Sunday, March 27, 2011

Portugal, Illinois and Caterpillar

I've been watching the anti-austerity protests develop in Portugal. If you haven't been keeping up, the Portugese Prime Minister recently resigned when his austerity budget was voted down. Portugal is insolvent and about 6-9 months away from bankruptcy. Portugal has a massive social spending problem; they don't have the industries to generate anything like the kind of money they spend. The Portugese have decided to protest against mathematics and are having the kind of success you'd expect as their borrowing costs continue to rise.

Closer to home, Illinois has the same problem as Portugal. Illinois' businesses have nowhere near the profits to support their massive public sector spending. Instead of taking the austerity tack and reducing spending to match income, they decided to raise taxes. Now one of their largest companies, Caterpillar, who employs over 23,000 people in Illinois, is threatening to leave.
In January, the state's General Assembly passed a (Governor) Quinn-supported bill imposing a four-year increase in income taxes designed to reap $6.8 billion in added revenue and help the state balance its budget. The legislation raised the flat rate for personal income taxes to 5% from 3% and for corporate taxes to 7% from 4.8%. In 2015, both taxes are set to decline but remain above the prior rate.

(Caterpillar CEO) Mr. Oberhelman enclosed letters (in his own letter to the Illinois governor) from governors or other officials in Texas, Nebraska, Virginia and South Dakota, all citing the recent Illinois tax increase and urging Caterpillar to invest in what they described as more business-friendly environments.

"If Illinois doesn't want your business, Texas does," wrote Rick Perry, the governor of that state.

The governor of Nebraska, Dave Heineman, wrote: "In Nebraska, we balance our budget by controlling spending, not by raising taxes."

An official in the South Dakota governor's office chimed in: "In South Dakota, you make a profit, and you keep your profit."
This isn't something new for either Portugal or Illinois. Both have been losing businesses for quite some time as they've favored social spending over profits. Some pundits are making the comparison between Illinois and Portugal, but they're making the mistake of placing Portugal farther along the evolutionary scale of such developments. In fact, Illinois might be ahead of Portugal. Consider these facts:
  • Portugal just had a parliamentary vote against austerity; Illinois had a public election against austerity months ago.

  • Portugal's borrowing costs have been rising; Illinois is already paying one of the highest rates in the US.

  • Portugal is still able to pay their bills, albeit with borrowed money; Illinois has hundreds of creditors who are no longer being paid.

  • Portugal can solve some of its problems in the very near term by nationalizing businesses that threaten to leave; Illinois doesn't have the nationalization option.

  • Portugal can appeal to the European Central Bank who has shown the willingness to print money to cover government debts in order to save the EU. Illinois has no such leverage with the Fed.
Shockingly, it may well be that Portugal is in better shape than Illinois. Whatever the case, this timeline is only going to end one way: bankruptcy, austerity and the collision of reality with the childish, fantasy world of endless social spending.

In the meantime, let's all march and chant and hope that arithmetic goes away.

Update: An Instalanche! Yay! Thanks, Glenn.


Anonymous said...

This is one writer who is fully imprisioned by the ideology of capitalism. Allow those who appropriate(i.e.steal)the surpluses produced by wage workers to run wild, cause a financial and economic mega-crisis, then claim the only way out is on the backs of workers. A pure example of either limited comprehension or limitless opprtunism.

K T Cat said...

OK Anon, this one's for you. It's a golden oldie from a group who didn't believe in capitalism at all.

TennGoodBoy said...

"on the backs of workers"
Anon, you make it sound like a bad thing. How else do you think anything gets done? It is all on the backs of workers. I am 70 years old, and have always been a worker, and am proud of it. Always made my own way. Whats wrong with that? So you commies can kiss my ass.

Anonymous said...

One thing the good people of the left (like Anon) always seem to miss is that capitalism is not an ideology or a system, but a condition or a descriptor. A subtle, or maybe not so subtle, difference. Capitalism was not and is not the product of some utopian thought experiment, it is the product of individual actions informed by, mostly, rational self-interest. This gives it the real world benefit of actually, you know, working. Sure it's unfair, but then so is everything.

Jeffersonian said...

I'm personally in the worst spot as regards Illinois. I work in the state and am thus subject to its stratospheric tax rate, but I live in Missouri, and thus cannot vote the thieving trash that imposes the taxes out.

As far as Anon#1 goes, does he not understand that the banks and other financial institutions that caused this mess were practicing exactly what he advocates, i.e. giving money to people without regard to profit or ability to repay? If anything, these companies were too soft and un-capitalistic in their business dealings. The worst possible thing would be to do what we did: Bail them out. They needed the sharp end of the stick, not a comfy landing.

Boyd said...

"Illinois has no such leverage with the Fed."

Sure it does. Its name is Rahm Emanual.

Susan's Husband said...

You forgot to note that Illinois is currently increasing the unionization of its state employees. No ending with a whimper for our ruling class.

K T Cat said...

Boyd, Rahm may be all that and a bag of chips in Chicago, but at the Fed, he's a cipher. The Fed may be willing to damage its credibility by printing tons of money to bail out the Federal government, but I just don't see it printing money to cover Illinois.

Anonymous said...

Anonymous Marxist Tool said:

"Allow those who appropriate(i.e.steal)the surpluses produced by wage workers to run wild, cause a financial and economic mega-crisis, then claim the only way out is on the backs of workers."

Marx was wrong, and Illinois is broke--thanks, in part, to mindless commie drones like you.

America is out of money and there will soon be no more sucking off the public tit. I suspect you have enough money to pay for a trip to Russia. Use it.

Anonymous said...

Anonymous(the non-commie one), do you really believe that Russia would want that mindless drone who opened this thread? In many ways Russia has embraced capitalism, and many there have learned that the Lenin-Marx-Engels ideology doesn't work in the real world. They have first hand experience.

I'll bet the Marxist idiot who commented first on this thread doesn't work, or if he/she/it does, it is most likely for the government or one of its organs, i.e. educational institution or community development.

J. Knight

Boyd said...

"but at the Fed, he's a cipher."

Ya, I was probably being a little too cute. But I think the broader point that whoever is best connected to the Obama administration will have a much better chance of Fed bailouts can be made. Emanuel - Chicago - Illinois will be at the front of the line if that ever comes to pass. However, given the state of the Fed budget and the current battles over deficit spending it's kind of hard to believe the whole process could possible survive throwing in State bailouts at this point. It seems like the various out of favor State senators would bring the Federal government to a real standstill at the first indication of a bailout program for politically connected States.

K T Cat said...

Boyd, I just don't see that. I think the uproar over a few states getting Fed bailouts would be overwhelming.

Jedi Knight Ivyan said...

Wow, you got linked on the Jawa Report, too!

K T Cat said...

It's my lucky day!