Wednesday, April 6, 2016

Economic Miseducation

I have taught basic principles of economics for thirty years to groups after groups of college students who were often cross-eyed, bored, running late, playing with their phones, angry that I gave them too many notes, “hard tests,” and too many assignments which interfered with their busy social lives.  

Many students were there just to get a grade and to complete their useless social studies degrees on the way to an advisor’s assurance of a six-figure salary job on day one, an offer that would never materialize on their limited horizons. They did not care that their parents went in debt to pay for this college miseducation they received or that hard-working taxpayers funded their federal grants for four years. Most of them had no clue how the economy ran nor did they care.

It is painfully obvious that today students and college graduates are just as woefully incompetent and uninformed. They are voting in droves for their Marxist/communist of their choice, falling for empty promises of free education in their communist utopia of free birth control pills and free legalized drugs.

None of them paid attention in Economics classes that in communism abortion is not a choice, birth control pills are not available or expensive, and drug use is punishable with hard time in jail.  Education is free technically but there is no room to educate everybody in the halls of higher learning, so only a select few are chosen, usually the elite’s children are picked first, regardless of grades. If there are places left, then those with the highest scores are admitted.

Someone who spends a lot of his time running computer models to predict economic downturns, upturns, bubbles, crashes, and collapse, attempted to educate the audience on Facebook. Most of his advice fell on deaf ears because people are tired of listening to anybody, they know it all already, and have already made up their minds to go full speed ahead off the cliff, they want to try things for themselves, why listen to reason and rational thought. Repeating failed history in hopes of a different result seems enticing to most people.

In his analysis, in an economic environment of “120 percent debt to GDP ratio, we have less than five years before economic implosion.” He defined “Point Zero” as the point where the national debt becomes 120 percent of GDP, an unsustainable scenario that would cause an unrecoverable spiraling downturn of the economy. A black swan event would make things much worse.

In order to make sure the economy becomes sustainable again in the face of a 19 trillion national debt, “entitlements” must be reformed, spending and waste must be cut, some regulatory burdens on corporations must be reduced or eliminated, and taxes must be raised.

And this does not even begin to address unfunded liabilities such as Social Security and Medicare. Entitlements comprise 70 percent of the budget and debt servicing is 10 percent. This leaves just 20 percent of the budget that can be cut. Is that sufficient to even begin reducing the huge national debt?

Cutting the corporate credit card will force Congress to balance the budget. They cannot spend more than they take in from Treasury auctions and taxpayers. How many Congressmen will risk their careers in order to do what is right? Congress does not seem willing to address any of the above because they do not want to compromise their political careers and thus destroy the power they yield in Washington.  

Even though both spending cuts and tax increases are necessary, Congressmen fight and politically posture on both sides of the isle while nobody’s pet project or state funding gets cut. Why are Congressmen unwilling to cut pet projects? When they do, they know their constituents will vote them out of office.

We keep giving money to the U.N., we fight unwinnable wars with strange rules of engagement, and we waste more money on our political friends and foes overseas at a time when we can ill-afford it.

To make matters worse, inflation is looming on the horizon because of the three quantitative easings (QEs), printing money without the backing of goods and services in order to purchase our own debt.

The corporate mandate of the Affordable Care Act (ACA) has not even taken full effect yet. We are not sure if Congress will repeal Obamacare without a replacement. The preexisting conditions’ feature of ACA is a good idea.  In spite of dishonest political rhetoric, nobody will die in the streets without medical care.

But there is rationing occurring already due to the burgeoning and very expensive bureaucracy. We cannot offer care to more people and illegal aliens without substantial costs to the nation which so far seem to be far greater than if we would have given free premiums to the millions of uninsured who, before ACA, could not secure nor afford medical insurance. Some of them were already recipients of Medicaid.

We are sitting on a social unrest powder keg as evidenced by Ferguson, Baltimore, the Black Lives Matter, the collegiate race-baiting violence, and ISIS coming to our shores via unprotected borders. The social cohesion is breaking down faster than you can say All Lives Matter.

Even though our national debt to GDP ratio is quite high (104.7%), our economic situation is slightly different than Greece’s because we can print our own dollars. http://www.tradingeconomics.com/united-states/government-debt-to-gdp

Our fiscal policy is in a mess. Taxation burdens the middle class and favors crony capitalism while spending is out of control.  Almost 50 percent of the country does not pay any taxes and crony corporations move their headquarters to other countries to avoid paying proper share of taxes. Because corporate tax in the U.S. is one of the highest in the world, Congress enabled corporations to move overseas via Congressional bills.

The burden of taxation falls on the middle class yet again. TPP is going to move most of the remaining manufacturing sector overseas, transforming U.S. into a service economy and destroying many blue collar and white collar jobs in the process.

Congress originates the spending bills and approves them. The President can express what he wants and signs or vetoes bills, but the ultimate spending power and control rests with Congress. Congressmen are few and far between who have strength of character or the will to do what is unpopular. Nobody wants to be perceived as hurting parents trying to feed their kids, put a roof over their heads, or as “throwing grandmas over a cliff.” So the out-of-control spending continues to balloon.

American citizens themselves do not want to give up their instant gratification and suffer without their Starbucks coffee and the pain or indignity of a less than 75-inch TV or other electronic gadgets that are creating the blue screen hunchback nation. Why bear responsibility for yourself when Uncle Sam can do it for you?

Presidential hopefuls make promises to the electorate that will not reduce debt substantially in the absence of a robust and sustained economic growth that would bring in additional revenues. Some talk about “entitlement” reform by increasing the retirement age. Proposals to create economic growth are not very encouraging. There is no magical pot of gold at the end of the rainbow, nor another bubble that would bring in enough revenue to offset the very large budget and reduce the unpayable national debt.




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