Friday, October 31, 2014

JOE MANCHIN: SO WRONG FOR SO LONG

The latest inflation figures are out and they serve as a reminder that there may be no politician in Washington today who has been so wrong for so long on matters of economics than Joe Manchin.

As has been the case since the economy crashed six years ago, prices are stable. In fact, this represents the 29th consecutive month that inflation has come in below the Federal Reserve's target of 2%. Interest rates have been similarly quiescent.

These facts seem astonishing when you consider that, in congressional testimony from March 2011, former Sen. Alan Simpson, R-Wyo., and Erskine Bowles, the White House chief of staff under President Bill Clinton, were warning that the growing federal debt would soon induce an economic crash replete with soaring inflation and interest rates.

"The markets will absolutely devastate us if we don’t step up to this problem. The problem is real. The solutions are painful, and we have to act.” said Bowles. “I think it will come before two years.” said Simpson.

And the biggest congressional cheerleader for this message of economic armageddon was West Virginia Senator Joe Manchin who used the warnings to campaign for what came to be known as the Bowles-Simpson budget plan, which sought to reduce and ultimately balance the federal budget by slashing spending, particularly for entitlements and most particularly for Social Security and Medicaid. He even invited Simpson and Bowles to Charleston in 2012 to stump for the plan.

But, Bowles-Simpson was never adopted and, as today's data reminds us, there was no catastrophe. In fact, with the perspective of three years, we can look back now and recognize that had we cut federal spending in the ways the plan called for, the effect, if anything, would have been to plunge us back into recession and perhaps trigger deflation, a phenomenon that frequently accompanies all out depressions.

Still, as recently as this year Joe Manchin was telling Politico, "I still hold out hope that the president will dust off the Simpson-Bowles framework and put the force of presidential leadership behind it" . . . God help us.

But, long before he arrived in Washington, Manchin had proved himself a sucker for economic snake oil. During his term as West Virginia governor, Manchin championed and won implementation of a menu of corporate tax cuts on the theory that, by doing so West Virginia would become more attractive to business and more competitive. Yet, despite the fact that West Virginia emerged from the 2008 financial meltdown far less damaged than most states and despite the fact that West Virginia had an economic tailwind provided by the advent of fracking to tap the state's abundant natural gas supply, West Virginia's economy, rather than booming, has posted nearly worst-in-the-nation levels of job and income growth ever since.

It's been Joe Manchin's great political fortune that he left the governor's office before the effects of his policies were felt. And every day he must thank his lucky stars as he watches the travails of Kansas Governor Sam Brownback, who is suffering a political meltdown due in large part to his applying the same economic prescriptions with nearly the same effects as they had in West Virginia. So, while Brownback is crucified, Manchin floats placidly along carefully nurturing his image as a moderate and a voice of reason.

The tragedy isn't just that the press generally treats Manchin so uncritically. Almost never is he confronted with hard questions about his economic policy preferences either now or when he was governor of West Virginia. The tragedy is also that, as his comments to Politico show, Manchin seems unwilling or unable to critically examine his own policies and when necessary change them. That makes him a problem for all of us both now and perhaps in the future as well.





Wednesday, October 29, 2014

AN OCCASION TO BE PROUD OF MY HOMETOWN



Please visit this report at the PBS web site and share the story with your friends. And, if you're really touched, help out.

SADLY, THE ATLANTIC "GOES NATIVE"

It's called "native advertising" -- advertising that's dressed up to look like editorial content.

Given The Atlantic magazine's generally pro-environment editorial position, is it really necessary or wise for so venerable a publication to use its brand and its social media pipeline to subscribers and followers to promote sponsored content, in this case from Chevron, that many of the magazine's subscribers will find offensive because of the anecdotal and generally false impression it conveys of the impact of the natural gas fracking boom on Appalachian economies?


As I've pointed out previously, the natural gas boom has had at best uneven economic effects in Appalachia -- from the merely disappointing results in Pennsylvania where the Chevron piece is focused to the nearly non-existent economic benefits in West Virginia where local economies have seen almost no net growth in jobs or commerce. And we haven't even discussed the long-term collateral damage caused by fracking, which includes noise, traffic, air, and water pollution that degrades the quality of life and creates an environment that discourages both families and businesses from wanting to locate nearby.

Sponsored content is not inherently evil as long as it is clearly and prominently identified as advertising, not editorial content. But, the Atlantic's decision to allow it's logo and its direct channels of communication to subscribers and followers to be used by the sponsor implicates the magazine in the message to the point that it feels like an endorsement. And that's a place no publication should go unless it wants to be identified with the sponsor of the content and, in this case, the misleading information that's being peddled.

Friday, October 24, 2014

THE GOVERNOR'S ENERGY SUMMIT: LOOKING BACKWARD

Reporter Sarah Tincher of the State Journal is helpfully tweeting key points being made by speakers at the Governor's Annual Energy Summit, which is currently taking place at the Stonewall Resort in Roanoke, WV. The speakers thus far have been from the energy industry (although none so far from the renewable wing), academe, and government. And, not surprisingly, they are as a group highly supportive of the energy industry and of increased development of natural gas and coal in West Virginia.

Of course, in homogeneous gatherings where there is little risk of being questioned or contradicted, people are apt to say silly things. And that seems to be what's happening at Stonewall where the prevailing beliefs that West Virginia's fracking boom is an economic godsend and the coal industry would be one as well if only the EPA would allow it are being supported by a variety of claims that range from the merely doubtful to the wholly imaginary.

Here are a few.

That's Congresswoman and Republican senate candidate Shelley Moore Capito delivering her variation on a theme enunciated a year ago by West Virginia University Business School Dean Zito Sartarelli who told a group gathered to discuss West Virginia's economic outlook that we're witnessing an "economic miracle" in the northern panhandle thanks to the natural gas fracking boom.

The problem is that there is no economic miracle in northern West Virginia -- in fact, not even an uptick -- if you judge economic prosperity by measures such as job creation and income and population growth. Since 2007 at the dawn of West Virginia's natural gas boom, the five northern counties responsible for more than 90% of all of the state's fracking activity -- Ohio, Marshall, Wetzel, Doddridge, and Harrison -- have seen a net gain of exactly 451 jobs, a number so small that it's statistically insignificant.

Aside from property tax receipts the only economic indicator to which the fracking boom has made a major contribution is the state's GDP which between 2012 and 2013 grew at the third highest rate in the nation. But, the disconnect between GDP growth and local economic prosperity in West Virginia is legendary and illustrated by the fact that for years, while far outpacing the nation in GDP growth, West Virginia has had no job growth and last-in-the-nation income growth.


But, facts are no barrier to speakers at the summit.

When Paul Schreffler says that natural gas has been the biggest contributor to job growth he is, by definition, wrong because, again, there hasn't been any job growth. But, the point is semantic. What Schreffler is right about is that the natural gas industry, looked at in isolation, has added a few thousand jobs. However, even that fact exposes more holes in the prevailing narrative that casts natural gas as an economic game-changer.

First, the growth in natural gas employment was achieved almost entirely in the years 2007-2011. Since then, direct employment in the industry has been generally flat and, between 2012 and 2013, it actually declined.

But, the statistics also undercut a second main pillar of the argument for fracking as an engine of local prosperity. Depending on which industry-funded study you prefer, for every new job created by the natural gas industry it was expected that between 1.5 and 2 "indirect" or "induced" jobs would also be created in the rest of West Virginia's economy.

However, given that there has been no net job growth, if Schreffler is correct about natural gas generating 3,200 new jobs, that means the rest of the economy has been hemorrhaging jobs just as quickly, which means that when Mike Koon says, "The jobs are there for WVians, they just have to have the skill sets", he is also wrong as is, at least in spirit, Holly Kauffman, FirstEnergy president of West Virginia operations.


Kauffman, however, doesn't confine herself to one myth.

This is a "twofer". The energy industry, led by Kauffman's employer, has long warned ominously of impending catastrophe as a result of EPA regulations, claiming that compliance with clean air rules is unattainable and the effort of trying to achieve unattainable goals will result in lost jobs, higher utility rates, and even the loss of electricity.

But, as Sarah Tincher pointed out in another story from a few days ago, since the advent of the EPA and clean air regulations and contrary to the predictions of the industry, consumer rates for electricity have actually climbed less than the overall rate of inflation and now consume less of our incomes than they did decades ago.

The sad part of all this is that the governor's Energy Summit could serve a useful purpose by exploring some of the issues pointed out above:
-- Why has the natural gas boom failed to generate local economic prosperity and what can be done to change it?
-- How can West Virginia can achieve compliance with new clean air regulations and what are the associated opportunities?

Instead, our leaders seem locked in a vortex in which they vacillate between fantasy and a pursuit yesterday's failed dreams.

Sunday, October 5, 2014

TENNANT PAYS THE PRICE FOR PANDERING

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

25 HEDGE FUND MANAGERS MAKE MORE THAN ALL PRIVATE SECTOR WORKERS IN WV

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

WEST VIRGINIA'S PRINCESS OF DISINGENUITY?

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.


 
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