Christie, Economy

Hoarding Cash

moneySo Much Cash, So Little Investment

You don’t have to read the Wall Street Journal every day to know that the economy is barely struggling out of the Great Recession. Unemployment bumps along at just under 10 percent and some in the Congress debate whether extending benefits to the job seekers might actually encourage the out of work to stay on the sofa. In Idaho, the governor tells state employees that they best keep their expectations in check. Better times aren’t around the corner anytime soon.

Yet, somebody is making out in this rotten economy. The federal pay czar – yes, we have one – recently called the $2 billion the biggest of the big banks paid in bonuses in late 2008 and 2009 “ill-advised,” but all he could do was hold a news conference and point that out. Reforming big bank incentives seems not to be in the cards. These same banks, most recipients of TARP funds we all provided, are still reluctant to lend significant money, but they seem to have no reluctance to make money, stack it up in the vault and hand it out in multi-million dollar bonuses.

Meantime, its estimated that Fortune 500 companies are sitting on something north of $1.8 trillion in cash. As Bruce Stokes pointed out recently in a piece for the National Journal, only corporate America has the financial wherewithal to get the fragile economy moving, yet the money seems to be going under the mattress and into obscene bonuses rather than into jobs, R&D and acquisitions. Stokes suggests taxing excess corporate cash. I’ll not hold my breath on that idea, but there is ample evidence the cash hoarding is hurting the recovery.

Economic analysts Yves Smith and Rob Parenteau contend part of the reason for the corporate cash accumulation is the short-term nature of corporate thinking. CEO’s and their boards have become obsessed with quarterly earnings reports and the fact that Wall Street analysts and big investors reward or punish those who hit or miss those every three month targets.

“To show short-term profits,” Smith and Parenteau wrote recently in a New York Times piece, “they avoid investing in future growth. To develop new products, buy new equipment or expand geographically, an enterprise has to spend money — on marketing research, product design, prototype development, legal expenses associated with patents, lining up contractors and so on.”

My thoughtful Montana friend, Pat Williams, the former Congressman who now teaches at the University of Montana, had a great piece last week that got me thinking about what only business can do in tough times like these.

Pat, recalling a tough 1950’s economic downturn when he was just a kid, remembered that his mother and dad actually made the decision to invest into a down economy on the main street of Butte, Montana.

In a piece that appeared in a number of Montana papers, Pat wrote: “I remember Dad telling our customers and insisting to his fellow small business friends along Park Street, ‘Now is the right time.’ His logic was that building contractors needed work, Butte’s people wanted jobs, the appearance of downtown was important, and, he insisted, interest rates were only going up. He firmly believed that one invested in one’s self by investing in your customers and your city.”

It may be the toughest thing to do in a tough economy to make an investment decision. The safe path is to keep the cash in the bank, avoid risk and ride it out. History rewards the successful risk taker, but then again why risk it?

The economy needs a positive jolt. It’s time to start investing for the long-term. Its time for a glass half full attitude. Henry Ford, Bill Gates and Hewlett and Packard did not built empires by not investing in their customers and cities.

When Pat Williams’ folks invested in the remodel of their Butte restaurant back in the 1950’s a curious thing happened.

“Following the completion of that new, expensive store front,” Williams wrote, “we had a significant increase in customers saying thanks by enjoying a steak dinner, buying a box of candy, or simply throwing a dime on the counter for an extra cup of coffee.”

Funny thing how the economy responds to the notion that things really can get better. Maybe it really is less about economic theory and more about human nature. It is time to take some measured risk. Goodness knows, there is a lot of room on the upside.

Christie, Economy

Back to the Future

glassIs it Time to Bring Back Glass-Steagall?

Carter Glass (left) developed an impressive resume during his nearly 50 years in public life – Congressman, Secretary of the Treasury under Woodrow Wilson, architect of the Federal Reserve System and U.S. Senator. If he’s remembered at all more than 60 years after his death it for the financial services regulation he authored – the Glass-Steagall Act – and pushed through the Senate in 1933.

A key provision of Glass-Steagall regulated for the first time the speculative activities of banks and mandated the eventual separation of commercial banking from investment banking. Bankers would have to chose under Glass’ legislation to accept deposits and make loans – commercial banking – or invest and trade in securities and other instruments – investment banking. There is general agreement that the legislation stablized banking in the 1930’s and provided a solid platform on which to build a strong and sustainable system for the rest of the 20th Century.

Wall Street was never satisfied, however, and after years of lobbying to end the separation and “reform” and modernize banking for the 21st Century, Congress repealed provisions of Glass-Steagall in 1999. President Bill Clinton signed the legislation.

The final Senate vote was a lopsided 90-8. Still, there were some voices back in 1999 expressing concern about doing away with the Depression-era legislation. When you go back and read the comments of North Dakota Senator Byron Dorgan, one of the no votes, you almost feel he had a crystal ball allowing a look into the future.

”I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that which is true in the 1930’s is true in 2010.

”I wasn’t around during the 1930’s or the debate over Glass-Steagall,” Dorgan went on, “but I was here in the early 1980’s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.”

The late Sen. Paul Wellstone of Minnesota called Glass-Steagall a “stabilizer” during the Great Depression “designed to keep a similar tragedy from recurring.”

The fears were discounted by the proponents who, after all, had the votes. Then-Sen. Bob Kerrey of Nebraska said: ”The concerns that we will have a meltdown like 1929 are dramatically overblown.”

Now, in the wake of the greatest financial crisis since 1929, a host of people think the repeal was a bad idea and even some who originally supported it, like Arizona’s John McCain, are supporting a return of Glass-Steagall. Even an ex-Merrill Lynch executive said he regretted supporting repeal.

The great financial meltdown of 2008 had roots deep in the fertile soil of a wild and unsustainable real estate market, unregulated and unintelligible exotic investment tools and regulators at the federal level who were too often asleep at the switch. Someday we may know the full story that is still unfolding thanks primarily to good reporting and post-disaster analysis.

One could make the argument, and more and more are making it, that the great collapse really began when Washington wiped from the books a Depression-era law written by the long forgotten senator from Virginia – Carter Glass.

Economy, Egan, Idaho Politics, Otter

Changing the Fabric of Idaho

smylieLegislatures and Lasting Legacies…

When Idaho Governor Robert E. Smylie cut a deal with the wealthy Harriman family in 1965 to take title to the family’s fabulous Railroad Ranch in eastern Idaho, the agreement included a provision that Idaho would create a professional parks department in exchange for the land.

That deal – and, yes, many of Smylie’s fellow Republicans disliked it – created the Idaho Department of Parks and Recreation and the department has become a lasting legacy of Smylie’s three terms as a progressive Republican governor.

The Idaho Statesman’s Rocky Barker correctly describes what might happen to Idaho’s parks now that – 45 years on from Smylie’s historic deal – Governor Butch Otter has proposed folding the department into the state Department of Lands, effectively eliminating the agency.

Too no small degree, Otter’s legacy is going to be shaped by how the budget debate that began on Monday, and will involve parks, schools and other state functions, unfolds over the next few weeks.

Make no mistake, times are tough in Idaho, nevertheless, what Otter has suggested – and he has proposed elimination of several small agencies, including the 40-year-old Idaho Human Rights Commission – is more about philosophy than budgets. Otter has suggested, by virtue of his budget proposals, that parks, the Human Rights Commission, public television, and the Deaf and Hard of Hearing Commission, among others, are not legitimate functions of government. The governor has also proposed an unprecedented second year of real cuts in public school, community college and higher education support.

This tees up the kind of debate that some folks in Idaho have long relished – what is the legitimate role of government in good times and bad? It will be fascinating to watch.

In 1965, Bob Smylie had to push and prod the Idaho Legislature to not only create a professional parks department, but to also put in place the elements of the modern Idaho tax structure, including a sales tax. By common belief, the ’65 session produced more of lasting value for Idaho than any legislature before or since.

In 2010, the Idaho Legislature may find itself pushing back against a governor who seeks a different kind of legacy; a legacy that truly will change the fabric of life in Idaho. Idaho will be a different place without an emphasis on parks, a statewide public television system or an state agency devoted to sorting out employment disputes between workers and employers. Suggesting that there are other sources of funding for such services is mostly political rhetoric, not realistic policy.

Bob Smylie always contended that his “successes” during the1965 session sealed his political demise a year later when he lost in the Republican primary after alienating many fellow Republicans. Legacies do have consequences.

Tomorrow: More on the Idaho Legislature.

Allred, Economy, Education, Egan, Idaho Politics, Otter

A Race for Idaho Governor – Part II

idaho state sealSix Things to Watch in Otter vs. Allred

As the New Year unfolds, Idaho voters may experience something they haven’t often witnessed lately – an interesting gubernatorial campaign.

After months of speculation that long-suffering Idaho Democrats might not field a serious candidate against incumbent Republican Butch Otter, a newcomer with interesting credentials jumped into the fray last week.

Yesterday’s post discussed the broad dynamics of the down and out Idaho Democrats and whether Keith Allred’s surprise candidacy can jump start their fortunes. Today: a half dozen things worth watching as this race unfolds.

1) How will the 2010 Idaho Legislature turn? The last two sessions have featured intra-party brawls between House and Senate Republicans and between Otter and GOP legislative leaders. The battles betray the fault lines between the more moderate elements in the party and the more conservative and have helped stall the governor’s legislative agenda, primarily transportation funding. It has been Otter’s fate to preside during a time of severe retrenchment and with the state’s economy still off in the ditch, the coming session promises more budget cutting and service reductions. Having been served this plate of political drama, Democrats haven’t been able to capitalize. So, watch how education funding fares – both K-12 and higher education – and whether continued deterioration in these areas really cause, or can be made to cause, consternation at the state’s kitchen tables.

2) By late summer or early fall will there be any discrenible improvement in the economy? Every incumbent would like a crystal ball on this question. At Christmas week, the state’s unemployment rate stands at a shade over 9%. If we could predict where that rate will stand on Labor Day and whether jobs and economic issues become a centerpiece of the coming campaign, we would have a better idea of whether an Otter-Allred match up will feature a real election or merely the run-up to a second term Otter coronation.

3) Can Allred gather the resources to run a credible race? The last two gubernatorial elections showed there is probably a million dollars available for any Idaho Democrat who works hard and seems credible. Still, carrying the fight to a well-financed incumbent is always an expensive proposition, particularly when one has to buy name recognition.

4) Will 2010 be a “throw the bums out election?” And, if it becomes an anti-incumbent year generally, will the notion of change gain steam across the political spectrum and in Idaho? Change was a powerful winning factor in national and state elections in 2008 and all the polling at the moment indicates folks are mad as hell and not anxious to take much more. Next year’s politics could be about change all over again, particularly if challengers, regardless of party, are able to make the case that the folks in office are part of the problem. That is, historically speaking, a tough sell for a Democrat in Idaho, but there is a populist wave building in the country and the smart candidates my try to ride it until November.

5) Does Allred’s personal story help him connect? The new candidate hails from Twin Falls, has a ranching background, a Harvard education, has served as an LDS Church leader and, until his announcement, could claim strong, non-partisan policy expertise. Does all that give him a chance to make his case in areas of Idaho – the Magic Valley in south central Idaho and the Upper Snake River Valley in the east, for instance – where Democrats are seldom heard and even less frequently considered worthy of a vote? While southern and eastern Idaho may seem a tempting target for a Democrat like Allred, historically the party’s successful candidates have had to play well north of the Salmon River and there the personal story will be dissected and debated for its relevance to many voters who still think in terms of timber and silver, salmon and wheat. I’ve always thought an acid test for an Idaho Democrat was being able to campaign at the gate of the Bear Lake County Fair in Montpelier and at the Border Days Rodeo in Grangeville, while not looking out of place in either locale. No Democrat since Cece Andrus have been able to pull that off.

6) And, can Keith Allred write a fundamentally new Democratic narrative in Idaho? And, will his adopted Democratic Party let him? He will need to fashion an updated, compelling 21st Century message, build a new electoral coalition, craft a new statewide organizing principle and, oh yes, there is that money. Democrats in Idaho also always need a major dose of luck – self-made generally.

A young John Kennedy warned tired and dispirited national Democrats in 1956 – with himself no doubt in mind – that the party needed “new ideas, new policies and new faces.”

Kennedy could have been talking about Idaho Democrats over the last 15 years. And while the political math for Democrats remains extremely difficult, a definition of “a new idea” would be nominating for governor a southern Idaho ranch kid turned Harvard professor, who is an LDS Bishop, sits a horse well and just happens to be a state government policy wonk.

Will a new face like that play in Grangeville? And will Allred’s consensus approach to policy catch on Bear Lake County? Stay tuned.

Allred, Economy, Education, Egan, Idaho Politics, Otter

A Race for Governor in Idaho

allredCowboy Wonk Vs. Cowboy Governor

Since 1994, the Idaho Democratic Party has been living the truth of the old saying about insanity. The definition of insanity, it is said, is doing the same thing over and over again and expecting a different outcome. Four times in a row, Idaho Democrats have run essentially the same campaign for governor and four times in a row they have lost, badly.

The next Idaho gubernatorial election may – too early to tell for sure – may offer a different narrative. Twin Falls native Keith Allred threw in with the Democrats last week and barring some big surprise will be the party’s candidate against incumbent Republican Butch Otter. I say “threw in” because until his announcement, most who have known him since he moved back to Idaho five years ago would have been hard pressed to divine his partisan leanings.

After establishing a name for himself in political and media circles as a scrupulously non-partisan policy analyst and founder of a non-profit group – The Common Interest – Allred has decided to try and apply his notions about what he calls “collaborative polling” to a run for the state’s highest office.

Allred is a very smart guy, well spoken and engaging. He is also a first time candidate matched against a guy who has been on the ballot continuously since 1986. Allred is also, and I say this with genuine regard, a policy wonk. If an Idaho election could be decided on the basis of who knows the most about the gasoline tax, Allred would be a shoo-in, and, of course, if smart, wonkish guys always won elections, we’d be remembering the tenure of President Bill Bradley. Politics rarely works that way.

Elections more often turn on other factors – human factors – such as likability, toughness, passion, organizational ability and innovation. Still a deep and wide knowledge of issues sure can’t hurt a first time candidate and it is better to start informed in detail about issues than to have to learn it all during the job interview.

The political and media classes know Allred by virtue of his very solid analytical work on issues like education funding and property taxes. While relationships with the chattering classes helps with early credibility, Allred is far from a household name. To state the obvious, he has a lot of ground to cover to make himself as well know as Otter who has served at Lt. Governor, Congressman and Governor for more than two decades. As the Idaho Statesman’s Rocky Barker correctly noted recently, Otter remains one of the best retail politicians Idahoans have ever seen and retail politics still matter in Idaho.

But, back to the need for a different narrative. The Democratic Party in Idaho, never a real statewide organization, has long lacked an effective plan – including a consistent and compelling message and the leadership to push a message – that might allow it to regain the relevance it lost when Phil Batt came from behind to grab the governorship in 1994. That watershed election ended 24 straight years of Democratic dominance in the big office on the second floor of the Statehouse and Democrats have been struggling ever since.

In the four elections beginning in 1994, no Democratic candidate for governor has captured more than 44% of the vote. The party and its gubernatorial candidate cry out for new approaches, for some innovation and for effective outreach to a new Idaho; the Idaho of young immigrants, Hispanics and high tech entrepreneurs. Having said that, it is admittedly easier to diagnose the problem than to prescribe the precise remedy.

For starters, the state has changed dramatically since 1986 when my old boss, four-term Governor Cecil D. Andrus won a very close election based on his ability to target and carry 13 of the state’s 44 counties. Many of those once reliably Democratic areas have long since ceased to be friendly territory for a Democrat. Organized labor, once a pillar of Democratic strength, is now, thanks in part to right to work legislation passed in 1986, much less a pillar. And the party’s legislative ranks have not proven to be any kind of a farm team of gubernatorial or other statewide talent.

It has been a long time since Democrats have had a successful younger candidate for major office – Andrus was 39 when he was first elected, Frank Church was 32 when he went to the Senate – who could present a new face for the party. One of the brightest potentials of the 45-year old Allred’s campaign is what it might mean in terms of a youth movement for aging Idaho Democrats.

The one thing that may remain relevant from the last successful Democratic gubernatorial campaign is the Andrus message: good schools, a good economy and a good place to live. That basic message, updated for a new century, may be more telling than ever in 2010, but, of course, every good message needs a good messenger.

Meanwhile, with the exceptions of the city limits of Boise and the Sun Valley area, Republicans can, and do, contest and win elections everywhere in Idaho. The GOP does have a farm team and very importantly, as the state’s population has grown over the last two decades, Otter’s home county – Canyon – has become even more critical in a statewide race.

Here is a telling statistic and remember the state’s population growth as you consider this: In losing to Otter in 2006, Democratic candidate Jerry Brady gathered in only 5,400 more votes than Andrus did in winning the governorship 20 years earlier in that very close race against Republican David Leroy. By contrast, Otter won in 2006 with 46,000 more votes than Leroy polled against Andrus two decades ago. Those numbers – growing Republican voting strength and relatively flat Democrat numbers – represent a structural deficit for a Democrat that presents a huge challenge for anyone running statewide.

Nevertheless, at first blush, the Allred candidacy has at least two things going for it: a fresh face backed by Idaho sensibilities and the potential to write a new Democratic game plan. It was no small surprise that respected former Republican State Senator Laird Noh of Kimberly endorsed Allred right out of the box and praised his bi-partisan consensus building skills. Not a bad start, but only a start.

Woody Allen famously said that 90% of life is simply showing up. Ninety percent of politics may be showing up at the right time. Is the timing right in Idaho for a new kind of Democrat? Or, do tough times like the present argue for continuing the politics and personalities that Idahoans have grown comfortable with for 15 years? Such questions make politics winter’s best spectator sport.

Tomorrow: A half dozen things to watch as an Otter-Allred race unfolds

Christie, Economy

Eighty Years Ago Today

Panic on Wall Street“Black Tuesday” Marked Slide Into Great Depression

There is some modestly good economic news this morning in contrast to this day 80 years ago when crowds gathered on Wall Street in New York sensing the economic worst had happened.

Third quarter GNP growth was at a healthy 3.5% indicating to some that the recession is definitely over and, according to the Washington Post, the stimulus efforts are having the desired impact.

Predicting the economy is, however, somewhat akin to predicting post-season baseball performance. I figured Phillies’ lefthander Cliff Lee would pitch a strong World Series opener last night, but hardly expected him to dominate the fearsome Yankee line-up. On a cold, rainy night in the Bronx, Cliff Lee was simply splendid and his one nine inning performance may – no firm prediction – have reset the Series.

So, in case you are tempted to assume an attitude of irrational exuberance over the apparently improving economic numbers, consider the following quote from the very smart financier Bernard Baruch. By 1900, at age 30, Baruch had a sterling Wall Street reputation and a million bucks – a lot of money back in the day.

Two weeks after “Black Tuesday” in 1929, Baruch consoled his friend Winston Churchill with an encouraging note. The future British Prime Minister had taken a bath in the market meltdown and Baruch, counselor to presidents and prime ministers, wrote in a cablegram to Churchill: “Financial storm definitely passed.”

That was November 15, 1929.

So much for predictions. The Great Depression would last another decade. My fearless prediction: recovery to continue, slow and steady, but don’t bet on it.

Cenarrusa, Christie, Economy, Idaho

A Long, Slow Recovery

Idaho Struggles to Regain Economic Footing

Years ago when Idaho’s economy was built around timber, mining and agriculture, the state tended to come late to a recession and leave early. No more apparently.

At the annual Idaho housing conference, organized by the Idaho Housing and Finance Association, the state’s top economist, Mike Ferguson, predicted an agonizingly slow recovery in Idaho. Ferguson opining that it could be a year from now before the Idaho economy really starts to feel like it is growing even modestly.

Other participants in a panel on issues and trends in Idaho – Bob Uhlenkott and Randy Schroll of the Idaho departments of Labor and Commerce, respectively, and health insurance industry watcher Elwood Cleaver – generally agreed. Slow recovery is the expectation and unemployment could go higher. Idaho’s current unemployment rates slumps at 8.9%.

Brad Carlson at the Idaho Business Review has another estimate of the not exactly gloomy, but still very measured outlook.

Ferguson, the long-time state economist, made a telling point when he said that Idaho’s economy has suffered more than might once have been the case during the current downturn thanks to Micron downsizing in the high tech sector, Albertson’s (now Supervalu) headquarters departure from Boise and the demise of the much touted, but now bankrupt resort at Tamarack.

The increased diversification of the Idaho economy since the 1970’s has been a good thing, but at the cost perhaps of having the state’s economy behave more like the rest of the nation when a slide begins.

Always looking for a silver lining, I would note one minor growth area in the Idaho economy. The No. 1 Idaho wolf tag has sold to a North Carolina bidder for $8,000. I wonder, does that qualify as foreign investment?