Friday, June 29, 2012


Yesterday French television network TF1 sent a crew to Harpers Ferry to cover small-town reaction to the Supreme Court's healthcare decision. Here's a link to view the story.

Saturday, June 23, 2012


Many West Virginia Democrats wonder whether they can support Earl Ray Tomblin for another term as governor. The proximate reasons?

Tomblin’s tax and fiscal policies seem to come directly from the right wing American Legislative Exchange Council playbook. He’s a sycophant of the coal industry and blind to its environmental predations. And he recently cast doubt on whether he even supports the national Democratic Party by refusing to attend its convention.

Some would say this merely makes Tomblin a bluedog Democrat trying to govern a red state. But, to understand the conundrum Tomblin presents for Democrats, he must be seen in a larger context.

West Virginia was first called a “red state” after World War I when the mine wars broke out and our southern coalfields were thought to be a hotbed of Bolshevism.

Of course, then the phrase “red state” meant more or less the opposite of what it does now. But, West Virginia, unlike the phrase, hasn’t evolved from one extreme to the other. We were neither as radical as we were feared to be in1921, nor as conservative as we’re sometimes portrayed today.

We just aren’t that ideological, a point exemplified in a story that may be apocryphal but telling.

Soon after the state’s founding Moundsville was given a choice of hosting the state university or the state prison. Mindful of the hard dollars to be saved by having prisoners perform jobs for which the town would otherwise have to pay workers and doubting the value of a bunch of eggheads professing esoteric and probably unchristian ideas, town fathers chose the prison -- a point of everlasting embarrassment for Moundsville and a godsend for Morgantown.

Still, Moundsville’s leaders probably thought they were being pragmatic, which, more than conservatism or liberalism, has the best claim to being the prevailing political mindset in West Virginia, even if that pragmatism often deteriorates into myopia as it did in Moundsville and has regularly for the state ever since.

No one illustrates the qualities of pragmatism and myopia better than Governor Tomblin who exhibits a careful respect for commercial interests seasoned with just the necessary amount of populist rhetoric.

It’s an approach that produces no vision for the state, but instead, a repetitive habit of cutting business taxes whenever possible, placating unions whenever necessary, determinedly ignoring environmental and health issues, and spending the minimum that can be gotten away with on education and infrastructure. The result is economic stagnation, decades of mineral wealth failing to translate into prosperity, and the poorest, least educated, oldest, and unhealthiest population in the country.

Still, Earl Ray Tomblin didn’t start these habits. So, why might Democrats take out the accumulated toll of history on him?

Tomblin governs at a time when, with the help of a complaisant press, the progressive narrative has vanished altogether from West Virginia. It’s the narrative of achieving competitive advantage by building an educated workforce and a solid infrastructure and by improving the quality of life. It’s FDR’s narrative of economic recovery through public investment. It’s JFK’s commitment to defeating poverty at a time when a quarter of our children are poor and uninsured. It’s the vision of a new economy rather than a desperate clinging to a coal industry that in its death throes does ever greater damage to the land and people.

Finally, it’s a narrative that must come from Democrats. But, far from providing that narrative, Governor Tomblin is an enthusiastic basher. His condemnations of the EPA are legendary, but they’re scarcely more vitriolic than his preening denunciations of Washington as a bunch of spendthrifts who should take lessons from West Virginia.

Rich stuff from the governor whose state is more dependent on Washington for its economic survival than any other -- for a state that receives $2 in federal spending for every $1 it contributes in taxes.

More disturbing are Tomblin’s repeated misrepresentations of fact that can only be explained by appalling ignorance or willful deceit.

First, by portraying the coal industry’s struggles as a product of federal policy rather than as the result of market forces – notably the rise of natural gas and the unwillingness of people to tolerate the health consequences of burning coal – Tomblin gives false hope of renewal to those whose livelihoods are tied to coal, while at the same time forestalling efforts to prepare for a new economic future.

And by claiming as he did in a recent press release that “West Virginia’s economy is on the right path”, Tomblin both misstates the situation and undercuts whatever motivation may exist to address our abysmal economic performance.

Still, Democrats will think twice before abandoning Tomblin. Republican Bill Maloney would probably be worse. There’s no guarantee that, if Tomblin is thrown out, a progressive voice will rise to take his place. And, even if one does, that person would face an unsympathetic press and a Republican incumbent in 2012.

On the other hand, if progressives hold their noses to support Tomblin and he wins, someone as bad would probably take the torch in 2012. Or worse, Tomblin could still lose, a result Democratic politicians might interpret as a signal to tack even further to the right.

The last election suggests that Maloney might beat Tomblin if as few as 5% of Democrats decide that resurrecting the progressive narrative is more important than party politics. Who can blame them if they do?

Thursday, June 21, 2012


A couple of years ago the PBS program "Frontline" aired a documentary about the felonious financier, Bernie Madoff. About 5 minutes into the first episode, the program describes how in the 1960's as a very young entrepreneur Madoff recruited his first clients at resorts in the Catskills. Meanwhile, we see what we presume are period film clips of a resort golf course and swimming pool. But, astute observers of a certain age will recognize that the resort being pictured isn't in the Catskills at all. Rather, it's the Oglebay Park Crispin Center golf course and pool in Wheeling, WV. To see the clip, go to:

Saturday, June 16, 2012

The etymology of "Dead cat bounce" or "I am not a sadist"

I feel the need to respond to some criticisms of my column, "West Virginia's dead cat bounce", which appeared in the June 13th issue of the Martinsburg Journal. The criticism centered on my use of what a few people felt was an unnecessarily violent image that betrayed my animus toward cats. The accusation is hurtful because, as Haley, my furry, little feline companion of the last 19 years would tell you (or at least she would if she could talk), I'm a sucker for cats and a bit of a "doter" (which probably explains why Haley has three beds including a heated one).

Besides, the phrase, "dead cat bounce", which refers to a brief and only temporary interruption in a pattern of long-term decline or underperformance and which is commonplace in financial analysis and public opinion polling, didn't originate with me. Michael Quinion's excellent history of the phrase explains,

"The term is part of the extraordinary jargon of the financial world; the evidence strongly suggests that it originated on Wall Street. A good example of the usage is this from 1995: “The nature of that rally is going to be extremely important, because if it’s just a dead cat bounce, then I would say we were in for real trouble”.

Despite its obvious US origins, its first recorded appearance is in a report from the Far East in the issue of the Financial Times of London for 7 December 1985. It turned up again the following year in a piece written by a staff reporter on the Associated Press that spells out its origins and which has been widely quoted since:
One of the most vivid, if a bit indelicate, word pictures painted by the bears on oil comes from Raymond F. DeVoe Jr. at the investment firm of Legg Mason Wood Walker. DeVoe suggests the printing of a bumper sticker reading: “Beware the Dead Cat Bounce.” “This applies to stocks or commodities that have gone into free-fall descent and then rallied briefly,” he says. “If you threw a dead cat off a 50-story building, it might bounce when it hit the sidewalk. But don’t confuse that bounce with renewed life. It is still a dead cat.”
San Jose Mercury News, 28 April 1986.

The phrase gradually caught on during the 1990s but became very common during the financial downturn after 2000. Usage slackened off somewhat for a few years but the expression was revived during the world financial turmoil of 2008 onwards.
Glimmer of recovery or a dead-cat bounce? Confidence in economic prospects has picked up slightly among chief financial officers around the world — although pessimists still far outnumber optimists.
Economist, 16 March 2009.

The phrase Beware the dead cat bounce from the 1986 story was a popular headline in the financial pages in early 2009."

Monday, June 11, 2012


Here’s how it would be written if it were a play. Governor Earl Ray Tomblin gets the latest report from the federal Bureau of Economic Analysis and happily discovers that West Virginia ranked third among all states for economic growth in 2011. While he basks in the glow of the wonderful news, his secretary of commerce enters and announces that over the past three years the coal industry added more than 1,500 jobs!

Oh joy beyond joy!

The governor, who is running for re-election, can barely contain his glee as he dictates a press release boasting, “West Virginia's strong growth in Gross Domestic Product indicates our state is on the right economic path.” But, what he really looks forward to is the hellacious party he’s going to have with his buddies in the coal industry, which accounted for more than 80% of West Virginia’s growth.

When he arrives at the party, he bursts into the room holding up champagne bottles in each hand and shouts, “Gentlemen, your business and my re-election chances are better than ever!”

And he waits for the cheers to wash over him . . . and he waits . . . and he waits, until finally, mercifully, a glum-faced coal executive says, “Earl Ray, let me explain something to you.”

“The only reason our sales went up is because we stopped trying to compete with natural gas and then we raised prices on all the poor bastards who can’t make the switch.

“You understand, Earl Ray? We didn’t mine more coal. We mined less. And we can only charge these prices until our remaining customers build new power plants or refurbish old ones to run on natural gas, which is what I guarantee you every one of them is doing.”

The bewildered governor is confused. “But, you’re hiring new miners.”

The coal executive rolls his eyes. “Dang it, Earl Ray. Don’t you understand anything? I told you. We’re taking advantage while we can and it’s not going to be for long. Yeah, we’re hiring new miners, but productivity is dropping faster than green grass through a goose, which means our costs are going up just as fast. And when the cost gets as high as the price, which it will, pfffft!”

The governor: “Pffft?”

The executive: “Yeah. Pfffft! As in game’s over.

The governor: “Do you mean like overnight?”

The executive: “No, there will always be a few who will keep their coal-fired plants online because they can’t afford to build something new. And then there’s metallurgical coal.”

The governor: “But that’s . . . that’s . . . “

The executive: “That’s not much. Are you beginning to understand now? All that growth and those jobs you’re bragging about. It’s what the folks in market research call a dead cat bounce.

The governor: “I’m a dog man, myself.”

The executive: “Then you should appreciate this. You know how, if you throw a dead cat out of an upstairs window, it bounces a little when it hits the ground? Well, that bounce doesn’t mean it’s coming back to life and this little economic bounce you’re so worked up about doesn’t mean coal’s coming back either. In fact, it means exactly the opposite.

The governor: “But, this isn’t going to happen before the election, is it? You know, pfffft?”

The executive: “No, you’re good until the election Earl Ray. The Bureau of Economic Analysis won’t issue its next report until next June. And even that one probably won’t be so bad, but a couple of years from now . . . “

The governor: “It’ll be bad, huh?”

The executive: “Don't worry. Coal mining only accounts for about 3 percent of the jobs in West Virginia anyway. Besides, you’re the master of managing the unemployment rate. If jobs leave the state, just send the workers along with them. And, if the workers won’t go, get them to file for disability. That’ll keep your unemployment rate down just fine. West Virginia’s made it work that way for decades.”

The governor: “But what about my press release? I said the state’s on the right economic path.”

The executive: “It's all right, Earl Ray. Manchin, Caperton, Wise, Underwood, Rockefeller, and Moore all said the same thing and it worked out for them. So, take your press release and go on out there and toot your horn all you want. And remember, if anything really bad happens, just blame it on the EPA.”

Sean O’Leary can be reached at

Sunday, June 10, 2012


This month Century Aluminum petitioned the West Virginia Public Utility Commission for a special rate for the purchase of electricity as part of its joint effort with the state to reopen a Ravenswood plant that closed in 2009 resulting in 650 workers being laid off.

But a third party response to Century’s petition warns that the cost of the requested subsidy is “staggeringly high”. While reminding the PUC that the goal is “a thriving Ravenswood plant, competitive over the long term”, the response explains why that outcome isn’t likely. It suggests that Century may board up the plant when the subsidy ends in 2021 noting that the company’s own appraisers reported in 2009 that the plant “suffers from severe functional and technological obsolescence”. Nor is there any indication that Century intends to invest in modernization.

But the response’s most scathing criticism is that the rate request will result in a “guaranteed profit margin” for Century, insulating it from business risk and passing costs to West Virginia rate-payers, perhaps adding as much as $144 annually to the average residential electric bill. When combined with additional tax incentives already passed by the state legislature, the total taxpayer-funded subsidy comes to between $40 and $50 million dollars a year.

This is the kind of indictment you would expect from a do-gooder public interest group. Except that’s not where it came from.

The response was submitted by Appalachian Power Company, the electric company that stands to see its business grow by about 10% in West Virginia if the PUC approves Century’s petition. So, why is APCo, an apparent beneficiary, raising concerns? And why in the face of these issues did the legislature approve its part of the deal with almost no debate and only one dissenting vote?

The answers to these questions speak volumes about the doubtful math, craven politics, and absence of accountability surrounding targeted tax incentives which can cost hundreds of millions of dollars and whose results are almost never analyzed.

In recent months, in addition to the Century incentives, the state offered $84 million worth of incentives to Gestamp, a German auto parts manufacturer, for the location of a plant in South Charleston and over $300 million to Royal Dutch Shell for the famous ethane cracker plant that was lost to Pennsylvania.

Why is the state so generous? “Jobs”, we are told – about 400 associated with both the Century and Gestamp deals and as many as 20,000 associated with the Shell cracker plant according to the governor. But, the question is, at what cost?

A common denominator of the Century and Shell incentive packages is that the administration claims there would be zero cost to the state since the incentives apply only to hypothetical future revenues and have no effect on current income. Of course, this argument blithely ignores the Century deal’s possible hike in electric rates, which isn’t counted as a cost to the state because the proceeds would go directly to APCo.

As for additional costs stemming from increased demand for public services – schools, roads, police, the courts, etc. – the administration insists these would be offset by increased income taxes collected from newly employed workers. But, the math behind such claims is unverifiable because the state refuses to reveal its underlying assumptions.

This refusal is assisted by a provision in state law that exempts many West Virginia Development Office documents from Freedom of Information requirements. And in a state where politicians and industries regularly overstate benefits and understate costs, there’s little reason to have confidence in the administration’s claims, particularly when there is valuable political capital to be gained by “creating jobs”.

A second problem is that, while some targeted incentives are designed to help West Virginia compete with other states, as in the case of the cracker plant, others merely subsidize ventures that the free market has determined are economically non-viable. That’s the case with Century.

In addition to concerns about obsolescence at the Ravenswood plant, Century’s financial condition is uncertain. Since 2008 Century’s stock price has dropped by 90 percent from a high of $75 a share to just over $7 a share. The investment management firm Macroaxis puts Century’s chances of going bankrupt at 43 percent.

Moreover, Century’s subsidies are pegged to the market price of aluminum to insure that the company makes a profit. The lower aluminum prices go and the worse Century’s business environment becomes, the more money West Virginia taxpayers must fork over. It’s “heads, Century wins and tails, West Virginia taxpayers lose”.

Finally, targeted tax incentives have a corrosive effect on the state’s ability to raise revenue. When one company gets a special break, resistance to new taxes from other taxpayers and pressure for compensatory tax relief increases, making it more difficult for the state to fund vital services. A similar consideration almost certainly contributed to APCo’s concerns about the Century deal. If APCo customers have to absorb rate increases because of Century, they and the PUC will be less receptive to future rate increase requests that APCo may request for its own purposes.

These are the kinds of dynamics that make targeted tax incentives abhorrent not just to left-leaning public interest groups, but also to conservative ones such as the Tax Foundation. And their concerns are especially pertinent in a state such as West Virginia that shrouds its economic assumptions in secrecy and practices little accountability once incentives are given.
Sean O’Leary may be contacted at