Are states with more economic freedom in better fiscal condition?

The answer appears to be "yes."  States with more economic freedom seem to be in much better shape fiscally.  The Mercatus Center's measure of state Fiscal Conditions has been getting some attention this weekend.  I thought that it would be interesting to see whether Democrats or Republicans have been doing a better job running their states, but it seemed easier to look at Mercatus' measure of economic freedom.  The causation isn't clear, but there is a strong, statistically significant relationship between the two.

Obama and the media continue to make the false claim that the shutdown will harm the economy

From Obama's Saturday address on September 28th:

It’s also the day that a group of far-right Republicans in Congress might choose to shut down the government and potentially damage the economy just because they don’t like this law. . . . 

Past government shutdowns have disrupted the economy.  This shutdown would, too.  At a moment when our economy has steadily gained traction, and our deficits have been falling faster than at any time in 60 years, a shutdown would be a purely self-inflicted wound.  And that’s why many Republican Senators and Republican governors have urged Republicans in the House of Representatives to knock it off, pass a budget, and move on. . . . 

No one gets to hurt our economy and millions of innocent people just because there are a couple laws you don’t like.  It hasn’t been done in the past, and we’re not going to start doing it now. . . .

From Obama's Saturday address on October 5th:

. . . They don’t get to hold our democracy or our economy hostage over a settled law. They don’t get to kick a child out of Head Start if I don’t agree to take her parents’ health insurance away. That’s not how our democracy is supposed to work. 

That's why I won't pay a ransom in exchange for reopening the government. And I certainly won't pay a ransom in exchange for raising the debt ceiling. For as reckless as a government shutdown is, an economic shutdown that comes with default would be dramatically worse. 

I'll always work with anyone of either party on ways to grow this economy, create new jobs, and get our fiscal house in order for the long haul. But not under the shadow of these threats to our economy. . . . .

From NPR, October 3rd: "Treasury: New Debt Ceiling Fight Could Derail Economy"

The Treasury Department is issuing a warning of dire economic consequences that could rival the Great Recession if Congress is unable to agree on raising the debt ceiling and the nation defaults on its obligations. 

Treasury's report, "The Potential Macroeconomic Effect of Debt Ceiling Brinkmanship," comes as Congress is still wrangling over a short-term spending bill to reverse a partial government shutdown that went into effect Tuesday. Later this month, House Republicans and Senate Democrats will need to agree to raise the $16.7 trillion debt ceiling or face a possible default. 

"[A] default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, and U.S. interest rates could skyrocket, potentially resulting in a financial crisis and recession that could echo the events of 2008 or worse," Treasury said in a statement. . . .

From CNN Money: "Economists fear debt ceiling fight may bring recession"

Forget the current government shutdown. Economists say it's the upcoming debt ceiling impasse that could plunge the nation into a recession. 

About half of the 22 economists surveyed by CNNMoney say a recession will be unavoidable if Congress fails to raise the nation's debt ceiling before the Treasury runs out of cash later this month. . . .

CNBC: "US Treasury warns debt default could be 'catastrophic'" 

The Obama administration said the U.S. economy could fall into its deepest crisis since the Great Depression if Congress does not raise a cap on government borrowing soon and warned it would be impossible to prioritize debt payments over other obligations. 

In a report released on Thursday, the Treasury Department said a U.S. debt default could force up borrowing costs, weaken investment and curb growth. This could inflict damage on the economy that could last for longer than a generation. 

"A default would be unprecedented and has the potential to be catastrophic," Treasury said. . . .

Why all this discussion of default is wrong.

Unless the Obama administration completely mismanages everything, there is no reason for the failure to raise the debt ceiling to result in a default.  Revenue greatly exceeds required payments on interest (in FY 2014 net interest is supposed to be $238 billion out of revenue of $3.069 trillion -- 7.75%, see page 4 of this CBO report).  You don't need to repay principle -- all you have to do is roll that debt over again because total debt is being held constant if the debt ceiling isn't increased.  Now it is true that revenue doesn't come in at a constant rate, but given how much greater revenue is than the interest payments, just a tiny bit of planning is all that is necessary to balance things off.

On CNN on Sunday, Jack Lew made this claim:

Tuesday I wrote to Congress saying I used my last extraordinary measures. I have no more. That means that on October 17th, we'll run out of the ability to borrow. We'll be left with some cash on hand. And, I've told Congress it will be roughly $30 billion. 

And $30 billion is a lot of money. But when you think about the cash flow of the government of the United States, we have individual days when our negative or positive cash flow is 50 or $60 billion. So, $30 billion is not a responsible amount of cash to run the government on. . . .

If the normal ability of the government to smooth over shifts in outlays has been exhausted by the Obama administration, that is their fault.  Deals should have been reached well before this and President Obama should have been involved in those discussions.  To say that this is all the Republicans' fault because they don't give Obama everything that he wanted is ridiculous.  Still Lew's statement is sufficiently vague that it hides the fact that this cash flow is both positive and negative and tends to be much more likely to be positive when comparing revenue to interest payments.

White House thinks it can tell the press this and still not be blamed for shutdown: "Not giving an inch is seen as best strategy for win at White House"

From The Hill newspaper:

There was no shadow of doubt at the White House as the clocked ticked down to midnight Monday. 

Officials suggested that a refusal to negotiate over funding the government was the winning strategy. 

White House officials expressed confidence they wouldn’t have to back down in the slightest, while aides close to Obama, former administration officials and top Democratic strategists who confer with the White House say the chances of them negotiating with Republicans are slim to none. . . .

Obama: raising the debt ceiling does not increase our debt

Seriously? The media takes this answer seriously?  Increasing the debt ceiling doesn't increase the level of the nation's debt?  This is like saying that running deficits doesn't increase the national debt.  After all you can't run a deficit past a certain point if you don't increase the debt ceiling.

Now, this debt ceiling -- I just want to remind people in case you haven’t been keeping up -- raising the debt ceiling, which has been done over a hundred times, does not increase our debt; it does not somehow promote profligacy.  All it does is it says you got to pay the bills that you’ve already racked up, Congress.  It’s a basic function of making sure that the full faith and credit of the United States is preserved. . . .

Obama dishonesty about the deficit

Fox News has the discussion here.

Obama administration claims that they will veto any spending cuts

Over the weekend, I kept on hearing how it is important for Republicans to appear reasonable in the budget debate.  While the Republicans who want to help control budget costs by defunding Obamacare get attacked, how is this position by the Obama administration considered reasonable?  From Fox News:

The Obama administration dug in Sunday on its vow to reject proposed spending cuts by congressional Republicans in upcoming budget talks but declined to say whether the president would veto their proposals or allow a government shutdown.
Treasury Secretary Jack Lew told “Fox News Sunday” that President Obama will neither sign government funding bills that slash domestic spending nor negotiate with Republicans over spending cuts to reduce the federal debt limit.
However, he would not say whether the president would veto proposals and put the responsibility on Capitol Hill.
“Congress has to do its work," Lew said.
He also repeated what the administration has said in the weeks ahead of talks on short-term funding for federal agencies before a Sept. 30 deadline -- that Capitol Hill lawmakers must replace so-called sequester cuts with less drastic ones. . . .

The ultimate irony is that Treasury Secretary Jack Lew was the one warning Republicans about "false crises."  This is after the Obama administration has continually raised end of the world scenarios over the impact of budget cuts.

Treasury Secretary Jack Lew warned Republicans to avoid "false crises" over a government shutdown and the debt limit in the coming months. 

Appearing on ABC's "This Week with George Stephanopoulos," Lew continued to hammer the message President Obama has been touting this week, about renewing a focus on boosting the middle class and avoiding self-inflicted wounds on the economy. . . .

Here even the "self-inflicted wounds" claim is false.  See my past piece on Obama's end of the world claims during the 2011 budget battle available here.

Will government caused flight delays mean more fines for airlines?

The full airline petition can be read here.  The Obama administration is refusing to comment on their request.  Here is an article from The Hill newspaper.

A pair of airline lobbying groups is asking the Department of Transportation (DOT) to not count flights that were delayed because of the sequester from its usual tally of late airplanes.  . . .
But in a petition submitted to the DOT this week, Airlines for America (A4A) and the Regional Airline Association (RAA) said flights were held back in April because of air traffic controller furloughs that were attributed to the sequester. 
“Airlines for America and the Regional Airline Association ... hereby request that the Department grant a limited exemption ... that would exclude all flights in the month of April 2013 from the ‘chronically delayed flight’ designation/status due to the substantial delays and disruption to air travel that occurred from the Federal Aviation Administration decision to implement daily ground delays and reduce air traffic control personnel as part of its sequestration implementation plan adopted in response to the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012,” the groups wrote in their petition.The FAA purposely delayed flights at major airports from April 21-27 because the agency furloughed about 10 percent of its air traffic controllers in response to the automatic budget cuts known as the sequester. Congress quickly passed abill to give the FAA flexibility to move money around in its budget to end the flight delays as passenger complaints mounted.  . . .

While your planes are late because of the sequester, remember how Obama is selectively cutting spending

Those working on Obamacare are apparently being exempt from the budget cuts.  From The Hill newspaper:

The office implementing most of President Obama's healthcare law is not furloughing its workers as a result of sequestration, its director said Wednesday.
Gary Cohen, director of the Center for Consumer Information and Insurance Oversight, said Wednesday that his office has not cut its workers' hours and pay as a result of the automatic budget cuts that went into effect in March.
Republicans have accused the Obama administration of politicizing the sequester by targeting highly visible programs like airport security and White House tours.
The fact that ObamaCare officials haven't been furloughed shows that the cuts are political, Rep. Greg Harper (R-Miss.) said Wednesday.
"We're talking about at least a 15 percent furlough of current air-traffic controllers, resulting in delays and perhaps safety concerns, but yet this has been a selective political item by the administration," Harper said. . . .

First note that during the air traffic controller striking during the Reagan administration, administrators were able to step in and they kept the planes flying.  Yet, today with a much smaller reduction in number of workers, we have hours of delays.  In addition, note that all airports are not facing the same impact from air traffic control cuts.  If you are going to make the cuts in air traffic control, it seems to me that the efficient thing to do would be to cut so that each place faces the same delays.  That way you could actually reduce total delays.

The chief of the FAA told Congress today that Washington-area airports will largely escape the effects of the air traffic controller furloughs — a blessing for lawmakers who fly out of the nation’s capitol. 

Michael Huerta, head of the Federal Aviation Administration, told a congressional panel that the Washington region’s airports are spaced out enough and have enough spare capacity that furloughs to air traffic controllers won’t hurt as much here. . . .

UPDATE: Even the Chicago Tribune finds that Obama wants to make the sequester cuts as painful as possible.

. . . So, what could the administration do to make a reduction of barely 1 percent of actual federal outlays — less than $45 billion of this year's roughly $3.8 trillion — turn citizens against Republicans who oppose more tax increases? Easy, or so the president's men and women figured: Cue the air controller furloughs! Let's stall some flights on the tarmac!
Sure enough, travel delays have followed. We're less certain, though, that this hostage-taking will cut the way the White House expects: The scheme relies on citizens being — how to put this delicately? — stupid enough to think that the Federal Aviation Administration can't find a more flier-friendly way to save $600 million. 

To believe that, though: 

• Americans would have to ignore the plan that U.S. Sen. Tom Coburn, R-Okla., delivered in early March to Transportation Secretary Ray LaHood, detailing how LaHood's FAA could save twice that amount — $1.2 billion. 

• Americans would have to ignore House Republicans who note that LaHood's supposedly destitute FAA is spending some $500 million on consultants — and $300 million on travel and supplies. 

• And Americans would have to ignore Democrats' refusal to accept congressional Republicans' offer to give the administration more flexibility in sequester cuts — an offer House Budget Committee Chairman Paul Ryan, R-Wis., reiterated during a meeting Monday with the Tribune editorial board. No, the White House doesn't want flexibility. The White House wants what the president predicted March 1. . . . . 

Yet another Democrat budget that claims to cut the deficit but actually increases it.

This is pretty amazing the way Democrats keep claiming to cut the deficit only to actually be increasing it.  For past examples of this see here, here, and here.  From Fox News:

Senate Democrats' budget plan is coming under increasing criticism from Republicans, who say it effectively pats itself on the back twice for savings that were only achieved once -- and even then, promises another $7.3 trillion in debt over the next decade. . . . 

Democrats claimed all along their plan would achieve $1.85 trillion in deficit reduction over the next decade, half through spending cuts and half through tax hikes. 

But the top Republican on the Senate Budget Committee, Sen. Jeff Sessions of Alabama, argues the plan is taking credit for the reduced spending level already achieved when mandatory, across-the-board cuts known as sequester took effect March 1. 

The Democrats' plan would replace the sequester and build on that savings for a total of $975 billion in alternative cuts and $975 billion in tax hikes over 10 years. But, as Democratic staffers acknowledged during committee testimony last week, their plan also counts the replacement cuts toward their total deficit-reduction figure. 

"I believe you're using the money twice," Sessions said, arguing that the true savings is more like $700 billion. . . .

Senate Democrats plan increases both taxes AND spending, deficits reduced only because taxes increase more

From The Hill newspaper:

The budget would dedicate $100 billion to economic stimulus in the form of infrastructure spending and job training.  Murray argues that her budget cuts $1.85 trillion from deficits over 10 years. But once the sequester cuts are turned off, Murray’s budget appears to reduce deficits by about $800 billion, using the Congressional Budget Office’s baseline. The Murray budget does not contain net spending cuts with the sequester turned off. . . .

Paul Ryan has this take:

Ryan took aim at President Obama and Senate Democrats, saying the tax increases in a proposal from Sen. Patty Murray (D-Wash.) only "fuel more spending."
"We know where this path leads—straight into a debt crisis, and along the way, fewer jobs, fewer opportunities, and less security," Ryan said, painting a desperate image of rising interest rates and inflating debt payments.
"Our finances will collapse," he warned. "You think this can't happen here? Just look at Europe." . . .

So much for the notion that Obama cares about controlling the Federal deficit

From Fox News:

President Obama met Wednesday with House Republicans in an apparent bid to find consensus on fiscal policy, even as he seemed to antagonize the other side by claiming there's no "immediate crisis in terms of debt."  

His statement would be sharply at odds with a core Republican principle that the debt must be addressed soon -- and which underpinned the cost-cutting GOP budget released Tuesday. The president also acknowledged, in an interview aired earlier in the day, that differences with the GOP might be "too wide" to bridge. . . .

Wasn't this the same guy who attacked George Bush over much smaller deficits and blamed the poor economy on those much smaller deficits?

Politico's take on Obama's charm offensive

Even reporters are concluding that there is no substance to the Obama charm offensive.  From Jim Vendehei and Mike Allen at Politico:

The truth is Obama has lost some leverage [after the sequester debate] — and needed a bunch of high-profile meetings with adversaries to swat away reports that he’s too stubborn and too political. But, in private, nothing has really changed. . . .  

Obama would have to persuade Republicans to vote for a tax increase for the second time in less than one year. Can you imagine Boehner and his troops heading into the 2014 midterm elections dominated by conservative activists having to explain, not one, but two increases? . . . .

An explanation for why the sequester is good for the economy

Jeff Miron has an explanation available here that is similar to what I have in "At the Brink."

Obama and Senate Democrats solution to Sequester?: Increase government spending by $62.4 billion, raise taxes by $55.1 billion, raise the deficit by $7.2 billion!

How can anyone take the Democrats seriously?  Their offer to replace the sequester cuts is to increase government spending and the deficit.  Obama supports the Democratic Senate alternative.

CBO estimates that S. 388 would increase direct spending by $62.4 billion and revenues by $55.1 billion over the 2013–2023 period. Thus, the cumulative deficit would increase by $7.2 billion from those changes.

Obama has been critical of what he claims is a "meat cleaver" approach to cutting the deficit.  But his solution is to increase the deficit.  His offer to Republicans who are trying to cut the deficit is to increase it.

UPDATE: IBD claims that Obama's own proposal is even worse, though as they point out the plan has been well hidden.

. . . Turns out, Obama did have one [though he] . . . hasn't exactly been promoting this so-called plan. . . .
There are no details, for example, about the $200 billion in cuts to defense and domestic discretionary programs, other than that Obama wants them split evenly.
And while he offers $400 billion in "health savings," 30% are lumped in a bucket labeled "other."
Worse, Obama's "balanced" plan actually counts hundreds of billions of new revenues from taxes, fees and rebates as "spending reductions." Examples:
• His plan to "strengthen" unemployment insurance is labeled as a cut, but it's really a $50 billion tax hike.
• The $35 billion from the federal worker retirement programs involves boosting worker contributions.
• Most of the $35 billion in Medicare savings comes from charging wealthy seniors more.
• The $140 billion in "reduced payments to drug companies" are in fact rebates Obama wants drugmakers to pay Uncle Sam for selling drugs to poor seniors.
• Then there's the $45 billion in spectrum fees and asset sales that Obama lists as spending reductions.
Viewed correctly, it turns out that more than $300 billion — about a third — of Obama's proposed "spending cuts" are actually revenue increases. . . .

New piece in Investors' Business Daily: "Obama's Sequester Cuts Are A Mere 1% Of Budget"

My new piece starts this way:

President Obama is almost breathless predicting "devastating" consequences if the sequester trigger is pulled. 

He warns the cuts "will hurt our economy ... add hundreds of thousands of Americans to the unemployment rolls. ... The unemployment rate might tick up again." 

But will a $44 billion cut in spending out of a $3.8 trillion budget, a mere 1%, really be a "meat cleaver approach" that will "eviscerate" government programs? 

Obama frightens people by pretending that the $1 trillion cut takes place right away rather than being spread out over 10 years. 

He has taken almost every possible position on spending and taxes. During the 2008 presidential campaign, Obama continually promised to "cut net spending" and make government smaller. The stimulus was promised not to "raise projected deficits beyond a short horizon of a year or at most two." . . . .

Total federal debt

From Robert Samuelson:

TREASURY DEBT HELD BY THE PUBLIC: $11.3 trillion 

FEDERAL LOANS AND LOAN GUARANTEES: $2.9 trillion in 2011 

FANNIE AND FREDDIE: $5.1 trillion 

THE FEDERAL DEPOSIT INSURANCE CORPORATION: $7.3 trillion . . .

Some notes on Obama's State of the Union Address

More "investments" (read "spending") and no concern about the deficit (except as an excuse to raise taxes).  The call for more government spending will be based on Keynesianism claims that it will stimulate the economy.  Taxes are being pushed out of "fairness."

The president is expected to revive his calls Tuesday for government "investments" in infrastructure and education -- meaning spending. He'll focus on economic growth, while acknowledging the need to close the deficit through a combination of budget cuts and tax increases.  

"The core emphasis that he has always placed in these big speeches remains the same, and it will remain the same -- the need to make the economy work for the middle class," White House Press Secretary Jay Carney said.  

He declined to get into specifics, but said the speech will focus on "proposals that are necessary to help the middle class grow and to help the economy grow."  

Carney pointedly countered House Democratic Leader Nancy Pelosi, who a day earlier dismissed the idea that Washington has a spending problem.  

"Of course the president believes that we have a spending problem," Carney said. Still, he said "we need more investments that help the key industries of the 21st Century ... take root here." . . .

From the Washington Post:

When President Obama delivers his State of the Union addressTuesday evening, here’s one thing you won’t hear: an ambitious new plan to rein in the national debt. 

In recent weeks, the White House has pressed the message that, if policymakers can agree on a strategy for replacing across-the-board spending cuts set to hit next month, Obama will pretty much have achieved what he has called “our ultimate goal” of halting the rapid rise in government borrowing. 

“Over the last few years, Democrats and Republicans have come together and cut our deficit [over the next decade] by more than $2.5 trillion through a balanced mix of spending cuts and higher tax rates for the wealthiest Americans,” Obama said during his weekend radio address. “That’s more than halfway towards the $4 trillion in deficit reduction that economists and elected officials from both parties say we need to stabilize our debt.” . . . 

Meanwhile some "conservatives" such as William Kristol are fighting against the sequester, which seems the only way to cut government spending right now.

Sequester is only one step down a stairway at the bottom of which the stones will break beneath our feet. But it’s an important step. It’s too important a step for the Republican party to be complicit in. Its likely negative consequences are far more important than any possible benefit that could come from a small and probably temporary cut in domestic discretionary spending, or from the satisfaction of highlighting the hypocrisy of Barack Obama and the irresponsibility of Harry Reid. Barack Obama and Harry Reid may be willing to sacrifice the national interest for petty and temporary political victories. Republicans shouldn’t be willing to do so. A great political party, on matters of great moment, puts national defense, and the national interest, first. 

Does Obama want to go over the Fiscal Cliff? Some Democrats sure think so

PAT CADDELL: . . . This president is on vacation.  I give you a plan that no one should vote for but here you go.
DOUG SCHOEN: Did you see what he said to Boehner last week? Which is I will go after you in the State of the Union and in the inaugural if you don't come along. Not, 'I have a plan that the American people want.' So, I really think he wants to go over the cliff.
CADDELL: . . . Boehner said, look I have given you $800 billion in taxes, don't I get anything for that, and the president said "no."  He said: "That's Free, that is mine."

From Debra Sanders at the SF Chronicle:

My fear is that some Democrats want to go off the cliff. Back in July, Tax Policy Center co-director William G. Gale wrote that if Congress doesn't act to prevent the "fiscal cliff," Washington wins an extra $2.8 trillion in tax revenue over a decade. It's a Democrat's happiest dream -- huge tax increases without having to vote for huge tax increases.
If America goes and stays off the cliff, Tax Foundation chief economist Will McBride told me, the hit on the gross domestic product would be 9.6 percent, and American wages would fall 7 percent.
To counter any negative effects of going over the cliff, Gale proposed more stimulus spending. . . .

With the budget deficit, the government continues to find things to waste lots of money on, military biofuels

Besides the exorbitant costs, sing less efficient fuel means shorter distances that our military can travel without requiring refueling.

A House-Senate deal on defense legislation omits a GOP-backed plan to thwart military purchases of biofuels.The Senate already had stripped restrictive language from its version of the defense authorization bill last month, making it differ from the House. House and Senate negotiators took cues from the Senate's version.
“There is no limiting language in there. It looks favorable at this point and I commend the administration for the hard line it took,” Michael McAdams, president of the Advanced Biofuels Association, told The Hill on Tuesday.
A House-Senate negotiating group unveiled the compromise bill Tuesday afternoon. House Armed Services Chairman Buck McKeon (R-Calif.) said the bill is scheduled for a Thursday House vote, is expected to pass the Senate and will hit President Obama's desk Friday. . . .

The Washington Post on Obama's "unbalanced" approach to the deficit

From the Washington Post:

Nudging the Medicare eligibility age from 65 to 67, which President Obama supported last year? Unconscionable. Changing the way cost-of-living adjustments are calculated, which Mr. Obama also supported? Brutally unfair to veterans and seniors. Reform of Medicaidprovider taxes, which liberal Senate Majority Whip Richard J. Durbin (D-Ill.) only days ago described as a “charade” used by states to jack up funding from Washington? Unthinkable, the White House now says:In fact, with the Supreme Court having struck down a facet of Mr. Obama’s Affordable Care Act involving Medicaid, nothing in that program can be touched. And, while they’re at it, put Social Security off the table, too. We’re asked to accept the mythology that, though the pension and disability program is facing ever-widening shortfalls, it isn’t contributing to the overall deficit. . . .