January 4, 2006

George Will on the Smoking Settlement Insanity

Filed under: Consumer Outrage,Economy,Taxes & Government — Tom @ 4:20 pm

This has been an unconscionable mess from its inception, and, as Will notes, it may be heading off the rails (we can only hope):

States walk a fine line on tobacco

….. Tobacco-revenue munis ….. are municipal bonds backed by tobacco revenue streams resulting from a real fraud — the Master Settlement Agreement. In 1998, 46 states conspired to seize $246 billion from companies that sell products made from a commodity — tobacco — the cultivation of which was then subsidized by the federal government. Tobacco subsidies totaled $528 million from 2000 through 2004; then the government paid $10.1 billion ….. to terminate the tobacco quota system.

Under the MSA, the states are scheduled to get their portions of the pot over many years. But deferral of gratification is un-American, so some states, eager to get their loot, have “securitized” their expected portions. Securitization involves selling bonds backed by the anticipated revenues.

The MSA is a deal struck between the state attorneys general and trial lawyers. For the latter, it was a financial windfall, netting about $13 billion in fees that sometimes amounted to tens of thousands of dollars per hour of work. For the former, it was a political windfall, enabling their states to finance this and that with billions paid by smokers, who are disproportionately low-income people.

The MSA rests on the fraudulent claim that smoking costs the states huge sums, principally because of health care costs. Actually, smoking makes money for governments, for two reasons. Cigarettes are the world’s most heavily taxed consumer product (state taxes range from 5 cents to $2.46 per pack; the federal tax is 39 cents). And many smokers die prematurely from smoking-related illnesses, curtailing their receipt of entitlements for the elderly.

There is one problem with the states’ plans to divvy up the money extorted from the tobacco industry: The MSA may be declared unconstitutional. The U.S. Constitution says (Article I, Section 10): “No state shall, without the consent of Congress, … enter into any agreement or compact with another state.” A federal district court is being asked to declare that 46 states have done just that.

….. all 50 states, which in 2004 reaped $12.3 billion in cigarette taxes, have an incentive to carefully calibrate these taxes so as to maximize revenues. They want high taxes, but not high enough to cause large numbers of smokers to quit the habit that is so lucrative to states.

The state governments seem to be calibrating cleverly: The adult smoking rate has not fallen much recently.

Passage of the Day: Barone Compares Wal-Mart to General Motors (Who Do You Think Comes Out Better?)

I don’t think anyone can fairly accuse Mr. Barone of being a Reagan-Bush Republican hack. But the more sense he makes, as in this column, the more likely it is he’ll get the tag, especially as he is comparing liberal hate object Wal-Mart with unionized General Motors:

The Wal-Mart model

….. A quarter century ago, many economic commentators said that the era of low-inflation, high-job-creation economic growth was over. In the ensuing 25 years, it has come to be the norm.

The negative bias of economic coverage can be seen in stories about the current No. 1 private sector employer in America, Wal-Mart, and the No. 1 private sector employer back in the 1970s, General Motors. The GM story is genuinely grim: The company is laying off thousands of workers and closing plants, and is threatened with bankruptcy. Stories about Wal-Mart tend to focus on allegedly low wages and healthcare benefits, and say less about the company’s continual profitability and the low prices that benefit consumers. These companies are not entirely comparable — they’re in different businesses. But some of the differences between them illustrate why the American economy, which seemed to have run out of gas 25 years ago, is now doing so well.

One big difference is this: General Motors’ business model was designed for a static economy; Wal-Mart’s is for a dynamic economy. From the 1930s, GM — as one of only three major automakers — was able to pass along to consumers the high costs imposed by wages, pensions and health benefits negotiated with the United Auto Workers. When emerging foreign competition started to make life tougher for Detroit executives in the 1970s, they tried to insulate themselves with government tariffs and domestic-content requirements. More recently, they’ve tried to offload their high healthcare costs onto the government. Wal-Mart, in contrast, started off with many retail competitors and has sought more, by taking on supermarkets. It competes by holding down costs and prices for consumers.

Wal-Mart has been much more skilled at adapting to market conditions. Its computers keep it instantly apprised of sales, and its distribution system keeps stores stocked with items consumers want. Someone making a 3-ton car cannot adapt so quickly, but even so it still takes GM years to get new models on the market — and often they’re not what consumers turn out to want.

Then there are employment costs. Yes, Wal-Mart does not pay high wages or provide healthcare benefits to all employees. But not all workers today want full-time jobs (they may want to be home when kids return from school) or health insurance (many are covered by a spouse’s policy or Medicare). And Wal-Mart promotes from within: You can work your way up from the store floor to management ranks. GM and the UAW, in contrast, insist on a sharp line between labor and management, with all employees working full-time and getting full benefits. That made sense when almost all workers were men supporting families. But it is a poor fit with a labor market in which many workers are women, teenagers or retirees seeking extra income.

In retrospect, it’s not so surprising that 25 years ago, when GM was deemed the prototypical firm, experts were pessimistic about the American economy. They failed to foresee that more nimble firms like Wal-Mart would rise and supply the amazing resilience that has enabled the American economy to thrive, as (Alan) Greenspan has observed, even when hit by calamities like Sept. 11 and Katrina.


Previous relevant auto-industry posts:

More Sheriffs Like This Guy, Please

Filed under: Immigration,Taxes & Government — Tom @ 11:23 am

The Sheriff of Butler County (OH), Rick Jones, is a no-nonsense type who wants to have the authority to arrest illegal aliens for trespassing, won’t coddle prison inmates, and became the second sheriff in the country to bring back voluntary chain gangs.

And he has a blog. Among other things, he notes that he was caught speeding and paid the fine (“even if it is the Sheriff”), has billed the Federal Bureau of Immigration and Customs Enforcement (ICE) $71 thousand-plus for housing 15 illegal aliens in his prison for a total 1,023 “person-days,” and has recently received cooperation from ICE in executing a search warrant that led to the arrest of people involved in creating fake ID cards.

His detractors call him “Spotlight Jones.” My early evaluation: “A breath of fresh air.”

Bizzy’s AM Coffee Biz-Econ Links (010406)

Filed under: Economy,Taxes & Government — Tom @ 8:01 am

Starting the Year Off with a Clean Slate–NOT

As of the end of the day on December 30, the last business day of 2005, the total debt of the US Government (the “national debt“) was a paltry $8,170,424,541,313.62. Call it $8.2 trillion, about $240 billion more than it was on September 30, the end of Uncle Sam’s fiscal year.

Go to this July post (“Four Reasons NOT to Be Impressed with the ‘Falling Deficit’”) for more on why I’m really irritated with the happy talk about how “the deficit is coming down.”

It’s a good thing “conservatives” are in charge. (/sarcasm)

Consensus Forecasts You Won’t Hear Much About

….. Because they’re pretty positive. A Wall Street Journal survey of economists (link requires subscription) yielded this consensus of predictions for the first quarter of 2006:
- GDP Growth — 3.6% annualized
- Inflation — 3.1% annualized
- Unemployment — 4.9% average

I’ll take ‘em, but I think GDP growth will be slightly higher, especially if the winter is mild.

Illinois Politicians’ Contribution to Modern Art

In the course of investigating another matter that I am still working on, I came across this congressional district map of the Chicagoland area that makes Ohio’s look downright sane:


Yes, that IS the 4th District that snakes its way around the 7th for what must be about 20 miles, and probably isn’t more than a block wide at some points.

And people wonder why voters are cynical.

UPDATE: Clutter’s Last Stand has a better map that shows Illinois’ 4th District in all its glory.

Positivity: Ben’s Game

Filed under: Positivity — Tom @ 6:14 am

It’s only fitting that this kid’s leukemia is in remission. Here’s a follow-up by Marjie Lundstrom of the Sacramento Bee on a story she did in 2004:

The whiz kid meets the Dalai Lama

Ben Duskin was 5 when he was diagnosed with leukemia, spending long stretches at the University of California, San Francisco Childrens Hospital. By the time he was 9, the boy from Greenbrae had a wish: To create a video game for his fellow cancer patients, something positive — something really neat — that would help sick kids visualize their healing.

As you know by now, Ben did just that, aided by an imaginative grown-up, Eric Johnston, a software engineer for Lucas-Arts in San Rafael. Ben’s wish had found its way to the Greater Bay Area Make-A-Wish Foundation and, as these things often go, it found its way to Johnston.

Ben’s Game — a free video game, in which players try to destroy mutated cells — debuted on the Make-a-Wish site in May 2004. Ben, who has since moved to Houston with his family, became an overnight celebrity, granting media interviews and receiving letters from around the world.

So far, the game has been downloaded 178,000 times and has been translated into nine languages. A Spanish phone company is distributing the game through cell phones.

But there was more in store for Ben, who had a bone marrow transplant last December. Last month, he was one of 48 people from 14 countries honored in San Francisco by the Dalai Lama at the Unsung Heroes of Compassion event.

Ben’s mother, Anne, continues to be awed by her only child. “He inspires me so much because he acknowledges all hes going through, and then he keeps on going.”