Vermont Tiger

Weekend #1

Modern Economic Models … Explained With Cows

SOCIALISM
You have 2 cows.
You give one to your neighbour.

COMMUNISM
You have 2 cows.
The State takes both and gives you some milk.

FASCISM
You have 2 cows.
The State takes both and sells you some milk.

Economic Truths: Simple & Hard

Public Sector/Private Sector
One Drives While The Other Rides
by
Hugh Kemper

Three economic truths are: (1) the private sector creates wealth while the public sector redistributes wealth; (2) private sector wealth creation is a function of capital formation, productivity and innovation; and (3) public spending at the federal, state, and local level (as well as personal spending) to be sustainable must remain within the private sector’s capacity (and your personal capacity) to generate wealth.

Vermont has been in denial of these economic truths for some time. Vermont’s tax policies, public sector spending (particularly education spending) and restrictions on private sector growth have conspired to contribute to its current economic woes. Unless rectified, the outlook for Vermont’s economic future (and standard of living) is bleak.

VSAC Agonistes

The Vermont Student Assistance Corporation (VSAC) has experienced some woes of late, but they are small beer when compared to what is shaping up on the near horizon.

If the Obama administration's effort to assume control of student lending succeeds, then VSAC – and operations like it all around the country – face extinction, at worst.  Endangered species status at best.

(ed. note: spelling has been corrected in the title.  thanks to the reader for the catch.)

A Plan ... Sort Of

Legislative leadership announced a "plan" to fill the budget hole.  It includes some tax increases, which comes as no surprise, and relies heavily on federal stimulus money which was also predictable.  A third component is described as "a massive reorganization of state government."  Details to come. 

The administration isn't buying and that may be the least surprising element in the entire story. 

There will be much more to come and much more to say about it.

Underfunded vs. Unfunded

Some legislators  are concerned that there is not enough money set aside for immediate decommissioning of Vermont Yankee. 

One wonders if they also worry about the unfunded pension liabilities, which are much greater and their direct responsibility.

One doesn't, however, wonder very long.

Blaming the Messenger

The Brattleboro Reformer argues that the rising costs of federal entitlements (Social Security and Medicare) do not pose long-term problems for the economy.  The real problem is

an 82-year-old Republican billionaire named Pete Peterson   [who} was the commerce secretary in the Nixon administration and then went on to make his fortune as one of the top executives at the Blackstone Group, a private equity fund....Peterson and his allies in Washington and on Wall Street and have long claimed that the huge tax burdens to pay for the retirements of the Baby Boomers will leave future generations worse off than the generations that preceded them.  Their claims have no basis in fact.

I won't go into the details of the Reformer's argument.  Instead  I'll just turn the quill over to the Congressional Budget Office.  Last year, the CBO director, Peter Orszag, (President Obama has appointed him to be the head of the White House's Office of Management and Budget) wrote

Under current law, rising costs for health care and the aging of the population will cause federal spending on Medicare, Medicaid, and Social Security to rise substantially as a share of the economy. If tax revenues as a share of gross domestic product (GDP) remain at current levels, that additional spending will eventually cause future budget deficits to become unsustainable. To prevent those deficits from growing to levels that could impose substantial costs on the economy, the choices are limited: Revenues must rise as a share of GDP, projected spending must fall, or both.

Just  to emphasize the key phrase:  will cause future budget deficits to become unsustainable.  That sounds like a problem to me.

VSAC Continued

(ed. note: Continuing his inquiry into the financial health of the Vermont Student Assistance Corporation, Mr. Nathan Freeman sent the following letter to those named on the address line and copied us.  We await, with interest, a response.)

Subject:  Formal Request of Due Diligence and State Audit of VSAC prior to passage of H.166

Source:  VSAC December 31, 2008 Balance Sheet

February 25,2009

To:

Senators of the Finance Committee;
Treasurer, Jeb Spaulding;
VSAC Directors, Jeb Spaulding and Anne Cummings;
George Thaubalt, Auditor's Office
Senator and Former State Auditor, Randy Brock

In follow up to my testimony last week regarding VSAC's request for a $50 million moral obligation, I officially request an immediate state audit and a due diligence report confirming the financial status of the public non-profit lender.

The information I offer below comes from a highly credible source relaying data from VSAC's December 31st Balance Sheet.

Housing Affordability--Setting the Record Straight

Listen to this interview with the Rutland Herald's business editor, Bruce Edwards on VPR (you have to listen--there is no transcript on the site) about the Vermont Economy Newsletter's recent study on housing affordability in Vermont. See if you can figure out what's wrong with the criticisms he levels on our study. (Answers below the fold.)

Emerson Lynn On Politics

How Legislature Deals With Union
Will Test Leadership

The unions representing Vermont’s state employees this week made a good faith effort to counter the governor’s call to eliminate 600 state jobs, saving the state $17 million annually. The difference between the two proposals is that the union asks that the cuts be for the moment, the governor asks that they be permanent.

The union has done what it needs to do – and perhaps the only thing within its political reach – which is to agree to reopen its contract and to agree to such things as foregoing cost-of-living increases, delaying scheduled increases in wages, taking four unpaid furlough days, along with some minor concessions, such as meal reimbursements, etc. The union also proposes that the state try to achieve more savings by eliminating the work offered private contractors.

Big Fix

There is, in Montpelier, an unending effort to shut down a Vermont factory that is producing a product that people want, use, and are buying at a fair price; that employs some 600 people with a payroll of more than $40 million, and that will remain in operation for another 20 years if the legislature can just find some justification for permitting that to happen. 

But, the inquisitors now ask, what about when the plant does close down?  We must have another $600 million in escrow for decommissioning. 

Even these days, that's real money.  So maybe the answer is to buy a few rolls of this stuff and just wrap the idle plant in it.  (The customer comments make the product sound perfect for the job.)

The results won't be a green field with sheep grazing.  But, then, it won't look any worse than about half the pickups now rolling on Vermont's highways.