Category Archives: Federal budget

Infrastructure Funding and Financing: Another Trumpian Disaster in the Making

Let’s start with the ASCE’s report card on Nevada’s infrastructure.  The last report card on our kitchen table gives us an overall average C-.  Nevada’s two lowest grades (both D’s) are in categories for schools and dams. The claims from the current White House administration would imply that Nevada will see marvelous levels of investment in Job Creating Infrastructure Projects.  Not. So. Fast.

There are some questions related to projected infrastructure legislation which Nevada elected officials may want to consider very carefully.

#1. Does the infrastructure legislation address Nevada’s greatest needs?  The answer at present is “maybe not.” The commentary coming from the White House, and from members of Congress imply that most of the infrastructure plans are part of the Transportation budget.  [Hill] Again, roads and bridges are important, so are airports, but the greatest needs in this state are for projects and funding for upgrading schools and dams.

This past February a dam failed in Elko county, flooding farmland, homes, and stopping traffic on the Union Pacific RR. Obviously dams must eventually get their due. First, we should notice that the state of Nevada doesn’t keep a ranking of hazardous dams, most of which fall into the “earthen” category.  Secondly, it should be noted that a high hazard dam refers to the damage possible should the dam fail, not to the actual condition of the dams themselves.  Third, many dams in this state are privately owned.  About one third of our 650+ dams are constructed for flood control, another third for mining operations, and the remaining third fall into the amorphous category “anything else.” The state has been relying on 11 engineers to keep track of the 650+ dams, and Governor Sandoval’s budget proposal calls for three additional engineers in the Water Division for the next fiscal term. [LVRJ]

School facility upgrades and construction generally lie outside the common understanding of ‘infrastructure’ expenditures, being the province of local school districts, and based on the shifting sands of bond issues. Nothing signaled by the administration thus far would suggest expansion of federal interest in this category of infrastructure investment.

#2.  Will the legislation address Nevada’s needs for the construction and maintenance of roads and highways?  Maybe not.   The situation at present:

“The Nevada Department of Transportation maintains 5,300 miles of state highways, which includes many rural roadways within Nevada. Without an increase in the gas tax since 1992, the state funding levels have stagnated and Federal funding has remained at a similar level the past 5 years. Hence, the maintenance of the existing highway system has fallen behind and the state will need approximately $285 million annually for the next decade to catch up on the current backlog of highway maintenance. The current funding levels provide only 60% to 70% of the required funding to maintain the state highways. This has resulted in an increase in the number of lane miles requiring either an overlay or full rehabilitation from 28% two years ago to 38% currently.” [ASCE]

New construction is great, no one should argue against it where it’s needed to improve the flow and traffic and attendant commerce, however, when nearly 40% of the current roadways need overlays or full rehabilitation, the problem is focused on maintaining what we have at present not necessarily on new construction projects.

#3. Does the administration’s plan differentiate between financing and funding?  This is important.  A definition is in order:

“Infrastructure funding and financing are different concerns. Funding specifies how resources will be collected to pay for infrastructure construction, operations and maintenance, and repairs. Financing generally concerns how to raise the large upfront costs needed to build the infrastructure.” [EPI]

So, the administration has spoken of “a trillion dollars in infrastructure investment,” what does this mean?  For the administration is apparently means “leveraging private dollars.” Again, some translation is necessary.  What the administration is talking about is the financing of construction projects. And, we’re back to the difference between funding and financing — if states are facing the same questions posed back in 2015, when Republicans proposed that HTF projects be limited to the revenue accumulated from gasoline and diesel taxation, then many projects, especially of the improvement and maintenance variety will be put on hold. [BondBuyer] Infrastructure funding will be a function of how the administration budget addresses the issue of raising the money necessary to construct, operate, and maintain.  However, if the administration is speaking of “leveraging private funds,” then we should assume that the White House is referring to new construction.  And, now we enter the land of the P3.

A P3 is: “Public-private partnerships (P3s) are contractual agreements formed between a public agency and a private sector entity that allow for greater private sector participation in the delivery and financing of transportation projects.” [DOT]

Let’s put this question of infrastructure investment in purely financial terms:  Who benefits from P3 structuring?  Hint: It isn’t necessarily the state and local governments because bond yields for such things as school construction, road construction, and other large projects have been dropping since their “highs” around 1982 (13+%) to the current rates (3.5+%). [MuniBond]

Bluntly stated, it’s not the financing that’s a problem for state and local governments, they’re paying almost historic low yields (interest) on the bonds they’ve issued for major projects.  The administration is approaching the infrastructure investment issue from the wrong end of the stick — focusing on the financing and not the funding.

#4. Is the use of the P3 structure based on the needs and capacities of the states and municipalities or the desires of private investment?  Some attention is required because:

“In theory, they can(P3)  be effective—but they provide no free lunches. Funding must still be found for the projects—and ordinary households will end up paying the costs through taxes or user fees. In addition, the details of contract construction and oversight are daunting and require a competent, democratically accountable government to manage them. In short, P3s do not allow for simple outsourcing because they do not bypass the need to fund infrastructure or the need for competent public management.” [EPI]

Or, P3s don’t replace the more traditional methods of financing — local and state taxation is still required for paying project costs. There’s nothing ‘simple’ about these arrangements, and they require extensive oversight and management.  Before leaping into a P3 it should be revealed that these generally allow governments and investors to ignore the requirement of Davis-Bacon Act ‘prevailing wages.’ This may ‘create jobs’ but it doesn’t create ‘good paying jobs’ in the construction sector.

#5. Does the administration plan specify financing and funding of infrastructure projects or is it simply a “tax credit” giveaway to investors?  It certainly sounds like it at this point, but the administration, as is becoming more obvious every day, seems to be short on specifics, and the only solid at the moment is the “tax credit” portion of the pronouncements.  If this is a tax credit for projects already in the planning stage, then it’s hard to characterize this as a bright and shiny new proposal.

#6. Location, Location, Location?  Granted that Nevada is an urban state, with most of the population located in two counties, but the roads, bridges, and dams are aligned through predominantly rural areas. Investors, in P3 or other financing schemes, can clearly see the benefits of construction in urban areas (toll roads, toll bridges, etc.) Rural areas, not so much. Nor does the financing strategy address other infrastructure issues in urban areas — how, for example, does Clark County improve its public transportation facilities and components? Washoe County? Or, Douglas, Lyon counties, and Carson City?  How will investment be directed to poorer areas, or areas under served by current transportation systems? Stated more generally:

“The other problem is that Trump’s approach makes it less likely he’ll actually create new jobs. If the customer base can afford it, and they really need the infrastructure, then the project is almost certainly already profitable and private firms are already willing to do it. The tax credit just sweetens the deal on the margins. Where there’s demand, the private market can already create jobs. The less you’re willing to redistribute, the fewer new jobs you can create.” [TheWeek]

This is another point at which the magic hand of the Market fails on one side and succeeds on the other — where there is demand (and the capacity to meet that demand, the tax credits are minimally useful (except to investors) — where there is great need but little capacity to meet the demand, then the tax credits aren’t an inducement to job creation.

We need to take some care to observe whether the “infrastructure” plan is (1) truly about infrastructure needs in Nevada? (2) truly a job creating plan and not merely a way to get tax credit benefits to the investor class, or ignore the Davis Bacon Act requirements for American workers, (3) about getting the infrastructure investments where it is actually needed.

Caveat Emptor.

 

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Filed under Economy, Federal budget, Infrastructure, Nevada highways, Nevada politics, Politics, public transportation

Our Own Reality Show: Late Night Version

Nightmare Trees Dems

We have a presidential candidate who gets up at odd hours of the night to tweet insults to former beauty pageant winners, and who expended a great deal of time and energy bemoaning the categorization of his White Supremacist followers as “deplorable.”  If these are one’s priorities so be it, but there’s a difference between nightmares and issues – a differentiation not tackled all that efficiently by his supporters and surrogates. 

Republicans appear to be beset with nightmares, not the least of which is we, as a nation, might seem weak in the eyes of others.  Strength is Action. Action is Strength. We must, like a Hollywood B-Movie production complete with car chases and explosions, appear strong.  As we do when bombing some location into gravel and small piles of rubble. This is the nightmare of the small man in the bar just before closing time, well liquored up, who decides to demonstrate his masculinity by punching some fellow who has offer some vague (and probably misinterpreted) insult.   Should these people wake up and read the information available they’d find that the United States spent some 54% of its discretionary spending on the military.

Military Spending Discretionary And, how does this compare to military spending by other nations?  The U.S. spends approximately $2.77 for every dollar spent by the Chinese.

Military Spending Comparisons So, this ought to give some comfort to those whose sleep is disturbed by dreams of military annihilation at the hands of the nefarious.  We have the best equipped, best lead, most professional military in the world.  There are issues here – not nightmares.

One issue is the tendency toward militarism, the notion that all problems have a military solution and thus the military must be accorded a prime place in national planning and policy.  This topic was explored here about eight years ago:

“Evidently lost on the militarists is the notion that one can be supportive of the military without adopting militarism. In fact, a “muscular” militarism that posits the application of military force to each and every conflict is counter-productive to long term military interests. The ‘whack-a-mole’ Bush Administration/McCain policies have the U.S. Armed Forces stretched to the limit, with used and abused equipment, and over-deployed troops, who are facing serious obstacles to receiving comprehensive care and benefits after their service. A cogent, less militaristic, policy would recommend the continual evaluation of our deployment ramifications, sentient assessments of our capacities, and a rational review of our own recruiting and remuneration standards. A less militaristic policy would allow us to employ the diplomatic tools in our arsenal to spare the unnecessary exploitation of our military. When we ‘wise up’ we’ll realize which Party’s candidates can deliver these policies.”  [DB]

In short, if we’ll stop all the posturing and flag waving pseudo-patriotism and start thinking about how and when the use of military force is applicable without draining our resources and putting our diplomatic efforts in jeopardy, then we can all sleep a bit better.

The second nightmare which seems to be grabbing hold of the sweat soaked sheets of our Republican friends is that someone, somewhere, is cheating us out of what is rightfully ours.  Taxation! Tax money being spent on Welfare Queens and Food Stamp cheats!  Oh, the misery.   Waking up and using The Google will solve one part of the nightmare – we really aren’t “taxed to death.”

“The tax burden is lower in the U.S. than in many other developed nations. Of 34 OECD countries, the U.S. tax rate for the average single American with no children ranks No. 17. The tax burden on a single person with two kids ranks 27th. Comparing tax rates across countries is difficult, however, without taking into account how much people benefit from their tax payments in college tuition, retirement income, or more intangible rewards, such as security and the social safety net.” [BlmbNews]

The reality is that there is no monster under the bed.  We aren’t even in the top ten OECD countries in terms of taxation.  But, but, but, how about welfare cheats?   If we look at the SNAP program from the USDA we find that: “The SNAP national payment error rate for fiscal year 2014 is 3.66 percent.  This indicates a 96.34 percent accuracy rate of providing benefits to low income people.  In fiscal year 2014, over 99 percent of participating households  were eligible for SNAP as determined by income and other program criteria.” [USDA]  I can’t speak for anyone else, but if I could get my total financial records into the 96.34% accuracy category I’d be one happy camper in sweet dream land. 

However, nightmares aren’t made of rational ruminations about fiscal accuracy and accounting practices.  They come from anecdotal renditions and repetitions of ‘stories’ about seeing some guy drive up in a new pickup and toting out a case of Budweiser.

“The Act precludes the following items from being purchased with SNAP benefits:  alcoholic beverages, tobacco products, hot food and any food sold for on-premises consumption. Nonfood items such as pet foods, soaps, paper products, medicines and vitamins, household supplies, grooming items, and cosmetics, also are ineligible for purchase with SNAP benefits.” [USDA

Under the terms of the 2002 legislation, no “illegal immigrants” are eligible for SNAP assistance. [USDA]  Further, ‘non-qualified aliens’ are not eligible for a host of other benefit programs, as specified in bureau or agency rules:

“Federal public benefits include a variety of safety-net services paid for by federal funds. But the welfare law’s definition does not specify which particular programs are covered by the term, leaving that clarification to each federal benefit–granting agency. In 1998, the U.S. Department of Health and Human Services (HHS) published a notice clarifying which of its programs fall under the definition. The list of 31 HHS programs includes Medicaid, the Children’s Health Insurance Program (CHIP), Medicare, TANF, Foster Care, Adoption Assistance, the Child Care and Development Fund, and the Low-Income Home Energy Assistance Program.” [NILC]

Sleep well Republican friends, the undocumented are not eligible for support,  and we are being most parsimonious in regard to our bestowal of benefits. 

Democrats might sleep more comfortably if the following situation were improved:

“Despite growth in SNAP caseloads since the onset of the Great Recession, about 17 percent of those eligible go unserved and SNAP is missing nearly six in ten eligible elderly persons. SNAP policies that improve program access and increase staff capacity to process applications as well as SNAP outreach can help communities, families and businesses maximize federal dollars.” [FRAC]

We should not forget the other monster in the closet. Others.  If slavery was America’s Original Sin, and segregation its phalanx of myrmidons, then racism is the residual.  However, demonization is not necessarily the exclusive domain of people of color – we’ve demonized Irish and Eastern European immigrants, Asian and Chinese immigrants, Jews, Catholics; and lest we forget “commies” during the McCarthy Era. 

Perhaps some right wing individual tosses and turns on the mattress because the phone answering service wants to know if he’d like the message options in Spanish?  This is America, Speak English!  The immigrants will, like most others before them, and the native language will be lost in three generations:

“The authors found that although the generational life expectancy of Spanish is greater among Mexicans in Southern California than other groups, its demise is all but assured by the third generation. Third-generation immigrants are American-born with American-born parents but with three or four foreign-born grandparents.
In the second generation, fluency in Spanish was greater for Mexican immigrants than for other Latin American groups, and substantially greater than the proportions of Asian immigrants who could speak their mother tongue very well. In the third generation, only 17 percent of Mexican immigrants still speak fluent Spanish, and in the fourth generation, just 5 percent. The corresponding fourth-generation figure for white European immigrants is 1 percent.
What is endangered, said the authors, is not the dominance of English but the survival of the non-English languages immigrants bring with them to the United States.” [Princeton Edu/Massey 2006]

If we’re looking for some reason to lose sleep it might be because by the 4th generation we’ve lost 95% to 99% of the language facility we might have had in this increasingly shrinking world.

But, wouldn’t we all sleep more peacefully if we’d just SAY we need to fight “radical Islam?”

First, there’s a little problem defining “radical.”  Do we mean what might be considered conservative Islam, men with beards, women in burkas?  This leaves us with a problem – what to do with the Muslim family who wants the daughter to go to medical school because there’s a need for women doctors to treat women patients?  What to do with the millions of practitioners  of Islam who are not conservative? And the millions more who have a special word for the ISIS thugs who flout their disregard for the basic tenets of Islam – daesh. (That stuff you scrape off the bottom of your shoes.)

Sleep well, the odds against an American being killed in a terrorist attack are 1: 25,000,000. [TechJuc] Another comforting (?) thought is that an American is far more likely to be shot by a toddler than a terrorist. [Snopes]

But that is another nightmare we don’t like to talk about.  I’d sleep better if we could do something about keeping firearms out of the hands of toddlers…

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Filed under anti-immigration, anti-terrorism, conservatism, Federal budget, Gun Issues, Immigration, Islam, Nativism, Politics, racism, Republicans, Taxation, terrorism, White Supremacists

Rep. Cresent Hardy Keeps Digging

Stop Digging

Nevada’s own Congressional Representative from Bundyland can’t seem to get his mind around why he’s drawing so much fire from Democrats for his insensitive and inane comment about disabled people.

“Hardy, asked about the speech after a House vote Thursday in Washington, said he did not remember making the comment and suggested it was altered or taken out of context.

“I would like to have it analyzed,” he said. “People try to manipulate things. I’ve seen that happen early on.” Hardy was referring to the flap during the 2014 campaign when video surfaced in which he agreed with Mitt Romney’s infamous comment about 47 percent of people living off the government.” [LVRJ]

This is one better than only using the old cliché, “I was taken out of context.”  Without engaging his brain before putting his mouth in gear, Hardy posits not one but three possibilities.  (1) I didn’t say it. (Wrong: It’s been recorded – anyone can record anything these days without a Reel-to-Reel set up.) (2) It was altered. (Nice try but probably not – it was too ‘good’ all by itself.  Or, (3) It’s being “manipulated.”  There’s no need for manipulation, of any kind, Representative Hardy just cranks up his mouth, inanity ensues.   However, as the LVRJ article reports, Hardy isn’t finished:

“My nature is to defend those who can’t take care of themselves, that’s what I believe,” he said. “I’ve always been a strong supporter of people to be able to get help when needed.”

“People get paid to distort the truth and try to manipulate things,” Hardy said. “That kind of conversation never went on. I think the Democrats ought to be embarrassed.”

If anything, he said, people with disability should be angry at being used by Democrats “to sell their game.”

“People get paid to distort things,” he said. “I’m the No. 1 target, folks.” [LVRJ]

Merciful Heavens, Representative Hardy (R-NV4) has donned the cloak of victimhood, swathing himself in self pity, and begs us to ask his forgiveness for being so mean to him as to call out his hypocritical and mean-spirited remark.

Let’s move back to that first comment above (“My nature is to defend…”) and see if his actions and associations match his assertion.   First, Representative Hardy is a Republican, and his Republican majority in the House had the following ideas about how to develop a budget; they would:

“… propose major spending cuts to programs such as Medicare, health care subsidies, food stamps and the Medicaid program for the poor and elderly to produce a budget that’s balanced. Such cuts, if actually implemented later, would likely slash spending by $5 trillion or so over the coming decade from budgets that are presently on track to spend almost $50 trillion over that timeframe.” [CBS]

So, Representative Hardy favors cuts to Medicare, a program for those over 65 years of age, who prior to the program were denied private health care insurance or could only purchase it at exorbitant prices, and therefore “couldn’t take care of themselves.”  Food Stamps?

The SNAP budget took a 5% whack in 2013, and another round of cuts in the 2014 Farm Bill. The winners in HR 2642 were the farmers, especially corporate farming, and the losers were those who depend on assistance to put food on their tables at meal time. [NYT]  It appears that those cuts were insufficient for Republicans, so they proposed another round of cuts in 2015. [Slate]  Depending upon which GOP proposal is studied, the cuts range from 8% to about 15% in the SNAP program.  If a person is supportive of others being able to get help when needed, then why would that self-same individual advocate for proposals which do precisely the opposite?

Medicaid? CHIP? Nevada, which did expand Medicaid coverage after the passage of the Affordable Care Act, isn’t exactly overly generous with the income eligibility requirements.  A family of four trying to pay for housing, food, clothing, transportation, and utilities out of $2,643 per month is going to be hard pressed, and pressed even more harshly if there are medical bills to pay.  Non-surgical treatment for a broken leg runs about $2,500. [CH]  Thus, Junior’s one accident on the soccer field would almost wipe out the family income for the month.  So, why, if Representative Hardy is so concerned for those who evidently need his defense, does he side with those who would cut funding for programs which assist the defenseless?

Let’s go back to Representative Hardy’s last barrage, the part wherein he’s the “victim of cruel Democrats who are using the disabled as human shields to advance their agenda” —

Jon Stewart discussed this “conservative victimization” phenomena back in July 2011 – in a bit which deserves  a click and watch.  Now that we’ve had our moment of sheer delight…

Note to Representative Hardy:  The liberal agenda is supposed to advance the cause of disabled people – people who, with a little help, can be just as productive as their counterparts in the office.  The liberal agenda is intended to champion assistance for families on the financial brink who need help to meet medical expenses for themselves and their children.  The liberal agenda is to try every way possible to allow a family to feed its children, house its veterans, and care for its elderly.  The liberal agenda supports Public Schools, Public Libraries, Public Parks, Public Health, Public Roads and Bridges, and Public broadband access.    A liberal believes that the rising tide is supposed to do more than just float yachts.

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Filed under conservatism, Federal budget, Health Care, Nevada politics

Income Inequality and The Great American Disconnect

There’s an interesting piece describing the results of a Northwestern University study on the political/economic perspectives of the top 1% of income earners in the United States:

“First and foremost, rich people care about the deficit. More than 85 percent of the survey participants said they considered the nation’s budget deficit to be a “very important” problem facing the country, the researchers found. In addition, nearly one-third of those surveyed said the budget deficit and too much government spending is the nation’s biggest issue.”  [HuffPo]

So, 85% of the ultra-rich in this country are focused on the national budget deficit — what of the other 99% of the American people?   The article reports that as of a CBS poll taken in 2011 only 7% of the nation as a whole are similarly concerned.   If we bring this a bit closer to today’s date we might be seeing the impact of continual  publicity given to the deficit issue as Congress lurches from manufactured crisis to manufactured crisis.  The Pew Center and Roper Center surveyed Americans in March 2013 with the following results:

Economic Poll

A CBS News poll in February 2013 showed about 11% of Americans focused on the deficit as the top national priority, the Quinnipiac Polling in January showed 20% giving the top priority to deficit reduction.  CNN showed 23% in January,  and Bloomberg polling reported 19% in December. [TPR]  The point may well be that in the last three months the number of people in the United States who view the budget deficit as the top national priority has never topped 23%.   There’s at least a ten percent gap — about 33% of the top 1% cite budget deficits.

We might be perilously close to a political situation in which the Congress of the United States of America is obsessing on a topic of major concern to only a few of its richest citizens.

What are most of the other people saying?  In the Pew/Roper polling 32% of respondents said JOBS and employment issues were their highest priority;  in the CBS polling 40% chose that topic; in the Quinnipiac polling 40% responded “the economy.”  The CNN poll showed 46% choosing “the economy,” and in the Bloomberg Poll 34% said “jobs and unemployment.” [TPR]  A person does have to statistically massage these numbers to reach the conclusion that the ultra-rich are focused on budget deficits while the remaining 99% are thinking about jobs and unemployment.

Needless to say, the top 1% saw “entitlement spending” as a problem and supported cuts to Social Security, Medicare, and Medicaid as a “solution.”

“On policy, it wasn’t just their ranking of budget deficits as the biggest concern that put wealthy respondents out of step with other Americans. They were also much less likely to favor raising taxes on high-income people, instead advocating that entitlement programs like Social Security and healthcare be cut to balance the budget. Large majorities of ordinary Americans oppose any substantial cuts to those programs.” [LAtimes]

While the effects of drum beating by conservatives that the Social Security Administration is “in trouble” is evident in some polling, there’s one interesting question raised in the August 2012 AP/Roper survey:

“If you had to choose, which would you prefer: raising Social Security taxes so that the benefits can be kept the same for everyone, OR, keeping Social Security taxes at the same rate they are at now, but reducing the benefits for future generations?”

The results:  Raise taxes, same benefits = 53%; Same tax, reduce benefits = 36%; unsure 9%, refused question 3%.   In other words, when push meets shove, most Americans are willing to accept higher Social Security taxation than risk reducing the benefits for ALL retirees.   This is hardly an indication that most Americans would be willing to cut Social Security in order to balance a federal budget.   There are other divides to bridge between the rich and the rest as well:

“While the wealthy favored more government spending on infrastructure, scientific research and aid to education, they leaned toward cutting nearly everything else. Even with education, they opposed things that most Americans favor, including spending to ensure that all children have access to good-quality public schools, expanding government programs to ensure that everyone who wants to go to college can do so, and investing more in worker retraining and education.”  [LAtimes]

In 2012  Pew Research polling, 53% of self identified upper class respondents and upper middle class ($100,000 annual earnings) had college degrees.   Thus, the rejection of educational opportunity programs for others smacks a bit of “I’ve got mine, now you’re on your own.”    This may be a function of the differentiation between the problems faced by the rich and those faced by the remainder of the population.  [Pew 8/2012]

 Upper Class Problems

Given the information in the Pew graph it’s hard NOT to see that most of  the upper echelon of our American economic elite have not had to face the same challenges as those in middle and lower income brackets.   What is disturbing about these graphics and analysis is the looming prospect that the interests of the economic elite take media and political precedence over the interests and needs of those who are not included in those upper brackets.   Trickle down politics (If it’s good for the rich it’s good for everyone) is no more genuine than trickle down economics (If it’s good for corporations it’s good for everybody.)

For more information see: “Rich Americans obsessed with budget…” Huffington Post;  “Inside the heads of the 1%…” Los Angeles Times; “Yes, the rich are different…” Pew Research Center; “Field of Degree and Earnings…” pdf Census Bureau.

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Filed under Federal budget, income inequality, Politics, Social Security

Ryan’s Time Wasting Titivation

salchowThe latest version of the House GOP budget proposal in Congress looks very much like previous renditions — lower the tax rates for the top 0.1% of American income earners, and replace the current Medicare program with a coupon/voucher plan. [TPM]   “Re-litigation” comes to mind.   The curious part comes as Representative Ryan, who vilified the $716 billion in savings in the Affordable Care Act (Obamacare) during the last presidential election, now incorporates those same savings into his budget proposal — while calling for the repeal of the ACA which contains those savings…  This rhetorical contortion looks less like a 360° turn and more like a quadruple salchow.  [more at Business Insider]

Former House Speaker Rep. Nancy Pelosi, called the scheme “fuzzy math and budget gimmicks.” [TPM] The point of this budget exercise, is not really to address the long term stabilization of U.S. indebtedness — it IS an exercise in sophomoric political economy; simplistic in form and regressive in nature. Ezra Klein nails it:

“Ryan’s budget is intended to do nothing less than fundamentally transform the relationship between Americans and their government. That, and not deficit reduction, is its real point, as it has been Ryan’s real point throughout his career.”

Or, more specifically:

“Here is Paul Ryan’s path to a balanced budget in three sentences: He cuts deep into spending on health care for the poor and some combination of education, infrastructure, research, public-safety, and low-income programs. The Affordable Care Act’s Medicare cuts remain, but the military is spared, as is Social Security. There’s a vague individual tax reform plan that leaves only two tax brackets — 10 percent and 25 percent — and will require either huge, deficit-busting tax cuts or increasing taxes on poor and middle-class households, as well as a vague corporate tax reform plan that lowers the rate from 35 percent to 25 percent.”  (emphasis added)

Now, why would those be “vague?”  First, it is much easier to dodge criticism of a proposal when the details aren’t available.  Offering a “vague” proposition allows for the “I didn’t really mean that” rationalization when push comes to the inevitable shove.  Secondly, when the arithmetic is fuzzy the extrapolations, of necessity, must also grow furry. What should give the audience room for some trepidation is that this offering from Representative Ryan isn’t the first time he’s run this flag up the pole.  Why could not more rational, detailed, and precise numbers be provided as the budget plan moves through its various incarnations?

The answer may very well be that he can’t be more precise without (a) offending major segments of the electorate, and/or (b) demonstrating that the numbers simply don’t add up to what he is claiming for his project.

In Representative Ryan’s blinkered vision of America, government is more to be feared than the level of indebtedness [Ezra Klein] but this ideological perspective obfuscates the very real role our government plays in this mixed economy.   Programs which provide automatic stabilizers in the economy to mitigate the impact of business cycle volatility, and those which provide citizens with opportunities to increase their standards of living have an impact across the economic spectrum.

CBPP concludes:

“As policymakers embark on the necessary work of further reducing long-term budget deficits, their approach could have important consequences for tens of millions of low- and moderate-income Americans.  If policymakers take an even-handed approach, one that combines spending cuts with an adequate mix of new revenues, they can reduce deficits without increasing poverty and the ranks of the uninsured or weakening efforts to ensure that children have more opportunity to succeed in the classroom and later in the labor market.  If, however, policymakers cut deeply into programs that assist low-income individuals and families, we will likely see more poverty and hardship as well as fewer paths to opportunity.”

The essential problem with perceiving government as a threat to “freedom” is that those programs which keep people from becoming dependent on government assistance in the long run, are those which the Meat Cleaver Republicans would assert in the first wave of cuts in the short term.

For example,  there are significant omissions in Ryan’s latest offering:

“It won’t create jobs this year, and will likely cost jobs in the years to come by putting the economy on a steep austerity ramp. There’s no housing policy for the millions of families in foreclosure and no way to read Ryan’s budget without assuming massive cuts to student-loans programs. That may mean fewer families watching student loans pile up, but only because they didn’t get any in the first place.” [Klein WaPo]

Jobs?  Jobs generate income, income generates both consumer spending and tax revenue.  The impetus may come from federal spending, but the results would be seen initially in local economies.  Paychecks get spent on housing, clothing, groceries, and transportation.  A family with an income sufficient to support the purchase of an automobile generates not only good numbers for the automobile manufacturers, but pays state sales taxes on the purchase, pays gasoline taxes to keep the beast running, and pays license fees to keep highways operating functionally.

Housing?  The “housing market” is a mid-stream economic activity.  Building a housing unit, whether detached or communal, requires raw materials, manufactured materials, and financing.  In short, housing is in the midst of the economic stream of activity, and as we discovered to our collective horror in 2007 when things start to go badly in this milieu the ripples can become tsunamic.  That there is not even a passing nod given to the issues associated with current housing market fragility and the continuing foreclosure issues in Representative Ryan’s budget ought to be demonstrative of his detachment from real economic forces at work.

Foreclosed properties wreak havoc on the homeowners, bring down housing values in neighborhoods, cause a loss in property tax revenue for local governments, and create law enforcement issues where abandoned properties are all too prevalent.  One might have thought that Representative Ryan would at least given cursory acknowledgement to the issues associated with the housing market in his budget priorities?

Education?  There is a link between income, unemployment, and education.

Educations Pays

If we truly want to move people out of poverty, or up the economic ladder, the graph above from the Bureau of Labor Statistics shows how the rungs of that ladder are constructed.  Note that when the graph was drafted the national unemployment rate was 14.1% for those with less than a high school diploma, but only 6.8% for those with an associates’ degree.  If we look to the more recent numbers the picture doesn’t change much.

The February 2013 unemployment rate for those with a high school diploma stood at 7.9%; for those with an associates’ degree or some college the unemployment rate was 6.7%.  Those holding a college degree experienced an unemployment rate of 3.8%.  [BLS]

Given this information it would seem logical to conclude that if we want to improve the overall health of the American economy it would be seemly to enhance the opportunities for education, especially post-secondary educational programs.  That’s not what Representative Ryan and his Republican colleagues have on offer:

Ryan would stop increasing the size of Pell Grants to adjust for inflation. Instead, they would stay at the current level, $5,645, for 10 years. Ryan would also change the way the government calculates how much a student’s family is expected to pay to make it less generous.”  [Atlantic]  …

Ryan’s proposal doesn’t spend much time on a key reason Pell Grant awards have increased: rising education costs. Average costs for a four-year institution have risen 250% since 1980 and nearly doubled in the last 20 years. Pell Grant allocations have increased rapidly over the last decade — but that increase isn’t tied to the change for education costs.” [Atlantic]

Education is a labor intensive occupation.  The process can be assisted with technology, but since time out of mind the means by which human beings transmit knowledge — vocational, cultural, economic, etc. — is from human being to human being.  As states cut funding to educational institutions the colleges, tech schools, and universities raised tuition and fees to the “customers.”  The greater the increase in fees, the greater the problem for middle class parents who want to see their offspring move up the educational (and economic) ladder.   Young people are asked to take on a staggering amount of indebtedness to earn a degree, which in turn limits their capacity to participate more fully in the economic life of this nation.  Too much student loan debt means more difficulty purchasing a vehicle, or much of anything else.

The bottom line is that Representative Ryan has simply re-cycled his political document, with its ideological baggage and called it a budget.  While it’s an improvement over the Republican budget document which arrived without numbers in 2009, it’s still an homage to Ayn Rand and her Cult of Selfishness…and very little else, except time wasting titivation.

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Filed under Economy, Federal budget, tax revenue, Taxation

If It Ain’t Broke What Are We Fixing? There is a spending problem, just not the GOP version

Labor paintingWe know the YOY reduction in filings for unemployment insurance benefit claims dropped by 13.5% from last year to this, [DETR]and we now know this bit of happier news from DETR (pdf) about the current employment situation in Nevada:

“Annual adjustments to Nevada’s labor market show the state’s unemployment rate for 2012 dropped from a preliminary estimate of 11.6 percent to 11.1 percent and that Nevada gained 18,100 in employment over the year, up from the previous estimate of 9,300.”

We can combine this with the following national report this morning from the Bureau of Labor Statistics:

“Total nonfarm payroll employment increased by 236,000 in February, and the unemployment rate edged down to 7.7 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, construction, and health care.”

More people with more money to spend should spell a less bumpy recovery for Main Street, but wait — the Bureau of Economic Analysis is less enthusiastic about the Q4 2012 reports:

“The decrease in real GDP in the fourth quarter primarily reflected negative contributions from private inventory investment, federal government spending, and exports that were partly offset by positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment.  Imports, which are a subtraction in the calculation of GDP, decreased.”  (emphasis added)

Yes, personal consumption increased, non-residential fixed investments were up, as were residential fixed investments — what wasn’t moving up? Private inventory investments and federal government spending.  Two quick points should be made here.

First, little wonder the U.S. GDP [C+I+G + (X-M)] isn’t moving up as positively as we’d like when one factor in the equation drops — federal spending.  Secondly, there is a spending problem during this recovery period, but it’s NOT the “Spending Is The Problem” of recent Republican banners.  Here’s why:

The hoary Supply Side economics hoax only emphasizes one element of the GDP formula, assuming that all reductions in government (public sector) spending will have a positive effect on the others (consumer and business spending).   Harken back to those days in Algebra I — the days when both sides of an equation had to balance — in order to see why the Supply Side Hoax is little more than an excuse for lowing corporate taxes and minimizing the taxes on the upper 0.1% of American income earners.

Since both sides of the equation must balance,  if we reduce one element, such as government spending on the right side of the equal sign, then we have to decrease the value on the left side of the equation.  Most 8th graders have a reasonably good grip on this concept, which makes it all the more alarming that some presumably mature business advocates do not.

If we understand this premise, then the next statement from the Bureau of Economic Analysis makes perfect sense:

“The downturn in real GDP in the fourth quarter primarily reflected downturns in private inventory investment, in federal government spending, in exports, and in state and local government spending that were partly offset by an upturn in nonresidential fixed investment, a larger decrease in imports, and an acceleration in PCE.”  (emphasis added)

Now we come to another formula, Private Inventory Investment, or “The difference between goods produced (production) and goods sold (sales) in a given year is called inventory investment.”   More simply stated as: PII = Production – Sales.   In other words, in a given period of time if the company has produced more than it has sold then the inventory is “positive.” If the firm has produced less, then it’s negative.  Those who wish to get down in the weeds about how private inventory investments are computed by the BEA should click on this link to their (pdf) explanation.

Inventory to sales ratios

Note that during the Recession (shaded gray) inventories were high, sales were down, and the ratio of inventory to sales moved up alarmingly.

Another element discussed by the Bureau of Economic Analysis, was the down turn in federal government expenditures.  But, Gee if we look at another FRED graph this certainly doesn’t seem to be the problem?

Federal General Expenditures 2000-2014

#1. Note, however that the graph is structured such that there are two year intervals between major points — and we’ve been talking about quarterly reports of GDP levels.   #2. The second problem with looking at the graph and believing that “federal spending” has skyrocketed since 2000, is that we have to factor in the costs of two wars between October 7, 2001 when the U.S. invaded Afghanistan, and March 3, 2003 when the U.S. invaded Iraq.  We had a major presence in Iraq for nine years and toted up an approximately $4 trillion bill for it. [MarketWatch] That would be about $80 B for the next fifty years.  There’s another big tab looming for our military operations in Afghanistan:

“The fact remains, however, that if the CRS and OMB figures for FY2001-FY2013 that follow are totaled for all direct spending on the war, they reach $641.7 billion, of which $198.2 billion – or over 30% – will be spent in FY2012 and FY2013.” [CSIS]

Add to this the unfunded changes made to the Medicare Program when Part D was added in the Medicare Modernization Act of 2003.  While nothing like the costs of military operations in Iraq and Afghanistan, the MMAct added a $9.4 trillion unfunded liability to the Medicare program [CMS report] over the next 75 years. [NYT]  And, then our banks fell apart in 2008…

To paraphrase the late Illinois Senator Everett Dirksen, “A trillion here, a trillion there, and pretty soon we’re talking about major money.”   As we wind down military assistance to Iraq, and bring troops home from Afghanistan, the spending trends should slacken.  This brings us to the third problem with taking the graph at face value.

#3.  It is misleading to show a federal spending graph, speak of “out of control Federal spending,” while NOT mentioning that non-defense discretionary spending — the kind of spending the GOP wants to cut has barely moved, if at all since 1991.   If we look at all discretionary spending as a percentage of our GDP, it looks like this [CBO pdf]:

Fed Exp Discretionary percent

What portion of federal discretionary spending is for Defense?  The CBO illustrates that too:

Defense Spending Discretionary

If we drill down into the numbers even further, we find that in 2011, we allocated $699 billion of our discretionary spending on the U.S. military, and $647 billion on everything else. [CBO] The bar graph illustrates the point: (click on the graph for the original size)

Discretionary Spending Fed

What has been happening to the lower bar on the graph?  Non-Defense discretionary spending has been trending downward:

Non defense discretionary spending trends

All the information on the graphs and charts leaves more questions than answers about the Congressional GOP insistence on screeching “The Debt Is Coming, The Debt Is Coming…”  They wish to maintain current level of discretionary military spending, even in light of the fact that it makes up a bit more than 50% of ALL our discretionary spending.  They wish to imply that “Federal Spending Is Out Of Control,” in spite of the fact that federal discretionary non-defense  spending is trending downward, and has been since 2011.

There is a formula for addressing the “spending problem” — just not the GOP incited version in which legions of the Great Unwashed are pocketing the bounty of hard working Americans — (1) Wind down military expenses in Iraq and Afghanistan; (2) Cut discretionary programs the Department of Defense has already said it doesn’t want; (3) Allow the savings accrued under the terms of the Affordable Care Act to take effect — as the most recent incarnation of the Ryan Budget proposal already does; and  (4) Make adjustments to Medicare Part D, such as allowing the Department of Health and Human Services to negotiate for prescription drug prices.

On the other hand, there are federal expenditures which will actually assist in increasing our national wealth — such an investments in infrastructure, research,  and education.  In the mean time we could look seriously at our revenue structure and perhaps even address former FDIC Chairwoman Bair’s question: Why should the manager of a hedge fund pay a low tax rate than the manager of a shoe store?

Why don’t we fix what’s broken and not break what’s working?

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Filed under Economy, Federal budget

Leverage?

ArchimedesSome members of the chatterati may have taken Archimedes a bit too literally: “Give me a place to stand and with a lever I will move the whole world.”  Often too much emphasis is placed on the fulcrum and not quite enough on the part about the ancient mathematician needing a place to stand.  The word of the week sounds like “leverage” in Washington, D.C. Who has it? Who doesn’t? And, so what? The So What part isn’t all that interesting.

Although the pundit class is thoroughly fascinated at the moment with how much leverage the President and the Republicans may each possess after the self inflicted Fiscal Cliff fiasco, most of their comments can be categorized as post game “analysis” of the variety which is more commonly associated with post game “analysis” of a sporting event.  It’s never quite enough to declare one team or another victorious based on the scoreboard numbers — “we” have to “know” why one team won and the other lost.  In reality, we really don’t.

So, in the parlance of political reporters emulating the post game questions of their sports writer colleagues — can the President win the next game? A game of Debt Ceiling already scheduled by the Republicans and given official status by the post game analysts.

It depends on where you stand.

There are two major elements of the federal debt that deserve serious scrutiny.  First, during the Bush Administration’s policy of credit card conservatism we racked up two wars (off the budget and supported by supplemental appropriations), a major addition to the Medicare program (Medicare Part D, also unpaid for) and one major Recession.  All were guaranteed to increase the national debt.  The first two increased spending and the latter cut into the tax base.

Secondly, we do need to reduce the national debt, but how we do it is important.  This is one of those occasions which calls for a scalpel, not a meat axe.

It is also important to stand on firm ground.

A few facts are in order.  The first part of standing on terra firma before attempting to leverage anything is to dismiss some media mythology about trends in the national budget deficits.  The following chart should provide an illustration of the inaccuracy of the Now That A Democrat Is In The White House The Deficit Is Out Of Control Myth:

Bush Obama Deficit trends

The chart illustrates what happens when two wars, one major Medicare addition, and a nasty Recession contribute to national spending. It also shows the effect of Obama Administration policies mentioned earlier, a point at which we should note that the Bush Administration toted up about $5.1 trillion in expenses, while as of last June the Obama Administration’s policies resulted in about $983 billion in spending.

Bush Obama Spending ComparisonIn short, if we are really serious about deficit reduction then we need to eschew the policies that got us into this mess in the first instance, i.e. unnecessary tax cuts, and two very expensive wars.

OK, so if we don’t get involved in more military operations, we resist the myth that tax cuts somehow cause economic growth (which they never have), and we regulate our financial markets more effectively in order to mitigate the excessive enthusiasm of traders who created the last great mess, then where do we cut?

It’s time for another reality check.

Here’s where the money goes:

Budget Categories

Since Social Security is a self-funding program, which as President Reagan famously cautioned in 1984 doesn’t add to the federal deficit (video), we can take that 20% out of the equation right now.  Anyone who is truly serious about the single issue of Social Security solvency should be clamoring to increase the cap on earnings liable to the payroll tax, currently set at a measly $110,000. We also need to remove the mandatory spending from the discussion because what we cut will have to be from discretionary spending.

The FY 2013 budget calls for spending $666.2 billion by the Department of Defense.  Another $80.6 billion is allocated to the Department of Health and Human Services (Medicare, Medicaid), and the Department of Education (Pell Grants, Title I, student loan guarantees, etc.) is scheduled to spend or entail $67.7 billion while the 4th largest chunk of the budget goes to the Veterans Administration which has $60.4 billion in scheduled spending.

In short, we’ve budgeted for $1,510 billion in discretionary spending in FY 2013.  The Department of Defense is on track to receive 44.12% of ALL the discretionary spending in the national budget.   Yet calls to cut military spending brings on the wailing of voices, the gnashing of teeth, and the rending of garments about “making us less safe” in an uncertain world.  In spite of all the wailing, gnashing, and rending — that one single department consumes 44.12% of the entire pot of discretionary spending is something we ought to be discussing.

Medicare is another matter.  IF we are truly serious about deficit reduction then we need to have more than the simplistic discourse already in evidence.  There is a false choice being presented, as though the only options are to privatize the Medicare program (give Granny a coupon and let her go out and find her own insurance) or to create a Single Payer national health care system.  While I wouldn’t be sorry to see a Single Payer system, this is an argument for another day.  The point is that there are options between these two proposals.

The central focus point should be that nothing which doesn’t have a bearing on health care cost containment is going to make much difference in the spending levels.   Privatization doesn’t address the cost containment issue, and a single payer system without cost containment elements is merely a recipe for increased expenses.

Now that the campaign season is over we can dismiss the Republican rhetoric about “Obama cut $716 out of Medicare,” and consign to the dust bin the notion that the Affordable Care Act somehow impinges on Medicare benefitsBusiness Week explains:

From 2010 to 2019, Obamacare trims payments to providers by $196 billion. They agreed to take a cut because they will get so many new patients, thanks to the individual mandate. Another $210 billion will be generated by raising Medicare taxes on the wealthy (that’s households earning more than $250,000). Another $145 billion comes from phasing out overpayments to Medicare Advantage. About 25 percent of seniors use the program—in which private plans compete for Medicare dollars—instead of traditional fee-for-service Medicare. Under Obamacare, the government has to keep Medicare Advantage costs in line with those of traditional Medicare. More savings come from streamlining administrative costs.

Thus, if we trim payments to providers, phase out over-payments for profitable private health care policies, and put some reins on administrative costs we’ll find about $716 billion in savings for the Medicare program.  Other cost savings may also be the result of more efficient record keeping, especially in the pharmaceutical segment.  Anyone who’s dealt with the medical issues of an elderly parent knows of multiple prescriptions written from several physicians who may or may not consult with one another.  The result can be as minimal as two (or three) prescriptions for the same medication at different dosages; or, as detrimental as two prescription medications which should not be taken together.

However, the bottom line is still the bottom line — unless and until we are ready to discuss health care cost containment we’ll be immersed in the rhetoric of low bludgeon and high dudgeon without much result.

When we discuss funding for the Department of Education it’s important to note that the FY 2013 discretionary requests yield an official number, $69.8 billion — if we include Pell Grants.  Pell Grants constitute about $22.8 billion of the total, a decrease from $23.8 billion in the FY 2011 budget.  Without the Pell Grants the total discretionary spending in the FY 2013 budget is $47 billion.   There are two constituencies with major stakes in arguing about these funds.

Parents.  Unless one is amenable to the elitist argument that kids should have access to only the level of education their parents can afford (which makes social mobility a moot point) parents are going to need assistance paying for their children’s education.  Whether we like it or no, education is a labor intensive business.  We can trim educational spending by continuing what the Obama Administration has started — saving approximately $61 billion by cutting the banks out of their role as middlemen in the student loan program [NYT]– but it really doesn’t do to cut efforts to educate our young people.  It also doesn’t make economic sense since a college degree is worth money in the marketplace.

Educations Pays Local school districts.  Cash strapped and semi-starved local school districts rely on funds for Special Education programs, Title I services, School Lunch programs, to make up budget shortfalls.  While the level of federal involvement at the local level isn’t all that much it does cover expenses local districts would be hard pressed to meet were the monies cut.

Hostage Taking

How we fund, or de-fund, these major activities depends on who is being held hostage and by whom.   Did the President allow the Republicans to gain “leverage” by taking the tax rates off the table in the next Congressionally manufactured debt ceiling debacle. Or, are we going to change hostages?

Will the Republican stance be that all other programs must be cut in order to spare the 44.12% consumed by the Department of Defense?

Will the GOP position be that Medicare must be privatized in order to practice “sound fiscal responsibility?”

Will the GOP position be that Social Security must be “reformed” (read cut) in the interest of “fiscal accountability and deficit reduction” even though it adds not a nickel to the federal debt?

Will the Administration simply say — You manufactured this debt ceiling “crisis” live with it?  Remembering that if the national credit rating is downgraded this will likely mean that the cost of borrowing (yields paid to those who invest in Treasuries) will go up, exacerbating the problem rather than addressing it.

Will the point be made to the American people that while the credit card analogy is handy, the United States of America doesn’t have creditors it has investors.  Our federal government accesses funds by issuing bonds.   And WE own most of those bonds.

Here’s the little chart again:

Who owns US debt

42.2% of the money “borrowed” by the U.S. government is an asset for U.S. individuals and financial institutions.   Today’s yield curve doesn’t indicate a government which is having to pay all that much to get people and institutions to invest in it:

Daily Yield CurveEven 30 year bonds are paying only 3.0% interest.

The amount of leverage always depends on where one stands and places the fulcrum.

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Filed under Congress, Economy, education, Federal budget, Health Care, Medicaid, Medicare, national debt, Obama, privatization, recession