Sunday, June 29, 2008

Moyers-Iraq was always about the oil!

Does the Yi trade doom Milwaukee?

The Yi Jianlian experiment is over in Milwaukee, just one year in the making.

The seven footer from China, the cornerstone of the Milwaukee Metropolitan Chamber of Commerce's (MMAC) "China policy," has been traded to the New Jersey Nets!

It was only a year ago that MMAC's China Business Council Co-chair, Bob Craft, CEO of a Milwaukee based private equity firm offering residency rights for dollars, said: This is a massive opportunity – people have no clue what will hit us. There is so much work for anyone in this community that has an interest in China. They’re already (Wisconsin’s) third-largest business partner. I don’t know what path it will take, but it will be big.”

John Schmidt, the Milwaukee Journal Sentinel's economics writer was equally effusive:"To a handful of Milwaukee entrepreneurs, Yi's rock-star status back home amounts to a potential gold mine...

Yi's arrival provides a fresh opportunity to make Milwaukee a more globalized city, one that draws international residents, investment and culture. In May, the Department of Homeland Security approved southeastern Wisconsin as a special economic zone that offers coveted U.S. residency rights to qualified foreign investors." I'm going to package the opportunity," said Bob Kraft...."

Amid all of the cheerleading, and growth of business with China, neither the MMAC nor Schmidt ever mentioned that China's sales to the state (imports) were growing much faster than our exports.. The result of this trade imbalance - Wisconsin lost 39,668 jobs, 1.43% of total employment, between 1989 and 2003.

Now that the Bucks have shipped Yi out of town in much the same way that Milwaukee's corporate leaders have shipped thousands of manufacturing jobs to China and other low-wage havens, what will become of the MMAC's China-based development policy?

Are the city's hopes for investment, increased international residents and culture over?

Or was the euphoria over Yi's signing just another example of corporate Milwaukee's promotion of hype over real economic development strategy?

Fear not. The Bucks second round draft choice is the 6-foot-8 forward Luc Richard Mbah a Moute from Yaounde, Cameroon. The 21-year-old Mbah a Moute is a prince. His father is a king! Talk about prestigious international residents!

Maybe Kraft will offer residency to Cameroonian monarchs if they cough up $500,000?

Milwaukee's corporate titans may find the Cameroon an attractive place to invest. Average wages are 45 cents a day, even less than China's. At those wages, Harley won't sell many motorcycles. But then, that's not really what the global labor arbitrage is about.

Milwaukee needs catalytic public infrastructure investment

UWM professor Marc Levine's Crossroad's article challenges the strategic timidity of Milwaukee's political and business elites. He writes:

The dismal failure of Milwaukee’s civic leaders to bring the region’s public transit infrastructure up to 21st-century standards is more than just another run-of-the-mill breakdown in leadership.

It is a public policy debacle that threatens the very economic viability of this city and region — and it comes at a time when we already are struggling with stagnant growth, spreading poverty and shockingly high rates of joblessness in the inner city.

Skyrocketing gas prices and awareness of climate change are reshaping the way Americans live, work and play. Mass transit ridership is surging in cities with rail transit systems, as commuters seek alternatives to $4.50-a-gallon gasoline. Suburban and exurban communities, whose growth was predicated on cars and cheap gas, are facing bursting housing bubbles and an uncertain future.

In this new era, the economic winners will be cities and regions that have invested in state-of-the-art mass transit. Unfortunately, few metropolitan areas are less prepared for these changes than Milwaukee.

This article should be required reading at the next M7 meeting!

It is linked.

Thursday, June 26, 2008

Obama leads McCain in four battleground states

A new Quinnipiac/Wall Street Journal/ poll finds that Obama leads McCain in four key battlegrounds states.

COLORADO: Obama 49 - McCain 44
MICHIGAN: Obama 48 - McCain 42
MINNESOTA: Obama 54 - McCain 37
WISCONSIN: Obama 52 - McCain 39

The Press release reports:

An emerging Democratic coalition of women, minorities and younger voters is propelling Illinois Sen. Barack Obama to leads of five to 17 percentage points over Arizona Sen. John McCain among likely voters in the battleground states of Colorado, Michigan, Minnesota and Wisconsin, according to four simultaneous Quinnipiac University polls, conducted in partnership with The Wall Street Journal and and released today.

Sen. McCain’s lead among white voters in Colorado and Michigan cuts the gap to single digits, but doesn’t offset Sen. Obama’s strength among other groups. The Democrat also leads by eight to 21 percentage points among independent voters in each state. Overall results show:

Colorado: Obama leads McCain 49 – 44 percent, including 51 – 39 percent among independent voters;
Michigan: Obama tops McCain 48 – 42 percent, with 46 – 38 percent among independents;
Minnesota: Obama buries McCain 54 – 37 percent, and 54 – 33 percent with independents;
Wisconsin: Obama leads McCain 52 – 39 percent, and 50 – 37 percent with independents.

Wisconsin women likely voters back Obama 53 – 37 percent while men back the Democrat 51 – 40 percent. White voters back Obama 49 – 42 percent. He leads 61 – 35 percent among voters 18 to 34 years old, 52 – 39 percent among voters 35 to 54 years old and 47 – 41 percent among voters over 55.

Obama’s favorability is 54 – 27 percent, with 48 – 30 percent for McCain.
McCain’s age won’t affect their vote, 77 percent say, while 20 percent are less likely to vote for him because of his age. Obama’s race doesn’t matter, 91 percent say.

The economy is the most important issue in their vote, 47 percent of Wisconsin voters say, while 20 percent cite the war in Iraq and 14 percent list health care.

The entire report is linked.

Wednesday, June 25, 2008

Dowd: Tired of Republican elites posing as populists

MAUREEN DOWD's latest column obliterates Republican faux populism:

The absurd spectacle of rich white conservatives trying to paint Obama as a watercress sandwich with the crust cut off seems ugly and fake.

Obama can be aloof and dismissive at times, and he’s certainly self-regarding, carrying the aura of the Ivy faculty club. But isn’t that better than the aura of the country clubs that tried to keep out blacks? It’s ironic, and maybe inevitable, that the first African-American nominee comes across as a prince of privilege. He is, as Leon Wieseltier of The New Republic wrote, not the seed but the flower of the civil rights movement.

Unlike W., Obama doesn’t have a chip on his shoulder and he doesn’t make a lot of snarky remarks. He tries to stay on a positive keel and see things from the other person’s point of view. He’s not Richie Rich, saved time and again by Daddy’s influence and Daddy’s friends, the one who got waved into Yale and Harvard and cushy business deals, who drank too much and snickered at the intellectuals and gave them snide nicknames.

Obama is the outsider who never really knew his dad and who grew up in modest circumstances, the kid who had to work hard to charm whites and build a life with blacks and step up to the smarty-pants set...

Haven’t we had enough of this hypocritical comedy of people in the elite disowning their social status for political purposes? The Bushes had to move all the way to Texas from Greenwich to make their blue blood appear more red.

The entire column is worth reading.

Monday, June 23, 2008

Airport privatization is no magic bullet

Milwaukee County Executive Scott Walker has mismanaged the Milwaukee County Transit System (MCTS) by raising fares and cutting service!

Last year ridership plunged 9% to a 33 year low even as national transit ridership soared to a 50 year high in response to high gas prices and growing traffic congestion.

Walker doesn’t grasp rudimentary economics. You can attract riders/customers with low prices. Or you attract them by offering high level (quality) services. But no enterprise, public or private, can raise prices and slash service and operate successfully.

Yet, this has been Walker's failed strategy for the Milwaukee County Transit System.

From 2001- 2007, Walker increased adult cash fares by 30% from $1.35 to $1.75 and weekly pass fares by 52% from $10.50 to $16. He eliminated seventeen bus routes; reduced service on sixteen routes; ended year round downtown trolley service; and cut night time service.

This year he raised the adult fare again-to $2.00, one of the highest in the nation. And he cut four additional routes! Walker proposed cutting many more routes, but the County Board restored them.

Independent studies have warned that additional cuts of 35%, which would wipe out all Freeway Flyers and most night, weekend and suburban service, will be needed by 2010 without new state or local funding.

Walker's "starve the beast" strategy, designed to undermine the system by denying it operating revenue, has worked.

Now the County Executive wants us to trust him when he claims that he can save the MCTS by privatizing Mitchell Field. According to Walker, money really does grow on trees. We've just been too dumb to pick the low hanging fruit.

Before we buy Walker's promises of easy money, we ought to examine the experience of privatized airport operations. Despite the Milwaukee Journal Sentinel's recent editorial suggesting there is no experience to learn from, a google search reveals otherwise.

In 1997, Newnan airport in Coweta County, Georgia was privatized. Privatization advocates, like Walker today, promised it would attract to new business to the rapidly-developing county and generate between $25 and $50 million in new revenue within five years. Not quite Walker's optimistic $15 million a year, but pretty hefty numbers for a much smaller airport

So what happened?

Airport Technologies won the bid to manage the airport. But the money never materialized and the County terminated the contract.

Coweta County Administrator Theron Gay summarized the experience: "We felt like we could do the same things, but in a more cost-effective way. We decided it would work better to have the financials handled through the county, rather than pay a contractor to do it."

John Hickman, who initially supported the privatization effort, explained why privatization failed:"Privatization would just take away from the people what the people have funded with their taxpayer money. It just adds another hand in the till... Once "...the county took it back over and things improved tremendously."

Canada's airport privatization experiment also failed.

Don Young, the former transport minister and architect of Canadian airport and air navigation services privatization, told the Financial Times in 2004 in his first public statement on the government policy in six years : "It's pitiful what's gone on. I acknowledge that from my perspective that was a mistake."

Travellers are "being held up for ransom" by airports that have jacked up fees to pay for extravagant and unnecessary expansion projects.

"All too often the public has been convinced that through this magic bullet of development at an airport there's going to be huge economic benefit accrue to the community, and frankly what's happened is the traveller has been gouged by the way it is being handled...The problem was I believed the crap I was hearing from the private sector and chambers of commerce."

Latin America had similar problems. The Director of the International Air Transportation Association, Giovanni Bisignani, argues that the privatization of airports in Latin America has been a "failure," generating big profits for the terminal operators without spurring needed investment in infrastructure. "In many places (in Latin America), the fact of running an airport ... constitutes a license to print money," he said, contending that the way operators' concessions were set up has forced carriers "to pay at least $2.5 billion to the airports and service providers."

Privatization is not the magic bullet that Walker and his investment firm advisers allege.

Supervisor Marina Dimitrijevic points out in her op ed piece that Milwaukee County drank the privatization Kool Aid when it agreed to privatize the Museum. The promises of increased revenue were never realized and the County had to bail the Museum out. Privatizing child welfare has yielded equally unsatisfactory results and increased costs. There is no evidence to suggest that leasing the airport to a private firm for speculative promises will yield any better results.

Milwaukee's County Executive should remember that "There is no such thing as a free lunch."

Our community needs mass transit now more than ever. Rather than chasing the fools gold of privatization, we ought to figure out the most equitable way to pay for it.

Study: Most children opposed to increased spending on healthcare

The Onion reports that a new survey found most American children support President Bush's vetoes of increased spending on children's health care.

Study: Most Children Strongly Opposed To Children�s Healthcare

Sunday, June 22, 2008

Offshore drilling: "a massive, fraudulent, pathetic excuse for an energy policy"

Soaring crude oil and energy prices are crippling the economy, driving up food, transportation and production costs, and eroding our standard of living.

Thomas Friedman writes that President Bush's proposal to address soaring gasoline and energy prices through offshore drilling, which has been adopted hook, line, and sinker by Republican Presidential nominee John McCain, is "...a massive, fraudulent, pathetic excuse for an energy policy...."

His Sunday column begins:

Two years ago, President Bush declared that America was “addicted to oil,” and, by gosh, he was going to do something about it. Well, now he has. Now we have the new Bush energy plan: “Get more addicted to oil.”

Actually, it’s more sophisticated than that: Get Saudi Arabia, our chief oil pusher, to up our dosage for a little while and bring down the oil price just enough so the renewable energy alternatives can’t totally take off. Then try to strong arm Congress into lifting the ban on drilling offshore and in the Arctic National Wildlife Refuge.

It’s as if our addict-in-chief is saying to us: “C’mon guys, you know you want a little more of the good stuff. One more hit, baby. Just one more toke on the ole oil pipe. I promise, next year, we’ll all go straight. I’ll even put a wind turbine on my presidential library. But for now, give me one more pop from that drill, please, baby. Just one more transfusion of that sweet offshore crude.”

It is hard for me to find the words to express what a massive, fraudulent, pathetic excuse for an energy policy this is. But it gets better.

Friedman's entire column is linked.

Friday, June 20, 2008

The Fugees: soccer, hope and redemption in Georgia

The Fugees, think refugees without the re, are a soccer team and so much more.

Sports Illustrated's article reports on this remarkable team that reveals the redemptive power of sports.

McCain seeks votes, not lower gas prices

Paul Krugman suggests in his column today that Senator McCain's conversion to offshore drilling has more to do with politics than lowering gas prices.

As I wrote yesterday, drilling on the outer shelf won't produce enough oil to have a significant impact on the price of crude oil. But it may very well increase McCain's appeal to the Republican base.

Krugman writes:

As many reports have noted, the McCain/Bush policy on offshore drilling doesn’t make sense as a response to $4-a-gallon gas: the White House’s own Energy Information Administration says that exploiting the outer shelf wouldn’t yield noticeable amounts of oil until the 2020s, and even at peak production its impact on oil prices would be “insignificant.”

But what I haven’t seen emphasized is the broader picture: Mr. McCain has now aligned himself with an administration that, even aside from its blame-the-environmental-movement tendencies, has established an extensive track record as the gang that couldn’t think straight about energy policy...

So why would Mr. McCain associate himself with these characters? The answer, presumably, is that it’s a cynical political calculation.

I’m reasonably sure that Mr. McCain’s advisers realize that offshore drilling would do nothing for current gas prices. But they may believe that the public can be conned. A Rasmussen poll taken before Mr. McCain’s announcement suggests that the public favors expanded offshore drilling, and believes (wrongly) that this would lower gasoline prices.

And Mr. McCain may also hope to shore up his still fragile relations with the Republican base... there are many people on the right who believe that all our energy problems have been caused by sanctimonious tree-huggers. Mr. McCain has just thrown that constituency some red meat.

The entire article is linked.

Thursday, June 19, 2008

Barack Obama's 1st general election ad: The Country I Love

"The Obama campaign today announced the release of its first television advertisement for the general election," an Obama camp press release states. "The sixty second ad, entitled "Country I Love," will begin airing in eighteen states across the country tomorrow to highlight how our shared values have shaped Senator Obama's life."

In the spot, Senator Obama speaks about the core values this nation was founded on and how they have guided him to work hard for his education, to bypass jobs on Wall Street to work as a community organizer, and to lead the fight for America's families and veterans as an Illinois and United States Senator.

The ad will air in Alaska, Colorado, Florida, Georgia, Iowa, Indiana, Michigan, Missouri, Montana, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Pennsylvania, Wisconsin, and Virginia.

Watch the ad:

Offshore drilling will not reduce gasoline prices!

John McCain continues his embrace of pandering as an electoral strategy.

Only a few months ago, he suggested suspending the federal gas tax as a solution to rising crude oil and gas prices. The electorate rejected this proposal which at worst would have driven up prices by increasing demand and at best saved consumers only a few dollars over the 3 month moratorium.

Now Senator McCain has embraced drilling offshore for oil, suggesting that opening up the nation's coastal waters for oil exploration can produce sufficient quantities of oil to reduce prices.

McCain is simply pandering again.

We are 3% of the world's population and consume 25% of its oil. There is not enough oil off shore or in the Arctic National Wildlife Refuge (ANWR) to drill our way out of this problem.

Take President Bush's push to drill in the ANWR which has an an estimated 10 billion barrels of oil. According to the Energy Department ANWR would only reduce the price of crude oil per barrel by about 75 cents, 17 years from now.

The price of crude oil per barrel has jumped 100 dollars in the Bush Era and prices have doubled. Shaving the crude oil price 75 cents by 2025 amounts to no savings at the pump.
That's what we would get for ANWR's 10 billion barrels.

What about the moratorium areas off continental America's coastlines some of which McCain now supports eliminating?

McCain estimates that there 21 billion barrels in the moratorium areas. The Energy Department put it at 18 billion a few years ago. Popular Mechanics reports an estimate of 19 billion.
Whoever is right, it is only about double of what's estimated in ANWR.

So, if lifting the moratorium on most offshore drilling has double the impact on price as lifting the ANWR ban would, that's only $1.50 off the price of crude per barrel. Combined with ANWR, it's $2.25 by 2025.

Lifting the moratorium on drilling offshore would have no immediate or long term impact on the price at the pump! There is simply not enough oil.

Sunday, June 8, 2008

Miller Park: It's the food, not the economics!

A few weeks ago I authored an article that questioned the economic value of publicly subsidized sports stadiums and professional teams. It generated a surprising amount of controversy since there is near unanimity among economists that professional sports stadiums deliver very little bang for the public buck.

An article in the Sunday New York Times lavishes praise on Miller Park. Not for its economic impact, but for its food.

The article, Buy Me Some Sushi and Baby Back Ribs, by Peter Meehan, who writes the $25 and Under restaurant reviews for The Times Dining section, doesn't rate Miller Park's food numero uno.

The gold medal goes to San Francisco AT & T Park which may no longer have a Bonds, but has "an overgenerous helping of fresh Dungeness crab meat, dressed in a gossamer coating of mayonnaise and piled between two warm slices of sourdough bread that had been scrubbed with garlic and griddled crisp that is to die for." That sounds like its almost worth the trip!

And Seattle may have the worst record in baseball, but its cedar planked salmon, what else, and its "Ichiroll, a spicy tuna roll named after the Mariners’ celebrity center fielder, Ichiro Suzuki" won the silver.

But Milwaukee's own Miller Park with its dome, brats, cheese curds and micro brews took the bronze, despite Meehan's obligatory swipe at our alleged lack of sophistication:

" Of course, baseball food isn’t all about cod, crab and sushi. Some parks excel at using more modest ingredients. Case in point: Miller Park in Milwaukee, a seven-year-old stadium that felt like a cathedral to baseball on the day I was there, when the fan-shaped retractable roof kept me and 41,196 other fans dry.

Like the city it is in, Miller doesn’t bother with cosmopolitan cuisine like edamame, but prides itself on heartier fare like grilled bratwursts and beer. The brats, from Klement’s, have that Germanic sweet spice accent just right, the casings are snappy and each of the three I ate had a good char on it. Another popular dish is cheese curds, which are crisp, not greasy, and have that unmistakable squeak.

And although the stadium’s name is owned by the Miller Brewing Company, the team had the foresight not to muscle out smaller Wisconsin brewers like Lakefront, New Glarus, Stevens Point and Sprecher. The team, after all, is called the Brewers."

I concluded my critique of the professional sports economic development paradigm writing: "So there may be good reasons for rooting for the Brewers. But economic development isn't one of them."

Maybe Major League Baseball needs to commission a new study providing a gastronomic rational for Miller Park. I'm sure there's an economist or consultant who would be willing to make the case for little more than a brat or two!

Millionaire visa turns citizenship into a commodity!

For the second time in six months, Milwaukee Journal Sentinel economics writer John Schmid has written about local efforts to establish a private equity firm financed by Chinese millionaires.

This isn't the first time the MJS has given significant coverage to unproven economic development schemes. Remember the three part, front page series promoting Johnson Controls' Metro Markets? Or the ink devoted to the Initiative for a Competitive Milwaukee?

The FirstPathway Citizenship Fund promises legal residency to Chinese nationals who invest a million dollars or more.

The program, administered through the Department of Homeland Security, is certainly an improvement over the 1882 Chinese Exclusion Act, the first law in US history that restricted immigration.

But it's a perversion of the Statue of Liberty's inspirational call to: " Give me your tired, your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore. Send these, the homeless, tempest-tossed to me, I lift my lamp beside the golden door!"

These words by Emma Lazarus inspired generations of immigrants from Germany, Ireland, Poland, Russia, Italy, Mexico and many other countries to come to Milwaukee, often with little more than the clothes on their back, a willingness to work and dreams for a better life.

But not any more. Milwaukee's new economy motto will read: "Give us your rich, your well- heeled elites, yearning to breathe free. No more of China's polluted air and shores, Send these millionaires to me, I lift my lead painted lamp to their hordes of gold!"

While the feds are arresting and deporting thousands of wealth-creating, tax-paying immigrant workers and entrepreneurs, often breaking up their families in the process, they are eager to sell citizenship rights to millionaires to finance a private equity firm that has not created a single job. We might as well rename the EB-5 visa the millionaire's visa!

PE firms are notorious for leveraging large amounts of debt against the companies they purchase. Then, to increase profit margins and cover their debts, they eliminate jobs, decrease service, and/or slash employees' wages and benefits. They also use tax loopholes, such as carried interest and the tax deductibility of interest, to avoid tax liabilities. They cash out by selling the company.

Is this a strategy that will revitalize Milwaukee's labor market?

Citizenship is not a commodity. Turning it into one makes a mockery of the this nation's history and ideals.

Wednesday, June 4, 2008

The immigration panic of 2008

While most of the country is focused on rising gas and food prices, lay-offs, foreclosures, declining home values, crime, and the presidential primaries, the war on immigrant workers continues.

In Iowa, with the nation's lowest unemployment rate and labor shortages that are restricting economic growth, hundreds of immigrant workers were recently arrested, criminally charged and deported.

A New York Times editorial notes;

Someday, the country will recognize the true cost of its war on illegal immigration. We don’t mean dollars, though those are being squandered by the billions. The true cost is to the national identity: the sense of who we are and what we value. It will hit us once the enforcement fever breaks, when we look at what has been done and no longer recognize the country that did it.

A nation of immigrants is holding another nation of immigrants in bondage, exploiting its labor while ignoring its suffering, condemning its lawlessness while sealing off a path to living lawfully. The evidence is all around that something pragmatic and welcoming at the American core has been eclipsed, or is slipping away.

An escalating campaign of raids in homes and workplaces has spread indiscriminate terror among millions of people who pose no threat. After the largest raid ever last month — at a meatpacking plant in Iowa — hundreds were swiftly force-fed through the legal system and sent to prison. Civil-rights lawyers complained, futilely, that workers had been steamrolled into giving up their rights, treated more as a presumptive criminal gang than as potentially exploited workers who deserved a fair hearing. The company that harnessed their desperation, like so many others, has faced no charges...

The restrictionist message is brutally simple — that illegal immigrants deserve no rights, mercy or hope. It refuses to recognize that illegality is not an identity; it is a status that can be mended by making reparations and resuming a lawful life. Unless the nation contains its enforcement compulsion, illegal immigrants will remain forever Them and never Us, subject to whatever abusive regimes the powers of the moment may devise.

Every time this country has singled out a group of newly arrived immigrants for unjust punishment, the shame has echoed through history. Think of the Chinese and Irish, Catholics and Americans of Japanese ancestry. Children someday will study the Great Immigration Panic of the early 2000s, which harmed countless lives, wasted billions of dollars and mocked the nation’s most deeply held values.

Monday, June 2, 2008

Ryan health plan raises taxes and protects insurance and drug companies

On May 21, Congressman Paul Ryan released his “Roadmap for America’s Future”, which includes a health insurance reform proposal that is nearly identical to the one proposed by Senator John McCain.

The proposal has been widely praised by Republican commentators and has elevated Ryan's status among the party's elite. Local talk show radio hosts have used the proposal to promote Ryan's long shot vice presidential candidacy.

Ryan's health care proposal is neither new or courageous. If adopted, it would move the country further away from quality, affordable health care for everyone.

It starts by adopting McCain’s proposal to count the value of any employer-provided health insurance as taxable income. The average comprehensive family health insurance policies cost at least $10,000 a year. So families would have to pay taxes on this amount added to their regular wages.

What will they get in return? A tax credit or payment of $5000 for a family so they can buy their own insurance. What a deal! You pay more taxes and get a credit that buys at best half the cost of a good family health insurance policy. This is health care reform?

Ryan adds other measures as well: the virtual elimination of state standards for health insurance policies, promotion of Health Savings Accounts (which means high yearly deductibles with pre-tax income—if you have enough), and totally inadequate access for those with pre-existing conditions to get the health insurance they need in the private “market”.

Remarkably, Ryan has little to say about controlling spiraling health care costs which are at the root of the nation's health care crisis.

Ryan only real proposal aimed at controlling health care inflation is to provide the public with more information about doctor and hospital pricing. Economists call this increased transparency. And who could argue with that?

But this is not a new idea and it won't reduce rising health care costs because it does not address the primary cause-the market dominance of the for profit insurance and pharmaceutical companies and the profit maximizing behavior of non profit health care providers that raise costs and distort resource allocation.

Economist Robert Kuttner who studies the inefficient U.S. health care system has observed:

"The extreme failure of the United States to contain medical costs results primarily from our unique, pervasive commercialization... Profits, billing, marketing, and the gratuitous costs of private bureaucracies siphon off $400 billion to $500 billion of the $2.1 trillion spent, but the more serious and less appreciated syndrome is the set of perverse incentives produced by commercial dominance of the system."

Ryan's proposal leaves this entirely dysfunctional and inefficient structure that is dominated by insurance, pharmaceutical and large oligopolistic health care providers intact.

The Ryan-McCain approach to health care “reform” is topsy-turvy. It does not improve the current unfair, inefficient, and unsustainable health care system. Instead, it proposes to subject even more people to the tyranny and capriciousness of insurance industry dominated health care. It leaves families dependent on the mercy of insurance companies and their insatiable appetite for profit. It presumes that quality of health care will improve, but leaves that to the magical workings of the “market”. It shifts even more costs to health care consumers without a real mechanism for reducing health care costs.

"I suppose this is a good proposal if you want John McCain to choose you as his Vice Presidential running mate,” said David Newby, President of the Wisconsin State AFL-CIO. “But if you want health care reform which guarantees that everyone will have affordable access to the quality health care they need, you’d better look elsewhere. We don’t need Ryan/McCain tinkering with our broken health care system: we need broad reform which guarantees that everyone in America gets the health care they need, regardless of income or health status.”

Sunday, June 1, 2008

Nothing new about Ryan's voodoo economics

First District Congressman Paul Ryan is generating a lot of publicity for proposing "A Road Map for America's Future."

It's not surprising that Republican insiders have enthusiastically praised Ryan's proposal. Their electoral prospects are bleak because their presumptive nominee, John McCain, is running as the heir to President Bush's failed and unpopular presidency. But the mainstream media has also parroted this unwarranted praise.

Ryan's Milwaukee Journal Sentinel op ed on his proposal was entitled "A blueprint to address our financial crisis now." But if you are looking for fresh ideas on how to respond to the sub prime crisis, the explosion of home foreclosures, the bursting of the real estate bubble and the financial meltdown that followed, you will be disappointed. There is nary a word here.

Instead, Ryan resurrects the traditional Republican bogey man,"the explosion of entitlement spending" as the "greatest threat to our nation's long term economic health."

He takes aim at Social Security and Medicare, the two most successful social welfare programs in U.S. history, using chicken little actuarial assumptions that manufacture a crisis designed to undermine popular support. (This will be the focus of separate article/blog.)

These are hardly new conservative targets. Social Security has been a focus of Republican opposition since the 1930s when conservatives opposed the creation of our national retirement and disability insurance program. Republicans also opposed establishing Medicare in 1965 arguing that it would lead down the slippery slope of national health care

The facts, of course, tell a much different story about the causes of the nation's deficits.

President Bush's high income tax cuts enacted in 2001 and 2003 with Ryan's support are responsible for fully 47% of this decades (2001-2011) record deficits according to Congressional Budget Office data.

The $10 billion a month war in Iraq, another failed Bush policy supported by Mr. Ryan, the war in Afghanistan and homeland security account for an additional 37%.

Entitlements, only 9%.

Ryan's solution-more upper income tax cuts, including the elimination of capital gains, dividend, estate taxes and corporate income taxes- are neither bold or new.

They are a continuation of Bush's high income tax cuts.

Capital gains and dividend taxes which Ryan proposes we eliminate have already been slashed to much lower rates (15%) than earned income (35%). As a consequence, hedge fund managers who make billions of dollars managing other wealthy people's money, pay lower tax rates that auto workers, nurses and secretaries.

Warren Buffet, the third-richest man in the world, acknowledged this when he criticised the US tax system for allowing him to pay a lower rate than his secretary or cleaning lady. Mr. Buffett reports that he was taxed at 17.7 per cent on the $46 million he made in 2006, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent.

The inheritance tax , another Ryan target, doesn't even kick in unless an estate has more than $2 million in assets. Only one percent of American estates, mainly the Rockefeller, DuPont, Vanderbilt and Kennedy's heirs, pay this tax. Ninety-nine percent of estates pay nothing.

There is no evidence that reducing these taxes leads to increased productive investment. Mr Buffett argues the opposite-that the Bush high income tax cuts have accentuated a disparity of wealth that hurts the economy by stifling opportunity and motivation.

Ryan also proposes reducing the number of income tax rates from five to two, and reducing marginal rates. He resurrects the long discredited argument that the revenue the federal government loses, estimated at $5 to $7 trillion, will be more than replaced as the economy grows and generates additional taxes.

George Herbert Walker Bush called this "voodoo economics" when it was proposed by President Reagan in 1980. The huge Reagan deficits which nearly tripled the national debt proved him right. Even N. Gregory Mankiw of Harvard, a proponent of tax cuts who chaired the Council of Economic Advisers in the Bush White House. projects that every $1 trillion in tax cuts adds $830 billion to the national debt.

The Congressional Budget Office in a study published under conservative, economist Douglas Holtz-Eakin's leadership, estimated that tax cuts would at best stimulate enough economic growth to replace only 22 percent of lost revenue in the first five years and 32 percent in the second five. On pessimistic assumptions, the growth effects of tax cuts did nothing to offset revenue loss.

Ryan also calls for eliminating the corporate income tax and implies that it is responsible for the nation's sluggish economic growth. The facts again suggest a different story.

In the 1950 and '60 when the United States had its highest post-World War II growth rates, the nation had much higher marginal income and corporate tax rates.

The federal government invested these revenues in its people through the GI Bill, the National Defense Education Act (1958), and the expansion of higher education; in its infrastructure. including the largest public works program in the nation's history, the National Interstate and Defense Highway Act; and into research and science, the National Aeronautics and Space Administration and the Defense Advanced Research Projects Agency. We can thank the former for satellites, Tang and TV dinners and the later for the Internet.

These strategic investments created the human capital, the ideas for new consumer products and capital goods and the infrastructure that stimulated increased productivity, economic growth, increased wages, and the growth of the American middle class.

There is nothing bold, courageous or new in a proposal that amounts to cutting taxes on the richest Americans. The United States has pursued this course for almost thirty years. The result has been declining or stagnate wages for 80% of the country's workers, anemic growth, rising inequality, deteriorating public schools, financially strapped public universities and colleges, 47 million without health care, record deficits and a huge increase in the national debt.

Ryan's proposal to cut the taxes of the wealthiest American is neither bold or courageous. It is simply another version of voodoo economics.