The Welfare State – Incentives to be Lazy

The following video is almost 34 minutes long.  I highly recommend that you watch the entire thing.  If you want the Reader’s Digest Version, just watch for about two minutes.  First, watch from 15:00 to 16:10.    That minute and 10 seconds sums up his point about the problem of fatherless families.  Then watch the final 60 seconds, from the 32:45 mark where he concludes (his exasperation) about Republicans not standing up for what is right and always being nice.

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In the talk, Mr. Elder rails against the welfare state.  He feels there is no place for ANY participation in welfare by the Federal Government and that what welfare programs we may need should all be at the most local level.  At one point, at the 14:15 mark, he tells us that there are three keys to making it into the middle class and avoiding poverty:  1.  Graduate from High School; 2. Don’t have children before the age of 20; and 3. Be married before you have children.  If you do those three things,  you will avoid poverty.  Fail to do those three things and you will live in poverty.

He also tells a story about incentives that, alone, is worth the price of admission.

Watch the video and then comment please.

PERS – What is wrong with this picture?

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Last week, a good friend wrote an opinion piece for our local newspaper (The Yamhill Valley News-Register) in McMinnville, Oregon.  It was a comment about our ever-greater problems with the State’s Public Employee Retirement System – PERS.  I thought it was worthy of a wider audience.  Here it is:

Unworthy of PERS

Oregon’s Public Employee Retirement System (PERS) is getting a lot of attention lately. Cities, counties, school districts across the state have no alternative but to cut staffing in order to pay the skyrocketing PERS assessments needed to fund public employee retirements. Legislative reform of PERS is overdue. One reform should address the betrayal by a few who commit serious crimes in their roles as public officials.

An AP story in the News Register on February 5^th reported a guilty plea by the city manager of Dallas, Oregon to charges of theft, official misconduct, and falsifying business records. The article went on to say that the city manager would not have his PERS pension reduced because there is no pension forfeiture law in Oregon and “Federal law prohibits tapping a pension”.

The article is half correct. Oregon doesn’t have a pension forfeiture law of any kind. However, 25 states and the federal government have some form of pension forfeiture. If a federal employee is convicted of offenses listed in 5 USC 8312 they are permanently barred from receiving their pension.

Why doesn’t Oregon have a pension forfeiture law?

I have lived in Oregon for 30 years and I am proud of the reputation for “clean government “Oregon enjoys. We are the beneficiaries of many great public servants who, long ago, had the foresight to protect watersheds, build bridges that are engineering marvels, and create the country’s best system of state parks.

But we occasionally have some rotten apples that need to be dealt with. The former city manager of Dallas is only the latest example. Last year we learned of massive kickbacks demanded by the City of Portland’s parking director in exchange for “no bid” contracts. A few years earlier, we learned of corruption by a Department of Corrections food service procurement official who was leading a luxurious lifestyle at taxpayer expense. Both of these officials used their offices for illegal purposes at the expense of taxpayers.

The most egregious offence doesn’t involve money…it exploits something far more precious—our kids. Last year, Michael Montgomery, who had taught Spanish for years at Salem’s Sprague High School, pled guilty to sexual abuse of one of his students and was sentenced to 5 years in prison. He’ll be eligible for full PERS when he is released.

Regrettably, Montgomery’s case is not unique. These crimes occur with too much frequency.  Penn State Assistant Football Coach Jerry Sandusky lost his $59,000 a year pension for molesting children due to Pennsylvania’s pension forfeiture law. Pennsylvania law even provides for victim compensation out of members’ pension contributions.

PERS provides every member with an annual account balance which consists of the member’s contributions. In most cases, employee contributions have been made by their public employers –a holdover from labor negotiations decades ago when employers agreed to cover the employee contributions in lieu of salary increases. This needs to change—but that is grist for another article.

When a PERS member retires, the account balance of that member is matched by employer funds to calculate an annuity for duration of the member’s life.

Public employees who are convicted of serious crimes while in the course of their duties should, at a minimum, forfeit the employer match to their account balance when calculating pension benefits. We should redirect the forfeited matching funds to victim restitution.

This step will inform public employees that the public trust is precious and that betrayal of that trust will bring about financial consequences.  And it will remove the bitter pill taxpayers have to swallow when crooks and predators are paroled and collect pensions that are unequalled in the private sector.

I can’t imagine why Oregon, or for that matter all states and the Federal Government, do not all have pension forfeiture laws.

Disband the TSA!

Vacation is good for me.  Two weeks in the sun helps to break up the very gray winter we have in the Willamette Valley.  I like to use Jeff Foxworthy’s description of winter here, “You know you are from Oregon if you know the four seasons as, Almost-Winter, Winter, Still-Winter, and Road construction.”  But vacation is good for more than just a break in Winter.  It helps you put some things in perspective.  Too often, the rush of everyday duties prevents you from appreciating much of what you have, health, family, friends, community, etc.

Vacation also brings you face-to-face with the Federal government in the form of the Transportation Security Agency, TSA.  I understand the reaction to the events of 9-11.  However, I truly doubt that the TSA serves a purpose today, or, if it does serve a purpose, it does so at a cost that has no relationship to the usefulness of its purpose.

My experience leaving Kauai last week is a case in point.  Lihue, Kauai has a small airport.  The TSA only has two radiation machines and about 20 agents on duty at any given time.  When my wife and I approached the conveyor belts and began to undress (belt, shoes, jacket, etc.) my wife told the nearest agent that we wanted to opt out and get the pat-down instead of the radiation.  The agent told her that the radiation machine (for our line) was out of order so we could just walk through.  Every passenger who went through the line that we were in went through uninspected while the other line continued to grow as those passengers got the full backscatter screen.

Looks like a Doctor about to do a Prostate Exam

The TSA budget of over $8 Billion a year is just the tip of the iceberg that describes the cost of the TSA to the American taxpayer.  Think of the extra hour required for every departure.  Think of the hassles.  Think of the real estate and the equipment at every airport.  I can’t carry my Swiss Army Knife with a 2″ blade, but the teenaged Goth in front of me can carry a comb with a 6″ spike handle and the lady behind me has a knitting bag with a half dozen 10″ knitting needles.  Think about the 3 oz. liquid allowance.  I like to carry a bottle of water when I travel.  To do that, I must subject myself to not only the groping (I always opt out of the radiation treatment) but also to getting raped by the Airport vender who gets $3.50 for the bottle of water that costs 50¢ at the grocery store. (please note that at PDX – Portland International – they charge $1.00 for water and all stores have normal street prices, not inflated Airport Prices)

By the way, the TSA budget is larger than the budget of the National Weather Service (8 X as large).  Think about the benefit to agriculture, transportation, tourism provided by the National Weather Service.

The TSA is far Less effective than a single drug sniffing beagle (Okay, I made that up, but let’s face it, they have not been too effective – over $5,000,000 spend for each gun found in screening?).

Doug Casey is a favorite of mine.  He minces no words.  His disdain for the TSA is beyond the pale.  Just read this interview with Casey from late 2010 posted here.

What is the difference between preventing a terrorist act in the air that kills 250 people and destroys one aircraft or a terrorist act on the ground (at the security checkpoint) that kills 250 people and destroys a big chunk of an airport facility?  Answer – It is a lot easier to get the people on the ground.  TSA does almost nothing to prevent terrorism.  It only has the potential to shift the location of the terrorist act.

As much as I think the TSA is a joke, I must defend the TSA agents in one small way.  They are, like our uniformed military, controlled by politicians.  Do you think they would be more effective if they profiled people?  Would that be better than frisking every 27th person resulting in 85 year olds in wheel chairs getting put through the ringer?

My solution to the TSA problem, of course, is a private, not government, solution.  I would leave air travel security up to the Airlines/Airports.  If they want to profile passengers (“We reserve the right to refuse service…”) or have armed security agents on each flight, that would be up to them.  The actual customers of each airline would pay the cost, not all taxpayers.  And, the airlines would do a much better job.

You don’t think so?  The airlines would be highly motivated.  They don’t want to lose a plane.  Planes are pretty expensive.  They don’t want to lose a passenger.  The word would not be good marketing buzz for an airline that was known for sacrificing a few customers to save money on security.  And who do you think would lose his job if an airline failed due to loss of aircraft or passengers, the airline employee or the TSA agent?  That is incentive.  Makes things work efficiently.  Disband the TSA.  It’s just another expensive, inefficient government bureaucracy that does little to improve our safety.

So God Made a Farmer……

Though I have been gone for a couple of weeks on vacation, I did take a break from vacation to watch the super bowl.  I am a long-time 49ers fan.  Though my Niners lost, it was a very good game and, as per usual, there were quite a few entertaining commercial spots.

By far my favorite commercial during the Super Bowl was the Dodge/Paul Harvey ad, “So God Made a Farmer.”  Here it is:

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Today I saw my first take-off of that commercial, “So God made a Liberal.”    It is not near the class or quality of the original but was entertaining none-the-less.  Thought you might like to see it.

Three Quarters of a Million

Thanks to englishworldwide.ning.com

Just back from vacation in time to celebrate.

Not much in dollars, the way they are spent by our government agencies, but to me, 750,000 views of this blog is a bit of a milestone.  Started in mid-September 2008, in 53 months of presence as a WordPress blog, the average has been over 14,000 views per month or just under 500 views per day.  Thanks for reading and especially thanks for your comments.

Climate Change in California?

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Referring to the previous two posts, Climate Change and Thoughts on Peak Oil, today I read a Wall Street Journal article that ties the two together nicely.

The article is California Could Be the Next Shale Boom State, by Mark Mills.  The short and sweet of the piece is that California has oil reserves in the Monterey Shale Field that are on the order of Saudi Arabia.  In a state where environmentalists have put a stop to most drilling and energy exploration, the sad economic state of California’s government may set the stage for development of this amazing asset.  Wouldn’t it be interesting if California became a major oil exporter and resolved its economic problems in much the same way as Norway when it found North Sea Oil in the late 70s.

Climate Change

I have no intention of discussing Al Gore, or weather, or perceptions of more or fewer storms this year or last.  Instead, I want to talk about change in business climate.  Specifically, I want to address what is happening in California as a microcosm of what is happening in the country as a whole.

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Thanks to Fellowshipofminds.wordpress.com

First, personal experience, then, some statistics that I think are relevant and finally some conclusions:

Personal Experience – In 1966, our business was started by my step-father who bought a small welding and fabrication shop in San Jose, California that employed two.  He invested in new equipment, worked hard and by the time of his death, 8 years later, the business had grown to employ 13 people.  Eventually, by the late ’80s, it employed 35 and was housed in a building of about 25,000 square feet on two acres.  In 1990 the business was moved from Silicon Valley to the Central Valley of California.  It was becoming too difficult and too costly to manufacture in the San Francisco Bay area.  Proof of this was the fact that only 5 of the 25 large fruit and vegetable processing plants that existed in the San Jose area in 1966 were still there when we moved out in 1990.  The City of San Jose and the Bay Area Air Quality District were making and enforcing rules with the good intentions of preventing air and ground pollution.  Unfortunately they were working from book knowledge not hands-on knowledge and created a serious burden for manufacturers, except for the Silicon Valley Industries that created “clean jobs.”  This, to me, was an early example of government choosing winners and losers in private sector businesses.  But that is a tale for another day.

When we moved the business from San Jose in 1990, it cost over $50,000 to clean up ‘hazardous materials’ from our property before we could sell it.  The hazardous material was an unidentified (according to the member of the S.J. Fire Department given the job of inspecting our property) substance with a red color that in the inspector’s words, “… looks poisonous to me.”  The material was garnet sand.  We used it in our sandblasting operation, blasting rust off of steel to prep it for painting or welding.  We argued and complained but no official in the city would dream of overturning the ruling of a firefighter (who had taken a 3 month course in inspecting for ground pollution).  Long story short: we needed to money from the sale of the property to make the move – the City had to approve our ‘decommissioning of our permitted paint and sandblast operation – so we paid for the “clean-up” (we vacuumed up two 55 gallon barrels of sand and had it shipped to a hazardous storage area – yep, over $50,00 cost plus more paperwork than you would believe), got the City to approve the property sale, finalized the sale, and moved.

We moved into a much larger facility in Woodland, Yolo County, California.  It was within the territory of the Yolo-Solano Air Quality Management District.  In order to start up a paint and sandblast operation at our new site, I needed to get permits from the YSAQMD.  They employed 5 people and worked out of a leased office space of less than 1,000 square feet in Woodland.  Fourteen years later when we moved from Woodland to Oregon, we again had to get permission to close out our permits for paint and sandblast booths.  This time there was no (perceived) hazardous materials issue.  However, we had to drive to the town of Davis to find the YSAQMD which now leased a purpose-built 19,000 building to house their over 100 employees.  Twenty times the space and twenty times the employees in 14 years.  This was possible even with a declining manufacturing base and fewer painting booth permits because the AQMD was “self-funding” in the jargon of California government.  By “self-funding” that meant that each year, the AQMD would develop a budget of what they thought they would spend to do their job.  They would then divide that number by the number of permits and send out the bills.  You can imagine how fast and how high our permit costs rose.  And, each year the AQMD added restrictions as to how much and what we could spray in our booths.  By about 1999, we were only allowed to spray paint with super-low VOC (volatile organic compounds).  Our standard, legal industrial paint that we used on our products cost almost $100 per gallon.  We had a competitor in Texas who used an enamel that cost him under $10 per gallon, and it did a better job of protecting the surface.  Side note:  this and other government-induced costs led us to lose a product to the Texas company.  They essentially copied a water trailer that we made and were able to sell it at a profit for less than our cost of manufacture.  We had to walk away from the product because we could no longer compete.

Our inability to compete with non-California companies was the main reason for moving out of state.  If we were to stay in business, we could not remain in California.  We lost one product to a Texas Company (who could sell it for less than our cost to build it) while we watched our sales drop significantly in California and increase significantly in Texas.

Some Interesting Numbers:

Currently, California has a population of over 37,000,000 people but about 200,000 are leaving the state each year.  Texas has about two thirds as many people as California but has a net population inflow of about the same as California’s outflow.

Californians pay out 10.6% of their income to pay for state and local government.  For comparison, Texans pay less than 8%.

Californians pay for over 250 non-education bureaucrats per 10,000 people.  Texas has fewer than 200.

Yet, California has 252 Education Employees per 10,000.  Texas has 295.  It’s no mystery that Texas schools outperform national averages in education outcomes while California schools badly underperform the national averages.

California has a State personal income tax rate of 10.55%.  There is no personal Income Tax in Texas.

California has a sales tax rate that is 2% more than that of Texas.

Is it a wonder that Texas is the home of more Fortune 500 companies than any other state?  Or that Apple just announced that they would build a new facility in Austin, Texas to employ over 3,000 people?

My conclusions:  California is leading the way in taxing its people at new heights.  It has led, and continues to lead in advancing “diversity” while failing to assimilate most of these diverse populations.  California is driving investors to invest elsewhere and businesses to look for more fertile ground.  In the short term, California is living off the wealth created by its great climate and natural beauty, agriculture, silicon valley companies, and earlier policies which made the state attractive.  I think as its government gets more controlling, its attractiveness will diminish and it will suffer hard economic times sooner than most believe.

Thoughts on Peak Oil

I have been thinking a lot about energy, technology, peak oil, etc. over the past few months.  I’ve also been doing a little research for a book I have wanted to write for about 30 years.  This has led me to make two statements that I think are key to the discussion of energy, peak oil, and diminishing resources in general.

First Statement:  Our resources are only limited by our ability to find and employ the cost effective technology needed to discover and recover those resources we need.  We tend to look at our resources as being limited when, actually, it is likely that only our knowledge and technology are limiting us.

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Early Technology

Take for example, Gold.  First there was gold found in certain streams.  As man found and recovered all of the gold in the known gold-bearing streams, he had to look for new, yet undiscovered streams.  The limit to the supply of gold was the amount that could be taken from the known gold-bearing streams.  Eventually, gold was also found by digging near the gold-bearing streams.   This increased the known supply of the resource.  But we could only dig so deep so eventually the supply would again be limited to our ability to dig in the known places.  Soon, man discovered that there was gold to be dug in places not near the gold-bearing streams.  Again the total resource was found to be larger than originally thought.  Then man learned to dig and tunnel deeper and mines went to our technological limit of about a mile underground.  This again increased the total of the known reserves of gold.   Today, the TuaTona mine in South Africa is the world’s deepest gold mining operation at just under 2.5miles deep.  It takes nearly an hour for the miners to descend to the working face.  The cost to extract an ounce of gold from 2.5 miles down is about $800.  But, the value of that ounce of gold is now $1,600 so it makes sense to go that deep.  What effect does that have on the known reserves of gold?

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Current Technology

TransOcean’s Deepwater Horizon, in 2009, drilled a well over 6 miles deep in the Gulf of Mexico.  In 2010, they had problems with that well resulting in loss of life and a huge oil spill.  But they proved that we could get oil and gas from deeper than ever before.  Again our estimated total of known reserves increased.  The only question was not, “Do we have enough oil reserves for man’s energy needs?”  It became, “Do we have the technology to recover that energy in a cost effective manner?”

The Kola Superdeep borehole in Russia is just over 7.5 miles (about 40,000 feet) deep.  It is currently the deepest penetration of earth that has been made by man.  During the drilling, as they approached the 40,000 foot level, heats of over 350 degrees Fahrenheit were encountered.  That predicted that to get to over 50,000 feet of depth (the project goal), they would have been seeing temperatures in excess of 500 degrees which would have made drill bits too soft to cut.  Do you have any doubt that we will discover and learn to use new materials for drill bits that can survive 500 degrees F. or much more?  Do you doubt that our known reserves of crude oil and natural gas will dramatically increase as we bring new technologies to bear on the problem?

This discussion has not even looked at the advances in non-destructive exploration technology.  And, it is unlikely that even with our current technology that we have searched the entire earth for these resources.

Now for some perspective.  The Earth’s Circumference is approximately 25,000 miles.  That means it is about 7950 miles straight through the earth from one side to the other or just under 4,000 miles from any point on the surface to the center of Earth.  So we are currently exploring less than 7.5 miles of 4,000 miles, or less than 2 tenths of one percent of the depth of earth.  What is to be found in the other 99.8% of that trip to the center?

If we were to drill to the maximum capability of current drilling technology, say 40,000 feet, would we reach a limitless supply of earth at a temperature of at least 350 Deg.F.?  Could we use this heat to generate power with steam to convert that to electricity?  Would that be sufficient to replace our petroleum energy needs?

Second Statement:  As long as demand persists and there is no competing resource at lower cost, the price of any resource will remain high enough to support the cost to discover and recover and deliver the resource.

Do you agree with my two statements?  If so or if not, please express your feelings in a comment to this post.

Government Theives

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Today there was a brief post at GodFather Politics about Taxation as Theft.

It pointed out that Governments have no money and no source of income.  In order to spend, they need to either tax (take money from their subjects) or print money.  Both are forms of theft.  One is direct and the other is through devaluing what you have.

I am reminded of something that was a real wake-up call for me a number of years ago.  In the early 80s, Marilyn, a gal who was a key member of our staff was gifted a home by her parents.  They had bought the home newly built on a 25 year fixed mortgage.  They had long since paid off the mortgage and were moving to a seniors retirement area away from where they had lived the previous 35+ years.

The home was modest, about 1200 square feet on a typical city lot.  It was, however paid-for.  Being quite frugal, this was a wonderful thing for Marilyn.  All she would have to pay each month would be the property taxes and insurance.  The insurance on the home (optional since she had no mortgage holder to protect) was under $25 per month.  The property tax was over $220 per month.  She was very pleased to have her cost of housing drop from $500+ for her small apartment to under $250 for a home of her own.

After she had moved in, she had her folks over for dinner one night so they could see what she had done to make the home hers.  Over the dinner table, she explained just how thankful she was and how this had really changed her life.  Now she and her son (she was widowed quite young) had a better place to live and at far less cost.  She told them that with only the taxes and insurance, she was paying under $250 a month instead of the old $500 payment for her apartment.  Her folks were shocked.  How could she be paying $250 per month.  Upon further discussion, they learned that Marilyn was paying $220 a month in taxes alone, over twice what they had paid for a mortgage ($108) for 25 years.

If you stop paying your mortgage, the bank can take your home.  In fact, the bank owns your house.  Most people understand that.  Yet, we never hear people saying that the government owns their house even though it would take your house for non-payment of taxes just like the bank would for non-payment of your mortgage.  So the question arose, who owns the house, Marilyn or the Government?  It is a good question to ask.

What do you really own that is not subject to government theft?  Your home?  Your car?  Your boat?  Your Hunting Shotgun?  Your business?   If you don’t know the answer, try not paying your taxes or your license and permit fees.

Democracy is the Worst Form of Government……..

Here is some wisdom from the past that makes you think these people were watching us in action in 21st Century America.

Winston Churchill said that “Democracy is the worst form of government except for all those others that have been tried.”  He also said, “The best argument against democracy is a five-minute conversation with the average voter.”  I would argue that it may be difficult to find an average voter with the attention span needed for a five-minute conversation.

Churchill also said, “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”   I would suggest that Churchill erred in that he neglected to take note of the fact that the “political leaders” of socialist nations do not get an equal share of the miseries.  Those with the power, take the cream off the top.  It is good enough for them to let others share the misery.

Alexander Frazer Tytler has written, that “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover they can vote themselves largesse out of the public treasury. From that moment on, the majority,”  he said, “always vote for the candidate promising the most benefits from the treasury with the result that democracy always collpases over a loose fiscal policy, always to be followed by a dictatorship.”  Proof positive that Tytler was right was the result of the 2012 Elections.

Margaret Thatcher said, “The trouble with Socialism is that eventually you run out of other people’s money.”  For the USA today, I think fortunately, there are enough other people out there willing to buy our notes that we have not yet run out of other people’s money.  But the time is coming, soon.

Ronald Reagan said, “We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much.”   he also said, “The best minds are NOT in government.  If any were, business would hire them away.” and, “Government is not the solution to our problem.  Government is the problem.”  Hard to argue with any of those points.

And, it was Henry Ford who said, “Any man who thinks he can be happy and prosperous by letting the Government take care if him; better take a closer look at the American Indian.”  (thanks to Eric in Brazil who showed me this one for the first time.)

No National Debt was ever caused by taxing too little.  By definition, debt can only be caused by spending more than one has to spend and by borrowing more than one can pay back.  Spending is the problem but our Congress and our enlightened President want to argue about how much to tax us rather than how much they could reduce spending with just a little restraint.

The current U.S. Government Budget crisis can be solved by one of two methods.  Each solution will create problems of its own.  Either we can borrow without limit until we can pay for all of the services we want from our government, or we can cut spending without limit until we have only government services that we truly need.  If we borrow without limit, eventually no lender will be willing to lend and our source of capital will dry up.  Or, we can cut spending without limit.  If we do that, at some point a majority of people will feel that we are cutting services that are necessary to live.  Which path do you think has the easier solution?  If we run out of money and there is no one left who is willing to lend us more, are we forced to cut government services?

My friend Jim believes we could do better with a form of Meritocracy, requiring certain merits from individuals before they would be able to do certain things.  For example (my words, not his) it would make sense that a person should be able to show competence flying a plane before he is allowed to pilot the plane while carrying passengers.  This is actually a requirement in most developed countries today.  But do they require that a person be responsible before he or she can parent a child or that he or she be informed about issues before voting?  There is real merit to a system that rewards discipline, thrift, labor, and common sense.  There was once a nation which did just that, the United States until about 100 years ago.

How nice it would be to have a leader who measured up to the leaders quoted above.