Rent-Seeking and Public Employment - Time To Change

A relatively obscure economic concept has recently
come to the fore in the national economic dialogue.

That concept is Rent-Seeking.

As defined in Wikipedia and The Dictionary of Economics,
rent-seeking is defined as the extraction of unearned value
from economic transactions by manipulation of
the economic environment, rather than by earning profits
through economic transactions and the creation of added
wealth.

And there are different types of rent-seeking behavior - direct
rent-seeking, which is an attempt to gain monopoly or oligopoly
control of a scarce resource, or collusion by market players to
control a market by rigging prices, allocating market shares,
and restricting output.

And then there's indirect rent-seeking - the pursuit of above
market returns through control of a legislative or regulatory
process, where the "rent" extracted is in the form of either
regulatory barriers to market entry or tariffs, tax breaks or
subsidies not generally available to those outside the favored
group or class.

Of the two, the latter is by far the more dangerous, as it implies
control of legislative or regulatory processes to extract "rents"
from the public at large and funnel them to the favored recipients.

And, according to classical economic theory, when rent-seeking
exists in a market, more and more players abandon profit-seeking
for the greater returns of rent-seeking. Ultimately, this causes a
fall in output and productivity, as not all players can become
rent-seekers and those who remain choose to withdraw from
from the market rather than see their profits reduced by
rent extraction.

And where do we see an example of all of these economic
pathologies simultaneously?

In Unionized Public Sector Employment.

To begin with, access to public employment is tightly
controlled, both formally and informally. Not only does
the prospective public employee have to jump through
many bureaucratic and regulatory hoops, but often the
only path to public employment is through an "informal"
connection to either an elected official or family members
already on the "inside". Further, public employment is a
monopoly, for which no corresponding demand exists in
the "private" marketplace.

And do Public Employees extract "rents" from the public
at large? In spades. Through unionized collective bargaining
and campaign contributions to the politicians who set the
wage and benefit scales, the wage and benefit "rent premium"
extracted by public employees have risen in some cases to over
30% compared to similar private sector employment.

And, as would be predicted by economic theory, more and
more people are seeking employment in the Public Sector
than in the private marketplace. According to the Heritage
Foundation, while the US private sector produced NO net new
jobs over the last ten years, total government employment has
risen by over 17%. And the Obama "economic stimulus" plan,
has, as predicted, resulted in both more government employment
(more rent seekers), and less employment in the private
sector (fewer profit seekers).

But now, a tipping point may have been reached. As more and
more private profit-seekers leave the market, either through
outsourcing to other countries (avoiding the rent-seekers), or
withdrawing from the market altogether ( refusal to pay "rents"),
economic output (upon which the rent-seekers depend), is falling.

And, in response, the politicians, who enabled the problem in the
first place, are now having to make some awful choices - namely,
which rent-seekers will be thrown off the gravy train?

If you follow the news, the talk in statehouses and city halls
all across the nation is about wage and benefit cuts, givebacks,
renegotiations, and even permanent layoffs, furloughs, and
terminations. And sooner rather than later, the federal
government will have to follow suit.

And this was all perfectly predictable.

In economic terms, once the aggregate amount of extracted
rents exceeds the amount of profit that could be produced
by the non-rent-seeking sector at any given level of output,
the whole scheme collapses.

And, in many parts of the country, we are now literally at that
point.

The following video sums it up quite nicely (h/t Mish's Global
Economic Analysis)

Tough Week For Michael Steele

It's been a tough week for Michael Steele.

Not only is the Republican National Committee
head having to live down the scandal of "fundraising"
at a lesbians-and-bondage themed West Hollywood
night club, but he's now having to answer new questions
about his RNC-paid expense account.

Then, there's the matter of charging his travel expenses
to the RNC while accepting speaking fees at $20,000 a
pop.

And, finally, there's the matter of just how effective he's
been in his main job - which is fundraising for Republican
candidates.

Thus far, compared to his Democratic counterparts, not
very. Through the last reporting period, The RNC has
managed to raise only $9.5 million for its Congressional
arm, the RNCC. In the meantime, the DNCC, its Democratic
counterpart, has raised about $25 million for its candidates.

And all of this raises the one question that no one wants to
ask - why would a party that is largely composed of older,
rural, Angry White People choose a scholarly, moderate
Black Man as its head?

And, in my opinion, here are the answers.

First of all, the "lesbian nightclub" event would not have
come to light at all had the reimbursement not been
included in a required FEC filing and been seized upon
by alert liberal bloggers. In truth, the event was paid
for by a fundraising consultant, and reimbursed by
the RNC as a matter of course.

Now, despite the fact that this particular consultant
relationship has been terminated, there's a reasonable
explanation for the event. And it has to do with the sorts of
people that the "consultant" was cultivating - younger,
wealthy, creative entrepreneurial types who might
otherwise contribute and vote Democratic.

Needless to say, the party of Barney Frank would have
no problem with such an event; and the GOP is going
to have to compete for that demographic - socially
liberal, even exotic in their tastes,but receptive to a
conservative economic message.

And on the expense account thing, it's the price
of doing business. No Republican National Committee
head is going to be credible raising money from the
wealthy staying at Motel 6 on the road and hosting
fundraising dinners at Denny's.

Like it or not, if you are soliciting donations from
the wealthy, you have to travel in the same circles,
stay in the same hotels, and frequent the same restaurants
and resorts that they do.

You have to show that you belong - and that you get it.

And on the matter of $20,000 speaking fees at fundraisers,
Hailey Barbour, one of Steele's more illustrious predecessors
at the RNC, asked for and got up to five times as much. But
then, as a former Governor of Mississippi and head of the
Republican Governors Conference, he had just a bit more
heft and clout.

And Barbour didn't just fly first class - he flew strictly by
private jet, usually underwritten by the same contributors
he was wooing.

And on fundraising results to date, this is par for the election
cycle. The Republicans are challenging more seats than are
the Democrats in both the House and Senate - and the primary
season for Republicans is still a couple of months away.

And, because of the influence of the Tea Party, the RNC is
going to wait until after the primary season to begin the
general election fundraising cycle.

It's going to make sure that its general election candidates have
reasonable chances of winning - and it knows, that come
Election Day, it's got the Tea Partiers in its pocket anyway.

But in one respect, Steele has been unusually effective. He's
doen a remarkable job in attracting genuine conservatives
who are Other Than White to the GOP banner.

No fewer than 33 conservative African Americans are competing
for House seats this time around. And there are similar numbers
of other minority candidates as well.

Unlike liberalism, the conservative theme of low taxes, limited
government, and individual freedom has a universal appeal
to hard-working folks of ALL races. And this time around, it's
the Democrats who can be effectively painted as the friends of
corporate rent-seekers and outsourcers and the loyal retainers
of Wall Street.

And the GOP this year cannot afford to let Sarah Palin and
the Tea Party steal its message.

Much as the Tea Party might have a gut appeal to true
conservatives, the reality is that a movement built on
conspiracy theories and a frank appeal to the racial and
religious prejudices of rural, uneducated White People
cannot win nationally.

And Michael Steele gets that. And he's doing something
about it.

But, we'll have to wait until November to judge.

Healthcare Reform: The real fight is just beginning

Well, he finally did it.

After a full year of wrangling with a recalcitrant
Congress to the exclusion of almost all else, President
Barack Obama has his victory on healthcare reform.

In a strict party-line vote, this historic legislation passed
the House 219-212, with, as predicted, zero Republican
support.

And, as George Will pointed out in today's Washington Post,
the President views this as a transformative measure, one
that will put him alongside FDR, Truman, and LBJ as a
successful Democratic President who changed the national
debate and altered the nation's course for the better.

And while in my view this bill falls short of what is needed
to truly reform the nation's system of healthcare delivery,
it's at least a start.

To begin with, it will bring the estimated 32 million
uninsured into the national "covered" pool. As I have
maintained from the beginning, unless everyone is
in the insurance pool and paying, reforms such as
banning coverage denial for pre-existing conditions
and severely restricting claim denial or lifetime caps
on coverage are just not possible. And, to make it
possible for uninsured individuals to purchase such
insurance , there will be a whole panoply of
credits, subsidies, and direct payments to make this
possible.

And that's the hard part that has yet to be tackled.

To be sure, the Republicans have been united in
opposition to all of this. True to their ideological leanings,
they have trumpeted the primacy of "the private sector"
in delivering health care to all affordably.

But the "Private Sector" is the biggest problem in all
of this. In the Health Insurance industry, the private
sector has morphed from profit-seeking to rent-seeking.
In most states, one or two companies have monopoly
or duopoly positions in both the group (employer)
and individual insurance markets. In these markets,
claim denial, coverage exclusions, and ever-smaller caps
on coverage are the order of the day. To the extent that
the health care bill tackles these problems, it's a reform
long overdue, and the Republicans are just plain wrong
about this.

But on one issue and one issue only - COST - the GOP
has found an issue that has undeniably registered
with the public.

In an age of trillion-dollar bailouts to Wall Street,
declining GDP and mass unemployment, another
980 billion dollar entitlement that has to be paid
for by either increased taxes, increased deficit
spending, or both is just not going to sit well with
the voters.

And right now, I have to count myself among the
skeptics. When it comes to entitlements, the
government's track record on cost control is not
a good one.

Right now, both Medicare and Medicaid are
approaching bankruptcy, and nowhere in this
bill do I see any realistic attempt to bring the costs
of these massive health care entitlements under
control.

The GOP is undeniably right on just this one issue.

And that is what is going to set up the continuing
health care fight. The "amendments" to this bill
now pending in the Senate are just the start.

There will also have to be enabling legislation
to set up the bureaucracy to run this program
and give it the power to write regulations. And,
in order to meet the 2014 implementation deadline,
appropriations under this bill will have to be made
starting in Fiscal Year 2011 - and that debate will
start this fall.

That means another series of partisan fights
right up until the mid-term elections.

As I said, this fight is not over - it's just beginning.

Decision Sunday: We're Still Waiting

Decision Sunday has arrived.

Today was the day we were supposed to learn whether or
not the Rube Goldberg contraption known as Health Care
Reform was finally going to pass the House.

As of 12:00 noon PDT Sunday, March 21, we're still waiting.

And nothing substantial seems to have changed in the
last few days.

Oh, to be sure, a few stragglers on the Democratic side
were rounded up and corralled by the President.

Rep. Dennis Kucinich of Ohio, a tireless campaigner
for economic justice and for Universal Single-Payer
coverage (the ONLY reform that in my mind makes
sense), finally succumbed to Obama's persuasion
and is now on board.

So also were local Las Vegas Reps. Shelley Berkely
and Dina Titus, albeit reluctantly. In Titus' case,
as she represents an increasingly conservative
district in suburban Las Vegas, her "yes" vote
on Health Care Reform may well be "political
suicide", according to the Las Vegas Sun.

But, suicidal or not, these folks are now committed.

On the other side of the aisle, though, The GOP is
facing no such atmosphere of arm-twisting and high
pressure.

Their lock-step sense of disciplined opposition to
the Obama plan, has, if anything, grown stronger
in the last few days. As House Minority Leader
John Boehner confidently predicted, there will
be zero Republican votes for the measure. And I
believe him.

Just look at the events of the last few days. Nancy
Pelosi's plan to use legislative sleight-of-hand to
"deem" the Senate's Bill "passed" without further
amendment or alteration went nowhere, not only
because of Republican opposition but also due to
the Senate's fears that the House would do something
to the bill the Senate could not accept.

Majority leader Harry Reid quietly let it be known
that anything other than an "up or down" vote on
the Senate's Bill "As Is" would not sit well in his
chamber with either party. And that was that.

But regardless of how the House votes, whenever it does
take place, I believe we have not seen the last of the issue.

If the House makes any changes to the Senate bill, (and
I believe they will), the whole thing will again have
to go to a conference committee, and the whole horse-trading,
log-rolling and sausage-making process will start all over.

And if that happens, I predict that this time it will self-
destruct, handing the GOP a popular victory and
leaving the President's coffers of political capital
empty.

But then again, maybe not - but as of right now,
we're still waiting.

Healthcare: We're All Waiting

Well, we're all waiting.

The Great Healthcare Drama is about to finally play out
in the House Of Representatives.

And because of the importance of this issue to President
Obama, who has gone "all in" on his political capital on this
one, the consequences of either passage or failure will be
deeply felt.

If by some miracle Obama wins, he's a hero. If he loses,
he will be forever marked as "Jimmy Carter with a deep tan"
and had better resign himself to a one-term Presidency.

And, right now, things aren't looking very good for Team Obama.

To begin with, the final product as passed by the Senate and
presented to the House is good for exactly no one.

There's no Public Option. No provision for "insurance exchanges"
to enable consumer choice. Only limited prohibition of coverage
denial for pre-existing conditions, no prohibition for claim denial,
and no criminal provisions in the law for any violations.

There are no caps or cost controls on premiums. No provision for
Medicare and Medicaid to either negotiate "best prices" for
pharmaceuticals or procure them from overseas. And, most
importantly, no revocation of the exemptions from anti-trust
law that the Health Care Cartel now enjoys.

What is in the bill is a mandate that everyone purchase private
coverage - at whatever rate the private Health Care Cartel decides
to charge. Also, there are selected cuts to Medicare and Medicaid
coverage, raising premiums and reducing federal assistance to
those states and individuals least able to afford them.

In short - there's lots of things in this 2,204 page bill for everyone
to hate, and nothing in it for anyone except the Health Care Cartel.

And what do the people think? Almost everyone, both Left
and Right, is saying NO.

NO to more power and influence to the Health Care Cartel.
NO to the rising costs and reduced coverage that are sure to follow.
NO to government interference with private, employer-based
health care plans that are working satisfactorily for those
concerned.

And above all, NO to the massive tax increases that will
be necessary to fund the whole mess.

And the Democrats, to the delight of the GOP, are caught
squarely in the middle. For the Senate, voting for Obama's
healthcare plan, weak and ineffectual though it may be, has
become a political suicide pact. And the House is starting to
see things the same way.

Nancy Pelosi now faces a desperate situation in the House.
Faced with united GOP opposition, she now sees the list of
Democratic defectors grow with each passing day. Her latest
gambit, to use a little-known parliamentary maneuver to
"deem" the Senate Bill "passed" by passing a raft of "popular"
amendments, is going nowhere - even in Washington.

The only thing that is growing is the fury of the public - which,
once again, is seeing needed reform throttled by both the power
of vested interests and Washington's penchant for short-term
political opportunism.

As I said, this will be an interesting week - and we're all waiting.

Chris Christie: Raw Courage in New Jersey.

(Hat Tip: Mish Shedlock of Mish's Global Economic Trend Analysis. )

In today's environment, no one ever says governing is easy.

In an unusually candid appraisal of the sorry state of affairs
of the "Soprano State" of New Jersey, newly-elected Governor
Chris Christie laid it on the line for 200 mayors of the New
Jersey League of Municipalities at the statehouse in Trenton.

Fortunately, the speech was carried live by New Jersey Public
Television. A link to the speech can be found here.

Warning: This is not an easy speech to listen to. It's twenty-six
minutes long, beginning with a few public service messages.
And when it comes to the painful realities of taxing, spending,
and governance in general, Gov. Christie's blunt candor will
shock a few and surprise many.

A few excerpts:

" In the time we got here, of the approximately $29 billion
budget, there was only $14 billion left. Of the $14 billion,
$8 billion could not be touched because of contracts with
public worker unions, because of bond covenants, because
of commitments we made accepting stimulus money. So
we had to find a way to save $2.3 billion in a $6 billion
pool of money.

" When I went into the treasurer's office in the first two weeks
of my term, there were no happy meetings. They presented
me with 378 possible freezes, cuts, and lapses in order to
balance the budget. I accepted 375 of them.

" There is a great deal of discussion about me doing that by
executive action. Every day that went by was a day where
money was going out the door such that $6 billion pool was
getting less and less. So something needed to be done.

" The people did not send me here to talk, they sent me here to
do. So we took the executive action we did to stop the bleeding.

" As we move forward, and we evaluate what we need to do in
three weeks in our 2011 budget address, you all need to
understand the context from which we operate.

" Our citizens are the most overtaxed in America. U.S.
mayors hear it all the time. You know that the public
appetite for ever-increasing taxes has reached an end".

In the same vein, Gov. Christie goes on to talk about
problems with school boards, public employee unions,
and the old saw about how ferreting out waste and abuse
will somehow miraculously balance the budget.

And Gov. Christie knows something about that. Prior
to running for governor, Chris Christie was the U.S.
Attorney for the Northern District of New Jersey,
where his main job was putting corrupt public union
officials, corrupt office holders and their mobster
friends in jail.

When it comes to tackling corruption, waste, fraud
and abuse, (the well-documented principal activities
of New Jersey's public sector), take my word for it -
Gov. Christie is an expert.

More from Gov. Christie:

" You know, at some point there has to be parity.
There has to be parity between what is happening
in the real world, and what is happening in the public
sector world. The money does not grow on trees outside
this building or outside your municipal building. It
comes from the hardworking people who are suffering and
are hurting right now.

"And so we need to get honest with each other. In this instance,
the political class, which unfortunately we are all members of,
is lagging behind the public on this. The public is ready to hear
that tough choices have to be made. They're not going to like it.
Don't confuse the two. But they are ready to hear the truth.

"They are tired of hearing, don't worry I can spare you from the
pain, because they have been hearing that for a decade, as we
have borrowed and spent and taxed our way to oblivion.

"We have done every quick fix in the book that you can do.
And now we are literally left holding the bag.

"And don't look to the "private sector" as a source of
additional revenue. During the administration of
my predecessor Gov. Corzine (former Senator,
former Goldman Sachs bankster - ed.), some $70 billion
of private sector capital and investment left the state;
never to return.

"There's literally nothing more left to tax - and nothing else
to do but what we are now doing."

The message coming through loud and clear: The public is
tired. Tired of tax increases. Tired of aggressive and abusive
public sector unions whose pay and benefits dwarf anything
similar in the private sector. Tired of endless state-funded
entitlements and "unmet needs" from which they do not
benefit and for which they must pay.

In just a few short weeks, Governor Christie has:

a) Frozen, cut or allowed to lapse some 375 separate
government spending programs;

b) Challenged the state education and teacher's lobbies;

c) Challenged the "arbitration" system of public-sector
collective bargaining;

d) Demanded public-private sector wage and benefits parity;

e) Demanded public-sector pension reform;

f) Demanded an end to open-ended entitlement programs;
he'll challenge them in court if necessary.

g) Made clear he is not thinking about the next election.

In sum - LEADERSHIP. Something clearly lacking in the
White House, Congress, and almost every statehouse and
city hall in this country.

And, if Chris Christie can make it work, this is not the end
of his public career, but rather a very auspicious beginning.

Attention: California, New York, Illinois, are you
listening? You need to learn how to do this.

Give Governor Christie a call - NOW.

Jim Bunning: Horatio Holding The Bridge

Courage.

It's getting rare these days when you can use the words
"Courage" and "Politician" in the same sentence - especially
when referring to the resident Critters on Capitol Hill.

Yet just this last week, we saw ONE politician demonstrate
real Courage - standing, almost totally alone and unaided,
against the taxers and spenders that dominate both
political parties.

And just who was this courageous individual?
The ol' Kentucky spitballer, Jim Bunning of Kentucky,
the only Senator in the Major League Baseball Hall of
Fame.

And if there's anything consistent about Jim Bunning,
it's that he's determined to do things his way. Just as
he did in seventeen years in the Majors, he managed to
both confound the opposition and drive his own team
to distraction at the same time.

But last week, in the twilight of his career, Jim Bunning
probably pitched his greatest game. Standing up alone
to the taxers, spenders, and pleaders for "business as usual" ,
he brought the Senate to a complete halt for five glorious days,
forcing it to confront the error of its ways.

And what exactly did Jim Bunning do? He demanded that the
Senate find a way to pay for extending unemployment and COBRA
benefits, Medicare funding, and some highway projects other than
just adding it to the national debt. In short, he insisted that the
Senate use cash in the pocket rather than pull out the national
credit card. In other words, "Pay As You Go."


A modern day Horatio At The Bridge. In the words of Lord
MacAulay:

" Then up spake brave Horatius
the Captain of the Gate:
' To every man upon this earth
Death cometh soon or late
And how can man die better
Than facing fearful odds
For the ashes of his Fathers
And the temples of his Gods' "

Now, it's not as if he had a grudge against the unemployed,
doctors, or highway workers. All he was insisting upon was
that the Senate either use stimulus funds already appropriated
(cash in the pocket), or find something else to cut to pay for
these programs.

Lord MacAulay again:

" Hew down the Bridge, Sir Consul
with all the speed ye may;
I, with but two to help me
will hold the foe in play.
In yon straight path a thousand
may well be stopped by three;
Now who will stand, on either hand,
and keep the bridge with me? "

And, like Horatius, Bunning found supporters. Two
brave senators, Jeff Sessions (R-Ala.) and Bob Corker
(R- Tenn.), stood with Bunning ,helping him keep the
Senate tied in knots for two straight days and nights.

But the victory was not yet won. The taxers and spenders,
led by (who else?) Harry Reid, kept pressing forward. Along
with their allies in the media, they tried to paint Bunning
as a grinch and a ogre opposed to unemployment assistance,
doctors and highway workers. But in reality, nothing could be
further from the truth.

For Jim Bunning had a plan. If the Senate did not wish to use
its "cash in the pocket", it could cut a few things that in reality
do nothing to stimulate the economy. Among the cuts
he pointed out that could entirely pay for the program were:

a) An expiring subsidy for the biofuels industry. All the Senate
would have to do is agree not to renew it;

b) A tax credit for "recycling" for the paper pulp industry;

c) Price supports for the sugar industry, which would fund
unemployment benefits for an entire year.

But the Senate doesn't want to hear about that. Tax credits,
subsidies, and handouts for undeserving special interests
are what keep Senators in office and Congress in business.
But eventually, Bunning got his wish. Grudgingly, Harry
Reid and the other taxers and spenders allowed him
to offer his amendment to the bill requiring balancing
cuts to other programs.

Naturally, it was quickly defeated on a party-line vote.
Back to business as usual.

How far we've fallen from ancient times. Macaulay again:

"Then none was for a Party
Then all were for the state;
Then the great man helped the poor,
And poor man loved the Great
Then lands were fairly portioned,
Then spoils were fairly sold,
The Romans were as brothers
In those brave days of old. "


And how might that stanza be written today? With
apologies to Lord MacAulay, here goes:

" Now All are for The Party
And none are for the State;
Now the Great exploit The Poor,
And poor man envies Great;
Now the lands unfairly portioned,
Spoils stolen, and not sold;
How unlike Citizens and Brothers
From those great days of old "