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Will defense spending ever be fixed in DC

November 18, 2013 2 comments

tanque_xilographic_styleDefense spending is always a hot topic in DC. From my point of view there are two different political approaches to the political side of defense spending in DC:

  • There are those that want to increase defense spending.
  • There are those that pretend they want to decrease defense spending.

Very few politicians in DC actually want to reduce defense spending. True reductions in defense spending would mean going against special interest groups that support DC politicians.

As some one who believes in a good defense capability I don’t want our military reduced to a point where it is unable to defend our country. At the same time I believe our military should be efficient in both capabilities and cost. Just last week I listened to top military officials tell Congress there is nothing left to cut without reducing capabilities of our military. Should we believe that? Or were these top military officials telling Congress what they wanted to hear so politicians could keep the status quo for defense spending. Or are these top defense officials saying they cannot make cuts simply because they don’t know where the money is going?

Often when having this debate I will mention military projects that Congress forces upon the Pentagon in order to please special interests. Some examples include

Items like these are “low-hanging fruit” for budget cuts. These cuts could be made immediately without undermining our defense capabilities. When researching defense cuts it is hard to find areas beyond this low-hanging fruit to highlight. An investigation being done by Reuters could explain why:

In its investigation, Reuters has found that the Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn’t need and on storing others long out of date. It has amassed a backlog of more than half a trillion dollars in unaudited contracts with outside vendors; how much of that money paid for actual goods and services delivered isn’t known. And it repeatedly falls prey to fraud and theft that can go undiscovered for years, often eventually detected by external law enforcement agencies.

The consequences aren’t only financial; bad bookkeeping can affect the nation’s defense. In one example of many, the Army lost track of $5.8 billion of supplies between 2003 and 2011 as it shuffled equipment between reserve and regular units. Affected units “may experience equipment shortages that could hinder their ability to train soldiers and respond to emergencies,” the Pentagon inspector general said in a September 2012 report.

Because of its persistent inability to tally its accounts, the Pentagon is the only federal agency that has not complied with a law that requires annual audits of all government departments. That means that the $8.5 trillion in taxpayer money doled out by Congress to the Pentagon since 1996, the first year it was supposed to be audited, has never been accounted for. That sum exceeds the value of China’s economic output last year.

It is kind of hard to determine where to make cuts when there is no good data to work from. It is believable that top defense officials cannot make more cuts simply because they don’t know where the money is going. Perhaps now is the time to look at prioritizing its ‘accounting readiness’. The Pentagon should make it a top priority to update and streamline accounting policies and technology used by the military. Then perhaps we could get real data to find out where defense cuts can be made. Better yet streamlining the defense accounting may actually save millions (or billions) of dollars that are currently being misappropriated or otherwise ‘lost’.

Now the bigger question is if the military-industrial complex would allow such a move to happen? Can we trust DC politicians to reduce spending on defense, even if that would make for a more efficient military? Personally I don’t believe the military-industrial complex and the DC politicians enabling the current defense spending system will allow that to happen.

Actually, the US has defaulted on its debt at least twice

October 15, 2013 Comments off

johnny_automatic_worried_about_a_billI came across an interesting AP story this week titled Historians Put An Asterisk on US Debt Claim. The whole story is worth reading. Here is a snippet briefly explaining two times the US had defaulted on its debt:

Once, the young nation had a dramatic excuse: The Treasury was empty, the White House and Capitol were charred ruins, even the troops fighting the War of 1812 weren’t getting paid.

A second time, in 1979, was a back-office glitch that ended up costing taxpayers billions of dollars. The Treasury Department blamed the mishap on a crush of paperwork partly caused by lawmakers who — this will sound familiar — bickered too long before raising the nation’s debt limit.

The whole story is worth reading. Maybe someone should pass this story on to President Obama, he really seems to think the US never has defaulted on is debt. Personally I don’t think defaulting will be as big of a deal as the Keynesian economists and media make it seem like; however I think those opposed to defaulting should at least try to be historically accurate.

Categories: Market Tags: ,

American’s are worried about government over-spending according to Reason-Rupe poll

September 13, 2013 Comments off

gringer_Piggybank-pinkThe results from a recent Reason-Rupe public opinion survey has just been released (PDF). There are some interesting results from this poll, which happen to mirror what I hear from many people. Just as with any poll I would say these results are interesting, however polls should never be used as proof of anything. One change of a word in a poll question can change the numbers dramatically. Having said that I would like to highlight some interesting government spending results from this poll.

Here is the first question:

1. Generally speaking, would you say things in this country are heading in the right direction or in the wrong direction?
• Right direction………………………………..28%
• Wrong direction………………………………61%
• Neither (VOL.)…………………………………..7%
• DK/Refused………………………………………3%
• Total…………………………………………….100%

Question 1 was not necessarily a government spending question. However it can be assumed that most Americans consider the economy is an important factor in the direction of the country. In this poll almost 2/3 of respondents believe the US is headed in the wrong direction. That is a large amount of people!

Question 6 has an interesting question relating to government spending:

6. For every dollar you pay in federal taxes, about how many cents do you think are wasted by the government? (OPEN-END; RANGE 0 TO 100)
• MEAN………………………………………….$0.60
• MEDIAN……………………………………….$0.60
• DK/Refused………………………………………9%
• Total…………………………………………….100%

Wow. Americans feel 60% of taxpayer dollars spent by the government is wasted. No wonder there has been a surge of populist libertarianism lately. If people feel over half of their taxpayer dolalrs are being wasted during an economic downturn they are likely to reevaluate the role of government spending.

Question 7 expands upon Question 6:

7. In your view, does the federal government spend too much money, too little money, or about the right amount of money?
• Too much……………………………………….76%
• Too little…………………………………………..7%
• Right amount………………………………….11%
• DK/Refused………………………………………6%
• Total…………………………………………….100%

This result is even more interesting. 3/4 of respondents feel the government spends too much money. Taken together, questions 6 and 7 show a majority of respondents feel the government is wasting too much taxpayer dollars. These results seem to show that Keynesian ‘spend until you drop’ economic policies are starting to be rejected by the American people.

Questions 8 and 9 ask about the budget:

8. It is estimated that the federal government will spend about $750 billion more than it collects in tax revenue this year. Do you think Congress should…
• Balance the budget immediately……….40%
• Balance the budget over 5 years……….32%
• Balance the budget over 10 years……..16%
• Or not worry about balancing the
budget?…………………………………………..7%
• DK/Refused………………………………………5%
• Total…………………………………………….100%

9. What percentage of federal spending, from zero to 100 percent, would you cut across the board to help balance the budget? (OPENEND; RANGE 0 TO 100)
• MEAN……………………………………………37%
• MEDIAN…………………………………………30%
• DK/Refused…………………………………….18%
• Total…………………………………………….100%

If you add the amount of respondents that want to balance the budget immediately with the amount that want to balance the budget over the next 5 years it is almost 3/4 of the overall respondents. This happens to almost align with the amount of respondents that believe the government spends too much money. Another sign that Keynesian ‘spend now and make your children pay’ economic policies are being rejected by Americans. I actually expected question 9 to show greater amount of dollars to be cut balancing the budget. However this question is harder to answer without actually knowing what percent would actually help balance the budget.

Finally Question 10 is a good debt ceiling question:

10. The federal government is expected to hit its debt limit – which is the legal limit on how much the federal government can borrow to pay its bills – in the next few months. In general, do you favor or oppose raising the debt ceiling?
• Favor……………………………………………..24%
• Oppose………………………………………….70%
• DK/Refused………………………………………6%
• Total…………………………………………….100%

Again, almost 3/4 of the respondents would oppose raising the debt ceiling. This to me is the best result of the poll. President Obama and his followers often tout  that not raising the debt ceiling is the same as ‘not paying your bills’. Respondents are rejecting this misdirect of a message from Obama. Responsible fiscal policy would require lowering these bills and cutting non-essential services the government is paying for. It is obvious from the earlier results that Americans feel too much money is being spent already. Using the argument that the debt ceiling has to be raised ‘to pay the bills’ is a really hard sell for Americans that have had to cut services in their own life to balance their personal budgets.

The poll had a lot more questions (72 total) and has some interesting results. And, as I said before, the results shouldn’t be taken too seriously. However these numbers do give hope that Americans are rejecting the Keynesian economic theory that government cannot spend too much money. Perhaps now we can work on getting an agile and useful government; as opposed to our current bloated and economic-hampering government.

Categories: Market, Taxes Tags: ,

United States has $58 Trillion of debt that isn’t on the official balance-sheet

August 20, 2013 1 comment

Recently James D Hamilton, an economist from University of California, published a paper bringing off-balance sheet federal liabilities to light (PDF). I find it astounding how much debt is simply not acknowledged by official government accounting practices. Currently the national debt held by the public is $11.9 Trillion. Of course if the intragovernmental holdings of $4.8 Trillion is added to the public debt there is a total acknowledged public debt outstanding of $16.7 Trillion! (These figures were current as of 8/16/2013 on treasurydirect.gov). Whether you use the $11 Trillion or $16 Trillion figure, it is hard to dispute our national debt is out of control.

However Mr Hamilton brings to light federal liabilities that don’t get included in the official national balance-sheet. Here is the abstract from his paper:

Much attention has been given to the recent growth of the U.S. federal debt. This paper examines the growth of federal liabilities that are not included in the officially reported numbers. These take the form of implicit or explicit government guarantees and commitments. The five major categories surveyed include support for housing, other loan guarantees, deposit insurance, actions taken by the Federal Reserve, and government trust funds. The total dollar value of notional off-balance-sheet  commitments came to $70 trillion as of 2012, or 6 times the size of the reported on-balance-sheet debt. The paper reviews the potential costs and benefits of these off-balance-sheet commitments and their role in precipitating or mitigating the financial crisis of 2008.

Wow, $70 Trillion! Below is a table provided by Mr Hamilton showing where this $70 Trillion is coming from.  Social security and Medicare are huge chunks of this $70 Trillion; making up a little over $54 Trillion of the national debt. As our country ages and more enter retirement it is important to keep an eye on these numbers.

2006 2008 2010 2012
Treasury debt held by public 4,867 5,837 9,052 11,299
Housing-related commitments 6,386 8,036 7,594 7,520
Student and other loan guarantees 468 547 419 325
FDIC 4,154 4,975 6,575 7,406
Federal Reserve -773 360 -1,136 -1,128
Social security 16,500 18,700 21,400 26,500
Medicare 28,500 33,200 24,900 27,600
Other government trust funds 1,308 1,487 1,646 1,862
Total off-balance-sheet commitments 56,544 67,305 61,398 70,085
Treasury debt held by the public and combined federal off-balance sheet liabilities. Source: Hamilton (2013).

It should be noted that these numbers are kept off the “official” debt tally for various reasons. There are valid arguments both for and against whether these numbers are bad. However since these numbers never seem enter debate it is hard for the average person to determine if an extra $58 Trillion dollars of public debt is dragging our economy down. I would recommend reading the full paper (PDF) to see some of the potential impacts from this high amount of public debt.

h/t The Independent Institute”s MyGovCost.org blog for bringing attention to this paper.

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Fiscally conservative politicians need to focus on reducing waste

August 10, 2013 1 comment

Small government advocates have many fronts to fight when it comes to reducing the size and scope of the Federal Government. Like many I understand how high and uneven tax rates can hinder economic growth. However, I don’t think going after a simplified tax code is where DC politicians that claim to be fiscally conservative should look at this time. Instead fiscally conservative politicians should focus upon reducing government waste.

Below is an interesting infographic provided by Master of Accounting Degrees. Notice how public opinion on government waste has changed dramatically over the last half-century. Back in 1958 43% of Americans believed the government was wasting tax dollars. In 2012 73% of Americans believed the government was wasting tax dollars. That is a huge increase over the last half century.

Looking further down the infographic it can be seen that most Americans care more about how taxes are used; as opposed to how much they are taxed. I believe both issues to be equally important. However most Americans simply don’t care about over-taxation. Most Americans care about their taxpayer dollars being wasted. This is where fiscally conservative politicians need to focus their attention! If DC politicians can put the needs of their constituents over the wishes of lobby groups (that is a big if), real fiscal progress can be achieved. Lets worry about the cumbersome tax system after making headway on reducing waste. By making headway on reducing waste, fiscally conservative politicians can gain enough taxpayer confidence to actually support reducing taxes.

Here is the infographic provided by Master of Accounting Degrees:

No Confidence: America's Declining Opinion of Tax Policy
Source: No Confidence: America’s Declining Opinion of Tax Policy

h/t to Alex Gauthier over IVN for bringing attention to this infographic

Will Governor Daugaard mention the beef plant corporate welfare when Aberdeen is ‘Capital for a Day’?

August 8, 2013 1 comment
Angus Cow, Curious by Kim Newberg

Angus Cow, Curious by Kim Newberg

Next week it is Aberdeen’s turn to be “Capital for a Day”. Here is a portion of the news release posted on the South Dakota website:

Activities for the day include a main street walk, tours around town, meetings and a fair walk. Citizens are encouraged to attend the community roundtable meeting to discuss workforce, recruitment and training. This will be held at the Brown County Fairgrounds Clubhouse from 1 – 2 p.m. CDT.

The day concludes with a fair walk at 2:00 p.m., where constituents can talk with Gov. Dennis Daugaard.

The beef plant laying off its workforce last month is a large and recent enough issue to bring up at this community roundtable. As the release says this community roundtable will be used to “discuss workforce, recruitment and training”. This may be a good chance for Aberdeen as a community to bring forth answers (although if I goes like most townhall meetings I’ve been to it won’t really accomplish anything).

But after the townhall meeting Governor Daugaard will be going for a walk and talking with constituents. This would be the perfect time to find out if the Governor understands the dangers of large operations such as the beef plant being completely supported by taxpayer and greencard dollars.

However, I do not expect that to happen. As a true backer of corporate welfare I expect Governor Daugaard will find non-government issues to blame the failed beef plant on. He will also fail to share the blame with bad business decisions made at the plant (why make good business decisions when its the taxpayer dollars your playing with). Instead I expect the Governor to channel the favored progressive economist Paul Krugman. A couple of weeks ago Krugman had this to say about Detroit:

…for the most part the city was just an innocent victim of market forces.

I am betting if Daugaard will answer questions about the beef plant failing (after being built and supported with corporate welfare) the answer will involved the “free market” and make it sound as if nobody could have foreseen this tragedy. Sadly that may sound like the “truth” to someone who loves to use taxpayer dollars for subsidizing favored special interests. However, those of us that care about fiscal responsibility can see this situation, just as with Detroit, has nothing to do with “market forces”. In this case an inept management team being supported by government bureaucrats (backed by elected officials coming with gifts of taxpayer dollars) were the only real “forces” that are to blame..

If Daugaard does not start to become the conservative Republican he pretends to be (although honestly he doesn’t try too hard) maybe it is further proof South Dakota needs a libertarian Governor. I could be wrong. He might have good answers. But I think it more likely he will find ways to avoid touching any real corporate welfare topics. Maybe I’ll have to leave my fair booth for a while next Friday afternoon.

PS. He could try blame this on Rounds because that is who was governor when this beef plant fiasco started. But that doesn’t excuse Daugaard’s continued support of Rounds actions at the beef plant. It is also unlikely he will attack Rounds going into the election season.

Celebrating Milton Friedman’s birthday with 5 great quotes

July 31, 2013 3 comments

mfcafToday would be the 101st birthday for economist Milton Friedman. Friedman is considered an important economist for those of us that don’t treat Keynesian Economic Theories as fact. That doesn’t mean we agree with all of Friedman’s theories either. But, that is an important lesson to be learned from Friedman: using economic theories as an excuse for politicians to intervene in the economy will never provide the fertile conditions needed for true innovation or economic expansion. To celebrate this event I thought it would be worthwhile to share five great Milton Friedman quotes:

  1. “Keynes was a great economist. In every discipline, progress comes from people who make hypotheses, most of which turn out to be wrong, but all of which ultimately point to the right answer. Now Keynes, in The General Theory of Employment, Interest and Money,set forth a hypothesis which was a beautiful one, and it really altered the shape of economics. But it turned out that it was a wrong hypothesis. That doesn’t mean that he wasn’t a great man!”
  2. “The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy.”
  3. “Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.”
  4. “So that the record of history is absolutely crystal clear. That there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”
  5. “Every friend of freedom must be as revolted as I am by the prospect of turning the United States into an armed camp, by the vision of jails filled with casual drug users and of an army of enforcers empowered to invade the liberty of citizens on slight evidence.”

It is also worth watching this two-minute video from Milton Friedman being interviewed by Phil Donahue in 1979. In this clip Friedman takes on the topic of “greed”. This clip also includes quote number 4 from above.

* h/t to Andrew Coulson at CATO for bringing attention to this great clip.

Categories: Market Tags: ,
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