Posts Tagged ‘ economic stimulus ’

More proof on how to grow an economy, not that ideologues will care

The President, the media, the CPUSA, the Democrats, and all their bleating followers do not seem to understand basic economics.  They don’t and they don’t want to.  Their own logic and emotional response trumps any facts one might present.  As one of my liberal friends once said, “It just makes sense, if the government needs money they must raise taxes, it defies logic that lower taxes could result in more government revenue.”

But of course he meant other people’s taxes needed to increase, not his.  All the facts in the world about how people are less productive, take fewer risks, hire fewer employees (who in turn would have paid taxes), hide their money, invest outside the high tax areas, or leave high tax areas, all of this was illogical or was simply dismissed as untrue.

Here is yet another case study.  High tax cities saw population reductions and slow growth.  Low tax cities saw population growth and the healthiest economic growth in the United States.  More growth, especially in personal income and increased employment mean more tax revenues for all levels of government.

Here is an excerpt from a paper you really should read.

Why Some Cities Are Growing and
Others Shrinking

by Dean Stansel

Over the last three decades, large cities like Pittsburgh, Detroit, Cleveland, Buffalo, and Toledo have seen their populations shrink, while areas like Houston, Atlanta, Dallas, Tampa, and Phoenix have seen their populations grow rapidly. Examining the policy differences between high-growth and low-growth areas can provide evidence that may help declining cities reverse their fortunes.

In 1980, Austin, Texas, and Syracuse, New York, were roughly the same size. The Austin metro area had a population of about 590,000, and the Syracuse metro area had about 643,000 residents. By 2007, Austin’s population had increased by more than 1 million while Syracuse’s population had been stagnant. That same disparity exists when one examines the growth of employment and real personal income. Another disparity between the two areas is the tax burden. State and local taxes accounted for nearly 13 percent of personal income in Syracuse but only about 9 percent in Austin.  Although there are numerous factors that can influence the growth of individual economies, one finds a consistent relationship between low taxes and high economic growth in metropolitan areas, in states, and in nations.

This article details that relationship between taxes and growth for the 100 largest U.S. metropolitan areas. In the 10 highest-tax metro areas, the state and local tax burden accounted for about 12.4 percent of personal income. In those same areas, population grew by 21.3 percent from 1980 to 2007, employment grew by 40.1 percent, and real personal income grew by 75.5 percent. In contrast, taxes were only 8.3 percent of personal income in the 10 lowest-tax areas.  The economic growth in those areas was much faster. Population grew by 64.4 percent, employment by 107.6 percent, and real personal income by 157.3 percent.

The contrasting experiences of Austin and Syracuse occurred in countless other areas as well. This article provides 14 additional examples of pairs of metro areas that had similar tax and growth patterns.1  The experiences of all 15 pairs of metropolitan areas provide valuable lessons for distressed areas everywhere. Keeping tax burdens low appears to be an important ingredient in the recipe for economic prosperity. If high-tax, low-growth metro areas like Detroit, Milwaukee, Buffalo, and Syracuse want to be more like high-growth areas such as Dallas, Tampa, San Antonio, and Austin, they should lower their onerous burden of taxation and bring spending under control.

For the entire article click here.

Democrats defy logic and the public

At least we see people are starting to get it.  Unfortunately, the administration looks at polls and dismisses them.  They are undounted.  Let’s review:  Health care that will raise a family’s health insurance cost while at the same time requiring that coverage under penalty of prison is not welcome by the American public.  The administration and the leadership in Congress flip America the bird and push harder.  Global warming is revealed to be a hoax complete with intentionally destroyed data and explicit written evidence of number tampering.  Does the Administration pause and investigate?  No they defiantly press harder, seeking an international treaty that would crush what’s left of American industry, impose a global tax on Americans, then pour salt on U.S. industry by announcing CO² a hazardous waste to be regulated. Stand-by for the breathing tax, trust me it’s coming. Meanwhile unemployment remains in the double digits.  Does any of this create jobs for Americans?  Not really.

I’ll give Obama kudos, he does not craft his agenda by following polls.  President Clinton seemed obsessed, chasing  polls, however Obama seems obsessed by ideological fervor.  I’ve heard him called an empty suit and while I have not come to any solid conclusion on that, I doubt it.  I do believe he is a front man for greater powers, but I think he is completely in line with those who sponsor him.  He has a clear agenda to socialize America.  He was raised and mentored by communists, by his own admission he chose to associate himself with radicals and communist professors while in college, why then should it surprise anyone when his administrative agenda is aggressively socialist?

I’ll answer that.  I believe it is due to two things.  Continue reading

AIG says, Let Them Eat Cake!

Marie Antoinette lost her head to excessive spending

Marie Antoinette lost her head to excessive spending

Legend has it that in the days leading to the French Revolution, upon hearing of peasant sufferings, Marie Antoinette, Queen of France, retorted, “Qu’ils mangent de la brioche,” or “Let them eat cake.”  Regardless of whether the Queen ever uttered these words she had a reputation for living and spending extravagantly while famine swept away the common folks who were paying for Royal extravagance.  (If you have ever toured Versailles you know what I am talking about.) The obvious point being that the French monarchy could not feel the sufferings of the peasants.  Today the management at AIG, a company living on the charity of the American people, feels detacted from the suffering of not only its stockholders but the American people as well.

The Best and the Brightest

This is not the first time I have written about AIG and I keep bringing up this poorly run company up because what is happening at AIG is an indicator of what is wrong in corporate America today.  (That and the fact that I am a stockholder in the company – two ways as a matter of fact, first there are the worthless shares I own personally and then there is my public ownership purchase with American tax money by our beloved government.) AIG, through its sale of CDS (Credit Default Swaps) has and continues to lose billions of dollars as businesses fail and investments tank, forcing huge payments.  In the face of poor management decisions that have resulted in the largest corporate losses in history ($62 billion in 2008 Q4 alone,) AIG insists on paying out $165 million in executive bonuses.  Why would a corporation reward poor performing managers?  According to AIG CEO Edward Liddy, “We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses, which are now being operated principally on behalf of the American taxpayers – if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.”

Excuse me?  Do the best and brightest talents lose $62 billion in a single quarter?  However, this is beside the point, whether or not the losses are the result of managerial decisions, should anyone receive bonuses when the company loses money.  I had an inside connection at AIG and I know that in 2001, middle management bonuses were tied to corporate profits and non-managerial employees had their bonuses tied to their performance.  So why is it the norm that senior management receives their bonus based on a predetermined contract regardless of performance?  This is a leading indicator of what is wrong in corporate America.  The mindset seems to be that a company must retain senior managers regardless of performance and in a very irrational thought process; these managers are seen as “the best and brightest talent” even in the midst of extreme failure.

Why worry, it’s only a small portion of the losses

Last week a reader commented that Congressional Earmarks represented a meaningless 2% (he said 1% but his math was erroneous,) of the federal budget.  Logically, I would expect this person to draw the same conclusion about AIG bonuses.  After all, $165 million is only .3% of AIG’s 4th quarter losses and only .09% of the AIG bailout money.  So what is the big deal, right? The “deal” is, this is an indicator of how money is valued and how waste is viewed.  In response to AIG’s executive bonus plan, CNN reported that Treasury Secretary Timothy Geithner was “really upset.”  ABC’s This Week interviewed Obama’s economic adviser, Larry Summers where he expressed outrage at AIG.  Some members of Congress expressed similar anger.  Why? Where was this anger and outrage last week when Congress wasted nearly $8 billion in taxpayer money?

The hypocrisy oozed from Representative Barney Frank (D-MA) when he accused AIG of “abusing the system.”  Congress abuses the system every time it passes budget appropriation bills.  Frank used his position on the House Financial Services Committee to protect and profit from Freddie Mac. (Unknown to most voters, Frank’s long-time partner and lover was a Freddie Mac executive – a guaranteed scandal had Frank been a Republican.) Nevertheless, I digress.

Shareholders are not taxpayers — are they?

Summers explained that the Obama administration doesn’t care, “about the shareholders of AIG,” but is trying to safeguard the U.S. taxpayer.  (I’ll stifle the cough and eye rolling here.) Apparently, the administration is so buried in its own campaign rhetoric they have forgotten that stockholders ARE taxpayers and in fact AIG stockholders pay statistically more in taxes than most of the people Summers was trying to impress.  Regardless, the bonuses now being paid are the result of irresponsible executive contracts that did not hold management accountable for failure.  Now like any stockholder, the U.S. government must sit back and watch as the top brass get polished while it gets screwed, (and by it, I mean the rest of us.)

Do we have to take it?  The United States owns an 80% stake in AIG.  As a major stockholder, the federal government should vigorously pursue all means to pressure AIG to renegotiate executive contracts, tying bonuses to performance – no profit – no bonus – more profit – more bonus.  All corporations should operate this way but the government has no right to regulate such things unless it owns a significant number of shares, as is the case for AIG.  All stockholders should insist that top executive have an incentive to succeed and consequences for failure.

For now, I agree with Summers when he said, “We are a country of laws. There are contracts. The government cannot just abrogate contracts.”  Dictatorships and totalitarian regimes disregard contracts and private ownership; we do not.  However, as the company’s largest stockholder, the government can and should pressure the company to renegotiate those contracts in light of the current situation.  Boston University School of Law professor, Tamar Frankel, “Head you lose, tails I gain,” sums up the situation nicely.

UPDATE: Previously, in this blog I complained about lack of disclosure regarding AIG’s CDS counterparties.  After all, the bailout money was going to pay their losses.  Today, March 15, AIG released the list. It is interesting to note the companies (banks) cashing in CDS during the final quarter of last year.  My knee-jerk (and quite unresearched) reaction is that there might be a connection between government financial interests and the survival of these financial institutions.

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