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“Our practical choice is not between a tax-cut deficit and budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve . . . a budget surplus.” John F. Kennedy

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Aug 21 2013

Detroit and Blue State America

Carolyn

As a country, we’ve seen the city of Detroit pushed into bankruptcy as a result of over half a century of municipal mismanagement and corruption, the largest municipal bankruptcy in US history, at $18-20 billion. At one time it stood as the richest city, per capita, in the US, as well as the fourth largest in terms of population.

What we’ve seen over the decades since Detroit’s economic and population height is a long, sustained flight of capital. Individuals and businesses have made the rational choice to invest in cities and towns where business growth is encouraged through contractual freedom (right-to-work), low taxation and decreased regulation. When the entrepreneurs and businesses that can easily leave, do, what remains is a static workforce made up of mostly union workers and government employees, or rather taxpayer-subsidized union employees.

From December 2010:

The Census Bureau announced today that eight states will gain at least one Congressional seat. Texas will gain four seats and Florida will gain two. Arizona, Georgia, Nevada, South Carolina, Utah and Washington will gain one seat each. The biggest losers will be New York and Ohio – both will lose two seats – while Illinois, Iowa, Louisiana, Massachusetts, Michigan, Missouri, New Jersey, and Pennsylvania will lose one seat each.

The average top personal income tax rate among gainers is 116 percent lower than among losers. The total state and local tax burden is nearly one-third lower, as is per capita government spending. In eight of ten losers, workers can be forced to join a union as a condition of employment. In 7 of the 8 gainers, workers are given a choice whether to join or contribute financially to a union.

Detroit’s bankruptcy was preceeded by sixty years of rising taxes, generous government pension promises and a shrinking tax base. Additionally, non-government unions forced much of the industry in Detroit into a position where it was advantageous to build plants oversees in order to avoid unsustainable costs.

Most of those who had the means to leave, did. Of those who have chosen to stay, fewer than half (49.8 percent) are either working or looking for work, the lowest rate among major US cities.

Detroit also has far more city employees per resident than do most other similar sized cities and, for those making $50,000 or more, the 4th largest tax burden among the largest US cities. In fact, those taxes are going to pay for things such as $56,000 for a horseshoer in the Detroit Water & Sewer Department, despite the fact that it has been years since horses were used by the city. Not surprisingly, Wayne County has 520,000 citizens receiving food stamps, over 25 percent of its citizenry, presumably with most of those located within the city of just under 707,000.

Dynamism and entrepreneurship have virtually disappeared while government jobs, dying industry and welfare have remained. When those with the imagination and drive to create new jobs and new industries leave in search of more favorable conditions for taking risk, the jobs of the future follow them.

Detroit is left with the jobs and industries of the past, propped up by federal investment and municipal credit that is now wiped out.

Can anyone please explain how the present in Detroit (and Bell, CA and San Bernardino, CA and Stockton, CA and Jefferson County, AL, . . .) is any different from the future of all the cities and states which continue to follow the very policies that destroyed America’s once-great motor city?


May 26 2012

What Is It that Our President Actually Does Know?

C.M. Phippen

The greatest economy the world has ever seen, the one responsible for the majority of the medical and technological innovation of the past century and for leading the way in eradicating 80 percent of the world’s worst poverty in the past 40 years, is being run by a man who claims himself a victim at every turn.

With each succeeding policy failure, President Obama can’t help but claim he just didn’t understand or for some reason he just had no power to overcome the obstacles in his way.

While holding the most powerful office in the world, he is paralyzed by events outside of his control. He blames Pres. Bush, natural disasters, Pres. Bush, Arab Spring, Pres. Bush, bad luck, Pres. Bush. In one of his most astounding excuses yet, he blamed a lack of job creation on greater efficiency (“structural issues”) in the economy.

The difficulties faced by our president are simply a part of the realities of life. Does Obama truly believe that no man before him has ever dealt with a financial crisis, a predecessor whose policies he didn’t agree with, bad luck, a shifting labor market or natural disasters? What if every man before him chose to make the same excuses or to walk away from the real solutions because they weren’t a part of his political strategy?

In every past recession over the previous 100 years, entrepreneurship has led us out and placed us back on the path to greater prosperity. For the first time ever, this is not occurring. Does President Obama even stop to ask why?

Over 4,000 new federal regulations are in the pipeline and “pending major regulations – those costing the economy $100 million or more – have increased 60 percent since 2005.” Recently, “20 percent of small-business owners said ‘government regulations and red tape’ was the single most important problem facing their business,” ranking ahead of anything else, including poor sales.

According to President Obama, because of these structural changes, “. . . what we have to do now . . . is identify[ing] where the jobs for the future are going to be; how do we make sure that there’s a match between what people are getting trained for and the jobs that exist; how do we make sure that capital is flowing into those places with the greatest opportunity.”

Entrepreneurs just figure those things out on their own. They don’t need a government program so that a bureaucrat who’s never run a company, met a payroll or put his life’s savings on the line to start a company can make decisions as to the proper allocation of resources within the economy; let alone rely on that individual to determine where those resources will be most needed at some point in the future. In a dynamic economy, where growth is encouraged, someone will always step up and take a risk as long as that risk has the potential for a commensurate reward in the end.

When has a centrally planned economy, or any variation of it, actually worked?

Here’s a guy who’s admitted that when he entered office his administration had no idea how bad this downturn was, despite the fact that he claimed it was the worst economic crisis since the Great Depression and called it a crisis of historic proportions. Yet he wants us to trust that he and his administration have the expertise to know how to allocate the various resources administered through the federal government in order to adequately train the unemployed to be prepared for the jobs of the future? He doesn’t even understand what the jobs and businesses of the future are.

This is the guy who told us that Solyndra was a model for economic growth, one of those companies of the future. As I wrote in an earlier post, while Obama was touting the “ingenuity and dynamism” of Solyndra, T.J. Rodgers, founder of Cypress Semiconductor, former Chairman of Sunpower and a man who apparently knows what real ingenuity and job creation look like, had a very different take. He has said that on the day of President Obama’s visit to Solyndra in 2010 a secretary asked him what it meant that the President was there, visiting their competitor. His response apparently was, “Set your watch. That company will be out of business in one year.” So much for Obama’s ability to judge the future.

This is the same guy who told us that if his massive stimulus of nearly $1 trillion were passed, we wouldn’t see unemployment rise above 8 percent. What we haven’t seen is it actually come down below 8 percent at any point since.

This is the man who told us that recovery summer was two years ago. Most of us are still waiting, as are the many businesses that are choosing to sit on the sidelines with record amounts of cash and not hire new workers in such an uncertain environment. Those threats to tax the rich and blame corporations may actually have a downside.

This is the same guy who said that the healthcare bill “will help reduce our deficit by as much as $1.3 trillion in the coming decades, making it the largest deficit-reduction plan in over a decade.” Updated CBO estimates now project cost increases over 10 years from $938 billion to $1.76 trillion, and that’s before we’ve had to actually start paying. If history is any indication, the cost is likely to be many times greater than even the new estimates.

Yes, still the same guy, the one who said that with his new healthcare bill, “Families will save on their premiums.” Unfortunately, though the CBO initially projected per family premium savings of over $2,500, more recent studies show increases of over $1,500 above what premiums would have been without the legislation.

Exactly what is it this guy actually does know? Maybe this, “We can’t doom another generation of Americans to soaring costs . . . and exploding deficits.” Yep, same guy.


Oct 11 2011

Elizabeth Warren and the War On Our Way of Life

C.M. Phippen

Elizabeth Warren has made waves by recently announcing that the rich aren’t paying their fair share in taxes and that as part of a “social contract,” they owe the rest of society for the wealth they have accumulated. Social contract, the most recent buzzword of the left, apparently means that if you prosper in this land of relative freedom, then you owe a greater part of your wealth to a government that has apparently granted you the opportunity to be productive by providing you with things they have been given the responsibility to provide for all of us – roads, education, freedom from criminal interference, etc. Apparently, the social contract doesn’t require anything of those who choose to bleed society dry by taking its resources and producing nothing.

A number of years ago I was involved in an organization that dealt with foster-care issues for my state. At one point, those of us involved in this organization were asked to share why we chose to become involved. The most common refrain was a desire to “give back.” My response was nothing of the sort. I don’t do good because of what society has done for me; I choose to do good because of who I am and because I care about the suffering of others. Government has no real power to provide anything beyond what the productive in society produce and pay; not the other way around.

Our greatest gift is to live an honest, constructive life by doing our best to improve ourselves and those around us every day and to work hard to provide for ourselves and our families. The greatest destruction we can wreak is to allow a sense of entitlement to lead us to expect that others owe us a portion of their labors, especially a greater portion than we ourselves are willing to give voluntarily.

Bill Gates’ and Steve Jobs’ innovation increased the productivity of every single human being in every part of the world. What honest person can say with a straight face that they owe you some cash along with the myriad blessings that are ours because they chose to develop and utilize the brilliance of their minds? Using their God-given talents in a way that makes our lives easier and enables us to do things that just a decade or two ago were completely unimaginable is an incredible gift. To be given such a blessing and then respond with, “Well, we [may or may not have] paid taxes that paid for those roads and enabled thousands of individuals to get to work so they could make all of our lives easier, but could you throw in a couple bucks too?” just sounds kind of trashy.

Would we be a better society if those innovate, productive individuals had chosen to sit on the couch watching Oprah, collecting a welfare or disability check? I’m certain Jobs could have applied for and received disability during most of the past decade if he’d chosen that road. According to the thinking of Warren, had he made such a choice he wouldn’t owe us anything. Because of the fact that he instead chose to work hard, developing products that are sought after the world over and allowing phenomenal efficiency and personal enjoyment, he owes us a portion of whatever he makes. The very act of producing something everybody wants is apparently worthy of punishment. Hey, in the old Soviet Union nobody made anything anybody wanted but everybody there had a job; maybe this administration does have a jobs plan after all!


Sep 6 2011

Government Business v. Private Business

C.M. Phippen

We all heard the news last week that yet another company on the President’s tour of success has declared bankruptcy. Solyndra, a solar panel manufacturer and, according to President Obama “a testament to American ingenuity and dynamism,” has sought bankruptcy reorganization.

In December of 2010, with less than one month’s reserves on hand, Solyndra sought to refinance by asking the Energy Department to subordinate $385 million of the $535 million guaranteed by the government. This would allow them to obtain an additional $75 million from outside sources. The Energy Department agreed, putting taxpayers behind new investors if things were to go wrong.

T.J. Rodgers, founder of Cypress Semiconductor and former Chairman of Sunpower, said on The Kudlow Report that on the day of President Obama’s visit to Solyndra in 2010 a secretary asked him what it meant that the President was there, visiting their competitor. He says that his response was, “Set your watch. That company will be out of business in one year.”

According to Solyndra President and CEO, Brian Harrison, “Regulatory and policy uncertainties in recent months created significant near-term excess supply and price erosion.” Regulatory and policy uncertainties? Huh, hadn’t heard that anywhere before. Looks like it might be a deeper problem than that, though.

According to Rodgers, the thin-film technology used by Solyndra is “lousy,” low efficiency and the cost per watt is double other technologies. He noted that the typical Silicon Valley startup is full of great ideas in a “crappy” building; Solyndra, on the other hand, built a palace which, according to reports, cost $700 million. The company also made the mistake of building their manufacturing facility in California, the worst state in the nation to manufacture, Rodgers added.

Solyndra’s cost per job amounted to $1.5 million, and now those workers are without jobs at all. Money well spent, or simply another attempt to override private markets and supplant them with an uninformed bureaucratic vision of utopia?

Rodgers, on the other hand, knows a thing or two about the solar panel business. In 2001, he invested $750,000 in SunPower, a solar panel manufacturer which uses a technology much more efficient and easier to manufacture than most others. Within a matter a months, Cypress Semiconductor, the company he built, had invested $168 million in SunPower, including the purchase of additional plants and equipment (Solyndra’s new plant alone cost $700 million . . . in this economy?). That company, by the way, is still around and growing despite management and R&D shakeups over the past couple of years.

Reminds me of the comment made by the Social Security judge, David Daugherty, who pretty much hands out Social Security Disability like candy (nearly 100% approval rate v. an average of 60%), “Some of these judges act like it’s their own damn money we’re giving away.”


Apr 14 2011

The Rich, Taxes, and Government Debt

C.M. Phippen

I recently came across a genuinely bitter, angry liberal who was absolutely convinced that the only way to get us out of our debt mess of $14.26 trillion was simply to tax the rich and large corporations so they pay their “fair share!” (Just curious, but what is it about “large” corporations that makes them inherently evil, while “small” corporations are apparently acceptable. I’m wondering if the disdain also applies to a company that makes huge profits while employing very few people – does it fall into the category of “large” and bad or “small” and still good?) Anyway, it’s about time that the Michael Moore logic of there being enough money in this country to pay off our debt, it just needs to be redistributed to the people who didn’t earn it, needs to be put to rest.

Interestingly enough, Walter Williams discusses the economics of such a strategy in an article today.

Let me lay out the basics:
*If we were to tax every household in the US making over $250,000 a year at a rate of 100% on the amount exceeding that $250,000, we would bring in $1.4 trillion. (Better yet, if we were to take 100% of everything those greedy bastards earn, it would bring in $1.97 trillion – that’s what you get for being more productive than the solid citizen making $249,999!)
*If we were to take the profits of every Fortune 500 company, that would amount to another $400 billion.
*If we were to confiscate the entire net worth of all 400 billionaires in the US (who do they think they are owning businesses, homes, and jewelry anyway? Those things should only be owned by the poor; oh yeah, that home thing for the poor didn’t work out so well . . . ), that would equal $1.3 trillion.

The grand total we will have raised would be $3.67 trillion, which will run our government for a whopping 9 months or so! Now that we have all the money of the rich our debt problem will surely be solved, won’t it? Oh, we still will have a debt of $14.26 trillion and no way to fund anymore government programs because those who know how to run businesses efficiently and productively would have just been forcefully dissuaded from doing so, in the US anyway? Uh oh. Any better suggestions out there?


Sep 14 2010

Unemployment and the Effect of More Benefits

C.M. Phippen

Robert Barro of Harvard University’s business school recently analyzed the impact of the unprecedented extension of unemployment benefits to 99 weeks. In his analysis, he concluded that had unemployment benefits not been extended so drastically, we would probably currently be seeing a rate of unemployment around 7%.

The original estimate by the administration was that unemployment wouldn’t exceed 8%, and they claim that was the high most economists expected even before the passage of the stimulus bill, back in Q4 2008. Seems as though the stimulus has been anything but, and Recovery Summer has been a major bust. The good news out recently is that consumer retail spending increased 0.4% in August, the largest increase in five months. Autos, electronics, and furniture were all down, but apparently back-to-school shopping saved the day and I don’t think the effect will continue into the coming months.

We are currently seeing historically high rates of long-term unemployment, at 46% of all unemployed. This is worsened by the fact that the longer one remains unemployed, the lower the chance of finding work. As discouragement kicks in, many simply give up and stop looking.

In his textbook published last year, Paul Krugman had this to say about generous and long-term benefits, “Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of ‘Eurosclerosis,’ the persistent high unemployment that affects a number of European countries.”

While US benefits are typically 33-50% of worker pay, when adjusted for payroll taxes, child care, transportation, and other expenses of working, it can be economically feasible for many to make the choice to wait a while longer to look for a job. In fact, Mother Jones recently published an article explaining that rates of long-term unemployment among college graduates are substantially lower than among the non-college educated. This is consistent with the idea that when lower income workers adjust their pay for expenses, which eat up a larger percentage of income than for most middle-and upper-class (generally college-educated), staying home a few more months just may make sense.

My husband was recently speaking with an older gentleman who works at a local convenience store. It was late at night, and without any other customers in the store they started talking about their lives. It turns out this man had recently moved from another state after his business of 15 years was destroyed by the recent economic downturn. He sold high-end home furnishings and when people stopped buying and furnishing homes (and started living within their means), his business came to a screeching halt. He lost everything, picked himself up, and moved to a place where he was able to find a job working nights in a convenience store. He’s there most nights, with a better attitude and demeanor than many workers in a whole lot of industries. He’s grateful for a job and for the self-respect that comes from working hard. As the economy turns around, he and people like him will move back up. What of those who don’t work for nearly two years? Many will be left behind permanently.

But hey, the campaign slogans for those politicians who’ve potentially handicapped millions of jobless Americans will be great, won’t they?


Aug 4 2010

Steve Wynn Doesn’t Trust Washington; Can We?

Take a look at Steve Wynn’s commentary on the destruction currently being foisted on all of us, courtesy of Washington, due to out of control spending and regulatory policies.  Unfortunately, most American businessmen can’t simply relocate a portion of their business overseas to countries with “steady,” “predictable” governments like Macau and China (?!) in order to mitigate the lack of “stability and predictability” in Washington.  I’m afraid the small businessmen are the new “forgotten man,” those who did nothing to contribute to the financial meltdown but who are now being taxed to pay for the bailouts of the guilty and their cohorts in Washington.  All the while, the uncertainty of massive new regulation is strangling innovation and investment.