Category: Government

The Dow Jones Industrial Average is on its way to posting another triple-digit gain Monday, as more encouraging data on the housing market boost hopes that happy days are here again for the U.S. economy.

Tell that to state governments.

State tax revenues have been in a freefall over the last year -- the steepest drop in tax collections seen in more than 50 years. Overall state tax revenues dropped 10.7% in the third quarter, compared to the same period a year earlier, in the 44 states providing tax data to the Nelson A. Rockefeller Institute of Government at the State University of New York. (Find the complete report here.)

There's a great line in an early scene of the musical "1776". Richard Henry Lee of Virginia has introduced a resolution declaring the 13 colonies "free and independent states" and the Second Continental Congress is deciding if it should consider the proposal and open debate. A tied vote is broken by Stephen Hopkins of Rhode Island, who declares, "In all my years I never seen, heard, nor smelled an issue that was so dangerous it couldn't even be talked about. Hell yes. I'm for debating anything."

There were no transcripts of the proceedings of the Continental Congress. Playwrights Sherman Edwards and Peter Stone used writings by and about the founders for much of the dialog, but I've never been able to find anything to prove that Hopkins really said that, or anything resembling it. Still, even if we do not know what the founders said, we know what they did. They did debate and approve the resolution, even though their action put them individually at grave personal risk as it moved their constituants from insurrection to outright war.

The October unemployment data shows that we've topped 10 percent, with broader measures above 15 percent, even as GDP (thanks mostly to misguided government spending) grew in the third quarter. Unemployment has historically been a lagging indicator during recoveries, so it's not that much of a surprise to see trailing as other small signs of recovery seem present. However, there might be another explanation for unemployment being not only "slow to recover" but still rising: the health care debate.

The debate surrounding the future of health care in the US produces a great deal of uncertainty. Firms who see an even more competitive future in which they will have to be even more cost-conscious might be very hesitant to hire until they have a much clearer sense of what, if anything, will come out of the current debate and what its effects on the costs of hiring will be. With so many unknowns, most of which will matter for hiring, firms might be holding off. This is a version of the regime uncertainty problem that kept private investment low during the Great Depression (discussed in my last entry). In this case, it's affecting employment rather than investment.

So it's on to the Senate. And if you think it was tough getting health care reform through the House, wait until the self-proclaimed "world's greatest deliberative body" gets hold of it.

In the end, majority rules in the House. So while the process of making law resembles the making of sausage, in the end, something usually comes out. If HR 3962 were to become law, most Americas who do not have insurance will no longer have to choose between death and destitution if a serious illness arises; Americans now insured through group plans arranged by their employers will no longer have to fear being thrown to the wolves running the market for individual insurance policies if they lose their group coverage; and Americans swimming in the individual coverage pool will no longer have to fear being denied coverage or priced out of the market due to a previously existing condition, or having coverage rescinded if a claim is made. We will all be free of the fear of running into a life-time cap which means a catastrophic illness leads to bankruptcy.

I don't know about you, but today's employment data makes me thankful to have a job. Now 1 person in 10 is out of work. In my anecdotal experience, things feel even worse. I see an increasing number of fathers doing drop off at kids' schools, something I didn't see a year ago. And there doesn't seem to be any change in the number of requests I'm getting for job contacts -- and not just for leads in my field.

One interesting fact I came across: If the 15.7 million unemployed lived in one state, that state would be the country's fifth largest. Wow!

But, even more distressing than today's jobs report is the outlook for employment. After the Q3 GDP report came out, hopes were high that the Great Recession was over, and recovery was finally underway.

The largest financial firms made out under the government's asset guarantee program. That's the conclusion of the panel overseeing the program for Congress. Harvard Law School Professor Elizabeth Warren chairs the panel. She says while the program hasn't lost taxpayers money so far, it has fundamentally changed our system. Now all big financial firms have an implicit guarantee by Uncle Sam. Warren says reforming the financial regulatory system is our "only hope" to fix that moral hazard.

Warren has also championed a new Consumer Financial Protection Agency to keep banks honest. Congressman Barney Frank wants Warren to lead that agency, but her critics say she doesn't have any "real world" experience. Warren says she hates banks that cheat their customers. Watch the video clip below to hear some of her thoughts on how banks treat their customers. Then let me know what you think.

The number of workers receiving pink slips each month is finally beginning to tail off, but companies plan to keep laying off workers despite signs of a pick up in the U.S. economy.

Private-sector employers cut 203,000 jobs in October, after eliminating 227,000 jobs the previous month, according to a report out today by payroll giant Automatic Data Processing Inc. and Macroeconomic Advisers LLC, a consulting firm that specializes in economic forecasting.

On a more encouraging note, U.S. companies said they were planning fewer layoffs going forward. Planned layoffs at U.S. firms fell to 55,679 in October, down from 66,404 a month earlier, according to outplacement-consulting firm Challenger, Gray & Christmas Inc. The bulk of the layoffs are expected to come from the auto industry, non-profit firms, and state and local governments.

For the last couple of weeks, we've been having a huge national debate over what to pay people.

Ken Feinberg, the Treasury's Special Master, has weighed in on bailed -out banks. The Federal Reserve is getting into the act, asking banks to explain the relation between pay practices and risk.

Today it was the Supreme Court's turn to dip a toe into the national discussion.

The case at hand is Jones v Harris Associates. Jones and two other plaintiffs are individual investors. Harris Associates is the sponsor of the Oakmark Funds and the investment adviser, a common feature of the mutual fund industry. To manage the conflict of interest between the adviser and the fund it operates, the law requires compensation be set by an independent board of trustees representing the fund.

The shareholders in this case argue Harris' fees are excessive because they are twice as high as those charged to institutions for virtually identical advice. Harris -- and the mutual fund industry -- argue the advice and services are very different, justifying the higher fees.

Law makers are closing in on approving an extension of federal unemployment-insurance benefits. The bill would provide an extra 14 weeks of benefits for people who've exhausted their benefits. Those who live in states where the unemployment rate is more than 8.5 percent would get up to 20 weeks of extended benefits.

It's tough to argue that extending unemployment benefits is a bad idea at a time when more than 15 million people are out of work. The extension would come at a time when as many as 7,000 people a day are exhausting their unemployment benefits.

But that doesn't stop some people from trying.

That old adage, "lies, damn lies, and statistics," popped into my head after finishing my story tonight. How much will a public health care plan cost? The House bill allows for $2 billion dollars to seed a public option plan. That money would pay for administrative start-up costs and initial reserves. The bill expects the plan to pay back that money over ten years. The American Academy of Actuaries and the Society of Actuaries figures it would take between $1 billion and $42 billion in the first ten years to start up a public plan. The wide range depends on how many people enroll, how high their claims are, and how much they pay in premiums.