Archive for September 10th, 2010
Well, I can’t say that I’m surprised by this, but I take no satisfaction in saying ‘I told you so.’
The long delays typical with environmentally friendly projects — combined with reports of green stimulus funds being used to create jobs in China and other countries, rather than in the U.S. — appear to have killed the administration’s appetite for pushing green projects as an economic cure.
After months of hype about the potential for green energy to stimulate job growth and lead the economy out of a recession, the results turned out to be disappointing, if not dismal. About $92 billion — more than 11 percent — of Mr. Obama’s original $814 billion of stimulus funds were targeted for renewable energy projects when the measure was pushed through Congress in early 2009.
Only about $20 billion of the allotted funds have been spent — the slowest disbursement rate for any category of stimulus spending. Private analysts are skeptical of White House estimates that the green funding created 190,700 jobs.
The Department of Energy estimated that 82,000 jobs have been created and has acknowledged that as much as 80 percent of some green programs, including $2.3 billion of manufacturing tax credits, went to foreign firms that employed workers primarily in countries including China, South Korea and Spain, rather than in the United States.
Whip out your calculators: 82,000 into $20 billion means those green jobs cost about $243,902 each. Let’s hope they pay well. The high cost per job should come as no surprise; despite the hype from green groups and the administration, cleantech jobs generally require enormously expensive subsidies.
For example, back in January, the administration was touting the $2.3 billion in manufacturing tax credits as creating 17,000 jobs — or about $135,294 per job. Even that tally proved to be overly optimistic, given the fact that many of those jobs went to other countries.
Sad really. Michigan, the state that entered a recession long before the rest of the country because of its shortsighted proclivity to put all its financial eggs in one basket; the state whose economic well-being hinged on the success or failure of the automobile industry has repeated its mistake. Ironically, both industries owe their ultimate failure to the same thing: government.
The automobile industry had been on an unsustainable path of union submission for years, when government policies allowed them to inflate the costs of automobiles beyond what would be affordable to the average person’s wages. Easy credit to anyone who could fog a mirror allowed people to purchase cars well beyond their means for years. (Sound like the housing market? That’s because it is an identical situation.) The unions continued to ask for more and the auto companies found it easier to capitulate because of the stupidity of government policy. They relied on this unsound and untenable strategy until it ran them into the ground. Then what did they do? They turned to the government for a bailout of their unviable financial strategy, which bailout was handed out by the government for the ‘good of the unions,’ to all but one notable exception: Ford Motor Company who so far, has gone it alone in the private sector. Only time will tell if they are able to work their way out of the situation they got themselves into.
As the automobile industry sat up with their collective hands out, Michigan government was busy trying to jump onto the next stupid federal policy: green jobs. The State of Michigan itself, hoping to grasp onto more government cheese, decided to play ball with the new administration’s push of green energy for furtherance of its Cap & Trade policies. Since that time, we’ve watched as the fraud of that scheme has been exposed from everyone to Al Gore and his Chicago Climate Exchange to the outing of the falsifying of data on the original science of ‘global warming,’ which fanaticism started the prospect of the new Ponzi scheme.
Despite watching this unfold, Michigan continued to pour money (much of which it didn’t even have in the first place) into investing in green energy jobs. The cost of such jobs being, as cited above, somewhere around $200,000 each. That is not to say they PAY that much, but that’s how much the State of Michigan spent to obtain each one. Over the past two years Michigan has almost exclusively invested its entire future into this federal government-invented scam.
Yes Michigan, you are a sucker. There is no such thing as a free lunch and continuing to pursue it is nothing less than pure folly. True wealth lies in production of goods and services that people can purchase at a price sustainable with the wages from own production and hard work – not from that which is artificially maintained with unsustainable government policies. The entire country is about to get a lesson in what true production means, too bad Michigan had to be the first in line to step up and take the bait.
Mort Zuckerman Is Back, Blasting American Socialism; Or How America’s Public Servants Are Now Its Masters
The man who has rapidly emerged as the most vocal Obama critic, Mort Zuckerman, has just penned his most recent scathing anti-administration missive, this time focusing on the schism in US society between “preferred-status” public and shunned private-sector employees, concluding that “Americans cannot maintain their essential faith in government if there are two Americas, in which the private sector subsidises the disproportionate benefits of this new public sector elite.” Is this most recent split in US society being cultivated to take the place of the Wall Street – Main Street dialectic, which even Obama is now forced to realize is a fight he is set to lose (just imagine how anti-Obama Cramer would get if stocks drop by 0.001% during the teleprompter’s next media appearance)? Certainly, in a society that exists simply on the basis of a simple ongoing “us versus them” distraction, while the true crimes continue unabated behind the scenes, this is not an impossible assumption. Here’s a suggestion to Mort and whoever else wishes to peddle more such diversions: how about framing the next conflict where it rightfully belongs: as that between America’s people and its criminal ruling elite?
Full Op-Ed below:
America’s public servants are now its masters, first published in the Financial Times
by Mort Zuckerman
There really are two Americas, but they are not captured by the standard class warfare speeches that dramatise the gulf between the rich and the poor. Of the new divisions, one is the gap between employed and unemployed that President Barack Obama seeks to close with yet another $50bn stimulus programme. Another is between workers in the private and public sectors. No guesses which are the more protected. A recent study by the Mayo Research Institute found that “private-sector workers were nearly three times more likely to be jobless than public-sector workers”.
Political tension is bound to grow when jobs disappear faster in the private than the public sector, just as compensation in the former is squeezed more. There was a time when government work offered lower salaries than comparable jobs in the private sector, a difference for which the public sector compensated by providing more security and better benefits. No longer. These days, government employees are better off in almost every area: pay, benefits, time off and security, on top of working fewer hours. Public workers have become a privileged class – an elite who live better than their private-sector counterparts. Public servants have become the public’s masters.
Take federal employees. For nine years in a row, they have been awarded bigger average pay and benefit increases than private-sector workers. In 2008, the average wage for 1.9m federal civilian workers was more than $79,000, against an average of about $50,000 for the nation’s 108m private-sector workers, measured in full-time equivalents. Ninety per cent of government employees receive lifetime pension benefits versus 18 per cent of private employees. Public service employees continue to gain annual salary increases; they retire earlier with instant, guaranteed benefits paid for with the taxes of those very same private-sector workers.
More troubling still is the inherent political corruption. Elected officials tend to be accommodating when confronted by powerful constituencies such as the public service unions that agitate for plush benefits and often provide (or deny) a steady flow of cash to election campaign funds. Their successors will have to cope with the inherited debt burden – and ultimately the nation’s taxpayers are stuck with the bill.
As Governor Arnold Schwarzenegger has pointed out, spending on retirement benefits for California’s state employees is growing at three times the rate of state revenues, now exceeding $6bn annually and growing at the rate of 15 per cent a year. In other states, however, the politics of public pensions appear to be changing. In Michigan, Governor Jennifer Granholm, a Democrat, recently enacted a teacher pension reform that should save about $3bn over 10 years by increasing the amount workers must contribute. Illinois raised its retirement age for newly hired public workers from as low as 55 to 67. Chris Christie, the Republican governor of New Jersey, decided that even if it took bruising clashes with public worker unions, public service compensation reform was essential for the fiscal health of the state. His stance surprised many, but it made him a national figure.
There is no quick fix to deal with the billions in unfunded liabilities. Public service employees are almost impossible to fire, except after a long process and only for the most grievous offences. What is more, the courts have ruled in many states that pension increases granted by elected bodies are vested benefits that must be paid no matter what, precluding politicians from going back and changing past agreements.
The only fair solution is to take the politicians out of the equation and have fully independent commissions in charge, fixing the scale of salaries and benefits for public-service workers and establishing an affordable second retirement tier for new employees. More reasonable retirement ages should be in order, such as 65 for general employees and 55 for public safety employees. This would take nothing away from the existing benefits of current employees.
A fundamental rethinking of the public workforce is necessary. Americans cannot maintain their essential faith in government if there are two Americas, in which the private sector subsidises the disproportionate benefits of this new public sector elite.
Once upon a time in America, people became doctors and nurses because they wanted to help people, building hospitals was a labor of love, lawyers didn’t chase ambulances, health insurance companies did not openly abuse their customers and greedy pharmaceutical companies did not dominate the entire health care industry. But today all of that has changed. Why do most people choose a career in the health care industry today? It is because they want to make a lot of money and live a comfortable lifestyle. Why do most health facilities get built today? They get built because someone is hoping to make a huge profit. Why do so many lawyers specialize in medical malpractice? Here’s a hint – it is not because they want to make life better for people. Why do health insurance companies keep raising premiums even while they are making record profits? It is because they can and because they are greedy. Why are pharmaceutical corporations some of the most profitable companies on the face of the earth even though their products are harming tens of millions of people? It is because our health care system has become wildly corrupt and is now about making as much money as possible.
Not that everyone in the health care industry is motivated by greed. Some doctors and nurses volunteer a ton of their time to assist the poor and the needy. Others use their vacation time to go overseas and provide free medical care in third world nations. Many religious groups and non-profit organizations build hospitals and clinics because they are truly trying to help people. And there are a few health insurance companies that are trying to play the game honestly.
But unfortunately, those with noble intentions in the health care industry are the exception rather than the rule. Overall, the health care industry in America is all about the money, and it is about time that we quit pretending otherwise.
The following are 20 signs that the health care industry in the United States has become all about making as much money as possible….
1 – Even as the rest of the U.S. economy deeply struggles, America’s health insurance companies increased their profits by 56 percent in 2009.
2 – According to a report by Health Care for America Now, America’s five biggest for-profit health insurers ended 2009 with a combined profit of $12.2 billion.
3 – The top executives at the five largest for-profit health insurance companies in the United States received nearly $200 million in total compensation in 2009.
4 – According to an article on the Mother Jones website, health insurance premiums for small employers in the United States increased 180% between 1999 and 2009.
5 – Health insurance premium increases are getting totally out of control. For example, the 39% increase in health insurance premiums that Anthem Blue Cross imposed on some California customers last year was so obscene that it made national headlines.
6 – Since 2003, health insurance companies have shelled out more than $42 million in state-level campaign contributions.
7 – There were more than two dozen pharmaceutical companies that made over a billion dollars in profits in 2008.
8 – Each year, tens of billions of dollars is spent on pharmaceutical marketing in the United States alone.
9 – Nearly half of all Americans now use prescription drugs on a regular basis according to a CDC report that was just released. According to the report, approximately one-third of all Americans use two or more pharmaceutical drugs, and more than ten percent of all Americans use five or more prescription drugs on a regular basis.
10 – According to the CDC, approximately three quarters of a million people a year are rushed to emergency rooms in the United States because of adverse reactions to pharmaceutical drugs.
11 – According to a very surprising new study, 85 percent of new pharmaceutical drugs are “lemons” and pose serious health risks to their users.
12 – The Food and Drug Administration reported 1,742 prescription drug recalls in 2009, which was a gigantic increase from 426 drug recalls in 2008.
13 – Shocking new research has found that expectant mothers taking antidepressants have an astounding 68 percent increase in the overall risk of miscarriage. Yet the pharmaceutical companies are essentially doing nothing to stop this.
14 – The use of psychiatric medications among 18 to 34 year old members of the U.S. military and their wives increased by 42 percent between 2005 and 2009.
15 – There are some disturbing new medical studies that suggest that many of the most popular anti-depressant drugs are no more effective than a placebo.
16 – Pharmaceutical companies continue to rake in billions of dollars from selling vaccines and are encouraging even pregnant women to take them, even though there is mounting evidence that taking vaccines while pregnant dramatically increases the rate of miscarriage.
17 – One woman in New Hampshire is seeking more than $24 million in damages from the manufacturer of a prescription drug that she took for shoulder pain. It turns out that as a result of taking the drug, she is now blind and has been left scarred by internal and external burns.
18 – According to one stunning new study, the medical liability system in the United States added approximately $55.6 billion to the cost of health care in 2008.
19 – Pharmaceutical companies have become so greedy that now they are even attempting to patent our genes. It is being reported that over three million gene patent applications have been filed with the U.S. government so far. Tens of thousands of gene patents have already been granted at this point. It is estimated that companies hold approximately 40,000 patents on sections of the human genome right now. Those patents cover approximately 20% of our genes.
20 – According to a recent report, Americans spend about twice as much as residents of other developed countries on health care, but get much lower quality and far less efficiency in return.
The privateers of education – How banks collude with the government to inflate college costs. Student loan debt now surpasses total credit card debt.
One of the more ominous statistics coming from this recession is that student loan debt has now surpassed total credit card debt in the United States. The reason for this is based on the deep impact of the recession. Credit card debt peak at $975 billion back in September of 2008 and is now down to $826 billion. This is good news right? Well the main reason for the decline has been through the rise of bankruptcies. As this number decreased student loan debt has continued to soar and is now larger than total credit card debt. Part of it has to do with the fact that you are not allowed to discharge student loan debt through bankruptcy. The government is the biggest player in the student loan market but the banks are the folks dishing out the loans. Similar to the housing bubble, when banks and government combine you usually end up with inflated prices and very wealthy bankers. The working and middle class end up paying for the bad bets in the end with inflated prices and giant amounts of debt.
Here is the unfortunate tipping of the scales:
Past and current students carry a stunning $829 billion in student loan debt. The cost of a college education has far outpaced the rate of inflation. Private institutions realize the government will cover the cost of students going to college through loans so subsequently, they raise fees and push the government to increase their loan caps. How in the world can education costs be going up at a time when the economy came to a standstill in the last three years? In fact, in the last year we have been dealing with a deflationary environment yet costs of education still keep going up. If schools can increase prices and have the government subsidize loans, then you can rest assured the banks will be pushing these things out like candy.
“This is the problem when you have a government for the banks, run by the banks, and designed by the banks.”
It is no surprise that when we look at the top players in the student loan market, many familiar names pop out:
The same too big to fail banks also rear their familiar faces in this market as well. There is nothing better than a student loan for banks. If students default, the bank will be reimbursed by the government. The government can then sell the loan off to a collection agency and go after the student by garnishing wages and other venues that even loan sharks don’t have. Is this double dipping? Absolutely. It is pure economic wizardry when banks are merely serving as middlemen with no risk at the table and are dolling out government backed loans.
You can see the rise of college costs outpacing even the price of expensive healthcare:
Source: New York Times
What is interesting to note is that college costs haven’t even adjusted during this recession. Even the housing bubble popping has brought home prices lower. Why? Because if you can’t pay for a home then foreclosure is an option. Can’t pay for a student loan? Too bad. The bank that made the loan is already backed by the government so they don’t care and the government is going to use debt collectors to get their money through a variety of ways:
Source: The Consumerist
The student loan market has enriched a few while pushing on the inflated cost of education to the working and middle class of the country. Clearly people can’t afford the cost of education as it stands and thus go into massive debt (just like housing). As usual, this is part of a bigger theme of squeezing out the middle class from an elite and increasingly desperate banking class. The banking class is bent on making money through usury rates and basically skimming money off people via non-productive means. Plus, they are lending taxpayer backed money. There is a specific reason why college costs have gone up (and are still going up) even though the working and middle class are getting poorer.
If you look at the annual cost of attending, the trajectory of cost is rather clear:
Up and up it goes. You see this expansion with private schools costing upwards of $50,000 per year. But even the state schools which were usually the mechanism for educating the largest group of students in the public is also expanding:
Source: OC Register
Interesting that in 2005 when costs started skyrocketing this happened:
So banks now had the same protection as all federally backed student loans. The same thing that happened with the housing market is happening with student loans except this is more nefarious. There is no way to walk away from a student loan. This might not be a problem if students were coming out with high paying jobs and able to service their debt. Unfortunately this crisis is hitting every corner of the economic spectrum:
This is the highest unemployment rate for college graduates ever recorded. Think about that. As college education reaches and enters a new price apex each year, the growth of unemployment for college graduates inches higher and higher. Now the mission of education isn’t necessarily to get a job. But when you put such a giant price tag there should be some direct career added benefit. In many cases this is true. Yet in other cases there is a severe self selection bias. That is, most of the ambitious people in this country go to college (not all of course). So trying to justify a high cost for this reason usually hides a lot of the reasons for career success.
Yet the challenge is revealed when you realize some people are going to college for four years at $50,000 per year with degrees that have little marketability in the economy. I’m all for people pursuing different career paths but why subsidize this through taxpayer dollars and why in the world do we need banks as middlemen here? There is still a demand for students with hard skills yet other countries are mass producing students in these areas at much lower prices:
China is graduating nearly three times the engineers compared to the U.S. They are much larger in proportion as well but so is India yet we graduate (for now) more engineers. Yet this is where we have shifted and outsourced most of our manufacturing base. So we have many questions to examine including what do we want from our education system if the price is so high?
One thing is certain however and that is that we cannot continue to have the banking industry and the government so closely intertwined. Every industry in the last two decades that banks have touched have sprouted out bubble tentacles. Technology, real estate, and now the college market. Keep in mind as many more people are unable to pay these loans, the taxpayer is paying the bill yet banks are being paid full face value here. Banks have dumped trillions of dollars of bad housing debt onto the taxpayers and have been pushing student loan debt onto the taxpayer as well for years. Al Lord and Tim Fitzpatrick, both Sallie Mae big names have pulled in over $400 million over the last decade. Glad that the new mission of education is now paving the way for subsidizing the salaries of big financial lenders.
Willem Buiter, chief economist for Citigroup arguably provides another example of why shares of Citigroup are sitting in the gutter at $4 a share in spite of trillions of dollars in bailouts to banks.
The fact that Buiter entertains “innovative and unorthodox” measures such as “expiring currency” proves he is off his rocker even though he states “the mere fact that something has not been done before often is sufficient grounds for not doing it now.”
Any chief economist, anywhere in the world, should be able to come up with better rationale than that.
Before a major rebuttal, please consider the Wall Street Journal article Is this the Right Time for the Fed to go Negative? by Willem Buiter.
To restore monetary policy effectiveness in a low interest rate environment when confronted with deflationary or contractionary shocks, it is necessary to get rid of the zlb [zero lower bound] completely. This can be done in three ways: abolishing currency, taxing currency and ending the fixed exchange rate between currency and bank reserves with the Fed. All three are unorthodox. The third is unorthodox and innovative. All three are conceptually simple. The first and third are administratively easy to implement.
The first method does away with currency completely. This has the additional benefit of inconveniencing the main users of currency—operators in the grey, black and outright criminal economies. Adequate substitutes for the legitimate uses of currency, on which positive or negative interest could be paid, are available.
The second approach, proposed by Gesell, is to tax currency by making it subject to an expiration date. Currency would have to be “stamped” periodically by the Fed to keep it current. When done so, interest (positive or negative) is received or paid.
The third method ends the fixed exchange rate (set at one) between dollar deposits with the Fed (reserves) and dollar bills. There could be a currency reform first. All existing dollar bills and coin would be converted by a certain date and at a fixed exchange rate into a new currency called, say, the rallod. Reserves at the Fed would continue to be denominated in dollars. As long as the Federal Funds target rate is positive or zero, the Fed would maintain the fixed exchange rate between the dollar and the rallod.
All three methods for eliminating the zlb, although administratively feasible and conceptually simple, are innovative and unorthodox. Central banks are conservative. The mere fact that something has not been done before often is sufficient grounds for not doing it now. The cost of rejecting institutional innovation to remove the zlb could, however, be high: a material risk of continued deficient aggregate demand, persistent deflation and, in the U.S. and the U.K., unnecessary conflict between short-term stabilization and long-term sustainability and rebalancing.
Willem Buiter starts right off the bat with a false premise that “something needs to be done”.
The reality of the matter is that left alone, prices will fall to the point where genuine demand picks up. This is a fatal fundamental flaw at the outset, but one that every Monetarist clown in the world makes.
Sadly, Buiter takes Monetarism to an extreme , yet he cannot see the consequences of what he suggests. To be sure Buiter does say “The mere fact that something has not been done before often is sufficient grounds for not doing it now”, but if that is the best he can come up with he should be fired tomorrow.
Take for example the idea that “existing dollar bills and coin would be converted by a certain date and at a fixed exchange rate into a new currency called, say, the rallod”.
For starters, that idea would require the retooling of every vending machine and ATM in the country. Is this simple or practical? I think not. However Buiter calls the approach “administratively feasible and conceptually simple”.
The same thing goes for his idea of “doing away with currency completely”.
What about Canada, Europe, Australia, the UK, etc? Is every country supposed to go along with this insane proposal? What happens to foreign accounts? What about capital flight at the mere hint the US were to discuss such a thing?
What is the Goal?
Were the Fed to even openly consider such insanity, the risk is to flight into gold, silver, foreign currencies, or tangible assets. No doubt the dollar would sink and prices would rise but is that the goal?
No! Buiter cannot even figure out what the goal is. Rising prices is not the goal, rising credit is. And with the risk of expiring currencies the last thing we would see is willingness to extend credit, fearful of being paid back in expiring dollars.
I am 100% sure the market would have an extreme reaction to implementation of any of Buiter’s proposals, in one direction or another, both outcomes horrible. If the goal was to produce hyperinflation and complete loss of faith in the currency, the suggestions of Buiter just might do it.
On the other hand, depending on how the program was structured and which of Buiter’s three alternatives was implemented (and how), I could perceive a mad dash into treasuries, coins, or gold, bringing upon a deflationary collapse.
Either way, there is nothing in Buiter’s proposals that will stimulate lending, small business expansion, or the creation of jobs.
That Buiter cannot figure this out, suggests he is incompetent and should be fired immediately.
Mike “Mish” Shedlock
Oh joy. Is this a case of do what I say, not as I do? Is it now generally accepted that those in government do not have to follow the laws that apply to the rest of us? Welcome to the Oligarchy of the United States.
Over the years a lot of suspicion has built up across the country about Washington and its population of opportunistic transients coming to see themselves as a special kind of person, somehow above average working Americans who don’t labor down in that monument-strewn former swamp.
Well, finally, an end to all those undocumented doubts. Thanks to some diligent digging by the Washington Post, those suspicions can at last be put to rest.
They’re correct. Accurate. Dead-on. Laser-guided. On target. Bingo-bango. As clear as it’s always seemed to those Americans who don’t feel special entitlements and do meet their government obligations.
We now know that federal employees across the nation owe fully $1 billion in back taxes to the Internal Revenue Service.
As in, 1,000 times one million dollars. All this political jabber about giving middle-class …
… Americans a tax cut. Thousands of feds have been giving themselves one all along — unofficially. And these tax scofflaws include more than three dozen folks who work for the president with that newly decorated Oval Office.
The Post’s T.W. Farnum did some research and found that out of the total sum, just 638 workers on Capitol Hill owe the IRS $9.3 million in back taxes. As in, overdue. The IRS gets stiffed by the legislative body that controls its budget. How Washington works.
Now, back taxes have been a problem for the Obama-Biden administration. You may recall early on that Tom Daschle was the president’s top pick to run the Health and Human Services Department. But it turned out the former Democratic senator, who was un-elected from South Dakota in 2004, owed something like $120,000 to the IRS for things from his subsequent benefactor that he just forgot to pay taxes on. You know how that is. $120G’s here or there. So he dropped out.
And then we learned this guy Timothy Geithner owed something like $42,000 in back taxes and penalties to the IRS, which is one of the agencies that he’d be in charge of as secretary of the Treasury. The fine fellow who’s supposed to know about handling everyone else’s money. In the end this was excused by Washington’s bipartisan CYA culture as one of those inadvertent accidental oversights that somehow never seem to happen on the side of paying too much taxes.
And under Geithner’s expert guidance the U.S. economy has been, well, wow! Just look at it.
Privacy laws prevent release of individual tax delinquents’ names. But we do know that as of the end of 2009, 41 people inside Obama’s very own White House owe the government they’re allegedly running a total of $831,055 in back taxes. That would cover a lot of special chocolate desserts in the White House Mess.
In the House of Representatives, 421 people owe a total $6,524,892. In the Senate, 217 owe $2,774,836. In the IRS’ parent department, Treasury, 1,204 owe $7,670,814. At the Labor Department, where Secretary Hilda Solis’ husband had some back-tax problems before her confirmation, 463 owe $7,481,463. Eighty-one workers for the Federal Reserve System’s board of governors owe $1,076,733.
Over at the Justice Department, which is so busy enforcing other laws and suing Arizona, 1,971 employees still owe $14,350,152 in overdue taxes.
Then, we come to the Department of Homeland Security, which is run by Janet Napolitano, the former governor of Arizona who preferred to call terrorist acts “man-caused disasters.” Homeland Security is keeping all of us safe by ensuring that a Dutch tourist is aboard every inbound international flight to thwart any would-be bomber with explosives in his underpants.
Within that department, there reside 4,856 people who owe the tax agency a whopping total of $37,012,174.
And they’re checking our pockets for metal and coins?
– Andrew Malcolm