Nafzblog

The Eurozone Crisis - Things are not always what they seem

2012-01-22T08:56:00.000-08:00

The popular story that has circulated in the richest countries is that this is a morality tale. The extravagant behavior of the Irish and Mediterranean Countries led to the crisis. Rather than working,they danced, rather than saving and investing, they spent. (known here as the Zorba the Greek Syndrome).

After the fall of communism, Germany, France, and other more developed countries sought to integrate Eastern Europe as well as countries on the periphery like Greece, Italy, Greece and Spain into the European economy. The Euro was created to avoid currency fluctuations and improve stability in trade.

The problem was that there was a European monetary system but separate fiscal systems in each country. This worked out fine until the stress of the great recessions exposed the weakness of the alliance. The nations on the periphery failed to manage their economies, spent more then they could afford and failed to invest. This led to a huge debt that would be difficult or possible to pay back. Follow this link to a comic version of the story

Consequently, the banks who had purchased government bonds from those countries were facing potential defaults from the peripheral countries. The potential of huge losses spread fear of a contagion that would lead to widespread bank failures throughout Europe and a double dip recession. Only through the generosity of the richer countries could Europe be saved from the proliferous periphery.

Here's the problem, with the exception of Greece, the debt problems of the peripheral countries was not much worse and in some cases better than the wealthier European countries. Furthermore, the moral faults of those nations was clearly misplaced. Investment and capital formation was as great or greater and the work ethic actually appears stronger (see the above graphs).

Then what was the cause of the crisis? The answer appears to be quite the opposite. The alternative explanation is that the adoption of the Euro resulted in a flow of capital to the periphery to take advantage of the cheaper labor and new markets. When the recession hit, the capital reversed it's direction leaving a massive current accounts deficit. Since all of the counties had one currency, they were unable to devalue their currency to balance the outflow. I'll cover more this in my next blog.

Productive and Unproductive Labor

2011-12-15T14:24:00.000-08:00

I'm definitely guilty of overusing the above graph but what it illustrates so well is the level of greed that motivated the leaders of the world's investment banks. Their bonuses were so large that they eventually exceeded the net income of their companies bankrupting the companies and allowing them to escape with billions as they helped bring down the world economy.

This is an example of a problem that is ill-described in traditional economics - the problem of unproductive versus productive labor. In the case of the financial crisis, it appears that a larger and larger proportion of our nation's output was siphoned off to a growing parasitical class which used their very rich human capital to create new financial instruments and marketing techniques which in fact created no wealth. In fact, they appeared to have destroyed a lot of human, physical and financial capital in a process that added nothing to our society.

The concept of productive versus unproductive labor has a history in Marxist economics. In Marx's complex and unfinished work, Theories of Surplus Value, in Chapter 4, Marx lays out a description of what he believed added value to the economy and what appeared to subtract value from society.

Marx made a couple of big mistakes here. One was that capitalists (or today's entrepreneurs or managers) didn't add value, only labor did. He assumed that the creativity, acumen and management ability of a capitalists was no different than any other kind of labor. There is considerable evidence that the risk-taking and management expertise of capitalists is perhaps a different factor of production than other forms of labor.

However, his analysis of finance capital appears particularly germane today. Thomas Philippon in an article last month "Has the U.S. Finance Industry Become Less Efficient?, argues that, "Surprisingly, the finance industry has become less efficient: the unit cost of intermediation is higher today than it was a century ago. Improvements in information technology seem to have been cancelled out by increases in trading activities whose social value is difficult to assess."

The sad part of Phillippon's analysis is that wasted capital in finance does not seem to have diminished as the great recession has dragged on. The question appears to be, Have we learned anything?

The Deficit- Creating our Own Nightmare

2011-11-25T09:16:00.000-08:00

Listening to politicians in Washington, there is no doubt that America's huge deficit is leading to the end of the world as we know it. They never fail to describe in horror the effects of ballooning government spending on the future of our children.

Here's the problem. It ain't that bad.

According to the nation's official budget scorekeeper, the nonpartisan Congressional Budget Office, if politicians simply do nothing, the deficit will fall from today's 8.5% in 2010 to 1.2% in 2021. The historical average from 1971 to 2007 was 2.8%.

So what's the catch? Real simple. Congressional leaders are simply unable to let the current tax cuts expire. Allowing taxes to rise to their pre-2001 level in late 2012 would drop the deficit to less than half their historical average. Don't let the pre-2001 tax level scare you, taxes as a percentage of GDP were below the post-war average in the late 90s, the budget was balanced and the economy was roaring.

That doesn't mean we pull the trigger if the economy is still growing slowly and it doesn't mean that we don't still have work to do on the budget.

What it does mean is that current hyperbole is simply out of control.

The Myth of Overuse: Health Care Co-payments

2011-11-18T15:17:00.000-08:00

There are few things people agree on when it comes to health care reform but one of them is the importance of provider co-pays in reducing health care costs. Liberals and conservatives alike delight on the ability of this simple device to reduce overuse of health care resources. Businesses and governments who fund health care payments enjoy the cost savings of co-pays while benefiting from the warm glow of serving the greater good of health care reform and cost containment.

The assumption is that health care consumers make a trade-off between the price of the care and its true benefits. This usual policy logic dictates that we use elasticity of demand (the change in quantity demanded divided by the change in price) for a category of care to set co-payments. The data indicates a high demand elasticity meaning that the care is of low value. If a small change in price results in less use, than the value of the care must not be very high.

But what if that isn't how people make decisions? What if people have biases in judging in making decisions? A particular difficulty with medical procedures is that many people tend to judge them much worse before than after the procedure. Their fear of the procedure makes them subject a bias again the care that is confirmed by the co-pay. People suffer from a great deal of confusion and anxiety when making health care decisions.

What if people aren't very good had judging the medical risks of various procedures? Could people myopically discount adverse health outcomes?

There is disturbing evidence that small changes in co-pays have huge effects utilization.

While there everyone agrees that co-pays create lower utilization rates, the important question is, do co-pays end up limiting overconsumption of medical care or does it lead to underconsumption of medical care. Do patients reduce the amount of care they purchase based on inaccurate assumptions of risk thus leading to higher long term costs for consumers as well as higher social costs for society?

This is particularly likely to be true in the case of low-income patients. A $50 co-pay may reduce overconsumption by high income patients while creating underconsumption for low income patient.

There are alternatives to simple using a meat ax on health care. Differential pricing could be valuable in this process. One idea would be to increase the co-pay as the number of visits increase. Another would be to set the co-pay as a percentage of income. Co-pays may just be another excuse to cut services to those of us who are less well off.

The Media and Confidence

2011-11-02T06:23:00.000-07:00

This morning's Seattle Times headline screamed "Greek Debt Vote Rocks Markets" . The article went on to proclaim that "U.S. stocks plunged as investors fretted that Europe's problems, believed largely resolved, now appear far from settled and threaten a week recovery." The Dow Jones fell nearly 300 points.

Today, the market has already made up over 2/3 of yesterday's loss buoyed by good news of private sector job creation.

Hmmm. Do you think that the uptick will make the Times headline? Did the Times headline last week's good news on GDP growth?

The point is that people tend to take in news with the emotional part of the brain not the rational part. The constant outflow of bad news accumulate into declining consumer confidence. Any good news is generally off the media radar screen.

In reality, a recovery is very slowly building and markets have been relatively stable on a monthly basis over the past year. But consumer confidence has lagged. We are mere mortals who forecast the future primarily on the mood of today, when things are good, they are good forever. When they are bad, they are bad forever. The Seattle Times is merely doing it's job, but the effect is to tamp down consumer confidence.

Lack of Confidence, Frustration and Alienation

2011-10-26T07:06:00.000-07:00

The Congressional Budget Office just released a report Monday indicating that household income between 1979 and 2007 grew by 275% for the top 1% of earners and fell by 2 to 3% for middle class Americans. This disparity has risen even more since 2007.

There are many, many ramifications of this growing income disparity for public policy. One is the sense of unfairness that Americans feel both about the economy and our government. This sense of alienation has contributed to the volatility and polarization we are seeing in politics today. The lack of response by Democrats and Republicans alike has led to spontaneous movements like the Tea Party and Occupy Wall Street.

Secondly, if a higher proportion of the nation's income and wealth is going to the very richest, a segment that spends significantly less of their income than the middle class, could that be contributing a lack of consumer demand in the economy?

On top of this, recent BLS data indicates that the wages of college graduates has fallen steeply since 2000 as college tuition has increased and student debt has sky-rocketed. The estrangement and frustration felt by young people today does not forebode well for the future productivity of our country as college debt increases to record levels in response to sky-rocketing tuition.

The Animal Spirits of Capitalism Continued

2011-10-24T16:48:00.000-07:00

I hope that most Americans have finally gotten the message that financial markets aren't necessarily rational and on the down and upside of the business cycle can be absolutely crazy and horribly damaging.

There does seem to be a fair amount of agreement that our economic troubles are caused by a "lack of confidence" in the future, The question is how do you calm these skittish wrecks and move the economy forward. I mean how do you restore confidence to our economy?

I think there are basically two competing paradigms on the restoration of confidence. A supply side approach and a demand side approach.

The supply side approach is the primary approach of the Republicans but also seems to be the dominant theme for Obama's economic advisers. The first step is to restore the confidence of Wall Street by demonstrating calm and moderation. Secondly, you make a commitment to keeping future interest rates and taxes down by cutting the size of government and closing the deficit. Finally, you create even more incentives for investment by lowering tax rates, simplifying the tax system and deregulating the economy. Add to that recipe free trade agreements and tax-free repatriation of foreign profits.

The demand siders assume that the problem is lack of effective demand in the economy. That businesses aren't investing because they are not confident anyone will buy their products. Furthermore, lower taxes or incentives will have little impact since firms are making huge profits and have even larger accumulations of cash which they are not investing. Furthermore, they would argue, that it is deregulation that got us here in the first place.

They would suggest restoring the confidence of consumes by quenching their desire for fairness and ensuring that the people who created the crisis are those who are paying for it. The public doesn't have any confidence in government to a large extent because they believe the government looks after the interest of big corporation and banks and does little to represent them. Perhaps, if there was an effort to create more fairness in the distribution in the costs of the recession and lay the blame where they think it belongs, then consumers may have more confidence, provide more political support for a bigger stimulus and perhaps be willing to go out and spend more. This approach incentivizes buying.

Supply siders respond by saying, nonsense, now you'll really scare them and they will never invest again and take all their money to Greece or China.

What is the answer for restoring confidence? I think a little of each perhaps. Signal to the public that you believe that the middle class and the poor have paid too much of the cost of the recession and that Wall Street and their owners need to pony up a larger share. But combine this with a thoughtful and certain long term deficit plan.

The Animal Spirits of Capitalism

2011-10-19T14:18:00.000-07:00

The story of the economy today is a story about confidence. Investors and consumers alike are uncertain about the future and thus they tend to hold on to their money and spend less on big durable goods and investments. The fact that this crisis was precipitated by an over investment in housing making restoring confidence doubly hard.

John Maynard Keynes famously said, "Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits - a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.^[3]

Wall Street is the tale of the bulls and the bears. And the problem is they tend to run in herds. When things look good, investors run with the bulls and when things look bad, they run away with the bears. Rational thought has some bearing on this trend but not so much on either end of the spectrum. When things are going particularly well, irrational exuberance sets in leading to a chain of overinvestment in the latest thing, corruption and ultimately a crash of confidence.

This is all very well and good but what do we do about it? How do we restore confidence, that is the question.

How Comfortable Will Americans be in our Newly Third World Country?

2011-10-08T09:30:00.000-07:00

The gini index measures the degree of inequality in the distribution of family income in a country. Because it can have an effect on political stability, income inequality is one of the economic indicators tracked worldwide by the Central Intelligence Agency. Its current World Factbook puts the United States just inside the most unequal third among 184 nations, between Uruguay and Cameroon. Immediately below the USA and Cameroon in the rankings – that is more equal -- are Ivory Coast, Iran, Nigeria, Guyana, Nicaragua, and Cambodia. There are no developed countries with greater inequality. Stability and development tend to go hand in hand.

America has avoided much of the instability, violence and strife that has plagued much of the world largely because of the degree of equality of opportunity that our nation has treasured. This appears to be changing and changing very rapidly.

We have reached the greatest inequality of wealth since statistics have been kept. The top 1% of our wealthiest citizens controls a great percentage of our nation’s wealth than the time of the gilded age of Rockefellers, Carnegies and Mellons.

The financial collapse has hit the poor and the middle class the hardest. Accompanying the economic hit, governments, like the state of Washington, have slashed the safety net, housing, and health care assistance. While the rich have managed to dodge the bullet, Washington's tax system remains that most regressive in the nation. The poor and middle class pay 2 to 4 times the percentage of their income in taxes than the rich. Washington policy-makers have thwarted efforts to maintain some semblance of a safety net by imposing progressive taxes that more closely mirror those of our neighboring states.

One of the key predictors of prosperity is the level of education in a society (the other is union density). Sadly, investment in these arena have been slashed. Washington state has cut funding for higher education by nearly 50% over the past four years as citizens aged 25 to 34 are reported to have less education than those 34 and older.

Will all this lead to greater political and economic instability in the U.S.? Much of that depends on what we do next. How comfortable will middle-class Americans be as a newly third world country?

The gini index measures the degree of inequality in the distribution of family income in a country. The index is calculated from the Lorenz curve, in which cumulative family income is plotted against the number of families arranged from the poorest to the richest. The index is the ratio of (a) the area between a country's Lorenz curve and the 45 degree helping line to (b) the entire triangular area under the 45 degree line. The more nearly equal a country's income distribution, the closer its Lorenz curve to the 45 degree line and the lower its Gini index, e.g., a Scandinavian country with an index of 25. The more unequal a country's income distribution, the farther its Lorenz curve from the 45 degree line and the higher its Gini index, e.g., a Sub-Saharan country with an index of 50. If income were distributed with perfect equality, the Lorenz curve would coincide with the 45 degree line and the index would be zero; if income were distributed with perfect inequality, the Lorenz curve would coincide with the horizontal axis and the right vertical axis and the index would be 100.

A tragedy of our time – jobs go unfilled as the unemployed can’t find jobs

2011-10-07T09:19:00.000-07:00

A few weeks ago on September 13, Dr. Douglas W. Elmendorf, director of the Government's official nonpartisan scorekeeper, the Congressional Budget Office testified in front of the newly formed Joint Select Committee on Deficit Reduction. Within the first few minutes of his testimony he said, "Weakness in the demand for goods and services is the principal restraint on hiring, but structural impediments in the labor market—such as a mismatch between the requirements of existing job openings and the characteristics of job seekers—appear to be hindering hiring as well."

The next day, the Wall Street Journal reported that the number of small businesses seeing a skills shortage has crept up this year. In August, 33% of small businesses reported having few or no qualified applicants for job openings, according to a National Federation of Independent Business survey. That was up from 21% in December 2009.

The State Workforce Training and Education Coordinating Board reported last week that key industries in Seattle including Business services, accounting, health care and manufacturing are all expecting major shortages of skilled workers within the next few years. Shortages are expected in occupations like accounting assistants and technicians, industrial machinery mechanics, telecommunications equipment installer and repairers, lab technician and registered nurses.

Is this really the time to make huge cutbacks in education and training? Is it actually costing us less to pay out unemployment benefits, foodstamps and emergency health care?

The Populist Moment: Part 2

2011-07-30T11:33:00.000-07:00

Business Week reported last month that the median pay of chief executives jumped 35%, to $8.4 million, for Standard and Poor's 500 CEOs in 2010.

Meanwhile, back in our home towns, average weekly earnings of Americans fell in 2010 and median family income has fallen quarterly since 2008. The number of people living in poverty has increased by nearly 20% during that period as well.

Clearly, there is no evidence of shared sacrifice during this great recession. Provisions in the Dodd-Frank act that were allegedly written to quell the greed that caused the downturn appear to be a sham.

Now is the Populist Moment - Part I

2011-07-29T10:57:00.000-07:00

The current long period of stagnation has created a level of cynicism, disengagement and distrust greater than any other time in my life.

The public is convinced that a culture of greed in our financial sectors has brought the economy to it's knees, causing massive unemployment. A stalemate in Washington has curtailed any effort to stimulate the economy or even create the leadership to improve consumer confidence that could help spur things forward.

Stopping at a Union 76 station off I-5 in Tukwila, Washington, the station manager vented his frustration, "these greedy bastards should have to pay for this but if the government tries to fix it, they'll end up making me pay."

This is the populist moment. We are living in a time that too closely parallels the Gilded Age of the late 19th century when huge corporations and financial institutions gobbled up a bigger and bigger share of our nation's wealth.

Economist Robert Gilman in a 1969 study for the Bureau of Economic Research revealed that the share of wealth owned by the top one percent of the population increased from 21% in 1810 to 24% in 1860 to 31% in 1900.

This aggregation of wealth and it's ostentatious display led to a populist movement that resulted in the creation of labor unions, regulation of trusts and government reforms.

Today, according to a recent paper by Edward Wolfe, wealth has become event more concentrated then that earlier age of robber barons and trusts with the top 1% controlling 34% of the wealth in this country and the top 10%, 84% of the wealth.

Where is this populist movement today as luxury spending goes up and long term unemployment reaches record highs? Are citizens so cynical disengaged from civic government that they are willing to just sit and watch?

The only truly grass roots response has come from the right, the T-Party.

Is our friend in Tukwila right? That government, owned by special interests, can only make this worst?

Inequality and Democratic Responsivness

2011-07-02T18:47:00.000-07:00

Martin Gilen's Public Opinion Quarterly article, "Inequality and Democratic Responsiveness" asks the question, "do elections help ensure that the voice of the people is heard in the halls of government"?

Gilens asks 1,935 survey questions of national samples of the population between 1981 and 2002. The surveys are undertaken by Gallup, Harris and other reputable and independent pollsters. Each survey question asks whether respondents support or oppose some change in U.S. government policy. After compiling the answers, Giles then divides the population by income level and compares the preferences of those surveyed with the actual decisions by U.S. policy-makers.

The first part of his finding is encouraging. It confirms previous research that indicates that overwhelmingly unpopular proposals are unlikely to be adopted.

The second part is disturbing. When Gilens organized the responses by income group on policy questions in which well-off and poor Americans disagreed by 8% points or more, outcomes fairly strongly related to the preferences of the well-to-do but wholly unrelated to the preferences of the poor. Median-income Americans fare little better than the poor when their policy preferences diverge from those of the well-off.

The probability of a proposed policy change being implemented rises almost 30% as support among high-income respondents increases but only rises 6% as attitudes among median-income respondents shift from strong opposition to strong support.

Gilens concludes, " Most middle-income Americans think that public officials do not care much about the preferences of 'people like me'. Sadly, the results presented above suggest they may be right."

The Irony of the Financial Collapse

2011-07-01T08:04:00.000-07:00

I've often thought it ironic that many, many Americans blame the government for the financial collapse and believe that less not more government is the solution. After all, the collapse, at least in part, was caused by lack of regulation and certainly not because of it.

The only true grass roots response to the collapse was the rise of the T-Party, an organization that largely promotes libertarian and conservative policies. No such populist movement has arisen from the left to call for more government regulation or even more stimulus to get the economy moving again.

Perhaps this isn't so surprising given that the public believes that government or at least it's elected officials are clearly in the pockets of the special interests that appear to have caused the collapse. A Pew Memorial Trust poll indicated that Americans truly believe that government looks after big banks and big corporations and cares little about the middle class, poor people or small business.

There is some reason to believe that their fears are well founded. Research by political scientist Dr. Martin Giles from Princeton University concludes that policymaker's decision almost always reflect the views of the wealthiest members of our society.

We shouldn't be too surprised if Americans are unwilling to hand over more power to a leadership that seems to care so little about their interests.

Getting the economy all wrong

2011-06-02T21:54:00.001-07:00

The Wall Street Journal and the Seattle Times editorial page as well as democrats and republicans alike all argue that the problem with the economy is a lack of incentives to invest. That's why we need to lower taxes (and why they opposed an income tax on the wealthy), cut workers compensation benefits and cut budgets.

But on the economics page of the journal today, their economist argue the opposite and warn that the problem isn't supply it's demand.

In an article entitled, "The Economy Needs a Borrower of Last Resort", Kelly Evans argues that "The U.S. economy needs a borrower, not a lender, of last resort.The federal government, through its stimulus program and other measures, took on that role. Yet it, too, is now backing away. That will make it increasingly difficult for the U.S. economy to continue to grow"

So where is the money going if investors aren't lending it or investing it? According to another article on the same page, at least some of it is going to purchases of luxury goods. In an article entitled "May Retail Sales Favor High-End" the journal points out that while consumer spending is barely growing in most sectors, that is hardly the case in the luxury goods end of retail trade.

The author Karen Talley quotes Saks Fifth Avenue, ""What you have right now is a bifurcation in the market," said Steve Sadove, chief executive of Saks, in an interview. "The higher-end customer has been feeling better about overall the markets, their own personal situation. ...But at the lower end, you've still got a lot of concern in the housing markets, you've got a lot of concern with gas prices. So you're seeing the higher end performing better than at the lower end."

Lower taxes on the rich aren't leading to more investments and cutting government spending is not going to lead to growth. Most of our policy makers just don't get it.

Seattle's Forgotten Middle......

2011-05-18T08:04:00.000-07:00

A lot of attention these days is being paid to the needs of research universities and the highest paying jobs at high tech and biotechnology companies. But the vast majority of workers in the Seattle region have worked in middle skills job with family wages and good benefits. These are the folks that have been hit the hardest by the deep recession and the folks whose wage recovery is the key to our recovery. And there simply isn’t going to be a recovery if these hard working people are unable to get the skills that are required by the jobs that are growing as the economy begins to slowly lift off.

The vast majority of jobs in the Seattle area are skilled professional and technical positions that range from health care on First Hill and throughout the city to aerospace, construction and manufacturing jobs in SODO and the Duwamish, and to office occupations such as accounting and office management in the city’s big downtown business and financial service industries.

The jobs we lost going into the recession are not the same ones that are going to get us out of it. Nobody has been hit harder by the great recession than the middle wage skilled workers in these companies and organizations. People such as John Woeck, for instance, who worked for seven years as an electrician just as his wife lost her job of 14 years, exhausted his savings, and was almost out of unemployment funding to support their three children. Vinita Vigil, enrolled at Seattle Central Community College, worked for a digital graphics company before she was laid off. She was the primary source of income for her family of five, and she was forced to sell her house.

One of the most distressing features about today’s recession is that Seattle has thousands of job openings at the same time it has high unemployment. Economists say this is because the recession accelerated the decline of some industries, such as housing construction, at the same that that others requiring far different skills, including health care, emerged stronger. Some economists predict that this disconnect is likely to grow as the economy continues to develop jobs that require specialized skills. And the difference for those who have lost their jobs could be fine-tuning of their skills in a job training program that takes six months to two years to complete.

Construction, real estate, and financial service workers have seen jobs with their expertise disappear, while skilled work in health care, accounting, fashion design and I-T remain unfilled. A State’s Workforce Training and Education Coordinating Board 2010 survey of employers indicated that the vast majority of these job openings require a post-secondary vocational certificate or degree. The survey indicated that 62% of employers hired people and 26% or 10,500 firms in King County were unable to find skilled employees.

Fortunately, there is a solution. The Community and Technical College Worker Retraining Program was designed to get people who lost their jobs in declining occupations back to work in new and growing fields. Even in the depth of the recessions, three out of four graduates were able to find work within 6 months of completing their programs.

John Woeck retrained from work as an electrician in the housing industry to job in the heating, air-conditioning and ventilation industry. He was also able to convince his employer to hire two of his classmates. Vinita Vigil was able to find work in the ….. and now has an income to support her family.

This year, in order to meet record demand from individuals and families such as the Woecks and Vigils, the state legislature bumped up funding for the program to allow the program to serve more 14,000 unemployed individuals across the state. However, the funding was for one year only and on July 1, the program will be forced to cut services nearly in half leaving thousands of unemployed workers stranded midway through their programs. This will leave thousands of jobs unfilled and perhaps create a bottleneck in the economic recovery of our region.

The Donner Party

2011-01-31T13:54:00.000-08:00

Former Gardner Chief of Staff and entrepreneur Denny Heck once characterized the current legislative session as "the Donner Party". My take on it - a session where year after year of economic disaster and budget cuts has led to the increasing starvation of human services and education programs. Program advocates, normally allies, have resorted to eating their own in order to keep their programs alive.

Nowhere is this more true than in higher education.

The Washington Labor Council has been trying to increase unemployment benefits to long time unemployed workers who have been laid off from the recession and lived on low paying unemployment insurance for years. Last week, out of fear that community colleges were trying redirect that money to save the Worker Retraining Program, the Labor Council began to tell legislators that the worker retraining program is a disaster and a waste of money (despite evidence to the contrary). Labor's tactic is nothing new. They learned it from the Association of Washington Business, who in the mid-90s attacked the quality of the program as a way to attack the funding source which at that time was a diversion from the UI trust fund.

Organized labor and community and technical colleges have long been allies in promoting the worker retraining program, which provides unemployed workers the opportunity to train in high demand fields. Labors fears turn out to be wrong in this case. No legislative proposals to use unemployment funds for worker retraining has been proposed this year. But the damage to the program from labor's threats are severe and unemployed workers could find their program cut off midway through the year.

Advocates for the University of Washington and other public universities have decided that there best hope for minimizing cuts is to cannibalize community college funding. University trustee Craig Cole and major backer Dan Evans have began to publically attack colleges as a "the worst possible place to start a college education". Community college advocates have found themselves under attack in conversations with the Seattle Times and other Seattle downtown establishment figures after university advocates have been in to see them.

This kind of cannibalization should be no surprise in these tough times. In the end, unfortunately, all of players could end up being losers.

Tax and Spending - What did the voters vote for?

2010-11-27T17:43:00.000-08:00

A mere few weeks ago, Washington's voters voted anti-tax on three major initiatives. They overwhelmingly voted down an income tax on upper income taxpayers dedicated to education and health care. They overwhelmingly voted for an initiative that required a 2/3 vote of the legislature on new taxes and they overwhelmingly voted to rescind the pop and candy tax the legislature imposed last session. The sum result of all these measures is a clear signal to policy-makers that they would rather see budget cuts than tax increases.

But were voters aware of what the consequences would be? Good question. The slow growing economy has stifled state revenues by as much as 20% for the next three years and making up that deficit through budget cuts alone is going to result in devastating cuts for state programs that have already been slashed each year for past three years.

For one, I'm not sure a large percentage of the voters knew what programs will end up being cut. The problem is there are not a lot of choices. About 60% of the state budget is already off limits due constitutional protection of most of the education budget as well as federal requirements on big programs like Medicaid.

What's left is basically all of higher education and social service programs like the Basic Health Plan which provides insurance for low income working families, the Security Lifeline Program which provides income supports and medical care for disabled and mentally ill clients and much of the TANF program that provides income support and child care to primarily working mothers. These social service programs are the safety net for those who have been hit the hardest by the deep recession. Programs like the community college Worker Retraining Program that provides funding for unemployed workers who have lost their jobs in declining industries to train for the jobs of future are also likely to be on the chopping block.

Many people believe that in reality we could cut spare these programs and cut the salaries and benefits of state workers more severely. The problem is, that these cuts simply don't add up to much money. Raising state workers co-pays by 20% only save a hundred million dollar or so and adding an extra 10-20 furlough days, less. The problem is that the recession's hit on the state budget is so severe and so much of the budget is off limits, that draconian cuts have to occur to virtually every area of the budget that's left.

The impact of the Eyman initiative requiring a 2/3 vote is exaggerated. While there is little chance 2/3 of the legislators will ever agree on a tax increase, the initiative still allows the legislature to send voters a choice. The legislature could clearly send the voters a referendum that would impose a tax to support key selected programs.

Initiative 1098 did not clearly offer voters a choice between taxes and program cuts. The initiative, which taxed upper income tax and dedicated the money to education and health care was very loosely crafted. Voters believed, and rightly so, that there was no requirement that the state limit revenues to those specific areas (they could cut funding from other sources).

I think it is sheer speculation to try and guess as to whether or not voters would choose between a tax increase and the destruction of the safety net. Over the past three years a lot of polling what done on this very question and the results were a toss-up. But I think it would be irresponsible to take the option off the table. The voters should have choices that they can clearly understand.

The Cold, Mean Season

2010-11-21T14:08:00.000-08:00

Seattle's only remaining daily newspaper went on a rampage against an income tax initiative that would have imposed a 5% tax on households earning more than $400,000 or single payers over $200,000 for single (At 5%, the wealthiest 5% among us would be paying less than they do in the people's republic of Idaho, less than in Oregon and less than in California) They argued vehemently that we need to cut programs not raise taxes. And they are argued just as vehemently that we need to increase education spending and for God's sake we need more funding for the University of Washington. What's left to cut? Well, according to the Times and many Democrats and Republicans alike, government waste and special interests.

Hardly. What is left is the Basic Health Plan which provides health care to low income working families. The Security Lifeline Program which provides heath care and a very small living stipend for the mentally ill and those at the very bottom. TANF which provides income support and more importantly child care so low income mothers can actually hold a job.

Apparently, the voters agreed with the Times and voted down the income tax which would have been dedicated to health care and education. They passed an initiative that would require a 2/3 vote for any tax increases. They vote to cut taxes on candy, and pop (equal to about the funding level for the security lifeline). No taxes screamed the conventional pundits. We need to reset to a new smaller government.

Hmmm. Smaller for who? Smaller for the least fortunate among us. Smaller for the sick who have lost jobs and their health care benefits. Smaller for the mentally ill who are wandering the streets without medication. Smaller for mothers who, without child care, who can't afford to work.

It's a cold, mean season in Washington State.

How did education reform ever get so anti-teacher?

2010-11-20T14:27:00.000-08:00

I'm amazed at how most education reform efforts seem to neglect the importance of harnessing the ideas of teachers in turning many of our troubled schools around. The generic education reform argument seems to go that teachers and the school system they work in, have gotten so bureaucratic that we have to start over. We should provide state funding for the creation of new charter schools where stripped of union contracts and complex rules, we can start to gets things moving.

To me this is terribly ironic. After all, one of the first proponents of charter schools was Albert Shanker, President of the American Federation of Teachers in 1988. Shanker's idea was that groups of teachers would be able to run their own school within regular schools and pursue innovative ways of educating disaffected students. Released from contradictory legislative dictates and complicated school district rules, teachers would be able to innovate and solve tough problems.

Shanker's idea was that a group of six or more teachers should be able to submit a proposal to start a new school. They would be able to try out different ways of teaching to reach students who weren't responding to what schools are currently doing. Proposals would be reviewed by a joint teacher and school district panel. The approved schools would be given 5 or 10 years to try out their ideas and progress in the programs would be shared with others. If a method was particularly successfull, districts could bring the new ideas to scale.

We need to turn this education reform equation around. Instead of measuring performance to reward and punish teachers, we need to harness the power of teachers to innovate and teach in new ways and bring what we learn to scale.

One Way to get the economy moving again

2010-11-11T09:41:00.000-08:00

The Deficit Reduction Commission co-chairs have come up with a big solution to the long term budget deficit of the federal government. Their proposals simplifies tax rates but raises revenue by eliminating loopholes, it raises the retirement age, cuts Medicare and Medicaid spending, cuts the defense budget and slashes domestic spending. And most importantly it reduces the deficit from 8% to 2.2% of GDP.

This is a heavy lift but Democrats have done it before. The Clinton administration cut the Reagan/Bush deficit and left Bush II with a surplus.

And the details of a final package will not likely look like this one. But the co-chairs draft report puts a lot of major pieces on table where everyone shares the pain and lays out the parameters of the solution.

This is a big deal and could very quickly get our economy moving again for two reasons:

1) The long term solution should allow Congress to move forward on an immediate stimulus. We need a stimulus to get the economy moving. Insuring that the stimulus will be made up quickly with future cuts makes this feasible. It's all about timing. You can't cut spending now. That would be idiotic. That would lead to a double dip recession. But you have to close the deficit in the future in order to keep interest rates down and avoid inflation. So, you jump start the economy now and when it starts moving you start cutting.

2) Passage of the deficit reduction plan will assure markets that long term investments are a good bet. As our deficit grow bigger and government borrowing sops up a bigger supply of credit in the economy, we run the risk of ramping up interest rates and creating another recession.

A short term stimulus and a long term deficit reduction package are the key to avoiding a double dip recession and getting our economy moving again.

We need to pressure Congress to get this done and done quickly. Do we have the political courage to move forward?

Not a Republican tide, not 1994, not In Washington

2010-11-04T18:55:00.001-07:00

Despite the deepest recession in 70 years, legislative Democrats evaded the sweep that impacted much of the rest of the country.

The simple fact of the matter is that while Democrats lost seats, 3 to 4 in the Senate and 4 to 5 in the House (one race in each is subject to recount), the change is far below average for off year elections for the part in power

With very few exceptions, since the founding of the state, the party of the President loses seats in the state house in the next off year election. The House is a better state weather vane since only half of Senate seats are up every two years.

At this point in time, under Democratic President Obama, House Democrats have lost 4 to 5 seats and still hold a commanding lead in the state house 57 to 41 - a sixteen vote margin.

In previous off year elections the party of the President has seen bigger losses. in 2006, the Republicans in the Bush era lost 7 seats and in 2002, 3 seats.

In the Clinton days, Democrats lost 27 seats in 1994 (1998 and 1990 appear to be anomalies probably because the previous tide was so big against the party of the President) . In 1986, under Reagan, Republicans lost 20 seats and in 1982 they lost 11 seats.

During the Carter year, 1978, Democrats lost 13 seats and in 1974 under Nixon, Republicans lost 5 seats. In 8 of the last 10 elections, the party of President has lost seats and the average is 10.4 significantly higher than 2010.

Despite the horrible recession and the off year election of the party of the President, Democrats did pretty well.

Who will take a risk for these kids?

2010-03-31T07:07:00.001-07:00

Government risk taking sure sounds like an oxymoron and it's a damn shame that most of the time it is.

Several years ago, Dr. Norwood Brooks, President of Seattle Vocational Institute started the "Career Link" program that offered high school drop-outs an opportunity to go back to school and get their GED. More importantly, the program was integrated with getting these students a certificate in a trade that would lead to a good job. Students would go to school studying for their GED exam at the same time that they enrolled in a pre-apprenticeship, office or health care programs. Over half of the 400 students enrolled graduated - a major accomplishment since without the program none of them would have.

Enter the Seattle School District. An attorney with the district told the college that the program was a problem since since the students weren't enrolled in a "high school graduation" program (it was a GED/Trade program) that the students would count against them when calculating their results for No Child Left Behind. Scores were bad enough and the last thing they need is more penalties associated with failing schools (the accounting applies to the district the students would have been enrolled in rather than the college) They indicated they could no longer support the program. No risk takers there.

Elsewhere in the state the State Auditor enters the picture. His bean counters looked at the law and interpreted it to say that the program didn't lead to the statutorily defined high school degree consequently it was inconsistent with state law and could not utilize state funds. No risk takers here either.

Student advocates went to the legislature and worked on a bill that would have required school districts to enter into contracts for these program or the colleges could go elsewhere for approval. However, last year, the Senate Ways and Means Committee staff successfully argued that if the legislature passed the bill, that more students would be enrolled in school and that would cost the state more money. The bill died in committee. No risk takers here.

This year, to get around the Ways and Means staff, a watered down bill was sent to the committee. The bill doesn't require school district to allow drop-out retrieval programs but creates a process where it is more likely to be approved. The bill passed but college leaders were told that the process of just writing the rules and and going through the public process would take over a year. How long it would take to negotiate with the school districts beyond that is still and open question.

The bottom line here is that when it comes to taking care of our most at - risk kids, the adults aren't wiling to take any risks.

I think there is something more here I will explore in future blogs - how do you encourage risk taking by public servants? How do you allow people who care and work on the front lines to take the risks needed to solve real public problems?

This year

Washington State Ranks at the Bottom on College Continuation

2010-03-11T13:22:00.000-08:00

We Washingtonians have a pretty high opinion of ourselves. We host some of the most knowledge intensive industries in the world from Amgen and Fred Hutch to Microsoft and Amazon. And we hang out in some of the swankiest coffee places in the world like the original Starbucks or Tullys.

Before I throw a bunch of statistics at you let me get to the point. We are doing very poorly when you look at the percentage of high school graduates who continue on to college. When you factor in high school graduation rates - it looks even worse. Only a third of the 9th graders in Washington end up as college Freshmen.

According to the National Center for Higher Ed Management Systems, we rank 44th in the country in college continuation. Less than 45% of public and private higher school graduates were enrolled as freshmen in any post secondary education program. If you want to take a longer look, like the percentage of 18-24 year olds enrolled in post-secondary education, we rank 45th.

Ok. Here is where it gets really depressing if you factor in high school graduation. Looking at number of fall first-time freshmen enrolled anywhere in the U.S. divided by the number of 9th graders four years earlier, we rank 47th. Only about a third of the freshmen are in college in year 13. The national average is 42% and the top 5 state average nearly 60%.

What do we do about this? A few years ago the legislature directed the workforce board to do a survey of financial aid specialists, employment office job staff and students themselves as to what the barriers are to post secondary enrollment and completion, the biggest barrier was financial aid followed by lack of information on how to navigate college and work.

There's been a lot of talk about providing a free 13th year of education at a community college or university and the House Economic Development Chair, Phyllis Kenney and Speaker Frank Chopp have created a program called Opportunity Grants that is designed to reach this goal of a universal 13th and 14th year with income support and navigations services. But budget cuts have stymied both of these efforts.

The City of Seattle working with our school district, community colleges, foundations, business, labor and community groups need to own this problem. Our whole community needs to own it. Perhaps we should set goals for our city schools and colleges, identify best practices to get there and combine our funds and see if we can make progress.

Educational Attainment - Years of Post-Secondary Education

2010-03-11T10:58:00.001-08:00

Portland economist Joe Cortright has done some interesting work with a new measure of metropolitan educational attainment known as years of post-secondary education (YPSE). This measure provides a broad measure of education that includes people who have received associate degrees and professional certifications not just bachelor's degrees or higher.

The YPSE is defined as the average number of years post-secondary education completed by persons aged 25 and older and is based on the annual American Community Survey.

Seattle/King County fares pretty well using this measure. The average YPSE is 2 years as compared to 1.9 in Portland or 1.58 in Phoenix and we rank 8th among metropolitan areas in the country.

The weakness of this measure as a benchmark for success is that for an in-migration city like Seattle, we may end up taking credit for the attractiveness of our environment rather than the achievement of our own schools.

Today's workforce is tomorrow's workforce

2010-03-10T21:27:00.000-08:00

The biggest bottleneck to our economic recovery might be the lack of skilled workers in key sectors of our economy. If we don't have the skilled workers in the clean energy, global health, business services and other growing industries, we could lose competitive advantage to nations who are investing in these industries now.

What do we do? First of all, we have to recognize that today's workforce is tomorrow workforce. Our workforce turns over at between 1% and 2% per year. That means that for at least the next 26 years, workers already working will still fill a majority of jobs.

This means that we have to up the skills of low skilled workers so they can fill the higher skilled jobs. This is going to be a challenge. Workers under 34 have lower education levels than those over 34 (we may the only country in the world with this problem). Demographically, immigrants are the fastest growing portion of the workforce and in many cases language skills are lacking.

The state legislature is struggling with funding retraining for dislocated workers and state budget cuts are reducing capacity at community colleges. We have a lot at stake here. Something has to change.

Career Pathways

2010-01-24T16:36:00.000-08:00

One of the best investments we can do as we recover from the recession is make investments in the jobs of the future. Green jobs are likely to be the driver of the next wave of economic growth. As we prepare for this wave, we need to think about how this next wave can benefit all of the citizens of our economy. The Green Jobs job ladder at South Seattle Community College provides the kind of career pathway that all or our citizens can benefit from.

Students out of high school or adults seeking new careers can start out with a one year certificate in energy management that can give them employment in good jobs with decent wages. If they stick with it and go back to school in science, math and business organization, they expand their potential by getting an associate degree in building science. Finally, they can continue on and get a Bachelor of Applied Science in Building Management. Building Trades workers in apprenticeship programs or with journeyman status can move up into management positions via the associate and bachelor's programs.

The beauty of this is students can start at the beginning and work their way up over time. The missing piece is the Bachelor's Program in Building Management. Hopefully, the legislature will address this problem this session and help open up career pathways for all of our citizens.

Education and Lifelong Learning

2010-01-24T11:21:00.000-08:00

I've been involved for a number of years in the field you could call professional and technical education policy. That arena focuses on the middle skill jobs in our economy that make up about half the jobs openings in the labor market and require specific skills from education programs in technical and community colleges. Research indicates that these are the job in most demand and probably make the most difference in regional competitiveness since the job market is local not global. If you don't have trained R.N.s, machinists, chefs, landscape architects, electricians and accountants you are unlikely to import them from elsewhere. We have to provide the education and training in order to find these workers.

The major problem we have is that the education for these jobs general takes one to three years. Post secondary education but not the general qualifications of a bachelors' degree. When a person finishes the program and gets a job, they lack the requisite degree to move into management positions.

Going off the a university to start a four year degree makes little sense. This approach doesn't recognize current experience and education and isn't entirely relevant. Universities generally don't have management or technical programs that connect directly to jobs in the construction trades or culinary arts degrees.

This is what Bachelor of Applied Technology degrees come into the picture. Community colleges can offer higher level programs that connect directly to their career and professional programs and allow them to move up the job ladder.

Unfortunately, the state has limited the number of these degrees largely due to opposition from some universities. While they don't provide the relevant programs they are concerned that community colleges will turn into competitors in other program areas. I think most community college applied technology administrators understand this and would accept rules that limit expansion to only the programs that link to specific career ladder professional and technical programs.

There is a bill in the legislature this year that allows the expansion of Bachelor of Applied Science degrees. HB 2655 and SB 6355 will be up for a vote in committee next Wednesday. This is a step in the right direction that will help lead to a system of career pathways through lifelong learning.

National Strike?

2010-01-23T07:10:00.000-08:00

When labor represented a larger share of the private sector, they were able to effectively use strikes to slow down the economy to force the resolution of issues they felt needed attention.

Today, only capital has that power and finance capital is using it. Yesterday's Wall Street Journal headline "New Bank Rules Sink Stock" tells the story. Two years ago, America's bankers brought the national economy to its knees throwing millions of people out of work and forcing government to slash the safety net designed to help the poor and unemployed. In response, the President advanced rules and legislation designed to reign in reckless behavior.

This is the dilemma that Obama faces and the impact on Congressional Democrats is dire. If Obama comes down too hard on banks and finance capital they will strike. The animal spirits of capitalists will become depressed. They will hold back investments and hamper the recovery. Whether that is a conscious choice or an effect is irrelevant.

However, if he doesn't come down on them, the American people will be angry and will take it out on Congressional Democrats. You can see it in the headlines and hear it on the streets. They don't hear us and they don't listen.

Behavioral and neuroscience tells us that people respond to symbols and emotions not ideas and policies. The recession was either caused by reckless finance capitalists or the political incumbents. Is Obama's only responsible choice to back off, lose seats and lose the ability to achieve much of his agenda?

The return of the Northwest Republican?

2009-12-23T18:46:00.000-08:00

Like the Northeast, the Northwest was once characterized by the strong presence of moderate Republicans. Three term Governor Dan Evans was the poster child for Republicans who respected government, managed it well and tried to pragmatically balance opposing interests. Olympia's triumvirate of Lt. Gov. Joel Pritchard, and Senators Evans and Gorton represented the majority in the middle. Oregon was represented by moderate and pragmatic Bob Packwood and Able Lincoln liberal Republican Mark Hatfield in the U.S. Senate.

Republicans changed not the electorate. Slade Gorton, a long time environmental advocate was frustrated by the lack of recognition by the environmental community for his accomplishments in wilderness protection, clean air and clean water. He moved abruptly to the only side that consistently backed him - timber and rural interests. On issues like spotted owl and old growth forests he moved from solving the problem to using the problem as a symbol for rural Washington versus Seattle. He mounted a new Republican strategy called "surround King County" that focused on a coalition of economic conservatives, rural business interests and the religous right built on populist opposition to elitists and special interests in the city. On the old growth forest issue he even managed to suck in the Bush administration. Unfortunately, this new coalition was no longer a majority.

The Gingrich revolution swept into power a more extreme right group of Republicans united by far right religious ideology and rigid free market doctrine. As their majorities slipped away, the ideologues maintained control of the party caucuses and moderates like State Senaors Rodney Tom and Fred Jarret changed parties.

Today, Republicans represent only the two most rural congressional districts and only a third of the state legislature. These small minorities work against them. The remaining members represent only the purest districts generally rural and socially conservative. Lacking any swing districts in their caucus, their caucuses gain their energy from focusing on opposing environmental regulations, religious opposition to gay rights, and pro life. Out of touch with middle.

Obviously, this course isn't sustainable. Democrats have controlled the Governor's mansion in Olympia for 27 years now and at some point Republicans are going to attract a candidate who can rebuild a majority or come damn close. Attorney General McKenna appears to fit the bill.

McKenna manages hundreds of government attorneys in Washington State who represent state agencies and protect consumer interests. More than any other statewide elected official, McKenna commands the respect and admiration of his staff. My friends and neighbors in the A.G.'s office in Olympia believe that he listens to them and does his job well. Think about it for a minute. Government lawyers in Olympia are pretty much liberals right out of the box. This is no small feat and the mark of an excellent manager.

The man is bright, articulate and like the iconic Northwest Republican Gordon, he comes off as a bit serious perhaps even nerdy. His focus is laser picking up simple, symbolic issues which generate a lot of heat but not controversy; open government, public records, Internet safety, I.D. theft, methamphetamine abuse, and consumer protection.

McKenna does this without cutting his ties to the right. He recently sided with another 12 Republican Attorney Generals in calling the President's health care reform unconstitutional because it "buys off" Nebraska Senator Ben Nelson's with a special Medicaid subsidy for that state.

Environmentalists argue that he also parts company with traditional Northwest Republican moderates on environmental issues. While on the King County Council he was known by many as a strident property rights advocate.

The question is can McKenna appear to stay in the Center and win the in the primary? If Republicans manage to block a more conservative primary opponent he won't have to face the consequences of moves to the right to win in the primary hurting him in the general. How many of his more conservative King County green votes will count against him in the general?

McKenna is not the only successful Republican who has recently held statewide office. Former Commissioner of Public Lands Doug Sutherland was an excellent manager and a policy mediator in the Northwest Republican tradition. Secretary of State Sam Reed has resisted efforts to use his office to tip the political balance to the right and has followed the tradition of his true blue Northwest Republican Ralph Munroe who managed the office effectively and efficiently.

The bottom line is that Washington State likes moderates and will elect them...as long as Republicans are able to nominate them. Right now, surveying the field for the 2012 Governor's race, McKenna fits this bill better than any other name mentioned in both parties.

Why it is wrong to tax business services

2009-12-06T07:24:00.001-08:00

There's a lot of talk about taxes in preparation for the next legislative session. Given the nearly $3 billion deficit on top of last year's bigger budget cuts, this isn't surprising. But this should take some serious thinking. Taxes actually can have a positive or a negative effect on an economic recovery.

I can think of two positive effects. One would be taxing things that aren't good for us. These are called sin taxes and raising their price actually decreases their sales. Cigarettes are a good example. A 50 cent per tax would cut consumption but still raise money.

The other positive effect is the impact of a tax on net spending. If you put a tax on wealth where let's say 2/3 of it are spent and the other 1/3 saved, and then used the money for funding general assistance to the poor, the economy would have a net boost in spending and we would be better off.

There are lots of taxes that would have a very negative effect on the recovery. One would be a sales tax on services like lawyers, accountants and architects. The logic is that these services are retail sales like buying clothes are a car.

This is doubly wrong. Most business services simply are not retail sales. They are sales from one business to another. A small software company in Redmond would likely by all three business services mentioned above from other small businesses. This is double taxation and provides a disincentive to go out of the firm and purchase these services. Double taxation distorts economic decision-making and is simply unfair.

The biggest wrong is the impact of a nearly 10% tax on the competitiveness of the business services. The state input output model shows that over half of business services are exported out of the state. Since we would be the only state taxing them we would have a 10% higher cost than any other state or country. One hell of a disincentive. Seattle's biggest industry is business services and it is one of highest paid sectors of the economy. Bad idea.

The Bottleneck in the Recovery

2009-12-02T16:07:00.000-08:00

As our economy is beginning to grow again we are finding that the new jobs that are growing not the same as the jobs that have been lost. The new drivers of our economy are green jobs, technologically transformed health care and high value business export services like accounting, engineering and architecture.

However, to make the transition to this new economy we are going to have to close the skills gap in those new fields. Workers in the job that have been lost need to be retrained to fill the jobs that are growing. Even during the depth of the recession, we already saw unfilled vacancies of 10,000 jobs in health care fields, 2,500 in IT and and 500 in accounting and financial services in Washington State. As the economy picks up the skills mismatch will get worse.

What happens when employers can't find the skilled workers they need? In 2007, 4,000 firms reportedly moved at least some of their operations out of state to get the work done. Of 15,000 firms surveyed, 20% indicated that lack of skilled workers reduced their output, a third said it lowered productivity and and 14% indicated it reduced quality.

The problem is that there is no room at the inn. Washington State's Community and Technical Colleges run the Worker Retraining Program that provides money for instruction, tuition and fees for unemployed workers seeking new skills. The program is swamped with participants serving nearly twice as many students as the colleges have capacity and an equal number of students are unable to find openings in programs that they need to get a job.

Lack of capacity at our state's community and technical colleges to retrain workers for the jobs of the future could be the bottleneck that slows the recovery.

An Early Economic Indicator You Can Count on

2009-11-29T07:30:00.001-08:00

The Wall Street Journal reported this week that overtime increased 6.5% from September to October and 14% from the previous quarter. This is a clear sign that the economy is on the move and is a fair substitute for employment growth. In fact, a measure, aggregate hours worked, might be a better indicator to watch then employment growth itself. Firms generally increaes overtime before they are confident enough to hire workes to meet increased demand for their products. That is why unemployment is a lagging indicator and can continue to decline or stagnant even as the economy moves forward.

That doesn't rule out the possibility of a W recession. The problem in housing is no longer sub-prime loans. The problem is after a long period of unemployment, workers have difficulty making mortgage payments while only earning unemployment benefits. With unemployment not expected to peak until next summer, these loans could create the worst wave of foreclosures yet.

It is time to debate legalization of marijuana

2009-11-28T10:42:00.001-08:00

Marijuana is perhaps the nation's fourth largest cash crop with an estimated value to growers of $15 billion to $20 billion a year and a street value twice that. In Washington State, just the value of crops seized by law enforcement made it our state's 8th largest crop.

You have to admit that we haven't had much luck stopping the harvesting sale and ingesting of the drug. The $10 billion in annual law enforcements doesn't seem to have done much good. On top of that, medical marijuana has resulted in a near legalization of the product that makes enforcement of other criminal laws confusing at best.

But all of the income from this crop goes to criminals. Many of them dangerous gangs and local mafia who use revenues to support more heinous crimes. And none of it is taxed. There is an estimated 400,000,000 pounds of marijuana produced in Washington State. If the state were to regulate and tax the stuff it could collect another couple of billion dollars a year in revenue.

The mid-term revenue picture for Washington state is pretty bleak. If you think government is too big and we need to cut back on the services government offers that's a good thing. But there is a good argument to make that we cannot support our higher and K12 education system or health care for children and mental health services within current declining revenues.

The alternative would simply mean raising taxes. The chance of getting an income tax passed by the voters is small and even if voters approved, a positive review by our current elected supreme court is next to nil. We already have a 9.5% sales tax in Washington State and another tax hike would take us up over a scary 10%. It's hard to argue for increasing business taxes when sales are low.

We at least have to have a debate about the need for government services, a fair tax system and the legalization of marijuana. Like alcohol, marijuana has many problems that need to be considered. But you have to ask the question can we deal with these things better if it is regulated. We need to debate this.

A Rocky Road Ahead

2009-10-24T15:13:00.000-07:00

We have a long way to go if we are going to create enough jobs to get us back to where we were before the four quarter of 2007. Since that time the economy has shed 7.2 million jobs.

The most recent forecasts (from the Washington State Revenue and Economic Forecast Council) would indicate that it would take us until the end of 2012 to replace those lost jobs (Using the most recent economic forecast by our state's Economic Forecast and Revenue Council for 2009-2011 and assuming 3% growth in 2012). Unfortunately, the labor force will continue to grow during this period - probably by nearly another 6 million jobs - thus unemployment could continue to be high.

The Wall Street Journal paints an even more dire picture. For them, assuming today's slow growth rates it will take us to 2016 to replace lost jobs - a very unlikely scenario. (perhaps poorly thought through).

There are two scenarios here. One is that the forecasts are wrong. That employment growth will be more similar to previous recoveries growing at 4 to 5% each year over the next couple of years. For example, using the 1982-85 employment growth rates, we would be very close to the pre-recession employment rate by the end of 2012.

If the forecast is right, we need to be aggressive about unemployment insurance policies, the safety net and job creation. As aggressive as we have ever been before.

Science and the American People

2009-10-23T19:10:00.000-07:00

Ok. now I'll tell you what I'm really nervous about. Science and the American people.

A Pew Memorial Trust poll on climate change released yesterday indicated that the percentage of Americans who believe that the climate is warming has fallen dramatically in the past year. Now only 53% believe there is evidence of warming down from 75% a year ago. More importantly, less than 40% believe it is human caused.

This stacks up with other polls that indicate that only a third of of Americans indicated in a CBS News poll believe in natural selection. Pew points out that both of these numbers contrast with polling of scientists who all believe the climate is changing and 84% believe it is human caused.

97% of the scientists surveyed accept the theory of natural selection.

Science and the scientific method is what separates us from superstition and barbarism. This is a problem we need to think about.

Science and the scientific method is perhaps the most

The Political Economy of Recovery

2009-10-23T18:05:00.000-07:00

As the 2010 elections near, Republicans are trying to argue that the stimulus was a failure and today's high unemployment is the proof. The fact of the matter is that the economy is starting to pick up but employment growth always lags overall economic growth. Jobs are the last thing to pick up as employers try to meet rising demand with what they've got. As I pointed out in my previous blog, the last big recession, 1980-82, had high unemployment for four years after it ended.

The current recession started mid-way through Bush's second term - in the fourth quarter of 2007 and may have ended in the third quarter of 2009. The recession started and was the longest lasting recession in decades when Bush left office.

The irony is that as the 2010 elections are looming, unemployment is likely to peak at 10.5% next summer and could still be at or above 10% around election time. This could be very bad indeed for Democrats throughout the country and it could be very bad for the entire country.

First of all, the party of the Presidency almost always loses seats in the off year election. In Washington State, the party of the president lost seats in 23 of the last 29 off year elections

Secondly, even if the economy is starting to grow, 10% unemployment will touch a third of the population and probably enough to tip key races in swing districts.

This is bad for the country because this recovery is likely to remain fragile for the next year or so. As Republicans blame the high unemployment on the failed stimulus and rail against big deficits, public support for renewal of stimulus spending is likely to wane. We could then find ourselves in the second V in W shaped economic recovery if the economy falters.

How can Democrats head this off? Obama has already started off in the right direction looking at extending unemployment benefits and the first home buyer tax credit as well as some lending incentives for small business. State legislators could look at unemployment benefits as well.

Democrats could also try and meet Republicans half way and look at some tax breaks that actually work. Senator Derek Kilmer proposed a job creation tax credit last session that gave small businesses a $3,000 tax credit for each new job they create. Washington state actually taxes the labor used in construction at nearly 10% a temporary tax credit could incentivize investments. Years ago, Congress enacted a Investment Tax Credit that allowed companies who invest within a short period of time a 20% tax credit. GAO research indicated that this was a tax break that actually stimulated investment.

The Big W recovery

2009-10-22T18:03:00.000-07:00

There actually was a worst recession since the great depression than the current one. That was the recession of 1980-82. This was a double dip recession where inflation-adjusted personal income in Washington state fell by 11% in the first quarter of 1980, recovered for a year and then dropped again by another 13.7% through the end 0f 1982. This is the famous W recession that some economists are now predicting for the U.S. The economy drops, recovers and drops again. A W recession could last for another year.

The recovery from the 1980-82 recession was a jobless one. Unemployment peaked at over 12% in the last quarter of 1982 and exceeded 20% in many rural timber counties. Unemployment didn't fall below 10% for over a year after the official end of the recession and remained above 8% for another three years.

Economists are expecting a similar scenario for the current recovery and many expect it to be worst. China appears to be the force that is actually lifting the world out of the downturn. India, the Far East and most of Europe are clearly on the upswing. We are lingering behind but exports to the rest of the world are likely to increase new business investments and expand exports. This should at least increase the number of hours each employee works and perhaps create new jobs as well.

But we may soon see a new wave of foreclosures, not related to sub-prime loans but from extended period of unemployment. Furthermore, the nature of unemployment has changed as well. The percentage of the unemployed who are considered by employers "permanently unemployed" is the highest in history. On top of that, the average length of unemployment is now 26.2 years - higher than than both the 75 and 80-82 recession. This combined with a lack of political will for a second stimulus package could be the second V in the W.

A new way of doing things

2009-10-12T19:20:00.000-07:00

My mother lived for 34 years in Fond du Lac, Wisconsin. A few years ago, the Sisters of St. Agnes built a new college from scratch named Marion University in that town. What I remember the most about the college is that the President of the College didn't build the sidewalks until a semester after the school opened. He waited to see what paths the students actually took and then he paved them over.

We could learn a lot from his efforts in the world of social services. The confusing and complicated maze of "help" we provide to citizens in tough spots requires folks to go to at least four different locations to find the services that might help them out. Once they get there, the staff in those offices are only able to deal with the programs that they actually work for and can only refer them on to other forms of assistance. A women with kids whose husband ran out on her leaving her with nothing might take an hour to get to a state welfare office. But the person in the office might not be aware of the job services that might be available at a state job service center or the opportunities for scholarships and living expenses to go back to school at a state community college.

A lot of people give up and end up dependent on a form of assistance that just might not be right for them. And it's pretty damn expensive to serve someone at four different locations.

This problem is getting worse. More and more people are slipping into the safety net at the same time budget cuts are tearing it. We need to rethink how we do this.

Tomorrow morning at 10 a.m. at North Seattle Community College we are going to see a ground breaking on a building that will allow us to do things more efficiently and more effectively.

After several years of concerted effort by the agencies and the state legislature, work is about to begin on a new project to provide seamless services that will have all four agencies in the same building, working together with the single goal of getting people back to work.

We are going to ask the people who work for all those agencies to work together to figure out the pathways that the people they serve actually walk. What do people actually need? What would be most helpful?

The all-in-one location will streamline services related to employment services, basic skills education, career training, unemployment insurance, food stamps, child support, transportation services, welfare, health care and other state aid. Metro has even taken steps to re-route a bus to take people right where they need to go. There will be a Sound Transit station across the street. These are new and better paths.

The Worthy an the Unworthy

2009-10-08T19:43:00.000-07:00

My previous blog was about the "vulnerable" and the "newly vulnerable". To many Americans another way to describe this would be the worthy and the unworthy. The worthy are those hard working Americans who work hard, play by the rules but just lose their jobs or their homes through no fault of their owns. We out it to give them a hand up. The unworthy are those people who have ongoing economic struggles above and beyond the recent recession. They made bad decisions and are now paying the price. Giving them a hand out would merely make it worse.

I'm sure there are cases of people who are just lazy who are looking for a free lunch. But most of the people who receive social and job services in normal times are people who struggle with mental issues, suffer a form of disability or found themselves stranded by an abusive husband or bankrupted by health care costs or other unforeseen events. Recently attending a meeting on siting a homeless shelter near downtown, a cop told the audience that he would break this population down into thirds. A third are people who just had bad luck. Temporary economic problems that will likely get back on their feet again. A third were people with treated or untreated mental problems who just couldn't put it together. And a third were criminals or vagrants who didn't want to work.

I'm not sure that last third figure is fair but you get the idea. The problem is political. The bottom line is that in America the poor are not popular. Republicans have successfully demagogued against Democrats by linking them with the unworthy poor. Look at the recent health care debate. Republicans have picked up a lot of support by arguing that extending health care to the "poor" will result medicare benefits being cut, or middle class health care costing more. Listen to any of the town hall meetings and you will hear people get up and talk about "the poor choices those people made".

Republicans have capitalized on the "face of the poor" since George Wallace was so successful in winning over blue collar Democrats in the mid to late 60s (see the Emerging Republican Majority by Kevin Phillips). The poor simply don't look middle class. They are often darker, less likely to speak English, and in the case of the mentally ill they just don't look right. An easy target for sure.

Democrats from tough districts know that being seen as helping the poor or the vulnerable is political suicide. What's curious is that despite the negative ramifications, most Democrats persist. At a recent State Senate Democratic retreat, Sen. Darlene Fairley described her values as "making sure those at the bottom don't get screwed." That was clearly the most widely shared value at the retreat.

A lot of the political budget game in the legislature has been Republican efforts to expose Democratic investment in social services that would be better spent on tax cuts or k12 education spending. Perhaps the best example of this has been efforts by right wing Democrats and Republicans to require that 50% of the budget be required to be spent on education. These legislators knowing full well that this effort would result in a 20% cut from the rest of the budget - namely social services.

The Vulnerable and the Newly Vulnerable

2009-10-08T14:43:00.000-07:00

One of the state's most respected public policy and anti-poverty advocates is Troy Hutson, the head of the state department of Social and Health Services Economic Services Division. Troy is from Guyana and is an attorney and an RN who created a a model education and jobs program with the Washington Hospital Association.

We are in a very tough situation right now where the state is making sharp and painful cuts in the safety net at the same time more and more people are falling out of the middle class and into the torn net. Troy pointed out that the inability to serve these "newly vulnerable" isn't the only problem.

Another problem is that the "existing vulnerable" populations of struggling families, mentally ill, disabled and other citizens are being displaced by a new wave of people previously ineligible for services - the "new vulnerable".

Community college classes targeted towards students struggling to move up the job ladder into higher wage jobs are now competing with better qualified students who have lost their jobs in more traditional industries. I'm told that 30% of the students entering the one year Licensed Practical Nurse Program already have Bachelor's degrees. Students trying to move up from 6 week Certified Nursing Assistant programs are being displaced by better qualified students.

New immigrants, the disabled, mentally ill and people who struggle with addiction or who are trying to recover from other misfortunes are now competing with better educated and savvier folks who recently lost their jobs.

I'm not suggesting that we caps these programs but we need to think this through. Clearly, one thing we need to do is rethink how we operate and fund our social net.

Reasons to Be Cheerful Part 2

2009-09-20T17:12:00.000-07:00

The economy is on the rise. The Dow finally passed 9800 and all the leading indicators are up. As one would normally expect, lagging indicators like unemployment will continue to rise even as the economy recovers as employers wait for greater certainty before increasing hiring. But in the mean time, business investment, and exports are on the rise.

Another reason to be cheerful is the decline of unproductive labor in the finance industry. Over the past decade, some of the best and brightest minds of our generation went into the financial services industry to create products that duped people into thinking they could afford them. The percentage of workers in the finance sector doubled between 1996 and 2006 and as recently as 2007, 40% of the graduates of Harvard and 30% of MIT graduates went into the finance industry because that is where the big money was. Now less than half that number is going into that unproductive industry.

This could be a real boon for the economy. Innovation is what drives our economy forward. If our our best and brightest brains are engaged in the creation of new businesses that make new products that fullfill real demand we have one more reason to be cheerful.

Questions of 2009: What does it mean for 2010?

2009-09-14T20:16:00.000-07:00

The most consistent trend in American politics is that in economic terms, the bottom third of voters vote Democrat and the top third votes Republican. Despite all the recent rhetoric about the so-called, "liberal elite", the trend has only strenthened in the past decade or so as better information has moved allegiances away from family and region to ideology.

Consistent with this voting trend is the values of the underlying parties. Democrats tend to support government policies that help the middle class and those at the bottom. Republicans tend to support policies that minimize governments' role in the economy. Not surprisingly, Democratic values are more consistent with labor unions and Republicans with Business.

Given these facts, it should be no surprise in 2010 if the Democratic legislature moves to compensate for some of the "bad labor votes" that were taken in the 2009 session. Boeing has made it clear that state policy is no longer the issue in terms of their future plans and as the state emerges from the recession, unemployment not business climate could become the big issue.

The other boomerang issue is obviously going to be budget and taxes. With the shackles of Initiative 960 off, legislators are free to raise taxes without a vote of the people. There are good reasons to be believe that increases in sin taxes like alcohol or cigarettes would be popular and could go a long way towards reducing cuts to essential programs. However, anything beyond that will have to face up to the very tough election coming up in 2010.

Senate Democrats have at least four tough races coming up and House Democrats at least twice that many. While control is unlikely to be threatened, the current majorities may not be sustainable at today's levels. More importantly, off-Presidential year elections are tough for the party in the White House. In Washington state, in 23 of the last 29 elections, the party in power in White House has lost seats in the legislature. This is going to make it hard for legislators from tough districts to take risks.

Whether or not the ending fund balance from the 2009 session is going to hold up or require more cuts in truly an open question. The last revenue forecast indicated that even bigger cuts would be needed. More recently, revenue collections were down a bit. However, there are 3 more forecasts till the legislature leaves town and the economy is likely to be looking up. My guess is a wash.

Big Questions of the 2009 Session

2009-09-13T16:21:00.000-07:00

The other major question that loomed over the 2009 legislative session was whether or not Boeing would begin to move their operations out of state. The previous Fall, Boeing and the Machinists engaged in a strike that cost the company billions of dollars and left workers in the lurch for weeks on end. Boeing's top brass told the Governor and legislative leaders that "Chicago" (company headquarters 'out of state') was considering moving at least some of their operations to South Carolina. They indicated that the bad labor climate and the cost of doing business in Washington was making the state "uncompetitive". The local brass told leaders that they were fighting the move but needed some evidence to convince "Chicago" that things were changing.

There was a lot of talk about this. Mostly negative and quite awful. But again, it came down to one simply question. In the midst of the deepest recession in 28 years, do we risk losing our state's oldest and largest industry? Countless discussions and meetings bantered back and forth as to whether Boeing was just bluffing and trying to extort another billion or so out of the State or whether the threat was real. For the most part the debate was not ideological. It was real. People didn't know the answer.

There was a lot at stake. Labor had been pushing a bill that essentially banned companies from requiring workers to attend meetings on union issues when unions didn't have the same access (that wasn't the on the surface debate but that's what it boiled down to) . Boeing argued that given the recent strike, that if the legislature passed this bill it would be difficult to keep the company here. The unions argued that it was a matter of choice and privacy. In the end, many of the elected officials were simply unwilling to take the risk that Boeing might not be bluffing.

The other issue had to do with unemployment benefits. The legislature had just passed legislation providing a major increase in unemployment benefits to workers as an economic stimulus. Despite the recession the unemployment trust fund was still healthy and business demanded a tax cut as well. Labor was wiling to stay neutral on a tax cut but wanted to reclaim cuts in benefits they endured from previous legislative sessions. The impact of labor's proposal would have been to significantly reduce tax cuts for business. Labor argued that in a recession, spending, not tax cuts was the best stimulus. Business would just sit on the money from the tax cuts. Boeing argued that unemployment costs in Washington were uncompetitive.

In the end, a majority of legislators (perhaps a third of the Democrats and all of the Republicans) again decided they were unwilling to call Boeing's bluff.

Labor has not forgiven legislators or the Governor for backing off of either of their proposals. In the end, we still don't know what the right answer is. Boeing still could move a lot of their operations despite the strong support they received from the legislature in Washington.

A very important side question has to do with Boeing's 747 debacle. Their biggest investment, which the state of Washington plunked down a couple of billion dollars to support, was way behind schedule. They fired the VP for their commercial airlines division last week. But it's also beginning to look more and more like the union and the state business climate could be a another scapegoat for their own outsourcing and management errors.

The definitive questions of the 2009 session - Budget and Taxes

2009-09-13T15:58:00.001-07:00

Thirteen legislative sessions have taught me that to really understand has happened or is about to happen during a legislative session is to find what the big questions are. The populists among us believe that you just have to figure out what the special interests want and then figure out who buys who and who sells out to who. Others like to see it as a battle of political wills as political leaders both houses, both parties and the executive branch vie for power to enact their own agenda.

I think it's a lot simpler than that and a hell of a lot less interesting. Quite frankly, most of the issues before us come from somewhere else and just land on our lap. Last session was the rule not the exception. A deep recession resulted in both job losses and a deep decline in revenues.

There were a lot of zero sum game type questions on the budget. Like how much do you cut the items you actually have discretion over. The House cut Higher Education and social services more and the Senate did less in education. These sorts of little battles were important but not definitive.

The definitive question was do you give the voters the opportunity to cut less and raise taxes a bit or do you cut deeply and then leave town. Many House and Senate Democrats believed it was just plain wrong to cut tens of thousands of people off health care and to send homeless people back into the streets. At the same time labor groups wanted to mitigate the impact of cuts on teachers, prison guards, college faculty, home care workers and nurses.

Legislative leaders started meeting with stakeholders as early as November and did a half dozen polls between January and mid-April. What was fascinating was the results, spread over that time period, with three different pollsters yielded consistent but indeterminate results. No matter what the tax was and what it funded, a solid 45% was against it. And no matter what the tax was and what it was used to fund, 49% to 54% of the public supported it. Making things even more determinant was the the only 15% of the public were strongly supportive of taxes. The anti-tax sentiment wasn't much stronger.

In mid-stream, several major stakeholder groups looked at the results and put their cards down and folded. They didn't see a referendum to the people worth the investments. Others wanted to do more polling and trying wording the questions differently and changing the tax or dedicated fund. Nothing changed and ultimately, most of these groups came to the same conclusion. Possible but not likely. Legislative leaders polled their members and results were close but mixed as well. It was all pretty logical and in the end damn boring.

Searchers and Planners

2009-08-26T21:58:00.000-07:00

William Easterly's 2006 book, "The White Man's Burden" is an excellent guide to the problems and opportunities of western foreign aid to the developing world. He also develop a great analytical tool for public policy in general.

Easterly sets the stage by dividing into planners and searchers. Planners start at the top, set goals and develop global blue prints to achieve them. Searchers look at the problem from the bottom up, and seek specific workable solutions to the specific problems.

For Easterly, planners announce good intentions but don't motivate anyone to achieve them. Searchers find things that work and get some reward. A planner thinks he knows the answers and develop technical engineering solution to achieve them. A searcher hopes to find the answer only through trial and error and experimentation. Searchers could find ways to make a specific task work if they could concentrate on the task itself instead of the big plan.

I think that Easterly's nomenclature is a great analytical tool for public policy at all levels. Obviously, few policy solutions fit perfectly into each category. However, the answer does not lie somewhere in the middle.

Action and experimentation are the only ways to actually test an idea. And look at a problem from the ground level is the only way to develop the idea. Let me provide an example. In higher education policy, we have been trying to find a way for financial aid to effectively get students through college. We could start at the top and figure out how much it costs a student to get through college and then look the income level of the student and then multiply that number times the number of students. This would be a very expensive number.

Or you could start at the bottom and figure out what is happening with individual customers when they try to figure out how to access a college education. You will find that the amount of aid available is a huge problem. But probably not the place to start. College financial aid staff on the ground level are tearing their hair out trying to figure out who is eligible for what. And students often give up in frustration figuring out what they are eligible for and how to find it. The biggest problem reported by students is lack of guidance.

A large part of the problem is it is too complicated and discouraging. A solution would lead you to spend a lot of time figuring out how to simplify it and how to market it to people so it motivate them to make to take advantage of what's available.

There is a connection between searching and planning. That might be best practices. Learning from what works on the ground and sharing it with others could provide ideas that could be adapted to similar problems elsewhere. The danger is that funders might be tempted to create a cookbook of cookie cutter approaches that determine what approaches they will fund in the future. This would discourage way to many new and good approaches to solving problems.

What does the Movie Pineapple Express, and Financial Markets have in common?

2009-08-25T12:50:00.001-07:00

I recently saw a funny movie called the Pineapple Express. In one scene in the movie, the guys trip on a twig, startle themselves, get scared, run into a tree and fall down a hill. These guys are of courses stoned out of their minds.

This reminds me a lot of financial markets. Oh my God, unemployment claims are up. Sell, sell. Oh no, now the stock market is down. The economy is going to hell. Sell, Sell. GDP growth isn't falling as fast as it was. Buy, buy. Oh no inflation could be a problem. Sell.

Here's the problem. Theses guys aren't stoned. Sure, a lot of them create the roiling market in order to profit from the changes one way or another. But them and the rest of those short term thinker having been killing us.

Economists have been predicting since last Fall that the economy will hit bottom in June and then pick up slowly. Nothing has changed. However, the concern is now business and consumer confidence. What is creating the jitteriness? Maybe these guys should get stoned. It might actually calm them down.

Lost in the maze of higher education

2009-08-24T15:06:00.000-07:00

A few years ago I sat in a seminar room discussion with a dozen or community college workforce deans and financial aid officers along side of a group of executive and legislative higher ed staffers. The financial aid officers described how they were tearing their hair out trying to figure out how to fit students into a financial aid puzzle that would work for them. They felt the programs were confusing and complicated. The staffers responded that it really wasn't a problem. For them, the financial aid folks just didn't know how to do their jobs.

Every two years the state Workforce Education and Training and Coordination Board does a participant survey of students at Washington's Community and Technical Colleges. Not surprisingly, students were least satisfied with the advice they received on selecting programs (interestingly enough, the time and location of the classes was not nearly as difficult a problem).
In the same survey, the services students felt what they were truly missing were financial aid, job search assistance and career counseling. If my memory serves me correctly, college and career counseling has shown up as the top concern in these surveys for at least the last decade.

As part of the initial design of the Oopportunity Grant Program, the legislature asked the Workforce Board to survey financial aid officers, WorkSource Staff and students as to the main barriers to enrollment and retention of students in workforce programs. Overwhelmingly, the major barrier identified was financial aid followed by information on career possibilities and advise on how to navigate the college system.

Until recently, little attention was paid to this problem. In 2006, through the Opportunity Grant program, students receiving the grant also carried with them an FTE allotment to cover the costs of counseling and career placement as well as other support services. Student retention more than doubled during the first year of the program. More recently, the Gates Foundation, SkillUp (A Seattle Workforce funding collaborative) and even the President's Council of Economic Advisers have begun to focus their thinking on dealing with this issue.

The President's advisers are looking at focusing Federal Job Service Centers (WorkSource in Washington) and federal Workforce Investment Act programs (Workforce Development Councils in Washington) more on long term career coaching and less on short term job placement.

The whole notion of career pathways is beginning to take root at the Foundation, Federal and Community College level. This is not only an effective model for student success but in the end will save time and money as students are less likely to waste time in classes that don't give them what they need. Maybe, just maybe, the people who run the state's welfare program, TANF, will be paying attention as well.

Preparing for the Green Wave

2009-08-10T19:15:00.000-07:00

Today’s economy is starting to recover. What are the forces that will begin to move our economy back into prosperity? Historically, periods of economic growth were created by new investments in entirely new economic innovations that spurred the economy forward by creating new demands for goods and services.

The most likely candidate for the next wave of economic growth is the green economy. An emerging consensus on the definition of the green economy is: “The green economy encompasses the economic activity related to reducing the use of fossil fuels, decreasing pollution and greenhouse gas emissions, increasing the efficiency of energy usage, recycling materials and developing and adopting renewable sources of energy.”

One of the main barriers to expansion of this sector is the lack of a skilled workforce. While the green sector is expected to grow 4 times faster than the rest of the economy, even in today's downturn, college classes are full and money for expansion is limited. While there is now very good data on the sectors and occupations related to green jobs, there is not a clear idea among educators and policy-makers about which new jobs and careers are just around the corner.

In Washington State there is an estimated total employment of nearly 50,000 direct green jobs which equals roughly 1.6% of state employment.

How to we maximize the benefit of the coming Green Wave? How do we ensure that all of our citizens benefit from it? How we position our society to best prepare?

If you look out on the horizon you can see some areas of the economy that are going to grow rapidly that are green driven. Nationally, Green Jobs are expected to grow by 52% over the next 7 years as compared to 14% for all other jobs.. Analysts believe that many of the jobs will be in commercial and residential energy efficiency where 70% of the new jobs will be in construction. Right now, any growth in this area will simply pull unemployed construction off the bench. But, within a year or so, as construction begins to recover, we will see significantly more job openings than we have workers.

This put us in an investment dilemma. Do we start pre-apprenticeship programs to ensure that disadvantaged kids can get the jobs and that we can actually start doing the work when the economy picks up? There's a risk. When will the jobs start to pick up?

Beyond this, there are already 1,700 job vacancies in engineering, architecture and installation and positions for environmental engineering technicians as well as electrical power line installers are already in high demand.

Other jobs that are expected to grow rapidly include:

Power engineers and computer technicians to design, manufacture and maintain new SmartGrid systems.
Machinists, electricians, operators and maintenance technicians for renewable energy production, operation and maintenance.
Farm workers and process technicians for the cultivation and processing of bio fuels and biomass
Alternative transportation designers and maintenance workers.
Recycling and waste management operators and technicians.
Organic farmers, farm workers, urban agriculture land use planners and green roof designers in sustainable agriculture and horticulture.

Community colleges and universities currently offer over 100 unique course titles and green jobs and 60 certifications programs for green jobs. However classes are already full. There is some new money from the U.S. Department of Labor that could be used to expand capacity as well as provide new offerings. However, the amount of direct aid for college classes is limited. At the same time, no new state money has been provided for green jobs and community college and university programs have been cut dramatically to balance the state budget.

If we are to get ahead of the curve here it is absolutely essential we start off by creating a dialogue between the scientists, investors and business leaders who are in the process of creating the new green jobs of the future and the educators who need to provide the professional and technical programs that can lead students to the career pathways for those jobs. This dialogue could include a review of recent research but more importantly gain insights into the "big ideas" that are likely to drive the future.

Once we have a firm understanding of the whole picture; both the existing data and research, and the futurists insights into what is coming up, we can outline the educational program needs. And most importantly, we can begin to inspire and engage young people to pursue green careers.

The Jobs of Tomorrow

2009-07-30T14:29:00.000-07:00

Mary Jean Ryan just sent me a link to an outstanding report from the President's Council of Economic Advisers entitled, "Preparing the Workers of the Today for the Jobs of Tomorrow." The report outlines the jobs likely to grow in the next five to ten years and makes recommendations as to how we can be prepared to take advantage of the opportunities in the global economy.

The Council points to a promising future for Washington State. First of all, we are well positioned to take advantage of the jobs of the future.

First of all, the authors project that a higher household savings rate will hamper aggregate demand. However, other types of spending will fill the breach namely exports and business fixed investment. Trade deficits will narrow and exports will increase. Washington state is the most trade dependent state in the country. Increased exports will bolster our state's aerospace, software, woods products, business services and metals industries.

Overwhelmingly, health care dominates the projected job growth over the next decade. This bodes well for both Spokane and Seattle who are both regional health care centers and Seattle a hub of medical research. Even in today's deep recession, there are nearly 10,000 job vacancies in health care in Washington State.

Strong growth is also expected in construction. Much of that growth will be related to clean energy and environmental protection. Environmental related jobs are expected to grow by 52% as compared to 14% for all other occupations. Jobs such as environmental engineering technicians and electrical power line installers and repairers are already going begging. Some 81,000 new jobs in energy efficiency are expected in Washington State over the next 30 years with construction accounting for nearly 3/4.

The third area of growth the report focuses on is air transport and aerospace. Aircraft mechanics, service technicians, aerospace machinists, service technicians and mechanical drafters are expected to see significant job growth. The trick here will be to figure out how to ensure that Boeing's commercial airline production continues to center in Seattle.

The report emphasizes that the job most in demand are in occupations that require an associates degree or a post-secondary vocational award. Employment growth in those arena's exceeds that of jobs requiring a bachelor's degree or higher. Contrary to conventional wisdom the Council argues that these jobs yield similareconomic returns as bachelors degrees.

The report touts Washington state as a national leader in workforce education pointing to the state's worker retraining program and the I-Best program which combines ESL and basic skills with job specific training.

The recommendations echo many of conclusions reached by other researchers and practitioners within the last year:

First of all, the system needs to be simplified. Everything from financial aid, to career planning as well as the design of federal programs is so complicated it is amazing they work at all. Financial aid officers at Washington Community Colleges and WorkSource centers tear their hair out trying to sort through financial aid or support service opportunities.

Secondly, education and training should be linked to jobs and job ladders that allow people to move up the career ladder over their lifetime. Career pathways can be mapped out as early as middle school and post secondary programs should help students navigate the course offerings that lead to a specific jobs. Obviously, for this to work, there have to be very close relationships with employers and educators.

Finally, education and training needs to be more flexible. The vast majority of the workers our economy needs in the next 20 years are already in the workforce. Our education system needs to be accessible to people who are working full time and have family obligations. The pedagogy and the curriculum needs to tuned to different types of learners as well.

Washington state look well positioned to take advantage of the changing economy and it appears that we have already made many of the right decisions on how to get there.

An Opportunity Agenda?

2009-07-07T14:31:00.000-07:00

Over the past five years I've had the privilege of working with Rep. Phyllis Kenney and Speaker Frank Chopp on a program known as Opportunity Grants.

Currently, the program is a pilot project that is serving nearly 4,000 students at community and technical colleges throughout Washington. The program has had a student retention rate of over 80% exceeding that of all other programs.

In this blog, I want to layout the overall vision of the program to share the initial plan in the hopes of jump starting thinking on how to move forward from here.

The original legislation funded two studies to identify the barriers to enrollment and completion in professional and technical education programs. Researchers interviewed financial aid officers, Work Source counselors and students

The research was pretty clear. The number one barrier was lack of financial aid. Number two was the lack of career coaching on college campuses. Students were unable to navigate the college system starting with figuring out the financial aid system, getting help with their studies and getting information on how to find a sequence of courses that would lead to a real job. The third barrier was a lack of support services.

In 2006, legislation was passed that provided $23 million in funding for Opportunity Grants. The grant is sort of a hybrid of some promising low income and TANF programs designed for low income students and Hope Grants in Georgia.

The original legislation had three components:

1. A basic grant was provided to cover tuition, books, tools and fees. The bill recognized that the costs of books, fees and tools most often exceeded tuition expenses. The idea was that the students could then use their Pell Grant for living expenses.

2.. An FTE enhancement for each student that went to the college to provide for career coaching and support services. Higher Education funding in Washington state assumes that the highest cost education is at research universities and the lowest cost at community colleges. The problem with that formula being that low income working adults face the biggest barriers to completion and the cost of effectively serving those students is not recognized in the funding formula. The Opportunity Grant provided an additional funding for each FTE in the program to cover coaching, counseling and support services.

3. The bill created Opportunity Partnerships that linked students receiving grants would link up with employers or apprenticeship councils that would provide internships, work-study or apprenticeships for participating students. This section of the bill was not funded and thus vetoed by the Governor in 2007. However, in 2009, Rep. Tim Probst sponsored HB 1365 that put the program in stautute.

As originally drafted, the bill was designed to be phased in from a pilot to a universal program. While taken out of the bill the bill that passed it had a life of its own in during the Governor's Washington Learns programs as a universal 13th year.

The program offers a funding model for much of the new thinking we are seeing at the state and national level. If you add two more components to the program you could have a comprehensive model.

The first addition would be to link the program to changes in curriculum, instruction and delivery of programs that embeds development education within professional and technical programs. Many students are unprepared for college level work but are unable to sustain the long period of time to complete developmental programs. Linking the two creates a career pathway that could be more effective.

The second would be to tightly link the grants to the needs of business. In 2002, we funded a study that interviewed businesses in each industry and region of the state on what colleges could do to more effectively meet the needs of business. Business leaders indicated that what they needed were college instructors who knew their industry. This research led to the The Center of Excellence program at the state community college board. The role of each cente was to identify for each major industry in every region of the state curriculum and instruction that is designed to meet the needs of industry.

Are we on the right track?

The Network Capital Index

2009-06-29T20:03:00.000-07:00

I ran into Egils Milberg, the executive director of the state Economic Development Commission, at Starbucks today and as usual he had a great observation.

He is looking for some measure for the amount of network capital individuals or organizations have. Network capital would measure how much a person or company is working with or talking to people outside their own organization.

Egils has a national reputation in the field of innovation and economic development. I think his notion is that innovation comes from interactions between networks of people working in similar industries but for different companies or or in different occupations. They expose each other to new ways or thinking or new ideas which lead to creative solutions and help get themselves out of the same old rut in their thinking.

A measure of network capital could be something as simple as the percentage of e-mails you send that are outside of your organization or the amount of time you spend outside of your office working with other organizations.

This notion is definitely relevant to economic development. But it also makes sense in my small niche in the world. Running a legislative office, one of the characteristics I would like to see in staff people is the ability to learn things from people outside their normal routine. To get exposed to new ideas and hopefully develop new solutions that would not see in their normal everyday routine. Ideas are the lifeblood of politics and right now it sure looks like we are short of them.

The Vanishing Wage Premium

2009-06-25T16:20:00.000-07:00

From the 1980s through the 1990s, the returns to education rose steadily each year. The education premium, the increased earnings that students earned for additional years of education increased steadily upwards.

Since 2000, the wage premium for education has held up. Students earning bachelor's degrees are earning 2.1 times the salaries of those who haven't finished high school or 1.6 times that of high school graduates.

What's new in this decade is that the premium is actually shrinking. Between 2000 and 2008, wages for high school dropouts have actually increased above the rate of inflation. Wages for students with bachelor's degrees actually declined. The differential is small, less than 3%, but clearly the premium is no longer rising.

Business Week argued in an article last week that the decline could be due to the lack of innovation in our economy over the past eight years. Fewer new ideas and fewer new products is resulting in lower returns to education. Another argument is that competition from Indian and China in information technology and other knowledge industries has brought down the wages of American workers at the top end. Others argue that we are seeing an oversupply of baaclaureate degrees. Or it could just be a data flaw.

A Return to Innovation?

2009-06-24T22:24:00.000-07:00

Business Week ran a frightening article last week entitled, "The Failed Promise of Innovation". Author Michael Mandel asks the question, "What if outside of a few high-profile areas, the past decade has seen far too few commercial innovations that can transform lives and move the economy forward? What if, rather than being an era of rapid innovation, this has been an era of innovation interrupted? And if that's true, is there any reason to expect the next decade to be any better? "

Innovation is the ultimate leading indicator and our prosperity is dependent on being able to develop new and better products that can move the economy forward.

We have seen waves of innovation create jobs and growth starting with electricity, the automobile, and information technology. Unfortunately, the latest wave of investment was in financial "innovation".

I would argue that we are headed in the right direction. In the past decade it is has been the parasitical growth of the financial sector that has sopped business school talent, resources and time that could have been better spent investing in ideas that lead to real products and real jobs.

As we unwind the damage of the finance sector, we may return to innovation. Smart people will move to new sectors like clean energy, biotechnology or nanotechnology. Investors will spend time and money developing new products. There is a good reason to expect the next decade to be better.

What's Wrong with Private Sector Investment?

2009-06-16T14:09:00.000-07:00

In the 2008 campaigns, in the recent legislative session and in Congress there has been a lot of discussion about stimulating the economy. Interestingly enough, almost all of the conversation was confined to either mitigating the impacts of the recession on the unemployed, or massive government spending on infrastructure. Stimulating private sector investment was rarely if ever mentioned.

Early on the Obama administration considered and the State Senate passed legislation to provide sizable tax credit for job creation during a limited time period. The whole idea was to provide an economic advantage to invest now versus waiting for a year or two. This would start moving the economy forward now and move us out of the recession into recovery when such assistance would no longer be needed. The Obama proposal was dropped and Sen. Kilmer's job tax credit bill died in the House.

In the past Democratic administrations have looked at one or two year limited investment tax credits where companies could get 10-20% credits from federal taxes for each dollar they put in new investments. The state of Washington could have gotten much bigger bang for buck for forgiving sales and B&O tax credits for new investments for that short time period as well. Sales taxes at nearly10% could be a make it or break it question for some investors. Another time limited approach would be to temporarily suspend regulations or expediting permitting for all projects that begin in the next two years.

Instead, all of the effort was on the demand side of the equation. Policies to increase unemployment benefits or create job by building public projects were designed to increase consumer spending.

What was missing were trade, tax and regulatory policies designed to provide an incentive for private sector investors to step off the sidelines and back into the real economy. There are a couple of reasons why this makes sense.

First of all, stimulus comes from both consumer spending and in business spending on new investments. The latter has a greater long term effect by inducing spending now that will benefit the economy in the long run. Secondly, private sector in key export industries creates new jobs from sales to consumer and businesses overseas. This has the added effect of lowering interest rates via the trade deficit but also improves our position in the global economy in the long run.

Some remarkable progress was made in helping stimulate investments in clean energy and the green economy. This could very well become the next big wave to drive the economy forward. But Washington has competitive advantage in many other industries that we cannot afford to ignore.

Unemployment, Foreclosures and Homelessness

2009-06-14T07:09:00.000-07:00

Foreclosures appear to be more related to unemployment than to the cost of mortgages. A paper last week posted the National Bureau of Economic Research argues that when it comes to foreclosure, how expensive homeowners’ mortgages mattered – but not as much as other factors.

The paper compares the impact of high debt to income ratios at the time the home was purchased to unemployment as a factor in foreclosures. The study found that ten percentage point increase in a household’s mortgage debt increases the chance of delinquency by 7% to 11%. A one percentage increase unemployment income ratio increases ups the odds to 10-20%.

The longer unemployment is high, the greater the chance of foreclosure. Although we may have reached the bottom of this recession, foreclosures could continue to rise since unemployment is generally a lagging indicator.
We may not have seen the worst of it yet.

The ultimate lagging indicator may be homelessness. I have been unable to find research relating changes in unemployment and foreclosures on homelessness. However, it seems logical that the toxic combination of high unemployment and foreclosures could drive those at the margin into homelessness.

“What do these findings suggest for foreclosure-reduction policy?” the economists write. “One suggestion would be to focus a program on the effects of income volatility, helping people who lose their jobs get through difficult periods without having to leave their homes.”

We need to reexamine the safety net to meet this challenge.

Wisconsin and Washigton: : Same budget problem, different response?

2009-06-13T08:23:00.001-07:00

Washington state is often compared to Wisconsin. Both states have comparable populations, income levels and a similar rural/urban divide. Wisconsin too is struggling with a huge budget deficit. State revenues in April 2009 are 35% below collections one year ago. Washington's decline is a bit less.

After finishing my last piece of walleye at the fish fry last night, I picked up a copy of the Milwaukee Sentinel and got a pretty good idea of how they might be different.

The State Assembly yesterday began moving a budget that includes a new tax bracket of 7.75% for those individuals with income over $225,000 and couples over $300,000. The budget includes a cigarette tax hike of 80 cents a pack and a new tax on oil companies that raises a quarter of a million dollars. These are all ideas that were considered in Washington but perhaps blocked by Initiative 960.

They also made some bigger cuts. State workers not only were denied COLAs and steps but the assembly budget would cut pay by requiring 8 furlough days per year.

Perhaps the new taxes made the difference, but what most important divergence was how Wisconsin handled access to health care at a time where unemployment is over 9% and private health care coverage is declining. The assembly budget will increase access to their health care plan by 100,000 people. Similar plans have been proposed by the Governor and the State Senate. Meanwhile, in the State Senate they continue to labor away on comprehensive health care reform.

The whole thing isn't cooked yet but they seem now to be going down a different path.

The move to federalism

2009-06-11T08:37:00.001-07:00

Friends reporting back from D.C. can't believe the tremendous amount of energy and hope they feel in our nation's capital The old timers say they haven't seen anything like this since the Kennedy days.

This contrasts sharply with the aftermath of the last legislative session in Olympia. Obviously, one big problem is that we can't print money. Massive budget cuts hurt and take all the wind out the sails for policy initiatives.

I believe that enthusiasm and hope are more powerful than the money. When believe they can do something they often find the way to do it. This is probably the key driver of the return to federalism.

But there still may be some hope at our state capital. Several individuals and organizations are starting to take a hard look at tax reform. State Senator Karen Keiser is coordinating with the Obama administration on a state approach to health care reform and we are starting to see some action on green jobs in Washington state.

But for now, the energy, the money and the enthusiasm is in the other Washington

A Return to Federalism?

2009-06-08T11:17:00.000-07:00

There are two contradictory motions going on in government in the U.S. At the federal level we are seeing a policy leadership, innovation and huge fiscal investments. Meanwhile, states are undoing much of the federal stimulus by massive cuts in the safety net, and cutbacks in higher and K12 education. State dreams for innovative financial aid for colleges, health care reform, tax reform, education reform and climate changes have taken a back seat to simply salvaging what they have from budget cuts.

The federal impetus has been driven by necessity and a major change in the mood of the nation (not mention the ability to print money). Necessity is the mother of invention. The financial collapse and consequent recession has the forced the Federal government to act swiftly and decisively. This action was enabled by a major change in the mood of the country. The fruits of deregulation and devolution led to financial collapse and public opinion moved decisively towards and larger role for government in stimulus and regulation. In the midst of this downturn we have seen the election of the most activist and proactive president in nearly 50 years.

These conditions and the deteriorating financial situation of states is could lead to a return to federalism. The Reagan Administration started a downsizing of the federal government and a devolution to the states which has gone on for some 25 years. In the next 25 years we could see it again in reverse.

The Future is So Bright (I gotta wear shades)

2009-06-03T22:04:00.000-07:00

Washington State may be in it's current fiscal crisis for a few years to come according to the Rockefeller Institute and a Wall Street Journal analyst. Donald Jay Boyd, senior fellow from the Nelson A. Rockefeller Institute of Government was quoted in today's Wall Street Journal , that "State tax collections could take five years of more from when the recession began in December 2007 to recover to precession levels."

Journal writer Amy Merrick modeled the course of state tax collections after the start of the recession in the above chart. In 1981, 1991 and 2001 recessions revenues did not return to the precession level for as long as five years. Since population, school enrollments, nursing home slots and overall human service caseloads will grow during that period, our budget deficit could increase.

I blogged earlier on the recovery of unemployment rates in recessions. Looking at the most recent deep recession of 1980-1982, unemployment remained above 9% for three years after the recovery began. Not surprisingly revenue recoveries mirror the course of unemployment rates.

We also face the problem in Washington that our shortfall fixed by federal money ($3 billion) and other one time fixes (roughly $1.6 billion). Cuts amounted to a drastic $4.3 billion reduction.

This of course means that we could start off in a $5 billion hole in the next biennium given current conditions. If the Rockefeller Institute and Wall Street Journal analysis applies now our plight could be worst.

Another tax reform idea

2009-05-24T20:43:00.001-07:00

The property tax is supposed to be a tax on wealth. The idea is that the more wealth you have, the more you pay. But it isn't. For individuals, the tax only applies to the wealth or assets each taxpayers has in their home. For most Washingtonians, almost all of their assets are in their home.

Most of the assets in our state are held in the form of financial assets such as stocks and bonds. Unlike the value of assets held by individual homeowners, the vast majority of these assets are owned by those at the top. The top 1% in America owns 42% of the financial assets and the top quintile owns 92.5%. This form of wealth is known as an intangible asset (as compared to the tangible asset - your home). Guess what? Intangible wealth is exempt from the property tax.

One approach to tax reform would be simply take away the exemption. Since the valuation of financial assets on an annual basis is difficult to measure, the tax would take the form of an in-lieu property tax. The tax would be based on a proportionate value of the income to the asset. This is exactly how are state leasehold excise tax is applied to property that is leased. Since it is difficult to apply the property tax to the value of leases, the tax applied to the in-lieu income from the lease. This tax is constitutional by any measure.

The end result would be a tax system that is fair. The problem would be that the tax would fall disproportionately on senior citizens whose income is entirely based on their savings. This would require a property tax exemption that evens the playing field.

If you're worried that this is some kind of soak the rich populism, take note that a 3% tax on intangible income would be lower than the income tax paid in all of our neighboring states including the People's Republic Of Idaho where they would be 7%.

If we were unable to pull off an intangible property tax we ought to at least take up the idea of a homestead property tax exemption. Most states exempt the first fifty to one hundred thousand or so value of a home from the property tax. Like the intangible property tax, this makes the tax system more fair and more progressive. Given our sales tax dependence which has made our tax system the most regressive in the country, this just make sense.

There is more than one way to tax reform.

Tax Reform: If not now, when?

2009-05-23T18:51:00.000-07:00

Washington's tax system is a disaster. Unlike other states, the tax system is based on inability to pay. Higher income residents pay a much smaller share of income in taxes than the lower income residents and every analysis shows that it is the most regressive tax system in the country. No state is as dependent on the sales tax as Washington since we have no income tax. The only other states without an income tax are significantly less depedent on the sales tax. These states get most of their revenues from oil and gas severance taxes or in the case of Nevada, revenues from gambling. Washington is the anomaly.

Meanwhile, the sales tax is highly volatile and grows more rapidly in a boom (creating more spending) and declines more rapidly in a bust (devastating government services). Furthermore, the portion of the sales tax base you can actually get at is shrinking as untaxed services have become a bigger proportion of the economy thus the tax is inelastic, not growing at the same rate as income.

Business taxes are regressive as well with a business and occupations tax that is imposed based on gross income rather than profits. New businesses are taxed heavily as they struggle to become profitable as they grow.

The income tax has become the third rail in Washington politics with politicians of both parties fearful of even saying the word. But clearly the biggest problem is the courts. In the past, the elected state supreme court has ruled that income is property and must follow the constitutional guidelines that property taxes must be uniform. Thus, reforming our tax system would require a 2/3 majority of each house and a vote of the people Likely story.

The argument that income is property is antiquated and bizarre. Before income taxes became the norm in the 1930s, state courts in many areas of the country ruled against income taxes making the same argument. Only Washington jurists may have "stayed the course".

There are several attorneys who argue that perhaps we should take another run at it. The court would have the opportunity to review the income as property argument and perhaps catch up with the rest of the country and perhaps even reviews changes in economic analysis since the 19th century. Maybe they will realize that in both economics and accounting there is a different than income and an asset. It's a least worth a try.

Sen. Lisa Brown made a valiant attempt to put income taxes on the agenda during the recent legislative session. While public opinion polling looked good, during the legislative session allies were unable to commit since revenues would come in far to late to stem the budget cuts this session. Setting up a progressive tax system would take over 18 months.

As the smoke clears from the legislative session, this could change. This could be the time.

Unemployment as retooling

2009-05-22T12:36:00.000-07:00

David Wessel is the chief economic editor for the Wall Street Journa. In David's Thursday column he argues persuasively for unemployed workers to enroll in community college job training programs in lieu of looking for jobs that don't exist.

The biggest problem we are facing is that a record 46% of the unemployed have been on benefits for at least a half year. According to Wessel this is bad for the economy as their skills atrophy and employers balk at hiring people who have been unemployed for a long time.

He quotes Harvard economic Lawrence Katz, "But when people are out ff work for a long time, they become discouraged and stop thinking of themselves as the in the labor force. Keeping them connected to they think they're still workers is important."

Wessel points out the Barak Obama is pushing states to enact programs that encourage workers to enroll in professional and technical programs at community colleges.

Business Week reported earlier in the month that there are actually three million jobs that employers are actively recruiting for and are unable to fill. According to Peter Coy, "it's evidence of an emerging structural shift in the U.S. economy that has created serious mismatches between worker and employers. People in the shrinking sectors such as construction, finance, and retail lack the skills and training for openings in growing fields, including accounting and health care...As bad as it is now, the mismatch will create bigger problems when the economy begins to expand again. "

Washington State is way ahead of the curve here. The state's worker retraining program is the largest in the country now serving at least 14,000 students and providing programs designed to retool skills. The state also provide up to two years of unemployment benefits when workers are in retraining.

Sen. Jim Hargrove passed legislation this session that doubled the size of the program and linked it more carefully to the the federal Workforce Investment Councils. Since demand for the program has already stripped seats at colleges, Hargrove vows to do more next year.

A flexible labor movement

2009-05-21T08:24:00.000-07:00

Jonathan asked me to explain what I mean by the flexible labor movement described in my last blog. For me that means using what ever organizing and bargaining model that is sustainable and leads to an increase in union density

A good example is SEIU 925 who organizes both workers and owners to work in partnership to advocate for high quality child care. SEIU's home care division has broken new ground by creating a new framework for organizing and bargaining for a large number of home care workers who work as sort of independent contractors. Many unions have been successful with regional industry bargaining where the union signs a contract with employers but don't bargain over the contract till a majority of employers sign up. This ensures that employers who are union don't have a competitive disadvantage with nonunion employers.

A bad example might might be the IAM strike last Fall. While the objections of the union to the proposed Boeing contract might be justified, the strike in the midst of a deep recession cost the company billions and may have turned Boeing against Washington state as a location for future expansion.

Where are we headed as a state?

2009-05-20T14:28:00.000-07:00

I had a provocative conversation today with my friend Denny Heck this morning on the future of Washington State. We wrestled with the question, where are we headed?

A few things jump out and set the stage for thinking about the question.

First of all, we are in one hell of a fiscal mess. The state does not have the dollars to compete in the future. We ended up this year with a record budget deficit that equalled about one-quarter of our maintenance level state budget. We filled the whole with about $4.0 billion in cuts, $3 billion in federal stimulus dollars and another $2 billion in short term fixes. The bottom line, we are likely to be in the same mess in two years as we are in now. Right off the bat, the federal stimulus dollars are unlikely to be there and the $2.5 billion in short term fixes won't work for four years in a row. In 2011, we are unlikely to find another $2.5 billion in short term fixes. We start off in a $5.5 billion hole. Can we grow out of this. I don't know.

Meanwhile we have cut shredded our safety net and damaged both our k12 and higher education capacity with cuts to college faculty, teachers, health care for the working poor and services to the mentally ill, disabled and the poor.

Secondly, our economy is down but we are well positioned for a recovery. We are well set for employment growth in the next big wave of green jobs and clean energy. Our information technology industry based on employers like Microsoft, Amazon, Adobe and many others looks stable and growing. Our health care industry is anchored in federal research dollars at the University of Washington, a strong research based biotech industry and a powerful health care cluster in Spokane. Our diverse and high value-added agriculture industry is likely to continue to be our state's biggest industry with value-added and wages rising as it becomes more tech dependent. Our industries have decades of experience in the global economy and we have become the most trade dependent state in the nation.

Thirdly, we face big questions with many of our traditional industries. Boeing has already moved their corporate headquarters out of the state. After a bruising strike last Fall, the Chicago company has threatened to move new lines of commercial airline production to nonunion states.

Weyerhauser and much of the forest products industry is facing a major upheaval that could transition more of the industry out of the state into the South, Russian and parts of Asia.

Finally, unemployment is likely to remain high for another two to three years. Income inequality in our state is at the highest level since statistics have been kept and cuts to the safety net threaten to make it worst. Our tax system is the most regressive in the country. But we have a highly trained workforce and excellent institutions of higher education who have the potential to counter the trend if we can find a way to restore the knowledge capacity we have just cut.

We have tremendous problems but we also have all the ingredients for success. I think there are five key steps that need to be taken in the next four years. We need to:

1. Reform our tax system and rebuild our fiscal infrastructure.
2. Restore cuts to k12 education and higher education systems and make smart investments in education reform and in higher education instruction.
3. Continue to clear the way for a strong clean energy and green jobs sector to grow into our industry of the future.
4. Build a stronger and flexible labor movement in our state that can level the economic playing field and do a better job of building more stable relationships with our major employers.
5. We need to provide stable and workable incentives to retain our state's traditional industries.

I'm hoping to focus future blogs on each of these issues.

What do Yale and Dubya have in common?

2009-05-19T20:59:00.000-07:00

No. Not that he went there.

My daughter Mia is a junior in high school and is starting to look at colleges. She has visited a few and we've talked to a lot of folks about what the right school for Mia might be. She pretty much can pick the college wants but figuring out what is right isn't easy.

The one bizarre yet overwhelming academic wisdom about colleges is that the more selective they are the better thy are. The college acceptance rate, the lower the better like golf, is the key indicator.

I have yet to talk someone who has questioned the logic of this. Why is the measure of success for a college the level of selectivity? The default answer has to be that being amongst the "brightest" will make you even smarter. That the faculty can teach to a higher level and the academic dialogue with fellow students will be a higher level.

This argument is credible. But it is hard to imagine that those are the only factors that are relevant in learning. What about the quality of instruction or the diversity of student interactions? What is missing is an actual measure of the value-added that the college provides to each student.

The late columnist Molly Ivins once described George W. Bush has someone who was born on third base and thought he hit a triple. The same metaphor could be used to describe academia. Select the best students and then call yourself an elite institution. There just has to be more to it than that.

A mistake to avoid this recovery

2009-05-14T13:03:00.000-07:00

In 1973, monopolistic control of oils supplies combined with an Arab oil embargo led to record oil prices. Prices hit record levels in 1973 and continue to rise up until 1981.

High oil prices were believed by many economists to be responsible for the 1975 recessions, the deepest since 1948. President Carter responded by creating a new and powerful Department of Energy (reminiscent of Bush's Homeland Security Department) to develop a national energy independence strategy designed to ween us off foreign oil and into alternative energy. Billions were invested in research and development of new energy technologies.

Smaller, more fuel efficient Japanese cars began to penetrate the U.S. market and Congress passed fuel efficiency standards to try and move the U.S. auto industry into the future.

Prices continued to rise until the 1980-82 recession hit bringing the economy to a grinding halt. Demand for oil declined and prices plummeted to levels below the historical average. Sound familiar? To some extent you could say this is where we are now.

Back then, when the economy again began to grow, demand for oil again grew with it increasing imports of foreign oil soared to record levels. Investments in alternative energy were curtailed (largely by low prices) and Detroit continued to pump out even bigger and less fuel efficient cars and Americans kept buying them.

I guess the question is are we going to go through this again? What may prevent that is a national consensus, particularly among young people on the impact of burning carbon on the environment.

In fact, the best scenario for how we are going to get out of this mess is public and private sector investments in clean and alternative energy. A clean energy boom could look a lot like the last big technological wave, the tech boom in the 90s as businesses change their operating model and improved productivity through investments in information technology.

It could also look like a smaller reverse version of the post world war II auto boom that created the American middle class but also got us into this climate change mess. Instead of massive investments in automobiles, new suburban energy sucking dwelling requiring long commutes and the rise of huge parking lots in massive auto based shopping malls we could see their reversal. Sort of a bizarro 1950s (in superman comics, bizarro superman was the exact opposite of superman and bizarro America was opposite of superman's America. OK, OK., you have to read the comic book).

What could actually drive us forward could be investments mass transit, wind and solar energy, transit based housing and energy efficient homes and buildings.

But somehow I'm afraid it will take high oil prices to keep us on track. Really high oil prices.

What have we learned from the great recession?

2009-05-13T21:12:00.000-07:00

Sen. Debbie Regala from Tacoma asked the question in a Senate Democratic caucus meeting late in the session. What can we say that we have really learned from this great recession ? What are we going to do differently because we are living through this? We can we take away from this that will make us a better people?

That's a tough question. No one answered the question that day. We should know that things will be different when we emerge. But do we we know what is actually changing and do we have influence on it?

In the 1980-82 recession economic game changed entirely. At that time, our old economy transitioned to the new economy as our large mass production economy teetering under high operating costs and declining productivity floundered. After the recession, companies laid off a lot of workers and lowered their pay scale to save costs. They reinvested in new capital equipment that raised productivity on new scale through investments in electronics and information technology and that started to rebuilt America's competitiveness which had lost ground to the more productive Europeans and the Japanese in the previous decade.

This helped our economy emerge from the downturn but kept wages down for another decade or so and unemployed high for another three years. For the next decade productivity increased but wages did not and money moved from labor to capital on a massive scale.

This time are we on the other end of the scale? Does the now 25 years of a casino economy that rewarded handsomely risk taking and even greed now take a turn towards a more equitable society. Does the next round of productivity and growth come from investments in the green economy? Or do we begin to focus on family prosperity and stability over risk taking and high growth?

Definitely worth thinking about.

Safety Net for the Unemployed; the good, the average and the ugly

2009-05-11T16:16:00.000-07:00

No state invests more state dollars in the retraining of unemployed workers for the jobs of the future than Washington State. In the next fiscal year the state will be investing $38 million for starting and expanding community college programs in high demand fields like health care, aerospace and green energy - fields that even today have vacancies. More than 14,000 unemployed workers will be in training programs.

To help provide income support for these students, Washington state extends unemployment benefits for workers who are in retraining. Students can get unemployment benefits for a long enough time period to start and complete a two years occupational training programs. We are the only state in the country who has such a program.

Where we have lost some ground is how effective unemployment benefits have been in replacing the income they had in their previous job.

In the year 2000 workers who are unemployed in Washington on average were able to replace roughly 53% of their wages with unemployment benefits in 2000. At this point we were 7% above the national average. Today, we have fallen to 48% about a percent above the national average. The system in Washington state works better for low income workers. Workers earning less than $25,000 per year are able to retain nearly 2/3 of their income with unemployment insurance while those in the middle about 50%, those at the top 19%.

Where we truly have a problem is in the percentage of workers who are eligible for unemployment benefits. In 1994, over 55% of Washington workers who were unemployed were eligible for unemployment benefits, some 20% higher than the national average. Today, Washington has fallen to the national average of roughly 35%. Many people without jobs today simply get no benefits.

Here we may need to think this through a bit more. Many of these folks have ended up on welfare which has seen a 30% increase in caseloads. Others are facing a safety net that is being slashed in order to close our state budget deficit.

What is an economic recovery?

2009-05-10T20:02:00.000-07:00

The last big recession was in 1980-82 when unemployment hit a peak og 12.2% in November 1982. Unemployment is a lagging indicator and Washington state did not see unemployment below 8% for over three years after the peak. In 1983, economists proclaimed that we were in a recovery. Given the high unemployment, the question was, whose recovery?

Last Thursday, The Wall Street Journal compared the jobless safety net in the U.S. with Europe and concluded that we came up short. While the unemployment is currently at the same level in both the U.S. and most of Europe, American workers are facing a much more several loss in income as in Europe. Only roughly a third of U.S. workers get unemployment benefits and of those workers wage recovery average 44% and ranges only from 19-66%. In Europe, jobless benefits benefit nearly all workers and jobless benefits can pay up to 90% of lost wages.

The Journal and many economist opine that this is a bad thing that will slow their recovery.
But what does that mean? Exactly what is a recovery and what is an economy for? Isn't stability and prosperity the main objective of economic growth?

It might actually be worth taking a second look at the American safety net. Looking at today's New York Times cover story it appears not only inadequate but often arbitrary and certainly uneven depending on what state you live in.

What can we do to knit a more functional safety net in Washington State? Do all of our programs fit together? If you are without a job but don't have the hours to get unemployment benefits can other programs help? How does eligibility for food stamps, emergency housing, unemployment, training benefits compare? Is there a logic to all of the different requirements? Is everyone eligible or does it appear arbitrary or uncoordinated?

These are some questions we might want to focus on since unemployment probably won't peak again until growth actually starts to pick up late this summer and it is likely to remain high for a few years after that.

The Safety Net

2009-05-05T09:29:00.000-07:00

The Seattle Times reported today that welfare caseloads welfare caseloads had spiked up by a third over the past year.

This might seem intuitive. You would expect that caseloads would rise in the down economy. However, over the past 13 years they did not appear to be impacted by either unemployment or real wages. The Times also notes that the increase is most prounced amongst two parent families in economic trouble.

There are a number of different programs designed to help people hit by economic hardship. They include TANF or welfare, unemployment insurance, housing assistance, food stamps and probably most importantly health care. Forty percent of the unemployed have no health care coverage. This might be the time to look at how these programs work together.

http://seattletimes.nwsource.com/html/localnews/2009173949_welfare05m.html

FUSE review of legislative session - ouch!

2009-05-04T19:30:00.000-07:00

FUSE is an online progressive advocacy group that brought out thousands of new voters for Obama and Gregoire last fall. They are the left's answer to Tim Eyman and a grass roots organization that uses creative approaches to organizing online.

In their 2009 legislative report card FUSE wasn't kind to us down in Olympia. According to their report card, "As key national leaders are responding to unprecedented challenges with bold and decisive action, our State's leaders gave us a muddled retreat backwards.". The Governor and legislators were given Ds for their work on the budget and the environment, a D- for labor and an F for good government. For FUSE, the only redeeming values were domestic partnership legislation and several small measures in consumer protection.

I've said it before and I'll say it again, for many legislators, the bad economic climate had the effect of making them much more risk aversive. Rightly or wrongly, legislators were more reluctant to go against business on labor and environmental issue out of fear of harming the business climate.

More importantly, unlike the federal government, state's cannot run a deficit and invest billions to stimulate the economy or protect the vulnerable. We have to balance a budget. Worse yet, initiative 960 requires a 2/3 majority for the legislature to raise taxes forcing us to save $9 billion (about 25% of the budget) through cuts alone.

Senate Majority Leaders Lisa Brown made a valiant attempt to strike down 960 by appealing to the U.S. Supreme Court. The risk aversive and highly political court refused to rule arguing that the "issue was not before them". As session rolled on, Brown and other legislators started an effort to send a progressive income tax to the state voters. However, since it would take up to a year and a half to start collecting revenues, it key Senators were unable to find major organization backing for the initiative.

But I think we have to take FUSE's criticism to heart. We can do better. The question is how can the legislature and the Governor turn things around as the state comes out of it's recession.

Progress is good. Right.....?

2009-05-03T19:47:00.000-07:00

As a life-long social democrat and positivist I've always believed that the world gets better as history marches on and growth brings with it better health care, longer life-spans and a more tolerant society. This is why I find myself in endless arguments with my greener wife, children and friends.

I found English Philosopher John Gray's book "Gray's Anatomy: Selected Writings" unsettling. According to Gray, "The idea of progress is detrimental to the life of the spirit, because it encourages us to view our lives, not under the aspect of eternity, but as moments in a universal process of betterment. We do not, therefore, accept our lives for what they are, but instead consider them always for what they may someday become."

Gray believes that the "dawn of the age of endless expansion" is "perhaps the most vulgar idea ever put before suffering humankind."

Flat versus equal?

2009-05-03T19:30:00.000-07:00

Populist fair traders have argued to years that globalization makes the world less equal. Deutsche Bank AG Chairman and CEO Josef Ackermann appears to agree with them. According to Ackerman, " Society appears to be choosing lower growth rates in exchange for greater stability. There is likely to be a greater emphasis on equality. And there may be less openness to foreign trade and capital flows, particularly as governments press banks that receive subsidies to lend more locally." . To Ackerman this is a bad thing.

Legislative Democrats and their Allies - a not so happy legislative session

2009-05-01T16:05:00.001-07:00

Last week's legislative session was rough. Lawmakers were forced to make radical cuts in programs that serve the most vulnerable, cut health care for the working poor, layoff teachers and raise classroom size in our schools and slash enrollments and layoff professors in our colleges. Everyone knew from the beginning knew that this was going to be hard and most legislators knew they would leave with fewer friends than they came in with.

The real shock was the extent to which the session hit the friends and allies of the legislative democrats. As I said in my previous entry, Democrats and Republicans alike work together with friends and allies with whom they share mutual values. This session they departed on many issues.

You can start with the budget. Democrats balked on mitigating the impact of budget cuts on state employees. State employees face layoffs, salary freezes, unpaid furloughs and a 25% increase in their out of pocket health care costs. Already laboring under a 25% pay differential with private sector, recruiting and retaining state workers is going to be difficult or impossible in the future. Given the severity of the budget crisis however, these cuts shouldn't be a surprise. Lawmakers wanted to treat everyone equally. They were simply doing what they thought they had to.

The surprise was the issues that weren't related to the budget. The Governor and the legislature abandoned organized labor on their two biggest issues, worker privacy and unemployment insurance. Legislation to help child care organizers also failed in the Senate. While their overall scorecard could be seen as positive Environmental organizations were also less that satisfied.

Worker privacy and unemployment insurance were by far the most difficult issues because they were both zero sum games. Labors gain in unemployment insurance was business's loss. The labor proposal on the unemployment insurance bill would have reduced a business tax cut by $200 million and provided an equal increase in unemployment benefits over that same 6 year period.

Killing worker privacy was the number one issue for business and passing it was the number one priority for labor. This issue is the quintessential business versus labor issue. The bill would allow employees to opt out of anti-labor propaganda meetings. The idea is that this would put labor and capital on an even playing field. Labor organizers can't require prospective members to attend organizing meetings (and in fact, participants have been fired for just that reason) The problem is that business doesn't want to be on an even playing field. They don't have to and they are quite happy with the union density of the private sector continuing to fall.

So why did their Democratic allies balk? For one very simple reason. The economy is very bad and a majority of legislators in both parties were simply afraid of making it worst. Many analysts argued that Boeing was already looking for a reason to leave the state and after last Fall's bloody strike were not eager to face a more empowered labor movement. Boeing and other big companies, hemorrhaging from the deep recession, vehemently fought both bills. Boeing's CEO told lawmakers that he felt he needed access to employees to explain the impact of a strike on their customers. Without that access he felt it would be hard to run the company in Washington. The explanation seemed credible.

Other legislators were unclear as to why they would risk the ire of business and possibly the business climate when they were uncertain that the legislation would survive a court challenge.

Fears of making the recession worst were also reflected in the mood of the electorate. Polling and focus groups done in February around a possible revenue initiative to mitigate budget cuts indicated that the public was very worried about the economy and strongly opposed to any measure that would impact business negatively. Focus groups indicate that the public was very concerned about the business climate.

The bottom line is that given the severity of the session, both lawmakers and the public were wary of any moves that could be seen as hindering the business climate.

This sessions wounds are going to take a lot of time to heal. But people on both side should cool their jets. There are fair and logical explanations on both sides of the argument. People just need to be honest and listen to each other.

Bad new for revenue forecast?

2009-04-30T08:07:00.001-07:00

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.

Values, interests and the legislative session

2009-04-27T19:33:00.000-07:00

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

2009-04-27T19:12:00.000-07:00

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

2009-04-27T18:12:00.000-07:00

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.

Why a Millionaire' Tax?

2009-04-04T10:02:00.000-07:00

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.

The Animal Spirits of Capitalists

2009-03-29T18:20:00.000-07:00

John Maynard Keynes argued that the business cycle was a function of the animal spirits of capitalists, the bull and bear moods of large financial investors. Writing during the great depression, Keynes was skeptical of the pure free market system that yielded deep three long depressions (including the great depression) before World War II. The eocnomic sytem that was founded on his economic theories made an effort to buffer the foul mood of the market with government intervention and regulation.

Many Americans, particularly those with great wealth, believe that these moods and their corresponding impact on markets are the most efficient way to run an economy. This religious belief in the unfettered invisible hand of the market went underground for three decades after the great depression. But the seeds of the unraveling of the new deal started with a handful of libertarians who met in the apartment of literary giant Ayn Rand in New York City that included Alan Greenspan.

Eventually, these libertarian views became mainstream. Greenspan became chairman of the Federal Reserve Board and far right economist Milton Friedman became the dominant mind in American economics for over a decade.

Today, the tables have turned and the excesses of the market are again obvious. Greenspan, writing for the Financial Times confessed that perhaps the self-interest of finance capital and that of the economy as a whole are not the same.

“In August 2007, the risk-management structure cracked. All the sophisticated mathematics and computer wizardry essentially rested on one central premise: that the enlightened self-interest of owners and managers of financial institutions would lead them to maintain a sufficient buffer against insolvency by actively monitoring their firms’ capital and risk positions. That premise appeared incontestable but, in the summer of 2007, it failed."

Stimulate the Economy - Reduce Budget Cuts with Progressive Taxes

2009-03-29T17:56:00.000-07:00

While we are starting to see the bottom, we are still in the deepest recession since 1980-82. State budget cuts are likely to make it worst and postpone or even weaken the recovery.

When tomorrow's Senate budget comes out and the House budget comes out Tuesday you are going to see job losses of 10,000 state workers, including 3,000 teachers and 3,000 college faculty. Low income people will be cutoff services, and mentally ill and disabled citizens will lose benefits. Cuts that could cancel out the economic benefits of the Obama stimulus package in Washington State

The recession has gotten this bad primarily because consumer and business confidence is shaken and people are holding onto their money. Instead of spending they are saving. To get the economy moving again, they have to start spending.

One way to mitigate the impact of state budget cuts on consumption is to reduce the cuts by raising taxes on upper income residents. This makes a lot of sense from an economic perspective. You tax high saving people who are sitting on their money and not spending it and use it to restore cuts to high spending, no savings people. The ultimate impact is greater aggregate demand and fewer job losses.

A 3% tax on income of individuals making more than $250,000 per year could raise over $1.5 billion. The tax would hit only the top 4% of taxpayers and it would still be a lower tax on that income group than any of our surrounding states. The people's republic of Idaho taxes it's richest citizens a rate two and half times as high (7.8%) and the top tax rate in Oregon is 9.0% and in California 9.3%. Our tax would in fact be one of the lowest taxes on the rich in the country. It's worth thinking about.