Friday, November 16, 2012

November 16, 2012

Does Government Need to Grow? - When it grows faster than the economy’s ability to support it, bad things tend to happen.
by Andrew G. Biggs
November 16, 2012

Thomas Jefferson thought that “the natural progress of things is for liberty to yield and government to gain ground.” Little in recent history shows him to have been wrong.

The 2012 election cemented in place higher spending, increased regulation, and federal control over the health sector. More broadly, from 1900 to 2012, spending by the federal government rose from less than 7 percent of the gross domestic product to over 40 percent. As the population ages and entitlement spending rises, government outlays — financed by rising taxes, expanding debt, or both — will increase only further. Under President Obama’s budget, government spending as a share of the economy would be significantly higher than post–World War II norms. Even Representative Paul Ryan’s ambitious Roadmap would allow for a small increase in government outlays.

But why?

Does government need to grow in order for the economy to grow? Data from around the world do show that as economies grow, government spending tends to rise even faster. But this isn’t to say that big government causes economies to grow: Another explanation is that countries with large economies are simply able to afford larger governments. Economists Andreas Bergh and Magnus Henrekson have documented that when we look specifically at developed countries, we find a negative relationship between government size and economic growth.
Do social programs require an ever-expanding state? Consider the basic case for these social programs: Without such assistance, it is said, a substantial number of people will suffer significant and perhaps irreparable harm during hard times. For instance, in 1929, the final year before the Great Depression, the average per capita income was around $9,730 in today’s dollars. People living on farms had incomes about one-third the average, and many were even worse off. In other words, if you were poor in 1929, you were really poor. You didn’t have electricity or indoor plumbing, and in truly tough times you might not have even had food. You would be hard-pressed to find anyone who opposes government programs that prevent Americans from starving.

But shouldn’t the case for activist government grow weaker as economies grow larger and the threat of starvation, homelessness, and other forms of true want recedes? Today, per capita income is around $42,000. Even the very poor are doing better than the average American of 1929, with food, shelter, and modern conveniences far beyond the subsistence levels government sought to maintain during the Depression. Moreover, today’s poor are defined less by misfortune than by bad choices regarding education, marriage, and child-bearing — all abetted by incentives embedded in government social policy. As Ron Haskin and Isabel Sawhill of the Brookings Institution have pointed out, for individuals who graduate high school, wait until marriage to have children, and hold a full-time job, the poverty rate is only 2 percent.

Rather than declining as incomes have risen, government spending on social programs has grown. This year we will spend nearly $1 trillion on means-tested welfare programs, an amount that, even when adjusted for inflation, exceeds the entire U.S. gross domestic product in 1929. Government spending will only increase as Baby Boomers retire and swell the Social Security and Medicare rolls, even though the elderly have more wealth than do children or working-age Americans who receive different entitlements.

But government didn’t grow as big as it has through absent-mindedness. Rather, a critical mass of Americans have bought into the idea that they need or deserve ever-increasing transfer payments from other Americans. The federal government’s ability and willingness to borrow only facilitated this trend by shifting the bill onto future generations, who lack a voice in current debates.

This trend can’t continue forever. As Europe currently demonstrates, and as we’re increasingly likely to learn ourselves, when government grows faster than the economy’s ability to support it, bad things tend to happen.

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Jobless Claims Explode; Media Spinners Blame Hurricane
by John Hayward
November 15, 2012

It's funny how the unemployment data just went haywire as soon as Barack Obama was safely re-elected, isn’t it?  All that ridiculous nonsense about economic recovery and “our plans are working” vanishes in a single week’s worth of data, and we’re right back where we’ve always been: dropping out of the Obama non-recovery into the new Obama recession, if not outright depression.

New jobless claims blew into the stratosphere in the first post-election week, leaping by 78,000 to hit a seasonally adjusted total of 439,000.  The media have almost universally tried to blame that on Hurricane Sandy (which is suddenly “Super Storm Sandy” again, in many press reports.)  As Joel Pollak of points out, that’s balderdash, and it’s so obviously untrue that no serious economic analysis could possibly have mentioned it by accident:
Some of the new claims, especially in New Jersey, were due to Hurricane Sandy–but these were offset by a decline in claims filed in New York. The highest numbers of new filings came from Pennsylvania and Ohio, where there were thousands of layoffs in the construction, manufacturing, and automobile industries. 
Both states had been targeted by the presidential campaigns. President Obama highlighted his record of job creation in Ohio in particular, focusing on the automobile industry. The state reported 6,450 new jobless claims in the week after the election–second-highest after Pennsylvania, which recorded 7,766 new claims.
(Emphasis mine.)  See?  Any media outlet ignoring the wave of claims from Pennsylvania and Ohio to claim this is a “hurricane surge” is spinning as hard as Sandy did.  They’re trying to keep buyer’s remorse from settling in too quickly after the election.  It can’t be made too obvious that they helped the Obama re-election team sell Americans a bill of goods, especially when the battle lines for the new debt ceiling drama are being drawn.

The crew at ZeroHedge is also on the case, noting that if Super Duper Ultra Mega Storm Sandy was so obviously responsible for the unemployment surge, the numbers wouldn’t be so much higher than what the “experts” predicted:
Get ready for the “it’s all Sandy’s fault” barrage, because the post-reelection status quo sure will desperately need it today. The latest initial claims data posted a multi-year high 104,548 surge in weekly NSA claims from 361,800 to 466,348, and even the Seasonally adjusted number soaring from 361K to 439K on expectations of a 375K print. In other words, a complete disaster for any economic data bulls. 
What is truly amusing is that the same Wall Street “experts” who set expectations were unable to foresee the Sandy effect that every “macrotourist” on Twitter apparently is so very aware of. Also, it is apparently also “Sandy’s fault” (now that the Bush excuse is back in retirement) that the prior week’s claims were revised from 355K to 361K. Basically, just as we said 3 weeks ago, ignore every negative data point: it is Sandy’s fault. However, for the snapback, when there actually is good news to be had, well, “four more years.” 
Finally, to all the Sandy apologists: is the logic here that: if Hurricane, then Fire everyone? Because that is what is implied. To summarize: a hurricane is good for GDP (lots of broken windows), but any actually negative news (surge in firings) is perfectly expected.
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Will Petraeus Set the Record Straight?
by Richard Fernandez
November 15, 2012

Breitbart quotes a tweet by CNN correspondent Frances Townsend claiming information by Pentagon correspondent Barbara Starr that David Petraeus will testify that he knew the attack on the Benghazi consulate was terrorism “almost immediately.” The “same source” claims he will say Susan Rice’s talking points ascribing the attack to a video came from the White House.

If Petraeus really does testify to this effect, he will inescapably be alleging under oath that the president was a liar. Even if the testimony is restricted strictly to Benghazi and not its aftermath, the crucial question remains: did the president abandon the men on the ground to their fates?

Of course the purpose of this new leak may be to muddy the waters. In Washington, home to hundreds of newspaper correspondents and reporters, nothing is as it seems. The age of Obama resembles nothing so much as an evil fun-house of mirrors.

There may be a behind-the-scenes effort to influence what Petraeus will say. Charles Krauthammer has already suggested that the administration has tried to use the Broadwell incident to silence the former CIA director. But if Petraeus testifies as advertised, it may mean that he has decided that the administration will destroy him even if tries to go along and that his only remaining option is to fight.

DP’s options are rapidly shrinking. CNN reports that the CIA has opened an internal investigation into Petraeus’ conduct. Does anybody still believe this is about an extra-marital affair? Probably the same people who who believed that Benghazi was about a YouTube video.

The announcement of the internal investigation comes on the eve of closed door testimony before the Senate Intelligence Committee. Petraeus is expected to offer his thoughts to the committee members on what the Agency knew and when it knew it in the days after the attack in Benghazi, Libya that killed Ambassador Christopher Stevens and three other Americans on September 11.

For reasons that the public does not understand, the incident in Benghazi has started a full-blown power struggle that is raging beneath the surface of official Washington.

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