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Archive for the ‘Government Spending’ Category

Solar Panel Companies Investigated for $500 Million Fraud; Fisker Out of Batteries & Money

In Electric Cars, Government Spending, Obama Administration on December 16, 2012 at 9:51 pm

Electric car

Electric car


Direct Federal aid to private, for-profit companies in the energy sector continues to careen off the road. The Washington Post reported the Inspector General is looking at three specific firms.

“Three of the country’s most prolific installers of residential solar panels are under federal investigation to determine if they inflated the cost of their work to increase the payments they would receive from the government, according to government and industry officials familiar with the probe.”

“SolarCity, SunRun and Sungevity have received subpoenas from the Treasury Department’s office of inspector general for financial records to justify more than $500 million in federal grants and tax credits the firms tapped for performing work. The probe seeks to determine whether the companies accurately reported the market value of their costs when applying for federal reimbursement, which was calculated at one-third of the costs.” [1]

This expense is part of the Obama Administration’s $13 billion 1603 Program that provides energy give-aways.

Another recipient of government energy policy largess, Fisker Automotive, who cashed $192 million from the Feds, is in a different sort of trouble. Fisker is the maker of the flop Karma, one you won’t seen on the road since it’s sold fewer than 2,000 cars. The vehicle has the wrong sort of karma, with numerous recalls and quality problems (like catching on fire [3] [4] [5]. Its battery supplier A123 Systems, another government cash recipient, failed [6]and now Fisker needs another battery maker in order to restart Karma production. Money-losing Fisker also lacks cash to complete the engineering on a planned second electric car model, the Atlantic. [2]

[1] http://www.washingtonpost.com/politics/solar-firms-probed-for-misrepresentations-in-getting-public-money/2012/12/13/0ba07656-4496-11e2-8e70-e1993528222d_story.html
[2] http://pevc.dowjones.com/Article?an=DJFVW00020121207e8c7ifi2s&cid=32135016&ctype=ts&pid=32&ReturnUrl=http%3a%2f%2fpevc.dowjones.com%3a80%2fArticle%3fan%3dDJFVW00020121207e8c7ifi2s%26cid%3d32135016%26ctype%3dts%26pid%3d32
[3] http://reviews.cnet.com/8301-13746_7-57543123-48/swamped-fisker-karma-electric-cars-catch-fire/
[4] http://www.autoweek.com/article/20120508/CARNEWS/120509860
[5] http://www.insideline.com/fisker/karma/2012/second-2012-fisker-karma-fire-under-investigation.html
[6] https://econscius.wordpress.com/2012/10/18/249-million-obama-grant-recipient-defective-battery-maker-a123-systems-bankruptcy/

Photo by author.

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$249 Million Obama Grant Recipient, Defective Battery Maker A123 Systems Bankruptcy

In Electric Cars, Government Spending, Obama Administration on October 18, 2012 at 12:04 am

A123 Systems, Inc. logo.svg

The flailing saga of private firms going bankrupt after massive infusions of public funds continues with A123 Energy.  It defaulted on its debt and is declaring bankruptcy.  It received a $249 million grant in strings-free taxpayer money, using $129 million to build a factory.  [1]  It was a grant of money, not a loan, not equity. 

Like Solyndra and others who received government money, it didn’t live up to its job creation promises (touted by President Obama in 2009 as going to create “more than 3,000 [jobs] by the end of 2012.” [2]  Not quite.  It shipped defective batteries, leading to a $55 million recall and was selling batteries at a ratio of $1.57 cost to $1 revenue. [3]  Not a long-term winning strategy.

A123 is just another example of why governments, regardless of the party in the White House, should never, ever pick and choose winners, or as Mitt Romney pointed out, “pick losers” in private business.  They use scarce tax dollars and, sadly, fail because politicians like Mr. Obama haven’t a clue about what is a good or bad business idea.

Considering President Obama’s dislike of many for-profit corporations, the hand outs to private firms like Solyndra, A123 and Johnson Controls make no sense whatsoever.  Good ideas will get built on their own, they don’t need government hand-outs. 

[1] http://blogs.wsj.com/corporate-intelligence/2012/10/16/187/

[2] http://online.wsj.com/article/SB10000872396390443675404578060882850041910.html?KEYWORDS=electric+car+crash

[3] http://www.technologyreview.com/news/427991/what-happened-to-a123/

Pictures (A123 Systems logo & Solyndra building with “for sale” sign) from Wikipedia Commons.

Washington Picks Losers & Subsidizes Chinese Solar Panel Makers With Your Money

In American Recovery & Reinvestment Act (Stimulus), Government Spending, Obama Administration, Uncategorized on August 2, 2012 at 8:29 pm

The Solyndra scandal is back in the news after today’s Washington Post article,

As the Obama administration moved last year to bail out Solyndra, the embattled flagship of the president’s initiative to promote alternative energy, a White House budget analyst calculated that millions of taxpayer dollars might be saved by cutting the government’s losses, shuttering the company immediately and selling its assets, according to a congressional investigation.

Even so, senior officials in the White House’s Office of Management and Budget did not discourage the Energy Department from proceeding with its plan to restructure a federal loan to Solyndra— a move that put private investors ahead of taxpayers for repayment if the company closed, [1] 

It is not just Solyndra.  Several articles help us take the big view about what a disaster government energy “investments” are:

Like the mythical monster Hydra—who grew two heads every time Hercules cut one off—President Obama, in both his State of the Union address and his new budget, has defiantly doubled down on his brand of industrial policy, the usually ill-advised attempt by governments to promote particular industries, companies and technologies at the expense of broad, evenhanded competition.

Despite his record of picking losers—witness the failed “clean energy” projects Solyndra, Ener1 and Beacon Power—Mr. Obama appears determined to continue pushing his brew of federal spending, regulations, mandates, special waivers, loan guarantees, subsidies and tax breaks for companies he deems worthy.

Favoring key constituencies with taxpayer money appeals to politicians, who can claim to be helping the overall economy, but it usually does far more harm than good. It crowds out valuable competing investment efforts financed by private investors, and it warps decisions by bureaucratic diktats susceptible to political cronyism. Former Obama adviser Larry Summers echoed most economists’ view when he warned the administration against federal loan guarantees to Solyndra, writing in a 2009 email that “the government is a crappy venture capitalist.”

Even under optimistic projections, heavily subsidized wind and solar would each amount to a tiny fraction of global energy by 2030 and thus cannot be the main answer to energy-security or environmental problems… Mr. Obama is spending immense sums for subsidies to particular industries and technologies, almost $40 billion for clean-energy programs alone (some, appropriately, for pre-competitive generic technology). [2]

As T.J. Rodgers, CEO of Cypress Semiconductor, writes, industrial policy can have unintended effects. 

Consider the current 30% federal solar energy subsidy. A home solar system with 60 solar panels produces about 15,000 watts of power, enough to completely offset the $6,000 annual electricity bill of a typical upscale California home. The system costs about $90,000 prior to the 30% federal income-tax credit, which reduces its cost to $63,000. After a simple payback period of about 10 years, the homeowner literally enjoys free electricity for the remainder of the guaranteed 20-year system life, a very profitable 10 years.

But what if that $27,000 tax credit, the accelerated-depreciation tax savings, and most of the hefty post-payback profits went to Wall Street firms with a “tax appetite,” not the homeowner? That’s just what happens with the majority of new home solar-system installations today.

Today, most new home solar systems are purchased by special Limited Liability Corporations (LLCs) that are specifically created by Wall Street firms to purchase home solar systems and to sell power to the homeowner on a cell-phone-like contract. The homeowner does not mind giving up the tax benefits as long as the “free” system reduces utility bills.

However, when the system is paid off and the monthly LLC profit jumps to 100% of the electricity bill, the LLC solar electricity price to the homeowner is maintained just below market—and the profit really begins to roll into the LLC. Since the risks to the LLC grow as the solar systems age, many banks offload their risk by selling the LLCs before their 20-year lifetime is up, locking in much of the long-term profit. There is now a growing market for what might be called “solar-backed securities.” Wall Street understands the time-value of money; the federal government and consumers do not.

One of the largest solar-system installers in the U.S., SolarCity Corp., uses the LLC strategy and currently buys a majority of its solar panels from the low-cost Chinese supplier, Yingli. Thus when President Obama said that we must subsidize our solar industry to remain competitive with the Chinese, it would have been more accurate to say that we subsidize Wall Street to create employee-less corporations that buy and install Chinese solar panels in the U.S. Wall Street and consumers understand that free markets are borderless; Washington does not.

Just last week, the U.S. International Trade Commission found the Chinese solar industry guilty of “dumping” solar panels in the U.S. Tariffs are likely to be levied against Yingli and others. Here then, is a practical guide to the Obama administration’s nonsensical solar policy: Washington gives tax breaks to Wall Street to fund LLCs that buy solar panels from the Chinese to “help” the American solar industry, while the ITC threatens to levy a tariff on those solar panels, which would raise the price of solar energy to U.S. homeowners. In short, Wall Street pockets the money and consumers get higher solar-energy prices. [3]

[1] http://www.washingtonpost.com/national/white-house-budget-analysts-thought-saving-solyndra-could-be-expensive-move/2012/08/01/gJQAf2QGQX_story.html

[2] http://online.wsj.com/article/SB10001424052970204883304577221630318169656.html

[3] http://online.wsj.com/article/SB10001424052970204903804577082631863392956.html

Picture from Wikipedia Commons.

Government Vultures Pick At Taxpayer Carcasses for Green

In 2012 Elections, Economy, Government Spending, President Obama on July 6, 2012 at 8:09 pm

 

Unused parking spots near author’s residence. Photo by author.

President Obama is no fan of American capitalism of the venture sort.  He actually used the term ‘vulture’ to refer to Bain Capital. [1]  Despite Bain’s obvious success in promoting many successful companies WITH ITS OWN MONEY, Obama has been the real vulture, picking at taxpayer carcasses. 

One after another, the President’s ‘green’ investments have failed.  Oops, did I say the President’s investments?  I mean your investments he makes.  Unlike Bain, the Obama bad investments, which seems to be essentially all of them, come right out of your pocket.

Bloomberg reports on Abound Solar’s failure:

Abound plans to file for bankruptcy in Wilmington, DE, next week and will fire about 125 employees, according to a statement yesterday.

The company, based in Loveland, CO, borrowed about $70 million against its guarantee. U.S. taxpayers may lose $40 million to $60 million on the loan after Abound’s assets are sold and the bankruptcy proceeding closes, Damien LaVera, an Energy Department spokesman, said in a statement. [2]

After Solyndra, Ener1 [3] and other taxpayer-backed bankruptcies, it should be clear to everyone it is best to leave investing to the real venture capitalists, private equity firms and stock markets and avoid the real vulture: the federal government, which tends to make bad investments to politically-connected parties.  Anthony Kim, analyst at Bloomberg New Energy Finance in New York said this of the Abound Solar bankruptcy, “This is not surprising at all,” because they backed the wrong type of technology. [2]  With your money. Solyndra logo.svg

 [1] http://online.wsj.com/article/SB10001424052702304840904577424583779000656.html [2] http://www.bloomberg.com/news/2012-06-29/abound-failure-revives-debate-over-obama-solar-policies.html [3]http://abcnews.go.com/Blotter/ener1-parent-obama-backed-green-company-files-bankruptcy/story?id=15456414 Parking lot picture by author.  Solyndra logo from Wikipedia Commons.

Wright Brothers Had Affluence, Leisure Time To Invent The Airplane

In Capitalism, Flight, Government Spending, Income Tax Rates, Kitty Hawk, Patents, Wright Brothers on October 4, 2011 at 12:12 am

We take air travel for granted, but humans desired to fly for millenia and scores had died in the failed pursuit of manned flight on wing-like structures and gliders.  Leonardo Da Vinci had pondered the problem.  In December 1903, the Wright Brothers launched their 16 hp flying machine, named “Flyer”, into the air in fulfillment of the age-old dream. 

Lest we also take the Wright Brothers for granted, how was it the two brothers were able to achieve where all others had previously failed?  There were Orville and Wilbur Wright’s many positive attributes: vision, patience, incredible perseverance, keen observation, painstaking experiments and measurements, and their sheer brilliance at identifying problems coupled with ingenuity at solving the problems, often with common, simple tools and materials such as those found in an ordinary bicycle shop. 

Another fact is the Wright Brothers were successful proprietors of a prosperous bicycle shop in Dayton, Ohio where they sold, repaired and rented bicycles. [1]   The Wright Brothers were able to afford a half decade of experimenting and building gliders, a primitive wind tunnel and later the Flyer itself.  Due to weather conditions, the Wrights conducted their experiments on the sand dunes at Kill Devil Hills at Kitty Hawk, North Carolina.  In those days, the trip commonly took a week each way.  The Wrights racked up significant expenses building their Kitty Hawk camps on the remote Outer Bank island where they would stay for months, paying to have food and supplies shipped in, built several structures, and paid local workers to assist them.  The capitalist Wrights delegated day-to-day management of their bicycle shop for months at a time so they could focus on their experiments and even leave town completely for North Carolina.

In the words of Wright biographer Fred Howard, “they were financially secure”.  They had $4,900 “tucked away in two savings and loan associations in Dayton”.  [11]  That $4,900 would be a quarter million dollars in today’s money, and does not include the value of their non-cash assets such as their bicycle shop business.

What motivated the Wrights?  Clearly, they were fascinated, even obsessed, with flight.  They desired to solve the riddle of soaring.  But they were not doing it as charity for mankind.  The Wrights applied for their first patent in March 1903 on their discovery of the 3-D axis of airplane control, months before the Flyer was built or flown. [2]  After Kitty Hawk, the brothers were embroiled in long patent fights with others who lifted from their ideas for the commercial manufacturing of airplanes [4]  Though Wilbur Wright died an early death in 1912, Orville would move from comfortable affluence to become a very wealthy man after selling his interest in the Wright Company, maker of airplanes. [3]

Wright Brothers "Flying Machine" Patent

In today’s political rhetoric and tax debates we hear about how the rich supposedly aren’t paying their fair share.  The wealthy are maligned by populist politicians and our President as “fat cats”, men of leisure who live a grand lifestyle with no benefit to society.   Really? 

The income tax had not yet been introduced in 1903, so the Wrights were able to keep 100% of what they earned from their bicycle shop.  At a time when common workers toiled from dusk to dawn, it took men of some financial independence like the Wrights to invest the leisure time and money to invent an airplane.  Wilbur Wright wrote in his first letter to Octave Chanute, “I feel it will soon cost me an increased amount of money if not my life.  I have been trying to arrange my affairs in such a way that I can devote my entire time a few months to experiment in this field”. [4]  After already putting in many years of time and effort, in 1903 the Wrights invested about $1,000 (around $25,000 in today’s money) into the Flyer and its maiden flight trial. [5]

File:Wright Brothers in 1910.jpg

At the turn of the century, many had intellectual curiosity in human flight but the actual experimentation was dangerous, time-consuming and expensive.  Gliding pioneer Otto Lilienthal was the head of a factory. [6]  Other aeronautical pioneers were leisurely rich men such as machine gun inventor Hiram Maxim, a “most lavish spender.” [7]  Octave Chanute was an engineer by training who became a wealthy man of leisure after designing parts of the Chicago Stockyards and the first bridge across the Missouri River and later establishing a successful railroad-tie manufacturing business in Chicago. [8]  Chanute was a pen pal and a sounding board to the Wright Brothers.

The Wrights, of course, were far from history’s only capitalists advancing the practical application of science and technology.  Most any company of consequence was once backed by some private investor(s).  Many a promising venture or invention came from someone with the financial wherewithal not only to experiment but to take leave of their “day job”.  It is also of note that direct government attempts to invent much of anything or create new companies have largely failed. 

Even back in the Wright Brothers’ day, in the interest of obtaining manned flight for military uses, the US War Department commissioned very expensive manned airplane experiments.  Even spending $73,000 (almost $2 million in today’s dollars) of War Dept. money plus another $23,000 (1903 dollars) from the Smithsonian Institution, the two Langley attempts of 1903, sponsored by the War-Department, ended with plane and pilot immediately crashing into the Potomac River. [8]  

After the press witnessed the second failure of Langley’s government-backed attempt on December 8, 1903, the New York Times editorialized a man-carrying airplane would eventually be evolved if mathematicians and mechanics worked steadily for the next one million to ten million years. [9]  The Wright Brothers’ first flight took place a few days later. 

The French government invested $100,000 (almost $2.5 million in today’s money) in the 1890s backing the failed flight experiments of a Clement Ader.  Although Mr. Ader claimed he had flown 1,000 feet in what were described as “steam-powered batlike contraptions,” his assertions were proven false and the French government cut off future financial support. [10]   Direct government support of soon-to-failed ventures in industries already filled with entrepreneurs and private capital?  They say history repeats itself as farce:  Solyndra, anyone?

Wright Brothers "Flying Machine" Patent

[1] Howard, Fred. Wilbur and Orville: A Biography of the Wright Brothers. New York: Alfred A. Knopf, 1988.  Pg. 9.

[2] Ibid,  pp. 89 & 100.

[3] http://en.wikipedia.org/wiki/Wright_brothers, retrieved 10/3/11

[4] Howard, Ibid, p. 38.

[5] Ibid, pg. 123

[6] Ibid, page 17.  Lilienthal died in one of his experimental flights.

[7] Ibid, pg. 31. 

[8] Ibid, pgs. 18 & 129. 

[9] Ibid, pg. 130

[10] Ibid, pg. 32.

[11] Ibid, pg. 148.

Pictures from Wikipedia Commons. 

Patent Images from Google Patents: http://www.google.com/patents?id=h5NWAAAAEBAJ&printsec=drawing&zoom=4#v=onepage&q&f=false

Paul Krugman, Can You Spare the Chutzpah?

In American Recovery & Reinvestment Act (Stimulus), Federal Deficit, Government Spending, Obama Administration, Standard & Poor's USA Downgrade on August 8, 2011 at 9:42 pm

Paul Krugman today mocks Standard & Poor’s downgrade of the United States credit rating and accesses blame for the rating cut. [1]   Mr. Krugman says, “And please, let’s not have the usual declarations that both sides are at fault.  Our problems are almost entirely one-sided.” 

I held my breath a moment… wouldn’t this be the perfect place for Mr. Krugman to own up to his long advocacy of even larger deficit spending?  Alas, there’s no humility from Mr. Krugman, only chutzpah. [2]

Mr. Krugman predictably blames the “extremist right” and goes about making light of S&P.  Apparently it was the “extremist right” that demanded a trillion-dollar Stimulus program, Obama’s payroll tax cuts and the creation and continuous expansion of myriad other government spending programs the past 70 years?  Even the most cursory look at the history of the Public Debt shows neither party is blameless, but Mr. Krugman is too partisan.

Be that as it may, it is true S&P was too generous with ratings in the run-up to the financial crisis of 2008 and there is an argument S&P was late to drop the USA’s rating in 2011.  But Mr. Krugman shows chutzpah in making light of the rating drop to “AA-“.  I assume Mr. Krugman understands what rating systems are all about.  The top rating of “AAA” is intended for only the most pristine credits.  “AA+” is a good rating, just not as good as “AAA”.  The USA would have to drop another nine notches to “BB+” to be in speculative (so-called “junk”) territory.  The ratings scale works down to “C” and “D” (default).   Any honest person will admit the financial position of the United States has weakened and the country is not as creditworthy as it once was.  An “AA+” credit is still expected to repay the debt but is a bit riskier than an “AAA” credit.

Mr. Krugman is intelligent but occasionally careless.  Consider his statement: “It’s true that we’re building up debt, on which we’ll eventually have to pay interest.”  Eventually?  While rates are low today, we are paying plenty of interest.   US government interest expense was $414 billion in Fiscal 2010. [3]  Then again, this is the same Paul Krugman who also writes of “a trillion here or a trillion there” like a trillion is inconsequential.  In the rarefied spending air of a massive deficit advocate like Mr. Krugman, perhaps $414 billion is hardly anything at all.  After all, it rounds down to $0 Trillion.

Mr. Krugman said the 2009 Stimulus program was too small and he actually criticized the Obama Administration for its supposedly punctilious policies.  In his own words:

“The good news is that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, is working just about the way textbook macroeconomics said it would …  The truth, which is that the stimulus was too little of a good thing.” [4]

“it was obvious from the beginning [Obama’s Stimulus] was too small.” [5]

“Those of us who say that the stimulus was too small are often accused of after-the-fact rationalization: you said this would work, but now that it hasn’t, you’re just saying it wasn’t big enough. The quick answer to that accusation is that people like me said that the stimulus was too small in advance” [6]

“myself included, actually argued that the plan was too small and too cautious …. for the inadequate size of the stimulus plan” [7]

“[the Obama Stimulus] wouldn’t have been enough to fill the looming hole in the U.S. economy” [8]

Mr. Krugman got less deficit “Stimulus” spending than he had demanded, meaning he favored even greater debts than we actually have now.  But he has the chutzpah to ignore his own culpability and instead blames the messenger (S&P) and then blames the downgrade on, of all people, the Tea Party Republicans!  This is the same Tea Party caucus who has held partial power in the US House for a mere seven months and actually advocates cutting the deficit more than either Democrats or traditional Republicans.  Such chutzpah, Mr. Krugman!

 

[1] http://www.nytimes.com/2011/08/08/opinion/credibility-chutzpah-and-debt.html?_r=2&src=me&ref=general

[2] For the benefit of those not familiar with chutzpah: “Chutzpah (pronounced /ˈhʊtspə/) is the quality of audacity, for good or for bad, but it is generally used negatively. The word derives from the Hebrew word ḥuṣpâ (חֻצְפָּה), meaning “insolence”, “audacity”, and “impertinence” http://en.wikipedia.org/wiki/Chutzpah

[3] http://treasurydirect.gov/govt/reports/ir/ir_expense.htm

[4] http://www.nytimes.com/2009/11/02/opinion/02krugman.html

[5] http://blogs.abcnews.com/george/2010/09/krugman-spend-more-tax-less-almost.html

[6]  http://krugman.blogs.nytimes.com/2010/07/28/how-did-we-know-the-stimulus-was-too-small/

[7] http://www.nytimes.com/2009/03/09/opinion/09krugman.html

[8]  http://www.nytimes.com/2009/02/09/opinion/09krugman.html?ref=paulkrugman

Pictures from wikipedia commons.

Jay Carney’s $4 Trillion Lie

In Debt Ceiling, Federal Deficit, Government Spending, Obama Administration, Political Rhetoric on August 7, 2011 at 1:20 am

Presidential Press Secretaries are paid to, shall we say, spin.  Sometimes, spin crosses the line to outright falsehood.  Let’s call a spade a spade:  Jay Carney lied Saturday:

“Over the past weeks and months the President repeatedly called for substantial deficit reduction through both long-term entitlement changes and revenues through tax reform, with additional measures to spark jobs and strengthen our recovery,” press secretary Jay Carney said in a statement. “That is why the President pushed for a grand bargain that would include all of these elements and require compromise and cooperation from all sides.” [1]

Mr. Carney must hope you weren’t paying attention to Debt Ceiling negotiations.  Just a few months ago, Mr. Carney said it is “imperative” that a debt-limit vote not be “held hostage to any other action.” [2]  As reported in April in TheHill.com, “Carney maintained that a hike to the debt ceiling and ongoing efforts to rein in the deficit are both necessary, but not connected. [emphasis added]  “These are both urgent, but they’re not linked.” [emphasis added] [2]

Back in April, it was not just Carney but Jack Lew, the director of the Office of Management and Budget, who said there was no linkage.  Mr. Lew said: “Our very strong view is that the debt limit should be passed as a clean, standalone bill.” [2]

So which was it?  The Debt Ceiling and debt reduction were to be linked or were they not linked?

The fact is the Obama Administration wanted carte blanche to raise the Debt Ceiling without even a dime of deficit reduction.  Democrats and liberal opinion writers pilloried the GOP for months for the Tea Party approach of cutting the deficit in exchange for raising the debt limit.  We were told over and over again how it was unreasonably “taking hostage” the process.  It was also pointed out this was new and unprecedented because in the past, Congresses of either party had always granted “clean” Debt Ceiling increases. 

Only when the Republican caucus appeared to be united about blocking a Debt Ceiling increase and polls showed the public was supportive of the approach of cutting spending or cutting spending/raising taxes [3] did the Administration change its tune from “do nothing” to the “grand bargain” approach.  Going further back, the President had also ignored last year’s recommendations of his Deficit Reduction Committee.

The actual timing of the “grand bargain” was around July 7, three weeks before the Debt Ceiling Deal, when it was reported by Reuters, “Obama and congressional leaders are aiming for at least $3 trillion and possibly more than $4 trillion in budget savings.” [4]  It was not something President Obama had been pushing for “months”.

For Carney to try to ignore history and pretend a $4 trillion deficit reduction Debt Ceiling deal always was Obama’s position and it was the Republicans who wanted a smaller $2 billion in cuts is a blatant distortion.  It is also unfair to claim the GOP was fully responsible a larger $4 trillion deal did not happen as it takes two sides to negotiate.  The Administration does not want to be blamed for S&P’s rating downgrade to the United States, so it is rewriting history. 

 

 

[1] http://thehill.com/homenews/administration/175763-white-house-sap-downgrade-is-why-obama-pushed-for-grand-bargain

[2] “White House officials maintained Friday that the administration wants to see a “clean” increase to the federal debt limit” in http://thehill.com/blogs/on-the-money/budget/156425-white-house-maintains-call-for-clean-debt-ceiling-hike-despite-obama-comments

 [3] http://www.gallup.com/poll/148472/Deficit-Americans-Prefer-Spending-Cuts-Open-Tax-Hikes.aspx

[4] http://www.reuters.com/article/2011/07/07/us-usa-debt-idUSTRE7646S620110707

When $3.5 Trillion was $3.5 Billion!

In Economy, Federal Deficit, Government Spending on August 6, 2011 at 12:48 am

In Fiscal 2009, the US government spent $3.52 Trillion [1].

In Fiscal 1926, the US government spent $3.58 Billion ($43 Billion in 2009 Constant Dollars). [2] 

If a picture can be worth a thousand words, perhaps there is insight available when looking at page 317 of the 1947 Statistical Abstract of the United States (pictured below). 

Note federal spending actually contracted in the Roaring Twenties, even as the economy boomed.   We tamed the severe Depression of 1920-1 not with massive deficit spending stimulus but with spending cuts. [3]

Even FDR’s 1930s federal government lived in penury compared to today.   In 1940, last year before our entry to WWII, the United States spent merely $9.1 billion ($140 billion in 2009 Constant Dollars).

I am not implying we do not get some value for the additional trillions we spend each year today, but the questions are: (1) are we getting good value for the money and (2) can we afford it?  Tonight, S&P’s ratings downgrade suggests the answer to #2 is no.

Statistical Abstract of the United States, 1947, pg. 316

[1] http://www.cbo.gov/ftpdocs/120xx/doc12039/HistoricalTables%5B1%5D.pdf

[2] A useful Constant Dollar Calculator can be found, using your tax dollars by the way, at: http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=3584988&year1=1926&year2=2011

[3] http://en.wikipedia.org/wiki/Depression_of_1920%E2%80%9321