The Governator Develops Davisemia

In 2003, when California governor Gray Davis was ousted in the now-infamous recall, the chief argument for his ouster was his inability to manage energy pricing and availability which led to massive state budget deficits. Arnold Schwarzenegger, campaigning on a vague anti-tax platform, won the largest share of the votes for Davis' replacement.

The initial drive for the recall was the horrendous California state budget forecast Davis published in 2002, following years of energy fluctuations nearly bankrupting the state.

On December 18, 2002, just over a month after being reelected, Davis announced that California would face a record budget deficit possibly as high as $35 billion, a forecast $13.7 billion higher than one a month earlier. The number was finally estimated to be $38.2 billion, more than all 49 other states' deficits combined. Already suffering from low approval ratings, Davis's numbers hit historic lows in April 2003 with 24% approval and 65% disapproval according to the California Field Poll. Davis was almost universally disliked by both Republicans and Democrats in the state and a recall push was high. - Wikipedia

We now know that much of the energy crisis of 2000-02 that afflicted California was the direct result of Enron and other providers abusing the quasi-deregulated energy market in California, and that Davis was their sucker in Sacramento. That knowledge, however, came too late to offset the appearance of mismanagement, and following an ugly campaign in 2002 it made Davis an all-too-vulnerable target for the anti-tax GOP machinery.

Six years later, Davis' replacement is learning the hard way that budget numbers like Davis' aren't necessarily the consequence of poor management:

In a special election on May 19, voters rejected a batch of measures on increasing taxes, borrowing funds and reapportioning state money that were designed to close a multibillion-dollar budget gap. The cuts Mr. Schwarzenegger has proposed to make up the difference, if enacted by the Legislature, would turn California into a place that in some ways would be unrecognizable in modern America: poor children would have no health insurance, prisoners would be released by the thousands and state parks would be closed.

...

Mr. Schwarzenegger, a Republican, is threatening to eliminate the Healthy Family Program, the state’s health insurance program that covers over 900,000 children and is financed with state and federal money, as well as the state’s main welfare program, known as Cal-Works, which provides temporary financial assistance to poor families and a caregiver for the severely disabled.

The $1 billion in cuts to programs for the poor would be met with $680 million in new cuts to education and a 5 percent salary reduction for state employees, many of whom are already enduring furloughs.

These proposals, as well as those that would make cuts to state parks, the prison system and other state agencies, are winding their way through Sacramento now, where they will be voted on by committees and eventually the full Legislature.

Some of the proposed cuts are clearly saber rattling on the governor’s part, but there is a nervous acceptance among lawmakers, advocates for the poor and outside budget experts that the state is out of money and time.

...

The Democratic-controlled Legislature has been uncharacteristically silent on most of the cuts, most likely because lawmakers know that tax increases are not politically palatable, that huge cuts in some form are in the offing no matter what, and that any program they wish to spare will quite likely have advocates among their ranks.

California recovered from the energy market shenanigans and the dot-bomb only to be hit by the financial crisis and skyrocketing foreclosure rates. The situation has become bad enough that voters there are revisiting Proposition 13, the provision passed three decades ago that locks property tax rates in at purchase and prohibits increases.

So less than six years after ascending over the corpse of Davis's career, Schwarzenegger is facing the same dire budget figures that tipped the scales against his predecessor.

Borrow And Spend Hangover

The New York Times has it right with this one: depressed asset values and reduced income are hitting domestic consumption hard in a trend that may be far more than just tightening our belts for the short term. - particularly when it comes to transportation. The graph (click to embiggen) shows the drastic drop in new car volumes and the median age of vehicles on the road over the last decade.

Baby boomers, the biggest group in the car market, are beginning to enter retirement, a stage of life when people typically buy fewer cars. Home values are down sharply, making consumers feel less wealthy, and also cutting off a handy source of money from home-equity loans for new cars.

...

Lifestyles have changed, too. As many people move back to cities from suburbs, they are swapping three-car garages for a single parking space. Public transit use is up.

...

Donald Grimes, an economist at the University of Michigan, is forecasting the lowest sales for the driving-age population this year since 1970.

From 1970 to 2001, there were 0.76 vehicles sold per driver in the United States. Now that figure has dropped to 0.4 vehicles per driver, and he does not see much of a rebound in coming years.

Coming just hours before the GM bankruptcy announcement, and hot on the heels of the Chrysler-Fiat agreement, this analysis is obviously worrying. What makes it worse is that we're looking at the last major domestic industry still producing tangible product for consumption. Were textiles and housewares still made in the US there might be a little more hope of producing our way out of the current mess; as it is, the best hope we may have had is falling flat because it has depended on the availability of capital - capital now denied the economy through a combination of consumer retrenchment and financial institution overcaution.

The Gas Tax Will Encourage Us To Do What?

I'm a cheerful proponent of public policy as behaviour modifier. You don't want people to drink to excess? Limit when the bars are open, where alcohol can be obtained, tax the beverage and crack down on DUIs. You want people to take public transportation? Put more buses/trains into service, cut the rates - and stop building garages and parking lots and raise the rates on the ones already in use. We may be uncomfortable with the shifts at first, but chances are efforts like this to modify how the citizenry handles undesirable behaviour will be successful in the long run.

However, public policy to change behaviour needs to be presented with rational goals which can actually be met without incurring more hardship than benefit. This is why the proposed gas tax, which I otherwise support, raises my hackles when its proponents talk about such things as "downsizing commutes" as if in the current economic situation downsizing one's commute were a viable option without other horrific impacts.

To be sure, Ryan Avent makes many good points about how energy demand brought us to this nasty place. And most certainly I agree with almost all his points about how we got here and how we can get back out again. But expecting the overextended commuter to relocate closer to work or find work closer to home, when the real estate market is in shambles and there are seemingly ten layoffs for every new hire, is remarkably shortsighted and ignores the hardships the consumer now faces even as it touts this idea as a solution to those hardships.

When The Daily Dish picked up this particular facet of the argument - that the gas tax might be worth reconsidering - I fired this off:

In this case, I must take issue with one point that keeps cropping up in the energy consumption debate: the idea that citizens of any country, particularly the US, can manage their commutes as described.

The Right's argument, that each citizen has the right to drive his/her H2 Hummer 100 miles each way to work if s/he feels like it, fails to distinguish affluence from waste. By elevating choice over practicality this argument panders to the same culture of decadent excess that other segments of Conservatist thinking denounce, and the philosophical disconnect seems invisible to the Conservatist theorists. Pop culture, when thinking of wealth, celebrates Larry Ellison and Donald Trump over Warren Buffett and Sam Walton, and made much of Lay, Skilling et al when Enron was in vogue. While FORBES may take notice of the distinction, the American Right as a movement does not, and pop Rightspeak continues to confuse excess with success.

The Left's argument seems to break down to some basic concepts. First, frugality is a virtue that ought to be encouraged. Second, wasteful habits can be successfully discouraged through public policy. Third, adjusting one's lifestyle in such drastic terms as shrinking one's commute is actually manageable in the short term. The first item is easily defended: the second, while less so, is still defensible. It's the third concept that really irks.

The current economic conditions in the US are savage: mushrooming unemployment, successive waves of commercial contractions, diminishing opportunity. Those of us left without employment by the recent turmoil are faced with difficult choices, and one of those is whether to remain in a given job market or relocate to better areas. Any commute in those circumstances is acceptable to the jobseeker. Conversely, however, employers are presented with a massive range of applicants for ever fewer openings, yet steadfastly holding on to the illusion that a given candidate from outside the immediate market is a risk due to the relocation or commute effort.

Were this any other economic crisis mobility wouldn't be such an issue. But as this one first exhibited as a real estate collapse, relocation for employment is a double-edged sword. Anyone lucky enough to be secure in his/her housing faces potentially catastrophic loss if s/he sells, and is forced to factor unemployment into that equation; this ugly arithmetic has to be weighed against the benefit of opportunity elsewhere. Anyone paying a substantial mortgage who becomes part of the newly unemployed faces foreclosure as a very real possibility if s/he remains in the local market and short sale at best if s/he moves. Anyone renting faces possible eviction and increased difficulty finding new housing in any market. In each case, prospective employers are increasingly disinclined to entertain candidacy from anyone not immediately available and within a very narrowly defined geographical radius.

Against this backdrop we have the argument that "downsizing commutes" is not only a worthwhile endeavour in the abstract but an achievable end of US energy policy within the next few years.

The electorate is beginning to understand that it is fortunate to HAVE a commute at all, and that making changes to it are beyond difficult: with the house worth too little to merit selling or the rental deposit too high to forfeit, and credit too tight to consider replacing the daily driver without angst, reengineering a commute on one's own makes little sense. For those without, employment is increasingly something to be found elsewhere: if that "elsewhere" is within an acceptable driving distance then it saves the personal disaster that moving has become in the current conditions.

For those still working, making ends meet with what they already have has become the order of the day: drastic changes are out of the question, and "downsizing" one's commute equates to either risking one's income in the ever-harsher job market or destroying one's net worth with a classically ill-timed residential move. For the unemployed, the net worth hit is a given at this point: the difficulty lies in convincing a prospective employer of that. Neither side is in any position to alter commute habits substantially without far more severe consequences.

I am tired of seeing US auto manufacturers obstruct energy efficiency in the name of short term profit. I am tired of civic bodies consistently failing to address public transport in a meaningful way. And I wholeheartedly support any practical means of encouraging energy efficiency. But suggesting that one's commute is a manageable part of that equation when housing values continue to gyrate and new employment opportunities are dwindling is ludicrous.

H/T Andrew Sullivan.

On The Economy

... and where I've been that I haven't been blogging.

As some of you may know, I'm currently "between jobs." I'm learning that means "laid off by a shrinking company, and competing with countless others just like me for the remaining scraps." For me, the econom y hasn't so much experienced a recession as outright imploded.

Tampa Bay was never a great leader in the technology sector, where I'm most at home. But now, with real estate and tourism (two of the largest moneymakers here) essentially gone, and finance (a third) in disarray, not only is there next to no opportunity but the resources necessary for independent VC-funded enterprises are mostly gone as well. In turn, the historically low compensation rates here make effective competition for employment elsewhere difficult: as one recruiter mentioned to me, it's difficult to present a candidate for a position that pays double that candidate's last one regardless of how well that person's skills match the vacancy.

At present, my job search is spanning the entire Atlantic seaboard. The best responses, in fact, have until the last week or so come from the Carolinas and the Northeast. I'm averaging 25-70 resumes a day, so far with just a handful of phone calls, and just four in-person interviews to date.

To add insult to injury, I'm learning just how false the impressions of Floridian economical living are. While researching residences elsewhere I found a lovely loft-style flat in a Northeastern state. This unit, marginally larger than my own and not substantially less expensive, is assessed roughly the same property taxes as my place - and mine is assessed half the usual value because of its particular status. The inevitable conclusion is that the tax rates in Florida are substantially higher than their equivalent in states denounced for their "high taxes." It's high time that those assumptions were revisited - and quite possibly refuted generally as my specific example leads me to think likely.

On Oil and The Recession

Almost as footnote to my earlier post "Green or Not," The Atlantic dished this little item up a few days ago.

In it, Derek Thompson reviews a Brookings Institution paper written by James Hamilton forecasting a drastic market downturn should oil prices spike, and compares the forecast with the last two years when oil prices did spike.

Hamilton went back to 2003, when crude oil was around $30 a gallon and forecast what an oil shock like the one we experienced in 2007-08 (when oil peaked around $140) would do to GDP. He graphed the result through the end of 2008 and, lo and behold, it was damn close to actual GDP.

...

What about real estate, subprime mortgages and defaults? Hamilton says the housing industry had been tightening up long before the recession -- "subtracting 0.94% from the average annual GDP growth rate over 2006:Q4-2007:Q3." And housing is factored into Hamilton's analysis. It was just one of a handful of multipliers that always turn down during oil shocks.

The Real Time Economics Blog at WSJ moves the theory forward with a pretty interesting bit of revisionist history. The grand retelling goes something like this. Cheap gasoline from the 1990s into this decade encouraged families to set up their homes farther from the cities where they worked. But as the price of gas began to increase, it put a big strain of these families' commutes. With gas rising from $2 to $4, the price of these long drives doubled, straining those families' most expensive payments, namely: mortgages. When families realized they could not afford their exurban commutes, they sold their homes for a big loss. Voila: Their mortgage crisis became a bank crisis and the rest is our living history.

I find Thompson's closing comments particularly telling:

My head's still spinning a bit, but it's interesting to think about the political consequences of a report like this being mainstreamed. If the idea somehow stuck that an oil shock was responsible for the financial crisis, it could be a significant catalyzer for the push toward energy reform. Today we're seeing a great national movement to change Wall Street because the general consensus is that Wall Street caused this crisis. Whether Hamilton's theory is wacko or brilliant, just imagine what a national movement to revolutionize America's energy consumption would look like. What if we had oil parties instead of tea parties, demanding more government investment in alternative fuels and subsidies for green technologies. That would really be something.

Also of note are Hamilton's own words, on his own 'blog:

My paper uses a number of different models that had been fit to earlier historical episodes to see what they imply about the contribution that the oil shock of 2007-08 might have made to real GDP growth over the last year. The approaches surveyed include Edelstein and Kilian (2007), who examined the detailed response of various components of consumer spending, Blanchard and Gali (2007), who studied the extent to which the contribution of oil shocks has significantly decreased over time, my 2003 paper, which emphasized the role of nonlinearities, and a model-free data summary of the observed behavior of different economic magnitudes following this and previous oil shocks. Although the approaches are quite different, they all support a common conclusion: had there been no increase in oil prices between 2007:Q3 and 2008:Q2, the U.S. economy would not have been in a recession over the period 2007:Q4 through 2008:Q3. [emphasis added]

Progressives have long maintained that the US suburban/exurban lifestyle is inefficient to the point of waste, and encourages overexpenditure on energy and materiel. Hamilton now shows us that this may well be true, and adds on a layer of vast economic vulnerability incurred through energy dependency.

If Hamilton's theories are to be believed in whole, the US needs a far more radical rethinking of its preferred lifestyle for the long term than has been discussed to date. Interim solutions, such as alternative energy and hybrid vehicles, are just that: temporary solutions to what will likely become a permanent problem. Unless vast resources of cheap, non-polluting energy can be sourced and managed domestically, the exurb is ultimately finished, since it will become economically unfeasible to commute any substantial distance or to travel far for shopping. Commercial distribution channels will also need to be rethought in this light: the great centralised warehouse may also become a thing of the past.

Regardless of the long-term implications of the paper, the work is a clear demand for a new, more conscientious approach to energy policy and urban development. This should also include industrialised agriculture, as that behemoth is a voracious consumer of petroleum products yet, due to its nature, frequently left out of petroleum-based energy policy debates.

Doing so, it would necessarily distinguish between the rural - farming, ranching, etc - and the urban/exurban markets: rural communities should be supported even as the larger urban/exurban communities are revisited in light of this new information. Too little thought is given to the distinctions between the rural landscape, isolated from the major energy consuming markets and largely self-sufficient, and the ever more costly urban environments that drive most energy and civic planning policies, and most resistance to urban-centred efforts at energy efficiency stem from their unthinking application to the countryside where such concerns are measurably smaller and less immediate.

Regardless of the planning remaining to be done, the paper presents an excellent take on the correlation between the costs of sprawl and the economic health of the industrial West. The built-in inefficiencies of the suburb and exurb, coupled with the uncertainty of energy supply - particularly oil - to maintain that sprawl, can be seen to have substantial impact on market sectors not immediately connected to those inefficiencies and uncertainties. Whether or not Hamilton's paper spawns the movement for energy independence Thompson describes, the mumbers deserve the attention of policymakers, and the implications demand public dialogue on the correlations between imported resources and community development.

H/T Andrew Sullivan.

Consolidations

The New York Times reports that Oracle is buying Sun Micrososytems.

This should make the next generation of IT innovation interesting to say the least.

Quote of the Day

What must it be like to show up for a protest, denounce your Country, bad mouth the President, threaten armed revolt, and have your very own media outlet brand you a patriot.

- a reader responding to Ross Douthat's less-than-admirable take on the Teabaggers, courtesy of Andrew Sullivan.

On a related note, Douthat says he's leaving The Atlantic. Sullivan wishes him "Good Luck." Based on what little of Douthat's work I have read I, too, have a two word remark for him beginning with "Good" - and Luck has nothing to do with it.

The Immaturity of the Wardrobe

George Will apparently thinks that the problem with America is that we all dress like kids.

Long ago, when James Dean and Marlon Brando wore it, denim was, Akst says, "a symbol of youthful defiance." Today, Silicon Valley billionaires are rebels without causes beyond poses, wearing jeans when introducing new products. Akst's summa contra denim is grand as far as it goes, but it only scratches the surface of this blight on Americans' surfaces. Denim is the infantile uniform of a nation in which entertainment frequently features childlike adults ("Seinfeld," "Two and a Half Men") and cartoons for adults ("King of the Hill"). Seventy-five percent of American "gamers" -- people who play video games -- are older than 18 and nevertheless are allowed to vote. In their undifferentiated dress, children and their childish parents become undifferentiated audiences for juvenilized movies (the six -- so far -- "Batman" adventures and "Indiana Jones and the Credit-Default Swaps," coming soon to a cineplex near you). Denim is the clerical vestment for the priesthood of all believers in democracy's catechism of leveling -- thou shalt not dress better than society's most slovenly. To do so would be to commit the sin of lookism -- of believing that appearance matters. That heresy leads to denying the universal appropriateness of everything, and then to the elitist assertion that there is good and bad taste.

Denim is the carefully calculated costume of people eager to communicate indifference to appearances. But the appearances that people choose to present in public are cues from which we make inferences about their maturity and respect for those to whom they are presenting themselves.

Denim has waxed and waned repeatedly in my memory. In grade school it was merely an option. In high school one was judged not merely by whether one wore jeans but by the label they bore: Levis were egalitarian and eternal, Jordache and Calvin Klein were trendy, anything else smacked of poverty. At university the labels changed but the trend continued. Grunge and hip-hop gave baggies street cred. But in each instance denim was the default casual wear.

Part of this is cost-effectiveness. Jeans are perceived as more affordable than pants of other materials (frequently true), and more durable and forgiving than their counterparts. Levis jeans are comparably priced to their dressier Dockers, which require pressing to look their best, and far cheaper than even casual slacks from other makers (which also require more care). the US Bureau of Labor Statistics had an interesting breakdown of household expenses. For an average household pre-tax income around $60,000 (which assumes approximately $42,000 after tax), those surveyed spent less than $2,000 on "apparel and services," versus around $3,000 on healthcare, $8,000 on transportation, over $6,000 on food and roughly $5,500 on "personal insurance," and a 'blog post here (regardless of the methodologies for the rest of the item, which assumes a 3.5$ income tax rate) pegs housing costs at around $17K. Another study indicates that uniforms in the workplace actually lead to an increase in spending on apparel. Will is right in that it's a careful calculation, but not necessarily the one of taste that he suggests: with expenditure numbers such as these it's easy to understand why the US is dressing down. It's not that we're dressing down out of fashion; it's that we are increasingly unable to afford dressing up.

Another part is the ready distinction that denim affords a closet. As our free time has shrunk, and as the demands of work and life have increased over the years, it has become increasingly rational to minimize time spent deciding less important things. Sorting out one's healthcare, taxes, family decisions etc. should take priority over figuring out what to wear. Denim provides a clear dividing line between work and home. I will freely admit to owning several pairs of jeans, and wearing them regularly when out of the office. But my closet also holds three tailored suits and a dozen ties for businesswear, and several pairs of Dockers for less formal business and social events. Colour and texture are easy guides in choosing what to wear out Saturday morning to the coffee shop and what to put on for weekdays in the office. Taking the time required to sort through appropriate garb has been a luxury our society has grown unable to afford to all but the extremes of the employment and wealth scale: the supremely wealthy, because they either work fewer hours or employ staff to assist them with their choices, and the struggling because they can't afford the separate sets of clothes for work and play and lack the time required to choose between them.

Certainly if we all dressed better the nation would be a more attractive place. I've seen more than my share of folks in grubby t-shirts and ragged jeans in the shopping malls, people in ill-suited and ill-tailored attire out for an evening at restaurants and clubs, and business attire that suggests colour-blindness and dressing in the dark far more than any sense of style. But suggesting that sort of pride of place in the current environment smacks of privilege. Apparel is costly, time is scarce, and too few of us have enough resources and free hours and closet space to afford to make the kinds of distinctions Will clearly desires.

It's Nothing But Pyramids And Sand*

A while back I 'blogged about the economic downturn hitting Dubai. It seems that, as things continue to worsen globally, the veneer is coming off the emirate and the shaky ground it based its fortunes on is becoming apparent.

There are three different Dubais, all swirling around each other. There are the expats,... there are the Emiratis,... and then there is the foreign underclass who built the city, and are trapped here. They are hidden in plain view. You see them everywhere, in dirt-caked blue uniforms, being shouted at by their superiors, like a chain gang – but you are trained not to look. It is like a mantra: the Sheikh built the city. The Sheikh built the city. Workers? What workers?

Every evening, the hundreds of thousands of young men who build Dubai are bussed from their sites to a vast concrete wasteland an hour out of town, where they are quarantined away. Until a few years ago they were shuttled back and forth on cattle trucks, but the expats complained this was unsightly, so now they are shunted on small metal buses that function like greenhouses in the desert heat. They sweat like sponges being slowly wrung out.

Sonapur is a rubble-strewn patchwork of miles and miles of identical concrete buildings. Some 300,000 men live piled up here, in a place whose name in Hindi means "City of Gold". In the first camp I stop at – riven with the smell of sewage and sweat – the men huddle around, eager to tell someone, anyone, what is happening to them.

...

Dubai is not just a city living beyond its financial means; it is living beyond its ecological means... The very earth is trying to repel Dubai, to dry it up and blow it away. The new Tiger Woods Golf Course needs four million gallons of water to be pumped on to its grounds every day, or it would simply shrivel and disappear on the winds. The city is regularly washed over with dust-storms that fog up the skies and turn the skyline into a blur. When the dust parts, heat burns through. It cooks anything that is not kept constantly, artificially wet.

Dr Mohammed Raouf, the environmental director of the Gulf Research Centre, sounds sombre as he sits in his Dubai office and warns: "This is a desert area, and we are trying to defy its environment. It is very unwise. If you take on the desert, you will lose."

Sheikh Maktoum built his showcase city in a place with no useable water. None. There is no surface water, very little acquifer, and among the lowest rainfall in the world. So Dubai drinks the sea. The Emirates' water is stripped of salt in vast desalination plants around the Gulf – making it the most expensive water on earth. It costs more than petrol to produce, and belches vast amounts of carbon dioxide into the atmosphere as it goes. It's the main reason why a resident of Dubai has the biggest average carbon footprint of any human being – more than double that of an American.

...

On my final night in the Dubai Disneyland, I stop off on my way to the airport, at a Pizza Hut that sits at the side of one of the city's endless, wide, gaping roads. It is identical to the one near my apartment in London in every respect, even the vomit-coloured decor. My mind is whirring and distracted. Perhaps Dubai disturbed me so much, I am thinking, because here, the entire global supply chain is condensed. Many of my goods are made by semi-enslaved populations desperate for a chance 2,000 miles away; is the only difference that here, they are merely two miles away, and you sometimes get to glimpse their faces? Dubai is Market Fundamentalist Globalisation in One City.

I ask the Filipino girl behind the counter if she likes it here. "It's OK," she says cautiously. Really? I say. I can't stand it. She sighs with relief and says: "This is the most terrible place! I hate it! I was here for months before I realised – everything in Dubai is fake. Everything you see. The trees are fake, the workers' contracts are fake, the islands are fake, the smiles are fake – even the water is fake!" But she is trapped, she says. She got into debt to come here, and she is stuck for three years: an old story now. "I think Dubai is like an oasis. It is an illusion, not real. You think you have seen water in the distance, but you get close and you only get a mouthful of sand."

As the oil income drops, as foreign investment plummets, this jewel in the desert is fast becoming a worthless lump of sand. And the groups that live there, watching how the place works, find themselves either struggling to get by or politely ignoring those struggling among them. The gloss is falling off Dubai, and the ugly means by which this modern marvel was created are starting to show.

* from Lara Croft: Tomb Raider

About Who Gets The Cheque

Politics is a lot like dating. If you made the invitation, if you pick up the tab, s/he thinks s/he's something special; you split it, it's equality; s/he gets it and the world ends. If s/he made it, if s/he picks up the tab, you're chuffed; you split it, it's OK; if you get stuck with it, s/he's a loser you need to drop quickly.

Part of the problem with the stimulus package is that the price tag borders on the unimaginable. Plenty of critics have complained about waste, irrelevant projects and "pork," but Jonah Goldberg seems to have hit the conservative nail on the head: he just doesn't want to pay the bill.

That is, by far, my driving attitude in all of this. I just don't want to pay for it. It's not that I don't want government to do nice things for deserving people in certain circumstances. It's not necessarily that I'm hostile to this group of beneficiaries or that (though I am in fact hostile to some). It's that I think most of Obama's ideas will not work, will be a waste of money and will hurt the economy. And, flatly, I don't want to pay for it.

The difficulty with promoting any public expenditure is that, outside certain universal programmes, it doesn't have the same benefit for everyone. Small-farm subsidies do nothing for urban city dwellers on their face, nor does public transport for the farmers. Programmes for the elderly don't help children directly, and public education does little for seniors. Society as a whole, however, is improved by all those programmes, and more often than not targeting public resources to specific groups with specific needs has benefits far beyond those immediately targeted.

The problem, however, is persuading people that public funds for other people is beneficial for everyone - including themselves. Part of the outrage at the claims Congressman Boehner made about rail projects was at the idea of rich Angelenos getting the fast track to Vegas to go gamble and party. Part of the problem with the gang rehabilitation tattoo-removal programme was about worthless punks and potentially-violent Goths getting all those tribal symbols taken off so they could be just like everyone else again. The list may well be endless given the preconceptions involved.

Identification is at the core of the reactions: with the people who don't get the funds allocated for those programmes, and of the people who the critics imply would. Rich people tired of driving, anti-business tree-huggers, and worthless kids not punished for turning their skins into galleries of "art." That none of the fingers pointed in this way point to actual targets is irrelevant: the picture painted fits with righteous Xtian Conservative views of the decadence of society. And of course good people don't want to reward the decadent, the lazy, or the weak.

So the RWNM makes noise about practical programmes that will help society in terms that make the recipients of the aid look like the less desirable segments of society. By doing so, not only do they make the stimulus look like waste, they make it look like waste deliberately delivered to the least meritorious among us: those that already have everything, and those that have presumably squandered whatever they had through their own (presumed) stupidity.

Thus we get back to the dinner cheque. If you take him/her out once, that's nice of you. If s/he never pays the bill, that's despicable, and a sign that you should find someone else to spend your time with and lavish your attentions upon. The Conservatives want to paint every item in the stimulus as that sort of dinner date, where the folks getting help are the same ones that never pay the bill. It's not only wasteful by their reasoning, it encourages further waste in the future by coddling the worst of us who need to learn discipline - discipline they assume they already have. It's no wonder they don't want to pay for it.

Finding A Voice

This New York Times piece is refreshing:

In Latest Plan for Banks, U.S. Could Demand Voting Stake

Part of the reason the UK's bank bailout was so successful was that the Brown government required voting stake in the banks it assisted as part of the package. Paulson's initial financial bailout had no such provisions, and discussions of such in the next US bailout are few and far between. And here we have the Times trumpeting the news that this time the Treasury might take a controlling stake in the banks it bails out.

It is appalling that the US should only be asking for this sort of control now, after nearly a year of unconditional "support" for the banks. This lack of control allowed public largesse to flow to businesses little interested in the reforms and controls necessary to the economy's health. If Washington is at all serious this possible stake should be a required stake going forward: if we're buying out a financial institution we ought to have some say in how it operates, particularly as not having that voice has been catastrophically counterproductive so far.

And These Guys Are Trying To Sell Accounting Software

A while back Microsoft laid off part of their workforce. As part of the layoffs they payed the employees severance.

Now, it seems, they want some of it back.

The company is asking some laid-off employees for a portion of their severance back, saying an administrative glitch caused the software maker to pay them too much.

...

The Redmond, Wash.-based software maker is asking former employees for reimbursement, by check or money order, within two weeks, according to a redacted letter posted by the technology blog TechCrunch. [A Microsoft spokesperson] confirmed the letter's authenticity.

Maybe they used Microsoft Accounting Professional for their calculations.

Why Just-In-Time Won't Work For Detroit

The concept of "just-in-time" manufacturing, which minimizes warehousing as a cost-savings and efficiency measure, has been with industry for some time now. JIT as it is known to the economists, began with Ford Motors in the 1920s and was rediscovered after World War II, becoming industry standard within the last 20 years.

But JIT won't work for the Big Three automakers - indeed for any automaker selling cars in the US - and here's why.

Americans can buy virtually anything over the Internet these days -- sex, booze, houses -- everything, that is, but a new car. If you want to buy a new Ford Fusion, you have to go down to your local dealership and haggle with the car salesmen, an unpleasant and daunting task. The process usually subjects consumers to hours in the dealership hotbox and can add hundreds, if not thousands, of dollars to the price of the car. Wouldn't it be nice if you could cut out the middleman and just order your Prius straight from Toyota?

But you can't. And there's one reason why: the car-dealer lobby, which has worked hard to ensure that this will never happen. Since the late 1990s, car dealers have used their considerable political clout to pass or better enforce state franchise laws that in many cases make it a criminal offense for an auto manufacturer to sell a new car to anyone but a state-licensed car dealer. The laws governing who can sell new cars are among the most anti-competitive of any domestic industry. By creating local monopolies for dealerships and prohibiting online sales for new cars, they constitute a major restraint on interstate commerce; in 2001, the Consumer Federation of America estimated [pdf] that the laws added at least $1,500 to the price of every new car.

These parochial state laws also make the distribution system for new cars incredibly inefficient and expensive, one factor in the financial problems facing the Big Three in Detroit. Online sales would help companies like GM and Chrysler align production to sales better by allowing more people to buy their cars built-to-order from the factory, rather than having Detroit send out truckloads of vehicles to sit around on dealer lots for months in the hopes that a rebate offer will finally entice someone to buy them.

Attempts to repeal the laws that require this, or to make exceptions, have been soundly thrashed by the dealers' lobby. Even the Big Three - who have seen the benefit of online ordering and JIT production - have been sent home by their own dealership industry.

JIT for Internet purchases could revolutionise the auto industry just as it has apparel, computers and other manufacturing sectors. But the local dealership won't let them: it'd rather hang on to its monopoly status and hefty commission/fee schedule. Which means that, rather than adopting a build-to-order model for cars, Detroit is forced to produce masses of vehicles that then sit at distribution centers or dealers' lots until the dealers can coax someone into buying. This isn't good for consumers, and it isn't good for the Big Three which have enough troubles. Yet somehow this archaic business model has been allowed to persist.

Wingnut Heaven

Erick Erickson has a take on how to stimulate the economy.

The most radical, and effective, thing we could do for the economy right now is this: Stop collecting all forms of Federal business, income and payroll tax. EVERY PENNY OF IT. RIGHT NOW.

Gasp! Yes, I said it, and I meant it. Go on an absolute, 100% Federal tax holiday. That’s a real shot in the arm that would suddenly inflate the economy by a solid $1.5 trillion or more per year.

Are you worried about the resulting fiscal deficits? Don’t be. There is a huge amount of demand for debt from global investors, and the credit crunch has blown a huge hole in private debt formation. That leaves a lot of room for the government to borrow more.

As a spokesperson for a mindset that thinks all taxation is bad, Erickson is definitely doing his job. As a proponent of responsible governance, though, this approach is to say the least questionable.

Never mind that this is a great way for the federal government to avoid spending. Public spending has been a bogeyman for the Right as long for nearly a century now.

There's the debt issue to deal with. This is perhaps the most short-sighted proposition yet to come from the right-wing I've heard to date. While this might spur spending in the short term (I'll get to that later), debt is still an obligation, and one which sooner or later will have to be honoured. Erickson is silent on how that debt is ever to be repaid, regardless of what immediate income benefit it would present to Washington. Financing debt by selling more only digs the hole deeper.

Second, there's the problem that this only addresses federal issues, and thus only addresses federal taxation. State taxation isn't even touched by this item, and state taxes are no less burdensome. Further, state budgets depend on federal funds for many functions and projects, from highway and school construction through education, law enforcement and corrections. Unlike the federal government, nearly all state governments are legally obligated to balance their budgets, so deficit spending is not an option for them. Zero taxation equals zero federal investment in those programmes, leaving states on the hook for those expenditures. In Erickson's model, states will be left with the choice of raising their own taxes (negating the benefit of the federal tax holiday) or doing without. Already most states are amputating their budgets to account for reduced federal funds; imagine what would be cut with no federal funds.

Last, this proposal would address the issue only so long as the tax holiday persists and no debtholder attempts to cash in their bonds. The moment the debt is called, the federal government is in deep trouble, since the only way in this model for them to raise funds is to sell more debt - debt that, now that some of it is being redeemed, is of reduced value. As this spiral continues, the dollar would become geometrically devalued, which means the debt would spiral accordingly. Sooner or later the funding model becomes unworkable, and the odds are better for sooner.

Certainly, every business and every citizen that would see a meaningful benefit from the proposal immediately. That, however, leaves out any individual making less than $78,000: the raw numbers for them top out at $25,000 - and that assumes the benefit lasts a full year. With US median income at $61,000, and the top 10% earning about half the total income in the US, the key beneficiaries of this policy are clear, and the top earners are even more likely to conserve that income than use it to invigorate the economy. This, coupled with the recent negative savings rate, doesn't speak well for real benefit from this approach.

The single most striking facet of this argument is that it comes from a school of thought that has advocated fiscal responsibility since Reagan - even as its own actions have given the lie to that advocacy. Further, it would depend on the support of figures who as recently as last week denounced incurring additional federal debt for its long-term impacts.

There are only two rational conclusions to be drawn from all of this. One is that the Right is neither fiscally responsible nor particularly farsighted. The other is that the Right is so averse to public spending that it will do anything to avoid public expenditure on anything but its pet programmes.

H/T Hilzoy.

Political Football?

The New York Times on the latest from Los Angeles' public transit system:

A growing dispute between Los Angeles transit officials and a light rail car manufacturer is showing how hard it can be to stimulate a sagging economy even when money is available.

Despite $40 billion for transportation spending approved by county voters in November and new federal support for public works programs, staff officials at the Los Angeles County Metropolitan Transit Authority, known as Metro, say they plan to open bidding on 100 new light rail cars they were considering buying from AnsaldoBreda, an Italian company.

As a sometime West Coaster, I've always been confused why a state with such strong economic ties to the Pacific Rim would look to Europe for major infrastructure items. Japan is far more accessible for large items like rolling stock, both for whole units and for components, and there is strong connection between the West and the Far East. However, both San Francisco's MUNI and Los Angeles' Metro have both reached out to AnsaldoBreda for their next generation streetcars, and it seems now as if Los Angeles is looking at Siemens as well.

Naturally, Breda officials are far from happy:

...Breda executives counter that the delays were caused by Metro’s change orders and that the decision to open bidding was influenced by a Metro official whose son works for Siemens.

Breda executives also say Metro’s decision will end plans for building the company’s new American headquarters as well as a manufacturing plant in South Los Angeles. Breda, which assembles light rail cars in Pittsburg, Calif., has a pending deal with a contractor to build the new facility.

Breda is also making a point of Metro change orders for the cars as a factor in the costs. Having lived through MUNI's travails getting their Breda cars on the streets I can see their point: the design was too broad for most of the boarding platforms, and had to be narrowed during construction to fit San Francisco's needs. This pushed back their deployment a couple years. While Metro may be right that the cars are more expensive than forecast, the cost additions are no doubt due at least in part to modifications they requested.

Metro's officials are saying they just want the best bang for taxpayer buck, and are claiming ignorance of the Breda plant proposal until after their decision to reopen bidding. Breda's claims, though, that the company is being shut out, are hardly unconvincing:

Breda’s vice president of operations, Francisco Cantatore, said Mr. Cannell called the day after receiving the letter to tell Breda it has “no chance” of getting the new contract.

“He was very upset,” Mr. Cantatore said in an interview. “He said we shouldn’t even bother trying anymore.”

While I sympathise with public authorities looking to maximise their investments, knowing something about such processes makes me think Breda is likely right that something more is going on here. Snubbing one of the premier public transit manufacturers - particularly one poised to inject capital and employment into the local market - as L.A. appears to be doing is not good policy, either. Besides, where else would L.A. look for competition - Boeing?

More Proof That It's Not Just Here

The global nature of the crisis is increasingly apparent.

No one knows how bad things have become, though it is clear that tens of thousands have left, real estate prices have crashed and scores of Dubai’s major construction projects have been suspended or canceled. But with the government unwilling to provide data, rumors are bound to flourish, damaging confidence and further undermining the economy.

...Last month, local newspapers reported that Dubai was canceling 1,500 work visas every day, citing unnamed government officials. Asked about the number, Humaid bin Dimas, a spokesman for Dubai’s Labor Ministry, said he would not confirm or deny it and refused to comment further. Some say the true figure is much higher.

Barbecue, Los Angeles Style

I can't believe TBO actually published this:

Next week, when Barney Frank starts hauling fat-cat CEOs before his House Financial Services Committee, I want him wearing a barbecue apron. Instead of a gavel, I want him wielding a barbecue fork the size of a trident. By the time the grilling's over, I want . . . I want a lot.

I want groveling. I want show-trial sweating and stammering. I want their nine-figure bonus checks endorsed over to the rest of us. I want my 401(k) money back. I want blood; I'm a vegetarian, but I'd make an exception for a smoking plate of CEO en brochette.

I don't know about you, but I'm a little peckish, myself.

Strings and Arrows

Bankers on both sides of the Atlantic are having second thoughts about public involvement, mostly because they're facing tough questions about how they do business.

In the US, several TARP recipients are looking into returning the bailout funds. Not that they don't need the capital, mind you: they just don't like Washington watch them carry on business as usual.

“We just think that operating our business without the government capital would be an easier thing to do,” said David A. Viniar, the chief financial officer of Goldman. “We’d be under less scrutiny, and under less pressure."

It was in large part a lack of oversight that brought us to this point. Now the oversight is being applied, the big players not unsurprisingly are squirming in the spotlight. It's little wonder that they'd prefer less scrutiny: it's a lot harder to buy that sixth jet for your fleet or host a lavish conference when you have the government looking over your shoulder. With appearances before Congress only days away the discomfort must be substantial.

It's unlikely that they have much choice, though: none of the TARP recipients are in a particularly good position to simply hand the money back, and the TARP programme specified that recipients repay Washington in stock before cash.

Across the pond, the UK is looking at similar stringent constraints on the banking sector, and are already holding inquiries. Royal Bank of Scotland and Halifax Bank (the latter now part of Lloyds Group) were grilled unmercifully by Parliament yesterday for continuing to pay bonuses following government assistance. At least the Brits are willing to state outright that substantial public assistance to an enterprise equates to substantial public ownership, and are seeking to exercise governance over what is now public property.

The British member of Parliament fixed a withering eye on Frederick A. Goodwin, the former chief executive of the Royal Bank of Scotland, now government-owned, and put the question to him: “Do you have a different moral compass from other bankers?” he asked.

...[The bank executives'] defense drew angry responses from lawmakers, who accused them of blaming their problems on the collapse of the markets.

“But are you culpable?” asked Nicholas R. Ainger, a Labor representative who interrupted a meandering explanation by Mr. Goodwin.

“It’s just too simple to blame it all on me,” Mr. Goodwin replied.

The sad thing is that, in a way, Goodwin was right, and the MP posing the ethical question was wrong. From all appearances the problem has become systemic, which of course means that the behaviour shows a common - and misdirected - moral compass among finance professionals. The crisis as it has unfolded indicates it is the entire banking culture that suffers from this malaise, which makes blaming key players and ignoring the industry as a whole perilous. After all, the current woes weren't created by a single business unit or a single institution: they were the product of the entire finance industry and were sanctioned by the regulators (themselves largely industry insiders), which makes the sudden demands for propriety and accountability for the executives sound dangerously close to scapegoating. On the other hand, following the old models for doing business while the current crisis continues to deepen appears more and more like lemmings following their leaders over a cliff: this hardly qualifies as effective leadership in today's business climate.

I'm waiting until someone in one of these hearings has the audacity to claim that it's all those people who died owing a balance on their credit cards that's really the root of the problem.

UPDATE: It seems Congress is taking its turn at having grilled Big Cheese sandwich for lunch.

Redefining "Penny Wise and Pound Foolish"

TPM has this little gem on how Bank of America is dealing with the financial meltdown. It seems that even being dead doesn't release you from your obligations if those include a BofA credit card. Oh, and if you die owing a balance, you've contributed to the financial crises. So there.

What makes this worse is that it's apparently BofA policy to require payment from one's descendants in this sort of situation:

[W]e tracked down a former rep for Bank of America's collections unit. And according to the former rep, [the BofA representative] was doing just what she was told.

The former rep, who worked until quite recently at B of A's Belfast, Maine-based collections unit, described... a system in which staffers responsible for making collections were routinely encouraged to mislead customers or those calling on their behalf, and were financially incentivized to do all they could to get payments.

[The] reported conversation, the former rep said, "sounds like how I would have attempted to collect" in such a situation. "I would have asked: 'How do you plan on paying for this?'"

The rep said that employees were encouraged to walk right up to the line of actively deceiving a caller about the consequences of non-payment. "As long as you don't get caught [lying]," the former rep added, "there's no really no punishment." The former rep did not work in the estates unit, but confirmed, based on direct knowledge of B of A's practices, that it operates similarly to the former rep's own unit.

Bank of America, as a mortgage lender, has certainly suffered during the real estate crash, and having the moribund Merrill Lynch foisted on it didn't help matters. And certainly no lender should be scorned for doing its [legal] best to recover funds owed. But unsecured credit obligations cease with the demise of the borrower: that's the law. And blaming someone who passed on owing (in this case) less than $1000 for your enterprise's far larger financial woes takes guilt beyond the Pale.

Pathological Governance

The number of commenters who, noting the GOP's continued insistence on clinging to a spending-free means of bracing the economy, question the sanity of that party is growing, and the figures reaching that point are becoming increasingly notable and respectable.

Words like "crazy," "irresponsible" and "mindless" are circulating about the Republican efforts in the House and Senate to produce stimulus through tax cuts. Meanwhile the GOP leadership is calling for party unity in opposing the administration's current plans - and so far they're getting it.

The voices opposing such a narrowly ideological approach are growing, and growing louder.

Paul Krugman:

Look at what just happened, we had a proposal I think it was McCain’s proposal for an economic recovery package, his version of it which was all tax cuts, a complete, let’s do exactly what Bush did, have another round of Bush-style policies. After eight years which that didn’t work and we got 36 out of 41 Republican senators voting for that which is completely crazy. So how much bipartisan outreach can you have when 36 out of 41 republican senators take their marching orders from Rush Limbaugh?

Dean Baker:

It's sort of like baseball being a type of sport. Some people may not like baseball, but that doesn't change the fact that it is a sport.

If the Republicans were to insist that baseball is not a sport then it would be reasonable to assume that they do not know what the word "sport" means. Similarly, if the Republicans do not understand that any spending that directly goes into the economy is stimulus, then it implies that they don't know what "stimulus" means.

John Cole:

I really don’t understand how bipartisanship is ever going to work when one of the parties is insane. Imagine trying to negotiate an agreement on dinner plans with your date, and you suggest Italian and she states her preference would be a meal of tire rims and anthrax. If you can figure out a way to split the difference there and find a meal you will both enjoy, you can probably figure out how bipartisanship is going to work the next few years.

Rachel Maddow (with an especially crisp take):

"Cutting food-stamp funding to attract Republican support is proof-positive that the Republicans are not trying to come up with an effective stimulus here. If your house is on fire, and you call your fire department, and your fire department tells you to pour gasoline on the flames, they're not actually making a good-faith effort to help you put out the fire. They're not a good fire department.

The GOP's proposals are certainly good for one vision of the United States - that of the United States circa 1790. When the economy is largely agrarian and communities are largely self-sufficient, lower taxes would help the citizenry as a whole - and if the few embryonic industrialists and the merchants in the big cities like Boston, New York, Philadelphia and Charleston and Charleston were hurt by lack of investment capital and market demand the impact to the entire nation was minimal. The country has advanced far beyond that model, however, and the federal government's funding comes from very different sources than it did in those days. Yet somehow the GOP either doesn't understand that - or doesn't care.

As if this isn't bad enough, the GOP is railing about the lack of bipartisanship. This after the administration bent over backwards to seek their input, incorporate their proposals and present a reasoned package for their review - a package they virtually uniformly rejected. Clearly their definition of "bipartisan" is "listening to us until we browbeat you into accepting our proposals without exception."

The only sane rationale I can find in the GOP position is this: the New Deal was a flawed, unnecessary response to economic crisis - now we have a new crisis we can put our approach to work and prove that.

Put mildly, that is a horrifically irresponsible approach to a very immediate emergency. It reeks of Social Darwinism: if the larger community survives it doesn't matter who's hurt in the process, and if some starve/emigrate/whatever it just weeds out the unfit.

The political aspects are no more savory. For far too long now we've seen Republican obstructionism to Democratic proposals. It's been couched officially in terms of fiscal responsibility, effectiveness and personal freedom. But consider this line from William Kristol in 1993 talking about another big Democratic agenda item:

"Healthcare," Kristol wrote, "is not, in fact, just another Democratic initiative ... . It will revive the reputation of the ... Democrats, as the generous protector of middle-class interests."

As my Friend Mustang Bobby at Bark Bark Woof Woof would translate: "We Republicans can't let the Democrats pass this [insert Democratic agenda item here], because if we do, we'll make the Democrats look good."

Holding onto power in a democracy simply for the sake of holding onto power is not sane policy. Resisting a public infusion into an economy suffering from a lack of private resources just to resist public expenditure is not sane policy. Wilfully neglecting domestic infrastructure due to the expense while engaging in imperial nation-building at obscene and unmanaged cost is not sane policy. Opposing deficit spending in principle after eight years of the most profligate overspending by your own party is not sane policy.

There's a very apt phrase for the noisemaking the GOP is doing - and has been doing for the past several months (if not years) - "fiddling while Rome burns."

Yet somehow the GOP seems to think they can rationalise this approach as good for the US.

The Party of Lincoln - even the Party of Theodore Roosevelt - is obviously no more. Hooverian economics are the preferred solution for these people, on the premise that such policies were not allowed time to work the last time they were employed. But policies much like them have been tried: in the 1830s, the 1870s and the 1900s. And the GWB economic policies were more akin to Harding's and Coolidge's than Hoover's, while the economic situation during the last eight years more closely resembled the boom-and-bust cycles of the 19th century than the steady (if illusionary) growth of the 1920s. All this while, instead of following the isolationist non-interventionism of earlier administrations, Bush proceeded with the most costly elective global misadventure in US history, all on essentially borrowed funds.

The GOP wants to look to its own interrupted efforts at economic policy for solutions to today's crisis: a crisis very much of their own making. Larry Summers answered that approach best: "The people who presided over the last eight years ... [don't] seem to be in a strong position to lecture on history."