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Posted by on in Wyoming Issues

Today Tuesday the House will hold its second reading of HB75, the Compact for a Balanced Budget bill that proposes a debt-limitation balanced budget amendment to the U.S. Constitution.

Yesterday's first reading included a vigorous debate, demonstrating that this is an issue the members of the House take very seriously. The vote, 35-23, also shows that while the idea of a balanced budget amendment is accepted in principle, there is still some hesitation as to whether or not the Compact is the right way to go.

Leaving legal and constitutional concerns to the appropriate experts, let me emphasize the economics of this issue. To begin with, some opponents to HB75 suggest that the amendment would destabilize the U.S. economy and force Congress to make harsh cuts at precisely the wrong point in time. This criticism is valid against deficit-control style balanced-budget amendments; the amendment proposed by the Compact and endorsed by HB75 is of a different kind. It is a debt-limitation amendment that avoids all the problems associated with deficit-control style amendments.

Furthermore, the deficit outlook for the federal government is even worse than previously thought. Last fall the Office of Management and Budget predicted that the budget deficit would start increasing again in 2019. That forecast, it turns out, was a bit optimistic. Reports Fox Business:

The U.S. budget deficit will decline slightly to $468 billion this fiscal year from $483 billion last year, the Congressional Budget Office said on Monday in a report that marks the end to an era of dramatically falling deficits. After falling from the $1 trillion-plus levels of President Barack Obama's first four years in office, CBO said it expects the deficit to stay largely flat in 2016 and begin a steady march upward in 2017 due to rising costs for servicing the national debt and caring for the retiring Baby Boom generation. 

The debt service costs are related to rising interest rates. Three factors push up U.S. rates:

  • The end of Quantitative Easing, with which comes the end to the endless flow of new money supply;
  • A recovering economy which increases its demand for liquidity - since the interest rate is the price of liquidity, it is natural that rising transactions demand for liquidity will push interest rates up; and
  • Continually rising concerns about the long-term solvency of the U.S. government.

This last point is important. When the U.S. Treasury has to sell its bonds without the Federal Reserve's purchasing guarantee, it has to make a stronger sales pitch to investors, especially global ones. Those investors, in turn, are already concerned about losing money on the European market, where the European Central Bank just announced its own QE. (Zero interest rates by definition mean that bond prices can only decline, a bad situation for most investors.) Alas, the less-than-perfectly credit rated U.S. government must pay higher interest to attract risk-averse investors. 

With the new forecast of an even earlier return to rising budget deficits, those interest rates are not going to go down again. And just to make the situation even more delicate, both parties in Congress appear to be focused on other things than balancing the budget. Fox Business again:

The CBO estimates kick off what promises to be a contentious budget debate in Washington this year, as Republicans now in control of Congress seek to eliminate deficits within 10 years while lowering tax rates and boosting military spending. Meanwhile, President Barack Obama and his Democrats have proposed a range of new spending and tax breaks aimed at helping middle class Americans and setting the agenda for the 2016 presidential election.

Regardless of what party controls Congress and the White House, the fiscal-policy focus is going to be far away from the budget deficit:

Republicans will not succeed in eliminating the debt unless they combine tax cuts with spending cuts - an area as alien to them as the dark side of the moon;

Democrats can combine their income-redistribution with a balanced budget if and only if they massively raise taxes on higher incomes - not exactly a policy for growth and job creation.

As if the new deficit forecast was not bad enough news, Fox Business also reports that:

[The] non-partisan budget referee agency said it does not expect massive economic growth during the 10-year budget window, with real GDP growth peaking at 3 percent in 2016, then slowing 2.1 percent in 2018-2019 as retiring Baby Boomers cause a drag on the labor force. "Potential output is expected to grow much more slowly than it did during the 1980s and 1990s primarily because the labor force is anticipated to expand more slowly than it did then," CBO said in the report.

Three percent per year was something the U.S. economy easily achieved back in the '80s and '90s when the federal budget was in much better shape. Today, three percent growth is a once-in-a-decade event.

At the same time, two-percent growth is the floor below which growing generations cannot achieve the same standard of living that their parents had. That drag on their future is exacerbated by the fact that we keep spending on a credit card that they will have to pay off one day.

HB75 may not be perfect, and much of the concerns that legislators have about it are valid. However, if the legislature is going to vote down this bill, it is only fair to ask what alternative solution to the federal debt crisis that they would suggest.

And they better present that alternative fast. Soon enough, global investors will do to us what they have done to so many other countries where government debt has run amok: they will take away our fiscal sovereignty.

If HB75 is not the right way toward a balanced federal budget, then how else should we avoid a situation where China and other foreign creditors dictate our taxes, our federal spending - and the future of our children?

---

Full disclosure: yours truly is a Member of the Council of Scholars, Compact for America Educational Foundation. 

 

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Posted by on in Wyoming Issues

And now it is official - Senate File 0122 now formally proposes the formation of a Skyfall 2020 commission:

An act relating to the administration of government; creating the Vision 2020 comprehensive expenditure and revenue review; providing for oversight of the review by the management council of the Wyoming legislature; creating the Vision 2020 comprehensive expenditure and revenue review advisory panel; creating areas of review; providing for the creation of task forces as specified; providing for appointment of members to the advisory panel and task forces; providing for assignment of duties as specified; providing for reports; providing an appropriation; and providing for an effective date.

It is good that some legislators have realized the severity of the state's fiscal future. Wyoming needs a comprehensive revision of everything from the state's mono-industrial economy to the fact that we have the highest government employment ratio of all the 50 states. Big bureaucracies and critical dependency on one industry is not a good recipe for future growth and prosperity. Yet it is the cold, hard truth about the Wyoming economy as it looks today.

The question is what the Sky-is-falling 2020 commission is going to actually recommend. The default prediction, based on decades of experience with how politicians handle economic crises, is that the commission will tell Wyoming taxpayers that the sky is falling, seas are rising and cat-size locusts will eat our iPads, but if we all just agree to a state income tax everyone will be happy.

Happiness will be particularly strong among lawmakers who won't have to pass tough spending cuts.

The problem is that tax hikes won't do it. Despite what some pundits may have us believe, higher taxes is the last thing Wyoming needs. The absence of an income tax is one of the few economic variables we have going for us as a state.

What remains is, needless to say, the spending side of the equation. But here, too, it is important to avoid falling for welfare-statist rhetoric: those who proselytize more efficiency in government as the solution to the state's budget crisis will find that their attempt at preserving government, albeit in more affordable shape, is only a stopgap solution to the next budget crisis.

Making government more affordable is a feeble attempt at saving a welfare state that is inherently unaffordable. (For an excellent summary of this argument, see Michael Tanner's foreword to my book Industrial Poverty.) It is akin to asking bureaucrats to run faster and make more decisions per work day. There can certainly be some gains from that kind of so called productivity improvement, but once the maximum of savings is reached - without touching the quality of the product that government provides - more "reforms" for more efficiency will inevitably result in quality losses.

Stepping over the line into quality deterioration is an equally unsustainable solution. A poor-quality government is not a government that taxpayers can afford anymore than a government that delivers quality at today's levels.

The problem that proponents of the efficiency solution overlook is that spending programs that government provides - in other words its promises to the citizenry - remain in place. Those programs have built-in cost-increase parameters: teachers, expected to deliver the same or even better quality education, need regular pay increases; computer software and hardware in our schools need regular upgrades; tax-paid health care must continue to keep up with advancements in medical technology, treatment procedures, etc.

Again: if the welfare statist is ready to see teacher salaries depreciate or bar Medicaid from covering new medicines and treatment, then he or she is advocating a deterioration in government quality.

The only long-term solution to our looming state budget problems is to reform away government spending programs. This means a structured exist from promises such as public education, Medicaid and welfare. A structured exit does two things:

a) It permanently ends taxpayers' responsibility for defined spending programs; and

b) It provides a predictable transition to a private solution, a transition that does not inflict immediate financial hardship on those who currently depend on government with nowhere else to go.

A structured exit from welfare-state entitlements replaces unaffordable government programs with free-market based solutions. This is the route Wyoming needs to take in order to make it through the stormy budgetary waters that lie ahead.

In the coming months Republic Free Choice will roll out a series of publications outlining the theory and the policy practice of a structured exit for Wyoming. Stay tuned.

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Posted by on in Wyoming Issues

This morning the House Revenue Committee passed HB0075 and HJ004, both proposing a so called Article V venue to put a balanced-budget amendment on the U.S. constitution. The two bills share the same goal, and the organizations that provide the background material - Compact for America (HB75) and the Balanced Budget Amendment Task Force (HJ4) - are for all intents and purposes fellow travellers. There is one major difference, though, between the two alternatives: the Compact model comes with a ready-to-go amendment; the Task Force, on the other hand, would leave it to the Article V Convention to draft the amendment.

I recently wrote a blog entitled Keeping Kids Out of Jail which led into an entire series including the Troubling Trend of Elementary School Arrests and finally to the Wyoming School Safety Issues That Every Citizen Should Know series. This week we return to the consideration of what can be done preventatively to keep our children on-track and out of trouble.

Tagged in: Juvenile Justice
Posted by on in Wyoming Issues

More bills to keep an eye on, as the 2015 general session gets rolling.

HB 32 allows the medical use of hemp extract when obtained by law for treatment of intractable epilepsy. The good news is that the department of health "shall issue" the requisite permit, so it will exercise no discretion. It is a start, and a very good bill for the purpose.

SF 38 adds the use of controlled substances prescribed by a "licensed practitioner" to the list of first offenses which would be eligible for probation and possible dismissal of the charge. A very good start!

What do you think?

Do you believe that Medicaid expansion programs will solve the exisiting problems with Medicaid?
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