Geraghty Nails It

Over at the Morning Jolt, an NRO newsletter, Jim Geraghty has an epic paragraph.  He is discussing Elizabeth Warren’s comment on John Delaney.  As we see it, Elizabeth is defining the difference between progressives and conservatives when she says:

“I don’t understand why anybody goes to all the trouble of running for president of the United States just to talk about what we really can’t do and shouldn’t fight for.” [Emphasis added]

It won’t happen but John versus The Donald would be a hard choice.  As conservatives, we see Elizabeth as both foolish and inconsistent.  We, conservatives, think that an important, perhaps the number one, reason to run for president is to tell folks what the government can’t do.  It takes time because the list is rather long.  We do, however, want them to fight for it.

Jim then gives us one of the great paragraphs in pundit history:

You want to know why you have problems, America? Because you don’t like doing the math. Your checkbook doesn’t add up, you didn’t read the fine print, you didn’t realize how bad the interest rate on your credit card was, you didn’t think your adjustable rate mortgage would adjust so soon, and you can’t believe you agreed to buy that timeshare.

We would add student loans that pay for premium TV services to his list.  We think Jim could have done a better job of connecting his rant to elections and that those financial parts that we keep ignoring: entitlements.  Well, it looks like we are going to financial hell until at least 2024.


The Green New Deal And 2005

Both Jonah Goldberg and Jim Geraghty’s Jolt are on the Green New Deal this week.  At first glance it seems like a real waste of talent (leave the low hanging fruit for MWG!) to deal with an obscure and silly document from the Green Party of all places.

Sidebar: As Jim says, you should read it.  See the cite above.  It is much worse than you could imagine.  End Sidebar.

But as MWG recently warned, folks are going to try to ignore the important issue of entitlement reform and replace it with climate change.  Jonah and Jim are on the case because of a new press favorites has supported it.

We suppose there is some chance that the Congress could pass something as foolish as the Green New Deal but the more likely problem is that the pressure put on by the crazies will cause Congress to feel that it must do something.  We see a situation similar to 2005 that led to the Energy Policy Act of 2005  and to the ethanol mandate.  Although W and the GOP held both houses (well, they added four in the Senate) of the Congress in 2004, there was pressure to do something about what was then called global warming but we now call climate change.    Evidence of the pressure is Al Gore winning the Nobel Peace Prize in 2007.  We did not make that up.

We are of two minds about the 2005 Act.  As a binary choice we would vote against it.  The ethanol mandate interferes with markets.  As we would have predicted, it has caused problems for both gas and corn.  But it wasn’t a binary choice.  There was lots of pressure to do something about climate.  Our view is the the 2005 Act took the wind out of the extremist’s sails.  Without the 2005 act it is possible that something really nasty would have passed Congress.  In 2018, the situation is even more troubling as the Democrats control the House.

Therefore, it is good that Jim and Jonah are out in front giving the Green New Deal the opprobrium it deserves.  It is just as important that Kevin is on the entitlement beat again and again.  MWG tries to help.  We think the events of 2005 are likely to recur and Congress will feel great pressure to do something.  Unfortunately, we have The Donald rather than W.  Conservatives may have some difficult decisions about what is the least worst option.  Our best chance is to make it clear what a really, really bad idea the Green New Deal is and the importance of dealing with debt and entitlements.  Thanks to Jim, Jonah, and Kevin for a good start.


Big Risks And Easy Solutions

Jim Geraghty’ Jolt reminds us that government workers are in a difficult situation during the shutdown.  We agree with him when he says:

You’re seeing some conservatives argue that the American government is functioning fine during the shutdown, demonstrating that the “nonessential” workers are genuinely unneeded and that this proves that there’s no real need to bring the shutdown to an end.

This is a pretty poorly informed reaction. Some of the most important duties of the federal government are continuing to function because hundreds of thousands of federal employees are working without pay and hoping that they get paid for their labor once the shutdown ends.

Kevin Williamson reminds us that there are much bigger problems out there.  As he puts it he shutdown is a blip and the debt crisis is an atomic bomb.  Kevin notes that government jobs are more highly paid than their private sector counterparts.  Kevin is right but there are two problems with his comment.  He doesn’t cite his source but is likely that a substantial part of that difference is post-employment income that can’t be used to buy peanut butter.  The fact that we have our Medicare supplement paid for until we are 115 is great now but didn’t make it any easier when we were an assistant professor making five figures.  The second part is connected to our low salary early in our career.  Most of us, and certainly almost all government workers, have life cycle earnings that start low and increase over time.  The new employees now have the same problems we had 40 years ago.  Conservatives need to have some sympathy for federal workers.  We need The Donald and Nancy to work out their problem and get on to the serious stuff.

The serious stuff, as Kevin tells us, is the combination of government debt and entitlements that he refers to as the debt crisis.  If you are worried about climate change then you should be terrified about the debt crisis.  The math for climate change is very complicated, the evidence is mixed (we will agree it tends to support it), and the sign of the net outcome is uncertain.  That is, there are positive outcomes from climate change like longer growing seasons as well as negative outcomes.  It is also likely but not certain that any solution to climate change will become cheaper later.  It is certain that solutions to the debt crisis get more expensive every hour.  Kevin puts the fiscal crisis like so:

Which is to say: If the federal government does not do something to reform its long-term finances, then a fiscal crisis of some sort is inevitable. No one knows exactly what it will look like, and no one knows what the consequences will be when a country responsible for about a quarter of the human race’s total economic output becomes insolvent. Hard to say, really, how that will shake out. Safe to say it will be ugly.

There are three main parts to the problem: government debt, Social Security, and Medicare/Medicaid.  Social security we can solve this evening.  The other two are very difficult problems.  We need means testing for Social Security.  If we are going to solve it this evening we need to start phasing in means testing now.  The challenge is devising the means testing system.  Something from your individual tax return like Gross Income or Taxable Income seems like an obvious choice but individuals can have assets or income that are not taxed.  Let’s suppose that Warren Buffett is not paid a salary.  How can we see that one of the world’s richest men does not get a social security check?  it might take slightly longer than this evening but we can get it done this year.  Let’s deal with the shutdown and start on the serious problems and take care of the easy one first.






Election Winners And Losers

Well, political ads are off for a while.  They have been a great windfall for the TV stations in the battleground states like our own.  We now have a triple division at the federal level.  The Donald is president, the GOP has the Senate, and the Democrats have the House.  What is going to happen for the next two years?

With divided government and divided parties the short answer is not much will happen in the next two years.  We expect the status quo to hold.  The Democrats will investigate The Donald and business in every way they can.  Not much will happen to The Donald.  The Climate Change folks in the Democrat camp will unsuccessfully try to scare folks.  The Democrats are the party of the rich and big business so they will try to make a few folks feel bad but it will only be a small headwind for the economy.

The Donald, with support from the Democrats, will continue to win on tariffs.  We won’t move towards free trade but we won’t move far away either.  Citizens will lose and special interests will even out.  That is, some special interests will get special treatment and some will be punished.  It matter for individuals but not the country.

The improvement of the federal judiciary will continue.  This cause was the only clear winner in the election.  The Donald will stick with his nominations and the GOP Senate will confirm them with some support from Democrats.  This common cause will prevent The Donald and the GOP from drifting too far apart.

The clear loser in the election is entitlement reform.  The Donald is against it.  The Democrats in the House are even more against it.  The GOP Senate is ambivalent.  The question is how long can the government ignore entitlement reform?

So enjoy the respite of divided government.  There will be lots of noise but not much will happen.  We might decide we like it.  The big question is how can we get momentum for entitlement reform?  It is a bigger problem with every passing year but ignoring it is currently a winning political issue.  What can happen to change it?  MWG won’t be enough.

More Entitlement News

We were discussing entitlements recently and said many conservatives and progressives want to ignore the problem.  Jim Geraghty’s Jolt that we missed originally was all over that.  Read it all and it won’t copy but Jim concludes that the folks with the evidence always lose and so politicians are rational to conclude that they are enacting the wishes of the electorate by continuing to drive over the fiscal cliff that almost all of them can see.

Sidebar: Jim also discusses Sex and the City and cites some opinion. We only watched it a few times but we have a theory why it was popular with women.  Our explanation is that the series was populated with beautiful women who were foolish and unhappy. The beautiful characters unhappiness makes ordinary mortals happier by reducing their envy. End Sidebar.

Jim’s take on entitlements might be right and it is seriously depressing.  We need to buy the Washington Post.  Kevin Williamson’s screed is brilliant but it suggests even more pessimism.  Some days it is hard to post because we share Jim and Kevin’s level of depression about politics.



A Little News On Entitlements

Charles Blahous, a former public trustee for Social Security and Medicare, has a WSJ update on the financial position of these entitlements.  The title is The Social Security Trust Fund Goes Bust.  He says:

The downward spirals have accelerated. The combined Social Security trust funds—one for disability, one for retirement—as well as Medicare’s hospital-insurance trust fund, will begin eating into their reserves this year, according to reports released this week by the programs’ trustees.

It seems to us like an attempt to use the most recent data to galvanize the people to spur the Congress and the President into action.  It really should not be necessary and if the data was slightly more favorable it should not change the situation.  Charles gives us the important message near the end:

The annual press focus on the projected insolvency dates has always been somewhat misplaced. What’s really important is the magnitude of the shortfalls and the difficulty of correcting them, which grows every year.

We agree.  What is amazing is when you Google “Social Security Trustee Report 2018” is how little news it generated.  It mostly shows up on opinion sites.  The one in a news publication, US News And World Report is by Mark Miller and entitled, Repeat After Me: Social Security And Medicare Are Not Insolvent.  And why is an insolvent program not insolvent?

In other words, retirees – and future retirees – would lose nearly a quarter of their benefits. But that is not insolvency, and solutions are readily available to avoid that unacceptable outcome.

Here is an experiment.  Try paying 77% of your bills.  Are you insolvent?  Affirmative.  The outcome of insolvency depends on your creditors.  And if you have no chance, as with entitlements, of ever paying more than 77% then you are absolutely insolvent.  The only question is whether it will be solved before or after bankruptcy court.  Then Mark gives us a summary of the options:

Conservatives favor benefit cuts via higher retirement ages, more means-testing and a less generous annual cost-of-living adjustment. Progressives advocate gradually increasing payroll taxes and lifting the cap on taxable benefits. Considering that middle-class households depend mainly on Social Security for support in retirement, it would be wiser to follow the progressive agenda.

The first and second sentences need a close reading to reveal the bias.  We might convert Mark’s first two sentences into:

Conservatives favor solutions like means testing, more accurate cost-of-living adjustments, higher payments to lower classes, and higher retirement ages.  Progressive advocate higher taxes through increasing tax rates and the amounts subject to Social Security taxation.  Many conservatives and progressives seem to support ignoring the problem.

The last sentence in our quote of Mark is very curious.  Does it mean that the lower class doesn’t depend on Social Security (SS) for retirement?  We would like to see that data.  Our priors are that lower classes rely most heavily on SS of any class.  We, along with many conservatives, would support an increase in SS payments to them.  Middle class depends  on SS between the upper and lower, and the upper class depends the least on SS.  As we see it, the wiser course is the conservative agenda of means testing because it will reduce the payments to the upper class that is less likely to need it.

Fixing Social Security today is relatively easy because there are many politically viable solutions.  None of these solutions have happened because of the political opportunity in opposing any changes.  Fixing Medicare is going to be much harder because of the difficulty in creating a market for medical services.  We know we are not going to start today but let’s start soon for the kids and grandkids because, as Charles says, it gets harder to fix every day.  Start with SS.



Expected News

When folks as us about The Donald as president we have taken to saying that we hope the next seven years go as well as 2017.  If asked we are quick to say that it is unlikely that The Donald will have a year as good as 2017 between now and 2024.

This week brought more of what we expected from The Donald.  The NYT tells us he has continued to be an avid deregulator:

The Trump administration has adopted new limits on the use of “guidance documents” that federal agencies have issued on almost every conceivable subject, an action that could have sweeping implications for the government’s ability to sue companies accused of violations.

Powerline might be a little enthusiasic when it describes it as fantastic news but The Donald continues to be a great improvement over his immediate predecessor (HIP) or the alternative in 2016.

We knew when we elected him that he was not interested in reforming entitlements or reducing the deficit.  The Donald shared that with HIP and the alternative so voters didn’t have a choice in that area.  The did have a choice on regulation and taxation.  Kevin Williamson at NRO takes many politicians to task:

Like so much else in Washington, [debt] is speeding out of control with no working brakes and no one apparently at the wheel. As Herb Stein famously put it, “If something cannot go on forever, it will stop.”

James Freeman at the WSJ is worried about the Trump Spending Binge too and focuses on the government’s interest payments:

The Trump spending blowout is particularly dangerous because, as stock investors have noticed lately, interest rates are headed north. Washington will spend about $300 billion this year in net interest payments on the federal debt. Last summer the Congressional Budget Office estimated that this annual burden will grow to more than $800 billion by 2027, when it is expected to be more expensive than the entire Medicaid program by some $163 billion per year. This depressing scenario assumes the average annual interest rate paid by Washington rises to just 3.5% by then, still relatively modest by historical standards.

We agree with Kevin and James that we should be working on the deficit.  We support entitlement reform and a tax on carbon to reduce the deficit.  We wish it was now Mitt’s second term but it is not.  It terms of the deficit, HIP was an awful choice and The Donald was better than either the 2016 alternative or HIP because he prioritized economic growth but none of them were good for the deficit.

It is going to be harder to fix the entitlements and the deficit later but there is so little interest in it.  The politicians are not interested and only a few of the voters are.  Lots of writers are but we must not be writing well enough. We would like to get more than we expected from The Donald but we can’t be displeased at actually getting what we expect.