Monday, June 04, 2012

Can Taxpayers Control the Entitlement State?

"A single election rarely determines a democracy's fate, but some matter more than others. Tuesday's recall election of Wisconsin Governor Scott Walker is one that matters a great deal because it will test whether taxpayers have any hope of controlling the entitlement state and its dominant special interests.

Students of democracy from Alexis de Tocqueville to Mancur Olson have pointed out that the greatest threat to self-government comes from the tendency of democracies to become barnacled with special interests that vote themselves more benefits than society can afford. This is the crisis of the modern entitlement state, which is unfolding from California to Illinois, Greece, Italy and even Washington. Wisconsin is a critical test of whether democracies can reform before the crisis becomes debilitating."

~Today's WSJ 

 Related: Intrade odds for Gov. Walker to win tomorrow are currently at 92.2%.

44 Comments:

At 6/04/2012 10:54 AM, Blogger NormanB said...

The problem with our politics is that GOP candidates are largely rejected on their social issues, abortion, gay marriage, etc by enough people so as to make their election in some states very difficult if not impossible, ie California, Illinois.

The Democrats have always been a union party and thus they'll stay that way. What is needed is to have a Democratic offshoot, what we call Blue Dog Democrats, that are fisically responsible and eshew union money.

We need to have Democratic primaries where these two types of Democrats are in the race. Then it would be possible on economic issues for the Blue Dogs to team up with the GOP to produce some fiscal sanity. The Blue Dog Dems along with the standard Dems could then vote the social issues as their public wants. But now if you don't want the GOP's stance on social issues you get the unions running the states.

 
At 6/04/2012 11:10 AM, Blogger Methinks said...

I think this post went in a different direction than I thought it would upon reading the headline.

When I first read it, thought that I do think that taxpayers can change outcomes - but only by engaging in non-taxable activities and engaging in other forms of tax avoidance.

In other words, only running out of other people's money will stop the political class and, given enough incentive, the productive will either leave or stop being productive in taxable activities.

Despite the heady promises of cradle to grave care, current estimates push the retirement age to 80 in most European countries in order to avoid going bankrupt. In other words, the only way the social net will work is if there isn't one.

 
At 6/04/2012 11:12 AM, Blogger morganovich said...

i think this is a big question for the US as a whole and that the answer does not look promising.

with 50% of taxpayers paying no income tax, what possible chance is there to control spending?

half the population experiences every new spending initiative as free.

worse, we are not even using the correct goal lines. "balanced budget" in federal parlance would be called "massive deficit" in the business world.

federal cash accounting standards would land any private cfo using them in jail.

accounting for unfunded liabilities (as required in GAAP) the us has not had a balanced budget since eisenhower and current GAPP federal deficits are around $5 trillion annually.

even if we somehow muster to political will to "balance the budget" according to fed accounting, we'll still be running 43.5tn deficits using business accounting standards.

i think the only way we will ever get entitlements under control is to force the federal government to adopt GAAP accounting.

this seems highly unlikely to ever happen as it would reveal just how badly they have performed as stewards of our tax dollars.

 
At 6/04/2012 11:15 AM, Blogger morganovich said...

methinks-

"In other words, only running out of other people's money will stop the political class"

it has not seemed to do so so far.

so long as they can print money, they can take other people's money (through dollar debasement) pretty infinitely.

you hear a lot of talk in DC about needing to balance the budget, but if one adheres to "watch what i do, not what i say" it sure does not look like anyone cares about spending money they do not have.

 
At 6/04/2012 11:18 AM, Blogger juandos said...

"The problem with our politics is that GOP candidates are largely rejected on their social issues, abortion, gay marriage, etc by enough people so as to make their election in some states very difficult if not impossible, ie California, Illinois"...

Well if California and Illinois are in a manner of speaking endorsements for Democrats then what does that say for being a Democrat considering the financial condition of both those states?

 
At 6/04/2012 11:37 AM, Blogger Larry G said...

I think DOD spending is just as corrosive as entitlements myself.

The deal in Wisconsin is not really about entitlements. It's about public-sector unions anyhow.

I agree with NormanB - The GOP is hard right on social issues and are hostile to minorities, gays, lesbians, teachers, muslims, Hispanics, etc and pretty much kill themselves as honest brokers of the need to cut entitlements since they themselves link those entitlements to the same groups the are openly hostile to.

We'll never be able to deal effectively with entitlements when we make them wedge issues and propagandize them.

A good example is conflating Medicare and SS.

The conventional wisdom says we need to cut Medicare (and I agree) but then we say Social Security has the same problem when, in fact, it already automatically cuts to 75% so then folks pivot to the "unfairness" of SS to the young.

By the time we get done demonizing ... there is no hope to try to get some kind of national consensus on what to actually do.

That's what is going on in Wisconsin. It's not about entitlements at all. It's all about demonizing public sector unions so how will you every go back to the people later to talk about entitlements once you have already declared war on them over unions?

 
At 6/04/2012 11:51 AM, Blogger juandos said...

"The GOP is hard right on social issues and are hostile to minorities, gays, lesbians, teachers, muslims, Hispanics, etc"...

Liar...

 
At 6/04/2012 11:55 AM, Blogger morganovich said...

defense spending keeps dropping as a % of gdp and is at lows since ww2.

entitlement spending keeps going up with what was 16% now comprising over 50%.

http://www.heritage.org/research/reports/2010/06/federal-spending-by-the-numbers-2010

defense is always a popular whipping boy, but it's really not the major problem. cutting defense to zero would barely balance the budget using the ridiculous federal accounting and would leave a $3 trillion annual deficit using GAAP.

entitlements are the issue that will make or break the federal budget.

without getting them under control, nothing else matters.

it's just rearranging deckchairs on the titanic.

 
At 6/04/2012 11:59 AM, Blogger Larry G said...

DOD doubled from 2000 to 2010 and our National Defense is bigger than the next 10 in the world.

Did entitlements double from 2000 to 2010?

Defense spending is close to 900 billion and if you include ALL National Defense spending, it's about 1.3 trillion (which is about what we take in - in ALL income taxes).

Entitlements are how much (in dollars) of the current budget?

Don't count Social Security because it is NOT funded from general revenues but FICA and SS by law cannot spend more than it generates in revenues (unlike the rest of the budget).

 
At 6/04/2012 12:29 PM, Blogger Methinks said...

Of course, Morganovich, they can do that for a while. But, not forever.

Inflation will eventually become so high that the whole system will begin to collapse.

Even in the Soviet Union, there was a limit to government power.

 
At 6/04/2012 12:36 PM, Blogger Larry G said...

If you look at the Heritage link that Morg provided - specifically "Federal Spending by Category 2000-2010" you'll
see that DOD spending DID DOUBLE.

then look further down the chart to see the VA costs and the military pension costs.

I AGREE that entitlements are a big problem but including the FICA-financed SS and Medicare (part A) seriously confuses the entitlement spending that is the focus of the budget.

'cutting" SS won't do a thing for the budget.

However -

Medicare Parts B,c,D and MedicAid, Unemployment, SNAP, SCHIPS, etc IS FAIR GAME.

but even if you cut to zero all of those entitlements - you not balance the budge (and you'd not do that by cutting DOD to zero either - acknowledged).

So BOTH will have to be cut if one is serious about balancing the budget.

Just keep in mind that National Defense is not only DOD, it ALSO Homeland Security, NASA satellites, VA spending for the 30,000 war disabled, military pensions, National Guard, etc...

If you really want to be serious about balancing the budget - everything has to be on the table.

 
At 6/04/2012 12:54 PM, Blogger sethstorm said...

Thankfully my state got the incompetent ALEC member and not the arrogant one. Then again, it helps that Ohio's policy has been to avoid insurrections of any political type. Such a policy will provide a buffer that will largely blunt any effects.

RTW was a career-ending move for the politician that tried it in 1958. Ohio's attempted equivalent ALEC ram-rod of SB5 has resulted in the humbling of a not-even-conservative Kasich.

Wisconsin proves that fraud, force, and revenge can overcome the honest. Ohio proves that extremism will only yield a humbling. Given that, I expect the state to largely ignore the results in either direction.

Eventually the effort in Wisconsin for Walker to settle his petty vendetta by taking power from the unions (and giving to himself) will backfire.

 
At 6/04/2012 1:01 PM, Blogger Jon Murphy said...

If you really want to be serious about balancing the budget - everything has to be on the table.

Truer words have not been spoken, Larry.

 
At 6/04/2012 1:17 PM, Blogger Highgamma said...

I'm wondering if there is a risk premium built into those intrade odds. The true expected probability may be higher, just some people would like some insurance.

 
At 6/04/2012 1:19 PM, Blogger Aiken_Bob said...

The only way this is ever going to get fixed is that everyone has to have skin in the game. When half pay no federal tax what incentives to they have. It took a long time to get here - not clear if we as a nation have the courage to fix it. Kinda sad - I'm older and have worked for what I have - It must really suck to in your prime earning years and not see a bright future.

 
At 6/04/2012 1:20 PM, Blogger Aiken_Bob said...

The only way this is ever going to get fixed is that everyone has to have skin in the game. When half pay no federal tax what incentives to they have. It took a long time to get here - not clear if we as a nation have the courage to fix it. Kinda sad - I'm older and have worked for what I have - It must really suck to in your prime earning years and not see a bright future.

 
At 6/04/2012 1:39 PM, Blogger juandos said...

Well larry g again attempts to morph some unattributed and questionable statements into fact: "DOD doubled from 2000 to 2010 and our National Defense is bigger than the next 10 in the world"...

Try this picture out instead and note what it says at the bottom of the graphic...

As a percentag of GDP entitlement spending is double that of defense spending...

 
At 6/04/2012 1:46 PM, Blogger Jon Murphy said...

Juandos and Larry,

You guys are both right. Defense as a percentage of GDP has fallen, but in absolute terms it has risen. And we do vastly outspend the rest of the world in terms of defense.

 
At 6/04/2012 1:47 PM, Blogger morganovich said...

larry-

do the math.

if defense went down as a % of gdp and entitlements went up as a % of GDP, which one went up more?

come on man. this is 5th grade math stuff.

it went up in nominal dollars, but it went down as a % of gdp.

if your income goes up from $50k to $100k and your rent goes up from $3k to 4k, sure it went up, but it's more affordable that it was before.

keep in mind that in real terms, if inflation is 6% (and ours is regardless of the BLS shenanigans with cpi, prices double every 12 years. almost all that jump is inflation.

further, defense spending in 2012 was 716bn.

the deficit was 1.3tn even using the phony baloney federal accounting standards.

cutting milspend to zero would only close around half the deficit.

if you include unfunded liabilities on entitlements, the deficit is $5 trillion.

defense is not the problem. can it be cut? sure. but even at zero, it would not do that much good as it would leave a GAAP deficit of $4.3 tn, all coming from entitlements.

i think defense should be on the table, but to pretend it is the problem is just willful blindness. until entitlements are reined in, absolutely nothing else matters.

you could cut the whole federal budget to zero and default on out bonds and entitlements alone would be consuming every dollar of taxes collected on immediate outlays and running a multi trillion dollar GAAP deficit.

until you deal with that, absolutely nothing else matters. you can cut it all and still drown in red ink.

arguing the defense is where to start is like like trying to treat a hangnail before you get out of a burning house.

 
At 6/04/2012 1:53 PM, Blogger Moe said...

If there's one stat I take with less than a grain of salt it is any stat on U.S. Defense spending. The DOD is the worlds largest employer and largest user of oil.(Source: economist). If we still produce anything of value in this country it is weaponry - we are the number #1 exporter.

Just like employment and housing; the data can be tortured to make it say anything the author wants.(An awful lot of jobs and money there to be protected.)

 
At 6/04/2012 2:16 PM, Blogger Paul said...

"It's not about entitlements at all. It's all about demonizing public sector unions so how will you every go back to the people later to talk about entitlements once you have already declared war on them over unions?"

Ah yes, typical from Larry. Asking government unions to collect their own dues, and contribute a little more to their own pension and health plans is "demonizing" them when you think a free lunch is your birthright.

 
At 6/04/2012 2:18 PM, Blogger juandos said...

"And we do vastly outspend the rest of the world in terms of defense"...

So jon murphy this isn't an admission that you would want to settle for the less than mediocre armed forces capabilities (not a reflection on their soldiers, just their country's overall capabilities at projecting force) abilities of the other countries, right?

 
At 6/04/2012 2:24 PM, Blogger Jon Murphy said...

So jon murphy this isn't an admission that you would want to settle for the less than mediocre armed forces capabilities (not a reflection on their soldiers, just their country's overall capabilities at projecting force) abilities of the other countries, right?

Well, no. I'm just skeptical of how much we are spending is actually being put to good use. Just like increased spending on education doesn't mean education is getting better nor does increased spending on social programs mean the social issues are being resolved, I'm not sure the spending on defense is really doing much. How much do we spend on developing super advanced weapon technologies, only to cancel them? How much to we spend maintaining a vast nuclear missile shield? How much do we spend maintaining bases in no-longer-strategic countries? How little do we spend providing our soldiers with the actual equipment they need in battle?

I'm not saying necessarily cutting the DOD budget is the answer (although it is something I'd advocate). I'm just saying if we spent it a little bit more wisely, we could get a lot more bang for our buck (pardon the pun).

 
At 6/04/2012 2:38 PM, Blogger Jon Murphy said...

Just to talk about Walker for a moment:

One thing that I find worrying is the vitriol that seems to be spewing out of Wisconsin. This is a bitterly contested race.

Furthermore, I fear the general lack of civility in American politics. Every election, it seems, is cast as a right-wing violent heartless nutjobs vs. aging hippie liberal douches. Maybe I am just more aware of it, but the 2004, 2008, and Wisconsin election seem particularly nasty. I fear a similar theme in 2012. Am I incorrect?

 
At 6/04/2012 2:52 PM, Blogger Moe said...

I was where you are a while ago - there's no middle ground, anyone who treads there is considered a traitor by their party.

It's like paying huge dollars for a ticket to see Ali and Frazier, and instead of fighting they sit on their chairs and hurl insults at each other for 12 rounds.

 
At 6/04/2012 3:01 PM, Blogger Jon Murphy said...

there's no middle ground, anyone who treads there is considered a traitor by their party.

That's why I have no party. I was a Republican until 2008. I was so disgusted with the GOP after that election (and the bailouts, etc) that I left.

 
At 6/04/2012 3:05 PM, Blogger morganovich said...

well, wisconsin has had something like 9 elections in that last 2 years. it's getting pretty absurd. it's just perpetual, all out campaigns and war.

and recall elections are never pretty. that mere fact that they are happening already tells you how poisonous things are.

 
At 6/04/2012 3:19 PM, Blogger Larry G said...

those who are truly interested in dealing with the issue do not engage in bomb-throwing rhetoric and wedge issue politics.

In my view, the Wisconsin deal has basically become kabuki theater.

To give an example. Virginia, a right-to-work state has a very similar problem with teacher pensions.

They have a huge unfunded liability that came about for two basic reasons.

The tried to stick to a defined benefit system - and then the meltdown occurred and killed their pension investments.

There are those who "blame" the teachers but then there are those who know what happened and are committed to fixing it without demonizing anyone.

Our whole body politic these days basically has degenerated into one gigantic blame game...and some have absolutely no intention of actually trying to fix things - especially if compromise is required.

 
At 6/04/2012 3:35 PM, OpenID Sprewell said...

If Walker can't win with the mild cuts he made to the unions' ridiculous pensions and benefits, that almost nobody in the private sector gets, then yes, the cause is truly hopeless. The whole govt strategy has been for the Democrats to blow out the budget and planned budgets so much, then complain immediately when any of those great increases are cut even a little that you're "cutting to the bone" and implementing "social darwinism." Forget the fact that most govt spending is now put towards bribing favored middle-class groups for votes, like the elderly or the govt unions or defense workers. The Republicans and the ineffective Ryan plan are then demonized for their relatively milder increases in govt spending and presented as the alternative, as though that would solve anything. The key is whether the Tea party falls for such half-measures by big-govt Republicans (Paul Ryan isn't one, but he had to satisfy them with his compromise plan) and at the rate they've been ditching establishment Republicans like Lugar or Hatch, perhaps they aren't. It's not Democrat vs Republican anymore, it's Tea party vs everyone else and whether the Tea party will actually do anything once it can gain some power.

 
At 6/04/2012 3:42 PM, Blogger Larry G said...

I actually agree that the pensions became too rich... and something had to be done.

But there are a lot of ways to accomplish change..

In Va... the legislature voted to require teaches pay more into their pensions.

It was not popular.. but it was done in a way to not have it turn into a huge brouhaha.

And of course, Va does not have the right to "recall".

:-)

 
At 6/04/2012 4:10 PM, Blogger Paul said...

"There are those who "blame" the teachers but then there are those who know what happened and are committed to fixing it without demonizing anyone."

Walker implemented some sensible reforms, the union thugs went apeshit. If anyone has been demonized, it's Walker.

"Our whole body politic these days basically has degenerated into one gigantic blame game.."

"Blame game" is a Larry catch-all phrase for what most people would refer to as "accountability."

 
At 6/04/2012 4:15 PM, Blogger Larry G said...

" Wisconsin recall: Two potential surprises "

" The first and far more likely scenario: Democrats lose the governor’s race but win control of the state Senate"

http://www.washingtonpost.com/blogs/the-fix/post/wisconsin-recall-two-potential-surprises/2012/06/04/gJQAsjywDV_blog.html

 
At 6/04/2012 4:17 PM, Blogger Jon Murphy said...

Thanks for the link, Larry. This just keeps getting more and more interesting.

 
At 6/04/2012 4:18 PM, Blogger VangelV said...

We need to have Democratic primaries where these two types of Democrats are in the race. Then it would be possible on economic issues for the Blue Dogs to team up with the GOP to produce some fiscal sanity. The Blue Dog Dems along with the standard Dems could then vote the social issues as their public wants. But now if you don't want the GOP's stance on social issues you get the unions running the states.

Of course, you could vote for a candidate who stands for liberty when it comes to social issues ANd for liberty when it comes to economic issues. Those candidates are called Libertarian. Why you want them to be a part of a corrupt Democratic Party is puzzling.

 
At 6/04/2012 6:09 PM, Blogger Larry G said...

makes me wonder if Ron Paul ran as an independent or the "Libertarian Party" itself! - how well he would do?

Clearly, the GOP does not care for "real" Libertarians like him even though he if one of the very few that has actually proposed a budget that balances in 5 years.

Is there a chance of a snow ball in hades that a Libertarian could run and win in the USA?

I say - no way in Hell.

 
At 6/04/2012 6:26 PM, Blogger VangelV said...

makes me wonder if Ron Paul ran as an independent or the "Libertarian Party" itself! - how well he would do?

He would take votes from both sides. But I suspect that in the end there are so many people who have grown dependent on transfer payments that the Democrats could win even as they lose a lot of the anti-war vote to Dr. Paul.

Clearly, the GOP does not care for "real" Libertarians like him even though he if one of the very few that has actually proposed a budget that balances in 5 years.

The GOP favours big government just as the Democratic Party does. And for the record, he has proposed balancing the budget in three years.

Is there a chance of a snow ball in hades that a Libertarian could run and win in the USA?

It is clearly possible. But the monopoly that the two parties have on the electoral rule setting would have to go away. The way districts are set it is guaranteed that one of the two main parties will win the majority of the time. That keeps competition away and the ruling elite that calls the shots is happy.

 
At 6/04/2012 6:45 PM, Blogger Bobby Caygeon said...

"The GOP is hard right on social issues and are hostile to minorities, gays, lesbians, teachers, muslims, Hispanics, etc"...

At least that is the narrative that is being pushed.

 
At 6/04/2012 6:48 PM, Blogger Bobby Caygeon said...

wait a second....we are willing to have the argument on the ROIC associated with defense spending but nobody even utters the word when it comes to entitlements?

I will guess, directionally, the theft/abuse and wealth destruction of the entitlement programs is multiples of that associated with defense spend.

 
At 6/04/2012 7:08 PM, Blogger Larry G said...

In order to do a valid apples to apples comparison, you have to :

1. - separate out the FICA-funded entitlements because they have no involvement in the budget. "cutting" them won't affect the budget.

2. - recognize that when looking at DOD ... that things like VA and military pensions and health care, an National Guard and even Federal employees (who work in support of DOD) - their pensions and health care, NASA, NSA, Homeland Security - are listed as separate items when in reality they are all DOD/National Security.

DOD when you count civilians is over 2 million employees.

when you check the Heritage data, you'll see that almost every category doubled or nearly doubled from 2000 to 2010 while revenues, even after the tax cuts, did not.

We now have 33,000 disabled vets. You can bet that their care in terms of costs has easily doubled.

Do we "count" this as "entitlements" or DOD?

 
At 6/04/2012 8:24 PM, Blogger OBloodyHell said...

Ummmm.... why/how is it that NO ONE -- and I DO mean no one -- is using the term "Bread and Circuses"?

WtF?

 
At 6/04/2012 9:47 PM, Blogger Pulverized Concepts said...

Isn't it interesting that the concept of child support and "dead beat dads" that has led to an explosion of federal and state administration and enforcement has never been applied to children supporting their aged parents? Of course, in pre-civilized times parents expected the children that they raised to contribute to their geriatric upkeep and the idea isn't extinct even now. Nonetheless, it's odd that there is no government program to garnishee the wages of people that neglect the support of their parents. It would certainly create some positions in HHS.

 
At 6/05/2012 1:16 AM, Blogger Ron H. said...

PC: "Isn't it interesting that the concept of child support and "dead beat dads" that has led to an explosion of federal and state administration and enforcement has never been applied to children supporting their aged parents?"

I suppose when there is a sufficient backlog of court ordered payments to aged parents, the inevitable programs and bureaucracies will materialize.

 
At 6/05/2012 2:09 AM, Blogger sethstorm said...


One thing that I find worrying is the vitriol that seems to be spewing out of Wisconsin. This is a bitterly contested race.

McCoys and Hatfields.

The interesting thing is that the sides aren't as obviously drawn - where unionization status/support can't be easily discerned (versus the private sector where secret ballots are effectively "secret only if you vote no" even if there is secrecy at the ballot box).


Walker implemented some "sensible reforms", the unions went apeshit. If anyone has been demonized, it's Walker.

Fixed that for you.

If they were so sensible, then why did these "reforms" not get a full debate in somewhere more public than an ALEC meeting? Why did they require excessive secrecy before they were ramrodded down the legislature like PPACA? That's thuggery right then and there, even with the suit and arrogant smile of Walker.

All that the current person in the Governor's office wants is to take the power from the unions and give it to himself for the purpose of settling a twice-thwarted personal vendetta.

It'd be kind of nice to see Walker's vendetta be thwarted again, where most of the "reforms" are rolled back on veto overrides. Authoritarian regimes like his are not even conservative in the least, and deserve to have their power diminished.

If you're going to get rid of entitlements, at least be consistent and willing to deny the entitlement of easier political access to government by business.

 
At 6/05/2012 5:20 AM, Blogger Larry G said...

re: "parental support". This is why you have an individual mandate and payroll tax - in more than 100 countries worldwide for both living expenses and health care.

The individual mandate cuts down on govt involvement in "support" cases since individuals have to set aside money for their eventual needs rather than the govt and taxpayers having to do that.

 

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