Wednesday, June 29, 2011

When 'Rich' Isn't

Today, June 29, 2011, President Obama had a press conference to address the U.S. budget mess. During his opening statements and throughout the questioning, the president kept saying that "millionaires and billionaires" needed to pay their fair share. It's a favorite phrase of the president and one Andrew Ross Sorkin addressed earlier this year.

Pres. Obama might talk about the "wealthy" but he really means those with annual incomes over $250,000. Problem one with "wealthy" is that many wealthy, especially billionaires, don't have incomes. They earn capital gains and have investments, but they don't get weekly paychecks like the rest of us. Since we have an income tax, those can't be the men and women the president wants to tax. Problem two? The wealthy, at $250,000 a year, aren't all that wealthy in the cities where they are most likely to live.

Rich and Sort of Rich
May 14, 2011
How did $250,000 become the magic number?
In the debate over how to close the budget deficit, President Obama talks often about raising taxes on "millionaires and billionaires," but his policy prescription is a bit different. He says that federal income taxes should be increased on families making more than $250,000. That seems to be the threshold. Under $250,000, you're middle class; over it and you're wealthy.
… Only 2 percent of households in the nation make more than $250,000, according to the Internal Revenue Service. But some economists and tax reform advocates are questioning whether those households are rich enough to be worthy of the same tax bracket as millionaires.
"The very round nature of it suggests that it's arbitrary," said Roberton Williams, a senior fellow at the Tax Policy Center and the deputy assistant director for tax analysis at the Congressional Budget Office from 1998 to 2006. "There's nothing magical about $250,000 per year. It has no economic basis."
So we have a "magic number" of $250,000 that is somehow associated with "millionaires and billionaires? How did that happen? It happened because there aren't enough super-wealthy to pay for much of anything, as I've discussed before:
To bring in real tax revenues, you have to tax well below the millionaire line, down into the $75,000 annual income (or lower) range. Believe it or not, there aren't that many rich to tax. All their annual earnings wouldn't pay for much of anything at current federal spending levels. You'd have to start confiscating possessions to even make a dent in the federal budget.

Ironically, most of the "rich" live in bright blue urban areas. In those areas, annual incomes often average more than $60,000. And yet, you can't live well on $60,000 in these places. Consider this analysis from the New York Post:
Then there's the cost of living in New York City. A 2009 report by the Center for an Urban Future found that "a New Yorker would have to make $123,322 a year to have the same standard of living as someone making $50,000 in Houston. In Manhattan, a $60,000 salary is equivalent to someone making $26,092 in Atlanta." Even Queens, the report found, is the fifth most expensive urban area in the country.
As Sorkin points out in the New York Times:
Mr. Obama started using the $250,000 household income level to define wealthy Americans during his campaign in 2008. Under his budget proposal, a target of the Republicans in recent weeks as part of a fierce battle over raising the debt ceiling, the tax cuts enacted by his predecessor, President George W. Bush, would be reversed for those households. Mr. Obama's proposed top household income tax bracket — starting at $250,000 — would pay 39.6 percent on federal income. (Single filers making $200,00 or more would also be in the highest bracket.) Currently, the highest tax bracket starts at $379,150, and they pay 35 percent.
The president and his wife are wealthy. Good for them. They've worked hard, earned money, and invested. That's fine. But they seem to have forgotten that $250,000 wasn't that wealthy in part of Chicago. At the very least, the president should admit that inflation has changed where "rich" would be if we looked back at the Clinton years.
$250,000 isn't what it used to be. If Mr. Obama were really trying to return to Mr. Clinton's 1993 levels, he would have to adjust the bracket for inflation, moving it up to about $386,075. In fact, in Mr. Clinton's last year in office, the top bracket had risen to $288,350 from $250,000.
Another little tidbit of note: when Clinton occupied the White House, less than 1% of Americans earned more than $250,000. Today, that number is over 5% — even after the recession. Why is that? Because we do have an expanding wealth gap. It is a geographical gap, too, though, and one that complicates discussions of wealth inequality. Again, New York isn't Kansas and California isn't West Virginia.
Then there is the problem of keeping up with the Joneses. In 1993, earning $250,000 was a more exclusive club, making it easier to feel like one of the wealthy. Back then, households making more than $200,000 represented about .08 percent of the country.
And today, $250,000 households tend to be clustered on the coasts, where there are often better-paying jobs.
The Fiscal Times, a publication financed by Peter G. Peterson, the very public deficit hawk and former commerce secretary under President Richard Nixon, commissioned BDO, an accounting firm, to look at how households that make $250,000 fared in different parts of the country, mostly in middle- to upper-class neighborhoods.
The takeaway, according to the study: "It's not exactly Easy Street for our $250,000-a-year family, especially when they live in high-tax areas on either coast."
So where should we be looking for taxes? It turns out we should be looking at the top 400 earners. But, that would mean changing the capital gains tax rates, not the income tax rates. Ironically (or not?) the top 400 are overwhelmingly from the investment class and a majority donated to Pres. Obama, as I've written recently.

It wasn't even close in terms of donations in the last election cycle. The investors gave nearly 2:1 to Obama. So, don't expect a capital gains tax change to make it the same as the income tax. Won't happen anytime soon. I don't like overly-progressive tax rates. I'd like simple, no-deducation tax rates. But the game played with capital gains does shift the tax burden downwards onto the "barely rich" like working lawyers, doctors, professors, and others. That's not fair, either.
The wealthiest 400 Americans in the country paid, on average, a rate of only 16.6 percent, according to the latest report from the I.R.S. that examined returns from 2007. That is because much of the income of the country's wealthiest people comes from investments, which is taxed at the long-term capital gains rate of just 15 percent.

Congressional Budget Office - Data on the Distribution of Federal Taxes and Household Income

For those convinced the "rich" don't pay their "fair share" there are graphs that prove otherwise. What is fair, anyway?

Congressional Budget Office - Data on the Distribution of Federal Taxes and Household Income

Monday, June 27, 2011

My Alternatives to High-Speed Rail

After a great deal of research on the matter, I have been an outspoken critic of high-speed rail. The binary simplicity of the major political parties and our media outlets soon reduce this debate to a different, larger debate: public vs. private spending. Any nuance? That doesn't make for good two-minute "debates" on cable news.

When people read that I cannot support high-speed rail, one side of the issue assumes I'm against all public projects. In fact, I agree with the American Society of Civil Engineers that we need at least $2.2 trillion (yes, that's with a "T") in short-term investment simply to maintain our existing infrastructure. Building a cool train while bridges are collapsing seems wasteful to me. And the notion we can spend on huge new projects without taking the money from other projects is idealistic.

As a nation, we have limited funds. We must spend money in ways that have the greatest return on investment.

A colleague said I was wanting to move America backwards by not supporting high-speed rail. He wanted my suggestions, so I offered them:

1) Repair our aging, rotting water systems and power grid. These projects represent nearly half of the $2.2 trillion in deferred maintenance our cities and states must perform or we will experience more incredible, preventable disasters. Some cities lose almost half their water to leaks and other system failures. Our power grid is in better shape, but not great shape. Power is wasted because electrons simply travel the lines the moment of power generation. We don't monitor our system well enough to generate, store, and distribute power reliably.

2) Fix and upgrade our roads, tunnels, and bridges. Cars and trucks are not going away; even alternative fuel and high efficiency vehicles will use roads. I used a scooter, 60-80 mpg, for four years. It still needed roads to get from one place to another. Sadly, my ride was a maze of potholes and crumbling concrete. Bad roads damage cars and trucks. They also cause accidents when tires are blown or rocks thrown into windshields. The real warning signs: bridges and tunnels collapsing. But we wait until things fail, even though maintenance is cheaper than replacement.

3) Expand urban transit systems with alternative fuel vehicles and light rail when it is appropriate. Most car trips are short-distance drives, not people going from Los Angeles to Chicago. L.A. and Chicago both have insufficient urban transit systems, like most cities in this county. More people would be served and more pollution reduced with effective urban transit systems.

4) Encourage rail cargo. Rail is much more efficient than trucking. So why do we have so many trucks on the road? Because there are barriers to expanding and repairing rail lines in many places. I've lived in communities that fought rail lines because of noise and perceived risks. Trains are much safer and more efficient per mile than trucks. We need to get beyond the "NIMBY" approach to transit projects. Trains are a good idea, so we should streamline permitting and make it happen. There's no reason we can't also develop safer rail lines and more efficient trains, making trains that much better compared to trucks.

5) Invest in alternative fuel and high-efficiency engine research. The government is the largest consumer of vehicle fuel, in particular the U.S. military branches consume massive quantities of oil and gas. Government has in the past fostered the creation and refinement of technologies for military applications, leading to benefits for all Americans. NASA was and is a military-industrial cooperative producing numerous advancements. DARPA (Dept. of Defense Advanced Research Projects Agency) has also fostered great ideas. Fuel efficiency research would cut long-term military spending, reduce reliance on foreign oil, and lead to discoveries we cannot predict.

Let's think of some other issues, too. Our schools are crumbling, not to mention being outdated for modern technology. Our university systems are raising tuition faster than inflation justifies. I could list dozens of public projects I consider more important at this moment than cool trains. No, we do not have the money for everything. Choose and choose wisely.

After we get our existing systems and infrastructure repaired and improved, then I'll listen to stories of how great high-speed rail will be. In the meantime, I want the potholes fixed.

Friday, June 24, 2011

Kids Own Up To Ownership - Science News

I appreciate the implications of this research. Though I believe humans are naturally, evolutionarily, predisposed to be competitive and self-interested (for better and worse), this research helps demonstrate how we adjust our views with age and experience. We might be naturally selfish (watch children at play), but we also mature and learn to apply ethical systems to control our impulses.

Kids Own Up To Ownership - Science News:
Kids own up to ownership: Concept of property rights may come naturally to preschoolers
By Bruce Bower June 18th, 2011; Vol.179 #13 (p. 17)

WASHINGTON — Young children are possessed by possessions. Preschoolers argue about what belongs to whom with annoying regularity, a habit that might suggest limited appreciation of what it means to own something.

But it’s actually just the opposite, psychologist Ori Friedman of the University of Waterloo in Canada reported on May 28 at the Association for Psychological Science annual meeting. At ages 4 and 5, youngsters value a person’s ownership rights — say, to a crayon — far more strongly than adults do, Friedman and psychology graduate student Karen Neary found."

O. Friedman. Children’s inferences about ownership, and the privileges it confers. Association for Psychological Science meeting, Washington, D.C., May 28, 2011.
As a libertarian, I don't believe humanity can or even should attempt to stifle our desire for control over our own bodies and possessions. Furthermore, I tend to suspect those supporting strong central governments are also being self-interested, but they rationalize this self-interest. When you benefit from government redistribution, it is easy to convince yourself that government is somehow "better" than private industry.

Children reveal what we are, at our cores. I don't think we change much after our childhood, either. Studies have shown that personalities are established as early as first grade. Government can regulate our worst, most base instincts, but it cannot change our fundamental natures.

David Stockman: Bailouts Did not Prevent Depression

Yesterday (June 22, 2011) on MSNBC's "Dylan Ratigan Show" David Stockman stood up to the nonsense of the left, in the person of Jonathan Alter. Read beyond my discussion of yesterday's debate for additional perspective on the debate participants. Alter's biases, in particular, were on fine display on MSNBC as he completely ignored facts and instead embraced the mythology of an Obama Miracle.


My favorite moment was when Alter asked Stockman if he knew GE's business better than Jeffrey R. Immelt, friend and advisor to President Obama. "Yes," Stockman replied and proceeded to explain precisely how GE Capital was a financial mess, bailed out by the administration. Alter quoted Immelt as saying GE was near collapse. Well, duh? It was. But it was near collapse because of stupid choices made by Immelt and others within the company. GE was invested heavily in credit default swaps (CDSs) and high-rish mortgage-backed securities (MBSs).

Alter tried repeatedly to defend Immelt, a lousy CEO. You might as well defend the last few CEOs of General Motors. Do you really want to argue CEOs aren't trying to game the system? Bailouts are easy money, so of course CEOs will claim the handouts were needed.

Stockman was absolutely correct that we do not and cannot know that the U.S. was on the verge of another Great Depression — but it was highly unlikely. The "financial meltdown" was a Wall Street issue that could have been contained by letting some of the corrupt, poorly managed firms fail.

Alter tried to argue that such failures would have been catastrophic, but that ignores dozens of safeguards protecting the average person. Insurance is backed by state and federal regulations, so the failure of AIG put nobody's home, auto, or health insurance at risk. Bank deposits fall under the Federal Deposit Insurance Corporation (FDIC). After the savings and loan mess, the FDIC was also assigned the role of protecting personal savings in non-banking institutions. The National Credit Union Administration oversees the solvency of non-profit credit unions. There are several other such federally chartered protective agencies.

In other words, Alter cannot prove Main Street was going to suffer any more than it has. I'd argue, as Stockman did, that Main Street has paid for the sins of Wall Street, Detroit, the housing industry, and so forth. The slow pace of economic recovery might be related to the fiscal policies of the Federal Reserve and the Treasury Department. Washington seems to care a lot more about the "too big to fail" corporations and banks than they do about small and growing businesses.

The loyal left continue suggesting there was an Obama Miracle that saved us. No one can prove that. The statistical models are too flawed to know that. However, we do know that bailouts increased the moral hazard risks — large banks and companies will assume bailouts are available in the future.

I'm going to address the so-called success of the automotive bailout in a longer post, but even that wasn't really a success. It saved no jobs and did nothing that couldn't have been accomplished sooner with bankruptcy. Oh, wait… GM and Chrysler went bankrupt anyway! Many firms that went through bankruptcy following various downturns or disasters still exist, and they didn't need government aid. That's the purpose of a reorganization.

Alter is simply unwilling to recognize that the Obama Miracle is a myth based solely on political bias. Alter brought up the fact job losses slowed and reversed under Obama. Yes, but that would happen normally in a recession, too. There is a point when job losses reach equilibrium in a downturn. Only so many jobs are lost, no matter what Washington does, and then recovery begins following the "creative destruction" process.

If I have ten employees, but automation allows me to layoff five, those jobs are gone. I might rush automation during a recession to save money, a common process in past downturns. Assuming demand does not fall to zero, there is a point at which I must have a certain number of employees, some automation, etc. In other words, the layoffs stop based on demand and production adjustments. Period. Demand decides everything for a business.

Stockman tried to explain this, but Alter didn't seem to grasp the logic. It was as if Alter believed that eventually every single job in America could have been eliminated. That's not remotely possible. As Stockman rightly explained, most of the job losses were in fields like construction that were created by the housing bubble. It was a bubble — the layoffs were going to happen at some point.

Economies in the midst of a bubble end up in recessions, during which the jobs created are lost. It happened after the 1987 investment bubble, the 2000 tech bubble, and the 2008 housing bubble. Jobs vanished with devastating speed. Does Alter want to imagine this time is different?

Obama was lucky enough, at least for a year or two, to be president during the normal "upswing" from a deep bottom. However, I certainly believe his policies have slowed the recovery. The Republican policies are not any better, sadly. Stockman has also stated as much.

Watch the MSNBC video and judge the fiscal debate for yourself.

A Litte Context

A quick background on Jonathan Alter places his views in perspective. Alter is a political journalist, yet another Harvard grad telling the rest of us how wrong we are. How much someone who was a media critic for a decade at Newsweek (or longer, since that seems to be Alter's main role at MSNBC) knows about economics is debatable. (For a complete whitewashing of Roosevelt and simplification of the Great Depression, read Alter's The Defining Moment.) Alter is a political partisan, period. Then again, I'm not sure some famed economists can see beyond their political biases, either.

David Stockman, on the other hand, has been a vocal critic of the Republican party and of Democrats. He doesn't seem to worry about offending any political group. I'm more likely to trust such a blunt force of reality whacking away at everyone in Washington. Stockman is another Harvard man (I do get sick of Harvard and Yale dominating the halls of power), and I don't view him as a great business mind — his investment firm went bankrupt before the 2008 downturn. But, I do respect Stockman's blunt honesty. It got him in trouble when he worked for Ronald Reagan, and it still gets him into hot water.

Last year, Stockman bluntly told CBS News that both parties were delusional or lying or both.

>> "[S]cratch the average Republican today and he'll say 'Tax cuts, tax cuts, tax cuts…. It's rank demagoguery. "We should call it for what it is. If these people were all put into a room on penalty of death to come up with how much they could cut, they couldn't come up with $50 billion, when the problem is $1.3 trillion. So, to stand before the public and rub raw this anti-tax sentiment, the Republican Party, as much as it pains me to say this, should be ashamed of themselves."

Read more:

Tuesday, June 21, 2011

Obama Donors and Special Access = More, Bigger, Faster

One of the many aspects of our government that I dislike is the "pay to play" nature of influencing elected leaders. If you were idealistic enough to imagine President Obama would somehow be different, I could have proven you were wrong before election day. He received more donations from the top 1% of Americans than any other president. He also received more money from Wall Street than his opponent.

By June of 2008, the Obama advantage on Wall Street was clear.
(AP - June 2008) For both candidates, Wall Street's investment and banking sectors have become among their portliest cash cows, contributing $9.5 million to Obama and $5.3 million to McCain so far.
There is a commenter on DailyKos using the ID "Goldman Owned Party" as a dig at the Republicans. But, that's also far from accurate. Goldman Sachs has a history of connections to the Democrats in congress, especially the Senate. This makes sense, because the financial industry is in New York City, not a GOP stronghold. You donate to the likely winner, buying influence. Seldom does money choose the winner — it follows him or her, though.
(CNN - April 2010) According to Federal Election Commission figures compiled by the Center for Responsive Politics, Goldman Sachs' political action committee and individual contributors who listed the company as their employer donated $994,795 during 2007 and 2008 to Obama's presidential campaign, the second-highest contribution from a company PAC and company employees.
Goldman Sachs contributions to the Obama campaign were more than four times larger than the $230,095 in donations to Sen. John McCain's presidential campaign.
What does money buy? Access, definitely. But it also buys positions of influence and power. Now we are learning that President Obama has appointed more big-dollar donors to political posts in two years than President Bush did in eight years. That's what money buys.

Top Barack Obama donors net government jobs
IWATCH NEWS | 6/15/11 4:37 AM EDT
More than two years after Obama took office vowing to banish "special interests" from his administration, nearly 200 of his biggest donors have landed plum government jobs and advisory posts, won federal contracts worth millions of dollars for their business interests or attended numerous elite White House meetings and social events, an investigation by iWatch News has found.
These "bundlers" raised at least $50,000 — and sometimes more than $500,000 — in campaign donations for Obama's campaign. Many of those in the "Class of 2008" are now being asked to bundle contributions for Obama's reelection, an effort that could cost $1 billion.
This is my favorite part of the iWatch story:
The appointment of George Washington University law professor Spencer Overton illustrates how the administration has rewarded many top fundraisers.
Overton wrote in 2003 that the influence big donors wield in elections means that an "overwhelming majority of citizens are effectively excluded from an important stage of the political process." Yet Overton bundled at least $500,000 for Obama. He was named to the Obama transition team and in February 2009 was appointed principal deputy attorney general in the Department of Justice's Office of Legal Policy. Overton visited the White House more than 80 times from January 2009 through the end of 2010 for events ranging from small meetings with high-level staffers to social and entertainment events, sometimes with his wife, records show.

I am not stunned that rich liberals upset when rich conservatives had White House access now rush to participate in the same system they once denounced. Of course, the rich liberals will claim that unlike their conservative peers, the liberal heart is guided by altruism while those monied conservatives are evil capitalists. As if well-to-do professors don't try to hawk their books? As if Hollywood insiders don't want to sell tickets to movies?

I'm sick of liberal hypocrisy when it comes to donating to politicians. You donate, you probably want something — even if you convinced yourself that what you want is ideal for all people. That's true of donors to both parties. Most conservatives and liberals donating to campaigns do believe they are doing the best thing for all Americans. You might disagree, but the tendency to ascribe evil motives is plain silly, too.

You can be assured that Prof. Overton has rationalized his fundraising and appointment. He's not like one of those evil "Bushies." Of course, Prof. Overton would admit he's not poor. He's not even close to average. You don't bundle a half-million dollars without being in a fairly elite segment of society.

The median household income in 2009 was $52,000 (, only $2000 more than the minimum you needed to raise for the Obama campaign if you wanted a special kind of access. But, it seems you need to be among the richest of the rich to join the White House chats. Not really surprising and I don't understand why anyone thought this administration would be different.

The iWatch News investigation found:
  • Overall, 184 of 556, or about one-third of Obama bundlers or their spouses joined the administration in some role. But the percentages are much higher for the big-dollar bundlers. Nearly 80 percent of those who collected more than $500,000 for Obama took "key administration posts," as defined by the White House. More than half the 24 ambassador nominees who were bundlers raised $500,000.
  • The big bundlers had broad access to the White House for meetings with top administration officials and glitzy social events. In all, campaign bundlers and their family members account for more than 3,000 White House meetings and visits. Half of them raised $200,000 or more.
Light, the NYU expert on presidential transitions, said that in recent years many have sought jobs with deep reach into the federal bureaucracy — and found a receptive ear in the White House.
"When they get a résumé from a bundler, that is a real signal of seriousness," Light said. "It's also a thinly veiled quid pro quo," and it "goes without saying they will get considered."
Public Citizen found in 2008 that President George W. Bush had appointed about 200 bundlers to administration posts over his eight years in office. That is roughly the same number Obama has appointed in a little more than two years, the iWatch News analysis showed.
The rich don't merely get some access, they get a lot of access.
Hyatt hotels heiress Penny Pritzker, Wall Street titan Robert Wolf and financier Mark Gallogly, for instance, all served on the President's Economic Recovery Advisory Commission.
In late February, when he set up a new commission on job creation, Obama again turned to Pritzker, Wolf and Gallogly.
Pritzker, one of America's richest women and a key fundraiser and adviser in the early days of the Obama campaign, has logged more than 50 visits to the White House, individually or with family members. Obama also appointed Pritzker to the Kennedy Center board and her husband, Chicago ophthalmologist Bryan Traubert, to the President's Commission on White House Fellowships.
Cool. Not only do you get a nice appointment to a government board or commission, but so does your spouse. Two jobs saved or created, right?

Since shortly after the founding of the United States, the politically connected have sought one set of jobs with particular gusto. They wanted to travel to exotic places, meet interesting people, and…. No, they didn't want military commissions. The connected have long wanted to be ambassadors.
Obama, however, has nominated 24 bundlers to ambassadorships to date. Of those, 14 each raised at least $500,000. Six others raised $200,000 or more. Jacobson, now ambassador to Canada, is the only one listed at the $50,000 minimum, and he played a pivotal finance role in the campaign.
The Obama record has disappointed the American Foreign Service Association, which believes these appointments should mostly go to career diplomats. The organization cites the 1980 Foreign Service Act, which states that political contributions "should not be a factor" in picking ambassadors, a rule presidents of both parties have all but ignored.
Passing over career diplomats in favor of megadonors amounts to "selling ambassadorships," said Susan Johnson, president of the American Foreign Service Association.
As my wife noted, it's ironic that people who don't need jobs can buy low-paying government positions. I know several well-educated men and women available to be ambassadors or special advisors to the White House.

Read more:

Wednesday, June 15, 2011

Obama versus ATMs and Kiosks

Beatable, And He Knows It - "'The other thing that happened,' the president claimed in an NBC 'Today Show' interview Tuesday, 'is there are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers.

'You see it when you go to a bank and you use an ATM. You don't go to a bank teller. Or you go to the airport and you're using a kiosk instead of checking in at the gate.'"
I've written about automation and job changes in several blog posts. We gain from technology, particularly in terms of human safety and life expectancy. Automation in factories has made factories safer. Cars replacing horses made cities less prone to disease outbreaks. Factory medications are more controlled than the old "apothecary" mixtures. Generally, automation is a net positive.

Also, there will always be a market for those things that are handcrafted by true artisans. Yes, factory automation has allowed more of us to afford nice furniture and cars, but if you have money you can still buy handcrafted woodwork and a Rolls Royce.

ATMs are not the enemy. I love that I can use an ATM after work, before work, or on holidays. That beats my old bank's hours when I was a college student. The bank opened at 9:30 and closed by 5:00 each day, with no weekend hours. I don't want to go back to those days.

Mr. President, find another explanation for unemployment. You know, like the mess created by the GSEs and mortgage backed securities. The endless environmental lawsuits blocking major infrastructure rebuilding. The NLRB lawsuit against Boeing's new South Carolina plant. How about Dodd-Frank, yet more SEC uncertainty, and everything Elizabeth Warren says? Don't forget uncertainty over tax policy and health care "reform" in the future. Also, the worries about our federal debt and the European debt crisis.

Yes, there are plenty of explanations for slow job growth beyond ATMs and kiosks.

Then again, this is the president who is lauding the return of the "U.S. Big Three" while Chrysler and GM actually did go bankrupt. Chrysler, by the way, is no longer a U.S. company, Mr. President. Or did you forget that Fiat is Italian?

No, we've lost jobs for a lot of reasons. Not the least are the policies implemented by both political parties. When politicians can celebrate a "bailout" that resulted in parts of GM and all of Chrysler being sold to foreign companies, you know they've lost touch with the American workers and employers.

Sunday, June 12, 2011

I Am Not a Winner (or Loser)

I was watching CNN's "Your Money" Saturday at noon when one of the panelists referred to graduates with various degrees as the "winners" in the economy, while others were "losers." This notion that because I worked on a graduate degree, assuming substantial debt and working part-time, I am now a "winner" is absurd. It is offensive to me that hard work is being equated to mere luck.

The source of the discussion was the following report:
Georgetown University 
Center on Education and the Workforce
What is it Worth? The Economic Value of College Majors
Anthony P. Carnevale - Jeff Strohl - Michelle Melton
We've always been able to say how much a Bachelor's degree is worth in general. Now, we show what each Bachelor's degree major is worth.
The report finds that different undergraduate majors result in very different earnings. At the low end, median earnings for Counseling Psychology majors are $29,000, while Petroleum Engineering majors see median earnings of $120,000.
The top 10 majors with the highest median earnings are: Petroleum Engineer ($120,000); Pharmacy/pharmaceutical Sciences and Administration ($105,000); Mathematics and Computer Sciences ($98,000); Aerospace Engineering ($87,000); Chemical Engineering ($86,000); Electrical Engineering ($85,000); Naval Architecture and Marine Engineering ($82,000); Mechanical Engineering, Metallurgical Engineering and Mining and Mineral Engineering (each with median earnings of $80,000).
The 10 majors with the lowest median earnings are: Counseling/Psychology ($29,000); Early Childhood Education ($36,000); Theology and Religious Vocations ($38,000); Human Services and Community Organizations ($38,000); Social Work ($39,000); Drama and Theater Arts, Studio Arts, Communication Disorders Sciences and Services, Visual and Performing Arts, and Health and Medical Preparatory Programs (each at $40,000).
I'm sorry, but I've known since I was in junior high school that engineers earned more money than artists or theologians (unless you're a televangelist, which seems lucrative). Choosing the "right" major to earn a living has nothing, absolutely nothing, to do with luck. Are there really high school students unaware that computer science offers more earnings potential than a theatre arts degree?

Yet, on the television was a CNN panel talking about the lucky winners in the economy. And, of course, they bemoaned how poorly paid some of the professions were. You can guess the ones they suggested should be better paid: teaching, social work, and counseling.

The problem with the reasoning of the CNN panel is that it ignores the realities of supply and demand. It also ignores the extreme challenge of completing some degrees versus others. Why can't we admit that a science or math degree really is, without question, harder to earn than an undergraduate psychology or English degree? It's not a secret that engineers are thrilled to earn a 3.0 GPA, while I think all but one or two of my English cohorts finished with 3.8 or better GPAs.

Supply and demand matter in both the private and public sectors. A city engineer with an undergraduate degree earns more than a city school teacher, though the teacher generally has at least one extra year of education. It is a lot easier to find teachers than engineers.

The high school student deciding to pursue an engineering degree is not a "winner" after four or more years in college. He or she made a choice, worked hard, and had a clear aim. That's called drive and planning, not luck.

I'm sick of television pundits, newspaper columnists, and random bloggers classifying all success in life as luck. Do these semi-famous, sort-of-known people attribute their success to luck? Random circumstances? If so, no wonder they can't believe other people achieve success the old fashioned way: they earn it.

I am a teacher. I have an English degree and a journalism degree. I knew going into college that I wasn't choosing the path to riches -- at least not via writing or teaching. Then again, I also kept my technology skills and certifications current because there's something to be said for a safety net.

My wife was a double major in engineering as a undergrad. She has a master's degree, too. We worked hard for our educations. I have a doctoral degree specializing in "new media" (technology) and education. I'm still a computer and business geek, no matter how much I also love language. Heck, I'd finish a business or technology degree as well if I could.

My wife and I know a lot of teachers. Many of our classmates became teachers. Few of them became engineers, research scientists, or physicians.

Sure, "luck" or "fate" is being born in the United States, with hundreds of colleges and universities. But neither my wife nor I happened to be born to university educated parents. Our families are not wealthy. We worked hard and achieved success.

When you view success as the result of winning and losing, you don't appreciate our economic system nor do you accept the value of free will. The implication is that you believe "the rich" were simply lucky, fortunate enough to win life's lottery. But life is not entirely random.

Preparation matters. Like most first-generation college graduates, I'm not a winner: I'm a person who was prepared. My wife was also prepared for the future. No, the path to success has not been smooth and without major setbacks. But we never stopped working towards something better.

CNN's "experts" should know something about hard work. Or maybe they simply got lucky enough to land on an international cable network?

Sunday, June 5, 2011

The Problem with Public Works

I support spending, wisely, to both maintain and upgrade the infrastructure of the United States. There is little room for debate that our infrastructure is dated, crumbling, and often inadequate for the current century. Yet we should be skeptical of politicians suggesting "public works" to rebuild our transportation, power, and facilities will somehow reduce unemployment and lead to a nearly immediate economic boom.

The reality is improving our infrastructure would, at best, keep us even with other nations and would merely prevent further economic decline. Any improvement to our economy would be slight, if quantifiable at all. The reason for this is simple: The American Society of Civil Engineers estimates that as of 2011, deferred maintenance of U.S. infrastructure would cost at least $2.2 trillion to perform.

In other words, for $2.2 trillion we would only maintain current service levels. A few extra cars or trucks might be able to use a road or bridge, but overall the effects of performing deferred maintenance would be no net improvement. Every dime spent to keep an aging bridge or road functioning is a dime not spent on school improvement, libraries, public safety, and so forth.

The comparison would be repairing a house's roof after a storm. The house holds no more people. The functionality of the house was merely maintained, not expanded or improved. Yes, the roofer made money — but that's money the home owner might have spent on a new fuel efficient car, better food, a child's education, or many other things (including frivolous things). Spending to maintain your house simply shifts spending; it does not create new spending.

Maintenance by definition does not expand transportation capacity — it simply restores it to the original intended capacity. Improving the power grid does much the same by redirecting power to where people have migrated without truly improving our energy use patterns. (Again, maintenance is rarely significant improvement.)

If you want to build new public works, or even maintain current public projects, we must address another set of issues. There is a long list of reasons why new works will neither happen quickly nor employ thousands of new workers. In no particular order, some of the issues we face include:
  • Infrastructure work is skilled labor, performed with complex and dangerous machinery. I couldn't operate most of the machinery without significant training; there's a reason skilled operators earn a good wage.
  • Infrastructure work is dangerous. According to the U.S. Bureau of Reclamation, at least 112 men died building Hoover Dam. "Only" eleven men died building the Golden Gate Bridge, according to the California Department of Transportation. Imagine the lawsuits that would result from similar project deaths today. Safety is expensive, and slow.
  • Infrastructure leads to environmental lawsuits. The Sierra Club has delayed the Stillwater Bridge replacement project in Minnesota since 1989 with a series of lawsuits. The bridge has a worse safety rating than the failed Interstate 35 bridge, which collapsed. Lawsuits delay every major infrastructure project, it seems.
You are not going to take an out-of-work clerk, receptionist, computer tech, or teacher and place him or her in a revolving tower crane within six months. I've met qualified machine operators smart enough to know they can't operate tower cranes safely. If you want to learn just how difficult infrastructure work is, read about the NYC Sandhogs, builders of the New York subway and aqueduct systems. These are union construction workers with doctorate degrees because underground construction is that specialized. Do you want just anyone using explosives under urban centers?

The highly trained, well-educated Sandhogs (Local 147 of the Laborer's International Union) suffer a great number of injuries and even deaths on the job — and no group of men and women are more qualified for infrastructure repair and maintenance. Does anyone seriously believe it is possible to put just anyone in these jobs?

People say, "Anyone can patch potholes." That's not true, either. Los Angeles patches potholes with a massive, custom-designed blacktop recycling machine. It is one amazing machine. Only a handful of people are trained to operate the paver. We are no longer living in the 1930s or 40s. Repairs to infrastructure are not a matter of filling holes with gravel. Modern road repair is scientific, with precise mixtures of paving materials. You might not believe that, but you can see (and feel) the difference between a proper repair and a cheap rush job.

As for lawsuits, they won't vanish either. Millions are spent (wasted) defending public projects from environmental lawsuits. California hasn't been able to install solar panels in the Mohave region because of lawsuits. According to "The Mohave Desert Blog" the Sierra Club has stopped yet another project:
The Sierra Club filed a legal challenge against California's approval of the Calico Solar power project, arguing that the California Energy Commission (CEC) rushed the environmental review without full consideration of the impacts on wildlife and without identifying adequate mitigation measures. The need for increased renewable energy generation does not grant solar energy companies a free pass to ravage pristine desert habitat under the false claim of "clean energy." There is plenty of solar potential on already-disturbed land and rooftops that can be tapped so we can save our desert ecosystems for future generations to enjoy.
Does anyone really believe the environmental movement is going to suddenly support alternative energy projects? They've fought all major hydroelectric, nuclear, and solar projects. What will they support? Wind power? There have been lawsuits concerning the risks to various bird species, including the California Condor. Birds tend to fly into (get sucked into?) giant wind turbines.

Politicians should be honest with American voters. We have to spend on infrastructure — and because we haven't spent for the necessary maintenance, any surge in spending will not lead to immediate, magical economic gains. We have to repair our public works, definitely, but it might actually require tax increases and revenue "reallocations" that could stall or inhibit economic growth. Yes, fixing the mess we've allowed to fester could actually slow the economy. It's hard to explain, but in the 1990s Japan spent a record amount on infrastructure and their economy stalled.

For a good analysis of Japan's infrastructure spending see: Japan's Big-Works Stimulus Is Lesson. As recently as 2009, the New York Times admitted the Japanese investments didn't help Japan's economy as intended.
Moreover, it matters what gets built: Japan spent too much on increasingly wasteful roads and bridges, and not enough in areas like education and social services, which studies show deliver more bang for the buck than infrastructure spending.
"It is not enough just to hire workers to dig holes and then fill them in again," said Toshihiro Ihori, an economics professor at the University of Tokyo. "One lesson from Japan is that public works get the best results when they create something useful for the future."
What bothers me is that we won't repair infrastructure because maintenance is not politically easy to sell. Shiny new projects are popular and easier to explain than dull, expensive repair work to our roads and bridges. Let's hope American politicians start being honest about infrastructure: we need it, but it isn't going to cure our current economic problems. Government does what is necessary, but often it does far more than is needed. Waste is not productive.

Politicians seldom make wise economic choices. Proof of that is the rush to build new high speed rail systems while ignoring the $2.2 trillion we should be spending on existing infrastructure. The argument "We can do both!" is simply absurd. We don't have $2.2 trillion for maintenance — so we're going to spend $1 trillion on rail projects? I can already foresee the next problem: rail lines without proper maintenance. We'll build it and neglect it.

Saturday, June 4, 2011

Uncertainty and economic recovery: Partisan animal spirits | The Economist

Something to consider: the entrepreneurs essential to the United States are increasingly concentrated in one political party. This plays into the narratives of both left and right. The left can argue that this trend proves the evil GOP is merely a tool of the business class. The right can argue that business is being vilified by the left, even though businesses and business owners pay the taxes necessary for our government to exist.

W.W. writing "Democracy in America" at The Economist's website has the following entry, discussing the steady shift of both management and business owners towards the Republican party, while "routine" white-collar workers have shifted to the Democratic party:
Uncertainty and economic recovery: Partisan animal spirits | The Economist

Of course, whether entrepreneurs and small-business types see Washington as an adversary or partner is not entirely a matter of in-the-trenches business experience. It is at least partly a matter of political identity. This thought put me in mind of a set of graphs in Andrew Gelman and friends' excellent book "Red State, Blue State, Rich State, Poor State":

What you see here is that "managers and administrators" as well as "owners and proprietors", the groups that do most of the hiring, are significantly and increasingly more likely than average to vote Republican. This raises a fascinating possibility: that Republican-leaning businesspeople freak out when Democrats are in power. Let's call this "partisan regime uncertainty". Now, maybe there is a good reason Democrats in power make Republican businessfolk afraid to make a move, which would help explain the relatively dramatic flight of owners and proprietors away from the Democrats. Or maybe individuals most likely to run a business are also most likely to fall for empty, right-wing free-market rhetoric, and this has made them increasingly likely to see Democrats as forces of socialising chaos. I don't know. In either case, we get partisan regime uncertainty.
It is not healthy for the United States' political system to be so clearly defined by whether or not one is an entrepreneur in private industry. I can attest that there is nothing so despised in some corners of academia as an entrepreneur, even though business owners built our university system. There is an "us vs. them" attitude that does feel like an all-out assault on creators, innovators, and others willing to risk everything to start businesses.

Maybe we can overcome this, but I'm not certain how. Increasingly, the Democratic party does feel "anti-business" and that is going to create a mess. Many great Democrats have been business owners. The entrepreneurial class had representatives in both political parties. Now? Are those of us with a passion for business being driven to one political party? And what of those of us unable to feel at home in the Republican party?

There was a time someone like myself might be comfortable with moderates from either major political party. Now? I trust neither party, but I trust one less than the other. That's not good. I increasingly feel my choices are to vote Republican or to skip voting. Since I'm not a social conservative, there are too many GOP candidates I cannot, and will not, support.

I merely want to be allowed to develop my ideas and market them for a fair price. I want to create and innovate. I do not want to be called evil because I believe hard work should be rewarded. Too many of my colleagues imagine success is only a matter of birth or luck — ignoring the importance of hard work, including the numerous failures many entrepreneurs endure. Yes, I've failed. I've had complete and total disasters in business. But those failures didn't stop my desire to try again, to keep aiming for that idea that leads to success.

Democrats keep saying they aren't anti-business. It doesn't feel that way. Apparently, I'm not the only person repelled by the Democrats. I'm not rushing to be a Republican, either, though.