Blame Hoover

By Jim Morford, cross posted at InTheLobby

When I was a youngster and things weren’t going well in the economy, the Democrats would always claim, “It’s Hoover’s fault.”  Republicans, on the other hand, blamed Democrats for “getting us into war” citing Wilson, Roosevelt (FDR) and Truman.

Today, things have changed. Democrats blame Bush for both the economy and for getting us into war.

But who really should bear the responsibility, if not the blame, for the problems facing our country today? To be sure, there is enough blame to be shared by both political parties for landing us in the deeply troubled economy that haunts us today. Politicians of all stripes and at all levels of government have, through fiscal irresponsibility, over taxed and over spent the public’s money. Truly, the blame can reach beyond politicians to include skillful labor unions who have negotiated benefits beyond the ability of governments and private sector employers to pay for them. Additionally, an apathetic public – perhaps the greatest cause of all our woes – has allowed corrupt politicians, avaricious businesses and organized labor to loot the public coffers.

Since the days of Theodore Roosevelt and Woodrow Wilson, our country has been on a Fabian path to statisim. Some are surprised that the Obama Administration has accelerated the pace.

In his most recent book, The Next Decade, geopolitical analyst and founder of Stratfor George Friedman presents a provocative and insightful look into the next decade. It’s a book well worth reading, as he sees a time of massive change and what the US will need to do to survive.

Before we jump headlong into speculation about the next decade, let’s take a look at the recent past to get some idea of whose policies and actions have put us where we find ourselves today.

From 1949 until 1995, the Democratic Party held majority control of the House of Representatives, thereby acting as a restraint on one-party dominance when Republicans sometimes had majorities in the US Senate and/or the White House. The philosophy of bigger and bigger government, embraced to greater and lesser degrees by both political parties, has dominated the country since the 1930s.

It was the relatively short period from 2003 to 2007 that the Republican Party controlled both houses of Congress and the White House. Even during the “conservative” presidency of Ronald Reagan, at least one house of Congress remained in the control of the Democratic Party and government continued to grow.

The current and dramatic shift in political dominance in Washington did not just take place on January 20, 2009 when President Obama was sworn into office. The shift actually began on January 3, 2007 when the Democrats recaptured control of the US Senate. At that time, the Dow closed at over 12,600; unemployment stood at 4.6% and the economy under George W. Bush set a record of 52 consecutive months of job growth.

It was on January 3, 2007 that Barney Frank (D) became Chairman of the House Financial Services Committee and Chris Dodd (D) took over the Senate Banking Committee. 15 months later a meltdown occurred in the banking and financial services sector of our economy, notwithstanding President Bush’s urging repeatedly that serious reform was needed.

One of the most important responsibilities that a member of Congress has is to enact an annual budget for the federal government. However, the US Senate under the leadership of Harry Reid (D) has failed to pass a budget since 2009. The House, under Republican control since 2011, has twice passed budgets and sent them to the Senate, which for purely partisan reasons has failed to enact a budget bill. Unfortunately, Majority Leader Reid and his Democratic colleagues believe that partisanship  is their primary responsibility, rather than fiscal stewardship and sound public policy.

The Federal budget cycle is governed mainly by six laws. Probably the most important of them is The Budget and Accounting Act of 1921 that governs the basic practices of federal budgeting and spending. Because of partisan irresponsibility in refusing to enact a budget and to avoid government shutdowns, Congress gets along by enacting continuing resolutions. Doing so fails the test of fiscal responsibility. However, public apathy (cited above) allows negligent politicians to get away with it.

President George W. Bush was no fiscal conservative or effective small government advocate. During his eight years in office, he increased the federal budget by 104% and the national debt grew by $3.3 trillion.

The Obama Administration has accelerated the pace of spending and debt to unsustainable levels. Today, the national debt stands at over $15 trillion. The debt is dismissed by some as just money we owe ourselves, but the interest on that debt has to be paid out of tax revenues, or borrowed and added to the debt. That interest so far in 2012 is nearly $4 trillion. There are those politicians who see increasing taxes as the only answer to any problem. Others contend that the problem is not that government has too little in revenue, but that it is spending far too much.

Whether it is the fault of Republicans, Democrats or both, it is a useless exercise to simply blame. Rather, we must reverse course and get our fiscal house in order if we are to survive as a nation that resembles anything we have known up until now.

There are solutions, but no easy solutions. Our apathetic and dependant population “served” by corrupt and power-grasping politicians may result in our becoming more like Greece than the affluent land of opportunity we once were.   

In a 2011 interview conducted by economist Donald Luskin, former Federal Reserve Chairman Alan Greenspan observed that he sees the United States as having crossed the threshold, a point of no return, at which we’ve taken on too great a government debt, and at the same time made too great a commitment to government control of the economy. Luskin wrote, “He told us that we won’t recognize America 20 years from now, and that we won’t like what we see.”

Jim  Morford is former Associate  Director of Government Relations for the NJ Education Association, former VP and chief lobbyist for the NJ Chamber of Commerce, former President of the NJ Food Council and is Executive Director Emeritus of the NJ Society for Environmental, Economic Development (NJ SEED). He is a partner in the Trenton-based consulting firm of Morford-Drulis Associates, LLC. The opinions expressed in this column are his and do not necessarily reflect the opinions of any clients or associates. 

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Stupid Republicans Are Losing The Public

As Governor Christie has often said, Republicans underestimate President Barack Obama at their own peril.

Using the authority granted to him in the ObamaCare bill that had to be passed before America could find out what was in it, Obama mandated that contraceptives be covered by all health insurance plans, including those provided by employers affiliated with religions that are morally opposed to contraception.

Obama laid a trap for Republicans.  They fell for it like a horny teenage girl whose boyfriend promised her he would pull out.  It’s almost too late to reverse the consequences.

Now the national debate is over contraception.  Not unemployment.  Not foreclosures. Not war.  Not terrorism. Not the price of gasoline. Not the national debt.  Not the mandates of ObamCare.  We’re having a national debate about contraception.  Republicans have been framed as anti-contraception and as too far out of the mainstream to be a relevant political party.

Republicans could have framed this debate in context of their commitment to repeal ObamaCare if the law is not overturned by the Supreme Court.  Instead they got into a national debate over contraception that will hamper, if not destroy, their chances of winning the White House and/or the Senate, even if the Court overturns ObamaCare.

Republicans in Washington and on the presidential campaign trail need to stop talking about contraception.  They don’t have the votes to stop what Obama is doing.  If they keep doing what they are doing, they never will.

It’s the economy, stupid.

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Unemployment Insurance Abuse

You know that bartender or waitress at your favorite summer spot at the shore?  The one that is there year after year, knows your name when you show up every season and remembers your favorite drink?  That one.

The really good ones make enough money in tips over the summer to support their households for the rest of the year.  Six figures in cash tips over the summer.

Way too many of these people are also collecting unemployment, every year, year after year, from September through May.   It is a way of life.

Two shore mayors from Cape May County, with the support of the League of Municipalities are looking for a legislator to sponsor legislation in the next session that would disqualify seasonal workers from collecting unemployment insurance, according to a report at NJ.com

The mayors and the league want to save money on unemployment for seasonal municipal workers.  That’s not a bad idea. However the real savings, for the state’s unemployment fund, can be found in eliminating unemployment insurance for private sector seasonal employees.

Governor Christie doesn’t want the State to be subsidizing the horse racing industry. Rightfully so. However the State is also subsidizing the labor costs of every other seasonal industry.  The State is subsidizing a comfortable way of life for many seasonal workers who don’t need it.

Unemployment insurance premiums are a major drag on the economy. They are a major disincentive to hiring new workers, especially for small businesses who have had to lay people off during this economy. 

Eliminating unemployment insurance for all seasonal workers, not just municipal seasonal workers, will go a long way to returning the unemployment fund to solvency, reducing premiums for the businesses who hire year round workers, and boosting overall employment.

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The MMM Economic Indicators

By Art Gallagher

Unfortunately, the MMM unscientific economic indicators are proving to be true.  The horrible economic activity I wrote about two weeks ago is showing up in the main stream indicators.  Unemployment is up, inflation is up, the stock market is retreating.

Barack Obama is shaping up to be Jimmy Carter.  Will a Ronald Reagan show up to replace him?

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About the Economy

By Art Gallagher

I’m convinced it’s not just me and my businesses.

Maybe it’s gasoline prices.  Maybe its the weather.  We’re not hearing about it yet in the mainstream media, but among Main Street businesses it seems like everyone is talking about it.  In the last few weeks it’s as if a switch was flicked and economic activity was turned off.

I just got off the phone with a friend who has two businesses; a law firm and a retail store.   The retail store should have done $50K in sales this weekend. It did $11K.  Last month’s sales were off 25% from April of last year.  The law firm is quiet. New clients don’t have cash for retainers and long term clients are falling behind on their bills.

Over the weekend my friends with restaurants and hotels were complaining about what a slow start they are having to the season.

Landscapers and contractors are not working because of the weather.  They don’t have much of a back log anyway.

My friend with an auto repair shop and a lock smith business offered that there is a great deal of maintenance being deferred on cars, causing major breakdowns for some customers who are paying cash when they have to.   There is more cash business than credit cards or checks, even for big tickets.

Hopefully it is just my circle of friends and the slow down we’re alarmed by is not a broader trend that will show up in monthly and quarterly government reports in the next few weeks.

At the GOP finance gala last week I needed change for a $100 bill.  I was shocked by how little cash was in the room.  I asked 10 or 15 people to break the bill before I found someone who could.

Does anyone have some good economic news to share?  Please do so in the comments.

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State Tax Revenue Up $914 million

By Art Gallagher

New Jersey’s millionaires are sending an unexpected $913M to Trenton between now and July 2012, even though Governor Christie said no to the reinstatement of the millionaires income tax surcharge.

State taxes are expected to exceed Governor Christies projections by $430 million in the current fiscal year that ends June 30th, and another $484 million in the next fiscal year, according to an Office of Legislative Services analysis obtained by Gannett.

The money is coming from Wall Street millionaires’ income taxes.

As the stock market has risen broadly, the state saw an additional $633.9 million in income tax collections this fiscal year, and it is expected to reap another $811.7 million above expectations in the next fiscal year.

However, New Jersey’s Main Street economy is lagging behind expectations:

However, corporate business taxes are off early projections by $190.1 million and are expected to track $252.5 million below estimates next year.

Sales and other tax collections are flat or down and are expected to continue to be lackluster.

Naturally, Trenton Democrats are scrambling to find ways to spend the unexpected cash, rather than use it to shrink  New Jersey’s huge deficits in the pension and health benefits system, the transportation trust fund or the unemployment trust fund.  The State Supreme Court could order all the money be wasted in Abbot Districts.

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Shell Game

Government Reaches Debt Ceiling.  Treasury Secretary Tells Congress He’ll Keep Borrowing By Withholding Pension Payments and Accounting Tricks

By Art Gallagher

Treasury Secretary Timothy Geithner is taking a page from the States playbook and balancing the federal books by delaying pension payments. 

In a letter to Congress, Geithner he will immediately halt investments in two big government pension plans so the government can continue to borrow money even though the $14.3 trillion dollar debt limit was reached yesterday, according to an Associated Press article.

Even though the government has reached its official borrowing limit, Geithner said unexpected revenue and bookkeeping maneuvers will allow the Treasury to continue auctioning debt for another 11 weeks.

What would our governments do if they didn’t have pensions to play with?  What would be the consequences of a private sector CFO making a similar move?

Stanley Druckenmiller, a “legendary investor” who was once a fund manager for George Soros, told the Wall Street Journal that a “technical default” or short term delay in government debt payments would be preferable to the status quo of continually raising the debt limit without fundamental reform of how the government spends money.

“Here are your two options: piece of paper number one—let’s just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don’t know, six days, eight days, 15 days, but I know I’m going to get it. There’s not a doubt in my mind that it’s not going to pay, but it’s going to be delayed. But in exchange for that, let’s suppose I know I’m going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured,” he says.

Then there’s “piece of paper number two,” he says, under a scenario in which the debt limit is quickly raised to avoid any possible disruption in payments. “I don’t have to wait six, eight, or 10 days for one of my many payments over 10 years. I get it on time. But we’re going to continue to pile up trillions of dollars of debt and I may have a Greek situation on my hands in six or seven years. Now as an owner, which piece of paper do I want to own? To me it’s a no-brainer. It’s piece of paper number one.”

Druckenmiller says the current market for government debt, and low interest rates are part of the shell game:

Some have argued that since investors are still willing to lend to the Treasury at very low rates, the government’s financial future can’t really be that bad. “Complete nonsense,” Mr. Druckenmiller responds. “It’s not a free market. It’s not a clean market.” The Federal Reserve is doing much of the buying of Treasury bonds lately through its “quantitative easing” (QE) program, he points out. “The market isn’t saying anything about the future. It’s saying there’s a phony buyer of $19 billion of Treasurys a week.”

Hat tip to Bob Ingle for the WSJ article.

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Unemployment “Insurance” Needs To Be Reformed

By Art Gallagher

Assembly Minority Leader Alex DeCroce raised an important issue this week—the insolvency of the Unemployment Trust Fund which is in debt to the federal government for almost $2 billion–and then promptly torpedoed his message with a poor choice of words when he called those collecting “those people.”

Now the story in the media has become DeCroce’s insensitivity, his apology, the six figures he and his wife are collecting from their state jobs and their pensions.   My friend Bob Ingle points out that DeCroce is taking the heat from his Democratic colleagues by attempting to change the subject to dual office holding.

My experience as beneficiary of unemployment insurance is very limited.  In the late 80’s, the last time the economy was this bad, I lost a high paying job “through no fault of my own.”  I went to the unemployment office, was interviewed and filled out forms.  This was my first, and only to date, experience seeking any government assistance.  I didn’t like it.  Fortunately I was young and single with responsibilities for no one but myself.

Rather than take the handout, even though I had paid into it, I downsized my lifestyle by moving into a smaller apartment and took a low paying job that I was over qualified for.  

I didn’t consider that a major decision at the time, but in retrospect it was a pivotal decision in my life.  I never went back to “the corporate world.”  I was happy and thriving in the “small business world.”  It took a long time to get my income back to the level I enjoyed in “the corporate world.”   When I realized I was tapped out and wasn’t so happy any longer working at the small business I was employed by I found that I couldn’t go back to the corporate world.  I was a “stray cat.” Even if I could have gotten such a job, I would have hated it.  So I started my own small business.

As an employer I became acquainted with the unemployment fund again.  I was paying into it.  For the first 8-10 years of I didn’t even notice it.  Business was great and growing.  I was hiring, rarely firing.  Contributions to the unemployment fund were an insignificant portion of my quarterly payments to the State.

Toward the end of the boom, my most valuable employee informed me she was pregnant.  The news was not as life changing to me as it was to her, yet it was a significant and unexpected development.  She had not had a child in 20 years and was not planning another.  I relied heavily on her.   She knew the administrative aspects of my business better than I did.  I didn’t know them at all!  This major personal development in my trusted employee’s life exposed a major weakness in my business that would require an expensive adjustment.

Assuming the economy would continue to boom and that business would continue to thrive, my plan was for my most valuable employee to spend her pregnancy training her replacement while herself training for the new job that I invented for her to come back to after her pregnancy leave.  It was an expensive plan, but it worked.  The administrative aspects of my business became documented with a manual that my new hire referred to often as she mastered her job. My long term employee spent months answering questions, documenting answers and taking business courses from Brookdale online, preparing for her return.

Given that I was expecting her back, and given that business remained strong, I carried the cost of my long term employee’s health care during her pregnancy leave.  It was a good thing I did, as there were major complications, the baby (who is now a brilliant and delightful 4 year old who is terribly disruptive when she comes to visit the business) needed surgery and a long quarantine period.  The maternity costs and the baby’s early care cost almost $400,000.  The care they received probably wouldn’t have been as good and the taxpayers would have picked up the tab had I not carried the heath care premiums.

But the downside for me was that a 3 month maternity leave turned into an 8 month maternity leave.  When my employee came back to work, she said she could only handle part time.  The truth was she probably wasn’t ready to work, but the pregnancy disability benefits had run out. 

After a couple of months on part time, I told my employee I needed her full time.  She quit.  This gets me back to the Unemployment Trust Fund and its management. 

Unbelievably to me, and over my objections, she was granted unemployment benefits.  Why did I object?  Because I had offered her a full time job, the offer was still on the table, but the folks managing the Unemployment Trust Fund gave her benefits instead.

A quarter, two or three later I noticed that my payment to the State had increased substantially.  Figuring it was a mistake, I asked my bookkeeper for an explanation.  No mistake, my unemployment insurance premiums had skyrocketed due to claims history.  A large portion of the cost was the premium on my own salary.  As the owner of a corporation I couldn’t collect on “insurance” I was paying for.  This would be illegal in the private market.

Now, a few years later with an even higher claims history, my contribution to the Unemployment Trust Fund is 3-4 X higher than the quarterly payroll taxes I pay to the State, though the actual number is a great deal lower.   This cost is a major impediment to me hiring new employees, as it is for hundreds, if not thousands of other small business owners.

There are legal and illegal ways around having to pay high unemployment premiums. The legal way, starting a new company with no history to pay employees is probably the option I’ll follow, if I decide to grow the business again. Employee leasing is also an option.  Both options are unproductive and costly, but probably not as costly as paying 5+% of payroll into the insolvent Unemployment Trust Fund. Closing the existing corporation is not an easy option for me, and many other businesses, as the existing corporation owns assets that could not be transferred without costly legal, accounting and tax consequences.  Small businesses owners are confronted with a choice of having to create complicated and costly corporate structures in order to grow, not to grow, or to cheat.  Many will choose to cheat, which is an impediment to growth in the long run, and costly to the State treasury in the short and long run.

Cheating is a major issue on the beneficiary side of the unemployment equation that no one wants to talk about.  There is no accountability for those receiving unemployment benefits.  There may be no way of knowing how many people are gaming the system, working “off the books” while collecting.  We all know it is happening.

As indelicate as DeCroce’s words were, he point was accurate. We need to give the unemployed more incentives to make the difficult but inevitable lifestyle choice decisions and find ways to survive economically either by accepting jobs they once never would have considered or starting businesses.  We also need to remove the disincentives from businesses who want to employ people but won’t because the risks are too high for the potential returns.

Most importantly and not yet addressed in a major way, we need to bring management and accountability to the administration of the Unemployment Trust Fund.

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Summer of Recovery?

By Thomas Stokes, Middletown

In this political year, voters and taxpayers are bombarded on all sides with what is, frankly, political propaganda. Politicians have been touting the “Summer of Recovery” trying to put a positive spin on our current economy. Well, summer is now over.

Time for some facts from the the national Bureau of Labor Statistics (http://bls.gov/).

In 2006, there were 6.9 million unemployed, with an unemployed rate of 4.6%. Payroll employment had an average growth rate of more than 149,000 per month.

As of today, there are currently 14.9 million unemployed with a 9.6% unemployment rate.  In June, 2010, payroll employment dropped 175,000, in July, 2010, payroll employment dropped an additional 54,000.

In November, 2006, the Democrats took control of both the House of Representatives and the Senate (while Bush was still President). It should be pointed out that only the Congress, not the President, passes legislation to spend and tax. For the past four years, Congress has been 100% controlled by Nancy Pelosi, Harry Reid and their fellow Democrats.

In November, 2008, the Democrats took control of the White House and have completely controlled our national government since.

Who has been hurt by this? Besides every family being impacted by this dreadful economy, teenagers have been hit with a 26.3% unemployment rate. Black Americans have a 16.3% unemployment rate and Hispanic Americans have a 12.0% unemployment rate. On 9/11/2010 the headline read “US Poverty on track to post record gain” due to the current economic conditions.

Another interesting fact – according to IRS data, taxpayers aged 55 and older account for 71% of the dividends earned in this country. On January 1, 2011, taxpayers, especially Senior Citizens living on a fixed income, will face a devastating increase in the dividend tax rate – going from 15% to as high as 39.6%!

On January 1, 2011, since the Democrat controlled Congress has up to now, refused to extend the 2001 and 2003 Republican tax cuts, all American taxpayers face the largest tax hike in our history! It makes absolutely no sense, in the midst of the current economic recession, to raise taxes on anyone, especially those who create private sector jobs – the small business sector.

All the spending and borrowing by this Congress has achieved nothing but massive debt for our children and grandchildren. With no results to show, Congress and the President propose even more spending (and borrowing) in “Stimulus II”. I believe it was Albert Einstein who said, “the definition of insanity is to keep doing the same thing and expecting a different result!”. Considering this, perhaps most members of Congress need a long rest.

The question is simple, not just for senior citizens, but for every American taxpayer. As we enter a national election season for control of the Congress, just ask yourself. Are you and your family better off today than four years ago (in 2006), when the Democrats took control?

The honest answer to that should determine how you cast your ballot on November 2^nd.

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