Grading the Governor
It’s been barely four months since Chris Christie took the oath of office as Governor of the Great State of New Jersey. (Please hold the New Jersey jokes for later). For those of who do not reside in the Garden State, Christie was elected for three reasons: (1) to repair the state budget and get taxes under control (especially New Jersey’s insane property taxes); (2) revive the business climate and (3) because he ISN’T Jon Corzine. Well, on the last point, he’s succeeded – nobody will ever confuse Christie with his predecessor. The question is, how is he doing on the first two points?
That probably depends on who you talk to, but one thing is for sure: Christie isn’t only attacking the state budget with zeal, he’s also attacking municipal and school district budgets. In this regard he deserves some credit: he is the first governor since Brendan Byrne in the 1970’s to link all three in an unholy alliance. Of course, Byrne’s solution was to institute the state income tax – which, while it sounded great on paper has had the effect of only bloating the state budget. (We’ll chalk that one up to an “OOPSIES” moment.)
The crux of the issue, for the uninitiated, is this: most of New Jersey’s services are provided by local municipalities and school districts. These entities only have three sources of revenue: state disbursements, local property taxes and local fees. Where Christie has run afoul of both the municipalities and school districts is that he has either frozen or cut the state disbursements for numerous local programs. This has led to a particularly bitter fight with the NJEA, New Jersey preeminent teachers union. With most districts now receiving less in state subsidies, they are faced with the prospect of either raising property taxes to cover the reduction or reducing staff and programs. Of course, there’s also the often under-reported issue of how many districts have used the state’s largesse in the past; for instance, the Jersey City Schools District has put that money into a “rainy-day” fund. The reality is that JCSD could keep services exactly where they currently are without any state assistance whatsoever.
Of course, to hear the teachers union, this is tantamount to the classic line from “Ghostbusters:” Human sacrifice, dogs and cats living together… mass hysteria! Realizing that they aren’t likely to get the Governor to rescind his executive order, they’ve gone into full attack mode. And by full, I mean attacking on all fronts. It’s become almost amusing to pick up a copy of the Newark Star-Ledger or Bergen Record and see some of the things being said. Eventually, I’ll figure out if the Governor is simply “a fat pig” who obviously didn’t graduate from a public school “because he can’t add 2+2,” and if the state’s Education Commissioner, Brett Schundler, is really an “apostate from Hell.” (These are actually mild statements; in case you hadn’t heard, the NJEA also put a hit on the Governor and tried to contract the Almighty to do the deed). The rhetoric from the state house has turned equally vicious, in true Goodfella’s fashion. (Hey, I’m allowed. I live in the town where The Sopranos was filmed. SO…shuddayamouf). Christie has likened teachers to drug pushers, among other things. What makes this especially entertaining is that this highlights a diametric opposition of two incredibly powerful forces in state politics – the NJEA is the state’s largest union in what is a traditionally pro-union state and the Governor is, well..the Governor.
The real test comes today, when citizens across the state vote on their local school district budgets. Ordinarily, these elections are pretty tame affairs marked by low turnout and high margins of passage. but since Christie threw down a gauntlet earlier this month – challenging the state’s voters to not pass any budget that doesn’t include a wage freeze for teachers. How low and how high? In a typical year, voter turnout would be around 20% and over 90% of school budgets are passed. The all time low is 54% of school budgets being approved – a number that may well be surpassed this year, given that a Rasmussen poll finds 65% of New Jerseyans siding with the Governor.
So, will this be the year when New Jersey’s citizens finally stop saying “Enough with property taxes” and actually start doing something about it? Chris Christie is hoping so. He’s set this election up as the first real test of his political clout and chosen the State’s biggest union – and most powerful lobbying group – as his intended target. If he succeeds in getting voters to reject the proposed budgets in the 86% of districts seeking an increase, he will have won a significant victory and the odds go up that he will be able to ram through his proposed “Slim-Fast” budgets over the next three years. So, for now Christie gets an “incomplete” on this issue.
I’ll post an update here tomorrow and tackle the other main issue, reviving the NJ business climate. In the meantime, I’ve included two more links after the break for your reading enjoyment.
UPDATE: It looks as if the voters in this state have rejected 54% of the proposed school budgets, an all-time high. This round goes to the Governor. Grade, so far: B-
Are the jobs REALLY gone?
There’s been a lot of talk lately, from both the left and the right, that most of the jobs lost in the current recession are lost forever. Robert Reich is a well-respected former Labor Secretary for President Clinton. In his article The Future of American Jobs, he contends that American jobs were permanently lost to a pair of factors: technology and outsourcing. Technology allows companies to increase employee efficiency (more employee productivity at lower labor costs); outsourcing is enabled by technology that enables foreign workers to remain competitive with Americans and can be closely monitored using new technologies. Although philosophically opposed to Reich, James Sherk of the Heritage Foundation reaches the same many of the same conclusions in Reduced Investment and Job Creation to Blame for High Unemployment. The only difference in these two articles is that Reich focuses on job losses, while Sherk focuses on job creation. But in both articles, the authors contend that both near- and long-term unemployment will remain at or near 8%. ( I wrote about the disappearing jobs phenomenon earlier this month)
There are many causes for this, of course, beginning with the fact that United States (and most of the developed world) began moving earnestly away from labor-intensive manufacturing economies towards knowledge-based service economies in the late 1970’s. Although well aware of this, nobody did much to prepare the citizenry for this fundamental economic change. Much as the US experienced a dramatic cultural and demographic shift in the late 19th century as we moved from an agrarian economy to a manufacturing economy, we are experiencing the same now. Policies over the past 30 years at both the federal and state level, rather than focusing on restructuring education and employment policies, were largely concentrated on sparing the status quo. Although the days of a high-school dropout being able to get a well-paying job for life at the local manufacturing plant ended a generation ago, we’ve continued to subsidize both the labor unions (who rely on perpetuating this myth) and the educational systems (whose labor unions and administrators have been resistant to changing the formulas they’ve worked under for 6 generations). As a result, we have a large segment of the population that is ill-suited for the type of work the modern economy provides.
Both liberals and conservatives in this country (and other Western nations) are calling for a return to 20th century economies. Liberals believe that the US can return to a manufacturing-based economy, if only certain policies are enacted. Some of these include: engaging in protectionist trade policy (apply punitive tariffs on goods produced in low-age countries); requiring a percentage of all goods sold in the US to be produced in American factories and tightening labor and banking regulations to “protect” the American worker. Conservatives are championing reduced immigration, business credits and lower taxes as the way to spur manufacturing growth. Both of these approaches – or any combination thereof – is wrong, immoral and ill-conceived. They are intended primarily to appease the 60% of Americans whose jobs will disappear or have disappeared in the past three decades.
First of all, thanks to technologies that were not even conceived a century ago, the modern world is more tightly interwoven than at any time in history. When combined with the fact that the days of imperialism ended with WWII, it is now impossible for any nation that relies on exports for economic vitality to successfully engage in protectionist trade policies. Imposing excessive tariffs or limiting imports in any way will, in the end, prove counter-productive as other nations reciprocate the move. Many persons in what we often derisively refer to as the “developing world” consider the steady income provided by manufacturing economies as a vast improvement in their situations. Despite wages that are considered substandard in the west, the mere fact that workers have a steady source of income – and therefore, food and shelter – provides a sense of security previously unknown. This was, by the way, the same attitude that drove many former tenant farmers to migrate to cities during the late 19th and early 20th centuries, in the US and Europe. This was despite the advance knowledge that most would work in conditions that we find abhorrent and for wages that we can’t countenance today. Combined with the interactive nature of modern economies, no nation can afford to block goods coming from these nations.These types of policies were tried during the heights of the Great Depression – the result was over 50 million human beings killed in the greatest conflagration in history. Secondly, imposing inane limits on immigration will rob the US of a tremendous source of energy and vigor, both of which are priceless commodities in the new economy (and I suspect that very vitality is what many are afraid of). Finally, any restructuring of tax and revenue policies that ignore the modern economic realities in favor of a long passed age robs the emerging job market of strength and future generations of Americans of a sorely needed simplified tax code.
So, if the modern economy in the West will not be based on manufacturing, what will we do in the future? Where will the jobs come from? Well, first of all, not all manufacturing will be permanently off-shored. For several reasons (including national defense), there will always be some sort of manufacturing in the US. However, the reality is that as a percentage of employment and average compensation, American manufacturing will never return to the halcyon days of the 1960’s and 70’s. The new economy will be services based and requires a more educated and more flexible workforce than the one that currently exists. I realize that when I say “services” many people conjure visions of hotel maids and McDonald’s cashiers. Those type of jobs have always existed and will always exist, but nobody should think we’ll become a nation of gas station attendants. What I’m referring to by services are the types of positions that require more brain power than brawn power; fields like medicine, technology, research, aerospace, education and banking are all services. All are creating jobs right now. The problem is, their growth is restricted by a lack of skilled workers. It’s a fact that none of your politicians want to talk about, because they know in large part they’re directly responsible for this fact.
The answers about what to do for the next generation of Americans is pretty obvious and I applaud President Obama for starting education initiatives that may prove fruitful. (I’m no fan of the President, but you have to give credit where it’s due). However, there are 2 generations of Americans now in the workforce and a third about to enter, whose citizens are ill-prepared for the current economy. The big question is what do we do about restoring some semblance of full employment, and at tolerable wages now? The first thing is for the labor unions to understand that the world has changed and they need to get with the times. Once, the antagonistic approach between organized labor and business in the US led to a system that worked well, in the contained system that was the US. Once the US was no longer the dominant player in manufacturing, though, the unions failed to keep up with pace of global economics. It is long past time for them to seriously engage foreign governments and labor markets -by working to raise living standards oversees, they can reinforce those standards back home. Secondly, our own politicians need to work in ways that remove the yoke of debt from our collective shoulders. The projected national debt for 2020 equates to $150,000 for every family in the US – or more than 3x the anticipated per family income for that year. That level of debt is unsustainable and is largely driven by “entitlement” spending – Social Security and the new Health Care package. It is past time to revisit how these programs are funded before they drive the entire nation into bankruptcy. Until debt projections are reduced, funding for projects needed to revitalize the economy cannot be pursued. In the same vein, the political class needs to be honest about the limits of government intervention in economic policy – aside from fiscal and tax policy, there really isn’t anything they can do for immediate and sustainable growth. At the moment, fiscal policy is stagnated -interest rates are at zero. That leaves tax policy – which will not unfreeze capital markets. However, by implementing a strategic tax policy in coordination with a debt reduction plan, lawmakers can relax market tensions by demonstrating long-term fiscal sense.
However, even if the various entrenched factions were to begin immediately putting these ideas in action, the near-term effect would be negligible. We would still need high spending on unemployment compensation and other safety net program to prevent our society from devolving into absolute chaos. I would like to add a caveat to this spending, though. One thing obvious to anyone who’s driven any road in Pennsylvania or watched a manhole explode in New York City knows our infrastructure is aging badly. I would offer those receiving government assistance the option of either attending training in a new field or showing up for manual labor repairing our bridges, schools and the like. This recreation of the WPA would at least prevent the nation from just throwing money down a rat-hole.
Dinosaurs among us: The USPS
The long awaited GAO report on the financial viability of the US Postal Service was released earlier today. Ok, maybe you weren’t on the edge of your seat waiting for it. But you should have been.
A little background, for those of you who haven’t been following the story:
The Post Office reported to Congress earlier this year that it is facing the prospect of losing $238 billion over the next ten years. This becomes problematic because, unlike most federal agencies, the USPS is required to balance its budget. Congress made this stipulation when it semi-privatized the service in 1970. I say semi-privatized because the same statute made the post-office a monopoly and guaranteed that Congress would subsidize any operating losses stemming from “mandated services” with money from the general revenue. In 1982, Congress went a step further when they declared that income received by the USPS (from selling stamps and metering packages, primarily) was not tax revenue – therefore, the money raised by the USPS by conducting its daily business was solely to be used by the USPS for the purposes of its operating costs. This effectively split the post office’s accounting from the rest of the federal budget; almost immediately, the Postal Service began running deficits. However, the early shortfalls were quickly made up by arbitrarily raising postage rates.
This brings us to the modern-day, when changing demographics, technologies and competition for the lucrative package business have altered the postal landscape. When the USPS reported in March that they were on the verge of needing a massive cash infusion just to stay afloat, Congress did what it does best: commission an independent report on the state of postal services finances, and tapped the Government Accounting Office for the project. The news is both sobering and not unexpected.
The USPS is, in fact, facing a $238 billion deficit over the next ten years. That puts the US taxpayer on the hook for $238 billion in postal subsidies over the next ten years, unless way are found to bring costs into line with revenues. So what to do?
The GAO report notes three specific areas where USPS costs are out of control and out of whack with their anticipated business: employment, operations and pricing structure.
Workforce
The GAO report notes that the USPS currently has 300,000 employees, far more than needed to efficiently deliver the mail. It recommends reducing the workforce through attrition and outsourcing. It also recommends restructuring contributions to retirement plans to match those of other federal agencies. The latter two points would need concessions from the postal workers union – don’t hold your breath, especially with Democrats in control of both Houses of Congress and the Presidency.
Operations
The USPS is currently over capacity, both in terms of facilities and delivery routes. They recommend a series of actions, including reducing mail delivery from 6 to 5 days, closing excess post offices, moving post offices to self-serve kiosks and leasing space in retail establishments, closing unneeded distribution centers, and instituting “cluster boxes.” (A cluster box is a centrally located box that houses the mail boxes for a neighborhood). All of their recommendations would require union concession and the Congress to change current statutes.
Pricing
The GAO recommends that the USPS restructure it’s prices to better compete on products where it has to, and raise rates where it has a monopoly. The key here is getting Congress to agree to end preferential pricing for money-losing, but statutorily required, services (such as 2nd- and 3rd-class mail). Yes, in case you missed that last point – not only does your mailbox get stuffed with “junk” mail, but Congress has mandated that the postal service cannot charge a fair rate for it. And it’s one of the biggest money-losers for the USPS.
The GAO report points out that the USPS business model is a recipe for disaster and cannot sufficiently absorb the dual impact of lower revenues and higher costs. (See General Motors for an example of how this business model succeeds).
Mail volume declined 36 billion pieces over the last 3 fiscal years, 2007 through 2009, due to the economic downturn and changing use of the mail, with mail continuing to shift to electronic communications and payments. USPS lost nearly $12 billion over this period, despite achieving billions in cost savings, reducing capital investments, and raising rates. However, USPS had difficulty in eliminating costly excess capacity, and its revenue initiatives had limited results. To put these results into context, until recently, USPS’s business model benefited from growth in mail volume to help cover costs and enable it to be self-supporting. In each of the last 3 fiscal years, USPS borrowed the maximum $3 billion from the U.S. Treasury and incurred record financial losses. A looming cash shortfall led to congressional action at the end of fiscal year 2009 that deferred costs by reducing USPS’s mandated retiree health benefit payment. Looking forward, USPS projects continued mail volume decline and financial losses over the next decade.
So what factors are leading to the declining mail volume? Well, the biggest is probably the Internet. 10 years ago, you would have to sign up to receive this blog as a newsletter delivered by your friendly local postman. In the same way, more and more of us are paying our bills on-line. (Personally, I’m on check 298 on 4 year old checking account – and I started on check 200). Even junk mailers are cutting back – they’ve discovered spam, which is actually more effective than 3rd class delivery. Catalogs by mail are another item that has taken to the internet. In my youth, we anticipated the quadrennial mailing of the JC Penney, Montgomery Ward and Sears catalogs. Montgomery Ward has since gone out of business, but the other two stopped mailing catalogs this decade. Secondly, at the time of the 1970 law, the Postal Service did not have any real competition, other than from local couriers in urban settings. It was not until UPS won the right of common carriage in 1974 that any real competition opened. Next came Federal Express (FedEx). The two package shipping giants have decimated the USPS’ package delivery services by shipping freight cheaper, more efficiently and faster than the post office is able. So, that leaves first-class mail as the only profit center left to the USPS monopoly – and it’s in no way profitable. (When was the last time you mailed a letter?)
Is it time to fully privatize the USPS? Well, the GAO report makes pretty clear that to do so would doom it to bankruptcy faster than you can say “boo.” Is it time to off-load the services to a 3rd party, or group of third party common carriers? They wouldn’t want it – especially with the same Congressional restrictions that have in large part sunk the USPS. Is it time to just say “so long” to the idea of the Post Office?
Probably not. Many USPS defenders point to the Constitution – particularly Article 1, Section 8 – as mandating postal delivery. In fact, that clause only gives Congress the power to “Establish Post Offices and Post Roads.” It doesn’t mandate that a post office be created. However, the fact that Congress did establish the first national post office with the Postal Act of 1792 I think demonstrates that the Founders understood the importance of a postal service to the dissemination of information and the conduct of national commerce. However, given the current state of the Postal Service’s finances and the finances of the nation in general, something needs to be done – and quickly. Here are my recommendations.
- Adopt most of the GAO report. The only section I have trouble with is their recommendation to reduce delivery to 5 days from 6. While those in urban areas have viable alternatives for weekend mail service, those in rural areas do not. (UPS and FedEx actually hire the USPS for rural package delivery, if it’s not a priority overnight package).
- End the distinction between 1st-, 2nd and 3rd class mail. If you have a piece of paper you want delivered somewhere, pay full freight. Or deliver it yourself.
- If the union won’t go along, Reaganize it. I’m referring to PATCO and the way President Reagan dealt with them when they struck in 1981. The same rule applies to the NALC and APWU. If they do not acquiesce in what are essentially reasonable demands by the USPS and GAO, they should all immediately be fired and replaced.
Harsh? Perhaps. The alternative is, however, for the post office to become another of those large, sucking government agencies that robs the American taxpayer.
Health Care Reform: The Democrats Strike Back
In a recent post, I outlined who I thought the winners and losers of the recently passed HCR bill. Much as I projected, businesses and their employees are among the first to be directly affected by the new regulations and taxes.
This article in the Wall Street Journal sums up, rather nicely, some of these early consequences of the congressional and presidential march towards socialism.
- Medtronics announced it may have to lay off up to 1,000 workers in order to pay for their new obligations. Rather ironic, considering that those employees probably considered their jobs to be safe. After all, Medtronics makes medical equipment – the last industry you would think would suffer layoffs from a health care bill.
- Verizon sent an email to all of their employees, suggesting that the company will likely have to reduce health benefits, due to increased costs incorporated in the new law. Yes, that’s right. People with quality coverage are losing that quality as a direct result of the “reform.”
- Caterpillar announced they anticipate $100M in extra health care costs.
- AT&T announced a $1B charge-off, directly resulting from increased medical expenses.
What is particularly troubling about these announcements are the industries they represent: medical technology, telecommunications and manufacturing.
Telecom: AT&T and Verizon are the nation’s two largest telecom providers. Their combined announcements represent a troubling issue for the industry as a whole. Given the fierce competition in this sector (in case you hadn’t noticed, per-subscriber rates have dropped by nearly 20% over the past 12 months, largely spurred by competition from smaller carriers) and that both are now in the middle of major technology upgrades, there really is nowhere else for them to turn to make up the shortfall except by whacking health benefits. The pressure on smaller or regional telecom providers will be even more intense.
Medical Technology: Medtronic’s announcement that up 1,000 employees may be forced to enter the worst job market in 30 years is particularly unnerving. Medical-related industries were supposed to be one of the drivers of both economic activity and job growth for 2010. If HCR is having the opposite effect, then the net effect of Obamacare on the economy may well be worse than anyone feared.
Manufacturing: In an industry that hasn’t had any good news in what feels like eons, Caterpillar’s announcement has to give even Paul Krugman pause. An additonal $100M in expenses represent 17% of their operating profit for 2009 – a year that saw both EPS and PPS results drop by nearly 80% from 2008. Worse, estimates for this year only had Cat realizing $285M in operating profit. If forced to take a charge (which our byzantine accounting rules will require, if they need to write down the increased costs), that $100M represents a 35% reduction in operating expenses. As with any industry, reductions of that magnitude invariably lead to lower stock prices, which lead to a whole raft of financial problems.
Of course, the Democrats who dreamed up this “reform” have taken notice. The last thing they want is any bad news related to HCR on your evening news or in your morning paper. After all, by now, we’re all supposed to be madly in love with O-care and worshiping at the altar of socialism. As pointed out here, Henry Waxman has sent letters to the Chairmen of the companies mentioned here, all but demanding that they appear before Congress to repent of their collective sin. You know, the sin of minding their respective company’s bottom lines.
I suppose this is how socialism slowly overrides free markets. One day, you complain that a lack of corporate responsibility has led to the Great Recession. The next, you complain that corporate responsibility is undermining public trust in your great socialist experiment. I guess Rep. Waxman and his fellow Democrats are hoping that we’re either too dumb or naive to recognize this blatant power-grab for what it is: an all-out assault on freedom, liberty and the pursuit of happiness.
Where’s ICE?
Today, while most of the nation is focused on the Health Care Reform bill, upwards of 10,000 people are anticipated to protest the United States’ immigration policy on the Mall. As these folks gather, I’m left to wonder: where is ICE?
For those who don’t know, ICE is the Immigration and Customs Enforcement Agency, the arm of Homeland Security tasked with enforcing US immigration policy. That includes rounding up those who are here illegally and sending them back from whence they came. Yet, despite having thousands of illegal immigrants in one place protesting the fact that they are not even supposed to be here, it’s doubtful that a single ICE agent will be found in attendance. The reason is incredibly simple: this administration, like most of its predecessors, selectively enforces immigration laws.
It’s a political consideration. President Obama, rather than risk alienating the Hispanic community, has decided that rounding up and deporting illegal immigrants is not wise policy. Never mind that the executive branch of the government is Constitutionally obligated to enforce the laws passed by the Congress. Never mind that most of those on he Mall today readily admit that they are law-breakers by residing in our country. The President has calculated that were the law to be enforced he would lose more votes than if he were to enforce it.
Rather, the administration is concentrating on immigration “reform.” If you think you’ve heard this before, it’s because you have. This isn’t the first administration to talk about most of the ideas being bantered as “reform” for America’s immigration system: universal ID cards, amnesty for illegal immigrants already here, tougher enforcement of whatever the new laws might be. The same ideas have been tossed around Washington for at least the last 15 years, taking different forms and with different aspects being emphasized.
Enough already. Enforce the laws we have, Mr. President. And you can start today – by simply visiting the Mall and rounding up a few thousand criminals.
This is healthcare?
It seems the Democrats are have now put an amendment into the healthcare reconciliation bill that would authorize the federal government to own Sallie Mae, thereby enabling the federal government to directly provide student loans (rather than guarantee loans made by private lenders).
Regardless of the merits of the proposal (more on that in a bit), I’m a little lost in seeing how this is related to healthcare, healthcare reform, or medicine in any way. There’s a reason for that.
It isn’t.
The idea here is that since this proposal is slightly more popular than HCR as currently constituted, adding this rider will make the HCR bill more palatable to liberal House members. Of course, death by lethal injection is also more popular than the current HCR bill, but I don’t see anyone lining up for their lethal shot cocktails. But I digress.
Now, back to those merits of direct government lending to students.
The way the system currently works is this: student needs a loan to help pay for college, say $25,000 over four years. Student has no credit history. Student’s parents don’t have $25,000 in collateral to put up, nor do they have the type of credit rating to effectively cosign the loan. So, the federal government steps in to insure the loan – if the student reneges on the loan, the government pays and then assumes the debt. As part of this trade-off, the government insists that interest and other repayment terms are kept within their guidelines.
Despite occassional glitches, the system works. Millions of people go to university and learn. They repay their loans. Life goes on.
Of course, Dems say this about improving affordabilty. They just can’t explain how that works. And by sneaking it into healthcare, they can attempt to complete the take-over of the finance industry along with the healthcare industry.
Code Red
Time to step up an let ’em know what you think: Click here for current list of reps & where they stand on HCR:
Political Baseballs 