The War On The Economy Resumes

With economic growth remaining anemic, could intentional government suppression of economic activity have anything to do with it?  Now that the president is safely re-elected, the government is resuming what I call the War on the Economy.  Elements of the War on the Economy include things like blocking major profitable (and thus wealth-creating) projects (e.g., Keystone Pipeline), diversion through government subsidies of economic activity into wealth destroying ventures like green energy, encouragement of labor unions, massive new regulations to block economic activity, wild overspending on unproductive activities by the government, and I could go on and on.

I truly think that these people believe that economic activity and wealth creation come from the tooth fairy and that it doesn't make the slightest bit of difference whether or not the government is standing with its foot on the economy's neck.  If we need more money, we can just take it from the rich.  Our leaders have never spent even a moment wondering why the U.S. got rich when other countries did not; or, for that matter, why countries like Argentina and Venezuela (and ancient Rome) were once somewhat rich and then got poor again.

To take one of the bigger examples of government wealth destruction in the War on the Economy, let's consider EPA regulations relating to coal power plants.  This morning's New York Law Journal has a column by Michael Gerrard of Columbia University on the EPA's resumption of the process of enacting new regulations now that the election is past: "Obama Reelection Clears Path for Numerous New EPA Regulations."   Gerrard is a nice enough guy (I once debated him at a Federalist Society forum on global warming back in 2010), but also a seriously committed environmentalist true believer.  However, I have no reason to think that his summary of the EPA regulatory agenda is inaccurate.

Do you remember all of the campaign nonsense about Obama's "all of the above" energy strategy?  And of course, during the campaign, you didn't hear a peep from the president about his war on coal.  Well, here's Gerrard's take on the next steps:

The reelection of President Barack Obama means that a long list of new regulations will be issued by the Environmental Protection Agency (EPA) in the coming months. Some had been held up because of their political sensitivity, and others were still in process, but many will soon be ready for further action.

Is there anything here that might have a noticeable effect on economic activity?  How about item number one: 

GHG  [greenhouse gas] emissions from new electric generating plants. On March 27, 2012, EPA announced proposed new regulations setting GHG standards for new electric generating plants. The standards could be met by modern natural gas-fired plants. They could not be achieved by coal-fired power plants unless they were equipped with carbon capture and storage, a technology that is not yet commercially available.

You read that right.  The EPA has a proposed regulation under which it plans to make all new coal-fired electric power plants illegal, unless they can somehow come up with a new technology that doesn't yet exist.   When will that take effect?  "[EPA] plans to issue the final rule by April 12, 2013."

How about existing coal-fired power plants?  According to Wikipedia, existing coal-fired plants produced some 36% of electricity in the United States in the first part of 2012.  Well, yes, they plan to wipe those out as well, although they haven't said exactly how and when:

GHG emissions from existing electric generating plants. . . . EPA has not announced what these standards will look like or when they will be announced; since existing coal-fired power plants are the largest source of GHGs in the United States, such standards are likely to receive a great deal of attention in the second Obama term. However, on Nov. 13 Gina McCarthy, EPA's assistant administrator for air and radiation, told the National Association of Regulatory Utility Commissioners that implementation of any such rule is at least several years away.

Are you comforted by the fact that they say it will be "at least several years" until they wipe out 36% of our electric generating capacity?   Then there are the 91,000 people employed as coal miners in 2011 according to the EIA.  I guess those people have "at least several years" before they go on government hand-outs.

Meanwhile, the idea that the United States can control world temperatures by unilaterally shuttering its coal-fired electric generating capacity is completely quixotic.  People want electricity, coal is cheap, and if we won't use it someone else will.  You've probably heard about China building a new coal power plant every week, 50 or so a year.  But they're not alone.  How about Germany?  Germany!  Yes, in the wake of the Japanese nuclear meltdown at Fukushima, Chancellor Merkel of Germany announced that they will be closing all of their nuclear power plants.  And replace them with what?  She didn't think that one through.  They talk fantasy about "renewables," but the real option is coal.

Here we have the EPA, so let's shoot ourselves in the foot.  As long as they think it's a good idea just to order large swaths of the productive economy shut, I wouldn't be expecting a period of rapid economic growth any time soon.

Christie Realizes He Is Getting Outbid

A few days ago I predicted here that Governor Christie of New Jersey would promptly up his $29.4 billion demand for Federal disaster aid for the hurricane as soon as he saw the $40 billion demand of Governor Cuomo of New York.  This is a matter of state pride!

Sure enough, from  this morning's Wall Street Journal:  " Gov. Chris Christie on Wednesday put the total cost of recovery and protection against future storms at $36.8 billion, up from $29.4 billion last week.  The estimate included an additional $7.4 billion in mitigation and disaster-prevention expenditures, the governor said."  "Mitigation and disaster-prevention" means exactly what?  A giant sea wall?  No amount of money is going to make those barrier islands safe.  New Jersey has well over 100 miles of them.  $7 billion won't even make a start.  It's just a game to see how much of the free money you can get.

Nobody yet has the idea of telling people the one thing that makes any sense: if you build on the barrier island, you're on your own.

Out Of Control Student Loans

Once the Federal credit card gets behind something, how far and fast can it blow up and explode?  The student loan programs give a good example.  This is a trillion dollar or so Federal problem that you may never have thought was a problem.

I have located here something called the Federal Student Loan Programs Data Book from 2000, that gives a good summary of the financial status of the student loan programs from inception through that year.  It's a pdf - I hope the link works.  According to this book, the first Federal student loan guarantee program began in 1966.  By 1989, cumulative loan volume had reached $102 billion.  By the end of FY 2000, an additional program had been added, and the cumulative volume of the two was about $330 billion. 

Now to today.  According to this site, total outstanding student loan debt is now over $1 trillion.  Zero to one trillion in about 36 years.

Any chance of getting the trillion back?  Well, we can check in on how it's going so far.  From the web site ZeroHedge, we find the chart below just put out by the Federal Reserve.  It seems that the 90 day delinquent rate on these loans had reached about 6% by 2003, and then gradually crept up to about 9% and leveled off there in 2010 - 2011.  Early in 2012 it seemed to drop to 8.5% (election coming up?), but now suddenly when they report the Q3 2012 numbers it shoots up to 11%.

Oh, wait a minute, do you have to read the footnotes?  Here's what they say in footnote 2:

As explained in a Liberty Street Economics blog post, these delinquency rates for student loans are likely to understate actual delinquency rates because almost half of these loans are currently in deferment, in grace periods or in forbearance and therefore temporarily not in the repayment cycle.

This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.

So the real delinquency rate is actually 22%, and rising like a rocket.  Get ready to lose half or so of the trillion.  Of course, that's only the equivalent of one year's Medicare spending.

More Convictions In The Long Island Rail Road Disability Pension Scam

Generally at the Manhattan Contrarian we try to limit our focus to the big scams of, say, a trillion dollars and up -- Federal financial statements, the "poverty" rate, and so on.  But if the conduct is egregious enough, we're willing to consider even small ones in the billion or so range.

The New York Post reports this morning on two additional convictions in the Long Island Rail Road disability pension scam.  That brings the total of guilty pleas in the scam to 6.  It's a start, but only a small one.  The number of participants in the scam seems to be well over 1000, and the amount stolen per person around $1 million and up each.  This is not small time.

The basic idea is that if you are honest, you can retire and get your already generous pension, but if you are in the know, you can get a "disability" pension, which means you can retire earlier, get a higher payout formula, and also exemption from at least state and local income taxes.  One small hitch -- you are supposed to be disabled. 

But the most amazing thing is how universal it was.  According to this report from the National Legal and Policy Center, the scam started in the 1990s, and by 2000 and after, the percent of LIRR workers retiring with disability pensions was in the range of 93 - 97%.  Is there any chance that this was not orchestrated by the labor unions?

My big question:  Who are the 3 - 7% who were actually honest?  I guess it's good to know that there are at least a few such people still out there.

According to the Post story, the Federal prosecutors have offered an amnesty program to the estimated 1600 remaining scammers, in which they can avoid prosecution by admitting wrongdoing and foregoing future disability payments.  In other words, even though you have been collecting fraudulently for 5 or 10 years or more, you don't even have to give back a dime.  Way too lenient in my view.  But the Post says that only 44 of the 1600 have taken it so far. 

How To Hit Up The Feds For The Big Bucks

From Bloomberg News:  The New York MTA has put a number on the cost of repairing its system post-Sandy, and it is $4.75 billion.  Initially they are going to borrow the money, but not to worry, because the Feds will pick up most of the tab:

FEMA should reimburse at least 75 percent of the agency’s losses, though the funds may take years to arrive, Chief Financial Officer Robert Foran said. He pegged the infrastructure damage at $4.75 billion .

I'm having a little trouble getting my head around a couple of things.  First, that $4.75 billion number.  The system is 90+% back up and running today, less than a month after the flooding. Could they really have spent that much money that fast?  If they paid everybody who worked on it $10,000 for the month, they would have had to have 475,000 people working on it to run up $4.75 billion.  I haven't seen those kinds of numbers of people working on it; have you?  This would be more people than live in the entire borough of Staten Island.  If anybody sees them, can you let me know where they are?

What might a real number look like?  How about 5000 people to work the first month on many parts of the system, and then 1000 people for another 3 months on the few remaining parts that need more substantial work (South Ferry station, causeway across Jamaica Bay), all at $10,000 per person month.  That comes to $80 million.  Add some for equipment like new cabling, and you are at around $100 million.  OK, that's $100 million versus $4.75 billion.  There's a difference of 47 times.  Not 47 percent, 47 times -- 4700 percent.  Something here is wildly, wildly off.  Meanwhile, the Bloomberg guy reports it totally straight, like, these guys are from the MTA, they're the experts, of course they know what they're talking about.

Well, maybe it makes sense if we take it in pieces.  There is all of one station in Manhattan still out of commission, the South Ferry station at the very southern tip of the island, which is right near the shore and got totally filled with water.  By the way, this is a brand new station, built as a boondoggle with fancy finishes using 9/11 funds after the World Trade Center bombing,  It just opened three years ago.  Anyway, how much to fix just that?

One subway station, South Ferry in Manhattan’s southern tip, was totally submerged and may alone cost $600 million to rebuild.

Wait a minute!  They may think we have short memories, but the Manhattan Contrarian never forgets.  What was the total cost of building this new South Ferry station from scratch within the past decade?  According to Wikipedia, it was originally budgeted at $400 million, and came in at $530 million.  Many people, myself included, thought that $500+ million for just one subway station was a completely ridiculous amount of money, but it did involve digging out a whole new chamber and hey it was Federal 9/11 money so it was free and let's build a Rolls Royce.

But could it possibly cost more just to repair the South Ferry station than it cost to build it from scratch just a few short years ago?  I don't believe it for a minute, but if it's true, shouldn't they scrap it entirely and build yet another new one next door?   Oh wait another minute, there already is another station right next door -- the old South Ferry station!  You don't think they filled it with old tires, do you?  In fact, the old station not only is still there, but it seems to have survived much better than the new one, because the tracks running through it work just fine.  How do I know?  Because here in a press release on what they are doing while they repair the new station, the MTA says that in the meantime the trains are using the "Old South Ferry Loop" to turn around.  The "Old South Ferry Loop" is secret code meaning the old station.

Oh, and then there's the other thing that I'm having trouble getting my head around:  The fact that it is totally taken as a given that the Feds will pony up 75% of whatever inflated number the MTA can make up.   Do the Feds now just pay 75% of whatever number you throw out as a matter of birthright?  Is there anybody out there whose job is to ask, how did this number get to be 47 times anything remotely reasonable?  I know I may be more skeptical than the average human being, but there is no possible way that the $4.75 billion is just the cost of repair of what was damaged.  They have to be using this as an opportunity to sneak in every upgrade they have hoped for for decades and get the Feds to pay for it. 

Don't we have any sense of responsibility at all to the taxpayers in the rest of the country?

How To Forget The Lessons Of History

Here is a report in today's Crain's New York Business on the Brooklyn renaissance, and supposedly giving reasons for it.  The author is John Sodaro, identified as a graduate student at CUNY.  He reports on comments made at a panel discussion on the topic.  Undoubtedly, Mr. Sodaro is not old enough to have personal memory of what brought Brooklyn so far down, or what enabled it to start getting back up.

A guy named Alan Fishman of Ladder Capital Finance offered this remark:

much of the recent progress in Brooklyn can be credited to reducing crime and concentrating development in “dead” and underutilized areas. Repairing blighted neighborhoods encouraged people to move into those areas, boosting the local economy, he said

Not to denigrate Mr. Fishman, but how did Brooklyn come to have vast "dead and underutilized areas"?  Easy:  In the 1960s and 70s New York's top state and local income tax rates pushed up to a combined total of nearly 20%, at a time when New Jersey and Connecticut had no income taxes at all.  That's the era when the Jersey City waterfront, right across from the Lower West Side of Manhattan, had one new skyscraper after another and the Brooklyn waterfront, right across from the Lower East Side of Manhattan (and with much better transportation access) had not one single new building built for decades.

E.J. McMahon of the Manhattan Institute here has the history of New York's income tax rates, up to a peak of 15.375% state and 4.3% city in the mid-70s.  Then came the declines:  at the state, from 15% to 10% under Governor Hugh Carey by 1982, then down to 7% under Governor Mario Cuomo by 1987, and finally under 7% under Governor George Pataki in the 1990s.  That brings us to the last decade, and voila! a renaissance.

I'm not saying that public safety and government support of infrastructure had nothing to do with it.  But were they really the major factors?  Is this really sinking into a memory hole?

And by the way, also in Mr. Sodaro's article we have Deborah Wright of Carver Bancorp at the same panel discussion citing some figures:

Our poverty rate is over 20%, highest since 2000. And in the Bronx, the poverty rate is the highest of any urban area in the entire country.

I hope that all readers of this blog can recognize this as ignorant parroting of the completely fraudulent Census Bureau figures.  There is undoubtedly some real poverty in Brooklyn and the Bronx, but the Census Bureau numbers contain no credible information on the subject, let alone any credible information on whether "poverty" in any sense has increased, decreased, or stayed the same over time.