Monday, September 22, 2014

HOPPY'S 3 LIES ABOUT POVERTY

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.

LIE #1: GOVERNMENT PROGRAMS DON'T REALLY REDUCE POVERTY.
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.

LIE #2: POVERTY ISN'T ALL THAT BAD.
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.

LIE #3: A RISING TIDE LIFTS ALL SHIPS.
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

WHY WEST VIRGINIANS AREN'T MAD AS HELL ABOUT OUR ECONOMY

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

EXPLAINING THE FAILURE OF WV'S CORPORATE TAX CUTS TO PRODUCE PROSPERITY

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

WEST VIRGINIA COAL LAYOFFS DRIVEN BY DECLINING PRODUCTIVITY, NOT EPA

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.

Friday, August 1, 2014

MANCHIN SPINS THE TALE ABOUT COAL LAYOFFS






In Manchinland, it's simple. When coal companies announce layoffs in West Virginia, there is only one cause -- government regulation. Never is there a hint that market forces might be playing the slightest role.

That's strange because in the past few months, we've seen a series of market conditions arise that would have suggested to non-self-interested observers that southern West Virginia coal was headed for a reckoning. These include:

-- A glut in the supply of coal and a corresponding weakening of demand in Europe.

-- 3 years of continuous drops in the coal prices.

-- Declining productivity with corresponding increases in production costs in West Virginia's southern coalfields.

-- The high value of the US dollar relative to the Australian dollar, the country from where much of our competition for the European market comes.
-- And we haven't even gotten to the challenge from low-cost natural gas.


In other words, foreign markets upon which West Virginia coal producers depend heavily are in a state of oversupply, competition from Australia is greater than ever, the price of coal has plummeted, and production costs in southern West Virginia mines have been soaring. As I said, a reckoning was due.

So, why instead of acknowledging and addressing the implications of this onslaught from market forces does Joe Manchin choose to divert attention and scapegoat the federal government? It's a question we would all do well to contemplate.




Saturday, July 26, 2014

THE CALLOUSNESS OF NICK CASEY & THE PROMISE OF EPA'S NEW EMISSION REQUIREMENTS

A few weeks ago I posted a column titled "No Sense of Decency: West Virginia's Leaders and The Politics of Coal" in which I excoriated West Virginia Democrats and Republicans alike for their reflexive condemnations of efforts to slow global warming and their nearly complete disregard for the suffering climate change has already begun to inflict. And that was BEFORE Nick Casey, Democratic candidate for congress from West Virginia's second district, dropped this little bomb.

Paul Nyden of the Charleston Gazette reports that, while speaking at a candidate forum in Charleston, Casey dismissed the entire issue of climate change saying simply, "It's not our problem."

Even antediluvian global warming deniers, such as first district congressman David McKinley, recognize the moral implications if in fact climate change is the product of human activity, which is precisely why they argue ferociously that it's not. But, Casey seems to lack even that compunction. Never mind if tens of millions of people are displaced from their homes by rising sea levels. Never mind if diseases spread to hundreds of millions because formerly inhospitable environments become cushy new homes for disease-carrying insects. Never mind if agriculture and food supplies are disrupted worldwide -- "It's not our problem."

Does that kind of callousness know any boundaries? Does anything that is not in our self-interest matter to Nick Casey? Or, more pointedly, does anything that is not in Nick Casey's self-interest matter to Nick Casey? What happens when the day comes that Nick Casey is forced to choose between the interests of his second district constituents and his financial backers in the coal and natural gas industries?

Oh and, by the way, Casey is supposed to be the "liberal" in the race.

That brings me to the real purpose of this post, which has to do with the question of how West Virginia should respond to the new EPA carbon emissions requirements, which Casey roundly condemned and under which the state must cut its emissions by 20% between now and the year 2030. Casey's dismissive attitude notwithstanding, we have a year in which to submit a compliance plan to the EPA for approval.

Call me cynical, but given West Virginia's track record and current leadership, I suspect we'll have to be dragged kicking and screaming into compliance, that millions of dollars will be wasted in futile legal attempts to fight the new standards, and that any plan we submit will do only the bare minimum necessary to achieve compliance while protecting the coal industry to the greatest extent possible.

If that's the course we take, we will squander what may be West Virginia's best chance in a generation to diversity its economy and bring new businesses and jobs to the state. Renewable forms of energy such as solar and wind are already at or near price parity with coal in generating electricity. And as a recent New York Times article on energy policy in Minnesota shows, state government has the legal and regulatory tools at its disposal to force the regulated monopolies that provide electricity to support the development of alternative sources.

Meanwhile, the US Department of Engergy's DSIRE.org web site (DSIRE stands for "Database of State Incentives for Renwables & Efficiency") offers complete menus of the policy initiatives every state has enacted to encourage the development of alternative energy sources.

In short, there is no shortage of ideas available to West Virginia policy makers if they are willing to strain their necks to gaze into the future rather than into the past. And those ideas are having an immensely beneficial impact. Although you wouldn't know it living in West Virginia the solar industry already provide more jobs for Americans than the coal industry does -- well over 100,000 of them. And wind power provides almost as many jobs as coal as well. Solar power generation is also growing faster than coal, not just in percentage terms, but in absolute terms.

So, it becomes a question of whether we're going to hitch our wagon to a horse that's gaining speed and strength and that's already going faster than our current nag or are we just going to continue riding "Ol' King Coal" until he collapses beneath us?

Of course, it's not clear that West Virginians will even be presented with that choice. Political leaders will probably try to avoid even acknowledging that there is an economically viable and more promising alternative to coal -- just as they avoid discussing or acknowledging the human consequences of climate change. So what are we to do?

My suggestion, which I'm pitching to organizations such as the West Virginia Center on Budget and Policy, Downstream Strategies, and the Sierra Club West Virginia, is that we hold a "call for papers" or a "call for ideas" in which citizens, companies, and organizations have the opportunity to propose their ideas for how West Virginia can most effectively meet the new EPA requirements and capitalize on the economic opportunities that compliance offers.

With the benefit of publicity and sponsorship by respected and credible organizations, this exercise could command attention and demonstrate to West Virginians that there is an economically and environmentally superior alternative to our reflexive tendency to double down on our perpetual bet on coal.

If we don't do this or something like, West Virginia will yet again make the worst of a good situation leaving us to wallow for another generation or two in self-inflicted victimhood.

Friday, July 25, 2014

CONGRESSMAN PAUL RYAN'S PROPOSAL FOR REFORMING THE SOCIAL SAFETY NET

This week Wisconsin congressman Paul Ryan released a proposal for reforming how America funds and administers the social safety net. The plan is titled "Expanding Opportunity in America" and it's a fascinating document because it's not clear whether the plan's likely negative consequences are intended or unintended.

Whatever the case, Ryan's plan is noteworthy in a few respects. First, it acknowledges important facts that many Republicans routinely deny. Among them, that "wage growth is too slow" and that for those in low-paying jobs the rewards of work are insufficient. This will regarded as heresy by some Republicans who view any increase in wages as auguring an outbreak of inflation and who believe questions of sufficiency and insufficiency should be decided by the market. Ryan also acknowledges that there is too little opportunity for upward mobility, again an issue that many Republicans believe should be left to the free market. He does not claim as he has in some recent campaign appearances that federal programs going back to Lyndon Johnson's "war on poverty" have failed to reduce the rate of poverty (They have reduced poverty by about 40%). And Ryan even discusses the "high costs of incarceration", an acknowledgment that will upset politicians of both parties who have made reputations by stumping for draconian prison sentences in order to appear "tough on crime".

In addressing these concerns Ryan sensibly recommends expanding the Earned Income Tax Credit (EITC) for low-paid workers, although he pairs it with a call to scale back the minimum wage, which would be destructive. Still, support for expanding the EITC is a reversal for Ryan who, as Mitt Romney's running mate, defended an economic plan that called for a reduction. It's a change that will not please those who, like Romney, complained about "the takers" -- low income earners who don't pay federal income taxes.

Ryan also points out that his plan is not a budget-cutting exercise in that it assumes federal funding for safety-net programs will stay at current levels. Rather, he says, he is proposing to reform how benefits are delivered with the goal of triggering results-driven experimentation at the state and local levels and of producing more customized solutions for beneficiaries -- both worthy aspirations.

It's the claim that his proposal is budget neutral and does not constitute a cut in funding that's problematic because, while temporarily true, it's likely to be undone by events, an outcome that it's difficult to believe Ryan hasn't anticipated

The primary means by which Ryan proposes to pursue the goals mentioned above is by converting most federally administered anti-poverty programs into state programs and paying for those programs with block grants that the states could apply as they see fit as long as the funding is used exclusively for poverty relief and as long as state plans for addressing poverty receive federal approval. So, while the states would not have a completely free hand to do with the block grant (or "Opportunity Grant") funds as they see fit, they would have considerably greater latitude than they do currently and, Ryan hopes, an incentive to design a more highly coordinated and flexible responses to the needs of individual recipients.

But, what the block grant approach also does is disable the automatic trigger that causes benefits and federal spending to increase in response to economic conditions and growing need. This doesn't entirely defeat the countercyclical purpose of safety-net programs, but it at least complicates their ability to perform what is really their primary function.

Ryan recognizes this problem and argues that it can be overcome in one of two ways. First, he says, the legislation could incorporate a provision that would automatically trigger supplemental funding -- for instance if the unemployment rate rose to more than 6.5%. Or states could set aside a portion of their funds -- or be required to set aside a portion of their funds -- to be used during economic downturns.

The problem with these solutions is that in the real world, they would almost certainly result in benefit cuts. The first solution, incorporating an automatic trigger, means that, instead of outlays and benefits growing or shrinking proportionally to need, funding to the states would be capped so that were unemployment to increase from say 4.5%, the level at which it was prior to the 2008 financial crash, to 6.5%, a jump of more than 40%, there would be no increase in funding. And, even if the trigger point was breached, there's no guarantee that the supplemental funding would be proportional to the additional need. In fact, given congress's current unwillingness to extend long-term unemployment at a time when joblessness is still at a historically high level, there's every reason to believe that supplemental funding wouldn't be proportional. Consequently, benefits would have to be cut.

Ryan's second option -- having the states set aside a portion of their current funding in a "rainy day fund" -- implies that their initial allocations from the federal government would contain a surplus, a scenario that's difficult to imagine when a majority of house members in Ryan's own party wants to cut, not increase, safety net spending.

Finally, Ryan's plan also involves the establishment of a new state-level bureaucracy to work with beneficiaries. His plan contains no estimate of the associated cost, although we can assume it would be taken from the funds included in the block grants.

For all of these reasons current benefits would likely be cut and, without the existing trigger that automatically increases funding proportionately to need, the effective cut in benefits might be even deeper. This is a problem on two levels. First and most immediately it would mean that many people would suffer unjustly. But it would also mean that, because increases in need are usually precipitated by economic slowdowns in the private sector, the offsetting effects of public sector stimulus would be significantly reduced with the likely effect of lengthening and deepening the slowdown.

Again, it's difficult to believe that Ryan doesn't recognize these pitfalls and, if his past efforts at cutting safety net programs are any indication, he may welcome them. We, however, should not. As worthy as Congressman's Ryan's goals of introducing more innovative and flexible solutions to the problem of counteracting poverty may be, they don't have to come at the price of exacerbating economic downturns and cutting benefits to those in need.

Finally, I should mention that Ryan's plan also addresses additional issues such as education funding, job training, and regulatory reform -- all significant issues that I'll address at another time.
 
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