We like our debt

With no comment, here is a chart of borrowing by major sector over the past twelve years.

This is borrowing by year, not aggregate or total debt. Federal borrowing shown here is the so-called "unified" budget, meaning the operating budget after it gets done raiding Social Security. In coming days, we'll put up some other charts from the Fed's release. Then we'll comment.

# Posted by Alan : 1:38 PM

Taking it to 'em in Eastern Washington

Supporting Democrats in Eastern Washington is not throwing your money away.

In the 4th, Doc Hastings is vulnerable. The rule of thumb is an incumbent is safe unless there is an explicit reason for the voters to turn him out. Here there is. Doc as the disappearing chair of the Ethics Committee has been the doorman for the House of Corruption, Tom DeLay's lapdog. He's also the tactician who made the Medicare drug bill fiasco a reality. Opposing him is a truly good man in Richard Wright. Wright is the perfect counterpoint -- compassionate rather than cold; honest and straightforward rather than secretive and conniving, and as a successful businessman with a dozen physical therapy clinics, he's just the man to re-write the drug bill and help a transition to universal health coverage. A simple swap of Wright for Doc would raise the integrity level in the House by 15 points.

In the 5th, GOP incumbent Cathy McMorris is of a different gender and not quite as dumb as Dave Reichert, but of the same ask-no-questions party line mold. She has a big problem in the demographically gifted Peter Goldmark -- rancher, scientist, environmentalist, farm advocate. If Goldmark can split the small towns and farms, then carry Spokane with it's 65% of the voters, he wins.

Your money may be well placed in these races. Early support is very big, not only to finance campaign activities, but to demonstrate seriousness to future donors. If either or both of these candidates get close to winning, it will at a minimum force a defense of these seats by Republicans and draw off action from other races. Also, the GOP smear machine will not be quite so convincing in October if it has to fire in four directions (Cantwell, Burner, Wright, Goldmark), rather than one or two.

Shut down the Rail Study

If this is what the Legislature had in mind, they should have just asked Big Rail what they want. Michael Fischer of Cambridge Systematics, the Transportation Commission's consultant on the million dollar plus statewide rail study, gave his first report Tuesday. Consultant speak hung from like cobwebs in the room by the time he was done. (Quite a contrast from Doug MacDonald, Transpo Secretary, in the morning. MacDonald speaks like Barney Frank, to the point, with flavor, perspective and weight.)

It was clear even in this early look that the strategic interests of Washington in passenger transport and in getting freight off freeways would be victims in the ultimate report of too many trees in front of the forest.

Capacity is the problem. Everybody knows it. For one reason or another the consolidation of the railroads in the 80s and 90s was followed by a reduction of capacity in the West. Now, strangely, railroads are able to raise rates for the first time in decades. What we heard Tuesday was a screen shot of the current situation portrayed as a culmination of the inevitable. Some unnamed natural law (perhaps the market) justifies the obsession of Class 1 railroads with intermodal cargo and commodities, trade goods. This obsession bypasses Washington and its transportation needs on its way from Asia to the Midwest and vice versa.

We are being prepared for winners and losers, and the state will be told at the end of the day that only a few of the short lines are "strategically positioned" to survive, and that the economics of standardization makes intermodal traffic the highest priority. Handling individual cars is a thing of the past, and so on.

Phooey. We need the big view. We can't let the railroads use restricted capacity as an excuse to jack up rates the way Oil has used reduced refinery capacity to jack up gas prices, or force traffic off rail onto the roads to make room for container trains and grain trains. The state needs to see what $5 billion, or even $10 billion, over ten years will buy in terms of capacity -- particularly passenger capacity and short-haul. If Burlington Northern-Santa Fe and Union Pacific are not interested in infrastructure, the state has got to get interested.

The freeway system simply cannot absorb the growth projected for it. If for the cost of retrofitting a single HOV lane onto I-5 we could lay hundreds of miles of track and add facilities I don't even know what are to make rail work smoothly, we need to do it.

Rail is clean, it is reasonably cheap to build, it is low maintenance, and it would extend the life of the road system immeasurably to shift freight from trucks to trains. The I-5 corridor is either first or second in terms of freight in the nation. Each semi causes 16,000 times as much wear on the roadway as a car. Funding rail is attractive, because it is easy to toll the users. (Which is not to say gains to the environment and savings on the freeways shouldn't generate some financial reward to rail, just that a revenue stream other than taxes would look good to bond buyers.)

But none of this is even a blip on the radar of the report as it is being laid out. The analytical tools we're being shown are tweezers, when the proper scope requires fork lifts. We don't have time for an exercise in mediocrity. Incremental improvement is fine, so long as the increments are substantial. If we're going to talk winners and losers, let's make shippers and the state partners on the winning side. Or at least see if it's possible. The Legislature or the Commission needs to shut down this study until it gets into the ballpark with regard to scale and perspective.

Q&A: Richard Wright

If I had a remote on real time, I would have started Richard Wright’s speech where he ended it: “...Restore integrity and honesty to the House of Representatives, establish a fair and honest drug plan, end the Iraq war so those soldiers can come home and be rejoined with their families.

“If there ever was a time we needed a change in this district, it is right now. We need to approach this campaign as if it were the final victory needed to secure a Democratic Congress.”

Amen! Removing DeLay lapdog Doc Hastings ought to be first priority for anybody interested in an ethical Congress. That is what Richard Wright is trying to do in the 4th Congressional District -- Central Washington from Wenatchee down through Ellensburg and Yakima and into the Tri-Cities.

I tried to find some questions that were not too easy. Richard was very generous in his answers.

NPI: We on the West Side have a view of Eastern Washington as a few frustrated liberals surrounded by blank-eyed dittoheads. What do you need to do to wake people up?

Wright: I feel that the majority of voters are extremely busy. Economic pressures require them to work longer than they would like. This limits their ability to understand the complex issues facing this nation. This is exacerbated by our media which seems to me nothing more than political propaganda in many cases. Voters are starting to realize that many of the problems they are facing are result of very poor decisions by their elected officials. High gas prices are a huge issue for the families, farmers, and ranchers in Eastern Washington. People are tiring of the Iraq war. My conversations with voters give me hope that they are now really ready for a change.

NPI: How is the Medicare Drug Bill fiasco playing? I heard you connecting it directly to Hastings.

Wright: This bill is a license to steal from our seniors. This bill has been a disaster. It will take some time to educate the seniors on how Hastings was responsible for passage of this confusing bill. Hastings was responsible for timing the vote that passed narrowly. After the allotted 15 minutes, the bill had failed. Hastings kept the vote open for 3 hours allowing the President time to twist the arms of legislators and pressure them to change their votes. One senior told me “you can conceal anything if you make it confusing enough.” This program is so complicated it is easy to conceal fraud and it is difficult to determine if the seniors are getting the promised benefit. My mother actually pays $500 more under the program than before signing up. According to the bill, she was supposed to get an $800 benefit. This bill is a license to steal from our seniors.

Extending the date to sign up is not the solution. The solution is a complete overhaul of the program. I rallied with supporters in Pasco and Yakima on May 15, calling for Hastings to step down as Chairman of the House Ethics Committee. We held these events on the deadline for signing up for the program because of Hastings’ manipulation to get the bill passed. We do not feel its right for a Congressman who cannot follow the rules of the House to be the Ethics Committee Chairman.

NPI: We at NPI have advocated closing the holes in the federal budget by rescinding the tax breaks for the rich and adopting family friendly taxation such as PPI’s plan. [We posted on this in November.] You’ve made the budget debacle one of your campaign themes. How do you see it?

Wright: The budget deficits are threatening the economic viability of this nation. The fiscal irresponsibility of our elected officials is also weakening our currency. I have taken several trips to Europe and I’ve seen the value of the dollar decrease against the Euro over the past few years. If we truly view this as a global economy, we should view our currency on global terms. That means it should concern us when our currency loses value. I’m sure those who benefit from tax breaks also lose when our currency devalues. My approach to the budget deficit would be to do everything we can do to control spending and if that is insufficient to balance the budget, our first step should be rescinding the tax breaks for high income earners.

NPI: There is a large, established Hispanic population in Central and Southeast Washington. What is your take on the immigration debate?

Wright: Immigration is a huge issue in our district. It is an issue that divides people. Even in the labor arena, there are differences of opinions. The problems we’re having with immigration showcase the problems we’re having with our borders. It seems that if we were truly concerned with national security, the first thing we would have done is secure or borders. This lax border security has made it easy for immigrants to cross into this country. I also read that the United States has dumped farm commodities in Mexico which has put one million corn farmers out of work. This has increased the number of immigrants looking to this country for gainful employment. The jobs are here and Americans are hiring.

It creates a situation where people will do what it takes to get here. Our farmers and ranchers are dependent on a dependable labor supply. I believe all people need to be treated with dignity. These are hard working people and we can’t deny that. I feel compromise is in order to approach and solve this problem.

NPI: You built a successful health care business, but I’m not sure exactly how it works. Can you describe it? In what form do you see affordable health care finally arriving?

Wright: I started a physical therapy private practice in 1982. This company has now grown to 11 clinics in three states with 60 employees. The main reason for our success is our concern for providing the best quality of medical care for our patients. Additionally, we have developed a business plan which we call “The Columbia Way of Doing Business”. It rewards employees who work hard and help the company succeed. It also rewards physical therapists who help us expand our company. We have been successful at growing the company at 15% per year. We will be opening three more clinics this year. We now have 22 physical therapists working for the company.

Over the past 20 years only three therapists have terminated their employment before retirement. Even though we’re a small company, we have tried hard to become a great company. We are very innovative with rewarding our employees. We have profit sharing for all full-time employees. We also have health-care benefits, stock options, fitness bonuses, marketing bonuses and an excellent retirement program. We have been nominated for the Mid-Columbia Small Business of the Year Award. This will be given out on May 18th. I am presently President of this company but it now only is taking about 5 hours per week of my time.

Our first step in decreasing health-care costs should be prevention. Our company has developed an injury-prevention program for a local potato processing plant. Their injury rate has decreased by 70% and they have saved millions in L & I premiums. We need to stress proper diet and exercise. Our company pays employees for exercise and weight-loss.

I believe the best approach to delivering health-care services would be to fine-tune the Medicare Program. Our company has treated over 10,000 Medicare recipients over the past 20 years. Medicare is a great insurance program with a very low administrative cost. The Medicare Reform Act of 2003 has damaged the program. The biggest problem was the Medicare Drug portion of the bill. That portion of the bill needs to be completely revised.

We need to get the private insurance companies out of this program. We should allow the federal government to negotiate drug prices and also administer the program, in the same manner that the Medicare Part B is run. This drug program is so complex that is easy to conceal fraud and difficult to determine if our seniors are getting the promised benefit. After fine-tuning Medicare we need to experiment with bringing other populations into the program. Perhaps Medicare could be the payer for large corporations. We could also begin to allow other age groups to be covered under the program. I would start off with those aged 60 to 65. This group would still be responsible for paying their premiums so it would not adversely affect the budget. Because Medicare is so much more efficient that traditional insurance, there should be a huge cost savings. Over a 10-year period we could gradually bring everyone into the Medicare Program. This ten-year period would also allow insurance companies time to adjust to these changes.

NPI: What is the biggest obstacle between you and the House seat?

Wright: The support I’ve felt in the district has been overwhelming. People are ready for a change and the enthusiasm is contagious. It’s a great feeling. The fact remains that my biggest obstacle is getting the necessary resources needed to get my message out. I feel I have great ideas and there are certainly plenty of issues to discuss, but it will take money to communicate my message. This is also a heavily Republican district, requiring me to reach people with messages that resonate with all voters in the District who are fed up with the status quo, regardless of their party affiliation. Our approach to the budget deficit should help with this.

NPI: I was concerned you weren’t getting off the ground soon enough, then I visited Hastings’ campaign web site. It hasn’t been updated in eighteen months. I was concerned you didn’t have the charisma to win. Then I remembered Doc. You have no problem. How do you compare yourself to the current officeholder? How do you expect him to run?

Wright: I feel good about the organization and timing of the campaign. We’ve been at it since the first of the year. Our campaign office is in place, we had a fantastic kick-off tour and I am now touring the district speaking to groups of seniors about Medicare. I am putting everything in to this and I believe with hard work I’ll win.

As far as comparisons with Hastings, I think the only thing we have in common is that we both graduated from Pasco High School. Hastings did not finish college. I attended BYU for 4 years studying business and science before transferring to the University of Washington Physical Therapy School. I graduated in 1979. I started my business from scratch. Hastings was handed his father’s janitorial supply company.

My main hobby has been international travel. I was in London when President Bush pulled out of the Kyoto Protocol. I was in Germany when he began talking about Iraq. I was in the Virgin Islands when the war started. In 2005, I visited London 5 days after the bombings. I was in Australia when the Bali bombings occurred. I have traveled to China in 1983, 1991, 1998 and 2004. I visited the Guangzhow trade fair twice and have seen the dramatic changes in that country.

I feel I have a much more accurate and informed view of our country and how our policies affect the world. I speak the Cantonese dialect of Chinese. I believe that Mr. Hastings will keep a low profile during this campaign and will not respond to my statements. He will probably try to delay a debate as long as possible.

NPI: How is the Iraq war playing in your district?

Wright: The Iraq war is one of the primary reasons I’m running for Congress. This prolonged conflict is losing support all over the country. I wrote Mr. Hastings before the war, encouraging him to follow the recommendations of the United Nations. Of course, he went along with the administration and voted for the resolution of force. He has voted the GOP party line 97% of the time. I have always felt this war was ill-conceived and that we never had nor do we now have a reasonable exit strategy. I do support our troops and appreciate their sacrifices. We now need a new course for our troops’ sake and for the sake of the Iraqi people.

NPI: What are the major issues you see?

Wright: I see the major issues to be high gas prices, insecure borders, ballooning budget deficits, a confusing Medicare drug plan and a Congress rife with corruption. Gas prices, in particular are on Americans’ minds and affecting their way of life. Our media reminds us of the high corporate profits of oil companies at the same time we pay painfully high prices for gas. I will always put American citizens and hard-working families before big corporate interests. We also need to address the urgent issue of American dependence on foreign oil. This is an area where we need to apply good old American ingenuity and come up with innovative solutions. This is about the environment, national security, and economic stability all in one. It’s very important to me.

NPI: What question would you like to answer that I haven’t asked?

Wright: You have asked some very good questions. Many Americans are concerned about the direction of our country – 70% feel we’re on the wrong track. I feel this upcoming election is extremely important to the future of our nation, and I think people understand the gravity of their decisions at the polls this November. I feel this is the year to win. Thank you very much for the interview.

You can contact the Wright campaign at their website to contribute or volunteer. McCranium is following the Wright campaign.

Torching the town

Republicans in their extension of federal capital gains and dividends tax cuts have effectively destroyed the possibility of fiscal solvency. (See last week's coverage.) At the same time, it is an indication they may have given up on retaining effective control of Congress. Otherwise, Why would they worry about the years 2008-09? Those are the years affected by the capital gains extension.

While the corporate Republicans who dominate our government are stupid, they are not dumb. They must see the continuation of these massive deficits into the retirement years of the baby boomers is to finance what a millstone is to swimming. If they are assuming the loss of Congress, they may be setting up the Democrats as the bad guys who raise taxes "just like we told you they would."

The continuation of capital gains and dividends tax cuts is, then, the equivalent of torching the town after you've looted it. These are rich man's cuts, affecting only the top 2% of the population. Securities in 401(k) and other tax shelters are not affected, either now or at payout time.

But as I mentioned before, capital gains tax rates rising was negotiated in the Tax Reform Act of 1986 (aka the Bradley Bill) as a condition for top marginal rates falling. Now that the Republicans have reneged on that deal, perhaps it is time to consider top marginal rates of, say, 60 percent for those earning $500,000 or more.

But again, don't worry about your sales tax deduction on next year's income tax. Pretty soon here, the GOP will roll out the cameras for its :Champion of the little guy" show, and as our hero against the big bad government they will propose to extend the sales tax deduction and the other middle class tax cuts. Democrats will join them, as they should. This may be repeating myself, but remember, Washington is not the only sales tax state. Texas, Florida, and North Carolina (Frist) are also on that short list of states without an income tax.

Tribal stations to escape gas tax?

A more effective toll booth than the gas pump has yet to be devised. This is a fact which escaped US District Court Judge Thomas Zilly in November when he ruled that stations on Squaxin and Swinomish tribal lands need not pay the 31 cent state gas tax. See TNT

It would be one thing if distributors and consumers walked into the stations, but everyone drives, and everyone drives on the road. They need the roads to the same extent they need the gasoline. Don't need one without the other. The gas tax goes 100% to roads. A rebate to tribes has been worked out through DOL to account for native consumers and tribal roads.

The sales tax ought to be collected on gasoline, but it's not. Gas is favored just like food and drugs, all specifically exempted.

So what was the rationale? "The burden of the tax falls on retailers, not consumers." If somebody drives away without paying, tribal reasoning went, the retailer has to pay the tax. Sounds good to me, said the judge. Humbug. If they don't drive away, the retailers don't pay the tax. Better to order restitution for thievery than throw out the gas tax.

This is nonsense, but it has lawmakers, e.g., Sen. Ken Jacobsen (D-Seattle), concerned. Maybe they should be. Apparently the legal gene trumps the economic common sense gene. It was, after all, a majority of the State Supreme Court in 1932 which dismissed a voter approved income tax on the preposterous grounds that income is a form of property. The income tax that had been voted in carried a graduated rate. Under the State's constitution, property can be taxed only at a single rate. So if income is property, it cannot be taxed at more than one rate. And if a river were dry land, we'd have fewer fish.

Judge Zilly should be apprised that the fact that consumers pay the gas tax is proven by the inelasticity of gas prices. When the price goes up, consumption doesn't go down very much. He might also be interested to know that Washingtonians pay the taxes of Alaska. Alaska lives on oil revenue. Oil accounts for upward of 90 percent of general state revenue in Alaska, and we don't mean gas tax.

Interestingly, taxes are levied on oil company profits in Alaska, and an argument is currently going on as to whether to raise them to 22.5 percent, as opposed to 20 percent.

It is very unlikely we are going to see a rush to tribal gas-shops like the ones to the smoke shops. The tribes affected by Zilly's ruling immediately established a 31 cent tax of their own. More dangerous is that something with serious economic consequences might get into the courts.

Gas prices work

HOV lane use is up, general purpose lane usage is down, the Transportation Commission heard this morning (Tuesday). More than that, weekend traffic is down (except Mother's day, when it was up), King County purchased 117 new vanpool vans, rideshare inquiries are up, transit ridership is up.

Year-over-year traffic changes mapped against gas prices show indisputable results. Doug MacDonald, Transportation Secretary and the best re-hire in Governor Gregoire's tenure, said, "The long-term implications are profound" for higher priced gas.

What is surprising to me is that nobody is surprised that gas prices cause behavior change. Depressing to me is that few see this as an answer, but as a problem. Depopulating the planet is a nuisance, but a hit in the purse for driving an SUV is a crisis.

Higher prices mean a closer correlation to costs, including environmental costs and infrastructure replacement costs. Prices correlated to real costs means people will make better decisions. At the same time, energy alternatives will have a chance in the marketplace. The terrible and real problem with higher prices is that the proceeds go to oil monopolies and despotic foreign governments, not to rational public investment. This means not only are the rich are continuing to exploit public goods, but a great deal of financing is going out of our communities. No tax ever bled a state like excess profits to Oil have. The same money in the form of tax revenue funding public goods would be a boon.

MacDonald said he would endeavor to get some of the information up on the Department's web site, but what good is a map if you're going to use it for toilet paper?
An interesting note at the end of today's morning session: MacDonald was reporting on a recent trip to Melbourne (which he describes as a "parallel universe"). He cited an important source of funding for highways -- insurance. All auto insurance is provided through a public corporation. Premiums are used to fix "black spot" roadways, dangerous spots, such as are the target of the "nickel" program. The savings in reduced payouts is channeled back into the next "black spot" fix. A healthy cycle, I'd say. Better transportation through economics.

Free-Thinking Friday: The B&O and Wal-Mart, Godzilla v. King Kong

The B&O tax is a blunt instrument that bludgeons low-margin retailers. It could be a perfect match for Wal-Mart. Imagine this, a 2% tax on a special category of retailers, those grossing $4 million or more per year. It could be done with the B&O. Whatever its other faults, which are many, the B&O is the most flexible of Washington's major taxes. Wal-Mart is precisely the type of business -- large, vertically integrated purveyor of out-of-state goods -- which currently benefits most from the gross receipts base of the B&O. Not in this variation!

Maryland passed a bill earlier this year requiring 8 percent of a company's payroll be spent on health care for its employees IF the company fell in the category of those employing 10,000 people or more. In Maryland, that category included Wal-Mart and ... well, Wal-Mart.

What is the problem with Wal-Mart? It comes to town, or actually to the outskirts of town, hires people at poverty wages to purvey Chinese goods. This immediately guts the business districts far better than any neutron bomb. It puts pressure on state services both from those whose living wage jobs that are lost and those whose new poverty wage job at Wal-Mart comes without benefits -- primarily health care.

People will say I'm picking on Wal-Mart. No. There are other such retailers, Target, for example. No benefits, low wage, Chinese imports. Heck, we have a clutch of them just off the border here in Tacoma in Fircrest. It would be a mistake to cut any of them off from their opportunity to pay their fair share.

The Washington Wal-Mart law would not involve a new tax, just a creative use of the existing B&O. There is a specific retail category in the B&O. A credit or deduction could be devised to target the level of the high volume model that Wal-Mart has used like a bulldozer over the retail business in the state. It might not be $4 million; it might be $10 million.

The proceeds of such a tax could be distributed to the cities nearby, with legitimate retailers allowed to deduct their city B&O's if any have had the good will to locate inside city boundaries. Or the proceeds could go into the general fund to defray the expense of dealing with a prime corporate predator. It might just seed an expansion of rational health care.

At a minimum it would be a spectacle, to watch the two juggernauts in battle.

So-called "relief" will hurt bad

Not deterred by polls or fiscal integrity, the Republican Congress continued to gut the future of the country to fund empty tax giveaways to the rich. Never mind the ballooning cost of their war, nor the continuing deficits and looming debt, it was important to lock in the big boys' favorites, dividend and capital gains cuts, for two more years -- the years after 2008. Thus a gain of $41,000 for millionaires and $100 at best for the middle income, according to the Tax Policy Center.

Capital gains taxes were raised to the rates of ordinary income during the 1986 Tax Reform Act as a trade-off for reducing marginal income tax rates for the top tiers. Since then, it has been a Bush family tradition to renege on the 1986 deal. With full control of Congress, W has done it in style, to the great detriment of us and our children.

Notice that not one penny of the Scroogian December cuts in Medicaid, student loans, veterans health, child support enforcement and the rest has gone to deficit reduction. It has all, and four times more, gone to these benefits for the predator cult.

This reconciliation bill came in under $70 billion, which it did by duplicity and worse, to avoid exposing the action to filibuster in the Senate. So this one has the least defensible tax cuts, and the more popular -- including my favorite, the sales tax deduction -- are coming in a second round. Part of the staging. This was the bill that was the litmus test for fiscal responsibility.

In any event, if you were worried that there would be a lull in the feasting at the public trough by the rich, or that Republicans would run from W's falling approval into some sort of fiscal responsibility or fairness, you can rest easy tonight. They have continued their unbroken string of dishonest, incompetent, corrupt, profligate budgets.

Details at CBPP
or the Tax Policy Center

Strong correlation with nonsense

Pop-economics guru Thomas Friedman calls it the "petro-ist" state, and correlates wealth in oil with retarded economic and political reform. The Cato Institute's William A. Niskanen runs a regression and shows tax cuts lead to growth in the size of government.

Please.

Petropolitics

Friedman's "First Law of Petropolitics," as expressed in a recent column, posits the following: "The price of oil and the pace of freedom always move in opposite directions in petro-ist states." Implying that wealth corrupts, and the higher the wealth, the less interested the powers that be are in sharing it.

This price, however, is the measure of the value of the oil, primarily to the United States. The price is not randomly generated, nor free from the interest of Americans. An equally valid formulation, one which Friedman avoids, is to say that the more valuable a country's oil resource to the US, the less democracy they can expect. The spin is a bit different, eh? And it IS spin, not sound thinking. But "Flat Earth" Friedman fails on one more ground. The most corrupt and corrupting oil rich state in the world is arguably the state of Texas, and he forgot about them.

Friedman is making big bucks these days on an old hustle, the information society, the horizontal game. He has whipped up hysteria about not being left behind as we enter a brave new world. Let's at least acknowledge that a whole mob of young people have already been left behind. The great rush into computer science that busted with the dot.com collapse is now marked only by the quality of staffing at our PC help desks. Eighty thousand dollar educations for $15 an hour jobs. We need everybody, amigos, for real problems, and this is just a new Klondike. The suppliers get rich, the prospectors go home broke.

Starve the Brain

A second remarkable article comes out of the Atlantic. The author of "Stoking the Beast" http://www.theatlantic.com/doc/200606/tax-cuts stalks the elusive honest man and finds him in William A. Niskanen, the chairman of the libertarian Cato Institute. The fellow "recently analyzed data from 1981 to 2005 and found ... when he performed a statistical regression that controlled for unemployment .. 'no sign deficits have ever acted as a constraint on spending.'" Thus, ta-da, tax cuts lead to big government.

Similar to Friedman's error, the variables are not independent, as is required for using regression analysis. A regression is a simple (for a computer) method of correlating data set A and data set B. But a correlation is meaningless by itself. Toes pretty much correlate to having elbows, for example, but toes do not cause elbows, nor do elbows cause toes. Both are common attributes of having a body.

And of course, here we have deep tax cuts correlating to booming government spending. Both are simply attributes of fiscal incompetency abetted by the current dominance of a predatory corporate culture. Fiscal responsibility comes in a different form and produces different results, two of which happen to be (over the past 15 years) smaller government and paying the bills.

Is Atlantic playing to a target audience when they run this kind of drivel? $75,000 plus white men, i.e, predominantly Republicans, but literate Republicans, with a need to obfuscate to cover their lifestyle? Their conclusion is not that the "starve the beast" claim is nonsense of a caliber equal to tax cuts during wartime, but that Mr. Niskanen has discovered something new and important.

?

Prediction Tuesday preempted by FoxNews Confidence

I know it's sad for some of you to visit me and find me on my front step, shaking my cane at the traffic, hollering about how things are going to Hell in a Chinese handbasket. "Poor fellow," you say to yourselves, "It's Prediction Tuesday, and he's just going to embarrass himself again with some doom and gloom."

Well, I don't go out in front except to get the paper. I hang out in the basement, safe from UV rays and spies. Maybe I am alarmed by positive predictions. You may see a Chicken Little in me, but I see a room full of reverse Chicken Littles in you, sanguine because the roof hasn't collapsed yet. Sure, you see plaster dust is starting to fall, but just because you haven't started sneezing ....

... It turns out that my image of you is just another paranoid delusion. The attitude that the economy is doing well is confined to people of the Republican persuasion. I call it FoxNews Confidence (TM) or the Karl Rove Recovery (TM).

A Pew Research Center report demonstrates that while 56% of Republicans see the economy doing well, only half that many Independents share a similar view, and even fewer Democrats.

All of which does not excuse me for not having done my homework. I promised a closer look at the last 6-year forecast, but I'm not going to do it this month.

I couldn't tease anything new out of things.


I'll review the June edition of the Office of Forecast Council's Washington Economic and Revenue Forecast in detail next month. Promise.

The Pew Research Center for the People & the Press, 1.24.06

A hill high enough to see

The Predator State by James K. Galbraith is up on the Web now. Please take a look at it. It is short, less than 1,000 words. I know I posted on it last week, but this is as important an analysis as was John Kenneth Galbraith's half a century ago.

It is not intellectually satisfying to me to divide the world into good guys and bad guys and the ignorant. I want a system which can explain, by incentives or otherwise, how a guy can become good, bad, or ignorant. Perhaps it is the Buddhist in me, or the Jeffersonian egalitarian, but I am of the mind that each of us could have as easily become the piss-bum or the corporate cutthroat or the beatific monk depending on opportunity and circumstance.

This exposition by Galbraith, to be sure, has deep moral implications. It is not the dry and arid speculation on models of choice or whatever amuses the puzzle-prone. Galbraith identifies the evil-doers (they are who we think they are) and those who are complicit (sometimes us). He sketches the evolution of the economy from the post-war middle class and its industrial monopolies to the conditions of today.

One has the sense of coming right-side up, or of finding a glass which brings things finally into focus, or of finding a hill high enough to let one survey the whole field and appreciate the interrelatedness of activities.

Which is not to say that this piece by Galbraith or its elaborations will explain the next stage of the economy. It is, like the elder Galbraith's, a system very much explanatory, but tied only to its segment of history. When the institutions change, or disintegrate, we will need another Galbraith.

Joe Biden, meet George Marshall

David Broder gave the partition of Iraq a boost in his Washington Post column Thursday. Broder supported Senator Joe Biden's idea of a federation with national defense in the hands of the central power and otherwise locally determinant, separated into Sunni, Shi'a and Kurdish regions. Partition like this is not the complete answer, nor is it the utterly outlandish idea that the Bush regime has painted. It is a "recognition," as Broder puts it, of reality. Recognizing reality is a difficult thing for the Radical Right and the Bush team. But as we've said here, we have three choices: partition now, partition after a long and bloody civil war, or unity under a tyrant like Saddam who enforces it the Rumsfeld way.

The demise of unified Iraq has been sufficiently foreshadowed. If you ask a European or two, you get the impression this quagmire and disintegration was inevitable. (During the delay in agreeing on a prime minister you could almost hear the scuffling in the back rooms as people jockeyed for position and consolidated their bases.)

The country of Iraq has no history. It was cobbled together for the convenience of the British, and held together by nothing less than the iron rule of Saddam (shake my hand, Don Rumsfeld) Hussein. To make a stable society, we will need to recognize indigenous leadership, of which there is none spanning the three major groups. The Kurdish region is already a state unto itself, and participation in a united Iraq is mere courtesy to Americans for all their help. The Sunnis seem to be the basis for the most active insurgency. The Shiites, as the majority, must be weighing how many American guns they can use without becoming illegitimate to their own people.

But until an economic system comes into being which generates the possibility of self-determination and self-reliance at the individual and family levels, it won't matter if mullahs, ministers or monarchs are in charge, the result will not be stability. For in order to have a "fabric" of society, there needs to be a weave of relationships, not mobs with guns, nor camps, nor long lines – but schools, workplaces, a house to build, and so on.

What is needed is a Marshall Plan.

The limit to the dumping of money into Iraq has long since passed. Abandoning the rebuilding effort as a mess and a bad job, as the Seattle Times, among others, has suggested, is not the answer. What is needed is a Marshall Plan. Not the airlift of corporate corruption into a devastated country, but a program modeled on the original, immensely successful plan that rebuilt Europe after World War II.

Background

World War II was fought by all Americans and won by all Americans. It's financing did not include big tax breaks for the rich. The rich and their corporations benefitted enough from the intense demand. We did not allow systematic corruption. During the war, the Congress – notably the Truman Committee – rooted out and exposed war profiteering and fraud. The current Congress provides no oversight whatsoever, which is a clear and obscene violation of its Constitutional mandate.

And when the War was over, under the leadership of General George C. Marshall – twice Time's man of the year, once during and once after the war, "the great man," as Truman called him – the US rebuilt the society of Europe at the same time rebuilt the shattered infrastructure.

The Marshall Plan worked directly with and for the indigenous economy. It identified and supported their projects, through their business, labor and political leaders. Europeans identified the needs and the methods. Americans provided technical assistance and material. People had work and that work developed an economic structure and stability.

This approach was partly in recognition of the mistakes following World War I, when the Allies had insisted on huge reparations from Germany. The Economic Consequences of the Peace was written by John Maynard Keynes, a young civil servant who resigned from the negotiating team at Versailles when the outcome became apparent. In this book, Keynes correctly predicted the turmoil resulting in Nazism and the Second World War as the outcome of the literally impossible terms of peace. So after the Second World War, with the need not for revenge, but for stability in the face of advancing Stalinism, the victors developed the Marshall Plan, not only for the defeated, but for the devastated allies.

In Iraq the US has chosen a different route. Here we have imported American machinery, manpower and plans and attempted to impose them on the landscape. In the process, staggering amounts have been lost to corruption and more to expensive security to protect the work sites and workers. The sitting vice president benefits from his continued association with one of the largest contractors, one cited regularly for overbilling and other fraud, recently for spending nearly $80 million drilling in unstable geology. Incompetence and corruption and Corporatism.

The enormous security costs associated with protecting Americans will leave on the same planes as the American contractors. Efficient, focused and functional rebuilding will arrive on flights carrying independent contracting authorities, perhaps from the UN or another agency with a semblance of legitimacy. Reestablishing reliable utilities will do more than any number of political deals to pacify and stabilize the country. And most helpful of all would be putting Iraqis back to work. Defense intelligence reportedly estimates that six out of ten Iraqi workers are without a job. [Widely reported from John Murtha and not disputed by anyone in authority as far as I am aware.] Sixty percent unemployment! How can that be? The country needs enormous reconstruction. There should be work for everyone. And how can idleness of that magnitude be anything but destabilizing?

What Iraq needs is not American projects produced by American corporations. The whole idea of constructing facilities then handing over the keys to whatever secular or religious faction happens to be in power is just a recipe for further failure.

# Posted by Alan : 7:14 PM

Q&A: The Minimum Wage with Brock Haussamen

Brock Haussamen operates a web site Raising the National Minimum Wage: Information, Opinion, Research dedicated to information on the minimum wage. He commented on a post last month, and we inveigled him into responding to a few questions on the subject. Well, maybe more than a few. (This is good stuff.)

NPI: Washington has the highest minimum wage of any state in the nation, since it has risen with inflation (been "indexed") from the time it was enacted in 1995. Are you aware of any research tracking the rising minimum wage with joblessness or possibly population increases? That is, in your recent comment you provided the site for a study which showed actually a positive correlation between a minimum wage and employment growth. Has anything else been done along these lines?

BH: A 2006 report from the New York-based Fiscal Policy Institute says it all: States with Minimum Wages above the Federal Level have had Faster Small Business and Retail Job Growth. One example of these statistics: Small businesses in high minimum wage states grew by 5.4% from 1998 to 2003, compared to 4.25% growth in the other states. The report is careful to say that the results don’t prove that a higher minimum wage brings about economic growth, only that the old argument that an increase leads to job loss and economic decline doesn’t square with the facts.

The Economic Policy Institute in Washington D. C. watches the relation between the state minimum wages and the state economies carefully. One of their studies, Jeff Chapman’s Employment and the Minimum Wage includes a discussion of Washington state’s loss of employment during the years of its rising minimum wages, a correlation that minimum wage opponents like to point out. Chapman counters that the state’s decline in jobs occurred in the manufacturing industries, especially aerospace, a high-wage sector unaffected by minimum wage changes; Washington’s restaurant industry grew solidly during the same period.

NPI: What is the argument against raising the minimum wage and who makes it?

BH: Conservatives oppose the minimum wage on the grounds that since wages follow the logic of economics--the more expensive something is, the fewer buyers there will be -- raising the minimum wage will lead to reduced employment or reduced hours of employment. They also argue that the minimum wage is so often paid to teenagers starting out in part-time jobs that it is an inefficient way to help poor families. The underlying theme is the perennial conservative one: tampering with the open market never helps anyone.

Who makes it? Check out the position of the National Restaurant Association on the minimum wage. Busloads of its members descend on Congress when minimum wage amendments seem headed for a vote.

NPI: If you were king, how would you structure minimum wage legislation?

BH: We hear the calls to raise the minimum wages and the fact that the federal minimum doesn’t even provide enough for a family of one adult and two children to rise above the poverty line. But what we don’t hear is a model, a definition, for what a minimum wage ought to be. As king, I would declare that the federal minimum wage should meet the basic needs of a single adult worker, with no children, in the states with low costs of living. The living wage for a single adult runs from $6 to $9 an hour in these, so the Kennedy bill for $7.25, while low, is appropriate. Families would need more than this, of course, but higher living wages, negotiated within communities, are better suited for meeting the needs of family budgets. Unlike the living wage, the minimum wage serves the purpose of being a rock-bottom wage floor, and it makes sense to base the amount on what the adult worker himself or herself would need to live adequately.

There is no easy answer to the question of providing a federal minimum that is appropriate for all parts of the country, so I would use the federal minimum wage to protect workers in the low-cost states and encourage states with higher costs of living to pass their own state minimums, as they have been.

NPI: Would you index the federal minimum wage to inflation so it rises each year?

BH: I think the federal minimum wage should be reviewed every year by an administrative board for an increase based not only on recent inflation but also on other factors such as employment figures and anticipated inflation. At the federal level, for a nation this size with our regional economic diversity, automatic indexing of the kind adopted in Washington, Oregon, and Florida might have complex unintended consequences, from what I read. A more flexible commission-based approach, such as that used in England, makes more sense to me.

NPI: How does the current minimum wage correspond to a livable wage?

BH: Living and livable wages are higher than minimum wages. Living wages are set usually in cities or counties as ordinances applying to workers hired by the local government. They are based on the federal poverty levels for a family or on local housing costs and usually run from $8 to $10 per hour or higher.

NPI: To wages in other industrial countries?

BH: This varies widely, since over a hundred nations use some form of the minimum wage. In U.S. dollars, the minimum wage in Canada varies by province from $5.19 to $7.03. In Mexico, from $4.11 to $4.36. In France, it’s $9.18. The United Kingdom http://www.lowpay.gov.uk/ uses a system I like: a minimum wage of $8.91 for those over 21, a lower minimum for 18 to 21-year-olds, and an even lower one for younger workers. Such an age-based minimum wage helps address concerns about minimum wage benefits being wasted on teenagers. See Wikipedia's list of minimum wages in other countries.

NPI: Senator Kennedy has a bill up to raise the minimum wage. How would you characterize it?

BH: The bill itself just specifies dollars and dates to amend the Fair Labor Standards Act: an increase from $5.15 to $5.85 within 60 days after passage, to $6.55 one year later, and to $7.25 one year after that. The tricky part will be the trade-offs that accompany its passage through Congress. Federal minimum wage increases have been and can be joined with reductions in the type and number of workers covered, for example, or special tax breaks for business owners.

Readers can sign on as citizen co-sponsors of the Kennedy bill.

NPI: How would you frame the debate?

BH: People debate the minimum wage along two lines, the economic one and the moral one, what seems economically necessary from each side’s point of view and what seems fair and just for the poor, for the employer, for the tax payer, and so on. I think that each side has its gut-level reaction that is seldom expressed directly, though. Supporters feel that damn it, in a country this rich, there is no excuse for paying poverty wages to working people, that exploiting low-wage labor has a long and ugly history and must be resisted. I think opponents feel that although they want to help the poor, they’re not, damn it, going to cut into their hard-earned profits to do it.

NPI: Why your personal interest in this?

BH: I’m a community college English professor nearing retirement. Trying to reduce poverty feels like what I want to work on for the rest of my life. A year ago there was no Web site that brought together all the sides of the minimum wage issue, and I think it’s important that there be one.

NPI: What does a typical minimum wage-earner look like?

BH: Because the federal minimum at $5.15 has become so low, only 479,000 workers in the nation earned exactly that wage in 2005. But the number who earn between $5.15 and $6.15 is in the millions. If a Washington resident stays at a motel in Idaho, where the minimum wage is the same as the federal one, the room might be cleaned by a young Latina who probably makes in this range. The young man or woman wrapping a hamburger at a fast-food restaurant makes at or near the minimum. So does the middle-aged African American man picking up the trash around a camp ground.

NPI: What does the typical supporter for a minimum wage hike look like?

BH: Public support for raising the minimum wage usually runs between 75% and 80% in the polls and is even higher at the moment. So supporters look like all of us.

NPI: What does the typical opponent of higher minimum wages look like?

BH: According to the polls, an opponent is mostly likely male, white, over 50, wealthy, and a conservative Republican.

Thanks very much to Brock. This is the definitive short treatment. We will likely impose on him again as the economics section at NPI comes under rebuild over the next three or four months.

If only the drunks didn't have the checkbook

Last week's report from the Social Security Board of Trustees confirmed that the internal financing of Social Security remains solid for more than thirty years out. In 2040 reserves will be gone and absent adjustments benefits would be reduced to 74 percent of those promised, which are more generous than any delivered today. That is a long way from the calamity predicted by Bush in his drumbeat for privatization. Unfortunately it also discounts the damage the man is doing to the operating budget and the economy as a whole.

Social Security reserves are kept in the form of government bonds, a secure enough instrument if the knotheads were not in charge. But in case you didn't notice, the budget is running in the red zone and has been for the five-plus years Republicans have controlled all branches of government.

Ten years out, at the same time debt service becomes a serious problem for the budget, the Social Security fund will stop subsidizing it. We have gone into debt at the very worst time, baby boomers. It won't matter if our first class ticket says IBM, In God We Trust, or Fidelity, we're not getting to Shangri-la if the plane comes apart in mid-air.

[The real internal financing problem is with Medicare, as we will report next week.]

The Center on Budget and Policy Priorities says the cost of the Bush tax cuts is three times the shortfall in Social Security. Surprised?

Interesting that the Trustees still continue with the "infinite horizon" boondoggle introduced in 2003. Actuaries and other honest observers shot the thing down so thoroughly, you'd think they wouldn't patch it up again. Most of those "infinite horizon" deficits which were used to scare us kick in after 75 years (two-thirds after 2080) and so are subject to assumptions that must be channeled from Nostradamus.

Again, though, the near-term danger is not Social Security's financing, it is the buffoon who has the checkbook.

If they fix it for you, Rush, you'll never whore again.

Republicans might be forgiven for thinking they could buy off outrage on gas prices with $100 checks. After all, it was a miserably modest tax break for middle income earners that brought them the budget-breaking giveaways to the rich. Dollar-for-dollar, the poison we swallowed with that bit of sugar is going to be much more deadly than this would have been.

But it looks like the public is going to fill the sponsors of this idea with arrows before they can get back in the fort. The sad part is that there appears to be no change in the debate. The gas-o-holics continue to blab about ANWR drilling, and the good guys focus on oil company profiteering.

Which is not to say that oil companies are not enjoying their ride, nor that they are innocent in market manipulation, nor that they shouldn't be slammed with excess profits taxes or even regulated like utilities. The corporatists ...

(I use this word, even though it sounds weird, because the alternative is "fascist," as in Mussolini fascism, which is a corporate takeover of the state. I heard recently "friendly fascists." That seemed like more of an amusing oxymoron or a sugar coating. If anybody gets a better term for this calamity, please let me know.)

... The corporatists mesh state and corporation most completely on the energy issue. Enron writes the energy plan. Oil companies decide what the solution is to gas prices. The sitting president and vice president will be back on the boards of energy firms as soon as they leave office.

Naturally the $100 vote-for-me bribe on the part of Republicans has no significance economically. Equally absurd is Rush Limbaugh's plaint, "What kind of insult is this? Instead of buying us off and treating us like we're a bunch of whores, just solve the problem."

You might not be a whore, Rush, but you're an idiot. This is the party that brought you Iraq, Medicare Part ? drug benefits, FEMA and Hurricane Katrina, energy deregulation, the federal budget. If they fix it, stand back.

Let's not learn the wrong lessons here, though. Gas prices are not too high. The profits of oil companies are too high by a factor of ten or so. The spending by individuals and the society is twice too high. But this is because are far too dependent on gasoline than a sane group of people ought to be. We continue to squeeze more lanes of concrete at ever higher costs into our cities, roads which will wear out quickly under the weight of increasing freight. We have, absurdly enough, no meaningful, coordinated plan to move to the next stage.

But the per-gallon price is not too high. Why?

First, we can see clearly now that $3 gas is doing more to produce fuel-efficient cars than any number of CAFÉ standards. It is time to abandon the CAFÉ struggle. It took too much effort and it didn't work. Let's go to green taxes, like on carbon, or just oil and gasoline. Regulations are too easy to wiggle through. Witness the Hummer as a tax-benefitted farm machine.

Second, the price of gas does not cover the real costs of producing and consuming it, as it should if the market is going to be efficient. Geopolitics is obsessed with oil. Wars are not cheap. But even greater (imagine it) is the environmental calamity we are bringing down upon our heads. Neither of these is represented at the gas pump. The market discounts both completely, and so subsidizes our own destruction.

Third, a higher price makes alternatives financially feasible. Let me add quickly that the price must also be stable for alternatives to be developed through the private market. The wildly fluctuating prices of the past three decades have discouraged innovation, where a stable price, even at the average, would have produced market alternatives. Broad-based energy planning and production is absolutely vital to the survival of our society. A key part of "broad-based" must be alternative energy developed as a response to market incentives. "Market incentives" here means "price."

The natural resolution to this situation is to capture a great part of the difference between a high price and the actual cost of delivering gasoline to the pump, and use it for the purposes of developing alternative energy. Currently this difference is being captured solely for the purposes of expanding the profits of oil companies.

Rebates to gas consumers? No. Better to pay people for not consuming.