Relating French Strikes to America

USA Today reports France paralyzed by strikes over raising retirement to 62:

Tens of thousands of French workers took to the streets Thursday for the second day of nationwide strikes this month to protest President Nicolas Sarkozy's plan to raise the retirement age to 62. Union walkouts crippled planes, trains and schools across the country. . .

Sarkozy has indicated he is willing to make marginal concessions but remains firm on the central pillar: increasing the retirement age from 60 to 62 and pushing back the age from 65 to 67 for those who want full retirement benefits. . .

This blog has in fact argued that one way to look at the U. S. un-/under-employment problem is that perhaps we work too hard and think and play too little. Just think that if the average American worker put in the same number of annual work hours as a typical French worker, and retired at the same age, there would probably be a hue and cry about a shortage of labor here. It's all relative. Neither you nor I, nor the government, nor business leaders have any idea what the "right" level of work effort or production is for the abstraction called "the economy". Only a free people operating in free markets can properly, and should, determine those things.

America's problem is tied into debt piled upon debt, which is to say promise piled upon promise. But we have lost a great deal of faith in promises, promises the past few years.

Part of the solution, as per the motto of this blog, is equity - specifically the lack of such. Equity, both as in ownership (a true ownership society, not a faux version), and as in fairness. Has all the government intervention in society created a fairer, more equal society? No. When government was tiny and on the gold standard, as in the 1880s, America was a much more equal and fast-growing country.

In France, many think it's unfair to have to work all the way to the ages America peacefully settled on for Social Security benefits years ago. And so it may be if one hates one's job and is viciously oppressed by one's boss. I doubt that's a typical situation in France. Maybe they just like to sit around cafes and sip hot and cold beverages, and people-watch. But I digress down memory lane; the first piece of art I ever bought was of a French street scene.

Back to the U. S.: There's plenty of production to sustain every American in decent conditions. The problem stems in large measure from over-financialization, which has divorced much of production from meeting the needs of real people and real markets. A simpler, more honest and more transparent financial system, with government much less involved, would be an important first step in allowing Americans to meet their own needs and serve the needs of foreign countries via exports in a more balanced manner.

In this regard we should become less like the French, no matter how good their food and drink are.

Copyright (C) Long Lake LLC 2010

New York Pension Deal May Deserve One or Two Cheers

The blogosphere and some of the MSM have been up in arms about the scheme described in the New York Times in State Plan Makes Fund Both Borrower and Lender. Here are the basics, from that article:

Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.

And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.

This maneuver is being portrayed as a Ponzi and idiotic. Actually, it could have been worse. The state could have tried to borrow through a general obligation municipal offering to fund its payment.

Perhaps what we are actually seeing deserves a cheer or two. The pension fund may be acknowledging that the state cannot afford at this time to make its contribution, so with the fig leaf of the above circular financing, the pension fund is allowing the state to "pass" this year and hope for better times.

Now, if this were the Federal government with a compliant central bank, the temptation to print/borrow money to fund the shortfall would have been much greater.

New York State's "operating funds budget" is around $80 B annually, which based on a population of about 20 million comes to state spending of about $4000 per person annually. Thus the state spends $16,000 for each family of four people.

Ultimately each State is going to have to rationalize its flow of resources. Just as labor can flow between states if one state taxes too heavily, so eventually even the United States will have to continue to make itself attractive to its own people and to the foreigners it has been taking in for decades, both the highly educated and the manual laborers alike.

It may just be that the powers that be in New York State have kicked the can down the road in what in essence is a "not so bad" deal, odd though it looks at first glance. Taxes do not rise and neither do net borrowing costs.

This may foreshadow similar issues nationally, such as with Treasury bonds held by the Social Security Administration.

This does not smell like a one-off situation.

Copyright (C) Long Lake LLC 2010

Housing, Subsidies and Ponzi Schemes

With the vast amounts of money the Bush Administration and now the Obama Administration have been pouring into housing, there has been no discussion from the pooh-bahs in Washington of why all this is appropriate.

Vast amounts of Federal debt and guarantees are going into the asset class in America of least value to our long-term competitiveness in an increasingly competitive world.  The idea that hard-working Asians and Brazilians will endlessly lend Americans money so that we can live in fantastically superior dwellings borders on insanity.  The American empire and its military superiority is not that durable or even that important, especially to countries such as India, China and Brazil that currently have no serious national security worries.

The more the Feds ruin the Federal finances and America's international competitiveness by plowing vast amounts of money into housing, the more the scheme called Social Security will be perceived as what it always has been:  an inter-generational Ponzi scheme.

Baby-boomers and current workers of retiree age, finances battered, cannot expect even the current level of Social Security payments to be there for them.  The money has been spent.  

Foreigners will not provide that money cheaply forever, and current workers are having too much trouble making ends meet to willingly pay higher and higher taxes on their labor to support the upper generations.

A simple first step is to phase out the tax deductibility for mortgages.  If home ownership is the goal, then all home owners could receive a modest subsidy, whether they owned their homes in full or had a mortgage.

A first step toward fiscal sanity would be for official Washington to tell the truth:  as a nation, we are over-housed.  Large houses do not add to economic productivity.  Factories, career-oriented education, R&D:  all those things do.  The housing bubble is bursting.  Let it burst and let housing compete for people's money on an even footing with other desirable goods and services, such as automobiles, cell phones and medical services.