Constant Conservative

In the midst of the cover article at Business Week comes this bit from someone trying to make it as a businessman in Greece:

Stefanos Manos applauds the recent decisions to cut wages and raise taxes but believes more drastic measures are needed. “The average pay is two and a half times the pay in the private sector,” he says. In his view, more must be done to create a competitive environment. “In Greece, you cannot rent a little truck to move your refrigerator,” Manos says. “Why? To protect the truckers. You have to hire a trucker. You have to get a parking permit. If you sell your house, both parties have to have a lawyer—by law—to participate in the transaction, and they’re guaranteed a percentage of it. If I want to give my house to my son, both he and I have to have lawyers. If Coca-Cola (KO) wants to take out an advertisement during a news program on TV, a percentage of it [20 percent] goes toward a pension fund for journalists. They have so much money in there that journalists don’t even know or care how much money they have!”

Then there are the bribes. “Lawyers know that when a tax collector comes, he will ask for a bribe. Doctors, too. But that tax collector has a job for life. A surgeon at the state hospital expects something on the side,” Manos says. “Otherwise, you can get your operation in six months or more.”

We’ve already seen that average pay and other compensation for federal employees is twice that of the same positions in the private sector. The rest of the things he’s saying also have their parallels within our country.

If we are helping to bail out Greece (and we are) who in this universe is going to bail us out? Greece is not the only place that needs some drastic measures. May we see the writing on the wall before the whole wall comes down on top of us.

The piper will be paid. Of that there is no doubt. Thune’s attempt to stop avoiding reality has failed:

The chamber voted 57-41 to let stand a budgetary point of order against a GOP alternative amendment to the American Jobs and Closing Tax Loopholes Act. The point of order essentially blocks the amendment, offered by Sen. John Thune, R-S.D., which sought to avoid $113 billion in spending, partly by freezing federal employees’ salaries, eliminating their bonuses and collecting their unpaid taxes. It also would have held the number of government workers at current levels, and rescinded $38 billion in unobligated stimulus funds.

“The alternative amendment I proposed was a common sense step toward restoring fiscal sanity to our nation’s runaway spending and ballooning deficit,” Thune said after the vote. “The defeat of my amendment was a missed opportunity for Congress to prove they are serious about tackling our dangerous spending habits and $13 trillion national debt. This amendment would have lowered taxes for families and small businesses as they struggle through these challenging times.”

Hmm. Federal employees have unpaid taxes? You could have fooled me.

During debate of the amendment, Delaware Democratic Sen. Ted Kaufman chastised the Republicans, saying they were using incorrect information on federal pay to scapegoat hardworking employees.

“Over the years, as I’ve witnessed countless acts of personal courage, devotion to country and real sacrifice” by federal employees, Kaufman said. “I have also seen and heard such disheartening and baseless attacks against those who choose to serve. The pending amendment is just the latest assault.”

Kaufman said it has become too common for politicians to criticize Washington by “defaming” civil servants.

“Now is not the time to talk about laying off federal workers, or freezing their pay,” he said. “We should be talking — seriously and on this floor — about how to invest in recruiting the next generation of federal employees.”

Really? We are using “incorrect information on federal pay.” Too bad such information was provided by the government and tells us that the average federal employee does very, very well in both pay and non-pay compensation. Let me tell you, Senator Kaufman, those who work for the federal government do not “serve” in numbers any higher than those in the private sector. This may have been the case at one time, but it is no longer true.

We do not need to work on the next generation of federal employees. We need to work on shrinking the current generation.

Once upon a time, a number of senators were concerned that there might be more Enrons just waiting to happen. As a result, they passed a bill called after the two main senatorial sponsors. Sometimes, like the non-winning ball team from Chicago, the law is just called “SOX.”

Now, a number of senators are concerned that, well, I think they are concerned that business is not sufficiently regulated to remove all investment risk, or something like that. So they passed a new bill. John at Power Line is wondering what happened:

By the way, speaking of reform measures, have you heard much about Sarbanes-Oxley lately? Wasn’t that “reform” supposed to clean up Wall Street? To my knowledge, every expert in the field says that the net effects of Sarbanes-Oxley have been negative. Is there any reason to expect anything better from the current package?

I believe that last question to be rhetorical, but in case it is not I’ll say “No” as in “No, I do not have any reason to expect the current package to provide anything more than SOX has”–which has been a whole raft of new regulations which require business to fill out more paperwork, get more audits, add up more columns and for what?

I worked closely with accountants and auditors for a little over a year when SOX first came out. I documented hundreds of processes and worked to ensure that we dotted all the i’s and crossed all the t’s. For what? Well, the auditors and I got paychecks. The accountants got a lot more forms to fill out–at the same time they were trying to make more money for the business. The company’s customers got all the costs passed on to them in terms of increased costs and Congress got to rest on its laurels thinking that all was well and Kenneth Lay could no longer disturb the well-earned rest of the American investor.

Anyone who does not understand that the federal government is using this bill to further tighten its control over American businesses to the end that the government chooses the winners and losers–and does not allow the market to do so–is remarkably disengaged from reality.

GM (aka General Motors) made a big splash a few days ago when its CEO claimed that it was paying off its taxpayer funded loan early. However, as Scott at PowerLine notes, we need the rest of the story:

The [Washington] Times gets comments from Obama administration officials on TARP Inspector General Neil Barofsky’s statement that the funds with which GM paid off its government loan (putting to one side the $50 billioin or so the government has sunk into GM equity and the guarantee it provided to GM’s pension plans) were mostly TARP funds:

General Motors lost $3.4 billion in the fourth quarter of 2009 and is still struggling to reorganize so the company can try to eke out a profit. This grim reality didn’t stop GM from making hay last week for supposedly paying back a $6.7 billion government loan five years ahead of schedule. What was left unsaid was that the automaker used another kitty of taxpayer cash to pay off the earlier government loan. This is an accounting shell game, not progress.

Previously unreleased documents supplied to The Washington Times reveal that GM specifically used funds it received from the Troubled Asset Relief Program to pay off the government loan. According to Neil Barofsky, the special inspector general for TARP, $4.7 billion of $6.7 billion – 70 percent – of what GM paid back came from TARP money the company received. “The one thing a lot of people overlook with this is where they got the money to pay the loan,” Mr. Barofsky told Fox News’ Neil Cavuto on Wednesday. “It isn’t from earnings.” The numbers are based on a quarterly report Mr. Barofsky’s office provided to Congress last week.

This is roughly equivalent of me having two lines of credit with the bank. One of them is for a car loan. The other is a home equity line of credit. I take money out of the home equity line of credit and use it to pay off the car loan, then announce to all of my friends that I’ve paid off my car loan early and we can all go out to celebrate. Did I pay off the loan? Yes. Did I mislead my friends by failing to explain that I’m still indebted just as much as previously? Absolutely.

Now, I understand my example is not entirely parallel, but I don’t think it is that far off.

On a personal level, we are replacing my current get-to-work-and-back automobile. GM and Chrysler did not factor into the discussion of possible replacements–not because they do not have some good vehicles, but because of the advantage which they took of the American taxpayers. While I am not a “Buy America Only” advocate, primarily because it is nearly impossible to encourage the market with such a stance, it is likely that I’ll be buying a Ford. There are a couple of reasons, but one is to say “Thank you for taking care of your business without asking me to bail you out, too.” Are they a perfect company? Far from it. But I can support what they are trying to do.

The Wall Street Journal takes a look at the so-called “Cash for Clunkers” program a month after it came to a close.

So, how did it do?

Did the program create demand for new vehicles?  No:

Transportation Secretary Ray LaHood declared in August that, “This is the one stimulus program that seems to be working better than just about any other program.”

If that’s true, heaven help the other programs. Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%. Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted.

But the program helped to stimulate the economy, right?  No:

Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer.

The basic fallacy of cash for clunkers is that you can somehow create wealth by destroying existing assets that are still productive, in this case cars that still work.

The government had no other choice but to do something radical.  Nothing like this has been tried before.  Actually, it has:

In the category of all-time dumb ideas, cash for clunkers rivals the New Deal brainstorm to slaughter pigs to raise pork prices. The people who really belong in the junk yard are the wizards in Washington who peddled this economic malarkey.

The key to any recovery is the creation of wealth.  Government cannot create wealth.  It can only transfer wealth.  In this case, the government transferred future wealth (in the form of debt or inflation) to the present and managed to make us $1.4billion poorer in the process.  Wealth is created by the market, but only if left alone to do so.  Our government needs to stop meddling in a system it can’t possibly help.

The title of an AP story posted on the Argus Leader site proclaims, “Cash for Clunkers ends under its $3 billion budget.”

Hooray!  A government program ended under budget!  Well, not exactly.

It actually ended 3 times OVER its original budget.  The program was originally allocated $1 billion, but blew through that in about a week.  In response, Congress approved spending another $2 billion of the public’s money that doesn’t exist to keep the program going a few weeks longer.

Imagine that your clunker is having engine problems.  You budget $1000 cash for repairs.  You drop it off at the mechanic, but he calls you later saying he thinks it’s going to cost $3000.  Later, you go in to pick up your vehicle and the bill is “only” $2900.  Is that coming in under budget?

My analogy above isn’t perfect.  In the analogy it is clear that something was accomplished in spite of the costs; your broken clunker was repaired.  But, with the “Cash for Clunkers” program, touted to boost the economy while lowering carbon emissions, it’s hard to say if anything beneficial was achieved.

This program didn’t create any new demand for cars.  It only shifted inevitable purchases forward.  In the near term expect new car purchases to stagnate, and we’ll be back to where we started.

If the government was serious about reducing emissions it wouldn’t have wasted our money on the “Cash for Clunkers” program which may only provide negligible effects.  For example, it could have used the $3 billion to buy 3 (at least) existing coal plants and shut them down permanently.  Or, it could have built a couple of no-emission nuclear plants and ran them cleanly for decades.  Either way it could have gotten much more bang-for-the-buck in reducing emissions by pursuing other options.

“Cash for Clunkers” was a poorly conceived program which failed to achieve any lasting benefits and was successful only in dragging our country $3 billion deeper in debt.

*Your actual results may vary.

Why select the automobile as the object of our affections?

Start with the focus on cars. What strange, narrow-minded obsession with the internal-combustion engine made Congress only pay people to buy new automobiles? Why aren’t they paid to buy appliances, TVs, and sofas? To go out to eat, and to buy business suits, blue jeans, and lingerie? Are all of these consumer activities inherently less worthy than trading in a 1999 Dodge Caravan for a Chevy Cobalt?

Of course, whether it is cash for clunkers or Benjamins for blue jeans, it comes down to a generational Ponzi scheme. Those who get in now may not have to pay (and may in fact benefit, on the surface). However, their children and grandchildren will be footing the bill for many years after that Cobalt has retired to the junkyard.

From the much misunderstood Claire McCaskill:

We simply cannot afford any more taxpayr $ to extend cash for clunkers. Idea was to prime the pump, not subsidize auto purchases forever.

Ma’am, have you ever, in all your time in office, seen a subsidy stop?

By the way, if you prime a pump, only to find that there is no water in the cistern, you must keep priming the pump to see any kind of fluid flow.

On the topic of health care, we have the following from Bob Burg:

In fact, the Pro-Universal Crowd has done a brilliant job of framing a false argument:

“Do we stick with a Free-Market Healthcare system which is not working?”

or…

“Do we at least do something to try and help; for example, go to a system of Universal Healthcare?”

And (anti-Constitutionality aside), that question would make sense, except…

WE DON’T CURRENTLY HAVE A FREE-MARKET BASED HEALTHCARE SYSTEM. (Sorry for shouting but has nobody noticed that??!!)

Actually, we haven’t had a market-based healthcare system in over 50 years. When we did, it worked magnificently well for everyone, including the financially disadvantaged. Only after government first inched its way in and then eventually controlled nearly every aspect of it did we find ourselves in the predicament we are currently in, with the masses now asking the government to solve the very problem they created (I can’t think of anything more nonsensical).

He’s absolutely right. A system which has some remnants of a free market approach is not not free any more than a barn which has some remnants of that 20-yr-old paint is properly considered painted. As Mr. Burg notes further down in the piece, there are more than 135,000 pages of health care regulations–leading  us to believe that maybe the market is seriously constrained (the opposite of free).

I am reminded how much this argument on the part of the President and his supporters is part and parcel of the argument that was given for bailing out taking over financial institutions (and yes, I know that GW Bush had previously said much the same thing). That argument was this: It is obvious that the free market is not working, so we have to do away with it in order to save it.

Mr. Burg’s thoughts would apply to that scenario as well. WE DIDN’T HAVE A FREE MARKET WITH REGARDS TO BANKING/FINANCIAL INSTITUTIONS. We had the remnants of a free market, eroded by generations of regulation and government oversight. So, to tell us that the free market did not work is to tell us that the barn had been painted at one point in the past and it was therefore the fault of the paint that the rain got in. This leaves out the understanding that markets, like everything else in our universe, are subject to the law of entropy.

A free market is, practically speaking, a productive market. People of all stripes are attracted to productive (read “moneymaking) markets. Desires to take over the market, direct the market, make the market do different things than it is currently doing are all part of the dynamics of the market. The problem arises when a government entity is able to do all of the above because it has given itself the power of life and death over the market. As noted in a previous post, capitalism will still be there, because that tends to be the best approach for people who wish to transact business; however, it can be subjugated to the point that it is too dangerous for all but the foolhardy to engage in unsanctioned commerce (black markets).

This post may well be a bit on the dry side, but I decided to work on it after reading that California has in excess of 2 million public employees. This gave me cause to wonder at the background for this large number.

A few notes before I dig in. Employment data is from 2007 and is largely taken from the US Census estimates of that year (the latest year for which full estimates are available). Other data is also from 2007, unless otherwise noted (links for these sources is provided with the corresponding data). Due to the nature of things, all the numbers may not come from the same point in the year; however, if you  keep in mind that estimates are just that, I believe the overall conclusions are supported from the available data.

In 2007, California had the following:

• 36.2 million (population)
• 18.2 million (civilian labor force seasonally adjusted)
• .387 million (state FTE)
• 1.448 million (local FTE)

Breaking it down, we have a non-military labor force which is just a hair more than 50% of of the total population. In addition, we have roughly 1.8 million full-time-equivalent positions which are filled at the state and local levels in government positions.

Comparing those two numbers, we determine that 10% of all the employees in the state work for some government entity at the state or local level. This does not take into account part-time employment or federal employment (which would drive the number even higher).

Given all this, is it any wonder that it is a big deal in California when the state declares that it will go bankrupt unless something is done to stop the madness?

Unemployment in California was at about 11% as of April 2009. My understanding, however, is that most of this is in the private sector with very few state/local employees out of work. Receiving IOUs instead of paychecks? Perhaps. Out of work? Not yet.

As more than one person has mentioned, Californians seem to like their government services, but do not so much enjoy paying for them. Based on the recent referendum on financial measures, it would seem as though a number of public employees may be joining their private sector compatriots in the unemployment lines.

Once-strong GM has just reported that it lost $6 billion for the first quarter of 2009. Here’s the article from the Detroit Free Press:

Worldwide, GM’s revenues from January through March were down nearly 50% compared to the same period a year ago. Revenue fell to $22.4 billion and was largely attributed to GM’s decision to produce 903,000 fewer cars and trucks.

The struggling Detroit automaker is staying afloat on $15.4 billion in federal loans and faces a June 1 deadline to restructure its debt outside of court or else face bankruptcy.

I had heard elsehwere that a top GM executive was saying that news of impending bankruptcy was what had hurt the company’s sales. However, I wonder if the government bailout didn’t cause just as many people to not buy GM (out of principle) as those who were afraid that White House Automotive Repairs, Inc. would not be able to handle all of the warranty work?

Unfortunately, those numbers (why people didn’t buy GM last quarter) may be difficult to accurately collect and parse.

Here is hoping that GM goes into (and out of bankrupcty) instead of limping along on more of your and my future earnings.

Context is critical. Here is some video context for the much ballyhooed $100 million federal budget cut.

The other comparison I’ve heard is that this sum of money is about what the federal government will spend in 13 minutes (assuming an even expenditure of money every minute of every day of the entire budget year). There you have it: an unknown number of government bureaucrats will spend some portion of 90 days figuring out how not to spend 13 minutes.

HT: Fastidious