actually study the nature of the Universe, like Stephen Hawking.

In Uganda, where American Republican and Christian Conservative Operatives are funding and assisting the passage of that nation’s “Kill the gays” bill, the government is banning the use of words such as “Egypt”, “bullet”, “people power”, “teargas”, “army”, “Ben Ali”, “Tunisia”, “Mubarak” and several others ahead of the upcoming election. Meanwhile, clashes with police are increasing as protests continue in Libya, Yemen and Bahrain. The U.S. State Department has called for restraint in the now violent Bahraini response to protests the the small island nation and home of a major U.S. naval base.

In health news, bad food makes you dumber according to a new study in the Journal of Epidemiology and Community Health. Ancient Britons, hailing from an island not always renowned for its food, may have drunk from human skulls.

Oh, and on one final note: ‘Curveball’, the Iraqi informant used by the Bush Administration to sell the War in Iraq now claims that he lied to the Bush Administration about Weapons of Mass Destruction so that they would take out Saddam Hussein.

Protestors stayed overnight in the Wisconsin State Capitol (Wisconsin State Journal via AP, MSNBC)

Wisconsin state employees and thousands of supporters continue their fight across the state to protest Tea Party Governor Scott Walker’s proposal for massive cuts to state worker pay along with plans to terminate their collective bargaining rights, after threatening at the beginning to call out the National Guard if protests were to erupt. Hundreds of protestors camped out in the rotunda of the State Capitol overnight to show their support for worker’s rights. This is all over a state budget deficit of $145 million – or $25 per person in the state. More protestors packed the Statehouse in Columbus, Ohio as public employees in that state fight to keep their collective bargaining rights as well. The bill in the Ohio State Legistlature is sponsored by Tea Party member Shannon Jones (R-Clearcreek), who has a problem with people who wish to be paid living wages. Meanwhile, Florida’s Tea Party Governor Rick Scott has proposed cutting funding for historically black colleges. During discussions with state legistlators, he assumed all of Florida’s black state legislators had grown up poor. This comes roughly one month after Maine’s Tea Party Governor told the NAACP to “Kiss my butt” after declining an invitation to speak to the group on Martin Luther King Day. Undaunted by his own scandal, Florida Tea Party multimillionaire Governor Rick Scott has introduced his “7-7-7” mission – seven steps to eliminate 700,000 state jobs in seven years. That is right, he plans to eliminate jobs for 5% of the people in his state during the recession, but hey, everyone wants small government, no? Of course, each of these Tea Partiers and their multi-millionaire funders and many other Tea Partiers around the nation had planned to attack worker’s rights all along, even while claiming during the last election campaign that they would be fighting for jobs: Yours.

Elections have consequences. Russ Feingold, the pro-labor progressive who lost to a Tea Partier in November has decided to continue to fight for workers rights even as his successor works against them in the U.S. Senate. But we were warned. The Tea Party are the party of, for and by unadulterated corporate power. Who has been invited to provide information at Tea Party-run Congressional hearings on the Federal Budget? Corporate Shills from Koch Industries, Big Oil, conspiracy theorists, and southern secessionists. Thank Ron Paul for the secessionist.

Protests have begun in Libya as the wave of disquiet continues to spread through the Middle East. This includes a march on government offices. More protests are scheduled across the country today (Thursday). Two protestors were shot and killed during continued unrest in Yemen as protestors step up their demonstrations against the government. Authorities in Bahrain have sneak-attacked sleeping protestors in the capital Manama’s Pearl Square. The Bahraini king is not yet ready to deliver the Constitutional Monarchy that has been proposed by the protestors, who continue to demonstrate after rejecting a $3,000 per family bribe to be paid by the government. In Iran, thousands attend the funeral of a man killed during protests earlier this week.

It is not a wave of protests, but feathery chaos spreading in other activity around the world as nations celebrate International Pillow Fight Day.

Minnesota Public Radio (MPR)


http://minnesota.publicradio.org/www_publicradio/tools/media_player/syndicate.php?name=minnesota/news/programs/2011/02/15/midday/midday_hour_1_20110215_64

On Minnesota Public Radio’s Midday, Yale Political Science Professor Jacob Hacker discusses his book, “Winner Takes All Politics: How Washington Made the Rich Richer — and Turned Its Back on the Middle Class,” at the University of Minnesota Hubert H. Humphrey Institute for Public Policy. There are a number of great points in the discussion. Hacker provides a clear picture of how the situation in Washington has become so pro-corporate, beginning with the organization of right-wing political groups in the 1970s and he offers a glimpse to the great world we could create if we reorient Washington’s priorities to serve the public rather than the few.

It is easy to be jaded about the news about the financial situation in the US government, especially when it seems that two sides are continuously arguing over which group will receive money and subsidies and which group will not. It is also easy to become cynical about the process because it does involve no small amount of corruption and waste. Political candidates loudly tout the problems with jingoistic one-liners during their campaigns but they always seem to fail to solve the problems that they once highlighted. This article is the first in a series of pieces that will focus on the US federal budget, beginning with a look at the history of the federal debt. Later, we will relate the federal budget to the rest of the economy and finally explore options for solving budgetary issues and repairing the economy.

In order to find a solution to the current financial situation, it is necessary to understand the actual problem. It is insane for one to expect to solve a problem with incorrect information. Therefore we need to end some myths regarding the budget.

US Federal Debt as a Percentage of GDP, 1800-1999

Fig. 1: US Federal Debt as a Percentage of GDP, 1800-1999 (Wikipedia)

First, there were never any ‘good old days’. In Figure 1 you can see that the United States federal government has been in debt during its entire existence. The magnitude of the debt in uncorrected dollars can be found at the website of the U.S. Treasury, where you can see that the U.S. debt was $75,463,476.52 in the year 1791. As it turns out (and as we will see over and over again), war is expensive and the American Revolution that ended in 1783 had cost $37 million at the federal level in addition to $114 million in expenditures by the states, funded by loans from France and the Netherlands and the issuance of paper money (Jensen, 2004). The population of the US by 1790 was about 3.9 million, so the debt corresponded to roughly $38 per person in 1790s dollars (the equivalent of $920 per person in equivalent purchasing power in 2010). So the picture has never been quite so pretty as the image that is so often laid out for us when we are told of the halcyon past in which hard work and a dollar meant something because the dollar once had more value than it does now. According to the U.S. Treasury, the closest that the nation ever was to being debt free was during the years 1835 and 1836, when the debt was between $30,000 and $40,000.

Also, as population increases, government gets bigger. People ridicule “big government” but the government for a nation of 300 million people should be expected to be large. It should not be a surprise that the annual budget is given in trillions of dollars because each of the 300 million people contributes an average of at least a few thousand dollars to the budget per year. It is simple math. And what do we get for that? National Parks, Environmental Cleanup, some health care and Social Security (not as much as other countries), unemployment benefits, research and development, and (increasingly) the military and its associated wars. The government can help to improve the lives of all people if our tax money is invested properly. But therein lies the rub: We have a responsibility to hold our leaders’ feet to the fire to ensure that they do invest our money properly! Remember, Benjamin Franklin warned us in saying that we have “A Republic, if you can keep it.”

Fig 2: US Federal Deficits over Receipts, 1901-2000 (Wikipedia)

Another myth is that there is a problem with “tax and spend liberals.” Here you can see the annual deficits or surpluses as a fraction of incoming revenue during the 20th Century. The most obvious deficits occur at the end of the 1910s (World War I), during the 1930s (The Great Depression) and during the early 1940s (World War II). You can see that war and the inevitable collapse of laissez faire capitalism are very expensive. The Great Recession dip is not shown here because it took place in 2008. In addition, there are continuous deficits between the late 1960s and the mid-1990s. This is largely due to the impact of the Korean War, the War in Vietnam, the military buildup during the 1980s and the Gulf War in the early 1990s. That’s right, the problem with the U.S. budget is with war and the national security state, not “tax and spend liberals.” This is made abundantly clear in Figure 3, where excepting World War II (Roosevelt) and the first year of the Obama Administration, when it inherited structural deficits from the Bush Administration, the Democrats have actually done a better job at reducing the deficit than any of the Republicans since Nixon.

Fig. 3: US Gross Debt as a Percentage of GDP by American President, 1940-2010 (Wikipedia)

US Gross and Public Debt

Fig. 4: US Gross and Public Debt since 1940 (Wikipedia)

You can see that I have shown you the debt as a fraction of GDP in Figures 1 and 3. That is because while the total amount of money that the US owes its benefactors has gone up nearly monotonically since 1945, the debt does become less expensive as the economy grows. In fact, economic growth can be used to pay off the debt provided that the interest payments are not too large. The top panel of Figure 4 shows the difference between the US gross debt (annual revenue – spending) and the public debt (the gross debt, adjusted for in-(de-)flation and GDP growth). Notice the downward trend in both lines during the late 1990s. That was due to Clinton, a democrat.

So here you go:
1. The federal deficit is primarily due to spending on wars and the national security state.

2. The Democrats have reduced the federal debt while the Republicans have expanded it.

3. The US has ALWAYS been in debt!

4. (Very important) But the debt gets cheaper, provided that the country can sustain economic growth. (This requires that money is spent on things that promote economic growth – we’ll discuss this in another article.)

5. The government is big because the country is big, duh. A small government for a big country would be like Somalia, a libertarian paradise.

Recall that President Clinton actually reduced the size of the US debt. The size of the US debt in 2000 was $5.6 trillion. The federal debt in the spring of 2011 is expected to rise to about $14.3 trillion. What happened?

Fig. 5: Makeup of the US Budget Deficit from 2009 (Center on Budget and Policy Priorities)

Figure 5 shows the problems in this plot of the size of the current annual budget deficit, broken down year by year. The original data is from the Congressional Budget Office. As you can see, most of the problems arose from the Bush Administration. The wars in Iraq and Afghanistan have been long and very expensive (to the tune of about $200 billion per year). There was an uproar in what seemed to be the sudden expansion of the annual budget deficit when President Obama placed them on the federal budget for the first time. President Bush had always kept them off the records using emergency funding legislation. That is: he cooked the books by not counting money that we were spending. Next, the tax cuts that went almost entirely to the wealthiest 5% of Americans account for 25% of the budget deficit and that fraction, due to various formulae and mandates, is set to increase with time. The Bush-era TARP (the Wall Street bailout) accounts for another third. And the remainder is a loss of revenue due to fewer people paying taxes (as many are unemployed during the recession) and the relatively small stimulus package that was put in place during Obama’s first year.

So the lion’s share of the current budget deficits are due to the Bush Administration’s running headlong into two wars, the lack of regulation that led to the financial crash in 2008, and the subsequent bailouts. That is where we are now – and the situation has not improved much because Congress extended the Bush tax cuts for another two years at the end of 2010, we are still involved in multiple wars, and Congress has not yet passed stringent re-regulation of the financial markets. Luckily, the federal debt has been higher as a fraction of GDP in the past (although American manufacturing was higher then) and we can afford the debt for now. But it is a large debt and we will discuss what can, should and likely will be done about it in the next post that we have on the subject in a couple of days. Stay tuned!

References
Jensen, Merrill. The Founding of a Nation: A History of the American Revolution 1763–1776. (2004)

Links
Center on Budget and Policy Priorities

Measuring Worth: US Consumer Price Index 1774 – 2009

US Treasury: Historical Debt Outstanding – Annual 1791 – 1849

Wikipedia: Deficit

Wikipedia: United States Public Debt

The Supreme Council of the Armed Forces of Egypt mentioned Tuesday that work will soon begin on a new national constitution. Efforts continue to encourage protestors back to work. They are now arguing for labor rights and higher pay. After protests were put down by force in Iran, Iranian MPs call for the death penalty for opposition group leaders Mehdi Karroubi and Mirhossein Mousavi. This time, the US is strongly and quickly standing behind the protestors. On the other hand, the US reaction is not likely to be as eager in Yemen, where protests have continued into their fifth day. Protestors are not terribly happy about the US-back President, nor are they very happy about the American drone strikes against Yemeni nationals as part of the “War on Terror”. All of the strike activity continues to bring up the question “Where next?” While all eyes are on Pakistan, whose push for nuclear arms gives it one of the larger nuclear arsenals in the world, fears are rising that some nuclear weapons may be lost in this very unstable country. Oh, and one source of angst against the government in Pakistan is its cooperation with the US drone attacks that have led to a large number of civilian deaths. But Democracy is winning the day as protests continue in Baharain, despite the King’s gifting every family in the country with $3,000 to soothe the nerves. Sadly, America finds itself in the ironic situation where it is not the self-avowed bastion of democracy it once claimed itself to be. Perhaps this is a problem with marketing.

Few Americans know very much about the drone strikes in different countries, but it turns out they may not care. Many Americans, including a majority of Republican primary voters are preoccupied with whether Barack Obama is an American citizen. (He is.) Despite the falsity of the claim, House Speaker John Boehner and Majority Leader Eric Cantor do not believe it is their job to correct their constituents. This comes even as Republicans plan to attack the 14th Amendment which argues that anyone born on American soil is a US citizen. This seemingly innocuous guarantee prompted an outcry from Representative Louie Gohmert (R-Tx) last summer. On the other hand, they are not very helpful on the economy either. After the Republicans campaigned on jobs, jobs, jobs, John Boehner says that if the proposed draconian cuts to the federal budget cost jobs, “so be it.” The loss of more jobs, would of course limit future federal revenue, creating more budgetary problems in the future.

Despite several costly provisions, the House succeeded on its third attempt in one week to extend several provisions of the PATRIOT Act. 27 Republicans voted against it and 65 Democrats voted for the extension which includes “roving wiretap” court orders and allows authorities to seize “any tangible things” in a search. See how your Representative voted here.

In other portions of the US Government, Supreme Court Justices Scalia and Thomas are taking heat for failing to recuse themselves from apparent conflicts of interest revolving around their involvement with the Koch Brothers prior to the Citizens United ruling last year, in which the two justices argued slavishly in favor of corporate interests such as those of the ultra-libertarian Koch brothers. Clarence Thomas’ wife is also head of a Tea Party group. While many Tea Party groups are financed in part by the billionaire Koch brothers, Clarence Thomas has failed to report income from his wife’s political activities for more than a decade now, prompting the Supreme Court Justice to uncomfortably claim that he did not understand the corresponding tax law when the news became public. Oops.

The US government is asking Twitter to divulge information pertaining to the whereabouts and names of people associated with WikiLeaks in a move that bodes poorly for internet privacy rights. This and other issues related to first amendment rights may be reasons that Julian Assange has brought civil liberties advocate Alan Dershowitz onto his legal defense team.

The New York Stock Exchange is being purchased by the German Börse, all while Republicans across the nation continue to argue against Socialism. Not to worry, the two leading shareholders in the Börse run an American hedge fund. The NYSE is struggling to maintain profitability by leaving retail investments for derivatives trading.

In Space, the probe NExT (formerly Stardust) makes history as it flies past its second comet, Tempel 1. It was first launched toward Comet Wild 2 12 years ago and has very limited fuel remaining onboard.

The Real News discusses the Obama budget, in which spending will be held flat for 5 years. Considering the growth of the American population, this could be a real issue. In addition, there is not nearly enough funding for investment in clean energy and infrastructure to account for his goals listed in the State of the Union Address. There is some speculation that he has given up far too much ground to the Republicans on the politics of the spending issue, especially considering that the Republicans created the structural deficits and that the real economic problems that we now face were due to the banking crisis.