Skousen CAFE: I Have a Simple Solution to the Fiscal Cliff
“No revenue is sufficient without economy.” — Ben Franklin
For my economics class at Mercy College this week, I passed around the following table:
| Year | Federal spending (in billions of $) |
Change from Previous Year |
Deficit/surplus (in billions of $) |
| 2001 | $1,863 | +4.1% | +$128 |
| 2002 | $2,011 | +7.9% | -$158 |
| 2003 | $2,160 | +7.4% | -$378 |
| 2004 | $2,293 | +6.1% | -$413 |
| 2005 | $2,472 | +7.8% | -$318 |
| 2006 | $2,655 | +7.4% | -$248 |
| 2007 | $2,729 | +2.8% | -$161 |
| 2008 | $2,983 | +9.3% | -$459 |
| 2009 | $3,517 | +17.5% | -$1,413 |
| 2010 | $3,456 | -1.7% | -$1,294 |
| 2011 | $3,603 | +4.2% | -$1,300 |
| 2012 | $3,796 | +5.3% | -$1,327 |
Source: U.S. Government Budget
It’s pretty clear from this table that federal spending, especially under George W. Bush (2001-2009) and Barack Obama (2010-2012), is out of control. The 2001 budget, the last one under Bill Clinton, was the last year in surplus.
Under Bush, not only did the deficits get worse, but spending rose sharply, averaging more than 8% a year! Only one year, 2007, saw reasonable growth of just 2.8% in government spending. Meanwhile, the economy, as measured by nominal gross domestic product (GDP), grew an average 5% a year (real GDP, after including inflation, never rose by more than 4% a year under Bush).
Why the monstrous growth in government spending and deficits? The main cause was fighting wars in Iraq and Afghanistan, and beefing up security in the United States. Randolph Bourne’s warning, “War is the health of the state,” applies here. But Bush also promoted domestic spending, especially in the Department of Education, and added the unfunded prescription drug law to Medicare.
Bush violated even the tenets of Keynesian economics, which states that during times of prosperity and full employment (as was the case in 2001-07), the government should be running surpluses.
Obama only has made matters worse. His first budget slightly reduced government spending, after the dramatic rise in 2009 (17.5% increase), due to the Troubled Asset Relief Program (TARP) and the financial crisis. And it is clear that Obama is increasing government spending at a faster pace.
Clearly, the problem is not tax revenues. The problem is out-of-control government spending which needs to be reined in. It would not take much to get serious about cutting back. Does anyone really think the Department of Education ($68 billion budget in 2013) benefits anyone other than education bureaucrats? There is no evidence that this federal agency has improved education in America. The Department of Homeland Security ($55 billion in 2013) is now the fourth-largest government agency in terms of discretionary spending. The so-called Transportation Security Administration (TSA), which I like to call “Thousands Standing Around,” is over the top in waste.
In sum, taxes don’t need to be raised. In fact, taxes should be cut. Government spending needs to be reduced sharply.
Finally, I am offering to sell my new 2nd ed. of “The Maxims of Wall Street” book, which normally sells for $24.95, to you for $20 for the first copy, and $10 for each additional copy — with me paying the postage. If you order a box of 32 books, you pay only $300 postpaid. (For orders sent outside of the United States, add $5 per book for shipping and handling.) To order, call Eagle Publishing at 1-800/211-7661. If you want to order individual books, mention priority code MAXIMS. If you want to buy a box of books, mention priority code Mark B.
You Blew It! Feds Create a Second Bubble (and Bust) in Housing
“Experience keeps a dear fool, yet fools will learn in no other.” — Ben Franklin
You would think the U. S. government and the big banks would learn their lesson about the real-estate collapse and “subprime” mortgage scandal that broke in 2008.
Well, guess what? The Federal Housing Administration (FHA) is still offering “subprime” mortgages that require only 3.5% down for a poor person to buy a house or condo, and has been doing so for several years. It appears nothing changed after the 2008 financial crisis.
Not surprisingly, banks are reporting a significant increase in delinquencies at a time when the housing market nationwide is appearing to recover. In a new report, eight of the largest U.S. banks now have $79.4 billion in delinquent FHA-insured loans. Of this total, 83% represent government-guaranteed mortgages.
A new study has just been released on the FHA housing crisis called “Nightmare at the FHA.” The study indicates that the FHA insured 2.4 million loans in 2009 and 2010. According to economist Edward Pinto at the American Enterprise Institute, one in seven borrowers (the working poor) is projected to lose his or her home — and savings — to foreclosure. This site gives you the opportunity to see the repercussions of the FHA’s failed approach in metropolitan areas around the country: http://www.nightmareatfha.com/.
Yours for peace, prosperity and liberty, AEIOU,
Mark Skousen
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