by | ARTICLES, ECONOMY, ELECTIONS, FED, GOVERNMENT, OBAMA, POLITICS, POTUS, SOCIAL SECURITY, TAXES, TRUMP
Are we past the tipping point for economic reform? I would argue that Obama’s budgets and spending accelerated the deficits beyond repair. Some people will go back to Reagan and say that the deficit and the debt ballooned during the Reagan Administration and they will blame it on his tax cuts. But what is actually true is that the tax cuts generated a large increase in revenue, and the only reason why he had deficits was that the Democrat-led Congress increased spending even over the increased revenue. The same thing happened with the Bush tax cuts which were very pro-growth; the revenue went up sharply, but spending went up even faster. But at this point the debt was still manageable.
Then you come to Obama. At the beginning of his administration, we had the deep recession -which arguably could have benefited by one year of stimulus. The concept of a stimulus is supposed to be a one-off event. In other words, you engage in big one-time expenditures to get the economy on track and then spending goes back to previous levels as the recovery occurs. The problem is that Obama didn’t put things in for just one year. He did long term things, like food stamps, teacher’s compensation, etc., knowing full well that once put into effect they could not easily be withdrawn. And it was pretty clearly his intent all along, for political reasons, to bake them into the budget. So now when we started to have a recovery, you had ballooning deficits — even with a growing economy. Then by the time Trump was elected, the locked-in recurring spending with its locked-in annual increases made the deficit – and the debt – almost impossible to rein in.
Now we have the pandemic and we have no place to go. There’s no surplus to go to the deficit. Millions of Americans are unexpectedly unemployed, which means they’re not paying into Social Security. At the same time, we see older workers who have lost their jobs choose to draw their benefits as soon as they become eligible. This will speed up the insolvency train. But then Trump did something that was very stupid (though his political motivation is clear). He said that entitlements are off the table. If entitlement reform is off the table at this point, we’re headed to bankruptcy.
We’ve been talking about the coming insolvency of the Social Security and Medicare programs for many, many years now and Congress has done nothing to stave off the inevitable. Couple that with Obama budgets, Trump’s lack of action, and the pandemic, and the deficits are even larger now. Anyone seriously looking at the situation knows that absent a major change to entitlements, the mandated annual increases, both because of cost of living adjustments and demographics, will bankrupt both programs in the next ten to fifteen years. It’s very safe to say that absent major entitlement reform, we’re basically past the tipping point.
by | ARTICLES, BLOG, COVID, ECONOMY, FREEDOM, GOVERNMENT, NEW YORK, POLITICS
I am a long-term supporter of the Manhattan Institute and participate in their events and webcasts regularly. Heather MacDonald, Steve Malanga, and Nicole Gelinas are three of my favorite people. But Michael Hendrix seriously dropped the ball as moderator of the discussion on “Planning for the City’s Reopening” several weeks ago. Given the current pandemic and civil unrest, exploring how business can reopen is a laudable topic; however, the actual discussion was immensely disappointing. He allowed it to simply ignore the real reasons for the problems the City now faces with regard to “reopening”.
For instance, during the question on how we were going to reopen the city, much of the conversation had to do with needing to do more with affordable housing, and needing more help from the city government. He of course knows that this has nothing to do with the “reopening”. The problem long preceded COVID, and doesn’t need the government to fix it. Government actions – zoning, land use, overburdening businesses and building regulations leading to ridiculously high costs – are the cause of lack of affordable housing, and without reversing those actual issues, there is no solution.
Additionally, the “racial crisis” was a significant topic. He ignored any response regarding whether this was true and/or meaningful since the City has been run by extraordinarily liberal, non-racist leaders for generations, including full representation of the minority community. Can racial bias then really be a thing in New York City? Also in every single major city in which there has been extensive looting and rioting, the cities have been in the hands of minorities and liberals for the past 50 years. Yet he as the moderator didn’t even allow for this perspective to come up.
Furthermore, there was absolutely no discussion about the rioters and looters destroying businesses; the conversation only focused on police brutality. Though police brutality may be a problem, is it really a factor in the reopening after COVID? For a panel exploring the city and businesses, it was egregious that he virtually ignored the very real problem: businesses that have been destroyed by looters and rioters are being ignored by law enforcement, making businesses hesitant to invest in reopening and insurers hesitant in providing insurance at affordable rates.
Another topic was education, but there was no mention about charter schools and how they fit into the equation of reopening, even though charter schools are the most successful educational endeavor in the city.
Likewise, another topic was insurance, which he allowed to proceed in a manner that just showed the economic ignorance of the panelists. Since the happening of a pandemic is not a quantifiable risk, it is not insurable. To insist that the government provide insurance, at a premium that can only be set politically, has many problems. What’s more, the ignorance of the position espoused – that the government should somehow make the insurers who did not provide or charge for such coverage pay for it anyway – should not have been allowed to go unanswered.
On a related note, there was talk about how the city may or may not be able to help because there is a budget crisis. But where was the mention that DeBlasio is the cause? There was already a budget crisis before the pandemic and the civil unrest, not because of it. And DeBlasio’s actions during the pandemic and protests will certainly inhibit the ability of the City to reopen.
Hendrix should have made sure that the discussion included the knowledge and competence that the people of the Manhattan Institute espouse. There is no question in my mind that Heather MacDonald, Steve Malanga, and Nicole Gelinas would have been very disappointed with the exchange.
by | ARTICLES, BLOG, COVID, ECONOMY, GOVERNMENT, QUICKLY NOTED
Veronique de Rugy (one of my all time favorite people) and Tad DeHaven of the of the Mercatus Center have written a wonderful article about why there should not be state bailouts (pandemically-induced or otherwise) It is a great read here:
A key thing to note is about Veronique’s observation of why New York’s perennial claim that it sends more money to Washington than it gets back. The situation occurs because 1) the federal tax code is very progressive (thanks to NY and the other liberal states that insist on it) and New Yorkers have high incomes, and 2) NY receives relatively less money in the form of federal contracts and federal employee wages: (my note: this is logically caused by the fact that New York has made itself such a terrible place to do business -including sky-high costs and ridiculously burdensome regulation and taxes- that it can’t compete for these projects. Furthermore, the fact that New York taxpayers send more to Washington than they get back has nothing to do with why the government can’t balance its budget. The government is not the taxpayer. The states send no money to Washington – their earners do.
The states often argue that if corporations can get bailed out, states should as well. But note, that before there is ever a consideration of a corporate bailout, the corporation has taken dramatic steps to stem the problem, chopping costs, revising operations, and demonstrating that with the bailout funds the entity will again be viable. There is also a promise to repay the amounts with a significant return to the government.
But what about the states? There has been virtually no movement to reduce their budgets – in fact, NY continues to show that it is not only refusing to lay off personnel whose jobs are no longer viable, but they intend to go ahead with scheduled increases even to employees who are not working. No company would dream of requesting a bailout in those circumstances. And without serious and immediate cutbacks, how would the states ever have the capability to repay any bailout funds?
Many states have failed their fiduciary responsibilities to their citizens. If these lawmakers requesting bailouts are so concerned about their states, they should aim to reduce the size and scope of their governments, and the wildly out-of-control spending that created revenue shortfalls prior to the pandemic, instead of expecting others to subsidize their irresponsibility.
by | ARTICLES, BLOG, ECONOMY, GOVERNMENT, NEW YORK, TAXES
For years, I’ve been pounding the table about how public sector wages and compensations have steadily outpaced those found in the private sector. This is no more readily apparent than in New York where runaway budgets and deficits continuously fleece the taxpayer.
The private sector has several factors in place that help control runaway costs, chief among them being competition. The profit motive in the private sector keeps compensation at levels where economic factors limit them to their true market value, reflecting economically rational and fair compensation levels. On the other hand, there are no such competitive inhibitions in the public sector where politics and cronyism, rather than economics, create a fairy-tale negotiation for wages and benefits.
Here’s a tale of two states: New York and Florida. In New York, it is clear that public service unions are a significant reason why the cost of living is higher. In 2010, Florida’s population was 18.8 million while New York’s was 19.3 million. In the past ten years, New York experienced population stagnation (19.4m) while in Florida, the population grew to 21.8 million and continues to be one of the fastest growing states in the country. Yet crucially, over the same period, New York’s budget increased to $177 billion while Florida’s was a mere $93 billion, up from 70.4 billion in 2010. One could argue that New York does more for its people than Florida does, but the reality is that they just spend more money. Bloated public service payrolls and off-the-charts cost burdens of regulation are the main culprits. And that’s the problem.
I propose that the people of New York withdraw its authorization to its elected officials to enter into any contracts with public service unions that provide compensation, benefits, and terms in excess of those being paid for similar work and skills in the private sector. Furthermore, there should be a requirement that restricts any federal government employee from receiving a raise if it puts his compensation in excess of the benefits and wages paid for the same work in the private sector.
By “competing” per se with the private sector for compensation, the government can do its part to help keep its budget and deficits from getting any more out of control.
by | BLOG, BUSINESS, COVID, ECONOMY, GOVERNMENT
Charles Passy’s article in the WSJ was a veiled plea to save the culinary scene of New York City. With two specific outrageous proposals, Passy’s economic bias here is unbearable.
First, he describes how “bar and restaurant owners throughout the city say such claims are being denied at the present time because of policy exclusions, despite the businesses having paid thousands of dollars for their property and casualty insurance over the years.” As a result, Passy argues that insurance companies should be forced to cover things they never intended to cover (nor could it ever have been an insurable event).
Second, Passy endorses a “measure to prevent landlords of commercial properties from enforcing provisions that hold tenants, such as bar and restaurant owners, personally liable for rent should they be unable to pay because of the pandemic.” In other words, Passy wants to allow tenants to not be personally responsible for paying rents though they specifically agreed to it.
New York doesn’t have the right to pass such laws, giving money out and interfering in contractual relationships in which they are not a party. Not only is it illegal and immoral, but unconscionable. It is astounding that the WSJ would allow such an outrageous article.
by | BLOG, COVID, ECONOMY, GOVERNMENT
One of the burgeoning problems of opening the country back up is that many employers are struggling to properly restaff their businesses. It appears that many employees are refusing to go back to work because they prefer unemployment benefits. But workers are only entitled to these benefits if they cannot find work. They should legally lose the unemployment benefits if they refuse going back to work. Yet reporters covering this emerging situation seem ignorant of the concept.
I have been reading on far too many newspapers and websites regarding the inability of businesses (particularly restaurants) from all over the country unable to induce their employees to come back to work. The primary driver of this is the $600/week federal supplement to State unemployment insurance (“UI”) payments. This results, in many situations, in the employee being financially better off by being on unemployment than by working.
But this makes no sense. An employee is OBLIGATED to represent that he has no employment opportunity in order to get UI in the first place. Even asking his employer to not take him back is unethical, if not illegal. It is likewise unethical, if not illegal, for an employer to agree to such a request.
What were these writers thinking when they wrote these articles?
by | BLOG, BUSINESS, COVID, ECONOMY, FREEDOM, GOVERNMENT
The WSJ had a thoughtful opinion piece a couple of days ago. The author wanted to “quantify how many deaths were caused by delayed shutdown orders on a state-by-state basis”as a means to examine the efficacy of quick shutdown. Below are some key takeaways, and you can read the piece in full here.
“To normalize for an unambiguous comparison of deaths between states at the midpoint of an epidemic, we counted deaths per million population for a fixed 21-day period, measured from when the death rate first hit 1 per million—e.g.,‒three deaths in Iowa or 19 in New York state. A state’s “days to shutdown” was the time after a state crossed the 1 per million threshold until it ordered businesses shut down.
We ran a simple one-variable correlation of deaths per million and days to shutdown, which ranged from minus-10 days (some states shut down before any sign of Covid-19) to 35 days for South Dakota, one of seven states with limited or no shutdown. The correlation coefficient was 5.5%—so low that the engineers I used to employ would have summarized it as “no correlation” and moved on to find the real cause of the problem. (The trendline sloped downward—states that delayed more tended to have lower death rates—but that’s also a meaningless result due to the low correlation coefficient.)
No conclusions can be drawn about the states that sheltered quickly, because their death rates ran the full gamut, from 20 per million in Oregon to 360 in New York. This wide variation means that other variables—like population density or subway use—were more important. Our correlation coefficient for per-capita death rates vs. the population density was 44%. That suggests New York City might have benefited from its shutdown—but blindly copying New York’s policies in places with low Covid-19 death rates, such as my native Wisconsin, doesn’t make sense.”
The author then went on to examine Sweden’s policies (less restrictive than ours) and integrated those into his analysis:
“How did the Swedes do? They suffered 80 deaths per million 21 days after crossing the 1 per million threshold level. With 10 million people, Sweden’s death rate‒without a shutdown and massive unemployment‒is lower than that of the seven hardest-hit U.S. states—Massachusetts, Rhode Island, Louisiana, Connecticut, Michigan, New Jersey and New York—all of which, except Louisiana, shut down in three days or less.
We should cheer for Sweden to succeed, not ghoulishly bash them. They may prove that many aspects of the U.S. shutdown were mistakes—ineffective but economically devastating—and point the way to correcting them.”
Only time will tell what methodologies worked and what didn’t, but this is an important conversation to have, especially since the economy continues to worsen.
by | BLOG, BUSINESS, COVID, ECONOMY, GOVERNMENT
It might not be so crazy after all for relatively young people who are going broke and having their lives torn out from under them to try to get back to normal in as careful a way as possible: going to gyms, salons, and other businesses. Might it be reasonable for some people to try it out to see if it can help with the infection rate? Can we trust people to be careful?
Some businesses such as FedEx, supermarkets, and medical practices are open and more are starting to or trying to open up, and yet they are not getting a lot of business because people are afraid, or told they need to be afraid. But why not open up and if people are willing to take the risk and practice social distancing and mask-wearing, we should let them.
The economy is horrific the way it is, and it just cannot remain like this. Many people’s lives are now devastated. For many, we have probably passed the point where the cure is worse than the disease.
We know by now that the virus does pose a risk of death, but we also know that in the vast majority of situations, the virus is more mild than it is lethal – especially for certain cohorts. People are well-educated enough to be able to make an informed decision as to what level of socializing they want to engage in for themselves. We should let them make that choice and start to get back to the business of doing business.
by | BLOG, COVID, ECONOMY, FREEDOM
One of the most important takeaways from this COVID affair is the clear evidence of how critically important free markets are. While the free market is developing workarounds for providing necessities and developing relevant new products, the government can’t get out of its own way in terms of what it is trying to do and is finding that an overabundance of regulations has hampered its responsiveness.
There have finally been some recent changes, such as allowing telemedicine across state lines, modifications of certificates of need, and loosening of licensing requirements; perhaps the CDC, FDA, and other agencies will realize they don’t need as much regulation in the first place and such barriers actually inhibit health and economic well-being. Temporary, but more importantly, permanent reductions in regulations would be a step in the right direction. Because what is missing right now is the robustness of the private sector – but we can see its potential.
We are witnessing the incredible ingenuity of the American people as they are finding new ways to respond to this crisis. People are out there trying to figure out how to meet toilet paper demands, create new testing mechanisms, make and provide medical equipment, ventilators, masks, and vaccines. Nearly all of this is being done without the government. It’s the 325 million people out there trying to figure out what they can do to make things better and providing for a new and different need. Services are being changed to provide a product without prolonged human interaction. Door-to-door deliveries are being established. Companies are learning how to find their own ways to adapt.
All of this, it must be noted, has virtually nothing to do with the government. Whether it’s Amazon, pharmacies, FedEx, or restaurants, people know their own industries. They’re changing for their customers and for their company. This is, quite simply, real people knowing best what they need to do instead of some faceless government bureaucrat or rule telling them what to do because someone thinks he knows better about industry operations than the movers and shakers do.
The COVID crisis is a great opportunity for growth and deregulation. This will be the strength of our economic recovery. This is the free market at its best.
by | BIDEN, BLOG, BUSINESS, ECONOMY, ELECTIONS, TRUMP
Democrat Presidential Candidate Joe Biden not only wants to return capital gains to Obama-era rates, but furthermore he would increase them while simultaneously returning the top rate on ordinary income. Biden has said, “I believe we should, in fact, the capital gains tax should be at what the highest minimum tax should be; we should raise the tax back to 39.6 percent instead of 20 percent.”
Add to that the 3.8% Obamacare tax (NIIT) instituted in 2013, and he would have some taxpayers effectively paying a 43.4% long-term capital gains tax! The current total top rate is 23.8%
Biden should know better. The actual impact of raising the capital gains rate by the Obama administration was devastating to the economy. By discouraging the sale of assets, there was reduced capital available for new projects and opportunities, reducing job creation and wages, and resulting in lower revenue collection. Furthermore, the expected after tax rate of return on new projects went down, assuring that fewer of them went forward.
Additionally, there were a number of localities, like the state of California and New York City, which have tax rates of 12% or more and also a large concentration of wealthy people and high performing businesses. Obama’s capital gains rates of more than 37% brought elective capital projects to a crawl. And Biden wants to raise them even higher?
Shame on Biden. Why sell an asset to fund further investment and opportunity when the government takes a large share of the gain with the loss remaining all yours? It makes virtually no economic sense to do so. A higher capital gains rate put a stranglehold on risk-taking and available capital, and would negatively impact the economy.
