Inquiring minds are reading an interesting article in Forbes by writer Charles Kadlec regarding the Economic Incompetence of the Political Class.
The sovereign debt crisis now threatening Europe, as well as major American states and cities, discloses the sheer incompetence of a political class that has over-promised, under-delivered and squandered vast amounts of their citizens' wealth.
Greece, Ireland, Spain, Portugal, California, Illinois, Los Angeles and Chicago are simply the poster children for what happens when elected officials engage in reckless and irresponsible management of their economies, their banking system or their respective government's public finances.
California's budget deficit has soared to $25 billion, or more than 25% of total spending. And, according to a recent study, the City of Chicago's unfunded pension liabilities total $45 billion, or more than $40,000 per household.
Politicians may not be solely responsible for this fiscal mess. But they are responsible for using borrowed money to pay for current expenses until they had borrowed more than they now seem able to pay back.
The European strategy of enabling more borrowing while imposing austerity plans, including higher tax rates, on overly leveraged countries may prove counterproductive. Increasing tax rates slows growth, reducing GDP, employment and the tax base necessary to service the debt.
At some point, there is a risk that one or more European countries may be unable to avoid a de facto, if not de jure default on their debt, requiring a complete restructuring. And that creates the risk that the European Central Bank will be forced to bail out the political class by buying that country's sovereign debt and devaluing the euro--hence the current weakness of the European currency.
The sovereign debt crisis now encircling Europe may well prove to be a preview of what lies ahead for the political class in the U.S. Like their European counterparts, they may be participants in an end-game in which capital markets force a reassessment of debt-financed government spending, especially on transfer payments, government pensions and wealth-destroying investments in bridges to nowhere, green energy and other government boondoggles with negative rates of return.
There is much more in the article so you may wish to give it a closer look. It's very rare for me to completely agree with anyone but I find no faults in what Kadlec wrote.
Here's the pertinent question: "Why is Political Class Economically Incompetent ?"
The answer is actually very easy. Nearly every politician is beholden to someone throwing money into their campaign.
For example: public unions feed vast amounts of money into literally every election. Corrupt politicians go along.
In most major cities the politicos are in bed with the unions. In San Diego Mayor Jerry Sanders' "Radical Idea" to Cut Costs, I asked if Sanders was a hero or a liar?
What I did not know when I wrote that article was that Sanders was the former San Diego Chief of Police. Does that explain why his "radical" for rescuing San Diego exempts police and firefighters from the pain? Does that explain why Sanders, a Republican mayor, wanted to increase sales taxes to "save the city"?
Why yes it does, and that is called buying votes. And nearly every city in the country is in trouble for it.
Steve Greenhut's excellent book Plunder! describes the process. Here is my book review: Five Thumbs Up for Steve Greenhut's Plunder!
I do not have five thumbs, but if I did, it would be all thumbs up for Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation by Steven Greenhut.
Plunder! takes a look at the perverse incentives that bring together corrupt politicians and public unions to rape taxpayers.
From the ever-growing $100,000 pension club, to the realities of unbelievable pay and benefits, to dispelling myths propagated by the unions, to public union scare tactics, overtime abuse, and pensions far beyond the taxpayer's ability to pay, Steven Greenhut covers it all, in painful detail.
I say, "painful" because Plunder! is meticulously researched, extremely well documented, and after reading the book you will see how public unions are robbing ordinary taxpayers, including you, unless of course you are part of the union mob.
The problem of course does not stop with public unions. Anyone opposed to warmongering is labeled "soft on defense" by the warmongering industries who donate billions of dollars to candidates who want "strong defense".
The financial industry does not want reform and they will donate billions to any candidate willing to look the other way.
Former Treasury Secretary Hank Paulson and current Treasury Secretary Tim Geithner are both beholden to Wall Street in general, and Goldman Sachs in particular. Geithner did not even pay his taxes and the politicos in power did not care.
Running List of Unpunished Fraud, Coercion, Tax Evasion
I have a huge ongoing list of fraud and coercion at the very top, including Geithner, Bernanke, and Paulson but nothing will ever happen.
Please see FDIC Authorizes $1 Billion Lawsuits Against Failed-Bank Executives; Token Search for Low-Profile Scapegoats for details.
The Big Compromise
When all the political hacks (the worst politicians money can buy) get together to vote on a "compromise", no one ever gives up anything. Somehow in these compromises, more things we cannot afford get tossed onto the plate.
I am thoroughly disgusted with the most recent "compromise" that will add $900 billion to the deficit over two years. Everyone in Congress should know the bill is fiscal insanity. Yet the democrats and deficit-hawk hypocrites will vote for it anyway.
The "compromise" is so convoluted that I am wondering if Ben Bernanke himself persuaded the president to go for it.
Bernanke certainly has been pushing for stimulus. He defended his actions in a creampuff interview on 60 Minutes that was really nothing more than an infomercial begging for more stimulus.
Well Bernanke got what he wanted, and if it blows up he will get to blame Obama and Congress for it.
Please see Lies, Half-Truths, and 100% Hubris on 60 Minutes; Deficit-Chicken Republicans; Middle-Class Crucifixion; Ron Paul Needs Your Support for details on the infomercial.
After everything blows sky high we just may hear a statement like this.
Dr. Mr. Speaker
In Dr. Mr. Speaker I asked people to email incoming House Speaker John Boehner about the fiscal insanity of that $900 Billion compromise. Here is a portion of what I sent the speaker.
Dear Mr. Speaker
Polls show 75% of the citizens of this country place a priority on reducing the budget deficit.
Yet, somehow we see a compromise proposal from President Obama that goes back against his promises to tame the deficit.
We cannot afford this proposal. You know, I know it, and the public knows it. In fact, the only group supportive of this alleged “compromise” proposed by President Obama is Congress.
Congress Thinks It's Time to Party
To congress, the word "compromise" does not mean giving up anything you want. Instead, it means giving the other guy something you do not want him to have.
The process is much like asking a group of kids at a birthday party if they want cherry pie, chocolate cake, or fudge for desert and if there is no consensus winner, everyone gets a full slice of each, with chocolate chip cookies thrown in for good measure because that’s what Cousin Susie likes. It’s irrelevant whether or not Cousin Susie is even at the party.
I am thoroughly disgusted with Congressional “compromises” that look like a birthday party for 8-year olds. Yet that is exactly what we saw in this “compromise”.
Chocolate Chip Cookies for Susie
Susie was not at the party. Nonetheless, like a bolt out of the blue, president Obama proposed that kiddies get two additional cookies not previously on the menu.
1. A two percent payroll tax reduction
2. A full, upfront deduction for equipment purchases, in lieu of depreciation
The deficit-busting problem is the huge out-of-the-blue payroll tax reduction coupled with the "temporary" extension of income tax reductions for everyone.
I am all in favor of cookies, especially tax-cut cookies. However, I want to know how the deficit-hawk hypocrites on both sides of the aisle intend to pay for them. The answer is they don't intend to, which of course is what makes them deficit-hawk hypocrites in the first place.
Inertia is difficult to overcome because those who want free handouts are the ones who donate money and pack every school board and town hall meeting in the country. They can and will get out the vote. Corrupt politicians willing to pander to unions and special interest groups go along.
The warmongers, homebuilders, banks and every special interest group in the country bribes candidates via campaign contributions.
The compromise vote goes something like this: "You toss a sweetener to the homebuilders and I will toss a sweetener to your defense contractor." With deals like that, the campaign contributions keep pouring in.
Perhaps we should elect lobbyists instead of Congressional representatives. At least we would know where people stood and why.
Certainly we cannot expect any Congressmen to read the bills, not even the speaker. In regards to healthcare legislation, Nancy Pelosi actually said “We have to pass the bill so you can find out what is in it”
Click on that link to see a nice video of that proud moment.
Sadly, the only people who know what's in these bills are the lobbyists. They know because they are the ones who actually write the key provisions.
Three Classes of People
When it comes to making changes, there are three classes of people.
1. Those who try to make needed changes
2. Those who don't
3. Those who recognize a need for change but sit back and mock others for trying
Sadly there are too many people in groups two and three. Yet fight on we must.
No Constituency for Honesty
Unfortunately, it's a very uphill battle because there is no constituency for honesty. Someone who wants to cut military spending and take on the unions gets no money from anyone.
Simply put, we have campaign contribution system that rewards graft, fraud, incompetence, political pandering, greed, and absurd compromises. Economically speaking, we get the worst politicians that money can buy.
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By Mike "Mish" Shedlock
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.
I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.
When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .
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