Sunday, October 5, 2014


This cringe-inducing clip of West Virginia Democratic Senate candidate Natalie Tennant struggling to respond to a question from a laid-off Logan County coal miner illustrates what happens to ostensible progressives who, whether out of ignorance or political cowardice, parrot the widely held misconception that the coal industry is an engine for job creation in West Virginia and that the loss of coal mining jobs is largely attributable to actions by the EPA.

Constrained by her many repetitions of these myths, Tennant cannot give the miner the compassionate, honest, and politically more effective response that he and many West Virginians have been misled by the coal industry and by self-interested politicians about the causes of mining job losses. She can't explain that his plight has almost nothing to do with the EPA and almost everything to do with market forces -- declining productivity and correspondingly rising labor costs in southern West Virginia mines and the ferocious competition from cheap natural gas and low cost coal from the Powder River Basin and Australia. Consequently, even outright abolition of the EPA would do almost nothing to restore lost mining jobs.

Just that little bit of honesty would have allowed Tennant to then shift the conversation to an issue on which progressives have a decided advantage -- the question of what government should be doing to help miners, families, and communities successfully navigate the journey to new careers and opportunities.

Monday, September 29, 2014


Yes, you read that right. According to Forbes Magazine and the West Virginia Department of Commerce, the nation's top 25 hedge fund managers received more pay in 2013 than did all 564,812 of West Virginia's private sector workers.

So, while West Virginia workers made an average of $760 a week, the hedge fund managers made $18.5 million a week -- just over 24,000 times as much.

Wednesday, September 24, 2014


When then-Governor Joe Manchin's daughter, Heather Bresch, was caught up in a scandal concerning her Executive Masters in Business Administration degree from West Virginia University, which it turned out had not been earned, she maintained a studied silence and stayed out of the public eye. To this day she won't discuss the matter publicly. It was a smart move. Bresch's degree was revoked, but she kept her job as CEO of Mylan Pharmaceuticals. Meanwhile, three WVU employees, including president Mike Garrison, lost their jobs over their involvement in the affair.

Given her past success as a result of remaining mute, one might have expected that Bresch would continue to follow that course. But, putting the letters "CEO" behind one's name can have an intoxicating effect that causes one to wander into situations that would be better avoided. Such was the case in July when Bresch agreed to be interviewed on CNBC about Mylan's announcement that it was acquiring the generics division of Abbott Laboratories, which is based in the Netherlands, in a process commonly called an "inversion".

In an inversion an American company sells itself to a smaller foreign company and, by ostensibly becoming a subsidiary of the smaller company, manages itself to become foreign-based and, therefore, not subject to certain US taxes. Of course, the management team of the larger American firm remains intact and takes over the ostensible "parent company".

The CNBC interview revealed a decidedly not-ready-for-primetime Heather Bresch. Faced with questions that can best be characterized as friendly, Bresch nonetheless stumbled when asked how much money Mylan would save in taxes as a result of the inversion. Rather than answer the question, Bresch became defensive and insisted that the move was not motivated by a desire to avoid taxes, but rather by strategic considerations.

Even the pliant program hosts couldn't ignore so awkward an evasion, so they asked again . . . and again . . . whereupon Bresch continued to refuse to answer. But, this time she embellished her refusal with a tirade about how the US needs to get its corporate tax structure in order to become competitive with other countries.

The tirade seemed to undermine Bresch's claim that the inversion was not motivated by tax considerations. And the embarrassing interview became a social media hit and focal point for those wishing to illustrate the shamelessness with which businesses use legal loopholes to evade taxes. Even Bresch's father and now senator Joe Manchin decried the practice of inversions without specifically condemning his daughter's company.

Fast forward to yesterday when Treasury Secretary Jack Lew announced a series of measures that the New York Times described as "intended to crack down on on the deals, in which United States companies reincorporate abroad to lower their taxes." The story went on to say that, while the changes would not stop all inversions, some would be crippled, particularly those involving so-called hopscotch loans, in which "a foreign subsidiary of an inverted company could lend money to the new foreign parent, bypassing the Internal Revenue Service." The Times goes on to explain that "the new rules will end the practice by treating the hopscotch loans of inverted companies as dividends, making them taxable in the United States."

Guess which company's inversion is the people's exhibit A. The Times goes on, "The one deal that is perhaps most threatened is Mylan’s acquisition of Abbott Laboratories’ branded generics business for $5.3 billion. That deal is a so-called spinversion, in which Mylan, an American company, is merging into an international spinoff of Abbott.

"The Treasury rules included provisions to prohibit deals structured this way, which might prompt Mylan to change course.

The Times concluded by quoting Ronny Gal, an analyst at Sanford C. Bernstein who said, "Mylan would need to reconsider its plans. On the mild side, the deal may go forward with fewer benefits and perhaps a reduced price tag. On the more severe side, the deal terminates and Mylan goes back to square one to rethink its expansion strategy.”

So, the question now is, what will Heather Bresch do? Go through with a deal that's no longer as lucrative or scuttle the deal and prove that her claim during the CNBC interview that the deal wasn't motivated by a desire to evade taxes was hogwash. If we take Bresch at her word, the deal will continue. She concluded the CNBC interview by saying no fewer than three times that Mylan "absolutely" would have done the deal with or without the tax inversion. But, when asked yesterday about the new rules and their effect on the Abbott deal, Mylan had no comment.

We'll see.

Monday, September 22, 2014


In today's commentary titled "Losing The War On Poverty" West Virginia MetroNews Talkline host, Hoppy Kercheval, regales us with the three great myths about poverty that pervade conservative talk radio. They are:

1. Government programs don't really reduce poverty.
2. Poverty isn't all that bad.
3. Economic growth isn't only a sure remedy for poverty, it's the only remedy.

The problem is that every one of these claims is false and, what turns them from myths into lies, is that Hoppy Kercheval and those who promote them know or should know they're not true.

Hoppy tells us, "According to U.S. Census figures, the poverty rate in America is 15 percent, and it’s held pretty close to that mark for the last 50 years. The Heritage’s Robert Rector reports that in the 50 years since President Lyndon Johnson launched the war on poverty, we have spent $22 trillion dollars."

What Hoppy neglects to mention is that prior to the War on Poverty fully a quarter of Americans were impoverished and had been for generations. In fact, had Hoppy gone back just four more years, to 1960, he would have discovered that 23% of American households lived below the poverty line.

Then, with the advent of anti-poverty programs first under President Kennedy and then under President Johnson, the poverty rate was almost cut in half, dropping to 12.5% in just six years. And it stayed well below the 15% that Hoppy alludes to until the 1980 recession. Since then, it has almost always been below 15%. In short, the War on Poverty had an immense impact by lifting tens of millions of people out of poverty.

Hoppy points out, " . . . the living conditions of those defined as poor by the Census Bureau are significantly better than they used to be." He goes on to say, "Eighty percent of poor households have air conditioning. Nearly three-fourths have a vehicle and 31 percent have two or more cars or trucks. Nearly two-thirds have cable or satellite TV. Half have a personal computer. More than half of poor families with children have a video game system."

We've heard it so often -- how the poor are coddled and have it easy. But, the truth is that in this country that's supposed to be the land of equal opportunity, growing up poor, while not a certain predictor of misery, makes that fate a lot more likely. Here's why.

Those who are born into poor families are much more likely to remain that way throughout life.

If you're poor, you're also far more susceptible to chronic illness.

And you're going to have a hard time climbing out of poverty even if you're smart.

To slightly corrupt Dean Wormer's admonition to Flounder, "Poor, sick, and uneducated is no way to go through life." But, that is the fate for immense numbers of those unfortunate enough to be born into poverty. Still, as Hoppy points out, at least they have air conditioning.

Hoppy concludes, "The best way out is by way of a thriving economy. As Nobel Prize winning economist Milton Friedman said, 'There has never in history been a more effective machine for eliminating poverty than the free enterprise system and the free market.'”

Anyone who ever held the notion that economic growth by itself is sufficient to lift people out of poverty should have been disabused of that misconception by the events of the past six years during which nearly all of the income growth that's been generated during our recovery from the worst economic crisis since the Great Depression has been confined to just the richest Americans. If you're poor or even middle class, you have seen your incomes shrink even as gross domestic product and the economy in general have grown.

A rising tide manifestly does not lift all ships. And this isn't just a recent phenomenon. Even if you go back to the late 1950's and early 1960's, we were coming out of a two-decade-long period of economic growth that was unrivaled before or since in American history and yet, as was pointed out earlier, a quarter of American households were still living in poverty.

Despite the avalanche of statistical evidence (and direct experience for those who deign to wander out of their broadcast studios and think tanks), the canards continue to be peddled by Hoppy Kercheval and others and they become excuses for doing nothing or at least less than we're doing now about one of America's most tragic and pernicious problems.

Friday, September 19, 2014


In Kansas, one of America's most conservative states, Republican Governor Sam Brownback is fighting for his political life because Kansans are outraged that Brownback's economic policy of slashing taxes to stimulate economic growth has utterly failed and instead produced economic stagnation accompanied by rising budget deficits and reduced state services.

Interestingly, for the past seven years the same policies have been pursued in West Virginia with almost exactly the same results. But here, there is little visible outrage or even any apparent awareness of the fact that West Virginia's economy has been by many measures including job and income growth, one of the worst if not the worst in the nation.

And, in many ways, the debacle in West Virginia is even more imponderable and inexcusable than the one in Kansas. Just four years ago West Virginia Governor Earl Ray Tomblin was able to proclaim in his first State of The State address, "West Virginia is poised for success. The building blocks are in place for unprecedented prosperity and job growth."

Tomblin could make that claim because by the beginning of 2011 West Virginia had weathered the great recession more successfully than just about any other state. Our housing market had been largely unaffected, our state budget was still balanced, and we, unlike Kansas, were sitting on what Tomblin and others believed was an economic goldmine of Marcellus Shale that would be developed by a burgeoning natural gas industry. But, most of all, Tomblin and most members of the state legislature believed that, by cutting corporate taxes, we had made West Virginia far more competitive and attractive to business.

In short, West Virginia had a tailwind that Kansas and most other states didn't enjoy, but it all went to hell. In the subsequent four years, as the nation added eight million jobs, West Virginia added almost none and income growth was the worst in the nation.

So, why aren't West Virginians demanding the heads of Tomblin and our state leaders in the same way that Kansans are demanding the head of their governor?

The simple and astonishing explanation is that they don't know how bad things are. If you want to know why, just look at David Gutman's article on child poverty that appeared in the September 18 edition of the Charleston Gazette.

Gutman's article, which correctly expresses concern about the state reaching a worrying 5-year high in child poverty, casts that bewildering statistic as a counterpoint to what he calls, "significant improvement in other economic factors over that time." Gutman goes on to paint the picture of an otherwise healthy West Virginia economy.

"West Virginia’s unemployment rate spiked in 2009 because of the financial crisis, peaking at 8.5 percent in 2010. Since then, it has fluctuated some, but has declined fairly steadily. It was 6.6 percent in August. Similarly, after plummeting in 2009, the state’s gross domestic product has grown by at least 2.5 percent every year since, except for 2012."

The numbers Gutman cites place West Virginia among the leaders nationally in economic growth and reducing unemployment. But, does it feel like West Virginia is booming? Of course not. That's because, while a few statistics are booming, the state's economy -- the one you and I live in -- is not.

Why? Because, while the state's unemployment rate dropped from 8.5% to its present 6.6%, Total Non-Farm Employment — the actual number of jobs in the state -- has not grown at all since mid-2009. The decline in the unemployment rate is entirely attributable to the shrinkage of WV's workforce — not to an increase jobs.

And, as I pointed out in a blog post last June, West Virginia's frequently shining GDP growth has long failed to produce corresponding growth in jobs or incomes for state residents. For instance in 2013, WV's GDP growth was third in the nation trailing only North Dakota and Wyoming, but in job and income growth we were dead last.

Sadly, almost no one is aware of these discouraging facts because they are rarely if ever reported. Instead even excellent reporters like Gutman have a tendency to rely on top line economic statistics such as the unemployment rate and GDP growth without examining the underlying dynamics and the economic reality of West Virginia. The result is a widely held misapprehension among politicians and people that West Virginia's economy is doing much better than it in fact is.

The tragedy isn't just that we're suffering economically. It's that we don't even know it. Kansans may not feel particularly lucky right now, but at least they know they're getting hosed.

Wednesday, September 17, 2014


In this month's Harvard Business Review, William Lazonick writes in an article titled "Profits Without Prosperity", that between 2003 and 2012 companies in the Fortune 500 "used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees."

This heavily skewed allocation of earnings in favor of stock buy-backs and dividends is almost a complete reversal of the way earnings were allocated in the mid-twentieth century, when the majority of funds was reinvested in companies and employees in the pursuit of long-term growth. Lazonick goes on to speculate that the change is likely a reflection of present day incentives that reward management for maximizing present stock value.

But, whatever the cause, the effect is to largely undermine the historical causal relationship between economic growth and widely shared prosperity. Hence the failure of our current recovery to spur robust job and income growth in the nation as a whole. But, the failure has been even more pronounced in West Virginia where, during five years of economic recovery in which the nation added more than ten million new jobs, almost none were added here.

That's probably because, at the same time the US economy was plunging into recession and then slowly crawling out, West Virginia was implementing a series of corporate tax cuts on the theory that, by increasing corporate profits, companies would be encouraged to re-invest those profits in West Virginia.

The theory was doubtful from the outset based on the fact that nearly all of West Virginia's largest corporate employers and their shareholders are based out of state, which means that most of the tax savings is automatically repatriated to other places. But, now it turns out that, whether repatriated or not, more than 90% of the profits aren't reinvested here or anywhere else virtually eliminating any stimulative effect. And West Virginia has the results to prove it.

In short, the economic strategy on which West Virginia placed its bet and continues to place its bet, actually exacerbated the problem. Put another way, it never had a chance of working.

Monday, August 4, 2014


Sean O'Leary "the smarter" of the West Virginia Center on Budget and Policy provides a chart that quantifies in even more compelling detail the point I recently made about how market forces in general and the rising cost of mining coal in southern West Virginia in particular are primarily responsible for the recent spate of mine closings and layoffs.

Layoffs in the coal industry this year have been largely confined to "Central Appalachia" (southern West Virginia and eastern Kentucky) and the following chart shows why. (Click on chart to enlarge)

Mines in Central Appalachia produce only about 2 short tons of coal per labor hour as compared to a national average of over 5. Powder River Basin mines produce almost fifteen times that much and even Northern Appalachian mines in West Virginia and Pennsylvania produce 50% more. Finally, as the best coal seams are mined out, Central Appalachian productivity is only getting worse having dropped by 20% in only three years between 2009 and 2012.

Labor costs make up a significant portion of the coal industry's cost of doing business, which is why companies have worked assiduously over the past seven decades to eliminate workers even when production was booming. But now southern West Virginia's geological facts of life are reversing the immense productivity gains companies realized in the last half of the twentieth century and it's happening at a time when the price of coal is plunging. As a result, for some mines, most of them in Central Appalachia, the revenue and cost lines are crossing, which means it's time to turn out the lights.