Can anyone explain this?

Icebergs on the horizon, full speed ahead. This is Niles Gardner looking at welfare spending in the US:

I have just read a staggering report written by my colleagues Patrick D. Tyrell and William W. Beach for the Heritage Foundation’s Center for Data Analysis (I direct the Margaret Thatcher Centre for Freedom at Heritage.) It is a real eye-opener for anyone who cares about America’s future as the world’s superpower, on either side of the Atlantic. Ironically, Britain, through the tremendous determination of Iain Duncan Smith and his team at the Department of Work and Pensions, is starting to roll back the welfare state, precisely at the same time the current US administration is expanding it.

The United States isn’t just gliding towards a continental European-style future of vast welfare systems, economic decline, and massive debts – it is accelerating towards it at full speed. Or as Acton Institute research director Samuel Gregg puts it in his excellent new book published today by Encounter, America is already ‘becoming Europe,’ with the United States moving far closer to a European-style welfare state than most Americans realize.

What do you mean they don’t realise it? How would they ever find out? From The New York Times? CBNBABSC? The Telegraph in London? Suppose they did know what’s going on, would they understand enough about what causes what to care? And suppose they did know and they did care, what would they do about it then? Refuse to take the money they can get just for asking? It’s all lobster trap from here on in.

Except there was this to sort of remind us that there are some who know better and that good economics does work. Why it works no one can any longer explain, but at least it does work. One day the theory will catch up with reality, but not just yet.

The state comptroller estimates that Texas will generate $96.2 billion in general revenue in 2014-2015, a major jump in tax collection from the last two-year budget cycle.

Republican Comptroller Susan Combs on Monday was releasing her biennial revenue estimate. The crucial number sets the limit on what lawmakers can spend for 2014 and 2015, when Democrats and teachers hope to reverse, or at least bandage, deep cuts in the current budget that included $5.4 billion slashed from public education.

Combs reported Monday that the state collected $8.8 billion more revenue during the current 2012-2013 revenue cycle than she initially forecast, giving lawmakers breathing room in settling a $5.2 billion deficit in the current budget. . . .

Texas’ economy is humming again after lawmakers in 2011 wrote a cut-to-the-bone budget as the nation lurched out of the Great Recession.

At the time, unemployment in the state was the highest in a decade and the Legislature faced a $27 billion shortfall. But unemployment now is at a four-year low of 6.2 percent, sales tax receipts are skyrocketing and money is pouring into state coffers behind a new energy boom.

Got that. Public spending went down and tax revenue from the private sector is booming. Can someone help me here? Any explanation? Must have a look at my copy of Mankiw to see what it has to say.

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46 Responses to Can anyone explain this?

  1. “The state comptroller estimates that Texas will generate $96.2 billion in general revenue in 2014-2015, a major jump in tax collection from the last two-year budget cycle.”

    Meanwhile in California…

    California Jacks Up The Tax Rates Again, Sees A $1 Billion Decline In Revenues

    Alternate Headline: Dems In CA Raised Tax Rates In 2011, Saw Their Revenues Plunge, So… Raised Taxes Again In 2012. …. Revenues Plunged Yet Again.
    Unexpectedly!

    “I suggest the Dems in CA go ahead and jack up the tax rates AGAIN. By golly, this thing HAS to work sooner or later, right?”

  2. Grey

    that included $5.4 billion slashed from public education.

    Not a bad idea. Its a waste of money trying to educate Texans. Just so long as they can add, subtract, put a cross on a contract and operate drilling equipment (but we can import Hispanics to do that), what on earth would a self-respecting Texan do with education?

  3. Mick Gold Coast QLD

    “Its a waste of money trying to educate Texans. … what on earth would a self-respecting Texan do with education?”

    You obviously haven’t experienced the extraordinary politeness, charm and marvelous hospitality of Texan businessmen – the educated, successful-in-world-markets types, who have exceptional people management skills and the consistently good results to reinforce just how good they are at what they do.

    That’s no surprise. Keep those horizons of yours narrow ‘cos you’d be terribly confused by the reality of a wider experience and knowledge.

  4. Good one Mick. Grey threw out a bit of of bait and got a bite.
    Why are you feeding it?

  5. Mick Gold Coast QLD

    Belt me Winston, I deserve it!

  6. “Fifty Shades of Grey Stupid”

  7. John Comnenus

    Because massively increasing spending on education in Australia has dramatically changed education outcomes. Unfortunately for Grey, the outcomes all fell despite massively increasing expenditure.

    Maybe there is little if any correlation between very high levels of education spending and educational outcomes. After all California, the State with a demographic profile most like Texas, spends massive amounts on education, I think 3rd highest per student in the US, but gets worse outcomes than Texas.

    What would a self respecting Californian do with an education? Certainly not learn from experience.

  8. John Comnenus

    Answer to my own rhetorical question,

    What would a self respecting Californian do with a massively funded education? Certainly not learnt that the State is going broke through uncontrolled spending, massive illegal immigration, over regulation, out of control environmentalism, a bloated well pensioned public sector and tax increases that yield less revenue.

    Mmmmm, did I just describe Australia?

  9. dd

    The US Federal congress is a rampant spender and borrower and is jeopardising the US dollar. This ia bipartisan problem. The GOP refined the corrupt art of ‘earmarking,’ a euphemism for payoff. Similarly, they have been complicit in expanding the deficit (“oh but not as much!” their defenders say, “they don’t expand ita as fast as the Dems!”). Backroom deals are the norm in Washington. In other words, payoffs and lack of transparency.
    Obamacare is founded on a lovely ideal (affordable health care for all), but will cost more than the US can pay in the long term and is utterly unsustainable financially. Overall the Obama administration has racked up debt at a dizzying pace.

    The US has bases and troops all over the world, creating a massive free rider problem. Australia is now one of those free riders. We have slashed defense spending.

    But despite the corruption and dysfunctionality at the Federal level, the fact that Texas and other states continue to perform well shows that even reform at the state level might be enough to turn things around.

    California is close to bankruptcy. If California defaults and the Feds try to bail California out, states like Texas might not stand for it.

  10. Greg

    And here is a great example of the standard reaction of the Left when they get lost in their confused and simplistic notion that lower rates equals lower revenue and higher rates equals higher revenue. This article was written when it was discovered that the oil and gas industry in Texas got a tax break. From this article “Poof! About $1.2 billion in potential tax revenues disappeared from the books, leaving less money for hospitals, schools, roads and all the other worthy things the state budget supports. When someone with powerful friends gets a tax break, someone else is stuck with the tab.” http://www.chron.com/news/houston-texas/article/Patricia-Kilday-Hart-Tax-cut-comes-at-high-cost-1689684.php

  11. John A

    Maybe there is little if any correlation between very high levels of education spending and educational outcomes.

    FINALLY, someone gets it about education!

    Whilst the curriculum is clogged up with claptrap this will remain the case.

    Until the impact of John Dewey and the secular humanists is removed, and education gets back to the basic concept of transmitting knowledge from the knowledgeable (teachers) to the ignorant (students) the inverse correlation will remain.

    For that to occur, some basic assumptions in curriculum construction have to be jettisoned
    a) children are not born naturally “good”
    b) children cannot “teach themselves by discovery” with teachers as facilitators
    c) there is a concrete body of knowledge to be learned, rather than a range of “educational experiences” to be absorbed
    d) children will be socialised by (and will absorb the values of) whomever they spend the most time with
    consequently
    e) parents need to regain control of the classroom and school by asserting and maintaining their authority over their children (this implies abandoning the assumption of the “superiority of the expert”)

    There are probably more but that’s just 6 impossible things before breakfast.

  12. dd

    On the question of education.

    There seems to be a widespread misapprehension that education, rather than the industrial revolution, was the driving force behind the modern world.

    Education is a good thing, but it isn’t what made the West rich, nor is it the solution to the economic problems of today.

  13. MattR

    Got that. Public spending went down and tax revenue from the private sector is booming. Can someone help me here? Any explanation?

    “Does not compute, does not compute, economic reality overload, brain in meltdown, must spend more money, most tax more, most give out more welfare. Does not compute…” said every socialist/left wing idiot.

    Honestly, this stuff is so basic it is beyond reason that these people don’t understand it. Wilfully stubborn ignorance is the only excuse.

  14. Poor Old Rafe

    Grey probably did Sociology, one of the courses that makes kids come out of uni more stupid than they were when they went in.

  15. boy on a bike

    Education spending doubled, test scores stagnant – this is the graph you are looking for.

  16. On the subject of those uneducated Texans, the Early Indo-European Online website of the University of Texas at Austin College of Liberal Arts is an excellent site for learning Old English and Old Norse inter alias linguas anticuas.

  17. MattR

    Not a bad idea. Its a waste of money trying to educate Texans. Just so long as they can add, subtract, put a cross on a contract and operate drilling equipment (but we can import Hispanics to do that), what on earth would a self-respecting Texan do with education?

    Yay for basing your opinions on TV shows and movies. Yay for being stupid.

    Note: no comment on the fact that free market Texas is now kicking the pants off socialist California. Nothing other than drivel and abuse from the left.

  18. lotocoti

    Sometimes it seems some elements of Stephenson’s dystopian America from Snowcrash (1992) aren’t entirely fanciful.
    A bankrupt federal government, whose laws are ignored by all, with a currency used only by its employees.
    I’m also reminded by something from Empire (SBS)
    He could not, he said, believe that the British people had decided that ‘free aspirins and false teeth were more important than Britain’s role in the world.’
    (Dean Rusk 1968)

  19. Alfonso

    Be unsurprised. There is a figure, today’s estimate is AUD 5000, that when distributed as a cheque to the voting punters for say, having a nose, will win any party any election.

  20. boy on a bike

    Not a bad idea. Its a waste of money trying to educate Texans. Just so long as they can add, subtract, put a cross on a contract and operate drilling equipment (but we can import Hispanics to do that), what on earth would a self-respecting Texan do with education?

    RACIIIIIIIIIIIIIIIIIIIIIST!

  21. pete m

    Lower taxes of businesses and persons means more spending power of businesses and persons means higher turnover means higher tax receipts despite the lower percentage.

    Higher taxes of businesses and persons means less spending power and less turnover and reduced tax receipts despite the higher percentage.

    Force and effect. Demand has little to do with purchase decisions when the money isn’t there – demand becomes “can I really afford this?”

    Howard cut taxes but revenue of tax receipts went up. It is not hard to find examples of the above, even recently in our own budget papers.

    Oh yeah, can I have one of them trillion dollar coins? – wife wants to buy a new dog.

  22. Token

    RACIIIIIIIIIIIIIIIIIIIIIST!

    I agree, Grey stepped over a line there in his satire.

    His sweeping generalisations about Hispanics are wrong and will not be forgotten.

  23. Skuter

    I haven’t seen a detailed analysis of Australia’s tax situation, but broadly speaking during the Rudd/Gillard era, we have seen new taxes introduced, most existing rates stayed stagnant and yet tax to GDP has fallen. Whilst there may be other causes, prima facie, this fits the (downward sloping portion of the) laffer curve story…

  24. Craig Mc

    The US Federal congress is a rampant spender and borrower and is jeopardising the US dollar. This ia bipartisan problem. The GOP refined the corrupt art of ‘earmarking,’ a euphemism for payoff

    It’s been downhill ever since the line-item veto was ruled unconstitutional. At least before that a responsible executive could cross out the worst examples smuggled into legislation.

    Not that there’s a responsible executive now of course.

  25. “…demand becomes “can I really afford this?”

    pete m hits the nail on the blunt end. The question is never asked by those on the Left, because it is an emotional one, not an economic one.

  26. Token

    The left know there are certain words like “Fairness” and “Inequality” which are useful for distracting the discussion away from the reality of “can I really afford this?”.

    The reality is a good percentage continue to fall for the tricks.

  27. .

    Its a waste of money trying to educate Texans. Just so long as they can add, subtract, put a cross on a contract and operate drilling equipment

    What a stupid arsehole. He describes himself as a janitor but thinks you’re a dummy to own and operate an oil well.

    Texas is home to Baylor and Rice Universities, and Baylor has a well regarded law school.

  28. MattR

    The reality is a good percentage continue to fall for the tricks.

    That’s the thing about socialism/communism. It SOUNDS great, equality for all? Who could say no? It’s only when you get down to the details and look at the history of it that you realise it probably wasn’t such a great idea.

    Socialists continue to preach it as it is an excuse for expansion of their own power and status. The uneducated/ignorant/unintelligent fall for it as they think it’s only ‘fair’ that they get a bigger peice of the pie and ‘rich’ people can afford it anyway. The fact that it makes their plight worse is hard to notice, after all, the government is providing everything right? How could that be bad?

    It’s classic short termism that humans are naturally inclined towards.

    The old saying goes “if you aren’t a socialist at 20 you don’t have a heart, if you’re still a socialist at 40 you don’t have a brain.” What this says is that until you actually have to earn a living, support and feed a family and take care of yourself socialism is a GREAT idea.

  29. Nuke Gray

    We can spike the left by stealing some of their slogans! They talk a lot about ‘Sharing’. What they usually mean is sharing money.
    My political philosophy is Co-Autonomy, with the slogan ‘Share Power’. Socialists believe in centralizing power so they can share money, we believe in sharing power (DEcentralizing) so we can all keep our money. Next time someone tries to turn empathy into a policy, talk about your brand of sharing!

  30. boy on a bike

    RACIIIIIIIIIIIIIIIIIIIIIST!

    Sorry, that should have been:

    WACIIIIIIIIIIIIIIIIIIIIIST!

  31. Texas is home to Baylor and Rice Universities, and Baylor has a well regarded law school.

    Also, the number one cancer treatment and cancer research facility in the USA. People from all over the world go there, to the extent that they opened up a special international program.

    Grey’s a bigot and a moron.

  32. WhaleHunt Fun

    Tell me about the excellent contribution to the economies of Arabia made by the massive investment in schools and universities which tech solely of and from the koran. Strange that the only productive work in those economies is done by people who obtain education in western technologies. Its not how much you spend, its what you teach and how it’s taught.
    That is why in Australia, the less spent, the better the outcomes. I demand an immediate cessation of all government funding of education. How many fempto-seconds before parents would be demanding outcomes for the private spending they have to do.

  33. WhaleHunt Fun

    By the way, Texans are not a race.
    Mr or Ms Grey is a statist, not a racist.

  34. Steve of Glasshouse

    Grey is a masochistic pinata troll.

  35. Gab

    People take Grey seriously. Therein lies the problem.

  36. Dangph

    if you’re still a socialist at 40 you don’t have a brain.”

    That’s not completely true though. There are plenty of intelligent people who are socialist (even though they are wrong). Leftism is the default position of decent, educated people these days.

    If you want to belong to that social group, you have to share their beliefs.

    It doesn’t personally cost them much to do that. It doesn’t cost a lefty anything to say that we should tax the rich more to spend more on education, but it does make them look good and compassionate in front of their peers, and it’s a signal to them that they are part of the in-group.

    It’s a kind of rational ignorance in a way.

  37. Infidel Tiger

    By the way, Texans are not a race.

    Try telling that to a Texan.

  38. John Comnenus

    John Wayne called them Texicans in The Alamo. Don’t mess with Texas

  39. nilk

    “Fifty Shades of Grey Stupid”

    Blast you, Spot! I nearly snorted my homemade vegetable soup out of my nose!

  40. nilk

    And Boy, you left out the “Y”

    WAAAAAAAYCIST!

  41. Alfonso

    “if you’re still a socialist at 40 you don’t have a brain.”
    The vast majority are on aged pensions and know no better, they were taught to have no brains, ‘no brains’ was the great Aussie bar-b-que conformity
    Anyone who was working during the residential housing boom in my homeland Nth Coast NSW 1972 to 2002 plus sporadic explosions afterwards and isn’t a multi millionaire just wasn’t paying attention or didn’t know shit from clay.

  42. Elizabeth (Lizzie) B.

    Deadman, that early Indo-European Culture site is a good one. Had a look at the Latin section: a useful refresher course in just a couple of screens. I expect the others would be even more useful because harder to obtain. Completely free to the general public.

    They are not barbarians in Texas.

  43. ralph

    The improvement in the state’s finances is just dumb luck (fracking)and is unlikely to be the result of “cutting the budget to the bone. They were lucky that cuts in govet expendture were offset by the booming energy sector. It does does not demonstrate that the cost cutting strategy the the causal element. From Bloomberg “The Texas economy has topped budget projections over the past 15 months, as booming energy output fueled job growth and an 11 percent fiscal first-quarter gain in sales-tax receipts, the biggest source of general-fund revenue. Even after paying off $7 billion in health and school bills, Comptroller Susan Combs said today that the state will be flush heading into 2014.”

  44. .

    The improvement in the state’s finances is just dumb luck (fracking)and is unlikely to be the result of “cutting the budget to the bone.

    Maybe it was also dumb luck that the investors who fund fracking decided to invest given lower taxes and a balanced budget increased their returns and at the same time, lowered risk?

    It was just dumb luck that the Coolidge, Kennedy, Reagan, Hawke Keating etc income tax cuts saw revenue growth?

    Try harder, troll.

  45. ralph

    I am hardly a troll – “someone who posts inflammatory,extraneous, or off-topic messages in an online community”. Almost all the previous comments would qualify – re Texas education, Californian socialist etc.

    The article reads, “Texas’ economy is humming again after lawmakers in 2011 wrote a cut-to-the-bone budget as the nation lurched out of the Great Recession.” – it ascribes the bounce back to budget cuts, not tax cuts. The article doesn’t support your contention Are you are simply making it up or is there some other source you would like to cite?

    And why would a balanced budget of itself bring about a belief of increased returns and lowered risk for investors?

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