Tag Archives: political economy

The Next Democratic Party Government Shutdown

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…is shaping up.  Never mind that a budget deal might actually otherwise be beginning to come together; many in the Democratic Party leadership are perfectly willing to shut down the government if they don’t get their way.  Again.

And in so many words.  House Minority Whip Steny Hoyer (D, MD) opposes even a continuing resolution to keep government funded if it doesn’t address the existing sequestration cut schedule.  But he won’t offer spending cuts elsewhere to offset them—just increase the damned spending.  House Minority Leader Nancy Pelosi (D, CA) has said she’ll oppose any sort of budget deal that doesn’t include an extension to unemployment benefits to pay folks for not working (which also is her tacit admission that President Barack Obama’s economic policies have been a dismal failure these past five years).

The House Democratic Party leadership’s colleagues in the Senate, where any deal can be blown up and the government shut down by the Democrat majority, are being cagily silent.  Here it comes.

Another Failure of Modern Liberalism

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Illinois has a deeply bankrupt pension system—it’s in the hole by $100 billion: a state is in the hole by $100 billion, not a nation—a pension system that’s the worst off in the country.

Their solution?  A bill just passed that in total is claimed to save $160 billion over 30 years and fully fund the systems by 2044.  That’s a bit over $5 billion a year on that $100 billion arrearage.  And it naively, if not cynically, assumes that future state legislatures won’t change the thing for all of those 30 years.

Some specifics, with my comments: the bill

  • pushes back the retirement age for workers ages 45 and younger, on a sliding scale

Why a scale?  20 years to a nominal retirement at 65 is plenty of time for workers to adjust plans.

  • replaces annual 3% cost-of-living increases for retirees with a system that provides the increases on a portion of benefits, based on seniority

Why freeze the COL?  If there’s to be one, why not tie it to inflation?  Today’s inflation is in the neighborhood of 2%-2.5%. Larger COLs aren’t necessary.

  • gives some workers the option of freezing their pension and starting a 401(k)-style defined contribution plan

Why only some?  Why not move them all to 401(k) type plans?  The private sector recognized the usefulness of such plans decades ago, and they make the workers more responsible for their own futures, instead of having government usurp that responsibility.

  • has workers contributing 1% less to their own retirement

So workers will become even less responsible for their own futures than they were.  Oh, wait—those plans….

Don’t expect this to have any effect on Illinois’ failed system other than to allow it to get worse.

A Thought on some Taxes

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Romain Hatchuel, Square Advisors LLC Managing Partner, has an excellent op-ed in The Wall Street Journal, but I want to comment on one small part of it:

In his November investment commentary for bond giant Pimco, [billionaire investor Bill] Gross asks the “Scrooge McDucks of the world” to accept higher personal income taxes and to stop expecting capital to be taxed at lower rates than labor.

Gross is right, partly.  The use of tax code to effect social engineering does not achieve the goals of the “engineering” effort, but it does effect coarse distortions in a free market.  These distortions range from slanting business decisions toward (or away from) debt according to the differential ways in which debt interest and capital gains are taxed; they impact individual investment decisions according to the way debt interest, capital gains, or dividends are taxed; they even distort the price (and so availability) of housing according to the way in which mortgage debt interest is taxed.

Capital should not be taxed at a lower rate than labor.  Businesses should not be assessed tax at all—the ones who actually pay those business taxes, after all, are the final customers—us—as that tax bill-as-cost-center gets figured into the prices charged.  Nor should there be deductions, credits, etc on individual income, with or without variation according to the source or amount of income.

Contra Gross, though, a single, low flat rate that every individual pays on the total of that individual’s income would achieve a market neutral tax that would impose the minimum of distortion on the market even from the tax’s existence (a 10% rate that everyone with an income pays even would represent a significant increase in total revenue to the Federal government).

Banking Regulations

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Are they anti-bank?  They’re certainly in the way of getting new organizations into the banking business.  The total number of banks in the US has fallen from a peak over 18,000 to under 6,900 this year.  The first new bank to be Federally chartered since December 2010 [sic], the Bank of Bird-in-Hand in Bird-in-Hand, PA, opened last week after spending 7 months in charter Hell working on getting permission to open.  Here’s a sample of what BiH had to go through to be allowed to operate as a private business.

  • [T]he backers behind the Bird-in-Hand group raised about $17 million from investors.
  • Brent Peters, Bank of Bird-in-Hand CEO, estimated the group spent about $800,000 in preparing its application for a new charter
    • consulting and legal fees
    • rent on a temporary office
    • salaries of top managers, four of whom were on the payroll one month before the bank won FDIC approval
  • [L]ay out internal policies and procedures in detail
  • [S]pecify the systems in place to, for example, guard against cyberattacks
  • Paid consultants analyzed the local lending market and the feasibility of opening a bank there
  • The FDIC interviewed senior management and contacted banks competing nearby

All that because the feasibility of doing business and that business’ internal practices are for government to determine, not that business.

Government asks competitors what they think because competitors get a voice in whether a new bank should be allowed to operate in their territory.

Sounds pretty anti-bank to me.

Union Leadership Greed in Illinois

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Details of a plan reached last week appear to show [Illinois] state legislative leaders are attempting to solve Illinois’ $100 billion pension crisis in part by changing workers’ retirement age, reducing automatic pension increases, and limiting their collective-bargaining privileges.

Public union leadership disagrees with this, though, and they’re turning on that Democratic Party leadership.  These union leaders consider carefully selected and targeted Democrats to be “persuadable,” and these unionists are going to do some “persuading.”

Never mind that the plan will save roughly $160 billion over 30 years, according to Governor Pat Quinn (D) and the leaders of the Democrat-controlled State Assembly.

Illinois’ public sector union leaders object to their unions paying their fair share.  They have theirs, and to Hell with anyone else, to Hell with the fact that Illinois is bankrupt in every way but the filing.  Pay up, suckers.