Thursday, April 30, 2009

Bad new for revenue forecast?

The Commerce Department announced on Tuesday that Gross Domestic Product fell by 6.1% in the first quarter of this year. This is a full percentage point behind the state forecast which pegged the decline at 5.1%. On top of this is the swine flu pandemic which seems to be picking up steam and has been rated as a level 5 by the WHO. Washington is the most trade dependent state and Mexico is our #3 trading partner.

While there is reason to believe the forecast could get worse there is till reason to believe that things could pick up. The Michigan Consumer Sentiment Index rose last month to 65, up from 55 in November. Consumer spending was also up as well. What has been dragging the economy down has been business investment. My guess, hitting bottom in the second quarter, slow recovery beginning in the third.

Monday, April 27, 2009

Values, interests and the legislative session

Our two political parties are more than political organizations created to elect their members and divide the spoils. First of all the spoils are small. State legislators make 30% below the state median wage in exchange for 80 hour weeks during session plus a harsh season of campaigning every two to four years .

At the legislative level what binds them together are core philosophical beliefs. Republicans believe strongly in the power o f the individual and the unfettered hand of the free market. Government and the taxes that pay for it is their main enemy. Democrats place more value in the power of community and the strength that comes from business, labor and individual working together. They believe that government should be used for the common good. Obviously, these are poles on each end of the spectrum with most of the people in between but this differentiation can be clearly seen in the legislation they fight over whether it is budget and taxes, the role of labor unions, protection of the environment or creating jobs.

These two broad philosophical approaches have an economic base as well. Those who benefit the most from the free market are Republicans. Historically, the wealthy, big business, finance and mostof small business are Republicans. Those who benefit from community and government such as labor unions, teachers, environmentalists and the middle class are Democrats.

Obviously, there are exceptions, some of them notable. The two most interesting exceptions are cultural issues and the new economy. Many economic democrats, primarily in the South, shifted to the republican side over cultural issues. Many businesses and professionals shifted to the democratic side in resonse to the rightward cultural shift of Republicans but also due to the dependence of the new economy on government for research and education.

The press and to some extent popular opinion tend to see political parties and caucuses and tools of the interests that support them. There is some evidence of this but it is for the most part untrue. If you look at the elected members of the legislature you will find that for the most part that Republicans are people from management and business and Democrats from the public sector, teachers, social workers, nonprofit managers, nurses, and labor union leaders. When they think about issues that is the frame from which they approach them.

When gathered together in caucuses you can see this reflected in their values. When Senate Democrats met in retreat last fall the most popular values statement was, "I'm here to make sure those at the bottom don't get screwed." For the most part people vote their values.

This is an interesting lens from which to view the past legislative session because it appears to many that Democrats didn't vote their values . What is behind that? That's the subject of my next entry.

Special Session

The legislature is likely headed for special session later this week or next. What makes this extra session so unusual is that it wasn't the budget that sent it in to overtime. Despite being the worst recession since the great depression, legislators finished the budget a day early. And it most of the truly stuff got done the week before: Unemployment insurance reform and benefit increases, education reform and jobs programs.

Two things sent us into special session; number one was a group of bills that we just didn't get to but are needed; a school levy bill, a tax administration bill and a couple of criminal justice bills that may be needed to keep a healthy reserve.

The other set of bills was the a key Senate clean energy bill and a couple of other climate change bills that got caught up in a dispute in the house. The energy bill is still needed in order to meet a January 2010 for utilities to set conservation targets for the next decade.

The bottom line is that the legislature truly did their heavy lifting during the 105 day session. The special session could be short and sweet and will merely reflect that we ran a half a day short in finishing things up.

Swine Flu Problem and the Economy

Research indicates that the swine flu issue might be a major hit on the economy. Capital Economics recently did an economic analysis of the SARS crisis of 2003. They concluded that that event resulted in a loss of between 0.6% and 2.0% of regional GDP in Asia. These are highly trade dependent countries and SARs hit international travel and trade hard. The impact might be less here but it depends on how widespread the disease becomes. At any rate, we might need to readjust our state economic forecast downward even more.

A swine flu pandemic in a deep recession could make the term perfect storm trivial.

Saturday, April 4, 2009

Why a Millionaire' Tax?

Everett Herald Reporter Jerry Cornfield asked Sen. Lisa Brown at a Thursday press availability why she would tax millionaire's when they are spending money and contributing to the economy.

The fact of that matter is that those at the top simply don't' pay their share for the benefits of roads, law enforcement, schools and universities. In Washington State, middle-income taxpayers pay 3 and a 1/2 times the percentage of income in taxes than the top 1%. In fact, we have the most regressive tax system in the nation.

Gerald F. Seib writing yesterdays' column in the left-wing Wall Street Journal says that the biggest problem is the income has become skewed in recent years. Median family income actually fell from 2000-2007 while those as the top saw the incomes rise by $250,000.

According to Seib, "A disproportionate share of the income at the top has come from the financial sector, the very sector that has been dragging down the entire economy."

The middle class has been paying too much for too long while those at the top have brought down the nation's strongest economy through speculation and waste.