Saturday, March 2, 2013

Real Time With Bill Maher: Counterpoints (3/1/13)

Good show, although the mid-show interview guest really sucked up valuable time from a moderately strong panel. Let's get to the topics covered and set the record straight:

1. Gavin Newsom says sequestration cuts may only amount to 2.5% of the Federal budget, but it is devastating to discretionary spending:

Unfortunately Newsom got the figure wrong. The sequestration cuts scheduled for the current fiscal year total 46 billion dollars, which represents only 1.3% of fiscal 2013. It's split mostly down the middle between non-defense discretionary spending and defense spending, slightly favoring the military. About 25 billion gets taken out of the Pentagon, which represents about a 3% trim across the board. The rest hits the Federal cabinets and agencies that most people view as actual "government" (rather than just programs that shuffle transfer payments from one constituency to another) and represents about a 5% cut across the board.

Only in government is a 1.3% spending cut viewed as a political disaster. In the private sector, managers will ruthlessly cut their departments and payroll down to the bone. And for the most part, they get away with it because it turns out that there are a lot of employees who are nothing but dead weight. As a personal anecdote, our department was tasked with finding around 5% in savings in the overall operational budget. We got rid of things like bagel Thursdays and froze hiring. There was some grumbling, but President Obama and the Democrats are trying to exaggerate the effects of sequestration.

I get that government bureaucracies are much less nimble than their private sector counterparts, but the government could easily shed a lot of its workforce and its redundant programs and the country would be no worse off for it. On the contrary, I think getting rid of unneeded government is a net plus because those dollars and workers then go back into the private sector. The opportunity cost of government is at an all time high right now. Policy wonks need to stop looking at the budget numbers and start looking at the regulations that make it impossible for top level bureaucrats to fire nonproductive employees or shuttering redundant and useless programs.

2. Bill Maher says Republicans can't chide Obama for deficit spending when Bush and Reagan ran up the national debt:

It's true that the national debt expanded greatly under Reagan. During the Reagan Administration, the national debt tripled from around .9 billion to about 2.7 trillion. What gets lost in translation is that a 300% increase in the national debt is misleading because what really matters is the debt to GDP ratio. During the same time, the country's GDP increased from 3.1 trillion to 5.5 trillion. When you look at the increase in relative debt, from 29% to 49%, it's only a 69% increase over the course of the Reagan Administration.

Granted, 69% still seems like a huge number. But it's a much better number than 300%. And it also needs to be viewed in context. Going to about 50% debt to GDP ratio isn't too bad. It's a healthy number when you look at Italy (120%), France (86%), Japan (an astounding 220%!), Germany (82%), the United Kingdom (86%), and the US' current ratio (105%).

In short, when the times change, the numbers take on different meaning. It's okay for a country to deficit spend when its overall debt levels are low. But it becomes increasingly dangerous when debt levels are already high. When you're playing football, down and distance drastically alter the options in your playbook. No coach would call a run on 4th and 15. But that's what we're doing now.

3. Bill Maher wants to cut the defense budget:

It seems like every other show, Maher is constantly ranting about the huge defense budget the US has. And while I agree that there is an extraordinary amount of waste in the budget, our military readiness will erode if we don't match cuts with reforms in the procurement and investment operations of our armed forces. During peacetime, we have 435 commanders in chief of the budget, and everybody wants military spending in their district. That stretches the procurement process in terms of both time and money. There are bogus regulations that make it impossible for the military's logisticians to efficiently utilize the resources given to them.

I would be fine with cuts in the defense budget if we could cut Congress out of the spending process. Otherwise, I don't like the fact that our military is shouldering a higher percentage of the sequestration cuts than the rest of the government. We could have halved the Social Security cost of living adjustment for 1 year and paid for the defense sequestration cuts.

4. Everybody wants to legalize marijuana:

I thought it was extremely arrogant and self-serving of Gavin Newsom for chiding politicians for not telling the public their private views on the Controlled Substances Act. It's so much easier for the former Mayor of San Francisco and the current Lieutenant Governor of California to come out publicly in favor of marijuana legalization than it is for a Senator like Lindsey Graham to come out for comprehensive immigration reform in a state like South Carolina.

I think the odds are about 50/50 for marijuana to get decriminalized at the Federal level within 5 years. And I hope it gets legalized at the state level. This is a political winner and as more and more old people die off, it'll become politically feasible to put an end to the War on Drugs.

5. Steve Schmidt hates the Republicans who identify with CPAC:

 His rant about the out-of-touch angry conservatives at CPAC just nailed it. I have so much frustration over this element of the GOP, which has made it impossible for libertarians like me to call the GOP home. The fact is there are a ton of good things in the GOP platform. Chris Christie is popular within his home state because he takes the GOP's economic planks and leaves the social ones. It's time we shunted the prejudiced social conservatives to the side of the party or completely out of it.

5. Toyota Technicals are reliable:

Absolutely brilliant. It speaks to the prowess and incredible reliability of Japanese engineering. Although it also helps African warlords. But hey, you can't blame Toyota for putting out a quality product.

6. Snoop Dog (I refuse to call him Snoop Lion) got old.


  1. Erm, record low interest rates indicate that the opportunity cost of government is at an all time low. So once again your economic model continues to baffle me.

    Second, the fact that Reagan ran up his massive deficit while the U.S. was experiencing good growth makes it even worse! The large deficits of the past few years are mostly a cyclical phenomenon. A result of depressed output lowering revenue and more people falling into our social safety net. Except for very early on in his Presidency, the same cannot be said for Reagan.

    1. Currently. The weighted average maturity of US debt is currently at 5.5 years and the 5 year note is currently yielding .744%, which indicates a negative real return on investment.

      When the latest edition of the Federal Reserve's flow of funds report comes out on March 7, I'll go through the figures and see how much undergirding the Fed supplied to the bond market last year.

    2. Don't bother. Just read the speech Bernanke gave on Friday.

  2. "No coach would call a run on 4th and 15. But that's what we're doing now."

    And the invisible bond vigilantes continue their invisible attack...

    1. The fundamental problem with having a long position like mine is that it only takes a few months to plunge a country into crisis. Markets are satisfied for now. But nobody can tell us with any reasonable degree of certainty what things will look like 5 years from now.