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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss Japan, iPad2 sales, and the minimum wage.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

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Since the beginning of government, the ambition of those who spend money has rarely been matched by the ability of citizens to pay for government.  Modern day America, California or Greece are not exceptions to the rule, just examples of yesterday on a more grand scale today.  As perpetual as that problem is  - so too is the argument over the best way to raise tax revenue.  In simple terms, lower tax rates produce a more vibrant economy and higher revenues over time.  Higher tax rates do the exact opposite.  Heading into 2012, the Country cannot afford for Republicans to lose that economic argument.

The issue of taxes produces perhaps the greatest display between real politics and false economics.  Politicians throughout time have passed laws claiming to raise taxes.  In truth, politicians pass laws that raise tax rates.  That is a political process.  From there, the laws of economics take over.

In general, throughout all time, people adjust their behavior in reaction to political laws by acting in accordance with economic laws which are driven by human nature.  So if the penalty for speeding went up to $5000 per ticket – the number of people who speed would be reduced.  If the penalty for making income increases, i.e. taxes, rises – the amount of income actually made or reported will be reduced over time as well.

Today we are faced with astronomical deficits nationally and in many states.   The debt repayment obligation for California next year alone is larger than the budgets of 21 states.  What should governments do?  Should they politically raise tax rates? Or should they economically lower rates?  The answer is the latter and if Republicans (1) fail to make the argument why in 2011 and 2012, as this article implies they will, Grover Norquist, Tom Coburn duel over tax hikes , and (2) don’t stop simply saying NO to so-called tax increases, then Barack Obama will be reelected.

Consider this argument for cutting tax rates to raise revenue:

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The mind-numbing, esoteric mumbo jumbo that dominates so much of the reporting and commentary on public-sector pension funds seems designed to cause the tax-paying public to surrender and acquiesce to letting their civil servants or elected officials iron it out.  Well, unfortunately, that’s how we got into this mess in the first place. Fact is though; it isn’t really all that confusing.

Trudge through the technical thicket of defined compensation versus defined benefits, or unfunded liabilities versus deferred compensation, or present-value discount rates predicated on zero-risk returns versus discount rates predicated on highly leveraged exchange-rated funds and we find a rather simple issue.  Will there be a fund with enough money to pay the workers’ pensions when they retire? And if not, do the voters understand that the typical public employee pension fund has, in effect, an open call on their checking or savings account through a contractual agreement that requires the local or state government to raise taxes (or lower government services) in order to cover fund deficiencies?

Yes, we understand that the state can go into additional debt to cover the shortfall, but that ultimately becomes the responsibility of the taxpayer too.  If the voters are fine with that, then they have no complaint.

We don’t mean to pick on public-sector pension funds.  Certainly, private sector pension funds can be just as underfunded as public-sector pension funds. There is, however, a big difference.  An unrealistically generous private-sector pension fund (one with over zealous return-on-investment assumptions, or too small an employer/employee contribution) may simply put a company out of business. At some point, the company may not be able to pass along the high cost to its customers (think pre-bail-out General Motors). An unrealistically, generous public-sector pension fund, on the other hand, doesn’t really ding the government that employs its members. It simply dings the taxpayer.

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WikiLeaks has promised to being releasing today a swath of emails and other internal documents from Bank of America. Count us as very interested if this comes about.

So what would happen if Barack Obama were to keep his promise to shut down the military detention facility at Guantanamo Bay and release enemy combatants housed there? According to the Bush administration, these terrorist sympathizers would immediately “set out to kill Americans or other innocent civilians around the world.”

That bleak assessment comes from a batch of documents from the Department of Defense (DOD) recently obtained by Judicial Watch. Overall, they detail the policies of the Bush administration related to the detention of enemy combatants at Guantanamo Bay, as well as the significant risks to the general population if the detainees were released.

The records, which we got through the Freedom of Information Act, include a “Summary of Conclusions” for a June 19, 2003, meeting of the National Security Council (NSC) Principals Committee, which included top Bush administration officials, as well as a February 4, 2004, draft presentation entitled “Guantanamo Detainees” that was previously marked “Not for Public Dissemination.”

Here are a few of the highlights:

•The NSC Summary of Conclusions includes a detailed list of Bush administration officials who attended the June 19, 2003, meeting, including: Former National Security Advisor and Secretary of State Condoleezza Rice, who chaired the meeting; Former Defense Secretary Donald Rumsfeld; Former Attorney General John Ashcroft; Former Deputy Secretary of State Richard Armitage; and White House Counsel Alberto Gonzales, among others. The meeting included representatives from the Departments of State, Defense, Treasury, and Justice as well as the Office of Vice President, CIA, White House Counsel, Joint Chiefs of Staff and National Security Council.

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From Politico:

The first round is over. Republican Gov. Scott Walker delivered a crushing defeat to government employee unions in their fight over labor rights in Wisconsin.

But the passage of a law stripping away collective bargaining rights for public-sector workers has touched off a much larger political battle that threatens to spread over Wisconsin’s borders and across the 2012 landscape.

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Unions have never represented a majority of the American workforce. However, to listen to today’s union bosses, one might be led to believe that they did. Ever since their peak, in 1945, when unions represented a total of 35.5 percent of the workforce unions in the private-sector have been on an almost steady decline. The common fallacy is that the union decline is due to the Reagan Era. That, however, is a false narrative.

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On December 27, 2010, Alfred E. Kahn died. He was 93 years old. You might not know who Alfred Kahn was, but if you are an air traveler or work in the airline industry, you have been affected by his work. In fact, most likely, the vast majority of Americans have benefited by Kahn’s work without knowing who to thank. Alfred Kahn was a Cornell University economist and, according to the New York Times, “best known as the chief architect and promoter of deregulating the nation’s airlines.” More importantly, Alfred E. Kahn worked for President Jimmy Carter.

Kahn’s work in deregulating the airline industry during the Carter administration was an economic boon to tens of millions of middle-class Americans who, due to lower costs, were suddenly able to travel by air, rather than by car, rail or bus. Deregulation also lowered the costs for companies, as the increasing competition made business travel more affordable. By largely getting rid of bureaucratic inefficiencies and increasing competition, according to a Heritage Foundation study, prices fell 40% for travelers within the first 20 years of airline deregulation giving more and more of the American public the ability to fly affordably. Airline routes, instead of taking up to eight years to be approved (or disallowed altogether) under the old Civil Aeronautics Board were established much more quickly; and, perhaps most importantly, under deregulation, air travel became safer.

However beneficial Kahn’s work has been to the American flying public, it is only one of several keys to unlocking one of the biggest fallacies ever foisted on the American public. That fallacy is that the policies of Ronald Reagan are the primary cause of the fall of private-sector unions. The fact of the matter is, they are not. Reagan’s policies are not what has busted unions over the last 30 years. In fact, it is the work of Democrat Jimmy Carter and his deregulators that has had a far more detrimental impact on unions than Reagan ever did. In addition, it is also why, regardless of the efforts of union bosses and their Democrat stooges in Washington, despite a potential temporary upswing, no amount tinkering with the National Labor Relations Act will enable private-sector unions to regain their footing in a 21st Century economy.

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The anti-government “throw-the-bums-out” crowds have had their chance to speak out on how to curtail the deficit and what to do with those hated entitlements that are the antithesis of the America they pine for. A recent WSJ/NBC News poll provided a glimpse of just how dependent on big government entitlements Americans have become–even among the Tea Party. Not that this should be a surprise to anyone watching the slow shift of the American mindset from citizen, to consumer, to ward of the State over the past century.

According to the Wall Street Journal who co-sponsored the poll, “Americans across all age groups and ideologies said by large margins that it was ‘unacceptable’ to make significant cuts in entitlement programs in order to reduce the federal deficit.”

No wonder President Obama in his State of the Union speech only paid lip service to Social Security and Medicare reform, mentioning each by name only once in over 7,000 words of text. He knows what Americans are really about as summed up in the old adage: “It all depends on whose ox is being gored.”

And the poll exposes a potentially discrediting hypocrisy within the Tea Party movement who claim to be for smaller government and a return to a libertarian Nirvana. Consider: by a nearly 2-to-1 margin, self-described Tea Partiers declared significant cuts to Social Security “unacceptable.”

In fact, as the poll reveals, less than a quarter of Americans support making significant cuts to Social Security or Medicare to tackle the mounting deficit about which they cry warnings of impending doom.

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Today is the twice-yearly ritual where the government screws with our clocks. I’ve lost track, are we “springing forward” to the real time or is this some pixie-dust time and we will ‘fall back’ to the real time later this year?

In an episode that will air next week, Mitch Daniels responds to his conservative critics on social issues and defense cuts.  He responds in two ways.  First, while Daniels believes that liberals are the primary aggressors on social issues, he says his truce is meant for both sides.  Second, he says it is about winning elections. “Freedom will need every friend it can get,” he says.  He wants Republicans to succeed in 2012 so they can save America from fiscal disaster.  He admits that challenging Obama will be a tough fight and that Republicans will need voters outside the “values block.”

Daniels has angered many Republicans with his political priorities.  Just this week, five Republican presidential hopefuls at the Iowa Faith and Freedom Coalition and blasted Daniels as completely and irreparably wrong on social issues.  The Wall Street Journal’s Bill McGurn raked Daniels over the coals calling him clueless and out of touch with conservative ideals.

Daniels explains that his call for a truce is a tactical decision.  One made with the understanding that no other issue will matter if America goes broke.

In addition to social issues, Daniels raises conservative ire by putting the defense budget on the chopping block.  Although he worked for two Presidents who had a “peace through strength” foreign policy, Daniels argues financing the defense budget with foreign money is wrongheaded.  He says, “We have not been in this bind before.  We have not been as broke as we are, or are about to be.”  Failing to resolve our financial woes now, he says, will cripple our defense in the end anyway.

While many fellow Republicans are up in arms, Daniels seems to be in line with public opinion.  A recent WSJ/NBC poll found that nearly two thirds of Republican primary voters would be more likely to vote for a candidate that believes the focus should be on the economy and the deficit rather than social issues.  Perhaps the governor is on to something?

Watch the trailer for next week’s episode here:

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Some are now suggesting that President Obama get involved in the NFL strike talks. I was his college classmate at Columbia University and have studied his political career for years. My record of predicting where Obama will come down on the side of an issue and what lie he will tell to rationalize his decision is near perfect. Just call me “The Obama Whisperer.”

Here’s a quick lesson in how he thinks:

First, Obama is a Socialist who believes in the redistribution of wealth. He hates those who have worked hard and earned money — unless they give him massive campaign contributions.

Second, he’s a union hack, who will do anything for unions, even break the law and violate the Constitution — at least for those unions that give him massive campaign contributions. Don’t believe me? Ask the shareholders and banks that loaned billions to GM and Chrysler, only to see their ownership and legal contracts erased by Obama in order to hand ownership to the unions that destroyed the automakers in the first place.

Third, like a true Socialist, Obama believes government has the solution to every problem, and that solution is more government and higher taxes, combined with a prescription of social justice and affirmative action.

Based on his lifetime body of work, here is how I predict Obama will settle the NFL labor crisis:

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Dr. Peter Diamond has once again found himself in the cross-hairs of Sen. Richard Shelby of Alabama, the highest ranking Republican serving on the Senate Banking Committee.  A Nobel laureate and MIT professor, Diamond has been nominated three times for the vacant seat on the influential Federal Reserve Board, twice having been blocked by Republicans at the committee stage for approval to the full Senate.

At the nomination hearing this past Tuesday, Sen. Shelby provided a critical analysis of Diamond’s economic philosophy.

“In short, Dr. Diamond is an old-fashioned, big government Keynesian. Many of us believe that this is not the economic philosophy the Fed should be embracing at this point in our economic history. Our economy is already suffering from excessive government debt and misguided regulation.  Our financial regulators should be trying to take steps to strengthen our markets, rather than replace them with new layers of government.”

Shelby noted Diamond’s support of the President’s $800 billion stimulus package and his call for additional fiscal stimulus.  He also referenced a paper written by Diamond and former CBO Director Peter Orszag that argued for higher taxes.   “The policy preferences of Fed nominees matter,” Shelby observed.

Sen. Pat Toomey of Pennsylvania, a former bond trader and veteran of the financial services community, is no fan of the Fed’s monetary policy, which he feels is over accommodating.  He raised some serious concerns about the likelihood of rising inflation and the result that would have on the Fed’s forthcoming exit strategy from its monetary policy.

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Last year, even as education reformers all across the country were turning cartwheels in celebration of Davis Guggenheim’s “Waiting for ‘Superman,’” I remained skeptical.  I’ve been keeping tabs on the teacher unions for years, and understand how they work hand-in-glove with the Democratic Party. Since Guggenheim is a well-known liberal (who famously directed Al Gore’s “An Inconvenient Truth”), I was certain that “Superman” would tiptoe around the destructive influence Big Labor has on the education system.

Last fall, during some down time on a business trip to New York City, I finally gave in and bought a $13 ticket at a Times Square movie theater to watch “Waiting for ‘Superman.’” I was pleasantly surprised.

I’d gone in expecting Guggenheim to make excuses for the state of public education.  Instead, Guggenheim grabbed the whole thing by the throat and didn’t let go.

He told stories of children who were victimized by a system that puts adults first. He told of union campaign contributions that go to politicians who, in turn, act as the teacher unions’ political puppets. He showed rowdy union rallies and rubber rooms and classrooms that were out of control.

I marveled that a mainstream (liberal) movie maker was exposing the sorry state of public education and the destructive nature of the well-heeled teacher unions.

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America’s unsustainable $14 trillion debt will cripple our nation if we do not stop the spending.  The Obama Administration and Congressional Democrats appear to be unable to garner the strength to curb the debt problem.  One need look no further than Senate Majority Leader Harry Reid’s plea earlier this week to save federal funds for a cowboy poetry festival in his home state of Nevada to see how seriously Democrats take spending taxpayer money.

Obamacare, which was signed into law nearly a year ago, will cost Americans at least a trillion dollars.  With our $14 trillion debt continuing to grow, America simply does not have the money to finance Obamacare.  The lackadaisical approach to cutting spending that the Obama Administration and Democrats in Congress are taking is shameful.  The Republican-controlled House of Representatives must take the necessary steps to defund Obamacare in its entirety.

The House of Representatives has restricted funding through the appropriations process, but there appears to be $105.5 billion that has been automatically appropriated to fund Obamacare. The $105 billion is up-front spending that will help startup Obamacare.

This automatic funding is what happens when a bill of this magnitude is rushed through the Congress and not properly vetted, debated, or considered.  Obamacare is a 2,000 page law that no one bothered to read or understand.  The Obama Administration has already issued 1,000 waivers because of this confusion.  What happened last year is not how government is supposed to work.  If the House of Representatives does not act now, then the gravy train known as Obamacare will leave the station.

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Unimaginable.

Just the thing to do in a recession. From Radio 620AM:

That’s a nice business you got there. Pity if anything were to happen to it if, say, you didn’t toe the line and denounce Governor Walker like we’re asking nice-like.

March 10, 2011

Mr. Tom Ellis, President

Marshall & Ilsley Corporation

770 N. Water Street

Milwaukee, WI 53202

SENT VIA FASCIMILE AND REGULAR MAIL

Dear Mr. Ellis:

As you undoubtedly know, Governor Walker recently proposed a “budget adjustment bill” to eviscerate public employees’ right to collectively bargain in Wisconsin. ..

As you also know, Scott Walker did not campaign on this issue when he ran for office. If he had, we are confident that you would not be listed among his largest contributors. As such, we are contacting you now to request your support.

The undersigned groups would like your company to publicly oppose Governor Walker’s efforts to virtually eliminate collective bargaining for public employees in Wisconsin. While we appreciate that you may need some time to consider this request, we ask for your response by March 17. In the event that you do not respond to this request by that date, we will assume that you stand with Governor Walker and against the teachers, nurses, police officers, fire fighters, and other dedicated public employees who serve our communities.

In the event that you cannot support this effort to save collective bargaining, please be advised that the undersigned will publicly and formally boycott the goods and services provided by your company. However, if you join us, we will do everything in our power to publicly celebrate your partnership in the fight to preserve the right of public employees to be heard at the bargaining table.

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This afternoon the President of the United States tried one again to mislead the public about domestic oil production and how much untapped oil is left in the ground.  He said that domestic oil production is at the highest level in seven years and he indicated that American reserves are not adequate to help the US reduced its dependence on foreign oil. If Congressman Wilson was in the audience he might have repeated his famous shout “You Lie.”

Domestic Oil Production.

Obama commented that US oil production was at its highest point in seven years. That was both incorrect and misleading.  Daily average production of oil last year 5,361,000 barrels/day the best since 2005’s 5,419,000/day. The real misleading fact about his statement, is that neither year is even close to levels seen only ten years before when production was 20% higher.

The President mentioned 35 offshore contracts were awarded, hiding the fact that off shore oil production has been way down since 2005, and that production took a big drop as soon as Obama took office (even before BP)

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It’s easy to laugh at former Sen. Alan Simpson’s bizarre malapropisms on Your World With Neil Cavuto. The Wyoming Republican appeard on the Fox News show earlier this week in his capacity as co-chairman of Barack Obama’s National Commission on Fiscal Responsibility and Reform. Early on in the segment (watch the whole interview here), Simpson went on a tear about the kids these days, claiming that

grandchildren now don’t write a thank-you for the Christmas presents, they’re walking on their pants with the cap on backwards listening to the enema man and Snoopy Snoopy Poop Dogg…

Well, maybe. Yes, it’ easy to laugh because it’s funny to see an old man make a jackass out of himself. Especially when he’s a senator (speaking of which, have you heard the one about Buffcoat and Beaver?)

But what’s more disturbing than Simpson’s tenuous grasp of rap music and youth fashion (backwards-facing baseball caps are like so 1990s, dude!) is the guy’s stalwart defense of Social Security. The senator had gotten hot under the collar about the ways in which budget reforms inevitably get stalled by people demagoguing the question of entitlement spending. Each party, said Simpson, claims that the other is planning to gut the nation’s federalized retirement system. Perish the thought, says Simpson. His commission wasn’t trying to kill Social Security. On the contrary:

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