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WISCONSIN TEACHER UNION FIGHT
DAVID ASMAN: To Wisconsin. The union battle. And now new fears if the unions win there a federal bailout will be the next for cash-strapped states everywhere. Rich - could all that's happening in Wisconsin lead to a federal bailout for all states?
RICH KARLGAARD: Yeah, it could be the first one. You know, across the United States we have about $1 trillion of unfunded pensions for public service workers including teachers. This is going to be a very interesting test case. I'm on the side of Governor Scott Walker on this, he ran on this Chris Christie-like platform last November, he was elected to do the tough measures that he's doing, God bless him because we have to stop this Greece-like slide into fiscal insolvency.
QUENTIN HARDY: But no one is saying that Governor Walker needs to behave like such a nincompoop. This is the worst negotiation ever saying, "I've got my hands tied, I'm going to call the National Guard if you do nothing." How would it be if they addressed the actual problem? In Wisconsin, corporate taxes contribute one half to revenues what they did in 1981. This deficit is due to cutting corporate liabilities even further. Why don't they get that back up before they just pick on people whose average wage with benefits is $75,000, which is among the lowest of any job requiring a graduate degree.
ELIZABETH MACDONALD: We have about 2 dozen states raising taxes by about $24 billion last year after government union workers lobbied for tax and spending increases, basically property tax hikes, sales tax hikes, income tax hikes to essentially cover their compensation for pension plans that Bernie Madoff got arrested for promising 8 to 10 percent a year. Nobody can expect that anymore. So the issue is that you can't expect every year annual stock returns 8 to 10 percent. The issue too is this, I attended a conference last fall with Clinton administration officials, they all said yes a state bailout could come in the form of a temporary treasury loan through the federal home loan banking system. We broke that news on Fox Business last fall.
NEIL WEINBERG: As a native cheesehead I have to tell you I am proud of my home state for taking the forefront here. What we've had and what I wrote about years ago is we have votes today, taxes tomorrow. The reason why the benefits are so out of control and why they are bankrupting so many states and the reason they are causing the government in many states to potentially have to go hat in hand to the federal government is that the benefits are totally out of control. If you look at the salaries, they are about the same in the public and private sector. There's no comparison in the public sector, they have much higher benefits and that's what is bankrupting cities, states, all over the country.
MIKE OZANIAN: I think there will be a bailout, but I don't think they'll call it a bailout. I think what we'll see is President Obama will push for some assistance, for health care, infrastructure, things like that. I have to say, I agree with EMac, I think there will be money funneled through the federal government to states - Wisconsin, New York, possibly California.
VICTORIA BARRET: You know, Mike took my line. It'll be a bailout, but it won't labeled as such. It will be in the form of stimulus. We've seen this before. I think the American public has wised up, but I don't think Washington gets it. So it'll be called something else, but the crux of this isn't teachers' salaries, it's really about defined benefit plans. And we're seeing this all over the country - San Francisco our interim mayor is saying our pension plan needs to be scrapped because if it isn't we're not going to be able to fund our police force. The real question is why is it in the private sector you have to fund your retirement, it isn't guaranteed and in the public sector it is guaranteed.
NEW PUSH TO SPEND ON INFRASTRUCTURE
DAVID ASMAN: Two years and more than 700 billion bucks later stimulus still doesn't appear to be working. The jobless rate then? 7.6 percent. President Obama promised the stimulus would keep it under 8 percent. Today? It's stuck at 9 percent. And now the president says spending another 556 billion dollars to fix America's roads, bridges, and rails will create jobs. Dennis is this new infrastructure plan going to create any more jobs than the stimulus did?
DENNIS KNEALE: Well, it will create jobs because when you spend half a trillion dollars over 10 years someone as to spend that money and get paid. But unfortunately that's the wrong kind of jobs, it's jobs that have a very limited life once the project is over boom it's gone. And it's jobs that are paid for by the government instead of the private sector and it comes at a time moreover when we've been saying "we really need to get a hold on the deficit, we really need to cut spending." And now we're going to spend another half a trillion?
NEIL WEINBERG: We'll see new jobs because we'll be spending on things, hopefully, like bridges and roads and not on things like bullet trains between Tampa and Orlando because that's wasteful. It's simple arithmetic and we also have an infrastructure that is horribly out of date in this country. If we use it intelligently it will both create jobs today and make us more productive.
MIKE OZANIAN: And we will have a change in the unemployment rate, it will go up. If you go back to the ‘30s and all of that stimulus spending under FDR, the unemployment rate went up to 20 percent and it stayed there for years until WWII. In the nineties in Japan there had 10 stimulus plans in 8 years and its economy completely stagnated. If you go to Obama's first plan he said the unemployment rate will not go above 8 percent, it went up to 10 percent. So come on, how much failure do we need to see that this stimulus spending by the government is a complete failure.
QUENTIN HARDY: It will create jobs and I'm glad Mike brought the long view into it because the bursting of the Bush Bubble was on par with 1880 and 1930 and it's hard to believe but by comparison we've done pretty well. The first stimulus created/spared about 1.2 million new jobs that was great. And we do need infrastructure, it doesn't just go away when it's done, it's a basis on which you build new business. Frankly we need it, it was a historic bubble that burst and we're picking up after it for 10 years that's just the deal.
ELIZABETH MACDONALD: It's absurd to call it the Bush Bubble. It didn't just start under Greenspan, it started under Clinton, there were two bubbles blowing under President Clinton. What we're talking about here is how technology is replacing a lot of these people that are needed for infrastructure jobs. That's why you see the city of Los Angeles announcing that the infrastructure spending that came from the federal government created 55 jobs at a cost of $2 million each. Mike is right, under FDR the unemployment rate was actually dropping until the government intervened with more taxes, more spending, more regulation.
RETAIL SALES + TAX CUTS
DAVID ASMAN: Tax cuts in, shoppers out - in droves! Retail sales on a 7 month winning streak even in an extremely snowy January. Old man winter not enough to keep people from spending. Some say it's because of the extra cash they have from a cut in the payroll tax. But no President Obama's talking about raising the payroll tax higher than it used to be in order to help shore up unemployment benefit funds.
VICTORIA BARRET: Let's be clear here, he's saying tax more of your salary than we do now, which will hit some workers and not others. This is amazing, he's basically saying look we've got these unemployment rolls we've got to cover so we're going to punish people who have jobs and make them pay higher taxes. This does not make sense, it will deter hiring, it will be more expensive to hire, and it will also turn social security into a sort of welfare program because it will be disproportionally funded by high earners.
NEIL WEINBERG: Ultimately, it's a zero sum game. I don't think it's really going to hurt the economy because you think about it. I'm not for increasing payroll taxes, but we do have people who are unemployed. If they don't have any money, if they don't have any benefits, they're not going to be spending either. They're going to be out on the streets and that's not going to be real good for the economy for a lot of people who have been out of work for weeks and months to have nothing to cover their basic needs with.
RICH KARLGAARD: It takes an employer to create an employee and here we've added one more barrier to the class of people called employers to create employees. This is really tragic because as even Neil acknowledges we've got 10 percent unemployment, the soft numbers of people who would like a full time job takes the number up to 17 or 18 percent. These are almost great depression levels, we need to do everything possible to incent employers to create new employees.
QUENTIN HARDY: I think we really need to look in the mirror on this one and admit that sometimes we kind of stand on the sidelines carping about things in near incoherence. A few minutes ago, we were complaining about Wisconsin where they cut corporate taxes and did union deals that they couldn't pay for and how terrible that was. Here's the president talking about a raise that doesn't kick in until 2014 by the way to pay for the deficit spending he's doing now. That's really not a bad idea, it's paying for what you're doing.
DENNIS KNEALE: The other problem is when you know taxes are going up inevitably in only 2 years it changes everything and you lose the benefit of them having been cut. This is the ultimate Ponzi scheme. We just cut the payroll tax and social security as a good thing to help the economy and now we're going to raise payroll taxes to offset that.
INFORMER: TAKE CONTROL OF YOUR RETIREMENT
DAVID ASMAN: Washington still fighting over social security - but our informers are here to help you take control of your own retirement.
NEIL WEINBERG: Vanguard FTSE All-World ex-US ETF (VEU)
ELIZABETH MACDONALD: Jubak Global Equity Fund (JUBAX)
DENNIS KNEALE: Pimco Municipal Income Fund II (PML)