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Secret Service Blames Bureaucracy


Tuesday October 14th, 2014   •   Posted by K. Lloyd Billingsley at 8:45am PDT   •  

DHS-logo_200As we recently noted, the vaunted United States Secret Service has been maintaining something of an open-door policy at the White House, residence of the President of the United Sates, by some accounts the most powerful person in the world. In September, an armed man walked right in and got a lot farther than they said he did. In an earlier case someone fired shots at the White House, but Secret Service bosses claimed this was a car backfiring. A housekeeper found evidence of the attack before anybody at the Secret Service, whose obviously incompetent boss, Julia Pierson, was not fired. She resigned, which is a different thing. She will keep her lavish federal benefits and doubtless hook up at another bureaucracy. But some say she was only part of the problem.

According to Brian Naylor of National Public Radio, “Low morale could be partly to blame for the recent spate of security lapses at the Secret Service.” The agency supposedly ranks in the bottom third in job satisfaction within the federal government, and “the root of that discontent could be bureaucratic.” A former agent attributes the problem to the takeover by the Department of Homeland Security. They had to fight for funding and resources, the agent claimed, but the 2014 budget of the Secret Service is $1.80 billion. So money and gear are not the problem. As congressional investigators pointed out, a simple ADT alarm would have done a better job keeping an armed intruder out of the White House. And simple observation would have found evidence of the rifle attack, but the incompetence does not stop there.

Don’t forget how the Secret Service let a fake interpreter with a history of violence get within steps of the president. And check out Carol Leonnig and David Nakamura of the Washington Post on the 2012 Secret Service prostitution scandal. Read how government officials withheld information and protected cronies and White House staff. Janet Napolitano, Department of Homeland Security boss at the time, is now president of the University of California. What a cozy world.

Taxpayers foot the bill for all this waste and incompetence. Taxpayers, not the Secret Service, have a morale problem rooted in bureaucracy.

 

The Danger of the National Debt


Tuesday October 14th, 2014   •   Posted by Craig Eyermann at 6:46am PDT   •  

fsbdev3_029995 Steen Jakobsen is the chief economist and chief investment officer of Saxo Bank, a Denmark-based investment bank, who is also one of the more bearish analysts in the market today. He caught our attention recently in a CNBC interview, where he specifically identified rising national debt as a major contributor to both lackluster economic growth and an increased risk of a severe market crash.

Unsustainable debt will be the cause of the crash, according to Jakobsen, and will occur when the cash returns on assets become insufficient to service the debt taken on to acquire those assets in the first place. He gives no timeframe for his thesis but says that the problem of huge debts has been swept under the carpet by central bankers and policymakers and will come back as low inflation or even deflation....

Jakobsen calls debt the “elephant in the room” and uses a simple equation on the U.S. economy to put across his point. He argues that U.S. productivity growth is low when if you consider that any shortfall in growth is being made up by increased debt.

“The move onto the internet has ironically made us bigger consumers and less productive. Had we remained at pre-1970s productivity, the U.S. GDP (gross domestic product) would have been 55 percent higher and the outstanding debt to GDP would be easily fundable,” he claims in his note.

“No serious policymaker or central banker is talking about the truth told by simple maths and hoping that things turn out well. Hope is not good policy and it belongs in church, not in the real economy.

The interview followed Jakobsen’s research note from September 26, 2014. We’ve excerpted the U.S.-specific content below, in which Jakobsen introduces the concept of a “Minsky moment” to describe the potential danger that would result from such an event:

Mads Koefoed, Saxo Bank’s macro economist, projects US growth at around 2.0% for all of 2014. That will be the sixth year with US growth near 2.0%, so despite lower unemployment and a record high S&P500, the economy has a hard time escaping that 2.0% level.

Any talk of higher interest rates is hard to take seriously when US growth is going nowhere and world growth is considerable weaker than was expected back in January (or as recently as July, for that matter). It seems everyone has forgotten that even the US is a part of the global economy....

In the US, interest on US government debt cost over 6% of budget outlays in 2013. This is relatively down from its worst levels when interest rates were much higher, but only because the Federal Open Market Committee has so drastically lowered the costs for the US government to issue debt with a zero interest rate policy.

And now the debt load is vastly larger than it was before the financial crisis, at 80% of GDP (net debt according to IMF) versus 45% of GDP a mere 10 years ago.

So are we actually to believe that the Federal Reserve can lift the entire front-end of the curve from 0-1% (current rates out to three years) to 2-4% over the next two years without adding massive further stress onto the deficit, and only adding to the debt?

Servicing 2% interest when growth is 2% means you are doing worse than standing in place if you also have a budget deficit.

Whatever the timing, the US, China and Europe are all headed for another Minsky moment: the point in debt inflation where the cash generated by assets is insufficient to service the debt taken on to acquire the asset. Productivity growth in the US last year was +0.36%. The real growth per capita was about 1.5%.

Anything which is not productivity is consumption of capital. So, the only way to grow an economy without productivity growth is to do so temporarily through the use of debt—about 75% debt and 25% productivity growth, in this case.

Since the 1970s, US productivity growth rates have fallen by 81%—the move onto the internet has ironically made us bigger consumers and less productive. Had we remained at pre-1970s productivity, the US GDP would have been 55% higher and the outstanding debt to GDP would be easily fundable.

The debt load that Jakobsen cites refers to the percentage of the publicly held portion of the U.S. national debt with respect to the nation’s Gross Domestic Product (or national income). If the U.S. government’s total public debt outstanding is taken into account, the debt load is really much closer to 100% today.

So it’s quite possible that Jakobsen is actually understating the potential risks for the United States.

Public-Employee Pension Fraud


Friday October 10th, 2014   •   Posted by Craig Eyermann at 6:11am PDT   •  

It is taking an increasing amount of “creative” accountingor, really, outright fraudto make a number of troubled public-employee pension funds look solvent when they are nowhere close to having the money needed to pay retiring government employees for the extremely generous pensions they’ve been promised. And when the fraud is found out, taxpayers are being increasingly stuck with the bill.

The latest example of fraud committed by politicians and government bureaucrats comes from the state of Illinois, where it would seem that government at all levels cannot exist without it! Jean Lotus of the Forest Park Review shows how one municipality’s accounting shell game came crashing down with a large tax hike being imposed its wake:

Forest Park’s police and fire pension systems took a hit this year because a simple actuarial change recalculated how long safety personnel can be expected to live. Actuary Timothy W. Sharpe, of west suburban Geneva, changed one element of his calculations last year, revealing a $104,000 shortfall in the police pension fund and a $94,000 shortfall in the fire pension fund.

That money was added to the village’s tax appropriation levy in July, boosting property taxes in town by about $200,000.

The change came when Sharpe switched last year from a 1971 mortality table to a new table that more accurately reflected the lifespans of police officers and firefighters living in 2000.

For more than a decade, Sharpe had been using a group annuity mortality table called the GAM-1971. As its name implies the table was created in 1971 using mortality data from police officers and firefighters collected between 1964 and 1968. Life expectancies on the tables tracked public safety workers who, at age 50, would have been born between 1914 and 1918.

The difference, of course, is that the lifespans of retirement age Americans has increased quite a bit since the 1960s.

age-65-remaining-life-expectancy-1950-2009

The accounting fraud in this case enabled Forest Park’s politicians to claim that their pension fund was being adequately funded to meet its projected liabilities, when in reality, it was far short. That deception then allowed the politicians to spend the tax revenue for other priorities, as the public-employee pension fund was being drawn down over time.

When the fraud was ended, the government was faced with a choice: either hike taxes on residents to make up the shortfall and continue paying public-employees their generous pensions in full, or reduce the pensions to match the returns from the funding that had actually been set aside. As happens all too often in these cases, the politicians sided with the interests of government employees against the public.

And thus, no politicians or bureaucrats were harmed in the production of this long running episode of public malfeasance.

Costing Out the Royal Presidency


Tuesday October 7th, 2014   •   Posted by K. Lloyd Billingsley at 5:18pm PDT   •  

White-House_200By now Americans know that the Obama administration is not, as it claimed, the most transparent in history. Ongoing scandals such as Fast and Furious, IRS targeting, Obamacare, Benghazi, and NSA snooping explode that ludicrous notion. On the other hand, as author Robert Keith Gray explains in the Daily Caller, the Obama administration is breaking all records for expense, courtesy of American taxpayers.

Gray finds that the $1.4 billion spent on the Obama family last year includes the biggest staff in history, with “no mechanism for anyone’s objection if a president were to pay his chief of staff $5,000,000 a year.” He finds that Obama has, count ‘em, 469 senior staffers, with 226 bagging more than $100,000 a year and 77 at $172,000 a year. Gray also counts 42 “czars” the president has appointed, and they don’t work for minimum wage. The Obama family dog handler reportedly gets $102,000 a year. Nice work if you can get it.

The president himself, in addition to his salary, gets a $50,000 a year expense account, a $100,000 travel account, $19,000 entertainment budget, and an additional million for “unanticipated needs.” As Gray sees it, that includes using other people’s money to buy his own reelection. As Gray notes in his book Presidential Perks Gone Royal, it’s all in the regal style, but by the author’s accounting, Britain spends only $57.8 million a year on the royal family.

As Mel Brooks said, it’s good to be the king. The regal style fits an administration shrink-wrapped in statist superstition, and after six years still colonizing the nation with government waste, fraud, and abuse. As ever, the folks up there in Washington are looking out for number one. Taxpayers aren’t even number two.

Obamacare Enabling Waste and Fraud


Tuesday October 7th, 2014   •   Posted by Craig Eyermann at 6:26am PDT   •  

What do you get when you combine a lack of transparency with a lack of accountability in a massive federal government spending program?

If you said at least $250 billion in fraud and waste, you’re right! Nashville’s WZTV reports:

In fact, when the Government Accountability Office set out to deliberately scam the Department of Health and Human Services’s Healthcare.gov website and various state-run health insurance marketplaces to see if they could get away with Obamacare subsidy fraud, their sting operations were successful 91% of the time.

The funny thing is that this whole situation could have been avoided by having people who buy health insurance through the federal and state “marketplaces” pay the full price for the coverage they chose to buy and provide any tax-credit subsidy for which they might be eligible by adjusting their federal income tax withholding — effectively putting extra money in their paychecks each month while automatically providing for an audit of the tax-credit subsidy they received when they next file their income tax returns.

But unfortunately, that would have meant being transparent and honest about how much the health insurance policies would really cost, which was the last thing the Department of Health and Human Services wanted to do.

The Secret Is Out on Incompetent, Arrogant “Service”


Friday October 3rd, 2014   •   Posted by K. Lloyd Billingsley at 2:16pm PDT   •  

SS_logo_200Recent hearings on the Secret Service by the House Oversight and Government Reform Committee proved entertaining and educational. For example, in 2011 someone had fired shots at the White House but Secret Service bosses wrote this off as a car backfiring, rather unlikely since all cars now have fuel injection. And even with carburetors, multiple backfires were rare. Turns out that the shots did indeed hit the White House, but a housekeeper, untrained in security matters, found evidence of the attack days before the Secret Service. Legislators got the full story from the Washington Post, not the federal government.

More recently, a veteran jumped the fence and gained entry to the White House through the unlocked front door. Secret Service bosses said he didn’t get far, but it turned out he did, all the way to the Green Room. They said he wasn’t armed, but it turned out he was. Legislators grilled Secret Service boss Julia Pierson about these and other lapses. Rep. Trey Gowdy (R-SC) wondered how much it would cost to lock the front door.

Viewers may have wondered how the singularly unimpressive Pierson got the job in the first place, but she had mastered the bureaucratic dialect. Mistakes had been made, she said. And of course, it wouldn’t happen again. Pierson should have been fired long ago but was allowed to resign instead. As columnist Dana Milbank observed, she “made it look as if Secret Service secrecy is not meant to protect the president’s life but to protect an arrogant agency from embarrassment and reform.” That is a major dynamic in Washington, where arrogant agencies abound. Bureaucratic bosses often fail at their appointed tasks, abuse taxpayers, and do all in their power to stop reforms.

During the hearing Rep. John Mica (R-FL) displayed a sign of the ADT security firm and suggested that the Secret Service hire that company. This was more than a theatrical gesture for the cameras. In the recent case, the White House would clearly have been more secure with ADT than Pierson’s open-door security plan. Taxpayers, meanwhile, would also be better off with private security, private health care, and private education.

The U.S. National Debt Superhighway


Friday October 3rd, 2014   •   Posted by Craig Eyermann at 6:14am PDT   •  

ii-map-2790-miles-nyc-to-la The national debt is that it is so big that it can be difficult to describe the magnitude of the nation’s liabilities in terms that make sense on a human scale.

That didn’t stop Mick Teufel from trying, though! Here’s his attempt to describe the size of the national debt using the metaphor that anyone who has ever driven or ridden in a car might appreciate:

Imagine 250 lanes of Cadillac Premium Edition Escalades (manufacturer’s suggested retail price of $81,190) placed bumper to bumper going from New York to Los Angeles (2,790 miles). This is an illustration of how much our national debt is. Our debt has been a problem for many years; however, it has been greatly accelerating the last 14 years.

According to the Department of Transportation, the minimum width for a freeway lane in the United States, not including shoulders or curbs, is 12 feet (3.6 meters). With 250 lanes side-by-side, the U.S. debt superhighway would be 3,000 feet wide (900 meters).

That’s some gridlock!

But more to the point, if the federal government had actually borrowed all the money it has for the purpose of buying and parking so many of GM’s Cadillac division’s luxury gas guzzlers on a superhighway between New York and Los Angeles, the national debt would be visible from low Earth orbit.

How Ruling Class Railroads Taxpayers


Tuesday September 30th, 2014   •   Posted by K. Lloyd Billingsley at 10:14am PDT   •  

HiSpeedCATrain_200A high-speed rail line from Los Angeles to San Francisco could have been built privately. That remarkable admission comes from none other than Jeff Morales, CEO of the California High-Speed Rail Authority, in an interview with Allen Young of the Sacramento Business Journal. The article, titled “Why Does California’s High-Speed Rail Need Public Money?”, notes that a new rail line from Houston to Dallas will be privately financed. So why isn’t California’s?

Morales claims that this plan would bypass “population centers” in the central valley. But as Allen points out, those centers are home to less than 10 percent of the state’s population. Even so, the government bullet train, originally sold as a conduit from Los Angeles to the Bay Area, aims to start somewhere near Fresno. These cities have vacant land “perfect for sprawl development,” Allen says, so the project “has morphed into crony capitalism with generous government support.”

In reality, high-speed rail is designed to shore up the prospects of California congressmen by spending money in their districts. That’s why the first stretch of the system is slated for the boondocks. The High Speed Rail Authority also serves as a soft landing spot for washed-up politicians such as board member Lynn Schenck, a former congresswoman and chief of staff for governor Gray Davis. The bullet train also rewards politicians’ support networks. All the work will go to union contractors, even though more than 90 percent of workers in the private sector are not union members.

High Speed Rail may serve as a legacy project for Governor Jerry Brown, but it won’t take people where they want to go or get “old people” out of their cars, as Brown says. But there’s more to it still. Politicians love to spend other people’s money. As bullet train boss Jeff Morales notes, they do so even when they know full well that an independent, privately funded project would be better. That’s why the bullet train railroads taxpayers.

U.S. Debt versus the Rest of the G7


Tuesday September 30th, 2014   •   Posted by Craig Eyermann at 5:41am PDT   •  

In international politics, the Group of 7, or G-7, is made up of the world’s seven most industrialized economies, which include the United States, Japan, Germany, Canada, France, Italy, and the United Kingdom. Rebecca Strauss of the Council of Foreign Relations recently compared how the national debt of the United States changed with respect to the other six members of this exclusive club since 2000:

On matters of fiscal health, the US has not traditionally looked to Europe for guidance. For much of the past three decades, governments in Italy, France, and Germany were much deeper in the hole than the US.

How things have changed. The US racked up debt faster than any other G7 country during the Great Recession, so that its debt burden is now as bad as the average European country. If current projections hold, by 2040 the US will have the worst debt burden of any G7 country save for Japan, reaching levels not seen since World War II.

net-public-debt-as-a-percent-of-gdp-2000-2014-estimate-_chartbuilder

Almost all of the U.S. achievement in catching up to and nearly surpassing the debt carried by the other six nations of the G-7 has been racked in the second half of the period from 2000 through 2014.

Government Power of “No” Still Trumps Taxpayers’ Right to Know


Friday September 26th, 2014   •   Posted by K. Lloyd Billingsley at 4:55pm PDT   •  

California_State_Capitol_p1080924-230x172As we noted, governments indulge their own form of insider trading through cronyism and nepotism. In California’s capital, that was on display with longtime Senate human-resources boss Dina Hidalgo. Her practice was not to give jobs to those most qualified. Rather, she gave jobs to her own son, Gerardo Lopez, other family members, and even members of her softball team. What a cozy world. Since the California Highway Patrol polices the Capitol, Lopez’s post as a sergeant at arms is really a sinecure. As the Sacramento Bee noted, Lopez “routinely received special treatment during the 15 years he worked for the Senate.” Lopez’s wife, Jennifer Delao, managed to gain a job with Senate boss Darrel Steinberg in his policy unit.

This cronyism and nepotism took long time to emerge, but the Senate finally paid a private law firm $98,000 to look into it. Those were all taxpayer dollars, but taxpayers did not see the result because the Senate refused to release the report citing privacy concerns and attorney-client privilege. So a public matter that should have been investigated by the CHP winds up an expensive cover-up. The secrecy is part of Dina Hidalgo’s retirement deal, including $85,400 in cash and $13,000 for her legal fees. One thing it fails to include is any kind of punishment or accountability. And she gets her generous pension also courtesy of taxpayers.

Steinberg is also on the way out, but taxpayers should recall that in 2012 he blocked the California Channel from showing a Senate Governance and Finance Committee hearing on four ballot measures that involved taxes and spending. And in a lame apology Steinberg said, “I pride myself on being open and transparent.” That’s how it works with the ruling class.

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