Quotulatiousness

July 15, 2011

The US government’s plight, as a poker technique

Filed under: Economics, Government, Politics, USA — Tags: , , , , — Nicholas @ 11:05

Jagadeesh Gokhale points out that President Obama is not only bluffing, but that it’s transparently obvious what this tactic is intended to achieve:

The president’s Wednesday night warning to House Majority Leader Cantor to not “call his bluff” suggests that… well, he’s bluffing. But the president has already been playing some transparently thin cards in this game of poker, including his melodramatic — but highly questionable — hint that Social Security checks would be interrupted on August 2.

The go-to strategy in a literal train wreck is to jump off a nanosecond just before the collision. The debt-limit debate is more complicated, however, because no one really knows what the effect would be if the deadlock on budget negotiations continues through August 2nd.

Debt-rating agencies may soon downgrade U.S. debt. But does the debt of a country on a fiscal path to borrow and spend 45 percent more than its revenues — at a time when its debt already equals its annual output — really warrant a AAA rating? Won’t House Republicans really be doing investors a service by revealing a more honest debt rating?

[. . .]

Regarding a potential “bluff” by the president and high officials of the Treasury and the Federal Reserve: It’s only natural that they would sound the most dire of alarms. There is no guarantee that the government would default on its existing contractual debt and that financial markets would tank even if such a temporary technical default were to occur. But the risk of such events is not zero and no high government officials would wish to risk it on their watch.

A hint about whether and how much President Obama might be “bluffing” is his unwarranted warning that Social Security payments could not be guaranteed if the debt limit is not increased. There is every reason to believe that those payments could and would be made in full in August — and for many more months — no matter whether the budget deadlock is resolved by August 2nd.

Why a budget deal won’t work

Filed under: Economics, Government, USA — Tags: , , , — Nicholas @ 08:11

Sheldon Richman provides a few reasons to doubt that any deal worked out between congress and the President will actually solve anything:

Whether President Obama and congressional Republicans can work out a deal to let the government to borrow even more (!) money seems to hang on whether the latter will go for increased in tax revenues.

Following the zigzagging negotiations isn’t easy. First the aim was a short-term deal. Then both sides decided to go for a big package: $4 trillion in deficit reduction over ten years. That broke down when Obama said a quarter or a third of that amount should come from new revenues.

When I hear about ten-year budget deals, I first divide the aggregate number by ten so I see how little is at stake each year. I also want to know if the spending reduction is real or phony. Chris Edwards of the Cato Institute says most cuts are likely to be accounting tricks. For example, Edwards shows how the rulers could easily “reduce” the Afghanistan/Iraq war budget by $1 trillion without really cutting a penny. (Hint: pretend the wars will go on forever.)

I also remind myself that no Congress can bind a future Congress. Would you bet a substantial sum on a congressional promise to reduce the deficit over ten years? I didn’t think so. Even if Obama is reelected, he wouldn’t be in office for the last four years of the period.

Skepticism is justified. In the 1980s another deal was struck that supposedly would deliver $3 in spending cuts for every $1 in new revenue. Know what happened? That’s right.

Oh, and the various polls showing that either a majority or a significant minority of voters are willing to see increased taxes in order to get a budget deal? Remember that nearly 50% of Americans do not pay income tax — it’d literally be no skin off their noses if the other half have their taxes raised.

The continuing problems of the F-35 Joint Strike Fighter

Filed under: Military, Technology, USA — Tags: , , — Nicholas @ 07:57

The Economist titles this piece “The last manned fighter”:

The latest cost estimates from the Government Accountability Office (GAO), published in May to coincide with a Senate Armed Services Committee hearing on the F-35 programme, were shocking. The average price of each plane in “then-year” dollars had risen from $69m in 2001 to $133m today. Adding in $56.4 billion of development costs, the price rises from $81m to $156m. The GAO report concluded that since 2007 development costs had risen by 26% and the timetable had slipped by five years. Mr Gates’s 2010 restructuring helped. But still, “after more than nine years in development and four in production, the JSF programme has not fully demonstrated that the aircraft design is stable, manufacturing processes are mature and the system is reliable”. Apart from the STOVL version’s problems, the biggest issue was integrating and testing the software that runs the aircraft’s electronics and sensors. At the hearing, Senator John McCain described it as “a train wreck” and accused Lockheed Martin of doing “an abysmal job”.

What horrified the senators most was not the cost of buying F-35s but the cost of operating and supporting them: $1 trillion over the plane’s lifetime. Mr McCain described that estimate as “jaw-dropping”. The Pentagon guesses that it will cost a third more to run the F-35 than the aircraft it is replacing. Ashton Carter, the defence-acquisition chief, calls this “unacceptable and unaffordable”, and vows to trim it. A sceptical Mr McCain says he wants the Pentagon to examine alternatives to the F-35, should Mr Carter not succeed.

How worried should Lockheed Martin be? The F-35 is the biggest biscuit in its barrel, by far. And it is not only Mr McCain who is seeking to knock a few chocolate chips out of it. The bipartisan fiscal responsibility and reform commission appointed by Mr Obama last year said that not all military aircraft need to be stealthy. It suggested cancelling the STOVL version of the F-35 and cutting the rest of its order by half, while buying cheaper F-16s and F-18s to keep numbers up. If America decided it could live with such a “high-low” mix, foreign customers might follow suit.

June 3, 2011

For the federal government, $1B is a rounding error

Filed under: Bureaucracy, Cancon, Economics, Government — Tags: , , — Nicholas @ 10:46

Terence Corcoran glares balefully at what the federal government considers “deep cuts”:

We are destined for two days of political self-congratulation in Ottawa. Throne speech Friday. Budget Monday. Prime Minister Stephen Harper and his Finance Minister, Jim Flaherty, will use these opportunities to heap praise on their even-keeled and prudent handling of the economy, their deft manoeuvring of federal finances through the global storm, and their unwavering determination to guide us through the many uncertainties that lie ahead.

What they will not talk about is how they are going to balance the federal budget on target. Even less likely are any signs of enthusiasm for what should be a Conservative priority: reducing government spending.

That project has been shuffled off to Tony Clement at Treasury Board, where he will chair a small Cabinet committee that will dither away for a year trying to find the fiscal equivalent of nickels and dimes in a piggy bank the size of the House of Commons. Their first year target is $1-billion in cuts in departmental budgets of $120-billion, a spending reduction of less than 1%.

This is not good enough, not even close. For future years, Mr. Clement’s team will be hunting for an additional $3-billion in annual savings aiming for a total reduction of $4-billion by 2014, or about 1.3% of Ottawa’s total expenses of $300-billion.

As anyone who has ever done a family budget, or worked through tough times on a corporate budget, a 1% cut is a piece of cake, not much more than a rounding error.

June 2, 2011

Man succeeds in suicide attempt over an hour, as police and fire rescue watch

Filed under: Bureaucracy, USA — Tags: , , , , , — Nicholas @ 12:59

A hard-to-believe story from Alameda, California:

Fire crews and police could only watch after a man waded into San Francisco Bay, stood up to his neck and waited. They wanted to do something, but a policy tied to earlier budget cuts strictly forbade them from trying to save the 50-year-old, officials said.

A witness finally pulled the apparently suicidal man’s lifeless body from the 54-degree water.

The San Jose Mercury News reported that the man, later identified as Raymond Zack, spent nearly an hour in the water before he drowned.

Perhaps they assumed that the suicidal man would get too cold and come back to shore, but it’s hard to understand how they could stand around for an hour and not do anything.

April 11, 2011

Budget was over-optimistic, but promises based on that budget are fantasies

Filed under: Cancon, Economics, Politics — Tags: , , — Nicholas @ 10:36

Over at the consistently interesting Economy Lab blog at the Globe and Mail, Stephen Gordon casts scorn equally on Liberal, Conservative, and NDP campaign promises:

All parties are using the March 22 budget as a baseline for their scenarios; their platforms enumerate tax and spending plans in terms of deviations from the budget scenario. So the first problem to point out is that the budget’s scenario of freezing nominal expenditures for five years without cutting services or programs is at best implausibly optimistic.

The Liberal platform [. . .] builds on that implausible baseline by overestimating anticipated revenues from an increase in the corporate income tax (CIT) by a factor of 2.5.

The Conservative platform’s variation on its own budget is a promise to identify and implement savings worth $4-billion a year within the next three years without cutting programs or reducing services. No other explanation is offered, but then again, neither do they seem to be able to explain the cuts that were announced in the budget.

But the prize for budgetary opacity must surely go to the New Democrats’ “costing document”. Firstly, their estimate of $9-billion a year from increasing the CIT rate is even more implausible than that of the Liberals: an overestimate by a factor of at least three. The next largest source of revenue — “Tax Haven Crackdown” — is supposed to produce more than $3-billion in 2014-15. I cannot offer you any more in the way of explanation behind that number, because the NDP platform is completely silent on the matter. No measures are announced, no reasoning is offered to explain why those measures might be sensible, and no research is offered to justify the $3-billion estimate. The same goes for the “Ending Fossil Fuel Subsidies” entry: $2-billion a year in extra revenues, again with no explanation, discussion or research.

March 26, 2011

What Canada needs is an actually “conservative” party

Filed under: Cancon, Economics, Politics — Tags: , , , — Nicholas @ 11:44

Because right now, we’ve got so-called Conservatives wearing Liberal clothing (and Liberals pawing through the NDP’s cast-off pile). There’s no major federal party in Canada that actually pursues fiscally responsible government policies, no matter how much they may talk about the virtues of smaller government.

Shortly after his government’s defeat, Prime Minister Stephen Harper attempted to deflect focus back to Tuesday’s budget. The economy, he said, is the number one priority of Canadians and the budget was the key to the country’s economic future. Then he said: “There was nothing in the budget that the opposition could not or should not have supported.” True enough — but what does that say to Canada’s conservatives? Based on the budget, they are now called on to support a Conservative party that has presided over an extravagant full-scale national revival of big government by fiscal expansion.

Only a few days ago, it seems, Canadian politics was abuzz with the possibility of a new ideological era that favoured smaller government and lower taxes, with less waste, more discipline and a determination to cut taxes. There were signs of revolt in British Columbia, a shake-up in Calgary and reform in Toronto, where Mayor Rob Ford captured a staggering 47% of the vote in a town where The Globe and Mail is considered a right-wing propaganda sheet. Ford Nation, they called it.

There is no Harper Nation. After five-plus years in office, the Harper Conservatives have singularly failed to change the Canadian ideological landscape. Instead, Canadian politics changed the Conservatives. In power, they transformed themselves into another basely partisan party that willingly and even eagerly pandered to whatever the political three-ring circus put on display. This week’s budget, in which $2-billion in loose cash was promptly distributed to a score of special interests and political agendas, left in place a $40-billion deficit for 2010 and solidified a $100-billion increase in the national debt over five years.

There’s no threat on the right to force the Conservatives to actually live up to their talk, so they’re free to drift as far into Liberal territory as they like — and they seem to like it a lot — because small-C conservative voters have nowhere else to go.

March 23, 2011

Harper government teeters on the edge

Filed under: Cancon, Government, Politics — Tags: , , , , , — Nicholas @ 12:33

Tasha Kheiriddin thinks this has been a deliberate trap laid by the Tories and that the opposition have tumbled right into it:

The Foyer of the House of Commons turned into a beehive on speed. Within the next hour came reports that the NDP and Liberals were moving staff into their war room. Mr. Layton, gaunt but with a glint of steel in his eyes, strode stiffly by the CBC booth, leaning on his cane, turned to a group of journalists and smiled: “Looks like an election”. Liberal leader Michael Ignatieff tweeted the first slogan of the coming campaign “An out-of-touch budget from an out-of control government.”

But Mr. Ignatieff is dead wrong — on both counts. This is very much an in-control government, which played its cards brilliantly in the face of not one, but two confidence motions this week. By falling on the budget instead of the contempt of Parliament motion, the Tories escape the stigma of being the only government to ever have been found in contempt by the House. This gives the Opposition less mud to throw their way, which is helpful in light of the brewing Carson scandal, and puts the focus back on the economy, the Tories’ campaign issue of choice.

It is also a very in-touch budget — in all the ways that benefit the Conservatives. The Tories have reached out and touched most of their key voter groups: homeowners, families, seniors, the military, and rural Canadians. They ignored less promising sectors of the electorates, including Quebec, though it is likely they are saving a Quebec HST announcement for the campaign. Had they included it in the budget itself, the Bloc would have been force to support it, which would have meant no election — yet another sign that the Tories were more interested in going to the polls than getting a deal.

Lots of pundits have (correctly) called the budget a “boutique”: small but attractive lures for many of the key constituencies, so that the Tories will have lots of opportunities on the campaign trail to characterize the Liberals as “taking away” promised benefits. It may never have been intended to be implemented: it works far too well as a campaign paper.

To the despair of small-c conservatives, the budget does not address the things that matter to that market. As Kelly McParland points out, it’s really a Liberal budget in a blue wrapper:

[The Toronto Star] is a big [Liberal party] supporter. It would like nothing more than to help orchestrate a return of Liberal hegemony to Ottawa. Yet it’s having trouble finding bad things to say about the budget over which the Liberal leader is determined to force an election.

Here are Wednesday’s headlines from The Star:
Page 1: “2011 Federal Budget Highlights: A Sprinkling of Cash for Almost Everyone”
Page 6: “Budget Promises $300 Tax Credit for Family Caregiver”
Page 8: “Tories Blueprint Looks a Shade of Liberal Red”
Page 9: “Low-income Elderly to Get Supplement Boost”
Page 9: “Tories Revive Retrofit Funding”
Page 9: “Job Creation Still Key Priority in Federal Budget”

Yes, the Star managed to editorialize against the budget, arguing it “fails [the] nation’s needs,” but Finance Minister Jim Flaherty could happily stand at the Toronto GO station handing this newspaper to commuters and seeking their support.

March 22, 2011

Starting election watch now

Filed under: Cancon, Economics, Government, Politics — Tags: , , , , , — Nicholas @ 17:55

With the opposition parties unified in their denunciations of the federal budget tabled today by Finance Minister Jim Flaherty, we’re now looking at the strong possibility of a May general election:

The minority Conservative government tabled a 2011 budget Tuesday that was quickly rejected by its political opponents for falling short in helping the middle class, setting the stage for an election campaign that could begin any day.

The leaders of the Liberals, Bloc Quebecois and NDP said they could not support the budget as presently written — even though Finance Minister Jim Flaherty tried to appease the left-wing party through a series of modest, symbolic initiatives.

“We’re forced to reject the budget and we are also forced to reject a government that shows so little respect for parliamentary democracy and our democratic institutions,” said Michael Ignatieff, the Liberal Leader.

Gilles Duceppe, Bloc Quebecois Leader, said his party “can’t support what has been offered here.”

And Jack Layton, head of the NDP and viewed as the person most likely to lend the government support, said the budget fell short of NDP expectations.

I have to admit that I’m surprised that the NDP and the Liberals appear to be ready to force an election at this moment: neither party has had much of a “bounce” in recent polls from government scandals (both real and imaginary). Perhaps they’ve got something held in reserve to release during the campaign that they think will cause voters to turn away from the Tories.

Rick Mercer: The Budget Lockup

Filed under: Cancon, Humour, Media — Tags: , , — Nicholas @ 12:36

Why nobody takes conservative promises too seriously

Filed under: Cancon, Economics, Government, Politics — Tags: , , , , — Nicholas @ 09:37

Today is budget day, when federal Finance Minister Jim Flaherty will be introducing the Conservative budget for 2011. Unless something has suddenly changed in the government’s philosophy, don’t expect anything daring:

First and foremost, the budget should contain a plan for reducing federal spending in real terms over the next four or five years. Mr. Flaherty’s 2010 budget outlined how the federal government intended to restore balance to the federal books by 2015 by holding the line on spending increases to just over 1% a year while praying for a return to robust annual revenue increases. In fact, merely planning to hold the line on spending is never going to be enough. For one thing, the Conservatives have never proven themselves capable of pulling it off. Despite coming to power in 2006 on a message of fiscal restraint, the Tories raised federal program spending by an average of 6% in each of their first three budgets before the worldwide finance crisis of 2008. Since then, they have added $100-billion to the national debt, in large part thanks to stimulus spending of dubious worth.

According to the Canadian Taxpayers Federation, as of last Friday, Canada’s debt stood at nearly $563-billion. This means the debt repayments made over the 11 years before the recession began have been wiped out, and that the federal treasury is back to where it was before the Liberals’ then-finance minister Paul Martin brought down his austerity budget in 1995.

Since the Tories took power five years ago, program spending has expanded by nearly 40% and the federal civil service has grown by nearly 20%. We’re sorry, but we just don’t trust a government with a track record like the Tories’ to be able to regain budget balance simply by holding the line on new spending.

They can promise all sorts of things, but what they seem best at doing is pretending not to be “conservative” at all.

The government may fall, as the opposition are calling for even higher spending on “universities, home care, daycare, unemployment, seniors and Quebec”. This may work to the Conservatives’ advantage as they’re (temporarily) riding high in the opinion polls, so they might be able to win a majority if an election is forced on them over this budget. Of course, the opposition can read the polls too, so they may not be as eager to throw Stephen Harper an opportunity to win an easy victory.

Update: Well, the budget was tabled in the House, the opposition parties all rejected it “as it stands”, and the prime minister has stated they will not accept any amendments. For Thursday’s performance in the Ottawa Little Theatre, the budget will get first reading, which means the first opportunity for the government to be defeated . . . which means a May general election.

March 20, 2011

A different way to visualize the proposed US budget cuts

Filed under: Economics, Government, Politics, USA — Tags: , , , — Nicholas @ 10:53

Jon sent me an interesting link on a different way to visualize the relative size of the proposed budget cuts:

That struck me as a pretty good analogy. I wondered: if you do the math, what part of a Big Mac Extra Value Meal would a $6 billion budget cut represent?

The arithmetic is pretty simple, due to the extensive nutrition information that McDonalds makes available online. A Big Mac Extra Value Meal has three components: a Big Mac, a large order of french fries, and a medium soda. The McDonalds site tells us that a Big Mac has 540 calories, a large fries has 570 and a medium Coke has 210, for a total of 1,320 calories.

Meanwhile, the federal budget is currently around $3.8 trillion, which means that a $6 billion cut represents one 633rd of the total. What would be an equivalent cut in a Big Mac Extra Value Meal?

One variable is not readily available online; that is, how many french fries are there in a large order? To answer that question, I went to a nearby McDonalds at lunch time, paid for a large order of fries, and counted them. There were 87. (I counted fries regardless of size, but did not count the hard bits in the bottom of the container.)

This allows us to complete the calculation. If there are 570 calories in a large order of fries, and 87 fries per order, each french fry, on the average, contains 6.5 calories. One 633rd of the total calorie content of a Big Mac Extra Value Meal is 1,320/633, or 2.1 calories. That equals almost exactly one-third of an average sized french fry.

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