Life, Liberty, and the Pursuit of Happiness, Version 4.0

The bankruptcy of San Bernardino analyzed by a Reuter’s article yesterday is a study in the growing dysfunctionality of governments in which public unions and politicians are creating total chaos by spending obligations that defy the laws of math and morality. Fifty years ago San Bernardino was a prosperous middle class city. Today over 1/3 of the population lives below the poverty line while a police lieutenant can retire with a one-time payout of $230,000 and a guaranteed pension of $128,000 per year after that. Nearly 75% of the city’s entire budget goes to the police and fire departments and its largest creditor, Calpers (the California State public employee fund), is owed $143 million. But Calpers says San Bernardino would have to pay $320 to leave its system, because it has banked on a mystical 8 percent projected return on its investment in San Bernardino. The second largest city debt is a list of private creditors that hold $46 million in pension bonds. They are threatening to sue.

Calpers and many other large public funds rely on Wall Street returns. In fact, many of them have entrusted hundreds of billions of dollars to Wall Street fund managers who are paid the huge Wall Street fees regardless of fund performance, and take up to a 20% commission if funds perform. As government pension funding projects further shortfalls (actuaries estimate public pension funds are now only funded with 41% of their obligations) they invest in higher risk stock and hedge funds–treating funds held in trust for government employees with much less respect than the employee would treat his own money. Some public employee pension funds appear no safer than Bernie Madoff’s schemes–they just play by looser rules (GASB vs. FASB) and expect taxpayer bailouts or future generations will pay for money they take from public treasuries. Continue reading →

Lower capital gains taxes fueled a Wall Street bubble.

While recently engaged in a dialogue with an individual who was upset with the greed on Wall Street and wanted to increase corporate taxes, I realized that he was unable to understand the difference between corporate taxes and capital gains taxes, and that neither political party or the media have been very helpful in educating American citizens about the difference—and the difference is huge.

Capitals gains taxes are taxes on profits that investors make on investments in corporate stocks.

Capital gains are also profits on other types of asset appreciation, including land, homes, and other non-paper investments. However, with the large increase in managed portfolios for retirement funds, capital gains on paper investments like corporate stocks have played a significant role in reshaping the US economy. No longer are just a few venture capitalists hoping to strike it rich on Wall Street, but tax deferred 401k and 403b retirement accounts have turned most government and corporate employees, both Democrat and Republican, into investors in corporate stocks. Wall Street has become a Main Street idea. Republicans like Mitt Romney, who worked at Bain Capital, argue that these taxes should be kept low so that individuals will invest their money in corporations. Reductions in capital gains taxes were part of the “Reaganomics” strategy that brought in more investment capital and led to the rebirth of the American economy and jobs in the 1980s that is worthy of being called “miraculous.” Their success has caused many people to advocate low or no taxes on capital gains as a way to create jobs, and this is a priority on the Republican Party Platform.

The Wall Street boom that accompanied the increased investments in the 1980s led to many opportunities, challenges, and changes on Wall Street. Large concentrations of money in one place led to many temptations, wider acceptance of greed, higher payouts, and bought-off regulators in the SEC. Banks wanted to begin investing, using money from FDIC guaranteed depositors to speculate on the market. Both Republicans and Democrats received increased contributions from Wall Street and banking lobbyists. There were inadequate checks and balances in the system to prevent this behavior and politicians in both parties turned a blind eye, letting the “good times roll.” Continue reading →

The Federalist Papers: The Best Argument for the Constitution

Paragon House has made available a new edition of the Federalist Papers designed for e-book readers. Rereading them might be a good place to start in understanding how to rein in the out-of-control growth of U.S. governments.

The Federalist Papers were written over 200 years ago as an argument for New York State to ratify the U.S. Constitution. They contain an understanding of human nature, political power, and core principles often ignored by today’s political leaders, courts, schools, and the media. This ignorance has led to the breakdown of our political systems and to an unchecked growth of government. The application of these principles to our current governments can unleash the freedom, human energy, optimism, and economic productivity, necessary to provide a foundation for peace. Continue reading →

The Widening Gap: The number of the unemployed in the US doubles in 4 years at government’s “brisk” rate and triples in 4 years at May rate.

According to the US Labor Department the United States added about 69,000 new jobs to the economy in May 2012. Yet according to demographics, about 160,000 new potential workers need jobs each month. Add those numbers to the 12.7 million already on unemployment and, at the labor department’s “brisk” growth rate of 200,000 new jobs per month, it would take over 20 years to get the unemployment rate down to 3%. Continue reading →