But be ye doers of the word, and not hearers only deluding your own selves
James 1:22
Governor Pat Quinn (D-IL): Recall? Thumbs UP!
In last Tuesday's post, I briefly discussed Illinois' new tax hike bill designed to close a large state deficit. They currently have a $13B deficit. Now the Tax Foundation has a chart that shows Illinois has lost nearly $32B in net outgoing taxpayers to other states from 1993 to 2008. Of course, about $11.4B of that is in retirement states Florida and Arizona; but two prominent neighboring states (Wisconsin and Indiana) each account for over $2B, and only Iowa of the other three states (i.e., Missouri and Kentucky) has net incoming into the state (just over $76M). This is with the EXISTING tax burden (a flat 3% income tax for individuals, 4.8% corporate). Anyone who thinks Wisconsin and Indiana aren't licking their chops over the state tax hikes (Indiana, in particular, has a 3.4% flat income tax rate and Illinois difference with Wisconsin's has significantly narrowed) is in a state of denial.
Literally the only "good" news about this is that Quinn originally wanted larger hikes than he got: 75% increases in the rates: instead, he settled for 66% individual and 30% corporate respectively. Clearly, a 30% increase in corporate taxes will not help Quinn retain or attract businesses (and relevant jobs) to the state. Quinn expects roughly half of the deficit to be resolved by the tax hikes and the rest by limiting state spending increases to 2% per annum. Faithful readers know the drill: you increase the price/cost of something, you get less of it. Of course, it's more difficult to measure the opportunity costs of tax increases, e.g., the number of people and businesses which would have migrated into the state maintaining stable tax rates. A key reason for the tax hike is to enable the state to borrow just over $12B, two-thirds of which is needed to cover overdue bills and the remainder to cover missed contributions to the state pension fund. (If there is one topic I have repeatedly addressed over the past several weeks, it's the fact that local and state pension funds are unsustainable, but none of the progressive state leaders are willing to play bad cop to their union supporters.)
The proposed business tax burden (in conjunction with the federal corporate tax and the personal property replacement tax) would be one of the highest in the country (in fact, globally). Readers should note that Quinn promised to veto any bill raising the tax rates over 100 basis points (i.e., from a 3% income tax rate to 4%) Quinn needed an 85% vote in the Chicago area to barely squeeze out a victory over an obscure, weak Republican challenger; his fiscal "conservatism" is not credible, having vetoed only 1 spending bill and promising the employee unions no layoffs or closures, putting his special interests for the unions over the general. So there is already an attempt to recall newly-reelected Quinn. There's a waiting period for the post-Blago recall measure, and it requires consent of a number of state Democrats in each house (10 in the House, 5 in the Senate, the same for Republicans (which shouldn't be a problem)).
I am somewhat skeptical that Mike "Mish" Shedlock will attract enough Democrats (recall the evidence in favor of Clinton's impeachment was overwhelming: in fact, he was sanctioned by the judge in the Paula Jones case and his law license was suspended, but the Senate Dems quietly voted to acquit). But powerful Democrats, like 6-term outgoing Chicago Mayor Richard Daley, have been tough critics about going to the people for large tax increases without putting the taxpayer's interests first, i.e., serious budget cuts.
Sunday Talk Soup and the Coming Economic Iceberg
I listed to last Sunday's podcast of Meet the Press, including Majority Leader Harry Reid, and just about everything he had to say on the policy front was 100% wrong. If I run out of new things to talk about, I'll go back and refute each delusion in detail. But, because I am discussing energy below, one of his Alice in Wonderland moments came when he talked about oil shooting up to over $140/barrel in 2008 and then used that to promote, no, not developing more of our oil resources, but using the same old same old stimulus "good-money-chasing-bad" mindset of throwing heavy government grants to green energy companies. I mean, this is after he and Nancy Pelosi added $5T to the current $14 national debt over the past 4 years, now approaching the size of our economy. And that's BEFORE what I call the kaleidoscope accounting of the new health care law.
Of course, the big news from that interview was that Reid predicted that the Tea Party will melt away when the economy improves. Wrong, and I'm not saying this as wishful thinking. The Democrats don't see to realize that the good ship Titanic they've built in progressive splendor is heading straight for an iceberg, and it doesn't matter how much Obama or the new Republican President try to steer away from it, it's going to hit. It will probably mean the end of the Democratic Party as we know it, as people realize far too late that all these things--over-consuming for decades, heavy consumer debt, heavy government debt, unsustainable entitlement programs, poor business investment, etc.--are going to result in a national nightmare. If you think we have an unemployment problem now, just imagine what will happen with a huge oil shock or if suddenly the world stops buying American debt. What a lot of people don't understand is with a declining American currency as we've had (only a troubled euro and yen are deferring our day of reckoning), our import-dependent economy is already in the process of sowing the seeds for raging inflation--JOB-KILLING INFLATION. We need to at least triple the job growth numbers we are seeing to make dents in unemployment--but this administration and its progressive Congressional allies have been doing the exact opposite of what they should be doing: pursuing anti-business growth policies: too much regulation, globally uncompetitive tax rates, slumping population growth (not enough legal immigration), and excess consumption, among other things. We need to deal with excess consumption and debt, we have got to get entitlements under control, and we have to cut down our national debt and deal with our trade balance in a serious manner.
In order to do that, we essentially have to undo everything clueless Barack Obama and his crony progressive legislators have done. It's not a question of partisanship; it's a matter of our survival, our standard of living. We are going to hit the iceberg--and it's going to be probably 5 times worse than people expect.
Let me give you a couple of obvious predictions: states and cities are already starting to deleverage (cut debt); many businesses are deleveraging. HINT: when businesses see good prospects, they take on risk, debt and new employees. We are going to see some cities, possibly states approaching bankruptcy. If you think the federal government is immune from the pain of states and municipalities are going through, think again. There is already a lot of talk about replacing the dollar as the de facto world currency. We are facing rapidly developing third-world nations as global competitors where many people own better cellphones than the one I use, where other countries are graduating 3 times the number of engineers and a fraction of the lawyers we have. (Lawsuit abuse is a major competitive disadvantage for our economy as businesses have to set aside resources to fight or settle frivolous lawsuits, resources that can't be spent on expanding trade.)
Is there any greater indictment of the idiotic backers of Sharron Angle than the fact Harry Reid celebrated her win in the primary? Are we about to see the same thing next year? Democrats would LOVE NOTHING BETTER than Republicans nominating Sarah Palin, a guaranteed loser to Barack Obama. If there's anything worse than 4 years of Barack Obama, it's 8 years of Barack Obama. Obama's lead will firm up with the economy; the question is whether he gets hit with his own economic tsunami before or after his reelection. I worry about the prospect it will be after. Sarah Palin needs to put her country ahead of her personal ambition. We cannot afford the reelection of Barack Obama. It's not a matter of politics--it's a matter of our way of life.
Charts of the Day
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Source: energyandcapital.com |
But even if we succeed at electric car production (at a cost and volume and assuming we have sufficient component materials (say, for example, rare earth)), for many people living in the suburbs or small towns, selling houses with a limited buyers in the market may not be an option; to some extent, satellite commuter rails may help, but the volume may not justify the investment.
The bottom line is, we have a quarter million registered cars and trucks, and the most feasible way of running them is through conventional oil. I don't want to hear environmentalist ideals here: companies may not be able to hire the people they need, and people may not be able to find jobs if commute costs go through the roof. We face a big problem: a lot of developing nations (China, India, Brazil, and others) have rapidly growing middle classes. For example, Indian car companies are aiming at producing cars selling for $3000 each. China already imports almost 5 million barrels a day, second only to the US, and it was a net exporter just a few years ago. The point is, the US has more competition for output a shrinking number of exporters with maturing, declining production. EVEN IF WE STABILIZE our net imports, with any decent global economic growth and a world sloshing in US dollars, prices are on their way up--and the highs of 2008 may come back sooner than expected.
In the meanwhile, domestic oil production is stagnant. We have not been a net exporter for years. This will not improve until we provide more domestic incentives to make local production (of oil and other goods and services) viable. But that brings me to a second, related point. Consider the corn chart below. Food inflation is soaring; in some areas of China, half of disposable income is being spent on food. Why? Because we have counterproductive policies to produce ethanol from corn; even Al Gore is beginning to second-guess ethanol (although he's probably more worried about fertilizer runoffs into environmentally-sensitive waterways). There are other technologies (not currently feasible in commercial quantities) for producing ethanol. In the meanwhile, there is no pipeline infrastructure for transporting ethanol, and the production of ethanol requires considerable consumption of fuel. In the meanwhile, if you check ethanol producers, a lot of them are struggling: excess capacity, blend limits (up to 15% for conventional engines), higher price of corn, limited number of flex-fuel cars, etc.
Other alternative energy stories are not doing well; Evergreen Solar, for instance, finds its cost structure of panel manufacturing in the US globally uncompetitive and is shipping those operations to China (what was that, President Obama, about alternative energy being a jobs grower in the US?) There have been challenges in the wind power business with Pickens' abandoning his famous 2008 initiative, and even CSU finding out it couldn't afford to continue its own wind power initiative. Does this "disprove" the viability of an alternative energy industry? Of course not. But when you have economically feasible, job creating technologies and natural resources of oil, gas, and coal--and an unsustainable national debt, President Obama and Congressional Democrats are playing Russian roulette with our economy at stake.
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Courtesy of dailywealth.com |
Political Humor
"Chinese President Hu Jintao will be at the White House next week. The good news is, he has no plans to foreclose. We can stay another month." –Jay Leno
[And every time "Hail to the Chief" is played, China gets a royalty check. Jintao is also considering having Obama put up AIG, Fannie Mae, Freddie Mac, and GM as collateral against any future loans, plus options on offshore oil and gas exploration, shale development in the West, and ANWR...]
"Police are looking for a man in Phoenix who robbed a bank and told the teller he wanted the money in twenties, forties and sixties. Authorities believe he could be one of President Obama's economic advisers." –Jay Leno
[Not quite, Jay. The man demanded all the Obama money in the bank. He really wanted it in $80 bills, but somebody had told him that an $80 bill is worth less than a $20 bill...]
Musical Interlude: One-Hit Wonders/Instrumentals
Blue Swede, "Hooked on a Feeling"
