CT Progressive

Two stories have come out in the last couple days that serve as a reminder that not every business actually desires a functioning free market economy.

Barry Lynn and Phillip Longman talk about the economic consequences of business consolidation, suggesting that the lack of domestic job growth over the last ten years is closely tied to anti-competitive behavior:

It is now widely accepted among scholars that small businesses are responsible for most of the net job creation in the United States. It is also widely agreed that small businesses tend to be more inventive, producing more patents per employee, for example, than do larger firms. Less well established is what role concentration plays in suppressing new business formation and the expansion of existing businesses, along with the jobs and innovation that go with such growth. Evidence is growing, however, that the radical, wide-ranging consolidation of recent years has reduced job creation at both big and small firms simultaneously. At one extreme, ever more dominant Goliaths increasingly lack any real incentive to create new jobs; after all, many can increase their earnings merely by using their power to charge customers more or pay suppliers less. At the other extreme, the people who run our small enterprises enjoy fewer opportunities than in the past to grow their businesses. The Goliaths of today are so big and so adept at protecting their turf that they leave few niches open to exploit.

Over the next few years, we can use our government to do many things to promote the creation of new and better jobs in America. But even the most aggressive stimulus packages and tax cutting will do little to restore the sort of open market competition that, over the years, has proven to be such an important impetus to the creation of wealth, well-being, and work. Consolidation is certainly not the only factor at play. But any policymaker who is really serious about creating new jobs in America would be unwise to continue to ignore our new monopolies.

Their argument touches on manufacturing, where monopoly practices have caused stagnating product development (in many industries, a single manufacturer often produces the products for nearly every “competing” company in the field), to retail, where the market power of large chains causes de facto industry-wide price fixing even in the absence of collusion. The stifling of new inventions would seem to disproportionately impact a knowledge-industry state like Connecticut.

Monopoly power has also become a hot topic in healthcare coverage, as most states are dominated by a small number of providers; this was addressed in part by the creation of exchanges, but national exchanges (and a repeal of the anti-trust exemption for the insurance industry) don’t seem to be on the table at this point. A study cited in the article shows that in 80% of mergers, the new (larger and theoretically more efficient) company raises their prices when faced with less competition.

None of this, of course, is surprising, but somehow the national debate about job creation is hitched to a belief that what we should do what business wants, because what business wants is more and better competition. In a lot of cases, that’s exactly the opposite of what business wants. Competition cuts profits; new products create headaches and unpredictability.

The other story that came out is about our less-than-enlightened business lobbyists here in Connecticut, who see the economic suffering of the state’s residence as a great opportunity to weaken environmental regulations in the state. How lifting a regulation that you can’t dump battery acid in the river (or, as cited in the article, paint into the groundwater) is going to create jobs is beyond me — but it serves as a useful reminder of how cynical the politics around these issues can be.

There seems to be conflicting visions of what our economy is for – not that you’d be able to tell from watching C-SPAN. But the rise of Friedman/Reagan economics wasn’t so long ago that people don’t remember a time before it, and it wasn’t so long ago that we can’t contemplate a different model to follow it.

What’s the purpose of industry? To build useful things? To constantly improve the quality of life in our society? To be a strong component in the fabric of our communities? Too often, the answer is that the purpose is simply to generate capital, that this alone is sufficient to justify the human costs of profit-enhancing decisions; an ethic of ownership over work that trends naturally towards monopolies and rent-seeking over the (imo more desirable) elements of competitive, community-oriented businesses. From the excellent wikipedia description of “rent seeking” (wanted to check that I was describing the right phenomenon):

From a theoretical standpoint, the moral hazard of rent seeking can be considerable. If “buying” a favorable regulatory environment is cheaper than building more efficient production, a firm will choose the former option, reaping incomes entirely unrelated to any contribution to total wealth or well-being. This results in a sub-optimal allocation of resources — money spent on lobbyists and counter-lobbyists rather than on research and development, improved business practices, employee training, or additional capital goods — which retards economic growth.

That seems a pretty tidy description of the situation we find ourselves in right now. And the solution? The big-picture version from Lynn and Longman sounds pretty compelling:

When we get serious about this task, we will find that an entire political economic model lies ready for our use—the one shaped largely by the populists in Congress and the Roosevelt administration during the second New Deal. Before we can make use of this ready-made system for distributing power and opportunity, however, we will first have to break up the intellectual monopoly that has been forged over so much political economic policymaking in Washington today. The generation of political economists who understood the theory and practice of antitrust as devised by the late New Dealers are mostly retired or dead, and the academic economists who today dominate most discussions either have little understanding of the political nature of antimonopoly law or are openly hostile.

That’s why our first step must be to repopulate our discussions of political economics with the voices of the people who actually make our economy go. After all, real entrepreneurs and real scientists and real executives and real bankers and real farmers and real software engineers and real venture capitalists tend to understand quite well how real power is used against them. Just as it is they who know better than anyone else what freedoms they require to go about the task of putting their fellow Americans back to work.

Battling through the ages.

I have to say, I’m really glad to not be living in California.

I hate this:

The Finance, Revenue, and Bonding Committee voiced its approval Wednesday for a tax incentive package that gives up to $90 million to Starwood Hotels and Resorts up for relocating its headquarters from White Plains, New York to Stamford, Connecticut.

The deal which took more than three years to structure will bring 813 new jobs to the state and is expected to generate far more revenue than the tax credit the state is offering, state officials said. [...]

According to Starwood executives, the median compensation for its employees is $114,000.

813 employees x $114,000 salary x 5% income tax x 10 years = $46,341,000

That doesn’t mean that the project is a bad idea or shouldn’t be approved, but let’s be honest: it will be a long, long time before this deal is a positive on state tax rolls. And in year 11, what will we do if Starwood says “extend our credit, or we’re moving”?

The proposed bill is online, and it’s got a lot of interesting bits:

• The grants for Gubernatorial primary/general candidates are not changed — $1.25M and $3M, respectively.
• The grants for other statewide offices have been reduced from $375k to $250k for the primaries, and from $750k to $375k for the general. The primary grant would just about cover a single mailing to the Democratic primary electorate. Those wondering why Susan Bysiewicz decided to run as a privately financed candidate now have their answer.
• The bill introduces quadrennial increases in the statewide grant amounts, linking the grant totals to increases in the consumer price index. State Rep/Senate grants will be adjusted biennially.
• State Senate grants have been dropped to $25k/$54k for primaries (party dominant / non-dominant districts), and $61k for the general.
• State Rep grants have been dropped to $7k/$18k for primaries, and $18k for the general.
• Unopposed candidates are no longer eligible for matching grants.
• The signature thresholds for minor party grant qualification remain unchanged (10/15/20%) unless the Second Circuit upholds Underhill’s decision. In that case, the thresholds drop to 3%/4%/5%.
• There’s also a trigger to change the formulas for supplemental grants if the Second Circuit bans the excess/independent expenditure grants. The change would make the maximum supplemental grant much smaller — previously, if a candidate was massively outspent either by opposing candidates or independent expenditures, the supplemental grant could be up to 100% of the original. The trigger provision would make it so the supplemental would only go up to 50% of the original grant ($625k for the Governor’s primary, $1.5M for a Governor’s general election).
• The section causing the entire program to collapse on the decision of a court (Sec. 9-717 of the statutes) is repealed.

It’s a hodgepodge, and the fact that the Second Circuit has heard arguments and is busy deciding Green Party v. Garfield at the same time that this bill is being considered makes figuring out the impact of the potential changes much more confusing. Can the Second Circuit strike down parts of the new/amended statute, which wasn’t in effect when the Green Party filed their case? What happens if the Second Circuit makes their ruling before this bill passes? I don’t know.

Does the bill provide “countervailing” disadvantages to candidates participating in the program? If you think of a participating candidate running against a self- or privately-financed candidate, it doesn’t seem like a privately-financed candidate would have too hard a time re-establishing an advantage in terms of available cash — especially since the privately-financed candidate has the benefit of knowing if and when they plan to cross the threshold, leaving their opponent unable to plan around receiving the supplemental grant.

Indexing the grants to inflation is a good idea, but will make it difficult for the legislature to fix the new grant amounts if they turn out to be too low for challengers to mount a competitive race. (Is $18,000 really enough for a newcomer to turn out an incumbent? I’m skeptical.) I personally think that the point of public financing is less about getting new people elected than it is about reducing the influence of wealthy interests, but increased competitiveness is the main purpose so far as most of the public (including Judge Underhill) is concerned. Between the reduced regular and supplemental grants, I think that this bill serves to weaken the glue that holds the program together. We’ll see what happens after the committee hearings (originally supposed to be today, but rescheduled for sometime in the near future.)

Jesus Christ.

This has been brewing for a couple of days now, and it brings a couple of points to mind:

First, what Lamont said was stupid and wrong. No doubt.

Second, I’m very impressed that nobody who’s familiar with Malloy’s history of labor relations in Stamford seems to have said a single word about how awe-inspiringly cynical his attack here is.

Third, there’s a disconnect here that repeats itself over and over again with progressive policy initiatives – a compromise is hashed out behind the scenes and introduced, but those who want to be seen as centrists don’t get the memo (or the airtime, more likely), and attack whatever bill as too liberal.

With healthcare, a national health system was compromised down to single payer, single payer activists were sold on the public option, the public option was vaporized in exchange for nothing. Advocates, who would have been thrilled at half a loaf, start getting pretty unhappy when they’re told to give back the 1/8 of a loaf that they have remaining. And now, everyone’s clucking at the clever Democrats promoting the ultra-conservative Paul Ryan healthcare bill. Of course, the Ryan bill will go down in flames, but in February 2010, some fringe Republican character will get a chance to insert items into the signature Democratic legislative accomplishment while the large and loyal progressive caucus has been frozen out for the better part of a year.

The President or the Governor is always going to tack to the center – as another example, Bush wanted the authority to invade anything and everything without giving any reason, and compromised by accepting the mere authority to invade Iraq for no particular reason. He was able to compromise with the extreme right because there was a functioning extreme that he could negotiate with.

But now, as Lamont is realizing that the bill (click here to see the draft) is already compromised to a pale shadow of what liberals wanted, it’s basically impossible to ask for any further compromises in the name of moderation and reasonableness. So he’s forced to either crap on a bill that was already pretty conservative and incremental (making it moreso), or sound like an idiot for not understanding what’s actually on the table.

Yes, what Ned said was uncool, but without a functioning left in the legislature, it’s something that’s going to be repeated over and over again no matter who winds up being Governor.

Not to give a platform to a lame duck, but Rell’s outrage over the healthcare reform bill is ridiculous on two fronts:

A provision written into the massive bill will allow the federal government to pick up 100 percent of the cost of Medicaid expansion in Nebraska to court U.S. Senator Ben Nelson’s vote.

“The inequity of this provision is astonishing,“ Rell wrote in her letter to Blumenthal. “The doling out of favors for senators is appalling. The cost of this federal health care bill is beyond comprehension because of all the special provisions included to garner the 60 votes for passage.” [...]

“While everyone has received something, Nebraska’s “gift” is particularly galling,” Rell wrote in her letter. “In this time of extraordinary fiscal challenge, when states are facing record budget deficits and are seeing HUSKY and Medicaid case loads growing, all could use 100 percent reimbursement.”

First, while Nelson secured an additional grant of $45 billion for Nebraska’s Medicaid expenses over the next decade, our own Senator Dodd laid claim to more than twice that for the UConn Health Center. So it’s not obvious that Connecticut got the short end of the deal by any measure.

But more to the point, that Rell is jumping aboard a conservative protest to see 100% Federal Medicaid funding in all 50 states is bizarre, since liberals inside of Congress and out would love to see Medicaid become a fully Federal program. As it stands, with Medicaid structured as a matching-funds programs, benefits are significantly less generous in states with a smaller tax base – arguably, the states that have the greatest need for Federal support for low-income healthcare coverage. As Tom Harkin says (c/o Ezra Klein):

“When you look at it, I thought well, God, good, it is going to be the impetus for all the states to stay at 100 percent [federal funding],” Harkin told reporters. “So he might have done all of us a favor.”

While Connecticut is not short on poverty and polarization, we’re also not one of the states that’s unable to afford our share of the matching dollars. While funding services for the poor apparently has less electoral upside in the state than cutting taxes for the wealthy, Rell’s demand to federalize Medicaid nationwide would not, I imagine, do very much to cut the taxes of the state’s top-income-bracket residents. But I’m sure someone sent Senator Harkin of Iowa her letter, and that he’s got a little smile on his face thinking of the day when he’ll be able to pull her protest out of the file as evidence that even wealthy Connecticut’s Republican Governor supports this massive expansion of Federal spending.

When that day comes, even Rell’s harshest critics will have to acknowledge that she’s done some good for the country, however tangentially.

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.

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.

In the days since Waxman-Markey has passed in the House, it’s been the object of a lot of political jockeying — fierce bromides from the climate denialists that have been terrifying the electeds, and agitation from progressives concerned that the milquetoast bill that got passed out of the House might not be enough.

The policy details haven’t been easy to find in any one place, but the Wikipedia article on the subject has a decently brief rundown:

• It sets a slightly higher target for reductions in emissions of carbon dioxide, methane, and other greenhouse gases than that proposed by President Barack Obama. The bill requires a 17-percent emissions reduction from 2005 levels by 2020; Obama has proposed a 14 percent reduction by 2020. Both plans would reduce United States’ emissions by about 80 percent by 2050.
• It includes a renewable electricity standard (almost identical to a renewable portfolio standard, but narrowly tailored to electrical energy) requiring each electricity provider who supplies over 4 million MWh to produce 20 percent of its electricity from renewable sources (such as wind, solar, and geothermal) by 2020. There is a provision whereby 5% of this standard can be met through energy efficiency savings, as well as an additional 3% with certification of the Governor of the state in which the provider operates.

Alternative compliance payments are $25/MWh in violation of the standard, adjusted for inflation beginning in 2010.

• It provides for modernization of the electrical grid
• It provides for expanded production of electric vehicles
• It mandates significant increases in energy efficiency in buildings, home appliances, and electricity generation.

The bill’s cap-and-trade program allocates 85% of allowances to industry for free, auctioning the remainder. 15% will be auctioned, the revenue from which shall be redistributed to low-income households. 30% of the allowances will be allocated directly to local distribution companies (LDCs) who are mandated to use them exclusively for the benefit of customers. 5% will go to merchant coal generators and others with long-term power purchase agreements.

Progressive criticism has come in a couple of forms: first and foremost, that the reduction targets included in this bill will not do enough to save the earth, which is the ultimate in non-petty concerns and seems to be backed up by scientific consensus.

Another concern relates to the auctioning of the emissions permits: the fact that the bill “allocates 85% of allowances to industry for free, auctioning the remainder.” In practice, that means that a lot of money will be made from these permits being bought and sold, only that the money will not go to your Supertrains and electric windmills and solar panels and other national infrastructure goodies. Obama’s budget proposal envisioned a 100% auction, which would have the somewhat counterintuitive impact of raising a lot of federal revenue without actually charging Joe and Jane public any additional money over the alternative scenario.

The current version also offends on the grounds of moral justice: the other 85% of the revenue will go to the same masterminds that set the economy on fire these last few years – Matt Taibbi’s article on Goldman Sachs connects the last several bubbles to the anticipated windfall from carbon offset trading. Believe what you like about Goldman, but this assessment sounds about right:

“If it’s going to be a tax, I would prefer that Washington set the tax and collect it,” says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. “But we’re saying that Wall Street can set the tax, and Wall Street can collect the tax. That’s the last thing in the world I want. It’s just asinine.”

It’s exhausting trying to defend the bill once you glean that the grand bargain sacrificed 85% of the infrastructure improvements so those trillions can sit in the trading accounts of the top .01%, collecting dust and dividends until the next big crisis — at which point there will be no money and no Supertrains. Goddamn it.

“But,” say the activists, “defend it we must!” Just because a few robber barons won’t let us save the planet without tripling their net worth doesn’t let us off the hook for actually saving the planet. Let them have their cash, because now the Senate needs to pass the bill, and the odds are that they’re going to make it even worse.

There are some post-fixes possible: John Larson, lead sponsor of a Carbon Tax bill which would have avoided this giveaway nonsense from the start (the awesomely-numbered H.R. 1337) has also in the past offered legislation regulating derivative speculation, and maybe an approach like that would work for carbon as well. If so, maybe the right time to set the dogs loose on carbon profiteering would be after the ACES energy bill goes through.

Also, Krugman pointed the way to this testimony (PDF link) suggesting that import tariffs to equalize the cost of domestic goods and those goods produced in nations with unchecked carbon emissions would be feasible, legal (under WTO guidelines) and enforceable — which could mean that the energy robber barons would primarily be picking the pockets of the cheap-stuff-for-Wal-Mart robber barons. That would allow the proposal to potentially be improved by after-passage action by legislators fearing this kind of criticism, expressed by GOP Congressional Wannabe Justin Bernier in the 5th CD:

“It will hurt our economy without helping the environment. Because only America is covered by Cap and Trade, this new tax will give corporations another excuse to outsource millions of jobs to China, India, Mexico, and other polluter paradises.”

I can’t say for sure that our delegation will engage in a little friendly carbon-protectionism to ward off this kind of criticism, but if a Republican is complaining about it then at least the incentives, to them, will look to be going in the right way. (Sigh.)

Finally, from that same link above (a once-a-week energy policy blog written out of the New Haven Register) another interesting issue is raised: how will the Federal cap-and-trade system interact with the regional cap-and-trade initiative that Connecticut already participates in?

Connecticut is one of 10 states in the Northeast that are part of a part of a cap-and-trade program. The participating states use the money generated by the Regional Greenhouse Gas Initiative (RGGI) auctions to fund clean and renewable energy programs.

The RGGI auction, which was held earlier this month, produced $4.7 million for Connecticut ’s clean energy and efficiency programs. Connecticut has received about $18.7 million from the four RGGI auctions held since last fall.

It’s unclear to me whether or not energy producers will need both the free Federal permits and the regionally-auctioned RGGI permits to operate: some of what I’ve been able to find makes RGGI permit-traders nervous (a good sign), like this report: (another PDF)

The current proposal allows the conversion of RGGI allowances into federal allowances in a way that RGGI bidders face no risk from paying too high a price for an allowance. This would create strong incentives for speculative bidding that would push the RGGI price much higher than its economic value. Such a price distortion would also negatively impact the federal cap‐and-trade program.

Since it’s already widely believed that the carbon market will be a hotbed of speculative trading, all this seems to mean is that while the Federal government plans to give away the store, the ten states in the RGGI program may reap a windfall of moneys directed towards their (read: our) own infrastructure projects.

Plus, if Waxman-Markey won’t decrease carbon enough to avert a climate catastrophe, I wonder if it’s possible for the RGGI-style cap to be benchmarked to a reduction based not on a historical point (i.e. “10% below 2002 levels” or some such), but rather a reduction above and beyond the Federal cap. If coal-state Congressmen can’t do the right thing, I imagine that us coastal-types might have an incentive to strengthen the policy however we can.