When compromise and experts are dangerous

With a title like, "Are Economists Really That Smart" I had to read Bill Flax's piece in this month's issue of Forbes magazine, especially after digesting his first sentence, "Remember when Joe Biden admonished us to keep spending or else we'd go bankrupt?"  Mr. Biden's statement reminded me of something Nancy Pelosi uttered before enactment of the unpopular Obamacare legislation affecting 1/6th of our national economy.  Of course, Joe Biden and Nancy Pelosi are not trained economists, nor am I, but these people are running the country.  This clip is only two seconds...

My timing to read the aforementioned Forbes piece was good since I'd just finished fighting my way through Nassim Taleb's best selling book, The Black Swan.  (I say "fighting" because several technical aspects are beyond me).

In their own ways, Messrs. Flax and Taleb fillet and roast the cadre of economists, public policy-makers and financial journalists who worship at the Keynesian alter.  Living within one's means and free market principles are concepts ignored, even ridiculed, by economic intelligentsia as they advocate for trillions in "stimulus".  

Their voices clamor for more government spending.  The reason QE2 failed, according to these experts, is that the sum wasn't large enough and all the fresh liquidity wasn't given enough time to work.  On the other hand, economists like Nassim Taleb see the economic calamities we now face through a different lens.  But back to the Forbes, piece.  

Mr. Flax says of economics and its modern day application to fiscal policy, 

"The principal failing of macroeconomics is the intrusion it invites and the certainty it instills in politicians...no planner, no matter how wise, could possibly appreciate all the subjective nuances lurking behind these numbers.  Such schemes are doomed to folly."

There also exists today, a notion that Pols sparring over fiscal policy must "compromise" as if the key to solving our economic morass falls in the middle of some ideological bell curve. 

Icon by Creatype at freepik

Compromise might produce added legislation, but it won't cure a deficit spending addiction.  Consider Nassim Taleb's eighth principle for a Black-Swan-Robust Society,

"Do not give an addict drugs if he has withdrawal pains.  Using leverage to cure the problems of too much leverage is not homeopathy, it's denial.  We need rehab."

1900 advertisement treatment for morphine addiction - Wikipedia

The same metaphor I used in January of 2009 (and used elsewhere by others) of a drug addict who needs to take the pain, was also used by Dr. Taleb.  

The point is one cannot compromise with a drug addict, they only come back for more, which is why we must lower federal spending.  Tax increases and money printing are analogous to a government's morphine fix -- it feels good for a while, but it only makes the problem worse before the inexorable crash.  We must go cold turkey and take the pain incrementally.  

Conflicting voices about the debt crisis

The official position of this blog remains that the United States does not have a revenue problem, it has a spending problem. 

I spoke with Rep. Jim Sensenbrenner at a local Town Hall Meeting last April about an idea advanced by Tim Pawlenty to avoid default without raising the debt limit.  The U.S. Treasury has the power to sequence (i.e. prioritize) payments when bills come due.  So debt holders can indeed be paid first to avert default and buy time while a budget patch is passed.  The idea has been roundly ignored or dismissed as impractical.  Of course, the U.S. government also has over a trillion dollars worth of other assets much of which could be liquidated to pay bills, but that's another post.

Guy tilling soil in front of Financial Temple - Wikipedia

The debt markets have not been as restive as the equity markets.  Bond markets know that the administration would not pull the financial temple down on our heads and allow a default, because it is not in the politicians' interest to do so.  The Obama administration would have little choice but to play the payment sequencing card to avert financial Armageddon. 

Treasury Secretary Tim Geithner does not believe the Treasury possesses this ability.  A blog called FairlyConservative.com points out the bluff by citing some July 25th reporting done by Charlie Gasparino.  

What happened two days ago?  Bloomberg News and others reported that "...the Treasury Department will disclose its list of spending priorities in the event the debt limit isn't raised before August 2nd."  Apparently, the rating agencies warn against doing this (the same folks that did such a fine job assigning risk before the housing market cratered).  In the macro-scheme of things, it really wouldn't matter much according to David Wessel, and others. 

I don't want a credit downgrade to occur like Neil Cavuto and I understand the impact on our borrowing costs, but it might be more of a political risk than an economic risk which is a view expressed rather well in this blurb from Politico.

I'm listening to Bloomberg Radio and an interview with Mohamed El-Erian.  Dr. El-Erian understands the bond markets which at this juncture, are a more reliable indicator of danger than political sideshows that reap so much media attention.

The Truth About Wisconsin's Collective Bargaining 'Rights'

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Published in American Thinker - 4.3.2011

By Tim Peterson, Robert J. Simandl, and John J. Maddente

Right: noun: a just claim or title, whether legal, prescriptive, or moral. 

That's the definition of the word used in connection with Wisconsin's government union employees and their demands to retain collective bargaining privileges.  This issue more than any part of the Budget Repair Bill, has captured the nation's attention.

For weeks, we've heard demonstrators beating drums in Madison and equally vocal sympathizers in the media admonish anyone listening about "rights" of government union employees and the turmoil visited upon "the middle class" due to the Governor's Budget Repair bill.  We've also seen polls suggesting public support for some of their views. 

We do not believe that: 1) government employee collective bargaining constitutes a "right" by any reasonable measure, or 2) poll data spewed out by parts of the media has been properly framed, or useful to gauge public opinion. 

According to Encyclopedia Britannica, collective bargaining is

"A process of negotiation between representatives of workers (usually labor union officials) and management to determine the conditions of employment. The agreement reached may cover not only wages but hiring practices, layoffs, promotions, working conditions and hours, and benefit programs."

Further into the root of the issue, according to West's Encyclopedia of American Law, edition 2, in Constitutional Law rights are classified as natural, civil, and political. Natural rights are those that are believed to grow out of the nature of the individual human being such as rights to life, liberty, privacy, and the pursuit of happiness. Civil Rights belong to every citizen of the state, and are not connected with the organization or administration of government.

Political rights entail the power to participate directly or indirectly in the establishment or administration of government, such as the right of citizenship, the right to vote, and the right to hold public office.  Nothing in Wisconsin's Declaration of Rights (found in the State Constitution) guarantees a right to collective bargaining for any citizen, yet the reaction coming from government unions sounds as though the 1857 Dred Scott decision was dropped on them to enshrine slavery. 

One point appears lost in this discussion of "rights" (even coming from some commentators who supported the bill's passage).  Neither the U.S. Constitution nor Wisconsin's Constitution identifies collective bargaining as a right.  One can argue for an amendment at the state level -- and some advocates have recently done so -- but you can't credibly maintain that the legal equivalent presently exists. 

Therefore since collective bargaining is neither a natural, civil, nor political right, at best it is a right only in the colloquial sense of the term and merely a privilege in a purely constitutional sense.  It is a privilege in our view that has been badly abused in Wisconsin to the detriment of state taxpayers.  Collective bargaining actually denies the individual employee -- who might otherwise choose to decline a contract, or even decline the requirement to bargain collectively -- an ability to act independently, yet many continue to refer to this bargaining mechanism as a right.

While the recently enacted bill has caused much consternation, what it actually will do is replace collective bargaining with distributed bargaining and push down negotiations to the local school district levels -- where, in our view, they belonged in the first place.  We are bothered by the oft-used phrase of an "assault on the middle class" believing as we do, that it is not an assault on government employees who possess Cadillac health care benefits and retirement plans the rest of us only dream of.  Further, at 15% of the workforce (and even less of the populace), they hardly constitute the sweeping characterization we often hear as -- "Wisconsin's Middle Class."

The fact is, at the local level in many rural Wisconsin communities, public employment has become a fiefdom of privilege where, owing to binding interest arbitration based upon comparability, the never-ending spiral of wage and benefit improvements often results in local government compensation exceeding community "middle class" standards. The need to bargain virtually every operational issue makes implementing policy decisions and providing services a protracted struggle, often ending in grievance arbitration.

Perhaps this is why President Franklin D. Roosevelt, the patron saint of the American labor movement warned:

"All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations...The very nature and purposes of Government make it impossible for...officials...to bind the employer...The employer is the whole people, who speak by means of laws enacted by their representatives."

We believe by limiting Collective Bargaining, the legislature has enriched individual workers ability to work where they want and associate and negotiate with whom they choose and taken steps to reign in runaway costs.

We also take issue with the way poll takers have tried to report public opinion, and trumpet results.  Consider the USA Today/Gallup poll asking respondents, "Would you favor or oppose a law in your state taking away some collective bargaining rights of most public unions, including the state teachers union?"  Their poll data revealed that 61% of respondents said "oppose" and so the Feb. 22^rd article title in USA Today blared, "Poll: Americans favor union bargaining rights"

We say -- not so fast.  In the first place, a more reasonably framed question would have been,

Would you favor or oppose a law in your state that substituted some collective bargaining privileges, including those of the state teachers union, with a move toward local bargaining?* 

The aforementioned USA/Gallup poll also indicated that 71% of us do not favor any tax increases as a means to reduce state budget deficits.  The problem with the USA/Gallup poll and those who like to seize only on responses to the first question mentioned above, is that they fail to ask respondents to choose between tax increases or spending cuts, as an either or proposition. Assuming we want present government employee staffing levels, we must choose between reducing costs, and levying tax increases for taxpayers.

A few commentators maintain that the $3.6B structural deficit Governor Walker inherited, does not actually mean our state is broke.  Of course the state can simply borrow more, raise taxes and user fees, engage in more accounting gimmickry (e.g. raiding segregated funds to close budget gaps), or some combination thereof.  That's what we have been doing for decades by kicking the proverbial can down the road. 

Change is never easy, but meaningful reform has come from duly-elected officials in Madison, Wisconsin.  We applaud our Governor and the Republicans for their leadership in standing for fiscal restraint and we remind our fellow taxpayers this boils down to a debate over controlling costs. Too much deficit requires lower and sustained limits on government employee benefits -- just like in real life where private businesses and taxpayers dwell. 

*Question shortened form published version.

Tim Peterson is a Milwaukee businessman and former Libertarian Party Candidate for US Senate, Robert Simandl is a Wisconsin attorney practicing employee benefit, labor and employment law and John Maddente is a Milwaukee businessman and former community columnist.

Letter to USA Today and Gallup published at Examiner.com 3.31.2011

Dear Madam or Sir,

I take issue with the way Dennis Cauchon (and others in the media) have reported upon public opinion in Wisconsin, and summarized results.  Consider your USA Today/Gallup poll asking, “Would you favor or oppose a law in your state taking away some collective bargaining rights of most public unions, including the state teachers union?” 

Apparently, 61% of your respondents answered “oppose” and so Mr. Cauchon’s February 23rd piece blared, “Poll: Americans favor union bargaining rights”

Not so fast.  In the first place, “right” is an emotionally-laden word and also an inaccurate one when used to reference collective bargaining, since no such right is enumerated in either the U.S. Constitution or Wisconsin’s Constitution (or any other state constitution that I have yet to discover) . 

A more accurate and reasonably framed question would have been, “Would you favor or oppose a law in your state that substituted some collective bargaining privileges, including those of the state teachers union, with local bargaining at the district level?”

Your poll also indicated that 71% of us do not favor any tax increases as a means to reduce state deficits.  Another problem with the USA/Gallup poll and those who like to seize only on the flawed question mentioned above, is that they fail to ask respondents to choose between tax increases or spending cuts.  Assuming that Wisconsinites want present government employee staffing levels, it is an either or proposition. 

Our governor and Republican lawmakers have taken commendable steps to help taxpayers permanently reign in outlandish benefits costs.  They have chosen and they were chosen - at the polls which mattered – last November’s elections.

Regards,

John J. Maddente

By examiner.com, Fair use, https://en.wikipedia.org/w/index.php?curid=50668796

Setting it straight on 'rights' (published 3/15/2011)

Image by Freepik

By Tim Peterson, Robert J. Simandl And John J. Maddente 
Published in the Milwaukee Journal Sentinel 3.15.2011

Right, noun: A just claim or title, whether legal, prescriptive or moral.

That's the definition of a word used by Wisconsin's public-sector unions demanding to retain all collective bargaining privileges.

For weeks, we've heard demonstrators beating drums in Madison alongside equally vocal sympathizers in the media talking about "rights" of public-sector union employees and "attacks" on "the middle class." We respectfully disagree with them.

According to Encyclopedia Britannica, collective bargaining is "A process of negotiation between representatives of workers (usually labor union officials) and management to determine the conditions of employment. The agreement reached may cover not only wages but hiring practices, layoffs, promotions, working conditions, hours and benefit programs."

West's Encyclopedia of American Law, edition 2, in Constitutional Law, says rights are classified as natural, civil and political. Natural rights are believed to grow out of the nature of the individual human being such as rights to life, liberty, privacy and pursuit of happiness. Civil rights belong to every citizen and are not connected with the organization or administration of government. They include rights of property, marriage, protection by law, freedom to contract, trial by jury and the like.

Political rights entail power to participate in the establishment or administration of government, such as the right of citizenship, the right to vote and the right to hold public office.

Therefore since collective bargaining is neither a natural, civil nor political right, at best, it is a "right" only in the colloquial sense of the term and merely a privilege in a purely constitutional sense.

Further, nothing in Wisconsin's Declaration of Rights (found in the state constitution) guarantees a right to collective bargaining for any citizen.

While the bill has caused controversy, it enables distributed bargaining and pushes down negotiations to local levels - where, in our view, they belonged in the first place. We are bothered by the oft-used phrase of an "assault on the middle class" pertaining to public-sector union employees who possess Cadillac health care benefits and retirement plans the rest of us only dream of. And, as 15% of the workforce, public-sector unions hardly constitute the sweeping characterization of "Wisconsin's middle class."

The fact is, at the local level in many rural Wisconsin communities, public employment has become a fiefdom of privilege where, owing to binding interest arbitration based upon comparability, the never-ending spiral of wage and benefit improvements often results in local government compensation exceeding community "middle class" standards. The need to bargain virtually every operational issue makes implementing policy decisions and providing services a protracted struggle, often ending in arbitration.

Perhaps this is why President Franklin D. Roosevelt, the patron saint of the American labor movement warned: "All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations . . . The very nature and purposes of Government make it impossible for . . . officials . . . to bind the employer . . . The employer is the whole people, who speak by means of laws enacted by their representatives."

We believe that by limiting collective bargaining, the Legislature bolstered workers' ability to associate and negotiate with whom they choose, while reining in runaway costs.

Finally, we note that a few commentators believe a $3.7 billion structural deficit does not mean our state is broke. They know Wisconsin can borrow, raise taxes and user fees, engage in accounting gimmickry (e.g. raiding "segregated" funds to close budget gaps), or some combination thereof. That's what we have been doing for decades - until now.

Change is never easy, but reform has come from duly-elected officials. We applaud our governor and the Republicans for their leadership in standing for fiscal restraint, and we remind taxpayers that this all boils down to numbers. Too much deficit requires sustainable limits on public-employee benefits - just like in real life, where businesses and taxpayers dwell.

Tim Peterson is a local businessman and former Libertarian Party candidate for the U.S. Senate. Robert Simandl is a Wisconsin attorney practicing employee benefit, labor and employment law. John Maddente is a Republican, blogger and local businessman.
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What I saw on Feb. 11 in Madison, Wisconsin

John Maddente photo

It was a clear day at the Capitol.

What wasn't reported quite as clearly, among other things, was the composition of the Pro-Walker forces, which were outnumbered I'm guessing, by about 20 to 1 -- thanks in part to throngs of out-of-state demonstrators.  One problem with the media characterization, was that they consistently reported the Pro-Walker group only as a "Tea Party" rally.  

Obviously, Tea Party members were out in force but the group contained a broader cross-section of voters including mainstream GOP members and even a few Blue Dog Dems including one courageous soul holding a sign labeled, "I'm A Teacher For Walker"  I believe that man has more company than most people realize, particularly among private school teachers that are non-unionized and paid less in wages and benefits than their public school counterparts.  

Back to the afternoon event.  It was non-violent, but press accounts labeling it as "peaceful" stretch the adjective.  The government union faithful were deployed in a circle, perhaps a dozen members wide, that encircled the entire capitol building so that Pro-Walker supporters had to walk through them, and their insults, in order to get to the muddy basin of the capitol steps where Walker supporters gathered.  Three times protesters tried to engage me in dialogue which I ignored to avoid a fruitless, heated debate -- or worse.  Remember, I said nothing before or afterward to these people.  That sort of provocation occurred repeatedly -- but you probably didn't read about it.  

Another unreported, or at least under-reported development, occurred near the lectern of the pro-Walker gathering.  Suddenly, the speaker's booming voice went silent.  Turning to a friend, I said, "That was no accident."  Seconds later, an opposition mole was ushered away by Sheriffs and the sound system began to work after someone plugged it in again. Yes, just like Forrest Gump, but here the antagonists were liberals.

Union members marching around the capitol circle chanted, beat drums and hoisted signs -- most of which contained civil inscriptions -- but others with words or images of Governor Walker that are unrepeatable on this site.  Again, I saw no press coverage of these signs, though they were hard to miss.  I hoped that the owners of those particular signs are not teaching children.  I'm not sure they should be near children.  

To be fair, I saw a couple objectionable signs in the pro-Walker camp but they were less numerous than vile ones paraded by the other side. 

In yesterday's Wall Street Journal, columnist John Fund distills all this clamor into one question.  Mr. Fund asks, "Who's in charge of our political system -- voters or government unions?"  For decades, of course, the answer in the Badger State has been government unions.  That's about to end.  The objective is not to bust them, it's about requiring them to pay a reasonable share of their lucrative benefit packages and allocating more control to voters.

John Maddente photo

Fortunately, legislators do not need the fourteen absent Dems to vote on the collective bargaining provision of the bill. 

Collective bargaining is a mechanism many want scaled back because such "bargaining" over the decades is what led to the out sized, budget-busting wage and benefit packages for many government employees. Pushing decisions down to the local levels makes sense.  Instead of allowing the Left to spin this as destruction of "rights" -- it's more accurate and less emotional -- to characterize the legislation as a move toward distributed bargaining.  

Claiming that collective bargaining is some divine "right" doesn't make it so.  If you're a public teacher and you disagree, try looking at the issue in the following terms.  Most of us cannot "bargain" for higher pay or benefits.  Instead we receive a market-based pay package and a defined benefit plan, not a guarantee of retirement income and virtually free health care plans.  If we feel that our benefits or pay packages are unacceptable -- we find work elsewhere.  We do not have, nor do we seek, any collective means to hold employers (or taxpayers) hostage. 

Another notion advanced by some on the Left, is that this legislation is a surprise hijacking that nobody talked about before the election.  Senator Lindsey Graham (R-SC)  speaking this morning on Meet The Press explained how measures in the bill causing such a stir, are a well documented facet of candidate Walker's campaign before he took office.  Informed voters knew as much when they elected him.  Arguably, it is a one reason that they did elect him.  

What is unprecedented, of course, are the fourteen fugitive Democrat state senators.  It's a disgraceful signal to young people or anyone considering a career in public service.  When things get tough, flee the state -- just take your ball and leave.  That way, no one can play.  

I hope that this stalemate doesn't turn violent.  We can all disagree without throwing punches, but what I saw yesterday worried me. 

 

(Image above taken in Madison, WI 2/19/2011.  John Maddente photo)

A writer's words to live by

The following passage was shared with me recently.  It was written by a German writer, Rainer Maria Rilke.  Mr. Rilke died in 1926 at the age of 51. This piece is taken from his "Letters To A Young Poet".  I find these words timeless, profound and moving.   Please consider sharing them with someone.
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Be patient toward all that is unsolved in your heart

and try to love the questions themselves.

Do not now seek the answers, which cannot be 

given you because you would not be able to live them. 

And the point is to live everything.

Live the questions now. 

Perhaps you will then gradually, without noticing it, live along some distant day into the answers.

Image by freepik