Mish's Global Economic Trend Analysis

60 Minutes: Day of Reckoning Arrives; Chris Christie "It's Not an Income Problem, It's a Benefits Problem"; Six Common Sense Solutions
Asininity from Paul Krugman Regarding Money Supply and Ron Paul
New Jersey Outsources Turnpike Toll Collection; Reflections on Privatization Efforts and Public Unions in General
Sunday Funnies - Why People Don't Buy Gold

60 Minutes: Day of Reckoning Arrives; Chris Christie "It's Not an Income Problem, It's a Benefits Problem"; Six Common Sense Solutions

Posted: 19 Dec 2010 10:55 PM PST

Please watch this 60 minute interview on the crisis that states face. I have been talking about this for several years while most bloggers and nearly all of mainstream media have ignored the story. It is no longer possible to ignore the story.

Unlike the fluff interview with Ben Bernanke, Dan Kroft at 60 Minutes conducts a very hard hitting interview with Meredith Whitney, Illinois state Comptroller Dan Hynes, and New Jersey Governor Chris Christie.

Of the governors, Christie Christie stands alone in facing the problem.

Partial Transcript

California, which faces a $19 billion budget deficit next year, has a credit rating approaching junk status. It now spends more money on public employee pensions than it does on the state university system, which had to increase its tuition by 32 percent.

Arizona is so desperate it sold off the state capitol, Supreme Court building and legislative chambers to a group of investors and now leases the buildings from their new owner. The state also eliminated Medicaid funding for most organ transplants.

Then there's New Jersey. It has the highest taxes in the country, a $10 billion deficit and a depressed economy when first-year Governor Chris Christie took office. But after looking at the books, he decided to walk away from a long-planned and much-needed project with New York and the federal government to build a rail tunnel into Manhattan. It would have helped the economy and given employment to 6,000 construction workers.

Gov. Christie acknowledged that's a lot of jobs. "I canceled it. I mean, listen, the bottom line is I don't have the money. And you know what? I can't pay people for those jobs if I don't have the money to pay them. Where am I getting the money? I don't have it. I literally don't have it."

Asked if this is going on all over the country, Christie told Kroft, "Yes. Of course it is. It's not like you can avoid it forever, 'cause it's here now. And we all know it's here. And the federal government doesn't have the money to paper over it anymore, either, for the states. The day of reckoning has arrived. That's it. And it's gonna arrive everywhere. Timing will vary a little bit, depending upon which state you're in, but it's comin'."

And nowhere has the reckoning been as bad as it is in Illinois, a state that spends twice much as it collects in taxes and is unable to pay its bills.

(CBS) "This is the state of affairs in Illinois. Is not pretty," Illinois state Comptroller Dan Hynes told Kroft.

Hynes is the state's paymaster. He currently has about $5 billion in outstanding bills in his office and not enough money in the state's coffers to pay them. He says they're six months behind.

"How many people do you have clamoring for money?" Kroft asked.

"It's fair to say that there are tens of thousands if not hundreds of thousands of people waiting to be paid by the state," Hynes said.

Asked how these people are getting by considering they're not getting paid by the state, Hynes said, "Well, that's the tragedy. People borrow money. They borrow in order to get by until the state pays them."

"They're subsidizing the state. They're giving the state a float," Kroft remarked.

"Exactly," Hynes agreed.

"And who do you owe that money to?" Kroft asked.

"Pretty much anybody who has any interaction with state government, we owe money to," Hynes said.

"The state's a deadbeat," Kroft remarked.

"Yeah. I mean, the state of Illinois is known as a deadbeat state. This is a reputation that has taken us years to earn and we've reached, you know, the heights of, I think, becoming the worst in the country," Hynes said.

(CBS) "This is different, isn't it?" Kroft asked New Jersey's governor, Chris Christie.

"It is very different," Christie said. "The reason it's different is because the only choices left are choices that people previously have said were politically impossible, that you couldn't do. You couldn't cut K to 12 education funding. You couldn't do those things. They were, you couldn't talk about pension and benefit reform for the public sector unions. That were third rails of politics. We are now left with no alternatives."

"Just the third rail?" Kroft asked.

"Yeah, that's it. I'm just gonna grab it and go, and let the chips fall where they may," Christie said.

"This is unsustainable, right?" Kroft asked.

"Totally unsustainable. We have a benefit problem," Christie said. "It's not an income problem from the state. It's a benefit problem. And so we gotta change those benefits."

When one teacher told him at a public hearing, "And you're not compensating me for my education and you're not compensating me for my experience. That's all," the governor replied, "Well you know what, then you don't have to do it!"

It's a scene that is starting to play out all over the country.

"Some union leaders have suggested that you're running the state like Tony Soprano," Kroft told Christie.

"Well, as an Italian American, I take great offense to that," he replied, laughing. "Listen, you know what it is? I'm the first person to expose them for what they've been doin' to the public."

Asked if he wants the public employee unions to share the pain, Christie told Kroft, "You bet. I want them to share in the sacrifice. And this is what I say to public sector unions: 'Listen you can boo me now, but I'm the first governor who has walked into this room in ten years and told you the truth. And here is the truth. If you don't partner with me to get this done in ten years you won't have a pension.' And that's the truth."

Inquiring minds will want to play complete transcript State Budgets: The Day of Reckoning

The last paragraph in my snip above however says everything anyone needs to know.

"This what I say to public sector unions: 'Listen you can boo me now, but I'm the first governor who has walked into this room in ten years and told you the truth. And here is the truth. If you don't partner with me to get this done in ten years you won't have a pension.' And that's the truth."

Public Union Problem in a Nutshell

Here is the public union problem in a nutshell: Union members lobby vociferously for untenable wages and benefit packages. Greedy politicians willing to accept bribes to get reelected, go along. On any threat of reduction in benefits, union organizers get out the vote with massive fear-mongering campaigns promising ruin if they do not get what they want. At election time unions donate massively to candidates willing to back union sponsored agenda. Over time, school boards, city halls, and legislative bodies in general get packed with politicians accepting bribes (campaign contributions) from the unions.

If you want to see just how aggressive public unions can be, please see 15,000 Illinois Protesters Chant "Raise My Taxes"; Unions Getting More Aggressive and Obnoxious; Record Turnout in N.J. Tells Unions to Go to Hell

As a result of coercion, bribery, and thug tactics, cities go broke, counties go broke, states go broke.

What Should the Goal of Elected Officials Be?

The goal of public officials should be to provide the most amount of services for the least cost.

Unions typically offer the least services for the most cost. Unions will argue with that statement but it is very easy to prove. Put all contracts out to bid, then accept the best offer from the most qualified bidder. Let's see how many unions win the bid.

Six Common Sense Solutions

Scrap Davis-Bacon and all prevailing wage laws.
Scrap collective bargaining for public union workers entirely.
Implement national right-to-work laws.
Outsource every public sector job possible including police and fire departments to the lowest cost private sector provider.
Kill defined benefit pension plans for all new hires and for all public employees that do remain in the system.
Tax public union retiree benefits over a certain amount.

The key to solving the 3 trillion pension deficit (see Interactive Map of Public Pension Plans; How Badly Underfunded are the Plans in Your State?) are the last two points above.

1. Kill defined benefit pension plans for all new hires and for all public employees that do remain in the system.
2. Tax public union retiree benefits over a certain amount.

As a starting point I previously suggested a plan to tax 90% of public union pension retiree income over $120,000 but that is likely far too generous. $80,000 or even lower might be a better starting point.

Whatever, the number is, the beauty of my proposal is that tax proceeds collected can be fed back into pension plans to help make them solvent. In addition, my proposal would win the support of many union employees at the low end of the benefit scale. Those pensioners would then see an likelihood their retirement benefits would be guaranteed. Finally, everyone would benefit via lower property taxes.

Hard Part Is Implementation

The solution is straight forward and easy to understand. Implementation is the hard part. Union sympathizers permeate every major city in the country via the bribery, coercion, and fear-mongering tactics described above.

Please remember that public employees are supposed be "public servants". Instead their one and only mission is to raise your taxes so they can feed at the trough with pension benefits the likes of which the average person can only dream about.

That Chris Christie could get elected in spite of public union tactics tells you just how fed up with tax-and-spend policies people are. Huge pickups by Republicans, especially Republican governors, in the last election is a very encouraging sign.

However, the battle has barely begun. Please show up at school board meetings, show up at town hall meetings, and work for candidates who will stand up for taxpayers, not public union workers.

It is imperative to take on and oust from office every public union supporter in the country, town by town, county by county, and state by state, one by one. If you don't help, you have only yourself to blame for rising sales taxes, rising property taxes, and rising income taxes that most cannot afford, and unless you are a public union worker, tax hikes across the board that you probably do not support.

Please get out the message.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Asininity from Paul Krugman Regarding Money Supply and Ron Paul

Posted: 19 Dec 2010 04:08 PM PST

In an absurd series of posts, Paul Krugman struggles to define money, then criticizes Ron Paul based on a myriad of incorrect assumptions "guessing" what Paul thinks, using as proof a Fan Site, not anything that Ron Paul said.

Let's start from the beginning. Please consider Paul Krugman's post What Is Money?

What is money, anyway? It's not a new question, but I think it has become even more pressing in recent years.

The truth is that these days — with credit cards, electronic money, repo, and more all serving the purpose of medium of exchange — it's not clear that any single number deserves to be called "the" money supply.

But if you're determined to view economic affairs through a sort of paleo-monetarist lens, focused on the evils of "printing money", you're going to have a hard time in the modern world, where the definition of money is increasingly vague.

I purposely picked out sentences from Krugman's article that reasonable people might agree with. Given that Austrian economists and Austrian-minded people cannot agree on how to measure money, it's hard to quibble too loudly with the above.

Those interested in a philosophical debate might be interested in reading

This post is not about the debate as to what money is. This post is about Paul Krugman's attempt to "guess" at what Paul thinks money is, then attack that strawman.

Paleomonetarism

Krugman dives into fantasyland with his followup post Paleomonetarism

I used that term — it's probably not original, but who knows? — in a recent post about the increasingly obscure meaning of the money supply. The best example would surely be Ron Paul, who's now going to have oversight over the Fed. If you read his stuff, it's very clear: money is a well-defined quantity that the Fed controls, and inflation comes from — indeed is defined as — increases in that quantity.

What he means, I guess, is monetary base. Here's the actual relationship between monetary base and inflation:

It's also worth nothing that in normal times (not now), monetary base consists overwhelmingly of currency (bank reserves are normally very small), and the majority of US currency isn't even being held in the United States.

It's kind of terrifying, in a way, to realize that the politically dominant faction in America right now has a view of money, what it is, and how it works that hasn't been true since the early 19th century, if it ever was.

The first thing of note is Krugman's line "If you read his stuff"

Follow that link and it takes you to a Ron Paul Fan site, not anything written by Ron Paul himself. It is NOT "his stuff" as Krugman states.

Krugman goes on to say (emphasis mine) "What he means, I guess, is monetary base. Here's the actual relationship between monetary base and inflation"

Excuse me but if you are going to attack someone, should you be guessing about what they mean? Krugman then follows up with a strawman attack based on a guess, based on a something Paul did not even say.

Believe it or not, it gets worse. The article Krugman pointed to did not use the term "monetary base". In fact, the article did not even use the word "base".

Is Krugman drunk?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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New Jersey Outsources Turnpike Toll Collection; Reflections on Privatization Efforts and Public Unions in General

Posted: 19 Dec 2010 03:15 PM PST

Public unions add no benefits to taxpayers ever, only expenses. It is best not to deal with public unions, bargain with public unions, or do anything with public unions but get rid of them where they exist.

In what I expect to be a growing trend going forward, the NJ Turnpike Authority Privatizes Toll Collection.

More than 200 union members and leaders packed the New Jersey Turnpike Authority's meeting Wednesday to oppose a plan to outsource toll collectors' jobs on the Garden State Parkway and Turnpike to private contractors next spring.

"Over the years, the union has worked together to help the Turnpike solve its problems," said Franceline Ehret, president of Local 194 of the International Federation of Professional and Technical Engineers, which represents 1,200 authority employees. "We urge you to hold off putting out the request for proposal and allow us to work it out."

Ehret and other speakers said outsourcing will take what are now middle-class jobs and reduce them to minimum-wage jobs, which would negatively affect the state and local tax bases and the economy.

Authority officials said the union will have a chance to submit a proposal as a private contractor.

"The RFP (request for proposal) will go out after the new year, and we will work with the incumbent unions," said James Simpson, the state transportation commissioner and authority board chairman. "The goal is to strike a balance and get agreements that are in line with the fiscal realities."

"If privatization occurs, there will be more savings," he said. "That goes back to the taxpayers in another way, even if we're talking about cross-subsidizations. The state is in dire straights, and one of the few assets of the state is the Turnpike and Parkway."

Flawed Union Response

The statements by James Simpson, the state transportation commissioner, were short, easy to understand, easy to justify, and precise.

In contrast, the logic of Franceline Ehret was fatally flawed. The idea that outsourcing would "would negatively affect the state and local tax bases and the economy" is preposterous.

Outsourcing will put money in the hands of taxpayers where it belongs, instead of the hands of union workers with excessively high wage-benefit packages for doing nothing more than sitting in a toll both.

Thousands of people would line up for those jobs even at minimum wage. If the union wants those jobs it can bid for them.

The goal of public officials should be to provide the most amount of services for the least cost. Unions typically offer the least services for the most cost. The unions will argue with that statement but it is very easy to prove. Put all contracts out to bid, then accept the best offer from the most qualified bidder.

The same applies to garbage collection, bus drivers, all public transportation, even police and fire contracts.

There is nothing to negotiate here. Negotiation with unions is a complete waste of time and taxpayer money. The only reasonable place for negotiation is AFTER contracts are put out for bid, and always with the goal of providing the most amount of services for the least cost.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List