Joel Miller's Flawed Legislation for Fire District Budget Empowerment

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New York State Assemblyman Joel Miller has introduced legislation to provide for public vote on fire district budgets in the November general election. Under current New York State law, fire district budgets are controlled by the district's board of fire commissioners. Miller's legislation A9762A, called the Fire District Budget Empowerment Act, shifts the approval of fire district budgets from the fire commissioners to the general public. Miller announced his popular vote initiative in an April 22, 2012, Valley Views article in the Poughkeepsie Journal.

Popular Vote on Budget Is Inconsistent With Other Local Governments

As I see it, popular vote on fire district budgets is a risky departure from most governance in this country. There is no public vote on the federal budget, there is no public vote on the New York State budget, there is no public vote on the Dutchess County budget, or on city or village budgets. Instead, the general public votes for representatives (government officials such as legislators, councilmen, etc.) who in turn decide on agency budgets. This is the principle of representative democracy, one of the foundations of this country. In the case of fire districts, the people vote for fire commissioners, who in turn control the budget.

Direct Democracy Is Seldom Used But Often Problematic

Miller's initiative is an example of direct democracy, in which policy decisions are made by popular vote, bypassing or overriding government officials. Direct democracy for economic decisions is used only sparingly in the United States. In California, many major economic decisions beginning with the infamous Proposition 13 have been made by popular vote, with disastrous results.

The founding fathers were very much opposed to direct democracy (also called “pure democracy”), according to Wikipedia. John Witherspoon, a signer of the Declaration of Independence, said, “Pure democracy cannot subsist long nor be carried far into the departments of state – it is very subject to caprice and the madness of popular rage.” The American colonists favored representative democracy — not direct democracy. That's why they said “No taxation without representation.” They didn't say “No taxation without popular vote.”

Why should fire districts be any different from other local governments?

Fire districts are just one more kind of local government taxing authority in New York State, along with Towns, cities, villages, and counties. I know of no reason why fire districts should be governed differently than any of these other taxing authorities. In my view, fire districts should continue to use the same budget approval process as most other local taxing authorities.

Incorrect and Misleading Statements in Valley View Article

Miller's Valley View article contains misleading statements, and at least one statement that is just plain wrong. In the context of the Fairview Fire District's high fire tax rate, Miller writes:

Fairview alone had fire district tax rates nearly 10 times higher than 27 other towns in Dutchess County in 2010.

This statement is absurd, since there are only 20 towns in Dutchess County. Well, perhaps Miller meant “fire districts” instead of “towns”, since there are about 31 fire districts in Dutchess County. I checked with Miller's office, and was assured that yes, that's what he meant. Well, wrong again! My tax rate analysis from 2009 shows (page 14) that Fairview's tax rate was 10 times higher than 13 other fire districts — not 27 other fire districts. Miller's research staffer has conceded that the Valley Views statement — even after changing “towns” to fire districts” — is incorrect.

Miller misleadingly writes, “This legislation will permit public participation in fire district budgets ...,” as if public participation in the fire district budget process doesn't already exist. But New York State law already requires a fire district to publicize its tentative budget and to hold a public hearing on the budget, during which public input is received. In this way again, state law provides for public participation in the fire district budget process just as it does in most other kinds of local government, including counties, cities, villages, and schools.

This Is My Opinion

Most of my previous posts have been nonpartisan, focusing on objective facts. This post (except for the last section) is clearly my own opinion. Therefore, it's marked with an “Opinion” label. As always, I welcome your reasoned comments.

Joel Miller Just Can't Get Fairview Facts Straight

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“Everyone is entitled to his own opinion, but not his own facts.” Daniel Patrick Moynihan
Try as he might, New York State Assemblyman Joel Miller just can't get his facts right regarding the Fairview Fire District. On his first try, in a Poughkeepsie Journal Valley Views article on April 22, 2012, he wrote

Fairview alone had fire district tax rates nearly 10 times higher than 27 other towns in Dutchess County in 2010.

I pointed out in Joel Miller's Flawed Legislation for Fire District Budget Empowerment that there are only 20 towns in Dutchess County, and that even if he meant “fire districts” instead of “towns” (which would have made more sense), his statement is still not even close to correct.

Flawed Staff Work

In preparation for that blog post, I spoke with the staffer for Miller who had generated this misstatement. This staffer had already reviewed some of my own reports, including The Big Three Fire Districts of Dutchess County. It became clear to me that this staffer was not well prepared to interpret quantitative information, and the staffer readily conceded as much. My instinct was that if Miller were to release a corrected statement, it might also be wrong. Because I genuinely wanted facts to be correctly stated, I suggested a corrected statement, and I offered to preview any proposed new statement about Fairview. I never heard from Miller or any of his staffers about this matter.

My instinct turned out to be correct. On April 26, Miller sent a press release to each Fairview Fire Commissioner. This press release was essentially a rewording of his Valley Views article, except that the incorrect statement about Fairview was replaced by a new incorrect statement about Fairview:

Fairview alone had fire district tax rates nearly eight times higher than 30 other fire districts in Dutchess County in 2010.

The irony is that the above statement appears to be a mis-quote of a statement in my own report, which reads

Fairview’s tax rate is nearly eight times the average of the non-big-three districts.

Apparently the staffer thought the word “average” in my statement didn't really mean anything important, and could just be omitted! But as most European high school students know, an average of a bunch of numbers must be smaller than some of the numbers being averaged. In fact, for ordinary data like tax rates, roughly half the numbers can be expected to be greater than the average. Maybe even much greater.

And so it is in this case. Half the non-big-three fire districts had tax rates greater than the average of the non-big-three, and half had tax rates less than the average. So Fairview's tax rate was eight times higher than only 14 other fire districts — not 30 other fire districts.

Incidentally, “30 other fire districts” in Miller's statement is wrong too. There were only 30 fire districts in the whole analysis, and the big three fire districts were excluded from this average, so there could only be 27 non-big-three districts. The (weighted) average of these 27 was greater than 14 of these districts, and smaller than 13 of these districts, as one would expect. For five of these districts, Fairview was only about four times higher — not 8 times higher as Miller claimed.

Miller Has Been Ambivalent About Accuracy

This post isn't about flawed staff work. The principal is responsible for the work of his staff. If Miller had any doubt whether his staff could handle the fire tax rate issue, the doubt was resolved the first time the mistake was made. At that point, Miller knew — or should have known — that his staff didn't know what they were doing on this issue, and so were unlikely to make a proper correction on their own. Miller could have arranged for an independent review of his proposed “correction” before it was released. (I would have been glad to accommodate.)

But this post isn't just about fire taxes either. Joel Miller represents 6 of Dutchess County's 20 towns in the New York State Assembly. Yet he allowed himself to write “27 other towns in Dutchess County,” a gaffe that he or any member of his staff could easily have corrected without knowing anything about fire tax rates.

Taken together, these mistakes show Miller to have been ambivalent about the accuracy of his factual statements. Such lapses affect his credibility.

Why Has Fairview's Exempt Percent Increased?

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The Fairview Fire District has the highest fire tax rate in Dutchess County, and possibly the highest fire tax rate in New York State. One of the reasons for Fairview's high tax rate is that roughly half of Fairview's market value is exempt from paying fire taxes, but the exempt half still accounts for half the fire and emergency service calls to the Fairview Fire District. Fairview's taxable property owners pay not only their own share of fire tax, but also pay for service to the exempt properties. Fairview residents and property owners have had a longstanding interest in knowing exactly what percent of Fairview is exempt, and how Fairview's exempt percent may be changing over time. Unfortunately, there has been a history of misstatement of Fairview's exempt percent, which I have attempted to correct. See Fairview Fire District's Exempt Percent Is Misstated — Again.

Fairview's Exempt Percent

The following table shows a 5-year history of Fairview's exempt percent, according to my calculations:

Year of Tax Bill	Exempt Percent
2008	47.9*
2009	47.5
2010	47.9
2011	50.8
2012	51.7

* Listed exempt percent for 2008 is after correcting for a blunder by the Town of Poughkeepsie Assessor's Office.

Note that the 2008 “land” tax bill (including the fire, town, county, and other taxes) corresponds to the 2007 assessment roll, and so forth. This table shows that for the years 2008 — 2010, Fairview's exempt percent has been 47.7 plus or minus 0.2 percent. However, beginning in 2011, Fairview's exempt percent has noticeably increased, standing at 51.7 percent for 2012 tax bills. What accounts for this 4 percent increase in Fairview's exempt percent over two years? This post will examine this question.

Exempt Value has Increased While Taxable Value Decreased

Property values have been falling every year in Dutchess County since the 2008 economic meltdown. Fairview's taxable market value fell 11.8 percent between the 2010 and 2012 tax bills. If Fairview's exempt market value had also fallen 11.8 percent during this period, Fairview's exempt percent would have stayed the same as 2010, at 47.9 percent. But Fairview's exempt market value did not fall 11.8 percent — it actually increased by 2.5 percent! In terms of dollars, Fairview's exempt market value for the 2012 tax bill was about $74 million greater than it would have been if Fairview's exempt percent had remained constant. This $74 million caused Fairview's exempt percent to increase from 47.9 to 51.7 in two years. The $74 million arises from two sources:

1. Four exempt parcels saw dramatic increases in assessed value, for a total of about $41 million. 
2. Fairview's other exempt parcels fell in value by only about 4 percent on average, rather than by the 11.8 percent decrease for taxable parcels. These exempt parcels are assessed at approximately $33 million more than they would have been if they'd depreciated in proportion to taxable parcels.

Why did four exempt parcels dramatically increase in assessed value?

One might assume that the dramatic increases in four parcels simply reflect major construction projects on these parcels. Surprisingly, this assumption is true only for one of the four parcels. Marist College's parcel at 30 Fulton Street (Parcel number 134689-6162-05-035776-0000) increased in value from $240,000 in 2010 to $17,760,000 in 2012 because student residence halls were constructed on that property between those years.

The other three parcels, detailed in the following table, are part of the water and sewer systems for the City and Town of Poughkeepsie:

Parcel number 134689-6062-02 -xxxxxx-0000	827844	835560	818562
Address	3431 North Rd	Kittredge Pl	173 Kittredge Pl
Land use class	822 (water supply)	853 (Sewage)	853 (Sewage)
Owner	City of Poughkeepsie and Town	City of Poughkeepsie	Town of Poughkeepsie
2008 tax bill	$4,274,000	$111,400*	$159,300
2009 tax bill	$4,274,000	$235,000*	$316,000
2010 tax bill	$4,274,000	Not in roll	$316,000
2011 tax bill	Not in roll	Not in roll	$300,500
2012 tax bill	$12,000,000	$10,000,000	$5,250,000

The above three parcels have had no significant construction or other actual increase in market value in many years. These parcels have just been improperly assessed for at least 5 years:

• The 835569 property was erroneously listed as taxable rather than exempt for the 2008 and 2009 tax bills, as indicated by * after its assessed value.
• This same property was erroneously listed with land use class 340 (Vacant land located in industrial areas) for these same years.
• Two of the three parcels were erroneously omitted from the assessment roll corresponding to the 2011 tax bill. One was erroneously omitted from the assessment roll for the 2010 tax bill.
• None of the assessed values for any of these three parcels for any of the 5 years is remotely correct. Even for the 2012 tax bill, the total assessed value is $27,250,000 — only a fraction of the true value of these three properties.

According to my discussion with Town of Poughkeepsie Assessor Kathleen Taber, the 2012 values are only the beginning of an attempt to correct the assessments for these parcels. A realistic correction will not be in place until the 2013 land tax bill, which is based on assessments being finalized this month. The current Parcel Access database, applicable to 2013, shows a tentative total assessed value for these parcels of $125,000,000 — nearly $100 million more than this year's assessment.

Why did exempt parcels decrease in value less than taxable parcels?

While taxable parcels fell in value 11.8 percent in two years, most exempt parcels fell only about 4 percent. As I understand Taber's explanation for this, many exempt properties are difficult to assess because they don't generally appear on the open market. People don't generally buy or sell municipal sewage treatment plants, college academic buildings, or hospital atriums. Changes in the market value of these properties are difficult to gauge because there really isn't a market for these properties. Taber also mentioned that “commercial” properties tend to decrease in value more slowly than residential properties.

It may also be that less attention is given to properly assessing exempt properties simply because the stakes are lower. For taxable parcels, property owners pay real money proportional to the assessment. Taxpayers want assurance that they are paying no more than necessary, while municipal governments receiving taxes want assurance that they are collecting the full amount of money from every taxable parcel. Therefore, tax assessors are under considerable pressure to make assessments of taxable properties that are neither too high nor too low. For exempt properties, these incentives are not present. Inaccurate — apparently even wildly inaccurate — assessments aren't so much noticed.

Summary

There isn't one simple answer as to why Fairview's exempt percent has increased in the last two years. According to my analysis, there are three contributors, in order of decreasing importance:

1. Although Fairview's taxable market value fell by 11.8 percent, Fairview's exempt market value fell by only about 4 percent. The difference means that Fairview's exempt properties were valued $33 million higher than they would have been if they had tracked the taxable decline.
2. Three municipal water and sewer parcels were grossly under-assessed. The assessor made a correction of $23 million.
3. Marist College built student residences, increasing the value of one parcel by $18 million.

These three factors contribute 45%, 31%, and 24%, respectively, to Fairview's increase in exempt percent. Thus, all three factors contribute significantly to Fairview's increase.

Pattern of Under-Assessment of Exempt Properties

The careful reader will have noticed two reasons why Fairview's exempt percent may not be as meaningful as one would like. The first is that gross under-assessment of high-value exempt properties is a bigger issue than previously assumed. Two years ago, I found that the St. Frances Hospital complex had been under-assessed by over $100 million. At the time, I assumed this blunder was a one-time event that would be unlikely to be repeated. Now there's a second instance:  Municipal water and sewer parcels have been under-assessed by over $100 million. Most of this under-assessment will not be corrected until Fairview's 2013 tax bill. This pattern will continue: The recent construction of dormitories at Dutchess Community College — worth tens of millions of dollars — will not be reflected in Fairview's 2013 exempt percent. Taber told me she didn't have time to add the DCC dorms to the current assessment roll, the basis for Fairview's 2013 tax. The omission of such major contributors to exempt value results in underestimation of the true exempt percent.

Unequal Depreciation

The second reason why Fairview's exempt percent may not be so meaningful is that market forces apparently do not affect taxable and exempt properties equally. Nearly half (45 percent) of the increase in Fairview's exempt percent in the last two years is due to the fact that the average exempt property lost only one third as much value as the average taxable property did. At least, that's what the assessment rolls say. Do the assessment rolls accurately reflect exempt property values? There is some reason to wonder. If exempt properties have been overvalued in the last few years, Fairview's corresponding exempt percent is artificially high.

Pace Study's Analysis of Fairview Fire Tax Rate is Flawed

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Pace University's Michaelian Institute for Public Policy and Management released its 189 page Fairview Fire District Consolidation and Efficiency Study final report on June 12. This work, known locally as the Pace Study, examines the feasibility of Fairview consolidating with one or more neighboring fire districts. Pace Study Principal Investigator Michael Genito will present this work at a public meeting this evening, according to the Pace Study website.

In spite of the central importance of tax rates to fiscal analysis, the final report devotes only three sentences and one chart to Fairview's past and future tax rates. Unfortunately, these three sentences, which pertain to average yearly tax rate increase and projection to 2017, are incorrect. Also, the chart contains some incorrect data and an incorrect linear approximation. When I presented my analysis to Genito, he readily concurred that all these statements and the chart are flawed.

Flawed Final Report Passage

The flawed information, on page 175 of the final report PDF (labeled page 167), is as follows:

The Fairview Fire District tax rate has increased on average 4.4% each year from 2008 through 2012. A linear regression of the past five years going forward indicates that by 2017 the tax rate would approximate $6.50 per $1,000 taxable assessed valuation. As such, and all things being equal, the median home would expect to see their fire service property tax to rise from $1,321 per year to $1,502 in 2017.

The above chart, copied from the final report, is confusingly labeled “Tax Rate per $1,000 Assessed Value”, but it is clear from context that this data is really tax rate per thousand dollars of market value, otherwise known as true value tax rate. This is the appropriate kind of tax rate for this analysis.

2008 Fairview Fire Tax Rate Is Incorrect

The key flaw is that the 2008 tax rate in the above chart is incorrect. Fairview's effective 2008 tax rate is $5.16, whereas the above chart shows it to be approximately $4.83. The final report's error in Fairview's 2008 tax rate leads to all the other errors in this passage, as will be explained below.

Genito's Blunder

How did Genito come to make this error? He apparently took an unwarranted shortcut. Instead of dividing Fairview's tax levy by Fairview's market value (the correct method, and the definition of true value tax rate), he took the Poughkeepsie portion of Fairview's tax levy and divided it by the Poughkeepsie portion of Fairview's market value. Under ordinary circumstances, such as between 2009 and 2012, Genito's method would give the same — or nearly the same — result as the correct method. Unfortunately, Fairview's circumstances in 2008 were far from ordinary.

Inequitable Apportionment

Long-time followers of my work know that for every year from 2001 to 2008, apportionment of Fairview's fire tax levy between Poughkeepsie and Hyde Park has been inequitable, resulting in different true value tax rates for the Poughkeepsie and Hyde  Park segments, in violation of New York State Real Property Tax Law. In 2008, the Poughkeepsie segment had a true value tax rate of $4.83 — the number on Genito's chart — but the Hyde Park segment had a whopping true value tax rate of $5.96. All these facts were documented in detail four years ago here, and especially here.

Corrected Chart

In order to fairly graph tax rates, the Y-axis should ordinarily begin at zero dollars. Genito's chart begins the Y-axis at $2, presumably to better visualize small changes in tax rate. The following chart, using the corrected 2008 value, takes this decision further, beginning the Y-axis at $5. This way, small changes in tax rate can be seen even better.


Although the final report's chart includes a straight line approximation to the data and an extrapolation to 2017, such analyses are not appropriate to the corrected data. That's because the corrected data simply does not fit a straight line well enough to justify such an approximation. The corrected data cannot meaningfully be used to linearly extrapolate Fairview fire tax rate out even one year — let alone five years. Once again, Genito concurs with this judgement, which is supported by generally accepted criteria for goodness of fit to a straight line. What this means is that there is simply no basis to support the second and third sentences in the final report's passage, which project 2017 values.

Fairview's Tax Rate Has Been Trending Down Until 2012

We know that taxes are always going up, right? Well, not in Fairview. Examination of the corrected chart between 2008 and 2011 shows that Fairview's yearly tax rate change has been downward twice and upward only once. Even the single upward change from 2010 to 2011 leaves Fairview's tax rate lower than it was in 2008. A standard linear approximation to Fairview's 2008—2011 tax rate would show a decreasing tax rate, not an increasing one.

Fairview's Tax Rate Has Been Approximately Constant — Until 2012

Fairview's downward trend in the 2008—2011 time period is actually quite small. It would probably make more sense to approximate Fairview's tax rate during this time period as a constant value. With such an approximation, Fairview's 2008—2011 tax rate is $5.10 plus or minus 1.2 percent for every year in this interval. The 2011 tax rate is equal to this constant value to within 0.2 percent.

Fairview's 2012 Tax Rate Breaks the Pattern

This pattern of constant tax rate is broken in 2012, where the tax rate soars 12 percent from its historical value of $5.10. It is this break from the pattern that makes it infeasible to predict future tax rates. Another way to look at it is that there is no way one could have predicted Fairview's 2012 tax rate by extrapolation from the previous 4 years.

Average Yearly Tax Rate Increase Is Misleading

What about the first sentence in the final report's passage (average tax rate increase of 4.4 percent per year)? This statistic depends crucially on the 2008 value. With the corrected value, the average tax rate increase is only 2.6 percent per year, not 4.4 percent. Thus the passage's first sentence is incorrect.

Of course, even the corrected sentence is of dubious value. Averages can be deceiving. Why mention a formally correct “average increase” when the tax rate actually decreases as often as it increases. A man drowned in a river whose “average” depth was 6 inches. But he was in the 10-foot part. For the average yearly tax rate increase, essentially all of the tax rate increase during the 5-year period occurred in the last year.

Flawed Passage Is Best Removed

According to Genito, the report's inclusion of the above-quoted passage stemmed from a request by Fairview officials (the “Study Committee”) for a projection based on a 5-year history. Now that Genito has accepted my correction, he and I seem to agree that no future projection can be justified by the data. As I see it, the average tax rate increase is misleading as well, and is best omitted. The only part of the flawed passage that could be of positive value is the corrected chart. This chart is certainly useful for understanding Fairview's fiscal situation, but such an understanding appears to be outside the scope of this report.

Dutchess County Gov't 2013 Tax Rate Likely To Be Highest in Millennium

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Newly elected County Executive Marcus Molinaro is many weeks away from announcing a proposed 2013 budget. After that, the county legislature must deliberate on adjustments before approving a final budget in December. Nevertheless, I can already predict with some confidence that the final 2013 county budget will result in the highest tax rate in this millennium, and the highest tax levy in the history of Dutchess County. In other words, properties will be taxed more steeply by Dutchess County Government than ever before in this millennium. These predictions are based on two tax trends:

1. Dutchess County's taxable market value continues to fall — for the fifth year in a row.
2. Dutchess County Government's tax levy has never significantly fallen, year-to-year.

Taxable Market Value

Dutchess County's taxable market value and tax levy for each year from 2001 through 2012 are derived from the tax rate pamphlets published by the Dutchess County Real Property Tax Service Agency (RPTSA).


For the 2013 tax bill, only an initial estimate of Dutchess County's taxable market value is available (shown in yellow), based on the July 1, 2012, assessment rolls. This value is shown as $30.7 billion on page 23 of a fiscal presentation by the Dutchess County Budget Office. The downward trend in property values since the beginning of the economic meltdown in 2008 is evident in the following chart:


The 2013 taxable market value is shown in yellow to indicate that it is only a preliminary value. The final value, which will not be available until late January 2013, is most likely to be somewhat lower than this value for a variety of reasons explained in detail here.

Note that taxable market value is a net value, including both the value of new construction and improvements, and the current value of existing construction. Dutchess County's taxable market value surged in the first part of the last decade. In 2008 it was 2.5 times larger than in 2001. But from 2008 to 2013 it fell 20 percent. Once again, this 20 percent includes the effects of both the value of new construction and the current value of existing construction. Since there has been some new construction, the value of existing construction must have dropped more than 20 percent since 2008. 

Year to year increases in the taxable market value are shown  below:


When I performed this analysis last year, it appeared as if the property value free-fall was nearly over, since the 2012 taxable market value decrease was the smallest since the meltdown. But the 2013 estimate clearly contradicts that conclusion. Although the 2013 decrease is only an initial estimate, the final decrease will most likely be somewhat greater. Note that all these market values lag tax bills by a year and a half. For example, for tax bills to be paid in February 2013, the corresponding market values are as of July 1, 2011.

Tax Levy

To reason about the 2013 tax levy, let's consider Dutchess County's tax levy history:




The above charts show that Dutchess County's tax levy has increased by a significant amount almost every year. Only in 2002 and 2011 has the tax levy been essentially unchanged from the previous year. Accordingly, I've made the most conservative assumption, that Dutchess County's 2013 tax levy increase will be zero. Based on history, it's unlikely that Dutchess County's 2013 tax levy will be lower than the 2012 levy. The yellow bar indicates that this data point is speculative.

Tax Rate

The 2013 true value tax rate, which is calculated by dividing the assumed 2013 tax levy by the 2013 taxable market value, is $3.38 per thousand dollars of market value: 

The above chart shows that this projected 2013 tax rate for Dutchess County (in yellow) is higher than in any previous year. This projection is almost certainly a low estimate. That's because the final 2013 taxable market value and the 2013 tax levy are both likely to move in a direction to increase this tax rate even further. The tax rate increase chart gives a third reason to conclude that the $3.38 estimate is conservative:

If Dutchess County's 2013 tax rate turns out to be “only” $3.38 — the highest in this millennium — it will still represent the lowest tax rate increase since the meltdown.

Will My Predictions Stand the Test of Time?

What would it take for my tax rate prediction of at least $3.38 or my prediction of the largest tax levy in Dutchess County's history to be wrong? Well, perhaps Molinaro will propose an especially frugal budget with a lower tax levy than last year's. But this won't be easy to do. Former County Executive William Steinhaus was known for shrinking county government and implementing other austerity measures in the years since the meltdown. It's unlikely there's a lot of fat to cut. Meanwhile, the costs of everything are continuing to increase. The effects of the 2008 economic meltdown are still being felt all over, despite allegations of a “recovery”.

How Will We Know Whether My Predictions Are Correct?

The first and most significant indication of whether my predictions are correct will occur next month, when Molinero announces his proposed budget. The second and probably less significant indication will be when the County Legislature approves the budget, possibly with modifications, in December. But the final word will not be out until January, when the 2013 tax rate pamphlet is released by the RPTSA, possibly with slight adjustments as described here. It is these tax rates that are used to generate property tax bills. Ultimately, it is the property tax bills that define how steeply taxpayers are being taxed.

I Hope I'm Wrong

It would be great if my predictions turn out to be wrong. Property taxpayers have been suffering more every year since the meltdown, and of course not just from Dutchess County Government taxes. Only time will tell whether my prediction of Dutchess County's 2013 tax rate of $3.38 turns out to be low-ball.

UPDATE 10/6/2012 — Budget May Exceed 2% Tax Cap

Just a day after publication of this post, it already looks like my caution that my predictions might be wrong may be unwarranted. A front page story in yesterday's Poughkeepsie Journal describes Molinaro's intent to replenish  the County's rainy-day fund. The story quotes Dutchess County Legislative Chairman Robert Rolison as saying that Molinaro's plan would probably require exceeding the State's 2 percent tax cap. Nevertheless, Rolison signaled his intent to support such an increase. As I see it, the stage is already being set to increase the County's 2013 tax levy by at least 2 percent over 2012. Even at just 2 percent, the 2013 tax rate would be $3.45, a 6.1 percent increase over 2012. Such a result would easily confirm my predictions.

Which Came First…?

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KenO’Brien

Tammy Perreault

On Friday , December 21^st, we learnedthat Southbridge Middle/High School Principal Tammy Perreault had been put onadministrative leave.
This fulfilled a prediction made by Dennis Martinekon his blog SpeakOut Southbridge. On December 13^th he wrotein an article titled “Asif things in Southbridge couldn’t get any worse”,“Tomorrow, or early next week, you will hear some rather shocking news that fewpeople I’ve spoken with saw coming.”
In a follow up article published in the same blogtoday, “Anotherone bites the dust in Southbridge”, he confirmed that itwas Ms. Perreault’s suspension to which he was referring. In response to onecommenter on the article he wrote, “This is half of the big news that I wastelling you was coming.” To another he wrote, “…I have to say, I knew, butdecided to hold-off until something could be verified,..” 
This chronology of events raises a troubling issue.
You see, the reason that Ms. Perreault was put onadministrative leave, according to a written statement she received fromtemporary acting Superintendent Terry Wiggin, was her alleged failure toproperly report to him the incident regarding a student being on the SMHScampus with a pocket knife who also made threatening remarks.
What is troubling is that the incident cited in theletter occurred on Tuesday, December 18^th.

Terry Wiggin

How was it possible for Mr. Martinek to be awarethat Ms. Perreault was to be put on leave when the incident that was cited asthe reason for such action did not occur until 5 days after his article wasposted? Who was the source of his information?
I can only conclude that, unlike the question,“Which came first, the chicken or the egg?”, in this case we know the answer. Thedecision had already been made. All that was needed was a plausible reason.
Is it merely coincidental that the action was takenon what will likely be Mr. Wiggin’s last work day as acting Superintendent? Byall accounts his replacement will be named this coming Wednesday.

Nembirkow Named Acting Superintendent

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Ken O'Brien
Basan Nembirkow has been named acting Superintendent of Southbridge schools.

Nembirkow has been an educator for more than 35 years. He previously headed the 7,500-student Chicopee Public Schools.
From 1996 to 2002, Nembirkow served as Superintendent of Schools in Greenfield, Mass. and was Assistant Superintendent in the 30,000-student Durham, NC School District from 1993 to 1996. He has also held a number of interesting educational posts around the world, among them a 12-year stint at the United Nations International School and an educational consulting post with the Republic of Kazakhstan.

He holds a Bachelor's Degree in English and Social Studies from Rowan University and a Master's Degree in Intercultural Education from Rutgers University.

Rumors, Speculation and Fact

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Ken O’Brien


In writing this blog I have been careful todistinguish between rumor, speculation and fact.
One of my blog colleagues is now accusing me ofperpetuating a rumor.
As it was put,“If we have enough credible evidence to put peopleon leave, let's get it over with, tell the people what happened (and treat usall like grown-ups and tell us the truth), and move on. That would put oneconspiracy theory in the local blogosphere to rest...that being, that theprincipal was put on leave for a pocket knife incident. Nothing could befurther from the full truth (although, I'm sure that didn't help). ApparentlyI'm guilty of being a psychic.” 
Now, as I read this, I am being accused of spreadingthe rumor that “the principal was put on leave for a pocket knife incident.” Itis merely a rumor because, “Nothing could be further from the full truth….”
How that is a conspiracy theory is not clear.
Nevertheless I will state categorically that thewritten notice given to Ms. Perreault cited her handling of this incident asthe sole reason for which she was being put on administrative leave. I am notpostulating this as rumor, speculation or a partial truth. I am stating it as afact.
If there is the intimation of a conspiracy I presumeit would be in saying that the blogger who reported that her suspension wouldbe forthcoming knew in advance what the reason would be (that would be one hellof a conspiracy).
I did not say that nor am I saying it now.
All that I have said was that the certainty ofknowing that she would be put on leave indicated that a decision had been made.Clearly the blogger in question was told that this decision had been madebefore the event cited as the reason for it had occurred. It now appears thatacting on that decision was only awaiting a defensible cause for that action.Any other reasons, real or imagined, were not given as cause for the action.
If one wants to interpret that as a conspiracy, sobe it.
We are told that one only had to overhear theconversations at the local donut shop to know that this was going to happen andwhy. Well, that is rumor andspeculation. (It also belies the observation in his originalarticle where he said, “Tomorrow, or early next week, you will hear some rathershocking news that few people I'vespoken with saw coming.”)
When it comes to labor law in these cases one mustrely upon something slightly more substantial than donut shop gossip. I am inno position to judge the validity of the charge leveled in the letter given tothe principal by the temporary acting superintendent. I can merely state, as afact, that this was the only reason given and further action will beadjudicated on the basis of that charge.
This is what I have reported, and I stand by it.

How the FTSE 100 index will perform in 2013

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Indonesia stock info - How the FTSE 100 index will perform in 2013 ; New analysis of New Year stock market predictions for 2013 contains bad news for pessimists and good news for people who might like to see the value of their savings and investments rise.
Perennial pessimism is an easy way to simulate wisdom about stock markets but it may tell us more about the people making those sage warnings of doom and gloom than it does about share prices in future.
More than 8,000 people were questioned by pollsters Populus before a clear trend emerged: the more pessimistic you are about how the FTSE 100 index will perform in 2013, the more likely you are to be poor, inexperienced and living in an economically depressed area. On a brighter note, you’re probably also female.

By contrast, richer, older, men living in the south east were far more likely to be optimistic about the outlook for share prices in 2013.  Saga, the over-50s specialist which commissioned the survey, reports that men are much more positive about the future, with a net 22pc believing in a 2013 bullish stock market, whereas women are the bears – with a net 2pc predicting a fall in the FTSE 100.

Pensioners, who have lived long enough to see a few economic cycles come and go, are more optimistic about share prices than younger respondents. People aged between 65 and 74 are twice as likely as those still at work to think the FTSE 100 will be trading higher in 12 months time. Those of all ages living in the South East were 15pc net positive or three times more optimistic than those in the North East, with Wales nearly as pessimistic at 6pc.

Differences are sharpest between socio-economic groups – with wealthier people in socio-economic groups A and B showing a net positive score of 18pc, while those in socio-economic groups D and E saying they believe the stock market will crash – with a net 6pc predicting share prices will fall next year. Could there be an element of wishful thinking here?

Of course, as the investment guru Warren Buffett has pointed out, there are only two types of expert when it comes to stock market predictions; those who don’t know and those who don’t know they don’t know. But, with American fiscal cliff worries making the economic outlook for 2013 more uncertain than ever, the Saga survey has a comforting message for savers and investors.

It also contains an implied rebuke for the cynics of cyberspace who, as the comments below will surely demonstrate, are relentlessly gloomy. Whisper it but behind the anonymous online tags, the sad truth seems to be that the more bearish someone is about the stock market, the less likely they are to have any skin in the game or to know what they are talking about. Happy New Year!

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 Tags: America, experience, fiscal cliff, FTSE 100, investments, north east, optimists, pessimists, Populus, poverty, predictions, Saga, savings, South East, stock market, stock market predictions, warren buffett, wealth, youth

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IMF said asian economic growth forecast 2013

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Indonesia stock info - asian economic growth forecast 2013 ;  The International Monetary Fund said that Asia will continue to power the world economy, but it warned there was an increasing risk that growth in the region could drop to levels last seen during the global financial crisis.

In an update to its regional economic outlook, the IMF said it saw a one in seven chance of Asian growth falling below 4% in 2013, compared to its main forecast for the region's economy to expand 5.9% next year.

The fund said that risks to its core view--which assumes that euro zone-related tensions gradually diminish and U.S. lawmakers prevent severe fiscal tightening measures automatically kicking in around the turn of the year--remained substantial and were on the downside. However, it noted that growth could be stronger than expected if officials in Europe and the U.S. were to fully deliver on their commitments.

"Growth is projected to pick up very gradually, and Asia should remain the global growth leader, expanding over two percentage points faster than the world average next year," the IMF said. But it noted that the euro-zone debt crisis in particular posed a considerable risk.

If a shock from Europe or the U.S. were to spark a severe global slowdown, that would exert a "powerful" drag on Asia's most open economies via trade, the IMF said. And while Asian countries have been resilient to financial market spillovers, an aggressive pullback by European banks and capital flight could cause severe disruption, particularly to Southeast and East Asian economies with the exception of China, it said.

The IMF now forecasts Asia's economy to grow 5.4% this year, 0.6 of a percentage point weaker than the view it published in April. Its new 2013 forecast is also 0.7 of a point below its April estimate.

The fund added that a hard landing in China's economy remained a low-probability risk, but warned that such a scenario would have a significant impact on Asian economies, if it did occur

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Deficit Economics

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Thirty years ago, I published an article in The Freeman entitled, "Deficits are Not the Only Problem," and in it I challenged the notion that federal budget deficits in and of themselves are the major economic problem in our society. The deficits, I argued were symptoms of the larger problem of out-of-control government expansion and the spending that accompanies that expansion.

On the surface, it seems that Paul Krugman agrees with me that the federal deficit by itself is not THE economic problem. Furthermore, I will go further and agree with him that much of the current deficit is due to the depressed state of the U.S. economy, and that a stronger economy would, in fact, provide more tax revenues from current tax rates than is now the situation.

Like always, however, I disagree vehemently with Krugman on (1) the role of federal deficits in "providing" or at least enabling economic recovery, and (2) the efficacy of government spending itself. Krugman believes that we need large deficits so that the government spending generated by them can help jump-start the economy; I believe that the very spending he believes provides overall economic benefits actually hampers economic recovery.

Krugman says that out of the current trillion-dollar deficit, about $600 billion of it is due to the depressed economy, and that the remaining $400 billion is "sustainable." (Funny, he wasn't making that claim when George W. Bush was running large deficits. Then Krugman claimed that the cut in the top income tax rate from 39.6 percent to 35 percent was causing huge economic problems and was dragging us into economic hell. Yes, a relatively small cut in tax rates was destroying the economy, which would have been a first in economic history.)

He writes:

First of all, the weakness of the economy has led directly to lower revenues; when G.D.P. falls, the federal tax take falls too, and in fact always falls substantially more in percentage terms. On top of that, revenue is temporarily depressed by tax breaks, notably the payroll tax cut, that have been put in place to support the economy but will be withdrawn as soon as the economy is stronger (or, unfortunately, even before then). If you do the math, it seems likely that full economic recovery would raise revenue by at least $450 billion.

Meanwhile, the depressed economy has also temporarily raised spending, because more people qualify for unemployment insurance and means-tested programs like food stamps and Medicaid. A reasonable estimate is that economic recovery would reduce federal spending on such programs by at least $150 billion.

Putting all this together, it turns out that the trillion-dollar deficit isn’t a sign of unsustainable finances at all. Some of the deficit is in fact sustainable; just about all of the rest would go away if we had an economic recovery.

He continues:

And the prospects for economic recovery are looking pretty good right now — or would be looking good if it weren’t for the political risks posed by Republican hostage-taking. Housing is reviving, consumer debt is down, employment has improved steadily among prime-age workers. Unfortunately, this recovery may well be derailed by the fiscal cliff and/or a confrontation over the debt ceiling; but this has nothing to do with the alleged unsustainability of the deficit.

Yes, we are supposed to believe that things are just fine, and if President Obama is permitted to stick it to some taxpayers (with the middle class to be stuck at a future date) and spend a few billion here and there, that the economy will recover because of it. Furthermore, if the so-called Fiscal Cliff (yet another idiotic slogan from Washington that the media recites in its usual Pavlovian style) kicks into action, then the economy will tumble down the hill like Sisyphus's boulder.

Notice that this contradicts what Krugman claimed a couple of years ago when the tax cuts were supposed to expire and the government extended them. Back then, Krugman said that if it were up to him, he would allow all of the rates to go back to their pre-2003 levels and use the newfound revenues for more current spending projects. For that matter, he claimed in 2010 that even if all rates were raised, the negative effect would be minimal to the economy.

Today, he sings a different tune. If the Republicans don't give Obama everything he wants, then the Republicans will solely be responsible for plunging the economy into something akin to the Dark Ages. Why he claims that Obama's prescription for recovery -- tax, borrow, print, and spend -- will be effective it beyond my comprehension.

When George W. Bush was president, Krugman claimed over and over that the economy was moribund because Bush got Congress to cut the top rate from 39.6 percent to 35 percent, and that the marginal tax rates for everyone else were cut as well. A while back, he was claiming that these tax cuts were "unaffordable" to the tune of four trillion dollars. With Obama in the White Hosue, he has claimed that it doesn't matter how much the government borrows, since interest rates are at "historic lows" and we "owe it all to ourselves," anyway.

In other words, Krugman gives us mixed signals that on the surface seem to be confusing. There is an easy translation, however: Democrats (and especially Obama) always good, Republicans always bad. If Republican administrations borrow and spend, they are dragging us into Hades; if Democrat administrations borrow and spend, they are bringing economic recovery.

So, in his attempt to be the world's most politically-partisan economist, Paul Krugman calls for the very things that in the long run are economically destructive, but claims that if a Democrat implements those things, then the result will be prosperity. I'm not sure how all of this will take place, but I must say that following Krugman does prove to be an interesting ride.

On Second Thought...

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I do have a brief commentary about Krugman's latest political column masquerading as Serious Economic Analysis. Like all Progressives, Paul Krugman believes that the State can create an economy by coercion. If it is ordered into being, then it is so.

Furthermore, political victories by the Democratic Party always make the economy better. That is why the economy has done so well in the past four years. (Don't forget that Democrats had absolute majorities in both houses for two years with Obama being permitted to do anything he wanted, but unemployment went up, not down.)

Of course, this notion that government can order anything into being via coercion has tragic results. In writing about the Sandy Hook massacre, Jeff Tucker writes:

In the days that followed the killing, my browser kept taking me back to a Wikipedia link about the Gun-Free School Zones Act of 1990. The law, still intact after many challenges and rewrites, reads: “It shall be unlawful for any individual knowingly to possess a firearm that has moved in or that otherwise affects interstate or foreign commerce at a place that the individual knows, or has reasonable cause to believe, is a school zone.”

Guns of all sorts are banned anywhere near schools. If the government’s laws had worked, this killer would have realized that his plan was unachievable. After all, the world’s most powerful government had banned the whole idea of guns at school.

To put this in an economic context, Krugman actually seems to believe that if Democrats have enough political power and Barack Obama orders the economy to improve, then it will improve. Raising taxes will have no effect except to allow for more spending, and everyone knows that government spending is the key to economic recovery, as there can be no downside to expanding the government checkbook.

Should prices be "sticky," then government can inflate, which cuts the real prices and creates prosperity, since everyone knows that printing money is the key to making us richer.

The problem is that politics generally is the enemy of prosperity. Politicians see no problem in destroying businesses and throwing sand in the gears of entrepreneurship, since the media then will be the megaphone for trumpeting the message of the politicians: See? Businesses always fail! That is why you need us to help you!

Well, Krugman, Obama definitely has won the political PR battle (given the love affair the media has with him), and he has the numbers. We shall see how this turns out. Although I do not believe that the "fiscal cliff" can throw us into recession, nonetheless it will impede the recovery, but that is OK, since in the end, the politicians will win.

The Prophecy Game

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If Americans today did what Israelites were commanded to do back in Bible times -- stone false prophets to death -- there would be a lot of dead economists, and that would include Paul Krugman. Krugman has been wrong in the past (claiming that if Japan borrowed and spent enough money during the 1990s, that it would come out of its economic funk, with Japan doing the former but the latter not occuring), but he also knows that a good defense is a good offense.

Thus, he centers on an editorial that is more than three years old to claim that EVERYONE who might disagree with his wisdom is a false prophet. No, he doesn't want them stoned to death, just removed from any meaningful social contact with anyone. His theme is simple: anyone who predicted that the massive expansion of the Fed's balance sheets and attempts to monetize U.S. debt and deficits would lead to an increase in interest rates is an idiot:

...we cannot and will not persuade these people to reconsider their views in the light of the evidence. All we can do is stop paying attention. It’s going to be difficult, because many members of the deficit cult seem highly respectable. But they’ve been hugely, absurdly wrong for years on end, and it’s time to stop taking them seriously.

 Krugman points out that as long "as the economy is depressed," interest rates will remain low. Unfortunately, he wants to claim that this is a market phenomenon instead of something that is being done by Ben Bernanke, an effect of the bad economy. Yet, what should help revive the economy? You guessed it: low interest rates.

So, what is it? Are interest rates an effect of a bad economy, or do they ward off a bad economy? There is a problem of causality, as Krugman wants it both ways. We shall see in the coming year what actually happens. If Krugman is correct, the government's vast intervention into the economy is finally going to bear real fruit, as most sectors will rebound nicely and President Obama will have that real recovery that he deserves.

On the other hand, Krugman has been wrong before, not that he ever admits it. The Krugman paradigm is this: when the economy is depressed, government should suppress interest rates, create lots of new money, try to initiate inflation, and then borrow and spend lots of money. This will bring about a real recovery.

Since the financial crisis became painfully obvious in 2008 (and, really, more than a year before that), government has done all of these things, including bailing out banks, financial houses, and much of the domestic auto industry. The Fed's balance sheet has grown exponentially, and it seems that if nothing else, Bernanke is hellbent on making sure that no big bank goes out of business.

On the other hand, the real economy is not doing so well. If we see the kind of recovery Krugman predicts in the next four years, then Krugman will be able to claim victory, although he has a habit of claiming victory even when he is wrong. The problem is that, like most Progressives, he believes that leftist government is so magical that it can do away with the Law of Opportunity Cost by printing money.

I don't believe that economics is an "empirical" science. Instead, economic theory must submit to the laws of nature, not the laws made up by a British sexual pervert. That means a priori, and anything else is metaphysics, as far as I am concerned. So, we shall see in the end who is the false prophet.

Krugman: Capital Stalls Economic Growth and Creates Inequality

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One of the differences between mainstream Keynesian (and neoclassical) economists and the Austrians is the view that both sides have of capital. On the Keynesian-socialist side, capital is useful mostly in the spending that is done in capital creation, and future capital improvements and repairs are useful only if these things require more spending.

Before going further, I need to emphasize that Austrians do not endorse all capital expansion, as we do see expansion based upon aggressive efforts by the government via the Fed pushing down interest rates or the government offering all sorts of subsidies and tax benefits (see "green energy") as promoting malinvestment. Since Keynesians such as Krugman do not recognize malinvestment as an economic issue (except for rare times when they think it might aid their arguments, and even then they will not use malinvestment as an economic term), they can endorse things like the massive subsidies for "green energy," since those sectors allegedly "create jobs."

If one ignores the Law of Opportunity Cost, then "green energy" is a great investment. Except, as the Wall Street Journal recently pointed out in an editorial, the Algore Sector of the economy is a disaster, an investor's version of the black hole. If Paul Krugman is interested in the relationship between capital formation and inequality, he need look no further that what has happened to the economic sector that President Barack Obama promised would lead us out of the economic downturn. Time and again we see the government transferring wealth to those who already are wealthy via this unjustified program of capital malinvestment.

(Al Gore, by the way, has managed to become fabulously wealthy living off these taxpayer subsidies while the investors who have helped provide the up-front money that he pockets have taken a financial bath. That is a story for another time and another posting, but I do find it instructive that Krugman never has gone after Gore the way that he has gone after people who actually might be productive.)

So it is today that Krugman takes on the capital bogey, first repeating (with some skepticism) yet another version of David Ricardo's pessimistic "steady state" plateau to be reached at an unnamed time. Ricardo's insistence of decreasing marginal returns to capital is there, as well as the view that at some point, capital formation will run into the proverbial brick wall. To his credit, Krugman disagrees, although not for the right reasons.

For Krugman, growth occurs only if government spending increases. One should not forget his preposterous claim that the recovery was faltering because state government spending was not rising at rates comparable to previous economic recoveries. (It never occurs to Krugman that because states must balance their budgets, they are heavily dependent upon real economic growth from private firms, so if anything, the financial problems in states and municipalities should be the "canary in the coal mine" warning that maybe Obama's policies are not promoting growth.)

Krugman then lets loose with this gem:

So machines may soon be ready to perform many tasks that currently require large amounts of human labor. This will mean rapid productivity growth and, therefore, high overall economic growth.

But — and this is the crucial question — who will benefit from that growth? Unfortunately, it’s all too easy to make the case that most Americans will be left behind, because smart machines will end up devaluing the contribution of workers, including highly skilled workers whose skills suddenly become redundant. The point is that there’s good reason to believe that the conventional wisdom embodied in long-run budget projections — projections that shape almost every aspect of current policy discussion — is all wrong.

Yeah, it is capital creating mass unemployment across the economy just as capital is responsible for the high cost of medical care. True, if it is malinvested capital, then in the long term, the malinvestments direct investment away from truly productive uses, and after the inevitable bust occurs, we see unemployment rising.

On the subject of "inequality," Krugman is insinuating that unless government steps in to limit investment returns to capital, then those returns will enrich some, but at the expense of others. Thus, Krugman reasons, capital that actually might be profitable in a market setting actually helps to create poverty. This is an amazing conclusion, but then we live in amazing time.

Krugman does not address the fact that maybe, just maybe, people purchase goods because they believe use of those goods will make themselves better off. In other words, he recognizes only the returns to investors as having anything to do with economics, while the actual uses of these goods and their economic effects either are ignored or are devalued.

During the 1930s, the New Dealers that Krugman so often praises claimed that the economy was in depression in part because ours was a "mature economy." I remember reading a 1980 Daniel Patrick Moynihan newsletter in which he made essentially the same claim. If that really were true, then I would challenge readers to go back to those eras and see who has a higher standard of living, Americans then or Americans now.

One one last point, Krugman continually claims that our present policies are starving Washington of wealth and that Washington really is on an "austerity" plan. If that is true, then why is the economy of the D.C. area booming at a time when the economy elsewhere is stagnant? Seven of the top 10 wealthiest counties either are contiguous to D.C. or are contiguous to counties that touch the D.C. borders, and the pattern continues. But if D.C. is booming, then why is the rest of the country doing poorly?

Krugman's Keynesian "Trickle-Down" Economics: Washington, D.C., as an Experiment

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According to Paul Krugman and other Keynesians (not to mention almost all so-called political Progressives), endorsing a relatively free economy in which governments do not set or regulate prices and permit owners of factors of production to bargain in free markets is also to endorse what they call "Trickle-Down Economics." This "theory," according to the Progressives, operates like this: If we "help" the "rich," (that is, do not confiscate all or nearly all of their wealth), then by so doing, the spending of the rich will "trickle down" benefits to everyone beneath.

Obviously, this is presented with the belief that the "theory" is false on its face, or at least the results of the "theory." The rich, as Krugman and others will tell you, don't spend all of their income, which means that not everyone beneath them will receive enough income to survive. The better way to do things, according to the Krugmanites, is for the government to confiscate most of the earnings and wealth of the rich and distribute them to everyone else. This will result in equal incomes, which then assure enough spending to keep the Big Circle of the Economy moving and result in economic Nirvana.

For the past four years, we have had a major Keynesian experiment in Washington, D.C., as huge amounts of money have been transferred from elsewhere in the USA to the D.C. area, and especially the nation's capital itself. The outlying counties have become considerably wealthier, and especially wealthier relative to the rest of the USA. But what about Washington, itself? If the Keynesian theory is correct, then the wealth absorbed by government should have "trickled down" to the other residents of D.C. who are not directly connected to high-paying government jobs, political office, or lobbying firms or companies that have major government contracts.

Certainly the economy of D.C. has received enough new money to have gained "traction" (as Krugman likes to call it) to be engaged in a boom. Well, it turns out that unless one is well-connected politically, the Keynesian "stimulus" just might not have as much staying power as Krugman claims.

It turns out that income and living inequality in the District are worse than ever, according to recent reports:

Two decades of record federal spending and expanding regulation have fostered a growing upper class of federal contractors, lobbyists and lawyers in the District of Columbia area. The federal government funneled $83.5 billion their way in defense and other work in 2010 - an increase of more than 300 percent since 1989, even after adjusting for inflation. Private industry poured more than $3 billion into lobbying toinfluence the government, nearly double what it spent a decade ago.

Like spokes on a wheel, the high-rise offices of this elite radiate out from Capitol Hill along major arteries deep into suburban Maryland and Virginia. The latest Census figures placed 10 of the capital's surrounding counties in the top 20 nationwide for median household income - up from six in 1990.

The article lays out the rise of Lani Hay from military officer to out-and-out Washington tycoon whose wealth has come about solely from the income transfers from private individuals and businesses to the government. And her $120 million in government-awarded income pales next to the income that others gain at the government troughs.

Yet, at the same time, the regular people in Washington are not taking part in this orgy of new governmental wealth. This article lays out what the "other" people experience, as the blogger Glenn Reynolds received this from a D.C. council member:

"I really think you should reconsider your article about how Washington, DC was not affected by the recession and is doing so much better than the rest of the country. . . . I am not sure if you have ever been to the DC area, but I live here and there is a lot of poverty. The capital area might be doing great and the 2 wards where congresspeople live might be doing well, but the rest of the city is affected by poverty. Wards 7 and 8 have an average income of less than $30,000 and there are boarded up stores all over the city, just not in the 2 mile radius that tourists and outsiders see. . . . Maybe your next article could be about how DC has the largest income margin in the nation? About how the congresspeople and lobbyists make over $100,000 a year and the rest of city is living in poverty?"

 That is not all. The Reuters article lays out a few gems that would contradict the Keynesian Gospel:

Inequality has increased in 49 of 50 states since 1989. (See accompanying box on how inequality was measured.)

The poverty rate increased in 43 states, most sharply in Nevada, ravaged by the housing bust, and in Indiana, which saw a rise in low-paying jobs.

Twenty-eight states saw all three metrics of socioeconomic well-being worsen. There, inequality and poverty rose and median income fell.

In all 50 states, the richest 20 percent of households made far greater income gains than any other quintile - up 12 percent nationally.

The five largest increases in inequality all were in New England: Connecticut first, followed by Massachusetts, New Hampshire, Rhode Island and Vermont. The decline in manufacturing jobs hit New England's poor and middle hard, while the highly educated benefited from expansionin the biotech and finance industries.

And then there is this: 

Massachusetts boasts the country's finest public education system, but that has failed to slow a sharp increase in the income divide. Indiana has revamped the state's welfare system, but the number of people in poverty has soared. And in the District of Columbia, the federal government's hand in rising inequality is visible locally and nationwide.

This is not possible under Krugman's Keynesian Trickle-Down Theory. More money for public education means inequality disappears. The New England states vote heavily Democratic, and very liberal Democrats at that (no Republican holds statewide office in New England), so there can be no question that the policies that govern these states are correct, according to Krugman's views. Furthermore, there is no more Democratic political entity in the country than Washington, D.C., so there can be no doubt that the city is following "proper" political and economic policies.

So, if all of the claims that Krugman has been making the past several years are true, then there is little or no economic inequality in Massachusetts and in Washington, D.C., and they are the two most "liberal" political entities in the country. Inequality cannot be happening there because Paul Krugman always is correct.