Friday, October 09, 2009

Iowa's Budget Cuts and the University

October 9, 2009, 7:15 a.m.
Here is "A University's Strategic Communication," October 7, if that's what you're looking for.
Economic Collapse Tests Moral Values
(brought to you by*)

Iowa's Governor Chet Culver, left with very little option given the Iowa Constitution's requirement of balanced budgets, a decline in tax revenue, and the inevitable delay in a legislative response, has exercised his power to order across-the-board cuts in State spending. It's a 10% cut, roughly 50% more than most feared, and it's "starting today" (he said yesterday, October 8). Jennifer Jacobs, "$565 million slashed from state's budget," Des Moines Register, October 9, 2009; Jennifer Jacobs, "Culver orders 10 percent cut, 'hundreds' of layoffs," Des Moines Register, October 8, 2009; B.A. Morelli, "UI officials shocked by cut; layoffs likely," Iowa City Press-Citizen, October 9, 2009;

Times are tough, and they're not likely to get better soon -- certainly not so far as unemployment is concerned, now heading into double digits. And even these numbers fail to take account of those who have given up looking for work, are no longer receiving unemployment benefits, the former full time employees now holding part time jobs, those who have jobs but are under-employed at low skill jobs paying a fraction of what they earned before, those who have taken a significant cut in pay or no longer have health care or other benefits, or those whose medical bills leave them no option but bankruptcy.

Nouriel Roubini is one of the few economists to have predicted, early and with some considerable precision, the magnitude of the financial crisis that has now played out before our eyes. He says there's more to come, including an additional 10% drop in home prices once demand from first-time buyers dissipates. (Among a great many other things, the $8000 first-time-buyer credit program expires November 30. Recall the precipitous decline in new car sales following the expiration of the "cash for clunkers" auto industry subsidy). What's worse, he notes, is that "The stress is moving from residential mortgages that are still in deep trouble, to commercial real estate, where they [banks] are just starting to recognize that they're going to have massive, massive losses" -- from some $2 trillion in questionable commercial real estate loans. He continues, "Most of these losses are not [yet] recognized because they're keeping the loans at face value on their books." Walter Brandimarte, "US housing market not bottomed-economist Roubini," Reuters, October 8, 2009.

Worse, as Elizabeth Warren noted on yesterday's "On Point" with Tom Ashbrook, Congress has essentially turned over the writing of the regulatory reform legislation to the lobbyists for the very guys who created the problems, are already back to business as usual, and are rapidly leading us into an even more severe financial catastrophe on down the road. "Creating Jobs in a Jobless Recovery," On Point, October 8, 2009. (Harvard Law School Professor Elizabeth Warren is chair of the Congressional Oversight Panel charged with monitoring the Troubled Asset Relief Program, TARP.)

Also on the program was Robert Reich, former Secretary of Labor and now a professor of public policy at the University of California, Berkeley. He advocated, as I have over the past year, a re-enactment of the Glass-Steagall Act. First enacted in 1933, it limited bank speculation. In our headlong rush to the promised land of deregulation its prohibitions on bank holding companies owning financial companies were repealed in 1999. (Glass-Steagall also created the Federal Deposit Insurance Corporation.) Notwithstanding the rather persuasive, multi-trillion-dollar evidence we now have of its necessity, there is little to no enthusiasm in Washington for its return.

Nor is there support for the logical mantra, "If it's too big to fail, it's too big." By turning trillions of taxpayers' dollars over to the Wall Street banks, while ignoring the Main Street banks, the 100 that have failed are simply gobbled up as the big get even bigger. There's no movement to bring them to manageable size, nor to curtail their risky behavior, and the rewards in bonuses that result. Banks are calling the shots, telling the taxpayers, "Heads we win, tails you lose." Congress is content to let them continue to speculate with depositors' money, secure in the congressional promise that if they profit from their risky investments they get to keep the profits, and if they lose Congress will cover their losses with taxpayers' money. A sweet deal indeed, with no signs it's about to change.

So not only is it bad and getting worse, the odds are good -- given elected officials' disinclination to alienate their most generous campaign contributors -- that the light at the end of the tunnel is the headlight on an onrushing train of even more serious financial disasters for Main Street, brought to us courtesy of Wall Street and Pennsylvania Avenue.

When I was in Washington we had reasonable Republicans one could work with, and even admire -- while disagreeing over the details of policy. Nor am I today a partisan "anti-Republican." I am bi-partisan in my disgust with both parties' willingness to sell out the best interests of their constituents, especially those least able to fend for themselves, for the campaign contributions that enable them to be a member of Congress for life.

I would welcome a return of a constructive, civil and rational Republican "loyal opposition." It's not good for the Republican Party, and certainly not for the nation, for them to fashion their positions solely on their effort to "crush Obama" -- for example, recently cheering the news that his Copenhagen effort to bring the Olympics to Chicago had failed, or to stand in a solid phalanx of opposition to whatever he proposes as an obviously necessary health care reform. In the final analysis I don't think the American people are looking for "the Party of 'No.'"

Meanwhile, back in Iowa we have an especially urgent need to put partisanship behind us at this time, to come together, to put selfishness and greed behind us and focus on a shared sacrifice.

So I was disappointed to see on the Iowa House Republicans' Web site the reaction of their leader, Kraig Paulsen (R-Hiawatha), to the current State budget crisis: "'Today the governor raised property taxes,' said Paulsen. 'The result of this across the board cut is higher property taxes for Iowans. A tax increase that could have been avoided by better management of the state budget. The governor is pushing his out-of-control spending problem on to the backs of Iowans.'”

This is a time of testing of our moral values. As the late AFL-CIO President George Meany once explained it to me, "Nick, it's all about who gets the beans and who gets the pork chops." In his time workers could afford not only pork chops, but homes and college education for their kids. Ultimately, with "trickle down" economics, more were reduced to eating beans and limiting their kids education to high school. And that was in "our best of times."

We are heading into "the worst of times." How will we allocate the pain? Will those best able to absorb it accept a little more? Or will the wealthy, the CEOs and other administrators, continue to assume an entitlement to a continuation of a lifestyle that is multiples of what others can enjoy?

There is an issue of tough, serious, specific substantive decisions here.

But two days ago I blogged about the importance of appearances as well as substance. Nicholas Johnson, "A University's Strategic Communication; A Modest Proposal to the Regents' University Presidents," October 7, 2009.

That's also important.

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson
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Ginny said...

So what do we do to fix the problem? Is there anything besides imploring our representatives to stop fighting over the color of another's tie and do their jobs? And I mean that in the most sincere fashion.

Anonymous said...

Last fall, Nobel Prize winner, Princeton economist, and NY Times columnist Thomas Freidman made this important point in a column and in his new book: There are 50 Hoovers out there who will hunker down and cut fiscal stimulation in their individual states, thus worsening and prolonging the recession.

Do Governors have economists on staff? It sounds ridiculous and naive for a Gov like Chet Culver to blame the economy and unemployment for his state's financial woes, then to turn around AND ADD TO THE PROBLEM BY LAYING OFF WORKERS.

The same point can be made at the Univ of Iowa for instance, that sees things on a short term basis, lays off workers to protect their profits, and thus will prolong the economic troubles (what me the CEO worry about the blue collar guy?).

Obviously these poor fiscal policies will likely stall the tenuous recovery, add to unemployment and continue the downward spiral. Govt will start running out of money to stimulate the economy, certain posturing factions will enjoy failure, and there is a 50/50 chance of the years between 1929 and 1939 being recreated.

Will CEOs and administrators recognize the problems. Fat chance? Their actions are not without morality, but a morality that exists for self gain, or pleasing the next highest administrator. Thus new and creative thinking will be stifled, everyone will hunker down to protect their salary or their job, and programs of cost cutting will be announced and worshiped. This is clearly 'top line' budget corrections, that is improving paper performance by cutting costs. The bottom line, improved with innovation, creativity, and production gains will not be affected. The short term looks good, The CEOs will continue to make alot of money that pads their own personal situation, while really damaging the economy in a micro and macro way. But hey, their bank accounts are good. Life is good at the top.

Friendman sees this as the result of a shift in resources away from the middle class and into the upper class, started with the Reagan revolution and seen at a microeconomic level at the U of Iowa. The fat CEOs will get fatter, meanwhile the middle class - suffering from cut job hours, increased tuition, higher energy prices, less overall net worth, will be slowly ground into dust.

Their would be a couple ways this might not happen.

1. A visionary leader may supply leadership rather than management. Skorton might be a man do do this. Current administrators and Govt will not exercise this broad view.

2. There might be enough economic activity in Iowa to somehow pull the economy along to avert a prolonged recession.

It will be interesting to see what happens. However, there is little evidence that current leadership has any motivation to treat the issues in a moral and actually economically sound way. They tend to be self-aggrandizing and filled of self -importance and entitlement...not traits needed for a leader to act with the greater good in mind.

Times could be tough, and Iowa may never recover quite to the old standards of living.

Look to the years of 1929 to 1939 for the dangers that lie ahead.