Hold Him To It (Cafe Barfo Alert)

Friday's jump in unemployment sent Wall Street into a tailspin, but it shouldn't have come as a big surprise. The U.S. economy may or may not be technically in recession, but it is certainly growing much more slowly than its potential. This "output gap" was bound to show up in higher unemployment. More significant was the fact that the bad news on jobs followed bad news about consumer spending. The much-ballyhooed tax rebate, it seems, isn't having much impact. So much for cheery forecasts of imminent recovery. Now what? First, don't give up on monetary policy. The slump during the first Bush administration dragged on much longer than anyone expected, even as the Fed kept cutting. But in the end rate, cuts did do the trick. I wouldn't be surprised if the Fed's funds rate goes to 2 or lower before we really see a turnaround, but the odds are still that rate cuts will eventually work. What about fiscal policy? Some liberals have recently made common cause with the Bush administration, arguing that the economic slump is a reason to put aside promises to protect the Social Security surplus. But those liberals are making a big mistake. Even on the straight economics of the case, it is by no means clear what good it would do to give up on protecting Social Security. By and large, the spending decisions that Congress will make over the next few months won't have much impact on the economy until late next year at the earliest. Even pessimistic analysts think that a recovery will already be under way by then. Furthermore, responsible behavior can be rewarded — and irresponsible behavior punished — quite quickly. In 1993, in the face of a still- sluggish economy, Robert Rubin and Larry Summers urged Bill Clinton to commit himself to fiscal discipline. Such a commitment, they argued, would help keep long-term interest rates down and would do more to stimulate the economy, even in the short run, than any attempt to pump it up with deficit spending. And they were vindicated by events. So even an administration that is sincerely trying to fight an economic slowdown should be held to its fiscal promises. And when an administration isn't sincere about its motives, it's even more important to hold it accountable. Those are strong words, but George W. Bush has a consistent pattern: he doesn't respond to events by changing his policies; he merely uses those events to justify his original agenda. One need only point to the way he used a short-term economic slowdown to push through a long-run tax cut almost identical to the one he proposed back in November 1999. Given that the Bush tax cut wasn't designed to fight a recession, it's no surprise that it isn't working. The only part of the tax cut that does anything for the economy this year is the rebate — added to the plan at the insistence of Democrats. And the rebate is less than 2 percent of the 10- year total. Even if consumers spent it all (and it's already clear they won't), the rebate would hardly make a dent in the unemployment rate. Meanwhile, the tax cut will cost the Treasury at least $2 trillion after 2004 — that is, after the economy will supposedly have recovered. That does little or nothing to fuel current consumer spending. But as Mr. Rubin and Mr. Summers could have told you, the prospect of long- run fiscal irresponsibility keeps long- term interest rates high. In other words, the Bush tax cut, aside from its devastating impact on long-run budget prospects, is also a short-run drag on the economy. Is there any reason to suppose that Mr. Bush, if he is allowed to get away with breaking his promises on Social Security, will use his freedom of action to any better effect? None at all. In fact, during his brief press conference after the unemployment numbers came out, Mr. Bush did it again. Now that the excuse of a supposed energy crisis has evaporated, he tried to sell Dick Cheney's energy plan — the one that won't produce any oil for at least a decade — as part of his plan to fight the current slowdown. So to those who think that Mr. Bush should be released from his promises because of the weak economy: think again. Mr. Bush won't use his freedom to good effect; he will simply use it — and you — to do more harm.

Our local paper here in Florida, the Sarasota Herald-Tribune, printed two of PK's diatribes in the last week, and I mailed this letter to the editor in response. To date, it hasn't been printed, nor do I expect it to be. Notice how the radical left has abandoned (for now) it's attacks on GWB on the basis of the environment, and shifted 100% to the economy. Can we say "agenda"? Sure we can...

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September 2, 2001

Letters Editor, The Sarasota Herald-Tribune

Re: "Paul Krugman: 'Lockbox' holds public's trust"

NY Times' columnist, Paul Krugman, in his 8/30/2001 editorial, "'Lockbox' holds public's trust", pretends to crusade for the public good when, in reality, he is merely utilizing the latest left-wing invention to bash President George W. Bush: the "raiding" of the so-called Social Security "lockbox".

Ignoring Mr. Krugman's obvious agenda, let's cut to the chase: This "lockbox" does not exist. Period. It never has. Even if it did, it would be stuffed with nothing more than IOUs. In the "Perspectives" section of your 9/2/2001 edition, AP columnist Leigh Strope states, "To understand the debate, one must come to terms with the lockbox idea. It's a sham.". Treasury Secretary Paul O'Neill has stated point-blank that the Social Security fund "does not consist of real assets; we are left to rely on the federal government's future decision to either raise taxes, reduce spending or increase borrowing from the public to finance fully Social Security's promised benefits". This is not a partisan conclusion. Even ex-president Clinton's FY2000 budget acknowledged this.

If a setup like Social Security was run by anyone besides the federal government, they would be in prison for fraud. Social Security has always been a Ponzi scheme, where no money is saved or invested, but instead passes straight through to current beneficiaries, and the surplus spent elsewhere. As the number of beneficiaries to payees grows over the coming years, this scheme is ultimately doomed to failure.

The bottom line is this: Now forty years old, I have paid into this system my entire working life. By the time I am old enough to be eligible, the entire house of cards will have collapsed under it's own weight. I, along with the rest of my generation and those that have followed, will not collect a red cent.

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