Hendrickson: Geithner Versus the Bush Tax Cuts

This article is written by Dr. Mark W. Hendrickson of the Center for Vision and Values at Grove City College and is used with permission.

I’m now convinced that the Obama administration is placing its political agenda above policies that would contribute to the economic recovery that millions of Americans so desperately need. That agenda includes bringing more economic activity under government control, making more people dependent on government, and, generally, redistributing wealth.

I have come to this conclusion after listening to Team Obama’s spokesman, Treasury Secretary Tim Geithner, assert that allowing the Bush tax cuts to expire on December 31, as currently scheduled, is good policy. In truth, raising tax rates when the economy is faltering is counterproductive. It will weaken the economy further. Given the sorry state of the economy—with the jobs markets, credit markets, construction industry, and small-business climate all in states of decline or stagnation—adopting a policy that will exacerbate economic stagnation and increase hardship for Americans is worse than ill-advised.

George W. Bush persuaded Congress to lower taxes on income, inheritance, capital gains, and dividends to resuscitate the moribund post-9/11 economy. Those tax cuts helped foster a pickup in economic activity. Today’s economy is moribund again, yet Geithner wants all those taxes to go up at year-end.

There is no justification—theoretical or historical—for such a policy. And it isn’t just free-market economists who believe that raising taxes during a time of economic weakness is counterproductive. Lord Keynes—the famous economist whose 1930s-era theories were exhumed by Team Obama in support of “stimulus” spending programs—maintained that economic sluggishness calls for tax cuts, not tax hikes. (Have you noticed how Keynes is invoked when his theories support what Team Obama wants to do, but they leave him in the closet when his theories conflict with their objectives?)

The historical evidence is also weighted against Geithner. As I have written before, the depression of 1920-21 was followed by cuts in both tax rates and government spending, and the economy recovered; by contrast, in the 1930s, both Hoover (Republican) and Roosevelt (Democrat) raised taxes and spending—Team Obama’s identical policy today—and the economic misery was prolonged.

Geithner’s arguments for letting the Bush tax cuts expire were, frankly, devious. He asserted that this step was needed to convince bondholders around the world that the United States is serious about reducing deficits. Apart from the inconvenient fact that raising tax rates often lowers tax revenues (e.g., the 1930s under Hoover and Roosevelt), Team Obama has engaged in a classic bait-and-switch maneuver.

It wasn’t that many months ago when the Obama administration, having jacked up federal spending by almost a trillion dollars in emergency stimulus spending, was talking about scaling back about half of that spending. That was a clever way for Team Obama to convince the gullible that the president and his administration are fiscally responsible, when their actual goal was to lock in a permanent 12-figure increase in federal spending.

Are you hearing any noise from Geithner about reducing Uncle Sam’s out-of-control spending as a means of persuading bond investors that our government is beginning to return to fiscal sobriety? Nope. All of the focus is now on high spending and high taxing—i.e., depression-inducing economic policy in its purest form.

Geithner played the class-warfare card by asserting that the tax cuts would only hurt the top two or three percent of taxpayers. That may be technically true (though even that is in doubt until we see if the other 97 percent of Americans are indeed protected by extending the Bush tax cuts for them), but it is economically untrue. You can explicitly and directly increase tax rates only on the top earners, but the indirect effects of such tax hikes will be profound. The reduction in production and investment caused by tax increases will end up harming many Americans in lower income brackets.

Perversely, the tax hike that Obama and Geithner want would hurt Americans of modest or low incomes more than the rich. In the name of “social justice” and making the rich pay “their fair share,” pro-tax-hike zealots are willing to sacrifice the economic well-being of Joe Lunchbucket. That raises interesting questions: Are the “soak the rich” clique economically blind and ignorant, not knowing what they are doing? Or do they know that their Big Government agenda will cause unnecessary economic pain, yet they are willing to pursue it anyway? Either way, these are some very troubling questions.

— Dr. Mark W. Hendrickson is an adjunct faculty member, economist, and contributing scholar with The Center for Vision & Values at Grove City College.

US Spends $410,625 to teach Meditation to Cocaine Addicts

More of your tax dollars at work. Can nobody stop the madness? CNS News reports:

(CNSNews.com) – The U.S. government has spent $410,625 to study the effects of teaching Chinese meditation to cocaine addicts.

“Our clinical experience and pilot studies suggest that Integrative Meditation (IM) from Chinese medicine may help clients engage in treatment, reduce cravings/withdrawal symptoms, and increase treatment retention, which appear missed by a typical behavior therapy,” says the official description of the project published by the National Institutes of Health.

“IM is an adaptation or simplified form of mindfulness meditation,” says the description. “It may enhance existing therapies to help reduce withdrawal symptoms, increase treatment engagement, and prevent relapse through step-by-step therapist facilitation.”

The study, which is titled “Treatment of Cocaine Addiction with Integrative Meditation,” received $225,000 in tax money in 2009 and $185,625 in 2010, for a total of $410,625. The project was scheduled to run from April 1, 2009 until March 31, 2011. The grant was issued by the National Institute on Drug Abuse, a division of the NIH. Read story here.

Taxpayers Spent $2 Million to Study Condom Use Among IV-Drug Users in Kazakhstan

From the “You Can’t Make This Stuff Up” file, CNS News reports on your tax dollars at work. If you think spending millions on “fish ladders” was an outrage, wait until you see what you bought in Kazakhstan!

(CNSNews.com) – The National Institutes of Health has spent over $2 million on a study that, among other things, seeks to incease condom use among intravenous drug users in Kazakhstan.

Dr. Nabila El-Bassel, a Columbia University professor in the School of Social Work, proposed the study to “rigorously test the efficacy of an innovative, couples-based HIV/STI risk reduction intervention (CHSR) to decrease new cases of HIV and Hepatitis C (HCV) and incidence of sexually transmitted infections (STIs), as well as to reduce unsafe injection practices and increase condom use among injecting drug users (IDUs) and their heterosexual, intimate partners in Shu, Kazakhstan.”

Dr. El-Bassel received funding for the study from the National Institute on Drug Abuse (NIDA), which is part of the National Institutes of Health (NIH), a component of the U.S. Department of Health and Human Services. Read the story here.

Fox Columnist: Obama’s Plan to Overwhelm the System

Fox News commentator Wayne Allyn Root writes:

Rahm Emanuel cynically said, “You never want a crisis to go to waste.” It is now becoming clear that the crisis he was referring to is Barack Obama’s presidency.

Obama is no fool. He is not incompetent. To the contrary, he is brilliant. He knows exactly what he’s doing. He is purposely overwhelming the U.S. economy to create systemic failure, economic crisis and social chaos — thereby destroying capitalism and our country from within.

Barack Obama is my college classmate (Columbia University, class of ’83). As Glenn Beck correctly predicted from day one, Obama is following the plan of Cloward & Piven, two professors at Columbia University. They outlined a plan to socialize America by overwhelming the system with government spending and entitlement demands. Add up the clues below. Taken individually they’re alarming. Taken as a whole, it is a brilliant, Machiavellian game plan to turn the United States into a socialist/Marxist state with a permanent majority that desperately needs government for survival … and can be counted on to always vote for bigger government. Why not? They have no responsibility to pay for it. Column here.

Chicago Tribune Warns of Federal Debt Dangers (!)

At least some portions of the same news media that got Barack Obama elected are now reporting that he is bankrupting America. What a shocker.

For many decades, U.S. government securities have been the epitome of safe, dull investments. If you wanted to be absolutely positive you’d get your money back and then some, Treasury bills were the way to go. Right now, lots of Americans who put their money into big mortgages or stocks a decade ago wish they had gone the more mundane route.

But it’s mundane no more. With federal budget deficits running wild, investors are growing uneasy at the idea of lending money to an institution that seems unable to stop spending beyond its means. Last month, something extraordinary happened: Two-year bonds offered by Berkshire Hathaway Inc. commanded lower yields than those offered by the U.S. government. As Bloomberg.com put it, “The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.” Read the whole story here.

Just think if the Tribune would have come out before the election with these kinds of pieces.

CNBC: Health Care Law Signals US Empire’s Decline?

That headline isn’t from a prophecy newsletter, it’s from CNBC today:

The passage of the health care law shows that the US empire is declining because it illustrates the fact that people expect the state to take care of them, David Murrin, the co-founder of Emergent Asset Management hedge fund manager, told CNBC.

On Tuesday, US President Barack Obama signed into law health care legislation that expands health coverage for the poor, imposes new taxes on the rich and forbids insurance practices such as refusing coverage to those with pre-existing conditions.

In their expansionary phase, empires force people to go out, seek risks and fend for themselves, Murrin said, reminding of the dismantling of the British empire after the war, when the National Health Service, which ensures universal health coverage in Britain, was created.

“This (empire decline) is actually a dead-set course that societies get into and it will happen very quickly I’m afraid,” he told “Squawk Box Europe.” Read the article here.

Obama Sends Stimulus Funds to Phantom Districts

By Tom DeWeese

To promote bragging rights for how much good the stimulus money was doing for America, the Obama Administration set up a website called “Recovery.gov.” Recorded on the site were details by zip code and congressional district as to how much money was sent there and how many new jobs were created as a result. It was a great piece of public relations where news reporters and politicians could find and quote the latest “good news for the economy.”

However, there was one small problem. The Administration didn’t count on a group called New Mexico Watchdog, a project of the Rio Grande Foundation. While researching the site, the Foundation’s investigative research journalist Jim Scarantino noticed something strange. It seems the site was reporting money going to several New Mexico congressional districts that do not exist.

The website reported that $26.5 million went to ten New Mexico Congressional districts. The site credited that money with creating a whopping 61.5 jobs. That, in itself, should be a crime – spending more than $430,000 per job crated. However, that wasn’t the big story. The fact is, those ten Congressional districts do not exist. New Mexico only has three – not thirteen.

As New Mexico Watchdog broke the story, investigators from other states took up the hunt, finding a total of 440 phantom congressional districts receiving nearly $6.4 billion to “create or save” just under 30,000 jobs – almost $225,000 per job. The “99th” District of North Dakota, a state which has only one congressional district, received more than $2 million.

Mississippi’s 5th District and Oklahoma’s 6th District, and Pennsylvania’s 21st District each received $1 million. But none of them exist. All three were eliminated as a result of the 2000 census. Money also went to 35 congressional districts in Washington, DC and the four American territories, all of which have no congressional districts.

Then it got worse. Not only did the site almost double the size of Congress with its phantom districts, further examination showed money also going to zip codes that don’t exist. The site reported that $373,874 went to New Mexico zip code 97052 – but no jobs were created. $36,218 was credited for creating five jobs in zip code 87258. $100,000 went into zip code 86705 – but no jobs were created. None of these zip codes exist.

Again, the nationwide search showed the same results. West Virginia – $28 million in non-existent zip codes; Nebraska – millions more in non-existent zips; Washington state – more stimulus funds in non-existent zip codes; Virginia – $9.5 million in phantom zip codes; Colorado – millions more; Oklahoma – $11.5 million – phantom zips.

And the excuse from the Obama Administration? Clerical error. Ed Pound, director of communications for the Recovery Accountability and Transparency Board blamed the problem on an oversight by the fund recipients. He said it appeared that some of those filling out the reports just didn’t know their congressional districts (or zip codes apparently), and therefore listed an inaccurate number.

But the Administration is quick on its feet and in its transparency. The problem has been solved. All of the reports from non-existent Congressional districts and zip codes have been removed and re-listed under “unassigned congressional districts.” No one, of course, has bothered to investigate where the money actually went.

Tom DeWeese is the President of the American Policy Center and the Editor of The DeWeese Report. The DeWeese Report is now available online, for more information click here.

Illinois Governor: Borrow $4.7 Billion to Stay Afloat

The Chicago Tribune reports on the budget proposal from Illinois Governor Pat Quinn:

SPRINGFIELD — – Gov. Pat Quinn on Tuesday unveiled a caustic budget plan that would borrow billions of dollars to stay afloat and push even more debt down the road, hoping to persuade leery lawmakers to instead raise taxes in an election year.

Quinn aides warned the plan would cost some 13,000 teachers and staff their jobs, cut off poor seniors from help in paying for costly prescriptions and shut down some health care programs for the indigent. But even after about $2 billion in cuts, the state would still be $11 billion in the hole. Story here.

Illinois, like most of America, is going under financially, and is going to have to raise taxes on struggling taxpayers to survive.

Outrageous Public Debt

“As far as public debt is concerned, the United States is long-since on a par with Europe. More generally, you cannot adopt European ideas about government and hope to keep the minimal government cherished by the American revolutionaries.”

–Dr. Guido Hülsmann, chairman of the economics department at the University of Angers in France and author of an acclaimed biography of Ludwig von Mises, “Mises: The Last Knight of Liberalism.”

Editor’s Note: The “V&V Q&A” is an e-publication from The Center for Vision & Values at Grove City College. In this latest Q&A, Dr. Paul Kengor, executive director of the Center, interviews Dr. Guido Hülsmann, chairman of the economics department at the University of Angers in France and author of an acclaimed biography of Ludwig von Mises, “Mises: The Last Knight of Liberalism.” Hülsmann will be speaking at Grove City College tonight (7 p.m. at Sticht auditorium in the Hall of Arts and Letters) on the topic of “Outrageous Public Debt.”

Dr. Paul Kengor: Dr. Guido Hülsmann, you’re speaking at 7:00 this evening at Sticht auditorium in the Hall of Arts and Letters at Grove City College. Your topic is “Outrageous Public Debt.” Give is a glimpse of your thesis.

Dr. Guido Hülsmann: Public debt helps politicians to pretend that they are solving problems, while in fact they create more problems. It shifts decision-making into the future, while burdening the present and the future. It reduces the funds available for investment and entails excessive consumption. When public debt is high, it makes the economy more prone to be hit by financial crises, and it also poses a great threat to the stability of all savings. But even when it is low, public debt undermines the economic foundation of a free republic and thus paves the way for tyranny.

Kengor: Tell us about the European debt problem. Perhaps you can start with some data.

Hülsmann: In all European countries, public debt has greatly increased in the past two years. But already before the outbreak of the present crisis, public debt was as high as 1.5 trillion euros or 65 percent of GDP in Germany (2007), and 1.3 trillion euros or 68 percent of GDP in France (2008). Similar conditions existed, in 2007, in Portugal (64 percent) and Hungary (66 percent). In other places, public debt was even higher, in particular, in Belgium (83 percent), Greece (95 percent), and Italy (104 percent). Compare these figures to those of the United States (80 percent in 2008) and of Japan (150 percent in 2007). Notice that all of them do not include off-budget liabilities such as social-security payments and credit guarantees. Thus the public debt on record is just a part of the actual total, and in some cases it is just the tip of an iceberg.

Kengor: What are the reasons? To what extent have massive social-welfare systems contributed to this?

Hülsmann: The basic reason is that governments like to spend money, and that they will spend unlimited amounts if nobody gets in the way. Thus your question boils down to asking why there was no effective opposition. Here we touch upon a very important and fundamental political problem that plagues all western democracies. In the traditional conception, parliament was supposed to be the opposition that controls executive spending. But Members of the European Parliament have their own expensive agendas. As a consequence, there has emerged some connivance between the legislative and executive, at the expense of those who were not sitting at the table, that is, the taxpayers. This general tendency is very pronounced in Europe, where government spending is heavily focused on social welfare, but you also see it in the United States, where we have a greater focus on military spending.

Kengor: Are these social-welfare systems sustainable, especially given Europeans’ unwillingness to reproduce and give birth to a subsequent generation of producers? Who, or what, will produce the revenue to pay for, say, the pension systems of France and Italy?

Hülsmann: This is a good question, and politicians in Europe have no convincing answers. Unlike private insurance schemes, our public social-security systems operate on a pay-as-you-go basis, that is, there is never any capital accumulation out of which future payments could be made. These systems work only as long as there are enough workers paying their dues. However, as you point out, their number is steadily declining, and they already pay very high rates. In France, each employee pays some 21 percent of his gross income into the social-security system, and his employer has to match this sum.

Kengor: Some of these nations had debt ratios so high that they should have been disqualified from the European Union, or, more specifically, the single currency. This seemed true for a country like Greece. How were they able to squeeze in despite their incredibly high debt ratios?

Hülsmann: To join the European Monetary Union, and to remain a member thereof, countries have to fulfill three criteria defined in the 1992 Treaty of Maastricht: (1) total public debt no higher than 60 percent of GDP; (2) annual new debt no higher than three percent of GDP; and (3) annual inflation rate no higher than two percent. These criteria have been violated by most member countries ever since the inception of the EMU in 1999. For example, France and Germany have been violating the first criterion since 2003, and also the two other criteria for several years. Moreover, some countries have joined the EMU without ever having fulfilled all three criteria. This is most notably the case of Greece. Her government has forged the national accounts, sometimes omitting important expenditures while at other times concealing the true amount of public debt. Clearly, the case of Greece is blatant, but all in all it is also representative of politics in the European Union.

Kengor: On the plus side, is there any country in Europe that has done well in terms of debt? Can others learn from this country?

Hülsmann: Luxemburg has done very well, with a debt ratio of some 10 percent (2007), and Estonia even better (five percent in 2007). A straightforward explanation of this fact is that both countries are small. Therefore, the political negotiation tables are not that much removed from the taxpaying population.

Kengor: Let’s bring this to America. President Bush, in his final year in office, left an all-time record budget deficit of at least $400 billion. That’s not the overall debt, but the budget deficit, which, of course, feeds the debt. President Obama, in just one year—actually, mainly in his first weeks—quadrupled that deficit to some $1.4-1.6 trillion. We in American have never seen anything like this kind of spending, especially in peacetime.

Hülsmann: Crises of any sort—whether economic or military—are a mainspring of government growth, and thus of strongly increasing government expenditure. This is unavoidable as long as the public perceives government intervention as a suitable means to address the crisis. President Bush might have increased his spending if he himself, or the wars in Afghanistan and Iraq, had been more popular, but that was not the case. President Obama has benefitted from widespread veneration of his person and from the perceived gravity of the economic situation. Congress has authorized him to spend so much more than his predecessor.

Kengor: The U.S. Congress recently approved a higher debt ceiling in light of this inconceivable debt accumulated by President Obama and the Democratic Congress in only a year. What’s your response to that move?

Hülsmann: This is a symptom of a general tendency. Parliaments all over the world have degenerated into handmaidens of the executive. Congress is no exception. Its members are not representatives of the people against the government, but part of the governmental decision-making process.

Kengor: On the night of the November 4, 2008 election, Congressman Paul Ryan (R-Wis.) was asked what he feared most. He replied “the Europeanization of America.” By that, he meant social policy, economic policy, secularization, the culture. I don’t know if Ryan had debt in mind, but America seems like it might be on that “European” path, too, especially if it follows Europe’s social-welfare model. Agree?

Hülsmann: As far as public debt is concerned, the United States is long-since on a par with Europe. More generally, you cannot adopt European ideas about government and hope to keep the minimal government cherished by the American revolutionaries.

Kengor: Dr. Guido Hülsmann, it’s a pleasure to once again have you at Grove City College. I hope some of our readers will come to your lecture. This is a critical topic, one that involves—literally—national bankruptcy. Thanks for talking to “V&V Q&A.”

Hülsmann: You’re welcome, Dr. Kengor. It’s my pleasure to stay at your wonderful college.

— Dr. Guido Hülsmann is chairman of the economics department at the University of Angers in France and author of an acclaimed biography of Ludwig von Mises, “Mises: The Last Knight of Liberalism.” Dr. Paul Kengor is professor of political science at Grove City College and executive director of The Center for Vision & Values.

Used with Permission

Dems Propose $1.9 Trillion Increase in Debt Limit

Our government is on a spending spree, throwing away our tax dollars as if they were monopoly money. When you are doing things like providing cell phones for welfare recipients, it won’t be long before you run out of money, and even out of credit. President Obama has maxed out the national credit card, and Democrats in the legislature are looking for a credit increase. This is supposed to help the economy how? Yahoo News has more.