Larry Littlefield's blog
I wrote the post "Hedge Funds Kiss Our Assets Goodbye" back in 2007. I was reacting in terror to the fact that then-NYC Comptroller William Thompson was shifting to "alternative" assets such as hedge funds and private equity. In an effort, I believe, to hide or deny the fact that the retroactive pension enhancements his union supporters got in deals up an Albany would wreck public services, by somehow getting the fantasy 8.0% rate of return.
Well now the New York Times has found those pension funds that shifted to alternative investments ended up paying higher fees to Wall Street while getting lower returns. Which is just what anyone who wasn't being paid to say otherwise would have predicted. I'm hardly a financial whiz, but the ripoff was clear to me. The Times article talks about what happened to public employee pension funds in Georgia, Pennsylvania, Oklahoma, California and Austin Texas -- but not New York -- over the past five years. So can someone tell me...how screwed are we? The ongoing spiral of tax increases and service cuts to pay for those deals is bad enough as it is, without Wall Street ripping us off more.
President Obama and the Democrats thought they could mute opposition to health care reform by adopting the Heritage Foundation Romney plan, and imposing a regressive mandate instead of a progressive or proportional tax. It seems that may not turn out to be the case. Romney now claims it is fine for states to provide/require universal health insurance, but not the federal government.
But what about the Supreme Court case overturning a key part of the Welfare Reform Act of 1996? The Court ruled that states could not limit the benefits of those who move (or are sent) from less generous states to more generous states when they were in need, while benefitting from the lower taxes of the less generous states before and after. How does Massachusetts prevent South Carolina from sending its citizens north to that state when they fall ill? Why do they end up in New York, on our Medicaid plan, instead? New York had better find out, and take action.
The annual rebenchmarking of Current Employment Survey data revealed a happy surprise for New York City; private sector employment has gone up more than previously thought. But it also revealed a surprise for the rest of New York State. Based on annual average data, local government employment fell for the second year in a row. The spreadsheet can be accessed here.
From 1990 to 2009, at a time when New York City’s local government employment fell by 10,500 jobs (2.2%), local government employment in the rest of New York State increased by 127,400 jobs (23.3%). There was little population growth in the rest of the state during these years, and if once excludes the Health Care and Social Assistance sector, which is substantially government-financed, private sector employment in the rest of the state fell by 114,800 (3.5%). But from 2009 to 2011, while local government employment in New York City fell once again by 14,200 (3.1%), local government employment in the rest of New York State also fell, by 16,400 (2.4%). So has the “everyone on the payroll” policy finally ended in the rest of the state, are the rising number of ex-government workers being paid to be retired crimping the number being paid to work, or is this just a temporary result of the recession?
Perhaps now that one part of the MSM has broken the wall of silence, the sad reality will come out in the open. The young are clueless, but always have been. That's why in the past it was up to those older to look out for their best interests. Then the majority decided to stop doing so.
"Nobody ever talks about generational conflict. Who wants to bring up that the old are eating the young at the dinner table? How are you going to mention that to your boss? If you're a politician, how are you going to tell your donors? Even the Occupy Wall Street crowd, while rejecting the modes and rhetoric and institutional support of Boomer progressives, shied away from articulating the fundamental distinction that fills their spaces with crowds: young against old." Actually, it should be the young and the old who care about their own kids against those who don't.
For the past few years, as taxes have been increased and public services have been cut, New York’s public employee unions have protested. We’re on the side of those who rely on public services, they claimed. We are the 99 percent. And now that the retirement benefits of future public employees have also been cut, the unions are protesting again. We are on the side of future public employees, they claim. So where is the money going? Who is getting better off, as most people, and just about all future people, become worse off? Have New York’s state and local taxes been cut? Have public fees, such as transit fares, been cut? Who benefitted? You know the answer.
Ryan's plan still exempts those 55 and over, the generation that wanted tax cuts and got them, from any restraint on its future increases in taxpayer-funded spending. All the sacrifices are foisted onto the increasingly poorer generations who are age 54 and younger, because those older demanded what they were unwilling to pay for. It's just like all those retroactive pension enhancements followed by Tier V and Tier VI. Just like the falling private sector wages generation by generation for those at the same age.
We have a budget crisis right now, not 20 years from now, because of the selfishness and entitlement of Generation Greed, not younger generations. And no, the problem isn't that younger generations deserve less. Every indicator shows they are in fact better behaved than those 30 years ago, and faced with higher expectations for what they will contribute and lower expectations about what they will receive.
Looks like some economists are testing my view that you can't pay most people less, use advertizing to convince them they have to spend more and more, and have them go deeper and deeper into debt to cover the difference, indefinately. Read this. What an era.
He we go again. Thanks to the unwillingness of most Americans to arrange their lives, and/or pay extra for alternative technologies, to reduce our dependence on imported oil during the 39 years since the Arab Oil boycott of 1973, the U.S. once again faces a potential economic and foreign policy crisis. Iran is threatening to close the Straight of Hormuz, gas prices are rising, and the U.S. is facing the possibility of yet another recession caused by oil prices and yet another war to keep its economic drug coming. It is a political crisis too, because many Americans seem to believe it is the federal government’s job to keep gasoline cheap, and blame the President when the price goes up. A recent poll referenced in this article said that Americans considered gas prices the third most important issue. So what do I want President Obama to do about it? Show leadership, as I define it, for perhaps the first time in his administration.
As I noted in my review of Mayor Bloomberg’s first two terms, the job of a public executive is in reality three jobs. Management, as CEO of a large multi-function enterprise. Policy, because in combination with the legislative branch the executive helps to determine the direction of the government. And Leadership, because the President is a leader (one of many leaders in both the public and private sectors) of Americans, with an ability to influence how they live and what they believe, above and beyond the role of government and its ability to compel people to do or not do things. What I want the President to do about gas prices is help Americans, not all of them just those willing, to organize themselves to use less gasoline. Right now, independently of government policy or programs. Those unwilling, the whiners, would benefit from lower prices as well.
It’s time to conclude my overview of U.S. federal finance for this year, and for a while, with a discussion of the national debt in the context of all our other debts, and the values of those who are running them up. One spreadsheet with data and charts on federal revenues, expenditures and debts from the 1970s to the present, previously linked in this series, is here. A second, new spreadsheet, on U.S. debts of all kinds from 1952 to the present, is here. I suggest grabbing these spreadsheets and printing out the charts in the latter before reading on. In prior posts, I showed how U.S. federal taxes as a percent of GDP had fallen to the lowest level of my working lifetime, and of the current political era, by fiscal 2011, at just 14.4% of GDP. And federal spending had soared to the highest level in recent history, at 25.3% of GDP. As a result, over the past five years the federal deficit has soared to levels unheard of for a half century, and the total federal debt as a percent of GDP has jumped to levels not seen since the aftermath of World War II.
Some of this is the result of the Great Recession and the response to it, and may pass. But some of it is merely a culmination of a “buy now, pay later” era that has gone far beyond the finances of the federal government. As a result, the United States is at risk of financial disaster. The biggest difference between us and Greece is that, for the moment, other countries and the people within them are willing to lend to the U.S. federal government at zero percent interest. On the assumption that the government will impose whatever harm is necessary on younger generations in the future to pay them back.
The New York Times had an article on Sunday about the ongoing fiscal crises and service cuts that are wiping out public services throughout the state, in large part due to past debts and pension costs. But the Times doesn’t tell the why straight. First of all, pension costs are much lower as a share of payroll in the rest of the state than in New York City, and the pension plans for the rest of the state are better funded. No one wants to talk about how much worse off NYC is. Second, in mentioning reasons the Times mentions the stock market decline of 2008 but not the bubble that preceded it, nor the retroactive pension enhancements. The Times doesn’t want to mention the retroactive enhancements because the older generations it cares about made out like, well, bandits, younger generations are being sacrificed, and that is what the Times favors. And the News and the Post, and the legislators and the Mayor and the Governor and the unions. Governments are not going broke because of low stock prices, because stock prices are not low. They are high, relative to dividends paid, and temporarily inflated by Fed policy.
“These municipalities will not recover when the economy recovers,” said Richard Brodsky, a former assemblyman who is advising Yonkers. “Everybody was complicit in this tsunami, and now it’s landing, but not in Washington or Albany,” he said. “It’s in places like Yonkers, where the choice is between school kids and safe streets.” Wrong. Everyone who was around you working the system in Albany was complicit. You were complicit. Wall Street was complicit. The one percent were complicit. The retired and soon to retire public employees were complicit. The unions were complicit. They made out. Others are victims, irrevocably. You did the deal Brodsky, and you benefitted. Celebrate, you have no right to commiserate! There is one thing we cannot tolerate, just cannot. We cannot tolerate the idea that it was a mistake. It might have been a mistake when their predecessors did it, in the 1960s, leading New York City public services to collapse in the 1970s. But this time, they knew exactly what they were doing. And by the way, slashing benefits for new public employees will not stop public services from being gutted. In fact, they’ll probably just end up being retroactively enhanced again, with not enough money having been set aside, by the next set of Brodskys.
I just got home and received the monthly e-mail from the New York State Department of Labor. During the annual re-benchmarking process, during which employment statistics for the past are adjusted based on more detailed data that has become available, New York City private employment was adjusted upward by a stunning amount. In fact, if the data holds up to later adjustments, annual average private wage and salary employment in the city would have been within 12,000 jobs of the all time peak in 1969. (Including the self-employed, that peak was passed some time ago).
Which just goes to show what I have come to believe. New York City's economy is no longer very dependent on Wall Street. It is New York's tax base, and the extent to which city and state residents are socked with tax increases and service cuts, that is dependent on Wall Street.
I was going to complete my posts on federal finance with a discussion of the national debt, but it turns out that the Federal Reserve’s Z1 data for 2011 will be released on March 8th, allowing me to extend an important part of the discussion – the part concerning total U.S. debts including state and local government, consumers and the private sector– by one more year. So instead I’ve decided to once again check in on two Brooklyn fictional couples: the Young Hopefuls, both age 32 with a six-year-old child and a newborn, and the Senior Voters, now both age 72. How do their circumstances and taxes differ?
The Presidential campaign has shined a spotlight on the inequities in the federal tax code, with wealthy former private equity executive and current candidate Mitt Romney paying a far lower share of his income in federal taxes than most middle-income workers. Between growing tax inequities, less restrictive regulations leading to an era of legalized fraud, and corporate bailouts, it has become clear that the so-called one-percent rule the federal government in Washington. But who rules state and local government, where the serfs – and particularly the young – are paying even less attention? In New York that is clear as well: senior citizens, particularly retired and soon to retire public employees. The fictional Senior Voters are such retired public employees, and they are on the way to having a “retirement” that lasts as long as – or if they are lucky longer than -- they worked. The Young Hopefuls, in contrast, may face poverty in old age, as they (like most younger private sector workers) do not have any employer-provided retirement benefits, and their federal old age benefits are being encumbered by the soaring federal debt. But how are they faring now? Let’s fire up the Turbo Tax and find out.
As shown in my previous post, a minority of federal activities account for the vast majority of federal spending. These are National Defense and Veteran’s Benefits, Social Security, Medicaid and Medicare, and interest on the national debt. The national election should really be about those issues, and federal tax revenues. Yet I’m willing to bet that if your local incumbent member of Congress even bothers to campaign, rather than having secured a guaranteed re-election by being in a safe district and/or keeping challengers off the ballot, he or she will probably talk about anything and everything else.
In the line chart of federal spending that is part of the spreadsheet that is linked here, one can see that the dashed line – “everything else” – fell from 6.6% of GDP in FY 1979 under President Carter to 4.9% of GDP in FY 1995 under President Clinton, with the greatest decreases during the Reagan years. Post Reagan, the pattern had been that spending on everything else fell as a percent of GDP when the economy was strong and rose as a percent of GDP when the economy was weak – implying that it pretty much stayed the same as GDP did better and worse. In FY 2011, however, federal spending on “everything else” jumped to 6.8% of GDP, the highest level since the Carter Administration. To understand why, print out the spreadsheet chart on “Minor Spending Categories,” and read on.
This post continues my review of recent federal government financial history, based on this spreadsheet, that began with this background post and continued with this post on federal revenues. The discussion that follows here is on the major categories of federal expenditures, the ones that really matter, the ones that account for the most money. The federal government has been described as a social “insurance company that also has an army.” And Social Security, Medicare, Medicaid, National Defense and Veteran’s Benefits, and interest on the national debt accounted for 71.9% of federal spending in FY 2011 – and 65.4% of federal spending in FY 1979 at the start of this analysis.
In terms of what the federal government actually does, moreover, it is actually an army, a post office, and a bunch of bureaucrats sending money to others who actually do things. Most Medicare and Medicaid-funded services are provided by the private sector or public facilities run by state and local governments. Social Security and interest on the debt are simply cash taken in, and cash sent out. The smaller categories of spending, to be discussed later in a separate post, generally involve payments to state and local governments, which do the actual work. Since money in and money out is the nature of most federal finances, activities by others funded by “spending” is little different than activities by others induced by tax preferences. Those “tax expenditures,” not tabulated in the spreadsheet, cost the federal government an estimated $1.1 trillion in FY 2011, according to the Statistical Abstract of the United States for 2012 (Table 477). Total federal “spending” tabulated as such was an estimated $3.8 trillion that year.
Prior to the Great Recession, I had heard federal politics described as little more than an ongoing argument about taxes; who pays too much, who pays too little, how much should be collected, how much can be collected. The data shows, however, that while there may be a big government-small government going on, however, that is only on the spending side. The generations now in charge have voted to pay for small government, aside from the peaks of economic bubble when corporate income and capital gains taxes are pouring in. The question is “who will get the small government that has been paid for?”
In fact, right at now the federal tax burden, as a share of the economy, is lower than it has been at any point in my working life – even though spending is higher. Federal taxes are far lower as a share of GDP than in the lowest year under President Reagan, by a wide margin. I can confirm this in my own life – our own total federal, state and local burden is much lower as a share of our income than in the early 1990s, when we had far less income, no dependents, and little in charitable deductions. Even though with regard to income taxes, we don’t benefit from the sweet deals the executive class gets on capital gains or retired government workers get on New York’s state and local income taxes. At the start of the Great Recession, I had expected tax burdens to soar as the federal government, state and local governments attempted to fend off bankruptcy. While state and local taxes have increased, federal taxes have fallen. The federal data may be found in the spreadsheet linked from this post. A discussion of how we got here follows.