Missouri, you've just had it too good for too long. So why not try and stretch it a little bit longer?
Just prior to the New Year, a bipartisan panel of Missouri lawmakers released a report highlighting Missouri's energy future. The mission of the panel was to "Determine the best strategy to ensure a plentiful, affordable and clean supply of electricity that will meet the needs of the people and businesses of Missouri for the next twenty-five years and ensure that Missourians continue to benefit from low rates (emphasis mine)." Considering the Missouri has had it so good for their energy prices, it is only natural that they would want to continue this trend. However, the tension between clean energy and cheap energy is only going to increase.
According to the U.S. Energy Information Administration, Missouri residents have a kilowatt-hour cost for their power almost 25% cheaper than the national average, largely driven by a reliance on coal. Fully 80% of Missouri's power generation is fueled by coal. While this form of power generation is indeed the cheapest, it does have a few other attendant costs that have been so expertly socialized by the power industry, and reliance on this form of power for cheaper rates may prove problematic. If Washington pursues the form of cap-and-trade legislation currently bandied about in Congress, Missouri may face an increase in rates as the cost to pollute goes up.
This startling and unsurprising fact clearly influenced the authors of the report, who proceeded to lambast current federal plans as "devastating to Missouri's economic well-being," and glossed over forms of alternate energy with a circumspection and lack of depth that can only belie disinterest or outright ignorance. As a result, the four Democrats on the panel refused to sign the report. This should not be surprising- the struggle for cleaner energy, particularly at the state level, has proceeded largely along party lines throughout the country. However, this tussle hints at a wider problem that needs discussion as well.
The big question is, why should Missouri continue to enjoy energy rates that are lower than the national average? To me, this seems a prime example of what Tom Friedman refers to as part of the national epidemic of "privatizing the gains and socializing the losses." While Missouri residents get the benefit of cheap electricity, borne by the heavy use of cheap coal, neighbors downwind get the cost of increased emissions. While you can't blame Missouri for trying, in the coming era of climate awareness and pending legislation, it is foolhardy and indeed shortsighted for the state house to seek to maintain these low rates. In the report, the 80% reliance on coal as bandied about as a reason to get used to coal reliance. But lets look at the inverse of that. Is this reliance on coal a reflection of a lack of incentive of Missouri utilities to seek alternative power sources? Is the legislative regime demanding low rates stifling creativity and innovation in the Missouri power industry?
These are questions well worth exploring, but do not expect lawmakers to have any part in acknowledging inevitably higher rates. Consistently, the Missouri Public Service Commission has acted to keep rates low, often below the amounts needed by utilities. As fuel costs keep rising, expect the hard-up utilities to seek increasing to raise the rates in tandem.
The omissions and oversights of the report raise further eyebrows. I was surprised at the lack of attention paid to wind power in Missouri, given that this resource has been extensively studied at the state and federal level. While this form of power generation needs further investment and research, there is potential in this industry, and it curious that lawmakers ignored this potential source of jobs and prestige for the state.
Another factor worth considering, and one largely ignored by the panel, is the potential for alternative fuel sources and increased efficiency. Considering the low costs and high reward for increased efficiency measures, it is laughable that this was not pursued further by lawmakers as a policy goal. Perhaps this is because without the proper price incentives, consumers have no reason to reduce consumption. For a case study, refer to Juneau, Alaska. When faced with avalanches that knocked out transmission lines, threatening a five-fold increase in price, Juneau drastically cut its power consumption. When faced with truly crippling bills, Juneau made the adjustments. In a state such as Missouri, home to several large research universities, it is insulting to insinuate that the state is completely inadaptable.
In all, it seems that Jefferson City has laid out its priorities quite clearly: maintain the status quo, continue to rely on cheap coal, keep rates low, everybody happy. But the time for such policies has come and gone, and change is in the wind. One can only hope that the state house will not maintain such short-sighted policies in the face of change, and seek the opportunity presented by these changes.
Tuesday, January 19, 2010
Monday, December 7, 2009
Health Care Reform: View from the State Capitol
What Andrew said, about the lack of activity, is all too true. Moving on, no time to lose!
For most of this year, I simply haven't had the stomach to cover the health care debate, because so little of what has been discussed has been relevant, with discourse better suited for a demolition derby- combatants hurling their outdated auto bodies at their enemies, rending their own steel and rubber in the vain hopes of paralyzing the opponent. There's plenty of room for disagreement and discussion on the various health bills before the Congress, with wide-reaching policy and fiscal implications, and we're stuck on whether Nancy Pelosi is going to administratively execute your grandmother.
We, however, are not going to waste any more time on that. Personally, with all the discussion on whether states could/should opt out of the program, I'm getting interested in what implications would be in place for given states. Thankfully, we have just that for Kansas, thanks to Rep. Lynn Jenkins, who formally requested that the Kansas Health Policy Authority (KHPA) analyze both HR 3962 and S. 1796, both of which are currently making the rounds in Congress. The KHPA, for its part, stated their interest as “estimating the impact on the state is tied directly to the Agency’s role in making sure Kansas is positioned to benefit and succeed should reform pass the Congress.” Sounds pretty impartial to me. But just to make sure, they contracted an independent actuarial agency to do the numbers. What they found is striking.
Beyond all the talk of unfunded federal mandates and busted budgets, the KHPA found that Kansas actually stands to save money with either of these bills in force- caveats depending, of course. I'm going to try and break it down to some basics, but I strongly encourage you to read the KHPA's report for more detail.
Under “a fairly wide range of assumptions,” and keeping in mind the previously-mentioned caveats such as the size of Medicaid expansion from the 'woodwork effect,' the KHPA projects reductions in net state expenditures by at least $25-50 million per year under the Senate bill. Even on the low end, if projections are found to be woefully underestimating the need for medical care, savings of $10-20 million annually are expected.
The House bill presents significantly less savings to the Kansas budget, due in part to the mechanics of the bill, including a larger expansion of Medicaid. Nonetheless, KHPA estimates a savings of between $0 to $25 million per year. However, on the low end of the scale, there is the possibility that HR 3962 could cost Kansas up to $5-15 million annually.
The takeaway from this brief analysis is that the health care bills are far more complex than many of our Senators and Representatives would like us to believe. It would be undoubtedly a good thing to increase coverage while reducing costs. The question lies in whether these are actual reductions in cost, or a shifting of the burden from state budgets to federal ones. However, these specific numbers may be a moot point. At this time, these bills should be considered very much of a moving target; what emerges from negotiations, debate and conference committee could bear scarce resemblance to what the KHPA has analyzed in detail. Nonetheless, we would do well to look into these bills with great detail in the weeks and months ahead, and consider the impacts for each of our own states.
For most of this year, I simply haven't had the stomach to cover the health care debate, because so little of what has been discussed has been relevant, with discourse better suited for a demolition derby- combatants hurling their outdated auto bodies at their enemies, rending their own steel and rubber in the vain hopes of paralyzing the opponent. There's plenty of room for disagreement and discussion on the various health bills before the Congress, with wide-reaching policy and fiscal implications, and we're stuck on whether Nancy Pelosi is going to administratively execute your grandmother.
We, however, are not going to waste any more time on that. Personally, with all the discussion on whether states could/should opt out of the program, I'm getting interested in what implications would be in place for given states. Thankfully, we have just that for Kansas, thanks to Rep. Lynn Jenkins, who formally requested that the Kansas Health Policy Authority (KHPA) analyze both HR 3962 and S. 1796, both of which are currently making the rounds in Congress. The KHPA, for its part, stated their interest as “estimating the impact on the state is tied directly to the Agency’s role in making sure Kansas is positioned to benefit and succeed should reform pass the Congress.” Sounds pretty impartial to me. But just to make sure, they contracted an independent actuarial agency to do the numbers. What they found is striking.
Beyond all the talk of unfunded federal mandates and busted budgets, the KHPA found that Kansas actually stands to save money with either of these bills in force- caveats depending, of course. I'm going to try and break it down to some basics, but I strongly encourage you to read the KHPA's report for more detail.
Under “a fairly wide range of assumptions,” and keeping in mind the previously-mentioned caveats such as the size of Medicaid expansion from the 'woodwork effect,' the KHPA projects reductions in net state expenditures by at least $25-50 million per year under the Senate bill. Even on the low end, if projections are found to be woefully underestimating the need for medical care, savings of $10-20 million annually are expected.
The House bill presents significantly less savings to the Kansas budget, due in part to the mechanics of the bill, including a larger expansion of Medicaid. Nonetheless, KHPA estimates a savings of between $0 to $25 million per year. However, on the low end of the scale, there is the possibility that HR 3962 could cost Kansas up to $5-15 million annually.
The takeaway from this brief analysis is that the health care bills are far more complex than many of our Senators and Representatives would like us to believe. It would be undoubtedly a good thing to increase coverage while reducing costs. The question lies in whether these are actual reductions in cost, or a shifting of the burden from state budgets to federal ones. However, these specific numbers may be a moot point. At this time, these bills should be considered very much of a moving target; what emerges from negotiations, debate and conference committee could bear scarce resemblance to what the KHPA has analyzed in detail. Nonetheless, we would do well to look into these bills with great detail in the weeks and months ahead, and consider the impacts for each of our own states.
Wednesday, December 2, 2009
To Set a Deadline or Not to Set a Deadline?
First off -- Yes, I realize that our postings and updates have been pretty much non-existent this year... I apologize (as I'm sure Pete does too!). I will try to make more time to write for 2010!
Now, on to the post!
Today, the Senate is conducting a hearing in discussion of the President's war strategy in Afghanistan, which he outlined last night in a speech before West Point cadets and a national television audience.
You can "watch" updates of the hearings posted here by the Washington Post online.
It seems that most of the questioning by Republicans in the Senate, led mostly by John McCain, center around the idea of having a date set to begin withdrawing troops. McCain says it "makes no sense" to have a date to withdraw.
I guess I am just a bit puzzled by this line of reasoning. In any endeavor when we are setting goals for ourselves, don't we typically attach those goals to a target date by which time we would like to have those goals accomplished? Why then would we not want to attach our goals in a war to a date? The questioners seem fixated on this date... and keep trying to get the witnesses to downplay the significance of it... But, really, what is the big deal?
The way I see it, we have certain goals we want to see accomplished there. We set a date by which time we want to have those goals accomplished. IF we have reached those goals, we begin the withdrawal of our troops.
And even then, the plan calls for the START of withdrawal. Nowhere has it been said how long this drawback will take. In fact, Defense Secretary Gates even says elsewhere in the hearing that he suspects there will be a "continuing presence" of US troops which will stay there to help with training, etc (just not combat).
McCain contends that there can't be a both a date set for withdrawal AND having the withdrawal set to conditions on the ground.
I really don't see why not. Anybody care to explain why it isn't possible to have a deadline in mind as to WHEN these goals should be accomplished? Doesn't setting a timeframe create a sense of urgency to achieve those goals, rather than leaving them open-ended?
Apparently this just doesn't make sense to the Senate.
Now, on to the post!
Today, the Senate is conducting a hearing in discussion of the President's war strategy in Afghanistan, which he outlined last night in a speech before West Point cadets and a national television audience.
You can "watch" updates of the hearings posted here by the Washington Post online.
It seems that most of the questioning by Republicans in the Senate, led mostly by John McCain, center around the idea of having a date set to begin withdrawing troops. McCain says it "makes no sense" to have a date to withdraw.
I guess I am just a bit puzzled by this line of reasoning. In any endeavor when we are setting goals for ourselves, don't we typically attach those goals to a target date by which time we would like to have those goals accomplished? Why then would we not want to attach our goals in a war to a date? The questioners seem fixated on this date... and keep trying to get the witnesses to downplay the significance of it... But, really, what is the big deal?
The way I see it, we have certain goals we want to see accomplished there. We set a date by which time we want to have those goals accomplished. IF we have reached those goals, we begin the withdrawal of our troops.
And even then, the plan calls for the START of withdrawal. Nowhere has it been said how long this drawback will take. In fact, Defense Secretary Gates even says elsewhere in the hearing that he suspects there will be a "continuing presence" of US troops which will stay there to help with training, etc (just not combat).
McCain contends that there can't be a both a date set for withdrawal AND having the withdrawal set to conditions on the ground.
I really don't see why not. Anybody care to explain why it isn't possible to have a deadline in mind as to WHEN these goals should be accomplished? Doesn't setting a timeframe create a sense of urgency to achieve those goals, rather than leaving them open-ended?
Apparently this just doesn't make sense to the Senate.
Thursday, May 21, 2009
The Geography of Job Loss
The Geography of Jobs
Posted using ShareThis
My mother sent me this the other day- a rather stunning graphical representation of the damage that has been wrought on the job market in this country over the past few years. I strongly suggest you check it out.
Posted using ShareThis
My mother sent me this the other day- a rather stunning graphical representation of the damage that has been wrought on the job market in this country over the past few years. I strongly suggest you check it out.
Tuesday, May 19, 2009
We're Still Breathing: MAC and US Small Banks
Yes indeed we are; many apologies for the lack of activity over the past few months. Not a single post as we began our new presidential term- perhaps we were waiting with baited breath, as you no doubt were, to see how things were beginning to shape up. Or, perhaps we didn't have internet and got bit by the lazy bug. Who knows... either way, we're still calling, so hopefully others are still reading. Right now, I'm stuck in Kansas City MO, after missing a flight out last night by a few minutes. I'll be on here all day, and figured this would be a good time to kick the tires again, get re-started and re-launched.
So in a way, this post serves as a reminder, not unlike the one that small, community banks across the US are clamoring to remind customers. As detailed in a recent article by the New York Times, many community banks are on rock-solid footing as their larger, more speculative brethren are stumbling their way into federal ownership.
The difference between the two business model is so radically different from the larger investment banks, and by extension contemporary American capitalistm, that 'night and day' does not even suffice. The opposites are so polar as to be stunning:
It is indeed a sad, sad state of affairs when prudent economic practice, accountability to your neighbors and community, and sound decision making eying the long term has become uncommon and noteworthy. Did we all get caught up in the go-go-go of investment banks and credit cards and home loans so strongly that we left our wits behind us? It just might seem that way.
So I'm wondering- is it time to relocate our funds and savings from the massive banks to community banks? They are just as insured as the big ones, so that is not a worry. My only concern is, do they use the same services? My experience with a smaller bank (relatively speaking) was Commerce Bank, located in Missouri/Kansas/Iowa. I found it a great experience, with a true understanding of what their customers needed, prompt attention to concerns and strong support. If that is anything like what smaller banks have to offer, I'm on my way right now. My main bank just got bought out by Wachovia... and you better believe, I still have that Commerce account open.
So in a way, this post serves as a reminder, not unlike the one that small, community banks across the US are clamoring to remind customers. As detailed in a recent article by the New York Times, many community banks are on rock-solid footing as their larger, more speculative brethren are stumbling their way into federal ownership.
The difference between the two business model is so radically different from the larger investment banks, and by extension contemporary American capitalistm, that 'night and day' does not even suffice. The opposites are so polar as to be stunning:
To spend time with these Indiana community bankers is to step into an alternate universe, where everything sounds a little strange because it makes perfect sense. You hear things like, “If you don’t understand the risk you’re taking, don’t take it.” And, “We want to be around for decades, so we’re not focused on the next quarter.”
Forget “too big to fail.” These banks consider themselves too small to risk embarrassment. They are run by people who grew up in the towns where they work, and their main fear is getting into a financial jam that will shame them in the eyes of their neighbors.
The steep profits earned by national banks didn’t turn their heads in the last decade because they were inherently skeptical of double-digit growth rates.
“We like a nice, gentle, upward slope,” said Donald E. Goetz, the president of DeMotte State Bank, an 11-branch operation in the northwest part of Indiana.
“This kind of growth, like you see in the stock market” — Mr. Goetz ran his hand through the air, tracing the shape of a mountain range — “that doesn’t interest us.”
It is indeed a sad, sad state of affairs when prudent economic practice, accountability to your neighbors and community, and sound decision making eying the long term has become uncommon and noteworthy. Did we all get caught up in the go-go-go of investment banks and credit cards and home loans so strongly that we left our wits behind us? It just might seem that way.
So I'm wondering- is it time to relocate our funds and savings from the massive banks to community banks? They are just as insured as the big ones, so that is not a worry. My only concern is, do they use the same services? My experience with a smaller bank (relatively speaking) was Commerce Bank, located in Missouri/Kansas/Iowa. I found it a great experience, with a true understanding of what their customers needed, prompt attention to concerns and strong support. If that is anything like what smaller banks have to offer, I'm on my way right now. My main bank just got bought out by Wachovia... and you better believe, I still have that Commerce account open.
Monday, January 19, 2009
The State and Marriage
I just got through seeing a ridiculous news story on Yahoo! about a man being forced by the state of Michigan to either 1) pay the medical costs of his daughter's birth or 2) marry the mother.
At first, I was thinking maybe he is a dead-beat dad, and deserves to have the state breathing down his neck -- maybe not for 100% of the medical costs -- but at LEAST half of it. But after reading the article, you find out that he actually lives with the mother and daughter, and has a job (at a nursery, even!) in which he earns a paltry $8/hour... but at least he's trying. He and the mother intend to get married, but she wants it to be a nice wedding... and clearly they can't afford to pay for THAT right now.
When the daughter was born originally, the costs were paid by the state because the mother was on Medicaid. So, now, the state is trying to recoup their spending by forcing the father to pay-up!
This tactic was apparently proscribed by Michigan paternity law -- the law would waive the birthing costs for the father on condition he married the mother.
You wanna take a guess as to the reasoning behind the law? It is "an incentive to 'maintain the sanctity of marriage.'"
Now, maybe I'm being silly... but I don't see how on earth a law like this does anything of the sort. What business does the state have in telling a man and woman, "you need to get married NOW or else you're going to pay!" And how does THAT help to maintain the "sanctity of marriage?!?"
Couldn't this law do just the opposite? Couldn't this law promote marriages which are based on a financial whim other than what a marriage SHOULD be... things like... um... LOVE and committment?
What about dead-beat dads? Isn't it concievable that they could take advantage of a law like this... I'll leave it to you to imagine the details... but it COULD happen. So much for protecting the "sanctity of marriage."
I'm sorry... but I just get tired sometimes of hearing the government tell me about "protecting" something as sacred as marriage by trying to come up with laws which either force people to marry or PAY, or on the other hand, deny certain others the right to begin with.
The state, as far as I'm concerned, really has no business in deciding what has "sanctity" and what doesn't.
Maybe I'm wrong about this law... but the sad thing is that this particular story is talking about a man and woman who clearly are committed to each other and who are trying to make ends meet while raising a child. But now the state is trying to take $500 dollars a month from them unless they get married and produce a marriage license. Shouldn't we be trying to protect the sanctity of strong families, rather than being fixated on whether or not they are married on the state's timetable? Don't people's actions count for something more than a word being attached to a relationship?
Tell me I'm wrong (or right)! If you don't, you're not doing your part to uphold the ideals of this blog... and you should PAY me for that. Hmm... maybe the state's on to something after all!
At first, I was thinking maybe he is a dead-beat dad, and deserves to have the state breathing down his neck -- maybe not for 100% of the medical costs -- but at LEAST half of it. But after reading the article, you find out that he actually lives with the mother and daughter, and has a job (at a nursery, even!) in which he earns a paltry $8/hour... but at least he's trying. He and the mother intend to get married, but she wants it to be a nice wedding... and clearly they can't afford to pay for THAT right now.
When the daughter was born originally, the costs were paid by the state because the mother was on Medicaid. So, now, the state is trying to recoup their spending by forcing the father to pay-up!
This tactic was apparently proscribed by Michigan paternity law -- the law would waive the birthing costs for the father on condition he married the mother.
You wanna take a guess as to the reasoning behind the law? It is "an incentive to 'maintain the sanctity of marriage.'"
Now, maybe I'm being silly... but I don't see how on earth a law like this does anything of the sort. What business does the state have in telling a man and woman, "you need to get married NOW or else you're going to pay!" And how does THAT help to maintain the "sanctity of marriage?!?"
Couldn't this law do just the opposite? Couldn't this law promote marriages which are based on a financial whim other than what a marriage SHOULD be... things like... um... LOVE and committment?
What about dead-beat dads? Isn't it concievable that they could take advantage of a law like this... I'll leave it to you to imagine the details... but it COULD happen. So much for protecting the "sanctity of marriage."
I'm sorry... but I just get tired sometimes of hearing the government tell me about "protecting" something as sacred as marriage by trying to come up with laws which either force people to marry or PAY, or on the other hand, deny certain others the right to begin with.
The state, as far as I'm concerned, really has no business in deciding what has "sanctity" and what doesn't.
Maybe I'm wrong about this law... but the sad thing is that this particular story is talking about a man and woman who clearly are committed to each other and who are trying to make ends meet while raising a child. But now the state is trying to take $500 dollars a month from them unless they get married and produce a marriage license. Shouldn't we be trying to protect the sanctity of strong families, rather than being fixated on whether or not they are married on the state's timetable? Don't people's actions count for something more than a word being attached to a relationship?
Tell me I'm wrong (or right)! If you don't, you're not doing your part to uphold the ideals of this blog... and you should PAY me for that. Hmm... maybe the state's on to something after all!
Wednesday, December 10, 2008
Losing Taxpayer Money to Detroit: It's Auto-matic!!!
So Detroit is bleeding money... so much so that GM and Chrysler could be bankrupt in a matter of months if Government action isn't taken to keep them afloat until they can re-tool.
This is something that was probably written on the wall for a while now. Even while GM was at the top of its game (which actually wasn't all that long ago: 2003, to be exact), several groups were concerned about the implications of where the sales were coming from: namely, trucks and SUV's. When gas was cheap (before the price surge... and subsequent drop) SUV's were THE big-ticket item. Everybody wanted one... and everyone was buying one.
Fast-forward 5 years, and nobody is buying them because nobody has the money. That is an outcome brought about by two factors: 1) the economy as a whole, and 2) the lack of foresight of auto-executives, who put all their eggs in the one SUV/Truck basket. But the two factors are both at work, make no mistake. Factor # 2 would likely not be an issue if the economy as a whole were in better shape. Remember that.
Now, here we are, watching our legislators in Washington debate whether or not to float short-term loans to the "Big 3" auto-makers in an attempt to help them "re-tool" their business before they run out of cash.
We have two sides to this issue -- Those who say something along these lines: "Detroit has not changed with the times, and has not been competitive with foreign auto-makers. Their current predicament is their own fault. We should let them go bankrupt!"; and those who say something along these lines: "Detroit is such an integral part in our economy, that letting these companies fail would have devestating consequences for so many Americans that we HAVE to do something to ensure their survival."
Now, granted, those are probably grossly over-simplified versions of the arguments, but this is a blog... if you want to get the full picture, you can find it elsewhere!
This argument has so many different factors, I could spend all day talking about it... but I want to point out something which I think is important to note: Whether or not Washington gives the $15 billion, we the taxpayers will lose $15 billion. The difference is whether we lose it in the short-term or the long-term. In the short-term, we lose it in the form of a loan to the auto-industry. In he long-term we lose it in the form of lost tax revenue (through sales taxes, income taxes, etc.), unemployment insurance, food stamps, etc.
The difference also could be much worse for the long-term scenario...
Critics of the Big 3 like to point out that foreign-owned companies operating in the USA are doing just fine. America's "other" auto-industry is located in the South, and is largely non-union. These companies (like Kia, Honda, Toyota) are not having the troubles of the American auto-industry, and critics of the American industry point to the UAW and the costs of labor associated with the union's contract as being to blame for the difference.
This came to a head yesterday in the Senate, when Senate Republicans demanded that the UAW make steep wage cuts to bring them in-line with the foreign auto-makers located in the American south. At first glance, this line of reasoning by the Senate Republicans could make sense -- after all, if the problem truly IS the wage disparity between UAW workers and non-union workers, then bringing the cost of labor down for the Big 3 would clearly make them more competitive with the foreign auto-makers. Problem solved, right?
Not so fast. Remember what I said earlier -- GM was making their largest profits EVER just 5 years ago. The difference in wages has not dramatically changed since then... only our economic conditions as a whole. I posit that GM and the other US auto-makers would be doing just fine today if they had the foresight to produce more economically viable products for consumers like their foreign competitors.
This doesn't even touch on what would happen to the labor movement as a whole if UAW were to do what the Senate Republicans suggest. Here is a nice link from the Economic Policy Institute which talks about what exactly unions do for workers. Something which is easy to forget is that unions not only help the workers who are a part of the union, but also provide benefits for non-union workers -- because they set a standard for wages and compensation to which other employers have to respond.
IF the UAW were to agree to lower wage levels such as those of the foreign auto-makers, then it wouldn't be long before those foreign auto-makers would lower their starting wages considerably, as well. The dynamic between union and non-union would stay the same, but wages of all workers would drop.
This brings me to my question to you, and gets to a deeper philosophical outlook on confronting economic troubles. Is it more prudent to bring down wages in order to help business recover, or is it more prudent to ensure that workers are making a living wage and can afford to buy the things they need. After all -- if nobody has any money to spend, then they can't buy any products... and a vicious cycle ensues.
I am of the belief that it is DEMAND which drives the economy, not the other way around. When people have money in their pockets, they buy things. It's that simple. Lowering wages for all workers simply lowers their ability to buy products and services... which, in turn, lowers demand... and leads businesses to cut production (i.e. -- layoff workers.) This is NOT the way to go, and I am going to be squarely behind the UAW on this one.
A while back I wrote about the bailout of the financial services industry and my opposition to it. I am on the other side of the fence on this current issue, and find it perplexing that congress is so willing to hand over $700 Billion to banks and financial institutions, but balk at giving $14 billion to companies which actually employ hundreds of thousands of Americans and who actually build tangible products.
As John Stewart put it on The Daily Show: at least when Detroit loses money, we actually get a product out of it.
This is something that was probably written on the wall for a while now. Even while GM was at the top of its game (which actually wasn't all that long ago: 2003, to be exact), several groups were concerned about the implications of where the sales were coming from: namely, trucks and SUV's. When gas was cheap (before the price surge... and subsequent drop) SUV's were THE big-ticket item. Everybody wanted one... and everyone was buying one.
Fast-forward 5 years, and nobody is buying them because nobody has the money. That is an outcome brought about by two factors: 1) the economy as a whole, and 2) the lack of foresight of auto-executives, who put all their eggs in the one SUV/Truck basket. But the two factors are both at work, make no mistake. Factor # 2 would likely not be an issue if the economy as a whole were in better shape. Remember that.
Now, here we are, watching our legislators in Washington debate whether or not to float short-term loans to the "Big 3" auto-makers in an attempt to help them "re-tool" their business before they run out of cash.
We have two sides to this issue -- Those who say something along these lines: "Detroit has not changed with the times, and has not been competitive with foreign auto-makers. Their current predicament is their own fault. We should let them go bankrupt!"; and those who say something along these lines: "Detroit is such an integral part in our economy, that letting these companies fail would have devestating consequences for so many Americans that we HAVE to do something to ensure their survival."
Now, granted, those are probably grossly over-simplified versions of the arguments, but this is a blog... if you want to get the full picture, you can find it elsewhere!
This argument has so many different factors, I could spend all day talking about it... but I want to point out something which I think is important to note: Whether or not Washington gives the $15 billion, we the taxpayers will lose $15 billion. The difference is whether we lose it in the short-term or the long-term. In the short-term, we lose it in the form of a loan to the auto-industry. In he long-term we lose it in the form of lost tax revenue (through sales taxes, income taxes, etc.), unemployment insurance, food stamps, etc.
The difference also could be much worse for the long-term scenario...
Critics of the Big 3 like to point out that foreign-owned companies operating in the USA are doing just fine. America's "other" auto-industry is located in the South, and is largely non-union. These companies (like Kia, Honda, Toyota) are not having the troubles of the American auto-industry, and critics of the American industry point to the UAW and the costs of labor associated with the union's contract as being to blame for the difference.
This came to a head yesterday in the Senate, when Senate Republicans demanded that the UAW make steep wage cuts to bring them in-line with the foreign auto-makers located in the American south. At first glance, this line of reasoning by the Senate Republicans could make sense -- after all, if the problem truly IS the wage disparity between UAW workers and non-union workers, then bringing the cost of labor down for the Big 3 would clearly make them more competitive with the foreign auto-makers. Problem solved, right?
Not so fast. Remember what I said earlier -- GM was making their largest profits EVER just 5 years ago. The difference in wages has not dramatically changed since then... only our economic conditions as a whole. I posit that GM and the other US auto-makers would be doing just fine today if they had the foresight to produce more economically viable products for consumers like their foreign competitors.
This doesn't even touch on what would happen to the labor movement as a whole if UAW were to do what the Senate Republicans suggest. Here is a nice link from the Economic Policy Institute which talks about what exactly unions do for workers. Something which is easy to forget is that unions not only help the workers who are a part of the union, but also provide benefits for non-union workers -- because they set a standard for wages and compensation to which other employers have to respond.
IF the UAW were to agree to lower wage levels such as those of the foreign auto-makers, then it wouldn't be long before those foreign auto-makers would lower their starting wages considerably, as well. The dynamic between union and non-union would stay the same, but wages of all workers would drop.
This brings me to my question to you, and gets to a deeper philosophical outlook on confronting economic troubles. Is it more prudent to bring down wages in order to help business recover, or is it more prudent to ensure that workers are making a living wage and can afford to buy the things they need. After all -- if nobody has any money to spend, then they can't buy any products... and a vicious cycle ensues.
I am of the belief that it is DEMAND which drives the economy, not the other way around. When people have money in their pockets, they buy things. It's that simple. Lowering wages for all workers simply lowers their ability to buy products and services... which, in turn, lowers demand... and leads businesses to cut production (i.e. -- layoff workers.) This is NOT the way to go, and I am going to be squarely behind the UAW on this one.
A while back I wrote about the bailout of the financial services industry and my opposition to it. I am on the other side of the fence on this current issue, and find it perplexing that congress is so willing to hand over $700 Billion to banks and financial institutions, but balk at giving $14 billion to companies which actually employ hundreds of thousands of Americans and who actually build tangible products.
As John Stewart put it on The Daily Show: at least when Detroit loses money, we actually get a product out of it.
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