Free Markets, Free People

Daily Archives: October 19, 2010


Dems have become the government union choice

Charles Lane hits at least part of the Democrats problem with voters right on the head. 

Public sector unions are not just the base of the party — they’re the base of the base.

[…]

But in an era of increasing discontent over taxes, government spending and the perks of government employees, these are not necessarily the allies you want to have. A party that depends on the public employees to get elected will have trouble reaching out to the wider electorate — i.e., the people who pay the taxes that support public employee salaries and pensions.

Bingo. The supposed strength of the Democratic party was its support of the common man – the blue collar worker. The middle class family. I’ve always thought such a characterization was nonsense, however, that was the narrative they successfully embedded for years.

That is now visibly changing. And I think it is apparent that the new narrative isn’t a particularly good one politically speaking.  They’re now the party of big government and government unions.  In an era of financial difficulty that’s not exactly the constituency you want to be identified with – especially when it is becoming common knowledge that government workers now earn more than private sector employees doing comparable jobs.

And that’s especially true now that the woefully underfunded public pension plans are coming to light and Democrats are casting around for a solution to include considering ideas such as using 401(k) funds to rescue them.

This new constituency is not a particularly popular one and even more damaging is they’re a very visible one.  Think of all the incidents that reflect badly on government unions which have involved the SEIU lately.

When the majority of the country is oriented toward smaller government, less spending and less intrusion, working to satisfy a constituency whose entire existence demands precisely the opposite approach is not the best place to be at election time.

~McQ


QE2 is unlikely to save the day

In fact, it may set in motion inflationary pressures that will blow up in the Fed’s face.

Randall Wray has put together one of the best summaries I’ve seen on the subject, and it doesn’t give me a warm fuzzy at all.  Essentially QE2 (“quantitative easing”) has the Fed buying up toxic bank assets to push up their excess reserves.  The thinking is that pushing those reserves into excess will stimulate loans.  But it will also stimulate inflation. 

Bernake’s claim is the reserve creation will be “temporary”.  But – and this is the crux of the problem – it will have difficulty buying back those reserves because of the quality of the assets the Fed is sucking up to create them:

Bernanke carefully tries to navigate these waters by agreeing with the hawks that in the long run, Fed creation of too many reserves would be inflationary, but argues that in current circumstances the greater danger is deflation. Still, he reassures markets that reserves creation is temporary, and that the Fed will “exit its accommodative policies at the appropriate time”. Yet, if the Fed buys junk assets that will never have any value, it will not be able to sell these back to markets later — so there is no way to remove the reserves it created when it buys trash.

Indeed.  So without the ability to sell back marketable assets, the reserves remain out there and inflation does too.  You might think “deflation” is the biggest threat until you see run-away inflation reduce your retirement funds to zip and push your wages to poverty level.

This is a mess.  And as we discussed in this week’s podcast, screwing with the economy at the central bank level is very delicate thing and could go wrong quickly and dramatically. 

And what I’m hearing and reading – to include this article – says the possibility of that happening is high.

~McQ


ObamaCare – Boeing to increase health insurance costs for workers

As the monstrosity that is ObamaCare is gradually phased in, expect to see more and more companies saying this:

"The newly enacted health care reform legislation, while intended to expand access to care for millions of uninsured Americans, is also adding cost pressure as requirements of the new law are phased in over the next several years," wrote Rick Stephens, Boeing’s senior vice president for human resources.

And with that, Boeing has informed its workers that their premiums will be going up.  Why?  Well they have a “Cadillac” plan apparently:

Spokeswoman Karen Forte said the Boeing plan is more generous than what its closest competitors offer, and the company was concerned it would get hit with a new tax under the law.

The tax on so-called "Cadillac" health plans doesn’t take effect until 2018, but employers are already beginning to assess their exposure because it is hefty: at 40 percent of the value above $10,200 for individual coverage and $27,500 for a family plan.

Of course, that’s just not “fair”, is it? 

One has to wonder, though, if Boeing may not be playing a little politics here, following McDonald’s example – make this visible and see if the administration won’t do for them what it did for McDonalds … issue them a waiver.

After all the administration that arbitrarily enforces the law in other areas certainly would trade a waiver for better PR as they did with Mickey D’s, wouldn’t they.

~McQ