Congress Just Increased Deficits By $4 Trillion, And All I Got Was 2.9% Tax Increase

You’ll need a scorecard to keep up with the insanity in Washington this week.

boehner-2

The Senate’s been a lost cause for a while, so let’s not even bother with the upper house. Besides, it’s really hard to focus on good fiscal policy while Hooter’s Girls are passing out Bacardi 151 shots, Buffalo wings, and “Welcome 2013” horns in the cloak room.

Over in the House, things looked interesting for a while. Eric Cantor, as the story leaked, wanted to add amendments to the Senate fiscal cliff bill. But, in the end, Boehner convinced 85 Republicans (who are tired of running unopposed in the primary) to join the Democrats in bi-partisan New Year’s present to President Obama. Apparently, everyone who voted for the tax increase and spending binge got a free Obamaphone and tickets to NASCAR for life.

I’m being unfair, actually, by implying that the 85 Republicans who voted “Aye” were paid off. Clearly, these people are too inept to hold out for personal favors. If the bill had required Republican House members to submit to a Tabasco and Thumb Tack enema facing Mecca five times a day, they’d tell you how proud they were to bend over for America’s middle class families.

I’m not right very often, so when I am, I like to, well, gloat.  Here’s what I wrote on December 21, the day after Boehner’s “Plan B” exploded in his hands:

Therefore, the only way the House can pass a fiscal cliff bill is to win a bunch of Democrat votes.  Since Democrats know this, they can hold out for whatever Obama demands.  Boehner, who doesn’t want to get blamed for failing to reach a deal, will go along and he’ll bring enough Republicans to pass it.

Sometimes it sucks to be right. Since I’m on a roll, I might as well keep playing. Here’s my predictions on the results of this bi-partisan work of statesmanship:

  • Obama and the Democrats will get full credit for saving 98% of taxpayers (which is like 4% of the adult population) from a tax  increase
  • Republicans will get full credit for increasing the deficit by $3.9 trillion (according to the CBO)
  • Republicans will also get to claim the 2.9% payroll tax increase that took effect today (2% Social Security, .9% Obamacare Medicaid tax)
  • Come March, Obama will get a 2-year debt ceiling moratorium, meaning he can spend as fast as Bernanke can buy debt from Treasury
  • And the sequestration will affect only the Department of Defense
  • Which will inspire Japan to capitulate to China

When Democrats become the champions of tax cuts and the GOP the goats of deficits spending, the world must be coming to an end. Maybe the Mayans were only a few months off. (Told you you’d need a scorecard.)

Where’s those Hooter’s girls? I need a drink.

How Psychological Biases Make Good Government Unlikely

Answer this question on paper without looking up the answer:

Q:  Which kills more people: guns or diabetes?

Here’s what your brain is doing. It’s searching your memory for mentions of the keywords: “guns,” “diabetes,” and “kill.”

For most of us, one of the variables—guns or diabetes—carries a significantly heavier emotional weighting than the other. A paid-up-for-life member of the NRA might attach powerful positive emotions to “guns.” The parent of a child who died of complications of diabetes will attach high negative emotions to “diabetes.”

For the rest, the mind will generate a feeling about the words based on many factors, one of which involves the frequency and emotional intensity of recent references. This all happens in an instant. You’ve already arrived at your answer, and you should have written it down.

What's Available?

People are now freaking out the fiscal cliff. That includes John Boehner and Barack Obama. We’re all estimating how bad our lives will be if Washington doesn’t do something to avert the “fiscal cliff.”  For many of us, nothing is more important. We are convinced that we will be miserable if no deal is struck. We are convinced that our lives will be permanently and unalterably damaged if America sails off the cliff.

Yet few of us—I’d estimate less than 5 percent—understand the first thing about the cliff. We’re mostly reacting to the vague fears raised by media and politicians, each of whom willfully manipulates the story to advance a different agenda.

In other words, they’re playing with your mind.

Because 95 percent of us have no deep understanding of what “fiscal cliff” means, and 100 percent of us do not for certain what will happen if we simply fly off the cliff, any deal said to “avert the fiscal cliff” will result in a big sigh of relief. Most people will credit Barack Obama for averting the cliff. Some with credit John Boehner. Smaller numbers will credit other people or factors—the Tea Party, the media, Starbucks, sun spots.  They will all be wrong. They have no way of knowing whether the deal struck--and one will be struck--is better than no deal at all. But a psychological bias will drive us to cheer up and assign responsibility.

Diabetes kills 7 people for every one killed by a gun.

Chances are, most people answered “gun” to the question at the top. But in 2011, 8,583 people died of gun violence in the United States (see note at end) while nearly 68,705 died from diabetes. And diabetes is nowhere near the leading killer. According to the CDC, in 2011 the leading killers were:

  • Heart disease: 599,413
  • Cancer: 567,628
  • Chronic lower respiratory diseases: 137,353
  • Stroke (cerebrovascular diseases): 128,842
  • Accidents (unintentional injuries): 118,021
  • Alzheimer's disease: 79,003
  • Diabetes: 68,705
  • Influenza and Pneumonia: 53,692
  • Nephritis, nephrotic syndrome, and nephrosis: 48,935
  • Intentional self-harm (suicide): 36,909

Notice that gun violence failed to crack the Top 10 list. But the flu and pneumonia did. Five people die of the flu or pneumonia in the US for every one who dies from a bullet.

Whether we’re talking about guns or the fiscal cliff, availability bias clouds our judgment, leading to both irrational decisions and inappropriate reactions to events. The media want to create a public outcry to repeal the Second Amendment. So they mention “gun violence” as often as possible. This raises the availability of “gun violence” in our memories. When we’re asked what causes more deaths and one of the options is “gun violence,” the brain, being lazy, grabs the  most available answer. The brain doesn’t really care if it’s right or wrong—it just wants to answer the question and move on.

Daniel Kahneman, in Thinking, Fast and Slow, explained the bias:

Biases due to the retrievability of instances. When the size of a class is judged by the availability of its instances, a class whose instances are easily retrieved will appear more numerous than a class of equal frequency whose instances are less retrievable. In an elementary demonstration of this effect, subjects heard a list of well-known personalities of both sexes and were subsequently asked to judge whether the list contained more names of men than of women. Different lists were presented to different groups of subjects. In some of the lists the men were relatively more famous than the women, and in others the women were relatively more famous than the men. In each of the lists, the subjects erroneously judged that the class (sex) that had the more famous personalities was the more numerous.

Kahneman, Daniel (2011-10-25). Thinking, Fast and Slow (p. 425). Macmillan. Kindle Edition.

When it comes to the fiscal cliff, the media want you to think that any deal to avert the cliff is better than no deal. Those rational men and women of Wall Street who believe the markets are perfectly efficient show availability bias so clearly. When the media report that a cliff deal is near, markets rise. When the media report a deal is unlikely, markets fall. Yet none of the traders has any idea about anything. He doesn’t know if a deal is actually more or less likely based on news reports, because news reports on cliff deals have been wrong more often than they’ve been right. Nor does the trader know if the cliff will be good or bad for the economy. Nor does he know, or care, whether this particular deal will be better or worse for the economy or for specific sectors or particular companies. He can’t know any of these things because he trades before he has time to check the deals supposedly on the table.

In both the fiscal cliff and gun control debates, people use availability bias to decide, then seek out facts that support their knee-jerk reactions. This is called confirmation bias, and it drives us to look for facts that support our emotional reaction while ignoring or manipulating evidence to the contrary.

In a country run by the uninformed reacting irrationally to manipulations by biased agents, the chances of the government choosing the best decision are extremely low.

Note: How I arrived at the gun violence number.  According to the FBI, there were 14,612 murders in 2011, and 67.8% involved guns, for a total of 8,583 deaths by gun violence.

Kahneman, Daniel (2011-10-25). Thinking, Fast and Slow (p. 425). Macmillan. Kindle Edition.

Government Planning Is Killing the Economy

Friedrich Hayek warned more than half a century ago that central planning doesn't work. Here’s why:

  • Central Planners (government) makes a plan
  • The plan includes specific expectations
  • The expectations are never, ever, realized
  • A “crisis” ensues
  • So the planners demand more control
  • And create more plans
  • Ad hoc
  • Willy nilly
  • Capriciously
  • So you must wait for things to settle down to make your decision

Today’s Wall Street Journal article about the fiscal cliff demonstrates the futility of central planning:

"We're all sitting on the sidelines right now wondering what's going to happen to us," said John Odland, chief financial officer at MacMillan-Piper Inc., a freight-transport firm in Seattle. "A lot of my contemporaries are feeling the same way, saying, 'Let's just wait and see what these knuckleheads do.' "

Why should private, free citizens have to wait on government for anything?

Here’s a better solution: get the damn government out of the economic planning business.

It’s true that individuals are no better at planning than government experts. But they’re no worse, either.  The difference, then, is the number of people affected by a plan that doesn’t work.

If Joe Shit the Ragman’s plan for his business or his family or his vacation fails, who’s affected?  Joe, maybe his wife, maybe his employees. And it stops there.

If Barack Obama’s plan or Ben Bernanke’s plan or Tiny Tim Geithner’s plan for the economy fails, who’s affected?  All of us.

Moreover, if Joe’s plan fails, it’s up to him and him alone to sacrifice while a better plan takes shape for him and is family.

But if a government plan fails, the government invents new powers, which always come at the expense of your personal power, new taxes, and new plans. From the same WSJ article:

Each scenario involves prolonged uncertainty. Most consumers would start to pare their spending after receiving smaller paychecks due to higher payroll-tax withholding. Income-tax refunds for 2012 could be delayed while the Internal Revenue Service programs its computers to account for tax changes. Government agencies could start cutting back, hurting employees and suppliers. Many other employers likely would slow hiring or cut jobs. And investors could eventually look at those risks and send stocks lower, threatening a downward spiral in consumer and business spending.

We are throw more than good money after bad; we are throwing away good lives after bad.

The only solution to the fiscal cliff problem is to STOP CENTRAL PLANNING, restore power to individuals to make decisions, and reinvigorate a sense of community so people are more likely to help their neighbors.

Here’s What Happens Now That Boehner’s “Plan B” Went Down In Flames

Now that Boehner’s “Plan B” strategy has blown up like a poisoned dog, here’s what Boehner will do.

Remember this chart from last month? It shows strategic options from John Boehner’s point of view:

Let’s Be Honest About Republican Options On The

Yesterday, Boehner tried to land about halfway between the top and bottom quadrant on the left, shown here

Fiscal Cliff Plan B Position

Now that Plan B has been rejected, Boehner’s choices are limited to these:

  • Adjourn and hit the fiscal cliff
  • Cut a deal that will earn most Democrat votes and enough Republican votes to pass

My guess is that Boehner feels betrayed by the 40 or so Republicans who refused to vote for Plan B. In reality, he brought it upon himself by purging the committees of fiscal conservatives. (Anyone who thinks some of this isn’t payback is deluding himself.)

Further, Boehner knows that if he can’t get enough GOP votes to pass an extension of Bush tax cuts on everyone making less than $1 million, he has no chance of getting more Republicans vote for a  bigger compromise. 

Therefore, the only way the House can pass a fiscal cliff bill is to win a bunch of Democrat votes.  Since Democrats know this, they can hold out for whatever Obama demands.  Boehner, who doesn’t want to get blamed for failing to reach a deal, will go along and he’ll bring enough Republicans to pass it.

Fiscal Cliff Likely Deal

That means Obama gets pretty much whatever he wants.  That’s my prediction.

Of course, I could be wrong.

Boehner could also reach a deal with 40 or so Democrats by moving the extension down to $400,000 from $1 million.  From a purely strategic point of view, Democrats would be foolish to make that deal. It would undermine Obama and give Republicans their second-best outcome.  (Remember, by second-best, I’m speaking strategically. I’m not saying a compromise is the second-best policy outcome.)

With most of the Blue Dog Democrats gone, I don’t see Boehner picking up enough Democrat votes. They know they can dictate the terms, and they probably will.

Sure, Boehner could join the conservatives and pass a bill that permanently extends the Bush tax cuts completely.  The Senate will ignore it, we’ll hit fiscal cliff, and the next Congress will deal with it. This would be the best policy choice, but, in Boehner’s mind, it would be the worst possible strategic move.  (Again, I’m saying Boehner’s right, but I think this is how he sees it.) Plus, having been humiliated by conservatives on Plan B, Boehner is unlikely to join them now.

Now, go read Erick Erickson’s excellent explanation of why Boehner’s thinking is wrong.  (I disagree with only one point of Erick’s. He thinks Boehner and the GOP will let us hit the fiscal cliff; I do not, as explained above.) Following Erick’s lead, here’s the best policy outcome:

Fiscal Cliff Best Policy

 

What do you think Boehner will do?

 

P.S. Please don’t scream at me that I’m pulling for a compromise or I want Obama’s $1.6 trillion tax hike to pass. If you’re tempted to do so, read this entire piece again carefully.

Don’t Expect Boehner To Play The Black Knight

The GOP didn’t really have a plan in place in case it lost. It certainly didn’t have a plan for getting snotclobbered. And if you try to spin Tuesday’s results as anything less than a good old-fashioned ass-kicking, you’re deluding yourself. Black-Knight

Republicans Got Creamed

I know Michelle Malkin found 20 things that went right on election night, but there about 60 million things that went wrong. Let’s take a look:

  • Obama was re-elected handily in a terrible economy with American prestige at its lowest level since Carter’s administration
  • Republicans lost ground in the Senate despite a huge number of open seats and unpopular Democrats (McCaskill)
  • Stupid comments by Senate candidates set back the pro-life movement 20 years
  • In Missouri, Republicans lost every statewide race except Lieutenant Governor
  • Liberal ballot initiatives dominated
  • Conservative turnout was low except for Evangelicals
  • Conservative mega-donors broke the bank on this election and came up less than empty

Boehner Told House Republicans There Will Be No Fiscal Cliff Fight

Considering all this, it comes as no surprise that John Boehner told House Republicans that there will be no death match over the Fiscal Cliff.

Their party lost, badly, Mr. Boehner said, and while Republicans would still control the House and would continue to staunchly oppose tax rate increases as Congress grapples with the impending fiscal battle, they had to avoid the nasty showdowns that marked so much of the last two years. (source: NYTimes)

That’s a bitter pill for Tea Partiers and conservatives, but it’s probably unavoidable.

Mitt Romney and many other Republican candidates for federal offices campaigned without any big ideas for people to champion. They made the election about policy differences, and the status quo won.

You can say that bitter fights over debt and budgets are part of that status quo. You’d be missing the point, which is this:

The only card in Boehner’s hand is shutting down the government. Voters—even some who voted for Romney—would see that as a repudiation of the election and the people, not of Obama. Boehner would look like the Black Knight in Monty Python And The Holy Grail.

[youtube=http://youtu.be/Jvqhk7YDH9U]

There’s a chance, of course, that Obama would cave and hand the Republicans a victory. But there’ a good chance the subsequent unemployment, the stock plunge, the recession, and the starvation horror stories would land squarely on Republican shoulders. (Do you think media would see an Obama capitulation as anything but statesmanlike sacrifice to help the most vulnerable?)

Republicans simply won’t take the chance that 2014 will be a referendum on government shutdowns by a party that just got its ass handed to it on Nate Silver platter.

Game Theory and History Help Explain

Here's a SlideShare I've put together to explain the Republican position. I looked back at Reagan's 1981 budget battle with Congressional Democrats.

Pay attention to how that battle turned out. (Best viewed full screen) [slideshare id=15147728&w=427&h=356]

Bottom Line: The Republicans cannot choose a strategy first. They must force Democrats to make the first move.