The NHS drops Life-Saving Drug as it would lead to more Rationing and longer Wait Times

Posted by PITHOCRATES - April 22nd, 2014

Week in Review

In 1954 almost 35% of all workers belonged to a union.  Since then that number has fallen to about 11.3%.  As the high cost of union contracts chased manufacturing out of the country.  Today the majority of workers belonging to a union work in the public sector.  Where they enter contract negotiations with the taxpayers to secure better pay and benefits than most taxpayers have.  Of course during these negotiations the taxpayers have no say.  As politicians and unions hammer out these contracts.  Unlike trade unions.  Where the people paying the workers actually have a say.

This is another reason why national health care is the Holy Grail for the left.  They want to unionize all those health care workers.  Pay them more.  And deduct union dues from their pay to fund their political activities.  Leaving less money for patient health care.  But they’re okay with that.  But they’re not okay with a pharmaceutical company charging a lot of money for life-saving drugs.  Which, also, leaves less money for patient health care (see Breast cancer drug turned down for NHS use due to high cost by Sarah Boseley posted 4/22/2014 on the guardian).

A Herceptin-style drug that can offer some women with advanced breast cancer nearly six months of extra life has been turned down for use in the NHS because of its high cost.

In draft guidance now open to consultation, the National Institute for Health and Care Excellence (Nice) blames the manufacturers, Roche, who are asking for more than £90,000 per patient, which is far more than any comparable treatment…

“We apply as much flexibility as we can in approving new treatments, but the reality is that given its price and what it offers to patients, it will displace more health benefit which the NHS could achieve in other ways, than it will offer to patients with breast cancer.”

Paying health care providers more will not improve the quality of health care.  Unless health workers are doing a half-assed job now.  Which I don’t believe they are.  But Roche is helping people with death sentences live another six months or so.  That’s a pretty remarkable thing.  If the NHS can’t afford this wonder drug perhaps they should use their own.  Of course they can’t.  Why?  Because they don’t have one.  For they didn’t pour hundreds of millions of dollars in developing this drug and the all those drugs that failed.

Developing a miracle drug is costly.  Money the pharmaceuticals pay up front.  Because their employees don’t work for free.  Which is why these drugs cost so much.  That high price pays for all of the costs that went into this drug.  For all of the drugs that failed.  And provides a return for investors.  Who give these pharmaceutical companies hundreds of millions of dollars up front just in the hope they may develop a miracle drug.  Which is the only way we should invest in these miracle drugs.  Because these investors will only take a chance on a good thing.  Unlike government.  Which has a history of backing the wrong investment time after time.  And pouring good money after bad.

It’s a tough choice to make.  Take health care benefits away from other patients to pay for a miracle drug for those dying from cancer.  Or let people die 6 months or so sooner.  One thing for sure, though, unionizing our health care workers won’t give either of these patients more health care benefits.  It will only leave less money for everything else.  Leading to rationing.  And longer wait times.  Because less money will pay for fewer things.  Making those other things scarcer.  Forcing people to wait longer and pay more for treatment.

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Abortion and Tax Revenue

Posted by PITHOCRATES - January 27th, 2014

Economics 101

(Originally published January 21st, 2013)

The Population Growth Rate fell during the Sixties and Seventies from 19% to 11% due to Birth Control and Abortion

Taxpayers are born.  Yes, immigration helped populate America.  But it was really the children of immigrants that made the country grow.  For a large population having babies will increase the population far more than immigration can.  Why?  Where do immigrants come from?  Babies.  Having babies is like compounding interest.  For babies grow up and have babies of their own.  So babies are good.  Especially for a government that wants to spend money.  Because the more babies we have the more taxpayers we will have.  So high-spending governments need a growing population growth rate.  To provide ever more taxpayers.  Who provide ever more tax revenue.  But sometimes the population growth rate doesn’t always increase.  Sometimes it even falls.  (See Population, Housing Units, Area Measurements, and Density: 1790 to 1990.  The population numbers are from the decennial census numbers.  The population growth rate is the percentage of population growth from one decade to the next.)

Although the population has always grown the population growth rate has not always grown.  In fact, the rate of growth has been falling over time.  Taking steep declines during war.  During the American Civil War the growth rate fell from 36% down to 23% by the time of the next census.  The census before and after World War I saw a decline from 21% to 15%.  The rate plummeted from 16% to 7% before and after the Great Depression.  With so many people out of work and struggling to survive the last thing families needed was another baby to feed.  The rate actually increased during World War II.  But that had more to do with people not having babies during the Great Depression for economic reasons.  After World War II the rate rose to 14%.  Which was still a point less than after World War I.

The following table shows the decrease in population due to war.  (Raw numbers are pulled from United States military casualties of war.)

Note that the most devastating of American wars was the American Civil War.  Where approximately 2% of the population died.  In terms of percentage loss of population the next costliest war was the Revolutionary War.  Then World War II.  Then World War I.  These wars saw millions of men in uniform (except for the Revolutionary War).  Away from their wives for years.  Which put a crimp in baby making.  And the large number of wounded and dead compounded that problem.  Resulting in large dips in the population growth rate during these wars.  Despite the large loss of life in numbers of America’s other wars those losses were all less than 0.10% of the population.  Making the impact on the population growth rate negligible.  One thing these numbers don’t explain, though, is the decline in the population growth rate after 1960.  During the Sixties and the Seventies the growth rate fell from 19% down to 11%.    But it wasn’t the Vietnam War that caused that decline.  So what did?  Birth control.  And abortion.

Couples having only 2 Children can’t Support an Expanding Welfare State but Couples having 3 Children Can

The U.S. approved the sale of the birth control pill in 1960.  Which corresponded with the era of free love and the sexual revolution.  People were having more sex.  While having fewer babies.  Then Roe v. Wade made abortion legal in 1973.  Since then there have been on average about 1.4 million abortions a year.  Dwarfing the 156,250 killed a year in America’s most devastating war.  The American Civil War.  Which has brought the population growth rate to its smallest numbers that weren’t due to war or depression.  Because of that compounding nature of babies (growing up to have babies of their own).  And because babies become taxpayers this has a big impact on future tax revenue.  We can see this by looking at how 100 abortions ripple through the population.

Let’s assume those 100 abortions happen in Year 1 (Y1).  Had these abortions not happened these babies would have grown up and entered the workforce about 20 years later (Y1+20).  And split off into pairs to have babies of their own.  (If each couple has one baby they have a total of 50 babies.  If each couple has two babies they have a total of 100 babies.  Etc.)  Who would grow up and enter the workforce about 20 years later (Y1+40).  And so on.  The above graph adds up all the people for each 20-year period produced by the Y1 babies (children, grandchildren, great grand children, etc.) divided by 100 (those original babies not aborted).

If the Y1 people only have one baby they and their descendants disappear from the world in about 2 centuries.  If they have 2 children the population never grows larger than 4 times the original Y1 people.  Two children to replace two parents.  It’s not until you get to three children that you see an increase in population.  As well as an increase in tax revenue.

Assume each of the people, or taxpayers, at 20-year intervals earn a median income of $50,000.  They pay an effective federal income tax rate of 18%.  In addition to 12.4% for Social Security taxes (both employer and employee).  And 2.9% for Medicare.  Added together they total 33.3%.  This tax rate on total income at each 20-year interval produces the tax revenue in the above graph.  Note the revenue graphs are the same shape as the population graphs.  Showing a direct correlation between tax revenue and the population growth rate.  The tax revenue provided by couples having only one child disappears within two centuries.  Revenue provided by couples having only two children peaks out at $6,660,000.  As couples only have enough children to replace themselves.  Maintaining a constant of 4 taxpayers (2 parents and 2 children) after 80 years.  Showing that couples having 2, 1 or 0 children cannot support an expanding welfare state.  But a couple having 3 children can.  As long as it’s not too big of a welfare state.

You just can’t have an Expanding Welfare State with a Falling Population Growth Rate

The more children a couple has the greater the tax revenue.  For the more children they have the more people enter the workforce and become taxpayers.  If 50 couples have 3 kids each (as do their descendants) they will add $30.4 million in federal tax revenue in one century.  If they have 4 kids they will add $99.9 million in revenue.  If they have 5 kids they will add $264 million.  And if they have 6 kids they will add $599.4 million.

In two centuries these numbers are even more profound.  Couples having 4 kids will provide $3.2 billion in federal tax revenue.  While couples having 5 kids will provide $25.8 billion.  And couples having 6 kids will provide $145.6 billion.  If, that is, 100 pregnancies weren’t aborted 2 centuries earlier.

In the long-term revenue would soar if people simply started having babies again.  For birth control and abortion have greatly reduced the number of babies we’re having.  Causing tax revenue to fall.  We can bring revenue back up by having more babies.  But after some 30 years this baby dearth has pushed us into the flat part of these graphs.  Requiring up to a century or more to make large population gains.  And large gains in tax revenue.   And without these gains in revenue we simply cannot afford an expanding welfare state.

It is rather ironic that two tenets of liberalism clash here.  Liberals believe in both a welfare state.  And free birth control and abortion on demand.  They believe in one thing that requires women to have a lot of babies.  And another that helps women to have as few babies as possible.  Which is another reason liberalism will ultimately fail.  Paradoxes like this.  For you just can’t have an expanding welfare state with a falling population growth rate.  If you try you get trillion dollar deficits.  And $16.4 trillion in accumulated debt.

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FT196: “One life is important in gun control debate, 5 million lives are negligible if they lose their insurance because of Obamacare.” —Old Pithy

Posted by PITHOCRATES - November 15th, 2013

Fundamental Truth

Some of the Richest People in the United States live in the Suburbs of Washington, D.C. 

Liberals say they care about the people.  While they say conservatives only care about their money.  Conservatives want to cut taxes and government spending so they can keep more of their money to spend on their families.  Liberals want to increase taxes and government spending.  To take more money from taxpayers to spend on other people.  People who are more deserving of that money than the people who earned it.

Liberals say they want to tax and spend because they care about people.  And not money.  Like conservatives.  Yet the more money a liberal government collects in taxes the more powerful that government grows.  And the richer those in government get.  Just look at the wealth surrounding Washington, D.C., which includes six of the ten wealthiest counties in the U.S.  It used to be the military industrial complex.  Now it’s the government industrial complex.  For liberals do not like the military.  And gut defense spending to fund their welfare state.  Spending our money to reward their friends.  And buying votes by making people dependent on government.

Some of the richest people in the United States live in the suburbs of Washington, D.C.  Who got rich on taxpayer money.  Where those connected to the liberal aristocracy enjoy obscene levels of wealth.  While the median family income falls.  Leaving families in the rest of the country to get by on less.  While those connected to government enjoy those obscene levels of wealth.  Yet liberals care about the people.  And not these obscene levels of wealth.

Liberals have grown Very Wealthy by Caring for the People ‘instead’ of Money

So it’s no secret the more money the government collects the better liberals in government live.  The bigger government grows the more government jobs that are available.  Allowing liberals to spread the wealth.  Other people’s wealth, that is.  So it’s good for those inside the government aristocracy.  Which is why liberals ‘care’ about the people.  So they can run a massive welfare state.  With them at the top.  Like Old World royalty.  Passing alms out to the people.  Where the people grovel.  And are obedient.  Grateful for what royalty gives them.  Thanking them politely.  And never forgetting their place.  The dirt beneath their feet (to borrow a line from the musical Les Misérables).

It is hard, then, to believe liberals when they say they care about the people.  As caring for the people has made them very wealthy.  Wealth they acquired by taking it away from other people.  Via taxes.  It is harder still to believe them when you look at their actions.  Whenever there is a high-profile gun crime, for example, they immediately use it to advance gun control legislation.  As if America is suffering from a plague of gun deaths.  And that only when the government takes away guns from law-abiding gun owners will the dying stop.  Of course, others throughout history have wanted to take away the people’s guns.  Including the British in 1775.  When the shot heard ’round the world was fired.  Kicking off the Revolutionary War. 

So Americans are very suspect whenever anyone comes after their guns.  Because that means only one thing.  Those trying to take away those guns want to make these gun owners weaker.  The question is, why?  Why do governments want to make their people weaker?  Probably for the same reason ruling elites everywhere do.  When you’re greatly outnumbered you don’t want the people you’re oppressing to be able to fight back.

For Every Person who ‘picked’ an Obamacare Policy 38 People lost the Insurance they Liked and Wanted to Keep

Listening to liberals you would think that the only way people are dying in America is from gun violence.  Is this true?  If not exactly how are people dying?  Well, according to the Centers for Disease and Prevention (see Table 2. Deaths, death rates, and age-adjusted death rates for 113 selected causes, Injury by firearms, Drug-induced Injury at work, and Enterocolitis due to Clostridium difficile: United States, final 2010 and preliminary 2011) the total deaths in 2011 was 2,512,873.  Some of the leading causes of death were cardiovascular diseases at 778,503 (31.0%).  Cancers (Malignant neoplasms) at 575,313 (22.9%).  Chronic lower respiratory diseases at 143,382 (5.7%).  Just with these three groups of diseases we’re at 59.6% of all 2011 deaths.  And that’s before we get to non-disease related deaths.  Such as Drug-induced deaths at 40,239 (1.6%).  Motor vehicle accidents at 34,677 (1.4%).  Falls at 26,631 (1.1%).  And one of the least causes of deaths.  Assault (homicide) by discharge of firearms at 11,101 (0.4%).

Gun deaths account for less than one half of one percent of all deaths in 2011.  Yet they want to take guns away from law-abiding gun owners to stop an epidemic of gun deaths totaling 0.4% of all deaths in 2011.  That’s what liberals are focused on.  That.  And the decriminalization of drugs.  Because drugs are a victimless crime.  Something only responsible adults choose to do.  Despite drug-induced deaths being more than three and half times greater than gun deaths.  But liberals are hard on guns.  And soft on drugs.  Even though more people die from drugs than from guns.  Yet liberals care about people. 

The Affordable Care Act (Obamacare) was to provide affordable health insurance to about 50 million of uninsured people.  With the rollout of Obamacare only 106,185 ‘picked’ an insurance policy in October (some may have bought a plan or simply placed one in their shopping cart).  While 4.02 million people in 28 states have lost their health insurance (see White House to Allow Insurers to Continue Canceled Health Plans by Carol E. Lee and Louise Radnofsky posted 11/14/2013 on The Wall Street Journal).  So for every person who ‘picked’ an insurance policy 38 people lost the insurance they liked and wanted to keep.  Considering 59.6% of all deaths in 2011 were from heart disease, cancer and chronic lower respiratory diseases taking away health insurance from 4.02 million people could very well cause more people to die from these diseases.  For they are very common diseases.  And these policy cancellations are only from the individual market.  When the cancellations for the employer-provided plans start hitting next year we may be seeing hundreds of millions who will lose their health insurance.  Which is by design.  To force the people who already have insurance into costlier plans to pay for those who don’t.  And, of course, to make government bigger.  As well as making liberals in the government aristocracy wealthier.

Whenever there is a high-profile gun death the left renews their push for new gun control legislation.  Even if it saves only one child.  They say this despite guns being responsible for less than one half of one percent of all deaths.  Yet when they take away health insurance from 4.02 million people who may die from heart disease, cancer and chronic lower respiratory diseases, these deaths are negligible.  Acceptable.  A small percentage of the population whose deaths won’t mean a thing in the grand scheme of things.  All that is important to them is protecting and growing the government aristocracy.  So they can continue to live in the wealthiest counties in the U.S.  While enjoying their regal lives paid for with other people’s money.  Yet it’s the liberals that care about people. 

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Detroit may mark the Beginning of the End of Generational Theft by Public Sector Unions

Posted by PITHOCRATES - August 4th, 2013

Week in Review

So who’s to blame for Detroit?  The greedy.  The greed of the public sector.  Who stole as much as they thought possible from future generations.  Laughing all the way to the bank.  But never did they think that their greed would eclipse the paying-ability of those they were stealing from.  Future taxpayers.  Which is what happened in Detroit.  And will probably happen elsewhere throughout the nation (see The Unsteady States of America posted 7/27/2013 on the Economist).

Nearly half of Detroit’s liabilities stem from promises of pensions and health care to its workers when they retire. American states and cities typically offer their employees defined-benefit pensions based on years of service and final salary. These are supposed to be covered by funds set aside for the purpose. By the states’ own estimates, their pension pots are only 73% funded. That is bad enough, but nearly all states apply an optimistic discount rate to their obligations, making the liabilities seem smaller than they are. If a more sober one is applied, the true ratio is a terrifying 48% (see article). And many states are much worse. The hole in Illinois’s pension pot is equivalent to 241% of its annual tax revenues: for Connecticut, the figure is 190%; for Kentucky, 141%; for New Jersey, 137%.

By one recent estimate, the total pension gap for the states is $2.7 trillion, or 17% of GDP. That understates the mess, because it omits both the unfunded pension figure for cities and the health-care promises made to retired government workers of all sorts. In Detroit’s case, the bill for their medical benefits ($5.7 billion) was even larger than its pension hole ($3.5 billion).

Some of this is the unfortunate side-effect of a happy trend: Americans are living longer, even in Detroit, so promises to pensioners are costlier to keep. But the problem is also political. Governors and mayors have long offered fat pensions to public servants, thus buying votes today and sending the bill to future taxpayers. They have also allowed some startling abuses. Some bureaucrats are promoted just before retirement or allowed to rack up lots of overtime, raising their final-salary pension for the rest of their lives. Or their unions win annual cost-of-living adjustments far above inflation. A watchdog in Rhode Island calculated that a retired local fire chief would be pulling in $800,000 a year if he lived to 100, for example. More than 20,000 retired public servants in California receive pensions of over $100,000.

This is an important point.  People say that we must honor these lavish pension and retiree health care benefits because they made a deal.  A contract with the city.  Or the state.  But did they?  No.  The public sector unions and the cities and states colluded together to steal money from future generations.  Who were not a party to those agreements.  This amounts to generational theft.  And the generous size of those benefits just makes that theft worse.  Transforming the public sector into an aristocracy.  That cares little for the future taxpayers that they will be bled dry to pay for their long and comfortable retirements.

Detroit is just the first domino to fall.  This generational theft is just unsustainable.  Something has to be done.  But what?

Public employees should retire later. States should accelerate the shift to defined-contribution pension schemes, where what you get out depends on what you put in. (These are the norm in the private sector.) Benefits already accrued should be honoured, but future accruals should be curtailed, where legally possible. The earlier you grapple with the problem, the easier it will be to fix. Nebraska, which stopped offering final-salary pensions to new hires in 1967, is sitting pretty.

In other words our public servants should not live a better life than their masters.  Those people paying the bill.  There should be no aristocracy in the United States.  People in the public sector shouldn’t be able to retire young and live a long life in retirement while someone else is paying the bill.  The taxpayer.  People who have to work until they drop dead to save for their own retirement.  That just isn’t right.  If our servants in the public sector want that long and comfortable retirement then they must do what people in the private sector do.  Save for it.  Make sacrifices.  And live more frugally.  Because there shouldn’t be two Americas.  Where one enslaves the other.  While setting up a string of municipal and state bankruptcies because of their greed that threatens the financial wellbeing of the nation.

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Australia’s Carbon Tax raised the Cost of Living so much that it’s hurting the Left’s Reelection Chances

Posted by PITHOCRATES - July 20th, 2013

Week in Review

The political left says we need to stop global warming RIGHT NOW before it’s too late to save the planet.  And the children.  Of course they’ve been saying that we need to do something RIGHT NOW since the Nineties.  When global warming became all the rage.  Leaving poor old global cooling and the coming ice age it foretold behind in the ash heap of fear mongering.

Why the change?  Simple.  What can you do to prevent global cooling?  Force businesses to emit more carbon into the atmosphere?   To remove carbon scrubbing equipment from power plants?  To produce more of our electric power from coal-fired power plants and less from solar, wind and hydro?  Reduce business taxes to lower the cost of electric power?  Thus lowering electric utility costs to encourage people to use more?

As you can see these are all options that benefit taxpayers.  Not the government.  That’s why the 180-degree change from global cooling to global warming.  Because government can combat global warming.  By forcing businesses to emit less carbon into the atmosphere.  To add carbon-scrubbing equipment to power plants.  Produce more of our electric power from solar, wind and hydro (that the government can subsidize) and less from coal-fired power plants.  Raise the cost of electric power generation to encourage people to use less.  These things benefit the government.  Not the taxpayer.  For the whole purpose of fighting global warming is to transfer more wealth to the government.  So they have more money to spend (see Australia to scrap carbon tax for trading scheme by AFP posted 7/14/2013 on Yahoo! 7 News).

Key greenhouse gas emitter Australia on Sunday announced it will scrap its carbon tax in favour of an emissions trading scheme that puts a limit on pollution from 2014, a year earlier than planned.

The move is set to cost the government billions of dollars but Treasurer Chris Bowen said cuts would be made elsewhere to compensate with the Labor Party sticking to its plan to return the budget to surplus in 2015-2016.

Bowen confirmed media reports that the fixed Aus$24.15 ($21.90) per tonne carbon tax would be dumped in favour of a floating price of between Aus$6 and Aus$10 per tonne from July 1, 2014, to ease cost of living pressures for families and help support the non-mining sectors of the economy.

The political left in Australia implemented a carbon tax to save Australia from global warming.  Yet when they’re making changes in that program what is the BIG problem they have to address?  Billions of dollars of lost tax revenue.  As if they’re spending that money elsewhere.  On government pork.  Not just on subsidizing green energy.  Which makes the carbon tax not about saving the planet.  But about giving the government more money to spend.  As governments everywhere have an insatiable appetite to spend money.  So the carbon tax was a lie.  Surprise, surprise.

And how do you get billions of dollars in additional tax revenue in the first place?  By increasing the cost of living and business with more taxes.  People don’t like paying more taxes.  Politicians on the left understand that.  Which is why they lie during political campaigns.

Former Labor prime minister Julia Gillard’s popularity sunk after she announced plans for the carbon tax in early 2011 — after pledging before her 2010 election that it would not be introduced by a government she led.

The policy backflip prompted protests around the country and conservative opposition leader Tony Abbott, who opinion polls suggest will narrowly win the 2013 election, has vowed to abolish it.

Abbott on Sunday said the shift to 2014 was “just another Kevin con job”.

“Mr Rudd can change the name but whether it is fixed or floating it is still a carbon tax,” he said, adding that “it’s a bad tax, you’ve just got to get rid of it”.

Wherever you are in the world liberals make up a minority of the population.  So the only way they win elections is by lying.  President Clinton promised he wouldn’t raise taxes on the middle class.  But after he won the election he raised taxes on the middle class.  President Obama promised that he wouldn’t nationalize health care.  And within his first 2 years in office he signed the most sweeping health care bill into law.  Obamacare.  Which has put the U.S. onto the path to national health care.  And in Australia Julia Gillard promised she wouldn’t allow a carbon tax happen under her watch.  When she apparently planned to implement a carbon tax all along.  And just lied to the people.  Knowing that they never would have voted for her if she had told the truth.  That she intended to raise the cost of living for everyone.

Politicians lie.  Especially those on the left.  And yet they fool the people time and again.  Getting exactly what they want.  By going out of their way promising that they will never do what they always end up doing.  Clinton.  Obama.  Gillard.  They’re all the same.  They get what they want by saying one thing.  And then doing something completely different.

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Greedy Public Sector Unions in San Francisco demand Taxpayers pay them More

Posted by PITHOCRATES - July 7th, 2013

Week in Review

FDR was pro-union.  He was all for tearing businesses a new one when it came to collective bargaining.  For he didn’t like those royalists.  Greedy businessmen who put their profits ahead of their employees.  While making them work in horrible conditions.  For long hours.  For little pay.  The greedy little profit whores they were.  But FDR drew a line when it came to government workers.  Because taxpayers pay government workers.  And it just didn’t look right for government unions to call the taxpayers greedy little profit whores.  So FDR opposed unionizing government workers.  Because you just can’t have government workers tear the taxpayers a new one to enrich themselves at the taxpayers’ expense.  Something was just wrong with that.  But that was then.  This is now (see San Francisco Bart rail strike ends as contract extended posted 7/5/2013 on BBC News US and Canada).

San Francisco Bay’s transit rail service has resumed after two labour unions called off a strike.

The four-day walkout came to an end after both sides in the Bay Area Rapid Transit (Bart) dispute agreed to a one-month extension of the current contract while bargaining continues…

Talks between the two sides had resumed as early as Tuesday, but key sticking points include salaries, as well as employee costs for pensions and healthcare…

Bart has said workers from the two unions earn on average $71,000 (£47,500) in base salary and $11,000 in overtime annually…

The president of one of the striking unions, the Amalgamated Transit Union, struck a defiant tone.

“We’re not going to let them hijack us and the riding public,” Antonette Bryant said, as she apologised to commuters for the disruption.

So these union workers make $88,000 between base salary and overtime.  Being that train schedules are pretty fixed so must that overtime.  That’s well above the median household income of about $50,000.  Yet on top of that $88,000 they get pension and health care benefits.  And some pretty nice ones at that.  Which is why everyone wants to get into these unions.  While most Americans have to put something aside for their retirement from that median household income.  As well as pay a percentage of their health insurance premium.  Unlike public sector unions.  Who just have to go on strike to get the city to increase taxes on the taxpayers.  So the city can afford to pay those generous pay and benefit packages.

Hijack the riding public?  By opposing these union demands management is trying to prevent the unions from hijacking the riding public.  For when you add in the pension and health care benefits they’re already making about twice what the riding public is earning.  Making it difficult to call the taxpayers the greedy little profit whores here.  Yet they are because they won’t consent to pay more.  Which they can do by only having less in their personal lives.  Which certainly isn’t fair.  Especially considering that a lot of these people don’t even ride the damn trains.

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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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Big Box Stores going after Mom and Pop Stores again, this time on the Internet

Posted by PITHOCRATES - May 12th, 2013

Week in Review

The big box stores put Mom & Pop stores out of business everywhere.  Mom and Pop cried foul.  But the big box stores told them to cry them a river.  This is business.  If you want to play with the big boys then you have to figure out how to stay in business selling at the big boys’ prices.  Which Mom and Pop never could do.  Not with the big box stores’ purchasing power.  And their big box stores and warehouses that can house massive inventories.  When Mom and Pop could only buy a handful of stuff at a time.  Quantities so small they got the worse pricing from their suppliers.  Who could care less if they stopped buying from them.  Because it was the big box stores that kept the suppliers in business.

So the big box stores had a mighty advantage over Mom and Pop.  Some would even say it was unfair.  Even causing people to protest the opening of another big box store in their neighborhoods.  To protect the Mom and Pop stores.  For the people knew the moment a better deal was available they’d leave Mom and Pop and flock to the big box stores.  Where they could get real value for their hard-earned money.  And now the shoe is on the other foot.  And Mom and Pop have found a way to beat the big box stores.  Who are now crying foul (see You’re probably a tax cheat! Even if online stores don’t charge it, you’re supposed to pay it and new law will try to force you by AP Reporter posted 5/5/2013 on the Daily Mail).

Few taxpayers know they’re expected to pay sales tax on online purchases, so a new law likely to pass in Congress Monday will help states force retailers to pay up, thus forcing the retailer to charge its customers tax…

Supporters say the bill is about fairness for local businesses that already collect sales taxes, and lost revenue for states…

Supporters say the bill makes it relatively easy for Internet retailers to comply. States must provide free computer software to help retailers calculate sales taxes, based on where shoppers live. States also must establish a single entity to receive Internet sales tax revenue, so retailers don’t have to send them to individual counties or cities…

‘Complying and living under the tax laws of 50 states is a major undertaking because the process of complying with tax law goes far beyond just filling out the right forms,’ said Brian Bieron, eBay’s senior director of global public policy. ‘You have to deal with the fact that all of these government agencies can audit you and can question you and can actually take you into court and sue you if they think you are doing something wrong.’

Not charging sales tax does not give Mom and Pop an advantage over the big box stores.  It’s not having a brick and mortar store that gives them the advantage.  And not much of a one at that.  For unlike the big box stores everything Mom and Pop sell over the Internet includes something the big box stores don’t.  Postage and handling.  Which can be greater than the sales tax the big box stores adds to their sales.

As far as lost tax revenue for the states?  It is not as bad as they claim.  For instead of sales tax cities and states are generating fuel taxes on the fuel the delivery trucks consume.  They’re generating payroll and income taxes from the delivery truck drivers, the package sorters, the mechanics keeping the trucks on the road, etc.  In addition to the taxes these workers pay they spend what they keep.  Spending it in the local economy.  Where they even take their wages into those big box stores.  Purchase something.  And pay sales tax.

This is real economic activity that Internet sales drive.  Which DOES create a lot of tax revenue in these states.  So this isn’t as much about an unfair tax advantage Internet retailers are getting away with.  It’s about the big box stores who just don’t like the shoe being on the other foot.  So they hope to destroy that competition by putting Mom and Pop under an additional 49 (or more when adding in cities and counties that charge sales tax) tax jurisdictions.  Which will just suck the life out of dear Mom and Pop.  Again.

And it’s a chance for government to suck more wealth out of the private sector to pay for their bloated public sector.  Who are drowning under the weight of their costly public sector union contracts that they will grab any tax they can.  Leaving the taxpayers with less money in their pockets.  Which is why they turned to the Internet in the first place.  To get as much value as they can from their rapidly shrinking paychecks.

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Guns vs. Butter

Posted by PITHOCRATES - February 11th, 2013

Economics 101

When Children get their Allowance their Faces light up as they Think of all that Spending they’ll Do

Parents try to teach their kids to be responsible.  And to understand that they are not rock stars.  They can’t have “everything all the time.”  Because if you can you get bored.  And look for new ways to kill that boredom.  Like developing a coke habit.  (“There were lines on the mirror, lines on her face.”  Life in the Fast Lane.  The Eagles.)  Which is bad.  Very, very bad.  So this is where a weekly allowance comes in.  It teaches kids to be responsible.  And to budget their wants.  To make choices.  If they want more of one thing they learn they have to have less of another.  This is economic reality.  And the sooner they learn it the better off they will be.

So what does a kid want?  Food, candy, games, toys, comic books, going to the movies and consuming a lot of concession food and drinks.  And other stuff.  What does a parent want?  Their kids not to want so much of these things.  And not to whine.  Especially that.  They also want them to learn the importance of saving money.  To spend less and save more.  So later in life should they lose their job they will have savings to live on while they look for another job.  Without having to move back home.  So they may give a child an allowance of $100 a week.  Telling that child it’s for those things they want.  And for putting a little in the bank every week.  So they can have some money for later.  During a time they really need it.  And when the child gets that $100 his face lights up.  Thinking of all that spending he’s going to do.  While thinking nothing about saving.

Kids Allowance and Budget

The parent watches with proud satisfaction as their child budgets his wants.  For 5 weeks he pays for his school lunch.  Spends a fixed weekly amount on candy.  When he wanted to spend more on games, toys and comic books he cut back spending on movie night.  Even not going to the movies at all in Week 4 because he chose instead to buy an expensive game.  The parents are happy to see their child live within his budget.  But are disappointed that he spent all of his allowance without putting any of it in the bank.

With this Easy Credit he soon realizes that he can have Everything all the Time

Then the parents divorce.  The mother remarries.  The new stepdad really wants his stepson to like him.  While he is bitter about his parents’ divorce.  The stepdad keeps the same allowance structure in place.  But in a desperate attempt to get him to like him he is more than willing to make advances on his allowance.  Loaning money easily.  But charging interest.  To continue the lesson of responsibility.

Kids Allowance and Budget with Deficits

With easy credit and wanting more toys the stepson borrows money in Week 2.  $10.  And buys more games and toys.  Paying $1.10 for the allowance advance.  Liking the ability to buy more at the toy store he goes back for another loan in Week 3.  This time $20.  Paying $3.42 in total interest charges at the end of the week.  Losing the lesson of living on an allowance he goes back to borrow more.  This time $30.  Paying $7.10 in total interest.  With this easy credit he soon realizes that he can have everything all of the time.  And in Week 5 he borrows $40.  With his interest on the outstanding balance adding up to $12.28.  Which is almost enough to buy his school lunches for a week.

At the end of Week 5 he owes $100 in allowance advances.  Which he will have to eventually pay back.  Seeing how irresponsible the child got the stepdad refuses future allowance advances.  Upset the kid starts whining.  A lot.  Annoyed the stepdad calls in the loan.  He gives the child his $100 weekly allowance.  And then takes it back.  The child whines more.  For he can’t buy anything that week.  Not even school lunch.  Having to brown-bag it.  A peanut butter sandwich and an apple.  Making pizza day a living hell.  For he has no savings to live on during this difficult time.  As he was a spendthrift with his money.  Ignoring the sage advice of his parents to save for a rainy day.  So he suffers the most painful time of his life.  Extreme austerity for a week.

When they can’t reduce Defense Spending anymore they simply Borrow Money to keep Spending

This example is similar to how the federal government works.  The taxpayers are the kids.  And the stepdad are the politicians in the federal government trying to make taxpayers like them.  So they keep voting for them.  Only the politicians don’t want the people to learn to be responsible.  To budget their wants.  To understand that if they want more of one thing that they have to have less of another.  No.  They want them to believe they can have everything all of the time.  If only they vote for them.  How can they do this?  Unlike a parent the federal government can print money.  Making it the best stepdad in the world.

One of the reasons the Founding Fathers created the federal government was to provide for a common defense.  After winning their Independence they couldn’t get the British to leave our soil.  Or prevent the Barbary pirates from capturing our merchant ships and selling our sailors into slavery.  The new federal government was to provide a military force to protect Americans.  The Founding Fathers wrote this into the Constitution.  What they didn’t write into it was all the social spending we see today.  Often at the expense of defense spending.  The great political debate of how to divvy up spending between defense and the social stuff we see today is the guns vs. butter debate.  Where strict constructionists wanting to keep spending per the intent of the Founding Fathers.  All guns and no butter.  The ‘butter’ being an issue for state governments.  While progressives and liberals want all butter and no guns.  Because they hate the military.  And think they can talk to our enemies and make them like us.  Most other people want something in between.  As shown by  this graph.

Gunds vs Butter

If you spend 80% on guns that only leaves 20% for butter.  If you spend 50% on guns that leaves 50% for butter.  If you only spend 20% on guns that leaves 80% for butter.  And so on.  Progressives and liberals want to move as far to the left on this graph as possible.  Because the farther left they go the more they please their stepchildren.  Who become accustomed to all that spending.  And show their appreciation by continuing to vote for their stepdad.  Of course they can’t reduce defense spending to 0% because there are people out there who hate us and want to hurt us.  So when they can’t reduce defense spending anymore they simply borrow money to keep spending.  So they can keep spoiling their stepchildren.  Whose faces light up when they think about all the spending they are going to do.  With the added benefit that they will never have to repay that spending.  Or learn economic reality.  Until, that is, the government gets so overextended they have to implement a little austerity of their own.  Only it won’t last a week like it did for that spoiled child.  Instead it will be more like it was in Greece.  It will last years.  And include some rioting.

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Welfare State, Tax Revenue, Tax Base, Abortion, Population Gains, Keynesian Policies, Communism and Capitalism

Posted by PITHOCRATES - January 22nd, 2013

Week in Review

Their Welfare Programs continued to Expand even while their Tax Revenue was Falling

Many of the world’s mature economies are having financial issues.  Including chronic deficits, growing debt and skyrocketing spending obligations.  The Eurozone has been mired in a sovereign debt crisis for years.  The UK is trying to slash billions from their costliest entitlement.  The National Health Service.  France tried to raise the top marginal tax rate to 75%.  Japan is spending twice their GDP and their aging population will require even more spending.  And in the United States Democrats and Republicans are getting ready for another round of debt ceiling debates.  To raise the debt ceiling once again.  To yet another record high.

What causes these problems?  A couple of things.  A growing welfare state.  And falling tax revenue.  Not because tax rates are too low.  But because they are too high.  Creating a business-unfriendly environment.  Reducing economic activity.  Which reduces tax revenue.  They further compound their problems with Keynesian economic policies.  Which include massive borrowings to pay for deficit spending.  And expanding the money supply.  Which devalues the currency.  This creates inflation.  Further reducing economic activity.

These countries have a spending problem.  Their welfare programs continued to expand even while their tax revenue was falling.  Often introducing new programs based on the best of economic times with the rosiest projections of continued economic good times.  But once a recession hits, and they always do when using Keynesian economic policies, these governments run massive deficits.  That said there is a revenue component to their financial problems.  Abortion.

An Expanding Welfare State needs an Expanding Population Growth Rate

To increase tax revenue you need to expand the tax base.  To get more taxpayers paying taxes.  And where do taxpayers come from?  Babies.  There is no other way to get a taxpayer.  Even with immigration.  Because those immigrants first have to be born.  So the more babies you have the more taxpayers there will be paying taxes.  The more abortions you have, though, the fewer taxpayers there will be paying taxes.  The following table summarizes population gains and abortions for the years 1970 through 1990 for 12 countries.

Sources: Historic, current and future population of Europe; Abortion statistics and other data;

These dates are important for had these abortions not happened they all would be in the workforce today.  Just to get an idea of what that means to tax revenue consider the United States.  During these 20 years there were 26.7 million abortions.  Assuming a median salary of $50,000 and 33.3% in federal taxes (18% effective federal income tax rate, 12.4% for Social Security taxes and 2.9% for Medicare) that comes to $444 billion in one year.  Or $4.44 trillion over ten years.  It may not have been enough to pay for the massive new spending of President Obama.  But it would have prevented the credit downgrade from S&P.  Who were looking for $4 trillion in spending cuts over ten years.

It’s these aborted taxpayers that are pressuring these welfare states.  For an expanding welfare state needs an expanding population growth rate.  And abortion doesn’t help populations grow.  And if the population doesn’t grow then tax revenue doesn’t grow.  In fact, if you divide the population gain by the number of abortions you can get a feel of a country’s financial health.  And their future health.

A Command Economy cannot Provide for the People like Laissez Faire Capitalism Can

Abortions reduce population gains.  So when you divide population gains by the number of abortions the higher the resulting number the better.  For higher population gains and fewer abortions mean more tax revenue.  The lower the number indicates a high level of abortions that reduces tax revenue.

Spain is one of the countries in trouble in the Eurozone.  With a rich Catholic history that frowns on abortion.  So it is no surprise to see such a large number when dividing population gains by abortions.  But their debt crisis is.  For this number indicates a lot of taxpayers.  Which Spain has.  Yet they have some serious financial problems.  Why?  Because they also have very high unemployment.  Their economic woes began with Keynesian policies keeping interest rates artificially low.  Creating a housing bubble.  And when it burst it created a very bad recession.  So having taxpayers is important.  But they also have to have jobs.  With some good economic policies (i.e., non-Keynesian policies) Spain should be able to rebound into an economic juggernaut.  For if all those taxpayers find employment they can reduce tax rates to very low levels.  Which will explode economic activity.

Greece went on a spending binge.  Including lavish spending for the 2004 Olympic games.  Their problem is a bloated public sector.  And a large welfare state.  That their private sector can no longer fund.  Like Spain Greece may be able to rebound with some sound economic policies (i.e., non-Keynesian policies).  A little privatization.  And a little weaning from the public teat.

At the other end you have the United Kingdom.  Whose abortions exceeded their population gain.  Which wasn’t much for 20 years.  They are currently going through a baby boom.  But it’s this baby dearth from 20-40 years earlier that is depressing tax revenue today.  Requiring those spending cuts in the NHS.  And higher tax rates on the fewer remaining taxpayers in the workforce.  Which, of course, leaves people with less spending money.  Further depressing the economy.

China’s economic miracle is not as miraculous as it once was.  And their Keynesian policies will catch up to them.  As they have with every other country using them.  Their authoritarian regime has been able to keep wages down to help their export economy.  And they have no social safety net despite a rapidly aging population.  Which they will have to take care of.  Eventually.  Either by expanding the money supply so the government can spend more money.  Which will create inflation and hurt economic activity.  Or they will have to raise taxes.  Which will also hurt economic activity.

China has had 171 million abortions from 1970 to 1990.  Which even exceeds the number of deaths in the Great Chinese Famine.  Not uncommon in a communist regime.  Survival.  As their command economy cannot feed or provide for the people like laissez-faire capitalism can.  In a command economy those abortions are seen as a good thing.  A kind thing.  For that’s fewer mouths to feed.  Hence China’s one-child policy.  While in laissez faire capitalist countries their children have obesity problems.  And look at these abortions and see loss tax revenue.

While China is enjoying prosperity in their eastern cities thanks to their export economy fueled by low wages little has changed for the hundreds of millions of peasants in the rural interior spaces.  Where famine is still a real concern.  Some will cite China as an example of out of control population growth.  Like locusts the people will consume all of the available resources.  And leave behind a scorched earth.  Of course what these people don’t understand is the power of laissez faire capitalism.  For across the water from China is Hong Kong.  An Island with no natural resources.  A barren rock.  Yet they were part of the British Empire.  They embraced-laissez faire capitalism.  And flourished while mainland China suffered under communism.  Hong Kong is one of the world’s strongest economies.  With some of the greatest population gains.  During these 20 years their population grew by 43.67%.  The greatest of these 12 countries.  While having the lowest number of abortions.  Yet despite having this massive population gain and few resources this crowded special administrative region (SAR) of the People’s Republic of China (since 1997) prospers.  Suffers no famine.  And is one of the best places in the world to live.

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