Author: Larry Littlefield

Some time I ago, I reported having read in the Wall Street Journal that the rich pensions top executives had bestowed on each other were contributing nearly as much to the destruction of American business as the rich pensions grabbed by the unionized rank and file. A commenter asked for a reference, but I didn’t have one at the time. Today, it its lead story (summary — full article subscribers only), the Journal repeats the assertion. “Financial giants getting injections of federal cash owed their executives more than $40 billion for past years' pay and pensions as of the end of 2007, a Wall Street Journal analysis shows.” The analysis is an estimate because the future obligations to executives are hidden, disguised, and underestimated in company accounts. At some firms, according to the Journal, the pensions and other deferred compensation for executives “exceed what they owe in pensions to their entire workforce,” and the practice of awarding hidden rich pensions and other deferred compensation, and paying little up front for it, “is common in big business.” A familiar story for those who have read my posts on public sector pensions. Since the costs are shifted to the future, they are described as minimal, and those in power take the absolutely guaranteed money up front. The consequences come later.

Newspapers are dying because they continue to produce papers, but are reducing the extent to which they produce news, and continue to produce news that is only fair and relevant to those still buying paper. A recent article demonstrates the first half of this statement. According to the New York Times, which has problems of its own, “The Star-Ledger, New Jersey’s largest newspaper, will cut its newsroom staff about 40 percent by year’s end, one of the largest reductions in a single move by a major American paper.” According to this source, however, the newsroom staff only accounted for 330 of 750 non-union jobs with the paper. Presumably there are at least that many unionized workers printing and distributing the papers in addition, so workers producing “news” are a small and shrinking share of the staff. In contrast at the research company I work for, one that publishes by subscription on the internet, those producing information account for well more than half of those employed. Clearly no one informed The Star Ledger that the most recent industry classification system moved the newspaper industry out of “manufacturing” and into “information.” Some newspapers have devolved into nothing more than distribution channels for the Associated Press, while others are considering dropping the AP to save money. Those still trying are losing more and more money.

You have three castes in New York: the executive caste, the political caste, and the serfs. The executive caste rides around in taxis and black cars, or drives their own luxury cars to paid-for corporate parking spaces, lives in the wealthier parts of Manhattan or the more affluent suburbs, and sends its children to private or suburban schools. Its capital gain and investment income is taxed at favorable rates, but this caste nonetheless pays much of the city’s taxes. The political caste drives its own or city cars to public parking spaces reserved for it by placard, receives much its pay in tax-advantaged retirement income and employer-financed health care, lives in the middle-caste suburbs (even if required to live within the city) or in a limited number of suburban-type city neighborhoods, and sends its children to suburban or “special” city public schools. To the extent that in the past there were special “middle income” housing deals on offer, such as Mitchell-Lamas, the political caste got them.

It seems that both the political caste and the executive caste are in favor of extending, in fact repealing, term limits. And based on the polls, the serfs are not.

The back-to-school employment data is out from the New York State Department of Labor (attached), and guess what? In the face of an upcoming fiscal and economic catastrophe, the public schools in the portion of New York State outside New York City added another 4,900 jobs in the year to September 2008, bringing the total increase since September 1993 to 76,400. This despite staffing levels (as well as pay and cost) in the rest of the state that were already sky-high relative to the national average (adjusted for the student population, the cost of living, etcetera). Overall local government employment in the portion of the state outside of New York City is up 2,500 from a year earlier and 119,500 from 1993. All these people have a “right” to their jobs, pensions and benefits, it seems, and if honoring that right in a budget crisis would drive property taxes too high, well, New York City’s share of state education funding will just have be cut again, Silver and Skelos are likely to agree. As in the previous two recessions, but perhaps to a greater extent, particularly if credit conditions prevent the state from getting through the recession by borrowing even more.

Read any news source and you'll find the realization spreading that the United States is suffering from a crisis of profligacy, addicted to spending more than it earns, using more energy than it can produce, and having a culture of "I want for me now" that has gone on for 25 years. We are facing national bankruptcy even as millions are unable to make ends meet in their own homes, and we face an economic depression unless people in other countries, poorer countries with problems of their own, continue to sacrifice and save in order to lend us more and more money each and every day. And yet in their debates and in their campaigns, the two candidates for President have done little but promise Americans that nothing they do needs to change, that there will be an easy way out, that the government will provide it, and that it won't cost them anything. Instead of Commander in Chief, we have two candidates for Panderer in Chief.

All the talk about energy independence in the last debate was a bunch of hot air, just as it has been for the past 35 years. If the next President wants to be a leader and turn this country around, he's going to have to make requests and not promises, and he'll have to convince people to work together in ways that are difficult in the short run to make things better in the long run. And I have a suggestion — one thing that can be done within months rather than years. Dynamic carpooling on a large scale.

Long time readers of this blog may recall this post from more than two years ago, in which I predicted the City Council would sneak a term limits referendum onto the ballot for the November 2007 election, when virtually no public offices were being contested and virtually no one would be showing up to vote. I over-estimated the character of these officials and the Mayor; they have decided not to bother with any referendum at all. I also predicted, over and over, the bursting of the housing bubble, the end of excess consumer spending over and above income, and the detonation of exotic financial instruments like CDOs and managers like hedge funds, with collateral damage for public employee pension funds and thus public services and taxes. To me, and many others, it was completely obvious that all this would have to unravel sooner or later, and it’s amazing it went on as long as it did. Here I underestimated the damage.

"Did America hang itself with Asian rope?" A Financial Times correspondent put the question to a Chinese official. "Quick as a flash, he responded: 'No. It drowned itself in Asian liquidity.'”   "In one sense, this is a story of Asian prudence versus US recklessness. By accumulating vast savings – China and Japan alone boast 40 per cent of global central bank reserves – Asians have lived below their means so that Americans could live beyond theirs. Asia bankrolled US budget and trade deficits and provided the cash for banks and individuals to go on a spending spree and for Washington to fight wars in Afghanistan and Iraq."  Nice party some people had, promising our childrens' future, individually and collectively, in exchange.  But suddenly, there is no money in the United States.  Where did it all go?  And why now?

Sometimes, reading the newspaper, I wonder if Mayor Bloomberg is reading this blog. Several months ago I wrote the United States of America is about ready for an Il Duce, and beginning in New York City (but not ending there), we will have one. Many people seem to be saying that as long as someone promises that they don’t have to pay more, or accept less, for themselves today, they don’t care about the future, or about democracy. My tongue-in-cheek suggestion that rather than giving non-citizens the vote, as some have proposed, they should be allowed to exchange the right to vote with American citizens who can’t be bothered and don’t want to serve jury duty, makes more sense every day. And when the promise of something for nothing can no longer be met, even for the limited number of people who matter, the result will not be competitive elections, which do not exist, no matter what the New York Times likes to pretend. The Times editorial board apparently prefers the hope of a Good Tzar to elections anyway, I doubt it will have the honesty to admit. What is left of citizen participation is going extra-electoral, perhaps extra legal. Protest is all that is left.

According to Bloomberg News, a former advisor the Chinese central bank is calling for leaders Asian nations to get together in cooperate in managing the collapse of the bankrupt United States. "Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse," he said. He also wondered "why are we piling up these IOUs if they may default?" China's "export-growth strategy has run its natural course" since Chinese who worked and saved may end up with nothing in return from Americans who borrowed and spent.

Just imagine the consequences of this for a country where everyone's entire value of life depends on spending 6% more than they take in every year. Today, there was a wild rumor that the Chinese government had ordered Chinese banks to stop lending to U.S. banks, to stop the losses. The next President will have to travel on his knees to places where people save money, and beg for loans, and then to oil producing countries, to beg for oil. This isn't over until we no longer have a federal budget deficit, no longer have a current accounts deficit, and are no longer able to issue no state and local bonds.

The $700 billion financial industry bailout now being debated is in addition to the $200 million for Fannie and Freddie, which some people have said will actually cost $100 million more, for a total of $1 trillion. How much is $1 trillion? According to the Statistical Abstract of the United States, federal expenditures on family assistance programs (ie. "welfare"; Aid to Families With Dependent Children AFDC and Temporary Assistance to Needy Families TANF) during the period from 1958 to 2005 totaled $568 million dollars. Now lots of those dollars counted for more than today's shrinking dollars, as a result of inflation, but the inflation-adjusted federal expenditure on "welfare" over nearly 50 years is apparently about $1.1 trillion.