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Feb 21, 2013

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Hartzman

Quite the ethical conundrum.

Should a fiscally conservative take from the federal government, which can print and take from other states to benefit his own, but not be in favor of the state and its municipalities doing the same thing?

Is Governor McCrory taking a principled stand against fiscal impropriety by denying federal money, because taking federal money has caused inflationary pressure etc..., or is he doing it just to be a dcik?

What is the viable alternative presented by the opponents of such measures?

Where will the money come from?

How much more can the state borrow before becoming financially vulnerable to downgrades etc...?

The reality is, the state spent money it didn't have, and cannot temporarily print its way out of trouble like the federal government can.

How high do those in favor of printing to spend more than we make at the national level want gasoline prices to go before it stops one way or another?

We are about to suffer from the consequences of the biggest game of kick the can in the history of the world.

The governor's actions put North Carolina near the front of the line at fiscal prudence, but we will suffer from the affects in the short term, but hopefully will benefit in the long term by keeping our finances in better order than other states that keep borrowing against the future income of their taxpayers.

We need to concentrate our resources on public safety.

At some point, many may not want to risk financing states racked in debt.

I would like North Carolina not to be among them.

The better we can maintain fiscal prudence, the more incoming jobs will be created here, instead of some other relatively bankrupt states that will be forced to raise taxes to the point of business flight.

All said, our short term economic outlook will be more negative than most by not sucking on the teat of central borrow and printing.

Spag

Where to begin.

First, as the author notes:

"North Carolina has more than 400,000 jobless workers, making its 9.2 percent unemployment rate higher than the national average of 7.9 percent, according to the U.S. Bureau of Labor Statistics."

That didn't happen because of a Republican governor who has been in office for two months, or a Republican legislature that has been around for two years.

Next, the author can't understand how reducing unemployment insurance helps small businesses hire more. He assumes that only people who have laid workers off pay unemployment insurance. But that's not true. All small businesses with any employees pay the insurance. If you reduce that liability on them, they have more capital to hire workers- including those laid off from other employers. So it appears the author is the dumb one.

And what would an ignorant rant about conservative policies be without the stereotypical argument that Jesus is behind Republican policy? More proof that many liberals live an echo chamber in a parallel universe and aren't intellectually equipped to argue a policy without resorting to straw men.

But that jobless rate that occurred after decades of a Democratic governor and Democratic control of state government is the real proof of the failed ideology.

Naturally, the truth isn't nearly as important as blaming Republican's. Maybe McCrory should just adopt the Obama theme and blame everything on his predecessors.

Andrew Brod

Where to begin, indeed. One of the things the data make clear in the current environment is that it's not high costs that prevent businesses from hiring, it's lack of sales. After all, anyone who reads the news (with any comprehension at all) understands that prices and in particular wages are increasing quite slowly by historical standards. Lowering employer costs will be good for employers, but it'll do little or nothing to increase employment. So, yes, someone's dumb. But it's not Charles Pierce.

Of course the high unemployment isn't McCrory's fault. But neither is it Bev Perdue's fault. Perhaps we should remind ourselves that there was a big recession a few years ago from which few states are recovering quickly. But that's beside the point anyway, because Pierce isn't blaming McCrory for high unemployment. He's blaming him for failing to solve the problem, and to fail in a particularly cruel manner.

The stupidity of the law McCrory signed this week is that it gives up a lot (free money from the federal government, plus the buying power of its recipients) in exchange for relatively little (paying off a debt a few years earlier). And for that it's entirely fair to blame the Republicans.

Spag

Spoken like someone who receives his paycheck from someone else.

Certainly lack of sales decreases the demand for labor, but taxation decreases the ability to hire labor. Many small businesses with steady sales would hire additional workers if they didn't have to commit so much capital to taxation. Ask any small business owner who works 70 hours per week just to maintain his current position if he would rather hire an additional employee so he could work 50 instead. But he doesn't get a tax credit, he gets a tax deduction for the new employee. Unfortunately, that doesn't reduce his tax liability enough to afford the new employee.

Say he grosses 200K per year. His overhead is 100K per year leaving him 100K in taxable income. He pays 30% in taxes, leaving him with 70K. Now let's say he hires an employee at 20K per year. Now his overhead is 120K per year (plus a little more for payroll taxes). This leaves him with 80K per year in taxable income, he pays 30% on that, netting 56K. So 200K worth of work nets only 56K. Sure he gets to deduct half of the self-employment tax from his taxable income, but that is a deduction, not a credit so he still pays 70% of it. The employee ends up costing him 16K in income. At 20%, the employee would cost him 14K, but would also increase his net income by 8K versus the 30% rate leaving him with only 6K less than what he was making before the employee at the 30% rate. He may decide that his free time is worth a 6K cut, but not a 14K cut.

Spag

Correction:

"The employee ends up costing him 16K in income. At 20%, the employee would cost him 14K"

should be reversed. "The employee ends up costing him 14K in income (70-56). At 20%, the employee would cost him 16K (80-64)..."

Andrew Brod

Yes, taxation decreases the ability to hire labor, but in the current environment that's little more than an interesting theoretical point. It's not empirically relevant. Taxing employers for unemployment insurance isn't why we have high unemployment and reducing that tax isn't going to spur employment. Your scenario involving "small businesses with steady sales" misses the point. Few businesses have steady sales these days, or in any case not enough do to justify much hiring; and if you think that's wrong, then we know who's really out of touch.

Having said that, this talk about reducing employers' taxes is beside the point. Those taxes are going to rise under the new plan, which splits the burden of the accelerated debt paydown between employers and the unemployed. Employers' taxes won't rise by as much as if the GOP had chosen to fund the accelerated paydown by putting the burden on employers alone. Of course, if they'd done it that way, they wouldn't have had to reject the free money from D.C. But that wouldn't have been any fun, would it? Cutting benefits was the whole point of this exercise!

Or was it? Joking aside, it's worth wondering what really was the political motivation for this bill. Was it the perceived need to accelerate the paydown to the federal government? Or was it the opportunity to cut unemployment benefits? The former strikes me as a minor benefit, while the latter is a stupid move in a depressed economy (and it's cruel to boot).

Hartzman

"it's not high costs that prevent businesses from hiring, it's lack of sales."

Agreed.

"The stupidity of the law McCrory signed this week is that it gives up a lot (free money from the federal government, plus the buying power of its recipients) in exchange for relatively little (paying off a debt a few years earlier)."

The few years earlier might make the difference between the state having more jobs later.

The money is not free Andrew.

Their is no such thing as a free lunch, but in this case, the governor is taking a stand on principal, which others are not.

More free money = higher gasoline and food costs for everyone.

I don't understand why many can't make the connection.

Hopefully it will make NC more competitive as others swim in more debt that will hurt more later on.

"taxation decreases the ability to hire labor."

Agreed.

Lack of taxation of monopolistic over powerful interests gives some very powerful firms to crowd out small businesses who pay by far more than Facebook, Google, GE, Berkshire etc...

"they wouldn't have had to reject the free money from D.C."

How is it free Andrew?

WTF are you thinking?

"it's worth wondering what really was the political motivation for this bill."

Good question. What was the political motivation? To lead by example? To not rely on "free money"? To be set up as a lower tax, less debt place for many to move to? To purposefully limit the safety net to achieve what end?

Please tell us how the money is free Andrew?

Why are oil prices so high as inventories are topping off at max averages?

Do you not see the consequences of "free money"?

The Federal Reserve is monetizing our deficit via debt purchases just like Germany did in the early 20's.

Do you not see the correlation between monetary policy and inflation?

I hear Wells upped their inflation rate for investment plans from 2.5% to 3%.

What does that make "free money"?

Free money is taxation without legislation, and it is unsustainable.

Hartzman

If a nation prints more money, like cutting a large pizza into 16 slices instead of eight, is each slice worth less?

"The market isn't saying anything about the future. It's saying there's a phony buyer of $19 billion of Treasurys a week."

Why were the worst recessions since WWII correlated to higher energy prices?

If the US deficit and QE spikes our food and oil costs, does inflation rise even further for those who peg their money to the US dollar?

"Millions strike in India over high prices"

"By a continuing process of inflation, governments can confiscate, secretly and unobserved, the wealth of their citizens" Keynes

Who let America allow currency inflation to avoid overtly raising taxes, by covertly taxing US denominated assets like oil and food?

"Inflation is one form of taxation that can be imposed without legislation" Milton Friedman

Did the stimulus packages paid for by borrowing from future taxpayer income, fraud and printed money assure a two term president?

"Most people don’t know that their government is insolvent, and that the only way they can persist is to go deeper into debt and devalue.."

Andrew Brod

More free money = higher gasoline and food costs for everyone. I don't understand why many can't make the connection.

Because it's not there.

In scanning the rest of your never-ending word salad, I'm struck by how persistently wrong and clueless you are. I mean, let's close our eyes and pick a statement. How about...

Why were the worst recessions since WWII correlated to higher energy prices?

The worst recession since WWII was the one that started in December 2007, and it had nothing to do with energy prices. When it got worse in the fall of 2008, it had nothing to do with energy prices. Okay, one more before bed...

How much more can the state borrow before becoming financially vulnerable to downgrades etc...?

This isn't about the state borrowing more. It's about how fast the state will pay down its debt to the feds.

One could do this forever. But as Pepys said, and so to bed.

hartzman

cognitive dissonance

David Hoggard

Sam. You're either misinformed or don't understand the realities of us 'job creators'. The rather impressive sounding calculations for justifying a new hire above is fantastical. It misses on several counts.

Surely you know that, at least in my industry, sales are far from "steady". Demand drives sales which drives hiring.

As an employer of 10, who works 70-80 hours per week, my decision on whether or not to hire another employee is NOT predicated on whether or not it will lessen my hours (although that would be nice). My decision is based upon whether or not my current capacity can fulfill projected sales... on schedule and profitably.

Lastly. The bill just signed by the governor does NOTHING to lower my costs of potential new hires or (more importantly) lowering my labor burden costs on my current employees. My unemployment insurance actually INCREASED in 2013.

The legislation might, maybe, lower my costs sometime way out in the future, but isn't it the stated goal of those espousing "jobs, jobs, jobs" to help me and my ilk NOW?

No. Despite the rhetoric, that bill was aimed at one over-riding goal: Lowering NC's financial obligation to the Federal government by repaying excess FUTA funds back as quickly as possible. And make no mistake, Sam, that bill placed paying that money back quickly squarely on the backs of the NC's most vulnerable citizens while doing NOTHING to help small businesses grow and hire.

The linked screed got it right... we are developing a bad case of Mississippi envy.

David Hoggard

And another thought. At least from my perspective, the bill could actually HURT my business.

I care deeply about my employees. And, as a businessman who also human, the decision on whether or not to lay someone off during slow times comes with the assurance that he/she and their family might be able to survive the layoff with the unemployment benefits due them.

The bill just signed lowers that benefit... a lot... which will only serve to destabilize that family further if they are laid off.

Knowing that, I may decide to keep that person on, albeit at some fewer hours, just to make sure they survive the slow down. In other words: I might make the decision to absorb the costs of keeping the employee on instead of feeding them to the wolves. That money can only come from potential profits.

Not saying every employer would make such an un-businesslike decision, but some of us will.

Hartzman

US Regular All Formulations Gas Price (GASREGW)

http://research.stlouisfed.org/fred2/series/GASREGW/

FAO Food Price Index; Third Chart Down

http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/
.
.
"More free money = higher gasoline and food costs

I don't understand why many can't make the connection."

George Hartzman

"Because it's not there.

I'm struck by how persistently wrong and clueless you are.

The worst recession since WWII was the one that started in December 2007, and it had nothing to do with energy prices."

Andrew Brod
.
.
Your level of wrongness on this is striking.

Please step for moment into the real world, and try to see things as they actually are, as opposed to the formulations that discount reality in the textbooks and statements by those who support your false sense of of what is Andrew.


Hartzman

"The bill just signed by the governor does NOTHING to lower my costs of potential new hires or (more importantly) lowering my labor burden costs on my current employees. My unemployment insurance actually INCREASED in 2013."

David, the costs for unemployment insurance were held artificially low so NC businesses could "recover". Now we have to pay back what was borrowed from the future for past subsidies.

"The bill just signed lowers that benefit... a lot... which will only serve to destabilize that family further if they are laid off."

Agreed.

"I might make the decision to absorb the costs of keeping the employee on instead of feeding them to the wolves. That money can only come from potential profits.

Not saying every employer would make such an un-businesslike decision, but some of us will."

The unfortunate consequences of a capitalist system that controlled elected leadership to the point of borrowing to achieve unpaid for benefits to be funded by everyone else at some unknown later point. We got the later point sooner than other states by electing a fiscally conservative governor.

I hope it works out for us better than the other states that continue to abuse their balance sheets.

Kind of like being Iceland while the rest of Europe disintegrated into cycle of zombie finance.

Andrew Brod

David, you might be interested in hearing that empirical research shows that reducing unemployment benefits can, in certain economic environments, render unemployed people less likely to look for and find work.

This, of course, runs counter to conservative doctrine. Conservatives claim that as a general rule, unemployment benefits provide the unemployed with an incentive to stay out of work, because hey, they're getting paid anyway. This is theoretically valid, but studies show that it's empirically small. And it's certainly not why unemployment is still so high.

But there's another incentive at play with unemployment benefits: receiving them means you have to demonstrate periodically to the government that you're looking for work. When benefits are removed, the incentive to keep looking for work is removed as well, if the job situation is bad enough.

Everyone agrees that the job situation in North Carolina is quite bad. Aside from reducing GDP growth in the state as early as this year, the GOP's cut in unemployment benefits may well reduce the unemployment rate. But it'll do it by driving people out of the labor force, not by inducing them to work.

Andrew Brod

Unemployment benefits helped this guy.

polifrog

And theft helped this guy, but I don't think it would make good policy even if we called it something different...

michele

Poli, you left out the hypertext reference (href) in your link.

polifrog

Sure 'nough. Thanks, Michele.

And theft helped this guy, but I don't think it would make good policy even if we called it something different...

Hartzman

"Gas prices, which have risen every day since January 17th are pressuring the critical $3.80 level that has capped valuations for the equity market in the last three years. The last times gas prices have risen this high, consumer spending growth has stalled and just as we have noted previously, it appears the only thing that can tame the enthusiasm of a liquidity-addicted equity market is a cash-strapped consumer pulling back.

http://www.zerohedge.com/news/2013-02-23/380-scariest-number-bulls

The chart is worth noting.

Be careful out there.

Hartzman

"Each time the Fed's balance sheet is expanded, gas prices at the pump surge... strange coincidence or entirely to be expected consequence of flooding the world with newly printed money."

http://www.zerohedge.com/news/2013-02-26/dear-senate-please-ask-bernanke-explain

Clear correlation with Fed printing and Gasoline prices, meaning printing money is taxation without legislation by a private entity, that being the Federal Reserve.

The Federal Reserve and other central banks are bailing out the financial sector by increasing taxes on everyone else without calling it a tax, and not accepting responsibility for it.

Ed Cone

Big tax on savers, too.

Hartzman

A saver goes into a bank to re-up a 4% 5 year CD.

The saver is offered .37% 1 year if lucky.

The bank employee suggests the saver talk to the in-bank broker, who may be able to do better.

The in-bank broker shows the saver a high-yield "product" paying 6%.

The product has no maturity date, and is comprised of low quality corporate or emerging market debt.

If interest rates rise by 1%, these kinds of products can lose between 10 and 20%.

The saver doesn't know that.

When a world of savers receives a statement that says they lost money, they will want to get out of the investment.

It's the biggest bubble in the history of the world, which is happening globally at the same time, which is relatively unlike prior financial bubbles.

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