The Ugly Ain’t Over, Part III

Consumers account for roughly 70% of the U.S. economy, and their spending is the driving force behind economic growth. Over the past three business cycles, consumers increased their buying power through borrowing: running up credit cards, purchasing automobiles and houses on easier credit terms, and tapping their home equity. This trend was particularly pronounced during the Bush II expansion, a period in which incomes stagnated but consumers, buoyed by the rising value of their houses, borrowed more than ever.

In the United States, consumer debt grew from about 60% of GDP in 1990 to 96% of GDP by 2008, according to a McKinsey Global Institute report. A simple arithmetical calculation suggests that debt accumulation added an average of roughly 1.4% per year to economic growth over that period.

(For those generation war-mongers who would flagellate U.S. Baby Boomers for throwing prudence, frugality and thrift to the winds, it is worth noting that the leveraging of consumer debt was widespread throughout the U.S., Canada, Europe and South Korea as well. The debt accumulation coincided with a period of low and declining interest rates that reduced the cost of borrowing. McKinsey did not address why interest rates were so low, but the trend clearly seems connected to the “global capital glut” noted by Federal Reserve Chairman Ben Bernanke in a Sept. 11, 2009, speech to the German Bundesbank in Berlin.)

Not only will the U.S. economy lose the propellant of consumers getting into hock up to their eyeballs and spending with wild abandon, consumers will actually cut back their borrowing. In economist-speak, they will “de-leverage.” Although consumers have increased their saving in the past year or two (no mean accomplishment when joblessness and underemployment approach 18% of the workforce), they still have a lot of de-leveraging to go.

The chart to the left, based on Federal Reserve Board data, shows that service on mortgages, credit cards and other forms of household debt peaked at 17.5% of after-tax income in the third quarter of 2007 before falling to 16.4% two years later. That implies that consumers have accomplished only one-third of the de-leveraging needed to get back to the 14.0% indebtedness experienced as recently as 1993. (Click on image to view details.)

Economists debate whether the “new frugality” represents a fundamental shift in American values, or if consumers are just making a virtue of necessity as financial institutions curb their lending for their own reasons. Evidence suggests that a little of both is occurring. Boomers have awakened to the fact that they will retire soon and that they have done too little to prepare for life after the paycheck. Although some Boomers will put their faith in God or the U.S. government, others are trying to spend less and save more.

Similarly, there is evidence that the U.S. population generally has come to see the pitfalls in a life dedicated to the accumulation of material possessions and status symbols. As part of the nation’s greening consciousness, people are increasingly aware that buying more “stuff” sends economic and environmental ripple effects across the globe, from the decimation of rain forests to the emission of greenhouse gases. In a parallel trend, market research tells us that people are more likely to say that the most important priorities in life are friends and family rather than earning more money or being famous. It is unknowable how long this cultural shift will last, but when reinforced by badly burned financial institutions imposing stricter lending standards, it’s a good bet that consumer spending will remain depressed for years.

By simply not borrowing more, consumers will slow economic growth by 1.4% per year compared to the U.S.’s historic performance since 1990. If newly frugal consumers continue de-leveraging to levels of indebtedness prevailing 20 years ago, the unwinding could steal an additional 1.0% of annual economic growth over the next 20. Absent a new source of dynamism, a potential combined loss of 2.4% in the annual economic growth rate suggests that economic performance could be sickly for the next two decades.

So, how does this quick analysis inform our understanding of the debacle, known as Boomergeddon, to come? First, slow consumer growth must be viewed in the context of the massive overhang of bad commercial and residential real estate debt (see “The Ugly Ain’t Over Yet, Not by a Longshot” and “The Ugly Ain’t Over, Part II“), which will ravage bank balance sheets and crimp lending. If economic growth is slower and of shorter duration than projected by the Obama administration, deficits will be considerably higher than the $9 trillion between 2010 and 2020 also forecast by the Obama administration.

On the surface, the Team Obama’s 10-year budget forecast seems fairly cautious. This year, 2010, will resume economic growth at a tepid rate, but the expansion will gain momentum over the next few years and then settle into a slow-but-steady mode for the rest of the decade. However, a comparison with previous business cycles shows that the O Team is predicating its optimistic budget forecast on the strongest, longest economic cycle of the past 40 years. (Click on image to view details.)

First, compare the Obama forecast for the first four years of the business cycle: Under an Obama presidency, the U.S. will outperform the first four years of the Clinton and Bush II business cycles, lagging only the turbo-charged expansion of the Reagan years. Moving into the middle years of the business cycle, Obama expects U.S. economic performance to trail Reagan and Clinton, but only by a modest margin. Then, in the final stages of the expansion, Obama expects the economy to keep to going — the Energizer Bunny of the economic world. While the Bush II’s business cycle lasted only eight years, Reagan/Bush’s nine and Clinton’s ten, Obama projects economic growth into the indefinite future in a state of never-ending bliss.

Needless to say, not everyone expects to see such a strong business cycle. Some, like U.S. Chamber of Commerce President Tom Donohue, have warned of a double-dip recession brought on by a wave of new taxes, regulations and mandates. One need not heed Donohue, however, to think that the current economic expansion will be weak — for reasons that predate Obama’s elevation to the presidency and have nothing to do with his political agenda. Let me emphasize: Republicans could win control of Congress this fall, Obama could lose re-election in 2012, a new team could enact a new economic policy, and the political pyrotechnics would not change the underlying economic trends. Obama’s sin is not in creating our current economic dilemma but in failing to acknowledge the effect it will have on the economy, deficits and the national debt over the decade ahead.

Boomergeddon is coming, baby. Deficits are gaining momentum, with entitlements and interest payments on the debt spinning out of control. Within a few years, the chain reaction will be unstoppable.


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32 responses to “The Ugly Ain’t Over, Part III”

  1. Larry G Avatar

    I want to thank Jim for his usual excellent, thought provoking commentary…

    now we return to our regular programming:

    " Obama's sin is not in creating our current economic dilemma but in failing to acknowledge the effect it will have on the economy, deficits and the national debt over the decade ahead."

    " President Obama noted that in the next few years, according to a study by the Business Roundtable, “The cost per person for health insurance will rise by almost $18,000. That’s a huge amount of money. That’s going to mean lower salaries and higher unemployment, lower profits and higher rolls of uninsured. It is no exaggeration to say, that unless we act, these costs will devastate the US economy.”

    " President Barack Obama called for entitlement reform as the only way to attain fiscal stability among rising debt and deficits, in a speech at Georgetown University on Tuesday. But as a caveat, he said health care reform across the board must come first.

    “This structural gap in our budget, between the amount of money coming in and the amount going out, will only get worse as baby boomers age, and will in fact lead us down an unsustainable path,” "

    We clearly have two views of Obama here…..

    Saying that Obama does not recognize the problem in the face of his almost weekly warnings about the deficit… leads me to believe that it's not what Obama says – it's what some of us believe… regardless of what he says…..

    right?

    too bad we did not have that level of clairvoyance from these same folks when Cheney was saying "deficits don't matter".

    I scratch my head on this … on one hand, Obama and virtually all of his economic advisors have explicitly warned from the get go about the deficit and entitlement threat if not addressed.

    Think back 8 years ago about what warnings we received about this looming disaster….

    did all of this actually happen in 8 years or was it a time bomb even when we supposedly had a surplus?

    Didn't we know 8 years ago that we were headed for this problem?

    So.. we took no steps in 8 years to deal with it.. and now that we have an administration that has very forthrightly admitted the problem – we have others who say otherwise.. that Obama is killing the country.

    I scratch my head here….

    I cannot figure out why we have the very diverse views of the same reality but I do admit..it's fundamental to the angst.

  2. James A. Bacon Avatar
    James A. Bacon

    Larry, you are correct in stating that Obama does acknowledge that the U.S. has an entitlement and deficit problem. What I meant to convey in my post is that his 10-year budget forecast of cumulative $9 trillion in deficits *under-states* the magnitude of the problem because it over-states economic growth (and the tax revenues the flow from it).

    I also agree with you that the Bush-Cheney team ignored the deficit issue and contributed mightily to the problem.

    But the fact that Bush-Cheney made the problem worse does not not absolve Obama from the fact that he, too, is making deficits worse. Moreover, thanks to health care "reform," Obama has hastened the day when the federal government can no longer pay its bills. (We all know that the claims the legislation will lower the deficit are a sham.) Obama has the habit of saying the responsible thing (deficits are killing us) for public consumption, but reverting to the same old spend-and-tax playbook of the Democratic Party when it comes to what he actually does.

    I am confident that you will disagree. We can argue endlessly over how effective his policies will prove to be, and resolve nothing. All we can do is keep score — track the performance versus the promises — and see who proves to be right and who proves to be wrong.

  3. Larry G Avatar

    well we disagree over what we "think" will happen… right?

    When did we "think" that Clinton's or Bush's projections were "lies"?

    can we agree that there is a difference in our trust level between the Presidents?

    People trusted Clinton and Bush, right? Even when the Bush folks were saying that we could have tax cuts while we spent like drunken sailors?

    That's the puzzle.

    Oh sure.. NOW they say that Bush WAS a disaster but how many of the folks right now who THINK/BELIEVE that Obama's policies WILL BE a disaster …said the same thing during the Bush tenure?

    I'm just trying to get my mind wrapped about this concept of "yeah Bush screwed up but we did not know he was going to screw up whereas in Obama's case we KNOW he IS going to screw up.

    Can you further explain?

    My theory is that there is a trust factor in play ..

    do you think if this was Bush's term and he had just done Medicare Part D entitlement and tax cuts with deficits as far as the eye could see at the same time that we would be saying the same?

  4. James A. Bacon Avatar
    James A. Bacon

    Larry, a lot of fiscal conservatives said at the time that Bush screwed up. Fiscal conservatives were very uneasy about expansion of the SCHIP program for kids as well as the creation of an entirely new entitlement in Medicare Part D. I also recall that both those programs received broad bipartisan support (even though some Dems said the Medicare Part D program did not go far enough, leaving a "doughnut hole" in coverage — since rectified by Obamacare).

    The difference between now and then is that deficits have gone from $400 million a year to $1.4 trillion a year, and even when the economy reaches full recovery, under Obama's own assumptions, budgets, deficits will never get below $700 billion. But they will reach $1 trillion a year by the end of the decade, even assuming continued economic growth.

    Larry, this isn't about Bush vs. Obama and partisan finger-pointing. We're talking about the future of the friggin' country and the sustainability of the social safety net that the vast majority of Americans support. Mark my words, the wheels are going to come off the bus within 17 years. (That's my official projection in my manuscript. The way things are going, Boomergeddon may come sooner than I thought.)

  5. Larry G Avatar

    Agree. It's about what to do about it and whether or not you believe that Obama has made it much worse or not despite his claims that his policies will address it and make it better.

    Which is pretty much what I though I heard from prior presidents….

    and we only know..after the fact.. how it turned out?

    so I'm still asking the same question here.

    why did we think it would turn out OK before when each president told us it would

    and now we do not?

    you're right.

    it's not about Dem or Republican or Conservative or liberal

    but it is about why our perspectives have changed

    why did we wait UNTIL a new President has taken over to THEN point to a problem that had existed for some time instead of do that.. one, two, 3 , 4 years prior?

    Are you saying that it is a PURE COINCIDENCE?

    Nope.

    You are saying that this particular President is doing a worse job than his predecessors but in doing that – I'm asking if you are using the same standard that you used before with prior Presidents when deciding if their policies would turn out to be good for the country or not.

    Why were we OK with prior Presidents performances AND their deficit projections and not with this one?

    Do we really know any more or less with this President if this policies will work or not?

    How many folks have already turned out to be wrong about his TARP, Stimulus, etc policies?

    GM has paid back the money…

    We're getting new regulation of the unregulated activities that threatened to ruin our economy.

    We've admitted that we have to rework our entitlements by cutting benefits/increasing premiums….

    It's not like this administration does not have a clue and that it does not have specific policies that it wants to follow.

    Nope.

    They have a plan.

    People disagree.

    does that make the plan wrong?

    how would you know?

    how would you have known with prior Presidents?

    it's a double standard guy..

    we do not trust this President.

    right?

  6. Anonymous Avatar
    Anonymous

    Interesting discussion, but

    "… even when the economy reaches full recovery .."

    seems oddly out of place.

    Mr. Bacons data indicates that 'the economy' will NEVER reach 'full recovery' because what was 'the economy' was based on debt and, as Professor Risse calls it "buring through Natural Capital."

    What humans need to be preparing for is 'the new economy' one that is more like what Risse calls "The New Bronze Age" with far fewer humans using far less resources per capita.

    Observer

  7. Anonymous Avatar
    Anonymous

    A few corrections:

    Interesting discussion, but

    "… even when the economy reaches full recovery .."

    seems oddly out of place.

    Mr. Bacons data indicates that 'the economy' will NEVER reach 'full recovery' because what was 'the economy' was based on debt and what Professor Risse calls "burning through Natural Capital."

    What humans need to be preparing for is 'the new economy.' One like what Risse calls "The New Bronze Age" with far fewer humans using far less resources per capita.

    Observer

  8. Gooze Views Avatar
    Gooze Views

    Jim,
    I'm not sure I'd put a lot of credence in Tom Donohue's business advocacy.
    He was dead set against Sarbanes Oxley, too, which brought a lot of badly needed transparency and order to financial reporting.
    Now he's worried about a consumer protection agency and badly needed regs to oversee such timebombs as derivatives, the lack of which was a major factor in this horrible recession.

    PG

  9. Anonymous Avatar
    Anonymous

    Larry, about the only Stimulus Bill activity I follow is broadband. It's been a disaster. (I think it's much more Congress' fault than Obama's.)

    The government understaffed; coddled its contractors (Booz Allen); unfairly preferred nonprofits without a track record; ignored reasonable evidence; and has been grossly late in funding. A number of smaller companies have been unable to get any private sector financing because the Wall Street types are waiting to see who the feds anoint as "winners" with two rounds of federal funding.

    So we have a situation where Stimulus is operating as an anti-stimulus. Instead of companies spending money to build networks and hire people, they are not. I've been dunning one such company to pay my clients, even as I wish I could help the company as we have long-terms leases.

    I've been involved with federal programs since 1984 under both Democrats and Republicans. Some have worked well; others not so well. But at least so far, broadband stimulus has been an utter disaster. I hope it gets better, as it had the potential to make a significant improvement in the economy.

    TMT

  10. Larry G Avatar

    well the stimulus I was referring to was the "shovel ready" highway projects and school money to help keep some jobs that would otherwise be lost.

    Basically the idea that the govt needed to get money into the economy because it was not going to come from the private sector.

    Many people disagreed with this strategy and in fact and point out that it only adds to the longer term deficit that must eventually be reconciled.

    The point is – as a policy – of this President – was it a bad policy or did it help stabilize the economy as intended?

    Was it, is it the prerogative of ANY administration as a potential response to the kinds of economic problems we have been challenged with?

    OR is this a wrong thing for ANY President – regardless of party affiliation or political leanings to advocate?

    My view is that it IS the prerogative of any President however I would accede to the legitimacy of opposite views – as long as they employ the same criteria for all Presidents and not use it selectively to approve or disapprove a particular President.

    If George Bush or Bill Clinton were in this particular point in time and chose the same strategy, would those who say the this President is wrong in his policy – say the same for other Presidents also?

  11. James A. Bacon Avatar
    James A. Bacon

    Observer, you are quite correct. I would change my wording from "even when the economy reaches full recovery" to "even when the economy reaches the apogee of the business cycle."

  12. Anonymous Avatar
    Anonymous

    We will most likely bomb ourselves intot he stone age before we reach a sustainable bronze age.

    The first event will lower consumption enough that the second won't be necessary.

    RH

  13. Anonymous Avatar
    Anonymous

    "We will most likely bomb ourselves into the stone age before we reach a sustainable bronze age.

    "The first event will lower consumption enough that the second won't be necessary."

    Precisely what Prof Risse suggests:

    If humans do not aim high for The New Bronze Age that optomizes safety and happiness rather than Business As Usual that glorifies consumption, the result will be a repeat of The Old Stone Age — if enough survive to call it an 'Age.'

    Observer

  14. Anonymous Avatar
    Anonymous

    How Looking Poor Became the New Status Symbol
    They dress like hoboes but spend like millionaires. Meet the poorgeoisie

    http://www.details.com/culture-trends/career-and-money/200905/how-looking-poor-became-the-new-status-symbol

    rh

  15. Anonymous Avatar
    Anonymous

    As I recall my history the bronze age cosisted of a bunch of city states warring with a bunch of other city states over their possesions.

    RH

  16. Anonymous Avatar
    Anonymous

    Larry, I don't know about Stimulus money for highways as to how well it worked or didn't. In principle, spending money on shovel ready projects for infrastructure would seem to have been a reasonable thing to do.

    I have a problem with spending Stimulus money to save the educratocracy. Case in point, Fairfax County Public Schools have a PR staff of 24. According to the Fairfax County Taxpayers Alliance, "Between 2000 and 2007, the Fairfax County Public Schools (FCPS) inflation-adjusted operating budget increased five times faster than enrollment (30% vs. 6%). Since 1975, the inflation-adjusted budget has increased eight times faster than enrollment (197% vs. 24%)."

    "According to the county website, between 2001 and 2009 private-sector raises in Fairfax County outpaced inflation by 7.3 percent. Over the same period, county raises outpaced inflation by 22 percent."

    "The Superintendent’s budget press release announced cuts totaling $100 million. It did not mention that spending for employee benefits is increasing by $100 million. In comparison, accommodating next year’s increase in student enrollment costs only $9 million."

    I don't think Fairfax County is alone by any means.

    TMT

  17. Larry G Avatar

    TMT – the stimulus covered a wide variety of activities which in various opinions might or might not be justifiable on a non-stimulus basis.

    A local road that was funded, for instance is little traveled compared to other much more congested roads but since it had been on the planning board forever ..it was "more" "shovel ready".

    Not the road nor the school you mentioned was the focus of the stimulus.

    The goal of the stimulus was to get money into the economy as quickly as possible to head off what was felt to be a death spiral.

    They did try hard to not have the money go for totally wasteful things but at the end of the day – their intended policy was not to insure that every dollar got spent only on the most critical project but that the dollars got into the economy quickly as possible.

    Some even called it helicopter money.

    Was the idea for the govt to print money and turn it loose in the economy a 'right' plan or an irresponsible plan that only made the deficit worse?

    I do not know but I do believe that there were educated and knowledgeable folks in the administration who, along with the President felt it was their duty to try to stop a depression from happening and this was the method chosen.

    I'd simply not agree with those that would characterize this as proof positive that Obama is a money spending Marxist bent on turning this country to socialism and that this is an example oh how he is ruining the country forever by adding to an unsustainable/unrecoverabe deficit.

    I take this administration at their word that in their view this was a needed action – just as I took the word of previous administrations on the actions they took – in the heat of events that necessitated a decisive.. timely response but did expect them to do something about the financial consequences downstream.

    So the point of the stimulus was not to send an army of accounting experts out into the hinterland to make sure that not a dime was wasted on bad projects at all.

    And if that is a criticism then all I can say is that it is misdirected because the policy was founded on the idea that unless the govt acted quickly to quickly infuse cash into the economy that we would be caught in a liquidity trap and likely end up with a depression.

    He might be wrong but not because he's a "Marxist".

  18. Anonymous Avatar
    Anonymous

    The private economy allso often invests in wasteful things. The survival rate for a new restaurant opening is something like one in seven.

    RH

  19. Anonymous Avatar
    Anonymous

    Today's headline, new home sales rise 27%.

    RH

  20. Anonymous Avatar
    Anonymous

    Thoughts on Earth Day from the American Enterprise Institute:

    Steven Hayward: One thing that should be clear from the experience of the last 40 years is that the most significant environmental problems are in the developing world, and that economic growth is the key—not the enemy—of environmental improvement. For example, not a single American or European city ranks among the World Bank’s top 50 most polluted cities in the world.

    Kenneth Green: If you care about the environment, you should observe this special day with a joyful spree of consumption, especially buying goods from people in poor countries. By engaging in trade with other countries, we help them grow wealthier, helping them to afford environmental protection, while we help ourselves by gaining access to goods and services that it might be impossible, or ruinously expensive, for us to manufacture ourselves.

    The sooner people grow wealthy, the sooner the environment will benefit. Now, get shopping!

    From Carp Diem

  21. Larry G Avatar

    I would not call the stimulus a wasteful investment any more or less than I'd call the multi-billions we spent on all sorts of hardware and human resources to look after this country's "defense" …."interests".

    How many DOD bases burn through billions of dollars paying soldiers to sweat 2 miles a day and oiling weapons and toothbrushing floor tiles in the latrine… AND pay for their healthcare as well as a place for their family to live and their family's health care.

    I read someone that we "invest" a huge amount of money in training a soldier then turn him lose after a few years… all trained up for a career in law enforcement….

    Econ 101 – guns or butter.

  22. Anonymous Avatar
    Anonymous

    Larry, you'll get no argument from me that we have lots of wasteful defense spending. National defense is clearly the prime function of the federal government, but that doesn't mean everything the feds do vis a vis defense makes sense or is in the public interest.

    But the remedy, IMO, is to work to drive out waste, fraud and abuse in the DoD, not to justify wasting more money in other government programs. I still support the idea of spending money on infrastructure to stimulate the economy. I would also agree that we cannot expect perfection — that not a single dollar is wasted.

    The problem continues to be the ability of lobbyists do their work outside the visibility of the public and the revolving door. Every American, including corporations, labor unions and associations, must have the right to contact the federal government to advance their goals. But there is no right not to have one's lobbying done in the shadows.

    Similarly, there is some public benefit from people moving between the public and private sectors. But there needs to be a time period after one leaves federal service where one cannot immediately lobby one's former agency, committee, etc. A number of agencies have these rules. Why not filthy Congress?

    TMT

  23. Larry G Avatar

    TMT, we agree more than we disagree except perhaps the very nature of National Defense is vigilance and preparation and both of these things are inherently costly.

    One aircraft carrier endlessly sailing the oceans ..and when it's not doing that – sitting in a dry dock undergoing exceptionally expensive maintenance and refitting.

    And not a penny accrues back to taxpayers….

    I would try to convince you that if a President/many economists saw what was felt to be an existential economic threat to the welfare of this country … would you view those exceptionally expensive efforts to preserve and protect the economic health of the nation – a waste?

    In the case of the aircraft carrier – you can make it the most efficient machine in the history of mankind but you're still going to put 4000 paid people in it and it's still going to burn thousands of dollars worth of fuel per hour… in it's mission.

    You can make it efficient but after all is said and done – how do you characterize the costs that remain?

    Could you Monday Morning quarterback our DOD defense strategy saying that it's costly and wrong?

    yes.

    Could you Monday Morning the Presidents expensive strategies to assure we did not drop into a depression.

    yes.

    Should we vote out this President because we disagree with the DOD strategies for conducting their mission?

    perhaps I guess if you think you know enough about the range of choices available.. and have the requisite knowledge to make that judgment – but at the end of the day – it would, in fact, be your judgment verses the folks who are doing that job.

    Don't' get me wrong.. I am NOT saying that what the President does should be beyond question.

    I simply do not know if the Presidents bail out/tarp/stimulus strategy was the right strategy and yes it was/is exceptionally expensive and has some obvious waste.

    To this day, people disagree as to how we recovered from the previous depression…

    but I do think.. this guy was elected.. he's got a lot of advisors; many are smack in the middle of most economic mainstream thought ..

    they constructed a strategy and they are implementing it… for better or worse…

    and yes it will a substantial amount to what is already a substantial deficit that there is no way out of without raising taxes.

    We fought two wars without paying for them – and now the bill is due and will have to be paid.

    It would have been far better if that's all we had to pay but when the economy came apart… there are many who felt that if the govt did not intervene, we would have fallen into a depression…and so the choice to the folks making the decision was between a depression and a longer terms …dangerous deficit.

    simple triage

    have I convinced you?

  24. Anonymous Avatar
    Anonymous

    You can make it efficient but after all is said and done – how do you characterize the costs that remain?

    When the solution to the problem is more expensive thant the problem, it isn't worth solving.

    You would not build a 100 billion carrier to protect a 100 million econonmy. Whic is why our Navy is bigger than the next five combined.

    RH

  25. Larry G Avatar

    using the logic for justifying the cost of many carriers.. that the purpose is to protect a much more valuable economy….

    why can't that same logic be used for other expenditures equally not quantifiable as hard cost/benefit …ROI?

    how can you use that criteria for one kind of expenditure and exclude it from others?

    where do you draw the line on whether a strict cost/benefit/ROI is required – and not?

  26. Anonymous Avatar
    Anonymous

    National defense is clearly the prime function of the federal government,

    I disagree. The Preamble puts six reasons forward for establishing the government, and defense is number four.

    Not that order means anything, but any one of the six without the others isn't worth much.

    RH

  27. Larry G Avatar

    The Constitution does not say a thing about cost/benefit/ROI for ANYTHING and does not say that we can spend whatever we want for Defense either.

    By your logic, the Constitution ALSO says "provide for the general welfare"

    right?

  28. Anonymous Avatar
    Anonymous

    The Constitution does not say a thing about cost/benefit/ROI for ANYTHING

    The preamble says that one purpose of the document is to promote the general welfare as well as individual freedom.

    The constitution is implemented through legislation which does contain requirements for fair and equal treatment, preventioon of undue burdens to some over others.

    The cost Benefit analysis is how you measure those results. What people dont understand is that it is NOT a good thing when the benefits far outweigh the costs.

    What that indicates is that you are not spending ENOUGH on that task, and therefore some people are being cheated compared to others.

    AS you point out, we can CHOOSE not to do it right, based on whatever stupid political predilections are pre-eminet at the moment.

    That doesn't change the facts of what is happening, it just means we choose to waste money and resources.

    RH

    RH

  29. Anonymous Avatar
    Anonymous

    where do you draw the line on whether a strict cost/benefit/ROI is required – and not?

    I don't draw that line. The reason people think they are not quantifiable is that we have not tried, and have not laid out the rules and assumptions we use.

    If we set down a preliminary set of rules an assumptions we will soon find that they make perfect sense in some cases, but in other cased thos asumptions will be obviously seen to be ridiculous.

    We can;t make those discoveies until we enterh the process. Once we make those discoveries we need to go back and recompute what looked reasonable before.

    In fact it ALL needs to be recomputed periodically, and that is the method we would use to remove dead legislation and programs from the budget. We can't know if they are dead, because we never go back to check their pulse.

    The costs and benefits of whatever we do WILL happen. We might as well know what they are, and to say they are not quantifiable is just ridiculous.

    Hard to quantify, maybe.

    Uncomfortable to quantify yes.

    Impossible, within reason, No.

    The only reason to be afraid of this is if you assume that your pet program will be cut: you would rather be deliberately unfair to others and deny them their constitutional right to equal protection, than try to do what is ethical and correct, granted that we may not still hit the mark precisely.

    So, you calibrate, and try again. but you don;t just take a shot and walk away from the target.

    RH

  30. Larry G Avatar

    none of what you say here – indicates how much money is "enough" for anything spent on the "defense" or "general welfare".

    you never indicated an ROI for an aircraft carrier instead saying that it apparently did need an ROI because it was specifically mentioned in the Constitution.

    Well HELLS BELLS – neither is the General Welfare….

    so.. why is it that SOME things REQUIRE this fabled cost/benefit/ROI and others do not?

    what is your criteria?

  31. Larry G Avatar

    " So, you calibrate, and try again. but you don;t just take a shot and walk away from the target."

    isn't that what legislation and regulations is about?

    why do you think it's not?

    everyday – there are discussions about what the right about of money is for Defense…

    what the right about of regulation is for… mercury…

    etc, etc,

    apparently if those folks do do it according to the Ray way.. they are liars an thieves?

  32. Anonymous Avatar
    Anonymous

    isn't that what legislation and regulations is about?

    why do you think it's not?

    Because there is seldom a full up cost and benefit study done after a project or program is passed.

    The state legislature is part time, for crying out loud. for every scrap of funds there are claims and counterclaims, most of which are sheer fantasy.

    A discussion about the right amount of money is not a study of what the actual effects of having spent the money is.

    We pass a lead standard intended to save X lives and the next thing you know an american company has a smelter in La Arroyo Chile. Then without any study of whther the first regulation had the desired effect, we propose a tighter standard based mostly on the more is better idea.

    You bet your bippy that if WalMart puts in place a process, they go back and make sure it is working as intended.

    RH

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