Petty, Parsimonious, and Perverse: Daily Aggregation

** Senator Dean Heller (R-American Bankers Association) is much perturbed about the publicity he’s getting from joining that small coterie of Nevada Republicans disinclined to move from their office spaces. [LVSun] The explanation du jour is that his aide was making a “joke,” and none of the flap should be taken seriously.

“According to unnamed sources cited in the article, Abrams told a staffer for Georgia Sen. Saxby Chambliss that Heller might have to start giving campaign funds to Chambliss’ Republican challenger in his 2014 election if Chambliss tried to take the office. The conversations took place before Chambliss announced he would retire at the end of the current congressional term.

Heller was incensed by the article, blaming “petty politics,” “petty politicians,” and “petty reporting” for turning Abrams’ conversation into a political football — or as the Nevada Democrats painted it, a “scandal.”

Heller was careful to say that when he was complaining about politicians, he did not mean to slight Chambliss or any sitting senators, merely criticize their staffers.”  [LVSun]

OK.  Petty, petty, and petty. But, of course, NOT to include politicians like his cohort Senator Chambliss, thus the major Petty must be for the reporters who first published the story.  And, perhaps the professional flack catchers otherwise know as Staff.

** Nevada Governor Sandoval is pleased to tell us that the unemployment rate drop in the Silver State must be due to ongoing efforts to diversify the Nevada economy [RGJ] Nevada’s overall unemployment rate fell to 9.7%, while the YOY job growth is now at 2.5%.  The U.S. unemployment rate is currently  7.9%. [DETR]  Before we become too enamored of our economic recovery, there are some caveats to note:

(1) Some of the good news is that the worst didn’t happen.  For example, initial estimates for job losses were that 22,600 jobs would be lost based on historical trends.  Happily only 16,000 were eliminated overall.  However, here comes the kicker — 2,400 jobs were added in the Las Vegas Metro area, another 600 added in Reno, but 300 were lost in the Carson City region.  Those would most likely be public sector (or private sector jobs related to public sector employee spending).  [NLDB ppt]

(2) The chart for job growth by sector shows we’re still primarily dependent on traditional Nevada business activities:

Leisure and hospitality (gaming to us, gambling to our visitors) showed the most job growth.  Trade, transportation, and utilities is the second highest blue bar, with construction showing job growth as well.  However, look what’s happened to the bottom blue bar — professional and business services.  We seem to have lost ground in that sector.

(3) We do need to look a public sector hiring, since no one’s yet come up with another formula for calculating gross domestic product/aggregate demand for the state of Nevada (or the nation for that matter.)  DETR notes from July 2012 (pdf) offer some cause for concern, especially for local governments.  Local government jobs were down by 15,000 as of July 2012 from their peak in October 2008.  We’ve lost about 2,000 more state jobs since early 2011.   There are those who would view these numbers with glee, and as an indication we’re shaving off those idle, lazy, bureaucrats lounging at taxpayer expense in comfortable offices.    However, job descriptions don’t match the mythology — these are more often teachers, firefighters, police officers, health inspectors, highway maintenance workers, public health nurses, social workers, employment counselors, data entry specialists, IT personnel, DMV staff, archive and record keeping specialists, accountants, actuaries, statisticians….

There are numbers associated with these categories.   Nevada had lost 4.08% of its state workforce, and another 10.77% of its local government workforce between January and April 2008. [Governing.com]  However much privatization forces and their minions may wish to raise a clamor about public sector employees being “over-paid” or redundant, the hard truth remains that their spending power is part of the equation by which we calculate our gross domestic product for Nevada, and that spending doesn’t fall into a Black Hole, it forms part of the aggregate demand for goods and services usually purchased from local retailers and service providers.

** The Sin City Siren posts a comparative piece on the Ryan Budget and its Senate counterpart from Senator Patty Murray (D-WA).  Water, Water, and the SNWA can be followed at the Nevada Progressive.   The Nevada Rural Democratic Caucus points out that by the lights of the Not-So family friendly Family Research Council, “Unmarried people should be denied birth control and punished for having sex..”  which should come as something of a shock to the 80% of unmarried Christian evangelicals who report they have performed the beast with two backs?

Energy and Amodei

** Thus much for all the “Doom Despair and Agony On Me Deep Dark Depression and Excessive Misery“– Nevada’s unemployment rate has dropped to 11.8%.  [LVSun]  Not too shabby for a state that got caught in the midst of the Wall Street Casino generated Housing Bubble.

** There is an economic sector in which Nevada could do quite well:  “Nevada is rich in renewable energy potential but has few fossil energy resources. Nevada leads the Nation in geothermal power potential and much of the State is suitable for wind power development. The Colorado River, which forms Nevada’s southern border, is a powerful hydroelectric power resource.” [Eredux]  What could we be doing to create more jobs in the energy sector?

Wind Energy: “Over 24 million acres of land in Nevada within 10 miles of an existing transmission line is classified as ‘good’ to ‘outstanding’ for wind energy development. Nevada has the potential to generate 63 million megawatt/hours — 280% of the State’s current consumption.”

Solar Energy: “Nevada has the highest solar energy potential in the nation and is already the number one state in per capita solar energy production. The DOE estimates that 100 square miles of Nevada land could supply all U.S. electricity needs with current (~10%) commercial efficiency rates. With over 250 days of sunshine a year, Nevada is looking forward to a bright solar future.”

Geothermal Energy: “1500 MW of geothermal capacity that could come on line in Nevada by 2015. With 340 MW of geothermal power currently in operation and hundreds more coming on line in the next couple of years, Nevada is poised to become a world leader in geothermal power generation.”

UNR “Nevada’s Renewable Resources” Click for interactive maps and pdf reports.

**  The energy resources available for development in Nevada aren’t merely a matter of tree-huggin’ environmental interest — rural counties which need to diversify their economies are prime locations for energy development projects.   This ought to be a bi-partisan, if not non-partisan, issue.  Communities based on mining are all too familiar with the Boom and Bust phenomena — witness Hamilton,Belmont, or Bullfrog, and other ghosts of booms past.  Agriculture is a solid but geographically limited contributor to local rural economies.  Manufacturing clusters are developing, but face staffing challenges when competing with mining corporations for highly skilled employees.  Energy development is a sector which could contribute to rural economic development — the installations require construction (which would help in the short term), maintenance and staffing; better still they can’t be out-sourced to another country.

Instead of dismissing alternative energy development as a “passing fad,” which economists assure us isn’t the Chinese or German conclusion, or pretending that support for energy development is a futile exercise in picking winners and losers — could we guess that the Oil Giants believe they might be losers? — we should be looking at alternative energy development as a way to help diversify the economy in rural Nevada.

** And then there’s the short term vision of Nevada’s Second Congressional District incumbent.  Representative Mark Amodei’s view is remarkably foreshortened — as in limited to the next utility bill.

“If federal money is going to be spent on research and development to make wind, solar and geothermal energy more competitive that’s one issue, Amodei said.  “But if those, when they get done, go to sell into the grid and that increases rates, especially right now when things are they way they are in Nevada, and competition for sustainable living wage jobs is what it is in the Inter-mountain West, I think that’s the wrong energy policy,” he said. [NNB]

Somewhere in that word salad there’s a point which might be translated as  alternative energy development is OK if it is to make the projects competitive, and if there’s no increase in electricity bills.   The ultra-conservative NPRI chimes in with a misleading comment presented as if it proves alternative energy development doesn’t create jobs, and if it does it’s too expensive.  The NPRI took the total $1.3 billion investment in alternative energy since 2009, and divided it by the number of permanent full time jobs and came up with an astronomical price for each job created.

First, no one ever said alternative energy was going to create jobs for everyone in the country. Secondly, the NPRI’s complaint ignores the fact that the projects may also support those who are already employed in the industry — thus relieving downsizing pressures.  Third, construction jobs DO count.  Even though construction and installation jobs are by their very nature temporary, they do feed into the local economy, especially if local contractors and subcontractors are hired to do the work.

Economic diversification could be enhanced by including alternative energy projects, IF Representative Amodei were willing to take a longer view of the potential and less persistent in his opposition to anything that might require start up assistance.   It would be better for his rural constituents if he could even see past the envelop containing his power bill.

Amodei, Heck: Fire, Ready, Aim on TANF Waivers

Don’t look now, but Nevada Representatives Amodei (R-NV2) and Heck (R-NV3) just voted to usurp the power of governors in our 50 states to implement ‘welfare to work’ programs designed to  increase the number of persons finding employment who are now receiving public assistance.  [vote 589]  Voting against new programs to move more people from welfare to work doesn’t sound like a traditional GOP position — However, that’s what happens when guns are jumped and propaganda replaces position papers.

Here’s what the House Republicans passed:

HJRes 118  Providing for congressional disapproval of the rule submitted by the Office of Family Assistance of the Administration for Children and Families of the Department of HHS relating to waiver and expenditure authority under the Social Security Act with respect to the Temporary Assistance for Needy Families program…

Here’s what the Department of Health and Human Services actually said:

“HHS is encouraging states to consider new, more effective ways to meet the goals of TANF, particularly helping parents successfully prepare for, find, and retain employment.  Therefore, HHS is issuing this information memorandum to notify states of the Secretary’s willingness to exercise her waiver authority under section 1115 of the Social Security Act to allow states to test alternative and innovative strategies, policies, and procedures that are designed to improve employment outcomes for needy families.“  (emphasis added)

Note: The states only get the waiver on the work rules IF their new policies Improve Employment Outcomes — translation — IF more people are moved form the welfare rolls to the employment rosters.

Who requested the waivers?  Nevada and Utah, both with Republican Governors.

“Nevada is very interested in working with your staff to explore program waivers that have the potential to encourage more cooperative relationships among the state agencies engaged in economic stimulus through job creation, employment skill attainment and gainful employment activities. Nevada is also interested in exploring performance measures that ensure program accountability and also increase the probability of families becoming self-sufficient by providing meaningful data as to the services or combination of services with the best outcomes. [Nevada Department of Health and Human Services, 8/2/11, via The Huffington Post]” (emphasis added)

So, congratulations Representatives Amodei and Heck, you’ve both voted in favor of less program accountability, and against innovations that might increase the probability families in Nevada currently receiving public assistance could become self sufficient.

An unsolicited suggestion — next time turn off the cable TV broadcast and read the relevant statutes  before voting?  Just Sayin’

Challenging Our Economic Assumptions In Supply Side Nevada

Blind faith can be a very good thing.  However, as in most situations in which human beings find themselves, Samuel Johnson’s quip — “Moderation is commonly firm, and firmness is commonly successful” — should be applied.  When speaking of the Nevada economy, sluggishly trending back to prosperity, a little moderation would be a firm handle to grasp.  Better surely than grasping at platitudes and assumptions.

Some Assumptions Need To Be Questioned

Why, for example do we measure our economic recovery by looking at the peak growth points in 2007?    The numbers in 2007 were artificial. We know that in retrospect.   Nevada was riding the Housing Bubble.   Therefore, should we assume our state’s economy won’t be fully recovered until we see employment and growth figures similar to the ones from 2003 to 2007?

Why, do we believe that a specified percentage of growth is the ideal target?  One look at a graph of the U.S. GDP since 1947 certainly doesn’t indicate that our GDP growth since World War II has been a steady march of progress.

If we take the numbers back to 1900 the historical average annual increase in the GDP is about 3.1%.  [DotL] What we’re looking for now is an annual increase in the GDP sufficient to reduce the current levels of unemployment.  By October 2011 we were seeing an increase in the Real GDP of about 2.5%, positive but not enough to cause a significant reduction in the overall unemployment rate.  What would the picture look like if we split out the components of the GDP?

This:  (click on the chart to go to the interactive version)

What we’re looking at is a flat line for personal consumption expenditures since 2010 Q1,  volatility in gross private domestic investment, and mostly negative public (government) consumption expenditures.   The yellow GDP line muddles along.  Notice that when government expenditures moved into “positive territory”  beginning Q2 2010 the GDP moved up to 3.8%.   When the government expenditures dropped 5.9% in Q1 2011, the GDP was barely in positive country at 0.4%.

If there is no specified ideal GDP number, only an increase in overall economic activity sufficient to reduce the unemployment rate, then can we assume that all government spending is wasteful?   Not if we’re all looking at the same graph.

Reviewing what what happening economically in the latter part of 2011 the EPI analysis seems both relevant and precise:

“The one-year rise in the market-based PCE deflator excluding food and energy—a closely watched indicator of potential future inflation—rose only 1.6 percent. This low inflation rate, combined with only a 1.6 percent GDP growth rate over the same period (third quarter 2010 to third quarter 2011), argues that this remains an economy plagued by weak demand. Measures to boost demand are by far the most effective tools to bring the economy back to health.”  (emphasis added)

Is tax rate reduction the best way to increase demand?  Nevada has experienced job growth during 2012 in every part of the state except Carson City.  If “cutting back on government” is the recipe for economic growth in the private sector, why didn’t private sector employment pick up the slack in the state capital?  Silly question? Not really.  What we have here is an illustration of the inter-connectivity of public and private spending and consumption.

The second chart from DETR shows us that every major sector in the Nevada economy grew in both FY 2011 and FY 2012 except construction. That’s to be expected.   However, if we’re assuming that this is because taxes were reduced, then the exclusive connection can’t be made. The 2011 Nevada legislature extended tax increases that were scheduled to expire to make its budget numbers, [NNB] and the job growth increased in two major sectors over 2011, and the construction numbers were “not as bad” as 2011, or putting a Happy Face on it were 1/2 as bad as FY 2011.  There’s yet another question to be asked.

If Nevada further reduced its taxation would an amount of personal income “remaining in individual pockets” be enough to drive economic growth toward the level necessary to reduce unemployment?  Probably not.  We have no personal income tax.  We have the aforementioned Modified Business Tax, we have sales taxes ranging from 6.85% to 8.10%, we have Sin Taxes, excise taxes on insurance and banks, and some other taxes, but no corporate income tax. [NVDoTx] Taxation-wise we’re one of the most mining friendly places on the planet. [Gleaner]

In fact, what we have at the state and local level is a system which doesn’t reward consumption of goods and services, or good old fashioned Demand.  The more you buy the more  you pay, regardless of your annual income.  Local property taxes are based on the value of the property, not the income capacity of the homeowner.  The only forms of taxation we could reduce are already insufficient to sustain local government operations, witness the layoffs in the Clark County School District.

We appear to have spent so much time worrying about the supply side of the equation we’ve diminished our capacity to encourage or reward demand.

Can we assume further emphasis on the supply (investor) side of the classic market equation will eventually reward us with economic growth necessary to reduce unemployment?  Why would it?  An investor could back The Next Greatest New Product On Earth, but if there is no demand for it the investment and the innovation will both be in vain.

Well Gee, we say, if there’s no demand then the Market Has Spoken, and neither the innovator nor the investor can expect anything other than failure — you win some, you lose some, and a few get rained out.  If we extend the baseball analogy a step further — have we paid enough attention to the rain outs?

A rain out might look something like this:  A hypothetical suburban neighborhood has a higher percentage of public employees — teachers, firefighters, police officers, social workers, and so on — than some other residential areas in the region.  The neighborhood has the usual assortment of retail enterprises, a supermarket, a medium sized shopping mall, a couple of Big Box retailers for general merchandise and home supplies.   If there is a significant reduction in the wages, salaries, or the number of public employees what happens to the micro-domestic product?  No reduction in taxation rates are going to recoup the lost revenues in the neighborhood such that the retailers can maintain their previous profit levels.

There may be a point at which the reduction in demand tips, and the retailers cannot maintain their staffing levels, at this juncture public sector layoffs beget private sector layoffs; and, if we aren’t careful there’s a downward spiral effect on overall economic activity in the area.  Obviously, the larger the population the more such losses can be absorbed in the generalized figures, but just as obviously in places with smaller populations (Carson City for example) the impact is magnified.  Remember this home-made graph?

The 8.3% rebound looks good, but the dip between 2007 and 2010 was deep and hard.  There is yet another way to observe the connections between weak demand and the Nevada economy.

How many new businesses are being registered with the Secretary of State’s office?  As would be expected the drop off is fairly clear beginning in 2006 (Housing Bubble starts to waver) and plumbs the depths until starting back up in 2010.  Then we falter.   Should we test the hypothesis that the “plague of weak demand,” is at least partially responsible for the little bounce from a 0% increase to another 0% increase in 2012?

The hypothesis ought to be tested because there are some assumptions beneath it, including “no one starts a business expecting to fail,” or “no one starts a business without the expectation of having customers.”  If we are, indeed, “plagued by weak demand,” then might this show up in the numbers of businesses formed in a given region?

Perhaps it’s time to forgo the pleasant assurances of ethereal ideological assumptions about the functioning of our free market economy with a singular focus on the investors, and apply some moderation.  We ignore the demand side of the scales at our peril.

“Moderation is commonly firm, and firmness is commonly successful“

Senator Heller’s Pipe Dream: Fun With Deregulation

Nevada got hammered in the Housing Bubble.   Here’s what the Bubble looked like:

As the Housing Bubble collapsed so did Nevada employment. The graph looks like this:

Nevada lead the nation in home foreclosures for months on end, and it was only in January, 2012 that we were relieved to say “We’re Number Three.” [RGJ]    Why look backward?  Because in this instance the past is prologue. Lessons learned the hard way during the Savings and Loan Crisis of 1986 to 1995 were lost on bankers, builders, pundits, and politicians.

Risky Business

Does this sound familiar?  Deregulation of the Savings and Loans during the 1980′s gave the S&Ls many banking capabilities but without the regulations associated with banking.  Immediately after the deregulation of the Thrifts those that had state charters moved to federal charters because the latter were less restrictive. The states of California and Texas reduced their S&L oversight to match the federal deregulation.  The system rewarded risk. The greater the risk the greater the profits.  That is, the system was profitable until all the risky investments in real estate development started bottoming out.   The dominoes started to topple in 1985 when the Home State Savings Bank of Cincinnati, OH collapsed in March.    From 1986 to 1995 the number of Savings & Loan banks dropped from 3,234 to 1,645; and, the taxpayers were out about $124 billion dollars. [Link]

Deregulation and subsequent “innovation” in the last thirty years have given us the Savings and Loan Crisis (1986-1995), the Dot.Com Bubble from April 1997 to June 2003, [BI] the Enron Debacle and bankruptcy in December 2001, and the Mortgage Meltdown/Credit Crisis of 2008.

One would think we’d have learned something along the way, but here we have Senator Dean Heller (R-NV) touting his platform for economic growth:

“The key to turning our economy around is to remove impediments that have caused economic stagnation and the inability of businesses to create new jobs. Not continue with business as usual.”

“Dean believes that private capital, not the federal government, should be the primary source of mortgage financing for the housing market. Dean supports financial regulatory reforms that stop taxpayer-funded bailouts and address the growing liabilities of Fannie Mae and Freddie Mac.”

And, what might those impediments be? Might they be the Sarbanes-Oxley Act requiring accounting reforms and greater transparency in the wake of the Enron Debacle?  Might they be the provisions of the Dodd Frank Act, the most recent attempt to restrain some of the excesses of Wall Street during the Housing Bubble?  It’s well known Senator Heller joins his ultra-right wing cohort Senator Jim DeMint (R-SC) in proposing the repeal of the Dodd Frank Act.

“Dean supports financial regulatory reforms that stop taxpayer-funded bailouts and address the growing liabilities of Fannie Mae and Freddie Mac.”  What would those “reforms” be?  If you want to stop taxpayer funded bailouts of the banking sector, simply leave the Dodd Frank Act in place since it provides for an Orderly Liquidation Authority to wind down the next Lehman Brothers mess.   No one’s all that pleased with the mortgage twins BUT if they are put out of business, WHO picks up the action in the secondary mortgage market?  JPMorganChase? Barclays Capital?

The growing liabilities of Fannie Mae?  That might have been true in 2009 but it’s outdated information now. There’s home-made chart for that:

Data from Fannie Mae, Funding Summary and Debt Outstanding, PDF.

How about Freddie Mac? Again, Senator Heller’s talking points are behind the curve.  Here’s the portion of the presentation made by Freddie Mac to its investors in June 2012 (pdf) –

A bit of Fannie and Freddie bashing is always welcome in some financial sector circles, and usually gets some applause from stump speech audiences who don’t know any better, but trying to sell the idea that we can get out from under the risky business of deregulation, and increase economic growth by dismantling the regulatory frameworks enacted to at least prevent the financial sector from repeating its recent atrocious mistakes is a pipe dream of the first water.

Senator Heller is using the  message from the Frank Luntz GOP talking point memo on financial regulation, complete with the framing: “Public outrage about the bailout of banks and Wall Street is a simmering time bomb set to go off on Election Day,” Luntz wrote. “Frankly, the single best way to kill any legislation is to link it to the Big Bank Bailout.” (emphasis added)

Unfortunately, the facts and actual provisions don’t match the linkage.  New regulations seek to PREVENT the necessity of any more major bailouts by establishing the Orderly Liquidation Authority, but if Senator Heller can string “financial reform” + “bailout” into a single sentence, and then repeat the mis-characterization often enough,  then maybe someone who doesn’t know any better will believe him.

In short: If you liked the Savings and Loan Crisis, enjoyed the Dot.com Bubble bursting, cheered for Team Enron, and loved the Housing Bubble and Mortgage Meltdown…  Senator Heller is your kind of candidate!

Relevant Previous Posts: “Nibbling Away at Sarbanes Oxley,” DB March 26, 2012. “Deregulation Debacle,” DB June 27, 2012. “A good reason not to repeal Dodd Frank OLA,” DB October 22, 2011. “Full Tilt Boogie: GOP attempts to gut Dodd Frank,” DB November 7, 2012.

See also: “Investor Presentation, Freddie Mac” June 2012. (pdf)  Sam Stein, “Frank Luntz Pens memo to kill Financial Reform,” Huffington Post, April 3, 2010.

What might have been? Heller votes against 9,100 jobs

The American Jobs Act, which Senate Republicans successfully filibustered recently, could have done some good in Nevada.  The infrastructure project spending was projected to create approximately 3,300 local jobs; the teacher, police, and firefighter provisions were projected to stabilize some 3,600 jobs; another 2,200 jobs were estimated to be associated with the school modernization and retrofitting funding; that’s a total of 9,100 jobs. [AJA pdf] And, Senator Dean Heller (R-NV) voted with his GOP cohorts to prevent the bill (S. 1723) from getting a vote on the floor of the U.S. Senate.  [roll call 177]

Let’s assume that the average teacher salary in Nevada is close to the nationally estimated $43,394.  Saving 3,600 jobs would have injected approximately $156,240,000 into the Nevada’s state and local economy.  That’s money which might have been spent paying for housing, food, clothing, and for paying state and local taxes.  But, Senate Republicans didn’t want to vote on it.

Nevada has a 13.4% unemployment rate, [DETR] But, Senate Republicans didn’t want to vote on adding some 3,330 local infrastructure jobs, nor on approximately 2,200 jobs repairing and retrofitting schools in Nevada.  The average (median) hourly wage of a person in “construction trades” is $23.28. [DETR] The loss to the state from Obstructionism in the Senate is harder to quantify in this area because we don’t know the duration of the infrastructure and maintenance/retrofitting projects.  [EM] What we can estimate is that if a school retrofit project to enhance energy use took 30 days to fully complete one construction worker could have earned $5,587.   But, Senate Republicans didn’t want to vote on it.

Another factor, harder to quantify but no less important, is that by retrofitting school buildings local districts can enjoy savings on energy costs.  Recommissioning air filtration and conditioning units can save about $10,000 to $16,000 in a 100,000 sq.ft school building annually.  Installing T8 lighting can reduce energy consumption by as much as 35% compared to older T12 fluorescent lighting systems.  [EnergyStar] Not only would the retrofitting funds contribute to immediate economic needs in the community (creating Demand), but the local school districts could have enjoyed the savings associated with reduced energy costs.   But, Senate Republicans didn’t want to vote on it.

We could have received up to $585,600,000 to assist refurbishing and rehabilitating foreclosed properties in Nevada.  [AJA pdf]  That would have meant more paychecks for more families in the construction trades, and the suppliers, and the contractors…but the Senate Republicans didn’t want to vote on it.

Rehabilitating property isn’t simply a matter of improving the lives of construction workers — there are the neighbors to consider as well.  Every foreclosed property results in an average loss of about $7,200 in the value of neighboring properties.  [CRL pdf]  One study found that a foreclosed property brought the value of adjacent properties down by some 8.7%, and that the “effects” lasted for nearly 5 years.  Another found that for 1 or 2 years after a foreclosure there was a 0.9% price drop for all residences within an eighth of a mile.  Still another study found that for every 1% rise in the default rate there was a 14% reduction in home value within a census tract.  [UTDallas pdf] While the studies cited vary in terms of scope and variables, one thing remains consistent — foreclosed property in a neighborhood brings everyone’s home values down.  But, Senate Republicans didn’t want to vote on it.

What’s Their Excuse?

## Senate Minority Leader Mitch McConnell (R-KY) offered the “It’s not my job excuse.” [TPM]

“I certainly do approve of firefighters and police,” said McConnell. “The question is whether the federal government ought to be raising taxes on 300,000 small businesses in order to send money down to bail out states for whom firefighters and police work. They are local and state employees.”

Note the Minority Leaders loaded language.  “Raising taxes on small businesses…” and “bail out states.”  It’s time for a reality check.  The “tax” the Minority Leader is talking about was a 0.5% increase in the taxes on millionaires and billionaires.  [CNN] Senator McConnell obviously hasn’t read the information from the Office of Tax Analysis in the Department of the Treasury [Technical Paper 4, August 2011 pdf]

## “It’s a tax on small businesses excuse.”  It’s time to look at the reality on the ground. “Of the 3,808,000 returns with small-business employer income, only 126,000 were filed by employers with an adjusted gross income of more than $1 million. ” [AmPro]   Here’s what the reality  looks like in graph form:

In short, in order to protect the income of only 4% of all 3,808,000 small business owners in the entire United States,  Senate Minority Leader McConnell and his Republican cohorts in the Senate were willing to filibuster a major jobs bill.

## “It’s another failed stimulus excuse…”  Some conservative sounding boards are trotting this one out. [WE] And the Republican policy committee is raising the allegation yet again.   Merely because an argument is repeated doesn’t make it any more valid.

The reality looks more like this:

“Yes, the administration also predicted unemployment would peak at around 8 percent. That was obviously very wrong. The jobless rate hit 9 percent in the middle of 2009 and, except for a brief period this year, hasn’t dipped below since. Those are the figures critics always use to make their point. But few mainstream experts doubt that, if not for the Recovery Act, today’s unemployment rate would be significantly higher.”  [The New Republic]

Then, there’s the not-so-small-matter of GOP hypocrisy concerning the ARRA (stimulus bill): They’re against it until the money flows into their Congressional Districts — as Rachel Maddow explained during one of her broadcasts. [Video] Perhaps Senator Heller, who joined Senator McConnell in voting against the American Jobs Act (S.1723) would care to explain how the ARRA projects “failed” in his former Congressional District?

Would Senator Heller care to comment on how the $151,190,956 in ARRA funds “failed” to benefit the Nevada Department of Transportation?  Or, how Hawthorne didn’t benefit from its 28 contracts, loans, and grants? [ARRA] Or, how government entities in Elko County didn’t benefit from its 45 grants, loans, and contracts? [ARRA]

So, what are YOU offering?

The Senate Republicans offered their own version of a jobs bill — without jobs,  (S. 1720) of which Senator Heller is a co-sponsor.  What does this bill do?  The bill is a potpourri of the usual GOP wish list.  [Thomas] The Senator Republicans would have us believe that JOBS will be created if we repeal Financial Regulatory Reforms and Health Care Reforms.  That we can create JOBS by being lenient with polluters.  That we can create JOBS by enacting tort “reform,” and deregulating everything in sight.  Last but not least — it is the fervent GOP believe that TAX CUTS will solve every economic ailment known to mankind.   In sum, the Republican “solutions” are the same old tax cut, deregulate, pollute, and union bash…  Nothing new here.

For those wishing to see the particulars of this  GOP hodge podge the details are provided below.*

———————————————————————————————-

*Tax Cuts

S.89 and S. 164 Withholding Tax Relief Act of 2011- Repeals provisions of the Tax Increase Prevention and Reconciliation Act of 2005 requiring federal, state, and local governmental entities to withhold 3% of payments due to vendors providing goods and services to such entities.

S.102: Amends the Impoundment Control Act of 1974 to require the Office of Management and Budget (OMB) to transmit, within 45 calendar days after enactment of the funding in question, a message to Congress with specified information requesting any rescission the President proposes under the procedures in this Act.

See also: S. 1726 (McConnell)

Union Busting

S.119: Government Neutrality in Contracting Act – Directs the head of any federal agency that awards or obligates funds for any construction contract, or that awards grants, provides financial assistance, or enters into cooperative agreements for construction projects, to ensure that bid specifications, project agreements, or other controlling documents do not: (1) require or prohibit a bidder, offeror, contractor, or subcontractor from entering into, or adhering to, agreements with a labor organization, with respect to that construction project or another related construction project; or (2) otherwise discriminate against such a party because it did or did not become a signatory or otherwise adhere to such an agreement.

S. 1523:  Section 10(c) of the National Labor Relations Act (29 U.S.C. 160) is amended by inserting before the period at the end the following: `: Provided further, That the Board shall have no power to order an employer (or seek an order against an employer) to restore or reinstate any work, product, production line, or equipment, to rescind any relocation, transfer, subcontracting, outsourcing, or other change regarding the location, entity, or employer who shall be engaged in production or other business operations, or to require any employer to make an initial or additional investment at a particular plant, facility, or location’.

Repeal Health Care Reform

S. 192: Repealing the Job-Killing Health Care Law Act – Repeals the Patient Protection and Affordable Care Act, effective as of its enactment. Restores provisions of law amended by such Act. Repeals the health care provisions of the Health Care and Education and Reconciliation Act of 2010, effective as of the Act’s enactment. Restores provisions of law amended by the Act’s health care provisions.

S. 197 (initially sponsored by Senator John Ensign) Medical Care Access Protection Act of 2011 or the MCAP Act – Sets forth provisions regulating lawsuits for health care liability claims related to the provision of health care services. Sets a statute of limitations of three years after the date of manifestation of injury or one year after the claimant discovers the injury, with certain exceptions.  Requires a court to impose sanctions for the filing of frivolous lawsuits.  Limits noneconomic damages to $250,000 from the provider or health care institution, but no more than $500,000 from multiple health care institutions. Makes each party liable only for the amount of damages directly proportional to such party’s percentage of responsibility.

Deregulation

S. 299 REINS Act: Regulations From the Executive in Need of Scrutiny Act of 2011 or the REINS Act – Rewrites provisions regarding congressional review of agency rulemaking to require congressional approval of major rules of the executive branch before they may take effect (currently, major rules take effect unless Congress passes and the President signs a joint resolution disapproving them). Defines “major rule” as any rule, including an interim final rule, that has resulted in or is likely to result in: (1) an annual effect on the economy of $100 million or more; (2) a major increase in costs or prices; or (3) significant adverse effects on competition, employment, investment, productivity, innovation, or U.S. competitiveness.

S. 474: Requires each agency to establish a plan for the periodic review (every eight years) of: (1) its rules that have a significant adverse economic impact on small entities, and (2) any small entity compliance guide required to be published by an agency. Sets forth criteria for review of a rule, including the continued need for the rule, the complexity of the rule, and the impact of the rule on small entities. Terminates any rule if the issuing agency has failed to complete a required periodic review.

S. 1030: Freedom from Restrictive Excessive Executive Demands and Onerous Mandates Act of 2011 – Amends the Regulatory Flexibility Act (RFA) to revise the regulatory process (rulemaking) with respect to small entities (e.g., small businesses, small organizations, and small governmental jurisdictions).

S. 1189: Unfunded Mandates Accountability Act of 2011 – Amends the Unfunded Mandates Reform Act of 1995 to: (1) require regulatory impact analyses for rules that do not involve a legislative mandate and for final rules that do not have a prior notice of proposed rulemaking; (2) require federal agencies to prepare and publish in the Federal Register an initial and final regulatory impact analysis prior to promulgating any proposed or final rule that may have an annual effect on the economy of $100 million or more or that may result in the expenditure of $100 million or more in any one year by state, local, and tribal governments; (3) require such agencies to identify and consider regulatory alternatives before promulgating any proposed or final rule and select the least costly, most cost-effective, or least burdensome alternative; (4) define “cost” as the cost of compliance and any reasonably foreseeable indirect cost resulting from agency rulemaking; (5) exempt rules concerning monetary policy proposed or implemented by the Board of Governors of the Federal Reserve System or the Federal Open Market Committee from provisions of such Act relating to regulatory accountability and reform, review of federal mandates, and judicial review; and (6) expand provisions relating to judicial review of regulatory impact analyses.

S. 1438: Regulation Moratorium and Jobs Preservation Act of 2011 – Prohibits any federal agency from taking any significant regulatory action until the Bureau of Labor Statistics (BLS) reports a monthly unemployment rate equal to or less than 7.7%.

Repeal Financial Regulation Reform in the Dodd-Frank Act

S. 1615 [see full text here]

Reduce Protections under the Clean Air and Clean Water Acts

S. 468:  Mining Jobs Protection Act – Amends the Federal Water Pollution Control Act (commonly known as the Clean Water Act) to repeal provisions that require the Administrator of the Environmental Protection Agency (EPA) to consult with the Secretary of the Army before denying or restricting the use of specified areas as disposal sites for discharges of dredged or fill material into waters of the United States.

S. 482:  Energy Tax Prevention Act of 2011 – Amends the Clean Air Act to prohibit the Administrator of the Environmental Protection Agency (EPA) from promulgating any regulation concerning, taking action relating to, or taking into consideration the emission of a greenhouse gas (GHG) to address climate change. Excludes GHGs from the definition of “air pollutant” for purposes of addressing climate change.

S. 1027: Amends the Mineral Leasing Act to: (1) repeal the requirement that leases be issued within 60 days following payment by the successful bidder of the remainder of the bonus bid and the annual rental for the first lease year, and (2) direct the Secretary to automatically issue a lease 60 days after the date of such payment, unless the Secretary is able to issue the lease before that date.

S. 1226: Offshore Jobs and Energy Permitting Act of 2011 – Amends the Clean Air Act to require any air quality impact of Outer Continental Shelf (OCS) sources to be measured or modeled and determined solely with respect to the impacts in the corresponding onshore area.

S. 1292: Employment Protection Act of 2011 – Requires the Administrator of the Environmental Protection Agency (EPA), prior to promulgating a regulation, policy statement, guidance document, or endangerment finding, implementing any new or substantially altered program, or issuing or denying any permit, to analyze the impact, disaggregated by state, of such requirements, policy statement, guidance, finding, program, permit, or permit denial on employment levels and economic activity. Requires such analysis to include estimated job losses and decreased economic activity due to the denial or issuance of permits, including permits issued under the Federal Water Pollution Control Act (commonly known as the Clean Water Act).

S. 1528: To amend the Clean Air Act to limit Federal regulation of nuisance dust in areas in which that dust is regulated under State, tribal, or local law, to establish a temporary prohibition against revising any national ambient air quality standard applicable to coarse particulate matter.

Tort Reform

S. 1061: Tort Reform – Government Litigation Savings Act – Revises provisions of the Equal Access to Justice Act (EAJA) and the federal judicial code relating to the fees and other expenses of parties in agency proceedings and court cases against the federal government to: (1) restrict awards of fees and other expenses under such Act to prevailing parties with a direct and personal monetary interest in an adjudication, including because of personal injury, property damage, or an unpaid agency disbursement; (2) require the reduction or denial of awards commensurate with pro bono hours and related fees and expenses to parties who have acted in an obdurate, dilatory, mendacious, or oppressive manner or in bad faith; (3) limit awards to not more than $200,000 in any single adversary adjudication or for more than three adversary adjudications in the same calendar year (unless the adjudicating officer or judge determines that a higher award is required to avoid severe and unjust harm to the prevailing party)…

Oh, Brother Can You Spare A CDS? Financialism Erodes Free Market Capitalism

   “They used to tell me I was building a dream, and so I followed the mob,
    When there was earth to plow, or guns to bear, I was always there right on    the job.
    They used to tell me I was building a dream, with peace and glory ahead,
    Why should I be standing in line, just waiting for bread?“

One out of every 44 homes in the Las Vegas, NV metropolitan area is in foreclosure. [Vegas Inc] Nevada has a 13.4 unemployment rate.  The Las Vegas area is still experiencing 14.2% unemployment, the Reno-Sparks area 13.2%, and the Carson City area 12.7%. [DETR] 115,745 children in the state of Nevada are living in financial strapped homes, with income below the ‘poverty line.’ [NCCP] 25% of those children are living in homes where there is a least one parent employed full time.  44% of the youngsters are living in homes where a parent is employed part time or part of the year.  32% are living in homes where a parent is unable to find work. [NCCP]

In 1995 the average median wage for Nevada workers who qualified for unemployment compensation under the terms of NRS 612 was $25,708, in 2010 it was $39,629.  [DETR] Average median wages went up by $13,921 which would be a pleasant increase were it not for the fact that median wages were hard pressed to keep up with inflation during that period. [SSA]

Health care costs per capita for both treatment and insurance in the United States between 1970 and 2008 rose faster and higher here than in any other developed country.  [KFF] Between 1982 and 2007 college tuition and fees increased by 439%, national median family income increased by 147%.  [NYT]

In short, Nevadans and all other Americans, were “right on the job,” trying to build their own American Dreams.   So, why are 13.4% of workers in Las Vegas unemployed?  Why are 115,745 children in Nevada living below the poverty line?  Why is the prospect of an education — clearly linked to lower unemployment rates — becoming increasingly unattainable for American families?

   Once I built a railroad, I made it run, made it race against time.
    Once I built a railroad; now it’s done. Brother, can you spare a dime?
    Once I built a tower, up to the sun, brick, and rivet, and lime;
    Once I built a tower, now it’s done. Brother, can you spare a dime?

Perhaps because, as the song says, we built things.  We, as a country, built automobiles, refrigerators, washing machines, television sets. We manufactured tires, and carpets, and clothing, and toys.  We built airplanes, and tricycles.  We manufactured travel trailers and camping stoves.  We built office buildings and bungalows.  Why did we lose so many jobs?

  Once in khaki suits, gee we looked swell,
        Full of that Yankee Doodly Dum,
        Half a million boots went slogging through Hell,
        And I was the kid with the drum!

What did we discover when unemployment for veterans was studied in 2010? “Young male veterans (those ages 18 to 24) who served during Gulf War era II had an unemployment rate of 21.9 percent in 2010, not statistically different  from the jobless rate of young male nonveterans (19.7 percent).” [DoL]   The AFL-CIO called unemployment among Iraq-Afghanistan veterans a ‘quiet crisis,  ‘The Bureau of Labor Statistics reported that unemployment rate for Iraq and Afghanistan veterans was 12.4 percent in July, up from 11.8 percent in July 2010. In August, the jobless rate for these veterans had dropped slightly to 9.8 percent, but it does not include veterans who are underemployed or have stopped looking for work.”  Why aren’t there jobs for returning soldiers, sailors, airmen and women, and Marines?

    Say, don’t you remember, they called me Al; it was Al all the time.
    Say, don’t you remember, I’m your pal? Buddy, can you spare a dime?

What happened?

American workers didn’t change.  They are still capable of building railroads, office buildings, homes, and schools.  They are still able to build automobiles, airplanes, and dining room tables.  The workers didn’t suddenly become unproductive, indeed American productivity has increased by 2.7% annually since 1987.  [BillShrink]

If workers didn’t change, what happened in the last three decades to alter the economic system in which we live?  What happened to Free Market Capitalism that it could no longer channel savings into investments in American manufacturing, and long term American infrastructure construction and maintenance?

Tom Armistead, contributing writer for Seeking Alpha, has the answer: “Financialism is an economic system where the primary activity consists of creating and manipulating financial instruments.“  And the implications of this ‘primary activity?’

“…financial instruments become progressively further removed from their role in supporting commerce in the real world and develop a life of their own, a weird shadow dimension, a hall of mirrors, a distorted alternate reality that intersects and reacts with the real economy in unpredictable and destructive ways. “

Ed Hess, writing for Forbes magazine, provides more specifics:

“Over the last 25 years American capitalism has become financialism, which is primarily transactional, unrestrained greed. Financialism embraces the view that the only purpose of business is to create shareholder value, measured primarily by short-term results. The dominance of short-termism is evidenced by the magnitude of institutional stock “renting” for terms of 12 months or less, the volume of high-speed, high-frequency algorithmic short-term trading, the short average tenures of chief executive officers and the dominance of executive compensation tied solely to short-term results.”

Expressed more simply, when Financialism overtakes Free Market Capitalism there is less incentive for long term investment, for larger and more tangible results in construction, manufacturing, and transportation.  There is more incentive for short-term trading profits, and far more propensity for volatility.   IT becomes all about how much, how fast, and how profitably a person can make short term transactions.

Hess continues:

“As financialism has come to prevail over the last 25 years or so, the economic condition of the U.S. has in many ways weakened, with middle-class income stagnation, increased income inequality, the exporting of jobs and our manufacturing capacity and increased risks of financial volatility.

I am concerned that the wise men of Wall Street have lost sight of or forgotten a fundamental point: that no economic system can survive if it doesn’t produce reasonable results for most of its members. That doesn’t mean income equality, but it does mean that the system has to work well enough to keep most of its citizens believing in it and playing in it.” [emphasis added]

Suzanne McGee, a writer for Barron’s, added her analysis in Chasing Goldman Sachs.”   Her version of Financialism emerges in the early 1980s:

“…beginning in the 1980s, several things happened that took Wall Street in a very different direction. One was the rise of a shadow banking system, in the form of hedge funds and private equity firms. These lightly regulated entities earned outsize returns by pursuing risky strategies that would have been unthinkable for most traditional Wall Street banks; over time, private equity firms and hedge funds became the Wall Street banks’ best clients.”  [WaPo]

The drive for short term maximized profits defined by Armistead and explained by Hess, is further examined by McGee:

“The drive to maximize profits to shareholders, to improve the return on equity — the ultimate yardstick used when “chasing Goldman Sachs” — led Wall Street firms into all sorts of behavior that separated their best interests from society’s. Whereas the earlier structure of private partnerships encouraged bankers to keep track of the overall risks their firms were undertaking, the growth and profit imperatives of shareholder companies meant one thing only: Make more deals to generate more fees.”  [WaPo]

In other words, when “manipulating financial instruments” becomes the primary activity, when it values short term gains above long term investment and stability, and when the drive for short term profits becomes the “ultimate yardstick,”  then the Free Market Capital system devolves from transferring wealth into productive investment to pouring paper into the shadows to make a quick profit.

Immediate “Shareholder Value” is better served by lowering wages than by investment in factory modernization.  Immediate “Shareholder Value” is better promoted by off-shoring and outsourcing jobs than by training new employees.  Immediate “Shareholder Value” is more rewarding when infrastructure expenses can be minimized.

Simon Johnson, former IMF chief economist describes this new Financial Sector:

“From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.”  [Atlantic]

However, the point is not that the financial sector grew — much of that can be explained by the demand for financial services in new markets overseas — but that along with the increasing share of domestic profits and copious executive compensation the financial sector has absorbed to itself an inordinate amount of political and economic clout.

“Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.”   [Atlantic]

The mindset of American commercial interests evolved from “The Business of America is Business,” to the Business of America is Banking.  “What’s good for General Motors is good for America” (Charles Wilson, Pres. GM 50 years ago) has become “What is good for Wall Street…”

Gradually becoming swamped by the Wall Street boosters of Financialism is the notion that the financial sector is only ONE part of our complete economy.  It is an absolutely important sector, but so is manufacturing, and so is retail merchandising.   Investment and finance has transformed from serving to channel funds into productive forms of business investment for its clients  into a behemoth that primarily profits from proprietary trading for itself.

Why should the practitioners of Financialism be overly concerned with securing capital for factory expansion or modernization when there are more profits to be made in high volume trading?  Why should our Financialists be concerned with small business lending when there is more profit to be derived from credit default swaps?   The financial sector which once acted analogously to the heart pumping blood through the veins and arteries of American commerce, has reserved to itself the vital liquidity needed to finance American businesses.

And so, the bankers fight to secure Free Trade Agreements to facilitate the free movement of capital across borders, to repeal the modest financial market reforms in the Dodd-Frank Act, to prevent the full implementation of the  Consumer Financial Protection Bureau, to prevent meaningful regulation of the derivatives markets, to allow the banks to regulate themselves and set their own standards for risk, and to reduce the effectiveness of outside oversight by the SEC, CFTC, and other regulators.   What they are demanding is not Free Market Capitalism — it is unfettered unrestrained unregulated  Financialism.

Free Market Capitalism invests in infrastructure.  Free Market Capitalism requires a productive, healthy, educated work force.  Free Market Capitalism demands maintenance, innovation, and expansion of its manufacturing base.  Free Market Capitalism needs the savings of the work force.  Financialism yawns and asks the adjacent trading desk, “Brother can you spare me a CDS?”

“Brother Can You Spare A Dime?” Songs of the Depression, CUNY.

>FYI: Nevada State and Local Tax Burden Rank, State Unemployment Rate

> 

Year	State Local Tax Burden Rank	Unemployment Rate
1980	50	7.2
1981	50	8
1982	49	12.2
1983	49	8
1984	49	8.1
1985	50	7.3
1986	50	6.5
1987	50	6.3
1988	50	5
1989	50	4.7
1990	49	5.9
1991	49	6.9
1992	49	6.6
1993	49	7.2
1994	49	6.2
1995	48	5.4
1996	48	5.4
1997	48	4.1
1998	49	4.3
1999	49	4.4
2000	49	4.1
2001	49	5.3
2002	49	5.5
2003	48	5.2
2004	48	4.6
2005	49	4.2
2006	49	4.2
2007	49	4.7
2008	49	6.7

Sources and Links:
Tax Foundation
Bureau of Labor Statistics 2007
Bureau of Labor Statistics Archives
Bureau of Labor Statistics Archives (GUNE)
Ledger Data pre 1990 data