The Wrongologist

What’s Wrong Today:

Breezy Point is a tiny community at
the far western tip of the Rockaway Peninsula. To the northwest, you can see
Manhattan, while Sandy Hook, NJ is off to the southwest. The neighborhood
started in the early 1900’s as a summer bungalow community for people from
Brooklyn and Queens. Because it was 98+% Irish, Breezy back then was called the
Irish Riviera. Until the 1970’s, most bungalows were not winterized, so the large summer
population left right after Labor Day. It has always been a tight-knit, family
oriented place.

The
Wrongologist’s maternal grandmother bought a place there in the 1920’s. This
photo from 1934 gives a good idea of how close the bungalows are to each other.

The
Wrongologist’s father’s extended family had the bungalow across the “walk” (too
small for cars) from his grandmother’s place. His parents met there, talking
across the walk over the course of a summer. Even today, family members still live
at Breezy. It has been part of the Wrongologist’s family’s life for 90+ years.

Today,
Breezy Point is a private cooperative of 3500 homes. It has its own security
force, 3 volunteer fire departments and has been for at least 60 years, a gated
community. Although it is exclusive, it is not wealthy.

It was
devastated by Hurricane Sandy and the fire that burned
110 houses to the ground on the night of the storm.  

During Mr.
Obama’s visit to NY last week, after he named Shaun Donovan, his HUD Secretary,
to spearhead federal recovery efforts, the president reflexively pledged to restore ravaged neighborhoods and
homes in Queens and Staten Island to the way they were before Hurricane Sandy.

It was business as
usual
and possibly the last thing the country should be doing.

Politics
aside, there is no logic to FEMA simply rebuilding single-family homes on
barrier islands like the Rockaways, where they will fall again during the next
major storm surge.

We need cost-benefit
analyses to answer tough questions like whether it’s actually worth saving some
neighborhoods in flood zones. Communities
like Breezy Point should be given knowledge, power and choice about their
options, then the responsibility to live by that choice.

Americans like living by the water.
But government-subsidized flood insurance
eliminates much of the financial risk in the event of disaster.

The question after Sandy is whether the country will keep paying
billions to return people to their high risk locations, or whether we’ll
instead say “build if you want, but
the risk is all yours.”

As Justin Gillis and
Felicity Barringer wrote in the New York Times, the federal government is bound by law to pay for much of the
cost of fixing storm-damaged infrastructure, including homes. It is part of the Stafford
Act that kicks in when the president declares a federal disaster that
exceeds the response capacity of state and local governments.

Add in the National Flood Insurance Program and it is clear that the federal government makes
it easier to live in a danger zone than to make the tough choice to
relocate:

• Billions of tax dollars have been spent on subsidizing
  coastal reconstruction in the aftermath of storms, usually with little
  consideration of whether it actually makes sense to keep rebuilding in the same
  disaster-prone area

• If history is a guide, a large fraction of the federal money
  allotted to New York, New Jersey and other states recovering from Hurricane Sandy, (an amount
  that could exceed $30 billion), will likely be used the same way

The
federal flood insurance program is already under financial strain, and
Sandy could cost as much as $7 billion just
in government insurance claims, while
the program itself can only add an additional $3 billion to its current debt
levels.

This should prompt lawmakers to reform the program. If subsidized flood insurance is no
longer a given, we might also begin to see a slowdown in coastal and other
flood plain population growth.

We have
to try and build improved physical protection for
established coastal population centers. But the best way to ensure that the
next Sandy does less damage is simply to move some people out of harm’s way, or
at least make it more expensive to
stay there.

Otherwise, our tax money will go toward putting things back as
they were, essentially duplicating the vulnerability that existed before the
hurricane.

So far, there has been much discussion
about the possibility of building multi-billion dollar sea walls and barriers
that might be able to shield Manhattan and other vulnerable places from the
kind of storm surges that caused so much destruction during Sandy.

The Maeslant Surge Barrier in Rotterdam (NYT)

According to Michael Kimmelman of The
New York Times, there
is a rough consensus about how to protect New York City. Engineers are looking at
London, Rotterdam, Hamburg and Tokyo, where sea walls, levees and wetlands,
flood plains and floating city blocks have been conceived.

Building
similar projects to protect the New York region would require developing and
executing a supra-regional plan involving an alphabet soup of agencies and
public officials: Congress and the governors of New York, New
Jersey and Connecticut; the Corps of Engineers; FEMA; Homeland Security; the NYS
Public Service Commission (to compel companies like Con Ed and Verizon to
safeguard its equipment); Amtrak; the MTA; the city’s planning, transportation,
parks and environmental protection departments; and the Port Authority.  

Thames River Flood Barrier in London (NYT)

Money shouldn’t be the problem, considering the
hundreds of billions of dollars, and more lives, that a few more Sandy’s could
cost. So the problem is not technological or from a long-term cost-benefit
perspective, financial.

Rather, it
is a test for our inconvenient democracy.

The hardest part of what lies ahead won’t be deciding whether to construct huge
sea walls across the Verrazano Narrows and Hell Gate, or overhauling New York’s sewage and storm water system, which already spews toxic waste into its rivers whenever a couple of inches of rain fall.  

 

The real problem is that billions of
dollars may end up being spent to
protect businesses in Lower Manhattan while old, working-class communities like Breezy Point on
the waterfronts of Queens, Brooklyn and Staten Island most
likely won’t get the same protection. The accompanying pain, dislocation and inequity
will upend lives, undo communities and shake assumptions about city life. It will
be very hard to bear.

It’s no wonder presidents promise to
rebuild and stick taxpayers with the tab.

But, it’s
no good trying to put things back the way they were, because we shouldn’t go back
there. There are tough decisions ahead
about nature and numbers, population density, economics and geology.

So the
real question post-Sandy is: How can we accomplish what must be done, in time
and with fairness?

What’s
Wrong Today:

Democrats are still taking 2012 Presidential election victory laps,
wasting their breath talking about how the Republicans
need to retool their party if they are to be relevant in 2014 or in
2016. This is wishful thinking.
Right-aligned politicians are not going to shift towards moderate viewpoints
and make legislating in the center-left a breeze for Mr. Obama.  

Democrats need to get back to focusing
on how they will deliver more jobs to
the American people, before Mr. Obama is declared the Democrat’s Hoover.
They need to find a candidate on their
shallow bench of less than 60-year-old
politicians who can appeal to the increasingly younger electorate. They
should figure out how they will sell a winning middle class message, particularly
if Mr. Obama’s Grand Bargain, which today
looks to be anti-middle class, becomes another Democratic legacy.

If they fail to work conclusively on
these issues, they will be vulnerable to a successful attack from the Republican
party, possibly to an attack by a populist from the far right, even from a
third party right wing candidate.

It isn’t that farfetched.

Look at these voter demographics from November 6th:

1. According
to the Census Bureau, 63.4% of the US
population consists of non-Hispanic
whites

2. The portion of non-Hispanic
white voters was 70% because minorities are younger and some are not
citizens

3. Obama
won the Presidential race in states that, on the whole, are “whiter” than
average:

• The states he won where the portion of non-Hispanic whites exceeded the average are: NH (92.2%), IA
  (86.4%), WI (83.1%), MN (82.8%), OH (81.0%), PA (79.2%), OR (78.1%), MI (76.4%),
  CO (69.7%) and VA (64.5%). These represent 113 electoral votes.  

• He
  won in only 3 states with a higher % of minorities than the national average: Florida,
  Nevada, and New Mexico, representing 40 electoral votes.

In many
of these states, running a blue collar white guy instead of a corporate raider
white guy probably would have helped the Republicans, who
won states with higher minority
populations where voting was divided more clearly by evangelical and/or
ethnic lines, including: Texas, Arizona, Georgia, South Carolina, Mississippi,
Alabama and Louisiana (97 electoral votes).

Looking
at this, there is room for a populist Tea-Party
type to succeed in winning the Presidency. And if the Republican nominee
is a centrist, a third party could emerge
to the right of the Republican party.

And
the work of mobilizing a populist candidate to challenge Democrats has already started. Let’s look at two of their ideas that
have gained traction:

1. State Secession is being used as a tool
to keep the true believers on the extreme right engaged:

Petitions signed by hundreds of thousands of Americans
seeking permission for their states to peacefully secede from the union have
now been filed for all 50 states on the White House website.
There is no proof that the petitioners
actually are residents of the state where they have signed petitions. These
are Internet petitions, after all.

The petitions are symbolic
and nothing new.
Similar petitions were filed after the 2004 and 2008 elections. Secession,
though, is not the only thing people are petitioning for: There are 140
petitions currently displayed on the site: two seeking federal legalization of
marijuana, one asking for the halt of U.S. drone strikes and one demanding a recount of the election.

2. An
impeach
Obama movement by the far right  is also
underway. The Conservative Majority Fund, a conservative group known
primarily for spreading the birther conspiracy, has launched a robocall campaign
to gin up support for the President’s impeachment. Open
Secrets.org shows that the Conservative Majority fund spent $4.25 million
against Mr. Obama in the 2012 election cycle.

The HuffPo detailed
an email sent by the Fund:

“Our only recourse now is to move
forward with the full impeachment of President Obama. We suspect that Obama is
guilty of high crimes and misdemeanors and that there may be grounds for
impeachment as is laid out in the constitution. Further, he may not even be a
U.S. citizen…Impeachment is our only option.”

People
in Washington, Colorado, New Jersey and Virginia have reported receiving the
call.

Rather than make
fun of these two points on a curve, consider for a moment that they actually point towards something:
These continuing efforts to undermine the legitimacy of the Federal Government
and the Democrats could open the door
to a Republican or Tea Party populist presidential
candidate who runs on jobs, jobs,
jobs while directly soliciting the working class.

By then, the working
class may well be desperate for a good economy and they could give the Tea
Party an audience. The candidate wouldn’t need special skills or
qualifications, just an especially
well-crafted faux-sincere demagogic appeal.

Democrats should expect to see assaults on labor unions,
environmental and financial regulation; the Tea Party’s favorite job-killing
bogey men. The Right knows the
value of picking their villains early in the play.

If we are still experiencing a stagnant economy, in which real wage
growth is flat and unemployment remains high, the Republicans or a third party to their
right may not find winning in 2016 such heavy lifting.

The angry, white guy could easily
make a comeback, when it is the morning after in America.

So, go
ahead, order your Biden or Hillary 2016 buttons.

Let
the positioning begin!

What’s
Wrong Today:

In a small victory in the battle against
childhood obesity, private equity-backed Hostess Brands Inc. went
back in the bankruptcy oven today,
filing for Chapter 7 liquidation, nearly three years after exiting from its
first bankruptcy filing, and 11 months after its second Chapter 11 filing.

 

Management says that the financial toll is due to out-of-control labor costs
and pension and medical benefit obligations borne by the maker of Twinkies and
Wonder Bread.

 

Hostess
has about $2.5 billion in sales
from a long list of iconic

consumer brands of snack cakes and breads such as Butternut, Ding Dongs, Dolly Madison, Drake’s, Home Pride,
Ho Hos, Hostess, Twinkies, Yodels, Wonder, Merita and Nature’s Pride. The
company says it has suspended operations at all of its 33 plants around
the United States as it moves to start liquidating assets.

 

The liquidation could cost as many as 18,500 jobs
nationally.

 

In the conservative
press, the Hostess liquidation is taking on the narrative of an out of control
union management forcing its members to the unemployment line and forcing the end
of an iconic brand.

 

Why? Because Hostess had given some striking union employees
a deadline to return to work on
Thursday, but the union would not end its strike, saying it had already
given more in concessions than its workers could bear and that it would not
bend further. This was despite the fact that Hostess had already reached an agreement on pay and benefit cuts with the
International Brotherhood of Teamsters, its largest union.

 

Management makes the point that it had made deals with 70% of its unionized employees, but
not with its largest unsecured
creditor, the Bakery & Confectionery
Union which, through its pension fund, is
owed $944 million of the $980 million the company owes to unsecured creditors.

 

Hostess also owes $860 million in secured debt.

Hostess has 19,000 employees, 83% of whom
are members of unions working under
372 collective bargaining agreements (CBA). The employees belong to 12
separate unions. On average, that
means there are only 51 employees per CBA at Hostess.  

 

The company is majority owned by private equity
(PE) firms; Ripplewood Holdings owns 68.56% of Hostess’ equity, while Silver
Point Finance owns 12.28%.

 

Union officials blamed mismanagement for the company’s
woes. Union President Frank Hurt said
in a statement that the company’s failure was not the fault of the union
but the “result of nearly a
decade of financial and operational mismanagement” and that
management was trying to make union workers the scapegoats for a plan by Wall
Street investors to sell Hostess.

As Deal
Pipeline’s Jamie
Mason reported, the company first filed for Chapter 11 as Interstate
Bakeries Corp. on Sept. 22, 2004, in the US Bankruptcy Court for the Western
District of Missouri in Kansas City. The debtor exited from bankruptcy
protection 4-1/2 years later on Feb. 3, 2009.

 

Since its exit from Chapter 11, the
debtor’s financial performance hasn’t kept pace with the projections set forth
in its reorganization plan:

• For the 2010 fiscal year, the company had a net loss of $138
  million
• In 2011, the company had a $341 million net loss

The proposed deal with the various unions, according to the Chicago Tribune’s Phil
Rosenthal, looked like this:

Wages
would drop 8% across the board, including management’s, with the promise of a 3%
increase in each of the 2nd through 4th years of the five-year
deal, with a 1% increase in year 5.

There
also would be sharp reductions in pension plan payments.

The
company reduced executive pay in April
and Chief Executive Gregory Rayburn said the company’s lawyers, bankers and
other bankruptcy advisers would forgo $60 million in fees, an 18% discount.

Union members stood
to get a 25% equity stake in the company and would be in line for $100 million of the recovered
debt, plus two of the company’s eight board seats and one seat on the board’s
executive compensation committee.

Sounds like an acceptable
deal to the Wrongologist.

 

But, maybe the union gets to move their pension liability to the US government via the
Pension Benefit Guaranty Corp like this Hostess pension
plan did in the prior bankruptcy, possibly a better deal for the union than
the PE guys are offering. In any event, while
the baker’s union didn’t agree to this round of cuts, they had agreed to others
in the past.

 

And those cuts also came with promises that were not kept.

Hostess had poor management for many years, so it is understandable
that when you work for a company that’s
operated under Chapter 11 protection for 5 of the past 8 years, the
next new deal would test the union and its workers’ faith, even with new
management.

Instead
of turning this into another job creator vs. union parable, how about realizing that this was a
poorly run company and past leadership had just brutalized it?

Both sides contributed to this
situation. We can’t blame the unions for taking a stand, at some point you have
to take a stand. For those who don’t
understand that, it’s called PRIDE. How about accepting that the union
gave what they believed they should/could in the past and the company didn’t get
back to profitability?

You
can’t blame the current management;
they are just trying to turn the company around. Maybe they are just trying to
make the union succumb to public opinion and really will avoid liquidation in
the end.

However, with $2.5
Billion in sales, it is certain that a
new investor will buy the Hostess assets. The new investor will not have
to restructure the legacy debt or deal with inflexible work rules.

Let’s hope the new
investor offers pensions, sick leave, vacation and medical benefits. All workers deserve them.

So, it isn’t really the
end of the Hostess brand. And for all those kids and parents who grew up on
Wonder Bread and Twinkies….they will be back.

Probably
without the unions. Let’s just leave it at that.

What’s
Wrong Today:

There is a
lot of confusion regarding the Fiscal
Cliff, primarily because most politicians conflate two distinct
problems:

1. A decline in the GDP growth rate that will be caused
by the impact of automatic tax increases and spending cuts that go into effect
on January 1

2. The growing federal debt that over time could
ultimately kill our economy

The media rarely
distinguishes between them, even though the “fix” for these issues lie in
opposite directions: Any deal that only
promotes GDP growth will increase our debt. Any deal that only reduces debt will kill GDP growth.

So,
if a lawmaker really only cares about
the debt, he/she should be happy about GDP contraction but they aren’t,
because they also want to preserve the
Bush tax cuts.  

Few
citizens understand this and thus make the mistake of equating the fiscal cliff
and the debt problem. The two are conflated
so often they blur into each other.

For
example, the Washington
Post published an article titled “Liberal groups mobilize for ‘fiscal cliff’ fight over Social Security,
Medicare.” The facts in the article are ok, but you get the impression that
the fiscal cliff threatens Social Security and Medicare.

Just the
opposite is true. If your top priority is to preserve Social Security,
Medicare, and Medicaid for the long term, then
the fiscal cliff is the best thing that could happen.

Why? The expiration
of the Bush-Obama tax cuts will eliminate
roughly half of the gap between federal government revenues and expenses.
Higher tax revenues will reduce the pressure to do something radical about
entitlement spending, but not the
pressure that is due to ideological opposition to these programs.

Second,
the automatic sequesters mandated by the Budget Control Act of 2011 barely impact
the major entitlement programs. Social
Security and Medicaid are specifically exempted; most Medicare spending cuts
are limited to 2 percent. That means that the rest of the government will
get proportionally smaller, reducing budgetary pressure on Social Security,
Medicare and Medicaid.

The gang pushing to cut Social Security and
Medicare, (“Campaign
to Fix the Debt”) is in high gear. They have raised
money, recruited corporate CEOs (mostly from the financial industry) and some
washed-up politicians for a full-fledged push in the final months of the year. They
are hoping that the hype around the budget standoff (“Fiscal Cliff”) can be
used to pass a “Grand Bargain”
that will likely eviscerate the country’s two most important social programs
Social Security and Medicare.

The
“Grand Bargain” requires compromise. Ever notice
when we hear the call for compromise there
are few specifics? That’s the problem
with DC, policies based on facts,
statistics and their effects not only are ignored, we hear lies on what these
agendas will actually do.

As Dean
Baker has reported:

“They [Fix the
Debt] made a point of keeping this plan out of election year politics because
they know it is a huge loser with the electorate. People across the political and ideological spectrums strongly
support these programs and are opposed to cuts. Politicians who advocated cuts
would have been likely losers on Election Day. But now that the voters are out
of the way, the Wall Street gang and the CEOs see their opportunity.

It is especially
important that they act now, because one of the pillars of their deficit horror
story could be collapsing. Due to a sharp slowing in the rise of health care
costs over the last four years, the assumption that exploding health care costs
would lead to unfathomable deficits may no longer be plausible even to people
in high level policy positions.”

The big stick for the deficit hawks is
their story of huge deficits in the longer term. They attribute these to the
rising cost of “entitlements” which are known to the rest of us
as Social Security, Medicare, and Medicaid.

While the
deficit hawks push the notion that the aging of the population threatens to
impose an unbearable burden on future generations, the reality is that most of the huge deficit horror story is driven
by CBO projections of exploding private sector health care costs. Since
Medicare and Medicaid mostly pay for private sector health care, an explosion
in private sector health care costs would eventually make these programs
unaffordable.

However, there are
serious grounds for questioning the plausibility of CBO projections that show the
health care sector will rise from 16% to
40% of GDP over the rest of the century. Recently, a paper from the
Federal Reserve Board questioned this argument in considerable detail. It is
a tough read, but the basic argument is: the CBO projection is straight upwards
to the right and we know that trees can’ t grow up to the sky.

The recent trend in actual health care
costs
is as important as the debate over health care cost projections. While the CBO
projections assume that age-adjusted health care costs will rise much more
rapidly than per capita income. But, in the last four years per capita income has
been keeping
pace with health care costs.

In fact,
in the last year costs of health care services, (equal to two-thirds of total health
care costs), rose by just 1.7%.
This is less than the rate of nominal
GDP growth over this period. While some of the slowing in the rate of health
care cost increases is undoubtedly due to the loss of jobs by insureds because
of the economic downturn, it is at least partially attributable to slower growth
in health care costs.

Revising
the CBO health cost projections to an alternative like that suggested by
Federal Reserve study will take tens of trillions of dollars off the most commonly cited
long-term deficit projections.

That will cost
deficit hawks $100 trillion of their long-term deficit story. This would be a real disaster for the Fix
the Debt and the deficit hawk industry.  

This is
why the Campaign to Fix the Debt
will be operating in full conflation mode until a budget deal is reached.

If the CBO
adjusts its long-term health care cost projections downward, then the Fix the Debt’s
rationale for gutting Social Security and Medicare will disappear.

Wouldn’t THAT be a crisis. 

“It would be irresponsible not to speculate.” – Peggy Noonan

You gotta love that quote. Now that
the election is behind us, let’s speculate on where we are headed with
the Grand Bargain.

Mr. Obama
was reelected.  It was an Electoral College landslide. That lopsided electoral
count was somewhat deceptive, since Republicans didn’t lose by that much in key
electoral states and they still control the House, so it is uncertain that the Democrats get to control the political
agenda or even the Presidency beyond the next 4 years. 

Despite talk about a new coalition, ideologically
the Democrats have become more like Republicans of the 1970’s. To a great
degree, Republicans have become
reactionaries, similar to the John Birch Society of the 1950’s. 

There is
no viable third party in the US, because
today’s Republicans and Democrats agree on a surprising number of issues.

And they may get to “yes” on the Grand
Bargain.

Mr. Obama wants the Grand Bargain to encompass
tax reform, spending cuts and revenue increases. It is unclear what
John Boehner wants included in a Grand Bargain.

What does the trade that is shaping up
between the parties look like?

Let’s hope it isn’t based on the memo Mr. Obama sent to Mr. Boehner in
July, 2011.  

Check this
out: Bob Woodward was on Meet The Press last Sunday. He spoke about a memo from Mr.
Obama to House Speaker John Boehner which contains the White House’s 2011 Grand Bargain proposal to the Republicans.

Woodward’s
on-air comment:

“This is a confidential document, last offer the president — the
White House made last year to Speaker Boehner to try to reach this $4 trillion
grand bargain.  And it’s long and it’s tedious and it’s got budget jargon
in it.  But what it shows is a willingness to cut all kinds of
things, like TRICARE, which is the sacred health insurance program for the
military, for military retirees; to cut Social Security; to cut Medicare. And there are some lines in
there about, “We want to get tax rates down, not only for individuals but for businesses.”  So Obama and the White House
were willing to go quite far.”

You can view
the entire WH memo here. Despite what Mr. Woodward says, it really isn’t long
(3pages) or tedious. Remember, this
was Obama’s best and final offer to Boehner. It is called the “Nabors
draft”. Rob Nabors is Mr.
Obama’s Director of Legislative Affairs. The penciled markup may be by Woodward
or his staff.

Ignore Woodward’s fax number on the top of the
memo. He probably doesn’t know about PDFs and email.

Below, the
specific cuts Obama offered to Boehner include:

Note in the
first paragraph: “Firewall for FY 2012 and 2013 defense appropriations”. That
means no cuts in defense spending until FY 2014.

“Civilian
Retirement” probably means extending the eligibility age for Social Security age
and increasing/removing the income caps for SS taxes. It saves $33 Billion.  $27 Billion of cuts come from “Military
Retirement” and TRICARE military benefits; and significant cuts to many other
non-defense related agencies.

Notably, the
extension of Unemployment Insurance benefits (UI above) adds $43 Billion in
costs to the Grand Bargain proposal.

Let’s look
at page 2:

The headline on page 2 of this memo should
be the $425 Billion cut to Medicare and Medicaid and a reaffirmation of the tax
rates for those earning below $250k.  

Go read all 3 pages. It looks more like what Boehner’s plan would have been if the
Republicans had WON the Senate. What was Mr. Obama thinking in July, 2011?

That isn’t knowable. What is knowable is that
if last year’s ”best and final” is Mr. Obama’s starting point for this month’s
negotiation on the “Grand Bargain”, it would be a travesty, considering Mr. Obama’s current political capital.

The
“Fiscal Cliff” is not a dire
emergency. The Sequester and lapse of Bush tax cuts may be a more productive way of starting
the deficit conversation than spending the next 6 weeks with both
parties working together in a sham spirit of compromise.

It isn’t
compromise to cut benefits of the powerless, it is cowardly. We need to ask Mr. Obama:

• How
  much money would workers lose (or not save) if these Medicare/Medicaid cuts and
  the rise in Social Security age go into effect?

• What
  percentage of their median savings would this impact?

• How
  would it compare to the percentage of loss of those whose Bush tax cuts could
  sunset?

• How
  much would it reduce the deficit and are some economists correct that it could cause
  a serious recession?

Mr. Obama
will succeed in “reforming” Social Security and Medicare because it is
something only a Democrat can do, but this shouldn’t be his starting point
for the Grand Bargain.

Let’s see
if Mr. Obama changes course from this ill-advised memo.

We have over 23.7
million veterans in our nation. Of these, nearly 6 million use Department of
Veterans Affairs (VA) healthcare, over 3 million receive disability
compensation, and 800,000 utilize VA education benefits. Sadly, some 60,000 veterans are homeless and 900,000 are unemployed. Some find that using someone like these SC VA disability lawyers might be a good way to help them get compensation to help with any financial due to their inability to work.

On Friday,
the Bureau of Labor Statistics released Veteran unemployment data
for the month of October. The unemployment rate for all Veterans was 6.3 %,
below the national average of 7.9 %.  This is a turnaround from a year
ago.

While the
rates are headed in the right direction, there is more to do. Check out the
charts below:

Here is the
monthly unemployment rate for all Veterans since January 2010.  The trend
over nearly three years is clearly downward.

Iraq and
Afghanistan-era Veterans, (called Gulf
War II-era Veterans), are having a more difficult time: Their monthly
unemployment rate moved to 10 percent in October. However, the chart below
demonstrates the declining unemployment rate over time. 

While
the trend line is positive, the wind down of our Iraq and Afghanistan conflicts
causes a surge of men and women returning from overseas. They face a fiercely competitive job market, with about 3.4 unemployed
persons for each open position in the US.

Let’s work hard on just a few points:

• Give
  any company who hires and
  retains for a period of one year, an unemployed veteran (or any long-term
  unemployed American for that matter), a tax credit equal to 50% of the 1st
  year salary plus FICA

• Give free resume writing and interview
  training
  to these same two groups at our local community colleges

• Get
  the F1000 to offer 50 one year internships each to unemployed veterans. Give the
  company the 100% of the salary plus FICA for each intern. This might be the best use of $1.25 billion when we start to
  prioritize government expenses at the edge of the fiscal cliff

We
know that veterans have much to offer an employer: leadership, organizational
skills, specific technical skills, and commitment.

In
joining our military, these men and women received promises that we would care
for their needs.

Corporate
America should stand up and be counted: A job should be among the benefits veterans
have earned on the frontiers of freedom and on the battlefield.

What’s
Wrong Today:

It has
already started. The gas bags on the right are spinning that the election was stolen by people that do not
contribute to the economy. They are talking about the income
distribution of voters as reported by the exit polls in the New York Times. The inescapable conclusion is that
the big divide in the 2012 vote
was income-based voting.

On
election night, Bill O’Reilly said :

It’s a changing country, the
demographics are changing. It’s not a traditional America anymore, and there are 50
percent of the voting public who want stuff. They want things. And who is going
to give them things? President Obama.

Ann Coulter
said Wednesday:

“If Mitt Romney cannot win in this
economy, then the tipping point has been reached. We have more takers than
makers and it’s over. There is no hope.”

Tom Ferguson, political economy
commentator for the Institute for
Public Accuracy
says in a post about the exit polls:

“… in sharp
contrast to 2008, the partisan split along income lines is huge…

Obama’s vote
percentage declines in straight line fashion as income rises. He got 63 percent
of the votes of Americans making less than $30,000 and 57 percent of those
making between $30,000 and $50,000. Above $50,000, the Other America kicks in. Romney won 53
percent of the votes of Americans making between $50 and a $100 thousand and 54
percent of the votes of Americans making above $100,000...”

Look at
the graph below, Mr. Obama gets more than 50% of income levels up to the low
$50k’s. He gets more than 46% of the vote in all income groups over $75k. If we had an America where everyone made at
least that much, he might face a landslide loss. Maybe Republicans
should be for income redistribution,
particularly if they want to control both houses of Congress and the
White House.

Source:
Institute for Public Accuracy

Well,
discovering that people earning $50k are a majority of Americans and that they
support Obama wouldn’t come as a shock to Coulter and O’Reilly if they looked
at the chart below, since median household income is $50k, unchanged since 1999.

Why we would call someone who makes the median
income a “taker?”

The Wall Street Journal reported in September on Census
Bureau data which showed a continued steep decline in Real Median Income, falling by 1.5% in the past year,
declining by a total of 8.1% since
2007. It stands at $50k, just below the income levels where Mr. Obama
starts to garner less than 50% of the popular vote.

Implications for the Fiscal Cliff

 

It is fascinating to consider the
implications that this voter income
skew may have on the Fiscal Cliff negotiations.

 

The Republican Party has long since staked
out the deficit hawk position and they are unlikely to give ground on it
easily.  And continued control of the
House of Representatives favors their continued adherence to their position.

 

How will Mr. Obama and Mr. Boehner read the
tea leaves about the income-based voting gap? Boehner will probably see that
supporting the >$75k universe with tax cuts may add to the Republican base
in the 2014 mid-term elections.

 

Was this an
historic election?

Let’s
compare the raw vote in 2008 vs. 2012:

Year	Democratic Vote	Republican Vote	Totals
2012	61,178,405	58,163,977	119,342,382
2008	69,456,897	59,934,814	129,391,711
Change in raw vote	-8,278,492	-1,770,837	-10,049,329
Percent Change	-11.9%	-1%	-7.7%

There WAS an enthusiasm gap in 2012. And it was shared
by both candidates. Mr. Obama got nearly 12% fewer votes than he did in 2008,
while Mr. Romney got a little less than 1% fewer votes than did Mr. McCain in 2008.

Overall,
10 million fewer people voted in 2012.

In 2012,
Republicans had Citizens United on
their side. They had the 8% unemployment issue. They had the antipathy
about Obamacare.

And Mr. Obama won anyway. So, we not only
elected a black president, he was re-elected
when the bloom was off the rose. Very damning for the Republican
strategy.

Previously,
Republicans have been able to align lower and middle class whites with them despite espousing a platform of income redistribution
to the top: Lower capital gains taxes, lower income tax tiers, small
government and deregulation.

They accomplished
this by focusing on the social issues
that resonate with those groups. But Mr. Obama’s victory, so reliant on
income-based voting, may require a
change in political positioning by the Republican Party.

Changing
demographics and cultural change in the US may be forming an enduring new
coalition.

And the new coalition’s positions are as
deeply held as those of the social conservatives. Moving them
towards the Republican camp may not be as simple as embracing middle class tax
cuts and immigration reform.

Karl Rove and the Koch brothers may no
longer have a sufficient bloc of fools to manipulate to help them achieve
their goals of income redistribution and dismantling of the social safety net.

A few
final thoughts about the 2012 Presidential election:

 The New York Times’ Adam Liptak reported that in
the razor-thin 1960 presidential election, John
F. Kennedy campaigned in 49 states, while Richard M. Nixon visited all 50.
But in 2012, another very close contest, the candidates campaigned in only 10 states after the political conventions.
Liptak says that there were towns in Ohio that received more attention than the
entire West Coast.

This
strategy, used by both Mr. Obama and Mr. Romney, is the result of micro-targeting of undecideds and
persuadable voters in the swing states. Micro-targeting is the result
of the convergence of three trends:

• The
  demographic shifts that are making us a more diverse nation

• The
  development of proven psychographic techniques that can be used to compel
  undecideds and independents to vote

• The
  expanded utility of technology and data mining tools  

Scholars
will write books on how psychographic techniques and data mining contributed to
Mr. Obama’s success.

The Obama
campaign used ‘microlistening”
to make every vote count. Microlistening is a term coined by Tim O’Reilly CEO
of O’Reilly Media when he met with Obama campaign officials and heard what they
were trying to do. They parsed constituent concerns in fine detail. If analyzed
correctly; this work is more valuable than any poll. This data was then consolidated
in the campaign’s Dreamcatcher
database.

Another
campaign program Narwhal,
linked once completely separate repositories of information so that every fact
gathered about a voter was available to every arm of the campaign. Such
information-sharing would allow the person who crafts an email about
contraception to send it only to women with whom canvassers have personally
discussed reproductive views or whom data-mining has pinpointed as likely to be
friendly to Obama’s views on the issue.

But let’s focus on the politics of demographics.  The demographic shifts mean the country is
now dominated by solidly Democratic states on the coasts and solidly Republican states in the interior and in most of the South. In a close election, all of these states are completely out of reach
for one candidate or the other.

Since it
is the Electoral College votes that really matter and since 41 states
allocate their electoral votes on a winner-take-all basis, a candidate
confident of winning or sure of losing a bare majority of a state’s popular
vote has no reason to spend resources
or time there.

This was
taken to its logical conclusion in the current election: The swing state battleground
became comically small. Just three states; Florida, Ohio and Virginia accounted
for almost two-thirds of the recent
campaign appearances by the presidential candidates and their running mates.

These three
states represent just 12.5% of the nation’s population.

Four years
ago, the presidential candidates and their supporters bought television
advertising in about 100 of the 210 media markets, said Elizabeth Wilner of Kantar Media’s Campaign Media Analysis Group, but this year,
the battlefield shrank by about one-third.

All
of the money raised by the campaigns and their limited market focus led to using
carpet bombing advertising strategies by both campaigns. As The Economist reports, Borrell Associates, a research
firm, thinks that $7.4 billion was
spent on television and radio advertising tied to all races in this year’s
election.

According
to the Wesleyan Media Project, that expenditure produced almost 50% more ads than in 2008 in the presidential
race.

Nobody loves
‘Citizens United’ more than big media.

Moreover,
as the map below shows, Mitt Romney and his allies outspent Barack Obama and
friends in the key swing states by $65 million. Mr.
Romney also held more events in them: 148 events by Mr. Romney to 95
events by Mr. Obama.

Source:
The Economist

Mr. Obama then won 11
out of 12 swing states on this map. His strategy and execution were strong.

The
campaign by the guy who touted his business experience got a poor return (votes) on his
investment both per ad and per visit.

Not to mention losing.

But the GOP doesn’t do demographics, it does types. It sharply defines
them and then establishes purity tests for inclusion. It’s not enough to be
pro-life; you have say rape is God’s will…

But they didn’t lose simply because of demographics; they are committed to
an ideology that leads them to forget they are maintaining a few unreasonable
positions:

Has a GOP-led
congress ever passed a law banning abortion? Once elected, they haven’t even tried.

Their natural
demographic is middle aged whites and those people known as corporations.

Finally, here is an
obvious case of Havanese voter fraud uncovered by the Wrongologist:

 

 

 

 

What’s Wrong Today:

Now that
the results of the election are so 12
hours ago, the pundit class has moved on to arm waving about the Fiscal Cliff. 

“Fiscal Cliff”
is shorthand to describe the
conundrum
that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to
go into effect, which, unless changed, will result in tax increases, spending
cuts, and a corresponding reduction in the budget deficit.  These laws include tax increases due to the
expiration of the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the spending
reductions (“sequestrations”) under the Budget Control Act.

The
year-over-year changes for fiscal years 2012-2013 include a 19.63% increase in
revenue and 0.25% reduction in spending.

Some major
domestic programs, like Social Security, federal pensions and veterans’ benefits, are exempted from
the spending cuts. Spending for federal agencies and cabinet departments, including
defense, would be reduced through budget
sequestration.

With the
sequester, the 2013 deficit is projected to be reduced by roughly half, with
the cumulative deficit over the next ten years to be lowered by as much as $7.1 trillion.

However, pundits
and politicians are frightened that the Sequester may cause a double-dip
recession
in the first half of 2013.

The Budget
Control Act of 2011 was passed in a political environment of stalemate, since Democrats
and Republicans could not agree on how to reduce the deficit. It was thought
that the blunt cuts of budget sequestration and sharp revenue increases would
be undesirable to both parties and provide
an impetus and deadline to bring the sides together to solve the deficit
problem.

Additionally,
the debate may be exacerbated by the expectation that the debt ceiling may be reached before the end of 2012.

In dealing with the Cliff, lawmakers will
probably choose from among three options:

• Let the current policy go into
  effect at the
  beginning of 2013. (or, “Drive of the Cliff”)The Negatives? The associated tax increases and
  spending cuts could drive the economy back into recession. The positives? The deficit as a % of GDP would be
  cut in half

• Cancel some or all of the scheduled
  tax increases and spending cuts,
  which would add to the deficit and increase the odds that the United States over
  the longer term, could face a crisis similar to that which is occurring in Europe as our federal debt continues to
  grow.

• Opt
  for a moderate approach.
  Address the budget issues to a limited extent. Let’s call this the “small bites” menu, reduce spending
  a little, increase taxes a little, which would have only a modest impact
  on growth.

So,
What’s Wrong?

Wait! They’re not considering the
“Grand Bargain?”
In an interview with
the Des Moines Register on Oct. 23, Mr. Obama predicted he and Republicans
would come to the equivalent of the “grand bargain” that he has been trying to
work out with the GOP. He has proposed
$4 trillion of deficit reduction over 10 years.

Why not? Even Mr.
Obama doesn’t think it can’t get done by year end. He said:

“We’re going to be in a position where
I believe in the first six months we are going to solve that big piece of
business”.

In other
words, not likely by year end.
So both congress and the president will drive off the cliff like Thelma and
Louise and then walk it back
after the public and business go nuts, or they cut some kind of temporary deal.

Is the
Fiscal Cliff Really a Fiscal Disaster?

It’s
important to keep in mind that while the term “cliff” implies a disaster at the
beginning of 2013, the actual impact
of the changes will be gradual at first.

What’s
more, Congress can change the law retroactively, after the deadline. As a
result, the Fiscal Cliff won’t necessarily be an impediment to growth even if Congress doesn’t address the
issue until after 2013 has already begun.

Another
factor pundits are ignoring:

In terms of government spending, we have already
driven off a cliff.  And we lived.

Falling government spending has constrained
our GDP growth in 9 of the past 11 quarters (see the graph below from Fisher
Investments Research). However, private sector growth has been
more than robust enough to keep overall growth positive.

The next hundred words include a few
numbers:

The Sequester
may cut as much as $65 billion in fiscal year 2013 (which ends next September
30). By that point, US GDP is projected to be at $12.225 trillion ($16.34 for
the calendar year 2013). If government projections are right (they won’t be)
and politicians do nothing (they will do something), the Sequester might reduce GDP by -0.53%. Not great, but that’s better than in FY2011,
when declining government spending reduced GDP by -0.67%. And full-year real
GDP still grew by 1.8%.

This means we are likely to have GDP growth
in FY 2013, not recession.

If we
subtract another $25 billion that will automatically be cut from expiring
jobless benefits, spending cuts may reduce
FY 2013 GDP by up to -0.73%. Still not a recession or anywhere near a
disaster.

Maybe we should call it a fiscal inclined
plane, not a fiscal cliff.

There are political
signs of a deal that could make both sides somewhat happy. Mr. Obama tipped his
hand in the last debate with Mr. Romney when he said flatly that the defense cuts “will not happen.”
Moreover, Vice President Biden’s repeated use of a $1 million threshold for
higher tax rates in his own debate with Paul Ryan suggested Democratic wiggle room on the revenue side of the cliff.

Interestingly, the
Sequester that creates the Fiscal Cliff amounts to $2 of tax increases for each
$1 of spending cuts. The Republicans could have taken the Mr. Obama’s original 1-to-10
offer. But, they rejected it.

Finally,
an unremediated Fiscal Cliff could hit the Defense industry hard. Their lobbyists and captured
congressmen are warning that upwards of 2.5 million jobs could be lost (an exaggeration), and the
economy crushed in the process.

It is hilarious to
hear conservatives, who have spent the last four years saying that government
spending doesn’t create jobs, now saying that defense spending cuts will destroy jobs.

Really, conservatives continue to demonstrate
that they have nothing, zip, nada, to contribute to the conversation about the
economy.

Ignore them.

What’s
Wrong Today:

We are in the final hours of a
presidential campaign in which tax policy has been a central focus. Mr. Romney maintains that any
increase in the top tax rates on income and capital gains would slow economic
growth and crush the job market’s recovery.

President
Obama has promised to raise the top two income tax rates, lifting those rates
from 33% and 35%, their level during most of George W. Bush’s presidency, to 36%
and 39.6%, where they were during most of the Clinton administration.

Mr. Obama maintains the increases would
not hurt the economy
and are the fairest way to reduce the deficit. Mr. Romney says that will kill
jobs.

Should we lower taxes on the so-called “job
creators”?

On June 7, 2001, HR
1836 the Economic Growth and Tax Relief Reconciliation Act was signed into law.
This was the first and largest of
several tax cuts passed during the Bush Administration. It was
estimated that this tax cut cost $1.35 trillion.

So this must be the
text book case for new job creation.

So,
What’s Wrong?

Trickle Down works, doesn’t it? Lower the taxes of the “job creators” and they
will create jobs. Wait, no? The graph below is from the BLS’ Establishment
survey and covers the Bush and Obama years. It shows in fact, what happened.

The blue line represents all nonfarm public and
private jobs. That equals 133.76 million in October, 2012. The red line, shows all jobs in the private sector. That was
111.74 million in 2012.

The difference between the two lines is
public jobs (22.02 million in October 2012).

The public sector job numbers have remained fairly stable, growing by 1.1
million, from 20.9 million to 22 million during the period. Changes in private sector jobs drove
most of the overall change (both up and down) in jobs numbers during the 11 years.

The Bush tax cuts seemed to have had little effect on the 2001 recession job losses. The effects of the housing bubble (beginning in mid-2003) and
its subsequent collapse (December 2007), causing the recession and subsequent meltdown
(September 2008) are clearly evident, with jobs falling below their 2003 lows.

    It would be possible
to argue that the tax cuts created jobs, but
most of these were financial bubble jobs. Clearly, they were not stable or permanent. They were created at great cost in income inequality to the middle
and lower classes. 

    There is a recovery
in the number of private jobs starting in 2010. Were they created by tax cuts to the
job creators? Maybe. Let’s keep two points in mind:

• The quality of these post-bubble jobs
  is generally poor.
  One sign of this comes from the Household survey where the growth in involuntary part time employment
  has increased by 5 million jobs; from 3.332 million in January 2001 to 8.344 million in October
  2012.

• After
  10 years of turning our economy over to the “job creators”, we have just GOTTEN BACK to the level of
  private jobs we had in January 2001.

    In other words, the
job creators, in exchange for their trillion dollar tax cut, gave us a lost decade of employment growth:

• On January 1, 2001, total private
  employment was 111.63 million. On October 1, 2012, it was 111.74 million.

• The high point was 115.64 million on
  January 1, 2008, just before the financial bubble burst.

Based
on the facts, Mr. Obama is correct. We shouldn’t look to the
job creators to create more jobs by getting another (and bigger) tax
break.

So,
by ending the Bush tax cuts, not only will we pick up some marginal tax
revenue, we will not lose any more jobs.