Keeping The Poor Poor, New York City Edition

If you are a believer in the official Manhattan orthodoxy, you regularly congratulate yourself that your high taxes pay for lots of help for the poor.   But if you actually look at the policies our politicians have adopted, you will notice multiple examples of policies and programs that have the clear effect of obstructing the ability of poor people to advance and of thereby keeping them poor.  Let's take three of the most obvious examples.

Education

It's no secret that New York City public schools badly fail those who need them the most, namely the poor and minority kids.  In the face of this ongoing failure, the public school teachers' union, the United Federation of Teachers, essentially takes the position that no teacher can ever be fired and that all teachers, no matter how bad, are entitled to a lifetime sinecure even as they let the poor kids continue to fail.  The Manhattan orthodoxy unquestioningly looks at unionism as a good thing.  Is it really a good thing when the union is undermining the futures of poor kids?

There is a current battle going on, where Mayor Bloomberg is attempting to implement a somewhat rigorous teacher evaluation system, and the teachers' union is putting up epic resistance.  Within the last two days, the union has launched a television ad campaign accusing Bloomberg of "going after teachers, instead of helping them improve our schools."  The "going after teachers" is code for seeking to have some of the worst teachers discharged.   The union believes that the public will back it despite its unbelievable history of failure in educating the kids.

If kids basically learned on their own and all the teachers had to do was show up, then maybe it wouldn't really matter.  But we all know that good teachers make a huge difference.  Of course no evaluation system is perfect, and mistakes will be made.  But we're dealing here with a trade-off between teachers' desire for a lifetime job without accountability, and the future of poor kids who need to learn the skills to get ahead in life.    I sure know where I stand in that trade-off.

UPDATE:  The New York Post has an excellent editorial on this very subject this morning (January 7), entitled "The Schoolyard Bully" (referring to UFT President Michael Mulgrew).  The Post describes the UFT's ad campaign as "designed to paint Bloomberg as a bully while deflecting attention from the fact that no teacher is too stupid, lazy or incompetent for the UFT to protect."  Also, this quote from Mayor Bloomberg:  "Nobody has a right to ruin our kids' lives."  As readers here know, I have my differences with Mayor Bloomberg, but not on that.

Public Housing

When New York City and State embarked on their massive program in the 1940s and '50s to clear slums and replace them with public housing, nobody gave much consideration to how the situation would look sixty or seventy years later.  Well, here we are.  In New York City, we have about 170,000 of housing units in the low income "projects," housing some 500,000 people, or about 6% of the population.  When they were built, the projects were brutal, but at least the apartments in them were nicer than the slums they replaced.   The New York orthodoxy thinks the projects are a good idea, and are helping the poor.  In fact, Mayor Bloomberg continues to build more low income housing, although on a far smaller scale than in the mid-twentieth century heyday.

Trouble is, the incentives were all wrong.  If you live in the projects, there's no point to trying to improve your lot in life -- they'll just throw you out, and you'll lose your subsidized rent.  Also no point in fixing up your apartment  -- the improvements will just belong to the government.   Of course, the projects have gradually deteriorated.  Today they need all kinds of work, and nobody knows where the money is coming from.  Certainly not from the way-below-market rents.   Most everybody in the projects is poor or close to it, and the perverse incentives strongly discourage making any effort  to change that situation. 

Meanwhile, many of these projects are right in the middle of some of the priciest real estate in the country.  There are low income projects in the Chelsea neighborhood, just half a mile from where I live, a neighborhood where an ordinary two-bedroom apartment goes for $1 million and up.   And there are lots more projects on the Lower East Side. That neighborhood was formerly one of the worst slums but now is gradually being taken over by young "hipsters" -- except for the projects, which are just warehouses for the poor to stay poor.

There is a huge need for an exit strategy to enable the projects to improve and the poor inhabitants to better their lives.  The obvious strategy is:  give the apartments to the residents.  Suddenly those apartments will go from being completely valueless to being worth amounts comparable to the other apartments in these neighborhoods.  In the case of many Manhattan apartments, that will mean an average of around $1 million per apartment.  The "poor" inhabitants will immediately be rich.

The Manhattan orthodoxy hates this idea.  Adopting such a program would pose a  challenge to the value of continuing to build "affordable" housing, and would threaten to turn a dependent population into an independent population.  What could be worse?  For me, I just don't understand why they think it is a good thing to keep the poor poor.

Fracking

If you are rich like, say, Yoko Ono, it doesn't make a lot of difference to you whether your monthly electric or heating bill is $100 or $300.  (Yoko, the head of Artists Against Fracking, undoubtedly already has a bill that is a lot higher than that.)  But cheap energy means a lot to a low income person.  Needless to say, the official Manhattan orthodoxy is that the cheapest available form of energy must be blocked at all costs.  

There currently is under construction beneath the Hudson River a new natural gas pipeline to bring "fracked" gas into the city from Pennsylvania.  The pipeline enters Manhattan at about Gansevoort Street, just a few blocks from where I live, and promptly connects into the existing underground gas distribution system.  A few weeks ago I went to a neighborhood forum sponsored by a group making a last ditch effort to get a court to block the final piece of the pipeline.  Clearly everyone at the forum except for yours truly was unalterably opposed to the pipeline, to fracking, and to natural gas.  There was lots of talk about how dangerous natural gas is, and how it can explode.  I believe I was the only person at the forum who knew that there are already natural gas pipelines under essentially every street in Manhattan, and that the majority of the buildings are already heated by the natural gas.

Meanwhile, as Pennsylvania enjoys a new energy boom from its discoveries of natural gas, right across the border in New York we have a multi-year moratorium in effect.  The gas is beneath a part of the state called the Southern Tier, an extremely economically depressed area.  People there are desperate for jobs.  Does the right-thinking Manhattanite care?  Not that I can notice.  Here is our Assemblywoman Deborah Glick channeling proper Manhattan thinking in opposition to "fracked" natural gas:  "An ancillary result of the use of natural gas is the release of methane into the atmosphere when it is burned. The release of methane is only exacerbated if the gas is obtained through hydrofracking."  She doesn't even know that methane and natural gas are the same thing, let alone that most of the buildings in Manhattan are already heated by natural gas.  But she is totally willing to throw the poor aside to pursue the environmentalist climate campaign.

So when the Manhattanite claims compassion for the poor, I don't think so.  Whether they understand it or not, their program has the effect of keeping the poor poor.  

The Minimum Wage: Why Not Go All The Way?

The lead editorial in the print edition of today's New York Times advocates (for the umpteenth time) for an increase in the Federal minimum wage.  

Will Congress finally raise the federal minimum wage this year? It would be the least that lawmakers could do.

Although the editorial gives the level of the current Federal minimum wage as $7.25 per hour, it nowhere says what the new appropriate level should be.  Is it $8?  How about $10, or even $20?

If you follow the minimum wage debate, you will know that there are two sides, which argue inconsistent economic theories.  Those favoring increases believe that the government can order employers to pay higher wages, and they will do so without adverse consequences (such as hiring fewer workers).  The New York Times is firmly in this camp.  "It would be the least lawmakers could do."    In other words, it's just a pure gift from Congress to the low income people.  No adverse consequences, or even potential adverse consequences, are mentioned in the editorial.  The Times can't even think of any reason why this is not a good idea.  

Those opposing increases argue that they cause a decrease in demand for low wage workers.  Some workers get a slightly higher wage, while others end up unemployed.   Causing higher rates of unemployment among hard-to-employ kids, particularly members of minority groups, is not something to be taken lightly.

Which is it?  Although the New York Times declines even to mention any potential negative effects of an increase in the minimum wage, I don't think they believe there are none.  If there were no adverse consequences to raising the minimum wage, then why is the minimum wage under $10 per hour?  Why not $100 per hour, or $1000 per hour?  The $1000 per hour level sounds good to me.  At around 2000 hours of work per year, that would come to $2 million.  Even I could live on that, here in high cost Manhattan.  Why wouldn't that be "the least that lawmakers could do"?

Of course, even the New York Times would recognize that at a $1000 per hour minimum wage, all of their employees except the top couple of executives would be illegal, and they couldn't hire the staff to get out a paper.  Clearly that wouldn't work.  So at $1000 per hour the minimum wage is destructive, but according to the Times, at levels under $10 per hour it has no adverse consequences at all.  Then there must be some level at which the crossover from free money to destructiveness occurs.  Where is that crossover:   $11?  $15?  $20?  $100?  Of course they don't address this question, and I don't think they even have a theory to address it.   If you agree that a minimum wage is destructive at $1000 per hour, and you can't specify a point of crossover, don't you have to agree that the minimum wage is destructive at all levels?

One way that an increase in the minimum wage could be non-destructive would be if there was full employment, or even a labor shortage, among young people.  Of course, if there were a labor shortage among young people, wouldn't their wages be moving up on their own without a minimum wage at all?  Anyway, how's it going with youth employment?  According to this article from Reuters, reporting on a study from the Annie E. Casey Foundation,

Americans aged 16 to 24 are increasingly leaving school and unable to find a job, causing the largest youth unemployment rate since World War II.

Hmmm.  Another possibility is that the minimum wage is already too high.

Hurricane Sandy Relief Bill In Congress Proves Yet Again That I Am A Contrarian

At the last moments of the 112th Congress just after New Year's, John Boehner pulled from the agenda the $60.4 billion Hurricane Sandy Relief Bill that had already passed the Senate.  As a result, the bill died, and will have to be re-introduced in the new Congress.

All of New York and New Jersey are officially outraged that Congress did not pass this bill.  This proves once again that I am just a contrarian.   The Congress should definitely not pass this bill or anything like it.  My view is based not only on the fact that this bill is ridiculously overpriced and larded with pork, but more importantly on the fact that such spending by Congress is a bad idea in general and a huge disadvantage to New York and New Jersey in particular.  Am I the only one who can see why this is so?

First, let's have a review of official establishment New York/New Jersey opinion on the bill.  We'll start with the New York Times on December 28: 

[T]he Northeast [must] get the $60.4 billion in aid it needs to recover from Hurricane Sandy. . . .   Responding to and preparing for natural disasters is one of government’s most important functions. Each time a huge storm hits, lawmakers should provide immediate relief without having to worry about . . . House members putting ideology before common-sense preparation.

That's actually temperate compared to this from the Daily News on January 3:

House Speaker John Boehner will evermore bear the degrading stain of a dishonorable man unless on Friday, Jan. 4, 2013, Congress passes the full $60 billion superstorm Sandy relief bill. . . .  No one so small, so petty, so duplicitous and, worst of all, so callously and cavalierly ready to tell Americans in dire need to go to hell has a rightful place at the highest reaches of the government.

Whew!  Even to suggest that the $60 billion amount should be examined is to brand yourself as "small," "petty," "duplicitous," and "callous"!  Governor Christie of New Jersey on January 2 tried to top even that one (via ABC News):

New Jersey Gov. Chris Christie said today that it was "disgusting" that the House adjourned without voting on a $60 billion relief package for the victims of superstorm Sandy and put the blame squarely on a fellow Republican -- House Speaker John Boehner. . . .   Christie in an angry news conference decried the "selfishness and duplicity," the "palace intrigue," "the callous indifference to the people of our state."

And maybe the angriest of all was Republican Congressman Peter King of Long Island (via NewsMax):

“They raised millions of dollars in New York City and New Jersey, they sent Governor Christie around the country raising millions of dollars for them.  I’m saying, anyone from New York and New Jersey who gives one penny to the Republican Congressional Campaign Committee should have their head examined.”

Well, the New York Times may think that disaster relief is "one of government's most important functions," but for the first 150 or so years of the Republic the Feds didn't do it at all, and even when I was a kid they barely got involved in it.  There was a gradual change, and only with Hurricane Katrina in 2005 had the idea completely taken hold that it's the Federal government's job to pay off one hundred percent of all losses and restore everything back to perfection with the infinite credit card.

And of course the result of this foolish policy is unbelievable overbuilding on barrier islands and other exposed places, just to get ready for the next storm and the next Federal bailout.  During a visit to New Orleans in 2011 we visited sites in the below-sea-level Lower Ninth Ward where deluded celebrities were hard at work building new homes to "help the disadvantaged."  What are they thinking?  People should not live there other than at risk purely of their own money.  Poor people should just not live there at all.

And if Federal government open-check-book disaster relief is a bad idea for the country as a whole, it is a particularly terrible idea for New York and New Jersey, because these areas, thankfully, are not very subject to natural disasters.  We almost never get a serious tornado or earthquake, and hurricanes, while they do occur, are quite rare here compared to other areas like the Gulf Coast and Florida.  According to data from NOAA here, in the 50 years from 1961 to 2010 some 27 "major" hurricanes (categories 3, 4 and 5) made landfall in the United States.  Of those, 23 hit the Gulf Coast or Florida; 3 hit the Carolinas; and just one (Gloria in 1985) hit in the mid-Atlantic.  While we may be looking to get a big handout at this moment, over time the disaster relief game is a massive transfer away from New York and New Jersey and to other areas far more susceptible to hurricanes, tornadoes and earthquakes.  By demanding this relief now, we are encouraging more building in those areas and setting ourselves up to pay 10 or 20 or more times any amount we can hope to get in today's handout.

In any sustainable model, government disaster relief needs to be brought closer to home where it won't be treated like free money to be wasted at will.  Governor Christie, and for that matter Cuomo, should take the occasion to divert money from the many bloated portions of their own budgets, like school spending (where in New York we spend about double the national average per student) and pensions, and when the special interests seek to defend their own perks in the face of the hurricane victims, they should be called "disgusting," which they are.  But Christie and Cuomo recognize the Federal government as a much softer touch than the home town government employee labor unions.

So it's not hard to understand why a big Federal handout looks like a good idea to a Chris Christie or a Peter King.  For Christie, he can exploit the hurricane victims to get himself bailed out of a bad budget situation and avoid a big fight with the local unions.  King, like all the Congressmen (and Schumer is far worse), loves the people to believe in a world where the Federal government is the infinite candy man and the adoring public must come kiss the feet of those dispensing the Federal money.  Both Christie and King (and Cuomo and Schumer) will be long gone when their erstwhile constituents get done paying for the next 20 hurricanes in Florida and the Gulf.

Far less comprehensible is how seemingly intelligent people in the press fall for this game.  Yes, I mean you New York Times and Daily News.  The Post also has not been blameless, but far less so than the other two; at least it admits the legitimacy of examining the $60 billion to see how much of it is actual disaster relief and how much is pork and political payoffs.

And finally, a word on the $60 billion.  I don't have the resources to check every item in the bill, but I know enough about several of the items to know that this number is wildly, ridiculously padded.  See here.  Has anyone but me noticed that the $60 billion happens to be just about exactly the same amount that the newly increased taxes are supposed to raise in the entire coming year?  That's right, every penny of it in the first year is planned to go for just one disaster relief bill.  And now that our modus operandi is that the Feds must pay every penny of loss from every disaster, what is the chance that there won't be at least one of these, or maybe two, pretty much every year?  In other words, the entire tax increase is spent before getting to the first dollar for reducing the deficits.  This is not a sustainable model, people.

Totally, Completely, Utterly Incompetent

At this late hour on New Year's night, the word is that the House is likely to pass without change the Senate bill to, as they say, "avert the fiscal cliff."  There are two pieces to the "fiscal cliff" -- tax increases and spending cuts.  One is significant; the other is not.  It appears that the bill that will be passed addresses only the part that is not significant, and totally fails to address the part that is significant.

The part that is not significant is tax increases.  Tax increases are not significant because the cost of government spending will come out of the rest of the economy no matter what.  Today's spending can be paid for in only three ways:  today's taxes, tomorrow's taxes (i.e., the children will pay it), or inflating the currency.  Nobody's ever thought up a fourth option.  If you have one, write your congressman.   I'm 62, so whatever they don't get out of me in the next couple of years is going to the children.  Should I feel good that the tax increases on me for a couple of years aren't quite as bad as they might have been?   Without spending cuts, it only means that my kids are going to get the bill, or the even worse alternative, that a massive inflation will destroy both my retirement and their ability to make their way in life for decades.  My older daughter asks, given that they think they can spend without regard to the level of revenue, why do they bother to tax at all?  It's a very good question.

So the only important part of the deal is the spending cuts.  Well, it seems that they have skipped that part.  CBO appears to be touting numbers of $10 billion or so (over 10 years!) of spending cuts, but no amount of searching by me seems to be able to turn up any actual example of what's getting cut.  Well, assume that there actually will be $1 billion or so per year of cuts on $3.7 trillion of spending, or maybe .03%.  Is this a joke?

The CBO's numbers project $600 billion or so of revenue (over ten years) from the tax increases, or $60 billion +/- per year.  I don't believe these numbers, since the revenue supposedly comes from a handful of people from whom evasive action can be expected.  But assume that the figure is right.  Then it is about 6% of the projected cash-basis deficits.  Starting, say, tomorrow, January 2, it is going to be immediately obvious that they have not even started to address the bulk of the problem.  Are we going to do anything about the other 94%, or just ignore it?

A president who had even the tiniest element of competence would see it as the core of his job to put forth specific proposals to get the spending under control.  I do not believe that Obama is going to do it. I think that he is fully in the thrall of Fake Keynesianism, that he believes firmly that all government spending is good, no matter how wasteful, that more is better, and that the government creates the wealth by printing and passing out the fiat currency.   In other words, he is totally, completely, utterly incompetent.  I want to be proven wrong, but I don't think I will be.   

Finally, just a small word on the so-called projected revenue from the deal.  Taxes on capital gains are going up to the extent that income including the gains exceeds $450,000 for a couple.  Do they understand that the realization of capital gains is hugely discretionary, and you can manage them to take them when it is most advantageous?  If your income is going to be above $450,000 this year, then borrow against the asset this year (not taxable) and sell it next year or the year after when your other income is lower.  A few people (e.g., divorces) will not be able to manage things perfectly, but almost every dollar of so-called projected revenue from this capital gains tax increase is illusory.  Sorry.  And that's just one example.

Are We All Fake Keynesians Now?

The latest word from the "fiscal cliff" negotiations is that we will get about the worst of all possible results:  tax increases but few or no spending cuts.  The forces defending every last dollar of the unsustainable spending seem to have two main arguments, one being the "Washington Monument" strategy (see yesterday's post) and the other being Fake Keynesianism.  

Fake Keynesianism is the prescription that all government spending is good and government spending must always remain high and increasing because it keeps people employed and enables them to spend money -- or something like that.   If you believe in Fake Keynesianism then by its logic you would also believe that the two most successful economies in the world are North Korea and Cuba and that the government could improve our economy by paying everyone to dig holes and then fill them back in.      

Here's a little round-up of recent statements in the Fake Keynesianism category:

From Nelson Schwartz in today's New York Times:  

Another big question mark is whether unemployment benefits for more than two million jobless Americans will be extended beyond Jan. 1. . . .  [F]ailure to extend them would deliver another sizable blow to a still-fragile economy, experts said.

Love those unnamed "experts," all of whom seem to have fallen for Fake Keynesianism.

From economist Menzie Chinn of the University of Wisconsin (via Media Matters): 

[W]e too can make the current US recovery worse than that of the Great Depression; just implement a front loaded fiscal contraction, heavy on spending cuts.

From economist Alan Blinder (former Vice Chairman of the Fed) (via NPR):

Blinder says the looming sequester cuts will slow the economy at a time when it's already weak. 

Similar quotes can be found everywhere from the likes of Paul Krugman and Robert Reich.  How about this one from Paul Samuelson:

[W]ere we again planning . . . to shift from astronomical deficits to even the large deficits of the thirties then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced.

Samuelson is dead you say?  The quote is from 1943, where Samuelson warns against cutting spending when World War II is over.  The spending was cut.  Result:  boom.  Oh, even though some 10 million people were redeployed from government to private employment within about a year and a half, the government statistics measured a 12% drop in gdp.  Unfortunately, the government doesn't have appropriate tools to measure these things.  This article by David Henderson needs to be read by everyone.  Key quote:

Most of the policies that Samuelson had feared actually happened, and in spades. Price controls were eliminated. Not only was the federal budget deficit decreased, but also, in 1947, the budget surplus was over 5 percent of GNP. Demobilization happened big-time. Between 1945 and 1947, when the postwar transition was complete, the number of people in the armed forces fell by 10.5 million. Civilian employment by the armed forces fell by 1.8 million, and military-related employment in industry fell off the cliff from 11.0 million to 0.8 million. As demobilization proceeded, optimistic employers in the private sector scooped up millions of the soldiers, sailors, and others who had been displaced from the armed forces and from military industries.

There are also numerous voices today pointing out the necessity of cutting spending.  But few are pointing out that Fake Keynesianism is just a fallacy, adopted by far too many seemingly bright people.  The government cannot spend our way to prosperity.

The Government Goes Full "Washington Monument" To Avoid Any Spending Cuts

CBO figures for the 2012 fiscal year just ended show cash basis spending of $3.54 trillion, revenues of $2.45 trillion, and a one-year cash deficit of $1.09 trillion.   Proposed tax increases on high earners promise to bring in maybe a tenth of that, less than $100 billion per year, at some potential loss to future growth.   Other pre-scheduled tax increases in the fiscal cliff (i.e., restoring 1990s tax rates on the middle class and letting the AMT hit several million more people) are things no one believes will actually happen.  Just perhaps, it is time to consider cutting spending.  Say, by around $1 trillion per year. 

The so-called "fiscal cliff" comes with about $100 billion of pre-arranged spending cuts.  That's less than 3% of annual Federal spending, and only about a tenth of what it would take to approach cash basis budget balance, even while continuing to ignore the ongoing problem of entitlement acceleration.  But $100 billion in cuts would be a start.  In my opinion any large organization that tries can cut 3% of its spending in a way that nobody will really notice.  Needless to say, the prospect of these minimal cuts is throwing the Federal bureaucracy and its allies in the press into spasms in their efforts to defend every last dollar of spending.  

To the defenders of spending, the main question is whether these insignificant 3% cuts should be characterized as "devastating," "drastic," or "draconian."  A google search of "fiscal cliff devastating cuts" returns 30 million hits, an example being this from the White House (via CNN Money) in September:  "The White House budget office, in a report mandated by Congress, said the cuts "would have a devastating impact on important defense and nondefense programs."  A similar search for "fiscal cliff drastic cuts" returns 1.45 million hits.  Example (from the Council on Foreign Relations):  "Democrats [are] pushing for more revenue as part of any deal to avert the drastic mandatory cuts."   Draconian is running a distant third, with only 223,000 hits in response to "fiscal cliff draconian cuts"; but you have to save a word like "draconian" for special situations, as in this from the mayor of Providence, Rhode Island at the Huffington Post:  "The fiscal cliff would have profound and draconian consequences for the City of Providence."

How to turn 3% cuts into "devastating," "drastic," and "draconian"?  The answer is the "Washington Monument strategy," by which the bureaucracy, instead of doing its job and finding ways to minimize the impact of the cuts, instead maneuvers to maximize the impact and visibility of the cuts ("We'll have to close the Washington Monument!"), in order to build up public pressure to avoid them.  For example, this from Mayor Taveras of Providence:  "Here in Providence, these cuts would hit hardest our most vulnerable citizens: children in low-income households, senior citizens, individuals in need of substance abuse counseling."  Actually the cuts wouldn't hit any of these things at all if Providence stopped wasting its money on outrageous pensions for its public workers and instead used its own money to provide the services to "our most vulnerable citizens."  Or here we have USA Today reporting on threats from FAA and TSA of cutbacks in air travel if the cuts are allowed to proceed.  "FAA could be forced to close more than 100 smaller airports. . . .  TSA could lay off thousands of baggage screeners. . . ."  Those services were provided privately until just a few years ago.  Now that they are Federally provided, they are the perfect way to threaten to inconvenience the public to get support for other spending the public doesn't even know about.

Readers of this blog do not need to be reminded that the Federal government cut its level of spending by 50% twice in the twentieth century -- first in 1921, and then in 1946-47 (in the demobilization from World War II).  Both times the economy took off into a prolonged boom.  Time to do it again.