Thursday, May 14, 2009

It All Depends on Your Point of View

Another Thursday in the books which means it is almost Friday! Get your film, music, books, and general entertainment requests in for Friday night's post!

You Have to See It to Believe It
In the dark days when the entire banking system was about to collapse and American Idol was sure to be postponed, we mere mortals should have been resting easy knowing we are watched over by the very finest officials and banking CEO's.

Documents obtained by Judicial Watch show just how well thought out the banking bailout was and how meticulous a process it was to hand out Billions of dollars. All you need is a number 2 pencil and a few copies of a hastily put together "plan" and presto! Solvency restored!

You really must take a look at the documents to appreciate what I am talking about. Clusterstock has the copies here.

Looking at the almost elementary school language and scribbles of amounts and bank names I am reminded of those notes we all used to pass in grade school. You know, those small, tightly folded notes with such nuggets as "Do you think Teacher Mrs. Smith is a poopy head? Yes/No".

The Sequel to Inflation, Ex Inflation
Most times sequels pale in comparison to the first iterations of films and music. There are exceptions, but the rule holds true more often than not. We are able now to start to review the newest sequel, and this one is an economic one.

Think back to a time over the past few years when gasoline was rising in price like a rocket, food prices were screaming ahead, and inflation on the real consumer level (counting rising home price costs) was very high. At that time as the calculated inflation rates (CPI, PPI, etc) were reported we were treated to a very special interpretation of inflation by the bullish sort:
Inflation, Ex Inflation
This kind of inflation report strips out anything that went up in price. Stories routinely ran items like "inflation, minus volatile energy costs, rose very modestly over the past month" and many others just like it.

Never the sort to abandon a working idea, the media has now introduced the sequel:
Unemployment, Ex Unemployment
It seems not all recently fired workers are equal in the eyes of the media. An example of the kind of dual reporting we can now expect:
Economy's improvement is fitful, reports show
Jobless claims, producer prices rise more than expected as recession slowly eases grip
WASHINGTON (AP) -- A bit of sour news Thursday -- in the form of increased jobless claims and higher wholesale prices -- suggested the economy is moving in fits and starts even as the recession eases.
Analysts said the pace of unemployment claims should ease after auto industry layoffs are completed. Inflation, meanwhile, remains under control, and any threat of a dangerous bout of falling prices seems remote.
The number of new jobless claims rose to a seasonally adjusted 637,000, from a revised 605,000 the previous week, the Labor Department said. That exceeded analysts' expectations of 610,000.
Economists noted that initial claims remain below a peak reached in late March -- a sign that the wave of mass layoffs announced earlier this year likely has crested.
"This is yet more evidence that we are now past the worst," Paul Dales, U.S. economist at Capital Economics, wrote in a research note.
Most of the increase in jobless claims was due to auto layoffs, a department analyst said. Economists estimate Chrysler LLC has laid off 27,000 workers in the wake of its April 30 bankruptcy filing.
Elsewhere, Nike Inc. on Thursday said it will cut about 1,750 jobs worldwide, or about 5 percent of the shoe and apparel company's global work force. Nike in February said it was realigning its business and would cut jobs as the global recession hurt consumer spending. The company plans to complete the layoffs in the coming weeks.
Still, many economists expect the downward trend in jobless claims to resume once the effect of the auto industry's job cuts has passed.

There are many items in this short snippet to pay attention to.

First notice that even as unemployment numbers came in much higher than estimated, it is summarily dismissed as a non event because many of the layoffs supposedly came from the auto industry. The clear implication is that those jobs should not "count" in the "real" unemployment figures, hence Unemployment Ex Unemployment! A work of art.

Forget that the huge number of initial claims (over 600k) dwarfs the Chrysler and GM layoff number, never let facts get in the way of a good story. In the same story we see that Nike is laying off 5% of their workforce. Unless only auto workers buy Nike shoes, I think there are may be a connection with monster jobless claims and the economy.

Also notice that the recession has officially begun to "ease it's grip" on the economy. If the recession has eased up, I would like to see the memo this writer got that says so. At least in this environment rising food costs (eggs up HUGE) will help those that live in fear of Deflation to rest easy. I can imagine Ben Bernanke right now saying "I love eggs and quantitative easing sunny side up for breakfast".

It All Depends on Your Point of View
As I was thinking about this evenings post I was drawn back to my school days. I started thinking about a really great 5th grade teacher I had. This teacher started making me think using reason and logic and for that I will never forget him. He used to have the class write essays that made you use both your imagination and thinking skills to flesh out an answer to a weekly question. One such question was "What if strings hung from the clouds?". I remember writing something to the effect that those strings would be great because you could climb them and see a great view or use them for traveling (hey, I was in 5th grade).

Another question the class had to write about is a bit more relevant to tonight's discussion. The question was:
Do you eat to live or do you live to eat?
Now intellectually the answer is pretty obvious, but I remember having a rough time with that one in 5th grade.

I bring this up because I think we are seeing a similar type question being asked right now, and how you answer it goes a long way to revealing what you think about things economic.

Let me set the stage for the discussion.

By now you are aware that the state of California is having major budget issues. Mish calls California a "basket case" in a post today, that I will excerpt (with his excerpts) here:
MarketWatch is reporting California formally asks Geithner for TARP assistance
California Treasurer Bill Lockyer asked U.S. Treasury Secretary Timothy Geithner on Wednesday to authorize assistance for his state from the federal Troubled Asset Relief Program, warning that depressed tax revenues may cut into basic services and halt the building of infrastructure.
In a letter, Lockyer asked Geithner for TARP assistance for California and "other financially strapped states and local governments which face a severe cash flow crunch."
"If we cannot obtain our usual short-term cash-flow borrowings, there could be devastating impacts on the ability of the State or other governments to provide essential services to their citizens," Lockyer wrote.

LA Mayor To Declare Fiscal Emergency
Meanwhile, Villaraigosa calls on City Council to declare a fiscal emergency.
With Los Angeles facing a $529-million budget deficit, Mayor Antonio Villaraigosa on Tuesday urged the City Council to declare a fiscal emergency that would grant him the authority to lay off and furlough thousands of city workers.
The request signals a more hard-line tack by the mayor to win salary and benefit concessions from the city's public employee unions, which had soured on Villaraigosa's call for a salary freeze, furloughs and increased benefit costs to save $230 million and avert the need for layoffs.


And with these stories in mind the question is:
Do governments exist to provide services for the citizen taxpayers or do citizen taxpayers exist to provide jobs and benefits for public employees?

At first blush the answer may seem obvious. In reality the line of demarcation is blurred.

Services expected by the citizens of any state (or the USA as a whole) for their tax dollars are simple. Sanitation, education, protection (legal and physical), and basic infrastructure are the standouts. These services should be provided at bare bones costs to limit the drain on private funds. Over time government the country over have gone above and beyond to include many other services that I will not list as they are too many in number and usually elicit string responses both for and against.

The point is that in many states and the US Federal Government as a whole it now seems like the very purpose of the citizenry is to provide funds to support state and federal jobs. Consider the hard line the unions of California are taking. It does not take college educated Harvard business school trained grads to do trash pick up or toll collection. Those basic services could be "shopped out" and at probably 1/5th the cost of state union worker salary and benefits. Yet the unions are refusing to give ground because they want what they see as their just price.

Even as California is facing bankruptcy and possibly being locked out of the bond market, they do not try to break contracts and cut pay but instead plead for TARP money and Federal backing of their debt sales to maintain the status quo for their employees no matter the costs to the taxpayer. This process is in motion all over the country.

So now the question as asked is a bit harder to answer, is it not?
Do governments exist to provide services for the citizen taxpayers or do citizen taxpayers exist to provide jobs and benefits for public employees?
The answer is not so clear after all.

We can extend this line of queries even further. Consider:
Do banks and investment servicers exists to provide the citizens with a safe haven for their money, reasonable investment advice, access to credit, and transaction support or does the citizenry exist to serve as exploitable resources for use as capital by banks to go after huge bonuses and risk taking?

Again, at first the answer is easy, but when you really consider how the game is played things get a little confusing.

The answers to both questions will depend largely on your point of view. If you are living off taxpayer dollars you probably feel like joe six pack is getting a steal for your efforts and you cannot understand what the problem is. If you are a banking big shot you probably cannot fathom why nobody appreciates your great skill and courage to wade into the jungle of finance.

If you are just a regular privately employed man/woman on the street you are probably wondering why almost 40% of you "earnings" disappear to taxes and you see very little for all that lost income. After getting shellacked for loses in the market you may wonder why those behind the loses never seem to take a pay cut.

Interesting questions indeed. Keep these questions in mind as events continue to unfold and you will see that your point of view is just as important as the show you are watching.

Addendum
Absolute must read is here.
Now I know I am an idiot for doing things the "right" way.

Have a good night.

8 comments:

getyourselfconnected said...

I really liked the post tonight, I wish I had more time to fully develope it but I think it stands as is. Check out that NY times article, enough to get you crazy!

Anonymous said...

Gysc

I worked for the city I lived in in CA in the early 80's trust me I was way over paid and way under worked, 14 paid holidays a year, vacation, pension plan, great insurance which even paid for my second to the youngest daughters birth even after I have left my brief 5 month stint with them. I still have money in Calipers.

I made the move into the oil business for even more money, good benefits, some holidays, good vacation and all that but that job at the city was still one of the best I have ever had for the hours actually worked for what I received in return.

I think just as in the great Depression the people that will come out of this in great shape and benefit from it will be Federal employees.

My daughter is a correctional officer in CA and I always tell her she doesn't pay taxes she is the tax. I'm glad I got the hell out of the golden state when I did.

How about Eric Bogle - The Band Played Waltzing Matilda for Friday

It ain't rock but it reminds of the insanity, cost, and who pays the price in the end of all government policy

Kevin

Anonymous said...

Gysc

As far as unemployment here is a good site to see the daily collateral damage http://www.layoffdaily.com/

Not a lot of Auto layoff in this group it doesn't look like to me.

Kevin

Anonymous said...

The crisis we are in began as a financial one – stock markets, real estate, commodities. Then it became a money crisis – banks, credit, rates and bailouts. Next it turned into an economic crisis – bankruptcies, job cuts, deflation, losses.

And next, worst of all, a social crisis. Unemployment, lost homes, frustration, despair, violence.

That’s the nightmare scenario for politicians, and it’s being made more real by a dangerous and growing sentiment among the population that the worst is behind us. As detailed here, this is a message being pounded daily by the self-serving media looking for revenue, by the real estate industry seeking survival, by presidents, prime ministers and central bankers searching for time and by the ill-informed who want the clock to turn back a year or two, without consequences.

Ironically, the more people who believe we have bounced off the bottom and are on the road to a solid and stress-free recovery, the more difficult will be the months ahead. The greater the disappointment. The sharper the reaction to the losses yet to come. Yes we will get out of this mess, but not next year or the year after. And, no, the world will not be the same. The only cure for what afflicts our society is the destruction of debt. So those who live by borrowed money may well die by it.
http://www.greaterfool.ca/

Real Estate is booming in Canada again and it will all come crashing down on top of these kids like a ton of crap.
Garth's site is a great daily read.

Kevin

Tim said...

Here's something related: Unions vs. Taxpayers

GawainsGhost said...

To answer your first question, as a libertarian, constitutional government exists to provide for the common defense, promote the general well being of society, and protect the citizens from fraud. All three are in a sense equally important, but it is in the latter that the current manifestation of government has utterly failed.

I don't think government exists, or should exist, to provide services. Yeah, it's necessary for building and regulating the infrastructure of society--roads, power lines, schools, hospitals, courts, and what have you--but that falls under its province of promoting the general well being. However, the social contract has been largely destroyed by the metastasization of government into a service provider that now exists solely to perpetuate itself and expand into other areas not of its province.

Recently Naked Capitalism has been running articles by Pension Pulse that clearly indicate public pension plans are woefully underfunded and overly generous in their benefits, most of which are unsustainable. So the question answers itself. Private citizens are now the debt slaves of public employees. At least until the entire system goes bankrupt and collapses under the weight of its own insolvency.

I'm self-employed. That means I have to pay the whole nut in social security, medicare and income taxes; there is no witholding for me. If every citizen had to sit down and write an obscenely large check and mail it to the IRS, as I did last month, there would be an armed revolution in this country, with politicians and public employees hung in effigy.

The public sector cannot sustain itself without funding from the private sector. That much is obvious. But when the social contract between the government and the citizenry breaks down, and the public sector becomes more of a burden than a benefit to society, then something is going to have to give. And it won't be pretty.

I don't think the private sector will go John Galt as much as I think the public sector will go Richard Cory.

http://www.youtube.com/watch?v=-KNcgXKFp7E

To answer your second question, back in the 70s and 80s my father designed, wrote and installed the computer system all the banks down here run on. He once told me, "Son, I've never met a banker who wasn't a complete idiot." And from what I've seen over the last few years, he was exactly right.

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