Recession- We’re All In This Together

By Cliff Moore  Jun 18, 2010

The $0.44 Problem

Feb 3, 2012

The New York Times reported on Feb. 3, that according to the Commerce Dept., of every dollar earned in America during the third quarter of 2011, only 44 cents went to worker's wages and salaries. They say it's the smallest amount since record keeping began in 1947.

The government also says that the effective taxes charged US taxpayers is the lowest it's been since 1950.

So, who is getting that 56 cents? Not me. But siomebody is, and it contributes to the sense of income inequality that has occupied political discussion lately.

Meanwhile, some good news: Unemployment is down to 8.3%, with 243,000 new jobs added during January.
 

 The Margin Call

Nov 23, 2011

If you have been trying, like so many of us, to imagine what was going on in Wall Street as the market tanked in 2007, I can recommend seeing the movie "The Margin Call," staring Kevin Spacey and Jeremy Irons, among others. This is an incredible movie, more about acting than movie making, in which the characters live through a 24-hour period in which their company - think Sherson Lehman - discovers to their corporate horror, how over-extended they have become and how few their options are. Using mortage instruments as a media for their own destruction, they learn what the audience understands, just what it is they have done. None of the characters are bad people or evil people. But they've grown used to the big bucks, the perks, the helicopter trips and the limousine rides home, and it all unravels. It's kind of like seeing a slow motion train wreck, or the Titanic disaster from the viewpoint of the captain. Bracing. I recommend it.

The Price of Gas
October 5, 2011

If anyone is wondering how we're doing, they only have to look at the price of gas; in some parts of the country, regular is below $3.00 a gallon for the first time in a very long time. In Kindle Park, where I just filled my tank, it was $3.24. Ten days earlier, it was $3.38. This is not a good thing.

Why? Because economists have been arguing that the easiest marker of our economy is the price of fuel. The price of gas is the result of supply and demand. Supply, we have been reliably told has been more or less steady in recent post-Katrina days, even though Americans now compete in a global market with India and China for oil.

So, if the price is down, that means the demand isn't there, another sign that business is off and likely to stay that way for some time.

If all else is equal (it rarely is) and prices head north, then look at that as a sign of recovery.

Recession of 1937
Aug. 8. 2011

Google "Recession of 1937." When you have read it you will know more than our current Congress knows about why the economy is tanking. As a consequences, Congress has earned the lowest rating, at 82%, that it has ever had since records were kept more than 40 years ago. They earned it.

This double dip phenomena is the result of continued chronic unemployment, nominally at 9.8%. The real figure, some say, is closer to 15% and is the result of unemployed workers who have been unemployed beyond their benefits and have thus disappeared from the statistics.

Forget the national debt, which the Tea Party pundits say is the biggest threat to America: there can be no doubt that real recovery will not happen until more Americans are back to work at real jobs.

If you know that, then you know more than your average Congressman.

45.753 Million Americans Now On Food Stamps

August 5, 2011

The term dead cat bounce is based on the old saying that "Even a dead cat will bounce if it falls from high enough." A couple of years ago some economists had been predicting a shallow recovery if nothing else happened. Now they are saying it will be "W" shaped, with a much longer recovery as a consequence of Washington's political posturing, not to mention the fact that the Great Recession is world-wide and we work, live and sell to a faltering global economy.

If anyone wants evidence that we are about to experience the "dead cat bounce," they have only to look at the latest numbers from Washington: 45.753 million Americans now depend on food stamps - up a whopping 2.5% from last month. Furthermore, the unemployment figures are stuck stubbornly at 9.8%.

Why is that? First of all, because record numbers of baby boomers have lost their jobs and are not likely to find new ones as employers prefer hiring younger employees. Even though some of these baby boomers have found a "safe" haven of sorts by aging out into Social Security, the numbers of middle-aged unemployed workers is so enormous and jobs for which they are qualified so few that many of them have been forced out of their homes - witness rising forelosures. Some say that for every open job there are ten people looking for work.

Last year, despite the fact that 8% of its income is from undocumented aliens who cannot withdraw from it, the Social Security system for the first time paid out more than it took in. Think about that.

Secondly, one of the largest groups of unemployed are former public sector workers, such as the 4,000 FAA workers "furloughed" when Congress passed its cheesy, inadequate, short-sighted, and ultimately worthless solution to the worst economic crisis since the Great Depression. Hundreds of thousands of local, state and federal jobs have been eliminated, not to return (at least not to return in the lifetime of those employees).

The consequence is 9.8% unemployment. What does this mean? Those unemployed workers will no longer be paying taxes into the system. Instead, they will be lining up for food stamps - witness the 2.5% surge. They will also be lining up for Medicare and Medicaid in record numbers, as older unemployed workers tend to have more illnesses than younger workers. They will not being stuff, even cheap stuff made in China the way they had been. All of this will cost taxpayers more in the long run. But, as they say, in the long run, we'll all be dead. Someone should tell that to Congress, which today's Doonsbury cartoon called, "surprisingly affordable."

Some of our local Congressmen have been sending self-congratulatory emails to the press for having passed this legislation. One such message assured readers that the consequence of this legislation is that more Americans will find employment. Maybe we should vote them out.

What’s Mine Is Mine And What’s Yours Is Mine

May 10, 2011

Much has been said over the years, God knows, about taxes in New Jersey. At every election the voters – and taxpayers generally - are told how awful our taxes are. In particular politicians tell us with tones of shocked horror mingled with pity, that we taxpayers are paying the highest property taxes in the country. Just imagine!

And yet, they seem to have left something out. They’ve left out the part were they’re supposed to tell us that NJ is the only state in the country in which 100% of municipal services – including schools - are paid for by property taxes. They also leave out the part where they tell us that NJ is generally the highest income state in the country, with consequently higher real estate costs. How could we not be paying high taxes?

Actually, according to economists who have studied it, when all state taxes, including income tax, property taxes and the myriad excise taxes, are added up and compared to taxpayer income, we actually are only 23rd highest out of the 50 states, solidly in the middle. And yet the myth persists because, unlike taxpayers in other states, we get our tax bill in one nausea-inducing bill. And will someone please tell me why in the world should I be paying more sales tax for a Big Mac than I would for a $2,000 mens’ suit?

The basic problem seems to be the issue of Home Rule, one of the oddities of NJ governance. No other state seems to have it to the degree that we do. It accounts for the fact that we have far more school boards than we have towns and cities. Home Rule exists for a reason lost in the mists of time (but Google “Horse Neck Riots of 1734” if you want to know where it started). But the key consequence of Home Rule is that municipalities raise revenue from property tax, with increases capped at 2%. The State, in turn, raises revenues from sources as varied as income tax, the second lowest gasoline tax in the nation, taxes on telecommunications, business taxes, gambling taxes and so on. The difference is: the state keeps what they have levied and whimsically grants amounts which vary from year to year to municipalities to be used for schools, fixing roads, or whatever.

Towns such as Montgomery and Rocky Hill submit budgets to be approved by the Dept. of State. Any municipality that has been well run, with low debt and a nice surplus, will often pay for its competence by seeing less Municipal Aid from one year to the next. But who knows, maybe, for no given reason at all, they may, as they have done in the past, actually grant more in one year than they did previously. It happens. There doesn’t appear to a reason. There’s whimsy for you.

Unfortunately, the 2% Cap is applied to the amount raised by the property tax levy: if Montgomery got by on a total budget of $100 last year, for instance, $20 from the State and $80 from the taxpayers, the cap is applied to the $80. So, if this year, the State only grants $15, the taxpayers will still have to cough up $80 plus 2%, or $81.60. The Township would have to get by on $96.60 instead of $100, and the taxpayers will still see a tax increase. Furthermore, the State will want to see that the Township has spent its surplus before it approves the budget at all.

In the other words, the State operates on the principal, “What’s mine is mine and what’s yours is mine.”

Other states with lower property tax rates use systems in which state revenues are earmarked in definable ways. Schools, for instance, are generally run by a county-wide school board, and paid from municipal property taxes, county property taxes, and state funding. Typically, states with income taxes receive 60-65% back from the state, to be applied to the schools. In New Jersey, towns such as Montgomery are lucky to get as much as 30%. Even so, each year it seems to be less money back than taxpayers pay in. The result: property taxes don’t decline, but services as mundane as pothole fixing have suffered.

When mayors and town managers brag that they have kept taxes flat they are more often than not, making a virtue of necessity. They keep taxes flat by cutting services because the state gives them no choice.

How can this be fixed? The current system can only be fixed with a constitutional change. It seems unlikely that anyone in Trenton has an appetite for such a thing, which requires courage, commitment, and skin a lot thicker than our current governor has.

So, what we will continue to see is the ever appalling spectacle of our legislators, grown men and women, rearranging deck chairs on the Titanic, all the while decrying our ruinous property taxes, while doing nothing of substance to change a system which has failed us.

If It Aint’t Broke Don’t Fix It

Jan 23, 2011

When My Aunt Alice was buried 20 years ago, there were about a dozen or so Atco Township police officers milling around the funeral home. I learned from my cousins that they were there because they had all been her students when she taught third grade and wanted to honor her for that. How do you quantify a teacher with that kind of lasting moral authority and social impact? There seems to be no better standard than life itself.

What brings this to mind is the latest maunderings from Governor Christie who has now declared war on tenure for teachers. This is a popular and perennial sport among politicians, and I can only guess at it’s source; perhaps they had in mind some long-ago well-loathed incompetent, lurking in some miserable Dickensian brick-pile from their miserable, long ago youth. Who knows? The governor says it’s a cost-saving measure: after all, why should taxpayers pay for poorly performing teachers?

This all sounds like part of the governor's "Race to the Bottom," which features such items as dumbing-down state requirements for school superintendents so that anyone with a BA or BS degree in any subject, with no experience at all can now become a superintendent of schools. Is this a great country, or what?

Among the statistics in the latest report card from the NJ Dept. of Education, is one listing the number of students in need of “Individual Education Programs;” some 13% of Village Elementary Students have been classified as such. How can this be?

Under the governor’s scheme, one supposes, any parent making enough noise could declare a teacher incompetent and start the process of having that teacher removed without any other cause at all. Imagine if the parents of all those children got together and decided that there must be something wrong with the teachers at VES; imagine if even one were politically connected enough to have someone fired, all without any more authority other than the idea that if their child fails to perform, it must be the teacher’s fault; someone in the school system has to be at fault or why else are we paying these ruinous taxes? And so it goes.

God knows, my wife and I have had issues with a teacher or two in the past in MTSD (still teaching, probably, alas). Our son survived her very nicely, and is now serving in Afghanistan with the Marines. But my father taught high school as a 19-year-old graduate of Glassboro State Teacher’s College before WWII, three of my aunts taught, my wife was a teacher, and two of my cousins are teachers. They all had their share of poorly performing students, I'm sure. Why should any of them be held hostage to this grandstanding bully, who would rather break a state school system that has produced some of the finest (and highest testing) graduates in the country just so he can appeal to his red-blood base and get re-elected?

Guess what: this is why tenure exists; it’s for the same reason that Civil Service exists. It’s to protect hard working public employees from the malice and depredations of politicians with a grudge during an election year. So I’ll say what I learned in grade school: if it aint’ broke don’t fix it.

 

Whiskey Rebellion Redux
Jan 14,2011

I own an old end table, purchased by my mother (who grew up in Pennsylvania) probably for $10 or less. Old and made of pine, it isn’t much to look at. It was, however, said to be from the home a “Whiskey Rebellion supporter,” something I never gave a second thought to – until recently.

The Whiskey Rebellion was the first real test of whether or not America would stand as a nation, and was what Thomas Jefferson, otherwise a maze of contradictions, may have had in mind when he said, “The tree of liberty must be refreshed from time to time, with the blood of patriots and tyrants.” He wasn’t just whistling Dixey. He meant it.

When the Revolutionary War ended with the Treaty of Paris in 1783, there was a short period of some economic prosperity, but also, lots of questions, such as, how would our new nation support itself? In particular, how would the government pay off debt incurred from the war? Primarily, the budget came from import and export duties. However, another solution was an excise tax on whiskey, earmarked to pay for war debt.

Early Americans, it is safe to say, were hard drinkers, consuming alcohol in the form of whiskey, rum, and cider in vast amounts. This was often because drinking water was considered with good reason, to be unsafe. For many years, Philadelphia had period cholera epidemics caused by drinking polluted water. In many rural areas, farm workers would seek employment elsewhere unless they received hard cider as part of their daily fair. It was the only thing safe to drink.

One problem was that the tax was on whiskey, not rum or cider. Although there were import duties on molasses, rum was a staple of the three-way slave trade, and benefited New Englanders, chiefly. Cider was grown from apples everywhere, but generally for home consumption. Whiskey, however, was made from grain or corn, generally surplus at the end of summer. Farmers would make whiskey as just another cash crop. However, even though George Washington himself ran one of the biggest and most successful stills in the country, it was western farmers who benefited primarily from this trade – and who would pay the tax -- if the government could get it.

Consequently, when the government, George Washington presiding, passed a whiskey tax in 1790, it was westerners who rebelled. They thought the tax was unfair and that it singled out westerners to their disadvantage.

To many Americans the idea of paying a tax which would not directly benefit one’s self or which would benefit another, was alien. Hadn’t they just fought a war over that same thing? Western Pennsylvania in 1794 was then the Wild West, and whatever went on the East had little to do with them. They refused to pay the tax and were happy to tar and feather anyone who attempted to collect it.

This came to a violent head in 1794, when a party of some 500 armed men marched on the western Pennsylvania home of General John Neville, the tax inspector. Neville and his supporters responded in kind, killing one protestor, driving away the rest. The next day, a larger crowd, supplemented by a number of soldiers from a nearby fort, returned. The leader of the “insurrection” was killed, along with a number of others before they were driven off. However, on August 1, 1794, a gathering of some 7,000, an enormous crowd in those days, met at nearby Braddock Field. These men, in a day when only white male landowners could vote, were mostly not landowners, and few of them owned stills.

They were an angry, disaffected mob, with an acute sense of just how little political power they had, and an excellent sense of how good times had passed them by. Sound familiar?

What they wanted was to march on nearby Pittsburgh, loot the homes of the wealthy, and burn down the town.
Meanwhile, the US government, then temporary meeting in New York, responded by sending soldiers with a writ to collect the tax, and a list of some 60 names of those who had refused to pay it. By the time they arrived, however, the mob had run out of energy -- or whiskey -- and had vanished. But not their anger or their feeling that one part of the country was getting one over on the other part of the country.

This sense of angry embittered grievance never left America. Jefferson prefaced his “tree of Liberty” remarks with this: “God forbid we should ever be twenty years without such a rebellion. The people cannot be all, and always, well informed. The part which is wrong will be discontented, in proportion to the importance of the facts they misconceive. If they remain quiet under such misconceptions, it is lethargy, the forerunner of death to the public liberty. ...And what country can preserve its liberties, if its rulers are not warned from time to time, that this people preserve the spirit of resistance? Let them take arms. The remedy is to set them right as to the facts, pardon and pacify them. What signify a few lives lost in a century or two?”

Did he really mean the life of a nine-year-old child, shot dead in Arizona? Did he really mean the vast slaughter in the American Civil War, an event William Faulkner said, “wasn’t the past; it’s not even over.” Too right, when demagogues such as Sarah Palin and other employees of Fox News post website photos of political figures with gun sights superimposed, and speak of “real Americans” taking back their country.

Footnote: when Jefferson became president, he had the Whiskey Tax repealed.
 

The True Cost of the 12 Gifts of Christmas

Dec 24, 2010

Much has been said about Christmas over the years. Far more will be written, alas, but may I draw your attention to the 12 gifts of Christmas? These gifts are 12 drummers drumming, 11 pipers piping, 10 lords a-leaping, 9 ladies dancing, 8 maids-a-milking, 7 swans-a-swimming, 6 geese-a-laying, 5 gold rings, 4 Colly birds, 3 French hens, 2 turtle doves, and a partridge in a pear tree.

A close reading will reveal what any mathematicians (or economist) will be happy to point out, that there is a mathematical progression: on each day, the happy recipient gets what she has been given the day before, plus one additional gift. This is an extreme form of compounded interest familiar to anyone who has worked the “penny a day” scam, in which the worker gets 1 penny for his first day of labor, but twice that on his second, then twice again on his third, and so on. Before long he’s raking it in like a hedge fund trader. But I digress.

The question is really, what would it cost today for these gifts and what would it have cost a few years ago?

PNC Wealth Management set its team of highly compensated economists to work and came up with the number: $23,439.38 – but that’s just for the 12 gifts. For the actual number, which includes the cost 12 partridges, 12 pear trees, 22 turtledoves, and so on, the actual price is $100,000, a number only a hedge fund trader could afford.

Interestingly, the PNC economists have tracked the prices over the years, and note that this year’s increase, some 9.2%, is largely due to the price of gold, as well as the extraordinary rise in the price of birds: French hens would have cost $45 ($15 each) a year ago. This year they would cost $150, a 232% increase. Also, turtle doves have risen inexplicably, some 78.6%.

They note that the previously highest annual rise was 16% in 2003. Someone should get to the bottom of this before Christmas becomes altogether too expensive and goes the way of many another forgotten holiday.
 

Pennywise and Pound Foolish

Dec. 1, 2010

We posted a poll on our website during early fall on the question of Governor Christie’s cancellation of a number of projects within the State. Out of 54 voters, 81.5% clearly approved of his actions, which in all fairness, we didn’t list.

One project in play at the time was his cancellation of an additional tunnel under the Hudson for commuters. Currently the two in use are operating at 100% capacity. Any little thing – snow or other bad weather, electric problems, accidents – and commuters are backed up for hours. The new planned tunnel, called ARC, would have eliminated those delays.

Why was that important? Because commerce is two-way; it’s not just about New Jersey commuters traveling to jobs in New York. It’s also about employers turfed out of New York by high real estate costs (not such an issue this year, but next year?), who may be bringing employees from New York to work at jobs in New Jersey. The governor cancelled the project, which had been in the works for 15 years, and which has cost the federal government $600M so far. He cancelled it because, he said, rising costs would have put New Jersey taxpayers on the hook for an unknown amount of money: it hade been in the neighborhood of $8.7B, but new estimates were around $14B, and possibly, rising. So, he cancelled the project.

New Jersey taxpayers just got the bill: $271M, due by Christmas Eve, 2010. With interest.

This is a new category of “pennywise and pound foolish,” and adds to the list of lost opportunities. First there was the $400M “Race to the Top” funding lost due, in part, to his intransigent grandstanding with the NJEA.

Second, just revealed days ago, was a further $14M lost in the form of grants to school boards to make up money cut from State Aid. Since MTSD had $1M cut from State Aid this past June, anything additional would have been a great help.

What no one knew in August, when the “Race to the Top” story first broke, was that the Governor had already been informed that the state lost the $14M aid to school districts. They embargoed that interesting tidbit. It might have made him look bad.

I wonder if the voters would approve if they knew that actions by the Governor have cost New Jersey taxpayers $685M so far.
 

Another Look At The Greater Fool - Sept 27, 2010

Much has been written in the financial pages of the popular press about the mortgage derivatives debacle to give the impression that the ratings agencies at some point fell down on the job, thus permitting people who should have known better – bankers with hearts of stone – to bet the wrong way on pools of mortgages clustered together and quickly resold. “If we had only known,” they cry, “we would never have invested in these worthless financial instruments. But we didn’t know!”

Not necessarily, as it happens. Instead, the Financial Crisis Inquiry Commission – I’ll bet you didn’t know there was one – has been holding hearings, and lately, D. Keith Johnson, who ran a company that analyzed 911,000 such loans during the period of January 2006 through June 2007 from 23 banks, says that more than half of the mortgages they randomly studied were fatally flawed. He says that he took this data to Standard and Poor’s, Fitch Rating Systems, and Moody’s Investors Service, companies that have lately developed weasel-speak into a fine Orwellian art.

He says only 54% met whatever standards the lenders ordinarily would use for underwriting loans no matter what those standards were, and that 28% were loans that were described as “failures,” unable to meet any known underwriting standard. Of this total amount, 39% were dumped into a pool and resold to investors despite the sure and certain knowledge that they would, sooner or later, blow up. In an article in the New York Times, the pool of loans Johnson’s company looked at represented only 10% of the total number of mortgages made during the 18-month period, which it had been paid to look at.

Nevertheless, the banks seemed to have relied on the “greater fool” theory – the idea that, yes, a certain thing is likely to blow up, so dump on the greater fool, who, in turn, can dump it on a greater fool than he is before it explodes.

So, it exploded.

Don’t let the facts spoil a good story - July 31, 2010

Part of Governor Christie’s agenda for New Jersey has been an argument that public sector employees – state, county, local  – are grossly overpaid when compared with private sector employees. Because they are so overpaid, he says, the state is broke. He has, in the process, cited salaries among teachers, including well documented six-figure retirement pay, as an example. He said during a speech in April, “There are two classes of people in New Jersey: public employees who receive rich benefits, and those who pay for them.”

But is it true? Or can he be, one hates to ask, in error?

According to a study released by Jeffrey H. Keefe, a Rutgers professor associated with the School of Management and Labor Relations, salaries and benefits are about the same among both groups. Public sector employees average some $56,694 per year; private sector employees average $61,252. The difference evens up when benefits are accounted for. Public sector employees pay some 7.4% of income for health benefits. Private sector employees pay some 11.4% of pay for the same benefits.

What many taxpayers have become sensitized to has been the declining number of employers who provide health benefits and contributions to 401k programs. "If I have to pay this much," they reason, egged on by Tea Party blogosphere blowhards and talk radio, "why shouldn't those public workers with their huge paychecks, pay more out-of-pocket?"

Self-aggrandizing politicians of the opportunistic sort, especially those with little else to contribute of any value to man nor beast other than a kind of whining noise and schoolyard bullying, have always been quick to seize on private sector ire on any issue, particularly when it gets votes.

Governor Christie’s spokesman, Kevin Roberts, insists that despite this latest report, “The fact that public sector benefits are out of proportion with the private sector in New Jersey is just not disputable.”

But it is disputable, by real numbers studied by people who actually know what they're talking about. Governor Christie isn’t the first politician who wouldn't let facts get in the way of a good story, especially if it gets him elected. He’s just the latest, alas.

Thomas Edison Makes the Cut - June 24, 2010

One cost-cutting proposal from Governor Christie called for Rutgers to take over Thomas Edison State College. This idea did not make the cut in the latest budget proposal. That’s a good thing. If it ain't broke don't fix it.

Thomas Edison State College is probably the finest thing in New Jerseys’ constellation of State and community colleges. It has been the gold standard of “long distance learning” since they perfected it shortly after the first personal computers hit the stores.

Begun during the early 70’s, its charter was to allow adults to permit experience and training acquired over a lifetime to be turned into college-level credits. They based it on Thomas Edison himself, who never went past grade school in formal education, yet knew a few things, or so they say.

For instance, a person who worked as a photographer could surely claim after years of working in a darkroom, that experience could be equal to photography courses taught in a college someplace. The only question was: how many credits, and how to quantify it. Thomas Edison State College figured out a way: they used standard tests, interviews and other documentation to allow adults to claim credits for real skills, real information, and real learning. They did this decades before anyone else did.

Many of its graduates are military personnel, state employees, and ordinary working folks who were trained or learned on the job. Most of them were interested in business related degrees; many of them worked for MBA’s, and other business and management degrees. But I also remember a an artist from Princeton, Rex Gorleigh, who received a Bachelor of Arts in fine arts from Thomas Edison State College while in his 70’s.

Somehow, merging this unique institution into something as prosaic as Rutgers would elevate the concept of “penny wise and pound foolish” to that of “throwing out the baby with the bathwater.”

What makes this whole process of budget cutting among the state schools even more dismal is that so many unemployed NJ workers have turned to the state schools for additional job training at just the time when their budgets have been hacked to the quick. RVCC reports record numbers of new students, yet less money to pay for teachers and support.

If the Governor is really interested in creating jobs and getting NJ residents back to work - and he says he is - then he could start by giving more money to our institutes of higher education, especially community colleges overwhelmed by applicants, rather than cutting their funding.

80 Times Smarter - June 18, 2010

The other day, my wife and I were having dinner at a Princeton restaurant and we overheard a couple talking at the table next to use. He was discussing the BP oil crisis, and in particular, the treatment Tony Hayward, their chairman, was getting from Congress. He said that it was disgraceful, and that Hayward was “80 times smarter than them.”

I held my tongue, but I thought about it, and decided that it may be so, but so what? It’s true that Congress is peopled, as ever, by thieves, liars, opportunistic grifters, and sociopaths, a few of them actually demonstrably dumber than a bag of hammers, but it’s been ever thus. Was it Mark Twain who said, “America has no native criminal class, except when Congress is in session?”

But the BP hearings shed some light on why they pay these corporate types such big bucks. I’ve always held that there was a serious disconnect between the salaries paid corporate CEO’s and the salaries paid to the working stiffs. At the end of WWII, it was 40 to one; a few years back it was 400 to 1. The head of Blue Cross in NJ, for instance, is said to be taking home $8.7M this year.

Why is that? It may be that they pay them those big bucks so that when their company is caught screwing up - I’m assuming that every company screws up, but not many are caught, and few so spectacularly as BP, although J&J seems to be working at it, lately - they can throw someone under the bus with a clear conscience.

Tony Hayward is BP’s man. He may be smarter, but he’s the goat, and when it’s all over, he’ll get the chop and go home with a whole lot of money; unloved and unwanted he may be, abused by his lessers, covered in tire tracks, his company a smoking, bankrupt ruins, he’ll still be far, far richer than you and I will ever be. It’s the way of the world.

Too Much or Too Little? May 12, 2010

Can it be that we may be paying too little in taxes?

There’s a thought, and yet, according to a USA Today study, Americans (not necessarily in NJ) are paying a combination of federal, state, local, including property taxes at the lowest level since 1950. Oddly enough, we also have the largest amount of public debt since WWII, but that’s another story.

The average rate Americans have paid for taxes for the past 50 years has been 12%, and yet for 2009, American paid 9.2% total income for all taxes combined.

According to classical Keynesian economics, taxes should always be lowest during a recession, and never rise until the recession has passed; otherwise, we risk stopping recovery in its tracks. Some economists are saying that we are in recovery, but unemployment remains at 9 or 10%, so I don’t buy it, but that’s just me.

Here’s another thought: according to economists who have studied NJ property taxes, NJ residents do not pay the highest total state and local taxes in the country, despite what politicians claim at every election. We are actually about 28th highest. But the perception is that we have the highest property tax. I wish I had a dollar for every time our current governor claims New Jersey has the highest property taxes in the country – why, I could pay my taxes with it!

How is that possible? Its complicated. New Jersey is the second highest income state in the country (just behind Connecticut) but it’s the last state to rely wholly on property tax to pay for schools. Also, there is an economic principal that as nations (and groups) grow wealthier, they become accustomed to increasingly more expensive services from government. As a result, we have what are nearly the most expensive schools in the country, hence, the large percentage of property tax devoted to schools.

Other, not-so-wealthy states, such as Pennsylvania, pay for schools through a combination of property tax, county taxes, excise taxes, sales and use taxes, and so on. The total of those taxes states exceeds any savings in property taxes residents would otherwise contribute to a stand-alone school tax such as we have here, but taxpayers in Pennsylvania don’t happen to see their total tax bill in one statement.

However, every summer New Jersey taxpayers go ballistic when they see a property tax bill with that huge number, which for Montgomery is about $13,500, 91% of which is for schools. It’s no wonder such groups as the Tea Party, which offers nothing except a kind of annoyed whining noise, have gained traction.

We in New Jersey pay the 2nd or 3rd lowest fuel tax in the country. Higher fuel taxes contribute to higher cost of goods and services.

New Jersey’s sales tax is 7%. It’s higher in some other states. But, in many other states that tax is applied to food and clothing no matter what. Consequently, the total paid to the state exceeds what we pay in NJ. Granted, much of our sales tax seems illogical: why should there be in New Jersey more sales tax on a book from a book store than there is on a $2,000 suit of clothes? Why should there be more sales tax on a Big Mac than there is for a pound of caviar? The answer is that sales tax is regressive, penalizing lower incomes groups, which spend a greater proportion of their income on food and clothing. The wealthy can shelter a larger amount of their income in savings, real estate, and other tax-free instruments. Other states are not so progressive.

If you live in a state where all goods and services are taxed a nickel here and a nickel there, before you know it, you’re paying a higher total tax bill. But you’d have a lower property tax bill, such as Delaware, where the average property tax bill is $600 (yes, six hundred); and you wouldn’t see teachers paid at the level they are paid here.

Some economists have offered as an alternative, a value added tax at the national level, which results in taxes being paid all along the assembly and delivery line of a product, but which the end purchaser – you and I – only see as a more expensive price tag. A $1 bag of nails might end up costing $1.15, plus sales tax, for instance. That wouldn’t help at the state level unless everything purchased, including internet sales, was made and sold within that state. Should internet sales continue to be exempted? There is certainly a movement within most state departments of taxation to have at it. The pro-competition necessity that exempted them in the past has certainly disappeared from companies such as Amazon.com. Why not tax their sales?

By the way, if you want to see high property taxes, check out Connecticut, where homes, cars, boats, etc, are charged property taxes. There, my car, a three-year-old Subaru, would cost me another $500 a year. Don’t ask what my wife’s Prius would cost. It’s safe to say, the property tax would offset any savings on fuel. My sailboat would cost another $350 or so. Ouch! Take your hand out of my pocket!

In New Jersey, the perception outruns the reality. The fact is, the way New Jersey pays for school taxes is irrational and must change at the constitutional level if taxpayers want to feel that they aren’t being ripped off every year.

So, is 9.2% too much or too little?

Just in time for Tax Day  - April 8

This year, for the first time, Social security will pay out more than it gets in revenues, as many older displaced workers, unable to find jobs and unemployed too long for benefits, are shoved into premature "retirement."

And news from the Washington are think-tank Tax Policy Center is that 47% of American taxpayers didn’t make enough last year that they had to pay taxes. The top 10%, those making more than $366,000 in 2006, paid 73% of total income taxes. A family of four, with children under 17, living on less than $50,000 has no income tax bill.

Making it seem worse for those in the middle class, the tax breaks for the wealthiest moved the burden onto the middle class, which is not sharing the benefit of Bush-era tax breaks.

All will have some sort of bill, such as Social security, federal payroll taxes, and various excise taxes on fuel, alcohol and so on. But almost half of working America gets a free ride.

On the other hand, only half of all federal receipts is from income tax. The rest is from other sources, such as the above, and loans from our overseas trading "partners."

Recovering From the Great Recession

March 17, 2010 - The Montgomery Township Economic Development Commission held an open forum on March 16 at the Elks Club, featuring guest speaker David Sandahl, an economist, a management consultant, and former mayor of Hopewell Township.
Sandahl spoke on “Recovering from the Great Recession, getting it right this time.” He broke the problem down into three thoughts: the hole we are in did not happen last night; the hole we are in is very deep; it will take the private sector to get us out of it.

During his talk, he showed the way a series of policy decisions were made in Washington that had the affect of increasing risk and reducing accountability, from eliminating requirements to have reserves among top banks, to allowing banks to create and sale Credit Defaults Swaps. For instance, as a consequence of the vast numbers of failed banks during the Thirties, banks were forbidden from selling stocks and bonds, and other exotic instruments. Those strict banking laws were repealed with the Glass-Steagall Act, in 1997. “Bad decisions have had very bad consequences,” he said. He showed how over a ten year period, the result was less investment, higher imports, and more government.

Another interesting point he made was, if former President Carter’s energy policies had remained in place, our net imports of foreign oil be eliminated. Instead, we import 60% of our oil, up from 40%, competing with India and China, nations with a growing domestic auto usage. The decision to rescind those policies, a contributing factor to our negative trade balance, was clearly a mistake.

Standahl showed that Federal tax receipts are at the lowest number they have been at since 1950, largely as a consequence of unproven and flawed policy decisions, such as the decision to lower income tax as a way of stimulating investment and creating jobs: neither of those things happened; in fact, the net result is fewer jobs and less investment. In passing, it’s worth noting that cutting taxes seems to be an almost religious belief among some despite the obvious reasons for not doing so. The result is that the federal government has few assets left to bring stimulus except debt, such as bonds paying 0%, and fewer of our offshore partners seem to want to buy those.

Federal stimulus money? $17.5 Billion came to New Jersey, and its either all spent, or committed to such projects as the new NJ – NY tunnel under construction under the Hudson. He suggested that there wouldn’t be much more of that to come in the future.
The current health care crisis, as yet unresolved, will resolute in doubling of premiums within ten years if nothing is done about it.

At the State level, Standahl said that efficiencies could be made by municipal consolidation, a subject fraught with peril. NJ municipal school districts with understaffed administrations, all duplicating the same work, tried but failed to meet any number of deadlines for Federal funding, something that took some states with county school boards rather than municipal boards, as little as 20 days to do.

The solution lies, he suggested, in small business development. “Small businesses create jobs faster than any other sector in the economy,” he said, and suggested three areas that will be likely to account for growth in the future: green technology, healthcare quality and improvements in efficiency; and smart infrastructure.

NJTaxwatch.com, March 4, 2010

Governor Christie seems to be trying to do two things that in New Jersey at least, are mutually impossible. The first is to lower the state debt, which grew from $3B in 1983, to $39B at the end of 2009. The second thing is to reduce property taxes.

The reality is, the State won’t be able to cover a lot of  services the way it did in the past.

Naturally, there are websites with lots of information available from both sides of the political aisle. Some of it is actually true! One new website is NJTaxwatch.com,  which says that it has analyzed various budget takebacks to see how they will effect individual New Jersey municipalities now that the State won’t or can’t cover the bill.

The short answer is that commuters, hospitals, and schools will feel it first, as well as aid to municipalities. The Montgomery Township School District, for instance, will see a loss of some $1,879,584, according to this site, or $35.3% of total property tax for education. Somerset Hospital will be hard hit, losing some $83,831 of State funding. This will also mean losing a matching Federal grant, so their total lose will be $83,831. Likewise, University Medical Center at Princeton will lose a toal of $24,684, and Robert Wood Johnson Hospital in New Brunswick will lose some $19,366.

“Unfortunately,” the website says, “we will probably be updating the site very often, because Gov. Christie has shown time and again he thinks New Jersey’s middle class taxpayers should be paying more in taxes, while he gave those making more that $400,000 a huge tax cut.”

“You can pay now or you can pay later,” as my old Latin teacher, Frank Clarke of Rocky Hill, used to say. This is what happens when you pay later.

Dr. Strangelove At Work
Feb 16

For several years I’ve been pondering the great mystery: why are New Jersey property taxes as high as they are compared with other states? I’m not alone in that query. New Jersey taxes average somewhere around $6,500 per home, and here in Montgomery, more than $13,000 per home. Just across the Bay in Delaware, by comparison, the average tax is $600 a year. That’s right: $600 per year.

I always assumed it was because of DuPont largesse (family and company), as well as the huge numbers of national companies that find it convenient to incorporate there for tax purposes: it costs far less to pay taxes in Delaware say, than in New Jersey. A recent US Supreme Court decision may reduce that advantage over time, but that doesn’t explain the huge disparity.

A friend who visited his aged mother in Delaware gave me a clue. He said that after the recent snow storms, which affected Delaware (and Maryland as well as other southern states) far more than it did us, the roads had not been plowed at all. Cars traveling over the bridge from Jersey were told that roads in the state of Delaware were closed. Park here or go back.

It wasn’t that they didn’t want to plow the roads; it’s that they didn’t have snowplows.

Several years ago, a State of Delaware cost accountant (let’s call him Dr. Strangelove) did a cost-benefit analysis. Dr. Strangelove determined that since there hadn’t been a major snowstorm to affect Delaware in some time, the state didn’t need to have those expensive snowplows, nor the crews to man them. And think of all the overtime they would save!

So Dr. Strangelove sold the plows and laid-off the crews under the theory that if there was a snowstorm, the cost to Maryland taxpayers would be less than the property taxes paid to cover incidental weather conditions when times didn’t call for them, such as the nice sunny day when he made that decision.

The result was that my friend’s aged mother (90+ at last count) lived on a street in a town where the streets were impassible. She hadn’t had mail delivered in over a week and had run out of food. My friend (68 himself) had to drive from Griggstown to make sure his mother didn’t die.

This is part of the terrible equation at work: people want benefits but they don’t seem to want to pay for them. They want someone else to pay for them instead.

Simple Demographics – not so simple

Feb 9, 2010

Recent reports from economists from both sides of the NJ political fence say that two related phenomena are occurring: first, we are told by tax-payer groups that wealthy tax payers are fleeing the state, never to return. Some have pointed to individual, anecdotal examples, for instance, that of a man who closed a deal leaving him with $60 million. He supposedly saved $6 million by moving first, then signing off. Further evidence of this, supposedly, is the declining number of students in public schools, and the rising number of empty homes statewide.

The second phenomenon is unemployment. Those numbers have declined nationwide to under 10% for the first time in a long time. But the number of jobs nationwide has also declined: they’ve disappeared, nevermore to return, at least for now. At one point, there were six job seekers for every real job.

So, how do these two phenomena correlate?

It’s simple demographics: the recession, and its job losses, hit at a time when baby boomers were moving into retirement. The previous recession, the dot-bomb crash in the early 90’s, a remarkably mild and short-lived one by comparison, also affected baby-boomers disproportionately. Employers tend to hire younger people fresh out of college first because it’s cheaper to do so. But as had been true in the post, most baby-boomers, then still in their early fifties, were eventually able to find jobs.

Now those jobs have disappeared. More than half the unemployed are over the age of 50. Some of those boomers are finding that, in affect they have been shoved into retirement and the tender mercies of the Social Security system, Medicare and devalued 401k plans (aren’t you glad President Bush didn’t have his way flogging that dead horse?)

But the same may be true of those wealthy tax-dodging carpetbaggers. People with money tend to be older. And New Jersey, the wealthiest state in America a few short years ago, had lots of rich people. Why wouldn’t more of them move away if there are more of them to move away?  True, some of them may simply have had it with NJ’s tax climate, not to mention the lousy weather, but many of them, especially those without long New Jersey roots or family, would have moved anyway

Pecora Commission Redux
January 13, 2010

In 1933, the Senate, then controlled by Republicans, reluctantly authorized a commission to look into what the precise cause was for the Great Depression, and ways, if any, to prevent it happening again.

The first two chairmen of the commission quickly got the chop when their investigators started asking the wrong questions of the right people. The third chairman filed a report that pleased no one, named no names, and got nowhere.

But by then the Senate was in the hands of Democrats whose electorate were howling for blood. They wanted a show trial and they got one when the fourth chairman hired a former assistant district attorney for New York County, Ferdinand Pecora as chief investigator. Pecora knew a stone wall when he saw it; but he persisted, put more witnesses on the stand, asked hard questions, and prepared a report when he was done.

It came up with a host of reasons for the Crash, as they called it then – simple greed and human nature of all parties concerned, including that of the stock-holders, being somewhere on the list. Banking reforms, chiefly the Glass Steagall Act, that quickly followed.

But among the names trolled before Congress was that of Goldman Sachs, which was shown to have used the available rules to profit, regardless of the consequences, because they were within the law to do so.

Flash forward. Glass-Steagall was repealed in 1997, and the same Goldman Sachs discovered that the new law allowed them to do some fancy footwork with derivatives: the right hand of their company could bundle and package some $40 billion worth of mortgages they knew were garbage, offload it and make big bucks doing so. Their left hand (sinister, is the Latin word for “left,” if memory serves me right) could simultaneously short-sell those same derivatives, that is to say, bet big money that they would decline in value for whoever bought them, and make even more money.

Senator Angelides, a former treasurer of the State of California, said during current hearings on the subject, “It sounds to me like selling a used car with faulty brakes, and then buying an insurance policy on the driver.” Indeed.

The Federal Reserve, authorized to oversee such amazing practices, was headed Alan Greenspan, who believed with all his heart that wise corporate leaders would never do what was against their own best interest. He had even written papers on the subject. The problem with that theory was that there were no “wise” corporate leaders: any of them would have happily thrown their own mothers under a bus for the kind of sort-term profits they could get.

Why? Because in 2007, Goldman Sachs, among many others, set aside 50% of its profit for bonuses to be spread around the company, chiefly among the top dogs. Shareholders got the rest. Their bonuses totaled $16 billion for 2009. “A billion here, a billion there, pretty soon your talking big money,” as others have said in the past.

This year Goldman Sachs, having joined the other banks “too big to fail” seen snuffled for dollars at the public trough has paid back the government loans which kept them – and by extension, all of us – afloat.

The Fed, now headed by Montgomery’s own Ben Bernanke, showed a $45 billion profit after collecting returns on last year’s $2.2 trillion bank bailouts.

These banking heads mostly appeared contrite, but all insist that there is no need to return to the sorts of controls that prevented this from happening for low, these many years.

The latest Senate commission examining the causes leading up to the current financial follies, according to one investigator, will be looking everywhere, including, we are assured, “the greed, the hubris, and the corruption.” So far, the later has only been shown to be the personal level.

Neither of the first two is, strictly speaking, illegal.

One Big TARP Redux, Dec 7, 2009

When Washington began the process of bailing out financial institutions during the Bush administration some 18 long months ago, many voices were raised in populist rage that government money was just bailing out the same Rolex-bedizened avatars of free enterprise who caused these problems to begin with. They argued, plausibly, that it was just throwing good money after bad, and just look, banks are losing billions but they’re giving out those huge bonuses.

They had a point.

The economist John Maynard Keynes, however, long ago recognized that in a depression – as opposed to an ordinary recession – the only thing that would bring back any recovery was for government to spend money, because nobody else had enough to make a difference. It mattered only that the money spent would bring employment to workers and that it was spent on things like roads and bridges and bringing electricity to farmers (new technology – hint, hint) and so on. If the money was simply lent or granted to manufacturing, the stimulus would be wasted, because without full general employment, customers would never buy the products, and inventory would stack up without buyers. Those with jobs would fear losing them and cut back on spending. The whole cycle would just continue indefinitely.

The point – the whole point – was to get as many people back to work as quickly as possible. Public debt didn’t matter (and doesn’t today to Keynesian economists), as long as the money is spent on projects such as infrastructure, and that people are employed. Eventually, the government will get repaid, they argue, provided there is a fully functional economy.

The purpose of TARP – Troubled Asset relief Program – wasn’t to bail out the fat cats who had stupidly traded in worthless paper, but instead, to keep the machinery of commerce running; without a working credit system things would, and did, quickly grind to a halt. The idea behind bailing out at least some of these clueless institutions was to encourage them to continue making loans to individuals and small businesses. Naysayers said that the taxpayers would never see that money again.

Now that some time has passed, where do we stand?

On one score, at least, not too badly: Ben Bernanke, Chairman of the Fed (and former Montgomery Township Board of Ed. president), said that as of November 2009, of the $205 billion loaned directly to the banks, half has been repaid, including $10 billion in interest, and that ultimately the government will make money on those loans.

However, all is not clear sailing: the money loaned to some businesses teetering on the brink, such as AIG, General Motors and Chrysler, may end up costing taxpayers as much as $150 billion. Why? Because Congress, as political under the Democrats as it was under the Republicans, lost track of what the purpose of Keynesian restructuring was all about. Those companies are not creating jobs at all, but instead, shedding them, compounding the problem.

Those that worry about their grandchildren repaying our national debt may have something to worry about, but not because of money lent to Wall Street. They should worry about money loaned to General Motors: who would buy a car from a company with one foot in the grave?

For the many Americans among the 10% unemployed as of Thanksgiving 2009, the recession is not over by a long shot. The unavoidable delay between how Wall Street is doing and what actually happens on Main Street leads to a lot of the present unhappiness at stories of big bonuses this Christmas at those same Wall Street businesses that a year ago came to Washington hat in hand.

Seeing the Light - Dec. 2, 2009

A recent story in the New York Times got me thinking about light bulbs.

One way economists of a certain sort think is to look at the entire cost of production to determine if something really saves money, or if it is actually good for the ecology. I haven’t figured our what “carbon footprint” means, but evidently, a smaller footprint is good.

They were trying to figure out if light bulbs made from light-emitting diodes (LED’s) are actually efficient for the economy. The answer is yes, as it happens, according to the New York Times. Also, they are good ecologically as they use few natural assets to make, use unbelievably little energy to operate, and last forever, more or less.

My experience with them is a little different. I have used them on a sailboat for several years. The bulbs they replaced drew 15 to 30 watts each, compared with 3 or 4 watts for each of the new LED’s. Better yet, the bulbs they replace at the masthead, the manufacturers claim, will last some 50,000 hours of continuous operation before dying. That has a special appeal if you have ever need to climb to the top of a mast while it whips around at sea to replace an inconveniently dead light bulb. I also replaced all the bulbs in the cabin as well. They’ll probably outlast the boat.

Even though these bulbs were remarkably expensive at $10 to $35 each (the old-style bulbs cost about $5 each) they use considerably less energy than the bulbs they replace. Although the boat uses solar panels for charging during the day, a few cloudy days can draw down the batteries. Too much power loss and the batteries won’t be able to start the engine. That could get ugly.

Sailboats are a niche market though. What manufacturers have been trying to do is get people to use these things in private homes, as the energy savings for our nation could be considerable.

A few years ago I was given a compact fluorescent light (CFL) at the Earth Day celebration at MHS. Before long, we had replaced every bulb inside our home with these, and a few in our unheated garage as well. They took some getting used to: they don’t turn on immediately when you flick the switch on; the delay is about ½ a second or more, and when they do come on, they are dim at first, requiring about two or three minutes to come to full power. However, once at full power the light is very much like what I was used to, with none of the fluorescent flicker or the cold, blue light of the old-fashioned fluorescent bulbs. The light was warm and much like what I was used to, and they are available in different power ratings, including a 100-watt replacement equivalent drawing 17-watts.

Better yet, a bulb putting out as much light as an old-fashioned 60-watt bulb only drew 13 watts. I was also able to find blister-packs with as many as six CFL’s for $15.

Over time I got a sense of what they cost, although a little interpretation was required: even though the cost of electric rose over the past few years (from 11 to 17 cents per kilowatt hour) my average electric usage fell approximately 20%. That includes running a refrigerator, computers, televisions, and so on.

I found a few LED's on sale and tried them out. They tend to be directional, best suited for low-power spotlight-type use, such as desk lamps. One of them is in my hallway overhead light, in a kind of Tiffany lamp. They turn on instantly and are resistant to thermal-shock, a major reason for CFLs and conventioanl lights to fail. It means you can turn them on and off as often as you like, or leave them on. No matter, either way, they're good for 50,000 hours or more. They tend to be cool light, but I found a few "warm," lights that look more like incandescent light. They aren't as universally useful as I'd like, but I understand that new designs are in the pieline.

However, LED’s for home use draw as little as 1 watt. A 1-watt LED left on for 1,000 hours (41 ½ days) would cost me 17 cents. A CFL left on for the same period would cost $2.21. An old-style bulb would cost $10.20. Amazing.

One of the big box stores had a two-pack of LED bulbs for $19. Do the math.

Halloween Lessons Learned

November 2, 2009
 I couldn’t help thinking this year that Halloween has long been one way that children have learned a valuable lesson in economics: how to maximize a return on investment. If return on investment is time invested divided by money (or goods) received, then a real world example is right before our eyes each Halloween.

For example, this year there are 94 children from Rocky Hill attending Montgomery Township schools. There are more than 3,000 (the exact number escapes me, but isn’t important in this case) from the Township attending Township schools. But every year, there are more than 94 children hitting many Rocky Hill homes at Halloween. How can we account for that?

Rocky Hill is a fairly c