Economic Inequality and Taxes

April 23rd, 2012

On April 16th, the New York Times ran an article on United States tax policy and economic inequality in America as observed by two leftist French economists.

As outlined below, there were a number of facts that the NYT and Frenchmen excluded from their reporting and analysis. In their stead were numerous specious explicit and implicit claims.

Invalid assumption #1: Deficits are a taxing problem

• Versus 2000 (before “Bush tax cuts”), 2011 total tax fed tax receipts are up 48%
• Versus 2000, 2011 total fed spending is up 100%
• Versus 2000, 2011 GDP is up 50%
• These are the facts. The problem is spending.

Invalid assumption #2: Government is better at allocating resources than markets

• Allocating capital efficiently creates value, grows the economy, creates new technologies and inventions and creates jobs.
• Not allocating capital efficiently destroys value directly and indirectly by depriving the world of those benefits.
• There are two ways to allocate resources: government and markets.
• Inherent in the decision to tax is the decision to chose for government to expropriate and then allocate resources.
• There’s a plethora of real world data on the performance of government vs market allocation of resources. Compare the track records of statist nations to relatively free nations. Compare the performance of government programs and entities to private enterprise. The relative success of free markets to central governments is not open to debate.
• Momentarily setting aside the empirical data and history, take logic. How can the group of people in a central government ever begin to outsmart or out maneuver a market of hundreds of millions of individuals, millions of groups, hundreds of thousands of enterprises. It’s impossible. The central group loses on innovation. It loses on talent. It loses on speed. They don’t have a chance.
• That’s why a billion people ate dirt and rode bicycles in Red China for decades while they suffered under 5 year plans and now as China toys with freedom and free markets, Chinese begin to drive cars and eat steak.
• That’s all true before even considering corruption. The hell with absolute power. Power corrupts. Period. It’s everywhere. GSA. Solyndra. Secret Service. Charlie Rangel. Anthony Weiner. The Barnes Foundation.

Invalid assumption #3: America has classes – “the rich”

• America does not have castes, trade guilds, or other societal structures that materially and universally prohibit success and accumulation of wealth.
• Americans regularly move from rich to poor and poor to rich.
• This is one of the reasons why Americans who are not “rich” oppose (more) soaking of the rich. Americans know they have the opportunity to succeed and earn high incomes and a great many aspire to do so and indeed will. They don’t want to establish high tax rates today that they will be coerced into paying tomorrow.

Specious claim #1: Redistributing wealth will elevate the poor

• We’ve been doing this for generations now. We have 50 million people on food stamps today.
• Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime. This isn’t a secret.
• We’re literally giving people $2 trillion a year worth of fish. It’s not working.

Specious claim #2: Redistributing wealth will grow the economy

• With this tax hike, the plan is to take more resources from the most productive – the individuals who create – and give more to people who do not create. Literally, that’s the plan – to destroy more value.
• Obviously, destroying value does not grow the economy and does not create opportunities for anybody – the poor included.
• We’re already reallocating $2 trillion a year (13% of GDP). Implicit in the statists’ argument is that’s not enough; we’ll all achieve “success” if only we have a few hundred billion more to transfer.
• Could you imagine what would happen if an additional $2 trillion a year were instead invested by the free market? What would the labor force participation rate and wages be (and inflation)?

Specious claim #3: Income disparity caused the Great Depression

• I was on the train recently and sat next to a woman who worked for an “Occupy” group. She claimed an absence of labor unions and low wages caused the Great Depression (AFL formed in 1880s).
• Statists rely on ignorance because they cannot rely on facts. The facts prove them wrong. Cuba fights the Internet and North Korea is an information vacuum because their successful statists know that the facts would literally get them killed.
• I don’t remember the exact figures, but the Fed shrank the money supply by something like 30%, the feds massively raised taxes and passed the Smoot Hawley tariff. A credit cycle caused a recession. The government caused the Great Depression. Foregoing a discussion of the latter two colossal mistakes, let’s just quickly take the Fed’s part. GDP = Money Supply (M) x Velocity of Money (V). V drops in recessions (especially credit induced ones). Ignoring that, by itself, the Fed’s shockingly embarrassing decision to destroy M would have tanked GDP by 30%. 30%! That’s the math. These facts are not open to debate or interpretation.
• Income disparity had absolutely nothing to do with the cause of the Depression. Period.

Specious claim #4: The rich don’t pay their “share”

• The top 1% of income earners earn 20% of income and pay 38% of income taxes.
• The bottom 50% of income earners earn 13% of income and pay 3% of income taxes.

Specious claim #5: Success prevents success

• How does the success of the rich person prevent success of the poor? Conversely, how does restricting success of the former create success for the latter?
• These are not gratuitous rhetorical questions. I do not understand this.
• All I can come up with is Marx’s surplus-value argument. Marx was wrong. Soviet Union, Red China, North Korea, Cuba. China succeeds today as it introduces free markets, freedom, and capitalism. Marx was wrong.
• Economics is not a zero sum gain. It’s not about slicing the pie. It’s about growing the pie. One person’s creation of wealth creates new opportunities for other people. What does the rich person do with his wealth? He doesn’t swim in it like Scrooge McDuck. He invests it or spends it.
• Google employees don’t complain about their chains or bemoan Page and Brin’s astronomical wealth. They cash out their options and strike out on their own to create new companies and new jobs. Opportunity begets opportunity. Government begets government.

To me, this about two things. The first is politics. Obama is using this as a diversion to distract from his failed policies. He can’t run on 8%+ unemployment (more to the point, the lowest labor force participation rate since the 80’s recession), $1 trillion deficits, 2% GDP growth, and falling home prices. Instead, he riles people up to hate a minority. He’s using the rich as a scapegoat and in creating the scapegoat, he’s vilifying the de facto protectors of the scapegoat. The second thing this is about is power. The “rich” have power that threatens the statists’ desire to hold the individual subordinate to the government. Expropriating the resources of the “rich” for its own, the government and the statists increase their power.

That all said, sure, we should of course be concerned about those who could be doing better. It is in fact on their behalf that many of us watch the dark comedy of the statists with disgust. While those Americans who are successful live not as well as they could and should because of the statists, it is the American poor and the less capable who are most fully affected by statist policies and who in turn suffer the most.

WSJ Global Warming Op-Ed Series: Hey Malthus, Pass the Ice Water

February 24th, 2012

Published in Wall Street Journal FEBRUARY 21, 2012.

Concerned Scientists Reply on Global Warming

The authors of the Jan. 27 Wall Street Journal op-ed, ‘No Need to Panic about Global Warming,’ respond to their critics.

Editor’s Note: The authors of the following letter, listed below, are also the signatories of “No Need to Panic About Global Warming,” an op-ed that appeared in the Journal on January 27. This letter responds to criticisms of the op-ed made by Kevin Trenberth and 37 others in a letter published Feb. 1, and by Robert Byer of the American Physical Society in a letter published Feb. 6.

The interest generated by our Wall Street Journal op-ed of Jan. 27, “No Need to Panic about Global Warming,” is gratifying but so extensive that we will limit our response to the letter to the editor the Journal published on Feb. 1, 2012 by Kevin Trenberth and 37 other signatories, and to the Feb. 6 letter by Robert Byer, President of the American Physical Society. (We, of course, thank the writers of supportive letters.)

We agree with Mr. Trenberth et al. that expertise is important in medical care, as it is in any matter of importance to humans or our environment. Consider then that by eliminating fossil fuels, the recipient of medical care (all of us) is being asked to submit to what amounts to an economic heart transplant. According to most patient bills of rights, the patient has a strong say in the treatment decision. Natural questions from the patient are whether a heart transplant is really needed, and how successful the diagnostic team has been in the past.

In this respect, an important gauge of scientific expertise is the ability to make successful predictions. When predictions fail, we say the theory is “falsified” and we should look for the reasons for the failure. Shown in the nearby graph is the measured annual temperature of the earth since 1989, just before the first report of the Intergovernmental Panel on Climate Change (IPCC). Also shown are the projections of the likely increase of temperature, as published in the Summaries of each of the four IPCC reports, the first in the year 1990 and the last in the year 2007.

These projections were based on IPCC computer models of how increased atmospheric CO2 should warm the earth. Some of the models predict higher or lower rates of warming, but the projections shown in the graph and their extensions into the distant future are the basis of most studies of environmental effects and mitigation policy options. Year-to-year fluctuations and discrepancies are unimportant; longer-term trends are significant.

Making Chicken Little look like an expert forecaster

Making Chicken Little look like an expert forecaster

From the graph it appears that the projections exaggerate, substantially, the response of the earth’s temperature to CO2 which increased by about 11% from 1989 through 2011. Furthermore, when one examines the historical temperature record throughout the 20th century and into the 21st, the data strongly suggest a much lower CO2 effect than almost all models calculate.

The Trenberth letter tells us that “computer models have recently shown that during periods when there is a smaller increase of surface temperatures, warming is occurring elsewhere in the climate system, typically in the deep ocean.” The ARGO system of diving buoys is providing increasingly reliable data on the temperature of the upper layers of the ocean, where much of any heat from global warming must reside. But much like the surface temperature shown in the graph, the heat content of the upper layers of the world’s oceans is not increasing nearly as fast as IPCC models predict, perhaps not increasing at all. Why should we now believe exaggerating IPCC models that tell us of “missing heat” hiding in the one place where it cannot yet be reliably measured—the deep ocean?

Given this dubious track record of prediction, it is entirely reasonable to ask for a second opinion. We have offered ours. With apologies for any immodesty, we all have enjoyed distinguished careers in climate science or in key science and engineering disciplines (such as physics, aeronautics, geology, biology, forecasting) on which climate science is based.

Trenberth et al. tell us that the managements of major national academies of science have said that “the science is clear, the world is heating up and humans are primarily responsible.” Apparently every generation of humanity needs to relearn that Mother Nature tells us what the science is, not authoritarian academy bureaucrats or computer models.

One reason to be on guard, as we explained in our original op-ed, is that motives other than objective science are at work in much of the scientific establishment. All of us are members of major academies and scientific societies, but we urge Journal readers not to depend on pompous academy pronouncements—on what we say—but to follow the motto of the Royal Society of Great Britain, one of the oldest learned societies in the world: nullius in verba—take nobody’s word for it. As we said in our op-ed, everyone should look at certain stubborn facts that don’t fit the theory espoused in the Trenberth letter, for example—the graph of surface temperature above, and similar data for the temperature of the lower atmosphere and the upper oceans.

What are we to make of the letter’s claim: “Climate experts know that the long-term warming trend has not abated in the past decade. In fact, it was the warmest decade on record.” We don’t see any warming trend after the year 2000 in the graph. It is true that the years 2000-2010 were perhaps 0.2 C warmer than the preceding 10 years. But the record indicates that long before CO2 concentrations of the atmosphere began to increase, the earth began to warm in fits and starts at the end of the Little Ice Age—hundreds of years ago. This long term-trend is quite likely to produce several warm years in a row. The question is how much of the warming comes from CO2 and how much is due to other, both natural and anthropogenic, factors?

There have been many times in the past when there were warmer decades. It may have been warmer in medieval times, when the Vikings settled Greenland, and when wine was exported from England. Many proxy indicators show that the Medieval Warming was global in extent. And there were even warmer periods a few thousand years ago during the Holocene Climate Optimum. The fact is that there are very powerful influences on the earth’s climate that have nothing to do with human-generated CO2. The graph strongly suggests that the IPCC has greatly underestimated the natural sources of warming (and cooling) and has greatly exaggerated the warming from CO2.

The Trenberth letter states: “Research shows that more than 97% of scientists actively publishing in the field agree that climate change is real and human caused.” However, the claim of 97% support is deceptive. The surveys contained trivial polling questions that even we would agree with. Thus, these surveys find that large majorities agree that temperatures have increased since 1800 and that human activities have some impact.

But what is being disputed is the size and nature of the human contribution to global warming. To claim, as the Trenberth letter apparently does, that disputing this constitutes “extreme views that are out of step with nearly every other climate expert” is peculiar indeed.

One might infer from the Trenberth letter that scientific facts are determined by majority vote. Some postmodern philosophers have made such claims. But scientific facts come from observations, experiments and careful analysis, not from the near-unanimous vote of some group of people.

The continued efforts of the climate establishment to eliminate “extreme views” can acquire a seriously threatening nature when efforts are directed at silencing scientific opposition. In our op-ed we mentioned the campaign circa 2003 to have Dr. Chris de Freitas removed not only from his position as editor of the journal Climate Research, but from his university job as well. Much of that campaign is documented in Climategate emails, where one of the signatories of the Trenberth et al. letter writes: “I believe that a boycott against publishing, reviewing for, or even citing articles from Climate Research [then edited by Dr. de Freitas] is certainly warranted, but perhaps the minimum action that should be taken.”

Or consider the resignation last year of Wolfgang Wagner, editor-in-chief of the journal Remote Sensing. In a fulsome resignation editorial eerily reminiscent of past recantations by political and religious heretics, Mr. Wagner confessed to his “sin” of publishing a properly peer-reviewed paper by University of Alabama scientists Roy Spencer and William Braswell containing the finding that IPCC models exaggerate the warming caused by increasing CO2.

The Trenberth letter tells us that decarbonization of the world’s economy would “drive decades of economic growth.” This is not a scientific statement nor is there evidence it is true. A premature global-scale transition from hydrocarbon fuels would require massive government intervention to support the deployment of more expensive energy technology. If there were economic advantages to investing in technology that depends on taxpayer support, companies like Beacon Power, Evergreen Solar, Solar Millenium, SpectraWatt, Solyndra, Ener1 and the Renewable Energy Development Corporation would be prospering instead of filing for bankruptcy in only the past few months.

The European experience with green technologies has also been discouraging. A study found that every new “green job” in Spain destroyed more than two existing jobs and diverted capital that would have created new jobs elsewhere in the economy. More recently, European governments have been cutting subsidies for expensive CO2-emissionless energy technologies, not what one would expect if such subsidies were stimulating otherwise languid economies. And as we pointed out in our op-ed, it is unlikely that there will be any environmental benefit from the reduced CO2 emissions associated with green technologies, which are based on the demonization of CO2.

Turning to the letter of the president of the American Physical Society (APS), Robert Byer, we read, “The statement [on climate] does not declare, as the signatories of the letter [our op-ed] suggest, that the human contribution to climate change is incontrovertible.” This seems to suggest that APS does not in fact consider the science on this key question to be settled.

Yet here is the critical paragraph from the statement that caused the resignation of Nobel laureate Ivar Giaever and many other long-time members of the APS: “The evidence is incontrovertible: Global warming is occurring. If no mitigating actions are taken, significant disruptions in the Earth’s physical and ecological systems, social systems, security and human health are likely to occur. We must reduce emissions of greenhouse gases beginning now.” No reasonable person can read this and avoid the conclusion that APS is declaring the human impact “incontrovertible.” Otherwise there would be no logical link from “global warming” to the shrill call for mitigation.

The APS response to the concerns of its membership was better than that of any other scientific society, but it was not democratic. The management of APS took months to review the statement quoted above, and it eventually declared that not a word needed to be changed, though some 750 words were added to try to explain what the original 157 words really meant. APS members were permitted to send in comments but the comments were never made public.

In spite of the obstinacy of some in APS management, APS members of good will are supporting the establishment of a politics-free, climate physics study group within the Society. If successful, it will facilitate much needed discussion, debate, and independent research in the physics of climate.

In summary, science progresses by testing predictions against real world data obtained from direct observations and rigorous experiments. The stakes in the global-warming debate are much too high to ignore this observational evidence and declare the science settled. Though there are many more scientists who are extremely well qualified and have reached the same conclusions we have, we stress again that science is not a democratic exercise and our conclusions must be based on observational evidence.

The computer-model predictions of alarming global warming have seriously exaggerated the warming by CO2 and have underestimated other causes. Since CO2 is not a pollutant but a substantial benefit to agriculture, and since its warming potential has been greatly exaggerated, it is time for the world to rethink its frenzied pursuit of decarbonization at any cost.

Claude Allegre, former director of the Institute for the Study of the Earth, University of Paris; J. Scott Armstrong, cofounder of the Journal of Forecasting and the International Journal of Forecasting; Jan Breslow, head of the Laboratory of Biochemical Genetics and Metabolism, Rockefeller University; Roger Cohen, fellow, American Physical Society; Edward David, member, National Academy of Engineering and National Academy of Sciences; William Happer, professor of physics, Princeton; Michael Kelly, professor of technology, University of Cambridge, U.K.; William Kininmonth, former head of climate research at the Australian Bureau of Meteorology; Richard Lindzen, professor of atmospheric sciences, MIT; James McGrath, professor of chemistry, Virginia Technical University; Rodney Nichols, former president and CEO of the New York Academy of Sciences; Burt Rutan, aerospace engineer, designer of Voyager and SpaceShipOne; Harrison H. Schmitt, Apollo 17 astronaut and former U.S. senator; Nir Shaviv, professor of astrophysics, Hebrew University, Jerusalem; Henk Tennekes, former director, Royal Dutch Meteorological Service; Antoninio Zichichi, president of the World Federation of Scientists, Geneva.

Fair Share

September 21st, 2011

There’s a lot of talk nowadays about people paying their “fair share” of taxes.

The chart below shows two groups’ share of the nation’s income and share of the nation’s Federal income taxes for 2008. The original data source is the IRS.

Share of income and federal income taxes

Question 1: Which group in this chart pays more than their fair share and which pays less?

Now don’t change your answers. Group A is the bottom 50% of income earners in the country. They earn 13% of the country’s income but pay only 3% of the federal income taxes. Group B is the top 1% of income earners in the country (”the rich”). They alone foot nearly 40% of the total income tax bill for the country:

1% of Americans pay 40% of the income taxes.

And, they earn 20% of the income. Which group gets preferential tax treatment?

Labeled share of income and income taxes

Question 2: If Group B pays more than its fair share, why is it that Obama claims that the top 1% is paying less than its fair share?

Presumably the American value is equal opportunity. That value is consistent with our idea of one person, one vote, and the premise for the American Revolution – that all men (people) are created equal. It is in fact not only the basis of institutions and laws such as the Equal Employment Opportunity Commission and Equal Credit Opportunity Act, but also of course their namesakes.

That said, the goal of liberals in general and Obama’s tax policy specifically would appear to be equality of result. The basis for such a goal would seem to be lacking. There is not an Equal Income Commission nor an Equal Net Worth Act – and for good reason. By what legal authority can a person or a government commandeer the product of a free individual’s work and life or otherwise limit an individual’s productivity merely in order to deliver equality of result? It would seem categorically impossible to enact any such law without trampling basic individual rights. An individual subject to such a law would either be a victim of theft or some sort of government mandated slavery. Setting aside the ideas of individual freedom and what’s right and wrong, on a practical means-to-an-end level, it’s difficult to imagine how such policy would not relegate us to a world where the achievers choose not to achieve. Given the choice of working without remuneration or not working, clearly many would choose the latter. The consequence of that would seem to be fairly undesirable.

If it wasn’t already, it’s now abundantly clear that Obama and other liberals want to require Americans to live in a world where they alone have the power to dictate, “From each according to his ability, to each according to his need.” The problem is the world already had the opportunity to live that way. We chose not to. We told Karl Marx to go pound sand. We should tell Obama and the rest of them to do the same.

Economist Forecasting: A broken clock is correct twice a day

January 4th, 2011

From GMO, redistributed by John Mauldin:

US GDP Growth YOY, 4 Quarter Moving Average

economistforecast

Obama Pay Freeze?

December 6th, 2010

Obama announced a Federal pay freeze last week. Did Mr. Big Government change his stripes?

Federal pay freeze plan wouldn’t stop raises
FederalTimes.com
12/6/10

federaltimes

President Obama spoke of the need for sacrifice last week when he announced a two-year pay freeze for federal employees.

But feds won’t be too terribly deprived in 2011 and 2012. Despite the freeze, some 1.1 million employees will receive more than $2.5 billion in raises during that period.

Congress is expected to approve Obama’s proposal, which cancels only cost-of-living adjustments for two years. Regularly scheduled step increases for the 1.4 million General Schedule employees — who make up two-thirds of the civilian work force — will continue. The size of those increases ranges from 2.6 percent to 3.3 percent and by law kick in every one, two or three years, depending on an employee’s time in grade.

For more, read full article.

Obama Doubles Number of Fed Employees Taking $150,000

November 10th, 2010

From USA Today:

More federal workers’ pay tops $150,000

The number of federal workers earning $150,000 or more a year has soared tenfold in the past five years and doubled since President Obama took office, a USA TODAY analysis finds.

The fast-growing pay of federal employees has captured the attention of fiscally conservative Republicans who won control of the U.S. House of Representatives in last week’s elections. Already, some lawmakers are planning to use the lame-duck session that starts Monday to challenge the president’s plan to give a 1.4% across-the-board pay raise to 2.1 million federal workers.

FEDERAL WORKERS: Earning double their private counterparts

Rep. Jason Chaffetz, R-Utah, who will head the panel overseeing federal pay, says he wants a pay freeze and prefers a 10% pay cut. “It’s stunning when you see what’s happened to federal compensation,” he says. “Every metric shows we’re heading in the wrong direction.”

fedpaygraphNational Treasury Employees Union President Colleen Kelley counters that the proposed raise “is a modest amount and should be implemented” to help make salaries more comparable with those in the private sector.

Federal salaries have grown robustly in recent years, according to a USA TODAY analysis of Office of Personnel Management data. Key findings:

• Government-wide raises. Top-paid staff have increased in every department and agency. The Defense Department had nine civilians earning $170,000 or more in 2005, 214 when Obama took office and 994 in June.

• Long-time workers thrive. The biggest pay hikes have gone to employees who have been with the government for 15 to 24 years. Since 2005, average salaries for this group climbed 25% compared with a 9% inflation rate.

• Physicians rewarded. Medical doctors at veterans hospitals, prisons and elsewhere earn an average of $179,500, up from $111,000 in 2005.

Federal workers earning $150,000 or more make up 3.9% of the workforce, up from 0.4% in 2005.

Since 2000, federal pay and benefits have increased 3% annually above inflation compared with 0.8% for private workers, according to the Bureau of Economic Analysis. Members of Congress earn $174,000, up from $141,300 in 2000, an increase below the rate of inflation.

Jessica Klement, government affairs director at the Federal Managers Association, says the government’s official pay analysis shows that federal workers earn less than private workers for comparable jobs. Still, she says, managers are willing to give up next year’s raise: “If it will help the country bounce back, they’re willing to make the sacrifice.”

At Least I Don’t Live in San Francisco

October 27th, 2010

If you think your world is weird, imagine living in San Francisco.

2010 Voter Guide

By Jim Anderson, Silicon Valley Bank

Every couple of years the public officials in San Francisco send commentators like me a gift, titled with uncharacteristic humility, “Voter Information Pamphlet & Sample Ballot – City and County of San Francisco.” As I carefully read through the 192 pages I feel like I’m watching one of those Saturday Night Live reruns. You know, the ones in which the satirical commercials are so realistic you can’t tell if they are a joke. Then I catch myself — after all, no one would write 192 pages of satire.

There are a number of important items and candidates on the ballot. One of them even caught the eye of a famous venture capitalist and was profiled in his editorial in the Wall Street Journal. Then there is proposition measure C, which would “require the Mayor to appear in person” at a Board of Supervisors meeting once a month to “engage in formal policy discussions with the Board.” Now, the Mayor is permitted to come to any board meeting and take the floor to speak with the supervisors about anything he wants, but he has chosen not to. Perhaps the Mayor and the Board of Supervisors don’t have a great working relationship. I’m not sure amending the city charter is the best way to solve that problem. I vote no.

Proposition D is also a good one. It will permit non-citizens to vote in San Francisco elections. This came up a few years ago and lost. I’m OK with this idea so long as we San Franciscans can vote in other cities’ elections. The only tough part is deciding which ones. Maybe we could use our sister city relationships as a starting point. San Francisco has 13 sister cities and I’ve no doubt there is a luxuriously staffed city department to maintain and augment these connections. I’m also fairly certain that the Mayor and other city officials may need to travel to Abidjan, Cork, Assisi, Caracas, Haifa, Ho Chi Minh City (formerly Saigon), Manila, Osaka, Seoul, Shanghai, Sydney, Taipei and Zurich, from time to time to see how our sisters are faring.

Now, securing the right to vote in all these other locales may be difficult, not to mention the cost of translating their voter guides into English, Spanish, Japanese, Vietnamese, Tagalog, Mandarin and Korean as would be required here in San Francisco. Zurich might be especially tough. The Swiss don’t fool around when it comes to their democracy. I am particularly disappointed that we do not have a sister city in France. I think the Mayor and supervisors should jet off on a fact-finding mission to Nîmes as soon as possible to see if the French might be interested. At any rate, I decide to vote no on D until I know where else I will get the right to vote.

Proposition I is to permit Saturday voting. With pervasive access to absentee ballots on a permanent basis I’m not sure this is necessary. Besides, I like the idea of people taking time off work to vote. It sends the right cultural message about our priorities as citizens. I vote no.

Propositions J and K seem very similar. One is the “Hotel Tax Clarification and Temporary Increase” and the other is “Hotel Tax Clarification and Definitions.” I had no idea there was so much confusion about hotel taxes that it would require two ballot measures to clarify them. Actually one measure will raise hotel taxes while the other leaves them unchanged. I’m not clear on why we need a ballot measure to not change something. Initially, I don’t have a strong view on this as higher taxes on those millionaire and billionaire tourists is ok with me. This is the famous theory of taxation articulated by the late Senator Russell Long as, “Don’t tax you, don’t tax me, tax that man behind the tree.”

But there is more. Proposition J would also recover taxes from Internet booking sites that collect taxes from customers, but may not always pay them to the municipalities. Buying months of hotel rooms, Expedia and Travelocity could argue that they qualify as “permanent residents” of San Francisco and thus are exempt from the tax. (At this point I’m wondering whether Expedia and Travelocity as permanent residents, albeit, non-human ones, would be permitted to vote as non-citizens under Proposition D.)

Proposition K also contains what we call here a “poison pill” provision to kill off the competing Proposition J if both should pass. Reading through the poison pill I marvel at the creativity behind its invention. If only that same entrepreneurial flair could be applied to city services. I vote yes on K to encourage more creativity in government.

Now let’s turn to the candidates. I always find this challenging because I never know any of the people running. I have a few guidelines to help me. In general, I vote against all incumbents, except those who are trying to change things. Of course, once they get comfortable in office they seem to lose interest in making any changes. I would also vote for them if I thought the city was well-managed. It is not. I read the bios and tend to vote for engineers, scientists and business people. I feel they are more likely to bring a logical, pragmatic approach to solving the city’s problems. I do keep track of my votes, however, and I can confide here that no one I’ve ever voted for in San Francisco has been elected to anything.

One oddity in our ballot is that we can rank candidates in order of preference: first, second and third. This invention was designed to avoid expensive run-off elections if no one got a clear majority. Unfortunately, for the job of assessor-recorder there are only two candidates running. The job of public defender is even better. There is only one candidate. I skip that one.

Choosing school board members is quite demanding because there are so many candidates. As a point of background, the San Francisco Unified School District is not that bad. The dropout rate is only 18 percent and Lowell High School is ranked 28th nationally. But they are not succeeding with their customers: parents and students. The district loses about 400-500 students per year to the suburbs and private schools. That is the equivalent of shutting down one grade school every year. Still, the budget seems to grow each year — especially the administrative budget. Almost 50 percent of SFUSD budget dollars are spent on items other than teachers, books and classrooms. Given those facts, I feel comfortable voting against all the incumbents.

There is one new candidate for school board in my polling area that catches my eye named Starchild. The occupation is listed as erotic service provider.” (I’m not making this up.) Oddly, Starchild has some excellent ideas, such as making teacher pay higher than administrator pay and allowing students to attend their first choice schools. When popular schools are full, Starchild would open new schools run by a core of the teachers from the successful schools. I like that idea so he/she gets my vote. As you may have guessed, Starchild’s bio is gender neutral.

If we redefine corruption as taking public money and wasting it rather than using it for personal purposes, San Francisco is easily one of the most corrupt cities in the U.S. The annual budget is a whopping $6.6 billion or $8,033 for each of the 815,358 residents. This is the highest per capita spending of any major city in the U.S. The average city worker receives $120,000 per year in wages and benefits. For comparison, Los Angeles has a budget of $7.1 billion for more than four times the population. In fact, there are enough city workers in San Francisco for every family of four to have a personal assistant from the city three days per month. Maybe I should call up the mayor and have him send my guy over. I need some help cleaning out the garage.

SEIU vs. America

October 5th, 2010

Image from the SEIU website and data from the BLS. What more is there to say?

StrongerTogetherSplash

statelocal

From Gary Shilling via John Mauldin:

  • “46 states are projecting a collective deficit of $121 billion for the 2011 fiscal year that begins next July 1, equivalent to 19% of their budgets. 39 states see gaps that total $102 billion for fiscal 2012.”
  • “Since the Great Recession started in December 2007 through April, private payroll employment has dropped 6.8%. Still, state and local jobs have declined but by much less, only 1.4%.”
  • The SEIU is a union of government workers. They don’t negotiate against management like any other union. They earn almost 50% more than the average American. And it is the average american who pays them – YOU.

    Let’s raise taxes!

    Obamanomics: No Price is too High, No Right too Holy

    September 28th, 2010

    GM’s Next Bankruptcy

    By Jim Anderson, Silicon Valley Bank

    We enjoyed the General Motor’s TV ads last April when CEO Edward Whitacre proclaimed they had repaid 100 percent of the debt to taxpayers ahead of schedule. This glorious achievement of modern industrial policy was even trumpeted from the White House as Press Secretary Robert Gibbs tweeted, “GM pays back US $6.7 billion used to save jobs…5 years ahead of schedule.”

    Later it was determined that the debt repayment was accomplished not with cash flow from operations, but by drawing down additional TARP funds according to TARP administrator Neil Barosky. It was disappointing that GM still had such little respect for the intelligence of the taxpayers who are, after all, potential customers.

    In a bankruptcy process that would have made Hugo Chavez proud, the administration’s political supporters at the UAW were granted 17.5 percent of the equity. The Canadian government received 11.7 percent and the Feds took control of 61 percent. The hapless bondholders who actually had the legal claim to the assets were left out of the negotiations and picked up the residual 9.8 percent. When the dust settled GM had $23.5 billion in cash and only $5.3 billion in long-term debt.

    We suppose the turnaround is pretty remarkable as the company served up a six-month profit of $2.2 billion on sales of $64 billion. Management did have the benefit of walking away from $46 billion in debt obligations. In essence, they received some $60 billion in operating assets without ever having to pay for them. Sweet deal. A brief review of the S-1 filing revealed, however, some obligations that were preserved at 100 cents on the dollar, notably the pension obligation to the UAW which is still accreting now up to $26 billion. The marked drop in “Other post retirement benefits” from $29 billion to $8.6 billion is the healthcare benefits that were swapped for the aforementioned 17.5 percent ownership position of a UAW Trust.*

    In July, a colleague sent us this headline,”GM buys subprime lender for $3.5 billion.” As part of the deal, GMAC, its old finance arm, was separated and rescued with $17 billion of taxpayer funds. The Feds now own 56 percent and about $10 billion in preferred stock. Renamed Ally Bank, the new GMAC provides car financing for Chrysler and GM, but tends to set credit standards above subprime as they work through massive losses from old-GM car customers and old-GMAC’s foray into the subprime mortgage business. Hence, GM’s need for the taxpayers to buy them a new, captive subprime car lender for the new GM. As they say, your tax dollars at work.

    With the banks largely paying back their TARP funds with interest and the government taking gains on the warrants, speculation has turned to the denouement of the takeover of most of the U.S. auto sector. Much of the analysis has been prompted by GM’s pending IPO. Although there has not been a complete accounting for $110 billion of tax dollars committed to the sector which included Chrysler, GM, GMAC, their various suppliers and $7.5 billion to subsidized the development of “green automobiles,” the hope is that some of this will be returned now that the “recession is over.”

    In order to recover the $52 billion invested to save GM and the UAW, the IPO shares would need to fetch $134 each according to the Wall Street Journal. The deal, which is expected to come to market in November, is not priced yet, but we suspect that $134 is well above the high end of any range.

    Using Ford as a proxy as it is only slightly larger than GM, ($133 billion in sales versus $129 billion), and more profitable, (EBIT of $8.6 billion compared to $5.8 billion at GM), we can get some idea of what is in store for our investment. Ford has a market capitalization of $43 billion or 5 times EBIT. That implies that GM might be worth as much as $29 billion. So our $52 billion to buy 61 percent ownership would round out to $18 billion or a loss of a cool $34 billion. But then we did preserve 96,000 jobs albeit, in my opinion, at uncompetitive and unsustainable wages and benefits. This brings us to our last point.

    At GM the seeds of the next bankruptcy and bailout are already germinating. (Recall that for Chrysler this is the second go thanks to the largess of taxpayers.) When the bailout deal was cut the United Auto Workers crowed that, “For our active members these tentative changes mean no loss in your hourly base, no reduction in your healthcare, and no reduction in pensions.” Once GM is public and if profits continue, we will find out how tentative the union concessions really were.

    * General Motors, Form S-1 Registration Statement, August 18, 2010.

    Fannie and Freddie Who?

    May 11th, 2010

    What to say about this? Subprime victims. Innocent real estate brokers and their avarice, unscrupulous mortgage brokers and Flip This House fans. Fannie and Freddie laying low while creating hundreds of billions of losses to come. The president of the United States assigning blame, judging, and sentencing as he incites and leads class warfare… on national television… daily. Reaching across the aisle. For what?