And Our Cities?

The public is presumably aware that virtually all western economies are drowning in sovereign debt -- a problem that grows worse as the clock ticks.  Nothing going on in Europe or the US (count Japan in there too, though they are not thought of as 'western') changes the dynamic of spiraling out-of-control debt and sluggish, if not collapsing, economies.

States within the US have their own problems.  There is no way for California or Illinois to avoid bankruptcy and several other states are right behind them.

But, in all of this, we have forgotten about our cities.  Almost without exception, American cities are headed down the road to bankruptcy.  Their problems are similar to the problems of the states -- public pension and health care promises that have never been properly funded.  We are already seeing policemen and teachers being laid off so that comfortable public employees can retire at twice the national average income or more.  Expect more of that until the the schools and public safety concerns shift the debate.

Eventually, these lopsided obligations will drown city financing.  The cities will look to the states. The states will look to the federal government.   The federal government will look to the Federal Reserve.  The Federal Reserve is busy printing money to bail out our national deficit.  Soon, the Fed will be asked to print far more money to bail out our states and cities.

Why are we in this situation?  Because politicians of both parties have mislead the public about the true cost of the public pension funds and health care programs enacted by state and local government.  At the national level, politicians have consistently lied about the funding status of social security and medicare.  So, where does this end?

The unwillingness to tell the truth about the funding status of the various entitlements that exist at all levels of government paves the road to Greece.  The future can be observed daily on the streets of Athens and Madrid.

Feeding the Beast -- Who Are The Victims?

Higher education claims a higher and higher percentage of the nation's resources.  No longer the land of the underpaid, it is routine for administrators to make high six figure incomes and many university presidents make well over seven figures.  Sounds like Wall Street, only better.  The work hours typically include six months vacation every year.  Not a bad deal.

But not good enough, apparently, as colleges and universities demand more and more with higher tuitions and higher expenditures from government at all levels.

One of the more insidious parts of this disgraceful situation is the expansion of student loans by the Obama Administration.  The main thrust of this is to increase the tuition levels at all schools to take advantage of this new source of funding.  Knowing that students can borrow, schools have created internal departments that are designed to educate and encourage students to take on debt so that the schools can further boost their own tuition charges.  Keep increasing the availability of student loans and the colleges and universities will continue to escalate tuition.

The results of all of this government largesse is the creation of a huge underclass in America -- young people strangled by student loan debt that they are increasingly unable to pay.  Check out the Wall Street Journal story today on the rising default levels by young people on their student debt.  This problem will soon rival the mortgage crisis.

This is the ultimate squeeze play.  Strangle the economy so that job opportunities for young people disappear and jack up tuition to absurd levels and force students to take on debt that they have no real chance of paying off.  This is the compassion of modern politics.

No one asks:  why are college costs rising faster than any other cost in the economy.  Are colleges doing something that involves increasing costs?  If so, what?  The colleges and universities have very successfully kept this question under wraps while they demand more and more resources to fund an elite group of employees who have huge incomes and net wealth and work less and less.

Not only are our youth saddled with massive debts to cover current recipients of social security and medicare, but now, as if that weren't enough, we are pushing them into massive indebtedness and an economy that provides no way out for them. 

These kind of cruel policies often are cloaked by phrases like: "investing in education" or "investing in the future."  But, what is really going on is a transfer of resources from our young people to elite, protected, typically tenured people who see themselves as entitled to massive income, benefits, and an ever-declining work load.

Assume That We Have A Can Opener

There is an old joke about the doctor, lawyer and the economist, all three, stranded on a desert island with nothing to eat.  They stumble upon a tin can of vegetables.  How do you open the tin can?  The doctor proposes to give it aspirin, the lawyer says 'file a brief.'  The economist?  The economist says: "assume that we have a can opener."

Economists have a well deserved reputation for assuming away difficulties.  Simon Johnson's article in today's NY Times is a good example.  Johnson correctly points to the US National debt as very serious problem that needs a solution and needs it now.  His article suggests that there is an easy solution.  In Johnson's own words:

"And American politicians could find other ways to restore federal government revenue to where it was in the late 1990s while also bringing health care spending under control."

Sure, just bring me that can opener.  How does one "bring health care under control."  Johnson doesn't tell us how to do that and that, sports fans, is the biggest single problem that the US faces in getting its national debt under control.  Maybe, Obamacare's unelected panel that determines who lives and who dies in the brave new world of the future can accomplish that task.  A simple law providing euthanasia for all citizens over 50 years of age might be the Obama secret plan to reign in health care.  Why knows?  Simon doesn't tell us.

As for restoring federal government revenue to where it was in the late 1990s, one assumes that a tech bubble, similar to that of the late 1990s, will be available to fuel the tax revenues necessary to temporarily produce that result. How does one do that with no economic growth?  Ah, the Obama dilemma.  Killing off the economy, which the Obama Administration has managed to do so well, conflicts with their other agenda -- maximizing tax revenues.  You can't have it both ways.

The Johnson article gives a window into the answer to the question:  why aren't economists facing the real economic issues of our time -- out of control national debt and economies mired in stagnation.  Why aren't economists interested in these issues?  So, what are they interested in? 

Read Uwe Reinhardt's absurd article in today's NY Times and you will see what topics occupy the time of our federally-subsized economists these days.  Redistribution.  Ah, there's a real topic of interest.  How do we slice up the declining pie?  Guess what he concludes? Give more money to higher education!  That sounds like an objective solution.  I wonder why a Princeton academic thinks that the number one issue of our times is how to increase the salaries of Ivy League professors.  Does this guy have a conflict of interest?

Economists are no different than other people.  They are self-seeking folks trying to line their own pocket.  Since their employer is the government, they speak up for expanding the interests of their employer, which translates into the interests of themselves.

So, don't expect economists to shed any serious light on the major economic issues of our times.  They aren't interested.

Civil Disorder and Chaos on the Rise in Greece and Spain

Riots are now turning violent in Greece and Spain.  Police surrounding the parliament building in Madrid last night were seen on videos beating demonstrators.  The Merkel-Sarcozy-Hollande-Geithner-Bernanke-Draghi policy is bearing fruit.  Civil society is breaking down in Greece and Spain.  The NY Times has a lengthy, front-page story yesterday about formerly middle class Spaniards foraging for food from garbage trucks.  That this is becoming a common scene in Spain was the thrust of the article.

This will only get worse.  Unemployment and starvation is the ultimate outcome of the modern welfare state and it is now on display in the Eurozone with more yet to come.  Spain is still dithering about whether to alter 'early retirements' under their social security schemes.  This would be funny, if it weren't tragic.  Who is going to fund those who are already retired?  One might ask a similar question in Greece.  Are American and German taxpayers going to provide the money?  Obama suggests that this is a lively possibility.  Long run, even the US and Germany do not have the resources to bail out these countries.  The US and Germany suffer from the same disease that has lead to the current turmoil in Spain and Greece.  They are just at a different place on the timeline.  The ultimate destination is the same.

You can't solve debt problems by increasing the amount of the debt.  That obvious truism is responsible for the current debacle, which will only get worse.

Merkel is a Failed Leader

Angela Merkel says the right things and does the wrong things.  As a conservative leader, she and her conservative sidekick Nicolas Sarcozy, led the Eurozone down the bailout track while loudly proclaiming that responsibility for foolish behavior would not be rewarded.  But rewards were soon forthcoming from Merkel and Sarcozy.  Merkel still strikes the pose of frugal leader while steamrolling Germany toward the largest bailout in world history.

Merkel talks about saving the Euro.  The issues in the Eurozone have little or nothing to do with saving the Euro.  The Euro is doing fine.  What is not doing fine is the fiscal situation of the Euro member states.  They are all going bankrupt, including Germany.  What currency is in place is of little importance if you cannot pay your debts and the Eurozone cannot pay their debts.  What they have is a temporary reprieve and a lot of conversation.  The endgame in this is all too obvious.  But, it won't include Chancellor Merkel.  She will be long gone by the time we get to the endgame.  She will join her pal Sarcozy in the losers bracket.

Meanwhile, the left takes the podium -- Francois Hollande of France.  His absurd policies will simply hasten the economic collapse of France.  Somehow, all of the Eurozone seems obsessed with the idea that rhetoric is a substitute for policy.  The conversation continues as the Eurozone slides into economic collapse.  What once was a shining example of the fruits of capitalism has now become a monument to socialism and poor policy.  All socialist experiments end in the same economic junk pile.

The cconomic end to all of this is obvious -- the collapse of the economies in the Eurozone.  What will not happen is that Germany will emerge a strong economy while Greek collapses.  Germany will be swept along with Greece.  Germany's economic policies differ only in degree from the policies that are currently driving Greece into the economic ditch -- there is no difference in kind.

The more interesting question is:  will democracy survive in the Eurozone?  Based upon history, it is unlikely that democracy will survive.  Demagogues thrive when democracy fails to deliver economic prosperity.  Polls show that extremist political groups are benefitting from the chaos in the Eurozone.  The first country to fall to the extremists will be Greece, but they won't be the last.  The ultimate end to the welfare state is economic collapse and political chaos.  We are at the earliest stages of that process.

Merkel and Sarcozy won election in their respective countries running as conservatives.  Their policies are a tribute to the fact that conservatives are just as likely to support the welfare state as liberals.  While there may be minor and insignificant differences between Merkel and Sarcozy and their liberal opponents, their policies are essentially the same -- extend and pretend.  Misleading the public about the cost of the welfare state is common practice for all the major political parties in the western world, including the US.

The Joy of Giving Other People's Money Away

We've all heard about the joy of giving, but what if the money that we are giving away is someone else's money?  Wow! What a thrill.  That's the attitude of the Charlottesville City Council as they parcel out taxpayer money with little or no thought.  After all, they reason, these are only small amounts of money.  There is, of course, no concern by the City Council that the money that they are giving away so blithely is not their money, but taxpayer money.  Here is the URL for this amazing story:

http://www2.dailyprogress.com/news/2012/sep/22/last-minute-funding-vexes-council-ar-2226729/

The attitude expressed by City Council members in Charlottesville is typical of liberal attitudes everywhere towards taxpayer money.  Dole it out to your friends with reckless abandon.  Just multiply all the numbers in the article by 10 million and you have the US government, the government of California, Illinois, Greece, Spain, Italy, etc.  It is easy to be charitable and caring when you are spending other people's money.  It is far less easy to be charitable when spending your own.  That is why Romney's tax return shows that he gives four times as much of his money to charity as do the Obamas.  Charity to Obama is spending the hard earned dollars of people who don't agree with him.  Romney's idea of charity is to give his own money, not the money of others.

Herein is the great divide in America:  Does charity begin at home or is charity the looting of your neighbor's pocket to give money to those that you favor?

The Media and the Issues

You would think that the US economy was booming and all was right in the world if you are a regular listener to the major TV and radio outlets in America.  Recently, I was in Eastern Europe and was pleasantly surprised to read in foreign newspapers the issues that Americans face in the upcoming election -- the economy, foreign policy, the deficit, etc.  Back home, these issues don't seem to be of any interest to the media.  Such issues are of interest to voters, but they rarely see them discussed on NBC, ABC, public TV and the like.

The big issues, according to US media, is whether or not a presidential candidate is willing to release their tax returns from decades ago or sidebar comments the candidates may have made before they were candidates that have absolutely nothing to do with any of the important issues.  The media is in the "gotcha" business.  It isn't just that they favor one party or another, it is more that the media doesn't really seem interested in mundane things like unemployment, the deficit, burning embassies, dying ambassadors, war between Isreal and Iran.  Instead it is more important, according to the media stars to worry about cosmetic issues.  "Does Romney connect with the average guy?"  "Is Obama no longer cool?"  These kinds of nonsensical discussions dominate the news coverage of the American presidential election.

No wonder the public knows so little about the issues of our day.  Anyone who spends their time watching the major news media or 'public television' or listening to 'public radio' is likely to become an expert on what dress size Michele Obama wears but is likely to have no idea what goes on in the Middle East or how the American economy is faring, since the latter topics are rarely if ever discussed in the major media.  There are, fortunately, media outlets that do address the major issues of the day.  The "City Journal," for example, published by the Manhattan Institute is a serious publication that addresses issues faced by the American citizenry in a thoughtful, serious way.  They are not the only good source of information.  One issue of City Journal will provide the thoughtful American with more real news and information than a decade of the NY Times and Washington Post.

An uninformed electorate is likely to make some serious mistakes.  That seems to be what the media is counting on.