Saturday Blog and News Roundup

It’s been a while since the last Round Up of good reading from the blogs, Nevada’s and from other parts of the country.  From the Nevada Progressive we learn that the radical fundies have put the kibosh on realistic sex education programs in the state of Nevada.  Heaven forefend we’d adopt curricula in this state which would alleviate the issue of unwanted pregnancies, provide accurate and adequate information about contraception, and prevent abortions….  There’s more on the topic from The Sin City Siren.

Looking for a concise summary of the tax issues before the Nevada legislature? Your first stop should be Sebelius’s “A Few Truths..” posting.   Hugh Jackson takes a gander at the Chamber of Commerce and its abiding love for education, just so long as it doesn’t cost them any coin of the realm — a taste of the full column.

“The chamber is “for” education. So a billionaire can sashay into a chamber gathering and win applause by saying that education needs more money — just so long as she qualifies her declaration as a “conceptual” need that merely requires the nodding of heads, as opposed to an actual need that demands businesses start paying some taxes.”

Add a bit of video to your news perusal by clicking over to Jon Ralston’s “Legislature poised to hide money and gifts.”   If all this is making you thirsty, click over to the Blue Nevadan for a list of Drinking Liberally sessions.   Another event worth noting is a rally for immigration justice in Reno on May 29th , details are available from the Nevada Rural Democratic Caucus.

Best of the Week

Speaking of Immigration — Crooks and Liars posts a good read on a federal judge’s ruling that “Sheriff Joe” has been engaging in good old fashioned racial profiling.  Surprised?

How many bridges have to collapse in this country before we get SERIOUS about funding infrastructure projects?  Add the I-5 bridge over Skagit River in Washington to the list of failed structures. There’s more on the story from Think Progress.  Click over to Demos for “The High Cost of Bad Infrastructure.”

I’d be much more in tune with the current Republican poutrage over the investigation of a Fox “news” reporter IF the network hadn’t called for a DoJ investigation of the New York Times beginning  in December 2005.  Perrspectives has a post devoted to this topic. “The next month, Deputy U.S. Attorney Matthew W. Friedrich told the Senate Judiciary Committee that the Bush DOJ thought that journalists or “anyone” could be prosecuted under the Espionage Act for publishing classified information.”   And, then:

“As it turned out, those words came as music to the ears of Fox News and the conservative commentariat. After all, they had been cheerleading for the Bush administration to prosecute the New York Times for months.”

The National Journal has an insightful piece about “How the GOP Will Keep Stirring the Scandal Stew Over Recess.”  Nomadic Politics asks “Why should Tea Party Groups have any tax exemptions?”  Good question!

Then we have the specter of the House Republicans imperiling the U.S. economy and governance in general by refusing to appoint their own conferees, as explained in Politicususa.   While you’re on the site, see how the GOP may not be a viable national party much longer if they keep putting the interests (read: profits) of the Big Banks over the needs of students.   Oh, for the Good Old Days of the Whigs?  The Booman Tribune takes a look at our dysfunctional Congress in “Talking to a Living Room Table.”  Well worth the click and read.

Have a Great Weekend!

The Numbers Are Nice, What About The People?

7.5% unemployment sounds good.  If Nevada’s numbers follow the national trend then we’d expect another decrease in statewide unemployment, also a good thing.  However, we need to temper our enthusiasm with a nod to some other numbers which aren’t quite so reassuring.

Not all employment is created equal: “The workweek fell from 34.6 to 34.4 hours.  As a consequence the index of aggregate hours worked fell -0.4%, offsetting last months 0.4% increase.”  [AB] [BLS table B4] It’s fine to have more people working, but if they are working fewer hours then the amount of spending those families can afford doesn’t move the needle in terms of aggregate demand.

Not all wages are created equal:  There’s weakness in average hourly wages as well. Average hourly wages were $23.42 in April 2012 and a year later they’d ticked up to $23.87 — insufficient to keep up with inflation. [BLS Table B3] Leisure and hospitality wages, which are of interest to Nevadans, averaged $13.35 per hour in April 2012 and increased to an average of $13.42 as of April 2013. [TableB3] Rather an underwhelming increase.

Public Sector employment remains weakened:  For the “Drown Government in a Bath Tub” crowd this is taken as good news, but the problem is that public sector employees are also consumers and their contributions to aggregate demand are declining.  Overall employment at all levels was down 11% since March 2013.  This figure breaks down to a decline of 8% in federal employment, a 1% decline in state workers, and a 2% decrease in local government employment.  [BLS TableB1] At some point in the discussion we need to ask just how small the bathtub is supposed to be?

If we exclude radical libertarian ethereal musings about an entirely privatized system in which we all drive on toll roads the moment we leave the driveway, or all hire our own security and fire protection services, and all our schools, libraries, parks, and public health services are for-profit institutions in which you can get only what you can afford to pay for — then we need to specify which public services we expect, and what level of service is acceptable.  How long are we willing to wait for our IRS tax refund checks?  How long is an acceptable response time for police and fire calls?  How many days should the library be open?  How many children in a single classroom are acceptable?  How long should it be between health inspections in work places, medical service providers, restaurants?

Not all jobs are creating assets:  The Construction sector continues to be weak, with YOY nonfarm payroll numbers down 6%, with residential construction down 6.2% and non-residential construction off by 4.8%.  Heavy construction and civil engineering was down 3.8% since last March. [BLS TableB1]

Given the state of our nation’s infrastructure the decline in heavy construction and civil engineering projects is particularly disturbing.  The President’s Rebuild America Partnership proposal remains mired in Congressional inattention, and partisan bickering.  S. 387, a bill to establish an American infrastructure investment fund was introduced in the Senate last February, and now sits in the Senate Commerce, Science and Transportation Committee.   The website for this committee doesn’t show any hearing scheduled for this bill to date.

One of the nicer features of infrastructure investment is that it is a Win-Win proposition; engineers, contractors, and their employees get paychecks and the contracting agency gets valuable assets enhancing the unit’s overall financial position.  Senate inaction, exemplified that the body only managed to pass 2% of the bills put before it so far, isn’t helping our economy by assisting in the creation of construction sector jobs or by aiding the financing of public agency assets.

Not all jobs are full time:  Full time employment is obviously distinct from long term temporary or contracted employment.

What’s changed in the last 20 years is that there’s been an unraveling of job security in the labor market, as well as a diminishment of benefit packages and a deterioration of stable, reliable wages and promotion pathways,” said Katherine Stone, a law professor at the University of California, Los Angeles, and labor specialist. “There’s been a really fundamental shift in the nature of employment — it’s a sea change. Whether you’re talking about the expanded use of short-term employees, temporary workers, project workers, contractors or on-call workers, the use of workers who don’t have regular jobs has increased a lot.”  [CBS]

Regular, traditional long term employment, increases the inclination to secure more expensive long term assets — durable goods and housing. The employment numbers may mask a situation in which we have more people employed, but not in jobs that induce them to make personal investments in durable goods or in long term housing.  While independent contractors may, indeed, prefer project to project employment — there’s the other 50% of temporary workers who would prefer full time employment.

In April, the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 278,000 to 7.9 million, largely offsetting a decrease in
March. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.  (See table A-8.) [BLS]

The good news from the unemployment report this month is offset by weakness in the wages and hours figures, nor is it enhanced by the acknowledgement of continued weakness in the construction sector and the inattention to our infrastructure investment needs.  Additionally, we need to carefully monitor the trends toward temporary job creation as compared to more permanent jobs created as a result of increased aggregate demand.

Congress could help.  It could, for example, take up the American Jobs Act instead of attending to a plethora of ceremonial votes to “repeal Obamacare,” and continue its “War on Women.”  The Senate could assist by scheduling hearings and giving consideration to S. 387.

If we’d like even more optimistic news on the economic front it will probably be up to American citizens to insist that our federal legislators focus on JOBS, JOBS, JOBS.

Dear Grandkids, We’re Leaving You Some Bills

Dear Grandchildren,

It’s March 16, 2013 and we’re all in a dither about the debt we’re passing along to you.  Yes, it’s a big one.  The lines on the charts look devastating indeed:

We chose to ignore the actual debt and real deficit reduction efforts in order to focus on cutting the “size of government” in your life so you could have more “freedom.”

But, all this said, we are leaving you some bills we sincerely hope you can pay!  In our fervor to erase the national budget deficits and reduce the level of national debt we left a few things for you to do to pick up after us, we hope you don’t mind.

The Water Bill:    We knew that as of 2009, and more information is coming on March 19, 2013, that we were running up an $11 billion per year backlog of funding to replace aging water system components.  In reality, the 2009 report wasn’t our first clue:

“The Congressional Budget Office (CBO) concluded in 2003 that “current funding from all levels of government and current revenues generated from ratepayers will not be sufficient to meet the nation’s future demand for water infrastructure.” The CBO estimated the nation’s needs for drinking water investments at between $10 billion and $20 billion over the next 20 years.” (emphasis added)

We knew that there had been a 159% increase in the demand for clean drinking water between 1950 and 2000, but we did precious little about the issue.  We moaned about the ARRA’s expenditures for water treatment, about how it would run up the Debt, so our Congress appropriated a “drop in the bucket.”

“The new federal stimulus law provides $6 billion for water projects, with $2 billion of that directed to drinking water systems. But that money is only, well, a drop in the bucket: a report released last month by the E.P.A. estimated that the nation’s drinking water systems require an investment of $334.8 billion over the next two decades, with most of the money needed to improve transmission and distribution systems.” [NYT, 2009]

We knew that the design life of concrete treatment plants would expire in 60-70 years, so the plants built in 1950 are now on their last legs.  We knew that the trunk mains were built to last from 65 to 95 years. Some of those are now aging into oblivion. [ASCE]  So we’re leaving you with the bill for $334.8 billion over the next twenty years to pay for the maintenance of a water distribution system we bragged about but didn’t really want to pay for.

The Sewer Bill:  Our 15,000 public wastewater treatment facilities serve about 225 million people in this country, but we’re still subject to about 900 billion gallons of good old raw sewage discharged every year from aging and dilapidated facilities. [NYT 2011]  We knew back in November 2002, when you were just little tykes, that the Congressional Budget Office estimated the expenditures needed for new and improved wastewater treatment would be in the range of $3.2 to $11 billion. [CBO pdf]  There was a Gap Analysis conducted by the CBO back in 2002 which had some more disheartening information:

“According to the Gap Analysis, if there is no increase in investment, there will be a roughly $6-billion gap between current annual capital expenditures for wastewater treatment ($13 billion annually) and projected spending needs. The study also estimated that if wastewater spending increases by only 3% per year, the gap would shrink by nearly 90% (to about $1 billion annually).

The CBO released its own gap analysis in 2002, in which it determined that the gap for wastewater ranges from $23 billion to $37 billion annually, depending on various financial and accounting variables.”  [ASCE]

So, when all is said and done, we dawdled around until the EPA estimated that it would cost about $390 billion over the next 20 years to repair or replace inadequate water treatment plants and other components of the systems.  We hope you don’t mind we’re leaving you this bill for $390 billion?

The Education Bill:  It’s hard to account for all the needs of our 98,917 public schools in this country. [NCES]   If we’re being honest, we haven’t really looked at the number of aging buildings, or carefully studied their functional age since the “turn of the last century,” in 1999.  We do know that children who are in poverty are also in the oldest buildings. [NCES]   Additionally, we’ve known this not-so-fun fact since the 1999 study: “While 40 percent of small schools (enrollments of less than 300) were built before 1950, 23 percent of large schools (enrollments of 1,000 or more) were built before 1950.”  Since large schools tend to be secondary, we can assume we’ve been following the time honored practice of building nice big new high schools and moving the junior high kids into the old buildings?  Then there’s the “portable building” problem — we’ve known since the Fall of 2005 that portable buildings have more problems which interfere with instruction than standard buildings. [NCES] While the issues might not be too far from the similar interferences in standard buildings — we know they exist — it was just cheaper to ignore them.  Our spending on school construction, as analyzed by the ASCE might give you some pause:

“While detailed conditions and needs numbers do not exist, we do have up-to-date numbers on spending levels. According to the American School and University’s 34th Annual Official Education Construction Report, school construction completed in 2007 (which included both new construction and renovations) totaled more than $20.2 billion. That is down from a peak of $29 billion in 2004. The downward trend is expected to continue: with $52.7 billion in funding is projected between 2008 and 2010. This represents a significant decrease from the $68.4 billion spent between 2005 and 2007.^1″

If you are thinking that you might be able to kick this discussion down the road, as we did, because privatization is the solution to every public problem, please think again. First, the charter schools are public buildings in which instruction is immediately governed by groups outside the system.  Secondly, they may not be located conveniently near you, or serve the age groups of your offspring:

“In 2009–10, over half (54 percent) of charter schools were elementary schools. Secondary and combined schools accounted for 27 and 19 percent of charter schools, respectively. In that year, about 55 percent of charter schools were located in cities, 21 percent were in suburban areas, 8 percent were in towns, and 16 percent were in rural areas. [NCES]

There are studies indicating some charter schools are doing better than some public schools, but we have to be careful with our numbers.  For example, one summarization of the different levels of educational achievement (read: test scores) failed to note that charter schools youngsters tend to be from more financially secure families.  [WaPo]  However, if we’re honest, we’d tell you that we’ve not been looking too closely behind the numbers of either the cost of building or maintaining schools, or at the cost of employing qualified teachers… But, Hey, we walked to school and back uphill both ways in driving blizzards.   And, about those standardized tests — “States are likely to spend $1.9 billion to $5.3 billion between 2002 and 2008 to implement NCLB-mandated tests, according to the non-partisan Government Accounting Office (GAO),” as of 2005. [RSO]  We’re leaving you the bill for that too. Whatever it might be.

The War Bill:  We were going to have another “Splendid Little War,” the one in Iraq.  The Bush Administration and a compliant Congress authorized the expenditures as “supplemental appropriations,” meaning that we didn’t have to look at the tab we were running in real time.

Total federal spending associated with the war has reached $1.7 trillion. Future promised health and disability payments for veterans through 2053 add up to $490 billion. So, as it stands now, the Iraq War has cost $2.2 trillion, which is a far cry from the initial 2002 estimates of $50 to $60 billion. When you factor in the interest, war expenses could swell to more than $6 trillion over the next four decades. [NYDN]

So, we missed by a few dollars… but we’re leaving you with the very possible  $6 trillion bill anyway.

We might have paid for some of these items ourselves. We might even have given more consideration to the state of our bridges, dams, and public buildings.  We could have thought of the state of the air traffic system, or the highway syste, or the rail transportation system, we were leaving to you.  However, fretful as we were about these expenses and future costs, we decided that it was not in our best interests to close tax loopholes for giant multi-national energy corporations, or for yachts, or for private jets.  We decided that we “over taxed” our corporations, and rewarded them when they “repatriated” money earned overseas to the U.S.   We decided it was more important to appropriate money for airplanes that didn’t fly than to pay for G.I. benefits earned by service.  We decided it was more important to protect the interests of Wall Street than Main Street.  We decided that money earned in speculation was just as hard won as income from investments or good old fashioned hard labor.   We didn’t want to “burden” you with restrictions on financiers, or humongous banks, or on the incomes to be earned by the top 1% of the population — we wanted you to be “free,” to have “liberty,” and to say nice things about America!

We love you dearly, and want you to know that we think of you always.   Good Luck.   (PS: Hope you don’t mind we’re moving in with you.  After cuts in Social Security and the voucherization of Medicare we’re having a little financial difficulty at the moment.  Even Meals on Wheels isn’t coming anymore.  We could babysit for you now that the Headstart Program serves only a few kids in your neighborhood?)

The Gramps

Bait and Switch Political Economy

So, why are we really stuck in the Silli-quester?  The one option that was supposed to be so distinctly unpleasant and irrational that both major political parties would eschew any connection to it and thereby be inclined to adopt compromise measures?  Bait and Switch.

Why are the punditocracy chattering on about how both sides should exercise some political rationality (if that isn’t an oxymoron) and move to the discussion about serious economic needs, such as job creation (without all the inanity of trickle down hoax-isms) and debt stabilization?  Bait and Switch. Why Bait and Switch?

Beneath all the chatter are some very different world views, political ideologies, and priorities.  In an ideal world there would be less reason to discuss who is to blame for the economic mess in which we find ourselves, and more reason to sit down and talk about how we (1) encourage economic growth and (2) stabilize our indebtedness.  This obviously isn’t a perfect world.

It’s going to take some good old fashioned rational discussion in a FACT based universe to get out of this muddle.  The facts are unpleasant on both sides of the polarized political flanks, but they do need to be the main topics of conversation before we can get out of the Bait and Switch model.

The Bait

This is all about stabilizing the national debt.  Yes, and no.  Those who are truly of sound mind and reasonable thinking recognize two things: (a) We have a situation in which health care costs are driving up federal expenditures just as they are taking a larger chuck out of family finances; and (b) our tax laws need some reform — real reform — not merely another excuse to reduce taxes on the economic elite who are more inclined to indulge in speculation than in the less profitable but more productive investment in industrial and commercial development.   The third fact of life is that we engaged in not one, but two wars, an activity designed to suck the sustenance out of any consumer based economy.

The Switch

This is all about the national debt.  Is it? Or, is it cover for indulging in the enaction of Austerity economics which calls for the reduction of government spending without increasing government revenue?  Consider the vehement opposition of the Tea Party caucus of the House GOP to any suggestion that we need to enhance revenue to reduce and stabilize the national indebtedness.  If this group were truly speaking to the unsustainability of our current debt trajectory then revenue increases would be a logical portion of the debate.  However, it’s not.  The debt level becomes the bait, and the unwillingness to even consider revenue increases signals that their real object is what it has always been — an adherence to the mythology that government (even a government trying to serve the needs of 330 million people) is Too Big and needs to be restricted.  As usual, Robert Reich has summarized the problem succinctly:

“Tea Party Republicans are crowing about the “sequestration” cuts beginning today (Friday). “This will be the first significant tea party victory in that we got what we set out to do in changing Washington,” says Rep. Tim Huelskamp (Kan.), a Tea Partier who was first elected in 2010.

Sequestration is only the start. What they set out to do was not simply change Washington but eviscerate the U.S. government — “drown it in the bathtub,” in the words of their guru Grover Norquist – slashing Social Security and Medicare, ending worker protections we’ve had since the 1930s, eroding civil rights and voting rights, terminating programs that have helped the poor for generations, and making it impossible for the government to invest in our future.”

These are the people who took President Ronald Reagan’s message to heart, “The government is the problem,” and then took the philosophy further than that former President ever considered.  The radical right wing of the Republican Party has created an environment in which even the Speaker of the House can’t get legislation to the floor, or must break his own “Hastert Rule” to get anything passed.  There may be a core of rational Republican members of Congress who might give thought to compromising and indulge in some serious discussions about government spending, taxation, and infrastructure investment — BUT each one of them sits beneath the Damocletian Sword of a primary challenge from some candidate even more conservative than themselves.

Real Problems Should Have Realistic Solutions

While it would be nice to assume that social safety net programs such as Medicare and Medicaid are sustainable in the present context, that really isn’t a reasonable conclusion.  Recognition of the problems associated with maintaining an acceptable level of service to Medicare beneficiaries is essential.

The solution presented by Rep. Paul Ryan to privatize the Medicare system and transform it into a coupon-care or voucher program doesn’t solve the problems any more than calling for the program to continue without further improvements.   The real problem is the rising cost of health care delivery, and until we can address how to reduce the costs increases the programs for health care assistance will be financially unsustainable.

Those who have not yet read Steven Brill’s excellent piece in Time magazine should do so immediately.   Here’s an essential part of the reporting:

“When you look behind the bills that Sean Recchi and other patients receive, you see nothing rational — no rhyme or reason — about the costs they faced in a marketplace they enter through no choice of their own. The only constant is the sticker shock for the patients who are asked to pay.  Yet those who work in the health care industry and those who argue over health care policy seem inured to the shock. When we debate health care policy, we seem to jump right to the issue of who should pay the bills, blowing past what should be the first question: Why exactly are the bills so high?”

Nailed It!  And Brill goes on to explain or describe the basic issues involved, such as the inflated prices for common products, the perverse economics of medical technology, bills to match the catastrophic nature of the illness or injury, and the handcuffs on Medicare.

Tea Party Caucus radicals would have us believe there is no middle ground between transforming the Medicare program into a privatized voucher system and turning Medicaid into a parsimoniously funded block grant program and Socialized Medicine.  This is not the case.  It’s certainly not the case when we examine what happens in the health care market, when “insurance isn’t insurance” and chargemasters determine “opening bids” for costs.  Health care cost containment is the essential issue — we should be asking, as Brill suggests, not who should pay, but how much should be paid — by anyone, public or personal.

The Affordable Care Act has some features which will reduce the costs of medical services and treatment, but it is not the answer to the dilemma of how to fix a “broken market.”  Ideological squabbling over Repeal or Not To Repeal is a waste of time, and of time which would be better spent trying to solve the Gordian Knot of health care cost containment.

There are two things, often suggested, and in the past often done, which would alleviate some of the problems associated with Medicare and Medicaid funding. First, we could allow the Department of Health and Human Services to negotiate prices for prescription medication. Secondly, we could get serious about regulating and rationalizing the pricing structures of hospital and medical services.

The inclusion of Social Security “reform” in the Silli-quester debate is informative,  since the program is self funding and doesn’t add to the national level of indebtedness, the only reason for incorporating it into the “entitlement” discussion is to cut it — as radical right wing adversaries have wanted to do since it was enacted during the Depression.  We could, for example increase the liability cap above the current $113,700 in income for the Social Security program. There’s a boatload of difference in the financial resources of a family with an annual income of $1,113,700 and a family with annual resources of $113,700.  Surely those in the upper 0.1% of the income pyramid could afford to pay in a bit more?

The use of the Chained CPI isn’t a popular suggestion, but the chains may not be shackles.

“While no one knows what a full elderly CPI will show, we do know that switching the COLA to a chained CPI will reduce lifetime Social Security benefits by an average of about 3 percent. This doesn’t raise a huge amount of money, but it would be a big hit to seniors, 70 percent of whom rely on Social Security for more than half of their income.” [CEPR]

The problem, of course, is that elderly people don’t purchase items that show up in the inflation calculations (cars, electronics, etc.) as often as younger people; but, they do spend on housing and health care. (See health care cost containment above).   There is nothing essentially wrong with discussing the Chained CPI if it can be done reasonably.  For example, could the index be adjusted to account for the variance in inflation associated with the consumption patterns of elderly individuals?  Or, if we can achieve some kind of stable economic growth would the reductions in benefits associated with the Chained CPI be mitigated?  Bellowing, “Social Security is a Ponzi Scheme,” or “There won’t be anything left for Junior,” isn’t the way to start a discussion about these details any more than the absolute “Don’t Touch Social Security“  in any way, shape or form is on the other hand.   Note that both the Medicare and the Social Security inflation adjustment issues are related to the bug-bear of health care cost containment?

It’s not just our population that’s aging. So are our bridges, highways, parks, and other public facilities.  We have aging public building that could lower their utility costs with upgrading, and we have aging public structures which should be replaced.   And, then there are schools:

About one-fourth (28 percent) of all public schools were built before 1950, and 45 percent of all public schools were built between 1950 and 1969 (table 1).Seventeen percent of public schools were built between 1970 and 1984, and 10 percent were built after 1985. The increase in the construction of schools between 1950 and 1969 corresponds to the years during which the Baby Boom generation was going to school. [NCES]

Not to put too fine a point on it, but after 60 years most school buildings need so much renovation that they aren’t functional and most are abandoned.

Since we probably can’t build everything at once, how about focusing on roads and bridges?  Various suggestions have been made concerning upgrading American infrastructure, and if we want to have a serious discussion about this topic we might begin with the obvious — crumbling roads and bridges.  Why not allow the U.S. Treasury to issue some long term bonds (30 year) expressly for the purpose of addressing transportation infrastructure needs?  This could be a win-win proposition.  The bondholders have a safe haven investment which is interest earning, the public gets better roads and bridges, and if we must have a “pay for” element we could consider increasing fees or use taxes by a minimal amount, again expressly for the purpose of paying off the bondholders.

These kinds of suggestions deserve more attention than they are getting, but they will not get serious consideration until ideologues stop screeching “the government can’t create jobs,” or “we can’t increase taxes any taxes any time,” as the bridge slowly crumbles beneath us.   The bond issuance idea deserves a serious moment — the public assets values increase, the bonds earn interest for the investors, and everyone’s safer.   Little wonder then that the AFL-CIO and the U.S. Chamber of Commerce are both supportive of infrastructure investment.   Short term, the construction sector of the economy gets a boost; long term the investors and the public benefit from the proposal.

Taxing Issues

We do need tax reform.  What we don’t need is one more scheme to shift the burden of financing government from the economic elites to working men and women in America.  Yes, that would be the old Flat Tax canard.   In case Speaker of the House Rep. John Boehner would like to find the President’s plan for revenue and budget stability it’s located in plain sight right here.  The proposal includes one tax reform that should be given some attention.

The President proposes that itemized deductions be limited to 28% for wealthy individuals.   What should be on the table in addition to this suggestion is the variance in the way we tax earnings.  As former FDIC Chr. Sheila Bair has noted, “Why does a hedge fund manager pay lower tax rates than a shoe store manager?“  Good question. Additionally, no one has yet put forth a credible argument (complete with some hard data) to sustain the idea that the investors are really “job creators,” but factory and office  managers definitely are those making staffing and hiring decisions.   We might also give some time to the issue of allowing corporations to indefinitely defer taxes on profits made overseas.

Republicans in the 2012 campaign season often spoke of closing loopholes, however vaguely those were described.  Let’s get specific.  Why are there loopholes for corporate jets? For yachts?  For highly profitable oil corporations?   Both sides of the aisle might want to talk about the possibility that if a sufficient number of these loopholes were closed then perhaps the overall rates could be reduced?

In short, if we are truly looking toward stabilizing our national debt, as opposed to merely trying to drown our government in a bath tub,  there are rational ways to do it — but in order to accomplish that we need to have some rational discussions about the route we choose.  Bait and Switch is never a good starting point, but abatement in the hyperbole and switching to a more reasonable level of civic discourse would be an excellent place to begin.

What Small Businesses Really Need

If some of the erstwhile Defenders of Small Business were truly, deeply, and sincerely concerned about the issues faced by small family owned commercial enterprises — some of the following questions might be under discussion.

#1.  Small businesses need financing.  The cash flow of any small business is calculated by finding the difference between the income and the expenses.  If the difference is positive, the company is making a profit.  Negative numbers indicate a company with problems.  Most small operations are subject to the overall commercial cycles; but for well managed companies will obviously be in positive territory.  However, the oldest rule in the books still applies:  It takes money to make money.  Funds for sales promotion, for business expansion, or for restructuring the firm which can’t be self-funded have to be borrowed.   The trends in small business lending have been disturbing for some time now:

As the graph from FDIC data indicates, banks have been making fewer small business loans since the mid 1990′s.  In 1995  banks issued loans at a rate of 52%, which declined to 29% as of 2012.   Why?

Securitization and Speculation are two elements, as explained by Small Business Trends:

“…banks have dramatically increased their securitization of loans – packaging of loans into bonds that can be sold to third parties. Small business loans are not easily securitized because the terms of the loans are heterogeneous and different banks have different underwriting standards. As a result, the desire to securitize might have led banks to reduce their small business lending relative to loans that are easier to package into securities.”

Many pixels have given their all on this blog to the shift on the part of major lenders into securitized loans and the speculation thereon.  As long as there is more money to be made by packaging student loans, mortgages, credit card debt, and auto loans into securitized products, and yet more money to be made by packing, slicing, dicing, and dividing these up into tranches… then major lenders will have far more incentive to play in their markets than they have to make loans to Mom and Pop operations seeking to expand their firms.

Bank consolidation means more than Too Big To Fail, it can also mean Too Big To Pay Attention.   Smaller local banks are more likely to make loans to smaller local companies.   The problem these days is to find a small local bank.  There’s a chart for that trend too:

As the study reported in December 2011:

“The number of U.S. commercial banks and savings institutions declined by 12 percent between December 31, 2006, and December 31, 2010, continuing a consolidation trend begun in the mid- 1980s. Banking industry consolidation has been marked by sharply higher shares of deposits held by the largest banks—the 10 largest banks now hold nearly 50 percent of total U.S. deposits.”

We can be even more specific about lending institutions if we look to the December 2012 report from the FDIC: (pdf)

“Consolidation in the U.S. banking industry is a multi-decade trend that reduced the number of federally insured banks from 17,901 in 1984 to 7,357 in 2011. Over this period, the number of banks with assets less than $25 million declined by 96 percent. The decline in the number of banks with assets less than $100 million was large enough to account for all of the net decline in total banking charters over this period. Meanwhile, the largest banks—those with assets greater than $10 billion—grew elevenfold in size over this period, raising their share of industry assets from 27 percent in 1984 to 80 percent in 2011.”

Thus we have two problems — fewer banks and more large banks controlling more of the money which might be lent to small business owners.   Too big to fail becomes not only Too Big To Fail and Too Big To Nail, but also too big to be all that interested in making small business loans as well.   Larger banks have couched parts of their opposition to provisions of the Dodd-Frank financial reform act in terms of “protecting community banks,” but that obscures the obvious — that the Big Banks control more of the money available for the kinds of loans community bankers could be lending.

The lovely vision of the Local Community Banker functioning in West Deer Breath rural America is something out of a Grant Wood painting, but also something with basic issues unrelated to the interests of the Big Banks.

Community Banks more often depend on traditional lending and savings practices, and this is problematic for their bottom lines:

“One element of the performance gap has been a narrowing of the traditional advantage that community banks have had in generating net interest income in recent years as the net interest margin (the spread between asset yields and funding costs) has narrowed. Because of their focus on traditional lending and deposit gathering, community banks derive 80 percent of their revenue from net interest income compared with about two-thirds at noncommunity banks. Accordingly, the narrowing of net interest margins places a significant drag on the earnings of community banks.”  [FDIC pdf]

While the Big Banks can generate revenues from non-traditional activities, the community banks are more reliant on depositors and local loan holders for their revenues; this means that it is more difficult for the community banks to pass along the benefits of lower interest rates to their customers.  Thus, while the Big Banks sob crocodile tears over the pressures on smaller community banks created by financial regulation, their own consolidation and income generating activities are vacuuming up the money necessary for small banks to lend…to small local firms.   We can put this in Banker-Speak:

“Another factor contributing to the earnings gap between community and noncommunity banks has been the ability of noncommunity banks to generate noninterest income from a wider variety of sources. These include trading, venture capital and investment banking activities that are not typically part of the community banking model. Noninterest income averaged 2.05 percent of assets at noncommunity banks over the study period compared with only 0.8 percent at community banks.”  [FDIC pdf]

Perhaps it’s not too much to ask those Champions of Small Business, to question the merger and acquisition activities of the Big Banks, and to regulate the activities (venture capital and investment banking) which are not usually the province of smaller community banks?

#2. Small Businesses depend on local infrastructure.   The category of infrastructure relates to the nature of the business, but there are some universals.

Security:  Most truly small businesses do not hire their own security firms.  Though they may install security cameras and burglar alarms, they are ultimately dependent on local law enforcement to secure their property and inventory.  Cuts in patrols, layoffs of personnel, or other reductions which increase response times have a more immediate effect on small family owned businesses than on larger corporate firms.

Communications:  There is no functional marketing plan unless the business owner can communicate with prospective customers and clients.  As more of these prospective customers rely on Internet based information, the local business without a web-site is functioning at a distinct disadvantage.    The availability (or lack thereof) of broadband access is critical.  At this point the community banking and the communications problems merge.  Most community banks operate in non-metro areas, and the biggest gap in broadband access is in — non-metro (often rural) areas.   The Hudson Institution looked at the problem in December 2012:

“…our nation faces a “broadband gap,” not only with regard to the lack of access in  rural areas to service that meets the broadband threshold, but also with regard to the lack of availability of faster service between urban and rural America.”  [Hudson pdf]

Specifically referring to business needs, the report states:

For businesses and institutions, broadband makes possible real-time interaction with customers and suppliers. “E-commerce” is heavily circumscribed in areas without broadband. “E-services,” such as education and health care, which come with expectations of using data-intense graphic and video content, cannot be delivered without broadband. [Hudson pdf]

Education and health care aren’t the only realms in which the lack of broadband access is a problem in rural areas.  Not only are rural residents unable to participate in e-commerce efficiently, but rural business owners lack the capacity to fully develop components of e-commerce as well.  As of 2010 approximately 40% of the U.S. population (both urban and rural) had no broadband access.  [CNET]  While the ARRA provided some funding for improving the situation, there is no guarantee further appropriations will be available, and there are already attacks on broadband access at the state level from the major tele-com corporations. [NC Think Progress]

Physical Infrastructure:  As the following chart from the Bureau of Transportation Statistics indicates, most American commerce moves by truck.

It would stand to reason that that which improves transportation will be of value to all businesses, and small businesses in particular.  Since trucks need highways it would seem that attention to our highways and roads would be in order.

A report from the McClatchy publishers this past month is not encouraging.

“Five years after an interstate highway bridge collapsed in Minnesota, killing 13 people and injuring 145, the country still has a bridge repair backlog of $65 billion, according to the Federal Highway Administration.

At a time when Congress is proposing significant budget cuts and tax increases have little support, states are canceling or scaling back highway projects. They’re looking for private partners to help finance construction, and still coming up short. Motorists are discovering that the roads they thought were free are anything but.”

We have a situation in which the gasoline tax isn’t covering the cost of construction and maintenance, the oldest part of our vaunted Interstate Highway system is reaching the end of its “life cycle,” and states have been all to eager to make political decisions as opposed to structural decisions concerning the application of highway funds.   Those with an perverse sense of adventure might want to traverse the 17 bridges which have been declared the worst in the country. [Business Insider]  They are the most visible examples of the inadequacy of pursuing these policies.

For those who are specifically interested in the bridges over which our commerce is conducted, the Transportation for America (pdf) report is illuminating.  While only 2.2% of Nevada’s bridges are considered structurally deficient, this happy statistic obscures the fact that bridges are essential in the process of getting goods to Nevada.   The following chart from the TA report is disturbing:

Those not concerned about the “annual daily traffic” over “structurally deficient bridges” must be those who have never considered purchasing any form of insurance.   Yet, materials, supplies, and finished goods needed by American small businesses must traverse some of these “structurally deficient” bridges.

What Do American Small Businesses Really Need?

For all the high-flying rhetoric about “freedom,” and “free enterprise,” and  the equally vague touting of “freedom from government interference,” small businesses need INCOME.  In order to find financing for the operation or expansion of their businesses they need banks interested in and sympathetic to their financial needs.  All the “freedom” rhetoric on this planet won’t replace the necessity of controlling the urge of the Big Banks to consolidate and place less and less resources within reach of truly small companies.

We can wave the banner of “Free Markets,” but it must be done in an environment in which small businesses, especially those in non-metropolitan areas, can communicate with their prospective customers and clients.

We can shout the virtues of “Freedom” from the roof tops, but we can’t ignore the fact that commerce requires transportation infrastructure, in order to keep the lifelines of commerce open and efficient there are roads to be built and maintained, and bridges which require our attention.

What we can’t do is to ignore the absolute necessity of financing, communication, and infrastructure in the operation of a functional economy.  In other words: Austerity cannot create Prosperity.

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.

You Shoot A Bear? The American Way

According to several talking heads on my television set today, the Romney Campaign must be feeling the heat about the tax return release issue because it’s time to haul out John “Frequent Flyer” Sununu for a reminder that the current President of the United States is The Other.

“What I thought I said but I guess I didn’t say is that the president has to learn the American formula for creating business,” Sununu said. “The American formula for creating business is not to have the government create business.”  Sununu [HuffPo]

Former Massachusetts Governor Romney entered the lists running after a line from a speech by the President in Roanoke, VA.

“If you were successful, somebody along the line gave you some help,” Obama said. “There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business, you didn’t build that. Somebody else made that happen.”  [HuffPo]

Governor Romney was outraged, I say, outraged:

“The idea that Steve Jobs didn’t build Apple, that Henry Ford didn’t build Ford Motors, that Papa John didn’t build Papa Johns, that Ray Kraut didn’t build McDonalds, that Bill Gates didn’t build Microsoft,” Romney said. “It’s not just foolishness, its insulting to every entrepreneur, every innovator in America and it’s wrong.”  [HuffPo]

Let’s ignore the relatively obvious antecedent of “that” as  the physical infrastructure, and move quickly to what used to happen at the dinner table when one of the offspring made altogether too much of some personal exploit.

You could tell when the  line between pride and chutzpah was crossed: Someone would grin and ask, “You Shoot A Bear?”

Steve Jobs built Apple, for which he was justly proud.  Bill Gates built Microsoft, an accomplishment in which he should take pleasure.  However, where would Apple or Microsoft be if the Atanasoff-Berry Computer hadn’t been designed and built at Iowa State University in 1942?  IBM/Harvard’s 1944 Mark I? The Colossus machines delivered to Bletchley Park in 1944?  Where might we have been but for the University of Pennsylvania’s School of Electrical Engineering constructing stored program computers in 1946? [CTL]

Henry Ford built his motor car company. Where the cars were going to travel was another matter.  Around the turn of that century:

“The country had approximately 2,199,600 miles of rural roads and only 190,476 miles (8.66 percent of the total) had improved surfaces of gravel, stone, sand-clay, brick, shells, oiled earth, bituminous or, as a U.S. Bureau of Public Roads (BPR) bulletin put it, “etc.” Many people thought of interstate roads as “peacock alleys” intended for the enjoyment of wealthy travelers who had time to spend weeks riding around the country in their automobiles.”  [FHAd]

Where might the U.S. auto industry be now if only 8.7% of our roads had improved surfaces?

What of franchising, as in the case of McDonalds and Papa Johns.  Sorry, the founders of those two popular American franchises are standing on the shoulders of Albert Singer who used franchising to sell his Singer Sewing Machines in 1851.

Infrastructure takes a variety of forms.  There’s the physical component,  for example, local and state efforts were necessary to create a road system on which cars and trucks could travel efficiently.  There’s the knowledge component.   Jobs and Gates availed themselves of a knowledge base created by a variety of government, educational, and private efforts to create stored program computers.  There’s an economic component.

The American system of finance should function to channel investment from areas of surplus to areas of scarcity — from those who have money to invest to the entrepreneurs like Ford, Jobs, and Gates, who need capital.  There’s also a legal component — for private enterprise to flourish there must be an independent legal system in place with the power to interpret and enforce laws governing contracts and other businesses matters.

What’s WRONG is to assume that Ford, Gates, Jobs, and Kraut didn’t create their businesses in an environment in which the physical, knowledge, legal, and economic infrastructure elements were used to entrepreneurial advantage.   Ford didn’t pave roads. Gates and Jobs didn’t invent computers.  Kraut didn’t invent mass production and franchising.  And, all of them were successful in a legal context in which an independent judiciary could call for the enforcement of contracts and business agreements.

To say that a single individual was personally responsible for the success of his or her enterprise without any acknowledgment of the physical, knowledge, legal, and economic infrastructural  environment falls easily into the You Shoot A Bear? category.

To say that it is only the financial sector which assures the success of any commercial enterprise is almost as naive.   Without the knowledge base there are no software start-ups in which to invest.  Without the physical base there is no way to deliver power generated by alternative energy sources.  Without the legal component there is no way to insure patents and contracts.

Governor Romney’s rather arrogant thesis also rests upon the notion that business owners need not feel “grateful” for the public infrastructure on which they rely because “we paid for it.”  Yes, business owners pay taxes.  However, the former Governor’s argument works if — and only if — the business owner in question was the only one paying for the work.  The argument doesn’t work because the taxes paid by the business owner are combined with the taxes paid by the butcher, baker, candlestick maker, teacher, firefighter, police officer, garage mechanic, airline pilot, and veterinarian….

What is foolish and insulting is the notion that Americans are so ill-informed and naive as to believe that our modern innovators and entrepreneurs are so divorced from their business environment that they don’t acknowledge the elements which inform and support their endeavors.

Perhaps the failure to acknowledge the totality of our American business environment comes from being a Master of the Universe?  “Who shot a bear?”

Floss to Gold? Asking Better Economic Questions

While Nevada sits with an 11.6% statewide unemployment rate, an 11.8% rate in the Las Vegas Metropolitan Area, an 11.5% rate in the Reno-Sparks area, an 11.7% rate in Carson City and environs, (Elko County micro area is at 6.1%) [DETR] the national debate over jobs and economic policy gets waged in Sound Bites and Furious Advertising.  Everyone feels “our pain,” but there are two very different ideological positions for dealing with it.

The General Policies

The Romney Campaign summarizes the candidate’s Job Creation formula as follows: “His plan seeks to reduce taxes, spending, regulation, and government programs. It seeks to increase trade, energy production, human capital, and labor flexibility. It relinquishes power to the states instead of claiming to have the solution to every problem.”  [Romney]

The categories on the Obama website promote the President’s interest in  (1) Investing in American manufacturing and innovation, including doubling the tax deduction for domestic advanced technology manufacturing from 9% to 18%, and offering a 20% tax credit against expenses incurred in relocating jobs back to the United States;  (2) cutting taxes for small businesses and streamlining the patent process; and (3) restraining the excesses of the Financial Sector and curbing practices on Wall Street that leave American taxpayers holding the bag for financial sector errors in judgment.

Both campaigns are heavy on tax cuts, but diverge from that point.  Both campaigns place the jobs category in a wider economic framework.  The frames are very different.  Romney’s summation is a classic compilation of conservative notions all predicated on the assumption that government is the problem.   Obama’s summation is a centrist amalgam of tax policy and consumer protections.

Bush 2.0

The Romney proposals are little more than Bush Redux, the Trickle Down Theory of economic growth.  As noted previously:

“We should also bear in mind that what Governor Romney is calling a “job creation” proposal would more accurately be labeled a tax reduction plan which he hopes might could would should in some idealized ideological world of Trickle Down economics produce the job growth we want IF it works — we’re still waiting for the tax reductions on corporations and wealthy individuals to work from the last round. [DB 7/9/12]

Governor Romney also hits all the correct notes in the stump speeches about small businesses, but once again it’s with a philosophy which assumes that if the yachts are rising, with the tide or not, then everyone’s boat will float a bit higher.  [DB 7/10/12]

When the components of the Gross Domestic Product were discussed in terms of what kinds of economic growth would we need to convince firms to add more employees we found there volatility in private economic investment, negatives in government spending, and the overall GDP muddling along.  [DB 7/10/12]

Simplistic prescriptions like “cutting regulations,” and “increasing labor flexibility” from the Romney camp should be looked as as closely as the proposal to fast track the Trans-Pacific Partnership — or, NAFTA on steroids. [DB 7/9/12]

He Did It Too!

One of the weaker arguments made by the Romney campaign is that the Obama Administration has been derelict in its duty to protect American jobs.   The first charge was “he did it too.” From the former Massachusetts Governor campaigning in Colorado:

“It is interesting that when it comes to outsourcing that this president has been outsourcing a good deal of American jobs himself by putting money into energy companies — solar and wind energy companies that end up making their products outside the United States,” Romney said. “If there’s an outsourcer-in-chief, it’s the president of the United States, not the guy who’s running to replace him.”  [CNN]

First, there’s an interesting split here.  The former Massachusetts Governor is speaking only of the products used to transform solar and wind energy into electric power — not the power itself.   It would be nice if the Chinese didn’t manipulate their currency, and it would be well if there were more American manufacturers of solar and wind energy components.  It would be nicer still if the U.S. were not so dependent on fossil fuels to produce electrical power.

Secondly, the slap at solar and wind technologies implies that Governor Romney is firmly in the Fossil Fuel camp, and the attempt to equate renewable energy with off shoring jobs is a rhetorical trick, not necessarily the explication of any policy not already associated with the Bush Administration.

The second charge was a bit more nuanced, but not much:

“In addition to Priebus’ event, Romney’s campaign is also pointing to a new story in The Washington Post that details criticism of Obama for allowing domestic jobs to shift overseas. “American jobs have been shifting to low-wage countries for years, and the trend has continued during Obama’s presidency,” states the article, published online Monday night.”  [CNN]

Now, why would “jobs shift to low wage countries” for years?  Any reference to tariffs is asking for an immediate torrent of “Protectionism!”  And, an obvious question to ask at this juncture is whether trade agreements promote economic growth or “high productivity poverty?”

Any globalized corporation seeking to reduce its labor costs is going to locate plants in regions with a competent labor supply and a local infrastructure capable of supplying energy needs and providing adequate transportation and distribution for products.  “If only labor costs could be reduced, and union contract  requirements be eliminated — then we would have prosperity,” cry the manufacturers.  The numbers don’t seem to validate this contention.

If unionization and hourly compensation costs are the down fall  of economic growth, then why is Germany seven places above the United States?  However, as long as Chinese workers are comfortable with monthly compensation of $636, or workers in India will accept wages averaging $295/mo. or Pakistan’s labor force averages $255/mo. [BBC] then manufacturers who seek low hourly compensation costs will “shift jobs to …..” and there won’t be much any chief executive can do about it.

Asking Better Questions

A better question is how to replace manufacturing jobs for clothing or textiles — already long gone — with new manufacturing in new technologies.  We can ante-up to create new firms, or in the worst scenario, throw up both hands and allow the Germans and the Chinese to take the field.

We can get entangled in small arguments about whether Ralph Lauren, Inc. should have clad our Olympic team in Chinese manufactured clothing, or we can ask whether we want “Buy American” provisions in government procurement processes.   Conservatives, such as Governor Romney,  have generally been opposed to Buy American legislation.  [OF]

We can spew and sputter about backing start up loans to individual niche market solar panel manufacturers — or, we can ask how we might best coordinate the efforts of our manufacturing and higher education resources toward creating energy technology for the 22nd century.

We can bash unions, create more “right not to work” states, and restrict workers’ capacity to bargain for wages, hours, and working conditions; or we can focus more attention on retraining employees for modern jobs.  We can grouse about environmental regulations to abate air and water pollution, or we can put additional effort into devising and manufacturing the best quality filtration systems on the planet.

In short, we can cut taxes and regulations until every cow in the Intermountain West comes home — but until we broaden our focus from a narrow view of what is good for the financial markets to a wider perspective including what it will require to advance our manufacturing capabilities, we’re still going to be stumbling in the sagebrush trying to transform “high productivity poverty” floss into “high employment opportunity” gold.

Romney’s Blarney

Colbert Show guest Dr. Paul Krugman observed that if the United States adopts the “austerity” model response to our economy, we could end up looking like the Republic of Ireland.  So, what’s the situation on the Emerald Isle?

Austerity. The Republic of Ireland slashed its budget by €4 billion, and public employees accepted 5% pay cuts.  Its VAT (a form of sales tax) has been increased to 23%.  31 Garda Stations (police) have been closed as of December 2011, 10 others were open on  a part time basis. [BelTel] A second wave of closure has been announced for next year. [BelTel] Child benefits have been reduced: “The first of these is a reduction in child benefit, which will save 45 million euro. Payment for third child cut to 148 euro per month, with fourth and subsequent children down to 160 euro per month.” [BelTel] The fuel assistance program has been cut; public service overtime payrolls cut by 10%; and, there’s more:

“Changes to the one-parent family payment will save 20.7 million euro, and the age limit of the youngest child for receipt of payment reduces to seven by 2014.

Weekly carer’s allowance and carer’s benefit rates will not change. Meanwhile, third-level student registration fees will rise by 250 euro, securing savings of 18.5 million euro.

Changes to fee and maintenance support for new postgraduate students, and reducing maintenance grants generally, will deliver savings of 12.6 million euro.

The employer redundancy rebate will also be cut from 60% to 15%, saving 81 million euro. The monthly threshold for the Drug Payment Scheme will jump from 120 euro to 132 euro, saving 12 million euro. And a total of 50 million euro will be saved by securing efficiencies of 2% in disability, mental health and children’s services.”  [BelTel]

Now, there’s some austerity!  So, what has all this gotten them?

High unemployment.  The Irish Times reports:

“Unemployment will remain high next year but the economy is expected to grow, albeit weakly, according to a new forecast from the Economic and Social Research Institute (ESRI). [...]

The institute estimates that job losses will continue to mount in 2012 with the unemployment rate hitting 14.9 per cent before easing slightly next year to 14.7 per cent.” (June 18, 2012)

Youth unemployment stood at 29.1% in 2011. [PAI] and the long term unemployment rate increased YOY from 7.8% to 8.9&.  [CSO pdf] Repeating an all too familiar motif — emigration is expected to “relieve” some of the unemployment pressure.

Stagnant Growth. Again, from the Irish Times:

“The ESRI forecasts that gross domestic produce (GDP) will grow by 0.6 per cent this year but remain unchanged when measured by gross national product (GNP) – a narrower measure of economic activity which excludes multinational firms.

GDP is expected to rise by 2.2 per cent in 2013 with GNP increasing by 0.5 per cent.

The ESRI says with domestic demand still expected to act as a drag on the economy this year, exports will again likely be the principal factor determining growth in the Irish economy.” (emphasis added)

Notice the part wherein the “domestic demand” will be a drag.  When unemployment is high, long term unemployment is high, public sector employment is cut by 5.4% [COS pdf] and all the “austerity” measures like increasing the VAT kick in — what would a rational person think would happen to aggregate domestic demand levels?  The ESRI report didn’t mince words about the future, “It adds that household consumption is likely to weaken further this year and next year as disposable incomes continue to decline.”

Weak housing market.  Does this sound familiar?

“The institute says that with house prices weak and demand levels remaining low, it is unlikely that there will be growth in the volume of house building in the near future.

“It is difficult to be more precise as to when the bottom of the cycle will be reached but an important factor in any stabilisation will be price expectations. Continued uncertainty about prices, combined with a desire to see a sustained stabilisation before people enter the market means that housing demand is likely to remain weak in 2013.”  [Irish Times]

Incredibly enough, the report cited by the IT recommends NO domestic stimulus, without explaining why this wouldn’t work other than to say that money spent on imports won’t do the domestic economy any good, and the nation needs to be “competitive” and increase its exports.   Unmentioned in the previous report is any indication that the Republic could do with some improvement in infrastructure — as in the case of its outmoded communications networks.  [SiliRp]  The U.S. isn’t the only nation on the planet with a very skeptical engineering community.

Infrastructure needs.  Engineers Ireland, a nonpartisan association of engineers, issues their own domestic report card.  The engineers cite rail lines and seaports as being in need of improvement, upgrades, and maintenance.  Rural roadways are in need of improvement, as are airports outside the Dublin area. [EI pdf]

Romney’s Blarney

Governor Romney has been vague to the point of opacity on specific suggestions concerning the economy, but we do have some partial views of his program, and one thing he hasn’t ruled out is the VAT.

“He says he doesn’t “like the idea” of layering a VAT onto the current income tax system. But he adds that, philosophically speaking, a VAT might work as a replacement for some part of the tax code, “particularly at the corporate level,” as Paul Ryan proposed several years ago. What he doesn’t do is rule a VAT out.”  [Forbes]

Even the arch-conservative Cato Institute doesn’t care for the VAT idea.

Cutting public employees.  Governor Romney tried to slide out from the “we don’t need more teachers, etc.” flap by saying that these individuals are employed locally, and therefore the federal government doesn’t have anything to do with their employment.  [MSNBC] [WaPo] Actually, the federal government has been supporting educational, first responder, and police programs at least since the 1980s, and much before if we count the National Defense Education Act.

Hands Off Housing.  This one hits close to home: “Romney turned off some Nevada residents when a housing-related comment he made to the Las Vegas Review-Journal editorial board went public.  “As to what to do for the housing industry specifically and are there things that you can do to encourage housing: One is, don’t try to stop the foreclosure process. Let it run its course and hit the bottom,” said Romney. ” [MoneyMorn] [Zillow] Ouch.  The GOP candidate has been very critical of the housing market situation under the Obama Administration, but has yet to offer specific solutions — other than to let the market sort it out — which would assist underwater homeowners.

Hands off employment.  Mr. Romney recently “promised” a 6% unemployment rate but that’s not all that hard to come by.   We simply continue the current growth under the Obama Administration and the non-partisan CBO projects that’s just about where we’ll be:

“Though 6 percent unemployment is significantly lower than the current 8.1 percent rate, the feat isn’t all that remarkable. In fact, it is exactly where multiple government agencies project unemployment will be at the end of that time frame. The Congressional Budget Office predicts that unemployment will average 6.3 percent in 2016; the Office of Management and Budget, meanwhile, projects unemployment will hit 6.1 percent and ultimately fall below 6 percent the same year.”  [TP]

With Liberty and Austerity for all.   Governor Romney does have a tax plan: “Mitt Romney has proposed permanently extending the 2001-03 tax cuts, further cutting individual income tax rates, broadening the tax base by reducing tax preferences, eliminating taxation of investment income of most individual taxpayers, reducing the corporate income tax, eliminating the estate tax, and repealing the alternative minimum tax (AMT) and the taxes enacted in 2010’s health reform legislation.” [TPC pdf] The program results would be about as follows:

Professor Krugman may indeed have a point — if we’re interested in regressive taxation, a hands off approach to the housing market, no increased spending for infrastructure, and a “market” solution to employment — then we could easily end up looking very much like the Republic of Ireland with high unemployment, domestic demand dragging the economy down, and a mired housing market.  Perhaps the places to which we might emigrate would be so kind as to not allow NANA signs in shop windows?

Just a few late night questions

#1.  The Republicans on Capitol Hill appear determined to oppose reduction of the student loan interest rates without some “pay for.”  First, why was there no “pay for” when they passed tax reductions for the richest among us? Secondly, Bankrate.com is reporting that 30 year fixed mortgages cost 3.82%, a new car loan for 48 months has an interest rate of about 3.28%, and a home equity loan for $30,000 carries 5.78%, so why must student loans be more expensive than just about any other major form of credit?

#2.  Why did House Speaker refer to the Affordable Care Act provisions for cancer screenings for women as a “Slush Fund?”   Republicans would like to cut the $17 billion set aside for breast and cervical cancer screenings, child immunizations, and wellness education.

#3. Which is ultimately more important to the health and well being of our entire nation: (a) tax breaks on multimillion dollar estates, or (b) feeding school lunches to 280,000 children for the next ten years?

#4. What is more important to national commerce, protecting the Bush Tax Cuts for millionaires and billionaires, or doing something about the 69,220 highway bridges in this country that are structurally deficient?  [DoT, RITA table I-28]  Isn’t there something of a disconnect when we consider that bridges are generally built to last 50 years, but at the rate we are repairing and replacing them it may take 100  years to fix the problems we already have?

Just asking…