Governor Scott Walker Takes on the Public Sector Unions in Wisconsin

Posted by PITHOCRATES - February 18th, 2011

40 Percent of Teachers Call in Sick…in West Bloomfield, Michigan

We start not in Wisconsin.  But in Michigan.  Another of the other Great Lakes States where the Republicans won control of their state house.  And there’s teacher trouble in one of their fair cities (see The West Bloomfield Teacher ‘Sick Out’ by Tom Gantert posted 2/18/2011 on Michigan Capitol Confidential).

About 40 percent of the West Bloomfield High School teachers didn’t show up for work on Feb. 15 in the midst of bitter contract negotiations.

Goodness, that’s a lot of teachers.  Pay and benefit packages for teachers in the West Bloomfield school district must be awful.

West Bloomfield teachers do not do any premium sharing for health insurance and do not have a deductible in their plan, Andrees said…

The total compensation of a West Bloomfield teacher grew 173 percent over an 11-year period, going from $47,346 to $129,637, according to information that was presented at a school board meeting in December.

The teacher’s salary started at $31,881 in 1999-00 and grew to $85,836 in 2010-11. Meanwhile, insurance payments climbed from $9,309 to $19,304 per year, and retirement contributions jumped from $3,717 to $16,854 per year.

Wait a tic.  Isn’t Michigan one of those states suffering from record unemployment?  Even though the federal government just spent billions of dollars to bail out GM and Chrysler to save jobs?  I mean, it’s pretty horrible in Michigan.  But I guess we need to put this aside and focus on what’s important.  There are teachers there who have been working a 9-month year for the measly compensation of $129,637.  What vicious, heartless bastards they must have in Michigan.

Incidentally, teachers get the good months off during the year.  The summer months.  How many of you would like to get paid $85,836, get $19,304 worth of healthcare insurance per year free with no deductible, retirement contributions totaling $16,854 per year AND have the three summer months off?  Not to mention all the holidays and breaks during the school year.  I dare say many people would like this.  Especially the taxpayers who pay for this while they themselves get little in compensation compared to this.  So I don’t see a mass outpouring of sympathy for these teachers.

You know, it’s good to be a teacher.  In the public school system.

Public Sector Unions Impoverishing States, Cities and their Trade Union Brethren

Public school teachers are part of the public sector.  And belong to a public sector union.  In the public sector, there is no competition.  We pay the public sector workers with tax dollars.  Unlike their counterparts in trade unions.  These people who build useful things for us are not paid with tax dollars.  The private sector pays them.  As such, they have to respond to market forces.  Unlike their brethren in the public sector (see Labor’s Coming Class War by William McGurn posted 1/4/2011 on The Wall Street Journal).

Suddenly, it’s a different world. In this recession, for example, construction workers are suffering from unemployment levels roughly double the national rate, according to a recent analysis of federal jobs data by the Associated General Contractors of America. They are relearning, the hard way, that without a growing economy, all the labor-friendly laws and regulations in the world won’t keep them working.

What’s more, “blue-collar union workers are beginning to appreciate that the generous pensions and health benefits going to their counterparts in state and local government are coming out of their pockets,” says Steven Malanga, a senior fellow at the Manhattan Institute. “Not only that, they are beginning to understand the dysfunctional relationship between collective bargaining for government employees and their own job prospects.”

They get it.  All pay and benefits come from the private sector.  Whether paid from business profits.  Or taxes on business profits.  (Or taxes on our private paychecks.)  All taxes come from profitable business operations.  But excessive taxes dampen economic activity.  And kill jobs.  Everybody knows this.  Even some union people.  So something has to change.  And some state governors are stepping up.

The signs of this new awakening are gathering. In New Jersey, Gov. Chris Christie rightly becomes a YouTube sensation for taking on his state’s obstinate public-sector unions…

Over in New York, meanwhile, newly inaugurated Gov. Andrew Cuomo faces a similar battle. Mr. Cuomo campaigned on a cap on property taxes and a freeze on state salaries, both anathema to the powerful state-employee unions…

Elsewhere, in 2005 Republican Govs. Mitch Daniels and Matt Blunt used executive orders to end collective bargaining with state employees in Indiana and Missouri, respectively. Now the incoming Republican governors of Ohio and Wisconsin—John Kasich and Scott Walker—are targeting collective bargaining for government workers in their states.

Scott Walker and Wisconsin.  But more of that later. 

In some ways, this new appreciation for the private sector is simply back to the future. FDR, for example, warned in 1937 that collective bargaining “cannot be transplanted into the public service.” In the old days, unions understood economic growth. Mr. Malanga points to AFL-CIO President George Meany’s strong support for the JFK tax cuts as an example.

These days the two types of worker inhabit two very different worlds. In the private sector, union workers increasingly pay for more of their own health care, and they have defined contribution pension plans such as 401(k)s. In this they have something fundamental in common even with the fat cats on Wall Street: Both need their companies to succeed.

By contrast, government unions use their political clout to elect those who set their pay: the politicians. In exchange, these unions are rewarded with contracts whose pension and health-care provisions now threaten many municipalities and states with bankruptcy. In response to the crisis, government unions demand more and higher taxes. Which of course makes people who have money less inclined to look to those states to make the investments that create jobs for, say, iron workers, electricians and construction workers.

Now, with that background, let’s look at Wisconsin.

40 Percent of Teachers Call in Sick…in Madison, Wisconsin

Just like in Bloomfield, Michigan, teachers are calling in sick (see Schools in Wisconsin’s capital close after protesting teachers call in sick posted 2/16/2011 on myfoxorlando.com).

MADISON, Wis (NewsCore) – Public schools in Madison, Wis., were closed Wednesday after 40 percent of the 2,600 teachers protesting a controversial budget bill called in sick.

School officials were forced to cancel classes, as there were not enough substitute teachers available to cover the absentees, Madison Metropolitan School District superintendent Dan Nerad told local newspaper the Journal Sentinel.

Though in Wisconsin they’re saying little about what their current pay and benefits are.  One can only assume they are as generous as they are in West Bloomfield.  Because if they are awful they would have told us how awful they are. 

President Obama Declares War on Ohio, Indiana, Missouri, New Jersey, Pennsylvania and Wisconsin

So how awful are things really in Wisconsin?  From the media reports it sounds like the end of world.  That Wisconsin’s governor, Scott Walker, is bringing back slavery.  Even the president is joining the fight against the elected government of Wisconsin (see Obama joins Wisconsin’s budget battle, opposing Republican anti-union bill by Brady Dennis and Peter Wallsten posted 2/18/2011 on The Washington Post).

The president’s political machine worked in close coordination Thursday with state and national union officials to mobilize thousands of protesters to gather in Madison and to plan similar demonstrations in other state capitals.

Their efforts began to spread, as thousands of labor supporters turned out for a hearing in Columbus, Ohio, to protest a measure from Gov. John Kasich (R) that would cut collective-bargaining rights.

By the end of the day, Democratic Party officials were working to organize additional demonstrations in Ohio and Indiana, where an effort is underway to trim benefits for public workers. Some union activists predicted similar protests in Missouri, New Jersey and Pennsylvania.

So much for federalism.  Thank God Thomas Jefferson didn’t live to see this.  This meddling by the executive power into a state’s affair is worse than he even feared.  Even Alexander Hamilton would not approve.  And he was in favor of a strong executive.

The Worst of the Assault on Public Sector Unions – Asking them to Live like the Rest of Us

So what is so vile, so repugnant, so evil in the state of Wisconsin?

Under Walker’s plan, most public workers – excluding police, firefighters and state troopers – would have to pay half of their pension costs and at least 12 percent of their health-care costs. They would lose bargaining rights for anything other than pay.

Well that doesn’t sound so bad.  People in the private sector often pay 100% of their retirement.  A pretty hefty share of their health-care costs.  And something like 90% of the private sector doesn’t even have any bargaining rights.  Other than quitting a job if it is so vile, so repugnant and so evil.  And, you know what?  Those jobs in Wisconsin must be pretty damn good.  I mean, to protest like that can only mean one thing.  That these jobs are the best jobs around.  For there isn’t a chance in hell they’ll find anything as good in the private sector.  Which is why they simply don’t quit those ‘God-awful’ jobs.

Beyond their short-term fiscal problems, many states face pension and retiree health-care costs that some analysts say are unsustainable. Some states already are curtailing retirement benefits for new employees, although many analysts say it will take much more to bring their long-term obligations in line.

The huge debt burdens coupled with the impending cutoff of federal stimulus aid later this year have spurred talk of a federal bailout. The White House has dismissed such speculation, saying states have the wherewithal to raise taxes, cut programs and renegotiate employee contracts to balance their books.

What?!?  Our federal stimulus paid for those fat pension and healthcare benefits?  Wasn’t that money suppose to stimulate economic activity?  Create jobs?  Could it be that it was a slush fund all along to reward loyal Democratic supporters?  Good God, can it be that Rush Limbaugh was right?

In Wisconsin, state Democratic senators staged a protest of their own Thursday, refusing to show up at the Capitol for an 11 a.m. quorum call – delaying a vote that would have almost certainly seen the spending cuts pass.

I guess elections only have consequences when Democrats win.  When Barack Obama won, he told the Republicans, sure, you can give me your ideas about how to fix the economy.  I won’t use any of them.  Because elections have consequences.  And I won.  Perhaps the Republicans should have hid during the Obamacare vote.

“Many of the companies I went by, like so many others across the state, don’t have pensions, and the 401(k)s they have over the last year or two, they’ve had to suspend the employer contribution,” Walker told Milwaukee radio station WTMJ. “So, not a lot of sympathy from these guys in private-sector manufacturing companies who I think reflect a lot of the workers in the state who say what we’re asking for is pretty modest.”

What’s good for the private sector is good for the private sector.  The public sector apparently deserves better.  And with record unemployment, I’m sure they’ll get a lot of sympathy from the taxpayers paying their salary and benefits.  Not.

Public Sector Unions and the President are trying to Maintain a Privileged Elite

FDR got it.  The trade unions get it.  And most of the taxpayers lucky enough to still have a job in the worst recession since the Great Depression get it.  If you don’t have a healthy economy there is no money for anyone.  High taxes kill economic activity.  And there is only one way to pay generous public sector pay and benefits.  High taxes. 

We have come to a crossroads.  In one direction there is prosperity.  In the other there isn’t.  The governors in New Jersey, New York, Indiana, Missouri, Ohio and, of course, Wisconsin, are trying to go down the road to prosperity.  While public sector unions and the president are trying to maintain a privileged elite.  At the expense of the ordinary American.  Who will win?  We’ll find out in Wisconsin.

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LESSONS LEARNED #53: “The essence of politics is taking from the many and giving to the few.” -Old Pithy

Posted by PITHOCRATES - February 17th, 2011

Good Times Turned into Chronic Deficits and Punishing Debt

Two things have historically made government good at filling its coffers.  The power to tax.  And a growing population.  It’s a simple mathematical equation.  And each year it totals more.  As long as you have a growing population to tax you can sustain government spending for a long time.  All the while putting a little of those taxes aside to take care of you and yours.

Businesses call it economies of scale.  Sell more of a thing and the cost per thing goes down.  If you have $1 million in total costs and sell only 4 things, then each thing will have to sell for $250,000 just to break even.  If you sell 5 million things, then you only have to sell each thing for a nickel to break even.  If you sell more things you can charge less for each thing.  It’s sort of like that with taxes, too.  If you have a growing population (with an expanding birthrate), each succeeding generation will have a lot more tax payers than the previous one.  So a small tax rate on a growing population will continue to increase the amount of tax dollars flowing into the government’s coffers.  And a good time will be had by all.

But right now, the federal government, some states and some cities are struggling to balance their budgets.  Something happened.  What others would have described as the perfect Ponzi scheme became like a real one.  The money paying current benefits became larger than the current contributions.  And good times turned into chronic deficits and punishing debt.  So what happened?

Government Employees Grew 280% from 1946 to 2010

Well, to begin with, some people just got greedy.  They spent a lot of money.  Grew the size of government.  Put more and more people onto the public dole.  At all levels of government.  City.  State.  And federal.  And they based all of this growth on the most hopeful of economic assumptions.  That revenue (i.e., tax receipts) then would continue to grow at the same rate forever and ever.   So they grew government.  Gave themselves very generous pay and benefits.  Pension plans that they could never sustain in the private sector.  Job security.  And other good stuff those in the private sector just don’t get (more holidays, more paid vacation, better healthcare, etc.).  And why not?  They had the power to tax.  And an increasing population.  I mean, what could go wrong?

Well, things change.  Even in government.  In 1946 (about when FDR gave us Social Security), there was approximately 6 million government employees (federal, state and city).  Fast forward to 2010 and that number grew to 23 million.  That’s an increase of 280%.  That’s a huge transfer from the private sector to the public sector.  Which required an enormous amount of additional tax revenue.

Of course, if the population grew at a corresponding rate, then perhaps that growth can be justified.  Maybe they just hired more people to administer a growing population.  It’s either that.  Or they were just expanding the role of government into our lives.  Perhaps a look at some population data will answer that question.

Population Grew 118% and the Birthrate fell 31% from 1946 to 2010

The population in 1946 exceeded 141 million.  In 2010 it exceeded 308 million.  That’s an increase of approximately 118%.  Less than half of the growth rate in government jobs.  So, no, government hasn’t grown larger to keep pace with a growing population.  It has grown larger to expand its role into our lives.

The birthrate in 1946 was 20.4 births per thousand of population.  In 2010 the birthrate fell to 14 births per thousand of population.  That’s a decrease of 31%.  So while the population grew at 118% between 1946 and 2010, the number of births only increased approximately 50% (from 2.8 million to 4.3 million).  In other words, our current birth rate accounts for less than half of our population growth. 

So we have a public sector growing more than twice our population growth.  And we have a birthrate that is less than half of our population growth.  You put these two facts together and what does it tell you?  The growth of taxpayers to fund the public sector is decreasing while the public sector is increasing.  And this can mean only one thing.  Tax rates on the individual have to increase so fewer taxpayers can support more tax consumers (i.e., the public sector).

Payroll Taxes (Social Security and Medicare) Grew 665% from 1946 to 2010

To simplify the discussion, let’s look only at Social Security and Medicare.  In 1946 there was only Social Security.  And the payroll tax was 1%.  In 2010 we have both Social Security and Medicare.  The total payroll tax for these two is 7.65%.  That’s an increase of 665%.  If you earn $30,000 that comes to $2,295 today.  If the tax rate was at the 1946 level it would only be $300.  Giving you an additional $1,995 to spend.  (If you make $65,000, the numbers are $4,972.50, $650 and $4,322.50, respectively.)  Could you use another $1,995?  If you don’t think that’s a lot consider this.  We pay a lot more taxes than just Social Security and Medicare.  You add all of them up and it totals the price of a decent car.  A care that you pay for but never get to drive.

These numbers increased because costs went up at a greater rate than the number of new taxpayers.  Therefore, each individual taxpayer had to pay more.  This is a problem repeated at every level of government.  Government grew and expanded its role.  And its payrolls.  Based on population models used before birth control and abortion.  But then birthrates declined.  In the second half of the 20th century, new babies made up less than half of our new population.  Which explains the government’s earnest desire for blanket amnesty for all illegals in the country.  To make up for that declining birthrate.  And restore the population growth rate to the numbers the actuaries used in all their calculations to fund all that Big Government spending.

As noted, we pay more taxes than just Social Security and Medicare.  And they’re all going up.  For the same reasons.  Government overstepped its bounds.  Spent money under the most ideal assumptions.  And the moment a little reality entered into the economy their house of cards came tumbling down.  The big states and the big cities are all drowning under their public sector obligations.  They have pension obligations that are pushing them towards bankruptcy.  And the federal government has its own problems with Social Security and Medicare.

It’s Spending Cuts or Bust

It was a simple plan.  Tax a little from everyone.  Give generous benefits to the few you need to vote for you.  Live happily ever after.  But they overreached.  Grew government too big.  Just as the population growth rate took a nosedive.  They have raised taxes on the remaining taxpayers in the private sector about as high as they can go.  If they raise them anymore the greatest recession since the Great Depression may very well turn into another Great Depression.  So what to do?

Well, based on that simple mathematical equation, we have but two choices.  Increase the growth rate of the taxpaying population.  Or cut spending.  If we started today raising families of 10 plus kids, it would still take about 20 years (or more) before these new taxpayers start paying taxes.  But we may not have 20 years.  So that leaves the spending cuts.  Even blanket amnesty for illegals won’t help.  Because government spending is a function of the birthrate.  And sustained spending requires a sustained birthrate.  Amnesty won’t give you that.  So it’s spending cuts or bust.  Literally.

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Egypt Drifting away from Israel and towards Iran?

Posted by PITHOCRATES - February 16th, 2011

Islamic Fundamentalists Hated Hosni Mubarak

Egypt had problems.  High unemployment.  Some bad poverty.  And a pretty oppressive police state.  That said, one thing Egypt didn’t have was extreme Islamic Fundamentalism.  Partly because of that oppressive police state.  So this Middle Eastern nation was relatively safe for westerners.  And they flocked there to see the treasures of ancient Egyptian culture. 

Islamic Fundamentalist elements throughout the Middle East did not like this Western intrusion into their lands.  And they did not like Hosni Mubarak for letting it happen.  Or for being too Western.  Or for maintaining peace with their archenemy.  Israel.  No, that part of the Middle East, the Islamic Fundamentalist part, hated Mubarak and his policies that were far too Western.  Too U.S. friendly.  And, especially, too ‘Jew’ friendly. 

So there is some trepidation over who will take over power in Egypt.  The Muslim Brotherhood?  Who wants to right all these past wrongs?  It’s a possibility.  And if they do and Egypt falls under Islamic Fundamentalism, the region may never be the same.  Especially for Israel.  Who will be surrounded further still.  Syria to the north.  Hezbollah on its borders in the north and along the Gaza Strip.  And, of course, Iran.  What do all of these powers have in common?  They all seek the destruction of Israel.  And anything Jewish.  Including the United States.

Islamic Fundamentalists Hate Israel and Jews

Most of American media is portraying the Egyptian revolt as a democratic movement.  They’re crediting Barak Obama for getting peace there after only 18 days.  And they’re quick to dismiss any concerns about the Muslim Brotherhood.  It’s a bit puzzling to say the least.  Few, if any, revolutions start and end in 18 days.  Democracy just doesn’t work like that.  Not when there are mobs on the street.  Mobs can unite to oppose a common enemy.  But there is rarely anything else that a mob can agree on.

Islamic Fundamentalists hated Mubarak.  Because Mubarak oppressed them.  Now that Mubarak is no longer oppressing them, it is likely that they will become active.  And they’re not really ‘democracy’ people.  They’re more ‘Sharia law‘ people.  With a lot of friends in nearby places (Iran, Syria, Gaza Strip, etc.) who think like they do.  Have weapons.  And hate Jews as much as they do.

Which brings us to this story in The Daily Caller about the horrible sexual assault on CBS Reporter Lara Logan.  We haven’t seen other reports on this and it is difficult to verify.  So bear that in mind.  However, we quote it here because it’s a story that doesn’t fit the media template for this ‘democratic’ movement in Egypt (see Egyptian attackers shouted ‘Jew! Jew!’ while sexually assaulting CBS reporter Lara Logan by Laura Donovan posted 2/16/2011 on The Daily Caller).

CBS and other sources said Tuesday that the network’s chief foreign correspondent, Lara Logan was repeatedly sexually assaulted by thugs yelling, “Jew! Jew!” in Egypt, according to the New York Post.

As we noted above, Israel is not a popular nation in the Middle East.  And Mubarak was hated for being too ‘Jew’ friendly.  Because a lot of people in the Middle East hate Israel.  And Jews.  Next to Israel itself, the United States is number 2 on their hate list.  For its support of Israel.  And the ‘American Jewish bankers’ that are supposedly running the world.  So it is not unbelievable that they would attack and rape an American woman and call her a Jew.  Because rape is a tactic used in conflict (see Video of the Week: Stop Rape in Conflict (UN Women)).  Incidentally, it was the army that saved Logan.  Which appears to be the stabilizing force in Egypt.  So far.

Is Iran Exploiting or Inciting the Egyptian Unrest?

This may have just been an angry mob.  As a percentage of the population, this one event was statistically insignificant.  Except to Logan, of course.  But if the mob did shout ‘Jew’ at this CBS news reporter during the attack, that should concern a lot of people.  Because that’s pretty inflammatory.  And you don’t shout that out unless you feel most of the people around you won’t attack you for it.  You only do something like that when you feel safe.  When you feel the people around you feel the same way.

So should Israel be worried?  Are there powers exploiting the political unrest in Egypt?  Perhaps (see Iran warships ‘sailing into Mediterranean’ posted 2/17/2011 in The Telegraph).

Two Iranian warships planned to sail through the Suez Canal en route to Syria on Wednesday, Israel’s foreign minister said, describing the move as a “provocation” by Tehran…

Israel’s Yedioth Ahronoth newspaper described the Iranian ships as a MK-5 frigate and a supply vessel.

And how often to Iranian warships pass through the Suez Canal?

According to the daily, no Iranian naval vessels have passed through Suez since the Islamic Republic was established in 1979, causing a bitter rift between Tehran and Cairo.

“Tonight, two Iranian warships are meant to pass through the Suez Canal to the Mediterranean Sea and reach Syria, something that has not happened in many years,” Israeli Foreign Minister Avigdor Lieberman said in a Jerusalem speech distributed by his office.

Mubarak would have not allowed the Iranians to move a warship through the Suez Canal.  Now that Mubarak is gone, the Iranians are wasting no time in testing the waters.  Will the Egyptian military permit this?  Or will they block the Iranians?  Can they block the Iranians?  Or are there already too many pro-Iranian elements within Egypt?  If so, it would appear the Egyptian Revolution was less of a democracy movement and more of an Islamic revolution.  Despite what our media and our administration are saying.  So what’s next?

“To my regret, the international community is not showing readiness to deal with the recurring Iranian provocations. The international community must understand that Israel cannot forever ignore these provocations.”

Israel sees a major threat in Iran’s nuclear programme and calls for its elimination, but the countries’ geographical distance has kept them from open confrontation. Syria is one of Israel’s neighbouring foes and an ally of Tehran.

An Iran working towards a nuclear weapon that wants to remove Israel from the map.  An Israel that wants to remain on that map.  And now an Egypt that has some elements that are friendlier to Iran than Israel.  What does this mean? 

It’s a tinderbox.  Should Iran attack Israel it will pull the Western World into war.  A world war.  Because if Iran controls the area, they will shut off the oil supply to the West.  Cripple us in a recession worse than the Great Depression.  While they establish a new Caliphate.  Impose Shari a law.  And bring back the glory days when they stepped into the void of the Roman Empire and controlled most of the civilized world.

Or it could really be a democratic movement.  Time will tell. 

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FUNDAMENTAL TRUTH #53: “The essence of politics is taking from the many and giving to the few.” -Old Pithy

Posted by PITHOCRATES - February 15th, 2011

That Great Sucking Sound of our Money Leaving our Pockets

All right, here’s the dirty little secret about politics.  Most people enter politics for the money.  They can say whatever they want but when it comes to voting tax increases, guess what?  There are tax increases.  Always.  The amount of money transferring from the private to the public sector is always increasing.  Always.  Congress set up close to half of the federal budget to increase automatically.  That great sucking sound isn’t jobs going to Mexico.  It’s our money leaving our pockets.

Take a look at your check stub.  Compare gross pay to net pay.  Are these numbers almost the same?  Or is the difference closer to a car payment?  A house payment?  Depending on where you are in your career this difference on your weekly paycheck could pay for a nice car.  Add them up in a month and they could get you into that nice house in the good school district.  This is a lot of money.  Ask your grandparents what was the difference between gross pay and net pay on their paychecks.  You’ll probably be surprised.  Because, back then, net pay was very nearly gross pay.

Today, nobody gives gross pay a second thought.  We talk about what we ‘net’.  Because we’re just used to it.  You see, the government (federal, state and local) didn’t just start taking hundreds of dollars out of our paychecks.  It was incremental.  Over a long period of time.  Sometimes coming to pennies a day.  Hard to see.  And just not enough to bitch about.  We may see tens of dollars of our gross pay taxed away over a decade or two.  But we typically make more over that same time.  Again, in the great scheme of things, these are small incremental changes.  Just not big enough for a great number of people to bitch about.

Incrementalism, Progressive Tax Rates and the Withholding Tax

That’s the power of incrementalism.  Baby steps.  Little by little.  Big growth over time.  Like watching grass grow.  You don’t see it grow.  Then one day you have to cut it.  And so it is with taxes.  One day you look at your check stub and realize how much you’re paying in taxes.  You may have never realized you were paying so much.  A progressive tax system keeps the tax burden on the young who don’t make a lot money yet low.  So they don’t see it at first.  And keep voting Democrat.  Not because they want to pay higher taxes.  But because the higher taxes haven’t impacted their lives yet.  When they do start paying more in taxes, that’s when some of them start voting Republican.

So taxes creep up on us.  We don’t see them all that clearly at first because of progressive tax rates.  And the fact we pay them before we see them.  Via the withholding tax.  Which provided the greatest advancement in the collection of confiscatory taxes.  For without it there would be tax revolts when April 15th rolled around and people didn’t have tens of thousands of dollars sitting in their checking accounts to pay their taxes.  I mean, what’s easier?  Getting us to pay our taxes with money we never saw?  Or paying our taxes after having that money in our hands first?  Funny thing about earnings.  Once we have the cash in hand we don’t give it up lightly.

That’s why the government introduced withholding taxes.  It makes getting our money from us easier.  And allows them to raise our taxes ever higher.  Because we pay those taxes with gross pay.  Pay we never get.  In our real world, gross pay is a myth.  It doesn’t exist.  Our earnings only become real at net pay.  Sad.  But true.  So they can increase our taxes a lot more than if we were paying them in full in April.  And do.

Pandering and Patronage

Yeah, but America is a center-right country.  And liberal Democrats on the left are the ones who want to keep increasing our taxes to pay for their Big Government programs.  So how can they?  When America is a center-right country.  I mean, if it’s a minority of Americans that want to raise our taxes to grow government, how do they get the votes to increase our taxes in the first place?

By pandering.  Buying votes.  And patronage.  The power to tax provides near-limitless money for politicians to spend.  The trick is in the getting and giving amounts of money.  You tax the many.  And give to the few.  You tax a hundred dollars or so from each paycheck.  And give hundreds of thousands of dollars to those who can help you win election.  That’s how the tax and spend people win elections.  They give money to small groups in exchange for their vote.  Or legislate favorable legislation for them.  Or put someone from that group in the government itself in an oversight position of the industry there’re in.

A small group by itself can’t make a big difference at the polls.  But you get enough of them, they can.  Luckily for the tax and spenders, a lot of these small groups can be found in the political center.  Which helps pull some of that ‘center-right’ to the left.  And this is how the difference between gross pay and net pay continues to grow larger.  These ‘swing votes’ may pay more in taxes, too, but the special privileges they receive from the government more than makes up for it.

The Little Programs Add Up

We pay a lot in taxes.  And yet you don’t hear too many people complain about it.  Why?  The progressive tax rate plays a role in this.  There are more poor people than rich.  So fewer people pay taxes.  And the withholding tax helps, too.  Because most of us don’t even pay attention to what we’re paying.  But what really helps government is the number of taxpayers.  The total amount of taxes each taxpayer pays can ‘appear’ small.  And the amount each taxpayer pays for a specific program can appear smaller still.  This can get a lot of people to ‘support’ these little programs.  Simply by their passive lack of opposition.

For example, heating assistance for the poor is not a very big part of the budget.  And it doesn’t take much out of your paycheck.  You feel for the poor who can’t pay for heat.  You want to help.  So there isn’t a lot of political action against this program.  It’s like those commercials where you can save a child in Africa for the price of a cup of coffee.  I mean, who wouldn’t feel guilty for refusing to buy one less cup of coffee to save a life?  It’s an effective tactic.  Making people feel guilty for being so greedy that they are unwilling to drink one less cup of coffee.  And no one wants to be seen as this greedy.

But the little programs add up.  You start out by sacrificing a cup of coffee.  But when each of these little programs costs you a cup of coffee, they can add up to a dinner.  A movie.  A night on the town.  A new car.  And they do.  That’s why a lot of people can’t live in the school districts they want to.  Because of the aggregate of all of these little programs.  But we never look at the aggregate.  It’s always one program at a time.  To make the taxpayer feel guilty for their greed.  To break down their will to oppose cuts.  To go along with further tax increases.  And a lot of us do.  Which makes that gap between gross pay and net pay grow ever larger.

Taxpayers and Tax Consumers

But things are changing.  And it’s causing a problem.  The baby boomers are beginning to retire.  They’ll soon be using Medicare.  And collecting Social Security.  So the number of taxpayers will go down.  While the number of tax consumers will go up.  And that changes everything.  The fewer taxpayers will have to pay a larger amount of taxes to support these entitlements as well as all of those little programs.  And this will make it a lot harder to hide these taxes.  To make them appear small.  More people will have to go with less to pay these taxes.  Even those who once did all right during periods of high taxation will have to go with less.  Because more people will be consuming Medicare and Social Security benefits.  And it’ll be political suicide to cut these programs.  Leaving little choice but to cut some of the little programs.  Which will give the patrons of Big Government little incentive to support tax and spend any longer.  Because they’ll see more taxing.  And less spending.  On themselves.

Politics as usual will not work as well as it once did.  Because they will not be able to hide the cost of Big Government any longer.  They won’t be taking from the many to give to the few anymore.  They’ll be taking from the few to give to the many.  Which can’t be anything but a recipe for disaster.

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President Obama Submits his 2012 Budget

Posted by PITHOCRATES - February 14th, 2011

Deficit Reduction without Touching Medicare, Medicaid or Social Security?

President submits his 2012 budget.  The president says it’ll cut the deficit.  Make America more competitive.  Create jobs.  Restore vigorous economic activity.  And make America dominant again.  Two years of his policy have failed to do any of this.  But it’ll be different this time.  Why?  I haven’t the foggiest idea.  I can only guess that the president is counting on a bunch of poor memories.

Deficit reduction.  Really?  Well, here’re the numbers (see Budget Plan Marks Start of Long Fight on Spending by Corey Boles posted 2/14/2011 on The Wall Street Journal).

Mr. Obama’s budget offers up more than $1 trillion in deficit reductions over a 10-year period—three-quarters coming from spending cuts and the balance from tax increases or the elimination of existing tax breaks.

That’s $100 billion per year.  That sounds like a lot.  But in the first year when we cut $100 billion from the deficit, we’re still adding another $900 billion to the national debt.  That’s more borrowing.  And more interest to pay.  Sort of like living on your credit cards.  And just like the balance on your credit cards never seems to get smaller, neither will our federal debt.

And the proposed Obama budget reductions don’t come close to the $4 trillion in savings recommended by a White House-appointed deficit commission. This is largely because the president’s budget shies away from pushing for any substantial changes to the entitlement programs Medicare, Medicaid or Social Security. Nor does it include a specific outline for overhauling either the corporate or individual tax codes.

Just under half of the federal budget covers the big three: Medicare, Medicaid or Social Security.  Add in interest on the debt and you’re at about half of the budget.  Defense spending is at about 20%.  Discretionary spending (the kind of spending that the law allows us to cut) is at about 20%.  In other words, we’re making small cuts in about 40% of the budget.  While the 50% that is currently growing out of control (Medicare, Medicaid, Social Security and interest on the debt) we’re not cutting at all.  In fact, this 50% is growing.  And Obama is increasing spending still.

“My budget makes investments that can help America win this competition and transform our economy, and it does so fully aware of the very difficult fiscal situation we face,” Mr. Obama said in his budget message.

His budget would boost funding for the Department of Education to $77 billion from the $64 billion it received in fiscal 2010. The money would be used to increase education competitiveness and increase the number of science, engineering and math teachers in schools by 100,000.

More of the same.  Tax and spend.  And for what?  The kind of spending he’s proposing has never paid the dividends promised.  If it has there would be no need to include it in the 2012 budget.  Because they would already have delivered those promised dividends.  But they haven’t.  Just like they never have.  And never will.  Government spending has never caused the great economic expansions in our history.  Cuts in the tax rates triggered those expansions.  And less government spending.

History doesn’t include any success stories of tax and spend Keynesian economics.  But that is exactly what this budget is.

Baseline Budgeting makes Spending Increases Spending Cuts

And what about that deficit reduction?  Is it real?  No (see President Obama’s Budget – Increased Spending and Taxes by Brian Darling posted 2/14/2011 on REDSTATE).

The fact of the matter is that the President is using fuzzy math to create an inflated budgetary baseline (in other words he has inflated projected spending over a 10 year period) so that he can claim cuts that don’t exist.  Today is the President’s day to pitch his plan, but the Obama Administration has to answer why his baseline is so inflated and why he is planning to raise taxes at a time of economic pain.

Baseline budgeting.  That’s the fuzzy math that says how we can count a spending increase as a spending cut.  Here’s how.  I project I’m going to spend $250,000 for a new house next year.  That’s $250,000 in new spending.  Then I change my mind.  Instead, I decide to spend only $175,000 on a new house.  In the real world, that’s new spending of $175,000.  In baseline budgeting, that’s a cut of $50,000.  Because I’m cutting the increase in the amount I’m going to spend.  And the 2012 budget is full of this stuff.

More Obama math.  Add in a $3.3 trillion in program adjustments and $642 billion in debt services on adjustments.  Add in all of these projections to the baseline and you have adjusted the baseline from $5.5 trillion to $9.39 trillion in debt from 2012-2021.  That is how you adjust debt upward to make it look like the President’s budget is cutting spending.  You inflate projected spending over the next 10 years then increase spending at a lower rate than the baseline, you can create a “cut.”

This is smoke and mirrors.  To count huge spending increases as spending cuts, you just say that spending was originally ‘baselined’ at some ridiculously higher number.  And then you sneak in a big tax increase.

On taxes, the President has hidden a massive increase in the gas tax.  There is a line item in the President’s budget summary tables titled “Bipartisan financing for Transportation Trust Fund” that adds up to $328 billion from 2012-2021.  In the President’s Bipartisan Debt Commission Report, they recommended a 15 cent increase in the gas tax.  The President’s budget seems to assume that his commission’s report is implemented by Congress and send to his desk.  This is an implicit endorsement of a massive increase in the price of gas at the pump in the form of increasing the federal gas tax from $18.4 cents.  If this idea does not pass, then you have a $328 billion shortfall in the projected transportation budget.

Hello $4/gallon gasoline.  And when Republicans try to prevent this tax increase from being implemented, the Democrats will call it an irresponsible tax cut.  For the rich, of course.

Tax and Spend, over Promise and under Deliver 

It gets old.  The same old politics.  Tax and spend.  Over promise.  And under deliver.  Banking on Americans having poor memories.  And that a lot of young new voters who haven’t heard the lies before show up at the polls.  Because the ‘get out the vote’ crowd will tell them “yes they can.”  And they will.  Breathe new life into failed, Keynesian economics.  And make the final reckoning ever worse.

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The Egyptian Military Suspends their Constitution while some here can only Dream

Posted by PITHOCRATES - February 13th, 2011

A Military Coup by any other Name

The Army’s in charge in Egypt (see Military rulers suspend Egyptian constitution by Marwa Awad and Dina Zayed posted 2/13/2011 on Reuters).

Egypt’s new military rulers said on Sunday they had dissolved parliament, suspended the constitution and would govern only for six months or until elections took place, following the overthrow of Hosni Mubarak.

As bad as this sounds, the military is the stable force in Egypt.  They’ve pledged to honor Egypt’s treaties during their rule.  Israel welcomed this news.  As did many governments in the region.  Perhaps the military will be able to win the peace.  Much like our Founding Fathers did after their revolution.  Time will tell.  We hope for the best for the Egyptian people.  The region.  And the world.

The Intent of the Constitution was to Oppress the People?

Suspend the constitution?  You know there are some here in the United States that would like to suspend the Constitution.  To hear some talk about the Constitution, the Founding Fathers were nothing but a bunch of racist, sexist, slave-owning bigots.  And these people mock the Tea Party people for all of their constitutional talk (see What “original intent” would look like by David Schultz posted 2/13/2011 on Salon).

Tea Partiers would be surprised how little freedom they’d have if we read the Constitution literally.

I dare say more people in the Tea Party have read the Constitution than those who argue against them.  Those on the left always say we need to take things in context.  When discussing barbaric customs of some indigenous people.  Or even the right to choose.  We can’t remove the context of environment and/or custom from these things.  But we can when it comes to our founding.

It wasn’t a perfect world in 1787.  We had just defeated the British Empire in a war that lasted 8 years.  And the people were in no mood to replace one central power with another.  Getting a national constitution wasn’t easy.  There were many conflicting interests.  And the states just wanted to go back to the way things were before the Revolution.

But when the Confederation Congress couldn’t pass a ‘national’ tariff over the objection of a single state that benefited well under the status quo, they had to do something.  If the new nation was to survive.  Few nations thought we would.  Some were just waiting in the wings for the collapse.  It was primarily those who served in the military that pushed the idea of nationhood along.  They fought alongside men from different states in a unified army.  These were the first ones to think as Americans.  And it was one man in particular, a retired George Washington, who brought the men together in Philadelphia in that hot and muggy summer in 1787.

It wasn’t easy.  States didn’t want to give up power.  They feared consolidation.  The states didn’t want some faraway seat of power telling them how to conduct their business.  In the context of the times, there was no nation. There were states.  Sovereign states.  Working together in a confederation.  Yes, they understood there were things a national government could do better (coin money, treat with foreign nations, build and maintain a military force, etc.).  But they were leery giving this new central government any power for fear that once they did, there would be no end to this transfer of power.  So the Founding Fathers developed federalism.  Shared sovereignty.  Most of the power would remain with the states.  And only those things strictly enumerated would go to the federal government. 

To begin with, the original document was silent on the right to vote. Voting rights were largely a matter of state law, and in 1787 most states limited the franchise to white, male, Protestant property owners, age 21 or older. The original Constitution did not allow for direct popular voting for president or the United States Senate, and there was no clear language even allowing for voting for members of the House of Representatives.

In the context of the times, white protestant males were the only people voting in the British world.  And Americans came from British stock.  No surprise here.  And a popular vote was not included for a very good reason.  The Founding Fathers feared a pure democracy.  Because once people learn they can vote themselves the treasury, they do.  Also, the states wanted to make sure their interests were represented in the central government.  That’s why state legislators were to elect their senators.  To keep a short leash on the new central government. 

The original Constitution didn’t include a Bill of Rights. Alexander Hamilton, one of the framers and authors of the Federalist Papers, argued against it. The Bill of Rights protects many rights the Tea Party considers hallowed, such as the freedom of speech and assembly and a right to bear arms. Lacking a Bill of Rights, these freedoms wouldn’t be protected against limitation by the national government.

The reason why they argued against a Bill of Rights was that they said they didn’t need it.  The Constitution enumerated the powers of the new central government.  Anything not enumerated was a power retained by the states.  The fear was that if they included a Bill of Rights and forgot to include a right then that right wouldn’t be protected.  But a Bill of Rights became conditional for ratification by some states.  James Madison opposed it (for the reasons just mentioned) but worked tirelessly to include it.  Because he and Hamilton knew it was the price of ratification.

Most importantly, as written, the Bill of Rights limited only national power — not state power

Again, the Constitution was all about limiting the power of the federal government.  It had nothing to do with limiting states’ powers.  No state would have ratified if it did.  This is the concept of federalism.  To keep Big Government small.  The states had their own constitutions.  And if a state became too oppressive, people could move to a state that wasn’t. 

And then there’s the matter of slavery. Article I, Section 1 of the original Constitution permitted slavery and the slave trade… Slavery did not end until the Emancipation Proclamation by Abraham Lincoln in 1863 and the adoption of the 13th Amendment in 1865.

I believe that was Section 2 of Article 1.  And the Emancipation Proclamation didn’t free a single slave.  But I’m nitpicking.  Again, historical context.  Slavery and Social Security have a little in common.  One is a failed institution.  The other is about to fail.  And the cost to fix or undo them is/was absolutely prohibitive.  And socially undoable. 

Article I, Section 9 did address the slave trade by agreeing to table it for 20 years.  It was the only way to get the southern states to join the union.  Because emancipation would wipe out close to have of the equity on many southern balance sheets.   Though immoral, the institution of slavery was legal.  Ending it would simply destroy the southern economy.  Much like what happened after the American Civil War when northern carpetbaggers came down and bought properties at fire-sale prices.  So there is a reason why the Founding Fathers didn’t address slavery more in the Constitution.  Because it wasn’t as easy to fix as Social Security.

And let’s not forget Alexander Hamilton, who argued against the need for a bill of rights and in favor of judicial review. The famous “Report on Manufactures” and “Report on Public Credit” he prepared as George Washington’s treasury secretary argued for an expansive federal government role in assisting the economy — hardly something the Tea Party constitutionalist would endorse.

Hamilton worked in business at a very young age.  And he was in awe of the British Empire.  Of their wealth and power.  He wanted an American Empire.  He wanted to jumpstart American industry.  And wanted to use a tool familiar to him.  Mercantilism.  It was the way the great empires became great.  In the British Empire, America was a supplier of raw goods.  We had no manufacturing base to speak of.  Hamilton wanted to use government to build one fast.  Today government wants to control the economy.  Hamilton wanted to create an economy where there was none.  There’s a bit of a difference.

It should be clear that many of the liberties and rights today’s Tea Partiers demand and benefit from just didn’t exist in the original form of the Constitution. It took many amendments and clarification from the courts to secure them. On top of that, if the ideal the Tea Party espouses ever was realized, it would just mean the states would have more authority to suppress rights.

The amendment process was part of the original Constitution.  The authors provided the means to change the Constitution.  They just didn’t make it very easy.  Unlike a court ruling, many people would have to agree to a change.  Not just a partisan few.  Or a partisan judge.

The Tea Party gets it.  It’s those who rail against them that don’t.

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Fannie Mae and Freddie Mac Winding down after Costing us Dearly

Posted by PITHOCRATES - February 12th, 2011

The Subprime Mortgage Crisis

The housing market is still bad.  And hindering our economic recovery.  The Federal Reserve sees problems inherent in the system.  They don’t want to rehash the blame game for the housing collapse that triggered the worst recession since the Great Depression.  But they do (see Federal Reserve board member: U.S. investigation into mortgage servicing has found ‘widespread weakness’ by Ariana Eunjung Cha posted 2/11/2011 on The Washington Post).

While [Sarah] Bloom Raskin [Federal Reserve board of governors member] said in her speech that she did not want to dwell on how the industry came to such a crisis and instead focus on solutions, she did take some time to issue a harsh reprimand to mortgage brokers, loan originators, loan securitizers, sub-prime lenders, Wall Street investors and ratings agencies whose “selfish free-for-all,” she said, “ultimately led to an economic slide the effects of which are still visible in the boarded-up houses and sheriffs’ foreclosure notices posted all over America.”

Missing from this list is the government.  For it was their policies and threat of legal action that made lenders create all of those risky loans.  Those subprime mortgages.  That put people into houses.  Even if they couldn’t afford to buy a house.  And why did they do this you ask?

U.S. Economic Policy:  Put as many People into Homes as Possible

Well, I’ll tell you.  It’s pretty simple really.  The housing market drives our economy.  Good housing sales equate to a prosperous economy (see Home prices fell in almost half of U.S. cities in fourth quarter, Realtors say by Kathleen M. Howley, Bloomberg News, posted 2/12/2011 on The Washington Post).

Federal Reserve policymakers described the U.S. real estate market as “depressed” in a Jan. 26 statement after the end of a two-day meeting in Washington. The central bankers said declining home values continued to stymie the consumer spending that accounts for about three-quarters of the world’s largest economy.

Three-quarters of the economy.  That’s why government wants to put as many people as possible into houses.  Houses are built with lumber, brick, concrete, linoleum, ceramic tile, plastic plumbing pipe, garbage disposals, electrical wiring, light fixtures, carpeting, paint, ceiling fans, air conditioners, furnaces, etc.  Once we buy a house we have to furnish it.  Stoves, refrigerators, furniture, televisions, stereos, computers, washing machines, dryers, dishes, cutlery, curtains, blinds, beds, sheets, pillows, blankets, coffee makers, etc.  And that’s a lot of consumer spending.

Building and furnishing one house stimulates a lot of economic activity.  That’s why official government policy for decades has been to get as many people to become home owners as possible.  When they extended this to those who couldn’t afford to buy a home, though, we ended up with the subprime mortgage crisis.  And because of Fannie Mae and Freddie Mac, the problem of those subprime mortgages ricocheted throughout the world.

The most Expensive Government Rescue of the Financial Crisis

And speaking of Fannie and Freddie, just how much have their risky behavior cost the American taxpayer?  A lot.  And we’re still counting (see Fannie, Freddie bailout: $153 billion … and counting by Chris Isidore posted 2/11/2011 on CNNMoney).

When the dust settles, the federal bailout of Fannie Mae and Freddie Mac will be the most expensive government rescue of the financial crisis — it already stands at $153 billion and counting…

The Federal Housing Finance Agency, the government body that oversees the two mortgage giants, has estimated that losses through 2013 will require Treasury to pour another $68 billion to $210 billion into the firms on top of the money already used to prop-up the firms and the housing market.

That’s a lot of money.  But at least we may have learned our lesson about putting people into houses they can’t afford.

Friday the Obama administration unveiled its plan to slowly wind down Fannie and Freddie and have banks and the private sector provide the financing for home loans. But the administration plans call for some continued role for the government in promoting mortgage lending and home ownership.

Perhaps not.  Let us not forget what Fannie and Freddie were.  Government Sponsored Enterprises (GSE).  The government provided oversight for these GSEs.  They wrote the laws that they must operate under.  They encouraged them to buy more of those risky loans.  All in the name to put more people into houses.  Because the housing market drives consumer spending that makes up three-quarters of the economy.

The Greed of Fannie Mae and Freddie Mac

Even the Obama administration recognizes their role in the subprime mortgage crisis.  In a report that summarized some ideas about how to proceed post Fannie and Freddie, they clearly point a finger of blame in their direction (see Obama’s Plan: Fannie Mae and Freddie Mac Go, but What Replaces Them? by David C. John posted 2/11/2011 on Heritage’s The Foundry).

The report makes it very clear where the fault for Fannie and Freddie’s failure lies, saying that “as their combined market share declined—from nearly 70 percent of new originations in 2003 to 40 percent in 2006—Fannie Mae and Freddie Mac pursued riskier business to raise their market share and increase profits. Not only did they expand their guarantees to new and riskier products, but they also increased their holdings of some of these riskier mortgages on their own balance sheets” (page 7).

And yet the Federal Reserve blames mortgage brokers, loan originators, loan securitizers, sub-prime lenders, Wall Street investors and ratings agencies.  But if Fannie and Freddie weren’t buying these risky loans, no mortgage banker would have approved these risky loans.  Because no banker would want these on their balance sheets.  But if Fannie and Freddie were buying these, what did these bankers care?  They had zero risk.  It all went to Fannie and Freddie.  And then to the American taxpayer.

If Fannie and Freddie did not buy those risky loans, the problem ends before it begins.  This is an important point that many tend to gloss over.  And here we are.  While still bailing them out of their mess they’re already talking about a continued government role in the mortgage markets.

I guess we’ve learned little from subprime mortgage crisis.  Pity.  For it was an expensive lesson.

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An Egyptian Dictator is bad while an Iranian one is Okay?

Posted by PITHOCRATES - February 11th, 2011

The Handling of the Egyptian Crisis not our Finest Moment

Mubarak is out.  And the military is in.  They will try to restore order now and keep the country from degenerating into anarchy.  But did we back the right horse?

Early on the Obama administration joined the ‘democratic’ protesters in calls for Mubarak’s resignation.  Even though it looked like we didn’t know what was going on in Egypt (see Crisis Flummoxes White House by Adam Entous and Jay Solomon posted 2/11/2011 on The Wall Street Journal).

All day, as rumors swirled Mr. Mubarak would step down, administration officials struggled to understand what was happening, and even U.S. intelligence officials appeared baffled at one point. At a Capitol Hill hearing, Leon Panetta, director of the Central Intelligence Agency, told lawmakers there was “a strong likelihood that Mubarak may step down this evening…”

A senior intelligence official defended Mr. Panetta, saying he was referring to press reports in his comments rather than to CIA intelligence reports.

Interesting.  Our intelligence chief uses the same press reports you and I read to brief Congress.  Probably was not a good idea.  Anything we can read will be in English.  And written for us.  The people who matter?  Those in the midst of the crisis?  They don’t read English.  Because English isn’t the official Egyptian language.  Funny, those Egyptians.  Using their native tongue.  Actually, that’s quite common throughout the world.  That’s why we usually collect intelligence from agents inside the country who immerse themselves in the language and customs of the local people.  That way we understand what the common Egyptian on the street is thinking.  Just hope that the rest of the intelligence we used came from hard sources.

Arab and Israeli diplomats said Mr. Obama’s decision to throw his full support behind the opposition after eight days of protests has likely broken ties with Mr. Mubarak beyond repair.

The move also had the effect of pushing Mr. Mubarak closer to regional allies Saudi Arabia and the United Arab Emirates, which have urged Mr. Mubarak to hold his ground.

As a result, said one Arab diplomat, Washington’s influence in dictating events in Cairo could be limited…

“I don’t think Mubarak trusts too many people from the U.S. anymore,” the Arab diplomat said. “It looks like Omar Suleiman is the right point of contact, but they’re all ticked off with the U.S. position, which they view as throwing Mubarak under the bus.”

We keep hearing about what a dictator Mubarak was.  If he was a dictator, he was a dictator that helped keep the region stable.  He honored the peace treaty with Israel.  He kept the Suez Canal open to navigation.  He supported us during Desert Storm.  He was on our side during Iraqi Freedom.  He has a secular government that has repressed radical Islam.  Yeah, we’re giving him a boatload of foreign aid, and there’s poverty and unemployment throughout Egypt, but to throw him under the bus?  We should be more careful in what we wish for.

In talks with American counterparts in Washington Thursday, top Israeli officials accompanying Defense Minister Ehud Barak made a similar case, warning that the upheaval could be the start of a broader “earthquake” that could sweep the region, said officials briefed on the exchange.

They questioned Washington’s wisdom in appearing to push for Mr. Mubarak’s ouster and whether the military can keep chaos and Islamist forces at bay, a participant said.

Israeli officials also told the U.S. Thursday that right-wing parties in Israel could gain strength in future Israeli elections as a result, complicating efforts to advance peace talks with Palestinians.

Mubarak was an ally.  Israel is an Ally.  The Palestinians?  Not quite an ally.  And yet we choose a course of action that hurts an ally.  And possibly benefits the nation who perhaps is not best aligned with American interests.  Funny.  Not in a ha ha way.  But in a puzzling, confusing way.

One of the biggest questions facing the administration is the future role of the Muslim Brotherhood in Egypt. Mr. Clapper, on Capitol Hill, muddied the picture when he called the group “largely secular,” despite long-standing U.S. concerns about its Islamist roots and ties to extremism.

Mr. Clapper’s spokeswoman, Jamie Smith, later issued a clarification, citing the Brotherhood’s efforts to work through Egypt’s political system. Mr. Clapper “is well aware that the Muslim Brotherhood is not a secular organization.”

Oh, this doesn’t help.  Calling a group with a religion in its name secular.  Not only have we thrown an ally under the buss, but we’ve made ourselves look clueless at the highest levels of government.  If the Muslim Brotherhood takes power in Egypt, Egypt will become more like Iran than Egypt.  And if you haven’t been keeping score, that’s the worst possible outcome of this Egyptian crisis.

Our Allies Worry, our Enemies Jubilant

And how are our other allies in the region taking this?  They’re not exactly whistling a happy tune (see Neighbors Rattled by Egypt Shift by Angus McDowall, Richard Boudreaux and Joel Millman posted 2/11/2011 on The Wall Street Journal).

The resignation of Egyptian President Hosni Mubarak Friday rattled regional allies and foes alike, threatening a decades long balance of power in the Mideast and putting Saudi Arabia and Israel, in particular, on the defensive.

Our two strongest allies in the area are now on the defensive.  That doesn’t sound like they were all for the removal of the stabilizing Mubarak.  How about a terrorist group in the region?  How do they feel?

Hezbollah, the Lebanese Shiite Muslim political and militant group, issued a statement of congratulations to Egypt. Mr. Mubarak has long battled to curb the influence of Hezbollah’s key sponsor, Iran. Celebratory gunfire broke out in some neighborhoods of Lebanon’s capital, Beirut. Cars honked their horns and people waved victory signs.

That doesn’t sound good.  Our friends feel threatened.  And those who aren’t friendly with us are celebratory.  It looks like we just strengthened Iran’s client in the area.  And how about Iran itself?

Iranian officials have been gloating over the turmoil in Egypt for weeks, comparing it to the Islamic revolution that toppled the shah more than 30 years ago. On Friday, Iran’s national news agency IRNA ran headlines including “Egypt is Without a Pharaoh” and “The Great Victory of the Egyptian People.”

“We congratulate the great nation of Egypt on this victory and we share their happiness,” Iranian Foreign Minister Ali Akbar Salehi said in a statement on Friday.

Oh, that is not good at all.  Iran and Egypt were not friends.  Now Iran likes what’s happening in Egypt.  It doesn’t take a rocket scientist to figure out why.  Their client, Hezbollah, was sandwiched between our two allies in the Gaza Strip.  Israel on the north and east.  And Egypt in the south.  No doubt Iran is looking at the possibilities in the Gaza Strip now that their old nemesis is gone.  Elsewhere?

In Amman, the capital of Jordan, and in the Palestinian West Bank, fireworks and honking horns also greeted the announcement. Palestinians in the Gaza Strip set off fireworks and shot firearms into the air to celebrate. Mr. Mubarak’s regime is widely blamed there for cooperating with Israel to isolate the enclave since it came under the rule of the Islamist movement Hamas nearly five years ago.

And this is even worse.  Should Jordan follow the way of Egypt, Israel will be surrounded by the most hostile of peoples.  This could lead to a huge disabling force in the Middle East.  Israel will never see peace.  And neither will Iraq.  All our blood and treasure spent in Iraq could be for naught.  And this will cause trouble with one of our most stalwart allies in the region.  Saudi Arabia. 

Mr. Mubarak’s departure represents a significant diplomatic setback for Riyadh. Egypt and Saudi Arabia has collaborated to counter what they see as growing Iranian influence in the region and also against al Qaeda.

“Saudi Arabia has lost a loyal ally today,” said Madawi al-Rasheed, professor of social anthropology of Kings College, London.

Saudi Arabia has been in a very difficult position.  Their large Wahhabi sect has been a major funding source for al Qaeda.  The Wahhabis, Sunnis, don’t like the House of Saud because they’re too Western.  But the Saudis had been reluctant to crack down on them for their al Qaeda funding lest it sparked civil unrest in the kingdom.  But they hate each other.  Make no bones about it.  But they tolerate each other.  Because of their mutual hatred of someone else.  Shiite Iran.   The enemy of my enemy is my friend.  To a certain extent.  Our invasion of Iraq forced the Saudis to crack down on that al Qaeda funding.  Because they would rather suffer a little civil unrest in their kingdom than see Shiite Iran filling the power void in a Saddam Hussein-less Iraq.

Now they, and a large percentage of the world’s oil reserves, are at risk.  Which brings us back to that earlier question.  Did we back the right horse in Egypt?

Mum’s the word on the Iranian Dictatorship

The name that keeps coming up in all of this is Iran.  They’re the great destabilizing force in the Middle East.  They hate us.  And have been our enemy since the Iranian Revolution in 1979 during the Carter administration.  They’re working on a nuclear weapons program.  They have vowed to incinerate Israel.  If we support the overthrow of any regime it should be the Iranian regime.  But when they take to the streets, we’re surprisingly mute (see Iranian opposition leader under house arrest after protests call by Saeed Kamali Dehghan posted 2/10/2011 on guardian.co.uk).

Iran has put opposition leader Mehdi Karroubi under house arrest after he called for renewed street protests against the government, his son told the Guardian.

The move came after thousands of Iranians sympathetic to the opposition green movement joined social networking websites to promote demonstrations on Monday in solidarity with protesters in Egypt and Tunisia.

For some reason, the Obama administration is all for democracy movements when they take place in nations friendly to the United States.  But not in our enemies.  Even when they have a worst record of human rights abuses.  And have committed the same acts of oppression the Egyptians have.

At the same time, opposition websites reported a series of arrests of political activists and journalists as the regime struggles to prevent the news of the planned protest from spreading.

Access to the blogging site WordPress was blocked and internet download speeds appeared to have been reduced.

Arresting political activists?  Shutting down social media?  Where’s the outcry like there was over Egypt?

The Revolutionary Guards, the regime’s most powerful military force, have warned against any protest. Commander Hossein Hamedani told Iran’s IRNA state news agency that the they consider the opposition leaders as “anti-revolutionary and spies and will strongly confront them”.

“The seditionists [opposition leaders] are nothing but a dead corpse and we will strongly confront any of their movements,” he said.

A threat by the most powerful military force?  Where’s the outrage?  Egypt didn’t do this and yet we demanded that the great dictator step down from power.  But Iran can oppress their people without a comment from the Obama administration.  Why?

Nice Guys Finish Last in the Middle East

It would appear that this is an extension of the apology tour.  Our foreign policy strategy appears to be this.  Be nice at all costs to our enemies.  So they will stop hating us.  Don’t flex our strength.  Roll over and show them our soft underbelly to show how willing we are to trust them. 

The problem is that they don’t respect weakness.  They just see weakness as room for them to maneuver.  To get more of what they want.  By making us give up more of our vital national security interests.  And we’re seeing that play out in the Middle East.  One ally is out of power.  And an enemy expands their reach.  All the while working on a nuclear bomb.

It’s times like this you miss a Ronald Reagan.  Or a George W. Bush.  Or one of the other grownups we had in office.  Someone who isn’t naive and easily fooled.  Someone our enemies hated.  But respected.

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LESSONS LEARNED #52: “The political right is usually right.” -Old Pithy

Posted by PITHOCRATES - February 10th, 2011

The Right Knows Business.  The Left Doesn’t.

Creating jobs is important.  Without jobs no one has any money.  No one can buy anything.  And the government can’t tax what we don’t have.  So jobs are important.  To those on the right.  As well as on the left.

Now critics of the Right claim that those on the right only care about profits.  Not people.  Whereas those on the left claim they care about people.  Not profits.  In some sense this is true.  Those on the right tend to understand business.  They know a business can only survive by making a profit.  And only a business that stays in business can create jobs.  The Right understands this.

Those on the left, on the other hand, don’t really understand business.  They don’t understand incentive.  Only duty.  And sacrifice.  For others, that is.  Not them.  They don’t think a business should make a profit.  That they should give any excess revenue to their workers.  Or to the government.  In other words, business owners, they feel, should serve others.  They should work and sacrifice so others may live better.  Workers shouldn’t have to work hard or sacrifice.  But owners should.

Protecting an Industry only Delays the Inevitable

Some great entrepreneurs created some great businesses.  Made life better for all of us.  Provided good, inexpensive clothing.  Made high quality steel cheaper and more plentiful than any other nation.  Built cars than the average working man could afford.  These titans of industry built this nation.  Because of them we surpassed all other nations and became the most powerful economic engine of the world.  Life was good.  There were lots of jobs.  Lots of stuff.  And lots of homes filled with the most modern stuff available.  America was the place to be.  People waited in line to immigrate to our shores.

Unfortunately, big piles of money attract a lot of people.  And not just workers begging to get a job in these new industries.  No.  It was people looking out for the workers.  Labor unions organized workers.  To get a ‘decent’ wage.  And better working conditions.  Cost of labor went up.  Which made the price of what they sold go up.  Imports started to look more attractive.  So government stepped in and slapped tariffs on those.  To force Americans to pay the higher price for our domestic goods.  Then they legislated ways to further ‘protect’ these American industries.  And how did that all work?

Well, take a look at the American textile, steel and automobile industries.  The Left overreached.  And killed these industries.  They’re no longer the dominate industries they once were.  We have no textile industry to speak of anymore.  The once big steel towns look more like ghost towns.  And the government had to bail out 2 of the Big Three auto makers.  Those generous union contracts added thousands to the price of a car.  Allowing Toyota to take over the top auto manufacturer spot from GM.  By providing the same or better quality for less.

Bad Jobs Today may have been Good Jobs Yesterday

That’s what happens when you protect an industry.  That industry has no incentive to innovate.  To be better.  To be more efficient.  To be more productive.  To give the consumer what they want.  Because when the consumer doesn’t have a choice, where else is the consumer going to go?  So protected industries rest on their laurels.  While others innovate.  And became better.

Combine that with union wages and benefits that keep getting higher and higher and what do you get?  Inferior products that cost more than the higher quality imports.  The Big Three sold crap during the Seventies.  Opened the door to the Japanese.  And a few decades later they took over the top spot from GM.  No matter how much we tried to protect our domestic automotive industry.

Say what you want about life before labor unions but the fact remains that we had more jobs.  And as dangerous or as dirty as those jobs were, people still came to this country by the thousands to get those jobs.  People were falling off the Golden Gate Bridge during construction.  Did that dissuade people from wanting to work on that bridge?  No.  There was a shanty town with people waiting for others to fall and die so they could get their job.  Sure, by today’s standards, these were some pretty nasty jobs.  But not then.  In fact, they were pretty damn good jobs.  Compared to what else was out there.  How can we say this?  Because they chose those jobs over the other jobs out there.

The Greed of the Left Killed the Golden Goose. 

Henry Ford had a bold idea.  He was going to mass produce a car so he could sell it at a price that the working man could afford.  To get the best people in his plants he offered $5 per day.  Twice what other manufacturing jobs were offering.  No union made him do this.  The market did.  He got the best mechanics and the lowest turnover rates.  Other businesses had to follow suit to retain their best people.  And working conditions improved.  Because of the greed of these business owners.

Contrast that to today where union contracts force high wage and benefit packages onto a manufacturer.  And contractual obligations that make it near impossible to get rid of excess workers during times of weak demand.  Using the Ford model, Detroit became the Motor City.  An economic dynamo.  Under the union model, GM and Chrysler went bankrupt.  And Detroit is considering bulldozing sparsely populated neighborhoods into farmland.

When profit wasn’t a dirty word businesses prospered and provided jobs.  When the left came in to protect the little guy from those greedy business owners they made it difficult to make a profit.  Business struggled to compete with their competition.  And when they couldn’t, they shuttered operations.  Jobs disappeared.  The greed of the left to protect against the greed of the right killed the golden goose.  And all those good manufacturing jobs grew legs and left the country.  Where they’re now providing a better life for other workers.  Like they once did here.

Greed is a Hell of an Incentive

The Right understands business.  The Left doesn’t.  But it has never stopped them from trying to tell businesses how they should conduct business.  And the more they get involved, the more business suffers.  The more jobs we lose.  And the less competitive we get as a nation.

FDR tried for a decade to end the Great Depression.  Nothing he did worked.  When World War II came along, something had to change.  There was a crisis.  We needed to provide war material to our allies.  So the FDR administration told American industry to do what they do best.  They let them make profits.  Restored incentive.  And the government said they would interfere no more.  Well, that unleashed the floodgates.  Workers were hired and factories worked round the clock.  Businesses made profits that let them innovate.  Improve productivity.  Trucks, planes, boats, weapons, etc., poured out of American factories.  The Allies armies were mechanized.  Jeeps and trucks moved our armies.  While the Nazis used horses to pull their artillery and supplies.  The Arsenal of Democracy, the Detroit dynamo of industry, won World War II.  And men like Henry Ford made it all possible.  Because they were greedy.

The post-war era was one of the most prosperous times in our nation.  There were jobs for everyone.  And a better life was there for the taking.  Times would stay good until the Left ushered in their Big Government programs beginning in the Sixties.  To protect the little guy.  And it’s been downhill ever since (with a brief respite during the Reagan Eighties).

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The Obama Administration Proposes an Ambitious and Costly High-Speed Rail Plan

Posted by PITHOCRATES - February 9th, 2011

Nowadays Passenger Trains Yield the Right-of-Way to Freight Trains

I remember traveling by train with my family some 20-30 years ago.  My mom loved train travel.  She lived in the golden age of rail.  Has lots of fond memories.  But these are different times.  Even 20-30 years ago.  I remember on that trip we came to a stop on a siding.  Sat there for about a half hour.  Maybe 45 minutes.  I was starting to think there was a problem with the train.  Then a freight rumbled by on the main line.  After it passed, we started moving again.

Now if you understand railroading, you know how significant this is.  Back in the golden age, before planes and the interstate highway system, it would have been the other way around.  Passenger trains got the priority because they made more money.  Back then, freight trains pulled onto sidings.  But today, though heavily subsidized, passenger trains don’t make money.  Freight trains do.  They can pay for themselves.  And make a profit.  Therefore, passenger trains take to the sidings to get out of the way of profitable freight trains.

Freight trains make money because they can move a lot of freight cheaper and faster than other means of transportation.  Passenger trains, on the other hand, are neither the fastest nor the cheapest.  Planes are faster.  Cars are cheaper.  And this is why most passenger rail, including high-speed rail, don’t make money.  Even with huge government subsidies.  Not the same for planes or cars.  One way or another, we pay our own way with these faster and cheaper alternatives.

A Public Works Project that doesn’t End

Despite this, the Obama administration is proposing to spend billions on high-speed rail.  And it’s an ambitious plan (see GOP critic calls Joe Biden’s $53 billion high-speed rail plan ‘insanity’ by Daniel B. Wood posted 2/8/2011 on Yahoo! News).

According to the plan laid out Tuesday by Biden, the first step of the six-year plan would be to invest $8 billion to develop or improve three types of interconnected corridors:

Core express corridors would form the backbone of the national high-speed rail system, with electrified trains traveling on dedicated tracks at speeds of 125 to 250 m.p.h or higher.

Regional corridors would lay the foundation for future high-speed service, with trains traveling between 90 to 125 m.p.h.

Emerging corridors would provide travelers with access to the larger national high-speed network and travel at as much as 90 m.p.h.

During times when oil prices soar, air and truck transportation costs soar.  But not rail transportation.  Why?  Because the massive rail infrastructure costs are greater than their fuel costs.  Unlike with planes and trucks.  Trains have to buy land (or right-of-ways).  Grade the land.  Build tunnels.  Bridges.  Lay track.  Switches.  Install communication systems to control those switches.  And more.  And they have to do this everywhere a train will travel. 

Planes fly between airports.  And trucks drive on roads paid for by fuel taxes.  They don’t have the infrastructure costs railroads do.  So volatile fuel costs impact them far greater than they do the railroads.  So the plan Biden laid out won’t be cheap.  It will be very, very expensive.  And take a long time to build.  It will be a public works project that doesn’t end.

But building high-speed rail is no easy process, says Leslie McCarthy, a high-speed rail expert at Villanova University’s College of Engineering. “Whether or not a bill would or should pass is the easiest part of all this,” she says. “The bigger part of the question is purchasing the land, getting right of ways, zoning issues, environmental impact assessments, laying dedicated tracks in a reasonable amount of time.”

She says the typical US highway project can be held up anywhere from three to five years at the low end to 12 to 20 years at the high end. “Legislators and the public aren’t aware of the number of federal, state, and local laws that agencies have to comply with that can’t be gotten around,” she adds.

The plan will employ a lot of people to build these railroads.  And they will have jobs for a long time.  But it will cost us a fortune in taxes.  Will the investment pay off?  When completed, will these railroads make money? 

In fact, the very thing that makes the Northeast so attractive for high-speed rail – its population density – could also make it the most difficult place to build. “There is so much population in the Northeast corridor that I don’t know if there is even enough room for the dedicated tracks needed for high-speed rail,” says Professor McCarthy. “And if the distances you are going are not sufficient to make efficient use of the high speeds, what’s the point..?”

Critics agree. Only two rail corridors in the world – France’s Paris to Lyon line and Japan’s Tokyo to Osaka line – cover their costs, says Ken Button, director of the Center for Transportation Policy at George Mason University in Fairfax, Va.

“Both of these are the perfect distance for high-speed rail, connect cities over flat terrain with huge populations that have great public transportation to get riders to the railway,” he says, dismissing French claims that other lines make money. He says they calculate costs in ways which ignore capital costs.

Well, with only two high-speed rail lines actually paying for themselves, I guess the answer is ‘no’.  The proposed high-speed rail project will just be a sinkhole for tax money. 

High-Speed Rail:  Huge Expense with Little Benefit

All right.  So the proposed high-speed rail will never pay for itself.  And it will become a permanent sinkhole for our tax dollars.  But it will at least get cars off the road, right?  Reduce our carbon footprint?  Make the earth a greener place?  Or at least take us to our destinations faster?  Probably not (see Obama’s High-Speed Sale by Ernest Istook posted 2/8/2011 on Heritage’s The Foundry).

The “high speed” adjective invokes thoughts of bullet trains speeding at 150 mph, 200 mph or more.  The reality of Obama’s plan is—at best—the 85 mph that is the average speed of America’s fastest train, the Amtrak-run Acela.

When Obama claims his trains would reach 100 mph and more, he’s talking about peak speed reached only for short stretches, not the average.

I’ve actually traveled on Amtrak.  Not the Acela.  But we did reach speeds in excess of 60 miles an hour.  For a short period of time.  In the middle of farm country.  In a metropolitan city, for about 20 minutes or so, we crawled.  The track was so bad that speed limits were reduced.  To prevent further trains from derailing. 

City to city high-speed travel in excess of 150 mph will require new, dedicated track between point A and point B.  Until you have that you’ll never ‘average’ anything close to those high speeds.  And that will require a grand, bold and expensive plan of railroad building.  The question is, knowing that such a railroad will never pay for itself and may never move people faster (unless you build terminals outside of cities where you’ll be able to build these dedicated lines and bus people to and from these terminals), will we at least save the planet?

An exhaustive Department of Energy analysis by Oak Ridge National Laboratory concludes, “intercity auto trips tend to be relatively efficient highway trips with higher-than-average vehicle occupancy rates — on average, they are as energy-efficient as rail intercity trips. Additionally, if passenger rail competes for modal share by moving to high speed service, its energy efficiency should be reduced somewhat12 — making overall energy savings even more problematic.”

The lack of energy or pollution savings leaves us with the key problem:  Huge expense with little benefit.

So we spend a fortune for what?  Surely there must be a better way.

Rail travelers don’t pay their own way as drivers must do.  Obama’s plan would increase the rail subsidies, which already are heavily subsidized with tax money–often by hundreds of dollars a trip for each passenger–whereas the U.S. Department of Transportation reports that drivers receive no subsidy:  Drivers buy the roads through fuel taxes, and also must pay for their own car, gas, insurance and repairs.

Well, there appears to be a better way.  Cars.  And we already have them.  So wouldn’t it be cheaper and more efficient to stick with what we already have and works?

Big Infrastructure brings in Big Federal Money

Yeah, well, that’s not how politics work.  Politicians run for reelection based on how much money they’ve brought home to their districts.  And big infrastructure brings home big federal money (see High Speed Funding in President’s Budget Means More Waste of Taxpayer Dollars by Kathryn Nix posted 2/9/2011 on Heritage’s The Foundry).

Heritage’s Ronald Utt writes that a high-speed rail program would create “perpetual massive government subsidies and larger budget deficits” and “additional burdens imposed on hard-pressed state governments, which will be required to match the perpetual federal subsidies to build the system.”

And bringing home federal money to their districts will be the only benefit of high-speed rail.

Despite its cost, high-speed rail will be ineffective at achieving its goals, if Europe’s experiences are any indicator. High-speed rail is expected to reduce auto and air travel, but in Europe, the trend is actually the opposite: Despite huge government subsidies, travelers are opting more and more to take non-subsidized and less expensive forms of travel.

Per capita spending on rail alone in six European countries was comparable to the United States’ entire transportation budget, yet, says Utt, “these countries received a poor return on their money given that more than 90 percent of passengers in these countries chose other travel modes—mostly auto—despite the subsidies.” Moreover, Utt cites the U.S. Department of Transportation’s Inspector General’s finding that reducing travel time between major East Coast cities by 30 minutes would cost $14 billion but only reduce auto transportation by less than 1 percent.

Can you say boondoggle?

Passenger Rail cannot Subsist without Taxpayer Subsidies

High-speed rail will never pay for itself, it will require perpetual government subsidies, it will not reduce our energy consumption or reduce our carbon footprint.  All it will do is increase deficit spending at the federal and state levels. 

There’s a reason why government subsidizes passenger rail service in the United States.  Because the railroad companies know there is no money in it.  They can make money moving freight.  But not people.  So they move freight.  And let people fly or drive their cars when they want to travel.  Or let the government pay for those passenger trains the way only government can.  With our tax dollars.

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