2016-01-11 Letter to Colchester Legislators

2016-01-11 Letter to Colchester Legislators - Google Docs:

January 2016

Senator DIck Mazza, Representative Jim Condon, Representative Joey Purvis, Representative Pat Brennan, Representative Maureen Dakin

Thank you for your service to Colchester and Vermont! Another tough legislative session looms and your task will be no easier this year.

Below are my views/priorities on the issues that deserve your focus and that of your leaders.

Please resist any impulse to waste time on minutiae, including expansive legalization of recreational marijuana. All other arguments aside, do not be cajoled into believing that you will have the opportunity to create a new revenue stream. Instead, you would enable a robust black market while creating yet another regulatory bureaucracy.

Control Overall State Spending

Recognize that Vermont has a spending problem, not a revenue problem. Please adopt that mindset and resist the temptation to raise taxes and fees yet again to balance the budget. Focus on efficiency in state government and reduce services as necessary. The AHS budget in particular is out of control.

Resist the siren song of budgeting on the notion of a “moral economy” where Vermonters needs and wants are so conflated that runaway spending is sure to follow. Vermont’s government role is not to meet all the needs/wants of Vermonters.

Keep the Cap on Education Spending

While Act 46 and the details within it are controversial, the fundamental premise, capping statewide education spending at 2%, is absolutely correct. Retain that and work on the details if you must. Do not succumb to the argument that because health care or other costs may have risen, the cap should change. Hold the line on total spending.

Reduce the overly generous income sensitivity element of education funding so that taxpayers vote more rationally on school budgets.

Carefully Scrutinize the Administration’s All Payer Waiver Request

The Administration wisely abandoned its single payer ideology as unaffordable. Do not allow Vermont to create an alternative that would pull Medicare funding under state auspices. The Medicaid crisis was created by the Legislature as part of the Single Payer/VHC fiasco. Please do not aggravate Vermont’s demonstrated inability to manage health care by allowing the Administration/GMCB to tamper with Federal control Medicare funds. Instead, keep focused on constraining the costs of Vermont’s health care rather than fiddling with the payment stream..

Carbon Tax

No!

Vermont’s  Regulatory, Population and Workforce Infrastructure Problem is Critical

Vermont’s workforce and demographic trends portend yet deeper trouble for our economy. The excessive time, energy and costs for doing business in Vermont are serious debilitating burdens on businesses. Because we lack common-sense regulation with swift decisions, capital investments are unnecessarily delayed in far too many instances. The regulatory and bureaucratic overburden at all levels of government is a major factor in the unsustainable costs of housing, business development and growth. A serious overhaul is long overdue and substantial improvements would send a potent signal that Vermont is open for business and job growth.

Respectfully,

David Usher, 267 Biscayne Heights, Colchester VT 05446, 802 735-2233

cc: Colchester Sun

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The future of jobs: The onrushing wave | The Economist

The future of jobs: The onrushing wave | The Economist:

We are in for a long , difficult economic and societal dilemma as spelled out in this piece. The political expression of it is the growing gap between the rich and the poor and the hollowing out of the middle class that politicians bloviate about without offering any real solutions. Perhaps they fail to understand or believe the underlying problem, opting instead to try and legislate job growth..

I'm reading this book, The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies,  referenced in the Economist story, which provides deep insight about the disruption of the traditional economic expectations.

"In a forthcoming book Thomas Piketty, an economist at the Paris School of Economics, argues along similar lines that America may be pioneering a hyper-unequal economic model in which a top 1% of capital-owners and “supermanagers” grab a growing share of national income and accumulate an increasing concentration of national wealth. The rise of the middle-class—a 20th-century innovation—was a hugely important political and social development across the world. The squeezing out of that class could generate a more antagonistic, unstable and potentially dangerous politics.
The potential for dramatic change is clear. A future of widespread technological unemployment is harder for many to accept. Every great period of innovation has produced its share of labour-market doomsayers, but technological progress has never previously failed to generate new employment opportunities."

I believe it's different this time because of the blinding pace of technological change and the ability to explore new models of productivity, work and service, nearly all of which reduce the human labor content in many previously 'safe' occupations.

Our institutions are more deeply entrenched and harder to change. Poorly educated people do not stand a chance for their insufficient skills to command a good-paying job in this new economy. With more generous government benefits, the incentive to work disappears from most folks.

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Reality and Politics Clash

Government dependency is a corrosive force that undermines democracy. TeamObama's thrust to transform America creates a collision course toward the destruction of democracy. How is it that so many people fail to see this?

When people accept the government as their source of basic sustenance, the spark of personal responsibility is slowly extinguished. Following that is a loss of a person's verve to better his/her condition. When government largess supplants individual initiative, the country is on the road to its demise as an example of freedom and liberty.

This should be the core debate in the elections ahead.

New Health Law Frustrates Many in Middle Class - NYTimes.com

New Health Law Frustrates Many in Middle Class - NYTimes.com:

The more I read about the failings of ObamaCare, not the website mess which can be fixed, but the underlying framework, the more I'm convinced it will fail. It is enormously complex with the net effect being higher costs for too many middle class people.

Perhaps it was constructed as an interim step destined to fail so that insurance companies would not suddenly fail. Was it designed with a small likelihood of success in an attempt to make single-payer a last resort option, which is what Obama, Dean, Shumlin and other liberal Democrats obviously prefer.

The political calculus in all this is fascinating to watch as it unfolds. The Democrats have a lot to lose in the 2014 election. The Republicans have a lot to gain, but being against ObamaCare is not by itself a winning strategy. They must come forth unified with a better plan. That should coalesce and be heavily promoted beginning in April with a solid strategy for implementation on the national level.

Without a viable plan they will fail to win the electorate. For me, any viable plan must include cost control. That means rationing and convincing providers and patients to accept it, a tall order.

"...An analysis by The New York Times shows the cost of premiums for people who just miss qualifying for subsidies varies widely across the country and rises rapidly for people in their 50s and 60s. In some places, prices can quickly approach 20 percent of a person’s income..."

The Republicans need to focus on fixing ObamaCare by strongly and truthfully promoting a rational solution. They  must win a majority in the Senate and retain control of the House with majorities to override potential vetoes by Obama in 2015 and 2016.

Single payer will not easily be accepted because trust in 'big government' is at an historic low, even among Democrats. The folks are unlikely to believe that they can pull off a single-payer plan.

I wonder if they're up to the task?


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Review & Outlook: Escape From ObamaCare - WSJ.com

Review & Outlook: Escape From ObamaCare - WSJ.com

"The Affordable Care Act appears to be misfiring in every imaginable way, and Democrats are having second thoughts about serving as human shields for White House ineptitude. If they really want to make amends, they'll join Republicans in trying to repair some of the damage they caused."

The chaos that is ObamaCare is the direct result of failed leadership from TeamObama. Rep. Pelosi and Senator Reid have not stepped into the breach to repair the damage that their policies have caused. This failure is far more than a troubled website. It's the result of tinkering ineffectively with America's healthcare system and negatively affecting the lives and destroying the trust of Americans. This is a very big deal because it's so personal.

The real problem to be solved is the cost of America's healthcare and how to reduce it. This problem receives scant political attention.

This is an opportunity for Republicans to seize the advantage. I will watch keenly to see if they have a viable alternative.

Mr. Blow at the NY Times sums up the TeamObama catastrophe here.

From the Start, Signs of Trouble at Health Portal - NYTimes.com

This story in the NY Times, normally a strong supporter of this Administration, reveals that the the health portal rollout was and is a colossal failure. Meanwhile, TeamObama has obviously been lying to the American people about it, if we are to believe this story.

Having been associated with complex information technology systems over the years, I am not surprised.  This one is even more fragile because users are not trained in its use and had high expectations because of experience with other complex website that work.  This situation was made doubly worse because Administration officials failed to tell the truth and properly set expectations.

Thank God our military software systems are normally thoroughly tested before deployment and work as they should.

This mess is a direct result of the politics surrounding ObamaCare and the fact that so many people disapprove of it. The roll-out failure is sure to further drag down its popularity and rightly so.

Will it be soon that top Administration officials will be fired? I think it's likely that Secretary Sibelius will lose her job.

From the Start, Signs of Trouble at Health Portal - NYTimes.com: "Interviews with two dozen contractors, current and former government officials, insurance executives and consumer advocates, as well as an examination of confidential administration documents, point to a series of missteps — financial, technical and managerial — that led to the troubles."

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European utilities: How to lose half a trillion euros | The Economist

A fascinating story about the combined effects of government policy and renewable electricity technology in Europe. Good intentions and massive subsidies have produced very high electricity consumer prices and decimated the finances of the electric utilities. The future seems even more uncertain as the consequences of these policies are destroying wealth with no demonstrable environmental benefit.

Are the same consequences in store for America?

European utilities: How to lose half a trillion euros | The Economist: "Those goals are now harder to achieve. Renewable energy has grabbed a growing share of the market, pushed wholesale prices down and succeeded in its goal of driving down the price of new technologies. But the subsidy cost also has been large, the environmental gains non-existent so far and the damage done to today’s utilities much greater than expected. Europe in general and Germany in particular see themselves as pioneers of low-carbon energy. If they are genuinely to be so, they will need to design a much better electricity system that rewards low-carbon energy without reducing reliability and imposing undue and unnecessary costs."

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Paul Ryan: Here's How We Can End This Stalemate - WSJ.com

Congressman Ryan's opinion piece suggests that budget negotiations are essential and some common ground may exist among Republicans and Democrats. And he makes no mention of the Affordable Care Act.

Paul Ryan: Here's How We Can End This Stalemate - WSJ.com:

"Over the next 10 years, the Congressional Budget Office predicts discretionary spending—that is, everything except entitlement programs and debt payments—will grow by $202 billion, or roughly 17%. Meanwhile, mandatory spending—which mostly consists of funding for Medicare, Medicaid and Social Security—will grow by $1.6 trillion, or roughly 79%. The 2011 Budget Control Act largely ignored entitlement spending. But that is the nation's biggest challenge."

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Crucial Rule Is Delayed a Year for Obama’s Health Law - NYTimes.com

Politics trumps policy!

Crucial Rule Is Delayed a Year for Obama’s Health Law - NYTimes.com: "WASHINGTON — In a significant setback for President Obama’s signature domestic initiative, the administration on Tuesday abruptly announced a one-year delay, until 2015, in his health care law’s mandate that larger employers provide coverage for their workers or pay penalties. The decision postpones the effective date beyond next year’s midterm elections."

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How Technology Is Destroying Jobs | MIT Technology Review

How Technology Is Destroying Jobs | MIT Technology Review: "­Brynjolfsson, a professor at the MIT Sloan School of Management, and his collaborator and coauthor Andrew McAfee have been arguing for the last year and a half that impressive advances in computer technology—from improved industrial robotics to automated translation services—are largely behind the sluggish employment growth of the last 10 to 15 years."

I read Brynjolfsson and McAfee's book in 2011 and remain persuaded they are correct in their analysis. This piece in the MIT Technology Review is highly recommended reading and, of course, the hundreds of comments following in are equally insightful. Read the book if you have the inclination.

I am also convinced that nearly all our policy-makers and politicians are clueless about what to do about the job dislocations in the short term. Meanwhile, government policies are driven not by reality, but by perceived political power and gains. Traditional thinking that the Great Recession will end and things will improve for the U.S. based on past history is likely wrong, particularly so Keynesian economics which drives so much government policy and spending which does not produce the same results as previously. The fundamentals have changed.

Some experts argue (Harvard economist Lawrence Katz in this piece argues that this technological upheaval of the past two decades is merely part of a long term trend that began with the Industrial Revolution.) this is just a continuation of the technological progress of mankind

I think we are in a period of profound change driven primarily by advances in software and extremely capable and fast hardware that can mine and capture the value of 'Big Data.' The combination of technologies is creating capacity and capabilities that supplant the need for more and more human labor to produce goods and services that drive the economy.

"W. Brian Arthur, a visiting researcher at the Xerox Palo Alto Research Center’s intelligence systems lab and a former economics professor at Stanford University, calls it the “autonomous economy.” It’s far more subtle than the idea of robots and automation doing human jobs, he says: it involves “digital processes talking to other digital processes and creating new processes,” enabling us to do many things with fewer people and making yet other human jobs obsolete."

The wild card of course is that the negative effects of technology on jobs is seen mostly in advanced economies and less so in the underdeveloped world where manual processes prevail. The big question is will these countries and peoples grab the advantages of these advances in technology and raise their living standards or will religious, ethnic and cultural factors retard economic gains and better living conditions?

From the Story:

WHY IT MATTERS

Economic theory and government policy will have to be rethought if technology is indeed destroying jobs faster than it is creating new ones.

The 2,000-Year-Old Wonder Drug - NYTimes.com

The 2,000-Year-Old Wonder Drug - NYTimes.com: "...Everyone may want the right to use tobacco products and engage in other behaviors that are unequivocally linked with disease — or have the right not to wear a seat belt and refrain from other actions that may protect their well-being. But, if so, should society have the obligation to cover the costs of the consequences?..."


While I endorse the use of a daily aspirin dose and take one myself, I don't endorse the underlying ideology this author suggests early in the piece that certain substances be banned by political fiat as Bloomberg is doing in New York.

For sure, I agree that people should be encouraged to participate in a healthy lifestyle and educated about the negative consequences of certain foods and substances, but banning these for all people is an abridgment of freedom and liberty. This is a very difficult area, I know, particularly for those substances that are not highly addictive or gateways to addictive substances that are damaging to health and society, e.g., hard drugs and the crime that follows their use.

I agree with the author that society should not have to bear the consequences of stupid or self-damaging behaviors by individuals who abuse their freedom and avoid responsibility and accountability. A reasonable way to accomplish that is by society and government condemning such behavior and making it very expensive monetarily for people to participate in it. The high taxes on tobacco products is a case in point.  Another way is for insurance costs for people who abuse themselves with dangerous substances or behavior to be higher. Fairness and reasonableness demand there be a price paid by individuals for their risky behavior.

This is not meant to be mean or unforgiving of people who cannot control their lives, but those who can and won't should not be able to ride free on society's largess.

Race for President Leaves Income Slump in Shadows - NYTimes.com

Race for President Leaves Income Slump in Shadows - NYTimes.com: "Many of the bedrock assumptions of American culture — about work, progress, fairness and optimism — are being shaken as successive generations worry about the prospect of declining living standards. No question, perhaps, is more central to the country’s global standing than whether the economy will perform better on that score in the future than it has in the recent past."

Some well-reasoned analysis in this piece, most of which I agree with. In the 'silly season' before elections politicians often deal with 'froth' in their campaigns because the underlying forces driving our fiscal mess and poor performing economy cannot be dealt with in a sound bite or 30 second ad.

The fundamental issue in the Presidential campaign is whether the government is the best solver of our economic and fiscal problems of whether the role of the private sector can best do it. I favor the private sector and I think more and more voters are coming around to that viewpoint because they see the trillion dollar deficits of TeamObama have produced poor results and unsustainable debt but little economic improvement.
Missing from the story is the corrosive effect of entitlements on America's fiscal health. Entitlements persuade people who have them not to lose them and to vote accordingly. (Entitlements do little to grow the economy except provide a source of consumer spending.) Politicians know this and too many pander to the recipients for their votes.

The fundamental problems in our economy have no quick fix, yet that's what too many voters unrealistically expect and that politicians over-promise with their 'make sure...' rhetoric.

The only way to improve incomes is to grow the pie (the economy) not redistribute it. Even if all the income of the super-rich was confiscated and applied to the deficits it would be a drop in the bucket.
It boils down to this: Which Presidential candidate and Congresspersons do voters trust to best set a course to solve the problems we face. Romney's proposals ring truer than Obama's.

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Obama Cannot be Trusted in Foreign Policy

Arguments can be made that America cannot win a war with Islam. Nevertheless, when provoked as we have been in Benghazi and Cairo, we must respond both in words and deed.

President Obama has a foreign policy that is unknown to most Americans. America cannot trust the Muslim government in Egypt and Libya, for all intents and purposes, has no effective government. In this vacuum terrorists thrive. The Arab Spring is nothing more than liberal wishful thinking.

I have much greater confidence that Romney as leader would be a defender of America's interests than TeamObama, which has not demonstrated the savvy to confront the world's realities.

Spain Now at the Top of the European Crisis Heap

[Hat tip to John Mauldin for sharing this letter in his newsletter from a banker/financier friend after a conference of high level folks in Paris.]

All signs point to continuing crisis in the Eurozone with Spain currently at the top of the heap of pain with massive unemployment and a huge housing bubble, worse than ours. John Mauldin examines it in detail in this week's newsletter.

The United States should be learning a lesson form all this, but TeamObama and the Democrats are placing re-election politics far ahead of fiscal responsibility.  Only the Ryan budget makes any sense to begin to fix the mess and keep America from descending into the 'more debt than we can afford' syndrome that plagues Southern Europe.

The United States must reform its entitlements and tax code to encourage fiscal responsibility and continue to grow the economy. No Democrat-sponsored budget plan does that. This is the drum that the Republicans should beat all the way to November.

Back from ParisDavid Kotok

We are back from Paris. The head is filled with new info. For the publicly available portion of the conference, see the GIC website, www.interdependence.org. The remaining comments will be my personal “takeaways” from both public and private conversations. By Chatham House Rule and Jackson Hole Rule, these words are attributable only to me. All errors are mine.

1. In my view, the situation in Portugal is unraveling. This may be the second shoe to drop in the European sovereign debt saga. Now that Greece has paved the way, the speed of unwind with Portugal may be much faster. I do not believe the markets are prepared for that. Runs are affecting Portuguese banks. Euro deposits are shifting to other, safer countries and the banks that are in those countries. Germany (German banks) is the largest recipient. Remember, deposits in European banks are guaranteed by the national central banks and the national governments, not the ECB. There is no FDIC to insure deposits in the Eurozone.

2. The issue is that Greece was supposed to be “ring-fenced.” Notice how European leaders have stopped using that word. Their new word is firewall. If a second country (Portugal) restructures, the sovereign debt issues become systemic rather than idiosyncratic. That becomes the second game-changer. Systemic risk needs big firewalls. We learned that the hard way with Lehman and AIG, which were systemic, vs. Countrywide and Bear Stearns, which were “ring-fenced” – or thought to be ring-fenced at the time.

3. A game-changer was the use (not threat) of the collective action clause by Greece. CAC altered the positions of the private sector. It rewrote a contract after the fact. That is why Portugal’s credit spreads are wide: the private-sector holders of Portuguese debt know that a CAC can be used on them, too. The same is true for all European sovereign debt. A re-pricing of this CAC risk is underway.

4. Private holders of Greek debt had several years to get out before the eventual failure. Those that did not get out were crushed in the settlement. Greece is now a ward of governmental and global institutions like the ECB, IMF, and others. It is unlikely to have market access for years. This is another game-changer. In the old crisis days, the strategy was to regain market access quickly and restore private-sector involvement. In the new Eurozone-CAC crisis days, the concept is to crush the private-sector holders, and that means no market access for a long time. Instead, we will have ongoing and increasing sunk costs by governmental institutions. Caveat: government does not know how to cut losses and run. Government only knows how to run up small losses until they are huge. Witness Fannie Mae in the US. Witness the sequence that allowed Greece to fester for years. Government does not know how to take the “first loss,” which is usually the smallest lost. Government does know how to run up moral hazard.

5. The term moral hazard means the action is done today and the price is determined later, after the chickens come home to roost and crap all over the coop. That is the nature of government everywhere. By the time the chickens return, the political leaders have changed. Those who took the moral hazard risk are gone. Those who inherited their mess are blamed during the cleanup. That is where we are today in Europe. Hence, the political risk is rising daily. Elections could change these governments, and the new governments may repudiate the actions of the old ones. We expect more strikes and unrest. That is how elections can be influenced.

6. European debt-crisis issues are lessons for the US. They belong in the political debate. Both political parties are responsible for our growing debt issues. Bush ran up huge deficits. Obama continued them. Each party blames the other. Neither takes on the responsibility of their actions. We shall see how this evolves between now and November.

I am more pessimistic about peripheral Europe than I have been. All that my co-author Vincenzo Sciarretta and I wrote in our book several years ago is now being reversed by policies. In the beginning, the Eurozone benefited immensely from economic integration and interest-rate convergence. Now it faces disintegration and divergence. Reverse the chapters in the book and play the film backwards.

Can Europe find a stabilizing level and resume growth? Time will tell. Meanwhile, political leaders and central bankers are going to be tested again.

This ain’t over. Yogi is correct.

The Quest for Creating Jobs - Wrong Thinking

When Jim Clifton,  Chairman and CEO of Gallup (the polling people) author of The Coming Jobs War, was asked: What obstacles do leaders have when trying to create more jobs?"

"There are no real obstacles. Just wrong thinking, bad assumptions. When you build strategies and policies on wrong assumptions, the more you execute, the worse you make everything, which is what we are doing now. There are three wrong assumptions that cause all the current job creation attempts to not work.

1. "Innovation is not scarce. Entrepreneurship is scarce. We are spending billions and wasting years of conversations on innovation and it isn't paying off. Great business people are more valuable and rarer than great ideas.

2. "America has about six million active businesses. Ninety-nine percent of them are small businesses. An incalculably huge mistake leaders are making now is spending time, money, strategies, and especially policies for those who need 'help' getting a job. A useful way to look at any citizen is this, 'Can she herself create jobs or does she need a job created for her?' We are spending all our time on the cart and doing little or nothing on the horse. We have our assumptions and futurism that backward. 'The horse (small and medium business) stopped, so we fix the cart (jobs).' If we change all our strategies and policies to favor the job creators (small and medium businesses) the horse and cart will get moving again. We have our compassion right, but the logic is staggeringly stupid.

3. "It is wrong thinking to imagine that Washington has solutions. Job creation is a city problem. There is great variation in job creation by city in the United States. San Francisco and the greater Valley keep pumping away while Detroit isn't. Austin's cart works while Albany's doesn't. Cities need to look inwardly and say, 'What can I do to create great economic energy, to bring new customers for all existing companies and start-ups?'"

U.S. Energy Policy Sen. Leahy Correspondence

March 11, 2011

Dear Sen. Leahy,

Thanks for keeping me informed about your Senate votes and views on energy policy.

I respectfully disagree with your anti-fossil fuel stance. It's abundantly clear that oil, gas and coal will remain the primary energy sources in this country in our children's and grandchildren's lifetimes.

Advocating for more costly renewables that, if implemented with today's expensive and relatively inefficient technologies, will raise the energy bill for Vermont and the nation is an unsound trade-off while we seek an economic recovery. In my view, the promise of 'green jobs' is more political rhetoric than reality.

We have abundant supplies of fossil fuels on this continent and to deny their use is not in the best interests of this nation. The real technological advances have been in the oil and gas industries which accounts for the recent dramatic increase in domestic oil and natural gas production.  In the US, the oil and gas extraction sector grew at a rate of 4.5 per cent in 2011 compared to an overall GDP growth rate of 1.7 per cent. With a multiplier effect of ~3:1, that means this sector created 150,000 jobs. The sector’s highly skilled workforce is also well-paid compared to other sectors. That's a good thing but your policies would slow down that growth.

If you advocate that renewables will positively affect climate change by reducing carbon dioxide emissions, then please let us know what the average global temperature should be, how much it will cost the world to get there, and what is our 'fair share.' Otherwise, you're simply whistling in the wind apparently for political rather than practical reasons.

If you're truly concerned about reducing CO2 emissions, we should build more nuclear power plants and you should persuade Sen. Reid that Yucca Mountain is a necessary repository for wastes. But an even better solution is recycling used nuclear materials where France has shown the way.

So, to sum up. Your views diverge from mine on energy policy and it's time we stop throwing subsidy dollars around rather than encouraging investments in a sound energy infrastructure, including the Keystone pipeline project.

Where we do agree is that efficiency has the best near term pay-off to reduce the nation's energy bill.

Respectfully,

David Usher

On Fri, Mar 9, 2012 at 17:08, Senator Leahy  wrote:

Dear Mr. Usher: Because of your interest in the debate on national energy policy and the proposed Keystone XL pipeline to carry oil refined from dirty tar sands in Canada, I thought you would want to know of the latest developments on Capitol Hill.  Yesterday the Senate defeated two Keystone-related amendments to the bill to reauthorize federal highway system investments, the Moving Ahead for Progress in the 21st Century Act of 2011.  These amendments – misleadingly described by their proponents as a remedy to the current run-up of fuel prices -- would have short-circuited the review and approval process to fast-track the Keystone XL pipeline.  Both would have halted any further environmental impact studies, despite the fact that the route around a critical aquifer in Nebraska has yet to be identified.  I voted against both of these amendments, and I am glad to be able to report that both of them failed.  Instead of focusing on the short-term jobs from the Keystone XL pipeline, we should be investing in sustainable energy sources that create long-term jobs in the emerging renewable energy economy in areas like manufacturing, transmission, research and development.  For our national security, the health of our environment, our family budgets and the strong economy we want and need, we must reduce our dependence not only on foreign oil, but on all fossil fuels.  For decades we have been putting too many eggs in the fossil fuels energy basket, to our detriment.  At a time when domestic oil production is at its highest in almost a decade and foreign oil imports are at their lowest in 16 years, it is clear that speculation and world markets are driving up the price of oil.  We must forge and implement energy solutions and policies that reduce our reliance on fossil fuels by increasing fuel efficiency, developing renewable energy sources and curbing abuses by speculators who are unnecessarily driving up oil prices for their own short-term profits.  The answer is not pipelines and more of the same flawed choices that sacrifice our health, our safety, our environment and our future economic vitality. Sincerely, PATRICK LEAHY United States Senator

Thoughts From the Frontline - John Mauldin

Below is an excerpt from John Mauldin's weekly newsletter, this issue is titled The Cancer of Debt and Deficits, (John Mauldin | February 18, 2012) 

John writes a long newsletter each week full of interesting thought and analysis.

His introduction to this week's piece:

"We are coming to the point in the United States when even the US government will no longer be able to borrow at very low long-term rates. That point is a few years off, and we have time to change paths; but as I have shown in previous letters, the longer we wait to get the deficit under control, the fewer choices we have and the more painful they are. NO country can run deficits the size we are currently running, along with unfunded deficits over four times the size of the economy and a growing overall debt burden, without consequences. At some point, investors in bonds will start wondering exactly what the process is by which they will be repaid. And what will the value of those future payments be?"

Then, further on, he discusses a tax approach that he believes makes sense for the revenue portion of a deficit reduction plan that must be implemented soon if the U.S is to avoid the type of degradation we are witnessing in European countries. While reforming entitlements is absolutely required, any serious proposal to reduce deficits and long term debt must also reform the tax code and raise revenue. Here's one way:

"Taxing ConsumptionSo let's get down to details. I met with Marc Sumerlin for breakfast a few weeks ago, and he later sent me a book he coauthored back in 2007 with Larry Lindsey, called What a President Should Know … but most learn too late. Both men are serious economic thinkers, and Lindsey is a specialist in tax policies. They both worked as economic advisors in the White House, and Lindsey was on the Board of Governors of the Federal Reserve. They do understand some of the mechanics of politics and economics. They now work together at The Lindsey Group, an economic advisory service based in DC. They do excellent work.
Marc outlined to me their thoughts on reforming the tax code. I read the chapter in the book on reforms, and like it better than anything else I have seen.

What they suggest is to tax consumption with a 20% Value Added Tax (VAT). There would be no taxes for incomes under $100,000. None. No Social Security. No Medicare. If you make less than $100,000 you pay nothing.

All income over $100,000 is taxed at 20%, no matter what the source. No capital gains rate or dividend break. I assume that also means no municipal bond exemptions. No exemptions for anything. Every last tax expenditure goes away. Corporate tax rates would be 20%, and again I assume no exemptions. If you make a profit, you pay taxes.

Although they did not say it in the book, they essentially agree with Hobbes that income measures what you contribute to society and spending measures what you take from it.
What society wants (and needs) is more income, as that grows tax revenues and general wealth. Consumption – what you get from society – is taxed. We don't just need to tax millionaires more, we need more millionaires that we can tax. And you get that by encouraging growth in the economy.

They also note that their proposal was revenue-neutral in 2007, and included a $2,000 per child tax credit. Every worker would get an approximate 7.5% pay raise from the removing of Social Security and Medicare taxes. While businesses would also get that same tax break, they would have to pay a VAT on salaries, which would be an increase in cost. Welfare, the social safety net, and health care would all be funded.

As the VAT would not be paid on exports, it would put us on a more even ground with those nations that have a VAT and certainly lower business taxes, both of which would make us more competitive and increase exports and thus employment.

While they did not suggest it, I would change the tax code over four years, although phasing out tax expenditures faster to help the current budget crisis. A sudden change might be disruptive, and it would take time to get the mechanism in place for collecting a VAT. States with individual income taxes would need to adjust the sources of their incomes. (It would also give my tax-accountant and tax-lawyer friends time to find a different career focus.) Businesses would need some time to adjust their costs and sales.

This is different from the so-called "Fair Tax," which is essentially a national sales tax. While I like the idea of taxing consumption, a 20% sales tax on top of state and local sales taxes of 8-10% would encourage much of our economy to move to either a barter system or a cash economy. A VAT might provoke similar reactions on a smaller level, but I think overall it is more readily collectible.

One can adjust the levels of both the VAT and income taxes to match the desired level of government spending. I might prefer less, but that is not the point here. Match these taxes (along with the normal excise taxes) with entitlement reform, a properly structured health-care system, and some cuts in other areas, and you are close to a balanced budget.

One caveat. It may surprise a few readers, but I met with David Krone yesterday for a long breakfast in Washington, DC. David is chief of staff for Senate Majority Leader Harry Reid. He is passionate, articulate, savvy, and an all-round nice guy. We found many areas of common ground and concerns. When I broached the idea of the tax proposal above, he seemed open to it, but came back with one thought.

"It has to have a trigger." I must admit, I had to ask what a trigger is.
"A trigger is a pre-agreed-upon outcome if the desired budget outcome does not happen. Either spending cuts, tax increases, or some combination, but it must be automatic." Quite a reasonable suggestion.

I readily admit there is something for everyone to hate in a VAT tax. It would raise my costs for employees substantially. I would lose several nice deductions. But given our current tax code, I think it would be the better of two evils for the economy.

Do you hate the idea? Then come up with an alternative that collects enough revenue and doesn't have the problems of the current structure, and can get the votes. As I noted above, I would vote for something like Simpson-Bowles if that was my choice. I think Reid and Boehner should introduce Simpson-Bowles for an up or down vote before the next election. Let's see what happens.

Scott Walker, fighting a good fight in Wisconsin - The Washington Post

Wow! I'm not usually a reader of the WaPo but with the NYT paywall rules, I'l read it more often, along with my paid subscription to the WSJ.

This opinion piece by Lane, is not only thought-provoking, but right (no pun intended) in its analysis.

Walker has taken the proper stance , withstood withering fire from the unions, and deserves to be elected in this recall initiative. All the accounts that I have read say that he has not only stood firm against the attacks, but his initiatives and policies backed by the Republican legislature have been successful in reducing Wisconsin's deficits, balancing the budget and enabling local municipalities to save a considerable amount of money. Meanwhile the public employees have given up very little, while the public interest has been substantially benefited.

"For public-sector unions, the Walker recall is no mere exercise in payback. The unions, upon which Democrats depend heavily for funding and foot soldiers, say Walker must be ousted and his reforms reversed for the sake of the middle class. Progressive values — even democracy itself — are in mortal danger.
Actually, the opposite is true. The threat to such progressive goals as majority rule, transparent government, a vibrant public sector and equality comes from public-sector unionism."

You can read Gov. Walker's state-of-the-state speech here. An excerpt:

"...Fortunately, we can have great schools and protect taxpayers at the same time. We just have to spend our money more wisely. For example, before our reforms, school districts often had to buy their health insurance from one company which cost them millions of dollars.Now, they can bid it out and that is saving school districts millions of dollars across the state. The Hartland-Lakeside School District saved nearly $700,000 by switching insurance providers. In Menomonee Falls they saved $2.4 million. In North Fond du Lac they were able to keep the same provider but saved over $300,000. That’s money that can go directly into the classroom.

Here’s another example, a few years ago long before I was governor, a young woman was named the Outstanding Initial Educator by the Wisconsin Council of Teachers of English. Not long after she received the award, she was laid off.Why? Well, under the old collective bargaining system she was one of the first to be laid off because she was one of the last ones to be hired. It didn’t matter that she was one of the best teachers in the state.To correct problems like that, our reforms now allow local school districts to staff based on merit and pay based on performance. That means we can put the best and brightest in our classrooms - and we can keep them there..."

BP abandons solar quest - MarketWatch First Take - MarketWatch

Smart business people make rational economic decisions. Kudos to BP. Meanwhile, politicians pander to the alternative energy proponents and spend our tax dollars to do it. A lump of coal for them this Christmas.

"...Despite all the negative fallout from its 2010 Gulf of Mexico oil spill, BP has had huge success developing deepwater oil fields around the world. This, combined with high oil prices, is the engine driving BP’s profits.
Bob Dudley, the current American-born CEO of London-based BP, is clearly taking the company back to its roots in the oil patch. And when sizing up China, vanishing government funding and a world apparently more alarmed about the economy than the environment, he’s found it hard to justify BP’s dabbling in solar power.
Some day the oil industry will have to revisit alternative energy in a big way. They all know it. But, just like in government, it’s easier to kick that can down the road for future generations to deal with.
But for the time being, old fashioned oil-field profits are just too good to get sidetracked by all that solar stuff. Besides, it will likely be many years before history shows whose vision was the right one -- Browne’s, Dudley’s or China’s..."

The Eurozone 's Stark Choices

Below is an excerpt from writings of John Mauldin, <FrontlineThoughts.com> a financial analyst which sums up the choices facing the EuroZone. December 9 is shaping up as a very big day for Europe and world financial markets.

"...Merkel and Sarkozy have told us they will meet Monday and announce a plan on December 9, when the full eurozone meets. Forget bazookas, this needs the equivalent of a howitzer. They are seemingly intent upon rewriting the treaty, which is the only way that the Germans will go along with any major ECB action. But by my reckoning, a few hundred billion, or even a trillion, is not major action, at least not on the level of what will be needed.

The price for German acquiescence will be a loss of sovereignty and the ability to run deficits of any real size for any appreciable length of time for the countries of Europe. Will the peripheral countries go along? Heck, forget them; will Finland go along? This situation has been coming along since the foundation of the eurozone. The early founders acknowledged that a tighter fiscal union would eventually be necessary if the euro experiment were to survive. And eventually is now. As in this month. Time is running out if they want to forestall a credit crisis that would be worse than 2008.

The world is watching, as what happens in Europe will affect us all, in every part of the globe. It could easily tip the US into recession, and it will only be worse for the emerging markets. For Europe, the Endgame is now. We can only hope they come up with a plan that avoids disorderly defaults and a crisis far graver than 2008. They have no good choices, only difficult ones and disastrous ones. Let us hope they choose wisely.
(And for my fellow Americans, note that we will face the same consequences if we do not get our own house in order, and very soon. This is more than an academic observation.)" [emphasis added]