Published on 15 Mar 2017
This week, James & Antony discuss the case of Connecticut’s budget shortfall. The state hopes to solve their financial problems by raiding the retirement accounts of previous Connecticut government employees who have moved out of the state, and take 30% of those savings. This plan would hurt retirees, break promises, and trap many people in the state based on a policy that may be illegal.
March 16, 2017
February 7, 2017
John Donovan linked to this Forbes article, saying “This fixes ‘stuff’. It doesn’t fix the GO corps, nor fix the lost institutional knowledge won over decades. But, every journey begins with a single step. And I await (I have no doubt it’s forthcoming, in due course) the plan to fix our inarticulate strategic malaise.”
Secretary of Defense James Mattis has issued his initial campaign plan for rebuilding America’s military, pursuant to a presidential directive signed January 27. If Congress provides necessary funding, the Mattis plan would reverse a steady erosion of the joint force’s warfighting edge that resulted from caps on military spending during the Obama years. In fact, the plan may usher in a surge of spending on new military technology unlike anything seen since the Reagan years.
All four of the military services General Mattis oversees would get a boost, but the biggest beneficiary during President Trump’s tenure will be the service that is currently in the direst straits — the Army. That’s because the fixes the Army needs can be implemented more quickly than expanding the Navy’s fleet or fielding a new Air Force bomber. In fact, making the Army healthy again could be largely accomplished during Trump’s first term — which is a good thing since it is pivotal to deterring East-West war in Europe.
The Mattis campaign plan consists of three steps, aimed at quickly closing readiness gaps and then building up capability. Like I said, the Army benefits most in the near term because what it needs can be fielded fairly fast. Step One in the Mattis plan is to deliver to the White House by March 1 proposed changes to the 2017 budget fixing readiness shortfalls across the joint force. Readiness includes everything from training to maintenance to munitions stocks.
Step Two, delivered to the White House by May 1, would rewrite the 2018 military spending request for the fiscal year beginning October 1 to buy more munitions, invest in critical enablers, grow the size of the force, and fund demonstration of new capabilities. Step Three, based on a revised national defense strategy, would lay out a comprehensive military modernization program for the years 2019-2023. The revised strategy would include a new “force sizing construct” that would boost the size of all the services, but especially the Army.
It’s odd to hear the world’s largest and most capable military power being described in terms that would more accurately describe, say, the Canadian Army: “So if Congress goes along, the Mattis campaign plan is eminently feasible, and the U.S. Army in particular can be brought back from the brink.”
January 26, 2017
We saw in an earlier story that the government is trying to tighten regulations on private company cyber security practices at the same time its own network security practices have been shown to be a joke. In finance, it can never balance a budget and uses accounting techniques that would get most companies thrown in jail. It almost never fully funds its pensions. Anything it does is generally done more expensively than would be the same task undertaken privately. Its various sites are among the worst superfund environmental messes. Almost all the current threats to water quality in rivers and oceans comes from municipal sewage plants. The government’s Philadelphia naval yard single-handedly accounts for a huge number of the worst asbestos exposure cases to date.
By what alchemy does such a failing organization suddenly become such a good regulator?
November 1, 2016
Frances Woolley says the various government attempts to cajole us into being more economically minded are mostly a waste of time and effort:
November is financial literacy month. Canadians are being advised: Start with a budget. It is about as effective as declaring National Fat Shaming month, and advising Canadians: Start with a diet. Saving money, like losing weight, requires fundamental lifestyle changes. But it is hard for anyone to change the way that they live.
Take, for example, one of the standard pieces of financial advice: Give up that morning latte, and other frivolous habits, and soon you’ll have saved enough for a down payment on a new home. As someone who works at a university, I have some sympathy for those who rail against millennials with their lattes. Here am I, bringing my coffee from home in a Thermos, and I see students who are less affluent than me sipping fancy drinks from Starbucks. What would it take for them to do what I do?
To begin with, it would take time: an extra 10 or 15 minutes in the morning. Second, it would take capital: a kitchen with a coffee machine and space to store stuff. Third, it would take know-how: coffee brewing skills. Finally, it would take self-discipline: to go to bed early, and get up in time to make coffee at home.
Financial literacy education tries to remove that last obstacle, self-discipline, by lecturing people about the virtues of managing money and debt wisely. But, for the most part, it does not work. As Carleton University economist Saul Schwartz, puts it: “Financial education might have some positive effects on financial outcomes, but they are modest at best.” People are simply not very good at exercising self-restraint. When consumers have tap-enabled credit cards that make purchases painless, it is hard to resist the temptation to spend.
September 30, 2016
A rather revealing post at Guido Fawkes:
Liam Fox told the Spectator that Germany risks becoming the world’s biggest cash machine after Brexit because it may end up paying for a failing European Union that is in danger of imploding:
“If I were a German politician I would be worried that, without Britain, Germany has the potential to become the greatest ATM in global history.”
They’ve figured this out for themselves…
Of the 28 current members of the EU it may surprise co-conspirators to learn that only 12 countries were net contributors. Ireland has become the the thirteenth net contributor for the first time since it joined in 1973, hitherto it has been a net beneficiary to the order of €50 billion. Expect Irish attitudes to the EU to change as that equation changes.
November 4, 2015
Five years back, there were interesting reports about a prototype weapon that seemed to have an inside edge for getting into the hands of front-line troops in Afghanistan for specific bunker-busting and similar missions. Then it went silent. Recently, Strategy Page says it may be back in the running:
Two years after having its budget sharply cut in 2013 the U.S. Army XM25 grenade launcher is back on track and is now expected to enter service by 2017. It’s been a long road from concept to acceptance and mass production. The army began working on this type of weapon back in the 1990s as the OICW (Objective Individual Combat Weapon) and that mutated into the XM25 (the “X” in XM25 designates a system that is still in development). Since then the similar South Korean K11 and Chinese ZH05 have appeared. The XM25 is the only one of three to have been tested extensively in combat but because of a misfire during a demonstration, budget cuts and some troops finding there were not really that many situations calling for the XM25, the system was thought to be cancelled (development funding was eliminated) in 2013. But the army managed to keep the project on life support. That was mainly because a lot of troops who got to use it in combat liked it a lot and even gave it a nickname; “punisher.”
The initial spectacular success and popularity of the XM25 grenade launchers in Afghanistan led the army to request that the weapon enter regular service as the M25 in 2014. But Congress, looking for ways to reduce military spending in 2013 cut all money for the M25. The army never gave up and managed to scrounge enough cash to build 1,100 of them. Currently the XM25 cost $35,000 each with the 25mm ammo going for $55 per round. Initially SOCOM (Special Operations Command) had some XM25s and some enthusiastic users but in 2013, with few American troops in combat there is not a lot of demand for a weapon like this. The resumption of counter-terrorism efforts in the Middle East and Afghanistan changed that led to more support for reviving the project.
When the first evaluation models of the XM25 arrived in Afghanistan in 2011 the weapon soon became much sought after by infantry troops. There were never more than a few dozen XM25s in Afghanistan and limited supplies of ammunition. Despite that the weapon quickly developed a formidable reputation. The Special Forces had priority on the weapon because it is very useful for special operations missions. The army planned to buy enough so that they could issue one per infantry squad. There are 27 squads in an infantry battalion.
September 2, 2015
In Milton Friedman’s 1980 PBS TV series Free To Choose, Friedman drew a simple graph showing that, mathematically, there are only four ways to spend money.
Spending your money on yourself is efficient. Tonight’s Special, prime rib with a small side dish of kale, looks like a good deal.
Spending your money on other people is efficient too. She’ll have the mac and cheese.
Spending other people’s money on yourself is not so efficient. The Wall Street Hedge Fund Managers’ Annual Dinner will be at Maxim’s in Paris.
But spending other people’s money on other people is the way government spending is done. Free caviar for all Americans! Whether they like caviar or not. And get in line because there’s nothing except caviar, and it will be rationed.
P.J. O’Rourke, “My Coffee Klatch With Rand Paul: The Kentucky small-l libertarian (and likely presidential candidate) talks with P.J. O’Rourke about philosophy, money, and hopelessness”, The Daily Beast, 2014-09-27.
August 5, 2015
This October, NATO is launching Trident Juncture, its largest and most ambitious military exercise in a decade. The massive land, sea and air exercise will be held in the Mediterranean and will include 36,000 troops from 30 nations. Its goal will be to help the fictitious country of Sorotan, “a non-NATO member torn by internal strife and facing an armed threat from an opportunistic neighbour.” Not surprisingly, this is widely seen as an explicit response to Moscow’s increasingly belligerent pressure on the alliances’ eastern borders. The Canadian government, an outspoken critic of Russian President Vladimir Putin and the invasion of Ukraine, had planned to send its flagship destroyer, HMCS Athabaskan, as “a strong signal to the Russians,” whose ships and aircraft have also been bumping up against Canada’s territorial claims in the Arctic.
But, last week, it was reported by the Ottawa Citizen that the 43-year-old Athabaskan was no longer seaworthy and is being sent back to Halifax for extensive repairs. Athabaskan is a fitting symbol of the overall state of the Navy: Its engines require an overhaul, the hull is cracked, the decks need replacing, and the weapon systems are questionable. Even Rear Admiral John Newton, commander of Maritime Forces Atlantic, describes his flagship as worn and tired.
In February, during a storm off the East Coast, Athabaskan was damaged and a number of engines failed. After that, the Royal Canadian Navy (RCN) decided it was no longer capable of weathering the heavy seas of the North Atlantic, so it was sent south for calmer seas. Nonetheless, its engines broke down in Florida, then again in placid Caribbean waters.
“It was garbage. Everything was always breaking,” says Jason Brown, who served as an electrician and technician on Athabaskan for seven years, ending in 2010. “We did 150 to 300 corrective maintenances a month.” Although Brown praises the ship’s crew, he often spent 20-hour days trying to fix equipment. “The two main engines didn’t like to play nice together. It was 4½ years before that issue got fixed.”
Compared to its allies, the Canadian Navy is now only one-third the size it should be, given our GDP, and can only play smaller and smaller roles. Stanley Weeks of the U.S. Naval War College, a former U.S. admiral who follows NATO closely, is dismayed at the decline of the RCN. “[Canadian politicians] need more seriousness. Canada is an inherently maritime nation, dependent on overseas markets, especially in Asia Pacific, and, therefore, it has to be a contributing stakeholder, militarily and diplomatically.” He believes American military leaders in the Pentagon have not yet grasped the serious implications of losing the Canadian destroyers. Regardless, “Canadians should worry more about this than Washington.”
March 1, 2015
Scott Lincicome would like to point out to the contending Republicans hoping to become the GOP’s presidential candidate that defence spending is not immune to the massive overspending problem common to big government:
Over the next 20 months, a clown-car-full of Republican politicians will vie for their party’s presidential nomination. As the candidates crisscross the nation, each will undoubtedly call for smarter, leaner, and (hopefully) smaller government. However, there is one government program that, despite being a paragon of government incompetence and mind-bending fiscal incontinence, will most likely be ignored by these champions of budgetary temperance: the F-35 Joint Strike Fighter. In so doing, these Republicans will abandon their principles and continue a long, bipartisan tradition of perpetuating the broader problems with U.S. defense spending that the troubled jet symbolizes.
During the Obama years, the Republican Party magically rediscovered its commitment — at least rhetorically — to limited government and fiscal sanity. Criticizing the graft, incompetence, and cost of boondoggles like the 2009 stimulus bill, green-energy subsidies, or Obamacare, GOP politicians not only highlighted these programs’ specific failings, but also often explained how such problems were the inevitable result of an unwieldy federal government that lacked discipline and accountability and was inherently susceptible to capture by well-funded interest groups like unions or insurance companies.
They railed against massive bureaucracies, like the Department of Energy, that paid off cronies with scant congressional oversight. And, in the case of well-publicized debacles like the botched, billion-dollar Healthcare.gov roll-out, many Republicans were quick to note that the root of the problem lay not in one glitchy website, but the entire federal procurement process, and even Big Government itself
One wonders, however, if these Republicans’ philosophical understanding of Big Government’s inherent weaknesses extends to national defense and, in particular, the F-35. According to the latest (2012) estimate from the Pentagon, the total cost to develop, buy and operate the F-35 will be $1.45 trillion — yes, trillion, with a “t” — over the next 50 years, up from a measly $1 trillion estimated in 2011. For those of you keeping score at home, this means that the F-35’s lifetime cost grew about $450 billion in one year. (Who says inflation is dead?)
That number — $1.45 trillion — might be difficult to grasp, especially in the context of U.S. defense spending, so let me try to put it in perspective: the entire Manhattan Project, which took around three years and led to the development of the atom bomb, cost a total of $26 billion (2015), most of which went to “building factories and producing the fissile materials, with less than 10% for development and production of the weapons.” By contrast, the F-35 will cost $29 billion. Per year.
For the next 50 years.
February 17, 2015
Dan Mitchell explains why there’s a need to change the way the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) “keep score” on how proposed legislative changes will impact the US economy:
The CBO, for instance, puts together economic analysis and baseline forecasts of revenue and spending, while also estimating what will happen if there are changes to spending programs. Seems like a straightforward task, but what if the bureaucrats assume that government spending “stimulates” the economy and they fail to measure the harmful impact of diverting resources from the productive sector of the economy to Washington?
The JCT, by contrast, prepares estimates of what will happen to revenue if politicians make various changes in tax policy. Sounds like a simple task, but what if the bureaucrats make the ridiculous assumption that tax policy has no measurable impact on jobs, growth, or competitiveness, which leads to the preposterous conclusion that you maximize revenue with 100 percent tax rates?
Writing for Investor’s Business Daily, former Treasury Department officials Ernie Christian and Gary Robbins explain why the controversy over these topics – sometimes referred to as “static scoring” vs “dynamic scoring” – is so important.
It is Economics 101 that many federal taxes, regulations and spending programs create powerful incentives for people not to work, save, invest or otherwise efficiently perform the functions essential to their own well-being. These government-induced changes in behavior set off a chain reaction of macroeconomic effects that impair GDP growth, kill jobs, lower incomes and restrict upward mobility, especially among lower- and middle-income families. …Such measurements are de rigueur among credible academic and private-sector researchers who seek to determine the true size of the tax and regulatory burden on the economy and the true value of government spending, taking into account the economic damage it often causes.
But not all supposed experts look at these second-order or indirect effects of government policy.
And what’s amazing is that the official scorekeepers in Washington are the ones who refuse to recognize the real-world impact of changes in government policy.
These indirect costs of government, in particular or in total, have not been calculated and disclosed in the Budget of the United States or in analyses by the Congressional Budget Office. The result of this deliberate omission by Washington has been to understate many costs of government, often by more than 100%, and grossly overstate its benefits. …It is on this foundation of disinformation that the highly disrespected, overly expensive and too often destructive federal government in Washington has been built.
February 13, 2015
Think Defence looks at the 2015 iteration of the British defence review process:
There is a pre defence review ritual that everyone with an interest indulges in. It starts with a few gentle discussions on Great Britain’s ‘place in the world’, the scale of our global ambition and obligations as a G8 regional power with a seat with our name on at the UN.
After a suitable period has elapsed the discussion then veers into areas of risk and threat but even during this phase the mood is still good natured.
Phase 3 gets heated because it is the first stage at which money is usually involved and therefore consideration of how the diminishing cake is sliced up between the services.
It is during this phase that negotiations and backroom deals kick in and the inevitable ‘test the water’ leaking to sympathetic journalists.
The final phase happens when it is all over and then as the implications of actual decisions made become clearer the bitterness sets in which can last for decades (see moving Australia and CVA01 for a good example).
If you start with the money and define a fixed budget you still get into the same argument and all that happens then is people tend to shape the first phases so that, oh look, my answer was right all along.
Start with risks and threats and the answers will always have to be tempered by the time it comes back around to budgets. Each review is rapidly made redundant by ‘events dear boy’ and the cycle starts again.
There are no easy answers and to think so is rather foolish, if there was an easy method, everyone would be doing it.
The ‘punching above our weight’ theme needs to be ruthlessly struck from the vocabulary because not only does it lead to illogical equipment decisions and hollowed out forces it fundamentally results in the talk loud small stick foreign policy that we seem unable to wean ourselves off.
You can only get away with this for so long until others start to realise you are bluffing and I believe this is where we are now, even our allies are starting to realise that our big talk isn’t backed up, despite having the worlds most advanced x or y, they are of little practical value if you only have a handful. Fur coat and no knickers could be an apt description of much of the UK’s defence capabilities, as painful as it may be for us all to recognise, and so I think there is a fundamental need to reassess ‘our place’.
January 6, 2015
Housing is pretty effective forced savings. We pay extra on our house each month, much to the dismay of many financial types of my acquaintance. Now, in theory, I could put that money right into mutual funds. In practice, I’m probably more likely to put it into a nice table for the backyard. As Dave Ramsey says all the time, the biggest mistake people make in talking about personal finance is treating it as a math issue. It’s not. The math behind personal finance is so risibly simple that journalists can do it. The discipline, however, is very hard. So the correct comparison for homeownership is not what the buyer could have achieved by putting all that extra money into a mutual fund; it’s what they would actually have done with the extra money if they hadn’t bought a house.
So while I’m not saying that you should definitely invest in a house, I won’t say you definitely shouldn’t, either; all I would say is that you shouldn’t count on your home value too much.
Megan McArdle, “Buying a Home Isn’t Bad for You”, Bloomberg View, 2014-04-07
October 15, 2014
Having taken a stab at sociology and political science, let me wrap up economics while I’m at it. Economics is a highly sophisticated field of thought that is superb at explaining to policymakers precisely why the choices they made in the past were wrong. About the future, not so much. However, careful economic analysis does have one important benefit, which is that it can help kill ideas that are completely logically inconsistent or wildly at variance with the data. This insight covers at least 90 percent of proposed economic policies.
Ben Bernanke “The Ten Suggestions”, speech at the Baccalaureate Ceremony at Princeton University, Princeton, New Jersey. June 2, 2013.
October 2, 2014
At The 3Ds Blog, Jack Granatstein explains why the Canadian Forces are once again being starved of funding:
A few years ago I wrote that no government since that of Louis St Laurent in the 1950s had done more to improve the defence of Canada than Stephen Harper’s Conservatives. The St Laurent Liberals built up the armed forces to deal with the war in Korea and with the defence of North America and western Europe in the face of Soviet expansionism. At its peak, the defence budget took more than seven percent of Canada’s Gross Domestic Product, and the army, navy, and air force had as many as 120,000 men and women in the regular forces.
No one could expect any government in this century to spend on that scale, but the Conservative government did treat defence well in its first years in power. The commitment to the Afghan War, never very popular, was handled capably, and the troops received everything they needed — helicopters, new artillery, upgraded armoured personnel carriers, and tanks, not to mention new transport aircraft. The number of regulars rose slowly and slightly toward 65,000, and the government presented a schematic Canada First Defence Policy in 2008 that listed a range of objectives and equipment acquisitions. The budget projections were colossal, almost $500 billions to be spent over the next 20 years.
But that was then, this is now:
The result was that the defence budget was cut, in substantial part because deficit reduction and a budget surplus were more important than “toys for the boys.” From a peak of $21 billion in 2009-10, the defence budget in this fiscal year is $18.2 billion, about a 13 percent reduction in dollars made worse by inflation. The percentage of GDP spent on defence is now hovering at one percent, the lowest since the 1930s. In 2009, it was 1.3 percent. Making matters even worse, the Department of National Defence somehow cannot spend all the money it gets, returning almost $10 billion to the Treasury since 2006.
Despite Harper’s tough talk on the international stage, his government’s active neglect of the needs of the armed forces means we can’t back up his pugnacious rhetoric with any serious military effort: a frigate in the Black Sea, four CF-18s in the Baltic, a couple of transport aircraft shuttling supplies into Erbil, and a small special forces contingent helping the Kurds … and that’s about our current limit for overseas deployment. The Royal Canadian Air Force is still waiting for new helicopters (after more than 20 years of stop-go-stop procurement disasters) and a decision on replacing the CF-18. The Royal Canadian Navy just announced the immediate retirement of four ships, with no replacements available for years (if ever), and the Canadian Army is struggling to maintain equipment and keep up training schedules due to budget constraints.
And, as Granatstein points out, if the Liberals or NDP win the next federal election, the situation will get worse, not better, as neither party sees the military as any kind of priority — quite the opposite.
Update: Speaking of cheeseparing “economies”, here’s the Department of National Defence’s most recent “saving”.
National Defence slashed its annual order of ammunition this year to save money — a revelation that raised fresh questions Wednesday about just how prepared Canada is to do battle with militants in the Middle East, Murray Brewster of the Canadian Press writes.
More from his article:
The 38 per cent cut was large enough to cause other government departments, Public Works and Industry Canada in particular, to sit up and take stock of the impact, internal documents obtained by The Canadian Press show.
One such document, a memo to Public Works Minister Diane Finley dated Feb. 5, 2014, indicates her department tried to convince defence officials to either abandon the cut or at least spread it out over a couple of years.
Defence officials said that would be impossible, because “they would not allow the department to meet its financial targets.”
As a result, the 2014 ammunition budget was reduced to $94 million from $153 million.
During the early phases of the Afghan war, National Defence was caught similarly flat-footed and had to rush an order through General Dynamic Ordnance, particularly for artillery shells.
The memo surfaced on the same day Prime Minister Stephen Harper told the House of Commons that the cost of deploying special forces to northern Iraq is being taken out of the department’s current budget.
September 23, 2014
Anthony Fensom reports on Saturday’s election results in New Zealand:
New Zealand’s “rock star economy” helped center-right Prime Minister John Key achieve a thumping election victory. But with major trading partner China slowing, are financial market celebrations premature?
The New Zealand dollar, government bonds, and stocks gained after Key’s National Party romped to power in Saturday’s poll, securing its third straight term and the nation’s first majority government since proportional representation was introduced in 1996.
Despite “dirty politics” claims and a late attempted campaign ambush by internet entrepreneur Kim Dotcom, the incumbent National Party won 61 of 121 parliamentary seats and 48.1 percent of the vote, the party’s best result since 1951.
In contrast, the main opposition left-leaning Labour Party, which pledged an expansion of government, secured only 24.7 percent of the vote for its worst performance since 1922. The Greens won 10 percent and New Zealand First 8.9 percent as pre-election predictions of a closer race proved false.
Key pledged to maintain strategic alliances with the Maori, ACT and United Future parties, which won four seats between them, further strengthening his parliamentary majority.
“Like [Australian Prime Minister] Abbott, Key as a new prime minister inherited a budget and an economy in deep trouble…Six years later, the budget is in surplus, unemployment at 5.6 percent is falling and the economy is growing so strongly the New Zealand Reserve Bank became the first among developed countries to raise interest rates to deter inflation,” noted the Australian Financial Review’s Jennifer Hewett.
“Not only did the Key government cut personal and corporate tax rates, it raised the goods and services tax to 15 percent while steadily reducing government spending over years of ‘zero budgets,’” wrote Hewett, who urged Abbott to “learn some sharp lessons” from Key’s electoral successes.
Key’s party has pledged to cut government debt to 20 percent of gross domestic product (GDP), reduce taxes “when there is room to do so” and create more jobs, aiming to undertake further labor and regulatory reforms as well as boosting the supply of housing.