A Word About the Debt and Deficit

Image via WikipediaDuring the entire debate on raising the country's debt ceiling, I deliberately stayed away from posting anything about the subject.  It had been my hope, though I knew it was not likely, that the idiots in Congress and the White House would do the right thing and actually address the problem of our ever increasing debt.  With the news on Friday evening that Standard & Poor's has downgraded the US debt from AAA to AA+, I want to make a few comments.  S&P has even stated that a further downgrade is possible.

First, the downgrade should not really come as a surprise to anybody.  For months, the credit ratings agencies had been warning that unless the government fundamentally addressed the spending issue they would be in danger of having their credit rating dropped.  Simply raising the debt ceiling so that the country could borrow more money to pay the bills without addressing the deficit issue long term would not guarantee keeping the AAA rating.

The problem with the deal that was reached to raise the debt ceiling and cut some spending really has done nothing to ease the actual problem.  Sure they say they are going to cut over $2 trillion in spending over the next 10 years, but they actually cut nothing.  It is nothing more than typical Washington speak.  The cuts are actually reductions in the rate of spending thanks to the use of baseline budgeting which automatically assumes increases in spending at a predetermined rate.  Even with the proposed "cuts" the debt will still increase greatly over the next 10 years.

As much as Democrats would like to increase revenues by raising taxes, that really is not the answer.  Historically, tax revenues have averaged around 18% of GDP regardless of tax rates.  There have only been a few times when revenue has been above 20% of GDP.  However, government spending is currently running at 25% of GDP.  The real issue is spending, not taxes.  The real way to raise revenue is to grow the overall economy by growth in the private sector, not through the government.

Both sides need to get on board with the idea of balancing the budget.  The rest of us have to do it, most of the states have to do it, so it is the least we can expect from the federal government.  I know from experience that consistently paying for one's obligations with borrowed money is a recipe for eventual disaster.  One of the best plans out there is the one that Connie Mack's penny plan.  The plan call for the elimination of baseline budgeting.  It calls for a 1% cut in actual spending, or a penny out of every dollar in the budget.  That can hardly be called draconian or severe cuts.

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It's The Economy, Stupid!

Unemployment officially dropped to 9.4% last month from 9.5% in June. On the surface that would be a good thing, but there were actually more people unemployed. Due to the fuzzy math used in calculating the unemployment rate (I would blame the current administration, but in reality they all use this math) the rate dropped. The official calculation only counts those that are currently looking for work and collecting unemployment. It does not include those who have reached the point where they are no longer looking for work or whose unemployment benefits have run out.

If you have read here before, you may already know that I am not a fan of the cap and trade bill that passed the House in June. I believe that the majority of CO2 and climate change is naturally occurring and any attempt to regulate man made CO2 emissions will have little if any effect on climate change. Even the EPA admits that without global commitment to reducing emissions, that the Waxman Markey bill will have little impact on CO2.

The Science Applications International Corporation (SAIC) recently finished an analysis of the impact on jobs and the economy from the bill. It is not good news. According to the report, between 2012-2030, the bill reduce the national GDP by $2-3 trillion. Manufacturing output would be expected to decrease 5.3-6.5% resulting in additional job losses of 1.8-2.4 million jobs. The study takes into account the potential new jobs that so called green energy could create. Let's not forget the expected increases in energy costs, 50% for electricity, 26% for gasoline, and 20% for natural gas. Higher energy costs, fewer jobs, lower GDP; not a good recipe for success.

A recent Rassmussen poll showed that 42% of Americans believe cap and trade will hurt the economy and only 19% believe it will help. In that same poll, 41% of Americans were at least somewhat against the bill, and only 37% are at least somewhat for the bill. The strongest feelings were on the "no" side with 25% strongly opposed and only12% strongly for the bill. A recent Gallup poll showed that a majority of Americans favored economic expansion over environmental concerns.

At a time when unemployment is the highest it has been in years, the last thing we need is to pass legislation that will further slow the economy and cost jobs. When the Senate returns in September, the climate change bill will be on their agenda as well as health care. So while more Americans are against cap and trade then for it, why do the Democrats insist on passing a bill that will go against the priorities of the American people? I would say that as usual, the leftist elite believe they know what is better for us than we do. So while the debate on health care reform is vitally important, let's not forget the debate on cap and trade.

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