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Social Security Benefits To Be Slashed

Thursday August 14th, 2014   •   Posted by Craig Eyermann at 8:08am PDT   •  

The Social Security Trustees have just released their 2014 report, which updates their actuarial estimates of when the program’s Disability Insurance (DI) trust fund and the Old Age and Survivor’s Insurance (OASI) trust fund will run out of money, forcing both disability and pension benefits to be cut.

Let’s get to the worst news first. Social Security’s Disability Insurance trust fund will be the first to be depleted, which the trustees now forecast will occur in less than two years. Under current law, when the DI trust fund is depleted in 2016, Supplemental Security Income (SSI) payments made to Americans with disabilities will be permanently cut by nearly one-fifth.

B1_2That change will negatively impact over 8.4 million Americans, who can expect to see their monthly income payments slashed by 19% according to the Trustee’s latest estimate, just seven years after the DI trust fund last ran a surplus from the portion of Social Security’s payroll taxes dedicated to it.

Meanwhile, things are not as immediately dire for Social Security’s OASI trust fund, which is expected to last another nineteen years before it is fully depleted after years of paying out more in benefits than it collects through Social Security’s payroll taxes. When that happens, the monthly income benefits paid to retired Americans, or to the surviving spouses of working Americans who paid Social Security’s payroll taxes, will be slashed by nearly one-fourth.

b3Beginning in 2033, under current law, Social Security estimates that the monthly income benefits for each of an estimated 75 million Americans (or more) will be permanently reduced by 23%.

For more information, Charles Blahous, one of Social Security’s Public Trustees, provides a good overview of what’s in the 2014 Trustees’ report at e21.

Cap and Raid

Wednesday August 13th, 2014   •   Posted by K. Lloyd Billingsley at 6:27am PDT   •  

carb_logo_200The ruling class likes to portray its predations as targeting the rich, the one percent, and those at the top. In reality, the Pillage People target everybody, particularly working people. For example, in January, government regulations will cause California’s already high gasoline prices to jump 13 to 20 cents a gallon.

This is the result of AB 32, the Global Warming Solutions Act of 2006, authored by state senator Fran Pavley, an Agoura Hills Democrat, and signed by Republican governor Arnold Schwarzenegger. The legislation seeks to reduce greenhouse gas emissions to 1990 levels by 2020. On January 1, 2015, motor vehicle fuels will be included in the scheme, operated by the California Air Resources Board (CARB). As that date looms, legislators and business owners alike have been pushing for relief.

In June, 16 Democratic legislators wrote to CARB boss Mary Nichols. The group’s leader, Fresno assemblyman Henry Perea, said the gasoline price hike would hurt “the most vulnerable members of our communities who must commute to work and drive long distances for necessary services like medical care.” So motor vehicle fuels should be left out, and Perea went on record saying that “the cap-and-trade system should not be used to raise billions in state funds at the expense of low-income motorists.”

More recently, florist Jim Relles wrote in the Sacramento Bee that “just as our economy is recovering from the recession, extending cap and trade to fuel will strike a blow to those who can least afford it because for many, even a slight increase in gas prices takes a gouge out of the shrinking family budget.” And small businesses like Relles’ will take a hit.

Such pleas are not likely to cut any slack with California governor Jerry Brown. He wants one-third of the cap-and-trade funds for his high-speed rail program, including $250 million this fiscal year. Likewise, workers and small business owners can expect little sympathy from Brown’s CARB boss Mary Nichols, a longtime advocate of high gasoline prices. With Nichols, climate change superstition trumps the facts. Hien Tran, lead author of a CARB study on diesel emissions, claimed to have a PhD from UC Davis. He actually bought his PhD from a diploma mill in New York. His study was also faulty, but Nichols did not fire him.

This enabler of fraud is not likely to provide relief, and neither is Jerry Brown, who sees gold in those regulations. As in Washington, politicians and unelected regulators are number one. Workers and taxpayers aren’t even number two.

Laying Track for More Spending

Monday August 11th, 2014   •   Posted by K. Lloyd Billingsley at 7:18am PDT   •  

BayBridgeDemo_200We have been tracking the new eastern span of the San Francisco-Oakland Bay Bridge, which came in 10 years late and $5 billion over budget but still bristled with safety concerns. Those worries were serious enough to prompt state senator Mark DeSaulnier to hold hearings and threaten a criminal investigation. Calls for a criminal investigation actually originated with Caltrans geologist Michael Morgan, but the senator followed up with an “administrative review” by the California Highway Patrol. The CHP was to see if Caltrans had retaliated against whistleblowers and violated rules on public disclosure. But after six months of investigation, nothing emerged from the CHP in an August 5 hearing in Sacramento.

Caltrans bosses and their apologists defended the bridge as safe and denigrated whistleblowers as “disgruntled” employees. In the public comment section, the only speaker was Patrick Lowry of Alta Vista Solutions, which handled oversight on the bridge. Lowry said “the bridge is safe,” there was “no debate about quality” and “no intent to silence critics.” Therefore, “Let’s not denigrate the team that gave the people of California something extraordinary they will enjoy for generations.”

That takeaway line raised no objection from DeSaulnier, who is running for Congress. He agreed that the bridge is safe and gave clear indication that accountability and safety are not his only concerns. He lamented “disaffected citizens who don’t believe in government,” an echo of his earlier complaint that problems with the bridge had eroded public confidence and made Californians “adverse to taxes” needed for other infrastructure projects.

The senator mentioned high-speed rail, which he supports “if it’s done right.” With the same ratio of cost overruns as the Bay Bridge, California’s $68 billion high-speed rail could cost upwards of $272 billion. DeSaulnier also touted a “water project,” doubtless a reference to Governor Jerry Brown’s $25 billion Delta tunnels. With cost overruns in proportion to the Bay Bridge, the tunnels could exceed $100 billion.

So while posing as an advocate of accountability the senator was simply laying track for billions in spending on dubious projects. The ruling class always has a bridge to sell you.

Inflating Away the National Debt

Monday August 11th, 2014   •   Posted by Craig Eyermann at 5:58am PDT   •  

8419071_S Can governments simply use inflation to make their national debts disappear?

That’s the subject of a new working paper by Jens Hilscher, Alon Raviv, and Ricardo Reis, who used real-world data to see how effective that inflation might be in reducing the real value of a government’s outstanding liabilities. Here’s the abstract of the paper:

We propose and implement a method that provides quantitative estimates of the extent to which higher- than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity and claimholders, and that uses option prices to construct risk-adjusted probability distributions for inflation at different horizons. The estimates suggest that it is unlikely that inflation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead inflation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.

Their principal finding is that, by itself, boosting the rate of inflation in a nation would have only a modest effect in lowering the real level of its national debt.

But that changes if a policy of higher inflation is combined with financial repression, wherein governments force private citizens and firms to lend money to the government, often at capped interest rates, while restricting their ability to take or invest their funds outside of the country. Investopedia describes some of the features that financial repression would likely include:

  1. Caps or ceilings on interest rates
  2. Government ownership or control of domestic banks and financial institutions
  3. Creation or maintenance of a captive domestic market for government debt
  4. Restrictions on entry to the financial industry
  5. Directing credit to certain industries

So what would be the reward for a government to implement these kinds of policies? Hilscher, Raiv, and Reis quantify the potential results for the United States in an earlier, ungated version of their working paper:

Applying it to the United States in 2012, we estimate that the effects of higher inflation on the fiscal burden are modest. A more promising route to inflate away the public debt is to use financial repression, and we estimate that a decade of repression combined with inflation could wipe out almost half of the debt.

Through August 1, 2014, the total public debt outstanding for the United States was nearly $17.7 trillion. By combining higher inflation with financial repression to extend the effective maturity dates for money being loaned to the federal government, U.S. elected officials could cut the inflation-adjusted value of the national debt by 50 percent in just 10 years by fully adopting the policies outlined in Hilscher, Raviv, and Reis’s working paper.

In fact, if you look just at U.S. history since the financial crisis of 2008, you can find that most of these elements have already been put into place, from legislation like Dodd-Frank that restricts entry into the financial industry and like FATCA, which imposes new capital controls on the financial accounts of American citizens who live or do business outside of the United States, the direction of credit to the politically favored green energy and education industries, the government’s takeover of the student loan industry, and even the newly created MyRA “savings” program, which is little more than a channel for boosting the sales of long-term, low-yielding U.S. Treasuries by targeting low-income earners.

In the end, the problem of national debt isn’t the debt so much as it is what governments do to get out of the massive debts they rack up. If that’s not a price are willing to commit yourself or your children and grandchildren to pay, then keeping the national government from racking up so much debt in the first place ought to be a major priority for you.

Somewhat Less Than Transparent

Thursday August 7th, 2014   •   Posted by Craig Eyermann at 6:30am PDT   •  

homelogo In December 2007, the U.S. government launched a new website that it promised would make the spending by federal government agencies transparent to all, the Washington Post recalls: was launched to great fanfare in 2007, the product of the Federal Funding Accountability and Transparency Act. “Technology makes it possible for every American to know what is happening and to hold elected officials accountable,” said one of its congressional sponsors, then-Senator Barack Obama.

So how well is the U.S. federal government living up to that promise? USA Today crunches some numbers:

WASHINGTON—A government website intended to make federal spending more transparent was missing at least $619 billion from 302 federal programs, a government audit has found.

And the data that does exist is wildly inaccurate, according to the Government Accountability Office, which looked at 2012 spending data. Only 2% to 7% of spending data on is “fully consistent with agencies’ records,” according to the report.

Among the data missing from the 6-year-old federal website:

• The Department of Health and Human Services failed to report nearly $544 billion, mostly in direct assistance programs like Medicare. The department admitted that it should have reported aggregate numbers of spending on those programs.

• The Department of the Interior did not report spending for 163 of its 265 assistance programs because, the department said, its accounting systems were not compatible with the data formats required by The result: $5.3 billion in spending missing from the website.

• The White House itself failed to report any of the programs it’s directly responsible for. At the Office of National Drug Control Policy, which is part of the White House, officials said they thought HHS was responsible for reporting their spending.

For more than 22% of federal awards, the spending website literally doesn’t know where the money went. The “place of performance” of federal contracts was most likely to be wrong.

In its 2012 fiscal year, U.S. federal government outlays totaled over 3,517 billion dollars. The $619 billion of that spending that wasn’t made visible on the website in 2012 represents a failure to account for 17.6% of the U.S. government’s total spending that year.

But will any elected official be held accountable for the federal government’s ongoing lack of transparency over its spending, as the Federal Funding Accountability and Transparency Act’s principal sponsor promised they would be?

Border Crisis and Leviathan

Wednesday August 6th, 2014   •   Posted by K. Lloyd Billingsley at 7:04am PDT   •  

LloydBorderSign_200As Robert Higgs demonstrated in Crisis and Leviathan, the state exploits crises to expand its power. The current situation on the U.S.-Mexico border represents an escalation in that government manufactured the crisis.

Young Hondurans, Guatemalans, and Salvadorans are coming because they believe they will get in the country and receive amnesty, based on clear signals they got from the Obama administration. These are not refugees in any meaningful sense. Central American countries are poor and violence is common, but those nations are not at war and do not face insurgencies. When they did, during the 1980s, there was no mass influx to the United States even approaching the current scale, with 57,000 entering since last October.

Those now arriving have no visas or legal basis to enter the United States. Yet the federal Border Patrol, a wholly owned subsidiary of the Department of Homeland Security, not only welcomes the illegals into the USA but transports them around the country at taxpayer expense. This gives additional work to the Federal Emergency Management Agency (FEMA), which performed miserably after Katrina but is apparently qualified to manage a manufactured crisis. Also involved is the federal Department of Health and Human Services (HHS), the same agency that botched the Obamacare rollout.

If anyone in Central America is poor or a victim of violence, it does not follow that they should come to the United States, which has problems of its own. The first resort should be regional nations such as Mexico, Costa Rica, Panama, oil-rich Venezuela, and Cuba, named by Newsweek as one of the best places in the world to live. All are Spanish-speaking countries, and so present no language or cultural problems for the needy new arrivals.

The President of the United States wants the USA alone to be Nanny State for the world and seeks to spend $3.7 billion on the surge. The president thus confirms that manufactured crises increase the cost of government, with no end in sight.

Will Criminal Investigation Make It Across the Bay Bridge?

Monday August 4th, 2014   •   Posted by K. Lloyd Billingsley at 9:04am PDT   •  

ct_logo_200The new eastern span of the San Francisco-Oakland Bay Bridge has already rung up $5 billion in cost overruns. The span also came in 10 years late and could well pose a danger to the public. As we recently noted, UC Berkeley structural engineering professor Abolhassan Astaneh-Asi believes the structure is unsafe and declines to use it. As Charles Piller writes in the Sacramento Bee, state Sen. Mark DeSaulnier charges that Caltrans accepted substandard work at taxpayer expense, and that this demands a criminal investigation. Taxpayers might question the timing here.

Six months ago, in January hearings on the bridge chaired by DeSaulnier, Caltrans geologist Michael Moore testified that safety problems were kept secret, ignored, and covered up. Moore duly called for a “criminal investigation.” Despite damaging testimony from whistleblowers and rather unconvincing responses from Caltrans bosses, DeSaulnier did not launch a criminal investigation. Instead he called for the California Highway Patrol, a law-enforcement agency, to conduct an “administrative investigation.” Now the senator, a Concord Democrat, wants a criminal investigation by the California attorney general or U.S. attorney.

DeSaulnier is running for Congress, and the call for a criminal investigation may well be a campaign pose. Safety and accountability are not his only concerns. In the January hearing he complained that the bridge problems had eroded public confidence and made Californians “adverse to taxes” needed for other “infrastructure” projects. The likely candidate is high-speed rail, another boondoggle.

Taxpayers should not be surprised if the criminal investigation never comes off. California AG Kamala Harris is a Democratic loyalist who has shown little interest in challenging government bureaucracy. Perhaps the U.S. Attorney would take up the cause. If some Caltrans boss does wind up facing charges, that could begin reform of a massive state agency that can waste $5 billion on an unsafe bridge before anybody does anything about it.

Bureaucrats Behaving Badly

Monday August 4th, 2014   •   Posted by Craig Eyermann at 6:55am PDT   •  

4 What’s the latest perk enjoyed by federal government bureaucrats while on the job?

It would appear to involve surfing for porn on the Internet. Jim McElhatton of the Washington Times reports:

For one Federal Communications Commission worker, his porn habit at work was easy to explain: Things were slow, he told investigators, so he perused it “out of boredom”—for up to eight hours each week.

Lack of work has emerged time and again in federal investigations, and it’s not just porn, nor is it confined to the FCC. Across government, employees caught wasting time at work say they simply didn’t have enough work to do, according to investigation records obtained under the Freedom of Information Act.


A spokesman for the FCC declined to comment on what, if any, action the agency took after the FCC’s inspector general singled out the eight-hour-a-week porn peeper.

McElhatton summarizes episodes of documented misconduct at the Government Services Administration (GSA) and as the U.S. Patent and Trademark Office, where bureaucrats are getting away with the kind of behavior that would lead to employee terminations at real jobs in the private sector:

In another recent case, a GSA employee who spent about two hours a day on a computer looking at pornography and dating sites “sometimes became bored during these long hours at the computer and would often use the computer for personal use to pass the time,” according to a case report by the GSA inspector general last year.

In a more recent and far more costly example, U.S. Patent Trial and Appeal Board paralegals received salaries and bonuses for years even though they spent much of their time watching television, shopping online, exercising and wasting time on their tablet computers, according to an investigation released this week by the Commerce Department’s inspector general. Investigators estimate that more than $4 million was spent paying employees for time they weren’t working.

A common theme that is emerging among all these stories of waste is the absence of corrective actions on the part of politically appointed and career managers at federal government agencies. One of the worst examples of that lack of effective administrative oversight has become evident at the Environmental Protection Agency (EPA), as reported by Government Executive‘s Charles S. Clark:

Tensions between the inspector general and main staff at the Environmental Protection Agency spilled into the open on Wednesday at a House oversight hearing that veered into EPA’s inability to prevent individual employee misconduct ranging from porn viewing on the job, to falsifying attendance records, to an alleged workplace assault on an investigative agent.

“The EPA is truly a broken agency,” said Rep. Darrell Issa, R-Calif., chairman of the Oversight and Government Reform Committee, in reeling off a string of stories of personnel misconduct still under adjudication in the wake of the December sentencing of EPA air quality specialist John Beale to 32 months in prison for bilking the agency of salary and expenses while performing little work under the guise of moonlighting for the CIA. What ties these stories together, according to Issa, is that the IG’s office is being blocked from uncovering the facts.

The cases, detailed by witnesses from the inspector general’s office, include a $120,000 a year, bonus-winning, still active employee who spent two to six hours a day visiting porn websites and downloading 7,000 pornographic files to an agency shared server. Another involves the human resources manager who failed to spot Beale’s fraudulent explanations for his absences, and a third involves an ill employee confined for a year in an assisted living facility but still collecting full pay.

A fourth, perhaps most dramatic, episode involves an allegation that Steven Williams of EPA’s Office of Homeland Security in October 2013 committed an “assault” on Office of the Inspector General special agent Elisabeth Heller Drake in an EPA hallway as she sought to inform him of his obligation to remain silent about what she termed her “difficult” interview with him on an investigation.

The EPA, of course, is the federal government agency that had to direct the employees at its regional office in Denver, Colorado, to stop its employees from “placing feces in the hallway.”

All in all, what these episodes suggest is that the top federal officials at these government agencies are tolerating hostile work environments at multiple federal government workplaces that are rapidly becoming defined by their dysfunctional cultures.

Science: Cutting Spending Better Than Raising Taxes

Thursday July 31st, 2014   •   Posted by Craig Eyermann at 4:11am PDT   •  

16111092_S What is the best way to reduce a government’s budget deficit?

A new working paper by European Central Bank economist Maria Grazia Attinasi and International Monetary Fund economist Alexander Klemm once again confirms what we’ve long argued: when it comes to preserving the prospects for economic growth, cutting government spending is a much more effective way to go about reducing a government’s budget deficit than is increasing taxes.

Attinasi and Klemm came to that conclusion after reviewing the impact of discretionary fiscal policy on the economic growth of 18 countries in the European Union over the years from 1998 through 2011, finding that “expenditure-based adjustments” (spending cuts) are much less harmful to economic growth than “revenue-based adjustments” (tax hikes). In particular, they found that indirect tax increases, such as those associated with excise taxes and the kind of Value Added Tax that is levied in most E.U. nations against consumer goods and services, have a “particularly strong negative impact” upon economic growth when nations are experiencing recessionary conditions.

But their findings go well beyond that basic insight. They also found that although cutting government spending can have a small negative impact on economic growth in the short term (less than one year), it has a minimal impact at longer terms and that front-loading spending cuts is much less harmful than dragging them out over longer periods of time.

What’s more interesting is that they found that most of the negative impact of government spending cuts in the short term has to do with cuts to programs that involve investments in things like public infrastructure. Other types of government spending cuts, such as cuts in government subsidies that support consumption and the compensation of public employees, turned out to have no statistically significant impact upon economic growth.

What that means is that these two things, government subsidies and public employee compensation, are the first two things that should be cut when reducing a government’s budget deficit is necessary, because they are nearly free of pain where the nation’s economy and economic growth prospects are concerned.

Eighteen nations in the European Union have taken more than a decade to learn that lesson, backed by science, the hard way. And still, the leaders of some of those nations haven’t learned from the sad examples of their neighbors’ experiences and are still far from becoming illuminated, even as their neighbors recover from their mistakes.

Much less across the Atlantic Ocean, where economic growth forecasts for 2014 are now being slashed because those important lessons are continuing to be denied.

IRS-FEC Axis Abuses Taxpayers

Wednesday July 30th, 2014   •   Posted by K. Lloyd Billingsley at 7:08am PDT   •  

FEC-Logo200With all the excitement in Ukraine, the Middle East, and Central America, a key domestic development has failed to draw the attention it deserves. The Federal Election Commission (FEC) has joined the IRS in a cover-up of illegal activity.

As the Daily Caller notes, when former IRS official Lois Lerner worked at the FEC’s enforcement division, one of her colleagues was April Sands, an attorney who resigned from the FEC in April after admitting violations of the Hatch Act. In a federal government agency that is supposed to ensure free and fair elections, Sands conducted partisan political activity. As David Martosko pointed out in the Daily Mail, Sands was known as “Obama’s girl” at the FEC. When FEC inspectors attempted an investigation they found that Sands had experienced computer problems and the FEC had recycled her hard drive. So Sands’ emails were not available.

This is the same story advanced by the IRS on behalf of Lois Lerner, who spearheaded a campaign against groups who favor limited government, lower taxes, and clean elections. Lerner claimed she had done nothing wrong but took the Fifth Amendment before a House oversight committee. Lerner’s computer mysteriously crashed, and her email records conveniently disappeared. The IRS now pegs the number of mysterious computer crashes as “less than 20,” but it can’t say if the emails were somehow backed up. To that record now add the computer of April Sands, with others at the FEC doubtless to follow.

A ballpark figure for the odds that these computer crashes happened by chance, or even due to simple incompetence, is zero. If “less than 20” witnesses mysteriously disappeared a week before a trial, the victims of malfeasance would hardly expect justice to be done. For all but the willfully blind, what is going on should be abundantly clear. Federal government agencies are abusing American taxpayers on a massive scale.

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