Tags: Entitlements

A Presidency Without... Guts


So the secondhand tale of House Speaker John Boehner’s assessment that President Obama “can’t make a decision. He’s got balls made out of marshmallows” … has a certain precedent, as Exurban Jon reminds me:

“If Hillary gave him [Obama] one of her balls, they’d both have two,” Democratic strategist James Carville told the Christian Science Monitor at a breakfast on Thursday morning.

The editorial board of the Washington Post uses nicer language, but reaches the same conclusion:

… why is Mr. Obama not leading the way to a solution? From the start, and increasingly in his second term, Mr. Obama has presented entitlement reform as something he would do grudgingly, as a favor to the opposition, when he should be explaining to the American people — and to his party — why it is an urgent national need. Obama priorities such as health and energy research, preschool education and job training: Those come from the discretionary budget.

Why? Because it would mean telling his party and his supporters things they don’t want to hear. And he doesn’t have the, er… stomach for it.

Tags: Entitlements , James Carville , John Boehner , President Obama

Obama: Defender of the Status Quo


After a tough three-day weekend of golfing with the boys away from Michelle and the girls, President Obama returns to work today with a press statement standing beside “a group of emergency responders who might have to absorb some of the sequestration cuts.”

Of course, as Bob Woodward reported, Obama is denouncing his own idea: “First, it was the White House. It was Obama and Jack Lew and Rob Nabors who went to the Democratic Leader in the Senate, Harry Reid, and said, ‘this is the solution.’ But everyone has their fingerprints on this.”

Sequestration was put together as part of the budget deal in 2011. The administration had more than a year to work out an alternative; you’ll recall that the day after the 2012 election, House Speaker John Boehner declared, “we’re willing to accept new revenue, under the right conditions.”

On February 5, President Obama urged Congress to “pass a smaller package of spending cuts and tax reforms that would delay the economically damaging effects of the sequester for a few more months,” roughly three weeks before the deadline.

There’s a similar dynamic to all of the fights between Obama and Republican leaders in Congress. He claims to be adamantly opposed to the status quo, but his actions suggest otherwise. He wants a long-term budget deal, but won’t pressure the Senate to pass its own budget and only offers broad guidelines. He says he wants to ensure the long-term viability of entitlements, but won’t propose any bold reforms of his own.

He did propose – well, leak – his own immigration reform plan, but that appears more likely to blow up the delicate balance of support for the bipartisan “Gang of Eight” bill. After all, he’s basically telling Democrats that if they don’t like the Rubio-Schumer deal, they can hold out and push the president’s.

His rallying cry on guns is that the proposals… “deserve a vote”, not that they must pass.

What has Obama spent much of the past years campaigning against? The horror of budget cuts, the heartless cruelty of entitlement reform, the failure to enact comprehensive immigration reform, and the callousness of the “gun lobby.” Getting a bill passed in any of these areas would take away his ability to campaign on these issues as he aims to help Congressional Democrats in the 2014 midterms.

Tags: Barack Obama , Entitlements , Immigration Reform , John Boehner , Campaign Advertising

Invasion of the Entitlement Crisis Deniers


Perhaps entitlement reformers are doomed to be perceived as the first, random, panicked guy in an “Invasion of the Body Snatchers” movie:

As laid out in the most recent report from Social Security and Medicare Trustees:

“Medicare Part A costs started exceeding revenues in 2008.”

“Medicare’s Disability Trust Fund exhausts its assets by 2016.”

“In 2011, Social Security’s cost continued to exceed both the program’s tax income and its non-interest income, a trend that the Trustees project to continue throughout the short-range period and beyond. The 2011 deficit of tax income relative to cost was $148 billion and the projected 2012 deficit is $165 billion.”



Tags: Entitlements , Paul Ryan

CBO: Social Security Now Officially Broke


Today’s CBO report has some bad news about the deficit. But CBO has some really, really bad news about Social Security: It’s officially broke.

The CBO’s revenue/expenditure estimates now place the program in permanent deficit. There had been some hope that payroll taxes would recover sufficiently post-recession to put the program back into the black (the theoretical black) for at least a few more years, putting off the day of reckoning for an election cycle or more. No more: The new CBO estimates put Social Security in the red for as far as the eye can see.

But there’s a bit of camouflage attached: If you include the “interest” that the federal government “owes” the fictitious Social Security “trust fund,” then the program is in the black. Which is to say, if you think that borrowing another $1 trillion from the bond market to shift money from one government account to another government account makes the nation $1 trillion richer, then everything’s hunky-dory. But if you compare the program’s tax income to its benefit outlays, without the “interest” owed, as CBO does, what you get is deficits from this year forward to 2021 of  $45 billion, $30 billion, $28 billion, $30 billion, $31 billion, $33 billion, $44 billion, $59 billion, $77 billion, $98 billion, and $118 billion — by my always-suspect English-major math, about six-tenths of a trillion dollars in the hole.

President Obama has explicitly rejected the recommendations of his own bipartisan deficit panel, specifically the proposal to raise the Social Security retirement age modestly over the course of several decades (to 69 by 2075). But we can only put so many trillions on the national balance sheet before our national chit gets called in, at which point it will hit the fiscal fan.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

Tags: Despair , Entitlements

The Entitlement Bubble: The Bust Is Going to Be a Nightmare


In the course of arguing that our real national debt is around $130 trillion — as opposed to the official number of $14.7 trillion — I have frequently encountered the argument that I’m wrong to include unfunded entitlement liabilities in the total. Here’s a typical example from the comments to this post:

Kevin Williamson, expected spending 75 years in the future, based on current policies and projects that are certain to change anyway, is NOT debt. No amount of calling it “debt” or calling it “our REAL debt” changes that fact. Project funding gaps are not debt. DEBT is debt.

About that, a few things.

The first and most obvious thing is that in much of the real world, liabilities of that type are defined as debt, as your favorite corporate accountant will tell you. One of the reasons that American companies started filing all those unhappy financial restatements after the passage of Obamacare was that they had a whole lot of new, measurable, real-world financial liabilities, and they are obliged to include those in their disclosures. As one of our commentators answered the above criticism:

Many promises to pay are categorized as debt according to GAAP and accounting body authorities. If government were required to report like public companies a lot of the promises would show as debt. So if you don’t believe that GAAP correctly classifies debt and that the thousands of SEC filings are wrong it’s your prerogative, but you’d better keep your day job and not become a CPA or one responsible to produce SEC financials.

Maybe you object to the word “debt,” but it’s still $100 trillion or so on the wrong side of the balance sheet.

But there is a more important reason to worry about the entitlement shortfall. To understand it, it’s helpful to take a look back at the housing meltdown and its effect on the current economy. While it is true that a shocking number of homeowners currently are upside down on their mortgages, it’s also true that a lot of homeowners experienced only “paper losses” — they bought houses for $100,000, saw the value rise to $200,000, and then watched as it fell back down to $100,000 (to take a simplified example). People often pretend that these paper losses are meaningless: If the money never hit your checking account, the argument goes, you haven’t really lost anything. (And it’s not just households; I recently heard the same argument made about the Harvard endowment fund and its “pretend losses.”)

Here’s the problem: Those “paper losses” were preceded by “paper profits,” meaning people thought that they had an extra $100,000 in assets, and they made consumption, borrowing, investment, saving, and working decisions accordingly. The simplest illustration: Your $100,000 house, which is paid for, has gone up to $200,000 on the market at the top of the bubble. If you took out a $50,000 home-equity loan against 100 percent equity in your (at the time) $200,000 house, you still had $150,000 of equity, no mortgage, $50,000 in cash, and a $50,000 equity loan to pay off. If the market value of your house crashes back to $100,000, you still have no mortgage, $50,000 in cash, and a $50,000 loan to pay off, and the same house; you haven’t really lost anything (other than opportunity cost), since the house is still worth what you paid for it; and you only make your paper losses real if you sell the house while the market is down.

But anybody who thinks your financial situation hasn’t changed is nuts. Your equity debt has gone from 25 percent of the value of your house to 50 percent. Your credit profile has changed. Any other debts have just become significantly larger relative to the value of your biggest asset. (And your other assets, like your 401(k), probably are not in great shape, either.)

Whatever you’d planned to do with that $50,000, you probably are going to think twice about doing. If it was straight-up consumption, you’ll probably forgo the bass boat and pay back your loan. If it was for home improvements, why sink another $50,000 into a house that’s worth half of what it was, making a $150,000 investment in a $100,000 house? Your economic decisions will change.

But it’s not just you. The bigger problem — bigger because it’s harder to solve — is that somebody was planning to sell you that bass boat and those home improvements. You can buy one bass boat, but the guy at Bob’s Bass Boats doesn’t manufacture them one at a time. He’s counting on selling hundreds or thousands of bass boats to guys like you (that is, guys who are cashing in some of the gains from their residential real-estate investments). The suppliers and contractors and workers who stock and run Bob’s factory, the container ships that bring components from around the world, the people who service them — the whole system gets thrown into disarray. The capital Bob invested in factory tooling and whatnot is lost or radically devalued, and he has to make new investments to create whatever products he is going to sell in the new economic environment, e.g., less-fancy bass boats, or maybe paddle boats. (Or, if the Democrats continue to spend us into penury, those little inflatable floaty things for your arms.) The Austrian economists call that problem “malinvestment” — capital has been dedicated to uses that appeared productive but are not actually viable — and they blame them for recessions.

The problem with the business cycle under this analysis, you’ll notice, is not the bust — it’s the boom. That’s when the bad investment decisions are made, largely because political influence in the markets (housing policy, tax breaks, artificially cheap money and other interest-rate subsidies, risk subsidies, etc.) distorts economic calculation.

Which brings us back to the entitlements. It’s easy to say: Well, we’ll just raise the retirement age, or cut benefits, or means-test them, or raise taxes on the wealthy who receive them (which amounts to means-testing, but Democrats like that version better). And, yes, that probably is what we will do, eventually. But that does not get us out of the economic pickle: People have been making decisions for years and years — decisions about saving, investing, consuming, working, and retiring — based at least in some part on what are almost certainly faulty assumptions about what sort of Social Security, Medicare, and other benefits they will receive when they retire. When those disappear, a lot of consumption is going to have to be forgone — and a lot of capital dedicated to producing those goods and services for consumption will be massively devalued. Businesses will have to retrench, probably in a way that is more disruptive and more expensive than the housing-bubble recession necessitated.

This is the boom. The bust is going to be a nightmare.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Tags: Angst , Debt , Deficits , Despair , Entitlements , Fiscal Armageddon , Gloom , Spending

The Young Guns vs. the Deficit


The “Young Guns” — Paul Ryan, Eric Cantor, and Kevin McCarthy — paid National Review a visit today, and they give every sign of being serious about the deficit: no nonsense about relying on cutting earmarks, waste, or redundancy to get the deficit down and the budget under control. I put the two questions to them that normally trip up alleged budget hawks: Entitlement reform? Yes, absolutely, they are serious about entitlement reform. Take a look at defense spending? Yes, everything is on the table.

Ryan, who has been one of the few sane voices on the debt for some time now, says he expects the new crop of Republicans expected to be sworn in come January to be a rowdy bunch, with little respect for the seniority system or traditional congressional politics. Cantor, too, made it clear that he knows they are in for a long-term fight — no magic-bullet solutions were under consideration. McCarthy was the surprise for me, though — I did not know much about him and was impressed by his command of the data, relating both to politics and policy.

I have been, and remain, skeptical of congressional Republicans’ ability to head off Fiscal Armageddon; the political incentives are all wrong, and it probably will take a major economic crisis to realign those incentives. But I am a little less skeptical today than I was yesterday — maybe 5 percent less. I think there is a non-trivial chance that non-entitlement spending could be scaled back to 2008 levels — not exactly raging austerity, but a start; combined with sane entitlement reform and tax reform, that could get us several steps back from the ledge we’re on. Something good seems to be afoot among Republicans.

Here’s what to worry about: Chances are, the economy is still going to stink in January 2011. It may be worse then than it is today — and it is possible that it will be significantly worse. Ryan is worried about the dollar, and he is right to be. If things get really hideous economically, then there is going to be tremendous political pressure on the GOP to do the dumb thing that Republicans always do: cut the taxes and let the spending grow. That could happen. We can’t let it.

And young guns eventually become old bulls — restoring fiscal sanity in our country is going to be a decade(s?)-long project, and one fresh class of hotheaded congressmen, welcome as it would be, is not going to do it alone.

Tags: Debt , Deficits , Entitlements , Fiscal Armageddon , Republicans

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