Home » Economy » State Budgets: Serious, Ridiculous, Ugly

State Budgets: Serious, Ridiculous, Ugly

by John Rubino on June 23, 2010 · 34 comments

This week the focus shifted from Europe, where (apart from the French World Cup team) things are quiet, to the US, where state budget deadlines are forcing some tough, and occasionally bizarre, choices. Time Magazine’s cover, for instance blares “The Broken States of America”. An excerpt:

… Almost no one — and no place — is exempt. Nearly everywhere, tax revenue plummeted as property values tanked, incomes dwindled and consumers stopped shopping. Falling prices for stocks and real estate have made mincemeat of often underfunded public pension plans. Unemployed workers have swelled the demand for welfare and Medicaid services. Governments that were frugal in the past are just squeaking by. Governments that were lavish in the good times, building their budgets on optimism and best-case scenarios, now risk being wrecked like a shantytown in an earthquake.

How the Money Ran Out
For the first time in four decades of collecting data, the National Governors Association (NGA) reports that total state spending has dropped for two years in a row. In hard-hit Arizona, for example, the state budget has sagged to 2004 levels, despite blistering growth in population and demand for government services. Starting with the 2008 fiscal year, state governments have closed more than $300 billion in cumulative budget gaps, with another $125 billion already projected for the coming years, says Corina Eckl, fiscal-program director at the National Conference of State Legislatures (NCSL). Similar figures aren’t collected for the nation’s counties, villages and towns, but when the National League of Cities surveyed mayors recently, three-fourths of them described worsening economic conditions.

Accustomed to the ups and downs of the ordinary economic cycle, elected officials and budget planners are facing something none of them have experienced before: year after year of shortfalls, steadily compounding. Ordinarily, deficits are resolved mostly through budgetary hocus-pocus. But the length and depth of the recession are forcing governments to go beyond sleight of hand to genuine cuts. And that makes lawmakers gloomy in all but a handful of states. (It’s a swell time to be North Dakota.) According to an NCSL survey, worry or outright pessimism is the reigning mood in the vast majority of capitals.

And here’s a brief look at how some states are dealing with their deficits, starting with California:

A three-way stalemate over California’s budget

Budget, budget, who’s got a budget?

The governor has a state budget that his fellow Republicans more or less support. Assembly Democrats have a budget whose centerpiece is a complex scheme to borrow billions of dollars. And Democratic senators have a budget that’s based on raising taxes and shifting some programs from the state to counties.

Democrats control the 10-member, two-house conference committee that’s supposed to be reconciling all three budgets into one version that would be placed before the entire Legislature. They have the votes to do it. However, the committee has been going through the budget page by page for more than two weeks without settling any big issues and only some little ones. It’s now in hiatus after repeatedly hitting a political wall, unable to proceed because it doesn’t know how much money it has to spend.

That’s because the two Democratic versions of the budget are very much at odds, even if they both agree on rejecting Gov. Arnold Schwarzenegger’s slash-and-burn approach to closing a $19.1 billion deficit. It’s a three-way stalemate, with the new fiscal year due to begin next week and with state Controller John Chiang warning that the state will run out of cash this summer if a new budget is not in place.

Nothing will happen until Democrats in both houses are in sync on whether to borrow or tax their way out of this year’s version of the chronic deficit. But even if they do – and they appear to be very far apart – it would be merely a step, and not a particularly big one, on the budget road. They could put a budget up for floor votes, but they would still need to get some votes from Republicans, who have said anything that depends on higher taxes, or even extending some temporary taxes due to expire next year, is dead on arrival.

California budget idea: Ads on e-license plates

California’s legislature is exploring the feasibility of electronic license plates with digital ads, a move that its leading proponent says could add jobs and help in combating the state’s budget crisis.

Sen. Curren Price, a Democrat from the Los Angeles area, said the technology will resemble traditional license plates, with plate numbers visible at all times. However, digital ads and public service announcements would flash on the plate’s screen when the vehicle is stopped for more than a few seconds.

The technology could provide an additional source of revenue for the cash-strapped state, according to Price, the bill’s author, as advertisers and technology companies contract with the Department of Motor Vehicles. He said the plates could also aid small businesses and add jobs to the ailing economy in the technology, sales and marketing, and service industries.

“State governments are facing unprecedented budget shortfalls, and are actively rethinking the use of existing state assets to create new ongoing revenue opportunities,” he said. “This is a unique opportunity for public-private partnership.”

However, Price said he doesn’t know how much revenue electronic license plates would generate, or how many jobs they would create. California’s budget deficit is an estimated $19.1 billion.

New York:

Cigarette Tax Increased to Keep State Running

New Yorkers who like to smoke will have to dig a little deeper to light up next month, after the Legislature passed a bill on Monday that will give the state the highest cigarette taxes in the country. The new law, part of an emergency budget measure to keep the government running, adds another $1.60 in state taxes to every cigarette pack sold starting on July 1, pushing the average price of a pack to about $9.20. The average price in New York City, which imposes its own cigarette taxes, will be even higher, nearly $11 a pack.

Those who prefer other tobacco products will also be forced to pay significantly more. The tax on smokeless tobacco will more than double, to $2 an ounce from 96 cents an ounce, starting on Aug. 1. And the wholesale tax on cigars, dips and other kinds of tobacco will rise to 75 percent from 46 percent .

And in what may be the legislation’s most controversial provisions, starting on Sept. 1, the state will begin collecting — or try to collect — taxes on cigarettes sold on Indian reservations to off-reservation visitors, an issue that led to violent protests during the early 1990s. One Indian chief has said that trying to collect taxes would be considered an act of war.


Hill eyes another savings draw to blunt cuts if no federal funds

BOSTON — Girding for the start next week of a new fiscal year amid growing uncertainty about nearly $700 million in federal aid, legislative budget writers tentatively plan to withdraw $100 million from the state’s atrophying main savings account while refraining from deeper reductions in aid to cities and towns.

Gov. Deval Patrick and legislative leaders met Monday and discussed Beacon Hill’s narrowing menu of options for coping with Washington’s reluctance to authorize Medicaid funds that the administration, House and Senate all banked on for fiscal 2011. House budget chief Charles Murphy said the budget intended for the floor this week would contain two sets of line items, one in case the funds do not arrive and one if they do.

State lawmakers acknowledged not having much insight into Congress’s plans for the money, part of a $24 billion package that has received backing at one time or another from both legislative branches and the White House. “Frankly, they’ve recessed until this week sometime, so nobody knows,” Murphy said.

“We haven’t given up on it,” Patrick told reporters Monday. “I don’t think we should give up on it, given the fact that both the U.S. House and the U.S. Senate have voted on it. But if we don’t have it in hand by the time of the fiscal year, then we should have a budget that doesn’t account for it.” The Senate accounted for $687 million in additional federal assistance, while both Patrick and the House used $79 million less. In filing a contingency budget last week, Patrick, who has taken heat from his gubernatorial rivals for his budgeting practices, proposed holding harmless state support for local aid and public schools.


More state budget cuts likely, officials forecast

Colorado is looking over the edge of a $1 billion budget abyss, with key services, from schools to health care for the needy, on the chopping block next year. In a clear sign that economic recovery is not keeping pace with demand for governments services, economic forecasters warned a General Assembly budget committee on Monday that the state fiscal picture has worsened in the past three months and could be darker still in a year.

Economic forecasts prepared by the Governor’s office and by advisers to the General Assembly backed away from optimism seen earlier this year. They outlined a $1 billion crisis for the budget year that begins July 1, 2011.State revenue fell from a March economic forecast by more than $120 million, largely because tax collectors are having a difficult time getting people and businesses to pay up. That cuts into the state’s savings account, leaving Gov. Bill Ritter to come up with as much as $75 million in immediate cuts from the state’s $7 billion general fund.

On Monday, Gov. Bill Ritter said he is scouring the budget to cover the shortfall, with a plan due by August. He covered bigger shortfalls last year by furloughing state workers, cutting programs and releasing some inmates from state prisons. Ritter said that in the past two years he’s done his best to preserve essential state services while closing budget gaps totaling $3.5 billion. “As you go forward it becomes increasingly difficult to find ways to do that,” he said.

Colorado Springs Democratic Sen. John Morse has been predicting deeper budget cuts for months.

“Colorado is recovering, but, as predicted, it will be a slow and long recovery,” he said Monday. “While more cuts are inevitable, we, as legislators, must do what we can to make those cuts as painless as possible.”

New Jersey:

Budget compromise reached in N.J.

New Jersey Gov. Chris Christie and lawmakers reached a compromise on a $29.38 billion state budget Monday, which is scheduled for final votes on Monday.

The budget will make funds available for approved, shovel-ready Urban Enterprise Zone projects and uses $74 million in additional cost-savings to restore funding for several programs, including $22 million for general assistance. The budget plan, which closes a $11 billion deficit, will leave a more than $300 million surplus, Christie said.

“This budget stays true to the principles I originally outlined, keeping spending within our means and restoring fiscal order without raising taxes,” Christie said.

The state’s budget is due by June 30, a deadline Senate President Stephen M. Sweeney, D-Gloucester/Cumberland/Salem, said would be met.

“The budget we will introduce is far from perfect and will still be a tough sell among Democratic lawmakers, but the governor should be commended for working with us to take the sting our of some of its most harmful cuts,” Sweeney said of the budget compromise reached with Christie. “Most importantly, this budget will be signed on time, and all the rumors of a shutdown will remain just that.”

Some thoughts:

  • It’s clear who is serious and who isn’t. New York raises cigarette prices to 11 bucks a pack, and expects higher revenues rather than increased smuggling and a more powerful mafia. Massachusetts spends its savings while hoping for a federal bailout. And let’s not even bother with California. At the other end of the spectrum are Colorado and New Jersey, where real cuts will bring budgets closer to real balance.
  • It’s also clear that sometime in the next year or two, the worst-run states will balk at laying off half their workers and will choose instead to default on their debt, presenting Washington with the same choice as with the banks in 2008: bailouts or contagion.
  • Even where states make real cuts in spending, the resulting economic contractions will be brutal.
  • Muni bonds, which are funded by sport stadiums and the like — or by state/city general revenues — are the next sector to blow up.
  • Brad Thrasher

    @John Rubino,

    “Let’s not bother with California.” California was recently the 5th largest economy in the entire world. Ignore California at your peril and I would add, opportunity.

    Our budget problem is largely due to one single issue. Due to our very stupid proposition system, passage of a budget requires a two thirds majority in both houses.

    We need a State constitutional amendment to repair our State budget. Until that happens, we’re done like dinner.

    While our proposition system is very democratic and a money maker for everybody who participates, for the most it results in extremely bad law, of which Prop 13 is but one of many.

    All the best even in dissent,

    • http://dollarcollapse.com John Rubino

      Hey Thrash,

      Thanks as always for your insights. I wasn’t saying that California doesn’t matter. It does of course, and we might find out just how much in the coming year. But its budget process is gridlocked and the ads-on-license-plates idea is so silly that it didn’t seem worth revisiting, even to ridicule it.

      A constitutional change doesn’t look likely any time soon, and even if it happened CA would still have to cut spending and/or raise taxes by tens of billions of dollars. So instead of gridlock you might end up with riots.

      While I’ve got you, what exactly did Prop 13 do that has everyone so mad? I remember it from way back when as a cap on property taxes…

  • http://chaosandconspiracy.wordpress.com CompassionateFascist

    Thanks to Proposition 13, Thrasher and his socialist friends have not (yet) been able to tax what’s left of the middle class out of their homes. And thanks to the 2/3 rule, the socialists in Sacramento (who just bought themselves 30 million in new office furniture while the state strangles on debt) have not been able to build an even bigger debt bomb. In the larger view, Mexifornia’s problems are the same as the rest of the country’s: open borders sweating the labor supply and pumping up the socialist group entitlements and their demands, corporate free trade outsourcing of middle-class jobs, and endless government spending of money based on false expectations. Unfortunately for both plutocrats and socialists, our mortgaged away future has now arrived.

  • Bruce C.

    Is it just me or has any one else noticed that J. R. is subtlety changing his web site from a serious news source to one of comic relief?

    First he doctors Gary North’s engaging lecture and runs it at half speed as a spoof, and now this: a collection of satirical articles about state budget crises. They are no doubt based on some sober research and read pretty serious if you just skim them, but if you really read what they say they ‘re hilarious!

    The first one from Time magazine was almost slapstick to throw you off. Evidently every state but North Dakota has run out of money. North Dakota! – that’s brilliant…When was the last time you heard of that state? Hardly anybody lives there. No wonder. I suppose the Bad Lands are the country’s most valuable real estate now, right? And then it goes on to “explain” how they ran out of money…they spent it all! I love hyperbole. No dry, depressing details about one fuck up after another, just over-the-top exaggeration.

    Then California gets roasted. The part about the three legislative bodies was almost too stupid, but it worked. Supposedly the only thing they can agree on is that the e-license idea is a fantastic one. That is so friggin’ absurd I actually laughed out loud! Can you imagine full grown politicians being so uncooperative? Pretty funny. And like anyone really thinks that making people watch television while standing in traffic is a money maker? I guess they would be a captive audience though, an advertiser’s dream (and a psychiatrist’s nightmare). And it’ll keep their eyes on the car ahead of them – another cost saving benefit , I suppose. Seriously though, it’s almost a little too real even for California politicians. Not something that dumb of course, but close.

    The one about New York was good too. When I first skimmed it I thought it read, “ New Yorker’s have a smokin’ legislature.” But, wait a minute, I thought, I’ve seen those guys and they ain’t… and then I re-read it: Ha!…no, what they want is for more New Yorkers to start smoking, and at 11 bucks a pack! That’s pretty funny, but – seriously – I wonder what they really want to do.

    Oh, and I love the bit about the indians: Any more taxes on the peace pipe ingredients sold to tourists would be an act of war. (Drum beat) I suppose we’ll be hearing about the next tax collector who sets foot on a reservation getting an arrow through his neck. If only it were true!!

    There’s more as you all know, and I’m going to pass it on to our local comedy club for stand up material, with J. R.’s permission of course.

  • Ray

    The spoiled children, oops, I mean adults of the greastest generation just can’t find the fortitude to buckle up a sacrifice for the future of our country. Shameful. It really is gone, the republic, free enterprise and most Americans are clueless. We were to wraped up in our own pleasures to notice.

  • Brad Thrasher

    Hey John Rubino,

    Prop 13 became Article 13A of the Constitution of California. It has 3 key components, (1) Property taxes shall not exceed 1% of the assessed value, (2) New assessments shall not exceed 2% of the assessed value in the previous tax year (3) A two thirds of majority in both houses is required to raise taxes.

    For people who owned their homes prior to 1976 or have replaced their primary residence in a manner compliant with Article 13A are protected under the law. Those who didn’t aren’t protected.

    So my brother in law, who actually has owned and occupied the same residence since before 1976 pays about $400.00 per year in property taxes. His next door neighbor who recently purchased pays about $3,000.00 for a property of similar size and value.

    Essentially, among the last legislative acts of the “Greatest Generation’ was to freeze their own property taxes at 1976 levels and to hell with everybody else.


    SCOTUS upheld Article 13A in Nordlinger v. Hahn 505 US 1 (1992) staing in part, “Article XIIIA’s acquisition-value assessment scheme does not violate the Equal Protection Clause.”

    Even anecdotal evidence I provide above shows prima facie SCOTUS opinion is wrong.

    BTW JR, we’re on the same page Re. advertising on license plates. Just what we need, another distraction while driving. Sheesh.

    @Compassionate Fascist

    Sticks and stones. Just curious, is that all you do is call people names or do you have something of value to offer?

    All the best guys,

  • Brad Thrasher

    BTW Compassionate Fascist,

    Cesar Chavez and other of us among the tax raising, latte drinking, sushi eating, Volvo driving, NY Times reading, body piercing, Hollywood loving left wing freak show have long advocated for stricter border control due to the depression of wages and violations of minimum wage laws among undocumented residents and those who hire them.

    Perhaps if you took some time to understand my advocacy a bit better you would appreciate that I and most other progressive/liberals are anything but socialist.

    The real difference between those right and left of center is a genuine difference of opinion regarding the price of government and the value of our commonwealth. The latter I reference in my response to Mr. North on this thread.

    I’m all for creative name calling as indicated above. Even if it’s borrowed. When it’s race based though (Mexifornia) you come off like a mean old Mr. Potter in “It’s a Wonderful Life” or Dick Cheney.

    All the best,

  • Brad Thrasher

    Bottom up collapse?

    The town of Maywood, California, Pop. 45,000 announced today that it is disbanding its police force as well as parks & recreation. All employees are to be laid off.

    Maywood is contracting with the County of Los Angeles for policing and the neighboring City of Bell will take over parks & rec.

    Maywood handing off policing to the County proves it’s so bad that crap is now rolling uphill.

    The real problem is that the County of Los Angeles is broke and there will be a reduction in police or perhaps “first responder” services in the City of Maywood.

    This is a perfect micro example of why some in California advocate decriminalizing recreational drug use, taxing same and treating abuse for the medical issue it truly is rather than a criminal justice issue.

    The savings from incarceration, police wasting time chasing, arresting and booking stoners, related crimes like petty theft, ID theft, prostitution etc., notwithstanding tax revenue from the legalized sale of recreational drugs. totals in the hundreds of millions if not billions of dollars.

    I admit that to some extent, we would be merely shifting dollars from criminal justice onto healthcare, but overall the savings remain.

    Additionally, it also evidences that any restructuring must occur from the federal to the township level simultaneously. Has any democracy achieved such without a period of marshal law or some form of dictatorship? The Greeks? The Romans? The Brits?

    So before you write us off as the land of fruit and nuts I ask that you appreciate our problems here in California are occurring on scale most States can only imagine and quite properly fear.

    All the best,

  • tim h. orton

    see web. “S. Francisco to raise fees, etc.,
    muni bonds next trouble spot?,’ ‘ its the (total + hi) debt stupid.’

  • Robert Happek

    We all have to learn to live and to be happy on much smaller budgets.

    Regarding state budgets, more attention should be paid to what governor Christie is doing in New Jersey.

    A long period of deflation (not so much of debts as much as of expectations) may actually be beneficial in the long term to the national well being. (Like losing excessive body weight).

    The purpose of recessions is to reassess and to readjust the economic value of individual and collective work.

    Life is about adjustment to perpetual change.

  • Brad Thrasher

    @tim h. orton,

    “It’s the debt stupid.” That’s half the story. You forgot, “It’s the fraud, cupcake.”


    All the best,

  • James Woroble Jr

    Changing the prices and rearranging the menu and on the HMS Titanic is futile. Socialism (communism with lipstick) has concretised within our fundamental economic and social structure.

    “Democracy is when two foxes and a rabbit vote on what’s for dinner.”

    Here in New Jersey it is estimated that 2 out of 3 jobs are directly or indirectly dependent upon government expenditure. About 50% of the population receives a government living subsidy in one form or another. Thus, every effort to cut government expenditure results in devastation to the vast majority of the voting public and spirally downwards, creates even greater problems exponentially. There is in fact no substantive way out of this paradox other than for the present system to disintegrate and a new one replace it.

    In Vietnam, there was a military policy in place to destroy the villages and thus the lives of the people occupying them. Why? Well, to save them from communism of course (Joseph Heller would’a been real proud)! It would seem this policy has been necessarily revived decades later here in America to deal with the state budget problems. No blame though. Its either this, forestalling the end, or THE END!

    How we got here…

    “Democracy is a form of government that cannot long survive, for as soon as the people learn that they have a voice in the fiscal policies of the government, they will move to vote for themselves all the money in the treasury, and bankrupt the nation.” Karl Marx, 1848 author of “The Communist Manifesto”

  • Robert Happek

    James said “Here in New Jersey it is estimated that 2 out of 3 jobs are directly or indirectly dependent upon government expenditure. About 50% of the population receives a government living subsidy in one form or another.

    How is that possible if the the state of NJ collects in taxes less than 10% of the GDP generated in NJ? The numbers quoted simply do not make any sense.

    Labor specialization and productivity increases have the strange consequence that the majority of the population is condemned to be non productive. The job of the majority is to consume what a minority produces with extreme efficiency (typical example: 1 farmer produces food for 100 people). The job of politics is to create sufficiently many “make believe jobs” via laws and regulations in order to enforce the equitable distribution of the products produced by the productive minority.

    Globalization carries this idea to the extreme: The US consumes while the rest of the world produces. Finance is the enabling idea for this unbelievable miracle.

  • http://www.leave-the-eu.org.uk/PU.php Peter Underwood

    Observation from across the pond: JR touched on it above, N Dakota has a state bank, why oh why is it so difficult to observe a valid way forward as exemplified by this stalwart state and fail to act in applying similar principles to other states? Am I missing something?

    At the same time, why not consider a state-enabled local stock market for all the SMEs who can’t get funding from “traditional” sources. After all they potential provide 70% of the employment base.

    In UK we are promoting the idea: “taking our future into our own hands and being responsible for it” Based on “Independents”, we aspire to represent those great virtues carried by the original founders of your great country. They had had enough of the British feudal system and voted with their feet; but there’s nowhere left to go now…so we must change from within.

  • Brad Thrasher

    @Peter Underwood

    Our real problem is corruption. It’s fraud that led to this mess.

    You ask, “why oh why is it so difficult to observe a valid way forward as exemplified by this stalwart state and fail to act in applying similar principles to other states?”

    I suggest it’s not so much the institutions as it is the quality of the civil service.

    In our large States and rampant in the federal system there exists a revolving door between public and private service. This has put the fat cats in such control that both public and private institutions have been put at risk for personal gain.

    @James Woroble Jr.

    I prefer Alexis de Toqueville to Karl Marx. “The great American experiment in democracy will work so long until the people find out they can raid the treasury.” Simple, to the point and much easier to remember.

    All the best,

  • http://www.leave-the-eu.org.uk/PU.php Peter Underwood

    @ Brad Thrasher
    Thanks Brad and for your earlier link on fraud which I read with great interest. I suspect that here in UK we have similar revolving doors, perhaps they just aren’t so obvious to those who choose to inform themselves. All this research is hard but enjoyable work and my purpose, such as it is, is to at least ‘pass the baton on’ to the coming generations, offering perhaps some clues as to a way forward.

    Others tell me that I am a ‘left-leaning libertarian” and if that means I believe in Austrian economics, I guess I will wear this suit. I surmise that you don’t disagree with the idea of state banks, just that it is likely to be a challenge to overcome the entrenched and corrupt civil service. I agree it’s a massive hurdle to overcome. I think about potential routes forward to achieve validated and practical outcomes here in UK.

    Here we have identified the ‘party’ system as being at the root of the power elite’s grip on all economic and politicosocial paradigms. Recognising that UK, and more so I guess USA, is full of independent, good men and true who need a platform upon which express their libertarian vision to the masses – we are looking to fill a future power vacuum when the majority wake up in penury and realise what has silently robbed them of their inheritance over these many decades.

    I concur with Karl Marx on theoretical democracy per se, but only if it becomes too big to manage, much like a corporation. Local democracy works well, and thus my point on localised economies, devolution of all powers to counties/regions (in UK), except for national issues which benefit from cross-borders such as: law and order, security, transport. The cost benefits are immense.

    How to do it? FIRST UK must exit the EU asap if we are to save ourselves from a failed Federal abyss – thereafter the regeneration process will gain a momentum of it’s own.

    Does this sound feasible in USA? Don’t your states have a constitutional option to exit the FED just like us within EU?

  • Bruce C.

    Hi Thrash,

    I agree that fraud is the ultimate cause of a lot of problems, but I would also add that it is the ever-increasing scope of government that provides a way for fraud to occur. The more the citizens allow their government to do the more they risk waste, fraud, and unintended consequences. If the federal government did no more than what the Constitution specifies then many of our problems would never have developed. Government regulation, for example, is the flip side of crony capitalism. Similarly, for state governments.

    Another problem that I see are the overly generous salaries and pension agreements that the state governments agree to, and the existence of unions for public employees. At least private employee unions have to deal with businesses that have a profit motive and stock/bond holders. Public employee unions have only government bureaucrats to deal with, and I’m not sure voters ever even know what kind of deals are made. Too much unaccountability.

    The way in which the now lopsided public/private situations are handled by the state and municipal governments will reveal how long and upsetting things will play out. So far, not so good. The unions just don’t seem to get it. In fact, I think most politicians and bureaucrats at every level don’t yet get it. I’m afraid that the entitlement mentality strong and pervasive.

    In my opinion, the simplest and most just way to deal with the cost overturns is to invoke an across-the-board reduction of, say, 5-10% per year. This could be done at every level, starting with the salaries and expenses of all three branches of the federal government, then on down. (I’m quite sure Obama is cellularly incapable of such a thing, but that is the kind of leadership that’s needed, not unconstitutionally confiscating money from BP, for example.) The fact that nothing like that has even been discussed (that I’m aware of) shows just how convoluted the mentalities are and how messy things are likely to get.

  • Brad Thrasher

    Back@ya, Peter Underwood,

    “left-leaning liberal?” Try on a new suit, “liberaltarian” and see if it fits 😉

    As to Marx, he pointed some of the flaws and excesses of capitalism but his solutions strike me as absurd. By the same token, neither the Keynesians or the Austrian school offers a definitive template.

    As a “Cafeteria Catholic” I’m influenced by the parable of “The Good Samaritan.”

    The idea or theory that we can enjoy freedom absent responsibility seems equally absurd. As is the notion promoted by the Austrian School that we can create a purely free and unfettered marketplace. Unfettered Keynesianism has also wrought economic havoc beginning with the guns and butter policy of LBJ.

    In Wealth & Democracy, economic historian Kevin Philips describes 1955-1965 as our (USA) economic golden age. That decade was marked by the peak of collective bargaining, a Keynes influenced substantial investment in infrastructure by the Republican Eisenhower Administration, sound or relatively sound monetary and fiscal policy which was for the time, a healthy blend of Keynesian and Austrian School ideas.

    In short, Post WWII through 1965 marked an affective fulcrum point in the checks and balances necessary to produced our Golden Age.

    Since 1965, we’ve done a pretty poor job of adapting the right set of checks and balances to an ever changing economic reality. However, I do believe that is our challenge and our opportunity.

    I agree with James Galbraith that our current economic state is primarily a symptom of massive fraud and corruption. The adverse impact of recent fiscal & monetary policy, deregulation of our financial markets, disastrous trade agreements and the decline of collective bargaining also played a significant.

    Perhaps though, on global stage, the fact that Britain is pursuing austerity under the newly elected coalition as the USA advocates against austerity and practices more stimulus, we will learn from each other and hopefully begin to restore the right balance of checks and balances necessary to produce another Golden Age.

    I disagree with Mr. Galbraith that jailing everyone who has ever kited a check is equally bad policy. Historically, the American solution has been to pay the bill, regulate and move on.

    While secession from the EU might work for England, one or a group of States seceding from our Union isn’t feasible, at least by peaceful means. For example, does the State buy back Federal assets? IIRC, secession was attempted a result, that you Brits might say, “made a bloody mess of things.”

    In the immortal words of Dennis Miller, “That’s my opinion, I could be wrong.” 😉

    All the best,

  • Brutlstrudl

    Sounds like a deflationary spiral, With goverment intervention trying to prop up prices. Too early to tell if it’s going to be succcessfull. Lets see what the G20 wants to do. Geithner and Co. sound awful lonely these days

  • Brad Thrasher

    Hey Bruce C.,

    Hear ya and feel your pain with the caveat, private fraud and public corruption are different.

    The chronology of private fraud began with deregulation under Reagan. Under Clinton & Dubya, we witnessed deregulation on steroids.

    Public corruption is the direct result of private money in the political system and the penchant of Congress to exempt itself from any meaningful ethical standard of conduct.

    I forget the exact section of IRS code but Michael Milken once successfully lobbied for a tax exemption so finely written that only Milken or Drexal, Burnham, Lambert could qualify to benefit from it.

    When corruption reaches the point that public policy is specifically designed to benefit one person it rises to “Houston, we have a problem.”

    We agree that State, County and Municipal gubbment has been far too generous in pensions.

    As to a strict constructionist view of the Constitution? Yes, when those views adhere to my own biases, prejudices and beliefs 😉

    All the best,

  • Bruce C.


    You articulate the finer points well, but I (and I think you too) are interested in developing fundamental concepts upon which a new framework can be built for a “new world order”, if it comes to that. Frankly, I think that what is coming will shock even those who are expecting it. My focus is on developing some ideas that I think will be needed in the aftermath. Historically speaking, revolutions and crises may be interesting to read about, but what really matters is what comes after them. I think it will be crucial to have good ideas well thought out and made presentable to challenge, and offer as an alternative to, the inevitable dangerous ones.

    I’m never quite sure how you regard the US Constitution, but that was a document intended to do just that over 200 years ago. No small feat, though I would submit an even greater one is required if the equivalent is be achieved today. Personally, I think it’s as brilliant as ever, but obviously something has gone wrong.

    So, that said, given all of your insights, experiences, knowledge, opinions, etc. what governmental principles would you espouse if, say, a new framework has to be erected?

  • http://www.leave-the-eu.org.uk/PU.php Peter Underwood

    Got ya @ Brad – good sound points and I too agree Marx didn’t have answers either, in fact I fear no one has in our current uncharted waters. Not sure labels fit me that well, I remain confused about who or what a ‘libertarian’ (liberaltarian) really means, I guess I am not a political animal – my interest is systems engineering – but maybe I am a political amphibian.

    I try to direct my thoughts to the causes of problems we have today, and agree entirely with your view that corruption is one major issue. IMO it is an effect, not a cause, thus I am wrestling to find causes as a guide to constructing future solution options.

    I subscribe to “complex adaptive systems’ theory which leads me to suppose that: “systems fail, people don’t”, in the context of: EG ‘it’s not helpful to blame the pilots after the crash when they should have pushed button A, the system should have taken care of it.’ Blaming human failings in this context diverts attention away from the problem rather than to it.

    It’s amazing how engineers can construct wonderful, fail-safe systems most of the time in aerospace, construction etc., and these emense projects actually work – yet ‘economists et al’ are unable to engineer sustainable economonic models. The Boeing 747 has over a million interactive parts that work 99.99% of the time giving a stunning record of safe performance – and this was designed in the 60s! Likewise for NASA etc.

    Applying engineering principles to the system of “too big government”, may point to the causes of corruption, failed and unintended outcomes. The old adage that the camel is a horse designed in meetings by a committee holds true. The people in control do not have the disciplines required to navigate the ship which has become too big and complex to manage at all. Even BP with all their expertise may have gone too far.

    Perhaps we need a NTSB equivalent in the form of GESB (Gobal Economic Safety Board) to investigate our current global economic accidents?

    Likewise: “That’s my opinion, I could be wrong.” Always enjoy your repartee! Go well.

  • Brad Thrasher

    Hey Bruce C.,

    Whoa, what a question. This post will be incomplete because, “What governmental principles would you espouse if, say, a new framework has to be erected?” is always subject to new learnin’.

    Hmmm, our established, defining principles are contained in the Declaration of Independence, legislative history as to specific law and in the advocacy of our citizens, past and present.

    Our framework is the Constitution and body of law, including precedents, statutes, codes, agency regulations, administrative law and rules of procedure.

    As you know, a defining principle contained in the Declaration of Independence is, “…all men are created equal.” This principle is enabled in law by the equal protection clause contained in the 14th Amendment.

    Sorry for the long preamble but it is necessary to clarify your question in my own mind and perhaps satisfy you that I properly understand your question as intended. It is in fact two questions, grammatically disguised as one.

    I really don’t have any issue with the principles listed in the Declaration of Independence. As to our framework I take issue with Article ll, describing the Office of the President, Article lll. Section 8 and the 2nd Amendment.

    As a Canadian born USA immigrant, I’ve come to appreciate the role of the monarchy and the Governor-General. I’d change the Office of the President such that the current President had few or no ceremonial duties. Too often politics is infused into what should be a bipartisan purely American event. Particularly, on our national holidays. Most people properly indulge other priorities than listening to the current President on July 4th or Labor Day.

    I wish we could limit, or perhaps reduce the need for the, “right of the people to keep and bear arms.” I do admit after having watched “The True Story of Charlie Wilson” on the History channel yesterday, I appreciate the need of the Afghani people for stinger missiles. As a result, I’m confused where we would draw the line after banning private ownership of nukes and biochemical weapons.

    Article l, Section 8 should be revisited. Frankly, I think the vast majority of conservatives and liberals would agree that granting unlimited authority to the federal gubbment for the specific purpose of “regulating commerce among the several states” is perhaps a tad overly broad and overreaching.

    With regard to Articles 1-10, I would argue that certain statutes, codes and agency regulations are unconstitutional. For example, the body of law that creates, protects and essentially establishes a right of franchise for two political parties, IMHO, is unconstitutional because it violates the equal protection clause in the 14th Amendment, our right to peaceable assembly guaranteed in the 1st, and unfairly limits our right to vote contained in Article l, Section 2 and Article 2, Section 1 of our Constitution.

    I infer from your post and agree there is a need to craft legislation that encourages rather than discourages participation in the system.

    We really aren’t addressing principles or framework with this issue.

    Certainly many of our problems are caused when We the People seek to address our grievances in the wrong venue and the willingness of the venue to listen and make a determination. To that extent we do misuse the judiciary, judicial and legislative branches. Again, it will take a better mind than mine to resolve the issue of proper jurisdiction.

    In personal terms, I see my work as nudging the system in the direction of fairness.

    In professional terms, having devoted so much time and effort into making the system work, I have a difficult time coming around to the idea our Constitution is unworkable or irrelevant.

    Holy cats, two hours ago I thought I only awoke to pee. Goodnight Bruce.

    All the best,

  • Bruce C.


    After posting my question to you I realized that I was asking a little much. I sort of meant it rhetorically and something to ponder since you seem pretty specific about certain problems, inequities, etc. Sorry about that. Thanks for the effort!

    I didn’t mean to imply that I think the Constitution is “unworkable or irrelevant” (not at all), but only to learn how things have gotten out of hand.

    Here’s a few ideas that I have in mind:

    The phrase at the beginning of the Constitution that implies that the purpose of the federal government is to , “… promote the general Welfare,” has been an excuse for all kinds of government largesse.

    By extension, too many lawmakers have convoluted the issue by claiming that anything that is NOT explicitly included in the Constitution is basically okay (E.g., “Show me where it says it’s not constitutional”. Hence the rationalization for all kinds of programs, the HCR bill being one of the more recent.)

    The citizenry is insufficiently educated in civil matters and, therefore, not as engaged as seems to be required to maintain our Republic. (I think the progressive tax system is largely to blame for that lack of engagement. The purported “fairness” of those who earn less pay less (or nothing) creates ambivalence – and probably by design.)

    Case in point, the withholding of payroll taxes has effectively hidden the true cost of government from most citizens. (Not that that’s any excuse for their ignorance or apathy, but I think it’s devious and heavy-handed, despite the Constitutional allowance for unlimited federal powers of taxation.)

    I could go on, but … later.

  • James Woroble Jr

    ” James said “Here in New Jersey it is estimated that 2 out of 3 jobs are directly or indirectly dependent upon government expenditure. About 50% of the population receives a government living subsidy in one form or another.

    How is that possible if the the state of NJ collects in taxes less than 10% of the GDP generated in NJ? The numbers quoted simply do not make any sense. ”

    –Robert Happek June 25, 2010 at 9:06 pm


    Assuming your figure of 10% GDP is accurate, and I do not, they are obviously borrowing the rest (see NJ budget deficits)!!! Also take into account federal subsidy funding to the state as an ‘income’ stream.

  • Brad Thrasher

    Hey Bruce C.,

    I’m lol which means you’re funny even when you don’t necessarily intend to be. Specifically, your comments on the citizenry inspire me to share a long held off the wall notion that our, in large part ungovernable citizenry, deter potential foreign invaders as much as the 2nd Amendment and our military-industrial complex 😉

    There are indeed benefits to the flat tax but I’d be more inclined to maintain the progressive idea with a graduated flat tax. Not to punish the rich. Government is expensive and the rich use more and benefit more from our commonwealth.

    One tax change I would support is raising the basic is raising the basic exemption to the mean poverty line plus 15%. Such an exemption might appeal to limited gubbment advocates as it would significantly reduce gubbment’s ability to direct saving and investment via tax incentives as well as play the class warfare game.

    Imagine, we could declare victory in the War on Poverty!!!

    All the best,

  • Brad Thrasher

    Bruce C.,

    Forgot to add that drastically raising the personal exemption would or should reduce the cost of our social safety net to the extent that people save more for retirement and purchase medical insurance.

    Maybe we use the coercive power of government to encourage more personal responsibility in the form of imposing fines and community service on those who don’t.

    Aside: The cause advanced by some that gubbment lacks constitutional authority to impose a fine for not purchasing health insurance passes the laugh test. The lawsuit, largely funded by some states, is tossing red meat to the Tea Party crowd as well as a make work program for lawyers. Other than it has no value and probably won’t even be heard by SCOTUS.

    I swear, so long as there are 3 people left on Earth, one of them will be a lawyer. Those of us in the legal industry earn our supper from the misery of others.

    All the best,

  • Bruce C.


    Maybe my sarcasm detector isn’t sensitive enough because you sound serious. I guess we both need to work on confeying satire more clearly. You’ve got some good material to work with though. “Fines for not being responsible” – very clever!

  • Robert Happek

    James Woroble Jr,

    the state of NJ has a population of a little bit more than 8.7 million. The per capita contribution to the GDP is a little bit more than $50,000. In other words, the GDP generated by the state of NJ is around $430 billion. According to http://www.state.nj.us/treasury/omb/publications/11bib/BIB.pdf, the budget of the state of NJ fluctuated during the past 10 years between $23 and $38 billion, that is, as a percentage of the GDP, the state budget was always less than 10%. The quoted budget figures do include federal subsidies.

    In comparison, the GDP of Switzerland (a country of 7.8 million) on a purchasing power parity was $316 billion while the state budget was around $170 bilion. (source: http://www.theodora.com/wfbcurrent/switzerland/switzerland_economy.html).

  • Pingback: U.S. Housing Market Still Sinking Like A Gold Nugget()

  • Brad Thrasher

    Hey Bruce C.,

    Yes, “fines for not being responsible.” Call it the “Wake up cupcake” law.

    Fact is we already do it. People are fined all the time for driving w/o proof of insurance, disorderly conduct, yelling “fire” in crowded venue when no fire exists, making a bomb scare, driving while intoxicated, driving w/o a license…I could go on all night.

    Must we change the adjective to “irresponsible” before people realize they are being fined for being irresponsible?

    Just because the adjective “stupid” doesn’t appear in our penal code, doesn’t mean we don’t have laws against “stupid.”

    All the best,

  • Brad Thrasher

    Yes, another round of foreclosures is on the boil. Toss in a pending run on bonds, bankrupted pension funds with generous sprinkles of popping debt bubbles into the stew.

    Looks more like a triple dip than a double dipper to me. Forget those, “couldn’t make it as racetrack tout, so I moved to Wall Street” hucksters. We’re in for a generation long wait until sustainable recovery.

    The good news is that this ‘Greater Depression’ shouldn’t last as long as the 500 year depression known as the Dark Ages. Hopefully. we’re smarter now but time will tell.

    To my virtual friend Bruce C. That’s not satire but hope you enjoy the allegory and metaphor 😉

    All the best,

  • death

    Guys the retirement budgets are based on market to fantasy model. Back in the 80’s I studied the retirement funds of many states and the number of growth on all them are pure fantasy. The money was never there to begin with. The banks stole all the money that was there.

  • http://e-watchman.com Robert King

    The whole thing is going to crash. I think everyone pretty much knows that. It is just like Jesus said though: No one knows the day or hour.

[Most Recent Quotes from www.kitco.com] [Most Recent USD from www.kitco.com] [Most Recent Quotes from www.kitco.com]