Sunday, May 24, 2009

Random Thoughts

  • Any "reform" coming out of Washington is not that.  This is because Congress and the regulatory bodies are captive to the groups they regulate.  Regulatory Capture is nothing new, but it will cost us more.  TARP and OTC derivative "reforms" are there to benefit a handful of broker dealers.  Credit Card "reform" does not really hurt the major issuers.  Education "reform" will never injure the teacher's unions, etc.  This leads to a fundamental question about regulation - more regulation begets more regulatory capture.   Simple principle based systems may be the way to go.
  • Requiring U.S. based corporations to immediately pay U.S. income tax on foreign earnings is a major job killer if current rates stay.  Most countries tax on a territorial basis (i.e. you earn in our country, you pay tax in our country), while the U.S. taxes on worldwide income (regardless of where it is earned, if you are a U.S. based group of companies).  You will see a lot a major multinationals "invert" whereby their corporate parent becomes domiciled overseas and the U.S. operations become a subsidiary in order to avoid this onerous tax burden.  You will see a lot of talent, jobs, etc move overseas - the type of people and jobs this country needs to compete going forward.   Obama and Congress' punitive measure will be a huge gain for Hong Kong, Singapore, Dubai, Zurich, Dublin, and other less taxed and regulated financial centers.
  • How the heck does changing fuel economy standards to 39 mpg by 2016 keep any jobs here?   The current cost structure for the big 3 means that they have a $1,500-$2,000 legacy cost per car for retiree pension and health care benefits (this will probably drop a bit, but the bailout of GM and MOPAR is really a bailout of the UAW as they have not made the same degree of concessions as everyone else).  So the government will force the automakers here to build cars no one wants to buy at a price where they can make a profit without a huge taxpayer subsidy.   The new generation of fuel efficient cars of the big 3, few will be manufactured here because of the labor costs.  We, the taxpayer, will be on hook for propping up the UAW.  The more sensible solution would be to jack up fuel taxes - but that won't happen, or just let the market solve it - as the spike from last summer showed that people will switch to smaller, more fuel efficient cars.
  • State governments will always have structural deficit problems until they get rid of defined benefit pension plans and generous retiree health care benefits for government employees.   The problems that the Big 3 have with the UAW pension and benefits is a precursor of what will happen to state and local governments unless this is addressed.
  • I went to a mayoral candidate's debate the other day, and both the Democrat and Republican repeated pledges to "invest", whether it be "light rail", "affordable housing", or "good schools".   Most of the questions were about neighborhood issues, where the candidates pandered.   I stood up, and was the only one to ask "You talk about 'investing' in this and that, but I have not heard a single word of how you are going to pay for this.  When I hear politicians talk about 'investment', I cringe as I know my taxes will go up to pay for this.  How are you going to pay for this without going into debt or raising my taxes?"
  • For a good read on the follies of "light rail" and "smart growth", get Randall O'Toole's "Best Laid Plans". Seems that the common theme over light rail plans in the U.S. is that they go at least 50% over budget and never meet their overly optimistic ridership projections and are bound to be a money pit.

3 comments:

Paladin said...

Cogent.

Realtor in Toronto said...

Oh, I love those who say they want to invest, invest and build and build and do more and more. It such an attraction for the every day folk and only few people realize it can't always be good. If they talked about their plans and included the "you'll have to pay more taxes" phrase, I don't think anyone would care much for such a person... It's sad, but true...

Take care, Elli

Hershblogger said...

All good points. Here's some additional info on light rail "investment" worth reading:


Phoenix Light Rail Fail — Half My Light Rail Bet Settled