Christian Schneider

Author, Columnist

Day: August 21, 2008

I.O.U.S.A. is OK

August 21, 2008 / / 0 Comments

Thursday night marked the premiere of the movie \”IOUSA,\” which is essentially being billed as \”The Inconvenient Truth\” for beancounters. Basically, the movie is an outgrowth of the Fiscal Wakeup Tour (which rolled through Milwaukee a few weeks ago), which makes tour stops around the country to warn people of the impending fiscal crisis the U.S. government faces.

Here\’s the trailer:

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Being a bit of a budget wonk myself, I decided to go check it out. I headed over to the theater with my neighbor, who is comfortably rooted in the progressive wing of the Democratic party. (Although, oddly, we are almost identical on a lot of traditional parenting issues – calling parents \”Mr. and Mrs.,\” not wrapping children in body armor every time they hop on their bikes, etc.) The beauty of the movie, however, is that the message is bipartisan – despite the fact that we may have vastly different conclusions about how to fix the entitlement crisis.

Part of the appeal of the movie is that after tonight\’s showing only, the film\’s producers broadcasted a live roundtable discussion featuring many of the economic experts featured in the film. Unfortunately, this extra service cost us – it was only after I asked for my ticket at the counter that I realized it cost $12.50 to see. I thought it was more than a little ironic that it cost $12.50 (plus $9.25 for popcorn and a drink) to go see a movie that lectures me about being fiscally prudent.

As we walked into the theater, I was surprised – the place was packed, hardly a seat to be found. I had initially predicted that the viewership of a movie about government debt would make my public television appearances look like Ugly Betty by comparison. But it was actually pretty encouraging to see so many people willing to learn about government finance and the hole our entitlement programs will eventually put us in.

As I settled into my seat, I noticed a whole lot of white hair on the heads in front of me. This is relevant, because the upcoming entitlement crisis will likely never touch any of the old folks in the audience. It\’s the young people that should be most worried, yet \”Sisterhood of the Traveling Pants 2\” is out, so – can you really blame them?

I thought the movie was fairly ideologically balanced, although there certainly were points where it went out of its way to embarrass George W. Bush (many of them deserved.) For instance, they interview former Treasury Secretary Paul O\’Neill, who Bush appointed, then removed for disagreeing with him on tax policy. One would think the President has the right to have secretaries that fulfill their boss\’ vision. Yet, when interviewed, O\’Neill goes into detail about how Bush forced him to lie and say he was resigning, instead of just firing him outright. This happens in virtually every business, and isn\’t relevant to anything in any way, other that to make Bush look like a bad guy. It also means Paul O\’Neill is a weasel. But I digress.

Naturally, it being Madison, the crowd began to hoot, snicker, and hiss every time Bush\’s visage showed up on the screen. The lefty next to me honestly couldn\’t control himself. He actually gave Bush a double-middle finger when he showed up in the movie. What is it with these people that they can\’t sit and watch a movie without behaving like a six year-old?

As for the movie itself, it\’s pretty good. Could have used more nudity. Lots of charts.

The roundtable discussion following the movie, despite being a really cool idea, kind of dragged on a bit. At one point, Cato Institute chairman William Niskanen suggested raising the retirement age and privatizing a small portion of Social Security, which drew a rebuke from the obnoxious lefty sitting to my right. You would have thought someone slashed the tires of his Prius. But this brings up an important point – everyone is for fiscal responsibility and balanced budgets until it\’s time to be fiscally responsible or balance a budget. I mean, good grief – our Wisconsin Constitution requires it, and we can\’t even do it at the state level here.

The highlight of the roundtable was the fact that it was moderated by fiscal supervixen Becky Quick, of CNBC\’s \”Squawk Box.\” Sure, she may be reasonably ordinary by TV news standards, but after watching two hours of old guys and charts, her appearance felt like the Phoebe Cates pool scene in \”Fast Times at Ridgemont High.\” Here she is interviewing T. Boone Pickens:

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Of course, if this movie is a big hit, we\’ll be better off as a nation. But even if people see the movie and understand its conclusions, I remain skeptical of what effect it will actually have. Of course, it\’s easy to tell people that they should \”hold their elected officials accountable\” and \”demand change.\” But the next time that actually happens might be the first.

Wiley Falls Off His Horse

August 21, 2008 / / 4 Comments

On this very blog in May, I wrote a glowing post about outgoing UW-Madison Chancellor John Wiley, in which I praised his commitment to ideological diversity during his tenure. While I stand by everything I wrote at the time, I now fear for Wiley\’s well being, as it appears he may have been hit in the head by a blunt object since then.

This week in Madison Magazine, Wiley unleashes a ridiculously unhinged, factually challenged screed against Wisconsin Manufacturers and Commerce, the state\’s largest business organization. The entire vitriolic commentary smacks of typical academic elitism – if you disagree with him, you are either evil or stupid. But in effect, it trots out the same talking points any lazy liberal would use to take aim at the business community. Unfortunately, a freshman political science student at UW-Madison could do a better job of researching the facts.

To their credit, WMC has merely shrugged off Wiley\’s ridiculous attack. But such an inaccurate use of the facts from a person who should know better deserves a more thorough response.

First, Wiley trots out the old canard that the UW System is underfunded:

With almost no exceptions, everyone agreed that we can\’t grow our future economy without significant new investments in education–or at least a restoration of some of the last fifteen years worth of cuts.

According to the Legislative Fiscal Bureau, the total UW budget was $2.5 billion in 1996-97. By 2006-07, just 10 years later, the total system budget had ballooned to $4.3 billion, an average increase of 5.7% per year over a decade. Of that budget, state general purpose revenue increased every year from 1996-97 ($844 million) to 2002-03 ($1.08 billion), until Governor Jim Doyle proposed cutting $250 million from the system over a two-year period. (Shame on WMC for getting Doyle elected.) By 2006-07, state aid had increased to 1.04 billion per year, with the Legislature granting campuses the authority to levy $909 million in tuition – more than twice the $400 million they collected in 1996-97.

Wiley goes on to blame WMC for the \”toxic\” political environment in Wisconsin, as if there has never been tension between those who want to raise taxes and lower them. Apparently, campaigning for lower taxes is a completely new phenomenon in Wisconsin, thanks to the business lobby, trying to represent the interest of their members. (A concept that is alien, apparently, to the teachers\’ union, trial lawyer lobby, casino interests… you get the picture.)

Even more odd is Wiley\’s attempt to blame WMC for a slew of legislative initiatives:

For the last fifteen years of Wisconsin\’s declining fortunes, the candidates WMC has supported for elective office have been the very ones who, when elected, have concentrated their efforts on opposing stem cell research and domestic partner benefits, pushing a cleverly named but economically devastating \”taxpayer bill of rights,\” fussing over the definition of \”marriage,\” hauling universities before staged hearings to defend our efforts to prepare ethnic minority students for the workforce, railing against the personal views of otherwise obscure instructors, resisting any form of gun control, proposing mandatory arming of teachers, demanding the illegal summary firing of named state employees and proposing the elimination of the state\’s only public law school.

Set aside, for the moment, the issues of \”the definition of marriage\” (which passed a public vote with 60%) and the \”economically devastating\” attempt to limit the growth of government. He blames WMC for helping elect representatives who were critical of the UW for hiring 9-11 conspiracy theorist Kevin Barrett to teach a course on Islam. He is, of course, talking about State Representative Steve Nass, who represents a 70% Republican district, and who has likely only received minimal campaign help from WMC. Likewise for State Representative Frank Lasee, who proposed eliminating the UW-Madison law school – a terrible idea, but another legislator who probably hasn\’t ever received any real help from WMC. In fact, the more moderate the legislator is, the more likely they are to have WMC help them – since they are more likely in a competitive district.

And I challenge Wiley to come up with a single legislator who opposes \”any form of gun control,\” or who supports \”mandatory arming of teachers.\” These examples are completely fabricated.

So Wiley\’s calculus works like this: WMC generally supports conservative candidates, who vow to keep taxes down. That means they are on the hook for every Republican bill that might be introduced, whether it passes or not, whether it\’s nutty or not, or whether or not it only exists in Wiley\’s imagination.

Wiley then moves on to the favorite talking point of liberals in Wisconsin – that somehow, every dollar we spend on prisons in Wisconsin takes away funds from the UW System. He says:

Can anyone explain or justify the fact that, according to 2007 Census figures, Wisconsin has 22,966 people incarcerated when our sister state of Minnesota has only 8,757? Are Wisconsin citizens that much more criminally inclined? What does Minnesota know that we don\’t? How much money could we save if Wisconsin judges had greater latitude for exercising sentencing judgment, or if we adopted control and monitoring measures other than expensive incarceration (about $30,000 per prisoner per year)? We\’re talking many hundreds of millions of dollars in savings if the governor and the legislature could work together to tackle these badly needed reforms.

I\’d be happy to explain the disparity between Minnesota and Wisconsin, Chancellor. First, Minnesota uses parole – we do not. Second, Minnesota\’s prison system is entirely different than Wisconsin\’s – most offenders are imprisoned at the local level, not the state level – so their numbers are much lower for state prisons.

Furthermore, drawing a comparison between providing funding for a prisoner and a UW student is a bogus exercise. Yes – we spend more for a prisoner – for instance, someone who may have stabbed someone else to death. We\’re paying to keep the public safe by keeping this guy locked up. To say that money is morally equivalent to making sure some marginal student at UW-Stout doesn\’t have to work a few extra hours at Taco Bell to help pay tuition is misguided. All Wiley has to do is start naming the people he thinks should be let out of prison, and we can start the debate.

Wiley\’s solutions to the toxic political environment? Simple – make the legislature part-time and eliminate most of the local governments in the state. Oh, and set up a \”blue ribbon\” bi-partisan panel to suggest changes. Man, if only someone had thought of that stuff sooner. Sadly, trees had to die to print out those earth-moving recommendations, none of which has any chance of passing.

Yet, apparently those changes are what are necessary to keep Wisconsin from – and I hope you\’re sitting down – becoming a \”permanent third-world state.\” Honestly, if any political science student at UW-Madison used that kind of hyperbole in one of their research papers, they should be forced to re-take the course (unless it was taught by Kevin Barrett.)

Let\’s review – only spending $4.3 billion per year on the UW System is going to make us a \”third-world\” state. As if, suddenly, you\’ll have to sit at your work computer covered in flies, with a distended belly. On the plus side, it may mean Wisconsin has some better Olympic long distance runners.

There\’s a lot more stuff in there, but there are really only so many hours in the day. It\’s just too bad that John Wiley has only recently discovered that the UW-Madison has been a thorn in the side of the Legislature for over a century. Somehow, I think we\’ll survive.

Your Government, Your Investments

August 21, 2008 / / 0 Comments

For the most part, government and business are perceived as being in direct conflict with one another. Yet both generally have the same goal – maximizing their revenue. If you\’re a business, this is known as \”greed.\” If you\’re a government looking to pad salaries and benefits of your employees, it is known as \”compassion.\”

The connection between government and business runs much deeper than their mutual desire to vacuum out the contents of your wallet. Regular citizens often don\’t recognize the extent to which government is often dependent on business to swell their employees\’ nest eggs. In fact, governments heavily invest in private businesses, trying to make enough investment income to run more and more programs and fund increased post-employment benefits for their retired workers.

For example, the State of Wisconsin currently holds roughly $80 billion in the Wisconsin Retirement System, which funds health care and pension benefits for retirees. That\’s more than six times the amount the state collects in general fund (income, sales, business) taxes in any given year. And most of it is invested in the stock market, managed by the State of Wisconsin Investment Board. (Perhaps we should turn management of the portfolio over to State Senator Rob Cowles, who could double our state\’s earnings in a year by investing heavily in booty-related mutual funds.)

The State Investment Board is closely watched, and invests carefully – given the immense amount of resources at their disposal. In recent years, their investments have performed admirably.

But for other governments, things haven\’t gone so well. According to several Milwaukee Journal Sentinel reports, five school districts in Southeastern Wisconsin have seen the value of some of their recent investments drop by over $100 million. They claim they weren\’t fully briefed of the amount of risk they were taking on when they made the purchases, so they plan on filing a lawsuit to recoup their investment. Of course, it will be taxpayers who pay for the army of attorneys necessary to litigate such a lawsuit.

But as pointed out by the Journal Sentinel\’s initial watchdog report, none of these school districts hired an adviser before making investments in these risky funds (known as CDOs). One analyst from MorningStar, Inc. called the governments\’ investments \”reckless:\”

\”They require deep and skilled analysis to understand, and unless the municipality employs its own specialist with specific analytical capabilities, it should otherwise only hold such things if purchased for them by a professional asset manager,\” Eric Jacobson, a bond analyst for Morningstar Inc. in Chicago, said after reviewing the CDO prospectus. \”To buy an instrument of this type . . . without any special knowledge or ability, at the recommendation of a broker, is a very poor and arguably reckless decision.\”

In other words, school districts might have gotten a better deal by answering an e-mail offering a once in a lifetime Nigerian investment opportunity.

So here we have school districts making risky investments in, among other things, subprime mortgages, who now think they should be bailed out via lawsuit. And the only reason they can continue on with their legal action is because they have taxpayer money to fund the teams of attorneys needed to litigate the case. In effect, they can afford to spend good money to chase after the bad.

Of course, for the \”greedy\” investors such as yourselves, who may put aside a small amount every month to invest in a mutual fund in the hopes of one day making some money, this option is not available when your investments go bad. In fact, when these school districts spend more of your money to cover their assets, you will undoubtedly have less money to invest. Your higher taxes will be paying for the school district\’s spin to convince you that they didn\’t realize investments could actually lose value.

Let\’s hope none of these school districts teach investment strategy.

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