A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Wednesday, September 27, 2006

George McGovern: Mileposts on the road out of Iraq

A blueprint for leaving Iraq is offered by George McGovern and William R. Polk in their new book Out of Iraq, being published in October by Simon & Schuster. An excerpt appeared in the latest edition of Harpers. It is a technically complete treatment of how to disengage in a responsible way. It begins with the compelling case for withdrawal, including:
  • Polls show only 2% of Iraqis consider Americans to be liberators.
  • Iraq has become the primary recruiting and training ground for terrorists; it is a strategic necessity to withdraw.
  • Current US expenditures run $246 million each day.
  • We continue to throw good money after bad and to throw good lives after those already wasted. The sacrifice undergone so far is, in fact, W's explicit rationalefor staying the course -- so "they will not have died in vain."
What is it that needs to be done to be responsible, and not to leave a stateless situation and chaos?
  • Establish an international stabilization force comprised of contingents from Muslim countries, paid for by the US, outfitted with arms, transportation and communication equipment currently in the theater. (est. cost: $5.5 billion for two years.)
  • Establish a police system out of the "home guards" working with the national police to stabilize and secure the country. Avoiding warlordism or dominance of one or another militia will take up to five years of training, coordination and the support of respected indigenous leaders. The US has no useful role to play in establishing this system. (cost: $1 billion.)
  • Avoid reconstituting a heavily armed national army. Such a force would bring more instability. The army ought to be reorganized in a manner similar to the US Army Corps of Engineers and assigned a rebuilding function. (cost: $500 million.)
  • End the construction and development of permanent US bases. The official line is that bases are not being built, but they are. (cost: savings of unknown billions.)
  • Immediately withdraw the mercenary "personal security details" by stopping payment on their contracts. These are the most despised symbol of the occupation. (cost: savings of unknown billions.)
  • Clean up land mines and other unexploded or radioactive ordinance. (cost: $250 million for initial survey, unknown cost for removal.)
  • Reconstruct Iraqi infrastructure. The World Bank estimates $25 billion in public infrastructure has been destroyed. The work should be done by Iraqis and funded through the most local civil authority possible to foment grass roots democracy. (cost: $25 billion +.)
  • Demolish the blast walls and wire barriers that scar Iraq physically and symbolically, using Iraqi workers. (cost: $500 million.)
  • Rescue and restore as much as possible the archeological and cultural sites. ["Astonishingly, one American camp was built on top of Babylon.... The 5,000-year-old site at Kish was also horribly damaged."] (cost: $750 million.)
  • Undertake an independent accounting of reconstruction funds. The UN handed over billions of dollars in Iraqi oil revenue to the CPA (Coalition Provisional Authority). Accounting was never completed. Massive fraud is evident in the billions of no-bid contracts delivered to US corporations like Halliburton. Reports are that oil has been sold at discount to American corporations. These issues need to be fully accounted for and remedies exacted.
  • All contracts currently let should be voided and the Iraqi government given the charge of renegotiating them or opening them to competitive international bids.
  • Reparations need to be made to civilians for lives lost and property destroyed, for injuries from the war or subsequent torture. Claims should be assessed by an independent international body. (cost: $2 billion.)
  • Reconstitution of the Iraqi civil service, which has been decimated with the departure of judges, lawyers, social workers, journalists, etc., following the war. (cost: $500 million.)
  • Reconstitution of the Iraqi public health system, including recruitment and training or return of thousands of public health workers, as well as reconstruction of hundreds of health centers, clinics and hospitals. (cost: $20 billion.)
  • Official and unofficial apologies for the devastation visited on the Iraqi people. (cost: ?)
Even if these costs were twice the numbers indicated, the savings to the US would be in the hundreds of billions of dollars. Joseph Stiglitz and Linda Bilmes have estimated the cost of four more years in Iraq at $1 trillion.

McGovern and Polk call for a withdrawal of troops and the institution of a multinational force. Certainly the American senior command needs to be replaced by competent internationally respected commanders. But the world cannot afford to leave chaos on the ground or the opportunity for a permanent blood bath.

Better would be the multinational force identified by McGovern and Polk, backed by Coalition troops under UN or NATO command in camps away from the populace, to enforce a separation of warring sides and prevent home guards and militias from becoming expeditionary armies.

We've made a helluva mess in Iraq, and it's going to take a complex and massive effort to set things even close to right, but it needs to be done. Any alternative will be even more difficult.

Thursday, September 21, 2006

RIP Revenue Tax Force

It was a good day for risk-takers at the Tacoma city council's study session Tuesday. Tacomans have to be heartened to see how quickly the Council blew the smoke off the Majority Report of the City Services Tax Task Force.

The chair of the task force wasn't halfway through a tedious Power Point presentation when Mayor Bill Baarsma pegged the principle recommendation as a "non-starter."

Some other apt questions followed from other Council members, which caused more discomfort. (e.g., the majority's suggestion was that the Council "explore" the alternative. The apt question? What about it needs exploring?)

My personal discomfort came in the few hours before the meeting. I spent it in solitude, with a focused visualization of something between an inquisition and a public dunking. As it turns out, I was called upon to introduce the Minority Report, and acquitted myself tolerably.

At least I didn't swallow my tie, and the Council's attention seemed to be in the "on" position.

If you've been following this adventure, you'll know why I couldn't go along with the majority and instead, with a single co-conspirator, submitted a Minority Report, containing actual revenue options and a clear critique of the main concept and its preferred (by the majority) variation.

At a minimum I think we salvaged something of the process with which to go forward, although "going forward" means being referred to the Finance Committee, not the early advisory referendum envisioned earlier. (The Council may have been more aware of our activities than I suspected.)

So, Rational Revenue Enhancement - 1, Self-Interested Process Manipulation - 0.

The "city services tax" concept is dead, insofar as it is a predominantly property based tax. There will be no shift from business to residents.

And the revenue options we developed in the Minority Report are still on the table, though it be a side table.

Tacoma's financing problems are not unique. If we can make something work here, it could work in other strapped Washington cities. The revenue gap is not going away without some treatment. I'll keep you posted.

Sunday, September 17, 2006

Tester (D) leading in MT Senate race

Two out of ten U.S. Senate offices in the Pacific Northwest are being contested this election cycle. One is in Montana. The other, of course, is in Washington. Democrats are leading both races.

Democrat John Tester is leading incumbent Republican Conrad Burns in the Big Sky in what is a referendum on Burns (and Bush). The Republicans have promised to spend $10 million in the state, and Tester hopes to match it.

That's more than $20 per person -- and who knows how much per vote, since the electorate will be plenty turned off by November. Last cycle, Tom Daschle and John Thune conducted a media- and mail-a-thon in South Dakota and did little more for the Republic than give folks plenty of fire starter for the winter.

Burns is directly connected to indicted lobbyist Jack Abramoff. In an interview with Vanity Fair magazine, Abramoff said he and his staff were cozy with the Burns office, in a relationship that paid off in appropriations for clients.

Burns campaign has imploded mostly, however, on a series of gaffes and blunders, some of which are as embarrassing to Montanans as the corruption. Conrad lost it in front of a -- get this, in a post 9/11 world -- a group of firefighters. He attacked them for not doing their jobs effectively.

Late last month, Burns called on the governor (rising Democrat Brian Schweitzer) to call a state of emergency for an ongoing fire. The Governor had done that a full month earlier.

Then he implied his house painter, "a nice little Guatemalan man," might be illegal. His comment that the war on terror is a fight against those who "drive taxicabs in the daytime and kill at night," was ....

So it is Tester's race to lose, and he is showing no signs of doing that. In particular, to my mind, is his turning the tax question to appropriate advantage by attacking Burns for his tax hikes on education.

Tester's ‘Higher Education, Deeper Debt’ report shows the consequences of Sen. Burns’ tax increases on Montana students and their families.

Burns and other Republicans in the last budget cycle voted to cut student loan programs by $12.7 billion, ended tuition tax credits, and froze the maximum Pell Grant, the leading college scholarship program. This came at a time when the cost of tuition at Montana colleges and elsewhere is skyrocketing. Real tax increases on reall people.

Tester is a onetime public-school teacher and current president of the Montana Senate. He sports a flattop haircut and drives a pickup truck. ("Special interests will never hitch a ride in this truck).

And he currently works a farm of 1,800 acres. He was drawn into politics eight years ago as a result of the electricity deregulation fiasco which enriched Enron and gouged several Western states. Hopefully another Democrat in the Senate will mean an end to that kind of corporate feeding frenzy on America.

Should both Cantwell and Tester be elected, the Northwest's representation will be split between Democrats and Republicans.

Two Democrats from Washington, two from Montana, and one from Oregon. In the next cycle (2008) incumbents who will have to face the voters include Republican Larry Craig in Idaho, Gordon Smith in Oregon, and Ted Stevens in Alaska, along with Democrat Max Baucus in Montana.

Thursday, September 14, 2006

Tacoma: Municipal finance meets Mr. Paper

The virtual publication of the Minority Report of Tacoma's Revenue Tax Force (whose activities have been sporadically chronicled here over the past six or eight months -- see below) was delivered to the virtual in-boxes of city government this morning. The majority report is also e-available. Piles of real paper will arrive Monday.

At issue is the financial architecture of the city. Will it be strong enough or broad enough in the foundation to carry the demands for city services -- fire, police, library, streets and roads -- into the next few decades? Or not?

This is only step three in a journey of a thousand steps which had better get some momentum soon, or we're not getting there in this lifetime. Still, an inch closer is an inch closer.

It was fun. It was educational. I learned that who controls the process can control the outcome. Graduation comes Tuesday, at a city council study session.

If anybody else is working with the fiscal problems of Washington cities, it would be good to hear from you. Obviously the legislature and the Association of Washington Cities are interested, but I am not connected enough to know of any real relief in sight. All I see is more piling up on existing sales and property taxes.

Previous posts on the Tax Force:

Wednesday, September 13, 2006

WA-04 ripe for the picking

As soon as voters hear the message, Richard Wright will win in the 4th, according to a poll released today by Wright's campaign.

The Evans/McDonough Company surveyed likely voters in Washington's 4th District August 15-17 and found a startling shallowness of support for Tom DeLay lapdog Doc Hastings.

Anna Fahey, Wright's campaign manager, told me:
The amazing thing is that we've heard that this poll shows Hastings weaker than any of the other incumbents in the state -- at least in preliminary polling.

We're not sure how Darcy's new numbers measure up.

Hastings came back with his own poll numbers that show him in the lead, but we know that with 17% undecided and only 22% definitely voting for him the race is truly wide open at this late stage.

The fact is, when people hear our message and compare the candidates, Richard comes out on top.
Evan's/McDonough's findings:
  • Only one in five voters (22%) say they will "definitely vote to reelect Hastings." Another quarter (28%) say they will "probably vote to reelect Hastings." Hastings' combined reelect of 50% is extremely weak for a six-term incumbent and suggests that he is genuinely vulnerable.
  • Voters in this district are not happy about the direction of the country (59% wrong track) and are unusually pessimistic about the direction of their local area (40% wrong track). These are surprisingly negative numbers in a traditionally Republican district and suggest that voters in this district are looking for change.
  • Despite the fact that challenger Richard Wright is not well known at this point, Wright is within single digits of Hastings after voters hear a positive description of each candidate, and Wright pulls ahead of Hastings after the comparatives. After hearing additional information about Wright's positions as a conservative Democrat, Wright opens up a 10-point lead on Hastings.
  • Although Hastings is well-liked, his personal popularity does not translate into votes. Hastings has several issue positions and votes that are unpopular and out of step with the district. This, combined with the district's overall negative mood, keeps Hastings from being able to convert his personal popularity into vote support.
  • Richard Wright's resume as a conservative Democrat fits the 4th District well and appeals to Democrats, Independents and even Republicans. Once voters learn more about Wright, he pulls ahead of Hastings in a district where self-identified Republicans outnumber Democrats by 12 points, and where Hastings has a name ID advantage over Wright.
  • This survey shows that as Wright becomes better known in the district, Hastings' vote advantage will evaporate. There is a 38-point net shift in the survey towards Wright from the first vote to the final vote, suggesting that there are a significant number of persuadable voters in this district who are ready for change and looking for an alternative. Particularly noteworthy is Wright's lead among Independents after they hear comparatives among the candidates: 47% to 25%.
  • Finally, the shift to support for Wright over Hastings after voters hear the comparatives occurs among all 4th District citizens regardless of how often they have voted in recent elections, party affiliation, where they live in the District, and whether they are over or under the age of 50.


This memo is based on the results of a telephone survey of likely 2006 general election voters in Washington's 4th Congressional District. A total of 410 interviews were conducted August 15-17, 2006. The overall margin of error for these results is + 4.9 points at the 95% confidence interval.

Will Bush push the official collapse of Iraq past election day?

Joe Biden, me, senior Iraqi leaders, Les Gelb, and unnamed experts have one thought in common: partition of Iraq is inevitable, and better to do it soon, in an organized way, than wait for the bloodbath to run its course.

Meanwhile, George W. Bush is reading from Al Qaeda travel brochures while standing in front of a map of Iraq, telling the same lie over and over (and admittedly getting a few more adherents after each speech).

Democracy in Iraq is no longer leading the speech, because democracy has failed, and whatever happens after the Congressional elections, the next Bush mistake won't be the democracy promised eight short months ago.

How long can Bush and Rove distract the electorate from the sickening civil war of death squads or from the Iraq "reconstructed" for the benefit of his and Cheney's corporate buddies? Will it be long enough to get past the election, when "non-democratic" US action is the plan?

We posted here, let's see, in July, June, May,(on the roll-out of the Biden/Gelb plan) and March on the logic and desirability of partitioning the country and allowing the Iraqis to rebuild.

In August, Biden, the ranking Democrat on the Senate Foreign Relations Committee, repeated in compelling terms a plan for order and stability that involves partition, a plan developed with Les Gelb of the Council on Foreign Relations. ("A Plan to Hold Iraq Together," Washington Post, August 24,2006)

Specifically, (quote)

  • First, the plan calls for maintaining a unified Iraq by decentralizing it and giving Kurds, Shiites and Sunnis their own regions. The central government would be left in charge of common interests, such as border security and the distribution of oil revenue
  • Second, it would bind the Sunnis to the deal by guaranteeing them a proportionate share of oil revenue. Each group would have an incentive to maximize oil production, making oil the glue that binds the country together.
  • Third, the plan would create a massive jobs program while increasing reconstruction aid -- especially from the oil-rich Gulf states -- but tying it to the protection of minority rights.
  • Fourth, it would convene an international conference that would produce a regional nonaggression pact and create a Contact Group to enforce regional commitments
  • Fifth, it would begin the phased redeployment of U.S. forces this year and withdraw most of them by the end of 2007, while maintaining a small follow-on force to keep the neighbors honest and to strike any concentration of terrorists.
(end quote)

The whole Biden piece is worth reading. Finally a way out. A hard way, no doubt, but better hard reality than simplistic fantasy.

Unmarked in this space, but the subject of a floor speech by redoubtable Jim McDermott in the House, was the July revelation in Britain's Independent, that high Iraqi officials admitted "A sectarian break-up of Iraq is now inevitable."

"Iraq as a political project is finished," a senior government official was quoted as saying, adding: "The parties have moved to plan B." He said that the Shia, Sunni and Kurdish parties were now looking at ways to divide Iraq between them and to decide the future of Baghdad, where there is a mixed population. "There is serious talk of Baghdad being divided into [Shia] east and [Sunni] west," he said.
"The government is all in the Green Zone like the previous one and they have left the streets to the terrorists," said Mahmoud Othman, a veteran Iraqi politician. He said the situation would be made worse by the war in Lebanon because it would intensify the struggle between Iran and the US being staged in Iraq. The Iraqi crisis would now receive much reduced international attention.
We have created an environment of weak government, a failing state, with convenient US soldiers as targets. Just the sort of vacation spot terrorists might enjoy.

It's time to get the security and reconstruction on the road, by admitting the inevitable and enabling the natural domestic leadership to take responsibility and giving the indigenous population, over 60 percent of whom are unemployed, a job rebuilding their country.

Or wait until the day after the election to see what Bush-Rumsfeld-Cheney have in mind.

P.S.: In recent days the "federalism" (read partition) idea has gained currency among the Shiites. It is already a fact for the Kurds, who have their soldiers guarding the border. Below is a possible map. See the Independent for a discussion of the current federalism plan.

# Posted by Alan : 1:32 PM

Saturday, September 9, 2006

Preparing for a potential pandemic

Ron Sims and Dorothy Teeter have written a simple, broad, informative and easy to read overview of the potential for pandemic influenza.

It arrived in my mail late last week with illustrations and everything as the latest edition of the King County newsletter "Health Matters." Just the thing for someone who is easily confused, particularly about unfamiliar and alarming sounding events, like me.

The link is here. Health Matters. Print it out. Have your kids read it to you. Below is information on how to get hard copies, for yourself or your group. Better than anything else I have seen, it lets you know how to prepare and why and what to expect, from macro to micro.

  • Everybody will be sick or will be taking care of sick people
  • Avian flu is not pandemic flu
  • The single best thing you can do to avoid getting sick is to wash your hands
  • Health services will be rationed, health care givers will be sick, too, so be prepared to take care of sick people at home
  • Be ready to stay home yourself
The King County web site is good, too.

Also from the World Health Organization "Ten Things to Know."

Eliminating the fear factor as this sort of information and straight talk can do is a good start in successfully dealing with this event.
Re Health Matters Pandemic issue, If you want one hard copy for yourself or fifty for your group, contact
Meredith Li-Vollmer
Risk Communication Specialist
Public Health - Seattle & King County
999 3rd Avenue, Suite 1200
Seattle, WA 98104
(206) 296-4313

7:00 Tonight in Wenatchee

The keynote speaker for a benefit for Richard Wright and Peter Goldmark that is being billed as the "largest ever Democratic event in Central Washington" will be popular Montana governor Brian Schweitzer.

Goldmark, the Democratic candidate from the 5th Congressional District, will fly his single engine plane to Helena and return to Wenatchee for the Chelan-Douglas County Democrats’ annual Jefferson Jackson dinner.

The fundraiser at the Wenatchee Convention Center starts at 7:00 PM, after a private reception, and runs to 10:00. It could be a galvanizing event for a new breed of straight-talking, high quality Democrats running for office in the Red Zone.

Schweitzer has a 70% job approval rating in a state with a majority of registered Republicans. The Montana legislature is now controlled by Democrats and the Democratic US Senate candidate, Jon Tester -- another Montana farmer -- is likely to beat the long-term Republican incumbent, Sen. Conrad Burns.

The burly, funny Montana rancher reportedly volunteered for the keynote address when he found out Wright was running against long-time Tom DeLay lapdog and House "Ethics" Committee Chairman Doc Hastings.

Tickets sold have topped 430, but there may still be room at the Wenatchee Convention Center.

There is a lot of buzz about Schweitzer. Newsweek's Howard Fineman and others have written about his political acumen and his never-talk-down-to-the-people populist charm. He is a champion of the environment, alternative energy and clean coal technology.

Schweitzer aims to make Montana a "lobbyist-free zone" and worked with Montana's libertarians to significantly curtail the Patriot Act there.

High Plains Democrats like Schweitzer, Goldmark and Wright have a real chance to connnect the blue across the top of the country, from Washington through Montana and into the Dakotas and Minnesota.

These guys are not going to touch the Second Amendment, but they are up to their eyeballs in integrity, intelligence and competence.

It should be fun.

Friday, September 8, 2006

Mulally's been there, done that

Ford is reeling. It has the oldest fleet on the road. Its F series trucks and Explorers are getting hammered by high gas prices.

Alan Mulally made a big contribution at Boeing by cutting production times on the 787 and shortening product rollout schedules. Can he do the same at Ford?

It doesn't matter. Half a dozen automakers are scrambling for the dwindling American car market. This is no two-man fight as with Airbus and Boeing. GM is conducting a perpetual price war.

Toyota has grabbed the mainstream auto market and is now moving into trucks. (Toyota surpassed Ford in US sales in July for the first time in history.) Chrysler, Honda, Nissan, Hyundai, and more.

U.S. automakers got hosed in the 1980s by not being ready for high gas prices and by the high dollar created by Reagan's big deficits. It happened again. Ford can turn it around twice and still lose half the troops before they take a hill.

By the way, - how long has Alan Mulally been on the job at Ford? It was announced yesterday, but my guess is a minimum three weeks.

I don't have any inside stuff, I just note that August 18th, Ford announced a slash in production that bears the Mulally stamp.

"Full details" of additional actions were to be announced in September. Otherwise the big "decline comment" on particulars. It's September.

Obviously Boeing knew he was leaving Chicago for Detroit. They had his replacements lined up and grinning.

And it makes sense for the new CEO to avoid the Simon Legree label the first day on the job. Imagine what would have happened had Mulally been hired, then announced mass production cuts.

The sourest note on Mulally's trumpet was when he began to wave the flag.
"This is a United States icon, and Boeing is a United States icon, and some people think the United States can't compete in the design of products, and I think we can. We've shown that at Commercial Airplanes, and I think absolutely we've shown that at Ford."

The United States may have corporate bosses in the White House and Halls of Congress, but corporations have saved their benefits for a chosen few, not the rest of us.

At Boeing Mulally outsourced, downsized and even sent sensitive technology to Japan -- the wing for God's sake -- to be manufactured there.

The United States lost tens of thousands of jobs under Mulally so he could keep a corporate icon shining. When you think about it, it's a perfect illustration of the corporate subversion of the middle class economy.

And let there be no doubt in anybody's mind that under Mulally, Ford will close U.S. plants and open others elsewhere.

If patriotism is a Ford, expect to see Alan Mulally keep his Lexus.

Thursday, September 7, 2006

Recovery? Who? Where?

The economic recovery and the onset of good times reported on the financial pages have passed much of America by in the night. Median income for those under 65 fell, the poverty rate rose, and more people by number and percent are without health insurance today than at the beginning of this "recovery" in 2001. These are the findings of a white paper released Friday by the Center on Budget and Policy Priorities (CBPP).
  • Median income for those under 65 fell again in 2005 and is now $2,000 lower in real (inflation-adjusted) dollars than in 2001. That's a 3.7 percent cut.

  • The poverty rate is higher today (12.6 percent) than in 2001 (11.7 percent).

  • Health Insurance coverage is lower. The number and percentage of people without health insurance was much higher at the start of 2006 than in 2001.
These findings corroborate the feelings of a good majority of Americans. The economy they see is not doing as well as the economy the Bush machine describes in its well-orchestrated media pushes. Even the official unemployment rate is suspect, as we posted (see unemployment with a stable participation rate post).

So who is recovering?

A second CBPP white paper released Thursday has a positive ID on that.
  • In the first half of 2006 the piece of the pie going to corporate profits was bigger than at any time since 1950, having grown under Bush at twice the average rate of other recoveries.

  • The share going to wages and salaries was at its lowest level on record (77 years).

  • Hourly private nonsupervisory wage earners (four out of five of us) made less now than when the "recovery" began in 2001 in real (inflation-adjusted) terms. This came in spite of productivity numbers growing faster than in all but one of the previous recoveries. This blows up the official line that productivity gets translated directly into wage gains.
This is not really a recovery. It is an accounting gimmick, as we borrow growth from the future via massive federal deficits (see the "Net GDP" post ) and enormous and growing private debt (see borrowing chart post).

The economy is not stronger, but much weaker.

Prediction Tuesday says any more of this kind of "recovery" and we'll all be dead. For our scare story on what happens if we borrow too much see scare story post. And for our early warning about when a recovery is not a recovery, see "A Jobless Recovery is not a Recovery," Parts 1, 2, and 3.

Wednesday, September 6, 2006

Prediction Tuesday - Housing Slumps

Across the US, housing statistics are beginning to reflect the sharp slowdown over the past year. Many sectors of the economy are affected by the housing market: appliances and furnishings, building materials, the finance industry.

The slowdown in housing was even blamed when Ford shut one of its pickup assembly operations: Contractors use a lot of pickups. An economy which has floated on cheap money and housing construction is settling down into the sea of red ink.

EPI's Snapshot last week highlighted some of the indicators:
  • Sales of existing homes fell to near 2004 levels.
  • New home sales are well below last year's level.
  • Inventories -- homes currently on the market -- are at record highs.
  • Supply? Demand? Of course prices are softening.
  • Jobs directly related to housing contributed 14.1% of employment growth in 2004, 15.4% in 2005, only 4.5% this year.
  • This does not count jobs related to household goods, such as appliances, or other ancillary employment
  • Residential construction's contribution to GDP growth dipped to -0.4% in the second quarter of 2006, after peaking at over 1.0% a year earlier
As Bernstein and Bivens of EPI say, "Even more important in terms of dollars pumped into the economy is the appreciated home values, which have been an important source of stimulus over the past few years."

This last point corrects a claim I copied Sunday from the Center for American Progress, which said that increased personal debt is arising from purchase of big ticket items, not consumer debt.

This is less true by the amount of home equity that has been withdrawn to finance current purchases, the "home as a piggy bank," factor.

Depreciating housing values will have the effect of stopping the home equity stimulus. If the disparity between sagging home values and the amount loaned is "called in" by the lender, it could begin to act as a real drag.

Dean Baker of the Center for Economic and Policy Research was even more blunt in an op-ed in Tom Paine entitled "The Coming Housing Crash."

"This is a very different picture from a year ago," he says.
  • Sales of new and existing homes are both down more than 10% from last year
  • Mortgate applications are down 20%
  • Sales prices are barely above last year, and actually down in real (inflation-adjusted) terms

  • The vacancy rate for ownership units has hit a new high, along with inventories of both new and existing homes
Baker made his reputation in being one of the very few economists to peg the dot.com bust. There he concentrated on the historic trend in price/earnings ratios. Here he's applying a similar historical trend analysis to the housing market:
"Ordinarily, house prices rise at roughly the same rate as other prices. Nationwide, house prices stayed virtually even with the overall rate of inflation from 1950 to 1995. However, in the last 10 years they rose by more than 50 percent, after adjusting for inflation. This created more than $5 trillion in housing bubble wealth."
With the bubble finally deflating, we're looking not just at lost paper wealth, but at the loss of millions of jobs. The fallout will be severe. As Baker puts it:
"The crash and post-crash world will not be pretty. Millions of people will lose their jobs and their homes. Unfortunately, the economists who led us down this path are not likely to be among the ones who suffer severe consequences."
The Census Bureau/HUD Residential Construction Release on August 16, had the following tidbits:
  • Building permits for all housing units were 21% lower than a year earlier; 30% lower in the West;
  • Single familiy units were 23.5% lower overall; 33.5% lower in the West;
  • Housing starts for all units were 13.3 percent lower than a year earlier; 13.9% lower in the West;
  • Single family units started were 16.6% lower overall; 25.8% lower in the West;
  • Housing completions were 2.3 percent above one year ago; but they were 16.2% lower in the West;
  • Single family completions were 1.2% higher overall; but a full 19% lower in the West.
The National Association of Home Builders (NAHB) and Wells Fargo produce the Home Builders Housing Market Index. A number over 50 indicates that more builders view sales conditions as good rather than poor.
  • The August HMI index was its lowest since February 1991; the index has fallen for seven consecutive months;
  • The single family home sales segment fell to 36, the sales expectations segment fell to 40, the sales traffic segment fell to 21;
  • The total HMI index fell to 15 in the Midwest, to 41 in the South, and to 42 in the West.

Monday, September 4, 2006

Drowning in Debt

America's GDP growth is predicated on a rising tide of personal and federal debt. With rising interest rates and stagnating incomes, with retiring baby boomers and outsourced industries, it remains to be seen whether the economy can withstand a storm on this sea of red ink.

We've posted on the enormous federal deficits and their relation to growth. (See the "Net GDP" post.)

Now, according to a recent report by the Center for American Progress:
"America's middle class is drowning in debt. A typical middle income family earning around $45,000 a year saw its debt burden grow by 33.1% between 2001 and 2004, even after adjusting for inflation. Debt relative to income rose even more, to 33.9%, during this period for middle income families. Personal bankruptcies among these households are rising steeply.

"The reasons for greater economic distress among middle class households are not hard to pinpoint. Slow income growth ... has not kept pace with the rising cost of big ticket items such as housing and education loans, medical expenses and transportation...."
Increased debt is being generated not by profligate credit card spending, as noted, but by borrowing for big ticket items -- homes and education. For the first time debt has exceeded income, and in spite of low interest rates, debt payments are higher. Highly indebted households continue to grow in number, with one in seven households making debt payments greater than 40 percent of income.

Sunday, September 3, 2006

Mexican recount and local spin

As edited by the letters troll at the TNT, here is a letter on the ongoing crisis of the Mexican elections. On the plus side, the standoff in one of our closest trading partners has gotten a bit coverage from the paper in recent days, first a paragraph on page three, then an editorial (which was the raison d'etre for the paragraph), then a highly edited letter (mine) published Friday.

On the minus side,the most accurate account of the situation appeared in the letter. And better than the one they published was the one I wrote. You judge.


Dear Editor,

We've been having quite a few disputed elections in recent years, and every once in awhile one of them makes the pages of the News Tribune.

This one was the July 2 presidential election in Mexico. It got more ink in Wednesday's editorial column than it has on the news pages, but at least you acknowledged it. You made much of Lopez Obrador's similarity to Hugo Chavez, and didn't spare any vitriol in denouncing Obrador as a whiner and a sore loser, but in your editorial he somehow becomes the cause of the emigration into the US, although he is trying to oust the ruling party and the policies that are emptying out Mexican villages.

Missing from your pages is any account of the largest peaceful mass action since Corazon Aquino and the people of the Philippines toppled Ferdinand Marcos decades ago. Former mayor Lopez Obrador and millions of his closest friends have occupied Mexico City for six weeks.

Also missing is an explicit statement of what Obrador and his partisans are calling for: a vote by vote recount of the very close, and in spite of your assurances, far from fraud-free election. Why not a complete recount? If Calderon wins, case closed. He has legitimacy. What is the rationale against a recount? Opposing a total recount means either you're either afraid Calderon will lose or you're afraid massive fraud will be uncovered, or both.

TNT version:

What'’s to fear by holding a true election recount?

Re: "Lopez Obrador: Sore loser or worse"” (editorial, 8-30).

The July 2 presidential election in Mexico got more ink in the editorial column than it has on the news pages, but at least it was acknowledged.

The editorial made much of Andres Manuel Lopez Obrador'’s similarity to Hugo Chavez and didn'’t spare any vitriol in denouncing Obrador as a whiner and a sore loser. But in your editorial he somehow becomes the cause of the emigration into the U.S., although he is trying to oust the ruling party and the policies that are emptying out Mexican villages.

Missing is any account of the largest peaceful mass action since Corazon Aquino and the people of the Philippines toppled Ferdinand Marcos decades ago. Former mayor Lopez Obrador and millions of his closest friends have occupied Mexico City for six weeks.

Also missing is an explicit statement of what Obrador and his partisans are calling for: a vote-by-vote recount of the very close, and in spite of your assurances, far from fraud-free election.

Why not a complete recount? If Calderon wins, case closed. He has legitimacy. What is the rationale against a recount? Opposing a total recount means either you're either afraid Calderon will lose or you're afraid massive fraud will be uncovered, or both.

Friday, September 1, 2006

My Life Among the Neoliberals

Members of the Tacoma Revenue Tax Force may be surprised to hear the word "liberal" associated with themselves, but these are the folks to whom I am referring, and the term is "Neoliberal."

It derives from 19th century England, free trade and laissez-fair economics. The alternative term that I feel fits the practice of Neoliberalism is "Corporate Capitalism."

Others might use "Free Market Capitalism." All of the terms are misnomers, for the school is not liberal, it ignores the dominance of corporations, and its practitioners may have the hymns of the free market memorized, but ignore fully half of them in practice.

Beyond this, in order to get the concept to fully function, you have to ignore reality -- the reality of government except as a distortion and the reality of empirical data which demonstrates the whole scheme simply does not work.

Seeing glazed eyes among my readers, I return to the point at hand.

The last session of Tacoma's Revenue Task Force concluded Wednesday evening with the adoption of a truly singular document, a report containing three proposals:
  • A non-revenue proposal, which prescribes a system of fines for excess police and fire calls.
  • A non-new proposal, the "levy lid lift," which is a measure newly revived by court action. Cities can now raise the property tax to 106 percent of current revenue, as opposed to 101 percent.
  • A political non-starter. The city manager's original idea for a city services tax minus the only element that would have given it a chance to work -- extending the tax base to nonprofits. This last proposal was adopted a month ago, then analyzed (in a Queen of Hearts order of things), and finalized Wednesday amid some jocular acknowledgement of its absence of political appeal.
The people on the Tax Force are good people who -- aside from one notable exception -- will not gain financially should this report's recommendations survive. But most are where they were at the beginning, anti-tax. These are frugal folks who manage money and operations well and accept the economics of the times as if it were an extension of this frugality and competence.

And the economics of the times is Neoliberalism. Government produces no value and only rides on the backs of the private sector. Taxes are a good way to bleed a vibrant economy. Etc.

As a city, this ultimately means that the services of police and fire protection are less valuable than those of beer truck drivers or hairdressers, no disparagement intended.

It means that production of roads and bridges is of less economic value than production of whatever private infrastructure you want to put in this blank. And it means debating particular policies is ultimately frustrated by the acceptance of the general myths.

Thus the dominating advantage Neoliberalism or Corporate Capitalism or Free Market Hypocrisy has over reality-based economic schemes -- everybody knows the tune. It is familiar. So familiar it is sometimes referred to as "common sense."

(Just as, I suspect, the tenets of communism and the rule of the proletariat were once referred to as common sense in the USSR, even as overt bureaucratic corruption brought down the system.)

For the advantage of familiarity there is no easy cure. The New Deal Keynesianism responsible for the enormous prosperity between World War II and the rise of Reaganomics was well understood by policy-makers, but never found a popular expression, partly ....

Oops, more glazing.

So the problem facing us at the Tax Force and forums like it is how to debate good policy particulars while avoiding easy answers based on demonstrably wrong -- but widely popular -- assumptions.

I have no answer to this. If I did, I would have used it at the Tax Force. I suppose it could begin with -- in the case of taxes -- challenging the fallacy that there is no economic value to public goods.

In fact, public goods have enormous value, real direct economic value, which is not recognized by the market because it is broadly shared and the market only recognizes a transaction value. Still, the second bridge to Key Peninsula is generating astronomical gains in property values, dollar gains to private economic actors.

Primary and secondary education produces six times or more its cost in value to the educated, their employers and the society benefited and not burdened. Courts provide the essential arbitration of private market contracts without which a market economy would unravel. And so on.

This is a simple concept which is easy to corroborate and blows up the theory that supply and demand in a private market produces all value. But since it lies outside the current framework, it is viewed with the suspicion that it is somehow a trick or plot against the status quo.

Another angle might be the direct look test -- to simply point at the corporations domination of the private marketplace.

These do not exist in Free Market Hypocrisy. A company which can manipulate demand, or coerce labor, or rig the rules with government? It cannot happen in a system where everything is competition, free markets, and supply and demand.

  • The final document ended the last evening at the Tax Force without my signature. That will be applied to a Minority Report, which will detail the eight or ten different ideas that have some practical application to revenue and a couple ideas to mitigate the B&O, not all of which were mine. The Minority Report will be available through NPI beginning the week of August 12, and will contain a context appendix (process, this question, the fact that the same problem is in front of all cities, etc.) and a technical appendix. We'll put up the official Tax Force version, too, so you can see if I'm blowing smoke or not.
  • The Alternative to Neoliberalism is a Post-Keynesian view -- less familiar, but no more complicated. It's major advantage is that it works in the real world. Briefly, output depends on aggregate demand (a proposition sometimes borrowed by others when tax cuts for the wealthy need a fig leaf of justification). Government provides infrastructure, public services, structure and enforcement. Corporate power is offset by institutional mechanisms such as the minimum wage, union organizing power, regulation, and so on. Supply and demand market operations are supported where their built-in incentives can efficiently supply private goods (supported in the sense of keeping the rules fair, e.g., curbs on monopoly).
There is, of course, a lot more to this discussion, but although it is Miles Davis to me, I understand it is polka bands to the rest of you. A more complete discussion can be got at Thomas I. Palley, "From Keynesianism to Neoliberalism: Shifting Paradigms in Economics," 2004.