Sunday Funnies 2010-09-05 Voting Trends

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Driver's License Facility, State Lawmakers Face Eviction Over Nonpayment of Bills by State of Illinois

The state of Illinois is sitting on $4 billion in unpaid bills. Some of that is to hospitals, some to schools, some of it is internal transfers, but a lot of it affects the lives of real people who need the money to pay their bills.

For example, please consider Libertyville driver's license facility may be evicted

Stephen Martin, whose family owns the Brookside shopping center on the 300 block of Peterson Road that houses the Secretary of State office, has sent a letter to state officials saying he wishes to terminate the lease agreement because of the long-overdue payments. Martin said the state owes him nearly $43,000 in back rent and expenses.

It's not the first time the state has fallen behind on payments for the facility, which opened in 1987, Martin said. Payments were six months overdue by the time a check was cut in December, and this past April the state owed Martin four months worth of rent when it finally paid.

If the state doesn't pay up this time, Martin said, he will go to court and begin eviction proceedings.

The delinquent rent checks are symptomatic of the state's ongoing financial problems. The comptroller's office has $4.3 billion in unpaid bills in its system, spokesman Alan Henry said this week.

Several state lawmakers have faced eviction because of late payments; just this week, state Rep. Sandy Cole of Grayslake temporarily began working out of her house because her office was shut down.

Without a doubt, Illinois is bankrupt.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Dissolving Cities - Is this the Way Out?

Some cities in California are so bloated in debt and other problems they are considering dissolution. Mercury News asks is this The End of Half Moon Bay?

Between budget losses and lawsuit payments, Half Moon Bay's financials have become so dire that if a local sales tax measure doesn't pass this November, officials say they may have to disincorporate.

City leaders have been using the "D" word for a few weeks now as they try to persuade voters to pass Measure K, a one-cent sales tax increase that would help the city balance its budget with an extra infusion of $1.4 million per year for the next seven years.

Dissolving Half Moon Bay -- handing the city's budget, operations and services to San Mateo County -- would be an absolute last resort, but the city may not have many other options left, City Councilman John Muller said.

At first glance, disincorporation could save taxpayers some money: no more city administration to support. Police services would be contracted out, and the county would cover planning, building and public works projects from its offices in Redwood City.

City Manager Michael Dolder admits disincorporation is one of the options on the table now. The City Council already cut $900,000 from the current budget -- including half its employees -- and imposed furloughs on those who remain. Some of the cuts were needed to pay for the Beachwood lawsuit settlement, a $15 million burden the city will shoulder in bond payments for the next 20 years.

Disincorporation is so rare in California that it's almost without precedent. The last city to do it, Cabazon in Riverside County, had fewer than 2,000 residents and no functional government to speak of when it voted to give up cityhood.

The process is so complicated that county officials said they don't know what kinds of services the Board of Supervisors would choose to provide or how much they would cost.

One thing is certain: disincorporation is not a bailout. The county would lay claim to revenues, including Half Moon Bay's property taxes, sales taxes and hotel taxes, but not its liabilities. Today's Half Moon Bay residents would be required to assume the debt burden of Beachwood bond payments, which would likely be added as a lien on their properties, according to Assistant County Controller Bob Adler.

D Is for Disincorporate

The PropZero blog writes California Cities: D Is for Disincorporate

City officials in Half Moon Bay say the municipal budget is such a mess that it may make sense to disincorporate and turn the place over to San Mateo County

Consider Los Angeles County which has 88 cities, many of which it clearly does not need. Several of the smaller cities seem to exist as personal playgrounds for families or particular businesses. Those municipalities -- the now famous Bell just one of them -- have extensive histories of municipal corruption. If such cities were to go away, would they be missed?

A side note: unions have revived legislation in Sacramento that seeks to prevent cash-strapped cities from declaring bankruptcy (Municipalities would have to get permission from a labor-dominated commission first). The consequence of that legislation, were it to pass, might well be to promote more disincorporations -- that is, the shutting down of cities -- since bankruptcy would be all but off the table.

Simple Solution

Unions have revived measures to prevent municipal bankruptcies, but hopefully the governor would veto such asinine legislation were it to actually pass. I doubt there would be enough votes to override the veto.

The problem with disincorporation straight up is that it leaves the debts intact.

Instead, I propose Half Moon Bay file bankruptcy, wiping out its debts, or at least sending them to bankruptcy court. Then Half Moon Bay can disincorporate, saving itself the problems of dealing with a local police force and its pensions.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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New Job Opportunity - Spitting at the Moon

In multiple posts Paul Krugman is saying "I told you so". For example, please consider Nobody Could Have Predicted

Pictures support the view that stimulus worked as long as it lasted, boosting the economy — which is the same conclusion Adam Posen drew from Japan’s experience in the 1990s: Fiscal policy works when it is tried.

But the stimulus wasn’t nearly big enough to restore full employment — as I warned from the beginning. And it was set up to fade out in the second half of 2010.

So what was supposed to happen? The invisible cavalry were supposed to ride to the rescue.

I never understood why the Obama administration thought this would happen so soon; history tells us that the effects of a financial crisis on private spending are normally protracted. And sure enough, the cavalry has not arrived.

Stimulus and Full Employment

The idea we can stimulate the economy to full employment is about as silly as silly gets. Krugman wanted double the stimulus we got. Well, we got zero benefit unemployment-wise from the stimulus and in my book infinity times zero is still zero.

Yes, unemployment fell from 10.1% to 9.5% but all of that decrease, if not more than all of that decrease, was a result of a falling participation rate. The bottom line is neither the Fed increasing its balance sheet by $trillions nor a $1.4 trillion deficit did a thing to lower unemployment.

Of course the Keynesian clowns will holler things would have been worse in the absence of stimulus. Really?! Would banks be lending more? Would small businesses be hiring?

Full Employment Made Easy

Krugman wants full employment. I suppose the government could easily employ everyone who does not have a job. Then again, didn't we effectively do just that?

Here is a snip from "Contained Depression" that suggests we did.

We are certainly in a depression. However, 40 million people on food stamps as of August 2010, masks that depression. The cost of the food stamp program is on schedule to exceed $60 billion in fiscal 2010. For comparison purposes, there was just over 11 million on food stamps in 2005.

Please note there are 14.6 million unemployed, but of them 4.5 million of them are receiving regular unemployment benefits and another 4.7 million are receiving extended benefits. Thus 63% of those unemployed are receiving benefits. Being paid while not working also masks the depression.

Spitting at the Moon

Suppose that instead of handing out free money to 9.2 million unemployed, we hire them at minimum wage to spit at the moon. GDP would rise because all government spending by definition adds to GDP, regardless of how unproductive the activity really is.

Such a move would allow Krugman the wonderful opportunity to crow about rising GDP.

Moreover, unemployment would crash to seven percent or so. That would really get Krugman crowing. Yet, would anything have changed about the true state of the economy? Clearly the answer is no.

Suppose government hired all 14.6 million unemployed to spit at the moon. Would that get the economy humming? For any longer than the jobs to spit at the moon lasted?

The above examples may sound absurd, but the the result is much the same whether we hire people to spit at the moon vs. paving roads that don't need to be paved. The main difference is money will run out faster hiring road workers because of the wasted material and equipment costs.

Practical Example

In actual practice, tax credits for housing was an abysmal failure. Would doubling that program have achieved different results? Would wasting the same out of money to repair schools or build new schools have done any better? Once again the answer is no. The only difference in any of these examples is the burn rate at which stimulus money is wasted.

Only Genuine Demand Will Fix Economy

What will get the economy humming is better tax policy, scrapping Davis-Bacon, dumping public union workers wherever possible, slashing defense spending, and letting home prices bottom.

Real demand for housing will step up as soon as there are bargains. Instead we have policies to prop up home prices.

Lesson of Japan

The lesson of Japan is the same as the lesson of home tax credits in the US - Stimulus programs do not work period, regardless of size. In Japan, every program failed. Japan is now in debt to the tune of 200% of GDP.

Some suggest Japan is no worse off for it. Nothing could be further from the truth. Japan squandered massive savings in the stupidest manner possible, building bridges to nowhere, and now its citizens are aging, in need of drawing down their savings.

Unfortunately those savings were squandered.

Japan is poised to blow up, however, the timing is uncertain. Sadly, the US is on the same path and Krugman is hellbent to get us there faster.

Consumer Credit Inflection Point

Let's review Are we "Trending Towards Deflation" or in It?

The key problem for Bernanke is we have reached the Consumption Inflection Point - No One Wants Credit; Consumer Spending Plans Plunge

Keynesian Policies Fail

Keynesian stimulus measures have failed and will continue to fail. Please see Three Mish Segments on Tech Ticker, on Stimulus, Retail Sales, the Markets, Alternatives for details and an online interview.

We have wasted $2 trillion fighting deflation. It has not produced any jobs.

The correct way to spur growth is by fostering an economy that supports economic growth. For details, please see Bleak Outlook for Small Businesses and Job Creation; Where Obama Went Wrong, and What to do About It.

Keynesian Cures Worse than the Disease

Krugman has the wrong definition and the wrong worry. However, he is correct in his call for deflation. Unfortunately, this will lead to a bunch of "I told you so" kinds of posts from Krugman, in spite of the fact his cures are worse than the disease.

Indeed, Keynesian "cures" are one of the reasons this economy is in the mess it is in.

The final analysis shows that the real threat is not of deflation, but of absurd Keynesian and Monetarist attempts to prevent it. The Greenspan-Bernanke housing bubble (and subsequent crash), and decades of futility in Japan should be proof enough.

Nobody

For another "I Told You So" Krugman post, please consider Nobody

The truth is that some of us were practically screaming back in January 2009 that the administration was proposing too small a program. Start with Stimulus arithmetic (wonkish but important) and work forward. And no, the point isn’t that I’m so smart — it is that given the forecasts we had at the time, and given historical experience of recessions after financial crises, it wasn’t at all hard to see that the plan was too small. Things have been worse than expected — but not that much worse.

And why does this matter? Because the best chance Obama et al have to change things now is to make the case that we need to do more, and that Republicans stand in the way. Yet here they are, apparently trying to run on the claim that they had it right all along, or something. Is this just boneheaded political strategy? Is it about the egos of the advisers who called it wrong?

I Told You So

The easiest predictions in the whole world were ....

1. Stimulus would fail no matter how big.
2. Krugman would brag "I Told You So".

Three things about Krugman that irk me to no end are ...

• His failure to look at the seen and unseen consequences of his proposals
• His failure to address the question as to what happens when stimulus ends
• His failure to look at structural problems

Ability for government borrowing is not infinite (at least without major economic repercussions). One easy to see problem is interest on the national debt will consume all tax collections if we stay on this path. Moreover, expiration of housing tax credits provides a clear example as to what happens when stimulus ends.

The Invisible Cavlalry

My friend HB has written an excellent article on similar lines. It turns out prosperity is not around the corner after all. Please consider Paul Krugman and the Invisible Cavalry

Averting the Great Depression Again

Throwing money at problems cannot ever work, but that especially holds true when structural problems like union salaries and public pension promises are left intact.

Just because Krugman was correct that stimulus would fail does not make him correct about the reasons why, or what the correct policy actions should have been. The irony as my friend points out, is Krugman's 2009 proclamation "So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government".

Now we need big government to save us again. Spare me the sap. Big government is clearly the problem, not the solution.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Voters Strongly Favor Non-Incumbent GOP Newcomers in Midterm Elections

More than any other class, including Republicans in general, voters have a decided preference for non-incumbent GOP challengers. Moreover, three in four believe an influx of new members would improve Congress, says Gallup.

Please consider Americans Most Likely to Favor GOP Newcomers for Congress

Suppose you had a choice among each of the following four types of candidates for Congress. Which one would you be most likely to vote for?

Republican serving in Congress - 15%
Republican who has not served in Congress - 38%
Democrat who has not served in Congress - 16%
Democrat serving in Congress - 24%
Other - 3%
No Opinion - 4%

Overall, a majority of Americans prefer a Republican candidate (regardless of experience) to a Democrat, 53% to 40%. And a majority also prefer a non-incumbent (regardless of party affiliation) to an incumbent, 54% to 39%.

The fact that Americans who prefer a Republican candidate want one who is new to Congress suggests that these voters want both GOP control of Congress and the new perspectives that come from members with no prior Washington experience. Americans who favor Democratic candidates, on the other hand, apparently are more satisfied with the type of experienced representatives now in Congress.

One would naturally expect Democrats to prefer Democratic candidates, and Republicans to prefer Republican candidates, and that is the case when looking at the data by party. But partisans' preferences for incumbents versus challengers seem to be influenced by their knowledge that the Democrats currently have a majority in Congress, and thus, more Democrats will be defending House seats this fall. Democrats are more likely to prefer a Democrat who is in Congress to a Democrat who is not, and Republicans are more likely to prefer a Republican outside of Congress to one who is currently serving there. Independents also show a strong preference for Republican non-incumbents.

Strong Anti-Democratic Sentiment

Gallup reports Anti-Democratic Sentiment Aids GOP Lead in 2010 Vote

The Republicans' lead in the congressional generic ballot over the past month may be due as much to voters' rejecting the Democrats as embracing the Republicans. Among voters backing Republican candidates, 44% say their preference is "more a vote against the Democratic candidate," while 48% say it is "more a vote for the Republican candidate."

The 44% of Republican voters who say they are voting more against the Democratic candidate exceeds the level of negative voting against the incumbent party that Gallup measured in the 1994 and 2006 elections, when party control shifted (from the Democrats to the Republicans after the 1994 elections and from the Republicans to the Democrats after the 2006 elections).

GOP Holds Huge Edge In Turnout Related Question

In our third poll topic, Gallup shows Republicans Hold Wide Lead in Key Voter Turnout Measure

Two months before this year's midterm congressional elections, Gallup finds 54% of Republicans, compared with 30% of Democrats, already saying they have given "quite a lot of" or "some" thought to the contests.



Republicans' current level of thought about the elections, from Gallup Daily tracking conducted Aug. 23-29, matches or exceeds that found in October/November of the last three midterm years. By contrast, Democrats are giving far less thought to the elections today than they did in the final weeks before the prior four midterms. As a result, Democrats are on par with independents in current attention levels -- a sharp departure from recent years, when the Democrats exceeded independents on this measure.

The large party gap in "thought" suggests the typical Republican turnout advantage could be larger than usual this year if that gap persists until Election Day. Attention normally spikes as elections approach, and this is likely to occur among Democrats. However, it is unclear whether the Republicans have reached the limit for how much attention they will pay to a midterm election, or whether their attention will rise to perhaps a historic level by November. How this plays out will determine Democrats' ability to catch up to Republicans on this measure before Election Day, and will in turn determine the size of the Republican turnout advantage.

It's a virtual certainty that voters' attention to the election will increase in the coming months. If this increase is proportionate between Republicans and Democrats, then the Republicans will likely maintain a formidable turnout advantage. However, it's also possible that Republicans have merely tuned in early to the elections, leaving less room for their attention to expand -- and thus giving the Democrats an opportunity to narrow the gap by November.

Temper Tantrum?

In Our Quick-Fix Electorate on Real Clear Politics, Eugene Robinson proclaims

...This isn't an "electoral wave," it's a temper tantrum. In the punditry business, it's considered bad form to question the essential wisdom of the American people. But at this point, it's impossible to ignore the obvious: The American people are acting like a bunch of spoiled brats. ...there's no mistaking the public mood, and the truth is that it makes no sense.

On the contrary, this makes perfect sense. The public is fed up with how beholden Obama is to unions. They are fed up with sacrifices they have to make that government workers don't. They are fed up with how well the political class has fared in this election vs. how well they have fared in this election. They are fed up with never-ending wars.

It's not that people prefer Republicans by some huge margin. They don't. They specifically prefer non-incumbent Republicans hoping for a Change. Obama promised "Change you could believe in", but where is it? We are still bogged down in Afghanistan, Obama did not get us out of Guantanamo Bay as promised, but most importantly he did continue the same bailout strategies and surrounded himself with the same economic philosophy and same Wall Street advisors as Bush.

The public is fed up and rightfully so. The anti-union vote is going to be huge, and deservedly so.

I am increasingly confident that Republicans are going to take the House. So be prepared to Kiss Nancy Pelosi goodbye and be prepared to welcome John Boehner as the new House speaker. Perhaps we can get some real change. If not, gridlock is better than what we have seen under Obama.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Understanding Reality - You Don't Know What You've Lost Till Its Gone

As everyone should know by now, my main concern with unions is specifically with public unions. While I do not care for unions at all, and never have, at least with private unions, someone other than corrupt politicians buying votes is bargaining at the other end of the table.

In the case of public unions, if politicians strike a bad deal, taxpayers foot the bill. In the case of private corporations, if management strikes a bad deal, the company goes bankrupt, shareholders take a hit, or the jobs move elsewhere, as soon as the contract is up.

Except in few cases every now and again, private unions just cannot seem to understand this simple economic fact.

Machinists Union Pickets Cessna Aircraft

The Kansas Wichita Eagle highlights the typical union response, public or private, in Cessna's initial offer to Machinists includes wage cut

Machinist union members at Cessna Aircraft picketed near the company's plant in southwest Wichita on Thursday to protest jobs being sent outside the city.

Members fought strong, gusty afternoon winds and carried signs that read "Keep it Made in Wichita," "Outsourcing is Treason" and "We built the Air Capital," as they picketed at K-42 and Hoover roads. Some carried American flags.

Cessna and the Machinists union are in the midst of contract negotiations. The current contract expires Sept. 19. About 2,300 hourly workers at Cessna are covered by the agreement. Hawker Beechcraft also has reopened negotiations with the union as it considers sending work to Louisiana, Mississippi and outside the country.

Cessna's initial proposal is for a 10-year agreement that cuts wages 4.2 percent, weakens job security, replaces the pension plan with a 401(k) plan and increases the share of the cost of health insurance paid by the workers to 30 percent, said union spokesman Bob Wood.

"There's no job security in the current proposal," Wood said.

"Wichita is based on aircraft," said Cynthia Hise. "If you don't get a good contract...." Darren Hise finished her sentence. "It's going to hurt the whole economy in Wichita."

Reflections on Job Security

Here's the deal. The Hise's and the union in general, appears ready willing and able to "hurt the whole Wichita economy" if they do not get what they want.

I have to ask "How stupid is that?"

The answer is "tremendously stupid".

It is far better to have a good paying job and no job security than no job at all and no prospects of a job. That's what it boils down to, and like it or not, that is the economic reality.

I do not know what salaries are, but a 10 year contract with only a 4.2% pay cut does not strike me as a bad deal. Those who think otherwise need to compare it to the alternative: seeing all the jobs go to Louisiana, Mississippi, or outside the country.

By the way, wouldn't residents of Louisiana and Mississippi be very grateful for those job, regardless of what the salary was? I think so. So the bottom line is this mess, is the unions would be to blame and only the unions to blame if Cessna moves elsewhere. The union will also be responsible for wrecking the entire local economy if it happens.

Take the contract and run! It's for 10 years! Because .... You Don't Know What You've Lost Till Its Gone, Then It's Too Late. In this case, it will be gone forever.

Mike "Mish" Shedlock
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Reflections on the "Recovery"

One year ago the official unemployment rate was 9.7%. Today it is 9.6%.

One year ago U-6 unemployment was 16.8%. Today U-6 is 16.7%

click on chart for sharper image

For more details on the jobs report, please see Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface

For all the trillions of dollars in stimulus and additional trillions of dollars in bank bailouts and trillions of dollars of expansion of the Fed's balance sheet, this is all we have to show for it.

Moreover, the economy is clearly slowing already by many economic reports including new home sales, existing home sales, the regional Fed manufacturing surveys, sentiment measures, and consumer spending trends. The only major discrepancy is ISM.

This week, none of that matters. However, I would like to point out that bear market rallies end, not on bad news, but on good news. It will be interesting to see how much more good news there is, and the market's reaction to it.

Mike "Mish" Shedlock
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