Jerry Brown and the State of the Budget

Despite calling his address the State of the State, Jerry Brown's speech was really first, foremost and only about the looming budget deficit. It is unlikely to be papered over one more time, but who knows politicians are such good liars. I missed the speech, but am reading from the transcript.

The governor makes some good points.

My plan to rebuild California requires a vote of the people, and frankly I believe it would be irresponsible for us to exclude the people from this process. They have a right to vote on this plan. This state belongs to all of us, not just those of us in this chamber. Given the unique nature of the crisis and the serious impact our decisions will have on millions of Californians, the voters deserve to be heard.
. . .
But I also understand that redevelopment funds come directly from local property taxes that would otherwise pay for schools and core city and county services such as police and fire protection and care for the most vulnerable people in our society.
. . .
We have the inventors, the dreamers, the entrepreneurs, the venture capitalists and a vast array of physical, intellectual and political assets. We have been called the great exception because for generations Californians have defied the odds and the conventional wisdom and prospered in totally unexpected ways. People keep coming here because of the dream that is still California, and once here, their determination and boundless energy feeds that dream and makes it grow.

I knew it was unlikely that the budget deficit would be closed with spending cuts alone, even though they should be much higher priority than new taxes, or even extensions of temporary taxes now in place. But the governor mentions pensions exactly once in the speech, at the end, with a vague promise of fairness. The pensions are a big cause of the current mess; his failure to address pension reform is irresponsible. Unless this issue is addressed, any plan will not be a long term success. From Adam Summers writing in the OC Register last December:

California's public pension and retiree health and dental care spending has quintupled since fiscal year 1998-99, increasing to $5 billion in 2009. And retirement spending is expected to triple again – to $15 billion – within a decade. The coming wave of baby boomer retirements and steadily increasing health care costs ensure that this burden will continue to grow rapidly. California will be spending more and more for state retirees' benefits, leaving less and less for other budget items such as public safety, education, and transportation.

The state budget passed in October takes state pension benefits back to 1999 levels – for future/new state employees – and the Schwarzenegger administration estimates the tweak will save up to $100 billion over time. That's a minor fix at best.

The state has tried this before. In 1991, California created a second tier of lower benefits in an effort to stem rising public pension costs. Less than a decade later, the Legislature passed, with virtually no opposition, the infamous Senate Bill 400, which not only massively increased state employees' pension benefits but also made those increases retroactive. It would simply be too easy for legislators, with the support and pressure of government workers' unions, to do it again.

The Republicans are right to demand that the Governor not hold a special election on extending the current, temporary, tax increases unless he is willing to put forth serious pension reform. A crisis of this magnitude shouldn't go to waste. I know that sounds facetious, but a failure to address a crisis' root causes while it is in the forefront in the minds of the public, is a failure of leadership.

Cross posted to sdrostra.com

National City Schools - Central Falls Deja Vu?

Item 1. I wrote yesterday, but posted this morning, on the schools and municipal situation in Central Falls, RI. Right on cue, this morning's headlines detail some issues locally that mirror the issues back east. It appears that the National City schools are bracing for a strike, as teachers reject budget cutting measures like six furlough days per year. From this morning's U-T:

Faced with a $3 million deficit, the National School District said it was forced to take drastic measures by imposing six furlough days and raising class size caps this year to balance its budget — without the union’s consent. But labor leaders say the district is hording millions of dollars in its reserve account, exploiting the bad economy and bullying teachers to drive down wages and benefits.

Another case of defiant teachers clinging to their privileges and not recognizing the new political realities? Maybe. But here is what I found curious in the article. Management had a chance to settle on terms close to their desires:

When an independent fact-finding mediator issued a report that included a proposed settlement on July 19, the union’s representative signed off on the proposal that — among other things — called for five furloughs, representing a 2.7 percent pay cut.

A lawyer representing the district signed the same document, but said the district would not agree to all of the recommendations. The school board met in closed session the next day and rejected the proposal, in part because it called for a two-year contract when the district wanted a three-year agreement.

Why is the school board so adamant about getting all of their demands met? Can't answer that, but the fact that the teacher's union reps signed off so quickly makes me wonder about what is really going on. It may be that management is overplaying their admittedly strong hand. What is clear is that the district has serious budget difficulties, to the tune of $3 million dollars in the current school year budget. At least some of the pain to be endured must come from the teachers, but it remains an open question as to whether the school board erred in not taking the deal offered by mediation. Either way, fiscal realities like this are going to start impacting districts across the nation, causing reductions in pay for government employees such as teachers.

Item 2. Mayor Sanders not yet released plan to convert new city employees to a 401(k) style retirement plan is already drawing criticism. Public employee pensions are at the heart of the Central Falls post as well. One criticism is that by keeping new workers out of the old plan, there won't be fresh cash to keep the old system afloat. Said criticism is an implicit acknowledgement that the current system amounts to a Ponzi scheme. If the current system were properly accounted and funded, this change wouldn't matter. The other criticism comes from Michael Zucchet, union leader and former council member, saying that a properly funded 401(k) that has to include a decision on whether to account for placing the new workers in the social security system (current workers are exempt), would not save appreciable amounts of money. Maybe so, but that is totally beside the point. First, such a system insulates the city from the risks of investment fluctuation. Second, the workers themselves are better off because it forces the city to fully fund its contributions in the year earned, preventing a later reneging on promises. That Michael Zucchet would be opposed only shows that he has an agenda different from actually helping city employees.

Cap and Trade Fraud

Capitol Commentary (H/T Harrison) has a must read about the "theft" of carbon credits in the EU. That we would consider implementing a similar system that has been rife with fraud is beyond me. Oh wait, that's a feature, not a bug, got it. Handing out "credits" to your buddies who can then sell them on open or black markets, that's a great feature. From Capitol Commentary:

How much would you pay for something which doesn’t really exist but yet has enormous value? That’s the question many in Europe are asking themselves as it was revealed that over €30 million Carbon Credits were “stolen” by hackers and quickly moved into other peoples’ accounts. . . . Carbon Credit trading is huge in the crazy parts of the world where Liberals think naturally occuring gasses destroy the planet. In Europe, this Carbon Credit trading rang up €90 billion in 2009! These credits are bought and sold throughout the European Union among 10,000+ different businesses. The money is so good, Al Gore became a part of a Carbon Credits trading company back in 2008.

Maybe that's all we need to know about the whole scheme. As I have said before, if the left were serious about reducing CO2, they would have gone for a carbon tax, with a revenue neutral income tax offset. But since this is really about political payback and a way to extort campaign cash and actual cash, cap and trade it is.

Central Falls Rhode Island - Harbinger?

Yesterday's WSJ highlighted the disasters facing a small poverty stricken city in Rhode Island, Central Falls. If you click the previous link, you will note the "Receiver's Report." That's because this town tried to file for bankruptcy, but was prevented from doing so by the state's legislature, who appointed a Receiver to straighten out the city's finances. Trouble is, it is a fool's errand unless pension benefits to city employees are redefined, which only a bankruptcy could have discharged. This little city of 19,000 has $80 million in liabilities. The Providence Journal reports "The median household income during 2005 to 2009 stood at $33,520, well below the statewide median of $55,569." Assuming an average household of four people, that's $16,842. Given the high level of poverty in the city, and the ability of those with income to leave, that doesn't bode well for any kind of rational fix.

How did this mess get going?

It's hard to pinpoint the exact moment when the town started deteriorating, says City Council President William Benson, but "it started with the John Hancock [pension] plan," named after the company that administers the benefits. In 1972, the city created a new pension plan for public-safety officers that allowed them to retire after 20 years and earn 50% of their final year's salary thereafter. What the city didn't anticipate was that firefighters would use the minimum staffing requirements that were part of their collective-bargaining agreement to rack up overtime and increase their last year's salary. Or that nearly a third of police officers would retire with a higher-paying disability pension.

Over time, such labor costs have swamped the city's budget. In 1991, the state took over the schools because the city could no longer afford to fund them. But that didn't solve the problem of costly and restrictive collective-bargaining agreements.

Further, the schools are also a mess. Teachers were unwilling to accept a collective bargaining agreement that would push school reforms. Eventually the entire teaching staff was fired. But even after their return, things are getting ugly in the schools.

Many teachers aren't showing up for work, often calling out sick. Several abruptly quit within the first few weeks of the school year. Administrators have had to scramble to find qualified substitutes and have withheld hundreds of student grades because of the teacher absences.
. . .
"The teachers have taken advantage of their sickness days. Almost every day they're absent, so students don't get a lot of education," said Jose Ortiz, as his daughter, Kyara, a Central Falls student, translated from Spanish. "The students don't pay attention in class because the teachers don't help them."

Parents have taken to patrolling the schools themselves.

. . . a growing number of parents who spend time at the school every day. They patrol hallways, assist teachers in classrooms and help administrators with detention. They are coming at the invitation of Supt. Frances Gallo and school leaders who believe parents play a central role in improving schools and educating their children.

Merging the city with other cities in the area doesn't appear to be a good option either, as those cities are in bad shape as well.

Image courtesy of Jon Lausten's Blog.

The Freedom Coalition and Protests in the Muslim World

Protests in Egypt, Tunisia and Yemen present a real challenge to United States foreign policy. On the one hand, leaders of these mostly repressive regimes have been somewhat cooperative with the United States. However, their years of repression and corruption have turned their countries into powder kegs, ripe for agitation by radical Islamists. Not only is this a challenge for the United States, I think it is a challenge for all who believe in freedom. If the radical Islamists succeed in toppling the governments in those countries, then we might end up with a replay of Iran in 1978, the end result being an even more repressive regime that is fundamentally opposed to the interests of the United States, and indeed against the concepts of liberty and democracy themselves.

In my last update to the Freedom Coalition Agenda, which predates my participation in the Tea Party, I stake out the following principle:

• Support Freedom Abroad. Newly liberated peoples the world over have shown a propensity to embrace freedom and markets when the yoke of tyranny has been lifted. The policy of America should be to actively work against dictatorship in all its forms (Islamic, Socialist, Fascist and Communist). We should seek to advance the cause of freedom, not through force of arms, but through steady pressure. Every piece of foreign policy should be weighed against this end. Further, we are also ready to use force of arms in this cause when defense of our national interest requires it. Americans resonate with the concepts of helping to liberate peoples from tyranny, this is a winner. We especially decry the pathetic kow-towing to dictatorship in our own hemisphere in the shameful treatment of Honduras by the Obama administration.

Supporting Hosni Mubarak, and his ilk does not accord with my principles. What then, should we recommend? I don't think there is any easy answer, but focusing on Egypt, I think that we have to use the crisis to pressure Mubarak into real reforms. That would mean fresh elections, probably unbanning of previously banned political parties. The President got it at least partly right:

"Egypt's been an ally of ours on a lot of critical issues," Obama said. "President Mubarak has been very helpful on a range of tough issues in the Middle East. But I've always said to him that making sure that they're moving forward on reform, political reform and economic reform, is absolutely critical to the long-term well-being of Egypt. And you can see these pent-up frustrations that are being displayed on the streets."

Unfortunately, several reports I have read make it clear that the protesters do not consider the United States their friend, despite Obama's Cairo speech in 2009. At this late date, it is unlikely that this perception can change. If the protests overwhelm the government, it could easily lead to an anti-U.S., anti-Israeli regime that could unleash a new round of bloodshed in the Middle East. No wonder the stock market fell yesterday.

My answer is that we have to encourage reform, and use the example of Egypt to warn Muslim dictators in the region that they could be next if ending corruption and giving the people a voice through true democracy. In the short term, I am not sure if much can be done.

Picture at right from NYTimes, taken outside of the United Nations on Saturday, January 29.

Weekend Music Chill

This weekend's music is not for everyone. Jonathon Coulton is a bit of a social commentator, which doesn't always make for the greatest music. He's also a bit geeky. But I find Coulton's music catchy, let me know what you think.

Walmart San Diego Update

In a sign that the repeal of the big box supercenter economic analysis stupidity is inevitable, Walmart announced plans to build a dozen stores in San Diego, strongly hinting that they will build in under-served District 4, represented by Council President Tony Young. This is great news for the city, bringing jobs and better shopping to our town.

While repeal of the law doesn't guarantee that Walmart will start building, if it stayed on the books, it would guarantee that we wouldn't be getting any new Walmarts. The city planning process could still gum up the works, but this is great news.

As the left liked to say in 2008, elections have consequences. I don't think we would be having this discussion if Lorie Zapf hadn't beat Howard Wayne in swing district 6, here in San Diego. Also, it's nice to see that Tony Young is seeing how the interests of unions diverge from the interests of his relatively poorer constituents. Maybe this is another trend that work in the Tea Party movement's favor. Big government policies have always hurt the poor, because they generally lack the resources to have the same impact as the rich and middle class. Getting them on board for some issues can only strengthen our coalition.

National Deficit - More Tea Leaves

Reading more coverage of the SOTU, I realized that I had dozed off at the precise moment the President said "high speed rail." Because of that, I was probably more charitable towards his speech than I might have been otherwise, because I missed all the shiny new spending proposals; shiny new trains and shiny new solar panels on our shiny new reflective homes to reduce global warming.

Meanwhile Paul Ryan hit exactly the right tone in his response, to which, I listened but can't remember anything except the realization that we are really screwed on the debt and deficit situations. Right on cue, the WSJ headlined that the deficit is actually worse than projected. It's like losing your home to a flood, only to find you've bought insurance from a phony outfit. So here is the even more disturbing picture:

WASHINGTON—The federal budget deficit will reach a record of nearly $1.5 trillion in 2011 due to the weak economy, higher spending and fresh tax cuts, congressional budget analysts said, in a stark warning that will drive the growing battle over government spending and taxation.
. . .
The forecast will no doubt frame the coming months of debate. The first real tests of Mr. Obama's spending priorities will come when the White House releases its 2012 budget Feb. 15, spelling out proposed spending increases and cuts.

Paul Ryan will be using the spending numbers to drive a limit on spending. The government is operating under a "Continuing Resolution," so any failure to compromise at least leaves spending at last year's levels. The good news is that failure means that spending won't go up. The bad news is that the deficit will continue to grow the deficit at more than a trillion dollars per year, as in $1,000,000,000,000.00. In fact the above graphic puts the deficit at $1.48 trillion, but for reasons that are still not clear to me, the debt will grow by closer to $2 trillion.

Meanwhile, fellow blogger and reader KT, points out some more disturbing news in the comments section of a previous post. Japan, the largest holder of U.S. government debt has just had its own credit rating cut. Bush's and now Obama's policies have us heading down the same road that Japan started on 20 years ago. Further, if the Japanese have further fiscal troubles would they not dump U.S. Treasuries, putting upward pressure on interest rates? That's an actual not rhetorical question, because I am not sure about all of the forces at work, but KT is sure they're going to sell.

The hour is late, we have to cut spending, Krugman be damned. Peggy Noonan bears repeating:

The second thing is the clock. Here is a great virtue of the tea party: They know what time it is. It's getting late. If we don't get the size and cost of government in line now, we won't be able to. We're teetering on the brink of some vast, dark new world—states and cities on the brink of bankruptcy, the federal government too. The issue isn't "big spending" anymore. It's ruinous spending that they fear will end America as we know it, as they promised it to their children.

Amen.

San Diego City Hall - Reading the Tea Leaves

Two articles in today's U-T point to the growing realization by the City Council that the issues of fiscal responsibility raised by the Tea Party are the new reality.

Item 1. The council appears poised to rescind the big box economic analysis law in the face of Walmart's successful petition drive. Key swing vote, Tony Young, council President is quoted as saying:

“With the city facing significant unemployment challenges and historic budget deficits, it is difficult to see the sense of spending over $2.5 million for a special election,” he said in a statement. Young said the money could be better spent elsewhere as the city faces a $53 million budget deficit.

The key issue is the cost of the election. Nice to see the council member thinking about cost. The U-T reports that DeMaio, Zapf, Faulconer and Lightner are solid votes to repeal, so this is looking good for a repeal. To give credit where it is due, Richard Rider has been predicting this outcome.

Item 2. City Trims Its Pension Shortfall Craig Gustafson is also reporting that the City Council has decided against paying $100 million in illegally obtained benefits to current and former city employees. The background:

The benefit at issue is called the “purchase of service credit” program, enacted in 1997 under then-Mayor Susan Golding. It’s still in effect, although not for new hires.

Employees can buy as many as five years of service that they didn’t work. For example, a 15-year worker could retire with 20 years of credit. The move increases future pension payments and, in some cases, allows workers to retire earlier.

The pension system wasn’t charging workers enough for the credits between 1997 and 2003 to cover its costs.

The San Diego City Employees’ Retirement System board voted on Aug. 15, 2003, to increase the rates and delayed implementation for more than two months. Word spread quickly and nearly as many people bought credits in that brief window as in the previous six years combined.

However, the state constitution forbids gifts to employees which is what the award of the pension credit without adequate pay in amounts to. Good to see the city council shaving $8.8 million off its annual bill. By the way, how is this different from the case of Judie Italiano getting $700,000 in unearned pension benefits? Also, what is wrong with the pension board? They had asked the council last November to approve the illegal pensions. Can't we fire these jokers?

But over all, I pretty happy. The way I see it, that's a nice deficit reduction of $11.3 million. Plus, I might get to shop at a Walmart SuperCenter in my home town some day. The one I visited in North Charleston was pretty sweet.

Image of Tony Young at top right courtesy of San Diego CityBeat.

Cross-posted to sdrostra.com.

My Issues With the SOTU

There was a lot to like in the President's State of the Union speech tonight, if you take him at his word. He successfully tacked to the center and talked in a way that most Americans will agree with. Because he was short on specific details, it was a good speech to lay out platitudes that will continue to raise his approval numbers. As is often said, however, the devil is in the details. That said, I still had a few issues with the speech.

First, I was worried he was going to milk the whole civility and aftermath of the Giffords shooting. He stopped just short unseemliness.

The President made great statements about the infrastructure needs of America, including the high tech infrastructure. But my issue is that he makes the assumption that only the government can fund these improvements. If we don't fund infrastructure through private investment, we will never make the needed improvements.

He talks about the legacy of deficit spending, but the emphasis on more "investment" which equals spending in new infrastructure is incompatible with his call for a freeze in discretionary spending.

His call to reform social security ring hollow, because he proposes nothing except tax increases for the wealthy. Even though the two issues were not directly conflated, they were juxtaposed in his speech. What conclusion am I to draw. Also, it is a lie that the health care law reduces the deficit.

Calls for a government that is more efficient, but the complexity of government is largely due to its size not only inanity. If his proposed re-organization is to be effective, it must reduce the size of government.

I liked the call for a simplification of the individual tax code. It will in fact raise more revenue, especially if accompanied by a lowering of rates, just like Reagan and Rostenkowski worked out in the eighties.

The bipartisan fiscal commission called for cuts to excessive spending in all areas. I tend to agree. But the President didn't point out a single idea from that commission with which he agreed or disagreed. Sorry, he is still voting present.

On health care, he was combative and I get that. At least he indicated his willingness to revisit the 1099 issue. His call to move on will go unheeded by me, because the health care bill merely doubles down on all that is already wrong with a third party payer system that divorces benefits from payer and is inevitably inefficient and ineffective.

There were some nice touches at the end like paying homage to the humble beginnings of Boehner and Biden and to Brandon Fisher and the new drilling technology used to save Chilean miners.

It was certainly a good speech that sets a good tone for further debate.

More Economic Headwinds - Rising Prices

The WSJ headline today, Global Price Fears Mount, signal more risk to the economic recovery. Steel prices are rising as the price of raw materials, coal and iron, rise. China and Brazil are noted for their increased consumption of commodities. Meanwhile, the recovery is barely underway in the United States, with factories still sitting with unused capacity. Global food prices are also rising. The impact in Europe is expected to be rising interest rates to keep inflation in check.

The tough question is how this will impact the United States. The Fed is currently committed to fiscal stimulus. But commodity price increases have a history of triggering broader inflation. My concern is that the Fed will "get behind the curve" in fighting inflation and let it get out of control. Even though we briefly dipped into deflation in 2009, during the 2000s we have seen more volatility in the inflation measures than the 90s. There is no reason to believe we won't have swing to relatively high rates of inflation quickly as the economy recovers and commodity prices rise. Don't be fooled by the graph below, the dark line is actually at the 2% inflation line.

Image courtesy of WSJ.

For all of the talk about deflation from the likes of Krugman, we haven't actually seen deflation for any prolonged period. Maybe its just my bad experience growing up in the 70s, but I worry much more about an inflation that will require high interest rates that will crush out recovery.

Walmart San Diego - Labor's Flawed Logic

Lorena Gonzales makes some absurd arguments in today's U-T editorial section on the law to block WalMart from setting up "big boxes" that sell groceries without a special economic impact analysis that no other business is subject to. Here is the core of her argument, Superstores have unknown and potentially economic impact, so they should be required to submit to a special analysis before being approved. News flash, all new businesses have an unknown economic impact. If they didn't then the central planning of the former Soviet Union would have made it the richest nation on the planet. Further, even if an analysis is performed, it is unlikely to predict the true effects of any new business. After scaremongering and passing along numerous lies regarding Walmart, she accuses the business of "bullying" the City Council with its petition drive. Bullying? Really? Exercising constitutional rights when being subjugated by local government is bullying? Remember this, which also applies to local government:

Congress shall make no law respecting . . . the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

There is a rebuttal by W. Erik Bruvold, Big-box ordinance unfairly targets one retailer, on the opposite side of the paper. While good, it doesn't really capture my outrage. So here are my rebuttal points:

1. There is already a planning process. Use it. Stop targeting a business that competes with union shop grocers.
   
2. New business is disruptive, so what? Henry Ford didn't submit an impact analysis on the carriage industry.
   
3. Lot's of businesses thrive near Walmarts.
4. Walmart provides wages and benefits that are usually better than the small businesses they supposedly supplant. Like it or not, and I don't, California's minimum wage laws guarantee this.
5. People want to pay less for groceries. Poor people need to pay less for groceries. Why don't you care about the poor?
   
6. Why are labor unions leading the charge against Walmart if the negative impact is allegedly against small businesses, who usually lack union shops, by the way.
   
7. An economic analysis is a ban. Look at the experience in Los Angeles. Quit obfuscating.
8. Labor is going to get thumped again if this goes to a vote, leaving them with less money to make my life more miserable.

I look forward to seeing how the City Council handles this issue.

Cross posted to sdrostra.com

Government Should Not Intrude on Private Family Matters

So said the President, with unintended irony today, celebrating(?) the 38th anniversary of Roe v Wade. As an aside, there have been few more poorly reasoned decisions in the last 100 years, than Roe v Wade? Even if one thought that abortion should be legal, the manner of deciding, by the Supreme Court inventing a right out of whole cloth, is preposterous, given the compelling state interest in protecting human life.

So the President doesn't believe that the government should interfere with "private family matters" except that his administration uses government dollars to pay doctors to talk to patients about end of life care. Further, the FDA is starting to scrutinize drugs based on their cost, like Avastin, even though it is not within their jurisdiction to consider cost. This is a blatant attempt to prevent doctors from prescribing drugs that are expensive by interfering with the doctor-patient relationship. And what about the family budgeting decision on whether or not to buy health care insurance in the first place. A young couple, starting a business, has to make tough decisions on how to spend the little money they have put together to get their enterprise off the ground. Now the government intrudes right into that discussion, demanding that they buy insurance, rather than making that decision for themselves.

If the President wasn't so hypocritical, I would have let the Roe v Wade date go by unmentioned. I disagree deeply, but it is not at the top of my list of priorities right now. But Obama's remarks are just too galling to pass by.

Bank of America Loses $1.2 Billion in Just One Quarter

The Washington Post is reporting that Bank of America is bleeding money at a serious rate.

The bank said it lost $1.2 billion in the fourth quarter of last year, more than six times its loss from the same period in 2009. Perhaps more troubling were the bank's warnings about what might be coming: The company could be forced to pay out as much as $10 billion to resolve some disputes over the toxic mortgages it sold to investors around the globe.
. . .
Borrowers continue to default on loans. Allegations of robo-signing and other irregularities in foreclosure practices have made it harder for the banks to evict delinquent homeowners, sell the houses and cut their losses. Government investigations loom.

I don't have a lot of sympathy for the banks. They get bailed out by the government repeatedly either through the dirty Fed (W.C.'s term) or by direct intervention. They bought this trouble themselves with shoddy loan practices and lack of transparency. Even though the article stated that Wells Fargo and Chase have improving profits, I am concerned that the banks are facing big losses on dud loans, that will now be even more difficult to recover, because of past bad practice.

Weekend Music Chill

I am trying some more of the music that my eldest likes. I have to admit that his musical choices are much more mellow than mine at that age.

The Decemberists:



Here is Tahiti 80 covering the Turtles:



And Tahiti 80 with an original tune:

Good News from the Republican House Majority

It's been a busy week for the new Republican House majority. First and most important, the House voted to repeal Obamacare 245-189. I know it won't even get to a vote in the Senate, what are you afraid of, Harry, but Paul Ryan reminds us of the importance of this vote. Let me be clear, this bill significantly raises the amount of debt of the federal government.





Next up, the House Energy committee plans to investigate the EPA's power grab over CO2 regulation. From committee documents, as reported in The Hill:

“The stakes could not be higher,” the document says. “ If the Obama administration succeeds in imposing unaffordable and unworkable permitting and other rules through EPA, it will severely impede the domestic manufacturing and industrial growth necessary for this nation to create jobs and emerge from a devastating recession."

Meanwhile Senate Republicans think they can gain significant Democrat support for legislation to restrain the EPA's ability to regulate green house gas emissions.

Most Senate Republicans think the sweeping repeal of EPA authority is the best approach, a Senate aide said, and they’re confident they can get broad Democratic support.
“There’s anywhere from 12 to 15 Democrats that we are eying that we think would have an interest in supporting a bill like this,” the aide said.

I think this is a long shot because Harry Reid won't allow a floor vote on this, and even 15 Democrats plus 47 Republicans wouldn't sustain a veto. But hearings would remind the public about Obama's pernicious use of regulation to bypass the Congress and make for a tasty campaign issue in swing states in the Midwest.

Back to the Obamacare front, the Daily Caller is reporter that Fred Upton, Chair of the House Energy and Commerce Committee (the same committee taking dead aim at the EPA) is beginning an investigation of the waiver process that has already allowed 222 companies and unions to escape the nasty clutches of Obamacare. Here is an excerpt of the letter sent to the office charged with overseeing the waivers:

It continued: “In a Nov. 30, 2010 meeting with Ranking Minority Member Michael Burgess, you stated that your office had also denied waiver requests. We would appreciate if your office would explain how a decision is made on whether compliance with the PPACA is necessary.”

Hey, I think we'd all like to know the answer to that one.

Meanwhile, Darrell Issa, Chair of the Oversight Committee has yet to launch a single investigation, but he is already making the right enemies. The ranking minority member of the committee wrote a seven page letter blasting potential targets of investigation. Some lefty group ironically named the Courage Campaign announced the creation of a web site to enable anonymous smears of Issa. And the Washington Post and NPR are trying to poison the atmosphere with questionable articles about Issa's past. Let the smearing begin.

Leveraging the Debt Ceiling

Pat Toomey is proposing a way to ensure that freezing the debt ceiling will not result in a default on government obligations. I like the way he is thinking, because the debt ceiling is one of the best levers the Republicans in the House have of forcing a real debate on spending cuts. Here is a part of his proposal:

In fact, if Congress refuses to raise the debt ceiling, the federal government will still have far more than enough money to fully service our debt. Next year, for instance, about 6.5% of all projected federal government expenditures will go to interest on our debt, and tax revenue is projected to cover about 67% of all government expenditures. With roughly 10 times more income than needed to honor our debt obligations, why would we ever default?

To make absolutely sure, I intend to introduce legislation that would require the Treasury to make interest payments on our debt its first priority in the event that the debt ceiling is not raised. This would not only ensure the continued confidence of investors at home and abroad, but would enable us to have an honest debate about the consequences of our eventual decision about the debt ceiling.

The Tea Party should get behind this legislation. It takes straight aim at our most important assertion, that the never ending expansion of government debt is a threat to the foundations of the Republic.

On the same page of today's WSJ, Dick Armey and Matt Kibbe, of FreedomWorks, propose a series of spending cuts that could be accomplished with the leverage that a frozen debt ceiling might bring. They also remind us of the wisdom of the late, great Milton Friedman:

Milton Friedman correctly argued in 1999 that the "real cost of government—the total tax burden—equals what government spends plus the cost to the public of complying with government mandates and regulations and of calculating, paying, and taking measures to avoid taxes." He added, "Anything that reduces that real cost—lower government spending, elimination of costly regulations on individuals or businesses, simplification of explicit taxes—is a tax reform."

On to the savings. I like the way they are thinking, here are some I can endorse:

• Stop stimulus spending, $177 billion per year.
• Repealing Obamacare, $898 billion over 10 years.
  
• End the bailouts of Fannie Mae and Freddie Mac. $389 billion.
• End ethanol subsidies. $170 billion over 10 years.
• Scrap Commerce and HUD, $550 billion over 10 years. (Although I would keep NIST and "weights and measures" as constitutionally allowable.)
• End Amtrak subsidies, $38 billion.
• Defense spending cuts of $145 billion over 5 years as Secretary Gates proposes.

Read the whole thing here.

They also make the argument that the entitlement mess is the biggest problem in the federal budget. With respect to the health care spending, they are arguing in favor of Paul Ryan's approach to convert medicare spending into capped contributions to individuals. Perhaps more on that in another article.

One area where I disagree is to convert some portion of Social Security into optional personal accounts. I once liked this idea, but now believe it will result in mischief, because the government will be too tempted to regulate or raid those accounts. Better to ween the public off social security by steadily eroding its benefits, in order to "save" it. For example, slowly raising the retirement age, capping increases below the rate of inflation, and means testing benefits by taxing them reduce the benefits. As the country inevitably grows richer, social security will eventually be seen as anachronism. Forty years from now, if I live that long, we won't be having this debate.

Plan B - Screw the Germans

The Economist is plumping for a brilliant new plan to save the PIGS (Portugal, Ireland, Greece and Spain), well to be fair, just the PIG. The article, titled The euro area: Time for Plan B is filled with euphemisms like restructuring (aka default), insolvent (bankrupt) and euro zone's core (Germany). To be fair, the article admitted to the last euphemism, but used it anyway. What's the point? The point is that everyone who lent these countries money is going to lose, because they won't, can't or shouldn't pay their just debts, even though they are sovereign nations.

At the same time the costs of buying time with loans have become painfully clear. The burden on the countries that have been rescued is enormous. Despite the toughest fiscal adjustment by any rich country since 1945, Greece’s debt burden will, on plausible assumptions, peak at 165% of GDP by 2014. The Irish will toil for years to service rescue loans that, at Europe’s insistence, pay off the bondholders of its defunct banks. At some point it will become politically impossible to demand more austerity to pay off foreigners.
. . .
If Europe’s leaders stick to plan A, the debt crisis will continue to deepen. If they get on with restructurings that are eventually inevitable, they have a fighting chance of putting the crisis behind them. Plan B will require deft technical management and political courage. Thanks to its emerging-market expertise, the IMF has some of the former. It is up to Europe’s politicians to find the latter.

So, the Germans, whose voters worried about the impact to their own economy of lending to countries that seemed destined for default, will reap the exact reward their voters feared. Are there any lessons for the United States? Perhaps it might not be a good idea for the American taxpayers to bail out California and Illinois. And does anyone really believe that Europe's heretofore spineless politicians will suddenly find the political courage to make this work? Stand by for some interesting lessons to be learned.

Zapf, Sanders and a Shiny New City Hall

Last Friday, I received an email in response to my question about the a City Hall from Job Nelson, identifying himself as Lorie Zapf's Chief of Staff. (None of her staffers names are yet up on the City Council Web Site for the District 6.) I must say that I am still not impressed that the council member's staff took this long to respond (from December 27), did not issue a public statement (as far as I can tell) and is not actually responding to my inquiry "Please address the rumors published in the U-T that you might support building a new city hall without a vote of the people." Read the response for yourself and decide.

The question of whether to put a new civic center on the ballot is beyond premature. We should not even be asking the question of council versus ballot for a new city hall, instead the Council and Mayor should be focusing on fixing our budget and pension problems. I heard loud and clear on the campaign trail that voters are distrustful of local government to spend their tax dollars wisely. Until we restore their basic confidence in local government- that we can fill their potholes, patrol their streets and keep their libraries open- we cannot even begin to think about building a new home for city workers. While the City is facing potentially significant costs to maintain city hall, we have higher priorities that we must focus on in the months to come. Until the city eliminates its structural deficit, resolves its pension problems and restores basic services the question about whether or not to place a new city hall on the ballot is a moot one.

Job Nelson

Chief of Staff

Office of Councilmember Lorie Zapf

So far, so good, as far is it goes, but there was wiggle room for a change in her position down the line, and nothing to preclude bypassing a vote of the people. Also, the discussion of how much it costs to run the old city hall has been part of Mayor Sanders standard line on the subject for some time. From yesterday's U-T editorial pages, Q&A, Sanders responding:

Q: There’s been talk again about moving forward again on a new City Hall. What is your view of that?

A: I think we need a new City Hall. I think it saves us money every year, but I can’t educate the public. They’re not looking at it saving money. They’re looking at it as being some new monument.

Of course that's how we are looking at it, Your Honor, because the savings for such projects always seem to evaporate. As an experienced manager, I would like to see the "return on investment" with hard numbers. Here is what the mayor was summarized as saying last July (from KPBS):

He has argued that building a new City Hall will save San Diego money by avoiding significant maintenance expenses at the existing 1960s-era building, and because the city would not have to continue leasing office space for workers at locations around downtown.

My problem is that the gleaming structure pictured in the artist's rendition looks much more expensive than necessary to achieve the savings desired. The failure to educate the public is the mayor's own fault. Put out the numbers and let informed members of the public take a good look at them. Given the track record of our city government, just don't ask us to take this on faith.


Cross posted to sdrostra.com

At Mount Soledad Yesterday

A few of the SLOBs attended yesterday's rally at the Mount Soledad War Memorial. Thanks to Dean for getting the word out about the event. The key legal question regarding the cross is "Does the cross itself create an impermissible establishment of religion by government." I would argue of course not. No particular religion is being advocated and the cross, through general usage, has become a symbol of sacrifice beyond Christianity. Here are a few pictures from the event.

Band of Brothers: Road Dawg, B-Daddy, and Dean.

Duncan Hunter and Marine.

View of the Rally.

W.C. Varones has another take.

Disagreeing with Glenn Beck on China

Glenn Beck has been claiming that China is overtaking the United States as a global economic power. While he makes a number of good points he and his panel of experts have missed some key issues that will inevitably hold China back. Beck's experts, Jim Rogers, global investor, and David Buckner, economist, opine correctly that future national economic trends can be traced to people and capital. They then proceed to focus on capital and forget about the people. The fear that we are being overtaken is nothing new, in the 1980s there was widespread fear that we were being overtaken by Japan; then "Japan, Inc." tanked. Before it did, I remember reading a quote in Reason from Thomas Friedman's book The Lexus and the Olive Tree, "I am not afraid of Japan or the other Asians. Our Asians will beat their Asians any day." The quote was ascribed to a Silicon Valley entrepreneur, who was making the point that we are the only country attracting brain power through immigration. It is a source of strength not matched by our Asian competitors. So while our public education system isn't really building the home grown talent we would like, a point made repeatedly by Beck, it is not the only source of human capital for our nation.

My second objection is that the demographic trend line for China is following that of Japan's, which will cause domestic tension and considerably raise their labor costs as they bear the burden of an aging population. Consider the following demographic profiles from Simon Bond's blog:


Because of its one child policy, China is following Japan in having an aging population that lacks younger workers to support the pension benefits of their forebears. The United States has a problem, but not nearly as severe. Note too that India, with its English speakers, flatter population profile and commitment to education is a much greater long term threat to our economic supremacy. Note too, that their is a large gap between the male and female populations in the 20-24 age group, with a deficit of about 4 million against 65 million males. This is certainly going to cause societal problems.

Next, China's lack of regard for the environmental effects of its industrial policy will come under pressure as its workforce becomes wealthier. This is not a pretty picture:


Two final thoughts. First, China's investment is heavily directed by the central government. Beck professes belief in the superiority of the free market system over and over on his show, but loses his mind when it comes to China. "State capitalism" will prove no more robust than socialism in the long run as an economic system. The ability of a free market economy to outmaneuver other models is already proven. The question for America is how will we preserve the light regulation needed for capitalism to work, and not allow the heavy hand of government to strangle free enterprise. Second, China is still a repressive regime, which is incompatible with the agility of mind and freedom of choice necessary to a culture of free enterprise. Without those strictures, the party loses its power. With them, it will always be chasing countries with free markets.

Personally, I think we should be more concerned with India in the long term. They are a democracy and working through their problems slowly but effectively. I wish we would be allowing their best and brightest to immigrate to our country in much more massive numbers than we currently allow, to give us a head start on the inevitable economic competition.

Headwinds for the Economy

Despite signs of recovery in the broader economy, I remain concerned about a double dip recession. First, the evidence that the economy is recovering:

Economists have steadily grown more upbeat about growth in recent months and boosted their estimates for the fourth quarter of 2010 in this survey. On average, respondents now estimate the U.S. grew 3.3% at a seasonally adjusted annual rate in the fourth quarter—up from an estimate last month of 2.6% growth. The economy grew 2.6% in the third quarter.

However, the headwinds moving against the economy appear powerful. First, the housing market has never been allowed to adequately deflate. I repeat a previous graphic on the subject:


Just as the original recession was triggered by the fall in housing prices, I believe that a double dip could be similarly triggered.

State finances are going to get worse before they get better. First, their borrowing costs are rising.

Yields on 30-year triple-A rated general obligation bonds shot higher to 5.01% on Thursday, reflecting a spike in perceived risk, according to Thomson Reuters Municipal Market Data. The last time those bonds yielded 5% was Jan. 30, 2009, during the financial crisis.

Second, attempts to raise taxes are going to be met with business flight. Illinois' massive personal and corporate income tax increases will only encourage the loss of wealth producers. The news from Illinois:

In a deal hammered out by the state's Democratic leadership, the lame-duck legislature pushed through a 67% increase in the state income tax and a 45% increase in the corporate tax.
. . . "We're saying to the people of Illinois, 'For eight years we've overspent, now we're going to make it your problem,'" said Rep. Roger Eddy. "We're making up for our mistakes on your back."

Gov. Mitch Daniels of Indiana and Gov. Scott Walker are ready to welcome Illinois' businesses to their states.


Pension problems are hitting as the Baby Boomers are hitting retirement age. State, local, school district and union pensions are all underfunded. I have blogged and tweeted about a number of these problems already. To some extent demography is the key challenge here, look at the bulge in the U.S. demographic trend. (Note that this is 2000 data, so to make sense of it, add ten years to the age.) Note that we have the peak of the boomer bulge currently in the 50-54 age group, but there are significant numbers of people retiring.


The only hope is a quick deflation of the housing bubble, followed by more spending as the properties get bought up and corporations open up their bank accounts to invest in new growth.

Quote of the Week

From IMAO: "People cheering and whistling when Janet Napolitano went to speak at a memorial – I don’t get that on so many levels."

Weekend Music Chill

Branching out in a new direction with slightly more modern music this week and two videos.

City Hall and the Tea Party - 2011

This is my first post cross-posted to sdrostra.com. Dave Maass asked me earlier about what I thought the Tea Party would be watching locally in 2011. As the unofficial chief ideologist, I thought the question deserved an answer. (By the way, no one selected me, in a decentralized organization, people just do the job that needs to get done. Shared vision is the glue that keeps the Tea Party together, not a party organization.) Here is what we will be watching:

City Hall. Will the politicians at City Hall vote themselves new digs, without a vote of the people? Will they have the audacity to put it on the ballot, where I predict flaming defeat? This will be a litmus test for the new and more evenly balanced council. Rumors that this boondoggle might move ahead are in print.

Pensions. Despite a small bit of good news from this morning's paper, the pension problem is the main fiscal problem facing the City of San Diego. Regardless of the faux-fabulous headline: BUDGET GAP SHRINKS, the actual fact is that the city has 67.1% of the funding needed to close a $2.14 billion gap (technically, the unfunded actuarial liability), up from 66.5%, hardly cause for rejoicing, or even a headline for that matter. My headline would have been: Tiny Progress on Pension Funding. During the November campaign, Howard Wayne performed a public service by explaining that the employees are not contributing to their own pensions to the extent allowed by law and that increasing these required contributions would be an ethical and legal way to close the gap. Even though I endorsed Lorie Zapf, I want to give credit when Democrats positively contribute to the dialog. Carl DeMaio has been doing a good job of pointing out other ways that the city can deal with this funding crisis, with ideas like freezing pay increases and not calculating certain benefits as part of base salary. Perhaps this sounds a bit arcane, but this is the hard work that needs to be done to legally and ethically meet the city's pension obligations without increasing taxes. But the other key component is the number of employees. This brings us to another key issue.

Managed Competition. The issue of managed competition makes my blood boil, because it is a proven way to reduce the costs of city services, but it has been obstructed by left leaning council members since 2006. Often times, even when the city department wins the competition, the taxpayers still end up winners because to win the competition, that department streamlines its own operations. Today's U-T offers a glimmer of hope in this area, with Mayor Sanders announcing details of competing street sweeping and public utilities. The article only identified 134 full time employees impacted. Certainly a start, but much more needs to be done. We will be watching.

Lorie Zapf. Someone we will be watching is new council member, Lorie Zapf. (Disclosure: I live in District 6.) Lorie campaigned on reigning in non-essential spending, including dealing with the pension problem, to focus on public safety. She has largely disappeared from the radar following her election, although she did do a phone interview with LaDona Harvey on KOGO. The rumor around her possible support for a new City Hall is driving me nuts because it is so plainly contrary to her stated campaign positions. I have yet to receive a satisfactory answer, even though staffer Brian Pepin left me a voice message. This, from an initial inquiry before Christmas. My honest concern is that Lorie is beholden to business interests who helped get her elected. Nothing wrong with business, per se, but here in San Diego, they tend to team up with government in sweetheart deals not in the public interest. Speaking of potential deals,

Charger Stadium. I am a Charger fan, but I don't want the city subsidizing their stadium, nor the Padres, for that matter. Professional sports are businesses that should make a profit, period. It is not up to us, as taxpayers, to make them profitable. We will be watching the city council's actions. The shenanigans of our Republican mayor don't leave me confident that we can just trust the government on this one. So who will be the new mayor after the 2012 elections?

Carl DeMaio is a council member whom we will be watching. I have really loved much of what he has done over the last year, see the link. However, I have heard some private grumblings among Tea Party activists about him, so I will be digging deeper.

That's it, there are certainly other things to keep an eye on, but B-Daddy's Book of Management, Rule #2 is "The commodity in shortest supply is management attention." It behooves us to keep our eyes on the most important issues.

Interesting Reading About Leftist Psychology

OK, I know I am going to get it, but I tripped across some interesting material on the psychology of the left that I found fascinating. I normally try to present the case for my position in a manner intended to persuade, but I occasionally get frustrated with leftist arguments that seem to make no sense. Without impugning everyone who is a lefty, I wanted to share some of this material. I have been reading IMAO, which linked to a column by its author, Frank J. Fleming, on why liberals (leftists) hate the constitution in Pajamasmedia. He is of course a humorist, but the truth of his points help make the humor. Some quotes:

No matter how much liberals try to mystify the Constitution and obscure its meaning, hearing the actual text of the document quickly destroys that fiction. It almost reads like a direct condemnation of all the government expansion and power grabs liberals have been up to lately. You can’t hear its words without imagining the ghost of George Washington punching hippies. So you can see why they’d rather it not be brought to the public’s attention.
. . .
And so liberals hope that no one reads the Constitution and that everyone leaves all the questions of what the government can do to left-wing judges who will make decisions based on what they feel is right. Then liberals will be freed from having to get the consent of the unenlightened American public who give their kids Happy Meals and eat trans-fats. They will then have the ability to force people to do what’s best and give the government all the power it needs for a better, more ordered, peaceful society.

Reading the comments section from the post, I stumbled on this link to an article on the psychology of the left [link removed due to malware warning]. Some of the money quotes:

Many leftists have an intense identification with the problems of groups that have an image of being weak (women), defeated (American Indians), repellent (homosexuals) or otherwise inferior. The leftists themselves feel that these groups are inferior. They would never admit to themselves that they have such feelings, but it is precisely because they do see these groups as inferior that they identify with their problems. (We do not mean to suggest that women, Indians, etc. are inferior; we are only making a point about leftist psychology.)
. . .
Leftists tend to hate anything that has an image of being strong, good and successful. They hate America, they hate Western civilization, they hate white males, they hate rationality. The reasons that leftists give for hating the West, etc. clearly do not correspond with their real motives. They say they hate the West because it is warlike, imperialistic, sexist, ethnocentric and so forth, but where these same faults appear in socialist countries or in primitive cultures, the leftist finds excuses for them, or at best he grudgingly admits that they exist; whereas he enthusiastically points out (and often greatly exaggerates) these faults where they appear in Western civilization. Thus it is clear that these faults are not the leftist's real motive for hating America and the West. He hates America and the West because they are strong and successful.
. . .
His feelings of inferiority are so ingrained that he cannot conceive of himself as individually strong and valuable. Hence the collectivism of the leftist. He can feel strong only as a member of a large organization or a mass movement with which he identifies himself.

Prize to the first person who can identify the source of those quotes without using Google or another search engine. If you can't figure it out, follow the link. These are certainly generalities, but they feel like the truth, regardless of the political incorrectness of the source.