Winning the Battle, Losing the War: Part I

The current political dispute between Wisconsin Governor Scott Walker and the state’s public employee unions is the first battle in a struggle that will dominate the public policy arena at all levels of government in the next 10 years -- how to pay for public employee retirement benefits, what role public employee unions will play delivering government services and their role in the future of the Democratic Party.

I seek to explore these ideas in a series of forthcoming posts. My initial post will cover the cost of retirement benefits to state and local governments (SLGs). Future posts will cover what Walter Russell Mead calls the blue model, the problems of federal deficit spending and the how these disputes will change the political environment of America. Although I expect battles between Republican governors and public employee unions to energize the base of the Democratic Party in the 2012 elections, helping Obama secure his second term, the core public policies in dispute threatens to tear apart the Democratic Party – and will force a substantial political realignment.

Pensions & Unfunded Liabilities

Unlike the federal government, every state in the union (except for Vermont) has a legal requirement of a balanced budget. Although this can be offset in deficit years by relying on the bond market to cover shortfalls SLG’s don’t have the luxury of printing the world’s reserve currency to keep interest rates low, much less pay back the loans.

The wretched standing of SLG budgets has been a victim of the Great Recession. California alone saw revenues fall from $103 billion in 2007-08 to $83 billion in 2008-2009, and will only recover to an expected $94 billion in 2010-11. Revenue figures will improve as our nation’s economic recovery continues. Nevertheless, larger budget problems have been exposed during the crisis and loom ominously in the future.

Rather remarkably, the money discussed in the Troubled Asset Relief Program (TARP) is just a mere fraction compared to the amount of money needed to right SLG pension obligations. Originally estimated to cost taxpayers $300 billion, recent Congressional Budget Office (CBO) figures estimated TARP will end up costing taxpayers $25 billion. This does not include bailing out Fannie and Freddie Mac, which has cost $153 billion so far with the potential of an addition $68-$210 billion needed by 2013.

Estimates on the unfunded liabilities of the states vary. The Pew Center recently estimated the total to be $1 trillion at the end of fiscal year 2008, yet this study used the accounting standards of state pension boards. Using standards required by the private sector the total could be as much as $3 trillion – and this doesn’t even include local governments! These unfunded liabilities has been recognized from figures across the political spectrum, from Reason to the Heritage Foundation to Washington Post progressive pundit Ezra Klein.

As the daunting dilemma has revealed itself investors and public officials have taken notice. Moody’s, the rating agency that rated junk housing derivates as AAA, recently announced they would factor in pension obligations into their credit ratings – even though these figures are not listed on their audited financial statements. This will certainly lower state credit ratings, increase interest rates on state issued debt and augment the strain placed on state budgets. An additional long term issue SLGs will have to confront is increasing health care costs for retired employees; not only will the number of retirees increase, so has the inflation rate for health care.

The same New York Times article linked above revealed states already have $2.8 trillion worth of outstanding bonds. This set of financial realities doesn’t paint an appealing picture for the future of state government budgets.

What in the World to Do?

Reserve Chairman Ben Bernanke: "We have no expectation or intention to get involved in state and local finance.” The states "should not expect loans from the Fed."

Felix Rohatyn, the longtime advisor to the Democratic Party and legendary financier who helped save New York City from bankruptcy in the 1970’s, recently told the New York Times “it seems to me that crying wolf is probably a good thing to do at this point.”

Former Los Angeles Mayor Richard Riordan: “throughout the country, 90 percent of cities and states are going to go bankrupt within the next five years, many of them sooner.”

SLGs are looking at financial armageddon in the next 10 years and the Fed won’t bail them out. What we are about to witness is best describe by astrophysicists as an “Impact Event.” The governance and political alliance structure of SLGs will never be the same after the dust settles.

Palin Leaves Office

To "fight for what is right." Whatever Sarah. Her speech was the most cringing, insincere, bullshit and painful political speech I have EVER heard. I was actually laughing it was so embarrassing -- she made herself out to be the savior of America using horrible public policy puns. Seriously, it sounded like she hired Kim Jung Il's speechwriter.

Whoever is in her political team has consistently given her some of the worst advice I have seen in the modern political era.

American Right Holds It's Own Hostage

Interesting article on CQpolitics online relayed to me yesterday by a friend.

Shortly after Arlen Specter and two other centrist Senate Republicans struck their deal with Democrats and the White House on the economic stimulus package, Specter was approached in the GOP cloakroom by one of his colleagues.

“ ‘Arlen, I’m proud of you,’ ” the second senator said. Specter declined to say who the lawmaker was, but he recounted the rest of their conversation this way: “‘Are you going to vote with me?’ I said. He said, ‘No, I might have a primary.’ And I said, ‘You know very well that I’m going to have a primary.’”

That brief encounter clearly illuminated the position moderates hold in the ranks of the Senate Republicans these days — weighing their ideological inclination to find common cause with President Obama against the political risks and rewards of such dealmaking, both for themselves and for their party.

My friend David Amerikaner narrowed the list down to ten names, all male, up for reelection in 2010: Bennett (UT), Bunning (KY), Burr (NC), Coburn (OK), Crapo (ID), Grassley (IA), Gregg (NH), Isakson (GA), Shelby (AL), Vitter (LA).

Good place to start. I'm going to throw out Bunning (already facing primary challenge) and Coburn (known anti-government activist) off the top of my head. This leaving Bennett, Burr, Crapo, Grassley, Gregg, Isakson, Shelby and Vitter.

Bennett: While I know (from personal experience) politicians do not always believe their own rhetoric, I think this statement from Bennett in a Huffington Post article rules him out:

"We have a very, very clear model, because we passed a stimulus package in the last Congress -- bipartisan. Republicans voted for it. Democrats voted for it. It didn't work," said Sen. Bob Bennett (R-Utah), who led financial-industry bailout negotiations for the GOP.

Bennett argued that the last plan "was based on economic analysis of past recessions and past problems and not the depth and seriousness of this one. We saw personal income spike up as a result of the stimulus we put into the economy, and the economy was stimulated not at all."

For Bennett, the plan failed because high debts and the dire economic outlook persuaded people that they should save their money or pay down loans rather than spend. "When you're having an economic crisis, whether you're a company like General Motors or a bank like Citi or an individual, you do what you can to pay down your debt. That's what was done with the last stimulus package. That's the rational thing to do."

Burr: Not only did Obama win his state, Burr just saw Liddy Dole lose reelection by 9 points. Furthermore, his favorables are under 50 points. However, Burr has not ventured against conservative orthodoxy in his time in the Senate often. I doubt the GOP would want to further weaken an already weak candidate (see Arlen Spector). Plausible candidate.

Crapo: Won 99 percent of the vote in his reelect in 2004. It has been rumored that he's a candidate for GOP leadership in the Senate. Popular back home, doubt anybody takes him on. I'll rule him out.

Grassley: Although he got the Obama Administration to move a $69 billion AMT patch into the stimulus bill, I doubt he is the one in question. A weekend hog farmer who visits all 99 counties in Iowa every year, a viable primary challenge is not in the cards here.

Gregg: Interesting candidate here. Gregg abstained for a cloture vote when deciding on whether to take the Commerce position. That aside, he is popular with conservatives in New Hampshire. Considering the changing dynamics of the state I doubt Gregg is worried about a primary challenge from the right in an open primary system. I'll rule him out.

Isakson: Isakson is fairly conservative but has taken some moderate steps here and there (ie. the bailout and immigration). His ridiculous amendment that would have done little else than put money in realtor's pockets showed he was at least willing to play ball. No primary challenger has announced, yet there have been rumors of it happening. Strong candidate.

Shelby: Originally elected as a Democrat from Alabama to the US Senate. Shelby is now questioning Obama's citizenship (seriously?!?!). Shelby has a $13.4 million war chest (the biggest of any incumbent on the board for 2010). Doubt he is concerned with a primary challenge.

Vitter: Extremely worried about a primary challenge (voted against HRC for State as a result). His track record is ridiculously conservative, so I doubt he would even contemplate voting for the stimulus bill.
------
My best guess: Isakson.

End the "War on Drugs"

Unfortunately, I do not expect American public policy makers to come to terms with the absolute fact that the "War on Drugs" has been a colossal failure of epic proportions any time soon. Although the "War on Drugs" has resulted in:

• $49 billion spent per year by local, state and federal agencies -- money that could have been going to education, health care, etc.;
  
• 80 percent of the increase in the federal prison population was due to drug convictions between 1985 and 1995;
• somebody getting arrested every 17 seconds for violating a drug law (for cannabis alone its ever 38 seconds);
• more than half of all sentenced federal prisoners are drug offenders; and
  
• 17 percent of State prisoners and 18 percent of Federal prisoners committed their crimes in order to obtain drug money.

The only winners in the "War on Drugs" are criminal enterprises and politicians who appease public sentiments (I'm looking at you Rahm Emanuel, Eric Holder, Joe Biden, Ronald Reagan (for increasing mandatory sentences) and essentially the entire GOP/American Right). While these costs are relatively hidden to the American public and media outlets, the disastrous consequences are very apparent in Mexico.Here is just a taste from a blog post at Cato-at-Liberty:

Mexican soldiers are being killed and beheaded, and police officers are being assassinated (warning: violent content)... For more on this topic, click here, here, or here.

More recent evidence from the Washington Post:

After a long, controversial career, Brig. Gen. Mauro Enrique Tello Quiñones retired from active duty last month and moved to this Caribbean playground to work for the Cancun mayor and fight the drug cartels that have penetrated much of Mexican society. He lasted a week.

Tello, 63, along with his bodyguard and a driver, were kidnapped in downtown Cancun last Monday evening, taken to a hidden location, methodically tortured, then driven out to the jungle and shot in the head. Their bodies were found Tuesday in the cab of a pickup truck on the side of a highway leading out of town. An autopsy revealed that both the general's arms and legs had been broken.

The audacious kidnapping and killing of one of the highest-ranking military officers in Mexico drew immediate expressions of outrage from the top echelons of the Mexican government, which pledged to continue the fight against organized crime that took the lives of more than 5,300 people last year. Military leaders, who are increasingly at the front lines of the war against the cartels, vowed not to let Tello's death go unsolved or unpunished.

The underlying problem here for Mexico is simple; their isn't a damn thing they can do to address the root cause of the violence -- demand from American consumers. As America pumps in billions of dollars to cut off supply chains the money to be made from the drug trade is increasingly found not necessarily in producing the stuff -- it is in getting substances across the border.

Their is a full on war going on south of our border. One that CANNOT be won. The question we must ask ourselves is what is it going to take for our country to wake up and demand real change.

Chronicles of Politicians Gone Mad

I could not make this up... per the Independent Institute's blog The Beacon:

Earlier this month, Rep. Pete King (R-N.Y.) introduced a bill in the House of Representatives that would ban camera phones from having a silent mode when taking a picture.

The Camera Phone Predator Alert Act (H.R. 414) would “require any mobile phone containing a digital camera to sound a tone whenever a photograph is taken.”

You know you have been in office far too long when you introduce crap like this. Leaving aside the issue on whether the government should be regulating the free market in the first place (if consumers wanted the feature a phone company would certainly enable this option -- it's just a simple software update) can anybody -- somebody? -- please explain to me why it is in the public's interest for the government to get involved in something as trivial as this.

Join Sarah 2012

It has begun. Sarah Palin has started a political action committee -- a significant step to running for national office. The thought of this woman running our country and the free world is truly a terrifying thought. If nothing else I hope the Democratic Party and "progressive" interest groups learned their lesson from the years of George W. Bush... namely do not dismiss a political rival as stupid and expect enough Americans to agree with you that the individual is clearly not competent enough to hold the office of POTUS. A 2004 election of Obama vs. Palin would be absolutely entertaining. Not only would Palin fill the national void left by Bush 43 of embarassing comments made by elected officials (although Biden is trying his damnest), a loss worse than McCain's would further damage the credibility of the religious right as a viable ideology for the GOP.