State Spending Priorities

I disagree at least in part with the editors of the Wall Street Journal’s take on the teacher strikes in West Virginia and Oklahoma:

Oklahoma teachers went a decade without a significant raise, and only three states pay less on average, according to the National Education Association. Depending on which grade they teach, Oklahoma educators’ mean annual pay lags around $1,000 to $3,000 behind the overall state mean of $43,340, according to the Bureau of Labor Statistics.

Yet Sooner State teachers received a big pay hike before their recent strike began. In March Oklahoma raised taxes on oil and gas, cigarettes and fuel. The new taxes pay for a raise of about $6,100 per teacher and more school funding. But union leaders sense an opportunity to press for more, especially with Republicans on edge about the midterm elections.

In Kentucky the protests have been about pensions, not pay, but the same Medicaid crowding out is taking place. The Bluegrass State was one of the first Medicaid expansion states under ObamaCare. Some 22% of residents—more than two million people—are enrolled. In 2008 Medicaid spending in Kentucky was $4.9 billion, but by 2017 it was $9.9 billion. The federal government paid $7.7 billion of that sum last year, but the burden has already begun shifting to states.

As for education, Kentucky’s public pension woes place it on par with New Jersey and Illinois, and teachers’ pensions are only 56% funded. Participants can draw full benefits as early as age 49, and some collect longer for more years than they’ve worked.

The Republicans who gained control of the Kentucky government in 2017 have made pension reform a priority. Legislation that passed in March leaves benefits untouched for retirees and current employees.

But it stops teachers from cashing in on accrued sick days at the end of their careers, a common strategy to game the system. And it shifts new hires to a hybrid retirement plan that operates more like a 401(k). The most optimistic estimates have the teachers’ pension running a $14 billion liability, and the changes make a dent of around $500 million to $800 million over 20 years.

The strikes in Kentucky were an effort to lobby Gov. Matt Bevin to veto even this modest reform, never mind that strikes are illegal in the state. Mr. Bevin signed the bill last week and slammed Kentucky Education Association leaders for “looking out for the best interests of themselves.”

He has a point. Teachers unions saw an opening after West Virginia teachers got a raise after nine days on strike, but other concessions they won benefit labor at the expense of students. One casualty was a plan to open the state’s first charter—a science, technology, engineering and math school that would have operated with Marshall University and West Virginia University. Union leaders also killed a reform to let school districts consider teacher performance as they determine which employees to lay off from shrinking schools.

Arizona seems to be following the West Virginia model. Teachers are demanded a 20% pay raise, while protesting and planning for a walkout. Last week Gov. Doug Ducey announced a proposal to increase teacher pay by 20% over 2017 levels by 2020, also restoring education funding to pre-recession levels. The proposal has to get through the legislature, so you may soon read about strikes there.

Arizona also expanded Medicaid under ObamaCare, and the program’s share of the general fund has grown to 18.5% from 12.4% a year earlier. In this election year, Democrats and unions want to portray taxpayers as stingy for not paying them more. But if teachers aren’t getting bigger raises, two reasons are the progressive priorities of Medicaid and runaway pensions.

I haven’t researched Kentucky or Arizona but I did look into teacher compensation in Oklahoma and West Virginia. IMO teachers are underpaid in those states by the standards of those states. They’re earning below median income. Oklahoma and West Virginia should pay their teachers more.

But it’s true that the big line items in state budgets are education and health care and that both are increasing in cost rapidly, health care costs at a multiple of non-health care costs. It’s also not true that people will accept raising taxes so that health care costs can rise to any level their little pea-pickin’ hearts desire. Incomes when rising are rising very slowly; people have mortgages and rents to pay. They need to buy food and clothing and pay the utilities. They already aren’t saving. Many are borrowing to pay ordinary operating expenses.

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Your Mileage May Vary

The experience that Richard Cohen relates in his most recent column:

My first real job was with the New York office of a national insurance company. Sexual harassment was a problem, for sure. But the term did not yet exist and the problem was not formally recognized.

We had no acknowledged diversity problem, either. In fact, we simply had no diversity. African Americans, Hispanics — you name it: None. Our office was exclusively white and not by accident. When I asked my boss why we had no black employees, he told me directly that it was his policy not to hire any. And when once, by accident, a temp agency sent over an Asian file clerk, she made the mistake of using the common ladies room. Women from the office next door demanded she be fired. She was.

is very different from mine. My first real job was with a very small company. I had multiple female colleagues—my peers. Their style was somewhat different from that of the men but no one doubted their competence. To the best of my knowledge there was zero sexual harassment.

My second real job was with a much larger company. I had female subordinates; I had female peers; there were female managers. Some of my colleagues were black or Asian. There were no Hispanics because it was before the enormous influx of mostly Mexican workers into the United States. The country only had a Hispanic population of about 5% and most of those were in California, Texas, Arizona, and New Mexico. Here in the Midwest the Hispanic population was extremely small. That was nearly 50 years ago.

I attribute the difference in our experience to his having grown up and spent most of his life in the virulently racist and sexist Northeast rather than the Midwest.

As far as bigotry goes, in my family it was just about the worst sin you could commit. I’ve been the victim of anti-Catholic bigotry for just about as long as I understood there were different religions. I suspect that Mr. Cohen is no stranger to anti-Semitism.

IMO we made substantial advancements in equality of the races and sexes from 1950 onwards, that stopped around 1990, and we’ve been going in reverse since then. Recently, I’ve been subjected to anti-white racism for the very first time in my life. It’s not as overt as people spitting on you or calling you names but it’s obviously there. And agism is a daily experience. Not tremendously surprising since I’m now the oldest person in any given meeting.

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At Least He’s Honest

Michael Gerson says he wants regime change in Syria in his latest Washington Post column:

Hitting a few sites with perhaps 100 missiles may reduce Assad’s capability to make more sophisticated chemical weapons. But the chemical attack on Douma was fairly primitive. The coalition strike probably did not deprive Assad of the ability to repeat this kind of tactic. And Assad still has a powerful incentive to do so, since news reports indicate that it was the chemical attack that finally broke the spirit of resisters in Douma.

Trump’s standard — that a dictator can indiscriminately kill his people as long as he doesn’t use chemical weapons — is nearly lost in the overarching lesson of the Syrian conflict. Assad has established his own international norm: If you make war on your own people — if you kill enough of them, brutalize enough of them and displace enough of them — the world will let you stay in power.

Here is the norm that America might have defended: Mass atrocities against civilians as a method of warfare won’t be allowed to succeed. This would involve not only punishing the use of chemical weapons as a tactic, but also making sure that the use of chemical weapons and other violence directed at civilians fails as a strategy.

The last two administrations have placed their main emphasis on two goals — defeating the Islamic State and opposing the use of chemical weapons — for a reason. In the chaos that once was Syria, Obama and Trump have wanted to define the U.S. mission in ways that are discrete, limited and achievable. Both men can claim credit in the campaign against the Islamic State — not a trivial matter. One of them has, at least, maintained the pretense of an international norm on chemical weapons.

In the real world, however, battles are not won by limiting your objectives. The outcome in Syria that would have best served U.S. values and interests? A well-armed coalition of moderate rebels forcing the regime to the negotiating table, resulting in a coalition government that includes some regime elements but not Assad. After several wasted years of indecision and indifference, this is a distant, perhaps impossible, dream. But it is the only result that would have reestablished the norm that murdering innocents as part of a military strategy won’t be allowed to prevail. This mission was never even attempted.

This, no doubt, because of our towering successes in setting up coalition governments in Afghanistan, Iraq, and Libya.

Mr. Gerson like the U. S. government needs to get his head around the reality that there are no moderate rebels in Syria, at least not enough to base a government on. What there actually are are radical Islamist Sunni rebels, Al Qaeda, DAESH, and the like, who are “murdering innocents” and using chemical weapons themselves. If they ever were to gain control of Syria, they would begin a genocide of the Alawite minority, basically a return to the status quo ante. Assad and his regime are awful but they are also the only prospect Syria has for a secular, multi-confessional, multi-ethnic Syria.

I do have a question. If the yardstick for overthrowing governments is that they’re slaughtering their own people, why isn’t Mr. Gerson calling for us to overthrow the governments of South Sudan, Burma, Russia, and China?

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Still a Tail

I barely skimmed Stephen Moore’s defense in the Washington Times of the deficits the Trump Administration plans to run into the indefinite future:

For years, we’ve been trying to get the CBO to use real-world scoring that reflects how businesses, workers and financial markets react to changes in tax rates. But no go.

This is why the left is having a field day with the CBO forecast that deficits under President Trump will average a trillion dollars a year for the next decade. This is supposed to be a result of Mr. Trump’s tax cuts, but hold on here. Take a look at the nearby chart. It shows the deficit forecast with and without the tax cuts. They are effectively the same.

Mr. Trump didn’t create $1 trillion deficits, he inherited them from the grand maestro of debt spending, Barack Obama. President Obama invented and then perfected the concept of 13-digit borrowing. His deficits in his first term reached $1.5 trillion — an Olympic record of fiscal recklessness.

Is there anything more hypocritical than liberals, who supported Mr. Obama’s policies that ran the debt from about $11 trillion to almost $20 trillion, now fainting over runaway deficit spending? Yes, Chuck Schumer, there is gambling going on here at this casino.

and it struck me that there is a parallel between the Obama Administration’s handling of the war in Afghanistan and the Trump Administration’s approach to fiscal policy. President Obama inherited the war in Afghanistan from George W. Bush. He then became its custodian, neither winning nor losing it outright.

Similarly, Donald Trump inherited a trillion dollar deficit and is now its custodian. Just because you inherited something from your predecessor does not obligate you to double down on it. Three administrations worth of utter fecklessness ensures defictis will continue into the indefinite future.

The deficit may be less or more than the CBO projects but there will be deficits. The trajectory of spending guarantees it and no one knows how to stop it. Heavens forfend, they might lose votes. The notion that the growth-induced increase in tax revenue will outstrip the spending is fatuous. For goodness sake, the debt overhang itself is going to retard growth.

Our key problem is that the two major political parties have become one trick ponies. The only tune the Republicans know is cutting taxes while the Democrats have announced their determination to relabel consumption as investment and spend every dollar they can tax, borrow, or create.

Whatever you call them consumption is not investment and taxation is reducing revenue.

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Calling for Blood

The opinion pages of the major news outlets today are filled with op-eds, the gist of which is that the only thing wrong with the illegal, immoral, and counter-productive attacks on Syria of late last week is that they weren’t nearly damaging enough and there should be many more of them. I won’t even both to link to them or name their authors. They are mostly from the same people who have been urging us to war for the last two decades. We have very little to show from taking their advice than dead or permanently wounded Americans and the vast number of dead in a dozen countries in the Middle East, North Africa, and West Asia. This is supposed to cultivate friends, increase our credibility, and make us more secure. It has done none of those things.

In any rational society the consistent wrongness of these opinion writers would make them objects of scorn and yet they continue to receive some of the most precious column inches in the world on a routine basis.

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Why Trade With China Is Skewed

In an op-ed in the Wall Street Journal Peter Navarro explains why international trade with China cannot work as the notionally free traders think it should:

Why is the textbook model failing? The answer is that China’s faux comparative advantage is the result of its state-directed investments, nonmarket economy, and disregard for the rule of law.

The problem’s taproot is Chinese intellectual-property theft and the forced transfer of foreign technology as a condition of accessing China’s market. These illicit practices, including widespread cyberespionage, allow Chinese companies to move rapidly up the innovation curve at much lower cost than their foreign competitors, which must recoup the cost of research and development through higher prices.

Other forms of economic aggression contribute to China’s faux comparative advantage. To protect its market, China erects high tariff barriers—e.g., its auto tariff is 10 times that of the U.S. China has high nontariff barriers, too, including intrusive licensing requirements and foreign-ownership restrictions that keep the playing field tilted in favor of Chinese companies.

To gain global market share, China showers its state-owned and state-financed enterprises with subsidized land and capital, myriad export subsidies, and lucrative tax preferences. To prevent the adjustments predicted by the textbook model of trade, China has historically undervalued its currency.

Most broadly, China’s “going out” strategy involves leveraging sovereign-wealth funds to capture the industries of the future. Three of the world’s 10-largest SWFs are from China, and China Investment Corp. has close to $1 trillion. These funds regularly scour technology-rich communities like Silicon Valley, Boston and Austin, Texas, seeking to purchase the crown jewels of American innovation. Since its founding in 2009, for example, Sinovation has accumulated $1.2 billion in total capital and has invested in almost 300 startups.

Those are all arguments I made against granting China Most Favored Nation trading status, why I opposed its admission to the World Trade Organization, and why the U. S. runs such a large trade deficit with China. To them I would add China’s lack of a robust system of civil law which means that U. S. companies suing the Chinese partners that were foisted on them as the price of entry into the Chinese market do not do so on a level playing field. It is inevitably tilted towards those partners, many of them Chinese officials or their family members.

Millions of ordinary Americans have been injured by our feckless policy as jobs disappeared. A relative handful, like the Walton family and major shareholders in Apple, have become fabulously wealthy.

Americans aren’t the only ones who have been injured. Every individual living in a country with a developing economy has been injured as China’s mercantilism retarded the development of their countries.

The question now is how to remediate what those feckless policies have wrought. It won’t be easy or painless but the entire world will be better off for it.

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Quote of the Day

The quote of the day comes from Janis Ian who wisecracked that the wages of sin may be death but once taxes are deducted it’s more like a tired feeling.

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Oregon’s Public Pensions

You might find this New York Times article on Oregon’s public pensions interesting:

A public university president in Oregon gives new meaning to the idea of a pensioner.

Joseph Robertson, an eye surgeon who retired as head of the Oregon Health & Science University last fall, receives the state’s largest government pension.

It is $76,111.

Per month.

That is considerably more than the average Oregon family earns in a year.

Oregon — like many other states and cities, including New Jersey, Kentucky and Connecticut — is caught in a fiscal squeeze of its own making. Its economy is growing, but the cost of its state-run pension system is growing faster. More government workers are retiring, including more than 2,000, like Dr. Robertson, who get pensions exceeding $100,000 a year.

The state is not the most profligate pension payer in America, but its spiraling costs are notable in part because Oregon enjoys a reputation for fiscal discipline. Its experience shows how faulty financial decisions by states can eventually swamp local communities.

Oregon’s costs are inflated by the way in which it calculates pension benefits for public employees. Some of the pensions include income that employees earned on the side. Other retirees benefit from long-ago stock market rallies that inflated the current value of their payouts.

I don’t believe any Illinois public employee enjoys that high a pension paid from the state’s purse but there are some that are pretty outrageous. According to the Better Government Association’s Pension Database, the highest-paid state retirees in Illinois are receiving about a half million a year in pension payouts. There’s a clear argument that Illinois should abandon its present defined benefit retirement system in favor of a defined contribution. That would protect both retirees and taxpayers. It would not, however, give politicians the ability to siphon money that should be going to pension funds to other purposes so, of course, it won’t happen.

Illinois has the additional problem that it cannot constitutionally change the pension arrangements of present or past employees—only new ones.

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Five Wars in One!

At Arc Digital Nicholas Grossman does a pretty fair deconstruction of the wars in Syria. There isn’t just one. There are five:

  1. Assad vs. the rebels
  2. U. S.-backed coalition vs. DAESH
  3. Turkey vs. the Kurds
  4. Israel vs. Iran
  5. Russia vs. the U. S.

Ironies abound. In the wars in Syria the U. S. is arming Al Qaeda and protecting DAESH. Our allies the Turks are fighting our allies the Kurds.

To me the entire situation is tragic. We have no friends in this conflict, many enemies, and practically nothing to gain whoever prevails.

Here’s how Mr. Grossman sees the endgame:

  • Assad (and Iran) restore Syrian sovereignty, but have to give up some control.
  • Russia gets a foothold in the Middle East, but does not dominate all of Syria.
  • The Kurds and Sunni Arabs get greater political control, but not independence.
  • Turkey has to live with more Kurdish control to its south, but retains its buffer in Syria’s northwest, and can rely on a sustained American commitment to discourage cross-border attacks.
  • ISIS gets nothing, and everyone else agrees to prevent its return.

I think he’s making some weak assumption as, for example, that the Turks won’t just decide to remain in their present holdings in Syria and that they won’t fight an ongoing war with Kurds, and that anybody could consider the U. S. a reliable ally at this point.

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Is There a Fourth Way?

While I think that Third Way’s heart is in the right place in its “Social Contract for the Digital Age”:

To help people with the massive disruption happening today, we need a modern economic agenda that boldly redefines government’s role in expanding the opportunity to earn. The way to do that is through a new social contract for workers that would: 1) reimagine investment in good-paying jobs; 2) reinvent postsecondary education and skills; and 3) redesign the pay and benefits of work.

I have severe concerns about the position of its collective head. Consider this bullet point:

11. Universal Private retirement
Will guarantee that every worker has both Social Security and a private, employer-fed retirement account.

Today, nearly every worker in America has Social Security, and a lucky handful have either a traditional pension or private savings sufficient to live a comfortable retirement. But the traditional pension is fast becoming an artifact, and while many employers offer 401(k)s, many in the middle and working classes are at risk of saving too little for a comfortable retirement.

We have a minimum wage; we should have a minimum employer pension contribution for every job. Under this proposal, every job that doesn’t already have a retirement plan in which the employer contributes would now have a Universal Private (UP) retirement account. This would be completely separate from Social Security and would not affect the earned benefit program in any way. Resembling the federal Thrift Savings Plan, UP would be a simple, portable, individually owned account toward which employers would chip in at least 50 cents per hour worked. UP funds would be invested in a low-fee lifecycle fund with the option for enrollees to choose different investments. Workers would be encouraged to contribute their own money but could choose not to.

Upon retirement, the default payout would be in the form of a guaranteed monthly check for life to supplement a worker’s Social Security benefits. To offset the cost of the employer’s contribution in the early years, businesses would be eligible for a tax credit covering a portion of those contributions for up to 20 workers. This tax credit would be entirely financed by ending tax breaks on retirement contributions for individuals who have already accumulated $4 million in their tax-preferred accounts.10

With the modest, yet consistent, commitment to retirement savings fostered by UP, workers and employers would create nest eggs worth well over half a million dollars for retiring middle-class couples. That’s enough to fully match what such workers would earn from Social Security, which would remain 100% unchanged under this proposal.11

With UP, a lifetime of work would mean working- and middle-class people would have the same opportunity to earn a share of global profits as the professional class enjoys and, in turn, real wealth and retirement security they can count on. They would have wealth to pass on to children or a spouse. The wealth gap between the top and the rest of America would shrink appreciably. And a lifetime of work would guarantee a comfortable retirement.

The effect of mandatory employer contributions would be to raise the cost of employment and, consequently, to discourage it. In the presence of temps, H1-Bs, L-1s, and an alphabet soup of ways to bring workers in the country that would provide a competitive advantage to foreign workers over Americans already here. Is that what we really need?

Rather than going point by point through their proposals let me summarize what I think their net effects would be. They would:

  • Raise the cost of higher education without increasing the number of jobs that really require higher education.
  • Provide substantial disincentives to employment, particularly employee American workers.
  • Create an enormous bureaucracy dedicated to small business without actually helping small businesses.

There’s an old wisecrack about the First Rule of Holes: if you find yourself in a hole, stop digging. We need to stop subsidizing rich people, big companies, and stop importing workers.

Nearly three-quarters of the home mortgage deduction goes to benefit individuals in the top quintile of income earners. That is merely one of the thousands of forms of welfare for the rich. Most of those remain unchanged by the recent tax reform. Nearly every serious policy maker will tell you that the home mortgage deduction should be abolished. That’s political poison. As a good first step limit the maximum amount of interest to the price of the median home. That would be closer to $200,000 than the present $1,000,000 or the $750,000 that kicks in this year.

The list of benefits given to big companies is so vast I hardly know where to start. Not only do they have tremendous political clout, they receive more direct benefits, hardly a coincidence. Two-thirds of all grants and allocated tax credits go to just 582 firms and take it from me those aren’t mom and pop shops.

Small banks didn’t cause the financial crisis of 2007-2008. Big ones did. Big companies are not our friends. A company that is big enough to be dangerous is too big to be allowed to exist.

The problem with work in the United States is two-fold. First, the large number of foreign workers makes the job market too loose. That keeps wages from rising (not to mention enabling employers to maintain abusive work environments). Second, the very large number of unskilled and semi-skilled workers, many foreign and many entering the country illegally, changes what are viable business models. We’re maximizing the number of minimum wage workers when we should be aspiring to increasing the number of jobs that actually require college educations. The fastest growing job categories are in hospitality and the very low end of health care and both of those depend heavily on an imported workforce.

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