The War between Public Pensioners and Tax Donkeys Is Heating Up

The migration is only beginning, but that's only half the story.

You know it's serious when the newspaper of record finally reports it: A $76,000 Monthly Pension: Why States and Cities Are Short on Cash (New York Times).

It's a long article but the summary is brief: corrupt politicos promised the moon to public employees, and now the fiscal chickens of insolvency are coming home to roost.

Public pension obligations are rising so fast that even repeated tax increases can't keep up.

This is setting up a second front in the war between entitled Baby Boomers and younger taxpayers who pay most of the federal and local taxes. Public pensioners are a subset of the entitled Baby Boomers, but their pensions can't be paid with borrowed money like Social Security and Medicare; public pension obligations come out of local and state taxes, and as those obligations soar then public services must be slashed and taxes jacked up by annual double-digit increases.

So there is a war brewing between public pensioners and the Tax Donkeys: the Unprotected who pay local property taxes on their homes, state and local taxes on their incomes, sales taxes on their purchases, junk fees on local government services, and so on.

Corrupt politicos created the war by over-promising benefits to public employees and ignoring fiscal realities. By the time the bill comes due, the politicos who rubber-stamped the unaffordable promises are themselves gorging at the public-pension retiree trough.

Not every public employee is receiving gold-plated pensions and benefits, of course, but that doesn't negate the reality that nationally, public pensions are increasing faster than government revenues and the returns earned by the pension programs.

If the stock and bond markets suffer multi-year declines, even modest declines, the pension war will move from skirmishes to open political combat.The 2008-09 Global Financial Meltdown was a taste of the reality facing public pension programs: once annual returns slip from +7% annually to -7% annually, the pension plans are soon insolvent.

Like virtually all wars, there are asymmetries between the two combatants: in the war between public pensioners and the Tax Donkeys, the pensioners can't switch pension programs, but the Tax Donkeys can move to lower-tax states.

Allow me to summarize for those who aren't too squeamish: a lot of cities and counties are going to go broke, slashing services and jacking up taxes, all to no avail. The promises made by corrupt politicos cannot possibly be kept, despite constant assurances to the contrary, and those expecting services and taxes to remain untouched will be shocked by the massive cuts in services and the equally massive tax increases that will be imposed in a misguided effort to "save" politically powerful constituencies and fiefdoms.

These dynamics will power a Great Migration of the Tax Donkeys from failing cities, counties and states to more frugal, well-managed and small business-friendly locales. I've sketched out the migration in this graphic: the move by those who can from incompetently managed and/or corrupt cities/counties/states to more innovative, open, frugal and better managed locales.

Unlike Communist regimes which strictly control who has permission to transfer residency, Americans are still free to move about the nation. This creates a very Darwinian competition between sclerotic, corrupt, overpriced one-party-dictatorship states whose hubris-soaked political class is convinced the insane housing prices, tech unicorns, abundant services, and a high-brow culture ruled by an artsy elite are irresistible to everyone, and locales that are low-cost, responsive to the Tax Donkey class, welcoming to new small businesses, employers and talent, unbeholden to a politically-correct dictatorship and conservatively managed, i.e. not headed for insolvency, are no match for their elitist fiefdoms.

Not everyone can move. Many people find it essentially impossible to move due to family roots and obligations, kids in school, and numerous other compelling reasons.

Many people who are able to move are the Tax Donkeys who are paying the most taxes: self-employed entrepreneurs, mobile creatives, those with scarce skills and those who earn substantial incomes from royalties, patents and other forms of capital.

These Tax Donkeys can live pretty much anywhere they please. They don't need to stay in NYC, Boston, L.A., San Francisco or Chicago.

This is the model for many half-farmer, half-X refugees: people who are moving to homesteads or small towns with the networks and skills needed to earn a part-time living in the digital economy. In a lower cost area, they only need to earn a third or even a fourth of their former income to live a much more fulfilling and rewarding life.

Not that hubris-soaked politicos and elites have noticed, but only the top few percent of households can afford to own a home in their bubble economies.Paying $4,000 a month in rent for a one-bedroom cubbyhole in San Francisco may strike the elites living in mansions as a splendid deal, but to the people who have surrendered all hope of ever owning anything of their own to call home--not so much.

Though this chart is based on national data, there are many regional variations. When it takes a year just to obtain a permit to open an ice cream shop (in San Francisco), how much will the insolvent "owner" have to charge per ice cream cone to make up a year in hyper-costly rent paid for nothing but the privilege of being a scorned peon in a city ruled by privilege and protected fiefdoms?

Not that hubris-soaked politicos and elites have noticed, but the Tax Donkeys are getting fed up: their local schools have been stripped of enrichment programs, the cash-strapped local governments are demanding taxpayers pass $100 million bonds to fill potholes and repair schools' leaking roofs, parking tickets now cost more than a restaurant meal for the entire family, and the increases in fees and taxes are coming fast and furious.

If the real estate and stock/bond bubbles pop, the pension bubble pops, too.Once property taxes start declining even as rates are jacked up, the public pensioners will lose the war. Once the stock and bond portfolios of the pension programs are shrinking rather than growing, the the public pensioners will lose the war. Which American Cities Will File Bankruptcy Next?

There is a feedback loop to raising taxes to pay for skyrocketing public pension obligations: the higher taxes rise, the more Tax Donkeys will migrate away from high-tax states and cities. As those paying the majority of the taxes leave, the high-tax states and municipalities have no choice but to raise taxes even more aggressively, which only accelerates the migration of high-income, entrepreneurial Tax Donkeys that are the engines of growth.

The migration is only beginning, but that's only half the story: those who can't leave for whatever reason can opt out: close their businesses, quit their high-stress, high-paying job, move back to the family home, retire and start living as close to the ground as possible.

Those who opt out are in effect moving from those contributing the most to those contributing the least.

Right now, hubris-soaked politicos and elites can entertain the fantasy that NYC, Boston, LA, San Francisco, Chicago, etc., are irresistible: they're not.They're great for those feeding at the trough but not so great for those filling the trough. As astonishing as it will be to hubris-soaked politicos and elites, the straws that will break the back of the Tax Donkeys' will to put up with the ever-increasing burdens are many.


My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.

Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Judy W. ($50), for your fabulously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, Hallvard O. ($50), for your stupendously generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Our Strange Attraction to Self-Destructive Behaviors, Choices and Incentives

Self-destruction isn't a bug, it's a feature of our socio-economic system.

The gravitational pull of self-destructive behaviors, choices and incentives is scale-invariant, meaning that we can discern the strange attraction to self-destruction in the entire scale of human experience, from individuals to families to groups to entire societies.

The proliferation of self-destructive behaviors, choices and incentives in our socio-economic system is profoundly troubling. Exhibit 1 is the opioid epidemic (charts below). How did we reach this level of individual and social self-destruction?

There are culprits aplenty: a "healthcare" (sickcare) system that incentivizes maximizing profits by whatever means are available (for example, claiming addictive medications aren't addictive); a system that encourages the consumption of costly prescriptive medications without regard to their interactions; a system that establishes a "standard of care" that relies on prescribing pills of one kind or another; a system that treats psychological-physical pain with painkillers rather than treat the source of the pain; a system that cannot recognize spiritual pain (from losing sources of meaning, purpose and positive social roles) much less address it; a workers compensation system that incentivizes vague pain-related injuries as a way of getting a vacation from work; a pharmaceutical industry hard-wired to seek and promote "the next billion-dollar drug" regardless of the long-term consequences of the wonder-drug, and a culture that worships convenience and the illusion that instant remedies to chronic conditions are available or should be available.

That is of course only a partial list.

Dependencies are one of the many self-destructive attractors in our society.Dependencies on addictive substances is one manifestation of self-destructive behavior, but dependency on an institution that leads to a loss of self-reliance is also a subtle form of self-destruction.

Strange attractors are mathematical structures within fractal systems that are extremely sensitive to initial conditions within the system. Strange attractors are not a perfect analogy for the many self-destructive dynamics in our socio-economic system, but they do help us understand how the initial conditions established within the system end up defining the incentive structure that then rewards or punishes various behaviors and choices.

So if we "reward" doctors for prescribing painkillers and patients for taking them, an opioid epidemic was essentially built into the system by these initial conditions. The same can be said of our financialized economic system that rewards speculative gambles backstopped by the central bank or state: once those are the initial conditions of the financial system, it's literally "crazy" not to borrow billions to gamble or buy back your own corporation's shares.

Then there's our foreign policy, which is dominated by strange attractors for self-destructive policies such as wars of choice, New Cold Wars, we came, we saw, he died "interventions" and so on.

Notice the recent sharp rise in opioid deaths distributed by our "healthcare" system. After the addict has been exploited for profit, heroin becomes the next attractor.

Do you reckon a system whose initial conditions reward those at the top of the wealth-power pyramid to the exclusion of the bottom 95% might have something to do with our social-economic self-destruction?

Here's a chart of employment trends: aging workers can't afford to retire, while the under-55 work force has been treading water. Might this have some negative effect on the well-being of the populace?

The Japanese term describing a life of meaning, purpose and positive social roles--ikigai-- has caught on in certain policy circles. A life of meaning, purpose and positive social roles is the core reason (along with a diet of plant-based real food) that Okinawans are remarkably healthy and long-lived.

If you designed a system that had zero incentives via its initial conditions for the nurturing of ikigai, you'd have the status quo. Self-destruction isn't a bug, it's a feature of our socio-economic system, built into the system's initial conditions.


My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.

Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Robert B. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, John D'A. ($50), for your stupendously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Read more...

What Do We Know About Syria? Next to Nothing

Anyone accepting "facts" or narratives from any interested party is being played.

About the only "fact" the public knows with any verifiable certainty about Syria is that much of that nation is in ruins. Virtually everything else presented as "fact" is propaganda intended to serve one of the competing narratives or discredit one or more competing narratives.

Consider a partial list of "interested parties" spinning their own narratives about events in Syria: (in no particular order)

1. The government of Syria

2. non-state groups in Syria

3. Turkey

4. Saudi Arabia

5. Iran

6. Jordan

7. The government of Iraq

8. non-state groups in Iraq

9. The Kurds

10. Hamas

11. Israel

12. Lebanon

13. The Gulf States

14. Russia

15. United States

16. European Union

17. United Kingdom

18. France

19. Germany

20. Italy

21. China

This doesn't exhaust the list of interested parties, of course, but it reflects the spectrum of competing parties pushing a narrative that supports their particular interests in Syria. These include neighboring countries, regional powers, global powers and consumers of Syrian energy exports.

Let's start by stating the obvious: the only way to gain any reasonably accurate contexts / assessments in Syria is to have intelligence-gathering assets on the ground. The situation is fluid and complex, and there is no one "truth."

The only way to get any sort of handle on the military, political and social dynamics in Syria is to have access to the intelligence assessments and analyses of all the major players' intelligence agencies.

In other words, the only way to get any sort of comprehensive understanding would be to have a WikiLeaks-type release of intelligence reports from all the players with assets on the ground and have a deep enough understanding of the history and culture of the region to make sense of the overlaps, conflicts, nuances and shades of "truth" presented in each of the intel reports.

Only by collating "raw" (unfiltered) intel gathered on the ground and high-level analysis by those directing the various interests' campaigns could a reasonably accurate assessment be assembled.

Short of that, we know next to nothing. What are presented as "facts" are narratives designed to persuade us of the fidelity of the "facts" being presented and the rightness of the narrative supported by the presented "facts."

If the "facts" aren't designed to support a specific narrative, then they're designed to undermine or discredit a competing narrative.

There are several ways to push a narrative: one is to present "evidence" that supposedly verifies the "facts," and the other is to limit the public's access to competing narratives amd claims.

In the good old days, the Soviet propaganda machine was famous for erasing public figures from photos once they ran afoul of the regime. In the photo published last week, Igor was standing next to a KGB apparatchik, and in the photo published this week, Igor has vanished, replaced by a snowy background--perhaps appropriate, given that Igor ould soon be enjoying the rigors of a Siberian gulag.

Nowadays, digital manipulation is much easier and more ubiquitous. Not just photos and videos can be edited--all sorts of digital fingerprints can be faked.

We know from various leaks about NSA/CIA capabilities that these agencies (and presumably others) engineer computer viruses so they appear to be the work of foreign intelligence agencies or hackers.

It's difficult to assess the "facts" in a world awash in digital manipulation and misdirection.

We know a few things, but they're not "news." We know oil and natural gas are still the primary energy sources of the industrialized global economy. So-called renewables (so-called because wind turbines and solar panels don't last forever and thus they are more correctly called replaceables rather than renewables) remain a tiny sliver of total global energy consumption.

We also know that Syria and Iraq are the geographic armature of the Mideast.

As I have noted in previous essays, sometimes the strategy isn't to control the assets being contested so much as disrupt competitors' enjoyment of the assets and send signals about future costs and consequences.

The Great Game: Regime Change in Syria (September 6, 2012)

The Media's Missing the Point: Syria, Empire and the Power of Signaling (April 10, 2017)

It is a grave mistake to take any narrative or set of "facts" presented by interested parties as being anything more than propaganda or signaling. Only those on the ground with intelligence on all the other players on the ground have anything close to a useful understanding of the situation, and they can only claim to have a useful understanding if they also possess a deep appreciation of the regional contexts, histories and dynamics that are in play.

In summary: anyone accepting "facts" or narratives from any interested party is being played. It's best to retain a healthy skepticism of all narratives and an equally healthy appreciation of how little we know or can ever know about the full spectrum of events and dynamics in Syria.

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Susannah W. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, Steve W. ($50), for your monumentally generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Read more...

Why Trade Wars Ignite and Why They're Spreading

The monetary distortions, imbalances and perverse incentives are finally bearing fruit: trade wars.

What ignites trade wars? The oft-cited sources include unfair trade practices and big trade deficits. But since these have been in place for decades, they don't explain why trade wars are igniting now.

To truly understand why trade wars are igniting and spreading, we need to start with financial repression, a catch-all for all the monetary stimulus programs launched after the Global Financial Meltdown/Crisis of 2008/09.

These include zero interest rate policy (ZIRP), quantitative easing (QE), central bank purchases of government and corporate bonds and stocks and measures to backstop lenders and increase liquidity.

The policies of financial repression force risk-averse investors back into risk assets if they want any return on their capital, and brings consumption forward, that is, encourages consumers to borrow and buy now rather than delay purchases until they can be funded with savings.

As Gordon Long and I explain in the second part of our series on Trade Wars, financial repression generates over-capacity and over-consumption: with credit almost free to corporations and financiers, new production facilities are brought online in the hopes of earning a profit as the global economy "recovers."

Soon there is more productive capacity than there is demand for the good being produced: this is over-capacity, and it leads to over-production, which as a result of supply and demand, leads to a loss of pricing power: producers can't raise prices due to global gluts, so they end up dumping their over-production wherever they can.

If the producers are state-owned enterprises subsidized by governments and central banks, these producers can sell at a loss because their only function is to sustain employment; profitability is a bonus.

Over-capacity, subsidies and over-production force corporations to slash costs to maintain profitability. Cost-cutting is a never-ending process in a world stuffed with too much capacity: labor costs are slashed by offshoring factories and offices; quality is reduced by buying the cheapest low-quality components and scrimping on quality controls, R&D is trimmed and testing is hurried to get the next product cycle out early enough to maintain a slight competitive advantage.

As profits erode due to over-capacity, corporations turn to financial engineering to boost profits: profits come from either accounting trickery or stock buy-backs that reduce the number of outstanding shares.

With credit cheap and profits scarce, corporations borrow to survive.These become zombie corporations, kept alive only by super-low interest rates and ample credit.

Meanwhile, consumers have over-borrowed and over-consumed, taking on more debt than would have been possible in the pre-financial repression days.

As a direct result of these stimulus policies, private and public debt loads are expanding at rates far above the expansion of the real economy. This is why we read that each new dollar of debt is generating almost no real-world gains, as debt service consumes most of the "new money."

Over-capacity leads to some nations over-producing, and cheap, easy credit leads to over-consumption in other nations. Both imbalances are the result of vast distortions in the incentive structure of the global economy, distortions created by the policies of financial repression: zero interest rates, ample liquidity, financial engineering, government subsidies for over-production, central bank policies keeping zombie corporations alive and so on.

As these distortions and imbalances start destabilizing domestic economies, political leaders turn to trade wars to stem the erosion of the domestic economy. Trade wars are the inevitable consequence of monetary stimulus that creates perverse incentives to borrow more than is prudent, over-produce, over-consume and use accounting trickery and financial engineering to maintain the appearance of fiscal health.

The monetary distortions, imbalances and perverse incentives are finally bearing fruit: trade wars.

Were Trade Wars Inevitable?


My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.

Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

---

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Richard S. ($100), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Thank you, Barney S. ($5/month), for your monumentally generous re-subscription to this site -- I am greatly honored by your steadfast support and readership.

Read more...