sunset from behind the wire

sunset from behind the wire

Wednesday, January 2, 2013

Nation in the Fog - and Looking Forward

Soldiers speak of the fog of war. There is another type of fog that often obscures the vision of those who have risen to a position of power through a lifetime of service to the public. That is the fog of 'wisdom'. The public has allowed politicians to shower themselves with gifts and it's often the focus on those gifts - thanks to all of you, which drives the engine of state. The 'wisdom' of the elite trumps all else, regardless of evidence and the output of government changes from the ideal of 'public good' to politically expedient.

Example #1
Private ownership of firearms does not increase crime in America. The states with open-carry laws have traditionally less crime since they liberalized the rules. But when a lone nut somewhere in America goes off his rocker, politicians propose legislation -- as if that will rid us from the crazy in our midst.

Example #2
Over the next quarter-century, Medicare will account for more than a quarter of federal spending growth. By that time, according to data from the program's trustees, the average Medicare recipient will have paid out $87,000 in payroll taxes in exchange for $251,000 in medical care. The $164,000 difference will be dropped on the recipients' children and grandchildren in the form of higher government debt and taxes. (IBD)

Today, politics in the USA is largely based on the painless options available. 
According to the elite newspapers and journals of opinion, the future of foreign affairs mainly rests on ideas: the moral impetus for humanitarian intervention, the various theories governing exchange rates and debt rebalancing necessary to fix Europe, the rise of cosmopolitanism alongside the stubborn vibrancy of nationalism in East Asia...In other words, the world of the future can be engineered and defined based on doctoral theses. And to a certain extent this may be true. As the 20th century showed us, ideologies -- whether communism, fascism or humanism -- matter and matter greatly. 
But there is another truth: The reality of large, impersonal forces like geography and the environment that also help to determine the future of human events. Africa has historically been poor largely because of few good harbors and few navigable rivers from the interior to the coast. Russia is paranoid because its land mass is exposed to invasion with few natural barriers. The Persian Gulf sheikhdoms are fabulously wealthy not because of ideas but because of large energy deposits underground. You get the point. Intellectuals concentrate on what they can change, but we are helpless to change much of what happens. (Robert Kaplan)

Is there a less painful way to pay off a significant part of our national debt? As it turns out, the answer is yes. The US is poised to become an energy exporter in this century because of our vast supplies of oil shale/shale gas. The United States has vast deposits of shale gas: in Texas, Louisiana, North Dakota, Pennsylvania, Ohio, New York and elsewhere. America, regardless of many of the political choices it makes, is poised to be an energy giant of the 21st century. In particular, the Gulf Coast, centered on Texas and Louisiana, has embarked upon a shale gas and tight oil boom. That development will make the Caribbean an economic focal point of the Western Hemisphere, encouraged further by the 2014 widening of the Panama Canal. At the same time, cooperation between Texas and adjacent Mexico will intensify, as Mexico increasingly becomes a market for shale gas, with its own exploited shale basins near its northern border. (Stratfor)


The United States still has few capabilities to export shale gas anywhere. It would have to build new liquefaction facilities to do that; in other words, it would have to erect plants on the Gulf of Mexico that convert the gas into liquid so that it could be transported by ship across both the Atlantic and Pacific.

China and Australia also have significant shale gas deposits. 

The partnership of US, Canada and Australia could create a new and potent form of OPEC which would diminish the relative importance of the Middle East.

Political wisdom in Washington DC should seek this solution as a possible trap door out of our present nationally untenable debt. It's less painful than the taxation options and genuinely increases our position in the world.



PAIN!

How do you pay back the $16 TRILLION dollars that the government has borrowed? No matter what combination of measures you take, it's going to hurt.

The first step is to balance the budget and control spending.

The second step is to raise taxes on ALL Americans. When you consider that the 50% who don't pay income tax reap the rewards of the taxes that others pay -- maybe it's time to ask them to put some skin in the game too.

The Obama Plan won't work because it doesn't not aggressively curtail the spending that some cynics suggest is used to buy votes.

The Republican Plan won't work because it doesn't increase taxes, and most of us don't think that $16 trillion dollars can be repaid by broadening the base and tax cuts.

This brings us to Bowles-Simpson.  This plan raises the retirement age and uses less generous measures of inflation when it calculates benefits on Social Security recipients. It also raises taxes significantly on the middle class, which the rich might like because it doesn't make them feel like they're being singled out.

Tax rates on the top .01% don't really matter anyway because they don't pay them. They simply move capital to a place on the planet where the tax rates are more favorable. It looks good to slam them, but collections never measure up to political hype. Both Bowles and Simpson understand this, but they wanted to make it look as if they were going to inflict tax-pain on the rich.

The middle class will have to shoulder the burden of rampant entitlements and vast borrowing by the Obama Administration no matter how you slice the pie. Both the Democrats and Republicans have to pretend as though this will not be the case because the majority of high propensity voters fall within the bounds of the middle class.