Prop 13 Has and Always Will Be a Problem

There is a trend among Californians these days: We love to think of progressive ideas, but rarely have the will to get them passed. Some examples:

1. We love public transit, but will never amend the constitution to make sure gas tax goes to public transit projects (currently it is required, but law, to go to maintaining roads and highways).

2. We love public transit, but we will never pass a tax to pay for it.

3. We love clean air, but our largest public utility is having trouble with divesting from coal power

4. We love that our public universities are top in the country in academics and athletics, but our legislators would rather cut hundreds of millions from them instead of pass a tax to support them.

5. We love our K-12 education, yet our legislators are unwilling to pass a tax to prevent cuts to the school year

6. We love our public services, yet complain about high taxes

7. We complain about high taxes and bad schools, but still overwhelmingly support Proposition 13

The last (and bold) point is what this blog post is about. Some controversial points about Prop 13 are:

1. Maximum value-based tax on real property shall not exceed 1% of the value of the property.

2. Decrease in property taxes by assessing the real value of a property at its 1975 price and restricting assessment of annual increases to an inflation factor not to exceed 2%. Reassessment of a new value can only happen under an ownership change or completion of construction.

3. Requires a 2/3 majority of both houses of the CA Legislature to increase tax rates or collect revenues.

4. Requires a 2/3 majority in local elections to pass an increase in special taxes

The passage of Prop 13 was a result of the "Taxpayer Revolution" headed off by anti-tax people like Howard Jarvis. But, Prop 13, which is considered to be the third rail of CA politics, has caused decreased tax revenues for localities, which have been forced to find creative ways to recapture those monies.

Here are some supportive arguments for Prop 13:

1. It creates certainty for Homeowners

True. But, it created uncertainty for localities and pegs a portion of their tax base to the rise and fall of the real estate market. This is especially bad in coastal communities, where home ownership and prices are higher. These localities must find creative ways to recapture tax money. They become dependent on state block grants and look to "use fees" and higher sales taxes. Cities have begun to decrease services and increase fees to compensate for that move.

2. The acquisition-value assessment provides property tax equity

Suspect. The scheme is good for taxpayers if you look at the prop as a whole. But, it's condition that the value be reassessed for change of ownership highly favors commercial properties. If a commercial property is owned by one company and it sells, but continues to be deeded to that company, they are exempt from the reassessment condition in Prop 13. This works well for those who own big box stores and shopping malls.

3. Decreases volatility for funding of municipalities

True. But, it also decreases that funding. It creates certainty, but in a negative way. See my answer for #1.

Some negatives:

1. Sales disincentives

Because of the condition that the house value will be reassessed upon change in ownership, there is a disincentive towards upward mobility or selling of a home. There is also a disincentive to build more homes.

2. Loss of Revenues to local government

The 2% maximum has under paced the Consumer Price Index, giving local government less money to collect against the 2% levy or when the price of a parcel is reassessed. Translation: less tax money to the coffer. Result: find ways to recover that loss money through creative means (see #1 under "Arguments for Prop 13").

3. Bubbles and Ownership/Renting volatility

When housing bubbles occur, taxes collected increase due to increase in housing values. Once the bubble bursts, downward pressure is put on collected revenues, creating a tax deficit. Trends in ownership/renting follow these bubbles creating both rigidity and friction in the housing market. This can attributed to Prop 13.

4. Price Increase for New Developments

Because there is a disincentive to move out of a home due to the reassessment condition, older homeowners are not selling and younger prospective homeowners are increasingly renting. Finding new places to build homes in a constrained market also leads to higher prices. Adding in environmental, geographical and development limitations only makes prices for development even higher.

When Gov. Schwarzenegger was elected governor in a recall, his financial adviser Warren Buffett told him that Prop 13 needed to be repealed or changed in order to cover the widening state budget deficit. The governor said it was no politically possible. Current governor Jerry Brown has openly criticized Prop 13 and it's negative affects on the power of local governments. Part of Brown's initial budget was to return power back to local governments and away from Sacramento.

With the partisan gridlock in Sacramento holding back any modification to Prop 13, these inequities, high sales/use taxes and uncertainty will only persist.

Mississippi Amendment 26: Knowing What's Right Since Jesus Rode Dinosaurs

Let me first explain the title of this blog:

Whenever I ridicule the religious right for thinking the federal government (or state government) should be a lightning rod for Christian morality, I always include a statement about the ridiculousness of creationism. Creationism, and Intelligent Design, are anathema to rationality and the scientific method. Based on observations made by paleontologists, anthropologists, planetary scientists, geophysicists, archaeologists, cosmologists, evolutionary biologists and geneticists, the earth is 4.54 billion years old, humans evolved from apes and the universe is expanding at an ever increasing rate. Saying that the earth is around 6,000 years old is as rational as saying that Jesus rode dinosaurs.

The underlying message is that the religious right, with enough support, can turn these superstitions into law. I will defend to the end of my life someone's right to be religious and to follow the doctrines supported by whatever church, synagogue, mosque or holy pillar that is the center for their beliefs. But, the law of the United States of America, and it's many states, should not include the moral inclinations of any single religion. The whole reasoning behind the 1st Amendment's religious protection clause was to make sure the country did make any law "respecting the establishment of a certain religion, or prohibiting the free exercise thereof." Jefferson's purpose behind including the freedom of religious clause was to make sure that there was a "wall of separation" between church (any religion) and state. I interpret this protection as a law that makes sure no law is established on the basis of the core beliefs of one religion.

This brings us to Mississippi, and it's Amendment 26 "Personhood" legislation. This law, if passed, would define "personhood" or "life" as starting at the time of conception. This will effectively outlaw abortion (in ALL cases), birth control, morning after pills and in vitro fertilization. Haley Barbour, governor-extraordinaire, said that he supports the law, but is hesitant because it includes ambiguous language like "life begins at fertilization, or cloning, or the functional equivalent thereof."

Here is my beef:

1. It is based on religious inclinations: Most Pro-Life (whatever that means) believe that life starts at conception because they follow the religious (Catholic mostly) idea that sex is purely for procreation. Keep that belief to yourself and out of our statehouses.

2. It casts the government as a moral crusader: It makes the Mississippi government an enforcer of anti-abortion morality. No government should make laws to enforce the moral inclinations of one group.

3. It translates unanswered ethical questions into law: It essentially settles an ongoing ethical debate, de jure. The definition of "personhood" and "where life starts" has been debated for decades, and there are good arguments on both sides. But to make a law that forces the debate to a conclusion is unbelievably premature.

4. It defines life: No one has the right to define where life starts. Not Haley Barbour, not Mississppi, not Barack Obama...no one.

5. It gives the Mississippi government too much power over the bodies of women: Women have the right to choose what they want to do with their body. Simple as that. No state has the right to legislate that choice. This is why the Federal Government has the Hyde Amendment. It makes sure that the government does not meddle with the abortion debate.

The encroachment of any government on the rights of individuals should stop when it comes to legislating abortion. This amendment goes a step further by defining life, and thereby expanding the definition of murder. This will not only have implications for women's rights, but will also impact family planning and restrict access to in-vitro fertilization for Mississippians who cannot conceive.

What disturbs me most is the quote by obstetrician Dr. Freda Bush:

"In rape and incest, the life that has created during that has done nothing to deserve death. The mother is a victim and there is no reason to make a victim a murderer."

This scary, sick and demented logic is common, unfortunately. This Amendment will only encourage this kind of view, while setting women's rights back to the age of back alleys and clothes hangers.

Herman Cain: Out of Touch with Reality and Race

The Joint Committee on Deficit Reduction has until Thanksgiving to come up with a plan to reduce the deficit by $1.5 trillion. If they don't, a series of emergency cuts will be triggered that will slash from entitlements (Democrats cry) and the Pentagon (Republicans cry).

At this point, I am not sure if a deal will be struck. Debt reduction aside, the current political situation, as it is related to condition on Main Street, is abysmal. Herman Cain is a prime example of this disconnect:

I don't enjoy using the "race card," but in this case it is completely appropriate. When he was on the Hannity Show earlier this month, Cain said that he does not "have a lot of patience for people who want to blame racism on the fact that some people don't make it America." Next he will tell us how far in the sand you have to stick your head before you get the Republican nomination. Let me make something abundantly clear to Mr. Cain: Racism exists. The legacy of racism is still prevalent today. It is embodied in the fact that a large population of African-American people are unemployed and live in low income communities. If given the same opportunities to succeed, as you have so purported with your statement Mr. Cain, then why is statistic still starkly visible?

Cain's attempt to "simplify" the tax code through his infamous "9-9-9" plan will only burden the middle class and low-income communities with more taxes, while giving a nice tax break for those who make exorbitantly large amounts of money. Tax reform is a respectable, yet gargantuan undertaking. You cannot simply extend what amounts to a "flat tax" and (with a wave of the wand) make all the tax problems disappear. First, only about half of all Americans pay taxes. Some of those people are either on some sort of government assistance, or do not make enough money. With this plan, low income communities and the elderly will see their taxes go up. Second, simplifying the tax code is a nice slogan (like 9-9-9), but it is also very unpopular if you decide to eliminate deductions that reduce the tax rate of middle income earners. It would also raise sales tax in 47 states.

Then, there is the deficit. By some estimates, this plan would cut federal tax receipts in half. Cain's plan is an extreme example on how cutting taxes and spending can lead to both higher deficits and higher unemployment (as I have said here, here and here).

Herman Cain is just one, albeit extreme, example of how Republicans vying for the nomination in 2012 and those seated in the Halls of Congress are increasingly out of touch with reality. They are calling for measures to boost employment, while pressuring the Deficit Committee to reduce the deficit in a completely unbalanced (deep cuts) and economically unsound way.

We are continuously bombarded with messages about the 99% and the tax rate of wealthy Americans. What we should be hearing from candidates and Washington is about the 16% - those who are unemployed or have given up on looking for employment. Tax rates and political grandstanding mean nothing to those in the 16%.

Lamar Alexander: Thank You

I hardly ever agree with Republicans. I can't stand their position on healthcare, abortion, environmental regulations, rights for homosexuals and the role of government. Recently, I have pushed myself farther left in reaction to the polarizing right shift that Congress and the administration has taken in the last year. Everything from rolling back public health regulations to focusing a debt debate on an imbalanced package of cuts without entitlement reform or a long term source of revenues have shown me that Congress is too dysfunctional to create progress and pass legislation to help those who are most in need.

The focus in Washington has been to create an environment where "job creators" can find enough "certainty" to start hiring workers. Well, that's what Republicans have been saying. In a recent interview with NPR, Finance Committee Chairman Paul Ryan (R-WI) said that short term incentives like payroll taxes and a "second stimulus" don't give "job creators" enough support to start hiring. He used this point to justify a rollback in regulation and a massive tax cut for the wealthiest (IE, the "job creators").

As for those who were affected the most by the recession and the state and national service cuts, he said that his policies will "widen the pie" so more people have opportunities to return to work. The problem with this approach is that it is a long term fix at a time when a short term solution is necessary. For the poor and middle class, infrastructure jobs and incentives like the payroll tax cut will allow for short term job growth while leadership in Congress can deal with long term fiscal health, like deficit reduction, regulation reform and changes to the tax code.

This blog is related to the partisan rancor that has enveloped Congress, pushing it's approaval rating to the low teens and spotlighting polarizing figures like Michelle Bachmann (R-MN), Paul Ryan (R-WI) and Jim DeMint (R-SC) while completely ignoring statesman like John Kerry (D-MA), John McCain (R-AZ) and the subject of this blog: Lamar Alexander (R-TN).

Lamar Alexander is a Republican Senator from Tennessee. The 71 year old has recently announced that he will be stepping down from his position as the 3rd most powerful Republican in the Senate to "get the best results on the issues [he] care[s] about" which means that "you have to get some people from the other party to agree with you or you don't get 60 votes."

Thank you.

No truer words have ever (well, maybe not in the last year) been spoken. Here is a Senator (a Republican, no less) who is known for bucking his own party in the face of stern opposition (and cowardly name calling). He worked across the aisle on the failed energy and climate bill, he voted for the START arms reduction treaty, he worked on the "Gang of Six" deficit panel, worked to find suitable areas for nuclear storage with Barbara Boxer (D-CA) and Lisa Murkowski (R-AK), and even mentioned that he was open to supporting "increased revenues" as a part of a deficit reduction plan.

There are many areas I disagree with Alexander on. But, at a time when the debate has become so toxic that bills to fund disaster relief are being held up by fiscal orthodoxies and presidential candidates are calling the Federal Reserve treasonous, it is always nice to hear that some Senators want to get something done.

Here's the video from the Senate Floor:

Political Center: Where Hast Thou Gone?

Barack Obama was elected on a wave of optimism. Starting from his speech at the Democratic National Convention in 2004, to his response to President Bush's State of the Union Address in 2006, it looked as if the Democratic Party had found a superstar.

And, they did.

He ran an extremely successful grassroots campaign, raised hundreds of millions of dollars (pre-Citizen's United) and energized young voters. I was one of those voters.

But, the hazy days of malaise are starting to creep in, and I have become disillusioned. Let's take a look at how things have changed:

Obama's post-partisanship rhetoric was something I latched onto when he was elected. To me, this meant that he was going to work across the aisle to create bipartisan legislation that would grow the economy, protect the environment, ensure our national security and get us out of the recession that he had inherited.

He started with the stimulus package, which enjoyed bipartisan support.

Then, he went to universal healthcare, which was a campaign pledge. The debate over the healthcare law was so caustic, that it rendered any Bush era rhetoric almost benign. It passed, barely.

Then he took on energy, stumping for a bill with a cap and trade scheme for pollution reduction. He used stimulus money to encourage the growth of the Renewable Energy and to make Carbon Capture and Sequestration economically viable for coal-fired power plants. It never passed.

Then, he took on financial market reform. The Dodd-Frank Bill and the CARD Act passed, along party lines. The rhetoric and the partisanship was getting to extreme levels at this point.

Still, I blamed the TEA Party and extreme wing of the Republican party for manufacturing apocalyptic scenarios if any of these reforms were passed. I defended Obama as a president who attempted to work across the aisle, but was shut out.

Then came November. Republicans took the House and nearly won the Senate. Obama would try to pull a Clinton. The problem: the economy was faltering, a government shut down was looming and he still had to raise the debt ceiling.

What did he do? He put propositions on the table and compromised every balanced approach to end up with a one-sided, Republican monstrosity:

He kept the Bush tax cuts
He abandoned his "grand bargain" of a balance of taxes and cuts
He opened more lands to offshore and onshore oil drilling
He let the BLM auction off coal mining in the Powder River Basin at the "competitive" rate of 0.90/ton (sales rate is around $12-13/ton)
And recently...he told the EPA to withdraw smog and ozone standards. Ozone and smog formation is very dangerous for public health.

The president I elected in 2008, defended in November, 2010 and tolerated in most of 2011 has finally forced me to think outside of the two-party norm for 2012. I really don't want to be in the position, but his appeasement and acceptance of non-centrist Republican ideals has forced me into this state. I can no longer defend him without sacrificing my own principles.

No matter what he does, he will always be criticized by Republicans. There is always an election to win and a party platform to shore up. If he opens up lands for drilling, they will say he hasn't done enough. If he allows for increased coal mining, they will say he is waging a "war" on coal. If he withdraws important, life-saving standards under the guise of "regulatory burden," they will say he is killing business. There is compromise, there is centrist and then there is Obama. Republican? Democrat? Who knows....

Deficits and Natural Disasters

Hurricane Irene made landfall around the 6th anniversary of another devastating storm: Hurricane Katrina. Hurricane Katrina revealed that an underfunded FEMA with an ignorant leader (Michael Brown - "Brownie...you're doing a heck of a job") can lead to both environmental and human catastrophes. Katrina also shot holes into the political orthodoxy over cutting government spending, or what is known as "starving the beast."

We are dealing with monumental and unprecedented deficits. The financial situation that the U.S., and the world, is facing has not been seen since the Great Depression. A combination of austerity measures and spending cuts has been proposed to bring the country back to fiscal health. In previous blogs, I harped on the affects that budget cutting will have on local governments, unemployment and how a balanced approach is necessary.

Nothing is worse than the ignorance and short sightedness embodied in the recent proposal by House Majority Leader Eric Cantor on dealing with FEMA costs over Hurricane Irene. Cantor vowed to find "dollar-for-dollar" cuts in other programs in order to cover the cost of Hurricane Irene. His aim is to not increase the deficit.

Really?!

You're talking about deficits when people are losing their homes and their livelihood? You dare mention "fiscal health" when people are dying? Were you not around when an underfunded FEMA created the fiasco that was the aftermath of Hurricane Katrina?

I don't get it. I really don't get it. These costs are not intangibles. These costs are helping people survive. These costs are the salaries of rescue workers who are delivering food and water to 12 communities cut off by flood waters in the state of Vermont. These costs are going to airlift stranded people in New Jersey, New York and Virginia. These costs save lives.

Bernie Sanders, Senator from Vermont (and one of my favorites - also Jewish), characterized this situation best. He told MSNBC that he had been to the stranded communities around his state and helped drop supplies to devastated families. He said that the U.S. will become the laughing stock of the world if we don't start investing in infrastructure. These floods have exacerbated the problems associated with an already crumbling road and highway system. More specifically, he lambasted Cantor for being a divisive force. He talked of a "United" States being "one nation" whose purpose is to protect the health and well being of its people.

Sanders is spot on. Our infrastructure is abysmal, and investments will put hundreds of thousands of people back to work. More importantly, if we let this obsession, this cult, this stubborn orthodoxy of deficits blind us from helping our fellow Americans during natural disasters, then we need to reevaluate our priorities.

To give some perspective - we spent $700 million/week on wars and FEMA's ENTIRE budget is only $800 million.

How Many Mistakes Make a Candidate?

George W. Bush was well known for talking "off the cuff" with a folksy demeanor. He was prone to ridicule by the left for both social and grammatical blunders. This attitude allowed him to connect to the average American. They were able to identify with his image, which is something that won him (in part) two terms in office.

President Obama has been criticized as being too "professorial" and isolated, lacking the skill to connect to the people the way that Bush did. In the book "Obama's Wars," journalist Bob Woodward described Obama as someone who thrived on knowing the nuanced detail of every plan, including alternatives and opposing opinions. It is this kind of detail that caused him to clash with top military brass when formulating a plan to expand troop levels in Afghanistan after the Bush Administration has essentially ignored a regrouped Taliban.

2012 is slowly approaching, and a couple of the candidates have stood out in their ability to be both folksy and spread egregiously erroneous information, which was a major skill of the Bush Administration.

Newly minted candidate Texas governor Rick Perry is well known for making "shoot-from-the-hip" remarks about topics he has no expertise in. Here are some ones to mull over:

1. Financial Crises and the Fed - Perry called Federal Reserve Chairman Ben Bernanke's monetary policies treason. This was so outrageous that even Libertarian and well-known Federal Reserve detractor Ron Paul was made uncomfortable. The question that reporters should have asked Perry was: "What is the Federal Reserve?" I'm sure that would have generated some nice "uhhs" and "ummms."
2. Evolution - Perry called evolution an "theory" with "gaps." Setting aside anthropological, paleontological, archeological, geological and geographical data that has proven evolution, Perry, like most Evolution-haters, do not understand the nature of a "theory." Theories are, by definition, hypotheses that have been proven by observation. So, yes, Rick...Evolution is a theory.
3. Global Warming - Perry said that Global Warming is a scheme where data is manipulated by scientists in order to get higher pay. He calls it (once again falling into the "theory-hypothesis" trap) a "scientific theory that has not been proven." He is once against stirring up the "climategate" conspiracy theorists, who will nitpick any language to prove their point. He is like the Wizard, brushing the years of data collected by credible climatologists and atmospheric scientists with advanced degrees behind the curtain. There must be some sort of cadre of scientists who get together to think of ways to squeeze money out of the regular taxpayer. That is how we have Antibiotics, Antivirals, successful cancer treatment, large scale particle accelerators, nuclear weapons, nuclear energy, space travel, devices to capture energy from the sun, wind and the earth...well, the list goes on.

Michelle Bachmann, Tea Party favorite, has also released some fun sound bites that really showcase her intelligence (or lack thereof):

1. History - When she talked about the U.S. being a nation of individuals who were attracted by vast opportunity in a new land, she omitted one major group: slaves. Unfortunately, most of the economy of the Southern United States, for the first 100 years of U.S history was based on slave labor. Slaves did not come here because of opportunity - they were forced. There is nothing wrong with touting American greatness. But, the ultimate measure of greatness is how we treat those with the least freedom.
2. Oil - Bachmann said that, as president, she would return gas prices to $2/gallon. Then, she went on to criticize Obama by saying that Gas was $2/gallon when he started, and now it is close to $4/gallon, so his policies must have failed. I guess she might have forgot a little thing called the "Arab Spring?" Or, maybe she forgot when Oil hit its highest price after Hurricane Katrina hit the Gulf Coast during the Bush Administration? Bachmann has no grasp of markets or economics related to Oil. I am not alleging that I am an economic expert, but Oil is such an important commodity because it reflects the market so well. It is very volatile. Bachmann also doesn't realize that she has no control over the majority of the oil we refine for gasoline. She cannot, by some sort of fiat or swish of a presidential wand, make gas $2/gallon. It is impossible.
3. Downgrade - When S&P downgraded the country, Bachmann criticized the Obama Admin. While this is not necessarily a "mistake," it is so completely idiotic that it makes the list. It was her TEA Party Caucus that gummed up the gears of the House of Representatives so that an 11th hour deal was inevitable. It was her stubborn orthodoxy that lead to an unbalanced deal that did not prove to S&P that the U.S. would reign in on its deficit. I bet she is buying some nice curtains for her glass house.

The president or presidential nominee must be able to identify with the American people. This is why Bush and now Perry and Bachmann have so many followers. But, the president must take responsibility for the ideas they put forward. When Rep Giffords was shot in Arizona, many criticized Sarah Palin's "crosshairs" map and "reload" rhetoric. Palin balked, showing that she has no tact and, like Perry and Bachmann, did not take responsibility for her rhetoric. While it is apparent that Jared Lee Loughner was mentally unstable, the point remains: influence translates to action.

In the case of Bachmann and Perry, that influence translates into a widespread adoption of ideas into the American lexicon that make a mockery of science, economics and history.

AA+

Economic and financial analysts met at their yearly fishing retreat (this year in Grand Lake Stream, Maine - sponsored by Cumberland Advisors) as the market had its largest sell-off since 2008 and the U.S. suffered its first credit rating downgrade. The participants, steeped in matters of global economics, had refreshingly clear answers and explanations for the current activity in the market, which acted as a counterpoint to the misinformation coming out of Congress:

1. S&P is playing politics: According to one of the analysts, a report by Standard and Poors miscalculated the financial burden on the U.S. credit rating by over $2 trillion. Once that was taken into account, S&P changed their reasoning for the downgrade from financial to political. After the financial collapse, the bipartisan commission to study the recession concluded that rating agencies who gave high-risk, subprime mortgages a high rating were the main driver of the housing and credit collapse. While S&P was just one of many agencies named in the report, there has been speculation that a downgrade was partially a response to that attack. Analysts also criticized S&P for using politics as a reason for the AA+ rating. While the political brinksmanship did have an affect on international markets, the fundamental financials of the United States should have been considered as the sole guide for a credit review. In that case, there is slightly less justification for a downgrade as there was a nearly unified consensus amongst mainstream Republicans and Democrats that a default was not on the table.

2. The market sell-off was an indication of a continuing rough patch in the economy - Before the downgrade, an analyst at the retreat was interviewed by NPR about the 500+ point sell off in U.S. stocks. The analyst said that people are already aware of the debt crises, the recession, the part shortages from Japan and the reaction that the market had to the political horse-trading in Washington. This, he said, was just a symptom of an already skittish market that is still on the road to recovery. He pointed to a combination of high oil prices from Arab Spring, automobile and electronic parts shortages from Japan, a stalemate over raising the debt ceiling and the economic crisis in Europe all coming to a head. He assured that a double-dip recession was unlikely, and that the sell off was a reaction to a perfect storm of economic news.

3. S&P Did a Good Thing - While many at the retreat were optimistic, there were some who, like many Americans, were sick of the political grandstanding in Washington. There was some talk of how the downgrade was a good wake up call that we need to control our debt with balanced means. The prevailing view was that the deal in Washington was not good enough, and that a balanced approach of revenues and cuts would have been seen a a better long-term solution. And, the downgrade showed that international markets have no confidence in Congress, and do not see this "super-committee" as being able to fulfill its job of finding $1.2-1.5 trillion in cuts. This news is not surprising, as Congress currently has a 12% approval rating.

4. Indicators are projecting different outcomes - Investors are selling and the stock market is tanking. But, key indicators are not completely foreshadowing a double dip recession. The price of gold, which usually has an inverse relationship with U.S. markets, is at an all time high of over $1,700/ounce. Oil, another good market indicator, is slipping in reaction to the possibility of lower demand in a slowing economy. But, even after the U.S. was downgraded, investors still remain optimistic about U.S. debt and continue to stay in the T-Note. This is because the T-Note is the best bet in town. While the U.S. seems to be completely gridlocked over how to reduce its growing deficits, the EU is having a much worse financial crises, which might spread from smaller economies (Greece, Ireland, Portugal) to larger economies (Italy, Spain), necessitating further bail-outs.

The downgrade is certainly a wake-up call for U.S. fiscal policy. The charge that S&P played politics with the world economies is completely baseless if it comes from anyone inside the beltway. It is the extreme wing of the Republican party who refused to back down from an unbalanced approach to deficit reduction, and instead decided to scream in an echo chamber instead of negotiating for a more substantial debt-reduction deal. It is the Administration and the speaker who cow-towed to an extreme wing by not having a robust discussion about a balanced approach to "live-within-our-means" fiscal policy. Regardless of who gets the blame, fault will fall on the Administration's head, as Obama will be the first President to see a U.S. downgrade. More importantly, it is the affirmation that partisanship has become an unprecedented polarizing force that has isolated Congress in such a way that the financial health of international markets has been an aside to stubborn political orthodoxies.

For Reference, here are some sections from the S&P downgrade language:

"The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability."

"Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act."

"Although in our view the credit standing of the U.S. government has deteriorated modestly, we see little indication that official interference of this kind is entering onto the policy agenda of either Congress or the Administration. Consequently, we continue to view this risk as being highly remote."

"On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction--independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners--lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government's debt dynamics, the long-term rating could stabilize at 'AA+'."

The most foreboding:

"We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case."

Mitt Romney: A Right Turn to Make Us go Left

In the 11th hour, the Obama Administration, with the cooperation of a functional Senate, released a debt-ceiling bill. It relied on short and long term cuts, created a bipartisan commission to lower the debt, raised the debt ceiling and put through trigger cuts to encourage the commission to come back with a package including entitlement reform in the near future.

It looks as if we will not default...

This Bill will not get unanimous support in the Senate. It certainly will not get close to unanimous support in the House. The TEA Party will vow to punish those Republicans who vote for a rise in the debt ceiling, and Michelle Bachmann will cry about the sky falling.

But, there is one nominee, separated from the fray, who has made a rightward shift. Mitt Romney has again proved that a supposed moderate will turn into an opportunistic pariah if it means they will score political points with the extreme wings of their party. This is the same Romney who passed a widely successful universal healthcare bill in Massachusetts and the same Romney who supported regulation of greenhouse gas emissions to curb global warming.

Romney has released a statement in opposition of the debt ceiling compromise. He has called the 11th house situation a product of "President Obama's leadership failure" and that his "lack of leadership" has put the Republican Party in a difficult place.

If I could write to express how livid I was when I heard this boilerplate, blatantly opportunistic, unproven, disrespectful and bombastic statement that the Romney camp released, I think I would lose some readers.

Romney has remained silent throughout the entire debate, not taking a stand on any of the many plans that have been released by both camps. But, at the last minute, he decides that it is the failure of the president, and that he opposes the current deal. So, I am to assume, because he remained mum throughout, that he completely endorses a default. He is trying to court the most extreme side of the party (TEA) by releasing statements that seem to cow-tow to a position of stubborn principles over market disaster - a hubris above all.

He goes on in his statement to say that he would have "cut, capped and balanced" the budget without putting taxes or defense spending on the table. Seeing as defense spending is a major chunk of government expenses (remember...we are in 3 wars) and even the most orthodox budget hawk Tom Coburn (R-OK)said it was "stupid" to not consider revenues when balancing the budget, he must have his head in the sand (or somewhere else where the sun don't shine).

Mitt...listen. Obama and Reid have put plans on the table have not included defense cuts, taxes, included entitlement reforms and massive cuts, all of which were, at one point, endorsed by mainstream Republicans. Boehner and your merry band of TEA Partiers have rejected every budget, and failed to separate the debt ceiling from the budget debate, leading to an 11th hour deal. Even your own minority leader in the Senate, Mitch McConnell (R-KY), has said that a default would be disastrous for the party. He has more experience and more political savvy than you. He and Reid have pushed the once dysfunctional Senate to find a compromised (yet leaned-right) budget plan. You forget that some of the most important principles to the Democratic party are being ignored (defense cuts) or cut (entitlements). Yet, they will vote in favor. They will put their concern for the financial health of the country above their scruples.

The divisive language that you espouse, championed by the TEA Party and conveyed by the Speaker created the "extraordinarily difficult position" for the Republican party, not Obama or the Democrats.

So, please...keep the comments to yourself.

Mayor Mike Bloomberg Moves Beyond Coal

Partisanship Infiltrates the Ethics Committee

I think it comes as no surprise that President Obama has emphasized the lack of public confidence in Congress as a way to bolster his budget proposal. He summed up the situation perfectly when he said that the American people elected a divided government in November, not a dysfunctional one.

Nothing characterizes the polarization in Congress better than the partisan infiltration into the Ethics Committee. The Ethics Committee is made up of 5 Republicans and 5 Democrats, and is supposed to be the only non-partisan committee. It's sole purpose is internal investigation into the actions of Congressman and Congresswomen.

Rep Maxine Waters of California is being investigated over her role in bailing out a small bank that her husband had a $350,000 financial stake in. She violated the ethics code of her office, and should be investigated.

Here's where it got partisan. Staffers Morgan Kim and Stacy Sovereign were accused of having "ex parte" communications with Republican Representatives, which breaks the supposed non-partisan nature of the committee during the Charlie Rangel case. If this were to be revealed, the proceedings against Rangel would have been dropped. Hundreds of pages of documents from the Committee, given to Politico, showed petty partisan bickering amongst staff and Representatives on the secret committee. This kind of bickering has put the Waters investigation in jeopardy, as she had moved to have the charges dropped. She had been accused of two ethics violations and asked for a trial. But, the trial was postponed multiple times. These postponements were revealed to be a product of partisan wrangling.

In this era of hyper-partisanship, the Ethics Committee structure is supposed to isolate itself from the fray. Staffers on the committee (usually ethics lawyers) investigate actions by Congressmen/woman and make recommendations based on congressional ethics guidelines, not partisan inclinations.

Now, the Committee has been chosen to hire a lawyer to investigate itself. I guess we must accept a Congress where even the supposedly unbiased Ethics Committee can fall victim to partisanship.

Populism, 1896/2012: We have Seen This Before

The TEA party, a conservative and (supposedly) populist uprising, is putting pressure on the Republican party to make massive spending cuts and not agree to raise the debt ceiling. Their rhetoric is forcing many mainstream Republicans between the extreme wing of their party and the possibility of an international financial catastrophe.

And....

We are heading into an election season. The choice that the Republicans make on the debt and the debt ceiling will reverberate. The tea party has vowed to "make an example" of those Republicans who vote to raise the debt ceiling.

But...we've seen this before.

Populist uprisings and a divided party were highly contentious issues during the election of 1896. After the Civil War, small Southern and Western farmers faced a serious economic downturn as the southern economy transitioned away from its dependence on slave labor. While many southerners fought on the side of the Confederacy, most were not rich enough to own slaves. A group founded by agrarian interests called the Farmer's Alliance(AKA the Order of the Patrons of Husbandry/The Grange) combined with the Knights of Labor to form the Populist Party. They took control of the Kansas Legislature, elected the first Populist Senator and nominated James B Weaver for president in 1892 (won over 1 million votes).

In 1896, the Democrats, whose policies were most aligned with Populists, nominated William Jennings Bryan on a free-silver platform (amongst other things). The Populists split off into those who wanted to be integrated into the Democratic Party and the "middle-road" people who wanted to continue with their third party status. They had a separate convention and also nominated William Jennings Bryan, but with a different Vice President. Bryan and the Democrats absorbed some of the Populist ideas into their party platform and rejected others, alienating the "middle-road" segment. The remaining Populists split the vote leading to a clear victory for Republican William McKinley.

So, why the history lesson?

While the TEA party does not represent the type of populist ideals that the Populist party ran on, they do act as a force of disunity within a major party heading into an election. Like the TEA Party, the Populists represented a plethora of interests. Some supported going back to the gold standard (Gold Bugs), some wanted money to be backed by Silver (Silverites), many were anti-corporate (heavier regulation of the rail industry over predatory pricing on grain elevators) and some wanted more government intervention to help farmers. All of these forces were difficult to reconcile into a coherent party platform. This was exacerbated by the split between Gold Bugs and Silverites and integrationists and middle-roaders.

The TEA party is made up of many elements of political conservatism. Some are for the legalization of drugs and the termination of wars in Afghanistan, Iraq and Libya (Libertarians, or Ron Paulites). Then, there are the religious conservatives who are fervently anti-choice and anti-gay marriage. The Moral conservatives (religious) tend to clash with Libertarians on the wars, legalization of drugs, abortion, religion and the role of the government. Libertarians would rather see cuts across the board (See the Paul family) and religious conservatives would like to see the government be a moral crusader. All of these forces will act upon the mind-set of many mainstream Republicans and push them farther right. This might be safe during the debt ceiling debate, but the platform will be difficult to articulate once 2012 rolls around.

If Barack Obama wants to win in 2012, he must exploit this division. McKinley injected humor into Bryan's dramatic "cross of gold" speech, which acted to further divide the Democratic party. He exploited their divisions and stood on a very simple, digestible platform of American exceptionalism, expanding overseas markets and conservative monetary policies. Obama must inject some levity into the TEA party platform (as he did with the Birther issue) and have a consistent and simple theme for his Campaign - American ingenuity. This will contrast with the Republican party, which will have to harmonize conflicting perspectives while trying to cow-tow to an extreme minority whose shelf life is coming to an end.

Debt Ceiling: I Agree with Mitch McConnell

Take note the time (9:06am) and the date (July 14th, 2011)

You read that right: I Agree with Mitch McConnell (R-KY).

McConnell suggested a strategy to allow the president to raise the debt ceiling. A Bill to increase the debt ceiling would go through Congress, get a disapproving vote, the president would veto it and the debt ceiling would be raised. Politically, this is a great move for the Republican Party, as they could hammer the president about spending cuts after the debt ceiling is raised. His plan was immediately dismissed by the ultra-conservative wing of his party, led by Michelle Bachmann, Jim DeMint and Jason Chaffetz. Chaffetz went as far as to call the plan a "stupid idea."

This was always about politics for McConnell. McConnell was the first to say that the Republican strategy was to make Obama a "one-term president" as far back as November. He is a shrewd politician, and has the experience to back up his strategies. He knows that if the government were to default on its obligations, the party would suffer. This kind of foresight can only come from experience. Chaffetz, Bachmann and DeMint are too extreme and inexperienced.

While I vehemently disagree with McConnell's politics, and his intentions, the idea of raising the debt ceiling and divorcing it from debt reduction debates is something I can agree with. In my last two blogs, I ranted about the importance of separating deficit reduction from raising the debt ceiling because of its affects on the market.

The effects of a possible default have already proven to be somewhat foreboding. This week, Moody's released a statement saying that they are considering a downgrade to the US's AAA Bond Rating. This statement caused international stock markets to fluctuate, as Asian and European investors became nervous. If the US was to default, interest rates on everything from home mortgages to credit cards would go up, hurting consumers trying to dig themselves out of a recessed economy. But,
Bachmann, Chaffetz and (recently) Palin are willing to put the international market on unstable footing and put a heavy burden on consumers in order to reduce the deficit. In other words, they are being whiny children who will hurt anyone to get their way.

McConnell has proven, directly or indirectly, that this kind of political stance is not pertinent and will only hurt his party in the long run. Politics aside, this is a common sense approach to raising the debt ceiling in the most expedient fashion.

Fear and Paranoia Cut Both Ways

I had a civilized discussion recently with someone who is nearly my political opposite when it comes to energy policy. She make the assertion that radical environmentalists on the left had been using fear in order to pass policies that are destructive to business and slow the economic recovery. To me, it sounded like boilerplate language from an American Enterprise Institute or Heritage Foundation press release.

Here is the problem with that assertion (beyond the fact that it is completely wrong): It cuts both ways.

The major argument that has been used for many-a-years as a response to regulations or safeguards put through by the administration has been that it is a "job killer" and that it will stymie our recovery or even put us into a double dip. The same people who make that argument say that environmentalists and bureaucrats are using fear (climate change mostly) as a way to push through these regulations. I hope you see the obvious imbalance in their arguments. While they criticize the use of fear, they liberally use the same tactic in a more hyperbolic and fallacious way to defeat such regulation. Every regulation, whether it is used to prevent another bank bailout, create safety standards for coal miners, oversee offshore drilling rigs or safeguard the health of communities near coal ash sites, has been met with the same old adage: it will kill jobs.

When there is a blanket and generalized negative response to any regulation, it acts to destroy a lot of the common-sense policies that safeguard our environment and health from the mistakes of the most immediate past. For Example:

In 2010, 29 miners died in the Upper Big Branch (UBB) mining disaster in WV and 11 drill workers died in the BP Offshore Drilling spill, which also leaked 200 million gallons of crude into the Gulf of Mexico. Democrats in Congress tried to pass legislation that would reign in on unsafe mining conditions (like the ones at UBB) and the administration put a hold on offshore drilling until an investigation found out the source of the explosion on the BP platform. Mine safety legislation stalled and the administration is still taking political heat for putting a moratorium on offshore drilling. This result occurred after each policy was politically tainted by the paranoid thought that minimal safeguards for mine and drilling workers would lead to massive layoffs, a slowed economy and a further dependence on foreign oil. These ramblings turned public health, common sense regulations into a political poison pill.

Recently, Oklahoma Senator (flat-earther/knuckle-dragger) James Inhofe blocked the nomination of John Bryson for Secretary of Commerce. Bryson, a highly qualified businessman and former head of Edison International, is a perfect nomination for Obama. He plans to double the administrations target on exports by 2015, which is a lofty, admirable and right-minded task for a recovering economy. But, Inhofe blocked his nomination, saying that his policies will hurt the economy of Oklahoma and the country, at large. His justification? Bryson was the founder of the Natural Resources Defense Council in the 1970s, so he must be a radical environmentalists who is hell-bent on destroying the economy. But, by holding up his nomination, he stands in the way of the ratification of treaties with Brazil and South Korea, which is another sticking point that is causing some of his colleagues to hold up other Administration nominations.

This vicious cycle, fueled by paranoia and fear over a flagging economy might become self-fulfilling. And if the holding up of nominations and the lack of oversight into fossil fuel extraction causes economic and human tragedies, you can bet the only target of rhetorical attack will be the administration.

John Boehner: Speaker of the House of Stubborn Hypocrisy

Not raising the debt ceiling will have catastrophic effects on the market.

Let me reiterate.

NOT RAISING THE DEBT CEILING WILL HAVE CATASTROPHIC EFFECTS ON THE MARKET.

Good.

Before we stave off the worst effects of having the most powerful nation in the world default on its financial obligations, a vote must pass the conservative-led House of Representatives, led by the affable John Boehner. The House has become so ideologically-driven that it now has the honor of being the "stubborn ass" of Congress. This title was formerly given to the Senate. The title changed hands after deficit hawks (Coburn, et al) showed that they are willing to consider "revenues" as a way to reduce the deficit over time.

Extreme conservatives, taking the House hostage, completely fail to see the forest for the trees. Political wrangling and negotiation over how to reduce the deficit should not play a role in raising the debt ceiling. Unfortunately, Speaker of the House Boehner (Chief Stubborn Ass) and Majority Leader Eric Cantor (Co-Lead Stubborn Ass) have connected deficit reduction with increasing the debt ceiling. Because I assume Cantor and Boehner are not completely ignorant (I have my doubts), I can only conclude that they have learned from their ultra-conservative colleagues about the value of brinksmanship.

Not only have Boehner and Cantor proved that the conservative perspective is completely myopic, but they have also vastly skewed the political playing field to the right, making any compromise inherently partisan. In other words, they have gotten used to Obama's compromises so much that the ideological center is on the political right. This was emphasized by Boehner's recent remarks going into deficit discussions. He said that a "balanced approach" that "most Americans want" is where the President and the left get a debt ceiling vote and the right gets massive program cuts without tax reform or raising "revenues."

They will not consider raising revenues because it is a job-killing move and will slow our recovery. The problem with that language is that it is a boilerplate excuse used by the Republican party to kill anything they don't like. I distinctly remember hearing "job-killing" about the healthcare bill, the financial reform bill, regulation of independent contractors in Iraq/Afghanistan, the energy bill, the transportation bill and a plethora of others.

Even worse is the hypocrisy inherent in their ideological-rigidity. They will not consider any form of revenues or tax reform because it might translate to some sort of higher cost to businesses over time (emphasis is on "maybe" as the tax code hasn't really been reformed). This will lead to higher unemployment because businesses will not be willing to hire more workers. But, they are more than willing to cut the budgets of many government agencies who employ people and offer guidance and financial support for the same businesses. This means less taxes to the government coffers, higher deficits, higher unemployment (which is not offset by the private sector) and less support for businesses. They fail to see how cutting indiscriminately has the potential to increase the deficit and unemployment. Unfortunately, when this does occur, their response to is blame the president and/or the stimulus.

This is not a compromise. This is political brinksmanship. While the president should be used to this kind of horse trading, he should not tolerate it when the health of the market is at stake.

Republicans Don't Care About the Unemployed

It seems as if Republicans have found their political niche. Even with a majority in the House, they have continued to be on offense when it comes to the economy and the debt. If the President or the Democratic caucus puts a proposal on the table, Republicans reject it, amend it out of existence or balk until they like what they see.

Case and Point: The Debt Ceiling - The only news about the debt ceiling is when some Republican hints at agreeing to some sort of veiled language about "revenues" or "tax code reform" as a part of a compromise.

Compromise?!?!

Really?!?!

Your idea of compromise is $2 trillion in gut wrenching cuts with a little talk of "tax code reform?" I guess a bipartisan group of former lawmakers who recommended a balance between cuts and taxes really doesn't know what they're talking about. Of course, they have been through this before. But, what do they know.

The unemployment numbers released for June were pretty depressing. In June, unemployment rose to 9.2%, and the economy added a dismal 18,000 jobs. For comparison, to keep unemployment steady, we needed to add 125,000-150,000 jobs. This is of course not the real unemployment number, as it does not take into account those who have stopped looking for jobs and those who have fallen out of the job market because of the length of their unemployment.

When I heard the report on NPR, I had a sinking suspicion that Republicans would pounce on it. Michelle Bachmann, TEA-party ignoramus extraordinaire, said it was a sad day for American and that it proved that the Obama Stimulus did not work. Boehner, Canter and Romney all followed her by lambasting the stimulus bill.

The Stimulus Bill passed, the Healthcare Bill passed, the Financial Overhaul bill passed...over a year ago. Get over it! I bet its great to whine about losing when you can watch the economy shed jobs instead of doing anything about it. Isn't it fun to live in a glass house?

This comes from the same party that voted against infrastructure projects for laid off construction workers and extensions for the unemployed. You must have had on some blinders when economists pointed to 1 job for every 6 qualified applicants. No. The unemployed are just lazy. That must be it.

But, if we cut spending, then the private sector will have a great environment for hiring and unemployment will go down, right? Not so much. The private sector has added jobs. But, for the last 24 months straight, the shedding of jobs from the public sector have been the main source of unemployment. When you criticize the president for doing exactly what you wanted him to do (cut government spending, which lead to laying off government workers), then it means you really have done nothing.

When it comes to current economic policy regarding the unemployed, Republicans are yelling in an echo chamber. They have isolated themselves. Anti-tax ideology doesn't mean diddly to those who are struggling to feed their family. If we are to tackle the unemployment issue, there must be a separation of the debt debate from the jobs issue. House Republicans are holding the economic recovery hostage by not allowing the debt ceiling to be raised. Has it become so toxic in Washington that a party has to blackmail, hold up and impede progress in order to get what it wants?

It seems as if the jobs issue, while popping up once per month when new numbers come in, has become secondary to the isolated ideological rants of children.

Coverage of Yellowstone Exxon Spill

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In Plain Sight: Osama Bin Laden vs. Whitey Bulger

This week, the FBI arrested another on its Top 10 Most Wanted List - notorious gangster Whitey Bulger. He was charged in connection with 19 murders, racketeering, extortion and a host of other mob-like crimes. His story was the motivation behind Jack Nicholson's character in Martin Scorsese's The Departed. The man was living in Santa Monica since he evaded Boston police in 1994.

The LATimes released an editorial comparing Bulger's capture to the capture of Osama Bin Laden, as they were both "living in plain sight" and evaded capture. The article pointed to the fact that Pakistan might leverage Bulger's capture as a way to deflect criticism that Pakistani officials knew of Bin Laden's whereabouts and did not catch him because of corruption.

I will admit that there are some similarities between the two. Both were on the FBI's Top Ten Most Wanted List, both were wanted for orchestrating mass murder, both men were captured after multi-year investigations, and both were hiding in plain sight. But, leveraging Bulger's capture as an example that a highly wanted fugitive could hide in the plain sight ignores a serious and glaringly obvious problem: corruption.

There have been a couple events in the 10-yr search for Osama Bin Laden that have shown obvious corruption amongst the ranks of the Pakistani intelligence. In 2008, militants from a Pakistani arm of the Taliban attacked Mumbai, killing hundreds with AK-47s and explosives. After pressure was put on the ISI (Pakistani intelligence), it was revealed that they provided support and weapons to the terrorists who staged the attack. At the beginning of the War in Afghanistan, US intelligence pinpointed the exact location of OBL and allowed for a joint Pakistani-Afghan force to carry out the assault on his compound. Without US intelligence or military oversight, the force "let him go." The ISI has worked with militants in attacks on India and western forces in Afghanistan while helping the NATO alliance track down Taliban insurgents. There has been convincing proof that Pakistani intelligence is working both sides.

These allegations provide a compelling reason to doubt the veracity of the Pakistani's claim that OBL could live in plain sight and that the ISI and any other Pakistani military force was not in cahoots with him. The evidence also negates any comparison to Bulger that might attempt to exculpate Pakistan.

Corporate Personhood and the Stretching of the First Amendment

In a recent decision (Nevada Commission of Ethics v. Carrigan) the Supreme Court backed away from its Citizens United perspective to strike down a Nevada state court ruling that a vote by a legislator is protected speech.

I am no conservative by any measure, but the loose interpretation of the first amendment that came out of the Citizens United was chilling. I can't imagine, with any stretch of the imagination, how a corporation could have first amendment rights and how campaign spending is tantamount to free speech.

Looking at past jurisprudence, you can see how corporations began to be recognized as people. In the case Dartmouth College v Woodward, the Supreme Court applied the right to contract to an educational institution and corporation (Dartmouth College) when they ruled the state of Maryland could not change the school's charter (as it is a contract). In 1886, the Supreme Court ruled in Santa Clara County v Southern Pacific Railroad that corporations were recognized as people for the purposes of applying the XIV Amendment.

Michael A Carrigan was censured by the NV Ethics Commission for voting as a Sparks city councilman on a hotel that also hired his friend as a consultant. NV Ethics law requires that an legislator recuse themselves from cases involving someone who they are related to or have a "substantially similar" relationship with. The NV state court ruled in his favor, saying that voting is protected first amendment speech.

But, the Supreme court ruled unanimously that a vote by an individual legislator is not protected speech and reversed the decision. Justice Antonin Scalia, writing for the court, said that the legislators vote is his responsibility as a part of the legislature to approve or repeal proposals. The power therein is committed to him by the people, so the legislator has no personal right to it.

It is about time the Supreme Court stopped cow-towing to those who want to gut conflict of interest laws in the name of stretching the First Amendment to its breaking point. This decision finally allows for citizens to hold their elected officials to the highest ethical standards.

Alabama's HB56: Good Old Southern Hate

Alabama passed the strictest anti-illegal immigration law in the country. Completely ignoring the Federal injunction against Arizona's SB1070, Alabama governor and Southern Baptist deacon Robert J Bentley gave his John Hancock on HB56, reviving what made the South so famous during the 1950s: Hate and Discrimination

Bentley was quoted as saying: "We have a real problem with illegal immigration in this country"

But...not in Alabama. And, last I heard, the Federal Government is the enforcer of laws cracking down on illegal immigration. Maybe we should ask the esteemed Senators from Alabama, Richard Shelby and Jeff Sessions. Yes, I am referring to the same Senators who blocked cloture on immigration bills on the Senate floor. I suppose when you say that we have a problem, elect people who do nothing and then reiterate that we have a problem...you really didn't do anything.

Back to the discrimination.

Illegal immigration comes from a variety of countries. But, the most visible and highest concentrated source of illegal immigration is Latin America and Mexico. But, Latinos only make up 3.9% of the population in Alabama. It must be easy to vote in a law targeting one ethnicity if that ethnicity isn't really represented in the population.

If we can eliminate the logical reason for passing HB56, then what are we left with? For the Alabama legislature, it would be nothing but discrimination. If the state cannot legally enforce this law, then it is just a bunch of angry white people lashing out.

The main job of migrants in the state of Alabama is agriculture. You show me a blue collar white Alabamian who wants to work in the fields for long hours and low pay, and I will eat my hat.

What's even more ridiculous about this law is not the fact that it makes it illegal to fire or refuse to hire a legal citizen if an illegal immigrant is on the payroll. No. It's also not the fact that it makes it illegal to rent property to illegal immigrants, instructs police to "make a reasonable attempt to determine a persons citizenship status," or that a legal contract is automatically void if entered into with an illegal immigrant. And, its even not that they use the same language that the Arizona law used ("reasonable suspicion") that made it a prime target for a Federal Injunction.

It's the backwardness. It's the lack of short term memory. It's the use of public funding (salaries) and time to make a completely symbolic gesture that will not be worth the paper it is written on. But above-all, its the institutional discrimination.

Healthcare Mandate: A Justification "Shot in the Dark"

I am no legal scholar, but I am going to take a "Shot in the Dark" in trying to prove the constitutionality of the new Healthcare mandate by precedent.

Here we go...

In 1905, the Supreme Court rejected a New York law that restricted the working hours of bakers. The majority opinion (by Justice Rufus Peckham) in the case Lochner v New York said that laws regulating working hours of bakers is not within the "Police Powers" of the state and violates the inherent liberty of contract within the Due Process Clause of the 14th Amendment. Legal scholars call the next quarter century the "Lochner Era" where the Supreme Court struck down regulations on business using the same argument.

In 1908, The Supreme Court upheld Oregon regulations on working hours for women. The majority opinion (by Justice David Josiah Brewer) in the case Muller v. Oregon said that Lochner was not overruled, but tweaked. They made the distinction between the role of women and men adding special protection for women because "the physical well-being of woman becomes an object of public interest." Justice Brandeis supported the unanimous decision with a series of studies (later called Brandeis Briefs) that brought social science into the purview of Supreme Court jurisprudence.

In 1923, the Supreme Court struck down a federal minimum wage statute for women. The majority opinion (by Justice Sutherland) in the case Adkins v. Children's Hospital used the Lochner argument, saying that the federal minimum wage statute was a violation of the 14th Amendment.

In 1937, the Supreme Court upheld a minimum wage law in Washington, overruling the Adkins decision. In the majority opinion in the case West Coast Hotel Co v Parrish (by Justice Hughes), the court upheld the law saying that the 14th Amendment protection does conflict with laws that are meant to protect the community and the health and safety of vulnerable groups.

in 1942, the Supreme Court upheld the Agricultural Adjustment Act of 1938 (controlled the wild fluctuation of wheat prices with quotas) in the case Wickard v Filburn. The majority opinion (by Justice Robert Jackson) said that the power to regulate price at which commerce occurs in inherent in the Commerce Clause.

The Healthcare mandate us currently being argued before Federal Judges. 26 states have challenged the law in court, and some have struck it down while others have upheld it. One of the arguments against the law is that it does not have precedent - there is no power or ruling that upholds the federal government's power to force people to take part in commerce (in this case - buy insurance).

I disagree...

Explicit in the Supreme Court cases I have listed is the ability of the Federal Government to regulate commerce. Minimum wage laws, as in the Parrish decision, were upheld to protect the health and well being of a vulnerable group. The Filburn decision showed that, through the power of Interstate Commerce, the federal government can regulate economic issues. The Supreme Court also upheld Social Security, the Voting Rights Act of 1964 and the ban on White's Only lunch-counter through its ability to regulate interstate commerce. The Interstate Commerce Clause, in some regard, can be used to avoid a confusing and patchy regulatory environment of issues of safety and commerce. If an individual were to get sick across state lines and he/she is uninsured, they are subject to the laws of that state. This is where an Healthcare interface with interstate commerce exists. The uninsured become an "object of public interest" because of the burden of care they have on taxpayers. Thus, the federal government has the right to require a minimum standard.

Kansas: A Microcosm for the Debate over Cuts and Job Creation

Kansas Governor Sam Brownback privatized the state's art agency this week by signing a bill that stripped all state funding. Brownback was elected Governor after a 2010 campaign based on job creation. His privatization of the state art's agency was a way to reduce the deficit.

But...not really.

Brownback based his decision on the return that the state of Vermont got when it privatized its arts agency.

Except...not.

In an open letter to governor Brownback, Vermont Arts Council Executive Director Alex Aldrich debunked his claim saying that all states should have a publicly-supported arts program, citing that Vermont got a whopping 775% return on its investment.

As for job creation, or reducing the deficit....not so much.

According to an LATimes Article covering the story, the arts commission generates $95.1 million in household income and $15.6 million to state and local revenues. They are also forfeiting an $800,000 grant from the National Endowment for the Arts and another $400,000 grant from the Mid-America Arts Alliance. Arts non-profits who receive funding from the state's coffers also employ over 4,600.

This fight in Kansas is a microcosm for a larger debate over cuts and job creation. Somehow, in the minds of Congressional Republicans, there is no conflict between drastic and painful cuts and job creation. Republican governors all over the country have chosen to exploit this directive to make cuts to programs that they have a moral objection to: Planned Parenthood, National Public Radio, Environmental Protection and the Arts. This is pure political opportunism.

There is a contempt amongst Republican ranks towards every aspect of the government, including public workers. They don't view them as people, but moreso as collateral damage in the process of growing the economy and creating jobs. But, when you make drastic cuts to programs, like Brownback did, you lose the economic support that those programs provide to public entities (like grants from the NEA) and you layoff thousands. In the name of debt reduction you have destroyed jobs, reduced a financial support line for private business and...well...not reduced the deficit. A recent report on layoffs reported that 40% of all layoffs in April were from public workers. Hey...they're people too.

There has to be a "come-to-jesus-moment" (no pun intended) for Republicans of this ilk: drastic budget cuts means layoffs, and layoffs means less jobs.

A Post Glass-Steagall World: The Proliferation of Too-Big-to-Fail

In 2008, Bear Sterns collapsed. A couple months after its quick-acquisition by JP Morgan, I was sitting on a bus at 4am driving towards Masada in Israel. I turned to my friend Max from Boston, an associate at Lehmann Brothers. I asked him what he thought about Bear Sterns. He shrugged and told me that he would "wait and see." Three months later, Lehmann filed for bankruptcy.

And, so it began. Bank of America bought out Merrill Lynch (forced acquisition, depending on who you are talking to), JP Morgan bought Washington Mutual, AIG tanked, Goldman Sachs tanked and the NYSE dropped precipitously, sending the Down-Jones Industrial average from a high of over 14,000 to just below 6,000 (this occurred over a number of months). Small banks failed, big banks went bust, investments flopped and "too-big-to-fail" entered into the political and social lexicon.

As is the tradition with many major financial emergencies, politicians and businessmen pointed fingers. Democrats blamed the Bush Admin and Alan Greenspan, citing deregulation of banks and the egregiously bad enforcement of regulations by the Securities and Exchange Commission. Republicans blamed the Clinton Admin for its mission to allow anyone with a pulse to get a home loan. And, populists blamed shady and high risk investments by big firms like Goldman Sachs and AIG.

They are all correct:
The Clinton Administration's policies that gave home loans to individuals with terrible credit was a driver of many of the foreclosures when the housing bubble burst. But, in his compromise with the Republican-led Congress, he signed the repeal of the Glass-Steagall Act. This allowed for the creation of the behemoths that became "too-big-to-fail" by removing the separation between Wall St banks and Depository banks. Add in a host of high risk home mortgages that were packaged as securities based on an idea of a "never-ending" rise in housing prices, and you have the right mix for financial collapse stew.

What should be emphasized about the banking and investment environment, post-financial collapse, is the 1999 repeal of the Glass-Steagall Act. The Act, passed in 1933, created the Federal Deposit Insurance Corporation (FDIC) and introduced bank reform measures to curb speculation. The Great Depression, caused by a combination of international monetary policy (see "Dollar Diplomacy") and high speculative financial policy (See "Buying on Margin c. 1920s), was the main driver for bank reform. During the 1980s, investment banks lobbied heavily to get the Act repealed. In 1987, arguments arose for preservation and repeal:

Preservation:
1. Conflicts of interest for granting credit - lending and investing would happen in the same place, an abuse the Act was created to curb
2. Depository banks have a lot of power because they control the people's money - they should be regulated
3. Investments banks could make risky moves, putting the people's money in jeopardy.

Repeal:
1. Banks are losing market share to securities firms
2. Conflicts of interest can be avoided by regulatory enforcement
3. Combination of commercial and investment banks would lead to diversification and a reduction in risk

For those who argued for preservation, it seems as if they had some sort of financial crystal ball. For those who argued for repeal, eating your words doesn't even cover it:

1. Banks are losing market share to securities firms
What Happened: Securities firms invested in the bundled high-risk mortgages that were backed by loans from banks. Once the housing market tanked, the defaults shot up. Banks were left with trillions (yes...trillions) in toxic investments, which the government was forced to buy out.

2. Conflicts of interest can be avoided by regulatory enforcement
What Happened: Government bodies responsible for overseeing financial markets (SEC) did a piss-poor job at enforcement where they took a complacent attitude towards high risk investments. Ponzi schemes like Bernie Madoff's showed that "regulatory enforcement" wasn't worth the paper it was written on.

3. Combination of commercial and investment banks would lead to diversification and a reduction in risk
What Happened: High risk, high return, highly insulated investments led to "too-big-to-fail" institutions to play Russian Roulette with people's deposits and long-term savings (401[k]s, Retirement Funds, etc). Now, imagine what it would be like if Social Security was privatized before this happened.

A major criticism of the TARP/Bank Bailout initiative was based on "dependence." (my characterization). When an financial institution makes a risky investment, like buying up sub-prime mortgage securities, and the investment fails, the institution will learn one of the major lessons of capitalism - learn from your mistakes. But, with the advent of "too-big-to-fail," the institution will never learn their lesson. If the consequences of allowing that institution to fail have such a detrimental effect on the global economy that it must be "bailed out" then policies that lead to such a status must be reviewed. Due to the lack of strong regulation in the financial market, coupled with the surety that a financial institution will be "bailed out," we will never learn from the mistakes of the financial crisis, and there will only be a continued proliferation of "too-big-to-fail."

A return to the Glass-Steagall Act may not be pertinent at this time. We have entered a post-Act era, and must accept the existence of "too-big-to-fail." It is in this environment that the Fed and the Private Sector have to dance a fine line between punishing institutions for risky investment and growing a recessed economy.

The Massey Way

Massey Energy, the company that owned the Upper Big Branch Mine (UBB) in West Virginia, has finally been faulted with the disaster that killed 29 miners. It only took 13 months.

After the disaster, J David McAteer asked then governor Joe Manchin III (now Senator Joe Manchin III) for an independent investigation into Massey Energy and the cause of the UBB explosion. McAteer is the president for special programs at Wheeling-Jesuit University and was a former secretary of Labor in charge of the Mine Safety and Health Administration (MSHA) under President Clinton.

McAteer's report made the following conclusions about the cause of the UBB explosion:

1. The explosion was preventable
2. The explosion was the result of egregious failures and violations of minimum safety standards including proper ventilation and water of coal particulates. The free flowing particulates coupled with methane buildup ignited an explosion that killed the 29 miners.
3. Self regulating pre-shift examinations broke down leading to violations that were not recorded. MSHA did not provide enough oversight to ensure minimum safety standards were complied with and the West Virginia Office of Miners Health Safety and Training failed in its role to oversee miner's working conditions.
4. Self regulation of miner's working conditions and health as a responsibility of the coal company broke down.
5. The disaster revealed an egregious disregard for the health/safety of coal miners working for Massey.

McAteer also commented on the culture of violations and avoidance at Massey. This section of the report sums up the "Massey Way":

"...Massey is...well known for causing incalculable damage to mountains, streams and air in the coalfields; creating health risks for coalfield residents by polluting streams, injecting slurry into the ground and failing to control coal waste dams and dust emissions from processing plants; using vast amounts of money to influence the political system; and battling government regulation regarding safety in the coal mines and environmental safeguards for communities."

Close to one year ago, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed. The Bill had an obscure section that required all coal companies to report mine violations under MSHA's Federal Mine Safety and Health Act section 104. Section 104 defines and sets penalties for violations that are deemed "significant and substantial...where there exists a likelihood...of injury or illness of a reasonably serious nature."

According to Massey's most recent 10-Q filings, which include the reporting requirement, they received 1,158 violations, including 126 at the UBB-South mine. The resulting fines were $4,416,785.

And, that's just for the first quarter of 2011.

After the UBB disaster, Democrats in both chambers introduced legislation to expand the regulatory power of MSHA by giving them power of subpoena and the power to close a mine, bolster mine safety laws, hiking fines for mine violations and whistle-blower protection. Republicans complained that the regulations would kill jobs and put a burden on coal companies. Sen Jay Rockefeller (D-WV) and Rep George Miller (D-CA) have introduced bills that would strengthen health protection for miners. One bill passed the Education and Labor committee in House on a party-line vote, but stalled in the Senate. The bill has be reintroduced to the current Congress, but is taking a backseat to the debt ceiling debate.

What is so damning about the McAteer report was not the conclusion about Massey's fault in the UBB disaster or the safety violations. It was a short box on page 32 of the report that explained a post-mortem autopsy on 24 of the miners who died in the explosion. 17 of the 24 miners autopsied had Coal Workers Pneumoconiosis (CWP or Black Lung). That is a whopping 71%, or about ten times the WV average and thirteen times the national average. Of the seven that did not have an official diagnosis of CWP, four had "anthracosis" or what is often used as a placeholder for CWP. So, it is possible that 21 out of 24, or 87.5%, had CWP. The miners' ages ranged from 25-61.

A 25 year old with Black Lung...

Ideology Gives Tax Cuts a Double-Meaning, Right?

What is a Tax Cut? Seriously...I am very confused.

I am under the impression that a tax cut is good for business, grows the economy, reduces the deficit (somehow) and allows for a smooth transition out of the recession, right?

Tax cuts are only for those who make $250,000 or more, right?

But, that's good for the economy, right?

The money is invested back into the economy with massive hiring and the tax and entitlement revenues that are taken out of workers wages, right?

But, if you take away a tax cut, you are essentially raising taxes, right?

But, that only works for ideologies that you support, right?

So, if you repeal tax cuts for oil companies, you are raising taxes, right?

If you repeal taxes for oil companies, you are not reducing the deficit by not collecting billions in tax revenues, right?

But, if you repeal tax write-offs for private insurance that covers abortion, that is NOT a rise in taxes, right?

I think I have confused myself once again. Maybe addressing the "right?" wasn't a good idea.

UC System, Tiered to Ruin

An idea has been floated by the University of California in response to the drastic budget cuts by the Brown Administration's "live-within-our-means" strategy:

A tiered tuition system, whereby the most popular "flagship" campuses charged more.

The UC flagship campuses are Berkeley, UCLA and UC San Diego. The proposal was followed by a numbers game that theoretically put tuition for UCLA at $16,000/yr. Adding the average cost of shelter, food, books and other amenities, the cost to attend UCLA would hover around $30,000+/yr. Tuition at other UC schools (Irvine, Merced, Davis, Riverside, Santa Cruz) would stay around $11,000/yr. With extras, the cost remains closer to $20,000/yr. While UCLA and UC Berkeley are more expensive schools to attend, the difference is nominal. That difference is defined by the prestige of faculty and institution, which translated to slightly higher costs for students. This is reasonable. A tiered system is not.

A tiered system would make a mockery of the purpose of the UC campuses. In the first blog post I wrote for Middle of the Road, I lambasted the governor for cutting funding to the UC system. I proselytized about cutting classes, increased tuition and less prestige. While the UC system has not lost its prestige, they are going through a restructuring which has included higher tuition and class cutting. Again, I find myself reminding the UC Regents of the purpose of public education:

To create a system of universities where merit (in its most subjective form) is the only measure of accessibility. In other words, regardless of background or wealth, an individual who is deemed eligible to attend UCLA, Berkeley or UCSD, then they should be offered the resources to do so. These resources should be funded partially by tax money, research grants and private donations.

This tiered system will make the the flagship campuses less accessible to large populations of CA students. It will also create a hierarchy whereby the more affluent students will be able to attend the flagship colleges. This is in direct conflict with the directive of the UC system. But, the worst result will be the inherent competition that might arise from a tiered system. If UCLA, Berkeley and San Diego raise tuition because of a perceived "higher" status, other campuses will attempt to obtain the same status through the same means resulting in a uniform increase in cost. This will be, what UC David law school professor Daniel Simmons calls "competition that would be destructive." Richard Blumenthal, Chancellor of Santa Cruz, also made the point that the uniformity in cost in the UC system gives taxpayers certainty, and any drastic tier-based system will result in a splintering of shared resources. If given the opportunity, according to Blumenthal, schools like Berkeley would raise tuition 25% or more. Affordability and accessibility, something that Berkeley touts when it accepts those who "show promise" as opposed to those with deep pocket books, will be thrown out the door. A good example would the flagship of the University of Wisconsin school system (UW-Madison), which is attempting to secede from the system to have more freedom to raise tuition.

Another important factor to consider is the perceived prestige of the tiered system. The UC system gets its international lauds for being an affordable, near-uniform priced, public university system that allows people from diverse backgrounds to attend classes from internationally known and highly regarded faculty. Whether your at UCR, UCI, UCLA or Berkeley, your diploma will have the "UC" stamp of recognition. The commission admitted that a higher tuition will create a perception of an unequal prestige level. This refers to the committee's statements of "potential negative impact on the perceived reputation or academic quality of some campuses." In other words, your UCR diploma might mean less than your friend's UCLA diploma.

Again, the committee might need a reminder as to the purpose and charter of the UC system.