Tag Archives: spending

Greed and Bankruptcy

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Detroit filed for Chapter 9 bankruptcy last week when

…Emergency Manager Kevyn Orr’s attempt to reach out-of-court settlements could not overcome opposition from unions, retirees and a long list of lenders….”

Orr’s spokesman Bill Nowling had much of it right:

Pension boards, insurers, it’s clear that if you’re suing us, your response is “no.”  We still have other creditors we continue to have meetings with, other stakeholders….

But that’s only part of it.  The pensions and unions are owed the largest amount out of Detroit’s total $18 billion debt, but they’re not the only ones who were intransigent.  Bank of America and UBS AG agreed to a restructuring of the debt Detroit owed them (chump change alterations on less than $500 million of that debt), but they were nearly the only ones actually willing to deal.  Nearly all the remaining creditors each insisted, regardless of the city’s ability to pay, on holding out for their full cut, or as much of it as they could squeeze, and to hell with the rest of the creditors.

Effect of Quantitative Easing

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Martin Feldstein, Council of Economic Advisers Chairman under President Ronald Reagan, described some in a recent Wall Street Journal op-ed.

  • unemployment has declined to 7.6% from 8.2%
  • there has been no increase in the ratio of employment to population
  • no decline in the teenage unemployment rate
  • virtually no increase in the real average weekly earnings of those who are employed
  • decline in the number of people in the labor force in the past 12 months…exceeded the decline in the number of unemployed

And

The Fed’s forecast of substantial employment gains rests on the assumption that real GDP will grow by about 2.5% during the four quarters of 2013 and by more than 3% in 2014.  That would represent a substantial rise from the growth rates of less than 2% in 2012, 1.8% in the first quarter of 2013, and a likely 1.7% in the second quarter.

And

Meanwhile, low interest rates are generating excessive risk-taking by banks and other financial investors.  These risks could have serious adverse effects on bank capital and the value of pension funds.

Additionally, these moves have hurt our seniors, who depend on fixed income instruments for their income.

On the flip side, we have gained a substantially increased risk of high inflation.

In sum, cut it out.

Progressives and Taxes

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Look no further than California for the latest example of foolishness.

That state’s latest budget counts on at least $500 million from that state’s auction of carbon credits under its cap-and-trade…business…to balance its budget.

There’s a problem with that bait-and-switch…business…though.  As California’s Supreme Court ruled in its 1997 Sinclair Paint Co opinion, regulatory fees can’t

exceed in amount the reasonable cost of providing the protective services for which the fees are charged

or be imposed for

 unrelated revenue purposes.

The cap-and-trade collection, however, explicitly is a fee and not a tax—that’s how the fees were successfully assessed in the aftermath of California’s Proposition 13, which requires a supermajority in each house of the California legislature to raise taxes.

This leads to a couple of problems that would be no-brainer deal killers for anyone but a Progressive:

First, the stated purpose of the diversion: to put the monies into the state government’s general coffers in order to balance the budget, rather than to spend the money on “green” goals, which is the stated purpose of the cap-and-trade program.  The monies can’t be diverted to the general coffers.  Not legally, anyway.

Second, the diversion of the $500 million demonstrates that the state government believes the money is not needed so much for those “green” goals: the cap-and-trade fees “exceed in amount the reasonable cost of providing the protective services for which the fees are charged” by those $500 million.

Hmm….

Farm Bill Fail

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One of the more controversial provisions the Senate bill [a farm bill that will cost $955 billion if passed] covers is crop insurance.  In the past, farmers have been able to purchase an insurance safety net if their crops fail.  Under the bill, the government would kick in another $5 billion of insurance per year—bringing the total to $12 billion a year—which would cover the deductibles and cushion the blow farmers would have to pay.

And

The House version spends more money on crop insurance, but less for food stamps and conservation efforts.

No, the farm bill needs to eliminate the crop insurance aspect altogether (I’m ignoring here the food stamp wastage), not increase it or even maintain it.  Government has no business interfering with the private market, or protecting any business—including farmers—from the consequences of their decisions.  If the farmers want a safety net against crop failure—an eminently reasonable desire—they should be free to buy it on the open market from crop insurers competing for their business.

Americans, either as taxpayers or as farm customers, should not be forced to pay for farmers’ decisions except through market effects.

Deficit and Revenue

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[S]enior White House officials now say they haven’t found a sufficient number of Republican partners willing to accept the revenue increases Democrats say must be part of any compromise.

In other words, Progressives’ “compromise” is for the opposition to go along with their demands for more revenue.  Never mind that revenue questions are no part of the deficit or of the resulting debt.

The shrinking of the deficit, although still too large and at any size contributory to our debt, results from already increasing revenue to the government.  The increased revenue, though, comes not from tax increases (the payroll tax holiday expiration goes to the Social Security System, not to the general Treasury, and the tax increase on those making over $400,000 totals to chump change compared to any year’s deficit) but from the slowly improving economy.  Thus, Progressives’ increased tax rates aren’t necessary to increase revenues to the government.

Spending cuts are what are needed to eliminate the deficit and so to start paying down the debt.  This graph, from The Wall Street Journal, illustrates the matter:

Revenue is up, even in Obama’s hindered recovery, but spending is up more in the projection.  The economy is producing the revenue needed (eliding the question of needing even that much); government needs to do its part and cut spending.  Drastically.