Economy, Idaho Politics, Pandemic, Trump

The Next Wave

“The Republican states are in strong shape,” Donald Trump said last month. “I don’t know — is that luck or is that talent?” 

The president made that comment when he was asked if state governments need a financial transfusion in order to staunch the flow of budgetary red ink in the wake of the double whammy of a pandemic and a massive economic decline. Republicans in Washington seem dead set against help for the states, apparently in part because Trump and his congressional boot polishers – read Mitch McConnell – don’t want to help Democratic states. McConnell has also suddenly discovered that the nation’s debt has exploded while a Republican has been in the White House. 

Senate Majority Leader Mitch McConnell

Here’s the reality. Every state – every state – is going to be staggered to its knees by the double whammy. While Idaho Governor Brad Little has received generally good marks for competently relying on sound public health advice to manage the COVID-19 impact, the governor will find that his is merely transitioning from one hourly crisis to another. 

“Right now, state governments are facing several types of fiscal challenges,” Boise State University political scientist Jaclyn Kettler told me this week. She studies state governments and how they manage budgets. Budget cuts, as Idaho has already announced, including at minimum a 5% reduction in education funding, are a given, but Kettler says the vast uncertainty about how deep the economic downturn will be complicates the state’s response. 

“This is a challenging time when many citizens need more services or support from their state and local governments,” Kettler said, “which will make decision-making potentially quite difficult for state leaders on what to cut.” But knowing Idaho’s legislature, cutting will the first and last option. Expect 5% reductions to be more like 15% by Labor Day. 

Idaho’s revenue pipeline has already been plugged. April revenue declined by $470 million, a 60% reduction in what state economists had predicted before the virus came calling. Some of that downturn may be attributed to delayed tax payments since the income tax filing deadline has been pushed back, but it’s a safe bet that revenue will be significantly off – perhaps wildly off – for months if not longer. 

The happy talk emanating from the White House about the economic recovery being V-shaped – a steep downturn followed by a sharp rebound – is delusional

“The second quarter hole is so deep that it’s going to take several quarters to get back,” Robert Dye, the chief economist at Comerica Bank, told CNBC, “and that’s going to have an impact on state and local government budgets because that has a direct correlation to tax receipts. The economy is not going to get back to that level for two years or three years, and tax receipts are going to be weak for quite some time.”

The fiscal orthodoxy that has long governed Idaho’s approach to state spending, namely that tax cuts are always the answer to every problem and reducing spending, even if it means that teachers and state employees get laid off, is going to collide with a grim truth. If Idaho’s response to the worst economy since the Great Depression is to cut and then cut some more the state’s eventual economic recovery will take longer and be even more painful. 

“Large state budget shortfalls could prolong a recession by prompting a cascade of layoffs that ripple across the economy, Emily Cochrane noted recently in the New York Times. She was quoting economists who have said that in April alone, “state and local governments laid off one million people, a number that could continue to climb without additional assistance.” 

Idaho’s higher education system continues to be a key to a strong, more sustainable state economy, but higher education is certain to again be on the legislative chopping block. College and university presidents are trying out furloughs and other cost reduction strategies, but as Kevin Richert of Idaho Education News noted recently the cuts currently anticipated may need to be “much deeper if enrollment plunges in the fall.”

Idaho’s Republican Governor Brad Little in transition from a public health crisis to a budget crisis

So far, Idaho’s Trumpish congressional delegation has been silent about any federal help for Brad Little’s next wave of crisis, a particularly stunning silence when you consider that every one of the state’s federal officials once served in a legislature that must by law balance the budget. These Republicans seem content to follow McConnell’s advice that Republicans “tap the breaks” on additional aid, even as the Senate majority leader’s notion of letting states go bankrupt crashed like a lead Zeppelin. 

McConnell has tried to score political debating points by saying he has no interest in bailing out public pension plans in blue states, but with his home of state of Kentucky facing huge budget shortfalls much like Idaho’s you have to wonder how long this GOP’s fiscal nihilism will remain politically viable. And in Idaho the issue isn’t propping up the state pension fund but simply preventing state government from taking the state economy farther into the ditch. 

So far Little, with minimal help from fellow Republicans and second guessed by lots of stupidity from his own lieutenant governor, has navigated the public health crisis with a sure hand. He’ll need a more united and more creative party to manage the next crisis, a party willing to think big and beyond the orthodox. 

“The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II,” Federal Reserve chairman Jerome Powell said this week, as he bluntly called for more, not less government intervention to prop up the economy. 

For Powell, who has spent most of his career as a deficit hawk, the warnings are chilling. In the worst case, and case that appears all too likely, the country – and Idaho – faces what the Fed chairman called “an extended period of low productivity growth and stagnant incomes … Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.” 

The soulful 19th century Stephen Foster tune – a ballad for our times just as it was prior to the Civil War – holds out hope that “hard times come again no more,” but the worst hard time is hardly behind us. In fact, it may just be beginning. 

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Additional Reading:

  • China’s Growing Ability to Challenge: Washington Post columnist David Ignatius reviews a new book Christian Brose, a former staffer to the Senate Armed Services Committee and a once top aide to the late Senator John McCain, who writes that China is now able to match – and even exceed – U.S. military capability. “The Pentagon wants to confront the Chinese challenge,” Ignatius writes, “but it insists on keeping the same vulnerable, wildly expensive platforms at the center of the United States’ military power. And Congress demands adherence to this status quo. When then-Defense Secretary Jim Mattis and then-Navy Secretary Richard Spencer tried to retire an aircraft carrier in 2019, Congress refused. Expensive fighter jets have a lobby, too. As Brose notes: ‘There is a reason why parts of the F-35 are built in every state in America. . . . It is political expediency.’”
  • Putin’s Goal: Now, to scare you completely – this from Franklin Foer in The Atlantic. “The Russians have learned much about American weaknesses, and how to exploit them… Even as to disinformation, the best-known and perhaps most overrated of their tactics, they have innovated, finding new ways to manipulate Americans and to poison the nation’s politics. Russia’s interference in 2016 might be remembered as the experimental prelude that foreshadowed the attack of 2020.” Oh, great…
  • Obamagate: Richard Wolff in The Guardian dissects what Donald Trump is doing by manufacturing a storyline about “Obamagate,” his latest conspiracy theory. “Trump has many good reasons to sail away to the land of smears. They’re called the polls, and they are – for the sociopath sitting in the White House – even worse reading than the pandemic death tolls or the latest unemployment claims. Trump is losing to Joe Biden by three points in Florida in the most recent Fox News poll, where he was supposed to have a lock on his re-election from his Mar-a-Lago mothership.”
  • Thanks for reading…be well.
2020 Election, Economy, Trump

Corruption and Incompetence…

Two dominant themes prevail in the current presidential administration: corruption and incompetence. They work together well, one complimenting the other and advancing the steady slide toward a new age of American authoritarianism.

A corrupt administration needs incompetence (and of course acquiesce) in order to continue its corruption. You can’t have independent and effective watchdogs and get away indefinitely with systematic corruption. The authoritarian needs to assert power and perhaps the most effective way to do so is to purge career public servants and replace them with incompetents willing to follow orders no matter what. 

Corruption and incompetence: hallmarks of the Republican administration under Donald Trump

At the same time an incompetent administration reinforces with citizens the idea that a strong, decisive leader, even a corrupt one, is required to make sense of the chaos all around. Donald Trump has mastered the corruption and incompetence approach to modern politics and his handy enablers in the Republican Party seem just fine with how he has warped and corroded public affairs. 

The president used his inherent constitutional power this week in a nevertheless corrupt and unlawful way. Trump pardoned or commuted the sentences of 11 white collar criminals, a who’s who of grifters, crooks and low life’s, as the New York Times noted “who were convicted on charges involving fraud, corruption and lies.”

Leading the list of recipients of Trump favors to the criminal class was former Illinois Democratic governor Rod Blagojevich, a thuggish character who would not be out of place in the cast of a Scorsese film about the mob. It’s worth remembering what Blago, who was impeached and removed from office by his state’s legislature and then convicted of assorted crimes, did to get 14 years in prison. It’s a tidy list: racketeering, bribery, wire fraud, and attempted extortion. The former U.S. attorney who prosecuted the former governor called what Blagojevich did “a political corruption crime spree.” 

In a state steeped in political corruption, Rod Blagojevich established a new standard for sleaze. Of course, Trump commuted his 14-year sentence

Just for good measure Blago tried to extort an executive of a children’s hospital – a children’s hospital – “in in exchange for a Medicaid rate increase for pediatric specialists” and he shook down a racetrack owner in exchange for approving favorable legislation.

In a state known historically for its political corruption Blagojevich’s crimes were in a new class of rancid. Trump, however, called Blagojevich’s 14-year sentence – he served 8 years – a “tremendously powerful, ridiculous sentence, in my opinion.” And we know his judgment is, like his Ukraine phone call, “perfect.” 

Never mind that the Illinois legislature, the U.S. Justice Department, a jury of his peers and a federal judge dealt in a systematic and through manner with Blagojevich’s crimes, and the same can be said for the other reprobates Trump lavished with his favors. Corruption in the time of Trump comes in many forms, not least in the doing of favors for the well-placed and wealthy. It’s additionally been widely noted that the crimes the president is excusing, and effectively sanctioning, are much the same as what he will likely face once out of office.  

Which brings us back to the incompetent and the central role an Idahoan is playing in helping Trump carry out additional degradation of the federal government. 

Senator Mike Crapo presided over a lengthy confirmation hearing recently for a Trump nominee to the board of the Federal Reserve. To watch the hearing, as I did, was to witness an eyewatering display of Trump sycophancy, even by Crapo standards. 

The nominee being considered by the Crapo-chaired Banking Committee is Judy Shelton, an economic theorist, one-time champion of a return to the gold standard and Trump acolyte, who is so far out of the economic mainstream that several of Crapo’s Republican colleagues bombarded her with critical questions. Shelton squirmed and prevaricated under the interrogation of Alabama Republican Richard Shelby who pressed her about past statements and positions that she has now dramatically jettisoned.  

Trump’s Federal Reserve nominee Judy Shelton has shifted and shaped her views to please the president who demands loyalty not competence

Shelton’s economic views have flopped around like the gyrations of a junk bond. She was critical of low interest rates during the Obama Administration. Now she’s for them. She was once part of an advocacy group favoring the gold standard and wrote extensively about it. Now she says never mind. Shelton has said she had no particular regard for the historic political independence of the Fed, clearly a qualification for a president would regularly bullies the central bank’s chairman. Under questioning she twisted unconvincingly away from many past positions. If you have a checking account you might wonder why the Federal Reserve would have a director who opposes federal deposit insurance, a fixture of American financial life since the Great Depression. Shelton has advocated that position, too. 

Asked to rate Shelton’s performance before Crapo’s committee, Shelby, the committee’s chair before Crapo, said dismissively: “She performed.” Shelby then added, “I have a lot of concerns, especially even after the hearing. I’m thinking about it, talking to some of my colleagues.” 

Republicans Pat Toomey of Pennsylvania John Kennedy of Louisiana, normally down-the-line Trump supporters, made similar comments. Crapo did not. He was too busy carrying Trump water to stir himself in the face of such economic incompetence and intellectual dishonesty. 

Trump wants, of course, a Federal Reserve composed of mindless flunkies who place their loyalty to him above all else, even if that means repudiating every position they’ve ever held. For his part, Crapo praised Shelton as “very solid” and echoed Trump in complaining about an “orchestrated, calculated effort” to defeat her nomination. 

One voice questioning Shelton’s intellectual honesty is the conservative writer Ramesh Ponnuru, the senior editor of National Review, not exactly a squishy liberal. The criticism that Crapo chalks up to a hit job is more correctly, as Ponnuru wrote recently, a legitimate concern that Shelton “is unlikely to exercise the steady and independent judgment that one would like to see from a central bank. They are, however, criticisms that can be defeated if she has a solid explanation for how her views have changed.” One doubts even Crapo can explain why Shelton’s views have so obviously changed. 

As is often the case the simplest answer is the correct one. Shelton wanted to be nominated and she bent her views to please a president who cares not a whit about competence. 

(Since this column was submitted for publication Trump named another incompetent loyalist, Richard Grenell, as Director of National Intelligence. Grenell, before becoming a divisive ambassador to Germany, was a frequent Fox News talking head. He was designated “acting director,” which allows the president – and fellow Republicans – to avoid Senate confirmation, a battle that would fully expose the fact that Grenell has zero experience related to the sensitive and critical job he now holds. More proof of Trump’s demands for loyalty over competence._

As the Senate decides what to do with Shelton’s appointment, Crapo may yet show some rare independence and join the chorus of critics who don’t want to see the Federal Reserve become just one more incompetent branch of the Trump White House, a neutered, subservient vehicle to carry out the president’s economic whims.

But don’t count on it. 

As conservative columnist Michael Gerson recently noted, “A nation in need of Republican leaders has found flunkies instead.” And the flunkies have bequeathed us the now central tenants of Republican government: corruption and incompetence, the hallmarks of an authoritarian administration. 

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Further reading:

  • Maine Republican Susan Collins, once the most independent of senators, has now tied her electoral fortunes to Donald Trump is now the most unpopular incumbent senator in the country. Rebecca Traister explains why in a profile that is an example of great political reporting.
  • Benjamin Moffit writes in The Guardian about why rightwing “populists” are winning political battles around the world.
  • Michael Malloy has an outstanding piece here on the decades long effort to clean up the massive Superfund site in Montana – the Berkeley Pit.
  • And…if you are a baseball fan – or even not – do yourself a favor and read this New Yorker piece on the great Roger Angell, 99 years young.
Economy, Taxes

Taxes and Tariffs…

The two foundational pillars of Republican (read Trump) economic policy – tax cuts and tariffs – have settled in on the country like so much else has for the last two and a half years. They are the product of ignorance, misdirection, wishful thinking and lies. 

First, let’s review the bidding on the 2017 Trump tax cut passed with only Republican votes in Congress. 

Idaho Senator Mike Crapo, a member of the tax writing Finance Committee said at the time, “The tax relief passed by Congress will reshape our tax policy to the benefit of Idaho’s taxpayers help make the United States more competitive.” Crapo was also sure that tax rates for all Americans would go down, jobs would spike, competitiveness would soar and “despite claims to the contrary, the reforms to our tax system will address our growing debt and deficits.” 

In a joint statement with Crapo celebrating the passage of the tax cut, Senator Jim Risch was over the moon in touting the benefits. “The Tax Cuts and Jobs Act will produce growth not seen in generations, giving Americans access to higher wages, greater job opportunities and a more vibrant economy, all of which will result in greater dynamic revenue generation to reduce the deficit and improve our nation’s fiscal standing.” 

But what has actually happened after the happy talk faded away? In as nutshell, and according to an in-depth analysis by the Congressional Research Service (CRS), a branch of the Library of Congress, Crapo and Risch’s claims were wildly overstated, indeed were largely wrong. 

Consider who benefited from the tax legislation. “From 2017 to 2018,” CRS says, “the estimated average corporate tax rate fell from 23.4% to 12.1% and individual income taxes as a percentage of personal income fell slightly from 9.6% to 9.2%.” That helps explain why you saw tiny, if any, reduction in your personal tax bill, while corporations had their tax bill nearly halved. 

The CRS analysis documents that much of the corporate tax cut went not to investment in workers or plants, but for “a record-breaking amount of stock buybacks, with $1 trillion announced by the end of 2018.” In other words, investors, corporate CEO’s and the already well to do enjoyed the benefits. 

And how about the notion that cutting government revenue would some how magically contribute to a reduction in government debt? Here’s how Los Angeles Times columnist Michael Hiltzik describes what happened: “Overall revenue fell in 2018, largely because of a $40-billion decline in corporate tax revenue. Individuals, particularly working- and middle-class individuals haven’t been so fortunate. Although the legislation increased the standard deduction and child credit, whatever tax reductions those would produce for families were ‘largely offset’ by the elimination of personal exemptions, and limitations on itemized deductions such as those for state and local taxes.” 

In point of fact the federal deficit – remember when Risch and Crapo used to talk about that all the time – has increased by 40% in the current fiscal year, at a time when the economy continues to grow. This is more than blue smoke and mirrors masquerading as economic policy. It’s really economic malpractice on a huge scale. Congressional Republicans sold you a bill of goods and most of them continue to mouth the platitudes about how good it is for you. 

Let’s consider the other “T” in Trumpland economics: tariffs. Despite mounting evidence of the impact on Idaho of the administration’s tariff wars with China, India and a host of other countries, Risch and Crapo stand at attention and march over the economic cliff with the president. Trump, don’t forget, has taken his tariff actions in an unprecedented manner, invoking a provision meant to deal with matters of national security. The Constitution expressly reserves to the Congress the “Power To lay and collect Taxes, Duties, Imposts and Excises.” In other words, Congress has acquiesced to this presidential power grab. 

BBC illustration

Risch recently told a television interviewer that he’s “not a tariff guy,” chuckling that Republicans “are free traders.” Yet when given the chance to even mildly rebuff Trump – the Senate last year approved 88-11 a non-binding objection to a tariff war – Risch declined, as Crapo did, citing “onerous restrictions” on the president’s authority to implement tariffs for national security reasons.

Even if Trump manages to navigate a pathway out of his tariff cul-de-sac some time soon much damage has already been done. Supply chains have been disrupted, long-to-develop trading relationships shattered and uncertainty dominates. 

“Our businesses have spent a lot of time and a lot of money building relationships in some of these markets,” the Idaho Department of Agriculture’s Laura Johnson told the Idaho Press recently, “and as customers go somewhere else, it’s really hard to get them back. We may have other opportunities elsewhere, but it’s costly.” Jay Theiler, the Executive Director of Marketing for Agri Beef, a significant Idaho exporter, says, “Right now, politics is in the way of the trade.”

There is ample evidence that the president of the United States doesn’t understand how tariffs – or tax policy for that matter – actually work, that American consumers and businesses pay the duties when imports become more expensive and cutting tax rates increases the deficit. But, ignorance in politics isn’t a new phenomenon. What is unusual is the willful disregard of facts on the part of Idaho’s senators, and others, who have stood idly by while this economic malpractice continues to unfold. 

Tax cuts and tariffs have done almost nothing beneficial for most Americans. If fact, GOP economic policy is costing you money. You would be entitled to ask: whose looking out for your interest? 

Economy, Politics, Trump

Just Say No…

Idaho Sen. Mike Crapo is about to get his moment in the wacky spotlight of U.S. Senate confirmation politics.

Barring some last-minute change of heart, something never to be dismissed in Trump World, the president of the United States will nominate to the Federal Reserve Board a guy whose ethical and financial baggage would have immediately disqualified him during any other time in modern history. In the past, would-be cabinet secretaries or senior administration appointees have seen their appointments collapse for lesser transgressions than those hovering around Trump’s latest ethical outrage.

Federal Reserve Building in Washington, D.C.

It seems almost quaintly secondary that Stephen Moore, a frequent Fox News gabber and Trump idolater, is also demonstrably unqualified for the job of overseeing the U.S. banking system and assuring the economy remains sound.

If Trump goes through with Moore’s appointment, Crapo will preside over his confirmation before the Senate Banking Committee and we’ll see how the mild-mannered Idahoan straddles the stupidity of the president’s nominees and the senator’s fealty to the big banks and financial interests, whose water he carries and whose campaign cash he hordes.

Will Crapo go with Trump and the Tea Party wing of the GOP or will he stand with the sane, sober financial realists who openly scoff at Moore’s lack of qualifications to serve on the Fed, not to mention his long record of incompetence?

Let’s review the “accomplishments” of the man who could be a heartbeat away from chairing the Federal Reserve by acknowledging that Moore is no Alan Greenspan, no Paul Volcker, no Ben Bernanke and certainly no Marriner Eccles, the Utahan who presided over the central bank during the Great Depression.

Stephen Moore, Donald Trump’s candidate for a seat on the Fed

Rather, Moore owes $75,000 in back federal taxes and was held in contempt for failing to pay $330,000 in spousal support to his ex-wife. As the New York Times noted, “In 2013, (a Virginia) court ordered him to sell his home to raise money to pay the debt and forced him to set up an automatic bank transfer each month. After Mr. Moore paid $217,000 toward the debt, Ms. Moore asked the court to revoke the order to sell his home, which it did.” Moore calls his dispute with the IRS “a misunderstanding.”

So much for ethics. How about competence? Economics columnist Catherine Rampell assembled a “greatest hits” list of Moore’s crazy theories and predictions, including the old favorite that big tax cuts pay for themselves. The Congressional Budget Office said recently that the Trump tax cut, supported enthusiastically by Crapo, would add $1.5 trillion to the deficit during the next decade.

During the Great Recession, Moore predicted runaway hyperinflation like that visited on Weimar Germany in the 1920s, with people needing “wheelbarrows full” of cash to visit Albertsons. Moore was a principal architect of the disastrous tax policy implemented in Kansas in 2013, a policy he promised would miraculously lift that state’s economy, but instead slowed economic growth and crashed the state budget. As Rampell has suggested, Moore has been wrong so often — he’s not an economist by the way, but merely plays one on Fox — that he obviously doesn’t know how to use Google to check basic facts.

Moore was so often wrong in his pronouncements about the Kansas economy that he was banned from the editorial pages of the state’s largest newspaper. His lack of political independence was on full display when he said Trump deserved the Nobel Prize in economics. You can’t make this up.

Moore’s appointment comes, of course, in the wake of Trump’s continuing assaults on Fed Chairman Jerome “Jay” Powell, a respected conservative who seems determined to continue the Federal Reserve’s long struggle to remain independent of the kind of partisan meddling the president has raised to an art form. The Wall Street Journal reported this week that Trump, who has publicly contemplated firing Powell — he legally can’t fire Powell who serves a fixed term — criticized the chairman on three different occasions recently before mumbling to Powell in a phone call, “I guess I’m stuck with you.”

Outside of the Fox News echo chamber, few people who know anything about the Fed and the economy think having Moore on the job makes any sense.

“Steve is a perfectly amiable guy,” says Harvard economist N. Gregory Mankiw, “but he does not have the intellectual gravitas for this important job.” Before Trumpers dismiss Mankiw as just another pointy-headed Ivy League academic, we should note he is a conservative Republican who worked for both George W. Bush and Mitt Romney.

But back to Crapo’s dilemma. In a normal political world, a senator in Crapo’s position — the conservative Republican chairman of the Banking Committee, a favorite of Wall Street and big banks, the 15th most senior member of the Senate — would have everything to say about this kind of appointment. A genuinely powerful chairman might even be expected to have his own candidate for the Fed, perhaps a trusted conservative economist with a track record of real accomplishment. There must be a few hundred of them available.

Banking Committee chairman Mike Crapo, an Idaho Republican

A real power in the Senate would have quietly signaled the White House that spouting sound bites on television just wasn’t adequate preparation for such an important job. A senator with a shred of independence would have never allowed a Stephen Moore to get in front of his committee.

All Crapo has said is that it’s a priority to fill vacancies on the Federal Reserve and he would not prejudge Moore’s nomination, while giving “it prompt attention.”

Maybe Crapo will yet head off this economic train wreck, potentially one of the most consequential, indeed disastrous of all Trump appointments. Or maybe he’ll do what Idahoans have come to expect of him and he’ll go along to get along and, in the process, further concede senatorial power and prerogatives to a man Crapo once said was so abundantly unfit for the office that he couldn’t support him for president.

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(This piece originally appeared in the Lewiston, Idaho Tribune on April 5, 2019)

Economy, Federal Budget, Taxes

Old GOP Con Runs out of Steam…

When Oregon Republican Congressman Greg Walden went to Bend, Oregon recently for his first town hall meeting there in two years he came armed with what he must have thought were two sure fire applause lines. 

Walden, a widely respected Republican and until Democrats recaptured the House of Representatives last November the chairman of Energy and Commerce Committee, is a lot like Idaho Congressman Mike Simpson. They were among a tiny handful of Republican House members who split with their party and the president on the issue of the recent government shutdown. When Walden reminded 400 of his constituents gathered in a central Oregon high school auditorium that he had voted with Democrats to reopen the government he got a healthy round of applause. 

Oregon GOP Congressman Greg Walden at a town hall in Bend in January. (OPB photo)

But when Walden tried to pivot to a key GOP talking point it didn’t go so well. “So, tax cuts,” Walden said, ”It is no secret I’ve supported them. And I think they’ve had a strong effect on the economy—” but here the crowd took over, interrupting the congressman, as Oregon Public Broadcasting recorded, with “a chorus of boos and heckles.”

Walden, in Congress since 1998, was left to say: “OK, let’s try and be respectful.” The old, sure fire GOP applause line of “every tax cut is good for you” may finally have reached its sell by date. It just doesn’t seem to be working for Republicans in part because they have handed huge windfalls – again – to the super wealthy and big corporations, windfalls that have directly contributed to skyrocketing deficits and deepened worry about the strength of the economy. 

The prediction by virtually every Republican elected official that the $1.5 trillion tax cut would spur investment, job growth and wages has turned out to be just a political talking point rather than some kind of economic miracle. “There hasn’t been a huge surge in response to tax reform,” said Eric Zwick, a professor at the University of Chicago Booth School of Business. What did boom were corporate stock buy backs. 

Ian Shepherdson, the chief economist at Pantheon Macroeconomics, told CNN Business, that he saw “no evidence at all” that the tax cuts have lifted business spending above what would have happened anyway.

A survey of American businesses published this week by the National Association of Business Economics(NABE) found that 84 percent of businesses surveyed indicated that the big tax cuts had “not caused their firms to change hiring or investment plans.” 

Meanwhile, the deficit grows and, no, the tax cuts don’t pay for themselves. The Congressional Budget Office (CBO) estimates a $900 billion deficit this year, growing soon to $1 trillion and reaching that number faster than CBO had been predicting. 

Financial writer Jim Tankersley put an exclamation point on the trend recently when he noted, “If growth fades in the coming years — as many economists believe it will — the cuts could exacerbate the deficit even more.”

It is a complicated and at times very cynical story about how cutting taxes, particularly for the most wealthy, became a bedrock principle of Republican politics. Republicans have beaten Democrats over the head with “tax and spend” labels at least since the 1970s, but it wasn’t always so. Dwight Eisenhower actually believed in rather than just talked about balancing budgets and he insisted that the government had to have the revenue to keep the public books in the black. 

More recently rank and file Republicans – the Idaho delegation comes to mind – has mastered the political jujitsu of advocating huge tax cuts for those at the top of the economy, while preaching the need for balancing the budget. And now that the GOP has a president who seems to care less about fiscal responsibility and has lost control of one house of Congress Republicans are against talking about balanced budget amendments. 

Senators Mike Lee of Utah and Charles Grassley of Iowa, both of whom voted for the tax cuts, actually had the hutzpah to introduce balanced budget legislation recently. Lee said, presumably with a straight face, “As our federal debt continues to rise at an alarming rate, the least we can do is require the federal government to not spend more money than it has at its disposal.”

One reason the old tax cut then deficit handwringing game has worked so well for Republicans is that the tax code is complicated, indeed downright eye glazing to many. It’s even difficult for many CPAs to navigate the exemptions and loopholes, but the simple language of cutting taxes is easily understood, except perhaps when the fuzzy logic and dodgy math finally loses its political power. 

Before last November’s mid-term election Republicans knew from their own polling that they had lost the messaging battle over their tax cut. Bloomberg News obtained internal GOP survey results that confirmed – by a 2-to-1 margin — 61 percent to 30 percent — that voters saw through the hype and knew that “large corporations and rich Americans” benefited over  “middle class families.” That explains why Greg Walden got hooted down at his town hall recently and why you no longer hear Mike Crapo, Jim Risch or Simpson say much about the “signature” accomplishment of the first two years of the Trump Administration.

Graphic: Institute of Taxation and Economic Policy

More and more the tax debate in American politics is going to be shaped by fundamental issues that voters do seem to understand. Economic policy, including repeated tax cutting for the very wealthy, has for the last generation contributed to a hollowing out of the middle class, a flat lining of income growth, creating vast and growing disparity in wealth and stifling opportunity.

In another recent survey a sizeable majority of Americans now say that “unfairness in the economic system that favors the wealthy” is a bigger problem than “over-regulation of the free market that interferes with growth and prosperity” Among young Americans that belief is even more surely held. 

Ironically, by embracing a candidate who refused to release his own tax returns and gleefully oversold his tax cut, Republicans may have finally lost the political advantage they’ve held on tax issues since the Reagan years. It was quite a con while it lasted. 

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Catholic Church, Economy, Film, Journalism, Wall Street

Grab the Pitchforks

     “The CDO – collateralized debt obligation – was, in effect, a credit laundering service for the residents of Lower Middle Class America. For Wall Street it was a machine that turned lead into gold.”
― Michael Lewis, The Big Short: Inside the Doomsday Machine

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If you are able to sit through a screening of Adam McKay’s outstanding new film The Big Short and not feel, as New York Times critic A.O. Scott says, like “going out to the garage to look for a pitchfork” in order to slay the villains, there is a good chance you are: 1) a partner at Goldman Sachs, 2) a Republican U.S. Senator who has been voting to dismantle the weak financial reforms put in place after the Great Recession, or 3) clueless.

Christian Bale plays Michael Burry, an eccentric fund manager who bet short in The Big Short
Christian Bale plays Michael Burry, an eccentric fund manager who bets short in the movie “The Big Short”

The Big Short, a wildly inventive and superbly acted film that is both comedy and tragedy, joins Spotlight, a morality tale, also superbly acted, in exploring the corruption inherent in absolute power.

Both films show us again that Hollywood, the very essence of America’s unceasing appetite for excess, can – at least once in a while – bring about the self-reflection that is distressingly missing among those wrapped in privilege and pampered by power and money.

Recent History…Already Being Forgotten

McKay’s film, based on the bestselling book by Michael Lewis, focuses on the years immediately before the Great Economic Meltdown of 2008 when a handful of investment “outsiders” detected the inevitable bursting of the housing bubble that ultimately brought the U.S. and world economy to its knees. These outsiders, seeing the interconnecting disaster of sub-prime mortgages, mortgaged backed securities, CDO’s, credit default swaps and billions and billions of dollars, decided to beat the rigged “system” where big banks, credit rating agencies and government regulators quietly (and in some cases ignorantly) allowed massive financial fraud to occur.

These outside guys bet “short,” made billions off the fraudulent system and then watched in disbelief as the high rolling Wall Street banking crowd walked away from the wreckage almost entirely unscathed. Others, of course, were not so fortunate. As the film points out a cool $5 trillion dollars was lost when the housing market finally crashed and took with it pension funds, life savings, 401K investments, and the jobs, homes and futures of people who deserved much better.

In the dying days of the George W. Bush Administration the American taxpayer stepped in and bailed out the banks, with the notable exception of Lehman Brothers. The bankers then used vast amounts of the bailout funds to reward themselves with huge bonuses. As the Times reported in 2009, “At Goldman Sachs, for example, bonuses of more than $1 million went to 953 traders and bankers, and Morgan Stanley awarded seven-figure bonuses to 428 employees. Even at weaker banks like Citigroup and Bank of America, million-dollar awards were distributed to hundreds of workers.”

No harm, no foul, but in fact there were both. There has been virtually no prosecution of the clear fraud that occurred – only one relatively low level banker went to jail – while business quickly returned to normal in the canyons of finance in lower Manhattan. Oh, there were financial penalties for many of the guilty firms, but most were sufficiently small to qualify as “a cost of doing business,” even  when the business is built on fraud.

Actor Steve Carrell in "The Big Short"
Actor Steve Carell in “The Big Short”

In one of the most chilling scenes in a movie full of startling scenes we look on as one of the “short sellers,” played perfectly by Steve Carell, is quizzing one of the big bank managers about who he really represents as he packages and repackages the mostly worthless mortgages – he knows they are worthless – that he then peddles to his unsuspecting investors.

“Who do you work for,” Carell’s character demands to know. The bank guy smiles and says, “the investors.” That is, of course, the very definition of fraud.

Given our startling short attention span it is probably not surprising that most of the political and economic elite – Bernie Sanders excepted – have moved on from these events of less than a decade ago. Wall Street is busy devising new, esoteric investment devices, many barely regulated and even more minimally understood. Meanwhile, as though it all never happened, Hillary Clinton – and every Republican who can – goes to Wall Street for campaign cash, while promising to be tough on the same people who write the checks. The recently passed federal budget deal included, thanks to lobbying by the financial industry, a provision blocking the Securities and Exchange Commission (SEC) “from taking action on a long-discussed rule requiring publicly owned companies to disclose their political giving.”

Surely They Have Committed a Terrible Crime

As stunning as the lack of fraud prosecutions is the easy return to the status quo for Wall Street. One voice in the wilderness has been U.S. Federal Judge Jed Rakoff who has courageously and indigently refused to sanction several settlement agreements struck by the SEC with the bankers who caused the big collapse. Rakoff has written and spoken widely on the tepid regulatory and prosecutorial response to the Great Meltdown and singlehandedly has shamed regulators into insisting that some banks pay higher fines. But, the judge remains dismayed – as viewers of The Big Short certain will – that individuals who clearly committed fraud are still spending their weekends in the Hamptons.

Federal Judge Jed Rakoff
Federal Judge Jed Rakoff

“You have to be careful,” Rakoff told The Nation in 2014. “It’s easy to descend to scapegoating here. But to this very day, it concerns me that too many people in positions of authority do not realize how, even now, there are so many people suffering as a result of this financial crisis. There are millions of people out there who have lost their jobs, have no prospect of getting any good job, have exhausted their resources and are living lives of destitution and hopelessness. If there are people to blame, surely they have committed a terrible crime.”

Indeed. Go see The Big Short and next time you encounter an elected official who could have done more back then and could still do more now ask them if they are ready to explain the next big crash; the economic turmoil that surely will tumble forth again from the greed and corruption that is so deeply embedded in our financial system.

Spotlight on Corruption in the Catholic Church 

The other great Hollywood study in power and corruption this season is the real life journalism drama Spotlight,the story of the Boston Globe’s investigations that exposed the extent of the clergy sex abuse scandal in the Boston Archdiocese. The film is exceptional on several levels. It is the best thing Hollywood has every produced showing how journalism really works, but it resists glorifying the scruffy reporters who miss stories right in front of them, descend into numerous rabbit holes, but still doggedly pursue corruption in high places, in this case all the way to the top – Cardinal Bernard Law.

Poster for "Spotlight"
Poster for “Spotlight”

Tom McCarthy’s movie has generated much Oscar buzz despite or perhaps because, as Rolling Stone critic Peter Travers noted,”there’s not an ounce of Hollywood bullshit in it. Our eyes and ears are the Spotlight team, played by exceptional actors who could not be better or more fully committed.”

At the heart of the church’s ugly and widespread scandal is the sobering fact that so many knew for so long what was happening and still did nothing. Lawyers, priests, bishops, well-heeled Catholics who enjoyed being on a first name basis with the Cardinal simply chose to look away. Few, very few, attempted to confront the power and influence of the Catholic Church, an institution as big in Boston as the Red Sox.

Ultimately, it took a Boston outsider, a Jewish editor in a Irish-Catholic town, Marty Baron, now the executive editor of the Washington Post, to zero in on the obvious issue: where does the real corruption come from? At one point Baron’s reporters are ready to publish a story on abuses by a few priests, but he says no. The story is bigger than just the individuals involved, he thinks. They need to go work some more. Ultimately, this is a story of institutional corruption that goes all the way to the top and the Spotlight team got the story.

A Failure of Accountability

Spotlight also draws into sharp focus the genuine threat to a democratic system from the continuing disappearance of the kind of investigative and accountability reporting that made the Globe’s critical stories possible. Critic David Sims correctly says by not cheerleading the journalist’s efforts, but “by quietly celebrating the work of The Globe’s reporters, McCarthy makes a far more consequential argument for the value of smart reporting and robust local newspapers.”

Still one wonders in the era of “click bait” journalism, shrinking newsrooms and a constant re-definition of news whether in the not-too-distant future big, powerful, corrupt institutions will have little if anything to fear from their local newspaper.

Cardinal Bernard Law
Cardinal Bernard Law

Not unlike the guilty in the financial meltdown featured in The Big Short, Bernard Law mostly walked away from his fraud, the 550 victims of abuse in the Boston archdiocese and the $85 million the church paid to settle abuse claims.

The retired Cardinal was forced to step down in Boston, but now lives comfortably in a modern apartment “in a very nice building,” near the Vatican in Rome. Reporters tried to talk to Law when Spotlight was released, but he was not available to answer questions. He, unlike the victims he failed, seems to have moved on. Law will have to wait for his ultimate accountability, as he must surely know.

Both these stellar films are classic tales of corruption, greed and the corrosive effects of money and power, but perhaps what they most share is the spotlight they turn on our culture’s frequent failure to hold those responsible in such egregious cases truly accountable.

Both these films stop short of preaching and seem instead to suggest that all of us have moral choices to make about the frauds and failures in a society that too often has trouble separating the important from the trivial. If we are content to shrug off the latest outrage then can we ever hope that politicians and church leaders, regulators and bond rating agencies will do a better job exercising their responsibility?

When fraud committing bankers are allowed to walk away from the financial wreckage they created, pockets bulging with seven figure bonuses and when one of the high priests of the Catholic Church seamlessly moves on from what may be the worst failure of accountability in the modern history of the institution one is left to wonder only one thing: how bad will it be next time?

 

Baseball, Christie, Economy, Politics

A Malefactor of Great Wealth

We remember 2008 right? The great recession? The worst financial crisis since the Great Depression? Recall the photos of grim faced politicians and financial industry executives huddled in tense meetings trying to keep the U.S. and world economy from going over a fiscal cliff?

Henry Paulson
Henry Paulson

Treasury Secretary Hank Paulson dry heaving as he headed into a meeting that might or might not save the economy? Paulson actually got down on one knee in one meeting begging then-House Speaker Nancy Pelosi to explain the seriousness of the crisis to mostly clueless Washington politicians.

Remember?

The American attention span is…short. We tend to forget and often forgive and move on. That might be the American way or it might be just be our collective attention deficit disorder. We forget and then forget to connect the dots. Once in a while it’s worth remembering how close we came to economic Armageddon as well as those who took us there.

The Lehman Bankruptcy…

LehmanBrothersBankrupt-LGOn September 15, 2008 Lehman Brothers, a massive international investment bank, declared bankruptcy. The United States government had stepped in and prevented the demise of several other big and equally reckless firms – Bear Stearns and AIG among them – but Lehman was left to die an ignominious death. It was one of the largest corporate collapses in modern history. Billions were lost. The already fragile U.S. economy was badly shaken. Questions were then asked if not answered about how it had all happened. Legislation was proposed and some passed. Time moved on.

Two years ago and five years after the Lehman bankruptcy, The Guardian newspaper took stock of the Lehman fallout and concluded, in part: that the magnitude and scope of the crisis was still impacting the global economy. The paper also noted some of the additional fallout, including “the fact that only a handful of politicians and central bankers saw it coming; the rise and fall of global co-operation; the unprecedented policy response with its as yet unknown side-effects; the transformation of a private debt crisis into a sovereign debt crisis; the squeeze on living standards; and the shift in the global economy away from the developed west towards emerging markets.”

In other words the events of 2008, which may now seem like ancient history, remains strikingly relevant to the American and world economy.

The Gorilla of Wall Street…

A little over a month ago the man at the helm of Lehman before and during the great crash, Richard Fuld, made an extremely rare public appearance, his first speech to a Wall Street crowd in six years. The event was certainly noticed in the financial press, but most of the rest of us could be forgiven for missing the story. We have a presidential campaign to endure, after all, and it’s baseball season.

Richard Fuld, former Lehman CEO
Richard Fuld, former Lehman CEO

Dick Fuld, the one-time Lehman CEO, is described in one profile as a diminutive 5’8” bundle of brashness and energy, with a “famously voracious appetite.” Senior executives at Lehman “sometimes ordered him a mid-morning plate of ribs. The joke was that he never gained weight; his intensity burned off the calories.” Fuld – his nickname “The Gorilla” is a reference to his large, slanting, primate-like forehead – used his rare public appearance in New York recently to attempt, not surprisingly perhaps, to re-write his own and Lehman’s history.

Fuld also displayed no contrition or self-awareness. Lehman really wasn’t failing back in 2008, Fuld said, its demise was the result of the mistakes of others, including – should we see irony here – federal banking regulations and cut throat competitors who sold Lehman short. The Lehman culture, the former CEO contends, was nothing short of perfect. Mistakes were made, Fuld admitted, but not by him.

Not everyone – or perhaps no one – who heard the speech bought Fuld’s message. One former Lehman employee helpfully pointed out that lots of people lost lots of money even as the one-time CEO pocketed nearly a half billion dollars “in salary, bonuses and options between 2000 and 2007.”

Here’s Someone to Blame…

Time magazine named Fuld as one of the 25 people “to blame for the financial crisis” and summed up Lehman’s role in the near destruction of the U.S. economy by saying that the man who built that perfect Lehman “culture”:

“Steered Lehman deep into the business of subprime mortgages, bankrolling lenders across the country that were making convoluted loans to questionable borrowers. Lehman even made its own subprime loans. The firm took all those loans, whipped them into bonds and passed on to investors billions of dollars of what is now toxic debt. For all this wealth destruction, Fuld raked in nearly $500 million in compensation during his tenure as CEO…”

The flavor of the Lehman “culture” that Fuld raved about recently was captured in a lengthy piece in Vanity Fair back in 2010.

“The wives of Executive Committee members,” the magazine noted, “were expected to support the numerous philanthropic causes Lehman endorsed—for example, to make annual donations to the American Red Cross, Harlem Children’s Zone, the American Friends of London Business School, and various hospitals. Kathy Fuld collected modern art, and she particularly liked Cy Twombly, Brice Marden, and Jasper Johns. In 2002 she joined the board of the Museum of Modern Art and by 2007 was a vice-chairman. Not only were the wives of Lehman’s senior management expected to attend MoMA evenings and other charity events (along with their husbands), they “were told exactly how much they had to donate,” says one. (There is now a gallery at MoMA dedicated to Kathy and Richard S. Fuld Jr.)”

How About a Little House in Idaho…

Fuld's Bigwood estate in Sun Valley, Idaho
Fuld’s Bigwood estate in Sun Valley, Idaho

Meanwhile, Lehman’s subprime mortgage play and the firm’s strategy to pass along to investors all that toxic debt were no doubt hatched during the company’s annual summer retreat at Fuld’s opulent, eleven bedroom estate in Sun Valley, Idaho. The compound complete with a pool and gatehouse occupies more than 70 acres and thousands of feet of river frontage.

Back before his fall from the ranks of Wall Street’s elite, Fuld decreed that the annual Lehman’s Sun Valley retreat was a mandatory event for wives as well as the firm’s high rolling executives. One wife told Vanity Fair the event “was this weird combination of business and then competition between wives and their husbands. Hiking was mandatory for all.”

Another Lehman spouse recalled that the trip was “an absolute nightmare to pack for.” Evenings events “required pretty dresses, jewelry, and Manolo Blahnik shoes, while hiking gear was needed for the days, as well as ‘day clothes’ for the mornings spent antiquing—trips for which there was a hierarchy as to who got to ride in which car…The couples got to Sun Valley on the two planes owned by Lehman, together known as ‘Lehman Air.’ Francine “Fran” Kittredge, a managing director, arranged for each person or couple to be met at the airport by a driver with an S.U.V. The waiting line of dark-glassed S.U.V.’s was almost comical to behold, according to one attendee—like a scene from a movie depicting the motorcade waiting for a landing president.”

You might think that one of the 25 people responsible for the most serious financial crisis since Herbert Hoover was in the White House might, just might, suffer some of the adverse consequences of his actions. But in the United States few things succeed like excess, or put another way excess on the part of the crowd that brought us the Great Recession creates cash flow, at least for them. Dick Fuld and his wife reportedly have had to sell off parts of their art collection, which fetched $13.5 million. The couple’s 16-room Park Avenue apartment had to go, as well. It netted nearly $26 million.

A few days after Fuld blamed the “government, reckless borrowers, aggressive investors and poor regulation,” for Lehman’s demise, while of course assuming no blame for himself, his outrageously well-paid minions or the “Lehman culture,” he put that little Sun Valley fixer-upper on the auction block.

The company handling the auction told the Wall Street Journal that Fuld’s compound is expected to fetch $30 to $50 million. He’s reportedly selling because “he isn’t using” the place as often as he used to. We should consider that good news, I think, And don’t feel too sorry for the guy. He’s obviously not wasting any time worrying about what he did and his net worth is still in the neighborhood of $200 million.

A Malefactor of Great Wealth…

In a 2013 piece in Bloomberg Business Joshua Green wrote, “Although many of his peers also made disastrous decisions, no one on Wall Street has paid a steeper price in reputation and personal fortune. This owes partly to Fuld’s hubris, brutish manner, and aggressiveness…” Fuld figures in several dozen lawsuits relating to the Lehman downfall that are still pending and there are reports that the one-time Wall Street “gorilla” is still under investigation by the Securities and Exchange Commission, which if there is any justice means his next “house” might be easier to get into than out of.

Fuld has also become the subject of academic research mostly focused on how powerful CEO’s go off the rails. One study was entitled “When Does Narcissistic Leadership Become Problematic? Dick Fuld at Lehman Brothers.” The author of that study, British academic Mark Stein, told Bloomberg Business that initially Fuld’s military demeanor and demanding ways were an asset to Lehman, but that his own ego and personality soon become more important than running the business carefully.

“When the credit crisis struck…Fuld’s narcissism became ruinous. ‘It was clear that Lehman was overleveraged,’ Stein says. ‘Many people inside and outside the firm understood that it had to be sold to survive.’ But Fuld’s identity was wrapped up in Lehman, and he wouldn’t countenance the affront to his dignity that a sale would have represented. ‘As long as I am alive, this firm will never be sold,’ he said in late 2007, the Wall Street Journal reported. ‘And if it is sold after I die, I will reach back from the grave and prevent it.’

More than a hundred years ago Theodore Roosevelt had a term for the crowd that thanks to their egos, greed and shamelessness came close to taking the American economy over the cliff. We still live with their avarice and recklessness, even as some attempt to re-write their role in the story. T.R. called them “malefactors of great wealth.”

Those malefactors are still around. Don’t forget it.

Civil Rights, Economy, Egan, Gay Marriage, Idaho Politics, Otter, Television, Uruguay

When to Quit

One of the most difficult things to do in politics – perhaps the most difficult – is to quit. When do you cut-and-walk-away from a Marriageposition that is no longer correct, or defensible? How do you back down when time moves on and you are stuck on the wrong side of history? The wrong side of morality? The wrong side of the Constitution?

There are political calculations involved in quitting. There always are. What will constituents think who passionately continue to believe in a position that can no longer be sustained? When do you call off the lawyers, save the money and the time, and try to reconcile the age old problem of holding two conflicting ideas in your mind at the same time? How to admit that by continuing to advocate what you believe to be right, you will really be wrong?

The Ninth Circuit Court of Appeals has now presented Idaho with this most difficult moment. The most fierce advocates for denying Ninth Circuitsame sex marriage have now been told – repeatedly – that they are behaving in a manner not permitted under our Constitution. Those fierce advocates would be, in many cases, also the greatest defenders of the Constitution, at least the one they think they know. But now a bunch of faceless, nameless judges have said the Constitution’s guarantees of equal treatment under the law really do apply to all our people, even those who want to marry someone of the same sex. And what do you do?

Governor George Wallace stood in the school house door in Alabama to defy the Constitution. Governor Orval Faubus forced an American president to send paratroopers to Little Rock when he couldn’t bring himself to quit. Governor Ross Barnett permitted a riot to break out and people to die on a college campus in Mississippi rather than cut-and-walk away. Upholding the Constitution is difficult and dangerous business, just like quitting a position is difficult and, at least, politically dangerous.

Perhaps the most wonderful thing about America – and also the most difficult – is the idea that all the provisions of the sacred Constitution apply even to those we most fervently disagree with. I don’t like your speech, or your flag burning, or your race or religion, I disagree with your life style, but it doesn’t mean – it can’t mean – that my Constitution isn’t also your Constitution.

One can appreciate how far Idaho officials charged with defending the unconstitutional have gone by reading the Ninth Circuit’s decision (or, for that matter, Idaho federal Magistrate Candy Dale’s earlier decision). The arguments used by Governor Butch Otter’s lawyers to defend Idaho’s official position are, there is no nice way to say it, utter nonsense and if the matters at hand were not so serious the arguments would be just this side of laughable.

One of those nameless, faceless judge is Judge Stephen Reinhardt. He certainly looks like a judge, doesn’t he? Writing for the Ninth Circuit, Reinhardt says at one point in his decision: “Same-sex marriage, Governor Otter asserts, is reinhardtpart of a shift towards a consent-based, personal relationship model of marriage, which is more adult-centric and less child-centric.”

The Judge, it would appear, was attempting to get to the essence of why Idaho has so strongly resisted same-sex marriage, but as he traveled the state’s road and attempted to reconcile Idaho’s claims with what the Constitution says, he found there was no there there. In a footnote, the Judge said this, really:

“[Otter, or more correctly his lawyer] also states, in conclusory fashion, that allowing same-sex marriage will lead opposite-sex couples to abuse alcohol and drugs, engage in extramarital affairs, take on demanding work schedules, and participate in time-consuming hobbies. We seriously doubt that allowing committed same-sex couples to settle down in legally recognized marriages will drive opposite-sex couples to sex, drugs, and rock-and-roll.”

The Constitution doesn’t say anything about being a good parent, or a good spouse. It says a lot about equality under the law and now the Ninth Circuit with its decision, and the Supreme Court with silence, has told Idaho you need to stop treating people differently, because the Constitution of the United States says so.

Moving on from a long-held position is not only difficult, it can also be constructive and help foster understanding and greater acceptance. It is a teaching moment if someone wants to teach. A leadership moment if someone wants to lead. The U.S. Constitution is the textbook.

When Governor Faubus in Arkansas couldn’t reconcile himself – and his constituents – to the fact that the fundamental law of his nation allowed black girls to go to school with white girls in Little Rock in 1957 he wrote the first sentence of how history has remembered him to this day. The Encyclopedia of Arkansas says this about Orval Faubus, the longest serving Governor in the state’s history: “His record was in many ways progressive, but he is most widely remembered for his attempt to block the desegregation of Little Rock’s Central High School in 1957. His stand against what he called “forced integration” resulted in President Dwight D. Eisenhower’s sending federal troops to Little Rock (Pulaski County) to enforce the 1954 desegregation ruling of the Supreme Court.

Faubus“The Governor is “most widely remembered” for defying the Constitution and clinging to his old, illegal and morally indefensible position. Not the epitaph any politician imagines for himself.

Will the arguments about same-sex marriage continue in Idaho? Of course, just as they continued regarding race and equality in Little Rock in the 1950’s and beyond. Can political leaders, particularly those who have so adamantly defended what they have now been told is indefensible, help begin a more constructive conversation about fairness and equality? Of course they can. But, will they? Courage and leadership are required. Can they do it?

In the wake of the Ninth Circuit decision, Idaho has filed another appeal, but they will have to quit eventually. The Constitutional logic is too obvious. How they do it, the walking away and quitting, will be almost as telling as what they fought so strongly to prevent – equality and fairness.

 

2014 Election, Economy, Egan, Idaho Politics, Otter, Tamarack

Politics is Motion

5112796991_002_ltBefore there was a Karl Rove or a James Carville there was John Sears. A Republican political consultant closely identified with Richard Nixon and Ronald Reagan, Sears plays a central role in a fascinating new book – The Invisible Bridge: The Fall of Nixon and the Rise of Reagan – by the great chronicler of the modern conservative movement Rick Perlstein.

Sears “brilliantly stewarded Ronald Reagan’s run from near impossibility to a dead heat” with President Gerald Ford in the 1976 Republican primaries, Perlstein writes. Reagan ultimately fell just short of grabbing the GOP nomination from the unelected Ford. It was the closest presidential contest since 1948. Had just a couple of things broken Reagan’s way he might well have won and, who knows, made it to the Oval Office four years earlier than he finally did.

Sears was a major force in that campaign. Reporters loved him for his candor and insight. Rivals, Republicans included, frequently snipped at him because he often was the smartest guy in the room and wasn’t shy about showing it.

Reagan once joked to journalist Theodore White that, “There was a feeling that I was just kind of a spokesman for John Sears.” Sears got canned during Reagan’s 1980 campaign when he clashed with the candidate’s California brain trust, but since he was a real pro he simply said it was Reagan’s right to get rid of him. Sears later worked as an analyst for NBC News.

Since Labor Day is now history and the kids are back in school, we can turn our gaze to elections that are now just two months away. Heading into the home stretch for Campaign 2014 there are some smart words from John Sears that are worth pondering for all candidates who want to win in November.

Sears’ trademark saying, Perlstein writes, was “politics is motion.” In other words, “When your campaign sets the terms of the political debate, you are winning. When your opponent has to catch up with one of your moves, he is losing.” Politics is motion. Let’s apply this notion to the race for governor in Idaho.

Electing an Idaho Governor

If you measure the common metrics of politics – the strength of the economy, support for education, party unity among them – the incumbent governor of Idaho, C.L. “Butch” Otter, ought to be in a world of hurt in 2014. Otter, a fixture of Idaho politics since the 1970’s, has been in the middle of a nasty intraparty feud that produced a virtually unknown challenger who gave him a run for his money in the May primary. mediaThe challenger ended up beating the two-term incumbent in some of Idaho’s largest counties, including Otter’s home base of Canyon County. Those party wounds are likely scabbing over as the election nears, but some deeply disenchanted Tea Party-type Republicans still say they would like to “punish” the governor for, among other things, embracing a state-based health care exchange. Many who have know him for years find it amazing that Butch can be attacked as being too liberal, but such is the state of Republican politics these days.

At the same time a brace of less-than-good news about education funding, a failed education reform initiative, Idaho personal income declines, and a botched prison privatization effort should further put Otter on the defensive. When it comes to funding schools and measuring personal income, it used to be said that “Idaho is the Mississippi of the West.” That can now be amended to “Idaho is Mississippi.” None of this should help the incumbent, but it doesn’t seem to be hurting much either.

The National Federation of Independent Business (NFIB) recently endorsed Otter for keeping Idaho taxes and spending low, which is also the flip side of Idaho’s Mississippi-like commitment to educational funding. To date the political discussion of school funding and the economy in Idaho has largely avoided the fact that while state spending on education has been shrinking in recent years due to a stingy state legislature and the governor, property taxpayers are paying more-and-more to keep the lights on at the school house. The need to pass supplemental levies at the local level, which is now virtually routine in many districts often means that the poorest school districts in Idaho just get poorer. The recent failure of a levy in Lapwai means kids in that district will get PE classes online. Nearly 40 Idaho school districts now operate only four days a week.

Another recent study, as reported by the Associated Press, indicates that “Idaho residents have among the lowest personal incomes in the nation but spend a higher percentage of their money on food, housing and other essentials compared with most others, according to data…by the U.S. Bureau of Economic Analysis.” Another report on the changing demographics of education in Idaho offered this sobering prediction over the next five years: “The state is expected to see net growth in lower income households and net declines in households with incomes above $50,000.” Ouch.

The governor once made funding highway needs the center point of his legislative agenda, but even with an overwhelming GOP majority in the legislature couldn’t bend his own party to advance his priority. Highway funding has virtually disappeared as a political issue. And the governor has to deal with at least one other issue – the political fatigue factor that often attaches to a politician seeking a third consecutive term. A third consecutive gubernatorial term has happened twice before in Idaho, but long ago – first in the early 1930’s and then again in the early 1960’s.

Somewhere in that mix of issues and impressions, amid the studies on incomes and educational support, and complicated by the GOP internal turmoil, there might be a coherent message for a challenger, something like Idaho is off on the wrong track and Otter has had his chance. But if politics is motion, as John Sears would say, the motion at this post-Labor Day moment still seems very much with the incumbent.

His liabilities notwithstanding, including a third-party challenger coming from the far, far right who could take five of more percentage points in the general election presumably at Otter’s expense, the Idaho governor’s race seems to be unfolding just the way Butch Otter and his supporters might have hoped it would. The old tried-and-true Republican playbook, the corners tattered and worn, is opening up as it always has, and as it so very predictably would, against Democratic candidate A.J. Balukoff.

The state’s big business lobby, the Idaho Association of Commerce and Industry (IACI), which actually supported development of a state-based health insurance exchange, as did Gov. Otter, is on television attacking Balukoff for being a Obamacare loving “liberal,” a word as bad in red states today as Communist was in the 1950’s. Balukoff says he voted for Mitt Romney last time, but no matter. IACI also takes the Democrat to task for supporting tax increases. Those taxes, of course, are the regular levies that Boise School District patrons regularly pass in an effort to keep their schools among the best the country. Balukoff supported those efforts as a long-time member of the school board, but no matter.

The Farm Bureau, which of course doesn’t endorse candidates, has weighed in saying the Democrat doesn’t understand rural Idaho. Soon Balukoff will be giving away Idaho’s water and going door-to-door picking up guns. It may be an old and tattered political playbook that is being dusted off one more time, but it has worked time and again in Idaho and given a tepid challenge there is little reason to change a winning formula.

Politics is Motion

Meanwhile, the Otter campaign is on the air with a entirely positive commercial touting an improving Idaho economy and a governor that stands up to the feds. It almost reminds me of a Cecil Andrus spot in 1990, including the line that “Idaho is a great place to live, work and raise a family.” It’s morning in Idaho. Otter can take the high road when he has others more than willing to take the low.

Balukoff’s task in this race – any Democrat’s task – is to say something coherent and meaningful about the shortcomings of Otter’s eight years as governor – and there is plenty of raw material – and then present a picture of what a better future might involve. He doesn’t need to be nasty, but he does need to be pointed and specific. When your campaign sets the terms of the political debate, you’re winning. Politics is motion and time is short for a challenger to define the Idaho race in a way that just might make it competitive. Balukoff’s campaign so far seems very much like the campaigns that have come up short for Democrats for the last 20 years – too timid and ironically too conservative.

History tells us that generals always want to fight the last war. Politicians want to run the last campaign. You can often do that as an incumbent, but you don’t beat an incumbent, particularly an incumbent Republican in a state like Idaho, by doing what hasn’t worked before. To make it a race the challenger needs to make it a real choice for voters. You start framing the choice by establishing what the race is about – and its not a health care exchange and Barack Obama – and by taking a few risks.

Right now the Idaho race is about a Republican incumbent without much to brag about against a Democrat from Boise who is being defined as “a liberal.” It is not difficult to predict how that script plays out in November.

 

Baseball, Christie, Economy, Politics, Uncategorized

Fighting to Innovate

2013-Tesla-Model-S-front-1Tesla, the electric car manufacturer, is attempting to revolutionize the American auto industry by building safe, attractive, energy efficient electric cars that are designed to meet a growing customer demand. But…there are some challenges.

Tesla, in challenging the long-established American way of selling new cars, is (big surprise) hitting decades-old speed bumps as it tries to invent a new approach for you – the consumer – to purchase a car. The Tesla story is a great case study in innovation, but also a story about how often American capitalism is arranged to thwart innovation and protect the status quo of well-entrenched interests who like the things just the way they are.

Henry Ford’s great contribution to American industry was, if not to invent at least to perfect, the assembly line. That process allowed one of his Model T automobiles (and after 1928 the Model A) to seamlessly travel a route along the factory floor as auto workers added piece after piece until finally a finish car eased off the line. It was an innovation that helped revolutionize the auto industry and made Detroit, for a couple of generations at least, the center of world manufacturing.

In ol’ Henry’s day Ford workers were paid $5 a day and it was said you could have any color Model T you wanted as it was black. The cars were affordable, relatively easy to repair and drive and Americans bought 15 million of them. When Ford decided to introduce the improved and more stylish Model A – you could buy the car in exotic colors including Arabian Sand – the big factories the company operated had to completely shut down for months while re-tooling took place. Ford’s dominance with the “T” had been challenged by General Motors and other manufactures who were innovating with more powerful engines and attractive features like electric starters and windshield wipers. Ford was into basic until he couldn’t sell basic. And while the Model A was a great car, Ford Motor Company never again truly dominated the industry Henry Ford had invented, in part, because the company took an innovation holiday that never really stopped until the advent of the trendsetting Mustang in 1964.

Ford and his rivals back in the early days of American motoring also faced tremendous challenges in getting their products to market. The system of automobile dealerships so common today began to develop in response to the need to distribute the product. Before long almost any town of size had a Ford dealer, a Chevy dealer and eventually perhaps a Packard, a DeSoto or a Chrysler dealer. The dealers became major players in the local and state economy. Some became household names because their faces were splashed on billboards or later television. And, in keeping with the American way, they became influential players in politics. In time the car dealers largely wrote the laws in most states that attractively (for them) limited competition by requiring, among other things, that you buy your new car directly from “Happy Town Ford,” an independent franchisee, rather than directly from a factory.

The trouble for Tesla is simply that the old dealership model, a feature of the American industry since the 1920’s, isn’t how Tesla sees its cars being sold in the 21st Century. I think of Tesla as the Apple of car dealers. Lots of customer service, a showroom more Mad Men than Joe’s Garage and a product that demands high touch and higher concept. Looking at a Tesla is like browsing an Apple store. Buying a new Toyota unfortunately feels more like a trip to K-Mart.

Three states – New Jersey, Texas and Arizona – have now made it clear to Tesla that the company can’t sell cars directly from its sleek, Apple-inspired stores.  Rather the company, under existing state laws, must conform to the old, old dealership model. Not surprisingly long-established automobile dealers, no doubt threatened by aggressive new competition and no doubt quietly encouraged by established manufacturers, have pushed state officials to make Tesla conform to a sales model and state laws that Henry Ford would have recognized.

“The dealer regulations are similar to those put in place to save the family farm and protect individual farmers,” Jack R. Nerad, the executive market analyst at Kelley Blue Book told the New York Times. “But the landscape is vastly different now. Big dealerships don’t need the type of protection the single-brand store needed back in the day.”

The latest state to tell Tesla to take a hike is New Jersey, ironically where Gov. Chris Christie has lately experienced his share of auto-inflicted political wounds. After apparently first encouraging Tesla to do business in New Jersey, Christie now says the automaker needs to deal with the state legislature in order implement its business plan in the Garden State. He sounds like he’s suddenly never heard of lobbying the legislature to encourage a new business venture.

“Tesla was operating outside the law,” Christie recently said during a town hall meeting. “I have no problem with Tesla selling directly to customers, except it’s against the law in New Jersey.” That, indeed, is the problem. Maybe, just maybe, the law needs to change, but if you’ve been around state legislatures much you know the local car dealers have a lot of clout.

Ironically, Tesla is facing serious push back from two states – Arizona and Texas – that Tesla’s CEO Elon Musk has said he wants to consider as sites for a $6 billion factory that might employ 6,500 workers who would manufacture the lithium ion batteries to power the cars he wants to sell. I hardly need point out that the places where Tesla has been most aggressively backed off are all states with free market loving Republican governors. So far tough guy governors like Christie in New Jersey and Rick Perry in Texas haven’t done much of anything to change a restraint of trade business model enshrined in state law. The next time you hear a politician rail against too much regulation you might think Tesla.

All of this makes corporate recruitment a good deal more difficult, too. Tucson, Arizona would like to host the Tesla factory – who wouldn’t – but why would Tesla open a state-of-the-art facility and spend a few billion in a state that won’t allow the company to sell its product the way it believes in most effective?

I long ago came to believe that in politics, and in most of life, the simplest explanation is most often correct. American automobile manufacturers, and that group would include firms like Toyota, Nissan and others that have effectively become U.S. manufacturers, are looking over their shoulders at Tesla and seeing a smart, sophisticated and aggressive competitor. Detroit, a name we don’t often associate with new thinking, has been late to the innovation party at least since the Edsel hit the street. The status quo they know is comfortable and predictable. You can almost hear them saying – why change? We wrote the law and we like it just fine thank you.

Tesla is a 21st Century car company that is also trying to revolutionize the energy world. First, however, the company needs to change public policy and alter a status quo that works to the advantage of a powerful, entrenched group of business owners who love to sell and service cars just like they did when my dad bought his Model A Ford.

Inventing a new kind of car might prove to be a lot easier than changing a few decades of law that protects the aging and arguably outmoded business model of all those guys down at the Auto Mall.