Suggested Answers to Short Quiz

[johnkarls]

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Question 1

Who coined the term "starve the beast” and what is meant by it?

Answer 1

The term became popular during the Reagan Administration.

Historically, Republicans had advocated balanced budgets and been frustrated by President Lyndon Johnson’s Great Society Programs which Republicans felt obliged to help finance in order to balance the federal budget.

Reagan believed that worshipping balanced budgets would commit Republicans to an ever-larger federal government and that the only way to cut the size of the federal government was to reduce taxes (“starve the beast”) and then challenge Congress to force the federal government, using one of Reagan’s metaphors, to learn to “live on its allowance.”

Question 2

In federal budgetary terms, what is the opposite of "starve the beast” and why is it (rather than "feed the beast”) the opposite?

Answer 2

The opposite of “starve the beast” is to “grow the beast.”

The reason why “growing” rather than “feeding” is the opposite budgetary tactic is that the proponents of larger government believe in the age-old philosophy of enlarging government and then challenging the political opposition to help finance the expansion on the altar of balancing the budget.

Question 3

Why were liberals so upset with President Obama's agreeing to extend for another two years the top individual income tax rate?

Answer 3

Because President Obama had agreed to “starve the beast”!!!

Question 4

Is it possible to extend health-care coverage to an additional 32 million people at no cost?

Answer 4

Of course not!!!

NB: Covering an additional 32 million Americans is the official estimate of the Congressional Budget Office. It assumed 16 million will be added to the state Medicaid roles and 16 million will be covered, one way or another, as a result of the requirement for uninsured individuals to purchase health insurance.

Question 5

Is it morally defensible to extend health-care coverage to an additional 32 million American citizens and refuse to extend it to America’s slaves (aka illegal aliens who are hired by American employers to work for less than the minimum wage, aka slave wages, with no legal rights that can be enforced without risking deportation)?

Answer 5

Of course not!!!

Question 6

Wasn’t it President Obama's claim that illegal aliens would not be covered, which was made in his Health Care speech to the 9/9/2010 Joint Session of Congress, that provoked Rep. Joe Wilson to yell "You Lie!”?

Answer 6

Yes.

Question 7

How many slaves are there in America?

Answer 7

25 million slaves!!!

Though, shockingly, nobody really knows – including the US Dept of Homeland Security!!!

Before proceeding with the explanation, it is helpful to know that the most prevalent military acronym by the time of the Vietnam War was no longer SNAFU (“situation normal, all fucked up”) but, for obvious reasons, SWAG (“silly wild-ass guess”).

THE RESIDUAL OR SWAG METHOD

What is truly appalling is that the U.S. Department of Homeland Security uses this method!!! It is also used by the Census Bureau, the Pew Hispanic Center, and others.

This method starts with the number of self-proclaimed foreign-born people in the U.S. per the official census. However, before subtracting from this number the fairly-precise number of legal immigrants who have not become citizens, the SWAG artist pulls out of the air an estimate of the census undercount of self-proclaimed foreign-born people in the U.S. – since there is no penalty for answering the census questions incorrectly and illegal aliens have every incentive to claim they are U.S.-born.

The SWAG estimate of the census undercount ranges from 10% to 40% of the number of self-proclaimed foreign-born people in the U.S. = 4 million - 16 million. The Census Bureau and the U.S. Department of Homeland Security use 10% with no explanation for their 10% SWAG. Accordingly, their 13 million statistic is understated by 12 million if one assumes a 40% SWAG instead.

THE FOREIGN REMITTANCE METHOD

The 40% SWAG, for a total of 25 million illegal aliens, is supported by Bear Stearns’ study of remittances to Mexico as reported by the U.S. Federal Reserve Banks and the Mexican Central Bank.

According to that data, remittances stayed fairly stable until 2000, when a steady and dramatic increase began.

Using the U.S. Census Bureau’s own SWAG of the total number of illegal aliens in the U.S. in 2000 and assuming that the increase in remittances to Mexico is the best estimate of the increase in illegal aliens since 2000, the Bear Stearns investigators conclude that the number of illegal aliens in the U.S. is approximately double the number SWAG’ed by the U.S. Department of Homeland Security and the Census Bureau.

FINAL COMMENT ON RECENT SWAGS THAT THE NUMBER OF ILLEGAL ALIENS HAS DECREASED AS A RESULT OF THE RECESSION

News reports have been common that the number of illegal aliens in the U.S., which is already a SWAG as described above, has declined.

The news reports never disclose the real basis for their SWAG that the number has declined. Typically, they only cite the decline in the number of construction jobs, which are often performed by illegal aliens.

However, the implicit assumption that the decline in American construction jobs means that illegal aliens who have lost the construction jobs are returning to Mexico is a SWAG for at least two reasons = (1) since we have nothing but SWAGS regarding how many illegal aliens actually cross the border into the U.S., we also have nothing but SWAGS regarding how many illegal aliens, if any, actually cross the border in the other direction, and (2) the implicit assumption of the news reporting that the loss of jobs by illegal aliens means that they are returning to Mexico is itself a SWAG based on the assumption that an unemployed illegal alien is better off in Mexico than on American welfare for which false ID’s make qualification mere child’s play.

Question 8

How was the cost of covering the additional 32 million American citizens financed, or is this merely an example of the budgetary tactic of "growing the beast” and trying to force your political opponents to help finance the beast's growth?

Answer 8

It wasn’t financed.

The Congressional Budget Office rated it as “deficit neutral” on the assumptions (1) that half of the admitted cost could be taken from Medicare which is already facing bankruptcy and therefore won’t happen, (2) that half of the admitted cost could be dumped on the states in the form of an increased Medicaid mandate when the states are already bankrupt, and (3) that most of the non-admitted cost in the form of higher premiums for health insurance now required to be purchased by healthy young people is constitutional which is under challenge in litigation brought against the U.S. Government by 27 states.

This is a classic example of “growing the beast” and expecting political opponents, after the fact, to cooperate in finding real financing.

Question 9

How much is the national debt and who holds it?

Answer 9

Per the U.S. Treasury, the national debt is currently (1/26/2011) –

$9,415 billion – held by the public (including foreigners)
$4,645 billion – held by the U.S. government itself *
$14,060 billion – total

* The $4.6 trillion held by the U.S. government is held by the so-called Social Security Trust Fund, the so-called Medicare Trust Fund, and the Federal Reserve which has been printing U.S. currency to purchase and hold previously-outstanding U.S. governmental debt

Of the $9.4 trillion held by the public including foreigners, approximately $1 trillion is held by the Chinese government, approx. $1 trillion by the Japanese government, and approx. $1 trillion by oil-producing countries as a group.

Question 10

Aren't U.S. dollars nothing more than zero-coupon long-term debt obligations?

Answer 10

Of course!!!

Question 11

How much has the amount of zero-coupon long-term debt obligations of the U.S. government (aka US dollars) grown since the economic downturn?

Answer 11

The U.S. dollar “monetary base” has tripled since the economic downturn to well over $2 trillion.

Editorial note:

There is often considerable confusion over the different measures of the “money supply” which economists consider vis-à-vis economic policy. Commonly six different measures may, or may not, take into account demand deposits, savings deposits, time deposits, money-market funds, etc.

However, none of these additional items are legal obligations of the U.S. government. Only the “monetary base” (the actual U.S. currency in circulation or in bank vaults) is a legal obligation of the U.S. government.

Question 12

Is the amount of zero-coupon long-term debt obligations (aka US dollars) even included in the total outstanding debt of the US government?

Answer 12

Of course not!!!

Even though such a failure to report such a legal obligation by a U.S. corporation would be a felony!!!

While we are discussing undisclosed legal obligations, U.S. politicians are fond of providing U.S. governmental guarantees – such as guaranteeing deposits in banks and savings & loan institutions, pensions, student loans, mortgages through Fannie Mae and Freddie Mac, etc., etc.

The U.S. government’s failure to take into account in its annual budgets the anticipated future costs of these guarantees, if the U.S. government were a U.S. corporation, would also be a felony!!!

Question 13

Why is it worthwhile to think of US dollars as zero-coupon long-term debt obligations? Are there current and/or historical examples of countries whose economies do/did not run on the country's own currency?

Answer 13

It is worthwhile because that is the way holders of formal U.S. Government debt obligations and the foreign holders of U.S. currency evaluate the situation!!! (They will also take into account U.S. governmental guarantees, to the extent they can be estimated.)

The most famous historical examples were Hitler’s Germany which ran on the British Pound Sterling after the German Reichmark became worthless, and post-Glasnost Russia which de facto ran on the U.S. dollar.

Currently, 17 of the 27 members of the European Union have adopted the Euro and, therefore, the economies of those 17 countries do not run on their own national currency (of the 10 members of the European Union which have not adopted the Euro, the most notable is the United Kingdom which has retained the Pound Sterling).

There are also many small countries, both currently and historically, which do not have their own currencies but run on, for example, the U.S. dollar or the British Pound Sterling.

Question 14

If a country is forced to operate on a foreign currency, has it surrendered most of its ability to combat economic downturns and unemployment?

Answer 14

Of course!!!

So-called fiscal (or Keynesian) policy calls for governmental budgetary deficits during downturns to combat unemployment and restore the economy to full potential.

Historically most fiscal-stimulation has taken the form of increased spending financed by increased debt. Though, like the extension for 2 years of the Bush-era tax cuts accompanied by a new reduction of payroll taxes, the stimulation can take the form of maintaining spending while reducing tax revenue – which must also be financed by borrowing.

Once a country loses its credit rating, it has lost this ability to influence the rate of economic activity.

In addition, there are tremendous short-term traumas as the country’s currency becomes worthless and the country is forced to begin to operate on a foreign currency – particularly as it is forced to export goods to acquire sufficient foreign currency on which to operate.

Question 15

Why did Greece go bankrupt? Ireland? Portugal?

Answer 15

Spain needs to be added to the list since this quiz was formulated last weekend!!!

And it is probably best to begin with Iceland which was the first recent example.

Iceland banks recently lost 7 times the amount of the country’s Gross Domestic Product in a single year. However, the government let the banks fail and foreign creditors are accepting approximately 40 cents on the dollar to be paid over a considerable period of time. Iceland’s economy has purred along without seeming to miss a beat!!!

Greece is radically different from all the other country bankruptcies because it has experienced massive tax evasion in recent years and its public sector is so large (40% with lavish salaries and pensions). If it still had its own currency, the solution would be to dramatically devalue it, so that public salaries and pensions come back into line with European standards, and the government could then begin to make headway on the massive amount of tax evasion. Since that is not possible with the Euro, Greece looks like an insoluble basket case.

Ireland experienced a huge real-estate bubble and its banks lost more than 100% of the country’s Gross Domestic Product in a single year. However, the Irish government made the mistake of trying to solve its banking crisis by guaranteeing the banks’ debt. That brought down the Irish government – both economically (since it can’t make good on its guarantees) and politically (the Prime Minister resigned this past week and new elections are now scheduled).

Portugal during the last 2 years, Spain with its announcement this past week, and Italy looming on the horizon – all have horrendous levels of debt and their banks face bankruptcy.

Spain, so far, has resisted guaranteeing the debt of its banks, so it may be able to weather the storm in the same fashion as Iceland.

**********

In thinking about U.S. debt levels, it should be chilling to realize that the horrendous debt levels experienced in Iceland-Ireland-Portugal-Spain were bank debt and the government faced the fateful decision whether to guarantee the bank debt -- in the case of the United States, the horrendous debt level on which the world is focusing is the debt level of the U.S. government itself rather than merely the debt level of its banks.

Question 16

Why, in each case, did the other members of the European Union even think of bailing out the culprits? (After all, none of the three bankruptcies has any more direct bearing on the Euro than would the bankruptcies of three British companies that happen to use the British Pound Sterling as their functional currency.)

Answer 16

The other E.U. member countries that would be in a position to help are primarily Germany and, to some extent, France.

The only reason why they would give a second thought to bailing out the culprits is that German banks (and to some extent, French banks) have made huge improvident loans to the culprits and are holding out their tin cups in every direction. They, of course, have considerable influence with their respective national governments.

So far, Angela Merkel (German Chancellor) has largely followed the Iceland/Spain example and refused to bail out either the German banks or the culprits to whom they lent.

Question 17

If U.S. interest rates increase from essentially 0% to 10%, as could easily happen if U.S. governmental debt achieves junk-bond status, how much of the U.S. Gross Domestic Product (“GDP”) would have to be taxed away in order merely to pay the interest on the existing U.S. national debt?

Answer 17

At the moment, the U.S. national debt and U.S. Gross Domestic Product are virtually equal – about $14 trillion.

Accordingly, an increase in the interest rate on the U.S. national debt of essentially 0% to 10% would require raising federal tax revenue by 10% of GDP.

Since the federal budget is not much more than 20% of GDP, this would mean an increase of every U.S. tax of 50% (assuming all taxes were increased proportionately).

However, a mere 10% interest rate for junk bonds is extremely low!!!

A more-realistic 20% interest rate on our national debt would mean that all federal taxes would have to be doubled!!!

Question 18

Is the Democratic Party likely to lose control of the U.S. Senate in the 2012 elections as a result of these issues? Was the DP likely to lose control anyway?

Answer 18

Yes and Yes.

With regard to whether the DP was likely to lose control anyway –

(1) The DP currently has only 51 seats, plus two independents who caucus with the Democrats. Accordingly, a loss of only 4 seats produces Republican control of the Senate.

(2) Of the 33 Senate seats that are scheduled for regular election in 2012, 23 are currently held by Democrats and only 10 by Republicans. Of the 23 Democratic seats –

only 7 = Cal, Conn, Mich, NY, RI, VT and Wash would appear to be “slam dunks”

and 16 = Del, Fla, Hawaii (surprisingly according to experts), MD, Minn, Missouri, Mont, Neb, NJ, NM, ND, Ohio, Penn, Va, W Va and Wis could all be seriously contested, even though some involve incumbents who might have been safe but for economic/budgetary issues.

Question 19

What was the real aim of the Congressional Republicans in engineering the 1/20/2011 Congressional vote to task four committees starting with House Ways & Means to examine how Health-Care Reform was financed (or not) and whether the "cost curve" for health care was bent (or not)?

Answer 19

The real aim was shaking down the health-care lobbyists who lavished campaign contributions during the last 2 years on Democratic members, especially Democratic chairs, of the Senate/House committees with jurisdiction over pieces of the 2010 Health Care legislation, to lavish campaign contributions during the next two years on the Republican members, especially the Republican chairs, of the four House committees that were tasked by the resolution passed by the House of Representatives on 1/10/2011 to draft a substitute health-care bill designed to replace the 2010 legislation.

In this regard, please see the materials on our bulletin board for our 14 February 2008 meeting 24 months ago on the subject of “The Best Government Money Can Buy: Bribery and Extortion” – focusing on “Homo Politicus” by Washington Post Columnist Dana Milbank and “The Squandering of America: How The Failure Of Our Politics Undermines Our Prosperity” by Robert Kuttner (among other things a Columnist for Business Week for 20 years). The central thesis of both books was that everything that happens in Washington is dictated by campaign contributions and that campaign contributions are either de facto bribes or, in some cases, extortion by the pols of the lobbyists.

Question 20

What was the social status of doctors in the old Soviet Union and how did their average income compare to that of teachers? What was the quality of medical practice in the old Soviet Union?

Answer 20

Being a doctor in the old Soviet Union was considered women’s work and their average income was a fraction of that of teachers.

However, the quality of medical practice was very high, particularly since the Soviet Union had 25 million World War II dead and almost an equivalent number of wounded – not to mention all the illnesses caused by malnutrition, etc. That much medical experience led to a very high degree of medical knowledge and a very high standard of medical practice.

Indeed, my own daughter had a right femur growing from birth at less than the normal rate with a 4.25-inch discrepancy at maturity predicted. For a young person, stretching the bone is required because unlike an old person who won’t live much longer and, therefore, for whom, for example, an artificial hip might be used, the body cannot detect germs in the artificial material so any subsequent illness means being continually re-infected after recovery by germs from the artificial material (which is the overwhelming reason, for example, for artificial-hip replacements rather than mechanical failure as most people seem to assume). Soviet technology involves breaking the bone and aligning the fragments with an external frame to which are attached many small rods that puncture the skin and muscle to become embedded in the bone fragments. With the external frame, the bone fragments can be pulled apart 0.25 mm four times/day, which is the rate at which new bone material is formed. For 4.25 inches, 109 days of stretching followed by two months of setting and then many months of rehab are required. When my daughter required the procedure 20 years ago, only 4-5 places in the United States performed it. Columbia-Presbyterian botched the job after the 109 days of stretching and my daughter had to suffer 12 months in a body cast just to salvage the leg. Yale-New Haven then gave it a second shot and botched the job again after 109 days of stretching, though they were able to salvage about 3.00 inches. Yale-New Haven then tried to cover up its malpractice (for which we did not sue) by proposing surgery that would have ruined Hilary’s knee. Cornell Medical Center was willing to testify that the Yale-New Haven proposal comprised malpractice, but I was satisfied with convincing Hilary not to permit her knee to be ruined. With respect to the remaining 1.25-inch discrepancy, Hilary decided she just wanted to get on with her life and an observer today probably won’t notice anything unless s/he already knows about the discrepancy.

My unvarnished view of surgeons = they have much the same skill set as a plumber but seldom the same level of competence.

However, I recognize that even though the U.S. ranks rather poorly in terms of infant mortality, life expectancy, etc., such measurements are more an indication of our national failure to provide adequate medical care for our permanent underclass than an indication of the quality of medical practice for those Americans who enjoy it.

And that our medical research (particularly through NIH funding and de facto funding of the world’s research by the pharmaceutical companies by permitting them to charge all of their R & D to the U.S. market courtesy of the price-levels involved in the second President Bush’s extension of Medicare to cover drugs) is the best in the world.

Nonetheless, the percentage of GDP going to medical expenditures can be reduced by (1) bringing to heel medical malpractice litigation (for which the Democratic Party has no stomach because the malpractice bar are staunch campaign contributors to the DP), and (2) if either party has the stomach, going to a single-payer system that controls costs and values the medical profession the same way that the old Soviet Union did.

[UtahOwl]

Dear John,
RE your first suggestion for reducing our medical costs ( curbing medical malpractice costs): it is my understanding that at least one state, Texas, has had a cap on medical malpractice awards for at least 5 yrs. And during that time, the healthcare costs in Texas, particularly in the MD specialist-rich metropolitan areas of Houston and Dallas, have continued on their merry growth curve ( see Dartmouth Healthcare Atlas for the latter data). I also think I've heard estimates of something like 5% of healthcare costs due to malpractice costs ( I'm assuming this is only the cost of malpractice insurance). I'm willing to double this to account for reflexive "defensive medicine" practices of MDs who are too lazy to educate their patients and/or to construct an appropriate staged set of tests to diagnose. This still doesn't get us nearly where we need to be in controlling healthcare costs.