Obama has announced his new appointment for economic adviser. It is a Princeton economist named Alan Kreuger. I am not an economist or an expert on economists but that name rang a faint bell. Then I saw that someone else had remembered him, too.
In a 1994 paper published in the American Economic Review, economists David Card and Alan Krueger (appointed today to chair Obama’s Council of Economic Advisers) made an amazing economic discovery: Demand curves for unskilled workers actually slope upward! Here’s a summary of their findings (emphasis added):
“On April 1, 1992 New Jersey’s minimum wage increased from $4.25 to $5.05 per hour. To evaluate the impact of the law we surveyed 410 fast food restaurants in New Jersey and Pennsylvania before and after the rise in the minimum. Comparisons of the changes in wages, employment, and prices at stores in New Jersey relative to stores in Pennsylvania (where the minimum wage remained fixed at $4.25 per hour) yield simple estimates of the effect of the higher minimum wage. Our empirical findings challenge the prediction that a rise in the minimum reduces employment. Relative to stores in Pennsylvania, fast food restaurants in New Jersey increased employment by 13 percent.”
This was tremendous news, especially for Democrats. Raising the minimum wage did not increase unemployment as classical economics had said since the issue first arose.
Unfortunately, their study was ripped apart by other economists who used more objective methodology.
It was only a short time before the fantastic Card-Krueger findings were challenged and debunked by several subsequent studies:
1. In 1995 (and updated in 1996) The Employment Policies Institute released “The Crippling Flaws in the New Jersey Fast Food Study”and concluded that “The database used in the New Jersey fast food study is so bad that no credible conclusions can be drawn from the report.”
2. Also in 1995, economists David Neumark and David Wascher used actual payroll records (instead of survey data used by Card and Krueger) and published their results in an NBER paper with an amazing finding: Demand curves for unskilled labor really do slope downward, confirming 200 years of economic theory and mountains of empirical evidence (emphasis below added):
I would suggest reading the entire post which demolishes the study by Kreuger and Card. This is the new Chairman of the Council of Economic Advisers. More academics with no real world experience and this one is incompetent even as an academic. Spengler has a few words on the matter, as well.
Here is the latest post on Political Animal, a leftist blog sponsored by Washington Monthly, a leftist magazine.
Political Animal
Blog
August 06, 2011 11:05 AM
A timeline of events
By Steve Benen
Let’s take a stroll down memory lane, shall we?
1980: Ronald Reagan runs for president, promising a balanced budget
1981 – 1989: With support from congressional Republicans, Reagan runs enormous deficits, adds $2 trillion to the debt.
Reagan did not have a Republican Congress during his two terms. He did have a Republican Senate for his first six years. Bob Dole was Majority Leader, which was no help in cutting spending.
Lie #1
1993: Bill Clinton passes economic plan that lowers deficit, gets zero votes from congressional Republicans.
Bill Clinton passed a tax increase which Republican predicted would slow economic growth. Bush had also raised taxes at the insistence of Democrats and a recession cost him re-election.
1998: U.S. deficit disappears for the first time in three decades. Debt clock is unplugged.
The fact is that Republicans took over both houses of Congress in 1995, the House for the first time since the post-war era. The stock market took off and revenues poured in from a good economy and the internet bubble which burst in 2000.
2000: George W. Bush runs for president, promising to maintain a balanced budget.
2001: CBO shows the United States is on track to pay off the entirety of its national debt within a decade.
In fact, the national debt kept climbing and the “surplus” was on paper only. Bush inherited the recession that followed the bursting of the internet bubble in 2000.
2001 – 2009: With support from congressional Republicans, Bush runs enormous deficits, adds nearly $5 trillion to the debt.
The Bush deficits were declining the last two years of his term and the Democrats took over Congress in 2007. The Bush deficit in his last year was 10% of the present deficit. Notice Steve Benin doesn’t provide numbers.
That shows the deficits Obama inherited. Notice the increase after the Democrats took Congress in 2007.
2002: Dick Cheney declares, “Deficits don’t matter.” Congressional Republicans agree, approving tax cuts, two wars, and Medicare expansion without even trying to pay for them.
This is a matter of policy choices. I am no fan of Bush in the spending department. He should have vetoed some spending bills that Hastert told him to sign. It was no fluke that Hastert’s district, after he retired from Congress, was won by a DEmocrat.
The condemnation was of his plans to spend wildly.
2009: Congressional Democrats unveil several domestic policy initiatives — including health care reform, cap and trade, DREAM Act — which would lower the deficit. GOP opposes all of them, while continuing to push for deficit reduction.
No one with any economic knowledge would believe that Obamacare and Cap and Trade would lower the deficit. The most serious effect Obama has had thus far is the avalanche of regulation that has descended on business making anyone with money unwilling to invest. That is where jobs come from and the economy is stalled.
September 2010: In Obama’s first fiscal year, the deficit shrinks by $122 billion. Republicans again condemn Obama’s fiscal irresponsibility.
The economy may have begun to recover on its own, which is what usually happens in the absence of an activist government. Then came the impact of Obama’s and Pelosi’s spending.
October 2010: S&P endorses the nation’s AAA rating with a stable outlook, saying the United States looks to be in solid fiscal shape for the foreseeable future.
An exaggeration.
November 2010: Republicans win a U.S. House majority, citing the need for fiscal responsibility.
December 2010: Congressional Republicans demand extension of Bush tax cuts, relying entirely on deficit financing. GOP continues to accuse Obama of fiscal irresponsibility.
The left does not understand that government does not create wealth. Raising taxes in a recession is what Hoover did. I wouldn’t think they would want to copy him but they learn nothing.
March 2011: Congressional Republicans declare intention to hold full faith and credit of the United States hostage — a move without precedent in American history — until massive debt-reduction plan is approved.
July 2011: Obama offers Republicans a $4 trillion debt-reduction deal. GOP refuses, pushes debt-ceiling standoff until the last possible day, rattling international markets.
This is another lie. Obama and Boehner were close to an agreement and then Obama insisted on tax increases after agreeing not to do so. He responded to complaints from the left which is fixated on tax increases.
Another lie. The S&P report said the debt levels are too high and the agreement did not do enough to cut spending.
The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.
There have been several instances since the mid 1990s in which I genuinely believed Republican politics couldn’t possibly get more blisteringly ridiculous. I was wrong; they just keep getting worse.
Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.
There was a time when Democrats understood economics. Those days are over. They have convinced themselves that money grows on trees. They are destroying this nation’s finances, with help from many Republican professional politicians. The only hope is the tea party and turning Obama out in 2013.
The following essay expresses my feelings better than I can.
The debt ceiling debate has dragged on creating frustration and some anxiety about the economic consequences of default. President Obama has even threatened to withhold Social Security checks, claiming there would be no money for payment. Through most of this he has seemed to me to be unserious about the matter and using it chiefly to try to improve his chances for re-election. Fred Barnes has now come up with what I consider a good explanation for his behavior, including the last moment maneuvers yesterday.
First, the trade treaties:
The path to ratification by Congress was greased after President Obama renegotiated trade treaties with South Korea, Colombia, and Panama. Obama would supply Democratic votes. Republicans were already on board, President Bush having put together the treaties in the first place. It had the look of a done deal.
It wasn’t. In May, the White House suddenly insisted the treaties be accompanied by roughly $1 billion in Trade Adjustment Assistance, or TAA as it’s known in Washington. Organized labor was demanding TAA funds be set aside for workers whose jobs might be lost as a result of the treaties. Obama took up the cause.
Then there was the oil pipeline from Canada:
The Keystone XL pipeline from the oil sands in Canada to refineries on the Gulf Coast is another win-win issue for Obama, if only he’d embrace it. Canada is America’s leading foreign supplier of oil. The more Canada exports to the United States, the less we’re forced to rely on unfriendly folks in the Middle East and on Latin American countries (Mexico, Venezuela) whose oil production is declining. With the new pipeline, Canada would increase its exports by as much as 700,000 barrels a day. (The United States consumes 10-11 million barrels daily.)
A permit to build the pipeline was requested nearly three years ago by TransCanada. Because it would cross an international border, approval must be granted by the State Department. This was expected to be a snap, particularly after gasoline prices reached $4 a gallon. White House aides thought so, and Secretary of State Hillary Clinton indicated she was ready to approve it.
Then the environmental lobby, led by the Natural Resources Defense Council, began a campaign against approval, and the Environmental Protection Agency joined in. It criticized the State Department’s first environmental impact statement, which found the pipeline would have little effect on the environment. Clinton buckled, and a second impact statement was ordered. Last month, EPA said the new study was “inadequate.”
Both of these initiatives promised thousands of new jobs and would seem to be helpful to Obama in his quest for a second term. In both cases, a left wing member of his base intervened and his support collapsed.
Now, the debt ceiling:
The Speaker and the President had nearly agreed on a plan that included $800 billion in “revenue enhancements” but did not raise rates. What happened ?
House Speaker John Boehner’s (R., Ohio) office is pushing back against White House claims that the new revenue in the “framework” being discussed in the now defunct negotiations would have been generated by letting current tax rates expire. “That is simply false,” writes Boehner spokesman Michael Steel.
In reality, Steel writes, the White House offered a “ceiling” of $800 billion in new revenue over 10 years that would be achieved through comprehensive tax reform (e.g., eliminating loopholes, credits and deductions) in a way that would stimulate economic growth. This would not constitute a tax increase.
Following the release of the Gang of Six proposal, however, the White House then insisted on an additional $400 billion in actual tax increases, for a total of $1.2 trillion in revenue that would become the new “floor” for revenues. Additionally, the administration backed away from several aspects of the tax reform package they had already agreed to, including a protection against tax hikes on small businesses and a guarantee that they would only be three tiers of tax rates, the highest of which would be below 35 percent.
In regard to Social Security, the two sides had agreed on a change in the way the government calculates inflation (the so-called “chain CPI”) that would extend the program’s solvency. However, the White House reneged on a previously agreed-upon solvency target and offered a weaker target that would yield 25 percent less in savings.
If true, clearly the two teams were playing in two separate stadiums.
What had happened was that the “Gang of Six” report was released and the revenue increases looked better to Obama so he reneged. There was also considerable discussion that Democrats were furious with him because he had not insisted on tax increases.
No. I think what happened is Congressional Democrats got a whiff of a possible deal where you get entitlement cuts and tax reform, say, next year — which might increase revenue or might not — and they panicked because a) they have a religious belief in raising the taxes. If you don’t have that, you can’t have a deal, so it created a kind of a theological panic.
Obama, it seems, cannot stand up to the rest of his party. He will negotiate but once some interest group objects, he is gone. No deal.
In the talks about raising the debt ceiling, or not, president Obama made a Freudian slip that will permanently affect the reform of entitlements. Social Security was supposed to have a trust fund that would guarantee payment for another 30-40 years. Ask any Democrat, especially one who is opposed to reforms that convert part of the account to a private investment account.
Obama said he “could not guarantee” that Social Security checks would go out after August 2 of the debt limit had not been raised. That is the end of the trust fund fiction.
In 1960, the Supreme Court ruled that workers do not have a legal right to their Social Security benefits. Congress can cut them any time it wants, which it’s done several times. And, because there are no ownership rights, if you die the day you retire after making a lifetime of payments into Social Security, your heirs get nothing.
That was 50 years ago but the truth may finally sink in now.
President Obama has made many gaffes suggesting unfamiliarity with things like military medical personnel, otherwise known as corpsmen. This time he has shown himself to be unfamiliar with the defense budget and arithmetic.
“The nice thing about the defense budget is it’s so big, it’s so huge, that a 1 percent reduction is the equivalent of the education budget,” Obama said, immediately noting he was “exaggerating” the exact numbers.
“But it’s so big that you can make relatively modest changes to defense that end up giving you a lot of head room to fund things like basic research or student loans or things like that,” the president said.
In fact, his numbers are wildly wrong.
“Contrary to his wildly exaggerated statement, a 1 percent reduction to the Pentagon’s proposed fiscal year 2012 base budget would be $5.5 billion—or 7 percent of the Department of Education’s proposed FY 2012 budget,” wrote Brownfield.
The political left has exaggerated the size of the defense budget for years. The fact that a left wing president would do it is an example of how far from reality they are.
I spent the past six months reading about Calvin Coolidge. I was interested in why the 1920s were a period of great prosperity and why the severe recession/ depression of 1920-1921 was so short. At its peak, there was 25% unemployment. Gross domestic product dropped by 6.9% in one report.
The recession of 1920–21 was characterized by extreme deflation — the largest one-year percentage decline in around 140 years of data.[2] The Department of Commerce estimates 18% deflation, Balke and Gordon estimate 13% deflation, and Romer estimates 14.8% deflation. The drop in wholesale prices was even more severe, falling by 36.8%, the most severe drop since the American Revolutionary War. This is worse than any year during the Great Depression (adding all the years of the Great Depression together, however, yields more severe deflation). The deflation of 1920–21 was extreme in absolute terms, and also unusually extreme given the relatively small decline in gross domestic product.[2]
The Harding-Coolidge administration took office in March 1921 and the recession was over in months. Why ? Governments were smaller then and had less influence on the economy. The Wilson Administration has been widely described as the equivalent of a fascist regime with its war time controls and economic meddling. Again from the Wikipedia article:
Interpretations of the end
Austrian School economists and historians argue that the 1921 recession was a necessary market correction, required to engineer the massive realignments required of private business and industry following the end of the War. Libertarian Austrian School historian Thomas Woods argues that President Harding’s laissez-faire economic policies during the 1920-21 recession, combined with a coordinated aggressive policy of rapid government downsizing, had a direct influence (mostly through intentional non-influence) on the rapid and widespread private-sector recovery.[12] Woods argued that, as there existed massive distortions in private markets due to government economic influence related to World War I, an equally massive “correction” to the distortions needed to occur as quickly as possible to realign investment and consumption with the new peace-time economic environment.
Daniel Kuehn’s recent research demonstrates that Woods gets many of the facts of the 1920-21 recession wrong.[13] The most substantial downsizing of government was attributable to the Wilson administration, and occurred well before the onset of the 1920-21 recession. The Harding administration raised taxes in 1921 by expanding the tax base considerably at the same time that it lowered rates. Kuehn also points out that Woods underemphasizes the role the monetary stimulus played in reviving the depressed economy. Since the 1920-21 recession was not characterized by any aggregate demand deficiency, fiscal stimulus was entirely unwarranted.
[edit]
I would tend to doubt the “recent research” that tries to include Keynes’ theories in the explanation. The issue of Fascism is more interesting. The National Recovery Administration was probably the most openly fascist bureaucratic organization that the US government ever instituted. It was eventually overturned by the Supreme Court, prompting Roosevelt’s “court packing” scheme. (A very sympathetic version by PBS).
What then, led to the Depression and what is leading to the present frightening echo of 1933? Here is a very frightening chart.
Here is a chart showing the price/earnings ratios of cyclical stocks vs “defensive stocks.” What it shows is that cyclical stocks, that can be expected to respond to economic conditions, are very, very cheap. That looks like most people do not expect recovery any time soon. Why ?
This is a very frightening chart. It has been for months as no prior recession has shown this deep a fall in employment and this slow a recovery. Now, if you look at the end of the red line, you see that employment is not recovering at all. The line is flat.
Calvin Coolidge has been criticized in history for his pro-business sentiments expressed in words. He is alleged to have said, “The business of America is business.” In fact, that is not an accurate quote but the sentiment he expressed was similar. He was also quoted as saying something like “A man who builds a factory, builds a temple and those who work there, worship there.” He has been widely criticized for those statements, as if praising business was immoral.
Does anyone still wonder why the economy under a president who seems hostile to business is failing while the economy under a president who supported it and wasn’t ashamed to say so, boomed.
Some have blamed Coolidge for the 1929 crash but it is pretty clear that the problem was similar to the problem of the real estate bubble in 2005. The Federal Reserve kept interest rates too low for too long. In 1928, Coolidge did not feel he had the right to intervene with the Fed and Benjamin Strong who was the president of the New York Fed died in October of that year. The Dow doubled in 1929. That was the speculative blow-off that ended in the crash. In 2005, Alan Greenspan still believed that a real estate bubble was preferable to a correction from the 1990 internet bubble. George Bush may have had more ability to intervene but all the safety mechanisms, which had not existed in 1929, still failed.
We are on the path to another Depression. One small indication. I do reviews of workers compensation claims. One would expect that, early in a severe recession, claims would go up as workers anticipate layoffs and try to file claims. There was a bit of that but it is over. Employment in California is down so far that the State Compensation Insurance Fund is laying off doctors and closing offices. Claims are way down because employment is falling rapidly. Workers may be afraid to file claims now.
There has been much jubilation over the ouster of President Mubarak and much ridicule at the idea that the Muslim Brotherhood would take over. Well, the Egyptian Revolution ended a week ago with Mubarak’s resignation. Yesterday, the second revolution began with the return from exile of a radical Imam. Sound familiar ?
As I posted yesterday, over a million Egyptians turned out in Tahrir Square last Friday to cheer the vile anti-Semitic Sunni cleric Sheik Yusuf al-Qaradawi, who had been exiled by Mubarek, and who espouses the fundamentalist Islamic view that Jews must live as Dhimmis under Islamic control. Instead of accurately reporting the significance of this event, The New York Times whitewashed the cleric as someone who supports a “a pluralistic, multiparty, civil democracy.”
His version ?
Based in Qatar, Sheikh Yusuf Al-Qaradawi is one of the most influential clerics in Sunni Islam. He currently serves as president of the European Council for Fatwa and Research (ECFW), and is a highly influential spiritual leader of the Muslim Brotherhood. Qaradawi has twice (in 1976 and 2004) turned down opportunities to serve as the Brotherhood’s highest-ranking leader. His preference, he explains, is to avoid tying himself to “any movement which might constrain my actions, even if this is the Muslim Brotherhood under whose umbrella I grew and which I so defended.“
It’s OK, though, because they are secular.
Here is the video of the rally (in Arabic, via Israel Matzav) with the crowd chanting:
“To Jerusalem We go, for us to be the Martyrs? of the Millions.”
We demand that the Egyptian army liberate us from the government, which was formed by Mubarak in the days of his soon-to-be-erased rule. We want a new government, without a single one of the faces that people cannot tolerate anymore. Whenever people see these faces, they remember the injustice, the killing, they remember the invasion of the camels, mules, and horses, as well as the snipers who killed the people.
[…]
A message to our brothers in Palestine: I harbor the hope that just like Allah allowed me to witness the triumph of Egypt, He will allow me to witness the conquest of the Al-Aqsa Mosque and will enable me to preach in the Al-Aqsa Mosque.
Oh Allah, allow us to preach in the Al-Aqsa Mosque.
There is a peaceful sentiment. The Al Aqsa Mosque sits atop the Temple Mount in Jerusalem. Another helpful statement:
Sheik Yousuf Al-Qaradhawi: The Rafah border crossing will be opened for you. This is what I demand from the Egyptian army and from the Supreme Council of the Armed Forces.
That will open the border to Gaza. Frankly, that makes sense as Gaza was part of Egypt before the 1967 war. It has nothing to do with Palestine. The only problem is with the Hamas terrorists who rule Gaza. This may well be Obama’s Khomeini moment.
One of the most publicized figures outside Egypt in this story the last few weeks is a Google executive who is Egyptian.
One of the western media’s favorite Egyptian rebels is Google executive Wael Ghonim. No surprise there: if you had to choose among radical clerics like al-Qaradawi, hooligans like those who assaulted Lara Logan, and a suave, Westernized Google exec, whom would you want to interview? Ghonim was present on Friday and intended to address the crowd, but he was barred from the platform by al-Qaradawi’s security. He left the stage in distress, “his face hidden by an Egyptian flag.” Is Ghonim Egypt’s Kerensky? Well, at least Kerensky got to rule for a while.
Ghonim is one more proof, as if we needed any more, that brilliance in another field is no guarantee of common sense in politics, especially revolutionary politics. We are now about to move to the next stage, which in the French Revolution ended with the Terror. In Iran, it still goes on.
This week has seen the most amazing events unfold in Madison Wisconsin. Most of us have considered Wisconsin sort of a lost cause. The Progressive Party began there with the La Follette family and Robert La Follette who broke with Teddy Roosevelt in 1912 and later ran for president on a Progressive ticket in 1924. His family dominated Wisconsin politics, although Senator Joe McCarthy showed the odd character of their politics, too. The German socialism that influenced the Progressives has waned but the shock of the first real stand against the public employee unions has highlighted the recent changes in Wisconsin.
The Republicans swept the state as part of the 2010 electoral route of Democrats and the political left. Governor Scott Walker is not well known but his stand against the unions will make him a national figure by this weekend. The legislation he has introduced will limit the unions to bargaining for salary only. Benefits will not be subject to collective bargaining. In addition, teachers and other state employees, except those in police or firefighter unions, will be required to contribute small amounts to their pension and health care plans. My brother-in-law is a retired policeman in Chicago. My sister tells me that they have always had to contribute to his pension and the health plan. In Wisconsin, up to date, none of these employees have been required to contribute anything. Zip ! Zero !
The Republicans took over the majority in the state Senate 19 to 14. Apparently, Wisconsin law requires a super quorum including at least one member of each party to vote on legislation affecting the budget or funding state programs. As a result, the Wisconsin Senate Democrats, all 14 of them, fled the state. It turns out their hideaway was spectacular and they have announced that they may stay away for weeks.
President Obama has intervened by saying “Wisconsin is conducting an assault on unions.” In addition, his “Organizing for America” group, which has become part of the DNC, is now helping organize the demonstrations in Madison.
The state Capitol is occupied by union demonstrators who apparently plan to shut down the government. They are carrying outrageous signs and there may be violence not far below the surface. Where will this lead ?
It has long been understood that the 2010 elections were just the beginning of the struggle to reverse America’s current decline. It will take at least two or three election cycles to correct decades of bad policy choices. We aren’t staring into the fiscal abyss because of any single policy or event, but rather the cumulative effect of dozens, if not hundreds, of flawed decisions made by fickle politicians who capitalized on the fact that the American public was largely disengaged. In the end, these decisions created a vast political class who live off the fruits of others’ labors.
When a business wants to increase its future earnings, it has to find new markets and sell more of its product. For the political class its the same, only their markets and products are government services. As a result, every year, public sector unions spend tens of millions of dollars lobbying for bigger government and filling the campaign coffers of the politicians who acquiesce to their demands. In addition to bigger government, they’ve won pay packages higher than the private sector, almost 100% job security and the ability to retire in their fifties with lifetime retirement income and health benefits. All paid for by us. Unlike private sector unions, every dollar funding government employees’ pay, pension and benefits comes out of our paychecks.
The moral hazard of public employee unions was known to Franklin Roosevelt who opposed them. John Kennedy permitted government workers to unionize by executive order. Ironically, Wisconsin, in its Progressive era, was the origin of the largest public employee union.
If there is any doubt how important the fight in Wisconsin is, look no further than the left’s reaction to it. Governor Walker’s proposal calls on public employees to pay more into their retirement fund and pay around 12% of their health insurance premiums. It also ends collective bargaining for most public employees, which mostly affects union bosses rather than rank and file members and is an important measure to forestall a future fiscal crisis.
Actually, as I understand it, the collective bargaining is still permitted for salary but not benefits.
For this, tens of thousands of public school teachers called in ’sick.’ So many, in fact, that hundreds of schools across Wisconsin have been closed for days. They pressed school children into service as fellow protesters, most not understanding the issue at hand. They drew up signs comparing the governor to Hitler and called the GOP Nazis. Several GOP Senators have faced multiple death threats. When all of this wasn’t enough to stop the proposal, their allies in the Senate simply fled the state to prevent a vote from happening.
Among key provisions of Mr. Walker’s plan: limiting collective bargaining for most state and local government employees to the issue of wages (instead of an array of issues, like health coverage or vacations); requiring government workers to contribute 5.8 percent of their pay to their pensions, much more than now; and requiring state employees to pay at least 12.6 percent of health care premiums (most pay about 6 percent now) …
In an unusual move, he would require secret-ballot votes each year at every public-sector union to determine whether a majority of workers still want to be unionized. He would require public-employee unions to negotiate new contracts every year, an often lengthy process.
The result has resembled Cairo and the demonstrations seem to be building up into a national showdown with public employee unions. Scott Walker is under enormous pressure but a large part of the nation is behind him. The union tactics may well alienate an even larger share of the public.
The Hitler meme is as common as it was with George W Bush. Democrats seem to have limited imagination.
For Americans who don’t think the welfare state riots of France or Greece can happen here, we recommend a look at the union and Democratic Party spectacle now unfolding in Wisconsin. Over the past few days, thousands have swarmed the state capital and airwaves to intimidate lawmakers and disrupt Governor Scott Walker’s plan to level the playing field between taxpayers and government unions.
Mr. Walker’s very modest proposal would take away the ability of most government employees to collectively bargain for benefits. They could still bargain for higher wages, but future wage increases would be capped at the federal Consumer Price Index, unless otherwise specified by a voter referendum. The bill would also require union members to contribute 5.8% of salary toward their pensions and chip in 12.6% of the cost of their health insurance premiums.
If those numbers don’t sound outrageous, you probably work in the private economy.
This looks to be building up to a national showdown with public employee unions. I hope Scott Walker is safe and keeps his courage in spite of demonstrations on the front lawn of his and other legislators homes. He looks like he is not weakening.
More to come.
UPDATES:
1. John Fund adds some background to the story with an explanation of the issues behind the furious union response.
We re-read the fiscal bureau memo, talked to Lang, consulted reporter Jason Stein of the Journal Sentinel’s Madison Bureau, read various news accounts and examined the issue in detail.
Our conclusion: Maddow and the others are wrong.
There is, indeed, a projected deficit that required attention, and Walker and GOP lawmakers did not create it.
More on that second point in a bit.
The confusion, it appears, stems from a section in Lang’s memo that — read on its own — does project a $121 million surplus in the state’s general fund as of June 30, 2011.
But the remainder of the routine memo — consider it the fine print — outlines $258 million in unpaid bills or expected shortfalls in programs such as Medicaid services for the needy ($174 million alone), the public defender’s office and corrections. Additionally, the state owes Minnesota $58.7 million under a discontinued tax reciprocity deal.
The result, by our math and Lang’s, is the $137 million shortfall.
Sorry folks, the head-in-the-sand version is not true. The only state with a surplus is North Dakota.
3. Now, we have a doctor (or a fake) handing out excuse slips for the teachers that called in sick. This is illegal and apparently there are multiple folks in white coats handing out these slips with his name. This is practice of medicine without a license and treating (for him) patients without a good faith exam. How does he know they are or were sick ? Digging deeper and violating the first rule of holes.
4. Here is a new blog reporting on the antics of the runaway Democrat Senators.
The Governor stands firm. I understand that there are strategies in place for next steps which will shake up the stalemate….I have known him for at least 15 years, but he is different now. He is a man who has met his time and his place, and he seems to know it.
Here is a very important comment from a Newsbusters thread on the Wisconsin situation.
Would someone please note that Unions make the great lion’s share of their $ from negotiating “benefits”, not salaries… or collection of dues.
This is why the decoupling of the Salaries and Benefits so important to Unions in Wisconsin. And why the Union’s have countered the way they have. They’ll give up Salary and Jobs for Teachers in a second, but they will fight to death for Benefit negotiation position. In another life as an executive in CA, I used to do administration for two Teamster’s “Health and Welfare” benefit packages. Do your research, but you’ll find I’m correct about motivation of Unions. I also believe that the amount of money kept by Unions will be very interesting to both your viewers, and the tax payers of the US of A. The way it works is that the Unions negotiate with the “Employer” regarding how much money per member/per month they will need to support the benefit options required in Union contract. In the case of WI, they negotiate with each of the 77 counties. Then the Unions negotiate the terms of benefits with “providers”/Ins Co’s, etc. They make the lion’s share of their money off of what is called the “breakage” created by Employees choosing between plan options, and the administration of the programs.
Let me explain with an example: A Union begins by negotiating with the Employer/State. They’ll claim their buying leverage will afford Employer significant savings. They’ll end up with a 3-tiered cost structure which allows the Union a profit even with the highest benefit option available as Union already has a very good idea about what Providers will be charging. But it gets even more lucrative for Unions at this point. Let’s say high-end Blue Cross PPO coverage costs $400 for the Family tier. What a Union will do is require $425 from Employer, plus a loaded in admin fee, as a charge for all Families in the employer group. So far, so fair? But, the Union will also offer a few other plans for Employees to choose from. The Union will also have developed relationships with a few cheaper HMO plans, and lesser PPO benefit structure plans that charge, as an example, $325 and $375, respectively.
At an Open House, employees will choose what fits their needs and the Union is in line for the “breakage“. The left over breakage is then, to my experience, placed in a fund where only the Union has the checkbook. Cars, Vacations and Condo’s, oh my. The Union also makes a “commission” off of things like Pre Legal, Dental and Term Life. As another profit source, the Union also leans on the Administrator for favors I’d rather not list, but usually involving idiocy like buying thousands of dollars of “raffle tickets” and leasing cars for the Union’s Business Agents, not entirely above board. Of course I am relating my experience, and what little I know of others who also did Union administration. I’d expect any simple research by an actual reporter would open up a Pandora’s box of Slush in the Badger State.
Very revealing comment. This is why “benefits” is such a life and death issue for the unions.
There is an excellent article on the origins of the Egyptian situation in The Weekly Standard this week. The author has also written Strong Horse on Arab culture and the Middle East. His subject is the consequences of Obama’s “reaching out” to enemies and despots.
It was the June 2009 uprising following the Iranian elections that first showed Obama’s mettle. While millions of Iranians took to the streets to demonstrate, the administration dithered for two weeks before taking a stand. That alone showed the sort of weakness and passivity that emboldens bad actors. But the rationale for the White House’s silence only made it worse.
Obama did not want to antagonize the Iranian government because he wanted to engage them over their nuclear program. Every regional ally—from Jerusalem to Riyadh—told him that this was a fool’s errand, but the president was not to be deterred, even as the Iranian rulers thumbed their nose at the American president and told him they did not want to negotiate.
The administration also wanted to engage Iran’s ally, Syria, even as Damascus was supporting foreign fighters making their way into Iraq to kill American troops and our Iraqi allies. Furthermore, the Assad regime continued to back both Hamas and Hezbollah, who had laid siege to American allies in Lebanon, the Palestinian territories, and Israel. Instead of bringing Damascus into the American column, Obama’s outreach pushed an ally, Saudi Arabia, into the Syrians’ arms.
Because the Saudis interpreted U.S. engagement with Syria and Iran as a retreat from Lebanon, they believed it was the better part of valor to court the Syrians, in hopes they might help attenuate Iran’s influence in Lebanon. Moreover, the House of Saud and Syria struck a deal over Iraq, where they would coordinate efforts to weaken, if not topple, an American ally, Prime Minister Nouri al-Maliki. A series of massive car bombings in Baghdad did precisely that, and again the administration did nothing to protect its friends or punish its enemies.
I have previously commented on Obama’s foolish policies. He seems to think that talk will induce enemies to change to friends. His own career does not support this idea as he was first elected to office by disqualifying every opponent. His US Senate campaign succeeded by convincing a judge to unseal divorce records of his opponent. In none of these instances did talk accomplish anything. Thuggery was his method.
We are now in a situation that would not have occurred with another president, say John McCain. How it will end is not a pleasant prospect. The author, Lee Smith, has added some comments at Powerline.
Maybe it’s worth recalling the Peter Rodman essay where he noted that Eisenhower called the 1956 Suez Crisis his greatest foreign policy mistake. After getting our British, French and Israeli allies to stand down and handing Nasser the Egyptian president’s only foreign policy victory in a career marked by disastrous adventurism, Eisenhower couldn’t understand why the Egyptians still hated the US.
So no matter what Obama thinks he can get from Mubarak, the American president is not going to win the affection of the Arab masses. The administration’s concern is appropriate insofar as Americans do not like to see people crushed in their own streets by their rulers, especially when those rulers are US allies and get American aid money.
That said, whatever Obama wanted from Mubarak should have been conducted in private–not just because that is how you treat allies, no matter how mad you are at them, but also because to do otherwise, to make public demands, sets up the likely possibility that you will be rebuffed in public.
Obama tried to take Mubarak out to the woodshed, but the Egyptian knows he doesn’t have to take the US commander-in-chief seriously, because of his actions in the Middle East the last two years. Whether or not you think that Obama is right to deal with a US ally the way he has treated Mubarak, or whether Mubarak should step down immediately, the fact is that Mubarak knows Obama does not need to be taken seriously.
As I say in the piece, the US president did not project power in the region because he failed to observe the cardinal rule of Middle East politics–reward your friends and punish your enemies.
That rule goes back beyond Nicholas Machiavelli. Harry Truman once stated his political philosophy by recounting an aphorism about a Roman Senator. “His downfall began when he took his friends for granted and tried to bribe his enemies.”
Egypt’s escalating tensions amount to the first real foreign crisis for the Obama administration that it did not inherit. The crisis serves as a test of Obama’s revamped White House operation. Daley, a former Commerce secretary in the Clinton administration, is now running a staff that is briefing Obama regularly on Egypt.
They have handled it badly. This is a very dangerous time for us. The Egyptian Army seems to be siding with the protesters. That may or may not last.
The left-wing Israeli newspaper Haaretz says that Egyptian army officers in Cairo’s central square have tossed aside their helmets and joined the crowd. “The Army and the people are one,” they chanted. MSNBC’s photoblog shows protesters jubilantly perched on M1A1 tanks. The real significance of these defections is that the army officers would not have done so had they not sensed which way the winds were blowing — in the Egyptian officer corps.
And even as Mubarak tottered, the Saudi king threw his unequivocal backing behind the aging dictator — not hedging like Obama — but the Iranians continued to back the Egyptian protesters. The Saudi exchange tumbled 6.44% on news of unrest from Cairo. Meanwhile, the Voice of America reports that Israel is “extremely concerned” that events in Egypt could mean the end of the peace treaty between the two countries. If Mubarak isn’t finished already, a lot of regional actors are calculating like he might be.
But Washington will not be hurried. The San Francisco Chronicle reports that President Obama will review his Middle Eastern policy after the unrest in Egypt subsides. The future, in whose spaces the administration believed its glories to lie, plans to review its past failures in the same expansive place. Yet time and oil wait for no one. Crude oil prices surged as the markets took the rapid developments in. U.S. Energy Secretary Steven Chu observed that any disruption to Middle East oil supplies “could actually bring real harm.”
Of course, Mr Chu should not worry as we have wind and solar to take up the slack. Actually, we get our oil from Canada and Mexico but the price of oil shifts with the world’s supply.
The present Obama commitment to Afghanistan is ironic since he promised to bring troops home but he has declared that Iraq was NOT necessary and Afghanistan is. This is slightly crazy. The Iraq invasion was an example of US power being applied in a critical location; right in the middle of the Middle East. Afghanistan is a remote tribal society reachable only through unreliable Pakistan. It has minimal effect on world events. We went there to punish the Taliban for harboring the people who attacked our country. Thousands of them have been killed. We have little of interest there now. We should have left last year.
With a Shi’ite dominated government in Iraq, Hezbollah in Lebanon, and a Muslim Brotherhood that may keep Egypt in neutral or tacitly accept Teheran’s leadership, how could things possibly get worse?
They can if Saudi Arabia starts to go. And what response can the U.S. offer? With U.S. combat power in landlocked Afghanistan and with the last U.S. combat forces having left Iraq in August 2010, the U.S. will have little on the ground but the State Department. “By October 2011, the US State Department will assume responsibility for training the Iraqi police and this task will largely be carried out by private contractors.” The bulk of American hard power will be locked up in secondary Southwest Asian theater, dependent on Pakistan to even reach the sea with their heavy equipment.
This is not where we want to be. The problem is that Obama and Hillary and the rest of this administration have no concept of strategy.
The Obama administration made fundamental strategic mistakes, whose consequences are now unfolding. As I wrote in the Ten Ships, a post which referenced the Japanese Carrier fleet which made up the strategic center of gravity of the enemy during the Pacific War, the center of gravity in the present crisis was always the Middle East. President Obama, by going after the criminals who “attacked America on 9/11? from their staging base was doing the equivalent of bombing the nameless patch of ocean 200 miles North of Oahu from which Nagumo launched his raid. But he was not going after the enemy center of gravity itself.
For all of its defects the campaign in Iraq was at least in the right place: at the locus of oil, ideology and brutal regimes that are the Middle East. Ideally the campaign in Iraq would have a sent a wave of democratization through the area, undermined the attraction of radical Islam, provided a base from which to physically control oil if necessary. That the campaign failed to attain many of objectives should not obscure the fact that its objectives were valid. It made far more strategic sense than fighting tribesmen in Afghanistan. Ideology, rogue regimes, energy are the three entities which have replaced the “ten ships” of 70 years ago. The means through which these three entities should be engaged ought to be the subject of reasoned debate, whether by military, economic or technological means. But the vital nature of these objectives ought not to be. Neutralize the intellectual appeal of radical Islam, topple the rogue regimes, and ease Western dependence on oil and you win the war. Yet their centrality, and even their existence is what the politicians constantly deny.
Events are unfolding, but they have not yet run their course; things are still continuing to cascade. If the unrest spreads to the point where the Suez and regional oil fall into anti-Western hands, the consequences would be incalculable. The scale of the left’s folly: their insistence on drilling moratoriums, opposition to nuclear power, support of negotiations with dictators at all costs, calls for unilateral disarmament, addiction to debt and their barely disguised virulent anti-Semitismshould be too manifest to deny.
Leftism is making common cause with Islamic terrorism. Why ? I don’t really know. Some of it may be the caricature of Jews making money and being good at business. Some may simply be the extension of animosity to Israel extending to all Jews. The people behind Obama are not free of these sentiments. His Justice Department is filled with lawyers who defended terrorists at Guantanamo. Holder seems uninterested in voting rights cases if a black is the offender. He was even unwilling to say that Islamic terrorism was behind 9/11.
Because it will hit them where it hurts, in the lifestyle they somehow thought came from some permanent Western prosperity that was beyond the power of their fecklessness to destroy. It will be interesting to see if anyone can fill up their cars with carbon credits when the oil tankers stop coming or when black gold is marked at $500 a barrel. It is even possible that within a relatively short time the only government left friendly to Washington in the Middle East may be Iraq. There is some irony in that, but it is unlikely to be appreciated.
I would add a bit to this from one of my favorite essays on the topic. It compares Gorbachev to Obama.
Nor are the two men, themselves, remotely comparable in their backgrounds, or political outlook. Gorbachev, for instance, had come up from tractor driver, not through elite schools including Harvard Law; he lacked the narcissism that constantly seeks self-reflection through microphones and cameras, or the sense that everything is about him.
On the other hand, some interesting comparisons could be made between the thuggish party machine of Chicago, which raised Obama as its golden boy; and the thuggish party machine of Moscow, which presented Gorbachev as it’s most attractive face.
Both men have been praised for their wonderful temperaments, and their ability to remain unperturbed by approaching catastrophe. But again, the substance is different, for Gorbachev’s temperament was that of a survivor of many previous catastrophes.
Yet they do have one major thing in common, and that is the belief that, regardless of what the ruler does, the polity he rules must necessarily continue. This is perhaps the most essential, if seldom acknowledged, insight of the post-modern “liberal” mind: that if you take the pillars away, the roof will continue to hover in the air.
In another passage:
There is a corollary of this largely unspoken assumption: that no matter what you do to one part of a machine, the rest of the machine will continue to function normally.
A variant of this is the frequently expressed denial of the law of unintended consequences: the belief that, if the effect you intend is good, the actual effect must be similarly happy.
Very small children, the mad, and certain extinct primitive tribes, have shared in this belief system, but only the fully college-educated liberal has the vocabulary to make it sound plausible.
With an incredible rapidity, America’s status as the world’s pre-eminent superpower is now passing away. This is a function both of the nearly systematic abandonment of U.S. interests and allies overseas, with metastasizing debt and bureaucracy on the home front.
The turmoil in Egypt is a test that, I fear, Obama and his Secretary of State, will not pass.
Elections will be held. The primary U.S. objective is to guide a transition period that gives secular democrats a chance.
The House of Mubarak is no more. He is 82, reviled and not running for reelection. The only question is who fills the vacuum. There are two principal possibilities: a provisional government of opposition forces, possibly led by Mohamed ElBaradei, or an interim government led by the military.
ElBaradei would be a disaster. As head of the International Atomic Energy Agency (IAEA), he did more than anyone to make an Iranian nuclear bomb possible, covering for the mullahs for years. (As soon as he left, the IAEA issued a strikingly tough, unvarnished report about the program.)
Worse, ElBaradei has allied himself with the Muslim Brotherhood. Such an alliance is grossly unequal. The Brotherhood has organization, discipline and widespread support. In 2005, it won approximately 20 percent of parliamentary seats. ElBaradei has no constituency of his own, no political base, no political history within Egypt at all.
He has lived abroad for decades. He has less of a residency claim to Egypt than Rahm Emanuel has to Chicago. A man with no constituency allied with a highly organized and powerful political party is nothing but a mouthpiece and a figurehead, a useful idiot whom the Brotherhood will dispense with when it ceases to have need of a cosmopolitan frontman.
The Egyptian military, on the other hand, is the most stable and important institution in the country. It is Western-oriented and rightly suspicious of the Brotherhood. And it is widely respected, carrying the prestige of the 1952 Free Officers Movement that overthrew the monarchy and the 1973 October War that restored Egyptian pride along with the Sinai.
The military is the best vehicle for guiding the country to free elections over the coming months.
