Why Do We Have a Budget Deficit? Look to Congress, Not the President

When it comes to budget deficits, the sitting President usually seems to get the blame for them. In fact, the President can't spend a dime of taxpayer funds that the Congress doesn't appropriate. It's true that President Bush left office with a budget deficit but the deficit President Obama has inherited is mostly the creation of a Democrat controlled Congress. At the end of fiscal 2006, when Republican control of congress ended, the budget deficit was $248 billion. That's bad enough and the Republicans lost control in large part because they forgot why they were sent there in 1994 and acted like Democrats. They spent every thin dime of tax revenue that came into the Treasury and then some. And it certainly didn't help that it took until 2006 for President Bush to find his veto stamp. Perhaps if he'd reined in the Congress, the Republicans might have held onto it.

I expressed hope after the 2006 elections that 1.) the Republicans would learn their lesson and remember that people vote for them because they profess to be in favor of small government and fiscal discipline and 2.) that the Democrats would act responsibly, now that they'd been handed the car keys. No such luck. The deficit for the end of fiscal year 2008 ballooned to $407 billion and that was before the ill-conceived and hastily passed $700 billion TARP. Now President Obama is demanding that the Congress pass an $800 billion to $900 billion "stimulus" bill that will deepen the deficit even further and leave the bill for future generations to foot. Remeber who controls the purse-strings. It's the Congress. The hole may have started under a Republican Congress, but it's the Democrats that have kept on digging. The first rule of holes states that when you find yourself in one, you stop digging.

How do we stop this hole from getting deeper? We have to stop spending more than we bring in. No matter where you set marginal tax rates, receipts to the treasury will not exceed about 19.5% of GDP. Congress is currently spending about 21.5% of GDP. Spending has to be brought into line with GDP and if we want to really increase tax revenues (not rates, revenues) we need to grow GDP and the quickest way to do that is to reduce tax rates. Leave money in the productive economy, i.e., the private sector and we will start to come back. Unfortunately the Democrats are more concerned with punishing the "evil rich" and redistributing wealth than they are with actually solving the problem. They can do a lot of damage over the next two years and the Republicans need to point this out loudly, often and stick together to resist the systematic looting of the private economy by the statist, power hungry monster that is the Democrat Congress.

Free Market Capitalism Isn't at Fault - It Doesn't Really Exist

Via Instapundit, I ran across this post at Notablog. It has become fashionable in certain circles lately to blame unfettered free-market capitalism for the current mess in the banking system. The author of the post, Chris Matthew Sciabarra, argues that it can't be true, because unfettered free market capitalism has never truly existed:

"The current state and the current banking sector require one another; neither can exist without the other. They are so reciprocally intertwined that each is an extension of the other.

Remember this point the next time somebody tells you that "free market madmen" caused the current financial crisis that is threatening to undermine the economy. There is no free market. There is no "laissez-faire capitalism." The government has been deeply involved in setting the parameters for market relations for eons; in fact, genuine "laissez-faire capitalism" has never existed. Yes, trade may have been less regulated in the nineteenth century, but not even the so-called "Gilded Age" featured "unfettered" markets."

I think he has a valid point. This just lends more credence to my own frequent assertions that we are where we are due to politcal interference in the market, which leads to irrational behavior. When the government stops trying to "help", that is when the markets will start to find their equilibrium. That isn't to say there won't be further ugliness. There will be. It just means that they can finally find clearing prices for toxic assets and get back to business without all the uncertainty that political interference breeds, and that markets hate

Read the whole post.

The SEC Is a Paper Tiger

The Wall Street Journal today posted the testimony of one Harry Markopolos who testified in front of Congress today regarding the Bernie Madoff Ponzi scheme. He is a CFA and CFE(Certified Fraud Examiner in the private sector of the financial services industry. Over the past decade he and three similarly credentialed colleagues accumulated a file of evidence that proved Bernie Madoff was a fraud as far back as 2000. They repeatedly went to the SEC with it and even as they gathered more and more evidence, they were repeatedly blown off by the SEC. Even when pointed straight at it, the SEC couldn't comprehend one of the biggest frauds in history. Meanwhile they are investigating Steve Jobs on the basis he isn't sharing the most intimate details of his health problems with the entire world.

This report is quite damning. Four private citizens could have stopped this a long time ago, if only the staff of the SEC had had the good sense to listen to them.

A good summary of why the markets remain so thoroughly paralyzed is on page 28 (printed page) or 35 in the pdf on line. The full report is 65 pages but reads very well. It's worth the time if you are interested in this kind of thing.

The Republicans Can't Just Play the Game, They Need to Change the Game

I just received a phone call from the Republican National Committee, asking me for a donation of $300 so "we don't just hand the Whitehouse keys over to the Democrats." It seems to me the Republican Party has already done just that. It has proven itself to be just as corruptible and every bit as spend-thrift as the Democrats and I'm not giving them a dime until I am convinced that they've done the soul-searching necessary to re-learn what it is Republicans are supposed to be about and what the Republican rank and file want from them and then they've got to start acting like Republicans again.

We want you to get Government out of our lives wherever possible. The economic mess we are in now, whether it is the housing crisis, the credit crisis, the auto industry crisis, the health insurance crisis or the energy crisis, every single one of these has its roots in government (political) interference in free markets. Every regulation, every little tweak to the tax code designed to bring about some perceived social good, distorts the markets and causes people and businesses alike to make decisions that make no sense otherwise.

The problem I see with the way the Republicans operate is that they are trying to play a game with rules that someone else has set but are not obeying themselves. The Republicans are fighting according to Marquis of Queensbury rules while the Democrats are fighting with brass knuckles and knives. This has to stop. The Republicans need to stop letting the other side frame the debate and start standing up for what it knows to be right, unapologetically and ignoring the howls of feigned outrage from the other side. Stop backing down every time someone calls you names. Recognize that you're being played and don't engage with that tactic.

The Republicans can't win under the current rules of the game because the other side is controlling the rules. Therefore, it is necessary to change the game. For example, stop quibbling about the tax code and what is just the right marginal income tax rate and talking about who is "paying their fair share". To do that is to buy into the corrosive class warfare/wealth envy rhetoric the other side likes to use to keep the voters divided against one another. The income tax is basically immoral and should be scrapped altoghether. It is also large part of why we have such a hard time competing globally. Our corporate tax burden is the highest or second highest in the world. Quibbling about the details loses sight of the basic fact that the income tax is wrong and Republicans shouldn't be afraid to say so. Yes, I'm talking about enacting the FairTax. Taxing consumption rather than income is the only truly fair way to raise tax revenues and the boost it would give to our economy is definitely something we need right now and it furthers the aim of getting government out of our lives.

Market Meltdowns and the Wisdom of the Crowd

Instapundit ran across an interesting set of graphs from Intrade.com, the political futures market, the other day. They track the market's fall as Obama's politcal fortunes rose. It's an interesting analysis, wich concludes as follows:

"Call it a crisis of confidence. Call it a Fannie-inspired meltdown. Call it what you will, but the markets appear to have reacted to Obama's promises of economic "fairness", "spreading the wealth" and raising taxes on the job creators of society.

This thinly disguised form of class warfare, the policies of which many have termed socialism (fairly or unfairly), has had a definite impact on the markets.

The markets represent the ultimate collective intelligence engine on the planet.

The markets have spoken on the stated policies of Barack Obama.

Sorry, folks, there are no do-overs."

Questions the Market Has Asked - And Answered

In today's Wall Street Journal, economist and retired business executive George Newman lays out the reasons the stock market is so weak.

"To state the obvious: The valuation of an individual stock reflects the collective expectation of investors about a company's future profits, dividends and appreciation, and the same is true of the market as a whole. These profits, in turn, are greatly influenced by government policy on taxes, spending, subsidies, environmental and other regulations, labor laws, and the corporate legal climate. Investors have heard enough from both candidates in the last month or two to conclude that prospects for a flourishing, competitive, growing and reasonably free economy in a McCain administration are bad, and in an Obama administration far worse. (In fact, the market's bearish behavior over the last couple of months pretty closely tracks Barack Obama's gains.)"

He concludes with this: "The silver lining in all this is that the market has already "discounted" an Obama win, so if that happens you won't wake up on Nov. 5 to find your remaining savings down the drain. If the unexpected happens, you may be in for a pleasant surprise."

Read the whole thing.