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The views expressed by Andrew Quinlan and Dan Mitchell on this weblog are solely their own and are not necessarily those of their employers, The Center for Freedom and Prosperity Foundation and The Cato Institute, respectively. |
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The Market Center Blog |
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Observations and insights on the global fight |
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CF&P's Market Center Blog Archives |
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Wednesday, December 31, 2008 ~ 5:41 p.m., Dan Mitchell Wrote: The financial crisis is a result of many bad decisions, but one of them hasn't received enough attention: the 1998 bailout of the Long-Term Capital Management hedge fund. If
regulators had been less concerned with protecting the fund's creditors, our current problems might not be quite so bad. ...Because Long-Term Capital owed large sums to banks and other financial institutions,
the Federal Reserve Bank of New York organized a consortium of companies to buy it out and cover the debts. Alan Greenspan, then the Fed chairman, eased monetary policy to restart capital markets, which were
starting to freeze up. Long-Term Capital's shareholders were wiped out, but none of the creditors took losses. ...With the Long-Term Capital bailout as a precedent, creditors came to believe that their loans to
unsound financial institutions would be made good by the Fed... Bolstered by this sense of security, bad loans mushroomed.
Tuesday, December 30, 2008 ~ 7:00 p.m., Dan Mitchell Wrote: On December 23, South Korea's government released further details of thoroughgoing tax changes aimed at boosting the ailing economy. The
changes include cuts to income tax, corporation tax and concessions on capital gains tax. South Korea's income tax system will have an across-the-board tax reduction of 2% in 2009. The South Korean tax
system currently levies between 8% and 35% income tax on earnings. The top bracket begins at KRW88m. Under the new system, which will be fully introduced by 2010, the range will be reduced to between 6%
and 33%. ...The minimum corporate tax rate, which is currently levied at 13% on companies with profits of less than KRW100m, will be reduced to 11% on profits up to KRW200m in 2009. Companies earning in excess
of KRW200m will be charged at the upper corporation tax rate of 22% in 2009, down from 25%. The upper and lower rates will fall further to 10% and 20% respectively by 2011.
Monday, December 29, 2008 ~ 8:32 p.m., Dan Mitchell Wrote: Barack Obama wants to use the recession to remake the U.S. economy. ...Obama's nearly trillion-dollar plan will not merely repair bridges, fill
potholes and fix up schools; it will also impose a utopian vision based on the belief that an economy is a thing to be planned from above. But this
is an arrogant conceit. No one can possibly know enough to redesign something as complex as "an economy," which really is people engaging
in exchanges to achieve their goals. Planning it means planning them. ...Obama wants to act quickly. In the name of stimulating the economy,
he plans to spend hundreds of billions of dollars the government does not have to convert the economy from carbon-based fuels to "green"
alternatives. Even if that were a good idea -- and it's definitely not -- it would not bring recovery. Any money the government spends must be
taxed, borrowed or conjured out of thin air by the Federal Reserve, and that will reduce sound private investment. Obama has no real wealth to
inject into the economy. He can only move around existing money while inflation robs us of purchasing power. Meanwhile, private investors who might have produced a better engine, battery, computer, cancer
treatment or other wealth-creating and life-enhancing innovations hold back for fear that big government will undermine productive efforts. The way to a lasting recovery is to greatly lighten the burdens of
government. Then free Americans will save and invest.
Sunday, December 28, 2008 ~ 10:28 p.m., Dan Mitchell Wrote: Almost a century after Charles Ponzi, people continue to fall victim to Ponzi schemes like the one attributed to Mr. Madoff. A recent Google
search revealed more than 100 such schemes being investigated all over the world. ...Social Security, which involves the younger generation paying some of the retirement benefits of the older generation, is a
perfectly legal Ponzi scheme. ...what happens when the music stops and people find themselves playing the last round of the Ponzi game? The federal government may choose to spend billions to bail out the
last-round players to protect overall financial stability. The Ponzi participants will get a piece of the bailout, but will still have a net loss.
The problem is that taxpayers have to foot the bailout bill, and they may have even greater net losses than the people who initially signed up for the Ponzi game. If taxpayers stand to lose more money than Ponzi
players, it is suddenly rational to play the game. That's because only by getting a piece of the bailout will Ponzi participants protect themselves
from the larger losses faced by taxpayers. ...bailouts only serve to reinforce behavior that can lead to even riskier Ponzi schemes. So, though many of us recognize deals that are too good to be true, bailouts
will encourage us to take part in such deals. The $700 billion federal bailout may eventually lead to Ponzi schemes large enough to make Mr. Madoff's reported $50 billion swindle pale in comparison.
Saturday, December 27, 2008 ~ 4:34 p.m., Dan Mitchell Wrote: Righteous indignation over allegations about Illinois Gov. Rod Blagojevich's "pay to play" brazenness camouflages the corruption
inherent in all government. After all, what does it mean to be a politician if not that you promise favors -- coerced from the taxpayers -- in return
for support from key constituencies? ...Sen. Charles Schumer has ...[voted] for every bailout. He also "helped raise more than $120 million for the Democrats' Senate campaign committee, drawing nearly
four times as much money from Wall Street as the National Republican Senatorial Committee," said The Times. What Schumer does is legal, but the billions he gives to failing companies comes from taxpayers. A
formal quid pro quo between politicians and bailed-out companies is not necessary. But everyone knows that a beneficiary is more likely to contribute to a congressman who votes for a bailout. They are also more
likely to hire that congressman as a lobbyist when he retires. It is disgusting. But it is legal. ...A system that rewards politicians skilled at
campaigning -- which is the art of creating an illusion -- and that puts hundreds of billions of coerced taxpayer dollars at the disposal of the winners will tend to attract men and women with a comparative
advantage in manipulation. We shouldn't be surprised that people like Blagojevich prosper in "public service" -- until they get caught crossing
the line. ...if government were less important in our lives, politicians would have fewer goodies to trade. In return, we'd have more money and more freedom. That's one more reason to limit government power.
Friday, December 26, 2008 ~ 6:11 p.m., Dan Mitchell Wrote: A midyear report released this week by the National Governors Association and the National Association of State Budget Officers shows
that 36 of the 50 states are facing budget deficits in fiscal 2009. Twenty-two of those states - New York among them - nonetheless have proposed increased spending. In all, 32 states plan increased spending in
hard times. In New York, Gov. David Paterson warns of "the worst fiscal downturn since the Great Depression" and the "largest deficit" in
state history. Still, he has submitted a state budget, his first, that increases spending by $1.3 billion. New York faces an estimated $15.4
billion shortfall through March 2010. To close the budget gap, Paterson on Tuesday proposed no fewer than 88 new fees and a bevy of new taxes
on everything from fishing to sipping drinks to downloading music. One of the most interesting is a proposed "iPod tax" that would draw on the
sale of downloaded music and other digitally delivered entertainment services by 4%. Other higher taxes would hit gasoline, taxi rides, cable and satellite TV service, cigars, beer, movie and sports tickets, and
health spa visits. Speaking of health, another proposal calls for an 18% tax hike on soda and other sugary drinks containing less than 70% real
fruit juice. Only state government, it seems, is allowed to be overweight. ...over the last 30 years, according to the report, states have increased
spending by an average of 6% annually. The snowball, in other words, has been rolling downhill for some time. ...It would be nice if governments at every level spent less and taxed less. But then, politicians
wouldn't be able to bribe people with their own money. The nation that was born in a revolt against unfair taxation now seems to believe that it
is self-evident truth that government can spend our money better than the people who earned it. Medieval serfs only had to fork over a third of their income to their landlords. Today's taxpayers pay much more in
their federal, state and local tax burden.
Thursday, December 25, 2008 ~ 7:00 p.m., Hubbel Relat Wrote: "It is an understatement in most instances to say that Washington politicians are economically illiterate. The bailout frenzy, for instance, is
a massive transfer of wealth that rewards people who — by definition — have demonstrated that they do not make good decisions about money... The auto bailout is the latest example of upside-down economics. The
Big Three auto companies and the United Auto Workers are in deep trouble because they have failed to innovate and economize. But rather than allow bankruptcy, which would lead to long-overdue structural
reforms, the White House and its Democratic allies on Capitol Hill want a $15 billion bailout — even though that would subsidize the reckless and short-sighted decisions of both labor and management in Detroit
(and also set a precedent for further handouts once the Big Three and UAW get hooked on the heroin of government dependency).
Wednesday, December 24, 2008 ~ 10:20 p.m., Dan Mitchell Wrote: The latest case of zero-tolerance at the public schools has a 10-year-old student sadder and wiser, and facing expulsion and long-term juvenile
detention. And it has his mother worried that his punishment has already been harsher than the offense demands. "I think I shouldn't have brought
a gun to school in the first place," said the student, Alandis Ford, sitting at home Thursday night with his mother, Tosha Ford, at his side.
Alandis' gun was a "cap gun," a toy cowboy six-shooter that his mother bought for him. "We got it from Wal-Mart for $5.96," Tosha Ford said,
"in the toy section right next to the cowboy hats. That's what he wanted because it was just like the ones he was studying for the Civil War" in his
fifth-grade class at Fairview Elementary School. …Tosha said that Wednesday afternoon, after school, "six police officers actually rushed
into the door" of their home. "He [Alandis] opened the door because they're police. And then they just kind of pushed him out of the way, and
asked him, 'Well where's the gun, where's the real gun?' And they called him a liar... they booked him, and they fingerprinted him." …Alandis was charged with possessing a weapon on school property and with
terroristic acts and threats. …Sherri Viniard, the Director of Public Relations for the Newton County School System, emailed a statement to 11Alive News Thursday that reads, in part: "Student safety is our
primary concern, and although this was a toy gun, it is still a very serious offense and it is a violation of school rules. We will not tolerate weapons
of any kind on school property." Alandis had his first hearing in juvenile court on Thursday. Tosha said the case worker assigned to Alandis will
recommend a period of probation, rather than juvenile detention. The judge will make the final decision. Tosha said Alandis is not allowed back in school for now. She has a meeting scheduled with school
administrators. She does not know if he will be expelled, and is hoping for no more than a ten-day suspension.
Tuesday, December 23, 2008 ~ 8:41 p.m., Dan Mitchell Wrote: President Hugo Chavez ordered construction halted on a major shopping mall in Caracas on Sunday, saying the government will
expropriate the unfinished building. The Venezuelan leader said it would be out of line with his government's socialist vision to allow the new
Sambil mall to take up precious urban real estate — and that unbridled consumerism isn't his idea of progress either. … "We're going to expropriate that and turn it into a hospital — I don't know — a school, a
university," Chavez said to applause during his Sunday television and radio program, "Hello, President." … The president also has urged Venezuelans to shed their materialism and their taste for designer
clothes, sport utility vehicles, Scotch whisky and plastic surgery.
Monday, December 22, 2008 ~ 5:50 p.m., Dan Mitchell Wrote: Thomas Schäfer-Gümbel, a little-known Social Democrat candidate fighting to be governor of the western German state of Hesse in an
election on January 18, has come up with an unconventional idea that is attracting the -- presumably desired -- attention of the media. He says
wealthy people with cash and real estate assets exceeding €750,000 ($1.04 million) should be forced to lend the state two percent of their
assets for a period of 15 years, and at an interest rate no higher than 2.5 percent. "A compulsory state bond would be a rapidly effective instrument to mobilize additional funds to overcome the economic
crisis," Schäfer-Gümbel, 39, told Bild newspaper on Monday. "That would be very fair because only the very wealthy would be drawn on."
Sunday, December 21, 2008 ~ 9:19 p.m., Dan Mitchell Wrote: With all the attention to the government's efforts to deal with the financial crisis, there has been little thought to its ultimate cause. The
politicians like to cite greedy investment bankers, incompetent CEOs, and even market innovations such as credit default swaps. Their solutions invariably involve more authority for themselves--more
restrictions on the private sector and more regulation. But the most persuasive case for the cause of the financial crisis is the U.S. government itself--the policies that first created the housing bubble and
then removed the equity in homes and the capital in the banking system that would have provided a cushion against a meltdown when the bubble burst. The root of today's financial crisis can be found in the
government's effort to use the banking and financial system to expand home ownership. There are many good reasons to increase home ownership in our society, but the way to do it was not by distorting the
lending decisions of banks and other mortgage market participants. That, however, is the direction the government chose when it imposed the Community Reinvestment Act (CRA) on insured banks in 1977 and
an "affordable housing" mission on Fannie Mae and Freddie Mac in 1992. Instead of assisting low income families to become homeowners
with direct subsidies, the government--through CRA--required banks to lower their lending standards. Down payments, steady jobs, good credit histories, and income levels commensurate with mortgage obligations
were abandoned in favor of "flexible" lending requirements. Bank regulators, required to enforce CRA, approved mortgage loans that would not previously have been acceptable, and demanded that banks do
more. Similarly, under regulations of the Department of Housing and Urban Development (HUD), Fannie Mae and Freddie Mac were required to make affordable housing more plentiful. As HUD's
regulations grew tighter, Fannie and Freddie began to purchase and guarantee larger and larger numbers of subprime and other nontraditional loans in order to meet HUD's requirements and to keep
the support in Congress that permitted them to escape tougher regulation. With these financial incentives for homeowners, banks and other mortgage lenders--easy lending terms and a ready market for
mortgages through Fannie and Freddie--a housing bubble was inevitable. ...Finally, bank regulations specified lower capital requirements for residential mortgages than for other assets. Under the
risk-based bank capital rules applicable to U.S. banks, commercial loans must be backed by at least eight percent capital, but residential mortgages require only a four percent capital charge. This created a
preference in banks for mortgage lending rather than commercial lending. In addition, by converting their mortgages to mortgage-backed securities banks could reduce the capital charge to 1.6 percent, further
enhancing this preference. Thus, while government policies created the housing bubble by making financing easier and more plentiful, they also
encouraged a reduction in the traditional shock absorbers--home equity and bank capital--that would have mitigated a fall in home prices. The result is the unprecedented number of mortgage defaults that have
weakened banks throughout the world and caused the financial crisis we now confront.
Saturday, December 20, 2008 ~ 6:30 p.m., Dan Mitchell Wrote: Professors at Arizona State University released a study that blames the state's $1.7 billion budget deficit on income and property tax cuts from
the 1990's and 2006. The study also states that a $1 billion tax increase would be preferable to budget cuts of the same size. ...The Free Enterprise Club has argued that the deficit was caused by state spending
that far surpassed reasonable measuring sticks for budget growth. The Arizona budget grew from $6.5 billion in 2004 to $10.6 billion in 2008, a 63 percent increase. Over that same time period, personal income
growth was 37 percent and population plus inflation growth was about 30 percent. You can't grow government faster than the ability of taxpayers to pay for it and not expect budget shortfalls. Meanwhile, Ohio is in terrible shape, and experts find that politicians in the state have significantly boosted the burden of government since 1970. Ohio once was a low-tax state, but it now ranks very poorly with the 7th-highest tax burden in the nation. Combined with other anti-growth policies, no wonder people are moving out of the state: ...fiscal policy is...killing Ohio's economy. Thirty years ago, things were different. Then, Ohio ranked 45th in the Tax Foundation's annual
ranking of state and local tax burdens. That means Ohioans paid the fifth lowest taxes in the country. Today, though, Ohio ranks seventh on
that list. It rates worse than any of its neighbors - in most cases, much worse. And between 1970 and 2006, Ohio's tax burden increased more
than that of any other state. ...Earlier this year, the Pacific Research Institute published a study of economic freedom in the states, considering
such factors as taxation, regulation, government size, and government spending. Ohio ranked among the least economically free states - 44th of 50. ...With its heavy taxation and other government-imposed economic
burdens, it's no wonder Ohio's economy also ranks among the lowest in job creation, new investment, and business climate. Ohio University economist Richard Vedder has estimated that for every 1-percent
increase in a state's income tax, there is a 3.5-percent decrease in economic growth. Thus, Ohio's income tax, with a top rate of over 6 percent, puts it at a severe competitive disadvantage, especially against
those states with no income tax. Professor Vedder's research also shows that Americans are fleeing high-tax states like Ohio. From April 2000 to June 2006, there was a net migration of 2.3 million people from
income-tax states to no-income-tax states.
Friday, December 19, 2008 ~ 8:12 p.m., Dan Mitchell Wrote: The U.S. government is an enterprise of massive incompetence and waste, with a $3 trillion yearly budget and $10 trillion - give or take a
few billion - in outstanding national debt, according to the Treasury Department. Who better to run a failing industry? And who better to oversee a top-down economic plan than someone with a razor-sharp
mind like Barney Frank and his cronies, with their vast experience administrating multibillion-dollar corporations and insight into the needs of the American consumer? In the Soviet era, central planning would
dictate which industry could exist, what products the economy could create, how many units could be produced, what the wage of each worker could be and the amount of fuel each citizen would be allocated.
It all sounds familiar. Congress is demanding Detroit build so-called "green" cars, even though Americans show little inclination to buy them
willingly. Congress wants to determine executive pay, yet it won't allow extravagant union benefits to be renegotiated through bankruptcy. ...Why can't these companies go bankrupt and reorganize like everyone
else? In bankruptcy court, the process allows the auto industry to negotiate with creditors, stakeholders and unions. Well, the auto industry
spent nearly $50 million lobbying Congress in the first nine months of this year while unions spent hundreds of millions to put Democrats in Washington. Those are two reasons.
Thursday, December 18, 2008 ~ 8:34 p.m., Dan Mitchell Wrote: Let's not allow Congress and members of the bailout parade panic us into allowing them to do things, as was done in the 1930s, that would
convert a mild economic downturn into a true calamity. ...if GM goes bankrupt, the assembly lines, robots, buildings and other tools don't evaporate. What bankruptcy means is the title to those assets change.
People who think they can manage those assets better purchase them. Chapter 11 of the U.S. Bankruptcy Code, where the control of its business operations are subject to the oversight and jurisdiction of the
court, gives companies a chance to reorganize. The court can permit complete or partial relief from the company's debts and its labor union
contracts. A large part of the problem is the Big Three's cozy relationship with the United Auto Workers union (UAW). GM has a $73 hourly wage cost including benefits and overtime. Toyota has five major assembly
plants in the U.S. Its hourly wage cost plus benefits is $48. It doesn't take rocket science to figure out which company will be at a competitive
disadvantage. Then there's the "jobs bank" feature of the UAW contract where workers who are laid off workers get 95 percent of their base pay
and all their benefits. Right now there's a two-year limit but in the past workers could stay in the "jobs bank" forever unless they turned down
two job offers within 50 miles of their factory. ...How much congressional involvement do we want with the Big Three auto companies? ...Congressmen and federal bureaucrats, including those at
the Federal Reserve Board, don't know anymore about the automobile business than they know about the banking and financial businesses that they've turned into a mess. ...The belief that Congress poses the major
threat to our liberty and well-being is why the founders gave them limited enumerated powers. To our detriment, today's Americans have given them unlimited powers.
Wednesday, December 17, 2008 ~ 7:51 p.m., Dan Mitchell Wrote: ...the Democrat-led $15 billion bailout...replaces the efficiency of market forces and existing bankruptcy law with extensive government control. It
also opens up the possibility of a never-ending stream of subsidies to automakers who have steadily lost market share since the early 1970s.
Here's the broad outline of what we believe will essentially be an in-place nationalization of a major American industry: * The government will
name a "car czar" to rule over the industry with "veto power" over any Big Three expenditure over $25 million. * The government will get stock
warrants equal to 20% of the bailout - today equal to about half the market value of the Big Three. Basically, the government will own the auto industry. * Government will control the pay of Big Three
executives, limit dividends to shareholders and give government debt priority over private bondholders. This would be the death knell of American-style capitalism, where Joseph Schumpeter's notion of
"creative destruction" has helped forge the most productive, wealthiest economy ever. ...Chapter 11 is the better route. The companies would
have to go to court with a plan, and the unions would have to cut a deal to keep jobs. There would be no undue political interference (as there is
sure to be under Congress' plan), and no taxpayer-funded free ride. A bailout or takeover that doesn't require major restructuring will create
moral hazard, writ large. From now on, every big, poorly run industry in America won't have to make tough decisions to gut out the recession.
They'll just rush to line up behind the Big Three for their own bailouts, costing taxpayers billions more.
Wednesday, December 17, 2008 ~ 7:35 p.m., Dan Mitchell Wrote: ...huge public works projects often fail to revive national economies. Consider the example of Japan in the 1990s. The situation in Japan then
was similar in some ways to that in the United States today. A dramatic market crash and a plunge in real estate prices shook what had been a confident nation. ...The central and local governments began spending
billions of yen on construction. ...When one plan proved insufficient, another was begun. In 1999, Japan announced a scheme to create 700,000 jobs, much as Obama recently announced a plan to create or
save 2.5 million jobs. As with the U.S. example, politicians were precise about the number of new jobs . . . and less precise about their cost. Between 1992 and 2000, the Japanese launched 10 stimulus packages
that included public works. ...The spending yielded painfully little for the rest of the economy. The Nikkei stayed down. The country's standard of
living failed to keep pace with the rest of the world's. ...The stimulus plans had the opposite effect of what was expected. Appalled at the
country's new deficits, Japanese consumers closed their wallets. Worst, though, was the failure on jobs. Unemployment fell in many nations in
the 1990s. In Japan, the '90s were a lost decade: The unemployment rate more than doubled and surpassed the U.S. rate -- an unthinkable occurrence just a few years earlier. ...It is wrong to assume that
construction will guarantee a two-fer for the economy -- shining structures and redemptive growth. The private sector is often better than politicians at guessing what the market needs.
Tuesday, December 16, 2008 ~ 1:30 p.m., Dan Mitchell Wrote: Much political hay has been made in Congress about "unpatriotic" corporations that move operations abroad. Weatherford International is
the latest, taking its headquarters from Houston to Switzerland. The oil services company said that it wants to be closer to its markets. But what
it really meant was that it no longer saw the future in the U.S. In a political atmosphere of blaming corporations, it's no wonder. Halliburton fled to Dubai in 2007. Tyco International, Foster Wheeler and
Transocean International all went to Switzerland. As a pattern emerges, America's global standing diminishes, in part because it's based on the
willingness of companies to invest. It's an especially bad sign when domestic companies flee. ...What accounts for this vote of no confidence in the U.S.? Start with the demonization of oil companies. Executives
have been hauled before Congressional star chambers, held up to abuse and ridicule, and then blamed for high oil prices as if they wanted to kill
their markets. Rising global demand, nationalizations and Congress' failure to open the country to drilling go ignored. ...With an expanded Democratic Congress and an incoming Democratic president determined
to create "patriot corporations," it's no surprise to see companies try to get out while they can. Make no mistake - it's investment fleeing the country. As this goes, foreign capital could flee next.
Link to this Blog Entry
Tuesday, December 16, 2008 ~ 12:12 p.m., Dan Mitchell Wrote: The government's spending surge to ease the financial crisis and a worsening recession is increasing the federal share of the nation's
economic activity close to $1 out of every $4, the highest level since World War II, an analysis of current and projected payments shows. ...All
that spending will push the federal share of the nation's $14.4 trillion economy to 25% or more - past the post-World War II record of 23.5% set in 1983, at the end of what was then the worst recession since the
Depression. Economists warn that the fast pace of government spending could spell trouble in the future: slower economic growth, higher interest
rates, and the likelihood that tax increases...will be needed to tame a budget deficit headed toward a record $1 trillion. Link to this Blog Entry
Tuesday, December 16, 2008 ~ 9:49 a.m., Dan Mitchell Wrote: Go back to 1947, as the U.S. emerged from World War II and the Great Depression. Since that year, the U.S. has had the most amazing run of
wealth and income creation of any economy ever. We are today the richest country on earth, and No. 2 isn't close. Yet, over that time, according to the Census Bureau, U.S. income inequality has risen by
15%. Why? Fast-growing economies are almost always accompanied by income inequality - it was true of the U.S. in the past, and it's true of
India and China today. This isn't a bad thing. We benefit from this. The rich earn a lot of income, yes, but they pay even more in taxes. They also
create thousands of businesses, millions of jobs and trillions in income. Link to this Blog Entry
Monday, December 15, 2008 ~ 10:16 p.m., Dan Mitchell Wrote: When the Washington Nationals played their first-ever baseball game in the nation's capital in April 2005, two congressmen who oversaw
mortgage giant Freddie Mac had choice seats - courtesy of the very company they were supposed to be keeping an eye on. ...The Nationals tickets were bargains for Freddie Mac, part of a well-orchestrated,
multimillion-dollar campaign to preserve its largely regulatory-free environment, with particular pressure exerted on Republicans who controlled Congress at the time. Internal Freddie Mac budget records
show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich were recruited with six-figure contracts. Freddie Mac paid the following
amounts to the firms of former Republican lawmakers or ex-GOP staffers in 2006: Sen. Alfonse D'Amato of New York, at Park Strategies, $240,000. Rep. Vin Weber of Minnesota, at Clark & Weinstock,
$360,297. Rep. Susan Molinari of New York, at Washington Group, $300,062. Susan Hirschmann at Williams & Jensen, former chief of staff to House Majority Leader Tom DeLay, R-Texas, $240,790. ...The tactics
worked - for a time. Freddie Mac was able to operate with a relatively free hand until the housing bubble ultimately burst in 2007. Interestingly, at least one of these former politicians is contemplating a return to the political arena. He even portrays himself as a friend of the taxpayer. It is unclear, though, how much of a friend he really is considering that the story reveals that, "Freddie Mac enlisted prominent conservatives, including Gingrich..., paying [him] $300,000 in 2006, according to internal records." Link to this Blog Entry
Monday, December 15, 2008 ~ 9:41 p.m., Dan Mitchell Wrote: ...for the first time in my life, I think the formation of some sort of world government is plausible. A "world government" would involve much
more than co-operation between nations. It would be an entity with state-like characteristics, backed by a body of laws. The European Union has already set up a continental government for 27 countries, which
could be a model. The EU has a supreme court, a currency, thousands of pages of law, a large civil service and the ability to deploy military force.
...a change in the political atmosphere suggests that "global governance" could come...soon... The financial crisis and climate change are pushing national governments towards global solutions, even in
countries such as China and the US that are traditionally fierce guardians of national sovereignty. Barack Obama, America's president-in-waiting, does not share the Bush administration's disdain for
international agreements and treaties. In his book, The Audacity of Hope, he argued that: "When the world's sole superpower willingly restrains its power and abides by internationally agreed-upon standards
of conduct, it sends a message that these are rules worth following." The importance that Mr Obama attaches to the UN is shown by the fact that
he has appointed Susan Rice, one of his closest aides, as America's ambassador to the UN, and given her a seat in the cabinet. ...Jacques Attali, an adviser to President Nicolas Sarkozy of France, argues that:
"Global governance is just a euphemism for global government." As far as he is concerned, some form of global government cannot come too
soon. ...International governance tends to be effective, only when it is anti-democratic. Link to this Blog Entry
Sunday, December 14, 2008 ~ 9:09 p.m., Hubbel Relat Wrote: President-elect Obama has announced that he wants a big "stimulus" package to create 2.5 million jobs by 2011. ...Some supporters of this
new spending seem genuinely convinced that the federal government can create jobs. In part, this is a debate about Keynesian economics, which is
the theory that the economy can be boosted if the government borrows money and then gives it to people so they will spend it. This supposedly
"primes the pump" as the money circulates through the economy. Keynesian theorysounds good, and it would be nice if it made sense, but
it has a rather glaring logical fallacy. It overlooks the fact that, in the real world, government can't inject money into the economy without first
taking money out of the economy. More specifically, the theory only looks at one-half of the equation - the part where government puts money in the economy's right pocket. But where does the government get
that money? It borrows it, which means it comes out of the economy's left pocket. There is no increase in what Keynesians refer to as aggregate demand. Keynesianism doesn't boost national income, it
merely redistributes it. The pie is sliced differently, but it's not any bigger. The real world evidence also shows that Keynesianism does not work. Both Hoover and Roosevelt dramatically increased spending, and
neither showed any aversion to running up big deficits, yet the economy was terrible all through the 1930s. Keynesian stimulus schemes also were tried by Gerald Ford and George W. Bush and had no impact on the
economy. Keynesianism also failed in Japan during the 1990s. To be fair, the inability of Keynesianism to boost growth may not necessarily mean
that government spending does not create jobs. Moreover, the argument that government can create jobs is not dependent on Keynesian economics. Politicians from both parties, for instance, argued in favor of
pork-filled transportation bills earlier this decade when the economy was enjoying strong growth - and job creation generally was their primary
talking point. Unfortunately, no matter how the issue is analyzed, there is virtually no support for the notion that government spending creates
jobs. Indeed, the more relevant consideration is the degree to which bigger government destroys jobs. Both the theoretical and empirical evidence argues against the notion that big government boosts job
creation..."
Saturday, December 13, 2008 ~ 11:30 p.m., Dan Mitchell Wrote: Administration officials have been warning for weeks that failure to pass the bill could lead to an even deeper recession. That was the message
Vice President Dick Cheney brought to a closed-door Senate GOP lunch Wednesday, reportedly warning that it'll be "Herbert Hoover" time if
aid to the industry was rejected, according to a senator familiar with the remarks. Cheney is right, but for the wrong reasons. To the extent that it is "Herbert Hoover time," it is because the current administration has repeated many of the mistakes that were made by President Hoover. There was a huge expansion in the burden of government spending under Hoover, up 47 percent in just four years. There's been an equally huge increase in government spending under Bush. Hoover dramatically increased government intervention with everything from schemes to prop up wages to protectionism. Bush's intervention takes a different form, with mistakes such as steel tariffs Sarbanes-Oxley, and bailouts. Hoover's legacy is statism. Bush's legacy is statism. The only unanswered question is whether Obama will be the new Roosevelt – i.e., someone who compounds the damage caused by his predecessor with further expansions in the burden of government.
Friday, December 12, 2008 ~ 10:10 p.m., Dan Mitchell Wrote: Even before the financial crisis, government was expanding. Public spending as a share of the economy jumped under President Bush, and
regulation increased, too, notably in the form of the Sarbanes-Oxley law on corporate financial disclosure. Commentators trumpeting the abrupt death of free-market, small-government Republicanism appear to have
slept through the Bush years. ...Liberals want to celebrate the collapse of "free-market ideology," but free markets do a lot of jobs better than
government. ...Government can be rendered more efficient by cutting out unneeded spending, as Obama suggested when he announced his choice for budget chief. It can also be improved via competitive
procurement of government services, which argues for school vouchers and a cleanup of the defense-purchasing practices that allow lobbyists to skew outcomes. Social Security and Medicare must be revisited. A
government that faces legitimate pressure to grow can't afford big retirement benefits for people who are too young or too wealthy to need them. Nor can it tolerate a situation in which, after adjusting for
variations in demographics and labor costs, some states spend twice as much on health benefits per retiree as other states find adequate. Market
reengineering is also in order. The government should stop distorting markets by subsidizing housing finance through Fannie Mae and Freddie Mac, clinging to trade barriers, or offering tax deductions that
encourage overspending on homes and health care. The tort system, an outrageously wasteful way to compensate victims and discipline firms,
should be reformed. And, given the object lesson from the collapse of the Big Three carmakers, government should think carefully before empowering labor unions further.
Thursday, December 11, 2008 ~ 6:19 p.m., Dan Mitchell Wrote: The Roman Catholic Church is calling for the effective closure of secretive tax havens as a 'necessary first step' to restore the global
economy to health. In a policy paper from the Holy See, Pope Benedict pins the blame for the international financial crisis largely on 'offshore
centres'… The Pope points to estimates that the global fiscal deficit caused by offshore activities could amount to a staggering $255bn (£175bn) which is 'more than three times the entire sum of [global]
development aid'. …the reflection paper argues that tax havens, which banks use to escape the gaze of international financial watchdogs,
facilitate the transfer of wealth from poverty-stricken nations to the rich world. …Intriguingly, the Vatican Bank…makes very limited financial
disclosures, but the Rev Thomas Resse in his book Inside the Vatican claimed a cardinal told him in 1994 that it had $4bn in deposits and an annual income of $40m. Many experts believe this to be a spectacular
underestimate. This is not the first time the Pope has sided with big government over people. I addressed this issue last year, but he inexplicably somehow missed my post on this topic. I guess this means the Pope has not watched my three-part series on tax havens. The Economic Case for Tax Havens would show him how low-tax jurisdictions boost global economic performance. The Moral Case for Tax Havens would warn him of the unpleasant consequences of giving too much private information to corrupt, venal, and incompetent governments. And Tax Havens: Myths vs. Facts would explain to him why attacks against low-tax jurisdictions are empty demagoguery. If the Pope is not a fan of YouTube.com, he would benefit from reading Tim Ridley's column, which was published by Cayman News Service: Pope Benedict commands huge respect but one wonders where his advisors are getting their economic and financial advice, possibly from
the German Finance Minister or the French President, since it is so misguided and wide of the mark. On the first point, there is clear and incontestable evidence where the current crisis started, but it bears
repeating that its origins were in the bad lending practices and financial engineering of regulated entities in major onshore economies, not in
offshore centres. On the second point, His Holiness should also look much closer to home. The Vatican has a very patchy history of transparency, fiscal accountability and rectitude. It also has no problem
with its own tax free status. It cut a deal with Mussolini in 1929 that effectively made the Holy See a tax haven itself. …to charge that small economies that are able to operate without direct taxation and have
thriving financial services industries are ipso facto responsible and punishable for the evils of tax evasion and official corruption beggars
belief. Those charities, politicians, bureaucrats and now it appears, the Catholic Church, that clamour for the summary conviction and elimination of these small countries (who have few international votes
and limited bargaining strength) should think long and hard about the implications if they get what they wish for. Small Islands like Bermuda,
the Bahamas, the British Virgin Islands and the Cayman Islands will be impoverished and consigned back to the poverty of times gone by. The
despots of the world will continue to find ways to pillage their countries' treasuries and to have the proceeds available in one form or another in
onshore financial centres in Europe and elsewhere (convenient after all for Harrods and Bergdorf Goodman). Will Oxfam, Christian Aid and the Vatican then send care packages to both Zimbabwe and the Cayman
Islands?
Thursday, December 11, 2008 ~ 5:55 p.m., Dan Mitchell Wrote: ...with the federal government now paying (with your money) the Detroit piper, Obama and congressional leaders get to call the tune. This
provides a chance for a regulatory agenda that would never fly otherwise. General Motors, Ford, and Chrysler all have come begging at the federal trough for a series of bailouts. In recent weeks, Democrats
have made it clear what they will demand in exchange for the bailout cash: more attention to fuel-efficient cars, fewer gas guzzlers, more
research into alternative-fuel-powered cars, and other green efforts. It's also obvious what the Democratic Congress won't demand of Detroit-they won't call on the Big Three to significantly renegotiate the
absurdly generous pension plans the unions demanded and irresponsible past CEOs agreed to. Democrats in Washington have long fought to protect the unions and have been champing at the bit for greenhouse gas
restrictions. The bailouts provide new leverage on both of these scores. ...once GM and Ford are forced into following whatever green marching orders Obama sends down, then the companies become an ally to the
carbon-cappers. If Detroit is bending over backwards to reduce CO2 emissions, you can bet they will start lobbying to require all cars sold in
America to meet whatever standard they're meeting. In other words, the conditions Detroit will agree in order to get bailout cash will soon be imposed on even those automakers (like Honda and Toyota) not begging
for federal handouts. The winners, of course, are the politicians and bureaucrats who now will have powerful allies in their push to expand
government-or, as Rahm Emanuel puts it, they will have "an opportunity to do things you think you could not do before." These bailouts are a kind parting gift from the Bush Administration to the Obama
Administration.
Wednesday, December 10, 2008 ~ 8:32 p.m., Dan Mitchell Wrote: FDR wasn't FDR. He is a quasi-mythical creature who not only didn't end the Great Depression but probably greatly prolonged the nation's
economic agony with his New Deal programs and a menagerie of other foolish measures. ...Unemployment from 1923 to 1929 averaged a mere 3.3%. In FDR's first year, 1933, it hit its high point of 24.9%. Joblessness
did decline for the next three years to 14.3% in 1936, but that's still deep in depression territory. The next year unemployment actually spiked up
and didn't fall to 1936 levels again until 1941. "By June 1937, writes Marquette University economic historian Gene Smiliey in The Concise
Encyclopedia of Economics, "the recovery...was over." Even FDR Treasury Secretary Henry Morgenthau admitted the New Deal had failed. "We are spending more than we have ever spent before and it
does not work," he declared in 1939. "We have never made good on our promises...I say after eight years of this Administration we have just as
much unemployment as when we started...And an enormous debt to boot!" ...One reason the New Deal couldn't end the Depression and probably extended it is because it wasn't merely a quick economic boost
or the shoring up of vital institutions that, once fallen, might set off a domino effect on other businesses. Rather, over many years its programs
merely swiped money from the relatively efficient private sector and gave it to government programs that were often deliberately inefficient. ...FDR also spooked entrepreneurs, corporations, and would-be stock
market investors with a tremendous tax attack. The income tax top marginal rate increased to 79% between 1930 and 1940, the corporate income tax rate doubled from 12 to 24%, and Roosevelt tacked on an
"excess profits" tax to boot. He imposed an excise tax on dividends, liquor taxes, and a capital stock tax, while increasing liquor taxes.
Finally, he instituted the Social Security payroll tax with a 2% rate.
Wednesday, December 10, 2008 ~ 8:11 p.m., Dan Mitchell Wrote: The introduction of the 16% flat tax has made Romania more fiscally appealing, both to foreign investors and foreign individuals providing
services in Romania. A rising number of non-resident foreign individuals are trying to benefit from the low, 16%, tax. "(...) In this regard, I can
say there's a scenario reversal: while until the end of 2004 clients used to ask us to structure their remuneration so as to be taxed in their country
of origin, now they are asking for taxation in Romania", said Gabriel Sincu, senior manager at the tax department of Mazars consultancy.
Competition in the field of taxation is gaining momentum, particularly between countries in the same region and as a result governments have to be permanently informed about the development level of neighbouring
countries.
Tuesday, December 9, 2008 ~ 10:15 p.m., Dan Mitchell Wrote: What caused the financial crisis? President-elect Obama had a simple story during the campaign: "Eight years of policies that have shredded
consumer protections, loosened oversight and regulation, and encouraged outsized bonuses to CEOs while ignoring middle-class Americans have brought us to the most serious financial crisis since the
Great Depression." According to this view, which was echoed vocally by Obama's economic team, deregulation and conservative ideology are to
blame. There is a simple test of this view. Countries around the world have wildly different regulatory structures. Some, like the U.S., have
relatively light regulatory structures, and rely more on free markets to discipline institutions. Others, including Germany and Turkey, regulate a
good deal more. If Obama's thesis is correct, then the economic crisis should be worse in the countries that have looser regulations fueled by a "failed ideology." The data show the exact opposite.
Tuesday, December 9, 2008 ~ 9:37 p.m., Dan Mitchell Wrote: Singaporeans are considerably healthier than Americans, yet pay, per person, about one-fifth of what Americans pay for their healthcare.
...What's the reason for Singapore's success? It's not government spending. The state, using taxes, funds only about one-fourth of Singapore's total health costs. Individuals and their employers pay for
the rest. In fact, the latest figures show that Singapore's government spends only $381 (all dollars in this article are U.S.) per capita on health-or one-seventh what the U.S. government spends. Singapore's
system requires individuals to take responsibility for their own health, and for much of their own spending on medical care. ...The low proportion of government spending on health in Singapore helps the
country maintain regular budget surpluses while reducing taxes. The top personal income tax rate is now 20 percent, and the corporate tax rate is
18 percent (both roughly half the U.S. rates), while the value-added tax, at 7 percent, is roughly one-third the level of the typical European country.
Monday, December 8, 2008 ~ 11:04 p.m., Dan Mitchell Wrote: Life is improving for private business in Belarus, albeit from a position in which arbitrary action was the hallmark of economic policy. … Taxation
remains high by regional standards, with general government revenue at over 45 per cent of GDP, compared with 30.5 per cent for Ukraine and 20 per cent for Russia. … Overall, says the deputy finance minister,
Vladimir Amarin, next year's budget will reduce the tax burden by 1.3 per cent of gross domestic product, and future budgets will shave a further 2.4 per cent of GDP off it. The nationwide turnover tax, which
last year was 3.4 per cent, will be phased out entirely by 2010, while local sales taxes are, from 2009, to be levied at a flat 5 per cent rate from a 5-15 per cent scale. Personal income tax, hitherto levied
according to a progressive scale of 9-35 per cent, will be a flat 12 per cent. … "The tax burden is now lighter and the system is simpler" says
Dmitry Duchitsky, chief executive of lingerie maker Milavitsa, a major beneficiary of the planned reforms.
Monday, December 8, 2008 ~ 10:45 p.m., Hubbel Relat Wrote: There are two main economic challenges for the new government. In the short term, there will be considerable pressure for so-called stimulus
programs to address the economic downturn. ...This is a nice theory, but there is little evidence that it works - in large part because government is
not able to put money into an economy without first taking it out of the economy. Keynesian stimulus programs do not increase national income,
they just redistribute how it is used. . . .The second major challenge for the new government is long-run prosperity. The good news is that New Zealand 's economy is fundamentally sound. Reforms in the 1980s and
1990s have paid big dividends, resulting in a much more prosperous and flexible economy. Economic Freedom of the World and the Index of Economic Freedom both rank New Zealand highly, and other indices
also reflect well on the country. . . .Reducing the tax and spending burden should be a top goal for the new government. The platform of the
National Party does indicate some positive reforms will be forthcoming, but it is unlikely that the proposals are sufficient. The new government is
committed to reducing the top tax rate from 39 percent to 37 percent over the next couple of years, but that only erases one-third of the rate increase imposed earlier this decade by Labour. . . .lower tax rates
should be combined with a cap on government spending so that it can grow no faster than the rate of inflation. This type of rule would gradually shrink government so that it consumed a smaller share of
GDP. Instead of consuming 42 percent of GDP, the goal should be to streamline to public sector so that it falls to 30 percent of economic output (still about twice the size of government in Hong Kong , but a big
improvement over the status quo). This would free up labor and capital so that those resources could be more efficiently utilized by the productive sector of the economy. Lower tax rates and a less
burdensome public sector are key components of a strategy to make New Zealand richer and more competitive in a global economy. Because of its small size and location, New Zealand needs to compensate by having a
more attractive economic climate. Important reforms took place in the 1980s and 1990s, but fiscal policy remains a weakness. Dealing with this challenge will be the key test for the new government.
Sunday, December 7, 2008 ~ 5:11 p.m., Dan Mitchell Wrote: Alexander Just, a European Union archivist, may not be a coffee connoisseur. But the espresso from a new, state-of-the-art Italian
machine at his office tasted strange enough that he was willing to shell out €70 from his own pocket to have it tested. The findings? Astronomically high levels of nickel and elevated amounts of lead.
Enough for the European Commission to pull the plug on all 20 of the machines - installed in January at a cost of about €5,000, or $6,350,
each. Soon the machines may be removed from the upper floors of the iconic Berlaymont, the building in Brussels where top European Commission officials have their offices. There has been no evidence of
anyone getting sick, but the problem is likely to give ammunition to EU critics who complain about excessive spending in Brussels - and trouble the commissioners themselves, who now may have to line up in the
cafeterias with thousands of less lofty bureaucrats to get a cup of coffee. ...The machines were meant to be a perk for the most senior European
Union officials - saving them and their members of cabinet from having to line up in cafés on other floors. Some officials grumble that the Cimbali models replaced perfectly good coffee makers, and there was no
need to spend European taxpayers' money on such lavish devices.
Saturday, December 6, 2008 ~ 7:42 p.m., Dan Mitchell Wrote: A sports-team owner, a financial-firm executive and residents of Hong Kong and Saudi Arabia were among 2,702 millionaire recipients of farm
payments from 2003 to 2006 — and it's not even clear they were legitimate farmers, congressional investigators reported Monday. They probably were ineligible, but the Agriculture Department can't confirm
that, since officials never checked their incomes, the Government Accountability Office (GAO) said. ...The investigators said the problem will only get worse, because the payments they cited covered only the
2002 farm-bill subsidies. The 2008 farm legislation has provisions that could allow even more people to receive improper payments without effective checks, they said. There are three main types of payments:
direct subsidies based on a farmer's production history; countercyclical payments that kick in when prices are low and disappear when they recover; and a loan program that allows repayment in money or crops.
Friday, December 5, 2008 ~ 4:07 p.m., Dan Mitchell Wrote: At its meeting on December 2, the European Council of Finance Ministers (Ecofin)...called for "rapid progress of the discussions on the
proposal" for new legislation that would expand the scope of the savings tax directive to include a wider array of financial instruments and
vehicles. ...Last month, the European Commission announced that it had adopted an amending proposal to the savings tax directive that will widen the scope of the legislation "with a view to closing existing
loopholes and eliminating tax evasion." The proposed amendment seeks to tighten the directive, so member states can tax more interest payments channelled through intermediate tax-exempted structures. The
amendment would also extend the scope of the directive to forms of income obtained through investments in some "innovative financial
products" as well as investments in certain life insurances products. ...Discussions with selected Asian financial centres regarding the application of the directive, namely Hong Kong, Singapore and Macao,
were started by the Commission earlier this year.
Thursday, December 4, 2008 ~ 1:00 p.m., Dan Mitchell Wrote: If an athlete injures himself and suffers great pain, we'd recognize the shortsightedness of giving him painkillers to keep him going. The pain
might be masked, but at the risk of greater injury later. That's a good analogy for the inflationary policies now pursued by Washington. These
policies may temporarily "stimulate the economy," but they also disguise and aggravate the underlying problems. We will all pay a serious price.
...When we hear that the U.S. Treasury is doing this or the Federal Reserve is doing that, we should remember that these agencies are run
by mere mortals, and as such, they cannot know how to "fix" something as complex as an economy. But they certainly are capable of wrecking
one. That's what their inflationary policies will do. ...How can the economy straighten itself out if it is being systematically skewed by government inference with prices? We are in the mess we're in precisely
because of earlier government interference. Easy mortgage terms and guarantees contrived a housing boom and irresponsible lending that could not be sustained. The consequences have shaken the foundation of
the financial industry. But instead of freeing the market and allowing the errors to be corrected, the government is seducing the economy into a whole new set of errors. That will lead to the next bust.
Wednesday, December 3, 2008 ~ 5:11 p.m., Dan Mitchell Wrote: Most people on the left are not opposed to freedom. They are just in favor of all sorts of things that are incompatible with freedom. ...One of
the most innocent-sounding examples of the left's many impositions of its vision on others is the widespread requirement by schools and by college
admissions committees that students do "community service." ...The arrogance of commandeering young people's time, instead of leaving
them and their parents free to decide for themselves how to use that time, is exceeded only by the arrogance of imposing your own notions of what is or is not a service to the community. Working in a homeless
shelter is widely regarded as "community service" — as if aiding and abetting vagrancy is necessarily a service, rather than a disservice, to
the community. ...The most fundamental problem, however, is not which particular activities students are required to engage in under the title of
"community service." The most fundamental question is: What in the world qualifies teachers and members of college admissions committees
to define what is good for society as a whole, or even for the students on whom they impose their arbitrary notions? What expertise do they have
that justifies overriding other people's freedom? What do their arbitrary impositions show, except that fools rush in where angels fear to tread?
What lessons do students get from this, except submission to arbitrary power?
Wednesday, December 3, 2008 ~ 4:24 p.m., Dan Mitchell Wrote: In India, victims watched as armed police cowered and didn't fire back at the terrorists. A photographer at the scene described his frustration:
"There were armed policemen hiding all around the station but none of them did anything. At one point, I ran up to them and told them to use
their weapons. I said, 'Shoot them, they're sitting ducks!' but they just didn't shoot back." Meanwhile, according to the hotel company's chairman, P.R.S. Oberoi, security at "the hotel had metal detectors, but
none of its security personnel carried weapons because of the difficulties in obtaining gun permits from the Indian government." India has extremely strict gun control laws, but who did it succeed in disarming?
The terrorist attack showed how difficult it is to disarm serious terrorists. Strict licensing rules meant that it was the victims who obeyed
the regulations, not the terrorists. ...The attack also illustrates what Israelis learned decades ago. — Putting more soldiers or police on the
street didn't stop terrorist's machine gun attacks. Terrorists would either wait for the armed soldiers or police to leave the area or kill them first.
Likewise, in India, the Muslim terrorists' first targets were those in uniform (whether police or security guards). Terrorists only stopped
using machine guns to attack Israelis once citizens were allowed to carry concealed handguns. In large public gatherings, a significant number of
citizens will be able to shoot at terrorists during an attack — and the terrorists don't know who has them.
Tuesday, December 2, 2008 ~ 9:13 a.m., Dan Mitchell Wrote: French Prime Minister François Fillon has said that he does not consider Switzerland to be a tax haven. ..."Switzerland is not a tax paradise. It is
not considered as such by the Organisation for Cooperation and Economic Development and it is not considered as such by France," said Fillon at a joint media conference held with Swiss President Pascal
Couchepin. However, he called on Switzerland to put OECD transparency rules into practice.
Monday, December 1, 2008 ~ 10:54 p.m., Dan Mitchell Wrote: ...governors and state legislators are...imploring Washington to bail them out. California Gov. Arnold Schwarzenegger, who had been grappling
with a $15 billion budget deficit, wrote to Congress on Oct. 21 applauding plans for $14 billion in aid for states in the latest proposed federal economic stimulus plan. New York Gov. David Paterson has
twice traveled to Washington, most recently on Oct. 29, to ask for federal aid. The Empire State's budget deficit is now estimated at $12 billion over the next two years. ...From the end of the last recession in
2003 until this year, states collectively boosted general-fund budgets by an annual average of some 6.4%. In just 2006 and 2007 alone they added about $100 billion. During the period from 2003-2008, states also
took on 38% more debt, increasing their collective indebtedness to $2.19 trillion. ...many [states] fail to address their deep, structural budget
problems during the good times, preferring to use booming tax revenues to start or expand politically popular (and often costly) programs. Another, deadlier issue is their failure to deal with huge and growing
employee pension and benefits liabilities. For years, state and local politicians have bought support from public sector unions by promising big benefits. Over time these promises exert severe pressure on their
budgets. A study three years ago by the Employee Benefit Research Institute estimated that the average public sector worker earns 46% more in total compensation than his counterpart in the private sector,
largely because government employers spend 60% more per worker on benefits than counterparts in the private sector. States have collectively racked up some $731 billion in unfunded liabilities for pensions and
other retirement benefits, according to a study published last December by the Pew Charitable Trusts' Center on the States. |
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