December 17, 2012

Posted by orrinj at 6:53 PM


Trillion-dollar deficits are sustainable for now, unfortunately (John H. Makin, 12/13/12,  American Enterprise Institute)

Trillion-dollar federal budget deficits have continued to be sustainable first because the federal government is able to finance them at interest rates of half a percent or less. Two percent inflation means that the real inflation-adjusted cost of deficit finance averages -1.5 percent, much to the dismay of savers seeking even a modest return on "safe" assets. [...]

The importance of the borrowing cost minus growth gap in precipitating a financial crisis is demonstrated most spectacularly by the experience of Greece, as shown in figure 6, which compares Greece's borrowing cost minus GDP growth gap with that of the United States. From the late 1990s, when Greece was scheduled to adopt the euro (most notably from 2000, when Greece was able to issue eurobonds) to 2008, Greece and the United States experienced virtually identical gaps, including negative gaps (borrowing costs below growth) during the 2002-07 "golden years" for debt accumulation.

After late 2009, when Greece revealed that its primary deficit had been far larger than previously reported, its borrowing costs soared while growth collapsed. The growth collapse was exacerbated by austerity programs aimed at reducing the primary deficit. Such ill-conceived efforts to condition bailouts on austerity were designed to reduce Greece's debt-to-GDP ratio but actually caused it to rise. This happened because growth fell so rapidly that tax collections collapsed and the primary deficit was little affected while the borrowing cost to growth gap soared, as figure 6 shows. The gap then soared to 65 percentage points, while the US gap fell to a remarkably favorable -2.2 percent, where it remains today. (See figure 7.)

The hyperbolic claim that the United States is becoming Greece because of the absence of dramatic progress on deficit and debt reduction is unfortunately ridiculous. There is not yet a sign that a US fiscal crisis will emerge to force Congress to enact fundamental measures like entitlement reform to reduce the growth of spending, or tax reform to enhance revenues through faster growth.

And really you can't just look at government, but at society as a whole.  How much more do you make on the money in your 401k than we pay in interest on federal debt?
Posted by orrinj at 6:00 PM


China's Bad Diplomacy (James Clad, Robert A. Manning | December 17, 2012, National Interest)

A joke now making the rounds in Asia asks, "who is America's most effective diplomat in Asia?" The punch line brings knowing laughter: "'Mr. Beijing.' Yes, Mr. Bob Beijing is playing America's best hand."

The joke's sting lies in the law of unintended consequences. Beijing's increasingly provocative moves include cutting a Vietnamese seismic-exploration ship's cables, disrupting oil exploration, declaring the entire South China Sea under Chinese sovereignty and making some hitherto unpublicized but very sensitive challenges to Malaysia. All seem tailor-made to produce exactly what China says it doesn'twant: a de facto anti-China coalition backed discreetly by the United States and reaching from India to the Sea of Japan.

Posted by orrinj at 4:57 PM


Conservative Survival in a Progressive Age : Big government and the social revolution are here to stay. The conservative role is to shape both for the better. (PETER BERKOWITZ, 12/12/12, WSJ)

Political moderation is a maligned virtue. Yet it has been central to American constitutionalism and modern conservatism. Such moderation is essential today to the renewal of a conservatism devoted to the principles of liberty inscribed in the Constitution--and around which both social conservatives and libertarians can rally.

"It is a misfortune, inseparable from human affairs, that public measures are rarely investigated with that spirit of moderation which is essential to a just estimate of their real tendency to advance or obstruct the public good," observed James Madison in Federalist No. 37. The challenge, Madison went on to explain, is more sobering still because the spirit of moderation "is more apt to be diminished than promoted by those occasions which require an unusual exercise of it."

In a similar spirit, and in the years that Americans were declaring independence and launching a remarkable experiment in self-government, Edmund Burke sought to conserve in Great Britain the conditions under which liberty flourished. To this end, Burke exposed the error of depending on abstract theory for guidance in practical affairs. He taught the supremacy in political life of prudence, or the judgment born of experience, bound up with circumstances and bred in action. He maintained that good policy and laws must be fitted to the people's morals, sentiments and opinions. He demonstrated that in politics the imperfections of human nature must be taken into account even as virtue and the institutions of civil society that sustain it must be cultivated. And he showed that political moderation frequently counsels rejecting the path of least resistance and is sometimes exercised in defending principle against majority opinion.

Madison's words and example and Burke's words and example are as pertinent in our time as they were in their own. Conservatives should heed them as they come to grips with two entrenched realities that pose genuine challenges to liberty, and whose prudent management is critical to the nation's well-being.

The first entrenched reality is that big government is here to stay.