QUOTE OF THE DAY
Fortune: Why Americans still feel poor
U.S. stocks have reached new highs, but most Americans probably don't feel any wealthier. That's because the prices of our homes have a bigger influence over how rich we feel and, therefore, how much we're willing to spend, suggests a recent study by the National Bureau of Economic Research.
The findings clarify the big drivers of what economists call "the wealth effect," the idea that people spend more when they have more. This sounds pretty obvious, but the real barometer of wealth hasn't been as clear. In the past, as the Federal Reserve moved to buy up billions of dollars worth of bonds to boost the economy, Chairman Ben Bernanke said that higher stock prices boost consumer wealth. And in turn, the extra spending helps the economy grow.
While that might be true, as it turns out, home prices trump any run-up on Wall Street. This is probably not that surprising, given that most Americans have relatively modest amounts of cash tied up in equities, 401ks, IRAs and investment accounts.
WSJ: Seattle Teachers Protest Exams
Teachers at three Seattle schools are refusing to give students district-mandated standardized exams, one of the most dramatic moves in an escalating fight nationwide over using test scores to evaluate teachers and schools.
The Seattle boycott, which began in one of the schools and spread in recent weeks, comes after the district decided to make the tests part of Seattle teachers' evaluations this year. But it follows long-standing complaints by the teachers that the computerized exams take up too much instructional time and force schools to close off computer labs for long stretches to administer the exams.
"We've been raising our voices about this deeply flawed test for a long time," said Jesse Hagopian, who teaches history at Garfield High School, where teachers initiated the boycott by voting this month not to give the exam. But now that the district is using the test for evaluations, he said, "we've drawn our line in the sand."
The spat in Seattle comes as districts nationwide wrestle with how best to use student test scores to rate teachers. In the past three years, more than 25 states have passed laws to link scores to teacher evaluations, because officials think it is a more effective way to gauge performance than traditional reliance on observations by school principals.
WSJ: Rahm's ObamaCare Brainstorm
Rahm Emanuel's parting gift to national taxpayers upon leaving Washington two years ago was a $1 trillion bill for ObamaCare. Now the Chicago Mayor may add billions more to the tab by dumping his city's retirees on the federally subsidized state health exchange.
This public service announcement is brought to you by a city commission that the mayor appointed last summer to study the cost of continuing health benefits for retired workers. A 25-year-old legal settlement requiring the city and its pension funds to pay between 40% and 55% of most retirees' health costs conveniently expires this June—convenient because the city can't afford the bill.
The city is running a $370 million budget deficit, which will blow up in 2015 when a $1.2 billion balloon payment for pensions comes due. The bill for retiree health benefits is $194 million this year and will grow to $540 million by 2023. Actuaries have recommended that the city sock away $2 billion this year to finance future benefits and pay down a $23 billion unfunded liability. Meanwhile, Chicago's pension funds, which are projected to run dry by the end of the decade, are scraping the bottoms of their barrels to pay for retiree health benefits as required by the settlement.
Enter the Mayor's commission. The four-member panel issued a report this month suggesting that dumping pre-Medicare retirees onto the state's ObamaCare exchange in 2014 could be fab for retirees and city taxpayers. Nearly 60% of retirees and 94% of those who receive subsidies would pay less for their health care on the exchange. Married retirees with dependents would save an average of $4,300.
Chicago and its pension funds in turn would shed $23 billion in liabilities, assuming supplemental benefits for Medicare recipients are also cancelled. (These calculations are based on models that assume public pensions are retirees' only source of income.)
On the other hand, the cost to national taxpayers would be enormous, especially if other local and state governments joined the party. Federal subsidies for Chicago retirees would amount to $44 million in 2014 and increase as more workers retire in their early to mid-50s and health costs grow. All told, state and local governments are on the hook for between $700 billion and $1.5 trillion for retiree health benefits, and like Chicago most will soon be unable to afford even their minimum annual payments.
Offloading the costs on Uncle Sam will look attractive since retiree health benefits don't enjoy the legal protections that some states have bestowed upon pensions. Stockton, California intends to shed its $400 million unfunded liability for retiree benefits in bankruptcy.
Mr. Emanuel says the city's decision on retiree health benefits will "strike the right balance between meeting the needs of the retirees and providing them health-care choices with protecting the interests of the city's taxpayers." So, let's see. On the one hand, Chicago pays, on the other everyone else does. Which do you think he'll choose?
The Chicago report illustrates once again how ObamaCare provides a convenient mechanism and incentive for employers to transfer health-care liabilities to national taxpayers—and how the costs will explode beyond Washington's phony projections.
Washington Examiner: Why the unions are shrinking
On Wednesday, the Labor Department publishes 2012 data showing that during President Obama's first term the unionization rate -- the percentage of American workers belonging to unions -- declined faster than during two terms of President George W. Bush. Who would have guessed?
The total unionization rate declined from 11.8 percent of wage and salary workers in 2011 to 11.3 percent in 2012. Private-sector unionization fell from 6.9 percent to 6.6 percent, and the government unionization rate dropped from 37 percent to 35.9 percent. The total Obama-era decline is 1.1 percentage points, compared with 1.1 percentage points during the eight Bush years.
Although Obama has championed union causes, his tax and regulatory policies have systematically discouraged business investment and job creation in America for all workers -- union and nonunion.
U.S. corporate tax rates remain the highest in the industrialized world. Inefficient regulations add to production costs and make employees into liabilities.
Points and Figures: “The State Shall Take, The State Shall Give.”
David Mamet grew up in Chicago. He was educated at a school that taught him to critically think.
He displays a lot of knowledge in the piece he wrote today. It’s amazing writing, but even better critical thinking.
The Founding Fathers, far from being ideologues, were not even politicians. They were an assortment of businessmen, writers, teachers, planters; men, in short, who knew something of the world, which is to say, of Human Nature. Their struggle to draft a set of rules acceptable to each other was based on the assumption that we human beings, in the mass, are no damned good—that we are biddable, easily confused, and that we may easily be motivated by a Politician, which is to say, a huckster, mounting a soapbox and inflaming our passions.
The Constitution’s drafters did not require a wag to teach them that power corrupts: they had experienced it in the person of King George. The American secession was announced by reference to his abuses of power: “He has obstructed the administration of Justice … he has made Judges dependant on his will alone … He has combined with others to subject us to a jurisdiction foreign to our Constitution, and unacknowledged by our Laws … He has erected a multitude of new offices, and sent hither swarms of officers to harass out people and to eat out their substance … imposed taxes upon us without our consent… [He has] fundamentally altered the forms of our government.”
Carpe Diem: Public debt skyrockets, while private debt plunges?
While total federal debt has skyrocketed to more than 100% of the nation’s GDP in 2012 (see top chart above), the burden of US household debt fell to its lowest level in third quarter last year in almost 30 years (see red line in chart). According to the Federal Reserve, household debt service payments as a share of disposable personal income fell to 10.61% during the July-September quarter last year, which was the lowest household debt burden since the fourth quarter of 1983. Household debt service includes payments for consumer debt like credit cards and payments for mortgages.
When other financial payments of households are included, like automobile lease payments, rental payments on tenant-occupied property, homeowners’ insurance, and property tax payments, households spent 15.75% of total personal income in the third quarter last year on all financial obligations, which was the lowest level since the first quarter of 1984 (see blue line in chart).
So while the ratio of federal debt to GDP is high and getting higher all the time, households are de-leveraging and have less debt relative to disposable personal income in a generation. What’s going on?
Jim Pethokoukis: Why the left might like to raise the US tax burden by 40%
Just how high do Democrats/liberals/progressives want to raise taxes over the long run to pay for the level of government spending they desire? If you are going to spend like Europe, you need to tax like Europe. A helpful tax fact from the FT may provide a clue:
Including state and local government taxes, the US remains a low-tax nation compared with other developed countries, with revenue as a share of GDP of 24.8 per cent in 2010, compared with an average of 33.8 per cent for OECD countries.
So the average OECD tax burden is 36% higher than that of the US.
If you narrow the list down to the seven largest non-US advanced economies in the OECD, you get Japan, Germany, France, United Kingdom, Italy, Canada, and Australia,.Their average tax burden is a bit higher at 34.4%.
WCIA: Illinois has reached its highest teen unemployment rate in 42 years.
The number of people out of work in Illinois has been dropping over the last year but a new report says that's not the case for teenagers.
New numbers show teens across our state are having a tough time landing jobs. We have one of the highest jobless rates in the U.S. when it comes to people under 21 years of age and the reason may come as a surprise.
The report also says low income minority teenagers are more likely to be unemployed.
CARTOON OF THE DAY