American Elephants

The Economy, the White House Says, Is Vastly Improved! by The Elephant's Child

White House Press Conference this morning:

Q— In the New York Times a couple of days ago, there was a report on White House officials entertaining the idea that they can run for reelection without being able to point to a strengthening economy.

Mr. Carney — well, two things remain uncontestably true. The economy is vastly improved from what it was when Barack Obama was sworn into office as President. We were in economic freefall, there were predictions that we were headed to the second Great Depression. We were losing up to —over 700,000 jobs a month. We were contracting at a greater than 6 percent, our economy was. (emphasis added)

Obama promised, when he signed the stimulus, that it would keep the unemployment rate below 8%.

Jobless claims increased by 10,000 to a seasonally adjusted 418,000 in the week ended July 16, the Labor Department said today.

The president has touted his federal worker pay “freeze”, as making adjustments that are necessary  during these difficult fiscal times.  “We froze federal pay for federal workers for two years,” Obama claimed. ” Now that was not real popular, as you might imagine, among federal workers.

Well that one wasn’t true either.  “Step increases” were not affected.  1.1 million federal employees will receive pay increases totaling more than $2.5 billion through the standard “step increases” federal pay system.  And of course the White House staff received hefty pay increases of up to 15%.

The federal government simply does not keep its books the way that a corporation does.  When a corporation gets in trouble, they reduce their work force, shed lines of business, close stores or factories, it is not a “default,” but a restructuring.

A “default” is when a borrower does not make scheduled payments of interest or principal.  When it’s a corporation that defaults, the interest payments they have to make go up, they have a harder time borrowing, and it sometimes leads to insolvency.

If the United States Congress had submitted fiscal year 2010 financial reports like a corporation does— the U.S. would show a negative net worth of $44 trillion, an operating loss of $817 billion, and $1.3 trillion of negative cash flow.

The federal government needs restructuring. The most important policy prescription is for an economy focused on growth. If we could sustain average growth of 5% for the next 10 years, we wouldn’t need a debt-ceiling debate. The average growth for the past 40 years has been 2.83%, but 5% is a splendid goal.

The federal budget records long-term liabilities as entitlements when they are paid in a mysterious “cash basis” budget methodology. Corporations must reflect the net present value of liabilities as they occur. This leads to short-term, distorted thinking. Politicians believe that the country is in better financial shape than it is, and think the country is able to take on more obligations.

Some facts about the federal bureaucracy seep out to the public occasionally. It is fairly well-known that the Agriculture Department has more bureaucrats than America has farms. States are politely turning down federal grants for high-speed rail, as boondoggles that they cannot afford, but Obama will not relinquish his dreams of high-speed rail.

A startling fact is that many departments have as many as 18 levels of management.  That leads to one of my favorite economists and a little ‘Bureaucracy Humor’, probably created by somebody at Homeland Security of HUD.

Do read the whole thing.


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