Weekend Music Chill

We are on vacation in Arizona and still celebrating Christmas, so I am posting some more Christmas music for the weekend.

Here is Mannheim Steamroller with Angels We Have Heard on High



Road Dawg turned me on to Trans Siberian Orchestra.



Happy New Year.  Hope your Christmas was great.  Mrs. Daddy loves Christmas lights, so the videos are for her as well.

42 Grandchildren for 100 Grandparents

Mark Steyn nails the demographic problem behind recent financial crises.  He points out that in Greece there are only 42 grandchildren for every 100 grandparents.  In such a society, who will pay for the pensions of the not so elderly? (Many Greeks retire at 50.)  Some key quotes:

Look at it another way: Banks are a mechanism by which old people with capital lend to young people with energy and ideas. The Western world has now inverted the concept. If 100 geezers run up a bazillion dollars' worth of debt, is it likely that 42 youngsters will ever be able to pay it off?
. . .
If the problem with socialism is, as Mrs. Thatcher says, that eventually you run out of other people's money, much of the West has advanced to the next stage: it's run out of other people, period.
. . .
The notion of life as a self-growth experience is more radical than it sounds. For most of human history, functioning societies have honored the long run: It's why millions of people have children, build houses, plant trees, start businesses, make wills, put up beautiful churches in ordinary villages, fight and, if necessary, die for your country.

My friend KT would look at the problem as having its roots in our culture, much like Steyn does.  I am not so sure, because this demographic trend seems a feature of post-industrial economies.  Russia, Japan, China and Germany all have this problem.  India does not, but it has not pulled most of its people out of poverty yet.  America's demographic problem has been mitigated by immigration from poor countries.

The subject of how subsidies and immigration policy affect birth rate are subject for another day.  Suffice to say that cradle to grave "safety nets" create disincentives to having children to take care of us in our old age.

Merry Christmas

We celebrate the birth of Jesus today by giving each other gifts and well wishes, because God has richly blessed us through the gift of the Savior's birth.  This is a great and blessed country, in part because we have followed the teachings of Jesus.  I sincerely hope you are feeling God's blessing today.

Please enjoy some great Christmas music.

If You Really Cared About Income Inequality - Tea Party Prescription

I have been stewing about the President's latest "pivot," this time to income inequality, for a while.  First, it isn't necessarily a problem. Second, Obama has no real solutions.  Income inequality is a problem per se, it depends on the source of the inequality.  If it is caused by a privileged class entrenching its grip on a not-so-free economy, like crony capitalist third-world economies, then this is fundamentally unfair.  But if caused by the inevitable winners and losers in a free-market economy, then we shouldn't care so much, in fact, we should rejoice that our system rewards endeavor.

By the way, actual income inequality is NOT increasing.  The welfare state and progressive taxation have vastly reduced the gap between the poor and everyone else.

According to Messrs. Ohanian and Hagopian, once the effect of taxes and transfer payments is taken into account, "inequality actually declined 1.8% during the 16-year period between 1993 and 2009, when the Gini coefficient dropped from .395 to .388."

Unfortunately, government policies are increasing pre-tax/pre-entitlement inequality (as defined as "earned income" inequality for this discussion).  There is some real evil going on that could be addressed to improve actual fairness and improve economic growth.  Here are some liberty movement suggestions.

End the Fed and Return to a Gold Standard.  The Federal Reserve lends Wall Street bands money at below market rates that they use to fund loans.  This is supposed to help the economy, but it just concentrates wealth in Wall Street which then gets bailed out when it makes bad bets.  If you want to really stop the shenanigans that funnel wealth to people who don't produce anything, return to the gold standard and disband the federal reserve system.

The biggest source of income inequality.

Stop Raising the Minimum Wage.  Raising the minimum wage reduces the opportunity for lower skilled and teens to enter the workforce and start making their way up the economic ladder.  Moving people into the workforce begins lifelong upward mobility. By raising the minimum wage, we keep youth out of the labor market.

Introduce Competition into Education. Students are graduating from college and high school without discernible skills that allow them to enter the work force.  This was not alway so.  There was a time when a high school diploma indicated familiarity with basic math, reading and writing skills and at least a rudimentary knowledge of science.  No more.  Employers can no longer count on even college graduates being able to perform basic tasks needed in business.  This is the result of a century of monopoly in education.  Government schools have failed us.  Competition would restore the incentives for parents to be involved in education choices for their kids, and the result would cause employers to start to trust diplomas again.

Fix Immigration Policy to Favor Skilled Immigrants.  Amnesty for unskilled farm laborers is the opposite of this idea.  The United States is still the land of opportunity when compared to the rest of the world, even if our absolute level of opportunity has declined under Obama's leftist policies.  Bringing skilled immigrants to our country allows various tech teams to stay together and provides all sorts of additional jobs for native Americans as well.  However, if we limit immigration to unskilled farm workers, then we are bending the income curve to increase inequality.  If the President really care about income inequality he would have included a vast expansion of H-1B and other avenues to bring the skilled and wealthy, because he is such a smart policy dude.  Unfortunately, he did not.

Repeal the ACA.  There are plenty of incentives for people at the lower end of the income ladder to reduce their income in order to qualify for subsidies, including married couples getting divorced to reduce their household income.  The ACA is contributing to a rise in inequality by reducing the incentives for those in lower to middle income brackets to increase their income.

Of course, the President isn't really serious.  He is just making another speech about something he chose to ignore for five years, much like immigration.  But if we would like a larger middle class and economic growth, then my tea party policies should be considered.

Public Employee Pension Roundup - Illinois, Detroit Update

Here is a summary of key areas in the fight to prevent state and local public employee pensions from bankrupting governments.

Detroit. Judge Stephen Rhodes will rule today at 10:00 a.m. (EST) on whether the city is eligible to enter bankruptcy.  From the LATimes. Most legal experts expect Rhodes to declare that Detroit is eligible for bankruptcy protection.  A ruling to enter bankruptcy would give emergency city manager Kevyn Orr leverage to bargain with unions over pension reductions or to make unilateral changes.  Whether such changes would be constitutional would be decided later.
UPDATE:  The NYTimes is reporting that Detroit is insolvent and eligible for bankruptcy:

Judge Steven W. Rhodes of the United States Bankruptcy Court, found that Detroit was insolvent and that the pension checks of retirees could be cut during a bankruptcy proceeding, a crucial part of his decision

I had not expected that a ruling on pensions to be part of the judge's ruling.  USAToday has some amazing facts about Detroit's situation including the fact that it has three times as many retirees as workers.

Illinois. As I discussed earlier, the state is poised to vote on huge pension reform and the outcome is in doubt.  A vote is expected in both the state House and Senate, also today.  The outcome is clouded because Republicans who normally would vote for such a measure will be helping the state's Democratic governor.  My answer, be known as the party of principle, it works better for you in the long run.  Meanwhile, some Democrats will have to vote against the unions for this to pass.    More detail on the plan:

About $90 billion to $100 billion of that savings is expected to come out of the wallets of state workers, teachers outside Chicago and public university employees. The other $60 billion to $70 billion in savings is expected to come from the state owing less as it seeks to pay down the pension debt sooner — a move akin to a homeowner saving money by paying down the principal on a mortgage more quickly.

UPDATE:  The WSJ is reporting that pension reform has passed the Illinois state legislature.  The Chicago Tribune reported that the House voted 62-53 in favor and the state Senate passed with a 30-24 vote.  In reviewing the details in the Tribune article, I am inclined to agree with Brian Brady, frequent SD Rostra commenter and blogger, that the reform doesn't go far enough.


San Diego. Proposition B remains held up in administrative limbo by the California Public Employment Relations Board (PERB), no relation to Bob Filner.  Craig Gustafson reports in the U-T that the key cost saving measure of Proposition B has been implemented.

. . . the city and its unions reached a deal earlier this year on a five-year freeze on the pensionable pay of current city workers, a provision in the ballot measure that is projected to save the city nearly $1 billion over the next three decades. By agreeing to terms, the city has locked in those savings even if Proposition B is later found to be illegal.

Unfortunately, the city may have to wait until April 2015 to get a ruling.  Implementing remaining pieces of the proposition may become an issue in the mayoral campaign. Meanwhile, the city of San Diego chose to settle a lawsuit where the city tried to get the city employees to be responsible for half of any shortfall in the pension funds investment rate.  I am concerned, as is the U-T editorial board, that this signals a lack of willingness on the city council to tackle tough pension issue.

California. The mayor of San Jose, Chuck Reed, is attempting to put pension reform on the state ballot in 2014.  Reed is a Democrat, like Governor Pat Quinn of Illinois.  The Pension Reform Act of 2014 would give cities more flexibility in changing pension retiree health care rules for future retirees.  The public employee unions are actively opposing the plan of course.

“What they’re trying to do is overturn decades of case law, Supreme Court decisions and change the California constitution to allow public employers to either change, cut or eliminate public employees’ pensions in the middle of their career,” said Dave Low, executive director of the California School Employees Association and chairman of Californians for Retirement Security, a coalition of public employees and retirees.

Exactly.  Of course we need to change decades of case law because these retirement benefits are unsustainable if we are to have government perform any function at all.

Rhode Island. In the mostly Democratic state of Rhode Island, the legislature passed pension reform in 2011 that included a temporary halt in cost of living increases and moving part of the retirement to a 401(k) style plan.  From the state's web site:

The Rhode Island Retirement Security Act of 2011 as Amended includes language that: 

• Suspends  new  cost‐of‐living  adjustments  (COLAs)  to  retirees’  benefits  until  the system is better funded but provides for an intermittent COLA every five years until 80% funded.
• Moves all but public safety employees to hybrid pension plans.  
• Increases minimum retirement age for most employees not already eligible to retire.
• Preserves accrued benefits earned through June 30, 2012. 
• Begins to address independent local plan solvency issues.

Recent complaints about the investment strategy pursued by the state's treasurer do nothing to change the basic impetus for pension reform.  There are allegations by a long time financial industry critic, "Ted" Siedel on inappropriate investing in hedge funds that result in hefty Wall Street fees. (Hedge funds received over half of the fees paid out by the pension fund last year.) However, 401(k) style pensions could reduce the opportunity for abuse, if employees are given the opportunity to choose their own fund in which to invest.  More important to note for supporters of pension reform, the legal struggle over pension reform in Rhode Island continue two years later, with no end in sight.

Lesson learned: You have to be in this fight for the long haul.

What You Should Be Reading

• San Diego blogger W.C. Varones asks if media bias has any impact on economic performance? Fascinating answer.  Maybe it can benefit your market timing.
• The VOSD takes a look at a San Diego couple's questions about the ACA.  It quickly gets complicated.  Note how the question of subsidy isn't fully resolved.