Category Archives: Government Waste

Another False Green Shoot Exposed

Here in California, our state decided to offer a tax credit to buyers of new housing construction. Unsurprisingly, $10K in free money gave the housing market a bit of a kick in the pants, particularly new construction.

Now they’ve run out of money. And in a complete and utter coincidence, which nobody could possibly have predicted, new housing starts are drying up!

California Building Industry Association says the state’s homebuilders hit the brakes on starting new housing after the state’s $10,000 tax credit for buyers of new homes ended in early July. The state incentive had ignited a modest building and buying burst when it started in March.

According to July stats from the Construction Industry Research Board:

  1. Builders pulled permits for 3,011 total California housing units in July, down 14 percent from June.
  2. 2,045 California single-family permits, down 29% from June — that was the busiest month since July 2008.
  3. In Orange County, 62 homes were permitted in July — down 43% from June and off 69% from a year ago.

Says CBIA’s president, Robert Rivinius: “Our homebuilders reported a significant drop in traffic last month, largely due to the state closing the window on the homebuyer tax credit. Activity stopped as quickly as it started, which is bad news for housing and the broader economy.”

The recovery will be solid when economic gains are due to real fundamental improvement in the economy. Relying on the effects of government largesse as a sign of rebound, though, is not especially trustworthy.

FacebookGoogle+RedditStumbleUponEmailWordPressShare

Inflation Causes Misallocation of Production

The spike in car buying has caused automakers to ramp up production (via John Stossel):

Many auto industry analysts and dealers expect sales volumes to fall now that the program is over. They worry that many people who took advantage of the program were merely accelerating purchases they would have made later in the year.

If that’s true, the premature sales could hurt automakers, which increased production in the third quarter to replenish clunker-depleted inventories that had already grown low because of factory shutdowns over the summer.

Cash for Clunkers is essentially an inflationary policy. This is a policy well described by Adam Smith Milton Friedman, with the exact same consequence:

In a dynamic world demands are always shifting, some prices going up, some going down. The general signal of increasing demand will be confused with the specific signals reflecting changes in relative demands. That is why the initial side of faster monetary growth is an appearance of prosperity and greater employment. But sooner or later the signal will get through.

As it does, workers, manufacturers, retailers will discover that they have been fooled. They reacted to higher demand for the small number of things they sell in the mistaken belief that the higher demand was special to them and hence would not much affect the prices of the many things they buy.

The government has arbitrarily and falsely increased demand for a specific good (new cars). They’ve done so by throwing money at it (a locally inflationary policy) and the automakers are ramping up production in response to what they THINK is a more stable recovery. But they may soon find, as Adam Smith Friedman predicted, that they have been fooled.

Quote Of The Day

Earlier today, I provided one more reason why corn-based ethanol mandates/subsidies might be the dumbest government program ever. Chris Edwards of Cato@Liberty suggests that Cash for Clunkers might win that honor. I have to hand it to him, he provides a few good reasons supporting his case. All good reasons, but I’ll stick with ethanol, because at least Cash for Clunkers is dead.

That being said, I hadn’t thought about this criticism of Cash for Clunkers:

Taxpayers were ripped off $3 billion. The government took my money to give to people who will buy new cars that are much nicer than mine!

I love my truck. It’s a 2000 Ford Ranger XLT, which I bought used six years ago, and it’s been paid off for more than four years. It qualifies for Cash For Clunkers, and it’s certainly worth less than $4500, so I’d have made a net gain by joining the program. I chose not to take part, for a few reasons:

1. I like the truck — it meets every need I have for a vehicle, and it the most comfortable thing I’ve ever driven
2. I don’t want a car payment — despite being able to afford it
3. The vehicle I want next — a Jeep Wrangler — wouldn’t have qualified as a higher-mileage vehicle
4. I refuse to buy new cars. I’ll let some other sucker take the early depreciation hit

But I never thought to what extent my tax dollars actually subsidize the purchase of cars far nicer than what I drive. I’ve criticized the program before, because the only people that were likely be able to afford a brand new car weren’t exactly poor, and were probably getting rid of a spare vehicle cheap enough to qualify. Couple this with the fact that it hurt charities and the poor by artificially draining the used car market, and it’s about as simple of a reverse-Robin-Hood program as you can design.

Our Exalted Fearless Leader Almost Gets It

Obama is not a dumb man. He understands that government provisioning generally produces a worse service than private organizations which are dependent on people choosing to patronize them.

Here he is pointing out that while Fedex is required by law to charge higher prices than the Post Office for equivalent services, it is the Post Office which struggles and requires constant taxpayer bailout.

Like Amtrak, USPS, Fannie Mae and Freddie Mac, any publicly funded insurance company will struggle to contain costs as it encourages overconsumption.

I’ve long argued that the real reason that medical care is so expensive is that the government limits supply and subsidizes demand.

The Obama administration, in choosing to ignore the limits on supply placed by government, is embarking on a program that is doomed to fail to meet any of the publicly stated goals.

It’s too bad that Mr Obama is unwilling to follow the evidence to its inevitable, logical conclusion.

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

Control Without Responsibility

At Cafe Hayek, a letter to the editor by Andy Morriss to the Wall Street Journal is posted:

Holman Jenkins asks “Does Obama Want to Own the Airlines?” (Business World, July 8). I am sure he does not. Rather than own them, the president and his congressional allies want to control the airlines — a crucial difference as ownership implies taking responsibility.

As Mr. Jenkins notes, the Justice Department’s belated intervention against Continental’s efforts to join the Star Alliance appears aimed at extorting concessions for the Democrats’ union allies. That is not the action of an owner of airline assets but of someone determined to redistribute wealth from airline passengers and shareholders to favored special interests.

One of the many benefits of free markets is that the people who own something are the ones who experience the benefits or losses accruing from their use of it. When considering how some property is going to be used, an owner and non-owner may have very strong opinions. The non-owner, who has less to lose, will be less careful and prudent in their decisionmaking. Moreover, often the non-owner will gain more from the misuse of the item than from its prudent use.

One does not have to look to hard to see this phenomenon in action. The attempt by GM to close dealerships, and thus reduce its losses was overridden by Congressmen interested in using GM’s wealth to buy votes by keeping the dealerships open. And that is one example of literally millions of instances that take place every year from all levels of government.

Obama, leading democrats and some very influential economists have repeatedly expressed the idea that increased government control of the medical industry would reduce costs without sacrificing quality. In their vision selfless government officials will ensure that people receive high quality treatment regardless of the cost, while the market power of government as a customer will ensure that costs will stay low. Against this charming vision stands a great body of evidence from public choice theory; government officials – or their private counterparts in the private-public partnerships in vogue today – will be able to exert control without any consequences. Just as medicare and medicaid administrators proved willing to authorize higher and higher treatment prices – to the point where it threatens the budget of the federal and nearly every state government – the administrators of any new government program will behave in similar uneconomic ways.

Control without responsibility is a very bad idea.

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

Lies, Damn Lies, and California Budget Proposals

The news out of Sacramento appears good for the California middle class:

The good news, Schwarzenegger glowed, is no new taxes.

Digging a little deeper, of course, reveals the truth:

REVENUES

* Accelerate income tax withholding — $1.7 billion
* Increase estimated tax payments for businesses and the self-employed — $610 million

Between now and the end of the year, $2.3 billion will be extracted from the economy in more aggressive tax collection. Where is that money going to come from? Everyone who works:

It also raises $4 billion by in part accelerating personal and corporate income tax withholdings and increasing income tax withholding schedules by 10 percent.

The state will take 10% more than it does today out of every paycheck issued in the State of California. That means that the Californian trying to stay afloat on a mortgage, pay medical bills, or send a kid to school will have less money to do it. The Californian out trying to support local businesses will have less money to do it. The Californian who lives paycheck-to-paycheck will have less money to survive.

Since this is a withholding change, the taxpayer should get the excess withheld back on next year’s tax return. That, though, won’t undo the foreclosure that happened because a Californian couldn’t pay his mortgage. It won’t make right the bankruptcy that occurred because a Californian couldn’t pay her medical bills. It won’t bring back the corner store that went under because people couldn’t afford to shop there.

The simple fact is that this budgetary shell game will cause each and every worker to pay more to the State of California in taxes. The state is so desperate to pass a budget that it is almost certain that this tax hike will pass. All I ask is that the clowns in Sacramento have enough respect for the taxpayers to level with us and admit that their budget contains $2.3 billion in tax hikes…

Fat chance.

Mother Jones Takes on the War on (Some) Drugs

The July/August 2009 issue of the Left-leaning Mother Jones dedicates several articles to the asinine War on (some) Drugs.
ja09-250x330
The title of the magazine’s cover story states it best – “Totally Wasted: We’ve blown $300 billion. Death squads roam Mexico. Cartels operate in 259 cities. This is your War on Drugs. Any Questions?”

Reason’s Nick Gillespie points out that there are many areas that libertarians would disagree with (like I said, MoJo is a Left-leaning publication) but I think it’s good to expose a new audience to the failure that is this nation’s drug policy. From there we can debate the best way to bring the War on (some) Drugs to a conclusion.

Make-Work Projects Don’t Create Prosperity

The purpose of society is to help people satisfy their needs. A major means used to satisfy needs are economic activities such as production, trade, and the performance of services.

In a complex economy, it is easy to lose sight of this, and people begin to believe the fallacy that the purpose of an economy is to provide employment to people. And we get absurdities like the make-work projects of Roosevelt’s NRA.   French lawmaker and economist Frederic Bastiat eloquently explained the futility of this practice in the 19th century:

But Mr. Lamartine has advanced one argument which I cannot pass by in silence, for it is closely connected with this economic study. “The economical question, as regards theatres, is comprised in one word—labor. It matters little what is the nature of this labor; it is as fertile, as productive a labor as any other kind of labor in the nation. The theatres in France, you know, feed and salary no less than 80,000 workmen of different kinds; painters, masons, decorators, costumers, architects, etc., which constitute the very life and movement of several parts of this capital, and on this account they ought to have your sympathies.” Your sympathies! Say rather your money.

And further on he says: “The pleasures of Paris are the labor and the consumption of the provinces, and the luxuries of the rich are the wages and bread of 200,000 workmen of every description, who live by the manifold industry of the theatres on the surfeit of the republic, and who receive from these noble pleasures, which render France illustrious, the sustenance of their lives and the necessities of their families and children. It is to them that you will give 60,000 francs.”

Yes, it is to the workmen of the theatres that a part, at least, of these 60,000 francs will go; a few bribes, perhaps, may be abstracted on the way. Perhaps, if we were to look a little more closely into the matter, we might find that the cake had gone another way, and that those workmen were fortunate who had come in for a few crumbs. But I will allow, for the sake of argument, that the entire sum does go to the painters, decorators, etc.

This is that which is seen. But whence does it come? This is the other side of the question, and quite as important as the former. Where do these 60,000 francs spring from? and where would they go, if a vote of the legislature did not direct them first toward the Rue Rivoli and thence toward the Rue Grenelle? This is what is not seen. Certainly, nobody will think of maintaining that the legislative vote has caused this sum to be hatched in a ballot urn; that it is a pure addition made to the national wealth; that but for this miraculous vote these 60,000 francs would have been forever invisible and impalpable. It must be admitted that all that the majority can do is to decide that they shall be taken from one place to be sent to another; and if they take one direction, it is only because they have been diverted from another.

This being the case, it is clear that the taxpayer, who has contributed one franc, will no longer have this franc at his own disposal. It is clear that he will be deprived of some gratification to the amount of one franc; and that the workman, whoever he may be, who would have received it from him, will be deprived of a benefit to that amount. Let us not, therefore, be led by a childish illusion into believing that the vote of the 60,000 francs may add anything whatever to the well-being of the country, and to national labor. It displaces enjoyments, it transposes wages—that is all.

This fallacy is again being advanced by proponents of continued construction of the F-22 fighter, an aircraft that is so expensive and unreliable that it has never been risked in a combat sortie, and aircraft that was designed to combat a Soviet air force that disintegrated long before the aircraft got off the drawing board. Barack Obama wants to stop purhcasing these aricraft in order to redirect the revenues in a different direction.   Numerous lawmakers in whose districts components of the aircraft are built are trying to preserve cosntruction arguing that large numbers of people are employed making the aircraft.

Of course, the proponents are missing a major point: the people building the aircraft are wasting their time making something for which there is little consumer demand.  As a result,  the materials, the man hours, the factories all are diverted from making something for which there is greater consumer demand.  These people could be making better DVD players, or cheaper TV’s, or flying cars or better MRI’s.  Instead they produce an aircraft which is ineffective at its primary purpose, blowing things up.

If the proponents of continuing F-22 manufacture really want to improve the lot of the workers who make the aircraft, they should be allowing this uneconomical weapons system to be abandoned and allow the workers to look for work making things that people actually want.  Via the price system and the evolution of the free market, all of the resources idled by such a move would be rapidly repurposed to more profitable forms of production, and the workers would find sustainable jobs rather than depending on good will from lawmakers to keep their jobs going.

I am an anarcho-capitalist living just west of Boston Massachussetts. I am married, have two children, and am trying to start my own computer consulting company.

Kevin Drum on Doha

Kevin Drum actually makes sense on this one!

Trade talks aren’t quite that bad. But they’re close. The Doha round in particular lives or dies based on the willingness of rich nations to substantially reduce tariffs and subsidies on agricultural products, and seriously, what are the odds of that? We can’t even have a serious discussion about reducing subsidies on corn ethanol, possibly the stupidest use of taxpayer dollars in the past century, let alone reducing farm support payments to ConAgra and Archer Daniels Midland. Meanwhile, the European attitude toward farming makes ours look positively levelheaded and beneficient. Paris would probably go up in flames if EU farm payments were ever rationalized.

So: what are the odds of making progress on agricultural issues? Especially these days, you’d need scientific notation to express it properly. Might as well wish for a pony instead.

He makes sense… And yet…

…and yet he’ll still put the same idiots in charge of agriculture in charge of our health care system.

And he doesn’t see the inconsistency in such a position.

California’s problem is taxation

Instapundit links to a NYT Magazine propaganda piece about governing California, and the part about taxation reads as if it were written by Assembly Speaker Karen Bass, right down to euphemistically renaming taxes “revenue”:

In the view of many, the origins of the mud slog began with the passage of Proposition 13 in 1978, the landmark referendum that capped property taxes. “Over 50 percent of our revenue is dependent on personal income tax, and that’s a very important part of explaining the boom-and-bust cycle,” according to another Republican candidate for governor, Tom Campbell, an immaculately credentialed policy marvel who graduated from Harvard Law School magna cum laude and who later studied under the conservative economist Milton Friedman before going on to represent Silicon Valley for five terms in the United States Congress.

This dependence on income tax was the first thing Dianne Feinstein mentioned when I asked her to assess California’s problems. “In most states, it’s one-third property tax, one-third sales tax and one-third income tax,” Feinstein said. “It’s 55 percent income tax in California. And 45 percent of that comes from the top brackets.”

When the economy is booming, the stock market soaring and jobs abundant, relying on income taxes is not a problem. That was the case in the years after Schwarzenegger first became governor in 2003, and he was hailed as a “postpartisan” leader who cut taxes and appealed to Democrats by aggressively tackling issues like global warming. But in today’s cratering economy — in which California faces a decline in personal income for the first time since 1938 and unemployment sits at 11.5 percent — the state’s coffers have shriveled up quickly, along with the governor’s popularity.

Passing a budget or increasing revenues in California is dicey in the best of times. The state constitution requires that two-thirds of the Legislature agree on a budget or higher taxes — the kind of overwhelming political consensus, in other words, usually reserved for amendments to the federal Constitution. (California is one of just a handful states that require a two-thirds vote to pass a budget.)

These words were written not by Speaker Bass, but rather by the Times’ own Mark Leibovich. He gets some of the facts right, but draws from them a woefully wrong conclusion. Where Liebovich sees a state that would be better off if only politicians could increase property taxes without limit or one party had total control of the budgeting process, I see a state that manages to overtax its citizens despite some pretty robust taxpayer protections in the state constitution. What’s the difference between me and Mark Leibovich? I actually have to pay for the excesses of Sacramento.

Let me list out for you the taxes and fees I remember having to pay in the last year:

  • Income tax
  • Sales tax
  • Property tax
  • Gas tax
  • Vehicle License fee

This doesn’t include the various line items about government surcharges and fees on every utility bill I pay, some of which I’m sure is attributable to the state. Even so, the taxes and fees I listed above still amount to about 25% of my income. On top of the 30% of my income that goes to Washington D.C., that’s more than half my income.

You might think that such a fate could only happen to someone who was rich enough not to worry about only having 55% of his income go to Washington and Sacramento. You’d be wrong. I’m very solidly in the middle class, and it would be even harder making ends meet if California’s political class could force me to surrender even more of my hard-earned income. I hear the same from nearly everyone I know.

I’m a Californian, and I pay more for government than I do for anything else. From the perspective of a citizen, California’s problem is taxation–too much, not too little.

Diplomacy

Congress has been taking quite a few junkets on the taxpayer dime. Not a surprise, I know but the rate of increase (50% increase in last two years, 10x increase since 1995) is a bit of a shocker.

Spending by lawmakers on taxpayer-financed trips abroad has risen sharply in recent years, a Wall Street Journal analysis of travel records shows, involving everything from war-zone visits to trips to exotic spots such as the Galápagos Islands.

The spending on overseas travel is up almost tenfold since 1995, and has nearly tripled since 2001, according to the Journal analysis of 60,000 travel records. Hundreds of lawmakers traveled overseas in 2008 at a cost of about $13 million. That’s a 50% jump since Democrats took control of Congress two years ago.

The cost of so-called congressional delegations, known among lawmakers as “codels,” has risen nearly 70% since 2005, when an influence-peddling scandal led to a ban on travel funded by lobbyists, according to the data.

Lawmakers say that the trips are a good use of government funds because they allow members of Congress and their staff members to learn more about the world, inspect U.S. assets abroad and forge better working relationships with each other. The travel, for example, includes official visits to American troops in Iraq and Afghanistan.

Just a quick note to the Obama administration… If you want to improve the world’s opinion of America, letting them meet Congress is not going to do it.

H/T: Reason

A Vote for Revenue

Politicians are usually most revealing when speaking off-the-cuff, and so it was with Karen Bass:

Q: How do you think conservative talk radio has affected the Legislature’s work?

A: The Republicans were essentially threatened and terrorized against voting for revenue. Now [some] are facing recalls. They operate under a terrorist threat: “You vote for revenue and your career is over.” I don’t know why we allow that kind of terrorism to exist. I guess it’s about free speech, but it’s extremely unfair.

The California Assembly Speaker was talking about California’s budget crisis. There is a simple problem here. Decades of runaway spending by both the democratically-controlled legislature and voters during the boom years has the state government scrambling to meet its commitments now.

The solution, however, is more complex. Democrats have been the majority party in the legislature for decades, and this budget mess falls squarely on their backs. The solution, deep cuts to wasteful and often useless state bureaucracy, is simply not an option to them. Cutting the bureaucracy would be a loss of political capital for the Democrats, making the entire enterprise of state government less profitable. Instead, we have people like Karen Bass pulling stupid politician tricks:

The Golden State is one of only three in the nation which requires a two-thirds majority vote to raise taxes. This is forcing Democrats in Sacramento to try to recruit a handful of Republicans to pass their current plan to close the state’s gap with a combination of cuts and taxes. So far, no GOP legislator has broken ranks.

Then came Plan B. This week, the Democratic leadership mustered enough support to pass a series of budget bills with a simple majority, hoping to send them onto Governor Schwarzenegger.

Some of these bills do raise revenues, but legislators believe they can avoid the necessary two-thirds majority by reclassifying some taxes as “user fees”, while raising taxes elsewhere and claiming the end result is “tax neutral”.

A call to the Legislative Counsel’s office pointed to the part of the State Constitution which explains the need for a two-thirds majority: “any changes in state taxes enacted for the purpose of increasing revenues collected pursuant thereto whether by increased rates or changes in methods of computation must be imposed by an Act passed by not less than two-thirds of all members elected to each of the two houses of the Legislature, except that no new ad valorem taxes on real property, or sales or transaction taxes on the sales of real property may be imposed.”

But when pushed for an explanation as to where the law allows a simple majority, by creating “revenue neutral” taxes and exchanging a tax for a user fee, we were directed to the Assembly Speaker Karen Bass’s office.

Her office did not return calls or emails (though the emails were read). Other calls asking for guidance were met with silence, and another reference to the section of the state constitution cited above.

So, this is what Karen Bass means when she says Republicans have been terrorized into voting against revenue? Let’s revisit her quote and fill in what’s actually happening:

The Republicans were essentially threatened and terrorized against voting for a law that deliberately violates taxpayer protections in the Constitution. Now [some] are facing recalls. They operate under a terrorist threat: “You vote for a law that deliberately violates taxpayer protections in the Constitution and your career is over.” I don’t know why we allow that kind of terrorism to exist. I guess it’s about free speech, but it’s extremely unfair.

Karen Bass is saying that pressuring politicians to simply follow the law is terrorism. As Instapundit would say, the state is in the best of hands!

Public Schools and the Public Option

Imagine a private school where students sat in a math class for weeks misbehaving and learning nothing. Imagine that school gets on TV news because the administrators suspended the young lady who blew the whistle by taking a cell phone video and giving it to her mom who confronted them. Do you think that school would have enough students to start the next school year?

Well, this happened at a public high school in the SF Bay Area:

A freshman at Clayton Valley High School in Concord, California says that’s just what she had to endure in algebra as her classmates went wild.

“People smoking marijuana in the classroom. They smoke cigarettes.” Arielle said. “There was one kid who peed in a bottle and threw it across the room.”

Clayton Valley High School is a public high school, and I have no doubt that it will open with just as many students next year as it did this year. When parents pay for an education, they absolutely will not tolerate a school run like Clayton Valley HS. When the state provides an education for free, a vast majority of parents will generally take what they can get and call it good enough. They might picket and protest for improvement, but they won’t take their kids out of the school.

What does this have to do with health care? The public option being created as part of “ObamaCare” is rather similar to public schools, in that it is designed to undercut private health insurance on the basis of price:

The Lewin Group crunched the numbers through their health care model and found that premiums for the public option plan would be 30 to 40 percent lower than private plans.

A price difference of that magnitude would lead employers to throw their employees into the ObamaCare option:

Overall, the Lewin Group estimates that if Medicare reimbursement rates are imposed, the number of Americans with private health insurance would decline by almost 120 million, leaving only 50 million Americans in the private insurance market.

That would leave approximately 15% of the population in non-government health care, just slightly more than the percentage of students that go to private school. At that point, ObamaCare will have similar monopoly power to the public schools. I expect abuses and incompetence similar to that captured by Arielle Moore at Clayton Valley High when the public option achieves its monopoly power. The scary difference is that instead of not learning algebra, the people who have to suffer that abuse and incompetence will be missing out on life-saving medical treatments.

A human life is too important to waste on government health care.

Update: John Calfee compares ObamaCare to Fannie Mae and Freddie Mac in the WSJ. Yet another sterling example of how we don’t want our health care managed.

In defense of rhetoric…

In response to Brad’s post below, he fails to point out that the Obama Administration and Congress, with its seemingly (though not literally) infinite wealth, pushed the stimulus bill through with the explicit purpose of creating jobs and even presented the public with a graph showing unemployment with and without (pg. 5) the passage of the bill. Of course, those of us here at TLP and other likeminded blogs knew that the stimulus bill would be a failure and could possibly lead to more unemployment, if not immediately then definitely over the long term.

This isn’t a corporation building a skyscraper, it is the government errantly pouring $700+ billion into the economy, ostensibly taking money away from future generations to invest and create jobs. There is a difference between actual investment, such as a private corporation expanding, and waste, which is the very definition of government spending.

The Obama Administration absurdly claims that the stimulus bill has created 150,000 jobs. They offer no evidence to back up the claim, when in fact the economy has lost around 2.8 million jobs since the beginning of the year. It’s a win-win for Obama because, as Steve Chapman recently pointed out at Reason, the administration and majority in Congress can claim that the stimulus wasn’t big enough if the economy fails to recover or he can take credit for any rebound we may see.

I’m tired of Obama pulling everything he says out of thin air with absolutely nothing to show for it. Whatever the amount spent per job, and of course the costs of raw materials are included, it’s much more substantive that anything the Obama Administration has used a talking point for pissing away our future.

Was it a rhetorical point? Absolutely. I make no apologies for it.

$3 Bazillion Spent & 3 Jobs Created. That’s A Bazillion Per Job! OMG!!

First, let me state categorically that I don’t believe government statistics. When they talk about $X Billions of dollars spent and Y00,000 numbers of jobs created, it’s clearly BS. The government rarely knows (or cares) how much of allocated money is actually spent until they’ve run out, and I think we all know that the job count is inflated in any statistically possible way to make themselves look better.

But I just can’t get over the analysis (and sorry Jason, such as this post) that simply divide the number of billions of dollars of stimulus money spent by the number of jobs to come up with a “per job” cost. In this case it was $746K “per job”.

There’s an implicit charge there, suggesting that if you spend $746K “per job”, it’s a complete and total waste of money. The charge, of course, is that the labor cost is the “per job” amount — or should be if it weren’t “squandered”.

And let’s also be clear. I’m not suggesting this money was spent well or efficiently. But that’s not the point.

Let’s say, for example, that a multinational company wants to build a skyscraper. And building that bridge required hiring a general contractor who farms work out to a bunch of subcontractors who employ in total 1,000 workers on the building. The construction cost of the building was $1 Billion. You could easily suggest that the cost of the project was $1 Million per job. But would that matter in any way, shape, or form? Not only does it not really account for the capital costs of all the equipment — cranes, trucks, tools, etc that those workers must use, it doesn’t account for the capital costs of the building materials themselves!

If I want to build a skyscraper, the vast majority of the cost is for the steel, drywall, wiring, piping, elevators, etc — materials. The cost of the workers is a slight fraction of the total. Likewise, if the government wants to build a bridge, or construct 15 miles of freeway, or engage in pretty much any other infrastructure spending, far more money will be spent on materials than on actual workers.

Now, don’t get me wrong. I am not trying to defend the stimulus. I’m not trying to defend the government’s numbers on job creation (because, of course, borrowing the money they needed to pay for the project may have crowded out actual productive enterprises that could offset those “created” jobs). But simply dividing spending by # of jobs to come up with some arbitrary (and absurdly high) “per job” cost is a cheap rhetorical device. It might sound great on Rush Limbaugh’s show or whip up outrage amongst people who don’t know better, but it certainly isn’t a serious analysis of the policy.

Is The “Public Plan” True Market Competition?

I’m not sure if this is a case of drinking too early in the day or willful dishonesty, but I can’t quite understand why Ezra Klein would misrepresent his opposition this badly:

I’ve been trying to figure out how to make this sound like more than a cute argument, because I think it’s actually a point my conservative friends should seriously consider.

In general, there are two ways for firms to adopt an idea. The government solution — the socialist solution — is to impose it on them by legislative fiat. An example would be Congress passing a law that makes selling New Coke illegal. The other path is through market competition. Plummeting revenue and rising market share for Pepsi convince the Coca Cola company that selling New Coke is a bad plan and they should cut it out.

It is perhaps evidence of the triumph of market-based ideas that the public plan falls pretty decisively on the right edge of that spectrum. The idea here is that the public plan will adopt effective reforms that will then lower its costs and improve its quality. In response, the private market will follow suit.

The conservative argument against a public plan is NOT that the plan will be too effective, too efficient, and too low cost for private insurers to compete.

The argument is that government will unfairly stack the deck against private insurers through outright subsidies or disparate regulatory regimes, while artificially presenting a lower end-user cost to the insured. Essentially we think they’ll keep premiums low by subsidizing the program on the back end through tax dollars.

The government has proven time and time again that it doesn’t like to compete on fair terms. When you can tax your competitors and take revenues out of their profits to subsidize your costs, you don’t have to compete on fair terms.

Valor Pleases You, Crom… So Grant Me One Request. Grant Me Revenge!*

The Governator is back. And this time, he takes no prisoners:

Declaring that “California’s day of reckoning is here,” Gov. Arnold Schwarzenegger said today the state should turn its dire budget straits into an opportunity to make government more efficient.

Speaking to a rare mid-year joint session of the Legislature and other constitutional officers, Schwarzenegger acknowledged the billions of dollars in spending cuts he has proposed to close a $24.3 billion hole in the budget will be devastating to millions of Californians.

“People come up to me all the time, pleading ‘governor, please don’t cut my program,'” he said. “They tell me how the cuts will affect them and their loved ones. I see the pain in their eyes and hear the fear in their voice, the lamentations of their women**. It’s an awful feeling. But we have no choice.

“Our wallet is empty. Our bank is closed. Our credit is dried up.”

I come to slash spending.  Yaargh!

I come to slash spending. Yaargh!


Governor Schwarzenegger was elected in a pretty rare phenomenon, the recall. His predecessor, Gray Davis, had worked long and hard to make a mess of Sacramento’s business, and was generally a smarmy and unlikable guy. When Davis attempted to hike a very public tax, the vehicle license fee, voters who were already upset with Sacramento pushed him out of office.

Schwarzenegger was elected to be a reformer. He was (fairly) seen as outside the political process, and carrying the force of popularity that would allow him to shake things up. He appealed to a lot of voters who professed small-l libertarian leanings***, as he billed himself more as a fiscal conservative and social moderate/liberal. He was seen as having the political capital and bipartisan likability to actually go in and clean up the mess.

He tried to enact reforms, and was rebuffed by the entrenched power structure. Given California’s ballot proposition, he decided to pull an end-run around the legislature and “take the agenda directly to the people.” He called a special election, putting propositions including redistricting, spending restraints, and others directly up for the people of California to enact. And he was rebuffed spectacularly in that election.

Ever since then, he’s been a lame-duck governor, unable to really do anything but show up on TV at every wildfire explaining how much he cares. He’s been ineffective and the legislature has run roughshod, failing to restrain spending at every turn.

I think, though, that Schwarzenegger may be feeling ready for a resurgence. He was rebuffed for trying to rein in the legislature, and the legislature predictably went on to make a mess of things. I’m not sure he’ll necessarily come out with an explicit “I told ya so”, but you can be sure that will be a part of his sell. California didn’t listen when he tried to hit the brakes back in the boom years around 2005, but perhaps they’ll understand that folly now that the state is in shambles.

California is a mess. It wasn’t politically possible to clean it up during the boom. I’m not sure what incentive it will require to get Schwarzenegger to try to gain back his political capital and start slashing and burning through the legislature, but if revenge motivates him, I’ll take it.

Hat Tip: SoCal Real Estate Bubble Blog
» Read more

The 31-Year Old “In Charge Of” Automakers? I’m More Qualified Than This Guy!

So what happens when you go from your PoliSci undergrad degree, float through various political and think tank jobs, begin a law degree, and have no formal training in either economics or business?

You get the job of running GM!

It is not every 31-year-old who, in a first government job, finds himself dismantling General Motors and rewriting the rules of American capitalism.

But that, in short, is the job description for Brian Deese, a not-quite graduate of Yale Law School who had never set foot in an automotive assembly plant until he took on his nearly unseen role in remaking the American automotive industry.

But now, according to those who joined him in the middle of his crash course about the automakers’ downward spiral, he has emerged as one of the most influential voices in what may become President Obama’s biggest experiment yet in federal economic intervention.

While far more prominent members of the administration are making the big decisions about Detroit, it is Mr. Deese who is often narrowing their options.

Now, I don’t want to say anything personally negative about Mr. Deese here. As a bit of a follow-on to my last post, it sounds to me like he’s at no deficit of intelligence. I’m not going to focus on his age as a negative here, because he sounds like he’s quick on his feet and able to learn on the job. I’ve got some understanding for such a person, because my typical way of doing most things is to jump in headfirst and only afterward to learn how to breathe in the new environment. “Sink or swim” is a hell of a lot more exhilarating than treading along carefully.

That being said, I tend to take leaps where I have a working knowledge of swimming and the currents are minimal. Deese just jumped into the ocean, and he’s going to be battling a riptide (the economy) and sharks (the unions, management, debtholders, shareholders) the whole way through. And while he’s apparently [informally] studied some economics, as I have, he has no experience in business.

I can see this ending very badly. Experience is not the end-all be-all of success, but it certainly helps. I’d be less concerned if Deese had some experience in business in general, because while there are certainly peculiarities of one industry to another, general good business sense is widely applicable. But he doesn’t have any business experience. He has academia and “public service” in his past, and that’s about it. What’s scarier? Most of the people he’s advising have the same background, so they may not be able to discern his good recommendations from his bad ones.

General Motors and Chrysler, filled to the brim with experience, couldn’t manage to run their businesses profitably. It’s pure hubris to assume that the Obama administration, staffed with people who have little to no experience, could fare better. And the idea that you trust some bang-up whiz kid who’s the baby of the bunch with this much responsibility? This is either going to be a spectacular moment of greatness in Brian Deese’s life, or one of the most spectacular failures of government meddling we’ve ever witnessed.

I can tell you which way I’d bet.

Quote Of The Day

When I posted the below open thread, one of the data points used to suggest things were actually recovering was a rise in income that was 0.6% higher than expect (and actually positive — expectation was negative). But it appears that this might be an anomaly brought on by our Congress. From The Big Picture:

April Personal Income rose .5%, much better than expectations of a drop of .2% while Spending fell .1%, .1% better than forecasts. The revisions to March were modest. The factor in the surprise gain in income was related to the Government’s stimulus plan where transfer payments rose smartly and there was also reduced personal current taxes. The Commerce Dept specifically said the income component “was boosted as a result of provisions of the American Recovery and Reinvestment Act of 2009.”

So hey, the economy isn’t actually recovering, but boy we’re at least paying people to do government work with newly-printed money. Boy, how I love the New New Deal!

Let Us Fail

California’s in a world of hurt, exacerbated by the fact that we didn’t offer to give the state a whole bunch more money during our ballot propositions yesterday. There are a lot of reasons for our pain, but it really comes down to a state that never quite understood TANSTAAFL. They’ve been sold the lie that government can do everything they desire, and all of it “with NO MONEY DOWN!!!” Now the bill is due, and there’s going to be some trouble.

But the question is where we go from here. And I can tell you that there is going to be a cry to go to Washington DC, because the government of California is “too big to fail”. I’m not going to be one of the voices calling for this, but as Megan McArdle points out, there are quite a few who will:

There is a surprisingly sizeable blogger contingent arguing that we have to bail them out because however regrettable the events that lead here, we now have no choice. But actually, we do have a choice: we could let them go bankrupt. And we probably should.

If Uncle Sugar bails out California, California will not fix its problems. Perhaps you want Obama to make it fix the problems, using the same competence, power, and can-do spirit with which he has repaired all the holes in the banking and auto manufacturing sectors. But Obama is not in a good position to do this. California Democrats are a huge part of his governing coalition. All Obama can do is shovel money into the bottomless pit of California’s political system.

If California is bailed out by Washington, it will simply be another way to prop up a system that is fundamentally broken. California has spent decades building up the unsustainable and crushing tax & spending burden we now have. Income taxes are high (9.55% for most people above $40K), sales taxes are high, fees and regulations are high. About the only thing we have that isn’t high is property tax, and Sacramento keeps trying to change that.

Fundamentally, we need to be taught a lesson. We need to finally understand that you simply cannot live in perpetual deficit. Arnold Schwarzeneggar recently explained why:

“This is the harsh reality of the crisis we face. Sacramento is not Washington [DC]… We cannot print money.”

Maybe, just maybe, if we fail it will teach us a lesson. It will teach us that money doesn’t grow on trees, and that there is an economic limit to your ability to act in constant deficit. It will teach us that the abnormal — not the normal — scenario is one of constantly printing your way out of problems. Maybe, just maybe, it will restore some semblance of welcome economic sanity to California.

But I doubt it. Obama will find a way to paper over the problems, we’ll play kick the can because Sacramento is “too big to fail”, and wait until this becomes a problem so large that only a national collapse of our entire monetary system will teach us a lesson.

I need to start taking my piles of spare change to CoinStar — paper money will heat my house a lot better than coinage.

1 2 3 4 5 6 14