Taxes

Can the Government 'Invest' Its Way Out of Debt?

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In his State of the Union speech last night, President Obama raised further doubts about his newfound commitment to fiscal responsibility by offering this analogy:

Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don't….

Let's invest in our people without leaving them a mountain of debt.

How many cash-strapped families are able to spend 40 percent more than their income by borrowing the rest? The federal government is decidedly not like a cash-strapped family because it has the power to commandeer the resources not only of current taxpayers but of future taxpayers who are too young to vote or have not been born yet (which is how it will ultimately have to repay the money it borrows). Since it spends other people's money, the government does not have much incentive to "invest" wisely, which is one reason to take a skeptical view of Obama's promises that the spending he advocates will pay dividends in the future. Here is another reason:

I know that there are those who disagree with the overwhelming scientific evidence on climate change. But here's the thing: Even if you doubt the evidence, providing incentives for energy efficiency and clean energy [is] the right thing to do for our future, because the nation that leads the clean energy economy will be the nation that leads the global economy. And America must be that nation.

Here Obama is going beyond his claim that the benefits of carbon reduction will outweigh the costs because it will avert environmental catastrophe (a claim that is open to question on several grounds). He is saying that even if there were no reason to worry about global warming, these costs would still be worth paying. But it's not clear why he think so. If the payoff from energy efficiency were big enough to justify the investment necessary to achieve it, there would be no need for government-rigged "incentives." Maybe Obama is saying that, as long as other countries think that global warming is a serious problem that can be cost-effectively averted by reducing carbon dioxide emissions, there will be money to be made selling them the requisite technology—even if that belief turns out to be wrong. But again, why would profit-driven businesses need to be enticed by subsidies to take advantage of this huge opportunity?

I honestly don't know what Obama's reasoning is, and I'm not sure he does. But I am pretty sure I would not trust him to invest my money. Fortunately for him, he does not need my permission.

More on Obama's green snake oil here.

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NEXT: An Explanation for the Decade-Long "Pause" in Global Warming?

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  1. How many cash-strapped families are able to spend 40 percent more than their income by borrowing the rest?

    Well, I’ve seen it. But it usually results bankruptcy very quickly.

  2. Too bad the occupant of the White House can’t undergo foreclosure.

  3. Who is going to make a loan to a bad risk household like the United States? Their debt-to-income ratio is unreal.

    1. They could always borrow a routine from an old FDR ally:

      “Voluntary mandatory”* payroll bond purchases. This, of course, would not be a ‘tax increase’, just a ‘loan’ to help out Uncle Sam.

      *I know this is doublespeak. Governments are good at doublespeak.

    2. Who is going to make a loan to a bad risk household like the United States?

      This is not the correct metaphor. The correct metaphor is “who is going to make a loan to the really important, powerful family down the block?”

      Chris Dodd didn’t get great loan terms because he’s a swell guy, for instance.

    3. The household’s million man army and 10,000 deliberable nuclear weapons has a positive effect on its credit rating.

      1. How blatant do we have to be with threats stemming from our nuclear arsenal? Does Obama just reach for the football when negotiations with other countries balk at our demands?

        Doesn’t this argue also for a very major space program, so that we can hide a population of real Americans on a permanent base on Titan?

        1. He doesn’t actually reach for the football. He just meets with leaders and gives them a power point presentation showing the wonders of American nuclear power. And then he explains how he never asks for a favor twice.

        2. Those rivers of liquid methane on Titan would make for the greatest carbon tax ever!

          1. We really should nuke the Moon. The crazier we act, the more kowtowing we’ll receive. Shit, it’d be like Iran after exposure to orange kryptonite.

      2. A wise psychopath loots before he nukes.

        1. I don’t think actually nuking would work. Only the implied threat of nuking.

          Good to know that the U.S. has a fallback plan, if push comes to thermonuclear shove.

  4. “Voluntary mandatory”* payroll bond purchases.

    They could ‘nudge’ you into ‘investing’ in a T-bill base annuity for your retirement. For your own good.

    1. Thats essentially what SS is already, without the actual defined contribution portion of the equation. Considering that for the entire existence of SS, all of the money collected was simply spent by the existed people in power and replaced with little promissory note IOUs backed by the full faith and credit of the US Gov’t, as opposed to actually being held onto or placed into some sort of investment like an actual insurance company would do, it amounts to a less stable T-bill with the caveat that the gov’t need not actually pay you the full value of the T-bill (and you can’t sell your SS benefit annuity on the open market).

  5. The Senate just formally approved on a strict party line vote to increase the debt ceiling by nearly 2 trillion up to 14.3 trillion dollars, which is just about 100% of our current GNP.

  6. I’d like to see a future group of 18 year olds sue the federal government for tax obligations cast upon them before they were old enough to vote.
    Yeah, I know….

  7. I’d like to see a future group of 18 year olds sue the federal government for tax obligations cast upon them before they were old enough to vote.

    They’d just be drafted and sent on suicide missions.

  8. “which is one reason to take a skeptical view of Obama’s promises that the spending he advocates will pay dividends in the future”

    The stimulus spending is already paying dividends, so I don’t follow your mistrust.

    Also, your attack on a bad analogy doesn’t really address the larger concern of how address our economic situation. It’s poor journalism.

    1. The stimulus spending is already paying dividends

      O Rly? In what way?

      1. I think he meant political dividends for the Democrats, as the stimulus was (and continues to be) little more than payoffs to their traditional constitutency groups.

    2. The stimulus spending is already paying dividends, so I don’t follow your mistrust.

      [citation needed]

    3. The stimulus is widely and accurately viewed as doing absolutely nothing to help our economy. It was a payoff to certain constituents. Period.

      1. Incidentally, same goes for the bailout.

      2. “widely and accurately viewed” by whom?

        Not economists…

        http://www.usatoday.com/money/…..ulus_N.htm

        You clearly see what you want to see, and nothing more. It really isn’t hard to understand: anyone spending money anywhere on anything *is*, by definition, the economy. Of course stimulus is increases the economy. The question is whether the related borrowing pulled as much spending out of the private sector. In normal times, it would have. In times like these, with zero-bound short-term interest rates, government borrowing does not displace private sector borrowing. There is a huge amount of capital just sitting on the sidelines now.

        1. “In normal times, it would have. In times like these, with zero-bound short-term interest rates, government borrowing does not displace private sector borrowing. is a huge amount of capital just sitting on the sidelines now.”

          Hahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahaha

          That was a joke right?

        2. Of course stimulus is increases the economy.

          If this is true, why not all stimulus all the time?

        3. Are you guys really completely insane? I saw the bill. No rational person without a political ax to grind (i.e., without the desire to deceive other people) could possible derive a “stimulus” from the “stimulus.”

          How many Keynesians are there in economics, anyway? Not many.

        4. There is a huge amount of capital just sitting on the sidelines now.

          Yes, that explains why the banks are so under-leveraged.

          All that capital, just sitting in bank accounts. Unleant to anyone. Uninvested in any sort of securities or derivatives.

  9. Liberals I’ve talked to in person like to use the “you can’t treat the federal budget like the household budget”, to which I utter a hearty laugh and some variation on the phrase “you’re full of shit if you believe that”.

    But they still believe it’s true.

    1. *sigh*

      Too true.

      It will be very interesting to see their reaction when the default happens.

      1. Yeah, it would be sweet to see how China would handle calling in all its debt markers. One can imagine Obama being surrounded by a Chinese equivalent of a Mafia debt-collection shakedown crew…

        1. China doesn’t have to call in anything. They and other US creditors just have to stop buying the new debt.

          With no buyers, US treasuries are going to drop like a rock, taking the US dollar with them. The Fed can either “buy” the debt by issuing more funds – leading to inflation – or hike interest rates to induce foreign buyers to purchase US securities. This would lead to a huge credit crunch and recession.(I’d bet on a combination of both, actually.)

          Yhe only reason that foreign governments keep buying US treasuries is that they are trying to put off the evil day for their own reasons, in the vain hope that the US will somehow mend its ways and become fiscally responsible. The second half of the double-dip is coming.

  10. Even if you doubt the evidence, providing incentives for energy efficiency and clean energy [is] the right thing to do for our future, because the nation that leads the clean energy economy will be the nation that leads the global economy. ”

    So there is all of this cheap renewable energy out there. This energy is cheap, efficient, and will give business a huge advantage over their competors. But the private sector won’t develop and use it out of what? Racism? Only Obama can save the day and get us to act in our own self interest.

  11. “How many cash-strapped families are able to spend 40 percent more than their income by borrowing the rest?”

    Well, if mom and pop go deep into debt to pay for my education, then DIE, I still got the education, and their off the hook for the debt.

    Is the government listening to that plan?

    1. Yes. I think they are called managed care or in more crass terms death panels.

    2. The federales and their enablers in the Greediest Generation and the Baby Boomers are flipping the equation on its head.

      Generations X and Y are being presented with a bill for the Greediest Generation and the Baby Boomers’ profligacy… They die and leave us Xs and Ys with the tab for the last 40+ years of their lives.

      1. I’ll kill your parents if you kill mine.

    3. Unfortunately, countries don’t get off the hook that way. If we had a revolution and killed all our leaders, China would still want its money back.

  12. And America must be that nation.

    I get that Obama is saying this because he works for the government, and he has to tow the lion. But why do I have to pay for it?

  13. Can the Government ‘Invest’ Its Way Out of Debt?

    No, and it can’t tax its way out, either. Basically, we’re fucked.

  14. Rutgers sorority members are accused of beating pledges during hazing:

    The young pledge said she was told the beatings would “humble” her, that each flesh-rending strike with a wooden paddle would build love and trust between sorority sisters.

    It wasn’t hazing, she said they told her. The women of Sigma Gamma Rho at Rutgers University didn’t condone hazing.

    For seven nights the beatings went on, she said. In all, she was struck 201 times. On the eighth day ? unable to sit, her buttocks covered with blood clots and welts ? she went to the hospital. Then she reported it to the university.

    Today, Rutgers police said they had arrested six members of the sorority on charges of aggravated hazing, alleging they repeatedly beat at least three pledges between Jan. 18 and Jan. 25. A university official, vice president of student affairs Greg Blimling, and the pledge who spoke to The Star-Ledger put the number of victims at seven.

    The university immediately suspended the Rutgers chapter of Sigma Gamma Rho, as did the sorority’s national organization, headquartered in North Carolina.

    “The local chapter was doing this on its own, not with the sanction of either the university or the national organization,” Blimling said, noting Rutgers has a clear anti-hazing policy that includes workshops for all fraternities and sororities.

    He said the university moved aggressively against Sigma Gamma Rho, which has operated for “many years” on the New Brunswick campus but does not have a dedicated sorority house, after learning another hazing session had been scheduled for Tuesday night. The first arrests took place before it could happen.

    Charged Tuesday were Vanessa Adegbite, 21, of Jersey City; Joana Bernard, 21, of West Orange; Kesha Cheron, 20, of Newark; and Llana Warner, 20 of the Bronx. Each was charged with aggravated hazing, a felony that carries up to 18 months in prison. All four were later released from the Middlesex County jail on $1,500 bail.

    Today, police arrested Shawna Ebanks, 21, of East Orange, and Marie Charles, also 21, of West Orange, on the same charges.

    Charles and Cheron are public health majors. Ebanks is a political science major.

    http://www.nj.com/news/index.s…..hazin.html

    1. Didn’t you get canceled?

      1. Get Sirrus.

    2. Charles and Cheron are public health majors. Ebanks is a political science major.

      Pardon me if I’m being dense, but this is a punch line, right?

      1. Only MNG would know for certain.

    3. Consensual ‘crimes’ are no crimes at all. If you’re a dumb-as-hell 19-year-old who comes back again and again to get your ass beat, you are entitled to no help from the rest of us.

  15. This is why we must repeal the 16th and 17th amendments.

  16. Didn’t a lot of people make a lot of money by using their credit cards to buy houses and then flip ’em?

  17. “I honestly don’t know what Obama’s reasoning is, and I’m not sure he does.”

    He doesn’t need to. He believes that his golden tongue can persuade any listener to believe anything, any time. The scary part is he continues to believe this in the face of all evidence to the contrary.

    This is what happens when we elect a President who’s only achievement is speech-making.

  18. Who is Obama really working for? The banking elites? This is just a small part of the bigger agenda here. The New World Order.

    1. “Who is Obama really working for?”

      The Illuminati, no doubt.

  19. The Democrats have been “investing in America” since LBJ.

    When are these “investments” going to start paying off?

    1. Well if it doesn’t happen when a volunteer into the world of Great Society housing projects becomes POTUS, it won’t ever happen.

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