Sunday, November 30, 2014


Vicious circles are a well-known phenomenon in economics. A rise in costs for manufacturers can trigger a rise in prices that leads to workers demanding higher wages, which again increases manufacturers’ costs, leading to yet another rise in prices. It's an inflationary spiral that ends either in a controlled crash, as when the Fed raises interest rates, or an uncontrolled crash as in the case of Weimar Germany in the 1920’s.

The German crash then fishtailed into a second vicious circle, this time of deflation in which prices and wages plunged as people and businesses hoarded assets. And, as in the case of the earlier inflationary spiral, individual Germans were acting rationally and in their own self-interest, but the collective effect of their actions was devastating.

That is the essence of a vicious circle – the emergence of a feedback loop that rewards individual behaviors that are collectively destructive. But, vicious circles aren't limited to economics. They also arise in politics and a vicious circle is pretty much what the Democratic party has created for itself in West Virginia and in much of the country.

Last month's electoral catastrophe for Democrats was merely the capstone of a long-term trend that has seen Republican gains in congress, state legislatures, and governors’ offices nearly everywhere except for New England and on the coasts. While many commentators attribute the trend to issues of demographics, voter turnout, gerrymandering, and uncontrolled political spending, there is another contributing factor, which is in truth a self-inflicted wound that produced a death spiral for West Virginia Democrats in the last election.

In much of middle America public discourse about politics and public policy has narrowed considerably in the last couple of decades and, with that narrowing, the presence of the progressive narrative on issues of economics, the environment, education, and healthcare has diminished markedly. In some places such as West Virginia it has nearly vanished altogether. Many factors contribute to this withering including the consolidation and nationalization of media. But, there’s another contributing trend that needs to be considered because it’s within the power of the Democratic party to reverse it.

In recent election cycles both parties have become much “smarter” about how they spend money. They funnel funds almost exclusively to races that are competitive and they concentrate that spending during the periods when voter interest is at a peak, which usually means just prior to elections.

As with the actions of German businesses and consumers when their nation was in the grips of hyperinflation and later deflation, the concentration of effort in just a few places and only during peak periods might make sense in the short term for particular races, but it comes at the expense of general failure. And as the failure deepens, the parties, especially the Democrats, respond by doubling-down on their strategy, which compounds the problem.

A fundamental function of any political party should be to promote the party's message and a narrative and keep it constantly present in the public mind so that, when it comes time for individual candidates to pick up the flag and carry it into battle, they’re carrying a flag that has meaning, one that voters recognize and that clearly differentiates its bearers in a positive way. In short, candidates are able to carry a flag that confers credibility and legitimacy upon them so that, rather than having to win the majority of voters to their side on the issues, they have the much easier task of merely demonstrating to voters that they are reliable champions for the message and the policies associated with it.

Of course, the current mania for highly concentrated, tactical campaign spending runs exactly counter to what is required to maintain a sustained presence of messaging that is constantly refreshed and reinforced. In the current environment no one, except perhaps for special interests that focus on particular issues, wants to spend campaign money in off-years and in places where races aren’t likely to be competitive. Yet, it’s in part because Democrats don’t do so that those races aren’t competitive and have no prospect of becoming so. Moreover, these bleak prospects also cripple the party’s ability to recruit able and appealing candidates (which sadly is now often a euphemism for self-financing candidates) who have no wish to spend gobs of their own time and money in a futile exercise.

It will inevitably be objected that, as good as the idea of “maintaining an ongoing messaging presence” sounds, there’s no money to do so. The proper reply is that (1) there is never enough money, (2) unless money is spent on this, the money that’s spent on other things will be wasted anyway – a point proven by recent history – and (3) what’s being proposed need not be expensive.

We are in the heyday of owned and earned media and of tools that can be used to influence the influencers. The greatest barriers to establishing and maintaining an ongoing presence in the minds of voters is finding advocates who will do the hard work of developing a compelling narrative and accompanying policies that are sound, politically appealing, and that effectively distinguish Democrats from Republicans.

That is something that current leaders of West Virginia’s Democratic party have manifestly failed to do.

Tuesday, November 25, 2014


There aren’t many stereotypes more hoary than that of the inscrutable Chinese. But, it turns out that, for some opponents of the recent carbon reduction deal that President Obama struck with China, the Chinese really are inscrutable.

Congressman David McKinley (R-West Virginia) and other defenders of the coal industry complain that under the agreement China neither must nor will do anything to reduce carbon emissions until the year 2030 . . . and that the Chinese probably can’t be trusted to do so even then. In the meantime, they say, China will benefit from the use of cheap coal to generate electricity and fuel economic growth while the United States will be forced to rely heavily on alternative energy sources that will drive up electricity costs, cripple economic growth, and destroy jobs.

McKinley’s analysis makes two questionable assumptions. The first is that the transition to alternative fuels by the US will place a major burden on the economy. In fact, with the cost of generating electricity from natural gas and solar already at or below the cost of doing so from coal and taking into account the number of jobs those industries are creating, the transition may very well turn out to be a net plus economically.

But, as dubious and more interesting is McKinley’s second assumption that the Chinese share his belief that the transition from coal will be a loser economically and, for that reason, will resist all efforts to force reductions in coal consumption.

History is replete with examples of military commanders whose armies were destroyed because they assumed that the enemy thought as they thought and would fight as they would fight. And, if Congressman McKinley were a general, his last name would be Custer.

McKinley’s belief that renewable energy sources are significantly more costly than coal is true only if the externalities of burning coal are ignored. In the mid and long term these externalities include destructive consequences of global warming that range from the spread of disease to decreased crop yields. And, in the near term, they include a plethora of respiratory and cardiac conditions that are exacerbated by the burning of coal and which result in increased medical expenditures, a smaller labor pool, lost worker productivity, and higher death rates.

In the US these costs are externalized because they affect neither the sellers of coal nor the energy-generating industry that buys and burns the stuff. Instead, externalized costs are shouldered by the government and the rest of us and we don’t have a seat at the bargaining table where prices are set.

China is different. Whereas the sellers and buyers of coal in the United States are private parties, in China the major buyers of coal are state-owned power generating companies. And the government is deeply enmeshed in the mining of coal as well, which makes the government not just an enterprise partner in the energy market, but a dominant player whose interests supersede those of private parties. At the same time, the government is also the exclusive provider of medical services to the Chinese people, the ultimate insurer against disasters and economic dislocation, and the guarantor to industry of an available and productive labor force all of which are functions that are compromised, some seriously, by the burning of coal. So, when the Chinese government looks at the economics of coal, it sees a very different picture than the one imagined by Congressman McKinley for whom the externalities are “out of sight, out of mind”.

It should also be remembered that, even in a non-democratic state such as China, the leadership cannot completely ignore public sentiment. At some point even the most cowed workers can conclude that their living and working conditions are intolerable. And, as West Virginians well know, coal creates significant quality of life issues in both its production and consumption.

In short, the economic calculus employed by McKinley is no longer shared by Chinese leaders because they must cope with the collateral damage caused by carbon emissions and pollution that comes from the burning of coal. That’s why, quite apart from the recently negotiated agreement, the Chinese had already embarked more than a year ago on a series of unilateral measures to reduce carbon emissions and limit the consumption of coal. These include limits on overall consumption, implementation of a cap and trade system for carbon credits, and the rapid development of what has become the worlds largest solar power industry. China is now not just the world’s largest manufacturer of solar panels, it’s the largest buyer and installer as well.

None of this would make any sense if Chinese leaders viewed the economics of coal in the same way McKinley does and assumes that they do as well. But, it’s a situation McKinley should find reassuring because it means the reason the Chinese can be trusted to reduce carbon emissions is one that every believer in the free market can respect – it’s in their economic self-interest to do so.

Wednesday, November 5, 2014


Yesterday's election may have destroyed West Virginia's Democratic party as we know it.

At the federal level Democrats lost their only remaining senate seat as well as their only remaining house seat. And at the state level Democrats lost their decades-long majorities in both the house and senate.

It's the culmination of a decline that began nearly a decade ago and which, not coincidentally, gained momentum during Joe Manchin's rise to the governorship.

For decades West Virginia Democrats have been reliable defenders of coal, although with a tilt toward labor. But, during Joe Manchin's term as governor, labor interests came to be equated with those of the industry. At the same time, the governor and Democratic politicians generally became enthusiastic supporters of conservative, supply-side economic policies that emphasize corporate tax cuts and reduced regulation, especially for the coal industry.

At first, this shift looked like a Clintonian exercise in "triangulation" -- claiming the center of the electorate by co-opting your opponent's positions and making them your own. But, in West Virginia, the co-opting of opposition positions became so extreme that the newly acquired positions seemed to co-opt the Democratic party more than the other way around. As a result, Democrats ended up nearly as far to the right as Republicans on issues of the economy, the environment, and, of course, coal.

In that way, the progressive narrative pretty much vanished from public discourse in West Virginia and the state's Democratic party more or less lost its identity and, frankly, its reason for being. Yesterday the chickens came home to roost.

Across the board, Democratic candidates for congress and the US senate ran on strong pro-coal, anti-Obama, anti-EPA platforms and they were roundly defeated. Losing by double-digit margins were a sitting member of congress (how often does that happen?), a well-known and well-liked former chairman of the Democratic party who lost to a newbie from Maryland, and the sitting Secretary of State who lost her race for the senate by an almost 2-1 margin despite the fact that her opponent had never before appeared on a state-wide ballot.

It was in every way a rout. Exit polling from NBC News for the senate race between Secretary of State Natalie Tennant and Congresswoman Shelley Moore Capito provides insight into why Tennant and other Democrats lost and how badly their efforts to co-opt Republican positions hot button issues failed.

Whether the issue was the economy, healthcare, coal, or the EPA, -- all issues on which Tennant either partially or wholly adopted Republican positions -- people who were "dissatisfied" voted against her by a 3-1 margin. I and many others have criticized Tennant's positions on these issues as a matter of policy, but it's clear that they may have been even worse as a matter of politics.

By adopting the pro-coal, anti-Obama, anti-EPA narrative, Tennant and other West Virginia Democrats not only failed to persuade voters who shared those positions to support them, they unilaterally surrendered their ability to take advantage of issues that should have been galvanizing and helpful to Democrats in this election.

• The success of Obama administration policies in reversing the economy’s plunge toward depression, giving us five years of recovery, and reducing the unemployment rate to its lowest point since before George W. Bush left office.
• The immense benefits to West Virginia of Obamacare, which has insured more than a hundred thousand West Virginians and is injecting hundreds of millions of dollars into the state’s economy without inducing any of the catastrophes predicted by Republicans
• The water disaster in the Kanawha valley that afflicted a sixth of West Virginians and laid bare the price the state pays for its slavish devotion to an industry that extracts huge amounts of wealth and leaves little behind.
• The false and self-serving claims by Republicans and the coal industry that the EPA is responsible for the demise of West Virginia’s coal industry and that, if the EPA were reined in or abolished, jobs would come back

On each of these issues that should have been riveting West Virginia Democrats gagged themselves. Instead, they tried to convince voters that they would be as tough on the hated Obama administration as their Republican opponents – a claim that was transparently false.

In the wake of the disaster, there are two questions to be answered. First, who will emerge as leaders of what remains of the state's Democratic party?

Joe Manchin, the principle author of the catastrophe, remains the party's leader until he is displaced (or abandons the post by defecting to the Republican party -- a rumor his office is furiously denying today). And, purely as a matter of political calculus, he would be foolish to leave, at least so soon. He's not up for re-election for another four years and, under the circumstances, he can continue to style himself as a "centrist", contemplate the notion of running for president, and avoid the condemnation that would come with a switch of parties.

Meanwhile, Governor Earl Ray Tomblin who, fortunately for him, was not up for re-election yesterday, is unlikely to lead a revolution. Tomblin is a thoroughly uninspiring and uninspired adopter of conservative policies and a reflexive defender of the coal industry, all of which should thoroughly undercut any claim he might make to ideological leadership of the party.

One possible candidate is state senator Jeff Kessler of Marshall County. Although Kessler has never shown an inclination to take on Manchin and represents a county that's heavily reliant on coal and natural gas, he seems a moderate who may be able to recognize and adapt to the new reality. And, if Manchin chooses to focus his efforts on national politics -- perhaps the presidency -- the door may be opened for Kessler or someone else.

But, more important than the question of who will lead a reconstituted Democratic party is what guiding principles and platform will the party adopt? If there is any lesson Democrats should take from yesterday's election, it's that theirs must either be a party that articulates and champions progressive policies or it will be nothing.

If they weren't doing so already, those who care about West Virginia's Democratic party and the need for a progressive alternative to the antediluvian economic and environmental policies of Republicans, should have started work at about 7:01PM last night on a new party platform that emphasizes people over industry, incomes over profits, and the quality of life in West Virginia over the exploitation of the state's resources.

Sunday, November 2, 2014


There aren't many states less alike than Washington and West Virginia -- the Great Northwest vs. Appalachia; the Pacific Rim vs. the rustbelt; grunge vs. bluegrass; progressive vs. conservative; racial and cultural diversity vs. homogeneity; the "new economy" home of Amazon, Starbucks, and Microsoft vs. a nearly colonial economy dominated by extractive industries and out-of-state ownership; a young, healthy, and highly educated population vs. an older, sicker, and poorly educated one.

Yet, for all those differences, there's one characteristic and one challenge that Washington and West Virginia share -- the failure of economic growth to put a dent in the problem of poverty.

A few weeks ago I criticized West Virginia MetroNews talk show host Hoppy Kercheval for a commentary in which he wrote, "The left wants to solve poverty through more spending on social programs, but that only goes so far. The best way out is by way of a thriving economy." Kercheval then quoted Nobel Prize winning economist Milton Friedman who said, “There has never in history been a more effective machine for eliminating poverty than the free enterprise system and the free market.”

This is the classic "a rising tide lifts all ships" argument and, in response, I pointed out that, if economic growth were a reliable engine for shared prosperity and poverty reduction, then West Virginia should be in great shape. The state was, after all, far less damaged by the recent recession than most other states and since 2009, at the dawn of the recovery, West Virginia has generated GDP growth nearly double that of the nation as a whole.

Yet, in that same period, West Virginia has seen virtually no growth in jobs and last year, a year in which the state ranked third behind only North Dakota and Wyoming for GDP growth, West Virginia was dead last in the nation in income growth.

Meanwhile, between 2011 and 2013 when West Virginia's GDP growth was most robust, the state's poverty rate, now at 18.5% of residents, was statistically unchanged. In fact, after dropping slightly between 2011 and 2012, the rate bounced back up in 2013 while GDP shot up by more than 5%.

So plainly, economic growth doesn't always lift all ships, at least not in West Virginia. But, West Virginia as we well know is often an outlier in measures of economic performance and wellbeing. And the state's economy, dependent as it is on extractive industries whose proceeds evaporate into corporate coffers and the pockets of shareholders who by and large live elsewhere, is unlike that of most other places. So, might Hoppy Kercheval's point about economic growth being a reliable and perhaps the only real remedy for poverty be true in other less peculiar places and specifically places such as Washington, which seems to embody nearly all the virtues of the "new economy" including a gaudy ranking of 6th in the Tax Foundation's current Business Tax Climate Index of the states?

In many ways Washington is simply a more prosperous place than West Virginia. At $60,000 the median household income is fully 50% greater than in West Virginia. In the last three years, during which there has been almost no job growth in West Virginia, Washington has added 127,000 jobs, an average annual growth rate of 4%. And last year Washington's GDP grew at an annual rate of 2.7%, which, while only a little better than half of West Virginia's growth rate of 5.3%, is still above the national average.

In short, Washington should be a poster child for how economic growth alleviates poverty. But, what do we find?

Elena Hernandez of the Washington State Budget & Policy Center points out that the portion of families living below the federal poverty line rose from 13.5% in 2012 to 14.1% last year, making Washington one of only three states in which poverty is increasing (West Virginia is another). The number of children living in low income households -- those whose income is less than 200% of the federal poverty level -- has also risen during this period of economic recovery. Meanwhile, when adjusted for inflation, the median hourly wage for workers in Washington is slightly less now than it was in 2009.

Another way in which Washington's rising tide of recovery is not lifting all ships is in the area of the economy that triggered the 2008 financial meltdown in the first place. While the portion of Seattle mortgages that are underwater has receded to only about 11%, in some areas the share is between 20 and 30%. And, predictably, they are predominantly low-income neighborhoods.

Two states with vastly different economies, both of which are growing at above-average rates, and yet neither is making a dent in the problem of poverty. That being the case, it's tempting to conclude that the underlying dynamics that produce poverty must transcend states and the ability of their leaders to address the challenge. But, that conclusion would be mistaken because, although both Washington and West Virginia labor under the same federal tax and fiscal policies that have done much in the past couple of decades to redistribute income away from low-income people and to the very wealthiest in our society, both states also adhere to economic policies that contribute to the intractability of poverty and, at least in West Virginia, also put a damper on economic growth.

In West Virginia, unlike Washington, the absence of prosperity isn't limited to those with lower incomes. From top to bottom, the state is economically anemic, which is why those who are highly educated and blessed with options are more likely to abandon the state than those who are poor and poorly educated. In a way the fact that the misery is shared is a blessing because it means that the solution to West Virginia's problem doesn't pit wealthy residents who fear income redistribution against poor residents.

The fault line in West Virginia's economy doesn't run between classes. It runs between residents and out-of-state interests. Not only do out-of-state corporations and individuals own a majority of privately-held land in West Virginia, but nearly all of he state's major business employers are based out-of-state as well. Yet strangely, property taxes and corporate income taxes, which generate a large portion of their revenue from these out-of-state entities, are low compared to other states. In fact, in recent years the state has aggressively been cutting corporate taxes in an effort to become "more competitive". But, because the biggest beneficiaries of these cuts and low property taxes reside out-of-state, the tax savings are repatriated elsewhere and do little for West Virginia's economy.

As a result of these policies, the share of state government revenue generated by corporate taxes has declined by almost two-thirds in the last few years putting more of the funding burden on the personal income and sales taxes that are primarily paid by West Virginia residents. Consequently, hundreds of millions of dollars that would otherwise stay in the pockets of West Virginia residents and in West Virginia's economy are being exported to out-of-state corporations and shareholders without so far producing any measurable increase in corporate investment or job growth.

This of course is a problem that can be addressed legislatively. Tax laws can be rewritten to redistribute the burden to the out-of-state interests that prosper most from West Virginia's resources and labor. But, as has long been the case, finding political leaders who will buck those interests has so far been impossible.

Washington on the other hand, a bastion of progressive social and environmental policy, turns out to have what by some measures is the most regressive state tax system in the country -- one which truly pits rich against poor. So, while there's enough money to go around in this wealthy state, some people -- the less well off -- see far more of it taken by the state than do the many famously wealthy residents of Washington.

These immense disparities in the amount of income the state takes from different cohorts is driven by the state's lack of a personal income tax and heavy reliance on the sales tax for the bulk of its revenue. The result is that the poorest fifth of Washington residents who must spend more or less all the income they bring in to get by, end up sending an astounding one-sixth of everything they make to the state.

When you combine that with the aforementioned stagnation in wages and major declines in state aid to needy families, the rise in poverty during a period of economic recovery and growth isn't so hard to understand . . . or, frankly, to reverse if there existed the political will to do so.

But, it does not. In 2010 voters in Washington rejected a proposed state income tax by not quite a 2 to 1 margin despite the fact that the initiative campaign was well-funded and led by Bill Gates Sr, father of Bill Gates Jr., the founder of Microsoft who also supported the initiative.

The arguments against were predictable focusing on the question of whether state legislators could be trusted to restrict their newly won taxing power to wealthier Washingtonians and also on the question of whether the tax would inhibit job growth by scaring away entrepreneurs and talented candidates that were much in demand at booming companies such as Amazon and Microsoft whose CEO at the time, Steve Ballmer, actively opposed the measure.

So, in Washington, the growing gap that we see nationally between the rich and poor . . . or more precisely the very rich and just about everyone else . . . is exacerbated.

That two states so different in character should find the problem of rising poverty intractable even in times of economic growth should be an unequivocal message to even the most fiercely market-oriented politicians that blind faith in the power of markets to create shared prosperity is a fantasy and that wise and just policy is and always will be just as vital.

Friday, October 31, 2014


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


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


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.