FTR #1. There will be a lot of hoopla for the next few weeks about the greedy, inglorious basterds that we all know and love as “Wall Street.” Wall Street people are not wealth creators, regardless of the nonsense coming from their public relations machines. If they fail, as well many should, there will be some passing disruption akin to weeding out a vegetable garden. There may be limited, temporary disruption to the healthy productive plants but during harvest season the garden will be much more productive as a consequence of the weeding disruption. So it should have been when the greedy bastards (not everybody on Wall Street meets this definition) got caught outsmarting themselves with their aggressive holdings of crap securitized mortgage instruments. But, alas, the government, creator of all 20th century and now 21st century financial problems, decided to bail them out lest someone investigate their role in the fiasco. Well let’s set the record straight. The SEC has a budget of almost one billion dollars per year for an essentially recordkeeping oversight role that could be done in the private sector with computers for a fraction of the cost. The SEC should have done several things to blow the whistle on the greedy basterds. They did not. Instead, one sharpie and then a few others, with a computer and the $100 annual subscription fee to access the documents attached to the crap securitized mortgage instruments, analyzed them and concluded that they were a financial disaster waiting to happen in a very short time. So, they bet against the crap securities and made fortunes. They could have blown the whistle but as we subsequently have learned in the Madoff case, it would have been for naught. The SEC is way too important to listen to someone who is not in the territorial limits of the District of Columbia. Just to set the record straight, the greedy Wall Street basterds had more than casual support from their ignorant rating agency cohorts. More importantly, the finger prints of the national government in the form of the SEC, Department of the Treasury and Federal Reserve are all over this debacle. No one has paid for their complicity in this fiasco. This government refuses to self discipline. FTR.
FTR #2. The silly boy cum community organizer cum el presidente now wants to increase exports. His public relations releases for this cause du jour includes the following statement repeated sycophantly reported by NBC which appears to be the principal apologist/supporter for this rapidly failing (and that’s a fairly optimistic opinion) administration: “America is already the world's No. 1 exporter and the White House intends to stay in the lead, said a senior administration official who briefed reporters on the president's National Export Initiative ahead of the speech.” Read it all, if you have a couple of minutes to waste, at http://firstread.msnbc.msn.com/archive/2010/03/11/2225323.aspx Now, just to set the record straight, there are problems with this statement and this “initiative.” As carefully researched and analyzed and presented by TheFundamentals is its February 23, 2010 posting, the US is not only not the “world’s No. 1 exporter” it is not even the No. 2. In dollar volume it is No. 3. Further, when analyzed on a per capita basis which means dollar value of exports per citizen, it drops to No. 9. Why does the government lie about our position? Well, if you have been reading TheFundamentals you know. For fifty years the US national government aided and abetted in many cases by state governments has taken a series of legislative actions designed to promote and protect certain groups of people which we know today as special interest groups. The most significant among these are public sector unions, attorneys and certain private sector entities. In so doing, these government bodies have forgotten the basics of economic intercourse which are price, quality and competitive features. The government has nothing to do with wealth creation. The government is a wealth destroyer. That is why it must be limited (see: USConsitution.) Wealth creation exists where enterprises are free to produce unfettered by government interference in the form of union promoting legislation, layers of rules and bureaucratic meddling and high taxes spent on non productive activities such as transfer payments and massive bureaucracies. There is as much chance of Obama increasing US exports as there is of Obama balancing a budget as there is of Obama paying down the national debt as there is of Obama even grasping that only through these aforementioned acts will US exports increase. FTR.
FTR #3. Let’s quit kidding ourselves about the failure of the Obama/Pelosi/Reid (OPR) health care entitlement legislation that will add massive spending to the annual deficits of the US long after this gang is enjoying their government pension checks. OPR run the national government in every sense of that term. They control all electoral and bureaucratic offices and personnel – over 2 million employees. Their majority in the senate is 59 – 41 and in the house they have about a 70 seat majority. And yet, they can’t get a simple majority to pass this legislation. Duh? Even Homer Simpson could see through the spin coming out of OPR about this legislation. What does it tell you when they can’t get any party out of power (POOP) votes and, even in their own party where they control all the goodies such as legislative favors and committee chairmanships, they cannot muster a simple majority out of a 70 vote absolute majority? The legislation stinks! All 2000+ pages of it. FTR.
Tuesday, March 16, 2010
Thursday, March 11, 2010
Seduction
Please click on and read this article entitled “Feds outline plan to nurse Great Lakes to health” http://www.denverpost.com/news/ci_14442676?source=searchles
Is this “plan” good government? When you read it did you think, “Boy, good idea; let’s get going.” Or did you think, “Is it just another spending plan? Is it designed to seduce a variety of audiences to rally around it and support it? Is it something the national government should embrace? Is it a power the people and states designated to the national government?”
What does government seduction look like? Let’s look at the above example. TheFundamentals thinks this "Great Lakes" example is representative of the process of seduction and greed that lead to promiscuity that leads to deficits = debt = destruction. So, we offer this “Great Lakes” example as a case study.
What are the characteristics of a government seduction plan?
1. Noble idea: rescue the Great Lakes. Great plan objective: save 20% of the “world’s” fresh water supply. Ideal concept: leave the Lakes better for the next generation. Backed up by apparent facts and statistics: protection of 100,000 acres of wetlands and a 40% reduction in the rate at which invasive species are discovered. We’ll come back to this obvious word parsing – think Clinton and his famous “it depends on the definition of “is” comment. Quotes from important people: well, the head of EPA is important to some people. If you read the article you will recognize that this seduction example contains all the necessary characteristics of a really good government seduction plan. There’s more.
2. Inclusion. A great seduction plan will always be inclusive. It does not appeal to one or two audiences. It appeals to ten, twenty, maybe even fifty audiences. In the article there is a key sentence – “The 41-page plan sets out ecological targets and specific actions to be taken by 16 federal agencies working with state, local and tribal governments and private groups.”
Sixteen federal agencies. State, local, tribal and private governments and groups. So, now the hook is set. Noble plan. Terrific objectives. Everybody is going to be included. Let’s get going.
3. Wait, there is still more to the seduction process. What is that you say? MONEY. Lots of money. We’re not talking a million or two. We’re talking a billion or two. A million or two won’t catch the eye of most bureaucrats, politicians and special interest groups so go for the big numbers. Billions always catch their attention.
4. Special interests. Keep them in the background. Don’t mention them. Stay on message. Stick with the ideals, the noble aspects. No need to mention the people who will really benefit. Who are they? You name it. Contractors. Consultants. Lawyers. Unions. See #2 above. SIXTEEN Federal Agencies will benefit. Note the subtle use of “private groups.” That list will be legion. They are the ones who have already planted their seed in the government agency receptacles. They are already figuring out how to get their piece of the programs billions. And they know that the spending estimate of $2.2 billion is just the beginning. They know that history tells them that this project will end up consuming 6 or 8 billion when it is done if it’s ever done. And they know that no one will be measuring results. No one will be saying stop. Eight or ten years from now someone will suggest a new program to deal with “rescuing the Great Lakes.”
5. Avoid any measurement or detail objectives. Government seduction plans are not measurable; they are way too important to be subject to examination. Avoid any form of public accounting. Avoid any employment of outside auditors to follow expenditures and measure results. Avoid accountability. Seduction and promiscuity are not exactly consistent with accountability. Parse the words. Don’t say there will be no Asian carp in the Great Lakes by 2014. Say that there will be a 40% reduction in the discovery rate of invasive species. Who knows what the heck that means? It means nothing. It can’t be measured. Remember creating and saving four million jobs? You can’t measure jobs saved. Make it vague. We’ll make up something later if anyone even cares.
So there you have it. When you read the article were you seduced? Or were you skeptical?
Couple of closing comments. Is financial seduction legal? Probably not but no one who can stop it is either interested in stopping it or is held accountable for not stopping it. The government machine of politicians, bureaucrats and special interests live for these seduction plans. Judges, who should make the aforementioned live within the constitution just don’t have the cojones to do their job and face down the legislators who can cut off funding for the judiciary. The constitution is quite clear in enumerating 18 activities for the national government. Distributing money to the states, tribes, local government and private parties is not one of the enumerated powers. The members of congress and the president all take an oath to defend and uphold the constitution. Vagueness in the wording of the constitution has been used by thousands of elected officials and judges to disregard their limited powers and expand their activities into massive wasteful spending that now threaten the very republic they are sworn to support.
The size and power and armaments now held by the government seduction machine may no longer be controllable by “We the People.” There is going to be an inevitable clash over the deficits and the debt. But complaining will do naught to deal with this mess. There are so many beneficiaries of government seduction plans and greed fulfillment that it may be too late to enact corrective measures. Remember, these activities do not exist without public funds. Public funds come via taxes and debt. If you want to put an end to wasteful spending, the funds must be cut off.
Is this “plan” good government? When you read it did you think, “Boy, good idea; let’s get going.” Or did you think, “Is it just another spending plan? Is it designed to seduce a variety of audiences to rally around it and support it? Is it something the national government should embrace? Is it a power the people and states designated to the national government?”
What does government seduction look like? Let’s look at the above example. TheFundamentals thinks this "Great Lakes" example is representative of the process of seduction and greed that lead to promiscuity that leads to deficits = debt = destruction. So, we offer this “Great Lakes” example as a case study.
What are the characteristics of a government seduction plan?
1. Noble idea: rescue the Great Lakes. Great plan objective: save 20% of the “world’s” fresh water supply. Ideal concept: leave the Lakes better for the next generation. Backed up by apparent facts and statistics: protection of 100,000 acres of wetlands and a 40% reduction in the rate at which invasive species are discovered. We’ll come back to this obvious word parsing – think Clinton and his famous “it depends on the definition of “is” comment. Quotes from important people: well, the head of EPA is important to some people. If you read the article you will recognize that this seduction example contains all the necessary characteristics of a really good government seduction plan. There’s more.
2. Inclusion. A great seduction plan will always be inclusive. It does not appeal to one or two audiences. It appeals to ten, twenty, maybe even fifty audiences. In the article there is a key sentence – “The 41-page plan sets out ecological targets and specific actions to be taken by 16 federal agencies working with state, local and tribal governments and private groups.”
Sixteen federal agencies. State, local, tribal and private governments and groups. So, now the hook is set. Noble plan. Terrific objectives. Everybody is going to be included. Let’s get going.
3. Wait, there is still more to the seduction process. What is that you say? MONEY. Lots of money. We’re not talking a million or two. We’re talking a billion or two. A million or two won’t catch the eye of most bureaucrats, politicians and special interest groups so go for the big numbers. Billions always catch their attention.
4. Special interests. Keep them in the background. Don’t mention them. Stay on message. Stick with the ideals, the noble aspects. No need to mention the people who will really benefit. Who are they? You name it. Contractors. Consultants. Lawyers. Unions. See #2 above. SIXTEEN Federal Agencies will benefit. Note the subtle use of “private groups.” That list will be legion. They are the ones who have already planted their seed in the government agency receptacles. They are already figuring out how to get their piece of the programs billions. And they know that the spending estimate of $2.2 billion is just the beginning. They know that history tells them that this project will end up consuming 6 or 8 billion when it is done if it’s ever done. And they know that no one will be measuring results. No one will be saying stop. Eight or ten years from now someone will suggest a new program to deal with “rescuing the Great Lakes.”
5. Avoid any measurement or detail objectives. Government seduction plans are not measurable; they are way too important to be subject to examination. Avoid any form of public accounting. Avoid any employment of outside auditors to follow expenditures and measure results. Avoid accountability. Seduction and promiscuity are not exactly consistent with accountability. Parse the words. Don’t say there will be no Asian carp in the Great Lakes by 2014. Say that there will be a 40% reduction in the discovery rate of invasive species. Who knows what the heck that means? It means nothing. It can’t be measured. Remember creating and saving four million jobs? You can’t measure jobs saved. Make it vague. We’ll make up something later if anyone even cares.
So there you have it. When you read the article were you seduced? Or were you skeptical?
Couple of closing comments. Is financial seduction legal? Probably not but no one who can stop it is either interested in stopping it or is held accountable for not stopping it. The government machine of politicians, bureaucrats and special interests live for these seduction plans. Judges, who should make the aforementioned live within the constitution just don’t have the cojones to do their job and face down the legislators who can cut off funding for the judiciary. The constitution is quite clear in enumerating 18 activities for the national government. Distributing money to the states, tribes, local government and private parties is not one of the enumerated powers. The members of congress and the president all take an oath to defend and uphold the constitution. Vagueness in the wording of the constitution has been used by thousands of elected officials and judges to disregard their limited powers and expand their activities into massive wasteful spending that now threaten the very republic they are sworn to support.
The size and power and armaments now held by the government seduction machine may no longer be controllable by “We the People.” There is going to be an inevitable clash over the deficits and the debt. But complaining will do naught to deal with this mess. There are so many beneficiaries of government seduction plans and greed fulfillment that it may be too late to enact corrective measures. Remember, these activities do not exist without public funds. Public funds come via taxes and debt. If you want to put an end to wasteful spending, the funds must be cut off.
Tuesday, March 9, 2010
Executive Order 10988
On January 17, 1962, John F. Kennedy signed executive order #10988 which authorized national public employees to unionize and, thereby, forced the national government to negotiate contracts with union's representing employees. This order has done more to change the relationship between America's national government employees and its taxpaying citizens than any other act since the founding of the republic. What TheFundamentals displays below is an advertisement issued shortly thereafter encouraging government employees to join their union, Service Employees International Union (SEIU.) What is the most powerful union for government employees today? SEIU! 2.2 million members. What organization leads TheFundamentals list of special interests? The SEIU! Just think about this situation. These workers enjoy wages almost double (in many cases, triple) that of the average American worker. They receive benefits (vacations, holidays, snow days, health insurance, etc.) way beyond that received by the average American worker. Their pension plans read like something Marie Antoinette would have composed for her court with generous payments after abbreviated work periods. Can this be changed? Of course. It might be something we voters wish to ask our candidates later this year as we are deciding for whom to cast our ballot. By the way, in one of the most flagrant examples of presidential power abuse of the electorate, BObama just appointed the head of SEIU, Andy Stern, to his taskforce to examine ways to reduce the national debt (http://www.seiu.org/ .) The joke, if you enjoy gallows humor, is on us. Ask Andy Stern how much interest he has in reducing the national debt. Don't forget to ask him to be specific about the savings that the SEIU will contribute to that end.
Friday, March 5, 2010
The Lonesome Man on the Mound
The United States is about to lose its politician pitcher. Who is this man, Jim Bunning? What can we tell about a man who stood alone and said “Enough” and when he could have used some help, some defense, some support, he found himself alone on the mound?
Jim Bunning was a major league baseball pitcher before becoming a politician. That qualifies as real life experience because you can get fired. He started pitching for the Detroit Tigers in 1955 and pitched his first no-hitter in 1958. He joined the Philadelphia Phillies in 1964 and pitched a perfect game for them on June 21 which was Father’s Day. How often does a pitcher pitch a perfect game? Well, in the National League, where Bunning pitched his, the previous one had occurred in 1880. There have now been 18 total in both leagues. As Wikipedia points out, more people have orbited the moon than thrown a perfect game. The US has had more presidents than perfect game pitchers. Obama’s wife has more aides and staff members than have ever in history thrown a perfect game. Oprah has been on more diets; Clinton more interns and girlfriends; Rangel more junkets; Tiger more waitresses; Sanford more trail treks and so forth.
The fact that this man pitched both a no-hitter and a perfect game places him in even more exclusive company. That feat has been accomplished by only six pitchers in history. Good baseball trivia question. Name the other five.
What causes a man to be able to accomplish these rare feats? TheFundamentals would suggest a few skills and traits: confidence; knowledge of the opponents; darn good curveball; really good fastball; some good fortune and a good defensive team backing you up. One more thing about Bunning. He didn’t always do what he was told to do. He often waved off pitch suggestions from his manager and catcher. He was and is his own man.
So, what does this have to do with the topics that TheFundamentals addresses? Bunning is retiring from the senate at the end of the year. He decided recently that it was time for the government to stop passing more spending legislation without paying for it. He has often been a maverick in the senate. So he stopped legislation to extend unemployment benefits. You can imagine the outcry. After several days of getting no support he backed off. He actually stopped for several days an extension of unemployment benefits and some other spending projects. Can you imagine? What audacity?
Here is a long quote from the head of the AFL-CIO, Richard Trumka: “Last Friday Senator Bunning single-handily blocked a vote on a House bill (H.R. 4691) that would have provided a short-term extension of the federal highway bill. Because authorization for the highway bill has expired, highway trust fund money cannot be collected or spent, and employees at the Transportation Department whose salaries are paid out of the trust fund have to be furloughed.
Yesterday Transportation Secretary Ray LaHood announced that 2,000 employees are being furloughed, primarily at the Federal Highway Administration (FHA), the Federal Motor Carrier Safety Administration, some portions of the National Highway Traffic Safety Administration (NHTSA), and some portions of the Research and Innovative Technology Administration (RITA).
The lapse of highway bill authorization means construction workers will be sent home from job sites because federal inspectors must be furloughed. Secretary LaHood also released a list of 41 federal lands construction projects in 17 states, Washington D.C., Puerto Rico, and the Virgin Islands that will be halted because federal inspectors are being pulled off the job. Halting these projects will make it harder for local economies, businesses, and working families to recover from the worst recession since the Great Depression.
There is simply no excuse for Senator Bunning holding these 2,000 furloughed workers hostage. Or for his holding construction workers at 41 projects across the country hostage. Or for his holding 1.2 million jobless workers hostage.
Senator Bunning embodies everything that is wrong with the U.S. Senate today: the ability of individual small-minded, selfish politicians to single-handedly prevent the majority from helping people who need help and solving our country's problems. “
Trumka had his say. Here is ours. Trumka has never met a subsidy, a bureaucrat, a protective piece of union legislation or a government program that he didn’t like. Who will stand up to the Trumka’s when Bunning is gone? Who will replace him? Will he/she stand up to the special interests like the AFL-CIO and say “enough?” In November, these politicians will ask for your vote. They might even say that they will stop the government spending. Ask them where they were when the man on the mound needed some help. Ask them what project(s) will they stop? What government spending plans they will stop? What government employees they will terminate? How many will they permanently furlough? What government agencies they will eliminate? What bureaucracies they will shut down? What debt they will repay? What special interest groups they will send home without a government check? ASK THEM WHERE WERE THEY WHEN THE LONESOME MAN WAS ON THE MOUND?
To paraphrase Trumka, “What’s wrong with the senate today?” TheFundamentals thinks that there are not enough small minded, selfish politicians in the senate to say “Enough.” There are too many large waisted, greedy special interest folks like Trumka with their hands out and their lawyers in tow. There are not enough furloughed government employees. 2,000? What the heck? We need 200,000 furloughed.
One last thing about the man on the mound; from his USSenate biography:
“Although his election in the U.S. Senate and induction into the Baseball Hall of Fame stand out as top moments in his life, the all-time high point in his life was his marriage to Mary Catherine Theis. Together, they raised nine children and have 35 grandchildren and 4 great-grandchildren. Jim and Mary make their home in Southgate, Kentucky and are active members of the St. Therese Catholic Church in Southgate, Kentucky.”
Jim Bunning was a major league baseball pitcher before becoming a politician. That qualifies as real life experience because you can get fired. He started pitching for the Detroit Tigers in 1955 and pitched his first no-hitter in 1958. He joined the Philadelphia Phillies in 1964 and pitched a perfect game for them on June 21 which was Father’s Day. How often does a pitcher pitch a perfect game? Well, in the National League, where Bunning pitched his, the previous one had occurred in 1880. There have now been 18 total in both leagues. As Wikipedia points out, more people have orbited the moon than thrown a perfect game. The US has had more presidents than perfect game pitchers. Obama’s wife has more aides and staff members than have ever in history thrown a perfect game. Oprah has been on more diets; Clinton more interns and girlfriends; Rangel more junkets; Tiger more waitresses; Sanford more trail treks and so forth.
The fact that this man pitched both a no-hitter and a perfect game places him in even more exclusive company. That feat has been accomplished by only six pitchers in history. Good baseball trivia question. Name the other five.
What causes a man to be able to accomplish these rare feats? TheFundamentals would suggest a few skills and traits: confidence; knowledge of the opponents; darn good curveball; really good fastball; some good fortune and a good defensive team backing you up. One more thing about Bunning. He didn’t always do what he was told to do. He often waved off pitch suggestions from his manager and catcher. He was and is his own man.
So, what does this have to do with the topics that TheFundamentals addresses? Bunning is retiring from the senate at the end of the year. He decided recently that it was time for the government to stop passing more spending legislation without paying for it. He has often been a maverick in the senate. So he stopped legislation to extend unemployment benefits. You can imagine the outcry. After several days of getting no support he backed off. He actually stopped for several days an extension of unemployment benefits and some other spending projects. Can you imagine? What audacity?
Here is a long quote from the head of the AFL-CIO, Richard Trumka: “Last Friday Senator Bunning single-handily blocked a vote on a House bill (H.R. 4691) that would have provided a short-term extension of the federal highway bill. Because authorization for the highway bill has expired, highway trust fund money cannot be collected or spent, and employees at the Transportation Department whose salaries are paid out of the trust fund have to be furloughed.
Yesterday Transportation Secretary Ray LaHood announced that 2,000 employees are being furloughed, primarily at the Federal Highway Administration (FHA), the Federal Motor Carrier Safety Administration, some portions of the National Highway Traffic Safety Administration (NHTSA), and some portions of the Research and Innovative Technology Administration (RITA).
The lapse of highway bill authorization means construction workers will be sent home from job sites because federal inspectors must be furloughed. Secretary LaHood also released a list of 41 federal lands construction projects in 17 states, Washington D.C., Puerto Rico, and the Virgin Islands that will be halted because federal inspectors are being pulled off the job. Halting these projects will make it harder for local economies, businesses, and working families to recover from the worst recession since the Great Depression.
There is simply no excuse for Senator Bunning holding these 2,000 furloughed workers hostage. Or for his holding construction workers at 41 projects across the country hostage. Or for his holding 1.2 million jobless workers hostage.
Senator Bunning embodies everything that is wrong with the U.S. Senate today: the ability of individual small-minded, selfish politicians to single-handedly prevent the majority from helping people who need help and solving our country's problems. “
Trumka had his say. Here is ours. Trumka has never met a subsidy, a bureaucrat, a protective piece of union legislation or a government program that he didn’t like. Who will stand up to the Trumka’s when Bunning is gone? Who will replace him? Will he/she stand up to the special interests like the AFL-CIO and say “enough?” In November, these politicians will ask for your vote. They might even say that they will stop the government spending. Ask them where they were when the man on the mound needed some help. Ask them what project(s) will they stop? What government spending plans they will stop? What government employees they will terminate? How many will they permanently furlough? What government agencies they will eliminate? What bureaucracies they will shut down? What debt they will repay? What special interest groups they will send home without a government check? ASK THEM WHERE WERE THEY WHEN THE LONESOME MAN WAS ON THE MOUND?
To paraphrase Trumka, “What’s wrong with the senate today?” TheFundamentals thinks that there are not enough small minded, selfish politicians in the senate to say “Enough.” There are too many large waisted, greedy special interest folks like Trumka with their hands out and their lawyers in tow. There are not enough furloughed government employees. 2,000? What the heck? We need 200,000 furloughed.
One last thing about the man on the mound; from his USSenate biography:
“Although his election in the U.S. Senate and induction into the Baseball Hall of Fame stand out as top moments in his life, the all-time high point in his life was his marriage to Mary Catherine Theis. Together, they raised nine children and have 35 grandchildren and 4 great-grandchildren. Jim and Mary make their home in Southgate, Kentucky and are active members of the St. Therese Catholic Church in Southgate, Kentucky.”
Thursday, March 4, 2010
Comments on the Illinois Plan for Fiscal Rehabilitation
Last week, TheFundamentals posted an essay on the alternative routes available to insolvent public entities such as the state of Illinois. Three alternatives were reviewed: tax increases, rationalization (cost or expenditure reductions) and bankruptcy. TheFundamentals argued in this essay that many private concerns used rationalization successfully to cut costs, cut employees and rebuild a strong competitive product/service offering for future growth. The reason this salvation can occur is due to the discipline of the marketplace in overseeing the private rationalization exercise. No such discipline exists with public entities. Therefore, those who choose the rationalization route for public entities are literally “kicking the can down the road” unless there is the added discipline of debt limits and debt repayment requirements. Debt has proven to be the undoing of the fiscal responsibility required for the sustainability of a democratic representative government. Every insolvent public entity, from Greece to Portugal to California to Illinois has ended up with an excess of liabilities over assets or an inability to meet current obligations with available resources (the classic definitions of insolvency) because of debt. Now, to the Illinois plan.
Tax increases. The plan presented by the Civic Federation requires huge tax increases. Any call for any tax increases presumes a need to raise funds to pay for existing and future government spending programs, personnel and activities. Think about this aspect of the Plan in terms of a failed business such as General Motors. The only way General Motors can raise revenues is to sell more cars or charge more for the cars they do sell. They cannot sell more cars when the market is in decline and/or their share of the market is in decline. So, if they rely on “raising revenue” to solve their insolvency situation they have to raise prices on the cars they sell. The markets will then turn away from their cars and go to lower priced competitors. This move will expedite the failure of the company. GM will and should go out of business. And so it is if Illinois raises revenue. Illinois will become even less competitive with the other 49 states and Illinois will become a moribund political entity such as the state of Michigan. Tax increases are not the answer.
So, what does this lead TheFundamentals to conclude about the Civic Federation’s Plan? It is more of the same. An attempt to placate bureaucrats and special interests by making a few cost cuts now and causing some small pain to government employees while relying on more taxes from an already overtaxed, less competitive work force. It will only kick the can down the road which is and has been the approach of the imbedded politicians and their padded bureaucracies and benefitting special interest groups.
No state, no city, no country can compete with the burdensome costs placed on the private economic wealth creating activities by the current American established political, special interest dominated government scene. The characteristics of this scene are huge tax requirements, huge penetration by government in every commercial, societal and cultural activity and an out of control litigation burden on any human activity. There is no tax increase that can fix it. There is no cost cutting scheme that will sustain it. There is only one route for Illinois and its fellow traveler states to follow and that it the Federal Bankruptcy courts. The cabal of government intrusion in the form of law, rules, regulation, bureaucracy and costs and unions, lawyers and special interests must be destroyed. Do not pass GO. Do not collect $200.00. Go directly to Court!
Tax increases. The plan presented by the Civic Federation requires huge tax increases. Any call for any tax increases presumes a need to raise funds to pay for existing and future government spending programs, personnel and activities. Think about this aspect of the Plan in terms of a failed business such as General Motors. The only way General Motors can raise revenues is to sell more cars or charge more for the cars they do sell. They cannot sell more cars when the market is in decline and/or their share of the market is in decline. So, if they rely on “raising revenue” to solve their insolvency situation they have to raise prices on the cars they sell. The markets will then turn away from their cars and go to lower priced competitors. This move will expedite the failure of the company. GM will and should go out of business. And so it is if Illinois raises revenue. Illinois will become even less competitive with the other 49 states and Illinois will become a moribund political entity such as the state of Michigan. Tax increases are not the answer.
So, what does this lead TheFundamentals to conclude about the Civic Federation’s Plan? It is more of the same. An attempt to placate bureaucrats and special interests by making a few cost cuts now and causing some small pain to government employees while relying on more taxes from an already overtaxed, less competitive work force. It will only kick the can down the road which is and has been the approach of the imbedded politicians and their padded bureaucracies and benefitting special interest groups.
No state, no city, no country can compete with the burdensome costs placed on the private economic wealth creating activities by the current American established political, special interest dominated government scene. The characteristics of this scene are huge tax requirements, huge penetration by government in every commercial, societal and cultural activity and an out of control litigation burden on any human activity. There is no tax increase that can fix it. There is no cost cutting scheme that will sustain it. There is only one route for Illinois and its fellow traveler states to follow and that it the Federal Bankruptcy courts. The cabal of government intrusion in the form of law, rules, regulation, bureaucracy and costs and unions, lawyers and special interests must be destroyed. Do not pass GO. Do not collect $200.00. Go directly to Court!
Tuesday, March 2, 2010
Fiscal Rehabilitation for Illinois: A Plan
The Institute for Illinois Fiscal Sustainability at the Civic Federation has issued a “Fiscal Rehabilitation Plan” for the state. The entire document can be reviewed at: http://media1.suntimes.com/multimedia/illfiscalplan022210.pdf_20100221_15_28_27_19.imageContent
Here is some background and the key components of the Plan proposal:
Illinois’ Fiscal Crisis
Illinois is facing a financial crisis that is expected to result in a deficit of at least $12.8 billion going into fiscal year 2011, which begins on July 1, 2010. As in other states, the economic recession that started in December of 2007 has contributed significantly to Illinois’ poor fiscal health.
However, Illinois also entered the recession in worse fiscal condition than most other states because of a failure to deal with its structural deficit, a situation in which a government’s growth in expenditures consistently outpaces its growth in revenues. One of the biggest problems has been Illinois’ historically underfunded retirement systems, which have put increasing pressure on the State’s operating budget.
The Civic Federation is deliberately proposing this plan as a comprehensive package. Without pension reforms and spending cuts included in this plan, the Civic Federation opposes any new revenue increases.
The Civic Federation offers the following proposal:
• The State must first enact reforms of its retirement systems. These reforms must include additional employee contributions and reduced benefits for new State employees.
• Expenditures must be cut by at least $2.1 billion. General Funds spending should be rolled back to FY2007 levels, with the exception of Medicaid and General State Aid to elementary and secondary education. These areas will be kept at FY2010 levels to prevent loss of federal stimulus funds and protect critical funding to local school districts.
• Employee contributions to the retirement systems and the State’s group health insurance plan must be increased. Along with other changes detailed in the report, these measures are expected to save the state more than $400 million.
• The Civic Federation opposes any revenue increases until pension reforms are undertaken and at least $2.5 billion in budget cuts and savings have been made.
• The state income tax rate should be increased from 3% to 5 % for individuals and 4.8% to 6.4% for corporations. This increase is expected to raise about $6.0 billion in new revenues.
• The State should repeal the income tax exemption for federally taxed portions of retirement and Social Security income. This step is expected to raise $1.6 billion at the personal income tax rate of 5%.
• The State should enact a $1 a pack increase in cigarette taxes and end specific business tax deductions or credits that are outdated and economically inefficient, such as the income tax credit for research and development.
• If this budget plan were enacted, the State would pay down more than $10 billion or nearly 84% of its $12.8 billion deficit in FY2011.
• Because the remaining $2.1 billion budget gap would not be closed until FY2012, the State should continue to spend at FY2007 levels until the backlog of bills associated with the deficit are paid off.
• All other new revenue in FY2012 and beyond will be needed to make the required statutory pension contribution, which will increase in future years.
TheFundamentals will comment on this Plan Thursday, March 4, 2010. We welcome reader participation.
Here is some background and the key components of the Plan proposal:
Illinois’ Fiscal Crisis
Illinois is facing a financial crisis that is expected to result in a deficit of at least $12.8 billion going into fiscal year 2011, which begins on July 1, 2010. As in other states, the economic recession that started in December of 2007 has contributed significantly to Illinois’ poor fiscal health.
However, Illinois also entered the recession in worse fiscal condition than most other states because of a failure to deal with its structural deficit, a situation in which a government’s growth in expenditures consistently outpaces its growth in revenues. One of the biggest problems has been Illinois’ historically underfunded retirement systems, which have put increasing pressure on the State’s operating budget.
The Civic Federation is deliberately proposing this plan as a comprehensive package. Without pension reforms and spending cuts included in this plan, the Civic Federation opposes any new revenue increases.
The Civic Federation offers the following proposal:
• The State must first enact reforms of its retirement systems. These reforms must include additional employee contributions and reduced benefits for new State employees.
• Expenditures must be cut by at least $2.1 billion. General Funds spending should be rolled back to FY2007 levels, with the exception of Medicaid and General State Aid to elementary and secondary education. These areas will be kept at FY2010 levels to prevent loss of federal stimulus funds and protect critical funding to local school districts.
• Employee contributions to the retirement systems and the State’s group health insurance plan must be increased. Along with other changes detailed in the report, these measures are expected to save the state more than $400 million.
• The Civic Federation opposes any revenue increases until pension reforms are undertaken and at least $2.5 billion in budget cuts and savings have been made.
• The state income tax rate should be increased from 3% to 5 % for individuals and 4.8% to 6.4% for corporations. This increase is expected to raise about $6.0 billion in new revenues.
• The State should repeal the income tax exemption for federally taxed portions of retirement and Social Security income. This step is expected to raise $1.6 billion at the personal income tax rate of 5%.
• The State should enact a $1 a pack increase in cigarette taxes and end specific business tax deductions or credits that are outdated and economically inefficient, such as the income tax credit for research and development.
• If this budget plan were enacted, the State would pay down more than $10 billion or nearly 84% of its $12.8 billion deficit in FY2011.
• Because the remaining $2.1 billion budget gap would not be closed until FY2012, the State should continue to spend at FY2007 levels until the backlog of bills associated with the deficit are paid off.
• All other new revenue in FY2012 and beyond will be needed to make the required statutory pension contribution, which will increase in future years.
TheFundamentals will comment on this Plan Thursday, March 4, 2010. We welcome reader participation.
Thursday, February 25, 2010
Tax Increases, Rationalization and Bankruptcy
Today we discuss the alternative routes available for insolvent public entities. Think of this as a road trip and the alternatives as "use toll roads" or "avoid toll roads" or "the scenic route." The philosophers might call these routes “Pick your poison" or “Chickens coming home to roost.” Pragmatists would just say, “It’s about time!”
The tax increase route has one very sound, intellectual foundation for being chosen. It is necessary to pay for what you get. That is a fundamental. There is no free ride. There is no free lunch. So, whatever you are getting from government must be paid for. Raise taxes to the level needed to pay for government. Public employee unions are really big supporters of this alternative. If you are not a government employee, you have two alternatives. One, settle for less or two, get what you want/need from others sources for less. Otherwise, pay up. Someone has to pay for those union wages, benefits and generous retirement programs and payments and, of course, all the fancy entitlement programs.
Rationalization. This term is a fancy word which when applied to a business situation refers to reduction in employees, employee benefits and pensions and other business costs. The rationalization route usually occurs under dire circumstances but can also be enacted as part of an ongoing evaluation and productivity producing activity. Can rationalization work? Absolutely. There are many successful business examples where cost cutting, employee reductions, changing retirement plans from defined benefit plans to defined contribution plans all helped build a strong foundation for future economic growth and increased competitiveness in the marketplace. Unfortunately, there are few examples of where rationalization has been enacted successfully with public entities such as state and local governments. Why is that you ask? Mostly the answer lies in the overused and over abused word – “POLITICS.” What do we mean? In business the vote lies with the consumer; the purchaser; the end user. If consumers don’t buy; the business fails. In government there is no consumer because consumer implies choice. So, the market force of consumer choice is replaced with politics. The politician wants to be elected or reelected. He/she plays to several audiences including many entrenched government employees. She/he wants a compromise. A resolution. He/she wants to move on. Not engage in lengthy fights over wages and benefits and pensions. Doesn’t want or have the spine to cut back on programs and activities. She/he also knows that prolonged fights with government employees and strikes and shutdowns will cost them some voter support. So he/she gives in. She/he doesn’t fight because they survive by not fighting; the exact opposite of the business person who must fight to survive.
There are two other back road routes of rationalization in the public sector. One is to privatize services. Seek bids from private suppliers/vendors to provide services and goods. Usually a great idea. Introduces competition which is usually the best form of maintaining both quality and value. Also, gives the public entity the ability to provide certain services/goods without making a permanent investment in personnel and equipment. Privatization should be an ongoing part of any good government agency; not something to turn to when the money runs out. A second route is asset sales. There is an old expression, “don’t eat or sell the seed corn.” Well politicians don’t quite think the same way most farmers think. A number of municipalities and states have either sold assets or are contemplating a sale of assets. Chicago wants to sell its airports. It already sold a toll road. And it irritated almost every one by a bad deal in selling its parking meters. Greece has become adept at mortgaging its infrastructure in this manner. Selling earning assets to pay current expenses is a sure sign of a failing entity. TheFundamentals advises against purchasing the debt of any entity which is now taking this route.
Now there are some more learned voices out there proposing a combination of the above alternatives. Raise taxes, cut spending and all will be cured. For the aforementioned reasons, TheFundamentals sees no likelihood of sustainability in either choice. As our readers know, TheFundamentals has addressed the benefits of the bankruptcy route (see: TheFundamentals, February 9, 2010.) There are many candidates in America for bankruptcy. There are many public entities that should embrace bankruptcy. Bankruptcy is to the financially promiscuous as redemption (or the Tiger Woods clinic) is to the sexually promiscuous. We support bankruptcy for several notable reasons: financial insolvency is best dealt with now and not postponed; bankruptcy brings finality to financial problems; bankruptcy is the only route to eliminating unpayable known and contingent liabilities with finality; bankruptcy processes and resolutions are well accepted in the US; bankruptcy is the only route to eliminating contractual obligations with employees and vendors that are a massive economic burden on the taxpayers of these insolvent entities. Bankruptcy is the preferred route for these reasons and we encourage all insolvent entities to immediately examine its applicability to their situation. No one wants to be first on this scenic route but you sure don’t want to be last.
The tax increase route has one very sound, intellectual foundation for being chosen. It is necessary to pay for what you get. That is a fundamental. There is no free ride. There is no free lunch. So, whatever you are getting from government must be paid for. Raise taxes to the level needed to pay for government. Public employee unions are really big supporters of this alternative. If you are not a government employee, you have two alternatives. One, settle for less or two, get what you want/need from others sources for less. Otherwise, pay up. Someone has to pay for those union wages, benefits and generous retirement programs and payments and, of course, all the fancy entitlement programs.
Rationalization. This term is a fancy word which when applied to a business situation refers to reduction in employees, employee benefits and pensions and other business costs. The rationalization route usually occurs under dire circumstances but can also be enacted as part of an ongoing evaluation and productivity producing activity. Can rationalization work? Absolutely. There are many successful business examples where cost cutting, employee reductions, changing retirement plans from defined benefit plans to defined contribution plans all helped build a strong foundation for future economic growth and increased competitiveness in the marketplace. Unfortunately, there are few examples of where rationalization has been enacted successfully with public entities such as state and local governments. Why is that you ask? Mostly the answer lies in the overused and over abused word – “POLITICS.” What do we mean? In business the vote lies with the consumer; the purchaser; the end user. If consumers don’t buy; the business fails. In government there is no consumer because consumer implies choice. So, the market force of consumer choice is replaced with politics. The politician wants to be elected or reelected. He/she plays to several audiences including many entrenched government employees. She/he wants a compromise. A resolution. He/she wants to move on. Not engage in lengthy fights over wages and benefits and pensions. Doesn’t want or have the spine to cut back on programs and activities. She/he also knows that prolonged fights with government employees and strikes and shutdowns will cost them some voter support. So he/she gives in. She/he doesn’t fight because they survive by not fighting; the exact opposite of the business person who must fight to survive.
There are two other back road routes of rationalization in the public sector. One is to privatize services. Seek bids from private suppliers/vendors to provide services and goods. Usually a great idea. Introduces competition which is usually the best form of maintaining both quality and value. Also, gives the public entity the ability to provide certain services/goods without making a permanent investment in personnel and equipment. Privatization should be an ongoing part of any good government agency; not something to turn to when the money runs out. A second route is asset sales. There is an old expression, “don’t eat or sell the seed corn.” Well politicians don’t quite think the same way most farmers think. A number of municipalities and states have either sold assets or are contemplating a sale of assets. Chicago wants to sell its airports. It already sold a toll road. And it irritated almost every one by a bad deal in selling its parking meters. Greece has become adept at mortgaging its infrastructure in this manner. Selling earning assets to pay current expenses is a sure sign of a failing entity. TheFundamentals advises against purchasing the debt of any entity which is now taking this route.
Now there are some more learned voices out there proposing a combination of the above alternatives. Raise taxes, cut spending and all will be cured. For the aforementioned reasons, TheFundamentals sees no likelihood of sustainability in either choice. As our readers know, TheFundamentals has addressed the benefits of the bankruptcy route (see: TheFundamentals, February 9, 2010.) There are many candidates in America for bankruptcy. There are many public entities that should embrace bankruptcy. Bankruptcy is to the financially promiscuous as redemption (or the Tiger Woods clinic) is to the sexually promiscuous. We support bankruptcy for several notable reasons: financial insolvency is best dealt with now and not postponed; bankruptcy brings finality to financial problems; bankruptcy is the only route to eliminating unpayable known and contingent liabilities with finality; bankruptcy processes and resolutions are well accepted in the US; bankruptcy is the only route to eliminating contractual obligations with employees and vendors that are a massive economic burden on the taxpayers of these insolvent entities. Bankruptcy is the preferred route for these reasons and we encourage all insolvent entities to immediately examine its applicability to their situation. No one wants to be first on this scenic route but you sure don’t want to be last.
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