CT Progressive

A thought-provoking article from James Surowiecki at the New Yorker:

Think about the $787-billion federal stimulus package. It’s built on the idea that during serious economic downturns the government can use spending increases and tax cuts to counteract the effects of consumers who are cutting back on spending and businesses that are cutting back on investment. So fiscal policy at the national level is countercyclical: as the economy shrinks, government expands. At the state level, though, the opposite is happening. Nearly every state government is required to balance its budget. When times are bad, jobs vanish, sales plummet, investment declines, and tax revenues fall precipitously—in New York, for instance, state revenues in April and May were down thirty-six per cent from a year earlier. So states have to raise taxes or cut spending, or both, and that’s precisely what they’re doing: states from New Jersey to Oregon have raised taxes in the past year, while significant budget cuts have become routine and are likely to get only deeper in the year ahead. The states’ fiscal policy, then, is procyclical: it’s amplifying the effects of the downturn, instead of mitigating them. Even as the federal government is pouring money into the economy, state governments are effectively taking it out. It’s a push-me, pull-you approach to fighting the recession.

Now, state cutbacks have not been as severe as they might have been, thanks to the stimulus plan, which includes roughly $140 billion in aid to local governments. That aid, according to a recent study by the Center on Budget and Policy Priorities, has covered thirty to forty per cent of the states’ budget shortfalls. Money for the states translates directly into jobs not lost and services not cut—which is why you can make a good case that more of the stimulus should have gone to state aid. Yet there’s no sign that those budget gaps are getting smaller, and, as the federal money runs out, state tax increases and spending cutbacks are only going to become more common. In the midst of this downturn, some of the biggest players in the economy—state and local governments together account for about thirteen per cent of G.D.P.—will be doing precisely the wrong thing.

This is the season to lament the lack of foresightedness of our elected officials – at the peak of the real-estate bubble, it would have been a trivial matter to build up a large enough surplus to weather the 2009-2010 budget cycle. And cooling down market speculation and the growth of exotic financial products (which padded the capital gains line on so many Connecticut tax returns) might have actually had a beneficial effect on our present economic situation.

Now, of course, tetchy Fairfield County Democrats are protesting tax increases – not because they’re wrong for this moment (which they are), but because they have the prospect of “growing the size of government” after the crisis has passed. Which just goes to show that the people who didn’t show foresight before a crisis aren’t going to produce a thoughtful structural reform in the middle of one.

An aside: I recognize the economic argument that the middle of a recession is the wrong time for anything that slows economic activity, and both cuts to services and increases in taxes qualify. But our electeds didn’t plan ahead, so the genie’s out of the box – and since we continue to experience a widening inequality gap in the state, increases on stored wealth and millionaire-level incomes is less harmful than the alternative.

So what is there apart from tax increases, service cuts, or “help us, Federal government”? The old plan contained about 18% borrowing and rainy day funds, which are the two most promising alternatives. Another idea, the introduction of a ten-year budget cycle would have forced long-term thinking into the process, but the bill didn’t go anywhere with only two speakers (neither of them elected) testifying in favor at the public hearing in March. But one piece of the testimony is relevant to this discussion:

SEIU supports this resolution, because we believe that increasing the budgetary sets could have a profound effect on the ability of the State to deal with an economic downturn such as the one we’re currently in. The current model leaves little room to maximize the effect of the federal stimulus package, as the money that is coming in is used to fill existing budget holes as opposed to increase spending, which is the intent of the stimulus package. (Inaudible) theory would suggest that to get the economic recovery kick-started, the federal money would have to have a multiplier effect, and once again, under our current budget and system, it just isn’t allowable.

If you look at — Paul Kruegmann (inaudible) had written on December 28 that we have 50 Herbert Hoovers in looking at the governors. And he said, “But even as Washington tries to rescue the economy, the nation will be reeling from actions of 50 Herbert Hoovers, state governors who are slashing spending in a time of recession, often at the expense of both their most vulnerable constituents and the nation’s economic future.” So we believe that this proposal has the ability to fundamentally change how government is run in this state and that it should at least be moved out of this committee and continue to be looked at.

As a question of principle, I wonder what our Governor and legislative leaders would say about enacting this idea through the back-door as part of the budget negotiations by simply bonding the deficit amount, or even scaling back taxes for the current and upcoming fiscal years by bonding a portion of the budget that would be covered by current revenues. There’d wind up being a penalty associated with the move (interest isn’t free), which is why bonding operating expenses is generally frowned upon – but I wonder if that might not be the least-worst option at this late stage. Bond the deficit amount plus 10%, introduce brackets into the income tax (not as the current rate plus 1% for high incomes, but as the current rate minus 1% for low to moderate incomes), and establish the expectation that the excess of the good years will be salted away to help us make it through the lean years going forwards.

Update: Also of note, whoever our Democratic supermajority has hired to staff the Government Administration and Elections Committee is apparently unfamiliar with the name “Krugman.” There’s a bad sign for you.

From a pre-Parker Brothers edition of Monopoly comes this brilliant description:

“Statement of General Theory - Monopoly is designed to show the evil resulting from the institution of private property. At the start of the game every player is provided with the same amount of capital and presumably has exactly the same chance of success as every other player. The game ends with one person in possession of all the money. What accounts for the failure of the rest, and what one factor can be singled out to explain the obviously ill-adjusted distributions of the community’s wealth which this situation represents? Those who win will answer ’skill.’ Those who lose will answer ‘luck.’ But maybe there will be some, and these, while admitting the elements of skill and luck, will answer with Scott Nearing ‘private property’.”

“Those who win will answer ’skill.’ Those who lose will answer ‘luck.’” Awesome.

Contrast this with the current rules in the game:

“The idea of the games to buy and rent or sell property so profitably that one becomes the wealthiest player and eventually monopolist.”

Via WNLK:

Fourth District Democratic Congressman Jim Himes feels that the people who wrote the current health care reform bill have not done enough work to reduce, as he puts it, “the ridiculous cost of health care”.

August remains the target for the White House of having Congress pass health care legislation. Congressman Himes wants a leaner version of the bill to vote on before the Congressional recess.

Assuming that it’s reasonable to re-write the bill to be “leaner” in the next twelve days, I wonder what parts of the policy Himes would like to see carved out? I asked five days ago and haven’t gotten an answer, which isn’t too unreasonable, but I do hope they can decide soon. The clock’s ticking.

Of course, the simplest part of the healthcare system to eliminate to save costs would be insurance company profits. My understanding is that, to date, those haven’t been on the table. But maybe I’m underestimating the New Dems caucus!

Over at MLN, tparty has been ably documenting the public statements of Connecticut’s Congressional delegation regarding the public option in health reform.

On Friday, one of my perennially-unhappy fellow DTC members mentioned a letter from Jim Himes opposing tax increases to pay for health reform, and after some gossip investigation, the letter turned up and is available here. It’s from 22 members of the “New Democrats” caucus in the House to Speaker Pelosi, and while it doesn’t actually oppose all tax increases to pay for health reform, it does oppose the consensus funding stream in House Ways and Means (a surtax on the top 1.2 percent of income earners), characterizing it as being anti-small business. It also calls for the House leadership to “reduce the overall need for revenue generation, and to propose a more equitable way of distributing the burden of any remaining needs.”

This is in stark contrast to the other letter issued by 22 different members of the New Democrats caucus a week prior, one sent to both Pelosi and Steny Hoyer, describing “a robust public health insurance option” as “essential if we are going to provide more choice for individuals and businesses, and if we are serious about lowering costs for both.” That letter was signed by Chris Murphy and Joe Courtney.

As someone who has made fun of the “sternly worded letter” as a tool for effecting change, my first inclination is to blow both of these letters off as just a bit of posturing. But as efforts to get our members to commit to opposing reform without a public option haven’t been successful, I think we should admit these letters into the debate as part of a “preponderance of evidence” about their negotiating positions, and what they seek to accomplish in the healthcare debate.

I’d love to do a primer on J.L. Austin and his thinking regarding speech-acts, but I’ll skip the drama and just import a description from Wikipedia:

Austin is widely associated with the concept of the speech act and the idea that speech is itself a form of action. Consequently, in his understanding language is not just a passive practice of describing a given reality, but a particular practice to invent and affect those realities.[...]

How to Do Things With Words is perhaps Austin’s most influential work. In it he attacks what was at his time a predominant account in philosophy, namely, the view that the chief business of sentences is to state facts, and thus to be true or false based on the truth or falsity of those facts. In contrast to this common view, he argues, truth-evaluable sentences form only a small part of the range of utterances. After introducing several kinds of sentences which he asserts are indeed not truth-evaluable, he turns in particular to one of these kinds of sentences, which he deems performative utterances. These he characterises by two features:

• First, these sentences are not true or false.
• Second, to utter one of these sentences is not just to “say” something, but rather to perform a certain kind of action.

These letters do things in Austin’s sense of being performative: there’s no point to quarreling with way that Himes’ letter characterizes a 1% surtax on $250,000 earners as being harmful to small business, just like there’s no point to challenging Joe Lieberman’s assertion that the Senate needs to slow down health reform in order to better understand the consequences of the bill. You could quibble over details, and I’m tempted to do so here. But their are assertions are not about communicating the most accurate set of facts, but are meant to change the debate around the policy, make their concerns appear more important than other peoples’ concerns, and restrict the actions of the institutions to which they belong.

The Himes-New Dems letter, in particular, links a group of potentially-vulnerable Freshman Members of Congress to a particular economic philosophy. If health reform comes to the floor with the surtax in place, it becomes very difficult for them to support, as they’ve put themselves on the record saying both that the surtax hurts small business and that small business interests supersede other interests. The letter-signers go so far as to suggest that failing to serve the interests (as they define them) of small businesses (as they define them) jeopardizes the economic recovery!

To have these words quoted back to a candidate in a campaign or debate setting about a bill that they actually supported would severely wound their prospects for re-election. So while the signers don’t say that they’ll oppose a bill with a surtax as the funding mechanism, this letter only just stops short of such a position, and forces the leadership into a difficult position very late in the process.

By contrast, the advocates for a public option don’t make any statement “tantamount to opposition” to a bill without a public option: they don’t claim that anyone will die or suffer if their preferred option doesn’t go through, nor do they claim that the economic well-being of the nation will be endangered without their policies. Their letter doesn’t generate any costs for them should they vote for a bill without a public option.

Insofar as the “no surtax” letter is a conservative response to the progressive “public option” letter,* it goes much further in its attempt to compel the caucus to move in their direction.

Caucus politics. In a way, it’s a small thing: the New Dems and the Blue Dogs are the right edge of the Democratic coalition, and a few lawmakers inside those tents are pulling them in different directions. Bloggers care about that stuff, and a lot of us are skeptical of those caucuses, so Murphy and Courtney deserve thanks for the effort… and recognition that one can effect progressive change from the inside of a conservative organization. Keeping track of these things are so detail- and process-oriented that there aren’t many mass-media outlets that would explore these issues in an article or series.

At the same time, it’s a huge thing: change is made possible or impossible by these machinations. And people are pretty sophisticated about these things — primary voters in 2006 were able to assemble the “preponderance of evidence” about Joe Lieberman, so even while there were very few specific bad acts you could pin on him, you could tell that he was making the country a more conservative place.

The longer I’ve been involved in politics, the less interested I’ve been in a candidate’s or elected’s positions – where they stand – and the more interested I’ve become in observing what they’re pushing towards.

^{* Word is that this is actually Steny Hoyer’s response to the “public option” letter, hence his not being one of its recipients. Can we call its signers “Steny’s Angels?”}

From a Newsweek profile, Joe Stiglitz reminds us of one of the most important critiques of the free market: that it is amoral. In his formulation, if there’s money to be made by one party in a transaction having better or more accurate information than the other, then it will happen.

Stiglitz is perhaps best known for his unrelenting assault on an idea that has dominated the global landscape since Ronald Reagan: that markets work well on their own and governments should stay out of the way. Since the days of Adam Smith, classical economic theory has held that free markets are always efficient, with rare exceptions. Stiglitz is the leader of a school of economics that, for the past 30 years, has developed complex mathematical models to disprove that idea. The subprime-mortgage disaster was almost tailor-made evidence that financial markets often fail without rigorous government supervision, Stiglitz and his allies say. The work that won Stiglitz the Nobel in 2001 showed how “imperfect” information that is unequally shared by participants in a transaction can make markets go haywire, giving unfair advantage to one party. The subprime scandal was all about people who knew a lot—like mortgage lenders and Wall Street derivatives traders—exploiting people who had less information, like global investors who bought up subprime- mortgage-backed securities. As Stiglitz puts it: “Globalization opened up opportunities to find new people to exploit their ignorance. And we found them.”

The problem of unequal information between businesses and consumers is even more pronounced in the health insurance market, not just when it comes to the definition of necessary versus experimental treatments and the costs that trigger recision investigations, but also with reimbursement rates, where the government is generally denied basic information about what exactly a Medicaid dollar is purchasing. Which leads to craziness like this:

We don’t have a rational market where both purchaser and seller have good information to make decisions. We have an irrational market where key information is concealed to protect unreasonable profits and unsustainable business models. Which is a big part of the benefit of a public option. Even if it doesn’t change the kind of healthcare that most people are getting, it will put the market on a sustainable path where cost bears some relationship to services delivered.

The debate over Connecticut’s film tax credits has been fascinating – and there’s a new post up at the WFP blog that tries to sort it all out by characterizing both sides of the argument.

On the one side, it’s a massive giveaway from the State of Connecticut to companies that don’t necessarily create jobs or spend money in our borders. That sucks. But, the massive giveaway creates good jobs in other places, and maybe someday those jobs will come here.

I’m trying to be briefer than usual without being rude, but that’s really the heart of it. And what it illustrates is the sorry state of, for lack of a better phrase, tax philosophy in our political system.

If you believe in the theory that the government can do counter-cyclical spending to boost the economy in a recession, then you’d come up with a range of different ideas to help boost the economy in appropriate ways. As Gary LeBeau says in a post linked from the WFP blog, film production has some excellent qualities:

* It is second only to aerospace as the top export of the United States.
* It is a clean industry that is high tech, high value added and highly skilled.
* It brings excitement to wherever it is located and a magnet to keep young people.

The film industry also, due to high levels of unionization, pays workers at all levels a fair wage that will generally re-circulate in the economy. Those bullet points might also apply to financial products, but dropping a billion dollars on the financial services industry won’t stimulate the economy in the way that putting cash in the hands of middle-class workers will.

So if you wanted to promote the film industry in Connecticut, why not give them in-state stuff credits — paying for the cost of their carpentry, for vehicle rental, subsidizing production staff, etc? Or, just offer grants for artists working in the state. Art is nice, and more utilitarian than the also-made-in-Connecticut F-22s. So why not spend money on films by Connecticut residents? And failing all of that, you could just have the state government buy movie tickets and send them to people, because theater employees will then spend their money on rent and groceries, and at the very least we’ll be able to enjoy some movies in the process. And that money would be partly recouped by the state as is circulates around. Spending money to subsidize work that is being done in California might be a legitimate public policy interest, but one that should be handled by the Federal government.

Similarly, there’s an idea that you tax things you want less of, and subsidize things you want more of – think sales taxes on junk food but not on produce – and was recently reflected in the state plastic bag bill which died on the calendar without a vote this year. The bill would charge a nickel for every plastic bag purchased, and spend that money to enhance local recycling facilities. Of course, since it went down, towns are introducing legislation on plastic bags, preferring outright bans to revenue-enhancing fee measures.

Anyway, this dovetails nicely with this tidbit from Ezra Klein’s interview with Bruce Bartlett, a not-insane conservative economist, who offers a theory about why our tax policy is so stupid:

I think the administration made a mistake approaching the funding of health-care reform how it did and I think Republicans made a mistake refusing to seriously debate the issue or its funding. [...]

I think there’s a couple of reasons for that. Both sides are pathologically afraid of advocating any kind of tax that would be paid by the average person. Republicans are opposed in particular to the VAT precisely because it’s such a good tax. They fear it would become a money machine and it would help the government grow. I agreed with that for a long time. But the problem now is that we need a money machine! We have all this spending in the pipeline. It’s not a question of whether we’ll create new programs. It’s whether we’ll fund the ones that are already there.

The biggest shame is that Republicans don’t negotiate in good faith to set up our tax system in a way that is logical and functional top to bottom. Having a VAT to fund healthcare is a decent idea, and consistent with a lot of best practices both here and abroad, but since the GOP has a monomaniacal opposition to taxes at every level, we’ll probably have to do it with an cap of the tax exemption for healthcare or an adjustment to the top rate. And since there’s no rational debate about the best way to do it, nominal health reform allies will wind up being split off because they won’t be able to deliver a pony plan for free.

A good catch from the Laurel:

Lost amidst the juicier stuff is a point raised three times in Shelly Sindland’s complaint against her employer, Fox61; her concern that “the respondent was committing ethical violations related to receiving payment for news stories.”

One of the interesting things in this kind of public fight is that there’s the nominal reason for the lawsuit (the discrimination case), and the reason that the company is going to settle without making a fuss.

From the complaint (provided by the CT Employment Law Blog here):

29. In approximately September 2008, I approached Rockstroh about my concerns that the respondent was committing ethical violations related to receiving payment for news stories. I was told by Rockstroh that “you are not going to win this one.”

37. In approximately February 2009,1 again approached Rockstroh regarding my concerns that the respondent was committing ethical violations related to receiving payment for news stories.

41. On or about April 13, 2009, I once again approached Rockstroh regarding my concerns that the respondent was committing ethical violations related to receiving payment for news stories.

52. In approximately mid-May 2009, I approached Patz regarding my concerns that the respondent was committing ethical violations related to receiving payment for news stories. Patz stated to me that if she looked into the allegations, it would “only make matters worse for [me]” and that she was “worried about my daughter and [me] and that [I] needed my job.”

With all due respect to the Laurel, this is the juicier stuff. “The respondent” is not one of these goofball editors that was giving her a hard time, but rather, “the Tribune Company (hereinafter “Tribune”) d/b/a Fox 61 News.” And, in the middle of the complaint, these points appear way out of context.

Sindland is, of course, the station’s political reporter. I don’t know what story could have been both of such interest that she might have picked a fight with management (which she was “not going to win”) over it, and was continuing from September 2008 to May 2009.

On a totally unrelated note, the only discriminatory action directly related to news coverage mentioned in the complaint?

54. On or about May 23, 2009, I was the only local Connecticut reporter invited to the White House Rose Garden to report on a bill signing regarding credit card reform act legislation sponsored by Senator Christopher Dodd. That reporting was never used in any type of promotional materials. I was never commended on or acknowledged in any way for this invitation or my coverage of the event.

Contemporary problems looking for an intervention:

• America is apparently engaging in something called “Post-Acquittal Detention” for terrorism suspects who have been found to be… not guilty of what they were accused of.

Wittes warns that keeping detainees post-acquittal would undermine confidence in the rule of law. “I think people have this very deep-seated belief, and rightly so, if you’re acquitted then you go free. And you don’t want to undermine people’s trust in that proposition.”

Wittes adds that post-acquittal detentions would be difficult because the government would be, in many cases, detaining someone based on the same evidence that was rejected ruing prosecution.

Keep in mind that this Wittes fellow — Ben Wittes from the Brookings Institution — is one of the people who dreamt up the legal framework for “preventative detention” in the first place, so that this idea of post-acquittal imprisonment has actually reached his conscience and managed to bother it really says something about what an awful idea it is.

• Abusive overdraft fees – re-christened “courtesy loans” by the still-cynical-enough-to-astound consumer banking industry, got some play in a non-lefty media outlet today:

President Obama signed legislation in May limiting certain credit card practices — such as rate increases on existing debt — that have pushed consumers deeper into distress in a sliding economy. The government also wants to create a consumer protection agency to supervise loans. Meanwhile, the Federal Reserve is examining the fairness of certain overdraft practices.

It’s unclear whether those efforts will be enough to rein in overdrafts, now the single-largest driver of consumer fee income for banks. In 2009, banks are expected to reap a record $38.5 billion from overdraft fees, nearly twice the $20.5 billion they stand to collect from credit card penalties such as late and over-limit fees.

Emphasis added. Also, while the point of this blog post was originally going to be to suggest items that might appeal to our Senior Senator for some legislating, the notion has apparently already occurred to him:

Senate Banking Committee Chairman Chris Dodd, D-Conn., said if the Fed doesn’t curb overdraft abuses, he’ll “pursue legislative action.” Rep. Carolyn Maloney, D-N.Y., has sponsored legislation requiring banks to get consumers’ permission to cover overdrafts, disclose APRs and pay transactions in a way that doesn’t increase fees.

The legislation in question can be viewed here (it’s pretty short and easy to read), only has 8 co-sponsors and no Senate version, which could stand some improvement. The House bill actually had its hearing at the same time as Dodd’s credit card bill, so it’s an obvious followup to the increased credit card regulations.

Dodd follows up on the earlier passage of the Credit CARD Act with a sharply worded letter telling regulators that they’d better keep the credit card companies in line during the 9-month window before the bill takes effect:

I am disturbed by recent reports in the press that some credit card companies are allegedly raising interest rates on their customers’ existing balances without justification. As you know, the Credit Card Accountability Responsibility Disclosure (Credit CARD) Act enacted in May will protect cardholders by curbing such abusive practices. Press reports indicate, however, that some companies are raising rates now to get around these consumer protection provisions before they take effect and before regulations can be promulgated to enforce them.

I urge you to do everything in your power to protect cardholders from these abusive practices. In particular, as the Federal Reserve drafts regulations and the agencies enforce them going forward, I invite your diligent attention to Section 101(c) of the Credit CARD Act which will require credit card companies to review every six months any account where the interest rate has been raised since January 1, 2009, and reduce the rate if the review indicates that the cardholder has become less risky or the circumstances that warranted the increase are no longer present.

In addition to any future interest rate increases, all interest rate increases that have taken place this year will become subject to the mandatory 6-month review. I ask you to immediately notify all credit card companies under your respective jurisdictions that they will be held accountable for all interest rate increases during this time period and will be subject to the review requirement once it takes effect.

This January look-back was designed to address reports of credit card companies arbitrarily raising rates after the December 2008 promulgation of the UDAP regulations that would have taken effect in July 2010, and to deter companies from doing the same before the provisions of the Credit CARD Act take effect.

However, the look-back provision will serve as a deterrent only if it will be implemented and enforced effectively. I therefore expect the Federal Reserve to draft regulations that provide clear, robust requirements for the review of rate increases, and the agencies enforcing the regulations to hold the credit card companies strictly accountable for conducting thorough reviews and decreasing rates where warranted.

I’m still of the view that any bill which could pass the Senate on a 90-to-5 margin could have been made a lot stronger (maybe an “effective immediately” bill would have passed 70-to-25?), but it’s good to see a little follow-up on this subject.

(Via Chris Good at the Atlantic.)

Rell vetoed the two healthcare bills – pooling and SustiNet – today, and you’ll be able to read about it all over the place. I just wanted to add a couple points:

• SustiNet was just a study commission, so what the veto is really about is the question of who has influence in shaping the policy. Rell simultaneously signed an executive order creating a new study commission, one in which 8 of the 13 members are executive branch appointees. (View the sideways PDF with the list of appointees here.)
• Pooling passed with a veto-proof margin in the House, but the always-conservative Hartley was absent in the Senate (along with unanimous Republican opposition), so that’s up in the air.
• SustiNet has the votes for the override.

More later.