This week I found interesting relationships between seemingly unrelated events.

• As Senator Bunning tried  to make his case that now is the time to start cleaning up the debt crisis, he was pilloried by Republicans, Democrats, and the press for being heartless to the unemployed. It was during these discussions I came to the conclusion that unemployment insurance is more like triage rather than part of a larger solution for unemployment. The question of whether to extend unemployment insurance seems to be most closely related to the prevailing political winds at the time. At this time the political winds are to extend unemployment. Several people showed that the unemployment figures remain mostly unchanged at the beginning and at the end of the unemployment insurance extensions. So the plan is we spend a lot of money to kick the can down the road.
• Greece passed an austerity budget and there were strikes and rioting, Clashes in Athens as Greek PM seeks EU debt help (AP). By the end of the week it looked like the Greek population is finally coming to grips with the reality that budget cuts are inevitable.
• I ran across an intriguing slide presentation, “The Nightmare Scenario: How The U.S. Government Would Look Under An Austerity Budget”, on The Business Insider. This presentation uses the Irish austerity measures as the template.
• There was a referendum in Iceland to repay Britain and the Netherlands for a failed Icelandic bank, Icelanders balk at Icesave deal, 93.3% vote ‘no’ (AFP). It appears that Icelandic population do not feel obligated to pay for the mistakes of others.
• Barney frank threw a scare into the mortgage backed securities markets when he casually  “noted that debt issued by the two mortgage finance companies is different from bonds issued by the Treasury Department” . This evidently caused a panic among investors. On Friday the Treasury Department was forced to reiterate their financial support for Fannie Mae and Freddie Mac.
• Finally we see that Rick Perry Wins Heated Texas GOP Primary. Populism is alive and well in Texas as he said , "From Driftwood, Texas, to Washington, D.C. we are sending you a message tonight: Stop messing with Texas!".
• Although I doubt the Democrats will not agree, the Instapundit is wondering if our economy has gone beyond the triage stage, HAS OBAMA DONE IRREVERSIBLE DAMAGE YET? Neo-Neocon says “yes.” I’d say it depends….

Although I doubt the United States will install an austerity budget as severe as Ireland, I think it is inevitable that some states and cities will balance their budgets with “Irish”-like budget cuts. Extreme situations will require extreme solutions. Eventually a federal austerity budget will become inevitable because entitlement cuts are intractable political issues. As shown in California neither party was willing to cut the budget until they are forced to do something embarrassing like issuing IOUs. I think that the wise men and women in Washington will try and put a muzzle on Barney Frank to avoid an Icelandic-type public opinion blow up the mortgage market before it has a chance of recovering.

Up until Senator Bunning’s actions our legislators seemed to be acting more like the parents of an addicted child. Parents initially hope they can buy their way out of their child’s problem. Eventually they realize the compassionate solution  is tough love. I suspect that Senator Bunning’s actions reflect this thinking and that there is probably wide spread support for our legislators to stop the shell game style financing schemes. It is time for our legislators to embrace tough love.

By Alan Reynolds

Sen. Jim Bunning (R., Ky.) blocked “extended” unemployment benefits beyond their scheduled expiration on February 27. That thwarted bill would also have put off, again, a scheduled 21 percent cut in Medicare payments to physicians. Democrats were outraged. But why?

Bunning just wanted to use leftover “stimulus” money to pay for the benefits. Why not? Such transfer payments accounted for over 80 percent of stimulus spending last year.

Besides, as Federal Reserve policymakers noted, the evidence is overwhelming (see here and here) that extending unemployment benefits from six months to nearly two years has raised the unemployment rate by a percentage point or two. I’ve waited since 1991 for someone to prove I’m wrong about that. Nobody has, because nobody can.

If the maximum duration of jobless benefits were trimmed by 13 to 20 weeks (which is all that’s at stake), they would still be far more extended than ever before. But the unemployment rate by the time of this November’s elections would be much lower than otherwise. Would Democrats prefer to go into the elections with an unemployment rate near 10 percent or a rate below 9 percent?

As for Medicare, slashing payments to physicians is the Democrats’ favorite way of paying for expanding Medicaid enrollment and health-insurance subsidies for the non-poor. If they really think that will work, how can they possibly object to saving money sooner rather than later?

[Cross-posted at The Corner]

Senator Bunning’s Unappreciated Gifts
Alan Reynolds
Sat, 27 Feb 2010 22:39:00 GMT

Wow! I could almost vote Republican after this exchange between Congressman Burgess and Treasury Secretary Geithner before the Joint Economic Committee. Since I work for a small business I would say Congressman Burgess is just touching the surface of the fear running rampant through small business owners. Surviving the next six months is scary enough. The recycled Keynesian economic policies of this administration remind us why our government has not used them for over forty years. They just don’t work!

BURGESS: What’s happening in small businesses is people are frightened to add jobs, because they don’t know what we’re going to do to them in health care. They don’t know what we’re going to do to them in financial regulation. They’re scared of what we might do with energy prices in the future with cap and trade. Small business — medium sized business is frightened at jobs right now.

I could help the president and his panel. He doesn’t need another program. We don’t need another stimulus. We need to provide some tax relief and then get the heck out of the way, and the American economy will recover as it has always done.

GEITHNER: That broad philosophy helped produce the worst financial crisis and the worst recession we’d seen in generations. We had a pretty good test of that philosophy — a pretty good test of those policies that did not serve the country well. Now…

BURGESS: Mr. Geithner, when I came here in 2003, we were in a jobless recovery. Tax relief was passed in May of 2003, and as a consequence by July of that year, we were adding jobs at a significant rate. It seems to have worked fairly well.

Geithner on the Hot Seat
John
Fri, 20 Nov 2009 01:35:33 GMT