30 Aug
2010
Posted in: Blog
By    2 Comments

Obama’s Summer of Poverty

One in six, or approximately 17% of, Americans are now enrolled in government “anti-poverty” programs, an all-time high.

That is what USA Today found in survey of state data:

Government anti-poverty programs that have grown to meet the needs of recession victims now serve a record one in six Americans and are continuing to expand.

More than 50 million Americans are on Medicaid, the federal-state program aimed principally at the poor, a survey of state data by USA TODAY shows. That’s up at least 17% since the recession began in December 2007.

Moreover, more than 40 million are now on food stamps, and over 4 million on welfare.  Private physicians are already at full capacity with patients and worried about the additional 16 million who will become eligible for Medicaid as a result of Obamacare.

Though it may seem overly simplistic, the easiest, most cost effective way to reduce poverty is to allow businesses to create jobs.  The more taxes, regulation, bureaucracy, and political uncertainty, the less jobs and the more poverty.  Note: these are all creations of government.  Therefore, the most effective “stimulus” that government can manufacture is to recede, gradually phase out subsidizing the unemployed, and encouraging the private sector to expand and hire.  With new businesses and new hires, tax receipts will begin to accumulate faster than outlays.

A further positive step that government could take would be to abolish the Federal minimum wage of $7.25.  Unemployment for youth is at an all time high, standing at a staggering 51.1%.  Such a misguided policy only leads to further unemployment or black market jobs.  It is particularly pernicious at a time when prices are falling (i.e., in common parlance, deflation).  A fixed national wage in a deflationary economy essentially means that the least qualified workers are asking for wage increases.  There’s no way youth unemployment will fall substantially given the present conditions and policies.

It has been over 45 years since Lyndon Johnson declared “war on poverty.”  Channeling Johnson, and further back FDR, Barack Obama declared open war on the recession.  Unfortunately, as the warm weather draws to a close, there’s still no end in sight for this so-called “recovery.”

For those who are interested, here’s a list off the top of my head of the records (or near-record) set in this current depression:

1) Record for largest bank bailout – $700 billion (TARP)
2) Record for largest “anti-recession” “stimulus” - $862 billion (source CBO)
3) Record for youth unemployment rate – 51.5%
4) Record for longest average time unemployed (since recordkeeping began in 1948) – 24.5 weeks
5) Record for national debt – $13.3 trillion (a/o August 2, 2010)
6) Record for largest monthly budget deficit – $220.9 Billion (Feb 2010)
7) Record for unfunded liabilities – $60 trillion – $100 trillion
8) Record 1-in-6 on government “anti-poverty” programs (“pro-poverty” seems more fitting)
9) Record 40 million Americans on food stamps
10) Consumer debt – $2.45 trillion (May 2010)
11) Record $1 TRILLION (and counting!) in excess bank reserves (i.e. loan fodder at multiples up to 100x)

In case you’re not all that familiar with the magnitude of national aggregates, these are HUGE numbers and cut across just about every aspect of the economy.  Particularly disturbing is the simultaneous rise of unemployment and debt.  Unemployment and public debt, they teach, must be treated as trade-offs.  (Yes, the Phillips curve refers to “inflation” and not traditional “debt.”  Suffice to say there’s no need to quibble.  Inflation as understood here amounts to debt.)  Too much unemployment?  Increase debt.  Too much debt?  Must suffer through a tighter fiscal policy, and the consequence of more unemployed, to restrain debt.  Obviously, this formulation has reached its theoretical terminus, as unemployment sits at near-Great Depression levels and debt at WWII levels.

Living in New York City, one is wont to hear anecdotal stories from the finance industry.  All anecdotal evidence suggests great uncertainty, extreme risk-aversion, flight to quality (i.e. cash and gov’t bonds) to maintain principal, worries about the necessity to increase taxes to pay public debt, and overall pessimism.

Lurking in the background, for the moment, is #11.  There is simply no historical precedent that we can use as a guide.  The closest I can think of would be the Mississippi Bubble of 1718-1720.  This speculative mania was fueled through the French government’s decision to tie the value of their currency to French real estate rather than precious metals.  This resulted in a multiplication of the French currency, as shares of the Mississippi Company paid dividends with printed notes (the owner of the Mississippi Company, the now infamous John Law, had become the French Gov’ts “central banker,” and could print money at will).  Such machination relieved France of burdensome debt through debauchment, which was the whole point in the first place.  But the spectacular land bubble and currency inflation eventually resulted in France’s admission that notes were not backed by anything of actual worth.  You see, eventually people want to exchange banknotes for goods.  And therein lies the rub.

Make no mistake about it: We are marching off an economic cliff. Come this November, it is critically important to vote for legislators who understand the severity of the situation and will vote with courage to slash spending.

DISCLAIMER: This post and the contents thereof are the views of only the author identified immediately above and do not necessarily represent the views of the New York Young Republican Club (the "NYYRC"), its officers or its members. The NYYRC expressly disclaims responsibility for the contents thereof and by its charter documents may not, and does not, endorse any candidate for any office, except in a general election.

2 Comments

  • too bad these are all problems that bush left behind for the next guy to fix. this article just makes me realize how much bush screwed us.

  • Comments like yours make me realize how hopeless drones are.

    It’s been 2 years since the Wall St. meltdown, and over 30 months since the collapse of Bear Stearns. The Pentagon was built in 16 months. Do you not think we should be in recovery mode yet?

    We’re not. In fact, unemployment is rising. There’s great uncertainty and the debt is adding to the government created instability. Bush this, Bush that… Democrats have been in charge of Congress since 2006 – that’s 4 years now. If you want to know why we’re doing so poorly, look not at Bush but at Obama, Pelosi, and Reid.