Wednesday, October 19, 2011 - The Rest of the Year

Sing again: The last laptop report, entitled "Song of the Shopkeeper", engendered more positive responses than anything I have written in a couple of years. It wound up being published as a front section editorial in The Washington Times, and received some radio coverage as well. It seems that almost everyone has a "shopkeeper" in their family's past or present or knows of one. I thank you all for your comments and stories. I am honored to give voice to all you shopkeepers out there. One regular reader of these missives suggested a quote that I should have put in the original tome. Napoleon Bonaparte is said to have once derisively described England as, "a nation of shopkeepers". It was meant as an insult. I wonder if Napoleon remembered these words when his army was later defeated by those very same “shopkeepers” at the Battle of Waterloo?

The Numbers are In: The federal deficit for the fiscal year ending September 30, 2011 was $1.298 trillion. That is the second highest deficit ever. Here is a chart of the deficits for the last 5 years, in billions of dollars:    

                                       (billions of dollars)
Fiscal Year      Revenue          Spending            Deficit      
    2007                2,568               2,729                   161
    2008                2,524               2,983                   459
    2009                2,105               3,518                 1,413
    2010                2,162               3,456                 1,294
    2011                2,303               3,601                 1,298

The Rest of the Year: Halloween is approaching. With a little more than 2 months left in the first session of the 112th Congress, what can you expect that we will do for or to the citizenry before Santa slides down the chimney? As I'm sure you know, the trade agreements with South Korea, Columbia and Panama just passed and were signed by the President. This is a big deal as these agreements were being discussed when I was first elected to Congress in 2005. That's a long legislative gestation period. But, they are done now. So, what next? There are 3 areas in which major legislative activity or deadlines currently exist:

1. Jobs: You hear the President and every presidential candidate talk about jobs constantly. The President's "American Jobs Act" was defeated in the Senate last week with all Republicans and 3 Democrats voting against it. We, Republicans in the House, are passing a "jobs" bill a week, but not a single one has been taken up in the Senate. The President is now attempting to see if a few elements of his bill might be combined in a package that would be palatable to the House and Senate. Speaker Boehner last week told the President that such a package should include some of what the House has passed so far and not just the President's "all mine or nothing" approach. Something could happen on this front next year, but I suspect there may not be much action for the rest of the year because of the next 2 items which are on deadline. And Congress, like many other organizations, works on deadlines.

2. Budget Deadline: The government is currently funded through November 18th. So, on or before that date we have to do something to avoid another shutdown. The total amount of spending was agreed to in the debt limit deal, so that is not at issue. What is at issue is the details of how that money will be spent. Said details often make it difficult to get the necessary votes to pass such an "omnibus" spending bill or multiple "minibus" spending bills. I expect these will be passed, but not without some drama in cobbling together the coalition of votes.

3. Deficit Reduction: The "supercommittee" is supposed to finish with its agreement, or lack thereof, on deficit reduction by November 23rd. Not only do I not know what they will agree to, or whether they will agree to anything at all, the members of the supercommitte themselves don’t even know yet. If they don't come up with $1.2 trillion in deficit reduction, automatic cuts, in theory, go into effect on January 1, 2012. This would result in $600 billion in  defense cuts and $600 billion in Medicare provider cuts over 10 years. But already, some in Congress are proposing that the automatic cuts be suspended if there is no supercommittee agreement. Congress can always change a law it made. In effect, these members are saying, “if we can't agree, then don't do any deficit reduction at all.” This is all very complicated with many moving pieces and I expect it will be the subject of several more missives to you over the next few months. Suffice it to say that I will be surprised if the supercommittee delivers the prescribed amount of deficit reduction. Of course, Speaker Boehner and Senate Majority Leader Reid could always make their own agreement and task the supercommittee with the details. I really have no feel at the moment for where this might end up.

In any event, I will keep you all posted on events as they transpire over the next 9 weeks. Who needs a novel when you have this gripping tale?  Actually........I do. I have to have something to clear my mind every once in a while.

Wednesday, October 5, 2011 - The Song of the Shopkeeper

The Song of the Shopkeeper: During the August recess, the captivating Mrs. Campbell and I always go to Carmel for the annual car show. Early one morning up there, I watched several shopkeepers sweeping the sidewalk in front of their stores. I got to thinking that shopkeepers must have been doing this for centuries, if not millennia. Several weeks later, I was down in Fredericksburg, Virginia and watched another shopkeeper carefully rearranging a display in the window.  It struck me that these acts represented pride in one's work and one's place of work. No work rules made them do it. They just did it because those shops were theirs and they take pride in what is theirs. And, I thought, it has ever been thus. 

When Mr. Obama talks about the economy and jobs, he invariably mentions teachers and firefighters. Fine. Those are noble professions. But, I can't help but think that he does so because teachers and firefighters almost always are employees of some government entity and are almost always compelled by law to join a union as a condition of having the job. And, they pay forced union dues, some of which will be involuntarily sent to the campaign coffers of politicians they do not support. It seems the President favors those who work for the government or are in a union, or preferably, both.

Well, Mr. President, most of America does not work for the government nor are they members of a union. They are salesmen and clerks and mechanics and…yes…shopkeepers. And, their contribution to society is no more or less than that of those other professions.

Now, most of you know that I spent most of my working life in the retail car business. I did that for more than twice as long as I have been serving in politics. Maybe that explains my affinity for the shopkeepers. A car dealership is, after all, a shop.

But, no one ever talks about that guy on the corner selling yogurt or the independent bookstore run by that woman who is still making a go of it in the face of Kindles and such. The shopkeeper has a heck of a job. They take a lot of risks. Signing a lease on the bet that they can sell enough stuff to pay the rent. Choosing what they think you will buy for more money than they paid for it. Figuring out how to spend limited advertising dollars and how to track whether the ads actually bring people to the store. Investing money they saved for years to buy the inventory. Selling at a loss the things that didn't sell the way they thought they might. And, of course, they have to hire employees and do all the paperwork the government requires for taxes and worker's compensation insurance and God knows what else. They often work 6 or 7 days a week, because their shops are usually open all those days. They create a pension by saving enough of what they make. They buy their own health insurance.

Nothing guarantees their job except their own personal effort and industry. They still have a boss - it’s called the customer who can put them out of business in a moment.

When others in my current profession talk about their defense of those powerful interests that represent certain professions, I think that's fine for them. But for me, the unsung shopkeeper represents those Americans who take risks, work hard, take care of themselves and maybe someone else too, and want the opportunity to succeed. They are small businesspeople. It is they who make the economy run. And, I hold them up with the greatest of respect. It is they who are ever in my thoughts as I make decisions on those cold and lonely nights in Washington. It is that entrepreneur for whom I fight the daily fight against socialism, blind ideology, and those who would steal their independence and freedom.

So, I sing the song of the shopkeeper. Their job is not a new one. It is as old as civilization. They are our neighbors, friends, and family members. They don't make noise. They make growth. They are a part of the fabric of society. And, their toil is every bit as honorable in God's eyes as anyone else's.

Next time you walk past a clean sidewalk in front of a store, remember that it didn't get that way by itself. Behind those windows, someone is putting their all into what is both their livelihood and one tiny, but critical part of our economy and our way of life. May we give them shelves full of opportunity in the years ahead.

Thursday, September 29, 2011 - Conforming Loan Limits

Conforming Loan Limits: I'm a car guy. Most of you know this. However, I’ve recently become the housing guy in Washington. This is not due to any direct background or experience. I have only bought 3 and sold 2 houses in my life, all of in which the captivating Mrs. Campbell and I have lived. It is partly because I serve on the committee that deals with such issues. But, it is mainly because I know we never go into recessions without housing and cars leading us in, and we never recover without housing and cars leading us out. These two industries are just too big a part of the economy and too important to the psyche of consumers. The car business is doing better of late, but housing is not. There are many reasons our economy stinks, but one of them is certainly because the housing market is still in a decline. The economy will not be strong again until we turn it around.

When you have a sick patient, the first rule is, "Do no harm". The housing market is sick. Much of what is causing this sickness is the fact that the housing finance system, anchored by Fannie Mae and Freddie Mac, failed. We have to replace that system.  As many of you know, I have a Housing Finance Reform Bill (H.R. 1859) to deal with this problem. I am making progress with that bill, but it is not ready to move yet.

So, until we are ready to move forward with a replacement system, we should do no harm to the current one. But, unfortunately, harm is about to befall the housing market. The limits on "conforming loans" (which are loans guaranteed by one or more government agencies) are scheduled to drop on October 1st. Many people think that this just affects houses at the higher end of the market. It does not. The expiration of the current conforming loan limits will mean that houses priced as low as $250,000 will no longer be eligible for FHA loans - and FHA is now financing 22% of all home loans made nationally.

The practical consequence of all this is that, effective October 1, if you are selling a house, a prospective buyer in many cases will have significantly fewer financing options. This may require that buyer to have a higher down, or better credit, or accept higher payments on a much shorter-term and variable rate loan. In other words, fewer people will be able to buy your house, and potential buyers will need more out of pocket to do so even if you don't lower the price. Experts predict that this will result in prices falling nationally by another 2-7%.

This is bad news, and not just for people buying or selling a house. It will affect consumer confidence, household wealth, and the stability of the banking sector - all in a negative way. I have been working daily with people of both parties in both Houses to get these loan limits extended. But, a bipartisan consensus has not emerged yet.

No one likes the current system of housing finance. We need to protect the taxpayer more, create many more purchasing options and engender private sector involvement.  But, until we replace the current housing finance system with a better one, we should not make what we have worse. I hope we can restore these conforming loan limits in the next month or so before too much more damage is done to the economy.

Put Your Money Where Your Mouth Is:  This is the name of a bill I introduced 3 sessions of congress ago and have re-introduced in every congress since. But, it seems more apropos now than ever. Warren Buffett has recently been so vocal about his desire to pay more taxes that the President's latest tax increase proposal is being called the "Buffett tax".

The thing is, though, Warren Buffett can pay more taxes right now. He does not need to wait for this Congress or the President or anybody. He can voluntarily pay any additional amount he wants. But, he doesn't do so. Neither do any of the others out there who believe they pay too little. Instead, they continue to fill the airwaves with messages about how, because they think they are under taxed, they think everyone is under taxed and should pay more.

Well, maybe this is because they either don't know that they can pay more right now or simply just don't know how to do it. That must be it, right? Otherwise, they would lead by example and pay more, wouldn't they?

So my bill, H.R. 1541, the "Put Your Money Where Your Mouth Is” Act, would add a line after the total tax line on your tax form 1040 that would read, "Voluntary additional tax I would like to pay". I'm sure that if this bill becomes law and this line is added, Buffett and others will immediately pay the additional tax they feel they ought to be assessed. Then, the government will get more revenue….

....and Mr. Buffett can then leave the rest of us alone.

Monday, September 26, 2011 - Neither Snow nor Sleet nor Dark of Night

Neither Snow nor Sleet nor Dark of Night...: We all are familiar with the rest of the variations on this phrase describing the dedication of the US Postal Service (USPS) in delivering the mail. Well, snow and rain may not be keeping the Post Office from delivering the mail, but financial problems within the USPS may soon halt delivery.

This has not gotten much publicity, but the USPS is in real trouble. The USPS is an independent, but wholly-owned entity of the federal government. It is designed to be self-supporting such that the rates it charges will cover the costs of delivering the mail. This worked for a long time. Obviously, for over 200 years. But, not so now. After earning modest profits from 2004-2006, the agency started hemorrhaging money in 2007. Between 2007 and 2010, it has lost over $20 billion. These losses are now accelerating in 2011 with a loss, in the first 3 quarters of this year, amounting to $5.7 billion. The USPS has already borrowed the maximum $15 billion it is allowed to borrow under the law and has already deferred another $4 billion in payments to its employee retirement fund to cover these losses. The Continuing Resolution adopted by the House last week will have the federal government make another roughly $7 billion in payments for retirement and worker's compensation that the USPS does not have the cash to make. In other words, the USPS has run a deficit of $26 billion combined from the last several years, which has been covered by borrowing from various sources, and there is no turn-around in sight. The fact is that the USPS has both run out of cash and borrowing ability, and will be completely out of cash by the middle of next year.

Why is this happening? Part of the reason is the impact of e-mail, Fed-Ex and other competitors, and the general economy on mail volume. Mail volume has dropped from a peak of 213.1 billion pieces in 2006 to 170.6 billion in 2010. That's a drop of nearly 20%. Much of this drop is unlikely to be reversed as the alternatives to "snail mail" increase and as younger generations increasingly communicate online or by text or cell phone. Fifteen years ago, these missives would have been "snail mailed" to you. But, volume alone does not account for the entire problem. 80% of the costs incurred by the USPS are employment costs. Although its employees are covered under the same benefits package as all other federal employees (including members of Congress), they are required to contribute a smaller share of their benefits than all other federal employees (including members of Congress). Recent law changes now require that they “catch-up” on their pension contributions and "fully fund" their retirement plan. This will require a payment of between $5-6 billion every year through 2016. And, postal workers are shielded from layoffs. Furthermore, the law places a lot of restrictions on the USPS's ability to increase revenue through price increases, required subsidies, and permitted advertising.

OK, I know that I may have gotten a little bean-counterish on you all right there with all the numbers and such. But, many of you like this stuff! Anyway, if I lost you for the last two paragraphs, come back to me now for the bottom line here.

In other words, this is a classic business failure scenario. New technology has made obsolete much of this business’ core products. An intractable union refuses to adjust above-market benefit packages and requires unsustainable staffing levels. Government restrictions and tradition prevent the business from pursuing other avenues of income generation. New competitors are more flexible and have lower costs. Sounds just like the car and steel businesses (amongst others), huh? And, a classic business failure needs a classic business turnaround.

This means expenses have to be cut, unprofitable business units discontinued, and new profitable ones started. Services will need to be changed, employee costs reduced and renegotiated, and the USPS must become more lean and agile. Some of you may think that rates can just be raised and that will take care of it all. But, it will not. There are too many alternatives to mail these days, and increasing rates too much will result in further declines in mail volume, which will spiral into further losses. The structure of the business needs to change. But, since this is a wholly-owned government entity, many such changes unfortunately require Congressional action, which is action that rarely moves quickly.

Darrell Issa (R-CA) is chairman of the relevant committee in the House with jurisdiction over the USPS. He and Dennis Ross (R-FL) have introduced the "Issa-Ross Plan to Save the Postal Service". I will not go into detail here, but you can read details at the Committee on Oversight and Government Reform’s website. Darrell Issa is a guy who created and ran a number of businesses, and I am glad that someone with his experience is in charge here. Congress needs to vote on a bill like this in the next few months to prevent either total collapse or another huge taxpayer bailout costing many, many billions of dollars - and which will only postpone the inevitable.

I support the Issa-Ross plan as a good start. But, in order to be able to respond more quickly to new technologies and a changing environment, the USPS may need to be spun off from the government in one way or another in order to be free of the necessity of congressional action for every business plan change. Likewise, it may also need to be free of government civil service restrictions for employees in the future. However, what kind of entity this should be will be the subject of much debate in the months to come.

Now, if you will excuse me, I'm going to lick a stamp now……just for old times’ sake.