Wednesday, August 19, 2015

INNUMERACY ATTACK! YES! magazine's issue on debt contains an error that suggests we may have a bigger problem than we think

Yes! Magazine has published a laudable issue that explores the crippling effects of personal debt as well as financial industry practices and laws that combine to immerse and keep us in debt. Then, in characteristic fashion, Yes! discusses steps we can take as consumers and citizens to manage debt and advocate for greater legal protections.

But, the issue as originally published contains a small factual error that inadvertently raises a troubling question that we sometimes hear asked, but almost never answered.

After decades or even centuries of nearly uninterrupted progress, is our standard of living declining?

That turns out to be a damnably hard question to answer and the error in Yes! helps explain why. The issue’s thesis is that in today’s economy we’re borrowing more to pay for things that we used to be able to pay for out of our incomes. Yes! used this chart to illustrate the point.

If you’re sufficiently wonkish, you may notice a problem with the chart. Three of the variables — medical services, house prices, and the Consumer Price Index — are shown as increasing many times over since 1980, but incomes, the money you and I live on, are shown as rising by a tiny nine percent. If you’re like me, you’re probably vaguely aware that income growth has lagged in recent decades, but it doesn’t feel like it has lagged by that much.

And you’re right. It hasn’t. The chart’s error is that it used inflation-adjusted figures for income, but nominal figures for the other variables. The result is an apples-to-oranges comparison that greatly exaggerates the difference between growth in income as compared to everything else.

The good news is that the error is easily fixed. To illustrate the relationship correctly, all you have to do is adjust the other variables for inflation. But, when you do, you encounter another problem.
Rather than falling behind as the original chart suggested, incomes seem to have generally kept up with the cost of living, which would on its face undercut the Yes! thesis. As a caveat, it should be noted that the Consumer Price Index is a composite figure and the change in prices of individual items may vary significantly. For instance, if you’re paying for higher education or need lots of medical care, your cost of living has probably increased more than the average.

Another body of data also argues that we’re not borrowing more to compensate for lower incomes. We’re actually carrying less debt now than we were before the crash of 2008 and the subsequent Great Recession.
Moreover, when you combine historically low interest rates with our lowered level of indebtedness, we now allocate less of our monthly incomes to pay off debts than at any time in recent decades.
In an email exchange with the editors of Yes!, they pointed out that a wave of house foreclosures and bankruptcies in the wake of the 2008 financial crash were responsible for much of the reduction in indebtedness and that those things were hardly good for consumers. All of that is very likely true, but it still does not support the notion that we’re now taking on large amounts of debt to pay for things we once paid for out of our incomes. But, before we throw the Yes! thesis out altogether, there is one more variable with which we haven’t grappled.

A closer look shows that since peaking in the late 1990’s our real incomes are falling.
This leaves us with a dilemma. If our incomes are falling and we’re not borrowing more, how are we paying for things?

That brings us back to the question of our standard of living, which is a damnably difficult concept to quantify. But, it’s important because, if we can’t pay for things we want and expect out of our incomes and we’re not borrowing to buy them, there’s only one other possibility, which is that we’re not buying them at all — we’re going without.

Put another way, our standard of living is very possibly falling.

That’s a controversial claim because, as was pointed out before, there is no universally accepted definition of “Standard of Living” and, just as products and services, evolve over time, so do expectations of what we require. And all of those factors should enter in to any consideration of what constitutes our standard of living. That point is reinforced by a publication called, “How Do We Measure Standard of Living” from the Boston Fed.

It defines standard of living as the “average real gross domestic product (GDP) per capita”. But, as the preceding chart shows, in a Pikettian world where the fruits of overall economic growth are not proportionately shared, standards of living for a small sliver of society may be on the rise while declining for everyone else. That’s why other organizations and publications use more expansive definitions many of which take into account variables such as health, life expectancy, education, and other factors that contribute to overall quality of life.

In short, there is no easy quantitative measure of standard of living. But, being difficult to measure doesn’t mean it’s not real . . . not felt. In fact, difficult though it is to define, improving our standard of living is what the economy is all about. It is the be all and end all. That’s why, if a decline in our standard of living is the real dynamic underlying the issues raised by Yes!, we have a bigger problem than we thought.

Friday, August 14, 2015

COAL COMMUNITIES AND THE VICTIMS OF COAL'S DEMISE

There is small “c” coal – the combustible black mineral extracted from the earth – and there is big “c” Coal, the one used in headlines and in slogans such as “Coal is West Virginia”, and, most notably, “the war on coal”. It's a linguistic bundling of coal companies, executives, investors, miners, and their families into a confederacy of common interest in which what is good for the industry is presumed to be good for all – a community rising or falling together.

This picture of common cause is quaint, touching, even a little romantic . . . and extremely convenient for the coal industry in its efforts to exert political influence and resist environmental and safety regulations that would lessen demand for coal and increase costs. The problem is that the communitarian picture is almost entirely myth.

The notion that the interests of coal miners are aligned with those of coal operators would have been laughable to early 20th century unionists who literally had to fight mine owners to win even basic safety provisions and workers' rights. Still, it's argued that jobs and communities often wouldn’t exist at all were it not for the mines. But, what kind of existence is it that coal affords? What kinds of communities does it sustain?

Despite the higher-than-average wages paid by coal companies, mining communities are generally isolated, sparsely populated, impoverished, culturally barren, economically undiversified, and the health of residents is often atrocious. While geography and topography contribute to these conditions, to a large degree they are brought about by the coal industry itself.

Whereas most businesses prefer to operate in prosperous, growing communities, affluence and population growth creates problems for coal operators by driving up property values and raising expectations for higher standards of living including a clean and healthy environment. That’s why now, unlike a century ago, coal mines no longer operate beneath large towns and cities. It’s too expensive, there are better uses for the property, and the populations won’t stand for the attendant environmental and health risks. In short, the coal industry is an economic dinosaur – primitive, large, and not easily adaptable to a diverse modern society and economy. Even the marketplace in which coal companies operate is antediluvian.

Most businesses compete on multiple fronts – price, quality, innovation, and customer service. But, coal is a commodity, so prices are rigidly set by a market that offers little or no opportunity for product innovation or differentiation. That absence of opportunity also compounds the pressure to minimize costs, which is the only basis on which coal companies can gain a competitive advantage. And the drive to minimize costs leads directly to the noxious practices for which the industry is so well known -- dangerous workplaces, environmental degradation, and an almost pathological disregard for the externalized costs of burning coal which include global warming and all of its ill consequences.

Aside from a shared interest in keeping the lights on, coal mines and people simply don’t coexist happily. Those who live in coal communities find themselves trapped in a state of economic dependency on what is usually the area's only major employer. So, despite the health and environmental risks with which they live, they can develop a kind of Stockholm syndrome with respect to the coal companies, which can be seen when they leave their communities to rally at state capitals and wave signs declaring themselves "Friends of Coal" and opponents of the EPA's "war on coal".

If the national press takes notice of the demonstrators, it's to pity and sometimes deride them for their ignorance, for their insensitivity to the global consequences of burning coal. And it's true that coal supporters rarely acknowledge and almost never discuss coal's victims -- the hundreds of thousands of who suffer and die annually of respiratory diseases, never mind the millions who stand do be displaced as a result of global warming. But, if coal's supporters are callous toward others, they're no less callous toward themselves, many of them miners or the family members of miners who are consigned to suffer and die from silicosis and black lung. If they offer no pity, neither do they ask for it.

Besides, they're hardly alone in their disregard. Opponents of coal are no less guilty of blinkered compassion, expressing endless concern for the planet and those affected by its degradation, but rarely acknowledging the plight of those whose lives will be upended when the mines close. Occasionally opponents of coal will excuse their disregard by pointing out that the rise of renewable energy sources is creating more new jobs than the number being lost in coal. But, it's a sterile argument that doesn't resonate in the real world in which almost none of those new renewable energy jobs will go to refugees from the mines.

Ultimately, the only humane and economically sensible solution to the conflict will be for the mines to close. In some cases it may be possible to diversify coal community economies to help them find new reasons for being. That's what the Obama administration is attempting with its POWER+ Plan that will invest in coal towns. But, it's also inevitable that many communities will be beyond salvation and residents who are not retired or disabled will eventually have to move in order to seek new livelihoods. They will face daunting barriers to finding employment. And housing prices will be two or three times what they've been accustomed to paying. As a result, many will see their already meager standards of living diminish even further.

Compared to the deaths and dislocations of hundreds of thousands or millions that will result from continuing to burn coal, it's a small tragedy . . . but a tragedy still.

Wednesday, April 22, 2015

WEST VIRGINIA'S DAYDREAM BELIEVERS

A couple of weeks ago the American Legislative Exchange Council (ALEC) released its annual ALEC-Laffer State Economic Competitiveness Index, often called the "Rich States, Poor States" report, which ranks states for economic competitiveness based on the extent to which they have adopted a set of policies that ALEC says, "can lead a state to economic prosperity". So, when this latest edition showed that West Virginia had fallen in the rankings from 30th place to 36th, very serious people were all over it. Wheeling and Parkersburg newspapers editorialized on the need to accelerate the pace with which the state is adopting the report's prescribed policies, MetroNews host Hoppy Kercheval devoted a segment of his statewide radio show to the report including an interview with the report's author, and state senate president Bill Cole (R-Mercer) cited the report as a legislative committee prepared to explore the subject how West Virginia's tax structure should be reformed.

The problem with all of this focus and publicity is that the empirical evidence shows the ALEC-Laffer State Economic Competitiveness Index utterly fails at what it purports to do, predict states' economic performance. As gleefully demonstrated by Sean O'Leary, the smarter, of the West Virginia Center on Budget & Policy, there is no correlation whatever -- none -- between states' rankings in the index and any major indicator of prosperity -- economic growth, job growth, income growth, or increases in state and local government revenue.

In short, whatever the ALEC-Laffer State Economic Competitiveness Index predicts, it's not economic prosperity, which raises a fascinating question, why does a report that demonstrably fails to fulfill its purpose command such attention and in some cases near reverence? The answer is a sad commentary not just on the quality of political discourse in West Virginia, but on the state of our democracy.

One reason Rich States, Poor States has such a following is because its sponsors have the financial wherewithal to inject it into public discourse and into the political process. But, there's a second and equally troubling reason. There are empowered and influential people who steadfastly believe in the report's policy prescriptions raising again the question of why when the facts are there for them to see?

In many cases -- probably most -- believers haven't subjected the report to critical evaluation (although that seems more than a bit negligent given the stakes). Such carelessness, if that's what it is, can often be explained by believers' implicit faith in the report's authors and sponsors. But, it's also possible that political expediency and the possibility of private gain are factors.

That's not to suggest that people are baldly exchanging legislative favors for money especially since there are more subtle and less legally risky ways for players on both sides of the transaction to achieve their desired ends. Reports such as "Rich States, Poor States" send to office-holders and would-be office-holders the unmistakable message that money is being spent and will be spent in support of certain policies and, therefore, on behalf of politicians who champion those policies. In the first instance pliant candidates understand that, if they espouse the favored policies, that aggressive PR and "issues advertising" will confer upon them a veneer of intellectual and moral respectability. And, in the era of unlimited "dark money", they may also infer that they'll benefit from "uncoordinated" attack ads that target their opponents. Finally, there are old-fashioned direct campaign contributions that roll in from out-of-state donors -- individuals and organizations -- of which candidates have very likely never heard. And it all happens without a meeting or so much as a conversation between the concerned parties.

There are also less tangible but no less meaningful benefits, such as membership in a community the likeminded that offers mutual admiration and support as well as opportunities to hobnob with assorted varieties of celebrities, from those recognizable to the general public to behind-the-scenes players who are virtually unrecognizable and, therefore, that much more compelling. Indeed, the nervous delight of three year-olds meeting Santa Claus for the first time pales in comparison to that of local politicians who find themselves shaking hands with one who until that moment they had known only through the grace of Fox News or the pages of the Wall Street Journal.

No wonder current and would-be public servants evince such little interest in critically examining policies that, when allowed to go unquestioned, provide so much. And, what are the policies? Again, Sean O'Leary, the smarter, provides a helpful summary.

The policies shown in the image are simply a prescription for minimizing government services and shifting the responsibility of funding those that remain from the wealthy to middle and lower class families, a strategy that as was previously shown has utterly failed to increase prosperity in the states that have most thoroughly adopted it and that, on a national level has contributed to economic stagnation and increased deficits to the degree it has been tried.

It's easy to understand why those consequences are acceptable to the people behind the policies' promulgation. They get richer -- much richer. But, what are we to make of elected officials such as Senator Cole who represent West Virginians? Are the incentives mentioned above really so appealing that he and others would willingly see their own constituents suffer?

Sadly, in some cases the answer is yes. But, at the end of the day many local politicians are guilty of nothing more than credulousness and incuriosity -- enough that they accept what they hear at face value. They are the true believers of American politics who serve as foot soldiers in cities, towns, hamlets, and hollows all over the country and who can be relied upon to champion the policy du jour so long as it comes wrapped in the appropriate rhetoric and is enunciated by the recognized priesthood. Vladimir Lenin coined a term for them -- useful idiots.

They are people for whom adherence to dogma is the paramount virtue, not because of the outcomes it produces, but often in spite of them. Adverse results and suffering constitute tests of faith rather than a test of understanding, the former demanding constancy while the latter would recommend change. So, as Abraham was prepared to sacrifice his son Isaac to demonstrate his faith, they remain prepared to double down on policies that have already caused West Virginia great harm, oblivious to the fact that they are serving a God who will not stay their hands.







Monday, April 6, 2015

WEST VIRGINIA DEMOCRATS: NO DIRECTION HOME

Last week, Belinda Biafore, newly named chairwoman of West Virginia’s Democratic Party, participated in a wide-ranging interview with reporters and editors of the Charleston Gazette in which she was asked about lessons learned from last fall's election debacle and the party's direction going forward. Democrats hoping for the ascent of a phoenix can put away their binoculars.

A transcript of the interview has been published and in it Biafore fails to identify a single policy or position that West Virginia Democrats should reconsider, much less change. More worryingly, she proves unable to articulate any semblance of a Democratic narrative that would save West Virginia from its ongoing economic decline or that offers a compelling alternative to the now ascendant Republicans.

Things got off to a rocky start when Gazette editor Rob Byers asked Biafore what Democrats should have done differently in the disastrous 2014 election.

“Raised a whole lot more money. Maybe worked a little harder to get out the vote.”

Maybe?

Noticing the obvious omission in Biafore’s response, Byers prods her. “Philosophically, though, any changes there?”

“We probably should have maybe done a better idea of defining who we were.”

Recognizing the challenge before them, the Gazette’s questioners then pose a series of questions that practically provide Biafore with step-by-step instructions for how to articulate a vision, message, and policies. But, it’s to no avail. Nor does the participation of Democratic Party Vice Chairman Chris Regan elevate the discussion above repeated platitudes about “getting out our message” punctuated by sniping about the legislature’s new Republican majority. Biafore and Regan even frame major issues in exactly the way their opponents want them to be framed.

Just like Republicans, Biafore talks about “coal” as though it’s a monolithic force in which the interests of the industry, of miners, and of West Virginia residents are identical. If current market conditions and West Virginia’s long and painful history have taught us nothing else it’s that (a) even when the coal industry has prospered, it has not led to job growth or prosperity for workers and communities, (b) the desire of the industry to reduce costs and defeat environmental and safety rules is diametrically opposed to the wellbeing of miners and to health conditions in mining regions, and (c) the future of the Appalachian coal industry is compromised not as much by EPA regulations as it is by economic forces including competition from low-cost coal in Illinois and Wyoming, low-cost natural gas and renewables, and a worldwide consensus that the health and environmental effects of burning coal are so dire and costly that its use must be reduced.

That being the case, West Virginia Democrats should forcefully distinguish between the interests of miners and communities on the one hand and those of the industry on the other because doing so would not only serve the public interest, but would also politically distinguish Democrats from Republicans who make hay by falsely declaring that opposition to environmental and safety regulations is a fight for jobs when in fact the primary benefit is improved margins for mine operators with little or no impact on jobs or prosperity in West Virginia. Stating these truths would also put to rest the delusion that West Virginia’s coal industry and jobs would see a rebirth if environmental and safety measures were weakened.

If Biafore’s articulation of Democrats’ position on coal is bad because it’s misguided, her description of party economic policy is worse because it appears there isn’t any. While she mentions tactical measures such as raising the minimum wage and efforts to promote pay equality, Biafore fails to articulate any kind of overarching economic philosophy or principles.

She certainly doesn’t criticize current state economic policy, which can be summarized as “cut business taxes and pray the natural gas industry saves our asses”, probably because, although the policy is Republican in nature, it was proposed and implemented by Democratic governors and Democratic majorities in the legislature. In any case, West Virginia has seen no growth in jobs and prosperity. What we have seen are regularly recurring state budget deficits.

The good news politically is that these policies are fully embraced by Republicans even more enthusiastically than by the Democrats who enacted them. So, Democrats are now perfectly positioned to pivot on the issue and denounce what has been a manifest failure. The denunciation should be accompanied by the presentation of an alternative progressive economic agenda that would expand West Virginia’s economy by (a) defending the wages of West Virginia workers against assaults from Right to Work laws and weakening of the prevailing wage law; (b) revising West Virginia’s tax code to stop the repatriation of hundreds of millions dollars annually from the state’s economy while doing nothing to increase jobs or commerce; (c) using the revenue gained from revisions to the tax code to reduce the costs of higher education, invest in infrastructure and jobs, and cut personal income taxes so West Virginians can keep more of what they earn; and (d) defending federal programs, including Social Security, Medicare, Food Stamps and other entitlement programs that provide desperately needed income for West Virginians and without which the state’s economy would contract even more.

It’s an economic policy and roadmap for greater wealth and prosperity that would powerfully distinguish Democrats from Republicans and leave Republicans holding the bag and baggage for the state’s current economic woes, which currently include thirty six consecutive months of decline in the number of West Virginians with jobs and chronic state deficits at the same time when jobs and the economy are growing at a healthy pace nationally.

Also absent from Biafore’s remarks is any mention of the environment, a truly remarkable omission in a state that perpetually lurches from one environmental crisis or industrial disaster to another responding each time with enhanced safety and regulatory measures only to see those enhancements rescinded months or years later as public apathy allows. From religious conservatives who believe we must be stewards of the earth with which God has blessed us, to environmentalists who observe the mounting crises caused by global warming, to residents and communities that see their health and property values destroyed by practices such as mountain top removal and the poorly regulated disposal of fracking waste, West Virginians will be receptive to a moral, economic, and public health argument that we must fight Republican efforts that would eliminate virtually any restraint on industry and that would also limit West Virginians’ access to the courts ensuring they will never be fully compensated for the damages they suffer. The question is, will Democrats have the courage to make the argument.

The same question can be asked with respect to the issue of healthcare. Obamacare or the Affordable Care Act (Biafore can’t bring herself to utter either name) has been an unmitigated blessing for West Virginia not just for the health of more than a hundred thousand West Virginians, but also for the economic benefits, which include more than $500 million dollars pumped into the state’s economy annually.

Finally, there are the gut issues that motivate many West Virginians – God, guns, and gays, and, lest we forget abortion and race. In her interview Biafore discusses the gun issue and correctly points out that many people who are generally supportive of gun rights are none the less taken aback by Republican legislation that would nearly abolish licensing and training safeguards and that would lead to weapons being present in nearly all places. Biafore also mentions Democrats’ successful effort in the last legislature to fight off Republicans’ attempt to pass a so-called religious freedom law that looked like a great deal like Indiana’s. But, pointing out Republican excesses isn’t enough.

While fighting for progressive positions on these issues individually, there is also an opportunity for Democrats to bundle social issues as part of a larger narrative accusing of Republicans of making West Virginia appear to the world, including people and businesses that might move and invest here here, to be a reactionary backwater of bigotry, ignorance, and resistance to modernizing influences that are shaping society.

West Virginians resent nothing more than being dismissed as rednecks and hillbillies and will understand the destructive consequences of such an image, which, along with environmental degradation and the absence of an educated workforce, constitute a far greater barrier to economic prosperity than do issues of taxation and government regulation.

In the wake of their 2014 electoral disaster, West Virginia Democrats have an opportunity to remake themselves by remaking their vision for the state. But, again, merely criticizing Republicans for their extremism isn’t enough. Democrats can and should be the party that speaks truth to West Virginians by acknowledging our shortcomings and by articulating a new economic and social narrative that explains how we got into the situation in which we find ourselves and how we can get out.

Honesty begets trust and vision begets hope and from those things votes will follow. The question is, can West Virginia Democrats find leadership capable of delivering either one. They haven’t yet.


Monday, March 30, 2015

JOE MANCHIN AND THE ECONOMY OF DOOM: A REALITY CHECK

Since becoming a senator, Joe Manchin's two most noteworthy actions in the area of economic policy have been his championing of the Bowles-Simpson deficit reduction plan and his vote against Janet Yellen when she was nominated to become chair of the Federal Reserve Board. In both cases Manchin was motivated by his belief that deficit spending and the Fed's easy money policies were leading the nation to a fiscal precipice from which, he warned ominously, the nation would tumble into "a credit downgrade, reduced GNP and a devastating spike in inflation".

That was in 2012 in a speech to the Weirton, WV Rotary Club. So, what has happened in the intervening two and a half years during which the Bowles-Simpson plan was dismissed, Yellen was confirmed to lead the Fed, and the policies against which Manchin warned -- a low discount rate, quantitative easing, and deficit spending -- continued?

The latest numbers show that January marked the 34th consecutive month in which inflation has come in below the Fed's target-rate of 2%, the 25th consecutive quarter of GDP growth, and the 60th consecutive month of job growth -- the latter an all-time record.



FACTS CONFOUND CONGRESSMAN MCKINLEY AGAIN

Last year the Obama administration took a number of steps to reduce emissions of greenhouse gases including the issuance of new rules by the EPA and the signing of an emissions reduction agreement with China. These measures were immediately and furiously condemned by Congressman David McKinley (R - West Virginia) who complained that the rules would cripple economic growth in the US while giving our global competitors, particularly China, a free-pass to continue using low-cost coal to drive their economies.

In an earlier post titled "Congressman McKinley Meets Charlie Chan" I pointed out that the congressman's assumption that China would happily continue to increase its consumption of coal ignored both economic and political forces that would have exactly the opposite effect. This week that observation was validated by two reports. First, the Economist magazine in a story titled "Coal Mining In The Depths", reported that last year China actually reduced its consumption of coal by almost 2% even though its economy grew by over 7%. Meanwhile, Bloomberg reported that China will close the last of four major coal-fired power plants next year and replace them with electricity fueled by low-cost natural gas in order to reduce Beijing's legendarily high levels of air pollution.

It's probably too much to expect that the events in China will cause Congressman McKinley to alter his views since on the larger issue of man-made climate change he remains resolute in his denials despite an avalanche of data and virtual scientific unanimity. Still, perhaps some of his constituents can be swayed by facts.



Wednesday, March 11, 2015

ELECTRICITY-GENERATING CAPACITY GROWING DESPITE COAL'S DECLINE

It will come as little comfort to fearmongers who predict that coal's decline will give rise to all sorts of catastrophes ranging from power shortages to skyrocketing utility rates, but it's great news for the rest of us that the Energy Information Administration projects that electricity-generating capacity from natural gas and renewables is growing even faster than coal-generated capacity is declining. That suggests the nation will have a more than adequate supply of electricity going forward even as utilities are weaned off of coal.

This year the nation's electricity-generating capacity from natural gas and renewables will grow by almost 18 gigawatts while less than 13 gigawatts will be lost due to the closure of coal-fired plants. When all of the additions and subtractions of all sources are taken into account the nation will gain about 4 gigawatts of capacity this year.

 
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