Government Underground

I was recently asked the question “How is a state treasurer’s job political? Aren’t they bound by law and GAAP?” While I don’t claim to be an expert, here is my “two cents” for an answer.

The Colorado State Constitution establishes the elected office of treasurer as part of the Executive branch of our state government (Article IV, Sections 1 & 3). As described on its web site, the Colorado State Treasury is:

“…the constitutional custodian of the public’s funds. It is the Treasury’s duty to manage and account for the citizen’s tax dollars from the time they are received until the time they are disbursed. The Treasury’s staff is committed to safeguarding and managing the people’s monies with the same diligence and care as they do their own.

What the Treasury Does

The State Treasurer and her staff serve the citizens of Colorado by providing banking, investment, and accounting services for all funds and assets deposited in the Treasury. By continually optimizing cash flows and maximizing the return on the state’s investments, Treasurer Kennedy plays an important role in helping to minimize the tax burden on Coloradans.

The Department of the Treasury is organized into five different operating sections: Accounting, Investments, Cash Management, and Administration. The Treasurer is also responsible for managing the state’s unclaimed property division – The Great Colorado Payback.”

As the fiduciary for the people of the state of Colorado, I would submit that the criteria for election should be based upon expertise in finance, accounting, investments and operations. The Treasurer makes decisions as to when/how/where to invest the state’s money, manage cash flows, structure financing for state infrastructure projects, and account for all of the state’s finances. How can the state squeeze every basis point out of the Treasury by making good investments, hedging risk, managing money efficiently, etc? There should be a high bar for the level of investment and finance expertise required of a state Treasurer. Certainly the treasurer must work within state statues and Generally Accepted Accounting Principles (GAAP).

In addition to strictly quantitative investment issues such as yield, credit quality, reinvestment risk, diversification, liquidity, etc., you also have potential political/social issues that may come into play such as do you adopt investment policies influenced things such as “green” strategies, social issues (apartheid, etc.), or other reasons? Some might respond that yes, this should be part of this elected position, while others (such as myself) would say no, that fiscal policy should trump political policy.

Closer to home, do you invest within Colorado to “support the local economy” or do you invest in other states where yields may be higher? While this could be described as a political policy question, a sophisticated approach would incorporate the expected financial impact of one decision over another, including the advantage of maintaining higher levels of capital within the state of Colorado vs. the potentially more efficient use of said capital placed out of state.

Should the Treasurer work to expand funding for schools by increasing taxes, expand health insurance coverage with new tobacco taxes, or push for TABOR time-outs like Referendum C, as current Treasurer Cary Kennedy boasts on the Colorado Treasury website? These are the political questions that should be evaluated when electing a state treasurer.

So, the treasurer has a financial and political impact upon how the state manages its money. Given that this is the case, it makes sense that it is an elected position.

However, I would end with the following questions (which I find myself asking of just about everything the government does these days): What is the state’s constitutional mandate and enumeration of powers for the responsibilities of the office of treasurer? Are our government officials acting within those constitutional restraints? Those are questions for another day…

In reading about the National Governor’s Association meeting, I saw that Pat Quinn, Governor of Illinois, was leading the all-too-typical uninformed charge of history revisionists. Pat stated that “We need more help from Washington to protect against job cuts and health care cuts. If we don’t do that, we’re following Herbert Hoover economics.”

My response was an email to Pat’s office.  I know that he won’t read it, but maybe some staffer will. Maybe it will plant a seed. My email follows:

Hey Pat, read a history book instead of blindly lying to the public. In campaigning against Hoover, FDR accused Hoover of “reckless and extravagant” spending and of presiding over “the greatest spending in peacetime in all history.” Rexford Guy Tugwell, one of FDR’s New Deal architects said that “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.” FDR won in a landslide in the 1932 presidential election on a Democratic platform that advocated a 25% reduction in federal spending, a balanced budget and a solid gold standard. Director of the Bureau of the Budget Lewis W. Douglas quit after 1 year due to FDR’s about face from what he had campaigned for. FDR & Congress unconstitutionally seized gold holdings and then overnight increased the price of gold, creating the greatest theft in history. I could go on about how FDR’s policies literally created 10 years of misery but I know that YOU will never read this email.  I only hope that some staffer of yours will read this who is probably young and intelligent and open-minded and might possibly be interested in actually digging for the truth for him/herself instead of listening to mindless crap that you’re spewing. People who actually think for themselves and find out the facts for themselves are what will save this country from pathetic politicians like you. Illinois is already in the pitiful position of having to borrow $2.2 billion from the federal government just to make unemployment payments.  Your solution? Gee, the federal government should just GIVE it to us. Where do you think it comes from? The government can only “give” to some people what it takes away from others. You’re a taker just like so many other politicians. Go get a real job and earn something by being a producer for a change instead of spending other peoples’ money for a living.

Government doesn’t create jobs.  Government cannot create jobs.  Anybody who says that “I want to be elected to office so that I can create jobs for the people” needs a remedial course in economics.

Government is by definition a drag, a friction, an impediment to the creation of jobs, wealth, or value. Government can only attain resources by taking them from people upon threat of force or incarceration (see the IRS, et al.) The money that government spends in the name of job creation is the same money that private business and entrepreneurs no longer have to spend that they could have created jobs with.

Colorado government takes its money from private citizens (we’ll leave the idea of the federal government creating money out of thin air, i.e., the deficit spending “stimulus” approach, for another day). When the government takes money from people, the people lose their money. In order for government to “create” a job it must take money from the private sector first. While the government may revel in its new found power to “create” a job with the money it took away from the people, the private sector has now lost that same amount of money with which it would have created private sector jobs.

Who’s Better at Creating Jobs?

So the question becomes, who do you think is better at creating jobs, products, value and wealth – government or private enterprise? Before you choose, consider this:

Government has no sensitivity to cost, has no sensitivity to price, has no threat of going out of business by putting out a bad product, has no competition who can lose money every year and simply raise more taxes to make up for it, and has no capital market discipline placed upon it because there is no competition or true market prices that provide any signals of value. None of the discipline of multiple market forces apply to the government. Government can create a bad product and not worry about going out of business. It can overspend because it doesn’t care if it loses money – it can simply raise more taxes (by threat of force/jail) or, if you’re the federal government, it can simply print more money. Look at this in a simple way through this table:

So back to the question: who do you think is better at creating jobs – government or private enterprise? The government which could care less whether it efficiently produces valuable products because it’s going to be in business forever regardless of results, or an entrepreneur whose ability to feed himself and his family is based upon successfully competing in the marketplace?

Government cannot “create” jobs because in order to provide a job it has to first destroy the private sector’s ability to create a job by robbing the private sector of some of its resources. That’s called opportunity cost.  When the opportunity cost is greater than the cost of a given project, you would be a fool do the project. So it is with the false idea of government job creation.

Economics 101

The fundamental premise of economics is that for every action you must look at the consequences of taking the action vs. not taking the action. The classic example is the story of the broken window. A vandal throws a brick through a window of the baker’s shop. People gather around and agree this is a shame. But then they conclude that the silver lining is that this will provide work for a glazier (guy who fixes broken windows). He’ll make $300 for fixing that window. They walk away consoled by the job creation that has occurred. (You can expand this example to the ridiculous notion that the destruction brought about by war somehow “creates” jobs and lifts economies out of recessions.) What the people don’t see is that the baker was planning on spending $300 for a new suit that week.  Now he’ll have to spend the $300 on the window instead.  The result is that the tailor just lost out on the $300 sale he was planning on making to the baker. The tailor is very sad about this because he was going to use that money to buy bread from the baker as well as new cloth, needles and thread to expand his business…

You get the idea. Every action has consequences. Things WILL happen as a result of an action that can be seen, but there are also things that WON’T happen as a result that will go unseen and so most people won’t realize that the consequence exists even though it is just as real.

In our case of job creation, the consequence that people see is the government job “creation” and the consequence that people do not see is the loss of the ability of the private sector to create a job. Since the private sector is better at creating a job because it must heed market forces or go out of business, the value of the unseen consequence – the opportunity cost – is greater than the value of the government “created” job. When the opportunity cost is greater than a project, the project is a NET LOSER. No one in their right mind would do a project that they know will create a permanent loss of value. Yet this is happening every day in the name of “job creation”.

So when I hear a candidate say, “Government needs to create jobs,” I know that candidate does not fundamentally understand economics or the government’s role in the economy.

Producers and Takers

Government is a taker and a re-distributor through taxes and fees. To be sure, there are services that the government should provide as specifically prescribed by our constitution. Everything else is over-reach that robs those people who are producers of their ability to create jobs, products, value and wealth. Government is also a drag on job creation through excess regulation that robs the private sector of money, time and resources that could have been more efficiently used by the private sector to create jobs, products, value and wealth instead of jumping through regulatory hoops.

The only thing that a candidate could honestly propose to help create jobs is to remove those barriers that rob the private sector of the ability to create its own jobs. Reducing the size, cost and burden of over-reaching government will help. Reducing excess regulation and bureaucracy will help. These are the things that will take money and resources out of the hands of inefficient government and put it back into the hands of the people who are the backbone of our state and our country. Over 85% of the jobs in Colorado are provided by small business. If Colorado government would quit robbing incredibly talented Coloradoans of their hard earned resources only to waste it on inefficient bloated government and instead allow our talented people to use it for themselves, our state would be a shining example of true job creation.

Empower the Producers, Limit the Takers

So the only way that politicians can help our economy or help our country to be more productive is by eliminating the drag on resources that government represents.  Eliminate the friction, the impediments, the barriers to creativity that government presents.  The first and foremost way of doing that is to reduce the size of our over-reaching government which has expanded far beyond its constitutional directives. Once the bloated expense of government is reduced, then that would naturally lead to the ability to reduce excess taxation and fees which take real capital away from the private sector. Finally, government can reduce other impediments to job creation by reducing its over-regulation. Companies are spending too much money, time and resources to comply with over-burdensome regulations. This robs our private sector of those resources as surely as any direct tax, and the lost opportunity cost means less jobs, products, value and wealth for everyone.

Reduce the Problem by Reducing Government

People inherently understand that government somehow is the problem and that the government just can’t always be the answer, that you’re always robbing Peter to pay Paul. Everybody knows this in their gut, but when we hear a politician say “We’re going to spend $200 million on creating a green energy economy and it’s going to create all these jobs,” we need to think this through and we’ll see that the politician is dead wrong. That $200 million that the government is going to spend on green energy programs is $200 million that private industries no longer have.  Opportunity cost. Think about it.  How much of that $200 million green energy fund do you think is getting wasted by government bureaucracy, government contracting to special interest groups that drive up the cost, government quotas, government regulations, government this and government that, so that the $200 million is not being effectively used.  It’s not creating jobs because it just destroyed $200 million of private investments.  That $200 million would have otherwise been available for business owners throughout the state who watch their pennies and could generate unbelievable amounts of economic activity, could create real value, real products, and real jobs if that $200 million was left in the hands of the private sector to do what it does best, which is create value and return for money.  That’s what businesses do.

So think about that the next time you hear a candidate say, “we need better government, we need to create jobs for people.”  Think to yourself, “No, you don’t get it.”  Government can’t possibly create jobs of any kind of comparative value like the private sector because of its immunity from market forces, it ability to raise revenue by force, and its nature of perpetual existence.

Candidates should be running on the concept that private enterprise creates and that government is an impediment.  Government has certain things it has to do and yes, it has to collect money though taxes to do those functions.  But creating jobs is not a constitutional government function.  Government is a private job destroyer. A candidate who understands economics will realize that the best thing he can do to help Colorado towards a stronger economy is to remove the barriers to job creation that government creates through taxes and regulation, and that there would be room to do that in our budget if we were to eliminate the unconstitutional government bloat that exists in Colorado today.

Below is a link to a report that says 32 states have borrowed from the federal government to make unemployment payments. Following are some initial impressions that only an actuary (or other number oriented, critically thinking persons) would note:

Twelve of these states have borrowed $1 billion or more. 11 out of those 12 states are “blue states” – CA, FL, IL, IN, MI, NJ, NY, NC, OH, PA, WI. Only one of those 12 states is a “red state” – Texas.

Out of the $37.8 billion that all of the states have borrowed to cover unemployment in total, 87% of that debt has been borrowed by “blue states” and 13% has been borrowed by “red states”.

BHO’s “home state” (whatever that means these days, but I mean it here as a former U.S. Senator from IL who helped create the mess we’re in) Illinois came in 6th on the list at $2.2 billion, behind such progressive states as CA, MI, NY, PA and OH (#’s 1-5).

If you take the total amount of borrowings for each blue state and divide it by their aggregate populations, you’ll find that “blue states” have borrowed $172.47 per capita. If you do the same for the “red states”, you’ll find that “red states” have borrowed $70.62 per capita.

These progressives really know how to get IT done. The questions that the sheeple have to wake up to are “What exactly is IT?” and “When are we gonna stop them?”

http://www.economicpolicyjournal.com/2010/05/32-states-have-borrowed-from-treasury.html

Caricature Assassination as Political Strategy

Interestingly I was listening to Caplis & Silverman on my way back from Kansas to Denver yesterday, and three of the callers in a 2 hour time period (out of maybe 7-8 callers on air) accused the tea party movement of being racist. I think there is a legitimate concern that we cannot allow the left to redirect public attention to such a bogus red herring issue such as racism, or any other red herring. We must focus attention on the issues and not allow anyone to mute us with their strategy of “caricature assassination”.

This leftist strategy has a two-pronged effect: 1) it paints a horrible and false picture for others to see and use as a basis to discredit/marginalize, and 2) it causes many people to respond to the attacks by shrinking back and going into a mode of political appeasement, trying to show just how “not-racist/xenophobic/homophobic/sexist/bigoted/violent” they are. This deflection has been a horribly effective strategy for the left on both fronts by falsely accusing tea partiers while simultaneously causing tea partiers to pull back on their own.

If Nancy Pelosi looks out her window and sees protesters, she screams “Astroturf”. If people are against illegal immigration, they are xenophobes. If people are against Obama’s policies, they are racists. People who support the second amendment are violent. Those who support traditional marriage are homophobes. Anyone against Hillary during the election was a sexist.

“Caricature assassination” is a potent weapon. This strategy that has been very successful for the last several years for the left. They try to discredit and marginalize the opposition. It’s the classic go-to play that they’ve been running again and again.

The battle of the sound bite, which Bill Clinton is clearly a master of, is simply a proven strategy to discredit other people’s ideas regardless of their merit. It was very effective for Obama and helped him in his election because people were afraid to attack him out of fear of caricature assassination as racist. The fact is that most people on the right have a moral compass and do not want to be subject to vile accusations. As a result, the left’s strategy has been effective in muting them.

Bill Clinton is certainly “setting the stage.” He is setting the stage by framing the issue so that the left can gain politically if anything at all negative happens going forward relative to the tea partiers. If there’s any little event, then he has set the stage for the left to gain from it politically. This is a most cynical strategy, but it’s been effective.

The reason that it’s been so effective for the left is because they have, for many years now, controlled the bully pulpit of the press. With the advent of cable there are more opportunities to access information, but television is still dominated by the left. So because the left controls the bully pulpit of the media, their sound bite vilifications and caricature assassinations are effective because the media just replays the sound bites over and over again until people begin to assume that what they are hearing is true.

I believe that this is something to be aware of and to fight against, both externally by deflating the false accusations and also internally by not backing down in the name trying to “prove” how “not-racist/xenophobic/homophobic/sexist/bigoted/violent” we are.