3/7/11
Today’s (i.e., Monday, 3/7’s) Wall Street Journal reports that China’s economic plans for this year through 2015 focus on improving the lot of those at the bottom rungs of the economic ladder by, among other things, “encouraging” employers to raise wages in line with productivity redoubling efforts to maintain price stability, especially for basic commodities that comprise a gargantuan share of the budgets of the poor. The slight shift in emphasis away from growth toward redistribution of the fruits of that growth toward the poor was in place before the onset of the problems the Middle East is currently experiencing. The focus on inflation, however, received an unusual degree of emphasis at the National People’s Congress that started over the weekend.
What the renewed emphasis by the Chinese authorities on the lot of the underclass, and especially the concern about worldwide commodity inflation’s impact on the poor, indicates is that the Chinese leadership understands what starry-eyed types in the West are nowhere near comprehending: The unrest in the Middle East is at best only ancillarily a manifestation of a yearning for “freedom” and “democracy;” it is, primarily, a reaction to the ravaging effect of increasing commodity prices on the already meager livelihoods of these countries’ lower classes. For an insightful discussion of this topic, see my 2/3/11 post AFTER ALL THESE CENTURIES, THE EGYPTIANS STILL HAVE SOMETHING TO TEACH US.
The regimes that have been overthrown or that are currently experiencing dissent, or worse, are indeed oppressive dictatorships, but that has been the case since the Europeans abandoned their colonies in response to demands from the starry-eyed for “freedom” and “democracy.” So what changed to make the people finally rise up after enduring such political deprivation from the likes of Hosni Mubarak and Moammar Gadhafi (or however he is spelling his name today)? Food prices rocketed upwards, strangling the already choking budgets of the poor in these post-colonial paradises.
Freedom and “democracy,” (whatever the latter is; no one seems to understand the concept, certainly no one in the Bush/Obama administration, but I digress) may be nice, but eating is nicer. People who live day to day and hand to mouth cannot be concerned with the things that preoccupy the faculty lounge at Yale or the editorial pages of the Wall Street Journal and the New York Times. People will tolerate authoritarianism, or worse, if their economic lot, balanced finely between survival and at least figurative starvation, consistently falls on the side of survival. But when the generalissimos can no longer deliver economically, then people get upset.
The Chinese understand this; most of the West, or at least most of Western governments and media, don’t. Perhaps that is why the “Jasmine Revolution” has not taken off in China.
Monday, March 7, 2011
IRAQ AND AFGHANISTAN ARE NOT ENOUGH FOR THESE GUYS
3/7/11
This morning’s (i.e., Monday, 3/7’s) Wall Street Journal reports that Senators John McCain and Mitch McConnell are (Surprise!) banging the drum for military aid to the insurgents seemingly locked in a civil war against Moammar Gadhafi, or however the western press is spelling this glorified thug’s name today. The Journal’s editorial page (which is growing to include most of the paper, but I digress) is employing an entire percussion section in its calls for greater U.S. action in the Libyan Civil War.
Two questions:
Is there any war, anywhere, that Senators McCain and McConnell, the Wall Street Journal, and the neocon chicken hawks think we should not get involved in?
Do these cheerleaders for war know anything of history, how great nations and empires, from Rome to Great Britain, were brought down by, admittedly among other things, imperial overreach and the foreign entanglements and meddling in other country’s affairs about which the Founding Fathers warned us?
Is there no end to the hubris, and the willingness to shed the blood and treasure of others, of these war enthusiasts?
This morning’s (i.e., Monday, 3/7’s) Wall Street Journal reports that Senators John McCain and Mitch McConnell are (Surprise!) banging the drum for military aid to the insurgents seemingly locked in a civil war against Moammar Gadhafi, or however the western press is spelling this glorified thug’s name today. The Journal’s editorial page (which is growing to include most of the paper, but I digress) is employing an entire percussion section in its calls for greater U.S. action in the Libyan Civil War.
Two questions:
Is there any war, anywhere, that Senators McCain and McConnell, the Wall Street Journal, and the neocon chicken hawks think we should not get involved in?
Do these cheerleaders for war know anything of history, how great nations and empires, from Rome to Great Britain, were brought down by, admittedly among other things, imperial overreach and the foreign entanglements and meddling in other country’s affairs about which the Founding Fathers warned us?
Is there no end to the hubris, and the willingness to shed the blood and treasure of others, of these war enthusiasts?
Thursday, March 3, 2011
POLITICS, STRANGE BEDFELLOWS, AND DEFENDING RAHM
3/3/11
Today’s (i.e., Thursday, 3/3’s) Chicago Tribune, in yet another example of febrile media hyperbole, featured a front page article by David Kidwell, Hal Dardick, and John Chase, proclaiming that
“A secretly funded political group aligned with Rahm Emanuel has donated more than $445,000 to aldermanic candidates to help the mayor-elect in a high-stakes battle over control of City Hall.”
The group to which the article refers is For a Better Chicago. It is "secretly funded" because election law allows the group to protect the identity of its contributors. The extent to which it is “aligned with Rahm Emanuel” is twofold, but certainly limited. First, For a Better Chicago advertises itself as a pro-business group and, as such, believes in many of the policies in which Mr. Emanuel purports to believe, including doing something about the city budget, wasteful spending, and public pensions, not attempting to slam the door on businesses that the union chieftains around town find unacceptable, presumably due to their failure to pay sufficient tribute to the aforementioned labor poohbahs and their henchmen and toadies in the City Council, and generally making the city of Chicago a place in which people want to invest, and not only under government duress. Second, For a Better Chicago is run by Greg Goldner, a long time Chicago political operative who managed Rahm Emanuel’s first congressional campaign in 2002.
The article is interesting not only for the example it provides of the typical hyperventilation that passes for journalism these days, especially when the dark forces can somehow be identified with that ever evil business community; the article is also interesting for highlighting several ironies of the recently, and lamentably, completed mayoral campaign. The first two of these ironies were readily apparent, and quite delicious, even in the throes of the campaign. The third is not, but is still quite astonishing.
First, a guy who has served as chief-of-staff for President Obama, widely, but perhaps not accurately, considered the most liberal president in the last fifty years or so, was the most pro-business candidate in the mayoral race and looks like he is about to become the most pro-business mayor in our fair city’s history. (Well, that title may go to William Hale “Big Bill” Thompson (1915-1923, 1927-1931), but the businesses for which he was most “pro” were associated with guys named Torrio, Capone, and Nitto (Apparently, Frank Nitti’s real name was “Nitto,” but was misspelled in a newspaper story early in his career, and “Nitti” stuck, but I digress within a digression.), but I digress.) Since much (but by no means all) of the measures that are considered pro-business are identified with those of a conservative stripe, we could say that President Obama’s former chief-of-staff was the most conservative candidate in our race for mayor. This indicates that either Chicago has wandered so far to the left side of the political spectrum that it has fallen off the table, that ideology means nothing when compared with personalities and personal advantage, that Mr. Emanuel and Mr. Obama were not nearly in synch ideologically, or that ideology means nothing to Mr. Emanuel, my favorite of the aforementioned theories.
Second, many conservative types (including yours truly), who normally would be expected to approve of Rahm Emanuel’s advertised policy prescriptions for the city of Chicago, opposed Rahm Emanuel, obviously for reasons that transcended policy. This indicates that personalities or associations often trump policy; that is, we’ll often vote against people we agree with because there is something about them, or the people they associate with or work for, that we just don’t like, or we’ll vote for people we don’t agree with because there is something about them, or the people they are identified with, that we like. This is not as crazy as it sounds; ideology, or even policy, is often a disposable, even quaint, consideration for many politicians, while their character, background, and the personal ties they have with us remain more or less permanent.
Third, I, after all I’ve written about Mr. Emanuel during the campaign, am writing a piece seemingly defending our mayor-elect. Wasn’t it Metternich who said that countries have no permanent allies, only permanent interests? Could the same be said about people, at least as concerns their political interests and proclivities?
Today’s (i.e., Thursday, 3/3’s) Chicago Tribune, in yet another example of febrile media hyperbole, featured a front page article by David Kidwell, Hal Dardick, and John Chase, proclaiming that
“A secretly funded political group aligned with Rahm Emanuel has donated more than $445,000 to aldermanic candidates to help the mayor-elect in a high-stakes battle over control of City Hall.”
The group to which the article refers is For a Better Chicago. It is "secretly funded" because election law allows the group to protect the identity of its contributors. The extent to which it is “aligned with Rahm Emanuel” is twofold, but certainly limited. First, For a Better Chicago advertises itself as a pro-business group and, as such, believes in many of the policies in which Mr. Emanuel purports to believe, including doing something about the city budget, wasteful spending, and public pensions, not attempting to slam the door on businesses that the union chieftains around town find unacceptable, presumably due to their failure to pay sufficient tribute to the aforementioned labor poohbahs and their henchmen and toadies in the City Council, and generally making the city of Chicago a place in which people want to invest, and not only under government duress. Second, For a Better Chicago is run by Greg Goldner, a long time Chicago political operative who managed Rahm Emanuel’s first congressional campaign in 2002.
The article is interesting not only for the example it provides of the typical hyperventilation that passes for journalism these days, especially when the dark forces can somehow be identified with that ever evil business community; the article is also interesting for highlighting several ironies of the recently, and lamentably, completed mayoral campaign. The first two of these ironies were readily apparent, and quite delicious, even in the throes of the campaign. The third is not, but is still quite astonishing.
First, a guy who has served as chief-of-staff for President Obama, widely, but perhaps not accurately, considered the most liberal president in the last fifty years or so, was the most pro-business candidate in the mayoral race and looks like he is about to become the most pro-business mayor in our fair city’s history. (Well, that title may go to William Hale “Big Bill” Thompson (1915-1923, 1927-1931), but the businesses for which he was most “pro” were associated with guys named Torrio, Capone, and Nitto (Apparently, Frank Nitti’s real name was “Nitto,” but was misspelled in a newspaper story early in his career, and “Nitti” stuck, but I digress within a digression.), but I digress.) Since much (but by no means all) of the measures that are considered pro-business are identified with those of a conservative stripe, we could say that President Obama’s former chief-of-staff was the most conservative candidate in our race for mayor. This indicates that either Chicago has wandered so far to the left side of the political spectrum that it has fallen off the table, that ideology means nothing when compared with personalities and personal advantage, that Mr. Emanuel and Mr. Obama were not nearly in synch ideologically, or that ideology means nothing to Mr. Emanuel, my favorite of the aforementioned theories.
Second, many conservative types (including yours truly), who normally would be expected to approve of Rahm Emanuel’s advertised policy prescriptions for the city of Chicago, opposed Rahm Emanuel, obviously for reasons that transcended policy. This indicates that personalities or associations often trump policy; that is, we’ll often vote against people we agree with because there is something about them, or the people they associate with or work for, that we just don’t like, or we’ll vote for people we don’t agree with because there is something about them, or the people they are identified with, that we like. This is not as crazy as it sounds; ideology, or even policy, is often a disposable, even quaint, consideration for many politicians, while their character, background, and the personal ties they have with us remain more or less permanent.
Third, I, after all I’ve written about Mr. Emanuel during the campaign, am writing a piece seemingly defending our mayor-elect. Wasn’t it Metternich who said that countries have no permanent allies, only permanent interests? Could the same be said about people, at least as concerns their political interests and proclivities?
“YEAH, HE’S THE ONE…HE’S THE ONE WE OUGHT TO GET!!!”
3/3/11
Today’s (i.e., Thursday, 3/3’s) Wall Street Journal reports on the results of a Wall Street Journal/NBC News Poll that displays the typical schizophrenia, bordering on hypocrisy, that characterizes discussion of reducing the federal deficit through spending reductions and/or tax increases.
In this case, we are not only dealing with the normal flight from reality that surrounds such discussion, i.e., everyone wants to reduce the deficit but no one wants his program cut. While such know-nothingness was clearly on display in this poll (Less than a quarter of Americans think cutting Social Security or Medicare is necessary to “significantly reduce the deficit. Even tea partiers, by a 2 to 1 margin, oppose cutting Social Security.), in this case it is just another manifestation of the normal willingness to gore everyone else’s ox to achieve whatever goal one finds desirable in the abstract.
No, what I found interesting and a touch unique about the results of this poll is another instance of respondents’ apparently not understanding the nature of the question. While, apparently, few want social security reduced, more than half favored increasing the retirement age to 69 by 2075 and 60% favored means testing social security and Medicare. Yes, this is yet another instance of an unyielding willingness to cut the other guy’s program (Few people consider themselves wealthy enough to fail any means test to which they would agree and no one sufficiently sentient to respond to much of anything will be under 69 by 2075.), but such measures will in fact “cut social security” to the point at which 60% of Social Security’s underfunding would be eliminated but, again, do so by going after the always evil “other guy,” who may, in fact, be one’s own grandchildren in this instance, but I digress. So people are unwilling to cut Social Security and Medicare but they are willing to cut Social Security and Medicare. This paradox becomes understandable, and compatible with what has come to be understood as human nature, when we see that the respondents are unwilling to cut their own Social Security and Medicare but they are willing to cut someone else’s Social Security and Medicare.
While the poll results are both intriguing and utterly predictable, what make them worthy of a post are their revelations of the willingness of people to means test Social Security. Am I in favor of means testing Social Security? Maybe. Am I in favor of means testing most government programs? Certainly. But my accession is dependent on the nature of the means test. AS LONG AS THE “MEANS” BEING TESTED ARE WHAT A PERSON MADE DURING HIS OR HER LIFE TIME, I’M ALL FOR IT. IF THE “MEANS” BEING TESTED ARE THE WEALTH SOMEONE HAS ACCUMULATED BY THE AGE S/HE IS ELIGIBLE FOR A GIVEN PROGRAM, I AM DEAD-SET, AMDAMANTLY AGAINST SUCH “MEANS” TESTING, for obvious reasons: Such “means testing” will result in the subsidization of people who made a lot of money during their lives and urinated it all away by people who may or may not have made much money in their lives but who, by living a measured and perhaps frugal lifestyle, have managed to enter retirement with a considerable nest egg. Such an arrangement would be nothing less than a surefire prescription for further exacerbating our savings problem, a giant step toward the inevitable ruination of the Republic, an injustice of historic proportions, and an abomination before God and man.
A means test to which the sober among us would agree (i.e., based on what you made, not on what you had) will never be implemented because the spendthrifts, whose towering majority among the American populace will only grow over the years, will work strenuously to see that the frugal among us are forced to subsidize the lifestyles the “high income broke,” felt compelled to pursue when younger, primarily to give them a point from which to look down their noses on those they are demanding take care of them in their old age. And, aided by the utterly predictable continued and intensified mindless and witless orgies to bacchanal, the Republic will hurtle toward its inevitable doom.
Today’s (i.e., Thursday, 3/3’s) Wall Street Journal reports on the results of a Wall Street Journal/NBC News Poll that displays the typical schizophrenia, bordering on hypocrisy, that characterizes discussion of reducing the federal deficit through spending reductions and/or tax increases.
In this case, we are not only dealing with the normal flight from reality that surrounds such discussion, i.e., everyone wants to reduce the deficit but no one wants his program cut. While such know-nothingness was clearly on display in this poll (Less than a quarter of Americans think cutting Social Security or Medicare is necessary to “significantly reduce the deficit. Even tea partiers, by a 2 to 1 margin, oppose cutting Social Security.), in this case it is just another manifestation of the normal willingness to gore everyone else’s ox to achieve whatever goal one finds desirable in the abstract.
No, what I found interesting and a touch unique about the results of this poll is another instance of respondents’ apparently not understanding the nature of the question. While, apparently, few want social security reduced, more than half favored increasing the retirement age to 69 by 2075 and 60% favored means testing social security and Medicare. Yes, this is yet another instance of an unyielding willingness to cut the other guy’s program (Few people consider themselves wealthy enough to fail any means test to which they would agree and no one sufficiently sentient to respond to much of anything will be under 69 by 2075.), but such measures will in fact “cut social security” to the point at which 60% of Social Security’s underfunding would be eliminated but, again, do so by going after the always evil “other guy,” who may, in fact, be one’s own grandchildren in this instance, but I digress. So people are unwilling to cut Social Security and Medicare but they are willing to cut Social Security and Medicare. This paradox becomes understandable, and compatible with what has come to be understood as human nature, when we see that the respondents are unwilling to cut their own Social Security and Medicare but they are willing to cut someone else’s Social Security and Medicare.
While the poll results are both intriguing and utterly predictable, what make them worthy of a post are their revelations of the willingness of people to means test Social Security. Am I in favor of means testing Social Security? Maybe. Am I in favor of means testing most government programs? Certainly. But my accession is dependent on the nature of the means test. AS LONG AS THE “MEANS” BEING TESTED ARE WHAT A PERSON MADE DURING HIS OR HER LIFE TIME, I’M ALL FOR IT. IF THE “MEANS” BEING TESTED ARE THE WEALTH SOMEONE HAS ACCUMULATED BY THE AGE S/HE IS ELIGIBLE FOR A GIVEN PROGRAM, I AM DEAD-SET, AMDAMANTLY AGAINST SUCH “MEANS” TESTING, for obvious reasons: Such “means testing” will result in the subsidization of people who made a lot of money during their lives and urinated it all away by people who may or may not have made much money in their lives but who, by living a measured and perhaps frugal lifestyle, have managed to enter retirement with a considerable nest egg. Such an arrangement would be nothing less than a surefire prescription for further exacerbating our savings problem, a giant step toward the inevitable ruination of the Republic, an injustice of historic proportions, and an abomination before God and man.
A means test to which the sober among us would agree (i.e., based on what you made, not on what you had) will never be implemented because the spendthrifts, whose towering majority among the American populace will only grow over the years, will work strenuously to see that the frugal among us are forced to subsidize the lifestyles the “high income broke,” felt compelled to pursue when younger, primarily to give them a point from which to look down their noses on those they are demanding take care of them in their old age. And, aided by the utterly predictable continued and intensified mindless and witless orgies to bacchanal, the Republic will hurtle toward its inevitable doom.
Wednesday, March 2, 2011
IT’S EVEN WORSE THAN I THOUGHT
3/2/11
Similarly (See the other post of this day.), readers have asked why I have not commented on the travails of Martin Clean or Jerry Mean or Michael Jean or Charlie Bean or Chuckie Spleen or whatever this particular Hollywood moron’s name is. The guy I’m talking about is the no-talent who stars in some execrable exhibition of excerebrosity called Two Men and a Boy or Three Boys and a Man or Four and a Half Girls or some such nonsense. (No, my time is not so utterly valueless that I have ever seen this slimy and malodorous chunk of digestive system product and, yes, I can pronounce such judgments on its remarkable resemblance to barnyard detritus merely by viewing the snippets of it to which I have been involuntarily subjected while watching football or basketball games; imbecilic double entendres that were the height of hilarity among the cognoscenti of the parking lot we used for a playground at St. Walter circa 1967 have somehow ceased to be crisp, bold, and uproarious as one has left pre-puberty in the foggy distances, or even the relatively fresh remembrances, of the past, but I digress.) Though I might not have his name right, you know the idiot to whom I refer.
No, I am not about to launch into a studied comparison of the debilitating effects of addiction to those of other diseases, an expostulation of the rules for Hollywood lame brains, which seem to differ from those that apply to the rest of us, or a studied analysis on the impact on the media business of Mr. Mean’s (or whatever his name is) absence from the parade of banalities on which he stars. No, all I will say on this particular subject is that it is notable not for any of the above but, rather, for what the American public’s fascination with the self-imposed tribulations of Mr. Spleen says about the state of this country, i.e., that any people that gives more than a half thimble of excretory liquid about such subjects is headed toward certain and hopefully mercifully quick doom.
Similarly (See the other post of this day.), readers have asked why I have not commented on the travails of Martin Clean or Jerry Mean or Michael Jean or Charlie Bean or Chuckie Spleen or whatever this particular Hollywood moron’s name is. The guy I’m talking about is the no-talent who stars in some execrable exhibition of excerebrosity called Two Men and a Boy or Three Boys and a Man or Four and a Half Girls or some such nonsense. (No, my time is not so utterly valueless that I have ever seen this slimy and malodorous chunk of digestive system product and, yes, I can pronounce such judgments on its remarkable resemblance to barnyard detritus merely by viewing the snippets of it to which I have been involuntarily subjected while watching football or basketball games; imbecilic double entendres that were the height of hilarity among the cognoscenti of the parking lot we used for a playground at St. Walter circa 1967 have somehow ceased to be crisp, bold, and uproarious as one has left pre-puberty in the foggy distances, or even the relatively fresh remembrances, of the past, but I digress.) Though I might not have his name right, you know the idiot to whom I refer.
No, I am not about to launch into a studied comparison of the debilitating effects of addiction to those of other diseases, an expostulation of the rules for Hollywood lame brains, which seem to differ from those that apply to the rest of us, or a studied analysis on the impact on the media business of Mr. Mean’s (or whatever his name is) absence from the parade of banalities on which he stars. No, all I will say on this particular subject is that it is notable not for any of the above but, rather, for what the American public’s fascination with the self-imposed tribulations of Mr. Spleen says about the state of this country, i.e., that any people that gives more than a half thimble of excretory liquid about such subjects is headed toward certain and hopefully mercifully quick doom.
PRESCIENT MR. PONTIFICATOR
3/2/11
Several people have asked why I have not yet written anything on the Battle of Madison raging just to our north. There are two reasons for my failure to do so. First, I haven’t come up with anything especially profound to say about the issues arising from that episode that someone has not yet said. Second, I have written in the past, before the Wisconsin Follies and the advent of the Flee Party, about public pension and their consequences for public finances and the future of the Republic. Perhaps the most salient, and certainly the most prescient, of those observations came in my 11/16/07 post. I was going to reproduce only the sections of that immortal post that dealt directly with pension but, on rereading it, I noticed that the entire piece exhibited remarkable foresight, so I decided that my readers should have access to all of it. I have, however, highlighted the section dealing with public pensions, which comprises the last two paragraphs.
Thanks.
“ELIHU, WOULD YOU LOOFAH MY STRETCH MARKS?”
11/16/07
The 11/16/07 edition of The Wall Street Journal featured an article on page C1 arguing that the problems in the credit market have percolated down (one might think up, but that is another matter) into the municipal markets. According the to the article, the municipal bond market is experiencing problems because municipal bond insurers (Ambac, FGIC, etc.) have, in recent years, gotten into the business of insuring mortgage backed securities and CMOs. Bad move, obviously. The result has been the stocks’ of the insurers going into virtual free-fall and the credit ratings’ of the insurers coming into question. The ramifications for insured municipal bonds have been obvious.
This argument is good as far as it goes, but looks like another manifestation of the financial press and the financial “community” missing the bigger picture, as with their now faltering certainty that the problems in the mortgage markets are purely a “sub-prime” problem, the wrong-headedness of which has yet to become fully manifest. Yes, the insurers are having difficulty, and this is affecting the municipal market. But the consequences of the mortgage/real estate/credit market troubles for the municipal bond market are far broader.
Municipalities, of course, derive much of their revenue from property taxes, which have come under pressure as property values have fallen, and will continue to do so. The politicians, of course, will futz with the fuliginous formulae used to determine property taxes in order to keep revenue up as real estate values fall, but they will encounter strong, if not overwhelming, political resistance to doing so, especially in a weakening economy.
An even more direct, but less debilitating, impact of the mortgage/real estate problem on municipals is being, and will continue to be, felt through in real estate transfer taxes. In most municipalities, when one sells a house or other piece of property, one must pay a fee, usually several hundred or thousand dollars, to the municipality in which the property sold or property bought is located. The politicians have long found this an easy source of revenue; when people are in the heat of transactions involving several hundred thousand dollars, they barely notice a fee of perhaps a thousand or so. This fee has grown into a major source of municipal revenue. As the real estate market, er, slows down, revenue from this fee has been dramatically reduced. In Chicago, the drastic reduction in such fees has been cited as a major reason for Mayor Daley’s huge property, and other, tax increase. No matter what the Mayor says, the tax increase had little if anything to do with libraries, but I digress.
The big problem in the muni market is just beginning to be felt and, admittedly, is not part of the market’s immediate difficulties but will be far greater as it comes to fruition. This problem is public sector pensions. Our local government employees get perhaps the most generous pensions, on a percentage basis, of anyone in the country. Just about anyone, for instance, knows a cop, teacher, fireman, or just a local bureaucrat who has retired in his or her early 50s on an astronomical percentage (70%-80%) of his or her salary. One of the less shocking aspects of the Drew Peterson story is that the scrofulous Mr. Peterson is now receiving a pension of $72,000 per year after “retiring” at the age of 53 from the Bolingbrook Police Department. And, for those readers not familiar with the Chicago area, Bolingbrook, while not Mayberry, is not exactly tough duty for a cop. These huge and growing pension obligations are consuming an ever greater share of municipal budgets and thus of residents’ property tax bills. Back in the days when local government workers were somewhat underpaid relative to their private sector colleagues and a large percentage of the taxpayers had defined benefit pension plans, the taxpayers, while never happy about paying taxes, were less hesitant to pay real estate taxes to support rich defined benefit plans for municipal workers. But now that local government workers salaries’ are getting higher, pensions are getting ever richer, and the defined benefit pension plan is going the way of the pterodactyl in the private sector, property taxpayers are getting more and more resistant to paying their growing real estate bills when an ever growing portion of those bills is going to fund pension benefits of which they can only dream. This resistance has the potential to turn into outright rebellion as property tax bills continue to skyrocket, local services deteriorate, or both. While not being the immediate source of problems in the muni bond market, this is going to result in a crisis in municipal budgets in the very near future.
So, yes, the problems with muni bond insurers are having a negative impact on the muni market. But the impact of the credit market debacle on the muni market is far wider and deeper, and far larger problems are looming.
Several people have asked why I have not yet written anything on the Battle of Madison raging just to our north. There are two reasons for my failure to do so. First, I haven’t come up with anything especially profound to say about the issues arising from that episode that someone has not yet said. Second, I have written in the past, before the Wisconsin Follies and the advent of the Flee Party, about public pension and their consequences for public finances and the future of the Republic. Perhaps the most salient, and certainly the most prescient, of those observations came in my 11/16/07 post. I was going to reproduce only the sections of that immortal post that dealt directly with pension but, on rereading it, I noticed that the entire piece exhibited remarkable foresight, so I decided that my readers should have access to all of it. I have, however, highlighted the section dealing with public pensions, which comprises the last two paragraphs.
Thanks.
“ELIHU, WOULD YOU LOOFAH MY STRETCH MARKS?”
11/16/07
The 11/16/07 edition of The Wall Street Journal featured an article on page C1 arguing that the problems in the credit market have percolated down (one might think up, but that is another matter) into the municipal markets. According the to the article, the municipal bond market is experiencing problems because municipal bond insurers (Ambac, FGIC, etc.) have, in recent years, gotten into the business of insuring mortgage backed securities and CMOs. Bad move, obviously. The result has been the stocks’ of the insurers going into virtual free-fall and the credit ratings’ of the insurers coming into question. The ramifications for insured municipal bonds have been obvious.
This argument is good as far as it goes, but looks like another manifestation of the financial press and the financial “community” missing the bigger picture, as with their now faltering certainty that the problems in the mortgage markets are purely a “sub-prime” problem, the wrong-headedness of which has yet to become fully manifest. Yes, the insurers are having difficulty, and this is affecting the municipal market. But the consequences of the mortgage/real estate/credit market troubles for the municipal bond market are far broader.
Municipalities, of course, derive much of their revenue from property taxes, which have come under pressure as property values have fallen, and will continue to do so. The politicians, of course, will futz with the fuliginous formulae used to determine property taxes in order to keep revenue up as real estate values fall, but they will encounter strong, if not overwhelming, political resistance to doing so, especially in a weakening economy.
An even more direct, but less debilitating, impact of the mortgage/real estate problem on municipals is being, and will continue to be, felt through in real estate transfer taxes. In most municipalities, when one sells a house or other piece of property, one must pay a fee, usually several hundred or thousand dollars, to the municipality in which the property sold or property bought is located. The politicians have long found this an easy source of revenue; when people are in the heat of transactions involving several hundred thousand dollars, they barely notice a fee of perhaps a thousand or so. This fee has grown into a major source of municipal revenue. As the real estate market, er, slows down, revenue from this fee has been dramatically reduced. In Chicago, the drastic reduction in such fees has been cited as a major reason for Mayor Daley’s huge property, and other, tax increase. No matter what the Mayor says, the tax increase had little if anything to do with libraries, but I digress.
The big problem in the muni market is just beginning to be felt and, admittedly, is not part of the market’s immediate difficulties but will be far greater as it comes to fruition. This problem is public sector pensions. Our local government employees get perhaps the most generous pensions, on a percentage basis, of anyone in the country. Just about anyone, for instance, knows a cop, teacher, fireman, or just a local bureaucrat who has retired in his or her early 50s on an astronomical percentage (70%-80%) of his or her salary. One of the less shocking aspects of the Drew Peterson story is that the scrofulous Mr. Peterson is now receiving a pension of $72,000 per year after “retiring” at the age of 53 from the Bolingbrook Police Department. And, for those readers not familiar with the Chicago area, Bolingbrook, while not Mayberry, is not exactly tough duty for a cop. These huge and growing pension obligations are consuming an ever greater share of municipal budgets and thus of residents’ property tax bills. Back in the days when local government workers were somewhat underpaid relative to their private sector colleagues and a large percentage of the taxpayers had defined benefit pension plans, the taxpayers, while never happy about paying taxes, were less hesitant to pay real estate taxes to support rich defined benefit plans for municipal workers. But now that local government workers salaries’ are getting higher, pensions are getting ever richer, and the defined benefit pension plan is going the way of the pterodactyl in the private sector, property taxpayers are getting more and more resistant to paying their growing real estate bills when an ever growing portion of those bills is going to fund pension benefits of which they can only dream. This resistance has the potential to turn into outright rebellion as property tax bills continue to skyrocket, local services deteriorate, or both. While not being the immediate source of problems in the muni bond market, this is going to result in a crisis in municipal budgets in the very near future.
So, yes, the problems with muni bond insurers are having a negative impact on the muni market. But the impact of the credit market debacle on the muni market is far wider and deeper, and far larger problems are looming.
Tuesday, March 1, 2011
“HERE THEY COME SPINNING OUT OF THE TURN…”
3/1/11
Whether there’s anything especially profound about the ruminations in this particular post is a matter of speculation, but the topic is one that deserves attention for a number of reasons.
Last Sunday’s Chicago Sun-Times contained a feature article on the decline of horse racing in the Chicago area. Probably the most telling statistics cited were that total wagering in 2010, at $725.7 million, dropped 44% from 1992. Total purses in 2010, at $54.3 million, slid 54% since 2002. Harness racing purses dropped 62% from 1992.
The industry and the sport of horse racing is clearly dying and the reason the article cited, the aging of its clientele, is only the veneer of the problem. As loyal readers know, I am not a gambler, though some of my forays in the financial markets might be considered gambling by some. A good friend of mine is a gambler, and a good one. He goes to Vegas several times a year and spends the preponderance of his time there at the tables. He likes the boats and frequently visits the OTB parlors and occasionally goes to the track. He is a serious and skilled gambler, not a bust-out, degenerate gambler. He explained to me years ago that horse racing is dying because it is a very slow form of gambling. When it was the only legal way to gamble, it did fine. Once other forms of gambling became legal, people who were looking for action went to the casinos; they no longer had the patience that playing the horses requires. The only people left in the stands at the track were people who really liked the sport of horse racing. There aren’t many people who match that description, certainly a far smaller number of people than those who just like to gamble, and most folks who really appreciate the horses are indeed older.
The decline of horse racing is a national phenomenon and a national certainty. However, according to the Sun-Times article, the best horses and horsemen that remain are migrating away from Chicago to the east coast, where tracks are allowed to operate slot machines at the track. Though racing is on its deathbed, these tracks manage to horde whatever action is left by having their slot machines subsidize their horse racing business. The obvious “solution,” then, seems to be to allow Illinois tracks to operate slot machines so that the slots can subsidize the ponies.
A number of related questions arise. Why should we subsidize the horse racing industry? What is so magical about it that it deserves an at least quasi-public subsidy? The answer, of course, is politics; the horsemen have powerful friends in public life everywhere the tracks are found, but perhaps nowhere do they have more friends than in Illinois. But the economic question remains: If you are going to be in the business of subsidizing things with gambling (not a good idea, and not entirely because of the more nefarious aspects of gambling, but that is grist for another mill), why horse racing? Aren’t there more worthy things to subsidize, at least on their surface? Schools, health care, tourism, tax reduction, etc. all come to mind.
The argument made by the industry is that there are jobs involved. So what else is new? There are jobs involved in virtually every endeavor, and certainly in every program that politicians use to channel your money to their friends. Real jobs, however, involve providing a product or a service people want so much that they are willing to pay for it, not providing something that other people are being forced to subsidize.
Whether there’s anything especially profound about the ruminations in this particular post is a matter of speculation, but the topic is one that deserves attention for a number of reasons.
Last Sunday’s Chicago Sun-Times contained a feature article on the decline of horse racing in the Chicago area. Probably the most telling statistics cited were that total wagering in 2010, at $725.7 million, dropped 44% from 1992. Total purses in 2010, at $54.3 million, slid 54% since 2002. Harness racing purses dropped 62% from 1992.
The industry and the sport of horse racing is clearly dying and the reason the article cited, the aging of its clientele, is only the veneer of the problem. As loyal readers know, I am not a gambler, though some of my forays in the financial markets might be considered gambling by some. A good friend of mine is a gambler, and a good one. He goes to Vegas several times a year and spends the preponderance of his time there at the tables. He likes the boats and frequently visits the OTB parlors and occasionally goes to the track. He is a serious and skilled gambler, not a bust-out, degenerate gambler. He explained to me years ago that horse racing is dying because it is a very slow form of gambling. When it was the only legal way to gamble, it did fine. Once other forms of gambling became legal, people who were looking for action went to the casinos; they no longer had the patience that playing the horses requires. The only people left in the stands at the track were people who really liked the sport of horse racing. There aren’t many people who match that description, certainly a far smaller number of people than those who just like to gamble, and most folks who really appreciate the horses are indeed older.
The decline of horse racing is a national phenomenon and a national certainty. However, according to the Sun-Times article, the best horses and horsemen that remain are migrating away from Chicago to the east coast, where tracks are allowed to operate slot machines at the track. Though racing is on its deathbed, these tracks manage to horde whatever action is left by having their slot machines subsidize their horse racing business. The obvious “solution,” then, seems to be to allow Illinois tracks to operate slot machines so that the slots can subsidize the ponies.
A number of related questions arise. Why should we subsidize the horse racing industry? What is so magical about it that it deserves an at least quasi-public subsidy? The answer, of course, is politics; the horsemen have powerful friends in public life everywhere the tracks are found, but perhaps nowhere do they have more friends than in Illinois. But the economic question remains: If you are going to be in the business of subsidizing things with gambling (not a good idea, and not entirely because of the more nefarious aspects of gambling, but that is grist for another mill), why horse racing? Aren’t there more worthy things to subsidize, at least on their surface? Schools, health care, tourism, tax reduction, etc. all come to mind.
The argument made by the industry is that there are jobs involved. So what else is new? There are jobs involved in virtually every endeavor, and certainly in every program that politicians use to channel your money to their friends. Real jobs, however, involve providing a product or a service people want so much that they are willing to pay for it, not providing something that other people are being forced to subsidize.
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