Tuesday, October 30, 2012

AN OUTBREAK OF INNUMERACY (Pub Date TBD)

It started on October 11th when Jared Hunt, a reporter for the Charleston Daily Mail, wrote an article that ran under the headline, “Md. casino vote could cost W.Va. $1 billion in revenue”.

The projected loss, which would take place over ten years, is based on a study by the Sage Policy Group, a consulting firm commissioned by a political action committee that supports passage of Maryland’s Question 7. The facility at risk of losing the revenue is West Virginia’s Charles Town Races and Slots.

Hunt’s article received considerable attention in West Virginia and was widely shared on Twitter. Hoppy Kercheval, host of West Virginia MetroNews Talkline, gave the report even greater notoriety when he invited Hunt to discuss the article on his statewide radio show.

Soon others were picking up on the story. Tom Miller, longtime writer of the “Under the Dome” column, which appears in numerous newspapers, devoted part of a column to the same study on which Hunt had reported. But, Miller’s summary portrayed an even more horrific scenario.

Instead of a loss of $1 billion over ten years, Miller wrote that the loss would be as much as $1.5 billion. And more shocking, instead of taking place over ten years, Miller said the loss would be annual – an almost catastrophic outcome, since $1.5 billion represents 2% of the state’s annual gross domestic product.

At this point, somebody’s spidey-sense should have been tingling, indicating something was amiss. Not only is 2% of GDP a big number, but last year total revenue for Charles Town Races and Slots was only $570 million. How could the casino lose in revenue three times more than it takes in? But, concerns were allayed when Miller’s column was promoted on Twitter by former West Virginia economics professor, Tom Witt.

With an endorsement like that, it just had to be true! Didn’t it? Well, not really.

It turns out that the study upon which the reports were based does not say that West Virginia would lose $1.5 billion per year. It doesn’t even say we would lose $1 billion over ten years.

The study projects that, in the event Maryland passes its referendum, Charles Town Races and Slots will lose $65 million dollars per year, which is fully one-third less than Jared Hunt reported and less than one-twentieth the amount Miller’s column claimed.

Now, don’t misunderstand, $65 million isn’t chicken feed. It represents an 11% drop in revenue for Charles Town Races and Slots and might cost some jobs. But, it would not be catastrophic and would not by any stretch of the imagination put the casino’s survival at risk as some readers of Hunt’s and Miller’s columns feared.

So the question is, how did prominent and respected people such as Hunt, Kercheval, Miller, and Witt get it wrong and, in Miller’s and Witt’s case, spectacularly wrong?

It’s not as though the error had gone completely unnoticed. Bryan Clark, a reporter for The Spirit of Jefferson, a weekly newspaper in Jefferson County, which is home to Charles Town Races and Slots, noticed the mistake in Jared Hunt’s original article and, in response, wrote a front-page story titled, “Reports of $1B casino loss wrong”. His story appeared even before Miller’s column.

Clark, who had read the study on which Hunt’s original story was based and identified the mistake, was also aware that, before contradicting one of the state’s leading newspapers, he had better be on solid ground. So, he did the logical thing. He called the study’s author.

Anirban Basu, a principal at Sage Policy Group, confirmed that the projected loss to Charles Town Races and Slots would be between $60 million and $65 million per year. The $1.5 billion figure was mentioned in the report, but not as the amount Charles Town would lose if the referendum passes. $1.5 billion is the amount the study predicted Maryland residents would spend in Charles Town over a decade if the referendum is not passed.

However, under no circumstances would the creation of casinos in Maryland cause Charles Town to lose all of that business. Basu’s team calculated that it would lose half or less, hence, the $60 million to $65 million per year figure.

There are many morals to this story having to do with the importance of thoroughness and attention to detail in reporting as well as the need for the public to practice critical reading skills. But, one lesson that should not be lost is the importance of quantitative literacy.

The error in Hunt’s original story should have been suspected by anyone familiar with Charles Town Races and Slots’ business. And the error made by Miller should have been obvious to anyone even vaguely familiar with the size of the state’s economy.

Every day politicians, companies, organizations and their advocates hype stories that from a quantitative perspective and in the total scheme of things are nearly inconsequential -- the imagined problem of pervasive voter fraud for instance. Meanwhile, other stories that are of great consequence, but in no one’s interest to publicize, such as the $600 million windfall in annual federal subsidies that West Virginia would realize by fully expanding Medicaid to uninsured residents, receive little or no attention.

The sad part is that often the truth and weight of issues are right in front of us. But, because they’re expressed numerically, we miss them altogether.

Sean O’Leary can be reached at seanoleary@citlink.net or at his blog, the-state-of-my-state.com.

Monday, October 29, 2012

THE SIMPSON-BOWLES PLAN FOR WEST VIRGINIA

If after next Tuesday's election the 2010 Simpson-Bowles plan for tax and budget reform emerges as the basis for negotiations by the president and congress as they try to avert a plunge from the "fiscal cliff", I will do an analysis of the impact that plan would have on West Virginia's economy. This will complement the analyses I've already done about the effects on West Virginia of Mitt Romney's plan and President Obama's.

Saturday, October 27, 2012

OBAMA'S PLAN FOR WEST VIRGINIA (Pub Date 11/3/2012)

Legend has it that presidents wander the halls of the White House during the wee hours, muttering at the portraits of their predecessors. If Barack Obama does so, he probably stands before Bill Clinton’s portrait saying, “You tried to engineer a real federal takeover of healthcare while I’m just trying to reform it with a plan that used to be the Republican alternative to yours. So, how come, if you were on the ballot, you’d win this election in a walk and they call me a socialist?”

Standing before Ronald Reagan, “Your tax rates were higher than mine and you ran huge deficits to restart the economy just like I’m doing. But, they’d elect you in a landslide and they call me a socialist.”

And to Franklin Roosevelt, “You inherited an economic catastrophe and responded by raising taxes, increasing spending, and practically inventing a fourth branch of government. I inherited an economic catastrophe and cut taxes and non-entitlement spending. Yet, you, they’d re-elect in a heartbeat. Me, they call a socialist.”

In short, Obama may justifiably feel miscast as a radical when in practice he has been an incrementalist, which is why his policies have not and are not likely to lead the nation or West Virginia either to another crisis or to booming prosperity.

The tepid economic recovery we’re experiencing now would probably continue in a second Obama term with perhaps some improvement owing to the fact that consumers and business have paid down debts in the past four years and may start spending again.

From West Virginia’s perspective, Obama’s economic and fiscal policies would put the state at a mild advantage compared to other states and to a much greater advantage than would Republican nominee Mitt Romney’s policies. Here’s why.

On taxes, Obama would keep current tax rates in place for people earning less than about $250,000 a year. For those earning more or who have large estates, taxes would increase. Specifically, Income tax rates for the top two tiers would rise from 33% and 35% to 36% and 39.6%, the levels that were in place during the Clinton administration. The capital gains tax rate would increase from 15% to 20% and “carried interest” earned by investment managers of private equity funds would be taxed as ordinary income rather than as capital gains.

Because only 1.5% of West Virginians make more than $250,000 and or have large estates, these changes would increase taxes very little for state residents – probably less than $100 million annually, which is less than one-tenth of one percent of the state’s gross domestic product.

Meanwhile, Obama would cut some taxes. He would reduce the corporate income tax, although he has not said by how much, and he would index the Alternative Minimum Tax to the rate of inflation preventing a form of “bracket creep”. He would also reduce the Estate Tax, although he would not eliminate it as Romney would. But, again, because of West Virginian’s poverty, we would benefit little from these reductions.

West Virginia would benefit greatly, however, if Obama gets his wish that the Earned Income Tax Credit, which benefits low-income people, is made permanent. If that were to happen, West Virginia would save $328 million per year in taxes -- far more than it would lose to tax increases.

On the expenditure side, Obama proposes cuts to Defense -- $487 billion over ten years, to farm subsidies -- $217 billion over ten years, and to the EPA -- $166 million per year. These would have little impact in West Virginia. However, a cut of $716 billion over ten years in Medicare reimbursements would cost the state’s economy a potential $400 million a year.

The good news is that West Virginia can more than offset that loss if the governor and legislature fully expand Medicaid under Obamacare. In addition to insuring 133,000 currently uninsured residents, the state would receive approximately $500 million in federal subsidies that would go to the same healthcare providers who would see their Medicare reimbursements cut.

In short, West Virginia has the choice of coming out $100 million per year ahead on the healthcare front.

Taken together, Obama’s policies would pump an additional $200 to $300 million annually into West Virginia’s economy. By comparison, my column of two weeks ago showed that Republican Mitt Romney’s policies would cost West Virginia about $1.6 billion annually or about 2% of GDP.

In the end, West Virginians will probably either vote for Romney, because they believe income redistribution is crippling the economy and the only way to grow is by reducing the size of government, or they’ll vote for Obama, because they believe in shared prosperity and that enrichment of the very wealthy while everyone else’s incomes stagnate or decline is a recipe for disaster.

But, philosophies aside, the numbers are unequivocal. Mitt Romney’s policies will shrink West Virginia’s economy and make the state less competitive with other states. On the other hand, Obama’s policies will slightly increase the size of West Virginia’s economy, making us a comparative winner among the states.

The tragedy is that neither the Obama nor Romney camps propose taking advantage of the nation’s historically low interest rates to invest in infrastructure and education at a time the nation is falling behind other nations in both areas as well as in our standard of living. But, elections, like all politics, are the art of the possible, not the perfect.

Sean O’Leary can be reached at seanoleary@citlink.net or at his blog, the-state-of-my-state.com.

Thursday, October 18, 2012

ROMNEY'S PLAN FOR WEST VIRGINIA (Pub Date 10/20/12)

Republican presidential nominee Mitt Romney and people who support him believe his tax and budget plan, which has as its centerpiece a 20% cut in income taxes and reductions in government spending on entitlements and other non-defense items, will spur vigorous economic growth and reduce the deficit.

Romney’s opponents argue that these policies will do neither and they cite copious evidence to support their criticism. But, just for fun, let’s assume for the moment that Romney has it exactly right. Let’s assume that his tax cuts will put more money in peoples’ pockets and they’ll take a little less away in the form of budget cuts, so there will still be money left over to reduce the deficit and spark the economy.

That scenario looks like this. On a per capita basis Americans would receive $1,885 in tax cuts. At the same time, we would receive $1,561 less in money from government spending, primarily for entitlements. That would leave us with a net gain of $324 per person that would be used to stimulate the economy and reduce the deficit.

The $1,885 in tax cuts and $1,561 in spending cuts are, of course, averages. High-income earners would get considerably more in tax cuts because, as Romney points out, they pay a higher percentage of federal taxes. But, let’s ignore liberals and not quibble about issues of fairness.

For the moment, we are taking as gospel the claim that putting more money in peoples’ pockets and shrinking the size of government will make the economy grow and all will prosper. On the other had, if we continue down the path of the Obama administration, economic growth will be stifled and deficits will spin out of control.

So, let’s see how the Romney tax and budget policies work for West Virginia. But, be forewarned that West Virginia is a bit peculiar. West Virginia is the country’s second poorest state as measured by per capita income. The people are among the nation’s oldest, which, along with poverty makes West Virginia highly dependent on entitlement programs. So, it’s to be expected that the effects of Romney’s tax and budget policies might seem a little strange even if we assume the very best outcomes, which is what we’re doing.

The first strange effect we notice in West Virginia is that tax cuts don’t put as much money in peoples’ pockets as they do elsewhere. Because West Virginians have low incomes, the 20% income tax cut returns only about 60% of what it does nationally. And other tax cuts are even more irrelevant. Repeal of the Alternative Minimum Tax has little impact because West Virginians are less than half as likely as other Americans to be subject to the AMT. And abolition of the Estate Tax for estates larger than $3.5 million is laughably irrelevant because, on an annual basis, fewer than ten estates in West Virginia qualify! Even cuts to the corporate income tax do little in West Virginia, because few major companies are based there and people don’t own very much stock.

So, while Americans as a whole will receive $1,885 each in tax cuts, West Virginians will receive only about $900.

Then, we have the problem of the budget cuts to government programs. The Romney campaign says its budget would reduce federal spending by $1,561 per person nationally. But, because West Virginians receive a disproportionately high share of spending for entitlement programs, the average reduction here would be $1,764 per person.

So does that mean, when you put the $900 in tax savings together with the loss of $1,764 in expenditures, people in West Virginia come out $864 in the hole?

It sure does.

Even using the Romney campaign’s own estimates, rather than putting more money in the pockets of West Virginians, the Romney tax and budget plan will take it away. And, when you extrapolate the loss across West Virginia’s total population, the amount sucked out of the state’s economy comes to $1.6 billion annually – more than 2% of West Virginia’s gross domestic product.

In other words, even if you believe in Romney’s budget plan and accept it on its own terms -- even if you believe that by cutting taxes and government spending you can put more money in peoples’ pockets and grow the nation’s economy -- you must also accept that the effect in West Virginia will be precisely the opposite. Money will be taken out of peoples’ pockets and the economy will shrink.

Of course, you can argue that, while unfortunate, it might be a necessary and good thing for West Virginia serve as a sacrificial lamb for the greater good of the nation. But, an analysis of Romney’s plan conducted by the Tax Policy Center argues persuasively that the budget cuts that would be required to offset Romney’s proposed tax cuts would have to be much larger than those assumed in the scenario just described and would suck far more money out of the nation’s economy.

The effect on the nation would be to reduce demand, increase unemployment, and expand the deficit – all results that can currently be seen in European countries that have implemented austerity policies similar to those contained in Romney’s budget and tax plan.

In other words, West Virginia wouldn’t be a lone lamb sacrificed for the greater good. We would just be the first of the fifty states to the slaughter.

Sean O'Leary can be contacted at seanoleary@citlink.net or at his blog the-state-of-my-state.com.

Sunday, October 14, 2012

CONFESSIONS OF A FROG (Pub Date 10/20/12)

The fellow was rambling on about how structural steel melts at 2,777 degrees, while jet fuel burns at 1,517 (Fahrenheit? Celsius? Who knows?). So, the planes couldn’t have caused the World Trade Center to fall. Besides, the average velocity of 26.7 meters per second at which the towers collapsed could only have been achieved by means of thermite explosives detonating in rapid and choreographed succession. “Uncontestable facts!” he insisted.

I suspected he was wrong. But, being neither an engineer nor a chemist, I couldn’t contest him. And, as a theater director, his authority was pretty wobbly too.

In short, we were two naïfs arguing an issue about which we knew nothing. If the situation sounds ridiculous, it was. But, arguing about things of which we know little isn’t unusual. We do it in the pages of this newspaper, in coffee shops, over the dinner table. Economics, global warming, even our nation’s history are topics we debate heatedly but with little expertise. And, as absurd as that may be, our political system empowers us in our ignorance to select leaders based on whether their only slightly better-informed opinions coincide with our own.

I don’t say this to trash democracy, but to observe that the way in which we arrive at our positions and argue is a precarious business.

Recently an offended reader called me a glib charlatan and ridiculed my habit of citing “specious” statistics and historical precedents. I indignantly responded that the statistics are facts, my glibness is logic, and his rejection of history’s lessons makes him incapable of rational discussion and consigns him to the hell of his preconceptions. Harsh stuff.

Actually, he’s not that bad, nor am I as righteous as my indignation would like. But, the conflict I accused him of avoiding – the one between preconceptions and facts – is something with which we all struggle.

In a perfect world, facts would always win out and we would adjust our worldviews to accommodate them. But, it’s not that easy.

Because our understanding of most issues is derivative, that is, based on the expertise of others – parents, teachers, authors, traditions -- when a contradictory fact comes along, it may change our understanding of not just a particular event, but of many events and also discredit sources upon which we rely. Dominos start falling and our understanding begins to unravel.

If a threatened source is foundational in our lives, the unraveling can be so severe that we'll reject or ignore the disruptive facts. Doing so isn’t always delusion or prejudice. Even the scientific method sometimes values order over fact. When confronted with two equally plausible explanations for a phenomenon, the explanation that is in greater accord with other accepted theories is preferred even if it fails to account for all the facts.

While facts are important, so is coherence and to prefer the latter to the former isn’t always bad. But it can be.

In his book, “500 Days”, Kurt Eichenwald reports that president George W. Bush said to a stunned French president Jacques Chirac of the war in Iraq, “This confrontation is willed by God, who wants to use this conflict to erase his people’s enemies before a New Age begins”.
The war, of course, descended into chaos accomplishing only a reshuffling of Iraq’s sectarian deck at immense human, moral, and economic cost. The reasons for its undertaking – ostensibly the threat posed by weapons of mass destruction – and for its continued conduct over eight bloody years were constantly contradicted by facts, which the president apparently interpreted not as helpful input and as reasons to change course, but as deceptions designed to test his faith.

Bush’s inability to adapt his worldview in response to facts is the opposite of the 9/11 conspiracy theorist theater director who allowed a few unexplained facts to undermine conventional understanding of an immensely complex event.

The point is that balancing facts against worldviews is necessary and hard. Intelligent people of good will can look at the same facts and interpret their meaning differently – something we should keep in mind when we find ourselves so dumbstruck by our opponents’ blindness that we think it can only be the result of stupidity or evil intent.

And we can improve our ability to assimilate new facts through education.

Herodotus first noticed and social scientists confirm that those who are least informed tend to be the most intransigent in their opinions. That’s because their knowledge is mostly derivative, consists of few facts, and comes from just a few sources. Consequently, new and contradictory facts can wipe out large parts of their worldviews in an instant. So, they resist. On the other hand, the better educated who have more detailed and nuanced understanding more easily assimilate new facts, even disruptive ones, and do so with less cognitive fallout.

If we can balance fact against coherence, we can be rational without being expert. That’s important if we’re to select good leaders and make good policy choices. We also need to accept the validity of other viewpoints because they're inevitable. The genius of democracy isn’t that we always get it right, but rather that we all feel heard and are, therefore, willing to face the consequences of our choices, whether good or bad, together.

So, to the reader I accused of being incapable of rational discussion, I was wrong. My friend, you were called ugly by a frog.

Sean O’Leary can be reached at seanoleary@citlink.net or through his blog at the-state-of-my-state.com.

Wednesday, October 3, 2012

SENATOR BYRD EXPLAINS IT ALL (Pub Date 10/6/12)

When I returned home from last Tuesday’s debate between United States senate candidates Joe Manchin and John Raese, my phone was ringing.

ME: Hello.

CALLER: Sean, do you know who this is?

ME: Senator Byrd? But, how . . . ?

CALLER: It’s the new direct line back to West Virginia. When I got here, they had an opening on the appropriations committee and this is my first earmark.

ME: There’s an appropriations committee in . . . ?

CALLER: Never mind about that. Are you planning to write a column about tonight’s debate?

ME: Sure. Do you have any thoughts?

CALLER: As a matter of fact, I do.

ME: Shoot.

CALLER: I’m troubled because we seem to have lost our memory, our ability to learn from the past. Both candidates talk about the current economic crisis as though it’s unprecedented. But, there’s nothing new about high unemployment and a large national debt. In the 1930’s, unemployment was three times what it is now and by 1950 the national debt was every bit as great.

ME: But, isn’t that why both Manchin and Raese want to cut taxes and cap spending?

CALLER: Of course. But, will it work? What evidence is there that cutting taxes for the wealthy and gutting social programs will get this economy going again? None! Taxes on the wealthy are already at their lowest point in 70 years. Has it worked? Under Presidents Eisenhower, and Kennedy top income tax rates were twice what they are now and our economy boomed. And arbitrarily capping spending simply limits our ability to respond to crises – wars and economic downturns.

ME: But, if we don’t shrink government, how will we pay down the debt?

CALLER: How did we get rid of our debt in the 1950’s and 1960’s? We grew our way out. We invested in dams, highways, and airports. Jobs were created. And that created demand for private sector goods and services. The economy grew and generated tax receipts that reduced the debt. Without growth, no amount of cutting can balance the budget. Look at Europe where they’re trying to cut their way to prosperity. Unemployment is higher than ever and their economies are still shrinking.

ME: But, won’t Social Security and entitlements sink us?

CALLER: For sixty years we raided Social Security surpluses to pay for the rest of government including wars in Vietnam, Iraq, and Afghanistan. If we hadn’t raided Social Security, its finances would be in fine shape today and for another sixty years. So, to complain that Social Security is the cause of the debt is pure demagoguery.

ME: What about other entitlements?

CALLER: You’re talking about programs that help the poor, the unemployed, and students. Let me tell you something. During the Great Depression, before child nutrition and unemployment insurance, people starved in this country. Life expectancy actually declined because people couldn’t find work and enough to eat. How do we expect people to pull themselves out of poverty if they can’t get food and an education?

ME: What about Obamacare? Raese wants to repeal it and Manchin says it needs to be modified.

CALLER: The problem with Joe’s position is that the parts he wants to modify are needed to pay for the parts he wants to keep. The problem with outright repeal is that it throws us back into the situation we had before. 50 million Americans uninsured and the highest healthcare costs in the world. Great Britain, France, Germany, Canada, and other countries all have healthcare systems that take better care of their people at half the cost. Half! Is Obamacare perfect? No. But, it’s a step in the right direction and it helps West Virginia more than any other state.

ME: What did you think of Manchin and Raese both insisting the EPA is conducting a war on coal?

CALLER: I grieve when I hear Joe and Raese harping on the EPA. It’s a distraction conjured up by the industry, which continues to stick its head in the sand. We could abolish the EPA tomorrow and coal wouldn’t make a comeback because natural gas is cheaper, cleaner, and more plentiful and will continue to be for decades.

But, there’s something else that grieves me more. In all the talk about the coal industry neither candidate mentioned our miners and what’s happening to them. Black lung disease is back to the levels it was at in the 1970’s and thousands of retired miners may lose their pensions because Patriot Coal Company is using a New York bankruptcy court to try to avoid its legal obligation to pay these men and their families. It’s shameful that both men ignore it.

ME: You don’t sound very pleased about either candidate taking your old senate seat.

CALLER: It’s not my seat and it won’t be Joe’s seat or Raese’s seat either. It belongs to the people of West Virginia. You remind them, that’s who they serve – not their political parties and not the moneyed interests that try to dress up private agendas as good public policy.

ME: I’ll do that.

CALLER: And, when you see Joe, tell him I wish he’d return my calls.

ME: I will, Senator. It’s good to hear from you again.

CALLER: I’m glad somebody thinks so. But, now it’s late and we both should get some sleep. Good night.

ME: Night, Senator. And take care up there.
Sean O’Leary can be reached at seanoleary@citlink.net or at his blog, the-state-of-my-state.com