Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
The Chicago Teachers Union president is lashing out at the villains in the school mess.
“When are we going to address the elephant in the room?
Say What ???
“When will we address the fact that rich, white people, think they know what’s in the best interest of children of African Americans and Latinos—no matter what the parent’s income or education level,” she said, according to SubstanceNews.net.
Oh. That elephant !!!
How about this one ?
What is it with these union bosses ?
The Great Unraveling began this week, near Detroit (they moved the meeting to head off protestors), kicked off by Kevyn Orr:
Detroit will immediately stop payments on about $2 billion in debt, the city’s emergency manager announced Friday, an effort to conserve cash. The manager, Kevyn Orr, also said Detroit will need to cut pay and pension and health benefits for city workers.
Debt holders are likely to get only pennies on the dollar.
“Financial mismanagement, a shrinking population, a dwindling tax base and other factors over the past 45 years have brought Detroit to the brink of financial and operational ruin,” said Orr.
This article then goes on to name what happend to Detroit, caused by mismanagement and fleeing of their most productive resources, noted above:
“The city has effectively exhausted its ability to borrow,” he writes in the report, adding that the city “is clearly insolvent.”
INSOLVENT is the key word to understanding what happened in Detroit, and what I believe will soon happen across cities in dire situations across the USA. Insolvent (in practical terms) means that 1) you don’t have enough cash revenue coming in to pay your current bills such as salaries on current staff, pension contributions, payments to vendors, etc… 2) you have already accrued substantial borrowings to date that need to be either paid off (not a chance of that) or re-financed through even more debt (the route that has been taken to date) 3) there is no practical chance that you can find enough revenues to get current on your bills and make a substantial, good-faith “dent” in the backlog of debt that you’ve piled up over the years.
Over many years cities, states, counties and other non-profit entities have piled on debt to avoid raising current taxes and to placate their staff’s demand for higher pay and current benefits. They also promised benefits in the future such as pensions, medical insurance, and the like which don’t exist anymore for many / most citizens employed in the private sector. They failed to pay in advance (pre-fund) those obligations, as well. Meanwhile, many of these cities, plagued by dis-functional government, crime, rising taxes, and a low quality of life, saw an exodus of their most productive citizens, those upon whom the “real” burden of servicing these current obligations and long term debt really lie.
Unlike the United States as a whole, which can capture its citizens’ revenues anywhere within its borders and around the world (there are relatively few that give up US citizenship), cities, states and counties can drive out their productive staff and then the increasing burden of paying for mounting debts will fall on a shrinking (financial) base. Detroit can’t burden those that have escaped; not only has their population fallen, their highest-income citizens fled long ago and have no plans to return (why would they come back to pay the bills of a city that they would no longer recognize?).
Amazingly, the municipal debt market, which has funded these insolvent cities all these years at relatively low interest rates (given the facts that many of these entities are insolvent in practical terms), hasn’t taken an enormous hit yet. While plans are not finalized, Detroit is in essence offering pennies (less than 10 cents) on the dollars for their unsecured bond-holders (they do have some debt tied to utility revenues and other revenue sources which has its own economics). The municipal debt market probably doesn’t really believe, nor do I really truly believe, that the whole worm-infested edifice is about to come down now. In the past there have always been last minute bailouts, subsidies, “insurance” on bonds (with the tiniest of real-world cushions), etc… to prevent the collapse that economic sense says has been coming for years.
Another thing to note in Orr’s statement is that he plans to not only 1) stiff the creditors 2) INVEST in the city to increase the level of policing, infrastructure, etc… Cities and states are run by politicians. The odds that a city would shut schools while paying off creditors should strike anyone with a bit of political sense as incredible. Creditors don’t vote – if it came down to it, why would you put them ahead of your own political survival, especially when your opponent in the next election would just do the same thing, anyways?
The heart of the matter is that all of this Ponzi scheme depends on everyone “pretending” that the problem isn’t there and that somehow, someway, these minor moves of short term cash and budget tricks can put the wolf off forever. But the wolf is here now, and anyone who lends new debt money to these sorts of entities might as well just throw their money into a disposal and expect to get a few pennies out the other side.
Not to sound too “black helicopter” but the super-smart money might be betting that the federal government will bail out the states and cities and make all the creditors whole, to keep the illusion running a bit further. This definitely strikes me as plausible, irrespective of all the supposed Constitutional guards that prevent this from happening. A huge percentage of the funding for states, cities, and counties comes from the US government anyways – perhaps at some point we stop pretending that we will let them fail on their own (and destroy the political “minor leagues” that end up in Washington, in the end) and just backstop everyone’s debts on the US dollar.
Kevyn Orr is calling everyone’s bluff. Maybe this will be the second great accomplishment of our current presidency, stopping the “pretending” that there is any fiscal accountability with real consequences anywhere in the USA. The first accomplishment was the stone acknowledgment that Social Security /Medicare is just a “pay as you go” system of taxes when he cut the tax rate to supposedly spur job creation at a time when the actuarial numbers actually called for higher contributions.
Cross posted at LITGM
I’m currently reading 1913: In Search of the World Before the Great War
In his description of Jerusalem–then under control of the Ottoman Empire but with a population including residents and pilgrims from many countries–the author says:
Different countries even had their own postal services, circumventing the Ottoman telegraph service, which was widely thought to be a nest of spies reporting communications back to Constantinople.
Fast forward 100 years….In the wake of the reports concerning NSA surveillance programs, there is widespread concern..among non-Americans as well as among citizens of this country…that the American telecommunications and information-processing services may be “a nest of spies” reporting communications back to Washington…and from there, possibly, to other shadowy recipients. These concerns may have serious economic ramifications.
See, for example, Forbes–NSA Surveillance Threatens US Competitiveness:
Non-US customers of any US business will immediately evaluate their exposure to these new risks and look for alternatives. European, Canadian, and Australian tech companies will profit from this. Competitors in those regions will offer alternatives that will also draw US customers away from the compromised US services.
Washington Post–European Leaders Raise Concerns on US Surveillance
“The German business community is on high alert,” said Volker Perthes, director of the German Institute for International and Security Affairs. “It’s not just about listening in on some bearded guy from Ulm who bought a ticket to Afghanistan and makes conversation with his friends in Waziristan. .”‰.”‰. The suspicion in large parts of the business sector is that Americans would also be interested in our patent applications.”
Popular Mechanics–Why the NSA Prism Program Could Kill US Tech Companies:
Think for a second about just how the U.S. economy has changed in the last 40 years. While a large percentage of our economy is still based in manufacturing, some of the most ascendant U.S. companies since the 1970s have been in the information technology sector…
Let’s say you ran a business in (Japan, India, Australia, Mexico, or Brazil) that relied upon information services from a U.S. company. Don’t these revelations make using such a service a business liability?
See also Business Insider–Did Obama Just Destroy the US Internet Industry?
I don’t think these revelations, even if they are fully validated, will really “kill” US tech companies or “destroy” the US Internet industry…the headlines are a bit over the top, as headlines often are. I do believe, however, that the American information technology industries will be significantly harmed, with implications for the entire US economy…something that we really cannot afford at this particular point in time.
I think it is obvious that the US government needs to conduct anti-terrorist surveillance programs, which must encompass telecommunications networks…the idea that NSA should be abolished, as some have suggested in recent days, is to my mind very unwise. But non-Americans as well as Americans have every right to be concerned about the scope of what has apparently been going on, and the apparent lack of proper controls, and furthermore, to raise questions about how the information gathered is actually being used.
The government of Sweden didn’t do a very good job of protecting its citizens and their property from the rampant rioting that took place in late May.
Government agents did, however, fulfill their duty of issuing parking tickets…to burned-out cars.
I’m reminded of an old SF story, “Dumb Waiter,” written by Walter Miller, who is best known for his novel A Canticle for Leibowitz. This story, which dates from 1952, lacks the philosophical depth of Canticle, but seems quite relevant to the events in Sweden.
In the story, cities have become fully automated—municipal services are provided by robots linked to a central computer system. But when war erupted–featuring radiological attacks–some of the population was killed, and the others evacuated the cities. In the city that is the focus of the story, there are no people left, but “Central” and its subunits are working fine, doing what they were programmed to do many years earlier.
The radiation levels have died down now, and the city is now habitable, from a radiological standpoint–but the behavior of the automated systems, although designed with benign intent, now makes entry to the city very dangerous.
Mitch, the protagonist, resolves to go into the city, somehow get control of Central, and reprogram it so that it will be an asset rather than a hazard for future human occupants of the city. The first thing he sees is a robot cop, giving a ticket to a robot car with no human occupants. Shortly thereafter, he himself is stopped for jaywalking by another robot cop, and given a summons to appear in traffic court. He also observes a municipal robot mailing out batches of delinquent utility-bill notices to customers who no longer exist.
Eventually Mitch establishes contact with Central and warns it that a group of men are planning to blow it up in order to have unhindered access to the city for looting…that the war is over, and Central needs to revise its behavior to compensate for the changed situation. The response is that he himself is taken away for interrogation. He hears a woman crying in an adjacent cell—she has been arrested by a robot cop for some reason or other, and her baby was separated from her and is being held in the city nursery.
(Just for fun, from out of my NCOBrief archives, an essay from July, 2010.)
You know, out of all of the things that I was afraid might happen, after the presidential coronation of Obama, the Fresh Prince of Chicago . . . I never considered that race relations might be one of those things which would worsen. Hey lots of fairly thoughtful and well-intentioned people of pallor voted for him, with varying degrees of enthusiasm, or at least in some expectation of him being a fairly well adjusted and centrist politician, or at least a fast learner. Wasn’t that what all the top pundits, and the mainstream media were insisting, all during the 2008 campaign . . . well, once they got up from their knees and wiped the drool off their chins.