Wind Turbines Don’t Even Last 20 Years

Estimated Reading Time: 3 minutes

Editors Note:  As some at the Arizona Corporation Commission want to take us down the “green” rat hole of subsidies and expensive electricity, we need to learn what has happened in other states, in this case, Minnesota. 

According to the National Renewable Energy Laboratory (NREL), wind turbines are supposed to have a useful lifetime of 20 years, but real-life evidence shows that wind turbines don’t even last this long before they are torn down and repowered so wind companies can soak up more of your tax dollars. This is why Xcel Energy is spending $750 million on repowering wind projects built between 2008 and 2015.

It’s All About the Subsidies, Baby!

Thanks to a subsidy that has been “temporary” since 1992, wind turbines receive a federal tax credit of $24 for every megawatt-hour (MWh) generated. The most recent extension of these “temporary” tax credits locks in wind developments at 60 percent of the original subsidy, or $18 per MWh, according to the U.S. Energy Information Administration.

Wind turbines don’t receive this tax subsidy for their entire lives, however. The subsidy expires after the first ten years of a project’s life. Unsurprisingly, a report from Lawrence Berkeley National Labs shows the average age of repowered turbines was 11 years, meaning electric companies are spending millions of dollars to help themselves to more of your tax dollars and increase electricity prices at the same time.

The shorter lifetime of wind turbines may help pad Xcel Energy’s government-guaranteed profits,  but this is bad news for ratepayers because it means electricity generated from wind turbines is much more expensive than advertised.

How Shorter Lifespans Affect the Levelized Cost of Energy

The cost of generating electricity is often expressed using a metric called the Levelized Cost of Energy (LCOE), which attempts to figure out the cost of each energy source per unit of electricity generated. In simpler terms, it is like comparing the cost of driving different cars for each mile driven, taking things into account like up-front cost, gas mileage, and the cost of fuel. The more miles you drive, the lower the cost per mile.

If wind turbines are only operating for half of their original, useful lifetimes, it means they are generating fewer units of electricity, which makes the LCOE of wind much higher than advertised. We can see this in action in the example below.  For this example, I use Region 3 MISW assumptions for capital costs and fixed operational and maintenance costs from Table 3 of the 2021 Assumptions to the Annual Energy Outlook.

If a wind facility operates for 11 years instead of 20 years, the cost of electricity from the facility increases by $14.01, from $37.57 per MWh to $51.58 per MWh. This represents a 37 percent increase in the cost of wind energy, and it means that new wind is far more expensive than continuing to operate Minnesota’s existing coal, nuclear, and natural gas facilities.

Conclusions

The wind industry is kept afloat by infusions of your money. These infusions come in the form of higher taxes to pay for federal subsidies and the higher electricity prices you pay each month. The fact that Xcel Energy is repowering wind facilities that are less than 10 years old is all the evidence you need to conclude that wind turbines are not the future of energy. Instead of squandering more money on the wind, we should be looking to keep our existing power plants open as long as possible while looking toward a future powered by nuclear, hydro, and carbon capture resources.

*****

This article first appeared on February 10, 2021 at The Center of the American Experiment.

Inflation Pressures Heat Up Even in Services

Estimated Reading Time: < 1 minute

There is still the theme that some of it is just temporary.

Big parts of the services sector – such as restaurants, entertainment, lodging, and travel – have been hit hard during this crisis. Other parts of the services industries – such as real estate, services related to eCommerce, transportation services, video games, streaming services, etc. – have boomed. And other segments in services have muddled through. Services account for nearly 70% of the economy. Despite the decline in overall demand for services, inflation pressures are heating up – both in terms of prices paid by service firms, and the prices they charge their customers, according to two measures for these price pressures in January.

Across the US service sector, “cost burdens soared once again, with the rate of input price inflation the fastest since the survey began in 2009, according to the IHS Markit U.S. Services PMI this morning. “And the rate of increase has now accelerated for three successive months,” it said.

“Firms largely passed on higher costs to clients through a marked rise in charges,” it said, meaning that the resistance to higher prices appears to have faded, and companies get away with raising prices without losing customers.

“Service providers recorded a steep increase in selling prices during January,” it said amid “strong client demand and a spike in input prices.”

*****

This article first appeared on Wolfstreet.com on February 3, 2021. 

Lockdowns Have Depleted Capital in All Forms

Estimated Reading Time: 6 minutes

When lockdowns first happened, my initial thought was geeky, and only later did I begin to realize the implications for human rights and liberties.

My thought was: this is going to be devastating for future capital investment. The basis of my fear was the knowledge that in almost all poor countries, property rights are insecure, particularly for capital goods. These are goods that are produced to make other goods (the “produced means of production,” in the classic formulation by Eugen von Böhm-Bawerk). Their existence and protection is a key to prosperity. They enable more complex economic structures – the extended order, in F.A. Hayek’s phrase. It’s the basis of hiring and investment, and the foundation of wealth production.

In the normal course of economic life, capital structures are constantly adapting to changed conditions. Changes in available technology, consumer demand, labor pools, and other conditions require entrepreneurs to stay constantly on the move. They need the freedom to act based on the expectation that their decisions matter within a market framework in which there is a test for success or failure. Without this ability, writes Ludwig Lachmann, “a civilized economy could not survive at all.”

When governments attack capital by making it less secure, denying its own volition over how it is deployed, or it comes to be depleted through some other shock like a natural disaster, capital cannot do the work of creating wealth. This is a major reason for poverty. Start a business, make some money, employ some people, and a powerful person or agency comes along and steals it all. People get demoralized and give up. Society can’t progress under such conditions. Take it far enough and people end up living hand to mouth.

Lockdowns seem focused on expenditures and consumption but fundamentally they attack capital. The restaurant, the theater, the stadium, the school, the means of transport, all are forced into idleness. They cannot return a profit to the owners. It’s a form of theft. All that you have done to save and work and invest is voided.

That investors and entrepreneurs would lose faith in the rule of law – and thereby the security of their rights – was my main worry about lockdowns. Before lockdowns, life was functioning normally for so very long, decades and decades. Restaurants and hotels stayed up, operating according to their owners’ wishes. People could make plans and invest across state and national boundaries, never thinking that they could be prevented from traveling. A new theater could open and rent out space for concerts or other performances. A band could form and travel here and there and arrange bookings. Large conferences could be put on in cities all over the country, and there was nary a thought of the possibility that some politician would just decide to shut it down.

Starting March 8, 2020, all that changed. The mayor of Austin, Texas, shut down South by Southwest, forcibly canceling 100,000 contracts for flights, hotels, and conference participation. It seemed unbelievable to me at the time. Surely there would be a flurry of lawsuits and the courts would intervene to call the mayor’s actions despotic. The lesson would be learned and such a thing would not happen again in America for a very long time, if ever. We do have a Fifth Amendment that rules out such “takings” without due process, and as a general principle we believe in the right to run enterprises.

To my shock, this was just the beginning. Travel ceased. Schools shut down. Businesses were forcibly closed and events we had taken for granted just weeks before were deemed illegal. The churches were padlocked. Courts closed. You know the rest. By March 16, the buzzing, happy, progressing world of enterprise and creativity was shut down by governments. The politicians locked us down. People were panicked too but once rationality struggled to make a return, the law stood in the way of normalcy.

All of this amounts to an attack on economic networks and capital infrastructure. Investment plunged during the great suppression. These days, private investment in the United States is back to 2018 levels but I wonder about the long-term economic effects. Do we expect “snap lockdowns” in the future such as that experienced by Perth, Australia, last week? A writer for the Washington Post thinks they are just fantastic:

It may seem strange to act so aggressively for a single case, but we Australians complied. There were no complaints of infringing on freedoms. No marches against masks. My city of Perth came to a standstill. The roads were quiet, and our beaches were deserted. A trip to the supermarket for essential groceries saw everyone wearing a mask — for the first time. Other states restricted travel of West Australians, desperate to keep the virus out.

The subsequent two days didn’t bring a rush of cases that we feared; instead, for the first two days of lockdown, no new cases of covid-19 were detected. Residents of other countries might think this was overkill; in truth, that’s how a proper pandemic response should look.

Under the conditions, how is planning possible? You have dinner reservations, a party planned, a wedding with contracts, a business meeting, a concert, a delivery scheduled, or anything at all, and everything can be closed for an indefinite period of time. This could happen any time day or night, all on the authority of government officials and all because of a positive PCR test. Australia is widely celebrated as a success but is it a success when any state within Australia can fall to totalitarian control at the drop of a hat, in a country that has locked its citizens within its borders and locked visitors out, thus smashing the whole of the tourist industry?

Do we really want to live in this world? And also a relevant question: what does this do to the ability to plan and invest in the future? There is the thing called “time preference” which refers to the willingness of individuals to put off current consumption for the future. A low time preference is essential for building a progressing economy and social order and it is contingent on a stable and predictable regime that doesn’t randomly invade people’s rights. When arbitrary power comes along to pillage people’s property, inhibit their freedom of movement, and restrict their associations, the effect is to make planning for the future less possible and hence disincentivize it. In effect, you encourage people to live for the moment rather than planning for the future. Hope is replaced by nihilism.

Lockdowns also attacked other forms of capital: professional, educational, and social. About one-third of workers in America started working from home. For many, the word working should be in quotes. Life changed dramatically. Forget the commutes, the traffic, the office environment, the waits for the elevator, the lunch hour, the after-hours cocktails with friends. Instead, work became about laptops, houseshoes, all-day snacks, afternoon drinking, and binging Netflix in the background. Laziness became too easy.

Maybe this was viable for a few weeks. But after several months, it became obvious that people’s personal capital was under attack. Some people could continue to receive a paycheck while staring at a screen while others have to hustle, go to work, cut the meat and stock the shelves, check out the customers, slog around the hospital, paint the houses and do the yardwork, serve people where dining was allowed, and so on. Still, others were forcibly put out of work (movie theaters, the arts, conference venues, and so on). Whether you could deploy your labors to your benefit depended entirely on the exigencies of the planning elites.

All this terrible disruption has shattered people’s confidence in the system and rattled people’s sense of their own value. Lockdowns have taken their toll on our confidence in the law and our optimism that we live in a world in which our persons and property are safe from invasion by political elites.

A very practical example of a form of investment concerns the decision to have children. Kids have been locked out of their schools for a year, depleting educational capital. One million mothers have left the workforce to care for kids, depleting professional capital. Three-quarters of families have said they feel intense stress. Early on after the lockdowns began, people were predicting a new baby boom.

Not so much anymore. Now there is growing wonder whether people will decide not to have children because of the burden, the lack of educational security, the possibility that this whole nightmare could happen again and leave parents with impossible circumstances yet again. Then there is the deeper question of whether we really want to bring children into a world in which they could be so brutalized as they were in 2020. Perhaps this accounts for why births in Italy alone plunged 22% since lockdowns.

The same fear is expressed by many capitalists. Why open a restaurant if it can be shut down? Why build a hotel if travel restrictions can leave it empty for months and even years? If you don’t have confidence in a stable legal regime for the future, what can one say about whether investing in anything physical or that depends on customers coming and going is really a good idea? Do we really want to open a factory that can be closed at any time by decree?

Outside of a major war, it is hard to recall a time when government policies have so seriously roiled business practices, economic structures, and personal lives as much as lockdowns have, not only in the US but all over the world. The consequences will be felt for many years in the future.

What we need today more than anything is a guarantee, an ironclad guarantee from our leaders that nothing like this can ever happen again. To make that promise credible we also need a flurry of frank admissions that they made terrible mistakes this time, detailing what they were, and give us proof that there are legal means to stop the next guy in that office from locking people down yet again. We need the rule of law to once again protect essential rights. If we do not get that, we will continue to see people lose hope and confidence in the future, and that could have a devastating long-term effect on prosperity and social peace.

*****

This article was first published on February 6, 2021 at AIER, American Institute for Economic Research and is reproduced with permission.

‘Terrible Idea’ with ‘Dismal Track Record’: Top Economists Blast Elizabeth Warren’s Latest Proposal

Estimated Reading Time: 3 minutes

Economists interviewed by FEE warn that Senator Warren’s new proposal would backfire horribly.

Senator Elizabeth Warren made a “wealth tax” on net worth one of the defining proposals of her unsuccessful 2020 presidential campaign. Now, the staunch progressive is using her new perch on the Senate Finance Committee to introduce a wealth tax at long last.

Warren’s wealth tax would affect families with assets of $50 million and greater, Fox Business reports. It would start at a 2 percent annual tax, but add an additional 3 or 6 percent levy on those with assets totaling $1 billion and more.

Other progressive lawmakers like Senator Bernie Sanders have long supported similar proposals, and it is projected that Warren’s wealth tax would apply to roughly 75,000 American families.

At first glance, average Americans might understandably think this tax only marginally hurts the wealthy, not anyone else, and shrug their shoulders. But top economists exclusively interviewed by FEE warn that this proposal is deeply misguided and counterproductive.

For one, taxing something discourages it, economists said, the same way cigarette or carbon taxes are designed to discourage smoking and CO2 emissions.

“There will be less of whatever is taxed,” Texas Public Policy Foundation chief economist Vance Ginn explained, calling a wealth tax a “terrible” idea. “Taxing wealth is just another flawed redistribution approach masked as good tax policy as it will destroy wealth creation and the incentives to save and invest, which are fundamental to human flourishing.”

Of course, voters might imagine a levy only being applied to the vast wealth billionaires have tucked away, hoarded and not being utilized for societal gain. Cato Institute economist Chris Edwards told me that’s not how wealth works.

“Proponents of wealth taxes seem to think that the wealth of rich folks is gold bars hidden under their beds,” Edwards said. “In fact, looking at billionaires, only 2 percent of their wealth is accounted for by their personal assets such as homes, yachts, and airplanes. The vast majority of their wealth is in productive business assets that generate output for the economy. So the wealth at the top represents active investment that generates jobs and incomes for all of us.”

“Why punish and penalize investment with a wealth tax?” he asked. “It’s much better for the rest of us if the rich invest their wealth into business growth rather than to consume it. A wealth tax would encourage consumption, which would be counterproductive for the economy.”

Ginn, a former White House economic advisor, concurred.

“Less [wealth] would be available throughout the financial system to fund business loans, mortgages, and other loans that generally support new jobs, wage gains, and lower prices,” he said. “Those who will likely feel the brunt of the cost of this tax the most are the non-wealthy.”

A wealth tax “might make for a great political slogan,” the Heritage Foundation’s Joel Griffith added, “but it actually incentivizes the well-off to spend more of their resources now on consumption, instead of investing those resources in ways that will help grow and strengthen the economy and create jobs down the road.”

In fact, wealth taxes have failed across the world where they’ve been tried.

“Warren’s proposal has a dismal track record in other countries that have attempted wealth taxation,” Senior Research Fellow at the American Institute for Economic Research and economic historian Phil Magness warned. “It simply encourages the wealthy to relocate abroad, taking their businesses with them.”

Economists say that’s why the global trend has not been passing wealth taxes, but repealing them. Edwards pointed out that in 1990, 12 European countries had wealth taxes. Now? Just three still do.

“Even most of the leftist welfare states in Europe have repealed their wealth taxes because of the complex administration, the negative impacts on growth, and the encouragement of avoidance and evasion,” Cato’s Edwards concurred.

With the economy still struggling to rebound from COVID-19 and crushing government lockdowns, the timing for such a proposal couldn’t be worse, some warned.

“Wealth taxation would only exacerbate [ongoing economic turmoil] by creating an overtly hostile business climate and hampering economic recovery, which translates into persistent unemployment for those already reeling from the punitive effects of lockdowns on the job market,” Magness concluded.

The most ironic part of all? Warren’s wealth tax isn’t even an effective way of raising revenue to fund government programs, the economists said.

“On the unlikely chance that Warren’s proposal survived a constitutional challenge,” Magness said, noting the tax’s likely unconstitutionality, “we may reasonably expect to see a similar outcome to what several European countries experienced under their own wealth tax experiments in the last few decades: an exodus of wealthy residents who often take their assets and businesses with them, resulting in a revenue stream that consistently falls short of projections.”

“The wealth tax won’t come close to paying for the promises of the progressive agenda,” Griffith added. “Even the more than $4 trillion in capital over 10 years estimated to be confiscated under one version of the plan covers less than ten percent of the estimated costs of a variety of the big-government proposals of the 2020 presidential campaign.”

Elizabeth Warren’s wealth tax might play well with the progressive base and successfully tap into rising populist sentiment. But economists know it’s a severely misguided proposal rife with unintended consequences that would hurt all Americans—not just the wealthy.

*****

This article first appeared at FEE, Foundation for Economic Education on February 4, 2021 and is reproduced with permission.

The Robinhood Earthquake

Estimated Reading Time: 5 minutes

We don’t have enough things on our plates. We needed this. We have a Congress trying to impeach a president who is no longer president.  We have a new president trying to set a world record for executive orders.  We have people calling everybody either racists or white supremacists.  Oh and then there is the pandemic.  The good news is we have vaccines.  The bad news is many of our state governments are too inept to get the vaccines into the arms of our citizens.  Then along comes this story out of nowhere that rocks our stock markets and will certainly redefine our markets going forward.

Let’s go back to the beginning.  Robinhood is a securities firm that was formed in 2013 and became active in March of 2015.  Its purpose was to redefine the ability to invest in the stock market without charging for trades.  In 1971, Charles Schwab redefined acquisitions in the stock market by becoming a discount brokerage house.  Slimmed-down services with substantially lower fees.  Forty-plus years later, two guys decided to redefine access to the markets.

Their no-fee platform was immediately attractive to millennials. They were used to no fee platforms like Facebook and Twitter.  The difference was those platforms were not really providing a service.  What they offered really had not existed before.  Robinhood was competing with not just Charles Schwab, but the long-established houses such as Merrill Lynch.

It appealed to millennials who think they can learn something from the internet and become experts overnight.  Ask a doctor about their millennial patients who come into them having self-diagnosed. “Don’t let my medical degree get in the way of your internet search” thought many an experienced doctor. Robinhood became a great success with an estimated 13 million account holders.  There is just one thing here and I will state this as genteelly as possible: How stupid do you have to be to believe this service was being offered for free without some kind of catch?

Robinhood was in the business of making money.  They had three defined revenue streams.  Earnings on the float of the accounts they had which in itself is questionable.  Second, interest on any margin accounts on which they might make loans.  Third, they sold the trading information of the accounts they had to the hedge fund people who funded this startup.  If I knew that was from all appearances their major revenue stream I would never open an account. I never did. This third stream of revenue is highly questionable and should have been disclosed and not in small print.  In big bold print.

What the hedge fund guys never expected was the Frankenstein they created would turn on them.  And turn on them it did.

Hedge fund guys sometimes invest differently than we do.  We put our money in a brokerage account whether it be with the Robinhood model, the Schwab model, or the Merrill Lynch model, with the idea that we will buy a stock or bond, and because of good management the value of that stock will go up and thus our portfolio will go up.

Hedge fund guys don’t always do that.  They frequently bet on a stock going down.  A company failing in our economy.  That happens.  Remember Woolworth’s and Blockbuster.  The COVID pandemic really helped some companies and some others were really hurt or at least their business model was exposed to being outdated.

The hedge fund guys (and others) use a process called short selling.  They position themselves to make money as a stock goes down.  This has gone on for a long time and has provided some constructive elements to the markets.  The real problem I see here is that quite often these people take positions and then go pump the market to go down through either release of information or going on a business channel casting negativity on the stock or the market to drive down the stock and clean up. These people should be forced to disclose their positions in the stocks before they offer their opinions so that people will take their so-called advice with a grain of salt.

It is clear not all of Robinhood’s 13 million holders of accounts are stupid.  Either through leaks or other methods, they found out that some hedge funds were shorting some stocks in a big way.  One, for example, GameStop (others were Blackberry, AMC, and Bed Bath & Beyond) was shorted so much the shorts were 140% of the number of shares of the company.  That would be crazy in itself.  But if the stock started going up the short sellers would not be able to acquire enough shares to meet their contracts and the price they would pay would mean they would lose money.  The higher the stock went the more money they would lose.  It is called a short squeeze.

The people who figured this out disseminated the news on Reddit and people took their own money to buy the stocks and make money on the squeeze.  They made a lot of money on the squeeze as companies had to buy stock as it was going up to cover their short positions.  Some of these people will lose money if the stock starts to go down, but that is the risk they assumed.

Where the real problem came in is when Robinhood stopped trading on certain stocks –particularly GameStop.  Robinhood said their account holders can sell their stock, but not buy any.  This was a completely out of order position for Robinhood to take.  There is speculation that the hedge fund owners of Robinhood ordered them to do that.  Whether true or not the position was taken by Robinhood forced the stock down because there were only sellers and not buyers. 

For your edification, Robinhood has a 36-page small print agreement you need to sign before opening an account.  Buried in that agreement is a statement that says “I understand Robinhood may at any time, in its sole discretion and without prior notice to ME, prohibit or restrict my ability to trade securities.”  That is fair, but it did not say it would prohibit it on one side – selling not buying.  That is an irrational position to take.

My personal opinion is the hedge fund managers decided they would rather crash Robinhood than continue the losses on their short positions.  Even if that is not true, anyone who maintains an account at Robinhood after they pulled that stunt of cutting off buying must have their head examined.

The Leftists don’t need to step in here and make new governmental rules or as some have proposed to use this episode to impose a stock trading tax which is a Bernie Sanders knucklehead idea.   The small guys will have learned their lesson.  Free services are worth exactly what you are paying for them – nothing.  The media should make sure that anyone using their platforms disclose their positions — including the short sell positions — before they start spewing their supposed wisdom.

In this case, David put a major hurt on Goliath.  Some Davids will make a lot of money and some will have lost some money. But not nearly as much as the Goliaths and the Goliaths will have to be a little more cautious in the future in taking negative positions.  The market will work itself out.

 

This article first appeared in Flash Report on January 31, 2021 and is hereby reproduced with permission by the author.

 

How the Kennedys Radically Changed America

Estimated Reading Time: 4 minutes

The Kennedys have for the past 60 years been one of the most idolized families in America. Joseph Kennedy converted his ill-gotten gains from bootlegging into a legal fortune. He then unleashed his sons into the political world. This is when his son John changed America in one way and then his younger brother Teddy in another way. We are still paying the price for both today.

President John Kennedy won his election by slightly more than 100,000 votes nationally. The election was particularly close in Illinois. With the help of Chicago Mayor Richard Daley who delivered for Kennedy with heavy turnout by union membership. That may have been a harbinger for what happened once Kennedy became president.

In 1958, Mayor Robert Wagner made New York City the first significant government to legalize public employee unions. The state of Wisconsin followed in 1959. The real floodgate happened when, on January 17, 1962, JFK signed an executive order allowing for unionization of federal employees. Since that time, 75% of the states have legalized collective bargaining for public employees. In 2009, public employees surpassed the private sector in the number of members they have in unions.

Along with this union membership came the fact that many governments make it near impossible to fire employees, no matter their actions. You cannot find out about the results of complaints against employees. What’s worse is in many governments the unions (which provide huge campaign donations to elected officials) have negotiated excessive and unsustainable pension and health benefits. Public employees in many areas make far greater compensation than the residents who pay the taxes in those areas. This has manifested itself in the need for revenues generated by ridiculous fees, parking ticket costs and prohibitive traffic fines. The dispute over additional COVID funding is largely about funding the excessive cost of public union employees who maintained their positions during the pandemic while others suffered.

The granddaddy of tax limitations once again was challenged in California. The challenge to 1978’s famous Proposition 13 that limited increases in the state’s property taxes and started a national revolution against soaring taxes failed. It was arguably the most important issue on the ballot in California as interest in the presidential election garnered less action because of the skewed registration for Democrats in California.

Who funded the opposition to this proposition? Principally building owners. They were branded as “wealthy people” or “rich” corporations. Who should have funded the opposition? Every one of us. Every office building lease has a clause that allows for the pass through to the tenants of these significant tax increases. The building owners will pay next to nothing.

Who was the principal funding source in favor? You guessed it – public employee unions. The funds would have gone in their pockets. The estimated annual tax increase was $8-12 billion. This is the biggest symbol of the fact our so-called “public servants” are at war with our bank accounts. They want your money in their bank accounts.

This is what John F. Kennedy brought to America – a war between our citizens and our employees and we can’t even fire them.

Let’s now look at what Senator Ted Kennedy did to radically alter another part of America.

In 1962, Edward Kennedy won election to fill the seat that his brother, the President, once held. Though he was a rookie senator, his brothers were president and attorney general respectively of the country. By 1965, Senator Kennedy had tragically lost his older brother but gained the chairmanship of the Senate Immigration subcommittee. Though not an author of the 1965 Immigration Bill, Kennedy and his AG brother worked hard to pass a bill which they pitched as something their deceased sibling would have wanted.

The promised law — while restructuring the origin of our immigrants – would supposedly keep control over the number of legal immigrants entering the country. Yet in the first 30 years of the law, the number of immigrants increased by three-fold compared to the previous 30 years. That amounts to 18 million people. Just last year 843,000 people became American citizens.

More importantly, it changed the basis of deciding who would enter the country. Family reunification became the centerpiece of our immigration law. The law established eight criteria for selection. Four of the top five criteria were family related with #3 being professionals and scientists along with artists of exceptional ability.

Thus, not only did a flood of new immigrants come into the country, but they were also not of our choosing. The newly minted U.S. citizen or permanent resident alien did. These newcomers needn’t have skills nor be able to support themselves. Once here and gaining citizenship or permanent resident alien status, they could then bring in their relatives creating a string of family members stemming from the entrance of one person.

This law has been in place for 55 years with little chance of major alteration. We do have certain programs allowing for skills-based entrance, but still the most significant number of immigrants are decided by the immigrants themselves. We now have 47 million immigrants here legally and we have very little say on capping this amount each year. This isn’t about race or heritage. This is about deciding who becomes part of our country. Senator Kennedy told us back in 1965 this would not happen.

That in no way means most legal immigrants do not add to our country. Rather it is to say there sure are a lot – the most in our history. We don’t get to say whether they must have skills or are self-supporting. We are lied to that they don’t receive government benefits. Maybe they did not 55 years ago, but they now receive multiple forms of government paid resources.

The interesting part of this is the two populations have begun to cross over. Nothing like moving half-way across the world to go to work for the government. Immigrants used to come here to start and build businesses. Now many go to work for the government.

When a tax auditor contacts me, I often cannot understand the person because of a heavy accent. My clients are in jeopardy If I cannot clearly understand the auditor. This makes no sense except in the world of certain people who think this somehow benefits Americans.

We hear about the great sacrifices the Kennedys made for this country. Many generations later they still don’t appear to have a need for a real job so they continue to run for public office.

The most significant legacy of these Kennedy brothers are these major alterations to our way of life. No one wants to focus on the ramifications of what they have done. After all, they are Kennedys.

*****

Bruce Bialosky is a nationally known columnist. He was appointed by President Bush to the U.S. Holocaust Commission and is the Founder of the Republican Jewish Coalition of California. This article first appeared  on November 22. 2020 in Flash Report and is reproduced by permission of the author. Comments can be directed to Bruce@Bialosky.biz.

The Insecurity in Social Security

Estimated Reading Time: 6 minutes

One of the few things where there is widespread agreement is about the fact that Social Security and Medicare are going broke unless something is done to stem the financial drain as the retirement rolls swell. Choices are raising taxes or cutting benefits. Neither alternative is palatable politically, so the problem is put off for another day.

The reasons for the financial problems are legion: the huge drop in the birth rate; too generous increases in benefits; the elderly living much longer; etc. A big problem is that the return on the Trust Fund assets is pathetically low due to historically low-interest rates.

Let’s take a look at that last point.

Programs in the social safety net are not “insurance”. They are essentially Ponzi schemes. Because that name is so incendiary and so associated with criminal activity, Bernie Madoff, etc., I need to explain.

An insurance program spreads risks among a group of insureds. It is financially on a “pay now-receive benefits later basis”. It is the role of actuaries to determine what level of premium is needed to support the benefits for all members of the group. The insuring company maintains reserves so that cash flows are adequate over the time the arrangement is in effect.

Social Security and Medicare are not set up on that basis. There are government actuaries involved, of course, but the group is open-ended, the terms keep changing, and the time horizon is infinite (although 75 years is commonly assumed for calculation purposes). That does not mean this sort of arrangement is essentially unsound. It is just different than under a true insurance program.

A Ponzi scheme is one where benefits are paid out to early joiners, enrollment is open-ended, and the benefits paid to the early participants are paid for by the contributions of later joiners. There is no buildup of a reserve.

The reason to call Social Security and Medicare Ponzi schemes is that there is no buildup of reserves as there is under an insurance plan. We are told that there are reserves in the so-called Trust Funds, but the contributions we make are not placed in those Trust Funds. The Government spends the money for its other expenses. What goes into the Trust Funds are promises to pay cash to beneficiaries in the future.  It does not take a financial genius to understand that there is a fundamental difference between cash in hand and a promise to pay. Of course, we believe that the Government is trustworthy, and in fact, there is every intention to pay benefits as they come due.

However, and this is the vital part, in order to pay, you have to have the cash to do so. Since our cash is already spent, the money has to be raised elsewhere, presumably via higher taxes. In a criminal Ponzi scheme, the operators must constantly seek new participants whose contributions can be used to satisfy the existing participants. At some point, this becomes impossible; the whole enterprise collapses; investors lose their money, and people go to jail.

The Government escapes by having the option to just print the money, inevitably leading to money losing its value.  However, it is the same sort of deception. The Trust Funds are rapidly reaching the situation where the money going out exceeds money coming in. In a few years, there will be a crisis, something very drastic (and painful) will have to be done. The only question is who will be hurt: beneficiaries, taxpayers, or both. Either beneficiaries will get less or taxpayers will pay more.

This did not need to happen. If our contributions had been invested in real assets instead of promises, there would be adequate reserves and no looming crisis. Why wasn’t this done? The short answer is that FDR did not trust Wall Street to manage such huge funds. Things like mutual funds and ETF’s did not take off until after WWII.

In his State of the Union message 20 years ago, Bill Clinton proposed investing part of the Trust Funds in the Stock Market. He was laughed at and dropped the idea. Why?

There are three legitimate arguments against the idea.

  1. The risk is too great. Stocks fluctuate wildly. It would be morally wrong to gamble with our retirement security.
  2. Politicians would screw it up. Such a huge concentration of financial assets would be an irresistible magnet for politicians who might find “better uses” for the money (i.e., projects that would enhance their power and re-election chances).
  3. It is impractical because it is too late. We can’t take the current Trust Funds and invest the money in stocks because there is no money, just promises (which is what the beautifully engraved government bonds actually are – just I.O.U.’s). Those billions upon billions of dollars of bonds would have to be sold in order to turn them into investible cash. Who would buy them?

Let’s go over each of those arguments.

In the 20 years since Clinton’s proposal, we have experienced the wild volatility arising from the 9/11 attacks, the bursting of the Dot.com Bubble, the financial crisis and Great Recession, and the Covid crisis. Despite that, money invested at the time of Clinton’s proposal would have earned an average annual return of over 7%, and more if a program of dollar-cost averaging had been adopted.

Furthermore, unless you believe the U.S. is going to collapse totally someday, who is better able to weather the short-term fluctuations of the markets than a government fund? Many countries, from Singapore to Saudi Arabia have benefited from introducing what is known as “Sovereign Wealth Funds” (SWF’s) to partially fund their government programs. Stock Markets exist to provide businesses with capital to grow. Our government keeps throwing money at programs that are supposed to stimulate growth but rarely do. There is no reason to single out one approach as morally wrong simply because you don’t like Capitalism.

There is always the concern that eventually the Government “would own everything”. This is an error born of ignorance of the small size of even the large amounts needed to fund our safety net programs in relation to the immense size of the financial markets. The Trust Fund money could be invested in special ETFs consisting of non-voting stock in say the 5000 largest companies. That would broadly spread the risk and prevent politicians from trying to dictate how management should run their companies. Of course, politicians could still try to inject their political preferences into the functioning of the economy, but they could not use the shares in the Trust Funds as a political tool.

If we were starting from scratch, implementing such a SWF for the purpose of funding the social safety net programs would be easy. However, we have already reached the point where net cash inflows (taxes collected minus benefits paid) are shrinking or have turned negative. We could, of course, liquidate the government bonds (the promises) held in the Trust Funds. But this would not be simple. Who would buy them? The Government is already choking on the vast quantity of debt it has to sell to fund its current budget shortfalls and various stimulus packages. Most of the present deficit is funded by selling debt to the Fed. Why not some more? It has the benefit of getting the truth out that the vast quantity of money owed by the United States is out of control. The fact that we owe the money to ourselves (i.e., the Trust Funds) adds elements of a 3-Card Monte game to the Ponzi scheme, where we disguise what we are doing as we shuffle financial instruments from one hand to another. Better we know the truth.

What other arguments can be raised against a SWF? Some will say it could destabilize markets because we would see huge sums of money flowing in and out. This is disingenuous. Markets today handle enormous shifts of investments in and out of multi-billion-dollar funds with hardly a ripple.

Others resent the possibility that organizations such as Goldman Sachs would stand to make “unconscionable amounts” from a program designed to help the poor and elderly. That is a political question. Advisory and transaction fees can be constrained by law in the case of SWF investments. Wall Street should be compensated for services provided. Only political will is needed to keep them from reaping windfall profits.

As a Conservative, I often find myself opposed to Progressive programs that are worthy but are misguided because we simply can’t afford them. If the Government was allowed to invest some of the vast amounts of money they throw at well-intentioned programs, we might reduce some of the tension between those who have “demands” and those who resent paying. A SWF invests in the belief in one’s own country and it helps to make dreams come true. Perhaps it is time to put aside political posturing and try to find a way to capitalize on our strength as a nation instead of finding reasons to just continue with programs that inevitably disappoint.

 

Ken Veit is a  retired  actuary.

Bed Bath and Beyond…Reason

Estimated Reading Time: 3 minutes

Recently, it was announced that a number of retail stores, among them Bed Bath and Beyond, and Kohl’s, will be dropping the My Pillow line of bed and bath products. The reason these stores cited is the Democrat Party Line that the riot at the Capitol was an “insurrection”, and that Trump and supporters like the CEO of My Pillow, Mike Lindell, were responsible for it.

To them, rhetoric equals the commission of a crime. However, they do not apply the same standard to Colin Kaepernick, Antifa, Black Lives Matter, the Pussy March, and numerous Democrats inciting violence, including the Vice President. The burning and looting of Kenosha, Minneapolis, Seattle, Portland, and yes, even Scottsdale, Arizona seems to escape their scrutiny. Were they awake at all last summer and fall? They had no comment on the murder and mayhem in numerous cities or the destruction of monuments.

Apparently, questioning the integrity of election results is a firing offense. One cannot question election results although an actual violation of election law is OK by them.

It is hard to see the logic and consistency in their approach to these matters. It seems entirely arbitrary.

An even more flagrant example is this: Officials of both political parties, including President Biden, have acknowledged the slave labor conditions in China and the genocide against Muslim ethnic minorities.

But, according to the moral bright lights of Bed Bath and Beyond, it is better to deal with murderous dictators that harvest the organs of their political opposition and commit genocide than stain their Progressive reputations by buying pillows made in Minnesota by a Conservative White Christian.

If you have ever visited either of these stores, you would be amazed by all the goods made in China. Do they know which goods are produced in concentration camps? Do they even inquire?

Now, these companies can choose with whom they deal, and will pay whatever costs are incurred if contracts have been violated. But as a business proposition, it seems strange that you would deliberately go out of your way to piss off roughly half the people in the U.S.

At least the NBA can do this and fall back on their numerous Chinese fans, but it hard to see Bed Bath and Beyond, offsetting the clients they will lose with new Chinese Communist shoppers. As a business decision, it seems just plain stupid.  It in some locales, their decision has actually resulted in protests, hardly great publicity.

The public does not have to shop at these stores and we suggest anyone right of center to never darken their doors againThere are lots of other stores you can deal with. For example, Costco publicly stated, they would honor their contract with My Pillow and My Pillow itself has a very active online and media presence.

So, it is unlikely these two retail outlets will really hurt My Pillow.  In fact, My Pillow has warned the public to expect delays in shipping because of overwhelming orders. Thus, it is empty “virtue signaling”, although one can ask, what is the virtue in dealing with a Communist dictatorship that is committing genocide?

We suspect these companies are calculating that since Conservatives don’t politicize everything as they do, you will wince, but continue to deal with them.

If they are correct in this calculation, then Conservatives need to look in the mirror and understand they may well be enabling this corporate idiocy. The more you take this abuse, the more they will give it to you. In reality, you are being an enabler of this hateful corporate behavior.

Make it a point to “poke the woke”. That is to say, do NOT deal with these companies in the future. If this is the game they want to play, we have the right and a duty to strike back. But this needs to go beyond pillows. Don’t buy anything from these two stores.

If you have recently purchased something from them, return it promptly and tell the store manager you will not do business with a store that bans the output of American workers from Minnesota but instead stuffs the store with goods made with slave labor from China.

Emergency Orders Are Being Abused

Estimated Reading Time: 3 minutes

How often do you experience an emergency? Monthly? Weekly? Every day? More than likely, it’s pretty uncommon—as it should be.

Maybe someone should tell the government. Because it seems like every time you read the news, some government official is declaring a new “state of emergency.” But these declarations stopped looking like real emergencies long ago. And this past year in the midst of COVID-19, it’s gotten out of control. This is especially true in cities and counties across Arizona, where officials are using emergency orders to beat up on local citizens.

Using COVID to grab more power

One year ago, words like “masks,” “lockdowns,” and “social distancing” weren’t a part of our regular vocabulary. But then COVID hit the United States, and local officials seized the opportunity to enact closures and mandates that did little to address the pandemic.

Flagstaff Mayor Coral Evans was among the first to make a power grab, limiting dining at restaurants and closing most gathering places.

And in March, then Gilbert Mayor Jenn Daniels rushed to close park playgrounds and sport courts without a single case of the virus in town. Just a few months later, she followed that up with a mask mandate. This was at the same time Maricopa County, of which Gilbert is a part, issued its own mask mandate.

Meanwhile Scottsdale residents have likely been experiencing mask-mandate whiplash. They had to deal with a mask mandate in June that was rescinded in September and then reinstated this January, one day after Mayor David Ortega was sworn into office.

And then there’s Pima County. In December, officials there announced a daily COVID curfew from 10 p.m until 5 a.m. Because apparently the virus only comes out at night? Thankfully, a Superior Court judge issued a temporary restraining order halting enforcement of the curfew earlier this month. But it didn’t take long before Pima County filed an appeal.

And while COVID is an issue that may warrant some action (which should NOT include crushing small business or trampling on our rights), did you know that some cities in our state are starting to use these powers to declare “climate emergencies”?

Emergency orders for the climate

Let’s start with Flagstaff, who as we mentioned earlier, leapt at the opportunity to use emergency orders after COVID hit. But officials didn’t stop there. In June, the Flagstaff City Council actually declared a climate emergency as well. And right now, they are using this radical declaration to impose a slew of extreme Green New Deal mandates that will destroy businesses, cost taxpayers a fortune, and likely violate state law. You can read all about their plans right here.

Maybe these officials should stop and read state law. After all, several years ago Arizona passed Proposition 207, which protects property owners from any land use law by cities that devalue their property. Passing ordinances that put a bunch of mandates on property owners without their consent, even under a so-called “climate emergency,” is a violation of this law.

And that brings us back to Tucson, which of course is within Pima County. This January, Tucson Mayor Regina Romero and the city council followed Flagstaff’s lead, declaring a “climate emergency.” And now they are proceeding with a plan to make Tucson carbon neutral within the next decade.

But does any of this sound like a real emergency?

It’s time for the legislature to act

These emergency orders have gotten out of control in our state. Too many government officials are abusing their powers. And in the process, they are crushing local citizens, destroying small businesses, and pushing the Green New Deal.

But that’s not what emergency orders are for. Emergency orders should be used for real emergencies. That’s why this level of government overreach needs to stop.

Now, it’s time for the legislature to act and put an end to these types of emergency declarations. Otherwise, local citizens will be paying the price for years to come.

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This article from the Arizona Free Enterprise Club was originally published on January 28, 2021 and is republished with permission.

Biden Chooses Elites Over Workers

Estimated Reading Time: 3 minutes

Within hours of saying “So help me God,” the newly minted President Joe Biden, with the stroke of his pen, added thousands of American blue-collar, middle-class workers to the unemployment line while the coronavirus continues to rage.

Among a blizzard of executive orders signed on Inauguration Day afternoon, the president canceled the Keystone XL pipeline under construction to transport Canadian oil to the continental U.S. and halted the building of the wall on the U.S. border with Mexico.

Mr. Biden also re-committed the United States to the spurious Paris Climate Accord that mandates the U.S. and other western industrialized nations—but not China and India, our global economic competitors—to reduce carbon emissions. Also in the works is a moratorium on new energy development leases on federal lands and waters.

Shutting the Keystone pipeline, re-entering the Paris Treaty, and imposing energy moratoriums will make thousands of Americans jobless, increase the price of energy for American households and companies, and make the U.S. more dependent on energy from overseas. This is only the beginning salvo of the Biden administration’s declaration of war on American energy that fuels its job market and economy.

Stopping the completion of the southern border wall is one of many steps President Biden will take to increase illegal immigration, which will harm American jobs and wage growth. It is no coincidence that by the end of 2019, before the pandemic hit, lower immigration contributed to historically low unemployment rates across the board, especially among minority and blue collar workers. Concomitantly, hourly wages for Americans had the largest growth in decades.

The great labor union leaders of yesteryear such as John L. Lewis, Lane Kirkland, Leon Bates, and so many others must be turning in their graves. At least some of their successors are rightly critical.

Terry O’Sullivan, for instance, the General President of the Laborers’ International Union of North America (LIUNA), called Biden’s Keystone cancellation “insulting and disappointing to the thousands of hard-working LIUNA members who will lose good-paying, middle-class family-supporting jobs. By blocking this 100 percent union project and pandering to environmental extremists, a thousand union jobs will immediately vanish and 10,000 additional jobs will be forgone.”

Mr. Sullivan further pointed out that the pipeline would eventually have been operated by the T.C. Energy company using renewable energy, and that there are no renewable energy jobs that come even close to replacing the wages and benefits being lost by his union members. He hopes that the Biden administration “will not continue to allow environmental extremists to control our country’s energy agenda at the expense of union construction workers being forced to the unemployment lines.”

Such hope is a vain exercise. Environmental extremists indeed control President Joe Biden, as his early, cold-blooded actions reveal.

For example, Bill McKibben is thrilled, precisely because he’s one of those “environmental extremists” President Biden and Vice President Kamala Harris are so eager to please over the interests of working people. Mr. McKibben, you may remember, heads the Green group “350.org” and was portrayed as an elitist hypocrite in the Michael Moore filmPlanet of the Humans, which exposed the fallacy of “renewable energy.”

In celebrating the Keystone cancellation, McKibben pointed out that it is the latest victory in “these infrastructure battles,” in which the Greens also have “added delay and cost to these projects.”

Then there is the nation’s largest business lobby, the U.S. Chamber of Commerce, which revealed its schizophrenia over Biden’s day-one assault on the American economy. The Chamber supports re-entry to the Paris agreement, but at least acknowledged that shutting the Keystone project “is a politically motivated decision that is not grounded in science [and] will harm consumers and put thousands of Americans in the building trades out of work.”

There also are serious foreign policy implications with the Keystone cancellation and other climate actions. Candidate Biden promised to take “immediate steps to renew [our] alliances [and] protect our economic future.” Yet he immediately poked the eye of Canada, one of our closest allies, while oil-producing nations like Russia and Iran stand to gain economically.

Canadian Prime Minister, Justin Trudeau, who was never a friend of the Trump administration, criticized Biden’s action on Keystone. Count on our northern neighbor to respond by putting more of its fossil fuel abundance on westbound trains for overseas shipment to China and other eastern nations. A further irony is that transporting oil by rail and cargo ships is far less environmentally friendly than by pipeline.

President Biden is off to an ominous beginning with his executive orders on climate and energy. CFACT warned early and often this was coming. His actions reveal he cares more for the concerns of politically powerful environmental elites than for the livelihoods of American workers and consumers who will pay with their lost jobs and higher energy costs.

Fasten your seatbelts, America. There is plenty more to come, and it won’t be pretty.

*****

This article originally appeared in CFACT on January 26, 2021, and is reproduced with permission. CFACT is the Committee for A Constructive Tomorrow.