Tuesday, January 24, 2012

Kentucky cuts $50 million in education, preserves $43 million in tax breaks for creationist theme park

In what Forbes calls "one of the most spectacularly mis-prioritized state budgets in recent memory," Kentucky Gov. Steve Beshear is proposing $50 million of cuts to education while preserving a $43 million tax break for a biblically-themed amusement park centered around a life-sized Noah's Ark. ThinkProgress also roundly criticizes the budget plan, which marks an extremely rare instance where Forbes and ThinkProgress actually agree on something.

Meanwhile, Beshear calls the budget "inadequate for the needs of our people."

Do we need any clearer example of why government generally cannot be trusted? (Or, at the very least, why lobbyists and campaign donors have way too much influence).

Saturday, January 21, 2012

Is it not possible to reroute the Keystone XL pipeline?

President Obama has just rejected the construction of the Keystone XL pipeline from Canada to the Gulf of Mexico. Recall that Obama initially tried to postpone a decision on the pipeline until 2013--a cowardly move intended to avoid angering either of two big Democratic special interest groups (environmentalists and unions) before the election. When forced to make a decision by Congress, he decided to reject the pipeline. Newsweek, not exactly known as a right-wing publication, called it an "act of national insanity."

The Newsweek article correctly points out that environmentalists concerned about global warming emissions get nothing from this except for a symbolic PR victory. Canada has already committed to extracting the oil from the tar sands in Alberta, and they will now most likely build a pipeline to the Pacific for export to Asia. By rejecting the pipeline, Obama antagonizes a strong ally and sacrifices tens of thousands of new American jobs. The pipeline would also lower fuel prices and reduce our dependence on foreign oil.

There is, however, one very legitimate concern about Keystone XL. The proposed pipeline would have gone over the Ogallala Aquifer, a vast underground water source that makes most of Midwestern agriculture possible. Contamination of the Ogallala could have devastating effects on the region's agriculture and drinking water. While it is true that there are already numerous pipelines going over the aquifer, I would imagine that leaks are much more likely in a new pipeline (because of possible structural flaws, engineering problems, etc) than in one that has been working leak-free for decades.

The solution, then, seems obvious: reroute the pipeline around the aquifer. But that wouldn't satisfy environmental groups, who sometimes seem to want to roll back industrial society. Some would argue that they just want to switch from fossil fuels to wind and solar. But the fact remains that wind and solar are currently unreliable and not at all cost-effective. Plus, even wind and solar are vulnerable to environmentalist and NIMBY opposition--a salient example being the decade-long controversy over an offshore wind farm on Cape Cod. If people oppose even wind energy, then (assuming they are not currently living off the land in a technology-free community) where in the world do they think they can get their energy from?

Anyway, it seems that appeasing environmental special-interest groups is a bigger priority for Obama than jobs, fuel prices, or energy independence.

Thursday, January 19, 2012

GOP candidates taking full advantage of tax havens, taxpayer-funded pensions

Despite representing what is supposedly the party of fiscal conservatives, two of the five Republican presidential candidates are receiving tens of thousands of dollars in taxpayer-funded pensions, and front-runner Mitt Romney has deposited millions of his personal dollars in the Cayman Islands to avoid taxes.

Newt Gingrich is one of over 350 former US lawmakers and congressional staff receiving a federal pension of over $100,000 a year. Rick Perry gets a Texas state pension of over $92,000 a year in addition to his governor's salary. This seems questionable for two candidates who repeatedly denounce excessive government spending.

Meanwhile, Romney has between $10 million and $25 million in accounts in the Cayman Islands, a notorious tax haven. Because of his Cayman accounts--and the fact that much of his Bain income was classified as capital gains rather than ordinary income--Romney has been paying a far lower percentage in taxes (about 15 percent of his earnings) than most Americans.

So it seems extremely unlikely that the next president, no matter who it is, will do anything to reform the tax code. Obama and the Democrats will use Romney's low tax payments as yet another argument for raising tax rates, despite the number of millionaires and billionaires (Obama, Pelosi, Kerry, etc) in the party leadership. That's because they know that they can continue to exploit loopholes in the tax code, and only those who are less politically connected will be hit by the tax hike. Assuming he gets the Republican nomination, I cannot imagine Romney--a Wall Street millionaire with numerous accounts in the Cayman Islands--to do anything about tax loopholes. The Republicans seem to think that they can have their cake and eat it too by cutting tax rates while keeping loopholes and congressional pensions in place. Is it a coincidence that the last three Republican administrations have run massive deficits nearly every year?

Wednesday, January 18, 2012

Maximizing shareholder value: the "dumbest idea in the world"

In his book "Fixing the Game," business school dean Roger Martin introduces the idea of an NFL coach who is paid not according to wins and losses, but instead according to whether his team covered the point spread. He pictures the coach holding a Wednesday press conference to convince analysts that the point spread should be moved up or down, or the team's quarterback apologizing for only winning by 3 points when the spread was 9 points in their favor.

In this Forbes article, Steve Denning argues that large businesses today are similar to that hypothetical NFL team, where CEO's and managers have much more incentive to focus on improving stock prices rather than improving their products and making real profits. He describes a shift that took place in the 1970's and 1980's  where companies began to prioritize shareholders over customers and employees. One thing that drives this is the fact that most CEO's are compensated largely in options or stock based incentives:
    "What would lead [a CEO] to do the hard, long-term work of substantially improving real-market performance when she can choose to work on simply raising expectations instead? Even if she has a performance bonus tied to real-market metrics, the size of that bonus now typically pales in comparison with the size of her stock-based incentives. Expectations are where the money is. And of course, improving real-market performance is the hardest and slowest way to increase expectations from the existing level." 
    Also, Denning points out an obscure accounting regulation which forces the write-down of a company's real assets if the share price falls significantly, thus mandating that CEO's give significant concern to managing expectations.

There are also the stories (which progressives love to tell) of profitable companies slashing benefits or outsourcing jobs simply to make more profit. While a movie villain might do this simply to pocket more money, in the real world it is quite valuable to have satisfied and motivated employees, so an employer who is already making money would need a very good reason to do this. One reason, though, could be concern over stock prices. If the company's managers felt like they needed to cut costs to meet quarterly numbers or raise short-term expectations, they might outsource jobs or cut benefits even when making a profit.

Ironically, the emphasis on maximizing shareholder value has coincided with a decline in corporate performance since 1976. The idea may very well have contributed to the rash of accounting scandals in the early 2000's. It also gives Wall Street an inordinate amount of power over the economy. Perhaps we should listen to Jack Welch, who called this emphasis on maximizing shareholder value "the dumbest idea in the world."

Denning recommends several actions that may convince employers to shift their attention back from the stock market to the real market: eliminating the regulation that forces the write-down of assets due to falling stock prices; forbidding executives from selling stock in their company until 5 years after leaving their posts (thus limiting the incentive of stock-based compensation); and putting more restrictions and regulations on hedge funds which benefit from market volatility. I don't know if any of these are the right solution. But I do think that this over-emphasis on the stock market is a threat to the capitalism that made America great.

Sunday, January 8, 2012

Will Fawzia Koofi be Afghanistan's first female president?

The day Fawzia Koofi was born, she was left out in the sun to die. Now, 35 years old and the first female deputy speaker of the Afghan parliament, she is running for the Afghan presidency in 2014.

She was her father's 19th child. Three months before her birth, her father's newest wife--a 14-year-old girl--had borne him a son. Her mother hoped that she too would have a son to regain her husband's favor. But after Fawzia was born, nobody cared if she lived or died. While village women struggled to save her mother, Fawzia was left out in the heat for nearly a day before finally being brought inside. In much of Afghanistan, a girl is considered less valuable than a goat--a goat will give you milk and meat, while a girl is just another mouth to feed and a dowry to pay for.

Unfortunately, many women have internalized this attitude as well. Koofi remembers talking to one woman who was sick and due to give birth, but could not ask her husband to take her to the hospital because then he would have to sell one of his cattle. The woman told her, "When I die, my husband can find a new wife, but if he sells the cattle, what will my family eat?"

Koofi has faced many assassination attempts and says that she "doesn't know how she is still alive." She expects that one day the Taliban will kill her for speaking out for human rights. It is truly remarkable that there are people with such amazing courage who are fighting for freedom around the world.

Friday, January 6, 2012

GOP, conservatives need to get priorities straight

Going into the election year of 2012, major polls (see here and here) highlight two issues as most important to voters. One is the economy (which includes unemployment/jobs) and the other is the budget deficit. The wave of Republicans who came into Congress in 2010 attempted to address these issues by insisting on spending cuts to reduce the deficit, resisting tax increases for fear of further damaging the economy. A number of bitter deadlocks ensued as President Obama insisted on tax increases and repeatedly balked at cutting spending.

Now, Obama has finally come up with $500 billion in spending cuts--but rather than celebrate, the editors of conservative magazine National Review attack him viciously. The reason? Obama wants to cut the Pentagon budget. In attacking the cuts, National Review calls Obama's plan a "retreat" and pulls out all the usual neocon arguments. They scold Obama for trying to return troop levels to where they were at the end of the Clinton administration--which was not coincidentally the last time we had a balanced budget.

Here is one quote: "At its Cold War peak, U.S. military strategy called for the peacetime ability to simultaneously fight and win two major theater wars and a “brushfire” conflict. The years after the Soviet collapse saw that capability pared down in the name of the “peace dividend,” just in time for the 9/11 decade to deliver . . . two major theater wars and a series of “brushfire” conflicts... But the president draws precisely the wrong conclusion from the challenges of those conflicts. Faced with our struggle to fight up to our own standards, he has elected to lower the bar."

Well, if "lowering the bar" means that less Americans die fighting for dubious causes in wars like Vietnam or Iraq, and our deficit is reduced as well, then I'm all for it. It seems to me that Obama drew exactly the right conclusion: don't start a war without an imminent threat to America and don't engage in prolonged nation-building.

Conservatives really need to realize that we can't do it all. We can't balance the budget, keep taxes low, maintain our infrastructure, keep an acceptable safety net, and continue even a stabilized version of Social Security and Medicare while continuing to act as the world's lone policeman. Not only that, but unless Republicans are willing to cut their favored programs, it would be disingenuous to ask Democrats to do the same.

Monday, January 2, 2012

2011, a year of me-first politics and taxpayers getting swindled

2011 was a year in which the wretched and hideous state of American politics became crystal clear.  

Banks love being too big to fail and have aggressively lobbied the government to stay that way.

Fannie and Freddie continue to suck money from taxpayers like giant leeches: since 2008, about $73 million in taxpayer money has been used to pay the legal bills of former executives who are fighting fraud suits.

MF Global, a derivatives firm run by former NJ senator Jon Corzine, allowed hundreds of millions of consumer dollars to simply vanish.

Minorities and low-income borrowers (those who were supposed to benefit from the federal "housing strategy") became the biggest victims of the foreclosure crisis. In a suit filed in December, the Justice Department alleged that Countrywide--once the country's largest mortgage lender--steered more than 10,000 low-income minorities into risky subprime mortgages.

The cowardly postponement of the Keystone XL pipeline prevented tens of thousands of working-class Americans from getting new jobs.

The deficit problem and the payroll-tax holiday were simply kicked down the road.

Hopefully 2012 will be better. But it might not.

Obama: I have the power to detain US citizens...but I won't

As Obama signed the NDAA into law on December 31, which authorizes the indefinite detention of US citizens without trial, he issued a signing statement where he basically told Americans to trust him not to indefinitely detain anyone.

From the statement: "I want to clarify that my Administration will not authorize the indefinite military detention without trial of American citizens. Indeed, I believe that doing so would break with our most important traditions and values as a Nation. My Administration will interpret section 1021 in a manner that ensures that any detention it authorizes complies with the Constitution, the laws of war, and all other applicable law."

Why should Obama expect anyone to trust him? First of all, he's a politician, and politicians rarely keep their promises to ordinary people. Second of all, Obama in particular has a less than stellar record of keeping promises. For one thing, he promised during his campaign to end "politics as usual in Washington," but in his first year in office engineered a Machiavellian vote-buying scheme in order to get Obamacare through Congress. Oh, and he also promised not to use signing statements to circumnavigate legislation signed into law.