Mid-term elections are approaching. Democrats will soon be talking about white privilege, rape culture, the high cost of abortions, animal rights and windmills. Anything but the economy and the security of the world. When forced to discuss the economy the story will be that Bush handed them an epic disaster, their quick and thoughtful actions prevented total collapse, and that any remaining pain is solely a result of the rich screwing you, which they work tirelessly to prevent.
The truth is that they were handed an epic disaster that they delayed a few years while creating an even more epic disaster. Far from being the enemies of the rich, the Obama administration has helped them to plunder the next 3 generations. And the middle class continues to collapse.
Unemployment rates are easy to game. Let’s look at the percentage of people who are working. The increase starting in the 60s corresponds to both a growing real economy and women entering the workforce. The decline starting in the late 90s corresponds to Chinese labor competition, and later, the collapse of the housing bubble followed by financial manipulation on a grand scale. The trend is sharply down now.
Percentage of People with Jobs
Democrats like to tell you that all pain is the result of the government not “doing enough”. A chart of historical taxes and spending shows that the government has never done more. Indeed the government grows pretty much nonstop, including through the Regan “small government years”. But the real growth has come over the Bush 2 and Obama administrations.
Yet the job situation is dire.
Perhaps government can’t create jobs, at least with financial manipulation.
Receipts (blue), Spending (red) and Deficit/Surplus (green)
Perhaps it was the war. We’d be in great shape if we didn’t waste all the treasure on war.
Medicare (blue), Social Security (orange), Military (grey), Treasury (yellow)
The military is one of three big ticket items, the other being Medicare and social security. Obamacare and interest on the debt will be the fourth and fifth in future years. Or more correctly they would be if there were any conceivable way to actually fund these things at the levels promised and expected. Which there is not.
But this chart also tells us that military spending doesn’t change all that much from administration to administration, hasn’t grown nearly as fast as Medicare and social security, and would have to be taken nearly to zero to offset growth in other spending.
It’s interesting to look at the impact of the 2013 budget sequestration. You might remember that as the time when national parks were being closed because of deep budget cuts. Or so we were told.
Of course these charts don’t reflect the fact that underlying economy is growing over the long term. The government should collect more tax and spend more because there is more real wealth. This chart shows taxes and spending as a percentage of GDP.
Receipts (blue), Spending (red) and Deficit/Surplus (green) as % of GDP
This chart is certainly not as scary as the first one. But when you run a deficit for many years, the total debt grows quite substantially:
Politicians, economists, the New York Times and other liars like to explain that government debt is “different”. Especially US government debt. Unlike the $20 you borrowed from your uncle and the debt that that is causing sky high taxes and job loss in European social democracies like Greece, we don’t have to pay ours back.
We can just keep borrowing forever.
Only the ignorant and uncaring would object to this. Remember the debt ceiling showdown? Democrats are deeply caring folks who only want to preserve parks, and the GOP wants the government to default because the rich would benefit. Somehow.
The Obama administration has inadvertently undermined the intellectuals explanation for magic debt by borrowing so much that it is now easy to model why this will end badly – in exactly the same way it has ended badly everywhere else it’s been tried.
The government borrows by issuing bonds, which pay interest. The interest is paid out of tax collected. In the chart below, the green line is actual interest payments. These are relatively low because the federal reserve is pursuing a policy to keep interest rates effectively zero. But notice what happens if interest rates go to 6% – the dark blue line. Interest payments are now as large as defense or Medicare, at about 30 cents of every tax dollar collected. 8% makes interest payments the largest single budget item. The US now owes so much money that returning to a historically typical interest rates will trigger a budget crisis.
This is where the possibility of default become real. Democrats confuse minor reductions in spending, which reduce the possibility of default insignificantly, with real default, which comes from spending too much.
At least when they can frighten voters.
Why not just keep rates at zero and borrow forever? The usual reason to raise interest rates is to control inflation (http://mikezintel.wordpress.com/2012/11/29/eggville/), which occurs when the supply of money in the economy grows faster than the real economy grows – making the purchasing value of the dollar fall. While the conditions for massive inflation have been present for years, it’s not occurring – least as measured in the traditional way by the price of a set of goods and wages.
There are 3 dominant forces in the American economy today: Chinese competition holding wages and consumer good prices down, massive debt at the federal and individual levels and massive money printing. Individual debt prevents the usual Keynesian “stimulus” (massive money printing) from working because consumers – wisely – don’t want to take more debt even at low rates. China keeps the money printing from producing classical inflation. The extra money results in waves of massive asset price bubbles in stocks and housing.
The real irony of the Obama presidency is that its monetary policy allows the very rich to borrow for free and to profit from the bubbles, even as the middle class loses jobs and the economy sputters. The system allows the very rich to steal from retired middle class savers and several generations of their children.
In 2008 when Obama took office the federal debt stood at around $10,000,000,000,000 , or about $35,000 per citizen and about $100,000 per taxpayer.
Today the debt is almost $18,000,000,000,000, $55,000 per citizen, $151,000 per taxpayer.
The job market has not recovered.
Savers are being wiped out.
Our children’s children’s children are being wiped out.
The very rich are getting richer.
Presidents can’t wait for their terms to end so they can join the very rich.
Let’s talk about white privilege, rape culture, the high cost of abortions, animal rights and windmills why don’t we.