Really Silly Bits

I had a couple of things that I was debating in writing about for a weekend rant and some of them seemed very serious indeed.  While they may be important, I now clearly recognize that most of them are clearly in fact, quite silly.  Besides, I was having a great deal of difficulty in deciding which of them to choose, and by treating them as they deserve, I don't need to choose at all.  So here they are in no specific order.  All by the way, relate to fairly simple ma mathematical computations.

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Now I may not be an economist and I've never played one on TV, but even I can figure out that the approaching Fiscal Cliff is a big deal for this country.  Since the last couple of the Bush Administration, the federal government has been pursuing the policy of a reduction of taxes and an increase in spending; and when the Obama Administration took the reins of power, they accelerated the process (at least on the spending side).  Now it doesn't take a degree in advanced mathematics to see that neither the trends for revenue generation or spending add up very well for the American people and that they never will.  

What also doesn't add up is that a bunch of people who make a very good living were sent to Washington DC to address situations exactly like this, and seem to have no interest in taking on this problem, though they've been perfectly willing to kick the can down the road before going on to talk about how important addressing it is on cable news networks.  The President is in fact pulling down $400K, the Speaker and Majority Leader earn $223K, Cabinet members are at $200K, and Senators and Congressman see $174K in annual salary.  Now normally when people get paid that much, it's because they have the ability to solve problems or steer companies away from them.  All of these high priced politicians however seem to think that solving this problem means putting off til next year, what you shouldn't have put off til tomorrow.

At the invitation of the President, Representatives of this august group met this week in the White House on Friday to talk about this very serious situation for an hour.  REALLY?  A WHOLE HOUR!  Why that's 1/4 of the time that it would take the President to play a round of golf. That's less time that it would take Speaker Boehner to fly back from Washington to his home in Ohio.  And not only did they spend less time in this doomed effort of national importance than Jerry Springer spends on the average day talking about brothers who cheat with each other's wives, but they did it late enough on a Friday so that their all but planned failure to make any real progress could come light barely in time to make it into the Friday 'take out the trash' news cycle and go all but unnoticed.

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Speaking of modern math, the next time I hear from a Democrat about big business pouring too much money into political campaigns, I'm going to (as they say in Python's 'Holy Grail'), "fart in their general direction".  Labor unions poured $400 million into the President's re-election, and still had enough money to pour hundreds of millions more in state and local initiatives.  According to the Wall Street Journal, in the case of California's Prop 32, an initiative which would have banned using automatically deducted dues for political purposes, in fact "Labor contributed about 90% of the $62 million spent to defeat Prop 32, including $21 million from the California Teacher's Association and $13 million from SEIU." 

They successfully bankrolled a school collective bargaining reform initiative in Idaho with $3.4 million, a South Dakota initiative to overturn a law installing merit pay for teachers by outspending them 5 to 1, and set aside $2 million to roll back an emergency financial manager's law in Michigan because it allowed contracts to be restructured in troubled cities like Detroit.  

So for all of you standing on your tired soapboxes complaining that the Supreme Court's 'Citizen's United' decision has handed politics over to rich white guys and major corporation, maybe you should take a closer look at who is actually giving and to what ends.  The numbers don't seem to add up.

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Most of you not living in a cave this week are now well aware that Hostess bakeries has all but shut down and that it plans to liquidate its assets.  Most of you have likewise heard the story that the tasty snack treats this company manufactures have fallen on hard times due to the changing eating habits in this country, multiple bankruptcies, and in the fine print, a strike from their bakers union.

It's true that Hostess is going through it's second recent bankruptcy in a decade and that eating habits in this country are changing. (Though to hear politicians speak, they're getting worse; which should have been good for Hostess.)  Some are now instead trying to get the message out that the Hostess demise comes not from the way it operated, but because greedy management and private equity funds were draining it of profits.  I guess the fact that Hostess did $2.5 billion in sales, but lost $341 million last year is equally lost on anyone attempting to define the concept of profits.  Apparently a company that just lost $341 million asking its employees for pay cuts (also for the second time this decade) is likewise unreasonable under the circumstances.  

According to a Wall Street Journal article from the November 16th however, what you haven't heard is,  "The snack giant endured $52 million in workers' comp claims in 2011, according to its bankruptcy filing this January. Hostess's 372 collective-bargaining agreements required the company to maintain 80 different health and benefit plans, 40 pension plans and mandated a $31 million increase in wages and health care and other benefits for 2012."  On top of which, existing collective bargaining agreements prevented bread products (like Wonder Bread) and cake products (like Twinkies) from being delivered to the same location by the same truck, nor could the guys who loaded cake products into trucks also load bread products.  It should go without saying therefore (but won't) that the drivers of neither the cake or the bread product trucks could have anything to do with loading their own vehicles.

I should stop here and also point out that a company management that is constantly seeking bankruptcy protection is as bad as a Union constantly seeking more from a company that doesn't have it.  Teamsters had already settled, and perhaps this Union might have sought a greater stake in the company's future than a bigger piece of a pie that was long gone, but they didn't.   And for those of you who might be wondering about Hostess's biggest competitor, Little Debbie....   Well, they're actually able to offer similar products in larger portion sizes than Hostess while still managing to remain profitable.  Of course Little Debbie's is a company consisting of  non-union bakeries.

Fortunately however, the 18,500 layoffs that will be caused by this layoff and liquidation did not happen before the election, and will not therefore be counted until long after any recall ballots already have.  From the sounds of things, Hostess will probably not have much of an impact on unemployment numbers anyway, since so many firms are likewise sending people home in the wake (pun intended) of the election.

                                    

TFP Column: Laboring Under A Misconception

“If you work hard, sooner or later your boss will notice, you’ll do better, and earn more,” is what my father told me as a boy.

At least that was the beginning of my premise for this week's TFP effort, "Laboring Under A Misconception".  These days I wonder however, as I contemplate the re-establishing of a career in the current crazy economy and the insane attempts of the government to try and control it. 

But listen, this is a busy enough week with another hurricane approaching New Orleans and the storm that's expected to be going on in Tampa at the Republican National Convention over the next couple of days.  So I'll just encourage you to read some of the award winning journalism of a paper that just picked up four individual awards from the Ohio Society of Professional Journalists (and no, I didn't win one of them, though Michael Miller won two).  If that weren't enough, we're talking about the largest Sunday circulation in Toledo and now the winner of the best weekly newspaper in Ohio for the FOURTH straight year, the Toledo Free Press.

Middle East Bully

Iraq seems to be settling back into uncomfortable, but well-recognized chaos and conflict.  Afghanistan too is reverting to the sectarian internal strife that it's known for far too long.  The situation with Syria's strong man continues to deteriorate, with calls going out for potential outside intervention; and Iran's continuing nuclear program's development bring more and more cries for something to be done by someone.  There's no doubt that someone must step up and stop the bullying being perpetrated on the nations of this region.

Of course we know what our government would like to do, and what it's done for many years; ignore thousands of years of history and continue to meddle in what's been a war zone since long before BC became AD.  Let's face it, countries in the Middle East have hated parts of themselves, most of their neighbors, and almost all outsiders for thousands of years; and probably before they were called Mesopotamia and Persia.  It's an unreasoning bit of madness that goes on for reasons that few if any understand, and the remaining choose to forget.  Like a millennium old Hatfield and McCoy feud whose beginnings are lost in the dust of history, all that's seemingly left for those who remain is an unreasonable and unreasoning hatred.

Make no mistake however, the perpetuation of this mindless violence does indeed serve a purpose for some.  If you can stoke the fires of hatred high enough, you can get even the most reasonable of the individual members of a mob to commit what they would consider all but unthinkable acts.  If you can distract a population long enough from the fact that while ordering them to do so, their leaders will never put themselves in harm's way, they will never notice the relative ease and prosperity in which those leaders live.  Neither will they understand that it's their almost constant state of siege that maintains the power of despotic rule and has become the major impediment to a better life for themselves.

Not content to stand idly by or simply provide a unifying demonic figure for the region however, and incapable of staying out of arguments that we were long since proved to have no place in, the West continues to attempt to pick winners and losers in the same misguided way that it always has.  Heedless of the horrendous record of its past failures, the West continues to believe that it has the right to wage wars in countries that have not asked for help; doing so in the name of a peace that remains far beyond their grasp at best, and realistically impossible at worst.

Already the nations of the Arab Spring are falling increasingly under the dominance of 'strong men', who will eventually take the reins of yet another despotic government in the region.  Even the sham of democracy which has from time to time reared its head in this region, with fraudulent elections for pseudo representative governments, will soon find itself mired in the recurring story of popular oppression, religious mandate, and an ongoing struggle among tyrants attempting to reach the pinnacle by crawling over piles of dead and imprisoned.  And when the dust clears, it's likely we will once again be left with two kinds of leadership in these lands; bad guys who like us, and worse guys who don't.

I can't help but ask why we don't for example, seem to care about the human rights violations, oppression of women, and autocratic rule in Saudi Arabia; an often twisted monarchy that has been a long time ally of the United States in the region?  Is it that we can't see what's going on, or that we choose to ignore these behaviors since the kingdom buys military hardware from us and allows us to operate what they say are much needed air bases in the area?

Perhaps worst of all in this self-serving bullshit is the harm's way that bureaucrats, diplomats, and politicians who have never raised a hand in anger seem ready to put members of our Armed Forces into.  Though armed with the latest of weapons and provided by their military leaders with the best of tactics available under the circumstances, they are doomed to win the battles and lose the wars, strangled by contradictory rules of engagement created by armchair generals and a strategic goal that's little more than a moving target used by those whose interests are likewise colored by the desire to acquire and maintain power.

Would we even care if it weren't for the oil beneath their sands?  Perhaps ... when the news showed us inspiring pictures of ragged civilians standing up to well-equipped troops; but the fervor would no doubt quickly wane when "American Idol" came on.  How then can we expect these people to trust us, when we lack consistency of policy, of leadership, and of effort?  How can we expect them to respect us when we attempt to buy their friendship; more often than not by throwing bundles of cash to those who if we caught up with them in this country, we would throw into jail?  How can we expect these people to love us when we continue to usurp their sovereignty, deploy troops to their streets, and drop bombs within their borders in order to impose our own particular version of morality upon them?  What point can there be to the so-called benign interference and gunpoint morality when our efforts result in as much collateral damage as success?

Yet we pretend at benevolence in a land that doesn't appear to understand our version of it (and perhaps justifiably so), and seems not to want it (at least from us).  How much of our never-ending efforts have become about assisting the current US government (and many who have come before it)  in its misguided efforts to control its own economy through around the world adventures in military spending; doing things we weren't asked to in places where we weren't invited?  How much of the rest is about ignoring common decency and common sense, as we continue to "protect US Interests" (the free flow of oil) not by attempting to gather that beneath our very feet, but instead by attempting to impose our will on people half a world away.

It's strange (and almost sadly amusing) that at a time when our leaders are worried about removing the bully from the schoolyard, from the street corner, and the Internet; that it's we who are the bully of Middle East politics.  It's tragic indeed that those we purport to help must dream of one day being free of us.



 

Government Protection Racket

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Everywhere we turn these days, we find constant reminders of the lousy economic numbers in this country; and while economists refuse to talk about a 'double-dip recession' that hasn't yet met their strict definition, we all know it's here.  Many of us know the culprit as well.  It's not evil corporations or the wealthy 1%.  It's not even really the bankers, though they certainly haven't gone out of their way to help the situation. In fact, it's those in government telling us that something must be done for our protection, when the only thing that they're really trying to protect are the cushy jobs that most of them will have to attempt to keep, some 12 months from now.  

Government is something that we created in this country over 200 years ago to do for ourselves together what we could not do alone.  It was not instituted to do things we have apparently now become too lazy to do for ourselves. Look at the Government's latest answer to fixing the economy if you'd like an example, as the Senate passes legislation seeking tariffs against the Chinese for flooding the US with 'cheap goods', and preventing our own from being competitive.  Really?

Isn't that the same government that's telling us that the biggest problem is that consumer demand for goods is down?  Do they think that demand will improve if the costs of those goods are increased through tariffs on produced in China or the sale of more expensive goods from elsewhere (even the US)?  What will happen to a cost of living calculation that's already little more than pointless fiction, since it doesn't include the costs of food and energy, if we add to it what will now be the higher costs of imported goods?  

Politicians complain that the Chinese are pumping money into their own economy to artificially prop it up (which seems rather disingenuous of those who passed two different Stimulus plans and would like to see a third passed).  But so what?  What's wrong with taking advantage of China spending their money to makes its goods cheaper to buy until they can no longer afford to do so?  Aren't we glad that China is using this money to prop up their exported goods, rather than using it to build fleets of ships, squadrons of airplanes, and silos full of missiles?  If they think that the best use of their national treasure is an attempt to sustain something that cannot be sustained forever, let them.  In fact, let's applaud and encourage them to continue to do so while enjoying the fruits of ignorance that allow us to buy more and cheaper stuff with our own money. 

Of course placing tariffs on goods coming out of China will likely spur retaliatory ones on US goods being shipped to China and lead to a trade war, but what's wrong with that?  Well for one thing and like so many other times, Washington will be fighting the last war and not the one one we're facing.  We are no longer in a position of strength to bully other nations on the world stage.  The economy is a house of cards and the windbags in Washington are doing little more than seeking to blow it down.  For another, these are the same policies that proved a dismal failure during the Great Depression when they signed in 1930 the Smoot-Hawley Tariff Act into law.  Rather than helping the economy recover, this bit of odious political economic theory in fact extended the damage of the Depression far beyond what it should have.  Is repeating one of the poorer examples of legislative governance in this country's history the only way that we can prove its lunacy? 

Perhaps what we need to be asking ourselves more often is whether much of the very protection that the government is attempting to provide is what's stifling the economic recovery that it claims to be seeking.  Cheap energy is a necessary component to fueling a recovery for example, but the govt refuses to issue permits for drilling on land and sea in this country.  When Canada offers to ship us less expensive oil that it's choosing to recover from its own lands, we refuse to allow them permission to build a pipeline across the US for processing.  Such thinking not only ignores the necessity of obtaining such energy from a friendly source, but the large number of good paying jobs that will result from looking for it, getting it out of the ground, and building the pipeline across this country to move it to refineries.  What kind of protection is that?

The president demonizes the TEA party movement seeking a return to a limited government as defined by the Constitution that it was created under.  He finds sympathy however, for an Occupy movement that seeks not equality of opportunity but equality of result.  Doesn't this kind of equality stifle the very spark of potential genius this country was built on under a pile of stinking egalitarian mediocrity?  In the rush to seek some imagined progressive government utopia of uniform opportunity, are we instead getting a conformity mandated by the force of law?  In the seemingly constant incremental surrender of individual freedom, could we be dooming ourselves to stagnation instead?  Have we exchanged a true diversity of ideas for little more than a divergent set of paths to failure?  While decrying a lack of competitive edge in this country, has government itself instilled a placidity whose only goals are illusionary props to self-esteem?

This protection by legislation and regulation is not only doomed to failure by the faulty thinking it comes from, but by the imperfect assumptions it's based on and the defective methods involved in writing it.  What makes all of it even worse however, are the inevitable strong-arm tactics that will be used to enforce what are little more that crooked, flawed, and unsound policies for no other reason than that those in power believe that they know what's best for you.  Growing up in Chicago around the stories of mob influence during the days of another flawed government mandate, Prohibition, we knew what to call this kind of protection.  Used very effectively by criminal enterprises that often seemed far more organized that our government (then or now), we called them Protection Rackets.    


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TFP Column: Government "Prop"aganda

I was late this week in attempting an effort for the TFP, and Editor-in-Chief Michael Miller may have thought that he had escaped at least one week without having to deal with my illiterate scribbling.  As much as I like Michael however, I found myself caught up in the books on Economics that I have been reading for the last couple of weeks.

(Reading books on Economics for fun ... am I living the dream or what!)

I only wish that some of those in government had read some of the same material that I have, and we might all have been spared a good deal of misery (and a larger portion of debt) in the last couple of years.  

Applying my 'book learning' to the situation at hand (the next proposed Stimulus), led me to put together a piece called "Government 'Prop'aganda", which discusses some $447 billion in props to the economy proposed by the President and some of the disinformation surrounding it.

As always, anything worth knowing is going to find its way into the TFP this weekend.  So if you want to know everything that's going on in Toledo and NW Ohio, you're going to have to look in on Toledo's largest Sunday circulation and Ohio's Best Weekly newspaper, the Toledo Free Press.

It's A Grand Harvest Of Subsidies For Farmers

Yesterday the Senate decided to kill the ethanol subsidy 73-27 in a largely symbolic vote, since it's attached it to another bill that's unlikely to pass. This is the type of legislative misdirection that we can expect in a town where doing right is not nearly as important as being seen to 'try' to do right. There will be little publicity when this bi-partisan effort dies an ignominious death in the House. 


Of course the ethanol subsidy is but a paltry $5 billion of the budget. If the Senate wanted to show true bi-partisan effort, they might want to take on the bigger picture. Ethanol after all, is largely a product of corn, one of the many crops which the government pays farmers not to plant. Yes, that's right. Along with Soybeans, Wheat, and Rice, the government pays out some $25 billion per year in subsidies to farmers not to farm. And while this sum is less than 1% of the Federal budget (something that's alarming in and of itself), it is nevertheless a significant amount. 


When you think of it, it's kind of like a special form of unemployment compensation (being paid not to work) for farmers only. And lest we think that this money is the only thing saving the small family farmer, in fact it's commercial farmers making over $170,000 per year that receive a majority of the subsidies (according to the Washington Times). Even the EPA admits that according to its 1997 numbers that "46,000 of the 2 million farms in this country accounted for 50% of the agricultural products". 


It's not much of a stretch to assume that a good portion of the subsidies is going to those shrewd enough to be running the largest farms. And all of this, according to the Times, when in the last year: wheat is up 81%, corn 59%, and soybeans 39%. Of course none of this could have anything to do with ethanol, which uses some of these same grains in its production. But heck corporate welfare for corporate farmers who are dangerously close to being in the riches 1% might be a small price to pay if in fact we can use ethanol to decrease the use of imported oil right? Except for the fact (pointed out by the CATO Institute in a posting from some time ago) that if we used all of the corn in this country to produce ethanol, we could displace only about 3.5% of our gasoline consumption. Likewise pointed out in this previous effort, were the facts that:

• Without government subsidies, ethanol production is currently not a viable energy option economically.
• Ethanol actually causes more pollution than fossil fuels when that during its production is added into the equation.
• Ethanol, even as an additive to gasoline, does considerable damage to many of the current internal combustion engines in use today.

Crops being used in what is apparently the wasteful and polluting process of producing a gasoline additive might also be looked at as food taken out of the mouths of starving people if one were so inclined. For as more farmers turn their crops over to ethanol production, and in light of the land being covered with water in spring flooding, food prices for both these grains and the meat products that come from the animals they feed are likely to see an even greater increases than they have in recent years. 


But that's not all! According to a Las Vegas Review Journal article from 2008, the government program of "paying farmers "rent" not to grow row crops -- including corn and soybeans -- on 34 million acres (emphasis added) is now identified as a "conservation" program". Farmers literally enter into a rental contract with the government not to grow crops in buffer zones along streams and rivers for 10 to 15 years in the name of being eco-friendly. Incredibly, some of this payout is not even about farming and exists only as a legacy to the land, as pointed out in a Washington Post article from back in 2006: "Even though Donald R Matthews put his sprawling new residence in the heart of rice country, he is no farmer. He is a 67-year-old asphalt contractor who wanted to build a dream house for his wife of 40 years. Yet under a federal program approved by Congress, his 18-acre suburban lot receives about $1,300 in annual "direct payment" because years ago the land was used to grow rice." And Mr Matthews is not alone! "Mary Anna Hudson, 87, from ... Houston, has received $191,000 over the past decade. For Houston surgeon Jimmy Frank Howell, the total was $490,709." The total for the program in 2006 was $1.3 billion. One can only imagine what the natural increases in such programs has done to these payments in the intervening 5 years. 


Don't get me wrong here, its nice to see any business doing well in this economy, and small family farms have suffered setbacks in years past; but income for farmers has been up in recent years. It seems that now however, with the increase in larger individual farms and Corporate farming, that this occupation has become little more than another bunch of self-serving individuals and greedy businesses that have gotten very good at playing the government lobbying game at the expense of taxpayers. So while they may be planting corn, wheat, soybeans, and rice (or not of course), what they are reaping is in actuality a grand harvest of Government Subsidies ...

Nobody Expects ...

"Nobody expects the Spanish Inquisition," was a bit made famous in the original Monty Python's Flying Circus television show. In typical Python fashion, it is a bit that goes from a description of problems at an English mill and a simple question to a bizarre scene transition and the appearance of three rather bizarre Cardinals whose arrival was anything but expected and whose confusing description of their weapons and methods (even to themselves) was both humorous and ridiculous. 


I am reminded of this almost daily while listening to the financial segment "After the Bell" on the Brian Wilson Show in the afternoons on AM 1370 WSPD in Toledo, as he discusses the apparent surprise that the government experiences about economic reports with Gary Rathburn of Private Wealth Consultants (Brian sometimes even uses the Python quote himself). It cannot help but make one wonder if perhaps this is the model that government uses in hiring economic experts and calculating key economic indicators. When was the last time that you heard the release of financial data that was not "unexpected"? 


Everyone knows that no one can afford to buy a house, but new housing starts are "unexpectedly low". Everyone knows that jobs are difficult to find, but unemployment is "unexpectedly high". Everyone knows banks are getting burned by mortgages that are under water, but lending is "unexpectedly soft". Everyone knows that there is little money to invest these days, but the market is "unexpected flat". 


Of course such data appears these days to be almost entirely subjective and the poorly hidden secret is that it is also often ruthlessly and politically manipulated. We count the unemployed, unless of course they have given up looking for a job or have run out of unemployment insurance claim money. We calculate the cost of living, but don't include the costs of such "non-essentials" as fuel and food in the equation. We track the federal deficit, but don't include the trillions of dollars in entitlement program shortfalls (like those of Social Security and Medicare) whose existence is well known and which are expected to increase dramatically in the coming years.


No matter what numbers they ignore and how they scrutinize and tweak them to fit pre-established conclusions however, the results of the calculations remain a mystery to those whose education and training has led them to seek government employment as experts. It seems that for all of the time, money, and effort expended by government to gather such data, analyze it, and report it to us; the experts government employs are endlessly surprised by the information they themselves generate. No matter what the resources that they have at their command, they seem incapable of understanding data that they are paid to work with every day. 


These government church officers (from Our Lady of the Federal Reserve and Treasury no doubt) seem as clueless of their weapons and duties as the Cardinals of Python fame (and they don't even get to wear the snappy uniforms). In no other field in fact (even weather forecasting) does it appear that there is so much that the experts in the field are surprised by and so little that can be predicted by them from one day to the next. 


One cannot help but speculate whether such surprise is in fact real, or simply a poor attempt to cover something up in the government litter box. Perhaps the unexpected nature of such reports simply serves as a politically expedient excuse for the lack of real progress on the government's part where the national economy is concerned. If the unemployment numbers are unexpectedly high, how can government be expected to do something to lower them? If Medicare is going broke sooner than expected, how can government be expected to anticipate such costs to reduce them? If the national debt is increasing faster than expected, how can we expect government to control its extravagant spending and slow it down? 


It seems that like many terms that have become a running joke in government over the years (military intelligence, spending cuts, or fiscal responsibility), the concept of a 'government expert' on financial matters has become not unexpectedly ... laughable. One cannot help but wonder when this country's financial condition is apparent to even the rank amateur, that it can be so unexpected to the experts in government. 


It therefore appears that when it comes to government financial experts, we should simply no longer even expect them to know what they are doing. We should certainly not expect them to understand the meaning of the information that they gather and interpret. And under no circumstances should we be surprised to find out that the conclusions generated by such data with be something that they did not expect.

The Government Trickle Down Effect

As the May ballot process swings into high gear, two of those depending on the support of taxpayers are lining up to put additional taxes on the ballot. Whether we are talking about the City of Toledo or the Toledo Public Schools (TPS), the claim is that they simply no longer have the money to make ends meet. 


While I believe that many of us suspect that their claims are less than genuine, let's set that aside for now. The interesting thing to me is the economics involved with the request. The city rightly claims that there are streets to be paved and plowed, fires to put out, and crimes that its citizens need to be protected from. Unfortunately, they take a legitimate observation and abstract the flawed result from it that the only way to balance the books is to extract more from the citizens. 


TPS likewise rightly claims that the children of Toledo need to be educated. And in spite of the fact that the number residents, and therefore the students that it serves appear to be going down, the money required to educate these young people continues to increase. TPS further correctly claims that the state is no longer supporting education at the level that it once did in the past. (They might further claim that the state is still funding education in violation of a court order, but that's for another day.) The flaw in their reasoning is much like that of city, that this or any other revenue shortfall must be made up from local residents regardless of the service provided or the numbers requiring it. 


The state in turn, claims that it is suffering under increasing unfunded mandates from the federal government and has a debt problem of its own. And while it is not currently making a request for additional funding directly, it has passed legislation to delay impending state income tax cuts and stabilize their own revenue levels (which is pretty much the same thing). 


The federal government has just passed legislation to increase its debt ceiling by $1.9 trillion, which I think speaks for itself. And in spite of the fact that some tax cuts passed during the Bush Administration are set to expire and will not be renewed (which would qualify as a tax increase), there seems little doubt that this will hardly slow the increase of the federal budget shortfall. The federal government would be in even more trouble in balancing its books, but has found some solace in its ability print money at an alarming rate. 


The amazing thing about all of this is that the federal government is certainly not taxing us less than they have in recent years. In spite of this however, there appears to be less money to share with the state. The state in turn has not significantly lowered their own tax rate, and yet they appear to have less to share with the cities and with the local school districts. Neither the city nor the school district have lowered their taxation demands, but they too are unable to make ends meet. 


I have often been told by both the media and Democratic politicians that the concept of "trickle down economics" from the Reagan years were in large part a failure in spite of their bringing the economy back from the very brink of disaster that the Carter Administration left it in. We were told that giving more money back to the people thorough tax cuts was in no way capable to stimulating the production of revenue for either the government or the people paying the taxes.  


Government however, appears to be more impressive in reproducing the this trickle down effect. The process in which Government allows not money, but increased levels of taxation trickle down is proving particularly effective. Unfortunately for the government and for us however, the result appears to allow not only increasing taxation, but increasing debt to trickle down to the state and local levels.

Presidential Property

The President met with financial leaders around the country some weeks back in a meeting, according to the White House, to discuss ways to help get the country back on track. It was apparently also to make sure that these executives understood that he was unhappy with the salaries and bonuses being handed out in 2009, for as Obama said on “60 Minutes” just before, "I did not run for office to be helping out a bunch of, you know, fat-cat bankers on Wall Street.”

Of course many of these banks took government bailout money, so I suppose they should expect some scolding from this newest investor. As stewards of the people's money, the government says that some of that investment is being wasted on executive salaries (and believe me, the federal government is an expert on waste). For them, this apparently becomes a question of ownership.

The banks, strangely enough, believe that their stockholders own these respective companies; and with their boards are allowed to determine the rate of pay for their employees. They do this in the form of employment contracts at all levels from the janitor to the CEO, which are legally binding agreements for salary, bonus, and benefits. Now a contract in any form is ultimately a legal agreement to determine the disposition of property, which is why it is so important. 

The Rights of Property are a fundamental principle upon which this country was founded. They were so important to the Founding Fathers that the phrase "Life, Liberty, and the Pursuit of Happiness" in the Declaration of Independence originally read “Property” instead; with Jefferson only grudgingly changing it to insure that slavery was not justified by the document. They understood that the Right to Property was a ultimately Right to Liberty. If an individual cannot own his labors, the reimbursement that he receives for them, and the disposition of such as he sees fit; he owns nothing and cannot be free. 

While I can understand the concern of the President and Pay Czar with regards to what may be excessive executive compensation, I find no power provided them to interfere with this process that trumps those specified rights. Do I object to the salaries and bonus that these people are making ... Yes! I object to them however, no more than I object to the high salary of a baseball player who hits .250 after signing the big money contract, than I do the coach who signs a similar agreement and produces repeated losing seasons, than I do to the actor who commands big bucks for a performance in an inferior movie. I object to anyone who gets paid more than their job performance has earned them, as far too many of us get far less than ours merit. I likewise object to anyone who gets paid a bonus for a failing to perform in a way that enhances the success and profit of their employer.

But my opinion should prove of little consequence when it comes to the rate of compensation for anyone. Neither should this be of any concern to the government. Whether an employee is making too much money is a matter of contract, with the labor of the employee and the level of compensation guaranteed under this legal agreement by both custom and law. The employer has a right (and perhaps even an obligation) to re-negotiate such compensation if it is not justified by the performance of the employee. 

They can also likewise terminate said employee if their performance is found to be unsatisfactory. Under no law existing in this country however, is it the right or obligation of any branch of the government or any member thereof (elected or appointed) to ignore these basic rights of property. 

There is no provision in the Constitution to allow the government to step in and cast aside the concept of a legally binding contract simply because it believes that it knows best what people should be paid. The President apparently believes that government investment trumps all others and makes them the true owners to these companies however. They evidently believe that any use of taxpayer funds creates some form of “higher ownership” of these organizations that must be exercised as compensation control. If this is allowed to continue and the government can dictate compensation for employees after the fact in this country, two things will eventually happen:

1. The rule of law and the concepts of contracts, property, and liberty will suffer a serious setback in this country (if they haven't already).
2. The companies forced to follow the dictates of the President and the Pay Czar will find themselves part of what will become the only property that will still matter in this country, Presidential Property.
   
   

Buy American Automobiles: An Idle Question or Two

There has been a lot of discussion in recent weeks over the automobile industry in the United States (some of it in this blog today). In spite of the fact that almost all of the manufacturers of automobile in the United States have manufacturing relationships with each other for various parts or parts of their product line, we never the less insist upon defining them as either foreign or domestic.  

This definition gets plenty of discussion as well. Is a car foreign or domestic based on where the preponderance of its parts are manufactured, where it is assembled, or where the company in questioned is Incorporated? There are many good arguments for all of these points, but all discussion seems to end when we talk about the country of incorporation comes up. 

We are told that we should buy from the Big Three not because the parts for these vehicles are manufactured in this country (which in many cases they are not), not because they are assembled in this country (which again, in many cases they are not), but because these corporations return and reinvest their profits in the US economy. Forgive me for asking the obvious, but:  

What profits?
 The Big three have routinely proved themselves unable to make a profit, in fact losing money. So what profits are we actually worried about them reinvesting. In many cases quite frankly, the only profit that the Big Three are making is in their overseas sales. Which leads to my next question.

 If we restrict ourselves to the purchase of "American Automobiles", what do we do if the rest of the world decides to do the same kind of restrictive auto purchasing? Where would the Big Three be if their only market was in the United States?  

Maybe I'm being a bit simplistic here, but this problem will not be solved by trade barriers, or worse trade wars, over the manufacturing of automobiles. I recommend a bit of reading on a situation that eerily relates to the current auto crisis, "Well Made In America" by Peter C. Reid. It is the story of the fall, and rise of Harley Davidson in the motorcycle market. It's a real eye opener.

 

Circular Lending & The Economy

Imagine that you are a family facing tough times (not much of a stretch these days, I know). You have some assets, but lately they seem to be equaled or exceeded by the debt load that you carry. Revenue continues to come in, but it seems that it does so at a decreasing rate. You make your payments (at least the minimum); but with a tough economy, you are finding it tough to balance the budget. As a consequence of the increasing burden on your budget, brought on the the continuing struggle of the economy, you find yourself sinking slowly and inexorably into increasing debt. 

Finally, reaching a point where you think that there is nothing you can do and pushed to your last alternative, you proceed to ...

... sign two new credit card applications and proceed to max the suckers out in an attempt to fix your budget problems.

Sounds pretty ridiculous, doesn't it? There is no way in hell that you can hope to balance household budget by putting yourself into even more debt. Increases in the total interest that you will be obligated to pay on the higher balance, higher minimum payments due because of the increase in debt load that you just assumed, and probably higher interest rates for the money that you borrowed (because your credit can't be that good by now) mean that not only will you not recover from the original problem; but that you will now have created a situation that you have no hope of recovering from. 

So maybe you can tell me why that is exactly what our government just proceeded to do. After complaining for the last eight years the impending doom of government deficit was looming like a Sword of Damocles above the country, the only solution that they can discover is to increase the number of weapons hanging above us. Do the expressions "one-armed paper hanger" or "one-legged man in an ass kicking contest" mean anything to you? Now I am not a leading national economist, but I do have some experience with crushing debt. 

I likewise have some experience with the concept of how to balance a checkbook. Perhaps such talent is exactly what's needed in Congress today. Perhaps the experience of spending other people's money in Congress, of passing legislation on spending that have no real impact over those very members of our legislature, of having the ability to print more money when they run out has simply gone to their head (turning it to the consistency of tapioca pudding). 

Hey, maybe the answer is that I should put myself in line for the job of Treasury Secretary. Maybe in fact, I could just move in and take over the job. After all, I'm sure that to the unwashed public (you know, us) all Timothy's look alike anyway. ... Nah

 

Hola From Columbia

Greetings from the people of Columbia, at least that is what I have been asked to pass on. By the time that I post this Saturday morning, I will have just returned from a five day trip to Bogota, Columbia. There were a couple of things in this short trip south that I couldn't help but notice, and I thought that I would share them with you briefly (mostly because I am exhausted from another 15 hour travel day).  

For those of us in Toledo who are complaining about there not being enough police serving the city and that those out there are not visible, let me tell you that things in Bogota are very different. This city of a little over 3,000,000 people has some 10,000 police officers. As a consequence, I can tell you that the police presence here are very visible. They are on many street corners, at the newspaper where I worked this week, and very much in evidence at the airport; and let me tell you that they and their counterparts in the army are readily apparent to even the most casual observer. 

As someone who is a stranger here in Columbia (and simply strange in most other places), and who does not speak the local language, I must tell you that this highly visible presence of protection was extremely comforting. The second thing that struck me this week was the concern of the Columbian people for us. I cannot tell you how many people who have stopped me to talk to me ask how things were going in the US and what the long-term economy looks like. 

While I expect that there was a self-serving aspect to some part of this questioning, as the US is Columbia's largest trading partner, I sensed a real concern on their part for what might be going on and for the people of the US. They are likewise curious about the feelings of the American people on the massive bailout packages in the US that have been making news all over the world. The only honest answer that I could share with them was our similar concern (and the fact that I was yet to clear US Immigration had nothing to do with it). Quite frankly I don't know of anyone who is sure that our government has done the right thing (though many of us suspect that they have not). I likewise don't know of anyone who knows if it will do any good, or how and when all of this might end.  

While I have to say that I am grateful for my safe return to the US (even Toledo looks pretty good right now), I must again extend my thanks and gratitude to the people that I met and worked with in Bogota. They were universally friendly and helpful to a stranger (and who is stranger than me), who spoke no Spanish and was mostly helpless in trying to get around the city. I have seldom been treated so well in any city in the world.

 

Bailing Out The Things We Need

I think that I have finally figured out the Congressional thinking on the penchant for government bailouts, and strangely enough the connection came to mind while watching an old Steve Martin movie, "The Jerk".

For those of you unfamiliar with the plot of this engaging little comedy, it is a 1979 Rob Reiner movie that follows the life of Navin R. Johnson, a white man adopted as a child by a southern black family. Johnson is an innocent and mostly clueless individual who blissfully stumbles through life until almost by accident becoming rich and famous by creating a ridiculous handle for eyeglasses called the "opti-grab". 

Unfortunately for our hero, his fame and riches are short-lived however, when it's discovered that his invention causes the people who use it to become cross-eyed. Naturally he is sued, and in the settlement our intrepid inventor loses everything that he owns. Despondent, he turns to drinking and begins a personal spiral downward. It is at that low point that we join Navin, as he decides to walk away from everything in his life, taking only what he deems necessary to survive.

"And that's it and that's the only thing I need, is this." he says, picking up an ashtray. "I don't need this or this. Just this ashtray. And this paddle game, the ashtray and the paddle game and that's all I need. And this remote control. The ashtray, the paddle game, and the remote control, and that's all I need. And these matches. The ashtray, and these matches, and the remote control and the paddle ball. And this lamp. The ashtray, this paddle game and the remote control and the lamp and that's all I need. And that's all I need too. I don't need one other thing, not one - I need this. The paddle game, and the chair, and the remote control, and the matches, for sure. And this. And that's all I need. The ashtray, the remote control, the paddle game, this magazine and the chair."

There it is in a nutshell folks ... Congressional thinking on solutions to the current financial crisis!

All we need to do is bail out the Wall Street firm Bear Sterns and that's it... oh and Goldman Sachs, we need to bail them out too, but that's all. Wait, we need to bail out Fannie Mae and Freddie Mac too, but just the the two Wall Street firms and the two mortgage groups ... oh and their insurance company AIG, but that's it. Just Bear Sterns, Goldman Sachs, Fannie and Freddie, and AIG need to be bailed out and that's all for sure. And the other banks, we need to bail them out too. But that's it, just the Wall Street firms, Fannie and Freddie, AIG, and the banks ... oh and the Big 3 of the auto industry. We need to bail them out too, but that's it. We just need to bail out Bear Sterns, Goldman Sachs, Fannie, and Freddie, AIG, the banks, GM, Ford, and Chrysler; but that's all we need to bail out...

And once again, the truth proves to be even stranger than fiction. Once more we find ourselves confronting a reality far more ridiculous than the anything ever produced in Hollywood. Isn't it sad (and sadly fitting), that our elected leaders can be summed up so completely by a fictional character of no intelligence and little common sense? Isn't it amazing that our government's solution to what may be the most critical problem of our age seems to be coming out of a slapstick comedy from almost 30 years ago? Don't laugh through your tears too quickly yet my friends. It is after all, your money that they are using to make these bailouts and it appears that Congress hasn't made it completely out the door yet. I wouldn't be surprised if they found a couple of more things that they "need" to add before they finally walk away. 

 

The New, New Deal

I was listening to the president elect outline the beginnings of his economic plan. This plan, for those of you who haven't been paying attention, proposes to create (or save) 2.5 million jobs by building roads, bridges, and schools; while also focusing on alternative energy and more efficient cars.  Now a couple of things seemed kind of funny about this to me, so being the kind of person that I am, I had to sit back to think about it.

My first concern was pretty obvious, and it was because of all the comparisons that the media made to this economic plan and FDR’s New Deal. For those of you who don’t spend far too much time reading history books (or watching the History Channel), the New Deal was a series of programs instituted by President Franklin Delano Roosevelt between 1933 and 1936 in an attempt to turn around the country during The Great Depression which began with the stock market crash of 1929. FDR’s programs provided jobs for many people who needed them at the time by massive infrastructure projects like building dams, roads, and bridges. 

Of course this New Deal also created the foundation of the welfare state, strengthened the union’s position in collective bargaining, and created Social Security (but that’s a topic for another day and posting). While these programs did provide jobs for many out of work Americans, they did not however end the Great Depression. Many historians in fact believe that these programs in fact delayed the recovery of the American economy through its interference; and that the Depression only ended when the country entered World War II and went into a wartime economy. 

The second part of this second New Deal is that the infrastructure jobs being proposed seem to me to be predominantly union jobs. Road and bridge repairs are usually done by unionized workers at each state’s respective Department of Transportation. School’s are usually built under government bids, which in non-right to work states like Ohio means that they must pay “prevailing wage” (union scale) and in some cases, must be performed by union workers. The money proposed for creation of fuel-efficient vehicles will undoubtedly go to the Big Three, and not overseas manufacturers like Toyota, Nissan, and KIA (who already make such vehicles). 

As a consequence, this money will make its way down to union auto workers. Quite frankly, the only part of this package that doesn’t seem to make its way directly into the hands of union employees is that being directed to alternative energy. I’m not an expert on the subject of alternative energy companies (or anything else for that matter), but based on the other programs I am forced to conclude that I have simply not figured out the union connection to this part of the program and not that there is none. 

I would like to see the president-elect and his economic team come up with some bold new economic initiatives. I would like to see this new administration successful in stimulating the economy, and ending the recent downward spiral. I would also like to see something come from government other than handing out taxpayer dollars in programs designed to benefit only a select type of worker (and I think you know what I mean). I would like our president-elect to show us some real change instead of trotting out tired "old" ideas that didn't work when tried under similar circumstances before I was even born. 

 

Warning: Potential Diplomatic Incident

I was interviewed on video this evening by El Tiempo, one of the newspapers in Bogota, Columbia. (That is where I am working this week.) It seems as though my translator is also an editor for the Financial section of the newspaper, and that they thought it might be interesting to have the opinion of an American citizen on the American economy, the Bailout, and the future; since they had one at their disposal.  

I was asked whether I thought that the Bailout was necessary.  
I stated that it appeared that the market had been in need of a correction for some time, and that it appeared to have finally gotten one. Government precipitated this by pressuring the banking industry to loan money to people who couldn't pay it back, and that eventually the banking industry was proved right in their assessment. These loans, passed up the investment food chain by the unscrupulous part of the banking industry eventually caused business failure in many of those organizations. Those failures in turn created a good part of the financial crisis that in turn led to the market crisis. Interference by the government didn't change those facts, but might lengthen the time frame for the resolution of the situation.

I was asked whether the Bailout was successful. 
I stated that the bailout was designed to address the market and credit crisis, but recent market fluctuations have so far proved otherwise.  

I was asked if the Bailout was of concern to me. 
I stated that it very much was. I said that I felt that the entire US economy had been placed in the hands of the Secretary of the Treasury in the rush to a solution. Placing that power and 700 billion dollars in the hands of a bureaucrat who doesn't run for election and will be leaving in a couple of months is scary. Leaving that power behind for whomever may follow is even scarier.  

I was asked if I was doing anything different as a result of the crisis. 
I replied yes, making little or no luxury purchases and paying my debt down as quickly as I can. I also said that I was looking forward to working longer, as I had probably just lost 30% of my retirement money in the market plunge.

I was asked if I had any idea when the crisis would end. 
I replied that a lot of people who were smarter than me about money were asking themselves the same question, and not coming up with an answer; so how could I be expected to. As I was being escorted back to my hotel for the evening, I was informed that this would not be the background material that I had thought, but that instead it would be broadcast on TV and placed on the El Tiempo website (I may provide the link as a laugh for all if and when they send it to me). 

As a consequence of the use of this interview however, I now wish to state for the record that I deny any and all responsibility for anything said during it. I have been working long hours, have been oxygen deprived because of the altitude, had a rock in my shoe, the sun was in my eyes, I ran out of gas, I had to visit a sick friend.

IT'S NOT MY FAULT!

These were simple remarks made by an even more simple American citizen and should not be presumed to reflect the policies of the American government or those of anyone with an IQ in double digits (categories that are often mutually exclusive).

Jeez, I hope they let me back in the country ...