November 30th, 2010
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The "freeze" is a token, meaningless move that will do nothing to cut spending.
Political veterans Bill Wilson and Don Todd take a look at this week in Washington.
There is something wrong when one decides to dictate that there are only certain "local" businesses that deserve our business.
"The federal government still seems a long way from the [fiscal] disaster [Erskine] Bowles envisions. But some state governments aren't."
Pay Freeze Locks in Historically High Gov't Wages
On the surface, Barack Obama's announced two-year freeze of federal civilian pay may sound like a reasonable overture to congressional Republicans and the American people who want unsustainable government spending to be reined in. But, just below the surface is the reality that the "freeze" is a token, meaningless move that will do nothing to cut spending.
Take the supposed cost savings of the proposal. According to the AP, "The freeze is expected to save more than $5 billion in savings over two years, $28 billion over five years and more than $60 billion over 10 years, White House officials said." One might read that and come to the conclusion that this much money was actually being cut out of the budget. It will not. These are projected increases in spending that would merely be delayed.
Zuckerman notes the tremendous disparity between public sector pay and the 108 million private sector workers, who only make $50,000 on average. So, all a "freeze" of public sector pay would do is lock in this historically high disparity between public and private workers.
But that part of the story is apparently not registering with Obama. Obama is portraying his proposal as a cut. "The hard truth is that getting this deficit under control is going to require some broad sacrifice, and that sacrifice must be shared by the employees of the federal government," Obama said in his announcement of the federal pay freeze.
Sacrifice. That means somebody is giving something up. But in this case, that somebody — public sector workers — would only be giving up pay increases, and only temporarily at that. Is that really a sacrifice?
There are obvious alternatives to Obama's approach if he is sincere about slashing the $1.3 trillion deficit, to say nothing of reducing the $13.7 trillion national debt. How about cutting public sector pay and slashing the overall workforce? What about paring back onerous health and pension benefit plans? By announcing a pay "freeze," Obama is staking out very particular territory, one that precludes any possibility for cuts in these areas.
In several respects this is a preemptive move on Obama's part, attempting to run to the political right on fiscal issues as a more conservative Congress prepares to take power in January. To pull it off, however, Obama needs public sector unions to decry the move. And ever dutiful, that's exactly what the unions are doing, even if their objections are sincere.
"This proposal to freeze federal pay is a superficial, panicked reaction to the deficit commission report," said AFGE National President John Gage, as reported by the Huffington Post. "This pay freeze amounts to nothing more than political public relations. This is no time for scapegoating." AFL-CIO President Richard Trumka accused Obama of "undermining" the jobs of public sector workers.
The unions obviously fear that by ceding pay increases for the public sector that actual cuts become more likely. They are right. Reports the Huffington Post, "the question [unions and liberal economists are] asking in private is, what exactly did the White House get in return for the chip it gave away?"
What indeed. Obama thinks he has a guard on his sword with which to parry the American people's demands to cut spending. It gives him something to talk about whenever the issue of the budget comes up. But that is probably not good enough. The Obama proposal will do nothing to actually cut spending.
Which is exactly what congressional Republicans ought to be saying. Except House Republicans support the pay freeze. To be fair, they have also called for a hiring freeze. But to be effective, they need to go much, much further and put proposals on the table that actually slash a government spending in a meaningful way.
Bill Wilson is the President of Americans for Limited Government.
The Week Ahead, Featuring Big Government Bozo of the Week
http://blog.getliberty.org/default.asp?Display=2856
The Misguided Economics of Small Business Saturday
On November 27th, 2010, American Express amongst other non-profits, encouraged people to participate in a national Small Business Saturday, similar to shopping holidays like "Black Friday" and "Cyber Monday" where Americans would change their normal shopping patterns and intentionally devote their resources towards small businesses identified by American Express. While there is nothing wrong with shopping at a small business, to suggest that all Americans should on one day purchase items from a small business is absurd, to say the least.
Small businesses are the backbone of the economy. Most businesses in the U.S. are "small businesses." But there is a terrible epidemic of misinformation being spread about what a "small business" actually is.
First, the notion of supporting small business just because they are "local" is absurd. Consider the following. One would assume that you would boycott McDonald's on a "small business" day. However, a boycott of McDonald's would in most cases result in a small business owner being penalized. Most McDonald's locations are franchised, meaning they are owned and operated locally. It's not a big "fat cat" businessman that you are boycotting, rather, it's your neighbor.
You might be surprised to see just how many "big businesses" are actually locally owned and operated. Check out the International Franchising Association for a surprisingly large list of companies that would qualify as a "small business" in most cases.
Second, people shop at specific stores for various reasons. People should not be purchasing products from a company simply because of its size or where it is located. Rather, products should be purchased because both the consumer and the seller are benefited from the transaction. Keep in mind, the local non-chain grocery store doesn't sell a wide array of different products that are not found at the bigger chain stores. They are selling products that people know and like such as Pepperidge Farm or Campbell's. Further, the employees at both the chain and non-chain stores are all locals who live in the area. Wal-Mart is not importing their employees from other states or nations to staff their stores, they rely on local folks to work in much-valued jobs.
And third, this was a simple ploy from American Express to pressure businesses to accept their cards. American Express charges a higher rate for purchases processed on their cards, thus, many small businesses refuse to accept American Express purchases. But imagine a day when American Express customers go expressly to stores that American Express pushes their customers towards only to discover that their cards were no good. The small business would realize that they lost a considerable amount of business and thus, the result would be that they would be willing to now accept the purchases.
Too often I see poor logic employed to convince me to purchase local, small business items. But everywhere I turn, I cannot see how I'm not supporting local small businesses with my day to day purchases throughout my community. For quite a while now, I have been spotting the "Buy Local" bumper stickers on cars. But I have often noticed, like Jim Swift, that these stickers are on vehicles that are foreign and completely dismiss the entire notion that the sticker purports.
As the Small Business Saturday website that was launched by American Express reads, "Small Business Saturday recognizes the importance of small businesses to the overall economy and local communities. It's a day to support the small, independently owned businesses we can't live without." They fail to recognize that all businesses support their local communities, regardless of their size. If they were not fulfilling a need in the community, they would have shut their doors and moved on finding another market for their goods.
There is absolutely nothing wrong with small businesses. But there is something wrong when one decides to dictate that there are only certain "local" businesses that deserve our business. I'm having a very tough time trying to think of a single business in my community that solely imports its workers from outside localities, only to send the money made off to foreign and distant lands.
Adam Bitely is the Editor-in-Chief of NetRightDaily.com.
For Tottering States, Bankruptcy Could Be the Answer
By Michael Barone
We won't be able to say we weren't warned. Continued huge federal budget deficits will eventually mean huge increases in government borrowing costs, Erskine Bowles, co-chairman of Barack Obama's deficit reduction commission, predicted this month. "The markets will come. They will be swift, and they will be severe, and this country will never be the same."
Bowles is talking about what the business press calls bond market vigilantes. People with capital are currently willing to loan money to the federal government, by buying U.S. bonds at low interest rates. That's because interest rates are generally low and because Treasury bonds are regarded as the safest investment in the world.
But what if they aren't? What if investors suddenly perceive a higher risk and demand a higher return? That's what Bowles is talking about, and there are signs it may be starting to happen. The Federal Reserve's second round of quantitative easing -- QE2 -- was intended to lower the interest rate on long-term bonds. Instead, the rate has been going up.
The federal government still seems a long way from the disaster Bowles envisions. But some state governments aren't.
California Gov. Arnold Schwarzenegger came to Washington earlier this year to get $7 billion for his state government, which resorted to paying off vendors with scrip and delaying state income tax refunds. Illinois seems to be in even worse shape. A recent credit rating showed it weaker than Iceland and only slightly stronger than Iraq.
It's no mystery why these state governments -- and those of New York and New Jersey, as well -- are in such bad fiscal shape. These are the parts of America where the public employee unions have been calling the shots, insisting on expanded payrolls, ever higher pay, hugely generous fringe benefits and utterly unsustainable pension promises.
The prospect is that the bond market will quit financing California and Illinois long before the federal government. It may already be happening. Earlier this month, California could sell only $6 billion of $10 billion revenue anticipation notes it put on the market.
Individual investors have been selling off state and local municipal bonds this month. Meredith Whitney, the financial expert who first spotted Citigroup's overexposure to mortgage-backed securities, is now predicting a sell-off in the municipal bond market.
So it's entirely possible that some state government -- California and Illinois, facing $25 billion and $15 billion deficits, are likely suspects -- will be coming to Washington some time in the next two years in search of a bailout. The Obama administration may be sympathetic. It's channeled stimulus money to states and TARP money to General Motors and Chrysler in large part to bail out its labor union allies.
But the Republican House is not likely to share that view, and it's hard to see how tapped-out state governments can get 60 votes in a 53-47 Democratic Senate.
How to avoid this scenario? University of Pennsylvania law professor David Skeel, writing in The Weekly Standard, suggests that Congress pass a law allowing states to go bankrupt.
Skeel, a bankruptcy expert, notes that a Depression-era statute allows local governments to go into bankruptcy. Some have done so: Orange County, Calif., in 1994, Vallejo, Calif., in 2008. Others -- perhaps a dozen small municipalities in Michigan -- are headed that way.
A state bankruptcy law would not let creditors thrust a state into bankruptcy -- that would violate state sovereignty. But it would allow a state government going into bankruptcy to force a "cram down," imposing a haircut on bondholders, and to rewrite its union contracts.
The threat of bankruptcy would put a powerful weapon in the hands of governors and legislatures: They can tell their unions that they have to accept cuts now or face a much more dire fate in bankruptcy court.
It's not clear that governors like California's Jerry Brown, who first authorized public employee unions in the 1970s, or Illinois's Pat Quinn will be eager to use such a threat against unions, which have been the Democratic Party's longtime allies and financiers.
But the bond market could force their hand and seems already to be pushing in that direction. And, as Bowles notes, when the markets come, they will be swift and severe.
The policy arguments for a bailout of California or Illinois public employee union members are incredibly weak. If Congress allows state bankruptcies, it might prevent a crisis that is plainly looming.
Michael Barone, senior political analyst for The Washington Examiner (www.washingtonexaminer.com), is a resident fellow at the American Enterprise Institute, a Fox News Channel contributor and a co-author of The Almanac of American Politics. http://blog.getliberty.org/default.asp?Display=2854
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