The Skeptical Optimist

Speaking of pork...

Those of you concerned about pork should consider this fine holiday gift idea from blogger Iowahawk.

Optimistic Wesbury lauded for his forecasting accuracy

Why do I follow what Brian Wesbury has to say about the economy?  Two simple reasons:

1.  His objectivity and his optimism are a welcome relief from the politically-inspired gloom-and-despair propaganda coming at us from all directions.

2.  His forecasts are accurate; in other words, the stuff he predicts usually comes true.  Imagine that. 

It’s a double-whammy that’s hard to beat, and the Chicago Sun-Times is noticing.  Here’s a snippet from the article by Terry Savage; be sure to follow this link and read the whole thing.

USA Today ranked Brian Wesbury, chief economist for Claymore Advisors in Lisle, as one of the nation's top 10 economic forecasters last year, and he's also been acclaimed by the Wall Street Journal for his accurate predictions.

That's why I was encouraged to see that wind, rain, energy prices and layoffs haven't dampened Wesbury's enthusiasm for a growing economy in 2006. In fact, he's predicting economic (GDP) growth of 4 percent in the coming year, and says oil prices will decline to about $40 a barrel by the end of 2006.

Real GDP growth of 4% implies nominal growth of 7%, which in turn would generate a windfall of tax receipts for the government at current tax rates, which in turn would keep the budget headed for balance a few months before the 2008 presidential election, which in turn would muffle the disaster peddlers.  See why I’m optimistic? 

Questions for Blue Dog Mr. Tanner at 4pm Wednesday

Help, please.  Rep. John Tanner will be speaking at 4pm Wednesday on the topic of (so-called) fiscal responsibility.  His presentation is open to the public, but I can’t get to Martin TN from Dallas TX by then; otherwise I’d be there. 

Do you know anyone who will be attending Rep. Tanner’s presentation on Wednesday (Nov. 30) at the University of Tennessee at Martin, in the Watkins Auditorium of the Boling University Center?  If so, I have a few questions that should be asked—assuming he plans to take questions after giving his doomsday-is-around-the-corner speech to our young college kids. 

According to an article in the University’s newspaper, he thinks our current fiscal situation is a “generational mugging” and that today’s young people will eventually have to "pay off" the growing national debt.  His Wednesday speech will be an opportunity for us to get a little more detail behind those rhetorical sound bites the Blue Dogs are so fond of.

Specifically, here are a few questions I wish somebody would ask:

•  Mr. Tanner, you’re telling this audience of young people that they will eventually have to pay off the federal debt their parents are now running up.  That means you think rolling the debt over and over in our growing economy, as our nation has been doing successfully for many generations, will cease to be an option for these young people.  Would you please explain when you think debt rollover will become illegal or impossible? 

•  You and your Blue Dog colleagues keep talking alarmingly about the $8-trillion-and-growing debt level, but you never mention the $12-trillion-and-growing size of the economy (GDP).  Why not?

•  If you are alarmed at $8 trillion debt in a $12 trillion economy, what would you think of $80 trillion debt in a $120 trillion economy?  In an economy like that, would these young kids you’re scaring today be better off or worse off?  Why? 

•  Borrowing money for good investments is sound financial practice; ask any banker.  People do it, companies do it, state and local governments do it, and the federal government does it.  Thomas Jefferson did it to fund the Louisiana Purchase.  FDR did it, and it arguably helped prevent an overthrow of the government.  Ronald Reagan did it, and it arguably helped to prevent a thermonuclear war.  Yet, you want borrowing to stop.  With all due respect, Mr. Tanner, why should the federal government no longer be permitted to borrow money for good investments?

That's what I could come up with on short notice.  I hope someone sees these questions before Wednesday and has a chance to ask Mr. Tanner one or more of them.  Lastly: Live-blogging of his answers would be a dream come true for me. 

Pie chart of who owns the National Debt

[ THIS PAGE IS OBSOLETE; click here to see the latest pie chart. ]

The chart below is a snapshot of who owns our National Debt (versus the time-series chart I posted in an article a few weeks ago).  It’s beyond me how anyone can conclude that the foreign holdings of US Treasury bonds, broadly diversified among many different countries, represent some kind of economic danger to us.  In fact, my take is quite the opposite.

Click to enlarge.  [Data source: US Treasury]

When I look at this chart, I feel grateful that so many people outside the USA are delighted we’re electing to finance a portion of our federal spending with debt instead of equity (i.e., with borrowing instead of taxes).  In other words, I’m glad they’re willing to help us keep our tax rates lower, and our economic growth rate higher, by lending us their dollars to help us finance such things as the war on terror, Katrina repairs, and yes, even the Big Dig in Boston. 

Should I be afraid of that diverse array of foreigners willing to invest in the spending priorities you and I have set for the US government?  I don’t see why, and I’ll need a lot more evidence than Greenspan’s and Bernanke’s rhetorical hedging in the article titled “Economists worry foreign investors may abandon U.S.”—which, ironically, buries the following not-so-scary comment way down at the end of the article:

A recently released Treasury Department report suggests that foreigners still have a strong taste for U.S. investments, and thus remain willing to lend the U.S. money to finance its deficits.

I think Alan Reynolds, in his article “Doomsday is doomed,” has a prognostication at least as plausible as any of the doom peddlers' disaster scenarios:

...we already found out what happens when foreign central banks cut back sharply on their purchases of U.S. Treasury securities.  The answer is nothing happens -- absolutely nothing. On April 26, The Wall Street Journal reported, "In recent months, private investors have replaced with gusto official institutions as the driver behind foreign flows into Treasuries.”

Later in the same article, Reynolds gives us a logical explanation for what’s behind the scary stuff we keep reading regarding debt held by foreigners:

Facts don't matter when business news is really politics in disguise. Whenever the wrong political party controls the White House and Congress, the mainstream media feel compelled to predict some looming economic disaster, and to keep doing so shamelessly and erroneously year after year.

In any case, even though I'm with Alan Reynolds on this issue, my mind is still open, so please email me if you know why I should be scared by the pie chart above.  Until then, I remain optimistic, and grateful to the foreigners who (rightly) view the USA as a terrific place to invest their dollars.

FQ.05.47: Favorite Quote for This Week

The artificial and irrational arguments against [nuclear waste] disposal in stable geological formations help to perpetuate the present way of disposing of fossil-powered electricity wastes - some of them in people's lungs. 
—Petr Beckmann

Long term rate roller coaster ride

Whee, this is fun.  Long term interest rates are headed back down, and are once again on a collision course with short term rates.  According to Brian Wesbury, Fed Funds are headed toward 5% by spring ‘06.  The ten year note on the chart below looks like it’s headed for 4½%.  Something’s gotta give.   

With short-term rates so close to long-term rates, the best return on federally-backed “debt instruments” might be for me to overpay my taxes—based on the short-term-rate-plus-three formula I think I spotted in this section of the code.  If you know anything about that, please send me an email and clue me in. 

Here’s the chart; click to enlarge.

A Lesson Limbaugh Learned Long Ago

Ten years ago, in February 1996, Rush Limbaugh interviewed George Gilder, and learned an important lesson about the downside of calling for spending cuts and balanced budgets, instead of focusing on positive, pro-growth policies.  I saved the whole thing back then, because I thought it might come in handy someday.  I was right, and today is that day. 

With the Republicans now tearing themselves apart over the issue of so-called fiscal responsibility—to the gleeful delight of Democratic political strategists—I thought a dose of déjà vu might be enlightening.  So here it is, just short of it's tenth anniversary: Rush Limbaugh's interview with George Gilder on the subject of budget-balancing.  (I'll post the key points here, "above the fold"; below that, if you're interested, is the whole thing.) 

Rush Limbaugh and George Gilder: Together again
Interview, February 1996 [excerpt]

Limbaugh: You know, if I didn't have my mind, I would like to have yours. In fact, I'd probably rather have yours anyway. But you say the current Republican fervor to balance the budget is "Hooverian". . .

Gilder: When you [make] a balanced budget your goal, you play into the hands of the Democrats. You immediately put the focus on cutting government spending... So your whole campaign is perceived by the people—who get their information largely from the media megaphones—as negative... you end up terrorizing millions of people, but you don't achieve anything of value... 

[The Republicans] end up essentially attempting to achieve something called a "balanced budget" by cutting various government programs. That is a completely negative formula, and it's political poison. Moreover, it doesn't achieve any good results...

The focus on the balanced budget is a mistake, and this mistake was imposed on the party by a pollster. Politicians who follow public-opinion polls earn the contempt of the public.  And that is the big danger today, because Republicans on television most of the time are saying something about a balanced budget that isn't true.

Limbaugh: Such as?

Gilder: Such as, that it will greatly lower interest rates and produce all these marvelous benefits...

What follows is the entire portion of the interview I saved (...the portion related to budget-balancing).

sqna004: Snappy Questions Never Asked

Today's topic: What Bush and the Republican-controlled Congress have done to our economy.

Today's quote is from Rep. Dennis Cardoza, D-Calif., another member of the Blue Dog Democrats—a group of politicians providing a cornucopia of material for this "snappy questions" feature of my weblog. 

Speaking in the Democratic Party's weekly radio address, Cardoza said, "Under President Bush, we have run up the biggest deficits in the history of the world." 

The national debt was increased by Bush and the Republican-controlled Congress to $8 trillion, or $27,000 for each American, he said... 

"Every American understands that they need to balance their check book each and every month. Government shouldn't be any different."

Snappy question never asked:

Mr. Cardoza, isn't it also true that, under President Bush, we have also run up the biggest economy in the history of the world?

Follow-up:

Our economy increased to $12.3 trillion, or $41,000 for each American.  Did Bush and the Republican-controlled Congress do that, too?

Follow-up:

My neighbor, who always balances his checkbook, paid for his new home security system using a home improvement loan from lenders who know he's an excellent credit risk.  What's your rationale for preventing the federal government from doing that, too?

FQ.05.46: Favorite Quote for This Week

First-year accounting students are taught that the balance sheet portrays the liquidation value of the enterprise and provides creditors with worst-case information.  But enterprises are not normally run to be liquidated.  They have to be managed as going concerns, that is, for wealth creation. 
—Peter Drucker

USA Today terrified by USA tomorrow

If you’ve been too happy and upbeat lately and you need a good dose of gloom and doom, read USA Today’s article, A 'fiscal hurricane' on the horizon.  Lots of talk about all the disastrous things that could happen unless we act now to fix it.  (“Fix” always means raise tax rates, cut spending, or both; for some unknown reason, robust economic growth is never a consideration to these folks.) 

On the other hand, if you need a rest from gloom and doom, read Brian Wesbury’s article, Baffled by Economic Pessimism.  Here’s a snippet:

Pessimism about the economy is rampant, but baffling.  From 30,000 feet, the US economy looks fabulous.  In October, household employment rose to 142.6 million, an all-time record high.  Lately, initial claims have fallen back to pre-Katrina levels of about 320,000 per week, roughly 2.2% of total employment, a percentage not seen since the late 1990s.

Then he lists a lot of other good news that should be perking us up. 

I’m listening to what both sides have to say.  But I must admit that I strongly prefer the optimism and faith-in-the-future of people like Brian Wesbury and Ray Kurzweil (The Singularity is Near) to the pessimistic defeatism of the folks in the USA Today article.  Happily, the economic evidence, for now, is accumulating in favor of the optimists.  As a result, unlike USA Today, I’m not terrified.  There are too many positive things happening, such as the strong growth trend in federal tax receipts—and they are happening right under our noses.