First Step to Reducing National Debt

April 4, 2013, 7:55 a.m.

Sunlight is the Best Disinfectant

“For the second time in three days, we unseal criminal charges against a sitting member of our State Legislature. It becomes more and more difficult to avoid the sad conclusion that political corruption in New York is indeed rampant and that a show-me-the-money culture in Albany is alive and well.” -- Manhattan U.S. Attorney Preet Bharara, April 4, 2013

Benjamin Weiser and Marc Santora, "In 2nd Alleged Bribe Scheme, a Legislator Was in On the Case," New York Times, April 5, 2013, p. A1.

Congress’ first step in long journey

Nicholas Johnson

The Gazette, April 4, 2013, p. A5
Democrats and Republicans in Washington are seemingly suffering from ideological immobilization regarding the national debt.

Republicans’ Grover Norquist famously said he’d like a government small enough that he “can drown it in the bathtub.” Republicans fear that if taxes are increased, the liberal tax-and-spend Democrats will just squander the money on bigger government and more wasteful giveaways. Meanwhile, Democrats fear that free-range, feral Republicans will ultimately leave us with no solution for our surfeit of poor children other than Jonathan Swift’s suggestion that we eat them.

I understand their dilemma. Being honorable men and women, they know that when you take hundreds of thousands of dollars from someone you have a moral obligation to reciprocate, to meet your donor’s expectations of reward.

Years ago, I documented their expectations. The average rate of return was 1,000-to-one or more. The official gets a $100,000 “contribution”; the donor’s repaid $100 million for his “investment.” The payback can take the form of, say, subsidies, price supports, tax breaks, government contracts, public land, bailouts or tariffs. [Political cartoon credit: Unknown; multiple sources.]

The total isn’t chump change. The International Monetary Fund says global subsidies for fossil fuels alone are $1.9 trillion a year.

Recently, 10 percent of the Fortune 500 corporations had so many tax breaks they not only owed no taxes, they actually got refund checks!

Sen. Tom Coburn, R-Oklahoma, explains what others fear to whisper: “It’s not about tax policy, it’s about benefiting the political class and the well-connected and the well-heeled in this country.”

Legislators need money to be re-elected. Can you see why it’s easier for them to cut Social Security or food stamps than their donors’ rewards programs? (The poor are notoriously miserly when it comes to large campaign contributions.)

So what’s our nation’s first step on this journey of a thousand miles?

Here’s an idea. Ask the Congressional Budget Office and IRS to, first, identify all the special interest tax breaks that lobbyists have obtained. Some benefit an individual company; others an industry, or all business. Forget the other trillions in giveaways; focus on tax breaks.

Don’t eliminate these tax breaks; just make them visible subsidies, as appropriations. Publish them online. Hold news conferences to brief journalists and bloggers, and let them run with it.

Then see what happens. If the public doesn’t respond, well, that’s democracy for you. If they do, it might provide some backbone implants for our “representatives” in Washington.

And Des Moines.

The Gazette’s Erin Jordan has skillfully brought this approach to Iowa’s sales tax. (March 23) “Report: Iowa lost $3.9 billion in sales tax breaks in 2010; Breaks up 62 percent since 2005.”

I’ve written about applying it to TIFs (tax increment financing) — the local form of handing taxpayers’ money over to for-profit businesses, as in “TIF Towers,” http://fromdc2iowa.blogspot.com/2012/04/tif-towers.html.

When it comes to federal, state and local politicians transferring taxpayers’ money to for-profit companies (often in exchange for campaign contributions), the practices and consequences are similar, whether the special treatment comes from local TIFs, state sales taxes or federal corporate income taxes.

The first step to reform is also similar: public disclosure of what’s going on.

How much money is at stake? Who’s getting it? In exchange for how much in campaign contributions?

Neither the media nor public in our democratic society can begin to redress these abuses so long as they take the form of essentially invisible tax breaks, rather than debated appropriations of giveaways, openly arrived at, and shamelessly set upon the table, under lights.

If only Congress’ journey of a thousand miles could begin with this simple, single step.
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Nicholas Johnson, a former FCC Commissioner, teaches at the University of Iowa College of Law. Comments: www.nicholasjohnson.org and FromDC2Iowa.blogspot.com.
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Do you feel sometimes that your elected officials are sidestepping some of these major issues? Did you realize they've all been to dance classes? To "do a little sidestep" requires training, not to mention a good bit of talent:


[The preceding one-minute fair use clip is from the delightful 1982 R-rated full-length musical comedy, "Best Little Whorehouse in Texas," staring Burt Reynolds and Dolly Parton, among a great many other accomplished and well-known actors, and still available for rental and sale. It's based on a true story of a brothel outside LaGrange, Texas, that was ultimately closed down in 1973, following the work of investigative reporter Marvin Zindler of KTRK-TV, Houston. The writing was done by Larry King (whom I remember from Austin in the 1950s), the Governor was played by Charles Durning, and the studio was RKO Pictures. The film is copyright by, presumably, RKO. The use of this miniaturized, very brief clip is for non-commercial, educational and commentary fair use purposes only. Any other use may require the permission of the copyright owner.]

And here, for a little more serious approach to the subject, is Larry Lessig and his "We The People, and the Republic We Must Reclaim":



[Photo credit for opening photo: Unknown.]

# # #

Repealing Corporate Welfare: Step One

March 25, 2013, 8:50 a.m.

The Journey of a Trillion Dollars

"A journey of a thousand miles begins with a single step." 老子 (Lao-Tsu), Tao Te Ching, ch. 64 (c 531 B.C.; numerous translations). [Photo credit: multiple sources.]

Ain't it the truth? We've all confronted the impediments to taking that "single step" as we first try all the alternatives procrastination offers. If our goal is to begin a routine that includes a daily walk, it's literally true. But it's equally true of any other undertaking, from remodeling a kitchen, to getting out of Afghanistan, to . . . reducing our national debt.

The Democrats and Republicans in Washington are seemingly suffering from ideological immobilization. Republicans fear that if taxes are increased the tax-and-spend Democrats will just squander the money on bigger government and more wasteful giveaways. Their Grover Norquist famously said he'd like a government small enough that he "can drown it in the bathtub." Meanwhile, Democrats fear that free range feral Republicans will ultimately leave us with no solution for our surfeit of poor children other than Jonathan Swift's suggestion that we eat them. ("I have been assured by a very knowing American of my acquaintance in London, that a young healthy child well nursed is at a year old a most delicious, nourishing, and wholesome food, whether stewed, roasted, baked, or boiled . . .." Jonathan Swift, "A Modest Proposal: For Preventing The Children of Poor People in Ireland From Being A Burden to Their Parents or Country, and For Making Them Beneficial to The Public" (1729).)

One is reminded of Jerry Seinfeld's experience at the rental car counter: although he had a reservation, no car had been reserved for him. (Clerk: "I know why we have reservations." Seinfeld: "I don't think you do. If you did, I'd have a car. See, you know how to take the reservation, you just don't know how to hold the reservation and that's really the most important part of the reservation, the holding. Anybody can just take them.")

Here's a video of the bit:

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That is to say, I think that when it comes to our Washington officials' consideration of the observation that "a journey of a thousand miles begins with a single step," they know how to figure the distance of their journey, they just don't know how to take that single step. And that first step is really the most important part of the journey.

I understand their dilemma. Being honorable men and women, they know that if you take hundreds of thousands of dollars in "campaign contributions" from someone in business, you have a moral obligation to reciprocate, to meet your donor's expectations of reward in the form of generous grants of taxpayers' money. Indeed, as I documented in 1996, the average rate of return they had reason to expect at that time was something between 1000-to-one and 2000-to-one. The official gets $100,000 -- to avoid prison, he calls it a "campaign contribution," the donor calls it an "investment" -- and in return the donor expects $100 million in one form or another. Nicholas Johnson, "Campaigns: You Pay $4 or $4000," Des Moines Sunday Register, July 21, 1996, p. C2. (Presumably this is a fluctuating market, and I don't know what the return on such investments is these days; but there's some current evidence coming a few paragraphs from now.)

The return can take a variety of forms: subsidies, price supports, tax breaks, government contracts, public land, bailouts, or tariffs -- among others.

Although this flood of taxpayers' dollars involves far more than anything spent on children, the elderly, the poor, and working poor -- or other programs benefiting the 99% -- for those members of Congress and senators who would like to be re-elected, it's politically easier to cut Social Security, Medicare, or Food Stamps expenditures than to welch on their bargain with major donors.

So it would be politically unrealistic to suggest Congress turn off the spigot.

What, then, should be their "Step One"?

It needs to be something that takes not one dime from America's biggest corporations and wealthiest campaign donors. It's simple, really. Just ask the Congressional Budget Office and IRS to first, identify all the special interest tax breaks throughout the Internal Revenue Code that those campaign donors have paid lobbyists to obtain for them. Some may benefit a single individual or company, others an entire industry, or perhaps all businesses. Don't worry at this point about the other systems for passing taxpayers' money to the bottom line of for-profit enterprises -- the subsidies, price supports, government contracts, public land, bailouts, or tariffs mentioned above. Just look for the specially designed tax provisions that reduce what would otherwise be the beneficiaries' tax liability.

Do not reduce the benefit -- for now. Just take that list of tax benefits out of that darkened, locked lower left hand desk drawer, and put it under the light on the table. Identify the beneficiaries. Identify as accurately as possible the dollar benefit each receives from their special tax break.

Publish a document in hard copy and online containing this information. Hold a news conference to explain it to journalists and bloggers.

That's all. You want to know what is "Step One"? That's Step One.

There's an accompanying reading assignment that goes with this lesson: Christopher Rowland, "Tax lobbyists help businesses reap windfalls; While Congress fights over ways to cut spending and the deficit, generous breaks for corporations pass with little notice," The Boston Globe, March 17, 2013.

The Gazette's Erin Jordan has already brought this approach to Iowa's sales tax. Erin Jordan, "Report: Iowa lost $3.9 billion in sales tax breaks in 2010; Breaks up 62 percent since 2005," The Gazette, March 23, 2013.

And I, among others, have written about the results of the same approach being applied locally in the form of TIFs. Nicholas Johnson, "Like Death and Taxes, TIFs and TIFing Seem Here to Stay," Iowa City Press-Citizen, February 3, 2013, p. A7, embedded in "Tough TIF Talk," February 3, 2013. For links to a sampling of many other prior TIF discussions, including the text of a column and blog entry regarding the taxpayer subsidy of a previous Moen project, along with footnote documentation, see "TIF Towers; Giving TIFs the Sniff Test," April 9, 2012 (which includes Nicholas Johnson, "Moen TIF Proposal Just Doesn't Pass the 'Sniff Test,'" Iowa City Press-Citizen, April 5, 2012, p. A7).

Illustrative excerpts from Rowland's article:

"Lobbying for special tax treatment produced a spectacular return for Whirlpool Corp., courtesy of Congress and those who pay the bills, the American taxpayers.

By investing just $1.8 million over two years in payments for Washington lobbyists, Whirlpool secured the renewal of lucrative energy tax credits for making high-efficiency appliances that it estimates will be worth a combined $120 million for 2012 and 2013. . . .

The return on that lobbying investment: about 6,700 percent.

These are the sort of returns . . . the sorts of payoffs typically reserved for gamblers and gold miners. . . .

"It’s not about tax policy, it’s about benefiting the political class and the well-connected and the well-heeled in this country," said Senator Tom Coburn of Oklahoma. . . .

A smorgasbord of 43 business and energy tax breaks, collectively worth $67 billion this year, was packed into the emergency tax legislation that avoided the so-called “fiscal cliff.’’ . . .

Whirlpool officials said the tax breaks help the company retain jobs, but in recent years, it has closed refrigerator manufacturing plants in Indiana and Arkansas. . . .

In the absence of meaningful change, corporations like Whirlpool continue to pursue the exponential returns available from tax lobbying. The number of companies disclosing lobbying activity on tax issues rose 56 percent to 1,868 in 2012, up from 1,200 in 1998 . . ..

Whirlpool had plenty of company on New Year’s, including multinational corporations with offshore investment earnings, Hollywood companies that shoot films in the United States, railroads that invest in track maintenance, sellers of energy produced by windmills and solar panels, and producers of electric motorcycles.

Their special treatment is a fraction of a broader constellation of what the federal Joint Committee on Taxation estimates will be $154 billion in special corporate tax breaks in 2013, contained in 135 individual provisions of the tax code.

Note: The two reasons the "return on investment" reported by Rowland is different from my 1996 projections are that (1) he is reporting only what the companies pay their lobbyists, not all of their political expenses (most of which, for many companies, are the campaign contributions), and (2) he is only talking about the payback in tax breaks, thereby excluding the trillions of dollars over 10 years paid to corporations through the other funnels described above.

Rowland was recently a guest on Tom Ashbrook's "On Point" program. If you'd like to listen to the two of them, and others, discuss the issues, here's access to that audio: "Big Corporations Lobbying for Big Tax Breaks," March 19, 2013.

When it comes to politicians transferring taxpayers' money to for-profit companies (much of the time in exchange for campaign contributions), the practices and consequences are similar, whether it's local TIFs, state sales taxes, or federal corporate income tax special treatment. The first steps to reform are also similar: public disclosure of what's going on. How much money is at stake? Who's getting it? Why; based on what rationale? And ideally, in exchange for what (in the form of campaign contributions and lobbying activities)? Once all of that is well known, by the public, the media -- and the legislators themselves -- if the public finds it acceptable, well, that's democracy for you. But the public cannot even address the question so long as it's in the form of essentially invisible tax breaks rather than debated appropriations of giveaways openly arrived at.

If only Congress' journey of a thousand miles could begin with this single step.

# # #

Palin Attacks 'The Corporatist Agenda'

February 9, 2011, 9:00 a.m.
[As you may have noticed, while I'm teaching Sports Law, the blogging has had to be cut back to something more like once a week than once a day. But there may be occasional exceptions. This is one.]

Progressives and Conservatives Take Note: Palin's Going Populist
(bought to you by FromDC2Iowa.blogspot.com*)
Sarah Palin had some things to say at the President Reagan Tribute the other day that deserve more attention and reflection than they've received so far -- by those of every political persuasion in America, whether Palin normally causes them to swoon or to sputter incoherently.

New York's Boss Tweed used to say, "I don't care who does the electing, just so long as I do the nominating." It ought to be a motivator to your active participation in the caucuses and primaries of your party of choice.

In my case, it causes me to think carefully about the least worst candidates of both major political parties. One will win. If it's not going to be my favorite, I can at least hope, and work to ensure, that both of the nominees are competent enough to function as President.

To remove any possible question in your mind, Sarah Palin is not now my first choice among the possible Republican nominees. Most of her positions I disagree with, many I find uninformed, and -- as many conservatives also believe -- I don't think she now has what it takes to function effectively as President.

But I hope it is true that I have never been one to dismiss entirely all of anyone's views with ad hominem comments. I find life more interesting and rewarding when I look for agreements with, and new ideas from, those individuals my acquaintances and colleagues may be rejecting out of hand.

And so it was that when I heard a quote from Sarah Palin the other day I made a mental note to try to track down the source sometime. It wasn't easy to find, but I came upon it this morning.

It was from a talk she gave at a dinner tribute to President Reagan at the Reagan Ranch Center museum in Santa Barbara, Friday evening [Feb. 4, 2011], sponsored by Young America’s Foundation (unaffiliated with the Reagan Presidential Library in Simi Valley). Jeff Zeleny, "Palin Keeps Position Clear and Intentions Vague," The Caucus/New York Times, February 5, 2011. (The date marks the occasion of what would have been Reagan's 100th birthday.) And see, Jeff Zeny, "Palin, Rallying Base, Paints Dark Picture of Obama’s Policies," February 6, 2011, p. A19.

Her speech contained much with which I would disagree, expressions I would not have used, and conclusions that I might think don't logically follow. But that does not surprise me, and should not surprise you.

What did surprise me was what she said with which I totally agree.

By way of introduction, background and glossary, here are my definitions of some relevant terms:

Words like "socialism," "communism" and "fascism" are seldom used anymore in their original, technical, literal sense. They are swear words, words of derision carelessly thrown at anything one does not like.

That's too bad.

"From each according to ability; to each according to need" [Karl Marx, "Critique of the Gotha Program" (1875)] -- "communism" -- can be applied to professional sports' revenue-sharing schemes designed to keep the teams more or less competitive, and the games more interesting. It also applies to the "negative income tax" proposals of conservative economist Milton Friedman and conservative President Richard Nixon.

"Socialism" -- government owned and operated enterprises, such as the Interstate Highway system, public schools, libraries and parks (among other things) -- also works pretty well for us.

"Capitalism" -- free private enterprise, the marketplace -- rewards the successful entrepreneur (sometimes, as with a Bill Gates, overwhelmingly so), and leaves those who fail to the bankruptcy courts, with nothing but the opportunity to start all over again.

What do you call a system of joint government-corporate partnerships -- "heads I win, tails you lose;" "If I make a profit I get to keep it; if I have big losses the taxpayers will give me a bailout"? Subsidies, tax breaks, government contracts, tariffs, bailouts, price supports are often just rewards for major campaign contributions. Those who remember World War II will identify government by interlocking relationships between corporate and government interests as what we then called "fascism." (If the government owns and operates an automobile manufacturing company that's "socialism"; if it provides a private, for-profit car company a "bailout," that's "fascism.")

Enough of the definitions.

The point is, I am a fan of both capitalism and socialism -- as I have defined both, above. I am not a fan of fascism.

More significant for purposes of this blog entry, it turns out that Sarah Palin is not a fan of fascism either. So on that proposition we agree.

Here is what she had to say -- in words very close to what I was writing about yesterday in "Super Boosters' Super Bowl; Champions' Wins Can Be Taxpayers' Losses; Lessons for Iowa," February 8, 2011, and numerous prior Web pages, newspaper columns, and blog entries.

This is not an economic policy. . . . It is the road to ruin. It’s crony capitalism, too, on steroids. The corporatist agenda — big government, big business collaboration, with powerful friends in DC who can afford to hire the lobbyists to grease the wheels of government in their favor for these investments.

In the interest of certain special interests, the government invests our money in technologies, in industries that venture capitalists tell us ‘no, those are nonstarters.’ but they’ll provide lucrative returns for favored corporate interests with major stakes in these areas. . . .

This collusion, this isn’t competition. It’s crony capitalism and it stifles our economy. It stifles the free market . . .. Government makes it increasingly impossible for anyone but cronies to get ahead. . . .

And ["the little guy"] that’s who is left out in the cold today. Big business, big labor, big finance — they have seats at the table. The little guy doesn’t. But we’re the ones left holding the tab. We’re paying the bill. This is not the way it’s supposed to be. This is not the way that it must be. American exceptionalism is not exceptionally big government with a command and control industrial policy. . . .

History has proven again and again when government picks the winners and losers, we are stuck with the losers. And we the taxpayers subsidize the failures. . . .

Do we still believe in . . . free-market capitalism?

Or do we surrender to big government and a corporatism agenda?. . .

We must be as motivated and optimistic as our parents and our grandparents were, many of whom started off with nothing and yet they were able to build a fulfilled life by the sweat of their brow. . . .

They didn’t demand bailouts.

Text of Governor Palin's Keynote Address: Tribute to President Reagan, Feb. 4, 2011.

So why are these excerpts from this transcript of her talk of vital importance to what I described, above, as "those of every political persuasion in America, whether Palin normally causes them to swoon or to sputter incoherently"?

Thomas Frank, What's the Matter with Kansas? How Conservatives Won the Heart of America (2004), posits the thesis that the big business wing of the conservatives (those who advocate and practice what I have defined, above, as "fascism") have managed to bring along millions of voters, willing to vote against their own best interests (the funding of social programs and regulations designed to protect them), by talking about (while doing little or nothing about) "God, guns and gays" (opposition to abortion, gay marriage, immigration, and handgun control).

This has been accomplished, in part, by attacking "big government" and "taxation" while remaining eerily silent about the very linkage that big business has with that "big government," and the cash transfers it receives from the taxpayers who pay that "taxation."

So the big business, big money, funders of the conservative coalition should be (and probably are already, as they watch the events in Cairo unfold) a trifle concerned about Palin's turn toward an anti-fascism populism.

Similarly, the Palin-haters -- and progressives concerned about the rest of what she says, and might do in office -- should be wary of the consequences that might flow from a Palin-as-Populist campaign. It wouldn't take that much to expand the Tea Party's appeal to those who ought to have been a solid part of the Democratic Party's base (e.g., the poor, working poor, working class) -- and were, until the Party turned its back on them in its own search for corporate dollars.

It's something to think about.
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* 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
# # #

Super Boosters' Super Bowl

February 8, 2011, 8:40 a.m.

Champions' Wins Can Be Taxpayers' Losses;
Lessons for Iowa
(bought to you by FromDC2Iowa.blogspot.com*)
There is at least one significant way in which Super Bowls are far less super than the claims in its super boosters' hype.

Sunday's [Feb. 6, 2011] game between the Pittsburgh Steelers and the community-owned Green Bay Packers was by many measures a truly "super" bowl game. It was a great game to watch; which a record 111 million did in front of TV screens and an almost-record 110 thousand did in the Texas-sized and styled super stadium in Arlington. Whether the TV commercials will have a super impact on increasing sales remains to be seen, but they produced some super laughs for the audience, potential super awards for the creators, and at $3 million for each 30 seconds some super revenue for the broadcasters.

The two-year-old Dallas Cowboys' stadium used for the event, Cowboys owner Jerry Jones' three-million-square-foot "Palace in Dallas," the world's largest domed stadium, cost $1.15 billion to build -- of which the taxpayers of Arlington contributed $325 million.

However, its likely impact on the economy of Arlington, Texas (and its Dallas-Ft.Worth environs), is going to be far less super than Super Bowl boosters and promoters routinely claim when their billionaire owners approach local taxpayers, hat in hand, begging for their equivalent of public housing.

With no pro teams in Iowa, and open stadiums during Iowa winters, it's unlikely there will ever be a Super Bowl game played in an Iowa town. Nonetheless, there are still lessons here for Iowans -- for the Iowa City City Council's love affair with the corporate benefits from local taxpayers called "TIFs," and Governor Branstad's apparent belief that transferring taxpayers' money to the bottom line of for-profit corporations (and campaign contributors) is ideologically consistent with "free private enterprise" and an efficient way to "create jobs."

The Super Bowl host committee commissioned a report that says the region will see a $611-million windfall as a result of Sunday’s game. . . . Robert Baade, a sports economist at Lake Forest College, . . . says host committees forget to factor in things like tourists and convention goers who are crowded out during mega-events like the Super Bowl, money that goes home with the players, team owners, and national hotel chains, and costs the city bears in clean-up and safety. 'If you move that decimal point one place to the left, you’re much closer to reality,' Baade says. '[T]he $60 million figure is likely to be far more representative of what we’ll see.' And, Baade says, the real figure might be closer to $30 million. . . . [Do pro teams and Super Bowls bring new businesses to town?] Professor Baade says, corporate sponsors and business executives have much more tangible things to think about . . .. '[T]hey’re going to consider things like: "Is there a skilled labor force?," Baade said. ' . . . the tax environment . . . the school system. . . . [O]ther factors . . . are far, far more important for the bottom line than a Super Bowl or even the presence of a pro sports team.'

"Dallas Expects Super Rewards for the Super Bowl," "Only a Game," WBUR-FM/NPR, February 5, 2011.

The $600 million benefit claimed this year is 50% more than last year's NFL estimate of $400 million -- when economists found the League's math equally flawed.

"'All they do is add and multiply,' [University of South Florida economist Phil] Porter said. 'They never subtract and divide.' . . .

Economists say the NFL-sponsored studies look at the 'gross' spending by Super Bowl visitors but not the 'net' effect.

Some tourists, economists say, may intend to visit South Florida for vacation, but will avoid the area because of the Super Bowl. Also, with Super Bowl attendees spending much of their money with national hotel and rental-car chains, most of the influx is going to corporations headquartered elsewhere, such as Hilton, Marriott, Hertz and Avis.

'The airfare being spent on American Airlines isn't ending up in Miami,' said Craig Depken of the University of North Carolina-Charlotte. 'A lot of it is being repatriated to Dallas.' . . .

'I'm estimating north of $400 million,' said Rodney Barreto, chairman of the host committee. 'This is a huge event.' . . .

But independent economists have tossed the challenge flag and demanded a closer look at what they consider the puffery behind the big game's economic effect.

'If you can move the decimal point one digit to the left, you would get a more realistic estimate,' said Andrew Zimbalist, a prominent sports economist at Smith College. 'If they were arguing $40 million, I would say that's a realistic impact; $400 million is not.'

Victor Matheson, an economist at the College of the Holy Cross, said Super Bowls generate a boost of $30 million to $90 million.

'Absolutely, you'll take it,' he said. 'But on the other hand, it's one-quarter to one-tenth of the figure the NFL is publicizing.'

Economists from the University of Chicago, the University of North Carolina-Charlotte and the University of South Florida have reached similar conclusions.

Phil Porter of the University of South Florida sees a link between the NFL's optimistic economic impact estimates and team owners' lobbying for public money for stadiums.

'The NFL is not in the business of giving us $400 million every year,' Porter said. 'They're in the business of telling us they're giving us $400 million every year so we'll give them things.' . . .

[I]t's unclear when the Super Bowl and Pro Bowl will come back to South Florida. NFL executives say the Super Bowl might not return for an 11th visit without $250 million in improvements to the Miami Gardens facility now known as Sun Life Stadium."

Jeff Ostrowski, "Super Bowl economic impact of $400 million? That's super-inflated, scholars argue," Palm Beach Post, February 4, 2010.

For years I wrote in a similar vein about Senator Grassley's belief that spending $50 million of federal taxpayers' money on an indoor rainforest in an Iowa cornfield could somehow pass the laugh test and make any economic sense. See, e.g., the entire Web site I devoted to the subject: "Earthpark."

More recently I've addressed the triumph of boosterism over economic analysis in some blog entries and Press-Citizen columns.

Nicholas Johnson, "Making 'Shop Locally' a Meaningful Suggestion," Iowa City Press-Citizen, December 3, 2010, p. A9, embeded in "Downtowns' Future: 'Shop Locally' Column & Dialogue; Making "Shop Locally" a Meaningful Suggestion," December 7, 2010 ("[T]he Press-Citizen Editorial Board is urging us to 'shop locally.' But what does 'buy local' mean? [Money spent here doesn't necessarily stay here.] To analyze in detail what happens to each portion of the dollars we spend in Johnson County establishments would require more data and degrees in economics than most of us would ever have or want. . . . [But without it, 'buy locally'] is just a rousing bumper sticker of a slogan, and, as Tom Joad says to the filling station attendant in Grapes of Wrath: 'You're jus' singin' a kinda song.'").

"The $100 Million Hawkeyes' Football Team; Hawks: "How Do I Love Thee? Let Me Count the Dollars," August 28, 2010 ("The Iowa City/Coralville Area Convention and Visitors Bureau says the Hawkeyes' Football Team is about to bring $100 million to Johnson County this fall. . . . Really? $100 million? . . . [T]he only sales that can fairly be attributed to football would be those above and beyond those that would have occurred without a football game. What is the average Iowa City/Coralville revenue for . . . weekends from September through November -- excluding the weekends when there are home football games? What is the average during weekends when there are football games? It is that difference, that 'incremental increase,' that is relevant. Otherwise you're counting revenue that would have gone to local businesses even without the games. Second, how much of that incremental income would never have been earned 'but for' the football game, and how much is merely 'time-shifting'? . . . [Coralridge Mall shoppers who do not attend football games may have] contributed to increased retail income when there was a football game in town, that's true; but they have not contributed more income to merchants for the year in question than they would have contributed anyway without that coincidence. It's not 'but-for' incremental income.").

Nicholas Johnson, "Flying Video Screens, Stories and Tourism," Iowa City Press-Citizen, August 30, 2008, p. A15, embedded in "Tell Me a Story; The Stories Project," August 30, 2008 ("[A]n Iowa City monument to stories is certainly more appealing than 'a rain forest in a cornfield' -- the earlier proposal for Coralville. But good ideas are a dime a dozen. The challenge? Finding the next dime. Something rain forest promoters never found. Whether Stories makes sense requires the same analysis to which I subjected the rain forest. . . . In fairness, Stories’ promoters acknowledge their details aren’t nailed down – ‘"flying video screens" and holographic projections,' school, bookstore, restaurant? But it’s hard to be 'for' or 'against' a thing not knowing what the 'thing' is – the rain forest’s persistent problem. ('It’s a floor wax, it’s a desert topping; it’s whatever they want it to be.') So all I can offer is an all-purpose sampling of issues for any attraction.").

"Chicago Wins Olympics Bid; Why Chicago Won the Olympics Bid," October 5, 2009 ("The fact is that, most of the time, winning an Olympics bid, like many other efforts at local boosterism, turns out to be a Pyrrhic victory. . . . [M]ost community cheerleaders, like modern day George Babbitts [Sinclair Lewis, Babbitt (1922)], with confidence and pride in their town truly believe that their idea -- whether an indoor rain forest, the world's largest ball of string, or hosting an Olympic event -- really will 'put their city on the map,' while bringing tourists and their tourists' dollars to town. Who needs a business plan when 'everyone knows' what a great idea it is? . . . All too often the construction money can't be found, or the project is built but it turns out that 'build it and they will come' only works in the movies. Or enough public debt is incurred that it is, with the declining revenues that could have been predicted but weren't, the death knell for the project and then -- like paying for a dead horse -- takes years, if ever, to pay off. But there is no effort at community promotion for which there is a greater disparity between the promised economic benefits and the ultimate disappointment than Olympic venues.").

For more on our excessive focus on sports reaching from pro to college to high school to junior high and elementary schools, see "Fandom; Super Bowl, Super Mystery," January 30, 2011.

And for more on use of taxpayers' money for campaign contributors, see Nicholas Johnson, "Branstad and Public Transparency," Iowa City Press-Citizen, January 5, 2011, p. A7, embedded in "Governor Branstad's 'Transparency;' Making 'Transparency' in Government Meaningful," January 5, 2011. Accord, see Donnelle Eller, "Study Questions Branstad's Economic Proposal," Des Moines Register, February 2, 2011 ("States that have switched to public-private partnerships like the one Iowa Gov. Terry Branstad has proposed have experienced misuse of taxpayer money, excessive executive bonuses and questionable awards, a national group [Good Jobs First, a Washington, D.C., research group] says. . . . [S]tates like Iowa that are considering public-private partnerships should focus on improving existing economic development efforts rather than seek to create agencies. 'Turning economic development over to public-private partnerships is fool's gold,' said Greg LeRoy, Good Jobs First executive director. 'What really matters is business basics: strategic public investments in skills, infrastructure and innovation - not privatized smokestack chasing.'"). See the similar observation of sports economist Robert Baade in the first major blocked quote in this blog entry, "Professor Baade says, corporate sponsors and business executives have much more tangible things to think about . . .. '[T]hey’re going to consider things like: "Is there a skilled labor force?,"' Baade said. ' . . . the tax environment . . . the school system.'"

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* 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
# # #

Stimulus Creating Jobs -- In China

February 11, 2010, 10:00 a.m.

Turns Out Wind Power is China Power
(brought to you by FromDC2Iowa.blogspot.com*)
As if we don't already have enough evidence of what's wrong with masquerading corporate subsidies and bailouts as "jobs programs," see Nicholas Johnson, "Unemployment Answer is Jobs Not Bailouts," February 6, 2010, it now turns out that the "green" stimulus money for the jobs Obama promised American workers went to GE instead, and such wind power turbine manufacturing jobs as were created are located in China and other countries, not the U.S.

"Obama has consistently made the creation of green jobs a priority for his administration. At a gathering of the AFL-CIO on Sept. 15 [2009], he pledged to create a 'clean energy economy that will free America from the grip of foreign oil and create millions of new green jobs that can't be outsourced.' The president pledged to make ‘made in America’ not just a slogan but 'a reality.'” Russ Choma, "Overseas firms collecting most green energy money," American University Investigative Reporting Workshop, October 29, 2009.

It now turns out that, "[U]nless American manufacturers can quickly scale up production lines to build the equipment, parts, and systems to meet the heightened demand the United States will cede to overseas competitors a once-in-a generation opportunity to create millions of new jobs. The U.S. currently imports more than 70 percent of the component parts for these systems. If the international market in clean energy were a pizza, we would be left with the crust. About half of the installed wind energy capacity in the U.S. is imported . . .." Seph Petta, "Lessons From Europe on Clean Energy Manufacturing Policy That Works," Apollo News Service, May 19, 2009.

The American University report, linked above, indicates that 88% of the stimulus money going to wind companies is going to foreign firms, citing the Department of Energy.

The Capitol Steps have put our imminent demise to music in "Buy, Buy American Pie":



Now here is more on the subject in the form of excerpts from Russ Choma, "Overseas firms collecting most green energy money," American University Investigative Reporting Workshop, October 29, 2009:

Obama has consistently made the creation of green jobs a priority for his administration.

At a gathering of the AFL-CIO on Sept. 15, he pledged to create a “clean energy economy that will free America from the grip of foreign oil and create millions of new green jobs that can't be outsourced.” The president pledged to make ‘made in America’ not just a slogan but “a reality.” (Transcript.)

Obama is well aware of America’s role as an energy innovator slipping while foreign competitors have taken the lead. At a campaign event in Portsmouth, N.H. in October 2007, the president noted that technologies invented in America – like wind turbines, solar panels, and compact fluorescent bulbs – are being developed overseas and sold back to American consumers.

“This will change when I am president,” he said. . . .

The most important figure, however, may be the number of turbines that were installed by these four companies. According to Iberdrola Renewables, the company only employs 800 people in all of their U.S. operations. It’s the production of turbines that matters most economically. In fact, as much as 70 percent of the economic activity generated by investing in wind comes from the manufacture of the modern, highly sophisticated turbines – but this is where foreign companies actually have their strongest grip on the market.

In the case of these 11 wind farms, according to data provided by the companies themselves in regulatory filings and collected by the American Wind Energy Association, 982 turbines were installed – 695 of them were manufactured by a foreign company.

A study by the Renewable Energy Policy Project , a think-tank that advocates renewable energy technology research, estimates that for every 1,000 megawatts of wind energy that is developed, 4,300 jobs are created: 600 for operation and maintenance of the wind farms; 700 for the installation of new turbines; and 3,000 for manufacturing.

The cash grants were given for the installation of 1,763 megawatts of capacity – 1,566 installed by foreign companies. Using the Renewable Energy Policy Project’s own numbers, as many as 4,500 manufacturing jobs may have been created overseas. . . .

The manufacturing market is thoroughly dominated by foreign companies . . . more recently Asian manufacturers . . .. The U.S. market for wind turbines and components is growing rapidly, but the import/export numbers offer a grim picture of who is winning the battle.

According to U.S. Customs data for 2008 and the U.S. Trade Commission, the U.S. imported $2.5 billion worth of wind turbines last year -– up from $365 million in 2003. . . .

But the American market is narrow – GE Energy accounted for 42.7 percent alone . . .."

. . .

The cash grants that were handed out in September theoretically will trickle down to American workers when the market demands locally built turbines -– but that’s not guaranteed to happen.

“There is a larger concern that turbines might be coming from China,” said Xizhou Zhou, an analyst at IHS CERA, a global energy advisory firm, pointing to other industries where cheaper costs have allowed Chinese manufactured goods to replace American-made products.

Although Vestas Americas said it plans to establish an American supply chain, other manufacturers, even American-owned ones, have begun building supply chains in countries with cheaper labor costs to provide the thousands of parts that may finally be assembled in the United States. Zhou cited three facilities GE owns in China to produce turbine components, . . .

And see Jim Tankersley, "Wind energy job growth isn't blowing anyone away; Despite record growth in generating capacity, the industry is creating few employment opportunities overall," Los Angeles Times, February 2, 2010.

February 12 addition: "No matter what Congress does to lower the cost of labor, employers won’t hire unless they believe demand will be sufficient to sell whatever the business produces." Editorial, "How Not to Write a Jobs Bill," New York Times, February 12, 2010, p. A30. The New York Times got that much right. Only by putting money in the pockets of workers -- not their potential employers -- can "demand" be created in that 70% of our economy that is driven by consumers. Unfortunately, the editorial does not take the next logical step and propose a federal jobs program.
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* 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
# # #

Iowa Subsidizes the Movie Industry -- A Good Idea?

September 30, 2009, 8:20 a.m.

Movies Are Getting More Expensive
And It's Not Just the Ticket and Popcorn Prices
(brought to you by FromDC2Iowa.blogspot.com*)
Now I don't mean to minimize the outrageous prices we're charged for popcorn at the movies. And if you're curious as to how much profit a movie theater can make from 11 cents worth of popcorn see my earlier analysis in Nicholas Johnson, "From Politics to Popcorn," January 1, 2007.

But it turns out we're spending millions of dollars of our own money making those movies. And since it now turns out some of those millions are going to private cars for the movie makers and iPhones for their kids, questions are being asked about the wisdom and generosity of Iowans paying 50% of the cost of movies made in this state -- by far the most generous program of any U.S. state, even if it all went into movie costs.

See, Donnelle Eller, "State weighs film credits' cost vs. return," Des Moines Register, September 27, 2009; Jason Clayworth, "State routinely withholds tax credit data from public," Des Moines Register, September 28, 2009; Jason Clayworth, "Director denies abusing tax-credit system," Des Moines Register, September 29, 2009.

Frankly, I think that focus is too narrow.

Transferring taxpayers' money to the bottom line of for-profit corporations, and the pet projects of wealthy campaign contributors, has never made a lot of sense to me.

My writing on the subject was originally prompted by the ill-fated proposal, widely supported by Iowa's politicians and newspapers alike, that was originally the $300 million "Iowa Child" indoor rain forest and ultimately went through many name and purpose changes, a failure to raise a dime of construction money, a rejection by virtually every Iowa town along I-80, and ended as a proposed $150 million "Earthpark" for a tulip bed somewhere in Pella that has yet to be funded and built. See the lengthy, entire Web site, Nicholas Johnson, "Earthpark."

Along the way I came to question everything from "TIFs" to mislabeled "jobs programs" to the bailouts of banks and auto manufacturers, that seemed to me an ill-considered waste of taxpayers' money and a total distortion of the separation between "socialist" programs and "marketplace, free private enterprise."

Here's a sample excerpt from one of the early entries in this blog three years ago, representative of the dozens of op ed columns and blog entries since:

What they [governments] spend tends to fall into three categories (with subsets):

(1) clear government functions (e.g., the military and and public schools, libraries and parks) primarily performed by government employees;
(2) outsourcing related governmental functions to private contractors, performed by employees of for-profit firms (e.g., defense contractors and road building firms); and
(3) simple transfers of public tax revenues to for-profit firms (and individuals).

The latter is problematical for a number of reasons.

(a) Ideologically, how does it square with "capitalism," "free private enterprise," etc.?
(b) With one-third of the 800,000 new start-up firms each year out of business four years later, these aren't very good odds for our tax dollars -- especially given that the recipients we choose to enrich are those who couldn't convince investors, venture capitalists or bankers to pick up the tab.
(c) The data is somewhere between fuzzy and totally non-persuasive that the public receives anything like fair value for its money.
(d) How can we possibly know that a grant of public funds (or tax forgiveness) is actually tipping the scales and making a difference in any given business decision? How do we know the recipient wouldn't have gone ahead anyway with the investment, or that the decisive factors in the decision involved matters other than how much public money they could worm out of the state (e.g., quality of the work force, schools, outdoor recreation, crime control, water supply, transportation networks)?
(e) How do we justify providing cash to one business person while denying it to his or her competitors?
(f) And isn't a system like this just asking for something between good-old-boy-ism and outright bribery in terms of how the goodies are distributed?

Nicholas Johnson, "Neutral Principles, Anyone? Justifying Corporate Welfare," July 12, 2006.

For a Des Moines Register op ed column from three months earlier that expanded on this theme, complete with supporting sources in footnotes in this online version, see Nicholas Johnson, Values Fund May Not Be So Valuable for Taxpayers," Des Moines Register, April 13, 2006.

The practice of transferring the taxpayers' money to the bottom line of for-profit corporations becomes especially insidious when it involves "tax credits." "Transparency" or not, it becomes somewhere between very, very difficult and impossible for the public or media to track just who is getting how much from where and for what when the funds transfer takes the form of reduced taxes.

It would be no more consistent with the desirable separation of socialism from capitalism, but at least everyone would know what's going on, if the published tax rates applied to every individual and business, and the subsidies took the form of appropriations, cash transfers, above the table, to identified beneficiaries in itemized amounts.

The Iowa City Press-Citizen has long been a champion of open government, public meetings, public records, and transparency, and I admire them for that. Indeed, it is the absence of transparency in some of Iowa's tax credit programs that is the focus of the paper's editorial on the abuses in Iowa's efforts to encourage the making of movies here. Editorial, "Public Has a Right to Know About Tax Credits," Iowa City Press-Citizen, September 29, 2009.

I just think the problem of taxpayer grants to for-profit ventures is much bigger, and more destructive of the state's economy, than some tax credits to a movie company. They are just a tiny sub-set of what needs fixing.

State Support of the Arts

In a recent five-part series on the relocation of the University of Iowa's Hancher Auditorium I addressed "Hancher and the University's Academic Mission," a sub-heading in Nicholas Johnson, "Hancher - Part IV," September 17, 2009. Is it consistent with the mission of an academic institution to provide what amounts to public entertainment events -- such as collegiate football, and Broadway shows on tour?

Similar questions need be asked about the use of taxpayers' money to support the arts generally, especially for-profit artistic ventures. But similar answers are also available.

1. "Everybody's doing it." Normally I don't find this a very persuasive argument for transferring my money, against my will, to for profit corporations. But the fact is that most states do exactly what Iowa does for the movie industry. Our 50% may be a little on the generous side compared with their 25% to 30%, but that's kind of a detail. And then there's always the line, "If we don't attract them to Iowa some other state will just attract them elsewhere."

2. "Why not the movie business." Another argument might be that, as long as we're giving away taxpayers' money to for-profit enterprises, why have a bias against the movie business. Clearly my arguments have not been persuasive to those legislators who want to continue favoring some businesses over others in the distribution of my money. That being the case, they might as well include movie makers.

3. "State public relations." Movies made in Iowa, like any other product or service in Iowa, involves local purchases, and employment, benefiting Iowa's economy. But that's the least of their potential benefit to the state. Whether made in Iowa, or merely about Iowa, a film a positive presentation of our state in film or television, or merely a reminder to the public that we exist, can have a positive impact in attracting businesses, professionals, students, and tourists. We can't buy that kind of publicity with print or Internet ads, state magazines and maps, even if we had the money to try. Amazon has a Web page called, "Iowa Connections -- Movies Made in and/or Featuring Iowa" that lists some 20 feature films. And its list doesn't even include "State Fair," "The Music Man," "Cold Turkey" -- a Norman Lear film that paid Iowans in 1969, rather than asking for handouts, as John Carlson reminds us [Photo/poster credit: Des Moines Register] -- or make any mention of the role of Riverside, Iowa, in "Star Trek" or the mention "West Wing" made of Iowa City's Hamburg Inn # 2 (or, alas, Senator Grassley's offer of $50 million of our money for his friends' indoor rain forest).

4. "Legitimate state expenditure." Even if movies were not one of the best public relations bargains going, government support of the arts is more in the tradition of legitimate state expenditures, including those for public schools, parks, libraries and museums. Historically it was kings, and the very wealthiest, who thought it important to support the arts with what was then the equivalent of tax money. Many school boards think it is quite appropriate to provide budgets for student instruction, and extra curricular activities, in the graphic or visual arts, theater, choral groups, dance, bands and orchestras. The state of Iowa is about to invest something on the order of $300 million in the replacement of the Hancher-Voxman-Clapp buildings. Many cities use public money to build local auditoriums and venues. Congress, which seemingly can agree on little else, has over the years agreed to the wisdom of federal support of the arts through such agencies as the National Endowment for the Arts, National Endowment for the Humanities (now headed by our own Jim Leach), and Corporation for Public Broadcasting, among others.

5. "The Creative Community and Economic Growth." Richard Florida and others make a persuasive case that emphasizing creative communities, with the amenities creative professionals are looking for, can do more for economic growth than handing out taxpayers' money to conventional businesses -- businesses that might have come there anyway, or that came only because of the subsidy and will leave as soon as some other community offers them more.

Have you ever stayed to watch all the credits roll after the movie? It's a listing of an incredible number of professions and skills, most of which we've never before heard of and remain something of a mystery as to what they might involve, and often hundreds of people. When a movie is made in Iowa, a number of those jobs come here -- not just the jobs for a few lucky actors and dozens of paid or unpaid "extras." But again, the greatest significance for our state is not that movie making is some great employment program. It is that it enables us to nurture more of the creative class here in Iowa on a permanent basis, and attract those from the creative class in Los Angeles, New York, and elsewhere that come here for the duration of the project.

That's not to say the state's program for subsidizing the movie industry shouldn't be subjected to the same analysis as any other subsidy program. [Jennifer Jacobs, "Gronstal: I may regret creating film incentives program," Des Moines Register, October 2, 2009 (“'If it’s all just a great big give-away with no long-term job creation or economic growth in this state or people having full-time employment, then this isn’t a very good deal for the state of Iowa,'” said Senate Majority Leader Mike Gronstal, D-Council Bluffs").] But it is to say that it may well be able to make a case for taxpayer assistance that other businesses cannot.
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* 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
# # #

Of Theaters and Automobiles

December 20, 2008, 7:05 a.m.

From Nation's Economy to Iowa City's Theaters
Approach Should be Similar
(Brought to you by FromDC2Iowa.blogspot.com)
What does Iowa City's Englert Theatre have in common with Detroit's General Motors? Read on.

President Bush left the White House long enough to kick the can down the road and then go back into hibernation. Notwithstanding what he represented to be his better instincts, he decided to hand over $17 billion of your money and mine to GM and Chrysler. In an ultimate example of the triumph of hope over experience, it's a "give me the money first, then I'll develop and show you my business plan" loan, made palatable to Republicans by virtue of its implicit goal of crushing one of America's formerly great unions, thereby carrying on the Reagan tradition begun with the air traffic controllers. Steven Mufson, David Cho and Cecilia Kang, "Aid in Hand, Clock Ticks for Detroit; With $17.4 Billion, a Mandate: Restructure by March or Go Bankrupt," Washington Post, December 20, 2008, p. A1.

I've written at length of the reasons why I think this approach is folly, and won't repeat again what's contained in the blog entries to which these links will take you:

Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008

Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008

Nicholas Johnson, "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008

"What Was Wrong With the Auto Proposal?" in Nicholas Johnson,"Quick Fix for the Economy," December 12, 2008

Nicholas Johnson, "A Car in Every Garage," December 16, 2008

So, will things be better with Obama? If they know what's good for them, the jurors are going to stay out until at least May 2009 before coming to any judgment on that one.

Don't get me wrong, I'm as big an Obama enthusiast as anyone. That he is where he is today, that he was able to run a virtually error-free campaign, the good will he currently holds throughout the world, his clearly demonstrated ability to inspire us all, his seeming desire to turn down the rhetoric and work with all segments of America, are all indications that our hope has not yet been shown to have been misplaced.

But there are also troubling signs.

1. I share a little of the concern of former Bush advisor Peter Wehner, reported in a Washington Post appraisal of Obama's current cabinet and White House appointments: "Pragmatism has its place, but there are limits, as well. If you aren't anchored to a political philosophy, you get blown about, and government becomes ad hoc and you make it up as you go -- and if you're not careful, you begin to go in circles. . . . They're smart, they're well-educated, they're the upper crust, but the question is, do the parts make a whole, or is the whole less than the sum of the parts? . . . I'd buy somebody a dinner [if they] could define what Obamaism is as a political philosophy. If you don't have a political North Star, you can lose your way, and I'm not sure if these people have it."

2. "Deliberately structured dualism" was a phrase used to describe the split in jurisdiction over cable television regulation between the FCC and the cities. It might be used to describe what appears to be Obama's approach as well, but for the fact that he has more than two individuals, or newly created institutions, advising him on virtually any given subject. It will give him almost unlimited ability to go any direction with the four winds, which in some ways is an advantage. But it also multiplies by orders of magnitude the number of conflicts among personnel that will either create (a) more chaos in Washington than usual, or (b) a daily appointment schedule devoted to little more than smoothing ruffled feathers and dealing with threatened resignations. Alec MacGillis, "For Obama Cabinet, A Team of Moderates; In Picks, Few Hints About Policy Plans," Washington Post, December 20, 2008, p. A1.

So what does all this have to do with the Englert Theater?

The Englert, an Iowa City gem that owes its current existence and condition to a combination of taxpayer and wealthy donor support, shares with virtually every other institution in America today, like the auto industry, economic hard times.

It has proposed that the City provide it $50,000 a year for three years from community development funds (a source questioned by a number of those who have entered online comments to the Press Citizen's editorial on the subject).

Like the Big Three auto executives' position regarding "bailouts" and "investments," the paper believes, as its editorial headline proclaims, Editorial, "Englert request is an investment, not a bailout," Iowa City Press-Citizen, December 19, 2008 ("the theater's request isn't the theater staff calling for a new 'Save the Englert!' campaign. It's the staff asking the community to recognize the important work done by the Englert. Using economic development money for this purpose is as appropriate as was using $75,000 of economic development money as the city's portion of a loan program for local flood-affected businesses.").

I'd like to see Ford, Crysler and General Motors -- and the UAW -- prosper as they did in the 1950s and 1960s. I really would. And I'd certainly like to see the Englert prosper.

The questions are simply how best to do that in terms of both (a) efficiency and effectiveness, and (b) fairness to the rest of the national, or with regard to the Englert the local, economy.

The Englert is not the only theater in town, nor the only theater facing hard times. The arts are important to our community, not only in terms of the quality of life of its residents but also in terms of the overall economy -- our ability to attract and hold what Richard Florida calls the "creative class," the professionals and entrepreneurs who are a major source of any community's ability to build wealth.

But just as I've argued for an economy-wide approach to our current onrushing economic depression to end all depressions -- rather than merely providing trillions for bankers and billions for auto executives -- so too do I think we need a community-wide approach to the economic challenges confronting our local theaters.

In addition to the Englert, and the University-sponsored events formerly at Hancher and other venues, we have among others the City Circle Acting Company, Dreamwell Theatre, Iowa City Community Theatre, Rage Theatrics, Riverside Theatre, Young Footliters, and nearby theaters such as the Old Creamery Theatre in Amana, and in Cedar Rapids the Paramount Theatre, CSPS and Theatre Cedar Rapids.

Do I want the Englert to survive and thrive? Absolutely, I do. But not at the expense of the wealth of live theater we all benefit from in Iowa City and Eastern Iowa. Nor at the expense of the rest of Iowa City's arts. Nor at the expense of, beyond the arts, the entire local economy.

Fixing this one is a lot easier than dealing with the auto industry, folks. Let's take a broad view of the challenge and get on with it. There are tougher times ahead.

# # #

You Know It's Serious When We Start Laughing

December 15, 2008, 7:10 a.m.

This is Serious
Have you ever noticed how, when things start going sour, there comes a point when they're so bad they start making their way into jokes? I remember as a kid, during World War II, we had paperback books that were collections of military humor.

Well, it's happening now with the global economic depression.

I don't read the comic pages of the newspapers. I have an assistant who does that for me and alerts me when they begin to take on social significance -- as happened this morning [Dec. 15].

"Non Sequitur" under "C.E.O. Math," in a panel the width of the entire strip, has a corporate CEO sitting in his luxurious, spacious office, behind a desk, talking to an assembly line worker, saying "We crunched the numbers over and over on where we could cut back, and it kept coming down to whatever it is you guys do on the assembly line . . .."

"Close to Home" pictures three guys on one of those old hand-powered, open railroad flatbeds, going down the track with the caption, "Ridiculed for arriving in Washington in private jets, the Big Three auto CEOs found a more humble way to travel."

"Working it Out" pictures a teller talking to a customer at "Metro Bank" saying, "'Try not to think of it as a loan, Mr. Purnell. Think of it as your own personal bailout plan.'"

But perhaps one of the best statements about bailouts comes from one of my favorite comics, Wanda Sykes on Jay Leno's "Tonight Show" on NBC, September 23:



And then there's this parable that's been going around the Internet. (I'd be happy to credit the creator but I don't know who it is.) The post-parable commentary came with it, but I've modified it all a bit:

A Modern Parable
A Japanese company (Toyota) and an American company (GM) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.

Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 8 people steering and 1 person rowing.

Feeling a deeper study was in order, American management hired a consulting company and paid them a large amount of money for a second opinion.

They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 3 area steering superintendents and 1 assistant superintendent steering manager.

They also implemented a new performance system that would give the 1 person rowing the boat greater incentive to work harder. It was called the "Rowing Team Quality First Program," with meetings, dinners and free pens for the rower. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses.

The next year the Japanese won by two miles.

Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses and the next year's racing team was out-sourced to India.

Sadly,

The End.
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Here's something else to think about: GM has spent the last thirty years moving suppliers and factories out of the US, claiming it can't make money paying American wages.

Toyota has spent the last thirty years building more than a dozen plants inside the U.S. The last quarter's results:

Toyota makes 4 billion in profits while GM is carrying $60 billion in debt and losing 4 billion each quarter.

The GM folks are still scratching their heads.

If this wasn't so true it might be funny.

_______________To paraphrase Adlai Stevenson following his lost presidential election, "When you're too old to cry there's nothing left to do but laugh."

# # #

Auto Loan Makes Too Few Dollars Even Less Sense

December 4, 2008, 5:40 a.m., and . . .

Dec. 5 Updates:
Louis Uchitelle, "U.S. Loses 533,000 Jobs in November," New York Times, December 5, 2008 (in addition to layoffs, extensive depressing details about depression).
David M. Herszenhorn and Bill Vlasic, "Auto Executives Still Find Skeptics," New York Times, December 5, 2008 (report of Dec. 4 Senate hearing).
David Stout, "Frank Sees ‘Disaster’ if Auto Industry Fails," New York Times, December 5, 2008 (report of Dec. 5 House hearing).

What Are Auto Execs Smoking?
Plan Smoke and Mirrors Without Detailed Projections
From one hour ago see, James Rowley and Linda Sandler, "GM, Chrysler May Accept Bankruptcy to Receive Bailout, Bloomberg, December 4, 2008 -- excerpted below, at the end of this blog entry. And for a creative alternative variant of Chapter 11, see J. Ronald Trost, "Another View: How to Save the U.S. Auto Industry," New York Times Blogs, November 26, 2008, and accompanying comments.

And here's an intriguing suggestion from Michigan's Michael Moore:

"You could buy ALL the common shares of stock in General Motors for less than $3 billion. Why should we give GM $18 billion or $25 billion or anything? Take the money and buy the company! (You're going to demand collateral anyway if you give them the 'loan,' and because we know they will default on that loan, you're going to own the company in the end as it is. So why wait? Just buy them out now.)" Michael Moore, "Saving the Big 3 for You and Me," December 3, 2008.

Advocates for an auto industry bailout have been asking all who question the wisdom of such a move, "How can you turn your back on the Big Three? Don't you realize how important they are to the American economy? Think of the lost jobs. Why aren't you willing to save this industry?"

Answers: I don't. I do. I have. I am.

What I don't think makes sense is a "bridge-loan to nowhere." I don't think it will save the industry, provide employment, put cars back on dealers' lots, or generate orders for suppliers.

The Big Three have already laid off 166,000 workers during the past five years. GM is proposing to lay off an additional 30,000 employees. The UAW is willing to abandon the program that supports those already laid off, and the company's contributions to funding health benefits for retirees. [Source: Bill Vlasic and Nick Bunkley, "U.A.W. Makes Concessions in Bid to Help Automakers," New York Times, December 3, 2008; and note, with regard to the widely repeated assertion in the media that GM's market disadvantage is that it must pay workers $74 an hour compared with Toyota's $45 an hour: "Base wages between the Big Three and the foreign companies are roughly comparable, . . . $28 an hour at the Big Three compared to about $25 an hour at Toyota’s plant in Georgetown, Ky."); Steven Mufson, "As Hearings Resume, UAW Offers Concessions; Urging an Auto Bailout, Union Retreats on Terms Of Health Care, Jobs Bank," Washington Post, December 4, 2008.]

These layoffs haven't, and won't, put GM in the black, but it will minimally cut some costs. ("[UAW President Ron] Gettelfinger asserted that labor made up only 10 percent of the cost of a car. 'To be honest with you right now, if a UAW membership went into these facilities and worked for nothing, according to our research department, it would not help the companies that much,' he said." From Mufson story, linked immediately above.)

Not only will layoffs not help, they will only make the industry's problems worse. Auto sales are down about 40%! ("Vehicle sales [for November] in the United States sank . . . General Motors, down 41.3 percent, Ford Motor, down 30.5 percent, and Chrysler, down 47.1 percent . . .." Nick Bunkley, "Another Month of Miserable Auto Sales," New York Times, December 2, 2008.)

That's the problem. And why is that? It's at least related to the fact that 1.2 million Americans have lost their jobs this year, with another 250,000 (or more) this past month. Half of the Big Three's workforce live in Michigan, where unemployment is at 9.3% and 20% of the entire population is now dependent on food stamps and other social programs for survival.

Tell me, how is adding to the number of unemployed going to increase auto sales?

And without increasing auto sales how are these "bridge loans to nowhere" going to "save the auto industry" -- including GM's 6000-plus auto dealers, and the network of suppliers throughout the country?

If the proposed bailout would double sales, result in the rehiring of all laid off auto, dealer and supplier workers, and enable the three companies to pay back the loans in six months, that would be one thing. But it won't. GM is headed for bankruptcy; it claims to need $4 billion sometime in the next two weeks to stay in business -- and another $4 billion next month. Prospects for an immediate economic turnaround are non-existent. Even the companies aren't talking about paying back the "loans" until 2012 -- and those projections are just pulled out of their tailpipes.

There's an inherent inconsistency in the bailout advocates' argument, one of those "you can't have it both ways" problems. On the one hand they say, "Our problem is not our fault, or at least not entirely our fault, because it's been brought on by the current recession and resulting loss of sales." The conflict is that if the problem is not of their making the solution can't be either.

If they had a backlog of orders for a new model, high gas mileage car that their dealers were demanding, but that they couldn't begin building without a genuine "bridge-loan" they would be able to pay back in February, that would be one thing. A loan would solve their problem, enable the factories to start turning out cars, keep the dealers in business, the UAW workers employed, and return the corporations to profitability. But to the extent the problem lies in the downward spiraling economy and lack of consumer demand, it is a problem beyond their ability to control, and one no amount of loans will solve.

Think about it. If the economic history and prospects for a hemorrhaging business in your hometown were, while involving proportionally smaller losses, otherwise comparable to those of GM is there any local banker who would loan that business massive amounts of money one month before it was going into bankruptcy? I doubt it. So why should the taxpayers?

(Later this day [December 4] Senator Shelby made a similar observation: "The senior Republican on the panel, Senator Richard Shelby of Alabama, said the automakers’ plans aren’t 'serious' and have 'few concrete details.' 'If you made this presentation to get a bank loan I suspect that any sensible banker would summarily reject your request,' Shelby said." John Hughes, "U.S. Auto Chiefs Appeal to Congress for Emergency Aid (Update5)," Bloomberg, December 4, 2008, 13:43.)

What's Wrong With This Picture?

Of course, from my perspective, focusing on corporations rather than consumers is walking into our economic recovery efforts backwards, a "trickle-down" rather than a "trickle-up" strategy that hasn't worked so far and isn't likely to in the future.

Roughly 70% of our economy is the result of consumer expenditures. The best way to revive any given industry, including autos -- or even the entire economy -- is to get more money into the hands of people who buy stuff rather than the CEOs of corporations that are, unsuccessfully, trying to sell stuff.

There are lots of possibilities including, but not limited to, the following:

(1) increase the number of persons covered, the length of the coverage, and the amount received for unemployment compensation, food stamps, and comparable social programs;

(2) fund workers to rebuild our nation's infrastructure, such as roads, bridges, schools and parks, preferably with government-run WPA type projects, or if not that then by funding comparable states' projects;

(3) what better time to bring ourselves up to a world-class standard of health care with a universal, single payer system, the savings for consumers and corporations from which would be available for consumers to spend on other things, and for businesses to invest (and to better compete globally with companies in other countries that do have public health care programs);

(4) provide lower interest rates, different (lengthier) mortgage terms, and reassessment of the value of homes to reduce the number of foreclosures and those who were formerly homeowners becoming homeless -- Washington's latest idea is often misrepresented as providing this kind of relief when in fact, "cheap mortgages would be available only for people buying houses, not the roughly 50 million families that already have mortgages and would want to refinance at a lower rate. As a result, the plan offers no direct relief to the millions of people who face foreclosure . . .." Edmund L. Andrews, "Washington's New Tack: Helping Homeowners," New York Times, December 4, 2008; Renae Merle, "Mortgage Distress Reaches Record Highs; Delinquencies, Foreclosures Rise Steadily," Washington Post, December 5, 2008, 12:47 p.m. ("one in 10 home mortgages is now in some form of distress");

(5) increase the nation's reserve of brain power and global competitiveness by providing additional financial support for those (of all ages) capable of benefiting from a college education or job retraining program who are currently unable to find work and for whom the next two or three years could best be spent in a classroom enhancing their, and our nation's, skills.

Now here are some additional recent stories documenting these assertions of mine:

"On the same day that the industry reported its worst sales month in 26 years, the three Detroit automakers delivered new business plans to lawmakers in the hope of winning support for $34 billion in federal loans . . . substantially higher than the $25 billion that the three companies had initially hoped to get from Congress two weeks ago. . . .

But G.M. . . . said Tuesday [December 2] that it was in such dire straits that it would deeply cut jobs . . . as part of its plea to get $12 billion in federal loans and an additional $6 billion line of credit. . . .

G.M.’s president, Frederick A. Henderson, said the company would be insolvent if it did not receive federal assistance, including an infusion of $4 billion in cash before the end of the year. . . .

Still, the company said it would have been able to survive on its own if not for the continued deterioration of the United States vehicle market, because of the weakening economy and tight credit, which has made it difficult for consumers who do wander into dealerships to get loans.

“The company would not require government assistance were it not for the drastic collapse of the U.S. economy which has devastated the company’s current revenues and liquidity,” G.M. said. . . .

G.M. also said it planned to reduce the number of salaried and hourly workers in the United States workers from 96,000 currently, to 65,000 to 75,000 by 2012. It will also reduce its North American factories from 47 to 36, and its dealers from 6,450 and 4,700.

Bill Vlasic and David M. Herszenhorn, "Pursuing U.S. Aid, G.M. Accepts Need for Drastic Cuts," New York Times, December 2, 2008.

"The [Michigan] unemployment rate is 9.3 percent . . .. The total of Michigan residents who receive some form of public assistance, like food stamps or home heating credits, is now 1.82 million, or close to 20 percent of the population, a record for the state." Monica Davey and Susan Saulny, "Even in Michigan, Not Everyone Wants a Lifeline," New York Times, December 2, 2008.

The Fed's "beige book," a compilation of anecdotal reports from businesses across the nation published roughly every six weeks, found that "overall economic activity weakened across all Federal Reserve districts since the last report."

Consumer spending weakened almost across all sectors of the economy, especially for vehicles. . . . Services business "generally contracted in most districts."

Part of the problem was that lenders have continued to restrict credit. "Credit standards rose across the nation," the beige book said, "with several districts noting increases in loan delinquencies and defaults, especially in the real estate sector." . . .

[P]rivate businesses shed 250,000 jobs in November on a seasonally adjusted basis. It was the biggest drop in seven years and "offers evidence that the labor market continues to weaken," ADP Employer Services said in its monthly payroll survey [Automatic Data Processing, "National Employment Report"].

Based on data from nearly 400,000 companies, the report showed employment declines across the board as large, medium-size and small companies shed jobs, and employment contracted in all sectors of the economy. . . .

The numbers from the ADP report are "terrible," wrote Ian Shepherdson, chief U.S. economist with the High Frequency Economics consulting firm, in an analysis of the employment numbers.

With payrolls deteriorating in both the manufacturing and service sectors, "there is nowhere to hide," he said.

A separate study by the Institute for Supply Management showed that economic activity in the service sector fell to the lowest level since its index for the sector was first reported more than a decade ago. . . .

Neil Irwin and Howard Schneider, "Economic Weakness Pervasive, Fed Says; All U.S. Regions, Most Industries Hit by Recession," Washington Post, December 4, 2008, p. D1.

The economic decline took a turn for the worse after the market shocks of October. In November, the problems only deepened.

Cash-poor Americans, fearful for their jobs and victims of a steep decline in stock prices, pulled back on spending. Businesses laid off workers, cut wages and reduced hours. Real estate developers and owners suffered.

That bleak portrait — effectively a confirmation of the conventional wisdom of the last few weeks — was released on Wednesday afternoon [December 3] by the Federal Reserve in the latest edition of its beige book . . ..

At the root of the problems is a significant slowdown in spending, as Americans retreat from large-scale purchases and try to save money amid the worst downturn in a generation. Retail sales fell in most major cities, according to the beige book, while sales of automobiles “deteriorated,” particularly sales of more expensive cars like sport utility vehicles. . . .

Manufacturing activity slowed last month in all 12 districts included in the beige book. Both residential and commercial real estate companies reported problems. Vacancy rates were higher . . ..

Lending by banks slowed as well . . ..

Michael M. Grynbaum, "Fed Report Shows Downturn After October Shocks," New York Times, December 3, 2008.

And here is this morning's [December 4] Bloomberg story about a possible prepak bankruptcy:

General Motors Corp. and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout, said a person familiar with their internal discussions. . . .

Staff for three members of Congress have asked restructuring experts if a pre-arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the industry without liquidation, a person familiar with that matter said. . . .

General Motors shares traded in Germany fell 1.4 percent to the equivalent of $4.83 as of 11:03 a.m. The stock has plunged 80 percent this year in New York Stock Exchange composite trading. . . .

GM and Chrysler told Congress Dec. 2 that they need $11 billion in government loans just to survive the year as the auto industry slump deepens. To get the money, the companies agreed to slash payrolls, shed brands and shrink dealerships. Bankruptcy was not part of their plans.

GM, Chrysler and Ford Motor Co. asked for a $34 billion bailout package, about a third larger than the $25 billion . . ..

The Democrats’ goal of preserving a U.S. auto industry is not doable without a bankruptcy, said Lynn LoPucki, who teaches bankruptcy law at Harvard University and the University of California at Los Angeles.

Workout Requirement

“A workout requires everybody’s agreement,” he said. “. . . Bankruptcy is the only thing that can work because GM and the government need the ability to force people to go along with the plan. Paying everyone in full is prohibitively expensive.”

About 77 percent of billion-dollar companies survive bankruptcy, according to LoPucki’s database, while the others sell their business. . . .

The government could guarantee the warranties given to consumers on cars bought from a bankrupt automaker, said Mark Bane, a bankruptcy lawyer with Ropes & Gray in New York. Government money could also “ensure that parts suppliers will be paid,” he said.

Less Money

Less government money would be needed in a prepackaged bankruptcy, which might last only two months, compared with two years or more for a regular bankruptcy, according to Bane. In a prepack restructuring, an automaker would go into court after reaching agreement with lenders, workers and suppliers on what each would give up and on the business plan to be followed.

Government aid might be needed only for the period when the company was gaining consent from its constituencies -- which might take as long as six to 12 months, Bane said. . . .

Any assistance must be “based on realistic assessments of what the auto market is going to be and a realistic plan for how we’re going to make these companies viable over the long term,” [President-elect] Obama said yesterday [December 3]. . . .

James Rowley and Linda Sandler, "GM, Chrysler May Accept Bankruptcy to Receive Bailout, Bloomberg, December 4, 2008.

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