It seems to us the only possible salvation for the Post Office is privatization.
The NY Times reports this morning the Post Office is on the verge of shutting down due to lack of cash required for a $5.5 billion payment, due September 30, to fund future health care expenditures for retirees. In addition, in 2011 USPS is expected to lose over $9 billion, which would bring the five year losses to over $25 billion.
Conventional wisdom blames the Internet and email for the Post Office woes. Others blame unions and the high labor costs of the Post office, particularly relative to FedEx and UPS.
A recent article in the CT Post shows how Congress is also to blame.
The Post Office is attempting to close down two postal stations in Bridgeport. In fact, the Post Office wanted to shut both of these offices down two years ago. To the rescue is Jim Himes, pressuring the USPS to keep both open. Nothing unusual in this; most Congressman engage in this behavior. But when an organization can not respond to changes in the market, by adjusting its costs and product offering, it is almost certainly doomed. The only hope is extracting the Post Office from the grips of Congressional micro-management.
The Post Office doesn't have to die at the hands of email. UPS and FedEx both have thriving businesses, despite the growth of the Internet. The Post Office could as well, if the government would get out of the mail delivery business.
Monday, September 5, 2011
Friday, August 26, 2011
Malloy Taketh, and Giveth Away
According to the CT Mirror, http://ctmirror.org/story/13670/malloy-ubs-announcement, Governor Malloy is giving $20 million to UBS in exchange for keeping 2,000 positions in Stamford. How this makes any sense is beyond us.
Malloy's first priority in office was raising taxes (while New Jersey and New York were lowering or keeping their's flat) and now he's on a job tour to sprinkle tax breaks on a select group of companies that just had their taxes raised, so they will keep jobs in Connecticut.
The sequence has been raise taxes, drive employment lower, drive around the state and selectively lower taxes to keep employment steady. Where is the sense in this?
What measures are used to determine if someone gets a break? Who is making the decision? How big is the pot of tax breaks being doled out? What else can be done with that money? If taxes are too high to begin with, why were taxes raised?
At it's root, it's simply unfair. Let's look at it this way. We have five major grocery stores here in Darien: Stop and Shop at Heights, Stop and Shop at Goodwives, Palmer's, Trader Joe's and Whole Foods. Let's say Trader Joe's threatened to leave Darien unless it got a tax break. Here comes Governor Malloy and says, I'll give you $10,000 per worker you keep in Darien, which is the amount he gave UBS. Now Trader Joe's has a $10,000 per worker advantage over the other stores in town. How is this fair to Stop and Shop, Palmer's and Whole Foods? Why would Trader Joe's deserve such special treatment?
Why are we giving UBS $10,000 per worker? It makes no sense.
Malloy's first priority in office was raising taxes (while New Jersey and New York were lowering or keeping their's flat) and now he's on a job tour to sprinkle tax breaks on a select group of companies that just had their taxes raised, so they will keep jobs in Connecticut.
The sequence has been raise taxes, drive employment lower, drive around the state and selectively lower taxes to keep employment steady. Where is the sense in this?
What measures are used to determine if someone gets a break? Who is making the decision? How big is the pot of tax breaks being doled out? What else can be done with that money? If taxes are too high to begin with, why were taxes raised?
At it's root, it's simply unfair. Let's look at it this way. We have five major grocery stores here in Darien: Stop and Shop at Heights, Stop and Shop at Goodwives, Palmer's, Trader Joe's and Whole Foods. Let's say Trader Joe's threatened to leave Darien unless it got a tax break. Here comes Governor Malloy and says, I'll give you $10,000 per worker you keep in Darien, which is the amount he gave UBS. Now Trader Joe's has a $10,000 per worker advantage over the other stores in town. How is this fair to Stop and Shop, Palmer's and Whole Foods? Why would Trader Joe's deserve such special treatment?
Why are we giving UBS $10,000 per worker? It makes no sense.
Wednesday, August 10, 2011
The Federal Budget-Part 4. A Couple of Summary Charts
Just a couple of more charts on the spending side. The first chart shows the total 12-month outlays, by month, for the US Treasury since 1980. The spike in spending since 2008 is apparent.
This next chart shows the year-over-year change in spending over the same time period.
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| Source: Monthly Treasury Statement |
This next chart shows the year-over-year change in spending over the same time period.
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| Source: Monthly Treasury Statement |
Friday, July 29, 2011
The Federal Budget-Part 3. Six Numbers and Three Graphs
There are those who believe federal government spending, as a percent of GDP is up because of a weak economy. There are others who believe federal spending is up because spending has grown at a much higher rate than our economy.
The facts support the latter belief. GDP for 2011 is expected to be 4% higher than the peak of 2008. But federal spending is expected to rise 22% from 2008 levels. And little of this is due to automatic stabilizers or stimulus spending. Simply put, federal spending is high as a percent of GDP because federal spending has expanded dramatically over the past three years.
The graph below shows US GDP in 2008 and 2011 (estimate). The National Bureau of Economic Research dates the peak of the prior cycle in the December 2007 quarter, but we've used GDP for 2008 since according to CBO GDP in 2008 was higher than 2007. GDP fell in 2009. But as is obvious from the graph, GDP in 2011 is expected to be higher than the peak of the prior cycle, by about 4%. Economic growth is weak, but GDP is higher now than it was at the peak of the past cycle. That is, spending to GDP isn't up because GDP is lower, because GDP isn't lower at all. It is higher. All time high.
The next graph is Federal spending over the same time period. Federal spending is expected to grow about 22% over the past three years. One may ask how much of this is driven by automatic stabilizers (payments made by the federal government that rise with lower economic activity, like unemployment payments), and the answer is not much. CBO estimates about $63 billion of Federal spending in 2011 will be from automatic stabilizers.
Which leads to our third graph, federal outlays to GDP. Well, if the numerator goes up 22% and the denominator goes up 4%, it's pretty obvious what happens. Federal spending, as a percent of GDP has gone up from 20.7% to 24.1%.
The facts support the latter belief. GDP for 2011 is expected to be 4% higher than the peak of 2008. But federal spending is expected to rise 22% from 2008 levels. And little of this is due to automatic stabilizers or stimulus spending. Simply put, federal spending is high as a percent of GDP because federal spending has expanded dramatically over the past three years.
The graph below shows US GDP in 2008 and 2011 (estimate). The National Bureau of Economic Research dates the peak of the prior cycle in the December 2007 quarter, but we've used GDP for 2008 since according to CBO GDP in 2008 was higher than 2007. GDP fell in 2009. But as is obvious from the graph, GDP in 2011 is expected to be higher than the peak of the prior cycle, by about 4%. Economic growth is weak, but GDP is higher now than it was at the peak of the past cycle. That is, spending to GDP isn't up because GDP is lower, because GDP isn't lower at all. It is higher. All time high.
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| Source: "CBO The Budget and Economic Outlook: Fiscal Years 2011 to 2021," January 2011. |
The next graph is Federal spending over the same time period. Federal spending is expected to grow about 22% over the past three years. One may ask how much of this is driven by automatic stabilizers (payments made by the federal government that rise with lower economic activity, like unemployment payments), and the answer is not much. CBO estimates about $63 billion of Federal spending in 2011 will be from automatic stabilizers.
 |
| Source: "CBO The Budget and Economic Outlook: Fiscal Years 2011 to 2021," January 2011. |
Which leads to our third graph, federal outlays to GDP. Well, if the numerator goes up 22% and the denominator goes up 4%, it's pretty obvious what happens. Federal spending, as a percent of GDP has gone up from 20.7% to 24.1%.
 |
| Source: "CBO The Budget and Economic Outlook: Fiscal Years 2011 to 2021," January 2011. |
Wednesday, July 27, 2011
The Federal Budget-Part 2
This post summarizes the major plans Congress and the President are considering.
This first graph is cumulative receipts for the Federal government for the ten years ending 1999, 2009 and the estimated amount for the ten years ending 2019 under the Simpson-Bowles, the President's alternative Baseline and the Paul Ryan plan. As you can see, NONE OF THESE PLANS anticipate a reduction in federal receipts.
This next graph shows the cumulative outlays for the Federal government for the ten years ending 1999, 2009 and the estimated amount for the ten years ending 2019 under the Simpson-Bowles, the President's alternative Baseline and the Paul Ryan plan. As you can see, NONE OF THESE PLANS anticipate a reduction in federal outlays.
Finally, this last graph shows the cumulative deficits of the Federal government for the ten years ending 1999, 2009 and the estimated amount for the ten years ending 2019 under the Simpson-Bowles, the President's alternative Baseline and the Paul Ryan plan. As you can see, NONE OF THESE PLANS anticipate a reduction in federal deficits.
We will reiterate our point from yesterday. All of the plans to reduce the deficit $1 trillion over the next ten years are rather puny when placed in the context of what the federal government is spending.
This first graph is cumulative receipts for the Federal government for the ten years ending 1999, 2009 and the estimated amount for the ten years ending 2019 under the Simpson-Bowles, the President's alternative Baseline and the Paul Ryan plan. As you can see, NONE OF THESE PLANS anticipate a reduction in federal receipts.
 |
| Federal Receipts in billions of $ |
This next graph shows the cumulative outlays for the Federal government for the ten years ending 1999, 2009 and the estimated amount for the ten years ending 2019 under the Simpson-Bowles, the President's alternative Baseline and the Paul Ryan plan. As you can see, NONE OF THESE PLANS anticipate a reduction in federal outlays.
 |
| Federal Outlays in billions of $ |
Finally, this last graph shows the cumulative deficits of the Federal government for the ten years ending 1999, 2009 and the estimated amount for the ten years ending 2019 under the Simpson-Bowles, the President's alternative Baseline and the Paul Ryan plan. As you can see, NONE OF THESE PLANS anticipate a reduction in federal deficits.
 |
| Federal Deficits in billions of $ |
We will reiterate our point from yesterday. All of the plans to reduce the deficit $1 trillion over the next ten years are rather puny when placed in the context of what the federal government is spending.
Tuesday, July 26, 2011
Let's Talk about the Federal Budget-Part 1
Jim Himes hosted a telephonic town hall last week on the Federal debt, where in typical Himes fashion he supported ..... Wait. What did he support? I think he supported the Simpson-Bowles plan. Maybe. Sort of. Or was it the Gang of Six plan. Maybe. Sort of. Definitely not Paul Ryan's plan. Too radical. Not sure if he had an opinion on the President's budget, which was voted down by the Senate 97-0.
But we did learn some things. For instance, Himes is in favor of eliminating loopholes in the tax code so he can introduce more loopholes in the tax code. Specifically, he wants to get rid of deductions oil and gas companies take on their tax returns so he can replace that with deductions solar and wind energy producers will take on their tax returns. He wants to replace ethanol subsidies with green energy subsidies. Reminds us of The Who line, "Meet the new boss. Same as the old boss."
But the main topic of the call was the Federal deficit, the debt ceiling and the budget. Let's start with some numbers. In (fiscal) 2010 the Federal Government spent $3.456 trillion. The biggest items were $707 billion on Social Security, $693 billion on Defense, $622 billion on Medicaid and other Income Security programs. and $451 billion on Medicare.
The President commissioned a group to study the budget and suggest changes. This group, headed by Alan Simpson and Erksine Bowles published their conclusions late last year. They suggesting growing the Federal budget from $3.456 trillion in 2010 to $5.1 trillion in 2020.
President Obama submitted a budget that suggested increasing Federal spending from $3.456 trillion in 2010 to $5,629 trillion in 2020.
Finally, Congressman Paul Ryan, in April, put forth a plan to increase Federal spending from $3.456 trillion in 2010 to $4.544 trillion in 2020.
In brief:
Paul Ryan spending increase 2010-20 equals 31.5%.
Simpson-Bowles spending increase 2010-20 equals 45.0%
President Obama spending increase 2010-20 equals 62.9%.
For all of these plans, the US would still have a budget deficit in 2020. President Obama's would top $1 trillion.
Some more perspective. The cumulative spending, from 2012-2021, which is the period all of these budget debates are discussing is somewhere around $45 trillion. Simpson-Bowles suggest somewhere around $44 trillion, President Obama around $47 trillion and Paul Ryan around $40 trillion.
The debate on budget cuts are NOT debates on spending cuts; they are debates on cutting the growth of spending. They are debates on cutting proposed budgets. Exactly like the debate we had on the Board of Ed budget where reducing the growth of spending from 8% to 4% was characterized as a severe hardship. Bah.
The other thing to keep in mind is really how puny these cuts are. The President, as best we can tell, has agreed to a trillion or two of cuts to his budget, which would bring his ten year spending projection down to $45 trillion and a deficit in 2020 still in excess of $1 trillion.
But we did learn some things. For instance, Himes is in favor of eliminating loopholes in the tax code so he can introduce more loopholes in the tax code. Specifically, he wants to get rid of deductions oil and gas companies take on their tax returns so he can replace that with deductions solar and wind energy producers will take on their tax returns. He wants to replace ethanol subsidies with green energy subsidies. Reminds us of The Who line, "Meet the new boss. Same as the old boss."
But the main topic of the call was the Federal deficit, the debt ceiling and the budget. Let's start with some numbers. In (fiscal) 2010 the Federal Government spent $3.456 trillion. The biggest items were $707 billion on Social Security, $693 billion on Defense, $622 billion on Medicaid and other Income Security programs. and $451 billion on Medicare.
The President commissioned a group to study the budget and suggest changes. This group, headed by Alan Simpson and Erksine Bowles published their conclusions late last year. They suggesting growing the Federal budget from $3.456 trillion in 2010 to $5.1 trillion in 2020.
President Obama submitted a budget that suggested increasing Federal spending from $3.456 trillion in 2010 to $5,629 trillion in 2020.
Finally, Congressman Paul Ryan, in April, put forth a plan to increase Federal spending from $3.456 trillion in 2010 to $4.544 trillion in 2020.
In brief:
Paul Ryan spending increase 2010-20 equals 31.5%.
Simpson-Bowles spending increase 2010-20 equals 45.0%
President Obama spending increase 2010-20 equals 62.9%.
For all of these plans, the US would still have a budget deficit in 2020. President Obama's would top $1 trillion.
Some more perspective. The cumulative spending, from 2012-2021, which is the period all of these budget debates are discussing is somewhere around $45 trillion. Simpson-Bowles suggest somewhere around $44 trillion, President Obama around $47 trillion and Paul Ryan around $40 trillion.
The debate on budget cuts are NOT debates on spending cuts; they are debates on cutting the growth of spending. They are debates on cutting proposed budgets. Exactly like the debate we had on the Board of Ed budget where reducing the growth of spending from 8% to 4% was characterized as a severe hardship. Bah.
The other thing to keep in mind is really how puny these cuts are. The President, as best we can tell, has agreed to a trillion or two of cuts to his budget, which would bring his ten year spending projection down to $45 trillion and a deficit in 2020 still in excess of $1 trillion.
Wednesday, March 9, 2011
Board of Finance Hearing on BofE Budget, And the Shuffle
Last night, the Board of Finance endured an hour or so of public comments on the Board of Ed budget proposal. To recap, the BofE is asking for a 6%+ increase for FY12, which follows the 4%+ increase in FY11 which followed the 3.6% increase in FY10, the 6.4% increase in FY09 and the 7.0% increase in FY08. Over the past five years that would be a 31% increase in the budget (from $58 million in FY07 to $75 million plus in F12). Student growth over the same time period is 6%. Despite rapid growth in the budget, test scores are about the same, graduation rates about the same which leads to the obvious question: Where is this money going?
Speaker after speaker warned of the dire consequences if the Board of Finance didn't approve the BofE budget as is. They warned of the per pupil spending gap between Darien and our peer group. They warned of the dangerous trend in the operating budget.
We'll save the first warning for last and quickly dispose of the second two warnings. There is a gap between per student spending in Darien and our DRG, but it is driven by things like transportation, administration and plant operation and maintenance. Teacher spending per pupil is by far, we estimate upwards of 60%, the most important aspect of per pupil spending. Teacher spending per pupil is driven by teacher salaries and student/teacher ratios. Teacher salaries in Darien are pretty much the same as in other districts and class size in Darien is pretty much the same as in the other districts. You can point to instances where Darien has higher class sizes, but overall, there isn't a significant difference. The warning about the operating budget is a perfect example of the tail wagging the dog. The "operating" budget we are being warned of, and different numbers have been presented, is usually discussing a very narrow, and very minor aspect of the budget and positing that expenditures dealing with $1 million of a $75 million budget is the canary in the coal mine. Please.
So what is it? Why is this budget growing at 6% with less than 1% enrollment growth? And why has it been growing at 5x the enrollment growh rate for so many years? Only one person addressed this issue. Personnel costs are the largest component of the budget, and years ago, the BofE and RTM approved a multi-year contract that promised a 4% salary increase. After that, there's not much to argue about. We can do absolutely nothing new and pay 4% more than last year. Or we can add on some other things and pay 6% more, or we can cut heads and increase the budget less than 4%.
What's surprising to us is why this receives very little attention. Why isn't the BofE apologizing and promising they will operate differently so we don't face further budget increases, where as speaker after speaker after speaker remarked, "there are no new programs in this budget." Really? How can we pay 6%+ more for something and get NOTHING in return. Who negotiated that deal? Whoever it was, and whoever voted for that deal, did the town a dis-service.
Afterwards the Board of Finance approved a new gym floor for Middlesex, reducing the FY12 budget by spending the money this year.
And finally, The Shuffle.
Last week's Board of Finance meeting was quite exciting. The Board of Selectman asked for $300,000 or so, then $60,000 or so from the Contingency Fund to purchase architect drawings for the Shuffle. Martha Banks objected and, in our opinion laid our brilliantly, why the Shuffle is a truly bad idea. The vote was tied due to the absence of Murray Stegelmann.
Murray was available this week. Dave Campbell asked for $60,000, then $120,000, then another $200,000. It seems the numbers change every time someone opens his or her mouth on this subject. We think the Board approved $120,000.
Here's what we don't understand. Why is this coming from the contingency fund? This has been a project long advocated by the Board of Selectman. What possible reasoning do they have for tapping the contingency fund? We're not one for conspiracy theories, but it seems the strategy is to get the town half-pregnant on this project rather than go through the arduous process of building consensus on the need for this move.
A final thought. The pie, at least in the short-run is fixed. More for the Board of Ed, means less for the town, for things like the Shuffle, Police Station, Weed Beach, etc. We can increase the pie by increasing taxes, but we have difficulty supporting that as a fiscal solution.
Speaker after speaker warned of the dire consequences if the Board of Finance didn't approve the BofE budget as is. They warned of the per pupil spending gap between Darien and our peer group. They warned of the dangerous trend in the operating budget.
We'll save the first warning for last and quickly dispose of the second two warnings. There is a gap between per student spending in Darien and our DRG, but it is driven by things like transportation, administration and plant operation and maintenance. Teacher spending per pupil is by far, we estimate upwards of 60%, the most important aspect of per pupil spending. Teacher spending per pupil is driven by teacher salaries and student/teacher ratios. Teacher salaries in Darien are pretty much the same as in other districts and class size in Darien is pretty much the same as in the other districts. You can point to instances where Darien has higher class sizes, but overall, there isn't a significant difference. The warning about the operating budget is a perfect example of the tail wagging the dog. The "operating" budget we are being warned of, and different numbers have been presented, is usually discussing a very narrow, and very minor aspect of the budget and positing that expenditures dealing with $1 million of a $75 million budget is the canary in the coal mine. Please.
So what is it? Why is this budget growing at 6% with less than 1% enrollment growth? And why has it been growing at 5x the enrollment growh rate for so many years? Only one person addressed this issue. Personnel costs are the largest component of the budget, and years ago, the BofE and RTM approved a multi-year contract that promised a 4% salary increase. After that, there's not much to argue about. We can do absolutely nothing new and pay 4% more than last year. Or we can add on some other things and pay 6% more, or we can cut heads and increase the budget less than 4%.
What's surprising to us is why this receives very little attention. Why isn't the BofE apologizing and promising they will operate differently so we don't face further budget increases, where as speaker after speaker after speaker remarked, "there are no new programs in this budget." Really? How can we pay 6%+ more for something and get NOTHING in return. Who negotiated that deal? Whoever it was, and whoever voted for that deal, did the town a dis-service.
Afterwards the Board of Finance approved a new gym floor for Middlesex, reducing the FY12 budget by spending the money this year.
And finally, The Shuffle.
Last week's Board of Finance meeting was quite exciting. The Board of Selectman asked for $300,000 or so, then $60,000 or so from the Contingency Fund to purchase architect drawings for the Shuffle. Martha Banks objected and, in our opinion laid our brilliantly, why the Shuffle is a truly bad idea. The vote was tied due to the absence of Murray Stegelmann.
Murray was available this week. Dave Campbell asked for $60,000, then $120,000, then another $200,000. It seems the numbers change every time someone opens his or her mouth on this subject. We think the Board approved $120,000.
Here's what we don't understand. Why is this coming from the contingency fund? This has been a project long advocated by the Board of Selectman. What possible reasoning do they have for tapping the contingency fund? We're not one for conspiracy theories, but it seems the strategy is to get the town half-pregnant on this project rather than go through the arduous process of building consensus on the need for this move.
A final thought. The pie, at least in the short-run is fixed. More for the Board of Ed, means less for the town, for things like the Shuffle, Police Station, Weed Beach, etc. We can increase the pie by increasing taxes, but we have difficulty supporting that as a fiscal solution.
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