Tag Archives: spending

Detroit and the Nation

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In Detroit’s bankruptcy filing, Michigan Governor Rick Snyder (R) included a letter outlining his reasons for his approval of the filing.  Here are some of them [emphasis added].

  • The City’s unemployment rate has nearly tripled since 2000 and is more than double the national average.
  • Its citizens wait an average of 58 minutes for the police to respond to their calls, compared to a national average of 11 minutes.
  • The City’s police cars, fire trucks, and ambulances are so old that breakdowns make it impossible to keep up the fleet or properly carry out their roles.
  • The City has more than $18 billion in accrued obligations.
  • Detroit tax rates are at their current legal limits, and that even if the City was legally able to raise taxes, its residents cannot afford to pay additional taxes. Detroit simply cannot raise enough revenue to meet its current obligations….
  • The City’s population has declined 63% from its peak, including a 28% decline since 2000.
  • A decreasing tax base has made meeting obligations to creditors impossible.

Horribly high expenditures against a tax system that’s already very expensive for the citizens has driven Detroit into the ground and forced restructuring through bankruptcy.

What are the implications for the nation as a whole?

On the one hand, bankruptcy—legal bankruptcy—is not an option for the US.  Nations have no bankruptcy system available to them; all a bankrupt nation can do is to repudiate its debts or debase its currency, repaying with devalued (dollars)—to repudiate its debts through subterfuge.

Here lies the United States: we have horribly high expenditures (see Obamacare, Medicare, Medicaid transfer payments, Social Security, Federal public service union pensions, Stimulus spending, etc) against a tax system that is hammering the paying population into the ground while, by design, excluding half the tax base from tax obligations.   This combines to create on the national level massive annual deficits, exploding national debt, and increasing costs to borrow (presently low, Bernanke’s artificially suppressed interest rates will not be able to stop the market’s assessments of our national creditworthiness).

Detroit is the future of the United States under our current policies.  In that light, notice the loss of population as Detroiters fled the disaster—28% of its people just since 2000.  As our national disaster unfolds—unless we move to terminate our Federal government’s destructive policies and put aside our own disdain for work and responsibility—where will Americans go?

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.