Aging Populations and Replacement Birthrate

Posted by PITHOCRATES - April 28th, 2014

Economics 101

(Originally published July 8th, 2013)

Trying to follow a Baby Boom with a Baby Bust creates Problems in Advanced Economies with Large Welfare States

In the late 1960s began a movement for zero population growth.  It called for women to have only enough babies to replace the current population.  Not to have too many babies that would increase the population.  Nor have too few babies that the population declines.  Something that women could easily do because of birth control.  And, later, abortion.  The drive behind this was to save the planet.  By keeping large populations becoming like a plague of locusts that devour the earth’s resources and food until the planet can no longer sustain life.

China did these zero population growth people better.  By promoting a negative population growth rate.  Limiting parents to one child.  They did this because during the days of Mao’s China the country set some world records for famine.  Their communist state simply couldn’t provide for her people.  So to help their communist system avoid future famines they tried to limit the number of mouths they had to feed.  Of course, trying to follow a baby boom with a baby bust creates other problems.  Especially in advanced economies with large welfare states.

China’s one-child policy and the preference for boys have led to a shortage of women to marry.  Some Chinese men are even looking at ‘mail-order’ brides from surrounding countries.  But China is going to have an even greater problem caring for her elderly.  Just like Japan.  Japanese couples are having less than 1.5 babies per couple.  Meaning that each successive generation will be smaller than the preceding generation.  As couples aren’t even having enough children to replace themselves when they die.  Leaving the eldest generation the largest percentage of the overall population.  Being paid and cared for by the smallest percentage of the overall population.  The younger generation.

States with Aging Populations are Suffering Debt Crises because they Spend More than their Tax Revenue can Cover

As nations develop advanced economies people develop careers.  Moving from one well-paid job to another.  As they advance in their career.  Creating a lot of income to tax.  Allowing a large welfare state.  Which is similar to a Ponzi scheme.  Or pyramid scheme.  As long as more people are entering the workforce than leaving it their income taxes can pay for the small group at the top of the pyramid that leaves the workforce and begins consuming pension and health care benefits in their retirement.  And there is but one requirement of a successful pyramid scheme.  The base of the pyramid must expand greater than the tip of the pyramid.  The wider the base is relative to the top the more successive the pyramid scheme.  As we can see here.

Babies per Generation - Constant Replacement Birthrate

Generation 1 is at the top of the pyramid.  It is the oldest generation.  Which we approximate as a period of 20 years.  In our example Generation 1 are people aged 78-98.  They’re retired and collecting pension, health care and other benefits.  Some combination of Social Security, Medicare, Medicaid, food stamps, heating assistance, etc.  All paid for by Generation 2 (58-78), Generation 3 (38-58) and Generation 4 (18-38).  Each generation is assumed to bring 6 children into the world.  So these couples are not only replacing themselves but adding an additional 4 children to further increase the size of the population.  Which really makes running a pyramid scheme easy.  For if we assume each member in Generation 1 on average consumes $35,000 annually in benefits that Generations 2 through 4 pay for that comes to $555.56 per person annually.  Or $46.30 per person monthly.  Or $10.68 per person weekly.  Or $1.53 per person daily.  Amounts so small that Generations 2 through 4 can easily pay for Generation 1′s retirement.  Now let’s look at the impact of a declining birthrate with each successive generation.

Babies per Generation - Declining Replacement Birthrate

When all couples in each generation were having on average 6 children this added 1.9 billion new taxpayers.  Which greatly reduced each taxpayer’s share of Generation 1′s retirement costs.  But thanks to birth control, abortion and the growing cost of living each successive generation has fewer babies.  Generation 2 only has 3 children.  Enough to replace themselves.  And add one new taxpayer.  Generation 3 has only 2 children.  Only enough to replace the parents.  Providing that zero population growth that was all the rage during the late 1960s and the 1970s.  While Generation 4 only has 1 child.  Not even enough to replace the parents when they die.  Causing a negative population growth rate.  Which is a big problem in an advanced economy with a large welfare state.  For instead of adding 1.9 billion new taxpayers they only add 217.5 million new taxpayers.  Greatly increasing each taxpayer’s share of Generation 1′s retirement costs.  Instead of paying $555.56 per taxpayer they each have to pay $5,384.62 annually.  Or $448.72 per taxpayer monthly.  Or $103.55 per taxpayer weekly.  Or $14.79 per taxpayer daily.  Numbers that prove to be unsustainable.  The state simply cannot tax people this much for Generation 1′s retirement.  For if they did this and added it to the rest of government’s spending they’re taxing us to fund it would take away all of our income.  This is why advanced economies with aging populations are suffering debt crises.  Because their spending has grown so far beyond their ability to pay for it with tax revenue that they borrow massive amounts of money to finance it.

If you want a Generous Welfare State you need Parents to have More Children

If you carry this out two more generations so every generation only has one child the per taxpayer amount tops out at $14,736.84 annually.  Or $1,228.07 per taxpayer monthly.  Or $283.40 per taxpayer weekly.  Or $40.49 per taxpayer daily.  Amounts far too great for most taxpayers to pay.  This is what an aging population does in a country with a large welfare state.  It makes the population top-heavy in elderly people who no longer work (i.e., pay taxes) but consume the lion’s share of state benefits.  When couples were having 6 children each across the generations there was a ratio of 84 taxpayers per retiree.  When there was a declining replacement birthrate that ratio fell to 15 taxpayers per retiree.  If we look at this graphically we can see the pyramid shape of this generational population.

Generational Population - Constant Replacement Birthrate

With 84 taxpayers per retiree we can see a nice and wide base to the pyramid.  While the tip of the pyramid is only a small sliver of the base (Generation 4).  Making for a successful Ponzi scheme.  Far more people pay into the scheme.  While only a tiny few take money out of the scheme.  This is why Social Security and Medicare didn’t have any solvency problems until after birth control and abortion.  For these gave us a declining replacement birthrate over time.  Greatly shrinking the base of the pyramid.  Which made the tip no longer a small sliver of the base.  But much closer in size to the base.  That if it was an actual pyramid sitting on the ground it wouldn’t take much to push it over.  Unlike the above pyramid.  That we could never push over.  Which is why the above Ponzi scheme would probably never fail.  While the one below will definitely fail.

Generational Population - Declining Replacement Birthrate

If you want a generous welfare state where the state provides pensions, health care, housing and food allowances, etc., you need parents to have more children.  For the more children they have the more future taxpayers there will be.  Or you at least need a constant replacement birthrate.  But if that rate is below the rate of a prior baby boom the welfare state will be unsustainable UNLESS they slash spending.  The United States has a replacement birthrate below the rate of a prior baby boom.  While the Obama administration has exploded the size of welfare state.  Especially with the addition of Obamacare.  Making our Ponzi scheme more like the second chart.  As we currently have approximately 1.75 taxpayers supporting each social security recipient.  Meaning that it won’t take much pushing to topple our pyramid. We’re at the point where a slight breeze may do the trick.  For it will topple.  It’s just a matter of time.

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FT214: “The far left has been and always will be an aristocratic-thinking, privilege-seeking people.” —Old Pithy

Posted by PITHOCRATES - March 21st, 2014

Fundamental Truth

Lawyers make a lot of Money without Contributing anything Tangible to Society

An attorney was sitting in his office late one night when Satan appeared before him.  Satan said, “I have a proposition for you.  You can win every case you try for the rest of your life.  Your clients will adore you, your colleagues will stand in awe of you and you will make embarrassing sums of money.  All I want in exchange is your soul, your wife’s soul, your children’s souls, the souls of your parents, grandparents, parents-in-law, the souls of all your friends and law partners.”  The lawyer thought about this for a moment then asked, “So, what’s the catch?”

That’s funny, isn’t it?  Lawyers.  Ambulance chasers.  The butt of so many jokes.  Why?  Well, some will say they deserve it.  Because they do chase ambulances.  And will pass out their business cards if they’re on a sinking ship.  Because sinking ships are good for lawsuits.  And lawyers love to sue.  For they can make a lot of money without contributing anything tangible to society.  All they do is get between two parties when large sums of money change hands.  And put a portion of that money into their pockets.  That’s how they earn their living.  Taking money away from others.  They’re parasites.  Just to get rich.  And the big tort lawyers (those who sue people and businesses) get really rich.  Allowing them to live very privileged lives.

Take a class action lawsuit.  Where they bring a lot of wronged people together to sue a large corporation.  The old David and Goliath thing.  A little person can never take on a big corporation.  But a whole class of them can.  When represented by a tort lawyer.  Who liken themselves as heroes of the little guy.  Taking the big corporation on to make them pay for all the horrible things they’ve done to their clients.  But who do they really help?  Let’s say they win a judgment from a big corporation of $250,000,000.  That’s a lot of money.  From that sum they take their cut.  Let’s say 50%.  Leaving $125 million for the people the corporation wronged.  That’s a lot of money.  So the people won, too, right?  Not really.  For there are a lot of people represented in these class actions.  Let’s say 5 million in our example.  So if you divide the $125 million by 5 million that comes to $25 per person.  So, again, who did the lawyers really help?  The lawyers.  Which is why there are so many lawyer jokes.

In the Private Sector if you want to spend Half of your Life Retired you have to Pay for It

Lawyers vote Democrat.  Because they like being privileged people.  They don’t want the laws changing that allow them to get so rich when money exchanges hands.  Which is why they donate heavily to the Democrat Party.  And don’t donate to the Republicans.  Who complain about the high costs of frivolous lawsuits to businesses in an overly litigious society.  It’s so bad that a footnote in the financial statements of a corporation about a lawsuit is not that big of a deal.  Why?  Because so many corporations are sued that investors are more surprised to see one that isn’t being sued.  This is why Republicans want tort reform.  And pass ‘loser-pays’ into law.  Like many other countries have.  Where the loser in court pays for the attorney fees for the side that wins.  Which would greatly cut down on frivolous lawsuits.  And cut the costs businesses incur from these frivolous lawsuits that they pass on to their customers.  So the lawyers donate to Democrats.  To prevent any tort reform that would change the easy way lawyers have of getting rich.

It’s the world’s oldest profession.  Screwing people for money.  But lawyers aren’t the only ones seeking privilege.  There are a lot of others, too.  Interestingly, they, too, support the Democrat Party.  Such as the United Autoworkers.  They donate heavily to the Democrat Party to keep labor laws favorable to unions.  To make it more difficult for their nonunion competition.  And to use the power of government to force people to pay may for a union-made car.  Allowing their union members to live better lives than those outside of the UAW.  And when even that doesn’t allow General Motors to pay its bills when selling a record number of cars the UAW goes to government for a bailout of their woefully underfunded pension fund.  So their union members can continue to have a more generous retirement at an earlier age than those outside of the UAW.

Teacher unions seek privilege, too.  You hear a lot about how the teachers don’t earn that much.  But then again, they don’t work that much.  Getting 3 months off in the summer.  So you can’t compare their wages to people who don’t get the 3 summer months off.  But for teachers it’s not so much about the paycheck.  It’s the benefits.  Very generous health insurance coverage.  And pensions.  Which have gone the way of the dodo in the private sector.  Because people are just living too long into retirement.  When they first set up these pensions people were dying in their sixties.  The actuaries never saw people living into their eighties as common.  So in the private sector if you want to spend half of your life retired you have to pay for it.  And you work as long as necessary to fund the retirement you want.  The union pensions just can’t work these days as they once did.  Which is why teacher unions like the United Autoworkers and lawyers support the Democrat Party.  They want to keep their privileged lives.

The Wealth Transfers of the Welfare State give Democrats Money and Privilege

Of course privilege is nothing new to the Democrat Party.  They have long stood for privilege.  Even now.  As the Democrats provide themselves all kinds of exceptions from the Affordable Care Act.  For more expensive and lower quality health insurance is good for the masses.  But not for the privileged elite.  Or their special friends who support them so generously with campaign donations.  Congress has had a history of exempting themselves from the laws they pass for us.  It took the Republican winning of the House in the 1994 midterm elections to change that.  The first Republican-controlled House since 1952 required Congress to be held to the same laws as the rest of us.  A bitter pill for Democrats to swallow.  For their feelings of privilege go way back.

The Democrat Party can trace its pedigree back to Thomas Jefferson’s Democratic-Republican Party.  The party of the slave-owning planter elite.  Who from day one fought for their privilege starting with the Three-Fifths Compromise.  To give them a greater say in the new national government than their voting population allowed.  The planter elite’s South turned into an Old World aristocracy.  With great manors for the landed aristocracy.  And vast lands worked by slaves.  Very similar to feudalism in the Old World.  And something they fought hard to keep.  Their privilege.  The Southern Democrats used the power of the national government (such as the Fugitive Slave Act) to interfere with state laws in the North.  To protect their feudalism by keeping slavery legal as long as they could while the north was industrializing and modernizing.  With paid laborers.  When they lost control of the House due to the growing population in the North they turned to war.  Saying that the national government was interfering with state laws in the South.  And getting poor southern farmers who owned no slaves to fight and die so the southern aristocracy could live on.

When the Southern Democrats lost the American Civil War they scrambled to maintain their privilege.  They unleashed a terror on the freed slaves and Republicans with the KKK.  The Democrats then wrote Jim Crowe Laws.  Separate but equal.  Government-enforced racial segregation.  During debate of the Civil Rights Act of 1964 Democrat and former Exalted Cyclops of the KKK Robert Byrd filibustered for 14 hours.  To keep the South segregated.  With power and privilege in a new aristocracy.  Centered not on land but political power and cronyism.  Even becoming the party for blacks as ironic as that is.  Trading government programs for votes.  And destroying the black family in the process.  Aid to Families with Dependent Children (AFDC) replaced black fathers with government.  And moved single mothers and their children into housing projects that became infested with drugs and crime.  But this large (and failed) welfare state transferred a lot of wealth to the Democrats.  Giving them money and privilege.   That they can use to maintain their power.  By taking care of those who take care of them.  Lawyers, the UAW, teacher unions and other privilege seekers.  For nothing has changed on the left.  They have been and always will be an aristocratic-thinking, privilege-seeking people who want to live better than the rest of us.  While we pay for their privileged lives.

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Guns, Butter and Abortion

Posted by PITHOCRATES - February 24th, 2014

Economics 101

Democrats will cut Defense but not Entitlements because fewer People in Defense vote Democrat

A cornerstone of the Obama presidency is social justice.  Primarily through redistribution of wealth.  Raising taxes to fund a growing welfare state.  To help those not lucky enough to have won life’s lottery.  Such as expanding the food stamp program (Supplemental Nutrition Assistance Program).  Which has grown over 70% under President Obama.

Of course, this costs money.  A lot of it.  Added on top of an already costly welfare state.  Driven by entitlement spending.  Social Security.  And Medicare.  The biggest portions of federal spending.  And it only keeps growing.  Making the welfare state unsustainable without entitlement reform.  But the politicians won’t touch entitlements.  The third rail of politics.  Because they’re afraid of losing votes in the next election.  So they’d rather the country implode instead of reforming entitlements.  And hope that implosion comes after they’re dead and buried.  For as long as they get to enjoy their lives they could give a rat’s behind about future generations.

But they will touch defense spending.  And often do when they are looking for more money for the welfare state.  Even now.  The Obama administration is proposing spending cuts in defense spending.  That will shrink the size of the military.  And cut pay and benefits for some of the lowest paid people in the country.  The people who go in harm’s way for their country.  They won’t touch entitlement spending because it may hurt people that typically vote Democrat.  But they have no problem doing just that to those who wear a uniform to serve their country.  Who don’t always vote Democrat.  Just so they can have a generous welfare state like the European social democracies they so admire have.  Who can have them because they don’t have large defense budgets.  For the United States has been protecting them since World War II.

People can’t pay Taxes to fund a Welfare State without a Job that Provides an Income to Tax

If you watch television you’ve probably heard New York State’s commercials to attract new businesses to New York.  Where the state is promising that businesses will be “100% tax-free for 10 years.  No income tax, business, corporate, state or local taxes, sales and property taxes, or franchise fees.”  Which is a clear admission from the state with the second highest tax burden in the country that high taxes hurt business.

The tax burden is so great in New York that some businesses have moved their operations out of state.  And people with vacation homes in New York who only visit them a couple of weeks out of the year are selling them.  As the state is taxing their incomes as if they are permanent New York residents.  But despite these high taxes New York has suffered great budget deficits.

New York City is a Democrat city.  Their high taxes pay for a large welfare state.  A large public sector.  And the enormous costs of their public sector benefits.  In particular, health care and pension costs.  But their high tax rates have shrunk the tax base.  Because people can pack up and move out of state.  Just as businesses can.  Which is why they are doing a 180-degree turn on taxes.  In a desperate attempt to get businesses to come to New York.  For even if these businesses aren’t paying taxes their employees will.  Income taxes.  Sales taxes.  Property taxes.  Liquor taxes.  Cigarette taxes.  Etc.  None of which they can pay if there are no jobs to give them an income the state can tax.

The Number of Abortions is having a Direct Impact on the Economy and Tax Revenue

New York City released its SUMMARY OF VITAL STATISTICS 2012 THE CITY OF NEW YORK PREGNANCY OUTCOMES this month.  In it you can find why New York City, New York State and the federal government are having such a difficult time paying for their welfare states.  It’s because of liberal Democrat policies.  Not on the spending side of the equation.  But on the revenue side of the equation.

In 2012 there were 73,815 abortions.  Which are future taxpayers that weren’t allowed to be born.  That’s right, before anyone pays the high tax rates of a welfare state they have to be born first.  And when they are not born that’s future tax revenue the government cannot collect.  If we look at a 20 year period (about a generation) and assume 73,815 abortions each of those 20 years that’s 1,476,300 people that never will pay taxes.  If they earned on average $30,000 each that’s $44,289,000,000 of economic activity they never created.  And at a New York State tax rate of 11.7% that’s $5,181,813,000 in lost tax revenue for the state.

But it gets worse.  If you divide this number by two you get the total number of couples (a man and a woman) that could have started a family.  If each couple had 3 children this lost generation could have brought in another 2,214,450 taxpayers into New York City.  Adding them to their parent’s generation and assuming a median family income of $53,046 (an older generation established in their career earning more and a younger generation just starting their career earning less) brings the total lost economic activity for these two generations of possible New Yorkers to $195,779,524,500.  And lost tax revenue for the state of $22,906,204,367.  So the number of abortions is having a direct impact on the economy.  And tax revenue.  Making it necessary to cut guns to pay for more butter.  Whereas if these taxpayers were born we could have both our guns and butter.  And live in a world made safe by the most powerful military in the world.  Peace through strength.  The Ronald Reagan way.  And not a world where our enemies are constantly testing our resolve.  The Jimmy Carter and President Obama way.

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President Obama’s 2014 State of the Union Address

Posted by PITHOCRATES - January 30th, 2014

Politics 101

Democrats offered Enthusiastic Applause for Unsound Policy Proposals that have no Basis in Reality

President Obama’s 2014 State of the Union address was a little longer than an hour.  But if you didn’t look at a clock it felt a lot longer.  For it was the same tripe you hear all the time from this administration.  And the political left.  It was full of misleading statements.  Inaccurate facts and figures.  And some lies.  The usual stuff you expect from the liberal left.  But what was really disturbing was the enthusiastic applause for some really unsound policy proposals that have no basis in reality.  Showing either how clueless these enthusiastic Democrats are about economics, business, national security, etc.  Or how amoral they are in their quest for power.  As they judge and implement policy not by how it will improve the lives of Americans.  But how it will improve their lives in government.

Some Big Reasons why Businesses export Jobs are Taxes, Regulations and Labor Costs

If there was ever an example of what people not to have in power this state of the union theater was it.  Following are excerpts from President Obama’s speech (see FULL TRANSCRIPT: Obama’s 2014 State of the Union address posted 1/28/2014 on The Washington Post).  Comments and analysis follow each excerpt.

And here are the results of your efforts: the lowest unemployment rate in over five years; a rebounding housing market — (applause) — a manufacturing sector that’s adding jobs for the first time since the 1990s — (applause) — more oil produced — more oil produced at home than we buy from the rest of the world, the first time that’s happened in nearly twenty years — (applause) — our deficits cut by more than half; and for the first time — (applause) — for the first time in over a decade, business leaders around the world have declared that China is no longer the world’s number one place to invest; America is.

The total number of people who left the civilian labor force since President Obama took office is 11,301,000 (see The BLS Employment Situation Summary for December 2013 posted 1/13/2014 on PITHOCRATES).  Which means the unemployment rate is meaningless.  The only reason why it’s falling is that the BLS doesn’t count unemployed people who gave up looking for jobs that just aren’t there.  Oil production on private land may be up.  While overall oil consumption is down because of the Great Recession that just won’t end.  Which is helping to keep gas prices down.  Unemployed people just don’t have the money to buy gas.  So they don’t.  Greatly reducing the demand for gas.  Thus reducing gas prices and oil imports.  George W. Bush’s last deficit was $498.37 billion.  President Obama’s first deficit was $1,539.22 billion.  And it was over $1 trillion in 2010, 2011 and 2012.  It fell to $680 billion in 2013 thanks to the sequester.  But the deficit is larger now than when President Obama assumed office.  The only reduction in the deficit is a reduction in the amount he increased it.

Now, as president, I’m committed to making Washington work better, and rebuilding the trust of the people who sent us here.

Really?  You’re committed to rebuilding the trust of the people?  Mr. “If you like your health insurance you can keep your health insurance.  Period.”  Otherwise known as the lie of the year.  You’re going to rebuild the trust of the people?  Good luck with that.  What with your pants on fire and all.

Today, after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better. But average wages have barely budged. Inequality has deepened. Upward mobility has stalled. The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by; let alone to get ahead. And too many still aren’t working at all.

Well, finally something Republicans can agree with the president about.  Yes, his economic policies have benefitted Wall Street.  While hurting Main Street.  Finally some bipartisan agreement.

So let’s make that decision easier for more companies. Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here, and reward companies that keep profits abroad. Let’s flip that equation. Let’s work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs right here at home. (Cheers, applause.)

There are only a few reasons why businesses export jobs.  And the big three are taxes, regulations and labor costs.  The Obama administration wants to raise taxes.  They’ve increased regulatory costs.  And they support costly union labor.  So everything they stand for encourages businesses to export jobs.

But — but I’ll act on my own to slash bureaucracy and streamline the permitting process for key projects, so we can get more construction workers on the job as fast as possible. (Applause.)

So how’s that approval for the Keystone XL pipeline coming along?  That thing you’ve been studying since 2010?  Which by the laws of arithmetic is approximately 4 years ago.  Is this slashing bureaucracy and streamlining the permitting process?  At this rate it would probably be quicker to elect a Republican president in 2016.  You know, someone who, when it comes to economic activity, walks it while the Democrats only talk it.

We also have the chance, right now, to beat other countries in the race for the next wave of high-tech manufacturing jobs. And my administration’s launched two hubs for high-tech manufacturing in Raleigh, North Carolina, and Youngstown, Ohio, where we’ve connected businesses to research universities that can help America lead the world in advanced technologies.

Universities are in the grant business.  They want as many grants as they can get to help bring money into the university.  And to do so they will study anything the government wants them to.  No matter how wasteful it is.  While some of the biggest high-tech companies started in garages.  Apple, Google, Hewlett Packard and Microsoft.  To name a few.  Yes, there is a lot of university-driven research.  But the big innovation is more entrepreneurial.  Created by people thinking up new stuff no one thought of yet.  Which is the last thing you want government involved in.  That same government that can’t build a website using 1990s technology.

Let’s do more to help the entrepreneurs and small business owners who create most new jobs in America. Over the past five years, my administration has made more loans to small business owners than any other. And when 98 percent of our exporters are small businesses, new trade partnerships with Europe and the Asia-Pacific will help them create even more jobs. We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment and open new markets to new goods stamped “Made in the USA.” (Applause.)

You want to help entrepreneurs and small business?  Get rid of Obamacare.  And slash tax rates.  This will provide incentive.  And allow them to reinvest more of their earnings to grow their business.  Allowing them to create those jobs.

Now, one of the biggest factors in bringing more jobs back is our commitment to American energy. The “all the above” energy strategy I announced a few years ago is working, and today America is closer to energy independence than we have been in decades. (Applause.)

‘All of the above’ as long as it isn’t coal, oil or nuclear.  But if it’s solar power and wind power they are committed to giving more tax dollars to their friends and bundlers in the green energy industry.

Meanwhile, my administration will keep working with the industry to sustain production and jobs growth while strengthening protection of our air, our water, our communities. And while we’re at it, I’ll use my authority to protect more of our pristine federal lands for future generations. (Applause.)

You can’t sustain production and jobs growth by strengthening protection of our air, water and pristine federal lands.  That’s just more regulatory costs.  And raising energy costs by not allowing any oil or natural gas production on those pristine federal lands.  Raising energy costs by restricting supply.  Which raises business costs.  In addition to those new regulatory costs.

Every four minutes another American home or business goes solar, every panel pounded into place by a worker whose job can’t be outsourced. Let’s continue that progress with a smarter tax policy that stops giving $4 billion a year to fossil fuel industries that don’t need it so we can invest more in fuels of the future that do. (Cheers, applause.)

That says it all.  Fossil fuels don’t need subsidies because their costs are affordable.  While solar (and wind power) are so costly that they are unaffordable.  Unless government heavily subsidizes them.

But the debate is settled. Climate change is a fact. (Applause.) And when our children’s children look us in the eye and ask if we did all we could to leave them a safer, more stable world, with new sources of energy, I want us to be able to say yes, we did. (Cheers, applause.)

There is no such thing as settled science.  Only science that has yet to be disproved.  Besides, once upon a time glaciers stretched down from the poles to near the equator.  And then receded back to where they are now.  All without any manmade carbon in the atmosphere to warm the planet.  As we were still simple hunter and gatherers then.  So if the glaciers moved more before there was manmade global warming they’ll move again regardless of what man is doing to warm the planet.

Finally, if we’re serious about economic growth, it is time to heed the call of business leaders, labor leaders, faith leaders, law enforcement — and fix our broken immigration system. (Cheers, applause.) Republicans and Democrats in the Senate have acted, and I know that members of both parties in the House want to do the same. Independent economists say immigration reform will grow our economy and shrink our deficits by almost $1 trillion in the next two decades. And for good reason: When people come here to fulfill their dreams — to study, invent, contribute to our culture — they make our country a more attractive place for businesses to locate and create jobs for everybody. So let’s get immigration reform done this year. (Cheers, applause.) Let’s get it done. It’s time.

Funny how that argument doesn’t apply to birth control and abortion.  The reason we need to “fix our broken immigration system.”  For if we were having babies at the rate when government created the welfare state we could pay for that welfare state today.  But thanks to the Sixties, birth control, abortion and feminism women stopped having babies.  Which is fine if a woman doesn’t want to.  But the progressives designed the welfare state based on them being baby machines.  Creating a greater number of taxpayers with each generation.  So more people pay into the welfare state than collect from it.  The way it must be for a Ponzi scheme to work.

That’s why I’ve been asking CEOs to give more long-term unemployed workers a fair shot at new jobs, a new chance to support their families. And in fact, this week many will come to the White House to make that commitment real.

When you raise the cost of labor (union labor, Obamacare, etc.) businesses tend to look at automating production instead of hiring that costly labor.  They may not be able to do anything about the higher regulatory costs but they can do something about higher labor costs.  Use more machines than people.  If you want CEOs to create new jobs stop making labor so costly.  And you can start with getting rid of Obamacare.

Of course, it’s not enough to train today’s workforce. We also have to prepare tomorrow’s workforce, by guaranteeing every child access to a world-class education. (Applause.)…

Five years ago we set out to change the odds for all our kids. We worked with lenders to reform student loans, and today more young people are earning college degrees than ever before. Race to the Top, with the help of governors from both parties, has helped states raise expectations and performance. Teachers and principals in schools from Tennessee to Washington, D.C., are making big strides in preparing students with the skills for the new economy — problem solving, critical thinking, science, technology, engineering, math.

Yes, more kids are going to college than ever before.  But they’re going there to have fun.  And to facilitate their fun many are getting easy, worthless degrees in the social sciences and humanities.  Costly degrees that universities sold them promising them future riches.  Enriching the university.  While impoverishing their graduates.  For a high-tech company has no use for these degrees.  Which is why a lot of these people end up in jobs they didn’t need that costly degree to do.  And our high-tech companies are using the visa program to get foreigners who have the skills they want.  Problem solving, critical thinking, science, technology, engineering and math.

It requires everything from more challenging curriculums and more demanding parents to better support for teachers and new ways to measure how well our kids think, not how well they can fill in a bubble on a test. But it is worth it — and it is working.

If you want kids to do better we need to champion marriage and family more.  And they should embrace religion a little more.  Instead of encouraging our young women to use birth control and abortion to avoid marriage and family.  And pulling every last vestige of religion from our lives.  Kids growing up in a household with a mother and a father who go to church do far better on average than kids growing up in a single-parent household and don’t go to church (see Strong families steeped in Conservative Values and Traditions do Well in America posted 1/11/2014 on PITHOCRATES).

Research shows that one of the best investments we can make in a child’s life is high-quality early education. (Applause.) Last year, I asked this Congress to help states make high-quality pre-K available to every 4-year-old. And as a parent as well as a president, I repeat that request tonight.

Actually, research doesn’t show that.  Yet they keep saying that.  For it’s like that line in the musical Evita, “Get them while they’re young, Evita.  Get them while they’re young.”  The sooner they can take them away from their parents the sooner they can start turning them into Democrat voters.  Such as teaching them to blame their parents for the manmade global warming that is killing the polar bears as they have no ice to rest on while eating their baby seals.

You know, today, women make up about half our workforce, but they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment.

Women deserve equal pay for equal work. (Cheers, applause.)

Actually, it’s closer to 91 cents (see The White House’s use of data on the gender wage gap by Glenn Kessler posted 6/5/2012 on The Washington Post).  And the small difference is not due to discrimination but personal choice.  When you look at aggregate wages women will make less than men.  Because more women are teachers (with 3 month off without pay) than men are.  Some women work fewer hours at work to spend more time with their children. While men tend to work more overtime.  Men also work the more dangerous and higher paying jobs.  And are more likely to belong to a union.  When you compare childless, single men and women with a college degree some women are actually earning more than men.  Figures don’t lie but liars figure.  And for the contortions the Obama administration did here The Washington Post’s The Fact Checker gave the president one Pinocchio.

Now, women hold a majority of lower-wage jobs, but they’re not the only ones stifled by stagnant wages. Americans understand that some people will earn more money than others, and we don’t resent those who, by virtue of their efforts, achieve incredible success. That’s what America’s all about. But Americans overwhelmingly agree that no one who works full-time should ever have to raise a family in poverty. (Applause.)

In the year since I asked this Congress to raise the minimum wage, five states have passed laws to raise theirs.

You’re not going to have a lot of upward mobility when you pay people more to remain in the jobs they hate.  All the talk about making college more affordable and bringing employers and community colleges together to help give people the skills they need to fill the jobs employers have is all for nothing if they just pay people more for doing an entry-level job.

Let’s do more to help Americans save for retirement. Today most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s. That’s why tomorrow I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a — it’s a new savings bond that encourages folks to build a nest egg.

Once upon a time people opened a savings account at their local bank and they saved to buy a house.  And they saved for their retirement.  That’s how people saved when they didn’t have a pension or a 401(k).  They can’t do that today because of the Federal Reserve destroying the banking industry by keeping interest rates at zero.  If the Fed stopped printing money and let investment capital come from our savings like they did before the Keynesians gave us the Federal Reserve people would be saving like we once did.  And we’d stop having Great Depressions, stagflation and Great Recessions.  Created by their prolonging the growth side of the business cycle.  Which raises prices higher than they normally would go.  Making the contraction side of the business cycle that much more painful.  As those prices have a much longer way to fall than they normally would.  Thanks to the Fed’s meddling with interest rates.

MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little or nothing for middle-class Americans, offer every American access to an automatic IRA on the job, so they can save at work just like everybody in this chamber can.

You know why they want these MyRAs?  Because they can’t stand people saving money.  They love Social Security.  Because they can borrow from the Social Security Trust Fund.  Which is what they will do with these MyRAs.  They will take this money and spend it.  Filling the MyRA Trust Fund with a bunch of IOUs.  Just like they do with the Social Security Trust Fund.  And then provide a retirement benefit like Social Security.  That is too small to live on.  Whereas if we saved the money ourselves our retirement nest-egg will be much larger.  And it will provide for our retirement.  Unlike Social Security.

And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations. (Applause.)

It was Bill Clinton that set the stage for the subprime mortgage crisis with his Policy Statement on Discrimination in Lending (see Bill Clinton created the subprime mortgage crisis with his Policy Statement on Discrimination in Lending posted 11/6/2011 on PITHOCRATES).  Using the heavy hand of government to get lenders to qualify the unqualified.  Then the Fed’s artificially low interest rates were the bait for the trap.  Enticing people to borrow huge sums of money because those interest rates were just too good to pass up.  Even if they weren’t planning to buy a house to begin with. The subprime mortgage crisis and the resulting Great Recession were government made.  If we want to prevent the taxpayers from footing the bill for another housing crisis we need to get the Keynesians out of government.

Already, because of the Affordable Care Act, more than 3 million Americans under age 26 have gained coverage under their parents’ plans. (Applause.)

More than 9 million Americans have signed up for private health insurance or Medicaid coverage — 9 million. (Applause.)

The Washington Post gave this lie three Pinocchios (see Warning: Ignore claims that 3.9 million people signed up for Medicaid because of Obamacare by Glenn Kessler posted 1/16/2014 on The Washington Post).  For they’re counting some 3.9 million who would have signed up anyway for Medicaid regardless of the Affordable Care Act.  Also, the government was counting people who put a health care plan into their shopping cart as if they signed up for it.  Which many couldn’t.  As they haven’t programmed the back end of the health care website yet to actually accept payment or to pass that information on to the insurers.

And here’s another number: zero. Because of this law, no American, none, zero, can ever again be dropped or denied coverage for a pre-existing condition like asthma or back pain or cancer. (Cheers, applause.) No woman can ever be charged more just because she’s a woman. (Cheers, applause.) And we did all this while adding years to Medicare’s finances, keeping Medicare premiums flat and lowering prescription costs for millions of seniors.

That’s right.  Women with reproductive systems that men don’t have won’t pay more for their health insurance than men pay for theirs.  How can they do that?  Simple.  They just are charging men more.  To cover the cost of a reproductive system they don’t have.

Citizenship means standing up for the lives that gun violence steals from us each day. I have seen the courage of parents, students, pastors, and police officers all over this country who say “we are not afraid,” and I intend to keep trying, with or without Congress, to help stop more tragedies from visiting innocent Americans in our movie theaters and our shopping malls, or schools like Sandy Hook. (Applause.)

If you take away guns from law-abiding gun owners that won’t keep dangerous people with mental health issues that want to harm people out of our movie theaters, our shopping malls or schools like Sandy Hook.  For there are other ways to harm people.  Just look at the Boston Marathon bombers.  The people he’s talking about not only had mental health issues but they were also smart.  Many were even college students.  Who probably could think of other ways to hurt people.  And you just can’t take away everything they might use to harm people.  But you can place these people somewhere where they can’t harm anyone.

You see, in a world of complex threats, our security, our leadership depends on all elements of our power — including strong and principled diplomacy. American diplomacy has rallied more than 50 countries to prevent nuclear materials from falling into the wrong hands, and allowed us to reduce our own reliance on Cold War stockpiles.

Since President Obama assumed office he did nothing to support the Green Revolution in Iran.  Which kept the hard-line Islamists in power there.  He gave Egypt to the Muslim Brotherhood by telling Hosni Mubarak that he had to go.  Removing the stable anchor of the Middle East.  And moved Egypt closer to Iran.  (The Egyptian people eventually rose up to overthrow the oppressive Muslim Brotherhood).  He went to war in Libya and helped to overthrow Colonel Muammar Qaddafi.  Who at the time was a quasi ally in the War on Terror.  After the Iraq invasion frightened him into believing he may be next.  President Obama was thanked for his Libyan war by al Qaeda with 4 dead Americans in Benghazi on the anniversary of 9/11.  He waited too long to act in the Syrian civil war.  Which only brought al Qaeda into the conflict.  He failed to attain a status of forces agreement in Iraq.  So he pulled all U.S. forces out of Iraq which has only invited al Qaeda in.  And it looks like this will be repeated in Afghanistan.  He blamed George W. Bush’s wars as recruitment tools for al Qaeda.  While his extensive drone use is doing the same thing.  Especially in Yemen.  The hotbed of al-Qaeda in the Arabian Peninsula.  All that his diplomacy and leadership has done was to make the world a more dangerous place.

American diplomacy, backed by the threat of force, is why Syria’s chemical weapons are being eliminated. (Applause.) And we will continue to work with the international community to usher in the future the Syrian people deserve — a future free of dictatorship, terror and fear.

His diplomacy with Bashar al-Assad in Syria only gave his oppressive regime legitimacy in the civil war he was raging against his people.  Making it easier for Assad to kill Syrians with conventional arms while he gives up a token amount of his chemical weapons.  While also making Russia who brokered the deal the dominate player in the region.

And it is American diplomacy, backed by pressure, that has halted the progress of Iran’s nuclear program — and rolled back parts of that program — for the very first time in a decade. As we gather here tonight, Iran has begun to eliminate its stockpile of higher levels of enriched uranium.

It’s not installing advanced centrifuges. Unprecedented inspections help the world verify every day that Iran is not building a bomb. And with our allies and partners, we’re engaged in negotiations to see if we can peacefully achieve a goal we all share: preventing Iran from obtaining a nuclear weapon. (Applause.)

All Iran is doing is pausing their program.  And chemically altering some of their enriched uranium to meet the requirements of this diplomatic deal.  But this chemical process is reversible.  And they will reverse it once they get what they want.  This deal makes the world no safer.  If anything it makes it more dangerous.  For it does not diminish the Iranian nuclear program in the least.  But gives them more time to work on it as they prop up their regime with much needed supplies thanks to a relaxation of the sanctions against them.

These negotiations will be difficult; they may not succeed. We are clear-eyed about Iran’s support for terrorist organizations like Hezbollah, which threaten our allies; and we’re clear about the mistrust between our nations, mistrust that cannot be wished away. But these negotiations don’t rely on trust; any long-term deal we agree to must be based on verifiable action that convinces us and the international community that Iran is not building a nuclear bomb. If John F. Kennedy and Ronald Reagan could negotiate with the Soviet Union, then surely a strong and confident America can negotiate with less powerful adversaries today. (Applause.)

The sanctions that we put in place helped make this opportunity possible. But let me be clear: if this Congress sends me a new sanctions bill now that threatens to derail these talks, I will veto it. (Applause.) For the sake of our national security, we must give diplomacy a chance to succeed.

The Soviet Union never attacked U.S. soil.  And there was a reason they didn’t.  They were rational.  And knew they would lose a great deal in a war with America.  Especially a nuclear one.  Which is why they never used their nuclear weapons.  But Iran giving a nuclear weapon to a shadowy group that is not a state?  With little to lose in using a nuclear weapon?  If it’s not a nuclear missile there will be no way in knowing where the nuclear bomb came from.  We can have our suspicions that Iran made it and gave it to someone.  But do we nuke Iran over that?  What if there are more nukes in the hands of al Qaeda, Hezbollah, al-Qaeda in the Arabian Peninsula, etc.?  You could nuke Iran back to the Stone Age but it won’t stop those others being used.  The president insists this will not happen as Iran signed an agreement.  The only problem with that is the Iranians are liars.  And they call the United States the Great Satan.   These two facts suggest that replacing those sanctions with a promise not to build nuclear bombs was probably not a wise trade.

But for more than two hundred years, we have put those things aside and placed our collective shoulder to the wheel of progress: to create and build and expand the possibilities of individual achievement; to free other nations from tyranny and fear; to promote justice and fairness and equality under the law, so that the words set to paper by our founders are made real for every citizen.

Use our collective shoulder to expand individual achievement?  The president believes in the former more than the latter.  He didn’t help the Iranians get free from tyranny when he had the chance.  And he turned the Egyptian people over to tyranny.  The Muslim Brotherhood.  Who were oppressing women and Christians.  Fairness and equality under the law?  Ask those Tea Party groups who were targeted by the IRS about fairness and equality under the law.  The Constitution?  That document of negative rights?  The left hates it.  And insists it’s a living document that can evolve over time to suit the needs of an expanding government.  So they can do exactly what the Founding Fathers wrote the Constitution to prevent from happening.

The Left endorses Unsound Policy Proposals with no Basis in Reality to improve their Chances of Winning Elections

The country is more conservative than liberal (see Liberal Self-Identification Edges Up to New High in 2013 by Jeffrey M. Jones posted 1/10/2014 on Gallup).  Which is why liberals want state-funded pre-K to start indoctrinating our children as soon as possible.  To get them away from their parents so they can begin the process of turning them into Democrat voters.  It’s why kids are getting worthless social science and humanities degrees.  To further indoctrinate them.  Because their views are minority views.  So they need to play loose with the facts.  And lie.  Which is easier to do with indoctrinated kids than educated adults.  You’ll even hear Democrats talk about lowering the voting age.  To get a few more years of voting out of these kids before they grow old and wise.  And begin voting conservative.  So they do what they can to dumb down education.  Lie.  Cheat.  And buy as many votes as they can by giving away free stuff.  And the thing they really want to give away is citizenship for illegal aliens.  Who they are sure will be forever grateful.  And show it by voting Democrat.

This explains the enthusiastic applause for unsound policy proposals that have no basis in reality.  For the left is not interested in improving the lives of Americans.  They just want to improve their chances of winning elections.

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Washington DC is Literally Full of Explosive Stinky Gas

Posted by PITHOCRATES - January 19th, 2014

Week in Review

One of the riches places to live in the United States is in the Washington DC area.  And you know what you can do to rich people?  You can increase their utility rates.  Because whatever they charge a rich person is going to be able to pay it.  Easily.  In fact, they won’t object to rising utility rates.  For they have so much they wouldn’t want to deny pensions and health insurance to the working people.  At least they wouldn’t want to be seen as denying pension and health insurance to the working people.  So they don’t complain about rising utility rates.  Which is probably why stuff like this happens (see D.C. Full of Gassy Leaks, Researchers Say by Alan Neuhauser posted 1/17/2014 on US News and World Report).

Nearly 6,000 natural gas leaks were discovered beneath the streets of the nation’s capital last year when a team of researchers from Duke and Boston universities surveyed all 1,500 miles of the city’s roadways, according to an article published Thursday in the journal Environmental Science & Technology.

A dozen were leaking enough methane to explode, while others were letting off enough gas to fuel from two to seven homes…

On average, pipelines across the country lose about 1.6 percent of the natural gas they transmit. The pipelines in D.C., by contrast, were losing about 4 percent of their gas. These findings, Jackson says, highlight “the opportunity to fix them.”

Gas leaks?  So what.  Just raise the utility rate.  It’s easier.  And less costly.

Public utilities are highly regulated.  They just can’t raise their rates.  They need the approval of government to do that.  The problem with these public utilities is that they are very close to the people that regulate them.  Who often approve high rates in exchange for something nice from the utility to show their appreciation.  It’s this kind of cronyism that brought satellite television into the market to compete against cable television.  Because cable television companies had some real sweetheart deals that were gouging the consumers.  Now the cable companies have a lot of competition.  And they have to be a lot more creative in how they charge their customers today.

Competition makes everything better for the consumer.  Where there is no competition you get high utility rates.  And a lot of explosive natural gas leaking up from buried pipelines.

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Nanny States emasculate the People and Screw and Frighten Retirees

Posted by PITHOCRATES - December 22nd, 2013

Week in Review

This world isn’t what it used to be.  Everywhere people are looking for others to pay their way.  Or are so emasculated that living frightens them so that they run to government to parent them.  Forever.  What happened to those rugged men that entered the wilderness and built civilizations?  Who asked not for help.  All they wanted was to be left the hell alone.  Because they were men.  Rugged and fiercely independent.  Who filled their speech with obscenities whenever they talked about any form of government or nobility.  Because the government and noble classes were nothing but freeloaders looking for the good life they could force others to give them.

Today people have been so brainwashed by their government that they are incapable of doing anything without government helping them.  It’s a wonder that they can wipe their bottoms after a poop these days.  The growth of the nanny state has brought advanced economies to their knees around the world as the costs of their nanny states push them to the brink of bankruptcy.  And still the privileged/frightened people ask for more (see Business groups oppose ‘made in Ontario’ pension plan by Dana Flavelle Economy and Madhavi Acharya-Tom Yew posted 12/17/2013 on The Star).

Ontario’s plans to introduce its own mandatory pension plan could put the province at a competitive disadvantage, business groups warn

“It will add a huge competitive disadvantage to the businesses in the provinces that opt to go down that road,” said Dan Kelly, president of Canadian Federation of Independent Business.

But labour groups and retirees are applauding the province’s move to fill the void left by Ottawa’s decision not to enhance the Canada Pension Plan at this time…

Federal finance minister Jim Flaherty and junior minister of state for finance Kevin Sorenson rejected growing calls to expand CPP [Canada Pension Plan]contributions and benefits, saying now is not the right time to hit employers with higher payroll taxes…

Business groups said they welcomed Ottawa’s decision, noting CPP contributions are one of the two biggest payroll taxes they pay. The other is employment insurance premiums…

Few dispute that Canada’s pension system is no longer adequate to meet the needs of an aging population. People are living longer and saving less, while fewer private-sector employers offer pension coverage at work, a trend that plagues many industrialized nations.

Why are people saving less?  Two reasons.  First, the more the government taxes away the less they can save.  Second, with the government making promises they can’t keep (we will take care of you in your retirement so instead of saving your money spend it) why should anyone save anything for their own retirement?

Of course labor groups (the privileged) and retirees (the frightened) applaud this.  Labor wants to give their members a better life than those outside their union.  And retirees are living so long into retirement they’re living beyond their contributions into the CPP.  And are all for a little generational theft to make up the shortfall.

The defined-benefit pension is a relic of another era.  It doesn’t work anymore.  If we would have kept having babies like we once did the Ponzi scheme may have kept working.  But we didn’t.  So the Ponzi scheme is collapsing.  As they all eventually do.  The rest of the private sector has gone to 401(k)s and other such retirement vehicles.  Where we put OUR money away for OUR retirement.  Where the government can’t get their dirty little fingers on it.  This is the future of retirement savings.  Because unlike defined-benefit pensions they are sustainable.

All government pension plans need to make such a change.  Because once they do the age of the population will not matter.  Because you are saving YOUR money for YOUR retirement.  Those retired and those within a decade or so of retirement need to be protected from the folly of government in their retirement.  But younger generations coming up need to provide for their own retirement.  Because we can’t keep raising taxes.  For all that does is send jobs from the First World to the Third World.  Good for the Third World.  But bad for the First World.  And retirees.

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Democrats and Unions are impoverishing American Cities

Posted by PITHOCRATES - December 21st, 2013

Week in Review

Detroit had a massive public sector.  Lots of union government jobs.  With very generous benefits.  Then the city began losing population.  As the city shrank the public sector did not.  As the city could no longer support the public sector on tax revenue they turned to borrowing.  At her bankruptcy her pension obligations were in the billions.  And were just unsustainable.  With a lot of those retirees going to see huge cuts in their retirement benefits.  A first for a public sector union.  And one that may set a precedent for other impoverished cities (see Cities where poverty is soaring by Michael B. Sauter and Thomas C. Frohlich, 24WallSt.com, posted 12/16/2013 on Yahoo! Homes).

Many of these cities show a symptom of the regions hit hardest by the recession — a significant decline in real estate value. Nationally, the average home value during the three-year period of 2010-2012 was down by 9% compared to the previous three-year period. In eight of the 10 cities with soaring poverty rates, property values fell by at least 10%. Homes in Eastpointe lost nearly half of their value. In Inkster, Michigan, another city where poverty grew substantially, an average of 43.3% of homes were worth less than $50,000 between 2010 and 2012, compared to just 11.8% of homes during the 2007-2009 period…

Several of these cities were already struggling prior to the recession, in part because of their reliance on manufacturing. The industry had been declining for years, and the recession only made matters worse. In Salisbury, North Carolina, employment in manufacturing fell from 15.5% of all jobs to 8.3%. Goshen, Indiana, another city with a major increase in poverty, is heavily dependent on the auto industry — more than a third of the working population was employed in manufacturing between 2010 and 2012. According to Joe Frank at the Indiana Department of Workforce Development, this dependence had particularly dire consequences during the recession.

The Democrats are all Keynesians.  Who believe in government spending.  And keeping interest rates artificially low to stimulate the economy.  To encourage people to buy big expensive houses.  Just because interest rates are low.  So people did.  With mortgages so cheap everyone was getting them.  And as these buyers flooded the market housing prices soared.  Creating a great housing bubble.  Which collapsed when interest rates rose.  Resetting the rates on those subprime adjustable rate mortgages (ARMs).  Raising monthly payments.  Beyond what some people could afford.  Forcing them into bankruptcy.  Creating the subprime mortgage crisis.  And the collapse of housing prices.

The UAW made American cars so expensive people started buying the less expensive imports.  As most people don’t have UAW contracts giving them a fat paycheck and generous benefits.  Leaving them to get by on less than UAW workers.  Which meant they turned to the less costly imports.  Built by companies that didn’t have those great legacy costs of years of overly generous contracts that became unsustainable.  Pension costs and health care for retirees (which outnumbered active workers) forced GM and Chrysler to ask for a government bailout to avoid bankruptcy.  Asking the taxpayer to help them pay the generous pensions and health care costs of others.  Instead of bringing these benefits into line with the rest of America.

Democrats are Keynesians.  They believe in government intervention into the private sector economy.  And they protect their friends in unions to get their votes.  Raising costs for everyone else.  These policies, though, are just impoverishing American cities.  At least the ones dominated by unions and/or Democrats.

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Chicago getting Serious about their Crime Wave of Running Red Lights

Posted by PITHOCRATES - October 13th, 2013

Week in Review

Some describe the gun violence problem in Chicago as epidemic.  Blaming the lack of jobs for young men.  And the lure of big money working in the drug trade.  Aware of this problem, the mayor of Chicago is focusing his efforts on catching those people running red lights (see New Chicago speed cameras capture more than 200,000 violations in just 45 days by Eric Pfeiffer posted 10/12/2013 on Yahoo! News).

Newly installed speed cameras in Chicago have tallied up some eye-catching numbers, with more than 200,000 violations captured at just four sites ” during the past 45 days…

So far, the city has only been issuing warnings to errant drivers caught on camera. If those warnings had been actual tickets, they would have amounted to $13.9 million in fines in just over a month. Chicago Mayor Rahm Emanuel has said he expects the new speed camera system to generate about $15 million in revenue before the end of the year, once the warning system transitions to issuing actual tickets after October 21.

An analysis from ABC News says that if the violations remain roughly on the same pace through 2014, the program will generate revenue “well above” the $40 to $60 million estimated by Emanuel…

Chicago has said that it plans to use the money generated from its speed cameras to invest in safety initiatives, after school programs, job initiatives and other funding projects.

Really?  You would think that he would want to use that $40-$60 million to shrink the $330 million budget deficit.  Or to apply to their $19.5 billion in unfunded pension liabilities for city, municipal, police, fire and labor workers.  You’d think these were the reasons to install these cameras.  Strictly for the revenue.  For, let’s face it, once drivers get burnt a few times they’re all going to start driving the speed limit.  And that revenue won’t be anywhere near their rosy projections.

Assume they hit their revenue target, though.  Is that a good thing?  Pulling $40-$60 million of economic activity out of the Chicago economy?  I mean, if that money goes to the government no one will be spending it in local businesses.  Perhaps causing some businesses to lay off some workers.  Or, at the least, preventing businesses from growing and hiring new workers.

Also, those cameras may cause some people to slam on the breaks at yellow lights. Paranoid about getting a ticket.  And seeing their insurance rates rise.  Which can be a problem for the car behind them.  Whose driver is not expecting anyone to slam on the brakes the moment the light turns from green to yellow.

You know what would be a better idea?  Balancing their budget.  Only promising pensions they can afford to pay.  And NOT spending the money in pension trust funds.  You do that and you won’t need any revenue-generating camera system.  And you don’t have to anger the police union for replacing cops with cameras.

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Unfunded Pension and Retire Health Care Liabilities are a Problem for more Cities than just Detroit

Posted by PITHOCRATES - July 28th, 2013

Week in Review

The problem all our big cities are having is the cost of pension and retiree health care for their public sectors.  These cities made ridiculous promises during their contract negotiations with their public sector unions.  Promising them generous pension and health care benefits for life for retirees.  Benefits a later generation would have to pay for.  Which is why these cities are imploding under these costs.  And why Detroit filed bankruptcy.  These cities never put away the money for these future benefits because they were just too costly.  Besides, they no doubt thought, when the bill comes due it will be someone else’s problem.  And that’s where we are today.

How bad is it?  Really bad.  Especially in Detroit.  A city that has about half the population it had when it entered into those agreements.  And nowhere near the automotive industry it had back then.  A race riot in 1967 caused a white flight.  And the black middle class would follow years later.  As the jobs left Detroit for the suburbs.  And the people followed those jobs out of the city.  Just decimating the tax base that has to pay those unfunded benefits (see The Retirement Surprise In Detroit’s Bankruptcy by Robert C. Pozen posted 7/25/2013 on Brookings).

When Detroit recently filed for bankruptcy, one number surprised a lot of observers–$6.4 billion in other post-employment benefits (OPEB). OPEB is primarily comprised of unfunded obligations to pay health care costs for municipal employees.

By contrast, the unfunded pension obligations of Detroit were $3 billion–less than half the size of its OPEB…

The Pew Charitable Trust did a study in 2013 of both pension and OPEB shortfalls in the 30 largest cities in the United States. The three cities other than Detroit with the largest pension shortfalls were:

$14,302 per city household in New York City;
$12,170 per city household in Philadelphia; and
$11,389 per city household in Portland, Oregon.

But the shortfalls for OPEB, primarily healthcare obligations, were significantly larger. According to Pew, the three cities other than Detroit with the largest OPEB shortfalls were:

$22,857 per city household in New York City,
$18,962 per city household in Boston
$13,487 per city household in San Francisco.

These numbers are staggering.  Based on the U.S. Census, there are about 264,209 households in Detroit.  If you divide the total unfunded pension and health care costs by the number of households you get $35,578.  That is, to pay this outstanding debt it will cost each household in the city of Detroit $35,578.  Which will be very difficult to do when the median household income in Detroit is $27, 862.

Those in the union say these people are owed their retirement and health care benefits.  Because they made a deal.  But they didn’t make a deal with the people currently paying the taxes.  What this amounts to is generational theft.  Like all those municipal pensions and health care benefits.  For when they made those generous agreements the people who ultimately had to pay them weren’t in the room when they signed those contracts.  In fact they weren’t even born yet.  The people demanding their benefits now and their union representation apparently had no problem sticking it to future generations.  They were the ones in the room when they signed those contracts.  And didn’t give the people stuck paying for their benefits a second thought.

All big cities with big public sectors have the same problem.  They may not be ‘Detroit’ bad but they have bills that they won’t be able to pay.  There are about 100 U.S. cities with a population of a quarter million or more.  If each one of them had this problem that’s about $1 trillion in unfunded benefits just in these cities alone.  With trillion dollar deficits already, Obamacare coming on line and Social Security and Medicare projected to go broke the federal government just won’t be able to bail these cities out.  Perhaps bringing the days of generational theft to an end.  Which may be the only good thing to come from a wave of municipal bankruptcies.

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The City of Detroit Bankruptcy

Posted by PITHOCRATES - July 22nd, 2013

Economics 101

There is nothing more Dangerous to a City’s Finances than a Shrinking Tax Base

The federal debt is at record levels.  Because federal spending is at record levels.  But those on the left say there’s nothing to worry about.  And try to expand federal spending further.  With more government benefits to hand out to the people.  And an ever growing federal bureaucracy.  Full of new jobs with generous pay and benefits.  All funded by the taxpayer.

Businesses in the private sector cannot operate like this.  Because businesses have to pay their costs with the things and/or services they sell.  That people willingly buy.  So there is a limit on the costs a business can incur.  But not so with government.  For the government has the power to tax.  To forcibly take more money from the people against their will.  Something businesses just can’t do.  And when that fails they can borrow money by issuing bonds.  Which are generally easy to sell.  Because governments have the power to tax.  All but guaranteeing that they will repay those bonds.  And when that’s not enough the federal government has one other benefit businesses don’t have.  They can print money.  Further guaranteeing that they will be able to redeem their bonds.  Making them that much easier to sell.

Government below the federal level, though, doesn’t have that last option.  So when they want to spend more money than they have they have no choice but to borrow.  And hope that their tax base doesn’t erode over time.  For there is nothing more dangerous to a city’s finances than a shrinking tax base.  Especially when the city has a huge and growing public sector.  Enjoying generous pay and benefits.  Especially pension and health care benefits for retirees.  Where promises made must be kept decades into the future.  During which time a lot of things can happen.  Such as that tax base shrinking.

Detroit’s Tax Base plummeted while the Size of the Public Sector did not for Government Never grows Smaller

This is the problem the City of Detroit has.  And it is why they filed the largest municipal bankruptcy in U.S. history.  Thanks to the automotive industry and World War II destroying most of the industrial economies of the world, Detroit became an economic power house.  And one of America’s grandest cities in the 1950s.  Paris of the Midwest they called Detroit.  Automotive capital of the world.  The Motor City.  The mecca of American manufacturing.  Having one of the richest middle class.  And one of the largest black middle classes.  Everyone was doing well in Detroit.  So the City of Detroit did the only rational thing a city could do with a swelling tax base.  They exploded the public sector.  All paid for with higher taxes.  Including a new city income tax.

But that growing public sector soon turned Detroit into a business unfriendly city.  With more red tape, regulatory costs and a corporate income tax.  And rising union demands during contract negotiations made it even less business friendly.  So businesses started leaving the city.  Taking their jobs with them.  And people followed.  Then the race riots hit in 1967.  Five days of unprecedented violence.  Thus beginning the great white flight from the city.  And the great population decline of the City of Detroit.  Culminating in the nation’s largest municipal bankruptcy in history.

At Detroit’s peak her population topped out at about 1.8 million people.  Today there are but 680,000 people remaining.  A loss of 1.12 million people.  About 62% of her peak population.  So Detroit’s tax base plummeted.  But the size of the public sector didn’t.  For government never grows smaller.  So Detroit continued on with the overhead expenses of a city with a population of 1.8 million people.  With the tax revenue of a city with a population of 680,000 people.  Making bankruptcy inevitable.

The Problems of the City of Detroit are the Problems of the Nation Writ Large

At the height of Detroit’s industrial might there were approximately 300,000 automotive or manufacturing jobs in the city.  Today there are a mere 27,000.  That’s a loss of 273,000 jobs.  That’s 273,000 breadwinners whose families are no longer in the city.  If each of them had on average 2.5 children who remained in the city with their parents that would have added about 1.2 million to the city’s population.  Which corresponds pretty closely to the 1.12 million the city actually lost.  So we can see how the loss of the jobs devastated the population.  But we can also see what it did to the city’s finances.

Let’s assume these breadwinners had their children when they were in their 20s.  So the breadwinner was still in the workforce when their children were 20 and had entered the workforce.  Let’s say this happened over a 40-year period.  So, on average during that 40-year period, there were an additional 136,500 jobs per year.  Let’s say they each owned a house and paid property tax of $750.  Over 40 years that’s about $4.1 billion in lost property tax revenue.  If each of these workers earned $35,000 on average over those 40 years and paid a 3% city income tax that’s about $9.8 billion in lost personal income tax revenue.  Finally, if we figure a 50-50 split between labor and material, a 15% overhead and a 2% net profit we can extrapolate that $35,000 average personal income into approximately $448 billion in lost corporate revenue over those 40 years.  At a city corporate income tax rate of 2% that’s about $9 billion in lost corporate income tax revenue.  Adding these all together we see a total loss of tax revenue to the city of approximately $18.8 billion due to the loss of 273,000 jobs.  Plus or minus.

This is a crude guesstimate with an emphasis on crude but it could be close enough to explain what happened in Detroit.  For with the falling tax base Detroit turned to borrowing more and more money to pay for an oversized public sector.  To service a disappearing population.  With those pension and retiree health care benefits being especially burdensome.  Which forced the city to borrow so much it left them with a debt of $18.5 billion (very close to the $18.8 billion in our little exercise above) that they don’t have a chance in hell of ever repaying.  Leaving bankruptcy as the only option.  Unless the federal government steps in.  Which probably won’t happen.  And shouldn’t happen.  For Detroit is not the only government suffering under the weight of unfunded pension obligations and retiree health care benefits.  If they bail out Detroit then they’ll have to bail out all other states and municipalities.  Which they can’t afford to do.  For the federal government has its own problems with pensions (Social Security) and retiree health care benefits (Medicare).  And they’ve just added a new government benefit that will dwarf the costs of Social Security and Medicare.  Obamacare.  All while burdening the economy with a slew of anti-business regulations that has chased jobs out of the economy.  And out of the country.

So the federal government can’t step in to save Detroit.  For the federal government is working to ‘out Detroit’ Detroit.  As the problems of Detroit are the problems of the nation writ large.  What’s happening in Detroit will happen in other states and cities across the country.  That are spending more money than they have to support an oversized public sector.  And in time what’s happening in Detroit will happen to the federal government.  Bailing out these states and cities will only hasten the downfall of the federal government.  Which the federal government will do whatever it can to prevent.  For while the nation can survive a city like Detroit going bankrupt the nation cannot survive a federal bankruptcy.  Because the numbers are just too big at the federal level.

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