february '11 issue debrief

8/6/2019 February '11 Issue Debrief

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CRNC Research Compendium

February 2011

Editor: Brandon Greife, Political Director

College Republican National Committee 600 Pennsylvania Ave SE, Ste. 215 Washington, DC 20003 Washington, DC 20003 T 202-608-1411 F 202-608-1429

www.collegerepublicans.org
http://www.collegerepublicans.org/http://www.collegerepublicans.org/


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Table of Contents

Medicaid Expansion Threatening State Budgets! 4Japans Falling Credit Rating A Warning Sign for US! 6Judge Uses Obamas Words Against Him to Declare Obamacare Unconstitutional! 8Obamacare Ruling Has Tied Democrats in Rhetorical Knots ! 9Senate Dems Concede to Earmark Ban, But What Took So Long?! 11CBO: Interest on Debt Could Hit $7.5 Trillion Over the Next Decade! 12DCCC Ads Show Democrats Putting Next Election Ahead of the Next Generation! 141099 Repeal a Metaphor for Larger Obamacare Debate! 15

Gov. Cuomo Shows Fiscal Conservatism is Not an Option Its a Necessity! 16Republican Budget Proposal Makes a Down Payment on Deficit Reduction ! 18Unemployment Report Shows January Was Another Ugly Month for Hiring! 20Democrats Secret Meeting with Lobbyists Show they Arent Serious About Our Deficit! 21Dont Let Tax Reform Be Derailed by Special Interests ! 23Bernankes Says Washington Must Act Now to Preserve Our Future! 24Higher Education Will Suffer From Obamacares Medicaid Mandate! 26Happy 100th Birthday President Reagan!! 27Contagion Threat of European Debt Is Real ! 28

College Republican National Committee

February Compendium ! 1


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Obamas New Economic Team: Incompetent? Or Just Dishonest! 30Rep. Issa Shows GOP Listening to Main Street ! 31Whether Its Coca-Cola or Ethanol, Government Should Stop Picking Winners and Losers! 33Closing of DLC Shows Moderate Democrats a Dying Breed! 35Liberals Delusion Government Regulates Business Better than Free Markets ! 36Gov. Daniels Demands Changes to Broken Obamacare Bill ! 38Gov. Christies Rising Approval Rating Shows Dem Gamble Failed! 41Solving Our Long Term Budget Problems Requires Reworking Entitlements ! 42Businesses Exist to Make ProfitsAnd Thats a Good Thing! 43Inaction on Deficit Coming Back to Bite Obama ! 45Obamas $3.73 Trillion Budget Ignores Our Debt Problem! 46Economists Agree Obamas Budget is a Flop! 48Obamas Procrastination on Entitlement Reform Threatening Our Future! 49Mo Government, Mo Problems CBO Says Obamacare Kills Jobs! 51Our Raison Debt Mitch Daniels Gives Young Adults an Assignment! 53Interest On Our Debt Prepared to Skyrocket ! 55The Death of Small IPOs is Hurting our Recovery! 56Professor Obama Ignores Real Problems In Latest Lesson! 58Whip Hoyer Accidentally Admits Obamas Budget Problem! 59The Failure of Keynesian Economics in Democratic Societies ! 60Democrats Defecting Over Obamas Failure to Deal with Debt ! 62Christies Speech Gives Obama a Lesson in Leadership! 63




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Republicans Happy to Step Into Leadership Void! 65Rove and Ryan Diagnose Obamas Allergy to Leadership! 67Wisconsin Unions Show No Willingness to Share in Sacrifice! 69Bipartisan Gang of Six Taking Lead on Deficit Reduction! 71Obama Continues Kicking the Can Down the Road! 72Obama Must Address National Deficit Leave Wisconsin to Address Theirs ! 73Obama Loses Another Intellectual Ally in Economist Mark Zandi ! 75The Forgotten History of Public Sector Unionism! 77ESPN Interrupts Its Regularly Scheduled Programming toBash Obama?! 78Taxes on Airlines are Soaring, Leaving Travelers Grounded! 79

A Lesson from Detroit Invest in People Not Things ! 81Indiana Democrats Walk Out Over Vote to Become Right to Work State! 83

Awash in Red Ink, Its Time to Run America Like a Business ! 85Republicans are Not at War with Dems, Everyone is at War with Debt ! 86Democrats Blame Game the Real Culprit if Government Shuts Down! 88




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some of the budgetary tension by specifying that the federal government will pick up 100% of

the costs of the expansion. Thats only until 2020 when states will then be required to pay 10%

of the tab.

Nevertheless, states are finding it exceedingly difficult to pay their existing share of the Medicaidtab, much less face any expansions. As Kaiser Health News reported yesterday,

Financially strapped governors, Congress and the Obama administration could be headed for a

showdown over the Medicaid health care program that covers 48 million poor, disabled and eld-

erly people nationwide.

Arizonas governor has already asked for permission to drop people from the joint federal-state

program, which states say is eating up huge portions of their budgets. But to do so, they need the

green light either from Congress or the Obama administration.

If they dont get one? States warn they may need to slash payments to doctors and hospitals and

make deep cuts in other programs such as education. They could even thumb their nose at the

law and cut eligibility, which would force the Obama administration to decide whether to cut all

federal Medicaid funding to those states.

The problem is that Obamacare eliminates states ability to maneuver out of the financial impacts

of the Medicaid expansion. A provision of Obamacare mandates that a state will lose its federal

share of Medicaid funding if it restricts eligibility. In other words, its Obamas way or the high-way on this one.

Obamacare is legislating states into debt. But weve already seen how this story ends. When

states have difficulty paying their share of the Medicaid tab, the federal government swoops in to

help the unsustainable program save face. For an example look no further than the stimulus bill.

Among other healthcare spending, the $787 billion package gave $87 billion to the states to help

them pay Medicaid costs.

So when states find themselves unable to pay for the increased Medicaid eligibility but the billdoesnt allow them to fix their bottom lines, who do you think is going to come to the rescue?

The federal government. And how will the federal government pay for the increase in the deficit?

Inevitably through higher taxes.




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debt levels if the government presents an ability, or at least a willingness, to deal with the situa-

tion. S&P could not find that in Japan. In a statement S&P said that it expects Japans fiscal

deficits to remain high in the next few years, which will further reduce the governments already

weak fiscal flexibility.

The United States seems to be facing a similar problem. Our deficit is creating a dual edged

sword in which no matter what path we take to reduce the deficit declining GDP and thus de-

clining revenues will be the result. On the one hand, the CBO predicts that large budget deficits

would reduce national saving and domestic investment that would lower income growth in the

United States. On the other hand, as the debt grows, it becomes increasingly more difficult to

solve the problem without raising taxes to a level that would substantially harm our economy.

Our fiscal flexibility is being stretched to the breaking point. Unless we act soon, our govern-

ment will soon be out of policy options.

The United States shares one other scary similarity with Japan an aging population. In itsstatement on downgrading Japans debt the S&P stated, Japans fast-aging population chal-

lenges both its fiscal and economic outlooks. The nations total social-security-related expenses

now make up 31% of the governments fiscal 2011 budget, and this ratio will rise absent reforms

beyond those enacted in 2004.

If that isnt an argument for entitlement reform Im not sure what is. In fact, the CBO recently

warned us of the budgetary threat of our aging population. In their Long Term Budget Outlook

the CBO warned,

All told, CBO projects, the aging of the population and the rising cost of health care will cause

spending on the major mandatory health care programs and Social Security to grow from roughly

10 percent of GDP today to about 16 percent of GDP

If the United States does not want to share the same fate as Japan we must begin to get our fiscal

house in order. A downgrade in our debt would shake the confidence of worldwide investors and

potentially lead to the collapse of banks and governments that hold US debt. The S&P has al-

ready warned us once. A report from last October said that absent policy and other changes the

US could be rated worse than Japans current status within the next decade. Can we really affordto wait to solve our deficit?




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Judge Uses Obamas Words Against Him to Declare

Obamacare Unconstitutional

The contrast between what President Obama says versus what he does is shocking. If Obama

were judged solely by the promises he made in his speeches he would go down as the best Presi-dent in history. Unfortunately for him, reality always seems to get in the way. When judged by

how well he has lived up to his soaring promises his place in history becomes much wellmurk-

ier.

The clearest example over the first two years was his rhetoric over the deficit. His State of the

Union was the latest example. He said the final critical step in winning the future is to make

sure we arent buried under a mountain of debt. He didnt mention that his actions were akin to

dropping the shovel and getting behind the wheel of a dump truck to bury us beneath that debt.

But Obamas latest say-one-thing-but-do-another moment is with healthcare reform. Judge Vin-

son the federal court judge who yesterday ruled that Obamacare was unconstitutional even

makes it a point to highlight Obamas waffling ways in his opinion. Vinson writes,

I note that in 2008, then-Senator Obama supported a health care reform proposal that did not

include an individual mandate because he was at that time strongly opposed to the idea, stating

that, If a mandate was the solution, we can try that to solve homelessness by mandating every-

body to buy a house.

President Obama was making the point that Republicans are now making that if the individual

mandate was constitutional then the federal government would have limitless power. It just so

happens, Judge Vinson shares Obamas previously stated rationale, arguing in his opinion that:

The problem. . . is it would essentially have unlimited application. There is quite literally no

decision that, in the natural course of events, does not have an economic impact of some sort.

The decisions of whether and when (or not) to buy a house, a car, a television, a dinner, or even a

morning cup of coffee also have a financial impact that when aggregated with similar eco-

nomic decisions affect the price of that particular product or service and have a substantialeffect on interstate commerce. To be sure, it is not difficult to identify an economic decision that

has a cumulatively substantial effect on interstate commerce; rather, the difficult task is to find a

decision that does not.

The trouble is that President Obama (obviously)saidthat the individual mandate was a ridicu-

lous expansion of federal government, but when push came to shove, he didthe exact opposite.




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If judicial restraint means anything, it means deferring to the Congress on matters of policy

preferencelike, for example, whether its better to run a national health insurance system with a

system of regulated private insurance rather than via a single-payer, government-run plan

What liberals like Cohn and Cutter fail to understand is that the measuring stick for judicial ac-tivism is not Congress, its the Constitution. Obamacare runs so far afoul of the Constitution, by

broadening its Commerce powers to the point where Congress could do almost anything, that

only judicial activism could interpret it any other way.

So why is Judge Vinsons ruling getting liberals undies in a wad? After all, he isnt the first

judge to rule that Obamacare is unconstitutional. Ah, but he is the first judge to strike the law

down in its entirety. Whereas the previous court found that the individual mandate (perhaps the

most Constitutionally odious portion of the bill) could be taken out of the bill without harm, Vin-

son ruled otherwise.

On this issue, liberals shot themselves in the foot. As Vinson writes in his opinion,

I note that the defendants have acknowledged that the individual mandate and the Acts health

insurance reforms, including the guaranteed issue and community rating, will rise or fall together

as these reforms cannot be severed from the [individual mandate]. See, e.g., Def. Opp. at 40.

As explained in my order on the motion to dismiss: the defendants concede that [the individual

mandate] is absolutely necessary for the Acts insurance market reforms to work as intended. In

fact, they refer to it as an essential part of the Act at least fourteen times in their motion to dis-

miss.

Congress knew that the individual mandate was essential to keeping healthcare costs low. By

mandating younger, healthier individuals purchase more comprehensive healthcare than they

want, or likely need, the bill could effectively subsidize their planned coverage expansion. Con-

gress even said in the Act that,

[I]f there were no [individual mandate], many individuals would wait to purchase health insur-

ance until they needed care . . . The [individual mandate] is essential to creating effective health

insurance markets in which improved health insurance products that are guaranteed issue and do

not exclude coverage of pre-existing conditions can be sold.

Now that liberals have spent the better part of the last two days trying, and dismally failing, to

argue with Vinson on the merits, the fun part will be watching Democrats argue against them-

selves. Vinsons agreement with Democratic legislators on the issue of severability essentially




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means that their lawyers will have to use their appeal to argue that the individual mandate was

not necessary after all. As if their house of cards wont tumble down when you remove the aces

that prop up the entire thing.

Democrats greatest achievement of Obamas term may also end up being their most spectacularfailure. If they cant do any better than call the decision odd, that result seems inevitable.

Senate Dems Concede to Earmark Ban, But What Took So

Long?

Theyve waved the white flag. Theyve cried uncle. Somewhere Taps is playing.

Senate Democrats have finally given in to Republican demands to eliminate earmarks. Daniel

Inouye, the Democratic chair of the Appropriations Committee, said that he would accept a two

year ban on earmarks.

Given the reality before us, it makes no sense to accept earmark requests that have no chance of

being enacted into law.

Not exactly what you would call a ringing endorsement of the idea, but what would you expectfrom a party who has had to be dragged, kicking and screaming, toward the idea that the spend-

ing must stop. After all, there wasnt much Senate Democrats could do at this point.

The move to ban earmarks begun with House Republicans who adopted a voluntary ban on ear-

marks in November because they had become a symbol of a Congress that has broken faith with

the people. Senate Republicans were right behind them, with newly elected Senator Marco Ru-

bio arguing that the ban shows Republicans are serious about doing what it said we were going

to be about limited government, spending reduction, dealing with the national debt.

Seeing that the political winds were blowing against his partys stance, President Obama then got

on board, using his State of the Union to promise that, If a bill comes to my desk with earmarks

on it, I will veto it.

If Senate Democrats were late to the party, Majority Leader Harry Reid still hasnt shown up.

Last week, Reid responded to the State of the Union by saying,




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finances are on an unsustainable course. Just last year President Obama said that reducing our

deficit is going to require people of both parties to come together and take a hard look at the

growing gap between what government spends and what the government raises in revenue. And

it will require that we put politics aside, that we think more about the next generation than the

next election.

That sentiment sure didnt last long. No sooner had Republicans begun offering solutions to our

deficit, which will necessarily entail hard choices, than Democrats saw a chance to score some

political points. Addressing our spending addiction will not be easy, but it will be made impossi-

ble if Democrats continue to play politics. What we need is an adult conversation, not childish

finger pointing and misleading ads. What we need is for Democrats to live up to their word to

put the next generation before the next election. Unfortunately, their latest partisan games show

they are, as yet, unwilling to do that.

1099 Repeal a Metaphor for Larger Obamacare Debate

The U.S. Senate voted on Wednesday to get rid of a small part of the Obamacare bill.

The eliminated provision was a requirement that all businesses submit a 1099 tax form on all

purchases of goods and services of more than $600. It was designed to ensure that businesses

actually keep up with and pay the taxes they owe.

Your probably asking what the heck this has to do with healthcare. Good question. The answer is

absolutely nothing. In fact, the only reason it was included in the Obamacare bill at all is that it

was expected to generate $17 billion in new tax revenue that Democrats wanted to use to lower

the cost of their spend-happy bill.

The problem is, not long after the bill was passed, almost everyone agreed that it was a terrible,

no good, very bad idea. The US Chamber of Commerce said that the new regulations would

amount to oppressive regulations that would cause an avalanche of new paperwork for small

business owners. As Time blogger Adam Sorenson wrote today,

Basically, it wasnt well thought out and shortly after passage, both Democrats and Republicans

agreed they wanted it gone. Forget todays 81-17 vote for a moment. Max Baucus, who wrote the

freaking thing to begin with, introduced language that would have nixed it last year. Repealing it

was even a bullet point in President Obamas State of the Union corporate pep talk on how to

Win the Future.




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The 1099 measure is pretty much a metaphor for the entire Obamacare bill: poorly thought out,

bad for business, and in dire need of repeal.

The 1099 provision was passed with the hope that it would reduce the number of businesses who

either mistakenly or purposefully cheat the system. In true government fashion, it does this bymaking a complex tax code even harder to comply with. In other words, the Democrats saw a

real problem, and then proceeded to make it worse by piling on more government. The unin-

tended consequences quickly became clear the increased cost of compliance would have cost

businesses money and dampened job growth.

Obamacare does the exact same thing. To its credit it came in response to a true problem; health-

care costs are rising much faster than inflation and will soon put families and the federal gov-

ernment in a tough financial situation. Rather than offer true reform, went to their go-to maneu-

ver add more government to the mix. The results, even if unintended, have been disastrous.

Older generations have been hurt. Obamacare led to 700,000 seniors losing the Medicare Advan-

tage plans because of insurance companies quitting the business. Children have been hurt. Health

insurers in 34 states have stopped selling child-only policies because insurance companies have

dropped out of the market citing higher costs. High risk patients have been hurt. Obamacares

high risk pools have attracted a mere 8,000 people, well short of the 375,000 expected, in large

part due to higher than expected costs. Frankly, everyone has been hurt! Health insurers across

the board say they will be forced to raise premiums 1-9% to pay for new mandated benefits un-

der the law.

Its not just the 1099 provision whose unintended consequences demand that Congress rescind it,

its the entire Obamacare monstrosity. Susan Eckerly of the National Federation of Independent

Business wrote in a letter to Senators about the 1099 reporting requirement, At a time when we

need small businesses to help our economy grow, saddling them with expensive new require-

ments and paperwork burdens will only further hamper their ability to aid in our economic re-

covery. She may as well have been talking about the entire bill.

Gov. Cuomo Shows Fiscal Conservatism is Not an Option

Its a Necessity

Weve said it before, Democrats are proving it again: fiscal conservatism is not a policy prefer-

ence it is a real-world necessity.




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Washingtons spending spree is over, As House Republicans pledged and voted to affirm on

the House floor last week the spending limits will restore sanity to a broken budget process and

return spending for domestic government agencies to pre-stimulus, pre-bailout levels.

Although it wont nearly cover a deficit which the CBO has projected will reach $1.5 trillionover the next year, it is a welcome change of course for a Washington that has been stuck in free-

spending mode. Republicans following through on their promises to reduce the deficit will

hopefully put further pressure on President Obama to finally live up to his deficit rhetoric.

Last year President Obama, in a joint session of Congress, said

We cannot and will not sustain deficit like these without end. Contrary to the prevailing wisdom

in Washington these past few years, we cannot simply spend as we please and defer the conse-

quences to the next budget, the next administration, or the next generation.

Except the deficit have continued, even grown, without end. Now Obama seems to have backed

off of his earlier concern for the deficit, instead using his State of the Union to double down on

more spending. Oops, I meant to say investments. His spending-sidekick in the House, Nancy

Pelosi, has been echoing Obamas claim for increased spending on infrastructure and green en-

ergy. Yesterday, with Congress out of session, she staged a mock hearing on Capitol Hill in an

attempt to pressure Republicans to get on board with more stimulus.

Upon getting the details of Republicans plan to save taxpayers $74 billion, Rep. Chris Van Hol-len, the ranking Democrat on the Budget Committee, attempted to argue that the cuts could harm

the economy. As if governments two-year attempt to buy our way out of the recession has been

anything but an utter failure.

The fact is, it is our enormous debt and Democrats unwillingness to deal with it that has kept

many businesses on the sidelines and led many investors to remain wary. Our economy is begin-

ning to recover from its wounds, in spite of, not because of Democrats attempts at stimulus. If

weve learned anything its that continuous spending doesnt work. As Speaker of the House John

Boehner said of Democrats,

They are calling for another round of more wasteful stimulus spending and expecting it to cre-

ate jobs despite the fact that it has failed to deliver on their promises over the past two years.

Things must to change.




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The Republicans are taking steps to fulfill their pledge to reduce spending. Granted they are only,

as Paul Ryan said, a down payment on the fiscally responsible measure that will be needed, but

at least they are a credible step. Unfortunately, Democrats have dropped all pretense. Theyve

forgotten all that theyve said about the deficit, about burdening future generations, about making

the hard decisions. Theyve decided to just stick to their guns and spend, spend, spend. This is

not, in Obamas words how were going to win the future.

Unemployment Report Shows January Was Another Ugly

Month for Hiring

The good news: The unemployment rate fell sharply from 9.4 to 9 percent, the lowest level in

nearly two years. The bad news: The economy generated a measly 36,000.

The question you should be asking yourself is does 36,000 people really equal .4 percent of the

labor force? The answer is an emphatic, no.

So what gives? Is this a good or a bad report?

What gives is that the January employment report is unique. Each January the Bureau of Labor

Statistics (BLS) makes an adjustment to the population controls that are used to determine the

unemployment rate. As explained by the BLS:

With the release of January data each year, BLS incorporates population control adjustments into

the household survey estimates. The adjustments reflect the Census Bureaus review of the com-

ponents of population changebirths, deaths, and net international migrationand of the meth-

odology used to estimate population.

The results from January on household surveys finds that the BLS has overestimated the popula-

tion by 472,000 since the 2000 census. So when youre looking at the January unemployment

report and wondering how we could slash the unemployment rate but only add a few jobs it isbecause we essentially slashed the population control used to determine unemployment.

Now, on to whether or not this is a good or bad report. Simply put, its bad. The 36,000 jobs that

were created was less than a quarter of the 145,000 that economists had expected.




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Such hypocrisy must stop. Our deficit is not something that can be toyed with. Republicans ef-

fort to trim the budget represents a long overdue attempt at clamping down on the massive waste

of taxpayer money that has defined Washington over the past decade. If Democrats are not going

to join us in an honest discussion over how best to address our nations most fundamental prob-

lem, instead choosing to talk behind our back with lobbyists, then we will go it alone.

Solving our deficit is shaping up to be a battle between special interests and our future. Demo-

crats are showing what side they are on.

Dont Let Tax Reform Be Derailed by Special Interests

We have long encouraged the government to begin the process of fixing our burdensome tax

code. It is overcomplicated chock full of credits, deductions, exclusions, and exemptions.

Tax reform seems to be a natural place to start a conversation about the future given there is bi-

partisan agreement that it needs fixed. President Obama used his State of the Union to call for

comprehensive reform of the tax code:

He said that the corporate code has been influenced by a parade of lobbyists that have rigged

the code to benefit a few while the rest are hit with one of the highest corporate tax rates in the

world. . . So tonight, Im asking Democrats and Republicans to simplify the system. Get rid of

the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for thefirst time in 25 years without adding to our deficit. It can be done.

He applied much the same approach to the individual tax code, arguing for simplification in or-

der to broaden the base and lower the rates.

This idea is one that has been championed by many Republicans. Sen. Judd Gregg, the ranking

Republican member of the Senate Budget Committee, and Rep. Paul Ryan, the Chairman of the

House Budget Committee, have both issued tax reform plans based on maintaining revenue by

reducing rates and removing complexity. Weve also pushed for reform because the current

codes numerous loopholes create a drag on the economy and is inefficient at raising revenue.

Nevertheless, as we push for reform it is important to remember a point that up until now we

have failed to mention. Nina Olson, the national taxpayer advocate wrote in her annual report,




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Tax complexity doesnt occur just because of big money special interests. It occurs because of

the tax provisions that benefit each one of us. We are the special interests. And until we acknowl-

edge that, tax reform discussions will deteriorate into shouting matches and finger pointing about

cutting their special tax breaks and not ours.

The road to true tax reform requires each and every one to be willing to stop protecting our own

tax breaks long enough to begin a dialogue about what we want our system to look like, so we

remain a vibrant nation with a tax system that is transparent to its taxpayersone that is simpler

to understand and comply with. If we want to run business incentives or social programs through

that system, then we need to have a way to evaluate those programs so we can describe to their

taxpayers what is being done and how effective those programs are.

On the one hand, that will make tax reform infinitely more difficult because it opens up the op-

portunity for partisan blame-gaming. On the other hand, it allows us the chance to understand

exactly what were up against.

Over the past year Republicans like Paul Ryan have been presenting Americans with the choices

that lay before us. As Ryan wrote in September, Finding the right level of government for

Americans is simply impossible unless we decide which ideal we prefer: a free enterprise society

with a solid but limited safety net, or a cradle-to-grave, redistributive welfare state.

It is an honest choice. But if we choose to continue what George Washington labeled The Great

Experiment, we must understand that it will take personal sacrifice. Our government has been

promising us more than they can deliver for too long. We now face the moment of truth can we

put politics and personal interest aside in order to return to our ideals of limited government and

promote a vibrant free market.

So as the push for tax reform heats up lets remember the ultimate goal and not become, as Nina

Olsen described us our own special interests. We can achieve reforms that lower rates for all tax

brackets by cleaning up the code. Lets not derail that reality with shouting matches by over

their versus our tax breaks.

Bernankes Says Washington Must Act Now to PreserveOur Future

U.S. Federal Reserve Chairman Ben Bernanke did not mince words in a speech yesterday to the

National Press Club: Were on an unsustainable path.




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His speech was odd, focusing most of his scorn on fiscal policy rather than monetary policy

which is typically the purview of the Fed. In fact, Bernanke was laudatory of his work at the Fed,

arguing that the controversial program of quantitative easing has staved off deflation and

raised yields on long term Treasuries securities. Bernanke said, A wide range of market indica-

tors supports the view that the Federal Reserves securities purchases have been effective at eas-

ing financial conditions.

Bernanke was not quite so admiring when it came to fiscal policy. Even after economic and fi-

nancial conditions have returned to normal, the federal budget will remain on an unsustainable

path, with the budget gap becoming increasingly large over time, unless the Congress enacts sig-

nificant changes in fiscal programs, Bernanke said. This unsustainable path would eventually

drain funds away from private investment and increase our debt to foreigners, with adverse

long-run effects on U.S. output, incomes, and standards of living.

He also argued that declining confidence in our ability to get our debt under control would leadto sharply rising interest rates on government debt and, potentially, to broader financial turmoil.

So what exactly is pushing America onto the brink of this clear disaster? Our broken entitlement

system. In that regard, Bernanke leaves no stone unturned.

He says the cost of our healthcare system including Medicare and Medicaid will roughly

double as a percentage of GDP over the next 25 years. Then, seemingly forgetting that this was

the supposed goal of Obamacare, argued that the ability to control healthcare costs. . . will be

critical to bringing the federal budget onto a sustainable path.

I can read that as nothing other than a slap in the face of Congressional Democrats. Pointing out

that healthcare continues to be on an unsustainable path despite, or possibly because of, Oba-

macare, points to the utter failure of the bill to live up to its promises. So much for bending the

cost-curve?

Social Security also didnt escape Bernankes wrath. The retirement of the baby-boom genera-

tion will also strain Social Security, as the number of workers paying taxes into the system rises

more slowly than the number of people receiving benefits, Bernanke said.

Such warnings should serve as a direct repudiation of deficit deniers like Senate Majority Leader

Harry Reid who said last month, One of the things that always troubles me is, when we start

talking about the debt, the first thing people do is run to Social Security. Social Security is a pro-




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gram that works, and its going to be its fully funded for the next 40 years. Stop picking on

Social Security.

These problems will soon pose a threat to our nations financial stability. One way or the other,

fiscal adjustments sufficient to stabilize the federal budget must occur, Bernanke said, the ques-tion is, will we do it deliberatively by a careful debate of our options, or will external investors

demand changes in response to a crisis.

While President Obama continues to spout the need for more government spending, doing noth-

ing but paying lip service to our rising deficit problem, the times demand more immediate

change. Bernanke said, acting now to develop a credible program to reduce future deficits is

needed to enhance economic growth in the long run. Sadly, there is very little evidence to sug-

gest that Democrats in Washington are ready to begin the difficult process to trim the budget.

Such fiscal chiding is surprising coming from the Federal Reserve chairman, but it highlights the

enormity of the challenges we face and Democrats lack of action to solve them.

Higher Education Will Suffer From Obamacares Medicaid

Mandate

The once happy marriage between states and the federal government is on the rocks. Like a lot ofrelationship trouble, the problems centers around money.

The Wall Street Journalreports,

While designing the Patient Protection and Affordable Care Act, the Pelosi-Reid-Obama troika

tried desperately to present a faade of federal fiscal prudence where none actually existedso

they off-loaded massive costs on the states. By opening Medicaid to applicants 33% above the

poverty line in 2014, ObamaCare could expand Medicaid enrollment by as much as 25%, ac-

cording to the plaintiffs in the Florida suit. Medicaid, also rife with fraud in part because of itshybrid federal-state management, is already one of the biggest items in state budgets.

Thanks to the recession and their own spending excesses, nearly all states are suffering budget

shortfalls, some to the point where there is no clear idea where the money will come from to

meet pension and bond obligations, let alone operating expenses. The prospect of adding a fur-

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Were not, as some would have us believe, doomed to an inevitable decline. I do not believe in a

fate that will fall on us no matter what we do. I do believe in a fate that will fall on us if we do

nothing. So, with all the creative energy at our command, let us begin an era of national renewal.

Let us renew our determination, our courage, and our strength. And let us renew our faith and our

hope.

America is facing once again the problems that Reagan worked so hard to solve. As we work to-

wards solutions let us never settle for the mediocrity that comes from government solutions. The

answer lies within us, as Americans, if only a limited government will allow us to show it. For as

Reagan so often reminded us, In this present crisis, government is not the solution to our prob-

lem; government is the problem.

So as we march forward into our rendezvous with destiny, never forget we are faced with a

choice, either we will preserve for our children this, the last best hope of man on Earth, or we

will sentence them to take the last step into a thousand years of darkness.

Let us celebrate President Reagans birthday by never forgetting that freedom is a fragile thing

and that we must, everyday, do our best to protect it.

Contagion Threat of European Debt Is Real

Warning: Economic wonkishness ahead.

This blog has looked extensively at the debt crises that are plaguing many European states.

Greece and Ireland have already received an IMF bailout, Portugal appears to be on the ropes,

and Spain could be next in line. The main fear driving each of these nations to bailout was the

so-called threat of contagion.

The question is, what on earth does that mean? We really havent had an answer and we were

happy to know that the economists were equally stumped. TaxVox, a blog by the Centre for Eco-nomic Policy Research, said that Contagion is one of the more elusive concepts in the current

debate about the financial crisis. Indeed, the logic behind it is often unclear.

When you think of debt, you dont think of a 28 Days Later style plague that turns government

budgets into bloodthirsty zombies. So what gives? Is a debt crisis contagious?




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Of course the bubble was not sustainable, when it burst, the consumption it supported also disap-

peared. We only recovered from the recession when the housing bubble created enough demand

to replace the demand lost from the collapse of the stock bubble.

. . . Mr. Lew shows no understanding of this basic point. Either this top Obama official is igno-rant of basic economics or he is not being honest with the American people. Either way, it is an

incredibly scary column.

So it appears we traded in a completely dysfunctional economic team for a completely incompe-

tent one. Or worse, a dishonest one.

Rep. Issa Shows GOP Listening to Main Street

Im a generally grumpy guy. Some would even call me a complainer. Im like the old guy from

Up without the happy memory montage. But ask me to write down my gripes about Demo-

crats, the state of politics, or even life in general and I may be able to hit five pages. Washing-

tons winters suck, Comcast customer service is awful, my iPhone is slowing down by the day,

andIm already running out of steam.

Businesses apparently have a lot more to complain about. Earlier this year, Congressman Darrell

Issa, chairman of the House Oversight Committee, reached out to businesses around the country

to see what government regulations and red tape were stopping them from growing and hiring.This morning, Rep. Issa released more than 200 of these responses spanning 1,947 pages.

1,947 pages worth of legitimate gripes and groans about the bureaucratic and regulatory burden

that is standing in the way of job creation.

One of these responses comes from the American Beverage Association. Their concerns are in-

dicative of what many businesses are currently facing:

When Congress passed the American Recovery and Reform Act, taxpayer money was allocated

for shovel ready projects in an effort to stimulate the economy and create or preserve jobs. In-

stead, in some instances, this money was spent in way which may have the opposite effect-by

denigrating particular products which could result in lost sales and lost jobs

Lost sales and lost jobs




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How long are we going to continue hearing that?

The problem with government created regulations is, as Milton Friedman famously said, the

government solution to a problem is usually as bad as the problem and very often makes theproblem worse. Then, in true bureaucratic fashion the government then creates more rules, hires

more regulators, and spends more money to solve the problem they created in trying to solve the

problem.

On the plus side, President Obama realizes the threat that the proliferation of government regula-

tion has on continued economic growth. He recently penned an oped in which he spoke of his

administrations efforts to restore the entrepreneurialism and vibrant free-markets that made us

the most successful nation in the world. Obama wrote,

Were also getting rid of absurd and unnecessary paperwork requirements that waste time and

money. Were looking at the system as a whole to make sure we avoid excessive, inconsistent

and redundant regulation. And finally, today I am directing federal agencies to do more to ac-

count forand reducethe burdens regulations may place on small businesses. Small firms

drive growth and create most new jobs in this country. We need to make sure nothing stands in

their way.

On the down side, hes done little more than talk about the regulatory burden for two years now.

The adage To say one thing, and do another seems to apply perfectly. President Obama may betalking a big game when it comes to cutting red tape, but his actions paint a different picture. A

report by the Heritage Foundation found that the total cost of the rules promulgated by federal

agencies totaled nearly $28 billion the highest level ever recorded.




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Mr. President, its time to do more than talk. Its time to start knocking down the regulatory bar-

riers to job growth. Fortunately, Rep. Issa has done your homework for you. Hundreds of busi-

nesses have stepped up to the plate, providing detailed and specific recommendations on how to

remove the most redundant, burdensome, or counterproductive regulations on the books.

How about we actually start Winning the Future as opposed to scratching our heads and saying

WT..Heck We need to decrease the size of the governments role in business and stop in-

vesting so much of Americans hard earned money. Of course, Ive come to expect little more

than talk from the Obama administration. One more thing to put on my list of gripes I suppose.

Whether Its Coca-Cola or Ethanol, Government Should

Stop Picking Winners and Losers

When you think of Super Bowl commercials you think of outrageousness. Talking frogs, chim-

panzees in business suits, and, lets face it, girls in skimpy outfits (were looking at you

GoDaddy.com). Its a time for spectacle, not public service announcements.

Nevertheless, an admittedly mind-numbing commercial from the Americans Against Food Taxes

(yes, there is such a thing) is garnering some buzz, if only from politics nerds like us.

As you may have guessed by the name of the coalition who created the ad, the commercial com-plains that politicians are trying to control what we eat and drink with taxes.

This issue has been in the news a lot recently. California banning Happy Meal toys unless

McDonalds meets certain health standards was the most publicized example. Sadly, sugary

drinks and Happy Meals are only the most recent government attempts at social engineering via

the tax code. The government quietly incentivizes a host of behaviors through tax incentives.

Everything from green appliances, to fuel efficient cars, to home ownership, to marriage are sub-

tly encouraged. The question is, is this what we as Americans want out of our government and

our tax code?

At one time our tax system was viewed with a singular purpose to raise revenue. At some

point, when outright spending to encourage certain desired ends became too politically difficult,

the government realized it could accomplish the same end through so-called tax expenditures.

For instance, if I told you that Congress was going to pass a spending bill that would cost $1.3

trillion over the next decade, youd laugh me right out of town. But that is exactly the 10-year




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cost of the mortgage interest deduction that currently exists in our tax code. This idea, that we

can subtly shift behavior through a system of penalties and subsidies is fundamentally at odds

with maximizing revenue and more importantlyfreedom.

Washington Post blogger Ezra Klein agrees with the ridiculousness of using the tax code to in-fluence Americans diets. In todays Wonkbook he writes,

Id like to propose common cause with my brothers and sisters in the Coca-Cola Company. Gov-

ernment does need to trim its budget back. And it probably should be doing less to influence us

in the checkout lines. So lets make this the year we finally end subsidies to the corn industry.

Deal?

Deal! That was enthusiasm that Klein probably wasnt expecting. He probably thinks hes put-

ting Republicans in a hard spot here. Hell concede that tax code as a tool for social engineeringis a bad idea and in return well concede that ethanol subsidies are an equally stupid concept.

Admittedly, some Midwestern Republicans are a little skittish on the idea, despite the fact that

thee 45-cent-a-gallon tax credit adds nearly $5 billion to the deficit annually.

Nevertheless, ethanol subsidies are an unquestionably bad idea. Ya know when Sen. Barbara

Boxer (D-CA) and Sen. Jim DeMint are both against it, its probably a bad idea. Gas made by

ethanol is doesnt contain the same energy per unit volume as traditional gasoline, resulting in a

reduction in miles per gallon. Yet, ethanol blends cost just as much, the result of billions of dol-

lars worth of subsidies in an effort to encourage development of alternative fuels. The problem is

that it takes the equivalent of 1.29 gallons of gasoline to produce enough ethanol to replace a gal-

lon of gas. Not exactly smart economics.

So lets stop using the tax code to pick winners and losers in the market both at the checkout

aisle and the gas pump. But Ill go Klein one better. If he truly believes that the government

should trim its budget and do less to influence us using the tax code, why stop at ethanol? Why

not get rid of the tax credits for all the other green fuels out there? Free markets will work to

achieve our social endsif we let them.




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Closing of DLC Shows Moderate Democrats a Dying Breed

Moderate Democrats are a dying breed, but they arent going out without some fireworks.

The latest sign of their demise is that the centrist Democratic Leadership Council has declared it

is closing up shop for lack of funds. Ben Smith of Politico explains the reason, The DLC, a

network of Democratic elected officials and policy intellectuals had long been fading from its

mid-90s political relevance, tarred by the left as a symbol of triangulation at a moment whentheres little appetite for intra-party warfare on the center-right.

The left was not exactly upset by the announcement. Markos Moulitsas of the liberal blog the

DailyKos wrote,

Where is the grave, so I can go dance on it? . . . Another boogeyman dead and buried. But dont

celebrate too much. Their mantle has been picked up by the even more nefarious Third Way.

It appears there is just no place for centrism amongst the left. Darcy Burner, president of the Pro-

gressive Congress, said the DLCs woes are a representation of whats happening right now in

Democratic politics, namely that progressives are winning the battle for the party.

Blue Dogs in the House are likewise being pushed out of the party. Rep. Heath Shuler told

MSNBC that We still have not had that connection between the Blue Dog members and leader-

ship. In fact he said, there has really been no communication whatsoever.

Moderate Democrats arent going down within a fight. Politico reported today,

A handful of moderate Senate Democrats are looking for ways to roll back the highly contentious

individual mandate the pillar of President Barack Obamas health care law a sign that red-

state senators are prepared to assert their independence ahead of the 2012 elections.




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. . . And its not just health care. The senators are prepared to break with the White House on a

wide range of issues: embracing deeper spending cuts, scaling back business regulations and

overhauling environmental rules.

These Senate Democrats, along with their Blue Dog brethren in the House, understand that theliberal way was not working. Enormous government spending programs were creating a larger

deficit, not more jobs. Unfortunately, Democratic leadership nor the leftist fringe of the grass-

roots want to hear from them. They have staked their position as one where compromise is de-

monized.

Ashley Bell, former president of the College Democrats of America, said it best, I think the

midterms showed you really cant be a conservative and be a member of the Democratic Party.

Sad, but true.

Liberals Delusion Government Regulates Business Better

than Free Markets

President Obama used his State of the Union to make the argument that, We have to make

America the best place on Earth to do business.

Currently, its not.

In an effort to solve the problem President Obama and Rep. Darrell Issa have both attempted to

solve the problem by finding and correcting excessive, inconsistent and redundant regulations. In

his State of the Union Obama said that to reduce barriers to growth an investment, Ive ordered

a review of government regulations. When we find rules that put an unnecessary burden on busi-

nesses, we will fix them.

Rep. Darrell Issa, the chairman of the House Oversight Committee, decided to help President

Obama fulfill this goal. He asked businesses and trade groups to identify government regulations

that are imped[ing] the type of permanent, private-sector job creation necessary to successfully

lower unemployment.




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Yesterday, Rep. Issa publicly released nearly 2,000 pages of submissions he had received from

businesses in an effort to jumpstart talks on how to stimulate the economy at no cost to taxpay-

ers.

Unsurprisingly, many liberals have taken exception to Rep. Issas report. They argue that thegovernment regulations that are in place are the result of their attempts to protect the public from

a businesses profit motive. At a time when corporate profits are at their highest level in history,

they argue, doesnt it seem a little ridiculous that they should complain about keeping mine

waste out of water and lead paint out of childrens toys!

Slate writer Timothy Noah summed up the argument in a recent column:

Should we care when business complains about burdensome regulation?

Not a lot. By definition, a regulation is a government requirement that business uphold responsi-

bilities to the public at large that, left to its own devices, business would rather avoid. If business

leaders were naturally inclined to sacrifice their companies narrow interests whenever these con-

flicted with those of the general population, regulation would be unnecessary (and business lead-

ers would not be recognizably human).

There are two problems with this traditional liberal complaint. First, there is no evidence that

government protects the interests of the consumer better than free markets do. Second, contrary

to Noahs argument, companies interests very rarely conflict with those of the general popula-tion.

Adam Smith said the in the Wealth of Nations,

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner,

but from their regard to their own self interest. We address ourselves, not to their humanity but to

their self-love, and never talk to them of our own necessities but of their own advantages.

Smith argues, just as I do today, the powerful force of profit and self-preservation always out-

weighs the altruism of bureaucrats in Washington. If you learn that a companys product is un-

safe, or even engages in business practices that do not align with your own, you will choose to

buy something else.




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Governors across the nation are attempting to rectify this engineering flaw by whittling away at

the edges of the Obamacare peg.

In the words of our man Mitch Daniels, Indianas Governor, The presidents health-care reform

law is a massive mistake. It will amplify all the big drivers of overconsumption and excessivepricing [And] add trillions to the deficit.

Daniels knows a little something about addressing deficits. When Daniels took office in 2004,

Indiana had a long-standing deficit of $600 million deficit and hadnt balanced the budget in

seven years. He balanced the budget in just his first year. After four years he had paid off all of

the states outstanding debt and had a surplus of $1.3 billion in the bank.

The results have been remarkable. Today, Indiana has a AAA credit rating (the first in state his-

tory), which it has maintained despite the economic downturn. Because he used budget cuts andefficiencies rather than tax increases to address the deficit, Indiana has also become a friend to

businesses. The Weekly Standardwrites,

No other state in the Midwestall of them, like Indiana, dependent on a declining manufactur-

ing sectorcan match this record. Venture capital investment in Indiana had lagged at $39 mil-

lion annually in the first years of this decade. By 2009 it was averaging $94 million. Even now

the state has continued to add jobs7 percent of new U.S. employment has been in Indiana this

year, a state with 2 percent of the countrys population. For the first time in 40 years more people

are moving into the state than leaving it.

It is no wonder that CNBC named Indiana the Most Improved State for Business in the country

and the state is now near the top of every national ranking of business attractiveness.

Obamacare threatens to undue all of Daniels hard work. The healthcare bill will require states to

add 15 million more citizens to the Medicaid rolls. Daniels estimates that the price to [Indi-

anas] taxpayers at $2.6 billion to $3 billion over the next 10 years.

The additional Medicaid burden is not even the worst part in Daniels eyes.

Perhaps worse, the law expects to conscript the states as its agents in its takeover of health care.

It assumes that we will set up and operate its new insurance exchanges for it, using our current

welfare apparatuses to do the numbingly complex work of figuring out who is eligible for its

subsidies, how much each person or family is eligible for, redetermining this eligibility regularly,




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and more. Then, we are supposed to oversee all the insurance plans in the exchanges for compli-

ance with Washingtons dictates about terms and prices.

Not only does Obamacare force states to pick up a chunk of the tab for the enrollment increases,

it passes off a huge chunk of the bureaucratic burden as well. It should go without saying thatthis is probably not the best time to be adding things to state budgets. State revenues have been

hit especially hard by the recession and many are scrambling to find places to cut, often being

forced to cut basic governmental services in order to afford their public pensions. Increased

healthcare costs could be the straw that breaks the camels back.

Thats why forward-thinking governors like Daniels are attempting to get out ahead of the

budget-busting Obamacare bill, thinking of ways to introduce free-market principles in what will

otherwise lead to a government takeover of health care.

Among his proposals are:

Waiving all the mandates that force citizens to buy healthcare benefits that they dont

need

Eliminating any provisions discriminating against consumer driven plans such as health

savings accounts

The ability to make changes to Medicaid so that millions of people arent simply shuttled

into a broken system

Fortunately, governors like Daniels have some leverage. If the federal government needs states to

run their exchanges, states have a powerful bargaining chip to force Washington to accede to

some demands.

If the federal government is hell-bent on forcing a square peg into a round hole, lets at least

whittle off the sharp edges. It is admittedly not a perfect solution. That could only be achieved by

implementing true free market reforms into the healthcare marketplace. Nevertheless, it is a huge

step in the right direction and we can only hope more governors follow Daniels lead.




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Deep cuts in public budgets and a popular governor dont usually go together, said Peter Wool-

ley, a Fairleigh Dickinson professor who has also polled New Jersey.

Woolley was right. Thats just what Democrats were gambling on. But things have changed. Our

nations dire fiscal straits have reframed the debate. Voters understand that we cannot remain onour current spending path and that we have a choice to make more taxes or less government.

Regardless of what choice they make voters are increasingly rewarding politicians who engage

in the debate rather than continue on with their head in the sand.

Democrats had better adjust their strategy. Any more gambles like this and they will soon find

their party has gone belly up.

Solving Our Long Term Budget Problems RequiresReworking Entitlements

Whenever Im driving along a beaten down highway, zone out and go on autopilot, I end up at

home; right back where I started. This is what is going to happen if the only measures taken to

reduce the deficit are putting on a five-year freeze on discretionary spending and reducing the

federal budget to 2008 levels. If I remember correctly, 2008 was not exactly rainbows and but-

terflies. Unless we pursue further measures to reduce spending, the US will hit the deficit ceiling

at 75mph without an airbag and end up submerged in a ditch on the side of the road.

According to the Former Republican Senator Alan Simpson in the articleLeaving Entitlements

on Auto Pilot Will Crush the U.S. Economy, getting rid of the healthcare law, voting to end tax-

payer funding of presidential campaigns, cutting the congressional budget and earmark process

and proposing billions in spending cuts for the remainder of the fiscal year, are not sufficient to

make a dent in the current $14 trillion dollar deficit. All of these proposed cuts are nothing but a

drop in a very large bucket. In order for the deficit to truly be reduced the band aid needs to be

ripped off quickly. The pain will be short and intense, but the problem will have been addressed.

This will mean the implementation of targeted reductions in programs once viewed as sacred

cows. We have no choice if we want to avoid the crap hitting the debt-ceiling fan.

One of the suggestions being made by Former Republican Senator Alan Simpson is to increase

the retirement age to receive Social Security to 68 by the year 2050. Thats 40 years away. By

that time current college aged Americans and twenty-somethings will be nearing retirement age.

The idea of raising the retirement age will surely not be popular, it means members of our gen-

eration will have to work longer to receive the same benefits, but the alternative is infinitely




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worse. If you dont do anything with Social Security when you waddle up to get your check in

the year 2037, youll get 22 percent less, Simpson said. After 2037 the programs finances get

even worse, running deficits to the point where the program may not be able to exist at all. Better

to have benefits start at 68 than the program go bankrupt and we receive no benefits at all.

Making the necessary changes now will allow us to start planning our retirement earlier. It makes

a lot more sense to plan for your own future than to play Russian Roulette on a program that may

not even exist by the time we retire.

Social Security is not the only entitlement in dire need of reform. There are a significant number

of Americans that believe that everything should be handed to them on shiny, I can see myself in

its luster, platter. America was not built on a foundation of entitlement. We were founded upon

the ideal of freedom, and an essential facet of freedom is individual responsibility. Unlike the

social welfare states of Europe that have attempted to equalize results bringing down the suc-

cessful and raising up the failures we have allowed individuals to succeed and fail based upontheir own merits. The resultant prosperity has allowed us to create a safety net to ensure that

those who fall through the cracks of society, through no fault of their own, can be provided with

a means of support. But our safety net has expanded to the point where it threatens to not only

catch those who fall, but to ensnare everyone beneath its crushing weight.

The bottom line is that Republicans are definitely making strides in the right direction with con-

cerns to reducing the deficit. However, the Pledge to America document that aided Republi-

cans in the recent election season, promised $100 billion to be slashed from government

spending. Of the $100 billion only $74 billion has been slashed, leaving another $26 billion outin limbo land. The GOP leaders have, as Rep. Paul Ryan said, made a down payment on a

more fiscally responsible Washington. Now is not the time to go on auto-pilot. Now is the time to

get behind the wheel and make the hard cuts our nation needs for future generations to prosper.

Businesses Exist to Make ProfitsAnd Thats a Good Thing

The government wants businesses to create jobs. Sounds like a good enough policy, right? Sadly,

it shows a fundamental misunderstanding of the motivating factors of free markets.

Businesses, for the most part, dont care about creating jobs. On a macro level, the primal force

that drives them is profits. A letter to the Wall Street Journalfrom Donald Boudreaux, an econo-

mist at George Mason, makes the point perfectly.




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Yesterday Pres. Obama pleaded with members of the U.S. Chamber of Commerce: Ask your-

selves what you can do for America. Ask yourselves what you can do to hire American workers,

to support the American economy, and to invest in this nation (Obama Vows to Knock Down

Business Barriers, Feb. 8).

The job of entrepreneurs, investors, and business owners and managers is to invest and to pro-

duce in ways that are most likely to yield the highest profit in the market. Period. By doing so,

businesses follow the best available signals to guide them to promote the well-being of others.

The additional goals that Mr. Obama wants business people to pursue sound splendid when

trumpeted in public speeches but, in practice, are far too nebulous to be workable. No business

person can possibly know enough to do consistently and successfully what Mr. Obama asks.

As on so many issues, Adam Smiths wisdom remains relevant: By pursuing his own interest he

[the business person] frequently promotes that of the society more effectually than when he

really intends to promote it. I have never known much good done by those who affected to tradefor the public good.

Sincerely,

Donald J. Boudreaux

People may be disgusted by profit-hungry companies. In fact, that dislike was likely behind

President Obamas messaging decision to pit Wall Street versus Main Street. As if the interests ofthe big-bad companies, whose CEOs sit in leather chairs looking down on the peons below them,

were at odds with the average workers futile attempt to find work in a down economy.

The truth is, that disgust is misplaced. Without a profit motive the economy simply breaks down.

As Milton Friedman described in his book Free to Choose,

Profit provides the incentive for investment in factories and machines, and for developing new

products and methods. This investment, these innovations, have, over the years, raised the pro-

ductivity of the worker and provided the wherewithal for higher and higher wages.

Not only have they led to higher wages, profits are the only reason jobs exist in the first place. A

businessmans naked self-interest in maximizing profits is what inevitably leads his business to

grow. He doesnt increase production because he really wants everyone to have whatever cool

thingamajig it is that he just invented, he increased production because he wants to be able to sell




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Economists Agree Obamas Budget is a Flop

President Obama will soon present his 2012 budget to Congress. With a pricetag of $3.73 trillion

and a projected deficit of $1.6 trillion, you have to wonder what Obama was thinking. I mean, is

this really the best you can do?

Economists who have gotten their hands on an advanced copy of the budget have been asking

similar questions. If there responses are any indication, Obamas big-spending budget could be

the biggest flop since The Last Airbender. (As an aside, is it still possible to call M. Night Shya-

malans movies flops? His career trajectory looks like our budget deficit in reverse.)

Heres a sampling of reviews from some non-partisan budget experts:

Non-partisan budget experts blasted the budget even before exact details were known.

The entitlement and tax reform agenda will apparently be deferred yet again, said Rob-

ert Bixby, director of the Concord Coalition, a fiscal watchdog group. It makes you

wonder what the point was of having a commission in the first place. USA Today

Erskine Bowles, the Democratic chairman of the fiscal commission, said the White

House budget request goes nowhere near where they will have to go to resolve our fiscal

nightmare. Washington Post

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, ac-

cused the White House of a political unwillingness to tackle the tough issues before afiscal crisis forces action. - USA Today

Its a slow train wreck coming and we all know its going to happen, said Bret Barker,

an interest-rate analyst at Los Angeles-based TCW Group Inc., which manages about

$115 billion in assets. Its just a question of whether we want to deal with it. There are

huge structural changes that have to go on with this economy. Bloomberg

As economists deeply concerned about our nations future, we urge a change in direc-

tion. To support real economic growth and support the creation of private-sector jobs,

immediate action is needed to reign in federal spending. Letter from 150 economists to

President Obama

The budget confirms that Mr. Obama is not taking the lead in embracing the kind of far-

reaching deficit-reduction plan recommended in December by a bipartisan majority of his

fiscal commission. It proposed saving $4 trillion over a decade through specific cuts in

spending for domestic, military and entitlement programs and new revenues from over-

hauling the tax code. New York Times




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Doug Elmendorf, Director of the Congressional Budget Office, testified last week:

Rep. [John] Campbell: Thank you, Mr. Chairman, well and Dr. Elmendorf and well

continue this conversation right now. First on health care, before I get to before I get to

broader issues, you just mentioned that you believe or that in your estimate, that the healthcare law would reduce the labor used in the economy by about 1/2 of 1 percent, given that, I be-

lieve you say, theres 160 million full-time people working in 20-21. That means that, in your

estimation, the health care law would reduce employment by 800,000 in 20-21. Is that correct?

Director Elmendorf: Yes. The way I would put it is that we do estimate, as you said, thatem-

ployment will be about 160 million by the end of the decade. Half a percent of that is 800,000.

So much for Nancy Pelosi insisting that Obamacare is about jobs. In its life, it will create 4 mil-

lion jobs 400,000 jobs almost immediately.

Thats the trouble with government involvement in just about anything they become so con-

vinced in their ability to solve one problem by adding more government that they fail to consider

the side effects of their actions.

One of the worst side effects of Obamacare has been the hidden penalty on employers. When

implemented Obamacare forces employers to offer government approved health insurance or else

pay federal taxes for failing to comply with the law. Economic research think-tank Economics21

argues that this mandate,

Will discourage business development and growth. Small firms with 50 or fewer workers will

have a very strong disincentive to expand. These business can avoid the new penalties by staying

small; growth will simply add new costs and burdens.

Mo government, mo problems. What we need is to take the government out of the equation and

let free markets go to work. This is the goal that Republicans have been pushing for since the

start of the debate. Sure, both sides may be pushing for the same thing, reforming our healthcare

system, but Democrats, like Lady Gaga, just laid an egg.




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Interest On Our Debt Prepared to Skyrocket

Quick quiz: What is the fastest growing portion of the federal budget?

A. Social SecurityB. Medicare

C. Medicaid

D. Interest on our debt

The costs of Medicare, Medicaid, and Social Security are all set to skyrocket in the near future.

Our inability to control healthcare costs and the aging of the Baby Boomer generations will

strain the finances of our biggest health and retirement programs.

Nevertheless, A through C are wrong. The biggest driver of our deficit in the coming years is ac-

tually interest on our debt. Nick Gillespie and Veronique de Rugy explain the problem in an arti-

cle forReason,

The main driver of the growth, however, is interest spendingthe bar tab for our binge. The

CBO projects that in the next 70 years, public money spent on interest will grow from 1.4 per-

cent of GDP (or $204 billion in 2010 dollars) to almost 41.4 percent of GDP (or $27.2 trillion

in 2010 dollars). In the short term, the cost of our debt will reach 3.8 percent of GDP by 2020

and 7 percent of GDP by 2030. Today spending on interest represents about a third of the cost of

Social Security; in 20 years it is expected to exceed the cost of that program.

Or if you like pictures (also courtesy ofReason):




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For some perspective, consider that annual federal revenues have averaged 18 percent of GDP

since 1950. This has happened despite wild fluctuations in individual income tax rates. So unless

something changes and the government is able to get a firmer grip on our wallets, yearly interest

on our debt will grow to more than double annual tax revenues. That of course is complete fan-

tasy, it will never happen, because our creditors will never let it happen. A debt crisis would

wrack our nation long before then.

Of course that doesnt mean that we have the luxury of ignoring entitlements. The deficits they

have and will cause are the primary reason we find ourselves with sky-high interest payments.

Rather, it underscores the need to address our deficits, the result of unsustainable spending, now.

Unfortunately, President Obamas just-released budget does very little to control the growth of

our national debt. It whittles away at the edges of discretionary spending while leaving the pri-

mary drivers of spending alone. Hopefully the Republicans will offer a more serious solution,

one that addresses entitlements, and works to erase the debt principle that threatens our future.

The Death of Small IPOs is Hurting our Recovery




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There has been much debate about the reason our economy has begun to stagnate. A lack of math

and science majors, our growing uncompetitiveness in a global economy, and government spend-

ing that may be crowding out private investment are some of the better theories.

This morning I came across another interesting one a dearth of small companies going public.Prolific entrepreneur and occasional blogger Jeffrey Stewart explains the problem on his site,

Urgent Speed:

But the US IPO torrent has turned into to a trickle.

Today only the largest of companies can go public, generally only those with over $500 million

dollars of market capitalizations. In the 80s there were IPOs where the net proceeds were less

than $900K.

AT&T, Disney, General Electric, Genentech, Cisco, Intel, Microsoft, Google and E-bay all had a

public offering. Since going public, they have all benefited from the credibility, profile and pres-

tige associated with being publicly traded companies. And of course the access to capital, both

as IPOs, and perhaps even more importantly, with secondary offerings.

Would the phone, talking movie, television, personal computer, and internet industry have been

as innovative if these leading companies were instead acquired as a division of Western Union?

I think not, but that is the future of most venture-backed companies today. M&A (merger and

acquisition) has become the only available exit for growth investors and Founders. Long termthis presents a problem.

It is an interesting observation and argument. Small companies with big ideas need significant

amounts of cash to bring their products into the marketplace. Unfortunately, cash isnt exactly

easy to come by. Angel investors are one way, unfortunately they are dying out, partially the re-

sult of recent Obama policies to out more limits on angel investors.

Initial public offerings (IPOs) are another way. These allow small companies to have the funds to

expand without losing their flexibility to quickly adapt. Unfortunately, policies, such as the in-creased regulatory expense of Sarbanes-Oxley, and the death of the smaller investment firms,

the momentum has shifted towards a focus on bigger transactions. Small start-ups and the poten-

tial for innovation that they carry is thus lost into the ether.




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Instead of IPOs, smaller companies are left with few options if they want to expand. Chief

among these is being merged or acquired by a much larger company. Sounds great, but as

Stewart notes, large companies have a track record of wasting innovation opportunities. . . New,

well funded, stand-alone leadership is needed to drive innovation.

Professor Obama Ignores Real Problems In Latest Lesson

Professor Obama took to the lectern yesterday to give everyone a little lesson in fiscal responsi-

bility. How on earth Obama, he of the $4.3 trillion in debt, can talk to us about fiscal responsibil-

ity is beyond me.

In a press conference yesterday he listed the two main problems in regards to our national debt.

First, weve got a big problem in terms of accumulated interest that were paying, and thatswhy were going to have to whittle down further the debt thats already been accumulated.

The second problem is rising health care costs and programs like Medicaid and Medicare

whose costs, once you get past this decade, [are] going to start zooming up again.

In explaining his budget against this backdrop he says, What weve done is to try and take this

in stages.

Now typically, the stages are in some way correlated to the problems that have been laid out.

Thats where Obama throws a curveball. Rather than deal with either of these two problems,

Obama says we must first get control of our discretionary budget.

The question is, why should discretionary spending, arguably the lesser of the problems be ad-

dressed first? Its like stubbing your toe on your way into the emergency room for a heart attack

and having the doctor tell you, Well get around to that ticker of yours, but first lets see what

we can do about this toe.

But even that is a false metaphor. Doctor Obama wouldnt even fix your toe, hed just wiggle it

around a little bit and proclaim the problem fixed. His plan essentially lives up to his promise to

put a five year freeze on discretionary spending, enabling him to focus on priorities by shifting

money away from other programs. The problem is that he is freezing them at current levels. In

case you hadnt noticed, were spending a lot more now than we were two years ago, meaning




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Obamas budget isnt really a sacrifice at all. It does more to lock in profligacy than usher in

change.

Even though Obamas budget completely ignores entitlement reform, or even hint at future re-

form, he is beginning to talk a big game.

He used his press conference to argue that step number two is going to be how do we make sure

that were taking on these long-term drivers and how do we start whittling down the debt. And

thats going to require entitlement reform and its going to require tax reform.

Treasury Secretary Geithner echoed Obamas call for a focus on entitlement saying, the U.S.

must rein in budget deficits and tackled entitlement spending that will reach untenable, unsus-

tainable levels. We have a real problem in the next 10 years, Geithner said. Its about a huge

imbalance between commitments and resources.

Okay, great talk. Obama and Republicans are apparently on the same page. The question is, why

didnt any of this newfound concern over entitlement spending show up in the actual budget. If

youre really serious about long term deficits as a result of these programs then reforming them

seems to be a logical place to start.

Instead, Obamas all talk. The too-late discussion of entitlements seems to be more of a push-

back against the growing criticism of his budgets failure to deal with the true problem. Its a

careful triangulation strategy meant to appease the grumblers. But until his actions actually backup the tough talk, pardon me while I zone out.

Whip Hoyer Accidentally Admits Obamas Budget Problem

Rep. Steny Hoyer, the second ranking House Democrat, unintentionally gave away the game

yesterday. In speaking about the push to rein in discretionary spending Hoyer said,

You will still have an operating deficit this year if we cut every nickel of discretionary spend-

ing.

Bingo.




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So Krugmans dream has basis in reality, we just have to become a totalitarian state in order to

try it out. Are you ready to make the switch?

Democrats Defecting Over Obamas Failure to Deal with

Debt

Its clear to anyone who cares to read anything but the Washington Postthat Obamas proposed

budget is an absolute mess.

A multi-trillion monstrosity whose only significant progress consists solely of trimming away at

the budgetary edges of a few discretionary programs. Of course the Washington Post had to get

all melodramatic about it. Crumbling inner-city sidewalks, dirtier drinking water, more debt forsome college students and higher heating costs for low-income families could be part of the leg-

acy of President Obamas proposed budget, says the Post.

Thats right, Obamas budget is going to turn us into a third-world country seemingly overnight.

Before long well be living in mud huts, boiling our drinking water, and reverting to being

hunter-gatherers. Makes you wonder how we possibly made due 5 years ago when the budget

was a full $1 trillion less than it is today.

While some wackjob writers are up in arms about the itsy-bitsy cuts, it is good to hear that Sen-ate Democrats are questioning whether the budget goes far enough to address the deficit. Erik

Wasson and Jordan Fabian from The Hillreported yesterday,

Democrats joined Republicans on Tuesday in criticizing President Obamas budget request for

doing too little to bring down the national debt.

Senate Budget Committee Chairman Kent Conrad (D-N.D.) faulted Obama for not taking on en-

titlement reform, and during testimony by Office of Management and Budget (OMB) Director

Jack Lew, suggested the administration was not being serious enough about reducing the deficit.

Sen. Chris Coons (D-Del.), a member of Conrads panel, said Obama should have followed

through on the recommendations of his own debt commission, which

february '11 issue debrief

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