The Issue No One Is Talking About: Exploding Federal Commitments

Somehow in the political season, there come to be issues of the day that everyone talks about on that day.  These issues can range from the relatively important (e.g., Hillary's breaches of national security while Secretary of State) to the relatively trivial (e.g., Trump's re-tweet of an image of a six-pointed star, alleged to be anti-Semitic).  Meanwhile, as these issues of the day draw away all the attention, everyone's gaze is diverted from what ought to be the main issues.  Even for candidates who constantly protest that they want to get away from whatever they are being asked about right now and "talk about the issues," they almost never want to talk about the really important issues.

For the federal government, in my opinion far and away the overriding issue is:  what the hell are they spending all that money on?  For those not on top of these things, the federal budget for the current 2016 fiscal year (October 1, 2015 to September 30, 2016) is just a hair under $4 trillion (and only a fool would bet on the final total coming in under the $4 trillion by the time things are done).  And the big question is, does the $4 trillion represent intelligent choices of appropriate priorities for the government, or are various programs that have once established a toe-hold now exploding out of control while nobody is paying attention?  

Given the progressive world view of government as the infinite source of costless free money, you would be right to suspect that everyone in the government is only too happy to see spending explode while nobody is watching.  Hey, we're creating perfect fairness and justice here!  Of course, somehow the exploding spending goes for programs just happen to be the domains of the progressive activists and Democratic party supporters.  But it's not corrupt because it's the government!

So let's consider a few examples:

• Student loans.  When Barack Obama took office in 2009, the amount of outstanding federally-backed student loans was $657 billion according to federal data here.  When I first covered the issue in 2012, the total had just hit $1 trillion; and when I returned to the issue in early 2015 it had broken $1.1 trillion.  Now?  The Q2 2016 number is $1.255 trillion.  Oh, and these numbers don't appear anywhere in the federal budget.  A student loan hits the budget only when the borrower fails to pay and the government has to take the loss.  So how much of the trillion and a quarter will actually be repaid?  Just try to find that out.  It used to be that you could look up the "default rate" and get a good idea, but then the government got into granting every kind of deferment and forbearance you can think of -- like "income-based" repayment plans and write-offs of balances for people who go to work in non-profits and "public service" -- so that they could make the "default rate" look small.  Today they claim the "default rate" is down to 11.7%, but that's only because they are hiding millions and millions of borrowers who are going to be excused without repaying in full.  Easily half of the tril-and-a-quarter will not be repaid; and of course, the tril-and-a-quarter continues to grow daily.  Who benefits from this huge handout?  Of course it's the key Democratic constituency of the Higher Education Blob.
• Pension guarantees.  Charles Blahous at E21 writes on July 5 about "The Worsening Pension Problem Nobody Talks About."  This one is the crisis in federally-insured multi-employer pension plans.  Haven't heard of those?  The "multi-employer" plans cover workers in industries with lots of employers of workers who all do the same thing.  The classic example is trucking.  Most of the plans are sponsored by unions.  According to a chart in Blahous's article, when President Obama took office in 2009 the federal multi-employer program was thought to be solvent.  The most recent figures are a "$52.3 billion deficit estimate consist[ing] of $54.2 billion in liabilities against only $1.9 billion in assets."  That was quick!  And believe me, this is just the beginning of an explosion to come.   Supposedly the taxpayers are insulated from having to pay for this disaster through the PBGC, which charges premiums to the plans; but of course, when they set this up nobody took account of the fact that unions gradually put their employers out of business.  So like all government insurance programs eventually, the PBGC is dead broke.  The biggest disaster for the moment is the Teamsters' massive so-called "Central States" pension fund, which is coming close to running out of money.  They have recently been knocking on the government's door seeking the inevitable bailout.  Who benefits?  Another key constituency of the Democratic party, labor unions.
• Food stamps.  When Obama took office in 2009 the number of food stamp recipients was about 33 million, and the annual budget of the program was about $54 billion.  Since then, it's been eight years of economic "recovery."  In the past, food stamp usage increased during recessions and went back down during recoveries.  This time it was the opposite.  Today, the number of recipients is around 46 million, and the budget for the program soared to about $80 billion in 2013, before falling back in 2015 to about $74 billion.  How has that happened?  Part was a loosening of eligibility restrictions, for which the Congress bears much of the responsibility; but a bigger part was overt and aggressive promotion of expansion of the program by the Obama administration.  The good news for this one is that the budget and number of recipients have both declined marginally in the last couple of years.  But why aren't we back down to levels well below where we were in 2009?  Without doubt, this administration believes -- with a good deal of justification -- that recipients of monthly federal handouts are likely to vote for continuation of same.
• Medicare/Medicaid.  According to data available from CMS here, in 2009 expenditures on Medicare were $499 billion and  on Medicaid $375 billion.  By 2014 it was $619 billion for Medicare and $496 billion for Medicaid.  It all just marches forward on autopilot. Obamacare in particular has caused a great expansion in the ranks of Medicaid beneficiaries.  

I could go on, but you get the picture.  The federal government has long left the world of rational consideration of cost-effectiveness of spending, in favor of massive autopilot increases for whatever programs got themselves in the door at some magical historical moment.  Anyway, it's all way too complicated to focus political attention on.  Let's get back to calling Trump a racist!   

What Is The Most Important Thing Disqualifying Hillary From The Presidency?

Of course all the chatter today is about yesterday's big speech by FBI Director James Comey.  Comey first laid down the lay-down criminal case against Hillary for putting her classified emails on a non-secure server, and then said he would nonetheless recommend against indictment because her conduct constituted only "extreme carelessness" rather than (the statutory standard) "gross negligence."  I certainly hope that you understand that critical distinction!

But wait a minute, you say:  How exactly is this "carelessness" at all?  Isn't it obvious to everyone that Hillary used her own private server so that her emails would not turn up on the State Department system when its functionaries were responding to subpoenas or FOIA requests from litigants or the curious public?  If that was her reason, then "carelessness" had nothing to do with this; her conduct was completely intentional.  

Of course Hillary has never admitted that her intent with the private server was to evade legitimate subpoenas or FOIA requests.  But then very few criminals ever actually admit to the intent to commit the crime; and yet intent is an element of nearly all serious crimes, and somehow the prosecutors prove it all the time.  How does this work?  The answer is, most of the time intent is proved with some kind of circumstantial evidence.  For example,  a witness testifies that the accused had a grudge against the murder victim, or that the missing money has turned up in the accused's bank account.  Another excellent form of circumstantial proof of intent is when the accused makes a statement about his intent, and gives a seemingly plausible alternative explanation for what he did; and then other facts emerge that demonstrate that the alternative explanation is clearly a lie.  With the alternative explanation blown up, the only reasonable remaining inference is that criminal intent was present.  Applying this to the case of Hillary, Hillary in a public statement in March 2015 gave as the reason for the private server that she "didn't want to carry two devices."  Multiple sources (including Comey yesterday) have since revealed that at various times she had up to four devices.  The alternative explanation was a lie.  QED.

So we have a presidential candidate who is perfectly willing intentionally to compromise national security, up to and including "top secret" information, in order to evade legitimate FOIA requests.  That seems rather disqualifying for someone seeking to be President.  

But is this the thing about Hillary that is the very most disqualifying for her presidential ambitions?  It's a hard one to top, but I have a candidate:  Hillary has literally no idea how the economy works.  Like all good progressives, she does not understand that wealth is generated by the hard work of the people in the presence of property rights, freedom of exchange, and the rule of law.  Instead, she thinks that the wealth comes from the tooth fairy; that government taxing and spending is costless;  and that it's up to the government to distribute the free money in a way to create a world of perfect fairness and justice.  The idea that this agenda might have the side effect of undermining incentives and wealth creation and impoverishing the people has literally never occurred to her.

Am I being too harsh?  As with proving criminal intent, we can only proceed by circumstantial evidence.  But I think that the circumstantial evidence here is sufficiently damning to meet the standard of "beyond a reasonable doubt."  I'll start with Hillary's website, and particularly the part titled "A plan to raise American incomes":

• First, is there a single place here (or elsewhere on her website) where you can find any recognition that the wealth and success of the United States has come from the hard work of the people instead of from the government?  If there is, I can't find it.
• The first thing that Hillary will do as President (according to her own statement): "Give working families a raise . . . ."  Nothing to it, I guess.  It's just all free money coming from the government.  Hillary thinks she can make Americans richer by passing out government money.
• Next item in her list: "Create good-paying jobs and get pay rising by investing in infrastructure, clean energy, and scientific and medical research to strengthen our economy and growth."  That's right, "good paying jobs" in Hillary world are all funded by government spending.  Try to find a counter-example on her website.
• How about the "New College Compact."  Under pressure from the forces of Bernie, Hillary now proposes free college for all, or almost all.  Cost?  $350 billion, according to her website.  Whew!  But don't worry, it's all free money.  Does it ever occur to Hillary that with $350 billion to blow, the state universities will just raise their prices and make it all disappear?
• Take a moment to focus on that part that says "investing . . . in clean energy."  Recognize that the government does not need to invest a dime in energy for the U.S. economy to provide all the energy that it uses at the lowest cost that anyone can find.  "Investing in clean energy" is obvious code for spending government dollars to subsidize environmentally-correct renewables produced by government cronies at uneconomic cost.  This is what competent economists call "wealth destruction."  Does Hillary know or understand that government subsidies to uneconomic businesses destroy the wealth of the people and the country?  I can't find any recognition of that anywhere.

Not convinced yet?  Then consider Hillary's involvement in Haiti.  I previously covered that subject here.  You will recognize Haiti as one of the very poorest countries in the world, with a per capita GDP at the unbelievably low level of under $1000 in the listings of all of the IMF, World Bank and UN.  (By comparison, U.S. per capita GDP is about $55,000.)  But Haiti is literally the world champion of foreign aid.  You will find more statistics at the link, but at times foreign aid to Haiti has equalled or exceeded its entire annual GDP.  If foreign aid or other handouts from government worked to raise people's incomes, Haiti would be one of the richest countries in the world.

What you may not know is that after Haiti's big earthquake in 2010, the Clintons -- both Bill and Hillary -- made Haiti specifically their baby in a massive push to improve conditions.  Bill made Haiti the big project of the Clinton Global Initiative.  Hillary as Secretary of State saw to directing massive new government foreign aid flows to Haiti.  Both Bill and Hillary have made multiple trips to Haiti to showcase their efforts.  And what do they have to show for it?  After six years of massive spending, Haiti is literally as poor as ever.  The money just disappears.

Have you heard Hillary so much as mention Haiti in her campaign?  You can understand why she wouldn't want anyone focusing on it.  On the other hand, would you think that she might be capable of learning from the experience what works and what doesn't in economic policy?  I know that the evidence is circumstantial, but I have no doubt that she still thinks that more and still more foreign aid and government handouts are sure to work sooner or later to make people wealthy.  So she proposes programs for the United States that are the analogs of what has worked so well in Haiti.  For me, this is more disqualifying than mere compromise of national security.         

Update On Ridiculous New York Crony Capitalism

I don't watch a lot of television, and most of that is news shows.  But in the little television that I watch, it seems like far and away the biggest advertiser is the State of New York, on behalf of a program called "Start-Up New York."  Watch a half hour of news in the evening in New York, and you can easily see three of these ads.  The message is, we're creating lots of great new jobs in upstate New York by handing out tax exemptions for exciting new start-ups!  The videos show attractive young people in obviously new and clean facilities, wearing some kinds of trendy clothes or lab coats and looking very, very high tech.  Of course the cynic in me cannot help thinking, why are they spending all this money on advertising for this?

You don't have to be a genius to predict that this program will inevitably be a disaster -- at least for the taxpayers.  Thankfully, the Legal Insurrection website over the weekend put out a compilation of the latest information.  That post in turn relies substantially on this article from the Ithaca Journal.  It seems that the state put out a report on the program -- late on Friday afternoon going into the July 4 weekend.  Really, that already tells you all you need to know.  No matter how bad you thought it might have been, it's worse.  The Legal Insurrection headline is "Much-touted Start-Up New York programs spent over $53 million to create just 441 jobs."  And the sub-headline is "And it's only going to get worse."  Excerpt:

Governor Andrew Cuomo’s “tax-free” plan to bring technology jobs to New York has long been considered a failure, and buried in Friday afternoon’s holiday weekend document dump is a report that demonstrates the degree of the latest NY boondoggle’s failure.  

The Ithaca Journal has this to say about the timing of the state report:

The report from Empire State Development, the Cuomo administration's economic-development branch, was released Friday evening ahead of the holiday weekend, a time notorious for government agencies to release unflattering news.  It was more than 90 days late: By law, the report was due March 31.

So what has the $53 million gone for?  Again, from the Ithaca Journal:

The state has spent tens of millions of dollars promoting the program, including $53 million from late 2013 to early 2015. The bulk of that cost was spent on seemingly ubiquitous television advertisements.

Yes, basically all the state money has gone for the ads.  And the (pitiful) results:

In some regions, the report showed few results in the first two years, including the Southern Tier, which saw nine companies in the Start-Up program create seven total jobs. The six Start-Up companies at Binghamton University combined to create a single job in 2015.  In the mid-Hudson region, which stretches from Westchester County north to Sullivan County, Start-Up businesses created five jobs last year — all in Kingston.

And the amount of private investment?

So far, 159 companies have been approved for the program, including 102 that are new businesses. Together, they invested $11.4 million in New York in 2015 and received $1.2 million in tax benefits.

Of course the tax benefits will go on for years, so it's impossible to calculate how much the taxpayers will pay for each job "created."  But it's already around $125,000 per job before the tax benefits really even get going.

Well, there's one thing that can be said about this program, and that is, it's not as big a disaster as the "Buffalo Billion."  That's the program under which Governor Cuomo proposes to "invest" $1 billion or so of state taxpayer funds in Buffalo to turn around that long-struggling city.  Oh, it seems that the lion's share of the billion is going to just one company, SolarCity, a company (supposedly) engaged in manufacturing and installing solar panels on people's houses.  I say "supposedly" because the factory -- basically built at taxpayer expense for the Elon Musk-led company -- is still not finished, and the smart money is betting that it never will go into operation.  In this post in February I noted that SolarCity was near bankruptcy.

But wait!  A couple of weeks ago, Tesla (another Musk company) announced that it was buying SolarCity!  Huh?  The Wall Street Journal "Heard on the Street" column immediately said that the deal "defies common sense" -- why would a cash-hungry money-losing electric car manufacturer want to buy an even more cash-hungry money-losing solar panel manufacturer?  From the WSJ:

Both businesses, for different reasons, are cash hungry. In the past four quarters  alone, Tesla burned up nearly 50 cents of cash for every dollar of sales it made. But it was practically the U.S. Mint compared with SolarCity which burned nearly $6 for each dollar of sales.

Of course the obvious answer is that, with SolarCity looking like it was about to go bust, the State of New York was getting skittish about paying off the remainder of its $750 million investment in the factory.  Tesla continues to be a market darling, and now, with Tesla in the loop, presumably the state investment in SolarCity's factory will go through.  Of course Tesla is also totally dependent on government subsidies and handouts to have a viable business model.  It's just one form of wealth destruction versus another.  The wealth destruction, of course, is for the taxpayers.  Not for Musk.  And not for the construction contractor on the factory, LP Ciminelli, which, as the New York Times points out in this article from May, was a major Cuomo campaign contributor.  Oh, and the bidding documents for the construction project seem to have been written so that the only contractor who could qualify for the job was Ciminelli.  

Things That Aren't "Sustainable": Socialism, Obamacare

It was just over a year ago that Manhattan Contrarian won the award for the "World's Most Sustainable Web Site."   OK, admittedly we gave the award to ourselves, but nevertheless it was richly deserved.  For example, as noted in the linked post, unlike Barack Obama we did not fly to Florida on Air Force One to give a speech celebrating Earth Day; and, unlike Leonardo DiCaprio, we did not take six flights on private planes within one month.  That's true sustainability!

But if you are following the news on the subject of "sustainability," you have undoubtedly noticed that the word has become more and more separated from any connection it may once have had to the root "sustain."  Indeed, you could be forgiven for concluding that, as currently used by the forces of the environmental Left, the word "sustainability" means something more like "imposing new regressive taxes in order to further lower the living standards of low income people."  For example, if you go to the "sustainability" section of the web site of prestigious Yale University, you will find that Yale believes it is achieving "sustainability" by joining something called the Global Carbon Pricing Leadership Coalition.  What is the GCPLC?  It is the cabal among the likes of the World Bank, the IMF, governments and non-profits seeking to jack up the price of energy for everybody else, including the poor and low income people of the world:

Yale will become the first university member of the Carbon Pricing Leadership Coalition (CPLC), a private-public partnership among the World Bank, International Monetary Fund (IMF), governments, nonprofits, and private sector companies to strengthen carbon pricing policies. . . .  

And why stop with energy?  How about still further impoverishing the poor by jacking up the price of food?  Actually, our friends at the U.N. have exactly that as their next plan -- all in the name of "sustainability" of course.  Consider this article from June 30 at the Washington Post's wonkblog, advocating intentionally increasing the price of food, particularly the price of red meat, because meat is not sufficiently "sustainable":

Maarten Hajer, professor at the Netherlands's Utrecht University, led the environment and food report that recommended the meat tax.  “All of the harmful effects on the environment and on health needs to be priced into food products,” said Hajer, who is a member of U.N.’s International Resource Panel, which comprises 34 top scientists and 30 governments. “I think it is extremely urgent.”

Before we get too far here, perhaps we should step back and consider the original meaning of the term "sustainable," and what it would entail under that meaning for something to be truly "not sustainable."  According to a standard dictionary definition, something that is not sustainable should be something that cannot "be maintained at a certain rate or level."  In other words, a thing or process is "not sustainable" if it is on an unavoidable glide path to oblivion, i.e., a "death spiral."  And of course, when you think of death spirals, the first thing that comes to your mind is socialism.  

As you well know if you spend time trying to observe the world (or if you are a regular reader of this website), economies, or parts of them, that are organized on a socialist model inevitably go into death spirals.  For an introduction, check out posts here and here.  The one sentence version is that, when it's "from each according to his abilities, and to each according to his needs," rational people organize their lives to decrease their abilities and increase their needs.  Thus productivity gradually declines, at first slowly and then faster, unto the inevitable collapse.  Importantly, though, governments engaged in socialist policies have numerous tools available to conceal the early stages of the decline, so that when the collapse comes it appears to hit all at once.  An excellent example of this process is currently unfolding in Venezuela.  And yes, the government of Venezuela put out cooked economic statistics purporting to show rapid growth right up through 2013, when they just stopped reporting any economic statistics at all.  (Their main fraud was reporting all government spending, no matter how wasteful, as a 100% addition to GDP.  Our government practices the exact same fraud.)

Is there any example of such blatant "death spiral" unsustainability going on in the U.S. right now?  Well, there's Obamacare.  That's the program where we pretend that it's possible for people who are already sick to buy "health insurance" by the government decreeing that it be so. We'll just have "guaranteed issue," by which rule a health insurer must accept all customers who present themselves, no matter how sick they may already be.  It's just like fire insurance, where insurers are happy to sell you an "insurance" policy after your house has already burned down -- not!!  Anyway, nobody would game this "guaranteed issue" thing and wait until they got sick to buy the insurance, would they? 

That brings us to the great article in yesterday's Wall Street Journal, headlined "UnitedHealth Sues Kidney-Care Chain."  It seems that American Renal Associates is a company that provides dialysis services to patients whose kidneys have failed.  ARA would like to charge some $4000 per dialysis session to patients.  Since patients who need dialysis require about three sessions per week, this would mean that each patient would represent about $600,000 per year in revenue to ARA.  But some of these patients were previously uninsured, and still can't afford the premiums.  No problem.  ARA has created a "charity" called the American Kidney Fund, and contributes to the "charity" (tax deductible of course!), which in turn makes grants to fund the Obamacare premiums of patients on dialysis.  So some patient goes uninsured until his kidneys fail and he needs dialysis, then finally buys an Obamacare exchange policy under "guaranteed issue" and gets his premiums of about $10,000 per year paid by the "charity"; and then UnitedHealth from then forward must pay $600,000 per year to ARA.  Somehow UnitedHealth doesn't think this is a good idea, and has sued ARA for "fraud."

Whatever you may think of UnitedHealth's claim against ARA, it's not hard to see how this is something that can't go on for long.  It's unsustainable!  But why hasn't the unsustainability manifested itself yet?  Writing in Investors Business Daily on July 4, Sally Pipes points out that it's the usual government deception.  The Obamacare statute came complete with various subsidy programs designed to cover over and hide the statute's losses for several years until the law could become entrenched.  One of these programs is called the "reinsurance program," although, as Pipes points out, the word "reinsurance" is a complete misnomer -- this is no more than a federal handout to health insurance companies.  Pipes:

The "reinsurance program," on the other hand, is just a federal handout. If an enrollee's medical bills cost an insurer between $60,000 and $250,000, the government picks up part of the tab.  Originally, the feds planned to pay 80% percent of the cost within that window. But in 2014, they made the program more generous -- by paying 100% of costs between $45,000 and $250,000 per enrollee. They gave out almost $7 billion that year.  As the Mercatus Center study concluded, ObamaCare has depended on these subsidies to keep the exchanges from collapsing. Without the reinsurance program, premiums in ObamaCare's first year would have been 26% higher than they were.

But these statutory subsidies run out in 2017.  It's just in time for Obama to leave office, and leave the problem to somebody else.  As usual with the unsustainable socialist death spiral, the government covers over the problem during the early stages of the decline, and then when the government cannot continue the deception any longer, everything falls apart all at once.

And the kidney dialysis issue is just the tip of the iceberg of the gaming of Obamacare's "guaranteed issue" provisions.  For another example, see this post from April 11 on so-called "short term" health insurance policies.

How long can a socialist death spiral go on before the final collapse?  For the Soviet Union, it was 74 years.  Chavista Venezuela has only been 18 years so far, and the end already appears to be near.  Cuba is at 56 years.  North Korea is at 71 years.  Compare those to the eating of red meat or burning of carbon-based fuels by humans, both of which have been going on for many millennia and don't seem to be heading toward any kind of imminent denouement as far as I can see.  I'd be willing to bet on either of those outlasting any socialist economic system by easily thousands of years.  I'd say it's rather obvious which is "sustainable" and which not.  

Government Spending That Is Not Cost-Effective Makes The People Poorer

In your family, you have a limited budget.  If you spend some of your money wastefully, that means that you will not have enough left for your higher priorities.  It is obvious to you that wasteful spending makes you poorer.  So you are careful to spend every dollar effectively. 

And then you have the progressive vision of government as the source of perfect fairness and justice through government spending.  The money comes from the tooth fairy.  Spending on favored progressive causes is a moral issue -- how could you be so cruel and callous as even to consider cost-effectiveness of spending when we are dealing with values as fundamental as fairness and justice?  Try to find any example of a progressive considering the issue of whether wasting public money makes the people poorer.  And thus we get, for example, the folly of "affordable housing."

"Affordable housing" has been in the news this week in several suburban and rural jurisdictions around New York.  Read anything you can find on the subject, and you will find one hundred percent acceptance by all participants in the discussion that the building of "affordable housing" through some kinds of government support or subsidies is a good thing and indeed some kind of moral necessity.  Has anybody (other than yours truly) ever asked whether this government spending is cost-effective?  If it has ever happened, I can't find it.

Now, recognize that in the suburban jurisdictions the cost-ineffectiveness of the "affordable housing" is not nearly at the extreme level that we see in Manhattan.  Only in Manhattan do we hand out to poor people apartments that, if in the private market, would have values in the range of $3 million to $5 million each -- meaning that we provide these "poor" families with annual subsidies in the range of $150,000 to $250,000 per family.  And yet, because these families continue to have little to no cash income, we continue to count them as "poor."  It seems almost inconceivable that the taxpayers could spend $250,000 per year to subsidize some families, only to have them remain poor.  That's what you get when you spend taxpayer money out of guilt without considering cost-effectiveness.  But just because the suburban "affordable housing" programs are not as financially disastrous as their Manhattan counterpart does not mean that they could remotely make sense if cost ever got considered for a moment.

Anyway, out in New Jersey, affordable housing is in the news this week.  New Jersey has long imposed state mandates on its municipalities to generate affordable housing within their borders, supposedly enforced by a state agency called the Council on Affordable Housing.  But according to the Wall Street Journal on June 27, in 2015 the state Supreme Court found that the Council had failed to enforce the appropriate requirements, and stripped it of its powers.  That sent the matter to the state's appellate division court, which is expected to rule shortly on the extent of the responsibility of municipalities for failure to generate affordable housing during the period 1999 to 2015, when the Council was said to be falling down on its job.  The pending appellate division decision has set off a debate between those who consider "affordable housing" a moral necessity versus those who want to "preserve the character of our towns."  Of course, neither side even mentions the critical issue, which is cost-effectiveness.

As an example, for the side of "moral necessity," we have Richard Smith and Christian Esteves writing at nj.com for the Newark Star Ledger on June 6:

We are confronting a moral reckoning in New Jersey.  The Garden State remains one of the most segregated states in the country — where too often the color of one's skin determines a person's future.  This system of de facto segregation is undergirded by a long history of exclusionary zoning practices by suburban municipalities seeking to keep low-income residents confined to struggling inner cities, where they are unable to take steps toward achieving the American dream in the form of safe neighborhoods, good schools and access to jobs.

OK, Richard and Christian, if as you say the answer to lifting the poor out of poverty is to provide them with government-subsidized "affordable housing" in previously segregated communities where they can then "take steps toward achieving the American dream in the form of safe neighborhoods, good schools and access to good jobs," then can you kindly look right across the river to your neighbor Manhattan and explain to us why tens of thousands of people on that little island, supplied with multi-million dollar subsidized "affordable" apartments in the richest county in the country, still remain mired in poverty for decade after decade?

For the other side of the debate, the Journal quotes one Jeffrey Surenian, an attorney for the town of Barnegat in the litigation before the appellate division, who is seeking to minimize the obligation of his client to make up for affordable housing not built in the 1999 to 2015 window.  His argument:

“If the numbers are so high that every site has to be zoned for affordable housing, that is a huge infringement on how the municipality is ultimately developed,” Mr. Surenian said. “You could have sites that are developed at densities 10 times greater than they were originally planned for.”

OK, but how about pointing out that subsidized "affordable housing" costs a fortune in taxpayer subsidies for a small number of beneficiaries, and then, instead of helping them escape poverty, it traps them in poverty for life?  Somehow, no one thinks of that argument.

The Journal article does not get into any detail on the economics of so-called "affordable housing" in New Jersey.  But in Connecticut, where I am now sojourning, an article in the current (June 30) issue of the Lakeville Journal (sorry, this particular article does not seem to appear on their website) gives us the details of the economics of one "affordable housing" project in this jurisdiction.  The article has the headline "Sharon Ridge," and is authored by the former vice-chair of the Sharon Housing Authority, Lea Davies.   

For those who have not heard of the place, Sharon is a rather tony town of only about 3000 people in northwest Connecticut, most famous as the long-time home of the Buckley clan (William F., James, et al.).  The mansion where the Buckley brood was raised sits right on the main drag just south of the town green.  (It looks rather stately, but actually has long been carved up into condominiums.):

But yes, even in remote Sharon, they have government-subsidized "affordable housing."  Ms. Davies writes to brag about the recently-completed 12-unit addition to the Sharon Ridge project. Here is her statement of the economics:

Development costs were approximately $4 million.  The land was already owned by the SHA and zoned for additional building lots, simplifying the process enormously.  Government funds for a project of this size were essential to ensure a financially feasible project.  The SHA received a grant of more than $3 million from the state of Connecticut.  In addition, the SHA obtained a $1 million, 30-year loan (at a 3.5 percent annual interest rate) from the United States Department of Agriculture (USDA) Rural Housing Program.  Of paramount importance was the USDA providing annual rental subsidies for the new units, making them even more affordable.  

See that -- it's as good as free!  A $4 million cost, paid for with a $3 million state grant (free!) and a $1 million federally-subsidized loan (almost free!); plus ongoing operating costs substantially paid for by ongoing federal subsidies (free!).  Or alternatively, we can do a little simple math: $4 million for 12 units comes to $333,333 per unit.  Oh, but they already owned the land, which somebody must have paid for.  So say, about $400,000 per unit.  Plus ongoing operating costs.

Go to websites for real estate listings, like Zillow or Trulia, and look for the town of Sharon.  Even in this tony town, you will find about a dozen listings for houses for sale under $300,000, including several under $200,000.  Check under the adjacent (less tony) town of Canaan, and you will find several dozen listings under $250,000.  From the pictures, these places look perfectly pleasant, if modest.  So why exactly are the taxpayers spending $400,000 per unit, plus a lifetime of operating subsidies, to construct new "affordable housing," when there is plenty of perfectly good housing on the market at half the cost?  The only reason I can think of is, so that some bureaucrats can get bigger empires and more staff and growing budgets.

But why should we care if it's all "free"?  Somehow Connecticut, while getting big kicks out of passing out the "free" money for progressive moral crusades, has taken itself into a dead end of endless budget crises and economic stagnation.  Do you think the two might somehow be related?  Well, at least they don't spend $5 million per unit on their "affordable housing" like we do in some spots in Manhattan.

The McDonnell Reversal And Its Implications

On Monday the Supreme Court unanimously reversed the "honest services fraud" and "Hobbs Act extortion" convictions of Bob McDonnell, former governor of Virginia.  Please recall that I predicted this result on May 3.  (OK, I admit that I only made the prediction after the oral argument at the Supreme Court, where justices from both the liberal and conservative wings raked the government's lawyer over the coals.  But I did note that the McDonnell prosecution was "one of the flimsiest" of many flimsy federal phony prosecutions of recent years.)

The Supreme Court's opinion is here.  It's unanimous, written by Chief Justice Roberts, with no concurrences.  Mostly it's a lot of technical parsing of the meaning of the term "official act" as that term appears in the federal bribery statute, 18 U.S.C. Section 201.  But, you say, McDonnell wasn't even indicted or convicted under that statute and the term "official act" does not appear in the statutes under which he was convicted; how is this even relevant?  That's just an illustration of the sad fact that today you can't get any idea what you can and can't do in this country without reading all the Supreme Court opinions.  If you had read the Skilling opinion of 2010, you would know that the Supremes saved the "honest services fraud" statute from being declared void for vagueness by importing into it the restrictions of the bribery statute, 18 U.S.C. Section 201.  It's more than a little odd, because the bribery statute only applies to bribery of federal officials, and McDonnell was a state official.  

Whatever.  The government accepted that it had to prove an "official act" done as a quid pro quo for some kind of payment.  The government's allegations were that, in return for various personal gifts from a contributor (amounting in total to some $175,000), McDonnell agreed to set up meetings with government officials (executives of the state university), hosted a meeting, and followed up with those officials to urge them to make a decision on the contributor's requests.  But ultimately the UVA officials declined to do what the contributor was requesting.  The "official acts" were setting up and hosting the meetings and following up to get a decision.  After extensive parsing of the term "official act," Roberts finds that merely setting up meetings and following up don't meet the test.  Here's how he describes the fundamental problem:

[C]onscientious public officials arrange meetings for constituents, contact other officials on their behalf, and include them in events all the time. The basic compact underlying representative government assumes that public officials will hear from their constituents and act appropriately on their concerns. . . .     

Or to put it another way, if McDonnell was guilty of "honest services fraud," then literally every other elected politician in the country is equally guilty.  Is there actually a single sitting politician in the country who has not agreed to set up a meeting or follow up with a bureaucrat for a decision on behalf of some campaign contributor?  Sure, McDonnell's conduct was rather "tawdry" (to use Justice Roberts' term), particularly in the size of the gifts and the fact that they were personal (as opposed to contributions to the campaign).  But the statute doesn't make guilt or innocence turn on some visceral reaction to the "tawdriness" of the conduct or the size of the donation; if what McDonnell did constituted "official acts," then he would have been equally guilty if all he got was a $1000 campaign contribution.  And really, even at $175,000, he was small time compared, for example, to the New York politicians who take millions of dollars annually from the teachers unions in return for favorable organizing legislation, keeping contracts in force after expiration, suppressing charter schools, making it impossible to fire a teacher, and so on.  Why aren't those New York pols prosecuted?  (Hint: McDonnell was a Republican in a swing state, the prosecutors were working for Barack Obama, and the prosecution helped to swing the governorship of Virginia to the Democrats; in New York the teachers unions contribute almost exclusively to the Democrats, and the relevant prosecutors are all Democrats.)

Which brings us to the case of Dean Skelos, recently (until his federal indictment on bribery and extortion charges) Majority Leader of the New York State Senate.  At the time of his indictment in May 2015 I called the charges against Skelos "remarkably thin."   He was accused of leaning on some of his contributors to give some employment to his son, and at least a couple of them did give him at least some employment.  Skelos was convicted in December and currently remains free on bail pending his appeal.  His lawyers did a good job preserving the "official act" issue for appeal.

Looking at the indictment (not available online without a subscription as far as I can find) and the decision of the District Court denying a motion to dismiss the indictment, I can say that much of the guts of the conviction have now been undermined.  However, I can't confidently predict a full reversal.  In her decision on the motion to dismiss, District Judge Wood relies at multiple points on the Fourth Circuit's decision in McDonnell, now unanimously reversed.  Then there is this from her opinion on that motion:

[C]ourts interpreting "official acts" in the context of bribery and extortion have held that "official acts" encompasses such conduct as: . . . taking steps to promote and ensure the success of a business venture, including corresponding with officials and investors who might be helpful, scheduling and conducting meetings, and seeking to secure contracts on behalf of the business . . . .   

I'd say that's now dead wrong under McDonnell.  The single most important thing that Skelos was alleged to have done was to lean on his friends with the Nassau County legislature to approve a contract with a company that employed his son.  But Skelos had no position of any kind with Nassau County.  The Supreme Court's decision does not explicitly address how such a thing could constitute an "official act" of Skelos, but really, how could it under Roberts' parsing of that term?  

But there is an allegation in the indictment that Skelos threatened to block legislation favorable to one or more of the entities that he wanted to employ his son.  I can't say how that one came out in the evidence without reading the trial transcript, which I don't have.  So there is at least some chance that some part of the Skelos conviction may survive.

For what it's worth, I don't think that the conviction of Sheldon Silver is threatened by this decision.

To all those wringing their hands over the fact that conviction of corrupt pols has now become that much harder, I say, it's no solution to make the conduct of every politician criminal and then leave it in the hands of supposedly fair and neutral prosecutors to only go after the really bad guys.  The prosecutors are not fair and neutral, and if given discretion to convict essentially anyone they want, they will use that discretion to convict politicians of the opposite party holding swing positions so that a governorship or a legislative body can be swung to the political party of the prosecutor -- in other words, exactly what has happened in the cases of McDonnell and Skelos.  Do you really want to do something about corruption in government?  There is only one solution:  shrink the government.