Now is the Populist Moment - Part I

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

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

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

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......

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

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?

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.