Taxes and Corn Sex July 17, 2012July 16, 2012 OUR SO-CALLED HIGHEST-IN-THE-WORLD CORPORATE TAX If you only read the text or the headline of yesterday’s Business Insider link, you missed this very-easy-to-digest series of 9 telling charts. Guess what: the actual taxes our corporations pay are below average. Yes, all agree it would be very good to cut out loopholes to allow us to lower the top rate while raising as much or more in revenue — simplifying the code. But that was not something the Republicans were willing to work with Democrats on in the President’s first term, because their strategy to regain power was not to work with him on anything in his first term. Combine that with the power of the lobbyists and, now, the power of Citizens United money to protect corporate loopholes, and it’s not clear just how many of these could be closed. But we should try. Everyone agrees. This is not a “Republican” idea. Their idea is just to cut rates for rich people and corporations and never raise them, under any circumstances. WHEN TAXES CAN GO UP Never, says Grover Norquist and the 236 House and 40 Senate Republicans who have signed his pledge. They can only go down, never up. We never want to go back to the awful economy of the 1950s and 1960s, when tax rates were very high, because, although by today;s standards the economy then was booming, well, what we reaqlly want is more of the George W. Bush economy, when . . . MAYBE SHE MEANT PASSIVE PARTNER? Zac: “Best FoxBiz clip EVVVER trying to defend the Romney-Bain scandal. . . you MUST POST. AT 2:20 Gerri Willis says ‘I mean, come on, have people never heard of a passive manager?!?!?! I mean come on, right?'” Well no, as a matter of fact, because there’s no such thing because if you are a manger you are not passively involved.” What one commentator says about this makes no difference; and I think she probably just meant “passive owner” or something. But (a) that’s sure not how he described his role to the SEC — I’ve never heard of a passive CEO. And (b) the main thing, I fully grant, is not what he did at Bain, but that he has embraced the Ryan/Tea Party austerity vision that would, unfortunately, out-Hover Hoover (another successful businessman) and tip the world into full-scale depression, with all the attendant misery and potential horror that entails. So anyone who can’t bear to vote for Obama for some reason should at least just not vote, rather than vote for that. CLIMATE CHANGE AND CORN SEX As we spew millions of tons of pollution into our little space ships atmosphere and oceans, it’s (mainly Republican) folly to think there will be no repercussions worth avoiding (just as for so long the tobacco industry maintained there was no link between smoking and cancer and the oil industry didn’t bother to pre-position giant deep-water containment domes in the Gulf of Mexico — what could go wrong?). Here is one example. Even corn is sometimes just not in the mood. WHEN TO SELL Abe: “Sell discipline…tell your reader from Friday to read Gerald Loeb, The Battle for Investment Survival. It is the best thing ever written on the subject and has not changed one wit since it was written if you are an investor (not a trader). His rules are sometimes hell to abide by but they will save your A**! May have a hard time finding the book but it is worth it. Nothing really changes, just morphs into a different camouflage and speeds up.” Not that hard to find — and just 99 cents for the Kindle edition that you can download instantly.
Mitt July 16, 2012 MITT IN 30 SECONDS Juan: “From my marketing times at American Express, I think that this is a great ad. I think it will become a classic.” MITT’S TAX PLAN According to Business Insider: “Mitt Romney’s Tax Plan Will Help Rich People And Hurt Most Americans.” Read it here if you’re one of “most Americans.” BLOOMBERG ON THE ROMNEY RECORD Here: Romney’s Bain Yielded Private Gains, Socialized Losses Mitt Romney touts his business acumen and job-creation record as a key qualification for being the next U.S. president. What’s clear from a review of the public record during his management of the private-equity firm Bain Capital from 1985 to 1999 is that Romney was fabulously successful in generating high returns for its investors. He did so, in large part, through heavy use of tax-deductible debt, usually to finance outsized dividends for the firm’s partners and investors. When some of the investments went bad, workers and creditors felt most of the pain. Romney privatized the gains and socialized the losses. What’s less clear is how his skills are relevant to the job of overseeing the U.S. economy, strengthening competitiveness and looking out for the welfare of the general public, especially the middle class. Thanks to leverage, 10 of roughly 67 major deals by Bain Capital during Romney’s watch produced about 70 percent of the firm’s profits. Four of those 10 deals, as well as others, later wound up in bankruptcy. It’s worth examining some of them to understand Romney’s investment style at Bain Capital. In 1986, in one of its earliest deals, Bain Capital acquired Accuride Corp., a manufacturer of aluminum truck wheels. The purchase was 97.5 percent financed by debt, a high level of leverage under any circumstances. It was especially burdensome for a company that was exposed to aluminum-price volatility and cyclical automotive production. Casino Capitalism Forty-to-one leverage is casino capitalism that hugely magnifies gains and losses. Bain Capital wisely chose to flip the company fast: After 18 months, it sold Accuride, converting its $2.6 million sliver of equity into a $61 million capital gain. That deal, which yielded a 1,123 percent annualized return, was critical to Bain Capital’s early success and led the firm to keep maximizing the use of leverage. In 1992, Bain Capital bought American Pad & Paper by financing 87 percent of the purchase price. In the next three years, Ampad borrowed to make acquisitions, repay existing debt and pay Bain Capital and its investors $60 million in dividends. As a result, the company’s debt swelled from $11 million in 1993 to $444 million by 1995. The $14 million in annual interest expense on this debt dwarfed the company’s $4.7 million operating cash flow. The proceeds of an initial public offering in July 1996 were used to pay Bain Capital $48 million for part of its stake and to reduce the company’s debt to $270 million. From 1993 to 1999, Bain Capital charged Ampad about $18 million in various fees. By 1999, the company’s debt was back up to $400 million. Unable to pay the interest costs and drained of cash paid to Bain Capital in fees and dividends, Ampad filed for bankruptcy the following year. Senior secured lenders got less than 50 cents on the dollar, unsecured lenders received two- tenths of a cent on the dollar, and several hundred jobs were lost. Bain Capital had reaped capital gains of $107 million on its $5.1 million investment. Bain Capital’s acquisition in 1994 of Dade International, a supplier of in-vitro diagnostic products, was 81 percent financed by debt. Of the $85 million in equity, about $27 million came from Bain with the rest coming from a group of investors that included Goldman Sachs Group Inc. From 1995 to 1999, Bain Capital tripled Dade’s debt from about $300 million to $902 million. Some of the debt was used to pay for acquisitions of DuPont Co.’s in-vitro diagnostics division in May 1996 and Behring Diagnostics, a German medical- testing company, in 1997. But some was used to finance a repurchase of half of Bain Capital’s equity for $242 million — more than eight times its investment — and to pay its investors almost $100 million in fees. Bankruptcy Filing Dade was left in a weakened financial condition and couldn’t withstand the shocks of increased debt payments when interest rates rose and revenue from Europe fell because of a decline in the value of the euro. The company filed for bankruptcy in August 2002, because of its inability to service a $1.5 billion debt load. About 1,700 people lost their jobs while Bain Capital claimed capital gains (net of its losses in the bankruptcy) of roughly $216 million, an eightfold return. There are many other examples of this debt-fueled strategy. In the two years following the acquisition in 1993 of GS Industries, a steel mill, for $8 million, Bain Capital increased the company’s debt to $378 million on operating income of less than a 10th of that amount. Some of this was used to pay Bain Capital a $36 million dividend in 1994. That degree of leverage was excessive in light of the cyclicality and capital-intensive nature of the steel industry. By the time the company went bankrupt in 2001, it owed $554 million in debt against assets valued at $395 million. Many creditors lost money, and 750 workers lost their jobs. The U.S. Pension Benefit Guaranty Corp., which insures company retirement plans, determined in 2002 that GS had underfunded its pension by $44 million and had to step in to cover the shortfall. Bain Capital’s acquisition of Stage Stores, a department- store chain, in 1988 was 96 percent financed by debt (mostly in junk bonds) — an extreme level for a cyclical and very competitive low-margin business. Bain sold a large part of its stake in 1997 for a $184 million gain, three years before the company filed for bankruptcy because of its inability to service its $600 million debt. Success, entrepreneurship, risk taking and wealth creation deserve to be celebrated when they are the result of fair play and hard work. President Barack Obama is correct in distinguishing the patient creation of value for the benefit of investors through genuine operational improvements and growth — the true mission of private equity — from the form of rigged capitalism that was practiced by some in the industry in the past when debt was cheap and plentiful. While Bain Capital wasn’t alone in using financial engineering to turbo-charge its returns, it was among the most aggressive under Romney’s leadership. Enriching investors by taking leveraged bets isn’t a qualification for a job requiring long-term vision and concern for public welfare. It is appropriate to point that out to voters. (Anthony Luzzatto Gardner works at Palamon Capital Partners, a private equity fund based in London, and was director of European affairs in the U.S. National Security Council in 1994-95. The opinions expressed are his own.) WHO CARES? If you think all this is irrelevant, fine. Here’s the economic issue that matters: If we reelect the President, we’ll continue to work our way out of the disaster the Republicans left us — and faster, if, post-election, the Republicans stop standing in the way. If we elect Mitt Romney, he will out-Hoover Hoover, taking hundreds of billions of dollars of demand out of the economy at precisely the time we need to be putting it in — the Paul Ryan budget onto which the Republican House and candidate Romney have wholeheartedly signed — leading the world into full-scale depression with all the misery, and potential horror, that would entail. QCOR Guru likes QCOR, which was recently “marked down” from $58 to $43 for reasons he think make no sense. “My analysis agrees with this presentation,” he writes. “The stock was recommended by Merrill Lynch with a target of 60. I remain baffled by the reaction on Tuesday to old news.” I bought some at $44.62. JPM If you bought JPMorgan puts a couple of months ago as I did, maybe hold on? Janet Tavakoli: “JPMorgan admits $4.4 billion in losses, but that’s not even the beginning of the right issue. (And note that the $4.4 billion represents the net trading losses for the CIO for the second quarter. The “Whale’s” losses for the first half of this year have mounted to $5.8 billion.) From the filings: ‘Recently discovered information raises questions about the integrity of the trader marks, and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses being incurred in the portfolio during the first quarter, the bank said.’ Given the stream of revelations about the lack of corporate governance for the CIO going back for a long period before the above mentioned quarter, one should have no confidence in previous marks or accounting statements. As for other divisions of JPMorgan, red flags furiously wave.”
Exactly! Precisely! July 13, 2012July 12, 2012 SETTING THE RECORD STRAIGHT ON BAIN Mitt Romney had absolutely no connection to Bain Capital from 1999 to 2002. Are we clear on that? Can we put that to rest, for Pete’s sake? Yes, he was Chairman and CEO and the company’s sole shareholder. Big deal! That’s just a quibble. Read it here. MY SWISS BANK ACCOUNT Oh, that’s right. I don’t have one. And there is certainly nothing necessarily wrong with having one, or avoiding U.S. taxes by locating in the Cayman Islands. But it doesn’t necessarily look all that good on YouTube if you’re running for office. BOREALIS – WHEN TO SELL I have to hand it to Mitt Romney. His ability to pay no attention to Bain Capital for three years even as he was its Chairman, CEO and sole shareholder — and even as it represented almost his entire net worth — boggles my mind. Hats off to him. Because even just owning shares of Borealis — representing just a small fraction of my vastly smaller net worth — I find it hard to think about anything else. (Andy Borowitz has the explanation for how Mitt managed this. It’s a medical thing.) But what about Borealis? Time to sell half? All? Steve Mellano: “For me, it is far easier to buy than to sell. Do you have any good articles or links to help a novice know when to sell? Before you scold me… 1. Yes, this is money I can afford to lose. 2. I know there are no certainties and that everything is relative. BTW, my 200 shares of BOREF bought at $2.65 are having a good time!!” ☞ The general rule is beyond simple. Sell when you feel have something better to do with the money: an alternative that, when adjusted for risk and the tax consequences of the sale, is more attractive. Not that that’s easy to know. But that’s the basic principle. (In terms of taxes, if you have a loss, it may make switching to another investment more attractive. If you would have to PAY tax, that’s a consideration as well — but just a consideration, not a determinant.) Borealis closed at $16 Wednesday, up another $2.30. Granted, it was on zero volume (well, 8,572 shares, actually, but for most stocks that’s nothing) and someone even paid $17. The last time this happened, 7 years ago, I urged people to hold on, making the case that, given the huge risks and potential rewards the stock “should” be $100. I made that case here (” . . . I’m not saying Borealis will ever sport a $5 billion market cap – $1,000 a share – just that I can imagine someone looking at the stock if it ever gets to $100 and thinking, ‘Hmm. It’s a crapshoot, but there’s a chance for a tenfold gain. I think I’ll give it a shot.’ Which is why someone in his right mind might pay $100.”) . . . And here (“It sounds like a staggeringly large number and in many senses is. But it’s still just the cost of a single ritzy hotel, say. Or two or three jumbo jets. If you had your choice between owning two or three jumbo jets, on the one hand, or a set of patented technologies that you thought just might have huge industrial ramifications across the globe in the decades to come – which would you choose? Personally, I’d choose the jets. A $500 million bird in the hand is worth billions in the bush. Who of us needs more than $500 million? I’d sell two of the jets and use that cash to pay the cost of living in the third. Would that not be cool? Can you imagine the parties? And never having to be on standby for upgrades? . . . “) . . . And here (“Chris Williams: ‘You are way out of control, Andy'”) . . . And here (“People keep asking me what to do about Borealis and I keep coming back to this: The plane moved. I grant you, it would have been more dramatic if it had levitated. Or dematerialized and then rematerialized on the White House lawn. But . . .”) All of which columns were a little painful to re-read until recently, because far from hitting $100 after it reached $16 (someone actually paid $21 for a few shares), it gradually slipped back to $3 or so, where it remained for much of those next 7 years. So is this the same deal? Will the stock gradually return to its quiet state for another 7 (or 13 or 17) years and then, like locusts, come roaring back for the next frenzy? Maybe, but there are some differences. This time, the company has several actual serious partners working to help produce the motor. This time, the motor was shown to work inside the wheels of an actual commercial jet. (Last time, a larger version was running alongside the jet on a cart.) This time, the company has Letters of Intent from five airline customers with indications of strong interest from many others. This time, the company has shown that even with the motor in the nose wheel instead of the main landing gear, it gets enough traction — even on rain-slicked or icy tarmacs — to pull the plane. (But what if the pilots are slight of build and all the really heavy passengers are in the back of the plane?) So the case for $100 is more or less the same as it was 7 years ago. Only this time, I have to think the chances that the stock will go all the way back to $3 (a $15 million market cap), let alone to zero, have become quite slim. Because however buffeted it may be by large competitors or intransigent government agencies or bad luck or unanticipated problems (never underestimate the potential for those!), there seems to be some valuable technology here. And, on the upside, I have to think the chances that stock might someday sell for 2 or 3 times pie-in-the-sky earnings (a $50,000 annual profit on leases covering each of 10,000 jets = $500 million a year, before allowing anything for cars or forklifts or any of the other Borealis technologies or its iron ore deposits) — while still modest are no longer entirely fanciful. So I’m holding every share, albeit, as always, with money I can afford to lose. Now let’s talk about something important: EXACTLY The Truth About Obama’s Tax Proposal (and the Lies the Regressives are Telling About It) By ROBERT REICH July 10, 2012 To hear the media report it, President Obama is proposing a tax increase on wealthy Americans. That’s misleading at best. He’s proposing that everyone receive a continuation of the Bush tax cuts on the first $250,000 of their incomes. Any dollars they earn in excess of $250,000 will be taxed at the old Clinton-era rates. Get it? Everyone is treated exactly the same. Everyone gets a one-year extension of the Bush tax cut on the first $250,000 of income. No “class warfare.” Yet regressive Republicans want Americans to believe differently. The editorial writers of the Wall Street Journal say the President wants to extend the Bush tax cuts only “for some taxpayers.” They urge House Republicans to extend the Bush tax cuts for “everyone” and thereby put Senate Democrats on the spot by “forcing them to choose between extending rates for everyone and accepting Mr. Obama’s tax increase.” Pure demagoguery. Regressives also want Americans to think the President’s proposal would hurt “tens of thousands of job-creating businesses,” as the Journal puts it. More baloney. A small business owner earning $251,000 would pay the Bush rate on the first $250,000 and the old Clinton rate on just $1,000. Congress’s Joint Tax Committee estimates that in 2013 about 940,000 taxpayers would have enough business income to break through the $250,000 ceiling – and, again, they’d pay additional taxes only on dollars earned above $250,000. All told, fewer than 3 percent of small business owners would even reach the $250,000 threshold. A third lie is Obama’s proposal will “increase uncertainly and further retard investment and job creation,” as the Journal puts it. Don’t believe it. The real reason businesses aren’t creating more jobs is American consumers — whose purchases constitute 70 percent of U.S. economic activity — don’t have the money to buy more, and they can no longer borrow as before. Businesses won’t invest and hire without consumers. Even as executive pay keeps rising, the median wage keeps dropping — largely because businesses keep whacking payrolls. The only people who’d have to pay substantially more taxes under Obama’s proposal are those earning far in excess of $250,000 — and they aren’t small businesses. They’re the fattest of corpulent felines. Their spending will not be affected if their official tax rate rises from the Bush 35 percent to the Bill Clinton 39.6 percent. In fact, most of these people’s income is unearned — capital gains and dividends that are now taxed at only 15 percent. If the Bush tax cuts expire on schedule, the capital gains rate would return to the same 20 percent it was under Bill Clinton (the Affordable Care Act would add a 3.8 percent surcharge). Funny, I don’t remember the economy suffering under Bill Clinton’s taxes. I was in Clinton’s cabinet, so perhaps my memory is self-serving. But I seem to recall that the economy generated 22 million net new jobs during those years, unemployment fell dramatically, almost everyone’s income grew, poverty dropped, and the economy soared. In fact, it was the strongest and best economy we’ve had in anyone’s memory. In sum: Don’t fall for these big lies — Obama wants to extend the Bush tax cut “only for some people,” small businesses will be badly hit, businesses won’t hire because of uncertainty this proposal would create, or the Clinton-era tax levels crippled the economy, A ton of corporate and billionaire money is behind these lies and others like them, as well as formidable mouthpieces of the regressive right such as Rupert Murdoch’s Wall Street Journal editorial page. The truth is already a casualty of this election year. That’s why it’s so important for you to spread it. PRECISELY The real reason to rehire Barack Obama is that he’s done a spectacular job under the circumstances. Tough as things are — made so much tougher by the Republican refusal to help make them better — the list of domestic and foreign achievements, and disasters averted, is extraordinary. The real reason not to hire Mitt Romney is that — leaving aside the stranglehold that would likely give Rush Limbaugh and the Koch brothers et al on all three branches of government — he is committed (whether he likes it or not) to the Paul Ryan Tea Party austerity vision that would have him out-Hoovering Hoover, allowing the world to fall over the cliff into full-scale depression. But issues of policy and performance-rationally-evaluated are not what win elections. POLITICO’s chief political correspondent has an interesting take on this, and what it means for November 6, here: Why don’t we love Mitt Romney? By ROGER SIMON 2012-07-10 They live among us, but they are not really part of us. They pretend to be like us only in order to gain our votes. They are the Others, those who insinuate themselves into American life, but who are not “real” Americans at all. For years, his opponents have tried to portray Barack Obama as an Other. Rabid racists on the right, joined by just plain cuckoos — hey, Donald Trump, money not only can’t buy love, it can’t buy brains, either — believe or pretend to believe that Obama was not born in America. But as the birthers have fizzled, they have been replaced by more mainstream and more socially acceptable attacks on Obama’s “otherness”: Mitt Romney’s claim that Obama is a European-style socialist, for instance. “He takes his inspiration from Europe and the European socialists in Europe,” Romney says of Obama. “I believe in America.” By implication, Obama does not believe in America. Which is why Romney says we are now engaged in a battle for “the soul of America” in which voters must choose between “a European-style welfare state” or “a free land.” But the Democrats have reacted cleverly. Hold on, they say, the real Other in the race is Mitt Romney. He is the guy, they say, who does not act like a real American. Because how many real Americans keeps millions of dollars in foreign banks? “Hey, how many of you all have a Swiss bank account?” Joe Biden asked voters gathered in Exeter, N.H., in April. No hands went up in the crowd. Swiss banks accounts? Who has Swiss bank accounts? Others, that’s who. Biden described Romney using classic terms of “otherness.” Romney, Biden said, was “out of touch” and “out of step” with basic American values. The attack is now part of Biden’s stump speech. “Did you ever think you’d be choosing between two people running for president, one of whom has a Swiss bank account?” Biden asks crowds. Nobody is saying (as of yet) that Romney did anything illegal by keeping millions of dollars in Swiss and other foreign banks. It just seems … odd. Democratic officeholders, in what is obviously a coordinated attack, have picked up the theme. Martin O’Malley, the Democratic governor of Maryland, who may be eyeing his own presidential run someday, said on ABC’s “This Week” on Sunday that Romney is betting “against America.” “He bet against America when he put his money in Swiss bank accounts and tax havens and shelters and also set up a secret company, the shell company in Bermuda,” O’Malley said. “What went the way of Europe were the — the Swiss bank accounts and the American dollars that Mitt Romney stuffed in that offshore Swiss bank account, jobs that he facilitated companies in moving offshore, out of places like Ohio, out of Pennsylvania and Maryland.” Which is the other prong of the attack: Romney’s record as a businessman is his main qualification for the presidency. But is that record marked by creating jobs in the United States or by shipping jobs overseas? “Give Mitt Romney credit: He is a job creator,” Joe Biden says. “In Singapore and China and India.” And the Obama campaign now refers to Romney the “outsourcer-in-chief.” The Romney campaign appears to have been caught somewhat flat-footed by all this, and Romney’s supporters are not helping. My simple — and admittedly simplistic — theory of who wins the presidency is that most voters almost always vote for the more likable presidential candidate. How likable is Mitt Romney? Just ask House Speaker and fellow Republican John Boehner. “Can you make me love Mitt Romney?” Boehner said recently. “The American people probably aren’t going to fall in love with Mitt Romney.” But why not? Is it his foreign bank accounts? Creating jobs overseas? Imprisoning his dog on the roof of the family car? Attacking a gay student in high school with a pair of scissors? Or those four car elevators he wants for his California beach house? Boehner did not say. But it is not Romney’s wealth that keeps him from being loved. Americans loved John Kennedy, after all. It is something else. It is some quality Romney has or some quality Romney lacks that, as Boehner says, makes him unlovable, makes him seem not like a president, but like an Other. In any case, Boehner says it will not matter. “I’ll tell you this: Ninety-five percent of the people that show up to vote in November are going to show up in that voting booth, and they are going to vote for or against Barack Obama,” Boehner says. This is the Republicans’ great hope, their great strategy: Forget about Romney. Romney is a cipher, a place holder. He has but one real quality: He is not Barack Obama. Romney is the Other guy. And if that is enough, he will also be president. Have a great weekend.
How Much Less? (And Don’t Miss: The Case for FREE Higher Education) July 12, 2012July 11, 2012 MARYLAND VERSUS KANSAS From the indispensable New York Times: States Face Tough Choices Even as Downturn Ends By MICHAEL COOPER Published: July 10, 2012 OCEAN CITY, Md. — As state governments begin to emerge from the long downturn, many are grappling with a difficult choice: should they restore some of the services and jobs they were forced to eliminate in the recession or cut taxes in the hopes of bolstering their local economies? The debate over the proper balance between taxing and spending has been raging in Congress, on the presidential campaign trail and in statehouses around the country, and no two states have settled it more differently this year than Maryland and Kansas. Maryland, a state controlled by Democrats that has a pristine credit rating, raised income taxes on its top earners this year to preserve services and spending on its well-regarded schools — leading some business groups to warn that the state might become less competitive. Kansas, controlled by Republicans, decided to try to spur its economy with an income tax cut — which Moody’s Investors Service, the ratings agency, recently warned would lead to “dramatic revenue loss” and deficits that would probably require more spending cuts in the coming years. Gov. Martin O’Malley of Maryland, the chairman of the Democratic Governors Association, gave an impassioned defense of his approach to mayors from across the state who gathered here at the end of June at the annual convention of the Maryland Municipal League. “Without any anger, and without any meanness, and without any fear, let’s ask one another in these critical months ahead and years ahead: how much less do we think would be good for our state?” Mr. O’Malley asked. “How much less do we think would be good for our country? How much less education would be good for our children? How many fewer college degrees would make our state or our country more competitive? “How much less research and development would be good for the innovation economy that we have an obligation and a responsibility, a duty and an imperative, to embrace? How many fewer hungry Maryland kids can we afford to feed? Progress is a choice: we can decide whether to make the tough choices necessary to invest in our shared future and move forward together. Or we can be the first generation of Marylanders to give our children a lesser quality of life with fewer opportunities.” Gov. Sam Brownback of Kansas, who sought the Republican nomination for president four years ago, said he was persuaded that his state needed to cut its income taxes and taxes on small businesses significantly when he studied data from the Internal Revenue Service that showed that Kansas was losing residents to states with lower taxes. “My viewpoint, and the viewpoint of the majority of the Legislature, was we’ve got to change our tax policy to attract more people and attract more businesses,” Mr. Brownback said in a telephone interview. “We’re just tired of losing in our league — I consider the surrounding states as our league — and we want to start gaining.” Mr. Brownback said that he initially had hoped to pay for some of the lost revenues — which are expected to reach a little over $800 million, or 13 percent of general fund revenues, next year — by ending a number of popular tax deductions, and by phasing in the cuts slowly. But he could not find support for that, so, even as other states are beginning to add spending again, he has been looking for savings and more cuts to offset the projected loss in tax revenues. “We are going to be going through everything with a fine-tooth comb,” he said. The recession and its aftermath have been a tumultuous time for state budgets. As they grappled with the steepest and longest drop in tax collections on record, states cut hundreds of billions of dollars in spending, and many raised taxes — some temporarily — to tide them over. Now, though, revenue has been steadily climbing back for nine straight quarters, and a division between Republican- and Democratic-controlled states is coming into sharp focus over whether to restore the lost services and jobs or to lower taxes, which in some states could effectively lock in some of the budget cuts made during the downturn. Several Republican-led states see holding the line on taxes, or cutting them, as paramount. Ohio, which sharply cut aid to local governments and education during the downturn, announced this week that it had ended the year with a $235 million surplus. It was deposited in the state’s rainy-day fund, and Gov. John R. Kasich, a Republican, warned that the money should not be used to restore spending cuts. In Pennsylvania, Gov. Tom Corbett, a Republican, signed a budget last month that eliminated a program that provided cash assistance to the disabled as it lowered some taxes. But in Oklahoma, where the energy sector has helped the economy, Gov. Mary Fallin, a Republican, failed to win passage of an ambitious income tax cut despite strong Republican majorities in the Legislature. Some Democratic-led states are increasing taxes, saying that it is more important to try to restore the services that were cut — and some of the 657,000 state and local government jobs lost — during the downturn. In California, where temporary tax increases imposed during the recession were allowed to phase out before the state was back on solid fiscal footing, Gov. Jerry Brown is warning that the state will need to cut another $6 billion, largely from education, if voters fail to approve a tax increase he is seeking. The effects of state taxes are hotly debated. This spring, when the George W. Bush Institute held a conference in New York on how to promote economic growth, panelist after panelist asserted that cutting state taxes would jolt the economy; Governor Brownback told the conference that his small-business tax cuts would be “like shooting adrenaline into the heart of growing the economy.” But the Institute on Taxation and Economic Policy, a nonprofit research organization in Washington associated with Citizens for Tax Justice, which advocates a more progressive tax code, issued a report this year that found that the states with high income tax rates had outperformed those with no income tax over the past decade when it came to economic growth per capita and median family income. The choices made by Kansas and Maryland could provide something of a real-time test of the prevailing political theories of taxing and spending — though it could be years before the results are in. When Governor O’Malley spoke here to mayors from across the state — including more conservative mayors from the Eastern Shore of Maryland — he got perhaps his warmest reception when he spoke about his desire to raise the gas tax so that he could begin to restore highway financing for municipalities, which he has reluctantly cut sharply in recent years. “I haven’t given up, and I have the scars to prove it,” he said of his failed effort during the last session. “I left a lot of blood on the battlefield, but I didn’t drop the flag. The truth still remains: unless we update, and unless we find ways to invest in our transportation trust fund in a way that keeps pace with inflation, then every town and every city is going to suffer.” A DIFFERENT KIND OF WHEELTUG So in 20 years might electric cars be largely self-charging as they roll down the road? Recharged through their tires? Look here. I’m telling you: if we can somehow keep from screwing it up — manufacturing unnecessary debt-ceiling crises and branding “science” a “pillar of deceit,” to take two of so many recent screw-ups (“electing” Bush instead of Gore, to take a third) — the future can be downright Kurzweilian. THE CASE FOR FREE HIGHER EDUCATION Here. Seriously. (“Here in the Nordic countries, universal access to free higher education is a no-brainer. That’s because we know education is the ultimate investment in the future. In addition to not having any tuition fees, all students receive . . .) Does it not make some sense? Not for those who don’t want it; and not country-club ivy style for everyone who does. But are the Finns really so far off?
BOREF & Beer, Romney & Romney July 11, 2012July 11, 2012 WHEELTUG SIGNS AIRLINE #5 Turkey’s “largest privately owned airline,” Onur Air, follows El Al, Alitalia, Jet Airways, and Israir in signing a letter of intent to lease the WheelTug system. Borealis closed at $13.70 yesterday. People seem to be allowing for the possibility that WheelTug is real. Which would mean that at least some of the other claimed (and patented) Borealis technologies might be real. The current $68.5 million market cap begins to approach the $110 million some guy paid for a spectacular New York City penthouse recently. The difference being that the penthouse, though it has a better view, costs God knows how much in taxes and common charges to maintain each year, where just this one Borealis subsidiary, if it worked out, might generate $100 million in annual profits. (E.g., 2,000 systems leased to power 2,000 planes at a net of $50,000 each). Or $500 million in annual profits (10,000 planes). This is anything but a sure thing; but as each new airline signs on, and now that we’ve seen video of the system inside actual nose wheels driving actual planes, it seems less and less far-fetched. Summer fun, anyway. (We can be cavalier about this because we bought these shares only with money we can truly afford to lose.) BEN FRANKLIN – II Joel Grow: “Another very important Ben Franklin quote: ‘Beer is proof that God loves us and wants us to be happy.’ OK, so it’s a tad off-topic….but still.” Well it is off-topic (here was the topic). But it raises an important point: Can you imagine how more certain of God’s intentions he would have been if Franklin had had cold beer? If warm beer pleased him, what transport of joy would a lightning strike that electrified a kite string attached to one of these have brought him? GOVERNOR ROMNEY Paul Krugman nails it for the New York Times — as usual: Once upon a time a rich man named Romney ran for president. He could claim, with considerable justice, that his wealth was well-earned, that he had in fact done a lot to create good jobs for American workers. Nonetheless, the public understandably wanted to know both how he had grown so rich and what he had done with his wealth; he obliged by releasing extensive information about his financial history. But that was 44 years ago. And the contrast between George Romney and his son Mitt — a contrast both in their business careers and in their willingness to come clean about their financial affairs — dramatically illustrates how America has changed. Right now there’s a lot of buzz about an investigative report in the magazine Vanity Fair highlighting the “gray areas” in the younger Romney’s finances. More about that in a minute. First, however, let’s talk about what it meant to get rich in George Romney’s America, and how it compares with the situation today. What did George Romney do for a living? The answer was straightforward: he ran an auto company, American Motors. And he ran it very well indeed: at a time when the Big Three were still fixated on big cars and ignoring the rising tide of imports, Romney shifted to a highly successful focus on compacts that restored the company’s fortunes, not to mention that it saved the jobs of many American workers. It also made him personally rich. We know this because during his run for president, he released not one, not two, but 12 years’ worth of tax returns, explaining that any one year might just be a fluke. From those returns we learn that in his best year, 1960, he made more than $660,000 — the equivalent, adjusted for inflation, of around $5 million today. Those returns also reveal that he paid a lot of taxes — 36 percent of his income in 1960, 37 percent over the whole period. This was in part because, as one report at the time put it, he “seldom took advantage of loopholes to escape his tax obligations.” But it was also because taxes on the rich were much higher in the ’50s and ’60s than they are now. In fact, once you include the indirect effects of taxes on corporate profits, taxes on the very rich were about twice current levels. Now fast-forward to Romney the Younger, who made even more money during his business career at Bain Capital. Unlike his father, however, Mr. Romney didn’t get rich by producing things people wanted to buy; he made his fortune through financial engineering that seems in many cases to have left workers worse off, and in some cases driven companies into bankruptcy. And there’s another contrast: George Romney was open and forthcoming about what he did with his wealth, but Mitt Romney has largely kept his finances secret. He did, grudgingly, release one year’s tax return plus an estimate for the next year, showing that he paid a startlingly low tax rate. But as the Vanity Fair report points out, we’re still very much in the dark about his investments, some of which seem very mysterious. Put it this way: Has there ever before been a major presidential candidate who had a multimillion-dollar Swiss bank account, plus tens of millions invested in the Cayman Islands, famed as a tax haven? And then there’s his Individual Retirement Account. I.R.A.’s are supposed to be a tax-advantaged vehicle for middle-class savers, with annual contributions limited to a few thousand dollars a year. Yet somehow Mr. Romney ended up with an account worth between $20 million and $101 million. There are legitimate ways that could have happened, just as there are potentially legitimate reasons for parking large sums of money in overseas tax havens. But we don’t know which if any of those legitimate reasons apply in Mr. Romney’s case — because he has refused to release any details about his finances. This refusal to come clean suggests that he and his advisers believe that voters would be less likely to support him if they knew the truth about his investments. And that is precisely why voters have a right to know that truth. Elections are, after all, in part about the perceived character of the candidates — and what a man does with his money is surely a major clue to his character. One more thing: To the extent that Mr. Romney has a coherent policy agenda, it involves cutting tax rates on the very rich — which are already, as I said, down by about half since his father’s time. Surely a man advocating such policies has a special obligation to level with voters about the extent to which he would personally benefit from the policies he advocates. Yet obviously that’s something Mr. Romney doesn’t want to do. And unless he does reveal the truth about his investments, we can only assume that he’s hiding something seriously damaging. Of course, none of this matters to — or even gets considered by — the large chunk of the country who “know” Iraq played a role in attacking us on on 9/11 and that climate change is a hoax and that our Muslim President is plotting to confiscate our guns. Who nod when Rush Limbaugh, red faced and bursting with outrage, labels “the four pillars of deceit” — “academia, government, science, and the media.” Down this anti-science, anti-tax path lies the Romney/Ryan austerity budget. By throwing so many out of work just when we should be hiring them to rebuild our crumbling infrastructure, it out-Hoovers Hoover and presages the kind of dark times that the last great depression led to: wars and fascism (look at the nascent Nazi party in Greece). None of this is going to happen, because — in a cliffhanger victory your support is crucial to assuring — Barack Obama is going to be reelected and we will continue to make slow, but more or less steady, progress out of the incredible mess Mitt Romney’s Harvard Business School classmate, George W. Bush, left behind. That progress will be faster if we also hold the Senate and take back the House. Which we will do if our drive to turn out the vote trumps their drive to suppress it.
Ben Franklin and Thos Jefferson v. Grover Norquist and Joe the Plumber July 9, 2012July 10, 2012 If we hire Mitt Romney to run the world, the world will likely have a depression — which will make our deficit worse, by the way. Even if he knows better (and I have to think he does), Mr. Romney is by now so wedded to the Tea Party’s opposition to taxes and to the devastating Paul Ryan “austerity” budget that he will find himself out-Hoovering Hoover. He will be slamming on the brakes exactly when a teetering economy needs him to invest massively in infrastructure: employing millions to make our country more efficient, prosperous, and secure. FDR invested massively, of necessity, to win the War. We need to do it — building solar panels instead of bombs, rebuilding bridges instead of storming beaches — to move people off unemployment back into the middle class. A world depression would likely lead to wars, new brands of fascism (look at Greece), and who knows what else? But we can avoid one if we don’t do crazy self-destructive things like manufacturing a debt ceiling crisis or throwing ourselves into reverse when we should be moving forward. All because we’ve decided that taxes are a horribe, tyrannical, communist thing. And it is in that broad context that I offer today’s two items: WHAT DOES THE TEA PARTY MAKE OF BEN FRANKLIN? It was Ben who wrote: All the property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it. Benjamin Franklin, letter to Robert Morris, December 25, 1783 And what does the Tea Party make of Thomas Jefferson? He wrote: I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country. “Bunch of commies,” concludes David Atkins wryly, after quoting Thomas Paine and James Madison as well. Thursday, I posted Mike Martin’s comment (which I like so much, I’m posting it again): Mike Martin: “You should not have stopped your quote from the Declaration of Independence where you did; the very next clause reads: ‘That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.’ The Declaration of Independence was not just a fundamental statement of human rights, but a statement that democratic government is fundamental to those rights. The importance of this seems lost on Republicans, who preach that government is the impediment to freedom. One of the major leaders of the Republican party has repeatedly stated his goal is to drown the United States government in a bathtub. The Republicans trumpet their anti-tax message cloaked in ‘Tea Party’ garb as if the Boston Tea Party was a tax protest. Read the history: the British government had just LOWERED the tax on tea when the protest occurred. The issue was not the tax requirement, it was that only licensed tea merchants could sell tea, which undercut both John Hancock’s commercial empire and the widespread smuggling of tea. But perhaps more importantly, after the American Revolution they formed a government without a strong power to tax. After the Shay anti-tax rebellion, George Washington and others held the Constitutional Congress with the Shay’s rebellion as the clarion call for a stronger central government. In other words, the United States of America, the government formed under the U.S. Constitution, was formed precisely to COUNTER an anti-tax rebellion. So the existing Republican Party forms its foundation on opposition to the United States of America and its Constitution: they regularly claim that government is the enemy of the people … ” I then invited others of you to correct Mike’s history if he got it wrong, but so far none of you has. Perhaps thinking some of you might try, Mike followed up over the weekend with this: Mike Martin: “There were calls to create a constitution before Shays’ anti-tax rebellion, but the rebellion played a crucial role in overcoming inertia. In particular, Shays’ rebellion was cited as the reason George Washington came out of retirement and supported the Constitutional Convention, which obviously played a crucial role in legitimizing the convention as well as giving his imprimatur against a tax revolt: (see: here and here). And here: Shays’ Rebellion became a recurring example in the debates among framers of the Constitution, encouraging some to favor the ‘Virginia plan’ (which called for an unprecedented and powerful central government) over the alternative ‘New Jersey plan’ (which seemed too favorable to state sovereignty). ‘The rebellion in Massachusetts is a warning, gentlemen,’ cautioned James Madison, proponent of the Virginia plan. “Thus the creation of the United States as it is today, with a strong central government, was precisely because the Shays’ anti-tax rebellion influenced the Constitutional Convention away from the weak New Jersey plan in favor of the stronger Virginia plan which Madison specifically advocated using the Shays’ rebellion as ‘a warning, gentlemen’ of the need for a strong central government.” HERBERT HOOVER, LIKE MITT, WAS A GREAT BUSINESSMAN Thankfully, Nobel laureate and New York Times columnist Paul Krugman is back from vacation: Off and Out With Mitt Romney By PAUL KRUGMAN Published: July 5, 2012 In a better America, Mitt Romney would be running for president on the strength of his major achievement as governor of Massachusetts: a health reform that was identical in all important respects to the health reform enacted by President Obama. By the way, the Massachusetts reform is working pretty well and has overwhelming popular support. In reality, however, Mr. Romney is doing no such thing, bitterly denouncing the Supreme Court for upholding the constitutionality of his own health care plan. His case for becoming president relies, instead, on his claim that, having been a successful businessman, he knows how to create jobs. This, in turn, means that however much the Romney campaign may wish otherwise, the nature of that business career is fair game. How did Mr. Romney make all that money? Was it in ways suggesting that what was good for Bain Capital, the private equity firm that made him rich, would also be good for America? And the answer is no. The truth is that even if Mr. Romney had been a classic captain of industry, a present-day Andrew Carnegie, his career wouldn’t have prepared him to manage the economy. A country is not a company (despite globalization, America still sells 86 percent of what it makes to itself), and the tools of macroeconomic policy — interest rates, tax rates, spending programs — have no counterparts on a corporate organization chart. Did I mention that Herbert Hoover actually was a great businessman in the classic mold? In any case, however, Mr. Romney wasn’t that kind of businessman. Bain didn’t build businesses; it bought and sold them. Sometimes its takeovers led to new hiring; often they led to layoffs, wage cuts and lost benefits. On some occasions, Bain made a profit even as its takeover target was driven out of business. None of this sounds like the kind of record that should reassure American workers looking for an economic savior. And then there’s the business about outsourcing. Two weeks ago, The Washington Post reported that Bain had invested in companies whose specialty was helping other companies move jobs overseas. The Romney campaign went ballistic, demanding — unsuccessfully — that The Post retract the report on the basis of an unconvincing “fact sheet” consisting largely of executive testimonials. What was more interesting was the campaign’s insistence that The Post had misled readers by failing to distinguish between “offshoring” — moving jobs abroad — and “outsourcing,” which simply means having an external contractor perform services that could have been performed in-house. Now, if the Romney campaign really believed in its own alleged free-market principles, it would have defended the right of corporations to do whatever maximizes their profits, even if that means shipping jobs overseas. Instead, however, the campaign effectively conceded that offshoring is bad but insisted that outsourcing is O.K. as long as the contractor is another American firm. That is, however, a very dubious assertion. Consider one of Mr. Romney’s most famous remarks: “Corporations are people, my friend.” When the audience jeered, he elaborated: “Everything corporations earn ultimately goes to people. Where do you think it goes? Whose pockets? Whose pockets? People’s pockets.” This is undoubtedly true, once you take into account the pockets of, say, partners at Bain Capital (who, I hasten to add, are, indeed, people). But one of the main points of outsourcing is to ensure that as little as possible of what corporations earn goes into the pockets of the people who actually work for those corporations. Why, for example, do many large companies now outsource cleaning and security to outside contractors? Surely the answer is, in large part, that outside contractors can hire cheap labor that isn’t represented by the union and can’t participate in the company health and retirement plans. And, sure enough, recent academic research finds that outsourced janitors and guards receive substantially lower wages and worse benefits than their in-house counterparts. Just to be clear, outsourcing is only one source of the huge disconnect between a tiny elite and ordinary American workers, a disconnect that has been growing for more than 30 years. And Bain, in turn, was only one player in the growth of outsourcing. So Mitt Romney didn’t personally, single-handedly, destroy the middle-class society we used to have. He was, however, an enthusiastic and very well remunerated participant in the process of destruction; if Bain got involved with your company, one way or another, the odds were pretty good that even if your job survived you ended up with lower pay and diminished benefits. In short, what was good for Bain Capital definitely wasn’t good for America. And, as I said at the beginning, the Obama campaign has every right to point that out.
Barney and BOREF July 9, 2012July 9, 2012 BARNEY FRANK WEDS JIM READY Barney Frank entered the lobby of the Newton Marriott in time for Friday’s wedding rehearsal dinner looking disheveled even for him. I don’t know where he was coming from — he couldn’t possibly have become so unglued just walking from the parking lot — but in a larger sense I know exactly where he was coming from. He was coming from a place of hopeless loneliness, first as one of the resident tutors in my college dorm 46 years ago, then in the Massachusetts legislature and beyond. It has been an amazing journey for him, who thought he could never find love, let alone express it openly (did I mention that the ceremony was performed by the Governor of Massachusetts?) and an amazing journey for the country — a national journey that, to make this past weekend’s events all the more meaningful, Barney has done so much to guide. Read the New York Times account here. Not mentioned: that the groomsmen were wearing Joseph Abboud suits and Baruch Shemtov ties or that the wedding gift bags contained campaign buttons that read: “Barney & Jim for Congress” — but with “Congress” overwritten with “ever” (get it?) — or that the staff of the Marriott did a surprisingly great job or that the happy couple did a traditional “chair dance” (like this one, only with Barney and Jim in the chairs) or that the seat at Table 45 reserved for Barney’s counterpart on the House Financial Services Committee was empty. The Alabama Republican had said he was coming and it’s a shame he did not, one of Barney’s staffers told me, because “he’s a nice guy.” I loved that my fellow groomsmen ranged from the photo editor emeritus of Eastern Surf Magazine (Jim is an avid surfer, even in the winter in Maine) to a transgender friend to a very large, obviously straight older guy from Fall River who Barney says ran the best anti-poverty program in the nation to his equally large, equally obviously straight pal the chief of the South Boston branch of the Postal Police (who it turns out is gay) to the youngest man ever legally to serve in Congress (some younger, he explained, had long ago served in violation of the Constitutional requirement that they be 25) to a multi-centi-millionaire hedge fund manager to a high school buddy of Jimmy in a motorized wheelchair to a niche entrepreneur whose last name you would know. It was a pretty wonderful night. BOREALIS IN ITS OWN BOOTH Today is the first day of the Farnborough Air Show. Sure enough, if you click on Exhibitors and go to the ‘W’s, there we are: WheelTug. It will be interesting to see how the industry reacts to the video posted last week. The company asserts: “A recent study sponsored by the Wall Street Journal in conjunction with Oliver Wyman and US Airways showed industry net profit of less than $164 per flight. Thus, WheelTug’s projected net savings to airlines of over $200 per flight has the potential to dramatically increase airline profitability.” This is of course not true. The airline business being the worst business in the world, the airlines will soon compete away their savings. (It’s a wonderful industry, flying millions of people literally through the air while serving them soda; but it’s a dreadful business, because with enormous fixed costs and tiny variable costs (a little more soda and a little more fuel for each additional passenger) — and with an inventory that evaporates the moment a plane takes off with empty seats — competition drives prices down to a level above variable cost (so what airline can resist the revenue?) but below true, fully-allocated cost (so what airline can afford to replace its aging equipment without first going bankrupt a couple of times?). But that’s not a problem for WheelTug — indeed, the competitiveness of the industry makes it all the more imperative for airlines to sign up. What short-haul carrier would want to be competing without this $200-a-flight advantage? Here’s a rendering of WheelTug’s Farnborough booth: As always: risky, to be speculated on only with money one can truly afford to lose. But somewhat less risky now that we know it seems to work and that four airlines have signed letters of intent to use it. Tomorrow: What Would Today’s Tea Party Make of Ben Franklin?
Wise Words July 6, 2012March 27, 2017 MORE BOREF VIDEO You saw the 51-second trailer; behold the feature-length (5-minute) version that shows a bit more of how all this works — even on a wet, rain-driven tarmac. Why would any airline not want this capability? THE ECONOMY David Wise: “It really irks me that after turning the US from the largest creditor to the largest debtor nation in the 1980s, destroying the economy in the ’00s and then playing chicken with the fiscal health of the US in the debt ceiling debacle, a recent poll showed that the American public trusted the Republicans more on the economy. I thought you might find this article I recently published of interest.” Tackling Republican myths By David W. Wise | Jun 29, 2012 5:00 am At one of the whistle-stop campaign appearances during the epic 1948 presidential campaign while President Truman was delivering a blistering oration about the Republican Congress one of the people in the audience shouted out, “give ‘em Hell, Harry.” The president responded, “I don’t give them hell. I just tell the truth about them and they think it’s hell.” Well for three years now the present day Republicans have been attacking the economy under President Obama and the truth is that a lot of it sounds like hell. The Republicans ought to know, that hell is largely a consequence of their policies. The U.S. government is experiencing huge budget deficits resulting in ever increasing national debt. But, how did that come about? In January 2001, George W. Bush inherited a $128 billion budget surplus and the Congressional Budget Office (CBO) issued a report projecting annual budget surpluses of $800 billion for each of the years 2009-12. In fact, the estimates at that time projected the entire U.S. government debt being paid down. Fast forward to January 2009, two weeks before President Obama assumed office and the CBO was projecting a $1.2 trillion budget deficit for FY 2009 (with federal spending at 24.9% of GDP) – a fiscal year that was already almost halfway in the books by Inauguration Day. Bush and the Republican policies had not only squandered the sound financial footings that they had been handed, they ran eight consecutive years of budget deficits and brought the United States to its current level of trillion dollar deficits. Given their efforts to avoid responsibility for their handiwork by trying to pin the 2009 budget on Obama, it would not be that surprising if they tried next to blame him for 2008 since the election just happened to have occurred at the end of that year. The explosion in total national debt began in the fall of 2008 at a time when Senators McCain and Obama were fighting a tightly contested election campaign and the Bush team was still holding the reins. In just less than three months between August 8 and October 22, 2008 the total obligations of the Federal Reserve more than doubled in an effort to prop up the financial sector which was perilously close to collapse. That was the point in time at which the avalanche of debt began. It was in 2008 when the year-over-year increase in total national debt first increased by double digits (11.29%). Yes, federal spending under President Obama is clearly at an unsustainable level as a percentage of GDP, but that situation is due in no small measure to the combination of increased safety net spending and lower GDP brought about by the Bush Recession. President Obama did increase spending for a stimulus package necessitated by the Recession, but even when allocating the stimulus to Obama the Wall Street Journal’s Marketwatch concluded that President Obama had increased Federal spending 1.4% over the course of the first four budgets which he submitted (2010-2013) compared with 7.3% for the first four budgets under Bush (2002-2005) – the lowest level of any administration in decades. Now, it is also quite fair to criticize President Obama for not embracing the recommendations of his own bipartisan deficit reduction panel. Yet, several points can be made. First, claims that the President stayed hands off because he feared that in the current highly polarized political environment his outright endorsement might have meant the kiss of death ring somewhat true. Second, last summer the President tried to work out a compromise with Speaker John Boehner that would have put both entitlement cuts and revenue enhancement on the table, but the Republicans refused to consider even one additional dollar towards funding the fiscal obligations of the nation. Although President Obama clearly needs to do more about the deficits and to move beyond aggressive monetary stimulus at least he is talking balance: revenue and spending cuts, deficit reduction balanced against not choking off the recovery. The Republicans now also decry the persistent high unemployment. Yet, that unemployment is the result of the Great Recession which began during – and was a direct result of the policies of – the last Bush administration. It wasn’t President Obama who appeared on TV in the fall of 2008 warning of the impending collapse of the financial system and it wasn’t President Obama’s Treasury Secretary who presented Congress with an extraordinary three page request for virtually unlimited power that he claimed was necessary to deal with the dire crisis. No, that was President Bush and his Treasury Secretary Hank Paulson appearing in those roles. In the final quarter of the Bush administration GDP declined 8.9% and the month President Obama assumed office the U.S. economy lost 800,000 jobs. The unemployment rate surged during 2009 as a consequence of Bush’s economic mismanagement and the collapsing economy which Obama had been handed. The following graph shows each preceding president as being primarily responsible for the economy in the year of transition as each new administration inherits an economy from its predecessor. It takes time to get a new team in place and to have its policies affect the workings of the economy. At $14 trillion the U.S. economy is like a very large ship – it takes time to turn. What is known, however, is that since President Obama has taken office 3.9 million private sector jobs have been created, bringing the unemployment rate down to a still too high 8.2%. Unfortunately, the horrible fiscal position of state and local governments is producing a huge drag on the economy and massive offsetting job losses in the public sector. The effects of the stimulus bill put in place by President Obama will be debated by economists for years, but a consensus seems to be that it helped prevent the Great Recession from turning into a another Depression and the reversal in the unemployment rate is clear. While the Republicans allow that the recession started under Bush, they claim that the actions of the Obama administration have made it worse. Now besides asking how it gets worse than the eve of the second Great Depression in September 2008 or whether those responsible for that state of affairs should not be estopped from criticizing the clean-up effort, the facts indicate that the long-term effects of the Bush policies are still impeding the recovery and a return to sound economics. The Bush tax cuts of 2001 and 2003 were promised to create a new era of prosperity. But, in addition to the fiscal calamity extending far out into the future by reducing government revenue below what is necessary to run the government (according to the CBO they account to $5.4 trillion of the deficits projected over the rest of the decade) the Bush years recorded the most anemic job and economic growth up until that time in the postwar era and that is true even if you are charitable and stop the analysis at 2007 before the financial collapse. The Bush tax cuts were supposed to unleash the energy of upper income taxpayers or “job creators” as they are sometimes called. Yet, gross domestic private investment as a percentage of GDP was down 9.5 through 2007 and 22.3% through the year he left office. These same vaunted conservative prognosticators had warned of a disaster when President Clinton raised taxes in 1993, although gross domestic private investment under Clinton more than doubled (114.9%) – the only administration out of the last four when investment increased. In eight years under Clinton following the tax increase 23 million jobs were created. In eight years under Bush the number was 2.5 million jobs. Apparently the faith in tax cuts, like all faith, is not subject to empirical evidence. One area of significant investment growth during the Bush years was foreign direct investment which grew by 166.5%. So, it is not fair to say that jobs were not created during the Bush years; they were, just in places like China and India as U.S. investors and corporations moved their investment capital offshore. One of the results of the decline in private investment in the United States, however, was a decline in employment in important sectors such as manufacturing. Although one Republican economist is famous for saying that it does not matter whether the United States makes potato chips or computer chips the manufacturing sector has the greatest multiplier effect for creating jobs in other sectors, creates well-paying jobs, is linked to scientific and technological innovation which is usually performed in close proximity to manufacturing locations and creates national wealth and intellectual capital. Manufacturing employment which had been steady for two decades collapsed during the Bush years and the want of employment in this sector acts as a significant drag on the recovery today. Now even President Bush came to this realization at the end of his term and began the government support for the U.S. auto industry during the financial crisis in the fall of 2008, a policy embraced and carried through by President Obama. The problem, however, is that all of this year’s Republican candidates for president say that they would have let GM and Chrysler collapse, erasing millions of jobs and allowing a signature industry to evaporate as there were no private investors at that time willing to invest in a restructuring. Today GM and Chrysler are profitable, GM has regained its position as the world’s largest automaker and auto sector employment is up. The Republicans somehow insist that these actions by President Obama made the recovery worse and feel that their playing the fiddle while Detroit burned would somehow have been preferable. One area where there was an outburst of domestic economic activity and innovation during the Bush years was the tremendous overinvestment in the housing sector and in the dangerous risk taking through new financial products that set the financial system up for possible collapse in the autumn of 2008 and which lead to the Great Recession both here and around the world. Now, while it is true that some of the seeds for this state of affairs were planted under Reagan and Clinton, the explosion of overinvestment and the virtual abandonment of prudential regulation were taken to new heights during the Bush years while warning signs mounted. Not only does housing have a much lower national return on investment than investing in new plant and equipment, but the overhang of vacant houses for sale which mushroomed during the Bush years constitutes one of the strongest anchors still hanging around the neck of the recovery which President Obama and his advisors must contend. They can’t blink their eyes and wish that overhang of empty houses morph instead into new domestic plant and equipment employing American workers. The Republicans having set the house on fire as they handed Obama the keys have the temerity to stand on the sidewalk complaining that the house is ablaze. Having brought the financial system to its knees by weak oversight that permitted wholesale irresponsibility, they promise that if elected they’ll do it all over again. Having ruined the fiscal position of the country by lowering tax receipts to their lowest level in sixty years (14.9% of GDP compared to an average of 18.2% under Ronald Reagan) the Republicans declare that if they are elected they will cut taxes even more which, as history shows, will increase the deficit and national debt even further. In looking at our fiscal situation in comparison to historic averages and with other advanced industrial economies Bruce Bartlett, one of the authors of the Reagan tax policy has written, “The truth of the matter is that federal taxes are very low and there is no reason to believe that by reducing them further will do anything to raise growth or reduce unemployment.” There is not much to debate. Go back and look at the state to which the country was brought by the end of the Bush administration. Why would we want to go back and do more of the same or, as President Bush once famously tried to say, “Fool me once shame on you, fool me twice shame on me.” Why would the American electorate ever allow itself to be fooled again? Click here to access other columns by David Wise. The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics. © 2012 iPolitics Inc.
That To Secure These Rights, Governments Are Instituted Among Men July 5, 2012July 4, 2012 Mike Martin: “You should not have stopped your quote from the Declaration of Independence where you did; the very next clause reads: ‘That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.’ The Declaration of Independence was not just a fundamental statement of human rights, but a statement that democratic government is fundamental to those rights. The importance of this seems lost on Republicans, who preach that government is the impediment to freedom. One of the major leaders of the Republican party has repeatedly stated his goal is to drown the United States government in a bathtub. The Republicans trumpet their anti-tax message cloaked in ‘Tea Party’ garb as if the Boston Tea Party was a tax protest. Read the history: the British government had just LOWERED the tax on tea when the protest occurred. The issue was not the tax requirement, it was that only licensed tea merchants could sell tea, which undercut both John Hancock’s commercial empire and the widespread smuggling of tea. But perhaps more importantly, after the American Revolution they formed a government without a strong power to tax. After the Shay anti-tax rebellion, George Washington and others held the Constitutional Congress with the Shay’s rebellion as the clarion call for a stronger central government. In other words, the United States of America, the government formed under the U.S. Constitution, was formed precisely to COUNTER an anti-tax rebellion. So the existing Republican Party forms its foundation on opposition to the United States of America and its Constitution: they regularly claim that government is the enemy of the people and that opposition to taxation is fundamental to their beliefs. Just when you could have proclaimed that in your blog, you stopped and omitted the most important part of the Declaration of Independence where Thomas Jefferson et al clearly proclaimed that life, liberty and the pursuit of happiness were essentially impossible without democratic government.” ☞ Because my Tea Party and Shay’s Rebellion history are shaky at best, I can’t vouch for the accuracy of Mike’s post (readers will surely chime in if he’s got any of this substantially wrong); but just on the basis of common sense, he’s nailed it. How on Earth could you have a successful, prosperous, peaceful, productive modern society without lots of government and taxes? Name one that doesn’t. If you want sewage systems and bridges, how do they get built and maintained without taxes? If you want your child to get home safely, why wouldn’t you want a system of drivers’ licenses, speed limits, air bags, and laws about driving under the influence? Were Americans in the 1890’s — free from Social Security and Medicare, unburdened by the FDIC and the Federal Reserve, the FTC and the FDA — really better off than we are now? Would the good people of New Orleans have fared better if only the Army Corps of Engineers had been less well funded? Joe the Plumber is an idiot, and not even a plumber. Mike Martin is my hero. BOREF Tom Martel: “Great article from Aerospace & Defense News!” . . . While independent ground maneuverability by aircraft has long been an industry dream, WheelTug’s innovative engines-off taxi technology is becoming a widespread industry expectation in the near future, far sooner than government-devised industry roadmaps projected. A new European Union agenda for the aeronautics industry, called Flightpath 2050 and set by the European Commission on Mobility and Transport, calls for aircraft to be emissions-free during taxi by 2050. WheelTug, which first demonstrated proof of concept hardware allowing taxiing without engines in 2005, expects to conduct on-aircraft tests within 6 months and to introduce the system into service in 2013. “WheelTug will deliver in 2013 what the E.U. has set as a target for 2050,” said Isaiah Cox, the company’s CEO. “We are pleased to have successfully guided the industry here, first by demonstrating that the technology is viable and then by showing that the system’s overall operating cost savings well exceed $500,000 per year on a typical narrowbody aircraft.” Now that WheelTug has proven both the concept and its potential value to the industry, several competitors have emerged. Taxibot is a pilot-driven tug system primarily for use on larger aircraft. The German Aerospace Center (Deutsches Zentrum fur Luft und Raumfahrt; DLR) have shown an in-wheel design for use on the A320. And just this week, Safran and Honeywell announced a joint venture to offer an engines-off taxi solution in 2016. . . . Of course, it should be noted that the “article” is basically by WheelTug. There remain lots of skeptics — or else why would WheelTug grandparent Borealis have a market cap of only $50 million? (In a near ideal scenario, where 10,000 jets were leasing WheelTug systems at a $50,000 annual net to WheelTug, earnings would be $500 million a year.) But without discounting continued risks — we still could lose all our money in this, so don’t invest any money you can’t truly afford to lose — I can’t resist asking, perhaps injudiciously, who you gonna trust — the skeptics, or your lyin’ eyes?
Love Is All You Need July 3, 2012December 27, 2016 When . . . in the course of human events . . . it becomes necessary for one people to dissolve the political bands that have connected them with another — and to assume among the powers of the earth the separate and equal station to which the laws of nature and of nature’s God entitle them — a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation. We hold these truths to be self-evident: that all men and women are created equal; that they are endowed by their Creator with certain unalienable rights; that among these are life, liberty and the pursuit of happiness. Sorry. I couldn’t refift editing the punctuation a little and more explicitly including Martha Jefferson and Sally Hemings in the declaration by adding “and women” — which I think Jefferson would be delighted to see is now how we roll. Because hard as some have fought to keep from expanding the circle of brotherhood . . . Irish need not apply . . . I can’t imagine Thomas Jefferson — or George Washington or Ben Franklin or John Hancock or John Adams or James Madison — being among them. Antisemitism is by now largely a non-issue in America. Thomas Jefferson’s role as our first Secretary of State is by now routinely filled by a woman. And, most dramatically, Barack Obama is not counted as three-fifths of a person — he has George Washington’s job. And there’s more. Last Saturday saw a wedding reception for one of the Facebook founders and his husband attended with great good feeling by (among hundreds of others) two big foundation heads and their wives, a senator and her husband, another senator (didn’t see his wife), the House majority leader and her daughter, another newly married Facebook founder and his wife. And this coming Saturday I’ll be in the wedding of the ranking member of the House Financial Services Committee and his soon-to-be husband, who are scheduled to be married by the Governor of Massachusetts. (This is why I opposed gay marriage: precious summer weekends spent in suits and ties? Really?) In parts of the country — and the world — we’re nowhere near “there” yet. But increasingly, we are. When Laura Bush and Dick Cheney favor marriage equality, it’s not just for Democrats anymore. (The Cheneys recently celebrated the marriage of their daughter Mary to her partner of 20 years Heather.) “Major opponent of gay marriage switches sides,” reads a recent headline. “‘Whatever one’s definition of marriage, legally recognizing gay and lesbian couples and their children is a victory for basic fairness,’ says founder of Institute for American Values.” So Anderson Cooper is gay and Ellen DeGeneris is gay and, basically, who cares? Here’s what I wrote in this space six years ago: Experience thus far suggests that allowing GLBT Americans and their children equal rights and first-class citizenship does not wind up diminishing the rights – or breaking up the marriages – of everybody else. It’s important to respect the discomfort many people still feel with these topics . . . and to allow Kansas and Mississippi more time to chew this over than California and Massachusetts. But, increasingly, people see Rosie on “The View” or Ellen on “Ellen” or Barney Frank on Bill Maher, and simply welcome them as part of the American family. I got this email from a reader tonight, and it left me wondering what proportion of America, in 2006, would still find it repugnant: “In 1962 after having just arrived in Los Angeles at 20, I met a young fellow, 21, who knocked my socks off.We stayed up all night in my tiny furnished apartment in Hollywood and talked until we both fell asleep. When I woke up, he was gone and I was disappointed. He showed up at my door two hours later with his bags packed and asked if he could move in. We’ve just celebrated the 44th anniversary of that night and his very presence still brightens any dark corners in my world. We’ve never been apart one night since then. For two guys with minimum education, we’ve managed to build a really good life together, and at 65 and 66 we are co-parenting two children, a boy aged 7 and a girl 2 1/2. They live three days a week with us and four days a week with their two moms. We have created a great family and when another boy asked our son how he had two moms and two dads, his reply was ‘I guess I’m just lucky.’” No question, some will find that repugnant or threatening. But I think by now a large proportion of the citizenry would actually find themselves rooting for these characters. Love and happiness are precious wherever they are found. Would Jesus really disagree? It’s a beautiful thing to see America lurching ever closer toward the ideal of liberty and justice for all. Thanks, Mr. Jefferson. Have a terrific Fourth of July.