Author: Larry Littlefield

Oil, Sugar, and 35 Wasted Years

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The United States is heading for a major anniversary on October 20th, 2008. It will be the 35th anniversary of the OPEC oil boycott, which began on that date in 1973 in the shadow of the Yom Kippur war. (Gee, a war in the Middle East! There is no reason to worry about another one of those, is there?) That was the first signal, years before the environmental consequences of fossil fuel use were understood (by some), that abject dependence on a depleting resource increasingly concentrated in potentially hostile hands was a future economic and national security disaster. The 1979 oil crisis, associated with the Iran Hostage Crisis was the second signal. (Gee, conflict with Iran, that’s not likely to recur is it?) The 1990 Gulf War was a third signal. The attack on 9/11 was the fourth signal. But two generations of Americans willfully ignored these messages. And they instead listened to the messages they wanted to hear, that cheap and available energy was what they deserved — regardless of the future risks and consequences. And voted for elected officials who delivered those false messages. And here they have left us.

Blast from My Past

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I was amused to read that former candidate for Governor Tom Golisano plans to spend to money to challenge state legislators, because I wrote to him and recommended that he do exactly that nearly a decade ago, after his second run for office in the 1998 election. While I didn’t agree with everything Golisano had to say back then, he did seem to intuitively grasp what I was seeing in the data, and just four years into the reign of Pataki, Bruno and Silver, I could see it would be a disaster for the future of the state (the last couple of years of Cuomo weren’t so good either). So what to do? The only route to a fair deal for non-insiders, I decided, was for some third force that was not in on the deal in Albany to capture enough seats in the State Senate and Assembly to swing the selection of the leadership. (I would work in the House of Representatives too, I suggested).

Financial Musings

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For those of you who haven’t been following the private-sector wing of the institutional collapse of the United States, as a result of several generations’ determination to collectively suck out far more than they put in, this has been an eventful week. Yesterday marked the third largest bank failure in history, as S&L IndyMac Bank was seized by federal regulators. “The collapse is expected to cost the Federal Deposit Insurance Corp. between $4 and $8 billion, potentially wiping out more than 10% of the FDIC’s $53 billion deposit insurance fund,” according to the Wall Street Journal. Meanwhile, rumors persisted that mortgage giants Fannie Mae and Freddie Mac might go under and be taken over by the federal government. Taxpayers will have to bail them out, a host of congressional representatives and pundits asserted, because if they went under the entire mortgage system would collapse, and the entire financial system with it.

The Categorical Imperative

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In Groundwork of the Metaphysics of Morals, ethical philosopher Immanuel Kant asserted a “categorical imperative” that determines whether an action is right or wrong: “I ought never to act except in such a way that I can also will that my maxim should become a universal law.” In other words, if you wouldn’t want everyone to do it, or (in the case of the distribution of benefits and burdens) wouldn’t want everyone to get it or avoid paying it, whatever the consequences, then one cannot morally do it, get it or avoid paying for it oneself. By asserting the right to do, get, or avoid something oneself without considering the consequences for others, one makes an exception for oneself, and that is morally wrong. Kant’s ideas fly in the face of what some politicos say in response to anger at “special interests” – that everyone and everything is a special interest, with none having any greater claim than any other. Not so. There are those who only want for themselves what could work for everyone, and those who want something just for themselves that others would be sacrificed for them to get, with the latter including just about everyone associated with the government of the State of New York.

I point this out not to bore the reader with something out a college philosophy class, but in response to and inspired by comments by Ed Ott, the executive director of the New York City Central Labor Council, as reported by the New York Times. “Going forward,” he said, “if we don’t raise the standards for the lowest-paid workers in the city, and there are literally hundreds of thousands of them, our own levels that we achieved — of wages, pensions and time off — they’re not sustainable.”

How Many Governments in New York?

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The U.S. Census Bureau is apparently busy crunching numbers for the 2007 Census of Governments, and the first data from that effort — the organization phase — has been released. The data is limited — the number of local governments by category (counties; municipalities such as cities, towns, and villages; school districts; and other special districts) in each state. But as it happens it is relevant to a debate going on in New York State right now — can the state’s high taxes and unaccountable politicians be explained by the large number of overlapping local governments in the portion of the state outside New York City? And can it be improved by consolidating those local governments?

It certainly makes sense in theory. Large organizations have economies of scale that small ones lack, and the more local governments you have, the more mayors, city council members, and school board members, not to mention personnel officers, chief accountants, and superintendents, you have to support. Elected officials with a lot of power attract a lot of attention and, therefore, more electoral accountability, while many special district elections don’t even happen on Election Day, with few voters taking part and virtually no media coverage. But does the theory hold in general? The data, in the attached table, is inconclusive but seems to favor consolidation a little bit.

May 2008 Local Government Employment: Temporary Reversal in NYC

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I’m back, and from what I read in the newspapers, it appears that while I was out of town the city budget passed. In a triumph of the (actual rather than theoretical) liberal values of Democratic New York, this year’s cost of having teachers retire at age 55 instead of 62 (after working just 25 years) will be borne by the poor residents of NYC public housing projects, rather than children in the classroom. The schools were spared, for now, or so I read. Ironic, because not too long ago residents of public housing projects weren’t expected to do an work to benefit other people at all, but post-welfare reform, and given that none of them will get pensions, they’ll be working until age 67, at the earliest, when Social Security kicks in. This shows that the easiest cuts are to the “unaccountable” agencies that the group of politicians making them can disclaim responsibility for, such as the New York City Housing Authority, the MTA. The Department of Education will likely join them after Mayoral control ends, and after the recent pension deal and given the likely alternative of Mayoral accountability without real authority, it might as well.

I won’t comment further on the city budget at this time, because what is passed doesn’t always reflect what actually happens, and almost certainly won’t this year. The big decisions, the tough decisions, are yet to come. Instead, let’s look to something that is less likely to change — the past, and the trend in government (and related) employment prior to the new budget, as tabulated by Current Employment Survey data from the New York State Department of Labor. Here, while most trends remained in place based on the change in jobs in the year to May, one changed course – New York City’s local government employment rose significantly. Expect that trend, along with libraries that are actually open rather than just dead spots on the commercial street, to be short-lived.

How to Settle the City Budget

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From what I understand, the Mayor and City Council are having trouble agreeing to a New York City budget because they disagree how bad the city’s fiscal situation is likely to get. The Mayor wants to raise taxes on the less important people who don’t get Bloomberg checks, don’t sell clothes, and are not retired, and reduce services that less important people rely on, to start getting people used to what the future will hold. The Council wants to pretend all will be well, but tax people from out of town staying in hotels at a much higher rate than is paid in tax for other services, while continuing to allow out-of-towners to buy expensive clothes made in China with cheap dollars without paying any city sales tax at all. Like most U.S. politicians, if they aren’t creating a future which is truly horrible, the Council Members feel they haven’t done enough today to “fight for the people” who don’t care about that future.

My own view is that both the Mayor and Council are underestimating how bad things will get. The city’s revenue base is somewhat insulated from the coming recession because the property bubble is only partially reflected in property tax revenues here, and (if we don’t discourage them from coming and make they pay it) spending by foreign visitors will support sales tax revenues even as city residents become poorer and spend less. But the city is heading for a massive decline in personal and corporate income tax revenues. More importantly, the state will be hit even harder by those declines, because such taxes are a bigger part of its revenue base, it the likely result will be state tax increases and spending cuts specifically targeted to hurt New York City as much as possible while sparing other parts of the state, as in the past. We are heading for a crisis a bad as the early- to mid-1990s, with the exception that this time most of the country will be even worse off, not better off as it was back then. In the face of this, I suggest the following…

The Ravitch Plan for 20/50

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Governor Patterson has appointed a commission on MTA finances headed by former MTA head Richard Ravitch. The commission, according to the Daily News, includes state budget director Laura Anglin, city budget chief Mark Page, state AFL-CIO President Denis Hughes, Fordham University President Father Joseph McShane, Con Ed Chairman Kevin Burke and Mysore Nagaraja, former president of the MTA Capital Construction Co. The purpose of the commission is to absorb the blame for fare increases, service cuts, higher taxes on wages, property and jobs – but not retirement income — and the cancellation disguised as a “deferral” of long-promised and repeatedly borrowed for projects such as the Second Avenue Subway. The money will be used to allow transit workers to retire at age 50 with full pension, health care and other retirement benefits after working for just 20 years, rather than at age 55 after working for just 25 years. Once the cost of that benefit is admitted to, after first having being described as “free,” maintenance will be perpetually deferred, and the transit system allowed to deteriorate to the point of collapse, due to “circumstances beyond our control.”

No, that’s not what Governor Patterson said. No, that’s not what the commission will say. That probably isn’t what Mr. Ravitch and the commission members will intend. At this point, however, we have enough experience with the current generation of leadership, particularly at the state level, to predict the future. Our elected officials know that the New York Metropolitan area desperately needs a viable and improving transit system to support its economy. Just as they know that New Yorkers desperately want a Second Avenue Subway to relieve the awful overcrowding on the east side. And they know that city residents, who pay some of the nation’s highest taxes, desperately want viable schools. And at the federal level, this generation of politicians knows Americans desperately need universal affordable health care and a secure Social Security system to avoid poverty due to ill health and old age. So they add extra taxes and/or borrow money allegedly for those purposes, divert it to their friends, and leave the rest with nothing. Then they blame someone else, like a commission, an arbitrator, or the “unaccountable” MTA.

The Affordable Housing Crisis

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There is an affordable housing crisis in the United States, one that the Congress is struggling to address. The so-called crisis is that housing is getting more affordable. The generations now in power consider this a crisis because they were counting on being able to sell their homes to younger people at inflated prices, consigning them to a life of poverty, to finance a retirement that hasn’t saved for. The wealthy consider it a crisis because they are taking losses on mortgage bonds, and those who manage their money might receive somewhat less inflated pay packages next year. And those in some suburbs consider it a crisis because housing in their neighborhood might become affordable to someone no wealthier than they were when they first purchased, and different from them in other respects. So after 15 years of reductions in subsidies for the poorest, with public housing and Section 8 vouchers a perennial target of scorn, we now see desperate calls for the government to take on hundreds of billions of dollars in future liabilities to subsidize the past purchase of McMansions, and the hocking of houses to buy SUVs and plasma screen TVs and settle gambling debts for the ever-growing casino industry.

What everyone seems to be forgetting, is that housing becoming more affordable is a huge benefit to most current Americans, and all future Americans. And what everyone seems to be forgetting is that many if not most of those who will be forced to pay back those billions of dollars in future liabilities have probably been worse off, on average, than those who borrowed, spent, and are now facing foreclosure, and those who lent to them.

New York’s Local Government Spending: Winners and Losers

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Why do I get the feeling that when it comes to comparative local government spending by category, as shown in one of the spreadsheets attached to this post, I’ve been writing the same thing over and over again for more than 15 years? Some things have changed, to be sure, but the general patterns remain in place. New York City’s local taxes are higher than average primarily due to higher spending on Medicaid and social services; police and correction, interest on debts, and pensions and public employee health care. Mass transit also soaks up a lot of non-fare revenues here, though the savings from New Yorkers being able to have fewer private automobiles offsets this. Spending in other categories is often low, though in the case of public education it is much higher, relative to the national average, than it used to be.

The last time people really paid attention to public finance issues was the early 1990s. Then, most the blame for the problems of the time was assigned to the poor, minorities, immigrants, and those living in older central cities and getting by on welfare. Those grasping for money now should never be allowed to forget this, because by that time cash welfare had already ceased to be a major factor in the city and state budget, despite one million people on public assistance. Today it amounts to virtually nothing even in New York City — $1.2 billion in spending funded by all sources or 0.3% of the income of New York City residents, down from $1.9 billion (or $6.4 billion in $2006) or 1.4% of income in FY 1977. Well, that 84% inflation-adjusted decline is one real change. So where is the money going now? For the most part the same places it did in FY 2005, in FY 2004, in the last Census of Governments year in FY 2002, and in the previous one in FY1997.