Tuesday, October 23, 2012

Talking In Circles About Business Climate

I’ve always figured that if we are going to talk about the “business climate” - and we seem to be doing a lot of that these days – we ought to know what the term means.

.We can all agree that the business climate is a basket of conditions that affect business performance, and that the more favorable the climate, the better business performance should be. But when it comes to choosing which conditions really make a difference, we’re all over the map: some folks think it’s all about taxes, others point to the quality of the labor force, still others to transportation costs, or the quality of public services, or lifestyle amenities or …well, the list goes on and on. And all too often, how business climate gets assessed has more to do with ideology than jobs, businesses and the economy.

I’ve been mulling this over recently because the Montana Policy Institute, a Bozeman based outfit that calls itself a “free market think tank,” just released a paper listing “business friendliness” scores for 25 Montana cities. The release of the paper was reported and apparently taken seriously by an admiring state press, and that sent me to my computer to find out whether the scores really mean something, or just sound like they do. Because there’s a pretty obvious way we can test the usefulness of any business climate rating, and that’s to determine if it’s actually correlated with business performance.  If it is, great. But if it isn’t, it’s not really telling us what we want to know.

Fortunately, I didn’t have to grub around for data to measure business performance, because the good people at MPI had already calculated an “economic vitality” score – based on median per capita income  and job and population growth – for all 25 cities in their study. So it was just a question of determining whether MPI’s business friendliness and economic vitality scores are correlated with each other. And it turns out they are. Here’s the picture:

Each point in the figure represents a city, and the upward drift in the points as you move to right means that more business friendly cities enjoy greater economic vitality. If you go to the trouble of computing the correlation coefficient (.42) you will find that the relationship between the scores is statistically significant. That means, in essence, that the relationship you see in the scatter diagram is real, and not just a fluke. So MPI has given us a business climate measure that really is related to business performance. Pretty impressive, no?

Well no, not really.

The problem is that MPI bases almost half of its business friendliness calculation on the economic vitality score itself. And that’s okay, as long as you like reasoning in circles. What produces good business performance? A good business climate. And what produces a good business climate? According to MPI, good business performance. So good business performance produces good business performance! True, but not very helpful.

None of this prevents MPI from concluding that cities can become more “business friendly” by “maintaining low tax rates on businesses.” But that has to be true, because MPI uses business taxes, along with business performance, in calculating its business friendliness score. In that case, cities that cut business taxes – which is what MPI, the free market think tank, devoutly hopes they will do - will inevitably raise their friendliness scores. That’s just arithmetic. The real question, however, is whether cutting taxes will improve business performance. Take a look at this next scatter diagram. It plots MPI’s economic vitality score against its tax burden score. Again, each point represents one city.

If you can’t see any relationship between tax levels and business performance in this figure, you’re not the only one. The correlation coefficient between these two variables is -.17, way too low to be statistically significant. In other words, the data just don’t allow us to conclude that lower taxes really lead to better business performance.

What has happened here is that MPI had dreamed up a measure of business climate that as a matter of simple arithmetic improves as business tax rates fall. Then they design their business climate measure so that it is spuriously correlated with business performance. And putting the two together they reach the false conclusion that reducing business taxes will improve business performance.

Somehow, the “think” part of “free market think tank” seems to have gone missing.

Friday, October 5, 2012

Tax Plan Politics

You may have been pulling your hair out during the presidential debate the other night for any number of reasons, but one of them was surely that the President and Mitt Romney were making conflicting factual claims about taxes that simply couldn't all be true.

Case in point: President Obama said, over and over again, that Romney planned to cut tax revenues by $5 trillion, thereby swelling the deficit, while Romney said, over and over again, that his plan wouldn’t reduce revenues or grow the deficit at all. Those two claims can’t both be right, can they?

It turns out that it all depends on what you mean by the word “plan.” What Romney is definitely planning is to reduce tax rates by 20% across the board. Over 10 years, that alone would reduce Federal revenue by about $5 trillion, and that’s where the President gets his number. But Romney also says he will get the revenue back from “closing loopholes,”  that is, by eliminating some of the many deductions, exemptions and credits with which the tax system is riddled.

The trouble is that he hasn’t been at all clear about which loopholes he would close, and understandably so.  After all, when you close a loophole, you raise somebody’s taxes, and that’s not something we talk about in polite society.  And a lot of number crunchers have concluded that closing enough of them to make the whole package “revenue neutral” would end up raising taxes for middle income families, which Romney has promised not to do. Romney is also apparently vaguely planning that the problem will be partly solved by that old Republican favorite, supply side economics: lower tax rates = happier “job creators” = more jobs = higher tax revenue.

So while the Romney plan is pretty clear about cutting rates, it’s pretty half-baked when it comes to assuring revenue neutrality. Whether it’s fair or not to call that a plan to cut revenue by $5 trillion – which is what the President  calls it – you can decide.*

Whatever it is, if Romney could make his tax plan work it would have, on the surface at any rate, a certain appeal.  It’s the classic prescription for tax reform: if we shut loopholes, broaden the tax base and reduce tax rates, we can simplify the tax system without a loss of revenue. 

But before we do away with any particular credit or deduction or exemption, it’s important to bear in mind that there might be a good reason it was created in the first place.  For example, the Federal earned income tax credit was enacted to provide tax relief to low income working families. And the mortgage interest deduction is intended to encourage home ownership.  Are those really things we want to give up?

Consider the attempt in the 2011 legislature to eliminate Montana’s energy efficiency tax credits. Montanans who improve the energy efficiency of their homes and businesses can claim a 25% tax credit for the cost of those improvements.  Individuals can claim up to $500 and a married couple filing jointly can claim up to $1,000. Homeowners can install anything from energy-saving appliances and programmable thermostats to energy-efficient windows, and the credit helps them afford these simple improvements that reduce energy use and lower their monthly energy bills.  The community benefits as well, with greater energy independence, lower environmental costs from energy production, and the robust growth of businesses that provide energy conservation products and services. 

The Montana legislature created these tax credits in 1983.  And although thousands of Montanans since then have used the credit to capture energy savings in their homes and businesses, the Legislature in 2011 passed a bill (SB 253), carried by Senator Bob Lake (who’s currently running for the Public Service Commission) that repealed the credit entirely.  Lake’s bill, which initially called for the repeal of a whole slew of other credits, was intended to generate revenue to offset a Republican plan to reduce the business equipment tax

Fortunately, Governor Schweitzer vetoed SB253, which he called “largest tax increase proposed by the 2011 Legislature.” And he was right. In 2010, 29,000 Montana households claimed a total of $10.4 million  in energy conservation credits on their state income taxes. Eliminating these credits would have made low and middle income families pay more (both in higher income taxes and higher energy bills) in order to provide business equipment tax relief.  Almost 70% of that relief would have gone to about 450 large companies with more that $1 million worth of equipment. And the progress Montanans have made in conserving energy would have suffered a sharp setback.

Energy efficiency is the least expensive, cleanest, and most reliable energy resource for Montana utilities— and the same goes for Montana families.  Thankfully a misguided tax policy proposal failed, and Montanans still have the opportunity to take advantage of tax credits that help pay for energy efficiency improvements in their homes and businesses.

* Robert Samuelson, writing in the Washington Post, doesn’t think it’s fair, but he doesn’t think that Romney is being a straight shooter, either.

Thursday, September 20, 2012

A Little Job Growth Fact Checking

Judging by Mike Dennison’s report on the gubernatorial debate in Helena this week, when it comes to explaining what’s wrong with Montana’s economy and what should be done about it, Rick Hill is “on message.” It’s the usual story: we’re falling behind, we have a bad business climate, our taxes are too high, we over-regulate, we need to develop our natural resources (particularly coal), etc.

Now it’s fine to say all that, if you believe it, but it would be nice not to mangle the facts while you’re at it.

For example: Dennison quotes Hill as saying that “We’re trailing all our neighboring states in creating jobs” which “has been a pattern in Montana for almost three decades.” Hill especially envies Wyoming, which he thinks has a better economy than Montana’s because it “embraced coal development” 40 years ago. Well, look at the chart below. It shows trends in total employment in Montana, Idaho, Wyoming and North and South Dakota over roughly the past two decades (1990 to 2010). Employment each year is measured as a percent of its value in 1990, so all the lines start from the same place, 100 in 1990.*

As you can see, we have not been “trailing all our neighboring states in creating jobs … for almost three decades.” We trailed only one, Idaho, and came in ahead of North and South Dakota and yes, even Wyoming.  Of course none of this means that Montanans shouldn’t be concerned about job growth and economic recovery or that we shouldn’t look at what other states have done to promote their economic health. But in looking for states to emulate, shouldn’t we choose the ones – like Idaho - that are doing relatively well? At a minimum, shouldn’t we know which states those are?

The fact that Idaho did a lot better than Wyoming should make us all – including Hill – think long and hard about an economic development strategy based on more natural resource extraction. Here’s another graph. It shows natural resource employment as a percent of total employment in Idaho and Wyoming over the same 1990 to 2010 period.

As you can see, starting out in 1990, natural resource employment was less important in Idaho than in Wyoming. And over time, the relative importance of natural resources in the Idaho economy fell. The strength of Idaho’s economy came from diversifying, away from natural resources and towards high growth sectors – for example, computer manufacturing -  in the national and world economies. Wyoming, which remained more dependent on natural resource production, did not fare anywhere near so well.

Montanans are proud of their history of living off the land as loggers and ranchers and cowboys and miners, and it’s hard to believe that what worked for us in the past won’t necessarily work for us in the future. But like it or not, the world is changing, and the key to our economic future is to make the public investments – in education, infrastructure, research, and communications – that will allow us to change with it.

*I prepared this chart using data from the US Department of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. If you’d like to make a chart of your own, or check to see if I’ve done mine right, you can find the data here.

Saturday, September 15, 2012

The Big Picture on Medicaid Expansion

Last July, when the Supreme Court ruled on Obamacare (I never liked that term, but now even the President has proudly embraced it), it tossed something of a hot potato into the states’ laps.

Under the Affordable Care Act (that’s the politer way of saying it), states were required to extend Medicaid coverage to everyone living at 133% of poverty or below; if they didn’t, they would lose all the Federal funding they already receive for the Medicaid patients they cover right now. And since the Federal government covers about 75% of current Medicaid costs, that’s a pretty hefty chunk of change. But the Supreme Court threw out that provision of the law, and states can now decide whether or not they want to extend Medicaid, without fear of losing current Federal Medicaid dollars. That’s the hot potato: whether or not to extend.

For most states, extending coverage to 133% of the poverty level means a big increase in the Medicaid population (in Montana, for example, the Medicaid roles would expand by more than 50,000 people).  So to make it easier for the states, under the ACA the Federal government will pay for 100% of the expansion for the first three years; after that, the states will have to pick up an increasing share of the cost, topping out at 10% after another three years.

Now that sounds like a pretty good deal. For every one dollar the state spends to cover low income people who currently have no insurance, the Federal government will throw in nine. What’s not to like? Seems like a no brainer, but as Mike Dennison recently reported, a lot of folks, including Governor Schweitzer, Steve Bullock and Rick Hill, are sounding kind of worried. And what they seem to be worried about is the impact that Medicaid extension will have on the state budget and taxpayers.

It’s a legitimate concern. The state will certainly have to spend something to extend Medicaid, although it’s not clear at this point how much or whether, if the program gets too expensive, it can be trimmed back. And with Romney and Ryan promising draconian fiscal austerity, we probably need to think about what  will happen if they are elected and the 9 to 1 Federal match disappears.

But when it comes to deciding whether or not to insure another 50,000 Montanans, worrying only about the state’s bottom line misses the big picture.

For one thing, those 50,000 people already get medical care, albeit haphazardly, in hospital emergency rooms and public clinics. And somehow, Montanans end up paying for most of that care one way or another: in higher hospital rates, higher health insurance premiums, higher taxes to pay for higher premiums for state employees, and so forth. But when these 50,000 patients get covered by Medicaid, most of the cost will be shifted to the Federal government. So while extending Medicaid may cost Montana taxpayers a chunk of money, they will make it back, several times over, in lower health insurance premiums and hospital charges.

Of course Montanans are going to pay some of the taxes that will make the Federal contribution to Medicaid extension possible, but we’re going to do that even if we turn down extension here at home. In that case, we’d not only continue to cover costs for the uninsured in Montana through higher premiums and hospital charges, we’d also help pay for Medicaid extension in Florida and Maine and California and New Jersey and… well, you get the idea.

Maybe the most important thing to think about, however, is this: when those 50,000 uninsured Montanans get covered by Medicaid, the amount and kind of health care they receive will change significantly, and their outcomes will improve dramatically.  They will receive more preventative care, experience greater medical security and fewer medical bankruptcies, feel better and live longer.* In short, they will enjoy the same relationship with and access to the health care system as the rest of us. They will be treated as the rest of us expect to be treated. And without that, health care reform is a hollow shell.

*There have been a number of studies of the impact of Medicaid expansion in a number of states in which it has occurred. Check out reports in Bloomberg and New York Times on reduced mortality, and again in the Times and the New England Journal of Medicine on impacts on costs and medical and financial outcomes for new Medicaid patients.

Sunday, September 2, 2012

Marbut's Website Gimmickry

What’s a poor politician to do if he builds a campaign website and the voters don’t come visit? Well, if he’s Republican candidate Gary Marbut, he offers the possibility of winning a BIG CASH PRIZE to those who are willing to go to his site and spend some time poking around.

Here’s the way it works (and I’m not making this up): Marbut is promising to post a trivia question every week between now and the November election for voters in House District 99, where he’s running. All the voters who get the right answer every week will have their names entered in a drawing.  The drawing will be held November 5,  the day before the election, and the lucky winner walk away with a $2,000 cash prize! And the great part is you don’t really have to know any trivia because the answers to all the questions will be “located somewhere in [Marbut’s] website.” Just cruise around the site long enough and presto, there’s your answer.

Now I don’t know that any of this is illegal (Marbut makes it clear that you don’t have to vote for him, or even promise to vote for him, in order to win) or even unethical (at least Marbut’s intentions here are pretty transparent), but it sure seems pathetic. Here we have a candidate with 2,000 bucks worth of campaign money and a choice to make.  He could spend the money to develop an informative, readable, interesting website with solid content that voters will want to read (actually, he could do a lot more than that with $2,000). Or he can use it to induce voters to overcome their reluctance and log on to a site that is apparently chock-a-block full of trivia. Marbut likes the latter better and who knows, the voters may like it as well. But they ought to think long and hard about whether or not they want to send the guy who dreamed up this gimmick to Helena to manage the public’s money.

Actually, it shouldn’t take all that much thinking, because the people in House District 99 have an excellent candidate to vote for in Democrat Kim Dudik.  As Mayor Engen puts it, Kim’s “experience working for some of our community's most vulnerable citizens means she's tough and tenacious, compassionate and caring, thoughtful and decisive.”   If you want to know more about Kim, go to her website.  But if you do, expect just straight talk and no cash prizes.

Thursday, August 30, 2012

Remembering Jim McGarvey

                                                      Jim McGarvey, 1942-2012

This post is for those of you who ever knew, or worked with, or were driven crazy by, or tried to understand the obscure locutions of Jim McGarvey. Jim, who became a legend in the history of organized labor in Montana, died unexpectedly this past Tuesday. He will be buried this coming Labor Day, Monday, September 3, in Butte, Montana, and nothing could be more fitting. Over the years, he became a much admired and dear friend of mine, and I will miss him.

Since Tuesday people who knew and worked with Jim - Eric Feaver, Al Ekblad, Bob Brown - have said a lot nice things about him, and I don't know that I have much to add. But it's hard to see him go without saying something. Back when Jim retired as vice president of MEA-MFT and moved on to become the executive secretary of the Montana AFL-CIO, I was asked to write a message for the union newspaper, saying goodbye and wishing him well. Here's what I wrote then, and still feel.

Most of us can look back at some seemingly random event that changed our lives in a significant and unexpected way. For me, that event was meeting with Jim McGarvey at the 1975 Montana State AFL-CIO convention.

I was at the convention because my local had elected me president and petitioned for a representation election. I knew nothing - about running a local, about organizing for an election, about collective bargaining - nothing. And Jim was executive director of the Montana Federation of Teachers (MFT) at the time and the guy who was supposed to bail me out.

That meeting was my first step in becoming a labor activist, a role that would consume a good part of my life for the next 25 years. Jim was responsible for that.

Through teaching, cajoling, leading, and arm twisting, he dragged me into the life of the union. With his help, we eventually won our election and began to bargain. Jim recruited me to be MFT’s treasurer, to lobby the legislature, and to represent Montana on a Program and Policy Council for the American Federation of Teachers (AFT).

We also became friends, floating Montana rivers, exchanging news about our kids, and as time went on, comparing notes about our various aches and pains.

Through all this, I learned a great deal about what made Jim tick and what made him such an effective and highly respected labor leader. I believe that following his example allowed me to do things well that I might otherwise never have done at all.

Jim was, first and foremost, an organizer. He believed that organizing new locals, signing up new members, and securing bargaining rights for more teachers and state employees were the heart and soul of the union.

He was convinced, of course, that there were all sorts of people out there who badly needed representation. But he also wanted to make the MFT as big, inclusive, and powerful as it could be. And that’s what happened.

In 1975,MFT had about 300 members. By the time we merged with the Montana Education Association (MEA), that number had grown more than tenfold. For several years, MFT was the fastest growing state federation in the AFT. Now, merged with MEA, we represent educators, public employees, and health care workers across Montana. We are the largest union in the state.

I also learned from Jim to never stop talking, to never close the door on negotiations, to never turn your back on the possibility of reaching an agreement.

As we all know, feelings can run pretty high at the bargaining table or at the state capitol. But getting mad and taking your marbles home rarely gets you anywhere. Negotiation does.

Sometimes, Jim’s willingness to keep the door open got him into trouble. Democrats didn’t like his willingness to deal with Governor Marc Racicot. Some MFT members couldn’t understand his willingness to merge with MEA after the bitter raiding of the ‘70s and ‘80s. But Jim believed, and I think he was right, that these relationships would serve the union’s best interests, and he persevered.

Finally, Jim showed everyone around him that there was never enough energy and dedication that you could give to the union. Weekends, holidays, nights, days - it didn’t make any difference, he was thinking about the union.

This too, could cause problems: he would occasionally forget that other people had other lives and needs. Sleep, for example. The telephone could ring any time, although 5:30 a.m. and midnight seemed to be his favorite hours. Local officers everywhere shuddered when he got his first car phone.

Jim now leaves MEA-MFT after serving as vice president since merger. He should leave proud of his contribution and aware of the gratitude of thousands of union members. But he will still be working on your behalf at the state AFL-CIO. So don’t be thinking those midnight calls are finally over. God speed, Jim.

Saturday, August 18, 2012

Coal Delusions

You’ve got to hand it to those Republican legislators from Billings: they love their fossil fuels.  A few weeks ago Rep. Doug Kary was all bent out of shape because he thought President Obama was doing in domestic oil production, and now we have Sen. Ed Walker, equally outraged because environmentalists are trying to do in Montana coal.

According to a broadside in the Billings Gazette, Walker thinks we’ve been invaded by a troop of “out-of-state” environmentalists, beating bongo drums and enveloped in a “smoky haze of questionable origin,” who are trying to stop expanded production and export (to China) of Montana coal. The result, Walker claims, will be to turn down a “huge” economic opportunity that can have a “transformative effect” on the state’s economy.  It would be, Walker says, “like tearing up a jackpot lottery ticket.”

I’m not sure how Walker arrived at his snarky description of the coal protestors in Helena – the press account I read said plain old Montanans were leading the gathering and there wasn’t a word about bongo drums or questionable smoky hazes – but I suppose it makes for good, devoid-of-the-facts, campaign rhetoric.  When it comes to coal and the Montana economy, however, Walker really needs to do a reality check.

The senator is apparently deeply impressed by the contention that the proposed Otter Creek mine would create, between mining itself and its ripple effect on other industries like services and retail trade, a total of 2,000 jobs.  Actually that figure is a little high: according to a study supported by Arch Coal, an out-of-state  corporation that will run the mine, the total number of jobs created when Otter Creek is up and running will be about 1,750, with just 300 at the mine itself.  Let’s assume 1,750 is correct. It sounds like a big number, but placed in the context of the Montana economy, it’s a drop in the bucket –a little less than one third of one percent of all the jobs in the state.  And between 2000 and 2008, those relatively normal years before the onset of the Great Recession, Montana added an average of about 875 jobs every month, despite the fact that natural resources employment was essentially flat.*  In other words, if and when these 1,750 Otter Creek jobs ever materialize,  we will be about where we would have been in another two months without them.  1,750 jobs aren’t negligible, but judge for yourself if they are “huge” or “transformative.”

Walker also argues that putting a lid on Montana coal development will have no impact on carbon emissions because the Chinese can always get their coal somewhere else.  If that’s true, it sounds like China doesn’t really need us and Walker is advocating an economic development strategy whose success will be depend heavily on the good will of China as it works out its own trade, energy and climate change policies. Judge for yourself whether being an economic colony of China is Montana’s ticket to prosperity.

We can also do better than to abandon responsibility and sell coal to customers who will use it to despoil the planet, just because if we don’t, someone else will.  Any self-respecting Montana barkeep will tell you that reasoning doesn’t apply when it comes to selling another drink to a drunk. It doesn’t apply to a pharmacist when it comes to selling more pills to people addicted to prescription medications.  Judge for yourself if it should apply to a state that is pledged to engage only in responsible resource development.

*I derived these jobs numbers from the US Bureau of Economic Analysis Regional Economic Accounts.

Wednesday, July 18, 2012

The "Obama Hates Oil" Myth

In a guest column in yesterday's paper, Billings Republican Rep. Doug Kary tries to convince Missoulian readers that “President Obama and his allies in Congress” are hostile to domestic energy development and to the energy independence, lower gas prices, jobs and economic prosperity that supposedly go with it (you can read Kary's column here).  By “energy development” Kary evidently means oil production (although he doesn’t make that clear), and he reaches his conclusion about the President from a heated reading of two proposed changes in the tax code that the White House apparently supports and oil companies don’t like.

Whether or not changing the tax code is a good idea, and whether or not it will have the dire consequences Kary predicts, are big topics that we could debate for a long time. But the important point is that to say that President Obama is hostile to domestic oil production is arrant nonsense. I've already blogged about this point before, but just to be on the safe side, let me restate the facts.

 After President Obama took office, US oil production increased for the first time in 24 years. Indeed, with the exception of a small (.8%) upward bump in 1991, US oil production fell every single year from 1985 up to 2008; over all those years together, it fell 45% - almost in half. Since 2008, production has risen by 15%; that's an increase of about 725,000 barrels a day.(You can look up these US Energy Information Administration figures for yourself here).

It may well be that the tax code revisions that Kary laments will put a small dent in astronomical oil company profits, and that in turn will mean less money flowing into the superpacs that will be working to defeat the President (and Jon Tester and other Democrats) in November. So no wonder Kary is upset. Republicans have been working to defeat the President for the last four years, and they will say just about anything (regardless of the facts) that they think will get the job done.

Tuesday, June 12, 2012

Job Creation, Job Destruction

As you have no doubt heard, Mitt Romney thinks he can end the recession and do a bang up job managing the nation’s economy because, as a successful former businessman, he “knows how to create jobs.”

Romney has taken a lot of flak about this claim from the Obama campaign, which discovered that Bain Capital, Romney’s former firm, in some cases acquired companies, fired their employees and still made money on the deal.   The President’s campaign has run ads showing the distress that these firings cost, with the clear implication that Romney was one of those greedy, thoughtless business types who destroy jobs in the name of profit, rather than being one of the good business people who create them.  At least one Democrat, Newark mayor Cory Booker, thought Obama was out of line and called the ads “nauseating.” And Bill Clinton even declared that Romney’s record at Bain was “sterling.”

What we have here is yet another example of campaign rhetoric running off the rails. But get used to it - there’s no doubt more to come.

I don’t know if Romney really believes, or wants us to believe, that businesses only create jobs. I would hope not.  But I would also hope that Obama doesn’t believe that only wicked business owners lay people off.  Because like it or not, people are in business to make money, not to create jobs. Good businesses are supposed to make money by producing at the lowest possible cost something people want and are willing to pay for.  And that, in principle, is what we want and expect them to do.

But when businesses create jobs, that is, hire people, they incur costs in the form of wages, training, payroll taxes, and the like. And since the whole idea is to keep costs low – and remember, we want businesses to keep costs low – they will hire as few people as they can get by with. Sometimes, when production can be profitably expanded, that means more workers get hired.  But other times it means they get laid off, as companies contract or send the jobs to China.

An awful lot of jobs are being lost all the time.  From the beginning of 2008 up through the end of April this year, 103 million workers lost jobs and filed for unemployment.  That’s an average of a little more than 455 thousand per week.  Of course all those workers didn’t stay unemployed.  As jobs were being cut in one place, about the same number was being created in another.  When times are good, more jobs are being created than lost, and we experience net job growth. But during recessions, when job creation falls short of job destruction, there is net job loss. From 2008 to 20010, for example, there were more than 5 million private sector jobs lost, on net. And during that time, business people were doing what it was expected of them, given the heartless logic of the market.

So, if “knowing how to create jobs” uniquely qualifies business people to manage the economy, does knowing how to destroy jobs about equally well uniquely disqualify them? No, because neither conclusion makes much sense.

Businesses respond to the macroeconomic environment that surrounds them - consumer and investment spending, inflation, interest and wage rates, international value of the currency, consumer confidence, financial system stability, and so forth – and  that means that sometimes they add jobs and other times they eliminate them. Business people like Mitt Romney may well know how to take advantage of favorable macroeconomic conditions to create jobs. But don't expect them to know how to create those favorable conditions in the first place. That’s the job of macroeconomic policy makers, and it requires political and economic expertise that business people don’t typically have. If you want to predict how well Romney would do managing the economy, you should probably look at his record as a policy maker when he was governor of Massachusetts. He doesn't talk about it much, but it's probably more relevant than all those years snapping up companies at Bain Capital.

Monday, May 28, 2012

Jobs That Mean Something

In the past several weeks I’ve been getting quite a few campaign emails from Neil Livingstone, who’s running for governor in a crowded Republican field. Livingstone and his running mate, Ryan Zinke, who are usually in high dudgeon about something, were upset last week because they think that Max Baucus, Jon Tester and Brian Schweitzer haven’t done enough to “ensure the continued viability of Malmstrom Air Force Base in Great Falls.” They’re worried that if the United States moves to reduce the size of its nuclear arsenal and eliminate its fleet of intercontinental  missiles, Malmstrom will be in “real jeopardy.”  And they’re fretting about the current proposal by the Pentagon to move the F-15 fighters currently stationed at Malmstrom to California and replace them with C-130 cargo planes. 

Now if you’ve been longing for the day when you no longer have to worry so much about nuclear annihilation, or if you think the Pentagon probably knows best what kinds of planes should be based where, you might wonder what all the fuss is about.  Well, in a word, it’s jobs. Livingstone and Zinke are convinced that reducing or changing Malmstrom’s mission would mean Montana would lose jobs, and they offer some numbers (no source cited) to prove it. Some of the numbers are pretty big and others quite small, but in the end it doesn’t make any difference because, in Livingstone’s words, “The loss of a single job is not acceptable.”

Really?  Does Livingstone really believe that the decision to decommission part of the world’s largest stockpile of nuclear weapons should turn on the loss of a single job? Does he really think that the loss of one job is too high a price to pay to use the nation’s military and fiscal resources more efficiently and effectively?  In his emails, Livingstone promises that when elected he will cut taxes, balance the state budget, and reduce costs.  Does he really think he can do that without cutting a single job?

Well, probably not. Chalk it up to the desperation that comes at the end of a long and not very promising primary campaign.  And understand that what Livingstone is saying is not a lot different from what a lot of other politicians, from both parties, are saying as well.  At times like these, in a recession that we just can’t seem to climb out of, job creation tends to emerge as one of the first, and sometimes the only, things we consider when we’re making decisions about how to manage public resources.  In the process we tend to downplay the other important values at stake in these decisions – after all, it’s jobs that really count – and the result can be that we fail to do right by ourselves.  We forget that it makes a difference what the people with the jobs are producing.

Livingstone may go particularly astray here, but we all do to some degree. In debates about the environment, or natural resource development, or funding education and the arts, or, well, almost anything,  both sides assail each other with claims and counterclaims about jobs gained or lost depending on whether we do one thing or another.  And the fact that human health and quality of life, or climate stability, or civic, social and cultural vitality may be at stake  tends to get lost in the shuffle.

Don’t get me wrong. I shouldn’t have to say this, but just to be on the safe side, I will: jobs and job growth are very, very important. We all want to live in a country where anybody who wants a decent job can find one, and where when a worker does get laid off, it doesn’t take her months to find a new job and get back to work. That’s not the country we have right now. Too many workers are unemployed and too many who have lost jobs stay unemployed for far too long. It’s Americans’ number one concern as we approach the 2012 elections, and they expect government to do something about it.

And government should do something. But the solution lies in firm and effective macroeconomic management. Even Livingstone and Zinke, despite their pledge to be fiscally conservative, argue forcefully  that government can and does  generate job growth through spending.  In fact, almost any kind of spending will do that. But in spending money to stimulate the economy and sustain job growth, we should use our fiscal resources wisely and efficiently.  That means putting people to work in not just any jobs, but in jobs that build a more just, healthy, secure, and prosperous nation.

Friday, May 11, 2012

A Student Loan Driven Education Bubble?

Sen. Art Wittich argues in the May 10 Missoulian that university students will graduate this spring with a mountain of debt because, despite ever increasing state funding, the Board of Regents has tapped into excessive student borrowing to capture new tuition revenue. The Regents apparently used all this money to pay for “esoteric degree” programs and a wasted effort at “being all things to all people.” And students are borrowing so much because the terms on Federally subsidized student loans are so easy (and will continue to be, unless Congressional Republicans are successful in their current attempt to double student loan interest rates). Reminding us of the dreadful specter of imminent financial collapse in Spain and Greece, Wittich asks “Is easy credit for college loans now creating an education bubble?”

Well, Senator, no it isn’t.

As any reasonably well informed legislator should know, over the past 20 years, state support for higher education in Montana failed to keep pace with the combined effect of enrollment growth and inflation. Take a look at this chart, which shows real state support per resident student over the period 1992 to 2012.*

Except during Brian Schweitzer’s first term, real state support fell almost constantly over the period, from $8,185 in 1992 to $5,129 this year, for a net decline of 37%. Given these cuts, the Regents had no choice but to raise tuition to offset the loss of public funding, which went from making up 76% of system revenue to 36% over the same period. In effect, public higher education in Montana was being privatized, which should have tickled Sen. Wittich pink, if only he’d known about it.

The Regents raised tuition largely to make up for lost appropriations, and there’s no evidence to support the notion that they jacked up tuition revenue so they could add unneeded or impractical programs to the University curriculum. On the contrary: Montana now has just about the leanest university system in the country. In 2010, Montana got by with total revenue per student 19% below the national average and only three states - Florida, California and Washington – managed to make do with less.**

Given these limited resources, the University system should receive greater public support and offer a broader and richer curriculum. We owe it to our children not just to train them so they can get jobs in Montana and satisfy the labor force needs of Montana businesses. Rather, we should educate them so that they can compete and prosper anywhere in a rapidly changing world, and contribute creatively to the social, political, cultural and civic life of their communities.

*State support here is expressed in real (2012) dollars and equals ongoing general fund appropriations plus revenue from the six mill levy.  One-time-only appropriations are not included. Figures are from the Office of the Commissioner of Higher Education, Montana University System.

** Revenue here is the total of tuition and state and local appropriations. Figures are from the State Higher Education Executive Officers.

Monday, April 23, 2012

Balanced Budget Blunder

I, and I assume a lot of other state legislators, have been getting a slew of emails lately from an outfit called the Balanced Budget Amendment Taskforce.  What these folks want is for state legislatures around the country to call for a national convention to amend the United States Constitution to require that the Federal budget be balanced.  It takes 34 states to call a convention to amend, and it’s never happened so far, so the Taskforce has its work cut out for it.  And we’d better hope that it falls flat on its face, because requiring the budget to be balanced on an annual basis is really not a good idea.

I don’t mean by that that we should ignore large deficits or unbridled growth in the national debt. But when debt hawks throw around the big, scary numbers, it’s important to keep things in perspective. So consider, for example, the startling fact that between 1945, as WW II was ending, and 2011, the national debt held by the public grew by a factor of 43, from about $235.2 billion to $10.1 trillion! That sounds pretty bad, but it’s important to remember that in relation to the size of the economy, the national debt is smaller today than it was 67 years ago.*  

The chart below shows the Federal debt held by the public as a percentage of GDP over those 67 years. What it shows is that during most of the post WW II era, the Federal government has been able to reduce its indebtedness. The chart also shows that despite that long term trend, the debt has risen sharply since the Great Recession, although the increase really started in 2000, when George Bush took office. But that has happened before.  During the Reagan and first Bush administrations, the debt grew from 25% to 50% of GDP.  But then it fell, to 33%, during Bill Clinton’s presidency. The point is that while we should be concerned about the growth of the debt, history indicates that we we’ve been able to keep that growth under control. And we haven’t needed a balanced budget amendment to do it. 

But so what? Isn’t balancing the budget a good idea anyway?  How can we possibly benefit from running a deficit? Well, take a look at the next chart. It shows Federal government revenues and outlays from 2000 to 2011.**  You can see that Federal revenues (the blue line) are pretty sensitive to the level of economic activity: with the recession of 2001 revenues fell somewhat (although the much discussed Bush tax cuts had something to do with it as well) and during the Great Recession of 2007 they fell a lot.

During both these recessions, outlays (the red line) continued to rise. That increased  spending, which after 2009 was due in part to the ARRA stimulus plan,  meant that we began to run deficits. But more spending also kept the recessions from getting a lot deeper.  If the balanced budget amendment had been in place, expenditures would have had to fall, along with revenues, as the economy went south. The red line would have to lie on top of the blue line. Rather than increasing spending to buffer the downturn, the Federal government would have had to decrease it. And that would have made the downturn a lot worse.

Sound fiscal management means running deficits when necessary to stabilize the economy in the short run, but keeping the debt from outgrowing the economy and becoming unmanageable in the long run. Our experience since 1945 shows that it can be done. But not if the budget always has to be balanced.

However ill-advised it may be, don’t expect the movement calling for a balanced budget amendment to go away any time soon. For one thing, Steve Daines, the Republican frontrunner in the US House race, has endorsed the idea.  For another, ALEC, the outfit pushing conservative legislation in state houses all across the country, is apparently backing the amendment as well: it has published a handy-dandy guide for state legislators, penned by one-time UM Law School professor and conservative activist Rob Natelson, on how to draft convention call legislation.  And if ALEC likes it, there’s no doubt somebody will be giving it a whirl in the 2013 Legislature.

*  The numbers I cite here and used to prepare the first chart come from the Office of Management and Budget, Historical Tables, Table 7.1, ”National Debt at the End of Year: 1949-2017,“ http://www.whitehouse.gov/omb/budget/Historicals/.

** Data for the second chart comes from the same source, Table 1.3, ”Summary of Receipts, Outlays, and Surpluses and Deficits (-) in Current Dollars, Constant (FY 2005) Dollars, and as Percentages of GDP:1940-2017”

Wednesday, April 4, 2012

Job Creation Snake Oil

Chuck Johnson reports in Monday's Missoulian (read the article here) that all of the Republican candidates for  governor are claiming that the best way to get Montana's economy growing is to break down the "regulatory barriers" that are holding businesses back and to "fast track" natural resource development. 

This is standard Republican fare, of course, and it's designed to resonate with voters who are frightened by the dismal state of the economy and are desperate for solutions. But solutions are not what they're getting from the Republican gubernatorial candidates. They're getting snake oil.

If you want to know what makes employment grow, and then stop growing, it's instructive to compare Montana's job growth between 2000 and 2010  to what was happening in the rest of the country.  The chart below depicts the growth over this period of all jobs in the US (in blue) and Montana (in green). It also shows the growth of Montana natural resource jobs (in red). All the job figures are expressed as percentages of their 2000 values.*

What the chart shows is that for the nation as a whole, employment dipped a bit in the relatively mild recession of 2001, but then grew steadily until 2007. In 2008, with the onset of the Great Recession, it fell sharply. Over this same period, the Montana economy did quite a bit better. Our job growth was significantly faster than the rest of the country's, and we avoided the 2001 downturn completely. Of course with the Great Recession, Montana job growth turned into job loss, but not quite as badly as it did elsewhere in the country.

Now here's the question: between 2000 and 2007, were Montana businesses growing so fast because they were free of  oppressive government regulation? In 2007 did regulatory barriers suddenly leap up and ensnare them? Well, of course not. Before 2007, Montana businesses showed that they could function very well indeed in a regulatory, tax and business environment very much like the one they have right now.  What changed in 2007, and led to the reversal of job growth, was not any change in the regulatory environment. It was the collapse of the US economy, on which the health of Montana's economy heavily depends. And if candidates tell you that by scrapping regulations (and presumably all the protections those regulations provide) they can reverse the effects of the biggest economic downturn since the Great Depression, run the other way.

What about the other element in the Republican formula: natural resources? It's a long story, but it's pretty clear that before 2007, Montana enjoyed rapid job growth despite the fact that employment in natural resources (agriculture, forest and wood products, mining, and primary metal products) was, at best, stagnant. My former colleague at UM, economist Tom Power, has said that counting on natural resources to drive economic growth is like trying to drive a car looking in the rear view mirror.  It's thinking that what worked in the past will work in the future. It's time to look through the windshield.  There's a changing world out there presenting us with new opportunities. Those were the opportunities Montanans seized to create job growth and economic vitality before the recession. When are the Republican candidates who want to be governor of Montana going to understand that?

* I prepared this chart using data from the US Department of Commerce, Bureau of Economic Analysis, Regional Economic Accounts. You can download this and lots of other data from this source by clicking here.

Sunday, April 1, 2012

EPA CO2 Rules: A (Very Small) First Step

Four years ago politicians, notably Barack Obama and John McCain, were talking about climate change and the imperative to do something about it. But that's all over now. Congress, after a few failed attempts at legislation, is no longer interested. The President, in repeated speeches devoted to energy, barely mentions it. The  recession and jobs, health care reform, Tea Party lunacy and good old fashioned denial seem to have driven climate change not just off the front burner, but off the back of the stove.

Maybe that's why when the EPA this week proposed new standards to regulate carbon emissions from electrical generating plants, the reaction was, at best, muted. On the other hand, maybe it's because the regulations, at least at this point, really won't have much of an impact on either the economy or the climate.

The EPA is proposing a standard which would apply only to new gas or coal fired power plants, and would cap their carbon dioxide emissions at 1000 pounds per megawatt-hour of electricity produced (you can read the 257 page proposal here) . That's a standard that efficient modern natural gas generating plants can meet, but coal fired plants, which emit almost double that amount, cannot. It may be that some day the industry will figure out how to capture and store carbon dioxide from coal fired plants securely and at reasonable cost, but that day doesn't appear to be coming any time soon. So for the foreseeable future, the EPA standard means that new generating units will burn gas, and not coal. Well, that's something, isn't it?  (Sort of) clean gas instead of dirty coal? 

Well maybe, but the fact is that gas was becoming the fuel of choice long before the EPA proposed the new standard. Gas is currently abundant and cheap, the cost of  building gas fired plants is relatively low and coal simply can't compete. Indeed, according to EPA, no new conventional coal fired plants are being proposed anywhere in the United States. So the EPA standard simply locks in what would have happened anyway. Coal and gas production, energy jobs and prices, emissions - all those things - will do pretty much what they would have done anyway.

And speaking of emissions, what does all this have to do with climate change?  Producing more electricity with fossil fuels means increasing carbon emissions. That fact in inescapable. Using gas rather than coal means that emissions will grow more slowly that they otherwise would, but they will still grow. The hitch is that to halt climate change, emissions need to fall - not just to grow more slowly, but to fall.  We can use natural gas to make that happen only if new gas fired plants displace existing coal plants. Indeed, a rough calculation is that just to hold emissions at their current level,  for every one megawatt increase in generating capacity we need, we'd  have to build two new megawatts of capacity that are gas fired and retire one that's coal fired.

For the moment, however, nobody is talking about wholesale retirement of working coal fired power plants. These plants, which produce about 40% of all US carbon emissions, are not covered under the EPA proposal. Taking on existing coal fired plants is the next big step for EPA, but not one it seems inclined to take anytime soon. Right after she announced the new standard last week, EPA chief Lisa Jackson assured the press that "We have no plans to address existing plants and in the future, if we were to propose a standard, it would be informed by an extensive public process with all the stakeholders involved.”

And that, when it comes to climate change, sounds like business as usual.

Monday, March 26, 2012

Drill Baby, Drill?

It occurred to me recently that I ought to write a post about how Republican politicians ignore the facts and abuse economic common sense in order to score political points. But it didn't take long to figure out that one post wouldn't be enough to cover that gigantic topic. I need to do it in installments. So I'll start with gas prices.

Unless you have decided to stop paying attention - and who knows, that may be the best thing to do - you know that gas prices have been rising all across the country, getting close to, and in some places actually crossing, the $4/gallon line (there's really nothing magical about $4/gallon, but it gets people's attention.)  And you probably also know that according to a lot of Republican politicians, high gas prices are, naturally, all Barack Obama's fault! If only he would get rid of those quibbling regulations and stranglehold taxes and pipe dreams about renewable energy! If only he would unleash the oil companies to produce more, all would be well! As Mitt Romney put it recently, "The best thing we can do to get the price of gas to be more moderate and not have to be dependent upon the cartel is: drill in the gulf, drill in the outer continent shelf, drill in ANWR, drill in North Dakota, South Dakota, drill in Oklahoma and Texas."  Even Sarah Palin's got to like the Massachusetts Moderate when he delivers a line like that.

The President has pointed out, of course, that since he took office, US oil production has increased.  And it increased for the first time in 24 years. That's right: with the exception of a small (.8%) upward bump in 1991, US oil production fell every single year from 1985 up to 2008; over all those years together, it fell 45% - almost in half. (Here's a chart, and the numbers, showing US oil production, ever since 1860.). Since 2008, production has risen by 15%; that's an increase of about 725,000 barrels a day. According to Romney, that should have gotten "the price of gas to be more moderate," but of course that hasn't happened. And it doesn't take an economist to figure out why.

The price of gas is driven mainly by the price of oil, and the price of oil is determined in the global oil market. The United States produces about 10% of global supply, so when our production rises by 15%, the world supply, other things equal, rises by a paltry 1.5%. But still, shouldn't even that small increase in supply lower prices, rather than raise them? Well, yes, but only if demand stands still. But of course it doesn't.  From 2008 to 2011, while US production was rising by 725,000 barrels a day, Chinese and Indian consumption alone rose by more than 2 million barrels a day. We can drill like mad - and trash ANWR, pollute our coasts, contaminate our aquifers, and accelerate global warming - and we will never keep up with growing demand and rising prices.

It is particularly ironic for us here in Montana that what we do to increase local oil production will probably have the effect of actually increasing what we pay for gas. Right now, Montana has about the cheapest gas in the country, right behind Wyoming (here's a very cool interactive map that shows you gas prices for every county in the country). Gas is relatively cheap here because the refineries that serve us are buying oil produced in the region. This oil doesn't have a good way of getting to international markets, where it would sell for a lot more than it does locally. Montana oil producers and politicians (from both parties) would love to change all that by building the Keystone pipeline and moving Montana oil into the international market. Montana producers would get a much better price and probably produce more, but Montana consumers would pay more as well.

If we can't lower the world price of oil by producing more of  it, what can we do? The obvious solution is to use less. We do that by promoting energy efficiency and conservation, and by displacing oil and other fossil fuels with renewables.* It's the logical economic response: when the price of a good rises, buy less of it. It's surprising how clever people can be in doing that. And when some day we get serious about dealing with climate change (that's going to have to wait until some of us stop denying it exists), we'll be glad that oil is cheap not because we've drilled for every last gallon, but because we simply don't need it anymore.

*I have posted a comment on this point, below.

Wednesday, March 14, 2012

It’s Voodoo Economics Time

Yes, it’s once again that time in the election cycle when Republican presidential candidates tell the voters that they can cut taxes (usually on the rich), balance the budget, eliminate the deficit, and reduce the national debt, all in one fell swoop. 

Ronald Reagan was the first Republican president to embrace this curious notion, which according to legend was first introduced to a group of GOP savants by economist Art Laffer, scribbling on the back of a cocktail napkin in a Washington, D.C. watering hole.
Funny how those boozy ideas that seem so enchanting the night before can turn out to be such disasters the next morning.  

In the entire postwar period, under Truman, Ike, JFK, LBJ, Nixon, and Carter, the national debt fell consistently as a percentage of GDP, from 120% in 1945 to 30% in 1980, when Reagan took office. But under Reagan and then Bush senior, deficits mushroomed and the debt grew; by 1992 it stood at about 65% of GDP.  It fell under Clinton, and then popped back up again when Bush junior took charge.  When Barak Obama took office, it was up to about 85% and the economy, of course, was in free fall.

You might think GOP presidential hopefuls would have learned something from all this, but here we have Mitt Romney, the “presumptive frontrunner,” telling us he’s going to cut taxes, increase defense spending and put us on a path to a balanced budget during his first term. To his credit, he breaks with the voodoo tradition of assuming that tax cuts will stimulate enough growth to more than pay for themselves.  No; he knows that he can’t pull off a balanced budget unless he cuts spending somewhere.

And the size of these cuts is stunning. According to an analysis of Romney’s proposal by the Center for Budget and Policy Priorities, to balance the budget by 2016, non-defense spending would have to be cut by 17%. If Social Security were spared, all other programs would have to be cut by 24%. If Social Security and Medicare were spared, all other programs would have to be cut by 34%. So unless you believe we can get along without Federal support for roads and education and medical care for poor kids and other little items like that, you are again looking at voodoo: somebody, somewhere is going to have to pick up the tab, and it’s probably going to be taxpayers in the states.

And speaking of the states, we have a few witch doctors of our own running around Montana.  Last week, five of the GOP candidates for governor told the Montana Economic Developers Association  that if elected they would eliminate the property tax on business equipment and the corporate income tax. Some even said they would get rid of the 95 mills of statewide property taxes that go to pay for K-12 education.  And just so you know, large corporations that operate across the state are also agitating for a property tax break.

All together the cuts proposed by the GOP candidates mount up to about $400 million. And since the Montana Constitution requires the budget to be balanced right now and not in the sweet bye and bye, you’ve got to wonder how those cuts will be paid for.

Well, we can always shift some of those property taxes onto homeowners.

Or we can cut spending. No, wait!  Mitt’s going to be kicking more spending downstairs to the states.

What our would-be governors are apparently counting on is an oil and gas boom - and the taxes that come with it. But as Brian Schweitzer has pointed out, that simply doesn’t compute.  Right now oil and gas revenue is running about $100 million a year, so the value of production would have to quadruple to make up for $400 million of tax cuts elsewhere. And that’s not going to happen any time soon, if at all.

Right now you can just hear the beating of drums and the muttering of dark incantations. But just you wait: by November it's going to be deafening.

More Gerrymandering! (This Time It's the Legislature)

Apparently taking their lead from a Missoulian column by Will Deschamps,  Republicans at a hearing  of the Districting and Apportionment Commission  in Missoula last night went all out attacking the Community redistricting plan proposed by Commissioners Joe Lamson and Pat Smith. That plan, they said, was gerrymandered! Of dubious constitutionality!  Of all things, political! And, worst of all, Democrat!

Now it’s true that Joe and Pat are the Democratic members of the Commission, and they did prepare and submit the Community plan. And it’s also true that the Republican members didn’t submit a plan of their own.  All they did is ask the legislative staff to prepare plans based on particular basic principles, such as, for example, making districts either urban or rural, but not a mix of the two. So now they are congratulating themselves on their apolitical objectivity and the purity of their intentions, and casting Joe and Pat as devious political operators.

Don’t be fooled.  Republicans aren’t stupid. They certainly were able to anticipate that when they asked the staff to prepare a plan that would cram voters into a few dense city districts, those voters would be most of the Democrats, leaving the non-urban districts theirs for the taking.  

As long as it breaks their way, Republicans have no objection to gerrymandering; they just don’t want you to know it.  But in an ironic moment last night, Deschamps, who is chairman of  the Montana Republican Party, let the cat out of the bag. Noting that 40 percent of Missoula County voters are Republican, he concluded that the county should be districted in such a way that 40 percent of our legislative delegation should be Republican as well.   Let’s set aside the vexing problem of how that dubious principle could be applied in small counties with a single legislator.  What Deschamps was asking for was to draw district lines in the county so that 4 (out of 10) districts have solid Republican majorities. And what do you call it when you draw district lines to assure that you have solid majorities? Gerrymandering!

Redistricting is an inherently political process. That’s why the Legislature made sure that Republicans and Democrats were equally represented on the Commission. They are there to protect political interests – their own and ultimately those of their constituents. There’s nothing wrong with that.

But it’s true that we don’t want gerrymandering. On the contrary: we want as many districts as possible to be competitive.  Competition fosters better, more informative campaigns, with stronger candidates. It means a more engaged and enfranchised electorate. And it makes legislators more responsive to voters. But let’s not judge which plan most avoids gerrymandering and most promotes competition with a lot a finger pointing about how the plans were prepared or who asked for them. The proof is in the pudding. The Commission should look closely at how each plan will actually affect the competitiveness of Montana elections, and that, along with all the other criteria it has to juggle, should help it decide which plan to endorse.

Thursday, February 23, 2012

LR-123: Tax Relief or a Job Killer?

If all goes according to a Republican plan, Montanans will vote in November on Legislative Referendum 123, which provides for returning to taxpayers, by way of income and property tax credits, half of any excess balance in the state’s checking account.  By “excess balance” I mean money left in the General Fund at the end of the year, above and beyond what the Legislature projected would be there when it drew up the budget.  LR123 is being challenged in court on legal and constitutional grounds  (you can read about the challenge here),  but nevertheless it sort of sounds like a good idea, doesn’t it? Why should the state sit on a pile of money it apparently doesn’t need and didn’t plan on having? Why not send it back to the taxpayers?

Well, not so fast. The problem is that LR 123 would take away one of the important tools we have to fight job loss when the economy goes downhill, as it did in 2008, and repeatedly before then.

The Great Recession of 2008 resulted from plummeting spending by companies and households, which led businesses to cut production and jobs because markets for their products were drying up. The right policy under the circumstances was to increase government spending, and that was what President Obama did with the 2009 stimulus bill. Unfortunately, the stimulus was not as effective as the President said it would be, and Republican politicians have argued ever since that the stimulus failed.  That’s nonsense: almost every analyst will tell you that the stimulus kept things from getting much, much worse.  And economists like Paul Krugman warned at the time that the stimulus wouldn’t live up to its billing, not because spending would have no impact at all, but because there wasn’t enough of it, given the mess we were in when President Obama took office.

Krugman also points out – and here’s where LR123 enters the picture – that at the same time the Federal government was trying to increase spending, states were cutting back.  They were doing that because in general they are required to balance their budgets. When the economy tanks and tax revenue falls, states have to cut spending, which just makes the collapse and job loss worse. In short, requiring the budget to be balanced promotes economic instability; both booms and busts get bigger.

So, is the state of Montana doomed to do exactly the wrong thing when the economy begins to falter? Not necessarily.  To balance the budget, the Legislature needs to do two things: not borrow money to pay for General Fund expenditures and end the budget year with a reasonable balance in the bank.  We can spend more than we tax if we start the year with more money in the bank than we need when the year is over. It’s a simple concept: tax revenues are volatile, but we can keep spending from being as volatile by saving the extra taxes we collect in good times and spending them in bad times. Hold some reserves for a rainy day:  it’s something that every business and household routinely does. But if LR123 passes, the state of Montana will not be able to take the same reasonable, job saving precaution.

Republicans aren’t bothered by this thought because they know that spending can’t create jobs. Well, sort of.  Spending on the Keystone XL pipeline will apparently create a ton of jobs. It’s just government spending to build a new College of Technology that won’t. Go figure.

Tuesday, February 7, 2012

Gerrymandering the Montana Supreme Court

Unless the courts toss it out on constitutional grounds some time soon, Montanans will have the dubious privilege of voting on LR-119 in this June’s primary election. This measure, which was pushed through the Legislature with heavy Republican and almost zero Democratic support, would provide for Montana Supreme Court justices to be elected in the future by district, rather than statewide, as they are now. Not surprisingly, given its provenance, the referendum has just won the approval of the Montana Chamber of Commerce.

LR-119 has been flying under the radar so far, but you can expect to hear a lot  more about it in the coming months. Proponents are going to be telling you that it will get people more interested in Supreme Court races, that it will bring those races down to the local level and make them more competitive and reflective of local  concerns, that it will create a regionally balanced court, that it will...well, who knows what additional benefits it will shower on Montana?

What you won’t hear from proponents is that if LR-119 passes and some day you have a case before the Supreme Court, you will have had the opportunity to vote for only one of its six members. You won’t hear that we will have a court that could, and very likely will, be made up of six justices, not one of whom could win a statewide election. You won’t hear that we will have a politicized court beholden to parochial regional interests rather than responsive to one people and one Constitution.

And what you really won’t hear is that Republicans want LR-119 to pass because it simply hasn’t been possible to elect at large enough like-minded justices to make the Montana Supreme Court as conservative as that other one in Washington, D.C. On the contrary: our court seems bent on protecting our right to a clean and healthy environment, or to privacy, or to keeping big corporate spending out of our elections. So what are the Republicans trying to do? In a word, they want to gerrymander the election of the Montana Supreme Court by carving out a few conservative districts. That way they can be sure that there will be a few would-be Alitos or Thomases or Scalias on the bench in Helena, even if a majority of Montanans don’t want them there.