Election Menu: Ran Out of Jobs, Now Serving Austerity

September 4, 2010

ELECTION MENU: RAN OUT OF JOBS, NOW SERVING AUSTERITY

“…my guess is that the president will continue to play it safe, all the way into catastrophe.”
Paul Krugman column, NYTimes, Aug. 30, 2010, “It’s Witch-Hunt Season.”

“So what is going to happen? I assume that, after the mid-term election, resurgent Republicans will offer new tax cuts and ignore the fiscal deficits. They will pretend that this has nothing to do with any reviled stimulus, though it is much the same thing – increasing fiscal deficits, thereby offsetting private frugality…allowing Republicans to get the credit for their ‘yacht and mansion-led recovery.’ Any recovery is better than none. But it could have been much better than this. Those who were cautious when they should have been bold will pay a big price.”
Martin Wolf column, Financial Times, August 31, 2010, “Obama was too cautious in fearful times.”

Dear Citizens, Elected Officials, and Candidates for Office:

Four years and some months ago, America’s most renowned liberal economist was near death, at the end of a remarkable life just short of a century’s span. Much of the left was gathered in Washington, DC, at a Take Back America conference, and the dying man’s son, James Galbraith, himself a fine economist, carried his father’s deathbed message to those duly assembled: America didn’t need a second Republican Party; business interests were already well spoken for via the GOP. The Democratic Party needed to speak for those who didn’t already have such good representation.

And, unfortunately, that’s the message that came to mind as we’ve been looking over the wave of mailings from Democratic candidates in August of 2010, shaking our heads, wondering, can these really be Progressive Democratic candidates? John Kenneth Galbraith, who passed away on April 29, 2006, and left us that message, got the dynamics exactly right.

The mailings from one race in particular have caught our attention, and triggered the thought process behind this posting: the Maryland state senate race in District 17, Montgomery County, between Senator Jennie Forehand and challenger Cheryl Kagan.

The Forehand-Kagan Race: Tracing Business Bloodlines
Ordinarily, this would be a classic case of a younger challenger trying to force retirement on a senior senator who has stayed too long, or, as some of the campaign literature has suggested, the “energizer bunny” versus one who “has been at the forefront of Progress for 30 years.” But that’s not what caught our eye. Instead, it was Kagan’s early literature which indicated her bloodline through grandparents who were “tough, hardworking small business owners” and that her previous legislative experience demonstrated she could “enforce fiscal discipline in good times and bad.” That strict message was right across the page, intentionally or not, from the gold & blue law-badge symbol of the FOP, under the heading “Protecting Our Quality of Life.” Perhaps someday Montgomery County sheriffs will be serving warrants to citizens for “fiscal profligacy,” and Cheryl will be right there to ring the doorbell with them.

As for Senator Forehand’s mailings, what drew our attention wasn’t her stomping out cigarettes at Oriole Park, but rather the little logos of achievement listed at the bottom of the inside pages: “Pioneered Small Business Incubators to Create Jobs; Sponsored Biotech Jobs Investments; Senate Chair of the Maryland Nanobiology Task Force” - followed later by two flyers entirely devoted to touting BIOTECH! Now we freely confess to being a bit behind the curve on biotech, given as we are to poking around in political economy texts, and studying rail freight loading reports, but we’re catching up, and catching on, as we hope to demonstrate later. For now, let us just observe that for Senator Forehand, as for Montgomery County, the state of Maryland and seemingly every jurisdiction in the nation that can find an empty bio lab and test tubes, INVEST IN BIOTECH! is proclaimed with all the fervor and promise once contained in founding Republican Party father Horace Greeley’s advice to “GO WEST, YOUNG MAN.” To this we can only add that we hope it turns out better than California did.

In another mailing, Senator Forehand has indicated she is conceding nothing to Ms. Kagan on either the austerity or the small business front. She’s apparently cut her own Senator’s salary to help the state balance its budget: “that’s because she’s motivated by her own experience of having to get by with little as a young mother, while building up a small business at the same time.”

What the Old Family Budget Won’t Buy Us
So it’s back to the old “balancing the family budget analogy” for government spending, the one we’ve been warning about for over a year now, warning that its false simplicity would be a disaster for the nation, and the Democrats, as it was carried to the national level, just as the economy was running out of consumer demand. At least the sitting Senator kept it to the state level, unlike the seemingly oblivious Duchy Trachtenberg, who is apparently unaware that “most economists who are close to the policy making arena for both parties take the position that austerity is the wrong medicine for what ails the American economy,” as Peter Goodman put it an article on the front page of the Sunday New York Times (“Policy Options Dwindle as Economic Fears Grow,” August 28, 2010, electronic edition.)

In looking over all this campaign literature we kept saying to ourselves that if we didn’t know better, didn’t already know who the candidates were and which party they belonged to, that the values being highlighted for us might just as well have belonged to those good, moderate Maine Republicans. We thought at first that perhaps these tendencies were just manifesting themselves in the heart of Montgomery County, a county still reeling from being punished by that stern budget disciplinarian, the Washington Post, via its invidious comparison to thrifty Fairfax County, Virginia in the editorial “A Tale of Two Counties.” (May 30, 2010).

You know that the world has turned upside down when Democrats who apply the label of “Progressive” to themselves then go out and wave endorsements from this same dour old Washington Post – the same Post most Progressives we know stopped subscribing to - years ago. That would be the very same Washington Post that not only didn’t see the economic crisis coming in the fall of 2008, it also didn’t even bother to review the growing number of books which did, as we pointed out in our essay “The End of an Era, Part II” from September of 2008.

Larry Summers: No Harry Hopkins in this Administration
But we didn’t think an analysis of these Republican-sounding Democratic campaign themes should rest upon such a narrow sample. So we set ourselves the task of looking at more than fifty campaign websites, many in Montgomery, but also a good number from around the state, including some from Annapolis leaders, as well as Republican candidates and official party sites. We looked with a purpose and a focus. We were wondering, in keeping with our previous postings over the past year or so, whether any Democrats would make reference to FDR, or the New Deal, in the same way that the Republican Right radio we listen to (painful as that is) holds candidates and policies to the benchmark question of “What would Reagan do?” And we wondered whether any Democrat would push the Obama administration and call for the direct creation of publicly funded jobs, the way Yale economist Robert Shiller has, described on August 1 by Robert Kuttner: “Shiller wrote…that government needed to spend more money putting people back to work directly – breaking an Obama administration taboo. Obama economic policy chief Larry Summers opposes Roosevelt-style direct jobs programs…” Shiller asked: “Why not use government policy to directly create jobs – labor-intensive service jobs in fields like education, public health and safety, urban infrastructure maintenance, youth programs, elder care, conservation, arts and letters, and scientific research?” (At http://www.huffingtonpost.com/robert-kuttner/the-appeal-of-austerity-i_b... )

(Editor’s Note: this is the first and only time we’ve seen anyone shine a spotlight on Larry Summers on this policy issue, one so crucial for the Democrats, and for the nation.)

Before we share our findings from all those candidate websites with you, let’s bump up the economic drama a bit - because that’s exactly what was going on in economic reality land, as week after week in August the indicators began to head south again. Although our local and state Democratic candidates don’t seem to realize it, the weakening economy should have made it all the more obligatory, and compelling, for them to distinguish between the local legal necessity for balancing budgets and the compensating, opposite reaction at the federal budget level: how increasingly important it then became for the Obama administration to raise its ambitions for job creation of all types at the federal level – Republican reaction be damned.

We have a federal system in the United States though, and therefore, even if the bulk of the funding comes from the federal government, there must be intelligent advance planning at the local levels to make good use of it, including any cost-sharing requirements. As with the earlier stimulus programs, states which had well planned and already permitted projects waiting for funding went to the head of the line. Therefore national economic trends and implications are not just for federal officials and candidates to track and plan for.

What If…Recovery is Eight Years Away?
So we have this question for our local Democrats: what if the economy is not recovering? What if Krugman is right, that this is The Third Depression, after 1873 and the 1930’s – less dramatic than the 1930’s, but very prolonged, like the last quarter of the 19th century? And what about the example of a much more contemporary economic tragedy, that of Japan’s deflation, and lost decade of the 1990’s, that so many economists refer to by way of a scary lesson analogy, as it followed in the wake of two bursting bubbles, the Japanese stock and real estate markets of the 1980’s? Isn’t it obvious that if local and state officials across the U.S. have to balance their budgets, as their laws say they must do, even if it was the great recession, not public unions, that caused the collapse of revenues, that the cumulative effect of everyone doing this at the same time equals economic deflation and loss of demand? For example, we have a 6.9% drop in Montgomery County’s FY 2011 budget (compared to FY 2010, according to Councilman Marc Elrich’s website), with Maryland’s state budget of $13.8 billion
in FY 2010 shrinking by 3.3%, and then shrinking another 2.9% for FY 2011, according to Senator Richard Madaleno’s website. Mike Lennett, the incumbent Senator in District 19, being hard pressed by challenger Roger Manno, tells his constituents in his legislative newsletter that in four years, $5.6 billion has been cut from the state budget, and 4,000 state positions eliminated. That’s an awful lot of demand cutting from the public sector. So is the private sector up to replacing it?

Geithner: “Welcome to the Recovery?”
According to our current Secretary of the Treasury, Timothy F. Geithner, the answer is – or rather we should say was – on August 3rd, a resounding yes, as he briefed an anxious nation with his Op-Ed in the NY Times: “Welcome to the Recovery,” which maintained that “a review of recent data on the American economy shows that we are on a path back to growth.” Poor Secretary Geithner, welcome to the rest of the news which followed: GDP growth revised down from 2.4% to 1.6% in the second quarter of this year, (according to Paul Krugman, we need 2.5% growth just to prevent unemployment from rising, to meet the demand of new workers entering the workforce); existing home sales plunging 25.5% in July from 2009 figures (and new home sales too); an open acknowledgement by the Federal Reserve on August 10 that the economy had slowed and there was great uncertainty about when it would get better; the return, in June, of “the Killer Trade Deficit…the biggest since October of 2008,” (according to a NY Times editorial of August 16th), and the continuing inability to explain the great stock market plunge of May 6th, 2010. So our upbeat Secretary of the Treasury couldn’t have picked a worse time for his reassurances.

Time to Fire Geithner and Summers
We have to admit that an unlikely spokesperson for the “Forgotten Man,” House Republican leader John Boehner, said what a lot of Americans were thinking when he called for President Obama to fire the Secretary Geithner and economist Larry Summers on August 24th. Unfortunately, that was the highlight of his speech at the City Club of Cleveland, Ohio, with the rest of his policy prescriptions following the Republican Right’s economic theology of the past 30 years, with Boehner apologizing for past lapses and blaming the Obama administration for creating an uncertain business climate, a theme you’re going to be reading more about in just a moment.

Roubini’s “Double-Dip Days”
Perhaps Secretary Geithner was just going overboard a bit to counteract the influence of Dr. Doom, the redoubtable forecaster Nouriel Roubini, who told readers at Huffington Post, on July 16th that the global economy is headed for a “sharp slowdown” in a post entitled “Double-Dip Days.” At best, we’re going to have a “mediocre U-shaped recovery” Roubini told readers, and here’s what we can look forward to in a little greater detail: “Fiscal stimulus will disappear as austerity programs take hold in most countries…the effects of tax policy that stole demand from the future – such as incentives for buyers of cars and home – will diminish as programs expire…what is coming will feel like a recession…a further rise in unemployment, larger cyclical budget deficits, a fresh fall in home prices, larger losses by banks on mortgages, consumer credit, and other loans, and the risk that Congress will adopt protectionist measures against China will see to that.”

And then there are the looming external shocks, what some have called “Black Swan” events: Eurozone’s “sovereign-risk problems,” (nicely anticipating the NY Times of a month later: “Default Fears Return to European Debt,” on August 26th) and one that’s been looming on the diplomatic horizon for some time now: “…the possibility of an Israeli military strike on Iran in the next 12 months. If that happens, oil prices could rapidly spike and, as in the summer of 2008, trigger a global recession.”

(Editor’s Note: Unless we were sleepwalking, we first found “Double-Dip Days” at Huffington Post, and printed it out; in creating this link later, it seems to have disappeared there, but we found it at another location, at http://www.project-syndicate.org/commentary/roubini27/English . Beats us what happened.)

But something else caught our attention in Roubini’s forecast, which overall has turned out to be remarkably accurate in light of what has unfolded in August: “…the fundamental excesses that fueled the crisis – too much debt and leverage in the private sector (households, banks and other financial institutions, and even much of the corporate sector) – have not been addressed…Private-sector deleveraging has barely begun…”

That stands in sharp contrast to two of Sec. Geithner’s bulleted points, that “businesses have repaired their balance sheets and are now in a strong financial position to reinvest and grow” and that “Major banks, forced by the stress tests to raise capital and open their books, are stronger and more competitive…better positioned to finance growth.”

An “Unexpected” Departure
It is confusing for the public to read about many of those corporate balance sheets “awash in cash” paying steady dividends (but not hiring workers) and then run into Roubini’s assessment that “Private-sector deleveraging has barely begun.” We have a sense that Roubini is right, although perhaps a bit too sweeping, because there are non-financial firms in the private sector that have kept their balance sheets in a healthy state. A little noted departure, however, may be an early warning forecast of more trouble to come on the de-leveraging side, which means, in plain English, that instead of hiring workers and increasing investment for higher productivity or expansion, private sector money is being used to pay down existing debt. We say that because of the unexpected departure of the Chairman of the Financial Accounting Standards Board (FASB), announced in late August. That would be Robert Herz, and the reason for our curiosity is that he was the poor soul who was chewed out, bullied actually, by a Congressional Committee (we’re thinking in particular of Rep. Paul Kanjorski’s brow-beating (D, D-11, PA) back in March of 2009, virtually being ordered to write rules favorable to banks, and easing up on tough “mark-to-marketing” accounting which was threatening their balance sheets. The AP story from August 24th, by Marcy Gordon, concludes by noting that “the issue of mark-to-market rules has bubbled up again with another FASB proposal meeting opposition from the banking industry.”

And this “little discrepancy” between Roubini and Geithner, and this FASB departure, leads right into a fascinating bit of video we recommend to our readers for further economic clarification. It goes back to that spring 2010 conference in England, put together by the Institute for New Economic Thinking, whose distinguished participants called our readers attention to the looming European debt crisis, a crisis which helped tip so much of the world’s policy inclinations, tragically, towards austerity instead of job creation.

Professor Koo On Japan’s Lost Decade
Now we like to, whenever we can, find the most conservatively credentialed messenger to deliver the news that our economic system has deep structural problems that are not going to heal in just a couple of years. So we’d like to set the present economic stage for our further scrutiny of what Maryland office seekers are saying – set against the talk given by Richard Koo, the chief Economist at the Nomura Research Institute, which advises the famous Japanese securities firm, Nomura Securities.

Professor Koo just happened to work at the Federal Reserve Bank of New York during the great Latin American banking and debt crisis in the early 1980’s, and he is wryly humorous with descriptions of how he worked under Chairman Paul Volcker’s leadership to contain the damage, using “legal, illegal - paralegal methods – everything.” He was also a first hand observer, and advisor, to Japanese Prime Ministers during their time of troubles between 1990-2005. So why do we think this scholarly presenter has anything to say to our campaigning elected officials, and you, our readers? Koo has given a name to what Japan went through, which was an experience that classical economics and all its recent Chicago school re-incarnations weren’t very helpful in explaining. In other words, Koo had to throw the conventional wisdom out the window to deal with a set of circumstances which comes along only once in about 70 years or so, and he does directly link Japan’s to the 1929-1933 experience in the US, and what we are going through now.

There is something about Japanese language inflections that even when the speaker is using English, there is an added sense of authority and gravitas that comes across, beyond Koo’s readily evident sense of forthrightness and conviction. So what’s his message? When facing the circumstances we are now caught in, just described above by Nouriel Roubini, as great de-leveraging, or paying down debts, we are going through what Koo calls, for lack of a better name, “a balance sheet recession,” where demand and investment levels are going to be woefully deficient in the private sector, and have to be made up by comparable amounts, or more, coming from the public sector. In Japan, that meant, among other things, massive investments in infrastructure. Now here’s the thing that we want you to really grasp about what Koo is saying, and you’ve been partly prepared for it by all the talk over the past two years about the US not repeating Japan’s lost decade of the 1990’s – which is an understatement of the actual time frame that will shock you. For the heart of Koo’s message is this: for 15 years Japan zigzagged between the right remedy – Keynesian deficit spending for public works and work – and recurring bouts of elected officials’ budget balancing and austerity obsessions – something that we can see way back even in FDR himself during the 1930’s. So a recovery that should have taken “just” eight years from the 1989-1990 collapse – ended up taking 15 years! That’s right, that’s the time frame for Japan’s recovery from the bursting stock and real estate bubbles that built up between 1986-1989. Koo is proud of the fact that during this entire time, Japan was able to keep its GDP from plunging, despite the policy zigzagging (and despite the massive decline in real estate values, something on the order of 87 %.) But the lessons are still sobering for everyone here in the USA trying to understand what we are going through – and how long it is likely to take to pull ourselves out of it, especially if we maintain the current compass setting (Here is his speech from April of 2010, about 24 minutes, at http://ineteconomics.org/people/participants/richard-koo .)
Given this background, perhaps you can better understand our concern that local and state office holders – and seekers – have to do more than just proclaim their balanced budget austerity and job inducing credentials. Let’s see what in fact they have been saying about our situation and what they intend to do about it.

At the Websites: All About Austerity & Favorable Business Climates
To highlight just how much Democrats sound like Republicans, let’s start at the top of the Republican slate, Bob Ehrlich’s website. There we learn that “to create jobs and grow the economy, Ehrlich pledges to repeal the sales tax increase, fix the budget and double charter schools…nobody said this campaign would be easy, but the families and entrepreneurs of Maryland are worth it…I will treat our small businesses as a source of new jobs while the incumbents in Annapolis treat them as a source of revenue.” At the Montgomery County GOP website, one finds this: “…the co-chairmen of President Barack Obama’s debt and deficit commission called state debt ‘a cancer’ and something they cannot grow their way out of.” (From Marta Hummel Mossburg’s article, “Bond-Rating Delusions.”) Please notice the plural form of “chairmen,” meaning it included Democrat Erskine Bowles, and how Obama’s Commission plays right into a “framing” sequence that Republicans will always be better at, by which we mean they have no problem with a downward competitive spiral, a “race to the bottom.” One of the GOP candidates for Montgomery County Executive, Doug Rosenfeld, says we “need fiscal restraint” and criticizes the county’s “anti-business environment.” He says we need to create a tax and regulatory structure that “businesses will regard as business friendly.”

In a rare display of GOP bi-partisanship, another GOP county executive hopeful, Bethesda resident Daniel Vovak, extends the warm hand of cooperation to former Democratic councilmember Michael Knapp. Vovak says the job of Chief Administrative Officer is Knapp’s if he wins. Now what could Mr. Knapp have been doing to win that GOP trust? Building a favorable business climate, no doubt.

Now for the “other side of the aisle.” Over at Senate President Mike Miller’s site, we are greeted with a stunning Obama-Miller entrance photo, no one else around to steal the show – the only Democrat to mention Obama on a site, much less give him a co-starring role. (Aside from Hans Reimer, of course; and we did see a couple of issue references to the President, buried two or three issue clicks into sites, which doesn’t count. ) Senate President Miller opens the policy announcement with this: “While our country weathers the economic storm, I am committed to restraining state spending and advancing an agenda to create jobs.” But under his record listings, it’s K-12 Education, Higher Ed, the Environment and Public Safety that get the highlighting. Over at Speaker Michael Busch’s place, the first issue heading is “Tightening Our Belts and Planning for the Future. This state does not deficit spend.” He goes on to say that “building private-sector confidence in the State’s economy is a cornerstone to Maryland being the first state out of this global recession.” At Councilwoman Duchy Trachtenberg’s site, after making “Management and Fiscal Policy” her number one issue, Economic Development and Jobs follows as number two: “We need to support our small businesses who account for most of the County’s jobs by promoting an environment where entrepreneurship can flourish.” Way over on the Atlantic shore, James Mathias in District 32B, Mayor of Ocean City from 1997-2006, and now running for the state senate, has this to say about economics: He’s “Solidly supporting 21st century technology, continuing education programs, and a pro-business platform to create and encourage good paying jobs for the citizens of our district.”

You get the idea. For both parties, it’s all about “creating a favorable business climate,” and balancing the budget, tightening the belt, public austerity. We could find only that one Miller photo to show that anyone besides Hans Reimer is actually running with Obama alongside. That’s not a good sign for Democrats (and Hans can’t very well get him out of his resume, can he?) FDR, the New Deal, the need for public jobs, like the “CCC,” or the “WPA?” Not a single reference.

The closest we could find to something even approaching direct job creation by public spending was on candidate Dana Beyer’s site (for Delegate in District 18) , talking about Green Economy Bonds, to be sold like Liberty Bonds in World War II, an idea her son has proposed while interning at the Center for American Progress. We also like Beyer’s references to what has happened in Oregon, with its emphasis on light rail and trolleys, and “the weatherization of 10,000 multifamily units and 800 homes in two years,” something she would like to see in Montgomery County.

What’s Wrong with “A Favorable Business Climate?”
So you say, what’s so bad about both parties supporting a “favorable business climate?” Well, let’s start with the last thirty years, 1980-2010. This era has been called many things, from our own “Era of Market Utopianism,” to the “Second Gilded Age,” but one thing implied, if not stated, in all the era names, is that by all means, and all accounts, it has been one of creating “a favorable business climate”: lower taxes, including investment incentives, writedowns, write-offs, carry forwards, carry backwards, depreciations of all types, abolition of inheritance taxes, all varieties of tax evasions and avoidances via offshore havens, including Swiss Banks, off-balance sheet accounting and “special” investment vehicles…and finally, special classes of economic citizens (see hedge funds and private equity firms), sleepwalking regulators, Phil and Wendy Gramm, Tom Delay’s overseas “Petri dishes” of capitalism, another name for the old time sweatshops.

Indeed, creating a favorable business climate has, over the Reign of the Right, become so thoroughly bi-partisan that even ostensibly edgy types like Van Jones devote pages in their books showing how pro-entrepreneur they are. And who today would run on a platform calling for a “hostile” business climate? But the problem is that this climate is built on a steep down hill slope. In fact, one can argue quite convincingly that one of the great problems of American public life now is inadequate revenue, but that would imply that new revenue would have to be raised, meaning taxes, and that could be viewed as hostile to business – unless they’re transferred off businesses (as has been the trend, businesses contribute a smaller percent of federal revenue now than they ever have over the past 40 years or so) and put on the backs of taxpayers via some form of consumption tax or flat tax on incomes.

Or take an entirely different policy area, like farming and food safety. Business has relentlessly gotten its way in the rise of industrial scale animal farming, with labor unions mostly out of the way or “house broken.” Listen to Ellen Silbergeld, from Maryland’s own Johns Hopkins Bloomberg School of Public Health, quoted in Nicholas Kristoff’s September 2 NY Times column, “Cleaning the Henhouse”: “‘Food safety has received very little attention since Upton Sinclair…the massive economic reorganization of agriculture has proceeded with little recognition of its potential impacts on these aspects of food. Cheapness is all.’” And, we might add, thinking of the Chesapeake Bay, with little attention to its impact on nature.

Now the problem is that once enhancing this already favorable climate becomes the primary objective of public policy, there is no bottom to it, because it’s built on a beggar thy neighbor, race to the bottom premise of: cheap labor, loose regulation, maldistribution of income upwards, job off shoring, and invidious comparisons to allegedly better business places, as we have seen, like Fairfax County, or, heaven forbid, Texas, which surely has created a “favorable business climate.”

A Wolf At Obama’s Door
It is a fitting commentary on where this bi-partisan axis of further enhancing an already much enhanced “favorable business climate” is headed that we have to turn not to a missing “Progressive President,” Governor of Maryland or Montgomery County Executive, but rather to the Financial Times and its leading journalist, Martin Wolf, and his August 31st column, “Obama was too cautious in fearful times.” If you doubt its conclusion, be aware that the substitution of more tax cuts in lieu of public job creation proposals is appearing already in our own New York Times ( see David Leonhardt’s “Tax Cuts That Make A Difference, Sept. 1), making Wolf sound prophetic. So here it is, read it and weep; but we have to say, it seems head-on correct, although we wonder whether a “yacht and mansion-led recovery” is going to be very deep, or lasting, given the already lopsided difference between the rowboats and the yachts in the “national harbor”:

So what is going to happen? I assume that, after the midterm election, resurgent Republicans will offer new tax cuts and ignore the fiscal deficits. They will pretend that this has nothing to do with any reviled stimulus, though it is much the same thing – increasing fiscal deficits, thereby offsetting private frugality. That would put the administration on the spot. It would have to choose between vetoing the tax cuts and accepting them, so allowing the Republicans to get the credit for their ‘yacht and mansion-led’ recovery. Any recovery is better than none. But it could have been much better than this. Those who were cautious when they should have been bold will pay a big price. (Our Emphasis.) At http://www.ft.com/cms/s/0/5799a774-b534-11df-9af8-00144feabdc0.html

Cautious, Conservative Maryland
Now we are fully aware of a cautious, conservative Maryland tradition in politics, going back at least to the 1930’s, when Senator Millard Tydings opposed many of the New Deal’s signature programs, and that FDR tried, rather clumsily, and unsuccessfully, to “purge him” in the 1938 Congressional elections, according to historian William E. Leuchtenburg. And we heard in county and state reactions to our essay “A Citizens Guide to the Missing Green Rail Vision for the Metro DC/MD Region,” including from one current candidate for the county council, that we didn’t understand the modest, pragmatic local culture which just doesn’t want to pay for expanding rail service, no matter how stuck in traffic the region is – and no matter how prominently displayed Big Real Estate’s permanent “welcome” sign is.

Indeed, even before the first Obama stimulus had cleared the gate, we heard county Councilmember Marc Elrich warn, in early 2009, at a Brookings Panel on the Purple Line, that although we were now “all Keynesians,” he was already worried about a national backlash against Democrats for overreaching. Yet, what we heard then, and are presenting now as our findings from all these candidates, confirms Martin Wolf’s point: by failing to realize the national and ideological implications of being “balanced budget, fiscally responsible” Democrats at a time of a great and rare crisis – and that the deficit spending did not have to come from the state or local level – Democrats are themselves playing right into the hands of radical Republican framing.

We know that in some senses, all politics is local, and that asking candidates and already sitting officials to remember the national perspective in economics is asking a lot – but not, we feel, too much, given the high stakes of not doing so. Republicans already have a national, even “universal” ideology on government, taxes and those sensitive “borders and boundaries” that protect the private sector from public “intrusions,” something we have written about often. Yet Martin Wolf clearly sees their hypocrisies about deficits coming, once again, just as they did under Reagan and Bush, and as we have laid out for you in reviewing James Galbraith’s The Predator State.

Some “Special” Local Traditions
So candidates, we appreciate your dilemmas, but “no dice” under these circumstances, and additionally under some of our “special” local traditions: that of being one of the most affluent counties in one of the most affluent states in the nation (and a county with a reputation as being progressively “innovative.”) You don’t have to embrace deficits and profligacy at the local level: but you do have to understand that you will be shortchanging the county and the state by the failure now to plan for something more ambitious and “constructive” via federal funding for future job creation. The crisis is not going away in a year or two, Republican victories and future big tax cuts notwithstanding. We also are aware, courtesy of a brief tutorial from Senator Richard Madaleno a couple of years back, that the state has some leeway in “deficit” spending via its capital budget/bond issuing capacity, as opposed to its operating budget. But we’ve seen nothing at the sites we visited pushing this option, or even explaining it.

For those who want to argue that Maryland has done a better “job” on the employment front than other states, with an unemployment rate roughly half that of the worst states, we caution that there are other “special” local traditions which certainly have helped keep our rates lower, that go with being near the national capital and the “beltway culture”: the extra boost given by a semi-permanent real estate bubble based on the growth of Washington the Capital and its attendant lobbyist dynamic, and the direct correlation with the continued expansion of what was, even before 911, an already too large “national security state,” which we were reminded of once again in visiting Senator Barbara Mikulski’s website. This national security state “multiplier” effect ought to give progressives great pause, because of the terrible trade-offs it brings in depriving other sectors of the nation’s “political economy” of adequate resources (and all the wide shadings of meaning covered by the term “Blowback”); and while Big Real Estate has captured the hearts of progressives and the “smart growth” crowd on affordable housing issues and more compact, transit friendly development, the industry retains its virtual veto power over genuinely protective land-use measures (for what’s left of nature at the rural end, and the Bay), and, as we will shortly see, also in some surprising tangential policy areas as well. And that leaves aside consideration of real estate’s symbiotic relation to the great housing bubble and the rest of the financial sector, which, as Kevin Phillips warned us so many years ago, has itself become a national economic nightmare. After all, Real Estate forms the last two letters of this fearful FIRE sector (Finance, Insurance, Real Estate.)

We’re not going to leave you hanging, however. Quite in keeping with the point of view of the esteemed Martin Wolf, we’re going to sketch out for you a dozen proposals by which we might measure the constricting politics of this year, and the needed work that is not getting done. Our readers can decide for themselves whether the suggestions are hopelessly unrealistic – or alternatively, whether it’s the state of our current American political system which is dysfunctional – as we have already suggested by our review of Kevin Phillips’ Arrogant Capital. But before we turn to a more detailed look at some local political economy dynamics, and how MoCo and Maryland “police” those sensitive borders between the public and private realms on things such as energy efficiency and governmental support for BIOTECH! – we want to leave you with the final thought from Paul Krugman’s end of August (the 30th) column, “It’s Witch-Hunt Season,” because it confirms our sense of the crisis and the stakes, and is quite close to the spirit of what Martin Wolf has just written.

Krugman has been preparing his readers, and the nation, for what is coming from likely Republican victories this November, by recalling the delightful experience we all had during the Clinton persecutions in the 1990’s. So you know what’s coming, and he’s got some advice for the President in this last paragraph, which closes with a very ominous word, and one we want our local candidates to keep in mind to help them better understand our perspective. So here it is:

If I were President Obama, I’d be doing all I could to head off this prospect, offering some major new initiatives on the economic front in particular, if only to shake up the political dynamic. But my guess is that the president will continue to play it safe, all the way into catastrophe.

(At http://www.nytimes.com/2010/08/30/opinion/30krugman.html )

Vetoed? Making Markets for Energy Efficiency
While we have been primarily busy researching and writing over the past several years, we have tried to keep a hand in play on the practicalities of green job creation by following through with public officials on some ideas about energy audits, efficiency improvements, and the potential saving to home owners and businesses from getting the work done right. Here’s a snapshot of what we’ve been doing.

We followed the work of Van Jones; we read McKinsey’s ambitious study of the nuts and bolts of the energy savings; we learned that former President Bill Clinton and some of the major Wall Street banks had been working around the issue of “securitizing” the energy savings and putting up the private capital for the work, yet we also knew that not much was happening, especially since the economic crisis broke, and as long as the program was purely voluntary. What we thought was needed was a legal requirement, at the local or state level, that before a home or business structure could be sold, it had to undergo a certified energy audit, and the work had to be completed, with the federal government, perhaps with some state or local funding, putting up the bulk of the money - loans or grants or bonds, to get the work done.

We knew that the average cost per home was modest, in the range of $1,500 for the remediation work to get to the savings, but despite the audits themselves being in the low to mid-hundreds in cost, it was still tough to “make a market” under these economic conditions. So what we found out was that at least two MoCo council members, George Leventhal and Roger Berliner, had already been working to try to get such an ordinance passed, parallel to the county developing its own energy efficiency rules and regulations. Although we know of only one municipality in the nation that has tried it, this should not have been such a big deal, since it was Montgomery County, we later found out, that had passed an ordinance in 2003 requiring new homes and renovated homes to install sprinkler systems, which the national and state builder associations have been fighting, saying the costs – between $5,000-$8,000 – were far too high. And just to stay in the flow of what other places require from homeowners and businesses, Rhode Island won’t allow the sale of a home without a septic system inspection to make sure they are at the level of the latest practical technology, done to protect its beloved Narragansett Bay.

We learned first hand how that system works; the first home we bought had our inspection disclose an outdated system, and an illegal one, according to our inspector. The sellers, small-medium business owners, disputed the findings and contested them to the very day of settlement, when the bank stepped in and required them to put $7,000 in escrow to build the proper system. This was not a pleasant experience and they refused to shake our hand at the settlement, but it worked, and there wasn’t any state “bureaucrat” at the table, although the whole process might have gone more smoothly if there was a “neutral” agency doing the inspections.

Thanks to Councilman Leventhal and a county environmental employee, we found out some months after our inquiry that the real estate industry had objected to adding this alleged burden to the sale of homes under current conditions. Apparently they didn’t object, or were overruled, about the sprinkler system requirement, one costing far more than what we are proposing for cost-saving energy work. But that’s where it stands. We think that this could be something adopted at the state level (and Maryland is incorporating the sprinkler requirement by regulation), not the county, or it could also be implemented from the federal level: if a jurisdiction wants the job-creating money, loan or bonds, then they have to pass the legal requirement to set the process in motion, assure the quality of the work, and help set up the mechanisms for repayment.

In New York City, Mayor Bloomberg was attempting something like this, but we understand that he didn’t have the federal or alternative sources for the funding – the burden was being placed on the most powerful real estate lobby in the world to pick up the costs: they won and the plans were pushed aside.

Still, this seems very doable to us; not easy, but the outlines are there, McKinsey & Co. has thought through most of the sticking points, and here it rests, frozen by oppositional economic power, and those boundaries that our governments refuse to cross, out of…out of what, we ask? Ideology? Deference to the private sector? Here is something where the burdens are light, the cost reasonable, the savings to private property owners substantial and long-lasting, and the national interest needs, whether one believes in the threat of global warming or not, also substantial…so what’s the problem?

Government and BIOTECH: Perfect Together?
And here’s where we come back to BIOTECH, Montgomery and Maryland’s savior, and the fabled pot of gold on the horizon for a growing number of jurisdictions around the nation. We hadn’t realized what a crusade of a campaign it had become, because our attention has been focused elsewhere. Then the campaign flyers began arriving, and given what we just wrote above, you can understand our increased desire to learn more. When we went to check up on the Montgomery County Green Economy Task Force’s work from March of this year, we found that in addition to plugging the Home Energy Loan Program (voluntary, with federal funds to be arriving) we also found out that the Task Force envisioned the region’s BIOTECH “model” as the right one to grow the green economy, and that’s how we found out that MoCo bought 300 acres for its “world renowned Shady Grove Life Sciences Center,” (presumably that lifted some burdens from the private sector); helped the Univ. of Maryland and Johns Hopkins Center for Advanced Research in Biotech with an additional 85 acres; $17 million in infrastructure support for the Life Sciences Center and Hopkins Boulevard Campus; $12 million more for Hopkins 1st academic building; and then we learn that the Task force is only recommending “demonstration projects” on energy retrofits? Oh, we see the drift here.

But wait, that’s not the end of the tale of BIOTECH! According to Maryland’s Biotechnology Center website, and 2009 data, “The State of Maryland has invested more than $700 million in infrastructure (research parks, institutes, etc.) and programs. (Maryland Venture Fund, Biotechnology Investment Tax Credit, Nanotechnology) and directly to bioscience companies over 20 years.” And there’s more coming; there is a Maryland 2020 Plan, a ten year strategy to spend $1.3 billion “for which the Governor was recently honored as BIO Governor of the Year.”

Since this is an election year rematch between Governor O’Malley and former Governor Robert L. Ehrlich, Jr., we must note that Ehrlich was the Co-Chair of the Congressional Biotechnology Caucus from 1999-2003. Perhaps that could explain in part the lack of any Republican complaints or criticisms on the intrusion of “big government” into the private realm of biotechnology firms. But it gets very, very complicated, what with the interaction between the government, the public and private universities, and the private sector. No where more so than in the realm of yes, one more area we didn’t mention: state financed venture capital funds. Yes, that’s right; the state which dares not to tread upon passing an energy audit requirement is in BIOTECH venture capital plans in a substantial way, according to a Washington Business Journal article from June 18, 2010 (“Virginia, Maryland make big plays to win over tech firms and investors,” by Bill Flook.)

Apparently stung by the loss of Northrop Grumman headquarters to Virginia, Governor O’Malley ‘shortly after rolled-out a vast proposal to kick-start tech investment – dubbed Invest Maryland.” Maryland is seeking to raise $100 million “in venture capital by offering deferred tax credits to insurance companies that invest in Maryland VC funds.” The article points out that venture capital funding for biotech was down 26% in 2010.

Now this is fascinating ground to explore for the reasons that should be obvious from what has proceeded earlier in this little essay. We always thought the United States was famous for having the “deepest and most liquid” capital markets in the world, and famous too for its deep and adventuresome venture capital funds. So why, if this is true, don’t they think biotech deserves more attention? Could it be that the risks and costs are very high, the profits very distant and very uncertain? Could it be that while there were a few very successful and now prominent biotech firms that emerged from the genetic code deciphering era, those years also saw widespread, if not spectacular annual losses, on the scale of $40 billion (in the early years of this decade) amidst the rest of the not-so-famous firms? Or could it be that all the un-invested billions, if not trillions around the world seeking the proverbial “higher returns than 2-4% government bonds” offer, have found other outlets in the still far from chastised giant “casino” that is Wall Street, always ready to sell complex interest rate swaps with high fees to needy old industrial town school boards in Pennsylvania, or a cash starved sewerage district in Birmingham, Alabama?

Clearly this little essay is not intended to go into details about these risk taking government sorties into the fabled world of biotech. We make no final judgements as to whether it is a good idea or not, or oversold around the nation, beyond what our questions here have suggested. Rather, instead, we want to call attention to how fast and far those traditional boundaries between public and private, and spending and austerity, can come down when the cause is just and right, which apparently energy efficiency is not yet perceived to be; and we can’t help but note the very loud Republican silence about this great encroachment of the government into the sacred realm of the private sector. We also trust that Republican watchdogs are making sure, at the very moment we write this, that the returns the public is getting now, and in the future, from those venture funds and all those research joint venture patents from the university/public/private partnerships are as fair and “tough minded” as any good hedge fund manager might arrange to protect his funds’ interests. Upon this, we are certain that all our readers can sleep soundly knowing that Republican thrift and diligence is working around the clock to protect the public’s financial interest in these important matters. And the Democrats too.

A Few Modest Proposals….
And now, as promised, here are a dozen policy proposals for the county, state and federal level to advance progressive public policies in areas where we feel they are needed, but now lagging, centered on creating jobs. Whether these are seen as too impractical, or utopian even, given the present state of our politics, is for our readers to decide, but, as we have mentioned, they just might be, in another era, and under a different type of American politics, exactly what we would expect to find being discussed in spirited campaigns, rather than the budget austerity and business confidence building measures now on the table. We might add, that by our standards of building business confidence, jobs and a full employment policy, including public job creation, just might be the missing features to head off what Martin Wolf termed a “yacht and mansion-led recovery,” but which Paul Krugman, rather more ominously, called a pending “catastrophe.”

So here they are, in ascending order of federalism, with a brief commentaries offered in explanation:

Montgomery County

1. Work to turn the existing voluntary regional planning bodies into Regional Commissions which can legally regulate land-uses, transportation, economic development and environmental protection. Stop the competing “rival state” warfare between MoCo and Fairfax Co., where Fairfax wins a race to the bottom, just like China has.

2. Plan now for a Metro rail crossing west out of Bethesda, where the new Purple Line will terminate, and over the Potomac River, with the first choice being a line cantilevered alongside of, under or over the existing Legion Bridge. If, as we have suggested, we face 8-15 years of depressed national economics, this is practical, not Utopian. Smart Growthers: stop worrying about a northern highway bridge and start working for this logical rail one, to meet up with the new Metro line going to Dulles in Virginia. Alternatively, you can view this issue, along with the failure to complete a southern crossing over the Woodrow Wilson Bridge, symbolically, as one of the wealthiest regions of the wealthiest nation in the world walking away from the next big transportation challenge. There are a score of practical reasons why the political establishment won’t take this on, but we think it comes down to Democrat’s acceptance of Republican fiscal ideology, and perhaps the unacknowledged fallout from the rivalry between Fairfax and Montgomery Counties, if not VA vs. MD.

3. Plan now for a county driven job creating energy efficiency renovation program, as outlined earlier. Whether this is done at the county, or the county pushes the state of Maryland is less important that it be researched and organized to be ready to hit the road running when the federal dollars appear.

State of Maryland

4. Citizens and elected officials should respectfully call upon Senate President Michael Miller to step down, and not seek that office again after so many years of power and public service. He will likely be re-elected by his constituents, so this is a matter for the Democratic caucus. By all the accounts we’ve heard, he’s exercised more power, for longer, than any other modern Senate President, and his tenure ranks among the longest in the nation. But at far too many crucial points his leadership has not been progressive, with the most telling argument being that his long tenure seems to match pretty closely with the environmental troubles, and decline, of the Chesapeake Bay.

5. To save the Chesapeake Bay, we need a Regional Planning Commission, (among other remedies) with regulatory powers over the counties and state and private lands within its boundaries, boundaries with greater reach than the ineffective Critical Area law. The new Commission must elevate the health of the Bay, and its related ecosystems, such as wetlands and forests, to the legally “highest and best use,” exactly where development proposals now sit enthroned. That doesn’t mean “no development” in all areas under the Commission’s jurisdiction; it means no development, or very limited building, in the most ecologically sensitive places. That’s going to displace a lot of chickens, though.

6. Governor O’Malley should issue an Executive Order to all his state agencies that they undertake a comprehensive planning exercise to determine how their own operations, or those of the private sectors that they regulate, could create new jobs, assuming the funding might be available. This planning operation would logically be led by the environmental agencies and the health and human services agencies, pointing towards New Deal type “CCC” work, and pre-school and other child care programs, and should include, as well, the Department of Education. The plans should be creative in their concepts and proposals, anticipating opportunities to work closely with the non-profit sector and private foundations. The Governor should be mindful of the leverage he might have to call upon Washington and our President to fund the work Maryland is laying the groundwork for. Some might argue that it could even help him get re-elected.

7. State elected officials and the Governor, once realizing that the financial deficits will continue, not just for a few years but maybe for a decade, and will therefore require a tough choice between raising new revenue or further cutting into vital public services, should begin to undertake the groundwork necessary to make the state sales tax more progressive by extending it (not raising it) to the currently, inexcusably missing categories of “services,” including legal, accounting, consulting, engineering, advertising…and so forth.. Based on our own research, and that of the Puddester Commission from Nov. of 2002, Maryland currently only taxes about 39 of 168 categories of services, yet including the major ones we listed above, as well as some others from the Commission, would raise $1.6 billion to $2.2 billion annually. Unfortunately, a state legislative leader told us that such a proposal would never be put up for a vote, presumably because of the clout such service businesses have in the legislature. Talk about basic conflicts of interests…

Federal

8. Hands off Social Security: that means no cuts to benefits and no increases in the retirement age. If anything, given the national job crisis, the retirement age and eligibility should be lowered to 60, or even 55, both to facilitate bringing people into the Medicare Program, as well as easing the pressure on the youngest workers whose entry into the workforce is being blocked. Those who are able, and willing to work beyond the lower eligibility years, would not be discouraged from doing so.

9. End the War in Afghanistan, as well as all the congressionally unauthorized ventures into so many lands by Special Forces and intelligence agency personnel, and their private contractors. There isn’t any better way to say it than “nation building” begins at home.

10. Close the overseas Tax Havens, the tax avoidance and evasion Heavens that cost us billions in revenue every year, and close down the tax incentives for corporations to move jobs overseas and conduct tax favorable operations there. Pass a Financial Transactions Tax, preferably at the International level, but domestically if it can’t be done with other nations (we’re the main obstacle now) for two reasons: to discourage speculation and reduce the scope of the financial “casino,” and to raise revenue. Here’s the scorecard as of Labor Day, Sept. 2010: S-506, The Stop Tax Haven’s Abuse Act, is not backed by Pres. Obama, nor does it have MD Senators Mikulski or Cardin on it; the House version, H.R.1265, does have MD Reps. Van Hollen, Edwards and Cummings.
The “Let Wall Street Pay for the Restoration of Main Street” Act (via a Financial Transactions Tax), H.R.4191, has Van Hollen, Edwards, Cummings and Sarbanes on it, but there is no Senate version.

11. Create the 21st century version of the New Deal’s Civilian Conservation Corps and Works Progress Administration and set them up to encourage and make it financially worthwhile for states to do the planning to operate them successfully at the local and state levels. We envision, just as in the New Deal, a mixture of public and private jobs, with largely public funding, with the new twist being that the non-profit sector should step up and play a large and creative role in creating and managing educational and environmental jobs.

12. Although it’s conceivable that Alternative Energy and Energy Efficiency jobs could fit under the categories in #11, it’s probably best that they start out in their own separately focused realm – and we’re thinking here of the complexities we know about already in getting a energy auditing and upgrade system going for businesses and residences.

Until our next posting, we wish all our readers, citizens and elected officials, and candidates, the very best. And a happy Labor Day weekend to you all.

Bill Neil
Rockville, MD
w.neil@att.net

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future