THE LOCAL AREA WATCH

FUTURE IDIOCY

Yes, I know, we shouldn't expect much in the way of intelligent discourse from grandstanding politicians on Capitol Hill and windbag pundits on cable news.  But is it really too much to ask that their bloviations have at least some connection to reality, however tenuous that may be?

What is sticking in my craw is the utter stupidity of blaming speculators for the high price of oil.  These blowhards are railing against traders of oil futures because their alleged speculations are bidding up the price of crude.  First of all, let's get straight what a future is.  It isn't a barrel of crude oil, a bushel of wheat, a head of cattle, or anything else tangible.  It is a contract to buy or sell a commodity at a set price at a certain date in the future.  So if oil-futures traders are pushing up the price of anything, they are pushing up the price of the contractual right to buy or sell oil, not oil itself.

Second, the oil futures market, like all futures markets, is a zero-sum game.  That means for every oil futures contract sold, one has to be bought.  There is nothing mysterious about this.  It is as obvious as it sounds.  Once a contract exists, it can be traded again and again until it expires.  So that contract to buy oil at a set price has its own price that will go up and down.  Thus, an oil futures contract acquires a market dynamic of its own that can closely track or wildly deviate from the actual price of oil depending upon the objectve, insight, mood, or, often, folly of traders.  Whatever the case, this trading remains a zero-sum game, so that for every trader making a bet that the price will go up, there is another betting that it won't.  In other words, these "evil" speculators are collectively placing as much money on one direction as the other -- and even then, it is on the direction of the oil futures contract, not oil itself.

Third, is everyone making trades in a futures market a speculator?  No!  Futures markets are an efficient way to trade risk for certainty.  For example, a farmer wants to lock in the price he will sell his wheat for at harvest.  A baker wants to lock in the price he will pay at that time to buy wheat.  They both want to eliminate the uncertainty of their revenues and costs in the future.  With a futures market the farmer and the baker do not need to find each other to make this transaction.  The futures traders will do that for them.  More importantly, they will do that when there is an imbalance between buyers and sellers of commodities.  In that case, they will speculate.  But their speculation comes with the risk the farmer and the baker traded away for certainty.  That risk means, if they are wrong, they will either have to buy or sell the commodity contracted for at a loss or, as is usual, settle the difference in cash.

Finally, all of the above is the reason why an oil futures contract is called a "derivative".  It exists only because there is a market for the real thing, crude oil.  Thus, the futures market is parasitical to the actual market for oil.  It can not and does not drive that market.  The actual market is driven by the fundamental law of supply and demand (except for the periodic self-correcting euphoria and panic to which all markets are subject), and so the price of a futures contract for oil merely bounces up and down around the actual price for oil.  For the futures market to drive the actual market would be a defiance of the law of supply and demand, a law which not even the most vociferous demogoguery from Capitol Hill and cable news can repeal.

THE CORRUPTION OF REFORMERS

The indefatigable Nick DeLeeuw of RightMichigan.com has done an excellent job on reporting this bit of corruption called Reform Michigan Government Now.  Check out his most recent series of articles on this murky group's attempt to dilute the vote and influence of ordinary Michiganders by consolidating the state's political power into the hands of fewer entrenched incumbents:

PHANTOM FUNDING

DECIDING PARTISAN CONTROL OF LANSING TEN YEARS AT A TIME BY THE FLIP OF A COIN!

DECREASED REPRESENTATION AND STRONGER CENTRALIZED LANSING GOVERNMENT

YOU ONLY RUN A STEALTH CAMPAIGN IF YOU HAVE SOMETHING BIG AND UGLY TO HIDE

Good work, Nick!

DEFENDERS WHO DON'T DEFEND

Usually my interest isn't piqued by headlines touting the most recent study of how our bigoted self-indulgent couch-potato middle-class society called America oppresses the poor, disadvantaged, and disenfranchised.  This is not because there are not injustices and inquities in the land, some blame for which does result from a blindness brought on by our increasingly vulgar self-absorption.  It is because such studies are usually nothing more than propaganda pieces -- mindlessly reported by the mainstream media as legitimate news -- to justify shoveling taxpayer funds to the group who "discovered" the problem in order to solve it.

But that's not always the case.  Sometimes the grievance industry is onto a problem that does merit our attention.  For example, the Grand Rapids Press reported on yesterday's front page:  "Justice denied to poor, study says".  To wit, the National Legal Aid & Defender Association examined the public defender system in ten Michigan counties with the endorsement of the state legislature.  Their findings are available at the Michigan Bar Association's website, and they are not good.  Excessive plea-bargaining, lack of preparation, shoddy to non-existent representation, conflicts of interests are rife among lawyers taking public defender cases on the taxpayer dime.  We know from the Jack Crofoot incident (here and here) that it is not just another grievance-mongering fairy tale that rotten public defenders risk putting the innocent behind bars.

So, take a look at the NLADA study.  Of course, these guys are a special interest group who believe that the solution lies in giving their members more power and money to liberate the poor and disadvantage from our oppression.  However, the problem they report is real, and their identification of the routine ethical misconduct of many doing public defender work is a serious problem that is the responsibility of the legal profession and state oversight agencies to clean up -- not taxpayers forking over more dough.  Check it out.

"SHRINK GOVERNMENT" PETITION CONCENTRATES POLITICAL POWER

Reform Michigan Government Now, a cryptic group with unknown sources of financing (here and here), is collecting voter signatures to put a series of constitutional amendments on the November ballot.  These amendments would reduce the number of state officeholders and cut their pay.  To succeed, Reform Michigan must get 371,000 signatures on its petition by July 7th.  That would appear to be a hurdle the group cannot clear, and so these proposed amendments are likely a dead letter.  That's just as well.

There are two reasons Michiganders should oppose the Reform Michigan amendments.  First, it is always a dubious proposition to amend the constitution for partisan advantage.  There is a reason why Michigan Democrats are high on this effort.  One proposed amendment cuts the number of state supreme court justices from seven to five, and the amendment is drafted in a way so that the two justices who would be tossed from the bench are Republicans.  Similarly it cuts the state court of appeals from 28 to 21 judges, although without a clear-cut partisan advantage resulting (but then the court of appeals is not nearly as political as the supreme court in any case).

Another amendment reduces the number of state representatives from 110 to 82 and state senators from 38 to 28.  These reductions would drive the creation of new legislative districts that favor the Democrats, by allowing the packing of Republican voters into a few solid "red" districts while spreading out Democratic voters across many districts in which they constitute a majority, but not overwhelmingly so.  In this way, fewer districts help Democrats to hold a majority in the house and senate.

These are the ways in which the Reform Michigan amendments re-tool the state constitution to gain control of the supreme court, the senate, and the house for the Democrats at the expense of the Republicans.  (And yes, it would be just as noxious if it were the other way around.)  Of course, it is properly the prerogative of the voters to determine which party is in control and not behind-the-scenes operators pushing allegedly good-government constitutional amendments with convenient side effects for their cause.

And that brings us to the second reason for opposing the Reform Michigan amendments.  They work against good government.  Representative government should be, after all, representative.  As it stands, 110 state representatives and 38 state senators are not a large number of legislators for 10 million Michiganders.  The proposed amendment reducing the size of the state house would concentrate lawmaking into fewer hands necessarily less representative and more remote from their constituents.  The greater the number of constituents a legislator represents, the less influence any one constituent or small group of them has with him.  Thus, the legislator is even more captive to powerful constituents and special interests.  While this problem can be mitigated by giving a legislator a bigger staff, it does put a bureaucratic barrier between him and the ordinary constituent.

Better that we have double the number of legislators in the house and senate than any fewer.  Smaller districts are more representative of the diverse communities that make up our state.  Plus we can make them part-time lawmakers, because the same amount of legislative work could be spread across more people.  Also, as part-timers, our legislators receiving only part-time pay literally could not afford to isolate themselves from the real world the rest of us live in.  Just the opposite happens with the Reform Michigan amendments.  Even though they modestly cut the pay of officeholders, the smaller number of legislators would remain full-timers drawing a sufficiently high salary to make Lansing their source of financial well-being rather than the communities they come from.

It is a misguided notion that we need "professional" legislators in Lansing -- i.e.,  we need men and women drawing good salaries and benefits from the taxpayers to work full-time on making new laws.  Consider that full-time lawmaking means full-time law-changing.  That is not good government.  The law should be limited in what it rules, and what it does and how it does should not be in doubt.  That is not achieved with a continuous flow of new legislation.  It is a chaos to which "professional" legislators attach themselves by our mandate that they become full-time lawmakers rather than as our occasional citizen-emissaries to Lansing to represent our communities on only the most pressing public issues.

The Reform Michigan constitutional amendments not only stink of hack partisanship but would restructure our state government to concentrate it into fewer hands more beholden to special interests than to ordinary Michiganders.

MICHIGANDERS TO PAY FILMMAKERS OVER $100 MILLION TO MAKE MOVIES IN THE WINTER-WATER-WONDERLAND

Last month Gary Olson, an official advisor to the Michigan State Senate on fiscal matters, advised the appropriations committee that the state’s new tax incentive program for filmmaking companies will cost over $127 million in tax credits this year in exchange for only $10 million in income and sales taxes that 22 film projects presently committed to the state will generate.

Under this hand-out pushed by Governor Jennifer Granholm and star-struck state legislators earlier this year, filmmakers get a 40-cent credit from Michigan taxpayers for every dollar they spend in the state to make movies, television programs, and even computer games.  This credit is applied against the amount a filmmaking company owes under the Michigan Business Tax.  But that’s not all.  That 40 cents is not just a tax credit, but a refundable tax credit.  That means if the credit exceeds the amount of the state’s MBT bill to the company, the taxpayers then cut the film company a check for balance of the credit.

That’s right!  We are paying the film industry to shoot movies in Michigan.  For example, if a filmmaking company spends $10 million in the state for a movie project, it gets a $4 million refundable tax credit.  If the company’s MBT bill is $2 million, then the remaining $2 million of the credit is directly paid to the company straight out of the state’s tax coffers.  In exchange for all this, according to Olson, the project will put back into the coffers about $790,000 in state income and sales taxes.  To add insult to injury, the film company won’t even pay those taxes.  The local employees and vendors of the company will.

Meanwhile Guv Jen is telling Michiganders to suck it up, because there will be no limit on this taxpayer giveaway to the film industry.  The governor along with the legislators who backed this boondoggle insist that we have to subsidize the film industry if we want it to take root in the Great Lakes State.  Of course, they say we must also understand this will be a long process that will not produce a robust film industry here overnight.  In other words, the current crop of politicians who are now paying for their fantasies of hobnobbing with the stars with our tax dollars will be long out of office when this idiotic waste of money does nothing better than drawing into our state a gaggle of weak businesses that can’t survive without a taxpayer handout.

The stupidity of these politicians is costly to us.  (By calling them stupid, I am being charitable.  I assuming that they are benighted and not bedeviled in what they have done.)  They throw away our tax dollars on film companies that will not do business anywhere unless they get generous subsidies -- because they cannot make money otherwise -- and pay for this foolishness by ratcheting up the tax burden on other companies that can and do business in this state without any subsidies -- until that burden either ruins them, restricts their growth, or drives them out of state.  Thus, Michigan becomes an economic wasteland.

Let’s be clear.  Lower taxes (as opposed to subsidies) are good for all of us, if they are non-discriminatory.  However, they will wreck an economy (especially as subsidies) if politicians pick and choose which businesses get their favor.  Call this Gresham’s Law applied to business.  Taxpayer subsidies draw in weak businesses and drive out strong ones.  Renaissance zones, bio-tech and ethanol subsidies, the farm preservation program, and the other targeted business tax breaks and subsidies all contribute to the same rotten result -- as this new filmmaker tax credit will -- of impoverishing us.

It’s long past time to say no more.  Cut taxes for all of us, not just those who catch the fancy of our elected officials.