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A Second Look At AB 182: ALEC’s assault on Nevada Public Employees

AB 182

REVIEW: If one feels the need for a bit of background information, the origin of bills like AB 182 can be found in the ALEC model legislation package known as “The Public Employee Freedom Act.”  (pdf)  The bill is a veritable laundry list of the ALEC bill-mill wishes:

“(1) AN ACT relating to local governments; prohibiting a local government employer from entering into an agreement to pay dues to an employee organization through deductions from compensation; (2) prohibiting such an employer from providing paid leave or paying compensation or benefits for time spent by an employee in providing services to an employee organization; (3) prohibiting the inclusion of certain employees in a bargaining unit; (4) revising provisions relating to a reduction in force; (5) providing that a collective bargaining agreement between a local government employer and a recognized employee organization expires for certain purposes at the end of the term stated in the agreement; (6) requiring public notice of certain offers made in collective bargaining; (7) eliminating final and binding fact-finding except upon the election of the governing body; (8)  removing a portion of the budgeted ending fund balance of certain governmental funds from the scope of collective bargaining and from consideration by a fact finder; (9) eliminating statutory impasse arbitration for firefighters, police officers, teachers and educational support personnel;…”

Nothing would so please the corporate masters of ALEC and the Koch Brothers alliance than to see public employee unions brought down, scuttled, and preferably stricken branch to root.

Every provision in this bill is strategically calculated to prevent unions from providing their services to their members.  No dues check off, making dues collection more costly and cumbersome for members; combined with the  attack on union leadership – after all, if the leaders can’t afford the volunteer time then service is necessarily reduced.  Eliminate “supervisory personnel,” if they so much as think about making an “independent judgment.”  No lawyers, no doctors, no supervisory personnel, may by involved in a bargaining unit?  No “confidential employee?”

Allow a government agency to reallocate resources such that there is a reduction if force – translation: layoffs – and then say “We did it because we moved the money elsewhere.” Anywhere? Any budget category? For any purpose? For the purpose of laying off personnel?  No “evergreen provisions?” No cost of living adjustments without a new master contract?

AB 182 assumes there will be no employee strikes – illegal for public employees in this state – but there won’t be any resolution options either. No fact finding, mediation, or arbitration results shall impinge on the employer to do whatever the agency wishes.  It’s take it or leave it time.

And, 16.6% of the total “budgeted expenditures” must be kept in reserve.  Really?  While this sounds “financially responsible” it really isn’t.  There are supposed to be funds allocated at the local level for “extraordinary maintenance and repairs or improvements, funds for contingencies, and funds to stabilize operations, and to provide a cushion in case of a natural disaster. [See: NRS 354]  There’s really little more to this than pulling 16.6% away from the bargaining table.

CONSIDER THE SOURCEWho is supporting ALEC?

The corporate sponsorships include:  The American Bail Corporation; the Altria Group (tobacco), AT&T, Diageo, Energy Future Holdings. Exxon Mobil Corporation, Koch Companies  Public Sector, Peabody Energy (coal), Pfizer Inc. PhRMA, State Farm Insurance, United Parcel Service, Amerian, American Express, US Airways, Anheuser Busch, Bayer Corporation, Bell Helicopter, BP America, Burlington Northern, Catepillar, Century Link, Chevron, Comcast, Conoco Phillips (under Phillips 66 brand), Dow Chemical, Eli Lilly Inc, Farmer’s Group, Georgia-Pacific (Koch Bros), Honeywell, Insight Schools Inc, JR Simplot, Marathon Oil, Raytheon, Reynolds American, T Mobile, Transcanada, (yes, THAT Transcanada)Verizon, and Xcel Energy.

However, a more interesting list is who has dropped membership in the organization which provides models for legislation like AB 182: Pepsi, Coca-Cola, Pepsi, Kraft, Intuit, McDonalds, Wendy’s, Mars, Reed Elsevier, American Traffic Solutions, Blue Cross Blue Shield, Yum! Brands, Proctor and Gamble, Kaplan, Amazon.com, Medtronic, Wal-Mart, Johnson and Johnson, Dell Computers, John Deere, MillerCoors, Hewlett-Packard, Best Buy, General Motors, Walgreens, Amgen, Dreyfus, Amgen, General Electric, Western Union, Sprint Nextel, Symantec, Entergy, Merck, Bank of America, Wellpoint, Bristol Myers Squibb, Brown-Forman, Publix Markets, Glaxo Smith Kline, Unilever, 3M, Darden Restaurants, IBM, Intel, Nestle USA, Berkshire Hathaway, NV Energy, Alliant Energy, Microsoft, Pacific Gas and Electric, Yahoo Inc, International Paper, Occidental Petroleum, Overstock.com, Facebook, Google, Union Pacific, eBay, Wells Fargo, and Northrop Grumman. [link]

Not to put too fine a point to it, but the Nevada legislators sponsoring AB 182 – Republicans Kirner, Dickman, Gardner, Oscarson, Wheeler, Edwards, Jones, Hambrick, Ellison, and Nelson – are still promoting legislation (and an ideology) which is no longer all that popular among major corporate sponsors.  The ALEC bill mill has lost some of its patina of late, but 10 Nevada Republicans haven’t quite noticed the train’s left the station?

While ALEC may be headed off to the horizon, the Koch Brothers and their Americans for Prosperity are alive and well.

“AFP adopts the anti-union positions held by its libertarian funders, David and Charles Koch.[56] A video published on YouTube on February 26, 2011 shows Scott Hagerstrom, the executive director of Americans for Prosperity Michigan, advocating “taking unions out at the knees so they don’t have the resources” to fight for workplace benefits or political candidates.” [Sourcewatch]

One has only to look at Michigan, Ohio, and especially Wisconsin under the Koch financed Walker regime, to see that AFP can simply adopt the legislative packages from ALEC, and insert these into state legislatures – like Nevada.

Thus, Republicans Kirner, Dickman, Gardner, Oscarson, Wheeler, Edwards, Jones, Hambrick, Ellison, and Nelson are simply doing the bidding of the Koch Brothers and promoting their reactionary agenda.

CONSEQUENCES:   This assault on unions, and specifically the attack on public employee unions, are part of the general hostility of corporations toward labor, and toward government.  The results are obvious.  As union membership has declined over the years so have middle class incomes.  [MJ] [APO] [EPI]  And, how did many families move into the middle class in the first place?  By becoming police officers, firefighters, teachers, community health nurses, librarians, land management specialists, transportation specialists, heavy equipment operators, social workers, public health service workers, and so on.

The wages and salaries earned by public employees, as determined by negotiated master agreements, put more families into the middle class, and more money into local economies.  Once again – the Koch Brothers aren’t interested in Bob’s Bodega or the Smith Family Furniture Store, or Jill’s Fashions —  the kinds of small businesses which form the core of local economies.  Possibly the view from inside the 0.001% bubble doesn’t allow for the possibility that products such as Koch Brother’s brands wouldn’t sell in such quantities without local retailers – local retailers who rely on middle income consumers to produce their revenue?

The anti-union, anti-labor perspective is ultimately unsustainable.  Yes, paper towels (like Koch’s Brawny brand) are basic household items, but put too much downward pressure on household income and people will discover that re-washable rags will work as well.  Every household needs toilet paper, like Koch’s Angel Soft, but households under pressure to save pennies may find cheaper brands to purchase.  While the Koch’s can fall back on Flint Hills energy products, local grocers can’t fall too far back from their local demand.  Grocers average a margin of 1-6%, [AZBus] which is not a large cushion to sustain too much drop in customer demand.

Perhaps it’s easier to sit back insulated by a top 0.001% annual income and think of Liberty, Freedom, Personal Accountability, and other abstractions, but the middle class consumer, including the middle class firefighter, police officer, teacher, social worker, or public health nurse doesn’t have that luxury.  Freedom for most people comes down to what Franklin D. Roosevelt called “Freedom from Want.”  The freedom which allows a family to procure all that’s necessary for basic needs, and leave  little left over for a home, for retirement, for an education for their children.  They want, and need, the freedom to breathe between paychecks.

Bills like AB 182 take the air out of the room.  If Republicans Kirner, Dickman, Gardner, Oscarson, Wheeler, Edwards, Jones, Hambrick, Ellison, and Nelson would pull this bill, people could all breathe a little easier.

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Union Busting 101: Nevada’s AB 182

Union busting If anyone is functioning under the happy delusion that the current session of Nevada’s Assembled Wisdom is intent upon securing the happiness of the middle class – look no further than AB 182.

“It would clarify the rules that exclude supervisors from collective bargaining, prohibit using government funds to pay employees engaged in union activities, require employees to seek union deductions before they would be collected by a government entity, and make agreements retroactive to the date of the expiration of the previous contract. It would also require a final contract offer to be made public, among other provisions.” [LVRJ]

Welcome to the re-labeled world of corporate sponsored legislation as defined by ALEC and the related ACCE.  The “public final offer” part is straight out of ALEC model legislation.   This has not been overlooked:

“ACCE’s first meeting coincided with ALEC’s national conference. One workshop topic was “releasing local governments from the grip of collective bargaining.” Another report discusses the conservative Heritage Foundation’s plan for localities across the country to experiment with “local” right-to-work initiatives. Heritage predicts that these experiments could provoke a legal challenge ending up in the hands of the US Supreme Court, which they hope will effectively end “fair share” of agency fees for public employees currently under collective bargaining agreements.” [Teamsters]

There’s an agenda at work here, and it’s NOT one conducive to maintaining the middle class families involved in local government, firefighting, police and public safety, teachers, and others who perform vital public services at the state and local level.   The Republican Noise Machine has been relentless in its messaging about public employee unions and the members they serve, and the term “messaging” is appropriate because what’s been transmitted isn’t rational, and often isn’t even factual.

“Two widely shared misperceptions are helping to drive this shift of opinion. The first holds that public sector workers now earn more on average than their private sector counterparts, making them what Indiana’s Republican governor, Mitch Daniels, calls “a new privileged class in America.” The leading candidates for the 2012 Republican presidential nomination have helped promote this view. “Average government workers are now making $30,000 a year more than the average private-sector worker,” declares Mitt Romney. “It used to be that public employees were underpaid and over-benefited,” adds Tim Pawlenty. “Now they are over-benefited and overpaid compared to their private-sector counterparts.” The second perception is that collective bargaining contracts have been major contributors to the growing budget deficits of the states, a view promoted by Chris Edwards, the director of tax policy studies at the Cato Institute.” [Dissent]

What is conveniently omitted from the discussion is the fact that most government workers are older and have more education than the “average private sector worker.”  Using a term like “counterpart” makes it appear that the opponents of public sector unions are comparing average government workers to average private sector employees – they aren’t.  If the term “counterpart” is defined strictly as one person doing an essentially similar job then the numbers don’t back up the union opponents.  The facts are:

Jobs in the public sector typically require more education than private sector positions. Thus, state and local employees are twice as likely to hold a college degree or higher as compared to private sector employees. Only 23% of private sector employees have completed college as compared to about 48% in the public sector.

Wages and salaries of state and local employees are lower than those for private sector employees with comparable earnings determinants such as education and work experience. State workers typically earn 11% less and local workers 12% less.

Benefits make up a slightly larger share of compensation for the state and local sector. But even after accounting for the value of retirement, healthcare, and other benefits, state and local employees earn less than private sector counterparts. On average, total compensation is 6.8% lower for state employees and 7.4% lower for local employees than for comparable private sector employees. [NIRS]

Thus we can discount the “Pigs at the Public Trough” argument for what it is – propaganda, using misleading numbers and comparisons to make an ideological point.  And, we can dismiss the “driving the deficit” argument as well:

“There is no direct correlation between states with unionized public workers and those facing budget deficits. New York State, which boasts the highest percentage of unionized public employees of any state, is running a projected budget deficit of 16.9 percent for fiscal year 2012, while North Carolina, which prohibits public sector collective bargaining, faces an even larger budget deficit (20 percent) according to the data of the Center on Budget and Policy Priorities. Similarly, there is no direct correlation between collective bargaining and pension obligations that have gone unfunded. According to the conservative American Legislative Exchange Council, New York has done a better job at funding its pension obligations (currently at 100 percent funding) than Virginia, which does not permit public sector collective bargaining and is currently funding only 80 percent of its obligations.” [Dissent]

Not only is there no correlation between collective bargaining and budget deficits, but we should also take into consideration the unasked question: Why is it always a matter of cutting expenses, and not a question of whether more revenue should be raised to sustain public services?

There is a correlation ALEC and ACCE don’t want to discuss.  As the EPI documentsthere is a correlation between declining wages and the decline in union membership.   Unless one subscribes to the illogical and oligarchian ideologies of the ultra-conservative think tanks and the billionaires who support them, the logic of good old fashioned capitalism is obvious – the more wages, the more demand, the more demand, the more sales, the more sales, the more profits, the more profit the better for all concerned.

And, this holds true for public employees who pay their mortgages, buy groceries in the local supermarket, buy clothes from local retailers, purchase automobiles from local dealers, pay for gas at the local station, and get their hair cut by local barbers and beauticians.  However, ALEC and ACCE’s perspective isn’t driven by any concern for ‘those small businesses,’ but by a concern for the corporate bottom line – a bottom line which would be enhanced if levels of state and local taxation were to be reduced.  It sounds seductive to the local business owner to hear “we’re going to reduce your taxes,” until that coin is flipped to the obverse and the people who depend on those taxes for income stop thinking about the new car, defer car maintenance, put off buying new clothes, and reduce personal expenditures.

AB 182 launches some very specific attacks on public sector unions which bargain for wages and working conditions.  For example, who is a supervisor? 

Sections 2, 3, and 7 exclude school supervisory and administrative positions from membership in bargaining units, and expands the definition of an excluded confidential employee to include any employee whose duties entail access to proprietary or confidential information.  Therefore, anyone with any supervisory duties is excluded – good by principals and administrators, and with a bit of creativity that “proprietary or confidential” information clause could exclude many others.

Section 1 is a double whammy.  First, there will be no dues deductions. This is nearly always the first point of attack, and if we didn’t figure this out already, there’s a model bit of legislation from ALEC called the Public Employer Payroll Deduction Policy Act.  There are also some alternatives offered by ALEC to this same end. Secondly, the opponents of public employee unions have noticed that union leadership is voluntary and if there is any remuneration it isn’t all that much. So, the “head of the serpent” can be removed by simply refusing to grant leave for union purposes, and also by removing anyone who is not compensated by the union from participating in union activities because they’ll lose time and benefits for doing so.  That would wipe out most committee chairs, officers below the top level, and most local activists.

Section 6 gets rid of the Evergreen provisions. It “generally provides that upon the end  of the term stated in a collective bargaining agreement, and until a successor  agreement becomes effective, a local government employer shall not increase any  compensation or monetary benefits paid to or on behalf of employees in the  affected bargaining unit.”  Thus much for previously bargained cost of living adjustments.

And if there’s an impasse in the bargaining process?

“If an impasse is reached in collective bargaining negotiations, existing law  establishes a process of fact-finding. Under existing law, the findings and  recommendations of the fact finder are final and binding if the parties so agree or a  statutory panel determines that the findings and recommendations are to be final 40 and binding as to some or all of the issues in dispute. (NRS 288.200-288.203) 41 Sections 10 and 15 of this bill eliminate the panel.”

And, there’s more:

“Under existing law, an impasse in collective bargaining negotiations involving  firefighters, police officers, teachers or educational support personnel may be  submitted to an arbitrator, whose decision is final and binding. (NRS 288.215, 59 288.217) Section 15 repeals those provisions, eliminating the statutory right to  arbitration as a means of impasse resolution.”

Remember, public employees in Nevada have no “right to strike” protections, and AB 182 removes the fact-finding and the arbitration options to settle an impasse.  So, what’s left? If an impasse remains unresolved the government entity can’t raise any compensation and the employees are frozen in place?

AB 182 is, for all intents and purposes, an ALEC/ACCE dream piece, based on ideology rather than a rational approach to economic and social requirements, and supportive of corporate as opposed to local economic interests.   The Committee on Commerce and Labor should file this one away in the “unconscionable” part of its cabinetry.

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Filed under Economy, Nevada economy, Nevada legislature, Nevada politics, public employees

Some Good News and Some Cautions

Hard HatInitial jobless claims are down in Nevada! “Initial claims for unemployment in Nevada fell 5 percent in July from the same month last year, marking the eighth straight month that the claims dropped year-over-year.”  [RGJ]

Nationally, the numbers aren’t too bad either:

“The advance number of actual initial claims under state programs, unadjusted, totaled 280,502 in the week ending August 10, a decrease of 8,142 from the previous week. There were 317,680 initial claims in the comparable week in 2012.

The advance unadjusted insured unemployment rate was 2.2 percent during the week ending August 3, a decrease of 0.1 percentage point from the prior week’s unrevised rate. The advance unadjusted number for persons claiming UI benefits in state programs totaled 2,858,818, a decrease of 100,830 from the preceding week’s revised level of 2,959,648. A year earlier, the rate was 2.5 percent and the volume was 3,180,011.”  [BLS]

As always, looking at seasonally adjusted initial unemployment applications is rather like looking at the economic world via the rear view mirror.  That said, it is comforting to note that the numbers of long term unemployed persons is edging down: “Officials say the number of unemployment benefit recipients who exhaust their regular benefits is also down, from 53 percent in July 2012 to 47 percent this July.” [RGJ]  It does appear it’s getting a bit easier to find work in the Silver State, as opined by DETR’s Bill Anderson.

Ball and ChainThere are some obvious weights attached to Nevada’s employment recovery.

#1. The Bubble Factor — There’s no way to avoid the fact that the Nevada housing market, pre-crash and burn, was “overheated.” “Nevada’s construction industry shed about 66 percent of its workforce in six years, down from 147,700 jobs in May 2006 to 49,200 in May 2012. The sector has a labor force of 52,100 workers as of April this year.” [RGJ June 2013]

#2. Declining public sector employment — While it might be popular in some circles to grouse about public employees as Pigs At The Public Trough, unless one is satisfied with over-crowded classrooms, slower response times to fires and medical emergencies,  less police presence in the community, fewer and less extensive health inspections of medical clinics or restaurants,  and wider, bigger, and more spectacular pot holes, public employees provide essential community services.

And, the local governments which provide these services have faced the largest cuts.

Public Sector Employment NevadaAs continually repeated on this site —  Public employees do not soak up “sacred tax payer dollars” into large sink-holes — the wages and salaries are SPENT in local grocery stores, drug stores, garages and auto dealerships, furniture outlets, clothing and other retail establishments, cafes and restaurants, barber shops and beauty salons, home improvement stores, medical offices, hardware stores, sporting goods stores, and other businesses which need customers to survive and thrive.  Consider the profit margins for a moment.

It is common for a restaurant, for example, to experience a 0% profit during its first year of operation.  An established high end restaurant can expect returns of about 8% annually, a less expensive (in terms of profit to operation cost ratio) cafe might make as much as 35%.  [Restaurant.Com]  More generally, “The type of retail establishment you operate may dictate your ability to raise margins. Specialty retailers and general merchandisers — department stores — were the most profitable sector of the retail economy in 2009, according to “Fortune”magazine, with a 3.2 percent average profit margin. Food and drug stores operated on a 1.5 percent margin.” [HChron]  8%, 3.2% margins? 1.5% margins?  How many job losses in the public sector does it take to carve into these profit to operating cost ratios at the local level?

#3. The Spiral Effect — declining employment combined with declining property values have ramifications for local governments.  We can look to the Debt Limit calculations for local governments to see how spending gets squeezed.

As of June 30, 2007 when the Housing Bubble bloomed the Nevada debt limit for local school districts was $17,174,852; in 2009 it was $21,631861,623; as of June 30, 2012 it had dropped to $12,935,539,045.  Think of the Debt Limit as if it were a ‘line of credit’ available to a local government entity — and note that as the credit limit declines there can be fewer capital expenditures.  Capital expenditures for building, renovation, and major maintenance directly affect the construction sector.

Another form of the spiral more directly relates to retail spending for consumer products and home related expenditures.  Retailing is struggling back:  “After two years of decline in 2008 and 2009, retail ended each year on a positive note through 2012. The sector, however, is still down by about 10,000 jobs from 2007, when it closed the year with a labor force of 147,000 workers.” [RGJ]   One way to measure the relative health of our consumer based economy is to look at the amount of debt American families are willing to take on.  The New York Fed’s report for the second quarter of 2013 tells us:

“The latest Household Debt and Credit Report shows outstanding household debt declined by $78 billion from the previous quarter, due in large part to a decline in housing-related debt. Total auto loan balances increased $20 billion from the previous quarter, the ninth consecutive quarterly increase and the largest quarter over quarter increase since 2006.”

There’s a graph for this:

Total debt balanceNote that both trends are downward — for housing and non-housing indebtedness.  It isn’t outside the realm of common sense to observe that American consumers, once burned are twice shy.  One question which remains unanswered is whether the reduction in mortgage interest rates will give families enough slack in the budget to increase their optimism about their capacity to make purchases on credit.

The spiral effect related to consumer credit becomes a problem when consumers decline to make both major and minor purchases because (a) they are functioning on lower or stagnating wages and salaries, (b) are insecure about their future employment, and/or (c) while they may feel better about housing payments, the reduction thereof is insufficient to justify using more credit.  This has a profound effect for automobile dealers and commercial enterprises related to housing.

#4. The wage and salary wheel.  This sounds good: “Health care was the only sector to gain jobs in the recession. The industry had about 100,000 workers, up 20 percent from 2006. It also posted employment gains for each year during this period.”  [RGJ]  However, does this increase indicate a major spur for the Nevada economy.  Perhaps not.

One of the more disturbing charts in the June report from DETR shows what’s been happening with respect to personal income in Nevada.

Nevada Person Income GrowthThe trend since 2011 indicates that what we may have been doing is increasing the number of lower paying jobs while losing ground in higher paying employment.

If the trend in personal income growth declines, then how are we to expect the overall economy to increase?

Ball and ChainCutting the Chains  If the state of Nevada intends to secure higher growth rates, then it would be better to concentrate on those elements which are directly related to that growth.  Once more, let’s divest ourselves of the pleasant myth that by getting businesses to move to or to open in Nevada because we have a “pro-business” (read: Low Tax) environment we will boost the overall state of our economy.  National businesses will move here IF, and ONLY IF we have the infrastructure to support their operations (education, transportation, research..)  New commercial enterprises will open their doors here IF and ONLY IF there are customers for their products and services.

Once free of that continually trickling down ideology we can focus on rebuilding the public sector, which includes many of those professional occupations considered Middle Class (police, fire, teachers) and which provide support for those pillars (headquarters, back office, manufacturing and distribution, and research and development) which entice business enterprises to open in our region.

We should also be attending to the issues related to how we can escape the spiral effect and wage and salary wheels, which keep rotating, but require more than ideologic wish lists in order to alleviate the disinclination to take on consumer purchases or to be inclined to find room in the family expense accounting to increase what our friends across the Pond are wont to call the “custom.”

Until then, we’re weighted and freighted — and spinning our wheels.

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Filed under Economy, employment, Nevada economy

Sequestration Frustration and the White Queen’s Economics

Alice WonderlandThe House Republicans continue to manufacture mountains of problems out of mole-hills of economic issues, and they can’t be completely oblivious to the ramifications of their ideologically driven proposals for Nevada.  Here’s a hint:

“In fact, Nellis Air Force base has no new information about how the sequester changes might affect their operations, and is making no different plans to react to sequestration than they were a month ago, according to spokeswoman Jessica Turner. Civilian furloughs begin at the end of April, and from there on, will be equivalent to about a 20 percent pay cut through September.” [LVSun]

That’s five months with 20% pay cuts for civilian workers at Nellis AFB.  Although the article doesn’t give the average pay for a civilian worker at Nellis, we might reasonably assume that it’s comparable to other AFBs around the nation, in which case the average annual pay is about $50,000. [Portales] It’s also public knowledge since November 2011 that there have already been cuts to civilian employment at Nellis and other installations in Nevada:

“Combined, the Southern Nevada bases and range installations account for 10,393 military and 4,366 civilian employees with a payroll of nearly $1.2 billion. In 2010, there were about 6,416 indirect jobs created with an annual dollar value of $257 million. “We’ve had a civilian hiring freeze for some time. Of those 155 being considered, some or all might be cut,” Lustig said Thursday.”  [LVRJ]

If all the positions were cut back in 2011-2012, then we could estimate there are about 4,211 civilian jobs associated with military installations in southern Nevada.   4,211 employees multiplied by the average salary or wages of $50,000 comes out to $210,550,000 annually.  If we shave 20% of the total then we’d calculate a loss of $42,110,000 to the regional economy of southern Nevada.   It’s at this point where the square peg of ideological purity meets the round hole of economic reality.

The White Queen’s Economics

“Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.”
“I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”
Alice in Wonderland.

Impossible Thing One:Spending is the Problem.”  We have the Sequester because it is taken as an article of faith in Republican quarters that federal government spending is “out of control.”  Much was made of the fact that the U.S. was borrowing 36¢ on the dollar back in late 2011 , but there wasn’t much  said about the fact that this rate had been DECREASING.  For fiscal 2009 the rate had been 40¢ and 37¢ in FY2010.  [FactCheck]   This brings us to the report from the BEA in February 2013:

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

If the amount borrowed per dollar of revenue is declining, and if the sluggish rate of growth indicated by the 4Q GDP report is partially explained by a reduction in federal spending — then how on earth can a sentient person maintain the fantasy that “spending is out of control?”

Impossible Thing Two:   “Every dollar borrowed by government is a dollar that is not being invested in our private sector economy.”  This is an articulation of the Crowd Out Theory — this makes some sense IF and ONLY IF interest rates are HIGH.  Even then it’s a bit sketchy because some government revenues are invested in research, development, business subsidies, commercial ventures,  and the like.   Dare we venture into the real world and look at corporate borrowing costs?  If the Crowd Out Theory is correct, and government borrowing is making corporate borrowing more expensive, then what do we make of the following chart?

Corporate Bond Yields

Moody’s forecast shows top quality corporate bonds paying about 4.01% interest through August 2013.  As of July, 2000 corporations were paying 7.67%  interest. [FRB H15]  Thus much for government borrowing crowding out corporate borrowing.

Impossible Thing Three:   “Government can’t create jobs.”  When pressed about the relationship between teachers, firefighters, police officers, social workers, and “government” the answer from right wing ideologues is often punctuated by stammers — or pontifications about how public employees are Piggies At the Public Trough.  A decision must be made at this juncture: Does government not create jobs, or is it that government creates too many “good” jobs?

Caution must be taken with charts purporting to “prove” government employees are making “too much money” in comparison to the private sector, especially when educational and expertise requirements are taken into consideration.  Additionally, even the AEI is moved to report that workers moving from public to private sector employment are more likely to take a cut in pay.   However, this isn’t the core of the issue.

Government does create jobs, and in the private sector.   “But, but, but,” stammers our hypothetical ideologue, “Those aren’t REAL jobs. Permanent Jobs.”   Ask any construction contractor and the individual will tell you the obvious: No construction job is permanent.  When the highway is finished the job runs out and it’s time to bid for another contract.  Since we have a lovely backlog of clean water, sewage treatment, bridge building, and transportation related projects we’re fobbing off on our descendants, wouldn’t it be a nice “job creating” thing if we paid some of this bill ourselves and at least made a head start on the payments?

Impossible Thing Four:  “The national debt will turn us into an unstable place like Greece.” (Or Spain, or Italy, or Ireland, or Cyprus).   Nonsense.  For one thing we have our own national currency, [Creamer] and secondly, the economic policy process in the Eurozone should remind us all that the authors of the Federalist Papers were absolutely right in arguing we needed a unified national structure (our Constitution) in order to put ourselves on a sound fiscal basis.   If a person might wonder about what happens when a loose confederation attempts to behave like a sovereign nation, it’s advisable to look at Hamilton’s response in Federalist 15.  He was even more blunt in Number 17,  “Commerce, finance, negotiation, and war seem to comprehend all the objects which have charms for minds governed by that passion; and all the powers necessary to those objects ought, in the first instance, to be lodged in the national depository.”

Another factor too often overlooked during periods of hyperbolic hysteria is that the U.S. has something else the Eurozone does not — a federal monetary policy compliments of the Federal Reserve System which can monetize the federal debt, and a process by which we prevent “runs.”

Impossible Thing Five:  “Our national debt is a serious and immediate problem! Just look at all those digits on the debt clock.”   Calm. Down. The debt isn’t an immediate problem (even some members of the House GOP are beginning to back off this canard) what we need to be doing — in a rational universe — is to stabilize the national debt.   Here’s what our debt looks like compared to our Gross National Product:

Debt GDP

In the wake of the Great Recession and wars in Iraq and Afghanistan, we’re now looking at a 67.7 ratio; [Atlantic] but then Germany’s public debt is at 80.6, Canada’s is at 87.4, Italy’s is 120.1. [Atlantic]  The average in the Eurozone is about 82.5.   The trick isn’t to “pay off the national debt” because who would want their long term Treasury notes paid off before collecting all the interest?  The U.S., as noted previously, doesn’t have creditors — it has Investors, and as of right now the 30 year U.S. note is paying a rather measly 3.15% interest rate.  The ten year notes are only paying 1.95%, and the 20 year notes will earn an investor 2.77%.  [TreasuryYieldCurve]  If we aren’t obliged to pay higher interest rates to people who are investing in our national notes, then why should anyone believe that The Debt is a terrifying thing?

Impossible Thing Six:   “Federal Spending hurts our economy.”  Now, we’re back to Nellis AFB in southern Nevada, or to northern Virginia — home to thousands of federal employees, or to Youngstown, Ohio with its TechBelt Initiative.  What happens in places like Las Vegas and surrounds when $42 million is removed from the local economy in a year?  As repeated ad nauseam herein, “government spending” doesn’t fall into a black hole.  Salaries and wages are spent in the local economy, for everything from apples to zoology textbooks.  Those unsure of the importance of federal spending in local economies have only to look at the various renditions of grief on display when the Department of Defense seeks to close a base.  Once more, with great feeling — the formula for both aggregate demand and for the calculation of the GDP assumes government spending at national, state, and local levels.  GDP= C+I+G (for government) + (X-M).

What is truly alarming is the capacity of members of Congress to believe all six of these impossible things before breakfast.

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Filed under Defense Department, Defense spending, Economy, Nevada economy, Uncategorized

Nevada Roundup

Cattle RoundupThere’s some good writing and commentary going on around the Nevada blogosphere; here’s some of it:

Nevada Progressive reports the NRA is planning a closed door seminar for members of the Nevada Legislature.  Here’s the obvious question – If the gun manufacturer’s lobby isn’t trying to play sneaky with its legislative agenda, then why the closed doors?  Because it’s “invitation only?”  Ralston Reports: The National Rifle Association is hosting an “elected officials-only classroom and range tutorial” this month to educate lawmakers on the “purpose and practical use of semi-automatic firearms and the differences between semi-automatic and automatic function.”  Let’s guess — the gun manufacturer’s lobby is out to demonstrate to the faithful that (1) “guns are just guns” and it’s just entirely too tricky to ban assault style weapons because of the definitional technicalities; or (2) “lots of guns are semi-automatic,” and we’d not want to revert to the days of the revolver?  And, what might the purpose be for the “automatic function?”

This, after Media Day at the Boulder Pistol and Rifle Range, Boulder City, NV yesterday, which by the NRA count garnered some 1,275 members of the media, to gape at the “… rifles, pistols, targets, holsters, ammunition, all-terrain vehicles, optics, and more, Media Day has a little bit of everything.”  Except perhaps, an acknowledgement that NYC Police Commissioner Ray Kelly may be on to something when he says that 85% of all the children killed by gun violence on this planet reside in the United States.

The Damned Pundit aka Gleaner adds a specific bit of information concerning the next session of the Assembled Wisdom:

“A freshly elected Republican Assemblywoman from Las Vegas by the name of Michele Fiore is leading the charge to not only let hungover 13th-graders take a semi-automatic 9MM pistol with a 17-round clip to History 101 at your local community college. Fiore also wants to arm K-12 teachers and administrators.”

Vegas Jessie adds a well informed, and cogent rant on the firearms question and the participants therein.  The Sin City Siren speaks of another gathering — those celebrating the Roe v. Wade decision on January 22nd.  Then, click over to “People who live in glass states shouldn’t heckle Mississippi,” for information regarding the accessibility of legal, safe, abortion medical procedures by state.

Speaking of the nation paying its bills — we might want to question some of the charges Congress has authorized in the past — like the $1 trillion (yes, trillion with a T) which has been paid to fraudulent defense contractors.  The Nevada Rural Democratic Caucus posts Senator Bernie Sanders’ comments in full.

And, who we aren’t paying?  That would be public employees — for the factually challenged who believe that public employment is a bountiful brunch at the public trough, NSEF reminds us:

“The average state employee makes about $49,000 a year while the average Nevadan, about $50,000. Further, a fifth of all state employees make less than $25,000. State employees are paid up to 30 percent less than local government employees who have collective bargaining rights.  State employees are not getting rich working for the state.”

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Filed under abortion, Gun Issues, Nevada legislature

One Letter We Must Read

Of all the many expressive things written in the wake of the horrific tragedy in Newtown, CT, THIS letter is one of the most thought provoking I’ve seen thus far.  If you have children in school, know a teacher, or even if your only connection is as a former student — CLICK HERE.

1 Comment

Filed under education, Gun Issues

Numbers, Theories, and Qualities: The Latest Unemployment Numbers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Senator Reid continues:

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

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

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

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

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

Priorities

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

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

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

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

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

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

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Filed under Economy, Nevada economy, Nevada politics, public employees, Reid