An extremely important piece by economist James K. Galbraith appears in his monthly Mother Jones space, "The Econoclast."
"The Predator State" tells you everything you already knew about corporate evil, but it becomes a system or "model" here under Galbraith's pen. I have not seen this elsewhere. In a page and a half it brings together ... Well, if I had that many words I could tell you. Since I don't, I won't spoil it by trying. I'll just tell you to read it and give you a taste:
"Today, the signature of modern American capitalism is neither benign competition, nor class struggle, nor an inclusive middle class utopia. Instead, predation has become the dominant feature – a system wherein the rich have come to feast on decaying systems built for the middle class. The predatory class is not the whole of the wealthy ... but it is the leading force. And its agents are in full control of the government under which we live."
By "model" and "system," I mean this is not simply a rehash of grievances or a litany of new outrages. This is an explanatory tool for what has happened and what is likely to happen. Economists like systems, and we will hold on to a good explanatory model long after all evidence in support of it has been discredited. Witness Supply Side, or the New Classical economics of Academia. In Galbraith's exposition we have a system for which the evidence is mounting every day.
I have been critical of Galbraith (James K.) in the past for not completing the loop of his thought. In this case he has completed it perfectly, and the accomplishment is a great benefit to us all.
The text of this issue is not yet up on the Internet where I can find it. When and if it shows up in a legitimate format, I'll amend this post with a link to it.
AND HERE IS THAT LINK: Mother Jones and the Econoclast
Sunday, April 30, 2006
John Kenneth Galbraith ... 1908-2006
One of the few remaining giants of economics died last night, having lived a long and fruitful life. John Kenneth Galbraith was a school unto himself. His analysis of the post-war industrial corporate United States lifted a veil for many of us.
Galbraith was of a generation when economists mattered, and when economies worked in the creation of a broad middle class. Like the great John Maynard Keynes, Galbraith took an active role in government, particularly under John F. Kennedy and Lyndon Johnson. He was Kennedy's ambassador to India, where he provided immense and timely service.
It was a time when economists who grew from the Great Depression spoke directly and forcefully and insightfully. They were a cut above today's crop, among the best minds of their generation. Now we have market followers holding the coats of politicians and ideologues or calling down from academic minarets in half intelligible jargon that at its best applied to another time or circumstance.
The Nobel Prize in economics is made forever superfluous for never having been awarded to this man. The half-baked Rational Expectations theorists, the unimportant historians, the wrong mathematicians, and the Monetarist hacks have all received the Prize, but Galbraith never did. Undoubtedly this is because the Prize is awarded by a committee from the Swedish central bank, not as others by a Nobel committee, and thus is subject to the rectal myopia of bankers. But since it is only awarded to the living, it has now lost its last opportunity for relevance.
It was not only his theory and analysis, but Galbraith's wonderful writing style and the gravity and scope of his mind, which placed things in appropriate scale and weight and inexorably clarified his subject.
He was a liberal from his heart and from his mind, a man who knew economics as cooperation, not competition, as a building of society, not a scramble for the top. A wonderful, humorous, wise man.
Galbraith was of a generation when economists mattered, and when economies worked in the creation of a broad middle class. Like the great John Maynard Keynes, Galbraith took an active role in government, particularly under John F. Kennedy and Lyndon Johnson. He was Kennedy's ambassador to India, where he provided immense and timely service.
It was a time when economists who grew from the Great Depression spoke directly and forcefully and insightfully. They were a cut above today's crop, among the best minds of their generation. Now we have market followers holding the coats of politicians and ideologues or calling down from academic minarets in half intelligible jargon that at its best applied to another time or circumstance.
The Nobel Prize in economics is made forever superfluous for never having been awarded to this man. The half-baked Rational Expectations theorists, the unimportant historians, the wrong mathematicians, and the Monetarist hacks have all received the Prize, but Galbraith never did. Undoubtedly this is because the Prize is awarded by a committee from the Swedish central bank, not as others by a Nobel committee, and thus is subject to the rectal myopia of bankers. But since it is only awarded to the living, it has now lost its last opportunity for relevance.
It was not only his theory and analysis, but Galbraith's wonderful writing style and the gravity and scope of his mind, which placed things in appropriate scale and weight and inexorably clarified his subject.
He was a liberal from his heart and from his mind, a man who knew economics as cooperation, not competition, as a building of society, not a scramble for the top. A wonderful, humorous, wise man.
Saturday, April 29, 2006
New numbers? No. - WA OFM
The new OFM Six-Year Outlook made it to the front page this week under the head "State goes from feast to famine on budget" (TNT, 4.26.06). This is not the budget hole we have been warning about the state dropping into, so we won't be doing any gloating, yet.
The omelette may have one fewer egg in the latest OFM (Washington Office of Financial Management) recipe, but it is not "feast to famine." We've had a couple of good years, but our family is growing and the farm is not. Under the leadership of Chris Gregoire we have a year's worth of canned goods in the cellar and we've stocked some staples, but there ain't no feasting in this house.
The "respite from budget woes" that will "end abruptly" is really only the underlying deterioration agitated by a bit of this and a bit of that. Most of it is mandatory, a bit of it the few new initiatives from the last session.
In fact, there are no changes to projected revenues from the February 15 version of the Outlook, and it is revenues that worry us. The housing boom is tapering off and higher fuel prices will squeeze retail sales. Even before that, where OFM sees a 5% underlying growth, we put it at under 4%. But maybe they are waiting on Chang Mook Sohn and the Office of Forecast Council to tweak revenues. [Not that oil prices and the Forecast Council have agreed on a direction yet. They're still debating. During the session, Mr. Sohn suggested prices in the $50-$60 per barrel range. A couple of years ago, the Council's forecast came out projecting a retreat in oil prices to under $30 just before they took off. Now they are $70-plus and rising.]
The whole budget situation was, of course, obfuscated immediately by Republican state senator Joe Zarelli, who threw out his tired old pitch and labeled it a "spending problem." I wish he would direct his remarks to his own party and the federal budget that is driving this country into the ditch.
Helen Sommers is chair of the House committee assigned spending (Appropriations). She points to the "unbelievably high costs in the medical area." Elsewhere there is mention of 12 percent "inflation" for medical assistance.
"Inflation" is a term for a general rise in the price level. A specific rise is called a "cost increase." It may be driven by increased participation in a program, or it may be an increase in the unit cost of a particular good or service, but there is not specific "inflation." This messy language messes up thinking, and it's been there for at least five years. (I know, "picky-picky.")
The substantial point is that comprehensive health care reform could solve everybody's problems. My friend who lost his job has VA coverage. But his wife doesn't. Nine hundred dollars ($900) per month. The state budget has big bills for the uninsured, partly insured, and a host of employees. Likewise the Feds and the local governments. Likewise businesses of every kind and size. This health care crisis is an inflating ring around our necks, and it's going to choke us all.
It needs to be dealt with as a particular cost increase. It is acute, not chronic.
Look for a fuller examination of the OFM Outlook on Prediction Tuesday in two weeks.
The omelette may have one fewer egg in the latest OFM (Washington Office of Financial Management) recipe, but it is not "feast to famine." We've had a couple of good years, but our family is growing and the farm is not. Under the leadership of Chris Gregoire we have a year's worth of canned goods in the cellar and we've stocked some staples, but there ain't no feasting in this house.
The "respite from budget woes" that will "end abruptly" is really only the underlying deterioration agitated by a bit of this and a bit of that. Most of it is mandatory, a bit of it the few new initiatives from the last session.
In fact, there are no changes to projected revenues from the February 15 version of the Outlook, and it is revenues that worry us. The housing boom is tapering off and higher fuel prices will squeeze retail sales. Even before that, where OFM sees a 5% underlying growth, we put it at under 4%. But maybe they are waiting on Chang Mook Sohn and the Office of Forecast Council to tweak revenues. [Not that oil prices and the Forecast Council have agreed on a direction yet. They're still debating. During the session, Mr. Sohn suggested prices in the $50-$60 per barrel range. A couple of years ago, the Council's forecast came out projecting a retreat in oil prices to under $30 just before they took off. Now they are $70-plus and rising.]
The whole budget situation was, of course, obfuscated immediately by Republican state senator Joe Zarelli, who threw out his tired old pitch and labeled it a "spending problem." I wish he would direct his remarks to his own party and the federal budget that is driving this country into the ditch.
Helen Sommers is chair of the House committee assigned spending (Appropriations). She points to the "unbelievably high costs in the medical area." Elsewhere there is mention of 12 percent "inflation" for medical assistance.
"Inflation" is a term for a general rise in the price level. A specific rise is called a "cost increase." It may be driven by increased participation in a program, or it may be an increase in the unit cost of a particular good or service, but there is not specific "inflation." This messy language messes up thinking, and it's been there for at least five years. (I know, "picky-picky.")
The substantial point is that comprehensive health care reform could solve everybody's problems. My friend who lost his job has VA coverage. But his wife doesn't. Nine hundred dollars ($900) per month. The state budget has big bills for the uninsured, partly insured, and a host of employees. Likewise the Feds and the local governments. Likewise businesses of every kind and size. This health care crisis is an inflating ring around our necks, and it's going to choke us all.
It needs to be dealt with as a particular cost increase. It is acute, not chronic.
Look for a fuller examination of the OFM Outlook on Prediction Tuesday in two weeks.
Friday, April 28, 2006
Fix your own house, Sonics
Ultimatum: Sonics, Sonics owners, NBA -- Step up to a little responsibility your own selves. Millionaire owners and millionaire players want taxpayers to pony up $200 million for another re-do of the Coliseum, this one mostly so the team can seal inside whatever economic benefit there is to having them in town.
Hello, NHL, as Omir the Storyteller suggested in his comment to our last Sonics post.
David Stern, Sonics GM Wally Walker, and Sonics principle owner Howard Shultz have been playing tag team wrestlers on the city council, with governor Chris Gregoire officiating. So far it's been lots of flaming leotards and smack vs. a brick wall.
Fix your own house. And I'm not talking about Key Arena. I'm talking about the financial mess of a league that requires an annual payroll for 12-15 players of $80 million, generates a business you need $200 million to buy into, gives tax breaks of three times operating losses, and still requires extorting more from the citizens. It's a monopoly run amok. Come up with something that gives us some choices or protects us from you having no competition.
The NBA proved itself a methodical monopoly when it absorbed women's basketball. It started its own league, then ran the competition into the ground via the television contract. But enough is enough. It's time for these guys to clean up their own business so teams compete on the court, not in my wallet.
And if they don't?
I'll do nothing.
Which is exactly what the Sonics ought to do for the remaining three years on their lease.
David Stern, NBA Commissioner, refuses to take any responsibility.
"I would say that the city is making it pretty clear of what they want us to do, and we'll accommodate them."
Huh?
What I mean is they're not interested in having the NBA there. We understand that, we understand that there are competing issues, and the mayor is free to make whatever decisions he needs to make and I support that. But that's a pretty strong signal and I think that the existing ownership has said they don't want to own a team that's not in Seattle, so I know what they're in the process of doing. So we'll just see how this play ends."
It's a weird strategy for the NBA to throw away Seattle, because that's what they're doing if they insist on a price that is this ridiculous structure and its gametime-only amenities. If the national economy turns down, it may be that Seattle has the only lights left on outside the oilfields. It would be a good place to have a sports franchise.
[We really ought to look into these tax rules. According to the Seattle Times, a kind of depreciation on player contracts is allowed "for the first several years after they buy a team" which can be used against other tax liabilities.(?)(!) Could it be the "losses" are soon going to become losses, as in real money, and this is what is generating the interest in new revenue?]
The suite owners are already writing those costs off their corporate taxes. The bonds that financed the last remodel are tax exempt. Since Washington has no state income tax, the players (several earning over $5 million per year) pay more into the general funds of other states than they do into Washington's.
So the citizens are doing their fair share.
Thanks to the Mayor and Council for not caving in.
We'll see how the play ends.
# Posted by Alan : 8:33 AM
Hello, NHL, as Omir the Storyteller suggested in his comment to our last Sonics post.
David Stern, Sonics GM Wally Walker, and Sonics principle owner Howard Shultz have been playing tag team wrestlers on the city council, with governor Chris Gregoire officiating. So far it's been lots of flaming leotards and smack vs. a brick wall.
Fix your own house. And I'm not talking about Key Arena. I'm talking about the financial mess of a league that requires an annual payroll for 12-15 players of $80 million, generates a business you need $200 million to buy into, gives tax breaks of three times operating losses, and still requires extorting more from the citizens. It's a monopoly run amok. Come up with something that gives us some choices or protects us from you having no competition.
The NBA proved itself a methodical monopoly when it absorbed women's basketball. It started its own league, then ran the competition into the ground via the television contract. But enough is enough. It's time for these guys to clean up their own business so teams compete on the court, not in my wallet.
And if they don't?
I'll do nothing.
Which is exactly what the Sonics ought to do for the remaining three years on their lease.
David Stern, NBA Commissioner, refuses to take any responsibility.
"I would say that the city is making it pretty clear of what they want us to do, and we'll accommodate them."
Huh?
What I mean is they're not interested in having the NBA there. We understand that, we understand that there are competing issues, and the mayor is free to make whatever decisions he needs to make and I support that. But that's a pretty strong signal and I think that the existing ownership has said they don't want to own a team that's not in Seattle, so I know what they're in the process of doing. So we'll just see how this play ends."
It's a weird strategy for the NBA to throw away Seattle, because that's what they're doing if they insist on a price that is this ridiculous structure and its gametime-only amenities. If the national economy turns down, it may be that Seattle has the only lights left on outside the oilfields. It would be a good place to have a sports franchise.
[We really ought to look into these tax rules. According to the Seattle Times, a kind of depreciation on player contracts is allowed "for the first several years after they buy a team" which can be used against other tax liabilities.(?)(!) Could it be the "losses" are soon going to become losses, as in real money, and this is what is generating the interest in new revenue?]
The suite owners are already writing those costs off their corporate taxes. The bonds that financed the last remodel are tax exempt. Since Washington has no state income tax, the players (several earning over $5 million per year) pay more into the general funds of other states than they do into Washington's.
So the citizens are doing their fair share.
Thanks to the Mayor and Council for not caving in.
We'll see how the play ends.
# Posted by Alan : 8:33 AM
Wednesday, April 26, 2006
Forecast: Housing, pensions, disappearing dollars
One of the dreadful experiences of understanding a little economics is to watch those approaching retirement vote against schools. They have dollars in the bank, their kids are grown, Why should they worry?
Another is looking at the enormous investment in housing. Homeownership is a beautiful thing, look at the employment and tax revenue coming in, How can we lose?
The May 2006 issue of Harper's has on its cover a man carrying a house on his back. The article is entitled "The New Road to Serfdom." In it there is a graphic I pray is not correct. It identifies 90% of debt since 2000 as being mortgage debt. That would mean only 10% of debt has gone to credit cards, college loans, and oh yeah, plant and equipment.
The current debt-driven economic activity is founded on housing investment. Investment creates jobs up front. Every kind of investment. But investment in essentially passive assets, like housing, does not generate economic well being down the road like productive assets do – education and equipment and so on. It generates interest payments.
The Harper's article is instructive, if a bit pat. It's great if you like charts, because that's what it is - a dozen charts with explanatory captions. It advises of a possibility that low interest rates lure people into enormous debt loads, possibly shackling the owner to his house for decades, making payments as equity shrinks, giving lie to his hope for a valuable asset at the end of his working years.
The situation is similar to the pension crisis. (See the Seattle Times 04.04.06 article.) For dozens of years people worked, in part, for the promise of an affluent retirement funded by the company's pension. Now, one after the other, the corporation's promise has been turned over to the government for fulfilment. The "self-made" men and women wait in line to see what can be salvaged of their expectations.
Bethlehem Steel, US Airways, Kaiser Aluminum, Pan Am, and locally Consolidated Freightways, Lamonts, and Longview Aluminum, have given up their pension obligations to the federal Pension Benefit Guaranty Corporation, which now has $56 billion in assets v. $79 billion in future liabilities.
The point I want to make is that today's sure bet is tomorrow's last place finisher. Do not look at dollars. Dollars are a great medium of exchange, but a lousy store of value. They're a good way to compare goods, as in eggs are expensive, cars are cheap, but it is wrong to assume that both are being measured by a standard unit which has value in itself. They are expensive and cheap relative to each other. The dollar is simply a medium to make the comparison.
If you want your house to be worth something, or your pension to be there, or your stocks to pay off, you need to build an economy that works, with workers who will be able and willing to pay the price you want. It is their demand, not some numbers on a bank statement, that ensures value. You can lock up your greenbacks and bury them in the ground, but without that growing economy, they'll turn to dust no matter how well you wrapped them. There is no "I've got mine, now you guys fend for yourselves." You can be robbed by inflation, crashing stocks, ballooning health care, etc., etc., etc., but at its root it will always be a weakening economy that could have been floated by sound investments and reasonable trade structures.
Taxes for schools will generate economically viable citizens and reduce unnecessary drains on public coffers in the future. These are the people who will buy your house, fund your pension (including Social Security) and make your stocks worth something.
Mortgage borrowing, federal debt, everyone a millionaire... It's a hoax that is often too disturbing to contemplate, so we don't. But someday we'll have to. Our hind ends will get blasted if we keep our heads buried in the sand.
P.S. - In my last post I forgot to mention that Paul O'Neill, the former Treasury Secretary under Bush, also termed "not acceptable" W's 1990 scam with Harken Energy that we covered earlier this year. "Did I ever do an untimely filing of Form F?" O'Neill said. "No. Any other questions?"
It's timely now because W's fellow travelers at Enron are in the dock this week.
Another is looking at the enormous investment in housing. Homeownership is a beautiful thing, look at the employment and tax revenue coming in, How can we lose?
The May 2006 issue of Harper's has on its cover a man carrying a house on his back. The article is entitled "The New Road to Serfdom." In it there is a graphic I pray is not correct. It identifies 90% of debt since 2000 as being mortgage debt. That would mean only 10% of debt has gone to credit cards, college loans, and oh yeah, plant and equipment.
The current debt-driven economic activity is founded on housing investment. Investment creates jobs up front. Every kind of investment. But investment in essentially passive assets, like housing, does not generate economic well being down the road like productive assets do – education and equipment and so on. It generates interest payments.
The Harper's article is instructive, if a bit pat. It's great if you like charts, because that's what it is - a dozen charts with explanatory captions. It advises of a possibility that low interest rates lure people into enormous debt loads, possibly shackling the owner to his house for decades, making payments as equity shrinks, giving lie to his hope for a valuable asset at the end of his working years.
The situation is similar to the pension crisis. (See the Seattle Times 04.04.06 article.) For dozens of years people worked, in part, for the promise of an affluent retirement funded by the company's pension. Now, one after the other, the corporation's promise has been turned over to the government for fulfilment. The "self-made" men and women wait in line to see what can be salvaged of their expectations.
Bethlehem Steel, US Airways, Kaiser Aluminum, Pan Am, and locally Consolidated Freightways, Lamonts, and Longview Aluminum, have given up their pension obligations to the federal Pension Benefit Guaranty Corporation, which now has $56 billion in assets v. $79 billion in future liabilities.
The point I want to make is that today's sure bet is tomorrow's last place finisher. Do not look at dollars. Dollars are a great medium of exchange, but a lousy store of value. They're a good way to compare goods, as in eggs are expensive, cars are cheap, but it is wrong to assume that both are being measured by a standard unit which has value in itself. They are expensive and cheap relative to each other. The dollar is simply a medium to make the comparison.
If you want your house to be worth something, or your pension to be there, or your stocks to pay off, you need to build an economy that works, with workers who will be able and willing to pay the price you want. It is their demand, not some numbers on a bank statement, that ensures value. You can lock up your greenbacks and bury them in the ground, but without that growing economy, they'll turn to dust no matter how well you wrapped them. There is no "I've got mine, now you guys fend for yourselves." You can be robbed by inflation, crashing stocks, ballooning health care, etc., etc., etc., but at its root it will always be a weakening economy that could have been floated by sound investments and reasonable trade structures.
Taxes for schools will generate economically viable citizens and reduce unnecessary drains on public coffers in the future. These are the people who will buy your house, fund your pension (including Social Security) and make your stocks worth something.
Mortgage borrowing, federal debt, everyone a millionaire... It's a hoax that is often too disturbing to contemplate, so we don't. But someday we'll have to. Our hind ends will get blasted if we keep our heads buried in the sand.
P.S. - In my last post I forgot to mention that Paul O'Neill, the former Treasury Secretary under Bush, also termed "not acceptable" W's 1990 scam with Harken Energy that we covered earlier this year. "Did I ever do an untimely filing of Form F?" O'Neill said. "No. Any other questions?"
It's timely now because W's fellow travelers at Enron are in the dock this week.
Tuesday, April 25, 2006
Radio Blues
I had Thom Hartmann up on the AM radio in the old pickup the other day. He was talking about the Commons. He seemed to be saying that in our particular society we have marked as too important for the private sector the Commons, things such as police and courts and national defense, and so have delegated them as the sole province of government.
This, of course, is nonsense. Perhaps this is not what he was saying, because the snip I caught was short, but it sprung my spring, and I ... fired off an e-mail.
The Commons, as any schoolchild knows, was the common pasture of old shared by the villagers, upon which anybody could graze their cattle. Most of the land, of course, was owned by the landed gentry and off limits. The upshot of the Commons arrangement was inevitably and exclusively lots of emaciated cattle and a completely decimated pasture. There was no incentive to manage the pasture properly, because if you did, your neighbor just introduced his cow instead. Thus the resource was exhausted and nobody made a living.
The Commons of modern times is the environment, the oceans, the air, the water. The exhaustion of these resources proceeds apace because it is in no single person's interest to do anything but use it as much as he can, and the efforts of those who may reduce their spoilage is overwhelmed by those who will take their place. The solution is similar, if politically more difficult.
In the old days, they divided the Commons into private parcels which the owner would have the incentive to manage wisely. Result: fences, fat cows, good pasture, property disputes. Today, since there is no opportunity to fence off the ocean or the sky, the conversion to collective management or ownership would need to take a different form. Unfortunately, this improbable new type of property right is likely the only remedy for the deteriorating situation in which we find our planet.
Thom missed this point clean – if I heard him correctly – by assigning police and the courts to the Commons. I said as much in my message. These instead are "public goods." Courts and representative governing bodies and such are foundational institutions, so calling them goods might be a bit disrespectful, but apt in its way. Police and fire protection, however, and roads and schools, public health and national defense, are clearly public goods. They are not the province of government because of a public moral about keeping them out of the hands of the private sector. They are supplied by the government because the private sector cannot handle them. The market cannot do public goods.
Why?
The two main properties of public goods is they are not excludable and they are not depletable. Taking the example of a road. It is not depletable because it doesn't matter how many cars go over it. It is as useful to the first car as it is to the one hundredth, or one thousandth, or – okay, maybe there is a limit. But it is certainly not in the ballpark of a private good like a candy bar or house, where one person's use reduces the usefulness to anybody else.
So public goods give and keep on giving. Unfortunately, also unlike private goods, use is not excludable. Consider a toll on every road. Not going to happen. This second attribute requires some form of coercive universal financing – taxes. Otherwise the free riders would appear like moths to the street lights. Imagine national defense. If your neighbor is paying for it, why should you? He's protected. Simply by living next door, you're protected.
So Thom got the full brunt, perhaps more succinctly than this. And I got ready to listen to the radio to hear any indicating he'd read it. But in the dark of the morning, before he was up on KPTK, I got an e-mail back! Scared the ---- out of me. It said, "Interesting. Why don't you call the show and educate me on the air."
After defibrillation, I resolved to do it. I called in. The same coordinator who does Hartmann does Sam Seder. I told him my name, confident extended minutes in witty discussion would soon follow. I got cut off. I called back. My heart was pounding ... for the first thirty minutes. Then I began to get involved in the programming. Then there was something else. Suddenly it's, click, "Hi caller, you're up, we have about a minute."
My entire life was compressed into that minute, so it was in a way appropriate that it began with the wilting of my grand expectations. He didn't even know who I was, or that I was responding to his request. I babbled on, responded to a couple of questions with revolutionary intensity, and at the end, heard, "Good point."
We're close, Thom and me.
Not included in that minute, I regret, was the point that public goods create private wealth. I am not talking about imaginary well-being, I am talking about financial wealth. Consider a bridge, even the expansion of a bridge to a peninsula. The bridge or police or school is produced at cost. The massive increases in property values from new access, the employment value of schooling, or the many external values of public safety are received by private actors at full market value. They are usually many times the costs of these goods. (Thus the high cost-benefit ratios you hear mentioned, but don't know what to make of.) It is the property holder in Gig Harbor, the engineer wherever she goes, the Boeing company, the freight hauler and the business owner who get these financial rewards minus the taxes they pay.
This is the single most important reason that countries which invest heavily in public goods (and thus have high tax rates and large governments) are precisely those countries which are most prosperous.
[Note to self: call no more radio shows.]
This, of course, is nonsense. Perhaps this is not what he was saying, because the snip I caught was short, but it sprung my spring, and I ... fired off an e-mail.
The Commons, as any schoolchild knows, was the common pasture of old shared by the villagers, upon which anybody could graze their cattle. Most of the land, of course, was owned by the landed gentry and off limits. The upshot of the Commons arrangement was inevitably and exclusively lots of emaciated cattle and a completely decimated pasture. There was no incentive to manage the pasture properly, because if you did, your neighbor just introduced his cow instead. Thus the resource was exhausted and nobody made a living.
The Commons of modern times is the environment, the oceans, the air, the water. The exhaustion of these resources proceeds apace because it is in no single person's interest to do anything but use it as much as he can, and the efforts of those who may reduce their spoilage is overwhelmed by those who will take their place. The solution is similar, if politically more difficult.
In the old days, they divided the Commons into private parcels which the owner would have the incentive to manage wisely. Result: fences, fat cows, good pasture, property disputes. Today, since there is no opportunity to fence off the ocean or the sky, the conversion to collective management or ownership would need to take a different form. Unfortunately, this improbable new type of property right is likely the only remedy for the deteriorating situation in which we find our planet.
Thom missed this point clean – if I heard him correctly – by assigning police and the courts to the Commons. I said as much in my message. These instead are "public goods." Courts and representative governing bodies and such are foundational institutions, so calling them goods might be a bit disrespectful, but apt in its way. Police and fire protection, however, and roads and schools, public health and national defense, are clearly public goods. They are not the province of government because of a public moral about keeping them out of the hands of the private sector. They are supplied by the government because the private sector cannot handle them. The market cannot do public goods.
Why?
The two main properties of public goods is they are not excludable and they are not depletable. Taking the example of a road. It is not depletable because it doesn't matter how many cars go over it. It is as useful to the first car as it is to the one hundredth, or one thousandth, or – okay, maybe there is a limit. But it is certainly not in the ballpark of a private good like a candy bar or house, where one person's use reduces the usefulness to anybody else.
So public goods give and keep on giving. Unfortunately, also unlike private goods, use is not excludable. Consider a toll on every road. Not going to happen. This second attribute requires some form of coercive universal financing – taxes. Otherwise the free riders would appear like moths to the street lights. Imagine national defense. If your neighbor is paying for it, why should you? He's protected. Simply by living next door, you're protected.
So Thom got the full brunt, perhaps more succinctly than this. And I got ready to listen to the radio to hear any indicating he'd read it. But in the dark of the morning, before he was up on KPTK, I got an e-mail back! Scared the ---- out of me. It said, "Interesting. Why don't you call the show and educate me on the air."
After defibrillation, I resolved to do it. I called in. The same coordinator who does Hartmann does Sam Seder. I told him my name, confident extended minutes in witty discussion would soon follow. I got cut off. I called back. My heart was pounding ... for the first thirty minutes. Then I began to get involved in the programming. Then there was something else. Suddenly it's, click, "Hi caller, you're up, we have about a minute."
My entire life was compressed into that minute, so it was in a way appropriate that it began with the wilting of my grand expectations. He didn't even know who I was, or that I was responding to his request. I babbled on, responded to a couple of questions with revolutionary intensity, and at the end, heard, "Good point."
We're close, Thom and me.
Not included in that minute, I regret, was the point that public goods create private wealth. I am not talking about imaginary well-being, I am talking about financial wealth. Consider a bridge, even the expansion of a bridge to a peninsula. The bridge or police or school is produced at cost. The massive increases in property values from new access, the employment value of schooling, or the many external values of public safety are received by private actors at full market value. They are usually many times the costs of these goods. (Thus the high cost-benefit ratios you hear mentioned, but don't know what to make of.) It is the property holder in Gig Harbor, the engineer wherever she goes, the Boeing company, the freight hauler and the business owner who get these financial rewards minus the taxes they pay.
This is the single most important reason that countries which invest heavily in public goods (and thus have high tax rates and large governments) are precisely those countries which are most prosperous.
[Note to self: call no more radio shows.]
Monday, April 24, 2006
No change at the White House - Rove
Karl Rove is in charge of economic policy. As the NYT puts it, "Mr. Bush's Treasury secretaries ... have not had their own voices on economic policy and have been effectively subordinate to Karl Rove." (NYT, 4.5.06) And as former Bush Treasury Secretary Paul O'Neill put it, "It's all about sound bites, deluding the people, pandering to the lowest common denominator."
Rove's reassignment was window dressing. "Strategic planning" undoubtedly means "continue to spin and dissemble." At most it means the day-to-day happy face news format has been running long enough for to continue on its own. Rove is going nowhere, barring indictment. Karl Rove, Dick Cheney, and Donald Rumsfeld are not expendible. They are George Bush.
O'Neill and Lawrence Lindsey were let go back when the first wave of Bush economic promises fell through, those surrounding the stimulus value of tax cuts for the rich. This was after the excuse "it's all because of 9-11" had been milked dry. The bad news demanded sacrifice. So they sacrificed these two, blood on the altar of public opinion, so as not to have to change policies.
It was O'Neill who noted the influx of immigrants demanded an aggressive jobs program. His estimate was that 100,000 to 125,000 jobs per month are needed just to absorb new entrants into the work pool. It remains a miracle of modern statistical science that, for example, employment rose less than a million between 2002 and 2004, yet employment dropped 0.3 percent. A bare minimum of two million would have been needed just to stay even. We've talked about this before.
Now O'Neill's successor, Treasury Secretary John W. Snow is making noises about leaving. Like as not, he wants out before the economic stuff hits the economic fan, so as to avoid the inevitable sacrifice of the scapegoat. Snow will be remembered as one so bereft of principle that after staking his reputation on the need for balanced budgets, he held the coats of the men who exacted a trillion more dollars of red stuff from the future of the country. Adriana Huffington had this to say at the time of his appointment
It is a bit surprising Snow did not take advantage of Josh Bolten's "If you're thinking of leaving in the next few months, do it now." Snow leaked explicitly his plan to leave in the next few months. Possibly he has taken some hope from Rove's reassignment and imagines he might move up the ladder into a position of actual influence. Futile dream. It is more likely that Bolten, even though he once worked at Goldman Sachs, can't find anybody else interested in the job.
Rove's reassignment was window dressing. "Strategic planning" undoubtedly means "continue to spin and dissemble." At most it means the day-to-day happy face news format has been running long enough for to continue on its own. Rove is going nowhere, barring indictment. Karl Rove, Dick Cheney, and Donald Rumsfeld are not expendible. They are George Bush.
O'Neill and Lawrence Lindsey were let go back when the first wave of Bush economic promises fell through, those surrounding the stimulus value of tax cuts for the rich. This was after the excuse "it's all because of 9-11" had been milked dry. The bad news demanded sacrifice. So they sacrificed these two, blood on the altar of public opinion, so as not to have to change policies.
It was O'Neill who noted the influx of immigrants demanded an aggressive jobs program. His estimate was that 100,000 to 125,000 jobs per month are needed just to absorb new entrants into the work pool. It remains a miracle of modern statistical science that, for example, employment rose less than a million between 2002 and 2004, yet employment dropped 0.3 percent. A bare minimum of two million would have been needed just to stay even. We've talked about this before.
Now O'Neill's successor, Treasury Secretary John W. Snow is making noises about leaving. Like as not, he wants out before the economic stuff hits the economic fan, so as to avoid the inevitable sacrifice of the scapegoat. Snow will be remembered as one so bereft of principle that after staking his reputation on the need for balanced budgets, he held the coats of the men who exacted a trillion more dollars of red stuff from the future of the country. Adriana Huffington had this to say at the time of his appointment
It is a bit surprising Snow did not take advantage of Josh Bolten's "If you're thinking of leaving in the next few months, do it now." Snow leaked explicitly his plan to leave in the next few months. Possibly he has taken some hope from Rove's reassignment and imagines he might move up the ladder into a position of actual influence. Futile dream. It is more likely that Bolten, even though he once worked at Goldman Sachs, can't find anybody else interested in the job.
Sunday, April 23, 2006
A Goulish Christmas for Corporate America - Iraq
The Center for Strategic and Budgetary Assessments sez:
2003 - $48 billion
2004 - $59 billion
2005 - $81 billion
2006 - $93 billion
On an accrual basis, the yearly costs are double and triple these. That is, the war materiel and human beings sacrificed have costs for replacement that we will not see this year or next. Remember when somebody got fired for saying the adventure might cost upwards of $200 billion? We are now spending $10 billion per month in Iraq and Afghanistan.
Stiglitz and Bilmes have estimated the eventual cost to be over $1 trillion, after indirect costs -- such as increased fuel prices -- are thrown in. That's $50,000 for every Iraqi man, woman and child.
And for this, they get 3 hours of electricity per day, unsanitary water, and a civil war. Not a very good deal for anybody. Well, it is good for the vendors of these faulty goods -- Corporate America. While ordinary Iraqis and ordinary Americans are paying in blood, bone and misery, Exxon, Boeing, Halliburton, Bechtel, and so on are raking it in.
Not by accident. The Bush administration, and Republicans in general, are champions and clients of corporate boards. (The Department of Defense web site calls it the biggest, baddest "company" in America.) The war, its supporters, its apologists, and its beneficiaries are primarily corporatists.
They were hired to secure and rebuild a devastated a country. In that they have failed. Not fallen short. Failed. They have taken the money and provided nothing but excuses. Some, including the Seattle Times, have called for a halt to the rebuilding because it, or security for it, is too expensive. More appropriate is a START to rebuilding, by people who can do the job, not the US corporate oligarchy. Start with an independent contracting office through the UN. Security costs disappear when the natives are doing it for themselves.
Some time ago I estimated the cost of corruption in the Bush Iraq adventure would be over $10 billion. Out of a rebuilding budget of $20 billion, this seemed to be pretty aggressive. But it's not only the rebuilding, it's the profiteering of suppliers and opportunism of the oil giants.
ERROR, ERROR. ($50,000, not $500,000) This post included too many zeros. At more than one trillion dollars net cost to the US for the Iraq War, as suggested by Stiglitz and Bilmes, each of the 26,074,906 Iraqi men, women and children would account for only $50,000, not the $500,000 I allowed to get online. Forgive, please. Ouch, ouch, ouch, ouch. Yes, I will apologize personally to your friends if you dropped that number on them as a result of my foolishness.
2003 - $48 billion
2004 - $59 billion
2005 - $81 billion
2006 - $93 billion
On an accrual basis, the yearly costs are double and triple these. That is, the war materiel and human beings sacrificed have costs for replacement that we will not see this year or next. Remember when somebody got fired for saying the adventure might cost upwards of $200 billion? We are now spending $10 billion per month in Iraq and Afghanistan.
Stiglitz and Bilmes have estimated the eventual cost to be over $1 trillion, after indirect costs -- such as increased fuel prices -- are thrown in. That's $50,000 for every Iraqi man, woman and child.
And for this, they get 3 hours of electricity per day, unsanitary water, and a civil war. Not a very good deal for anybody. Well, it is good for the vendors of these faulty goods -- Corporate America. While ordinary Iraqis and ordinary Americans are paying in blood, bone and misery, Exxon, Boeing, Halliburton, Bechtel, and so on are raking it in.
Not by accident. The Bush administration, and Republicans in general, are champions and clients of corporate boards. (The Department of Defense web site calls it the biggest, baddest "company" in America.) The war, its supporters, its apologists, and its beneficiaries are primarily corporatists.
They were hired to secure and rebuild a devastated a country. In that they have failed. Not fallen short. Failed. They have taken the money and provided nothing but excuses. Some, including the Seattle Times, have called for a halt to the rebuilding because it, or security for it, is too expensive. More appropriate is a START to rebuilding, by people who can do the job, not the US corporate oligarchy. Start with an independent contracting office through the UN. Security costs disappear when the natives are doing it for themselves.
Some time ago I estimated the cost of corruption in the Bush Iraq adventure would be over $10 billion. Out of a rebuilding budget of $20 billion, this seemed to be pretty aggressive. But it's not only the rebuilding, it's the profiteering of suppliers and opportunism of the oil giants.
ERROR, ERROR. ($50,000, not $500,000) This post included too many zeros. At more than one trillion dollars net cost to the US for the Iraq War, as suggested by Stiglitz and Bilmes, each of the 26,074,906 Iraqi men, women and children would account for only $50,000, not the $500,000 I allowed to get online. Forgive, please. Ouch, ouch, ouch, ouch. Yes, I will apologize personally to your friends if you dropped that number on them as a result of my foolishness.
Friday, April 21, 2006
Free Thinking Friday - Media
The traditional press is panicking because they are losing circulation. Management is responding to market pressure, not readers. In Seattle and surrounding areas, conventional wisdom suggests some major papers will go under.
This would seem to create a wonderful negative synergy that might somehow be exploited to return responsibility to the newsroom and the publisher's office.
My grudge became a vendetta with the 2004 elections.
Washington's newspapers spared no ink when the gubernatorial race went into overtime. They reported ad nauseum claims from Chris Vance and various attorneys about fraud, in King County, somewhere. No fraud was found. The case they brought to a Chelan County courtroom was so weak it didn't have a breath left afterward to utter the word, "appeal."
On the opposite side, rampant and demonstrated purposeful disenfranchisement of voters occurred in Ohio under the direction of that state's Bush campaign chair (and Ohio secretary of state) J. Kenneth Blackwell. The fraud was documented in an extensive report from the offices of Congressman John Conyers, supported by a subsequent GAO study. Not one word in the Seattle Times. Not one word in the Seattle P-I. Not one word in the Tacoma News Tribune. Not one damned word.
This is, to be sure, not the only example of the so-called liberal media walking in lockstep with reactionaries, but it is one which demonstrates how completely these newspapers have failed as objective, responsible media. Utterly failed.
Panic! Losing circulation!
A closer look reveals that shrinkage is occurring for major newspapers as much in the Seinfeld sense as in circulation. Molly Ivins wrote a couple of weeks ago that newspaper's management is being spooked by a few Wall Street analysts. Readership is down 13 percent since its 1985 peak, but publicly traded US newspapers average a 20 percent profit margin. The reduction in staff and news coverage, according to the redoubtable Ms. Ivins, is not likely to improve either readership or the bottom line. Ivins opines that the recent purchase by McClatchy of Knight Ridder, a company three times its size, was made possible by fears, not facts.
On a broad scale, Ivins reports on a bid by the Newspaper Guild in alliance with the Communication Workers of America on 12 newspapers that must be spun off from the McClatchy-KR merger. These are not remnants and include the Philadelphia Inquirer, San Jose Mercury News and St. Paul Pioneer Press. Should the sale go through, these could presumably be run as news organizations.
In the Puget Sound area we certainly have a number of advertising circulars masquerading as newspapers, but there are also a number (say three or four) of newspapers which have pretenses to relevance. They look very much like each other. And the dance of death between the PI and the Times is ongoing news.
So what do I propose?
I have no suggestion. I have only bitterness. Somebody else might have a scheme. I do not see much to choose between the top three or four. I do think a winner might look more like the New York Times than the King County Journal.
Alan
Postscript on Newsweek:
When did Newsweek get so bad?
I don't know if I'm ahead of the curve, or if Newsweek missed the curve. I picked up a copy from a bus seat the other day. They were channeling Karl Rove and FoxNews style reporting on Iran. It is almost funny that in Iran the mirror image of our right-wing nuts is beating the other side of the drum trying to get some juice for their own failed regime.
Has nobody noticed that sanctions worked in Iraq? Intelligence failed, but sanctions worked.
The Republicans will apparently stop at nothing during campaign season. This administration is incompetent and corrupt. Are we really going to witness a replay of the Iraq calamity? Let the international community lead. And sanctions work.
This would seem to create a wonderful negative synergy that might somehow be exploited to return responsibility to the newsroom and the publisher's office.
My grudge became a vendetta with the 2004 elections.
Washington's newspapers spared no ink when the gubernatorial race went into overtime. They reported ad nauseum claims from Chris Vance and various attorneys about fraud, in King County, somewhere. No fraud was found. The case they brought to a Chelan County courtroom was so weak it didn't have a breath left afterward to utter the word, "appeal."
On the opposite side, rampant and demonstrated purposeful disenfranchisement of voters occurred in Ohio under the direction of that state's Bush campaign chair (and Ohio secretary of state) J. Kenneth Blackwell. The fraud was documented in an extensive report from the offices of Congressman John Conyers, supported by a subsequent GAO study. Not one word in the Seattle Times. Not one word in the Seattle P-I. Not one word in the Tacoma News Tribune. Not one damned word.
This is, to be sure, not the only example of the so-called liberal media walking in lockstep with reactionaries, but it is one which demonstrates how completely these newspapers have failed as objective, responsible media. Utterly failed.
Panic! Losing circulation!
A closer look reveals that shrinkage is occurring for major newspapers as much in the Seinfeld sense as in circulation. Molly Ivins wrote a couple of weeks ago that newspaper's management is being spooked by a few Wall Street analysts. Readership is down 13 percent since its 1985 peak, but publicly traded US newspapers average a 20 percent profit margin. The reduction in staff and news coverage, according to the redoubtable Ms. Ivins, is not likely to improve either readership or the bottom line. Ivins opines that the recent purchase by McClatchy of Knight Ridder, a company three times its size, was made possible by fears, not facts.
On a broad scale, Ivins reports on a bid by the Newspaper Guild in alliance with the Communication Workers of America on 12 newspapers that must be spun off from the McClatchy-KR merger. These are not remnants and include the Philadelphia Inquirer, San Jose Mercury News and St. Paul Pioneer Press. Should the sale go through, these could presumably be run as news organizations.
In the Puget Sound area we certainly have a number of advertising circulars masquerading as newspapers, but there are also a number (say three or four) of newspapers which have pretenses to relevance. They look very much like each other. And the dance of death between the PI and the Times is ongoing news.
So what do I propose?
I have no suggestion. I have only bitterness. Somebody else might have a scheme. I do not see much to choose between the top three or four. I do think a winner might look more like the New York Times than the King County Journal.
Alan
Postscript on Newsweek:
When did Newsweek get so bad?
I don't know if I'm ahead of the curve, or if Newsweek missed the curve. I picked up a copy from a bus seat the other day. They were channeling Karl Rove and FoxNews style reporting on Iran. It is almost funny that in Iran the mirror image of our right-wing nuts is beating the other side of the drum trying to get some juice for their own failed regime.
Has nobody noticed that sanctions worked in Iraq? Intelligence failed, but sanctions worked.
The Republicans will apparently stop at nothing during campaign season. This administration is incompetent and corrupt. Are we really going to witness a replay of the Iraq calamity? Let the international community lead. And sanctions work.
Tuesday, April 18, 2006
My neighbor Dan won't be watching the Enron corruption trial this week when Jeffrey Skilling and Kenny Boy Lay go under cross-examination. But Dan is as much a victim as anybody of the orgy of fraud that permeated and exuded from the energy trader as any of its workers or stockholders.
Dan was the last employee at Pioneer Industries here on the Tacoma Tideflats. Pioneer produced chemicals – sodium hydroxide, chlor alkili (used in pulp production) and others. Pioneer came to the Tideflats when industrial rates were a fraction of a penny per kilowatt-hour. It closed in 2002, a move directly related to the Enron-rigged energy price spikes.
That energy price manipulation was a key to the economic malaise up and down the West Coast. (Had Gray Davis appropriately highlighted this fact, the nation would never have had to endure the humiliation of a Governor Arnold Schwarzenegger.) The Federal Energy Regulatory Commission (FERC) did nothing but aid in the coverup. In fact, it was the Snohomish County PUD whose lawyers uncovered and publicized the some of the most grotesque fraud.
"Kenny Boy" used to roam the governor's mansion in Texas as the deep pockets for W's campaign operation. He was the single largest donor. Later he collaborated with Dick Cheney to construct the energy policy Enron exploited.
The costs are still being paid. Portland General Electric, for example, was bought by Enron in 1997 for $2 billion in stock and $1.1 billion in assumed debt. (How much this was eventually worth is an unanswered question.) It was from the offices of PGE that the inventor of "Death Star," John Forney, operated. The sleazy dealings have continued there.
It is amazing that it became cheaper to import the wood products chemicals for Weyerhaueser rather than have them produced just down the street. The city council and everybody else did what they could do, but heavy users of energy – Kaiser Aluminum went down, too – had to be thrown overboard in those high seas. Of 175 employees in 2002, Dan became the last one. He just ran through his accumulated vacation, and I guess his pension is sound, but .... He loves to work, and he's looking at taking whatever work he can find that doesn't focus on driving. But it should have been Pioneer on the Tideflats.
So let's remember, when the focus is narrowed by the camera lens to a courthouse in Houston, that the fraud of Enron – Skilling, Lay, Fastow and the rest – was far, far, far broader. It not only ruined the employees of that company and gouged its stockholders, it put people out of work as far away as Tacoma. It disrupted and retarded the economies of more than a few states and burdened the lives of millions of people.
Were I their jailer (and were they in jail), I would be tempted to leave the keys to their cell inadvertently on the table, so perhaps a crew of those most directly lied to and cheated and ruined could "discover" them and dispense a little more direct justice.
Dan was the last employee at Pioneer Industries here on the Tacoma Tideflats. Pioneer produced chemicals – sodium hydroxide, chlor alkili (used in pulp production) and others. Pioneer came to the Tideflats when industrial rates were a fraction of a penny per kilowatt-hour. It closed in 2002, a move directly related to the Enron-rigged energy price spikes.
That energy price manipulation was a key to the economic malaise up and down the West Coast. (Had Gray Davis appropriately highlighted this fact, the nation would never have had to endure the humiliation of a Governor Arnold Schwarzenegger.) The Federal Energy Regulatory Commission (FERC) did nothing but aid in the coverup. In fact, it was the Snohomish County PUD whose lawyers uncovered and publicized the some of the most grotesque fraud.
"Kenny Boy" used to roam the governor's mansion in Texas as the deep pockets for W's campaign operation. He was the single largest donor. Later he collaborated with Dick Cheney to construct the energy policy Enron exploited.
The costs are still being paid. Portland General Electric, for example, was bought by Enron in 1997 for $2 billion in stock and $1.1 billion in assumed debt. (How much this was eventually worth is an unanswered question.) It was from the offices of PGE that the inventor of "Death Star," John Forney, operated. The sleazy dealings have continued there.
It is amazing that it became cheaper to import the wood products chemicals for Weyerhaueser rather than have them produced just down the street. The city council and everybody else did what they could do, but heavy users of energy – Kaiser Aluminum went down, too – had to be thrown overboard in those high seas. Of 175 employees in 2002, Dan became the last one. He just ran through his accumulated vacation, and I guess his pension is sound, but .... He loves to work, and he's looking at taking whatever work he can find that doesn't focus on driving. But it should have been Pioneer on the Tideflats.
So let's remember, when the focus is narrowed by the camera lens to a courthouse in Houston, that the fraud of Enron – Skilling, Lay, Fastow and the rest – was far, far, far broader. It not only ruined the employees of that company and gouged its stockholders, it put people out of work as far away as Tacoma. It disrupted and retarded the economies of more than a few states and burdened the lives of millions of people.
Were I their jailer (and were they in jail), I would be tempted to leave the keys to their cell inadvertently on the table, so perhaps a crew of those most directly lied to and cheated and ruined could "discover" them and dispense a little more direct justice.
Saturday, April 15, 2006
Radio Blues
I had Thom Hartmann up on the AM radio in the old pickup the other day. He was talking about the Commons. He seemed to be saying that in our particular society we have marked as too important for the private sector the Commons, things such as police and courts and national defense, and so have delegated them as the sole province of government.
This, of course, is nonsense. Perhaps this is not what he was saying, because the snip I caught was short, but it sprung my spring, and I ... fired off an e-mail.
The Commons, as any schoolchild knows, was the common pasture of old shared by the villagers, upon which anybody could graze their cattle. Most of the land, of course, was owned by the landed gentry and off limits. The upshot of the Commons arrangement was inevitably and exclusively lots of emaciated cattle and a completely decimated pasture. There was no incentive to manage the pasture properly, because if you did, your neighbor just introduced his cow instead. Thus the resource was exhausted and nobody made a living.
The Commons of modern times is the environment, the oceans, the air, the water. The exhaustion of these resources proceeds apace because it is in no single person's interest to do anything but use it as much as he can, and the efforts of those who may reduce their spoilage is overwhelmed by those who will take their place. The solution is similar, if politically more difficult.
In the old days, they divided the Commons into private parcels which the owner would have the incentive to manage wisely. Result: fences, fat cows, good pasture, property disputes. Today, since there is no opportunity to fence off the ocean or the sky, the conversion to collective management or ownership would need to take a different form. Unfortunately, this improbable new type of property right is likely the only remedy for the deteriorating situation in which we find our planet.
Thom missed this point clean – if I heard him correctly – by assigning police and the courts to the Commons. I said as much in my message. These instead are "public goods." Courts and representative governing bodies and such are foundational institutions, so calling them goods might be a bit disrespectful, but apt in its way. Police and fire protection, however, and roads and schools, public health and national defense, are clearly public goods. They are not the province of government because of a public moral about keeping them out of the hands of the private sector. They are supplied by the government because the private sector cannot handle them. The market cannot do public goods.
Why?
The two main properties of public goods is they are not excludable and they are not depletable. Taking the example of a road. It is not depletable because it doesn't matter how many cars go over it. It is as useful to the first car as it is to the one hundredth, or one thousandth, or – okay, maybe there is a limit. But it is certainly not in the ballpark of a private good like a candy bar or house, where one person's use reduces the usefulness to anybody else.
So public goods give and keep on giving. Unfortunately, also unlike private goods, use is not excludable. Consider a toll on every road. Not going to happen. This second attribute requires some form of coercive universal financing – taxes. Otherwise the free riders would appear like moths to the street lights. Imagine national defense. If your neighbor is paying for it, why should you? He's protected. Simply by living next door, you're protected.
So Thom got the full brunt, perhaps more succinctly than this. And I got ready to listen to the radio to hear any indicating he'd read it. But in the dark of the morning, before he was up on KPTK, I got an e-mail back! Scared the ---- out of me. It said, "Interesting. Why don't you call the show and educate me on the air."
After defibrillation, I resolved to do it. I called in. The same coordinator who does Hartmann does Sam Seder. I told him my name, confident extended minutes in witty discussion would soon follow. I got cut off. I called back. My heart was pounding ... for the first thirty minutes. Then I began to get involved in the programming. Then there was something else. Suddenly it's, click, "Hi caller, you're up, we have about a minute."
My entire life was compressed into that minute, so it was in a way appropriate that it began with the wilting of my grand expectations. He didn't even know who I was, or that I was responding to his request. I babbled on, responded to a couple of questions with revolutionary intensity, and at the end, heard, "Good point."
We're close, Thom and me.
Not included in that minute, I regret, was the point that public goods create private wealth. I am not talking about imaginary well-being, I am talking about financial wealth. Consider a bridge, even the expansion of a bridge to a peninsula. The bridge or police or school is produced at cost. The massive increases in property values from new access, the employment value of schooling, or the many external values of public safety are received by private actors at full market value. They are usually many times the costs of these goods. (Thus the high cost-benefit ratios you hear mentioned, but don't know what to make of.) It is the property holder in Gig Harbor, the engineer wherever she goes, the Boeing company, the freight hauler and the business owner who get these financial rewards minus the taxes they pay.
This is the single most important reason that countries which invest heavily in public goods (and thus have high tax rates and large governments) are precisely those countries which are most prosperous.
[Note to self: call no more radio shows.]
This, of course, is nonsense. Perhaps this is not what he was saying, because the snip I caught was short, but it sprung my spring, and I ... fired off an e-mail.
The Commons, as any schoolchild knows, was the common pasture of old shared by the villagers, upon which anybody could graze their cattle. Most of the land, of course, was owned by the landed gentry and off limits. The upshot of the Commons arrangement was inevitably and exclusively lots of emaciated cattle and a completely decimated pasture. There was no incentive to manage the pasture properly, because if you did, your neighbor just introduced his cow instead. Thus the resource was exhausted and nobody made a living.
The Commons of modern times is the environment, the oceans, the air, the water. The exhaustion of these resources proceeds apace because it is in no single person's interest to do anything but use it as much as he can, and the efforts of those who may reduce their spoilage is overwhelmed by those who will take their place. The solution is similar, if politically more difficult.
In the old days, they divided the Commons into private parcels which the owner would have the incentive to manage wisely. Result: fences, fat cows, good pasture, property disputes. Today, since there is no opportunity to fence off the ocean or the sky, the conversion to collective management or ownership would need to take a different form. Unfortunately, this improbable new type of property right is likely the only remedy for the deteriorating situation in which we find our planet.
Thom missed this point clean – if I heard him correctly – by assigning police and the courts to the Commons. I said as much in my message. These instead are "public goods." Courts and representative governing bodies and such are foundational institutions, so calling them goods might be a bit disrespectful, but apt in its way. Police and fire protection, however, and roads and schools, public health and national defense, are clearly public goods. They are not the province of government because of a public moral about keeping them out of the hands of the private sector. They are supplied by the government because the private sector cannot handle them. The market cannot do public goods.
Why?
The two main properties of public goods is they are not excludable and they are not depletable. Taking the example of a road. It is not depletable because it doesn't matter how many cars go over it. It is as useful to the first car as it is to the one hundredth, or one thousandth, or – okay, maybe there is a limit. But it is certainly not in the ballpark of a private good like a candy bar or house, where one person's use reduces the usefulness to anybody else.
So public goods give and keep on giving. Unfortunately, also unlike private goods, use is not excludable. Consider a toll on every road. Not going to happen. This second attribute requires some form of coercive universal financing – taxes. Otherwise the free riders would appear like moths to the street lights. Imagine national defense. If your neighbor is paying for it, why should you? He's protected. Simply by living next door, you're protected.
So Thom got the full brunt, perhaps more succinctly than this. And I got ready to listen to the radio to hear any indicating he'd read it. But in the dark of the morning, before he was up on KPTK, I got an e-mail back! Scared the ---- out of me. It said, "Interesting. Why don't you call the show and educate me on the air."
After defibrillation, I resolved to do it. I called in. The same coordinator who does Hartmann does Sam Seder. I told him my name, confident extended minutes in witty discussion would soon follow. I got cut off. I called back. My heart was pounding ... for the first thirty minutes. Then I began to get involved in the programming. Then there was something else. Suddenly it's, click, "Hi caller, you're up, we have about a minute."
My entire life was compressed into that minute, so it was in a way appropriate that it began with the wilting of my grand expectations. He didn't even know who I was, or that I was responding to his request. I babbled on, responded to a couple of questions with revolutionary intensity, and at the end, heard, "Good point."
We're close, Thom and me.
Not included in that minute, I regret, was the point that public goods create private wealth. I am not talking about imaginary well-being, I am talking about financial wealth. Consider a bridge, even the expansion of a bridge to a peninsula. The bridge or police or school is produced at cost. The massive increases in property values from new access, the employment value of schooling, or the many external values of public safety are received by private actors at full market value. They are usually many times the costs of these goods. (Thus the high cost-benefit ratios you hear mentioned, but don't know what to make of.) It is the property holder in Gig Harbor, the engineer wherever she goes, the Boeing company, the freight hauler and the business owner who get these financial rewards minus the taxes they pay.
This is the single most important reason that countries which invest heavily in public goods (and thus have high tax rates and large governments) are precisely those countries which are most prosperous.
[Note to self: call no more radio shows.]
Friday, April 14, 2006
Taxes, Damn Taxes and Statistics
EPI's new book on tax avoidance and evasion and the IRS Bridging the Tax Gap yields confirmation of what you already knew, only it's more so.
* Tax avoidance up, IRS staffing and budget down. Between 1992 and 2001, FTE positions decreased by 20,000. The IRS oversight panel wants a 13% increase this year. Bush has budgeted 4%.
* The average audit rate in 1978 was 2.15% for individuals. In 2002 (the book's data year), the rate was .65%. The average cost of an audit is $1,300. The average yield is $71,000.
* Tax shelters. Shift your income to categories with low rates, shift your deductions to circumstances where rates are high. The enormous cost of compliance professionals may be half accounted for by tax avoidance professionals [my thought]. The demise of Arthur Anderson after the Enron fraud apparently was as much a warning to the IRS as to accounting firms. Tax shelter fabricator KPMG has been indicted, but penalties sought are not as high as they might be, maybe on the premise that the firm is too big to let fail.
* The so-called "AGI Gap," the difference between adjusted gross income measured by the IRS and that gathered by other sources and reported in NIPA (National Income and Product Accounts), is nearly one trillion dollars. By far the largest gap is in the problem child "nonfarm proprietors," $400 billion.
* The great brouhaha of the late 1990s led by Senator William Roth (R-DE) painted the IRS as a modern day inquisition. The upshot was A Taxpayers Bill of Rights. Subsequent investigation by the GAO has failed to substantiate the horror stories.
* Economically, the complexity of the code favors evasion and avoidance, duh, and it may be that legal avoidance is more damaging to the economy than the criminal evasion.
Since you're fried on taxes today, we'll leave it at just those few bullets. The book is much fuller than this sampling. It includes interviews with former commissioners and an academic economic treatment at the end.
Suffice it to say complexity is unnecessary, useless and distortionary. Mining the tax system as a form of employment would dry up overnight with honest taxation. And lastly, for tonight, the pork that gets so many headlines is chump change compared to the giveaways to corporations and rich individuals through the tax system
* Tax avoidance up, IRS staffing and budget down. Between 1992 and 2001, FTE positions decreased by 20,000. The IRS oversight panel wants a 13% increase this year. Bush has budgeted 4%.
* The average audit rate in 1978 was 2.15% for individuals. In 2002 (the book's data year), the rate was .65%. The average cost of an audit is $1,300. The average yield is $71,000.
* Tax shelters. Shift your income to categories with low rates, shift your deductions to circumstances where rates are high. The enormous cost of compliance professionals may be half accounted for by tax avoidance professionals [my thought]. The demise of Arthur Anderson after the Enron fraud apparently was as much a warning to the IRS as to accounting firms. Tax shelter fabricator KPMG has been indicted, but penalties sought are not as high as they might be, maybe on the premise that the firm is too big to let fail.
* The so-called "AGI Gap," the difference between adjusted gross income measured by the IRS and that gathered by other sources and reported in NIPA (National Income and Product Accounts), is nearly one trillion dollars. By far the largest gap is in the problem child "nonfarm proprietors," $400 billion.
* The great brouhaha of the late 1990s led by Senator William Roth (R-DE) painted the IRS as a modern day inquisition. The upshot was A Taxpayers Bill of Rights. Subsequent investigation by the GAO has failed to substantiate the horror stories.
* Economically, the complexity of the code favors evasion and avoidance, duh, and it may be that legal avoidance is more damaging to the economy than the criminal evasion.
Since you're fried on taxes today, we'll leave it at just those few bullets. The book is much fuller than this sampling. It includes interviews with former commissioners and an academic economic treatment at the end.
Suffice it to say complexity is unnecessary, useless and distortionary. Mining the tax system as a form of employment would dry up overnight with honest taxation. And lastly, for tonight, the pork that gets so many headlines is chump change compared to the giveaways to corporations and rich individuals through the tax system
Tuesday, April 11, 2006
Prediction Tuesday
The Washington State Input-Out Model is a favorite playground of local economic guru Dick Conway. He got his start with early versions of this I-O model, in connection with the Minnesota Implan Group, which at one time had a proprietary interest in the thing. A couple of years ago Conway directed an update. The I-O model has been footnoted and cited innumerable times, but it remains a thing of mystery to me.
It is advertised as a tool for gauging the impacts of specific known stimuli as they circulate through the economy. It appears to be a spreadsheet, at the top and continuing to one side is input, on the left and continuing down is output, by sector, or SIC, and in the intersecting cell there is a ratio to three digits.... well, here's the link.
The most recent update was begun in 2002 and released in 2004, with tables specific to 1997. I do not see government in the table. So demand is seen as a function of specific industry demand, for which reason it is a supply-oriented tool. For forecasting, it could provide an early warning signal, with a lead time that might be helpful for earthquakes. But that is not its purpose.
As long as I have you here, though, and have failed to make connections with the relevance of this effort, I will emphasize that output is determined by effective demand, not supply. All schemes dedicated to improving the economy by improving the lot of the supplier, the corporation, the investor, and so on, "supply side" schemes, have disappointed.
The I-O model reminds me of a larger problem in economics – the overuse of mathematics. Algebra is great. Mathematical symbols can describe complex relationships clearly. But a whole wing of the house of economics has been built on the faulty premise that the economic system is a closed system. Another wing, the statistical wing, has been built on the presumption that there are independent variables. The two wings often connect to the detriment of good understanding.
With the assumption that economics is the science of a closed system, mathematicians have applied the tools of thermodynamics to an area of human behavior. With the assertion that there are independent variables, statisticians have mapped a course to the point upon which they are already standing.
A notorious example of things gone awry is that of Long Term Capital. A couple of Nobel Prize-winning economists established a hedge fund strategy based on mathematical and statistical analyses of arbitrage (exploitation of price differences in different markets, often bond or securities markets). It worked fine for awhile, until it didn't. When Russia defaulted on its bonds in 1996, the high leverage (heavy borrowing) of the scheme nearly broke the back of the financial system. It took some late-night arm twisting before a consortium of banks and finance houses bailed Long Term Capital out. At one time it had derivative positions of about $1.25 trillion. To my knowledge, the principles did not return the Nobel Prize nor its generous endowment.
All of which has little to do with the Washington I-O Model, which is not particularly mathematically sophisticated, but simply arithmetically complex (as far as I can tell). And before you scold me, I see its intent, I just don't see that the logic in its assumptions. Are these relationships considered to be stable? What about general income effects? And where is the conduit of government?
I bring it all up because this is prediction Tuesday here at the blog, and I don't have any competitor's predictions to talk about. The best I can find is the word "moderate" used as a verb. "Inflation will moderate." "Job growth will moderate." Is that, "Look for the same only less so?" "Or more so?"
Give me something, or I'll dust off the Economic Report of the President for next time.
It is advertised as a tool for gauging the impacts of specific known stimuli as they circulate through the economy. It appears to be a spreadsheet, at the top and continuing to one side is input, on the left and continuing down is output, by sector, or SIC, and in the intersecting cell there is a ratio to three digits.... well, here's the link.
The most recent update was begun in 2002 and released in 2004, with tables specific to 1997. I do not see government in the table. So demand is seen as a function of specific industry demand, for which reason it is a supply-oriented tool. For forecasting, it could provide an early warning signal, with a lead time that might be helpful for earthquakes. But that is not its purpose.
As long as I have you here, though, and have failed to make connections with the relevance of this effort, I will emphasize that output is determined by effective demand, not supply. All schemes dedicated to improving the economy by improving the lot of the supplier, the corporation, the investor, and so on, "supply side" schemes, have disappointed.
The I-O model reminds me of a larger problem in economics – the overuse of mathematics. Algebra is great. Mathematical symbols can describe complex relationships clearly. But a whole wing of the house of economics has been built on the faulty premise that the economic system is a closed system. Another wing, the statistical wing, has been built on the presumption that there are independent variables. The two wings often connect to the detriment of good understanding.
With the assumption that economics is the science of a closed system, mathematicians have applied the tools of thermodynamics to an area of human behavior. With the assertion that there are independent variables, statisticians have mapped a course to the point upon which they are already standing.
A notorious example of things gone awry is that of Long Term Capital. A couple of Nobel Prize-winning economists established a hedge fund strategy based on mathematical and statistical analyses of arbitrage (exploitation of price differences in different markets, often bond or securities markets). It worked fine for awhile, until it didn't. When Russia defaulted on its bonds in 1996, the high leverage (heavy borrowing) of the scheme nearly broke the back of the financial system. It took some late-night arm twisting before a consortium of banks and finance houses bailed Long Term Capital out. At one time it had derivative positions of about $1.25 trillion. To my knowledge, the principles did not return the Nobel Prize nor its generous endowment.
All of which has little to do with the Washington I-O Model, which is not particularly mathematically sophisticated, but simply arithmetically complex (as far as I can tell). And before you scold me, I see its intent, I just don't see that the logic in its assumptions. Are these relationships considered to be stable? What about general income effects? And where is the conduit of government?
I bring it all up because this is prediction Tuesday here at the blog, and I don't have any competitor's predictions to talk about. The best I can find is the word "moderate" used as a verb. "Inflation will moderate." "Job growth will moderate." Is that, "Look for the same only less so?" "Or more so?"
Give me something, or I'll dust off the Economic Report of the President for next time.
Sunday, April 9, 2006
It's the economy, stupid
We can foam at the mouth over the shredding of the Constitution, the hypocritical leaks, the torture of innocents, or the criminal activity in Iraq, but at the end of the day, elections will be won or lost on the economy.
While polls may show Iraq on top as a voter concern today, always clustered near the top are: economy, jobs, social security, budget deficits, energy costs and health care. These are the economic issues. Yes, even health care. It will be sold on its economics, not its value as a social program. Business, government and consumers are going to go broke without a comprehensive fix.
The GOP is driving us down the road to ruin.
If you like charts, check out the Center on Budget & Policy Priorities slideshow on the current fiscal debacle going on in DC.
When he took office, George Bush was presented with projections of $5.6 trillion in surpluses over a 10-year period. He and his compliant Congress have turned that into $3.4 trillion in deficits. That's $9 trillion in losses. Or $900 billion per year. This is through 2011. The longer term is bleaker.
Where did the money go?
Tax cuts ate one-half, Defense increases ate one-third, Entitlement increases ate one-tenth.
In their latest budget excercise, Bush & Co cut Medicaid, foster care, student loans, child support enforcement, K-12 education, energy, environment, transportation, veterans medical care, and shifting costs to states in massive amounts, Bush & Co. and at the same time increased the deficit by $168 billion. Tax cuts.
Up until now, GOP tax cuts have meant $500,000 per year for people making $10 million or more according to the New York Times. CBPP estimates millionaires averaged $110,000, the top 1% got $40,000, the top 20% got $5,400, and the family in the middle got $748 -- hardly enough to sink an economy for.
The tax cuts that went into effect on January 1 were worth one dollar if you made between $75,000 and $100,000 per year. Below that, zilch. Above that, you're in the money. $20,000 if you made $1 million or more.
My favorite politician is Chris Gregoire. It used to be Senator John Kerry, but he didn't play the Economy card like he should have, being focused on Iraq. If he'd played it, it would be President Kerry. Same thing with Al Gore. His issue was Character.
But as Bill Clinton used to say, It's the economy, stupid.
While polls may show Iraq on top as a voter concern today, always clustered near the top are: economy, jobs, social security, budget deficits, energy costs and health care. These are the economic issues. Yes, even health care. It will be sold on its economics, not its value as a social program. Business, government and consumers are going to go broke without a comprehensive fix.
The GOP is driving us down the road to ruin.
If you like charts, check out the Center on Budget & Policy Priorities slideshow on the current fiscal debacle going on in DC.
When he took office, George Bush was presented with projections of $5.6 trillion in surpluses over a 10-year period. He and his compliant Congress have turned that into $3.4 trillion in deficits. That's $9 trillion in losses. Or $900 billion per year. This is through 2011. The longer term is bleaker.
Where did the money go?
Tax cuts ate one-half, Defense increases ate one-third, Entitlement increases ate one-tenth.
In their latest budget excercise, Bush & Co cut Medicaid, foster care, student loans, child support enforcement, K-12 education, energy, environment, transportation, veterans medical care, and shifting costs to states in massive amounts, Bush & Co. and at the same time increased the deficit by $168 billion. Tax cuts.
Up until now, GOP tax cuts have meant $500,000 per year for people making $10 million or more according to the New York Times. CBPP estimates millionaires averaged $110,000, the top 1% got $40,000, the top 20% got $5,400, and the family in the middle got $748 -- hardly enough to sink an economy for.
The tax cuts that went into effect on January 1 were worth one dollar if you made between $75,000 and $100,000 per year. Below that, zilch. Above that, you're in the money. $20,000 if you made $1 million or more.
My favorite politician is Chris Gregoire. It used to be Senator John Kerry, but he didn't play the Economy card like he should have, being focused on Iraq. If he'd played it, it would be President Kerry. Same thing with Al Gore. His issue was Character.
But as Bill Clinton used to say, It's the economy, stupid.
Saturday, April 8, 2006
Greenspan v. Bernanke, different words, same tune
The use of the language is different, thank God, but the economics are the same. Alan Greenspan spoke and wrote in a manner so circular and dissembling, that while it might have been obfuscatory and fundamentally dishonest, it was fascinating, like watching a spider spin.
Greenspan never bothered to untangle the meaning from the words he used. He just left the whole mess there on the table to be dissected like chicken entrails by the shaman interpreters of Wall Street.
Ben Bernanke, his replacement as Fed Chairman, promises to have a different, cryptic, use of the mother tongue. It will be code. Certain phrases will have specific implications. For example, "continuing interest firming may be needed" means look for another quarter point hike next month. Once we know the code, there will be no knots. That may be good. It may not.
But unfortunately, tragically, the same tedious and impotent economics informs them both. Bernanke shows no more imagination than Greenspan. He will continue to focus solely and exclusively and without deviation on the interest rate, even now that the short-term rate that the Fed controls has become disconnected from the long-term rate.
[Note that the "prime rate" is now and has been for some time just the short-term rate plus 3 percent. At one time it was connected to long-term financing by banks. Now it seems to be little more than a credit card benchmark.]
Bernanke also continues Greenspan's nonsensical repition of the importance of "core inflation." Core inflation excludes energy and food. Energy and food comprise a good chunk of the average family's budget. Energy prices eventually show up in the price of other goods and services, anyway, but cutting energy loose from his calculations has a particularly troubling implication for the Fed's approach. To the Fed, to Greenspan and now to Bernanke, all inflation is demand-pull inflation. But energy price hikes are the quintessential cause for demand-pull inflation. At the same time, energy is actually a competitor of labor. A rise in energy prices is cost push inflation that simultaneously reduces demand.
Andrew Oswald of Britain's Warwick University has pointed out that everything in our economy is a combination of energy and labor. Even extraction of resources. This means that when energy goes up in price, the price of labor must go down to compensate. Since wages are "sticky" and resist going down, the price cut in labor comes in the form of unemployment. (Oswald has the distinction of predicting the 2001 recession accurately at a time when others were predicting Dow 36,000 and the arrival of permanent prosperity.)
Obviously unemployment is not now at levels that reflect the enormous rise in the price of energy. That is because we have staved off the day of reckoning by borrowing like addicts. So the threat, or likelihood, is that an inflation scare will cause the Fed to try to shut down an economy on the brink of collapse.
Greenspan left with the economy awash in a sea of red ink, a rising tide that has lifted all boats for the moment. Unfortunately this red tide stains everything in sight, including our futures. At the very time we should have been saving, we were borrowing. When we should have been investing in people and facilities and research, we were investing in passive housing. When we should have been stabilizing. We were risking.
One would hope for a better captain and a new compass for the storms we face ahead.
Greenspan never bothered to untangle the meaning from the words he used. He just left the whole mess there on the table to be dissected like chicken entrails by the shaman interpreters of Wall Street.
Ben Bernanke, his replacement as Fed Chairman, promises to have a different, cryptic, use of the mother tongue. It will be code. Certain phrases will have specific implications. For example, "continuing interest firming may be needed" means look for another quarter point hike next month. Once we know the code, there will be no knots. That may be good. It may not.
But unfortunately, tragically, the same tedious and impotent economics informs them both. Bernanke shows no more imagination than Greenspan. He will continue to focus solely and exclusively and without deviation on the interest rate, even now that the short-term rate that the Fed controls has become disconnected from the long-term rate.
[Note that the "prime rate" is now and has been for some time just the short-term rate plus 3 percent. At one time it was connected to long-term financing by banks. Now it seems to be little more than a credit card benchmark.]
Bernanke also continues Greenspan's nonsensical repition of the importance of "core inflation." Core inflation excludes energy and food. Energy and food comprise a good chunk of the average family's budget. Energy prices eventually show up in the price of other goods and services, anyway, but cutting energy loose from his calculations has a particularly troubling implication for the Fed's approach. To the Fed, to Greenspan and now to Bernanke, all inflation is demand-pull inflation. But energy price hikes are the quintessential cause for demand-pull inflation. At the same time, energy is actually a competitor of labor. A rise in energy prices is cost push inflation that simultaneously reduces demand.
Andrew Oswald of Britain's Warwick University has pointed out that everything in our economy is a combination of energy and labor. Even extraction of resources. This means that when energy goes up in price, the price of labor must go down to compensate. Since wages are "sticky" and resist going down, the price cut in labor comes in the form of unemployment. (Oswald has the distinction of predicting the 2001 recession accurately at a time when others were predicting Dow 36,000 and the arrival of permanent prosperity.)
Obviously unemployment is not now at levels that reflect the enormous rise in the price of energy. That is because we have staved off the day of reckoning by borrowing like addicts. So the threat, or likelihood, is that an inflation scare will cause the Fed to try to shut down an economy on the brink of collapse.
Greenspan left with the economy awash in a sea of red ink, a rising tide that has lifted all boats for the moment. Unfortunately this red tide stains everything in sight, including our futures. At the very time we should have been saving, we were borrowing. When we should have been investing in people and facilities and research, we were investing in passive housing. When we should have been stabilizing. We were risking.
One would hope for a better captain and a new compass for the storms we face ahead.
Thursday, April 6, 2006
This Governor is the Real Deal
We need to pick up the option on Chris Gregoire. You can't do any better than she has done. Heck, you can't even do as good. This is Field of Dreams stuff. And like any great player, she makes those around her better, too. Highlights for one citizen:
* Medical liability agreement
* $940 million surplus in the bag to plug the dike in the next biennium
* Civil rights act (at the legislature's lead)
* Puget Sound clean-up
* 4-year school in the Tri-Cities
On economics
* Beginning to compete on quality education, not tax giveaways, and thus starting a race to the top instead of a race to the bottom.
* Partnering with Oregon on transportation. It's about time we started working together. We don't need to fight over puny high tech companies, we need to maximize our geographic advantages.
On education (and if you don't think this is economics, too, tell me who is going to pay your social security and make your stocks worth more than mattress filler)
* Department of Early Learning -- BIG payback coming on this one.
* Washington Learns, a down to the foundation, 18-month study of how to do education right.
* Q: Chaired by who? A: Chris Gregoire.
I luv this guv.
* Medical liability agreement
* $940 million surplus in the bag to plug the dike in the next biennium
* Civil rights act (at the legislature's lead)
* Puget Sound clean-up
* 4-year school in the Tri-Cities
On economics
* Beginning to compete on quality education, not tax giveaways, and thus starting a race to the top instead of a race to the bottom.
* Partnering with Oregon on transportation. It's about time we started working together. We don't need to fight over puny high tech companies, we need to maximize our geographic advantages.
On education (and if you don't think this is economics, too, tell me who is going to pay your social security and make your stocks worth more than mattress filler)
* Department of Early Learning -- BIG payback coming on this one.
* Washington Learns, a down to the foundation, 18-month study of how to do education right.
* Q: Chaired by who? A: Chris Gregoire.
I luv this guv.
Wednesday, April 5, 2006
Coming clean at the Taxk Force
I came home last night to find an e-mail from our esteemed chair admonishing me for extracurricular activities for not informing the other members of Tacoma's Revenue Task Force that I had been posting here. I was not trying to hide out, not consciously, at least. I had checked with the legal counsel to the committee to make sure blogging was okay. I had not advertised the activity more to avoid political distractions in what should be a straightforward look at municipal financing. Also so as not to blow my own horn. And a little bit because I am wary of the Open Meetings Act.
(So Task Force members, don't use the comment function on this site till we get a ruling on whether that would constitute "deliberations." If you see yourself caricatured here, it's because I'm focused on the economics. The characters are not nuanced. Honest.)
Now the Faithful Thirty-Nine will likely be expanded by ten or eleven for a day or so, and to make life easier, I have collected the posts on the Taxk Force below, so you won't have to scroll through the past three months. Also check out the Pacific Northwest Portal, the regional information gateway and media center created by NPI's resident genius (and Executive Director) Andrew Villeneuve and company.
* View from the Taxk Force
* I love to hate the B&O, but ...
* Tacoma Taxk Force Underway
* It may be Triple A, but it's the only game in town
* Tacoma tax plan needs a shot
And here is a piece on a state income tax, with a very good comment from Jeanne Large appended.
Get in the shoes of the taxpayer
(So Task Force members, don't use the comment function on this site till we get a ruling on whether that would constitute "deliberations." If you see yourself caricatured here, it's because I'm focused on the economics. The characters are not nuanced. Honest.)
Now the Faithful Thirty-Nine will likely be expanded by ten or eleven for a day or so, and to make life easier, I have collected the posts on the Taxk Force below, so you won't have to scroll through the past three months. Also check out the Pacific Northwest Portal, the regional information gateway and media center created by NPI's resident genius (and Executive Director) Andrew Villeneuve and company.
* View from the Taxk Force
* I love to hate the B&O, but ...
* Tacoma Taxk Force Underway
* It may be Triple A, but it's the only game in town
* Tacoma tax plan needs a shot
And here is a piece on a state income tax, with a very good comment from Jeanne Large appended.
Get in the shoes of the taxpayer
Sunday, April 2, 2006
View from the Taxk Force
The last meeting of Tacoma's ground breaking Revenue Task Force (nee City Services Tax Task Force) was kinda rocky. It turns out there was a reason the city council named us "stakeholders." We were holding onto our stakes for dear life the other night. (No, we were not driving them through the hearts of our opponents.)
The voice of small nonprofits was particularly strident. Her view was that nonprofit enterprises of all sizes and descriptions are virtual monastics in service to the greater good. To suggest they might support some of the city services like fire and police protection was a heresy unworthy of any of us. Instead, we should balance the budget by eliminating COLAs for employees and letting them pay part of their health insurance to boot.
I am a heretic of long standing, so I did speak up, not on the absence of saintliness in her preferred financing scheme, but rather I pointed out that nonprofits were getting a big fat subsidy from the city when they accepted services without paying for them.
Well! (the voice was louder, of course) It's an explicit subsidy. Everybody knows about it. Payment in part for the services.
It's not explicit at all, and I said as much. It's something not paid. Nobody even knows how much it's worth.
I got support from the other economist on the Taxk Force, who diplomatically picked out the other nonprofit representatives to talk to. Our eleven members include four holding the stakes for nonprofits -- two (including the chair) from the University of Puget Sound, the aforementioned head of the nonprofit center, and an accountant whose connection to the sector is still vague in my mind.
The other economist doubted that UPS would expect the city to write out a check in the amount of service it provides. She received an answer of modest length on the value of UPS to the community and how they handle some security in-house and how the library is open to the public and heavily used. (Make a note of it. The city's libraries might be closed. Staffing is so tight there are "rolling closures" if a librarian has the temerity to get sick.)
Heretic or not, I really don't have it in for nonprofits, particularly not UPS nor the small-scale social service agencies represented by Ms. Cut-Their-Salaries-Through-the-Back-Door.
If she'd read the material, she'd see my variation on the city manager's proposal excludes all nonprofits except the very largest, say, the hospitals. It eschews the use of the property tax, which has to be levied on all property at a single rate. As a tool to get to some of the apparent tax dodges, like the small seminary which keeps the old Weyerhaeuser mansion off the books, it could work. But when applying it to operations of diverse dimensions, it becomes a blunt instrument.
I like nonprofits. I operate without making a profit myself. I'm not into squeezing turnips, either, which is what trying to get revenue form these smaller agencies amounts to. On the other hand, there's a lot of highly paid people operating in those medical centers on the hill and not paying a dime to the city.
Heck, maybe we could charge them by the ambulance load.
The voice of small nonprofits was particularly strident. Her view was that nonprofit enterprises of all sizes and descriptions are virtual monastics in service to the greater good. To suggest they might support some of the city services like fire and police protection was a heresy unworthy of any of us. Instead, we should balance the budget by eliminating COLAs for employees and letting them pay part of their health insurance to boot.
I am a heretic of long standing, so I did speak up, not on the absence of saintliness in her preferred financing scheme, but rather I pointed out that nonprofits were getting a big fat subsidy from the city when they accepted services without paying for them.
Well! (the voice was louder, of course) It's an explicit subsidy. Everybody knows about it. Payment in part for the services.
It's not explicit at all, and I said as much. It's something not paid. Nobody even knows how much it's worth.
I got support from the other economist on the Taxk Force, who diplomatically picked out the other nonprofit representatives to talk to. Our eleven members include four holding the stakes for nonprofits -- two (including the chair) from the University of Puget Sound, the aforementioned head of the nonprofit center, and an accountant whose connection to the sector is still vague in my mind.
The other economist doubted that UPS would expect the city to write out a check in the amount of service it provides. She received an answer of modest length on the value of UPS to the community and how they handle some security in-house and how the library is open to the public and heavily used. (Make a note of it. The city's libraries might be closed. Staffing is so tight there are "rolling closures" if a librarian has the temerity to get sick.)
Heretic or not, I really don't have it in for nonprofits, particularly not UPS nor the small-scale social service agencies represented by Ms. Cut-Their-Salaries-Through-the-Back-Door.
If she'd read the material, she'd see my variation on the city manager's proposal excludes all nonprofits except the very largest, say, the hospitals. It eschews the use of the property tax, which has to be levied on all property at a single rate. As a tool to get to some of the apparent tax dodges, like the small seminary which keeps the old Weyerhaeuser mansion off the books, it could work. But when applying it to operations of diverse dimensions, it becomes a blunt instrument.
I like nonprofits. I operate without making a profit myself. I'm not into squeezing turnips, either, which is what trying to get revenue form these smaller agencies amounts to. On the other hand, there's a lot of highly paid people operating in those medical centers on the hill and not paying a dime to the city.
Heck, maybe we could charge them by the ambulance load.
Saturday, April 1, 2006
Higher minimum wage helps us all
Notice how unemployment spiked when we began indexing the minimum wage? Not.
A recent column from John Burbank reminded me that Washington is almost civilized in its treatment of low wage workers. Burbank is head of EOI, the Economic Opportunity Institute, based in Seattle. He and EOI were prime proponents of initiative 688, which garnered two-thirds of the vote in 1998 and tied the minimum wage to inflation. He is, and should be, justifiably proud of the measure. The wage rate is now $7.63, highest in the nation, two and a half dollars above the federal minimum of $5.15.
Watch out! The sky has not fallen! Quite the contrary. Jobs are plentiful.
Burbank's column tied the minimum wage into a cheery little formula for job and income growth that he projects onto the current situation: "the blossoming economy, increases in productivity, a minimum wage that keeps up with inflation, and public investment in education and transportation."
As you know, I do not see a blossoming economy. I see one juiced on debt, which includes the poison pill of its own demise. The increases in productivity Burbank sees we could debate, and may another time. (I certainly do not see productivity improvements translated into wage increases.)
I do agree – even more than Burbank does (and if one can agree more) – that the minimum wage is helping economic vitality. No doubt.
It once was a tenet of economics texts, right behind the first law, that the minimum wage discouraged employment because it kept wages above the equilibrium intersection of supply and demand. Then a study was done on the East Coast (for $5 I'll get the cite) which demonstrated that employment went UP after an increase in the minimum wage.
Foam could be seen seeping through the beards of academia. Humph! Not possible!
Possible and true. Even if it is still ignored in the classroom. Why? As a demand sider, I say the wages of low-paid people tend to get spent quickly and possibly in venues operated by other low-paid people. An increase in demand generates its increase in supply, as always.
The same sort of dynamic is taking place in Washington. A dollar spent on low-wage labor very likely doesn't go very far geographically or temporally, and generates far more stimulus than a dollar spent on high-wage labor or profits or rents.
Beyond that, it could be that people are drawn to the state for these low-wage jobs, particularly as other state's economies weaken. Illegals and those who assist them. People create wealth. More people, more economic activity. Whatever the reason, it is only too clear that jobs have not died under the burden of our civilized minimum wage policy.
The last element in Burbank's formula was investment in education and transportation. Yes. These produce a healthy society and a healthy economy, improving productivity. I disagree that we have invested as much as we need to in these critical areas. I also question whether our spending on highways and their partners automobiles and gasoline is very smart. (Rail, high efficiency rail, publicly managed rail, clean, Washington-made, future-oriented, community-building rail. Is better.) Aside from productivity, remember, too, the jobs in education and transportation (both construction and operation), while not high-paying, can generate middle class households.
Lastly, and perhaps closer to the core of Burbank's contention, we need to fully appreciate that business comes looking for good education and transportation infrastructure. I know this is what the Guv believes. And both of them are right. The most instructive matrix on business siting decisions I ever saw is from work done for the 2002 Gates Commission, the Tax Structure Study. (You'll have to rotate it on your PDF reader.) It's on page 12 of this link.
See how taxes are far down on the list, behind workforce, transportation, and of course, number one, market. Notice that higher taxes are necessary for better education and transportation. Draw your own conclusions.
(Hint: Investment in education and transportation is the right answer.)
A recent column from John Burbank reminded me that Washington is almost civilized in its treatment of low wage workers. Burbank is head of EOI, the Economic Opportunity Institute, based in Seattle. He and EOI were prime proponents of initiative 688, which garnered two-thirds of the vote in 1998 and tied the minimum wage to inflation. He is, and should be, justifiably proud of the measure. The wage rate is now $7.63, highest in the nation, two and a half dollars above the federal minimum of $5.15.
Watch out! The sky has not fallen! Quite the contrary. Jobs are plentiful.
Burbank's column tied the minimum wage into a cheery little formula for job and income growth that he projects onto the current situation: "the blossoming economy, increases in productivity, a minimum wage that keeps up with inflation, and public investment in education and transportation."
As you know, I do not see a blossoming economy. I see one juiced on debt, which includes the poison pill of its own demise. The increases in productivity Burbank sees we could debate, and may another time. (I certainly do not see productivity improvements translated into wage increases.)
I do agree – even more than Burbank does (and if one can agree more) – that the minimum wage is helping economic vitality. No doubt.
It once was a tenet of economics texts, right behind the first law, that the minimum wage discouraged employment because it kept wages above the equilibrium intersection of supply and demand. Then a study was done on the East Coast (for $5 I'll get the cite) which demonstrated that employment went UP after an increase in the minimum wage.
Foam could be seen seeping through the beards of academia. Humph! Not possible!
Possible and true. Even if it is still ignored in the classroom. Why? As a demand sider, I say the wages of low-paid people tend to get spent quickly and possibly in venues operated by other low-paid people. An increase in demand generates its increase in supply, as always.
The same sort of dynamic is taking place in Washington. A dollar spent on low-wage labor very likely doesn't go very far geographically or temporally, and generates far more stimulus than a dollar spent on high-wage labor or profits or rents.
Beyond that, it could be that people are drawn to the state for these low-wage jobs, particularly as other state's economies weaken. Illegals and those who assist them. People create wealth. More people, more economic activity. Whatever the reason, it is only too clear that jobs have not died under the burden of our civilized minimum wage policy.
The last element in Burbank's formula was investment in education and transportation. Yes. These produce a healthy society and a healthy economy, improving productivity. I disagree that we have invested as much as we need to in these critical areas. I also question whether our spending on highways and their partners automobiles and gasoline is very smart. (Rail, high efficiency rail, publicly managed rail, clean, Washington-made, future-oriented, community-building rail. Is better.) Aside from productivity, remember, too, the jobs in education and transportation (both construction and operation), while not high-paying, can generate middle class households.
Lastly, and perhaps closer to the core of Burbank's contention, we need to fully appreciate that business comes looking for good education and transportation infrastructure. I know this is what the Guv believes. And both of them are right. The most instructive matrix on business siting decisions I ever saw is from work done for the 2002 Gates Commission, the Tax Structure Study. (You'll have to rotate it on your PDF reader.) It's on page 12 of this link.
See how taxes are far down on the list, behind workforce, transportation, and of course, number one, market. Notice that higher taxes are necessary for better education and transportation. Draw your own conclusions.
(Hint: Investment in education and transportation is the right answer.)
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