Commonwealth Commonsense

A Race to the Bottom

The conversation in this country is, whatever your politics, sad. We are battling over crumbs, cutting our way to becoming a second class country, an impoverished people, a failed state.

As E.J. Dionne pointed out yesterday, the tea partyers have won the argument because the argument we’re having is how far should we lower our standard of living. No one is talking about finding a way to preserve our way of life.

While corporate profits are sky high, union membership is at its lowest in 60 years, and today, there are five times more public union members than private ones. Having been successful in destroying private sector unions, Republicans now wants to eviscerate public unions.

Everyone is jumping on board, including the normally progressive columnist Richard Cohen, who apparently has decided now that private employees aren’t protected from exploitation, we, the taxpayers, are now proud to exploitive. No one is talking about how we elevate the middle class that has seen its standard of living stagnate over the past 30 years. We’re looking to see how we can diminish all but the most powerful.

The argument is that public employees must “contribute” to the cutting that must be done. No one, but no one, is talking about raising taxes, which, coincidentally, are also at their lowest in 60 years.

It’s not as if public sector unions have committed any crime. The charge against them is that they are paid more than private sector workers. Charts like this give that impression, but such data simply compares all workers. When you look at similar jobs, it’s a different story. With comparable jobs, public sector employees, like those in Wisconsin, are actually undercompensated.

What has happened over the years is that state politicians, both Democrats and Republicans, have negotiated deals with public employees that states, counties and cities can no longer afford. Some, like Virginia governor Bob McDonnell, have raided the state pension funds, and the Great Recession has depleted pension funds.  That’s not the fault of public employees. That’s the fault of politicians who didn’t regulated Wall St. and encouraged home ownership for those who couldn’t afford it.

Let’s assume that we can’t raise taxes as much as is needed to preserve our standard of living. Public employees, who maybe 15 to 20 years made the decision to work in the public sector for less pay and benefits that at the time were about the same or just a little better than in the private sector, are now told that they must pay the price of others’ incompetence and political cowardice. Even if they must “contribute,” why not do what Virginia has done: cut the pay and benefits of new employees?

Of course, in the end, cutting isn’t going to help anything, except bring us all down.

Boehner’s Calculated ‘So Be It’

The Washington Post buried the story about Speaker Boehner’s remarks on the possible loss of federal jobs resulting from reduced spending. The story is inside the Metro section, probably because he was talking about government jobs, of which many are local. It’s a stretch but that’s the only reason I can see for its placement.

But Dana Milbank writes about the comment on the op-ed page and in it states a truth that should be part of this debate but this is the only time I’ve seen it stated.

Let's assume that Boehner is not as heartless as his words sound. Let's accept that he really believes, as he put it, that "if we reduce spending we'll create a better environment for job creation in America." A more balanced budget would indeed improve the jobs market - in the long run.

But in the short run, the cuts Boehner and his caucus propose would cause a shock to the economy that would slow, if not reverse, the recovery. And however pure Boehner's motives may be, the dirty truth is that a stall in the recovery would bring political benefits to the Republicans in the 2012 elections. It is in their political interests for unemployment to remain higher for the next two years. "So be it" is callous but rational.

The strategy is canny. First focus on discretionary spending where you can cut ideologically. Republicans are hoping to kill programs they don’t like before they tackle the real problem, entitlements. I’m sure their strategy then will be to cut entitlements for the poor and middle class while preserving them for the truly entitled.

A proven communications strategy is to accuse your opponent of something you think they will hit you with, so when they do, it seems calculated by your opponent and becomes easy to fight back against. Obama and Democrats ought now to start charging the GOP with killing jobs by cutting spending, so when it happens, you can say, “I told you so.” Because killing jobs is just what the GOP wants.

Finally, Obama Adopts Family Responsibility Theme

I’ve argued to anyone who’ll listen that the meme Republicans have used about government having to tighten its belt “just like families do” was not only flawed, but ripe for adopting as a Democratic theme. Now, President Obama did it with his Saturday radio address.

When faced with financial challenges, families do several things. Yes, they cut back spending.  But they also look to increase income. They know not everything can or should be cut across the board. Some things you can do without; others are necessary to succeed in the long run. So, like the family alluded to in Obama’s speech where the mother is looking for a second job because they want their child to finish college, families do what’s necessary to pay for the things they think are important. The president uses this narrative to turn the tables on the disingenuous GOP narrative and argues the federal government shouldn’t cut everything. Some investments must be made because if we don’t, we’ll put our kids at a disadvantage to compete in the future. They won’t have the education or the infrastructure to compete. They’ll be more dependent on foreign oil than ever before with an antiquated transportation system that will choke economic growth. All because we want to cut taxes and slice not only muscle but bone from the our governments.

Text of speech is here. Video below.

Bernanke Schools Ryan

Strong Statement and Weak Words

No more stark contrast in messaging styles can we have than these few paragraphs from The Washington Post’s online report today about the employment statistics. The stats, which come from two different sources, paint a contradictory and completely opposite picture of what experts expected. Most thought we’d actually see a bump up in the unemployment rate as more workers, encouraged by improving economic signs, re-enter the job market, while the number of jobs created would increase by nearly 150,000.

Instead, the unemployment rate dropped but few jobs were created, although “the number of people who described themselves as employed rose by 589,000.” The Post’s Neil Irwin does a good job of explaining why this surprise may have occurred.

But, this being Washington, he needs a quote from both sides on the significance of these numbers.

The White House called the the decline in the jobless rate a "welcome development" but generally refrained from celebrating the numbers, given the uneven picture they paint.

"The overall trajectory of the economy has improved dramatically over the past two years, but there will surely be bumps in the road ahead," White House Council of Economic Advisers Chairman Austan Goolsbee said in a statement. "The monthly employment and unemployment numbers are volatile, and . . . estimates are subject to substantial revision. . . . It is important not to read too much into any one monthly report."

House Speaker John A. Boehner (R-Ohio), however, said the weak job creation shows that the Obama administration's push to speed the economic recovery isn't working.

"The spending binge is hurting job creation," Boehner said in a statement, "eroding confidence, draining funds away from private investment and spreading uncertainty among job creators."  [emphasis added]

Note the White House, inhabited by Democrats who clearly don’t understand the 24-hour news cycle, hedge their bets, afraid that they will have egg on their faces if the trend isn’t a straight line.  As if anyone will remember.

Boehner, however, isn’t worried about what will happen next month and ignores the good news in the reports. You know he already had his talking points before the report came out. “Spending binge hurting job creation,” even though there is no economic connection between the two. In fact, most economists, both conservatives and progressives, will say government spending is critical to creating jobs in a soft economy. But we’ve left that conventional wisdom in the dust. And we can’t expect journalists to point out the contradiction. That’s not their job. “Truth is relative. We’ve only got our steno pads.” 

“Eroding confidence, draining away funds…spreading uncertainty.” All are strong images, even though it is unclear how the government spending less will cause “private investment” to increase.

Meanwhile, the Dems focus on “bumps in the road ahead,” volatile numbers “subject to substantial revision.”

No wonder we lose the message wars.

So, Why Are the Rich Getting Richer?

The income chasm between middle class America and the richest Americans has grown enormously over the past 50 years. Few would dispute that. Harold Meyerson lays out the stats.

From 1947 through 1973, according to the Economic Policy Institute's State of Working America report, released this week, the incomes of the poorest 20 percent of Americans rose 117 percent, while the middle 20 percent saw a rise of 104 percent and the wealthiest 20 percent a rise of 89 percent. From 1973 through 2000, however, the income of the bottom fifth increased by a scant 9 percent, the middle fifth by 23 percent and the richest fifth by 62 percent. Since 2000, the concentration of income gains at the very top has grown only more pronounced. The share of income going to the wealthiest 1 percent of Americans, which was less than 10 percent in the early '70s, reached 23.5 percent in 2007 - the highest level on record save for 1928. (Note: Both years preceded epic crashes.)

No doubt conservatives don’t think this is a problem. And they are given a pass by progressives, who decry the income gap but don’t put the question to conservatives—Why? Meyerson and others have offered some reasons—the demise of labor unions, globalization and financial schemes that add nothing to the economy but line the pockets of the few. All perhaps true, but why don’t progressives keep hammering the GOP with actually two questions:

Why do you think this is happening? Give them a chance to explain the phenomenon. By forcing a explanation, there’s a good chance progressives will get fodder for a strong counter-narrative to the second question:

Do conservatives think this income gap is a good thing?

One book I’m almost finished relates.  It’s The Soul of Capitalism by William Greider. But rather than explain the gap, the book is really more about the book’s subtitle, “Opening Paths to a Moral Economy.” I’ll have more on it in another post.

Another waiting to be read promises to offer another reason. It’s Perfectly Legal: The Convert Campaign to Rig Our Tax System to Benefit the Super Rich—and Cheat Everybody Else by David Cay Johnston, a former New York Times tax reporter. This has always intuitively made sense to me. The folks who love to hail free enterprise ignore the fact the problem is not free enterprise versus a planned economy. It’s whether our free enterprise is really fair enterprise. Or are the rules, including tax rules, slanted to favor the wealthy?

Still, if progressives would demand answers from conservatives re why our economy increasingly seems to help only the few, they could set the foundation for the “free and fair narrative” that I think Americans would respond to.

Lost Investments

My question for conservatives is this: Do you want the government deeply involved in the economy and picking winners and losers, or do you want to create a lot of jobs—paying $300 a month?

That is a question that arises out of this story of Evergreen Solar and its industry. The company took $43 million from the taxpayers of Massachusetts to develop a new solar technology. It created jobs in the Bay State, virtually all of which, three years later, are moving to China.

But now the company is closing its main American factory, laying off the 800 workers by the end of March and shifting production to a joint venture with a Chinese company in central China. Evergreen cited the much higher government support available in China.

,,,Although solar energy still accounts for only a tiny fraction of American power production, declining prices and concerns about global warming give solar power a prominent place in United States plans for a clean energy future — even if critics say the federal government is still not doing enough to foster its adoption.

Beyond the issues of trade and jobs, solar power experts see broader implications. They say that after many years of relying on unstable governments in the Middle East for oil, the United States now looks likely to rely on China to tap energy from the sun.

Evergreen, in announcing its move to China, was unusually candid about its motives. Michael El-Hillow, the chief executive, said in a statement that his company had decided to close the Massachusetts factory in response to plunging prices for solar panels. World prices have fallen as much as two-thirds in the last three years — including a drop of 10 percent during last year’s fourth quarter alone.

Chinese manufacturers, Mr. El-Hillow said in the statement, have been able to push prices down sharply because they receive considerable help from the Chinese government and state-owned banks, and because manufacturing costs are generally lower in China.

“While the United States and other Western industrial economies are beneficiaries of rapidly declining installation costs of solar energy, we expect the United States will continue to be at a disadvantage from a manufacturing standpoint,” he said.

Apparently Massachusetts didn’t strike much of a bargain when negotiating the investment. The jobs were good but temporary. I suspect Gov. Bob McDonnell of Virginia, as probably did his predecessors Tim Kaine and Mark Warner, is giving away the farm in his attempt to lure businesses to the Commonwealth.

To American business the bottom line is the bottom line. We expect individual citizens to have a responsibility to this country and to make sacrifices but allow businesses to operate under a different set of rules: get as much as you can as fast as you can. Individual profit over national prosperity.

To be fair, however, when solar power becomes cheaper that fossil fuels, Americans will install it. The Wal-Mart generation seems to evaluate products based on price alone. And there’s not much we can do to stop it. Americans are not going to “buy American” if that means spending more, Nor can middle class Americans afford that patriotic luxury. So if Evergreen Solar stayed in Massachusetts and continued to grow jobs at $5,400 a month, it’s not likely solar power would become a viable business for the company when the Chinese can make it as well and much cheaper.

No amount of giveaways to businesses will reverse this economic axiom: cheaper sells better.

So it’s foolish for governments to invest in businesses in the vague, and as we saw with Evergreen, ephemeral attempt to create manufacturing jobs unless Americans are willing to work for $300 a month.

Better that governments invest in the businesses that can’t easily exported: the knowledge businesses. Education is the one investment that government, which is to say all of us collectively, should make to create jobs here. We need to develop the intellectual capital that can be exported to help other countries who may likely be more efficient, which is to say cheaper, than we can here.

Otherwise, more states and the federal government will be like Massachusetts, once the bloom is off the rose, hat in hand asking for its money back.

Michael McCarthy, a spokesman for Evergreen, said the company had already met 80 percent of the grant’s job creation target by employing up to 800 factory workers since 2008 and should owe little money to the state. Evergreen also retains about 100 research and administrative jobs in Massachusetts.

The company also received about $22 million in tax credits, and it will discuss those with Massachusetts, he said.

Good luck with that.

Could GM Bailout Be Profitable for Taxpayers?

Set aside the irrefutable argument that unemployment would be a lot worse if Uncle Sam didn’t invest in GM, thereby saving thousands of jobs.  It now appears the taxpayer could also earn a profit on that investment.

GM is set for an IPO this week.  Initially the IPO price was set at $26 to $29.  But due to increased investor interest, the IPO price is now being set in the $32-33 range.

A higher GM share price and an increased offering size means the initial loss to U.S. taxpayers from the bailout of General Motors will be more limited than initially thought. The U.S. Treasury owns nearly 61 percent of GM as a result of its $50 billion taxpayer-funded bailout.

Based on a diluted share count of 1.9 billion, $33 per share would give GM a market value of about $63 billion. GM needs a market value of roughly $70 billion for U.S. taxpayers to break even.

The final terms for both offerings will be determined when GM prices its IPO, the company said, which is expected to be on Wednesday and it will begin trading on the New York and Toronto Stock Exchanges on Thursday.

The Feds aren’t selling all their shares at the IPO price.  Bloomberg is reporting that if the stock does well, however, we taxpayers could make a profit.

The Treasury needs to sell GM’s stock at an average of $43.67 each to break even on its entire investment, data compiled by Bloomberg show. That means the shares would have to climb to almost $50 for the government’s remaining stake to offset its loss in the IPO, the data show.

Now how will the Dems communicate this success story?

Is the Democrats’ Problem the “Messaging”?

Yes, was the conclusion of Mo Elleithee and Mike Gehrke of Benenson Strategy Group at this morning’s Northern Virginia Democratic Business Council breakfast. Democrats did a poor job of communicating how their programs and policies would help voters, they said. Many on the left have made that argument, too.

While that is true, this communication problem should wait until other, more fundamental problems are addressed. We can do them simultaneously, but we can’t lose sight of those issues that would make our communications more effective.

First is the long-haul challenge, which is to address one valid criticism: Government is broken, or at least needs a major tune-up. It’s not just Congress or politics. Government doesn’t work as people think it should. Many on the left like to point to government programs that people like: Social Security, Medicare, etc. as proof that if they just understood us better, they’d love government. But beyond specific programs, people believe that government operations are inefficient, wasteful and intrusive. So as long as you’re not proposing cuts in their programs, they are willing to buy into that notion that “government is the problem.” And they are right.

The problem is that government is paralyzed by process. For why and how I recommend “The Death of Commonsense: How the Law is Suffocating America.” Laws are written to be overly complex, and they constrain government from doing a commonsense job of implementing them. We all know the stories: Social service workers routinely approve benefits that people don’t deserve, for example. Voters, especially independents, are receptive to anti-tax rhetoric because they don’t believe they get value for their tax dollars. Conservatives see the problem as fraud. That may be true, but the solution isn’t to downsize government. The solution is to empower government to take responsibility and stop abuses, without risking charges that they violated a complicated process outlined by a 1,000-page law. The benefit may be that if you empower officials to take action, make decisions about what is important and risk implementing imperfect but quick, effective solutions, selling the benefits of government is easier. The book’s thesis and argument aren’t perfect, but they’re valid.

Progressives may see this an attack on government, and bureaucrats may take it personally, but the issue isn’t them but process, one gone astray and easily attacked. Democrats must be at the forefront of government reform. We must streamline processes, even if it means re-writing some laws. Many special interests will howl.

Give bureaucrats the responsibility to carry laws out. Hold them accountable, which also means revising personnel practices so you can get rid of dead wood and incompetents. Expect pushback from government unions. The party should welcome it but sell them on the idea of greater empowerment.

A valid concern with this argument is that if you empower bureaucrats, they may implement laws in ways Congress didn’t intend. Another is that with each change in administrations, new political appointees leading bureaucracies could reverse a general direction of implementing laws. I think these issues can—and must—be overcome if we are to be a force for the proper use of government.

Second, we need to have some perspective on overall spending and address the sustainability of Medicare and Social Security programs and get behind minor reforms that will address these problems. I say “minor” because raising the retirement age to 69 for people who are now decades away from retirement, while problematic for manual laborers, is not an evisceration of the program. We should be willing to raise the salary limits on payroll taxes and means-test both programs. But if those levels are reasonably high, they can have a significant impact on the programs’ viability. But no sooner did the deficit commission leaders announce their recommendations this week, I got an email from the Progressive Change Campaign Committee with their panties in a knot over the “attacks on Social Security.” We’re talking about raising the retirement age from 67 to 69—for people who now are no older than 16. Letting them know now might be an incentive for them to aim for a desk job than one digging holes until you’re 69. The commission leaders plan also calls for increases in benefits for low-income widows and reinstates college benefits for child survivors. I think progressives will think these are good things. The elimination of the mortgage interest deductions might include only mortgages more than $500,000, though I would support complete elimination of them. Why should renters subsidize home owners? Renters can’t deduct any of their rent on their income tax return.

Bottom line is that progressives must stop knee jerk reactions to any talk of spending cuts. Some of them may be justified, and you’d wind up with more effective government, more money for truly helpful government programs, and, oh yes, more voters on your side. Reforming entitlement programs isn’t capitulation or even compromise. It’s smart politics and good for the country.

Where I think Elleithee and Gehrke were off base this morning was in their focus on better communication of Democratic programs and policies. Before we establish a communication plan or messages for our programs and policies, we must be willing to establish our overarching principles. If this election (and the 2004 election of George W. Bush) taught us anything, it is that people will vote for politicians who stand up for their principles, even if they offer no programs and policies.

Do you know what Democratic principles are? Do you think most Democrats would agree on them? Do you think they are simple enough that people can understand them? We live in an new era when it comes to communications. It may be that our brains are actually changing (See Shallows by Nicholas Carr.) We hope that people understand the policy choices, but we’re fools if we count on it. I’ll take a vote from someone who only understands my principles just as fast as I’ll take the policy wonk’s. Counts the same, and there’s more of them.

Democrats are sometimes arrogant about their message. They say, “We have principles but they are not easy to convey in pithy sound bites. That’s because the country’s problems are more complex than Republicans make them out to be?” That is a cop-out. (See “The Political Brain” by Drew Westen.) More important, having articulated clear principles makes it easy to articulate your policies.

Voting is an emotional exercise, not an intellectual one. You must connect emotionally, and that’s where principles come in. They frame your arguments. They tell the voter where your heart is.

Once articulating principles, we must be willing to campaign on them, not policies and programs. The latter are too difficult to explain in 30 seconds. You certainly can expand on your principles and explain policies in debates and longer form interviews. But even then, we need to make sure people understand our principles.

Instead of complaining about the way the GOP frames the message, learn from them and go them one better. How can we expect voters to think we will fight for them when we won’t even fight for our own principles? That also means fighting back against the media narrative. When mainstream reporters adopt the GOP frame, we need to call out reporters and be willing to incur their wrath. Republicans have been doing this for 30 years, and they’ve won the battle because we didn’t fight back. As an example, take a look at last night’s interview of a conservative on the Parker Spitzer CNN show. He was relentless in accusing Kathleen Parker of a being an Obama supporter and falsely accuses her of actually endorsing him. Lesson: Push back—hard.

While I don’t believe that the only reason the Dems got shellacked in this election is because of poor messaging, it was a big reason.

The first step is to list in short phrases Democratic principles. We can do this for GOPers: limited government, lower taxes, traditional family values, traditional marriage, etc. I’ll suggest a Democratic straw man for you:

Middle class opportunity

Free & fair enterprise

Civic values

Fair taxes

Promote the general welfare

“For the people” government

College for all who’ve earned it

Strong, smart foreign policy

Energy independence

There could be more and there might be better ways of articulating them. Under each, we can outline not programs but goals and more detail on our principles. For example, under middle class opportunity, we talk about how we support opportunity for all Americans to achieve a secure middle class standard of living and the chance to become rich and financially secure. We do that by writing laws that offer everyone equal opportunity, instead of the rules, regulations and laws that give preferential treatment to the rich and politically connected. We must have a level playing field and repeat incessantly how the middle class has stagnated and that the overwhelming portion of income growth over the past 30 years has gone to the top 1% while the middle class has fallen behind.

Under American moral values, we should discuss what Christianity (or Judaism, Islam, etc.) teaches us: that we are our brother’s keepers. The Constitution paid homage to that ideal with the phrase “promote the general welfare.” We must reclaim the Constitution and our religions from those who would subvert their meaning.

Third, we must demand cohesion among Congressional Democrats on key issues. If they refuse, we should ostracize them from the party. You can vote against key legislation that your party thinks is critical, but expect to find yourself without a committee assignment and without any way of getting your bills considered. In this past Congress we were held hostage by Democrats who lost. What good did it do us?

For progressives, if all else fails, form a third party. If Ross Perot could do it before the web, we can certainly do it now. I guarantee you that it will focus the minds and stiffen the backs of Dems everywhere.

One in Seven Americans Live in Poverty

Is this a great country or what?

The 14.3 percent poverty rate, which covers all ages, was the highest since 1994. Still, it was lower than estimates of many demographers who were bracing for a record gain based on last year's skyrocketing unemployment. Many had predicted a range of 14.7 percent to 15 percent.

Analysts credited in part increases in Social Security payments in 2009 as well as federal expansions of unemployment insurance, which rose substantially in 2009 under the economic stimulus program. With the additional unemployment benefits, workers were eligible for extensions that gave them up to 99 weeks of payments after a layoff.

Another likely factor was a record number of working mothers, who helped households by bringing home paychecks after the recession took the jobs of a disproportionately high number of men.

"Given all the unemployment we saw, it's the government safety net that's keeping people above the poverty line," said Douglas Besharov, a University of Maryland public policy professor and former scholar at the conservative American Enterprise Institute.

So let’s government spending some more and so away with Social Security.  Even conservatives (not the right-wingers on Capitol Hill) recognize the value of a government safety net.  When you don’t have a job, cutting income taxes doesn’t do much for you.