This not good news for industry, especially small businesses. More taxes will just impede hiring and therefore less growth in the GDP.
Some reports say there are jobs to be had, but many workers are afraid of taking jobs that don't have pay levels like the ones they had before, and they will lose their unemployment checks as well that are paying better then the new job.
Reality check - many of the old high paying, low skill jobs that were lost will not return. Time to face the new norm. Get use to having less discretionary cash or up-grade your educational skill to meet the demands in the new job market.
Is it time to shut off unemployment at the end of 26 weeks, period?
Unemployment Insurance Taxes
Source: Joseph D. Henchman, "Unemployment Insurance Taxes: Options for Program Design and Insolvent Trust Funds," Tax Foundation, October 2011.
Record high levels of unemployment and record low reserve funds have placed great pressure on the federal-state unemployment insurance (UI) tax and benefit system. Indeed, many states have been forced to borrow from an already cash-strapped federal government.
Because it does not appear that these funds are likely to be repaid any time soon, corporations must look down the road at the potential consequences of this shortfall, focusing on the probable tax increases that will be necessary to cover the difference, says Joseph D. Henchman, the vice president of legal and state projects at the Tax Foundation.
Between 2008 and 2011, $174 billion was paid in unemployment taxes while $450 billion was paid out in benefits, a gap of $276 billion. In 2011 alone, employers and employees are projected to pay $51.8 billion in taxes, while $131.4 billion is projected to be paid out in benefits for workers recently unemployed.
Over the past two years, 34 states exhausted their unemployment insurance trust funds and have had to borrow from the federal government, with only seven having repaid those funds to date.
The current outstanding balance of loans is $37.3 billion, which will result in approximately $1.3 billion in interest payments starting in October 2011.
One of the primary concerns about UI insurance going forward is that those 27 states that are now in the red will be forced to implement new UI taxes to cover their shortfalls. UI taxes are paid by employers and employees within each respective state, meaning that increased taxes will hit businesses when so many are already hesitant to hire; this could negatively affect job growth, thereby having the exact opposite of the countercyclical effect that UI was intended to have.
Reforms should be considered to the UI program.
First, those who have been unemployed for atypically long periods should be offered bonuses for obtaining part-time work while they search for a full-time position.
Second, bonuses should be offered to those recipients of UI benefits who find new work quickly.
Third, states should conduct mandatory job-search seminars and ramp up fraud prevention efforts.
Tuesday, November 15, 2011
Plastic Bags Better Than Cloth OR Paper?
Next time you go to the store, look around to see how many people use the 'green' cloth bags. Interesting observation to clear the playing field for debate.
Plastic Bag Bans Are Bad for the Environment
Source: Angela Logomasini, "Plastic Bag Bans Are Bad for the Environment," Competitive Enterprise Institute, November 8, 2011.
The past several years have seen a groundswell of regulations on plastics, particularly plastic bags and cups and food containers made from polystyrene or Styrofoam. Supporters of these bans mostly claim that such policies promote environmental protection, when in reality they carry considerable environmental tradeoffs and impose needless burdens on consumers and economic growth, says Angela Logomasini, a senior fellow at the Competitive Enterprise Institute.
Plastic bags generate 39 percent less greenhouse gas emissions than regular paper bags and require only 6 percent of the water necessary to make paper bags. Simultaneously, they consume 71 percent less energy during production than paper bags and produce one-fifth the amount of solid waste.
Similarly, reusable bags are only more environmentally friendly than plastic bags if they are used 103 times, yet on average they are used only 51 times before they are thrown away.
A comparison of the environmental impacts of plastic cups with paper alternatives yielded similar results, with plastic causing 50 percent less solid waste by volume.
Much of the craze that has inspired frivolous and counterproductive environmental bans stems from news stories that emphasize the negative impacts of excessive pollution and littering. Specifically, numerous references are made by environmental blogs and activists to the infamous garbage "island" in the Pacific -- a giant trash heap that is "twice the size of Texas."
However, researchers have debunked much of the hype regarding this "island" by showing that no such island exists. Regardless, concerns about littering should not provoke environmental bans -- they should provoke greater public support of antilittering movements, says Logomasini.
Plastic Bag Bans Are Bad for the Environment
Source: Angela Logomasini, "Plastic Bag Bans Are Bad for the Environment," Competitive Enterprise Institute, November 8, 2011.
The past several years have seen a groundswell of regulations on plastics, particularly plastic bags and cups and food containers made from polystyrene or Styrofoam. Supporters of these bans mostly claim that such policies promote environmental protection, when in reality they carry considerable environmental tradeoffs and impose needless burdens on consumers and economic growth, says Angela Logomasini, a senior fellow at the Competitive Enterprise Institute.
Plastic bags generate 39 percent less greenhouse gas emissions than regular paper bags and require only 6 percent of the water necessary to make paper bags. Simultaneously, they consume 71 percent less energy during production than paper bags and produce one-fifth the amount of solid waste.
Similarly, reusable bags are only more environmentally friendly than plastic bags if they are used 103 times, yet on average they are used only 51 times before they are thrown away.
A comparison of the environmental impacts of plastic cups with paper alternatives yielded similar results, with plastic causing 50 percent less solid waste by volume.
Much of the craze that has inspired frivolous and counterproductive environmental bans stems from news stories that emphasize the negative impacts of excessive pollution and littering. Specifically, numerous references are made by environmental blogs and activists to the infamous garbage "island" in the Pacific -- a giant trash heap that is "twice the size of Texas."
However, researchers have debunked much of the hype regarding this "island" by showing that no such island exists. Regardless, concerns about littering should not provoke environmental bans -- they should provoke greater public support of antilittering movements, says Logomasini.
Drug Program eliminates Competition : CBO - No Cost Savings!
The Congressional Budget Office (CBO) says that there will be no cost savings by the elimination of competition in the federal drug program.
It would be a 'willing suspension of disbelief ' to think that a drug program developed by the Obama administration would have anything to do with cost reduction or be beneficial to the citizens.
What this is all about is the control of drug allocation by a select few in Washington, just as ObamaCare is about over all health care for the entire nation. Here again, in a glaring example of "fundamental" change to how we live our lives by Obama. He promised he would do this and he is well on his way to that end.
Killing Competition in Prescription Drugs
Source: Robert Moffit, "Bad Medicine for Federal Workers and Taxpayers: Killing FEHBP Competition," Heritage Foundation, November 2, 2011.
President Barack Obama wants the Joint Committee on Deficit Reduction ("super committee") to kill market competition for prescription drug coverage chosen by workers and retirees in the Federal Employees Health Benefits Program (FEHBP).
In the president's proposal, the U.S. Office of Personnel Management (OPM), the agency that administers the FEHBP, would contract directly for pharmacy benefit management services on behalf of all federal workers, retirees and their dependents. While the president claims that this will be a cost-saving measure that will lower prices for the program's 8 million beneficiaries, this conclusion does not seem to fit the facts, says Robert Moffit, a senior fellow with the Heritage Foundation.
While the FEHBP pays out $40 billion in claims annually, the administration estimates that its FEHBP drug price-fixing scheme would save $1.6 billion over 10 years. Given that FEHBP drug expenditures alone (approximately 30 percent of total spending) will easily be in excess of $120 billion over the next 10 years, projected savings will come to less than 2 percent of drug savings.
In analyzing 569 million Medicare prescriptions, an econometrics research team found that 99 percent of all scripts and 100 percent of brand-name drug scripts were covered in the FEHBP, while the VA covered 72 percent of the total and just 41 percent of the brand-name scripts.
In order to obtain the cost benefits that President Obama discusses, an approved drug list would have to be created, with individual companies accepting or rejecting a take-it-or-leave-it offer from federal negotiators. While this heavy-handed method may leverage consumers' collective demand in order to gain price concessions, it will politically cut numerous prescriptions out of the market, thereby reducing coverage options for the program's beneficiaries.
This point becomes all-the-more crucial when it is taken into account that the Congressional Budget Office estimates that no such cost reductions will be obtained by the use of leverage.
It would be a 'willing suspension of disbelief ' to think that a drug program developed by the Obama administration would have anything to do with cost reduction or be beneficial to the citizens.
What this is all about is the control of drug allocation by a select few in Washington, just as ObamaCare is about over all health care for the entire nation. Here again, in a glaring example of "fundamental" change to how we live our lives by Obama. He promised he would do this and he is well on his way to that end.
Killing Competition in Prescription Drugs
Source: Robert Moffit, "Bad Medicine for Federal Workers and Taxpayers: Killing FEHBP Competition," Heritage Foundation, November 2, 2011.
President Barack Obama wants the Joint Committee on Deficit Reduction ("super committee") to kill market competition for prescription drug coverage chosen by workers and retirees in the Federal Employees Health Benefits Program (FEHBP).
In the president's proposal, the U.S. Office of Personnel Management (OPM), the agency that administers the FEHBP, would contract directly for pharmacy benefit management services on behalf of all federal workers, retirees and their dependents. While the president claims that this will be a cost-saving measure that will lower prices for the program's 8 million beneficiaries, this conclusion does not seem to fit the facts, says Robert Moffit, a senior fellow with the Heritage Foundation.
While the FEHBP pays out $40 billion in claims annually, the administration estimates that its FEHBP drug price-fixing scheme would save $1.6 billion over 10 years. Given that FEHBP drug expenditures alone (approximately 30 percent of total spending) will easily be in excess of $120 billion over the next 10 years, projected savings will come to less than 2 percent of drug savings.
In analyzing 569 million Medicare prescriptions, an econometrics research team found that 99 percent of all scripts and 100 percent of brand-name drug scripts were covered in the FEHBP, while the VA covered 72 percent of the total and just 41 percent of the brand-name scripts.
In order to obtain the cost benefits that President Obama discusses, an approved drug list would have to be created, with individual companies accepting or rejecting a take-it-or-leave-it offer from federal negotiators. While this heavy-handed method may leverage consumers' collective demand in order to gain price concessions, it will politically cut numerous prescriptions out of the market, thereby reducing coverage options for the program's beneficiaries.
This point becomes all-the-more crucial when it is taken into account that the Congressional Budget Office estimates that no such cost reductions will be obtained by the use of leverage.
Monday, November 14, 2011
Middle Class Demise : The Progressive's Agenda
Interesting idea - what if there wasn't a middle class to pay all the bills? It's true the richest pay the lions share of the taxes, over 37% given they represent only 1% of the population, but the lower 47% don't pay anything.
So if the middles class melds into a lower class and pays no taxes and the upper classes send all there money over seas along with the high paying jobs, what or who's left to pay for all of the cool socialist programs the progressive Democrats have demanded in our country?
With no one to pay the bills, it doesn't take a rocket scientist to figure out the future of our country. And when all has failed, the Democrats will flee the scene blaming the Republicans for the mess, Democrats will be voted out of office, see this as 'taking the money and running', the Republicans will be left to fix the problems left behind as usual.
But this time, the damage is so great we might not be able to save our country from disaster.
What If Middle Class Jobs Disappear?
Source: Arnold Kling, "What If Middle-Class Jobs Disappear?" The American, November 3, 2011.
The economy is in a state of transition similar to its transformation in the 1930s. However, while the Great Depression was instrumental in the rise of the middle class, the current downturn has hit that class harder than most, says Arnold Kling, a member of the Financial Markets Working Group at the Mercatus Center of George Mason University.
Between 1930 and 1950, demand fell for human effort such as lifting, squeezing and hammering. Demand increased for workers who could read and follow directions. The evolutionary process eventually changed us from a nation of laborers to a nation of clerks.
The proportion of employment classified as "clerical and kindred workers" grew from 5.2 percent in 1910 to a peak of 19.3 percent in 1980.
Workers classified as laborers, other than farm or mine, peaked at 11.4 percent of the labor force in 1920 but were barely 6 percent by 1950 and less than 4 percent by 2000.
Farmers and farm laborers fell from 33 percent of the labor force in 1910 to less than 15 percent by 1950 and only 1.2 percent in 2000.
This sort of transformation is similar to what the American economy is undergoing now, as unprecedented gains in automated machines, information technology and personal computers have again revolutionized the needs of the economy. These trends serve to limit the availability of well-defined jobs. If a job can be characterized by a precise set of instructions, then that job is a candidate to be automated or outsourced to modestly educated workers in developing countries.
The result is the polarization of the American job market, under which wage and employment growth have both been lowest at the middle segment of the skill distribution. Wage improvements have tended to be concentrated at the high end, and employment gains have tended to be largest at the low end of the skill distribution.
In the United States, this polarization was exacerbated by the economic downturn, hitting mid-skilled workers the hardest. For example: Growth in employment in sales was 54 percent from 1979 to 1989 and 14 percent from 1989 to 1999. But it was just 4 percent from 1999 to 2007, and -7 percent from 2007 to 2009.
So if the middles class melds into a lower class and pays no taxes and the upper classes send all there money over seas along with the high paying jobs, what or who's left to pay for all of the cool socialist programs the progressive Democrats have demanded in our country?
With no one to pay the bills, it doesn't take a rocket scientist to figure out the future of our country. And when all has failed, the Democrats will flee the scene blaming the Republicans for the mess, Democrats will be voted out of office, see this as 'taking the money and running', the Republicans will be left to fix the problems left behind as usual.
But this time, the damage is so great we might not be able to save our country from disaster.
What If Middle Class Jobs Disappear?
Source: Arnold Kling, "What If Middle-Class Jobs Disappear?" The American, November 3, 2011.
The economy is in a state of transition similar to its transformation in the 1930s. However, while the Great Depression was instrumental in the rise of the middle class, the current downturn has hit that class harder than most, says Arnold Kling, a member of the Financial Markets Working Group at the Mercatus Center of George Mason University.
Between 1930 and 1950, demand fell for human effort such as lifting, squeezing and hammering. Demand increased for workers who could read and follow directions. The evolutionary process eventually changed us from a nation of laborers to a nation of clerks.
The proportion of employment classified as "clerical and kindred workers" grew from 5.2 percent in 1910 to a peak of 19.3 percent in 1980.
Workers classified as laborers, other than farm or mine, peaked at 11.4 percent of the labor force in 1920 but were barely 6 percent by 1950 and less than 4 percent by 2000.
Farmers and farm laborers fell from 33 percent of the labor force in 1910 to less than 15 percent by 1950 and only 1.2 percent in 2000.
This sort of transformation is similar to what the American economy is undergoing now, as unprecedented gains in automated machines, information technology and personal computers have again revolutionized the needs of the economy. These trends serve to limit the availability of well-defined jobs. If a job can be characterized by a precise set of instructions, then that job is a candidate to be automated or outsourced to modestly educated workers in developing countries.
The result is the polarization of the American job market, under which wage and employment growth have both been lowest at the middle segment of the skill distribution. Wage improvements have tended to be concentrated at the high end, and employment gains have tended to be largest at the low end of the skill distribution.
In the United States, this polarization was exacerbated by the economic downturn, hitting mid-skilled workers the hardest. For example: Growth in employment in sales was 54 percent from 1979 to 1989 and 14 percent from 1989 to 1999. But it was just 4 percent from 1999 to 2007, and -7 percent from 2007 to 2009.
Sunday, November 13, 2011
Taxing for Revenue : A VAT Tax?
'Something has to be done to make sure everyone has a share in the game'. That is the agenda of the left when it comes to the rich not paying their share of the tax burden. They currently pay about 37% of all the taxes and they represent 1% of the population.
Of course it doesn't matter that 47% of entire population doesn't any taxes at all. What does matter is that these people are the ones that vote Democrat for the most part. Who knew?
There are many things wrong with a VAT in that since every step of the manufacturing process is taxed, this opens up a lot of area to hide revenue gathering without anyone knowing. On the other hand, most people don't know how they are being taxed right now and they don't seem to want to know. It's easier to just want to take form others then it is to actually find common sense solutions.
'When ignorance is bless, 'tis folly to be wise'
Taxing Our Way to Prosperity
Source: Thomas Pauken, "Taxing Our Way to Prosperity," First Principles Journal, Fall 2011.
Manufacturing has been particularly hard hit during this past decade. In that time, the United States lost one-third of its manufacturing sector as American jobs were shipped overseas. A central reason for the loss of our manufacturing base is a business tax system that is among the most onerous in the world, with its 35 percent income tax rate and its 6.2 percent employer portion of the payroll.
A value-added tax (VAT) of 8 percent could reform this system, reducing the tax burden on corporations and removing distortions within the market, says Thomas Pauken, former State Chairman of the Republican Party of Texas.
Currently, U.S. businesses average an 18 percent tax disadvantage to their trade competitors.
All Organization for Economic Cooperation and Development (OECD) countries, other than the United States, have adopted VATs or their equivalents, averaging 18 percent.
Whereas the United States once enjoyed a trade surplus, it now suffers from a deficit of over $500 billion each year.
A VAT would broaden the corporate tax base by closing loopholes, and would also eliminate negative incentives to save and produce that the current system enables. Also, its flat rate would reduce market distortions and promote economic efficiency. Despite these benefits, the VAT has garnered negative criticism from many sources, yet a review of these attacks show that they hold little water and therefore fail to outweigh the potential benefits of the VAT.
Two arguments put forth against the VAT fall into the same vein: that it is yet another tax that, regardless of benefits, will only increase the total tax burden, and also that it fails to address the real problem of out-of-control spending. Both of these criticisms sidestep the issue.
The first assumes, without justification, that the VAT would be implemented in addition to taxes that are already on the books, yet it can just as easily replace the current corporate tax.
The second is specious -- while the VAT does not reduce spending, this is not a compelling reason to ignore its potential benefits.
One of the biggest arguments put forth against the VAT, however, is that because its taxes are relatively hidden from consumers, tax increases would be easy to obtain, politically. However, not only are current taxes also hidden from consumers (such as the business half of the payroll tax), but also this argument precludes the development of watchdog groups and community oversight, both of which would operate as significant checks on this possibility.
Of course it doesn't matter that 47% of entire population doesn't any taxes at all. What does matter is that these people are the ones that vote Democrat for the most part. Who knew?
There are many things wrong with a VAT in that since every step of the manufacturing process is taxed, this opens up a lot of area to hide revenue gathering without anyone knowing. On the other hand, most people don't know how they are being taxed right now and they don't seem to want to know. It's easier to just want to take form others then it is to actually find common sense solutions.
'When ignorance is bless, 'tis folly to be wise'
Taxing Our Way to Prosperity
Source: Thomas Pauken, "Taxing Our Way to Prosperity," First Principles Journal, Fall 2011.
Manufacturing has been particularly hard hit during this past decade. In that time, the United States lost one-third of its manufacturing sector as American jobs were shipped overseas. A central reason for the loss of our manufacturing base is a business tax system that is among the most onerous in the world, with its 35 percent income tax rate and its 6.2 percent employer portion of the payroll.
A value-added tax (VAT) of 8 percent could reform this system, reducing the tax burden on corporations and removing distortions within the market, says Thomas Pauken, former State Chairman of the Republican Party of Texas.
Currently, U.S. businesses average an 18 percent tax disadvantage to their trade competitors.
All Organization for Economic Cooperation and Development (OECD) countries, other than the United States, have adopted VATs or their equivalents, averaging 18 percent.
Whereas the United States once enjoyed a trade surplus, it now suffers from a deficit of over $500 billion each year.
A VAT would broaden the corporate tax base by closing loopholes, and would also eliminate negative incentives to save and produce that the current system enables. Also, its flat rate would reduce market distortions and promote economic efficiency. Despite these benefits, the VAT has garnered negative criticism from many sources, yet a review of these attacks show that they hold little water and therefore fail to outweigh the potential benefits of the VAT.
Two arguments put forth against the VAT fall into the same vein: that it is yet another tax that, regardless of benefits, will only increase the total tax burden, and also that it fails to address the real problem of out-of-control spending. Both of these criticisms sidestep the issue.
The first assumes, without justification, that the VAT would be implemented in addition to taxes that are already on the books, yet it can just as easily replace the current corporate tax.
The second is specious -- while the VAT does not reduce spending, this is not a compelling reason to ignore its potential benefits.
One of the biggest arguments put forth against the VAT, however, is that because its taxes are relatively hidden from consumers, tax increases would be easy to obtain, politically. However, not only are current taxes also hidden from consumers (such as the business half of the payroll tax), but also this argument precludes the development of watchdog groups and community oversight, both of which would operate as significant checks on this possibility.
Saturday, November 12, 2011
Markets powered by Supply AND Demand
This is the very essences of the market and the value of open markets, unencumbered by government interference. Supply and demand will work if left to the market forces to determine outcomes. It has always worked and has produced the most vibrant economy in the world.
Well, the most vibrant that is until the progressive left socialist took power. Now we are headed into decades of decline in economic wealth development for the average family.
Supply: A Tale of Two Bubbles
Source: Mark A. Calabria, "Supply: A Tale of Two Bubbles," Cato Journal, Fall 2011.
To the extent that monetary policy influences asset prices, it does so via the demand for assets, by changing the borrowing costs to purchase assets, or via supply, where movements in interest rates can make investment in assets look more or less attractive.
While most discussions of asset bubbles focus on demand (or the sudden lack of it), a concentrated focus on supply side can also prove enlightening in establishing definitively those circumstances that give rise to bubbles.
The effects of supply-side economics can be seen in two of the more famous American asset bubbles of the last decade: the housing bubble and the dot-com bust, says Mark A. Calabria, director of financial regulation studies at the Cato Institute.
With the housing bubble, the tendency that really brought home prices down was that the supply and demand sides of the equation were never truly in sync. As the government expanded generous programs in order to increase nationwide home ownership, aggregate demand for houses increased drastically, driving up the quantity demanded and prices. Producers who sought to react to this development increased the quantity supplied, yet their efforts could not keep pace.
For instance in 2006, at the height of the housing bubble, there was an excess of almost 600,000 housing starts -- an almost 40 percent increase in supply -- yet, prices continued to rise.
Similarly, the dot-com bubble can be partially explained by the mandatory holding period that often accompanied internet stock initial public offerings. These holding periods limited the ability to sell recently purchased stocks for a set amount of time, thereby limiting the ability of investors to react to contemporary changes in the stock market.
These kinds of policies lock up financial assets and limit flexibility, causing extreme resistance in the effort to bring supply and demand into equilibrium. In this way, those policies which seek to interfere in the market should be assessed for their potential to cause this same problem.
Well, the most vibrant that is until the progressive left socialist took power. Now we are headed into decades of decline in economic wealth development for the average family.
Supply: A Tale of Two Bubbles
Source: Mark A. Calabria, "Supply: A Tale of Two Bubbles," Cato Journal, Fall 2011.
To the extent that monetary policy influences asset prices, it does so via the demand for assets, by changing the borrowing costs to purchase assets, or via supply, where movements in interest rates can make investment in assets look more or less attractive.
While most discussions of asset bubbles focus on demand (or the sudden lack of it), a concentrated focus on supply side can also prove enlightening in establishing definitively those circumstances that give rise to bubbles.
The effects of supply-side economics can be seen in two of the more famous American asset bubbles of the last decade: the housing bubble and the dot-com bust, says Mark A. Calabria, director of financial regulation studies at the Cato Institute.
With the housing bubble, the tendency that really brought home prices down was that the supply and demand sides of the equation were never truly in sync. As the government expanded generous programs in order to increase nationwide home ownership, aggregate demand for houses increased drastically, driving up the quantity demanded and prices. Producers who sought to react to this development increased the quantity supplied, yet their efforts could not keep pace.
For instance in 2006, at the height of the housing bubble, there was an excess of almost 600,000 housing starts -- an almost 40 percent increase in supply -- yet, prices continued to rise.
Similarly, the dot-com bubble can be partially explained by the mandatory holding period that often accompanied internet stock initial public offerings. These holding periods limited the ability to sell recently purchased stocks for a set amount of time, thereby limiting the ability of investors to react to contemporary changes in the stock market.
These kinds of policies lock up financial assets and limit flexibility, causing extreme resistance in the effort to bring supply and demand into equilibrium. In this way, those policies which seek to interfere in the market should be assessed for their potential to cause this same problem.
Friday, November 11, 2011
Stimulus & TARP 1.5 Trillion Wasted : Keynes IS Wrong!
If we pay any attention at all to history, especially during the 'great depression' and after, we find that the Keynesian theory, huge government spending to spur economic recovery, failed. And now that Obama has doubled down on these failed policies to supposededly turn the country back to prosperity, which in fact has turned out to be more failed policy, we see he has failed just as FDR failed 65 years ago. What went wrong?
The problem that we have here is our government is using this Keynesian theory to have access to trillions of dollars that they can use to cement their grip on political power. By funneling billions to groups that are sympathetic to the agenda of those in power, such as unions of all kinds and large corporations looking for hand outs, much of the money eventually comes back to the power brokers in the form of campaign contributions.
This can be called 'money laundering' of tax dollars and has been used for decades. It's only now that the 'light' of failing state and federal governments that is beginning to shine on this form of getting contributions for elections and is getting results. Witness the budget reform in Wisconsin that stopped the laundering which has balanced the budget and saved thousands of jobs.
Where Keynes Went Wrong
Source: Charles Wolf, Jr. "Where Keynes Went Wrong," Weekly Standard, November 7, 2011.
It is generally recognized that the conceptual underpinnings for so-called stimulus programs lie in the theory developed by John Maynard Keynes in the 1930s. And though his theories have been broadly developed throughout the past century and touted by leading economists as revolutionary, the poor performance of policies based on his theories in resolving the recent recession should give cause for reassessment. In doing so, it is first important to look to the real costs of the recent stimulus package, says Charles Wolf, Jr., a senior research fellow at the Hoover Institution.
In addition to the $787 billion in "stimulus" money, the Troubled Asset Relief Program funding ($700 billion), bailout funds for the auto industry ($17 billion), the extension of unemployment benefits ($34 billion), and the "cash for clunkers" program ($3 billion) bring the total cost of the package to $1.5 trillion.
Between the end of the second quarter of 2009 and the end of the second quarter of 2011, nearly all the stimulus funding was disbursed with the result that gross domestic product (GDP) increased from $12.6 trillion (in 2005 prices) to $13.3 trillion.
In that same period, gross private consumption rose by $400 billion and gross private (nonresidential) fixed investment rose by $155 billion; employment decreased by 581,000.
These results paint a negative picture of the impacts of the stimulus package's effects in the American economy. The fact that $1.5 trillion in spending resulted in a GDP increase of a mere $700 billion suggests that American taxpayers received less than 50 cents on the dollar of investment. This seems to contradict the results predicted by Keynes, who predicted that increases in aggregate demand should realign the economy into full-employment equilibrium and lift it out of the recession.
In looking to Keynes' theories for some explanation of the package's meager results, it is prudent to reexamine the assumptions his model made. In so doing, one of his assumptions, that increases in government spending would not adversely affect investment or consumption, stands out as overly optimistic. It is possible that the borrowing necessary to finance the stimulus package sent the message to consumers that they should save rather than spend. Similarly, it is possible that many investment opportunities were ignored by potential investors who did not want to inject cash into the heavily regulated American market.
These adverse effects perhaps explain the poor results of the stimulus package, and should remind policymakers to consider the assumptions upon which Keynes' theories rely.
The problem that we have here is our government is using this Keynesian theory to have access to trillions of dollars that they can use to cement their grip on political power. By funneling billions to groups that are sympathetic to the agenda of those in power, such as unions of all kinds and large corporations looking for hand outs, much of the money eventually comes back to the power brokers in the form of campaign contributions.
This can be called 'money laundering' of tax dollars and has been used for decades. It's only now that the 'light' of failing state and federal governments that is beginning to shine on this form of getting contributions for elections and is getting results. Witness the budget reform in Wisconsin that stopped the laundering which has balanced the budget and saved thousands of jobs.
Where Keynes Went Wrong
Source: Charles Wolf, Jr. "Where Keynes Went Wrong," Weekly Standard, November 7, 2011.
It is generally recognized that the conceptual underpinnings for so-called stimulus programs lie in the theory developed by John Maynard Keynes in the 1930s. And though his theories have been broadly developed throughout the past century and touted by leading economists as revolutionary, the poor performance of policies based on his theories in resolving the recent recession should give cause for reassessment. In doing so, it is first important to look to the real costs of the recent stimulus package, says Charles Wolf, Jr., a senior research fellow at the Hoover Institution.
In addition to the $787 billion in "stimulus" money, the Troubled Asset Relief Program funding ($700 billion), bailout funds for the auto industry ($17 billion), the extension of unemployment benefits ($34 billion), and the "cash for clunkers" program ($3 billion) bring the total cost of the package to $1.5 trillion.
Between the end of the second quarter of 2009 and the end of the second quarter of 2011, nearly all the stimulus funding was disbursed with the result that gross domestic product (GDP) increased from $12.6 trillion (in 2005 prices) to $13.3 trillion.
In that same period, gross private consumption rose by $400 billion and gross private (nonresidential) fixed investment rose by $155 billion; employment decreased by 581,000.
These results paint a negative picture of the impacts of the stimulus package's effects in the American economy. The fact that $1.5 trillion in spending resulted in a GDP increase of a mere $700 billion suggests that American taxpayers received less than 50 cents on the dollar of investment. This seems to contradict the results predicted by Keynes, who predicted that increases in aggregate demand should realign the economy into full-employment equilibrium and lift it out of the recession.
In looking to Keynes' theories for some explanation of the package's meager results, it is prudent to reexamine the assumptions his model made. In so doing, one of his assumptions, that increases in government spending would not adversely affect investment or consumption, stands out as overly optimistic. It is possible that the borrowing necessary to finance the stimulus package sent the message to consumers that they should save rather than spend. Similarly, it is possible that many investment opportunities were ignored by potential investors who did not want to inject cash into the heavily regulated American market.
These adverse effects perhaps explain the poor results of the stimulus package, and should remind policymakers to consider the assumptions upon which Keynes' theories rely.
Postal Service Failing Solution : Dump Government Control
What a great idea presented here: to fix the problem, get the government out of the solution. What a novel idea. Who knew?
Reforms for the Failing Postal Service
Source: R. Richard Geddes, "Return to Sender: Reforms for the Failing Postal Service," American Enterprise Institute, November 1, 2011.
The U.S. Postal Service (USPS) is facing a fiscal crisis. The demand for its core activity of mail delivery has collapsed, and further declines are likely. Increasing use of substitutes for physical mail are all eating away at traditional mail volumes. Simultaneously, the USPS has been held up in attempting to respond to a changing market by its congressional ties, which limit its autonomy and authority to address internal issues. However, the USPS cannot survive in its current state if it is not given the ability to adapt to a changing market, says R. Richard Geddes, a visiting scholar the American Enterprise Institute.
Mail has fallen over 20 percent since its 2006 high.
First-class mail is down almost 25 percent since its 2001 peak, and declines are accelerating.
Revenue in real dollar terms has fallen over 15 percent since peaking in 2007. Having already exhausted all of its $15 billion borrowing capacity from the U.S. Treasury, the Service still expects to lose between $9 billion and $10 billion for its 2011 fiscal year, on top of losses of $8.4 billion in 2010.
In order to address its growing issues, the USPS must sever its congressional ties through a process of de-monopolization, corporatization and privatization.
De-monopolization will likely result in lower overall rates, as the industry that has been protected and insulated by government regulation is forced to compete. The experience of deregulation in other network industries, in addition to empirical evidence from the de-monopolization of postal services in Europe suggest that the overall impact for the efficiency of the industry and rates for consumers will be beneficial.
Corporatization would allow the USPS to have more internal authority. It would release the agency from onerous government oversight and would allow the body to be controlled by a board of directors.
Privatization, culminating in an initial public offering of USPS stock, would also improve the service, as it would keep a board of directors loyal to the company's owners.
Reforms for the Failing Postal Service
Source: R. Richard Geddes, "Return to Sender: Reforms for the Failing Postal Service," American Enterprise Institute, November 1, 2011.
The U.S. Postal Service (USPS) is facing a fiscal crisis. The demand for its core activity of mail delivery has collapsed, and further declines are likely. Increasing use of substitutes for physical mail are all eating away at traditional mail volumes. Simultaneously, the USPS has been held up in attempting to respond to a changing market by its congressional ties, which limit its autonomy and authority to address internal issues. However, the USPS cannot survive in its current state if it is not given the ability to adapt to a changing market, says R. Richard Geddes, a visiting scholar the American Enterprise Institute.
Mail has fallen over 20 percent since its 2006 high.
First-class mail is down almost 25 percent since its 2001 peak, and declines are accelerating.
Revenue in real dollar terms has fallen over 15 percent since peaking in 2007. Having already exhausted all of its $15 billion borrowing capacity from the U.S. Treasury, the Service still expects to lose between $9 billion and $10 billion for its 2011 fiscal year, on top of losses of $8.4 billion in 2010.
In order to address its growing issues, the USPS must sever its congressional ties through a process of de-monopolization, corporatization and privatization.
De-monopolization will likely result in lower overall rates, as the industry that has been protected and insulated by government regulation is forced to compete. The experience of deregulation in other network industries, in addition to empirical evidence from the de-monopolization of postal services in Europe suggest that the overall impact for the efficiency of the industry and rates for consumers will be beneficial.
Corporatization would allow the USPS to have more internal authority. It would release the agency from onerous government oversight and would allow the body to be controlled by a board of directors.
Privatization, culminating in an initial public offering of USPS stock, would also improve the service, as it would keep a board of directors loyal to the company's owners.
Thursday, November 10, 2011
Government Jobs Always Pay More
Little wonder there never seems to be a shortage of people wanting to get into government jobs. Great salary and nearly impossible to get fired. A win win situation if it's only about the money.
Cadillac Pay in the Land of Lincoln
Source: Andrew G. Biggs, "Cadillac Pay in the Land of Lincoln," The American, November 4, 2011.
It's very likely that Illinois public employees receive a pay premium over similar private sector workers, says Andrew G. Biggs, a resident scholar at the American Enterprise Institute.
Based on 2005-2010 data from the Census Bureau's Current Population Survey, Illinois state and local workers receive salaries around 5.8 percent below those of private sector workers with similar education and experience. But public sector benefits are a lot more generous than those in the private sector.
Let's say you had an Illinois state employee who retired at age 65 with 30 years of service and a final salary of $60,000. His annual pension benefit would be around $29,160. For this, he contributed about 4 percent of his working salary, although in some cases the contribution is "picked up" by the employer.
From 1992 to 2003, it seems that most Illinois state employees paid no pension contribution, and many still do not.
Now let's see what that same worker might get from a 401(k), which most private sector workers have. Let's assume he contributed the same 4 percent of pay and his employer contributed 3 percent, which is fairly typical in the private sector.
Let's also assume he invested in government bonds, since he wants a guaranteed benefit to match the public sector defined-benefit plan. This would provide him with a retirement annuity of around $4,450. In addition, he would receive a Social Security benefit of around $22,700, for a total of $27,150. Illinois public employees generally don't participate in Social Security.
About even, right? Except that to get the Social Security benefit a private sector worker has to pay an additional 6.2 percent of his wages. So the private worker contributes 10.2 percent of pay for a pension of $27,150 while the Illinois government worker contributes 4 percent (and sometimes less) for $29,160.
To produce the same pension as the stylized Illinois public employee illustrated above, a private sector worker would have to increase his 401(k) contribution from 4 percent of salary to more than 40 percent. So it appears very likely that generous public sector pension benefits are more than enough to make up for a modest public sector salary penalty in Illinois.
Cadillac Pay in the Land of Lincoln
Source: Andrew G. Biggs, "Cadillac Pay in the Land of Lincoln," The American, November 4, 2011.
It's very likely that Illinois public employees receive a pay premium over similar private sector workers, says Andrew G. Biggs, a resident scholar at the American Enterprise Institute.
Based on 2005-2010 data from the Census Bureau's Current Population Survey, Illinois state and local workers receive salaries around 5.8 percent below those of private sector workers with similar education and experience. But public sector benefits are a lot more generous than those in the private sector.
Let's say you had an Illinois state employee who retired at age 65 with 30 years of service and a final salary of $60,000. His annual pension benefit would be around $29,160. For this, he contributed about 4 percent of his working salary, although in some cases the contribution is "picked up" by the employer.
From 1992 to 2003, it seems that most Illinois state employees paid no pension contribution, and many still do not.
Now let's see what that same worker might get from a 401(k), which most private sector workers have. Let's assume he contributed the same 4 percent of pay and his employer contributed 3 percent, which is fairly typical in the private sector.
Let's also assume he invested in government bonds, since he wants a guaranteed benefit to match the public sector defined-benefit plan. This would provide him with a retirement annuity of around $4,450. In addition, he would receive a Social Security benefit of around $22,700, for a total of $27,150. Illinois public employees generally don't participate in Social Security.
About even, right? Except that to get the Social Security benefit a private sector worker has to pay an additional 6.2 percent of his wages. So the private worker contributes 10.2 percent of pay for a pension of $27,150 while the Illinois government worker contributes 4 percent (and sometimes less) for $29,160.
To produce the same pension as the stylized Illinois public employee illustrated above, a private sector worker would have to increase his 401(k) contribution from 4 percent of salary to more than 40 percent. So it appears very likely that generous public sector pension benefits are more than enough to make up for a modest public sector salary penalty in Illinois.
Proverty As Defined by Politics
Exactly what is the debate over? Whether the poor are really poor or are the poor just less fortunate that someone else? It looks like the definition of poor depends on where you are standing at the time or some one's political party's agenda.
The only time someone is poor is when someone else tells them they are poor. Isn't poverty more a state of mind for the individual? How does the saying go, 'life consists of more than one's possessions'. hmmmm Go figure!
Debate Brews over New Method to Measure Poverty
Source: Dennis Cauchon, "Debate Brews over New Method to Measure Poverty," USA Today, November 8, 2011.
Debate over how the federal government measures poverty intensified Monday when the Census Bureau announced a second way to calculate the number of America's poor, says USA Today.
The new method for the first time adds the value of food stamps, school lunches, housing subsidies and the earned income tax credit. It also subtracts payroll and income taxes, child care costs and out-of-pocket medical expenses.
The new estimate says 16 percent of Americans lived in poverty in 2010, slightly higher than the official rate of 15.2 percent released in September. Most important difference: The number of seniors termed poor almost doubled while the number of children classified as poor fell.
The poverty threshold for a family of four in 2010 was $24,242 in the new measure versus $22,113 in the official measure, a change that added about 3 million people to those considered poor.
Analysts were divided on the new formula.
"The old way measured how much steak and potatoes you had," says Robert Rector, a researcher at the conservative Heritage Foundation. "The new method measures how much steak and potatoes you have compared to everyone else." The result is that most people living in poverty have adequate food, shelter and medical care, not to mention air-conditioning, cable television and DVD players, he says.
Curtis Skinner of the liberal National Center for Children in Poverty says the new measure is "far superior, although nothing is perfect." The new measure will reflect geographic differences, he says. "The income needed is very different in San Francisco than rural Kansas," he says.
The only time someone is poor is when someone else tells them they are poor. Isn't poverty more a state of mind for the individual? How does the saying go, 'life consists of more than one's possessions'. hmmmm Go figure!
Debate Brews over New Method to Measure Poverty
Source: Dennis Cauchon, "Debate Brews over New Method to Measure Poverty," USA Today, November 8, 2011.
Debate over how the federal government measures poverty intensified Monday when the Census Bureau announced a second way to calculate the number of America's poor, says USA Today.
The new method for the first time adds the value of food stamps, school lunches, housing subsidies and the earned income tax credit. It also subtracts payroll and income taxes, child care costs and out-of-pocket medical expenses.
The new estimate says 16 percent of Americans lived in poverty in 2010, slightly higher than the official rate of 15.2 percent released in September. Most important difference: The number of seniors termed poor almost doubled while the number of children classified as poor fell.
The poverty threshold for a family of four in 2010 was $24,242 in the new measure versus $22,113 in the official measure, a change that added about 3 million people to those considered poor.
Analysts were divided on the new formula.
"The old way measured how much steak and potatoes you had," says Robert Rector, a researcher at the conservative Heritage Foundation. "The new method measures how much steak and potatoes you have compared to everyone else." The result is that most people living in poverty have adequate food, shelter and medical care, not to mention air-conditioning, cable television and DVD players, he says.
Curtis Skinner of the liberal National Center for Children in Poverty says the new measure is "far superior, although nothing is perfect." The new measure will reflect geographic differences, he says. "The income needed is very different in San Francisco than rural Kansas," he says.
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