Archive for September 2012

John Stossel – Puerto Rico Is A Model For Economic Recovery

John Stossel – Puerto Rico Is A Model For Economic Recovery

John Stossel explains in this short video how Governor Luis Fortuño of Puerto Rico showed political courage and reduced public spending and debt.

Here are the main points of the video:

Our politicians won’t stop spending. Puerto Rico was in the same boat as us. Businesses fled because of the high taxes. When the current governor, Luis Fortuño, was elected, there wasn’t enough money to pay the government workers. John Stossel interviews Fortuño in this video.

Fortuño cut spending and lowered taxes. In three years, they cut their deficit by 90%. The governor cut his own salary by 10%. He froze everyone else’s salaries. He severed government contracts. He merged agencies. He fired government workers. In three years he reduced the government headcount by 39,000. Some of the displaced workers started their own businesses. He helped them start businesses by streamlining the permit process. Instead of 28 permits to open a store, you go to one office and can do it online.

Businesses have returned and are expanding, such as Walmart and Coca Cola. They had two toll roads that were poorly maintained and lit. They provided a 40 year concession to a private company. Now the toll roads are properly maintained and functioning. They are going to do the same thing with their airports and the penitentiaries, even school construction and maintenance.

What is the lesson for us? Government spending can be cut. Puerto Rico did it. Private enterprise can be restored.

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Its Simple to Balance The Budget Without Higher Taxes

It’s Simple to Balance The Budget Without Higher Taxes

Politicians and interest groups claim higher taxes are necessary because it would be impossible to cut spending by enough to balance the budget. This Center for Freedom and Prosperity short video shows that these assertions are nonsense. The budget can be balanced very quickly by simply limiting the annual growth of federal spending

Here are the main points of the video:

What would it take to balance the budget without higher taxes? Deficits are caused by too much spending. According to the Congressional Budget Office, the Federal Government is spending $3.49 trillion and is collecting $2.14 trillion of tax revenues, resulting in a deficit of $1.34 trillion, as shown below. How should we balance the budget?

CBO Baseline Budget

First, we could limit the federal government to the activities authorized by the Constitution. Article 1, Section 8 provides a list, such as national defense, post offices, etc. Nowhere on the list is the Department of Education, Small Business Administration, National Endowment for the Arts, etc. Getting rid of these departments would immediately balance the budget.

For much of America’s history, the federal government only spent 3% of GDP, as the graph below depicts. If we did the same today, federal spending would be less than $450 billion.

Government Spending What the Founding Fathers Wanted and What We Have Today

However, this would not be palatable to most politicians. Therefore, let’s try another approach: just keep spending levels at the rate when Clinton left office, as depicted below.

Huge Surpluses If Bush Obama Continued Clinton Spending Levels

Allowing spending to grow at the rate of inflation and population growth would create a budget surplus in just two years. However, this also would not be palatable to politicians. So, let’s try another approach.

Let’s accept the current level of government spending and ask politicians to be responsible in the future. If spending is kept at the current level with a hard freeze, it would generate a surplus in 2016, as shown below. If we allowed the budget to grow at 2% per year, the budget will be balanced in 2020.

Balancing the Budget With Spending Restraint

Balancing the budget is not difficult. All we have to do is have restraint. We can balance the budget without raising taxes. How? We can balance the budget by limiting spending growth.

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Deficits Debts and Unfunded Liabilities The Consequences of Excessive Government Spending

Deficits, Debts and Unfunded Liabilities: The Consequences of Excessive Government Spending

This short video from the Center for Freedom and Prosperity reveals that deficits and debt are symptoms of the real problem: excessive government spending..

Here are the main points of the video:

Over the next 10 years the Congressional Budget Office estimates that the Federal Government will spend $3.6 trillion per year, growing to $5.7 trillion, as shown below:

Estimated Spending

Deficits are going to average $1 trillion per year, as shown below:

Estimated Deficits

The national debt (debt held by the public) will climb from $9 trillion to $20 trillion, as shown below:

Estimated debt

Although incomes are expected to climb, they will not keep pace with government spending. Debt as a percentage of GDP will rise from 50% to 90%, as shown below:

Debt as Share of GDP

Our debt burden in 2020 will be similar to what Greece has today, as shown below:

USA 2020 Debt vs Greece 2010 Debt

Publicly held debt is the amount the government has borrowed from private credit markets to finance public spending. Gross debt includes public debt plus amounts the Treasury department has borrowed from other agency accounts, such as the Social Security Trust Fund. The gross debt is $4.6 trillion higher than publicly held debt, as shown below.

Americas National debt

The extra $4.6 billion in the gross federal debt does not include unfunded liabilities of Social Security and Medicare.

Unfunded liabilities

The estimates of unfunded liabilities are between $50 – $100 trillion.

These numbers are much bigger than the national debt, as shown below.

The problem: The federal government is too big and spends too much. Social Security, Medicare and Medicaid are the big culprits. The lesson for us: we must restrain the growth of government.

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Deficits are Bad but the Real Problem is Spending

Deficits are Bad, but the Real Problem is Spending

Dr. Daniel Mitchell is worried about huge deficits and skyrocketing debt levels. This Center for Freedom and Prosperity Foundation video explains that government borrowing is excessive – and will get worse in coming decades. But, deficits and debt are merely the symptoms; the problem is government spending.

Here are the main points that Daniel Mitchell of the Cato Institute makes:

As you can see from the graph below, debt has grown in absolute terms through 2000, but economy has grown as well. Therefore, debt as a percentage of GDP was 115% during World War 2 but shrank to 38% in 2000

Federal borrowing can be compared to family borrowing. If a family borrows to start a business, pay for a child’s education or buy a house, the borrowing can be justified. But if the borrowing is used to fund a shopping binge, a week in Vegas, or an around-the-world cruise, borrowing cannot be justified.

Borrowing can be justified if done for things that generate long-term benefits. However, this is not the case for the Bush and Obama administrations. The Bush administration borrowed to spend on things such as No Child Left Behind, farm bills, Medicare prescription drugs, drug bill, transportation bills, and bank bailouts. The Obama administration borrowed to spend on things such as GM and Chrysler bailouts, bank bailouts, stimulus bill, Cash for Clunkers, and government run healthcare.

The Congressional Budget Office estimates that National Debt could skyrocket in the future as shown below.

This is just a symptom. The disease is government spending. From 23% of GDP today, it will rise to between 45 to 70% of GDP over the next 70 years as shown below.

What is the lesson for us? Raising taxes is not the answer. It merely replaces debt financed spending with tax financed spending. You don’t cure alcoholics by giving them more to drink. Borrowing diverts funds from private investment, and taxes penalize productive activity. Both slow growth and contribute to stagnant wages. We must reduce government spending.

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Americas Looming Fiscal Collapse

America’s Looming Fiscal Collapse

Blaise Ingoglia, founder of Government Gone Wild!, discloses that If we pay for Social Security, Medicare, Medicaid, government pensions and interest, we could not pay for anything else, layoff every government worker and close the military and still not balance the budget. Watch this video by Government Gone Wild!,.

Here are the points that Ingoglia makes:

Is it any secret that Congress’ favorability rating is so low (only 13% of the population think Congress is doing a good job). We as a nation pay more in taxes than we do on food, clothing, and shelter combined. So you should say, “NO” when you hear politicians say we need to raise more revenue. You should say to politicians, “STOP SPENDING AND MAKING PROMISES YOU CAN’T KEEP”

Congress is borrowing money just to make the interest payments. Over the next 10 years we will be paying $6 trillion in interest payments alone. That is enough to pay off the vast majority of home mortgages in the U.S. We pay billions of dollars in interest to countries that sponsor terrorism.

If we took all of the gold that the U.S. government owns and sold it at today’s record prices, we could only pay down our debt by 3%. The amount we owe for entitlements (Social Security, Medicare, Medicaid) is even more shocking. In the year 2000, we owed $20.4 trillion. In 2012 we owe $70.4 trillion. This exceeds the net worth of all of the citizens, small businesses, and large corporations combined. This debt grows 3.5 faster than our national debt grows. There is not enough money on the planet to pay for politicians promises.

Unless we limit our spending, our country is heading for a financial collapse.

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Brother Can You Spare A Trillion Government Gone Wild

Brother, Can You Spare A Trillion? Government Gone Wild!

This week’s lesson will provide a short video each day explaining why our federal government has too much debt.

Blaise Ingoglia, founder of Government Gone Wild!, discloses that the government spent $413 billion in interest in 2010, which is more than we spend on Departments of Health and Human Services, Transportation, Energy, Veterans Affairs, Housing and Urban Development, Justice, Homeland Security, Agriculture, Commerce, Treasury, Labor, and Small Business Administration combined. Since 1988, Congress has spent $8 trillion in interest payments alone.

Here are the main points that Ingoglia makes:

$8 trillion is enough money to give a Lotus dream car to every tax payer in the country.

According the the Congressional Budget Office, by the year 2021 (ten years away), our interest payments will reach $1.1 trillion per YEAR. Which is 1.5 times more than what we now spend on national defense.

By the year 2046, every dime of tax revenue received by the federal government will be spent on interest payments alone. There will be not one dollar left for anything else.

How hard will it be to pay off this debt? If Congress started today, did not spend a nickel on anything else, and made payments of $100 million a day, it would take 389 years to pay off the national debt

When politicians talk about reducing the deficit, they are NOT talking about reducing the debt. The debt and interest on the debt, could be the downfall of America!

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John Stossel – No They Cant

John Stossel – No, They Cant!

John Stossel explains in this short video that politicians routinely make grandiose promises, but never deliver the results.

Here are the main points of the video:

Stossel contends that government doesn’t really create jobs. All government does is take money from somebody else to create a job. To support his point, he interviews the following people:

  • Keith Ellison, Minnesota Congressman says that the public sector and private sector must work together.
  • However, billionaire Mark Cuban says nonsense. The government is inefficient and the private sector must create jobs. He says that he would have a tough time recreating his success today because of the increased burden of regulation. He wonders why government makes it so hard for people to start a business, when businesses provide the real employment for an economy.
  • Ed Land, owner of Chattooga Belle Farm in South Carolina, agrees. He decided to go into agro-tourism, hosting weddings at his acquired farm. Now, he’s so sick of government regulations, hoisting a high stack of regulations that require his time and money to comply with. Regulations stopped him from canning and selling his crops. Regulations required him to make multiple little changes to his building. For example, he was required to place a secondary sink next to an existing sink. He observes that bureaucrats keep their jobs by finding problems. Without government intrusion, he says, he could have hired 10 more people.
  • Often well-intentioned laws have the opposite effect of what was intended. A case in point is the Americans with Disabilities Act. Before the Act, 51% of disabled people had jobs. Now, only 33% have jobs. Why? Employers see the disabled as a legal threat. They are afraid if they hire the disabled, they face potential lawsuits if they ever had to fired them.

Our country is drowning in regulations, and entrepreneurs are being discouraged from starting and growing businesses and providing the jobs our country desperately needs.

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John Stossel – Regulation Nation

John Stossel – Regulation Nation

John Stossel explains in this short video that government regulators run roughshod over common sense.

Here are the main points of the video:

The government has produced 160,000 pages of rules. Some contradict each other, yet bureaucrats keep adding more. They add thousands of new pages of regulations every month.

Cliff Asness, of AQR Capital Management, a fund he grew from $1 million to $50 billion dollars, says that some regulations are needed but most are not necessary and counter-productive. He observes that politicians don’t get famous for doing nothing. They get well-known for passing passing laws.

For example, after Enron, the government passed Sarbanes Oxley. They told us that the regulations would protect us. However, it didn’t stop Bernie Madoff or the housing collapse.

Asness says you can never prevent intentional financial fraud if it occurs through collusion and participation from the top. He says that Bernie Madoff was registered with the SEC, yet it didn’t prevent that fraud. Dodd/Frank now requires more money managers to be registered with the SEC. All that accomplishes is to place a greater burden on smaller companies. Asness concludes that markets are not perfect and make errors, but they are far more efficient than bureaucrats.

John Stossel recounts his book tour for No They Can’t. He was impressed by the number entrepreneurs that attended. Why did so many come? Most were infuriated because of their experience with regulators.

Mike Whalen is CEO of Heart of America Group CEO, a hotel and restaurant operator. Thirteen years ago his company installed pool lifts for the disabled in its hotel swimming pools. However, the Department of Justice has since mandated that self-operated lifts be installed at every body of water on the property, including pools, spas, etc. Plus, they gave Heart of America Group 40 days to comply.

Here’s the problem. There are 105,000 – 120,000 pools and spas in hotels alone in this country. In addition, there are another 150,000 public pools. The manufacturers only make about 50,000 lifts per year. It would take years for everybody to comply with the Department of Justice regulation, not 40 days. There simply isn’t enough manufacturing capacity.

Furthermore, in thirteen years the Heart of America Group has never seen any disabled person ever use any of the lifts they installed. Another hotel operator reports that after 15 years nobody has used their lifts either. Since lifts cost $10,000-$15,000, this regulation will cost a billion dollars to comply with and few people are going to benefit from it.

Bigger government creates more and more useless regulations. It’s time to shrink our government.

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Want Less Corruption Shrink the Size of Government

Want Less Corruption? Shrink the Size of Government

In this short video, Dr. Daniel Mitchell of the Cato Institute explains that the bigger the government the bigger the opportunities for corruption.

Here are the main points of the video:

Dr. Mitchell explains that when there are ethics breaches, governments respond with more laws. This merely provides politicians with more power to redistribute wealth. Then, special interest groups seek welfare, foreign aid, bailout money, artist handouts, healthcare subsidies, etc. Our government spends $3.5 trillion, more than $45,000 for every family of four in America. This massive size of government creates opportunities for corruption.

Federal government spending increases each year, as you can see below

Federal Government Spending

Programs that provide subsidies to other parties grow as well, as you can see below

Number of Federal Subsidy programs

More programs that provide subsidies to other parties lead to more lobbyists trying to get their hands on that subsidy money, as you can see below

An Expanding Government Leads to More Lobbyists

It all adds up to more opportunities for corruption, as you can see below

Opportunities for Corruption

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What Is the Evidence Against Big Government

What Is the Evidence Against Big Government?

Watch this short video to see real-world research proving that countries with small governments are more prosperous than countries with big governments.

Here are the main points that Dr. Daniel Mitchell, Senior Fellow-Cato Institute, makes:

Countries with small governments are more prosperous than countries with big governments. For an apples-to-apples comparison, Mitchell only chose similar Western democracies to study, including Denmark, Sweden, Germany, and France. Notice below that the countries have comparable Economic Freedom of the World rankings with two better than the US and two worse.

Economic Freedom of World

Economic Freedom of the World

Notice below that the four governments of the European countries all spend more per GDP than the U.S. For example, France spends about 53% of GDP compared to about 40% for the U.S. Therefore, the governments of the four European countries are larger than the U.S.

General Government Total Outlays

General Government Total Outlays

Now, notice which of the countries is more prosperous as measured by per capita GDP. You’ll notice that the U.S. with the smallest government is more prosperous with a per capita GDP of about $27,000 compared to Sweden with a a per capita GDP of only $38,000.

Per Capita GDP

Per Capita GDP

What is the lesson for us? The more a government spends, the lower the country’s standard of living. The less a government spends, the higher the standard of living. The costs of government will inevitably exceed the benefits it provides because the government: 1)sucks resources from the private sector; 2) misallocates resources; 3) encourages undesirable behaviors; 4) is inefficient; and 5) inhibits innovation.

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