Wednesday, August 04, 2010

Speaking of Bailouts... Back to the States!

"The Senate on Wednesday cleared the way for a $26 billion package of aid to states and school districts, and the House speaker, Nancy Pelosi, said she would summon members from their summer recess to grant final approval to the bill"

"The legislation would provide $10 billion to retain teachers who might otherwise lose jobs to cutbacks, and an additional $16 billion to help states struggling to close budget deficits."

"“We had a choice,” said Rahm Emanuel, the White House chief of staff. “Either teachers could be in the classroom or they could be on the unemployment lines.”"

No Rahm - that wasn't the fucking choice at all - the choice was either the 1) teachers could take a pay cut, 2) the community could suck it up, raise taxes, and pay the teachers what they wanted or 3) there would need to be layoffs if neither side compromised.  

I already wrote a post about this, and almost nothing has changed in my mind - I am very happy with my original post on the subject, and I would urge you to read it now.  Let me quote myself, for the too-lazy-to-click-through crowd:

"Now, I love teachers.  I think education is immensely important, and it's one of the main problems we have in our country.  My father was a teacher for over 30 years.  My mother was a teacher for over thirty years.  My sister is a teacher.  My brother-in-law is a teacher.  I am certainly in favor of teachers keeping their jobs and getting paid - and I think most people think similarly - which is why I hate the "we have to give the States all this money or the teachers will lose their jobs and your kids will wallow in their own ignorance" manipulative argument.  What next?  Will the next batch of money go to help save starving puppies and kittens?  After all - we all love puppies and kittens.  It's somewhat disingenuous to suggest that merely because people agree that we need something that the Government has to bail out the decisions of those who failed to adequately provide it.

I live in a town with good schools.  I don't have kids, and the majority of the residents in town also don't have school aged children.  Still, each year, we vote for massive property taxes  (mine are nearly 3% of my home's assessed value!) which go largely to support our schools, because the community values it."

Well said Kid Dynamite! (thank you!)

Here's the bottom line:  if your community doesn't want to pay the teachers what they want - that's YOUR COMMUNITY'S PROBLEM.  My community already pays massive taxes to support OUR schools because we value education for our children.  We shouldn't have to subsidize your schools too.  Enough is enough.  (side note:  if you're going to leave me hateful comments about this paragraph, you better read the detailed piece I already wrote on this subject first.)  Screw it - here's another self-quote:

"Look - we all want all this stuff.  No one wants teachers to lose their jobs, or for doctors to stop seeing Medicare patients.  But States are required by law to balance their budgets.  There are other solutions, and I don't just mean "hoping that the stock market comes back,"  which, horrifyingly,  has been suggested on more than one occasion recently.   Debts must be restructured, benefits must be scaled back, belts must be tightened, and, simply, spending must be less than revenues.  

If, instead, we just resort to Federal bailouts for every state who fails to balance their budget, the result can quickly spiral downward into a Tragedy of the Commons nightmare - where each state lacks the incentive to exercise fiscal prudence, knowing that Uncle Sam will be there to pick up the tab."



EconomicDisconnect said...

the last post and this post are enough for me to get physically ill.

I wrote this in response to your comment;
WTF is going on and how come nobody cares?

carping demon said...

OK, I clicked through and read it again. It hasn't gained anything with the passage of time.

So all the bad little states aren't going to balance their budgets, like they're supposed to (It's the LAW!) if they're just "bailed out" again.

Look, Kid, get it through your head that your responsibility does not stop at the boundaries of your "community". You didn't have to mention that you're childless, you're clearly ignorant of the fact that while the bad little states are being taught to live within their means, time is passing. It doesn't really matter if you miss the years between twenty-seven and thirty-one. But if school suffers between the years seven and eleven, you don't make it up. Ever. Kid can build another house if he doesn't want to pay the fire department, but you never regain time lost at school. And unless you're planning on dying real soon, it's your problem.

David Merkel said...

KD, your points are well-taken.

If the states are bailed out, it hurts two ways: moral hazard, and destruction of federalism.

Cuts need to be made to make people scream over the state of government, so that we can decide whether the services we receive are worth paying for or not.

We homeschool, and we live in the shadow of the best school district in Maryland, where most of the homeschoolers are secular (though we aren't). If in the best school district in Maryland, parents are taking their children out of school for other than religious reasons, and making the sacrifice to homeschool, then it is worth asking what the money spent is doing.

Until cuts that hurt are made, no one will get serious about what is valued by the community or not. I'm not against a rise in taxes, but I want to know what good it will do. Right now it seems the answer is "not much," but I am willing to hear otherwise.

Kid Dynamite said...

carping demon - i expected replies like yours, straight from the politicized Rahm school of phony ultimatums.

It's not "the government bails out the teachers or they are unemployed and all the kids wallow in inequity and society perishes" - i already explained that.

your comment about where my responsibilities stop is actually a very very interesting one. don't they have to stop SOMEWHERE? I'll answer that myself: on topics like this, they DO. on other topics, like healthcare, the government has already decided that they do NOT - we'll have a form of government sponsored healthcare. If the government wants to pay for primary school education, they should pay for EVERYONE's education, not just the stubborn/ignorant/incompetent communities who can't balance a budget, prioritize, compromise, or sacrifice (and I don't think that's the way to go, which does not mean i'm against education).

you want good teachers in your school? make the sacrifices. the teachers want to keep their jobs? make the sacrifices.

see David Merkel's comment for more explanation. Moral hazard is not just some free markets ideology - it's very real, and the downward spiral will happen very quickly - we're already seeing the attitude permeating to places that should have been previously unimaginable (ie, my prior post about government subsidizing journalists)...

Jon said...


Haven't commented on the blog since GS fiasco, but I needed to chime in on this: I totally agree with your points. Growing up I was in a school / district where residents paid a much higher tax rates to fund the schools. That's where the tax dollars went.

The problem with federal money thrown at problems like this is one of accountability. Whenever you money goes into and comes out of a big pool you can no longer track the value of money spent. At the local level if a district raises taxes to improve schools the citizens represented can figure out if the money is being well spent. If thing's dont get better you vote out your representatives.

You can't do that at the federal level because accountability gets obfuscated.

Blue Moon said...

*SIGH* We are so screwed. People act like federal bailouts of the states come from a different pot of money that originates from a different source. If you own a home, all this bailout does is raise your income tax instead of your property tax.

On the other hand, I will take deficit/debt hawks more seriously when the start advocating cuts in military and intelligence spending. Those budgets are like a guy living in a cardboard box hiring 10 secret service agents to guard his "home." This country is so retarded -- the U.K. is at least starting to grow up and realize that services are going to have to go down and taxes are going to have to go up to close the gap. But not us -- we are the broke 72 year old woman who was hot 30 years ago spending 15 grand to get a boob job, and squeezing our size 18 body into a size 6 dress.

Anonymous said...

What about the town a few miles over, which is poor and can't afford to pay as much for its schools? They need better schools much more than a rich town, but will get worse schooling because they can't afford it.

Local funding of schools in the US is one of the reasons is that the children of the well-to-do get a decent education and the children of the poor get screwed. So federal funding of schools is actually a great idea... as long as it is being channeled to poor school districts.

Blue Moon said...

"So federal funding of schools is actually a great idea... as long as it is being channeled to poor school districts."

But that's not what this is. This is taking state politicians off the hook for making poor decisions.

One of the best exercises we ever did in high school was to take the state budget and propose a new budget for the next year that cut 10%. Every student had to present a budget in front of the whole class - you weren't allowed to just say "everyone gets a 10% salary haircut." Your cuts had to be program or department specific. Our fellow students played the role of advocacy groups (education, law enforcement, public health) and would yell at you when you cut out a state park or a community clinic.

Of course, it wasn't a perfect exercise -- there were no lobbyists offering our spouses six-figure jobs or free trips to St. Kitts, but it showed just how uncourageous our politicians are when it comes to making cuts. My class was much more grown up at the end of the project that we are as a society today. NOTHING IS FREE!!!

Kid Dynamite said...

anon - everyone wants safe communities too. should I pay for YOUR police for now? and YOUR fire force? everyone loves firemen... and YOUR hospital? everyone loves good medical care. where does it end?

there is a reason why local taxes are not based on whether you have kids in school or not - it's because if only the families with kids in school bore the burden of the cost of the school system, only rich families would be able to send their kids to school.

Thus, we spread it over everyone in town - a little bit of socialism that everyone is on board with - nothing wrong with that. But it has to have boundaries.

Believe it or not, the hot button issue in my town for the past two years has been TRASH disposal. Our school budget is roughly $16 MILLION, and our transfer station budget is roughly $250,000, yet they spent 2 1/2 years arguing about a "pay by bag" program where instead of having the transfer station cost embedded in your tax rate, it's done by charging for use - you have to buy town trash bags to dispose of your trash in, and they fund the transfer station.

People had no problem with the fact that the vast majority of their tax bill comes from school bills, but they didn't want to pay a few cents for the transfer station if Mrs. Jones might be throwing out more trash than them... crazy, considering that we're known as "the People's Republic of Hopkinton."

Transor Z said...

Yes, the solutions to all of life's problems are so simple: live within a budget, don't smoke, control your diet and exercise, elect honest and intelligent people, drive a hybrid, recycle, buy local...

We now return to Life on Planet Earth, already in progress.

KD, have you actually read any articles about what's been going on in school districts over the past two years? Read anything about formerly high-tier suburban districts in the blink of an eye now ranking in the bottom tier of their respective states because of mass teacher layoffs, consolidations, increased class size? No?

No doubt there was fat in education and in health care pre-2007. But what would you put that at? 5% fat? 10%? 20%? 40%?

You do realize that we're cutting into muscle and bone now, yes?

Kid Dynamite said...

come on Transor - i can tolerate absurdity from idiots, but i know you are not an idiot.

BUDGET. it's not a highly advanced concept. the members of a community pay for the benefits of the community. My town's taxes are up 100% in 10 years. because the members of the town value stuff. I live in a smaller house and pay for more taxes because i made the choice to live in this town. i made a SACRIFICE. i could have bought a bigger house in a town with a shittier school district and paid less taxes. I pay for my choices and my benefits.

and don't give me the bullshit that some anon earlier tried about poor towns that can't afford it. taxes are based on property values. If you have a cheap house, you pay a smaller amount in taxes. My wife grew up with 5 brothers and sisters in a 1 BR/ 1BATH house because her parents made the choice to build a small house in a great school district. CHOICES. we are accountable for them (sounds like another common theme on this blog, eh? RESPONSIBILITY).

as i said, my entire family is teachers. and ya know what? i know that they argue VEHEMENTLY every year to avoid "taking a zero" in their contracts - a zero percent raise. Ok - fine - that's your choice. you don't want to take a zero, you can have layoffs instead. THAT"S HOW FUCKING BUDGETS/FINANCE/MONEY WORKS.

My buddy told me the story of his cousin who worked for the Stella d'oro factory in the Bronx that was broke. A new buyer came in and said "you guys need to take pay cuts or we're closing the plant and moving it to Ohio." THe union refused.. Guess what - they closed the plant. Is that unavoidable? fuck no - the WORKERS need to make sacrifices too.

In the issue at hand, there are two different parties who can make sacrifices. Citizens can pay more, teachers can take less. Of course, they can also trim fat from other areas of the budget - yes - but that need not be the primary source of the compromise.

What you seem to be ignoring, and what economists CANNOT model, is moral hazard, and what happens to MY town once we see YOUR town get your bailouts. Then suddenly WE won't pay 3% in property taxes, and you'll have to bail us out too. it never ends. downward spiral.

Yangabanga said...

Adding to the discussion: what no one has brought up much the is ACCOUNTABILITY of the politicians. It is absolutely no coincidence that education (and police/fire) are what politicians threaten to cut first. Why? Because everyone (including people here) throws their hands up and says they can't POSSIBLY do that. Then they can back down and cut the puppy rescue fund (sorry Kid!)

Guess what. In this year, they weren't kidding. And instead of forcing politicians (or unions) to compromise or make the hard call, in comes big daddy Fed Govt with all their money. Guess what will happen next year? Or the year after that, the same brinkmanship, with the same expectation that they will get bailed out. 0 accountability. Meanwhile your local property taxes become a smaller and smaller portion meaning it is more important what the Feds want than what you want for your children. And that NEVER works.

The Fed Govt is backdooring (and nowadays frontdooring too) their way to national education. I too have teachers in the family and they are clear on one thing: federal standards promote minimums and LOW achievement. Not high. Once a standard is set everyone does what they can to just reach it. And no one wants the bar set high. Sooner or later it all becomes meaningless and we are all using the same textbook from Texas that teaches intelligent design. Or we discover that condoms are being given out to kindergartners and local parents can't stop it. Or that the state will no longer fund music programs. Believe it. It's happening everywhere now.

So you end up with local towns where politicians have no accountability, teachers are being federalized, and quality goes down for all. Oh and we pile on more and more debt. All because instead of dealing with the problem at hand (adequately funding schools and paying teachers) the politicians pass the buck.

Thanks a lot!

rjs said...

since you're talking about bailouts, KD, there's a lot of this rumor going around today:

Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth.

from ZH:

Kid Dynamite said...

RJS - yes - that would be downright tragic. CR thinks it's a "no way"

and denninger actually had an interesting take on perhaps unintended consequences politically/financially if they did it:

maynardGkeynes said...

Taxpayers don't exist; people who pay taxes do. They are not the same. To understand the dynamic, you need to start from that vantage. We have a federal income tax that is totally avoided by almost half the population. Another 40% pay almost nothing. When 90% of the voters have no reason to give one crap about Rahm E, Tim G, or Ben B's bailouts because they pay no taxes, bailouts will continue forever. Which is what we are seeing. And woe to the nation.

Transor Z said...


@Yangabanga: We don't have politicians who were groomed and elected to be leaders in tough times. We have politicians who were groomed in safe and stable times and elected by a population only dimly aware of how bad things are.

@KD: First, sorry but I've been in a pissy mood all this week and am extra argumentative.

You're not going to like my response but it's sincerely held: I actually think we're in a one-off emergency situation and I'm not as concerned about moral hazard for that reason. We're talking national infrastructure; these aren't optional expenses. My pissy opening to my earlier comment was to say I don't think it's reasonable to expect the clowns in office at all levels to hop-to and "get 'er done" budget-wise. They're just not equipped. Yes, you can hate them for being the clowns they are, but they're also getting mixed signals about the state of the economy and where it's going to be two years from now. So why do violence to infrastructure if you can muddle through for two years with federal help? Not inviting a debate on where we really are, just saying this is how most people think.

Kid Dynamite said...

transor - I'm especially touchy about this issue because it's the same (responsibility) issue with a sneaky, deceptive argument thrown in around the teachers - who everyone KNOWS that everyone LOVES.

Yangabanga mentioned politicians - but it's not JUST about politicians - it's about EVERYONE. we make decisions, they have consequences. In my town, for example, there aren't really "politicians." there are a handful of selectmen - they don't get paid (i think they get a tiny stipend) - they are basically, literally public servants. NH is a little interesting in that many of the towns have old school town meetings. We go to a meeting where the citizens show up and debate and vote on the issues.

amazingly, 400 people showed up to the school board meeting to vote on the $16mm budget, but 800 people showed up to the general meeting to argue about the 250k pay by bag ordinance.

anyway - i REFUSE to live in a bailout nation. It's horrendous. it's tragic. and i'm not paying for anyone else's incompetence anymore. you don't like teachers getting fired? pay them more. and note - in real cities, the "oh, we're too poor to afford it" argument doesn't work - if it were going to work anywhere, it would be little podunk towns like mine - and it STILL doesn't work here.

stuff costs money. services cost money. America needs to stop expecting something for nothing. it's out of control - and that's not a die-hard heartless Capitalistic way of looking at things - it's reality. If we want to save our country, we should STOP bailing people out instead of bailing out more people.

as for where we are now - it's HUGELY relevant. we're not in some little abnormal downturn - this is REALITY. the past 10 years have been the ABNORMAL ones, and that's a key key point. we can't just wait for things to return to normal - THIS IS NORMAL! which is exactly why we need REAL solutions - not bailouts.

Blue Moon said...

" this is REALITY. the past 10 years have been the ABNORMAL ones"

That's the problem. I have no idea what "normal" is, but I think it would be better to assume that this is normal and then wake up in 10 years with a budget surplus and a greatly reduced debt than assume that real estate / dot-com bubbles are "normal" and wake up in 10 years 25 trillion in debt needing a 22% nationwide VAT on top of income taxes to pay for the bazillon retirees asking "Where's my social security check?"

Guess which one we're going to pick...

Jon said...

This whole thing is an issue of DECISION MAKING. People, Companies, Local, State, and even National Governments fail when they make bad long term decisions.

People are incentivized to make GOOD DECISIONS only when they can measure the impact of their choices. Raising tax rates at the local level may get more than a few citizens to question the people running the district. They might actually care that money is being wasted because it impacts their own bottom line.

Instead when you throw federal money at local problems, they're no longer incentivized to care.

People that are trying to figure out what caused this recession, it's pretty simple. BAD DECISION making all over the place. That's what causes all recessions. People rich and poor spending time and money on things that were less productive than they thought. In this case housing.

We need people being incentivized to be good decision makers. This either comes from rewarding them for making the right choices, saving etc. or punishes them for not. Otherwise we'll just go through the same thing 10 years from now.

EconomicDisconnect said...

I figured this would be a hot topic, so I will only my add my own two cents, though I agree with KD for about all of it.

It is the oldest trick in the book to go right after cops, firefighters, and teachers when looking at cuts. Ask why? Because it scares you (fire and crime) and makes you feel bad (poor dumb kids).

The reason schools are doing worse and worse are the kids are getting worse and worse, but that is a social commentary issue that I do not want to get into here. 1 teacher with 30 students that want to learn will beat out 1 teacher with 5 students that want to learn and 1 kid that does not any day of the week.

Yangabanga said...

@Transor Z

I hear your point. What's the saying? "Good leaders are born, not made?" Maybe, but until they are truly tested, most of these clowns don't know their head from their ass. But now that they are being tested we cannot call things "abnormal" and give them a bye. KD is right when he says we all share the responsibility. We can't all live in a participatory local govt in NH, but we can make it clear this is bullshit and needs to stop.

All I see is govt expanding for its own sake, and taking responsibility away from those who should be learning and using it. Yes, its about incentives. What I see is the Federal Govt making local school districts its bitch, just like a pimp does by giving things for free before he pulls it in and owns your ass, creating a cycle of dependency and hopelessness.

carping demon said...

Forget it, Kid.

Anonymous said...

Actually I was wrong, this is terrible for poor people, since the bill involved cutting $14 billion from food stamp programs.

But, you know, hooray for personal responsibility, I am outraged that unemployed people who couldn't save because they made minimum wage aren't eating cat food rarara moral hazard rarara.

Kid Dynamite said...

Anon - puppies and kittens - puppies and kittens.

schools, and other municipal expenses are funded by property taxes... which are based on home values... don't forget that... so the poor poor guy living in a teeny tiny little house pays a little tiny bit of those taxes and expenses - and doesn't bare the burden...

or, you could rent - and freeroll!


Daniel said...

Here in California we passed, years ago, Proposition 13 to restrict property tax increases and it totaled our public school system. Totaled it. We had a great public school system all the way through UC. Now we don't. Prop 13 was backed by your typical angry old white guys that were Republicans who never want to pay for anything. I'm not going to rehash prop 13 if you are interested, Google it. Essentially they thought they could force a government to behave like a business. You can't. Ever. If you think you can make a state government behave like a business you are delusional. The argument isn't whether government SHOULD act like a business but whether, in the real world, it's possible. It's not. Last statement, and this will cause KD to slam through his screen door and stumble out into his garden, screaming in outrage: the people who can will always pay for the people who can't. One way or another, end of story.

Kid Dynamite said...


"the people who can will always pay for the people who can't. One way or another, end of story" yep - EXACTLY the problem. eventually, the well runs dry. If the average American had any idea of what was going on, there would be riots in the streets.

California is the case study for everything that's wrong with government policies. I'm not sure I agree with you that just because they've proved that they can fuck it up means you can't do it (after all, aren't there hundreds if not thousands of public employees in california feasting on bloated pensions? Those are the sacrifices that need to be made!)

but I can guarantee you one thing: if a local government that tries to run like a business and fails gets bailed out by the Feds every time, it ABSOLUTELY will not work - there's no reason too!

Amazingly, people seemed to get this message very quickly when it came to risk-free risk taking at the Big Bad Banks, but they completely ignore it on a scale 10-100 times larger when the States do the same thing.

Kid Dynamite said...

ps - Daniel - i think it's the opposite of "running it like a business." after all, if the State Govt were run like a business, you would NOT cap property tax increases - you need the ability to raise revenues when costs go up - which is precisely what Prop13 PREVENTS.

Maybe you meant that it's like running a regulated utility or something...