Economy

Economy

When Monopoly Was More Than a Board Game …

Posted on by mjohnson

In 1933, during the darkest days of the Great Depression, a Kansas City businessman, Charles Lyon, made a driving tour of the Midwest. Lyon would later write to President Franklin D. Roosevelt and offer his observations. He didn’t like what he saw.

“Every good town had the same stores,” Lyon wrote. “The downtown of one city was a replica of the next one, and for every chain store that reared its head, three individually owned stores laid down and died.”

Lyon’s discourse on the predatory nature of chain stores and their impact on small town America is recounted in a 2008 article by historian Daniel Scroop in the scholarly journal “American Studies.”

“Chain stores pay very little toward the upkeep of a town,” Lyon wrote in the 1930s. “They gradually kill it.”

Woolworth’s, one of the first of the giant chain stores in the 1920s and 1930s

Remember that line as you contemplate the history of what didn’t happen to slow or eliminate the monopolization of most of American retailing in the last half of the 20th Century. And reflect what it means for your grocery bill when Kroger combines with Albertsons, and together this grocery behemoth – the largest and second largest grocery chains in America – will have more than 6,000 grocery stores spread across the country.

Political and social pushback against the chain store – and branch banking – in the 1920s and 1930s is a mostly a forgotten chapter in 20th Century American history. It is a chapter, nonetheless, that illustrates some of what has happened to small town, rural America, the struggling American middle class, as well as notions about what a healthy, vibrant economy actually includes.

The anti-chain store movement gained traction in the West, Midwest and South during the seemingly prosperous Roaring 20s. The Missouri legislature considered measures to limit chain stores in 1923 and by the end of the decade several states had put various restrictions – mostly tax-related – into effect. The Depression accelerated the movement and by 1937 nearly 30 states had anti-chain store laws on the books.

Woolworth’s, the drug store chain, became a target of many of the anti-chain efforts, fueled not only by the vast number of stores the chain developed in the 1930s, but also because of the firm’s brutal efforts to beat back union organizing efforts. Workers in some stores resorted to “sit down strikes” that served to paralyze business and frustrate customers and managers. While the strikes made headlines, they ultimately did little to hinder the constantly expanding development of chain stores.

By the 1940s, the leader of the anti-bigness, pro-consumer, anti-monopoly forces was a crusading congressman from Texas named Wright Patman, a politician who, as his biographer has said, combined two political traditions: populism and liberalism.

Patman pushed legislation to create a national chain store tax where, as historian Scroop wrote, “chains would be taxed from $50 to $1,000 per store depending upon their number and location. Because this figure would then be multiplied by the number of states in which a chain had stores, there was a chance that the tax might in some cases exceed annual profits. If this scale had been applied in 1938, for example, the biggest chain store company, the Great Atlantic and Pacific Tea Company (A&P), would have been taxed $524 million on its $882 million in sales.”

This simple idea – taxing bigness – failed, and the anti-chain store crusade, as well as state and local laws to control the monopolies, eventually faded away.

You can see the legacy of this hollowing out and embrace of monopoly bigness in today’s Walmart, Amazon, Costco, Home Depot, CVS, Walgreens and Dollar General, the ubiquitous discounter with nearly 19,000 stores and minimum wage jobs. You’ll almost always find Dollar General stores at the far edge of rural communities that have lost the kinds of home grown retailers that once existed in America’s small towns. The bigness movement also involves newspaper and broadcast consolidation, cable TV systems, hotel chains, even the not so local Taco Bell.

Back to the Kroger-Albertsons mash up which hit a speed bump – maybe – this week when a bipartisan group of state attorney generals called on Albertson’s to back off a planned $4 billion dividend to its shareholder while the $24.6 billion merger deal is evaluated for its anti-trust implications.

Number one wants to combine with number two …

Thanks to the AGs for looking out for competition, but you don’t need to be a Harvard-trained economist to know what the merger implications will be – less competition, fewer employees in retail jobs and surely higher prices at the checkout aisle. The dividend payout, the AGs suggest, could hamper Albertson’s ability to compete, weakening Kroger’s merger partner before the merger, which may be the real reason behind handing shareholders an extremely handsome payday just before the deal closes.

“Anticompetitive mergers have real impacts on everyday people,” said District of Columbia attorney general Karl Racine, who organized the AG’s letter. Washington AG Bob Ferguson, a Democrat, and Idaho AG Lawrence Wasden, a Republican, signed the letter directed to the CEO’s of Kroger and Albertsons.

“We’re deeply concerned about the level of concentration in essential industries,” Racine said, “such as grocery stores. And we’re asking Albertsons to not proceed with the payout while we thoroughly assess whether this merger is anti-competitive, anti-consumer or anti-worker. While we trust that Albertsons will adhere to our request, we are actively exploring other options to achieve our objectives, including litigation.”

Here is one of the ironies of these massive mergers: the rationale behind the big getting bigger is that stores like Albertsons need to compete against other huge retailers like Whole Foods or Walmart. Yet advocates of supersizing grocery stores in to fewer and fewer companies, while letting these stores sell gas and virtually everything else, ignores that a largely unconstrained system that demands a capitalism of bigness represents a circular argument – we must get bigger because everyone else is getting bigger.

The ignored parties here are consumer and workers. A growing, robust American capitalism won’t be built around a few CEOs or institutional shareholders getting fabulously wealthy, while much of the rest of society barely scrapes by. Those Woolworth and A&P stories in the 1930s that grew too big in their day have become today’s Kroger and CVS, while the American middle class, the families that buy the groceries, the washing machines, the bedroom sets and the coffee makers struggle to meet a mortgage and send the kids to college.

The big get bigger, the rich get richer, and the engine that really drives the economy – the consumer – is less and less a part of the American economic calculation.

The politicians and social activists in the 1930s who recognized the dangers inherent in concentrated bigness weren’t wrong. We had a chance to build a different kind of capitalism, that we didn’t helps explain a lot about your grocery bill, not to mention the depressed state of much of small town America.

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Additional Reading:

A few other items that are worth your time …

The Portland Van Abductions

A deep dive into the Portland street protests in 2020, including the still mysterious “van abductions” by unidentified law enforcement officials.

“The video of Evelyn’s arrest went viral on social media; the account of Mark’s arrest first broke on Oregon Public Broadcasting and was re-reported in the national news. 

“The men who took Mark and Evelyn did not identify themselves as federal law enforcement. There are no publicly known records of their arrest or detention. To this day, it’s unclear who took them — what agency they were from, let alone what their names were.”

From The Verge.

How World War I Crushed the American Left

I am a huge fan of the historian Adam Hochschild who has a new book American Midnight about how World War I dramatically changed American politics. It looks like a fascinating study.

“The crushing of socialism—and a new bugbear, communism—was total. The treatment of Eugene Debs was a stark illustration of the crackdown. Debs had won 6 percent of the popular vote in 1912, as the Socialists were making gains at the local and state level, threatening both Republicans and Democrats. By 1917, Hochschild notes, there were 23 Socialist mayors in office across the country, leading cities including Toledo, Pasadena, and Milwaukee. Debs opposed the war steadfastly, but he was so widely respected that the government feared directly attacking him. Instead, a disinformation campaign was launched—by whom, historians are still unsure—which implied that he had changed his position.”

Debs went to jail, the very idea of socialism became a third rail of American politics.

A review from The New Republic.

‘A zombie party’: the deepening crisis of conservatism

This piece about conservatism in the United Kingdom is a couple of years old, but it does highlight many issues that dominate modern conservative politics in the UK and in the United States.

“In Britain and the US, once the movement’s most fertile sources of ideas, voters, leaders and governments, a deep crisis of conservatism has been building since the end of the Reagan and Thatcher governments. It is a crisis of competence, of intellectual energy and coherence, of electoral effectiveness, and – perhaps most serious of all – of social relevance.

“This crisis has often been obscured. The collapse of Soviet communism in the 80s, the apparent triumph of capitalism during the 90s, the western left’s own splits, dilemmas and failures, and the ongoing surge of rightwing populism have all helped maintain conservatism’s surface confidence.”

Good piece from The Guardian.

The grand old man and the ingénue queen

I’m admittedly an Anglophile, as fascinated by the mess that is British politics these days as I am appalled by US politics. So … Winston Churchill and the late Queen.

The Queen and Winston

“Winston churchill was besotted with Queen Elizabeth II: the word is precise. He worshipped and adored her. His relations with some other members of the royal family were, on occasion, complicated — not least when King Edward VII was sleeping with his mother. But for the late Queen he had nothing but an almost puppy-dog love.”

Fun story.

That’s all I got. Be safe. Vote like democracy depended upon it – and it does. Thanks for reading.

Britain, Economy, Politics

Old … and Bad

Posted on by mjohnson

Old ideas die hard. And perhaps old, bad ideas die hardest.

I had the fascinating experience last month of spending time in London in the days preceding Queen Elizabeth II funeral. To say it was an of out of this world scene would be rash understatement.

Crews were still cleaning up the mountains of tribute bouquets in Green Park near Buckingham Palace last weekend. Workers still collected the thousands of written condolence messages, many from children, that were left with the flowers. The grass was worn from the hundreds of thousands of people who did what they could to pay homage to a monarch who seems to have represented for many the very idea of dignified service, while also being the last symbol of a generation that faced down fascism and then lost an empire.

Crowds outside Buckingham Palace

One newspaper account of Queen Elizabeth’s impact wondered if her personality was simply bigger than “the firm,” the Brit way of referring to the royals, and whether the new king could ever hope to match his mother’s magic. He won’t, but the smart money would be on the British monarchy continuing. It’s an old idea and an outmoded one, but compared to the slimy, bad faith politics run amok in many western democracies, a hereditary monarch who strives, however imperfectly, to represent the best of a nation seems downright decent, not to mention needed.

The solemnity of the Queen’s memorial stands in sharp contrast to the current chaos in British politics. The new prime minister, Liz Truss, a tin-eared true believer in Reagan-Thatcher-like trickle-down economics, a Sarah Palin without the charm, would be comfortably at home among the radical political right here in the former colonies.

Truss and her equally hapless finance minister rolled out a new Tory economic plan immediately after the royal funeral that immediately tanked the pound, roiled the mortgage markets and brought emergency intervention from the Bank of England. It was a $500 billion dollar unforced error literally in the first days of her tenure.

The package of tax cuts and regulation trimming was deemed so draconian that Truss’s approval numbers didn’t just drop they went down lower than the Piccadilly line. One poll had the opposition Labour Party up in a future election match up by more than 30 points, prompting one conservative backbencher to quip that Tory leadership had decided against reading the instruction manual until after they had broken the economy.

Slogans and dogma and Liz

You wouldn’t know it listening to the radical right in the American conservative movement, most of whom have embraced Truss and the even more right wing Italian prime minister, but every western economy is dealing with inflation and spiking energy costs. If you think gas prices are high here, price a liter of petrol in Europe. Yet, what Truss and British conservatives have done with fiscal policy only exacerbates the impact. They have latched on to old ideas about tax cuts for the wealthiest – sound familiar – somehow trickling down to the country’s working class at the bottom.

Truss talks, like Margaret Thatcher and Ronald Reagan before her, about a “rising tide lifting all boats” and “growing the economic pie.” It’s an old idea and a bad one.

This old, won’t die trickle-down notion goes a long way toward explaining why US and British economies are among the world’s worst examples of economic inequality. As John Burn-Murdoch reported recently in the Financial Times – not exactly a left-wing rag – the UK and the US have become poor societies with a few really, really wealthy people.

“Our leaders are of course right to target economic growth,” Burn-Murdoch wrote, which is what Truss and fellow travelers in the US say they want to do, “but to wave away concerns about the distribution of a decent standard of living – which is what income inequality essentially measures – is to be uninterested in the lives of millions. Until those gradients are made less steep, the UK and US will remain poor societies with pockets of rich people.”

All this talk of inflation, economic growth and people left behind has a particularly fun house mirror-like quality when seen in the context the looming US mid-term elections. Republicans want to frame the election around gas and grocery prices and their never ending “crisis on the border,” yet they offer absolutely no policy prescription for either of the problems they hammer on daily.

The dirty little secret is they have no policy answers, because like the clueless conservatives now running Britain they govern by slogans and what the brilliant Financial Times columnist Edward Luce calls “the curse of magical thinking – promises that bear no relation to any realistic ability to deliver; extravagant lies that cater to some felt need for self-delusion; gullibility dressed up as hard-nosed ‘taking back control.’”

Conservatives in what Winston Churchill dubbed “the English speaking world” have come to equate bluster and gaudy wealth with smarts and expertise – see Elon Musk, to cite just one example. Brits were flimflammed by a collection of conmen and clowns into abandoning the European Union, a decision that more and more of them regret just as many Americans bought into the lying bluster of a guy who bankrupted his casino and failed at everything in his life save reality TV and Republican politics.

It’s a complicated world out there. As the old saying goes: every problem has an easy, simple solution that is wrong. It takes expertise and knowledge to grow an economy coming out of the worst pandemic in a hundred years, while dealing with a nutcase in central Europe with his trigger finger on the nuclear button. Yet, Liz Truss’s first act as prime minister was to fire the senior civil servant at the British treasury office. Her second act was to trigger an economic disaster for her country.

As Ed Luce notes, “The one clear plan that Trump has for a second term, which more assiduous types have been working on, is to give him the power to fire the federal bureaucracy and replace them with loyalists. That’s anti-expertise, anti-qualification politics on steroids.”

It’s a path so stupid that of course he’ll do it if he gets a chance.

The UK, a place I love, has seen better days, sadly too the breakaway colonies. It feels like the political end times are upon us. Rational action and decent behavior built around old values like honesty and service are forever floating away. Given all the mess, little wonder the Queen, a quiet, dignified symbol of duty and character was so widely mourned. Say what you will about hereditary royalty, she represented something better than what she left behind.

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Additional Reading:

A few more suggestions …

How the right’s radical think tanks reshaped the Conservative party

One more piece on how and why the Conservative Party in Britain has ended up where it is. Turns out you can trace a good deal of it to US “think tanks” funded by right wing billionaires and corporations.

When Boris Johnson assumed office as prime minister in July 2019 and proceeded, without the mandate of a general election, to appoint a cabinet that was arguably one of the most right wing in post-second world war British history, many commentators called it a coup. The free market think tank the Institute of Economic Affairs felt self-congratulation was more in order, however.”

Maybe there really is a vast right wing conspiracy after all. Read the full piece.

The Sweat and Blood of Fannie Lou Hamer

As the U.S. Supreme Court heads toward what could well be the complete dismantling of the landmark Voting Rights Act of 1965, this timely piece is a reminder of why that law came to be and why we still need it.

Voting rights pioneer Fannie Lou Hamer

“At the 1964 Democratic National Convention, Hamer rose to national prominence. She and other activists had started the Mississippi Freedom Democratic party. Because Blacks were denied the right to vote in Mississippi, the MFDP argued, the state’s Democratic delegates were not legally elected. The group presented a report showing Blacks were denied the vote. The Mississippi delegates should not be allowed to vote at the convention, the report stated, and the MFDP delegates should be seated instead.”

Fannie Lou Hamer is a civil rights icon. Read her story and do all you can to support efforts to expand, not limit the right to vote.

Stephen King on What Authentic Maine Cuisine Means to Him

OK, something a little lighter. The celebrated novelist on the cuisine of his native state.

“When I think of Maine cuisine, I think of red hot dogs in spongy Nissen rolls, slow-baked beans (with a big chunk of pork fat thrown in), steamed fresh peas with bacon, whoopie pies, plus macaroni and cheese (often with lobster bits, if there were some left over). I think of creamed salt cod on mashed potatoes—a favorite of my toothless grandfather—and haddock baked in milk, which was the only fish my brother would eat. I hated it; to this day I can see those fishy fillets floating in boiled milk with little tendrils of butter floating around in the pan. Ugh.”

King has written an introduction to a cookbook that draws inspiration from his books. Read the whole thing.

Thanks a million for following along. See you again soon. Be careful out there.

Economy, Education, Idaho Politics

Who Needs Enemies With These Friends …

Posted on by mjohnson

Years before it became an engine of the Idaho economy, and a leading American manufacturer of what Micron Technologies describes as the “world’s most advanced memory and storage technologies,” the Boise-headquartered company was a struggling start up.

Founded by twin brothers Joe and Ward Parkinson in the basement of a dental office in the late 1970s, Micron became a home-grown Idaho success story, not unlike Jack Simplot’s sprawling agri-business empire – Simplot was an early Micron investor – or Joe Albertson’s big grocery store company.

A home grown Idaho success story

Like many successful startups, Micron often depended on support from politicians to go from the ideas hatched in that basement to a company today with facilities in 17 locations around the world and 40,000 employees. Micron recently received some of that governmental help, the so-called CHIPS Act, a bipartisan initiative that invests billions in “semiconductor research, development, manufacturing, and workforce development.” Days after Joe Biden signed the legislation, and not coincidentally, Micron announced a $40 billion expansion, including a $15 billion commitment to new manufacturing facilities and many new jobs in Idaho.

Here is the curious thing, indeed the mind-boggling thing: Idaho’s all Republican congressional delegation opposed the CHIPS Act. So did the Chinese government. Square that circle if you can.

As Reuters reported: “The Chinese Embassy in Washington said China ‘firmly opposed,’” the legislation “calling it reminiscent of a ‘Cold War mentality.’” In other words, China wants a weak American manufacturing sector, particularly when it comes to technology.

Biden pointed out that the US needs computer chips for major weapons systems like the Javelin missile. “It’s no wonder the Chinese Communist Party actively lobbied U.S. business against this bill,” Biden said.

Boise’s mayor supported the legislation and is entitled to celebrate

Here’s another curious thing: the all Republican Idaho delegation voted against the legislation that paved the way for the hometown expansion of a major Idaho business, and then celebrated the company’s decision to expand. It is the most shamelessly hypocritical act of political jujitsu that I can remember in more than 40 years of following Idaho politics.

The shameless pandering was widely pointed out by among others the editorial board of the Idaho Statesman. “There’s something worse than hypocrisy going on here … There was no clearer beneficiary from the CHIPS Act than Idaho. Roughly half of Idaho’s total manufacturing exports are computer chips, according to the Office of the U.S. Trade Representative. Indeed, chips are on par with, though a bit behind, agricultural products. Idaho exports more value in microchips than in potatoes.”

The newspaper concluded Senators Mike Crapo and Jim Risch and Congressmen Russ Fulcher – Fulcher was an early Micron employee – and Mike Simpson ignored a basic duty of their office to support a policy that directly benefits Idaho and the country, while attempting to keep this vital manufacturing here at home.

The no votes were votes against jobs, against international competitiveness, against common sense. Apparently, the Idaho delegation was more focused on opposing a policy that originated in a Democratic administration, even though many House and Senate Republicans ignored the pleas of party leaders to deny Biden a legislative victory.

The most shameless pander of all came from Risch, who had the gall to say on his social media feed that “Idaho & Micron have been partners since Day One of the company’s founding. This announcement of a new fab coming to Boise deepens that partnership.”

Senator Jim Risch’s celebration of an event his vote tried to prevent

In Risch’s case that statement is particularly untrue. I know. I was there.

In 1988 when Risch was president of the state senate, then Democratic governor Cecil Andrus championed increases in educational support, including the first concerted and ultimately successful effort to bring higher education science and technology courses to the Boise Valley. Risch was a no then, too.

In 1988, Micron was in its first big expansion phase with plans to create a new manufacturing facility and 1,000 new jobs, but the company worried that Idaho – and legislators like Risch – wouldn’t support its aspirations for better educational offerings close to its Boise headquarters. Micron seriously considered siting its new facility in Oregon.

But Andrus intervened, along with then Boise State University president John Keiser, and quietly helped engineer a land swap and funding from the university foundation to build the necessary educational infrastructure. Risch, not surprisingly, defaulted to his kneejerk position which was to oppose anything Andrus tried to accomplish. He complained that Andrus negotiated the deal without legislative input. On that Risch was correct.

The governor was afraid that age-old rivalries between Boise State and the University of Idaho over control of engineering offerings would kill the deal, and he worried that land values would skyrocket with speculation about a new university building. And that nearly happened, as Risch complained that he’d “never seen a situation like this,” meaning apparently, he’d never seen a governor solve both an educational problem and secure an economic development win by leaving naysaying Republicans on the sidelines.

So, when Risch says Micron and Idaho have been partners since day one, he’s counting on the fact that none of his constituents will remember that 34 years ago – Risch really is a career politician – he actively opposed the educational investments that jump started Micron’s rise to become one of the biggest international players in semiconductor technology.

As far as I can tell no one in the Idaho business community, including Micron, has called out Risch and the rest of the Idaho delegation for opposing the CHIPS Act, and that is really a shame because failing to hold the shameless responsible for turning their backs on a major employer, not to mention ignoring a national security matter, will merely encourage more such behavior in the future.

Twin Falls Times-News, April 17, 1988

It wasn’t always so. In 1988, then-Micron CEO Joe Parkinson, hardly a liberal, took Risch on, saying the company was dismayed with his legislative leadership. “We thought we were talking to a senator who represented us,” Parkinson said in an interview where he announced Micron would oppose Risch’s re-election due to his lack of support for education.

Risch responded that he was just doing what his “constituents want,” which was to hold the line on educational spending “and not raise taxes.” The senator’s position was as shortsighted then as it is now. And, just to complete the history lesson, Risch lost re-election in 1988 by more than 10,000 votes.

After that election, which Andrus described as “a referendum on education,” Risch told reporters he was done with politics. “I never intended to make politics a career,” he said.

It wasn’t the last time he misled his constituents.

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Additional Reading:

A few other stories from around the Internet …

The Bizarre Story of Piggly Wiggly, the First Self-Service Grocery Store

Another economic origin story.

“Before Piggly Wiggly, groceries were sold at stores where a clerk would assemble your order for you, weighing out dry goods from large barrels. Even chain stores used clerks.”

The Pig, as my mom called the store, changed the game. Link here.

Looking for the Good War: American Amnesia and the Violent Pursuit of Happiness

A review of a book by Elizabeth D. Samet who teaches at the U.S. Military Academy at West Point.

“The great thing about the American empire,” observes historian Niall Ferguson—a fan of that empire—“is that so many Americans disbelieve in its existence.” Samet argues that a major reason for this disbelief is the collective misrepresentation of America’s triumph in the Second World War. Tom Brokaw’s The Greatest Generation, Steven E. Ambrose’s Band of Brothers, and Stephen Spielberg’s Saving Private Ryan are only some of the better known evangelical texts of American exceptionalism. A sea of popular culture—books, movies, newspapers, radio and TV shows, comics, and social media campaigns—has transformed the war into what Samet calls an enduring “testament to the redemptive capacity of American violence.” This, she writes, “leads us repeatedly to imagine that the use of force can accomplish miraculous political ends even when we have examples of Vietnam, Iraq, and Afghanistan to tell us otherwise.”

From Dissent Magazine.

THE QUEEN OF THE WORLD

The Queen is dead.

The Financial Times front page

“On Princess Elizabeth’s 21st birthday, she delivered a radio broadcast that would define her life. Addressing all ‘the peoples of the British Commonwealth and Empire,’ and specifically ‘the youth of the British family of nations,’ she asked for their permission to speak as their representative. Delivered from Cape Town, South Africa, this was not a message to England, or Britain, or even the United Kingdom, but to the already fading empire.

“The message was designed to inspire, but also to begin a transition. The princess declared that just as England had saved Europe from Napoleonic domination in the 19th century, the British empire had saved the world from Hitler in the 20th. The task now before the empire was just as pressing, she said: It needed to save itself.”

From The Atlantic.

I’ll be away from my regular Friday column for a while, but may be posting here and there during some down time. I’ll be in touch and thanks for reading. All the best.

Economy, Idaho Politics, Pandemic, Trump

The Next Wave

Posted on by mjohnson

“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…

Posted on by mjohnson

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…

Posted on by mjohnson

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…

Posted on by mjohnson

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…

Posted on by mjohnson

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

Posted on by christian

     “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

—–

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

Posted on by christian

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.