Coyote Blog

Apparently, the gap between the productive and hard-working and those with less productive habits is growing larger.  David Brooks suggests that the productive be forced into a couple of years of government servitude.  The idea, as I understand it, is for the productive to teach the less fortunate how to be more diligent and productive in the context of a shared experience in an unproductive government make-work program.  Sort of like teaching your teenager good work habits by putting him in DMV internship.

Seriously, I suppose I understand how class-mixing at the point of a gun might expose the wealthy to classes and cultures they have never encountered.  But how is working together in some service brigade with a post office-trained manager on a government paycheck going to teach the welfare-and-food-stamp set anything new about productive work and self-reliance?

I sat through a series of sessions held with legislators today in Utah, and I must say I was pretty impressed with the fiscal sanity that has ruled this state through the last 10 years, and saw it successfully through the recent downturn.  When tax revenues were up last decade, they were doing crazy, nutty things like actually building up their rainy day fund.  And they are already talking this year about contributing to rather than withdrawing from this fund.  They still do silly politician-stuff (the law to name a state gun comes to mind) but overall a good session, facilitated by a terrific, scrappy group called the Utah Taxpayers Association.  These guys had the governor, the Speaker of the House, the President of the Senate, and numerous legislators participating.  I am not sure our larger and much better funded Goldwater Institute in AZ could do as well.

As an added bonus, I found myself sitting with a talking to Billy Casper, two-time winner of the US Open and Master Champion.  Turns out Mr. Casper is in roughly the same business I am, lending his name and time to a large firm that privately manages public golf courses.

Bonus Utah Observation:  You would expect a state with a large LDS influence to have oddities in its alcohol laws, but other than state-run liquor stores (which can be found in a number of other states, alas) I observed nothing too odd.  What I had not thought about was coffee.  There are very few Starbucks here, due in large part to LDS prohibitions on caffeine.  I know a lot of software firms moved here — I wonder how they even function without large supplies of Mountain Dew Code Red?

Oh, and I know you don’t think BBQ in Utah, but Pat’s is freaking awesome.  My competitor who is based on the area was nice enough to buy me lunch.  And just in time, as about an hour later it was announced I had just won a large contract from him.

Glen Reynolds reports that opposition to SOPA has caused Congress to pull back a bit.  My prediction:  They will kill this particular bill, and we will all pat ourselves on the back for it going away, but they it will get slipped into the back of some defense authorization bill while no one is looking and become law anyway.  This kind of pandering to Hollywood and increased government control over speech and the Internet is just too appealing for Congress to pass up forever.

The 5-year old transcripts of Federal Reserve Board meetings make for interesting reading.  Bernanke & Geithner basically yawn at concerns raised about housing prices and mortgages.

Let’s be clear.  Unlike most of those who are likely commenting on this, I do NOT blame these folks for being wrong about the direction of the incredibly complex economy, and how one or two factors might influence the whole.   My sense has always been that it is impossible to be consistently right.

What I do criticize is the hubris of making major top-down Federal policy decisions that require that these folks be consistently right.  It’s simply madness, and I am exhausted with the continuing reaction of both the media and most politicians that if we only had the right folks making these decisions, all would be well.  The reality is that these decisions are impossible to make, and will virtually always lead to gross mis-allocations of capital and resources in the economy that lead to recessions.

Update:  Here is one example

JUNE 28-29: In summarizing Fed officials’ views, Bernanke notes how it’s getting more and more difficult to make forecasts, describing the economic situation as “exceptionally complicated.” Since housing is particularly hard to project, Bernanke calls it “an important risk and one that should lead us to be cautious in our policy decisions.”

So, this seems like an admirable statement of humility.  Given these remarks, the group did nothing, right?  Of course not … they raised interest rates a quarter of a point.

Name the industry where 99.9% of the time, public policy has an explicit goal to substantially reduce worker productivity.   Answer.

Neither Medicare nor Social Security should be government programs.  The government essentially takes on two roles in these two insurance programs:  1) To subsidize the premiums of low income Americans; and 2) To use its power of coercion to force everyone to participate.  I have no stomach for the latter role and the former could be much more cheaply achieved with some sort of voucher or credit program.

But these programs are not going away.  While both need reform, it may turn out to be politically impossible to even reform them.

But if we take off the table for a moment their existence and their basic structure, there is still an enormous problem we might fix:  pricing.  There is absolutely nothing more deadly to an economy than a false or corrupted pricing signal.  But that is clearly what we have with these two programs.  The Medicare “premium” (tax) taken out of every paycheck is clearly way too small to cover true actuarial costs of this program.  And while Social Security rates may have been set right if the premiums were really being kept in escrow for the future, the fact is that the so-called trust fund has been raided into oblivion by past government spending programs  – Social Security taxes need to be reset to reflect that fact.

The result, of course, will be a substantial increase in both payroll taxes.  I am not a big fan of tax increases, and find taxes on labor to be among the worst.  But as long as we hold on to the collective notion that these are insurance programs and the taxes we pay are premiums, its time to stop fooling Americans into thinking that the premiums they are paying are truly sufficient to fund their benefits.  Maybe after we reprice the “premiums” to their true actuarial value, we can then have a real debate about the structure and existence of these programs.

US government debt now larger than the GDP.

My new column in Forbes addresses a topic I wrote about over 6 years ago, and got a ton of feedback on.

The problem with salaries for government workers like teachers is that, in a monopoly (particularly one enforced by law), the usual checks and balances on compensation simply don’t exist.  Let’s say a private school gives its teachers a big raise, and has to raise its tuitions to pay for those higher salaries.  Parents are then left with a choice as to whether to accept the higher tuitions, or to look elsewhere.  If they accept the higher fees, then great — the teachers make more money which is justified by the fact that their customers percieve them to be offering higher value.  If they do not accept the higher tuition, the school withers and either changes its practices or goes out of business.

But what happens when the state overpays for teachers (or any government employee)?  Generally, the govenrment simply demands more taxes.  Sure, voters can push back, but seldom do they win in a game dominated by concentrated benefits but dispersed costs.  On a per capita basis, teachers always have more to fight for than taxpayers, and are so well-organized they often are one of the dominant powers in electing officials in states like California.  This leads to the financially unhealthy situation of a teachers’ union negotiating across the table from officials who owe their office to the teachers’ union.

We might expect this actually to lead to inflated rather than parsimonious wages.  To see if this is true, we have a couple of different sources of data within the Bureau of Labor Statistics (BLS) to help us.

Click through to see the numbers, which tell the story pretty clearly

From Edward Pinto at the American

Fannie and Freddie entered into agreements accepting responsibility for misleading conduct discovered by the SEC, including:

1.    As of June 30, 2008, Freddie had $244 billion in subprime loans, while investors were told it had only $6 billion in subprime exposure.

a.    Freddie knew it was inadequately compensated for the risks it was taking. For example, it was taking on “subprime-like loans to help achieve [its] HUD goals” that were similar to private fixed-rate subprime, but the latter typically received “returns five to six times as great,” says the complaint.

b.    Freddie had concerns about risk layering on loans with an LTV >90% and a FICO <680. (Yet, in Freddie’s disclosures it only noted risk layering concerns on loans with an LTV >90% and a FICO <620. This is a major difference since only 10 percent of its loans fell into the LTV >90% and a FICO <620 category, while nearly half fell into the LTV >90% and a FICO <680 one.)

2.    As of June 30, 2008, Fannie had $641 billion in Alt-A loans (23 percent of its single-family loan guaranty portfolio), while investors were told it had less than half that amount ($306 billion, or 11 percent of its single-family loan guaranty portfolio).

3.    The SEC complaint disclosed that Freddie had a coding system to track “subprime,” “other-wise subprime,” and “subprime-like” loans in its loan guaranty portfolio even as it denied having any significant subprime exposure.

These suits are important because they demonstrate that Fannie and Freddie “told the world their subprime exposure was substantially smaller than it really was … and mislead the market about the amount of risk on the companies’ books,” said Robert Khuzami, director of the SEC’s Enforcement Division.

My new column is up at Forbes, and discusses the proposal by a number of Congressmen for a Constitutional Amendment to strip corporations of speech and other rights.  The post is hard to excerpt but here is just a bit:

This is why this proposed Amendment is so absurd.  In effect, it would mean that we all enjoy the full range of Constitutional rights, except when we agree to assemble and cooperate — then we lose them all.   If I as an individual bake bread in my kitchen for resale, I could still petition the state to modify regulations relevant to my activity.  If I then join together with my neighbor in a cooperative venture to bake and resell bread, does it really make sense that I would then lose my right to petition the government?

Worse, the proposed Amendment does not limit its scope to just the First Amendment.  It means that individuals, when on corporate property, might have no protection from unreasonable searches and seizures;  corporations would have no guarantee of due process or of a jury trial in civil suits;  corporate assets would no longer be protected from eminent domain seizure without compensation.  Under this provision, the Federal government could seize Apple Computer if it so desired (or even quarter troops in the Apple offices!).  This all sounds like a stalking horse for Socialism, which might seem overwrought until one realizes that Bernie Sanders is the sponsor of a similar proposal in the Senate….

Of all the possible approaches to reducing the ability of private citizens to manipulate government policy to their personal benefit, this is in fact likely the worst.  As mentioned above, there are many different avenues to exercising influence and power, of which election spending and advertising is just one.  But election spending is the most transparent of all of these approaches.  This proposed amendment would in effect substitute highly visible advertising and electioneering with backroom deals and political patronage that is far more hidden from the public eye.  A cynical person might argue that this is exactly the goal.

Every time we enter business in a new state, it is a constant challenge to figure out all the taxes we owe.  In Alabama, for a single campground, we file and pay

• Alabama lodging tax
• Alabama sales tax
• Alabama boat rental tax
• Marshall County lodging tax
• Marshall County property tax
• Marshall County sales tax
• Marshall County occupancy tax
• Marshall County health certification
• Alabama unemployment tax
• Alabama withholding tax
• Alabama personal and corporate income tax

So of course we got billed for a new one today, for the Alabama Business Privilege Tax, apparently a corporate net worth tax.  No forms or notices are sent for this tax until after it is due, when one owes about 80% in penalties.

By the way, pay the government for the “privilege” to conduct commerce is one of those government euphemisms that drive me up a tree.

More nominally intelligent people talking seriously about a Social Security trust fund as if such a thing exists.

The only thing supporting our ability to pay future Social Security benefits in full is the government’s ability to print currency.

Arnold Kling has one of the best statements on modern political incentives I have seen lately

Salmon complains that as far as the latest [European debt] plan is concerned, “the commitment is still vague.” What I want to suggest is that for the politicians, vagueness is a feature rather than a bug. This reflects a fundamental misalignment between political incentives and economic requirements.

What markets and the economy need are policies that resolve uncertainty. That way, people know who is going to take a hit. Most important, they know where they can invest with confidence going forward.

What politicians need are vagueness and opacity. Having a clear, well-defined policy exposes the politician to the people who are hurt by that policy. Thus, instead of producing a balanced budget today, you produce a plan to produce a plan to balance the budget down the road. Instead of restructuring sovereign debt, you make a commitment that everyone will be made whole, without explaining how that commitment will be honored.

There are cases in which I support jury nullification.  I cannot imagine sitting on a jury and voting to convict someone of violating a law I thought to be grossly unethical, no matter what the jury instructions were.

For explanation, see here, but the key quote

In response to Julian Heicklen’s motion to dismiss his indictment [for distributing pamphlets on jury nullification] on First Amendment grounds, federal attorneys have filed a response with the court.  Here is the federal government’s position: “[T]he defendant’s advocacy of jury nullification, directed as it is to jurors, would be both criminal and without Constitutional protections no matter where it occurred” [emphasis added].  This is really astonishing.  A talk radio host is subject to arrest for saying something like, “Let me tell you all what I think.  Jurors should vote their conscience!”  Newspaper columnists and bloggers subject to arrest too?

Next up — it will be illegal to speak out against the President’s ability to detain or assassinate Americans who he believes to be terrorists.

Via Hit and Run, this can’t be said too many times

according to the CBO’s top official, the figures in this report and previous mandatory stimulus don’t actually tell us whether or not the stimulus created jobs. That’s because, as  I’venotedsomanytimesbefore, the reports rerun slightly updated versions of the same models of that were used to estimate that the stimulus would create jobs prior to the law’s passage. And lo and behold, if you create a model that predicts the law will create jobs, and then you rerun a mild variation of that model a few years later using updated figures about what money was actually spent, it still reports that the stimulus created jobs. But there’s no counting here, no real-world attempt to assess the reality of the stimulus—just a model that assumes that stimulus spending will create jobs and therefore reports that stimulus spending has in fact created jobs. As CBO director Douglas Elmendorf confirmed on the record last year in response to a question, “if the stimulus bill did not do what it was originally forecast to do, then that would not have been detected by the subsequent analysis.”

Further, the fact that we can count individual jobs in stimulus programs (of which there are all too few, which is why the Administration doesn’t do this), we still have to take into account an offset effect.  The trillion dollars came from somewhere, and in effect were diverted from private to public hands.  To justify the stimulus, one needs to be able to argue that the public use of these funds created more jobs than the private use of these funds.  Good luck with that.

Thank God for the Left and their scientific approach to government decision making

EU bans claim that water can prevent dehydration…

EU officials concluded that, following a three-year investigation, there was no evidence to prove the previously undisputed fact.

Producers of bottled water are now forbidden by law from making the claim and will face a two-year jail sentence if they defy the edict, which comes into force in the UK next month.

For three years a group of government employees actually got paid to come to the conclusion that drinking water does not prevent dehydration.  Congrats.

If you want an explanation, my guess is that this is part of the Left’s war on bottled water.  For some bizarre reason, bottled water has been singled out as one of the evils of modern technology that will drive us into a carbon dioxide-induced climate disaster.  So I don’t think the EU would have approved any label claim for water.  Since this is such an absurdly obvious claim that most consumers would just chuckle at (yes, consumers can be trusted to parse product claims), I almost wonder if some water company didn’t just float this to make the point that no claim could be approved in the EU system.

1.  Accepting for a moment that the purpose of the loan program under which Solyndra received its money was truly reduction of CO2 output and fossil fuel use, what is the metric the DOE uses to score these investments against these goals (e.g. tons of CO2 output avoided over the next 10 years per dollar of government investment).

2.  How did Solyndra and other companies that were accepted for the program score on your metric?  How did companies that were turned down score?

Of course there was no such analysis — the government appears to have invested in whatever companies raised the most money for Obama or got Joe Biden’s heart palpitating or both.  Even if one pulls the obvious politics out of it, it appears they invested in stories they found appealing, the same mistake many novice investors make.

The Left works hard to wrap itself in the mantle of science, and Republicans just let them do so.  If Chu wanted to take the high ground of  trying to do the right thing for US energy policy, questioners should have taken him at his word and challenged how well his internal process matched his bold words.   Politicians are too obsessed with finding some crime or smoking gun.  The underlying failure is that the loan process does not, never will, and in fact cannot match the stated ideals and goals of the program.

This Newsweek article reviews the amazing coincidence that so many Obama DOE loans and subsidies benefited heavy-duty Obama campaign supporters.  The author seems surprised:

…these were highly competitive grant and loan programs—not usually a hallmark of cronyism. Often fewer than 10 percent of applicants were deemed worthy.

Nevertheless, a large proportion of the winners were companies with Obama-campaign connections. Indeed, at least 10 members of Obama’s finance committee and more than a dozen of his campaign bundlers were big winners in getting your money.

via

Its amazing how many people can shake their heads in despair at the European debt crisis and then continue urging the US to do exactly the same things that got the Europeans into this mess.

Though it’s a high bar given what has been going on recently, this is the most aggravating thing I have read this week, via Glen Reynolds:

Robert and Patricia Haynes live in Michigan with their two adult children, who have cerebral palsy. The state government provides the family with insurance through Medicaid, but also treats them as caregivers. For the SEIU, this makes them public employees and thus members of the union, which receives $30 out of the family’s monthly Medicaid subsidy. The Michigan Quality Community Care Council (MQC3) deducts union dues on behalf of SEIU.

Michigan Department of Community Health Director Olga Dazzo explained the process in to her members of her staff.  “MQC3 basically runs the program for SEIU and passes the union dues from the state to the union,” she wrote in an emailobtained by the Mackinac Center. Initiated in 2006 under then-Gov. Jennifer Granholm, D-Mich., the plan reportedly provides the SEIU with $6 million annually in union dues deducted from those Medicaid subsidies.

“We’re not even home health care workers. We’re just parents taking care of our kids,” Robert Haynes, a retired Detroit police officer, told the Mackinac Center for Public Policy. “Our daughter is 34 and our son is 30. They have cerebral palsy. They are basically like 6-month-olds in adult bodies. They need to be fed and they wear diapers. We could sure use that $30 a month that’s being sent to the union.”

This is a microcosm of the typical liberal fail — a group or agency does initial good work (private unions in the early 2oth century, civil rights groups in the 60′s and 70′s, the EPA in the early 70′s) but refuse to go away and declare victory, instead morphing into self-sustaining parasites whose only concern is their own survival.

I got a call this morning from Homeland Security about their e-verify immigration tracking system (which we are required by law to use in Arizona).  The caller said that Homeland Security was interested in the satisfaction of their customers.  I told her that I am not her customer.  I am a subject of the state who is forced by law against my will to use their system.  A customer is someone who is in a voluntary relationship.

The call ended soon after that.  I supposed I have just asked for some sort of audit, but at this point I don’t care.

Via Business Week

 Beacon Power Corp., an energy- storage company that received $43 million in backing from the U.S. program that supported failed solar-panel maker Solyndra LLC, filed for bankruptcy after struggling to raise private financing.

The money-losing company, which makes flywheels that manage energy moving through a power grid, had sought to avoid the fate of Solyndra, which entered bankruptcy last month after receiving a $535 million loan guarantee from a U.S. Energy Department program designed to spur alternative energy development. Beacon faced delisting of its shares by the Nasdaq Stock Market and warned in an Aug. 9 regulatory filing that it might not remain a “going concern.”…

In addition, Beacon received $29 million in grants from the U.S. and Pennsylvania for a 20-megawatt plant in that state and hired Group Robinson LLC to help raise more funds for the $53 million project. Group Robinson, a Menlo Park, California- based renewable-energy consulting company, also was helping Beacon find customers outside the U.S.

This is not an accident.  By definition, the government is investing in companies that every other private lender and investor turned down.

From ABC News via Q&O

At a million-dollar San Francisco fundraiser today, President Obama warned his recession-battered supporters that if he loses the 2012 election it could herald a new, painful era of self-reliance in America.

“The one thing that we absolutely know for sure is that if we don’t work even harder than we did in 2008, then we’re going to have a government that tells the American people, ‘you are on your own,’” Obama told a crowd of 200 donors over lunch at the W Hotel.

At least he is making the choice clear.

This is a pretty interesting interview with Eric Schmidt of Google.  I am running out the door and don’t have time to excerpt it, but in short, Schmidt is quite critical of the ability of government to intelligently regulate technology.

His solution is telling.  There is nothing here about reducing the power and scope of government, despite his clear and concise description of its consistent structural failures.  His solution:  more power for my guys.  That way, when Washington plays its game of sacrificing the less connected in favor of the well connected, we will do OK.

I am working on this concept for my next Forbes column vis a vis the Occupy Wall Street movement.  The OWS folks seem incoherent to us, because, in short, they complain about people having unfair power over them and then their solution is … to give other people more power.   I have reconciled this in my mind with a cold war analogy.  Everyone accepts the arms race as a fact, and so the only way to survive is to have more nukes than the other guy.  The only way to deal with power, is to get more power for my side.

Frankly, its time for disarmament.  As a retailer, I get irritated with credit card processors, but I understood when Congress was considering regulation of interchange fees that giving the Feds the power to set credit card terms, rather than the banks, was not going to make things any easier, just shift the costs from more to less favored constituencies (and consumers are always the least favored constituency).

More later as I sort this out in my head.

That is the sound of the printing presses running 24/7.  Because that appears to be how we are funding all of Obama’s spending right now (source)

When folks say they are not worried about the deficit, because folks still seem eager to buy our debt (as evidenced by the low interest rates) note that the general public has been a net seller of US debt the first 2 quarters of 2011.  In fact, the only buyer has been Uncle Sam himself, buying up the debt with newly minted cash (or electrons, really).

One other interesting issue, the Fed seems to have been soaking up the money supply in the early days of the recession, before the high-profile business and financial failures really got things moving downward.