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.
Sunday, September 20, 2009
Monday, September 14, 2009
Questions of 2009: What does it mean for 2010?
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.
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.
Sunday, September 13, 2009
Big Questions of the 2009 Session
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.
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
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.
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.
Wednesday, August 26, 2009
Searchers and Planners
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.
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.
Tuesday, August 25, 2009
What does the Movie Pineapple Express, and Financial Markets have in common?
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.
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.
Monday, August 24, 2009
Lost in the maze of higher education
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.
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.
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