Economics

Dear Mr. Obama, II:

I don't know if this guy is a vet like in the original, but the fellow's got the concept down.



H/t: Miss Ladybug.

I made what was essentially this point in my first BlackFive piece, "Red State, Blue Collar." I included a link to that in my recent "Cowboys and Liberals" piece at Winds of Change, and got this insightful comment:

The barter arrangement you described in your Blackfive post also has one issue that nobody discussed, but that any bureaucrat would spot in their sleep: there's a bunch of imputed taxes and regulations being avoided and bypassed by such arrangements.

In a fully taxed and regulated world, the work you did for your landlord as imputed rent payment would have to be declared as self-employment income, subject to 15.7% self-employment tax as well as ordinary income tax. There may also be sales taxes involved, as well as numerous worksite regulations and insurance issues and even possible "without-a-license" violations, depending on the type of work you did.

He goes on from there to indicate how common such 'off books' arrangements are. The point is well taken, though: taxes are already strangling the economy. Regulations are already strangling initiative. Setting out to start up a business is an act of tremendous risk, but now it is also probably a felony -- that is, the regulations with prison time as a remedy have expanded so fast, you are likely committing a serious crime without knowing it.

Indeed, even if you hire a lawyer to advise you and do your best not to commit a crime, you may well be committing one. Even the lawyers can't keep up with all the new regulations and laws. The famous legal saying is, "Ignorance of the law is no excuse," but that depends on the law being something a reasonable person can expect to know. We've passed that point, and entered territory where the law changes so quickly and at such depth that good faith efforts are not enough to ensure that you don't violate some regulation.

That seems to me to be a very serious problem. It is surely one that acts as a brake on economic growth, both by increasing the setup costs for a business (those good-faith legal efforts) and by looping up at least some of these businesses in court. (Criminal court!)

Several of you have pointed to the entitlements collapse as a more serious economic problem than anything else. I agree, but the government doesn't. Last year, we talked about how very serious it might be, and the government's attitude:

The federal government recorded a $1.3 trillion loss last year — far more than the official $248 billion deficit — when corporate-style accounting standards are used, a USA TODAY analysis shows.

The loss reflects a continued deterioration in the finances of Social Security and government retirement programs for civil servants and military personnel. The loss — equal to $11,434 per household — is more than Americans paid in income taxes in 2006.

...

Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later.

The federal government does not follow the rule, so promises for Social Security and Medicare don't show up when the government reports its financial condition.

Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.

Unfunded promises made for Medicare, Social Security and federal retirement programs account for 85% of taxpayer liabilities.

So why don't we change to the corporate-style accounting method?

The White House and the Congressional Budget Office oppose the change, arguing that the programs are not true liabilities because government can cancel or cut them.

Right.

They're already telling you that they have no intention of making these payments. They are "not true liabilities." The government can "cancel or cut them."

Economics 101? The whole government needs that lesson.

UPDATE:

Obama has received almost $400,000 from Lehman employees in his three-plus years in the Senate. McCain has gotten less than $150,000 from them since 1989. Certainly both have benefited from Lehman’s largess, and simply taking donations doesn’t prove any kind of corruption. But a hundred k a year certainly cuts into Obama’s message of “change.” “Hope,” too.

In fact, of the nearly three million dollars Lehman employees and PAC distributed in the last 19 years, just two senators — Obama and Clinton — received more than a quarter of the total, split nearly evenly. McCain got about five percent.