John Liu Runs For Mayor

Here in New York City we have a race for mayor getting underway, and the Manhattan Contrarian thinks it may be time to turn our attention away from national affairs to see what's happening on the local scene.  We hold our mayoral elections in the odd off years, so this year Mr. Bloomberg leaves after 12 years in office, term limited, and the election to replace him is in November.​  The primary is September 10.  Main candidates for the Democratic nomination include Christine Quinn (Speaker of the City Council), Bill de Blasio (Public Advocate), Bill Thompson (former Comptroller), and John Liu (current Comptroller).  Today I will consider Mr. Liu.

The Comptroller of New York City has major responsibilities for oversight of the City's money, handling bond issuances, auditing agency expenditures, and acting as trustee of employee pension funds.  Anyone holding that office automatically becomes a serious contender to replace the mayor, and indeed the Democratic nominee last time around was Thompson, who at the time was the sitting Comptroller.

But other than that, it's very hard to think of anything positive to say about Mr. Liu.  ​To me, the fact that Liu is considered a credible candidate illustrates everything that is wrong with New York City politics.

I'll start by mentioning Liu's ongoing scandal.  About a year ago, Liu's campaign treasurer Jia Hou was indicted by the Feds for alleged use of "straw donors" to evade campaign finance restrictions.  Her trial has not yet occurred.  So far the case has not touched Liu directly, but campaign treasurer is not a minor office.  I'm not a fan of these campaign finance laws, so I won't mention it further, but the investigation is casting a big shadow over his effort.

Meanwhile, Liu soldiers on.  He is known as the darling of the city employee unions, and won the endorsement of their political arm, the Working Families Party, in his race for Comptroller in 2009.  So far they have not made an endorsement for mayor this time around.​

A couple of days ago Liu released what he called the "People's Budget" to set forth his priorities in the campaign.  ​Where did he release this campaign document?  On the New York City Comptroller's web site, of course.  That's a little shameless for a guy under a serious ethical cloud already.  The same day he showed up at a breakfast of the Association for a Better New York at the Roosevelt Hotel to talk about it.  Here's a report on his performance from Capital New York.  The gist of the proposal:  lots of new programs, from universal pre-K (where did he get that one?) to 5000 new police officers, to 100,000 units of "affordable housing."  How to pay for it?  Raise taxes on the "rich" (aka, high income) of course, as well as on businesses and insurance companies, and toll the Harlem and East River bridges for non-residents only.

Capital New York reports the following exchange between Liu and real estate magnate Bill Rudin at the breakfast:​

"This idea that well, everybody's going to leave New York City, I don't think--you're not going to leave, Bill," Liu said to Bill Rudin, the association's famously civic-minded president and head of a big New York real estate family, who had joined him on stage to moderate the question-and-answer session.

"My tenants will," Rudin replied.

"You're not going to leave," Liu scoffed.

So for starters Liu demonstrates his ignorance of New York City's history of hemorrhaging population and businesses in the 1970s when its taxes got way out of line with the other states.  But that's just the beginning.  Liu is the trustee of all the city employee pension funds.  Does he know anything about the disastrous state they are in, and the huge increase in pension costs that the City is facing?  ​At this post, I estimated that the five City pension funds are short by some $250 - 300 billion, a level that will mean that we can expect rapid acceleration of pension contributions from a current $8 billion per year and 12% of the budget to easily double those figures in a few years.  Liu is the guy currently in charge of this, and I honestly don't think he knows the first thing about it.

Well, but let's consider Liu's proposal that all of his new programs can be funded by increased taxes on a handful of "the rich."  I wonder if he knows that the entire take of the City income tax is just over $8 billion per year, only 12% of the budget and just barely enough to pay for the employees who don't work for the City any more.  The Feds just raised their income tax rates on these people by about 4%, and New York State just made permanent a sur-tax on the incomes of the same people of 2%, so now they are paying over 50% of their income in tax.  John, what is the total Adjusted Gross Income of New York City taxpayers whose income exceeds $500,000?  Data from the Tax Foundation for 2010 has the total AGI for New York State for people with income of $200,000 and above at $252 billion.  A good guesstimate for AGI of people with income over $500,000 in New York City would be around $60 billion.  Over half of that already goes to income tax to all government levels.  You've got an $8 billion or so annual pension cost increase staring you in the face.  Do you really think there is any real money to be had by raising yet a third level of income tax rates on this same very limited pool of income?  Well, our Comptroller can't do much math, but what else is new? 

Dare I mention the proposal to toll the bridges for non-residents only?  Seems he hasn't heard of the Federal Constitution either.​

Only in New York City could this guy be a credible candidate for anything.​

Infinite Credit Card Update: The Obama Budget

Our President has now proposed a budget for the upcoming fiscal year.​  It's a few months late, but I guess that's better than just blowing off the job completely, as the Senate has done for the past few years.

To read reports from the President's cheerleaders in the press, the big news is his proposal to use a somewhat modified index for adjusting Social Security payments for inflation, otherwise known as "chained CPI."  That's supposed to save about $340 billion over the next ten years, hugely back-weighted to the later years of course. ​ That would be maybe a 3 - 4% savings on the cash-basis deficit, if you think the cash-basis deficit is a meaningful figure.

But just to see if they're at all serious about their job, let's look at a few other programs running on autopilot on the infinite credit card.​

Student loans:  ​Now over $1 trillion, essentially all guaranteed by the Federal government in an off-balance sheet item not reported as part of the debt.  Any problem there?  If you follow this at all, you've probably seen delinquency rates of between 5 and 10%.  Well, in late February 2013 the New York Fed held a briefing on the latest status of the student loan situation.  This link will take you to a full deck of the power point slides.  At page 11 we learn that  the delinquency rate has gone from about 9% as of 2004 to 17% as of the most recent data in 2012.  Oh, but wait -- on page 12 we learn that some 44% of the student loans are not in "repayment status," either because the student is still in school or has some kind of deferment.  The 17% "delinquent" is of all student loans.  What percent is that of the remaining 56% who are supposed to be repaying?  The answer is that over 30% of the student loans in "repayment status" are delinquent.   And rising rapidly.  They will be very lucky to get back half of the trillion dollars of student loans.  Meanwhile, they continue to make more of them, and the trillion is growing rapidly.  And the students who will be defaulting on the half trillion or so face a future of personal financial disaster.  Nothing I can find in the President's budget to address this.  Hey, it's off balance sheet!

PBGC.  How exactly the Federal government thought it was a good idea to guarantee all private defined benefit pensions, I will never understand.  Where is that now?​  An article here from the website "Top 1000 Funds" about a year ago (April 13, 2012) says that the "funding shortfall" of those top funds was $1.415 trillion..  That of course comes from their official reports.  You can believe the number if you want, but I have strong reason to suspect that they are valuing their liabilities using wishful thinking discount rates of 7 and 8%, some even higher.  Suppose you used a more realistic 5%, or even 4%.  You would need lots of terabytes of data to do an exact calculation, but a back-of-the-envelope estimate tells me that the real "shortfall" (all guaranteed by the PBGC) is in the $5 trillion range.  Anything in the President's Budget to deal with this?  Yes!  Deep in the Budget at page 127 it says that they propose "to give the PBGC Board the authority to adjust premiums . . . ."; and then they credit themselves with a $25 billion deficit reduction for that over 10 years.  Nothing to it!  In reality defined benefit plans are in a death spiral, and the PBGC with them.  From Walter Russell Meade today:  ​"If these estimates are accurate, the PBGC itself could run out of money within 15 years, and much sooner if two particularly large troubled funds become insolvent."  Well, in the great tradition of politicians everywhere, Obama will be gone.

Food Stamps.  ​This is the program that has nearly doubled from 26 million to 48 million recipients in four years of Obama, and now runs at close to $80 billion per year.  Is that just going to double again in the next four years, or are there going to be some efforts to bring it under a semblance of control?  Other than a two-word reference to "program integrity," I don't find anything meaningful about trying to bring it under control.  At page 61 of the Budget, we find that we will now provide what appears to be an additional $7.6 billion in "discretionary nutrition programs" including for the WIC programs for "women, infants and children."  My bet is on continued explosion.

Disability.  A few ​days ago I noted that this program has about doubled under Obama and now runs at about $124 billion per year.  Since then I have seen several articles pointing out that the true cost of the disability program needs to include the fact that disability recipients become entitled to Medicare coverage after two years, even though they are under 65.  That adds another $80 billion, so the actual cost of the disability program is now over $200 billion per year.  And growing like a weed.  Anything in the Obama Budget to bring that under control?  Nothing that I can find.

And I haven't even started to look at the numbers for Medicare, Medicaid, and Obamacare.  The overall impression is that they think that handing out the free money is a good thing.  Deficits are projected to decrease somewhat because the explosion of commitments is way underestimated and then covered over by decreases in defense spending.   But I seriously doubt that it will be possible to continue to hide the problems for the full four years.  ​

What Is The Economic Program Of Those Celebrating The Death Of Thatcher?

From England over the past couple of days come images of angry demonstrators celebrating the death of Lady Thatcher.  Here is an example:​

​I just don't understand the thinking.  Clearly, these people disagree with the Thatcher economic program.  But just what is the economic program that they advocate that will not lead to economic decline?

Let's have a review of the bidding.  For better or worse, I am old enough to remember the late 60s and 70s, and the situation in the UK at that time.  From 1964 to ​Thatcher's election in 1979, the UK was governed by a series of Labor/socialist governments, with the exception of a stretch of about four years from 1970 - 74 under Tory leader Edward Heath, who wasn't much different from Labor.  Much of Britain's economy at that time was nationalized -- the steel industry, the telecom industry, the defense industry, much of the auto industry.  Government spending increased dramatically as a percent of GDP.  Labor unions had favored status in the economy, and strikes were rampant.   The government repeatedly tried Keynesian so-called "stimulus" programs, only to see the economy stagnate.  Inflation took off, and the government, rather than recognizing it as a monetary phenomenon, attempted to control it with what was called an "incomes policy," otherwise known as price controls. 

And how did that all work out in economic performance?  According to a BBC summary of the period of the 60s and 70s, "Virtually all European countries, except for Britain, had so-called 'economic miracles.'  Britain was often described as the 'sick man of Europe.'" According to Wikipedia, the UK's economic growth for the period was about half that of Germany and France.  Wikipedia refers to the late 70s in the UK as a period of "extreme industrial strife along with rising inflation and unemployment." ​

​And then came Thatcher in 1979.  What were the new policies?  From the same Wikipedia summary, they included monetary policies to reduce inflation, cuts to government spending, extensive privatization of previously nationalized industry, and confrontation with the labor unions.  The immediate result was a sharp contraction from 1980 to 1982.  But then the economy started to grow strongly.  By the late 1980s the UK "saw [annual] growth of over 4%," leading to "contemporary claims of a British 'economic miracle.'"

I don't know of any way of looking at the UK's economic history for the period of the 60s through the 80s without recognizing that the policies of the governments preceding Thatcher had led to economic stagnation and decline, and then Thatcher's policies led to revival and growth.  ​ It's easy to learn from study of the UK during that period what works and does not work in economic policy.  Doesn't work:  high government spending, Keynesian "stimulus," price controls, nationalized industries, encouragement of labor unions.  Works: lower government spending, control of inflation through monetary policy, privatization, limits on labor union power.

So I return to my question:  What is the economic program advocated by these people celebrating the death of Thatcher?  Return to socialism and price controls?  And why the anger?  Perhaps because Lady Thatcher, by drawing such a clear distinction between her policies and those of her predecessors, and by getting such spectacular results so quickly, made it so abundantly clear what works and what does not.  But the problem here is that the results of that experiment are long in, and the demonstrators must know that the program of high government spending and unionism is one that leads to stagnant incomes, a particular problem for the struggling working class.  Why are they advocating for that result?  Or are they really totally ignorant of the economic history of such a recent period?

The Poverty Scam In Action

Yesterday the AP generated a particularly egregious piece of pseudo journalism promoting the poverty scam.  Versions of it ran at outlets including Yahoo, CBS News, and the Daily Mail.​

As readers of this blog know, what I call the poverty scam is this:  The Census Bureau defines "poverty" in a way that has nothing to do with physical deprivation, and only turns on "cash income."  That definition makes the "poverty rate" useless as a measure of physical deprivation, because it excludes all government in kind benefits and sweeps in all kinds of obviously non-poor categories like kids living on handouts from the well-off parents, Ph.D. students at Harvard, business owners having a losing year, asset millionaires taking a year off, and people getting in excess of $100,000 per year in in-kind government benefits.  But then journalists write stories about "poverty" that discuss the "poverty rate" and physical deprivation together as if they had something to do with each other.  Worse, journalists discuss the in-kind government programs as if they had some relationship to "poverty" or the cure of "poverty," when in fact they don't count at all in the measure of poverty.  Doubling the in-kind programs, or halving them, or eliminating them altogether, would have absolutely zero effect on so-called "poverty", because these programs are defined to not count in the measure.

With that background, let us consider this appalling AP story.  Here is the headline from the Daily Mail:​

U.S. sees highest poverty spike since the 1960s, leaving 50 million Americans poor as government cuts billions in spending... so does that mean there's no way out?

​Of course the "50 million [poor] Americans" refers to the Census Bureau definition that turns entirely on cash income.  But the "billions in spending" being cut refers to the "sequester," which cuts very little from "safety net" programs, and that part relates to in kind programs that have nothing to do with "poverty" as defined by the Census Bureau.  Let's see how AP deals with this issue:

As President Barack Obama began his second term in January, nearly 50 million Americans — one in six — were living below the income line that defines poverty, according to the bureau. A family of four that earns less than $23,021 a year is listed as living in poverty.

OK, that's clearly referring to the cash income definition.  ​Then this:

There is no question the national belt-tightening "will deepen and increase poverty," said McCarthy, citing the cuts in long-term care for poor seniors including assisted living and nursing care, and fewer low-income housing spaces, among other ripple effects.

Wait a minute, they're still using the word "poverty," but we just completely switched definitions.  Now we're talking about in kind government benefits that have nothing to do with the Census Bureau definition of poverty.

Under the spending cuts, Baltimore Housing Commissioner Paul T. Graziano said his agency faces a $25 million shortfall in funds to help poor people with housing.

More in kind benefits.  Then this from Stephanie Rawlings-Blake, the Mayor of Baltimore:​

The austerity cuts "to housing programs_as well as those to public safety, health, and education_will have an adverse effect on Baltimore and throughout the country," she said.

​None of this has anything to do with cash income or the alleviation of "poverty" as defined by the Census Bureau.

My innocent self would like to think that the AP writer ​(Steven Hurst) is just confused here and doesn't know much about his subject matter.  But I don't believe it.  I think this is a very intentional effort to use a definition of poverty to generate a very high number of people supposedly in poverty as a device to sell government spending that then has no effect whatsoever in reducing the poverty.

Here's the first comment to the story at the Daily Mail, from one mdinaz:​

How can this be? The Feds have spent trillions on the War on Poverty. And yet, poverty rates have not only NOT gone down over 40+ years, they're going up! Where's the money gone? (that's a rhetorical question - it's gone into liberal bureaucrat pockets).

Well, sir, you are getting your news from the AP instead of the Manhattan Contrarian.  The answer to your question is that this is a complete and utter scam.

More Competition For The Worst Economics Writer In America

Regular reader Barry F, following up on Sunday's post here, sends in an additional nomination for the august title of Worst Economics Writer In America.  The nominee is Matthew Yglesias, head business and economics correspondent for the online magazine Slate.  To support the nomination, Barry links to Yglesias's April 1 post at Slate entitled "Print Money.  Mail Everybody a Check."

This is indeed a worthy nomination.  Yglesias, both at this post and throughout his writing, shows a spectacular lack of understanding of literally everything about what makes an economy work, and can be consistently counted on to advocate the most destructive possible policy in any given situation.  But Krugman is a very tough competitor.  No sooner had Barry made his nomination than Krugman put up his own April Fools Day lollapalooza, "Lessons From a Comeback," proving that this coveted crown cannot be so easily dislodged.

In his April 1 post, Yglesias picks up on Ben Bernanke's suggestion a few years ago that a central bank as a last resort could drop cash out of helicopters.  Instead, Yglesias says, the central bank should "mail checks" directly to American families.  And he then proceeds to list, with an apparent straight face, the many advantages of this proposal, such as:

​ it makes the budget deficit go down rather than up

​ Children in a Native American tribe that got revenue from a new casino had much better mental health than children whose families didn’t get the unexpected bonus

​It’s also really fast

And so forth.​  Might this kind of program undermine the structure of incentives that made the economy happen in the first place?  Not part of Mr. Yglesias's concerns.

I know what you are thinking:  this was an April Fools gag, not to be taken seriously.  Yes, this article is so stupid that that hypothesis must be considered.  However,​ Slate helpfully provides a listing of recent posts by Mr. Yglesias that firmly establishes his credentials among the very worst of economics writers, including, for example, a defense of new PM Shinzo Abe's plans for another round of "stimulus" in Japan (will they never notice that 25 years of "stimulus" in Japan has led to 25 years of stagnation?), the contention that a modest reduction in destructive poverty trap housing subsidies is "Sequestration's Unkindest Cut," endless advocacy of higher taxes, and on and on.  No, the April Fools joke theory will not fly.  This guy has fallen for every economics fallacy and then some.

But as I say, Krugman is one very tough competitor.  ​"Lessons From a Comeback" is about the supposed comeback of California from its recent financial crisis.  Mr. Krugman is prepared to declare that California is back, even before any results of its recent round of major tax increases have even been reported:

​Unemployment in California remains high, but it’s coming down — and there’s a projected budget surplus, in part because the implosion of the state’s Republican Party finally gave Democrats a big enough political advantage to push through some desperately needed tax increases. Far from presiding over a Greek-style crisis, Gov. Jerry Brown is proclaiming a comeback.

OK, in Japan they've been "proclaiming" a comeback for 25 years.  You'd think these guys might have the prudence to wait for even one quarter's data to come in, but that's not their style.  But then we come to my favorite part:​

Needless to say, the usual suspects are still predicting doom — this time from the very tax hikes that are closing the budget gap, which they say will cause millionaires and businesses to flee the state. Well, maybe — but serious studies have found very little evidence either that tax hikes cause lots of wealthy people to move or that state taxes have any significant impact on growth.

I don't know if I qualify as one of Mr. Krugman's "usual suspects," or what exactly he means by "doom."  But I know what I am predicting.  I am not predicting immediate default or that the whole population of California picks up and leaves tomorrow.  I am predicting long term gradual relative decline.  I am predicting the same thing for California that New York City experienced in the 1970s, when ​it allowed its combined state and city income tax rate to exceed 18% when New Jersey and Connecticut had no income tax.  During that decade the City lost 1 million of its population, the Bronx was burning, Stamford and Jersey City were booming, and a new corporation announced the departure of its headquarters on about a weekly basis.  California's taxes today aren't that wildly out of line, so it won't be that bad, but it will be a significant gradual relative decline.  Not unlike what New York is experiencing right now relative to Texas and Florida.  Sure, some new businesses open, new buildings go up, areas are gentrifying.  It's just that incomes and populations are going up far faster in Texas and Florida.

And what exactly are those "serious studies" Krugman refers to that find "very little evidence" that state taxes have any significant impact on growth.  Has New York's experience in the 70s just gone down the memory hole?  Can they look out the window and see what is happening to New York and Illinois versus Texas and Florida.  I say Krugman keeps his crown!​

Is Yale Going Back To Its Roots?

My friend from New Haven sends along an invitation to the Fourth Annual Conference of the Yale Climate & Energy Institute, to be held April 5.  The subject of this year's conference?   Water: The Looming Crisis.​  Here is a link to the program and list of speakers.

You may not have realized that there is a "looming crisis" of water.  Could this have anything to do with the collapse of the global warming scam?  At first it may seem a stretch, but, yes it does.

About half the program consists of panels, and the other half of speakers who get the podium all to themselves.  And who are these featured speakers?  They are leading lights of the global warming movement, including established frauds Gavin Schmidt and Peter Gleick.​

​I don't use the term "frauds" lightly.  Schmidt is the right-hand man of James Hansen at NASA/GISS in Manhattan, best known for its global and U.S. historical temperature series.  These are the people who have been caught red-handed "adjusting" the temperatures of the past downward in order to make it appear that temperatures have spiked upwards in the late twentieth and early twenty-first centuries.  Raw data showing that 1934 and 1921 were the warmest years in the United States have been removed from their website in favor of "adjusted" data showing the more recent years to be warmer, and to turn a downward trend into an upward trend.  See detailed data and graphs at links here and here.

Then there's Gleick.  He was caught in early 2012 forging a document to smear the small think tank known as the Heartland Institute that has incurred wrath by giving a platform to global warming skeptics.   See my previous post here and embedded links.​  After it became obvious to all that Gleick was the forger, he declined to answer questions on the subject, and was suspended from his jobs as President of the Pacific Institute and head of the Task Force on Scientific Ethics of the American Geophysical Union.  But somehow by mid-2012, without any kind of investigation or explanation,  he was back at the helm of the Pacific Institute, and by December 2012 he was back as a featured speaker at the AGU convention.  And now, featured speaker at the Yale conference!

​And how exactly do these global warming promoters find themselves at a conference about the supposed "looming crisis" of water?  Well, check out what they are speaking about.  Schmidt:  "Constrain[ing] Future Hydrologic Changes"; Gleick: "Peak Water Solutions in a Changing Climate."  It's all about finding the latest hook to scare the bejeezus out of the people over the punishment awaiting them for their sins of excessive materialism.  Do you no longer believe that temperatures are spiking and we are all going to fry?  Then we say that the water will come to punish you!

Well, this is more or less where Yale started out back in the eighteenth century.  ​Consider Jonathan Edwards.  An early Yale "tutor" in the 1720s, he has one of Yale's residential colleges named after him.  He also went on to an illustrious preaching career in the Great Awakening, and is most famous for his great 1741 sermon "Sinners in the Hands of an Angry God."  A few excerpts please:

​They deserve to be cast into hell; so that divine justice never stands in the way, it makes no objection against God's using his power at any moment to destroy them. Yea, on the contrary, justice calls aloud for an infinite punishment of their sins. . . .

They are already under a sentence of condemnation to hell. They do not only justly deserve to be cast down thither, but the sentence of the law of God, that eternal and immutable rule of righteousness that God has fixed between him and mankind, is gone out against them, and stands against them; so that they are bound over already to hell.​ . . .

They are now the objects of that very same anger and wrath of God, that is expressed in the torments of hell. And the reason why they do not go down to hell at each moment, is not because God, in whose power they are, is not then very angry with them; as he is with many miserable creatures now tormented in hell, who there feel and bear the fierceness of his wrath. Yea, God is a great deal more angry with great numbers that are now on earth: yea, doubtless, with many that are now in this congregation, who it may be are at ease, than he is with many of those who are now in the flames of hell. . . .

​I'll say this for Jonathan Edwards:  I have no doubt that he really believed it.  That puts him on a far higher plane than Schmidt and Gleick, who are just frauds and crooks preaching hellfire and brimstone under a fake banner of "science" to get themselves grants for their phony institutes.  Yale, what are you thinking?  That you are better than Columbia that hires convicted murderers?