Resurrect Capitalism!

March 18, 2009

Removing the Union Chokehold

Filed under: entitlements, unions — Tags: — admin @ 11:18 am

I have been closely watching the bankruptcy proceedings of the city of Vallejo, California.  It is a medium-sized suburb of San Francisco that found its finances shattered by this economic downturn.  A major reason for its bankruptcy was its onerous public employee union contracts.  Unions refused to renegotiate their contracts as the municipal finances collapsed. 

Bankruptcy judge Michael McManus has ruled that Vallejo can void its union contracts as part of its restructuring.  The repercussions of this could be huge…  hugely POSITIVE for taxpayers!

“My understanding is that a lot of cities are watching this and particularly this motion,” said Woodruff. “If the city of Vallejo succeeds in using bankruptcy to void union contracts I am sure others will follow,” she said.

Vallejo attorney Norman C. Hile of Orrick, Herrington & Sutcliffe’s Sacramento, Calif. office said, “This is a decision that is somewhat groundbreaking.”

Of course the unions will challenge this ruling.  Let’s hope the decision stands and public employee pay can be scaled back to more realistic levels everywhere.  Public employee pension and benefit costs are a ticking time bomb and the sooner the bomb is defused the better off all taxpayers will be. 

The entitlement mentality needs to be dismantled one piece at a time.  Why should union members not suffer the same pain and grief that the rest of us are enduring in this downturn? 

Somebody in California buy Judge McManus a beer!

March 5, 2009

Insatiable Gluttons

Filed under: Obama, entitlements, socialism, taxes, unions — Tags: , — admin @ 8:54 pm

It seems like every new day brings further news of layoffs, declines, and economic setbacks.  People are cutting spending.  Businesses are spending less as well.  With incomes down, unemployment up, and profits declining it is obvious that tax revenues will fall a bit everywhere.

So the logical course of action is to CUT SPENDING.  Of course Obama thinks that government can magically allocate capital better than private enterprise, so the federal government is instead dramatically increasing expenditures.

Surely state governments will be cutting expenditures, right?  Well, they are trying to.  The problem is that the wards of the state don’t like it when you mess with their hand-outs.  In New York City massive protests are underway to demonstrate against spending cuts:

Organizers estimate that 50,000 people have lined Broadway with a message to Gov. David Paterson that cuts are not the answer to fixing New York’s budget problems.

The protesters are made up of a widespread coalition of labor unions, community groups, and even families uniting to have their voices heard. Dubbing it a “Rally for New York,” they are rallying against proposed state and city budget cuts to public services, education, health care, along with other programs that impact families and the economy in New York.

Apparently massive tax increases wouldn’t “impact” the economy according to these protesters.  New York state already has among the highest taxes and costs of business in America.  Further tax increases would only exacerbate that.  Maybe all commerce can move down South.

the public sector
the public sector

Balancing a budget isn’t “rocket surgery”.  If you’re spending too much then you’re spending too much and you need to cut back.  The knee-jerk solution is not to further squeeze the taxpayers who are already enduring massive decreases in wealth and income.

Funny but I don’t see “downsized” private sector employees protesting.  Maybe it’s because they are mentally adults and accept that resources are finite and that nobody owes them a living.

The public sector is an insatiable glutton.  Its capacity to consume is infinite and it must somehow be stopped.  Of course as part of Obama’s “stimulus plan” there is a lot of money doled out to state governments to prop up their excessive spending habits.  Obama is doing EVERYTHING wrong in his handling of this crisis.

February 11, 2009

And Then the Unthinkable Happened…

Filed under: entitlements, politics, unions — Tags: , , — admin @ 11:52 pm

The city of Vallejo, CA made the news last year for going bankrupt.  The city coffers swelled during the 2000’s real estate boom.  As that bubble popped real estate tax revenue dried up and the town went bankrupt due to its unsustainable obligations.  One of the major costs that broke the city was the cost of employing public sector union members.

Now, after much haggling and legal wrangling with the bankrupt municipality the unthinkable has happened: public employee union members actually accepted a cut in entitlements.  Public employee unions typically fight tooth and claw against getting small increases in benefits & pay (never mind outright decreases) so this is actually significant.  OK, so the town had to go bankrupt to renegotiate its union contracts but at least it happened.  This is why bankruptcy was created.  It allows an entity to renegotiate unsustainable agreements.

Some concessions CAMP members made in their supplemental contract include dismissal of all bankruptcy-related damage claims against the city, limited unpaid furlough in the next two fiscal years, a reduction in medical benefits coverage — starting in 2010 — and further reduced retiree medical benefits for new hires. Also, new employees will be unable to cash out accrued sick leave or gain longevity pay.

Notice what didn’t happen: the union members are not down and out.  Unions don’t want to accept even the smallest cuts and will wage fear-mongering propaganda campaigns about the horrors that await the budget ax.  But ultimately the union members accepted mild entitlement concessions so that their city could regain solvency.  Sounds like a win-win deal to me.

The Detroit automakers should do the same thing as the city of Vallejo.  Go bankrupt and renegotiate your labor agreements.  Wring some concessions out of them and regain the ability to profitably manufacture cars.  Instead the bailout of the Detroit three has prevented (at least temporarily) the marketplace feedback from influencing labor agreements.  We taxpayers are footing the bill for unsustainable UAW union labor practices.

On that note, here is a sad story: the main manufacturing plant in my Central New York hometown, Magna International / New process Gear, is closing down.  The factory has been financially wobbling for some time and the closing was precipitated by UAW members voting against accepting wage and benefit concessions.  Some of my friends from high school and family members work for that plant.  They didn’t want pay cuts but now they are going to get a 100% cut in pay. Through the years the UAW fought tooth and claw against every single effort to control labor costs and this “no” vote was simply the straw that broke the camel’s back.

I don’t want to think about what this closing will do to the area:

When the afternoon shift let out, there wasn’t a worker in sight at the normally crowded McShane’s. “All the factory jobs we’ve already lost - General Motors, Marcellus Casket Company, Carrier, Crouse Hinds, Syracuse China, and now Magna, what’s left?” asked [McShane's manager] Doran.

Nothing is left.  My home region used to be a manufacturing powerhouse.  Now it is a vegetable on life support, with various handouts from the state as the dominant industries.  Some of the job losses are due to outsourcing but many of those jobs have just moved to more business-friendly climates down south.  The tax and regulatory environment simply make New York state an uncompetitive place to do business.  Upstate New York needs capitalism badly.

Say hello to your future, New York:

detroit_ruins

February 10, 2009

Socialist Rot

Filed under: Obama, decline, entitlements, freedom, socialism — Tags: , — admin @ 10:39 pm

Socialism is bad in for multiple reasons.  Most significantly it fails miserably in achieving the goals stated by its advocates (improved economic performance through central planning).  It places severe burdens on productive people.  Higher taxes and increased regulations restrict your freedom (if you work or produce something of value, that is).

But perhaps the ugliest effects of socialism are on the recipients of handouts.  When your survival depends on persistent freebies from the state you lose something.  Your independence, your life force, your vis viva slowly withers.  The survival instinct fades.  You become helpless, a shell of your former self.  I don’t look down on people who accept help in times of need.  The problem of course is when “time of need” becomes indefinite.  It’s OK to accept help from others.  But as soon as you take the help for granted you are ruined on the inside.

I’m posting a few clips that disgust me. Clips like these are anecdotes and are not necessarily representative of America as a whole.  These clips show people begging President Obama for help in meeting their day to day needs.

Apparently the handouts in Ft. Myers, Florida are not good enough for Ms. Henrietta Hughes.  She feels the need to shake her beggar’s cup straight to the man at the top:

Could you imagine getting in front of this crowd, in front of those television cameras, in front of your president, and demanding help?  It boggles my mind.

Then you have Julio, who looks hopped up on some type of drug.  He has worked at McDonalds for 4.5 years, claims that he can’t get anything better, and thinks he is owed premium healthcare:

Regardless of their citizenship these folks are not true Americans.  They are not self-reliant and don’t appear to want to be so.  They wouldn’t fight for their freedom.  They will fight tooth and claw to take away your freedom, however.  And Obama will try to oblige them.

Look at how pleased Obama seems in these videos.  These are the kind of voters he likes.  He will very happily sell your hard-earned tax dollars down the river in exchange for their votes. Besides which, he gets to play savior.

The fate of a society is determined by the attitudes and actions of the common man.  Let’s hope the above folks aren’t the new median.

January 19, 2009

California on the Brink of Fiscal Collapse

Filed under: entitlements, politics, taxes — Tags: , , — admin @ 11:01 pm

The state of California is projected to be $42B+ in the red by mid-2010.  That’s the current projection, but it will probably grow worse unless drastic cuts are made soon.

The state is drowning so badly in red ink that it will not be able to cover all that it has promised.  The state controller announced that CA will suspend tax refunds, welfare checks, student grants, and some other payments starting on February 1st if the state can’t pass a budget.   The delayed repayment of tax refunds really gets my goat.  [I never understood why people take out more paycheck deductions than they need to- you're giving the government interest-free loans every payday!].  I’ll be really interested to see what welfare recipients will do without their handouts.  If you live in California get your guns and ammo!  (Just joking…  sort of).

The state budget in 2008 was $131B.  In 1998 the state budget was a “mere” $56B.  State spending has grown totally out of control, much faster than inflation or population.  The solution is obvious.  California spends way too much money.  The state needs to cut back on entitlements.  It need to eliminate handouts to illegals. Cater to productive people who generate tax revenue, not parasites.  Of course none of these activities buy votes so modern day legislators don’t see the point.

Of course CA politicians will try to avoid tightening the belt at all costs.  They’re already begging for bailout bucks from Washington.  It would be the height of fiscal irresponsibility to bail out California (assuming it is even possible to do so).  Cali needs to live within its means.

January 13, 2009

The Entitlement Bubble Strains

Filed under: bubbles, entitlements, politics — Tags: , — admin @ 9:36 pm

Some more news indicating that the entitlement bubble may be popping soon.  There are some really interesting figures in this article.  Stock market declines have doled out a beating to pension plans for state and local government employees- pension plans for all across America are underfunded by $865B.

These pension plans have been building due to market appreciation.  With appreciation out of the picture for the time being (and presumably for a bit longer) pension plans are going to have to dip into their reserves to fund current payments.

To their credit state and local governments are starting to restrict pensions (thus far only for new employees, so it does nothing to stem the near-term funding problems).

On average for every $1 of essential services your non-federal taxes fund you pay more than 50 cents into retirement plans.  That is way too high- but to try to alter that ratio is political suicide.

An interesting figure:

public employers’ pension costs are three times the retirement costs of their private counterparts

Too many people are receiving too many entitlements.

In Rhode Island, state and local governments were scheduled to make contributions equaling 25 percent of their payroll expenses to retirement plans in 2010, said Karpinski, the executive director. Barring a recovery, the contributions may increase to as much as 30 percent in 2011, he said.

“That is kind of the elephant in the room,” he said. “Where are the funds going to come from to make these kinds of required contributions?”

People have been asking this question for many years.  Only now as the Baby Boomers retire and the markets in the toilet we have fewer options.  Promises will have to be broken.

Insatiable Gluttons

Filed under: economics, entitlements, politics, taxes — Tags: , , — admin @ 12:24 pm

One of the most visible indicators of the Great Credit Bubble was an explosion of real estate prices across the country.  As credit normalizes housing prices are falling back to earth. 

State and local governments received massive infusions of real estate tax revenue during the bubble.  Now with the collapsing of the credit bubble revenue streams are rapidly shrinking.  One might expect that in an era of falling real estate values property taxes would decline, right? 

Wrong!  It seems as though governments can’t grasp the concept of cutting expenditures. 

Real estate values increase –> “you have a more valuable asset and you need to pay more taxes on it”

Real estate values decrease –> “we made our budgets too large when times were good, now we can’t possibly cut them and you need to pay for it”

Government at all levels treated the bonanza of these past 5 years as if it were a sustainable long-term revenue stream.  Now that the boom has gone bust they can’t bear to curtail expenditures like consumers and businesses can.  As if the funding situation wasn’t dismal enough at the federal level! 

In California the budget deficit is already at least $28B and it is projected to increase to $40B by June, 2010.  Apparently cutting state employee pay when you are at least $28B in the hole is an “act of war” in California.

Government at all levels is insatiable.  Recessions are good at changing mass psychology.  Let’s hope that governments can curb their appetites for your dollars.

January 10, 2009

The Entitlement Bubble

Filed under: bailouts, bubbles, economics, entitlements, politics — Tags: , , , , — admin @ 7:59 pm

Last week I got my annual statement in the mail from the Social Security administration that listed my contributions for 2008.  I was disgusted by the number!  When thinking about alternative uses for that money my mind races with possibilities.  That is MY MONEY and at the end of it all I will probably never get one dime of my contributions back.

Through no decision of my own I spend more on SS than I spend on my own children.  I involuntarily spend more on Social Security than on anything else except for housing.  I wish I had the option of not paying into Social Security in exchange for not receiving any future benefits.  Alas that will not happen any time soon as our government has too much invested politically in intergenerational Ponzi schemes (the fact that SS is a Ponzi scheme is a future post in and of itself).

My SS statement got me thinking about the larger problem of funding entitlements.  Most people don’t realize how large benefits expenditures are.  Social Security comprises 20.9% and Medicare / Medicaid comprises 20.4% of the entire federal budget.  In comparison, total military spending accounts for 20.1% of the federal budget.  Just at the federal level we are spending twice as much on entitlement programs as we are on military expenditures.  Let that sink in.  2/5 of our federal expenditures are going to entitlements.  As the Baby Boomer generation nears retirement the proportion of federal spending that goes to entitlements is going to increase a bit.

In the late 1990’s / early 2000’s we had a massive stock bubble.  Then we had a real estate and credit bubble.  European investors inflated an emerging markets bubble.  In 2007-2008 we had an oil and commodity bubble.  As all of these bubbles fade away it is clear that we still have a massive bubble to lance, far larger than all other bubbles: entitlements.  The entitlement bubble has existed since the New Deal but the magnitude of the problem has grown ever larger since.

Simply put, we have too many people receiving too many entitlements.  Our federal, state, and local governments have made promises that they will not be able to keep for too much longer.  The situation is unsustainable and the entitlement bubble problem is becoming more obvious as our economy slumps further.

Demography exacerbates the entitlement funding problem.  The people who are or soon will be receiving entitlements didn’t have enough children.

The entitlement bubble grows differently from other bubbles in a key way: it is funded not by voluntary market participants but by involuntary taxes.  Stock, real estate, and other market-based bubble participants have to pony up their own cash (or borrowed cash they they are responsible for) to keep the bubble growing.  Recipients of the entitlement bubble can vote to inflate the bubble further and it doesn’t directly cost them anything.

And that is the crux of the problem.  Politicians have a very strong incentive to expand or at least maintain the entitlement bubble because entitlement recipients vote in large proportions and they tend to vote with their wallets. Many politicians see the problem but they don’t dare try to scale back the entitlements for fear of backlash at the next election.

Social Security is going to start running in the red in 2017, or perhaps a bit earlier due to the recession we are in.  [Many people claim that SS will be solvent until 2041 or so due to the "trust fund"- but you must understand that our federal government has spent every single cent of the "trust fund"].  Obama says that he is going to reform entitlement programs but I am extremely skeptical.  We shall see.

Many individual states are running into entitlement funding problems for their own employees, so this is not just a federal government problem.

I see no magic way out of this problem.  There are just too many wards of the state and too few productive people to support them.  Promises will need to be broken.  Any way you dice it taxes will go up and entitlement payouts will decline.  There will be changes to entitlement adjustment formulas.  Means testing will be introduced.  Taxes will one way or another rise.  They will probably be called “fees” or something that doesn’t sound as harsh.  Entitlement recipients will wail and cry and try to convince you that the world is about to end.

Ideally programs like Social Security would just be gradually phased out of existence but I don’t see any politician with the nerve to even hint at that.  Somehow we got along just fine before Social Security, Medicare, and the like were introduced and we will be fine without them.  I think there are two main solutions to get by without Social Security:

  1. able-bodied and minded people with insufficient savings shouldn’t retire, at least not fully
  2. families (children in particular) should pick up a greater portion of the care and cost of elderly relatives

People do not like to consider these options but sometime in the not too distant future reality will intrude.  We will be better off without these massive entitlement programs.  Think of all the alternative uses for the capital that goes to entitlements!

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