Austerity: WC’s Funeral Oration

We are gathered today to bury the economic theory known as Austerity. In its short life as a guide post for economic policy, it worked great harm. But it is dead now, and those of us who have survived need to understand its brief life to make certain that it stays dead. And work to repair the damage Austerity has done.

First, we must remember what austerity was. Austerity as an economic policy  was a political response to economic downturns that slashed public spending, trying to reduce government deficits, all as a means of triggering or encouraging economic recovery. In the words of Jim Wright over at Stonekettle Station, this has the same logic as burning the lifeboats when the ship is sinking. But Austerity had an impressive academic pedigree.

Austerity was born out of a 2010 academic paper by Harvard economists Carmen Reinhart and Kenneth Rogoff. They claimed that a nation’s economic growth stopped when its ratio of public debt to gross domestic product passed a threshold of 90 percent. Their claim gave birth to Austerity as an economic policy, as a plan for regulating the economy of nations.

As Jeff Weintraub points out, Reinhart and Rogoff’s claims have since been thoroughly refuted by new analyses finding calculation errors, data omissions, questionable methods and inconclusive evidence of causality. There’s more than a hint of purposiveness in Reinhardt and Rogoff; that they set out to prove Austerity should live, and then twisted the facts and logic to prove their assumption. Other, later high-profile arguments for austerity including recent papers by Alberto Alesina and Silvia Ardagna, and by David Greenlaw have also been criticized.

But the main problem with the late, unlamented Austerity, and the reason for this funeral, is that it didn’t work. It was attempted. It was imposed. Austerity, in all its human misery, had its way with Greece, Spain, Portugal and other Eurozone countries. And it has failed in its avowed purpose. Austerity made the economies of those countries sicker, not better. Austerity slowed recovery, rather than speeding it. The friends and allies of Austerity denied it at first. But the data were just too clear. When Scott Barber at Reuters published this chart, Austerity went into a coma:

Real Change in Growth Domestic Product, Re-Based to 100 for 2003, by Scott Barber

The United States, where the Neocons and their hangers-on embraced Austerity but were unable to have it work its will, benefited instead from a mild, if inadequate, dose of Keynesian policy. The results speak for themselves. The United States is in far better economic condition than our sister countries in Europe, where Austerity had its brief, if crippling, way. Or compare Iceland’s experience, where the voters rejected Austerity, with Greece’s experience where it was embraced. Iceland’s economy has largely recovered. Greece continues to sicken.

Austerity’s condition worsened as economists, especially Paul Krugman, noted that none of the predictions Austerity had made were coming true. Austerity predicted runaway inflation if it wasn’t imposed; that didn’t happen. Austerity predicted soaring interest rates if it wasn’t imposed; that didn’t happen either.

Even the International Monetary Fund repudiated austerity, contributing somewhat to Austerity’s demise.

And so Austerity lingered a while, but finally died. There are those who are in denial of Austerity’s demise. Like Paul Ryan. But as a credible economic policy, Austerity is pushing daisies.

However, as we all know, the consequences of our deeds outlive us. Charts and numbers hold the human tragedy of Austerity at a distance. A graph doesn’t show the misery that Austerity created and will continue to inflict. Austerity, partially imposed here in the United States, and full embraced by much of the European Union,  has given us a higher suicide rate. Prescriptions for antidepressants have soared. In the U.S., three-quarters of a million people (particularly out-of-work young men) have turned to binge drinking. Over five million Americans have lost access to health care because they lost their jobs (and either could not afford to extend their insurance under COBRA law or exhausted their eligibility). Preventive medical visits dropped as people delayed medical care and ended up in emergency rooms. That’s the legacy of Austerity. It will be with us for decades.

Perhaps that’s the real lesson of Austerity and the message of this funeral oration. Nations are composed of people. And the consequences of bad ideas and policies fall on people, not on some abstract notion of a Gross Domestic Product. Bad policies, including policies chosen for political expediency, can result in bitter, terrible, inexcusable harm.

Austerity will be buried along side Trickle Down Economics and Supply Side Economics in the Republican Graveyard of Failed Economic Policies. In lieu of flowers, WC requests donations be made to your local Food Bank.

Ron Johnson Turns Out Not to Be Worth 1,795 Salespersons

One of the striking changes in the United States over the last 50 years is the astonishing change in the ratio between employee pay and management pay in America’s big corporations.

The ratio is derived by dividing the CEO’s pay by the average employee’s pay. For example, in the case of J.C. Penney,  CEO Ron Johnson made $53.3 million a year; the average worker made something like $29,688. The CEO made 1,795 times the average worker. So the ratio for the fired CEO of J.C. Penneys was 1,795 to 1. The Board of Directors thought the CEO was worth eighteen hundred times as the average guy who actually generates revenue out there on the sales floor. Of course, in the case of J. C. Penney, the CEO, Ron Johnson, nearly killed the company. But that’s a separate issue.

How did we get ourselves in this position? Why are the ratios of CEO to staff salaries at an all-time, record high?

Derek Thompson, writing in The Atlantic, has some theories. He points to the decline in workers’ wages over the last twenty years as one factor. The numerator in the calculation of the fraction isn’t increasing and, in some cases, is actually shrinking, as benefits like health care and defined benefits pensions have vanished. In the meantime stock options, a very substantial part of executive compensation, have ballooned through a series of bull markets, increasing the divisor in the ratio.

The second factor Thompson identifies is the unwillingness of stakeholders in big corporations to rock the boat. If the CEO is making you rich with big stock price increases or chunky dividends, the amount paid to the CEO doesn’t matter very much. It’s only when the CEO seriously screws the pooch, like Ron Johnson at Penney’s, that the issue is even on shareholders’ radar.

But WC thinks there are two other factors, not discussed by Thompson, that bear on the issue. First, Congress passed the Dodd-Frank Bill in 2010. It directed the Securities and Exchange Commission, the SEC, to develop guidelines for reporting executive compensation to employee ratios as part of publicly traded corporations’ annual filings. Some three years along, the SEC still hasn’t issued final rules. That silence, that inaction, sends its own signal: full speed ahead on executive compensation.

Finally, executive compensation is hugely influenced by a small group of executive compensation consultants. And those consultants have very serious conflicts of interest. To use WC’s grandfather’s phrase, there’s stuff going on that mink breeders wouldn’t tolerate. As an example, suppose the executive compensation consultant is a Big Four accounting firm. And suppose the corporate audit contract is ready be awarded. The CEO determines who gets the audit contract. Do you think the compensation consulting division is going to short sheet the CEO? It’s a big problem: a 2006 Congressional study found that conflicts of interest existed in 113 of the Fortune 250 CEO compensation consultants. The SEC has issued final rules on this issue, but they don’t take effect until June 27, 2013. In the meantime, there’s a risk that the folks who are supposed to be providing executive compensation advice are instead pre-purchasing the support of the executives whose pay they are supposed to be setting.

All of the salaries set for CEOs using the current sloppy standards – the technical term here is “boogered data” – will be the basis will be used for determining future CEO compensation, even if the data is tainted by conflicts of interest and generated by consultants who are rewarded for increasing, not decreasing pay.

In the meantime, even before the SEC can issue final rules, U.S. House Rep. Bill Huizenga (R, MI) has introduced a bill to repeal the pay-ratio disclosure requirement. It  ”doesn’t do anything other than play politics,” he said in an interview. “It doesn’t lend any useful, helpful, analytical type of information.”

Or at least the lobbyists who contribute to Rep. Huizenga’s reelection campaign don’t think so. In America today, apparently that’s the more important consideration.

A Difficult Month for Neocons

Pity the poor Neocons for just a few seconds.

The much-excoriated bailout of General Motors has resulted in another hefty gain for the United States Treasury. The U.S. sold some of its shares in GM, netting $1.6 billion in the first quarter. Altogether, the U.S. has recovered about $30.7 billion of the $49.5-billion GM bailout, a stock purchase that helped the company navigate Chapter 11 bankruptcy protection in 2009 and return to profitability. It’s true that the remaining shares will likely be sold at a net loss to the Treasury, absent a surge in stock value. But the Neocons hate that the bailout, you know, worked. And remember the loan, as opposed to the shares purchased by the U.S., has already been repaid, with interest, in full. The deal, which was initially approved by President Bush, was finalized and implemented under President Obama. It saved 60,000 jobs at General Motors, and tens of thousands of more jobs in GM’s suppliers, dealers and vendors. The federal bailout of GM worked. Neocons hate that.

The case that really frosts the Neocon’s doughnut, though, is the bailout of the Federal National Mortgage Association, a/k/a Fannie Mae. Fannie Mae, for Teabaggers and Neocons, is Exhibit A in the Big List of Government Dreadfuls. But even Fannie Mae is paying off its loan, including a $59.4 billion dollar payment earlier this month. Fannie Mae is what makes the U.S. housing industry possible. It buys mortgages from private banks, allowing the banks to make loans to ordinary folks who otherwise would pay a lot more, if they could get loans at all or even afford to own their own homes. The Neocons hate that, too.

According to the Bailout Scorecard, about 80% of all rescue funds have now been repaid and recovered:

Altogether, accounting for both the TARP and the Fannie and Freddie bailout, $606B has gone out the door—invested, loaned, or paid out—while $364B has been returned.

The Treasury has been earning a return on most of the money invested or loaned. So far, it has earned $116B. When those revenues are taken into account, $126B is the net still outstanding as of May 3, 2013.

Next, The Heritage Fund, the Neocons’s prize propaganda machine think tank stepped on itself with a bogus report on the economic impact of the proposed immigration reform. And got caught with its racist agenda showing. Reportedly, THF has hired an outside consultant to do damage control. Some folks would suggest it’s just long-overdue karma. After all, THF is where former Senator Jim DeMint went after departing the U.S. Senate.

And then, worst of all, the Federal government went and had a surplus in April. That’s right, the U.S. brought in more than it spent. A $113 billion surplus. At least for the month of April. Maybe it is kind of a fluke, but at a time when Neocons and Teabaggers have worked themselves into a full, foamy froth over the size of the deficit and the size of the national debt, it has to be ashes in their mouths.

It won’t shut them up. Facts and reality don’t distract Neocons or their followers. They’ll continue to spew their economic nonsense, fear-mongering and hate. Their true believers will repeat the words just as if they understood them.

The thing about Keynsian economics is that it works. Unlike austerity. Unlike “trickle down.” And it has worked in spite of the unrelenting efforts of Neocons, for purely selfish reasons, to block Keynsian remedies to the Great Recession. The result has been a slower recovery than need have been, and countless millions of man-hours of needless suffering. But slowly, surely, despite everything the Neocons do the economy is slowly healing.

As WC says, a difficult month for eocons. A pretty good month for everyone else.

The Agony of Austerity: the Spanish Results

Spanish Unemployment

This is what a Great Depression looks like. This is what austerity does. This is what the Republicans want to do to America.

Matthew O’Brien, writing in The Atlantic, called Spain “Beyond doomed.” Paul Krugman writes about austerity having “lost credibility.” Those statements don’t begin to describe the agony.

Spain has an unemployment rate of 27.4%. By comparison, at the peak of the great Depression, the unemployment rate in the United States is estimated to have been between 23.6 and 25.0%.

US Unemployment 1890-2010

The U.S. unemployment rate, despite the strenuous attempts of the austerity-loving neocons, has remained low in comparison, largely because Congressmen, especially the U.S. Senate, have displayed a bit of economic sense.

Spain’s incredibly high unemployment rate is largely a result of the European community’s imposition of fiscal austerity as a condition to loans. It’s externally imposed. Mark Blyth, writing in Foreign Affairs, nails austerity’s failure:

The only surprise is that any of this should come as a surprise. After all, the International Monetary Fund warned in July 2012 that simultaneous cuts to state spending across interlinked economies during a recession when interest rates were already low would inevitably damage the prospects for growth. And that warning came on top of the already ample evidence that every country that had embraced austerity had significantly more debt than when it started. Portugal’s debt-to-GDP ratio increased from 62 percent in 2006 to 108 percent in 2012. Ireland’s more than quadrupled, from 24.8 percent in 2007 to 106.4 percent in 2012. Greece’s debt-to-GDP ratio climbed from 106 percent in 2007 to 170 percent in 2012. And Latvia’s debt rose from 10.7 percent of GDP in 2007 to 42 percent in 2012. None of these statistics even begin to factor in the social costs of austerity, which include unemployment levels not seen since the 1930s in the countries that now make up the eurozone.

Look. Let’s assume it’s a medical experiment. Let’s suppose you are running a trial of a new, promising medication. And suppose every patient, without exception, to whom you gave the medicine got sicker. In some cases, much sicker. Some of your patients lapsed into a coma. Would you continue the medical trial of the new medicine? That’s what the supporters of austerity are doing. The neocons want to give the austerity patent medicine, the same disastrous gunk that’s half-killed Europe, to the United States until the patient – the U.S. economy – sickens and dies. A physician would have his license revoked. Republicans? They’ll probably be re-elected.

It’s economic madness. It’s insane. And yet the neocons use the idea to tube lock government. What, leeches next?

Please, make it stop.

The Sequester Bites

The sequester, the Neocons’ ham-fisted approach to fiscal austerity, is starting to bite. Dylan Matthews breaks down the First Quarter Gross Domestic Product of the U.S. economy by sector:

1st Quarter GDP by Economic Sector

The sharp decline in defense spending in the 1st Quarter will echo through the economy, and continue its decline into the 2nd and 3rd Quarters, unless Congress can unexpectedly behave reasonably. Given the piecemeal, grudging approach so far, that seems increasingly unlikely.

Most importantly, consumer spending on good and services, by themselves, cannot sustain economic growth indefinitely. The decline in defense and general federal spending will have increasing impact. That means fewer jobs, fewer federal contracts and inevitable impact on consumers and their ability to spend money. It’s also the tenth consecutive quarter in which state and local spending had declined. Based simply on the drop in government spending, the Congressional Budget Office estimates that there will be 750,000 fewer jobs and that the economy will be 0.6 percentage point smaller with sequestration than without it in 2013. We’ve seen only one month’s impact in the 1st Quarter.

So yes, the sequestration is biting the economy. But the real mauling is still ahead.

Dealing with Reality: The Sad Facts of North Slope Oil

There are some sad facts that are being overlooked in Captain Zero’s near-hysteria over declining oil field production. And the largest overlooked fact is that there aren’t any more Prudhoe Bay Oil Fields.

Prudhoe Bay, August 2010 from XPDA, photographer unknown)

Prudhoe Bay – the oil field, not the industrial slum we’ve created on the surface – was a behemoth, the largest single oil field ever found in North America. Since production from the field began in 1977, the 1,114 wells punching into the Sadlerochit Formation have produced 11 billion barrels of oil out of an estimated total recoverable reserve of 13 billion barrels. Sure, there may have been as much as 25 billion barrels of oil in Prudhoe, but under there are only 2 billion recoverable barrels left. A sizable amount of oil by any measure, but nothing like the 1.5 million barrels per day at peak production back in 1979.

Total production over the history of the North Slope through 2012 is 14.6 billion barrels of oil. Putting that another way, 11 billion of the 14.6 billion barrels of oil have come from a single, huge reserve that is 90% recovered. All the other fields around Prudhoe Bay account for about 25% of total production.

All of the fiddling with state oil tax laws doesn’t change the fact that Prudhoe Bay is about tapped out and there aren’t any more. As Prudhoe Bay is exhausted, you’d expect, in the very best case, for total Trans-Alaska Pipeline throughout to decline to about 25% or less of peak flow in 1979. That would be about 375,000 barrels per day. And throughput today is about 550,000 barrels per day.

There are no more Prudhoe fields on the North Slope. Sorry. Big Oil has looked. And they are pretty good at finding big fields.

There are a number of smaller producing fields, and some prospects. But, as WC has argued before, even if Alaska reduced its taxes to minimal levels, it’s still much less expensive to produce fracked oil in North Dakota than to drill for new oil on the North Slope. And the crude that’s produced is much closer to the market.

The implication is clear: lowering taxes isn’t going to increase production; it’s not going to put more oil in the pipeline. Apart from the absence of a link to increased production, the tax break to Big Oil isn’t big enough – can’t be big enough – to promote the discovery, development and production of the numerous small fields required to keep the Trans-Alaska Pipeline at operational levels. At the problems of aging infrastructure and the number are even worse. The only thing the repeal of ACES will accomplish is to cost the State of Alaska a whole lot of revenue on a non-renewable resource.

And a bonanza for Big Oil, ofcourse. Which makes you wonder who really controls the Captain and the Legislature.

The Governor, the Legislature and Cargo Cults

At the end of World War II, some of the Pacific Islanders who had been most dramatically affected by the Japanese and American invasions of their territories were nonplussed with the war came to an end. It also meant an end to the newfound goods that had, quite literally, fallen out of the sky. To try and entice the goods to return, the Pacific Islanders reportedly engaged in what is now called “Cargo Cult” behavior. Here’s Wikipedia:

With the end of the war, the military abandoned the airbases and stopped dropping cargo. In response, charismatic individuals developed cults among remote Melanesian populations that promised to bestow on their followers deliveries of food, arms, Jeeps, etc. The cult leaders explained that the cargo would be gifts from their own ancestors, or other sources, as had occurred with the outsider armies. In attempts to get cargo to fall by parachute or land in planes or ships again, islanders imitated the same practices they had seen the soldiers, sailors, and airmen use. Cult behaviors usually involved mimicking the day to day activities and dress styles of US soldiers, such as performing parade ground drills with wooden or salvaged rifles. The islanders carved headphones from wood and wore them while sitting in fabricated control towers. They waved the landing signals while standing on the runways. They lit signal fires and torches to light up runways and lighthouses.

In a form of sympathetic magic, many built life-size replicas of aeroplanes out of straw and cut new military-style landing strips out of the jungle, hoping to attract more aeroplanes.

Obviously, that’s what we are seeing in Juneau right now. The thinking, such as it is, runs something like this: we had more oil in the pipeline before ACES. So, through the power of sympathetic magic, if we reduce taxes, the oil will come back. Yes, our Captain Zero and the Alaska Legislature are engaging in cargo cult behavior.

Simply lowering taxes won’t, of itself, put more oil in the Trans-Alaska Pipeline, anymore than building landing strips and replica airplanes brought more cargo to the island of Tanna in Vanuatu. World War II had ended, although the residents of Vannatu may not have known that. Turning their gardens – their food sources – into mock runways wouldn’t make the War come back. The Alaska Legislature, by repealing ACES and reducing taxes – plowing under part of Alaska’s garden – isn’t going to make the oil come back, either. If, for example, there were less oil in the pipeline because it was three times as expensive to develop oil fields on the North Slope as in, say, North Dakota, then the unforgiving laws of economics are going to operate. Lowering taxes isn’t going to do anything but reduce the amount of produce from Alaska’s oil field garden.

Now it’s true that WC has simplified the narrative of cargo cult. Brian Dunning over at the Skeptoid does a nice job of offering some background and glosses. But the principle is unchanged, and Dunning’s conclusion might well be written to those folks in Juneau:

And so while cargo cults may seem, at first glance, like quaint stone age ignorance, they’re actually not entirely irrational. They’re certainly naïve and based on a fallacious confusion of correlation and causation, but to give their believers some credit, they’re doing their best to make sense of what they’ve been given. Where this belief system fails them, quite obviously, is that it replaces the need to work hard to achieve goals with the belief that faith will provide.

Any questions?

The Alberta Tar Sands: Friends Don’t Enable Friends

WC recently read Andrew Nikiforuk’s Tar Sands: Dirty Oil and the Future of a Continent. Remarkably, it is available for free from Google Books. Nikiforuk’s book won the 2009 Rachel Carson Environment Book Award , from the Society of Environmental Journalists. It’s a meticulously researched, reasonably well written exposé of the Canada’s descent into the environmental purgatory of extracting bitumen – a kind of third rate crude oil – from the mammoth tar sands of Alberta.

Tar sands look and smell like badly made asphalt.

Tar Sand, Photo from The Dominion

There is a mind-boggling amount of the stuff underlying much of the province of Alberta. Something that’s very nearly exceptionally thick crude oil, bitumen, can be extracted from tar sands, but at a horrific cost. Some of the costs are detailed by Niriforuk.

It takes immense amounts of energy to extract bitumen from tar sands. The energy in one barrel of oil produces an average of 117 barrels of oil using traditional technologies. The energy in one barrel of oil produces just 3-4 barrels of bitumen from tar sands.

Producing a barrel of bitumen generates three times as much CO2 as producing a barrel of crude oil by traditional means. The amount of CO2 would be much higher, except that relatively clean-burning natural gas is used to generate mostof the energy.

Each barrel of bitumen produced requires consumption of three barrels of fresh water, most of it from the Athabaska River. Every day, Alberta ship one million barrels of bitumen to the U.S. And three virtual barrels of water.

Tar sands extraction generates dangerous hazardous waste. The liquid sludge is laced with heavy metals, cancer-creating chemicals and fish-killing napathalenes. The millions of gallons generated are stored in vast lakes, and few people believe the impoundments are secure. To give you some idea of the scope of this problem, just one tr sands producer, Syncrude, has a tailing dam that is the world’s second largest largest dam in terms of volume of construction material 706 million cubic yards, second only to China’s Three Gorges Dam in size.

The impounded sludge leaks into the Athabasca River, contaminating the water supply. And it seeps into the groundwater.

The same impoundments attract migratory birds. Those that land in the lakes are invariably injured or killed. The surface mines, the patchwork fragmentation of boreal forests create by subsurface mining, are destroying vast swaths of habitat, decimating forest bird populations.

All that is bad enough, another instance of our world’s insatiable demand for oil, regardless of the costs. But, as in the case of Alaska, the buckets of money created by the tar sands extraction industry have bought the Alberta government and, to a shocking extent, the Canada national government.

Alberta has become a classic petrostate. The government isn’t accountable to its citizens, is highly dependent on the tar sands industry and its laws serve the tar sands industry at the grave expense of everything else in the environment.

Canada has nothing like the United States’ Clean Water Act. As a result, something like one billion gallons of tailings waste now leaches into groundwater or surface water every year. Any effort to regulate the mess meets stern, petrodollar-fueled resistance.

The United States and Canada are friends; to the extent that nations can have best friends, Canada is our friend. And friends don’t enable bad behavior of friends. The Keystone Pipeline, which would allow Canada to ship still more bitumen, at still more ruinous cost to the environment, would further enable Alberta’s unhealthy, self-descructive addiction to bitumen.

Apart from the potential devastation that Keystone would have on our environment, harming critical habitats for species like Sandhill Cranes. It would also enable Alberta’s dangerous, deadly addiction to tar sands development.

Friends don’t do that to friends.

 

Buddy, Can You Spare $1.6 Trillion?

The American Society of Civil Engineers has issued its quadrennial Report Card on America’s Infrastructure. It makes grim reading; overall, the United States gets a grade of D+ on its job of maintaining the infrastructure in the country: the dams, bridges, waterways, electrical grids, schools and other public construction we need to succeed and prosper.

Between now and 2020, ASCE projects we need $3.6 trillion in public funds to make the necessary repairs and replacements. Pre-sequester, we’d budgeted just $2.0 trillion. It’s likely less now.

Infrastructure Systems	Total Needs	Estimated Funding	Funding Gap
Surface Transportation	$1,723	$877	$846
Water/Wastewater Infrastructure	$126	$42	$84
Electricity	$736	$629	$107
Airports	$134	$95	$39
Inland Waterways & Marine Ports	$30	$14	$16
Dams	$21	$6	$15
Hazardous & Solid Waste	$56	$10	$46
Levees	$80	$8	$72
Public Parks & Recreation	$238	$134	$104
Rail	$100	$89	$11
Schools	$391	$120	$271
TOTALS	$3,635	$2,024	$1,611
Yearly Investment Needed	$454	$253	$201

.

You’d think that the collapse of an interstate highway bridge in the middle of Minneapolis-St. Paul would have sounded some kind of alarm. You’d have been wrong.

Of course, the Teabagger-dominated U.S. House is committed to fiscal austerity, no matter the price. They claim the budget deficit must be reduced “for the benefit of our children.” As Paul Krugman and others have pointed out, they used to claim it was to avert a fiscal crisis, but the fiscal crisis, despite all that Neocon earnestness, has stubbornly refused to happen. So the message has changed to “protecting the legacy for our children.”

But there is more than one kind of legacy. One kind involves collapsing bridges, catastrophic dam failures and mouldering school buildings. That legacy involves digging a hole from which the economy may never recover. A path to third world status. The other involves a fiscal deficit.

Can we be perfectly clear about this? The Republican Party is placing shabby, failed politics ahead of the long-term health of the national infrastructure and, in the near term, the long-term health of the economy and the nation. And they want to call it “protecting our children’s legacy.” And yet people still vote for these clowns.

The Not News. Are You Really Surprised?

There are things that happen in this world that get reported as news but really aren’t.

Dog Bites Man

Like Governor Sean “Captain Zero” Parnell losing yet another of his silly Federal lawsuits. How can that be news? If something happens five or six times in a row, is it still “news”? Isn’t it “olds” by this point? This time the lost lawsuit involved the roadless area classification imposed back in the Clinton administration. Technically, Captain Zero hasn’t lost all of the lawsuits. But his record is embarrassingly bad. He’s giving lawyers a bad worse name.

David Lawrence, the Shell executive for North American exploration, including the extensive series of debacles surrounding the Chukchi and Beaufort Sea drilling programs, “announced his resignation.” Shell denies he was fired. Right. You can practically hear a public address announcement: “The sacrificial lamb will report to the chopping block for the ceremonial beheading.” If there is anyone left in America who is naive enough to believe that heads weren’t going to roll at Shell, well, WC envies them their charming world view. While its drill rigs are being repaired, WC invites Shell to study the sunk cost fallacy.

Long-time readers know WC is a big fan of effective graphic displays of information. The New Yorker has an outstanding interactive graphic presentation of the NCAA men’s basketball tournament, based upon the revenue and expenses of the basketball programs at each of the 64 schools. The hypothesis is that the schools with the most money will win. As a graphic illustration of WC’s premise – always follow the money – it’s wonderful. WC won’t completely spoil it for readers, but will note that the pre-tournament pick to win, Louisville, has an astonishing $42 million dollars in revenue, far more than any another school.

It’s always chancy trying to read the tea leaves at oral argument in the U.S. Supreme Court. The discussion in conference among the justices and the exchange of draft opinions really does make a difference. Recall the oral argument on the Affordable Care Act. But it’s reasonably clear that Justices Kennedy and Sotomayor, at least, are inclined to dismiss the appeal on California’s Proposition 8 banning same-sex marriages. The technical phrase is cute: “dismiss the petition as improvidently granted.” WC suspects you wouldn’t be surprised, either. The challenge to the Defense of Marriage Act will depend on what Justice Kennedy decides to do. But while there’s been very rapid change in the U.S. on same sex marriage, rapid change doesn’t happen very often in the U.S. Supreme Court.

And no, the fact that The Quitter stood in front of CPAC, the most avowedly conservative body in the U.S., and advocated communism isn’t news either. It’s irony. Wasted irony, in the case of The Quitter, but irony nonetheless.

The Reasons Why WC Is A Little Cranky

It’s true that WC has been a little more cranky than usual lately. There are reasons. There are lot of reasons. In an effort to exorcise his bad attitude, WC will share just a few of those reasons with his patient readers.

Reason #1 – The Weather

A Sorry Excuse for Spring, photo by Mrs. WC

This photo speaks for itself, but what part of “last week of March” does the weatherman not understand?

Reason #2 – Pratchett and Orangutans

In the second novel of his DiscWorld series, The Light Fantastic, Terry Pratchett wrote of a magical accident, in which the Librarian of Unseen University, the great school of magic, was accidentally transformed into an orangutan. It was a one-line gag, but over the course of the next 35 DiscWorld novels, the transformed Librarian became a much-loved, recurring character. In 1995, Pratchett traveled to Borneo, the home of the orangutan species. There was a BBC video and a disheartening essay, “The Orangutans Are Dying.” Ook, indeed.

Pratchett, now Sir Terry Pratchett, is returning to Borneo for a follow up look. Of course, his illness makes this much more of a challenge, and there are far fewer orangutans left than in 1995. So the BBC video this time has the signature Pratchett humor, and at the same time makes you think.

BBC Promo for Pratchett Special

A killer title, from a man dying of Alzeimer’s, WC thinks you will agree. But for WC, it’s also a reminder of both the tragedy of WC’s favorite author’s wrenching decline and the loss of another species on our much-abused planet. A double whammy. Who knows if and when the BBC special will be available in the U.S. WC will endeavor to find out.

Reason #3 – Faith-Based Economics

What Dermot Cole has called the repeal of ACES faith-based efforts to increase the flow of oil in the Trans-Alaska Pipeline. Those faith-based efforts are about to become law. Dermot is too kind, although he does a nice job of showing just how hard it will be to decide if Captain Zero’s Grand Plan succeeds at anything but giving away buckets and buckets of money. Since no one can agree on what projected throughput in the pipeline will be in 2022, it’s somewhere between difficult to impossible to determine if Parnell’s “solution” will succeed at doing anything but kicking the State of Alaska in the financial groin.

Faith is for church, not economics. Not the financial well-being of a state government. What will we have from the Governor next: a resolution that we all pray for oil?

Worse, there will be two more bad consequences for this breathtakingly stupid financial experiment. First, it gives the Republicans an excuse to pretend Alaska is in desperate financial straits, so that they can axe more programs on the grounds that we can no longer afford them. Pre-school classes, programs to protect women and children, education funding, substance treatment programs; all will stupidly and needlessly be cut. Second, we will have to listen to our legislators brag about how they have saved the State from financial ruin.

The only way you will see the lost tax revenue again is to buy stock in Exxon, Conoco-Phillips or BP. Because the only place the lost tax revenue is going to go is in to shareholder dividends.

All of which, yes, makes WC a little cranky.

Alaska’s Oil Tax: Conflating, Confusing and Wrong

Governor Sean “Captain Zero” Parnell’s changes in the state oil tax are so nonsensical, so wrong that it confuses everyone involved in the debate. Maybe taking two steps back and taking an overview will reduce the confusion and illustrate, for anyone still paying attention, what is really going on.

The current tax structure, ACES, is a progressive tax. That is, the rates aren’t level. If the oil companies make more money per barrel in one of crude oil’s cyclical price swings, the tax rate goes up. The idea of ACES was that Alaska should share in the windfall. It’s a good idea. It’s a nonrenewable resource, after all. And it isn’t as if the major oil companies aren’t making billions of dollars in profits in Alaska. Throughput in the Trans-Alaska Pipeline is indisputably down. Is it the result of ACES or is it the economic consequence of fracking technology and attendant booms in oil shale regions? Alaska oil is notoriously expensive to develop: the North Slope is harsh and difficult.

ACES recognizes those higher costs. It grants credits against the oil taxes for monies expended on development. Monies spent on development – and it is a very generously defined term – subtract directly from the tax bill. Spend enough on development, and you can significantly reduce your tax bill. Which suggests that the problem isn’t the ACES tax, but rather the lower opportunity costs elsewhere than in Alaska. If you can get the same amount of oil someplace else in the U.S. for a lower direct cost, taxes may not even enter into the equation.

So let’s look at Captain Zero’s twin proposals in light of those facts and realities.

Captain Zero wants to repeal the progressive elements in ACES. It will give a considerable windfall to Big Oil, on the order of $2 billion a year. What’s in it for Alaska? Captain Zero thinks it will encourage more development on the North Slope. Notably, Big Oil has flatly refused to commit to plow the avoided taxes into North Slope development. But the simple laws of economics tell us that if the avoided taxes aren’t simply distributed to shareholders as dividends, they’ll be re-invested where the most oil can be produced at the lowest price. That may very well not be on the North Slope. It might be North Dakota, or Pennsylvania or Texas. The absence of any conditions from the State of Alaska means that Alaska will have no control, none at all, over where the lost tax revenue goes.

But remember there’s also a tax credit for North Slope development. Captain Zero wants to repeal the tax credit. His fellow Republicans point to items that have been granted a tax credit – paving an airstrip at Kuparuk, for example – which they think don’t have an obvious tie to increased production. At least not obvious the Republicans. And conclude from those examples that the tax credit should be thrown out because Alaska is losing tax revenues.

This is important: Captain Zero not only want to make an unconditional tax repeal with no promise of increased production; he also wants to repeal the one piece of tax law that ties tax breaks to North Slope development.

A sensible administration, a government that was working to increase North Slope production and put more oil in the pipeline, might modify ACES to condition tax reductions on increased throughput over the long term. The avowed goal is increased oil; dangle the carrot near the goal. Don’t just hand out free carrots. And if you think the definition of “development” for tax credits is too loosey-goosey to be useful, revise it; tighten it up to focus on the goal. Don’t throw it out.

The repeal of the tax credit is an especially cynical way to sweeten the loss of tax revenue from Captain Zero’s repeal of ACES. But it has the exact opposite effect of the claimed purpose for repealing ACES. The credit links to development. Removing it increases the cost of development, however you define “development.” Increasing the cost of development sends development effort elsewhere.

Unconditional repeal of ACES is a stupid idea. Repeal of the tax credit is a cynical, counterproductive piece of politics. Choose your explanation: the Captain is still working for Big Oil, not for Alaskans. Or Big Oil has bought and paid for the Republican majority. Or the Corrupt Old Bastards are back in charge. Because the official explanations make no sense. The proposed solution doesn’t address the declining throughput. It’s free carrots for the Big Oil.

Don’t expect gratitude.

How to Protract a Deficit Crisis. But why?

Yes, geology and economics in the same week. No, it’s not something WC would do in the deep of winter. Cold AND dark AND economics would be too cruel. But it’s bright and sunny, and if it isn’t spring yet, at least you can believe in the possibility of spring again. So economics it is.

Paul Ryan (R, WI) has released another House budget insult proposal, which once again goes far beyond the alleged deficit crisis and seeks to undo essentially all of President Obama’s painfully won legislation. But the claimed need for Rep. Ryan’s proposed law is the Big, Bad Deficit™. You have to wonder how serious Rep. Ryan is about the Big, Bad Deficit™ when he also proposes to cut the tax rate on high end taxpayers by a breath-taking 14.6%, to 25%. But let’s pass on that piece of hypocrisy – at least for this blog post – and examine the premise instead. How bad is the Big, Bad Deficit™?

During a recession like the one President Bush created, federal income tax revenue to the Feds declines with the reduction in output and income. Folks have lower income and therefore pay lower taxes. Businesses have lower profits, so those taxes go down. Fewer goods are shipped, so there are fewer gallons of fuel sold and fuel tax revenues decline. As the economy shrinks, so does federal revenue. By contrast, some federal outlays to pay unemployment insurance benefits, for example, increase. More folks are out of work. The reductions in taxes and increases in some kinds of expenses are known in economics as “automatic stabilizers.” They bolster economic activity during downturns. But they also temporarily increase the federal budget deficit.

When the economy emerges from the recession, then real (inflation-adjusted) gross domestic product (GDP) moves up closer to the maximum sustainable output of the economy (called the potential GDP). Tax revenues automatically rise and outlays for things like unemployment insurance automatically fall. Under those circumstances, automatic stabilizers offer a smaller boost to economic activity or even slow its growth. The effects of these automatic stabilizers are in addition to the economic impact of any legislative changes in tax and spending policies.

It’s the job of the nonpartisan Congressional Budget Office (CBO) to worry about stuff like this. The CBO uses statistical tools to determine the impact of automatic stabilizers on the Big, Bad Deficit™. The CBO has a proven track record of accuracy and reliability, at least over the short term, across the last twelve years or so. Here’s the CBO’s projection:

According to CBO’s projections under current law, the contribution of automatic stabilizers to the federal budget deficit, measured as a share of potential GDP, will rise slightly in fiscal year 2013, to 2.5 percent. That contribution accounts for about half of the estimated deficit this year. The contribution will remain at 2.5 percent of potential GDP in 2014, accounting for roughly three-quarters of the projected deficit next year.

CBO expects that the budgetary effects of automatic stabilizers will remain large because of the continued weakness in the economy, which is caused in part by the fiscal tightening that is occurring in calendar year 2013 under current law. That tightening includes the reduction in federal spending resulting from the sequestration that went into effect on March 1; the expiration of the payroll tax cut that was in place in 2011 and 2012; and the increase in tax rates on income above certain thresholds starting in 2013.

After 2014, the projected effect of automatic stabilizers on the budget deficit shrinks steadily, dropping to 0.2 percent of potential GDP in 2017 and about zero in 2018. In 2018 and beyond, CBO projects that output will equal its potential, so the automatic stabilizers will have essentially no effect on the budget.

WC will translate this statement for the benefit of readers: The CBO thinks sequestration will significantly hurt the economic recovery. Hurt it badly enough to increase the impact of automatic stabilizers on the deficit. The CBO thinks that sequestration will delay the economic recovery by two years. But beginning in 2015, absent more damnfoolishness by the House Republicans, the economy will again recover, the automatic stabilizers’ impact on the deficit will diminish, and will cease to have any impact at all by 2018.

Another thing the CBO does is try to estimate the budget deficit apart form the cyclical changes in the economy. The CBO tries to filter out the recessions and booms, with attendant impacts from the automatic stabilizers. Here’s the conclusion:

Under current law, CBO projects, the budget deficit without automatic stabilizers will equal 2.5 percent of potential GDP in fiscal year 2013, down from 4.3 percent in 2012 and even larger values in 2009 through 2011. About two-thirds of the drop between 2012 and 2013 results from a projected rise in revenues stemming from the increases in tax rates and other factors apart from automatic stabilizers. The other third reflects mostly a decline in discretionary outlays.

After 2013, the projected budget deficit without automatic stabilizers falls to 1.0 percent of potential GDP in 2014 and 0.4 percent in 2015.

Let’s be clear about this. If it were not for the Neocon intransigence on sequestration, in 2015 there would be no budget deficit. There would be no further increase in the national debt. The Neocons’ refusal to be rational on sequestration is adding years of additional misery to a substantial number of Americans. For no good reason.

In addition to the other Neocon agendas embedded in Rep. Ryan’s budget proposal, he proposes an American equivalent of Eurozone austerity. It’s a recipe for disaster. You don’t have to have a doctorate in economics to see the vicious cycle: austerity means more automatic stabilizers, which means a bigger deficit, which means more austerity, a cycle that loops until a nation’s economy is road kill. If you don’t believe WC, study the first years of the Great Depression. Or, if you want more modern examples, look across the Atlantic at present-day Greece or Spain.

Ryan’s “new” budget proposal aggravates that vicious cycle still further, of course, by proposing a mammoth tax cut for the rich, for no sound reason except they are the Neocons’ major campaign donors. And replacing Medicare with a voucher system, undoing the most cost-effective form of health care in the United States.

What’s the Neocon goal? Austerity is a proven failure. Is the aim to prolong the recession in order to give the Neocons leverage in the 2016 election? Oh, wait, that’s a proven failure, too. There was an election. In 2012. Ryan and his vicious economic plans were rejected by the voters. Are the Neocons dancing on the strings of their billionaire campaign donors? Seriously, what’s the goal here? Rep. Ryan is supposed to be smart guy. What’s smart about Neocon tactics since the first Tuesday in November?

This isn’t a budget. It’s a political manifesto. A rejected political manifesto. Surely the Neocons can do better.

Meaningful Fines in the Era of Multi-National Corporations

WC notes that the European Union fined Microsoft Corporation about $732 million earlier this week. It seems the bad boys at Microsoft failed again to provide easy access to other web browsers. The $732 million comes on top of at least $2.6 billion in fines levied since 2004 for the same kinds of conduct.

Ho-hum.

Microsoft has about $51 billion in off-shore profits that it can’t bring back to the U.S. without paying 35% as U.S. taxes. The current EU fine amounts of 1.4% of those off-shore profits.

The fines? A cost of doing business. It’s an inconvenience, like having $51 billion off-shore. Leaving the monies off-shore is cheaper than paying the taxes to patriate the profits. Paying the EU fine is cheaper than the cost of letting some other browser get popular.

The criminal justice system, in the U.S. and the E.U., haven’t yet gotten their collective minds around the size criminal fines would have to be to actually punish a multi-national corporation.

Way back in the Typewriter Age, when WC was just a pup, the jury in Day v. Sturm, Ruger heard evidence that the board of directors of Sturm, Ruger was told it would cost $1.93 to fix each of the 1,500,000 defective pistols like the one that injured Michael Day. The Board of Directors decided not to spend the money to do a recall. The jury decided that made a nice number for punitive damages, $1.93 X 1,500,000 = $2,895,000, under the circumstances. That’s the kind of punitive damages award or criminal fine that is calculated – literally calculated, by the way – to get the attention of a scofflaw corporation. Of course, the Alaska Supreme Court, over the furious dissent of  the late Justice Ed Burke, thought in terms of a personal fine and reduced it to $250,000.

The problem hasn’t gone away. As recently as the U.S. Supreme Court’s 2008 decision in the Exxon Valdez case, the highest court in the land has treated fines and punitive damage awards for multi-national corporations as somehow equivalent to fines imposed upon an individual. The $5 billion punitives award was reduced to just over $500 million.

You think these are aberrations? HSBC – Britain’s biggest bank – pled guilty to laundering money for rogue states, drug cartels, and terrorists. The Fed fined HSBC $1.9 billion, one of the largest fines on record. It sounds like a lot of money, until you realize it was only 9% of pre-tax profits at HSBC in 2012. Flagrant violations of the law, money laundering for the scum of the earth, resulted in a fine that was less than a third of the U.S. corporate tax rates. The really shocking fact is that no one at HSBC went to jail, but that’s a topic for another blog post.

Despite The Mitt’s claims and the SCOTUS illusions, corporations are not persons. They are vastly wealthier, for one thing. The richest person in the United States is Bill Gates, estimated to be worth $67 billion. The company he used to head, by contrast, is worth $230 billion. The Alaska Superior Court recently imposed a $50,000 fine on a man WC knows to have a net worth of about $500,000. To be proportionate, a similar fine on Bill Gates would have to be for $6.7 billion. A similarly proportioned fine on Microsoft would be $23 billion.

The EU’s fine of $732 million, while not chump change, isn’t going to change the corporation’s conduct. It’s three tenths of a percent of MS’s net worth. That’s 0.3%. Reversing the proportions, that would be like a fine of $160 – that’s one hundred sixty dollars – on WC’s scofflaw acquaintance. For Microsoft, it’s a parking ticket.

0.3% of net worth doesn’t deter anyone. Especially not if they can make $51 billion as a consequence of the misconduct. It’s just a cost of doing business.

Sequestration: MAD Happening

Remember MAD? Mutually Assured Destruction? It was the nuclear deterrent policy that governed U.S. and U.S.S.R. foreign policy for four decades, from the mid-1950s to the mid 1990s. Both sides were armed to the teeth with vast arsenals of horrific nuclear weapons. If one side pulled the trigger, both sides had so many bombs, missiles, subs and bombers that both sides would be annihilated. It mostly worked. At least, in a time of dozens of proxy wars, Koreas and Vietnams, no nuclear weapons were used. Both sides understood that a tense, white-knuckle peace was better than mutual annihilation.

The sequester that went into effect on March 1 is a failed analogue to MAD. The original idea was to create budget cuts so draconian, including very substantial cuts to defense spending, that both sides would compromise rather than face the sequester. The sequester was intended to be so severe, such an atomic bomb on the recovering U.S. economy, that neither side would allow it to happen. The sadly-named Supercommittee would find a budget compromise rather than destroy the economic recovery and the country’s credit rating. The sequester was intended to be economic MAD.

Except, of course, Congress has repeatedly failed to avoid the sequester. The Supercommittee completely failed to find a compromise. Despite kicking the deadline down the road a couple of times, Congress as a whole abjectly failed to reach an agreement. In fact, Congress went home for recess with the sequester looming.

That happened, as far as WC can tell, because the Republican majority in the U.S. House has decided that a MAD is preferable to compromise, that allowing a sequester designed to be unthinkable to happen was better than compromise.

As far as WC can tell, the House Republicans decided to push the “Launch” button because they’ve decided the consequences of meat axe cuts imposed by the sequester were better for them than negotiation. Not for the U.S. economy. Not for the voters. For them. For the neocon House members.

But they’re not even honest about the decision. They blame the President and the Democrats for the existence of sequester, hoping the voters won’t remember who helped design and voted for the thing. They blame the President for making the sequester hit programs their constituents care about, when they themselves helped to make the sequester as painfully inflexible as possible. They blame the President and the Democrats for for the failure of negotiations when they have rejected every attempt at compromise. Make no mistake, the House Republicans pressed the “Launch” button because the President and the Senate wouldn’t give in to each an all of the demands made by the Republicans.

If you want to mix metaphors, this was a hostage situation, with the Republicans holding the U.S. economy hostage, and when the President and Senate refused to pay the ransom, they blew the hostage up.

And probably themselves.

It’s hard to see how chopping $85 billion out of the U.S. economy won’t put the country back into a recession. It’s a kind of super-austerity, and we’ve seen how badly austerity has failed in the Eurozone.

But that’s what the Republicans have done. As the sequester cuts in, as defense jobs vanish and education funds dry up, as the economic multipliers stop working, we’re gong to be staring at smoking, radioactive ruins where we had a recovering economy. Think of Greece or Spain.

WC hopes the voters remember who refused compromise, who refused a further extension of time to allow tempers to cool off. Who pressed the “Launch” button.

Marco Rubio: A Sea of Deception

Senator Rubio Keeping Hydrated. Again. Photo by ABC News

Marco Rubio, reportedly the best the Republican Party has to offer, offered up a sea of deception in his response to the President’s State of the Union speech on Tuesday night. Little Lies, Big Lies, Straw Men fallacies. WC asks his readers to take their anti-nausea medicine as we wade into a rank selection.

1. Climate Change

Sen. Rubio (R-Fla.) dismissed the idea that the U.S. government could do anything to combat climate change

The government can’t change the weather. We can pass a bunch of laws that will destroy our economy, but it isn’t going to change the weather. Because, for example, there are other countries that are polluting in the atmosphere much greater than we are at this point — China, India, all these countries that are still growing. They’re not going to stop doing what they’re doing.

China and India, in fact, have cap-and-trade systems to control emissions, while the U.S. does not. A proposed system for the U.S. passed the then-Democratic-controlled House in 2010, while it died in the Senate. China is, of course, the world’s leading emitter of carbon dioxide, but it also has a population over four times the United States. Per capita, we’re still the champs. And because someone else isn’t doing anything, we shouldn’t either? How utterly selfish have Republicans gotten?

Jonathan Chait of New York Magazine breaks down the reasoning behind climate change for Rubio:

1. The government has a bunch of rules that control how much coal, oil, and whatnot gets burned. 2. The more greenhouse gasses we burn, the warmer the climate gets. It’s science. 3. The warmer the climate gets, the more frequently we have extreme weather events. This is also science.

Rubio’s climate change skepticism is not newfound. He said earlier this month that he has heard “reasonable debate” about whether climate change is man-made. In fact, a study, published in 2010 in the Proceedings of the National Academy of Sciences, surveyed 1,372 climate researchers and found that 97 to 98 percent of them agree that climate change is anthropogenic.

Utterly selfish, stupidly wrong and morally repugnant.

2. The Cause of the Recession

Quoting Sen. Rubio again:

This idea – that our problems were caused by a government that was too small – it’s just not true. In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies.

Paul Krugman punks Rubio’s claims:

OK, leave on one side the caricature of Obama, with the usual mirror-image fallacy (we want smaller government, therefore liberals just want bigger government, never mind what it does); there we go with the “Barney Frank did it” story. Deregulation, the explosive growth of virtually unregulated shadow banking, lax lending standards by loan originators who sold their loans off as soon as they were made, had nothing to do with it — it was all the Community Reinvestment Act, Fannie, and Freddie.

Look, this is one of the most thoroughly researched topics out there, and every piece of the government-did-it thesis has been refuted; see Mike Konczal for a summary. No, the CRA wasn’t responsible for the epidemic of bad lending; no, Fannie and Freddie didn’t cause the housing bubble; no, the “high-risk” loans of the GSEs weren’t remotely as risky as subprime.

This really isn’t about the GSEs, it’s about the BSEs — the Blame Someone Else crowd. Faced with overwhelming, catastrophic evidence that their faith in unregulated financial markets was wrong, they have responded by rewriting history to defend their prejudices.

Sen. Rubio seems to have drunk a far more dangerous Koolaid and not just an awful lot of water. He and his teabagger buddies are now committed to the belief that their pre-crisis non-regulation doctrine was perfect, that there are no lessons we can take from the worst financial crisis in three generations except that the banking industry should have even less regulation. If Sen. Rubio gets into power, you know he’ll test that theory by giving his banker campaign donors a chance to do it again.

3. Just a Home Boy

Sen. Rubio boasted,

Mr. President, I still live in the same working class neighborhood I grew up in. My neighbors aren’t millionaires. They’re retirees who depend on Social Security and Medicare. They’re workers who have to get up early tomorrow morning and go to work to pay the bills. They’re immigrants, who came here because they were stuck in poverty in countries where the government dominated the economy.

He’s a Not-Romney, you see. Just one house, in a middle-class neighborhood. A regular guy.

According to the Miami New Times, that would be West Miami. In fact, this regular-joe’s claim to the middle class is a lie, too. In fact, his home is on the market. The asking price? $675,000.

This probably qualifies as a brazen lie. You talk about your one-of-the-boys home in a nationally televised speech when 1) you are actively trying to leave that working-class neighborhood and 2) you stand to make more than a half-million bucks when you sell your digs. Oh, and the Miami New Times has some dirt on how he acquired the house. Not pretty, and another example of why we need the government regulation Prof. Krugman talked about.

WC is already over the 750 word limit that he tries not to exceed. Besides, WC is a little nauseated by disgust, even if his readers may be made of sterner stuff. So we’ll stop the shoveling there, even if WC has a lot of dirt left.

But we’ll end on this note: this is reportedly the best the Republican Party has to offer. This is the guy with new ideas. This is the guy on the cover of Time magazine.

Wow.

No Confidence in the Product: Tourism

In August 2006, 53% of Alaskans voted to impose a head tax, on-board observers and stricter regulation on cruise ships coming to Alaska. The initiative passed despite economic blackmail by the industry, over-the-top scare tactics, attempts at illegal voting by non-resident seasonal workers and and a $1.5 million media blitz by the industry.

Since then, Alaska’s governors and the Alaska Legislature have collapsed like beached jellyfish in their zeal to undercut the citizens’ decision. Deadlines were extended, key provisions were watered down or removed and enforcement has shown less spine than a banana.

The final nail in the coffin came down Monday when the Republican-controlled State House effectively repealed all of the remaining teeth in the citizen initiative, all in the name of sucking up to the cruise industry. This is the same industry, mind you, with a long record of pollution, including a 1999 guilty plea to illegal discharges in the pristine Lynn Canal, and payment of a $27 million fine. The House bill appears headed to near-certain adoption by the state senate, and Captain Zero has already pledged to sign it into law.

All of this because if the State doesn’t cave to the cruise line demands they’ll take their behemoths elsewhere.

For WC, this abject fawning demonstrates an utter lack of confidence by the folks we send to Juneau in the tourism product we have to sell.

Alaska and its scenery have a long-proven record of successfully attracting tourism dollars to the State. The demand to see Alaska is real; the threats – direct and indirect – by the cruise ship industry to take their floating buffet lines elsewhere if the state doesn’t meet their demands is a bluff. The cruise ship industry has huge amounts of capital invested in their gargantuan ships and in their earlier promotion of Alaska in general and Southeast Alaska in particular. Despite the threats, they don’t want to walk away from that investment. The cost of complying with the environmental requirements is trivial in comparison to the profits, and for the most part a one-time expense which is even tax deductible to the industry.

And, you know, the fishermen have a point when they stress the important of keeping the heavy metals that the cruise ships spew out of the water column, out of our fish and out of ourselves. And the evidence of voluntary compliance is non-existence. Also on Monday, Princess Cruises paid a $20,000 fine for illegal wastewater dumping in Glacier Bay.

None of the arguments advanced by the powerful cruise ship lobby withstand scrutiny, which is why they have fallen back on economic blackmail. But to the extent anyone, including our elected officials, give those threats credence, they are demonstrating a lack of confidence in the natural beauty of Alaska.

You see the same thing in Captain Zero’s efforts to suck up to the oil industry. But that will be the subject of a later essay.

Common Thugs: Blackmail, Hostage-Taking and the G.O.P.

Some months ago, during the last debt ceiling crisis, Paul Krugman described G.O.P. tactics as the equivalent of the guys in ill-fitting suits who come to your business and say things like, “Nice economy you got here, mister. Be a shame if somfin’ happened to it.” But Prof. Krugman was far too kind. The G.O.P. has moved beyond mere extortion to blackmail, hostage-taking and more.

You think WC is overstating the case? Consider the points of Greg Sargent in the Washington Post, hardly liberal media any more. He  convincingly points out that the debt ceiling must be raised to pay for past spending, and should not be used as a chip in negotiating future budgets:

In the current context, conservatives and Republicans who hold out against a debt limit hike are, in practical terms, only threatening the full faith and credit of the United States — and threatening to damage the economy — in order to get what they want. Any accounts that don’t convey this with total clarity — and convey the sense that this is a normal negotiation — are essentially misleading people. It’s that simple.

It’s not a normal suite of negotiations when one side has a pistol to the head of your loved one, and demands $100,000. The G.O.P. threat to blow up the world economy if it doesn’t get its way isn’t very different, except that the pistol is held to the entire world economy and not just an individual hostage.

Where is the moral outrage at this kind of hostage-taking? Why aren’t the major banks, who have a lot to lose if the U.S. defaults on all those bonds they hold, screaming in protest? How is it that our allies and foreign investors aren’t dumping our bonds like hot potatoes? How is it we are tolerating behavior that would be a felony if it happened on the street? How did this become “normal”?

Look, every bit of the debt we are carrying is the result of Congress passing a law. Not the President. Congress. Every penny of the deficit is the result of an appropriation by Congress.

Most of it, as WC has shown earlier, is the result of passing tax cuts in the Bush Administration, and unfunded land wars in Asia. The largest single element of the budget today, bigger than any of what the G.O.P. calls “entitlements,” is the defense budget. Which is now larger than the combined total of the ten next-largest nations’ military budgets.

But the G.O.P. lacks the integrity and moral scruple to confront its own wastrel ways. It doesn’t address the individual programs on their merits. Instead, it intends to hold the full faith and credit of the United States hostage. It is prepared, or claims to be prepared, to permanently damage the national economy, the world economy. “One move and the nation gets it.”

This is the party of principle? This is the outfit that calls itself  ”conservative”? What’s conservative about blowing up the economy? The Nixon Administration prosecuted some of WC’s college buddies for even talking about this idea. What’s next? Duels?

WC asks again, how did this become so “normal” that there is no outrage?

Captain Zero’s Opinion: Clearing the Fog

Our very own Governor Sean “Captain Zero” Parnell has an opinion piece in Sunday’s Fairbanks Daily News Miner. Well, more accurately someone in the Governor’s office was tasked with spinning the facts at Captain Zero’s direction. The piece demonstrates again that you can put the oil industry lobbyist in the Governor’s mansion, but it doesn’t stop Captain Zero from lobbying. WC will analyze the Captain’s essay, as a service to readers.

As North Slope oil production declines, Alaskans’ opportunities diminish. Where once we measured trans-Alaska pipeline system throughput in millions of barrels per day, this next year, North Slope production will average 538,000 barrels per day. In just three years, production has declined by 100,000 barrels per day. This means fewer job opportunities and less money for schools and public safety for Alaskans.

Captain Zero, no one disputes that oil production is declining. No one sensible disagrees with the premise that it would be spiffy to have more revenue from the industry. The disagreement is over how to do that. Handing $2 billion a year to Big Oil isn’t going to accomplish that desirable goal.

Turning around this decline will not happen overnight, and it will not be easy. It will take billions of dollars in new investment every year to stabilize production, and billions more if we want to increase throughput in TAPS. That means new capital spending by Alaska’s legacy producers, as well as by new entrants to the state.

White noise. Meaningless blather. And you forgot to mention the additional billions to renovate and repair the aging North Slope infrastructure, which, you may recall, has failed catastrophically several times already.

From Houston to Wall Street — and around the globe — energy companies and investors know that below the ground, Alaska has few rivals. Where we run into trouble is above ground.

No. That’s not where we run into trouble. We run into trouble when you simply give money to oil producers, without any requirement that it be linked to additional product in the pipeline. Captain Zero is a lawyer. He passed the Alaska Bar Exam. He knows that a corporation’s duty is to its shareholders. Lower taxes mean bigger dividends. Not more oil production.

To encourage these companies to make new investments, my administration has tackled permitting issues, stepped up our marketing efforts, and attracted new companies to Alaska.

It’s great that new companies are drilling on the Slope. But they have fewer resources and are willing to take bigger chances. And they may be less prepared. Remember Respol? It took them ten days to get a blow out under control. And you brag about relaxing the permitting process? Or how about Shell Oil’s unending series of debacles? You think Shell deserves less scrutiny? More crude in the Tube is a goal, but it is not the only goal. When the oil is all gone – and the supply is finite, after all – WC would like Alaska’s environment to be relatively undamaged.

But for every company that comes to Alaska excited about the vast hydrocarbon resources remaining on the North Slope, many others simply turn and put their money elsewhere; they are creating growth and prosperity in places like Alberta, North Dakota and the North Sea. Alaska has dropped behind North Dakota in production and drifted below California this past fall.

Now you are mixing old technologies – traditional drilling methods – with new technologies, specifically hydraulic fracturing, “fracking.” Not every oil field lends itself to fracking. We’re still finding out if the North Slope fields do. And we don’t know the tradeoffs for fracking. We know there are pockets of natural gas at relatively shallow depths, just ask Respol. And you are mixing oil fields with different access requirements with Alaska’s more remote fields. You can’t repeal the laws of economics. More oil in, to use your examples, North Dakota and California,  means more supply, which if there were constant demand means lower prices. The added development costs on the North Slope are the result of remoteness, harsh environment and long supply chains.

Every company that has either come to Alaska or walked away cites our oil tax system as problematic, particularly the high government tax when oil prices are high like they’ve been these last few years.

ACES shares the bonus that Big Oil gets for higher prices. But there wasn’t any consensus among the many experts the Legislature heard from last session that ACES was an obstacle to North Slope development, or at least WC didn’t hear any such consensus. But that’s not really the question, is it? The question is whether any tax break is linked tightly enough to the goal of more crude in the Tube.

I have been encouraged by the consensus that has emerged over the past year. Where two years ago, some legislators denied there was a problem, today there seems to be agreement that Alaska’s tax system is out of balance when prices are high, and that something needs to be done.

No. No one denies the problem of declining production. What the legislators have done is question whether you were taking the right approach. And criticizing your alarmist distortions of the minimum volume the pipeline could transport. And the inability of your chosen administration members who appeared before the Legislature to answer even the simplest questions. Those issues represent three of the four reasons ACES hasn’t already been reformed.

Evidence of this was seen at the end of the last legislative session, when legislators from both parties studied and acted on different pieces of tax reform.

Really? Then why did you withdraw your reform bill during the special session, just as the House and the Senate were getting close to a deal? If you were “encouraged,” why did you jerk the rug out from under neath the special session? WC is unable to reconcile your claim now with your actions then. The fourth reason we don’t have a changed tax structure is you unilaterally stopped in the middle of the special session.

Although we may disagree at times on the details of tax reform, most Alaskans agree that something needs to be done. By building on that consensus and focusing on the opportunity before us, I am convinced we can come together collaboratively and move Alaska forward this year.

More white noise and meaningless blather. So far Captain Zero’s idea of collaboration was to pack the Redistricting Committee with Republicans. Not a generally accepted meaning.

That is why I directed my administration to develop a new proposal for tax reform that builds on the work of the Legislature and our administration over the past two years.

I have told my team that any tax reform proposal must adhere to the following principles: First, tax reform must be fair to Alaskans. Second, it must encourage new production. Third, it must be simple, so that it restores balance to the system. Fourth, it must be durable for the long term.

The first “principle” is enshrined in the Alaska Constitution and, in the case of nonrenewable resources like oil and gas, requires us to maximize the revenue. ACES is doing a pretty good job of that. The second principle is the real issue; you seem to think giving away $2 billion, no strings attached, will achieve that. No economist does. No lawyer not paid by Big Oil thinks so. We’ll see what the “new proposal” says, but mark WC as skeptical. The third principle is a non sequitur. “Simple” isn’t possible where resource extraction and economics meet multinational corporations. And the fourth principle was, of course, the goal of ACES. You know, “stability,” that was what the pundits told us Big Oil craved. Heh.

I am asking Alaskans to come together around these core principles and build on the emerging consensus that something needs to be done.

And WC is asking Captain Zero to realize that absent specific extraction targets, reducing the taxes will only be successful in reducing revenue to the State of Alaska. And to the extent there is an emerging consensus, WC thinks it’s recognition that the proposals rolled out in the last legislative session were really, really stupid ideas.

If we work with these guiding principles in mind, we can maximize the benefit of Alaskans’ oil for Alaskans. By doing so this year, we will bring new jobs and new investment, we will begin to reverse the decline, and ultimately, we can unlock Alaska’s vast opportunities for future generations of Alaskans.

Yeah, cue the french horns. Look, Big Oil is making truly obscene profits at the recent prices of Alaska crude. Alaska is just as entitled to make money on its nonrenewable resources. We don’t need another Kennecott copper, where the resource was taken and Alaska got precious little.

WC’s ideal tax structure, if you really believe it has to be changed, would reduce the rate of taxation by a half a percent or so for every 25,000 barrels of crude through the pipeline above throughput of 600,000 barrels a day, up to a ceiling at some sustainable level of extraction, determined by independent experts. Combined with a firm, specific commitment to repair and rehabilitate the infrastructure. Glosses might include special, one time credits for attempts at fracking. If independent experts conclude it can be done safely.

We have the Respol example and the series of Shell blooper highlight reels to remind us to be careful. Scaling back the requirements for permitting is another really bad idea.

But to this point, Captain, you’re just making noise. The noise doesn’t matter. It doesn’t help. It’s the proposal you say you are developing. WC is at a loss to know what it’s not in front of us now. It might help that consensus thing you keep talking about.

The Abject Failure of Austerity

The results are in. Austerity, as the solution for economic woes, is an abject failure.

The European Union has imposed serious economic austerity measures on five of its member countries: Spain, Portugal, Italy, Greece and Ireland. Here are the results:

Charting Failure: PIIGS Unemployment – Chart by Stuart Staniford

These are the consequences of fiscal austerity. This is the “solution” that Paul Ryan and U.S. House Speaker John Boehner want to impose on the United States. This is the “solution” that is the basis for the Neocons running the country over the fiscal cliff.

Why does anyone take this idea seriously? Why, in the name of any rational economic policy, would we inflict this on ourselves?