free market republican

Trade Protectionism and Economic Welfar

2009-02-02T06:12:00.001-08:00

Almost 79 years ago in the face of another economic down turn the United States government passed the Smoot-Hawley Tariff Act that greatly increased the tariffs on over 20,000 imported goods. As result of this act a number of other countries adopted tariff laws and trade restrictions that greatly reduced world trade, helped to worsen the economic down turn that would become the Great Depression, and was one the causes of World War 2.
Now that we are in the middle of another economic downturn we should not repeat the same mistake of putting special interest groups ahead the general public. As in 1930, protectionist trade policies and trade restriction will only worsen our current economic problems. Tariff laws and trade restriction only benefit the businesses and industries that are protected while placing an added cost on everyone and everything else in the economy. Higher tariffs would raise the cost of many goods and services in the United States placing an additional hidden tax on the public that will fall the heaviest on the poor and middle class. Since consumer will have to pay more for imported goods, or goods that were previously imported, the real buying power of their wages will fall and they while have less money to spend on other goods and services reducing demand in other industries too. Since many American businesses use a mixture of imported and domestic inputs to produce their products and an increase in tariffs or trade restriction will raise their costs of doing business and probably raise the prices of the products that they sell adding to burden placed on the larger economy. For example the US steel industry has been given trade protection a number of times and this measure ended up harming a number of other domestic businesses, for example the auto industries, by raising the cost of their inputs. So the cost of the protectionist trade policies cascade through out the economy raising cost and reduce economic activity across the board. For this reason the added economy value of the jobs “saved” by any tariff and/or trade protectionist policies are always smaller than the total cost of the tariff and/or trade protectionist measures to the entire economy. In the middle of an economic downturn do we want to place an added burden on the consumer that will fall mainly on the poor and the middle class ?

The Auto Industry Bail out, Politics and making the hard choice

2008-12-12T13:16:00.000-08:00

In politics a lot of times politicians make the wrong choose because the right choice is the hard, this is the story of the auto bail bill. The easy decision for most politicians is to support the bail out bill and pretend that they are saving an American industry. At the moment there are 15 car companies that have manufacturing plants based in the United States, the big 3 and 12 international companies. While the international companies that have plants located in the United States employee fewer workers directly than the big 3, they produce more cars, their stock is owned by millions of Americans and they do a lot of research and design work in their American base locations. Like the big three they add a number of good paying high skilled jobs and add billions of dollars of value to the United States economy and unlike the Big 3 they are not asking for bail out.
These companies are doing better than the Big 3 because of better management, yes the Detroit has a number of legacy cost but many other business in other industries face similar cost but they either changed their benefit system or they died. Detroit has refused to change in part because of past assistance from the government and the belief that if they faced a major crisis the government would bail them out, and it seems that they are right. The big 3 have also made a number of bad decisions that have harmed them they allowed themselves to fall behind the international car companies in a number of different areas and they failed to adapt with changes in consumer needs and tastes in both the domestic and international market. Detroit has promised that they will change if they get the bail out but there is no reason to believe them so far they have resisted change and have refused to admit that they are not still competing in a market place that they could dominate like in the past. Will the government force them to make the changes that need to be made? The odds are probably not, any government forced restructuring of the Big 3 is likely to be influenced as much by politics as by economic needs. The changes that are made will probably be a poor mixture of economically need changes, political motivated changes that are not beneficial and could make the problem worse in the long run and many changes that are need will likely not be made because they are politically difficult. At best the bail out will just stave off the problems that the Big 3 are facing not fix them and sooner or later they will face another crisis.
What will happen if the Auto Industry in the United State collapse and will 2 million people lose there job like the Big 3 and the UAW claim? The mostly likely answer is no they wont, the international companies will certainly not fail and 2 million people will not lose their jobs. One or more of the companies will likely enter bankruptcy, Ford might have enough reserve to avoid bankruptcy, but GM is likely to enter bankruptcy. People need to keep in mind that corporate bankruptcy does not necessarily mean the company will cease to exist but that the company will under go court restructuring. This means that the company will have an opportunity to renegotiate the terms of the debts that they owe, labor contracts and restructure and streamline their operations. Many companies have emerge far stronger, more competitive and better able to face a changing market place after going through bankruptcy. Yes it will be unpleasant for the company, its shareholder, workers and debt holders but it has a better chance of producing an out come that will fix the long term problems faced by the Big 3.
Even if the one or more the Big 3 cease to exist does that mean the auto industry in the United States will collapse? No, not at all the American consumer and economy will still demand a similar number of cars a year, with or with out the Big 3, more cars that can be produced by the current number of plants owned by international car companies. Something will have to happen to increase the supply of cars to the United States market, imports could increase but imported cars are at disadvantage compares to similar cars produce in country hence the reason that many international producers have located in the United States. In the long run you will see international producers expand their productions with in the United States and new companies might well enter the market. In long run many of the plants, workers and production equipment of any Big 3 company that fails might well end up being employed again by a different producer.
In the long run for the American economy the best thing is for the government to make the hard choice and not bail out the Big 3 and let the market run it course. It might be hard at first but in the long run it will strength both the American Auto industry and the economy.

To my fellow Republicans

2008-11-05T10:01:00.000-08:00

Quite frankly last night we got what we deserved President Bush in office had turned away from almost everyone of the values of that we as Republican are suppose to have. In 1994 the Republican party became the majority party in both Houses of Congress for first time in decades by running on a platform of changing and reforming Washington and reducing the size of government and a some head was made on this but the sad thing is that most of the head way was made when President Clinton was in office and their was a split control of the government. When President Bush came into office and for long periods of his term the GOP had control over one or both Houses of Congress we had the real change to make some major changes and vastly improve and shrink the size of government, but none of this happen. Instead we became the big spenders who ran up the running up the deficit, throwing out pay as you go rules, adding new entitlement programs, increasing agricultural subsidies and other forms of government interventions in the markets. Many social conservatives instead of wanting to reduce the government roles in people's private life and empower and strength families came to see government power as a way to push their values and fiscal conservatives seemingly became almost totally silent. We had a chance to make a number of major changes that could of set America on a better stronger course, reform social security, reform and simplify the tax system, reduce government spending and the size of government, pay down the debt, expanding free trade, reforming education and instead we let that opportunity. We deserved the defeat that was inflicted on last night, hopefully we will learn our lessons from it.

A Republic If You Can Keep It

2008-06-14T07:09:00.000-07:00

When he was asked about what kind of government the Constitutional Convention had produced, Ben Franklin was said to have replied a Republic if you can keep it. The key word that we should take note of in that statement is if you can keep it, Franklin new that a Republic is a difficult form of government to keep because it requires it citizens to be well informed and involved in the political process in order for a republican government to function properly. Too many people in the United States do not do their duty as citizens, they don’t stay up to date on the issues facing the country, they don’t stay informed and they don’t vote. They make excuse for this behavior by saying that one person can’t make a difference, that they don’t have the time, that it doesn’t affect them, but when the average person chooses to divorce themselves from the political process this special interest groups to gain more and more influence and this is one of the reason why it seems at times that government policies serve the interest of a relatively small set of interest groups not the general public.

I know that in Illinois there are many people that are share the set of core beliefs of the Republican Liberty Caucus that are not involved in the political process because they are turned off by the candidates offered by the Republican party right now or because of actions of the Illinois GOP. If anyone reading this is one of those people I hope that you will take a second to consider that instead of waiting and hoping for the Illinois GOP to changes or for some candidate to come around and inspire you that you should start working to things. Instead of waiting for some one else to inspire you to go out and get involved in the political process you should inspire yourself to do so and work to inspire other similar minded people to get involved. Political work takes sacrifice, it requires people to give up their time, time that they could be spend with family, friend, ect, and some times it requires us to give of our money too but I truly believe this sacrifice is more than worth it if it helps to produce a better nation for all of us. Once again if you are reading this and you are one of those people who is sitting on the political side line I would ask you to read over the positions of the Republican Liberty Caucus and take some time to think about them and if they make sense to you and seem like good government policy, then please join us and help to build a better us to build a better Illinois GOP, a better Illinois and better nation.

More Farm Subsidies that Rip of the Tax Payer

2008-05-15T08:19:00.000-07:00

Yesterday the U.S. House passed a 290 billion dollar farm bill that will continue the long tradition of farm bills that benefit farmers at the expense of the vast majority of the tax paying public. The bill includes 43 billion dollars in subsidies for crops like rice, wheat, cotton, corn, soybeans and others. Agricultural subsidies do not benefit the general public and only benefit the people who receive the subsidies everyone else ends up paying more through taxes. Agricultural subsidies also create distortions in the market so that the prices that people pay for farm products at the stores no longer represent the true price, as they are paying a hidden cost and farm production no long represent what production would be in the free market. Agricultural subsidies lead farmers to over produced farm products which keep store prices artificial low, but not the true prices since people still pay them through taxes, the only difference is that they no longer have the ability to easily base their purchasing decision off the true prices. Also over production caused by government subsidies leads to the over the use of farm land, fertilizer and pesticides/herbicides, which harms the environment.
Along with that the bill would encourage the government to buy "surplus" sugar and sell it to ethanol producers. The problem with this is that if their is "surplus" sugar on the market, it means that sugar farmers are producing more sugar than can be sold on the market for the given price and prices should fall to reflect the other production, or production should fall to bring the market into balance and with out government intervention that is what would happen. With the government buying up "surplus", sugar prices will stay artificially high meaning that the public will be paying more for sugar and products that contain sugar than they would with out government intervention.
The bill also contains 23 billion dollars in crop insurance, while crop insurance is a good thing for farmers, it is something they should pay for themselves the same way that most, if not all other businesses, pay for their own insurance. Their is no reason that farm product insurance can not be handled by the commercial insurance market or risk managed using the future market, yes it would cost farmers more but it is a cost of business that is faced by most if not all other businessmen and should be paid for by the tax payers.

WHY the ILGOP needs a change in Leadership

2008-04-23T10:53:00.001-07:00

Today in the Daily Herald there was article that shows the exact reason that the Illinois GOP needs a major overhaul in its leadership. There are reports that Governor Blagojevich enlisted the add of Bob Kjellander, a major insider in the Illinois Republican party, to attempt remove Patrick Fitzgerald from his job as US Attorney. Is this what an Illinois Republican Party leader should be doing? Possible working with a Governor who office is under investigation by the US Attornery to try and remove him the US Attornery from Office?

http://www.dailyherald.com/story/?id=177986&src=109

“As federal investigators closed in, Gov. Rod Blagojevich insiders were angling with Bush administration architect Karl Rove to get U.S. Attorney Patrick Fitzgerald kicked out of office, according to disclosures made in federal court.

The far-reaching accusations came from the U.S. attorney’s office in Chicago as part of the corruption trial against Blagojevich fundraiser and confidant Antoin “Tony” Rezko.

Federal prosecutors said in court that co-schemer Steven Loren was ready to testify he was told Illinois Republican insider Bob Kjellander was working to get Fitzgerald removed.

Powerbroker Bill Cellini “said it was Bob Kjellander’s job to take care of the U.S. Attorney,” Assistant U.S. Attorney Carrie Hamilton said in court late Tuesday, in reading Loren’s earlier grand jury testimony.

The statement was not further explained Tuesday, but in court this morning Hamilton told U.S. District Judge Amy St. Eve that she expected Rezko business partner Ali Ata, who is cooperating with authorities, to testify Rezko told him the same thing in 2004.

“Mr. Kjellander is working with Mr. Rove to have Mr. Fitzgerald removed so someone else can come in” and end the investigation of state corruption, Hamilton said in summarizing Ata’s expected testimony about what Rezko said.

Kjellander, an Illinois lobbyist, is a national Republican player who recently served as treasurer to the Republican National Committee. He is known friends with Rove and helped orchestrate George Bush’s Midwest campaigns.

Fitzgerald has been on the Bush administration’s radar screen since at least 2003, when he took on the investigation of the Valerie Plame leak in which White House officials were accused of illegally disclosing her CIA identity in retribution for her husband’s opposition to the Iraq war.

The investigation ultimately ended in the conviction of Dick Cheney aide Scooter Libby on perjury charges.

In fact, it was revealed last year the Bush administration ranked Fitzgerald one of the nation’s U.S. Attorneys who did “not distinguish themselves” in 2005, at the same time he was heading up the Plame case and prosecuting former Republican Gov. George Ryan on corruption charges.

Those rankings later evolved into the notable ousting of eight U.S. attorneys in 2006, a move that was widely criticized at the time as being politically motivated.

Traditionally, presidents have been expected to remove politics from the choice of U.S. Attorneys so as not to influence the prosecution or investigations of political figures across the country.

Kjellander has not been charged with any wrongdoing. He is, however, allegedly connected to the overall scheme in which Rezko is accused of shaking down state investors for bribes and campaign contributions.

Kjellander received about $800,000 in questioned “finder’s fees” tied to a bond deal under Blagojevich.

In court today, St. Eve ultimately ruled Loren couldn’t testify about his conversation with Cellini in 2004 because it was unrelated to Rezko. However, she said that does not rule out the later testimony of Ata that directly ties Rezko to the alleged incident.”

Presidental Candidates Economic Proposals

2008-03-28T09:27:00.001-07:00

The last week or so the Democrat Presidential Candidates have made a number of statements about the economy and a few policy proposals, today I am going to take a little bit of time to examine some of them.

Senator Obama called for reworking regulatory frame work and “boosting” the economy with a 30 billion stimulus package and a long with that he made a few more proposals that we will look at in a moment. As anyone that reads my blog knows, stimulus package like this will have no little or no real effect on the economy, one reason being the size, 30 billion dollars sounds like a lot but it terms of size it less than one percent of the US Gross Domestic Product (GDP), GDP being the best measure of the size of a country’s economy. The second reason is those short term stimulus packages do not work because people and business in the economy know that they are short term and it does not change their long term spending and investment decisions, for a more in depth look at this, see my previous entries on the Presidents short term stimulus bills. Now lets look at some of his more specific proposals:

· Institutions that borrow from the government must be subject to federal oversight and supervision.

For the most part that is already the case; there is nothing new here and nothing that will prevent future economic down turns.

· Regulations for those institutions need to be updated

This is a good point and in many cases the regulation need to be reduced, but some how I suspect that he might be proposing new regulations. The problems with many government regulations, particularly ones on the financial markets, are that they are rarely efficient and often have a negative effect on the large economy and investors large and small. They often encourage the creation of new financial products to get around existing regulations; the derivative market in part was created because of this. Regulators and politicians in particular often have a poor understanding of new financial instruments and the cost and benefits that they bring to the economy, once again derivatives are a great example of this they often blasted as adding to the risk the of the financial markets or destabilizing them by politicians and some regulators, when in reality there is zero evidence that have made the market any riskier in the long or short run and they actually have a powerfully ability to allow people to protect themselves from risk by allowing investors, institutions, business and even farmers, who often used derivatives based off of farm products, to reduce their exposure to risk by diversifying or trading it away.

· The framework for overlapping and competing regulatory agencies needs to be streamlined

This is a good idea particularly if accompanies increased deregulation for many industries.

· Institutions need to be regulated "for what they do, not what they are"

This once again is a good idea

· A crackdown on trading activity that manipulates the markets is necessary

This is a stupid and impossible idea, for the first part there is a little evidence that anyone trading in the way, or even has the ability, to trade in a way that would manipulate the financial markets on a large scale. Yes you have insider trading that could manipulate the prices of a single stock or small group of stocks, but in the case of the large financial markets, you are talking about markets that are so large and diverse with some many people participating in it, that would be all but impossible for trading activities to manipulate the larger market.

The second problem is that even if such activities did exist, it would be all but impossible to identify these activities and it would problem end up with regulators or politicians going after legimate trading activities for political reasons, for example like when SEC regulators and some members of Congress attempted to heavy restrict the derivatives markets largely at the behest of Stock Exchanges and large brokerages, who profits were threatened by the derivative markets allowing people to trade stocks indirectly and get around the commissions that they charged. Had they succeeded the large economy and investors, particularly small ones, would have suffered as they would had to pay more to trade stocks, bonds and other financial products and the decline in the transactions cost associated with trading in financial markets that we saw during the 1990s and 2000s would probably not have happened.

· A process that identifies systemic risks to the financial system is needed

First here is a definition of Systemic risk - is the market risk or the risk that cannot be diversified away, as opposed to "idiosyncratic risk", which is specific to individual stocks. It refers to the movements of the whole economy. Even if we have a perfectly diversified portfolio there is some risk that we cannot avoid and this is the systematic risk

Systemic risk be it nature is very difficult if not impossible to correctly identify in far in advance and for these reason it has the ability to affect the financial markets, if it were easy to identify then investors would be able to effectively plan for it in most cases, as would business and the risk would be reduced or eliminated. For the government to be able to effectively identify systemic risks to the financial system, and for that matter the larger economy, you would have to assume that they have access to better information about future changes in the economy than the markets do, which there is little or no evidence for. This seems to go back to the old Keynesian ideas from the 1930s-1970s, that the government has the ability to manage the economy and prevent economic downturns, and this idea proved to be a failure and ended in the stagflation and economic downturn of the 1970s that continued to have negative effects into the 1980s. The more rapidly changing economy of the present and the better understanding of the markets, public and business of how government policy affects the larger economy makes the ability of the government to micromanage the economy even less likely now.

Repairing the Illinois Republican Party's Brand Name

2008-03-24T10:42:00.000-07:00

t should be clear to anyone that follows Illinois Politics in least that the Illinois Republican Party is in pretty bad shape when it is losing elections in districts that it should be easily winning and in which President Bush carried over 50 percent of the vote in previous years. An imprisoned Governor, a string of poor showings and candidates in statewide elections and bad decision on the part of the state leadership have left the Republican brand name in Illinois badly damage and the Republican Party should take a few ideas from marketing to help repair it’s brand name.

Product Differentiation- The Republican Party needs to present a clear well thought out alternative to the Illinois State Democrat Party, not a mushy mixed of slight differences between the Republican Candidates and the Democrat Candidates. We need to present a clear vision and set of policies based off personal freedom, small government and reduced government spending, pro-economic growth, government reform and anti-corruption. The Republican Party is at its best when it is the party of ideas and that what we need to return, not running on platform of being slightly better than the Democrats. We need to make it clear that we will not tolerate any kind of corruption on the part of Republican candidates and office holders.

Market Segmentation- The Republican Party needs to do a better job of identifying different voting blocks and then tailoring it message to address the concerns of those groups. After identifying different voter groups and their needs we Republicans need to find ways to package our message so that it appeals to these voters’ needs and problems and show them that our policies will give them a better opportunity to improve their lives. This does not mean pandering to different groups of voters as the Democrats and many Republicans do, but showing people how our policies can help them help themselves, not trying to buy them off with more government programs that do not work or help them. Like a business can have the best product in the world but if can not find a way to make it appeal to different groups of consumers they will not be able to sell it, the same goes for political parties, they can have the best set of ideas and policies in the world, but if you can not package them in a way that appeals to different groups of voters they will not be able to get their candidates elected.

Advertising- This does not just mean campaign ads during elections season, but it means getting candidates, potential candidates, and Republican volunteers out into the public and communities all of the time. Having volunteers and when ever possible, particular in local elections, candidates walking precincts so that voters can see them face to face and talk with them. Having local Republican leaders attend community events and gatherings not to push political agendas at them or troll for votes but to establish connects and ties to people with in the community that may pay off in future elections.

Rebuiliding the Illinios GOP

2008-03-09T19:17:00.001-07:00

Jim Oberweis defeat this Saturday in an Congressional District that is overwhelming Republican and that gave President Bush 55 percent of its vote in 2004 shows how much work that the Republican Party in Illinois needs to do in order to become competitive again in the political process, in general the Illinois Republican Party needs to accept it weakness in the present and build for the future.

1. The Illinois Republican Party needs to focus on building up its farm team so that it will have a strong pool of candidates from which to recruit candidates for office in the future. This means seeking out young dynamic individuals with strong ties to their local communities and the ability to effectively communicate ideas. Along with this the Illinois Republican Party needs to work to improve it presences on University and College Campuses in the State so that every school in the State has a strong campus Republican organization and that every county, or small group of counties in less populace areas, has a strong active young Republican Organization.

2. Create a clear well though out and defined set of policies for fixing the State financial and economic problems. No more vague talk of cutting spending and keep taxes low, but specific areas that need to be target to cut, well need to show the public that we have a well thought and defined alternative to the policies of the Illinois Democrat Party and Governor Blagojevich that we can work to implement from day one. Make it clear how reducing the size of government, taxes and the regulatory burden will improve Illinois’ economy and how increase economic growth will do more to help reduce poverty and improve peoples lives than government programs.

3. Make ending Government corruption a top issues, make it clear that we understand that in the past the Illinois Republican Party has had it problems with corruption like the Democrats but that we have moved on from this and are committed to keep it out of our party and removing it from state and local government bodies and the will not tolerate any corruption in our members.

Outsourcing, Jobs and Economic Growth

2008-03-01T10:53:00.001-08:00

In one of my previous post I discussed the issue of free trade and how a number of political candidates are blaming it for jobs loses in the United States and how the facts and economic data does not back this up. Now in this post I will tackle the other bogeymen of job lost, outsource. Much like free trade, out sourcing has been blamed by a number of people for the lose of American jobs, in particular you hear many of the leading Democrat candidates for President talking about this, Obama and Clinton and Edwards before he dropped, but once again most of their claims are unfounded. In particular you hear the claim that good paying high technology jobs in the United States are under the threat of being relocated to low-wage countries like India, while it is true that a many high tech firms in the United States have relocated some of their jobs to other countries and that during the early part of the 2000s there was a large decline in the number of high tech and IT jobs in the United States, the main reason for the decline in the number of jobs wasn’t outsource but the end of the dot com boom and the overall economic slow down. In the United States tech jobs and IT jobs are projected to be some of the fast growing job areas in the country with 30 percent growth expected out to 2012 and 7 of the 30 fast growing job field are in these areas according to the Labor Department. Secondly during this time period the United States trade surplus in the area of IT services has increased, this means that the amount of IT services that workers based in the United State sell to people and firms in other countries has increased at a faster rate than the amount of IT services that people and firms in the United States buy from people in other countries, this would include jobs “outsourced”.

Final outsourcing as helped to create new jobs in the United States, yes contrary to what you hear from many people outsourcing helps economic growth and creates new jobs, outsourcing as helped to lower input cost and increase worker productivity in the United States. Higher worker productivity means that workers will earn more and produce more reducing the cost of the goods and services that they produce and lower input cost will also help to reduce them, which in turn means that people will pay less to buy those goods and services and have more money left over to save or use to buy other goods and service. Along with these more productive workers will earn more and have more money to spend and save, all of these will add to economic and job growth in the United States. The great economic boom of the 1990s was in part made possible by the globalization of the production of physical inputs in the high tech and manufacturing industries, things like computers, steel, cars, ect, and yes this caused some job lose in the United States, though other factors where far more important, but it also helped to fuel massive economic growth that benefit every sector of American Society and the economy and that kind of growth would not have been possible with out it, and now the service industry is under going the same process of globalization and in the long run it will help to fuel increased economic growth in the United States if we allow to happen and don’t listen the scaremongers and those that have a vested interest in preventing it from happening because doing so will benefit them at the expense of the rest of society. The other thing to keep in mind is that globally the United States is one of the top, and often they top, destination of jobs outsourced from other countries.

The ignored Supply Side of the Health Care Market

2008-02-29T10:29:00.000-08:00

Expanding healthcare coverage has once again become a major issues and their have been claims that an European style system would reduce health care cost in the United States will covering everyone. There is a number of problems with this because it only address the demand side of the health care system, ie it only affects how many people are covered, how much health care services they use and how they pay for it, it does nothing to change the supply side of the health care system or the factors on that side that help to artificial push up prices. These factors include things like the American Medical Association that help to keep the number of doctors in the American market artificial low, for example putting in affect regulations that prevent qualified doctors that received their education overseas from practicing in the United States in many circumstances, the structure of how doctors practice that in many case artificial raise cost, and the way that malpractice laws are written in a number of the states. The problem with this is that if these factors are left in place any kind of single payer health care system will continue to cause price to rise or you will have to have government enforced demand rationing for non-critical medical care, as is already present in most European Countries and Canada were people that have sole the state run health insurance have to endure long waiting periods for non-critical medical procedures. In the United States, because of the supply side factors that are different from those countries, the situation would most likely end up even worse, similar to how in Illinois it is very difficult for people to find doctors that will take Medicare/Medicaid or have to wait for long periods to see the doctor. You don’t hear anyone that support a single payer system or other universal health care systems address the supply side of the market, I suspect the reason for this is that they do not want to run the risk of having to fight the insurance companies and the AMA, Doctors, ect all at once. There are far better ways to fix the US health care system than a single payers system that is used by many other countries, but it requires that will address the factors that distort both the supply and demand side of the health care system.

trade policy and manufactoring jobs

2008-02-22T10:27:00.001-08:00

Recently there have been a number of people that have blamed foreign trade for the decline in the number of manufacturing jobs in the United States, but this is mainly wrong, while undoubtly some manufacturing jobs have left the United States due to freer trade policies, it is not the main reason for the decline in manufacturing jobs. The main reason is the increasing productivity of the American work force in general and in the manufacturing industries in particular and improved production process and that have allowed more industrial output to be produced with fewer workers and inputs, to be exact between 1980-2003 manufacturing outputs in the United States has increased by 93 percent. Productivity has been the main reason for this, manufacturing productivity has grown at almost twice the rate of the average for non-farm business, but demand for these products have grown at a far slower rate meaning that it takes fewer workers to met demand and that has been the main reason for the falling percentage of workers in employed in the manufacturing industry as a percentage of overall employment and as percentage of GDP.

Trade restrictions would only harm the American economy in the long run, while it would probably protect some jobs, the cost to the larger economy would be greater than the “value” of those jobs protected. The reason for this is that protectionist trade policies create distortions in the larger economy as companies and consumers are no longer able to buy from the lowest cost producer, they end up paying more for the products they buy from the protected industry and this in turn effects the decision they make about buying goods and services from non-protected industries. For example take the automobile industry, it buys a number of components parts for it product from other countries because it cheaper, if they were required to buy it from domestic producers that would charge a higher price, this higher price would be end up being included in the final price of their product, the car, truck, ect that they produce. This will have a couple effects on the economy, one the higher car prices will lead to fewer cars being sold, which in turn will reduce the revenues and profit earn by the car company and this will lead to them either lay off workers, higher fewer workers in the future or paying lower wages, or some combination of the three. The second effect comes from people that do still buy cars having to pay more for each car they buy, which in turn will leave them less to spend on other goods and services, this means that non-protected industries will see their revenues and profits fall, which in turn will lead them to lay off workers, higher fewer works in the future or pay lower wages. These effects are the reason that protectionist trade policies will end up costing the economy more than the “value” of the jobs protected.

For that matter there is little reason to worry about a the American economy running out of good paying jobs, since the 1980s the number of high paying jobs in management and in specialized professional jobs has roughly double, growing at a rate that is far higher than the rate of population growth, and the percentage of the total jobs in economy made up this has increased from 23% to 30%, and 9 million jobs in this area are expected to be added by 2012.

The people that are calling for trade restriction do so for a number of reason, many of them because they are misinformed, other because they are jobs that have been lost for one of the above reason and are looking for some to blame, but many of people that are calling for protectist trade policies do so because they stand to benefit economically at the cost of the larger economy and most of the public.

short term stimulus, saving and long term economic growth

2008-02-15T07:16:00.001-08:00

On the news I have heard a lot of economic analyst talk about how it is good for the individual person if he saves, but bad for the economy if everyone saves because it reduces demand for goods and services, or in economic terms consumption, and hurts economic growth and despite how wide spread you hear this and how it is repeat by many Keynesian Economist it is wrong for the most part. While it is true that reduce the amount of goods and service people buy in the present and can slow economic growth in the short run, in the long run it will usual raise economic, expect in the case if you had people doing an extreme amount of saving, i.e. like over a 25% of their income but the saving rates is not any where near that in the United States so it doesn’t matter or if you had them saving by hording money under a mattress or something similarly unlikely. Higher saving rates increase the amount of funds that are available for investment and higher rates of investment means stronger economic growth in the future. An increase in investment means that there will be more capital per worker in the economy, I am using the word capital in the most broad based sense that an economist would use it, so that it could refer to anything from more a business opening a new branch or factor, buying better equipment, investing in new technology, increasing the amount of training that it gives each worker, ect, but what all of this translates to is that on average workers in the economy become more productive and as productivity increase the amount of the goods and service that each person produces rise and the economy grows fasters. Also more productive workers earn higher wages which allows them to both save more and buy more goods and service increasing economic growth even more. Along with that the return that people earn on their investment will allow them to consume more in the future, which in turn helps to raise future economic growth.

Instead of short term stimulus plans that encourage people to spend more the Federal Government should, along with control spending and taxes, be looking at ways to encourage people to save more. Ways that they could do this would be to increase the amount of money that people that put into investment tax shelters like IRA, both traditional and Roth, 401Ks and reducing or eliminating the taxes on capital gains and dividends, all of which would increase the returns that people could expect to receive on their investment, since it would decrease the amount of money they would have to pay to the government in taxes off the money they earned on their investments and higher rates or return serve to encourage people to invest. A long with this the Government should seriously look and debate the idea of replacing Social Security retirement benefits with private accounts for younger workers.

Super-Tuesday

2008-02-07T11:10:00.001-08:00

The results from Super Tuesday have given us answers on one side of the race and no answers on the other. On the Republican side the race is over with McCain now almost certain to be the nominee, particular with Romney now out of the race and the Democrat side the race is still neck and neck. I would expect that if the Democrat race turns into a long drawn out bitter fight that ends closely, that it may be hard for the Democrat to completely reconcile before the general election and that could hurt them, particularly if McCain can unite the Republican party and use the down time to replenish and build up his war chest.

The most interesting things on the Republican side was how well that Huckabee did, it seems that he brand of populist social-conservatism appeals to fair number of people, particular in the South and some parts of the Mid-West. Which make sense since many of these areas were the hot bed areas of past populist movements. The other thing that may be of interest is if this is the start of new movement with in the Republican Party. I for one hope not because populism cares with bad economic policies.

Jim McConoughey for Congress and the economy

2008-02-01T09:45:00.000-08:00

At the start of this election cycle I was supporting Aaron Schock for US Congress from the Illinois 18th District, but after the way he handled a number of things and more importantly after talking with Jim McConoughey one on one I came to the conclusion that he is the best choice. He has a strong grasp on economics and economic policy which something that we need more of in Congress and he has the skills to be a strong leader. Schock might still have a bright future in front of him, but today should be belong to McConoughey and I hope everyone in the 18th district that reads this will vote him on Tuesday Feb. 5th

On the subject of the economy, there has been a lot of fear mongering in the media and for the most part it is wrong. Yes the financial markets have been very volatile the last month or so and that has been due to a number of things including the sub-prime problem, but a lot of it is due to the bad handling of the situation by the Federal Reserve System. The Federal Reserve System has not handled this well particularly with their surprise over night cut in the interest rates a few weeks ago, regardless of whether or not it was need, the Fed went about it in away that was going to cause problems in financial markets. Stock values are based by in large off expected future returns which in turn those expectations are largely based off what people thing the economy is going to do in the future, and a surprise closed door decision to cut interest rates like send a single that we enter a major economic downturn, even if we arent, which is the case this time.

The damage caused by the sub-prime problems to the large economy has been relative small and over time the economy will work the problems out relatively quickly. The bigger threat is the Fed will continue to follow a bad monetary policy and Washington will use this as an excuse to increase spending, particularly deficit spending, and increase the rate of inflation with out producing any economic or job growth, stagflation, and to under take an number of policies that will not have any real long term effect, tax rebates, while not fixing the real problems of the government that have harmed the economy, an inefficient tax system, government spending that is to high and continued deficit spending, doing this will go a lot father to help the economy.

The Problems with Short Term Stimulus Packages

2008-01-18T09:52:00.001-08:00

Recently there has been a lot of talk about a short term stimulus plan to help the economy, while this goal might be noble, the problem with it is that there only a very limited about of effect that the short term stimulus package can have on the economy. A short term stimulus policy is based off the idea is that if you give people or business a temporary payment, tax rebate, tax cut or investment tax credit, that while spend or invest all of it or at least the vast majority of it. The problem is that this rarely happens, the evidence from most of the economic literature shows that this does not happen, most people do not change there spending decision based off short term changes in there income, they are more focused on long term changes and outlook for their income. Business are even less likely to base investment decision off of short term tax credits, as the evidence from the history of the investment tax credit that had little effect on business investment because of there short term nature. The problem with statistic like those that CNN had today that showed that consumer spent 2/3 of there 2001 tax rebate is that it only looks at whether or not people spent the “check”, not if they increased there overall spending, in many case people were going to spend that same amount any way, they just spent it earlier and their overall spending did not increase.

I can understand the political reasons behind the short term stimulus package, no one in government wants to look they are not trying to help, but if they must pass this stimulus package, afterward they need to move on to the long term government issues that are harming our economy, over spending, budget deficit year after year, bad government regulation and the problem with the tax system.

The Problems with Short Term Stimulus Packages

2008-01-18T09:52:00.000-08:00

The Economy

2008-01-17T10:57:00.001-08:00

Today Ben Bernanke called for Congress to intact a fiscal stimulus plan, this is in line with traditional Keynesian programs to “correct” economic downturns and in theory it sounds good, but in practice they rarely work out as well as they should. The first reason that it will probably not have much effect is the size of the package, 150 billion dollars, while that sounds like a lot of money one has to remember that the total size of the United State economy is around 13 trillion dollars, so this package would only be the equal to slightly more than 1.1 percent of the US economy. The next problem is that the package calls for tax rebates; a tax rebate is when the government gives a person an advance on future tax refunds, it’s not a decrease in tax rates. In Keynesian economic this short term increase in people wealth will cause them to spend more and increase economic activity, the problem with this that people are not stupid and they realize that they will have to pay back this tax rebate or it will be taken out of there future tax refunds, so they realize that they have not had a real increase in there income and they do not increase there spending. Empirical evidence from President Bush earlier 300 tax rebate, in 2001, and from when the first President Bush reduce tax withholding to try and encourage spending, show that a large portion of the American public did not increase there spending any in response to short term tax rebates or reduction in tax with holding that were not accompanied by real cuts in the tax rates. Along with this the Fed should quite cutting interest rates, interest rates in the United State are already quite low and there already some evidence of rising inflation. On the plus Bernanke called to have the earlier Bush tax cuts made permanent.

Instead of short term fiscal stimulus package, the Government should be working on correct the action that it has made that has harmed the United States’ economy. First the United States Congress and the President needs to bring its spending under control and balance the budget, reducing the deficit and in the long term keeping the debt under control. Secondly by keeping spending under control, the Government should then move on to keeping taxes low and improving the country’s infrastructure. Doing these in the long run would do far more to improve the US economy and the lives of the common person than short term stimulus package. The United States needs to move beyond the failed Keynesian policies of the past.

Capital Projects

2008-01-15T11:27:00.000-08:00

This is my first post of the New Year and much over due. Another year has gone by with out the Illinois State General Assembly approving a Capital Improvement program for the State of Illinois. While the problems with the Chicago area mass transit system, which was largely caused by mismanagement on the part of the officials, appointed to run it, the poor state of Illinois capital infrastructure has gotten less attention. Keeping up and improvement of the State’s Capital Infrastructure is one of the most important things that the state can do to promote economic growth. A good capital infrastructure program would increase the quality of the transportation network in the state and its schools. The improved transportation network in Illinois would make it easier and less expensive to ship goods with in Illinois and to ship goods into and out of Illinois making Illinois a more attractive place for business to locate. Illinois declining capital infrastructure has already cost the state a thousands of jobs and prevented some companies for locating here, including at least one major Japanese car company.

TIF Abuse in Chicago

2007-11-16T11:47:00.000-08:00

Over the last few years, the amount of money that Chicago has brought into the tax increment financing district has increased to over a half billion dollars this year, TIF districts use current tax revenue to finance economic development that is suppose to later on repay itself through improvement in property values. The money is suppose to be used to increase economic growth and if often used to make pay out to private companies that will then use the money to create new jobs. While this sounds good in theory, in practice it rarely accomplish what it promises to, first of all the money usual ends up going to companies that do not need, companies that can easily raise any capital that they might need in the private investment markets. For the most part any business idea that is a good idea and economically viable will be raise the capital that it needs to get started and to run its operations. For this idea to work the government would have to have a better ability to decide what companies are economic viable than the market place does.
In Chicago you have the add problem that the TIF revenue is off budget so the Mayor Chicago has the ability to do pretty much what ever he wants with it and channel it to the projects he deems best. For example 40 million dollars went to the CME inc, the company that came into existence when the Chicago Mercantile Exchange bought out the Chicago Board of Trade, this merger also result in the company eliminating 400 jobs, so the city ended up paying the company about 100,000 dollars for each job it eliminated, and CME is easily a company that could easily raise all of its capital requirements in the securities market and has zero need for state subsidization.

Reforming Federal Government spending

2007-11-12T16:54:00.000-08:00

As I stated in my last post, I intend to talk about ways the the Federal Government could reduce spending, cut taxes and benefit the economy.
End Farm subsidies, as I mentioned in one of my previous post, farm subsidies are bad for the economy and environment, ending the farm subsidy program would save taxpayers around 38 billion dollars a year.

Terminate the International Trade Administration, this department is suppose to promote US Exports, but most evidence indicates that it has little or no effects on the amount of goods and services that the United States exports each year, ending it would save tax payers around 400 million dollars a year.

Terminate the Federal Technology and Industry programs, these program are suppose to subsidize the development of new techonologies by private firms in the economy to make the American Economy more competitive, but in reality they have little effect and the 400 million dollars a year spent on this program is a drop in the bucket compared to the 100 billion spent private investors and organizations on the same thing. These programs sever little practical purpose and should be ended.

Privatize the four Federal Power Market Administrations, these agencies have the job of marketing power from the 120 federally owned power damns, privatizing these agencies would save the taxpayers several billion dollars a year and could raise 10 billion dollars in funds. Sell 3 of them was original proposed by President Clinton in 1996.

Terminate the Community Development Block Grants, these grants were designed to provide help to low income areas, but for the most part these grants are ineffective and produce little in the way of improvement in low income ares. Far more of the money ends up going to wealth neighbor, often funding thing like malls and shopping developments that should be paid for with private funds. End these programs or substantially cutting and reforming them could save the taxpayers up to up 5 billion dollars a year.

Terminate the operation of the Bureau of Reclamations, the job of this agency is to run operations to provide power and water to area in the west. Its operations make little economic sense and the projects that are under taken by it often damage the environment and the subsidization of the water and power that the taxpayers pay for through this agency is helping to cause the water problems in the American West by encouraging more people to move to the area than it can support. This agencies should be privatized and government subsidization ended, this would save the tax payers 1-2billion dollars a year.

Terminate the Bureau of Indian Affairs, this agency is a remnant of by gone age that needs to go, the management of Indians lands should be turned over to the tribes and subsidization should end. Terminating this Bureau would save the taxpayers around 5 billion dollars a year.

In my next post I will continue talking about programs that can be terminated or privatized and other fundlemental government reforms.

The Wrong mindset in Washington

2007-11-11T15:19:00.000-08:00

While listening to speech given be a candidate to replace Congressmen Ray Lahood at Saturday morning Tazewell County GOP breakfast it struck my that many Republicans also share the wrong kind of mindset with Democrats, and that mind set is that everything will be ok if can just get more back from Washington D.C., part of the problem with Government right now is that to many members of Congress share this mind set. Instead of trying to find ways to reform Government, reduce it size and make it more efficient, they just want to get more pork for their district. So that when election time comes around again they can say look how much money I have brought back home and use projects to bribe support for interest groups, like business or unions that stand to benefit from pork projects. Each year the Government spends bills on pork projects that produce little in the way of actual benefits for the economy. Instead of Republican candidates talking about how they are going to bring more money back to there districts in the forms of new projects, we need ones talking about how they are going to leave more money in there districts by reducing unneeded government spending and reducing taxes.
In way it is weird that the biggest supporters of tax and spend, or borrow and spend, policies tend to be in political blue states, because these states tend to pay more money into the government than they receive back from it and red state that tend to have fewer supporters of these policies when they receive a disportant about the benefits from government spending. So when it comes to government spending, blue states tend to be net loser and red states net gainers. Over my next few post, I plan to talk about ways to reduce the amount that goverment spends each year.

The Great Farm Subsidy Scam

2007-11-09T08:33:00.001-08:00

It’s the time again when the United States government is debating farm policy and agricultural subsidies and once again instead of focusing on bringing an end to the agricultural subsidies and making the farm sector a fair and free market, they are talking about how to reform them. Agricultural subsidies benefit a small portion of the population, the farm sector, and cost the rest of us.

There is a lot of myth out there about farm subsidies and how they affect the public and a lot of them that claim they benefit the public, so lets look at a couple of these myths. The first is that farm subsidies are needed to protect small family farmers, the first problem with this statement is that most farm subsides do not go to small family farms, around 70 percent of all subsides flow to the largest 10 percent of producer. So this means instead of helping the family farms like some proponents of subsides claim, they are really helping larger producers and actually hurt small farms because the value of future subsidies are capitalized into the values of land and other farm inputs, like machinery, raising there prices and making it more costly for small farmers to purchase more land and equipment and difficult for new farmers to enter the market because of the high cost, reducing competition in the long run. Since farm subsides are tied to production and size of the farm, increasing as the amount of output produced by farms increase, farm subsides actually encourage large farms to buy up small farms and land and price small farmers out of the market.

The next myth is that with out farm subsides the price of food in the United State would sky rocket and the general public would be hurt. This is just plain wrong and misconception on the part of many in the public because it ignores that right now there are two prices the public pays for farm goods. The first is the one that most of us know about which is the price we pay at the store, but there is a second hidden price, and that is the price we pay in higher taxes in order to fund the farm subsidies program. If farm subsides were to end, yes the market price would probably rise some but there is no reason that it would rise above true cost that we pay for farm goods, to be exact the cost to the public would probably be less since right now we are paying subsides for far more farm goods that are consumed. The other factor that people ignore is that only select groups of farm products are subsidize and many do not receive any at all, farmers that receive subsides are actually forbidden from growing certain crops, and ending farm subsides would have little effect on the price of these goods. The biggest change is that right now people have no choice on how they spend money that goes to hidden cost of farm products, but with out subsidies they would have a choice since they would be able to decide which items they purchase.

One other point about farm subsides are that are bad for the world economy and they are bad for the environment. They are bad for the world economy because farm subsides in developed countries, the United States far from the worse offender in this case, because they cause farmers in these countries to over produce, in some cases to the put that countries end up giving away some of these products because product is greater than world demand, this over production because of subsidization artificial lowers the prices of these crops in the world markets making it impossible for many farmers in underdeveloped countries to compete in one of the few industries that would have an advantage in and that could be produce an export good that would bring in hard currency, like dollar, euros, yens, ect, that could be used to help fund development in these countries. The over production of farm subsidies also hurts the environment because it leads to the over use of pollutants like fertilizers and pesticides and the over use of farm land with depletes it over time.

It would be better off for everyone in general, excluding of course subsidized farms, if farm subsidies were complete ended and the farm sector returned to a competitive free market. The free market would make farming a more competitive industry; it would create prices that reflect the true market cost and the values of the consumers and it would end the current practice were both the working and middle class are taxed to benefit large corporations.

Parecon

2007-09-29T14:39:00.001-07:00

It been a while since I have posted, but for my first post back I am going to do something a little different and talk about a purely economics issues, instead of political or political economy one. I am going to talk about a relatively new form of left wing economics, which has in particular shown up in the Green Party, Participatory economics(Parecon). The information that I am going to be using for this comes mainly from the wikipedia entry on participatory economics, http://en.wikipedia.org/wiki/Parecon.

First here is the definition that wikipeida has for participatory economics. “often abbreviated parecon, is a proposed economic system that uses participatory decision making as an economic mechanism to guide the production, consumption and allocation of resources in a given society. Proposed as an alternative to contemporary capitalist market economies and also an alternative to centrally planned socialism or coordinatorism, it is described as "an anarchistic economic vision"^[1]. It emerged from the work of activist and political theorist Michael Albert and that of radical economist Robin Hahnel, beginning in the 1980s and 1990s.”

First lets look how production decision are made under Parecon

“To implement the decision making principle, a parecon would be organized in consumers' and producers' councils. Many individuals would participate in both types of councils. These would be the respective equivalent of workers' councils. Geographically, these councils would probably be nested with neighborhood councils, ward councils, city or regional councils and a country council. Decisions would be achieved either through consensus decision-making, majority votes or through other means compatible with the principle. The most appropriate method would be decided on by each council. Local decisions like the construction of a playground might be made in the ward or city consumers' council, probably interacting with both city and countrywide producers' councils. Countrywide decisions, like the construction of a high-speed mass transportation system, would be discussed by the country consumers' council, possibly interacting with a city producers' council in the city where the materials are produced, or countrywide or international producers' councils. The producers' councils would probably correspond to workplace councils in each workplace and similar workplaces would group into nested councils on successively larger geographical and linguistic scales.”

The problem that this system has it the same that all command economic have in that they really on a relatively small group of people to decided what should be produced, how it should be produced and how much should be produced. Robin Hahnel on of the developers of Parecon has argued that since the decision making process is distributed among a number of decision making bodies that it is not central planned, and he is right that technically its not but the problems that face planned economics are the same regardless of whether or not they are centralized or decentralized, they still produce economically inefficient distributions of economic resources relative to market economics. In the market the distribution of resources is decided by the interaction of a large number of producers and consumers, in many case one individual or group is both a producer and consumer. While no single entity in the market has complete or perfect information, they do all have some information and the market combines that information and then produces a set of prices for goods and services and then consumer use this information to decide what they want to buy and how much and producers decide what to produce, how much to produce, and what inputs to use, worker decided how much they want to work, ect. The problem is that since no single group has complete information and the set of information is constantly in flux, centralized planners are unable to make economic efficient allocations of resource.

Next we will look at the problem with wages under Parecon:

“Promoters of participatory economics hold that it is inequitable, and also ineffective, to remunerate people on the basis of their birth or heredity, their property, or their innate intelligence. Therefore, participatory economics advocates as a primary principle reward for effort and sacrifice. Therefore someone who works in a mine — which is dangerous, uncomfortable, and confers no power whatsoever on the worker — would get a higher income than someone who works in an office the same time, thus allowing the miner to work fewer hours and the burden of highly dangerous and strenuous jobs to be shared among the populace. Additionally, participatory economics recognizes a certain leeway for exemptions from the remuneration for effort principle. It is suggested that people with disabilities who are unable to work, children, the elderly, the infirm and workers who are legitimately in transitional circumstances, can be remunerated according to need. This said, participatory economics posits an obligation for every able adult to perform some socially useful work as a requirement for receiving reward, albeit in the context of a society providing free health care, education, skills training, and the freedom to choose between democratically structured workplaces with jobs balanced for desirability and empowerment. The starting point for the income of all workers in participatory economics is an equal share of the social product in the form of equal consumption rights for private and public goods and services. From this point incomes for private expenditures and consumption rights for public goods can be expected to diverge by small degrees reflecting the choices that individual workers make in striking a balance between work and leisure time, and reflecting effort ratings assigned by their immediate peers”

The first problem with this is that assumes the value of good is derived from how much effort by labor goes into production, when in reality the value of all goods is subjective and derived from what consumer are willing to pay for good at each quantity that is produced, water while extremely important for life is relatively cheap because there is a lot in most areas and precious gems that often have limited uses are relatively expensive because they are rare. Labor like all other inputs derives it value from its share of the value of the good produces, ie it’s the value of labor or any other input comes from the role it plays in producing a good or service. The only role that danger plays in the value of labor is that a dangerous job will have to pay some kind of premium over jobs that require a similar skill set but are less dangerous in order to attract workers. For the example of the miner and the office worker, while the job of the miner is undoutably far more dangerous than that of the office worker, in many cases the value of the product produced by the office worker is more valuable than that of the miner, so the value of the labor of the office is worth more than that of the miner in this case.

The second problem that Parecon faces when it comes to wages is that ignores that wages play in producing an incentive for people to pursue higher levels of education. Education is costly, not just in money, but also in time, mental stress, ect, and the opportunity to gain higher wages is one of the reason that many people undertake additional education. Under the Parecon system there would be little incentive for people to pursue additional education since wages are linked to effort of labor, its danger and how uncomfortable it is, since highly educated jobs tend to be less physically strenuous and less dangerous they would not command the same wage premium that they do under market economics and the long run effect would be fewer people pursuing higher levels of education.

Now let’s look at how Parecon would destroy many of gains from the division of labor:

“Some tasks and jobs are more comfortable than others, and some tasks are more empowering than others. To achieve an equitable division of labour, it is therefore proposed that every person must do different tasks, which, taken together, bring an average comfort and an average empowerment. For instance, someone who works in a facilitation board for one year might then have to work in a steel plant, or in another uncomfortable workplace of his or her choice, for a year, or else would not get a higher salary than the standard for everyone. This assures that no class of coordinators can develop.”

The division of labor means that people specialize in one particular area of work, by doing so they gain expertise and experience in it and become more productive and people tend to be attracted to jobs in areas was that they are naturally good at. Historically the division of the labor has been one of the major factors that have driven economic growth and this economic growth has been the main reason that people now have a far higher standard of living than in the past, and the continued specialization of labor has helped to increase productivity in many industries, benefiting the economy and society in general. The Parecon system by forcing people to rotate jobs would eliminate many of the gains from the division of labor, people would have little incentive to gain expertise in a particular job since they are just going to be rotated to another one in a year or so and even if they wanted to gain expertise in one particular field by rotating people in and out of vastly different jobs it would be impossible to gain the experience necessary to increase their productivity.

Secondly it would discourage people from pursuing high levels of education since what is the reason to give up the time and energy to obtain a specialized level of education when you are just going to be rotated between jobs?

In conclusion Parecon face most if not all of the same problems that traditional forms of socialism/communism do, the inability of economic planners to produced a distribution of resources that is as economical efficient as the market economy, but also it feature serve to discourage people from pursuing higher levels of education.

Why the Federal Reserve Should NOT cut the interest rate

2007-09-06T10:57:00.000-07:00

A lot of people are pushing for the Federal Reserve to cut the interest rate in response to the problems in the sub-prime loan industry, lender want the cut in order to easy the burden of loan defaults and some in the financial sector want it to push up the values of their investments, but its my belief that cutting the interest rate at this point would be the wrong thing to do. The first reason is that the interest rate should only be change by the Federal Reserve in order to respond to changes in the economy as whole, the sub-prime loan problems are not a broad based economic problem, in real terms its only affected the still relatively small amount of home owners that are defaulting on their loans, the financial institutions that hold those loans or have invested in them, and home construction and retail industry, both of which are coming off a multi year boom that has left many housing markets in the United States over valued and correction is now need to return those houses to there true non-market bubble price. Yes the effects have spilled over into the larger stock market and depressed stock prices, including many companies that will not be directly affected by the sub-prime loan market, but as investor confidence recovers and the bad companies are sorted out from the good, there prices will recover, and until then this creates a buying opportunity for investment how will have the chance to buy stock in good companies that have been over sold and now over valued.

There is nothing fundamental wrong with the United State economy, growth in the second quarter was about 4 percent, which is very strong, and while it expected to be weaker for the rest of the year, there is no signs of recession, and expected growth is still expected to be stronger than growth in the Euro Zone, and a long with that the manufacturing sector in the US is doing well, productivity is growing, our productivity is the highest in the world, and unemployment is low.

The second reason is that cutting the interest rate at the moment would send the wrong signal to companies that engaged in making risky loans, encouraging them to continue making these loans expecting government intervention if they turn bad on them. The government needs to stay out and let the market work the problem, in the long run it will be best for everyone.

Line Item Veto and other

2007-08-27T12:30:00.000-07:00

Governor Blagojevich used his line item veto last week to cut about half billion dollars from the Illinois State budget last week, normally I am all for cutting spending and pork, but that not what the Governor was doing, he was cutting this money with the intention of using to fund his health care program that the State General Assembly refused to pass. The Governor is attempting to do an end run around the elected representive of the people and use these cuts to fund a program that they would not pass, this shows how little respect Governor Blagojevich has for the state, its people, their representatives and its institutions, there is a reason that the budget making process is not entrusted to one man but instead negoiatated between the legislative and the Executive. Think of the reaction if President Bush tried to do the same thing. Hopefully enough of the Senate Democrats will see the light and join with there Republican counterparts and work with the House were both Democrats and Republicans seem willing to over turn the veto. If not Speaker of the House Mike Madigan has made it quiet clear that he intends to challenge the Governors ability to use the funds from the veto programs in court.

On the National side, Alberto Gonzales resigned today as United State Attorney General, not matter what you think of his policies or the Bush Administration, the way that Alberto Gonzales handled the events that happened around him showed poor judgment and it is probably best for everyone that he is gone.

The Governor loses more backers

2007-08-06T10:00:00.001-07:00

Governor Blagojevich’s antics during the budget debates have gotten so bad that even his long time backers in the AFL-CIO no longer consider him to be trust worthy, they have gotten behind a proposal that would cut the Governor out of the decision on how school funding is distributed, instead putting it in a lock box that would be a controlled by a 3/5 super majority vote in both Houses of the State Assembly. On a similar note if there is no new budget or temporary budget that means that schools districts in Illinois will not be getting there share of state funds on time which could put a number of them in a bad position, particularly in counties like Tazewell were the county treasures has no intentions to distribute property tax revenues until September and even then he will make a only a 45% distribution at first.

This just goes to show how much the Governor’s leadership has failed that even the Unions no longer trust him. He has consistently failed to recognize the reality of his political position and give up on programs and taxes that there is little or no support for or to work with three of the four leaders of the State Houses. The only question now is how much longer can he count on the support of State Senate President Emil Jones? For this year what we need is a zero growth budget and then for next year the public needs to push it representatives in the State House and Senate to start the new budget from scratch with a zero-bases budgeting system.

More Taxes

2007-07-27T07:33:00.001-07:00

It been proposed in the Illinois State Senate that the Government oppose a 3 percent tax on businesses that spend less than 4 percent of there payroll on health care insurance for their employees in order to pay for a stripped down version of Governor Blagojevich health care plan, this plan has a number of problems with it. First it makes the assumption that companies have a duty to provide all or most of their employees with health insurance, while in many case it is a good policy for companies to offer health insurance as a benefit in order to increase their likely hood of attractive and retaining qualified employees but its not the place of the government to decide what benefits package a company should offer and penalize them if they don’t. Also some companies may choose to pay their employees more in lieu of providing them with health care, paying them enough that they could purchase it on their own. Many smaller companies might not have high enough profit margins to be able to afford either the cost of the 3 percent tax or spending 4 percent of their pay roll on health insurance cost.

The next problem with this is that will discourage companies from high low skilled/unskilled labor because these are the employees that companies gain the least benefit from offering health insurance from and if the company has a mixture of highly skilled workers that they offer insurance and low skilled/unskilled workers, the more low skilled/unskilled labor that a company hires would increase their overall payroll and decrease the percentage of their payroll that goes to health insurance cost. This would encourage companies to hire fewer low skilled/unskilled labors in Illinois, particularly large companies that can more easily shift this kind of work out of state, and raising the unemployment rate for these groups in the state. This means fewer jobs for Illinoisans overall and slower economic growth and it will make Illinois a less attractive place for companies to do business in by raising the cost of doing business here. Final this will end up being a stealth tax on the consumer as some portion of the tax will be passed on to the consumer in the form of higher prices, as with any other taxes of this nature it will have a larger effect on the lower income groups that spend most if not all of their income on consumption and lesser effect on higher income groups that save a portion of their income.

Comes down to the crux of the problem with the Illinois State budget, that it’s not a revenue problem but a spending and management problem, some of the state leaders want to spend far more than the state can afford to spend.

On sad note former Illinois State Representative, Jay Ackerman was killed this week in a accident, I known Jay and his family for a number of years and they have my deepest sympathies during this time.

Cigarette Tax Increase

2007-07-18T15:07:00.001-07:00

The new proposal on how to add more revenues to the Illinois budget is to double the tax on cigarettes from 98 cents to a dollar and 98 cents. The cigarette tax increase is attractive to many State Senator and Representive that don’t want to raise taxes in general because one it only directly affects a small percentage of the Illinois population and target a product that most people dislike and that many moral oppose. It far easier to sell a “sin” tax to the general public than a general increase in the sales or income tax. While I don’t smoke, dislike the habit and could care less what the prices of cigarettes are, I still oppose the increase in the cigarette tax. The first reason is that it is a highly regressive tax; the poorer in society have a higher likely hood of being smoker and would ended paying a higher percentage of the tax than the percentage of the state income that they make up. Second if the increase in the tax is large enough it would serve to encourage people in the border area of the states to travel to near by state in order to purchase cigarettes, according to some estimates if the tax increase go throu consumer in downstate Illinois would be able to save around 20 dollars a carton by buying cigarettes out of state and consumer in Chicago could save around 30-40 dollars. The other side of this is will encourage the black market sales of cigarettes and the criminal eliminates that comes with black markets and smuggling. If the tax is high enough it will allow black marketers and even more criminal eliminate, such as gangs to make money by either stealing cigarettes or smuggling out of state cigarettes and then selling them, particular in Chicago/Cook County were prices are even higher. The third problem is that there are around 8,000 jobs in Illinois that depend directly or indirectly on the sales of cigarettes, if the tax increase leads to a decrease in the (legal) sale of cigarettes in the state, these jobs will be threaten and associate income and business tax revenue from them

The Final problem is that it makes a large part of state review, around a billion dollars subject to changes in the amount of cigarettes that are sold in the state and decline in sales of state cigarettes would reduce state revenues and increase in smoking, which I am sure most people would agree is a bad thing, would increase state revenue.

2007-07-12T15:54:00.001-07:00

Today the Governor announced plans to try and prevent insurance companies from basing increases in health insurance premiums on changes in the insure health, which is about the same as saying an insurance companies can not base auto insurance on the drivers history of accidents or tickets or housing insurance on the home location and if it in area that prone to flooding, fires, hurricanes, tornadoes, ect. Since Insurance is protecting an individual against a possible negative event from happening to them, an actuarial fair premium is equal to the cost of the negative event times the likely hood of it happening spread out over the time period of the policy. So a person with a higher likely of the negative event happening to them should pay more and some with a lesser change of the event happening would pay less. Since Insurance companies do not have access to perfect information on the likely hood of something happening they have to use information like a person health history and other risk factors to decided on the premium level, and usual people with lower risk end up paying more and people with higher risk pay a little less than they should because of the information asymmetries inherent in life forces insurance companies to pool clients together so that they can cover there pay outs with the premium coming in from a diverse group of clients some that are low risk, some that are medium risk and some that are high risk, ect, few insurance companies actually make much, if any of there profits from people paying in more in premiums than they pay out in claims, most of them make it from investing the premium during the time periods before they make pays outs.

If Governor Blagojevich gets his way and insurance companies can not use a person health history or changes in deciding premium levels the end results with be that people that are at low or medium risk will end paying an even higher rate than should to balance out people that are in higher risk groups that are no paying even less than they should. Those people that are in the highest risk groups and could benefit the most from insurance will end up having even hard time finding companies to insure them since it will be more difficult for those companies to charge them anything approaching a fair premium and most of them will not want to pass on to much of the cost to lower risk clients that may responded to large increase in their premiums by getting rid of their insurance or moving to lower premium companies and no insurance company can stay in business just covering high risk clients. While the Governor may claim that he is working to help families in Illinois, in the long run if he gets his way he will be making it hard for them to get insurance all together if they are in high risk groups.

2007-07-08T15:58:00.000-07:00

The insanity in Springfield continue today with the Illinois State Senate showing how much of waste of tax payers money these special sessions are. After meting for a minutes with many of the Democrat senators not in attendance, the session was adjourned it with conducting any business or taking any votes. Later on rumor surfaced that the Governor told State Senate President Emil Jones to tell his member not to bother showing up today or Monday, while the State House is expected to be in session both days.
The entire overtime session is joke and waste of tax payers money, there is going to be no budget until the Democrat and Republican leaders of the State Houses and the Governor come to an agreement. The Governor is going to have to give up most of his massive spending increase, because the State House is not going to pass them, and rightfully so. The Governor seems more interested in playing political games and trying to cause problems for his rival, Speaker of the State House Mike Madigan.

2007-07-07T13:47:00.001-07:00

Normally I dont post two blogs on the same day, but the lastest insanity out of the Governor's office is so extreme, I had to mention. About an hour ago the Governor announced that he was going to sue State House Speaker Mike Madigan for not holding the Special Session when the Governor decreed it to be held, though it would seem that according to the State Constitution, the Speaker has no obligation to hold when the Governor demands to be held. Let it sink in for a moment, the Governor intends to waste taxpayers money on a lawsuit that he will most likely lose because the Speaker of the House, who is in his own party, didnt have a Special Session the extact hour he wanted?
Can anyone think of Governor that has this many problems with a State House control by his own party and gotten so little accomplished?

2007-07-07T12:16:00.000-07:00

The budget debate in the Illinois General Assembly has continued to bare no fruit and has grown to even more or a debacle in large part because of Governor Blagojevich's lack of leadership. The Governor called a special session for the weekend and then tried to set the time, despite the lack ability of the Governor to set times for Illinois General Assembly, and then accused the Speaker of the Illinois State House, Mike Madigan, of breaking the law by setting a different time for the session than what he wanted. He also called The Speaker a Republican for opposing his massive spending and tax increase, thou I am sure no Republican would claim the Speaker as one of our own. The Governor also threaten to use the state police to force members to attend the special session, despite the fact that under the 1970 Illinois Constitution, our current one, the ability of the Governor to use the state police to force attendance came from a court ruling under the old Constitution and has no current standing under the new one. Relationship between the Governor's Office and The Illinois State House has fallen to the point, that a Republican member raised the issue of Impeach. The Governor's proposed lease of the lottery failed by a vote of 78-6 today in the House and a Democrat member of the State Senate said that it stood no chance of passing in the Senate despite the effort of the Governor's pawn State Senate President Emil Jones attempts to pass it. The Governor has also taken in insulting members of his own party that do not support his agenda, implying that they are bad Democrats, State Senator Mike Jacobs said it remained hims of when the Nazis would talk about good Nazis. Governor Blagojevich is so devoded of leadership that all he can do is restort to name calling and insulting leading members of is own party instead of working to produce a budget that controls spending, taxes and doesn't increase the State's debate burden.

In good news an article in the Springfield State Journal Register had an interview with a number of young minimum wage workers and they displayed a good grasp on the effects of an increase in the minimum wage on prices. They all said that they had mixed feeling about the minimum wage increase because they realized that it would lead to higher prices in the long run. Supports of the minimum wage increases like to point out to studies that show little or no job lose from hikes in the minimum wage, but the problem with the studies they use is that tend to look only at either people that are currently employed in minimum wage and see if they are fired or laid off or they look at the short. Longer run surveys show that increases in the minimum wage lower the amount of new jobs in that range that are created. If people want an example of this in their everyday life look at grocery stores like Kroger's or Wal-Mart and how they have added in self-checkers in their stores to replace regular check out isles, the reason for this is that the cost of installing and maintaining these machines is now less than that of hiring more checkers. Along with this many Union contracts have wages that are tied to the minimum wage level and any increase in the minimum wage pushes up these wages levels to regardless if increase in productivity justify the wage hikes.

Reforming Illinois Government Part 2

2007-06-29T07:45:00.000-07:00

This is the second part of my essays on reforming state government and will focus on budget reforms. The first part of budgeting reforms involves a complete review of every state program, department and agency. I already gone over this some in my previous post, about reviewing program, departments and agencies for need, cost effectiveness, duplication of services or if it would be more efficient to decentralize some of them to the county, municipal or local governments. Second is to bring the states pension system into line, the first step is that the State needs to began full funding the system every year and not put off payments, when the state puts off payments it lose the interest that would be gained for each year that the payment is put off and because of this the state has to pay more money into the system in order to make up for lost interest. For example if the state puts off a billion dollar payment into the pension system for 3 years, the state would have to put 1.2 billion dollars into the system at that point to make for the lost interest. So in the long run, paying off the states pension system obligation as early as possible will save the state money in the long run. The state needs to move from a defined benefits systems to a defined a contribution plan, under the current system which is a defined benefits system the state promises to pay retirees a set amount to a defined contribution system in which the state matches, up to a certain point, each employees contributions to a retirement fund, similar to private retirement funds like 401Ks. This would benefits both the state and the employee; it would lower the cost to the state of the pensions and give the employees more control over their retirement and the certainty that the system would be funded. All new employees would be put into this system, while all existing system would stay in the existing system.

State departments and agencies should be required to list there operations and programs each year, rank them by importance and then reveal the cost of each program. This will give more information to both the voters and the members of the General Assembly about the cost of programs, there importance and will make fund decision easier and more informed.

Reforming Illinios Government- Part One

2007-06-23T15:49:00.000-07:00

The one thing that Governor Blagojevich and his supports is right about is that the Government of the State of Illinois needs a massive overhaul, but they are wrong about how to go about, the Governor and his backers want to expanded state spending and entitlement programs and increase the amount of taxes that the state charges and collects. This post is going to be the first of multi-post discussion on how the government of the State of Illinois can be reformed to make it more effective and less costly for the public, any comments or suggestion are welcome.

To start out with the state needs to undertake a massive review of every state agency and program, to see if they are really needed and then if they are the next question to be gone over is if multiple programs or agencies or department are performing the same of similar functions and if they are would it be more cost effective. Each Department, Agency and Program would then have it operations reviewed to evaluate how cost effective they are and make suggestion on how they can be improved. Along with this an element of cost-benefits and return on investment analysis would be performed on all new state project and state programs, while because of the nature of government and public project and programs cost-benefits and return on investment can not be the sole decider of whether or not a public project or program should be enacted like in the private economy, but it can still be very use on provide information on if the benefits of project or program out weight it costs and can be used to compare projects and program when it comes to making decision on what programs should be funded and how much funding they should get.

On the opposite end of consolidating duplicate programs into one department or agency, some programs should also be evaluated to see if it would be more cost effective to decentralized and instead of administrating them at the state or higher level if they should be administrated at the county or regional level. Or it in some cases program might be better managed and more effective if instead of the state running them if they gave grants to the county and metropolitan governments to run the programs themselves.

The Illinois Revenue and debt structure also needs a complete review, the Illinois tax system needs to be reformed and tax burden on the public reduced and the economic distortions that are caused by taxes need to be minimized. How the state funds education needs to be reviewed, many people want to break the link between property taxes and education funding, but the problem with that is currently there is relationship between property taxes, educational quality and housing values. Districts with higher property taxes tend to have better school system and the better school system tends raise housing values, by an amount about equal to what they pay in property taxes. If you break this link, it might become harder to get people to support the same level of taxes to fund schools because those people that don’t have children lose one of the benefits of having good schools.

The Budget Impass continues

2007-06-21T11:13:00.000-07:00

The budget stalemates continue in Springfield, today 22 of the 114 members of the State House of Representatives, lead by the Governor’s point man Jay Hoffman, sent out a letter calling on the House, Senate and Governor to negotiate on a budget and calling the budget passed by the House and Speaker Mike Madigan unaccepted and they want a large increase in spending. Speaker Madigan’s budget, while far from perfect, at least controls spending for the next year and does not increase the tax burden on the citizens and business of Illinois.

In the long run what the State of Illinois is a complete overhaul of it finances and a review of every state program to first see if the program is need or if it duplicates a service already provide by other programs. Then if the program is needed to see if it is run in the most cost effective manner, and if it is not being run in a cost effective manner, then the program should be corrected. This should also be extended to entire state agencies, to check for redundancies and efficiency

over time hell in Springfield

2007-06-13T10:03:00.000-07:00

The budge impasse in Springfield continues with very little hope of the General Assembly and the Governor coming to an agreement on a new budget for the state. A big part of the problem comes from Governor Blagojevich refusal to abandon his planned spending increase and the accompanying 7 billion dollar tax increase in the form of the Gross Receipts Tax and payroll tax. This despite the House voting 107-0 against the tax increase and it not even coming for a vote in the State Senate because legislative leaders realized that it would fail and the failure of the State Senate to pass his health care plan, despite Senate President Emil Jones being a close ally of the Governor.

Along with that the Governor is continuing to push for the sale of the state lottery, while privatization of state run industries is often a good idea, the Governor has not offered a detail plan on how he would make up for the 600 million dollars a year that the state would lose in lottery revenue. Other than claiming it would be made up by investing part of the money from the lottery sale, but the amount that he would plan to invest would be required to make a return of about 10-13 percent to make up for the lost in lottery revenue and it is all put impossible to make that kind of return with out taking on some kind of risk. Along with this the lottery sale is not to popular with the members of the State General Assembly and it opposed by State House Speaker Mike Madigan. The public needs to put pressure on Governor Blagojevich to drop his tax increase and massive increase in spending on social program and accept a zero or low growth budget and start working on future budgets that would cut back on unneeded state spending and reduce the overall size of state government.

More on the Budget

2007-06-07T14:39:00.001-07:00

Yesterday it came out that Illinois Senate President Emil Jones has punished certain Democratic members of the Illinois State Senate for opposing the Governor’s proposed Universal Health Care programs and massive business tax that would go along with it. Senate President Emil Jones stripped South Side Chicago Senator Lou Viverito of his position on the powerful Senate Rules Committee and barred him Leadership meetings, because of his opposing the Governor’s policies. In Particular Senator Viverito opposed the Gross Receipts Tax and the addition of four new casinos to the state and slot machines in race tracks.

Governor Blagojevich also demand that the State General Assembly stay in session for 5 days a week until the budget is complete which seems fun coming for him, seeing as he barely been in Springfield during the budget debate and up until this point has made no effort to exert any kind of leadership. It is interesting to note that almost every day this week the Governor has flown back home from Springfield to Chicago each night and then flown back to Springfield each morning, on the tax payers dime of course and unlike the members of the State General Assembly, who have to pay for their hotel room and food now since the regular session is over and they have lost there 125 dollar a day expenses account, the Governor has a tax pay provided Mansion to stay in Springfield and food provide, not that he stays in the Mansion much.

Budget Fiasco

2007-06-06T09:54:00.000-07:00

The Illinois State General Assembly has failed to pass a budget during it regular session and thus will be forced to go into an overtime summer session, which of course will cost the taxpayers more money. This is all due to a lack of leadership on the part of Governor Blagojevich and State Senate President Emil Jones, the Governor sprung a proposed budget that include massive new spending and 8 billion dollars in new taxes that would of severally damage the State’s economy, and then instead of sitting down with legislative leaders and talking about a budget and negotiating, when it became clear that most of the State and members of the General Assembly opposed the increase in spending and taxes, he and Senate President Emil Jones tried to shove it down the throats of the legislator and paint opponents of the new budget as being against the will of God. Predictably it failed miserable, a Governor whose party has a major in both Houses of the General Assembly failed to be able to even get his budget through, because he refused to negotiate on a budget that was clearly unacceptable to a large section of the State’s populace and Representatives.

The Governor Loses it

2007-06-01T16:27:00.000-07:00

The Illinois Budget battle and Governor Blagojevich entered a new level of insanity today, when Governor Blagojevich reportedly threaten Democrat State Senator Mike Jacobs of East Moline when he refused to support Senate Bill 5, the Governors massive new Health Care program that the State cannot afford. The Governor reportedly offer to release 75 million dollars for Western Illinois University which is in Senators Jacobs district if he support the measure and then when he still refused, the Governor reportedly called the President of WIU and said that Senator Jacobs had cost the University a promised 14 million dollar grant and threaten to run a candidate against him next year and went into a profanity laden tirade and doubled his fist like he wanted to fight him.

Heres the link to CBS interview with Senator Jacobs, http://cbs2chicago.com/video/?id=32925@wbbm.dayport.com.

This is just another example of the Governors inability to lead, he can not even get all of the Senators in his own party to support him. When he cant win he resorts to threats and attempts at intimidatation.

2007-05-30T20:15:00.000-07:00

There has been a lot of talk about expanding gambling Illinois as part of the State’s new budget as away to increase the State’s revenues with out raising taxes, according to rumors there may be as many four new land based casinos, expansion of existing river boats, slot machines at race tracks, phone betting and sport booking making. While I have no problem with the legalization of gambling in Illinois is with the state licensing system for casinos and reports that one of the casinos may be owned by the city of Chicago. The Illinois licensing system has already been shown to produce corruption and problem with owner with question background and political ties, as can be seen by the troubled current ten licenses for a river boat casino that original was going to be in Rosemont, which has not been used yet because of legal problems. With Chicago history of corruption and ties between government official and criminal elements does anyone think that it is a good idea to give the city of Chicago ownership of a casino?

Another questionable piece of legislation tied to the expansion of gambling would give 10 million of the 40 million dollars expected in revenue from the 10 gaming license to go Chicago State University with the remaining 30 million being split between all of the other state universities. One has to wonder why Chicago State, which has only 6,000 students and is the small of the state universities, should get a quarter of the new revenues and far more than the larger state universities. The only possible reason could be the strong ties between Chicago State and Illinois State Senate President Emil Jones.

Tonight the Illinois State House of Representatives is set to pass a budget that is very low in spending growth that would include 290 million dollars more in funding for schools and in increase in State revenues of 1.1 billion, 800 million of which would come from growth of State revenues due to increase tax revenues from economic growth and the remaining 300 million would come from the proposed closing of tax loop holes. While this budget doesn’t include spending cuts and reforms that the State direly needs, it is far better than the massive increases in spending that the Governor want and the economy crippling taxes that would come with it. There is going to have be some major changes in the leadership and make up of the State General Assembly before we see the fiscal changes that the State needs and the tax payer deserve.

State Government Waste

2007-05-24T15:47:00.000-07:00

Today more information about government waste in the office of Governor Blagojevich has come out. Today it turned out that the total bill from the lawsuit against the State law that total cost of defending the unconstitutional violent video game law that Governor Blagojevich introduced was not 500,000 dollars as his office previously claimed, but over 1 million dollars due to legal bill incurred by hiring lawyers to defend the Governor. The cost of the additional 500,000 dollars were charged to such varying departments as the Departments of Human Services, Children and Family Services, Public Health, Corrections, Revenue, and the State Police. What reason would there be for these departments to pay for the legal bills related to a video game law? The answer is there is no real reason, the reason that it happened this way was so that the Governor office could try and cover up the true cost of the law suit. So a bad law that should never have been passed, bug the Governor pushed through in order to try and win more support for his re-election bid ends up costing the tax payers over a million dollars.

Yesterday State House Speaker Mike Madigan indicated that there is not enough support to pass an increase in the state sales and income tax. Hopefully this mixed with the death of the Gross Receipts Tax will force the State General Assembly to look close at spending and cut back on needed spending and programs and inject some fiscal discipline into the state. If the state can not be responsible with what it is taking in now, why should they be trust with billions more of our dollars?

Protecting Incumbents and Hurting Voters

2007-05-18T17:22:00.000-07:00

It seems all but certain that the Illinois will move it primary to February 5 next year from its traditional March date. Will it’s good that Illinois will have stronger voice in the Presidential Primaries; this will be in bad in part because the state is also moving the primary for all other state, county and federal offices back to February the 5^th too. This is gong to provide more protection for incumbent candidates. The early primary date means that campaigning will have to start in November and December during the holiday season, when a large percentage of the electorate will not be paying attention. This is going to benefits incumbent candidates since they have a stronger name recognition and candidates that maybe trying to challenge them during a primary will have hard time making up this advantage in name recognition since it will be harder for to get their name out their because most voters will not be paying as much attention to political races during the holiday season and they will only have the end of January to try and make up for this. It will also favor candidates with more money and support for the political structure since they will have an advantage from the start and it will be hard for outsider candidates to one get name traction and race money and then use that make up for any weakness they have in name recognition or political insider supports that other candidates may have. While Illinois needs to move back it Presidential primary so that will have more of say in choosing the Republican and Democratic nominee for President, we need to leave all of the other primaries where they are. Everyone should contact their State Reps and Senators and tell them this, give us a stronger voice in the Presidential Primaries, but don’t give incumbent and name candidates extra protection.

Every one that is boxing fan or has any kind of interest in it should watch tomorrows card on HBO, while the main event between Middleweight Champion Jermain Taylor and former Welterweight King and Lt. Middleweight Champion Corey Spinks may not be much of fight, the under card fight of Edison Miranda and Kelly Pavlik could be a classic. Pavlik is a tall stronger aggressive boxer-puncher and Miranda is a all action puncher with a huge shot, who batter top Super Middleweight prospect Allen Green in his last fight.

The Death of the Gross Receipts Tax

2007-05-16T11:00:00.000-07:00

I know it’s been a wile since I Have last posted, but I have been busy with finals and grading papers, so here we go. Last week the Illinois State House held an advisory vote on the Gross Receipts tax and 107 seven members voted against with 7 voting present and zero voting for it. Immediately before the vote Governor Blagojevich told his supports in the Illinois House to vote against the measure saying that something like this was to important for advisory votes and that they should vote no as protest. IT should be clear the real reason he told them to vote no was he realized that there would be close to hundred no votes any way and he knew that getting hundred no votes would pretty much kill the Gross Receipts Tax, so this was a measure of desperation on his part.

Every voter in the State should write his representive in the State House and thank them for voting no on the Gross Receipts Tax. For to longer the citizens of Illinois have been asked to pay for wastefully and unneeded State programs, by both Democrats and Republicans. It’s time for that to change, the State need finical responsibility before there is an consideration of new taxes, because if not the new tax revenues will be wasted and we will ended up in the same boat we are in now in 5 to 10 years. New taxes will hurt everyone in the state, reducing the incomes of the states poorest, middle class and richest alike and hurt economic and job growth.

The Illinois Medical Soceity and the Gross Recepits Tax

2007-05-04T11:39:00.001-07:00

Today the Illinois Medical Society the leading medical organization in the state representing over 13,000 doctors came out against Governor Blagojevich’s 7 billion dollar tax increase plan, the Gross Receipts Tax and the much less mentions but just as bad payroll tax. While the IMS support medical reform in Illinois it oppose the Governors the plan as to costly. IT tells you something when a group whose members would stand to gain a lot of money from a plan opposes, it tells you that it’s a very bad plan for the state.

Illinois at the moment does not need any new tax, the state is finally recovering economically after lagging behind the rest of the nation and any added tax burden would hurt the State’s recovery. What the State needs is fiscal reasonability on the part of the General Assembly and the Governor, over his 4 plus years in office the Governor has continued the state bad tradition of not full funding it pension programs, but he has also added millions, if not billions, of dollars in spending on unneeded programs that in some case duplicate services offered by existing programs. How about before adding any new taxes we try and control spending and close up the loopholes in the existing tax laws? The Governor like to say that opponents of his Gross Receipts Tax are all greedy business and their lackies, but opposition has come from his own party and from liberal groups that are not usually consider to be pro-business, such as the Illinois Green Party.

Taxes and the Illinois Economy

2007-05-02T11:12:00.000-07:00

Too much of the talk about the Illinois State budget has been about how to raise taxes, not whether or not it is the state’s best interest to have more taxes. Illinois has lagged behind the rest of country during the economic recovery of the last few years and we are final now starting to catch up, the last quarter had one of the strongest periods of economic growth for the State since 2000. Taxes create a number of distortances in the economic that hurt economic growth, not only do they take money out of the hands of the consumer that could be used to buy goods and service or make investments that produced new jobs and economic growth, taxes also produce a large deadweight loss, for a further explanation of deadweight losses see my previous posts, because of these dead weight losses, for every dollar you take out of the economy, you loses another 60 cents to a dollars in economic activity. What this means is that unless the government programs funded by those tax dollars produce a $1.60-$2.00 dollars in benefits for every tax dollar spent, there is going to be a net loss to the economy. This net loss means is slower economic growth, fewer jobs, lower paying jobs, ect. So both the State decides to raise taxes or add any new government spending programs, they and the public need to take a long look at the cost and the benefits and make sure that the benefits outweigh the costs. While many government programs may seem to be nice and people might like them, it does not mean that they should be put in place because there cost to society in general is greater than there benefits. The Illinois economy is final starting to recover, the Governor, the General Assembly and the voters should take a long look before support any taxes or spending programs that will hurt economic growth because strong economic growth will help far more people than any government programs.

Medicaid Bills and the Gross Receipts Tax

2007-04-25T11:37:00.001-07:00

This Month Governor Blagojevich missed the chance to pay 650 Million dollars in Medicaid bills that the State owes to health care providers, on April 4 the Illinois Comptroller office sent a letter to the head of Department of Healthcare and Family Services indicating that they would pay the bill if the DHF would forward them the invoice, DHF not only did not send them the invoice, but it did not respond at all to the letter from the Comptrollers office. What this all means is that health care providers in Illinois will not be paid on time again and this along with the Illinois history of not paying its Medicaid bills in a timely fashion or completely means that health care providers will have yet another reason not to accept patients on Illinois Medicaid. Several months ago to major health care providers in the Midwest announced that they will no longer accept Illinois Medicaid patients or people in the Governor’s All Kids program and this will just give more incentive for others to follow. There are some rumors that the reason for this is that Governor Blagojevich is trying to put the squeeze on the health care providers in order to try and black mail them into support his new taxes and health care programs. Essential it would seem what he is saying to health care providers is back my health care and associate tax increase or else no one is going to get paid. The other question is if Illinois can not pay it Medicaid bills on time as it is and the system is badly mismanaged, as most people would agree, why in the world would we want to add another expensive health care program to the state rolls?

Fred Giertz a professor of economics at the University of Illinois called Governor Blagojevich’s proposed Gross Receipts Tax an overreaction and stated that it would have cascading effect, tax good multiple times as they move through the economy. This cascading effect means that the actual amount that would be paid to the State through the Gross Receipts Tax would be fair higher the stated rate of 1.95% on service and .85% on manufactured goods. For example if you had a good that went goes through 5 production stage before being sold to the consumer you have something like this for a manufactured good.

Stage Price Tax

1 $10 $.09

2 $15 $.13

3 $17 $.15

4 $20 $.17

5 $25 $.21

So in the end the tax paid would $.75 or 3% of the goods final cost, while 75 cents seems small, when you multiple this through million of goods and services sold each year in the state, the amount ended up much larger. This assumes that none of the cost of the tax is passed on but lets see what happens if 50 percent is passed on with the same set.

Stage Price Tax

1 $10 $.9

2 $15.04 $.13

3 $17.10 $.15

4 $20.17 $.17

5 $25.25 $.22

So with 50 percent of the tax being passed on we see that the amount that the State takes in increased slight and the price paid by the consumer rise be 25 cents or 1 percent. This is small for a good like this you have to remember on a 20,000 dollars care this would lead to increase of 200 dollars. When you multiple this effect through all of the goods and service in the Illinois economy you’re talking about billion dollars. The amount of money that would be lost to the consumer in aggregate would be about equal to the amount that State takes in through the tax.

Plans to hide the cost of the Gross Receipts Tax

2007-04-23T11:10:00.000-07:00

Before I have talked about how most of the cost of the Gross Receipts tax will be passed on to consumers in the from of higher prices, it seems that Governor Blagojevich is well aware of this because hidden in his proposed bill is a passage that would make it illegal for business to place the cost of the tax on an bill to their costumers. While there are of course numerous federal, state and local taxes and regulation are passed on to the consumer in the form of higher prices for goods and services that are not itemized and presented to the consumer but are hidden, this is the first time that I know of that a bill would explicit make it illegal for a business to tell a consumer how much of the cost of good is the product of a specific tax. It would be the same as if the governments forbid telecoms or utilities from putting on their bills how much was being paid because of taxes. I don’t think that business would itemize their bills enough to include the Gross Receipts tax either way, it would just show as higher prices, but why would the Governor want to make it illegal for business to give their costumers more information?

The reason is pretty simple, Governor Blagojevich realizes that in order for the Gross Receipts tax to have any chance to pass the State General Assembly he has to play up the populist rhetoric of it not being a tax on the general public but one on “greedy selfish” business that don’t want to pay their fair share to the state. No State Representive or State Senator in district that they have any chance of facing serious competition in, is going to want to vote for a 7 billion, if the public knows that they are going to paying for most of it. They don’t want that on record when they are up for re-election, nor does Governor Blagojevich, particularly if the rumors are true that he plans to run for a third term in 2010. That why you this is hidden in the bill and you don’t see any of the Governor’s supports wanting to talk about the effects of the Gross Receipts tax will have on the economy and why the only people a loud to talk before the State Senate are supports of the Governor’s bill. If the Governor really thinks that his programs will significant benefits for the state, then so be it, tell the public that, but also tell them that they will be paying the cost of most of the Gross Receipts tax and be up front about its negative effects on the State’s economy. Let the chips fall were they may.

Shooting and Taxes

2007-04-17T09:49:00.001-07:00

The since yesterday the new has been rightly dominated by Virginia Tech massacre and right for so. I would hope that both politicians and media personality would let some time bases before they starting using this incident to push their agendas. Give the families time to grieve in private and give time for all of the information to get out to the public before we make any knee jerk reactions. One of the beauties of the colleges and universities in the United States are how open they are, it makes for easier free flow of communication and integration of the university and student body into the surrounding community. Massacres like these are incredible rare and the odds of any person being killed by one is very small, you the reader probably have a higher chance of being killed by a car slamming into your house, office or apartment while reading this. It would be a shame if we damage our communities by fencing off and putting metal detectors and visible armed guard around campuses.

Today is tax day and most everyone hated the income tax because in part it is a visible tax, everyone can see it and know exactly how much they are paying to the government. The Gross Receipts Tax on the other hand is an invisible tax because the cost of the tax become incorporated in the price of goods and services sold, so unless the public does some research they do not know how much paying to the government. That is probably one of the reason that the Governor wants a Gross Receipts Tax, because that way he can claim that he is not taxing the public and blame any price increases on greedy businesses. Wednesday April 18 there is going to be a lobbying day in Springfield against the Gross Receipts tax, I would encourage everyone to attend.

A Gross Receipts Tax is Progressive

2007-04-04T14:31:00.000-07:00

The support of the Gross Receipts tax have argued that is most fair and progressive way to fund expanded State Government spending. Ignoring for the moment whether or not Illinois needs more government spending lets look at this claim. A tax is progressive when a person or business that has higher income either pays a higher percentage of their income under the tax or at least pays more money in raw terms. Under the income tax even with a flat rate people with higher incomes pay more in raw terms, if the rate is 3 percent some one that makes 20,000 dollars would pay 600 dollars in tax, some one that makes 50,000 dollar , 1,500 dollars in tax and some that makes $100,000 would have a tax bill of $3,000 for example. The Gross Receipt Tax is based off a companies revenues regardless of how much of profit they earn, in the business world profit is corporate income, so companies that have the same revenue stream but wildly different profit margins because of the industries they operate in would pay the same in taxes. The company with the lower profit margin would see a higher percentage of their income going to Government to pay taxes. For example the maximum rate for service industries is about 2 percent, so let say you have two companies, one a restaurant and the other business consultancy, both have revenues of 10 million dollars, but the restaurant makes a profit of 1.5 million dollars and the business consultancy makes one of 3.25 million dollars, both of these companies would pay 200,000 dollars, so the restaurant would be paying 13.34 percent of their income to the Government in the form of the tax, while the business consultancy would be paying only 6.15 of their income to the Government, so the effective tax rate as percentage of income would be much lower for the company with the higher profit margin. This is not progressive.

In reality a lot if not all of this tax will be passed on to the consumer in the form of higher prices for every good and service sold in the state. This will have a large impact on lower income consumers that spend all of their income on goods and service and have lesser effect on middle and upper-income consumers that save a percentage of their income. If the Gross Receipts tax raises the price of all goods and service in the state by one percent, which could well be an underestimate, so a low income consumer will see one percent more of their income going to the state in the form of an indirect tax, for example some one that earns $20,000 dollars a year would be paying 200 dollars more in indirect taxes to the state and their effective income would be decline by 1 percent. While on the other hand some one that earns 50,000 dollars a year but saves $10,000 a year would be paying additional 400 dollars because of the Gross Receipts tax a year, but would see their income reduced by only .8 percent because they saved a portion of their income. Some one that earn 200,000 dollars a year and saves 50,000 dollars would be paying 1500 dollars year, but would see their effective income reduced be only .75 percent a year. Since the richer people are the higher percentage of their income they save, the higher income groups will see their income reduced by less than lower income groups. This is regressive and exacts same as the sales tax, the only difference is the sale tax is visible to everyone when they buy something and the Gross Receipt tax will be hidden.

Local Effects of the Gross Recpits Tax

2007-04-02T11:10:00.000-07:00

Sunday’s Peoria Journal Star had a nice article about the recovery of Keystone, for those of you that do not know Keystone is a steel maker in the Peoria and provides many good paying manual labor jobs to the area. A few years ago Keystone entered bankruptcy and say the price of their stock decline to 2 dollars share, since then the company has made a strong recovery with help from their employee’s union and a loan for Peoria country, the company’s revenues has grown, there stock price risen to 25.48 as of Friday March 30^th and they have even entered into agreement to buy Calumetals, which is one of the remnants of the now defunct Calumet Steel. In a time when we hear a lot about decline manufacturing jobs and how American Steel companies are struggling to compete, Keystone is building themselves a nice little success story. One has to wonder how well Keystone’s story will continue if Governor Blagojevich get his way and Illinois enacts a Gross Receipts Tax, this tax would drive up their cost of doing business and make their products more expensive, which in turn would make Keystone less competitive compared to companies based in other states and countries.

Ultimately what all of this would mean would be that Keystone would become less profitable, which means that they would have less money to invest in expanded and that would be less attractive for investor to loan them money for new investment or buy their stock. The end result of less investment by Keystone means that they will be fewer new jobs created and the possibility of jobs cuts and if hurts Keystone ability to compete enough they might even end up in the same situation they were in a few years back.

A new poll done by the Public Opinion Strategies company found by a margin of 54 to 34 percent, voters believe that the Governor is breaking his campaign pledge not to raise taxes.

Will Nothing Get Done in Springfield this Summer

2007-03-28T13:31:00.000-07:00

There are now rumors that nothing will get done in Springfield this summer as the Governor will refuse to sign any bills until he gets his proposed tax and spending increases. What this means is that all of the issues that are pressing the state, the under funded state pension that threatens to destroy the state finances in the long run, education reform, property taxes, needed improvements to the State’s capital infrastructure, ect, might not get addressed. If the rumors are true this means that Governor Blagojevich is willing to hold the future of the State of Illinois hostage unless the State Legislator gives into him on a massive tax increase that is oppose by not just Republican and Business groups, but by leading Democrats, including his own Lt. Governor, consumer and urban groups. The voters need to put pressure on Governor Blagojevich to drop his planned massive tax increase and work with the Democratic and Republican leaders in the State House to pass a budget that controls spending, cuts back on unneeded programs and pork, fixes the State Pension System and improves funding for capital project and other needed programs.

A Golden Opportunity for the Illinos Republican Part

2007-03-26T11:02:00.000-07:00

The Gross Receipts Tax debate has handed the Republican Party a golden opportunity to turn around it fortunes in Illinois. More likely than not the Gross Receipts Tax is going to go down in flames, but the Illinois Republican Party needs to play it right. First of all they need to come up with alternative proposal to fix the State’s financial woes that focus on spending controls and smart pro-economic growth polices. Along with that they need to present policies to reform the State education systems, even thou there is little chance of anything that is put foreword by the Illinois GOP passing, it will help to show that they can lead were Governor Blagojevich and Illinois State Senate President Emilio Jones can not.

Next they work hard with Democrats that oppose the Gross Receipts Tax and make sure everyone knows that it is a bi-partisan effort and that when the Illinois Republican Party come back to power they can and will be willing to working with the other side. Secondly as much as we focus on the negative effects that the Governor’s Tax increases will have on businesses, we need to also focus on the negative effects on the consumers. One of the main points that needs to be made is that it will raise the cost of everything people buy and that because the poor spend most of, if not all of, their income on goods and services they will see the percentage of their income that goes to taxes raised by the most. That slower economic growth means fewer new and better paying jobs in the states, which makes it harder for the poor to work their way out of poverty. It needs to made a matter of businesses, consumers and the poor and how it will hurt them all.

More Oppotion to the Governor's Tax Hike and the Payroll Tax

2007-03-23T11:33:00.000-07:00

There is more opposition coming out against the Governor’s tax increase, with Lt. Governor Pat Quinn, Comptroller Dan Hynes and State Treasurer Alexi Giannoulias have all come out against the tax increase, what makes this interesting is that they are all Democrats and that the Democratic Majority leader of the Illinois State House of Representatives has also made negative comments about the Governor’s plan. So it seems that Governor Blagojevich can not even get the leaders of his own party to sign on to his tax hike.

The other part of the Governor’s tax increase that has been largely ignored by the attention that Gross Receipts Tax has gotten is his call for a 3% payroll tax. A payroll tax is a tax that is placed on companies based on the number of employees they have and how much they pay those employees. So under the Governor’s tax, a company would have to pay 3% of the salaries of each employee they have to the State Government. This tax like the Gross Receipts tax would be bad for the states economy as a whole and bad for workers. The payroll tax comes an extra cost that is add to business when they higher more employees, so the cost of an employee that has a salary of 60,000 dollars a year would be $61800 a year, the cost of the salary plus the tax, assuming everything else is held constant. In reality part of the tax will end up being paid by the companies employees throe lower salaries, for example that 60,000 dollar a year employee might end up being paid only $59100 a year if half the cost of the tax is passed on to the employees. By raising the cost of hiring workers, this tax would lead to fewer new jobs being produced in the state of Illinois each year as labor would become more expensive. For example if a company has a hundred employees with the average salary of 40,000 dollar a years and assuming they pay half the cost of the tax, or 1.5, that company would end up paying 60,000 dollars a year in payroll taxes, or more than the price of one more employee. A company with the same features but with a 1000 employees would pay $600,000, or enough money to pay 15 new employees.

The True cost of the Governor's Tax Increase

2007-03-20T10:07:00.000-07:00

Today the Tax Payers Foundation released an estimate that the Governor’s Gross Receipt tax and payroll tax would eat up 1.3 percent of the states economy or over 7 billion dollars, this is actually an underestimate of the taxes true cost. To estimate the true cost of the tax you have to take into account its deadweight effect, deadweight loss is something that a lot of non-economist have a hard time understanding. Deadweight loss is the loss in economic activity, benefit, which is caused by something that restricts the market place, be it a tax, trade barriers, monopolies, ect. The way that a tax causes a deadweight loss is that when the government takes money out of the economy in the form the tax, there is a loss of economic activity in two ways, first part of it loss to overheard and the other part is loss from a direct decrease in economic activity. When the government takes money out of the economy consumers and businesses have less money with which to purchase goods and services and to save. If people and business are buying less that means other business will see their revenues decrease, which means that those companies will have less money to invest in expanded production capacity and will higher fewer new employees. If people and businesses have less money to save that will else cut down on investment and economic growth. Most economic estimates put the deadweight loss as between 60%-100% of the total value of the tax, so the real cost to the State of Illinois economy from the Gross Receipts and Payroll tax is not 7 billion dollars but 11.26-14 billion dollars a year or 2.08%-2.6.2% of the state of Illinois Gross State Product. In the long run this cost compounds, for example Illinois GSP is about 538 billion and assuming a 3% year rate of growth the state economy would be 554 in 2008, 570 in 2009, 587 in 2010 and 605 in 2011 with out the Governor’s tax increase, with it the state GSP would be, using the low end estimate for the loss to the state economy, 542 in 2008, 547 in 2009, 552 in 2010 and 557 in 2011. So over 4 years the Governor’s tax increase would take about 48 billion dollars out of the Illinois economy. While this is a simplistic estimate it does a good of showing the effect that this could have on our state.

The Gross Receipts Tax is Bad for Long Term Economci Growth in Illinois

2007-03-19T13:31:00.001-07:00

I already talked about how a Gross Receipts Tax would hurt the consumer, business and the economic climate in the state of Illinois, now I will mention another way that it will hurt longer term economic growth in the state. The Gross Receipts tax will lower business profits by raising the cost of doing business in the state even thou the majority of the cost of the tax will be passed on to the consumer, it will still hurt business’s profits throe two thing, one the direct way, they will ended up paying a portion of the tax themselves, and the second way indirect way, higher prices mean consumers will be able to buy fewer goods which will lower revenues and profits. If business’s in the state are earning lower profits they will have less retained earning to invest in capital goods and expanded production in the state. Investment in capital goods and expanded production facilities means that business will higher more labor and produce more and less expensive goods, which raise everyone standard of living, makes us all richer and increases the State’s rate of economic growth. Less investment means that’s the states economy will grow slower and that their will be fewer new jobs. Indirectly the Gross Receipts Tax will hurt investment because it will discourage companies that are not based or do not currently directly do business in Illinois from investing in the state. The reason is that companies base investment decision based off what the expected rate of return on their investment would be in that state compares to what would be earned in other location and the Gross Receipts Tax would reduce what companies would be able to earn on their investments in Illinois and make over place more competitive when it comes to attracting business investment. Which is another reason that the Gross Receipts Tax is just plan bad.

Another Voice against the Gross Recepits Tax

2007-03-13T13:49:00.001-07:00

There is more opposition to the Gross Receipts Tax coming out, today The Chicago Urban League President Cheryle Jackson said that while she agrees with what the Governor is trying to do, she oppose his tax increases. To quote her: “What this legislation does is penalizes the very thing that is the answer to economic development and job creation in the Black community,” Jackson continued. “It penalizes and discourages the very thing that is going to increase more jobs and increase more development in the Black community.” She is exactly right, economic growth is the engine that will improve black communities in the State, poor communities and every other community. Economic growth means new and better jobs for unemployed and those in low income jobs; it means more money for everyone, better education oppurnties and development. Economic growth is the thing that can help to alleviate or end poverty. The Gross Receipts Tax would hurt economic growth in the state, which means fewer new business in the state, fewer new jobs and possibly companies leaving the state and cutting back on the number of employees that they have. This means that you will have fewer people being able to work their way out of poverty and more people that will have to rely on government programs and aid. Hopefully more community leaders will be able to see the negative effects of the Governors tax grab and will oppose it. The best way to defeat this tax is for there to be a coalition made up of both business and community, right and left, that oppose the Gross Receipts Taxes and it negative effects.

why the gross receipts tax is bad for the consumer

2007-03-12T14:29:00.001-07:00

The Gross receipts tax is now official part of the Governor proposed new budget, as anyone that reads either of my blogs already knows this tax is bad for the economic climate of Illinois and will hurt the state’s economy growth, encourage companies to leave the state, make it hard to retain companies that are based here and hurt job growth. This tax will also directly hurt the consumer. First when Governor Blagojevich says this is about making business pay their fair share, it’s a lie, business in Illinois already pay 50.8% of all taxes and fees paid to state and local governments in Illinois, compared to the nation wide average of 42.6%. So business in the state are already paying there share of taxes.

Secondly it’s the people that are going to end up baring the burden of most of the tax are you and me and every other consumer in the state, rich, poor or middle class. The reason for this is that most of the cost of the tax will be passed on to the consumer in the form of higher prices. The reason for this is that since a Gross Receipts tax is based on the amount of revenues that a company brings in not its profit margin, which is revenue minus cost; this tax will increase of the cost of doing business in this state for every company in Illinois in two ways. First this will raise their total cost, for those of you that have economics 101 it will raise all of there cost curves, and companies to keep there profits at near the same levels as before the tax will have to raise their prices. Some of the Governor’s followers and hangers on have argued that competition and the market will keep companies from passing on to much of the tax increase to the consumers, but they are misunderstanding how the free market works. What the free market does is prevent companies for charging unfair prices for a good and/or service, because if they people will see the higher than excepted profit for that market and new companies will enter the market and force the price back down. Since the Gross Receipt Tax will affect most if not all businesses in the state, they all will face the newer higher cost curve and will not be able to lower the price of their goods and/or services with out cutting into there profit margin, which would make no-sense for a company to do.

This is the first way that the Gross Receipts Tax will raise prices for consumers, the second way that it will raise prices is that goods and service sold between business will be indirectly taxed at there full value not the value added by a company, so if company A sells a good to company B for 6 dollars, it will be taxed on that whole 6 dollars, then if company B uses the good it bought from company A to make a product that it sells to the consumer for 10 dollars it will be taxed on the whole 10 dollars so the six dollars worth of value in that product will taxed twice in this case. You could very easily have cases were the value of product could be taxed 3 or 4 times before it is sold to the consumer. While this may be a little confusing, the end results if pretty simple and clear, because the goods and service will be taxed this way the cost of raw materials and business service for companies in Illinois will go up, which means that their total cost will increase yet again and prices will rise more to make up for the increase in cost.

This tax will raise prices in two ways, one throe increasing the cost of doing business in Illinois by raising the taxes that a company has to pay and secondly by increase in the cost of raw material and business services in the state. In the end large portions of the tax will ended up being paid for the consumer and ask yourself why Governor Blagojevich isn’t beings honest with the public about the effects of the Gross Receipts Tax? I am guessing because he realize that if he told the public that it would raise the price of almost every good and service in the state, he realize that very few people would support it. So instated he is playing the populist card and trying to pass this off as greedy businesses not wanting to pay their fair share of taxes.

A GRT is bad for eveyone

2007-02-26T10:47:00.000-08:00

The Gross Receipts tax a bad idea for everyone More papers have been running articles on the rumored Gross Receipts Tax that Governor Blagojevich may propose. It pretty well known that this tax would be bad for business Illinois, giving the state a more negative economic climate, make marginal business unprofitable, make goods and services produce in the state more expensive and encourage businesses to relocate to neighboring state. For more on the negative business effects look at my previous post on the GRT. The GRT would also have negative effects on the public in general, with a sales tax the cost of the tax is split between the business and the consumer but with a GRT most of the cost of the tax would be embedded in the price of the final good or service and would be pasted on to the consumer. The reason for this is that a GRT would be placed on the entire value of a good not just the profits a company earns off of a good sold and the good would be taxed multiple times, for a example if a company sells a piece of steel for 5 dollars to a factor that used to a make a good that is sold for 10 dollars, that piece of steel would be first taxed on the the whole 5 dollars that it was sold for and then the factory would be taxed again on that 5 dollars plus the additional 5 dollars that they sold it for it. For this reason most of the cost of the tax would be embedded in the price of the good and paid for by the consumer. The tax burden would fall heavier on the poor, who spend most of not all of their income on the goods and services and less on the middle and upper class that save more of their income. Along with this a GRT would hurt economic growth in the State which would mean fewer new jobs and make manufactured goods for the state less competitive with those from other states and countries.
For all of these reasons and more everyone would should write their state representive and senator and tell them to oppose any attempt to enact a Gross Receipts Tax in Illinois.

Poverty In Illinois

2007-02-15T14:24:00.000-08:00

A press release reported today that 1.5 million people in Illinois and indicated that poverty rates have increased in 87 of the 100 counties in the states and that the problem isn’t just a urban one, but also a rural problem. What it also should show is the failure of the Blagojevichs administrations policies and the damage that they have done to the states economy.
In the long run there are only two ways that poverty can be eliminated, thou education and strong economic growth. With strong economic growth, you can have all the government policies and intervention that you want, but they are doomed to fail and maybe even make the situation worse. But first education, the state needs to improve it education to insure that all student have the best education oppurnties possible. School districts need to be held accountable not just for students performance, but also for how they spend there funds. The single largest increases in the cost of schooling have not come in the form of education cost or teachers salaries, but from support staff, administration and non-education staff. Those cost need to be reigned and more of the money that is used to pay for them directed toward education or teachers. The majority of funding should still come from the local community, but state funding should be tied to each student and the state should, at least, experiment with a voucher system. This should be designed to allow student from failing schools to attend more successful ones, either private of public. If that is successful move to a full voucher system for all students, this would inject a level of competition into the school system and add yet another check on how schools decided to use there funds. None of this means that we should abandoned the public schools of course, they should remain properly funded and we should look for local solution in order to solve local problems when ever possible. Since one size fits all programs, like the utter failure that is No Child Left Behind, can not possible solve the problems of school districts that have different features and problems. Also many of the rural school districts that have small population will have to look at consolidating with other districts, quite frankly the state still has many districts that are to small to offer there student the kind of education that they need and deserve in order to make a good living. Schools need to add more vocation training programs for students that are no college bound or unlikely to be able to succeed in college level programs.
Some communities will have to change there cultural so that is more supporting or education and parent will have to be willing to be more involved in with there children’s education. Parental involvement is one of the most important factors when it comes to children’s success in school, and it is one of the reasons that students in private schools tend to do better on average, is that their parents are more involved in their education. For people that are already out of school and in the work force we need to expand job training and vocation education programs. The community college system provided the perfect infrastructure for this, along with providing an affordable 2 year college education for students that plan to either transfer to a 4 year college/university or just get their associates degrees, one of the major mission of the community colleges should be to serve as a center to retrain the part of the local work force that are in low income jobs or have lost there jobs for new more profitable careers.

Economic growth is probably the most important factor in lessening the number of people living in poverty, a rising tide lifts all boats and growing economy increases everyone standard of living. Which means the state of Illinois needs to adopted good economic policies that promote growth. We need to repeal the fee increases that the governor has put into place on business in the state of Illinois. This increases in fees have the effect of both making Illinois a less attractive place for business to set up in or encourages them to relocate in near by states and in lower the profits of companies in the state which in turns means that they have less money to expanded and hire new works. We also need to keep the state's minimum wage at the same level as neighboring states, when our minimum wage is higher than neighboring states, it encourage companies that rely heavily on low skilled labor to locate in those state instead of Illinois, this in turn means fewer jobs for the low skilled worker in Illinois, who happen to be the most likely section of society to be poor and if they don’t have a access to work it means that they will be poor for sure. The State also needs to control spending on unnecessary programs in order to balance the State budget and then we need to devote an surplus to two things, one education funding and two improving the state infrastructure and capital improvement projects. This will make the state even more attractive to business and encourage strong economic growth.
In the short run the state should help the poor not be raising the minimum wage, which will mean higher prices and more unemployment for the poorest section of society, but expanding the State Earned Income Tax Credit into a full negative income tax, so that no only will poor workers get to keep all of their pay, but they will also receive a check in the form of the negative income tax. This will do a lot more to help than a minimum wage increase and will not have as many negative affects on the states economy.

Gross Receipts Tax

2007-02-08T09:49:00.000-08:00

There has been a number of rumors that Governor Blagojevich will call for the creation of gross receipts tax in Illinois. A gross receipts tax is a tax on the revenues of a business, not there profits, meaning that depending on the form that the tax would take a company would be taxed on the amount of money even if the company is losing money, meaning its cost are greater than its revenues. This would be horrible for the economy of the State of Illinois in the long run, the state economic climate would become even worse and more hostile to business The gross receipt tax would be added on top of the existing state sales tax and business fees that are already charged by the states. The these added taxes would be passed on the public in the form of higher prices and a higher general price level in the state of Illinois. The rising price level would have the large effect on the poorest section of the state population since they spend the majority if not all of their income, they would be the most effected by the price increases and would see their real income fall by the largest percentage. While middle and upper class families that usual save and invest some of their income and don’t spend it all would be less directly affected by the tax.
By raising the prices of the goods in the state would lead to people to go to neighboring states in order to make large and expensive purchases when ever possible, since those business would not have to pay the gross receipts tax and would by able to sell their goods for a lower cost. Along with this it the tax will lower the profits of business based in Illinois and their rate of return, which means that will have less money to expanded, and if business here expanded at a slower rate, that means that they will higher new employees at a slower rate. This will mean fewer new jobs for the citizens of Illinois and will slow economy growth even more.
What Illinois needs right now is not to make it business climate more hostile, but to make Illinois a more welcoming place to business. The state needs to reign in spending, lower business fees, balance the state budget and invested in capital expansion projects in order to prompt economic and job growth in Illinois. This will help the people of Illinois, not an added anti-business take in order to fun more government programs

More Free Trade Not Protectionism

2007-02-05T14:11:00.000-08:00

Recently there have been some calls for the United States to adopt more protectionist trade policies, and some Democrats have even been elected with this as part of their platforms. Protectionist policy would be one of the worse economic moves that we could make. Protectionist policy benefit a small select section of the economy at the expense of everyone else and the cost that protectionist trade policy place on society is always higher than the value of the jobs that it might save. Protectionist policy lessen economic freedom, reduce consumer choice, lower quality, raise prices, slow the growth of productivity and hurt economic growth.

A protectionist trade policy raise price in a number of ways, the first is that if the protectionist policy takes the form of tariffs. The cost of the tariff places on an imported good, will always raise the cost of imported to goods to a level that is higher than domestically produced goods, because of it didn’t then the tariff would not serve to "protect domestic industry", so consumer are either forced to pay more for the domestic good or to pay even more to buy the imported good that would of been cheaper with out the tariff. Then this has a cascade effect through out the rest of the economy. Since consumer will have to pay more in order to buy goods in the protected industries they will have less money to spend on other goods and services, so they will buy less of those goods and that in turns means those firms will earn less revenue. If they earn less revenue that means that they will have less money to invest in expanding production, paying workers and higher new employees. This cares thru that since the none protect business will earn less, pay less in wages and higher few workers, workers in non protect industries will have less money to spend on goods and service which will lead to even less revenue for non-protected industries.

Import quotas have a similar effect since they limit the amount of an imported good that can be sold in the United States, which means that consumers that are unable to purchase the import will have to spend more money on the goods from the protect industry. Both tariffs and import quotas limit consumer choice by telling them that either can only buy some much of an imported good or that they have to pay a price that is higher than what the market price would be.

Protectionist policies also harm the quality of goods available to the consumer, when competition is limited firms are more likely to produce goods that are of lower quality because they don’t have to worry as much about another firm producing a higher quality good for the same price or price that is close to theirs. Think of how much of improvement there has been in cars in the United States since the American car companies have had to compete with the international car companies or the quality of electronic good sold in the United States since they have had to compete with Japanese.

Protectionist policy also make firms in the United State less competitive, the reason for this is that protectionist policies not only limit the ability of consumer to buy imported goods that maybe cheaper or higher quality, but it also limited the ability of firms to buy lower cost or higher quality. Which means that the goods this produce will be either higher cost, lower quality or both, which means that they will be able to sell fewer goods and that the goods that will be less competitive in the international markets. This once again will hurt economic growth in the United States.

Since it is pretty clear that protectionist trade policies are bad for the economy and the general public, then why do so many people support them? There are a couple reasons, first their are some people that have a bad understanding of economics and truly believe that free trade is bad for the United States, and this includes people like Ross Perot and Patrick Buchanan. Then there are business and interest groups, such as some unions, that have a vested interest in preventing free trade because they benefit from protectionist policies at the expense of everyone else. These groups use dishonest arguments about free trade, such as that is lowers the standards of living in the United States or threatens everyone jobs or hurts the economy, in order to try and turn people to there side.

state of Illinois Finances

2007-01-21T20:04:00.001-08:00

Over the almost four years of Governor Blagojevichs administration, Illinois financial conditions have gotten worse and worse. In the first year of his administration, the state budget deficit declined but since then it has increased each year and now it has reached over 3 billion dollars. The first reason for this has been the continued growth in state government spending on existing programs and addition of new state programs, the cost of these programs has out striped the growth in state government revenues. Another causes is that in order to keep his pledge not to raise to taxes but in attempt to increase state revenues the Governor put into a place an increase in the states business fees that cost business in Illinois 300 million dollars a year and along with that he eliminated 160 million dollars with of sales and income tax exemptions and raised the state minimum wage to well above that in our neighboring states. The end results of this is that Illinois is less competitive than other state when it comes to attracting new business and jobs and this in turn has lead the state of Illinois to add fewer new jobs each year than other states, the rate of job growth in Illinois is the 8th worse in the nation. This in turn reduces the amount of revenue that the State Government could be taking in from the state income tax, since if the employment in the State had been growing at the nation average there would be thousands of more workers paying state income tax each year and along with that sales tax and other tax revenues would rise to.
The long run financial status of the State is even worse, because the state hasn’t been full funding its pension or insurance liabilities and with the debt accumulated by the increased borrowing the Governor has down in order to fun some of his pet programs, the state has incurred 106 billion dollars in debt. The end result of this is that Illinois has the worse deficit of any state in the country and this is beginning to adversely affect the ability of the state to fun need capital improvement project and since the state takes a long period of time to pay it Medicare expenses and then under pay health care providers, the poorest citizens in the Illinois have a hard time finding doctors and receiving medical treatment. This leads them to delay getting medical treatment until their health become very bad, which raised the cost of treating them.

Illinois need to act now in order to fix up our financial house and a tax increase is not the answer, since it would make the state of Illinois even less attractive to business and hurt job growth. What we need to do is bring government spending back into line, we need to cut back on needless program and wasteful pork filled projects that the state CAN NOT AFFORD and slow the spending growth of existing programs. The state need to begin fully funding its pension system and move new employees from the existing system, a defined benefit one, to a defined contribution one, like 401Ks, and we need to bring our Medicare cost in line by making it managed care system, Illinois is currently the only state that doesn’t used managed care Medicare system. We also need to roll back the increase in business fees and use the increase in the national minimum wage as a way to bring our state minimum wage in line with minimum wage in neighboring states so that we will be more competitive when it comes to attracting new business and jobs. This in turn will help raise the amount of revenue that the government receives from the state income tax and then when the state budget is back in line and we are running a surplus, the state need to use those funds to invest in capital projects. These capital projects will improve the states infrastructure and makes us even more attractive to business looking open up or relocate. This in the long run is how we can both fix Illinois budget problems and improve the states economy.

Minimum wage Vs. A Negative Income tax rate and Obama for President

2007-01-16T10:33:00.000-08:00

It now seems all but certain that the minimum wage in the United States and in the state of Illinois will be raised which will be bad for the economy in the long run. There are a couple of reasons that a minimum wage hike is bad for the economy and will not do much if anything to help the poor in the United States. First it does nothing to address the main causes of poverty in the United States which are problems with the educational system and cultural failings. Any increase in the minimum wage that was large enough to left the people on it out of poverty would also cause a massive increase in the unemployment rate in the United States, similar to what you see in more socialized European countries that tend to have higher unemployment rates, like France rate of 9.9% or Germany's of 11.9%, particularly among low skilled and young workers. Even the proposed increase of the US minimum wage to $7.25 will raise the unemployment rate in the United States and in the long run encourage companies that can to replace low skill workers with automation when ever possible. The reason for this is that by raising the price of labor to higher than its economic value it price compared to capital, ie automation, is changed and if it becomes relatively more expensive then capital then companies will replace low skilled labor with capital when they can. If Illinois raised it minimum wage to even higher than the national one, then we lose jobs as companies that are reliant on low skilled labor will relocate out of Illinois if they can and we will be less competitive when it comes to attracting new low skilled jobs.

The reason that a minimum wage hike attracts all the support that it does despite it problems is that for the vast majority of people it will have no direct effect on their day to day lives. The only effect that it will have is indirect from higher prices and possible inflationary consequences. Many people in the general public are by in large unaware of many of the basic economic laws, thou they themselves follow them each day. Along with that many Unions support a minimum wage increase because some of the contracts that they sign have pay scales that are based off the minimum wage rate and an increase in the minimum wage raises their member’s salaries. It also easy to scape goat the opponents of the minimum wage by scape gloating them as being greedy corporation that are to cheap to pay there employees a "living wage", which ignores the fact that the minimum wage hike has the least effect on corporation that can absorb the cost or replace low skilled workers with automation, and has the most effect on small businesses. Along with that the group that it has the largest negative effects on young low skilled minority workers who will see there unemployment rates rise the most.

Expanding the Earn Income Tax rate into a full scale negative income tax is a better way to help the working poor. This way they would pay nothing in taxes and would see there real income increase from the negative income tax that would be paid to them up until the point they are above the poverty line at which point the negative income tax would cut off. If it was structured so that the payment they receive doesn’t decline by one dollar for each additional dollar that they earn, instead declining by 50 cents, it would also encourage them to work more, since the more that they worked, the more their real income would increase. It would also have a smaller impact on the unemployment rate and could actually lower it.

Today Barack Obama announced that he was forming an exploratory committee to run for President, for the moment ignoring my ideological disagreements with him, does any one real thing that he is ready to lead the country after serving less than one term in the United States Senate and only a few years in the Illinois Senate?

Welcome to my blog

2006-12-13T16:57:00.000-08:00

This is the first post on my new blog, I hope to update it several times a week, if not daily. I will start out be saying a little bit about myself, I am a 24 year old college student working on masters degree in economics. For most of my life I have been involved in the politics in one form or another. I consider myself to be a libertarian Republican, I believe in small efficient government, free markets and individual liberties.

free market republican

Trade Protectionism and Economic Welfar

The Auto Industry Bail out, Politics and making the hard choice

To my fellow Republicans

A Republic If You Can Keep It

More Farm Subsidies that Rip of the Tax Payer

WHY the ILGOP needs a change in Leadership

Presidental Candidates Economic Proposals

Repairing the Illinois Republican Party's Brand Name

Rebuiliding the Illinios GOP

Outsourcing, Jobs and Economic Growth

The ignored Supply Side of the Health Care Market

trade policy and manufactoring jobs

short term stimulus, saving and long term economic growth

Super-Tuesday

Jim McConoughey for Congress and the economy

The Problems with Short Term Stimulus Packages

The Problems with Short Term Stimulus Packages

The Economy

Capital Projects

TIF Abuse in Chicago

Reforming Federal Government spending

The Wrong mindset in Washington

The Great Farm Subsidy Scam

Parecon

First lets look how production decision are made under Parecon

Why the Federal Reserve Should NOT cut the interest rate

Line Item Veto and other

The Governor loses more backers

More Taxes

Cigarette Tax Increase

Reforming Illinois Government Part 2

Reforming Illinios Government- Part One

The Budget Impass continues

over time hell in Springfield

More on the Budget

Budget Fiasco

The Governor Loses it

State Government Waste

Protecting Incumbents and Hurting Voters

The Death of the Gross Receipts Tax

The Illinois Medical Soceity and the Gross Recepits Tax

Taxes and the Illinois Economy

Medicaid Bills and the Gross Receipts Tax

Plans to hide the cost of the Gross Receipts Tax

Shooting and Taxes

A Gross Receipts Tax is Progressive

Local Effects of the Gross Recpits Tax

Will Nothing Get Done in Springfield this Summer

A Golden Opportunity for the Illinos Republican Part

More Oppotion to the Governor's Tax Hike and the Payroll Tax

The True cost of the Governor's Tax Increase

The Gross Receipts Tax is Bad for Long Term Economci Growth in Illinois

More Problems with the Governor Budget

Another Voice against the Gross Recepits Tax

why the gross receipts tax is bad for the consumer

A GRT is bad for eveyone

Poverty In Illinois

Gross Receipts Tax

More Free Trade Not Protectionism

state of Illinois Finances

Minimum wage Vs. A Negative Income tax rate and Obama for President

Welcome to my blog