Post Office: Shrink It!

The US Postal Service recently announced a $15.9 billion loss for fiscal year 2012. Meanwhile, FedEx had an operating income of just over $3 billion and net income of about $2 billion, and UPS is on track to be slightly more profitable.

I'm constantly seeing ads on TV and elsewhere for shipping services via USPS. But clearly they're losing in the marketplace for shipping. And that's fine, in a way. We don't really need the USPS to make money. But it would be nice if it lost less, and there's a really simple way to do this: cut it down to size.

Do we need a government-run postal service that ships packages of all shapes and sizes to every zip code in the country? We already have privately-run companies that do this just fine and do it profitably. I get that for social cohesion it's useful to have a postal service for letters (although that's less and less obvious given the fact that even email, which has been killing postal mail for years now, seems antiquated in these days of Facebook and Twitter).

The USPS needs to do what any company deep in the red does: cut back to its core competency. This is going to be very hard to do, though, because it can be endlessly subsidized by the taxpayers. It won't have to go through bankruptcy reorganization. It's not even a "public-private partnership", a la FNMA.

This would be a perfect time to shrink the USPS, though: its raison d'etre is going away, it's losing money, and we as a nation are going broke. But I don't imagine for a second that it'll happen, for all the usual reasons: too few people care too little about shrinking it, and the few who really don't care a lot. Repeat this a few hundred times and you have a trillion dollars in annual deficit.

Saving Entitlements

Republicans are making a tactical mistake by calling their efforts to bring spending under control anything other than "saving entitlements". For decades they have been successfully depicted as wanting to throw Granny out on the street, so saying they want to "cut" anything, even though we have to, is not going to win the critical independent vote. The only way this works is if the Republicans can successfully counterattack with the message that the Democrats are actually out to destroy entitlement programs and Republicans are working to save them.

The argument is actually pretty simple. Under the Democrat "plan" - i.e., pretend our budget is fine as long as possible - entitlements will eventually become such a burden that they really will become unsustainable. They will crowd out other government spending; we will see rising interest rates, a devalued dollar, and the crowding out of private investment. The resulting backlash will likely be draconian: people who were "promised" entitlements and paid in for most of their lives will see their benefits cut to the bone, because there really will be no money. This is the future if the Democrats get their way.

As a conservative, I'm fine with saying that entitlements should be cut. But frankly, I don't count in this calculus. Independents will decide the 2012 election, as they have every election for the past 20+ years. And they are suspectible to the Granny-on-the-street argument. The Republicans must argue - and they have the benefit of the facts on their side, so all they have to do is stick to their guns on this - that Granny will be much safer with them than with the Democrats. Up to this point I don't think they've done this.

Bogus Recovery

I feel sort of bad posting this, because I've been so awfully slow at posting the past three months. Sorry, everyone! In my defense, I've started a new job, and I'm very busy. Anyhow, having said that, all I have here is a repost from another blog. Not good news.

Painting Yourself Into a Corner

There are riots in Brussels today as Europeans protest austerity measures by the EU and its national governments. Their "argument", such as it is, might seem reasonable: that the recession was caused by banks pushing the envelope, not by those citizens being affected by austerity, so somehow the austerity measures aren't "fair".

But how do they think governments got so flush in the first place? It was certainly due, at least in part, to a booming economy caused by banks pushing the envelope. During boom times, tax revenues is up. But you have to expect a bust eventually (unless you believed that late '90s bunk about the "end of the business cycle"). Governments didn't save up for the rainy days to come: not just European ones; the U.S. and certain states (I'm looking at you, New Jersey, and don't think I haven't noticed you, California) are just as guilty.

So here's the conundrum. Governments get rich because of an unsustainable bubble they tacitly encouraged. Social spending grew to match revenues. When the bubble burst, tax revenue fell and the increased spending suddenly blew massive holes in budgets worldwide. So austerity measures were necessary to close the holes. Now the people who benefitted from increased spending are pissed: their lollipops are being taken away. But what's the alternative? Current budgets are unsustainable, so where's the revenue to come from? You could raise taxes, but that risks killing the geese that lay the golden eggs.

You could target banks, extract as much tax revenue from them as possible, and enforce regulations and laws to prevent future bubbles. But that runs the same risk: if those banks run out of innovative options, tax revenue from them will wither.

What's happened is that we've painted ourselves into a corner. The only way to get out is to take that first unpleasant step onto the wet paint.

Balancing the Budget

The Committee for a Responsible Federal Budget has created a useful budget simulation in which you get the opportunity to make the "hard choices" necessary to stabilize total U.S. debt at 60% of GDP by 2018. It's an interesting game. Here's how I did it:

Overall

• Reduce troops in Iraq and Afghanistan to 60,000 by 2015
• Let Bush tax cuts expire, except that lower-rate cuts are only raised by half (this was forced; I originally tried it keeping all the tax cuts, but the numbers just didn't work out)

Defense & Diplomacy

• Cut foreign economic aid in half

Domestic Social & Economic Spending

• Cancel TARP
• Freeze unemployment benefits at 2009 levels
• Cut TANF
• Cut federal funding of K-12 education by 25%
• Eliminate New Markets Tax Credit
• Cut federal funding of school breakfast programs

Social Security

• Raise retirement age to 68
• Reduce benefits by 30% (over next 70 years)
• Use alternate measure of inflation for COLAs
• Reduce spousal benefits by 33%
• Increase Years Used to Calculate Benefits (from 35 to 40)
• Include all New State and Local Workers

Health Care

• Repeal ObamaCare but keep the Medicare/Medicaid Cuts
• Raise Medicare Premiums to 35% of Costs
• Enact Medical Malpractice Reform
• Increase Medicare Retirement Age to 67
• Reduce Medicaid Funding Matches to States

Other Spending

• Cut Federal Workforce by 5%
• Reduce Farm Subsidies
• Cut Earmarks in Half

Tax Expenditures

• Convert Mortgage Interest Deduction to a 20% Credit
• Eliminate Biofuels Subsidies
• Replace Employer Health Care Exclusion with a Flat Credit

In general, my philosophy is to cut the size of government where possible, and keep taxes low where possible. I wasn't able to cut taxes as much as I would have liked, but no doubt that's because of non-discretionary spending.

A Modest Proposal

According to the New York Times, the Greek government was essentially betting on its own insolvency.

They only made a measly 35 million euros on the deal, doing little to offset their billions of debt. But taken to its logical extreme, this strategy offers a brilliantly postmodern solution to debt problems. It's the perfect hedge! Worried that your government might be running up too much debt? No problem: just make a bet that you'll go bankrupt. If you lose the bet, then you didn't go bankrupt. If you win, then you use the proceeds to pay off your debts.

To be sure, there's a slight timing problem here. If you win, then you already went bankrupt. Maybe you can just "deem" everything back to the status quo ante and call it even.

If only AIG had thought to buy their own CDSs (or sell them - I can never keep this straight), we might have avoided the whole financial crisis!

The Ryan Plan: A Wedge Issue?

Kos contributor McJoan thinks the Ryan budget "roadmap" is a "wedge issue" that the House Dems will use to beat up on the GOP.

Er, really? Here's the so-called plan:

A Democratic leadership source told TPMDC they are considering options for turning the Ryan plan into a bill. Once that's done the Democrats would put the bill on the floor, forcing Republicans to vote for or against a plan they don't want to talk about.

So the plan is for a Democrat to craft a bill that reifies the Ryan plan, in the hope of embarrassing Republicans. Wouldn't the sheer hypocrisy of such a move be so obvious as to have exactly the opposite effect? Which Democrat is willing to fall on his sword in this manner? "Hello, senior citizens. I'm running for re-election in a tough year for Democrats and I've just introduced a bill to cut your most cherished benefits. But don't worry! It's just a ploy. I don't really mean it." Yeah... OK.

The conservative side of me would welcome this sort of discussion. The Ryan plan doesn't cut Social Security or Medicare for anyone under 55, so the only way senior citizens would oppose it (out of self-interest) would be if other Democrats resorted to their usual trick of mischaracterizing their own bill. I'm used to them painting their own bills in brighter colors and the GOP's in darker tones (and the GOP does the same thing), but it's innovative to introduce a bill and then distort it to make it look worse. Are the Democrats really so desperate that they would try a plan so fraught with the possibility of backfiring?

McJoan continues:

...the major difference here is that the Dems had very targeted cuts aimed at whittling away at inefficiencies in Medicare, while Ryan's budget "just goes after Medicare with a chain saw."

Well, not really. The major difference here is that the Dem plan had cuts that would affect existing Medicare recipients (and also cuts, such as to doctors' pay, that everyone knew wouldn't really happen), while the Ryan plan affects people who have less at stake. But hey, Democrats, don't let me talk you out of it. Give it a shot.