The New York Times Spouts Nonsense On "Poverty"

A big source of the Manhattan conventional ignorance is that most all members of the professional class read the New York Times and somehow think that because the Times has such a condescending high-brow tone it must know what it is talking about.  Big mistake.  Sorry, but a very high percentage of what masquerades as news in the Times is just naked advocacy for government spending as the solution to all human problems.

A good example among many is a front page article from Sunday's print edition, "50 Years Later, War on Poverty Is a Mixed Bag," by Annie Lowrey.   As readers here know, one of my persistent themes is that government "poverty" statistics are deliberately misleading.  They deem to be "poverty" things that have nothing to do with physical deprivation in order to wildly inflate the numbers, and are designed specifically so that no amount of increased government spending can ever eliminate or even reduce the "poverty."   Thus they are used to justify unending pleas for more ineffectual spending.  For a few of my prior articles, see here, here, and here. 

In her piece Ms. Lowrey demonstrates both an appalling ignorance of the scam and an adamant refusal to apply any critical thinking to the subject matter.   The basic idea of the article is to bemoan the fact that after five decades of vast spending in a supposed "War on Poverty," the rate of "poverty" as measured by the government has barely budged.  Ms. Lowrey goes looking for the reasons in deep social science doublethink without ever considering the extent to which the government actually measures what it claims to measure.

Here are a few basics that are necessary for any discussion of U.S. "poverty" statistics:  (1) The amount of needs-tested benefits passed out per year from all levels of government, which is over $900 billion, is far more than enough to remove every person in "poverty" from that status if the money were simply passed out in cash. (2) Instead of being passed out in cash, the large majority of the benefits are passed out in-kind (e.g., food stamps, Medicaid, housing assistance, WIC and other "nutrition" programs, etc.) and then counted at zero in determining "income" for purposes of the poverty statistics.  Given the vast amounts that are spent without being allowed to count in the measure of "poverty," the official statistics long since ceased to have any meaning and instead are just a tool cynically used by the government to defraud the public into acquiescing in continuing government growth.

But here we have Ms. Lowrey spouting the usual statistics as if they mean something:

But high rates of poverty — measured by both the official government yardstick and the alternatives that many economists prefer — have remained a remarkably persistent feature of American society. About four in 10 black children live in poverty; for Hispanic children, that figure is about three in 10.

The "four in ten" and "three in ten" figures for black and Hispanic children are completely the result of failing to count the in-kind benefits in the statistics.  What are the real numbers after the benefits are counted?  The government won't say, and Ms. Lowrey is not curious (or intelligent) enough to ask.  There is nothing "remarkable" about the persistence of "poverty" in the United States in the face of spending that would long ago have eliminated it under honest measurement.  The whole idea is to spend the money in ways that don't count in order to have a reason to advocate for yet more spending.

Then we have this howler:

According to one recent study, as of mid-2011, in any given month, 1.7 million households were living on cash income of less than $2 a person a day, with the prevalence of the kind of deep poverty commonly associated with developing nations increasing since the mid-1990s.

Please, Ms. Lowrey, how does "living on cash income of less than $2 a person a day" equate with the "deep poverty" of "developing nations"?  She is just completely omitting that people in the United States may have lots of reasons to have little or no "cash income" in a given year, but still have plenty of resources to live on.  Who are these people in "deep poverty" living on less than $2 per day?  Just give it a moment's thought (something Ms. Lowrey appears incapable of) and you will realize that you know lots of them and you had no idea that they were in "deep poverty."  Examples:

(1) Students, particularly students in graduate and professional school who are over 21, live apart from their parents, and for whatever reason do not take a paying job during the year.  They live off (a) scholarships (don't count as "cash income"), (b) student loans (don't count as "cash income"), and (c) support from the parents or other family members (doesn't count as "cash income").  In lieu of a summer job, perhaps they think it is to their advantage to take that unpaid internship this year.

(2) Early retirees who live for a few years by consuming savings before taking their social security.  Consuming savings does not count as "cash income."  Also in this category are those who have large equity in a home and take a reverse mortgage to get a monthly check.  That also does not count as "cash income."

(3) Small business owners who have a losing year.  Oddly enough (given all the other arbitrary exclusions), losing money in a business actually does count as "cash income."  Yes, it is entirely possible to have "cash income" that is negative.  In fact, if you have a large enough business, you can have a very large negative cash income, even millions of dollars.  Is that what they mean by "deep poverty"?  Of course, people who have a business large enough to lose millions of dollars in a year are likely in real life to be "rich" by any normal definition of the term, although not by the absurd definitions that the government uses to measure "poverty."

(4) Young people out of school who take a year or two to enjoy themselves before starting work.  Maybe they travel in Europe.  Maybe they hike the Appalachian Trail.

And I haven't even gotten to people who make their money off the books where the government doesn't count it, like drug dealers and many casual construction workers.

When you think about it, you will realize that in the context of today's United States, going a year without any meaningful "cash income" is far more likely to be a luxury than a hardship.  (Clearly I am not saying that no one in the United States lives in conditions of hardship.  Undoubtedly there are many.  It's just that the government statistics do not give us any meaningful information on how many, nor does the "cash income" measure give any meaningful indication of which people are the ones in real hardship.) 

Given the many reasons why a person may go a year without earning money, it is actually surprising that the government statistics only come up with 1.7 million people reported as living in families with "less than $2 per day per person" cash income.  In my own circle of extended family, friends and acquaintances, there are multiple people who likely fit this definition.  If you met any of them, you would think that they were upper middle class, or even wealthy in some cases.  It would never occur to you that they are what the government -- and Ms. Lowrey -- mean by "deep poverty."

And I have only scratched the surface of the flaws in this preposterous article. 

Another Nomination For The Worst Possible Public Policy

Back on September 16 I made a nomination for the worst possible public policy, namely "affordable housing" in Manhattan.  I described it as "the most expensive possible way to help the smallest number of people."  Actually that's a charitable description.  Large numbers of the beneficiaries of "affordable housing" in Manhattan don't have any credible claim to being poor, and many of the affordable housing programs explicitly use scarce government funds to benefit the middle and even upper middle classes to the tune of $40,000 and up per family per year.  Is it really possible for any public policy to be worse than that?

Well, I have another nomination: beach restoration on the Long Island oceanfront.  This time we are not talking about just benefiting the middle and upper middle classes with government handouts; no, this is the very richest of the rich.

My interest got piqued when I read in the Real Estate section of today's NYT that Billy Joel's oceanfront estate on the beach in Sagaponack has recently gone back on the market with a new asking price of $23.5 million, up from a recent asking price of $16.75 million.  Here is a picture of the estate from the Times article:

Among reasons given for the price increase were the following:

Also factoring into the higher price is a $26 million beach-nourishment project underway in Sagaponack, Water Mill and the Town of Southampton to help buffer homes from future storms.

It can't possibly be that the government is making that kind of giveaway to a handful of the super rich like Billy Joel, can it?  Well, thankfully, it's not quite that bad.  But almost.

Long Islanders have been working for decades to get the Feds to put up big money to maintain their beaches, but thankfully the Feds have pushed back at least a little.  Notably, the Clinton administration, to its credit, would have none of it.  But Hurricane Sandy in 2012 gave the Long Islanders their opening.  After Hurricane Sandy, at the end of 2012, Congress appropriated some $3.5 billion for construction projects to restore areas impacted by Sandy.  Most of that money remains unallocated.  But according to this from the East Hampton Patch in June 2013, OMB has approved release of $700 million out of the $3.5 billion, and one of the first beneficiaries has been Montauk, the farthest-east hamlet on Long Island.

The specifics have not yet determined, but detailed planning and design of the Montauk beach re-nourishment project can begin with 100 percent federal expense, [Congressman Tim] Bishop's office said in a statement.

Montauk is not as super-rich as Sagaponack, but still, this is pretty over the top.  And how about that project over at Sagaponack?  It turns out that the $26 million beach restoration currently going on is actually funded, at least for the moment, by the super-rich homeowners themselves.  According to Sag Harbor Online on February 6:

Oceanfront property owners in Sagaponack, Bridgehampton and Water Mill approved a referendum on Saturday night that will allow homeowners and the Town of Southampton to spend $24 million to replenish eroded beachfront. A beachfront only made worse by Hurricane Sandy’s impact this October.

But will that stick, with billions of federal funds sitting out there for the asking?  Don't count on it.  From the same article in Sag Harbor Online: 

Whether or not this [Sagaponack] project will benefit from Federal Emergency Management Agency (FEMA) funding for those impacted by Hurricane Sandy remains unclear. Beaches in both Bridgehampton and Sagaponack, having already contended with significant beach erosion, were hammered by the fall storm, whole stretches of beach literally washed away.  “We are pursuing that and the town is pursuing that very aggressively,” said Terchunian.

I think it is virtually certain that the Feds will put up the money as soon as everyone's back is turned.

Meanwhile, Billy Joel is taking no chances, making himself a fixture on the Democratic Party fundraising circuit.  He played at Andrew Cuomo's birthday fundraiser on December 4.   On the federal front, here is Joel palling around with Senator Schumer on September 16, 2013.  

Whether or not the Feds ultimately put up the money for the restoration of beach on the super-rich stretch of Sagaponack, the whole idea of multi hundreds of millions of federal money for Long Island beach restoration is very, very hard to top as bad public policy.

UPDATE, January 8, 2013:  Not wasting any time in fulfilling my prediction above, Gov. Cuomo issued a big press release yesterday, January 7, setting forth his program to "strengthen New York's communities against extreme weather."  The "strategy" is a list of all kinds of projects, with an overall price tag of $17 billion stated on the first line of the release.  Who's paying for it?  Well, it's some indication that VP Biden was there at the announcement along with Cuomo, although the numbers in the release don't have any breakdown between state, federal and (maybe?) local share.  There's also no time line for when all this will happen.  If you scroll down a ways, you will find this as one of the projects:

Coastal Protection - $1,794,461,757

The US Army Corps of Engineers, in concert with NYS Department of Environmental Protection, and the NYS Department of Parks and Historic Preservation, is embarking on a long-term program to protect 83 miles of exposed coastline.

That 83 miles of "exposed coastline" would look to correspond more or less to the large majority of the south shore of Long Island.  In fact, you can't really get to 83 miles without including most or all of the super-rich areas like Westhampton, Bridgehampton, Southampton, Sagaponack, East Hampton, and Amagansett (that stretch is over 40 miles), as well as the not exactly poor Fire Island (another 32 miles).  So, too bad taxpayers, you are going to pay at a minimum hundreds of millions to "protect" the ocean-front homes of the richest of the rich.

Sorry, But "Income Inequality" Is About To Increase

Yesterday, New Year's Day, new Mayor Bill de Blasio was sworn in on the steps of City Hall.  He gave an inaugural address reiterating all his major campaign themes.  Chief among these was what he calls the "crisis of inequality."

New York has faced fiscal collapse, a crime epidemic, terrorist attacks, and natural disasters. But now, in our time, we face a different crisis – an inequality crisis. . . .  It’s a quiet crisis, but one no less pernicious than those that have come before.  Its urgency is read on the faces of our neighbors and their children, as families struggle to make it against increasingly long odds. To tackle a challenge this daunting, we need a dramatic new approach. . . .   A city that fights injustice and inequality — not just because it honors our values, but because it strengthens our people.

There were no specifics in the speech as to what de Blasio intends to do about the crisis, or why he thinks he can solve it, if indeed it is a problem.

I have a prediction for de Blasio that he might not like:  income inequality, as measured by government statistics,  is going to increase over the next four years, both in New York and in the United States as a whole.  That will occur literally no matter what de Blasio does, no matter how much in the way of taxpayer resources he devotes to the issue.  The reason is that government policies beyond his control, largely at the federal level, have a powerful effect of increasing measured income inequality.  The big three policies driving measured income inequality are food stamps, Medicaid, and Obamacare.  The third has just begun to work its destruction.

President Obama is also all over the income inequality issue.  He gave a big speech on the issue in Kansas on December 4 (where he called income inequality "the defining challenge of our time"), and the smart money is betting that this will also be the big theme of his upcoming State of the Union address.  And of course government benefits for low income people have exploded during Obama's five years in office.  So has measured income inequality increased or decreased on Obama's watch?  The answer is that it has increased.  Not only has it increased, but it has increased faster than it increased during the eight years of GW Bush.  Among many articles discussing this seeming anomaly, here is one from the Huffington Post of September 1, 2013.  An excerpt:

The difference between America’s median and average wages grew at a rate of 0.28 percent under President Bush, while it’s grown at a rate of 1.14 percent -- or about four times that -- under Obama, according to The New York Times. The median wage is the midpoint of all workers’ wages, so it only ticks up when everyone is earning more. While a small group of people earning higher pay can push the average wage up.  So, as the difference between the two rises, it means that those at the bottom of the income scale are making fewer gains compared to those at the top.  This data point is one of many that illustrates that in Obama’s America the rich are gaining while the rest of us are struggling to get by.

How could this possibly be?  The answer is that increases in government benefit programs are actually the main cause of the increase in measured income inequality.  This happens because the government benefit programs have the effect of suppressing the measured income of the lowest tiers of the income distribution.

To understand why, you need to know two things: (1) government in-kind benefit programs do not count at all in the measurement of "income" that then goes into the measurement of "income inequality," and (2) at the bottom tiers of the income distribution, government benefit programs seriously discourage the formation of families with a breadwinner.  And thus we have large numbers of single-parent households, living largely or entirely off government benefits, all of which count as zero income.  No amount of new jobs in the economy, no amount of increases in minimum or average wages, no amount of union organizing, and for that matter no amount of increases in the in-kind government benefits, is going to provide these families with measured income. 

The increase in measured income inequality on Obama's watch corresponds to the explosions in food stamp and Medicaid enrollment during this period.  This is not a coincidence.  Put yourself in the position of a woman who has had a couple of children at a young age without marrying and has been able to make a go of it with a suite of government benefits, including housing, food stamps, and free medical care.  All of those things count at zero in the income statistics.  Now a hard-working young man comes along, interested in being with you, and he has a lower- to middle-class income, say $30,000 to $40,000 per year.  You would be out of your mind to marry this man.  Instantly you are disqualified from all the benefits (or in the case of the housing, your rent shoots up).  And why, when you can hang out with the guy four or five or six days a week, you keep the apartment and the food stamps and the Medicaid and he keeps the money (and maybe gives you some of it on the side)?  Ninety-nine percent of people facing this situation are going to make the same choice.  As more people get the benefits (the number on food stamps has increased by about 20 million since Obama took office), more will make the decision to perpetuate an income-free family unit to keep the benefits flowing. 

Meanwhile, at the higher reaches of the income distribution, income continues a slow but steady rise.  The effect of that, combined with government-caused stagnation at near zero levels at the bottom, is steady increases in measured income inequality.  

Suppose now that the government substantially increases all the benefits that it provides to the poor.  This has absolutely no effect on measured income inequality, since none of the benefits count in the statistics.

And into this mix, now throw Obamacare.  Beginning basically today,  Obamacare offers very substantial subsidies on medical care premiums to households depending on where their income stands relative to "federal poverty level" (FPL).  Subsidies continue all the way up to 400% of FPL, which for a family of four now approaches $100,000.   Here is a basic summary of the workings from Kaiser Health News.   To put it in simple terms, lots and lots more people are going to find it to their major economic advantage to not be married, which will in turn mean that there will be lots and lots more low and zero income households that previously would have been combined with other households to make middle income families.

So starting now, a young lady just getting started with a low income from freelancing and a little waitressing goes to healthcare.gov to look for a plan, and they ask her her household income.  Does she include the live-in boyfriend's income or not?  That could easily be a $5000 or $10,000 per year issue.  I'm guessing that maybe 97.23% opt for not including him.  OK, if she's really conscientious about honesty maybe he has to go and stay with his parents one or two nights a week.

There is no question but that Obamacare is going to have a large effect on increasing measured income inequality.  Sorry, Bill, but there is nothing you can do about this.  The good news is that little or none of it is real; it's just an artifact of the statistics.  But of course, de Blasio doesn't know that, or at least he hasn't shown any awareness of these issues in anything he has said to date.

There Are Two Ways Of Looking At The World. Is One Of Them "Right"?

On multiple occasions I have commented on the very divergent world views of progressives versus libertarians like myself -- a divergence that plays out, for example, in the repeated inability of Congress to reach agreement on basic things like a government budget.   A remarkable facet of this divide is the conviction of many, particularly on the progressive side, that their view is objectively "right," and therefore anyone disagreeing must be wrong, indeed evil and immoral.

To get us ready for the new year, I thought I would look around for a good example of the extreme version of this psychosis, and I have come up with this article by Egoberto Willies from the Daily Kos on December 8.  The particular subject of Mr. Willies is opposition to Obamacare, specifically opposition that goes to the point of advocating to the young and healthy that they should refuse to sign up.   Yes, I have definitely done that here at the Manhattan Contrarian.   Well, in the view of Mr. Willies, that is "immoral," "immoral and evil," and also "evil and immoral."  (Mr. Willies appears to be a bit challenged in the vocabulary department, but he does have the bare minimum number of words to get his point across.)

It is immoral and evil to encourage young people to forego insurance when you have no intentions of being there if they get sick or get into an accident. It is immoral and evil to build websites that trick citizens into accessing them while providing them with misleading information that dissuades them from getting the health care they need. It is evil and immoral to create false stories mimicking real people’s circumstances in an attempt to curtail the number of enrollees to Obamacare.

Now why would opponents of Obamacare stoop to this evil and immoral behavior?  Mr. Willies thinks he has the answer:

Opposition to Obamacare has characteristics of an addiction. One knows intrinsically when one is doing wrong or doing something detrimental. However, the cravings make one disregard reality and acquiesce to the drug. What is the drug? The drug is hate for all things Obama.

Well, trying to convince the likes of Mr. Willies is undoubtedly not worth the time and effort.  But if there are any on the progressive side at least a little interested in how a sane human being could disagree with them, I would offer two main reasons:

The Fallacy Of Perfect Knowledge.    Meaningful advances in human well-being come from a vast process of trial and error conducted by people acting in their own self-interest mediated by exchange of goods and services in markets.  The reason that meaningful advances must come about in this method is that no one, not even any group of people working together as a team, is smart enough to figure out a really meaningful advance on his or her or their own within the span of their lives.   And thus we have come up with things as simple as metal or agriculture, or as complex as a pencil or a computer.  But the people who have devised Obamacare think that these processes of trial and error are no longer necessary and that they can solve the problems of healthcare once and for all by the device of having a group of really, really smart people (themselves) utter a two thousand page statute containing the final answer to everything.  Might they make errors in this process?  No way -- after all, they are really, really smart.  They are so smart that they can impose their solutions by compulsory law that everyone else must obey, and can with complete confidence cut off the processes of self-interested market exchange, and instead compel people to act against their own self-interest to achieve higher goals of justice and fairness.

If these people are so smart, I might suggest that we should give them the challenge to make a pencil from scratch and put them out in the forest and see how long it takes them to do it.  The answer is, they will not be able to make a pencil in this lifetime.  But they are smart enough to remake the healthcare system into permanent perfection?  I wouldn't count on it. 

The Illusion of Infinite Resources.  Do some people have less than full provision of perfect health care services?  Well, we'll just order that they must get what they need!  There are no limits here.  Where will the resources come from?  We'll order that people who already thought they coudn't afford health insurance must now buy it!  We'll order that they will pay double or triple the fair price for their level of risk!  But won't people have to give up things that they think are more valuable in order to achieve these goals?  That is not something that a progressive needs to think about.

And of course the healthcare overreach is just one example of the infinite resources illusion.  To consider a couple of current issues here in New York, how about ordering that all hospitals currently operating must remain open forever!  (Result: multiple uneconomic hospitals limping along and losing money hand over fist, including one in Brooklyn, LICH, with 1400 employees and a current 10 or so patients kept open by court order and costing millions a month.)  And then we'll order that anybody who wants to live in Manhattan can do so at taxpayer expense!  We'll build them all "affordable" apartments in the most expensive location in the country!  

And why stop there?  For our next move, we will eliminate income inequality!

Well, sadly resources are not infinite, and government overspending on low priorities is a prescription for impoverishment of the people.  And thus you have the overspending states like New York and Illinois losing status and population to those who keep spending under control; and the European nations having followed the progressive prescriptions to their logical end and going into permanent stasis.

As Margaret Thatcher said, the problem with socialists is that they "always run out of other people's money."

The Cure For Income Inequality Is Malaise

The new theme for Obama and de Blasio is the "crisis of income inequality."  And with the top guys having adopted it as the theme, it now gets talked up all over the place by the parroters of the approved talking points.  For example, here we have Jason Furman, Chair of the President's Council of Economic Advisers, in a Business Week interview on December 19:

Two trends have made life harder for middle-class families. First, the overall growth rate in the economy slowed after 1973 as our productivity slowed. The second is that income inequality began a steep increase, starting in the late ’70s. 

The late '70s?  Yes, that was the low point for income inequality as measured by government data for the share of national income going to the top 1% of earners, as compiled by left-wing economists Piketty and Saez.

But was the late '70s a good time for Americans?  For those too young to remember, July 15, 1979 was the date that President Jimmy Carter went on TV and delivered what is forever known as the "malaise" speech, although the word "malaise" was not actually used.  Read the speech to get an understanding of Carter's sense of the national mood at the time.  Here is an excerpt:

I want to talk to you right now about a fundamental threat to American democracy. . . . The threat is nearly invisible in ordinary ways. It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation.  The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America.

Why the erosion of confidence?  Two reasons stand out.  One was the government price controls on energy that led to shortages throughout the economy, including long waiting lines to get gasoline.  And the other was ludicrously high marginal income tax rates, including a top rate of 70% at the Federal level.   In New York, combined state and local income tax rates approached 19%.  In simple terms, the government was taking away the ability of the people to get ahead by hard work.

Measured income inequality has increased substantially since that time.  Mostly it is an artifact of the government policies and statistics, but there is also a real element.  With marginal tax rates (federal plus state and local) for top earners in the 80+% range for many people in the late '70s, people stopped reporting or recording income at high levels.  In 1979, most tax shelters were legal, and their use was an art form.  The basic idea was to defer income from one year to the next, and then the next, by various rollovers and non-cash deductions.   Or you could just hold on to appreciating assets and not sell them.  Some people with good connections and lawyers could get ahead by owning the right assets and gaming the tax system; but nobody could get ahead by working hard and earning cash income subject to ordinary income tax.  Is it any wonder that Americans had "lost confidence in the future"?    

In 1986 a major federal tax reform under President Ronald Reagan brought the top federal marginal rate down all the way to 28%.  Most tax shelters also became illegal at that time.   Suddenly many high incomes started getting reported and taxed.  Equally as important, it became possible again to get ahead by the straightforward method of working hard and earning cash taxable as ordinary income.  

So we know how to reduce income inequality as measured by the government data.  Just jack up the income tax rates high enough that nobody can get ahead by hard work any more, and all those high incomes will go away.  Of course, we should also expect the return of "malaise."  That's the cure for income inequality.   

Official Manhattan Contrarian Predictions

The end of the year being upon us, it's time to engage in some prognostication for the new year.  I'm going to limit myself to a few key areas.

Obamacare.  I have already officially predicted that Obamacare will fall apart over time, although we can't know how quickly that will occur.  So that one doesn't count.  But here's an important one:  I predict that the number of "uninsured" in the U.S. will increase as Obamacare is fully implemented in 2014.  (I put the word "uninsured" in quotes because health coverage in this country long since ceased to be real insurance, and instead is some muddled mixture of part insurance, part prepayment of routine expenses, and part income transfer program.)  At this point it is virtually certain that the number of "uninsured" will be up on January 1 over a year ago, because the rate of sign-ups is not nearly fast enough to catch up with the number of policy cancellations already in place.  

The increase in the number of uninsured is a big deal because the existence of a large population of uninsured in this country, and the alleged need to fix that terrible problem, was the main reason given for Obamacare in the first place.   Well, the supposed solution was to increase the price, make the product less desirable for most people by forcing payment for lots of things they don't want or need, and increasing deductibles, and then ordering healthy people with little money to buy this undesirable, overpriced product.  In other words, they made health "insurance" much less insurance and much more income transfer program than it already was.  Why again did anybody think that this would reduce the number of uninsured?

One more prediction re Obamacare:  the "mainstream media" will treat the increase in the number of uninsured as a non-story.  However, I think that Fox News and the Wall Street Journal (as well as the Manhattan Contrarian) will be on top of this one.

Red states/blue states.  I predict the continued relative economic advance of the red states and the continued relative decline of the blue states. 

The sales pitch for the blue state model is a generous society that cares for the neediest among us.  But when you actually look at the numbers, you find out that the lion's share of the extra spending in the blue states does not go to the neediest, but rather to the state and local employees, and even then not to the active ones, but rather to the retired ones for pensions and healthcare.  California, New York, Illinois, New Jersey and Connecticut are at the top of the list of states that have overcommitted to pensions and healthcare for retirees, with the bill starting to come due.

As the pension costs mount, alternative programs get squeezed out, and the pressure is on to increase taxes.  Thus California has seen almost no pension reforms, but passed by referendum in November 2012 a big income tax increase that takes the top state rate to 13.3%.  Supposedly the money is mostly for education, but there's nothing to keep the pensions from swallowing it up.  Illinois raised its income tax from 3% to 5% in 2011, and finally passed its first serious steps toward pension reform just a few weeks ago.   Those steps (mostly adding a few years to retirement ages for new hires and reducing cost of living increases) are rather paltry, and fall far short of fixing the problem.   But of course the employee unions are suing to overturn the changes, on the theory that Illinois' constitution protects workers who have been working for as little as one day from ever having their pension formula reduced, even on a prospective basis.

Here in New York City we are up to contributing over $8 billion per year for employee pensions, and multiple additional billions for retiree health care.  The pension contribution alone exceeds the entire take from the city income tax.  New Mayor Bill de Blasio seeks an income tax increase, supposedly for pre-K education and after school programs, but again, nothing will keep the pensions from swallowing the money.  Mayor Bloomberg gave an important valedictory address two weeks ago, using the occasion principally to warn of the desperate need to reform the pensions:

The costs of today’s benefits cannot be sustained for another generation–not without inflicting real harm on our citizens, on our children and our grandchildren . . . .  Simply put, our pension and health care system must be modernized to be sustained.

De Blasio still has not even mentioned the issue.  Is he even aware it exists?

Meanwhile, in the red states, things are going exactly in the opposite direction.  Here is a rundown on eight states that cut income taxes in 2013:  Arkansas, Indiana, Iowa, Kansas, North Carolina, Ohio, Oklahoma and Wisconsin.  States including Kansas, Nebraska and Louisiana are talking about complete elimination of their income taxes.

The stock market has given the blue states a good year, showing returns of around 25% for the major indices.  That has undoubtedly taken off some of the pressure for pension reform in the blue states.  But this is a slow moving problem.  Continued gradual economic advance for the red states, and decline for the blue, is a very safe prediction.

Those interested in the slow relative change going on between red and blue states will enjoy the chart below taken from Steven Hayward at Powerline.  It compares our third and fourth largest cities, Chicago and Houston.  Currently Chicago has 2.7 million people, while Houston has 2.15 million.  In 1970, Chicago had 3.4 million, while Houston had 1.2 million.  Houston has just about caught up from way behind in household income.  And check out how that gun control thing is going for Chicago:  its murder rate is fully four times that of wide-open-for-guns Houston.

UPDATE (January 5, 2014):  A reader points out that Chicago did not have over 1800 homicides in 2012, but rather about 500.  This would translate to a homicide rate of about 18.5/100K, rather than the 38.4/100K in the chart above.  This is about double the rate in Houston, but not four times.  i regret the error.