Cliffs, Hostages, and Charts: Passing S. 3412 is good policy

The one element of the current fiscal flap which has attracted most people’s attention is the expiration of the Bush Tax Cuts, and the reversion to the tax rates of the Clinton Administration.  Senate Majority Leader Harry Reid (D-NV) commented today:

“It took four months, but Republicans are finally realizing the way back from the fiscal cliff has been right in front of them all along.  In July, the Senate passed legislation to give economic certainty to 98 percent of families and 97 percent of small businesses – to every American making less than $250,000 a year.  For four months we’ve been one vote away from a solution to this looming crisis.  And for four months, House Republicans have refused to act.  Instead they have held the middle class hostage to protect the richest 2 percent of taxpayers – people who have enjoyed a decade of ballooning income and shrinking tax bills.”(Senator Harry Reid, 11/29/12)

The bill to which Senator Reid is referring is S. 3412, passed in the Senate on July 25, 2012 on a 51-48 vote.   Interestingly, Senator Dean Heller (R-NV) voted against the bill.  The bill has since languished in the Republican controlled House of Representatives.

To restate the obvious, since the end of July 2012 the Congressional Republicans have made it abundantly clear that they will not accept any tax increases on the upper 2% of American income earners.

Every pundit from Bangor to Chula Vista has opined about the various political implications and ramifications of this GOP position.  If we step away from the Chattering Cable-ites momentarily, we can see that tax policy is (1) a rather blunt instrument by which to manipulate economic behavior, and (2) while a reversion to the Clinton area rates is advisable, there really is more that can be done to better secure fiscal stability.

With all due respect to the mathematicians who have crafted all manner of elegant algorithms to predict economic behavior — even if the entire transaction is computerized there is still a very human element involved.  An algorithm is written with a human purpose.  In this case it might be to automate the purchase or sale of particular “things” at a specific price.  The essential problem with capitalism is that prices are determined by human beings who pre-judge the value of the “things” in terms of their own desires and motives.  The motive might fall anywhere along the spectrum from pure speculation to pure long term investment strategies.

Given this context, consider momentarily the currently popular Republican refrain that if marginal tax rates are “too high” investment will be stifled and economic expansion constrained.   The essential economic question at this point is not how many petulant plutocrats does it take to impede any political action in regard to tax rates — but, at what marginal rate does tax information become a significant factor in the investment decision?

As the chart from the IRS indicates, the marginal rate of taxation on the highest income earners has dropped since the mid 1960′s.  The taxation on capital gains is now below 20%.   The next question: What is the statistical relationship between marginal tax rates and investment?

The Congressional Research Service (pdf) studied the relationship between top marginal rates and private savings ratios and created these illustrations of the data:

If the data points look a bit scattered — it’s because they are.  The CRS drew the following conclusion:

“The bottom charts in Figure 3 show the observed relation between the private fixed investment ratio (investment divided by potential GDP) and the top tax rates. The fitted values suggest there is a negative relationship between the investment ratio and top tax rates. But regression analysis does not find the correlations to be statistically significant (see Table A-1 in the appendix) suggesting that the top tax rates do not necessarily have a demonstrably significant relationship with investment.”

Translation: While the charts tend to lead the eyeballs toward seeing a negative relationship, when we actually crunch the numbers the results could just as easily be the result of good old fashioned chance.

There is a place for anecdotal evidence from financialists whose self interest dictates the championing of lower marginal tax rates as a significant factor in their investment decisions, however it’s not in the midst of a rational argument about economics.   Therefore, investor extraordinaire Warren Buffet’s question remains valid:  ‘If I called you in the middle of the night and told you I had the best investment opportunity ever seen in the world — would you ask me about the tax rate?‘

This ragged relationship between effective rates on capital gains and the returns investors receive as a percentage of GDP is illustrated below:

The first points to note are along the pink line (circa 1996) when the average effect tax rate on capital gains was 25.5% but the trend line for realized gains was going up.  The ‘conventional wisdom’ held for the period between 1996 and 2000, at which point the trend lines no longer support the contention that lower average effective tax rates mean greater realized gains.  Between 2000 and 2004 the average effective tax rates decline, but so do the realized gains, and from 2004 until the last data available from the Tax Policy Center in 2007 the tax rates remain essentially the same but the gains increase.  Go Figure?  What we could conclude with more certainty is that the tax rates and the realized gains aren’t operating in tandem, and there’s more to “economic decisions” than considerations about marginal tax rates on capital gains involved.   Again, Buffett is probably right.

If reducing the effective tax rates on capital gains isn’t a sure fire way to increase earnings and entice yet more investment, then what about tax rates in general?  That doesn’t quite work either as illustrated by the following chart from Business Insider:

… and we know what happened in 2007 through 2008.  If a relationship cannot be demonstrated between lower capital gains taxes and the gains coming from economic growth AND we cannot demonstrate a relationship between overall marginal tax rate reduction and economic growth, WHY are the Republicans so intent on preserving the tax breaks for the top 2% of the nation’s income earners?  George W. Bush may have stated more truth than he meant when he quipped during the 2000 Alfred E. Smith banquet attendees, “This is an impressive crowd. The haves and the have-mores. Some people call you the elite. I call you my base.”

For all of Senator Reid’s efforts to move the Congressional Republicans into the real world of average Americans, nothing has worked thus far to convince them to abandon frivolous pledges from scions of anti-tax activists, which at this point serve little purpose other than to widen the income gap, and to deplete the capacity of middle income earners to generate the aggregate demand necessary to stimulate the economy.

It really can’t be argued that all economic decisions are dictated by human behavior, but neither can it be successfully asserted that an economy is not essentially a very human institution.   There are reasons well beyond the political optics of S. 3412 for Republicans to give serious consideration to pass the bill in the House of Representatives; it’s good economic policy.

Six Talking Points about Fiscal Cliffs and Austerity Bombs

Senate Majority Leader Harry Reid (D-NV) has a message for the middle class this morning:

“Nevadans and Americans across the country agree that we can strengthen the middle class by adopting a balanced fiscal policy that requires millionaires and billionaires to pay a little more. In July, the Senate passed a bill to cut taxes for the 98% of Americans and 97% of small businesses making less than $250,000. House Republicans should stop trying to protect the wealthiest Americans from contributing their fair share and pass this bill immediately. Middle class Americans will have more opportunities to succeed when we level the playing field and make tax policy fairer.”  Senator Harry Reid (D-NV) 11/19/12″  (emphasis added)

In order to effectively expound on this message it is necessary to plant oneself firmly in the Reality Based World, and to dismiss some common misconceptions being promoted by the plutocrats and their GOP allies.

#1.  When the GOP says “your taxes will be raised” they are not talking to 98% of the American public who earn less than $250,000 in adjusted gross income annually.  The Obama Administration’s proposal is to allow the Bush Tax cuts to expire on earnings above $250,000; and to KEEP the Bush era tax rates in place for those individuals earning less than $250,000 in adjusted gross income annually.

#2. When the GOP says taxes will increase on small businesses, they are including those 3% of “small businesses” which are lobby shops, major law firms, large hedge funds, etc.  They are NOT speaking of the 97% of American small businesses which are small partnerships, single proprietorships, or small corporations which constitute the backbone of the American economy.

#3. Social Security and Medicare are called “entitlements” because they are earned benefits, which individuals have paid for and therefore are entitlements. These programs are not the problem, they are simply the target of choice from the Republican leadership which wants to cut Social Security and privatize Medicare.   These programs have NO place in budget negotiations concerning the reduction of the federal debt.

#4.  The legislation to which Senator Reid refers is S. 3412.  The terms of which can be generally summarized as:

“The Senate bill (S. 3412), passed on July 25, 2012, would extend current tax rates for lower- and middle-income persons, would increase tax rates on higher-income persons, would extend for one year (through 2013) certain tax provisions that expire at the end of 2012, and would patch the alternative minimum tax for one year only (2012).” [source]

#5.  “Harry and Louise” style ads from the Edison Electrical Institute (DefendTheDividend) notwithstanding,  S. 3412 and the Obama Administration proposals are  NOT an attack on retirement savings.  Remember the threshold levels:  “Individuals with incomes above these threshold levels, would have some of their itemized deductions and personal exemptions limited by phase-outs, would have a 20% rate on dividends and long-term gains, and would face tax rates of 33%, 36% and 39.6%“  [source]  The current rate for investors is 15%.

Who would  be affected by the Obama Administration’s tax proposals on capital gains?  Information from the Tax Policy Center is helpful.

Things to note — there are NO changes for those individuals in the bottom four income quintiles.  Only those individuals who are in the TOP income brackets (the top quintile, especially those in the top 1% or the top 0.1%) would be affected by the proposed changes in tax treatment of dividends.

#6.  There is NO correlation between low tax rates and economic growth. The non-partisan Congressional Research Service came to this conclusion after studying data from the last 65 years.

“The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.”  [CRS pdf]

In short, the only economic feature impacted by a reduction in tax rates is income inequality.   Nothing says “Support The Plutocrats and Financialists” better than saying we can’t raise taxes on the top 2% without cutting earned benefit programs like Social Security and Medicare.

Heller, GOP sustain filibuster of Cyber Security Bill

OK, thus much for the spirit of bipartisanship and negotiation — according to Senate Majority Leader Harry Reid (D-NV) the Senate of the United States of America has been working on a cyber-security bill, the rationale for which ought to be reasonably clear to anyone who’s ever Googled anything.   Or, put in nicer, fancier terms:

“National security experts say there is no issue facing this nation more pressing than the threat of a cyber attack on our critical infrastructure.  Terrorists bent on harming the United States could all too easily devastate our power grid, our banking system or our nuclear plants.  A bipartisan group of Senators has worked for three years to craft this legislation. Yet Republicans filibustered this worthy measure in July.”  (Reid 11/14/12)

Surely this should have been something about which at least a modicum of agreement might have been secured?  The Senate Majority thought so:

“It’s imperative that Democrats and Republicans work together to address what national security experts have called “the most serious challenge to our national security since the onset of the nuclear age sixty years ago.”I found it encouraging when a number of my Republican colleagues – Senators McCain of Arizona, Chambliss of Georgia, Hutchison of Texas, Kyl of Arizona, Coats of Indiana and Blunt of Missouri – recently wrote President Obama advocating legislative action on cyber security.   They wrote: “An issue as far-reaching and complicated as cyber security requires… formal consideration and approval by Congress… Only the legislative process can create the durable and collaborative public-private partnership we need to enhance cyber security.”  (Reid 11/14/12)

What did the Senate Republicans do with the Cyber-security bill? They filibustered it.   And, what did they do when the Majority Leader submitted a cloture motion to stop the filibuster?  They rejected the cloture motion on a 51-47 vote.   “They” would include newly elected Nevada Senator Dean Heller (R-NV). Who, evidently, doesn’t see the need for a “durable and collaborative public-private partnership” to “enhance cyber security.”

The running total for filibusters is now 110 filibusters, 68 cloture motions filed, and 37 successful votes to invoke cloture and stop a filibuster.

Three years of work on a piece of legislation, and work on a matter which should engage the attention of Senators (some of whom surely do  online banking), and the effort comes to a screeching halt before the GOP obstructionism in the Senate.  Memo to Senator McConnell (R-KY): The President isn’t going to be a one term office holder.

Nevada Political Notes

Nevada Political News:  “Organizations step up final push to get Hispanics to the polls,” Las Vegas Sun.  Plans are still on for President Obama to speak in North Las Vegas (info here) if recovery activities after Sandy permit. The race for the middle in Nevada Senate District 5; Kirk may call himself a pragmatist — if so, then why the attack on collective bargaining, which brings to mind the antics of the GOP in Wisconsin and Ohio?  Woodhouse (D) is the actual moderate in this race.

It should be remembered in Nevada District 4 that the Republican in the race has touched the third rail of Nevada politics — advocating that the Silver State become the nation’s nuclear trash dump.

Governor Sandoval may be talking nationally, but his money’s on legislative races. [RGJ] *Note that one of Sandoval’s favorites is ALEC supporter Greg Brower (R-Reno).   Senator (by appointment only) Dean Heller has received the endorsement of noted advocate of scrambling up church and state, and of pushing the  USCOCB’s version of women’s health — Rick Santorum.

Nationally, 538 shows President Obama up by 3.2% in statewide polling.  The same source reports Senator Dean Heller leading Democratic challenger Shelley Berkley by 3.6 to 4.4 depending on the measurement used.

The astroturf follies are alive and well in Nevada, and it’s not just down south.  Northern Nevada voters have been getting pro-Heller fliers in the mail from Safari International, the gun lobby, the Idaho Republican Central Committee, and Karl Rove’s Crossroads Super PAC, along with robo-calls from “Jack” and “Sandy” to get out the vote for the Republicans.  Since the fliers and calls are broadcast generally a person could wonder what happened to that carefully targeted GOP “Voter Vault” advertizing effort of recent memory — but why bother when there’s plenty of PAC money flooding the process?

Line of the Week: “Reid repeatedly said he has “nothing personal” against Romney, but nonetheless delivered a harsh political attack. “He’s multiple choice on everything,” Reid said. “He doesn’t stand for anything. He’s the plastic man of American politics.”   Yes, the “Plastic Man” of American Politics.  Yes, “plastic” in the sense of be capable of being molded or modeled, and “plastic” in the sense of being synthetic or processed materials that are mostly thermoplastic or thermosetting polymers of high molecular weight. AKA artificial.

The Sin City Siren is decked out for Halloween, complete with Creature Features which describe the Jekyll and Hyde (plastic) capacities of one Willard Mitt Romney.

Read the labels!  About all a person needs to know about the trade and economic policies of the Romney and the Obama campaigns is illustrated by Vegas Jessie who helpfully posts pictures of the labels on campaign gear. Guess whose is made in China?  Blue Lyon posts the GOP “Rape Advisory Chart,” along with some very compelling reasons why this election matters.

There’s another good graphic from On My Blotter concerning why a middle class tax cut is a sound economic idea.

Vanishing Points

Time was when the phrase The Great Skedaddle referred to the July 21, 1861 disorganized Union Army retreat after the first Battle of Bull Run.  However, it might be plausibly updated to include the rapid distancing of down ticket candidates like Senator Dean Heller (R-NV) from the comments by Presidential candidate  Mitt Romney:   “Keep in mind, I have five brothers and sisters. My father was an auto mechanic. My mother was a school cook. I have a very different view of the world,” Heller said. “And as United States Senator, I think I represent everyone, and every vote’s important. Every vote’s important in this race. I don’t write off anybody.” [HuffPo]

And then there are those “vanished” tax returns — former Governor Romney has released part of one year, promises some of another, and is generally behaving as though the entire matter will vanish from human consciousness.  Not if Senate Majority Leader Harry Reid (D-NV) has a breath left:

“For all we know, Mitt Romney could be one of those who have paid no federal income taxes. Thousands of families making more than $1 million pay nothing in federal income taxes each year. Is Mitt Romney among them?

We’ll never know, since he refuses to release tax returns from the years before he was running for president. But from the one return we have seen, we know Mitt Romney pays a lower tax rate than middle class families thanks to Swiss bank accounts and Cayman Island tax shelters.

And we can only imagine what new secrets would be revealed if he showed the American people a dozen years of tax returns, like his father did.”

(Senator Reid’s comments available in full at Real Clear Politics.)

Former Governor Romney has a track record of making things vanish, like the records from his tenure as Governor of Massachusetts:

“When Romney left the governorship of Massachusetts, 11 of his aides bought the hard drives of their state-issued computers to keep for themselves. Also before he left office, the governor’s staff had emails and other electronic communications by Romney’s administration wiped from state servers, state officials say.

Those actions erased much of the internal documentation of Romney’s four-year tenure as governor, which ended in January 2007. Precisely what information was erased is unclear.

Republican and Democratic opponents of Romney say the scrubbing of emails – and a claim by Romney that paper records of his governorship are not subject to public disclosure – hinder efforts to assess his performance as a politician and elected official.”  [Reuters] (Dec. 2011)

There was nothing strictly illegal about scrubbing all the e-mail and items from the hard drives and servers, precisely as there is nothing illegal about stashing income in the Cayman Islands, or as there is nothing illegal about paying only those taxes required by law — and availing oneself of every loophole and “blocker” scheme conceivable by man.

Governor Romney is proud of his accomplishments in regard to the Salt Lake City Winter Olympics — just not so proud as to allow the release of the ALL the records of it.

“More than a decade has passed since Mitt Romney presided over the Winter Olympics in Salt Lake City, but the archival records from those games that were donated to the University of Utah to provide an unprecedented level of transparency about the historic event, remain off limits to the public. And some of the documents that may have shed the most light on Romney’s stewardship of the Games were likely destroyed by Salt Lake Olympic officials, ABC News has learned.

The archivists involved in preparing the documents for public review told ABC News that financial documents, contracts, appointment calendars, emails and correspondence are likely not included in the 1,100 boxes of Olympic records, and will not be part of the collection that will ultimately be made public.”  [ABC]

The Romney campaign assures us that they have no problem with the archival material being released — a cynic might say “Of Course Not” it’s already sanitized, as the Massachusetts records were tidied up immediately after the Governor.

What appears to be vanishing at this point is any enthusiasm for the Romney/Ryan Campaign?

The Right Response

Nevada Senator Harry Reid (D) issued this statement in regard to the attacks on American consulate personnel in Libya:

I was deeply disturbed and saddened to learn of the deaths of Ambassador Chris Stevens and three other American personnel in an attack on the U.S. Consulate in Libya. I join President Obama in condemning these senseless acts of violence. And my thoughts are with the families of those who were killed in this horrific attack.
It is too often forgotten that American diplomats risk their lives on a daily basis. Our diplomatic corps is filled with admirable and dedicated public servants. And the four Americans who lost their lives yesterday exemplified the courage and sacrifice that happens every day at diplomatic posts across the globe.

I have traveled to many of America’s embassies abroad, and I have always been impressed by and grateful for the leadership and commitment of America’s ambassadors and State Department personnel. Ambassador Stevens was a career Foreign Service officer and a former Peace Corps volunteer, who spent his life giving of his time and his talents to promote democracy and American values. I support President Obama’s directive to increase security at our diplomatic posts around the world, and to provide whatever resources necessary to keep our personnel in Libya safe. And I will continue to the monitor the situation as we learn more about these terrible events.

This is what diplomacy sounds like.   This is also what someone sounds like who has been reading the foreign policy and intelligence briefings.  Here’s why:

1. Condemnation is a strong word in the diplomatic world.  It is not used lightly.  To condemn an action is to place it beyond the realm of negotiation.  However, it must be use carefully so as to allow the party creating the injury to respond in diplomatic terms without necessarily having to resort to military action.

The Administration and State Department achieved that.  The proof is in the response of the Libyan government – what we would want to hear is precisely what the Libyan government conveyed: “President Magariaf of Libya expressed his condemnation and condolences and pledged his government’s full cooperation.”  [TDS]

The Libyan President responds with an equal measure of outrage, offers his condolences on behalf of his nation, and most importantly offers his nation’s “full cooperation.”   The modifier is also significant.  “Full” is also a meaningful word. The Libyan President could have stopped with the condolences — with all the implications that might have inferred — but he didn’t, he went that last step and offered all the services his new government can muster to resolve the issues peacefully.

The public isn’t privy to the policy and intelligence briefings concerning the new Libyan government but we can reasonably surmise they are not far from the public assessment offered by the U.S. State Department:

“Libya faces the challenges of building democratic institutions, protecting the universal rights of all Libyans, promoting accountable and honest government, rebuilding its economy, and establishing security throughout the country. The United States has a strategic interest in a stable and prosperous Libya, and is supporting Libya’s democratic transition in cooperation with the UN and other international partners.”

Note that the democratic institutions are not yet fully functional, the economy is not yet fully stabilized, and “establishing security throughout the country” is  still a work in progress.   This leads to the second reason why briefings and intelligence analysis and cool heads matter.

#2.  Attacks on American and American interests are no longer primarily a function of state actors.  They may not even be the result of client state activities such as we witnessed during the Cold War.  The term asymmetrical threat is a polite euphemism for “Who Knows Who’s Going To Do What, Much Less When?”   Senator Reid is correct — it take some courage to take a diplomatic posting these days because an incident which outrages some group in one country  could result in an attack on an American embassy anywhere.  For example, in May 1986 “The Japanese Red Army fired on the Japanese, Canadian, and U.S. embassies. The Red Army’s goals included overthrowing the Japanese government and starting a world revolution.” [IBT]  A splinter group from Al Qaeda was responsible for the September 13, 2001 attack on the U.S. Embassy in Paris, France. [IBT]

Because the attacks are “asymmetrical,” because they are not state sponsored, and because they aren’t even organizationally rational, it becomes all the more important to be as fully briefed as possible with the understanding that those briefing are as informative as the host government is cooperative.

#3.   Here’s what happens when the time isn’t taken to assess a diplomatic situation carefully before speaking:

Romney: “I’m outraged by the attacks on American diplomatic missions in Libya and Egypt and by the death of an American consulate worker in Benghazi,” Romney said. “It’s disgraceful that the Obama Administration’s first response was not to condemn attacks on our diplomatic missions, but to sympathize with those who waged the attacks.” [WaPo]

The first, and obvious problem, is that the statement came out before Ambassador Stevens death was confirmed and the family was notified.  But, there are diplomatic issues as well.

Yes, indeed, the attacks were outrageous, but notice that the Romney statement fails to differentiate between official State Department statements and a release by the Cairo Embassy well in advance of the protests which sought to explain that the motion picture so offensive to some Muslims was not indicative of American attitudes toward members of the Islamic faith.  A point raised by President George Bush after the September 11, 2001 attacks and maintained by his successor.  Both the Bush and Obama Departments of State repeatedly sought to sustain cooperation with Middle Eastern, African, and Asian nations by emphasizing that the American government  dislikes terrorists but does not vilify all Muslims.   The previous point should be repeated: Those briefing are as informative as the host government is cooperative.

The second is that there is no message.   Senator Reid points out that the U.S. will be stepping up mission security, and that “we” will be monitoring the situation.  That “we” could infer a wide variety of agencies.   Secretary Clinton said:

“But we must be clear-eyed, even in our grief. This was an attack by a small and savage group – not the people or Government of Libya. Everywhere Chris and his team went in Libya, in a country scarred by war and tyranny, they were hailed as friends and partners. And when the attack came yesterday, Libyans stood and fought to defend our post. Some were wounded. Libyans carried Chris’ body to the hospital, and they helped rescue and lead other Americans to safety. And last night, when I spoke with the President of Libya, he strongly condemned the violence and pledged every effort to protect our people and pursue those responsible.”

The friendship between our countries, borne out of shared struggle, will not be another casualty of this attack. A free and stable Libya is still in America’s interest and security, and we will not turn our back on that, nor will we rest until those responsible for these attacks are found and brought to justice. We are working closely with the Libyan authorities to move swiftly and surely. We are also working with partners around the world to safeguard other American embassies, consulates, and citizens.”  [emphasis added]

Secretary Clinton affirms the relationship with Libya, thanks them for their cooperation, and announces there will be further discussions of embassy security with other host nations.   Messages sent.   Unfortunately, the only initial message from Governor Romney is that he is angry and doesn’t think the President is doing a good job.  It doesn’t take diplomatic credentials to figure that out, but it also doesn’t give our friends and enemies any hints about how he might address similar issues in subsequent talks with them.

There was a message in the President’s remarks: “We’re working with the government of Libya to secure our diplomats,” he said. “I’ve also directed my Administration to increase our security at diplomatic posts around the world. And make no mistake, we will work with the Libyan government to bring to justice the killers who attacked our people.” (emphasis added)  The collaborative nature of the activities is on notice.  The United States has received the assurance of the Libyan government that it will “fully” cooperate, and will act in concert with the Libyan government to secure what we want — bringing the perpetrators of the attack to justice.

And, while the U.S. works with the Libyan government Americans may learn that there are 22 shabiyats or districts in Libya, and four significant political parties.  However, the most important word is “with” — we will not act on them, or independently of them, but WITH them — sending the message that we accept them as a full partner and equal on the world’s diplomatic stage.  The right responses help  send the right messages.

Numbers, Theories, and Qualities: The Latest Unemployment Numbers

Senate Majority Leader Harry Reid (D-NV) issued this statement regarding the unemployment numbers for the past month:

“The unemployment rate is falling as we saw the thirtieth straight month of private sector job growth, with the economy adding nearly one hundred thousand new jobs. While our recovery is still moving too slowly for many Americans, job growth would likely have been even stronger if Republicans had not blocked Democratic efforts to hire more teachers, firefighters and police officers.”  (emphasis added)

Yes, the unemployment rate has fallen and, yes we do need to note that Americans leaving the workforce makes variations in statistical interpretation rational.  Bloomberg News sums up the immediate situation:

“The economy added 96,000 workers last month following a revised 141,000 increase in July that was smaller than initially estimated, Labor Department figures showed today in Washington. The median estimate of 92 economists surveyed by Bloomberg called for a gain of 130,000. Unemployment fell to 8.1 percent, and hourly earnings were unchanged.” [Bloomberg]

Before the spin-meisters in the Village get all over the numbers and fall into and over one another interpreting what this Means — in terms of style points for political campaigning –  let’s have a reality check.

#1.  We have a mixed economy.  I know, believe me I know, that it is fashionable to rant about our Free Market Capitalist Free Enterprise system, but we’ve never had a pure free market capitalist system and we wouldn’t want one if it were handed to us.

There are some transactions in which public cooperation is more economically rational than private competition.   In a perfectly free theoretical Free Market System government would have no role at all, so we would have no police departments — only private security firms.  There would be no public fire departments — only private fire brigades.  New York City tried a privatized fire fighting system in the 19th century and it was not a happy experience.  Since some insurance companies were paying the firefighting brigades, the competition rapidly devolved into chaos as firefighters expended too much effort fighting off competing fire companies and too little fighting the fires. [FireInfo]  Contemporary attempts to replicate 19th century privatized firefighting units have been singularly unsuccessful.  [NYT, Westchester]

If we agree that every child in America should have at least 12 yrs of basic education, then we have to have a delivery system.  Public schools train future members of the labor force.  Current palaver about “vouchers” and “scholarships” to private schools is merely a euphemistic way of saying “public money to schools,”  only the schools in this instance are privately held.  It’s still public money.

There are practical reasons for public-private sector cooperation especially in the realm of research and development, and the cooperation mitigates some of the initial risk for the private sector.   If the expenses incurred in basic research and subsequent product development can be shared, then R&D which might be too expensive or beyond the capacity of single firm (especially a smaller one) can still be practical.

In a perfectly free theoretical Free Market System there would be no public-private sector partnerships for research and development, no cooperative activities between and among research universities and business interests.   In reality, neither research universities nor private sector corporations live in a vacuum.  Collaborative research is responsible for much of the technological advancement in the 20th century.

A mixed economy also provides the infrastructure and subsidies necessary to foster commercial development and economic growth.  New York City takes prominence over Boston in the 19th century as a shipping center because the Erie Canal provides the transportation infrastructure necessary to get interior products to their port.  Chicago takes prominence over St. Louis in the mid 19th century as its rail hub surpasses the older river cities as part of the nation’s commercial and industrial infrastructure.  And, as noted herein before, government investment in canal, rail, and highway systems allow for commercial and industrial growth.

We’ve fought about the necessity for, and role of, central banking since Andrew Jackson’s era, but in the reality of the 21st century it ought to be reasonably clear to all but the most radical that central banking operations are a more stable way to implement monetary policy than trying to rationalize a system of competing bank notes, including the Dixies.

#2. Both our public and our private sector are components of our total economy.   Reality Check Time: We are a mixed economy; we have both a public and private sector; therefore, transactions in BOTH the public and private sector are counted toward our gross domestic product.  Here we come to the point Senator Reid is trying to make — depletion in the transactions (contracts, paychecks, etc.) in the public sector depresses the transactions possible in the private sector.   Senator Reid is correct in reporting that the Republicans in the House and Senate have blocked consideration of his American Jobs Act which would restore some public sector jobs and creating funding channels for infrastructure maintenance and construction sector jobs.

If we reduce the number of teachers, police and law enforcement officers, firefighters, school nurses, public health inspectors, agency accountants, IT specialists, Department of Motor Vehicle clerks, Insurance Commission auditors, highway maintenance personnel, social workers, welfare eligibility specialists, Emergency Medical Technicians, …. (a) not only do we not get the level of services we should expect in a 21st century developed nation, but (2) our tax dollars aren’t recycled into our state and local economies.  We can assuredly reduce the size of government until we can drown it in a bath tub — BUT in doing so we realistically risk sending our own state and local economies down the drain with it.

Senator Reid continues:

“At the end of the day, too many people in Nevada and across America are still struggling to get by. The best way to speed up our recovery is for Republicans to stop their knee-jerk obstruction of every effort Democrats put forward, and start working across the aisle to find common ground. Next week, the Senate will vote to give employers incentives to hire veterans, so our heroes are not left out in the cold when they return home. This is a common-sense jobs bill, and I hope Republicans will join Democrats in supporting it.”

While I am always a bit leary of yet another tax cut — businesses have gotten 18 of them in the last three years — the 2011 Veterans Tax Credit bill did have some positive effects,  [NYT] and there’s nothing wrong with trying to enhance it.  The perpetual problem with tax breaks for hiring is the obvious — no one hires anyone except when the demand for a product or services exceeds the staffing levels necessary to create the product or provide the service.   But, I repeat myself for the four hundredth time.   There’s a bit more from Senator Reid:

“The Republican leader said his single most important goal was defeating President Obama. To speed up our recovery, it’s time for Republicans to put politics aside, and join Democrats to make the middle class their top priority.”

The emphasis on middle class employment is appropriate, because in their fervor to reduce government costs they’ve reduced public employment — especially at the local level — they’ve laid off middle income job holders, those teachers, firefighters, police and law enforcement personnel…

The liturgy of the Pure Market Fundamentalists insists that public employees must be “feeding at the public trough,” they must put “their paychecks above their calling…”  The liturgy makes for lovely theoretical sound bites; however,  it’s really difficult to sell to a teacher who’s still grading papers or modifying tomorrow’s lesson plans at 10:00 pm.  It’s hard to explain to a firefighter who’s been on his feet in unimaginable and almost unendurable  conditions for hours on end.  It’s a hard point to make to a police officer who’s spent her entire day trying to protect the most of us from the worst of us.

Priorities

Theorizing is fine. It’s a great form of intellectual stimulation.  However, theorizing and idealizing never inspected a restaurant or a walk in clinic.  Theorizing never kept a gaggle of 27  Second graders on task. Theorizing never put out a fire, never treated a heart attack victim before transportation to a hospital, and never showed up to treat automobile accident victims on the scene.  Theorizing never caught a burglar, never cleared a drug dealer out of a neighborhood, never brought a rapist to justice, and never even directed traffic after a major athletic event.

Theorizing and idealizing never built a bridge, never constructed a new highway, never finished a new airport control tower.  Theorizing never does maintenance on a bus people ride to get to work. Theorizing never repaired a dam, never filtered waste water, and never laid a new pipeline for drinking water.

Elegant economic theories are elegant economic theories, just don’t ever expect one to DO anything.  Given my druthers, I’d prefer a theory which supports getting things DONE.  When I pay my state, local, and federal taxes I want to get something in return in the economic transaction.  I like police and fire protection; I want kids who can read and do arithmetic. I want my clinics and restaurants clean and healthy. I want my roads smooth, my drinking water pure, my sewer system to function, and my local library open and stocked with books.

In short, when I pay my federal, state, and local taxes, I want it to be an economic transaction, one in which I get what I pay for.  If I want police and fire protection I’ll pay for it — even when my car isn’t being burgled or my house isn’t on fire — because I am paying for a potential service which is to be available when I do need it.   When I pay my federal, state, and local taxes I am not contributing to some ethereal element — I want those smooth roads, those functioning water and sewer systems, those manageable classrooms, and those books on the shelves in the library.   In other words, I fully expect a rational economic transaction.

I am paying, in fine, for the Quality of My Life.   And, Quality should be a Priority, as I sit in a real world with real issues, and real needs, and real economic transactions.  Human beings have the remarkable capacity to create a theory about nearly every aspect of our condition, but when an economic theory is propounded merely in the service of individual avarice then it diminishes us and the quality of our lives, politically, socially, and economically.

I’d prefer we remain in the reality-based universe in which classic economics teaches the demand side is just as important as the supply side, and one in which we acknowledge the reality of our mixed economy as the driver of the greatest economic engine on the planet.  Then, we might get some more people back to work.

Harry’s Right Jab

Senate Majority Leader Harry Reid (D-NV) was one of the lead off hitters in the Democratic Party line up last evening at the national convention in Charlotte, NC.   He sized up the gridlock in Washington, D.C. succinctly:

“In the depth of the Great Recession, as millions of Americans were struggling to find work, the Republican leader of the senate, Mitch McConnell, said Republicans’ number one goal was to make Barack Obama a one-term president. They wouldn’t cooperate to create jobs. They wouldn’t try to turn around the economy. They wouldn’t do anything but stand in President Obama’s way.

I’ve had a front-row seat to watch the Tea Party take over the Republican Party. For three and a half years, they wouldn’t govern. They couldn’t lead. And we shouldn’t let them take over the Senate and the White House.”  [HuffPo]

Wouldn’t, couldn’t, and shouldn’t sum things up nicely.   Unfortunately, fact checking isn’t necessary.  Senate Minority Leader Mitch McConnell (R-KY) famously told the National Journal back in October 2010, “The single most important thing we want to achieve is for President Obama to be a one-term president.” [Examiner]  October 2010 also happened to be the first month in the previous five months in which the employment numbers move upward.

“Payrolls climbed 151,000, exceeding all estimates in a Bloomberg News survey of economists and following a revised 41,000 drop the prior month that was smaller than initially estimated, Labor Department figures showed today in Washington. Private payrolls expanded the most since April, while the jobless rate held at 9.6 percent.” [Bloomberg]

So, in October 2010 was the Republican leadership focused on moving the unemployment number off the 9.6% mark?  No, merely on making President Obama a one-term president.  Taking “Just Say No” into new realms, the Senate Republicans under McConnell’s leadership exercised the filibuster like small children who’ve just discovered the joys of mud puddles:

To date in the 112th Congress, 104 cloture motions have been filed (motions to stop filibusters), there have been 64 cloture votes, and filibusters have been broken only 33 times.  During the 111th Congress (2009-2010) there were 137 filibusters, 91 cloture votes, and the filibusters were broken 63 times.  [Senate]  The filibusters indicate how unwilling the Republicans were to govern, and how even less willing they were to offer leadership.

Inevitably, when the numbers are on the table for all to see, the Republicans whine that “the President wouldn’t work with us…,” “HE wouldn’t lead,” or “HE didn’t compromise.  First, it was perfectly evident during the time prior to the passage of the ARRA, altogether too much of which was comprised of tax cuts of minimal utility and not enough of which was comprised of infrastructure investments, and automatic stabilizer enhancements of maximum utility.   Having draped all manner of tax cuts on the stimulus bill the GOP had the temerity to announce that it was a “failure” before it even got started.

“…it’s easy to take a lie like “the stimulus failed” and turn it into a right-wing “fact.” Start by calling it “the failed stimulus” even before the bill goes into effect. Then keep repeating that same phrase, even as we go from losing 800,000 jobs a month to creating private sector jobs for 29 months.”  [NatMemo]

The same process was used during the development of the health reform bill (ACA) … the Republicans couldn’t take “yes” for an answer, then they created their very own “Debt Crisis” and again wouldn’t accept any long term deficit reduction suggestions from the White House.   This isn’t governance, it’s 100% pure obstructionism.

The elections in 2010 made a bad situation worse.   The deterioration began with a dinner in Washington, D.C. on January 20, 2009:

“According to Draper, the guest list that night (which was just over 15 people in total) included Republican Reps. Eric Cantor (Va.), Kevin McCarthy (Calif.), Paul Ryan (Wis.), Pete Sessions (Texas), Jeb Hensarling (Texas), Pete Hoekstra (Mich.) and Dan Lungren (Calif.), along with Republican Sens. Jim DeMint (S.C.), Jon Kyl (Ariz.), Tom Coburn (Okla.), John Ensign (Nev.) and Bob Corker (Tenn.). The non-lawmakers present included Newt Gingrich, several years removed from his presidential campaign, and Frank Luntz, the long-time Republican wordsmith. Notably absent were Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader John Boehner (R-Ohio) — who, Draper writes, had an acrimonious relationship with Luntz.

For several hours in the Caucus Room (a high-end D.C. establishment), the book says they plotted out ways to not just win back political power, but to also put the brakes on Obama’s legislative platform.”  [HuffPo] (emphasis added)

If the date sounds vaguely familiar — January 20, 2009 was the date on which President Barack Obama was inaugurated.  The President was attending Inaugural festivities and the congressional Republicans were having a four hour dinner planning how to obstruct the new Administration.  The gear jamming  game began as soon as the whistle blew.

The gridlock only grew worse as the Tea Party Republicans took over the Republican Party in Congress and rendered any attempts at compromise, even intra-party compromise,  futile.  For purist ideologues the very basis for governance, compromise between sincerely invested views, was unconscionable.  Thus the spectacle of a House of Representatives voting over and over and over again to repeal the Affordable Care Act, or to legislate anti-abortion bills going nowhere, refusing to pass the American Jobs Act, and yielding little more than a 13.8% approval rating for the 112th Congress as of August 23,  2012. [RCP]

When Congress, stymied by GOP intransigence, can’t lead and won’t govern it can expect to be less popular than banks, Pakistani President Zardari, and the Long Island Power Company. [ABC]

IF the Republicans hadn’t been engaged in obstructionism from Inauguration Day onward, and IF they had entered into sincere discussions of issues surrounding the content of the Affordable Care Act, or IF they had given the American Jobs Act even some cursory attention inside the Capitol, THEN their charges of “failed” leadership might not ring so hollow.

As things stand, Senator Reid is right: “For three and a half years, they wouldn’t govern. They couldn’t lead. And we shouldn’t let them take over the Senate and the White House.”

Gleaming Like Torches, Darting Like Lightning: Does God Love Fossil Fuel?

Before Senator By Appointment Only™* Dean Heller (R-NV) makes too many more comments about “failed” solar energy manufacturing efforts, it might do to note, as did Senator Harry Reid (D-NV):

“Last year, Amonix CEO Brian Robert­son was tragically killed in a plane crash and unfortunately the company was unable to recover from this difficult time,” Reid said Wednesday in an email statement. “Some people will be tempted to use today’s unfortunate news for political gain. But I am hopeful that the bipartisan support for this project and the public-private partnership that helped make this and many other projects possible will not be degraded by dirty energy supporters for their own profit or political gain. The clean energy sector is too important to Nevada’s future, and I hope that those that publicly acknowledge this will continue to strengthen the bipartisan support for renewable energy programs and incentives that exists in Nevada.” [LVRJ]

The grant for the Amonix plant was approved by the George W. Bush administration in 2007, and eventually received $15.6 million in support.

The abject failure of the Humboldt Canal in 1863 doesn’t mean that all government subsidies for canal building were a loss.  Secondly, we need to step back a moment and note that government assistance — at all levels — for railroad construction in another era was not without its critics:

“Although the first railroads were successful, attempts to finance new ones originally failed as opposition was mounted by turnpike operators, canal companies, stagecoach companies and those who drove wagons. Opposition was mounted, in many cases, by tavern owners and innkeepers whose businesses were threatened. Sometimes opposition turned to violence. Religious leaders decried trains as sacrilegious. But the economic benefits of the railroad soon won over the skeptics.”  [USH.org]

Sound familiar?  There’s nothing like stalwartly defending the entrenched special interests (substitute oil companies for turnpike operators, canal companies, and stage coach firms above) to create a climate in which economic and technological progress is rendered extremely difficult.  The situation was similar in the U.K. after the opening of the Manchester-Liverpool Line.  In that instance, the landed gentry joined the stage coach companies and the canal owners in opposition to the construction of railroads, with conservative pastors quoting Nahum 2:4 on the destruction of Nineveh:

“The chariots race madly through the streets;
they rush to and fro through the squares;
they gleam like torches;
they dart like lightning.”

Yes, Nineveh didn’t survive the sacking in 616 BC, but Baltimore, New York, Chicago, Philadelphia, and Memphis did quite nicely as rail hubs for those “madly racing chariots.”  Evidently, more members of the national congregation were attending to sermons like those delivered by Reverend S.C. Aiken in 1851.

“This prophecy, reminds me of an occasion similar to the one, that has called so many strangers to our city: “when, on the opening of the Erie Canal, it was my privilege, on the Lord’s-Day, to address De Witt Clinton, and the Commissioners, in grateful recognition of the beneficent Providence, which had carried them on to the completion of a work, deemed chimerical by some and impolitic by others: but which has proved a highway for commerce, and made many a wilderness and solitary place to blossom as the rose.”

There is no small amount of danger for those who cite everything from Scripture to short term economic statistics in defense of the status quo.   If we wish to remain in the technological wilderness, making do with a primary emphasis on fossil fuels, we risk clogging our highways of commerce, and artificially stunting our own long term economic growth.  While other nations would like to “blossom as the rose,” opponents of alternative energy experiments would have us settle for the dandelions.

*”Senator By Appointment Only” is the sole product of The Gleaner, who can be found here.

On Our Way To Auctions Not Elections

On July 16, 2012 at 6:08 pm (Eastern) S. 3369 was successfully filibustered by the Republican minority in the United States Senate.   Senator Harry Reid (D-NV) cast a procedural “no” on cloture to allow for a possible re-introduction; Senator Dean Heller did not cast a vote.  S. 3369 is commonly known as the Disclose Act.

The core of the legislation is simple: (emphasis added)

`(1) IN GENERAL- Any covered organization that makes campaign-related disbursements aggregating more than $10,000 in an election reporting cycle shall, not later than 24 hours after each disclosure date, file a statement with the Commission made under penalty of perjury that contains the information described in paragraph (2)–

`(A) in the case of the first statement filed under this subsection, for the period beginning on the first day of the election reporting cycle and ending on the first such disclosure date; and

`(B) in the case of any subsequent statement filed under this subsection, for the period beginning on the previous disclosure date and ending on such disclosure date.
`(2) INFORMATION DESCRIBED- The information described in this paragraph is as follows:

`(A) The name of the covered organization and the principal place of business of such organization.

`(B) The amount of each campaign-related disbursement made by such organization during the period covered by the statement of more than $1,000, and the name and address of the person to whom the disbursement was made.

`(C) In the case of a campaign-related disbursement that is not a covered transfer, the election to which the campaign-related disbursement pertains and if the disbursement is made for a public communication, the name of any candidate identified in such communication and whether such communication is in support of or in opposition to a candidate.

`(D) A certification by the chief executive officer or person who is the head of the covered organization that the campaign-related disbursement is not made in cooperation, consultation, or concert with or at the request or suggestion of a candidate, authorized committee, or agent of a candidate, political party, or agent of a political party.

`(E) If the covered organization makes campaign-related disbursements using exclusively funds in a segregated bank account consisting of funds that were paid directly to such account by persons other than the covered organization that controls the account, for each such payment to the account–

`(i) the name and address of each person who made such payment during the period covered by the statement;

`(ii) the date and amount of such payment; and

`(iii) the aggregate amount of all such payments made by the person during the period beginning on the first day of the election reporting cycle and ending on the disclosure date;

but only if such payment was made by a person who made payments to the account in an aggregate amount of $10,000 or more during the period beginning on the first day of the election reporting cycle and ending on the disclosure date.

There’s nothing all that complicated about the bill.  If an organization spends money on behalf of a candidate, the expenditure should be disclosed.  If a donor contributes more than $10,000 the donor should be disclosed.   There are NO special provisions for labor unions, there are no special provisions for the benefit of any special interest group.

And, the GOP successfully filibustered the bill., 51-44 with five not voting.   [roll call 179]

Senator Mitch McConnell, formerly an advocate of Disclosure saying it is “nothing less than an effort by the government itself to expose its critics to harassment and intimidation.”  [TP] Here’s a question: If one is a legitimate critic of the government then wouldn’t one’s advocacy be a badge of honor?

It was a dark day for democracy when the Supreme Court issued its ruling in Citizens United that money = speech.  It is darker now that we can’t see where all that “speech” is coming from.