Unemployment "Insurance"

North Carolina has new Republican majorities in both the House and the Senate.  With a new Republican governor, North Carolina has Republican control of the reigns of government for the first time since Reconstruction.  

The outgoing Democrats have left North Carolina with a $2.6 billion debt that it owes to the Federal Government for unemployment expenditures.  Since the recession NC has had higher than the national average unemployment.  Additionally, NC has had generous benefits (greater than our neighbors) that last for 26 weeks (that's half a year).  So when the economic recession settled in NC, the pool of unemployment funds were quickly drained.  The Democratic majority in the legislature and Democratic Governor had a choice to either reduce the outflow of funds or find a new source.  Their solution?  They decided to borrow the money from Washington D.C.  As a result, we now owe $2.6 billion and the unemployment rate is still above the national average.

The new Republican Governor and majorities in the House and Senate are moving legislation through each chamber that will reduce the "benefits" and shorten the span from 26 weeks to a range of 12 - 20 weeks depending on the state of the economy.  Such a plan will quickly pay off the debt and put money back (about $2 billion) into the unemployment insurance fund.

In economics, there are two axioms that everyone should be familiar with.  The first is if you want more of something, use taxpayer dollars and fund it.  The second is if you want less of something, tax it.  What is unemployment insurance?  Well, it certainly is not insurance.  

What is insurance?  It is a method to reduce risk.  It helps alleviate the cost of something bad  happening.  In order for insurance to work, we need to understand class risk.  Class risk means that I know that a certain percentage of people will be affected by something, but I couldn't tell you who in particular.  I might know that so many people will get cancer in a given year or that a certain percentage of people will be killed in a car accident in a year or so many homes catch fire, etc.  Since I know the percent of people harmed, I know the risk.  We can then pool together the funds and help offset the cost of the event.  

Suppose that it costs $100 to set a broken bone.  Further suppose that there is a group of 10 of us who fall into the risk class that says one of us will break a bone once this year.  Each of us then contributes $10 to the pool, for a total of $100.  The "winner" is the guy you breaks a bone.  The "losers" are those that do not.  So when it comes to insurance the "winners" are those that get cancer, those who are in car accidents, those who homes burn down, etc.  The "losers" are those who pay into the fund, but nothing bad happens to them.

So let's apply this reasoning to unemployment "insurance."  First, can we identify risk classes?  No, not really.  Can we estimate how many will lose their job in the next year?  Again, not really.  With many insurances, we can modify the risk class we find ourselves through our behavior, like good driving vs. a record of drunk driving.  Is there any consideration along these lines for unemployment "insurance"?  Sadly no, like most government things, it's one size fits all.  Finally, am I paying into the fund that I am insuring against?  Yes, but it is subsidized by those who don't work.  I don't simply mean the unemployed, I mean those that don't have a job and do not want a job.  To the extent that funds come from the General Fund, those that pay sales tax, the gas tax, etc. are also paying into this fund.

If unemployment "insurance" isn't really insurance, then what is it?  It is simply a transfer payment to those who meet the government's definition of eligible recipient.  And now, finally, we can apply that first axiom, which is if we want more of something, have the government pay for it.  If we want more people unemployed, pay them not to work.  If we want people to be without work for week after week after week, pay them week after week after week.

The critics of the new governor have asked him to try to live on $350/week (the new proposed rate).  However, they miss the point.  This transfer payment is not supposed to replace work.  It is to help offset the cost of an event, losing one's job.  People respond to incentives and if the cost of being unemployed is high, those people will be highly motivated to take the next job out there.  If they are not highly motivated, they will wait until the "perfect" job comes along.  The reality is that the "perfect" job does not exist.  The reality is that you take the next job (which will pay less) and you work up the ladder again.

It is only by using the natural incentives found in the market will the economy recover.  The market will put people back to work.  We just have to let the market do its job.

Business Cycle Talk at Furman University by Cwik

Recently, I had the pleasure to give a talk at Furman University to the group, "Conservative Students for a Better Tomorrow."  The talk was, "It Didn't Have to Be This Way: From the Great Depression to Financial Meltdown."

There were about 70 students in attendance and several sat without chairs.  I commend the group for gathering so many students to listen to an economics lecture on the night that competed with the first Presidential Debate.

As you can see, they are a good looking group...

Additionally, the lecture was recorded.  It was split into two parts.  Here is Part 1...

Here is Part 2...

Again, I want to thank Furman University and the student group, Conservative Students for a Better Tomorrow, for their hospitality.

US Debt Limit Analogy

Here is a short 3-min video making an analogy to the US Debt.  Just because we raised the limit last year, it does not mean that the problem has gone away.  If anything it has and will continue to get worse.

Enjoy.  For my thoughts on what to do to solve the debt problem, I have advocated partial repudiation of the national debt.  It is found here: http://tillmanspeaks.blogspot.com/2011/07/repudiation-should-we-repudiate.html

Repudiation?!? Should We Repudiate the National Debt?

After much thought on this topic, I have decided that the best way in which to deal with the $14.3+ trillion national debt is through partial repudiation. Why? It is not an easy story to tell without some context, but I will try my best to be clear.

Each year after my daughter’s birthday in May, the family heads to the beach for a week of sun and sand. Of course one of the best ways to relax is by reading economics! (At least it is for me.) My choice this time was Murray Rothbard’s A History of Money and Banking in the United States (http://mises.org/books/historyofmoney.pdf). I had just finished his four-volume Conceived in Liberty, which details the history of the colonial period through the Revolutionary War, so I thought that this would be a good complement. It was.

In Rothbard’s History, there was a section that has stuck in my mind for the past several weeks. He detailed how, in the late 1830s and ’40s, several states defaulted on their debt. (See pages 102-3.) The upshot is that we do more damage to the economy by trying to pay off the debt.

When the government spends money, it necessarily distorts the economy. When the government buys good X, resources are drawn to the production of good X by the normal market process. The unseen aspect of this governmental action is that resources are drawn away from the production of good Y. In other words, if left alone, the market would produce more Y and less X, but the government distorts the economy. It places its thumb on one side of the scale favoring one market player over another. Most often these political decisions make society worse off.

When government spends that money, the effects are immediate. However, this is only half of the story. The other half is centered on the source of that money. Government only has four ways in which to raise funds: 1) Taxes, 2) Borrowing, 3) Money Creation, and 4) the Sale of Assets. Each of these is bad and further distorts the economy.

Government taxes are never market neutral. They always penalize one behavior and create an incentive to do something else. A sales tax penalizes spending and incentivizes savings. A gas tax penalizes driving and incentivizes telecommuting. An income tax penalizes earning an income and encourages slothfulness. Etc. Each tax imposed hinders the progress of the economy and ultimately reduces living standards. If we had to tax our way out of our national debt, we would have to tax almost 100% of GDP for a year. However, even this action would just barely get us out of today’s hole. It does nothing for next year’s budget deficit.

The second manner in which the government raises funds is through borrowing. It is impossible to borrow our way out of debt. It’s like using a MasterCard to pay your Visa bill and then reversing it next month. Borrowing more is simply not an option.

The third method is money creation. The money that we use today is a fiat money, which is backed by nothing other than the “full faith and credit of the United States Government” (whatever that means). In other words, dollars are backed by nothing. When the Fed creates money, it pulls it out of a big, black hole of nothingness. Where did it come from? Nowhere. How much can it pull out? As much as it wants. There is an infinite supply available. We could, if we wanted, pay off the national debt tomorrow. However, by doing so, $14.3 trillion dollars would be created and dumped into the economy. The dollar might suffer a slight (!) problem of devaluation. [Yes, that was sarcasm.] Prices would, consequently, skyrocket! Furthermore, each newly created dollar has non-neutral effects that jam price signals, redistribute wealth to those with the new money, and sow the seeds of another business cycle. Since this approach is a de facto tax that is hidden from most people, this tends to be the method governments have historically chosen to get themselves out of their debt hole.

The fourth method government uses to raise money is the sale of assets. In the 19th-century, the US government sold western land and used that money to partially finance its activities. Today the US government has reversed its policy of selling assets and is instead acquiring land for various reasons (environmental, military, etc.). While selling assets has the most merit of the four in several aspects, it will not even be considered as a viable option because of this policy reversal. Furthermore, it just isn’t big enough. A one time sale cannot overcome a perpetual expenditure.

So that leaves us with a large dilemma. We have a government that cannot control its spending and we have a national debt that cannot be possibly paid back without wrecking the economy. Even if we used a combination of tax increases, money creation and asset sales, we won’t have enough to fix the mess. At each moment, there is only a finite amount of taxable wealth in the US. If government extracts the wealth through money creation, it can’t extract that same wealth with an additional tax.

The least harmful alternative is partial debt repudiation. In other words, default on some of the debt. Think about what that means for a moment. (Really, take a moment and think about it.) We have spent so much that we cannot pay back our creditors. As I read in Rothbard’s History, we have been in this position before. Here is how Rothbard reports Americans’ reaction to public debt in the 1840s:

“The British noted in wonder that the average American was far more concerned about his personal debts to other individuals and banks than about the debts of his state. In fact, the people were quite willing to have the states repudiate their debts outright. Demonstrating an astute perception of the reckless course the states had taken, the typical American response to the problem, ‘Suppose foreign capitalists did not lend any more to the states?’ was the sharp retort was, ‘Well who cares if they don’t? We are now as a community heels over head in debt and can scarcely pay the interest.’” (page 102)

The same can be said today. Should we really feel bad for those who have purchased government bonds? They are the ones who have been feeding the monstrously, reckless actions of the government. When they get (partially) burned, will they be willing to finance more government debt? Of course not. Suppose the Chinese decide not to lend any more to the US government. Is this really so bad? The government would have to deal with its future overspending.

Fundamentally, there is the issue of justice. Some people loaned the government their money for a return. Why should they have assumed that there was zero risk? When I invest in any other venture, there is always default risk. Why should the creditor to the government get to live under different rules?

Furthermore, why should the average American be punished through higher taxes or a devalued currency for the politicians’ inability to restrain spending? It is like, as Mises once point out, being hit by a truck (the impact of the initial governmental spending) and then to fix the problem, we put the truck into reverse and run the guy back over. All to make it better! The economy was already distorted by the initial spending and then the problem is compounded by funding the spending. Additionally, politicians spend these funds on projects designed to keep themselves in power. Even the programs wrapped in the cloak of magnanimity, like welfare and social security, are designed to make us dependent upon the government and their reelection.

Rothbard’s History demonstrates how the repudiations of the 1830s and ’40s did not cause the sky to fall. In fact, the return to sound money coupled with a liberalization of the economy spurred a tremendous amount of growth. Rothbard:

“It is evident, then, that the 1839–1843 [monetary] contraction was healthful for the economy in liquidating unsound investments, debts, and banks, including the pernicious Bank of the United States. But didn’t the massive deflation have catastrophic effects—on production, trade, and employment, as we have been led to believe? In a fascinating analysis and comparison with the deflation of 1929–1933 a century later, Professor Temin shows that the percentage of deflation over the comparable four years (1839–1843 and 1929–1933) was almost the same. Yet the effects on real production of the two deflations were very different. Whereas in 1929–1933, real gross investment fell catastrophically by 91 percent, real consumption by 19 percent, and real GNP by 30 percent; in 1839–1843, investment fell by 23 percent, but real consumption increased by 21 percent and real GNP by 16 percent.” (page 103)

So how much should we repudiate? I don’t know. The amount should be big enough to scare reality into the investors of US Treasuries (and hopefully politicians), but not too big that it wipes out the retirement funds of those looking for the “safe” investment. Perhaps the Treasury should declare that they will pay 80-cents on the dollar, but that just rolls the clock back a few years (back to only $11.4 trillion!).

The sad reality is that without fundamentally changing the way the government spends, there is no solution. The four largest expenditures made by the government are (from greatest to least) 1) Social Security, 2) Medicare + Medicaid, 3) Defense and 4) Welfare. We can’t really print our way out of the mess, because Social Security payments, etc. are indexed to the CPI. We can’t grow our way out either, because they’re also linked to growth rates.

So repudiation is not a complete solution. It is a part of an overall solution of (real) spending cuts, economic growth and debt repudiation. It is clear that we cannot continue on this path. Politicians are like water—they follow the path of least resistance. Politicians will try to avoid making a decision, and the longer they delay the worse the problem becomes. The reality is that there are no more fixes to be done. We are out of financial gimmicks. The day of financial reckoning is upon us and maybe we can kick the can down the road another election or two, but be prepared for higher taxes, currency devaluation and possibly debt repudiation.

Voluntary Taxation

While I normally do not post articles to this blog, I was struck by the delicious irony that this article detailed.  It's entitled, "Will They Tax Themselves More?" by Donna Martinez.

In North Carolina, we are facing a large budget deficit and since we have a balanced budget amendment, we must either raise taxes (fat chance!) or cut spending (finally?).  As a result, the special interest groups are howling about the cuts to their largess.  Anyway, all of this is now solved by House Bill 887.  If passed, it will allow tax payers to redirect some or all of their refunds to special government accounts earmarked for specific spending.  For example, if you think that the arts are being cut too much, then you can waive your refund and send it to the special account for the arts.  The same goes for education and several other "priority" programs.

Will the special interest groups donate their refunds to these funds?  Will they convince others to do the same?  Time will tell, but I wouldn't hold my breath waiting for it to happen. 

Special interests need and want your money.  They view the state as a parent making sure that the children share all that they have.  I view it the same way that Frederic Bastiat did over 160 years ago--it is legalized plunder.  (Or here for the pdf version.)

Ron Paul on the Fed

There was an article yesterday on CNBC.com "Fed Will 'Self Destruct,' Policy 'Deeply Flawed': Ron Paul." 

Ron Paul is very much in tune with the Austrian perspective of the economy.  He argues that the Fed's actions are in the wrong direction and that when he becomes chairman of the committe that oversees Monetary Policy, his approach will be very different.  He is in favor of opening up the dollar to domestic competition.  Competitive currencies would allow individual citizens the ability to escape from the mismanaged, inflationary policies of the Fed set forth in the post-gold standard era.

To read this article, it is here: http://www.cnbc.com/id/40068994/

Mises' "Latest" Book

Bettina Bien Greaves is a living treasure.  She has worked for decades at the Foundation for Economic Education (FEE) and attended just about every lecture that Mises gave at FEE and at NYU.  She would take shorthand notes of all that he said.  Today she is converting those notes back into text.  She has recently come out with a synthesis of several Mises lectures.  It is called: Ludwig von Mises on Money and Inflation: A Synthesis of Several Lectures.  You can find the book here and for sale here.

I am so excited about this that I am posting a short chapter below.  It is called, "The Constitutional Side of Inflation."  Enjoy...

When we talk about these things we must not forget that they do not have only an economic side; they also have a constitutional side. You may say that government is the most important institution. The government is very important in many regards. Perhaps one overrates the importance of the government, but one does not overrate the importance of good government.

Modern constitutions, the political systems of all nations that are not ruled by barbarian despots, are based upon the fact that the government depends financially upon the people, indirectly upon the men that the voters have elected for the constitutional assembly. And this system means that the government has no power to spend anything that has not been given it by the people, through the constitutional procedures which make it possible for the government to collect taxes. This is the fundamental political institution. And it is a fundamental political problem if the government can inflate. If the government has the power to print its own money, then this constitutional procedure becomes absolutely useless.

Our whole political system is based upon the fact that the voters are sovereign, that the voters are electing Congress and other such institutions in the various states that rule the country. We call the United States a democracy because the rule of the country is in the hands of the voters. The voters determine everything. And this distinguishes the system, not only from the despotic systems of other countries, but also from the conditions as they prevailed in earlier days, in countries that already had parliamentary institutions and parliamentary government, at that time. However, there has developed, especially in the last decade, a problem of  constitutional law, that is whether the government must get the approval of the people through Congress when it wants to spend, or whether the government, because it is established and has at its disposal a number of armed men, is free to spend as it wishes, simply by increasing the quantity of money. People must realize that the question is “Who should be supreme? The parliaments elected by the voters, who can restrict government spending by refusing to grant the power to tax? Or institutions that want to override the interests of the people by increasing the quantity of money to expand government spending and so do away with the prerogative and independence of the individual voter?”

If we do not succeed in restoring the monetary system that makes the individual independent to some extent of the interference of government institutions, government banks, government monetary authorities, government price ceilings, and so on, we will lose all the achievements of the free market and of the free initiative of the individuals, whatever methods of constitutional law we follow. If the government can inflate whenever it wants to spend, it can take away from the people without their agreement everything, their purchasing power, their savings, and so on. From this point of view there disappears even the fundamental principle which everybody sees as the difference between a Communist government and a government based on the idea of individual freedom, the preservation of free markets and the ability of the people to control the government.

If you look at the constitutional history of England in the 17th century, you learn that the Stuarts had problems with the British Parliament. The conflict consisted precisely in the fact that the Parliament was not prepared to give to the King of England the money he needed for purposes of which the Parliament didn’t approve. The people disapproved of a great part of the government expenditures and Parliament was not anxious to impose taxes. The Stuart kings wanted to spend more than Parliament was prepared to give them. If the King at that time, in 1630 let us say, had asked one of those who are considered experts today in government finance, “What can I do? I don’t have the money!” the “expert” would have said, “Unfortunately, your family, the Stuarts, came too early to their position as rulers. Two hundred years, three hundred years later, it would be much easier for such a government as you want to rule the country. A printing press would have been sufficient to make it possible for your government to spend all the money it needed to have an army and the other things needed to protect the King against the people.” But the poor Stuarts were living in an age in which the technique of producing paper money had not been developed to a considerable extent. Charles I couldn’t inflate, you know. There was no solution for him; he could not engage in deficit spending. This was the undoing of the Stuart family and the Stuart regime. And in the conflict which originated out of this, one member of the Stuart family lost his life in a very disagreeable way—Charles I lost his head. (fn1) And the Stuart family as such lost the crown of England. What the poor Stuarts didn’t have was the facility of the printing press as it exists today.

The monetary problem we have to struggle with today is the problem of paying for government expenditures which are not accepted or, let us say, not approved, by the people. The conduct of government affairs, public affairs, is not different from the conduct of the financial and monetary conduct of private affairs. If the government wants to spend, it has to collect the money; it must tax the people. If it doesn’t tax, but increases the quantity of money in order to spend more, then it brings about an inflation. The difference between the conditions in 18th century England and the conditions in other countries, let us say for instance in Russia, consisted of the fact that the Russian government was free to take away from its subjects what it wanted while the British government was not. The British government had to comply with the provisions of a set of laws that limited the amount of money the government had the right to collect from its citizens. And it had to spend this money precisely according to the wishes of the people.

All our constitutional laws and our system of government are based upon the fact the government is not permitted to do anything that violates this system of laws representing the moral and actual ideas and philosophies of our people. But if the government is in a position to increase the quantity of money, all these provisions become absolutely meaningless and useless. If it is said that the government has to spend, is entitled to spend, a definite amount of money for keeping people in prisons, this means something. There is a definite reason for its spending. All our legal provisions are influenced to some extent by the fact that this is the amount of money which is given to the government for this purpose. But if the government is in a position to increase the quantity of money to use for its own purposes, then all these things become merely a theoretical expression of something which has practically no meaning at all. We must not forget that all the protection given to individuals through constitutions and laws disappears if the government is in a position to  destroy the meaning of every inter-human relation by undermining the system of indirect exchange and money which is called the market. And this is much more importantthan any other problems we talk about today. It is the interference of the government with violence that has spoiled money, that has destroyed money in the past, and that is perhaps destroying it again today.

Some years ago you could frequently read quotations saying that Lenin said that the best method to destroy the free enterprise system would be to destroy the monetary system. Now a professor in Germany has demonstrated that Lenin never said this. But if Lenin had said this, it would have been the only correct thing that he ever said.

The monetary problem which we have in this country, which you have in every country today, is the same—to keep the budget in equilibrium, to balance income and outgo, revenue and expenditure without printing an additional quantity of banknotes, without increasing the quantity of the monetary units. This is not only a problem of economics. It is also the fundamental problem of constitutional government, you know.  Constitutional government is based upon the fact that the government can only spend what it has collected in taxes. And it can only tax the people if the people accept it by the vote of their representatives in parliament. And in this way the voters are the sovereigns. The problem of monetary management in a modern country cannot, therefore, be separated from the constitutional problem, from the doctrine that says that all problems of government, all governmental matters are decided ultimately by the vote of the people. Whether you call this democracy or popular government doesn’t make any difference. But there is no monetary or budgetary problem that can be separated from the constitutional problem of who rules the country, who determines ultimately what has to be done in the country.

Fn 1 Charles I was beheaded on January 30, 1649.

Recessions and Recoveries

Two weeks ago the National Bureau for Economic Research (NBER) announced that we are out of the recession and have been since June 2009.  So, how does this recession compare to previous recessions?

The earliest date that the NBER uses is 1854.  The average length of a U.S. recession between 1854 and 2010 is 17 months.  If one uses post-WWII data, the average length of a business contraction is 10 months.

If we compare the current recession, which started in December 2007, with that of previous recessions, we see that the duration is longer than either average.  Now that the NBER says we hit bottom in June 2009, we have had 19 official months of recession.

We are now entering the 34th month since the beginning of the recession and many are questioning whether we have truly hit bottom.  While I believe that we have stopped falling, I think that the so-called recovery has started yet.  In fact, there are signs that the recovery is still far off.  For example, private investors are unwilling to make a move until they have a clearer understanding of the government's next regulatory moves.  This situation precisely mirrors investors' sentiments in the 1930s.

The Bush administration reigned over the first 14 months of this recession.  By historical averages, we should have been recovering by inauguration.  What does this tell us?  It says very clearly that the Bush administration made the wrong move by bailing out banks and propping up failing businesses.

It  is now more than 20 months since the Bush administration has left office, and the current government has also done much to hamper any prospect of recovery.  The Obama administration has not unleashed the economy (and reverse the Bush agenda), but instead, it has further shackled it.  By supporting TARP and the Bush bank bail outs and adding to the situation the GM bail out, the ineffective stimulus package, a new health care burden and more financial regulation, the Obama administration has set us on a path towards economic stagnation.  The looming fear is whether the stagnation will be coupled with Jimmy Carter style inflation.

It is time to recognize that taxing, spending and regulating are not the instruments for economic recovery. Money creation, artificially lower interest rates and government accumulation of debt are sending us down the wrong road.

Governments at all levels are stalling the recovery and it seems that no one trusts the market enough to let it do its job.

Perhaps we should listen to our 30th President Calvin Coolidge:

“The people cannot look to legislation generally for success. Industry, thrift, character, are not conferred by act or resolve. Government cannot relieve from toil. It can provide no substitute for the rewards of service. It can, of course, care for the defective and recognize distinguished merit. The normal must care for themselves. Self-government means self-support.”

US Debt and The Age of the Universe

The size of the US debt has been a growing concern for most citizens. Every new spending measure enacted piles on more debt.

Recently, it occured to me that the size of our debt is about 1,000 times larger than the age of the universe.

The US national debt is approximately $13,325,000,000,000.
The age of the universe is approximately 13,700,000,000 years.

In other words, if we spent about $1,000 a year, every year, since the beginning of time, we would have a number about the size of our national debt.

Or suppose you spend $2.66 a day, every day, since time began, then you will have matched our national debt.

Something to think about.

The Prodigal President (and the rest of us too!)*

*This article appears as an Editorial in July 28th edition of The Garner Citizen News and Times here.

I cannot recall the first time that I heard the story of the prodigal son. I know that I have heard this story at least once a year in church and I am sure it has been more than that. For the longest time I thought that “prodigal” meant that the son returned. So I thought that the title meant that the story was about a returning son. I could not have been more wrong. Recently, the true definition of the word “prodigal” was brought to my attention. According to Dictionary.com, the definition is “wastefully or recklessly extravagant.”

In other words, the story is about the wasteful son, who asks for his fortune upfront and then spends it all in a reckless and extravagant manner. What was known to the people that Jesus was telling the parable to, and unknown to me, was that being prodigal was acting sinfully. Every one knew that spending everything on trifles and then borrowing, spending that, and then trying to spend even more, was just flat-out wrong.

It is amazing how much the world has (and has not) changed. Today, Americans are encouraged to spend, spend, spend. We are encouraged to run up credit card debt and purchase luxury items like new TVs, stylish clothes and nice gadgets. The tax code is designed to discourage savings and thrift. It is designed this way purposefully.

The dominant economic philosophy that governs the writers of our tax codes is the Keynesian economic philosophy. In the Keynesian point of view, GDP and Aggregate Demand are everything. According to economists, Aggregate Demand is defined as the summation of Consumption, Investment, Government Spending, and Net Exports. The largest component in this list is consumption. Therefore, the government “encourages” us, by manipulating the tax code, to spend our money on consumer goods, especially in a recession.

The government wants us to be a “prodigal populace.” (I think that they have been largely successful.)

Continuing along the Keynesian train of thought, since we are in a recession, it can be concluded that there is simply not enough Aggregate Demand. Thus, we need to increase one of the variables to boost our GDP. The variable most easily manipulated is government spending.

The Congress has been more than a willing accomplice to increasing government expenditures. The Federal Budgets have been as follows: $2.7 trillion (2007), $2.9 trillion (2008), $3.5 trillion (2009), $3.7 trillion (FY2010). In less than four years, we have expanded the annual Federal Budget by another trillion dollars. Meanwhile we have increased the national debt to well over $13.1 trillion. Despite these record levels, there are many in Washington that say that this is not enough.

We are clearly living in an age of the “prodigal politician.”

Finally, we come to the piece of news that recently caught my attention. The White House announced that through the $862 billion stimulus package that was passed in 2009, somewhere between 2.5 and 3.6 million jobs have been “saved” or created. I have no idea how one calculates a “saved” job, but let’s assume that these numbers are true. In fact, let’s assume that the larger number of jobs (3.6 million) is the correct number. So, how much did we spend per job? (The math isn’t all that hard.) The answer is $239,444.44 per job!

We can easily see that this is a policy package that was created by a “prodigal President.”

Why? Because, the jobs created by the stimulus package must be some of the nicest jobs in the world. I think that I would like to have a $239,444 job. In fact, with all of this excessive, wasteful and reckless spending I’ve been doing recently, I think that a job that pays $239,444 is the only way I will be able to start to pay my bills. Then again, maybe I should just go ahead and spend it all anyway. But if I did that, would I then become a prodigal Paul?

What Does a Trillion Dollars Look Like?

From www.cnbc. com's slideshow:

"With several big spending plans brought up in the past few months, including Federal Reserve program to buy Treasury Securities as well as the Public-Private Investment Program, the total cost of these individual plans has been estimated to be as much as $1 trillion. This stack of cash - in $1 bills - would measure 67,866 miles, stretching approximately 2.72 times around the Earth’s equator.

"If denominated in $100 bills, $1 trillion would be enough to fill 4.5 Olympic-sized swimming pools, with a total volume of 398,000 cubic feet. For comparison, there is only about $625 billion worth of $100 bills currently in circulation, according to the US Treasury bulletin, which would fill about 2.8 Olympic swimming pools."

The US is now projecting a budget deficit of $1.4 trillion and the National Debt is over $12.3 trilllion.