Author: Larry Littlefield

In New York City, politicians continue to argue over extending policies that provide higher wages for workers with privileged connections to government money (or employees of firms with privileged connections to government money). One of the goals is to prevent the city from reducing costs and providing better public services for its people by contracting with private companies, by comparing the cost of the contracts with the cost of public workers excluding their greatest cost – the many years they get in retirement.

In San Francisco, on the other hand, there is a higher minimum wage for everyone – now $10.20 per hour. Not just for those with a special relationship with the government, who are then made better off than those with no such relationship. Now San Francisco is not the equivalent of New York City. It is the equivalent of Manhattan. So I wouldn’t argue that all of New York City should have a higher minimum wage. But perhaps Manhattan and the downstate suburban towns that zone out the working poor should. To offset the cost of getting to work on a transit system that New York’s political class is sending back to the 1970s. Or the risk of long bicycle rides on suburban roads where the Lexus SUVs might just cement your low status by running you over. The political class and the executive class do pretty well in SF also, but I guess they have some money left over for the serfs.

We had a bunch of unemployed young adults hanging out in a park who were demonized by the press until they were cleared out by the police. We have a state budget that the Governor says is falling apart. We have a nexus of public employee unions and politicians, the political class, that starts yelling about Goldman Sachs any time anyone brings up the deals they have relative to other people. They desperately want to blame the ongoing collapse of public services on inadequate taxation of millionaires. You have an executive class that hates, Obama, the Dodd-Frank act, and Occupy Wall Street for raising the issue of executive pay, particularly on Wall Street, and calls anyone who wants to talk about it a “socialist” who doesn’t want to get a job, presumably including their own investors.

It’s getting nasty out there, and among the angriest people are those who have in fact become much better off over the past 20 years while most people have become worse off. Here in New York, I’ve found a way to show who’s who and what’s what in one chart, which is linked here (I hope). It shows trends over 20 years for three groups of people – the executive class, the political class and the serfs, along with a couple of causal indicators. I suggest printing it out before reading the rest of this post. You’ll see two lines that track each other almost exactly. One is payroll per worker in the Downstate New York financial sector, adjusted for inflation. The second is the total payouts from the public employee pension funds of the City of New York. Both have soared, relative to what most people earn, and for the same reason – self dealing by powerful insiders at the expense of everyone else.

There is breaking news that the NBA players and owners have reached a deal to save the extended pre-season. When that many teams make the playoffs, that’s’ all the “regular season” is – a preseason at regular season prices. The owners had locked the players out because they wanted what all members of the executive class want when they come to own professional sports teams. An end to the free market in labor, to be replaced with a “salary cap” system intended to keep labor income down, such as the one now in place (with “harder” and “softer” caps different cases) in every major sport.

The attitude is very different, of course, when members of the executive class are setting each other’s pay. They claim that the huge increase in their share of total wealth in the 1990s, justified then by the stock market bubble at the time but never reduced once the bubble deflated, is the result of a sacrosanct “free market.” In reality, however, the market in executive pay is just as rigged, but in the other direction. Through the agency of the executive pay consultants they all hire, Boards of Directors inevitably conclude that if the previous deal for an executive was for X, the next executive deserves X plus 10 percent. And then when member of the Board of one company get their pay set in another company, they expect X plus 10 percent plus 10 percent. That is nothing like a free market, and very much like the way public employee pay and pensions are set – more and more for those in on the deal, leaving less and less for those forced to pay, who have no say. And there is no salary cap in executive pay, and no thought of creating one.

According to the Wall Street Journal, Governor Cuomo is negotiating with public employee unions to use pension funds to pay for infrastructure. So how much interest is Governor Cuomo going to pay on those loans from the pension funds? They assume an 8.0% rate of return – starting from the peak of the stock market bubble in 2000. If they didn't, New York’s state and local governments would have to admit that, for example, NYC pension contributions would have to rise far higher than the 40.0% of payroll they are now. Taxes would have to rise, and or public services would have to be further gutted, to make up the difference. Above and beyond the devastation already being visited on less politically influential New Yorkers.

Either Cuomo is looking to raid the pension funds, perhaps offering even earlier retirement in exchange, with the cost deferred. Or the pension funds are looking to raid whoever will be paying back the debt, by having the state pay a higher interest rate than it could get by just issuing bonds. Or perhaps Cuomo hopes that by locking public employee pension funds into a lower rate of return, and then jacking up local government contributions to the funds to make up for it, he can force local governments to fund the state budget. Regardless, when politicians and pension funds get together, there is no doubt who is being made worse off. Future generations of less well off people who don’t even get pensions themselves. Because both pension funds and municipal bonds are tax free, it makes no sense of pension funds to invest in municipal bonds. This is just another way for Generation Greed to defer the disaster it has created for the future, now the present, into the later future. Hey Governor, if you want to borrow, put a referendum to the voters, as the state constitution requires. If the pension funds want to invest in the bond issue at the market clearing interest rates, they would be free to do so.

Even as Generation Greed politicians in Washington fail to agree whether to charge younger generations higher taxes than they themselves were willing to pay to make up for the debts and benefits they promised themselves, or to force younger generations of Americans to suffer drastic cuts in public services and benefits to make up for their history of voting for politicians promising tax cuts, the damage has started to accumulate. They have decided it is better if younger generations don’t know how much worse off they are, and have started suppressing the evidence, reversing the internet-driven trend of more information becoming easier to get. In the future, you’ll only know what the Executive Class and the Political Class want you to know.

The federal government has published a Statistical Abstract of the United States every year since 1878. The current, 2012 edition will evidently be the last. The Census Bureau is also scaling back information on state and local government finances and employment, in part due to budget cuts, in part because state and local governments are no longer willing to cooperate by sending in the data. Perhaps the political class doesn’t want people to be able to find out how much of their tax payments are going to the retroactive pension enhancements for public employees enacted over the past 20 years. The executive class certainly doesn’t want people to know how much everyone else’s wages are going down, which is why the Republican Party has called for the elimination of the Census Bureau’s American Community Survey. So why can’t the federal government afford to provide information to Americans anymore? What has changed? As I did the last time there was a Presidential election, I expect to answer that question early next year using data on federal revenues and expenditures over time provided in an easily accessible format by the Statistical Abstract of the United States. Perhaps for the last time.

Well, that was fun. How realistic do I believe the railroad pipedream outlined in the previous posts is? I had outlined and researched this series of posts in early July, but I didn’t find the motivation to write it until November. Now those who read all the posts might be in agreement, or disagreement, with the particulars of what I have suggested, and the economic, demographic and commercial real estate trends I have described. (Bear in mind that I write reports on those subjects every day, reports people pay to read). You may have other thoughts on the issue. You may be thinking about the possible effect of different decisions on the well being of large number of New Yorkers in the future, and how priorities might be set. You might even be thinking about construction methods, rail operations, and government contract law, commercial real estate trends, global economic trends, and demographic trends.

But I assure you, based on 20 years of observation, that none of those things mean much at all in the state legislature in Albany, New York. There the credo isn’t what is best for us, but what is in it for me and mine. And none of the parties involved could be expected to approach the issue of rail freight from any other perspective. In Albany it is never about “what,” and always about “who.”

The primary purpose of the Upstate railroad investments imagined in this pipedream is to speed freight traffic between points west of the Mississippi River, and east of the Mississippi and north of the Ohio River, to New York State, New Jersey and New England. The Upstate investments would take the place of additional highway lanes, such as those being built in on the Turnpike in New Jersey, and make transportation through New York more competitive with transportation through other states. The Upstate investments would also make the New York/New Jersey seaport, located in New Jersey, more competitive with other East Coast ports, and could feed a rail freight tunnel from New Jersey to the Bronx. Finally, the pipedream would remove freight traffic from the Empire Corridor, making high-speed passenger rail more possible.

These are the transportation goals. But the entire pipedream, with the freight tunnel and the investments Upstate, would also have economic development goals for Upstate New York.

The primary goal of the pipedream imagined in this series is to solve the problem identified in the first post: the difficulty of moving freight across the Hudson River by tractor-trailer truck due to congestion on the GW Bridge, Verrazano Bridge, and connecting highways. The imagined rail freight tunnel would provide an alternative, freight carried across the Hudson by rail and placed on trucks in the Bronx or, in the case of trailers on flat cars, in Brooklyn and Queens as well. A second goal, related to the investments Upstate that would improve the connection to New Jersey, is to increase the competiveness of the Port of New York and New Jersey for goods heading to and from the Midwest. A third goal, again for the investments Upstate, is to remove freight traffic from the existing New York Central mainline, allowing a gradual increase in operating speeds for passenger service on that route, eventually reaching the point where the line could be described as “high-speed rail.”

These, however, are not the only goals I have in mind. With railroad improvements driving economic development in other parts of the country, I imagine the pipedream would have the potential to create jobs and spur development. And with a little more investment, direct commuter rail service from Rockland and Orange to Grand Central Terminal in Manhattan would become theoretically possible – without inflating the cost of a new Tappan Zee Bridge by putting transit there. This post is about the goals Downstate, with the next post about the goals Upstate.

Across the country, investment in freight railroads has started to increase, reversing the reduction in trackage and disinvestment in equipment seen in the decades following the development of the Interstate Highway network. As noted by the Wall Street Journal, “once a dying industry, railroads have made a strong comeback and are poised to become busier places in the years ahead. Forecasts for freight growth are substantial, prompting railroads to plan capacity additions.” According to one analyst “rail activity could possibly even double by the midpoint of the century. North American rail-freight rates would continue to be the lowest or one of the lowest in the world, and the industry would finance most or all of its capital requirements without public support.” According to another, “the public-sector financial situation will actually be an advantage for freight rail: Highways are not being funded, and the prospects are dim in that arena unless taxes are increased [which in turn raises the cost of trucking, which also helps the rails].”

Somehow, however, all this activity has bypassed New York State. Take the National Gateway project, a public-private partnership. “The National Gateway project will improve the flow of rail traffic throughout the nation by increasing the use of double-stack trains, creating a more efficient rail route that links Mid-Atlantic ports with Midwestern markets.” The project is expected to create 50,000 jobs, is expected to cost $842 million in federal and state funds and $395 million in private funds, and “is supported by a broad and diverse group of 336 public and private sector organizations and individuals, including Big Lots!, UPS and The Limited.” And unlike subsidies for individual companies, the preferred form of “economic development” in New York, this infrastructure improvement will continue support job creation into the future. The project is described in this video. Projects are located in Ohio, West Virginia, and Virginia and North Carolina. Not in New York and New Jersey, whose port will thus NOT be linked by a more efficient rail network to Midwestern markets. Why not?

To the problems with freight movement in Downstate New York laid out in my prior post, New York’s politicians and planners have either had no solution or just one solution – a cross harbor rail freight tunnel from New Jersey to Brooklyn, linking into the Bay Ridge Branch of the Long Island Railroad between the Sunset Park and Bay Ridge neighborhoods. First proposed in the 1920s but repeatedly found to be impractical since, this proposal has been kept alive by a few die-hards and one politician – Congressman Jerry Nadler.

To Nadler and the die-hards, the reason manufacturing left New York City cannot be wages, benefits, work rules, taxes, and the desire for large horizontally arranged plants. And the reason the port moved over to New Jersey can’t be because it doesn’t make sense to unload freight from a ship onto an island (Long Island, on which Brooklyn sits), and then try to get it off the island to the rest of the country. Those ideas conflict with New York City as they would like it to be, which is what it was, unionized and blue collar, with thousands of dock workers and tens of thousands of workers in low-skill, low-wage manufacturing industries such as garments and electronics, all earning rising wages. If, however, the goal is to improve freight distribution, not to bring back the port to Brooklyn or manufacturing for national markets to New York City on a large scale, then alternatives other than the New Jersey to Brooklyn crossing could be thought of. This post contains two of them.