Kentucky Club for Growth
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September 30, 2008

The Financial Market

The Club for Growth opposed the bailout, many conservatives voted against it, and it was defeated.

There is a crisis of confidence building in the system.  Trust has eroded between institutions, not unlike the conditions that existed during bank runs at other times in our history.  Some economists contend that this crisis of confidence is due mostly to the psychology created by the rhetoric of our political leaders:

"The isolated storms in housing, finance and energy, are now being exaggerated by excessive government intervention (on a knee-jerk basis), mark-to-market accounting and panicky words from political leaders. As a result, consumers are pulling back, credit is being squeezed even to solid, well-run businesses and the economy is being threatened by this spreading panic."

This idea seems supported by the fact that, while the financial panic reminds us of the 1930s, there are more differences than similarities:

If you look at the data, you will see more differences than similarities between the 1930s and today:

  • In the crash of 1929 the Dow Jones industrials plunged 40% in two months; this time around it has taken a year to fall 22%.
  • The jobless rate jumped to 25% by 1933; it is little more than 6% today.
  • The gross domestic product shrank by 25% during the early 1930s; it is up over 3% during the past year.
  • Consumer prices fell by about 30% from 1929 to 1933; and the last time I looked they were still rising.
  • Home prices dropped more than 30% during the Depression vs. about 16% today.
  • Some 40% of all mortgages were delinquent by 1934 compared with 4% today.
  • In the 1930s, more than 9,000 banks failed compared with fewer than 20 over the past couple of years.

Remember also it was policy errors, not the stock market crash, that caused the Great Depression:

  • Instead of increasing the money supply, the Federal Reserve of that era reduced it by one-third.
  • Instead of lowering taxes, Herbert Hoover raised them.
  • And to channel whatever demand was left into U.S.-made goods, the government enacted the Smoot-Hawley Tariff Act to keep out foreign products; this only provoked our trading partners to do the same.

Of course, if credit continues to dry up, the money supply may actually contract, regardless of Federal Reserve action.  As banks lose confidence, they pull in capital and don't use it to create new capital.  The Wall Street Journal suggests three criteria for a plan to recapitalize the system:

Any plan has to fulfill at least three objectives: It has to have a real chance of preventing the deep and prolonged recession that is likely to ensue if the financial system is not recapitalized. It should strive to achieve that first objective at the lowest possible costs to the U.S. taxpayer. And it should not bail out the existing investors to avoid sowing the seeds for the next crisis.

The article goes on to offer suggestions on how to fix the current proposal to achieve these goals, but it seems to me that there are a few other things to consider.

The reasons for the difference in the 30’s and today are many, but most are related to the fact that, in reaction to the bank runs of the 1930s, we built a system designed to prevent them in the future.  This system relies on the Federal Reserve as a lender of last resort, and the transaction account deposit insurance of the FDIC.

This security system was designed to create confidence in the banking system, which back then was most of the financial system.  Today, banks are no longer the only substantial portion of the financial system, and this is why we have seen the Federal Reserve expand its lending to non-banks.

Where the Fed is adapting its role as lender of last resort to the new financial system, the old FDIC limit of $100,000 is no longer adequate to serve its purpose and must be raised or eliminated to create a refuge of confidence in the system.  Raising this limit and creating this refuge for capital could also help recapitalize banks by encouraging deposits to return.

In any case, adapting the old safety system to the new reality of the financial market, or even bailing out bad decisions can not accomplish what is necessary for our economy to recover from this massive loss of wealth: economic growth.  Lawrence Summers points out that:

Indeed, in the current circumstances the case for fiscal stimulus -- policy actions that increase short-term deficits -- is stronger than ever before in my professional lifetime. Unemployment is almost certain to increase -- probably to the highest levels in a generation. Monetary policy has little scope to stimulate the economy given how low interest rates already are and the problems in the financial system.

If we really want to speed recovery, it is time to address the fact that the US has the second highest corporate tax burden in the world and cut taxes that improve the long-term health of the economy.

September 29, 2008

Shortsightedness

Displaying the familiar shortsightedness usually reserved for promoting new government spending, the Courier-Journal actually defends LRC Director Bobby Sherman's 47% pay raise as saving money.

In true liberal logic, they posit that raising his salary to prevent him from retiring saves the state from paying his pension plus a new salary to a new director.  This time-limited truth has been parroted by legislative leadership like Senate President Pro-tem Katie Stine.

The fact remains, however, that Bobby Sherman will retire and, thanks to the pay raise, be owed the same pension. 

A new director will still need to be hired, only now at a much higher salary, because it will be hard to recruit a new director with the promise of a 33% salary cut.

Also, raising the top salary at the LRC effectively raises the ceiling on all other LRC salaries, meaning everyone’s going to be more expensive.

At least when Senate President David Williams argues that Sherman is uniquely qualified he makes an arguable point

Anyone arguing that this is a cost-saving measure has simply been duped.

 

September 27, 2008

Beshear's Internet Folly

While other media don't seem to understand yet that Don Beshear de la Mancha's quest to seize domain names from the Internet is both overreaching and a bad idea, Stephanie Steitzer of the Courier-Journal continues to reveal just what sort of trouble the Governor has gotten the state into.

Instead of concentrating on the sites that surrendered their domains to the state and simply moved, Steitzer notes an increasing realization among the actors that they have gone in a direction they have no business going, and a new reluctance of the actors to stand by their positions.

Not only has the judge declined to act, the Governor's spokesperson is starting to caution that the state really isn't putting any resources into it.

Americans for Tax Reform will be in Frankfort Tuesday to discuss this issue.  It will be interesting to see if the administration continues to back away or stands by their bad idea.

Kentucky's Longest-Serving Speaker

I don't think Jody Richards is a Bobby Sherman fan.

Because Richards is Kentucky's longest-serving Speaker of the House, during a time when we have seen the size of Kentucky's government and debt rapidly grow and Kentucky's competitiveness diminish, we are always amused when Richards is suddenly concerned for the taxpayer.

Richards has filed a bill to rescind the LRC director's 47% raise, and now wants to call an LRC meeting to vote on it again.  The Bluegrass Policy Blog is also amused.

Pat Crowley notes that Rep. Adam Koenig is also concerned about the raise, and that he has a blog.

September 26, 2008

Beshear Wants to Talk to You and Tell You Who to Vote For

Kypolitics.org passes along another instance Governor Beshear traveling up to a campaign event on the taxpayers' dime.

A Swarm of Litigation

A swarm of litigation is about to descend on Kentucky due to Governor Beshear's folly to take over the Internet.  The Courier-Journal provides some good quotes as companies and advocates start to realize the Governor is not just some fool shooting his mouth off, but some fool quixotically wasting taxpayer dollars.  From the article:

The nonprofit Internet Commerce Association, which represents domain-name investors and developers, called the move a "dangerous precedent" in a statement on its Web site.

"It appears that there may be no statutory basis for this unprecedented action, that Kentucky may lack sufficient jurisdictional grounds and that it also may violate the commerce clause of the U.S. Constitution," association President Jeremiah Johnston said in a statement.

...

Experts however, say the state should be prepared for massive legal battles, not just from the gaming industry but from free-speech and Internet commerce groups as well.

"I'd say (the governor) has underestimated the expense of this battle, and he's also underestimated the backlash," said Andrew Allemann, a domain-name industry expert from Texas.

...

Allemann said he doubts the governor will ultimately be successful in his lawsuit.

David Adams reports on the reaction from Americans for Tax Reform.

September 25, 2008

The Bailout

Here are links to the national Club for Growth's statements on:

The proposed bailout - Club for Growth Condemns Federal Bailout
Bush's Address - Congress Should Say No to a Bailout
The RSC's proposal - Hensarling on the Bailout

The Indispensable Bobby Sherman

Every year, state government employees receive some sort of raise.  In recent years, it's been lower, but it has occurred.  Usually it is a flat percentage across the board.  Because many state employees have served the state for many years, and received raises every year, employees who started out at moderate salaries now receive very comfortable ones.  If an employee started as a staff assistant making $24,000 per year, and kept that job for 25 years, with an average raise of 3% (the law actually mandates 5%), that employee would now be making over $50,000 regardless of any change in their duties or responsibilities.

I do not mean to minimize the value of experience or even the value of a good assistant, but that kind of change in salary should really require an increase in responsibilities, a promotion, not just time.  Generally, serving a certain amount of time in one position should prepare individuals for the next level of responsibility.  They will earn the promotion, be given new responsibilities, and earn a higher salary.  A new, less experienced individual will be brought into the old position which has a lower salary.  That is the theory of an efficient system.

There is a ceiling on the value of certain positions, and sometimes, instead of raises, it requires graduating the incumbent and bringing in someone new so that salary expectations will match the position's value.

This year, Kentucky's legislators appropriated themselves a 5% annual budget increase (HB 407) with only seven brave votes against it: Reps. Addia Wuchner, Brad Montell, Kevin Bratcher, Jim DeCesare, Bill Farmer, Danny Ford, and Jimmie Lee.

Yesterday, legislative leadership voted 11-5 to give LRC Director Bobby Sherman a 47% pay increase.  Of House and Senate Republican and Democratic leadership, only Reps. Jody Richards, Larry Clark, Rocky Adkins, Charlie Hoffman and Sen. Joey Pendleton opposed.  Supporters say the $195,000 salary was necessary to keep Mr. Sherman from retiring.

Bobby Sherman has done a fine job at the LRC.  That does not mean that someone else could not also do a great job. 

Not only is such a drastic increase unnecessary, it basically raises the ceiling on all other LRC salaries.  No wonder the Legislative Budget needed such a big hike!   This is just another example of how truly unserious our legislators are about using taxpayer money wisely.

Read David Adams' take.

September 24, 2008

Kentucky's Economic Landscape

This week, the Bluegrass Institute published a white paper summarizing Kentucky's poor showing in the 2008 US Economic Freedom Index by the Pacific Research Institute.

Jim Waters of the Bluegrass Institute points out Kentucky's freefall from No. 29 in 1999 to No. 40 today, despite the constant claim of our political leaders to want to create a "better economic landscape" in Kentucky.

It also notes that Americans vote for better economic policy with their feet:

"Net migration for the 20 economically freest states between 2003 and 2007 was 27.36 people per 1,000....

"The migration rate for the 20-most economically oppressed states – those at the bottom of the freedom index – was only 1.17 per 1,000."

The short report "Index points finger at Kentucky’s economic failure" is certainly worth a read.  David Adams also notes the report on the Bluegrass Policy Blog.

Liberal Hope

Yesterday, we wrote about Governor Beshear's plan to commandeer the Internet.  Today our concerns are confirmed in the liberal hope of the Courier-Journal:

"More important, the state's strategy -- pursuing a civil lawsuit to try to force Internet gambling sites to block access by Kentucky players or else surrender control of their domain names -- seems novel.

"One possible outcome is that Internet gambling operators might agree to regulation and taxes."

"Hey look! The Internet is relatively free from regulations and taxes.  Quick! Get it!"

Good Bad Government

Boone county taxpayers are relieved after carelessness by the county government keeps property taxes at a compensating rate.

A commenter on the article linked to http://www.stoptaxingboonecounty.blogspot.com/, which is worth a click.

September 23, 2008

Beshear Versus the Internet

Our governor did his part to support the employment of reporters yesterday by announcing a cockamamie (and likely illegal) scheme to rule the Internet.  In an idea charitably described by one expert as "a stunt", Beshear announced his intention to shut down internet gambling in Kentucky by seizing the domain names of casinos that operate online and allow Kentuckians access.

Whether or not these sites should be shut down is not Kentucky's prerogative.  I'm not a constitutional law expert, but I'm pretty sure the Internet in almost all instances is interstate commerce and therefore not subject to regulation by the states in any way, rendering Beshear's effort a taxmoney-wasting folly.

But if I'm wrong on this count, Beshear is setting a dangerous, dangerous precedent for regulating the incredible free-market success story that is the Internet.  I'm sure I don't have to describe what the Internet adds to daily life, but I'll focus on one part of it relevant to Beshear's dastardly plan: the World Wide Web.

The World Wide Web did, in fact, create itself.  It is not a product of any person, agency or company, but a consortium that sets goals of standards and lets consumers adapt to what works best.  There are many, many different technologies that access, read and create the Web, and it is truly an amazing ad hoc construction that constantly evolves as market forces determine what succeeds and what fails.

Beshear is suddenly suggesting that every state has a say about what is and is not allowed.  Can you imagine what effect 50 sets of regulations would have on Internet commerce?  Where the Web has been catalyst of innovation and productivity in the last two decades, it would become, well, the health insurance industry.  Foolish ideas like Beshear's are why Google is looking into barges

Beshear should abandon this waste of time and taxdollars.  Think of all the policy advisors he could hire instead.

Art Plan

The City of Louisville is going to pay some New Yorkers $50,000 to plan art in the city.  Let me get this straight, Louisville doesn't get art for $50,000, only a document outlining some limits about how creativity may be appropriately apportioned.

Is that the best use of $50,000 Jerry?  Maybe you could donate that $50K to some city that was badly damaged by a recent storm or something...

Advancing "Green" Energy

NKY.com today has an article titled "Attitudes shift on green energy" which reveals great truth.  See if you can pick it out from these quotes from the article.  I've added emphasis to help you out:

Just within maybe five years we've seen increases in fuel, in propane, in electricity, and all those are taking a bigger chunk out of people's budgets," Davies said. "They're looking at new opportunities, other opportunities to save on costs, but there's also been a new interest on the environment, on greening."

Covington's city government recently hired two companies to trim $180,000 per year in utility costs from its budget.

"People are thinking green," she said. Plus, "The price has come down - they're much more reasonable now."

"If we encourage customers to (conserve), No. 1, there are systemwide savings because instead of spending $4,000 for the same service reliability, you're spending $400 - that's a good deal," Migden-Ostrander said. "And secondly, any customer who participates in the program gets a reduction in their bill, because they have reduced their usage."

She has thrown away all the old incandescent bulbs in her house "because they're too inefficient," she said. "Because it'll save me money in the long run, and it's the right thing to do."

What kind of "green" do you think is driving this supposed shift?

September 22, 2008

Alessi Wrong on Earmarks

Ryan Alessi's column in today's Herald Leader is headlined "Voters like only their pork pie, no one else's".  It is built around this quote from Joe Gershtenson, "director of the Kentucky Institute of Public Governance and Civic Engagement at Eastern Kentucky University."

"People don't like Congress but they like their own member of Congress. It's the same with earmarks," he said. "We don't like earmarks but we like the money coming to our state and to our district."

Like many commonly-held thoughts in the media, this one is plain-ol' WRONG!  As national Club for Growth President Pat Toomey pointed out back in July:

"Voters across the board have finally found something they can agree on even if their elected officials can't: It's time to cut the fat, even if that means fewer projects for their own districts.

"Conducted in late June, the poll surveyed 800 voters and had a margin of error of plus or minus 3.46%. Likely voters were asked the following question: "All things being equal, for whom would you be more likely to vote for the U.S. Congress: 1) A candidate who wants to cut overall federal spending, even if that includes cutting some money that would come to your district or 2) A candidate who wants to increase overall spending on federal programs, as long as more federal spending and projects come to your district?"

"The results were unambiguous. Fifty-four percent of general election voters chose the frugal candidate, compared with only 29% who chose the profligate candidate. Republicans overwhelming favor less federal spending, 72% to 17%, with independents close behind at 61%. Only Democrats prefer more federal spending, but only by a plurality. Thirty-six percent of Democrats chose the more fiscally conservative candidate, with 42% choosing the alternative."

Read the editorial here: Voters Want Less Pork, Even in Their Own District.

September 15, 2008

Pork in Kentucky

Kentucky's Coal Severance Tax is currently designed so that half of the tax revenue is reserved for Kentucky's coal-producing counties.  The idea is that these are areas of Kentucky that need economic development assistance to keep up with Kentucky's urban centers, and the revenue was generated from land and citizens in the counties.

There are many problems with the execution of this idea, and one of the big ones is Pork Earmarks by the General Assembly.  David Hawpe, of all people, puts together an embarrassing list of pork projects from the last budget, saying:

"It makes no sense to toss these little wads of this money everywhere and hope they'll lands somewhere useful."

This raises the number of times I remember agreeing with David Hawpe up to: One.  Read it here (C-J).

September 11, 2008

The 2008 Legislative Scorecard

For the second year, the Kentucky Club is proud to present our Legislative Scorecard.  We have ranked Kentucky's legislators based on their votes on issues of fiscal responsibility and economic freedom.  Follow the links below to see how your legislators ranked.

The 2008 Legislative Scorecard
The Press Release
2008 House Votes Scored
2008 Senate Votes Scored
Explanations for Scoring

 

LFUCG Control

We blogged too soon earlier.  Lexington says you can't do what you want with your own property.  Councilman David Stevens was trying to help, but for some reason is giving up the fight.

Stumbo v. Richards

It's official.  Greg Stumbo will challenge Jody Richards for the Speakership in the coming session.  Stumbo even says he has some Republican support.

What do we think?  They're both at the bottom of the barrel.  In our forthcoming 2008 Legislative Scorecard, Richards comes in at #78, which compares favorably only to Stumbo's rank #88.

Surely, if there is such a division in the caucus, there should be an opportunity for someone other than these two liberals to make a case for leadership?

And, as a shot across the bow, the vote on the Speakership, even if it is only the House Resolution adopting the rules of the House, has a strong possibility of being included on the 2009 scorecard.  The Kentucky Club For Growth implores fiscal conservatives to make their voices heard!

September 9, 2008

A Fannie spankin'

The national Club for Growth on the buyout of Fannie and Freddie.

No comparison in Kentucky!

Since she was introduced to the world a couple of weeks ago, it seems as if many here in Kentucky are looking for the Commonwealth's version of Sarah Palin.  Stop!  You will not find that person in our legislature.  I can assure you she would never have supported the Peabody bill, the ridiculous debt, nor the revenue "enhancers" that have become so popular in Frankfort.  Maybe, just maybe, we can find a hero willing to take on the absurd CON the way Gov. Palin has in Alaska.  Until then, it is like finishing out of the money in a horse race; a bunch of "also-rans" running Frankfort.

Thanks to our friend David Adams for pointing out the article.

Weekly Update Delay

Just wanted to note for anyone expecting the Weekly Update today that we're holding it for a couple of days to coincide with the launch of the 2008 Legislative Scorecard.

If you don't already receive the Weekly Update email, sign up here.

Pat Toomey on McCain-Palin

In an interview, Club For Growth President Pat Toomey explains that there is alot to like about the McCain-Palin ticket.

September 8, 2008

Fingers pointing, missing the point

In the 08 Regular Session, Northern Kentucky Rep. Dennis Keene and Sen. Katie Stine did a bit of good in HB 103 which eliminated a courthouse property tax in Campbell County, the only one of its kind in Kentucky.

Unfortunately, the fiscal court has used this as an excuse to hike property taxes in the county more than double the allowable 4%.

Cincinnati.com has an amusing article this morning reporting Rep. Keene and Sen. Stine ‘blaming each other’ for the increase, completely ignoring that accountability lies entirely with the folks who voted to raise the taxes: the fiscal court.

Here is the Campbell County directory, for anyone interested...

September 4, 2008

Club for Growth on McCain speech

From the national Club for Growth PAC:

"In his speech, Senator McCain emphasized important differences between himself and Senator Obama on economic issues," said Club for Growth President Pat Toomey.  "Senator McCain committed himself to cutting taxes, while Barack Obama has pledged to raise them.  Senator McCain vowed to cut government spending and eliminate pork-barrel spending, while Barack Obama has been part of the spending problem in Washington.  And Senator McCain pledged to open our borders to free trade and offer American parents genuine school choice.  Senator Obama has pledged to implement the exact opposite.  The American people should be encouraged by Senator McCain's vision of lower taxes, smaller government and more individual freedom."

September 2, 2008

Good Bills

Now that the 08 Scorecard is prepared, I thought we’d highlight some of the bills that were graded. 

Here are some of the good bills from the 2008 Regular Session:

The best Pro-Growth bill that became law:
HB 44
One of the many, many issues that prevents health care from functioning as a market-based system is the lack of information.  Information about price and quality are fundamental requirements for a functioning market.  Creating this sort of transparency in the market is one of the important steps to reforming the system.

The best Pro-Growth bill that passed one house:
SB 14
The office of the Treasurer has little responsibility outside of printing checks and sitting on a few boards.  It serves no role in checks or balances on the system that would support an argument for it continuing to be an elected office, serves no function that is exclusive to the office, is an unnecessary use of taxpayer dollars and should be eliminated.

Best Pro-Growth bill with no activity:
HB 105
Putting what our government spends online will help citizens be better informed.

If you're interested in what the worst bills were, make sure you're signed-up for our e-newsletter!

Struggling Laborers

Lexington Senate Candidate Kathy Stein spoke at a Labor Day Rally For a Living Wage.  The HL in its short article explains that everyone not making $12/hour is struggling, displaying a common unrealistic conceit: that someone making minimum wage will always make minimum wage.  The fact of the American economy is that labor is not stagnant, but constantly changing.  There are entry-level jobs and there are jobs with experience, and they all pay differently.  If someone’s wages are that low, it’s most often because they’re just starting in the labor force.

Quality Sites

Cato Institute
National Club for Growth

Blogs

AFP Blog
Alarming News
American Spectator
Ankle Biting Pundits
Betsy's Page
Boudreaux's Blog
Business & Media Institute
Cafe Hayek
Callaxy.net
Cato @ Liberty
CNBC's Squawk Blog
Constrained Vision, A
Coyote Blog
Dean's World
Federalist
Flash Report
Grassroots PA
Kudlow's Money Politics
Manufacturers' Blog
Marginal Revolution
NTU's Government Bytes
Newmark's Door
One Man's Trash
PoliPundit
Politics1.com
Politics of Money
Poor and Stupid
Porkopolis
Professor Bainbridge
Raising Farrahzona
RedState.com
Rossputin.com
Sibby Online
South Dakota Politics
Sports Economist, The
Tax Guru

Kentucky Blogs

Bluegrass Policy Blog
Blue Grass, Red State
ConservaChick
Conservative Edge
Conservative Musings
CyberHillbilly
Elendil's Blog
Jefferson Review
Jim Clark's Muckraker
Kentucky Pachyderm 2
Kentucky Progress
KY Wordsmith
On the Right!
Osi Speaks!
Page One Kentucky
The Pure Investor
Vere Loqui

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The KY Club for Growth seeks principled candidates who are committed to the following:

* Free market principles
* Lowering taxes
* Reducing spending
* Decreasing the size of government
* Judicial reform
* Protecting property rights
* Expanding school choice
* Reducing needless regulation

We will hold endorsed candidates accountable for these principles by monitoring each candidate on a vote-by-vote basis. As a Club member, you will receive candidate monitoring updates and scorecards on a regular basis. Join us today.