Terrific Post on the PSERS Crisis

A school board member in Northwestern Lehigh School District runs his own blog, Pride and Promise. I was going to do a lengthy post on the House Bill that is set to address the PSERS issue but this blog beat me to it. I don't think I could have done a better job explaining this myself.

Please check out Paul Fischer's post on the PSERS crisis here:

http://prideandpromise.com/2010/06/11/the-psers-crisis-kicking-the-can-further-down-the-road-with-hb-2497/

The idea here is that the HB actually kicks the can down the road again. It has the short term effect of slightly lowering employer contributions but in the long term it will cost taxpayers billions ($52 billion according to some)more than simply sticking with the bad plan we already have.

Thanks for reading.

James

Rising Government Debt is a Ponzi Scheme

The Economist magazine has a terrific article titled, "Repent at Leisure". It's important because it is the first mainstream article in The Economist that I have read which takes on the problem of increasing government debt in order to stimulate the economy. I wrote way back in January 2009 about the Aftermath of Financial Crises and was hopeful that this day would come. Here is a quick snippet:

The point of this is to say that the large majority of economists that are prominent today come from the Keynesian school of economic thought. When we hear people talk about a huge majority of advisers and academia folks agreeing on the best way to get us out of whatever malaise we are in, it is because most are believers in the Keynesian school of thought. Those that follow the Austrian school of economic thought were proven to be correct about a lot of the causes of the Depression. Those that are Keynesians believe that we can stimulate demand (and therefore employment and production) by embarking on massive government spending programs. While these programs may make us feel good in the near term because we can see that our government is trying to do something, the long-term consequences of such programs is astounding.

I am hopeful that the Austrian school of economic thought will start to make its way into the mainstream in 2009.

It took a little longer than I had hoped but it seems like the mainstream media is now starting to focus on the effect that deficits have on future production. That The Economist magazine has printed an article about the downfalls of Krugman/Keynesian fiscal stimulus and debt is no small deal.

Here is a piece of the article:

Rising government debt is a Ponzi scheme that requires an ever-growing population to assume the burden—unless some deus ex machina, such as a technological breakthrough, can boost growth. As Roland Nash, head of research at Renaissance Capital, an investment bank, puts it: “Can the West, with its regulated industry, uncompetitive labour and large government, afford its borrowing-funded living standards and increasingly expensive public sectors?”

The problem with debt, of course, is that it needs to be paid back.

The Wall Street Journal also just published this editorial titled, "The Keynesian Dead End". Here is an excerpt:

The larger lesson here is about policy. The original sin—and it was nearly global—was to revive the Keynesian economic model that had last cracked up in the 1970s, while forgetting the lessons of the long prosperity from 1982 through 2007. The Reagan and Clinton-Gingrich booms were fostered by a policy environment for most of that era of lower taxes, spending restraint and sound money. The spending restraint began to end in the late 1990s, sound money vanished earlier this decade, and now Democrats are promising a series of enormous tax increases.

One of my favorite economists is Ludvig Von Mises (1881-1973). Here is a pertinent quote from him:

There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.

Kudos to The Economist and WSJ for letting these articles fly.

Thanks for reading.

James

State Budget Update

After a long trip to China, its good to be back and have access to Blogspot. The government in China chooses to block access to a number of sites- hence the long break between my blog posts. Scribd and Blogspot being sites I use quite often, it was frustrating trying to keep up on things back home through other sites.

On to the post...

I received an email from the PSBA today with a rather bleak assessment of where we are with the Commonwealth's budget.

Full text of the email is below:

State Budget Update: Chances Growing Dim for Agreement by July 1

Going into this past weekend, optimism was high that a budget agreement could be reached by the June 30 deadline. However, following a weekend of meetings among the four legislative caucuses and Gov. Edward Rendell, it appears that an agreement will not be in place by the deadline. Instead, Senate Republicans will likely present a budget plan that $27.8 billion budget and take a floor vote on Tuesday or Wednesday of this week. Meanwhile, the other three legislative caucuses appear to have an informal agreement on a budget that is closer to $28 billion.

Meetings last week and through the weekend appeared to be productive in all sides moving closer towards agreement on an approximately $28 billion budget proposal. Budget negotiations on Sunday were expected to determine how much of an increase the agreed-upon budget would provide for basic education funding. However, issues such as a proposed Marcellus Shale extraction tax and continued funding for the Department of Community and Economic Development prevented an agreement from taking place.

Additionally, as part of the original conditional agreement, House and Senate Republicans agreed to consider a Marcellus Shale extraction tax by Oct. 1 if a budget is enacted by the June 30, 2010 deadline. Although the details of that tax have yet to be negotiated, PSBA has continued to work to secure a portion of an oil and gas severance tax to be dedicated to local school districts.

Another issue is what to do if federal legislation on Medicare payments is not passed. The failure of that measure would be mean an $850 million hole for the commonwealth's budget and would all but eliminate any increase in education funding and create additional layoffs both on the state and school district levels. Reportedly, the sides are discussing who gets to make the additional cuts and how they are agreed upon.

Caucus leaders and the governor are meeting this morning to see if the budget can be put back on track. Regardless of the results of those discussions, education funding is in dire trouble and legislators need to be reminded of its importance in the 2010-11 fiscal year. Please contact your members of the Senate and House of Representatives now to express to them the importance of basic education funding. Here are talking points you can use:

-- As a result of Pennsylvania's commitment and investment in basic education, students in the commonwealth have demonstrated academic gains. Nearly 75% of Pennsylvania students are testing on grade level in reading and math, an increase over the more than 50% who were performing on grade level in 2002.

-- It is vital to the future of Pennsylvania's students to maintain the state's commitment to the basic education funding formula, as established in Act 61 of 2008.

-- Almost all school district expenses continue to increase. Therefore, the difference between state funding and increased costs must be made up by increasing property taxes or slashing programs and services to students, neither of which are acceptable.

-- The PA School Funding Campaign, which includes PSBA as a member, recently released detailed information on the cuts being made by school districts statewide. The coalition reported that almost a quarter of districts have already approved cutbacks in teaching positions, transportation, technology, and extra-curricular activities. Funds for full-day kindergarten, special education services, foreign languages and alternative education programs also are being cut. Further cuts to state funding will only require deeper cuts on the local level. Click here for details on cuts being made by districts around the state.
Thank you for your continued advocacy efforts that will help to ensure Pennsylvania's commitment to adequate and equitable education funding for our school districts. Please call your legislators today!

Note two things. First, the PSBA points out that in order to close a budget gap there are only two alternatives. Slash programs or raise taxes. The PSBA thinks neither of these alternatives is good. Second, note that there is no promise that the Federal government will pass another stimulus for this budget year. This action (or non-action) would likely result in a further $850 million hit to the state budget. The PSBA believes that if another stimulus does not pass then the basic education subsidy provided by Pennsylvania to local school districts will not be able to grow. Is it sacrilege for me to tell the Feds to keep their money?

It is the season for belt tightening all across this country. State budgets are in shambles. Borrowing and spending money has done nothing but put our budgets further in a hole than anyone ever imagined. It's time to get real and cut costs so that government (local, state, and federal) budgets can all live within their means.

Thanks for reading.

James