Archive for category Business
Slow Treck Toward Socialism…The NPR Example
Posted by Tom in Business, Centrally Managed Economy, Constitution, Government Regulation, Statism on October 24, 2010
Seth Lipsky’s WSJ piece, The Real Case for Defunding NPR, argues that government subsidy “casts a chill over markets in which entrepreneurs seek to raise capital for highbrow journalism.” He cites his own difficulty in raising money for independent journalism when the investor asks, “isn’t this already being done by public broadcasting?” There goes the investor, no market when similar programming is already being funded by the government.
It is a stretch to say that NPR is “being funded” by the government when only 1-3% of its budget comes from the taxpayers. But the other donations from foundations and subscribers are often tax deductible, so maybe that is not too big a stretch.
The simple point is that any taxpayer subsidy is an unnecessary use of public money. Government does not belong in the business of business. At least, not in a free, capitalistic market.
Of course this runs counter to the recent call for more taxpayer money to be poured into the losing media businesses:
“A small chorus is tuning up to demand not that the government get out of the way but that it actually step up its funding of the press. Last year a report—written by a former editor of the Washington Post, Leonard Downey, and issued under the auspices of the Columbia Journalism School—called for siphoning funds from the Federal Communications Commission’s surcharge on phone bills into a Fund for Local News that would underwrite “worthy initiatives in local news reporting.”
“The president of Columbia University, Lee Bollinger, has emerged as a leading voice for pouring more government money into news gathering. How badly would that chill the capital markets for those who dream of privately funded news gathering, completely independent of oversight by Congress?”
Don’t forget the Communists methodology was to first control the media and educational systems. This a logical takeover of society. Given the unfettered liberalism of our schools and universities and the obvious liberalism of the main stream media, we are well on our way to the leftist, socialistic, communistic takeover. Pick one.
So to Lipsky’s point, government interference in a marketplace, any marketplace, chills independent investment. This for a logical reason, how can private capital compete with the entity that prints the money! That chilling appears to be the goal of the leftists, witness the government ownership of and detailed interference in major private industries.
Simply put, investment in businesses is not a proper role for government. Constitutionally, it is ultra vires, that is legally beyond the legitimate power of government.
Foreclosure Silliness Equals More Economic Drag
Bank of America halts all foreclosures, Reid demands halt to all foreclosures in Nevada, Obama pocket-vetoes noncontroversial notary recognition measure to speed up foreclosures, and the Maryland congressional delegation calls the “fundamental fairness of the entire foreclosure process in serious doubt.” These are just a few of the recent headlines tracking the “financial scandal” de jour.
Why? In one of the 23 states requiring judicial foreclosure, a state court lower-level judge thew out a foreclosure action because a clerk failed to read all the foreclosure documents before signing them. In that case there was no question that the borrower had defaulted on the mortgage nor was there any question that the lender was entitled to foreclosure. The lender was being efficient by using a so called “robo-signer” to execute the documents.
The mortgage market works like this: you borrow using your house as security, you sign a promissory note (“I promise to pay”), you pay the monthly loan installments and get to live in your house. If you default and don’t pay, after notice and a grace period, your lender forecloses and tries to sell the house to get back the money you promised to pay but didn’t. What could be simpler? The clerical judge seeking headlines threw out the foreclosure action which has the effect of letting the defaulting borrower live in the house without paying the mortgage, rent, or anything else for that matter! Is this fair?
Let’s look at the consequences of this silliness, immediate and long range:
- Existing home values are in doubt and sales decline. This because of the inventory build up of defaulted mortgages.
- Pricing of comparable houses is in doubt because market clearing prices can’t ber reached absent a public foreclosure sale, an auction on the court house steps.
- The mortgage market will decline because lenders and investors will not feel secure in their loan security.
- Mortgage rates will go up because of the added costs of foreclosure.
- Loan to value ratios will go down and credit standards up because of the weakened security.
- New housing construction will decline because of the existing inventory build up and tougher mortgage requirements.
- Housing occupied by the borrower-turned-squatter will deteriorate causing the ultimate foreclosure value realized to decline and the lender losses to increase.
- Fannie and Freddie will be required to pay more on their guarantees to the market and their losses will increase.
- Taxpayers will be required to fund increased losses of Fannie and Freddie which deal in 90% of the mortgage market.
- Finally, the economy will face slower growth or additional decline since housing as a principal driver will be weakened.
So, the banks may roll over for fear of Obama and the politicians may have an “us and them” field day calling for halts to foreclosures, but in the end this will hurt the middle class that pays its mortgages and funds the government with its taxes. It is much ado about nothing, pure silliness that creates another economic drag to a fragile economy.
Federal Bankruptcy Disease
Posted by Tom in Business, Economics, Fiscal Policy, Government Regulation on October 6, 2010
What can the Federal Government do right? OK, efficiently? All right, marginally passable? Among the myriad of departments, agencies, task forces,and committees, it is hard to find one that fits into even the marginally passable category. I hate to pick on the Post Office after the recent “Going Postal” ding, but Doug Bandow’s American Spectator article, Postal Bankruptcy, is deserving of focus. He opens with a quick summary of the bankrupt U.S. government, $1.3 Trillion current deficit, $13.5 Trillion national debt, and unfunded liabilities over $100 Trillion.
But this so called independent agency with power to fund itself with revenue and bonds has not preformed well. Bandow points out that it too is effectively bankrupt, expecting to lose $7 Billion this year after borrowing $13 Billion from Uncle Sam. Its balance sheet shows $33.5 Billion in liabilities but doesn’t show another $54.8 Billion in unfunded retiree health and pension obligations.
Two problems: one, the USPS is a monopoly. No profit motive, no competition result in no efficiencies. And, two, a strike by seven postal unions in 1970 was the effective genesis of the USPS. Public Law 91-375 enacted in 1971 embodied the strike settlement terms and authorized collective bargaining. On top of this, the postal market is declining given today’s technology and thus to survive needs its monopoly status and taxpayer subsidies.
All this generates bad results: postal rates have risen more than 50 percent faster than the rate of inflation, and bulk mail rates are subsidized because of political clout of the mailers. Get that, your tax dollars subsidize your junk mail!
Oh, and one other tidbit, the post office takes care of its retiring employees by issuing no-bid contracts to former postal executives: “One former vice president received a $260,000 contract to talk to the man who replaced him!”
Doug Bandow argues for privatization and competition of postal services. He points to examples that work well in other countries. He correctly states that the post office is only constitutionally permissive not mandatory. And his economics are correct that, notwithstanding legacy termination costs, it would be cheaper to end the federal monopoly than to continue ongoing subsidies: “But bankrupt Uncle Sam has no money for a postal bail-out. Only privatization is a realistic option.” This he points out tongue-in-cheek will be “change that we can believe in.”
Chilling Comparison-Will History Repeat?
Posted by Tom in Business, Economics, Education Facts & Policies, Entitlements, Financial Policy, Monetary Policy, National Character, National Debt, Taxation, Welfare on October 4, 2010
Donald Luskin, chief investment officer of Trend Macrolytics, LLC posted an interesting chart in his WSJ op-ed, The Trade and Tax Doomsday Clocks. It charts the Dow Jones Industrial Average in the 1930s against the same average from mid 2009 to today with the depression forward, 1932 to 1936, as a scary warning. Here’s the chart:
The article points out that Obama’s upcoming tax increase, allowing the Bush cuts to expire on those most able to invest productively, is dangerously close to the Roosevelt tax increases of the 30s. FDR tipped the economy into a “depression within a depression.” Obama is close to the same thing.
Luskin then shifts to trade noting that the House passed the “Currency Reform for Fair Trade Act” which adds dangerous new powers to the infamous Smoot-Hawley Tariff Act, the proximate cause of the Great Depression. This bipartisan vote is a shame. 99 Republicans participated in this homage to Herbert Hoover; they should know that his name “lives in infamy” for erecting those tariff barriers. Hopefully the Senate Republicans will hold out. If not, another source of economic growth will wither.
These observations alone are frightening enough, but when coupled with the WSJ front page article, Americans Sour on Trade, portend something akin to an upcoming depression. In essence a majority of Americans tend to favor protectionism or, at least, are against the economies of outsourcing. Understandably economic ignorance is prevalent, fostered by our leftist institutions of higher education. But, in fairness, conservatives have not convincingly explained the compelling economic benefits of free trade.
Finally and in nail-in-the-coffin fashion, we have the growing international trend of beggar thy neighbor competitive currency devaluations. Japan is the most recent example. The Fed with its impending QE2 threatened is another. What is the dollar worth, the pound, the Euro? If world trade stops or dramatically slows, depression or worse is assured.
I say that as a layman with no credentials. But it is becoming obvious that the socialized world cannot sustain itself in its current level of consumption without productive investment and growth. The U.S. is trending away from that growth regimen. Obama is penalizing productive investment and limiting growth by increasing the size of government.
So, we must economically educate the ignorant products of our universities, vote for leaders who have the guts to reform our unsustainable entitlements, and decrease the size and take of our government.
Meanwhile, one of my Irish friends sums it up nicely, “…guns and gold, Tom, guns and gold!”
How Your Tax Dollars Are Spent
Posted by Tom in Business, Democrats, Entitlements, National Debt, Stimulus/Bailout, Unions, Welfare on October 3, 2010
Obama and his socialist Democrats are on a spending spree, spending future tax dollars, generating piles of debt that will bury us, our children and our grandchildren and condemn them to a lower standard of living. The bulk of the spending goes to entitlements, Social Security, Medicare, Medicaid and the new killer, Obamacare. A significant chunk of the spending goes to support government workers who job it is to redistribute our tax dollars to the non tax paying “entitlees.” The inefficiency and waste attendent to government operations and giveaways are always rampant but there are some things that are particularly bad.
GM, that is Government Motors, is majority owned by the U.S. taxpayers; a significant minority block is owned by the UAW. In practice the UAW calls the shots, since it controls Obama/Democratic votes. Government Motors flushed out its creditors in bankruptcy. So the bondholders got screwed and the union got control. (Those bondholders by the way are the IRAs and pension plans attempting to provide retirement security for the taxpayers financing the government.) So Government Motors operates without the typical burdens of private companies like, say Ford Motors.
One of the ways it spends it’s taxpayer provided largess is to lobby the government that owns it! Yes, that’s right, taxpayer dollars are being spent to influence government officials, the same officials who allocate those taxpayer dollars! This is like Milo Minderbinder in “Catch 22″ taking money from the Germans to strafe his own USAF base in Italy. Truly bizarre. The WSJ calls it “Fannie Mae Motors” after the Barney Frank supported fat cat that spent taxpayer supported money lobbying who but Barney Frank!
Now you can argue about stupid government spending and policies like ethanol, solar energy credits and cash for clunkers, but some things just really piss you off! They are not only stupid but immoral. Bad thing is that our grandchildren will pay for this stupidity.
Unintended Consequences
Posted by Tom in Business, Centrally Managed Economy, Economics, Taxation on September 29, 2010
Frequently big government legislation and rule making has unintended consequences. For the most part those are of the left field or right field sort effecting some unthought of outlier that may have adverse consequences. But seldom is proposed legislation likely to have the exact opposite effect as that stated as the reason for its proffered enactment in the first place. Such is the case with the Obama plan to end the tax deferral for foreign subsidiaries of U.S. companies.
Under current law a foreign subsidiary of a U.S. company pays the tax of the host country and defers the difference between that tax and the U.S. tax until the profits which generated that tax are “repatriated,” or brought back to the U.S. So Microsoft earns profits on its operations in Ireland and pays the Irish tax of say 20% but defers the difference between that tax and the 35% U.S. tax until the profits which generated the tax are brought back to the U.S. Note that the 15% difference is paid but at a later date.
U.S. companies must compete internationally with companies of foreign nations. The competition is ferocious; every efficiency counts. Now the U.S. is the only major country that has “extra territorial taxation;” it taxes its citizens and corporations on earnings in other countries. So for example, Microsoft may have invested previously taxed capital in Ireland, employed Irish workers, used Irish technology, and paid Irish taxes on the profits earned in Ireland, and it will still owe the higher U.S. taxes, but only when it repatriates those profits to this country. No other major industrial country taxes those foreign earned profits.
It is an understatement to say that U.S. countries competing internationally are at a disadvantage before they earn a dime. They have two strikes against them before they start to compete, because of the U.S. tax structure . Nations like Germany have no extra-territorial taxation of German companies that compete with U.S. companies on U.S. soil.
So it’s hard to believe that Obama would want to make the situation worse by eliminating the foreign tax deferral and thereby increasing the adverse effect of the unusual extra-territorial taxation of U.S. companies. Monday’s WSJ calls it “The Send Jobs overseas Act.” But that is what our president is proposing under the guise of bringing jobs back to these shores. “…(F)or years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries. I want to change that.”
Add to that the high U.S. tax rate and our companies are at a real disadvantage. Here is the Cato table used in the WSJ article under the heading “Capital Punishment.
| Effective Corporate Tax Rate in 2009 | |
| United States | 35% |
| G-7 average | 28.8 |
| OECD average | 19.5 |
| World average (80 nations) | 18.2 |
| Source: Cato Institute/World Bank—effective rate includes net federal/state rates. |
The direct effect of this legislation will be to for U.S. companies that stay on these shores to lose business to foreign competition. Alternatively, they will move to foreign jurisdictions. In either case jobs will be lost in this country. The article referenced above offers an excellent example in the shipping industry.
Obama does not have anyone experienced in business in his administration. He appears to be anti-business. He loves taxation and big government. He is certainly a statist. It’s hard to argue that he is not a socialist.
Going Postal!
Pricing power, the ability to raise prices without concern of competition, is rare in the marketplace. It is EARNED by those who have advantage because of technological, productive or investment excellence; and it is often short lived in a competitive marketplace.
Well, the USPS has pricing power, unearned pricing power. It’s raising it rates once again. According to Monday’s WSJ editorial ‘The Post Office Hustle” the price of a stamp will go to 46 cents. Prices here have increased at four times the increase in the CPI. The post office lost $3.5 Billion last quarter alone and is expected to have cumulative losses of $238 Billion in the next decade! Operational efficiency is obviously not its strong suit!
Strange isn’t it that Fed EX and UPS seem to be profitable. Of course they don’t employ non-productive government workers. Postal employees earn an average of $83,000 per year in salary and benefits. And the APWU is demanding more! Seems that the union is in charge.
How do you want your tax dollars spent? How much benefit subsidy do we need beyond that stamp price? Oh yeah, and while you pay for your stamps, Harry Reid, Nancy Pelosi, Dina Titus and the rest of that ilk send their mail for free using the franking privilege! Yep, in some small way, your tax dollar is paying to get them re-elected!
Don’t you just love monopolistic pricing power!
Constitution? He Don’t Need No Stinking Constitution!
Posted by Tom in Business, Centrally Managed Economy, Congress, Constitution, Financial Policy, Government Regulation, Presidency, Statism on September 19, 2010
Our little dictator Hussein Obama really doesn’t want any “checks and balances” not even when his own party has complete control of them. Yep, Obama has appointed that darling of the left, Elizabeth Warren, “assistant to him and special advisor” to the Treasury Secretary with respect to the new Consumer Financial Protection Bureau. She will oversee all aspects of consumer protection including personnel and planning. The bureau has independent rule making authority and can grant itself an annual budget of up to $646 million from the operations of the Fed. No need of Congressional appropriations.
Instead of appointing her Director of the bureau which would have required the “advice and consent” of the Senate, he makes her a tzar answering to no one. She offices in the Treasury Department which has no authority over her. She will have “direct access” to the supreme dictator himself.
A WSJ editorial, Elizabeth III, pretty well sums up her power–and inferentially Comrade Obama’s power. No constitutionally required “advice and consent,” and no Congressional appropriations! Absolute rule making that can only be overturned by a 2/3 vote of the new Financial Stability Oversight Council.
The Constitutional requirements are pretty clear. Obama knows them. “On July 21, Mr. Obama signed a bill passed by both Houses stating that the “Director shall be appointed by the President, by and with the advice and consent of the Senate.” Yet he ignores them in the face of opposition from his own party. Democratic Senator Chris Dodd warned the president that she was not confirmable. Obama’s answer–take your Constitution and shove it!
This is so outrageous that even the liberal Washington Post editorial leads with “President Obama picks Elizabeth Warren…and thumbs his nose at the Senate.” It concludes, “for all intents and purposes, the president has created, and filled, a de facto directorship. This might have been in keeping with the letter of the laws, but not with their spirit.”
Now think for a minute the power this de facto dictator will have over fiance laws and regulations. It will cover not only banks but merchants extending credit. Think of the conflicts with banking regulations that are sure to occur. And finally, think of the business uncertainty compounded by the prospect of new regulations and new conflicts.
With the voracious trial lawyers waiting in the wings to sue banks and merchants for a misplaced comma or unbolded printing, expect a slow down in the extension of credit and a consequent slow down in credit dependent sales. Force these slow downs back through the chain of production and you have a general economic deterioration. All coming at a time that our recovery is very weak.
I can’t help but recall Tom Cargill’s chess match analogy: when the referee announced an impending rule change in the middle of the match, the players had little incentive to continue playing, so the match stopped! This is exactly what Team Obama is doing to our economy!
Even Libs Learn The Hidden Cost of Obamacare
Posted by Tom in Business, Democrats, Nationalized Health Care, Welfare on August 26, 2010
Surprise, surprise, colleges want a waiver from Obamacare. If asked to name a liberal bastion as left as the Fourth Estate it would be the universities. Obama is their product, their teacher, their community organizer and their ordained leader. So why are they chafing from his most progressive achievement, Obamacare? Well according to an editorial piece in today’s WSJ, the law “could make it impossible for colleges and universities to continue to offer student health plans.” That’s how the American Council on Education and a dozen other higher-ed lobbies put it in a recent letter to the Obama Administration, warning that the insurance coverage they offer may get junked by ObamaCare’s decrees.” Seems that the bureaucratic “one size fits all” plan will cost too much for the 4.5 to 5.5 million students annually enrolled in college plans. Logical indeed, when you consider the average age of the students.
Of course, we the unwashed masses who will be taxed to pay for this unaffordable welfare program know the truth. EVERYONE WILL PAY….THE POOR STUDENTS…AND THE EMPLOYEES. That’s right, you won’t need to earn over $250,000 to suffer under this monstrosity. The people who can least afford it will be penalized most.
This from my friend Joe Morabito to his U.S. employees: “Hello All: We just sat through a horrible presentation done by our insurance broker related to the impact of Obama’s HealthScare Plan on our medical and other benefits. Let me be clear, for any employee who believes this is a “scare tactic”, effective next January, 2011; all will be paying significantly more for medical and other benefits because Paragon cannot absorb the cost increases that are coming as a result of ObamaCare. Further, as we go into 2012 – 2014, other elements of the plan kick in that will impact our entire benefits program so big changes will be coming related to how and from whom you buy your health insurance. If ObamaCare is not repealed first, we may, or may not, have a company sponsored plan based on what is most advantageous to both Paragon and our employees. What I know for sure is that Paragon cannot afford the insurance premium increases and additional administrative costs that are coming as a result of Obama’s HealthScare Plan. We will have to consider all alternatives.”
“As you go to the polls next November, I suggest you vote for candidates that advocate REPEAL of Obama’s HealthScare Plan, which will be a disaster for Paragon and our employees. Clearly, it is impossible to insure 30 million uninsured, (plus potentially 12 million illegal aliens) without someone paying the bill. In this case, those who already have health insurance and senior citizens will be paying that bill. Elections have consequences. JM”
The hidden tax that is Obamacare is only starting to be unmasked. There will be more “surprises!” None of them will be good.
As Joe says, “elections have consequences!”
August Reno Hayek Meeting: Nevada Hurting
I am late in thanking Randy York for the excellent discussion of Nevada’s deficit difficulties. Randy as president of the NV Manufacturers Association well knows the gravity of the over spending over the last several years and the temptation to add new taxes so that it can continue. Those potential taxes whether corporate income, gross receipts or the so-called Texas franchise tax will further hobble Nevada businesses.
Randy got everyone’s attention with some recent economic headlines: gaming revenues down, A&E layoffs, land prices and real estate valuations plummet. The state leads the nation in unemployment; Lyon County’s rate is up at 18.5%. And predictions for job growth will be down for many years. With the $3.2 Billion deficit in mind the state’s budget director Andrew Clinger said you would have to cut everything but education (55% of the budget) to balance the budget.
The Democratic majority typically favors tax increases or new taxes to protect coveted programs and insure public sector jobs. Steven Horsford, the senate majority leader has proposed a 50-50 deal, $1.5 Billion in taxes and $1.5 Billion in cuts. Problem here is the lack of detail and the temporariness of cuts against the permanence of taxes. With over half the legislature being public employees, it is difficult to see how devastating tax increases will not come about. And, it is not as if those public employee salaries and benefits are cheap. Randy showed compensation charts that make NV look like Bell CA!
Simply put, more government, more spending and more taxes will drive businesses from NV and further tank the economy. The only way to guard against this is to elect conservative candidates who will block tax increases and insist on expense reductions and government efficiency.
Randy listed key Assembly and Senate races: Assembly: District and conservative candidate: 5th-Williams, 13th-Hammond, 21st-Sherwood, 22nd-Stewart, 23rd-Woodbury, 27th-Jurado, 29th-Hill, 31st-Thompson, and 40th-Livermore. Senate: 2nd-Gustavson, 5th-Roberson, and 8th-Cegavske.
There has been some sentiment in our membership for a more active role in addressing the issues we discuss. Indeed, our tag line for the Reno Hayek Symposium is: “Articulating conservative solutions to current issues & supporting their intelligent champions.” As Randy ably pointed out, now is the time to support conservative candidates. To that end, we will have special meet and greet candidate interviews between now and the November election. The object is to raise money and where feasible offer “boots on the ground” help to get these folks elected. We will have both email and web notices of upcoming opportunities.
I also want to thank John Dunn for his NV4CFE (Yucca) update, Tom Gurnee for his China business comments, and Jerry O’Driscoll for expanding his recent WSJ article on the balance sheet recession.
Finally Joe Morabito announced a key federal race fund-raiser for Dr. Joe Heck who is running against Dina Titus; this will be held at his home on September 24th. RSVP to Nicole at 702-614-5900 or nsarouphim@gmail.com.