Center for Limited Government Newsletter – Dec. 8, 2011

1. Lying to Comfort Us (Or to Avoid Hard Choices?)

By Ed Robinson

The events unfolding in Europe have led me to think about what appears to be an almost universal affliction of politicians: lying to “protect” their constituents.

European politicians talk about the financial crisis there as though the only issue is whether enough money can be raised to allow bad bonds to be bought either from the banks that hold them, or from the countries that need to issue new bad bonds to replace the old bad bonds. Then, when some new money is made available, the politicians treat the problem as being “solved.”

Back in the real world, though, the bonds are still bad, because the countries that issued them will never be able to pay them off at 100 percent of face value. They have borrowed more than their economies can support, now or later. So, in that real world, the bonds are worth substantially less than 100 percent, and always will be. Someone needs to take the financial hit; the only questions are who, how much, and when.

Which brings us to the next side effect of political lying: It often covers up bad consequences, some of which are less obvious than others. In this particular case, the less obvious consequences are likely to be that taxpayers of various countries will likely be paying some of the price for the over-borrowing by other countries, and for the unwise investing by the financial institutions that bought the bad bonds. Have you heard this consequence being discussed openly (much less justified) by the politicians?

Why is this European crisis relevant to those of us in Utah (besides the negative impact all of this will have on the world’s economies, including ours)? For a number of reasons.

First, it is quite possible that U.S. taxpayers will pay some of the price for the bad European bonds. The dollar liquidity that the U.S. has made available to banks and governments in Europe is supposed to be short term, and a debt of the governments in question. Do you think it unlikely that the U.S. will in some way forgive some of this debt?

If the U.S. does forgive some debt, then that means that the U.S. will bear some of the cost of European mis-government. While this might or might not be good U.S. policy, have you heard it being discussed by our “leaders”?

Second, we have a similar game going on here at home. Our politicians have almost all, up until recently, talked about Social Security and Medicare as though they were both ironclad guarantees from the government to its citizens. If we voyage back to the real world again, we find that the government has the right to change or eliminate both programs any time it wants, and that, in fact, they must both be changed substantially if they are to survive. Fortunately, this is being recognized and discussed by some of our politicians, but certainly not by all of them. Until virtually all of our politicians openly recognize this reality, we have little chance of getting buy-in from the public for a solution (whether it’s a “liberal” or a “conservative” solution).

Whatever one’s view is of these programs conceptually (whether they were a good idea, whether they were structured and funded appropriately, etc.), they do exist, and people rely on them. We need open and honest discussions about their financial and demographic realities, so we can decide on the most effective and least painful modifications that will allow the most important components to survive.

Third, the same approach that our U.S. politicians have taken toward Medicare and Social Security has generally been taken toward the overall question of the national debt (more than we should sensibly have) and the current annual additions to that debt (totally unacceptable and unsustainable). Again, only a minority of our “leaders” are addressing these issues, whether from a conservative or a liberal perspective.

Finally, while Utah has been much more prudent than almost all other states, its expenditures have generally risen faster than population growth and inflation, as its government takes on more tasks and more scope in existing tasks. Here, again, we need an open and honest discussion about how much government can and should do, what it will cost, and how effective it will be, so that we avoid our version of the European and Washingtonian crises.

The author, Edward N. Robinson, is director of Sutherland’s Center for Limited Government. He has been a financial adviser to corporations, a senior executive, and a management consultant. Prior to retiring in 2006, he operated Robinson Partners, consulting CEOs on corporate strategy and mergers and acquisitions. Before that, he was an executive vice president of Texas Commerce Bank (later Chase Bank of Texas and now JPMorgan Chase), where he ran the investment banking business, and then created and ran The Private Bank; was an executive director at Azurix, an international water utility business, responsible for corporate strategy and M&A; and was a managing director at First Boston (now Credit Suisse), running the firm’s Los Angeles office and the regional M&A practice. Mr. Robinson has a B.A. from the University of Michigan and a J.D. from New York University School of Law.


2. Turn Medicaid Hot Potato Into a Block Grant

By Kathryn Zwack

Despite the ongoing debt and deficit battles in Washington, our national leaders need to work together to address a political hot potato – Medicaid – to help get the nation’s fiscal house in order. For Utah, implementing a block grant to fund Medicaid is the way to go.

Let me explain why.

Growing at 7 percent annually, Medicaid is the health care system for the country’s poor and disabled. In 2009, the federal government paid 66 percent of the $380 billion total outlay for Medicaid – which is now the single largest source of federal funding to the states. In turn, the states typically spent 16 percent of their general funds for Medicaid, second only to K-12 education.

To read more of this post on the Sutherland Daily blog, click here.


3. Remove Obese Children From Their Homes?

By Matthew Piccolo 

Should government take children from their parents if the children become obese? In Ohio, parents lost custody of their 8-year-old son because he weighed more than 200 pounds. The boy was placed in foster care.

Officials argue that his sleep apnea problem, possibly related to his obesity, is imminently dangerous. The family’s public defender will argue that the boy is not in imminent danger.

To read more of this post on the Sutherland Daily blog, click here.


4. Government-Created Jobs? Pure Fiction

By Matthew Piccolo 

Jobs are a hot topic in politics these days. President Barack Obama is pushing his jobs plan; his Republican challengers are wrangling over who can create the most jobs; and Governor Gary Herbert has announced a goal to see 100,000 Utah jobs created in 1,000 days. All this talk about jobs raises a question: Can government create jobs?

The way many presidential candidates talk, you’d think they can simply pull a lever or wave a magic wand, and poof – a new job appears out of thin air.

To read more of this post on the Sutherland Daily blog, click here.