Monthly Archives: May 2010

Union Sleaze Reaches New Heights

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I don’t want the folks who created the mess to do a lot of talking. I want them to get out of the way so we can clean up the mess. I don’t mind cleaning up after them, but don’t do a lot of talking.

  • Pres. Obama, August 6, 2009

Pres. Obama’s illiberal penchant for suppressing dissent aside, beggars shouldn’t be choosers. The beneficiaries of bailouts – the UAW, Fannie Mae, the various banks who have only partially repaid their debt – should not be the architects of their own bailouts. While the business of Washington is to take from the many and give to the few, Obama was at least drawing some sort of line with his comment when it came to inside political dealing. That is until the public employee unions entered the bailout game. As it turns out Obama’s masters are above his simple rule.

Last week, Sen. Casey introduced a $165 bln bailout for underfunded union pensions. Like most savings, these pensions were hit by the collapse of 2008. Further complicating matters, a properly run pension must reduce its risk when underfunded, so many pensions did not benefit as much from the bull run of 2009. Unlike ordinary people, when a union’s savings are lost, there is no belt tightening or even a slowdown in spending growth. If the Democrats have their way before November, the unions will get a full bailout.

Just as Fannie spent millions lobbying Washington right up to the moment of its collapse, unions spend hundreds of millions each presidential election cycle supporting sympathetic candidates and ballot measures. Unions have no compunction toward assessing special political dues from their membership to fund these lavish campaigns that nearly exclusively benefit Democrats. Clearly union bosses think their membership have disposable income to fund politics, but not to shore up their pensions; not a peep from the unions about moderating salaries to shift total compensation toward underfunded pensions.

The union bosses have concluded that investing in lobbying has a higher return than fully funding their pension plans. Fannie’s bailout is a good indication that the Washington way does indeed pay off. Unlike Fannie’s Wall Street cousins, Fannie has done nothing to pay back its bailout loans; indeed Fannie has just asked for billions more. Likewise, the union bailout will never be repaid. Also unlike Wall Street, Congress is doing nothing to reign in Fannie’s risk taking. To suggest that unions should reign in their lobbying or benefits costs to shore up their own finances seems quaint.

As long as the Washington bosses can wet their beaks on graft from the union bosses, the comfy cycle of corruption can go on. $165 bln in union bailouts with no strings attached is a small price to pay to keep the Democrats’ biggest gravy train on its tracks. Rather than ask November’s candidates their position on 40 year old civil rights laws, perhaps NPR could ask something about this bill and why Americans should give billions to union bosses only so they can funnel more money back to Washington insiders.

To borrow from Sen. Bob Dole, “where is the outrage?”

Why Is Rand Paul On The Cross?

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When Dr. Rand Paul won the GOP nomination to replace Sen. Bunning (7x MLB All Star and perfect game pitcher), liberty lovers could not believe their good fortune. Because The Senate is seated by statewide elections, its members are usually moderates (i.e. opportunists who twist with every political breeze). Who knew, maybe Sen. Coburn and Sen. Paul would form a free market caucus to reform Washington. Sadly it turns out that Paul is a mouth-foaming, cross-burning, Jim Crow racist.

What racist thing has Paul done, other than being a Republican? Perhaps foolishly, Paul has questioned the constitutionality of parts of the 1964 Civil Rights Act. Paul has emphatically said that he is against racism, especially institutional racism such as the Democrat passed Jim Crow laws and that he will not seek to repeal the Civil Rights Act. Still, Paul has said that private property rights are more important than the near term public good and that Congress should not force restaurant owners to serve anyone they choose not to serve.

Needless to say, the mainstream media has hammered Paul as a radical. Outlets like NPR and MSNBC hyperventilated as they hostilely questioned Paul about his racism. Over and over Paul repudiated institutional racism as un-American. He pointed out that he was two when the law in question was passed. Still he refused to back down on his belief in the primacy of individual property rights.

Paul’s distinction lies at the heart of libertarianism. Libertarians are not in favor of drug use, but they think the individual right to choose trumps any public policy argument against drugs. Libertarians do not think smoking, drinking, or fast food is to be praised, but again the individual’s right to choose for himself is more important than any public health policy. Libertarians believe that the American way is to allow individuals to make bad choices, and in doing so, they will more often than not make good choices to the benefit of everyone.

If Paul were a leftist, the media would call his position nuanced. When leftist Sen. Kerry pretended to throw away his war medals, he was not branded an America hater by the press. No, Kerry loved his country so much he had to despoil his badges of honor so as to be even more of a patriot. Kerry was nuanced, while Paul is one step from wearing a white robe.

Just for sake of argument, what if Paul did somehow repeal the part of the Civil Rights Act that forces restaurants to serve everyone, even against the owner’s wishes? Would Applebee’s institute a white’s only seating area? Would the dogs of Birmingham be reassembled? Certainly not. While the occasional crackpot might deny service to some minority, fear of public outrage would prevent even closeted racists from profiling their clients. Even if racism remains in the US, nearly everyone religiously avoids the appearance of racism due to social pressure. While Paul’s argument is based on Constitutional rights, the public policy argument against him is outdated.

Why is Paul on the cross? The mainstream media rarely misses a chance to tar the GOP with the racist label. Arizona is racist. Red states are racist. Paul’s perhaps politically naive attachment to property rights is racist. Sadly, the US lacks a basic education about the Bill of Rights and a respect for the property rights it is meant to protect. Until the average US voter understands the critical importance of these rights, Paul’s principled arguments will sound radical and remain fodder for the Maddow’s of the world. Freedom lovers across the nation are hoping that Paul overcomes this political misstep so he can become the force for the Constitution we all expect him to be as Kentucky’s next Senator.

No Miles for You

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This week the US Senate voted to outlaw earning frequent flyer miles from credit card transactions.  Of course Sen. Durbin, the amendment’s sponsor, would not put it that way.  Durbin rather said that by capping the fees charged to retailers, small businesses would benefit.  Sadly, Durbin is wrong on both counts; his proposed law would outlaw frequent flyer miles and harm small business.

Credit card companies like Visa and American Express charge both interest on consumer debt and transaction fees to merchants who accept their cards.  The fees vary, but can be as high as 2.5% of the purchase price for the more expensive American Express.  Durbin wants to help consumers by authorizing regulators to cap transaction fees at something like 0.7%.  As with all the consumer regulation coming out of Washington, capping fees sounds nice until the price of regulation comes due.

Credit card companies use the fees to pay for operating expenses like billing and customer service, but in order to compete for customers they also rebate some of those fees back to cardholders.  Sometimes the rebate comes in the form of frequent flyer miles, and sometimes plain cash.  American Express offers a Fidelity Investments affinity card that gives back 2% of most purchases.  Obviously if transaction fees are capped at 0.7%, such cards can no longer exist.  Durbin compared the costs of operating a credit card company to the fees it currently charges, but he ignored the marketing cost of consumer rebates.

Durbin’s amendment would force credit cards to quit innovating perks to attract the best consumers.  In Durbin’s world, all credit cards would be the same, since they would be regulated into offering exactly the same services to all.  Currently, consumers can choose from hundreds of options that best suit their needs, but that kind of choice is always the first victim of government regulation.

Even worse, Durbin’s amendment would reduce the quality of customer service for cardholders.  Since the cost of agressively investigating and reversing disputed charges does not appear to be in Durbin’s cost formula, credit cards will likely provide less consumer services.  Durbin’s amendment would turn credit cards in to regulated commodities with limited value to consumers.  Expect far fewer people to use credit cards when they offer limited service and no perks.

This brings up Durbin’s second misrepresentation – that his amendment would help small business.  Contrary to Durbin’s understanding, credit cards help small business.  Prior to the dominance of Visa and American Express, only large corporations issued credit cards for their customers.  Major department stores and gas stations issued their own cards.  There is nothing in the Durbin amendment to discourage large companies from offering credit card perks on their own cards.  Companies like Visa allow small businesses to better serve their customers and thereby compete with larger companies.  Without the ubiquity of Visa, consumers will be incented to shop at large retailers with their own credit cards and customer perks.  As is most common with Washington, this bill will actually harm small businesses and enrich the big ones.

Which company might benefit the most form the Durbin amendment?  PayPal stands to gain because it charges fees for processing credit card transactions.  PayPal would continue to charge unregulated fees for moving money, but would pay out far less to the credit cards it accepts.  Not to get Glen Becky here, but Ebay, PayPal’s parent company, did give Durbin $1000 the last time he was up for election.

So, a far left Senator from Illinois puts through a surprise amendment that stifles consumer choice, harms small retailers in favor of big businesses, and handsomely rewards one of his corporate donors.  Hardly news, to be sure, but it is one more reason to turn out at the polls this November.