Wednesday, October 21, 2009
According to the Michigan Department of Transportation, the state could lose a combined $1.9 billion in federal dollars in 2011, 2012 and 2013 because the state may not be able to afford the 20-percent matching funds necessary to receive federal support.
“In 2010, the state has $1.2 billion set aside for highway and maintenance programs. Without the federal aid, that annual figure would drop to $477 million in 2011, $524 million in 2012 and $418 million in 2013.
State and federal gas taxes and vehicle registration fees are the primary sources of revenues for the Michigan Transportation Fund. Every consumer pays 19 cents in state taxes and 18.4 cents in federal taxes for every gallon of gas. That 18.4 cents is given back to the states by the federal government with some conditions. The state must provide matching funds to the returned-federal tax. The federal government returns to Michigan all but about eight cents on every dollar.”
Here’s the rub:
“According to the Michigan’s Roads and Bridges 2008 annual report put out by the state’s Michigan Transportation Asset Management Council, more of Michigan’s roads are falling into disrepair every year.
The council says about 17,378 lane miles of federal-aid-eligible roads were classified as in poor condition. Almost 1/3 of the state’s federal-eligible-roads are now in poor condition. That number has jumped from 13.6 percent in 2004 to 31.6 percent in 2008. The council stated that in 2008, only 19.4 percent of the state’s federal-eligible roads were in “good” condition.
Even worse, it’s believed that 43 percent of the state’s non-federal-aid roads (9,223 lane miles) are in “poor” condition.
It would cost $7.2 billion to bring all of the state’s roads up to “good” condition, the council estimated.”
"Doing nothing on this key issue would mean lost jobs, bad roads, sending federal money for Michigan to other states, and a failure to improve public transit — which does not sound like a winning political strategy to me," Michigan Chamber of Commerce CEO Rich Studley has said. The SPECIAL REPORT: Michigan's tax reform playbook, by The Center for Michigan - August 6, 2009.
So how is Michigan to come up with the matching funds?
“Michigan’s flat 19-cents-a-gallon gas tax was last raised in 1997. . . . In a rare show of consensus, Granholm, MDOT officials and the Michigan Chamber all back changing the tax to a percentage of the wholesale price, which means the state would take in more when gas rises and less when it falls. Although the Chamber generally opposes tax increases, Studley said more money for roads is critical for businesses.” The SPECIAL REPORT: Michigan's tax reform playbook, by The Center for Michigan - August 6, 2009.
While I am also not generally in favor of tax increases, a state gas tax increase would be consistent with the basic principle of public finance is that, to the extent possible, users of government services that directly benefit from the provision of such services should pay for the privilege of doing so. That is, user fees are the most defensible form of taxation. And, while gas mileage varies from vehicle to vehicle, the amount of gas consumed is a close approximation of the usage of the roads and highways. Further, if we are not willing to pay for essential government services that we demand and use, what are we willing to pay for?
I would not favor a gas tax increase, however, without a change in the allocation formula for distributing about $2 billion of funds per year from the Michigan Transportation Fund under Public Act 51 of 1951. The current distribution formula is primarily based on the number of miles of roads and highways in the various jurisdictions. The formula does not distinguish between 2-lane and 4-lane roads, nor consider highway utilization factors such as vehicle miles driven or even the physical condition of the roads. Inefficient allocation of scarce resources results, with rural areas with relatively lightly traveled roads getting a disproportionate amount compared with more urban areas. See the Citizens Research Council’s February, 2008 report Improving the Efficiency of Michigan’s Highway Revenue Sharing Formula
To make matters worse from the perspective of the voters of the 55th Legislative District which I expect to represent, Monroe and Washtenaw Counties fare very poorly in the current system. On a per capita basis, Washtenaw County is second to last among the counties, while Monroe County is 4th from last. On a vehicle miles traveled basis, Monroe County is dead last, and Washtenaw County second to last. CRC, pages 8 and 9.
One proposal to raise the gas tax 9 cents per gallon over 3 years and the diesel tax 13 cents over three years would generate an additional $500 million each year for Michigan’s highway system after being fully phased in. If the allocation formula is not changed, some of the additional money would go to counties where the roads are in much better shape than in other counties. The formula must be changed to put more emphasis on highway condition, capacity and utilization, before any increase in the gas tax would be acceptable.
The following two well written articles amplify my concerns:
- Freedom's Destruction By Constitutional De-Construction, by Timothy Baldwin, 10/19/09
- Can Obama and Congress Order You to Buy Broccoli? by Terry Jeffrey , 10/21/09
With a Constitution written with a multitude of checks and balances, where have the limits gone? We have slipped down the slippery slope inch by inch to the point that most Americans believe we live in a democracy rather than a limited government.
The constitutional limit in question is the Tenth Amendment, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” In other words, the principle was that the Federal Government is one of enumerated and limited powers.
Then came the “supremacy clause” in which the federal government supersedes any state action that is in conflict with the federal law in the same subject area. In the New Deal era, a major erosion occurred with the extension of the commerce clause to most anything that might somehow cross state lines or otherwise affect interstate commerce. Then, the protection of the “substantive due process” requirement before property could be taken by the government was gutted. The Court ruled that the means to an end that the government could mandate need only have some rational connection to a legitimate government goal or end. Further, the Congress need not actually have made that rational connection at the time of enacting the law but the Court could do so later if in the use of its imagination it could make that connection.
All this begs the question raised in Jeffrey’s article, “If the federal government can mandate the purchase of health insurance, what stops it from requiring people to buy broccoli, or anything else, for that matter?
Why is this important? Without limits, any government that has supreme authority to do anything or take anything from someone is by definition tyranny – whether it be a monarchy, oligarchy, fascist, or a pure, unlimited democracy. As I pointed out in my October 7, 2009 blog entry Robbing Peter to Pay Paul?
“The hazard is that with a reported 47% of Americans not paying income tax, we have reached the point that the receivers (including the public service employees who also benefit from government transfers, and their liberal sympathizers, such as private union members) are a majority that are being supported by a minority of wealth producers. "The government who robs Peter to pay Paul can always depend on the support of Paul," said George Bernard Shaw.” Without limits, the "have-nots" have to power to take anything they want from the "haves".
We must somehow restore some limits to our Constitutional government, or we face a continued bit by bit loss of our freedoms which we enjoy and take for granted in our free society.
A resource that explains this in much greater detail can be found on Wikipedia’s Tenth Amendment to the United States Constitution with its references to The Tenth Amendment Center, which works to preserve and protect Tenth Amendment freedoms through information and education. The center serves as a forum for the study and exploration of states’ rights issues, focusing primarily on the decentralization of federal government power.
Cornell University Law School Legal Information Institute’s CRS Annotated Constitution Tenth Amendment also contains an excellent detailed legal discussion of the court cases.
Tuesday, October 20, 2009
Idea 20 : Cap school employee health benefits and/or enroll them in health savings accounts.
Idea 14: Consolidate health care coverage for all public employees in Michigan in a single insurance pool.
Idea 19: Transition newly hired Michigan teachers to a defined contribution retirement system or 401(k).
All three of these ideas attempt to control costs of benefits, yet in ways that do not infringe on the results of years of collective bargaining between the teachers’ unions and the local school districts.
The typical employee share of the health insurance cost is 5 to 10 percent, compared with an average of 25% in the private sector. With statewide school health insurance expenses of $1.93 billion in 2008, increasing the percentage to that of the private sector would save more than $290 million a year. Moving all school employees to high-deductible Health Savings Account plans would save even more -- as much as $450 million in the first year and $26 billion through 2021, according to a Mackinac Center for Public Policy analysis.
An alternative approach to controlling rising health care costs would be to create a health insurance pool for all public employees which is believed would cut administrative costs and provide a larger number of customers to negotiate lower rates. This was a Republican idea which was going nowhere until House Speaker Andy Dillon (D) came out publicly this summer in favor of such an approach. See the Hays Group 2005 Report on the Feasibility and Cost-Effectiveness of a Consolidated State-wide Health Benefits System for Michigan Public School Employees.
Dillon’s white paper estimated that pooling health insurance would save up to $900 million a year, versus an estimate by the American Federation of Teachers and International Union of Operating Engineers in 2005 of only $156 million to $223 million a year for teachers (or a 7 percent savings). Applying the 7 percent savings across all government and school employees amounts to more than $500 million a year. Whichever estimate is correct, and it is impossible to say ahead of time which will be more correct, as the savings will depend on the details of the proposals enacted, the savings appear worthwhile to achieve.
A second expensive benefit is the teachers’ retirement plan.
The Michigan Public School Employees' Retirement System (MPSERS) provides pension and other post-employment benefits to more than 160,000 retirees and beneficiaries. There are 715 participating employers, including K-12 districts, public school academies, district libraries, tax supported community colleges, and seven universities. Under the current “defined benefit” plan, each of which is required to contribute the full actuarial funding contribution amount to fund pension benefits for its employees. (1.5% times the years of service times the highest three year average compensation, plus qualified retirees get health insurance coverage.) As the investment yield rises and falls, and estimates of retirees’ health care costs fluctuate, the actuaries calculate the contribution necessary to fully fund the plan, with a current rate of almost 17% of each employee’s wages (and projected to rise even higher).
The recommendation is to switch to a “defined contribution” plan, where the employer would contribute a set amount each year, and the ultimate benefit the employee would receive would depend on how well the investment of the contributions do. In short, the risk of market variation is shifted to the employee. The contribution rate might also be somewhat less than current and forecasted contribution rates.
The Citizens Research Council of Michigan in July, 2009 said in Michigan State and Local Government Retirement Systems, page 51:
“Transitioning newly hired Michigan teachers to a defined contribution retirement system would provide a much-needed structural reform to the state budget and prevent long-term legacy costs that are unsustainable for the Michigan education system and state budget. . . .
However, the transition from closing a defined benefit plan to new entrants, and placing all new hires in a defined contribution plan, normally requires ongoing contributions to both plans that may entail an increase in overall pension contributions for a number of years, so careful actuarial and budget analysis is critical to informed decision-making.”
The problem with high and rising MPSERS contribution rates is nothing new, with the Citizens Research Council forecasting significant funding difficulties in its 2004 report Financing Michigan Retired Teacher Pension and Health Care Benefits, A step in the right direction since then has been switching to a more actuarially sound “graded premium” plan for the retirees' health benefits. Under this change, retirees are required to contribute to the health insurance cost on a sliding scale based on the number of years of service, as compared with needing to contribute only 10% once vested after 10 years of service regardless of whether the years of service accrued were 10 or 35.
Nonetheless, the burden of the current plan is far above what private industry carries; in other words, the benefits are far richer than private sector employees enjoy.
The Michigan Education Association, the state's largest teachers and school employee union, already runs its own health insurance pool through the Michigan Education Special Services Association, which covers more than half of public school and community college employees. The MEA opposes any increase in the teachers’ share of the cost, the pooling of the health care plans, and transition to a contributory retirements system.
As much as we all like individual teachers, we must push for every efficiency in government that we can, in light of the scarce dollars we have to spend. Increasing the school funding by raising taxes in the face of an economic downturn to continue unsustainable benefit programs for teachers is not only politically unpalatable, but also counterproductive in encouraging job growth in Michigan.
Idea 2: Eliminate binding arbitration for municipal police and fire workers.
“Why: Public Act  is four decades old and prevents police and firefighters from going on strike by mandating that labor disputes be settled by third party, binding arbitration. Arbitrators do not take into consideration the financial status of local governmental units or their ability to pay the awards mandated by the arbitrators. Public safety costs amount to as much as half of an average city budget. Current law prevents money-saving consolidation of police and fire departments and can drive pension benefits to the point where, in some cases, retirement incomes are greater than wages when officers are still on the job.
Benefit: Economic studies estimate that removing binding arbitration could result in a 3 percent to 5 percent reduction in local government expenditures. Local governments in Michigan spent $2 billion on public safety in 2006. A 4 percent reduction would amount to annual savings of $80 million statewide. Not only would repealing Public Act 312 directly reduce costs to municipalities and help them manage their budgets, it would also provide flexibility to achieve efficient and cost-effective consolidation and collaboration among Michigan's 1,800 units of local government.
How: The state Legislature would have to repeal Public Act 312.
Obstacle: Public safety unions (such as the Michigan Association of Police, Michigan Professional Fire Fighters Union and Police Officers Association of Michigan) argue PA 312 does exactly what it was intended to do and this is prevent strikes. They also contend repealing PA 312 is an attempt to solve a problem affecting a small amount of municipalities with a statewide solution.
Sources: Business Leaders for Michigan and Center for Michigan. “
My Comments: We must all be thankful for our police and firefighters who risk their lives in serving us – in protecting our lives and properties. However, that does not mean we need to approve every demand that their unions make. While proper wage and benefits must be paid our public employees, PA 312 has resulted in unsustainable levels of compensation set by arbitrators without regard to the municipalities ability to pay, sometimes simply on the bald assertion that the municipality could always raise taxes.
The Michigan Municipal League has worked for months trying to get a compromise falling far short of complete repeal of the act and yet get greater consideration for the taxpayers' perspective. That faces as much opposition and political backlash as complete repeal, so I simply favor repeal.
There should be checks and balances in every governmental action. PA 312 takes away the taxpayers’ perspective. We must push for every cost control in government that we can, in light of the scarce dollars we have to spend. Increasing taxes to pay for exorbitant wages and benefits for even our most valued public employees in the face of an economic downturn is not only politically unpalatable, but also counterproductive in encouraging job growth in Michigan.
Idea 11: Intensify school district consolidation. Intensify school district consolidation and service sharing.
Idea 22: Slash school district bureaucracy. Save tax dollars and drive more money into the classroom for students and teachers by reducing excessive administrative overhead in K-12 education.
A law was passed a couple of years ago requiring each Intermediate School District (ISD, or RESA – regional educational service agency, as in the case of Wayne RESA) to prepare a report about potential service sharing opportunities that might save money. The idea was that consolidation of services, without actual consolidation of districts, might create possibilities of economies of scale, and therefore reduce the number of people required to perform many of the support services. Some of this has now occurred, most notable in districts consolidating payroll services and some districts sharing Business Managers. Big savings has not occurred, but every bit of greater efficiency helps.
Resistance to service sharing often comes legitimately because personnel in smaller districts perform multiple tasks. If one of the tasks is contracted out to the ISD, the other tasks still remain to be done. Sometimes, the position can be downgraded to a part-time position, other times it can’t. Until you eliminate the full or partial FTE’s (full time equivalents) of personnel at the local levels, no savings occur. Less defensible, but understandable, resistance comes from the fact that unless you can reduce staff by attrition, layoffs of good people who have become friends must occur, something no one wants to do.
Bottom line: voluntary service sharing will result in very small savings.
Consolidating districts into larger units is another idea promoted by the Detroit News. They mention two ways this might be done:
(1) Pass legislation (patterned after the federal military base closing commission) to establish a School District Streamlining Commission that would conduct public hearings and recommend to the Legislature a 50 percent reduction in the number of school districts from 552 to 276. The recommendation could not be amended and would automatically take effect unless rejected by both houses of the Legislature.
(2) Pass legislation (based on a concept by state Superintendent of Public Instruction Mike Flanagan) that would limit the role of the 552 school districts solely to academic purposes and require the immediate transfer and consolidation of all non-instructional responsibilities to the 57 intermediate school districts.
Either proposed legislation would need to incorporate changes to the Urban Cooperation Act (PA 7 of 1967) which acts as a disincentive to consolidate government entities. It practically requires any intergovernmental service sharing between entities to go to the highest wage and benefit level among the entities, as the act prohibits any employee from being harmed. In other words, all savings is wiped out and often costs would actually increase. That is why the push was to consolidate services via intergovernmental contract, rather than consolidation of entities. Amending the Urban Cooperation Act is promoted by the non-partisan Center for Michigan. See How to save Michigan's local communities.
I have mixed feelings about the consolidation proposals, but come out in favor of such proposals.
- Voluntary methods are unlikely to work.
- Local school district boards and superintendents cannot withstand the pressures from the unions to grant wage and benefits that the districts can’t afford. A more centralized board might.
- The model is used in some other states where the school district is the entire county. In other words, opponents can’t attack this as “It will never work.”
- Consolidating every district into the county may or may not make sense. After awhile in increasing size of an entity, you begin to have "dis-economies of scale", where instead of efficiencies, you get layer after layer of bureaucracy. Thus the Streamlining Commission approach has some merit, as the Commission could look at consolidation on a case-by-case basis and recommend consolidation only where it would appear to make sense.
- On the other hand, a split between instructional and non-instructional services proposed in the Flanagan approach is tough to make. For example, increasing class sizes is one way to save money, but at the expense of educational goals. Similarly, instructional support personnel, such as parapros, can be a great help in the instructional program, but cost money.
My theory while I worked as a school business manager was to look at the instructional goals, and the accompanying instructional strategies and tactics to achieve those goals, and budget around those, rather than try to fit whatever instruction can fit within a given amount of money. That derived from my bottom-line focus from private business management, and my realization that student achievement was the objective in schools.
In short, the instructional objectives are so tied up in the financial decisions, that separating one from the other is almost impossible. Given this difficulty, I would lean in favor of complete consolidation, if the Urban Cooperation Act effects of actually raising costs can be avoided. In some cases, it might make sense to go all the way towards consolidation, and in other cases it might make sense to consolidate the support services of Business Office, Personnel, transportation, custodial, food service and technology support.
- Local resistance will be tough, as the concept or “ideal” of local control runs deep in school government. Parents want to feel they have a say in the education of their children. Further, old loyalties die hard. “My granddaddy was an Eagle, my daddy was an Eagle, I was an Eagle, and by God, my kids will be Eagles!” can be heard more times than you care to hear.
- Few elected officials will voluntarily give up their positions of power as school board members. For many, this is the most important thing they have ever done in their lives, and the "power" they feel they have is not easily relinquished.
We must push for every efficiency in government that we can, in light of the scarce dollars we have to spend. Increasing the school funding by raising taxes in the face of an economic downturn is not only politically unpalatable, but also counterproductive in encouraging job growth in Michigan.
Sunday, October 18, 2009
"According to the Census Bureau, the number of uninsured is 45,657,000 people — that’s 343,000 people less than is usually reported. BUT the Census Bureau also documents that 9.7 million of the 45.7 million uninsured are “not a citizen.”
. . .
Among those uninsured are 17 million who make at least $50,000 a year (the median household income is $50,233) . . . Economists at the National Bureau of Economic Research estimate that 25 to 75 percent of people who do not buy health insurance “could afford to do so.”
Further, the Congressional Budget Office says that 45 percent of the uninsured will be insured within four months.
Finally, the liberal Kaiser Family Foundation has estimated that the number of Americans who lack health insurance because they cannot afford it and/or do not qualify for government programs is between 8.2 million and 13.9 million — or an average of 11 million people.
. . .
Take the 11 million uninsured figure — the accurate one — and know that if all 11 million fell down and broke their arm, they could walk into any hospital or clinic in the country and be treated. It’s the law that they must be treated.
If you’ve ever been to an emergency room, you know this is true. . . "
Knowing these figures makes transforming 1/6 of our economy for uncertain results at tremendous cost seem a lot less necessary, doesn't it?
Contracting out additional support services has been recommended in the booklet "Six Habits of Fiscally Responsible Public School Districts" for over 10 years, but little adopted by school districts. At Adrian in 2006, we could have saved $800,000 per year if we had contracted out our custodial work. Only later did they partially contract out, and just recently contracted out the transportation department as well. This is not easy, and good people are adversely affected. Nonetheless, if given the choice of protecting adult jobs or better educating the students, what would be your choice? What if you were on the school board and the mission was to educate students?
Another option would be to decrease the actual total cost structure of the wages and benefits, instead of decreasing staff numbers. Education is a people intensive business, and about 85% of a district's budget is devoted to people costs. State law permits school distrists to impose a contract on the employees if agreement in collective bargaining is impossible. I am aware of only one district in the state with over 500 school districts which has had the guts to do this. The key target must be the teachers' unions, as they are the big driver of the compensation levels among all school employee groups.
I am not against teachers, as most I have had the pleasure of knowing are wonderful, dedicated educators. Nor am I against education, as education was the key for my 5 brothers and sisters and me getting out of poverty after my dad died leaving my mom with us 6 kids. But, I am not for raising taxes in the current economic downturn with struggling homeowners and businesses when there is a better way to adequately fund the education of our kids.
Also, backing a tax increase thinking it will "improve the economy" is a smoke screen we should all be able to see through.
I recommend a "No" vote on the proposed millage.
Saturday, October 17, 2009
The earlier comments were that consumer confidence did not matter, that it was a hoax.
The problem with disregarding "unreal" things like consumer confidence is that perceptions are real things which significantly affect things, and in unforeseen and major ways. Otherwise, forecasts would be easy.
One of the things you learn when you are in business marketing a product or service is that perceptions are real, even if a perception is not true. For example, in 1974 the media made a big deal about apple growers using a chemical called Alar on apples, claiming it might have an adverse health effect. People got scared and bought far fewer apples, despite the fact that there was in truth no health concern about the product. Perceptions have real market effects. The apple growers lost money.
The same is true for consumer confidence. When people get concerned about their financial security because of real or imaginary events publicized in the media, they are a bit more cautious with their money. They spend less and save more. Individually, that is likely a good and prudent thing. Collectively, however, the reduced consumer spending has the effect of causing the economy to slow down, kind of a self-fulfilling prophecy.
The markets are clearly affected by psychological factors, swinging from greed in a bubble to fear in a downturn. This is nothing new, and nothing concocted by the media in either the Bush or Obama presidencies. We clearly were in a bubble stage at 14,000 Dow. Only time will tell whether 10,000 is a good number.
I, however, am optimistic that nationally we have hit bottom and we will begin a slow recovery. Are there hazards? Yes. Are there things that could throw the economy backwards? Surely, there always might be. But, I am betting my money on the resilient American economy. In other words, I am putting my money where my mouth is.
Her response was to cite the following articles which contain the free market view: http://mises.org/story/851, http://mises.org/story/1156, http://www.cato.org/pubs/journal/cj16n1-7.html and http://mises.org/story/3194
I believe there is a way to reconcile the two views.
- The paradox of thrift has a short run effect, without subsequent reallocation of resources and readjustment of prices. In the short run, no matter how much additional production occurs due to the additional savings and investment, the economy is not helped much. Just ask the (former) Big Three automakers with their swollen inventories in the past two years despite generous rebate programs.
- On the other hand, in the long run, with time for resources to be reallocated and prices to adjust, additional savings will drive interest rates down, which will not only discourage additional savings but also drive down the costs of business, allowing either higher business earnings or lower prices of the business’s products. With anemic demand, the most likely result is a reduction in prices to ultimately increase purchases to reduce those inventories. Over time, the free market system will bring things back into equilibrium, at least until the next disruptive event.
A problem in this long run scenario is the downward “stickiness” of some factors of production, most notably the wages of union workers. To the extent that these wages are not adjusted to “market clearing” levels, the equilibrium is hard to obtain. There are many other factors that drag on these adjustments as well, in our “mixed economy”.
So, I am aligned with your thinking that in theory, the economy would readjust itself and get back into equilibrium without any government intervention. What concerns many economists, however, is that despite low interest rates and a collapse of spending and mass underutilization of labor and other resources and falling commodity and other prices, the economy did not pick up for years and years in the Great Depression. (What we were taught was called “the liquidity trap”.) The danger of that experience being repeated is what brings many to support government intervention to shorten the downturn.
Of course, there is no free lunch, and the deficit spending must ultimately be paid for with increased taxes, which ultimately are a drag on the economy. When I took freshman economics, the textbook taught that there was always a net positive impact of government spending. They never mentioned the downside of the taxation, which in the long run counterbalances the stimulus. Alternatively, in the short run, instead of raising taxes, a deficit may occur which is financed by government borrowing, which has the impact of increasing the interest rates, another drag on recovery. If the Fed then tries to counteract that with increasing the money supply to hold interest rates down, then the danger of inflation rears its head. Hmm, sounds like fix after fix requires further fixes, huh?
Comments? Way too technical? Sorry, the world is a complicated place.
Thursday, October 15, 2009
My primary election opponent’s comment: “WHOOP DE DO! 10K is just another number. So the market is up more than 60% from the March low. It is STILL about 30% below where it was a year and a half ago. I am more concerned with the policies at the national level, the monetarizing of the national debt, and the consequent inevitable inflation reducing the significance of any benchmark.
My follow-up: “The performance of the stock market as indexed by the Dow is much more than WHOOP DE DO!
First of all, although 10,000 may be looked at as “just another number”, it is also perceived as an important psychological barrier. Consumer perception, as translated into consumer confidence, is critical. Despite the fanciest econometric forecasting models economists create, varying levels of consumer confidence and other market psychological impacts create uncertainties that are often totally unpredictable. However, improved consumer confidence is expected to be a necessary component of a recovering economy. Personal consumption (which includes consumer spending AND government health care spending), at 70 percent, was the largest component of GDP in 2006. (The gross domestic product (GDP) is the generally accepted measure of the size of the national economy. It is the sum of investment, personal consumption, government spending, and net exports. Other components of GDP include Investment at 17%, Government spending at 19% and Net exports at minus 6%.)
“One year after a U.S. economy said to be overly dependent upon consumer spending toppled into crisis, consumption now makes up an even larger share of national output.
Personal spending on cars, clothes, food and other items accounts for 71% of gross domestic product, according to the latest Bureau of Economic Analysis data. That's slightly above the level one year ago and well above the long-term average around 65%. . . .
Now, with credit tight, wages flat-lining and unemployment steadily ticking higher, consumers are strapped. Personal spending in the second quarter was $195 billion below the figure for the same period last year. That 1.9% drop is significant — over the 20 years that ended in 2006, consumer spending reliably increased at an annual 3.3% rate.
But other parts of the economy, such as construction and businesses' spending on new equipment, shrank even faster since mid-2008. "Other components of GDP just got crushed," . . . .” http://www.usatoday.com/money/economy/2009-10-11-consumer-spending_N.htm
The bottom line is that until consumer confidence returns and consumer spending picks up, the economy cannot be expected to pick up significantly as businesses are not likely to increase production and increase their inventories until consumers resume their buying. Now, we cannot expect consumer spending to return to the recent heyday when people regarded their homes as their personal ATM machines to support unsustainable spending, Nonetheless, reasonable consumer spending is certainly much greater than the current hunkering down most people are doing, even those with plenty of money to spend.
The Dow hitting 10,000 also has another, very important effect – the wealth effect. As people perceive they are wealthier, they spend more. While 10,000 is well off the Dow high of 14,164.53 on October 9, 2007, it surely is a lot better than the recent low of 6,547 on March 9, 2009. This increase in perceived wealth from just 7 months ago will have an impact on consumer spending, if the Dow level can be maintained long enough to restore confidence.
You are right to be concerned with potential inflation caused by the massive monetization of the Federal budget deficits and other expansionary efforts of the Federal Reserve Board. So far, we have not seen the inflationary effects of the increased money supply because the “velocity” of money has dropped precipitously. (Nominal gross domestic product = money supply x velocity.) Velocity is the turnover rate, or speed that people holding money spend or invest it. As consumer and investor confidence returns, the velocity will pick up, increasing inflation pressures. As long as there is ample underutilized capacity in the economy (unemployed labor, closed or underutilized factories), little inflation is likely, as the result in the short run will be increased production.
Ultimately, however, the Fed will need to reel in the massive increase in the money supply to avoid inflation through unwinding its opening of the auction windows and its open market operations. Whether it will do so at the right time, is questionable. The Fed will be walking the fine line of wanting to bring the money supply into line to prevent inflation while not doing so too soon and squelching the economic recovery. Political pressures will be to delay until clear signs of recovery are seen, and with the lag in the effect on the economy of Fed actions, that will likely result in at least some inflation.
So, the Dow at 10,000 is a big deal, not only for the economy as a whole, but also, I like the way my portfolio looks today a lot better than I did on March 9, 2009.
Wednesday, October 14, 2009
The choices legislators face are not always the ones they would like to face. In the State budget standoff currently, for example, we have a Democrat Governor and a Democrat majority in the House of Representatives. The choices basically are spending cuts, tax increases, a combination of spending cuts and tax increases, or in the event of no agreement, a government shutdown. If the Republican Senate insists on no tax increases as the solution and the Democrat House says no more spending cuts, a “game of chicken” occurs. Who is going to give? If neither, an extended government shutdown (or an extended period of “continuation budgets”) occurs. This reflects negatively nationally and globally as a place to locate or start a business.
Pressure mounts on the legislators to “do their job” and reach agreement. The legislators are expected to be “statesmen”, to give primacy to “the public good”, and to give up their individual preferences.
Choices between evils must be made by someone. Ultimately, more likely, some compromise is reached where all must accept something they regard as evil. Tactically, those who are forced to make these hard choices (i.e., to take the hard votes) are allocated by the respective Republican and Democrat caucuses in each chamber to those legislators who either are not going to run for office again or those legislators who are in “safe” seats. This scenario angers many of the voting public who feel strongly that their legislator has “sold out”, and many more are disgusted on how the process has played out due to the “political games”.
It is also helpful to better understand the mindset of an elected official, so that unrealistic expectations of elected officials are not created. Elected officials are faced with multiple, complex issues. Further, as much as single issue advocates would like to believe, there are few simple, controversial issues faced by a legislator, where a stand for principle must be made. Many such votes are not close, so a vote is easy as the vote really does not affect the outcome of the vote. If the vote is close, again, the “hard votes” are allocated by the party caucus to those who either are not going to run for office again or those legislators who are in “safe” seats.
Legislators seldom make the hard choices to take the hard votes until there is either a deadline or a crisis. That is why little was done to adopt a state budget until September 30 arrived. No one wants to give in. No one wants to take a hard vote against their constituents or vocal advocacy groups.
Do we like this situation? No, but that is reality. The saying that, “There are two things you don’t want anything to do with once you have seen how they are made – legislation and sausage” is all too true. However, we must deal with what is, while working to make things better.
Another factor to consider is that our elected officials make decisions in an atmosphere with much more information about an issue than most citizens have access to. What appears like a simple, black and white decision to some may be some shade of gray to the better informed. For example, on the climate change issue, I see that the weight of the evidence is that global warming is occurring and the man’s activities are causing the warming. But, I have been presented with disconfirming data and arguments that appear to refute that “consensus” opinion. What am I to believe? As an average citizen, I don’t have easy access to trusted experts to evaluate the credibility of the new information. Elected officials do. Now, whether the elected officials seek out that additional expertise or whether they have the intellectual capacity to digest the additional information is another question. Obviously some do and some don’t.
An activist with access to a candidate can attempt to persuade the candidate to change his or her position based on logic or new information the candidate may not have heard before. Or, promises of support (or veiled threats of withholding support) may be tried. Obviously, the ability to persuade will depend tremendously on the relationship you have previously built with the candidate, your credibility and the network of people you can deliver for or against a candidate. In the end, you must usually somehow appeal to “What’s in it for me?” from the candidate’s perspective to effectively persuade. Do they want to be right on an issue? Or do they simply want votes regardless of the correctness of their position?
For hints on how to bridge the chasm between the public and elected officials, see the Citizens or Experts: Who Should We Listen To? page on my Coming Together: Reaching Common Understanding website.
Want to see how your elected official is voting? You can track your US Senators' and Representative's votes by e-mail by signing up for the service at Congress.org. The Mackinaw Center for Public Policy publishes the “Michigan Capitol Confidential” that publishes voting records for state legislators. You can also search your state legislator’s voting record at http://www.michiganvotes.org/
Sunday, October 11, 2009
President Reagan proposed a anti-missle defense system in the '80's that was visionary (labeled derisively at the time as "Star Wars" by the opponents). During the "Mutually Assured Destruction Doctrine" (MADD) era, an anti-missle defense system was considered destablizing, as that would permit the perception that we could launch a preemptive strike and then be able to defend against the retaliatory strike from the USSR. That lessened support for the defense.
Now that deterring a nuclear attack from a major super power is less of a concern than during the Cold War, that concern about "destabilizing" no longer is relevant. What is of concern is the fact that weapons of mass destruction are now or soon will be in the hands of unstable regimes or regimes which support terrorists that within 10 years could have the capability of striking the US via intercontinental ballistic missile. For example, North Korea has been testing its missles and has continued to defy international pressure to stop its nuclear program. Will we be ready to defy its demands once it has the capability to hold us hostage with a threat of attack?
Funding the construction of an anti-ballistic missile defense system now when the economy is weakened, when the American people are tired of funding the wars in Iraq and Afghanistan, and when the US budget deficit is already enormous will face tough opposition. But, defending our country is the number one priority stated in the US Constitution, and a priority it would be folly to ignore.
Saturday, October 10, 2009
- There is no “Baucus bill” as it is only a conceptual framework without actual legislative language. See Jubilation over the “Health Care Reform” Bill that Isn’t a Bill and Isn’t Going To Be the Bill and Max's Adventures in Wonderland.
- The calculations include increased revenues and “savings” over ten years but the cost of benefits over only 8 years.
- The increased revenues are obtained by tax increases.
- The “savings” are achieved by benefit reductions, primarily to seniors, and vaporous “cutting fraud and waste”.
- The bill is estimated to still leave 25 million Americans uninsured.
- The Democrats are likely to ram a bill through the Senate using either
a. 60 votes to invoke the cloture rule to close debate (either by having all Democrats vote for cloture or bring along one or two Republican Senators, such as Snow) or
b. Using Congress’s budget reconciliation process which requires only a simple majority vote, which is outside the normal Senate procedure, which requires 60 votes to end debate on a bill; thus taking away the filibuster, letting some Democrat Senators off the hook to vote for a controversial bill and passing the bill without the need for any Republican votes.
c. And, carving out a bill such as use H.R. 1586—a bill passed by the House in March to impose a 90-percent tax on bonuses paid to employees of certain bailed-out financial institutions—as a ‘shell’ for enacting the final version of the Senate’s health care bill (to evade the Constitutional requirement that such a bill originate in the House of Representatives) The House Democrats are very reluctant to take “unnecessary” hard votes on a bill which may not have the votes in the Senate, due to the first term Democrat Representatives being very nervous about their ability to get re-elected next year.
d. And, passing the bill with little time for the public to read and react to “the final agreed upon” bill, despite cries for the proposed minimal 3 day period that a bill be posted prior to passage. Oops, it appears House and Senate Democrats recently blocked amendments that would have required health care bills to be posted online for 72 hours before a committee vote. Hmm, I guess citizens really wouldn’t be interested anyway, you think?
In short, a bill may be passed using a very unusual closed door procedure to craft the bill with no input from the American people. Such a bill will NOT be bi-partisan, and it will not achieve the dual objectives of containing costs and universal coverage that were the original reasons for many Americans initially supporting the concept of health care reform. This is NOT the change we need!
Friday, October 9, 2009
The purpose of political activism is to influence public policy. Sometimes this gets confused with being in politics to win elections, but winning elections is simply a means to an end – that being to influence public policy. This article explores the multiple ways that may be done.
- Write a letter to your elected official. For hints on how to write an effective letter, click here.
- Write a letter to the editor or other publication. Letter to Editor Guide.
- Comment on articles on the internet.
- Join an online social networking page (e.g., Facebook, MySpace, etc.), invite friends and share articles consistent with your beliefs.
- Create a blog about political issues. Its free at https://www.blogger.com/start
- Contribute to a campaign, political action committee or political party. Yes, money is still the mother’s milk of politics.
- Volunteer on a campaign to help elect an official with whom you agree by putting up a yard sign, telephoning, endorsing the candidate, doorbelling, hosting a coffee hour, stuffing envelopes, etc.
- Volunteer on a campaign to help elect an official with whom you wish to gain access to better express your viewpoint, with the hopes of actually influencing his/her votes on issues.
- Attend a rally to show support and/or opposition to policies.
- Join a political activist group, such as Americans for Prosperity, Campaign for Liberty, Tea Party Express, Tax Day Tea Party, Michigan FairTax Association, Michigan Taxpayers Alliance, RightMichigan.com, Heritage Foundation of Southeast Michigan, etc.
- Get active in a political party. (of course, we are hoping that is the Republican Party)
- Attend political events, such as political party picnics, Lincoln Day Dinners, parades, fair booths, etc. to get acquainted with politicians and elected officials.
- Attend forums, town hall meetings, coffees, etc. hosted by politicians and elected officials to stay informed and contact officials directly.
- Go to Washington/Lansing/Township Board/County Commission/School Board meetings and testify on an issue.
- Run for office in a hard to win race to enable you to have your voice being heard in debates, etc.
- Run for an office to get elected.
Of course, you will be able to best influence public policy if you remain informed and be and sound credible. In addition to the organizations above that disseminate information, here are additional sources of Michigan issues you may wish to tap into: Sources of Balanced Discussion of Issues At the federal level, two of my non-partisan favorites are The Hill and the Committee for a Responsible Federal Budget.
Humans have a natural tendency to collect additional data (and be receptive to sources which provide such data) that confirms their already formed opinions and beliefs. In effect, we put on blinders, so we don't see disconfirming information.
No one knows everything. Everyone's perception of "reality" is filtered by our prior experiences. In short, no one has the monopoly on "the truth". Thus we must stay open to hearing facts and opinions that do not agree with our own. To counteract our natural tendencies, we must seek out contrary sources. If it turns out that our beliefs and opinions are not supported by facts, then we must be willing to rethink our positions and form a new belief. Such constant re-evaluation of one's beliefs is not "waffling", but rather simply an application of the scientific method applied to theories in action.
Comments? Addition suggestions?
Wednesday, October 7, 2009
The hazard is that with a reported 47% of Americans not paying income tax, we have reached the point that the receivers (including the public service employees who also benefit from government transfers, and their liberal sympathizers, such as private union members) are a majority that are being supported by a minority of wealth producers. "The government who robs Peter to pay Paul can always depend on the support of Paul," said George Bernard Shaw.
Without Constitutional limits being effective to stop these wealth transfers, and the mistaken idea that America is a “democracy”, this is a very real danger. Our entire Constitutional concept of being a “republic” with a limited government is in danger.
But what of the “safety net” which most Americans support? I myself was raised on welfare for the first 17 years of my life after my father died when I was 2 months old and my mom raised us 6 kids. Without that “aid to dependent children”, I am not sure how we would have made it. My mom preached, “Get an education and work hard”. We have, with all six of us getting at least a Bachelor’s degree and four getting a Master’s or more of education. We saw the safety net as temporary.
A problem with many families on welfare is that it has become a cultural fixture, a generation after generation pattern. Many receivers come to think that they are “entitled” to these benefits, and thereby avoid taking any personal responsiblity for improving their situation without continuing public assistance. Currently there is little incentive to get a job at minimum wage when you compare the benefits of the welfare payments, food stamps, Medicaid and Section 8 housing assistance that you would lose if you became employed. Our incentive system is backwards.
Are there solutions to this problem? Should Michigan go back to “workfare”? Or are some “safety net” programs on such a slippery slope that once you agree to the concept, there is no bright line test to know when you have gone too far that you should not start at all? I don’t believe that our society is ready to roll back the safety net that far. Where is the middle ground?
Comments? Your ideas?
Monday, October 5, 2009
The Citizens Research Council examined Michigan laws and the city charters to investigate potential legal impediments that would limit the ability of communities to expand collaboration. Here are some excerpts from their report Streamlining Functions and Services of Kent County and Metropolitan Grand Rapids Cities, October, 2009.
“Difficult economic conditions are forcing local government officials to reconsider the standard methods of performing functions and providing services. Officials have three options to deal with the fiscal and operational pressures on local governments: 1) increase taxes to yield more revenues; 2) cut spending to meet available revenues; or 3) find alternative methods of providing services at current levels for less money. The first two options can negatively affect the attractiveness of any single municipality relative to its neighbors. They would either increase the cost of residing and operating a business in the municipality or diminish the menu and/or level of services provided. Intergovernmental collaboration provides local governments with alternative methods of performing functions and providing services.” Page i.
“The 2007 CRC Report, Authorization for Interlocal Agreements and Intergovernmental cooperation in Michigan, found 77 specific laws, or provisions of laws, that authorize intergovernmental collaboration. Some laws broadly authorize collaboration for any services that local governments are authorized to provide independently, other laws authorize collaboration for the provision of specific functions or services.
Laws that Impede Collaboration
Those laws were implemented to authorize collaboration among local governments, but provisions in some of these laws severely limit the ability of local governments to come together for joint service provision.
Employee Protection Provisions
Employee protection provisions contained in six separate laws prohibit local governments from using intergovernmental collaboration to displace employees currently engaged in providing the functions or services that are proposed for joint provision. The provisions state that employees affected by transfer because of collaboration should not be put in any worse position relative to worker’s compensation, pension, seniority, wages, sick leave, vacation, health and welfare insurance, or any other benefits that were provided as an employee of one of the merging government service providers. The result of these provisions is that intergovernmental collaboration cannot be used effectively to reduce the size of municipal staffs. In fact, because of these provisions, consolidated service provision may cause the cost of that service to increase rather than decline.
The Urban Cooperation Act, for instance, provides:
“No employee who is transferred to a position with the political subdivision shall by reason of such transfer be placed in any worse position with respect to workmen’s compensation, pension, seniority, wages, sick leave, vacation, health and welfare insurance or any other benefits that he enjoyed as an employee of such acquired system.”
Government tends to be a labor intensive enterprise for many services. It is especially labor intensive for the public safety services – police and fire protection – that consume the majority of the budgets for full service local governments. Laws that hinder the ability to achieve savings through collaboration put public officials in the difficult position of needing to reduce the service levels or eliminate those services completely to achieve savings.
Laws that Make Collaboration More Difficult
Certain other laws do not directly create impediments to collaboration, but either through their construction or their omission makes collaboration more difficult for the local policymakers that must make difficult decisions when initiating collaborative services.
- Public Act 336 of 1947, the Public Employment Relations Act (PERA) requires employers and representatives of employees to “…confer in good faith with respect to wages, hours, and other terms and conditions of employment…” [emphasis added]
This wording has been interpreted to mean that the duty to bargain extends to the public employers diversion of work to non-unionized employees or to outside contractors. Thus local governments currently engaged in the provision of a service must submit to collective bargaining potential actions to provide that service collaboratively with another governmental unit or through non-governmental contractors.
Further, Public Act 312 of 1969 submits interest or contract formation disputes between public employers and public safety employees to binding arbitration, as well as issues arising during collective bargaining negotiation over the terms to be included in a new contract. Thus, local governments considering collaboration for the provision of police or fire protection must consider the possibility of those changes to the conditions of employment being subjected Act 312 binding arbitration.
- Public Act 116 of 1954, the Election Law, permits intergovernmental collaboration agreements to be used as a cause for recall efforts against elected officials.
- Under Public Act 279 of 1909, the Home Rule Cities Act, several cities have amended their charters to create minimum staffing requirements for their police and/or fire departments. Such provisions preclude collaboration as a viable tool for seeking efficiencies in government operations.
- Finally, Public Act 206 of 1893, the General Property Tax Act could be amended to facilitate greater tax base sharing. As long as local government officials are driven by the need to expand the tax base, the goal of new development will outweigh the benefit of collaboration.
Reform of these laws would better enable local government officials to make structural changes to the methods of providing government services and create an atmosphere in which leaders think beyond the boundaries that define their local governments.” Pages 7 and 8.
These laws must be examined for either repeal or modification to allow our tax dollars to be more effectively and efficiently spent.
Friday, October 2, 2009
Look out, here come higher taxes. And, if the value added tax is the means to raise additional revenue, it is a hidden tax.
Almost everyone agrees that we must get our fiscal house in order at the national level, and that means eliminating the huge deficits which are causing the national debt to skyrocket. Where there is little agreement is how to do it. Many think expenditures must be reined in. “Progressives” cited in the article think tax increases are in order.
What is likely is at least some tax increases (whether we like it or not), and to avoid increasing taxes on the poor (defined as anyone making less than $250,000 apparently by Obama’s rhetoric) and to avoid excessively high marginal rates on the “rich”, some experts are looking for an alternative. And that alternative is available from European experience – the value added tax.
“A VAT is tax on consumption similar to a national sales tax. But it's not just paid at the cash register. It's levied at every stage of production. So all businesses involved in making a product or performing a service would pay a VAT. And then the end-user -- such as the retail customer -- ponies up as well.”
A major problem with the value added tax is that it further burdens business, and discourages job creation. It also compounds in multi-stage production systems. Further, it is a hidden tax, as few average citizens will pay the tax directly, and not notice when future increases occur. Need another giveaway program? No problem, just raise the value added tax, as average voters won’t care.
If additional revenues are needed, it would be far better to enact a national Fair Tax, which also is a consumption tax, but does not discourage businesses creating jobs, investing, saving and earning – and is much simpler.
However, many people talk about the need to reform our tax structure, to have a tax system that better reflects our evolution to a service society, to reform the Michigan Business Tax and its hated 22% surtax, to make the state more business friendly, and to improve the business climate to create jobs.
An out of the box solution that few have yet given great thought about that does all of those things is the proposed Michigan Fair Tax. For details go to http://mifairtax.org/, but, in short, it eliminates the current sales tax, personal income tax, Michigan Business Tax, Personal Property Tax, 6 mill State Education Tax on business and sales tax on all business purchases and replace them all with a simple retail sales tax, which at 9.75% is estimated to be revenue neutral.
I don’t know that the current proposal is perfect, but it sure warrants discussion and evaluation. My bet is, if that were done, people would see that this is far better than what we have, and much more likely to spur job growth in the state.
Now this is not the only thing that needs to be done, as the suggestions in the article regarding the public service unions are also needed. We need to get beyond the entitlement mentality that is crippling Michigan and encourage entrepreneurship, innovation, deferred gratification and hard work.
While a school business manager, I argued for more school days rather than fewer, longer days to meet the clock hour requirements. I felt little more was learned with a few more minutes each day, as compared with more days. The bias for fewer days came through negotiations with the teachers’ unions, as they preferred a shorter work year, which means more days off during the year or a longer summer. Sometimes we considered the savings created by fewer school days because of fewer days you needed to run the busses, but the teacher negotiations were the primary driving factor.
Few school boards are willing to stick to their guns in negotiations with the teachers. I described the tools (laws) available to use in negotiations in my presentation to the Michigan School Business Officials annual meeting in 2006 entitled “Taking Back the Ship”, but I am aware of only one district that has been able to extract a favorable result. Heck, in Detroit, even when the teachers struck in violation of the law, NO ONE sought to enforce the law.
Tom Watkins puts it even more bluntly when he commented, “While education should be about teaching, learning and children– far too often, in Michigan and across the US– it is more about: POWER, CONTROL, POLITICS and ADULTS.”
It is time we focus on what is best for the students' learning, and less about providing employment with rich salaries and benefits for adults.
Judge Napolitano discusses an issue being overlooked in the Health Care Reform effort. Does the federal government even have the constitutional power to regulate health services, particularly by requiring people to buy insurance, i.e., the "individual mandate”? The federal government has only specific enumerated powers in the Constitution, while the Ninth and Tenth Amendments reserve the remaining powers to the states and the people. The fact that states can require people to buy car insurance does not extend that power to the federal government. So, the federal government being able to require people to buy health insurance would be precedent setting. If the federal government can do this, are there any limits in the Constitution that remain?
Until I read this article, I did not understand the purpose of Michigan HCR004 and SCR004/SR17 (Michigan Sovereignty Under the 10th Amendment). Although not binding, they would send the message that we still take the Constitutional limits seriously – that we are a Republic, a limited government and not a democracy which allows tyranny by the majority. With recent statistics of 47% of Americans not paying any income tax, millions taking government handouts, and the strength of the public service unions, the power and the incentive to redistribute wealth from the producers in society will become overwhelming if there are no Constitutional limits.
Of course, this could be looked at as an exercise of the "taxing power", i.e., that this is nothing more than a tax imposed on individuals, which tax can then be avoided by purchasing the insurance. However, if this rationale holds, then anything can be required by the federal government, and this is certainly NOT what the founding fathers envisioned.