Fair Trade

Lest the title of this post confuse you, I’m not talking about the fair trade goods that stock the shelves of shops run by well-meaning nonprofits. That movement—to insure that craftspeople abroad are paid fairly for the goods they make—is well intentioned and important, but it isn’t the subject at hand.

The operation of a market economy—capitalism—rests upon a definition of what constitutes a fair trade. It is usually framed as the amount that a willing buyer and a willing seller, both of whom are in possession of all relevant information, agree is a fair price for the goods or services in question.

There are, rather obviously, economic areas where markets don’t work. Health care (no matter what GOP congressmen insist) is one of those, because the buyer and seller do not both possess all relevant information. Economists call this “information asymmetry.” As a practical matter, when one party to a transaction has important information that the other party doesn’t have, the party with the information has an unfair advantage.

There are other situations where markets can be manipulated. One of the most common involves externalities.

Economists use the term “externalities” to refer to the costs of an economic activity that aren’t paid by either party to the primary exchange, but are instead “offloaded” to someone else—typically, taxpayers. The most common example is pollution: a local factory produces a toxic chemical in the process of manufacturing its widgets, but rather than properly and safely disposing of that chemical and including the cost of disposal in the price of the widget, the factory owner dumps it in a nearby river.

The seller makes a bigger profit, and the buyer gets a better deal on his widget purchase. Meanwhile, we taxpayers pay to clean up the river.

Most of us have no problem identifying this as unfair all around. Such practices distort the marketplace, allowing people who break the rules to profit at the expense of the rest of us.

In today’s economy where the lines between public and private are being increasingly blurred, where private-sector companies ask for—and receive—government subsidies and favorable regulations, where the corporations that can afford well-connected lobbyists enjoy privileges that are unavailable to the mom and pop store on the corner, externalities are harder to detect.

America is in real danger of losing real capitalism. Increasingly, what we have is corporatism, and that’s a very different animal.

Corporatism has been defined as the socio-political organization of a society by corporate interest groups. And all signs are that we aren’t stopping there; the words “oligarchy” and “plutocracy” are more frequently heard in American political discourse these days.

Today’s plutocrats and oligarchs are the rich and superrich who effectively dictate economic policy. And they make the widget factory guy look like a piker.

When markets work as they should, where they should, they really do operate as Adam Smith described; the “hidden hand” improves life for all of us. When the system has been corrupted—when, in transaction after transaction, we socialize the risks and costs and privatize the profits—the only people who prosper are the “haves.” And the greedy.

And that’s not fair trade, by any definition.

It Depends

Early each semester, I tell my students that–after taking my class–they should find themselves using two terms more frequently than they did before: it depends, and it’s more complicated than that.

For example, in recent posts, I have pointed to significant problems with two proposed public-private projects: a Justice Center and a soccer stadium. In the case of the Justice Center, my qualms aren’t with the project itself, but with the secrecy surrounding it, the important questions that remain unanswered, and the potential for both poor design and unnecessary expense. In the case of the soccer stadium, i’m flat-out opposed to putting scarce tax dollars in a project that’s unlikely to do anything but enrich its politically-connected developer.

But just because some projects raise red flags doesn’t mean taxpayers should never support local business efforts. It simply means we need to be savvy about which ones.

Take the recent proposal from Angie’s List. The company has asked the city to create a TIF to secure approximately 18 million in bonds. In return it has promised to invest $44 million of its own– to retain a thousand jobs on its near-Eastside campus, to relocate another existing 800 employees to that campus, and to grow the workforce there by yet another 1000– all by the end of 2019. In addition to those jobs (paying an average of 50,000), the company will purchase and redevelop an existing building and construct a parking garage.

Obviously, adding 1,800 well-paid workers to the near Eastside of downtown would be very good for the city. But what if Angie’s List defaults–what if it cannot grow its workforce, or even honor the “clawback” penalties for failure to do so?  What will the city have to show for its investment?

Several things, actually:

  • A contaminated property, the Ford Building, that has been redeveloped and returned to the tax rolls.
  • A new parking garage and street level retail on 3 acres of currently undeveloped property added to the property tax base.
  • Physical improvements that should spur redevelopment east of the interstate towards Irvington.
  • Creation of 500 construction jobs that will generate COIT and sales tax revenue.
  • Facilitation of IPS’ relocation of operations from the former Coca-Cola building on Massachusetts Avenue – something both the city and IPS have long desired.

Note that these aspects of the project will benefit taxpayers whether or not Angie’s List can fulfill its employment promises. If it can, the city will obviously see many other benefits.

The point is, every proposed project, every proposed TIF district, every “partnership” must be independently evaluated. Hard questions must be asked, and “what ifs?” must be considered. If rosy projections don’t materialize, will taxpayers still come out ahead? If not (soccer stadium), we shouldn’t proceed. If we don’t have enough information (Justice Center), we shouldn’t proceed until we have that information. If a project has been thoroughly vetted, however, and the downside is still acceptable, it’s a prudent investment.

In other words, it depends.

 

When is Private Public, Redux

Federal News Radio (I’m sure you have this station on your Pandora playlist…) reports

Government contractors and subcontractors may have a new avenue to report wrongdoings at federal agencies, if a new rule being floated by the Office of Special Counsel is put in place.

OSC announced Thursday that it was seeking input on a possible revision to regulations covering the disclosure by employees working under federal contracts of wrongdoings taking place at federal agencies.

File this under “We noticed that damn few actual employees currently do the government’s work.” If oversight is going to occur, it needs to occur in places where government work is being done, and that is increasingly in the private and nonprofit sectors.

Contracting is so pervasive–and its problems so numerous–that In the Public Interest sends out a periodic “outsourcing scan.”

The most recent included dozens of entries, from prison riots in Texas protesting inadequate medical care in that state’s privatized prisons, to Pro Publica’s documentation of the lack of accountability and oversight of charter schools (conclusion: “Bad schools have been allowed to stay open and evade accountability”), to a recent report from the Federal Accounting Standards Advisory Board warning of risks to the public from “public private partnerships.”

Just more evidence–as if any more was needed–that the fervent belief in the superior performance of the private sector has more in common with religion than with evidence.

In both cases, questioning is confused with blasphemy.

Well, Look Who’s Calling Out Crony Capitalism!

Four friends have now sent me a link to this column from the Indiana Policy Review, penned (okay, typed) by Tom Charles Huston. It was surprising for a number of reasons.

For those who don’t remember, Huston was the national head of Young Americans for Freedom, back in the 60s when that college organization was considered radically conservative, and later–and more ominously–was the “mastermind” behind the Huston Plan to expand Nixon administration spying on the anti-Viet Nam war movement. After his stint in the Nixon White House, Huston returned to Indianapolis and practiced law at Barnes & Thornburg; he has been retired for several years now, and if he has participated in local policy debates these past few years, I’ve missed it.

That makes his column all the more interesting; it’s a slashing–and very effective–attack on the bill to provide a financing mechanism for the Indy Eleven soccer stadium. A bill sponsored by Huston’s nephew. A bill ardently desired by Ersal Ozdemir (who is described by Huston as “rapacious.”)

The assurance by the bill’s sponsor of transparency in financing the proposed soccer stadium rings hollow to anyone who hasn’t been asleep or on the take for the past seven years. Mayor Greg Ballard has refused to turn over documentation relating to either the special operations center lease or the financing structure for the proposed criminal justice center (both multi-million dollar deals) and has conducted as much of the public business in secret as his handlers thought he could get away with.

I gather from the Indianapolis Star report that taxpayers are expected to sleep better knowing that the legislators orchestrating this hand-out to special interests are committed to “making sure state taxpayers are at mitigated risk.” This is typical no-doze for idiots, but why taxpayers should be at any risk or who profits from this assumption of risk are not questions that interest a Star reporter.

I am undecided whether those pushing this scheme are in on the action or are simply reading from a script prepared by the lobbyists (which, incidentally, include every major lobbying outfit in Indianapolis).

Huston doesn’t mention it, but Ozdemir’s company, Keystone Development, employs Ballard’s former chief of staff. Lots of eyebrows were raised–and criticisms leveled–when Keystone got a sweetheart deal to build a parking garage (still underused) on a floodplain in Broad Ripple. Critics  pointed out that the city (over)paid to build the garage and also assumed the project’s risk, while the profits went to Ozdemir. (Crony capitalism at its finest: socialize the risk, privatize the profits….)

Others have noted that he walked away mid-construction from two libraries he’d contracted to build, forfeiting the bonds he’d posted on those projects. (Usually, if a contractor or developer forfeits even one bond, he’s toast–he can’t get another. Construction industry insiders don’t understand how Ozdemir has managed to keep operating after those defaults.)

Now the World’s Worst Legislature is in the process of enriching Mr. Ozdemir further, thanks largely to the fact that–as Huston points out–he’s hired lobbyists from every major firm in town. 

I may not have agreed with his politics, but when Tom Charles Huston is right, he’s right. And in his screed in Indiana Policy Review, he’s right.

 

 

 

If You Know What You’re Talking About, Shut Up!

Pardon my French, but you really can’t make this shit up.

The headline says it all: “House Passes Bill that Prohibits Expert Scientific Advice to the EPA.”

While everyone’s attention was focused on the Senate and the Keystone XL decision on Tuesday, some pretty shocking stuff was quietly going on in the House of Representatives. The GOP-dominated House passed a bill that effectively prevents scientists who are peer-reviewed experts in their field from providing advice — directly or indirectly — to the EPA, while at the same time allowing industry representatives with financial interests in fossil fuels to have their say.

Andrew Rosenberg is Director of the Union of Concerned Scientists; he wrote a letter to House Representatives stating what should be obvious to any sentient being:

“This [bill] effectively turns the idea of conflict of interest on its head, with the bizarre presumption that corporate experts with direct financial interests are not conflicted while academics who work on these issues are. Of course, a scientist with expertise on topics the Science Advisory Board addresses likely will have done peer-reviewed studies on that topic. That makes the scientist’s evaluation more valuable, not less.”

Two more bills relating to the EPA were set to go to the vote this week, bills that opponents argue are part of an “unrelenting partisan attack” on the EPA.

It isn’t just an attack on the EPA–it is part of an all-out attack on science, reason and scholarship. The U.S. House is a deeply anti-intellectual collection of Know-Nothings, proud of their ignorance and nativism. (We don’t need no smarty-pants scientists telling us the world is older than 6000 years….)

They’d repeal the Enlightenment–if they’d ever heard of it.

Be very afraid.