Public Policy and Governance – Page 271

You Going to Believe Me or Your Lying Eyes?

Minnesota and Wisconsin share common roots: both were settled primarily by German and Northern European immigrants; both states engage heavily in farming; and, until recently, both shared a political culture of populist progressivism. So when their politics diverged (with the election of Scott Walker in Wisconsin and Mark Dayton in Minnesota), it created a natural experiment.

What happens when you apply dramatically different economic policies in otherwise very similar states?

These two governors aren’t simply Republican and Democrat: Walker is a wholly-owned subsidiary of the Koch Brothers and espouses their brand of radical conservatism with almost religious zeal; Dayton is an unabashedly progressive Democrat. The two of them took their respective states in diametrically different directions. Walker attacked unions, cut property taxes and cut funding for education and infrastructure. Dayton raised taxes by 2.1 billion, and increased funding for primary and secondary education by $485 million, among other things.

So which state is doing better economically?

Minnesota’s Department of Revenue recently announced that the state’s budget SURPLUS has risen to $1 billion. At the same time, its unemployment rate in November was the lowest since 2001 – 3.7%. Minnesota is the fifth fastest growing state economy, with private-sector job growth exceeding pre-recession levels. Forbes rates Minnesota as the eighth best state for business.

Meanwhile, Wisconsin’s budget DEFICIT sits at $1.8 billion and its unemployment rate is 5.2%. It ranks 34th for job growth.

Rhetoric may carry the day on Faux News, but on the ground, policies have real-world consequences.

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The Profit Motive

One of the many troubling features of our current civic landscape is the steady erosion of boundaries between sectors. Thanks to “privatization,” or–more accurately–contracting and outsourcing, the lines between public, private and nonprofit have steadily blurred.

The problem is that different sectors have different purposes/missions. For-profit companies exist to make money; nonprofit organizations are mission-driven, and the public sector is supposed to serve the public and safeguard the common good. These descriptions obviously gloss over the many nuances in each sector, but they are a serviceable shorthand.

When the profit motive characterizes all of the sectors, our society no longer works the way it should.

I get “paper” newspapers on Sunday mornings, and look forward to reading the news old-style. Last Sunday, I opened the Indianapolis Star to discover that it had engaged in actual journalism, in a story about charter schools established by ITT.

The strongest selling point of the Early Career Academy, a tax-funded charter school scheduled to open next year in Indianapolis, is that its high school students will earn an associate degree free of charge.

But the degree comes with a catch: The credits from that degree likely will not transfer to any major university in the state if the students want to pursue four-year degrees.

There is, however, one institution guaranteed to accept the credits — the for-profit college sponsoring the charter school.

ITT, you may recall, is being sued in several states by individuals and the federal government, who allege that it provides an inferior education for which it charges exorbitant tuition, and employs unethical, high-pressure sales techniques to “lock students into an education most are unable to finish and into loans many are unable to pay off.”

When I opened my Sunday New York Times, the front-page story was even worse–the headline was “Energy Firms in Secretive Alliance with Republican Attorneys General” and the article detailed the cozy–and highly unethical–arrangements whereby state Attorneys General are conspiring with, and carrying the baggage for, fossil fuel companies that have “generously” contributed large sums to their campaigns. They are suing the EPA and otherwise resisting federal regulations meant to protect air and water quality–purportedly on behalf of their states, but in actuality on behalf of their political patrons.

There are plenty of lessons we can take from these revelations. (I’d probably start with the premise that for-profit educational institutions should automatically be viewed with extreme suspicion.) Certainly, these revelations are more evidence–as if we needed it–that the role of money in politics is toxic and corrupting.

However, I think there is a larger warning lurking in these, and similar examples of venal behavior. When we fail to recognize the different ethical obligations that attach to the different sectors–when every organization and every job is focused on a fiscal bottom line–the structures we have built to be complementary become competitive and corrupt.

We have spent the past thirty-plus years demeaning and “hollowing out” the enterprise we call government, and in the process, we have lost the very concept of a public. “Public service” is an oxymoron. Well over half of our purportedly nonprofit/voluntary organizations are so totally dependent upon government grants and contracts that they have become unrecognized arms of the state. Meanwhile, we have idealized private enterprise and the private sector beyond recognition, delegitimizing the rules and regulations that are necessary to ensure a level economic playing field and a healthy, sustainable economy.

The result is on the front pages of our newspapers, and it isn’t pretty.

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Supply and Demand: Workforce Edition

Pete, a frequent commenter to this blog, recently sent me a link to a truly thought-provoking Ted Talk. Aided by charts displaying the birthrates of his and subsequent generations, a German economist predicted a significant worldwide labor shortage by 2030.

Economists have been making these predictions for some time. Perhaps this one struck me so forcefully because of the graphics, or because he emphasized the fact that the size of the available workforce in coming years is not a matter of conjecture; after all, the people in that cohort have already been born. The numbers, as he explained, “are set in stone.”

Nor is it likely that technology will bail us out. It has become abundantly clear that technology creates nearly as many jobs as it replaces. What technology will do, however, is exacerbate the “skills gap” that is currently a major factor in the income disparities we are experiencing.

So—we have an emerging disconnect between the workers we will need and those we will have. Can we speculate about the consequences of that widening disparity?

It is likely that people who are highly skilled in areas of economic growth will do extremely well.
It is plausible that increasing numbers of older workers—especially in countries where healthcare has extended lifespans—will stay in the labor force longer than is currently the case.
The business community (which is already deeply concerned about education and job training) is likely to press those concerns even more vigorously. Many larger enterprises may increase their on-the-job training efforts.
Wages are likely to increase across the board. (Whether this will translate into significantly higher prices is an open question; this is where the ability of technology to increase productivity comes into play.)
Battles over immigration policy will change dramatically. Countries will compete for workers willing to take the jobs unfilled by declining native workforces.

There are probably many others. But if many or most of these speculative outcomes are correct, the economic, social and cultural consequences will be significant.

On the one hand, it is easy to envision a time in the not-so-distant future when workers are more valued and respected—and better compensated– than is currently the case. The market for labor is not appreciably different from the market for widgets, in the sense that value is set by supply and demand. Companies that fail to recognize the extent to which their employees are assets don’t compete all that well now; it is likely that they will go the way of the dinosaur in a brave new world of worker scarcity.

On the other hand, the need to address our currently self-defeating policies on immigration and to actively encourage an influx of people willing and able to work is likely to create new and unpleasant cultural conflicts. Efforts to resolve the skills gap are likely to increase the growing (unfortunate) tendency to confuse education with job training. The failure to distinguish between the two is already wreaking havoc with our universities, the liberal arts and the humanities.

An older lawyer for whom I used to work had a favorite saying: “There’s only one legal question, and that’s ‘what should we do’?” I think that bit of wisdom goes beyond the practice of law.

If the planet is facing an imminent shortage of workers, what should policymakers do?

And what will it take to make them do it? After all, we also know that climate change will wreak havoc, but our lawmakers have largely dismissed the threat and ignored the need to act. Will they be equally incapable of addressing the coming shortage of labor?

Stay tuned.

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But He Had Friends in High Places

A recent AP investigation appears to conflict with the “nothing here, move along” attitude taken by Tony Bennett, his patron Mitch Daniels, and Tim Swarens of the Indianapolis Star, who recently penned a puff piece about the former Superintendent of Public Instruction.

The AP analyzed a report compiled by Indiana’s inspector general, showing many more instances of campaigning with public resources than previously reported:

From Jan. 1, 2012, to Dec. 31, 2012, the investigation found more than 100 violations of wire fraud laws. They included 56 violations by 14 Bennett employees and 21 days in which Bennett misused his state-issued SUV. Former chief of staff Heather Neal had the most violations, 17.

In a section labeled “Scheme to Defraud,” the inspector general laid out its case, saying Bennett “while serving as the elected Superintendent of Public Instruction of the State of Indiana, devised a scheme or artifice to defraud the State of Indiana of money and property by using State of Indiana paid employees and property, for his own personal gain, as well as for his own political benefit to be re-elected to the office of Superintendent of Public Instruction.”

The violations fell into five categories: political campaign fundraising, responding to political opponent’s assertions, calendar political activity meetings, political campaign call appointments and general political campaign activity.

Through reviews of emails and calendar entries and more than 50 interviews with top Republicans and former staffers, investigator Charles Coffin determined Bennett falsified mileage logs to cover fundraising trips and use of two separate state workers as campaign drivers. The report also details 20 days on which Bennett used the SUV to go to local Republican fundraisers coded as “business” in his handwritten vehicle logs, as well as instances where trips to events billed as education-related also had calendar notes about political donors being present.

Bennett also used tax dollars to send a staffer to attend the 2012 Republican Party convention on his behalf.

Whatever your opinion of Bennett’s education policy preferences–which, as he proudly noted in the Swarens article, were identical to those of Mitch Daniels–they are no excuse for wire fraud, or the falsification of financial documents. (Need I point out that you don’t falsify records if you don’t think you’ve done anything wrong?)

Interestingly, despite ample evidence of criminal behavior, Bennett has never been charged.

In addition to confirming what many of us already suspected about Bennett, this report adds a bit more substance to the emerging outlines of Mitch Daniels’ fiscal and administrative legacy: Underfunded and struggling municipal governments thanks to the ill-advised constitutionalizing of tax caps. A State Board of Accounts that lacks the resources to do adequate audits of local government units, Department of Child Services caseworkers with unmanageable caseloads, and elimination of subsidies to families adopting special-needs children, thanks to indiscriminate understaffing and cost-cutting. (It took a lawsuit to restore the subsidies.) A Toll Road once owned by Hoosier taxpayers is currently an asset in a private-sector operator’s bankruptcy, thanks to too-clever-by-half financing schemes. A string of revelations about illegal and unethical behavior by cronies of our ex-Governor, including but certainly not limited to Tony Bennett.

And of course, there’s the little matter of his appointment of Purdue Trustees who–entirely coincidentally!–turned around and hired him at a handsome salary.

Welcome to Indiana, where you can get away with pretty much anything–with a little help from the right friends.

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Energy and the Marketplace

Congressional critics made sure that Americans heard about the “scandal” of Solyndra, the green energy start-up that failed and defaulted on its government loan. But we haven’t heard much about the federal government’s renewable energy loan program since then–probably because there hasn’t been a subsequent opportunity to twist results in order to make political hay.

Since 2005, the Department of Energy has loaned $34.2 billion to a variety of businesses to spur development of clean-energy technology. A recent NPR report notes that– while there have indeed been defaults (amounting to $780 million, or 2.28 percent of the total)– DOE has also collected $810 million in interest payments, for a profit of $30 million.

The default rate on these loans is well below the rate of commercial loan defaults typically experienced by traditional banks, according to data maintained by the Federal Reserve. NPR went back to those who criticized the loan program three years ago, but none of the critics would comment for the record.

Energy Secretary Ernest Moniz pointed out that the loan program had funded the first of five huge solar projects in the West. Before that, developers couldn’t get money from private lenders, but now they can.

“We have to be careful that we don’t walk away from risk, because otherwise we’re not really going to advance the marketplace,” Moniz told NPR.

This is precisely the way government loans are supposed to work: to “prime the pump.” When new technologies are deemed too risky for the private marketplace, when the rehabilitation of depressed neighborhoods makes it impossible to get traditional mortgages–in short, when the private sector is not willing to encourage the sort of entrepreneurial activity that benefits us all–governments can step in and jump-start the process.

Of course, once the pump has been primed–once a market has been established and risk moderated–government needs to withdraw and allow the private marketplace to operate. The problem in our (increasingly oligarchical) system is that industries are happy to continue (excuse my vulgarity) sucking at the public tit. So we end up continuing to subsidize companies that have enjoyed years of obscene profits, are sitting on huge cash reserves and have absolutely no problem obtaining necessary financing.

Fossil fuel companies, for example.

In the United States, credible estimates of annual fossil fuel subsidies range from $10 billion to $52 billion annually. These numbers do not include the significant costs attributable to externalities related to the climate, or to the other environmental and health impacts of the fossil fuel industry. We taxpayers also pay those costs, which are another form of subsidy.

Here’s my question to all the critics who screamed bloody murder about Solyndra and the DOE program generally: where’s your indignation about the immense and counterproductive costs of continued fossil fuel subsidies?

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