Wednesday, March 4, 2015


Today the West Virginia Department of Commerce released the latest employment figures for the state. And, for the first time since January 1996 the number of working West Virginians dropped below 730,000. The following chart illustrates the plunge in the number of West Virginians with jobs while also noting the accompanying policy blunders as well as the frequent and inexplicable proclamations of prosperity made by the state's political leaders.

Click on the image to enlarge.

It's hard to imagine a more vivid and compelling condemnation of West Virginia's economic policies of the past eight years, which have largely consisted of slashing business taxes in order to become more "business-friendly" while staking the state's economic future to the fortunes of the coal and natural gas industries.

Will our leaders notice? Will our leaders act . . . or, more specifcally, will they act differently?

Monday, February 23, 2015


For sometime now I've written about how West Virginia regularly manages to post impressive economic statistics that somehow never seem to result in greater prosperity for West Virginia residents and communities. That's been especially true of the what are probably the two most frequently reported measures of economic performance -- gross domestic product and the unemployment rate. To those we can add a third serially misleading statistic upon which state leaders in search of false vindication of their policies can now seize.

The Mountain State Business Index is published monthly by West Virginia University's Bureau of Business & Economic Resarch. As described on its website, the MSBI "combines seven leading economic indicators into a single index that provides a convenient way to gauge the likelihood of swings in economic activity in West Virginia over the next four to six months. Signals of a contraction (or expansion) in the state's economy can be identified through the proper monitoring of changes in the index over time."

But, what does "contraction or expansion in the state's economy" actually have to do with the lives of West Virginians? The statistics suggest very little. The blue line on the following chart shows changes in the MSBI since the beginning of 2007. I've superimposed a red line that shows the change in employment (the number of West Virginians holding jobs) during the same time period.

So, as with Gross Domestic Product, the Mountain State Business Index has been skyrocketing for years while utterly failing to translate into what one would presume to be the most important and tangible outcome -- jobs for West Virginians.

Sunday, February 15, 2015


The storm clouds are gathering.

West Virginia's natural gas boom that has yet to deliver on the promise of economic prosperity is on the verge of collapse and, although the boom's heavily advertised promise of "game changing" growth in jobs and commerce has largely failed to materialize, the ills of a collapse would be acutely felt by West Virginians.

Recent data and plethora of news stories suggest that the recent plunge in natural gas prices has already ended the upward trajectory in drilling activity and that depressed price levels may become the new norm. If that's the case, the resulting lower cost of energy will be good for the nation's and the world's economies, if not the environment, but it will harm West Virginia both economically and environmentally. And it will leave the state with a welter of problems that were self-inflicted because West Virginia leaders naively baked the expectation of perpetual boom-driven prosperity into the state's budget and economic planning.

The legislature and governor cut business taxes and the sales tax on food in part because they believed that any resulting revenue shortfalls would be offset by rising severance tax receipts. They accepted the destruction of roads and infrastructure in the expectation that increased property tax receipts would pay for the cost of repair and then some. They put water supplies at risk, raffled off leases for public lands, and overrode the rights of property owners as well as those of towns and counties all in the belief that any pain those parties might experience would be more than offset by an expected explosion of jobs and commerce.

But, the explosion never happened. Although by one count the number of jobs in West Virginia has grown markedly since the fracking boom began in 2007, the number of jobs that are held by West Virginians is now as low as it was during the depths of the recession and is continuing to decline at a faster rate than it did then. As a result, other than during the recession, there are now fewer West Virginians working than at any time since 1995.

Meanwhile, coal and natural gas severance tax revenue has already fallen more than $38 million behind the budgeted amount for the fiscal year that runs through June. And that's before natural gas prices reached their current levels of less than $3.00/ million Btu, which suggests that receipts for the balance of the fiscal year are likely to be even worse. And there's no indication the situation is going to improve in coming years.

In the last few weeks the federal Energy Information Administration, Goldman-Sachs, Citicorp, and half a dozen other firms that model commodity prices reduced their price forecasts for natural gas with all anticipating an average price of between $3.10 and $3.20 this year and around $3.60 in 2016.

The damage that such low prices will do to West Virginia can only be grasped if they are considered in the context of what state leaders expected prices and, therefore, tax receipts and royalties to be when they enacted current tax and budget policies.

In 2009, it was generally supposed that gas prices would never drop below a price of $4/million Btu and they would climb to about $6.50 by 2015. In fact, both the actual low price reached in 2012 and the current price are less than half of those amounts. Still those were the prevailing assumptions when researchers led by Timothy Considine of the University of Wyoming and with funding from the American Petroleum Institute, published what was probably the single most influential study of the effects of the fracking boom on West Virginia's economy. That flaw combined with many others about which I've written elsewhere led to predictions of job creation and induced economic activity in West Virginia that now seem absurd.

And it was the backdrop against which the governor and the legislature started crafting policy. Even though price forecasts had started to be dialed back by 20ll when Governor Tomblin, who took over from Joe Manchin, delivered his first State of The State speech in which he proclaimed, "The building blocks are in place for unprecedented prosperity and job growth", expectations were still wildly optimistic compared to the reality we currently face.

Now, with prices 30% below where they were expected to be four years ago and 50% below where they were expected to be when we started enacting corporate tax cuts, we face the real probability that prices, and therefore, natural gas-driven economic activity will settle indefinitely at anemic levels. That's reflected in the fact that recently the the number of drilling rigs actively developing new wells has plunged and the companies that do the drilling are announcing 40-50% cutbacks in investments, demanding that suppliers offer them discounted pricing for the goods and services they buy, and of course, laying off contractors and in some cases employees.

Even the prize that has become emblematic of West Virginia's natural gas dreams and as fervently sought as the fountain of youth -- an ethane cracker plant -- is threatening to become the unicorn of West Virginia politics and an enduring symbol of our economic naivete. West Virginia long ago lost to Pennsylvania in the competition for the really big cracker plant planned by Royal Dutch Shell. That's the one that was going to generate 15,000 jobs. But we believed that a smaller plant -- only about one-tenth the number of jobs -- planned by the Brazilian company Odebrecht would locate in Wood County.

Then last week came news that, in light of low gas prices and questions about the facility's ability to sell its product, ethylene that's used in the making of plastics, at an adequate margin, Odebrecht is "rethinking" the project. In truth, Odebrecht's plant, whether it goes forward or not, isn't of sufficient size to determine whether West Virginia's natural gas endeavor will be redeemed or continue its descent into fiasco.

So, what has West Virginia to look forward to?

As mentioned above we are already in the midst of a plunge in jobs and it's possible the cutbacks by drilling companies will accelerate the dive. With natural gas production expected to expand by only about 13% in the coming year and with prices more than a third below levels that had once been budgeted, it's likely that the severance tax will continue to disappoint and in doing so will drive up the state's budget deficit that leaders are already scrambling to plug with measures such as an employment freeze that only further reduces the number of jobs in the state.

This is also happening at a time when performance in the rest of West Virginia's economy is disappointing. We all know about the coal industry. But, beyond that, employment levels in the rest of the state's industries have long been declining and there is no obvious reason why that trend should change in the near future. As a consequence, West Virginia may be facing a period of months and perhaps years in which job and income growth will plunge to decades-long lows. The state may also face record budget shortfalls and, since the legislature is unlikely to undo the spectacularly counter-productive business tax cuts it has enacted, the result will likely be further cuts in state services, hikes in college tuitions, and reductions in the number of state employees (i.e. more lost jobs).

Remarkably, ironically, and sadly, this may all take place while the rest of the country enjoys a continuing economic recovery. But, as our state leaders constantly remind us, Washington should take lessons in fiscal prudence and economic policy from West Virginia.

Tuesday, February 10, 2015


Over the past year you might have heard the governor, the attorney general, and assorted West Virginia politicians proclaim that the number of jobs in the state is at an all-time high. And with that claim they charged into last November's election feeling vindicated in the economic policies they had enacted -- primarily corporate tax cuts -- and promising to do more of the same.

Meanwhile, I and others argue that the number of jobs has actually been flat or falling and that, while there has been a rise in GDP, little or none of that growth has accrued to West Virginians. So, who's right?

The politicians base their rosy claim on the Bureau of Labor Statistics "Establishment Survey" in which businesses are asked to report how many jobs they have on their payrolls. And, sure enough, the Establishment Survey shows that employment in West Virginia is nearly at an all-time high.

But, the Bureau has a second survey -- a Household Survey -- in which residents are asked how many people in their homes are employed. The figures reported by the two surveys tend to rise and fall nearly in lockstep, but, as the following chart for US employment shows, the Household Survey consistently reports a higher level of employment than the Establishment Survey.

The Household Survey's figures are higher because, unlike the Establishment Survey, it counts people rather than jobs and is, therefore, able to capture the self-employed. And it's the Household Survey that serves as the basis for the unemployment reports we hear and read about every month.

What has that to do with West Virginia and the dueling claims of job growth or job loss?

Whereas nationally employment levels in the two surveys tend to move in lockstep, in West Virginia that relationship has broken down. Since 2001 and especially since 2009 figures reported by the Establishment Survey have risen much faster than those reported by the Household Survey, so much so that, during the recent recession, the Establishment Survey employment figures surpassed those of the Household Survey and the margin of difference has only grown since then.

The important difference is that the Household Survey shows that as of this past December, the number of jobs held by West Virginians had declined to about the same level we saw during the recession and, prior to the recession, to a level that has not been seen since 1995.

So while the number of "jobs" in the state may have risen, the share of those jobs going to West Virginians has plummeted to an all-time low leaving workers in the state with zero employment growth since the recession even as the rest of the nation has added nearly 11 million jobs.

Clearly this is a major factor in explaining why in the midst of a national economic recovery and during a period when West Virginia has an economic tailwind from the natural gas fracking boom, there have been no signs of increased prosperity either in jobs or in incomes.

But, if the jobs are being created, why aren't West Virginians getting them?

No one knows the answer to that question. It's possible and even likely that many of the jobs created by the natural gas boom are going to non-residents. But, with the gap between jobs in West Virginia and the number of West Virginians who hold them at nearly 33,000, the natural gas industry alone probably isn't large enough to create that much of a discrepancy.

The bottom line is that with jobs as with the state's GDP growth, most of the benefits are being exported out-of-state and until West Virginia leaders recognize that fact and adopt policies to correct it, their claims of record jobs and economic growth will continue to be as hollow as the vacant lots in Wheeling and the abandoned houses and buildings that dot our southern coalfields.

Monday, February 9, 2015


The attempt by Chief Justice Roy Moore of the Alabama Supreme Court to countermand a ruling by a U. S. District Court judge allowing gay marriage in Alabama should have special resonance for West Virginia where two state delegates, Eric Householder and John Overington of Berkeley County, are as one with Moore in believing that states have or should have the power to declare any or all federal laws null and void. That's why they are currently working with advocates from around the country to convene a new Constitutional Convention that would have as one of its key goals amending the Constitution to clearly establish the right of individual states to nullify laws and federal court rulings within their borders.

"Nullification" is an issue that along with the supposed right of states to secede was settled by blood in the Civil War. But, despite that legacy of bloodshed, despite all legal precedent, and despite the chaos that would arise in a world in which states could reject federal law and the rulings of the US Supreme Court, Overington and Householder are playing the roles of cheerleader.

Both men have sponsored bills in the West Virginia House of Delegates that embrace nullification and that they know would be ruled unconstitutional in any courtroom in the land . . . save perhaps Roy Moore's. Householder has sponsored bills that would nullify federal gun control laws and even make it a felony for any officer of the law, state or federal, to enforce a gun control law in West Virginia. And Overington is attempting to nullify the Affordable Care Act at the state level in HB 2841 which says, "The assumption that the federal government has made by enacting the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 is nowhere expressly granted by the United States Constitution and interferes with the right of the people of this state to regulate health care as they see fit."

As bad as these bills may be as matters of policy -- and they are very bad -- they are worse and more dangerous as matters of law and precedent. The question is, do Eric Householder's and John Overington's constituents grasp the extremism of these men and, if they do, is this the direction they want America to take?

Sunday, February 8, 2015


Berkeley County delegates Eric Householder and John Overington are taking a break from trying to ban the teaching of economics and social issues until students have been properly inculcated to do something even more fun -- gut the Constitution.

This weekend Householder and Overington are attending a "Convention of States" meeting in Indianapolis where they hope to build momentum for a new Constitutional Convention, the purpose of which would be to pass a series of amendments that appear on the Convention of States website. They include (and I quote from the site):

-- A balanced budget amendment
-- A redefinition of the General Welfare Clause (the original view was the federal government could not spend money on any topic within the jurisdiction of the states)
-- A redefinition of the Commerce Clause (the original view was that Congress was granted a narrow and exclusive power to regulate shipments across state lines–not all the economic activity of the nation)
-- A prohibition of using international treaties and law to govern the domestic law of the United States
-- A limitation on using Executive Orders and federal regulations to enact laws (since Congress is supposed to be the exclusive agency to enact laws)
-- Imposing term limits on Congress and the Supreme Court
-- Placing an upper limit on federal taxation
-- Requiring the sunset of all existing federal taxes and a super-majority vote to replace them with new, fairer taxes

In combination these measures would repeal the Social Security Act, federal civil rights laws, child labor laws, all federal environmental laws, the minimum wage, and workplace safety laws. Meanwhile, the balanced budget amendment and the "upper limit on federal taxation" would strangle the federal government's ability to respond to fiscal crises like the one from which we're just emerging and ensure that, as in Europe today, future crises would result in years of record unemployment and economic stagnation.

Imagine the kind of government we would have gotten had the Confederacy won the Civil War complete with the accompanying barbaric society functioning beneath only the thinnest veneer of gentility.

The radicalism of those involved in the Convention of States movement should render the entire undertaking absurd. But, thanks to recent Republican electoral gains in state legislatures around the country, they have at least an outside chance of success and, given the depth of damage such a convention could do, even that slight chance should be deeply concerning.

Friday, February 6, 2015


The technical glitch with Amazon has been resolved and you can now order copies of "The State of My State" HERE.

Thanks and I'm sorry for any inconvenience.