Ever have a personal experience of some irrational and unnecessary federal regulation?

I can remember, decades ago, when I was still a student working at factory jobs during the summer, spending weeks and weeks installing OSHA-mandated improvised barriers on machine tools of every sort.

The activity was pointless. The rods, bars, and pieces of sheet metal I was attaching were simply nuisances that would only get in the way. No one wanted them. No one needed them. No one thought they were desirable. But someone in Washington, undoubtedly someone who had never operated a machine tool or worked in a factory, had decreed that a symbolic sacrifice of convenience and efficiency to the safety gods must be performed, and every factory and machine shop in the land was obliged to genuflect and sacrifice.

Nicole V. Crain and W. Mark Crain, in the Wall Street Journal explain that regulations have continued to increase over the years, by now amounting to a serious portion of our national income.

The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008, a 3% real increase over five years, to about 14% of U.S. national income. This cost is in addition to the federal tax burden of 21%, for a combined cost of 35% of national income. One out of every three dollars earned in the U.S. goes to pay for or comply with federal laws and regulations, and new policies enacted in 2010 for health care and financial services will increase this burden.

Megan McArdle argues that the era of unionized public sector pension benefits keeping retirees living on full salary for decades is over. Demographics giveth and demographics taketh away.

It was nice that a combination of rising life expectancy and broader pension coverage allowed a large segment of American workers to take what amounted to a multi-decade vacation. (Though this was never quite as widespread as people now “remember”). But this was never going to be sustainable. Retirement experts typically say that retirees should shoot for 75-90% of their working income in retirement (the theory being that some expenses fall, but other expenses rise, and you don’t need to save for retirement when you’re already retired).

That’s fine when the ratio of workers to retirees is 1:12, as it was within the Social Security system in the early years. But by the time you get to 5:1, it starts to pinch–assuming everyone has the same income, each worker has to toss at least 15% of their own income into the pot to support the retirees. Once you get to 2:1–which is where we’re rapidly headed–33% of your income is going to support someone in retirement. Woe betide you if you also have kids.

It’s important to note that this is true no matter how retirement is funded. Whether you collect a dividend check, get a corporate pension, or live off your social security, your retirement is funded by real claims on the output of people in the workforce. Private pensions have a couple of advantages: the investments that fund them actually help make the economy more productive, unlike transfer payments; and they aren’t necessarily indexed to inflation, so over time, as incomes grow, it becomes easier to support the older retirees. But they don’t eliminate the problem; they merely mitigate it.

Mathematically, society simply cannot have a high and growing dependency ratio–at least, not if the retirees expect to be supported in the style to which they have become accustomed. (I take it that this is what is meant by “a decent living and a stable retirement”). We can warehouse people in spartan old folks homes (or treat them like kids and move them into the spare bedroom), in which case they can enjoy a lengthy retirement. Or they can retire for less time, and live more lavishly. But there is no conceivable system that is going to allow the vast majority of the population to spend a full third of their adult life in retirement, at anything like the same standard of living they had when they were working.

The Washington Examiner says it’s time for democrats in Washington to quit kidding themselves. Their economic policies don’t work.

[T]he stimulus bill has proven to be an extraordinary waste of borrowed money that has failed to create jobs, generate economic growth or do much of anything other than line the pockets of White House political allies. That and give $308 million in subsidies to BP before the Gulf oil spill disaster, and subsidize a study on what happens when monkeys snort coke.

As [Christina] Romer [chairwoman of the White House Council of Economic Advisers, who retired on Friday] fades back to her teaching post at Berkeley, Obama is adding to the economic misery by creating an environment of regulatory uncertainty. The Wall Street reform law Obama recently signed potentially requires 533 new regulations, 60 studies and 93 reports, according to the U.S. Chamber of Commerce. Obama’s Environmental Protection Agency has 29 active rulemakings, and there are 100 new rules on the Labor Department’s agenda and 26 at the Transportation Department.

Add Obama’s determination to raise everybody’s taxes by allowing the Bush cuts from 2001 and 2003 to expire Jan. 1, 2011, and it’s easy to why banks, businesses and consumers are hoarding trillions of dollars that could otherwise spur economic growth. And we haven’t even addressed the destructive effect on economic growth of Obama’s nationalization of major portions of the economy, including the banks, health care and the auto industry.

The economy is stalling, unemployment seems stuck at European levels of idleness, the federal deficit and the national debt are at historic highs, public confidence in Congress is at its lowest-ever level and big majorities of Mainstream Americans say Obama has the country on the wrong path. Obamanomics has failed miserably and it’s time for everybody in this town to admit it so we can move on.

The economy is a disaster, the federal government is operating at a deficit unequaled in the history of the Republic, it is essential to find a way of coping with the National Debt in order to restore economic confidence, and the democrats naturally want to raise taxes.

Scott A. Hodge looks at the options for taxing our way back to a balanced budget.

To erase this year’s estimated $1.5 trillion deficit, we would need either to:

Enact a 25% VAT (Greece is still a mess with a 19% VAT);

or,

Take 130% of the taxable profits earned by U.S. companies this year (that’s what you call net opperating losses);

or,

Raise the top three tax brackets (28%, 33%, and 35%) to 100%. Actually, this would still not raise enough money to erase the deficit – of course, assuming all the wealthy taxpayers didn’t flee to Switzerland.

or,

Take 100% of the business income earned by individual taxpayers in 2008.

In other words, new taxes are not the solution to Washington’s deficit problem. That is, unless we want to wreck our economy for decades to come.

Hat tip to James Pethokoukis via the News Junkie.

In debt? Having trouble making ends meet?

J. Kennerly Davis Jr., at the Richmond Times Dispatch, points out that you may have forgotten to add your household’s share of federal debt and unfunded obligations to your personal deficit. Add a negative $1,069,100.

Currently, federal, state, and local government debt, in the form of bonds and other securities, totals approximately $16 trillion. As staggering as this figure is, it doesn’t capture the full scope of the threat that confronts us.

In addition to selling bonds and other securities to borrow money, government at all levels also has made enormous financial commitments over the years, without providing funds to back up these commitments. Currently, the unfunded commitments of the federal government to programs such as Social Security and Medicare total almost $109 trillion.

It’s difficult to grasp the significance of such huge numbers and the real threat they pose to you and your family.

Let’s consider the case of a family living in Richmond. Call the parents Michael and Jennifer. They have been married 10 years, live in the Fan, and have two young sons who attend William Fox Elementary School.

They both graduated from college and have good jobs. Jennifer is a high school teacher and Michael is a corporate financial analyst. Last year they had a combined earned income of just under $125,000, the median income for the typical American two-income professional couple. They are hard-working and financially responsible.

Last year they were able to save approximately $1,500. They took one family vacation trip to Sandbridge. In 2003, they purchased their house in the Fan for $380,000. They are current on their mortgage payments and other monthly bills.

Over the past year or so, Michael and Jennifer have become very concerned about their financial situation. Recently, after reviewing some financial advice columns in The Times-Dispatch, they decided to draw up a household balance sheet to get a snapshot of all their financial assets and liabilities.

Like most Americans, Michael and Jennifer’s home is by far their most valuable asset. Its current market value is approximately $450,000. Their savings and in vestments total just under $76,000. The combined value of their two cars and other personal property is approximately $45,000.

So, altogether, their household assets are worth more than $570,000. The liabilities on their balance sheet are limited as a result of their responsible lifestyle. They owe $266,000 on their mortgage, and approximately $34,000 on their car loans.

When Michael and Jennifer compared their assets to their liabilities, they were pleased to see that the value of their total assets exceeded their total liabilities by about $270,000. They were proud that they had been able to build up this much net worth.

But wait! The balance sheet that Michael and Jennifer prepared does not begin to accurately represent the family’s real financial health and future financial prospects. It does not take account of their household share of federal, state, and local government debt and unfunded commitments.

In round figures their share is:

Federal debt: $108,000 Federal unfunded obligations: $907,100 Virginia debt: $3,100 Virginia unfunded obligations: $30,200 Richmond debt: $16,000 Richmond unfunded obligations: $4,700.
So this young family’s total share of government obligations and debt is $1,069,100.

When these obligations are added to their other liabilities their household ends up in a deep financial hole. Despite all their hard work and responsible financial behavior, decades of financial mismanagement by the government have effectively wiped out the net worth of $270,000 they thought they had. Instead, they owe almost $800,000.

How about you? What does your household balance sheet look like when you factor in $1,069,100 of additional liabilities?

Hat tip to Paul Mirengoff.

John Maudlin looks at the economic situation and sees nothing but bad news piled upon bad news.

Unemployment is high and is in reality going higher if you count those who would take a job if they could get one. Incomes are weak. Plans to purchase discretionary items are falling. Housing is likely in for a further drop in prices. The stock market is not exactly booming. Treasury yields are falling, not from a credit crisis or a flight to quality, but because of economic conditions (deflation). Money supply is flat or falling. Prices are under pressure. The list goes on, and all factors are indicative of deflation.

As noted last week, the data suggests we could see weak growth in the last half of the year. Over two-thirds of the past quarter’s 2.7% growth was from inventory rebuilding, which surveys seem to show is abating as inventories begin to stabilize.

I was on Larry Kudlow’s show (links below) last Tuesday, and he gave me some time to air my views. My main concern, as readers know, is that we may have a weak economy in the latter half of the year and then introduce a large tax increase, which my reading of the economic studies on tax increases suggests will throw us into recession. Recessions are by definition deflationary. (Not to mention what another one would do to unemployment and the stock market!) With inflation at less than 1%, could we see the central banker’s nightmare of outright deflation? We very well could. I think that is what the bond market is saying.

Beyond the threat of economic destruction via deflation, we have additionally the reality of dishonest and irresponsible regulation.

“Why don’t you reform yourselves? That task would be sufficient enough.”
РFr̩d̩ric Bastiat

I’ll finish with this thought. This financial reform bill should be thrown out and they should start over. So much has been tagged onto this bill that has nothing to do with reform but is all about political agendas. It is also far too vague. Essentially, they create all these new committees or empower the bureaucracies that missed it last time to come up with the actual details of regulation. For all intents and purposes, a small number of unelected individuals will be given almost total control to write new rules overseeing a huge part of our economy. No matter how well-intentioned, this is not something that should be done in closed rooms.

We need major reform, of course. And when are we going to get to Freddie and Fannie, which are totally ignored but will cost the taxpayer the most? Local Congressman Jeb Hensarling has it right. He estimates there are about 3 unintended consequences on every page of that 1,200-page bill.

2:45 video

Hat tip to Amy Alkom.

George Will observes that the spectre of real world consequences is haunting Barack Obama and his democrat allies.

Concerning the job numbers from May, one can almost echo Henry James’s exclamation after examining letters pertaining to Lord Byron’s incest: “Nauseating perhaps, but how quite inexpressibly significant.” Except that the May numbers’ significance can be expressed: A theory is being nibbled to death by facts.

Private-sector job creation almost stopped in May.

The Progressive attempt to change America into a European-style Socialist Welfare State in the midst of an economic crisis has, it is increasingly becoming clear, prevented the recovery that should now be well underway, and deepened the misery.

Americans are experiencing hard times, wholesale bank and business failures, joblessness, and home foreclosures in a fashion not seen since the Great Depression.

All this coincides with state government bankruptcies and a European crisis caused by exactly the same policies. Governments everywhere are discovering the truth of Margaret Thatcher’s dictum that “the problem with Socialism is that, sooner or later, you run out of other people’s money.

Democrats are going to be annihilated in next November’s elections.

Times are hard and crime is down. How can that be? Liberals have always understood that crime is produced by economic hardship and deprivation. More government assistance, more redistribution, liberals have consistently argued, are essential. Otherwise, the victims of structural injustice will probably revolt. Yet the most dramatic economic downturn since the Great Depression, though producing plenty of hardship, unemployment, and misery, has failed to produce the crime wave liberal social theory inevitably ought to expect.

Richard Cohen, at the Washington Post, reflects on the situation.

For liberals, this is bad news. …

From 2008 to 2009, violent crime was down 5.5 percent overall and almost 7 percent in big cities. Some of those cities are as linked with crime as gin is with tonic or as John McCain is with political opportunism. In Detroit, for instance, with the auto industry shedding workers, violent crime was down 2.4 percent. In Washington, D.C., murder was down 23.1 percent, rape 19.4 percent and property crime 6 percent. …

[I]t now seems fairly clear that something akin to culture and not economics is the root cause of crime. By and large everyday people do not go into a life of crime because they have been laid off or their home is worth less than their mortgage. They do something else, but whatever it is, it does not generally entail packing heat. Once this becomes an accepted truth, criminals will lose what status they still retain as victims.

Zeljka Buturovic and Daniel B. Klein just published a study of the correlation between an elementary understanding of economics and people’s levels of education and political ideologies.

The 8 simple questions used as measuring sticks of “economic enlightenment” were:

1. Restrictions on housing development make housing less affordable.
• Unenlightened: Disagree
2. Mandatory licensing of professional services increases the prices of those services.
• Unenlightened: Disagree
3. Overall, the standard of living is higher today than it was 30 years ago.
• Unenlightened: Disagree
4. Rent control leads to housing shortages.
• Unenlightened: Disagree
5. A company with the largest market share is a monopoly.
• Unenlightened: Agree
6. Third-world workers working for American companies overseas are being exploited.
• Unenlightened: Agree
7. Free trade leads to unemployment.
• Unenlightened: Agree
8. Minimum wage laws raise unemployment.
• Unenlightened: Disagree

They found that education produced only a slight difference in economic enlightenment, but that political ideology produced far more significant differences.

(Although the authors note that none of the questions actually challenge conventional conservative positions, they) think that the measurement as-is captures something real. At least since the days of Frédéric Bastiat, many have said that people of the left often trail behind in incorporating basic economic insight into their aesthetics, morals, and politics. We put much stock in Hayek’s theory (Hayek 1978, 1979, 1988) that the social-democratic ethos is an atavistic reassertion of the ethos and mentality of the primordial paleolithic band, a mentality resistant to ideas of spontaneous order and disjointed knowledge. Our findings support such a claim, all the caveats notwithstanding. Several of the questions would seem to be fairly neutral with respect to partisan politics, particularly the questions on licensing, the standard of living, monopoly, and free trade. None of those questions challenge policies that are particularly leftwing or rationalized on the basis of equity. Yet even on such neutral questions the “progressives” and “liberals” do much worse than the “conservatives” and “libertarians.”

Last week, the Heritage Foundation issued its annual Index of Economic Freedom. The United States’ ranking fell dramatically from 80.7 in 2009 to 78 in 2010, for the first time declining out of the free category into the “mostly free.”

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Bruce Bartlett, in Forbes, says what liberals say: We’re so much wealthier today that we can afford to pay our taxes and the costs of regulations.

Stephen M. Bainbridge responds with some indignation, rightly characterizing Bartlett’s argument as proposing “trading our birthright of freedom for an iPad.”

[I]f I get the gist of this column correctly, he’s arguing that I should be happy about bigger government and higher taxes because I get to buy an iPad . …

I’m happy to acknowledge that the free market economy has produced profound blessings. But I’m not willing to swap my birthright of economic freedom for a “PDA” (how technologically quaint). Nor am I willing to stand by without protest while ever larger chunks of the American economy are turned over to the Obamabots–the very definition of “Social Engineers, who seek to adjust mankind to conform with scientific utopias.” After all, if we rely today on government to provide us with bread and circuses, what will we rely on government to provide tomorrow?

At bottom, my problem with Bartlett’s argument that we can afford higher taxes and greater regulation is that regulation and taxation are like the story about how to boil a frog. If a frog is placed in boiling water, it will jump out, but if it is placed in cold water that is slowly heated, it will not perceive the danger and will be cooked to death.

In the United States today, the thermostat is still set pretty low. The Heritage Foundation has warned us, however, that the Obamabots have turned up the heat a tad. It is the proper function of conservatives to resist and to seek to turn down the heat.

When the arguments got down to the nitty-gritty on the health care bill, the liberals I know were prone to admit that what they really most cared about was completing the European-style welfare state. Lacking a health insurance safety net simply offended their sense of how things should be. It didn’t matter to my liberal friends that the poor actually could get treatment. They wanted systematized, state-organized entitlement.

Interestingly, my liberal friends felt sure that the costs would not be significant.

Jonah Goldberg offers the argument, which I think we are going to see repeated and elaborated, that the cost of socializing the United States is liable to go far beyond high domestic taxes and less US economic growth, and the full cost may seriously impact Europe, too.

[L]iberals insist conservatives are wrong to think that Europeanizing America will necessarily come at any significant cost. New York Times columnist and Princeton economist Paul Krugman says that in exchange for only a tiny bit less growth, Europeans buy a whole lot of security and comfort. …

I think the debate misses something. We can’t become Europe unless someone else is willing to become America.

Look at it this way. My 7 year-old daughter has a great lifestyle. She has all of her clothes and food bought for her. She goes on great vacations. She has plenty of leisure time. A day doesn’t go by where I don’t look at her and feel envious at how good she’s got it compared to me. But here’s the problem: If I decide to live like her, who’s going to take my place?

Europe is a free-rider. It can only afford to be Europe because we can afford to be America.

The most obvious and most cited illustration of this fact is national defense. Europe’s defense budgets have been miniscule because Europeans can count on Uncle Sam to protect them. Britain, which has the most credible military in NATO after ours, has funded its butter account with its gun account. As Mark Steyn recently noted in National Review, from 1951 to 1997 the share of British government expenditure on defense fell from 24 percent to 7 percent, while the share on health and welfare increased from 22 percent to 53 percent. And that was before New Labor started rolling back Thatcherism. If America Europeanizes, who’s going to protect Europe? Who’s going to keep the sea lanes open? Who’s going to contain Iran? China? OK, maybe. But then who’s going to contain China?

But that’s not the only way in which Europeans are free-riders. America invents a lot of stuff. When was the last time you used a Portuguese electronic device? How often does Europe come out with a breakthrough drug? Not often, and when they do, it’s usually because companies like Novartis and GlaxoSmithKline increasingly conduct their research here. Indeed, the top five U.S. hospitals conduct more clinical trials than all the hospitals in any other single country combined. We nearly monopolize the Nobel Prize in medicine, and we create stuff at a rate Europe hasn’t seen since da Vinci was in his workshop.

If America truly Europeanized, where would the innovations come from?