Posts

Populist Unity Can Overcome the Establishment's Supermajority

Back in 2012 we published an article entitled “The Forgotten 33%,” which included a graphic entitled “American Voter Breakdown 2012.” It depicted the U.S. electorate as comprised of 46% who pay zero net taxes, 20% who work for the government and are net tax consumers, the 1% “super rich,” and the “forgotten 33%,” who work in the private sector and earn enough to be positive net taxpayers.

The point of the article, then and now, was that people with an intrinsic preference for big government comprise a super-majority of voters in America. But something has changed since 2012…

AMERICAN VOTER BREAKDOWN 2016
20160712-UW-AtlasGeneration

The emergence of Donald Trump and Bernie Sanders as serious contenders to become president of the U.S. reflects a growing awareness among voters in all of the above categories that things can and should be better. The 33% who constitute America’s beleaguered taxpayers were angry four years ago, and this time around they’re furious. Their ire is the most easily explained: Now more than ever, they work long hours for less wages or lower profits, all while being told by the establishment press, by mainstream academia, and by left-wing politicians that they’re “privileged,” and still aren’t paying their “fair share.” If they’re white, they’re told their success is the undeserved result of their color, when in fact they’ve been the recipients of institutionalized reverse discrimination for nearly two generations. And no matter what their ethnicity, they confront soaring prices for housing, health care, and college tuition for their children.

The 33% who work and make enough to pay taxes are angry. And they should be. But what about the 46% who pay no net taxes?

The anger of the 46% takes various forms, nearly all of it justified. Many of them work, but qualify for the earned income tax credit and subsidized health care, which makes them net tax consumers. Many of them would like to work harder, but the only jobs available are part-time with unpredictable schedules which makes it impossible for them to work two jobs. Many of them would like to get a better education, but they are the products of failing schools where teacher tenure is more important than student achievement. And if they’re people of color and haven’t yet been successful, they’re perpetually told by the establishment press, by mainstream academia, and by left-wing politicians that they are victims of discrimination and their failures are not their responsibility – fueling additional anger.

And what of the 20% who work for the government? They are, for the most part, ensured decent health care and a secure retirement. But they are the targets of relentless propaganda from their unions, who have waged a multi-decade campaign to convince them they are underpaid, underappreciated, and overworked. Many of them succumb to this nonsense. Others, and more than a few, are disgruntled for the opposite reason – they resent working for a unionized government where merit means less than seniority, and innovation is a threat.

But why are taxes consuming the 33%? Why are opportunities for good jobs and education being denied the 46%? And why does government get bigger every year but deliver less?

There’s a simple answer. Government unions. Especially at the state and local level, government unions have destroyed our public schools and driven our public institutions to the brink of bankruptcy. These government unions perpetually lobby for higher taxes, bigger government – more employees with more pay and benefits, more job killing regulations, and more programs ostensibly intended to help the less fortunate – regardless of their cost or actual effectiveness. The government union agenda is to increase their power and influence – a goal that has no connection with the public interest.

Government unions control state and local politicians, who in turn control every scrap of legislation sought after by big business. They encourage and enable cronyism. Their union controlled pension funds and their union backed government bond underwriting make them the biggest players on Wall Street. They ARE the “establishment” that has gotten everyone so agitated this time around.

Donald Trump, for all his hapless gaffes and hideous vitriol, is far too intelligent to identify government unions as the root cause of most of the problems in America. Unions make or break Trump’s development projects. And even if Trump did attack the government unions, he’d risk confusing voters, who by and large still don’t make a distinction between public and private sector unions.

Bernie Sanders, despite his belated attempts to pander to the African American left by challenging police organizations, is unwilling or unable to make the distinction between police personnel, whom we are lucky to have among us, and police unions that protect bad cops and intimidate politicians. And even if Sanders did take on the police unions, he would never take on the teachers unions – despite the fact they’ve practically destroyed public education in America.

Populist anger in America today is justified, and there is a unifying target for the anger – the “establishment” as represented by government unions and their clients; monopolistic corporations, America’s overbuilt financial sector, and the extreme environmentalist lobby that provides a phony moral cover for their iniquitous schemes. If public sector unions were illegal, this entire corrupt establishment would be threatened as never before. As it is, this awakening national dissent has seismic power, diffused in all directions, turning only on itself.

 *   *   *

Ed Ring is the president of the California Policy Center.

Anaheim to Award Biggest Tax Subsidy in City History to Disney, but Union Leaders Remain Quiet

ANAHEIM, Calif. — There’s evidence of a very California coup in the city of Anaheim, where an unusual alliance of city officials, government union leaders and developers is advancing its own financial interests at the expense of everyone else. Their current goal: a council vote Tuesday night by the Anaheim city council to offer major corporations, including Disney, the largest tax subsidies in Anaheim history.

That agenda item came as a surprise to Mayor Tom Tait, the man you might figure should know everything at City Hall. A long-time critic of taxpayer subsidies to business, Tait says city staff, including City Manager Paul Emery, worked to keep the deal under wraps. “I inquired multiple times about a new potential Disney property,” Tait told us. “When asked, he (Emery) denied any knowledge of this proposal.”

20160712-UW-Disney1

               How Disney wants Anaheim residents to end up?

In an email, Emery told us he notified Tait and other council members about the Disney subsidies on June 8. But that was one day after the Orange County Register reported the Disney deal. By then, Tait says, he’d already heard the news elsewhere. “I had to hear it from the Disney president after it was announced,” Tait says. “At some point, (Emery) should have called me to let me know.”

Anaheim spokesperson Mike Lyster said there was nothing unusual in communications to Tait.

“To brief council members before an application has been filed is premature, as some inquiries may never result in a formal application, or a project may change significantly before an application is submitted,” he said in an email. Even when that pending application is from Disney? Requesting a historic $267 million subsidy? Maybe even especially then: “We don’t want to treat Disney any differently than we treat everybody else,” Lyster said.

Disney and two other luxury hoteliers are seeking a total of about half a billion dollars in new hotel subsidies. Leaders of the Orange County Employee Association (OCEA) once routinely opposed such subsidies, fearing they imperil rising government worker pay and benefits.

But now? Radio silence.

In January 2012, OCEA rallied to block subsidies to the proposed GardenWalk hotels – two four-star hotels in the resort district. OCEA attacked council members supporting the subsidies in mailers condemning the “Giveaway Three.” The group was the main muscle behind the signature gathering drive for Let The People Vote, a campaign to put hotel subsidies before a general vote.

A year after fighting public giveaways, union leaders were suddenly pro-subsidy, their fear of future shortfalls apparently eliminated. OCEA walked away from Let the People Vote; the campaign fizzled. When the Anaheim city council voted for the same GardenWalk subsidy in 2013, OCEA was silent. In 2015, fire and police union leaders actually endorsed a measure that would stop the city from taxing gate receipts at Disneyland for the next 45 years.

20160712-UW-Disney2

                                           Anaheim’s future?               

What changed? Multiple sources told us the unions’ conversion came in April 2012 after a meeting between Nick Berardino, head of the OCEA; Carrie Nocella, Disneyland’s government relations and minority business development director; and Todd Ament, Anaheim Chamber of Commerce president. After that meeting, Anaheim was a kind of Tomorrowland of happy relations between corporate, union and City Hall representatives.

OCEA officials did not respond to requests for comment. At the time, Berardino told the Voice of OC the meeting was called “to discuss better ways to handle divisive issues like taxpayer subsidies. Any talk that a labor deal was worked out in that meeting amounts to speculation run amok, he said.”

“We didn’t talk about delivering anything to [city] employees,” Berardino reportedly declared.

But in June 2012, just two months after the summit, the Anaheim city council approved a contract with workers covered by OCEA: no outsourcing of government jobs, no layoffs, no furloughs, and $2,200 to each employee who had taken furlough days. Tait was the lone dissenter.

A few months later, in November 2012, the City Council voted 4-1 to keep firefighter pension rates high – even as other California municipal officials were slashing government worker pay and benefits. Again, Tait was the lone dissenter. A few months after that, with Tait again in the minority, the council cut a similar deal with police. In January 2016, the city council was at it again, voting 4-1 to raise firefighter salaries by 10 percent by mid-2017. Of course, Tait was again the lone no vote.

20160712-UW-Disney3

                            Tom Tait: Standing up to Disney

On Tuesday, hotel developers including Disney will ask Anaheim taxpayers for subsidies amounting to a half-billion dollars. The city’s top elected official was boxed out of discussions—blindsided, he says, on what will be the largest subsidy in Anaheim history. If precedent means anything, union leaders will support the subsidies, despite the likelihood that doing so will undermine the city’s financial health and harm its own workers.

If you live in Anaheim, the story is clear: city officials, public employee unions and powerful businesses continue to give away hundreds of millions of dollars at the expense of the taxpayer.

There’s nothing remarkable about special-interest groups—like union leaders and big business—advocating for themselves. But you don’t have to be an idealist to expect that the city council will serve all residents, not just the rich and powerful.

Of course, Anaheim isn’t alone in taxing its residents on behalf of corporations and government unions. But there is something unique in the fact that all this is playing out in the shadow of the Matterhorn.

About the Authors:  David Schwartzman is a rising junior at Hillsdale College, and Matt Smith is a graduate student at Princeton. Ethan Musser (Mississippi State) and Blake Dixon (Yale) also contributed to this report. They are participants in the investigative reporting summer internship at the California Policy Center in Tustin. This article was first published in OC (Orange County) Weekly.

The Alternative to Crony Capitalism and Phony Shortages

The modern history of the Silicon Valley arguably began in 1957, when eight young PhD graduates left Shockley Semiconductor Laboratories to launch the first high-volume chip manufacturer, Fairchild Semiconductor. Fairchild and its spinoffs, including Intel and Advanced Micro Devices (AMD), were the early participants in what became the most fervid ecosystem of fiercely competitive innovators the world has ever seen. Inspired by the mantra “better, faster, cheaper,” and fueled by billions in venture capital, the Silicon Valley is now the epicenter of the information age that has transformed our lives.

With power, however, comes corruption. The Silicon Valley’s inspirational mantra has become challenged in recent years. High-tech products that used to sell because they were better are now sold because they are mandated by law. They sell not because they are faster, but because they are engineered to operate according to a social or environmentalist agenda. And they are most definitely not cheaper, but instead cost far more than they should. And across the product spectrum from high-tech to low-tech, Silicon Valley leadership increasingly uses their political clout to support this new agenda.

This is no longer competitive innovation. It is crony capitalism. Here are examples of these mandated products:

  • Light switches that don’t simply turn on (up) or off (down), but instead require prolonged pressing in exactly the right spots – not intuitive at all – and turn off again after a brief interval in order to save energy.
  • “Low flow” faucets that have 1/4″ feed pipes instead of 3/8″, which double the time required to fill a pot. Forever.
  • Public restroom faucets that require absurd – and often futile – hand waving in order to turn on. Then when they’re activated, they squirt tiny jets of water that bounce off the skin. Then they turn off almost immediately, requiring additional hand waving.
  • “Low flow” shower heads, also with reduced diameter feed pipes, which double the time required to rinse shampoo out of long hair.
  • Side loading washers that damage fabric and condemn users to bending ninety degrees every time they want to load or unload them.
  • “Low flow” toilets that require multiple flushes and often don’t send enough water into the sewers, requiring investment in additional pumping systems.
  • Public toilets that have an intelligent sensor that controls when to flush the excrement left by the previous user, but frequently fails to do so.
  • LED streetlights that turn night into glaring day and impart the ambiance of a prison compound to what once were peaceful suburban neighborhoods.
  • “Drought tolerant” landscaping – requiring expensive “smart” drip irrigation systems – that is ugly and robs families of a lawn where their children can play.
  • Reusable grocery bags that are expensive magnets for bacteria, require frequent, time-consuming and largely ineffective cleaning, and are thrown away at a frequency that actually makes them create more total waste than the lower-mass disposables.
  • “Smart” thermostats that have complicated programs and settings that nobody uses, when a $20 unit with a bimetallic strip used to be perfectly sufficient to activate cooling or heating whenever a hot or cold temperature threshold was reached.

And we haven’t seen anything yet! The “internet of things” is coming. And when it does, nanny robots will abet the nanny state, ensuring the green corporate vision of utopia monitors and manages us all.

The problem with all of these socially engineered, mandated products, apart from the fact they are, collectively, massive annoyances, is that they are based on convenient myths. The idea, for example, that anyone can overuse indoor water is a myth. Instead of using water bond proceeds to give rebates to consumers to buy these contrivances, policymakers should be completing infrastructure upgrades so that 100% of sewage is treated and injected into aquifers to be retrieved again as potable water. How can you overuse indoor water if 100% of it is recycled?

The idea that urban water cutbacks in general can have a significant impact on California’s total water diversions is another convenient myth. During this recent drought, California’s households were asked to cut back their water consumption by 25%. Best case, this would have given back about 900,000 acre feet for farmers or environmental uses. But according to the California Dept. of Water Resources, farmers currently consume 27 million acre feet each year, and environmental diversions consume another 31 million acre feet per year. All of that household saving equates to a reduction in total use of only 1.5%. Meanwhile, public funds are spent urging people to put a brick in their toilet tank, or a bucket in their shower. This is infantile propaganda, imparting dangerous levels of scope insensitivity to the impressionable.

When you examine the alternatives to forcing citizens to buy expensive, annoying gadgets to address a phony shortage, it becomes quite clear what’s going on. Crony capitalist lobbyists, who want their high-tech companies to be OEMs to major manufacturers of durable goods, are warping policy decisions so they can pocket the public money that ought to be used to upgrade our sewage treatment plants, construct reservoirs (Temperance Flat and Sites come to mind), and build percolation systems to harvest storm runoff from the Los Angeles river and other rivers.

The same holds true for energy. There’s nothing wrong with mandating common sense solutions to avoid profligate waste of water and energy. But it is oppressive to mandate sealing up homes and buildings so fresh air can’t circulate, subjecting people to the blinding industrial glare of first generation LED light, or making them install switches and thermostats that are puzzles to operate. Back in the 1990’s, reputable environmentalist magazines like WorldWatch promoted natural gas as the “transition” fuel to adopt while we moved methodically towards the electric age. Now that we’re awash in natural gas, the environmentalists, abetted by the crony capitalists, have raised the stakes. 

For those of us in the developed world, these policy biases translate into annoyances. For those billions who reside in the developing world, the oppressive consequences are tragic. The preconditions for population stabilization are universal literacy, reduced infant mortality, and female emancipation. And the biggest single precondition for those three laudable goals? Prosperity enabled by cheap and abundant energy. But while we fiddle with battery technologies and smart electrical grids, inexpensive clean fossil fuel investment in the developing world is scuttled.

Here is the moral choice that the phony shortage crony capitalist crowd doesn’t want you to hear: We can develop clean fossil fuel to quickly create global prosperity, and world population will peak at 8.0 billion. Or we can develop “green” energy with windmills, batteries, and solar farms, deferring global prosperity due to the incredible cost of these bleeding edge technologies, and world population will peak at 10.0 billion. What is the impact of another two billion people on the ecological carrying capacity of planet earth? Al Gore and Tom Steyer are invited to answer this question.

Back here in California, the choice is equally clear. We can pretend there are shortages of water, energy and land, which will enrich the crony capitalists, but make the rest of us poorer. Or we can develop our natural gas and invest in our water supply and storage infrastructure, which will encourage the Silicon Valley to reaffirm their inspiring legacy of competitive innovation, while providing tremendous opportunities for the rest of us.

 *   *   *

Ed Ring is the president of the California Policy Center.

RELATED POSTS

Government Unions and the Financialization of America, May 24, 2016

When Will Unions Fight to Lower the Cost of Living?, October 27, 2015

Desalination Plants vs. Bullet Trains and Pensions, April 7, 2015

Raise the Minimum Wage, or Lower the Cost of Living?, March 31, 2015

The Abundance Choice, December 23, 2014

An Economic Win-Win For California – Lower the Cost of Living, December 3, 2014

Reinventing America’s Unions for the 21st Century, September 2, 2014

How to Create Affordable Abundance in California, July 1, 2014

California’s Green Bantustans, May 21, 2014

Public Pension Solvency Requires Asset Bubbles, April 29, 2014

Construction Unions Should Fight for Infrastructure that Helps the Economy, April 1, 2014

The Unholy Trinity of Public Sector Unions, Environmentalists, and Wall Street, May 6, 2014

Pension Funds and the “Asset” Economy, February 18, 2014

Exclusive Interview with Joel Kotkin, January 4, 2014

Bipartisan Solutions for California, October 27, 2013

Either Reverse All the Perverse Incentives or the System Will Implode

I hope it’s not a great shock to discover all the incentives in our status quo are perverse: those who rig the financial system while creating zero real value, jobs, goods or services reap all the big profits; those who take near-zero responsibility for their own health are subsidized by those who take responsibility for their own health; those who try to start enterprises and hire workers are saddled with endless regulations, junk fees and taxes while those who game the system to get welfare (household or corporate) skim the cream for doing nothing for their community or for the nation.

Systems in which all the incentives are perverse implode under their own weight. Those who struggle to pay the mounting costs ofImperial Over-Reach, crony-capitalism and all the skimmers and scammers eventually go bankrupt or quit in disgust, while the army of state dependents and cronies explodes higher.

It has taken decades for the incentives to become so perverse, so we no longer notice the perversity or the pathological consequences.

High-frequency traders and financiers with the ready ear of well-paid political lackeys, stooges, toadies and sycophants run never-lose skimming operations and pay lower tax rates than self-employed and small business owners.

Corporations have increased their share prices not by earning more money by producing more goods and services but by borrowing cheap money from the Federal Reserve and buying back outstanding shares.

Corporations pay less tax if they move production overseas and keep their profits in other countries.

If I wreck one vehicle after another due to reckless irresponsibility, what happens to my insurance premiums? They skyrocket, of course, reflecting the higher risks that result from my behavior and poor choices. Nobody thinks safe drivers should subsidize irresponsible drivers.

But if I wreck my health by recklessly pursuing risky behaviors, I pay the same as people who are careful “drivers” of their health. What sort of incentives does this system generate?

If I want to buy an over-priced home, the system is loaded with incentives to encourage that potentially poor financial decision. But if I want to launch a small enterprise, the incentives are all perverse: steep upfront fees, taxes from the first dollar, and in many cases, fees and taxes on revenues, regardless of whether I am making a profit or losing my shirt.

Corporate profits have soared as financialization and rigging the system have paid much higher returns than risking capital in new goods and services.

 

 incentives for home ownership have turned the bottom 90% into debt-serfs in servitude to banks while the top 5% own income-producing assets and businesses.

The incentives for home ownership have turned the bottom 90% into debt-serfs in servitude to banks while the top 5% own income-producing assets and businesses.

 

Larded with the most perverse incentives possible, the U.S. healthcare system in the final stages of maximum costs, just before it implodes:

Larded with the most perverse incentives possible, the U.S. healthcare system in the final stages of maximum costs, just before it implodes:

 

graph3

It’s not hard to design positive incentives. For example:

1. Make  essentially free to everyone ($5 co-pay) but weight the risks and costs created by irresponsible behaviors that ruin health. Reward those who take responsibility for their health by reducing the premiums they pay.

2. Tax all profits on securities held less than a day at 95%. Raise corporate taxes generated by financial activities to 50%, and lower the corporate tax rate on profits earned from producing domestic goods and services to zero.

3. Lower the tax for the first $25,000 earned by small enterprises to zero. Limit total government fees to 5% of revenues for all businesses up to $10 million in annual revenues.

4. Phase out the mortgage interest deduction. Limit mortgage interest deductions to the first $100,000 of mortgage debt.

5.  Eliminate the personal income tax(and the need to file a return) for every household with income of $100,000 or less.

6. Automatically sunset every government regulation. Make city, county, state and federal governments renew every regulation every few years via a majority vote or it vanishes from the law books.

7. Make every politician wear a NASCAR-style jacket plastered with the names and logos of their corporate, union and financier contributors. The California Initiative to make this a reality is seeking signatures of registered California voters. Since politicians are owned, let’s make the ownership transparent.

8. Treat drug abuse and addiction as medical conditions rather than crimes.

9. Eliminate the Federal Reserve and its free-money for financiers perverse incentives for debt-serfdom and financial plundering.

10. Eliminate all student loans and debts. Make colleges compete for students on a cash-only basis.

As you no doubt noticed, every perverse incentive is the cash cow for a vested interest or cartel. That’s why the perverse incentives will endure until the system implodes under their pathological weight.

About the Author: Charles Hugh Smith as a writer and financial commentator living in Hawaii. His blog, Of Two Minds.com, is ranked #7 in CNBC’s top alternative financial sites, and is republished on numerous popular sites such as Zero Hedge, Financial Sense, and David Stockman’s Contra Corner. Smith is frequently interviewed by alternative media personalities such as Max Keiser, and is a contributing writer on PeakProsperity.com. This article originally appeared on Smith’s blog, and is republished here with permission.

California Initiative Would Require Legislators to Wear Logos of Donors

If you are bemused by the success of populist candidates for President, if you think national politics in America is at risk of becoming a circus spectacle, get ready. Because that circus is coming to California. Southern California businessman John Cox is collecting signatures for a ballot initiative that will require state politicians to wear the logos of their top ten campaign contributors.

If voters approve this measure, every time a state senator or member of the assembly votes on the floor or in a committee, they will have to wear these logos on their jackets. As the text of the initiative puts it, “the disclosure shall be printed clearly and legibly, be conspicuous and in a type size sufficient that it can be read by a member of the public observing any public session of the Legislature or a Committee thereof.”

Truth is indeed stranger than fiction. But then again, isn’t Cox’s initiative just making explicit what everybody’s known for a very long time? As Cox puts it, “unions and corporations have too much power and it’s time we stand up and fight. The ‘California is Not For Sale Initiative’ will bring a level of transparency never before seen in politics.”

For those of us who’ve been trying to expose the inordinate influence government unions have on California’s state legislature, passage of Cox’s initiative will have tremendous educational value. Because the vast majority of politicians in the chambers would be sporting the logos of government unions, not private corporations, contrary to the popular wisdom these unions purchased through literally billions in taxpayer funded propaganda over the past 30 years. The most likely top logo? CTA.

20160208-UW-Ring-Cox

When asked if this initiative might be viewed as a political stunt rather than a serious attempt at reform, Cox didn’t hesitate. “This is part of a long-range plan,” he said, “sometimes you need ridicule and satire to get people to focus on the problem.”

It’s interesting to wonder how politicians will adapt to the “Name All Sponsors Candidate Accountability Reform Initiative,” because Cox is serious. He’s putting some of his own substantial fortune into paid signature gathering, and in addition to growing media coverage (US News, Salon, Washington Times, Al Jazeera), campaign reform advocates from outside California have expressed an interest in assisting his campaign.

If Cox’s measure qualifies for the November 2016 ballot, who would vote against it? And how would anyone oppose it? Who will oppose the “wealthy out-of-state special interests behind this sinister measure,” when those interests include campaign reform democrats like Lawrence Lessig and Ben Cohen? Will the unions be quiescent? Will the CTA concede, without a fight, that starting in January 2017, their logo will probably occupy top position on more legislator’s jackets than any other special interest?

The bipartisan support for Cox’s initiative is encouraging. Because the discussion it generates will help dispel the myth that there is opposition between crony corporate interests and public sector union interests. The truth is that these interests work together. The operative political philosophy in Sacramento is cronyism. Business interests avoid direct conflict with government unions because those unions decide what legislation gets advanced and what legislation is stopped. And if these unions increase taxes and regulations to further their agenda, and in the process they destroy small businesses, large corporations have less competitors. It’s a win-win for the cronies.

It will be fun, in less than one year, to go to the Capitol gallery and view the coats of the lawmakers. “CTA,” side by side with “AT&T.” “AFSCME,” right next to “PG&E.” The crony convention. The California circus. Cox’s initiative will make it plain to see.

 *   *   *

Ed Ring is the President of the California Policy Center.

The Alliance Between Wall Street and Public Unions

“It’s [private equity investments] generating real returns for our members, which is exactly what it’s supposed to do,” said Joe DeAnda, a CalPERS spokesman. “It’s real value that we don’t feel there’s another way to achieve.”
–  “Are private equity investments worth the risk?,” Los Angeles Times, November 14, 2015

The alliance between government unions and America’s overbuilt financial sector is one of the most unreported stories of our time. It is a story saturated in greed, drowning in delusion, smothered and marginalized by an avalanche of taxpayer funded propaganda. If this story were known and appreciated by the people most victimized by its effects, it would fundamentally shift the political landscape of the nation. The most obvious example of this alliance are the government worker pension systems, Wall Street’s biggest players, controlled by union operatives.

The problem with public sector defined benefit pensions can be boiled down to two cold facts: They are too generous, and they rely on rate-of-return assumptions that are too optimistic. The first is the result of greed, the second of delusion. To indulge these vices requires corruption, and it is a rot that joins public sector unions with the most questionable elements of that Wall Street machine they so readily demonize.

In an attempt to earn in excess of 7.0% per year, government pension systems have increasingly turned to hedge funds, whose charter, essentially, is to earn over-market returns. To do this, they do all the things that public sector unions are supposedly opposed to – opaque private equity deals, currency speculation, high-frequency trading – all those manipulative tools used by the super-wealthy, super empowered Wall Street players to siphon billions out of the economy. Except now they’re using tax dollars, channeled to them via government pension systems. And if it goes south? Taxpayers pay for the bailout.

Which brings us to sheer abuse of power. Hypocrisy aside – and how much more hypocritical can it be for union leaders to rhetorically demonize “profits,” yet ignore the fact that only profits can permit pension funds to appreciate at rates of 7.0% per year or more – it is raw power, sheer financial and legal might, that enables pension systems, with unions cheering them on every step of the way, to sue city after faltering city to ensure their “contracts” are inviolable, that relentlessly escalating pension contributions keep pouring in, even if it means raising taxes via court order, then selling the parks, selling the libraries, closing government offices and “furloughing” public servants, and giving raw deals to their new hires.

The alliance between Wall Street and public sector unions isn’t restricted to the over $4.0 trillion in government pension assets that they’ve wagered in a volatile investment market with taxpayers on the hook to guarantee perpetual winnings. The alliance extends to bond underwriters, who join with government unions to sell overpriced, often unnecessary projects to taxpayers, collecting billions in fees. It even extends to auctions of government permits to emit CO2, which when fully implemented will guarantee Wall Street firms a cut on virtually every energy transaction in America, while quietly pouring a huge portion of the proceeds into funding public sector jobs – redefined to meet “mitigation” criteria: code inspectors enforcing energy retrofits, entire cities who zone ultra-high density which presumably lowers transportation related emissions, bus drivers and other mass transit workers, police and fire agencies who confront higher crime rates and more wildfires during hot weather. And, of course, the bullet train.

Whether it’s financially unsustainable government pension systems, who are the biggest players on Wall Street, or financing overpriced public construction projects of dubious value, or imposing billions in hidden taxes on energy users to supposedly save the planet, public sector unions receive formidable political, legal and financial support from their partners in the financial sector, corrupt, crony capitalists who indeed give capitalism a bad name.

*   *   *

Ed Ring is the executive director of the California Public Policy Center.

Why Has Classical Capitalism Devolved to Crony-Capitalism?

Here is the quote that perfectly captures our era: “People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.” (John Kenneth Galbraith) The trick, of course, is to mask the unspoken second half of of that statement: everybody else gets destroyed along with the Elites when the system implodes.

Union pension funds: toast. Government employees’ pension funds: toast. 401Ks: toast. IRAs: toast. The echo-bubble in housing: toast. The Fed’s favorite PR cover to cloak the enrichment of their financier cronies, the wealth effect:toast.

The primary tool the Elites use to mask the risk of complete destruction is magical thinking–specifically, that “given enough time, the system will heal itself.”

That’s rich, considering that the Elites’ primary tool of avoiding destruction is crippling the market’s self-healing immune system: price discovery. Thanks to ceaseless interventions by central banks, the price discovery mechanism has been shattered: want to know the price of risk? It’s near-zero. Yield on sovereign bonds? Near-zero. And so on.

Prices have been so distorted (the ultimate goal of Central Planning everywhere, from China to the EU to Japan to the U.S.) that the illusion of stability is impossible without more intervention.

This leads to two self-liquidating dynamics: diminishing returns (every intervention yields less of the desired result) and the Darwinian selection of only those money managers who believe risk has been vanquished.

Everyone who pursues prudent risk management has either been fired or saw the writing on the wall and exited stage right. So the only people left at the gaming tables of the big institutional players are those individuals who are genetically incapable of responding appropriately to rising risk. Those who did have long been fired for “underperformance.”

So how did classical free-market capitalism become state-cartel crony-capitalism, a Ponzi scheme of epic proportions that is entirely dependent on ceaseless central bankperception management and interventions on a scale never before seen?

We can start with these six factors:

1. Those who control most of the wealth are willing to risk systemic collapse to retain their privileges and wealth. Due to humanity’s virtuosity with rationalization, those at the top always find ways to justify policies that maintain their dominance and downplay the distortions the policies generate. This as true in China as it is in the U.S.

2. Short-term thinking: if we fudge the numbers, lower interest rates, etc. today, we (politicians, policy-makers, money managers, etc.) will avoid being sacked tomorrow. The longer term consequences of these politically expedient policies are ignored.

3. Legitimate capital accumulation has become more difficult and risky than buying political favors. Global competition and the exhaustion of developed-world consumers has made it difficult to reap outsized profits from legitimate enterprise. In terms of return-on-investment (ROI), buying political favors is far lower risk and generates much higher returns than expanding production or risking investment in R&D.

4. The centralization of state/central bank power has increased the leverage of political contributions/lobbying. The greater the concentration of power, the more attractive it is to sociopaths and those seeking to buy state subsidies, sweetheart contracts, protection from competition, etc.

5. Any legitimate reform will require dismantling crony-capitalist/state-cartel arrangements. Since that would hurt those at the top of the wealth/power pyramid, reform is politically impossible.

6. Understood in this light, it’s clear that central bank monetary policy—zero-interest rates, asset purchases, cheap credit to banks and financiers, QE, etc.—is designed to paper over the structural problems that require real reform.

Japan is a case in point: the Powers That Be in Japan have put off real reforms of the Japanese economy and political system for 25 years, and they’ve enabled this avoidance by pursuing extremes of fiscal and monetary policy that have eroded the real economy and created long-term structural imbalances.

In this 24 minute video Gordon T. Long and Charles Hugh Smith discuss through the aid of 17 slides the rapid advancement of Crony Capitalism in America. The facts are undeniable, but why is it becoming so obvious and undeniable? Why is it accelerating without any apparent ‘checks and balances’? Where have the safeguards against this happening gone?

*   *   *

About the Author: Charles Hugh Smith as a writer and financial commentator living in Hawaii. His blog, Of Two Minds.com, is ranked #7 in CNBC’s top alternative financial sites, and is republished on numerous popular sites such as Zero Hedge, Financial Sense, and David Stockman’s Contra Corner. Smith is frequently interviewed by alternative media personalities such as Max Keiser, and is a contributing writer on PeakProsperity.com. This article originally appeared on Smith’s blog, and is republished here with permission.

How America's Business Lobby Often Opposes Free Markets

Traditionally, business was the most important political backer of free markets, which made sense because business needs markets in order to exist at all. However, in the last generation, the views of business, as expressed by the U.S. Chamber of Commerce and other outlets, have increasingly diverged from the free-market ideal. As crony capitalist ideas have come to dominate business thinking, so crony capitalism itself has come to dominate the U.S. economy, with dire results for productivity growth and the living standards of Americans.

In some respects, the Chamber of Commerce and domestic business generally remain committed to the remnants of free-market principle in an environment where they have been beleaguered. The Chamber vehemently opposes the efforts of trial lawyers to divert shareholder funds to their own pockets. It generally supports free trade; indeed it is especially adamant in supporting the freedom to offshore operations from the U.S. to emerging markets where costs are lower. It supports the Keystone pipeline.

As might be expected, the Chamber also opposes a number of Obama administration initiatives that directly increase business costs. It opposes Obamacare in general and is especially vehement against the Consumer Financial Protection Bureau’s lack of accountability and surplus of regulations. It also, as might be expected, opposes restrictions on atmospheric carbon and retains its historic opposition to the trade union movement.

The Chamber would naturally oppose legislation that imposed costs on business; in the same way, it naturally favors provisions that reward business with tax breaks not available to the public as a whole. However, in general its anti-market positions bear only modest relation to the economic interests of business, and instead reflect a corporatist agenda that is thoroughly detrimental both to the interest of ordinary people and to the overall U.S. economy.

The most egregious anti-market attitude of modern business, at least the largest businesses, is on immigration. Here it favors essentially the abolition of all restrictions. Thus, it wants to import high-skill immigrants in tech sectors to compete with U.S. STEM graduates for the limited number of jobs available (we learned this week that Microsoft, one of the advocates of increased immigration, is to lay off 15,000 U.S. workers.) This is a very shortsighted policy indeed; by driving down the wages paid to STEM graduates, so that computer scientists earn less now than they did in 1999, business lobbyists are ensuring that the best and brightest U.S. students head for careers in areas such as law where they are better protected from foreign competition.

At the low-skill end of immigration, business generally favors both legalization of the 11 million illegal immigrants already in the country (thus encouraging a further flow, as we are seeing currently) and the establishment of not one but two guest-worker programs, under which further low-skill workers can be imported to drive low-skill wages down to subsistence levels. Needless to say, this is not in the interest of the U.S. people as a whole, who are impoverished thereby. It is not even in the long-term interest of business. Very high low-skill immigration and declining U.S. living standards degrade the gigantic domestic market so that it is no longer the template against which international competition must measure itself. Without the world’s richest and most sophisticated consumers, U.S. business will be at a growing disadvantage against competitors from richer and better-ordered countries such as Japan, Germany, Scandinavia and eventually South Korea, Taiwan and others in South-East Asia.

The free-market approach to immigration recognizes that people are not goods and that the arguments for free trade in goods break down when the item moving from country to country is an immigrant. Barbers are paid more in Boston than they are in Bangalore because of the greater wealth surrounding them, and an extra barber imported to Boston competes directly with the local workforce and plays far more havoc with domestic living standards than an imported car, machine tool or item of software. Hence, to prevent Boston barbers’ living standards from being driven down to those of the Congo, we must restrict imports of people. The cheap labor lobby, whether in the tech sector, in agriculture or in low-wage service sectors, is attempting to enrich itself by immiserating its fellow citizens.

Business in general and the Chamber of Commerce in particular are further violating free-market principles by their approach to education, for which they favor a “Common Core” standard imposed by a remote bureaucracy in Washington. Raising educational attainment is desirable, but in most respects the Common Core standards are dumbed down and politicized compared to the state standards that preceded them. The problem becomes worse if education funding is made dependent on standardized test results. At that point, all effort goes to satisfying the test results rather than getting the best out of the academically gifted, and study beyond the core syllabus more or less disappears.

The free-market approach to education is precisely the opposite of that favored by the U.S. Chamber of Commerce: to decentralize it as far as possible, introducing competition between schools and localities and allowing parents to choose both where they live and where within that area their children go to school. Of course, top-up payments should be made to ensure that schools in poor or educationally deprived communities are capable of raising the standards of their pupils, but this is best achieved by a voucher system, with additional vouchers for poor or disadvantaged families. While parents lack the knowledge to choose optimally between different educational approaches, so do educational bureaucrats, and the parents are much more likely to choose approaches that fit the needs and aspirations of their children.

A third policy area in which business opposes the free market is in infrastructure spending, typically funded by the state. Here costs have escalated far in excess of general inflation, by a factor of five or 10 times in real terms in the last 50 years, yet business still pushes for high spending, expecting it to be funded by the taxpayer, and does little or nothing to dynamite the union rules, environmental constraints and sheer mindless regulation that makes it so impossibly expensive. The free-market response to the infrastructure problem is a moratorium, refusing to fund any new projects until costs have been returned to their historic level in real terms (ample documentation is available to show where cost savings must be made.) Only when a bonfire of regulation and litigation has occurred should infrastructure spending again be resumed, this time at reasonable cost to the tax-paying public.

Business is also anti-free-market in the patent and copyright area, where it favors excessive and costly patent grants and copyrights extending far beyond a reasonable return for the creation concerned, so that 1923 seems destined to survive forever as a fixed date after which copyright will be eternal. It plays games with pension funding, hoping to pass off much of the cost of eventual defaults on taxpayers through the Pension Benefit Guaranty Corporation. It favors the US Eximbank, even though that crony capitalist institution supports a tiny minority of businesses, lands taxpayers with credit losses and provides subsidized competition to other businesses such as Delta Airlines.

Finally, the most damaging betrayal of free markets by U.S. business is its support for the Fed’s current extreme monetary policies. Here there is a disconnect between the needs of business itself, which wants at all costs to avoid another destructive meltdown like that of 2008, and those of corporate management, who want a continual bubble-led inflation of stock prices to maximize the value of their options. The Chamber view even extends to decrying the 2008 Fed as having been too tight – something that can have been true for at most a week or so, given the persistent negative real interest rates of that year.

Business in general and the U.S. Chamber of Commerce in particular retain a theoretical support for the free-market system. But that support is increasingly counterbalanced by practical opposition to it on issue after issue. It’s not very surprising; as the economy gets pulled further and further away from a true free market, with larger and larger government, more and more regulation and an increasingly destructive monetary policy, the interests of business increasingly become locked into the statist status quo. The beneficiaries of crony capitalism are rich and thriving in a crony capitalist world; those of a true free market are increasingly beleaguered, as they represent businesses that never came into existence or were stifled early on by monstrous regulation.

If a full free market, with Volckerite or gold-standard monetary policy and regulation sharply cut back were ever re-established, much of today’s business would bitterly oppose it, as no doubt would the Chamber. We even saw a simulacrum of this process in the run-up to the 1980 election and the early Reagan years, when much of the business establishment was dragged kicking and screaming into the new world. The effect today would be much stronger as the deviation from a free-market economy has gone much further since 1988.

We are at present in the gloomy world of Ayn Rand’s “Atlas Shrugged,” in which an alliance between the crony capitalist James Taggart and the regulator Wesley Mouch is driving the innovators into bankruptcy—or in that case, into a secret hideout in the Colorado mountains that was, alas, pure fantasy. There is still hope for a reversal into something better, but the business lobby will initially oppose bitterly any such move.

About the Author:  Martin Hutchinson is the author of “Great Conservatives” (Academica Press, 2005) which examines the British governments of 1783-1830. He was formerly Business and Economics Editor at United Press International. Martin’s weekly column, The Bear’s Lair, is based on the rationale that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. This article originally appeared on the economics website “The Prudent Bear” and is republished here with permission.

Dear Randi,

You seem to be very unhappy lately, but cheer up – things aren’t nearly as bad as you think! 

In your recent foray into BuzzFeed, you seemed a bit verklempt (for you non-Yids, that means overwrought) and I would like to help you feel better!

Regarding Common Core, the piece reads:

‘The right’s vitriol is ideological. The losing of parents and teachers is a matter of incompetence, Weingarten said. She attributed the program’s poor reception to groups like the Gates Foundation ‘wanting to measure more than wanting to teach.’

Oh my goodness! You mention Bill Gates and “the right” in the same breath. Surely you know that Mr. Gates is hardly a part of the vast right wing conspiracy. And if you think the right is vitriolic on the subject, let me introduce you to one Karen Lewis who has cornered the market on vitriol. Just watch any one of dozens of videos where the Chicago Teachers Union leader lashes out at, well, just about everyone, regularly dumping on rich people, white people, Common Core, Arne Duncan, et al. And if you want more vitriol about Common Core, a trip to the Bad Ass Teachers Facebook page will undoubtedly sate you. You will then see that being anti-Common Core certainly isn’t just a rightwing thing. I hope this lightens your mood, Randi.

Then, of course, is the inevitable swipe at the Koch Brothers.

All these conservative governors left to their own devices initially supported the standards…  What changed? The Koch brothers decided not to support the standards, ALEC didn’t support the standards, others who fund right-wing causes don’t support the standards.

Fiddlesticks! You seem to think that the right does what only the Kochs want them to do. (Seems that you have become afflicted with the Harry Reid’s Koch-o-loco Syndrome.) Actually, most folks came to their anti-Common Core position without Charles’ and David’s help. In fact, you and many others on the left greatly exaggerate the power of the Brothers. And I’m sure you simply forgot to grouse about Tom Steyer and other hypocritical, crony capitalist power-brokers on the left.

As I’m sure you know, our political contribution rules are quite arcane and are taken advantage of by both the right and the left. When teacher union watchdog Mike Antonucci was asked how much the National Education Association spends on politics, he responded, “What do you mean by ‘NEA’ and what do you mean by ‘politics?’ As an example, he says, “If NEA sends a mailer to a member calling for the election of Candidate X, or the passage of Measure Y, it is probably not a campaign expenditure. But if NEA sends the same mailer to me, it is.” He ends his piece with, “As you can see, there isn’t a sound bite reply to the headline question, ‘How Much Does NEA Spend on Politics?’ But you wouldn’t be far wrong if you simply answered, “As much as it wants to.” His article gets deep into the weeds on this issue and is very informative; I suggest you read the whole thing, Rand, it will brighten your day.

Perhaps we can best put the whole campaign finance mess into perspective by looking at actual dollar amounts. Gateway Pundit did just that and found via Open Secrets that between 1989-2014 the “‘Evil’ Koch Brothers Rank 59th in Political Donations Behind 18 Different Unions.” And this is sure to bring a smile to your face: NEA is #4 at $53,594,488 and your American Federation of Teachers is 12th at $36,713,325 (#12, Randi!) and the Kochs are way down the list in 59th place, having spent a measly $18,083,948 during that time period. (Am I hearing a big sigh of relief, Randi?!)

And homegirl, the news gets even better!! You recently joined Democracy Alliance, an organization that “takes pains to ensure that its work disbursing millions of dollars to top left-wing organizations remains secretive and free from public scrutiny.” So when it comes to “dark money,” you can out-Koch the Kochs every day of the week and thrice on Sunday! (Btw, it was a shame that someone was so careless to leave a list of new DA members lying around at that gathering last month, subsequently winding up on the internet. I can imagine you must have been very ticked off. But frankly as a 1%er who pulls in over a half a million a year, you can just put that behind you, especially since that $30,000 entry fee to join DA is really sofa cushion change for you.

And there’s even more good news! As you perhaps know the new president of this club for filthy rich, dark money-loving lefties is none other than NEA executive director John Stocks!! Isn’t that terrif!! An organization with people whose last names are Munger and Soros is being led by a union guy!!! C’mon, that should chase those dark clouds away!

Once you got off Common Core, your comments in the BuzzFeed piece took a worrisome turn, but again, I am here to help!

There’s not anything I stand for that [people on the right] like… From the fact that I’m a gay leader of a teachers union, to the fact that I’m Jewish and actually religious about that, but not in the orthodox kind of way. My partner’s the rabbi of a gay temple…and I’m the head of a labor union and I’m a public schoolteacher. So there’s just nothing about me that the Tea Party will ever like.

Randi, Randi, Randi … that’s such poppycock! In fact, here you sound just a tad meshugana (Yiddish for whacky). As a Jew who has been to many Tea Party events (I’ve spoken at several: here, here and here), I can tell you that I have never heard one disparaging word about Jews … or gays either, for that matter. Tea Partiers don’t get into religious or sexual orientation issues. Their mission is actually fairly narrow: they champion fiscal responsibility, constitutionally limited government and free markets – you know, the principles our country was founded on. Whom you play with behind closed doors and whether you pray on Saturday or Sunday are of absolutely of no interest to them. I sincerely hope this offers some solace to you. In fact, since you are very fond of Twitter, please follow national Tea Party leader Jenny Beth Martin (@jennybethm). You will learn a lot and be disabused of so many things that bring you unnecessary angst.

And in my never ending quest to bring that twinkle back in your eyes – you are just going to love this! – the Koch Brothers are not actually conservative, but are in fact libertarian. As such, they are in favor of gay marriage. Now I don’t expect you to send the brothers a gift basket (however, if you do, please use my wife’s company, The Lone Arranger; she’ll give you a 20% discount!), but, in any event, maybe you could lighten up on the Brother-bashing?

See, now, don’t you feel better?!! The poor Kochs can’t compete with the unions and their fellow travelers when it comes to political spending. And along with the Tea Partiers, they couldn’t care less about your religion or sexual orientation. Best of all, unlike most of us, you are a 1%er, have access to the rich and famous and of course, as a teacher union boss, you have the tools – really blunt instruments – to inflict education policy on millions of school children nationwide. Pop the champagne!!

As always, looking out for you!!

Best,

Larry Sand

Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers with reliable and balanced information about professional affiliations and positions on educational issues.

Government Employee Unions – The Root Cause of California's Challenges

Spokespersons for California’s government employee unions perpetuate a myth of staggering absurdity and tragic consequences – that they are protecting working Californians from wealthy corporations and wealthy individuals.

The reality is that government employee unions are focused on one thing: Expanding government employee pay, benefits and privileges. This requires expanding government, and that priority comes in front of everything else, including the cost to society at large. Expansive environmentalist regulations have made prices in California for housing and utilities the highest in the nation. Expansive compensation packages for unionized government workers have resulted in chronic deficits and accumulating state and local government debt that by some measures already exceeds $1.0 trillion. Expansive taxes and regulation have made California consistently rank as the most inhospitable place in the nation to run a small business.

Exactly how does any of this protect the poor from the wealthy?

It doesn’t, of course. But the deeper story is how government employee unions are not only failing to “protect” California’s aspiring multitudes, but are in fact enabling the wealthy special interests they claim to protect us from. The most entrenched and massive corporate entities are not harmed by excessive regulations, because they can afford to comply. An obvious example would be California’s impending $13 per hour minimum wage. Large corporate entities like MacDonalds will simply automate a few positions, tinker with the menu and recipes, incrementally raise prices, and go forward. Large corporations can hire attorneys and lobbyists, they have access to capital, and when the smaller players go out of business they gain market share. They benefit from over-regulation, but the consumer suffers.

Less obvious is how the financial sector also benefits from an overbuilt, financially irresponsible, unionized government. When excessive rates of pay and benefits consume government budgets, financial institutions step up to extend debt. Bond underwriters collect billions each year in fees in California to issue new debt and refinance existing debt. When excessively generous pension plans are granted to unionized government employees, pension funds pour hundreds of billions into Wall Street investment firms, earning additional billions in fees. As for “carbon emissions auctions,” now in its third year of implementation in California, as that ramps up, virtually every BTU of fossil fuel energy consumed will put a commission into the hands of a financial intermediary. Trillions are on the table.

Unionized government hides behind environmentalism to justify pay and benefits over investment in infrastructure – which after all is environmentally incorrect. As the cost-of-living inevitably rises through artificial constraints on the supply of land and energy, the unionized government workers negotiate even higher pay and benefits to compensate, and the corporate monopolies that control existing supplies of land and energy get more revenue and profit. And of course the resultant asset bubble is healthy both for pension funds and wealthy investors, even as low and middle class private sector workers are priced out of owning homes – or even automobiles – and struggle to make ends meet.

The power of public employee unions starts with the fact they collect and spend more money than any other special interest. In California they collect well over $1.0 billion per year in dues and fees. About one-third of that money is reported as explicitly political spending – that’s over $600 million per two-year election cycle. The rest of it is still spent indirectly on politics, since all of their negotiating and public education campaigns concern how we manage our public institutions. The portion of this billion per year that goes to entirely nonpolitical activity is negligible.

With the best academic studies, political consultants, public relations firms, and lobbyists that money can buy, with political action committees that extend down to the most obscure local elections, government employee unions make or break candidates at every level in California.

It is crucial to perceive the irony. Government unions empower the worst elements of the capitalist system they persistently demonize. The crony capitalists and speculative financial interests benefit from an overbuilt, over-regulating, state and local government populated with overpaid unionized workers. Those virtuous capitalists who want to compete without subsidies are successfully lumped together with these robber barons, discrediting their support for reform. Those small business owners who want to grow their enterprises are harassed and marginalized.

If government employee unions were illegal, the most powerful political force in California would cease to exist. But it wouldn’t “turn California over to the corporations and billionaires.” Quite the opposite. It would take away the ability of those corporations and billionaires to collude with local and state government unions who currently control the lawmakers. It would force them instead to compete with each other, lowering the cost of living for everyone. It would restore balance to our debate over environmental policy, energy policy, and infrastructure investment.

Government unions have taken over California. Their agenda is inherently in conflict with the public interest, their rhetoric is compelling and formidable and utterly deceptive, their financial power is immense. They are turning California into a feudal state, where the anointed and compliant corporations build monopolies, government workers lead privileged lives, the rich get richer, the middle class diminishes, and the poor become dependent on government. Nobody who is serious about reversing California’s decline – or America’s potential decline – can ignore the fundamental enabling role unionized government is playing in its demise.

*   *   *

Ed Ring is the executive director of the California Policy Center.

Conservative Politicians and Public Safety Unions

As reported by investigative journalist John Hrabe, conservative gubernatorial candidate Tim Donnelly has accepted money from public safety unions in his legislative campaigns. His support from unions wasn’t a momentary lapse in judgement. As cited in Hrabe’s reports, his past candidacies have also benefited from independent expenditure campaigns funded by public sector unions. To not report Donnelly’s actions here would be negligent. But Donnelly’s not alone.

An assembly candidate from Orange County, conservative Keith Curry, recently lost the endorsement of the conservative Orange County Lincoln Club for accepting a donation from the Orange County Firefighters Union. Apart from the Orange County Lincoln Club’s dramatic decision to hold Curry accountable, none of this is news. While public sector unions virtually control the Democratic party in California through campaign contributions and lobbying, public safety unions spread their money around to candidates from both parties.

The consequences of allowing labor unions to take over California’s cities and counties through political spending that dwarfs every other special interest should be obvious by now. Public sector unions are the brokers and enablers of other special interests – corporate, financial and environmentalist. In all cases, these special interests have an agenda to squelch competition and secure government favors. Public sector union power makes or breaks any candidate or policy agenda from any other source. The other special interests get the message, and play ball. The results are higher prices for consumers, higher costs on small businesses, and higher taxes for everyone. Meanwhile, large corporations and financial interests profit, and public sector union members get increased pay and benefits that effectively exempt them from these harmful effects.

Such abstractions are largely irrelevant to politicians who need money to run their campaigns. They know that rank and file conservatives love public safety employees because they do tough work, fighting crime and catastrophe, facing danger every day, serving and protecting the public. Of this, one can say without irony, what’s not to like? But public safety unions take advantage of the sentiments of loyalty and respect their members have earned from the public, and have used it to elevate their pay to unaffordable heights. Libertarians, of course, can also be manipulated by public safety unions. After all, who cares if nearly 100% of a city’s budget is for police and fire services, if those are the only “legitimate” services a local government ought to provide? But should a double standard apply? Should most public sector unions be opposed, while public safety unions get a pass?

The challenge for conservatives is two-fold. First, whatever money they don’t accept from public safety unions they will have to replace through contributions from somewhere else. But there is nothing available to them that comes anywhere close to the torrent of money that perennially flows from the pockets of taxpayers into the payroll departments of government agencies and then automatically transfers into the coffers of public sector unions. In California over $1.0 billion per year is collected by public sector unions – one third used explicitly for politics, two-thirds utilized for an inherently political agenda, negotiating how we manage our public institutions and compensate our public workers. Public sector unions play in every political contest because they can, and because every election, no matter how insignificant, directly affects their interests. Nobody else even comes close.

The other challenge for conservatives is equally daunting. How do you make the entirely legitimate but woefully awkward argument that you support public safety, even though you oppose public safety unions? How do you express your appreciation for the risks and sacrifices made by public safety employees, at the same time as you argue that their pay and benefits have grown to levels we can’t afford, and in many cases are inequitably high?

One way to make this argument – along with simply stating the above points – is to remind members of public safety that even without collective bargaining and unions, they will still have significant political influence. Totally voluntary associations of public safety employees can still collect dues and donations, voluntarily, from members, and they can still engage in political spending. But without collective bargaining, at least the politicians they help elect would not be bound by the strait-jackets of labor agreements that are wreaking financial havoc on nearly every city and county in California.

There remains the larger, more abstract but very compelling argument that Donnelly, Curry, Brulte, and every other conservative in California who engages with unions ought to articulate. Unions, especially public sector unions, negotiate over-market compensation at tremendous cost to everyone else. And the intrinsic agenda of public sector unions, bigger government, is compatible with the agenda of crony capitalists, financial opportunists, and environmentalist extremists with their army of plaintiff attorneys, but this agenda hurts everyone else.

There is another, higher path, which is to dissolve public sector unions altogether, so that government workers and private workers share the same fate. This will facilitate grassroots political activism undistorted by government union agenda. Activism that will force corporations to compete, force governments to live within their means, inspire debate over government entitlements that are financially sustainable and earned according to the same formulas by all workers, increase opportunities for small businesses, and lower the cost of living for everyone.

*   *   *

Ed Ring is the executive director of the California Policy Center

RELATED POSTS

When Will Conservative Candidates Stop Accepting Public Sector Union Money?, May 12, 2014

The Unholy Trinity of Public Sector Unions, Environmentalists, and Wall Street, May 6, 2013

Public Pension Solvency Requires Asset Bubbles, April 29, 2014

Construction Unions Should Fight for Infrastructure that Helps the Economy, April 1, 2014

Forming a Bipartisan Consensus for Public Sector Union Reform, January 28, 2014

A Policy Agenda for Union Reformers Stuck Inside Unions, November 5, 2013

Why Did the California State GOP Accept Donations from Public Sector Unions?, October 8, 2013

Avoiding the Oversimplifications of ‘Right Wing’ vs. ‘Left Wing’, December 16, 2013

How Unions and Bankers Work Together to Protect Unsustainable Pensions, November 26, 2013

How Public Sector Unions Skew America’s Public Safety and National Security Agenda, June 18, 2013

Should Police and Firefighters be Exempted from Union Reforms?, March 12, 2013

The Preexisting Political Advantage of Government Workers, November 27, 2012

Would ANY Public Sector Union Reform Appeal to California’s Democrats?, February 12, 2013

The Ideology of Public Sector Unions vs. Private Sector Unions, February 20, 2012

The Differences Between Public and Private Sector Unions, May 13, 2011

Crony Capitalism – California Style

It’s good to be in with the “in” crowd, especially when the “in” crowd is made up of Sacramento politicians capable of doling out millions of dollars in tax credits.

Those currently in with the “in” crowd include any industry or company that can somehow attach “green” to their credentials. This helps explain why the state just provided the successful Tesla electric car company a $35 million tax subsidy. Yes, contrary to Kermit the Frog’s song “It’s Not Easy Being Green,” in California, it is easy being “green” because lawmakers are anxious to lavish benefits, at taxpayer expense, on those who claim a chlorophyll connection.

While the rumors that Kermit has applied for tax credits based on his being green are probably pure fiction, his parent company, Disney, may be about to apply for a handout based on their glamour factor.

That’s right, the glamorous are also part of the Sacramento “in” crowd, and nothing is more glamorous than Hollywood. That’s why Democratic Assembly members Gato and Bocanegra have introduced what they are calling the California Film and Television Job Retention and Promotion Act, legislation to extend and expand a state program that provides tax credits to movie makers who are chosen through a lottery. Until now, these subsidies have been limited to $100 million annually, but we may be about to see this outlay nearly quadruple.

Backers of more money for Hollywood justify this generosity at taxpayer expense by saying that other states are luring away cinema production with tax breaks and we need to keep those industry jobs here in California. However, many of the studios that are now clamoring for a handout are the same ones that have supported higher state and federal taxes on others – studios contributed generously to help pass Proposition 30 in 2012, which was a $6 billion annual tax increase on Californians. And what about the powerful Hollywood Left? Imagine how they would react if, for example, bankers were lining up for tax credits. We’d hear all kinds of shrill accusations that the “one percenters” were trying to rob us blind. But when the wealthy entertainment industry moguls want access to taxpayer cash, the Left is so quiet one can hear the chirping of crickets.

Meanwhile, in the real world, if you own a restaurant, hardware store, barber shop or any one of hundreds of other business not considered green or glamorous, don’t expect to get a tax break from Sacramento any time soon, even if you are non-polluting, employing several employees and providing an important service to the community. Sorry, but like the unattractive people in line to gain entrance to a posh dance club, you lack glamour and will be deemed a mere “commoner.”

So here is a suggestion that will make sense to everyone except those wealthy interests already feeding at the Sacramento trough. Let’s stop taxing most Californians more for the purpose of taxing influential, special interests less. Let’s lower the tax burden on everyone, not just the favored few who are in with the Sacramento “in” crowd. Let’s make our state a destination for new business, a state where existing businesses want to expand and not continue as a place from which businesses, not receiving corporate welfare, are fleeing.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Not All State and Local Cronyism Involves Unions

Editor’s Note:  We add one caveat to this excellent perspective from Hunter Lewis: If you are a crony capitalist in California, and you are lobbying the politicians for government contracts and favorable legislation – then you are also lobbying the public sector unions who control these politicians. At a minimum, most of California’s major corporations are in detente with the public sector unions as a prerequisite for doing business in the state.

Valerie Jarrett, best known as President Obama’s most intimate White House Advisor, turned a job in the Chicago mayor’s office into a personal real estate holding worth as much as $5 million. This is not unusual. Big real estate deals in major American cities are the mother’s milk of politics. Developers get rich from special tax and other deals, politicians get campaign contributions, and former politicians or former aides charge for access.

Here is one way it is done:

Step 1:  Collect property taxes in a “redevelopment” agency.

Step 2:  Use these funds to subsidize favored developers or businesses.

Step 3:  Or use these funds to build major projects which favored developers or businesses can buy at deep discounts.

Step 4:  Waive property taxes.

Step 5:  In some cases, promise payments to a new business coming in equal to whatever their employees pay in state or local taxes.

All this and more has happened in Los Angeles. No wonder local retail developer Jose de Jesus Legaspi says “It’s extremely difficult to do business in Los Angeles. . . . Everyone has to kiss the rings of the [City Hall politicians.]”

Sometimes, like Valerie Jarrett, the political dons do not wait to leave office before enriching themselves personally. And sometimes this is not done with any subtlety. In the town of Bell, CA, the city manager was caught paying himself $1.5 million (salary and benefits) a year, with a $600,000-a-year pension obligation. An assistant manager was paid $845,960, the police chief $700,000 (while laying off police), and city councilmen $100,000 for part-time “work.” After all this came to light, the top three offenders were forced out and the city councilmen cut to $10,000.

To emphasize the point that not all state and local cronyism involves unions, one need only look at union-unfriendly Texas. Here is what Dave Nalle, secretary of the in-state Republican Liberty Caucus, says about Republican Governor Rick Perry:

Perry . . . loves to use taxpayer money to subsidize his business cronies. . . . His supposed belief in limited government and in states’ rights conveniently disappears whenever it conflicts with the demands of the special interests and corporate cronies he serves.

Nalle also recounts how Perry set up the Texas Enterprise Fund and Texas Emerging Growth Fund which enabled him to pour at least $43 million of the $700 million funds into alleged crony businesses.

We have already described in an earlier chapter how Perry mandated a dangerous vaccine for teenage girls while taking money from the vaccine’s manufacturer. When FEMA and other federal disaster funds became available after Hurricane Katrina, Perry allegedly tried to divert them to his allies. The Obama administration objected, but a “deal” was struck on $3.2 billion of allocations. The Governor’s wife, Anita, has worked as a fundraiser for the Texas Association Against Sexual Assault. This group receives donations from state agencies, including the governor’s office, as well as from Perry political donors.

Although much of the cronyism at the state and local level involves unions, developers, or other business interests, nonprofits are often part of the action. The Academy of Nutrition and Dietetics, formerly the American Dietetic Association, has been trying for years to set up state licensing boards that would, in effect, create a nutritional counseling monopoly for its members. The organization already has a monopoly on Medicare reimbursement, achieved by careful cultivation of federal contacts over the years, and monopolies on advising hospitals, prisons, and schools on food programs. The nutritional value, much less the taste of most hospital and school food, run by AND members, speaks for itself. In addition, AND members need only hold a college degree, so that the effect of AND’s restrictive state licensing efforts is often paradoxically to exclude nutritionists with masters and PhD degrees.

The theme of eliminating or trying to eliminate competition through deals with state or local legislators is a familiar one. In New Jersey, when the president of the Liquor Store Alliance was asked why state law does not allow microbrew pubs, he replied that he didn’t mind giving the microbrews a few breaks, but “what we don’t want to do is become competitors with one another.”

In addition, in Louisiana, a state funerals board (eight of whose nine members were from industry) ruled that the monks of St. Joseph Abbey in Covington could not continue to make simple, handmade pine and cypress caskets. In Nashville, Tennessee, taxi companies persuaded the city to require a minimum $45 charge for any limo ride, to regulate the age of any limo used, and to forbid cell phone dispatching, which is what new limo companies or drivers do. In Chicago and Washington, DC, the use of a cell phone app by a new service named Uber set the taxicab commission to fuming and the established companies to suing. The DC City Council proposed an amendment that would have legalized Uber, but only if the minimum charge was five times the average taxi cab fare.

The purpose of all these laws is to limit competition, restrict the number of competitors, bar new entrants, and thus protect established companies with ties to politicians. In Virginia, interior designers are required to get a four-year design degree, intern with a licensed designer for two more years, and pass an exam before applying for the certification needed to work. Hairdressers in most states have to jump through numerous such hoops. Sometimes local authorities have an additional motive: to collect fees or taxes. Philadelphia has sent out notices to local internet bloggers informing them that they owe a $300 city business license fee.

In this atmosphere, the only certain growth industry seems to be political lobbying. Everyone needs a lobbyist. Even governments need lobbyists, since local governments must troll for deals with the state government and both local and state governments must troll for deals with Washington. For the decade ending 2010, local and state governments reportedly spent $1.2 billion on federal lobbying. There were 13,000 registered lobbyists working in Washington, but the total number of people seeking to influence legislation is far greater.

About the Author: Hunter Lewis is co-founder of AgainstCronyCapitalism.org. He is co-founder and former CEO of global investment firm Cambridge Associates, LLC and author of eight books on moral philosophy, psychology, and economics, including the widely acclaimed Are the Rich Necessary? (“Highly provocative and highly pleasurable.”—New York Times) He has contributed to the New York Times, the Times of London, the Washing­ton Post, and the Atlantic Monthly, as well as numerous websites such as Forbes.com and RealClearMarkets.com.

Crony Capitalism vs. Public Pensions

A new union-sponsored study lowballs today’s pension costs by around two-thirds and overstates the net costs of corporate welfare.

The Washington Post’s Lydia DePillis recently reported on a new union-sponsored study from Good Jobs First that claims that corporate welfare payments from state governments dwarf the costs of public employee pensions.

To begin, we shouldn’t take this corporate welfare/public pensions link all that seriously. There’s no actual, causal relationship between them. If public sector pensions are excessively generous, they ought to be curbed, regardless of cost pressures. And, in my opinion, we should cut corporate welfare too — crony capitalism is no better than sweetheart deals for public employee unions.

But the Good Jobs First report is also wrong in how it compare costs. The report comes to its startling conclusion by a) understating the costs of public employee pensions; and b) overstating the net costs of corporate welfare.

Let’s start with pension costs. A government’s Actuarially Required Contribution (ARC) has two parts: first, the “normal cost,” which is the contribution the government makes to cover pension benefits accruing to employees in that year; and second, “amortization costs” to pay off unfunded liabilities accruing in prior years.

Both the normal cost and amortization costs are part and parcel of the pension’s costs. When a government promises employees a benefit, it is not just making a contribution today. It is taking on the contingent liability to increase contributions in the future if the plan’s investment returns come up short. But the Good Jobs First study counts only the normal cost of pensions. Amortization costs are excluded. (This wasn’t accidental; you have to know what you’re doing to pull these numbers out of pension reports.)

Let’s illustrate with Arizona, just to pick the first state in the report. In Arizona’s main state employee plan, the ARC including amortization costs is 1.6 times larger than the normal cost alone. So this is a pretty large misstatement.

The natural response from Good Jobs First would be that amortization costs aren’t a part of today’s pension costs, but just reflect unfunded liabilities from the past. Fine. But then in calculating today’s normal cost, you need to account for the risk that the plan’s investments won’t produce their assumed return (8 percent in Arizona’s case) and the state will need to pony up additional funds in the future.

Economists do this by recalculating the normal cost using a lower interest rate to reflect this guarantee made to pension participants. For example, if you assume a 4 percent yield for long-term U.S. treasury bonds, the normal cost of a pension would roughly triple versus using an 8 percent return assumption. That tripling reflects the full cost of the liability the state is taking on and the full value of the benefits promised to employees. This approach is used by the federal Bureau of Economic Analysis in analyzing state/local pension liabilities, and has been effectively endorsed by the Congressional Budget Office, the Federal Reserve, and the vast majority of professional economists. So roughly speaking, Good Jobs First is low-balling today’s pension costs by around two-thirds.

But Good Jobs First also exaggerates the costs of corporate subsidies. The reason that states offer such subsidies is because their benefits outweigh the costs, say, by attracting businesses and jobs to the state. Now, I’m very willing to accept that this isn’t the case, which is why I think we should eliminate most corporate welfare. But the Good Jobs First study assumes that the benefits of these corporate subsidies are zero, which almost certainly isn’t the case. Some jobs and businesses are created by corporate subsidies, even if the benefits aren’t worth the costs.

So yes, if you understate pension costs and overstate corporate subsidies, then pensions cost a lot less than corporate subsidies. I bow to no one in disliking corporate welfare, but the fact that the union-sponsored Good Jobs First had to go to such lengths shows exactly how expensive public employee pension plans have become.

About the Author:  Andrew G. Biggs is a resident scholar at the American Enterprise Institute.

David Stockman: The Triumph of Crony Capitalism

David Stockman former budget director for President Reagan, appeared on Bill Moyers and presented his message about money, Wall Street financiers, and crony capitalism.

Link: David Stockman on Crony Capitalism

Money dominates politics, distorting free markets and endangering democracy. “As a result,” Stockman says, “we have neither capitalism nor democracy. We have crony capitalism.”

Stockman shares details on how the courtship of politics and high finance have turned our economy into a private club that rewards the super-rich and corporations, leaving average Americans wondering how it could happen and who’s really in charge.

“We now have an entitled class of Wall Street financiers and of corporate CEOs who believe the government is there to do… whatever it takes in order to keep the game going and their stock price moving upward,” Stockman tells Moyers.

Click on the above link for a full transcript. Here are a few select quotes.

DAVID STOCKMAN: A massive amount of resources are being devoted, being allocated or being channeled into pure financial speculation that has no gain to society as a whole, has no real economic contribution to the process by which GNP is created, GDP is created and growth occurs.

By 2007 40 percent of all the profits in the American economy were coming from finance companies. 40 percent. Historically it was 15 percent.

So the financialization means that as we attracted more and more resources and capital, and we made speculation easier and easier, and we funded it with almost free overnight money, managed and manipulated by the Fed, that’s how the economy got financialized. But that is a casino. Casinos — they’re, you know, places for people to go if they want to speculate and wager. But they’re not part of a healthy, constructive economy.

BILL MOYERS: What do you mean by the free money that banks are using overnight?

Well, by that we mean when the Fed, the Federal Reserve sets the so-called federal funds rate at ten basis points, where it is today, that more or less guarantees banks can go into the Fed window, the discount window, and borrow at ten basis points.

And then you take that money and you buy a government bond that is yielding two percent or three percent. Or buy some corporate bonds that are yielding five percent. Or if you want to really get aggressive, buy some Australian dollars that have been going up. Or buy some cotton futures. And this is really what has been going on in our markets.

The cheap funding, which is guaranteed by the Fed, the investment of that cheap funding into speculative assets and then pocketing the spread. And you can make huge amounts of money as long as the music doesn’t stop. And when the music stops then all of a sudden, the cheap, overnight money dries up. This is what’s happening in Europe today. This is what happened in 2008.

And then people are stuck with all these risky assets, and they can’t fund them. They owe cash to the people they borrowed overnight from or on a weekly basis. That’s what creates the so-called contagion. That’s what creates the downward spiral. Now, unless we let those burn out, it’ll be done over and over. In other words, if, you know, if a lesson isn’t learned, then the error will be repeated over and over.

BILL MOYERS: The Bush administration came to the rescue of some of the county’s largest financial institutions, to the tune of 700 billion tax-payer dollars.

DAVID STOCKMAN
: We elect a new government because the public said, you know, “We’re scared. We want a change.” And who did we get? We got Larry Summers. We got the same guy who had been one of the original architects of the policy in the 1990s, the financialization policy, the too big to fail policy.

Who else did we get? We got Geithner as Secretary of the Treasury. He had been at the Fed in New York in October 2008 bailing out everybody in sight. General Electric got bailed out. Morgan Stanley, Goldman Sachs, all of the banks got bailed out, and the architect of that bailout then becomes the Secretary of the Treasury. So it’s another signal to the financial markets that nothing ever changes. The cronies of capitalism are in charge of policy.

….

The Congress is owned lock, stock and barrel by one after another, after another special interest. And they logically say how can we expect, you know, anything good to come out of this kind of process that seems to be getting worse. So how do we turn that around? I think it’s going to take, unfortunately a real crisis before maybe the decks can be cleared.

BILL MOYERS: But on the basis of the record, the lessons of the past. The experience you have just recounted and are writing about. Do you see any early signs that we might turn the ship from the iceberg?

DAVID STOCKMAN: No. I think we’ve learned no lessons. We really have not restructured our financial system. The big banks that existed then that were too big to fail are even bigger now. The top six banks then had seven trillion of assets, now they have nine or ten trillion.

Rather than go to the fundamentals which have been totally neglected– we’ve simply kind of papered over the current system and continued the game of having the Federal Reserve and the Treasury if necessary prop up all of this leverage and speculation, which isn’t helping the economy.

And when we talk about zero interest rates. That’s not helping Main Street. Our problem in this economy is not our interest rates are too high. The zero interest rates are just more fuel for leverage speculation for what’s called the carry trade and that is causing windfall benefits to the few but it’s leaving the fundamental problems of our economy in worse shape than they’ve ever been.

In 1985 Stockman wrote The Triumph of Politics: The Inside Story of the Reagan Revolution. 30 years later Stockman laments…

“I was in the middle of being very disgusted with what my own Republican Party had done and what Bush had done and the Paulson Treasury. And then when I saw this, I got the title for my book, “The Triumph of Crony Capitalism.”

It’s so disappointing to see that the Obama administration, which in theory should’ve had more perspective on this than a Republican administration under Bush, to see that one, they appointed in the key positions the same people who brought the problem in: Geithner and Summers and all of those, and secondly, that Obama did nothing about it.”

Stockman’s new book, The Triumph of Crony Capitalism, rates to be a good one.

About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.