The Federal Wind Power Subsidy pays for about Half the Cost of Wind-Generated Power

Posted by PITHOCRATES - August 19th, 2012

Week in Review

Taking money from Peter to give to Paul to spend does not increase net economic activity.  Yes, Paul’s spending increases which adds to economic activity.  But Peter’s spending decreases.  Which subtracts from economic activity.  This is the fatal flaw of stimulus spending.  There is no net gain in economic activity.  But the Keynesians don’t understand this.  If they take money from Peter to pay Paul to dig a ditch and then fill it back in they see only Paul’s contribution to the economy when he spends his wages.  They don’t see the reduction in Peter’s spending.  Why?  Because it’s not about economic stimulus.  It’s about the spending.  The taxes.  And the power it gives them (see Morning Bell: Wind Energy Subsidies Are As Useful As VHS Tape Subsidies by Amy Payne posted 8/16/2012 on The Foundry).

The wind production tax credit is set to expire at the end of this year, which has the industry crying out for continued subsidies.

And for good reason.

The subsidy is already equivalent to 50 percent to 70 percent of the wholesale price of electricity.

Wind power makes up a small sliver of our power generation.  Can you imagine the taxpayer cost if it made up a large portion of our power generation?  One shudders to think of a greatly expanding wind power sector and the additional taxation it would require.

Wait a minute.  If the fuel is free why does government have to subsidize the generation of this power?  Good question.  For although the fuel is free (as in sunshine and wind) the infrastructure to convert this free fuel into electricity is very expensive.  It takes an enormous amount of solar panels and windmills to generate useable power.  As well as ancillary equipment to store it or attach it to the grid.  And if the government didn’t pay at least half of this cost solar and wind ‘power plants’ couldn’t generate power at market prices.  Either they would produce power that no one would buy.  And after operating awhile without any revenue they would go out of business.  Or they would simply go out of business without even trying to generate power that no one would buy.  Simply put their power would come with a much higher price tag without those subsidies.  And it’s really hard to charge more for something that is identical to something selling for far less.  Like electric power coming from a coal-fired power plant.

All electric generation probably receives subsidies.  Because that’s what politicians do.  They go to Washington and try to get federal money for their district.  But that’s just the usual graft.  Fossil fuel and nuclear power generated power don’t need subsidies.  They are so reliable and cost efficient that they form the backbone of our baseload power generation.  They run all of the time providing reliable inexpensive electric power.  Natural gas-fired turbines come on to help with peak load demands.  And solar power and wind power are so unreliable and costly that they serve neither baseload power requirements nor peak load requirements.  They are little more than novelties.  And a vehicle to funnel vast sums of taxpayer funds to political allies.  Think Solyndra.  And the Obama administration.

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Social Security is a Ponzi Scheme according to Economist Paul Samuelson who wrote the Book on Economics

Posted by PITHOCRATES - August 19th, 2012

Week in Review

While the Europeans, the Japanese and the Americans all struggle with an aging population and pension and health care systems approaching insolvency Singaporeans are enjoying comfortable retirements.  How?  Because they did something crazy.  They acted responsibly and saved for their retirement and their health care.  Instead of depending on the state (see Singapore’s got some good ideas posted 5/17/2012 on ctpost.com).

…Singapore makes no promises but instead requires all citizens to save up to 36 percent of their income for their own retirement and health care. The government invests the savings in stocks and bonds; the money is not used for current expenditures.

The result? Singaporeans have comfortable retirements. Their health-care system delivers better outcomes while costing 80 percent less than ours, according to 2010 findings from the World Health Organization, and all of it is financed without imposing debt on the next generation. Singapore even reported an uptick in medical tourism last year.

Now, compare Singapore’s system to our own. When Medicare was debated and enacted, Paul Samuelson was America’s most influential economist. He was an adviser to presidents Kennedy and Johnson, author of the nation’s best-selling economics textbook and a soon-to-be Nobel laureate. In 1967, Samuelson wrote in Newsweek about the funding mechanism for Medicare and Social Security: “The beauty about social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in. . . . Always there are more youths than old folks in a growing population. More important, with real incomes growing at some 3 per cent per year, the taxable base upon which benefits rest in any period are much greater than the taxes paid historically by the generation now retired. . . . A growing nation is the greatest Ponzi game ever contrived.”

Samuelson was right about social insurance being a Ponzi scheme even though he was wrong on his economics.  He was a Keynesian.  And it was Keynesian economics that is responsible for so many of our problems today.  Encouraging governments to intervene into the private economy.  And to tax, borrow and print money to spend.  Which has given Japan their Lost Decade.  Gave the U.S. (and the world) the subprime mortgage crisis.  And gave the Europeans their sovereign debt crisis.

So here is one of the Keynesians’ greatest and most admired economists admitting that social spending is what it is.  A Ponzi scheme.  Of course the fatal flaw in the Keynesian model was women’s liberation.  The world changed.  Women stopped having babies.  And when they did we went from having a young population (more people entering the workforce) to having an aging population (more people leaving the workforce).  A baby bust followed the baby boom.  Which smashed apart the Ponzi scheme.  Because there are now more old folks drawing benefits than there are youths entering the workforce to pay for them.  So governments are spending more than they collect in taxes.  And the rate of spending is growing greater than its population growth rate.  Which is a big problem.  As Mr. Samuelson pointed out in Newsweek.

Meanwhile those who are saving for retirement are not having the same problems as they are in Keynesian economies with state pensions and national health care.  Of course a Keynesian would never approve of this.  For savings is to a Keynesian what sunshine is to a vampire.  And they will do everything within their power to prevent people from saving.  Despite their incredible record of failure.  But they keep plugging along.  Why?  Because governments love them.  They keep hiring them.  And they keep listening to their advice.  For they give legitimacy to their irresponsible spending ways.

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President Obama’s GM Bailout Bailed Out the UAW not GM

Posted by PITHOCRATES - August 19th, 2012

Week in Review

GM got into trouble because they couldn’t sell cars competitively.  Because they had higher labor costs than the foreign competitors taking their market share.  And they simply couldn’t sell enough cars at their high prices to pay their labor costs.  Which led them to bankruptcy.  But President Obama saved GM.  By bailing them out.  And putting them on the road to prosperity.  Or did he (see Morning Bell: Taxpayers’ Auto Bailout Losses Mounting by Amy Payne posted 8/14/2012 on The Foundry)?

Taxpayers will lose even more on the auto bailout than previously thought, as the Treasury has just revised its estimate upward to $25 billion. This may still underestimate the losses to come—yet President Obama plans to tout the auto bailout as a key accomplishment of his Administration…

Heritage labor expert James Sherk and co-author Todd Zywicki found that all of the taxpayer losses occurred because the Administration manipulated bankruptcy law to shelter the United Auto Workers’ (UAW) compensation. None of the losses were necessary to preserve jobs, and taxpayers spent billions to prop up the compensation of some of the most highly paid workers in America. They write:

We estimate that the Administration redistributed $26.5 billion more to the UAW than it would have received had it been treated as it usually would in bankruptcy proceedings.…Thus, the entire loss to the taxpayers from the auto bailout comes from the funds diverted to the UAW.

The union workers, who were making more than $70 an hour in wages and benefits, received preferential treatment when their companies had to restructure. GM and Chrysler owed billions to a trust fund they had created to provide UAW members with gold-plated retiree health benefits—and taxpayers ended up paying right into that fund. That doesn’t happen in a normal bankruptcy.

Even Stephen Rattner, President Obama’s “car czar,” has admitted that “We should have asked the UAW to do a bit more. We did not ask any UAW member to take a cut in their pay.” As a result, even after the reorganization, GM still has higher labor costs ($56 an hour) than any of its foreign-based competitors.

So this wasn’t so much a bailout of GM as it was a bailout for the UAW.  Lovely.  More debt for the rest of us so a privileged few can live better than we can.  And to add insult to injury this didn’t even fix GM’s original problem.  Their high labor costs.  Which prevents them from selling their cars competitively.  So the bailout did nothing to help GM.  Which means they’ll probably need another bailout later.  Or special treatment from the government.  Such as a pass on paying their federal income taxes.  So the American taxpayer is not benefitting at all from the GM bailout.  Unless he or she is a member of the UAW.

So in other words, the GM bailout basically screwed the American taxpayer.  So the president could reward a political ally.  That will repay his kindness in campaign contributions.  And votes.  Which he desperately needs because his stewardship of the economy is worse than Jimmy Carter’s.

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Bill Gates trying to Reinvent the Toilet for Countries without Clean Drinking Water and Wastewater Treatment Plants

Posted by PITHOCRATES - August 19th, 2012

Week in Review

Our bodily excretions are among the less pleasant things we do as humans.  For there is little dignity while having a bowel movement.  In modern countries we can at least do that behind closed doors.  But in developing countries they have no such luxuries as a closed bathroom door and a flush toilet to sit on.  And a sink with clean water to wash our hands in afterwards.  It’s kept us clean as a people.  And allowed people to work more closely together.  Even filling massive high-rises full of people.  Who can at anytime go to a clean restroom on their floor for a discrete and clean bowel movement.  Something we all take for granted.  Little realizing what a great gift that is (see Bill Gates challenges scientists to reinvent toilet by AP posted 8/15/2012 on The Telegraph).

Bill Gates, the Microsoft co-founder has challenged scientists to reinvent the lavatory for the 2.5 billion people in the world who have no access to modern sanitation…

The United Nations estimates disease caused by unsafe sanitation results in about half the hospitalisation in the developing world. About 1.5 million children die each year from diarrheal disease.

Scientists believe most of these deaths could be prevented with proper sanitation, along with safe drinking water and improved hygiene…

Flush lavatories waste tons of potable drinking water each year, fail to recapture reusable resources like the potential energy in solid waste and are simply impractical in so many places.

Yes, flush toilets are horrible.  Except, of course, in preventing mass hospitalization and death by diarrheal disease for millions of children.  Which is pretty nice to prevent.  But apart from making the developed world a much healthier place to live and to raise your children, what has the flush toilet done for us?

Yes, building a better toilet for the undeveloped world may help the undeveloped world.  But developing the undeveloped world would help them more.  It would give them flush toilets AND clean drinking water, hospitals, schools, grocery stores, etc.  And you don’t need to be blessed with natural resources to make this happen.  Two of the best places to live, Hong Kong and Singapore, are not blessed with natural resources.  But they have vibrant economies.  And it’s that vibrant free market economy that makes them great places to live.  And, of course, flush toilets.

High-tech toilets are nice.  But there are things better than high-tech toilets.  Like clean drinking water.  And wastewater treatment plants.  They’ve done great things in the developed world.  Even gave us the wealth to help the undeveloped world.  Because our hospitals aren’t full of people dying from diarrheal disease.  Instead they’re living healthy lives and contributing to vibrant economies.

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Tens of Thousands of NHS Patients waiting up to 12 Hours on A&E Gurneys for a Hospital Bed

Posted by PITHOCRATES - August 19th, 2012

Week in Review

There are times in American emergency rooms where patients are waiting on hospital gurneys (or trolleys) for a bed to open up in the hospital.  Sometimes emergency rooms get overwhelmed one day.  While another day they have empty beds and time to kill.  For it is hard to forecast health emergencies.  In the UK, however, it appears budget problems are exasperating their problems.  And they are trending in the wrong way (see 67,000 NHS patients forced to wait up to 12 hours on A&E trolleys by Telegraph Reporters posted 8/15/2012 on The Telegraph).

Almost 67,000 patients during the first half of this year endured long waits for emergency beds, an increase of nearly a third, according to the government statistics…

Over a six-month period to June, 66,845 patients were found to have waited for between four and 12 hours for a bed once doctors decided they needed to be admitted.

During the same period the previous year, nearly 51,000 patients endured similar waiting times, the equivalent of a 31 per cent rise, according to the DoH…

Tim Curry, the assistant head of UK nursing at the Royal College of Nursing, described the scale as “startling”.

He blamed the rise in the figures on a “perfect storm” of increased patient expectations, financial pressures and NHS reforms.

“You need skilled nurses and vacant beds, and both of those are under huge pressure,” he said.

To be fair they just don’t park these patients up against a wall while they wait.  Doctors and nurses are still assessing and treating them while they wait in Accident and Emergency (A&E) departments.  But there is a trend.  And it’s going in the wrong way.  Longer waits.  Because, of course, of financial pressures.  Caused by an aging population that is stressing their health system at the same time fewer workers are entering the workforce to pay the bills.  Fewer dollars (or pounds in this case) being spread out to cover more patients.  You don’t need to be a financial analyst to see what this will result in.  Longer wait times.  And rationing.  Including a shortage of skilled nurses and vacant beds.

The NHS has the same problem the Americans have with Social Security and Medicare.  All three of these programs were set up during a time of an increasing population growth rate.  People were having babies.  More workers were entering the workforce than were leaving it.  So each retiring generation had more workers in subsequent generations to pay the bills.  But after the baby boom this all changed.  People stopped having babies.  And throttled back the spigot of new taxpayers entering the workforce.  Which is causing budget deficits and mushrooming debt in every social democracy.  And until the baby boomers leave this world governments will struggle to provide for them with fewer resources.

So this would be the absolute worst time to introduce a new large government program.  Indeed only a fool or one blind of history and utterly ignorant of economics would propose a new massive entitlement program in this day and age.  Which, incomprehensively, the American Left did.  Giving the Americans Obamacare.  The biggest government program in American history.  And the Americans will have no hope of ever paying for it.  Not with an aging population.  And they did this while Social Security and Medicare are already projected to go bankrupt.  In fact, Obamacare even takes some $700 billion from Medicare.  Talk about your perfect storms.  If the Americans don’t repeal Obamacare (and reform their entitlements) their spending obligations will bankrupt them and transform America into a shell of her former self.

Some would say we should learn by Britain’s mistake.  The folly of national health care, especially with an aging population.  Instead the Obama administration seems intent on being the example of ‘what not to do’ for others to learn by.  For Obamacare is clearly something the Americans should not have done.

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The Federal Government taxes away about Half of Every Dollar the Middle Class Earns

Posted by PITHOCRATES - August 19th, 2012

Week in Review

Thanks to withholding tax people don’t fully appreciate how high their taxes are.  They know they’re high.  So high that gross pay means nothing to them.  Workers only speak of ‘net’ pay.  Or ‘take home’ pay.  The money they actually get.  Not that strange fictitious ‘gross’ pay on their paycheck stub.  Whatever that is.  And what is gross pay?  Their pay.  It’s their money.  And they would have had it when they cashed their paychecks if their employers didn’t withhold it so they could give it to the government.  And why does the government use the withholding tax to take our money?  Because if we had to write a check at the end of the year for our full tax amount there would probably be a nationwide tax revolt.  Which is why the taxing authorities take that money before it gets into our hands.  Because once it is in our hands people may be less willing to hand it over to the taxman.  Which is probably why the Founding Fathers didn’t include any withholding taxes in the Constitution.  They did not want to make it easy for the government to take our money.

So how high are the taxes on the middle class?  Pretty high (see Government Will Take Almost Half Your Paycheck in 2013 by Patrick Tyrrell posted 8/13/2012 on The Foundry).

A middle-class taxpayer’s income is subject to a 25 percent federal income tax. Then there is the federal Social Security and Medicare payroll tax of 13.3 percent in 2012—5.65 percent of that is removed from the employee’s paycheck, and the remaining 7.65 percent is paid by the employer. (In reality, the employee pays the entire 13.3 percent, because the employer’s portion of the tax does not affect the cost of labor: The employer would pay the employee 7.65 percent more if there were no employer’s portion of the payroll tax.)

So the 25 percent federal income tax plus 13.3 Social Security and Medicare payroll taxes equals 38.3 percent going to federal taxes in 2012.

And then there are state taxes. According to the Tax Foundation, the average state’s income tax rate for the middle-class taxpayer is 4.82 percent, which brings the total to 43.12 percent in federal and state taxes.

In Billy Joe’s Movin’ Out (Anthony’s Song) he says, “You can pay Uncle Sam with the overtime.  Is that all you get for your money?”  The point being is this.  Yes you can give up your Saturday and work some overtime.  But is it really worth it when you can only keep about $0.57 of each additional dollar you earn?  Not really.  Which is why a lot of people who work with their hands will do ‘side work’ for cash under the table.  So they can keep every penny of every dollar they earn.

Or some will work some hours serving tables in a restaurant.  For a little extra spending cash.  I worked with a lady who did.  A devout liberal Democrat.  And part of the middle class.  I asked her if she reported all her tips so she could pay her fair share of taxes on those earnings.  Even though she was a steadfast liberal Democrat voter who always voted ‘yes’ to increase tax rates on others she said the government had already taxed her enough.  So that those supplemental earnings should be hers free and clear.  Of course, that’s not how the tax law works.  You make more you pay more.  She wouldn’t give me a definitive answer on whether she reported all her tips as income.  But it was interesting to hear her say that high tax rates were fair.  As long as she didn’t have to pay them.  Well, her taxes will be going up.  Fair or not.

And it’s going higher, thanks to the nearly $500 billion in tax increases for 2013 that some have called Taxmageddon. In January of next year, the federal income tax rate for middle-class taxpayers is scheduled to rise from 25 percent to 28 percent, and the payroll tax is scheduled to rise from 13.3 percent to 15.3 percent. This drives the marginal tax rate based on the aforementioned three taxes to 48.12 percent. Add in state and local property, corporate, excise, and other state and local taxes, and the percentage of each additional dollar that is taxed hovers around 50 percent.

When half of each additional dollar earned is taxed away, taxpayers experience a disincentive to start businesses or expand existing ones. This leads to fewer jobs being created.

It’s like we divorced our government in the state of California.  And we lost half of everything we earn to a spiteful ex.  Half!  Yeah, that really encourages you to work hard and build your business and hire more people.  So you can deal with the labyrinth of government regulatory compliance.  Lawsuits.  Insurances.  Drug testing.  Sexual harassment training.  All the while hearing the government tell you, “You didn’t build that.”  That you somehow won life’s lottery to riches.  And that you’re greedy for not wanting to pay more taxes.  And for what?  To keep half of every dollar you earn?  It would be a lot easier just to lay off all your workers. Shut down your business.  And go to work for someone else.  And let them deal with these headaches.  Like they did in the Roman Empire as it was collapsing under the weight of her welfare state.  Until the Romans passed laws forbidding people from quitting the work they were doing.

The sad thing is that so many people will vote to perpetuate this binge of taxation.  While they themselves will do everything within their power to avoid paying their own ‘fair share’ of taxes.  While demanding the rich pay more.  Even though the top 10% are already paying 70% of all federal taxes.  The truth is that the rich can’t pay these taxes.  There just aren’t enough of them.  Even if you take everything they earn.  Which leaves the middle class to make up this tax shortfall.  So they take half of everything they earn.  And will continue to take more as their spending continues to grow.  And if people begin to quit the hard jobs because they can’t keep their earnings perhaps the government will step in like the Romans did.  And force people to be doctors.  To run pharmaceutical companies.  To build the next new technology.  It’s happened before to an empire that began as a limited republican government.  So it can probably happen again.  Besides who would have ever thought that the country borne out of a tax rebellion would one day take half of every dollar a middle class worker made?  No one would have seen this coming.  And yet here we are.  Paying half of every dollar we earn to Uncle Sam.

The Founding Fathers would be flabbergasted.  Upset.  And saddened.  To see what had become of their beloved republic.  And their experiment in limited self-government.

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