This is not as good as it sounds.  Mr. Sloan quotes Professor of Economics Allen Smith:

Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.

In other words, the Social Security surplus was loaned to the Treasury, which spent it.  Now the Treasury has to come up with the funds to honor the redemption of the Treasury Bills it issued to the Social Security Administration.  Where does the Treasury get the money?  Through higher taxes or reductions in spending on other government programs.

What is frustrating is either Senator Reid is totally clueless with regard to Social Security or he is lying to the voters of Nevada in order to get reelected.  I vote for the later.  If that is the case how is this different than when Wall Street bankers promoted bogus investments–i.e. lied?  Senator Reid is doing the same thing–he is misleading voters for personal gain.

This lack of a trust fund leads to another question, why did the Greenspan Commission think this would solve the problem?  This commission, chaired by Alan Greenspan, and made up of a number of Republican and Democratic members of Congress and private citizens met to save Social Security from bankruptcy.  Their solution was to increase the number of workers covered by Social Security and raise the payroll tax.  All this did was disguise the size of the federal debt and postponed making tough decisions.  What doesn’t make sense is why Mr. Greenspan endorsed the plan.

In the final couple of years of George Bush’s presidency his approval rating was in the low 30s and most pundits called him the worst president ever.  Yet as Social Security begins to run up higher and higher gaps between expenditures and revenues, American (especially the young) will look back and see that Mr. Bush had the political courage to try to reform Social Security–not just leave it to future presidents and Congresses.  Instead member of both parties of Congress ignored him.  Then again this is to be expected– postponing tough decisions is ingrained in their DNA of most politicians.

In response to the high unemployment rate, Speaker Nancy Pelosi advocated that the federal government lengthen unemployment benefits for those out of work.  Her rationale is the unemployed will spend the money, increasing aggregate demand, which in turn will encourage employers to hire more workers.

There are a number of problems with her thinking.  One is it does nothing to reduce unemployment.  If it did, the nearly one trillion dollars in stimulus spending passed last year would have had done more to lower unemployment.  Remember, the Obama administration stated that passing this stimulus package would limit the unemployment rate at 8 percent. 

Second, there are jobs out there waiting to be filled.  Roses Ammon, vice-president of a recruiting agency in Kansas City had an article in the Daily Caller complaining about unemployment benefits.  She wrote that her agency has contacted many unemployed about job openings only to be told to call back when their unemployment benefits run out.  Why would any rational person want to work when they can get paid not to get up every morning and fight rush-hour traffic?  Extending unemployment benefits, as Speaker Pelosi suggests, only prolongs joblessness.

Second, this type of spending does nothing to help the economy.  The Solow Growth Model, named after Nobel Prize winning economist Robert Solow, says that long-term economic is the result of higher savings and investment, creating capital accumulation and technological innovation. 

The unemployed do not save their U.I. benefits and the areas of the economy where they spend their checks—food, clothing—doesn’t lend itself to long-term technological progress.  All this additional spending does is increase deficits—i.e. reduces national savings.  Higher spending today means higher taxes tomorrow to pay for this effort to increase short-term economic growth.  Remember, Keynes theory of higher government spending in economic downturns was in an atmosphere of balanced budgets—not in situations of a national debt nearing one-hundred percent of GDP.

It would be one thing to advocate more unemployment benefits to help in the short-run if the Democrats (and Republicans in the first part of the decade) passed legislation to improve long-run economic growth.  They have not.  They passed health-care reform that does nothing but put additional burdens on employers, making them less likely to hire more.  The financial reform bill passed by the House and waiting a Senate vote puts many new and unforeseeable restrictions on the flow of credit and investment in the United States—which will only lower economic growth.

This is the problem with having politicians intervene in economic policy.  They are not concerned about growth rates five and ten years down the road—only what it will be on the next election day.  As a result, the policies they pass only do harm to the very people they are supposedly trying to help.

When President Obama—and a filibuster proof Democratic majority in the Senate—took office, the unemployment rates for Nevada and the United States was 9.6 and 7.7 percent respectively.  One of the first things the Democratic president and Congress did was pass a nearly one trillion dollar stimulus package that was supposed to limit the U.S. employment rate to eight percent.

With all of this power, Mr. Reid has done nothing to help the people his was elected to represent.  His standard response is that it is all President Bush’s fault.  Yet blaming President Bush is a weak excuse for a couple of reasons.  Article I of the U.S. Constitution deals with the powers of the Congress—the founders put the description of the powers of Congress first because they felt it was the most important branch of government.  Section 7 says all bills must be passed by both the House and Senate before a president can sign it into law.  In other words, any legislation signed into law by a president must first pass both houses of Congress.  Why would a Democratic majority leader and speaker of the House pass bills that they felt would harm the country and more specifically their constituents?

A second more important weakness of this argument comes from a study of presidential power by the late scholar Richard Neustadt.  His premise of presidential power is it isn’t derived from the Constitution but from the perception of power by others:  Congress; bureaucracy; media; public; and foreign leaders.  If these groups don’t respect the president they will not follow him.  When President Truman was asked what the newly elected President Eisenhower should expect when he takes office, he said (I am paraphrasing):  When he was a general everybody did what he told them to do; as president no one will.  People will follow the president if they believe it is in their best interest to do so.

Now look at the last two years of President Bush’s second term.  His approval rating was in the low 30s.  He was presiding over the beginning of an economic downturn, the aftermath of Hurricane Katrina, and violence in Iraq.  If someone could rank presidents by their lame duckiness (I know that is not a real word) President Bush would rank number one in terms of least amount of power of any modern president. 

Only a very weak or incompetent majority leader would allow such a politically weak president to dictate policy that would do such harm to his constituents.

This was evident by the recent remarks by Speaker Pelosi before a group of musicians and artists.  The speaker’s intention was to justify the recent health care reform bill.  She said the bill would allow all of the would-be musicians to quit their jobs and devote their full attention to their artistic endeavors because the government would provide for their health care.

Great, so for every Elvis Presley or Madonna there will be thousand of musicians whose chief source of income is the money they earn performing in front of subway station.  But at least they won’t have to pay for their medical expenses.  I do not oppose anyone wanting to pursue a career in music or acting—I just don’t thing I should have to pay for them to do it.

Speaker Pelosi also talked about all the jobs the bill would create because thousands of entrepreneurs would leave their current jobs because they won’t have to worry about health care expenses.  This is not exactly true.  If they intend to only have one employee—themselves—then they might be better off due to the bill.  But if they want to hire any additional workers, they would be saddled with their health care costs.  Not exactly the ideal situation.

This notion of entitlement was also evident today as there were hundreds of protestors marching in Washington.  Their grievance was corporate greed and the need for greater job creation.  Many were wearing shirts embroidered with the words Service Employees International Union (SEIU).  Over the weekend some protestors gathered at the home of a Bank of American executive in Washington, protesting the handouts the bank received from the government. 

My question is how different is Bank of America and SEIU in terms of corporate mentality?  Both have a board of directors and shareholders.  For Bank of America, the shareholders are the ones who invest their own money in bank stock; for SEIU, the shareholders are the union workers who may or may not willing pay dues.

The difference between the two is Bank of America provides benefits to the economy and its shareholders.  If they make a profit, the shareholders receive dividends.  What do the SEIU shareholders get?  The union does not create any wealth—they main function is to redistribute existing wealth.  SEIU executives—who make six figure salaries—will say they work to get union members higher wages and better benefits.  Why does a worker need a union for this?  If they work hard and strive to become more productive, they will receive higher earnings.  Demanding higher pay for doing the same amount of work only reduces the profits of the employer and the higher costs passed on to the consumers.

I find it ironic that today’s protestors complained about corporate greed but demanded they create jobs.  Long-term economic growth comes from investment and savings, which increases the capital stock of the economy and in turn raises the demand for additional labor.  Yet these protestors favor government policies which do the exact opposite—i.e. higher government spending and greater debt, which crowds out private investment and stifles job creation.

All this boils down to one thing, a sense of entitlement.  Too many people think they should be handed high paying jobs without having to work for them.   In turn politicians—who feel entitled to their positions of power—give the people what they demand, regardless of the consequences.  At some point the federal government has to stop the spending.  When they do the hundreds of protesters will turn to thousands and politicians will have no one to blame but themselves—though I am sure they will find a way to blame corporate America.

The commission would do well to look at a study by the Tax Foundation.  It did a hypothetical analysis to determine what the federal tax rates would have to be in order to eliminate the $1.2 trillion deficit in fiscal year 2010.  Mind you this is what is needed to erase the deficit—it says nothing about how to chip away at the national debt. 

The Tax Foundation determined Congress would need to raise the lowest rate from 10 percent to 24.3 percent; the 15 percent rate to 36.4 percent; the 25 percent rate to 60.6 percent; the 28 percent rate to 67.9 percent; the 33 percent rate to 80 percent; and the top rate from 35 percent to 84.9 percent.

This study is slightly unrealistic because it is a static analysis.  This means that the model assumed that there would be no changes in work, savings, and spending habits of Americans when faced with these new rates.    

A more realistic analysis—but harder to calculate—is a dynamic one.  This type of analysis would take into account changes in workers behavior when faced with the new tax rates.  For instance, if Congress raised the top rate to 84.9 percent, those who make over $373,601 would very likely work less or move more of their money into tax shelters—as would everyone else in the lower tax brackets.  What this means is the rates in the original analysis would not take in as much revenue as in the static analysis.  The federal government would have to raise the rates even higher.  In turn, taxpayers would work even less.

As people stop working, the model would recommend even higher rates, most likely nearing the one hundred percent mark for the highest income earners.  The problem is the IRS would collect nothing as no one would work if they had to pay all of their income in taxes.  All those who earn less than the $373.601 would have to make up the difference.  So the rates for the lower income citizens would have to rise.

To make a long story short, if the government can’t eliminate the $1.2 trillion deficit this year through higher revenue only.  To attempt this would destroy the economy because the tax rates would have to keep rising at every income level to the point where no one would work and the government would receive no revenue.

Raising taxes too much will only result in lower economic growth as individuals refrain from working.  What the Tax Foundation’s analysis shows is the best way to eliminate the deficit and begin to chip away at the federal debt is through the spending side of the budget.

The CBO scores spending programs by assuming current laws.  For instance, when calculating economic growth and projected future revenue, it assumes nothing changes (i.e. Congress will not raise taxes or that any other spending program will be implemented).  That is why Congress never permanently fixes the alternative minimum tax but instead makes yearly fixes to it.  The reason is even though the CBO knows it will be fixed, they can’t put it in their assumptions.  Thus revenue projections are much higher than it would be if Congress made the fix permanent.  This allows Congress to put in place more spending programs and say they won’t increase the deficit.   They know once a program is created it is hard to cancel it.

As with health-care, the Democrats tailored the bill to take advantage of the CBO’s limitations so the legislation would show deficit reductions.

My suggestion for the Republicans to show how deceptive the whole health-care reform process was is to require the CBO to re-score the bill every time the Democrats put forth any new piece of legislation (e.g. cap-and-trade or the so-called medicare doc fix).  This would bring to light the falsehood that the health-care bill pays for itself and it will make it easier for Republicans to demand changes without looking like they want to prevent millions of Americans from receiving medical care.

The Democrats have it wrong.  For one, it is very unlikely the majorities who like the individual parts are the same for each.  In other words, some people like some parts and not others and to varying degrees.  That is why a majority disapproves of the comprehensive health-care reform bill. 

The flawed logic is best explained though an example.  Say after a dinner at a restaurant the waitress gives you the dessert menu.   Your first reaction is to say everything looks so good.  You wouldn’t mind having a piece of chocolate cake; or a piece of the apple pie; or the ice-cream sundae.  Yet it is highly unlikely you would order everything on the menu and eat them all at one sitting.   If you did, it would cost not only a lot of money but you would likely end up sick the next day.  As well, you would have to run five marathons to burn the calories you ingested.  In other words, the sum of the parts don’t equal the whole.

Another example I came across recently was a thought experiment of how to build the ideal car.  One would think you take the best parts of the best cars, i.e. the engine of a Porsche; the braking system of Volvo; the body design of a Mazarati and put them together.  The conclusion of the thought experiment is such a process would end up building a bad car.  The reason is the engine of the Porsche is designed to work with the other parts of a Porsche, not of a Ford or Chevrolet. 

This is the same with the health-care reform bill.  Pulling together into one huge bill the so-called best ideas from various academic papers or existing health-care initiatives in states or other counties doesn’t make for an optimal bill. 

One last item.  President Obama stated on many occasions that he would not sign a bill that added one dime to the national debt.  Greg Mankiw has a good analogy as to why such a goal does more harm than good.

The winner of the presidential straw-poll was Representative Ron Paul of Texas.  One should not read too much into this as half the individuals who voted were under the age of 26—it wasn’t a representative sample of those attending the convention let alone the Republican Party itself.  As well, if you looked at how the vote went, those who spoke at the convention before the vote was taken did better than those who spoke after or who did not attend.

I thought Glenn Beck gave a good key-note speech.  I agreed with his criticism of  those politicians—both Democrats and Republicans—who fall into the trap of big government.  I agreed with him on the need to worry about the ideology of progressivism–which Mr. Beck said was just another term for big-government policies.  I would recommend reading Jonah Goldberg’s book Liberal Fascism, which describes in great detail the origins of the political philosophies of many leading Democrats (and some Republicans as well). 

My last thought is with the Tea-Party movement.  It is good to have these types of grass-root movements to stimulate a dormant political party .  My concern is not what they advocate but that the movement might break away to form a third-party.  This would be disastrous not only for the Republican Party, but for the nation as a whole. 

The one thing that has created political stability in the United States is the tradition of the two-party system of government.  This requires the two major parties to fight it out for the moderate/independent voters.  Look what happened in 1994 and 2009/2010 when the Democrats tried to nationalize health-care—they lost their majority in the House and Senate in 1994 and are faced with the same scenario this year.

It is not that most Americans don’t like change, it is they don’t like large-scale radical change thrust upon them all at once.  I know those on the fringes of the political spectrum don’t like this but it is reality.  The goal of the tea-partiers should be to slowly move the center of the political spectrum to the right.  In other words, create a situation where the policies once thought of as conservative/far-right are now accepted by those who consider themselves moderates.  This can’t be done overnight. 

Some will cite polls which show those who identify themselves as conservative is greater than those who consider themselves moderate or liberals.  While that is great, the percent of self-identified conservatives is less than 50%, so conservative Republicans need the support of some moderates and independents. 

Nor should members of CPAC and the tea-party movement criticize any  Republican who doesn’t tow the line on every point.  The case in point is Senator Brown of Massachusetts.  He became the darling of the party after his victory in January, but started to receive criticism when he voted to pass a Democratic sponsored jobs bill.  Noemie Emery’s column in The Examiner sums up this idea very well.  Richard Sammon at Kiplinger also has a good article on the tea-partiers.

No two people have the same views on everything.  When fringe groups within one of the major parties threatens to form a third-party because they feel the majority has lost its way is not a sign of political purity but one of arrogance.  It like the kid who doesn’t get his way on the basketball court takes his ball and leaves.  In situations like that no one wins.

Normally I take Metro to work, but decided to walk after hearing that trains were running 25 minutes apart.  Thankfully I didn’t try to ride the train because people were waiting on the platform for an hour to get on a train.

The commuters who had it worse were the drivers.  One more than one occasion I over-heard someone say it took them nearly 3 hours to get into work.  In the morning there were nothing but long lines of traffic throughout the city.  When I went out at lunch nothing had changed.  It was not uncommon for people to wait three cycles of the traffic light to get through an intersection.  The worst was the evening commute.  Every intersection I walked past had cars blocking them. 

I did get to experience Friday’s commute from hell on Tuesday.  I take an evening class and ride the bus to the campus.  It took 30 minutes to go four blocks.  I got to class forty minutes late–thank you Mayor Fenty.

Most of the problem was the fact that city streets were not effectively cleared.  The excuse DC officials gave for not plowing residential streets was the need to make sure the main roads were clear.  By that they meant if a street had six lanes, four lanes were cleared of snow; if the street had four lane, two lanes were cleared.  So the normally bad traffic was worse as commuters had to funnel into fewer lanes of traffic.  You know the streets are bad when garbage trucks are getting stuck (something I witnessed on my walk to work).

This past Sunday I did see road crews with front-end loaders moving snow from the two unplowed lanes on Connecticut Ave.  The problem was they put the snow in giant piles which blocked two of the south bound lanes of traffice.  Even though many didn’t work because of President’s Day, this caused quite a backup during the Monday morning commute.

My question regarding this traffic nightmare is where were the government officials?  It wasn’t like the snow came up all of a sudden while everyone was at work.  The streets were clogged with cars all day long.  In the summer traffic cops man many of the major downtown intersections, making sure no one runs red lights, pedestrians are able to cross the street, and most importantly making sure no one blocks the intersection.  Yet on the one day when they are most needed they are nowhere to be found.  Much of the problem could have been mitigated by making sure cars did not block the intersection when the light changed.

Where were the police?  I saw one police car waiting at a light on Connecticut Ave. but when the light turned green he could not proceed because cars were blocking the intersection.  Yet the police officer did nothing to rectify the situation.   

I understand that the city can’t budget for a once-a-decade snow storm but they can do certain things.  One would be to have private contractors assist in the snow removal when a certain amount of snow falls in the city.  Another is to utilize idle city workers.  For instance, the most efficient agency in the city is the one that writes parking tickets.  On days like this there is not much use for them, so why not require them to shovel snow?  Every intersection in the city has three feet of snow piled in front of the crosswalks.  If you are lucky, there is a 12-inch wide path in the pile for people to cross the street.    

It is a city law that residents must have their sidewalks cleared within a couple of days after the snow ends, yet city owned sidewalks remained unshoveled a week after the first snowstorm.  There are a number of bridges near my house, which correct me if I am wrong, are city property.  None of the sidewalks were shoveled after either snow storm.  This makes for a dangerous situation.  The bridges have a 3 to 4 foot tall railing to prevent pedestrians from falling off the side.  When you add in nearly three feet of unshoveled snow the railings become only 2 to 3 feet high.  Ticket writers should be utilized to shovel the sidewalks of the city’s bridges.

Is this really anyway to run a city?  Thousands of citizens were severely inconvenienced by the incompetence of city officials.  Where was the leadership?  There are many definitions of leadership.  One is doing something that goes above and beyond what is expected of you, especially in a crisis situation.  No one stepped up to take charge and try to rectify the situation.  It is the reasoning of every city worker, including those elected to office:  if it doesn’t say it in my job description, I am not doing it.  Shameful.

Don’t member of Congress have more important things to do than sit for hours in one of the choice seats?  Worse is the fact that they do it for the sole reason of getting their picture on television shaking the hand of the president as he walks into and out of the chamber.  The article stated Rep Engel showed up twelve hours before the 9:00 p.m. start time.  Apparently Mr. Engel does this almost every year of the 22 years he has been in office—and is known as the ”informal dean” of seat savers.  In other words, if you multiply the 22  State of the Union addresses he has attended by 12 hours, that is 264 hours—or eleven days where Mr. Engel has done nothing more than sit in an empty chamber saving his seat.

I have a suggestion.  Instead of a first come, first serve rule, have Congress designate a certain number of seats as “choice seats” and then auction them off on the day of the speech.  You could create an E-Bay style site where members put bids on the seats (using their own money).  The total money spent on the seats would then be donated to a designated charity.  For instance, this year the money could have been given to the Haiti earthquake victims.

There is nothing one can do to diminish the egos of politicians who care only about television “face-time” but at least with this scenario some worthy charities could benefit from their vanity.