Obama is the New Biggest Spender

Although the website measuringworth.com does not yet have GPI or GPD data for 2012, the value of Gold for 2012 is ready on Kitco.com. That enables calculations for one measure, but only one measure, for the deficits for President Obama’s first term.

Using constant gold dollars, those who would overspend benefit in appearance from a rising price of gold. The price of gold has risen every year since President Obama has assumed office. That would make any deficits smaller when converted to constant dollars. Even by that measure, President Obama now has the largest deficits of any presidential term.

Measured in 1789 dollars, the gold-weighted dollar values of the deficits are:

President	Deficit
Obama Term 1	-99,821,590,396.08
Bush Jr Term 1	-99,776,642,401.45
F Roosevelt 3	-96,408,875,337.91
Bush Jr Term 2	-85,474,167,431.44
Bush Sr	-82,665,333,079.60
Clinton Term 1	-63,508,876,217.31
Reagan Term 2	-55,620,058,613.77
Nixon	-37,083,571,857.12
Reagan Term 1	-34,590,184,231.84
Clinton Term 2	-31,541,432,371.56
Nixon / Ford	-30,632,171,603.66
F Roosevelt / Truman	-30,513,251,062.43
Carter	-25,169,881,466.50

Every single president since President Nixon severed the final link between the dollar and gold is included in the list of presidents that have the most unbalanced budgets. Since this is a constant dollar list, that means that these deficits are not impacted by the collapsing dollar.

For all the posturing about how President Obama wanted to fix the financial mess handed to him by President Bush, he has in fact done the opposite. It is no longer true that President Bush is the worst spender. These numbers do not lie. While it is possible to come up with explanations as to why these numbers are what they are, such explanations do not change what the numbers are.

Mainstream Deficit Absurdity

There is an argument being made in mainstream and Keynesian circles that the deficit must not be cut because otherwise what little recovery there has been in the economy so far would be damaged and perhaps erased. This is in response to false cuts proposed by Republicans such as Representative Paul Ryan who only proposed a reduction in the rate of increase and not a single actual cut, and also in response to arguments by libertarians that reducing the deficit is vital to restoring some economic order.

From an Austrian perspective, this argument is rubbish. The biggest threat to the economy of the United States as well as the rest of the world is the loss of value of the dollar, caused primarily by the low interest rate policy of the Federal Reserve in support of the expansive deficits of the Federal Government. If the Federal Government were to significantly reduce spending, there would be no reason for the Federal Reserve to keep interest rates so low, and therefore the decline in the dollar can at least slow, and perhaps even stop or even reverse.

From the modern Keynesian perspective, the support from the argument comes from the recession of 1937, the recession inside a depression, which is blamed on an alleged desire by the Roosevelt administration to reduce federal spending. A refutation of this particular argument can be found at the VonMises website with the article The Dangerous Lesson of 1937 by Jonathan Finegold.

Jonathan Finegold wrote his article in response to attempts by Keynesians to answer a difficult question: given that they had predicted recovery, and it would be difficult to admit that they were wrong, they had to find a justification to refer to the ongoing malaise as a double dip.

That it is being dragged out again in response to the desperate need to balance the budget is yet more evidence of increasing desperation among those in the political class and their supporters, and the crash that will inevitably come unless the fiscal policies of the United States government are reversed.

For decades, not changing course was the only way to maintain the status quo. The problem now is that no matter what is done the status quo is finished. The only reason to not change course now is to avoid admitting error, which for some people is more critical than being right. Disaster might be a sufficient cause to lock down tyrannical controls on the population. Peacefully giving control over to those who believe in liberty would be, from their point of view, a disaster.

Fiscal Cliff Theater

As the fiscal cliff looms, there is intense debate in Washington about striking a deal to avert the automatic spending cuts and automatic tax increases that will go into effect otherwise. The debate has boiled down to an increase of a few percentage points of tax on the top two percentage points of income owners. The Republicans claim to want to maintain the current tax rates on all income earners, and the Democrats claim to want to maintain the current tax rates on the bottom ninety eight percent of income earners. The offer from the Democrats is that if this tax increase is granted, then there will be unspecified spending cuts at some future date.

Both sides are lying so badly that it is surprising anyone is able to take their claims seriously. It is even surprising that the major media outlets, paid to believe the claims of politicians, are able to do their job and keep the American public sufficiently worried.

According to Wikipedia for the 2012 Federal budget, the combined federal outlays were $3.795 Trillion and the combined federal revenues were $2.469 Trillion, leaving a deficit total federal deficit of $1.327 Trillion. There appears to include off budget spending. That means that tax revenue accounted for 65% of the total spending.

If the goal is to balance he budget, which is what is being claimed, then there are three options. Using the figures from 2012, analysis of these three options reveals the lies coming from both sides of the debate.

The first option is to raise taxes sufficiently to balance the budget. This means raising taxes by a significant amount on everyone, not just a few percentage points on the rich. Anyone who proposes merely raising taxes on the rich as a solution is lying. Anyone who proposes raising those taxes just a few percentage points as a solution is lying. President Obama is telling the truth about his desire to raise taxes on the top two percent, but lying when he claims that this will have any impact on the budget deficit. The total tax burden would have to be increased by 54% to cover spending. There is no way to increase tax revenue by that amount by increasing taxes only on the rich, even if there is a top rate of 100% on income over $250,000. All taxes would have to go up, which means personal and corporate income taxes and tariffs and excise taxes, and the personal taxes would have to be raised on all brackets. There is some room to try to juggle the burden away from lower incomes and towards higher incomes, but not much, meaning that even lower income earners will feel the effect.

The second option is to cut spending sufficiently to balance the budget. Spending will have to be cut by 35%. This means real cuts, not "Washington cuts." This is where the Republicans are shown to be lying to the American public. Every cut proposed is a reduction in the rate of increase, a “Washington cut”. Moreover, these cuts are delayed in implementation, a second lie by the Republicans. It has often happened in the past that a budget deal would be made with front loaded tax increases and several years later there would be accompanying spending cuts. Every time that deal was allegedly made the spending cuts did not happen. Only one person in the Senate proposed a budget with real cuts, and his cuts only came to $500 billion, and he admitted that his cuts did not go far enough. The rest of the political class thought he was crazy and instead looked at the Ryan budget, with no actual cuts, and talked about what a fiscal hawk Representative Paul Ryan was.

The third option is a combination of tax increases and spending cuts. Meeting half-way this means increasing tax revenue to 82% of 2012 expenditures and reducing spending to 82% of 2012 expenditures. This would require a total revenue increase of 26%. It will be easier for those who favor taxing the rich for the crime of being rich to be able to adjust the burden away from the lower incomes, but it will still be necessary to increase taxes on the middle class as well as excise taxes and tariffs. Spending cuts also have some interesting implications as this will require a total spending cut of 18%.

Social Security, unemployment, and labor are 34% of the budget. Medicare and health are 24% of the budget. The military is 18% of the budget. Debt financing are 7% of the budget. Food and Agriculture, Veterans Benefits, Transportation, Education, Housing and Community, International Affairs, Energy and Environment, Science, and Government (everything else) are 18%. If a policy of peace were to be adopted, the military budget can be cut in half easily, saving 9% and leaving another 9% to cut. Perhaps a percentage point can be cut from "everything else." That leaves 8% remaining to cut, which means that either Social Security or Medicare will have to be cut, perhaps both. Any plan which doesn’t include cutting Social Security or Medicare is not an honest plan.

Nobody in Washington is discussing anything close to any of those three proposals, except for Senator Rand Paul. Therefore nobody in Washington except for him is doing anything about the crisis that the Fiscal Cliff discussion was supposed to try to avert.

Balancing the Budget

It is still possible to avoid the budgetary collapse of the federal, state, and local governments. All it would take is politicians of courage and integrity, which is why it is unavoidable that this country will experience said budgetary collapse.

Saving government budgets will require a mix of both tax increases and spending cuts, but it will have to be different from all former mixes of tax increases and spending cuts. In the past the governments would offer the people a deal, wherein taxes are raised now and three years down the road the spending cuts would kick in. Democrats would make this offer, promising to reverse course and cut spending. Republicans would make a big show about how they are reluctantly accepting the deal, because they want to vote for tax increases but want to tell their constituents that they do not want to vote for tax increases. Three years later, everything is changed and the spending cuts do not happen. Some people have forgotten the deal. Republicans act shocked that the Democrats betrayed them. Sometimes there are some minor reductions in the rate of increase.

A real effort to balance the budget would by necessity include real spending cuts. The whole dollar amount of the budget would have to be smaller than the whole dollar amount the previous year. It would not be inflation adjusted dollars, it must be nominal dollars.

A second point would be to refuse the phony deal of "taxes now and cuts later." Any effort to balance the budget based on a combination of tax increases and spending cuts must have spending cuts come first. Politicians are loathe to cut spending, and always look for an excuse not to. By putting it first, and not implementing any tax increases until spending is cut forces them to act in a responsible manner in spite of their own wishes.

A third point of difference between a real effort to balance the budget and phony past attempts at reform would be the ratio of tax increases to spending cuts. In past deals, the alleged rate would be dollar for dollar, one dollar of tax increases for one dollar of spending cuts, although the cuts never actually materialized. In order to balance the budgets now, it would require probably about twelve dollars of cuts for every dollar of increased taxes, perhaps more. A ratio of twelve-to-one is a good place to start though, considering the need to pay off the enormous accumulated debt. Government spending is currently about 30% of GDP, and taxes are currently about 18% of GDP; impelementing a twelve-to-one ratio will result in 18% for spending and 19% for taxes, a small but real surplus.

Admittedly, for those who have grown dependent on government, cuts of that magnitude would be painful. And for those who actually pay the taxes, even that much more of a tax increase would also be painful. For the former there is little cause for sympathy, but the latter will eventually see a benefit. As the debt is actually reduced the value of the dollar will increase, giving the country the relief of a much needed deflation. Unlike the phony investments by government, this would be an investment that would eventually pay off.

This would require great personal courage on the part of elected officials; they would have to make the tough choices and take responsibility for their decisions. That is why the budgets will collapse instead. It is important to offer this advice, although it will never be followed, because an accusation often hurled at libertarians is that they do nothing but criticize and never offer any suggestions. Libertarians do offer plenty of suggestions, but most libertarian suggestions are anathema to statists and thus "don't count."

Debt to GDP

Government debt as a percentage of GDP is a popular measurement to determine if a government is spending too much, with various "thresholds" given for when the debt gets too excessive. Unfortunately it is not a good measure in itself.

The first problem is with the items being measured. GDP is measured with the formula "Y = C + I + G + ( X - M )", or GDP is equal to consumption plus investment plus government spending plus exports minus imports. Although there are many criticisms of GDP the worst is that it includes government spending as a positive component.

Government spending is, at best, a transfer instead of an actual investment or consumption. A measure of the GDP that leaves that out would be "Y = C + I + X - M". But given that there’s inefficiency in the process, every government dollar spent is actually a drain on the economy. They Keynesian "multiplier effect" is a myth unsubstantiated by actual results. To measure the full effect of GDP would be to subtract government spending, giving "Y = C + I + X - M - G".

The other part of the ratio, the debt, is also a problem. The government debt is not a stationary target, but is moving, which means to get an effective measurement includes the deficits. That means government spending is on both sides of the ratio. Increasing government spending will increase both GDP and Debt, making all ratio measurements unreliable.

The second problem is that debt to GDP is used to measure a government's ability to repay the government debt. That implies that the government has a claim on the GDP of a country, which implies that the government has a claim on the whole of the wealth of a country. Any attempt to claim that wealth in an effort to pay off the debt would destroy the economy and deplete the wealth of the country.

Third, given that both parts are moving targets, an 'improving' ratio doesn't necessarily show any greater or lesser responsibility on the part of politicians. If the debt increases slower than the GDP climbs, or if the debt decreases but the GDP decreases by a smaller amount, the result is the appearance of improvement. Reverse the ratios and it gives the appearance of economic degradation. In the first half of each example, debt increased. In the second half of each example, the GDP declined. None of those are good, but two of them give the appearance of a better economy.

Fourth, the measures can be manipulated. Take a country with a debt to GDP ratio far in excess of 100%, such as 130% or higher. That country's government can use the central bank to monetize the debt and borrow money a thousand times more than owed before, such as a country that owes trillions can create quadrillions. The government can then spend the money. That would surely alter the GDP equation, with G increasing by an exponential amount while C, I, X, and M trend towards zero, leaving Y increasing while basically equaling G. Debt would also be basically equal to the newly created money, leading to a debt to GDP ratio of approximately 100%. By those who favor debt to GDP as a measure, that leads to the conclusion that the economy of that country has improved, while any objective measure would show hyperinflation and the collapse of the economy.

There really is little use in debt as a percentage of GDP. It doesn't measure what it is supposed to measure, it is very prone to manipulation, and its components aren't very as reliable as one would desire in an economic measure.

Secession, or Jettison

When Bush was president, there were some hopeful signs on the subject of secession. It was when Bush was president that the Free State Project was initiated, and it was under President Bush that liberal pundits made their first, tentative explorations into the subjects of nullification and secession, subjects previously forbidden to liberals and progressives. The tentative progressive explorations all came to an abrupt halt when Obama was elected, of course, at which point conservatives started making the same explorations with regards to health care, explorations that were forbidden due to the war on terror.

But secession is not the only way to deal with irreconcilable differences between different states and regions of the country. Although there has been no noticeable exploration of this option, it should be possible to jettison a state that is more of a burden to the union than the rest of the states wish to bear.

This option is actually being discussed in the much looser federation known as the European Union, as Germans are, on average, quite displeased with the bailout of the Greek Government. Some talk about Greece withdrawing from the EU, some talk about Germany withdrawing from the EU, and some talk about kicking Greece out of the EU.

That last option could be applied to great effect in the United States.

California, for example, is a state in such severe financial disarray that it is actually in worse shape than Greece. It is practically inevitable that at some point the federal government will have to come in and rescue California from its massive structural deficits, and will have to do so more than once. Is it right that other states should have to shoulder that burden simply because California politicians are unable to resist giving the public employee union anything they desire?

Texas, where talk of secession was so notable that it made the news, is in much better shape financially. They are causing a controversy because they are getting unabashedly political in their choice of textbooks, and their decisions have an impact on the rest of the country. People in smaller states are quite displeased that their own textbook choices will be limited by manufacturers trying to please politicians in Texas.

There is no precedent for ejecting a state from the union, so every single action taken would be groundbreaking. It is possible that one could argue that under Article Five it is forbidden to eject a state on the grounds that doing so would deprive them of representation in the Senate. It is possible, but that is a weak argument given that the article is supposed to ensure that no state that is in the union lacks proper representation. Any state that is jettisoned is no longer a state.

The benefits to jettison can be immense. There is no way currently for people in one state to reject noxious politicians elected by another state. If jettison were implemented on, for example, Arizona’s new immigration bill, the result would mean the United States is permanently relieved from having John McCain taint the Senate any more.