George Sarant

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Archive for February 2010

SETTING REALISTIC BASELINES

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One of the basic problems we face today is that our appetites exceed our resources. Privately we are in debt, often to buy stuff we don’t really need, while publicly we are saddled with increasing public debt for things the government shouldn’t be doing. Americans at least have been paying down personal debt. Unfortunately the same cannot be said for the federal government, which continues to run up record deficits. Many states are in even worse shape because unlike the feds, they cannot print money.

How have we arrived at this juncture? By allowing ourselves to be deluded by the sunshine scenario- that is that things are going well and will only get better so there will be more money in the future. This is how states like New York, California, Illinois, and others have gotten into trouble, along with countries like Greece and countless individuals who have overextended themselves. These states spent every penny of incoming revenue and then some at the height of an economic boom, then filling budget gaps with gimmicks to maintain a level of spending that never should have occurred in the first place. By taking the best case scenario as their baseline they have presumed that things will only get better with more growth generating more revenue. The logic here is that people are making more money so we should increase our cut. When revenues fall short their solution is ever higher taxes rather than spending cuts, which only drives people away if they are lucky enough to be able to move.

The great error here is using the sunshine scenario as a baseline by assuming that henceforth this is the minimum we will take in. As a result these states were thoroughly unprepared for a drop in revenues. The more prudent course would have been to baseline on more conservative assumptions, i.e. what current conditions yield, so that any further increase would ideally then go to tax reductions. The wise course would be to accept the current situation as the new normal, and use it as the baseline for future projections. There is a lesson to be learned here if politicians will adhere to it. Individuals in the U.S. are finally saving and cutting back, which in the real world ought to be a good thing, though some economists think it is bad. But financing the world economy on credit cards is as unsustainable as the current federal deficits we are running. These are also projected on the assumption of future growth. What we need is a zero baseline. That is the only way that government can be contained and get its fiscal house in order. Rather than projecting increasing deficits, we need a deficit reduction plan now. Then perhaps we can begin to align our appetites with our resources.

Written by georgesarant

February 28, 2010 at 3:34 PM

Posted in economy, government

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NUCLEAR NONSENSE

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Joe Biden articulate another stupid policy in a speech on nuclear weapons, reiterating President Obama’s call for the elimination of all US nuclear arms. This is total insanity while rogue regimes continue to develop them, not because we have them, but because they want to use them either directly, or indirectly as intimidating threats to their neighbors. Without nuclear weapons we could one day find ourselves in a ground conflict that costs us many thousands of lives because of the lack of such a deterrent.

Much of the nuclear game involves talks with the Russians. This is their main ticket to continuing great power status, and while further arms reductions may be possible, trying to eliminate them now would be in no one’s interests. The Russians will never give up nuclear weapons. It would be self-destructive for them to do so. This is a country with a declining population holding a huge territory. Its only protection against the invasions it has experienced over the centuries is nuclear weapons, now more than ever, not vis a vis the US, but its southern neighbors.

This is one area we ought to take our cues from the Russians. A realistic view of today’s world, that might some day throw up millions of jihadists makes the clear case for maintaining a military deterrent that will not needlessly cost western lives. What we should be doing is beefing up anti-missile defenses since there is virtually no chance this administration is going to deter the rogue states from developing weapons of mass destruction.

Written by georgesarant

February 20, 2010 at 5:10 PM

Posted in international, Technology

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ADRIFT IN IRAQ

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Leave it to Joe Biden to claim that Iraq is one of the great successes of the Obama administration, never mind that Obama strongly opposed the surge that made victory there possible. Unfortunately much of what we fought for may go down the drain if we simply walk away with nothing gained. The administration has set a firm date for a complete troop withdrawal even as the political situation there remains somewhat unsettled. One can argue about the wisdom of the war in the first place, but that is academic now. What matters is the current situation, where Iranian influence is boldly growing and further reconciliation of Iraqi factions has hit a dead end. The now-empowered Shiites are refusing to allow virtually anyone who was a member of Saddam’s B’aath party to run for office, even though that may have been the only way to get a job and their involvement was otherwise limited. This precludes a significant number of Sunnis from running for office. The Sunnis pose no threat to majority Shiite domination of the government so some conciliation would be advisable, but American efforts have been insufficient to bring this about.

Behind the scenes lurks the presence of Iran, which is manipulating various Shiite factions, violating Iraq’s borders and otherwise gaining influence in the country. If we simply ignore Iraq now we will have fought a war just to turn it into an Iranian satellite. Steps must be taken to counter the influence of the illicit Iranian regime now. Otherwise this administration may not be responsible for “success” in Iraq, but an avoidable failure. Sour grapes over Bush is not a reason to abandon a successful policy. The administration itself has adapted the surge strategy in Afghanistan, and if that works it can properly claim credit for it. But claiming success in Iraq is a little premature.

Written by georgesarant

February 19, 2010 at 8:28 PM

Posted in international

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HOW THE FAR LEFT CAME TO POWER

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Polls show that 40% of Americans consider themselves conservative. That’s even more than moderates, at 36%. Only 20% of the population calls themselves liberal, and of these not more than 10% could be considered left or far left. So how did the ideology of 10% come to so much power? First there is the White House. Obama successfully portrayed himself as a reconciler, above partisan divisions, who would be a centrist and calm and thoughtful as president. He still speaks in these soft tones, but what he says and what he does are two different things, which has become increasingly apparent to the public as his poll numbers decline. At the subcabinet level he has appointed, or attempted to appoint a band of radicals. His radical past was submerged in the election, because John McCain stupidly refused to raise questions about Rev. Wright and Obama’s radical affiliations, and otherwise ran a lousy campaign, incredibly losing such states as North Carolina, Virginia, and Indiana. But even then it took a financial crisis to put Obama over the top.

But far worse is the House of Representatives, where radicals rule under Nancy Pelosi. But how did the House of Representatives become so unrepresentative? This came about as a result of safe seats and gerrymandered districts, which has tended to put the most left-wing members in positions of power in committees due to seniority. Thus, for example, the black caucus is vastly overrepresented in important committee chairmanships due to safe seats in gerrymandered districts. Similarly San Francisco would re-elect Pelosi into eternity. As a result we have the most left-wing members leading the congress, preparing legislation, and seeking to enact a radical agenda that most of the public opposes. Nevertheless it is still the position of the administration and house that the people don’t know any better and they intend to move forward with their agenda. Only the Senate is more representative since it cannot be gerrymandered, and even though controlled by Democrats, it is the only roadblock as the majority there is far more moderate.

If this continues and a radical minority holds sway due to the reasons cited above, it will be a disaster for the country as well as the Democratic party. This fall’s elections should be corrective as the public reacts to these circumstances. Hopefully the damage can be contained until November, when there is likely to be a significant turnover in the congress. But the seats that are likely to change hands are mostly held by moderates, who represent competitive districts. The radicals will certainly all return, as they face virtually no opposition in their safe seats. We can only hope that there will be sufficient change so as to remove them from the hold on power they now enjoy.

Written by georgesarant

February 14, 2010 at 7:45 PM

Posted in government, Politics

GOING NOWHERE IN SPACE

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The United States is about to blow a forty year lead in space by putting the Constellation program in mothballs, and effectively cancelling the Ares-1X heavy lift booster, which has already been successfully tested. That is the vehicle that is designed to replace the space shuttle. Without it we have no way of getting to the International Space Station and other objects in near earth orbit. The only way up or down, for the present, is via the Russians, who now having a monopoly are sure to raise prices, making the $3 billion savings from Constellation ephemeral. The administration expects that private industry will fill the gap. The trouble is there is no evidence that is happening at present. Unbelievably this is killing the dream of manned space efforts for the United States for the first time in fifty years. In addition, thousands will be thrown out of work for a tiny fraction of what the “stimulus” cost, and we will soon lose our collective memory, knowledge, and skills developed over decades if this happens.

Meanwhile the Chinese are shooting for the moon, and producing engineers and scientists while ours are retiring, while also pirating American space technology. Dongfan Chung, a former stress engineer with Boeing, was convicted of economic espionage involving 300,000 pages of sensitive data, including information about the space shuttle and the fueling system for America’s biggest booster rocket, the Delta IV. In his ruling, the judge in the case noted that Mr. Chung, a U.S. citizen, had decided “to serve the [People’s Republic of China], which he proudly proclaimed as his ‘motherland.’ ” The Chinese have already had success in near earth orbit, and are planning to go to the moon within a decade. Their space program is well-funded and supported by its leadership, while ours is being killed by a total lack of vision. Even the Indians are not far behind.

We need a vehicle for near earth orbit, a capability that we have had for fifty years, where much of the activity in space is taking place. We have one planned. It is total insanity to cancel something that is already in the works. Yet we are going to spend billions on something as speculative as “clean energy” while discarding something we know how to do. Rather than inspiring dreams of the future this administration seems determined to kill them, and to rid any sign of American exceptionalism.

Written by georgesarant

February 12, 2010 at 5:15 PM

Posted in Technology

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PUBLIC FINANCE

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Greek civil servants went on strike today to protest government austerity measures. In Greece there are a lot of them; an incredible one out of three Greeks works for the government with cradle to grave security. Among the “austerity” measures being protested today is raising the retirement age to 63 in 2015. This is a sad example of what happens when rampant public spending spins out of control. Public debt is currently more than four times greater than the EU ceiling allows, threatening the entire Euro-zone. Portugal, Spain, Ireland and Italy are almost in as bad shape and the European central bank is struggling to contain the crisis.

This is one of the reasons pressure on the dollar has not been as strong as it might otherwise be, because Europe is in worse shape. But for how long? If we continue to expand public employment and have situations where government employees earning over $100,000 can retire in their 50s with 90% of their salary we are certain to go broke, only there will be no one to bail us out. Gross public debt has risen from 57.4% of GDP in 2001 to an estimated 98.1% in 2010 before exceeding 100% in 2011. This is simply unsustainable.

Worse, this does not include state and local government finances, which in many cases are in dismal shape. There we have a zero-sum game, where raising taxes further does not produce more revenues, but rather refugees. New Jersey lost over 70 billion in wealth over the course of a decade due to people fleeing high taxes. We’re tapped out. No one wants to pay for more government. We need to implement austerity measures now, such as freezing government salaries and employment, raising the retirement age, and cutting spending. That’s only going to happen if we fire the government employees responsible, namely our elected representatives this November. Civilization has learned a great many things from the Greeks in terms of art, science, philosophy, etc., but public finance should not be one of them.

Written by georgesarant

February 10, 2010 at 9:34 PM

Posted in economy, government

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ECONOMIC PROSPECTS

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Americans are finally saving and paying down debt rather than increasing it. Unfortunately the government is increasing debt, with Treasury debt up 41% over the past year while consumer and business borrowing is down 20%. So we have an odd situation of people behaving properly while their government goes profligate “stimulating” nothing but government growth. The more this goes on the harder it is going to be to undo, and the result will be catastrophic national bankruptcy. But I’m optimistic it will be undone because the public will demand it, and it can’t happen too soon.

Productivity has been skyrocketing, increasing at a 5.7% rate last quarter. These are the only silver linings in this recession, as they provide a potential foundation for stable, robust growth in the future. But presently no one is hiring, unemployment is at 10%, and closer to 17% if you include those not looking for work or underemployed. Instead more and more productivity is being wrung out of existing employees who are often sullen and overworked. Capital is on hold as companies put off the purchase of capital goods, which would otherwise revive the industrial economy, which has been hit hardest. So how do we get these people back to work? The answer is new investment in industrial production, which ought to be encouraged with rapid depreciation and tax policy. Instead, apart from a bone thrown at small business, we are “investing” in government, which will not produce anything and instead will tax the economy with further burdens and thereby slow growth and recovery.

Thus the answer is pretty simple. People are unemployed in the private economy. The only way to get them employed is to encourage investment, which in turn will encourage production. To the extent that government gobbles up resources, and worse, runs up debts, there is that much less left to spur private investment and growth. The more incentives there are to invest in new goods and activities, the more jobs will be available and the more the economy will grow. What we need then is smaller government providing tax incentives and reductions to spur growth. Instead we currently have a growing government that will only increase the burden on everyone. This is the real “change” we need.

Written by georgesarant

February 8, 2010 at 7:09 PM

Posted in economy