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THE REAISSANCE 411 BLOG – Ground
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BREAKOUT
3.0
Our
Path Out of the Fiscal Trap
By
Jay B. Gaskill
In a report ominously
titled “The Moment of Truth”, the president’s deficit commission has spoken,
and the situation is not pretty.
The full text is available at this link: http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf
.
In the section called The Looming Fiscal Crisis, the report tells us that -
“Our nation is on an
unsustainable fiscal path. Spending is
rising and revenues are falling short, requiring the government to borrow huge
sums each year to make up the difference.
We face staggering deficits. In
2010, federal spending was nearly 24 percent of Gross Domestic Product (
Since the last time our
budget was balanced in 2001, the federal debt has increased
dramatically, rising from 33 percent of
A chart shows the result of following the current administration’s plotted course – debt completely outstripping our ability to pay.
In a follow-on paragraph, we learn this gem:
“Rising debt will
also hamstring the government, depriving it of the resources needed to respond
to future crises and invest in other priorities. Deficit spending is often used
to respond to short term financial “emergency” needs such as wars or
recessions. If our national debt grows
higher, the federal government may even have difficulty borrowing funds at an
affordable interest rate, preventing it from effectively responding.”
I recommend that you read this entire report. I personally know and vouch for one of the
members of the commission. These are
serious people. Regrettably, in my
opinion, they are not nearly serious enough.
One audacious goal, to “Achieve nearly $4 trillion in deficit
reduction through 2020, more than any effort in the nation’s history...” is
insufficient on its face. If we are
still running deficits by 2020, we will have run out of affordable money to
borrow.
Background: I’ve been on this issue for some time
now. In a recent post, part of this
series, I reported that -
On
And that -
I asked --
Do you detect the shadow of the coming storm here? There are two alternatives: We get serious about fixing our overleveraged, over borrowed, over extended fragile prosperity, or the iron laws of economics will impose a solution from which we may not be able to recover for generations.
Our secret weapon, our only means available for a self-bailout,
is to seriously attack the accumulated political load on commerce.
BREAKOUT SERIES
http://jaygaskill.com/Breakout1.0.htm
http://jaygaskill.com/Breakout2.0.htm
↓
Welcome to
BREAKOUT 3.0
WE NEED TO ACT BEFORE
THE CRISIS BECOMES DISABLING. BECAUSE OF
THE INTERNATIONAL SITUATION, WE
As I’ve already
argued, we are not without the means to extricate our economy.
Do you detect the shadow of the coming storm here? There are two alternatives: We get serious about fixing our overleveraged, over borrowed, over extended fragile prosperity, or the iron laws of economics will impose a solution from which we may not be able to recover for generations. Our secret weapon, our only means available for a self-bailout, is to seriously attack the accumulated political load on commerce.
FREEING UP COMMERCE
BY USING THE POWER TO REGULATE COMMERCE
THE
1. [YEAR
WE QUICKLY REIGN IN
SUICIDAL BORROWING.
There is a fix, if we have the
necessary will.
If a budget hawk with guts were
king of the hill and had a compliant congress, he or she would freeze
entitlements, then scale them back to real revenue levels, sans borrowing;
outlaw public sector unions; dismantle civil service and EEOC
firing restrictions, then replace all of the bad, gutless managers, empower the
new ones to discharge the deadwood; cut all non-military salaries 15%...THEN
get serious.
As radical as something like
this sounds today, it will sound
reasonable when the country teeters on the edge of a sovereign debt crisis that
threatens to stop the federal money machine in its metaphorical tracks. Regrettably, by then the measures above will
be insufficient.
Bear in mind that, as of this
day in late 2010, more than 40% of all federal dollars are not funded by
incoming revenue. In a recent post, I quoted
“Now suppose quantitative easing is “successful” in the way the
Fed intends, taking inflation close to the
average 2.4 percent rate of the last two decades and government borrowing costs
back to their two-decade average of 5.7 percent. To get an idea of what happens
to the budget, assume this transition happens over three years, so that by 2013
interest rates are back to “normal.” This “return to normal” will mean the
government’s interest costs will rise to $847 billion
by 2015 and $1.15 trillion by 2019.
“The increase
in annual interest costs in 2015 alone—$557 billion—is nearly six times the
additional revenue that is supposed to be collected by letting the higher end
of the Bush tax cuts expire, the centerpiece of the current fiscal policy
debate in Washington. The increase in interest costs in 2019—$795 billion—is
two-and-a-half times the value of all the Bush income tax cuts of 2001 and 2003
that are due to expire. On the spending side, just the extra interest cost from
a quantitative easing “success” would swamp, say, the entire defense budget for
the rest of the decade. No plausible increase in taxes or reduction in spending
could fill a gap of that magnitude.”
The quantitative easing to which Mr. Lindsey referred is the plan, now being implemented by fed Chairman, Ben Bernanke, to inject about .8 trillion dollars into the economy by simply creating money out of nothing – creation ex nihilo heretofore having been reserved to the Creator of the universe, now appropriated by irresponsible sovereign governments willing to issue fiat currency under duress.
When we do this sort of thing, the value of our loans to
prospective lenders is diminished and the cost of those loans goes up and up,
and eventually the loans dry up altogether.
By whatever means that can be agreed to in real time, in the real world, the US must crush the debt, moving from a nearly balanced budget in Y 1, to actual balance in Y 2, then an ongoing debt reduction surplus Y 3, Y 4, made structurally permanent thereafter.
Temporary macro-functional adjustments can be made within the overall federal system if emergency measures are seriously implemented. The brutal fact of the matter is that much of the federal government’s activities do nothing at all to promote or sustain an economic recovery, however laudable or popular some programs may appear to be at the moment. As a common sense conservative, I would protect the law and justice and national security sector from major structural cuts. As to the rest of the system, we are restrained only by the weight of political tradition, a lack of imagination and the illusion that laws long in place cannot be changed. At the end of the day, in an emergency, the discretionary spending part of the federal budget is 100%. Permit me just a few examples, again bearing in mind that I am treating this as an authentic emergency and presuming bold leadership worthy of the moment:
To fund the recovery we need to make large, painful reductions in some less economically productive sectors of government and funnel the same money via tax incentives and direct spending to productive, job-creating activities in the private sector. In FY 2006, so-called mandatory federal spending amounted to more than half the entire budget (at 1.4 trillion), social security .544 tr., Medicare .325 tr., Medicaid .186 tr. While the miscellaneous programs like food stamps, disability, unemployment, and the like came to .357 tr. In the same year, discretionary spending was under .40% of the total (about 1.1 tr.), of which about half was for non-security spending (think health, education and human services).
Again, my premise here is that we are or will soon be in a real emergency and that the appropriate leadership emerges. All reductions to need to be reasonably immediate, but not retroactive. This sort of decisive step would require an unprecedented level of coordinated and intelligent action at the federal level. But let’s just imagine the ideal for a moment. The process begins with across the board salary reductions and means-adjusted benefits reductions. These are expressed as temporary, but their re-growth as the economy recovers should be kept at or below the general rate of inflation.
Social security is sacrosanct only in the sense that retroactive reductions in status are off the table. But several obvious measures are not: Moving up the minimum non-disabled retirement age from 62 to 72, with a concomitant federal policy that discourages mandatory retirement before then; means tested Medicare, especially for the drug supplement piece. Over time the government must change its operating culture to more flexible, entrepreneurial one. Only a true emergency and the prospect of even more dire consequences can concentrate the dull bureaucratic mind. We could really large scale cuts, say as high as 15% in the overall budget in given sectors, but couple them with highly empowered management who are held accountable for results. The necessity of making large salary cuts can be mitigated when good managers are given a freer hand in making do with fewer subordinates. Most of us have served in organizations salted though with marginal, but hard-to-fire employees. Fire the marginal employees first. Do away wit all civil service impediments to good management. Fire and replace the bad managers with good ones. Clean house. You get the idea.
The restructuring measures would include the following – or their functional equivalent:
2. [YEAR TWO THROUGH
WE PRIME THE PUMP
WITH
Generate bridge revenue to keep core federal operations
going by approving selected export sales of surplus assets in high
international demand, principally coal and natural gas (processed from domestic
coal, or extracted from American deposits).
The
3. [YEAR
THEN WE UNLEASH OUR
SECRET WEAPON
The real recovery is entirely located in
the private sector, powered by new, profit-driven business activity. Individual, well managed enterprises that
make/sell/move the “real stuff” on which day-to-day commerce depends will link
up with the “better mousetrap’ ideas and the surviving sound financial
sources. This is where the real recovery
will begin. That is where it has always
been.
But this is exactly where a whole set of
government impediments, tolerable in a boom, are fully capable, during a
fragile recovery, of aborting the new stirrings of economic life in utero.
What
impediments, you ask? Think of tariffs,
business licenses, building permits, mindless approval loops, excise taxes,
sales taxes, capital gains and income taxes, land use barriers, fees, more
fees, hearings, slow-moving bureaucrats, all standing in line, blocking the
path to economic growth.... You get the
idea. This is why successful businesses
in the
This
is the “Political Commerce Load Factor” (or
The
existing
Therefore, our secret weapon, our only means available for a self-bailout, is to seriously attack the accumulated political load on commerce. This will generate opposition, but some perspective here is needed.
Nothing generates
bigger riots than sudden, involuntary poverty.
As we approach the prospect of reducing the political,
regulatory and bureaucratic impediments in the
In each of these areas,
By contrast, the
The moment is overripe for an intelligent, focused attack on
the political load burdening
Not all of the burdens holding us back stem from health and safety concerns.
Much of the burden
represents the bureaucratic processes themselves, the “hearings” and “inputs’
and “reports” that are designed to substitute endless, unproductive discussions
for decisive progress. The
post--earthquake
Delay is a form of regulatory abuse, the direct byproduct of politics as participatory obstructionism.
THE
LIFTING THE POLITICAL BURDEN ON COMMERCE
We have the power to Break Out, only if we have the wisdom
and courage to use it now. Breaking out of this dangerous economic malaise
requires us to break through the Political
Commerce Load Factor in the service of robust economic recovery. It
is both legally and practically feasible for a specific, as yet unnamed federal
agency to be created, empowered and charged with the mission to break clear
paths through the ice floes of bureaucratic red tape and punitive taxation so
that nascent, privately funded commercial enterprises can flourish more quickly
and robustly than anyone though possible, especially in the pre-recovery
economic environment.
In the same way that an Arctic ice breaker can break open a clear path for a fleet of fishing trawlers, a federal regulation and taxation ice breaker can do the same for a strong business recovery. This would be proactive, creative conservative-liberal policy at its very best. It would serve the same, practical function in the tangled web of business-killing regulations, licenses, permits, delays and kleptocratic taxes that bribes to in corrupt Third world economies. Except that its operations, in partnership with cooperating state governments would be above board, transparent, subsidy-free and legal.
The solution – or a major part of it - is to implement comprehensive commercial liberation, utilizing the commercial regulation powers conferred by the Commerce Clause, operating in reverse.
Business people are not fools. The protections afforded a start up would need to provide a clear path that could relied upon to remain clear for a reasonable time, say, a full fifteen years.
The basic template would be as follows:
The new Agency, let’s call it the Interstate Commercial Enterprise Deregulation Agency (ICEDA) would be given a fifteen year charter to liberate private businesses from burdensome, growth-impeding government rules, regulations, fees, mandatory reviews and other bureaucratic impediments to economic health (let’s identify them with a government acronym, Deleterious Regulations And Government-Imposed Tariffs (DRAGIT).
The basic test:
(1) Does the challenged government rule, regulation, fee, mandatory review or other bureaucratic impediment constitute a significant negative impact on new business activity, development or employment, whether directly or indirectly, potential or immediate?
(2) Would its elimination or proposed modification pose a significant risk to public health or safety over and above that which normally could be expected to occur from increased economic activity?
When (1) is YES and (2) is NO, the ICEDA is empowered and directed to remove the DRAGIT.
The Agency would staff and supervise the several individual commissions that would locally exercise the deregulation power. For example, the congress might direct that separate commissions be tasked to operate regionally or within designated economic sectors.
State laws and regulations that potentially fall within ICDEA charter jurisdiction will present unique political and legal issues. In legal theory, the ICDEA could run roughshod over local jurisdictions, just as have the various federal regulatory agencies and commissions that have exploited the federal power to regulate commerce. But it would be politically prudent for Congress to require that individual states reach a deregulation compact with the ICDEA, each having a separate sunset date, before the agency undertakes a review of state laws and regulations and is authorized to clear state-level paths of commercial development in a particular jurisdiction. Under the commerce clause, almost all state regulations that impact commercial activities within their respective borders also affect interstate commerce. Theoretically, the ICDEA could simply proceed on its own, plowing through commerce-obstructive state rules and laws relying on the supremacy clause. When states are invited to apply for local regulatory relief, some will jump at the opportunity and more will follow, especially as the positive economic impacts of selective deregulation become apparent.
The path clearing protection should be reserved for privately funded ventures only, the kind where the cost of failure is born by those who took the risks in the first place, the same investors who can reasonably expect to be allowed to retain the rewards of their success.
History tells us that this model or something very much like it will work. History also tells us that when we Americans are challenged, we rally.
JBG
Jay
B Gaskill is a