Minimum Wage - Bidness as Usual for the GOP

In the smoke of last weeks Iraq War foofaraw, the GOP Senate killed an increase in the minimum wage. Republican leaders blocked a vote on the measure to ramp it up from the current $5.15 to $7.25 over two-plus years. That would still fall short of Washington's standard.

Republicans explicitly repeated claims that increasing minimum wages costs jobs, although evidence points in the opposite direction, as Brock Haussamen told us a couple of months ago.

Eighty-eight percent of Americans favor or strongly favor an increase in the minimum wage, and 82 percent view it as important or a top priority.
The government is managed for the front page, not for the benefit of the people. Edward Kennedy said the first bill passed in a Democratically controlled Senate would address the minimum wage.

# Posted by Alan : 9:49 PM

Cut the crap and Run the Gummint

The Bush plan for Iraq -- "More of the same, whatever that is" was stubbornly defended in the Senate last Thursday. Or rather Democrats were vigorously attacked for recommending a phased withdrawal. Majority leader Bill Frist issued a pastiche of Rove-isms, sometimes even forgetting where to put the period.

It turns out that a similar plan was run up to the White House by the generals where it got a more hospitable reception. The policy-by-campaign-need likes the prospect of a reduction in troop strength in a few months, along with the "news" that the Iraqis are taking over. Bush and Rove have seen the light -- the headlight of the November elections, that is.

In the media timing category, the Saturday news shadow seems to be a convenient place to announce US casualty information these days. Data on deaths from last week was delayed until nobody was looking.

The most prominent "more of the same media-driven policy" is Immigration. This has been carefully selected for its media and campaign value, being one of the few issues where Republicans have an even approval rating. It plays on fears and jingoism and self-righteousness, and even offers an opportunity for scapegoating if the economy turns down toward election time. "Jobless? Not our fault. It's them Mexicans. And we're on the job to keep them out."

One suspects in the back room discussions some reactionary voices mentioned the big mobilizations of immigrants this spring. And of course, a wall and a military response will be just the right stuff for corporate sponsors to peddle the latest in night vision goggles and laser scopes and other high tech gear in outfitting the pennies per hour National Guard troops. Gotta catch them dangerous immigrants before they get in and empty some old lady's bedpan.

Not of interest is the environment or global warming. These critical parts of our future have Republicans skimming single digits in the polls. Better find another issue. The Economy? No. Too much debt and not enough confidence. Health care? Don't even mention the words.

Also notably absent is any effort to address Delay-style corruption. The Republican Congress is playing dumb with lobbying reforms long promised, but which will never arrive.

Cut the crap, Run the government.

Gas prices work

We may have this object lesson in front of us for years to come, but I want to point out again that high gasoline prices are redesigning America's passenger car fleet, and are the impetus for a major boost in ethanol production. We posted on the improved use of the HOV lanes.

The unacceptable problem is that the proceeds of high prices are going to Big Oil. That needs to change. An immediate progressive tax on the price above $2 needs to be instituted, a tax that ensures gasoline remains high in price, but revenues return to the public good. So long as prices remain high, a host of good ideas will be brought to market. But if investors were certain that fluctuations wouldn't wipe them out, even more would be forthcoming. A great idea with gas prices at $2.50 can be a bust if they fall to $2.25.

The state is in the absurd position of having high prices hurt -- yes, hurt -- gas tax revenues. Why? because the gas tax is an excise by the gallon, not by the dollar. When prices go up, consumption goes down.

A progressive tax at the federal level could be immediately returned to the taxpayers in the form of reduced withholding rates, or even payroll tax rates. The object is not to increase revenue, the object is to put gas prices at a level that relates at least remotely to their costs.

Right now, the price of gasoline accounts for only three things: The cost of production and distribution, the cost of roads (through the gas tax, and profits to oil companies and cartels. Totally absent from the equation is the immense environmental calamity we are facing, the geopolitical catastrophe we've created in search of future supplies of oil (see Iraq, Nigeria, Venezuela, Saudi Arabia, etc.), and the many of the elements of sprawl. It is a total market failure that these costs are not included in the price.

The Europeans are decades ahead of us on this. Keep the high prices, but lose the corporate profiteering.

"For the good of all, first the poor"

That is the signature line of the populist candidate for president of Mexico. The July 2 election in that country will be pivotal in terms of stemming the tide of illegal immigration. Andres Manuel Lopez Obrador has promised a New Deal style public works program and protection for the Mexican agrarian economy in the form of tariffs on US corn and beans. This type of structural improvement will succeed where the sweat shops on the border scheme championed by Vincente Fox and US corporations has only hurt.

It is estimated that 47 percent of Mexican people live on less than ten dollars a day. No wonder 400,000 per year are voting with their feet and entering the US illegally. As we pointed out, economic development is the economic answer to the immigration problem. The fear tactics and military response of Bush and the Republicans is another made for TV event that has no chance of success.

RegenerationMan at DailyKos picked up on my original post and blogged an excellent piece on the Regenenerative Zone Method. Lopez Obrador is counting on public works and protecting the Mexican farm economy from cheap American imports. Both together would work far better than each separately.

The second and essential element to a Mexican recovery is control of organized crime. Mexico is the kidnapping capital of the world, and Mexican drug gangs are engaged in an open shooting war with each other and the police.

Lopez Obrador's principal opposition is Felipe Calderon of Fox's PAN party, who is waging a US style campaign of big media and promises of tax cuts. The Mexican people may be best served by an election system far better than her neighbor's to the north.

Barriers to Voting

As a proud member of the League of Women Voters, I am very disturbed by a report in the June issue of hte LWV National Voter. "New Barriers to Voting" points out that the 2004 campaign saw more effort being put into registering voters, but more recently access to the ballot box is being restricted.

The statewide database requirement in the happy sounding Help America Vote Act (HAVA) has been an excuse to "make it harder for eligible applicants to register. Voter registration drives are being restricted in a number of states by , among other things, requiring programs to sign up and get training from the state, sometimes at limited locations and times.

Washington State is mentioned in the "Rejection by Typo" section for its statute requiring rejection of applications by mail if there is no exact match with drivers license info. Applicant error, clerical errors in the elections office or DMV can exclude registrants in a process that was intended to ease a burden. Note that low-income and non-English speaking applicants suffer most, as they may move more often and have a more difficult time with the filling out of forms.

Links:

Project Vote
LWV
Brennan Center

Another governor to work with Eyman?

Gary Locke was the last governor to promote ratification of an Eyman initiative after it was ruled illegal by the courts. That was I-695. It was a body blow to cities and transit agencies who still have not recovered. It was a low point in the Locke governorship.

Now it seems like Chris Gregoire, my favorite politician, is contemplating the same thing. According to the Dave Ammons and the AP, "Gregoire pledged Monday to work with the Legislature to pass property-tax limits if the courts throw out the voter-approved Initiative 747."

Local government is suffocating. Core services are already being cut. The future holds only a long, slow strangulation as they struggle to meet their mandates. If Gregoire and the Legislature want to freeze the state's portion of the property tax, fine. But leave the cities and counties out of it.

That is the compromise that is needed.

Gregoire's contention that people are being taxed out of their homes is problematic. Home prices have erupted so much that the average family cannot afford the average home. Mortgage interest is deductible from federal taxes. The 1% lid is below inflation, so the real revenue from property taxes is dropping. There are senior exemptions for the very low income. People are getting squeezed out of there homes not because their property taxes are going up, but because their incomes are stagnating. The wealth in their homes, illusory as it may be, has been tapped again and again by homeowners in the form of equity loans.

At least let the lid match inflation.

Tim Eyman, as usual, has nothing to offer, and was quoted too freely in the AP article. The amount of energy required to fix the damage after this demagogue runs his lies down through the all-too-credulous voting public has been enormous. If he were a household product, he would have long since been run out of business by product liability suits.

The Governor needs to take a cold look at this issue. The state property tax is devoted exclusively to schools. If the guv thinks they can take the cut, let it be so. But Washington's cities are not enjoying the flush of expectation for new revenues such as that ChangMook Sohn issued for the state last week. (Though I have never heard so many glum words used for such a rosy event.)

If the court strikes down another Eyman initiative, it won't be because of a typo. Show some respect to the judiciary. And show a little compassion for the jurisdictions down the food chain.

Methanol: The missing link to the hydrogen economy

The need for alternative energy is now. Oil dependency has to be reversed now. It is incompetent and stupid to plan on increasing our reliance on foreign oil, as mapped out by the Bush-Cheney-Enron-Big Oil energy plan (NEP). Greenhouse gas emissions have to be a primary enemy.

The hydrogen economy beckons from twenty or more years in the future, when hydrogen fuel cells will theoretically replace gasoline. But there is a gap. In that gap the only conveyance available will be a hand basket.

That gap can be filled by methanol, a hydrocarbon that can be used directly as fuel, can be created with existing technology from abundant domestic coal, and can replace the petroleum as the building block for a multiplicity of products, from plastics to fertilizers. On the front end, methanol can step into the fuel distribution system currently devoted to gasoline. On the back end, with enough research and development it can be produced in a process that actually consumes carbon dioxide, possibly even atmospheric carbon dioxide, but certainly CO2 produced in industrial operations.

Eventually hydrogen energy can be converted into methanol and methanol fuel cells, bypassing the technical difficulty (in the sense that leaping the Grand Canyon is a "difficulty") of hydrogen's volatility. Methanol can be come the common currency of an alternative energy economy, converting all forms into a fuel. It can serve to bridge the gap from oil to hydrogen. And it can start not immediately, but relatively soon.

I am not an engineer or a chemist, but I am an economist. Our current adventure in Iraq is proof that oil is too expensive in every way. The daily news stories on global warming are proof that an alternative path needs to begin now. Waiting for things to get worse only means the mitigation measures will need to be harsher. And methanol offers an alternative to a massive corporate infrastructure that will be served. Developing it is cheap compared to the investment that is needed to extract the oil in the Gulf that will be needed, even if conditions there were sufficiently placid to allow that investment.

University of Florida report on methanol from coal

A new book by USC's George Olah:
The Methanol Economy
Forget about the hydrogen economy. Methanol is the key to weaning the world off oil. George Olah tells us how to do it.
By Kevin Bullis

Wikepedia

Wiley (Olah's publisher)

Iran Daily

It's a quagmire, a tar pit

The Left makes a big mistake if Iraq becomes a litmus test for who is a progressive. The invasion was a blunder, a crime, a turning point, a tragedy, but what to do now is not so obvious as the radio ranters pretend.

Facts:

• In 2005, the US imported just over 55 percent of its oil, about 11.5 million barrels per day. In 2015 we will need 5 million barrels a day more. Ten years after that, in 2025, another 4 or 5 million barrels a day. At the same time the domestic contribution will decline, even with optimistic projections for ethanol and other substitutes.
• Over the next 20 years we will increase our dependence from 55 percent to 70 percent. Sources aside from the Persian Gulf will grow in production capacity, but also in consumption. The only potential for the volume we will require is the Persian Gulf. Where we are hated, and all the more now that we have deserved it so well.
• Other industrial states, China in particular, will be competing for new production.
  
• Saudi Arabia is the key source, not Iraq. The population of Saudi Arabia is predominantly young, poor and un- or under-employed. Thirty percent of college educated men have no jobs. Per capita incomes have shrunk from $22,000 to $7,000 over the past 20 years. Iran has a similar demographic. It makes for an unstable situation where the repressive regime in power cannot afford to be seen in public with the Americans. (The first thing the US did after invading Iraq was to close its bases in Saudi Arabia, left open only because we reneged on promises to close them after the Gulf War. If our soldiers leave Iraq, they are not going back to Saudi Arabia.)
• The Persian Gulf and the other oil-rich countries are unstable politically and are more often than not rotten with corruption. The increases in oil production from these countries will require immense investment and technology not available within those countries. That technology and investment will not be forthcoming from private vendors absent significant reduction in the risk.
• Let me repeat that point. The oil production we will need from these countries is not now in the cards. To get to the level needed, immense new investment is needed. This is investment and technology only the Oil Giants possess. These countries do not care to have Oil Giants dictating to them, nor really anything other than a nationalized oil industry. (Immense. Three quarters of a trillion dollars worth of investment.)
• The Neocon scheme was to occupy Iraq, liberate it from Saddam, in the warmth of victory establish bases there to protect a fledgling (or Quisling) democracy, and thus establish the security Big Oil demands for its investment and secure the energy future of the Homeland. It was the Stratego scheme.

Best is a partition along the lines of a loose federation of strong Kurdish, Sunni, and Shiite states, with the US redeploying its troops to those semi-permanent bases and guaranteeing the borders for a weak central government. There is no stable political situation that does not involve partition. As we've written, the country does not have a history, being cobbled together by the British. It does not have a leadership except that identified with one of the major factions. It was kept together by the iron fist of Saddam Hussein, and there is no amount of diplomacy or statesmanship that is enough to do what he did with brutality. To tap the legitimate leadership, we will need to cede power to the factional leaders.

Obviously a loose federation, having weak members, may offer a bigger fig leaf for US presence as protection from neighbors, but it will not enough. The unfortunate final answer is that there is no answer. By invading, we have deserved to be hated and have been undone by our own incompetence, belligerence and corruption.

Redeployment along the lines of the Murtha plan and following John Kerry is as sound as any responsible approach. I believe this is what Cantwell and Hillary are angling for. The worst thing we on the Left can do is pretend there is one simple solution. The more we get into a wrangle about it and, in fact, insofar as Iraq dominates the conversation at election time, the less well served will be the progressive cause.

Health Care .... Social Security .... Global Warming .... Environmentally Friendly Energy .... Medicare Drug Benefits .... Eliminating the Culture of Corruption .... Salvaging the Financial House .... Returning Competence to Government Offices .... Restoring the Bill of Rights .... Curbing the Power of the Corporate Predators .... The Emerging Desperation of the Working Class. There is too much to be done to get into a fight with a tar baby.

The economic answer to Iraq does exist, however. Just as oil is the reason for being there, it begins with oil. First and foremost, we need to eliminate our dependence. Second we need to let the market deal with the extraction problem. Having American soldiers as basically rent-a-cops for oil investment is bogus and will never come to any good.

The rest of that answer for another time.

A good source: Blood and Oil, Michael T. Klare, 2004.

Monetary Policy. Myth. History.

You may share the angst of Ben Bernanke as he watches incipient inflation rising in his crystal globe, its awful power to strip the economy of value looms ever larger. Should he strike with the only tool he has, the short-term interest rate?

Or from fear of shutting down the economy, should he let the noxious cauldron percolate a while longer? The cries from Wall Street plead for mercy, but he is firm in his discipline.

I don't care how much their suits cost or who is licking their shoes to make them so shiny, this tableau is a myth. No matter how many people believe, it doesn't make it so.

For one thing, the interest rate is not the only button on the monetary policy console. It does not have to do double duty. In fact, in cost-push inflation, it does little to help control inflation. We have come to the point of Wizard of Oz economics, where so long as the man behind the curtain is not called out, his power reigns. It has led to absurd chains of reaction, where good economic news is bad for the Market because of what the Fed will think.

Now we hear rumblings of how it is employment levels that are dangerous. That whole nonsense was disproven in the 1990s, theoretically by Nobelist Robert Eisner and then empirically when unemployment dropped to near historic lows without tickling inflation.

How did the central bank get complete control of one-half of economic policy? Representative governments of other industrial countries have not been so generous to the money lenders.

A concise history.

Prior to 1951, the Federal Reserve operated as did many "independent" agencies, like the FAA, FCC, SEC, and so on down the list of acronyms with oversight duties, but only limited policy-making authority.

Then, in the darkest days of the Korean War, with President Truman's approval ratings in the W zone, with Douglas MacArthur grandstanding his way across the country, and with the Treasury Secretary in the hospital, a clandestine agreement was reached between the Federal Reserve and an undersecretary of the Treasury named William McChesney Martin.

The "Treasury Accord" ceded control of monetary policy -- interest rates and money supply -- to the Fed. William McChesney Martin found a home as chairman, ostensibly as the administration's man. In fact, he brought the control of monetary policy firmly into the camp of the central bank. Years later Truman happened to meet him on a street. He left the Fed chief with a single word. "Traitor."

Control of interest rates and monetary targets had been essential in the successful handling of the enormous federal debt accrued during World War II. The successful transition from war to peace would have been impossible without it. Bankers chafed, however, under the experience of the post-war inflation. Of course, they targeted their criticism to profligate politicians, not to the policy.

But the timing of the coup had little to do with economic circumstances. Inflation had become a non-issue, even with the Korean War. The politicians were responsible. Truman would leave office as the only postwar president to net a budget surplus during his administration. The timing had everything to do with political opportunism. The president had other battles to fight and could not risk a showdown with the staid and stuffy.

An economic policy to be effective must have its two major parts -- fiscal and monetary policy -- working together. Otherwise a jobs policy, for example, such as promoting public works and modest deficit spending can be completely undone by a tight monetary policy which shuts down investment. Or in the current situation, a reckless accumulation of debt by the federal government can be exacerbated by a compliant Fed.

Truman's chair of the Council of Economic Advisers Leon Keyserling later estimated that hundreds of billions of dollars were lost to the economy just through the 1970s from excess interest costs, and this was before the big debt binges of Reagan and the two Bushes.

Housing bubble floating ever upward?

Global Insight rated housing for many NW cities. The results could be scary. I gave Global Insight a bad time for its predictions on oil prices and inflation, but here they rate housing in line with Dean Baker's analysis at the Center for Economic and Policy Research. (On the same scale, that is. I don't know what the methodology is.) See Baker's "The Menace of an Unchecked Housing Bubble."

Notice the closer you get to California, the more overpriced housing is. If you look at the full list, California is all above 60%. Also, notice the further east (or actually toward the Midwest), the less overpriced housing becomes. Many cities in the Great Plains and Midwest have housing that is actually underpriced.

When the assessor comes around, he is judging market value based on comparable sales. That is the price in the newspaper. That is the bubble price. But beware. If housing returns to a level predicted by long-term trends, this is the amount your equity could drop.

That is not only bad news for you, since you're on the hook for the difference between your loan value and the equity (and the bank can ask for that difference in cash), but it's bad news for the state's economy, since residential construction has been the engine of growth over the past five years.

Locke rushes to the front of the parade

Former governor Gary Locke is showing some real appetite for public service. He's taken the transportation bull by the horns and is organizing a pre-election "aggressive public education effort ... before handing matters off to the actual ballot campaign." This is re the Fall 2007 package of Puget Sound projects.

Sitting here in the North End of Tacoma, I have a great view of our transportation dollars at work. And I have discovered a key that will unlock a voting bloc long opposed to transportation funding. But before I reveal that key, I should warn you, there are a few cautionary notes at the end, about the path Locke has set out upon and overall transportation strategy.

At the intersection of I-5 and US 16 a "Nickel" project is transforming one of the worst (if not the worst) interchanges in the state into a working piece of infrastructure -- in full view of 120,000 motorists a day. It's a poster project for DOT. Then, only a few miles down the road, a brand new span is crossing the Tacoma Narrows onto the Key Peninsula. It is from across that new bridge, to open in the fall, that the key to the election can be seen, standing and waving.

Property values.

They are skyrocketing, as speculation moves in even before the bridge deck arrives from South Korea. Mind you, neither a new 520 bridge, nor increased rail, nor a solution to the Alaskan Way viaduct problem will inflate already inflated home and property values but transportationn improvements like those may be the only way to keep them from crumbling.

We have predicted here that the peak of the housing boom (or bubble) has arrived, and a long, perhaps slow, steady decline in home values will begin this year. That drop in values will begin in the suburbs, particularly in those not well served by transit and roads, in the house plantations.

If Locke and his cronies can point to Gig Harbor as an object lesson, he can appeal to the self-interest of the most recalcitrant group of voters: the anti-tax property owners in the exurban and rural areas.

Transportation improvements can keep home values up. [Dropping values will not mean dropping taxes, please note. The revenue from property taxes on existing construction is relatively constant. Dropping values only mean the homeowner is on the hook for any equity overhang, plus if this is his/her "retirement account," he/she may be doomed to watch it shrink as the need for it draws nearer.]

The message to property owners: Can you afford NOT to increase transit and transportation access?

So much for the key to victory. Now for the cautionary notes:

• Locke has assembled a team, including John Carlson and Kirby Wilbur, who have no credentials in public service. It reminds me of Locke recruiting Indian-fighter Slade Gorton to lead his last transportation campaign to defeat.
• Second, the opening salvo in this current effort came in the form of an e-mail to deep pockets and corporate leaders. Elitism does not sell well to conservatives, and progressives distrust corporate interests. A message of "We know best" and "It's for your own good" will just cause voters to change the channel.
• Third, heavy investment in new roads is no good. Replacing deteriorating or outdated structures, sure. Maintain current surfaces, yes. But the roads/cars/gasoline technology has to change. Now it is time for rail/transit/alternatives.
• And lastly (and I know I'm preaching to an empty choir loft), transportation needs to be funded by gas taxes, not sales taxes. What is the rationale for allowing Big Oil to reap Big Profit while we dump more burden onto the sales tax? High prices are changing the American passenger car fleet. High prices are driving demand for alternatives. The problem with price is not level, but who gets the revenue.
  

A progressive tax on gasoline above $2 per gallon should be immediately instituted. It doesn't really matter where the money goes. At the federal level, it could go right into lower withholding rates and back into the pockets of Americans. (No, this is not a repeat of the $100 buy-off.)

At the state level, the absurd reality is that higher prices mean lower state revenues from the gas tax. Why? Because it is levied on a per gallon basis. When prices go up, consumption goes down. Lower consumption means lower revenue. I have argued at length for the retail sales tax to be applied to gasoline. (I think that's when the choir left.) But to subsidize it like food and drugs is patently absurd.

What is good for GM is bad for America

In the mid-1950s, GM executive Charles Wilson was up for confirmation as Secretary of Defense for Dwight Eisenhower. In this setting he issued one of the more famous tenets of corporatism. "What's good for America is good for GM, and vice versa."

It caused an uproar then, but the full fallacy has only become clear over time, as the tragedy of gas guzzlers, corporate infiltration of the government and global climate change comes clear. GM has spent its energy manipulating its industry and the political process and public demand, rather than identifying a need and filling it.

Early on GM was implicated, and actually found guilty in a courtroom, of systematically purchasing and then closing the track of streetcar lines in several US cities. That "light rail" capacity today would be worth billions.

After the War the company concentrated on its marketing and was the prime sponsor of the Car Culture. "See the USA in your Chevrolet. America is asking you to call." Under Eisenhower and Wilson and GM Board member Lucius D. Clay, the 41,000-mile "National System of Defense and Interstate Highways" came into being. Yes, the Interstate Highway System was enacted as a defense measure. Some economists at the time opposed it on the grounds it was designed to compete directly with the rail system. As it did.

GM has never shied from using its influence directly and indirectly to combat increased vehicle mileage (CAFE) standards, championing at every turn the gas guzzler. It's response to global warming was to buy and promote the Hummer. Now the company is failing. The vehicles the company has on the market are below par and vulnerable to high-priced fuel. Its debt is in the junk bond class.

When they come calling for a bailout, the federal response should be, You brought this on yourself. We will be cleaning up your mess for decades, environmentally and industrially. We cannot afford any more "good" for General Motors.

Prediction Tuesday - Play Along!

Washington's Office of Forecast Council released a preliminary June economic forecast package addressed to the Governor's Council of Economic Advisors. It includes a fun sheet for them to fill out, and thanks to the magic of the Internet, you can play along. Details further down in this post.

Strange and wonderful variations from my thinking are projected into this forecast, many apparently by Global Insight, the Forecast Council's macroeconomic consultant.

• Oil prices are expected to decline from 2006 through 2009
• Inflation (viewed through the CPI) is supposed to drop, from 3.2 percent in 2006 to half that in the next three years.
• Unemployment is predicted to stay low, at under 5.0 percent over the next three years.
  

Other notes of interest include:

• "During the first four months of 2006, core inflation in Seattle shot up at an annual rate of 6.0 percent, twice the 3.0 percent US rate."
• Housing permits fell 10,200 in Washington, about 20 percent from the fourth quarter of 2005 to the first quarter of 2006.
• Overall Washington construction employment will stay positive.
  

Oil prices declining is not something anybody ought to be predicting. Not only is the international situation, ah, unsettled, but demand is increasing for imports and will be for the indefinite future, unless we get a mega-project in alternatives going. Beyond this, the decline in the dollar means upward price pressure on those imports as measured in dollars. And if you think domestic oil producers are going to ignore that fact, you need a crash course in predatory corporate behavior.

I was not aware, until I saw this material, that anybody thought inflation was going to go away. As I posted just a few days ago, even the Wall Street Journal has predicted "Get Used to It: Inflation is Here to Stay."

Interest rates are supposed to stay up. Where is the decline in inflation going to come from?

But let's play the game. Here is the form that members the Council of Economic Advisors were given to fill out so as to "gauge the reasonableness of the preliminary economic forecast [and to serve] as the basis of an alternative economic and revenue forecast." (A bigger version is the back page of the first link above.)

Here's how to enter. In the thread for this post, enter whatever name you want to collect the prize (it will be a virtual prize), and then each category you want to enter, followed by the five numbers, each separated by a comma.

Here's a sample:

US
Real GDP 2.5, 2.5. 0.0, 3.0, 3.5
IPD 4.0, 4.5, 4.5, 5.0, 4.5
Mortgage Rate 6.5, 6.6, 6.8, 7.0, 7.2
Oil Price 71.0, 72.0, 76.0, 80.0, 85.0

Probability: 90%

WA
Real PI 2.6, 4.0, 3.0, 2.0, 2.0
Wage & cet. 2.6, 2.0, 1.5, 2.0, 2.5
Mfg 3.5, 3.5, 1.5, 4.0, 4.0
Const. Emp 6.0, 6.0 , -2.0, -2.0, -2.0
Permits 48.0, 45.0, 40.0, 40.0, 45.0
Avg. Wage 2.5, 2.5, 2.0, 1.5, 2.5

Please notice the column headings. The first is 2006:Q2, the quarter just past. The second is the current year.

We're closing this round on Sunday. For more tables, check out the Council's web site. If you don't want to do them all, pick and choose, you can still win! Winners will be notified and/or congratulated at each step (depending on whether they leave a contact address).

Come on. I bet we all do well against the house.

The Fed and the Market and a Prediction

The past couple of days are only the most recent of a general decline in the markets. Our Executive Director sent me a link to a Daily Kos diary by bonddad recounting Fed action and a mainstream take on the Market downturn. It will be no surprise to habitual readers that I have little patience for either.

The Fed:

It is reasonably clear that the U.S. economy is entering a period of transition. For the past three years or so, economic growth in the United States has been robust, reflecting both the ongoing re-employment of underutilized resources as well as the expansion of the economy's underlying productive potential, as determined by factors such as productivity trends and the growth of the labor force. Although we cannot ascertain the precise rates of resource utilization that the economy can sustain, we can have little doubt that, after three years of above-trend growth, slack has been substantially reduced. As a consequence, a sustainable, non-inflationary expansion is likely to involve some moderation in the growth of economic activity to a rate more consistent with the expansion of the nation's underlying productive capacity.

(Remarks by Chairman Ben S. Bernanke at the International Monetary Conference, Washington, D.C., June 5, 2006.)

This quasi-academic jargon seems to be borrowed from the outgoing master of obfuscation, Alan Greenspan. Underneath is pap. I'm sorry. In this corner we have not recognized the supposed recovery of the past three years. To say the economy recovered or "economic growth was robust," you need to explain away the enormous private and public debt. If you don't, you are saying a credit card is a paycheck.

If you excuse the debt by saying it went to building productive capacity, then how come we've run out of productive capacity? In fact, the private debt has gone to housing (a nonproductive asset) and to consumer debt (much of it folded into mortgages by home equity loan). The public debt has gone to a stupid adventure in Iraq, to a raid on our Social Security Funds, and to tax cuts for the rich. We showed charts last week. I have another one here somewhere I'll put up Thursday.

We explained just yesterday why raising interest rates into cost-push inflation (aka stagflation) is not useful, how it precipitated the last bust when Greenspan did the same thing, and how it exposes a deep misunderstanding of the economy. [What, you say, could be a deeper misunderstanding than calling a credit card spending binge a recovery?]

The crippling fact is that the single source of strength in this economy is productivity growth, and that has been compromised away. On the front end, productivity has not translated into wage and income growth for the working class, and hence not into broad-based demand. (See EPI's work on this point.) On the back end, I suspect, much of the so-called growth in productivity actually comes from downsizing, outsourcing and other cost-cutting that is not really growth in productivity, but shedding labor.

The Market

One of my friends is a market watcher and outstanding saxophone player. He has recounted how he watched in frozen fascination several years ago as the dot.com bubble burst, allowing his portfolio to dwindle before his eyes without acting. Not this time. He saw this market tanking over three weeks ago, Thursday and Friday, May 10-11. Down. Broadly down. He trimmed his exposure. And I give him credit here for probably picking the turning point, because I do not watch the market.

You get the picture from bonddad's comments at Daily Kos that inflation-fighting via the interest rate is widely perceived as a cause of market weakness. It may be. But it is not a primary cause of economic weakness. The Fed's short-term rates have become disconnected from the long-term rate-setting. The real question is, What is the reason for any Market strength? As Chris says, What good news is there out there?"

None. Massive budget deficits, massive trade deficits, huge debt overhang (soon to be worse for higher interest rates), abysmal war, declining dollar, terrible exposure to energy prices, corporate corruption, shrinking manufacturing capacity, and of course, a incompetent regime in power. What good news IS out there to make someone buy a stock?

Stock prices are at their current levels not because of strength in the economy, but because the guys overseas have to do something with the dollars we keep sending them, because baby boomers are hoping to squeeze another little bit out before they retire, and maybe because rich people need a place to park their tax cuts.

Market behavior is herd behavior. [One of the most absurd contentions ever was the "efficient market hypothesis," the idea that the market factors in all information efficiently. No. It is herd behavior.] And this herd ought to be spooky. They really have no good place for their money, with housing glutted and bonds paying low rates. But they can't afford to lose too much.

Prediction

Look for a wholesale if somewhat gradual shift out of the country, particularly in face of the declining dollar. And look for a market crisis, sooner or later. Derivatives have likely supported the market by masking risky behavior. Derivatives are not well regulated. A shift south in the Market could expose some rickety underpinnings to the whole contraption.

On the other hand, I'm an inveterate doom-sayer.

[But aren't those termites under that roller-coaster?]

One km of road, not 10 km of wall

An important corrolary in the economic answer to immigration as posted here earlier this week (and picked up by Daily Kos, see abject gratitude below) is the connection it would make to the political aspirations of Mexico.

I am not talking about amorphous, unfocused, general aspirations of a downtrodden people, I am talking about intelligent economic schemes for development as articulated by the political leaders of the country -- specifically the three candidates now vying to replace Vincente Fox as president in the Mexico's July 2 general election.

"Our country is emptying out, our towns are emptying out -- they have only women, children and old people," as PRD's Manual Lopez Obrador (former can-do mayor of Mexico City) was quoted in a recent Maria Elena Salinas column. Housing and public works construction, says Lopez Obrador, can be the engine for stimulating the rest of the economy.

Lopez Obrador is one of three in the race to succeed Vincente Fox, and the furthest left. Felipe Calderon of Fox's PAN party said he would prefer to build one kilometer of road, rather than 10 kilometers of wall -- an apparent attempt to divert another deluded Bush adventure in the desert (and its funding) into something more productive.

Roberto Madrazo of the mainline PRI promises both job creation and tax cuts as a means of stemming the exodus of migrants (and likely as a means to pander to voters). No income tax for those earning less than 10,000 pesos (about $1,000) per month.

Classic Keynesians like public works as a stimulant. Public infrastructure will produce value far beyond its cost for years to come and will generate real jobs now. But whichever of these candidates wins the July 2 election, supporting their agenda rather than continuing to pimp for US corporate johns is the way to build both political and economic stability -- and end the "immigration problem."

Note of gratitude: It was very cool that the piece on immigration made it onto Daily Kos as a diary, recommended even. I barely know what that is, but I know it is cool and that it generated a whole stream of intelligent observations and comments on that site.

Among those notes was the observation that Mexico still faces some weaknesses in their institutional framework, some data on how cheap American farm products have decimated farming, and lots of support for turning the debate on immigration onto this productive track and getting it off the fear-based track on which it now rides.

Also, see continuing work by the Daily Kos diarist RegenerationMan, particularly tommorrow's diary on "how to regenerate those poorest 90 micro-regions with a minimum of startup money. There will be charts. The Fence Don't Make No Sense!"

A direct look at inflation

Even the Wall Street Journal says, "Get Used to It: Inflation Is Here to Stay." That part is right. The mumbo-jumbo that follows about "core inflation" could be flushed.

Let us take another direct look at the phenomenon of inflation.

Inflation is a general rise in prices. There are two kinds: demand-pull and cost-push.

Demand-pull inflation occurs when an overheated economy creates demand for goods that supply cannot handle. This occurs after wars, for example, when pent-up demand meets supply crimped by industries that have been destroyed or are not yet geared to consumer goods. The last time it occurred in the US was during the Johnson years, when the Vietnam War and the Great Society bid up the price of wages and products. But that was a mild case. After World War II, the whole world went shopping in America. Demand was over the top. That was a severe case.

Two attributes of demand-pull bear noting:

One, Wages can keep pace with rising prices, so it is those on fixed incomes who are hurt, not the working person. Eventually, and sooner rather than later (as in a year or two), production capacity will expand enough to moderate prices. This is particularly true now with global sources of supply. The "spiraling inflation" or "accelerating inflation" that preoccupies the Fed has never really happened with overheating. Currency collapse? Yes. Not from too much demand.

Two, There is a business boom associated with this type of inflation. That may seem to follow obviously from excess demand, but it is furthered by the fact that consistently upward prices mean that it is profitable to produce in the earlier, lower-cost times and sell into the later, higher-priced times. A corollary is that it may pay manipulators just to hold onto commodities and watch their price increase. This mandates a strong anti-monopoly regime, because a competitive market will defeat this strategy.

If demand-pull sounds familiar, it shouldn't. We haven't seen this in several decades.

Cost-push inflation is that associated with increases in producer costs which must be passed on as a matter of business solvency. This is what we see in energy price inflation, where the cost of production and transport goes up, so the price to the consumer goes up, the "surcharge" era. Health care costs are built into prices in a similar way. As are credit costs. Devaluation of currency adds more. This is the era of stagflation, such as we are entering again.

What!? Credit costs? Did I get that one by?

Yes. The cost of business operations is increased by the cost of capital.

But then doesn't the Fed increase interest rates to try to STOP inflation?

That they do. Does it work? No. In cost-push, it just increases costs. Of course, pretty soon there is a recession and people lose their jobs and demand IS so constricted that prices can't go up. But this is like amputation as a remedy for a hangnail.

Case History: In 1999 and 2000 Fed Chairman Alan "Maestro Magoo" Greenspan read "inflation" in his tea leaves. Unemployment was low, but it had been low for years without triggering an inflation. Ah ... but oil prices had begun to rise.

Greenspan hiked interest rates and learned quickly that it is easier to stop an economy with high interest rates than it is to restart one with low rates. In three years, Fed-controlled interest rates hit historical highs, then dropped to historical lows as the economy tanked. Those low interest rates are with us today, but precious little economic health.

We are seeing the same behavior in Ben Bernanke, Greenspan's replacement at the Fed. Energy cost-push inflation has begun to show itself, so he is raising interest rates. Long-term rates are beginning to follow.

What is the logic? If we are hoping to cut demand by raising rates, Why not just let energy prices do it themselves. Nothing bleeds effective demand better than siphoning it off into oil cartels and mega-corporations.

There is no logic. There IS a kind of funny sequence of reactions in the Market (capital M), however. When inflation begins to rise, stocks fall. Not because buyers are afraid business will begin producing more in anticipation of selling later into a higher-price, higher-wage environment.

No. It is entirely because they know from experience that the Fed will raise rates. And they know interest rate action will depress the economy. This is in spite of the fact that long-term rates have become separated from short-term rates. Too bad Fed action doesn't do anything to the inflation -- except add fuel to the fire.

GOP “Mainstreamers” Question Mark

Sam Reed, who took a heckuva beating from his own party for following the law during the gubernatorial election, is heading up “Mainstream Republicans of Washington State.”

“If it is going to be a tough year for Republicans statewide, then mainstream plays an even more important role,” sez executive director of the group Alex Hays.

Assuming there are still a couple of breeding pairs extant, moderate Republicans COULD make a comeback, I suppose. And it IS going to be a tough year for the GOP. The extremism, incompetence and corruption of the Radical Right has gotten too big for their blanket of lies to cover. Their only hope now is that the Rovemeister can create enough cacophony around election time to deaden the senses of voters.

Do so-called “mainstream” Republicans deserve attention? No. They didn’t stand up then and they aren’t standing up now. They’re just hoping to be a fall-back position for the disillusioned and betrayed. It’s not moderation, it’s opportunism. Moderate does not mean weak-kneed.

Irrespective of the party within the state, the national Republicans will not be moderating. Write it down. The Radical Right and its corporate financiers have too much to lose from a return to integrity, such as would be required of any “moderates.” If the Democrats control the House, there will be investigations. If the ethics process can shake free of the Republican stonewalling led by our own 4th District's Doc Hastings, heads will roll. The wingnuts will be pulling out all the stops – ALL the stops – to maintain power.

It is our great good fortune that this is not a presidential election year. It will be harder to organize the propaganda on a Congressional district level than the national level. But they will try. By attack and distortion. By orchestrated military adventurism. By last-minute crises. And of course, by rigging the machines, intimidating voters, and the usual fraud.

It's worth nothing that Mike McGavick is not a member of the Mainstream Republicans, taking his script and funding instead from the anti-environment, Big Business, Hard Right.