Obama’s myRAs are just another way to Transfer Money from the Private Sector to the Government

Posted by PITHOCRATES - February 2nd, 2014

Week in Review

Social Security has failed to provide for our retirement.  So President Obama wants another government retirement program.  So it, too, can fail the American people (see What Americans think about Obama’s myRA retirement accounts by Melanie Hicken posted 1/31/2014 on CNNMoney).

Obama’s new ‘myRA’ retirement accounts aim to help millions of workers begin saving for retirement. The accounts will be backed by the government, charge no fees and you’ll be able to contribute directly from each paycheck…

“Why would anyone consider giving a broke and bankrupt government any more of your money? That’s foolish,” said 62-year-old reader Steve Keller…

[Kathryn Riss] and her husband keep the modest savings they do have in money market accounts, which earn less than 1%. The myRA, on the other hand, will invest in government savings bonds and provide returns of around 2% to 3%, depending on interest rates.

Why can’t people earn more than 1% on their retirement savings in a bank?  Because of the Federal Reserve.  And Keynesian economics.  That focuses on consumer spending with tunnel vision.  It’s the only thing that counts as far as they are concerned.  And keeping interest rates near zero is supposed to encourage people to borrow and spend money.  For they will only lose purchasing power if they don’t.  What with banks only offering something less than 1% interest.  Thanks to the Federal Reserve printing money.  Making it so plentiful that people can borrow it practically for free.  And if they are paying the banks practically nothing to borrow it that’s all the banks can afford to pay their depositors.  Practically nothing.

The government will invest those myRAs into government savings bonds?  Yeah, right.  The government is going to take that money and spend it.  Because they have a voracious appetite to spend.  Which is why the Social Security Trust Fund has nothing but IOUs in it.  Government bonds that the government can’t afford to redeem without printing more money.  The Keynesian source of all our woes to begin with.  Which will only get worse the more ways the government thinks of to transfer money from the private sector to the government.  Taxes.  Service charges, surcharges, fees, etc.  Regulatory fines and penalties.  Treasury bonds and bills.  Medicaid.  Medicare.  Obamacare.  And now myRAs.

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FT194: “People who bitch about losing their health insurance and doctors don’t think the health care system is broken.” —Old Pithy

Posted by PITHOCRATES - November 1st, 2013

Fundamental Truth

The United States has the Best Health Care System in the World

The left says that the United States is the only advanced economy that doesn’t have national health care.  As if that is a bad thing.  Which is a false assumption.  Because Canada, the United Kingdom and North Korea all have national health care.  But if you have a serious health problem where do you want to go?  Canada?  The United Kingdom?  North Korea?  Or the United States?

Unless you’re lying to yourself you said the United States.  Because the United States has the best health care system in the world.  If you have the means you travel to the US for the best in medical care.  Which is what a lot of Canadians do.  Thanks to that great private network just south of the border.  The US health care system.  For no one suffering from a serious health problem ever said, “Damn, I wish it wasn’t so difficult to get to North Korea so I can get some of their national health care.”

There is a progression from good to bad.  At the good end is the United States health care system.  Then Canada because it is the private sector delivering health care services paid for by a single-payer.  The government.  And, of course, their access to the US health care system.  Then the United Kingdom which is national health care provided by the government.  Unless you’re rich and can afford the private system available to those with the means.  Then North Korea.  Where there is no private sector alternative.  Only the state-run national health care system.  And the quality of their health care is as horrible as life is in North Korea.

Those who say we should have National Health Care because Everyone Else has it are either Ignorant or Devious

So the more private sector in health care the better health care is.  The less private sector in health care the worse it is.  North Korea is the worst because it has no private sector at all.  While America is the best.  Because it has the most private sector.  With the worst health care in America being the small amount of state-run health care.  The VA and Medicaid.  Medicare is a little better but it’s more like the Canadian health care system.  The government pays the private sector for its Medicare services.  And the best health care is that enjoyed by unions and government workers—pure private sector health care.

This is why NOT having national health care is NOT a bad thing.  Because NOT having national health care has allowed the United States to have the best health care system in the world.  So those who keep saying we should have national health care because everyone else has it are either ignorant or devious.  Either way we shouldn’t be listening to them.

It’s the left that wants national health care.  Liberal Democrats.  It’s not the right.  Conservatives.  And what do we know about liberals and conservatives?  They have opposing views of the government’s role in our lives.  Liberals feel the more the better.  Because they love having power over others.  While conservatives want what the Founding Fathers wanted.  Limited government.  Where the people have the power.  In a government of the people, by the people, for the people.  Just as Abraham Lincoln said in his address at Gettysburg. 

The Left wants National Health Care because it makes Government more Important in our Lives

If we return to the ‘ignorant or devious’ question the answer is now clear.  Health care is approximately one-sixth of the U.S. economy.  If the government controls that it will be the largest expansion of government into our lives.  Making all people dependent on government.  So instead of scaring only Social Security, Medicare and food stamp recipients with a government shutdown the government can frighten everyone.  Imagine the next time the government wants to raise the debt limit.  It’s not the White House tours or the World War II Memorial that they will close because of the sequester/government shutdown.  It will be our health care system. 

This is why they want national health care.  Because it makes government more important in our lives.  And people will see how much we need government.  This is want they want.  They want this so bad they will be devious and lie to us.  By first telling us that our health care system—the best health care system in the world—is broken.  And then to sell the Affordable Care Act they told us that if we liked our health insurance we could keep our health insurance.  And that if we liked our doctor we could keep our doctor.  Even though they wrote the Affordable Care Act to make sure we lost our health insurance and our doctors.

Because of Obamacare businesses stopped hiring full-time people.  And pushed full-time people to part-time.  Our health insurance premiums are rising.  As are our deductibles.  Making health insurance unaffordable for those who don’t have employer-provided health insurance.  As well as making some low-cost plans illegal under Obamacare.  Causing a lot of people to get letters from their insurers in the mail telling them they are cancelling their health insurance.  As people complain that President Obama lied to them he and his fellow Democrats say these people are actually lucky.  Because they had ‘crap’ policies.  Which was further proof that our health care system is broken.  They say this despite the strongest of evidence proving otherwise.  For people who bitch about losing their health insurance and doctors don’t think the health care system is broken.

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The Roll Out of Obamacare was a Disaster because the Government can’t do anything better than the Private Sector

Posted by PITHOCRATES - October 12th, 2013

Week in Review

No one likes renewing their driver’s license.  Because the government doesn’t have competition.  And therefore doesn’t do anything well.  Because there are no market pressures.  No risk of losing customers because of poor service or an inferior product.  They can put out garbage and we have to accept it.  Why?  Because where else are we going to go?  Which is why Obamacare is so frightening to many.  And why the role out of the website was a disaster (see Obamacare site hits reset button on passwords as contractors scramble by Sean Gallagher posted 10/8/2013 on ars technica).

Garbage in, garbage out

The result of the headlong rush to October 1 was a system that had never been tested at anything like the load it experienced on its first day of operation (if it was tested with loads at all). Those looking for a reason for the site’s horrible performance on its first day had plenty of things to choose from.

First of all, there’s the front-end site itself. The first page of the registration process (once you get to it) has 2,099 lines of HTML code, but it also calls 56 JavaScript files and 11 CSS files. That’s not exactly optimal for heavy-load pages.

Navigating the site once you get past registration is something of a cheese chase through the rat-maze. “It’s like a bad, boring video game where you try to grunt and hack your way through to the next step,” one site user told Ars.

Once you get through all that, it’s not clear that it’s going to do you any good. Underlying problems in the back-end code—including the data hub built by QSSI—have been causing errors in determining whether individuals are eligible for subsidized plans under the program. In DC, that means health care plan prices won’t be available to people registering through DC’s portal until November. It may also mean that others who have registered already at the federal and state exchanges may get sticker shock later.

The sad thing is this.  They are probably better at building websites than they are delivering health care.  So if you liked the quality of health care you were receiving before Obamacare you can kiss that goodbye.  Because the roll out of Obamacare?  This is probably as good as it gets under Obamacare.  Because the government can never do anything as well as the private sector.

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President Obama’s Policies are Destroying the Economy and Transforming the Country in a Bad Way

Posted by PITHOCRATES - September 7th, 2013

Week in Review

Is President Obama the worst president ever?  Perhaps.  Based on what he has done to the economy.  FDR and LBJ caused great damage and destroyed families by putting us on the path President Obama has taken us further down than any other president.  Towards European socialism.  It’s all there in history.  And the economic numbers.  How activist governments destroy everything that made capitalist countries great.  Thrift.  Frugalness.  Working hard to save for your future.  Which created a strong banking system.  Where people deposited their money.  Creating investment capital.  And bankers practiced sound lending practices.  And suffered the consequences of making risky loans.  Unlike today.  Thanks to Keynesian economics.  And a monetary policy that controls and plays with interest rates to create artificial demand that causes great bubbles.  And prolonged recessions.  Ever since governments took control of interest rates and began printing money to finance the growth of their activist governments they have set countries everywhere on the path to financial ruin.  And bankruptcy.  As government spending outgrew the ability of taxes to pay for it.  And then the debt grew so great they struggled to finance it.

But it doesn’t deter the Keynesians from trying the same failed policies of the past.  They continue to intervene into the private sector economy.  And when they cause great economic damage they just report bad economic news as good (see Employment Situation Summary by the Bureau of Labor Statistics posted 9/6/2013).

Total nonfarm payroll employment increased by 169,000 in August, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported today.  Employment rose in retail trade and health care but declined in information.

Sounds good.  Things are good.  The economy added new jobs.  Fans of the Obama administration are trumpeting this as good news.  And proof that the Obama economic policies are working.  But if you take a close look at the jobs data you find that the economy is horrible.  Because of President Obama.  And his awful, job-killing economic policies.  Such as Obamacare.  Greater regulatory policies.  And higher taxes.  President Obama has advanced (or tried to advance in the case of cap and trade) every policy that he could think of that causes great harm to the economy.  Is he doing this on purpose because he hates capitalism?  Or is he just another Keynesian who thinks that government is smarter than the people going about their business in the private sector economy?  Or both?

The unemployment rate (the official U-3 rate that counts about the fewest of the actual unemployed) has fallen from a high of 10% since he’s been president.  But it’s not because he’s creating jobs.  It’s because these people just gave up and left the labor force.  Because there are no jobs.  As the falling labor force participation rate clearly shows.

U-3 Unemployment Rate and Labor Force participation Rate Jan 2009- Aug 2013

Ever since President Obama took office the labor force participation rate has steadily declined.  Showing a steady trend of destroying jobs.  Not creating them.  If you want to know exactly how many jobs his policies have destroyed you can get that from the Bureau of Labor Statistics, too.  By subtracting the number of people NOT in the labor force when he took office in January 2009 (80,507,000) from the number of people NOT in the labor force from the August Jobs report (90,473,000).  And when you subtract 80,507,000 from 90,473,000 you get 9,966,000 jobs that President Obama and his economic policies have destroyed.  Just under 10 million people have left the labor force while President Obama has been president.  And yet they celebrate the creation of 169,000 jobs in August.

The economy is not good.  It’s not improving.  It will only improve when we finally abandon the failed Keynesian policies of the past.  And get the government out of the private sector economy. The way it was when America became the number one economic power in the world.  Before the progressives/liberals transformed the country into what it is today.  A dying European social democracy.  Where governments tried to give the people everything.  Only to bankrupt their countries.  And caused their people to riot when they couldn’t borrow enough money to keep giving the people what they had been giving them.  Which is usually what happens when you take stuff away from people who have gotten used to having that stuff.  Which is why Obamacare is so insidious.  And important to the left.  Once they make Obamacare a ‘third-rail’ program like Social Security and Medicare they know it will never go away.  No matter what economic damage it does.  Or how much it destroys the quality of health care.

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Canadian Public Sector Workers average 18.2 Paid Sick Days a Year

Posted by PITHOCRATES - June 15th, 2013

Week in Review

Nations around the world are suffering financial crises due to the costs of their public sectors.  Which they pay for by taxing the private sector.  Even though people in the private sector don’t enjoy anywhere near the generous benefits the public sector enjoys (see Government to target public service’s sick days in next round of bargaining by BILL CURRY posted 6/10/2013 on The Globe and Mail).

The Conservative government is putting public-service unions on notice that sick days will be targeted in the next round of collective bargaining.

Treasury Board president Tony Clement said the government wants to move away from the current rules, where workers can use up to 15 paid sick days and five family days a year, in addition to vacation time.

The Minister stopped short of accusing public servants of abusing the system, but questioned why the federal absentee rate is higher than that of other governments and the private sector, where he said the average number of sick days is 6.7.

“Look, I think that the great majority of public servants are, when they take time off, they are sick. But there’s no question that the rate of sick leave, when you’re looking at 18.2 days as an average in a year, is well beyond not only private sector norms but other public-sector norms,” Mr. Clement said Monday at a news conference on Parliament Hill…

Union leaders also took issue with comparisons of public- and private-sector absenteeism, arguing the private sector does not document sick days in the same way as governments do…

“Mental illness, stress, anxiety, depression were not admitted to or acknowledged,” he said. “Cancer was much less treatable than it is today. So the workplace has changed dramatically in the past 40 years, but the disability management system has not. Employees are getting lost or forgotten in the system.”

Yes, we admit and acknowledge those illnesses more today than we used to.  And we do treat cancer more than we once did.  However, these illnesses do not affect the public sector differently than they affect the private sector.  So if the private sector is averaging 8.7 sick days there is no reason why the public sector should be averaging 18.2 sick days.  On top of 5 family days.  Holidays.  And vacation time.

One of the arguments for a single-payer health care system in the United States is that people will be healthier.  With access to health care doctors will catch disease early and stop it in its tracks.  Now either the Canadians are milking the system or a single-payer health care system doesn’t make people healthier.

If the organization a person works for can get by for a month (after you add together all that paid time off) without that person being there chances are that they can get by the other 11 months of the year without that person being there.  Which is why you don’t see 18.2 sick says in the private sector.  Because it’s too great a cost burden to pay people for not working.  As private sector employers can’t just raise their prices to cover this cost.  Whereas the government can raise taxes.  Or print money.

But there even is a limit for government, too.  As we can see by the Eurozone sovereign debt crisis.  And the need to cut back on generous sick pay in Canada.  Higher taxes reduce economic activity.  Which reduces government revenues.  Which they make up with borrowing.  Until they suffer a sovereign debt crisis.  Like in the Eurozone.  Where a country is so deep in debt that no one wants to loan them anymore.  For it is unlikely that a nation so deep in debt will ever repay that debt.  Which is why these generous public sector benefits are simply not sustainable.  When you can no longer tax or borrow you have but one option left.  You have to cut costs.  And the public sector will have to live more like the private sector.  Less exalted and privileged.  As public servants should.

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Public Sector Costs are Bankrupting Detroit and Illinois

Posted by PITHOCRATES - June 8th, 2013

Week in Review

Public sector pay and benefits are crushing state governments and cities.  The City of Detroit is probably going to file bankruptcy.  And the State of Illinois just saw its bond rating cut (see Illinois Bond Grade Cut as Lawmakers Can’t Fix Pensions by Tim Jones & Brian Chappatta posted 6/3/2013 on Bloomberg).

Illinois had its credit rating cut one level after lawmakers failed to restructure state pensions saddled with almost $100 billion in unfunded liabilities…

The retirement systems cover state workers, teachers, university employees, judges and lawmakers…

“It is disgraceful that this year’s legislative session ended without a new pension plan,” Treasurer Dan Rutherford, a 58-year-old Republican who is running for governor in 2014, said in a statement. The failure “costs the state millions of dollars each day, plus these downgrades could continue to make borrowing additional funds even more expensive…”

Illinois’s growing pension deficit is “unsustainable,” Fitch analysts led by Karen Krop, a senior director in New York, said in a statement. The inaction by lawmakers raises questions about the state’s ability to deal with “numerous fiscal challenges.” They also cited a growing backlog of unpaid bills and borrowing to cover operational costs, indicating another cut may be forthcoming.

These public sector workers have pay and benefit packages unlike those in the private sector.  Which has to pay for the pay and benefits of both the private and public sectors.  So they keep raising taxes on individuals and businesses.  And our politicians never worry about the long-term consequences.  But they can only tax so much.  People can only pay so much in taxes before they can no longer pay their own bills.  So they start borrowing.  And the more they borrow the more risky they are to loan money to.  The more in debt they go and the greater their spending obligations the higher the interest rates they have to pay to get investors to take a chance on buying their bonds.  Because there’s a very good chance something like this will happen (see Detroit to offer creditors less than 10 percent of what city owes -report by Steve Neavling posted 6/7/2013 on Reuters).

Detroit Emergency Manager Kevyn Orr plans to deliver grim news to the city’s creditors next week: Take less than 10 percent of what the city owes or risk losing it all in a bankruptcy proceeding, the Detroit Free Press reported on Friday…

In his report, Orr stated that the city has run annual deficits of $100 million and more since 2008. Detroit is believed to owe about $17 billion in debts and liabilities.

So on the one hand they beg and plead for investors to loan them money.  So they can pay the overwhelming costs of their public sector in the face of a shrinking tax base.  And then when their finances get so bad that they can’t even service their debt any more they say, “Thank you for your money when we could not raise any ourselves.  And because you took that great risk for us we will reward you by screwing you out of 90 cents of every dollar you loaned us.  But stick around after the bankruptcy.  For once we shed this debt we will need to borrow more to pay for the overwhelming costs of our public sector.”

Detroit had annual deficits of $100 million.  Illinois has $100 billion in unfunded liabilities.  Is it any wonder Fitch lowered their bond rating?  For the state of Illinois has a greater financial problem than the City of Detroit has.  The State of Michigan gave Detroit an emergency manager to fix their problems.  They even offered to buy a city park.  Belle Isle.  To help Detroit get out of the mess they put themselves into.  But Illinois cannot help Illinois.  Only the federal government can.  But will they?  If they do you know California will demand a bailout, too.  As will every other state and city with a crushing public sector cost will.  But the federal government can’t bail out everyone.  Not when they have their own trillion dollar deficit problem to fix.

No.  There is only one way to fix the problems these cities and states are having.  They have to cut their public sector costs.  Which means someone else besides the bondholders will have to take a haircut to put these states and cities back into the black.  Meaning the public sector can no longer enjoy the kind of benefits people in the private sector haven’t enjoyed in decades.

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The Public Sector and the Tax Base

Posted by PITHOCRATES - June 3rd, 2013

Economics 101

All Government Bureaucracies Grow Bigger and Pay their People Very Well

Big cities throughout the United States are suffering financially.  They are drowning under the costs of their public sector employees.  For when the Great Recession hit tax revenues fell.  People lost jobs and paid less income taxes.  People out of work spent less in the local stores causing a fall in sales taxes.  People drove less and paid less gas taxes.  Home values plummeted, reducing property taxes.  Tax revenue fell at all levels of government.  Leaving the big cities unable to pay their bills.  With less help from the governments above them.  While their infrastructures crumbled.  And they struggled to furnish basic city services.

Governments don’t make anything.  They just have people doing things.  So there are little economies of scale.  Just a lot of people.  The public sector includes every worker in the city paid by tax revenue.  The mayor, city council, school teachers, police officers, firefighters, garbage collectors, boiler operators, electricians, janitors, building inspectors, meter readers, bus drivers, etc.   And all the civil servants and bureaucrats that push paper.  Requiring a huge payroll.  And lots of benefits.  In a large city with a population of 1.5 million those costs can look like this:

Public Sector Costs 1

All government bureaucracies have two things in common.  They always grow bigger.  And pay their people very well.  So the above table has three columns.  Showing the growth of the public sector.  (Assuming a constant population to simplify our math).  From 1% of the city population to 2% then to 3%.  So the number of city employees goes from 15,000 to 30,000 to 45,000.  By the time you add in pay, holiday pay, vacation pay, sick days and health insurance the active employee costs are huge.  Going from $1 billion to $2 billion to $3 billion.  Today it is not uncommon for a big city with a population of 1.5 million to have 45,000 public sector workers.  So we will build on that figure.  And add in retiree costs.

As City’s Population Declines so does its Tax Base

Another big perk of working in the public sector are the great pensions.  Something that has long since disappeared in the private sector.  While most of us have to put money away in a 401(k) public sector workers can count on a generous pension during a long retirement.  Perhaps getting as much as 80% of their base pay.  Plus they keep their health insurance.  Which is unlike the health insurance most of us get in the private sector.  For it covers everything.  With few co-pays.  And only the best name-brand pharmaceutical prescriptions.  This is why people want to work in the public sector.  And why they want to retire from the public sector.  Because no one else pays as well.

Public Sector Costs 2

Public sector workers retire long before their counterparts in the private sector.  Allowing them to live a long retirement.  And because they live so long into retirement the city ends up paying for almost as many retirees as they do active workers.  Putting great cost pressures on these cities as more of their workers retire.  Within as few as 2 decades the cost of retired workers can go from $648 million to $1.9 billion.   When we add this cost to the cost of their active workers we get the total cost of the public sector.

Public Sector Costs 3

As time passes and more people retire from the public sector we can see how the cost of the public sector (active and retired) rises from $3.7 billion to $4.4 billion to $5 billion.  Which, of course, the people living in the city have to pay.  The taxpayers.  They pay income taxes, property taxes, sales taxes and a variety of other taxes and fees.  Who by the time the number of retirees reach 40,500 must pay $3,336 per year.  Or $278 per month.  Or $64.15 per week.  Or $9.16 each day.  Just to get a true feel of how much this is do the following exercise.  Each day take a $10 bill out of your wallet or purse and throw it away.  This will approximate the cost of the public sector you pay for.  Until the people start leaving the city.  And as the population declines so does the tax base.  Requiring each person to pay a larger share of the public sector cost.

To pay for an Expanding Government you need a Growing Population

If a city starts losing population it doesn’t reduce the need to pay the bloated public sector.  Both active and retired.  So the fewer people remaining in the city have to pay a larger share of the public sector cost.  Because the public sector union isn’t going to allow the city to lay off any workers.  So it’s up to the taxpayers.  But as the population shrinks it becomes more painful to do.

Public Sector Costs 4

By the time the population falls to 500,000 the amount of taxes a person must pay to support the public sector amounts to a house payment.  Or $192.46 per week.  Or $27.49 each day.  Can you imagine taking three $10 bills out of your wallet or purse every day just to throw them away?  Probably not.  Because no one would.  Cities just can’t keep increasing the tax burden on their people.  For there is a limit.  And when a city reaches it they start borrowing.  Which is how cities go into debt.  And flirt with bankruptcy.  Because of these bloated public sectors.  That grew when the cities grew.  But they didn’t shrink as their populations shrank.

We have ignored corporations in our exercise.  Which increase the tax base.  But we have also excluded additional costs.  Buildings, vehicles, equipment, housing assistance, food assistance, fuel for city vehicles, car insurance, property insurance, liability insurance, lawsuits, etc.  If we factor these things in the numbers will only look worse.  As the cost of the active and retired workers increases there’s less money to pay for the basic city services.  So they deteriorate.  Which when added to the higher taxes chase even more people out of the city.  Reducing the tax base further.  Leaving even less money for the basic city services.

When the population declines so does the city.  As the public sector workers consume a greater percentage of the shrinking tax base cities suffer increasing urban decay.  As there is little money for anything but the public sector workers and their benefits.  For when it comes to paying for government population is key.  You need a growing population to pay for expanding government.  To spread the costs of a bloated public sector over as many people as possible.  And you can’t do that with a declining population.  Which is why big cities flirt with bankruptcy during bad economic times.  For they can pay for their bloated public sectors only during the best of economic times.  And only during the best of economic times.

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Bad Liberal Democrat Policies chased the Industrial Base out of Detroit

Posted by PITHOCRATES - June 2nd, 2013

Week in Review

A growing population is to government coffers what growing revenue is to business.  More money.  Governments at all levels collect their money by taxing the population.  The greater the population is the greater the amount of taxes they collect.  So a growing population increases the money coming into a government’s coffers.  While a shrinking population gives you a Detroit (see How to save a city by knocking down thousands of its buildings by Tim Fernholz posted 5/31/2013 on Yahoo! Finance).

The problem with Detroit, which could soon host the largest municipal bankruptcy in the country’s history, is its shrinking population. With its industrial base decimated by automation and outsourcing, a city of 1 million people in 1990 dropped to 700,000 this year, with 200,000 people leaving the city since 2008. That reduced the taxe base to fund public services. Fewer public services coupled with lower population density weighed on crime, public health and the economy.

Yes, its industrial base was decimated by the loss of all those manufacturing jobs.  But the real question is why businesses left Detroit.  And there is only one reason why a business leaves one location for another one.  Because of a more business-friendly environment elsewhere.

Detroit became a liberal Democrat bastion.  Supported by high taxes.  Including a city income tax.  And costly regulations.  These are what chased businesses out of Detroit.  After decades of this nonsense the regulations for doing work in the city grew so great that business just went elsewhere.  Or cheated the regulations.

Money flowed into city coffers.  And the public sector grew.  Including generous pay and benefit packages for their public sector workers.  Paid for with wealth they transferred from the private sector to the public sector.  Until the private sector said enough is enough.  And left the city.  For a more business-friendly environment somewhere else.  Taking all of those jobs with them.  And with no jobs people left the city.  Looking for jobs.  But as the tax base shrunk the public sector remained bloated.  Which was a problem.  A big problem.  As more and more money went for those pay and benefit packages.  Including generous pensions and health care benefits.  And less to city services.  Causing urban decay.  In time this accelerated.  With fewer and fewer people paying the taxes to support the public sector.  And when they could no longer support the public sector the city started running deficits.  Pushing it towards the “largest municipal bankruptcy in the country’s history.”  All because of an unfriendly business environment.

So this is what decimated the city’s industrial base.  Anti-business liberal Democrat policies.  For if the city wasn’t so anti-business the industrial base would still be there going strong.  Attracting new businesses from other anti-business locations.  Instead of what they have in Detroit.  A city half the size it once was.  Where they talk about tearing down houses and turning these old neighborhoods into farmland.  In what once was the automobile capital of the world.  Amazing what bad liberal Democrat policies can do.

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Bangladesh has about 4,500 Garment Factories because they have no Unions

Posted by PITHOCRATES - May 4th, 2013

Week in Review

The union workforce in the private sector has shrunk from its peak in the Fifties.  Falling from about 30% of all workers belonging to a union down to about 11%.  Why?  Well, consider the industries they once dominated.  Textiles.  Steel.  Automotive.  Ship building.  Industries that went from world dominance to being a shell of their former selves.  This is why union workforce has fallen so greatly in the private sector.  Because the high cost of union labor destroyed these industries.

Those on the left want to bring these jobs back.  Despite hating these jobs.  Which is why they unionized them.  They were dirty, dangerous, monotonous and inhuman.  Right out of a Dickens novel.  Or the worst of capitalism Karl Marx could rail against.  Now that we don’t have them they call these good manufacturing jobs.  Not those same jobs they went on strike from in order to get better pay and more humane working conditions.  And say it is a crime that someone else is now exploiting their workers doing these jobs Americans should be doing.  Only the labor costs and working conditions in these countries are such that they will never come back to America.  For as bad as they may be at times they have no problem staffing these factories.  As American workers would have done had it not been for the unions forcing these jobs offshore.  And the American factories no doubt would have been safer (see Shoppers face tough choices over Bangladesh by Emily Jane Fox posted 5/1/2013 on CNNMoney).

It is hard for American shoppers to avoid buying clothes made in unsafe factories abroad.

That’s because just about all, or 98%, of clothes sold in the U.S. are made overseas, according to the Apparel and Footwear Association. Also, companies don’t tell consumers if any of their suppliers violate safety standards.

The recent spate of deadly accidents in garment factories in Bangladesh has caught international attention. Last week, more than 400 workers were killed when a garment factory building collapsed. The tragedy follows two more factory fires in November that killed and injured more than 100 workers.

A very large portion of U.S. apparel imports comes from Bangladesh. Many companies have been shifting orders there, because labor costs in the country are so low. Bangladesh is on track to surpass China within the next seven years as the largest apparel manufacturer in the world…

Bangladesh has about 4,500 garment factories that make clothes for global retailers…

“Companies don’t want consumers to understand the reality of what’s going on — the labor abuses, the low wages — that make products for the U.S. market,” Nova said. “Customers do care, but they don’t have enough information about where and how products are made to react.”

The United States used to have a booming textile industry.  And because of that they had a booming garment industry.  But they don’t have either any more.  Why?  These industries unionized.  Labor costs went up.  Which raised their selling prices.  This, of course, reduced sales volume.  For lower-income people could not afford to buy the same amount of clothes they once did at these higher prices.  Rich people could.  But not lower-income people.  The vast majority of the buying public.  Unable to make clothing average working Americans could afford U.S. garment manufacturers closed down.  Or moved offshore.  Killing the U.S. garment industry.  As well as the U.S. textile industry.

This is why Bangladesh has about 4,500 garment factories.  Because they can make clothing lower-income people can afford.

Customers care?  And if they had enough information they would…what?  Say, “That’s it.  I’m done buying affordable clothing.  For now on I will pay for only the clothing that I cannot afford.”  Yes, of course that’s what they will say.  But they won’t be able to afford to do that.

Buying clothes is a lot like eating meat.  We like it.  We enjoy it.  But we don’t want to think about the slaughterhouse.  And so it is with our affordable clothing.  We like it.  We enjoy being able to send our kids to school in something nice and clean every day.  But we don’t want to think about the working conditions in those factories.  And trust our retailers that they do everything within their power to make those working conditions meet acceptable standards.  When they don’t they will be the first to raise their moral outrage.  While no doubt wearing something from those factories.  Because like those factory workers there just isn’t a better alternative.

If a country can staff 4,500 garment factories these must be the best jobs available.  Or the only ones.  Like in China in those export factories.  Which attract people from the rural interior regions.  Who are trying to escape their chronic hunger.  And occasional famine.  So while organized labor bemoans the loss of the high pay and generous benefit packages of those manufacturing jobs the people working in these factories are probably living better than they ever have.  Despite the occasional collapsed factory.  Or factory fire.

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More of the Same from the Fed means more Housing Bubbles and Great Recessions

Posted by PITHOCRATES - April 14th, 2013

Week in Review

Those who wanted to get away from the United States’ limited government past and grow government had to do away with the gold standard.  Those who favored a large and expansive federal government needed fiat money.  They needed the power to print money at will.  To fund deficits when they continually spend more than they have.  Despite continuously raising taxes.  When Nixon decoupled the dollar from gold in 1971 the fiat money people got their way.  Now the Keynesians could tax, borrow, print and spend to their heart’s content.  With the federal government in the driver’s seat of the U.S. economy.  With their Keynesian economists advising them.  Who said government spending was just as good as private spending.  So go ahead and tax, borrow and print.  Because all you need to create economic activity is to print money.

Of course they couldn’t have been more wrong.  As the Seventies proved.  Printing money just created inflation.  Higher prices.  And asset bubbles.  With no corresponding economic activity.  Instead there was stagflation.  And a high misery index (the inflation rate added to the unemployment rate).  Because there is more to economic activity than monetary policy.  Tax rates and regulations matter a whole heck of a lot, too.  As well as a stable currency.  Not one being depreciated away with double-digit inflation.  Rich people may get richer buying and selling real estate and stocks during periods of high inflation but working class people just see both their paycheck and savings lose purchasing power.

It was these Keynesian policies that caused the S&L Crisis.  The dot-com bubble.  And the subprime mortgage crisis.  Giving is the Great Recession.  The worst recession since the Great Depression.  But have we learned anything from these failed policies of the past?  Apparently not (see Blind Faith In The Fed Is Not Enough by Comstock Partners posted 4/12/2013 on Business Insider).

The move of the S&P 500 into new all-time highs is based on neither the economy, nor earnings, nor value, but almost completely on the blind faith that the Fed can single-handedly flood the market with enough funds to keep the illusion going.  In this sense the similarity of the current stock market to the dot-com bubble of the late 1990s or the housing bubble ending in 2007 is glaring…

Real consumer spending has been growing at a mediocre 2% rate over the past year despite growth of only 0.9% in real disposable income over the same period.  This was accomplished mainly by decreasing the savings rate to only 2.6% in February, compared to rates of 7%-to-11% in more prosperous times.  With employment growth diminishing and the negative effects of the January tax increases and the sequester yet to kick in, consumer spending is likely to slow markedly in the period ahead.  While March year-over-year comparisons may benefit from an earlier Easter, the reverse will probably be true in April.  Keep in mind, too, our over-riding theme that consumers, still burdened with most of the debt built up in the housing boom, are in no shape to jump-start their spending…

In sum, the lack of support from the economy, earnings or valuation leaves the Fed as the only game in town.  Although the old adage says “Don’t fight the Fed”, it did pay to fight the Fed in 2001 and 2002 and again from late 2007 to early 2009.  In our view, the Fed can only try to offset the tightness coming from the fiscal side, but cannot get the economy growing on a sustainable basis.

The only real growth we had was from a tax cut.  Surprise, surprise.  Of course that cut in the tax rate of the Social Security payroll tax decreased the Social Security surplus.  Moving the Social Security funding crisis up in time.  That along with Medicare and whatever Obamacare will do will cause a financial crisis this country has yet to see.  Which will cause great suffering.  Particularly because people are saving less because they have less.  Which is the only way they can compensate for the horrible economy President Obama and his Keynesian advisors are giving us.  So they won’t have private savings to replace their Social Security benefits that the government will spend long before they retire.

And what does the government do?  Why, spend more, of course.  Because of the sweet nothings their Keynesian advisors are whispering into their ears.  Saying the things big government types want to hear.  Spend more.  It’s good for the economy.  If you wonder what got Greece into the mess they’re in this is it.  Spending.  And anti-business policies to pull more wealth out of the private sector so the government can spend it.

All the countries reeling in the Eurozone sovereign debt crisis are there for the same reason.  None of them got into the mess they’re in because they had low taxes and low regulatory costs.  Because countries with business-friendly environments create private sector jobs.  And private sector jobs don’t cost the government anything.  So they don’t have to tax, borrow, print and spend like they do when they listen to their Keynesian advisors.  Because that is what causes chronic deficits to fund.  And growing national debts.  Things that don’t happen when you leave the economy in the private sector.

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