Obama's Plan To Make Americans Poorer

I have actually read the President's speech yesterday on climate change, and I wish I could figure out what his thought process is, or even if there is a thought process.  This speech only makes sense if the whole idea is to grow the government while in the process making Americans poorer -- a lot poorer.  That couldn't possibly be his game plan, could it?   If somebody can offer me an alternative explanation, I'm willing to consider it.  But yes, I think that that is his game plan; or, at least, his game plan is definitely to grow the government, and if that means that Americans must be made poorer, well, he doesn't know anything about that and anyway, too bad.

I start from the proposition that private actors, without any prompting from the government or any subsidies, will provide energy sufficient to satisfy all demand, and that the type of energy provided will be the cheapest for each intended use.  And that process, again without government intervention, will maximize the income and wealth of the American people.  Government, of course, can try to force the production of other types of energy for each use, which can be accomplished by rules or subsidies of various sorts.  Sometimes there may be good reasons for doing this, such as serious health reasons; but by definition there will be a cost, which will come out of the income and wealth of the people.  Given the huge size of the energy markets, the cost of government efforts to switch vast areas of the economy from cheaper to more expensive energy can be in the trillions of dollars over time, meaning that the people have been impoverished by that amount.   

Now you may say, there absolutely is reason for mankind to control carbon emissions into the atmosphere, because carbon emissions are causing catastrophic global warming that is an existential threat to mankind.  If you read this blog, you know I think that's nonsense, and that there is no evidence of any kind for it.  But for these purposes it doesn't matter, and I won't address that subject in this post.  It doesn't matter because Obama is not in this speech proposing to lead some global initiative to get world carbon emissions under control, or otherwise to engineer world temperatures.  (Not that he could do that if he tried.)  What he's proposing, short on specifics but clear enough in generalities, is immediately to hobble American use of coal, particularly for production of electricity, and gradually to hobble American use of other carbon-based energy such as oil and natural gas.

As of now, coal accounts for about 40% of electricity production in the U.S.  This is not a small item.  Clearly the utilities are using coal because it is the cheapest thing available to produce the electricity at this time and at these plants; so any change, even to natural gas, will by definition have a not small cost. 

But the real question is, even assuming that you buy into the catastrophic global warming narrative, how does shutting down coal or carbon-based energy use in the U.S. accomplish anything?  The U.S. is less than 5% of world population.  Its carbon emissions have been dropping in recent years (largely because of the natural gas "fracking" boom).  Meanwhile, third world carbon emissions have been booming.  They will continue to boom, no matter what penalties Mr. Obama imposes on the American people for their sins of carbon usage.

Over at National Review Online on Monday, Robert Bryce of the Manhattan Institute compiles lots of useful data.  Much of the data he relies on comes from the Statistical Review of World Energy 2013, compiled by BP.   For example, consider this:  just the increase  in coal production and consumption in China from 2002 to 2012 is about twice total annual U.S. coal production and consumption.   The increase in world  production and consumption of coal from 2002 to 2012 is almost triple annual U.S. production or consumption.  And this rapid increase of coal production and consumption, particularly outside the U.S. and Europe, is clearly going to continue.  These people and not going to do without electricity and keep their coal in the ground.  So suppose you could take U.S. production and consumption of coal to zero.  You would accomplish nothing. 

And it actually gets worse.  While Obama talked in vagueness and platitudes, it is clear that the initiatives he spoke about involved primarily restrictions on power production and consumption within the U.S.  But do you know that the U.S. is a huge exporter of coal -- mostly, of course, to China?  Yes, it turns out that the resourceful U.S. coal mining industry, facing increasing restriction on coal use from the EPA (let along competition from fracked natural gas) has been shipping off rapidly increasing quantities of the stuff.  According to Bryce:

In March, the U.S. set a record for coal exports in a month, 13.6 million tons. Indeed, on the same day that [White House energy advisor] Zichal was talking about Obama’s legacy on climate issues, the Energy Information Administration released a report showing that U.S. coal exports are likely to set another record this year, after setting a record of nearly 126 million tons in 2012. The EIA pointed to increased Asian demand as a major reason for the rise in U.S. coal exports.

Now there is nothing in Obama's speech about potential restrictions on coal exports, and I can't imagine he would go there, because he would be putting thousands of people out of jobs in critical swing states like West Virginia, Virginia and Pennsylvania.  So therefore, Americans will be forced to buy more expensive energy while the American coal will be mined in increasing amounts, sent off to China, and burned there, leaving the exact same amount of carbon in the air as if we had burned it here. 

So is there any possible logic by which this all makes sense?  Why yes: the war on coal gives the government an enormous opportunity to grow and seize power.  Lots of need for new regulations to make coal difficult or impossible to use.  Lots of need for inspectors and enforcers to be sure the regulations are being followed.  Lots of need for subsidies to expensive wind or solar power, providing endless opportunities for corrupt crony capitalists to make "political contributions" (pay-offs) to politicians to draw the subsidies their way.   Lots of opportunities to buy the loyalty of the corrupt crony capitalists with government handouts subject to periodic review and renewal.  Yes, if your primary goal was to grow the government, it makes perfect sense.  And if at the same time it means that the American people are to be made poorer because they must pay double or triple for the same amount of usable energy, well, we don't know anything about that and anyway, too bad.

The Race Is On To See Who Can Become The Next Eliot Spitzer

The role of government prosecutor is one of immense power, necessary to protect the people against crime but also easily subject to overreach and abuse.  With our structure of multiple layers of government comes multiple layers of prosecutors, each usually ambitious for higher office, with overlapping jurisdictions, and competing for public attention.  Needless to say, when there is a prosecution of a prominent figure or large corporation, particularly a financial institution, there is huge reason for skepticism.

The state of the art in the prosecutorial shake-down for political gain was set by Eliot Spitzer, Attorney General of New York from 1999 - 2006.  The office of Attorney General in New York is one with very limited criminal jurisdiction.  Mainly, the AG gives legal advice to state agencies and handles civil litigation for and against the state.  Almost all criminal prosecution authority in New York rests in the county District Attorneys.  But somewhere along the line the AG got the authority to enforce the Martin Act, a vaguely-worded concoction that seems to delete the mens rea requirement from financial crime.  Spitzer took that and ran with it.  He was shocked, shocked to discover that large New York banks offered investment banking and investment advice under the same roof.  Next thing you know he had shaken down, among others, Citigroup for some $400 million, Merrill Lynch for $100 million, and so forth.  And, of course, gullible journalists dubbed him the "sheriff of Wall Street," without bothering to take a critical look at the merits of the cases.  Next thing you know, Spitzer was Governor, only to flame out immediately.

But the techniques that Spitzer used to get to the top did not go unnoticed.  We now have two contenders for the title of the next Eliot Spitzer in New York. 

First up is Benjamin Lawsky, Superintendent of the Department of Financial Services.  That Department was created in 2011 by the merger of the former Banking and Insurance Departments.  Lawsky got his position by nomination of current Governor Cuomo.   A few days ago Cuomo and Lawsky put out a press release announcing a settlement with Bank of Tokyo Mitsubishi-UFJ, Ltd., a large Japanese bank, in the amount of $250 million.  The press release got front page play in the Wall Street Journal, among other places.  What did the bank do wrong?  According to the press release:

Between 2002 and 2007, BTMU moved billions of dollars through New York for government and privately owned entities in Iran, Sudan, and Myanmar, and entities on the Specially Designated Nationals (SDN) list issued by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC).

Not much more detail beyond that.  It sounds at least somewhat plausible, but do you wonder, as I do, what this has to do with New York State banking regulation, as opposed to the foreign policy of the United States?  Just a little looking quickly turns up a Bloomberg article linking to an Enforcement Information from the U.S. Government from December 12, 2012, punishing BTMU for the exact same conduct, except that the Federal sanction was only $8.6 million.  The Enforcement Information says that the conduct occurred from 2002 to 2007, and that BTMU initiated voluntary disclosure to OFAC when they discovered it.  Nothing about disclosure to the New York banking regulators -- why would they?

So what is the interest of the New York regulators here, other than hitting up a vulnerable bank for $250 million?  Follow the link in the press release to the Consent Order with BTMU.  The basis for the sanction under New York law is stated to be Banking Law Section 44.  But wait, that section only provides the procedure by which penalties can be imposed for violations of the law; it does not actually give the provisions that may have been violated.  What is the violation of New York law, people?

Are you surprised that a large international bank would pay the New York banking regulator $250 million, even though that bank just settled with the actual governing Federal regulator on the same conduct for a small fraction the amount, and the New York people can't even name the New York law that was violated?  Well, remember that these people can put BTMU out of business in New York in about two minutes, and they'd really, really like their name on the front page of the Wall Street Journal. 

And yet this year's Spitzer prize is not an automatic for Lawsky; there is competition!  In a column yesterday, Charles Gasparino of the New York Post nominates current AG Eric Schneiderman, suggesting that he leads "possibly the most politicized law-enforcement outfit in the country."    The evidence?  Well, there's the fact that Schneiderman is continuing the case against Maurice Greenberg, commenced during Spitzer's term some eight years ago, with most charges long since thrown out.  Greenberg has served a term as Chairman of the Manhattan Institute and is known for giving to Republicans.  Meanwhile, we have MF Global, where over $1 billion disappeared, while the firm was headed for Democratic ex-Senator and Governor of New Jersey and big Democratic contributor Jon Corzine.  No prosecution of Corzine from Schneiderman, or anyone else in New York.  Looks like the contest is going to be a horse race this year!

Two Alternative Lists Of Recommendations For The Next Mayor Of New York

A few weeks ago I commented here on the recent report put out by the New York City Bar Association called Policy Recommendations For New York City's Next Mayor.   The report itself is available by following the link here.

Then last week there arrived in the mail from the Manhattan Institute a special issue of the City Journal, titled After Bloomberg: An Agenda for New York.  This magazine is available online here. 

It is fascinating to compare these two documents, because although seemingly addressing the same topic, there is almost no overlap.  The contrast makes for a very clear illustration of the two ways of looking at the world.

The City Journal issue starts from the proposition that we have limited resources here and we need to set priorities going forward, including putting on the table things on which we are currently overspending.   The City Bar report has no consideration at all of costs or priorities, and is rather a wish list of new initiatives, some of which are likely very costly and others not, with no recognition that cost or priorities might even be relevant considerations in what can or cannot be done going forward.

The best analogy I can think of for the City Bar report is this:  A family living paycheck to paycheck, and heavily indebted on the credit cards, decides to get its advice on running the household from the twelve year old son.  The son, with no knowledge or information on the financial picture, recommends major new spending initiatives, such as buying fancy new video games and consoles and lots of tickets to sporting events, meanwhile completely unaware that the credit cards are already maxed out and that the mortgage is soon to be in default.

The most remarkable thing about the City Bar report is what is not in it.   How about just a basic overview of the budget situation?  The first article in the City Journal issue, by Steven Malanga, is titled "The Coming Budget Crunch," and outlines how certain categories of city spending, particularly debt service, pensions and health insurance, have ballooned during Mayor Bloomberg's tenure and promise to continue to balloon.  It's hard to argue with any of this -- it's just a summary of publicly available facts -- nor with the concept that understanding this situation is central to the task of the incoming mayor.  Yet the City Bar report contains no mention of the subject.  In fact, the City Bar report contains no mention of the cost of any of its proposals.  Nor does it contain any indication of suggestions of what spending would be appropriate to cut in order to make way for the proposed new initiatives.

The second article in the City Journal issue, by E.J. McMahon, titled "Overburdened," describes the extent to which New York City's tax regime is uncompetitive and drives away economic activity.  Well, there's an elephant in the room if ever there was one!  But the City Bar report fails even to mention the subject.

In the area of education, I have previously noted multiple times that in New York City we spend nearly double the national average per student, and get worse results.  Of course, the City Bar report does not mention that.  Instead, in the area of education, it recommends "new educational programming" to address what it views as the three most pressing educational issues of the times -- teen dating violence, "comprehensive, medically-accurate sexuality education," and humane treatment of animals.   You literally can't make this stuff up.

Well, you say, as much as they do seem to be missing everything important, it still doesn't sound like their proposals will cost too much additional money.  Keep reading.  How about this one:  "Remove administrative barriers to accessing cash assistance."  That's code for undoing welfare reform, the signature achievement of the Clinton administration in actually helping the poor.  Back in the early 90s, New York City had 1.3 million people receiving welfare, one person in six in the population.  Today it is about 400,000, about one person in twenty-one.  Going back to the old system could easily represent at $10 billion annual budget item.  The City Bar doesn't mention any of this history, or anything at all about cost, of course. 

Anyway, although of course I don't agree with everything in it, I highly recommend the City Journal issue for at least calling attention to the most important issues and getting at the priorities that need to be set and the trade-offs that need to be made.  Meanwhile, the City Bar report is a product of the delusional infinite credit card mentality, where all human problems can be solved by government spending, with no need to consider that there may be limits on resources.  It is truly embarrassing that an organization with the seeming prestige of the City Bar could come out with something like this.

Things People Are Not Paying Enough Attention To, IRS And Obamacare Edition

In the ongoing effort to protect its funding and grow still further, the government and its employees constantly seek to divert our attention from what is important, and few journalists are awake enough to push back.  (Or maybe most journalists are part of the project.)  Anyway, a couple of examples from today's news, from the IRS and Obamacare files. 

Richard Rubin of Bloomberg News is focused on whether the IRS has used a numerical test to determine which groups qualify for Section 501(c)(4) status.  A few weeks ago, then acting IRS Commissioner Steve Miller was asked whether the IRS applied a "49 percent standard" to determine the limit of political activity that a group could have and still qualify for the special tax status, and he testified "We've never been that precise."  Then yesterday one Elizabeth Hofacre, an IRS employee of the notorious Cincinnati office, testified that "[g]roups that devoted no more than 49 percent of their activities to politics were deemed acceptable."  Contradiction! 

In my view it's all a distraction.  The real issue here, from which attention is being diverted, is the definition of "social welfare" versus "political activity."  These IRS functionaries believe that advocating for the government to take care of and cure society's problems through spending and programs constitutes "social welfare" activity (hey, it's "helping the poor" and "the children"!), while advocating to shrink the government constitutes "political activity."  Under these definitions, all left/liberal advocacy groups automatically qualify for 501(c)(4) status, and all Tea Party groups automatically are disqualified.  And thus the government assures that its allies in the growth project get favored tax status and its enemies do not. 

Can somebody please ask the question, what are your definitions of "social welfare" and "political activity"?  I've looked a lot and can't find anybody asking about that.

In the Obamacare department, the diversionary tactic is to try to focus our attention on the upcoming premium level versus some arbitrary benchmark of their own choosing.  Thus the claim two weeks ago by Covered California Director Peter Lee that "we will be able to deliver exceptional value, low rates, access to health care in every region of the state . . ." blah, blah, blah.  Well, if I am a young, healthy person with no assets to protect, please compare the cost of one of these policies to the amount of health care that I would expect to buy without insurance.   Believe me, Lee will never let out that information.

Oh, but here it is in a column yesterday in the Wall Street Journal by Holman Jenkins, quoting no less a source than Justice Samuel Alito at the 2012 Supreme Court arguments on Obamacare.  (Alito must have gotten the information from one of the many amicus briefs.)  And the answer is, "young, healthy adults today spend an average of $854 a year on health care," while "ObamaCare would require them to buy insurance policies expected to cost roughly $5,800."  Well, you can fool some of the people some of the time, but no amount of diversionary tactics is going to keep that kind of disparity under wraps forever.

Even The Federal Courts Are Part Of The "Main Project"

In several posts (here and here) I have drawn attention to the "main project" of government, in which all government personnel are engaged, namely the project to grow the government.  Are even the Federal courts part of the main project?

Last Friday Raymond Dowd, an executive of the Federal Bar Association, sent to Emil Arca,  President of the Lawyers Chapter of the Federalist Society in New York, an invitation to an event yesterday with the title "Is Our Federal Justice System Being Dismantled?", subtitled "A report from Capital Hill on the budget battles, judicial vacancies, and adequate judicial pay."   Dowd asked Arca to "make sure that the Federalist Society sends a representative to this event."  Arca sent the invitation to (among others) me, and as a result the guy they got from the Federalist Society was me.

The event was held at the newer of the two Federal courthouses in Manhattan (500 Pearl Street), an over-the-top Taj Mahal of a building, and in the so-called "ceremonial courtroom" -- a stunningly opulent overuse of Federal taxpayer money that makes me uncomfortable every time I go there.   In attendance were many of the judges, both from the Southern and Eastern Districts of New York. (I did not see any from the Second Circuit.)  The speaker was Bruce Moyer, identified as Government Relations Counsel for the Federal Bar Association.  Moyer started his talk by making clear that the FBA is a 501(c)(6) organization, that is, an organization explicitly allowed to engage in lobbying.  And he is the chief lobbyist.

And now to the main topic.  It seems that the so-called "sequester," or 3% cut in some Federal discretionary spending, applies to the Federal court system.  But Moyer claimed that for various reasons, such as only starting in the middle of the year and only applying to certain things (like, you can't cut judges' pay), it therefore really is much more than that for the pieces actually cut.  Maybe even 8%!!!!!  Well, the solution is at hand.  A $74 million supplemental appropriation bill has been presented in Congress.   And now to rally the troops.  Light up the phones!  Call your Congressman!  Call your Senators!  Write letters!  We must get more money for the courts!

At the end of the speech Moyer made the mistake of asking for questions.  So I put my hand up and got called on first.  I didn't write my question down word for word, but here is a paraphrase:

Isn't the problem for the Federal court system not too little money, but rather a wildly over-expanded mission?  And isn't the solution not more money to try to accomplish this mission, but rather shrinking the mission?  The drug war uses up about 30% of the resources of the Federal court system and is a complete waste of time.  If the drug war were ended the Federal court system would have about 30% overcapacity.  If the resources of the Federal court system are strained as you say, why aren't you lobbying to end the drug war?  Why are there some 4000 Federal crimes -- an approximate number because no one is even able to make an exact count?  Why is installing a toilet of more than 1.8 gallon flush a Federal felony?  Why is spreading dirt on your property without an EPA permit a Federal felony?  Why, other than pure human jealousy and vengence, is so-called insider trading  by a non-insider "tippee" a Federal crime?  Currently the resources of the US Attorney of the Southern District of New York and of the Southern District Federal court are to a huge extent consumed by the non-insider insider trading jihad, with no one even able to offer any rational explanation of why this is a matter of Federal criminal interest.  So what are you doing to lobby Congress to get the mission reduced so that the Federal courts can accomplish it with the abundant resources they already have?

Around that point I stopped, figuring it should be someone else's turn.   (For those interested, the answer in summary was, "That's a very provocative question.  If you have suggestions of what we should lobby for, please submit in writing and we will take up in our committees and decide after appropriate process whether we will do it or not.")  Perhaps one thing I didn't ask but should have is this:  If you think the Federal courts should get another $74 million this year, exactly which other programs or expenditures should be cut to provide this money?  Or, if nothing should be cut, do you believe that we just have an infinite credit card here?

After that the event proceeded to other questions, most of which were of the form of "How can I best help to lobby for this money?"   Nobody but me seemed to be in the slightest way uncomfortable about all of this taking place in the ridiculously over-the-top ceremonial courtroom that looks like something out of Versailles.

So the answer to the question is, unfortunately, yes, the Federal courts are part of the "main project." 

The Defined Benefit Pension Death Spiral, Detroit And California Edition

The defined benefit pension plan is the ultimate mechanism yet devised by politicians to make unsustainable giveaways to favored constituencies today and hide the costs from the citizenry until long after the politicians are gone.  If not assiduously funded on real assumptions (in the real world, there is no actual example of this occurring) such plans in the public sector are forms of slow-acting Ponzi schemes that can take 50 or more years to play out to their final crash.   A few small California cities (Vallejo, Stockton, San Bernardino) have been the first to hit the wall, but now we have a much bigger crash victim:  Detroit.

On Friday Detroit, via its new emergency manager Kevyn Orr, put out a 134 page report entitled "City of Detroit Proposal for Creditors."  Follow the link to get your very own copy.  It is a real eye-opener in many respects, but mostly in revealing the extent to which vast pension liabilities have been taken on and hidden from the citizens.  

First, an overview of Detroit's finances.  Its annual budget is a bit over $1.1 billion, down from almost $1.4 billion as recently as 2008.  Trouble is, it can't raise even the $1.1 billion in taxes.  The biggest source of revenue is a city income tax of 2.5%, raising $233 million in 2012.  But that 2.5% rate is the highest in Michigan, and the number of jobs in Detroit is dropping precipitously (from 354,000 in 2000 to 280,000 in 2012), so revenue from the income tax is dropping.  Meanwhile, property values in Detroit are virtually nothing, so there is no potential for getting money from that source.  Property tax revenue has dropped from $155 million as recently as 2008 to a projected $135 million for 2013 (page 44).

As to the defined benefit pension plans, Detroit's two main plans have most recently been reporting Unfunded Actuarial Accrued Liability of around $645 million (page 31).  If you amortize that over 30 years it's around $20 million a year.  Add in the cost of new accruals at around $30 million a year, and you get a required payment of $50 million a year, which by the way, Detroit did not make last year and is not going to make this year.  But are the assumptions real?  The main assumptions are laid out at page 31 of the report, including a 7.9% interest rate for one plan and 8% for the other.  Redo the UAAL with real assumptions and now you get --  UAAL of $3.5 billion!  What does that mean in terms of a required annual payment?  Go to page 109, and the answer is -- $200 million to $350 million per year.  That's as much as 30% of revenue, when Detroit does not have enough revenue to pay operating expenses.  This is not going to happen.  Detroit has hit the wall.

The gist of this report is that Detroit is about to open a negotiation with creditors, and proposes to treat pension plans as unsecured creditors who will get an undetermined "cents on the dollar" payment pro rata with all other unsecureds.  Meanwhile, pension benefits continue to be paid, and the value of assets in the pension trusts is dropping rapidly (the value of the assets in the trusts has dropped by some $1.7 billion over the past 5 years - page 24).  So even though Detroit has hit the wall, we have a likely long negotiation ahead of us.  And even after the negotiation is concluded, it will again be a long time before we know how Detroit's retirees will fare.  Maybe the trusts will just keep paying until they run out of money, and after that, everybody gets nothing.  But any way you look at it, the majority of the existing pension promises in Detroit are illusory.  Meanwhile, it took the destruction of the city to get to this point.

Out in California,  things are almost as bad, with the wall gradually coming into view out there on the horizon for those willing to look.   Recall that back on April 2 I commented on  Paul Krugman's March 31 column about California, titled "Lessons From a Comeback." Krugman is all excited that California, having greatly raised income tax rates for high earners in a November 2012 referendum, is now predicting a budget surplus.  He's not paying attention to the fact that the tax increases were retroactive to January 1, 2012, and therefore gave the victims no opportunity to take evasive action as to the first year's income subject to the new rates.  He's also not paying any attention to the pension funding issue.  Let's see how the second year works out. 

So how are those defined benefit pension plans doing in California?  Here at Fox News on June 12, Elizabeth MacDonald reports that Moody's has now come up with its own criteria for evaluating defined benefit pension obligation.  Result?  The unfunded liabilities for state and local plans in California go from the previously-reported $128.3 billion to $328.6 billion.  On a per capita basis, that's more unfunded liability than Detroit, although California is a richer place.  Overall, they have a long way to go before they run out of cash; but individual cities and towns can be in far worse shape than the average.  For example, under the Moody's criteria, Los Angeles' funded ratio falls from 77% to 50%, almost $50 billion short.  That's rather dangerously close to death spiral territory.  But this will play out over many, many years.

And back in Illinois, the state legislature adjourned for the year without doing anything about pension funding.  The governor is trying to get them back for a special session.