Saturday, August 27, 2011

Update on the Calm Before Storm

Two more pictures, looking east over Goose Pond, New Hampshire. Definitely the calm before the storm. Even the loons are acting strange...scooting across the water chasing each other.

The Calm Before the Storm

Above are two pictures of the Connecticut River in the Upper Valley of NH/VT -- just a few miles upstream of Hanover, NH.

As you can see, the water level is very low. Someone is looking ahead, and opened all the dams downstream to pull as much water out of the watershed as possible. With several inches due from Irene starting tonight, I greatly appreciate that.

Should be an interesting 24 hours. I do believe that the MSM has exaggerated the risk from this one and are not adjusting to Irene's weakening. But there will still be a lot of wind and water in areas that are already waterlogged.

Thursday, August 25, 2011

Federal Spending Update

The WSJ has a fine editorial today on the growth of Federal spending (see my related post below).

They report, on the basis of a Congressional Budget Office update, that the Federal government will spend an all-time record this fiscal year (which ends Sept. 30) -- $3.6 trillion dollars. That will be almost 24% of GDP.

The Journal article includes this chart, which shows the tremendous increase from 2008, and how the new level of Federal spending is looking more like a permanent new track rather than a temporary increase due to stimulus. All of this is consistent with my post below.

Also, it is interesting to note that the Select Committee on Deficit Reduction is charged with coming up with deficit reductions of $1.5 trillion over the next ten years -- that is, $150 billion per year.

Note well: $150 billion is 4% of fiscal year 2011 spending. 4%!!!???? All of this to get a 4% reduction in spending. Amazing.

Wednesday, August 10, 2011

Wisconsin Speaks

Recall how Republicans in Wisconsin dealt public unions a body blow, and the liberal world erupted in agony? Remember that the Wisconsin Democrats decamped to a neighboring state to try and avoid a vote on the union issue? Remember how in almost all press reporting of the changes to unions' collective bargaining powers the word "stripped" was always used, as here
Tuesday's recalls were largely seen as a test of Republican Gov. Scott Walker, who has drawn national attention since unveiling his controversial plan to strip nearly all collective bargaining rights from most public workers.

Well, yesterday six recall elections were held, with six Republican senators up for recall. The Dems had to win 3 of these to take back the Wisconsin senate. The Dems only won two of the six.

It cannot be said better than this, from the same Wisconsin State Journal article as above:
"The revolution has not occurred," said UW-Milwaukee political science professor Mordecai Lee, a former Democratic lawmaker. "The proletariat did not take over the streets."

Take notice, world.

Saturday, August 06, 2011

And Whither Europe?

Here is a very good article laying out the tough choice facing European policy makers: Dan O'Brien's article in the Irish Times, see here.

What are the choices? One, Europe could become more integrated, which would allow a central finance authority to backstop the debt of the close-to-default nations -- Greece, Ireland, Portugal -- as well as the larger countries of Italy and Spain which are also showing fault lines.

Or Europe could disintegrate. Another interesting idea, see here, is that Germany and a few related countries would be the ones to leave the Euro. Interesting -- leave Greece and others to wallow in the Euro, but at least they don't have to rewrite all contracts. It probably is true that it would be easier for the stronger set of countries to leave the Euro (back to the DM?!) than for the weaker.

The problem with increased integration, as I see it, is that increased economic integration requires more political integration. Look at what the Greeks and others did when they could borrow in euros, even when they ostensibly had to pay back the debt themselves. What would happen if they could borrow in euros and have the debt be every European country's responsibility? Talk about a major free-rider problem. But how can all the countries of Europe give up their rights to determine their own levels of spending and taxation? And to the Germans?

I guess the third choice is to try and ride out the storm. Batten down the hatches, tie the rudder, furl the sails and hope that the boat doesn't founder.

Federal Government Spending, 2008-2011

In light of S&P's downgrade of the US, it is interesting to take a look at Federal Government spending in the last three years 2008-2010 and this current year, 2011. Strictly speaking, the 2010 budget was the first one submitted by Obama; it was released in February 2009 after he took office. However, the American Recovery and Reinvestment Act was also passed in February 2009 and provided for economic stimulus spending of $800 billion over the next several years. It definitely impacted spending in 2009. Note also that while Obama has submitted a budget for every year of his presidency, Congress failed to pass a budget resolution for 2011 and will not do so for 2012 either.

Data are from GPO Access, see here.

Total outlays are as follows. Figures are in billions, so 2008 is $2.983 trillion.

2008 $2,983 billion
2009 $3,518
2010 $3,456
2011 (est.) $3,819

From 2008-2009, spending increased by 18%. Spending in 2011 will be, based on the estimate above, 28% above the level just three years earlier in 2008. The compound annual growth rate 2008-2011 is 8.5%. Over this same period, the general price level as measured by the CPI increased around 2% per year.

The broad based nature of the spending increase is striking. See the table I created showing expenditures by function. Figures here are in millions, not billions. The defense function in 2011 will account for $768 billion, or 20% of total Federal spending.

The figures for Energy are strange; in 2008 there was actually a $416 million surplus in a sub-energy account, Energy Supply, but by 2011 that account is negative $13.732 billion. But this is not the whole story in the energy area: energy conservation also goes from $409 million to $13.161 billion (I guess that was my metal roof that I got a tax credit for?)

I suppose that some of these increases are related to stimulus spending, but my fear and expectation is that any stimulus spending will end up being a permanent increase. In fact, projections for total spending in 2012 and 2103 from the same source above are $3,729 and $3,771 billion, hardly a significant decrease.

Is Federal government spending out of control? Indeed it has been. Is it any surprise that the voters sent Tea Party representatives to Congress to try and get some restraint? And are we surprised that our credit score took a hit?

The same source gives total tax revenues as well. In 2008, Federal receipts were $2,524 billion and in 2011 are estimated to be $2,174 billion, for a 14% reduction.