James Pethokoukis

Politics and policy from inside Washington

Scott Walker, America’s Thatcher

Mar 10, 2011 01:57 UTC

“Where there is discord, may we bring harmony. Where there is error, may we bring truth. Where there is doubt, may we bring faith. And where there is despair, may we bring hope.” — Margaret Thatcher, May 4, 1979.

Reducing the power of government unions has several major benefits: 1) It will begin to make it easier to rework pension and healthcare obligations; 2) it will begin to make it easier to restructure government so that it is more efficient and less expensive; 3) it will begin to end a system where a major political party often acts as a wholly owned subsidiary of a special interest; and 4) it will begin help save the U.S. education system where teachers unions are preventing children from being taught by competent teachers.

The very good news from Wisconsin:

Republicans in the Wisconsin state Senate passed the most controversial portions of Governor Scott Walker’s budget repair bill late on Wednesday, stripping out the sections that required the presence of their 14 absent Democratic colleagues in the upper chamber.

In an 18-to-1 vote, the Senate approved the curbs on collective bargaining by public employees that Walker has insisted are needed to help the state’s cash-strapped municipalities deal with a projected $1.27 billion drop in state aid over the next two years. The measure will now go to the Assembly, expected to vote on the matter on Thursday.


Mr. Walker recognizes that government employeee unions are different than private unions and should never have been allowed. Private unions adre limited by what the fruits of their labors can produce – get to much and your company goes bankrupt and the employees are out of a job. The government will never go bankrupt as it has the power to print money and raise taxes. Thus you can collectively bargain benefits way out of proportion to anything that your actual labor produces. I feel sorry for the individual employees who may loose some of their bargaining priveledges, but the free ride on the taxpayers has got to end.

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Can America grow its way out of its debt problems? No

Mar 9, 2011 14:39 UTC

That’s the question CNBC’s Larry Kudlow asked House Budget Chairman Paul Ryan yesterday, which resulted in a fascinating exchange:

KUDLOW:  But what do you say to supply siders and others who argue–regarding Social Security, not health care–if you grow the economy in the next 50 years at 3 1/2 percent per year, which is the long-term growth since World War II, then Social Security will fix itself?

Rep. RYAN: No, it doesn’t.

KUDLOW: Now that doesn’t mean we shouldn’t have a personal account option and so forth, but that’s what they argue. If you grow the economy, growth, growth, growth, then we don’t have to slash benefits and the Republican Party will look better, not worse.

Rep. RYAN: Except, first of all, nobody is talking about slashing benefits. We’re not even talking about touching benefits for people in and near retirement. But we’ve run those numbers on growth and Social Security and they don’t catch up, because when you have more growth and you have more Social Security contributions, you have more expenses. The more you pay in, the more you get out. So growth, you cannot grow yourself out of our Social Security solvency problem. I’ve run those numbers with the actuaries. You do need to make some changes in Social Security benefit for the future generations to make this program solvent.

KUDLOW: But the actuaries say you can only grow at 2 percent for the next 50 years.

Rep. RYAN: No. But even if you run bigger growth numbers through the system, you still don’t fix the problem. I’ve run those numbers. I’ve run the 3 and 3 1/2 percent growth numbers through the system. We are kidding ourselves if we think we can simply grow ourselves out of our entitlement problems. We can’t. We have an $88.6 trillion unfunded liability with our entitlement programs, according to the GAO. Last year that was a $76.4 trillion problem. Every year we delay fixing these entitlement programs. We go about $10 trillion deeper into our unfunded liabilities.

Me:  This is actually a tricky issue.  As the CBO forecasts it, America’s debt-to-GDP ratio could top 700 percent by 2080. But drill down into that prediction and you find that the CBO has plugged in a rather dismal long-term forecast of U.S. economic growth, just 2 percent or so. That’s only two-thirds of the average U.S. growth rate since 1970. But what if (a) government spending tracks current projections over the next 70 years, (b) government revenue as a percentage of GDP stays at its historic average of 18 percent, and (c) the economy were somehow to grow a bit faster than its 20th-century average, about 3.5 percent.

Under those conditions, according to a recent study by JPMorgan Chase, a much wealthier America (generating $100 trillion in tax revenue rather than $50 trillion) would be able to afford projected spending without raising taxes. The long-term budget gap would vanish.

So Kudlow is correct — if you could find a way to meet those conditions.

But here is the problem with that math:

1) It, as Ryan alludes to, ignores that Social Security benefits are linked to income growth.  So higher growth equals higher benefits, though a quirk in how benefits are figured means faster growth could reduce the program’s short-fall by 25 percent or so.

2) Healthcare costs continue to increase at a rate faster than GDP growth. So you have to find a way to bring down spending, or healthcare will consume an ever bigger part of the pie and continually boost government spending (unless you reduce Uncle Sam’s role). This chart from the CBO tells is all:



Your logic is faulty re: averaging GDP growth since 1970. It would be like saying that a baseball player’s average batting average over 20 years was .300 when the reality is that his average was robust in his first 10 years and weak in his second 10 years:

First five years average: .340
Second five years average: .320
Third five years average: .290
Fourth five years average: .260

No major league baseball team would view this player as a .300 hitter in his last 10 years and if his agent was pedaling him as such he would be laughed out of every General Manager’s office in the league. The US economy is no different. The more robust 1970s, 1980s and even 1990s have nothing to do with today’s economy. And that history cannot be pulled forward to make today’s economy look better than it really is.

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When US debt payments consume all America’s revenue

Mar 9, 2011 01:42 UTC

Another scary chart from Mary Meeker’s USA Inc. report:


The Anti-Appropriations Committee

Mar 8, 2011 19:04 UTC

The U.S. lawmaking process is completely rigged toward favoring increases in federal spending rather than cuts. Sen. John Thune recently introduced a bill that would go a long way in tilting the playing field back the other direction.

Another good idea comes Orrin Hatch, the Utah Republican, and Mark Udall, a Colorado Democrat. They want to create a bipartisan Committee to Reduce Government Waste. A better name would be the Anti-Appropriations Committee. Its raison d’être would be finding and eliminating inefficient and duplicative government programs, like those the government’s chief auditor recently identified. A few thoughts:

1. It’s an old idea, but a good one. The committee’s model is the Joint Committee on Reduction of Non-essential Federal Expenditures, started in 1941 by Sen. Harry Byrd who objected to paying for America’s war effort by raising taxes. In its first three years, the panel claimed credit for some $2 billion in savings, equivalent to perhaps $25 billion today.

2. Under the Hatch-Udall bill, the committee could fast-track its annual recommendations to the Senate floor. Perhaps an even clearer mandate would be to give the panel a specific goal, such as finding cuts equal to some percentage of the previous year’s deficit, as Thune suggests in his bill.

3. But establishing an anti-appropriations committee would be just a first step. Another could be setting budgets for two years rather than one, giving Congress more time to craft and monitor fiscal plans. Lawmakers, after all, have only met the current annual budgeting deadline in four of the past 34 years. Other potential reforms would make it harder to skirt restrictions by labeling outlays as emergency spending.

Bottom line: Of course, none of this avoids the broader need to whittle down America’s long-term healthcare and retirement obligations. But new structures that emphasize discipline could put Congress a bit more in the mood to save rather than spend.

An artificial recovery?

Mar 7, 2011 17:25 UTC

IBD’s Jed Graham shows what’s supporting consumer spending these days:

Three props to personal income — higher social insurance benefits, lower tax payments and higher government wages and benefits — are adding just shy of $1 trillion to personal income on an annualized basis relative to pre-recession levels.

Those government supports account for the entire $932 billion, or 8.7%, increase in personal disposable income — and then some — since the start of the recession. In other words, government income props, mostly deficit-financed, have paid for all the gains in personal spending and saving.



Wait. What? Now you don’t want tax cuts?

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The long walk back

Mar 4, 2011 18:57 UTC

WH economic adviser Austan Goolsbee:

The 0.9 percentage point drop in the unemployment rate over the past three months is the largest such decline since 1983, and it has been driven primarily by increased employment, rather than falling labor force participation.

Though unemployment remains elevated, we are seeing signs that the initiatives put in place by this Administration – such as the payroll tax cut and business tax incentives for investment – are creating the conditions for sustained growth and job creation. The steep decline in the unemployment rate and the overall trend of economic data in recent months has been encouraging,

The overall trajectory of the economy has improved dramatically over the past two years, but there will surely be bumps in the road ahead.

A now, a chart (via Calculated Risk):



I’m a little puzzled by this article by Mr. Pethokoukis. Does he see his role as a columnis/journalist as just passing along to Reuters readers whatever is fed hime by Austan Goolsbee? or other administration shills? I guess Pethokoukis doesn’t do this ALL the time. But why not stop the phoning-in journalism. I think Austan knows how to publish his own press releases.

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America, what’s gone wrong? I think it’s this

Mar 4, 2011 18:18 UTC

No one chart could sum up everything gone wrong with the U.S. economy, but this one comes close to showing America’s misplaced priorities:



Add education spending and you do just about have the whole story of America’s recent problems. Unproductive government-driven investment in health care, education, and housing is a black hole sucking up money that would otherwise be allocated according to its most productive use. This is the unintended consequence of government intervention played out on an economy-wide scale.

The solution is a full retreat of government from these area. When we will we as nation realize that? Will it even be possible to fix the mess we’ve created when we do?

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Matt Miller vs. Paul Ryan

Mar 4, 2011 17:28 UTC

Over at the WaPo, the great Jennifer Rubin takes Matt Miller to task for his completely unfair and wrongheaded critique of Paul Ryan.  See, Matt Miller has a thesis shared by many in the MSM and center-left think tank community. It goes like this:

1. As societies get richer — and older — they demand bigger government to provide more services.

2. Thus to prevent a fiscal crisis, taxes much go up since it is impossible to substantially cut spending.

3. And since Paul Ryan advocates, to Miller at least, the impossible — spending less government money on entitlements and keeping taxes low — Ryan is not a serious person when it comes to dealing with America’s debt problem.

The problem with Miller’s thesis is as follows:

1. Raising taxes high enough to deal with exploding healthcare costs would kill economic growth, making the debt problem even worse.

2. Ryan, via his Roadmap for America, demonstrates a way to provide a safety net that does not require bigger government. Miller refuses to acknowledge the viability of free market solutions.

3.  There is no political evidence that Americans are ready for dramatically higher taxes.


So the reason Miller is pointing out the absurdities of Paul Ryan’s plan is that the country is struggling to clean up the fiscal mess left by … Republicans like Paul Ryan. Ryan voted for budgetary and economic policies that added $5 trillion to the national debt over eight years. He supported the budgetary and economic policies that took a $230 billion surplus and turned it into a $1.3 trillion deficit. He was proud to endorse all kinds of measures, including two wars and Medicare expansion, that cost a bundle, but which Ryan and his cohorts never even tried to pay for.
But now Paul Ryan has decided it’s time to clean up the mess he helped create, and to do so, he wants to go after Medicare and Social Security.
Ryan’s “roadmap” is a right-wing fantasy, slashing taxes on the rich while raising taxes for everyone else. The plan calls for privatizing Social Security and gutting Medicare, and fails miserably in its intended goal — cutting the deficit.
When Matt Miller suggests that’s ridiculous, Pethokoukis concludes that HE’s being unfair and wrongheaded? Come ON.

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Some scary numbers about U.S. education

Mar 4, 2011 16:13 UTC

Some devastating factoids on U.S. education from the good folks over at Reason (I have gleaned some numbers from an article well worth reading in whole):

1. According to Department of Education statistics, in 2007-2008 (the latest year available), full-time public school teachers across the country made an average of $53,230 in “total school-year and summer earned income.” That compares favorably to the $39,690 that private school teachers pulled down.

2. According to EducationNext, government employer contribute the equivalent of 14.6 percent of salary to retirement benefits for public school teachers. That compares to 10.4 for private-sector professionals.

3. In 1960-61, public schools spent $2,769 per student, a figure that now totals over $10,000 in real, inflation-adjusted dollars.

4. In 1960, the student-teacher ratio in public schools was 25.8; it’s now at a historic low of 15.

5. In 2007, the percentage of parents with children in assigned public schools who were “very satisfied” with the institution was 52 percent. For parents whose children attended public schools of choice, that figure rose to 62 percent. Parents sending their children to private schools, whether religious or non-sectarian, were “very satisfied” 79 percent of the time.

6.  Despite all the extra resources devoted to public school teachers and students, student achievement has been absolutely flat over the past 40 years.

None of this should be surprising given the lack of productivity and efficiency inherent in government monopolies. As the New America Foundation notes:

The U.S. ranked 68th (out of 139 countries) in terms of wastefulness of government spending in the 2010-11 World Economic Forum report on global competitiveness. Experts put our public-sector productivity about 10 years behind that of the rest of our workforce. If public workers could halve that gap, the annual savings would ring in at $100 billion to $300 billion, according to a new study by the McKinsey Global Institute. That would mean the equivalent of a recurring stimulus package every three to eight years.

Debt ceiling battle could shake markets

Mar 4, 2011 15:53 UTC

“To attract any Republican votes to a debt ceiling increase, you’re going to have to come up with some serious spending reductions and some budget process reforms. There is going to have to be a significant incentive.”

That is from my chat yesterday with Senator John Thune.  Now I think it is even more evident that getting a 2011 budget will be easier than increasing the debt ceiling to pay for it. I will add, however, that I think it is smart to try and use whatever leverage is out there to gain more spending cuts and budgetary reforms.

1. But right now the two issues are on separate tracks — and it looks likely that it will stay that way. The GOP-controlled House, with its complement of small-government Tea Party members, has already passed a bill that would cut domestic spending by $61 billion this year. Such a reduction would slash discretionary programs — everything other than defense and mandatory social spending — by an average of 25 percent. The Senate, run by Democrats, prefers to keep such spending flat.

2. Democrats may have the president in their camp, but more of them face re-election campaigns in 2012 than their Republican opposite numbers. Although another short-term fix is possible, after the give-and-take of a final deal to fund the government could include cuts of around $30 billion.

3. But Republican sources say there’s a long way to go before finding common ground, even within their party, on raising the debt ceiling. Adding to the uncertainty are new polls showing the American public unwilling to accept significant cuts in Social Security and the like. Another variable is a bipartisan group currently conducting closed-door talks to fashion a 10-year “grand compromise” on the budget. Their plan could emerge smack in the middle of the debt ceiling debate.

Bottom line: The path to avoid a debt default remains murky, though both sides know it would be a disaster.


Anyone who thinks Science isn’t political hasn’t heard of research grants and the military-industrial complex. Science gets hugely political. And trashing liberals as part of your statement makes it even less valid, sir.


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