Bacon's Rebellion

“Fed chief Ben Bernanke today told lawmakers the current financial crisis is rippling through the economy. He said it’s harder for businesses to get loans to create jobs, and harder for consumers to get loans to buy cars — hurting automakers and auto workers.”

He could have added that “it is harder for consumers to get loans to buy houses — hurting builders and construction workers…”

As we noted in “Good News Bad Reporting” on 24 March what he and his predecessors should have been saying since at least 1973 is:

“Citizens of the US of A cannot continue to expect to live off of natural capital, imported energy and loans from foreign investors. The economy must be restructured so that citizens do not have to rely on buying more Large, Private Vehicles and buying more Wrong-Size Dwellings in the wrong location to be happy and safe.”

Every bailout and every recovery that relies on buying more Large, Private Vehicles and more Wrong-Size Dwellings in the wrong location makes the prospect of a sustainable future less likely.

EMR

Another memorable feat in the annals of Bacondom…. From the Lewiston Tribune:

Jolee Bacon really sizzles when it comes to hog-calling.

The northern Idaho woman took first place Saturday in the competition at the Nez Perce County Fair.

She has raised several champion pigs for 4-H contests. Bacon says she calls pigs every morning and night with her 9-year-old daughter, Jacey.

Bacon won the crown over as she started her hog call with a few loud snorts and a long, drawn-out “sooey.”

Since 9/11, most American Muslims have taken a low profile, understandably afraid of provoking a backlash. But seven years later, Muslims in the Richmond region have decided the time has come to engage with the community — to go mainstream, as it were. To that end, the Virginia Muslim Coalition for Public Affairs hosted a Ramadan dinner Friday evening for members of the local media. Journalists from print, television and blogs (including yours truly) were in attendance.

The Coalition estimates that some 12,000 to 15,000 Muslims live in Central Virginia, a mix of ethnicities including Middle Easteners, south Asians and African-Americans, with a smattering of “anglo” converts. For the most part, these people have practiced their religion quietly and have kept largely to themselves, with the result that their mostly Christian neighbors know very little about them.

The Coalition’s website explains the reasons for the group’s “coming out” party.

We believe that Muslims in America have to abandon the isolation mentality and resolve to become an integral part of the society, and proactively interact with its components. For that we need to become outward, and acquire social skills of interacting with people and cultivate relationships. It is both an individual and a collective effort. …

The objective should be to let the society at large know through action what Islam is and who are the American Muslims. Our aim should be to serve the society and work for its betterment. We need to work hard and honestly for a better America: for America that is morally sound, more tolerant, more just in its domestic and foreign policies, free of poverty. We do establish programs and participate in any program that serves any good purpose (feeding the hungry, sheltering the homeless, helping the elderly and the handicapped, etc.)

The Muslims that my wife and I met were exceptionally friendly, hospitable and eager to talk about their role in American society. One man, who has earned his citizenship, extolled the virtues of the United States as a nation of immigrants where, he said, he enjoys more freedom and opportunity than he did in his native Pakistan. He marvelled that, only 40 years after the end of legalized segregation, an African-American has a serious shot at becoming president.

Another fellow stressed the commonality of all people. Muslims, Christians, Jews and others have the same priorities in life: to live in peace, have a good job, come home to the wife and children, and contribute to the community. As became clear to me when an imam explained the meaning of the Ramadan fast, Muslims, like the practitioners of other religions, struggle with their personal frailties to become better people, to follow the way of their God.

The main stumbling point for some of the guests was the status of women in Islam. Nearly every Muslim woman in the room wore a hijab. (I noted only two younger women, students, who did not.) One hijab-clad young woman, a reporter with the Newport News Daily Press, addressed the group about the difficulty she faced reconciling the traditional values of her Muslim family and her ambition as a journalist.

In the tension between tradition and modernity, Muslims have much in common with, say, orthodox Jews or old-school Mennonites. I found nothing particularly alien or threatening with the way our male hosts treated the women in their midst. Indeed, although Islam teaches women to be shy and reserved, many of the women I met struck me as well educated, articulate, passionate and independent minded as most American women I know. I sense that Muslim culture is already adapting to American mores.

As long as Muslims sort out the challenges posed by Westernization peacefully and in accordance with the rule of law determined by our democratic system of government — as opposed to carving out exemptions for sharia law, as some have endeavored to do in Canada and Great Britain — then I welcome them with an open heart. The people I met last night will make wonderful Americans. They will weave another vibrant thread into the rich tapestry of the world’s only true “global nation,” a country where people are united not by race, ethnicity or religion but by their commitment to the idea of America.

Update: Robin Farmer with the Times-Dispatch wrote a story in today’s Times-Dispatch about the charitable impulse in Richmond’s Muslim community — presumably an outgrowth of the Virginia Muslim Coalition’s outreach.

By investing in energy-efficient technologies, the Commonwealth of Virginia can reduce its electricity needs by 20 percent, cut electric bills by $15 billion by 2025, and create 10,000 new jobs — the equivalent of bringing almost 100 new manufacturing facilities to the state — says a new report by the American Council for an Energy-Efficient Economy.

And, oh, by the way, by cutting electricity consumption, Virginia can reduce pollution and, if you think global warming is a big issue, reduce greenhouse gas emissions. Read more in “Energizing Virginia: Efficiency First.”

I don’t have time to dig into the report today, but thought it potentially important enough to post on the blog. Happy reading.

The fiscal underpinnings of Virgnia’s road construction and maintenance program continue to deteriorate, John R. Layman, the state Department of Taxation’s chief economist, told the Commonwealth Transportation Board yesterday. “There’s no ‘up’ in this presentation right now,” he said, as reported by Peter Bacque with the Richmond Times-Dispatch.

The state’s highway maintenance fund will see about $125 million less in each of the next two years, said Layman, and maintenance revenues are projected to fall by $739.9 million over the next six years. With reductions in other state tax revenues, Virginia will have about $300 million less annually for transportation. And that’s the best case, said Pierce R. Homer, secretary of transportation.

Adjusted for inflation, the state’s motor fuels tax collections are the lowest they’ve been in 20 years, Layman said. The underlying cause is one that Bacon’s Rebellion has been warning about for years. When gas prices soar, people (a) drive less and consume less gasoline, and (b) shift to more fuel-efficient vehicles. Virginia’s transportation funding system, based primarily on the gasoline tax, is living on borrowed time.

“Every time you see a [hybrid electric] Prius on the road, that’s somebody consuming less gas, but driving anyway,” Layman told the board.

However, there could have been an “up” to the situation, if Layman had chosen to present it: People are driving less. When people drive less, there’s less traffic congestion — the very reason we need more construction dollars in the first place.

Sales of new vehicles in the current 2009 fiscal year are expected to fall to levels not seen since the mid-1990s, Layman said. It would be interesting to see what’s happening to total Vehicle Miles Driven. If people are driving less, reducing the number of cars on the road at any point in time, then we may need to re-think road-building plans that are predicated on the outmoded assumption that traffic will continue to increase as it has for the past 25 years.

The Gipper came to us with his sunny, phony, Hollywood style, pushing the common man but talking of unleashing the wonderful forces of the free market.

If only we could get the government off our backs, cut taxes and let the Magic of Capitalism roar about unfettered.

And it did. Republicans and Democrats alike joined in. Ronald Regan got rid of Paul Volker, the inflation hawk disciplinarian and picked instead Alan Greenspan, free market maven, utterer of the often incomprehensible statement and one-time devotee of Ayn Rand, the libertarian Big Sister.

Finance had a ball after Bill Clinton helped get rid of the Chinese walls between investment and commercial banking. Greenspan did his part to crank up markets while keeping rules at bay. Offshoring American jobs? Excellent, it’s just the way it goes. All boats rise, ya know. If Americans lose their jobs, it just the way it goes. It’s a New Economy, after all. Investments? Why not go after that alpha with your hedge fund. No, no don’t regulate. The people who created the funds and the derivatives who drive them are rocket scientists. Twenty-something federal regulators can’t even understand what they’re talking about. Securitize bad mrotgages. No problemo!

And, despite what you’ll read on Bacon’s rebellion today (if you can understand MassOverconsumption and all the other cute, but innane definitions), you may forget that a lot of the columnists and readers are right-wing conservatives who partied on, Wayne, right with the Reaganites. If you ever wanted to read a mantra of free market mumbo-jumbo, BR is the place to do it. Instead of little busts of Lenin, these people ought to have little Gippers on their desks.

Now comes Nobel prize-winning economist Joseph Stiglitz on today’s Huffington Post:

“The globalization agenda has been closely linked with the
market fundamentalists — the ideology of free markets and
financial liberalization. In this crisis, we see the most
market-oriented institutions in the most market-oriented
economy failing and running to the government for help.
Everyone in the world will now say this is the end of market
fundamentalism. In this sense, the fall of Wall Street is
for market fundamentalists what the fall of the Berlin Wall
was for communism — it tells the world that this way of
economic organization turns out not to be sustainable. In the
end, everyone says, that model doesn’t work. This moment is a
marker that the claims of financial market liberalization
were bogus.”

Say it ain’t so, Joe.

Peter Galuszka

Looks like AIG, like Freddie and Fannie, should have spent some of the money they wasted on advertising to improve corporate management and risk analysis.

On 8 Sept we posted a note on this Blog titled “HIGH NOON FOR ENTERPRISE SOCIALISM.” Turns out it was only a little past 8 AM. The lesson from AIG is that if you are big enough to hurt a lot of folks and endanger the political party in power, you are big enough for the feds to bail out. So much for a market economy and a “conservative” administration.

Back in March we wrote a column at db4.dev.baconsrebellion.com titled “Good New, Bad Reporting.” The column did more that beat on MainStream Media for putting the wrong spin on the “news” and failing to provide the background citizens must have to understand the need for Fundamental Transformation in not just human settlement patterns but in governance including management of the economy.

Citizens need to move in the direction of a human scale, not just in settlement patterns but in every aspect of economic, social and physical activity. No one in any Agency, Enterprise or Institution is larger than human scale, although there are far too many with appetites, egos, hubris and greed that is Global.

One of the few Institutions in the Commonwealth that is considering the right set of questions is ASAP (www.ASAPnow.org) in Cville. On Monday 20 October they are hosting the president of the Center for the Advancement of the Steady State Economy (CASSE at www.steadystate.org ).

The end of Mass OverConsumption is near. What is the alternative in addition to functional human settlement patterns? Small is Beautiful. A steady state economy is an imperative.

EMR

While the citizens of Richmond battle red tape and political agendas to create a single charter school (See Norm Leahy’s post, “The Patrick Henry Contract“), thousands of others are dropping out of the public education system. They’re called home schoolers, and their numbers are growing at an explosive rate.

At the invitation of Marc Montoni, a past contributor to the Bacon’s Rebellion e-zine, I dropped by a home school expo Sunday held at the Children’s Museum of Richmond to learn more about the movement. No one I talked to had a definitive count of the number of home schoolers in the Richmond region, but estimates ranged from 3,000 to 5,000. There are thousands more across Virginia. Statewide, the movement is growing at roughly 20 percent a year.

Let me be clear: I have no desire to home school my 10-year-old, who attends a private school. But I find much to admire in home schooling. Home-schooled children out-perform their peers in standardized tests and college admissions — and parents lay out only a tiny fraction of the cash that conventional public and private schools require.

I discovered Sunday that “home” schooling is something of a misnomer. The phrase conveys an image of children cooped up at home, books stuck in noses under the watchful eye of their teacher-mom. But if the exhibition booths were any indication, home schoolers get out and about more than most kids. Represented there were children’s gymnasiums, a rock climbing program, fitness centers, a martial arts studio, music studios, and a children’s theater — not to mention the Virginia Museum of Fine Arts, the Virginia Science Museum, and the Children’s Museum. The private and not-for-profit sector is most happy to provide a wide array of services traditionally associated with schools.

Far from being solitary types, home schoolers are immensely sociable. Home school parents connect with one another through the Web and e-mail, often forming “co-ops” in which parents share teaching responsibilities, specializing in the fields they know best. At least one co-op in Richmond leases classroom space. Virginia home schoolers have their own magazine that shares news, resources and best practices. Publishers of textbooks, CD-ROMs and computer-assisted learning cater to the home-school market as well.

The structure of the home-school movement, which is roughly 25 years old in Virginia, is very free-form and egalitarian. I sense that the vast majority of participants are middle class: not wealthy enough to pay hefty private school tuitions, but well off enough that mom can stay at home to shepherd the kids. The people I saw were overwhelmingly white, although they defied ideological categorization. Home schoolers include evangelical Christians, libertarians and hippies.

I didn’t linger at the exhibition long enough to collect anything more than the most cursory of impressions, but I left with the notion that home schooling is the future of education in Virginia. While public schools are hamstrung by bureaucracy, home schoolers are experimenting and innovating like mad. Home schoolers are devising new curricula and new pedagogies. They’re embracing new technologies. They’re developing new models for sharing knowledge. And they’re availing themselves of community resources rather than recreating everything from libraries to sports facilities. Home schoolers have no need to invest in bricks and mortar. The community is their classroom.

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The Bacon’s Rebellion theory of economic development (“Economy 4.0”) is about to undergo an important real-world test in New York.

The theory says that financial capital and human capital gravitates to where it generates the highest return on investment. All other things being equal, states and regions with lower taxes, fewer regulations and a less heavy-handed government will enjoy superior economic performance over the long run. Things aren’t always equal, of course. One of the major countervailing forces is the existence of world-class industry clusters where a critical mass of human capital can generate enough innovation and productivity to offset the disadvantages of obtrusive government. Silicon Valley is such a place. Hollywood is such a place. Manhattan was such a place, defying economic gravity for years. But it may be no longer.

Wall Street stood at the center of one of the greatest wealth-producing machines in American history. For decades, the phenomenal profits of the investment bankers, mortgage bankers and hedge fund managers fueled economic prosperity in New York City (and environs, particularly the Connecticut suburbs where the hedge fund managers dwell) despite an otherwise inhospitable business climate. Through their ability to borrow extraordinary amounts of money, leverage their capital and seemingly dish off risk through opaque and often incomprehensible derivatives, Wall Street financiers generated unconscionable salaries, bonuses and corporate profits.

Kenneth Rogoff, former chief economist with the International Monetary Fund, says that profitability will never return. As quoted by Spiegel Online, he said:

The US financial system was bloated and overgrown and reckless to some extent. Now it is being reigned in. … In 2006, the financial sector accounted for a third of corporate profits in the US, although it only represents 2 or 3 percent of total gross domestic product. Goldman Sachs alone distributed $16.5 billion in bonuses to its 26,000 employees. I’m sorry, I think it’s unbelievable. You can’t just make money out of thin air like this, and underlaying this there were enormous risks being taken.

What we’re seeing is a shrinking industry — perhaps by 20 or 25 percent and in some segments perhaps as much as 50 percent. But these finance products based on fancy rocket science and derivatives just aren’t coming back, and that’s very painful. The industry is not going to make the same profits in the future as it did in the past. And this isn’t just about subprime and mortgage losses. Investors are starting to realize that the profit model these investment banks were running on has been trimmed.

Wall Street financiers amassed incredible fortunes (contributing to the much-talked-about disparity in wealth in the United States, incidentally) while shoveling off risks that Rogoff says could explode into $1 trillion in liabilities to U.S. taxpayers. You and I will be paying for New Yorkers’ yachts, estates and country club memberships for a very long time.

But Wall Street’s melt-down will be felt most acutely in New York itself. Nationally, financial services accounted for 8.3 percent of the U.S. economy, the highest level in its history. That industry is super-concentrated in the New York New Urban Region (extending into New Jersey and Connecticut). According to the Wall Street Journal, about five percent of New York City’s jobs are in financial services, but they account for a quarter of the city’s wages, or about $60 billion in 2006. That’s about to change. Even before the disastrous events of the past few days, New York had shed 11,000 jobs. Wall Street has been through downturns before, but this one is different. As the financial industry de-leverages, profit margins, stock prices, bonuses and employment will shrink permanently. And that shrinkage will run the economic gears in reverse. As the Journal notes, each financial services job generates three positions in other sectors. “The financial services industry won’t be the same economic engine it has been in recent years.”

Now New York will have to come to grips with the fact that, outside of a handful of industries, such as media, advertising, fashion and tourism, high taxes and a high cost of business make the region hideously uncompetitive. The question is, can New York reinvent itself?

Bacon’s Rebellion’s “Economy 4.0” theory suggests an answer: not bloody likely. Carrying the weight of high taxes, regulations, labor unions and other high business costs, new industries will find it difficult to take root, much less to grow enough to offset the shrinkage of the financial sector.

I do confess to experiencing schadenfreude in seeing the Wall Street “masters of the universe” knocked down a few pegs. I have no respect for people whose greed created immense wealth for themselves and destroyed it for others. But Gotham is a magnificent city, and it is populated by many people who never benefited from the excesses of the money mavens. I pity them for what awaits the city when its employment base and tax base shrivels. I will take little pleasure in having my hypothesis confirmed. But, for now, I am very glad I make my living in Virginia.

Household incomes stagnated in Virginia while the number of uninsured increased during the past economic cycle, contends the Commonwealth Institute for Fiscal Analysis in a recent report, “Feeling the Pinch: The State of Working Virginia.” (I came across the report after reading about it in today’s Washington Post.)

“Despite seeing incomes rise this year, more Virginians are falling into poverty and fewer are able to afford health insurance,” said Michael Cassidy, executive director of the Commonwealth Institute, in an earlier press release based on the latest Census data. “This demonstrates how the bottom has fallen out for low income workers in the state’s economy — their wages have tanked in recent years — and the benefits like life insurance coverage that go along with most jobs have vanished.”

Cassidy doesn’t touch upon it, but there is a direct connection between stagnant wages and the rising rate of uninsurance. It’s the soaring cost of providing medical insurance coverage. Spending more on medical insurance leaves less for employers to pay in higher wages. The common thread: out-of-control costs in the health care sector.

Cassidy brushes up against the problem, but never quite grasps it. Health care coverage is declining mainly in the private sector, he writes. “According to Census data, 69.4 percent of Virginians received coverage from any private insurance plan in 2007. … Since 2000, the private insurance rate has fallen 6.2 percent.” Of those workers who do have insurance, Cassidy notes, they pay the highest share in the country: about 24 percent of the cost, compared to 19 percent nationally.

Cassidy emphasizes the role of public programs in offsetting the decline of private insurance. But a fundamental question needs to be asked: Why is health care insurance in Virginia so darned unaffordable? There are many reasons, but the most important the success of medical interest groups — primarily hospitals and professional societies — in lobbying the General Assembly to protect their interests at the expense of the general public. Examples include:

Mandated insurance benefits. Virginia has among the highest number of insurance mandates of any state in the country. For businesses too small to self-insure, the only option is to buy a plan subject to mandated benefits. These mandates prohibit insurers from offering less expensive, “bare bones” policies that small employers can afford. The all-too-frequent result: No health insurance at all.

The cartelization of the health care industry. Quasi monopolies under the guise of “health care systems” — Carilion in western Virginia, Inova in Northern Virginia, and Sentara in Hampton Roads — dominate Virginia’s health care system. These cartels are protected by the Certificate of Public Need that severely restricts competition from newcomers that would force a much-needed restructuring and re-engineering of the health care industry. (See “Big Questions for Roanoke’s Carilion” and “How Much Profit at Carilion Is Too Much?”)

The craft unionization of the health care workforce. All of the health care professions are certified and licensed. They carve out professional turf and use state law to ensure that other professions cannot infringe upon it. This legally sanctioned craft unionization makes it difficult to re-engineer hospitals to make their processes more efficient.

The employer-based health care insurance system is a mess, as are the government-administered Medicare and Medicaid programs. Private insurance is bloated with layers of unnecessary administrative overhead. Medicare and Medicaid are riddled with fraud. Both need to be fixed. But the root problem is the lack of business innovation in the health care sector, the resulting lag in labor productivity and the difficulty in improving patient outcomes. Until we address these ground-level problems — rooted in a political economy in which health care providers manipulate the political system to their advantage — most debate about health care “reform” in this country is a waste of time.

I’ve touched on only a small piece of what the Commonwealth Institute report covers. As I’ve said about institute’s studies in the past, I often take issue with the findings and implications of the findings. But I do applaud the group for raising important issues of social equity and supporting them with facts, rather than spewing a lot of unsubstantiated rhetoric. The Commonwealth Institute raises the bar of public discourse, and for that it should be commended.