Massive budget deficits and mushrooming pension, Social Security, and Medicare obligations increased the federal government’s long-term obligations by $4.2 trillion in 2011 — more than three times the $1.3 trillion official figure for the federal budget deficit, notes a Washington Post article. (Even the official budget deficit is more than eight times the size of the budget deficit back in 2007.)
But that’s just the federal shortfall. States, too, have trillions in unfunded pension obligations, which they use funny accounting methods to conceal, resulting in states claiming to have just a small fraction of the unfunded pension liabilities they actually have. State pension obligations have repeatedly been expanded in ways that were supposedly “revenue neutral,” but which any honest legislator could see would actually cost taxpayers countless millions. Under one such expansion, a Philadelphia councilwoman recently “retired” from her position for just a couple days in order to collect a $478,000 pension, then returned to office on January 2. She took advantage of a pension-law change that was “touted as being ‘revenue neutral’” when it was introduced. “It’s been anything but that. Since its introduction, Philadelphia’s DROP program has cost the city $258 million in extra pension costs over a decade, according to a 2010 Boston College study.”
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CEI Weekly is a compilation of articles and blog posts from CEI’s fellows and associates sent out via e-mail every Friday. Also included in the weekly newsletter is a brief description of CEI’s weekly podcast and a feature on a major CEI breakthrough made during the week. To sign up for CEI Weekly, go to http://cei.org/newsletters.
CEI Weekly
December 30, 2011
>>Featured Story
The solar industry is a favorite of the federal government–but so far, the industry has proved to be an expensive dud. This week, CEI Energy Policy Analyst William Yeatman appeared on Fox Business’ Cavuto to argue that the Obama administration is propping up solar companies to score political points, effectively putting taxpayers on the line for unsustainable job creation and inefficient energy production. Watch William Yeatman’s full interview above or at this link.
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If you live in a part of the country where the winters are cold and snowy, some of your most cherished childhood memories probably involve sledding down a snow-covered hill. But in Beaver Borough, Pennsylvania, regulators guard that activity very carefully.
For one, children under 12 are required to wear helmets while sledding. That’s not particularly onerous, though there is an argument to be made about parental discretion. Sledding is also banned in some parks, though it is allowed in others. The Borough recently circulated a newsletter to confused residents explaining what’s allowed where.
The real kicker is that out-of-town children are not allowed to go sledding in Beaver Borough, on pain of a $25 fine. If out-of-towners are in Beaver Borough to visit friends or relatives, they’ll need to find something else to do for a family outing.
The town did this on the advice of its insurance company. Jon Delano, a local journalist, contacted the insurer to ask how a sledder’s home address could possibly affect any liability concerns. Perhaps sensing that this makes no sense, the company would not talk to him.
Of course, police officers have better things to do than find out where sledders live. Hopefully they realize that as they drive past families taking turns going down the hills of Roosevelt Park.
OPINION
DAVID KRAVETS: “2011: The Year Intellectual Property Trumped Civil Liberties”
“Online civil liberties groups were thrilled in May when Sen. Patrick Leahy (D-Vermont), the head of the powerful Judiciary Committee, announced legislation requiring the government, for the first time, to get a probable-cause warrant to obtain Americans’ e-mail and other content stored in the cloud. But, despite the backing of a coalition of powerful tech companies, the bill to amend the Electronic Communications Privacy Act was dead on arrival, never even getting a hearing before the committee Leahy heads.”
JENNIFER RUBIN: “Media Mishaps”
“In covering events leading up to the Republican primaries, many in the media missed the boat by paying attention to the wrong things. We’re only at the onset of the real primary season, but already 10 glaring errors in coverage have become apparent. In this regard, for reasons explained below, conservative media outlets were often further off base than mainstream coverage.”
JOSH OZERSKY: “The Case for Eating Horse Meat”
“Congress recently lifted a 2007 ban on funding for the inspection of horse meat, albeit to little applause. It’s not like the country was crazy for the stuff in 2006 and started turning over cars when they found out they couldn’t get it anymore. In a country where Funyuns, bug tacos and cayenne-flavored purgatives are all considered perfectly acceptable, we have never gotten over our national revulsion against horse meat. Maybe we should.”
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OPINION
CHARLES H. KUCK: “‘Path to Legality’ Falls Way Short”
“Gingrich speaks of our needs for a ’21st Century Visa Program,’ of eliminating ‘inefficiencies’ in order to attract the best and the brightest to come to and remain in America. Even in our current broken system, however, we are attracting the best people. The problem is that we are quickly losing them when they realize that our legal immigration system has waits of up to 15 years for workers to get permanent residence through employment. Wait times exceed 25 years for family immigration. The answer is simple: Increase the numbers of legal immigrants that come to the U.S. in legal categories to meet not only demand, but also our needs.”
JERRY BOWYER: “Christmas, Kurtosis, Fat Tails, Black Swans and Risk Management”
“Christ was born into the Pagan world of Rome, a world of cyclical despair. As historian of science Stanley Jaki spent his life documenting, the pagan world view was one of endless cycles, of oscillations, of rise and fall, golden ages of glory, bronze ages of decline, iron and stone ages of despair, with no genuine permanent progress. For this reason, among others, Jaki says neither the ancient Greeks nor Romans produced modern science, which depends greatly on the idea of progress. I would argue that this is the reason why they also failed to create modern economics, which is also based on the idea of progress.”
SAN JOSE MERCURY NEWS EDITORIAL: “Inflated Job Numbers Another Reason to Halt High-Speed Rail”
“The promise of 1 million jobs springing from California’s high-speed rail project has turned out to be a mirage. The real number, when stripped of rail supporters’ obfuscating statistic-speak, shrinks to about 60,000 jobs a year at most for the 22 years it would take to build the railroad. That’s one more reason to stop the project now. Gov. Jerry Brown needs to wake up and tell the Legislature not to approve the sale of bonds for the first segment in the Central Valley now set to begin construction in 2012.”
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Anti-immigration advocates believe that harsh new laws will drive illegal immigrants out of the United States. They ignore the fact that the primary victim of these laws aren’t undocumented foreign workers, but business owners who are expected to verify the immigration status of each new employee. This informal deputizing of businessmen is exactly the sort of burdensome regulation and heavy–handed government intervention that conservatives rail against in every other area.
Last Thursday, a popular San Diego restaurant owner—Michel Malecot—was fined $396,575 and given five years probation by the federal government for hiring undocumented workers. These penalties are actually lower than the $650,000 and prison time that President Obama’s Justice Department sought. U.S. Attorney for the Southern District of California Laura Duffy said, “When employers do not comply, we will take vigorous enforcement action to ensure they do not profit from this illegal tactic.”
Malecot’s case is already typical of the Obama administration’s treatment of illegal immigration: Go after employers because they are easier, more politically-palatable targets. The number of employer immigration audits has quadrupled since 2009, and companies have been fined $6.9 million last year, nearly ten times as much as the Bush administration’s $675,000 in 2008.
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Given the Fed’s continued actions to keep interest rates low and its reported plans to keep them that way beyond 2014, now seems a good time to revisit the deleterious effects that monetary expansion has on the economy.
The data makes all too apparent the relevance of the Austrian Business Cycle in explaining the results of years of easy money.
Loose central bank policy fuels artificial credit expansion—economists like Bernanke would say this is the point of his policies, but he ignores the problems that cheap money creates. Fed-induced cheap credit fuels an artificial boom—that is to say, consumers and producers have access to liquidity that they otherwise wouldn’t had the central bank not intervened. However, artificially low interest rates distort both consumption and investment from their efficient market allocation.
As interest rates plummet, firms shift production from present to future as long-term investment becomes less expensive to finance. But consumers haven’t changed their consumption-saving patterns—meaning that they still consume and save at the same levels as before the Fed altered interest rates. Consumers still prefer to consume today while firms plan as if they instead demand to consume tomorrow. Monetary expansion effectively decouples investment from consumer time preferences of consumption. And the interest rate thereby ceases to serve its equilibrating function between the two.
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At Bloomberg News, Andrew Puzder, CEO of CKE Restaurants, Inc., explains how the 2010 healthcare law is preventing jobs from being created and resulting in layoffs.
For example, Puzder notes, CKE Restaurants, which operates Hardee’s and Carl’s Jr. restaurants, “will have to cut spending on new restaurant construction,” in order to “offset higher health-care expenses,” even though “building new restaurants is how” the company creates jobs. Puzder argues that the increase in the company’s healthcare costs will “more than consume” the amount it ”spent on new restaurant construction last year, leaving nothing for growth.” It “will also need to reduce” its “capital spending,” even though such spending creates jobs and enables the restaurant company to improve its infrastructure and maintain its business. Thus, its “ability to create new jobs could vanish.”
Puzder also points to the similar situation of “Grady Payne, chief executive officer of Connor Industries Inc., a supplier of cut lumber and assembled wood products” with 450 employees, who has laid out the unpleasant options facing “his company under the health-care law, each of which would cost $1 million or more,” which is “‘more than the company makes.’ [Payne] concluded that his company’s goals have turned “from ‘hire-and-grow’ to ‘cut-and- survive.’”
Puzder also documents the complaints of Victoria Braden, the president and CEO of Braden Benefits Strategies Inc., “a corporate employee-benefits adviser”:
“[Braden] said adoption of the law led to immediate job cuts at her company as she scaled back an expansion into a new line of business. Obamacare ‘is devastating to my business, expensive for me and my clients to administer, and works against our goals of helping businesses to expand, and putting people back to work,’ she said.”
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OPINION
GLENN GREENWALD: “Snapshots of Washington’s Essence”
“I intended to post sporadically or not at all this week, and that’s still my plan, but there is a new Washington Post article which contains three short passages that I really want to highlight because they so vividly capture the essence of so much. The article, by Greg Miller, is being promoted by the Post this way: ‘In 3 years, the Obama administration has built a vast drone/killing operation’; it describes the complete secrecy behind which this is all being carried out and notes: ‘no president has ever relied so extensively on the secret killing of individuals to advance the nation’s security goals.’”
GENE HEALY: “The Five Worst Op-eds of 2011”
“An emergency root canal on Christmas Eve eve left me half a tank low on holiday cheer. Luckily, “bah humbug” is the right attitude to bring to my final column for 2011, which, like 2010′s, will be a suitably surly look at the Five Worst Op-eds of the Year.”
AMANDA FOREMAN: “Meryl Streep Film and EU Debates Bring Maggie Thatcher’s Moment”
“A British Prime Minister, splendidly isolated, faces down a phalanx of scowling European leaders, all harrumphing censure in accents that are German, French, Italian. We’ve witnessed the scene before. Decades ago Margaret Thatcher warred with her European counterparts just as David Cameron did this month in refusing to yield control of national budgets to Brussels. The difference is that the Iron Lady did not speak softly when she wielded a big stick. She lambasted ambitious bureaucrats; the artificial Utopian megastate you want to build, she told them, will be a ‘tower of Babel’ dominated by Germany and riven by economic crises.”
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