They say the states are supposed to be the laboratories for legislative creativity.   We can watch what works and what doesn’t, emulate the best and avoid worst, and improve the lot of everyone.

But what happens when the mad scientist is the federal government, cramming an experiment down the throat of a particular state and county?  What if their process is textbook “arbitrary and capricious“, and yet they clearly aspire to go national with the results, regardless of efficacy?

Such is the saga going on in Westchester County New York, where County Executive Rob Astorino is embroiled in a nearly four-year-old legislative and financial nightmare brought on by his predecessor Andrew Spano.   Astorino, a Republican, defeated the three-term incumbent Democrat by an odds-crushing 16 points in November of 2009, and gained unprecedented voter support by vowing to challenge what became law very late in his campaign.   Astorino described the source of the problem, in his recent “State of the County” speech:

Westchester County Executive Rob Astorino

“If you think Albany is bad, wait until I tell you about Washington and the housing settlement.  A quick history:  The County was sued in 2006 under the False Claims Act of 1863.  The charge was that the County accepted Federal dollars from the department of Housing and Urban Development, but failed to study whether race is a factor in housing opportunities.  In 2009, former County Executive Andrew Spano and the Board of Legislators settled the case, and critically important, there was never a finding of wrong-doing on the part of the County, or an admission of guilt in the settlement.  Instead of going to court, the County and the Federal government both agreed to settle under the following terms:  The County would spend at least $51 million dollars to build 750 units of housing for lower income people in 31 so-called eligible or mostly white communities by the end of 2016.”

Combating this “mostly white” designation, by any means necessary, is apparently the crux of HUD’s mission.   To HUD’s way of thinking, surely these communities are “mostly white” only because of racial discrimination, or as Astorino went on to describe, zoning practices that they think have the net effect of being racially discriminatory:

“The Federal government has a very different agenda and vision for Westchester.   In fact, HUD calls us, its ‘Grand Experiment.’  That means Washington bureaucrats, who you will never see or meet, want the power to determine who will live where, and how each neighborhood will look.  Now what’s at stake is the fundamental right of our cities, towns and villages to plan and zone for themselves.  This ‘home rule’ is guaranteed by the New York State Constitution.  HUD thinks it can trample on Westchester, because it has the misguided notion that zoning and discrimination are the same thing.  They are not.  Zoning restricts what can be built, not who lives there.”

States and localities around the country reacted with horror to the now famous2005 Kelo vs. City of New London Connecticut “takings” case.    How should they react to the virtual taking of an entire county’s property, knowing that theirs may very well be next?

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What does it mean to be able to afford our own government?  Most (although apparently not all) people realize that if we are to ask government to provide us with an ever-increasing list of services, we need to be able to pay for them.  And what better measure of affordability than the rate of growth of personal income?   It is from personal income that we pay our taxes, that pays for government.    Using data retrieved via the St. Louis Federal Reserve Bank’s eminently useful “FRED” system, I calculated an index that measures the former against the latter.    Let’s call this the Government Affordability Index. I think it exactly quantifies why we collectively feel so financially strapped.   Bear with me for a little econometric tedium…

FRED’s Federal Government Total Expenditures data series goes back to 1960, while their Personal Income series goes back to 1947.   Using a starting index level of 100 in 1960, I grew each new series by the annual growth rate in the source series (total expenditures and personal income), with each annual growth rate reduced by the annual GDP inflation index.   The inflation adjustment serves only to remove a lot of the exponential growth effect that shows up otherwise.    Here’s the result:

Personal Income Index Vs. Government Expenditures Index 1960-2012

To zero in on the relationship between the two, I then took the one index and divided it by other, using Personal Income as the numerator, as any value over 1.0 implies that our total income level is commensurate with what we’re asking from over government.   Sadly, the graph only visits 1.0 twice since 1960:

Government Affordability Index 1960-2012

 I can already hear the howling from the Left about using Personal Income as a proxy for affordability.   But to do so, they need to perform class warfare and taxpayer slice-and-dice stunts worthy of Benihana’s.  And that’s the point.   Government needs to be affordable by everyone, in total, and not according to some ruling majority’s view as to what constitutes someone else’s “fair share.”   Furthermore, although interest rates are indeed at record lows (cue clip of Ben Bernanke’s helicopter), and too many people are saying we shouldn’t fear more debt, the annual interest on that debt still needs to be paid back from, guess what, Personal Income.

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No matter who wins today’s election, one thing is for certain:  This country will remain deeply divided on the proper role of government.   While the debate has been healthy in many respects, it has also been equally damaging.   In many ways, the President-elect and his new Congress will greet tomorrow and find a wounded country.   With all the talk of the “need to compromise”, “reaching across the aisle” and giving “everyone a fair shot”, the next President and Congress could do no better than to attack the biggest root cause of public acrimony: crony capitalism.   In fact, to defeat crony capitalism, one can assemble a powerful coalition voting-block that defies simple “left/right” categorization.

Before going any further, let’s define “crony capitalism” simply as “capitalism” without a level playing field.

Where capitalism results from two trading partners making each other better off through free and honest trade, crony capitalism tips the playing field to one party’s favor.   Maybe it’s a regulation that forces the one party to trade with the other.   Perhaps it’s a special tax treatment that makes viable an otherwise non-economic transaction.   Or possibly it’s a single paragraph inserted into the tax code, one that applies only to a single company.  Favorably, of course.

Crony capitalism amounts to a thumb on the scales of economic justice.    But the damage doesn’t stop there.

A friend of mine recently recalled the profound words of Henry Hazlitt, from his classic book, “Economics in One Lesson”:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

In “the immediate”, the favored group gets their benefit.   And as we shall see, the “longer effects” of this system are devastating to the very character of the country itself.

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President Obama and I agree completely on exactly one thing, and it concerns the upcoming November election:

It’s not just a choice between two candidates or two political parties. More than any other election, this is a choice about two different visions for the country, for two different directions of where America should go. And the direction that we choose, the direction that you choose when you walk into that voting booth in November, is going to make a difference not just in your life, but in the lives of your children and in the lives of your grandchildren. It will make a difference for decades to come.

- President Barack Obama, August 12 2012, Chicago’s Bridgeport Art Center

With Mitt Romney’s naming of Congressman Paul Ryan as his running mate, team Obama is apparently tickled pink that they can contrast their vision for America against that of a radical ideologue and the ugly capitalist that supported his budgetary plan.  Not missing a beat, Obama’s promoters are already running ads on Google saying “Fight back against Paul Ryan’s radical agenda” and variations thereof.

I say bring it on.

Paul Ryan will force a detailed, fact-based national conversation and referendum on what has to be the most spectacular failure of an “economic plan” ever witnessed by a developed nation.  And I should add, the most tragic, as the productive lives of millions of unemployed and under-employed people hang in the balance, not to mention the trillions of dollars of national wealth that stands to be made or wasted.

For three plus years, Obama and his lackeys have made the case that the path to national greatness starts with and runs back through government.  By any mean necessary, they have sought to do what they indeed promised, namely, to “fundamentally transform America.”   If Ryan is an “ideologue”, one would have to use that term with Obama as well.

Conceptually, I have no problem with the term “ideologue.”  In the political sphere, the word is typically used when talking about a person who operates from principles with which one vehemently disagrees with.  But what anyone should have a problem with, what is truly radical, is the promotion of an ideology whose historical record has never produced the goals one is supposedly trying to achieve.

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People sometimes say that by electing a super-rich person to public office, that office-holder is less likely to be beholden to equally rich special interest groups.   In the case of New York City’s Michael Bloomberg, we may just be seeing how a super-rich, non-reelection seeking mayor might not need to care what any of his constituents think.    Bloomberg certainly deserves kudos for determination and sticking to principle.   Too bad for all of us that they are the principles of a statist.

I’m of course referring to Bloomberg’s latest governmental crusade: “educating” our increasingly obese society on proper portion sizes, via a proposed (and likely to be implemented) ban on “sugary drinks” of more than 16 ounces.  Thankfully, numerous commentaries are noting that determined consumers can just buy a second drink, or more importantly, that government has no role in intervening in people’s eating habits.

It’s not hard to see Bloomberg’s good intentions, however.  A look at some of the costs of obesity on society says that for all of his damn-the-torpedos/democracy behavior, perhaps it’s a good thing that we’re at least attempting to have a conversation about this:

• Fully one-third of America’s population is considered obese, with 6 percent being considered “morbidly” so.
• Nearly 21% of America’s annual health care expenditures, or about $190 billion a year, are related to obesity.
• Besides an additional $4 billion in fuel costs to move this extra weight in our transportation system, there are these anecdotes about the infrastructure itself:

“The built environment generally is changing to accommodate larger Americans. New York’s commuter trains are considering new cars with seats able to hold 400 pounds. Blue Bird is widening the front doors on its school buses so wider kids can fit. And at both the new Yankee Stadium and Citi Field, home of the New York Mets, seats are wider than their predecessors by 1 to 2 inches.

The new performance testing proposed by transit officials for buses, assuming an average passenger weight of 175 instead of 150 pounds, arise from concerns that heavier passengers might pose a safety threat. If too much weight is behind the rear axle, a bus can lose steering. And every additional pound increases a moving vehicle’s momentum, requiring more force to stop and thereby putting greater demands on brakes. Manufacturers have told the FTA the proposal will require them to upgrade several components.”

– Sharon Begley, “As America’s Waistline Expands, Costs Soar”, Reuters  April 30 2012

Worth talking about, indeed.   But from what I’ve seen so far, I think we’re asking the wrong questions.

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I’ve had more than my share of exposure to the U.S. healthcare industry over the last several months.  That and other dramatics that people call life explain my disappearance from these pages since February.

About two years after being diagnosed with carcinoid tumors, in what we later learned was an already very advanced stage, my father passed away this past April 1.  Things began to more rapidly go downhill in mid-February, and with that, the family pulled out all the stops in support, including lengthy hospital visits.

This is a close relative of the cancer that Steve Jobs succumbed to.  In his case, what is still commonly reported as “pancreatic cancer” and/or “liver cancer” would be more accurately described as carcinoid tumors in his pancreas, and his liver, and probably elsewhere within his abdomen.   We all remember Jobs’ disturbingly gaunt look of extreme weight loss – I watched the same thing happen with my dad.  It is a cruel disease.

To further complicate matters, exactly one year ago, and one year into my dad’s situation, I found myself calling 9-1-1 at 1 a.m. with severe abdominal pain.  About 16 hours later, I awoke from a surgery to learn I had lost 14 inches of small intestine containing nine carcinoid tumors (I would later learn that I likely had these tumors for as long as ten years, and in my dad’s case, twenty), the biggest of which had caused a total obstruction.

Clinical Research Center at the National Institutes of Health

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The Obama administration’s finger-to-the-wind political strategizing over birth control has touched off a furor amongst a variety of factions. Most of the controversy has rightly centered around the government’s ability to run roughshod over an individual’s, or religion’s, belief systems.

Image via Wikipedia

But an equally important issue has been revealed by accident, and is perhaps getting less attention. New York‘s junior Senator, Kirsten Gillibrand, provides the setup, applauding the forced coverage of birth control by insurance companies:

“99 percent of American women take birth control, and this is basic health care for most women,” said Senator Kirsten Gillibrand.

Until this country stops confusing health insurance with health care, we’re on a road to certain national bankruptcy. Indeed, many would argue we’re already there.

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Do we want to motivate people to create wealth or not?   It’s the unspoken question, the elephant in the room, when President Obama attempts to whip up the populace with stories of “billionaires paying lower tax rates than their secretaries” and other class-warfare demagoguery.

Mitt Romney recently said his effective tax rate is probably close to 15%, because most of his income comes from long term capital gains.  The admission hasn’t helped his campaign much, to be kind.  Warren Buffett has famously said similar things, and has become the President’s biggest gift in his drive towards wealth redistribution.

Nearly since the beginning of the income tax, the government has treated long term capital gains differently than “ordinary income.”  In 2003 the long term capital gains rate was cut to 15%.  Why are we surprised to see that people like Romney and Buffett have matched their behavior to the incentives?  Surely even President Obama understands the concept of incentives. Under certain conditions, section 2011 of his Small Business Jobs Act of 2010 establishes a particularly favorable long term capital gains rate: 0%.

Presumably what everyone’s attempting to foster here are wealth creation and capital formation.  From wealth comes the ability to invest, which creates jobs and, if created via free market capitalism — as opposed to crony-capitalism — advances society.  The opposite of wealth of course is poverty.   We see endless government reporting and programs attempting to alleviate the latter, but little understanding of the need to create the former.   If we want less poverty, we need to create more wealth.

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Decades before the 1929 stock market crash and Great Depression, a Baptist minister named Russell Conwell began to deliver a lecture to groups of impoverished and dejected individuals around Philadelphia, Pennsylvania and ultimately, the entire country.  The lecture came to be known as “Acres of Diamonds”, and Conwell went on to turn his nightly mission meetings into Temple University.  He also went on to deliver that lecture over 6,000 times.

Fast forwarding a century to our own Great Recession and its corresponding groups of newly impoverished and dejected folk, one wonders what Conwell might have said to the ones who have come to participate in, or sympathize with, the Occupy Wall Street movement.   We need only to look to his “Acres of Diamonds” text to find out.

Equal parts inspiring, engaging and witty, and almost disturbingly prophetic, the lecture derives its name from its opening tale of “an ancient Persian by the name of Al Hafed”, who is lured into a search for diamonds in far away lands.   After spending his fortune in vain and coming up diamondless, he takes his own life.   As the story continues, we learn that if he had only dug in his own original backyard, he would have encountered acres of the precious stones, and achieved all of the riches he lost his life seeking.

But with the hopes of inspiring his audience out of their poverty-stricken ways, Conwell goes on to say  “I say you ought to be rich; you have no right to be poor.”   And he follows that up with:

I think the best thing for me to do is to illustrate this, for if I say you ought to get rich, I ought, at least, to suggest how it is done. We get a prejudice against rich men because of the lies that are told about them. The lies that are told about Mr. Rockefeller because he has two hundred million dollars — so many believe them; yet how false is the representation of that man to the world. How little we can tell what is true nowadays when newspapers try to sell their papers entirely on some sensation!

Much of Conwell’s eleven thousand plus words revolve around the relationships between society’s rich and its poor.  As the self-described “99 percenters” rail against the supposed injustices heaped upon them by the infinitely fortunate 1%, Conwell’s talk is chock full of wisdom that transcends the ages.   In fact, as we shall see, it is almost eery how currently applicable entire sections of the prose are.

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Let’s talk about “fair share.”   President Obama certainly wants to.   He’s “all in” on the notion that “the rich” don’t pay their “fair share” of taxes in this country.  Indeed, he’s wagering his re-election on the bet that a majority of voters will agree with him.  When the tyranny of the majority succeeds, Obama will win, too.

As parents, one of our most important tasks is to know when to say “no” to our children.  We all recognize a “brat” when we see one — a child who’s never been told “no”, and whines and complains until he or she gets his or her way.  ”Shame on his parents!”, or perhaps that’s not politically correct to say anymore.  But bratty children grow up to be bratty voters, too.

Unfortunately our political system often rewards the political equivalent of the irresponsible parent.   Using Other People’s Money, irresponsible politicians promise the world, and the bratty voters like it.  Once elected, these politicians do their best to deliver the goods.   It’s alright, they say, because of their interpretation of the General Welfare and Commerce clauses of the Constitution.  Others beg to differ…

Sadly, under such a system, no amount of revenue to the government is ever enough, because human wants are themselves unlimited.  Therefore, those with a lot of assets, with “a lot” being defined by the politics of envy, become natural targets for the boundless benevolence of these irresponsible people – voters and politicians alike.

At least one prominent media figure is finally on to the correct way to put a lid on this ruinous line of “fair share” reasoning.  Most recently, it was Stuart Varney.

On his September 20th show, Mr. Varney put a simple question to a Democratic strategist, Mary Anne Marsh, in the context of discussing Obama’s plan to raise taxes on the wealthy.   To paraphrase:

“What is the maximum percentage of income that someone should pay in taxes?”

It’s an arresting question, for several reasons.

 

 
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