2011 - %3, February

Unions and Growth

| Mon Feb. 28, 2011 7:56 PM EST

Here is Robert Barro in the Wall Street Journal today making the case for anti-union policies:

There is evidence that right-to-work laws—or, more broadly, the pro-business policies offered by right-to-work states—matter for economic growth. In research published in 2000, economist Thomas Holmes of the University of Minnesota compared counties close to the border between states with and without right-to-work laws (thereby holding constant an array of factors related to geography and climate). He found that the cumulative growth of employment in manufacturing (the traditional area of union strength prior to the rise of public-employee unions) in the right-to-work states was 26 percentage points greater than that in the non-right-to-work states.

It's true that Holmes wrote this paper. You can read it here if you like, or you can read a shorter, more accessible version here. In a technical sense, it's an interesting bit of research. As Holmes says, "In state capitals throughout the country, proponents of pro-business policies routinely claim that state policies are an important determinant of business location. But this claim is open to debate. While there has been no shortage studies on the issue, there is a lack of consensus."

Well, guess what? Holmes concluded that if moving a few miles across a state border allows a manufacturing business to reside in a right-to-work state with low taxes, no unions, and lax environmental policies, lots of manufacturing businesses will jump at the chance. It's good to see some rigorous confirmation of this, I suppose, but let's face it: It's hardly a surprise, is it? It would be pretty shocking if it weren't true.

Still, does this say anything about the effect of unions on economic growth, as Barro implies? No. Not a single thing. All it says is that businesses prefer locating in states where costs are low and rules are lax — something I think we all knew already. Of course that's what businesses prefer. But it says literally nothing at all about whether the United States as a whole would have higher or lower growth if every state either did or didn't have right-to-work laws. Implying otherwise is a clever debating technique, but that's about all it is.

UPDATE: Ed Kilgore has more on this in the New Republic today:

Students of economic development will recognize [this] as the “smokestack-chasing” model of growth adopted by desperate developing countries around the world....And students of American economic history will recognize it as the “Moonlight and Magnolias” model of development, which is native to the Deep South.....This was the default model of economic growth in Southern states for decades—as the capital-starved, low-wage region concluded that the way it could compete economically with other states was to emphasize its comparative advantages: low costs, a large pool of relatively poor workers, “right to work” laws that discouraged unionization, and a small appetite for environmental or any other sort of regulation.

....The problem with this Southern theory of growth is that it won’t work: Economic development experts usually deride “Moonlight and Magnolias” approaches to job creation, noting that they track the outmoded first and second “waves” of basic economic development theory—which emphasized crude economic races to the bottom—as opposed to third and fourth “waves” that focus on worker skills, quality of life, public-private partnerships, innovation, and sustainability. If Wisconsin and other states—not to mention the country as a whole—end up adopting these atavistic economic ideals, they will simply begin to resemble the dysfunctional Old South societies that spawned them in the first place.

So what is at stake in Wisconsin, and across the country, is not just the pay and benefits of public employees, or their collective bargaining rights, or the specific programs facing the budgetary knife. We are contesting whether Americans who are not “job creators,” by virtue of wealth, should be considered anything more than cannon fodder in an endless war between states—and countries—over who can attract the most capital by slashing the most regulations. In this sense, standing up to Scott Walker is a truly worthy fight.

As they say, read the whole thing.

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GOP Floats New Version of "No Taxpayer Funding for Abortion" Bill

| Mon Feb. 28, 2011 5:10 PM EST

House Republicans have dropped some controversial provisions from a bill that would permanently bar federal funding for abortions, but still plan to extend the reach of existing bans to cover tax credits and some deductions, according to a GOP memo [PDF] obtained by Mother Jones on Monday.

The "No Taxpayer Funding for Abortion Act," sponsored by Rep. Chris Smith (R-N.J.), is designed to ensure that tax dollars do not "pay for, subsidize, encourage, or facilitate abortions," say the sponsors. But abortion rights groups have argued that the law, also known as H.R. 3, would effectively eliminate private insurance coverage for abortions by creating a strong disincentive for employers and individuals to select plans that cover those services. In turn, they argue, many insurers would likely stop offering abortion services in order to avoid losing customers.

The latest version of the Smith bill drops the attempt to redefine rape that drew considerable criticism last month. But it still makes permanent and government-wide the Hyde Amendment, a provision that has been renewed each year since 1976 that prohibits federal funding of abortions through Medicaid. It also extends that prohibition into the tax code, meaning that employers and individuals could not make use of tax credits for private insurance plans that offer abortion coverage.

H.R. 3 would also bar the use of pre-tax health accounts—like health savings accounts or medical savings accounts—for abortion services. In other words, women would not be able to make use of their own money set aside for medical purposes to obtain an abortion. And self-employed individuals, who can normally deduct medical expenses exceeding 7.5 percent of their adjusted gross income, would no longer be able to deduct the cost of health insurance that covered abortion—even if they never used that coverage.

The bill also bars the tax breaks for small businesses that were made available under last year's new health care law from being used for any health care plan that covers abortions.

The measure also codifies the so-called "conscience clause," which bars federal agencies, state or local governments, or any program funded directly or indirectly by the federal government from "discrimination on the basis that the health care entity does not provide, pay for, provide coverage of, or refer for abortions." It also includes a permanent prohibition on funding for abortion in international aid.

The new version of the bill does, at least, strike references to the "pregnant female" in favor of "woman." It's just a language shift, but the latter certainly gives more respect and agency to the woman rather than merely referring to her as a vessel for an unborn child. The new version also clarifies that federal funds can be used for services related to "any infection, injury, disease, or disorder that has been caused by or exacerbated by the performance of an abortion," after criticism of the previous version raised concerns that it could bar health care providers from covering any and all conditions possibly related to an abortion.

The bill is scheduled for mark-up in the House Committee on the Judiciary at 10:15 a.m. on Wednesday, March 2. (UPDATE: It was moved to 10:00 a.m. on Thursday, March 3.)

This post has been edited since it was first posted.

Quote of the Day: White Collar Crime

| Mon Feb. 28, 2011 4:22 PM EST

From Felix Salmon, on white-collar crime:

The fact is that white-collar criminals are, in general, incredibly good at deluding themselves that they’re good people, even when they clearly aren’t.

True! And true of lots of white collar not-quite-but-probably-ought-to-be criminals too.

Today in GOP Climate Denial ...

| Mon Feb. 28, 2011 4:07 PM EST

Denying climate change is de rigueur among members of the House Republican caucus. Rarely, though, do you see elected officials engaging in public debates on the science with a scientific organization. But that was exactly what has transpired as Rep. Dana Rohrabacher (R-Calif.) has taken on the Union of Concerned Scientists in a Twitter war over climate change.

Not that it's particularly surprising. This is a guy who has argued in a congressional hearing that global warming might have been caused by dinosaur farts.

Here's the full exchange:

.@danarohrabacher calls #climate change "natural." There are multiple lines of evidence human activity drives it http://goo.gl/WZsdq #hcsst
@UCSUSA Guess ancient climate cycles, like current one on Mars,which mirrors changes on earth, not product of sun but of human activity
.@danarohrabacher Human warming=fact http://goo.gl/TEAhMMars warming=myth http://goo.gl/jvBD3 Sun outputs don't=warminghttp://goo.gl/LC0TY
@UCSUSA your answer deceptive: talks Mars warming. Issue is Earth and Mars icecaps shrinking at same time. Coincidence or Solar impact?
@danarohrabacher That's a red herring about the Red Planethttp://goo.gl/GSq6g Burying your head in the Martian sands puts us all at risk
@UCSUSA U ignore issue: incredible coincidence or solar? Whose head in sand? Read e-mails, U trust your source. Warming has become change
@danarohrabacher You don't want to understand. Denier talking points aren't science. Skepticalscience.com covers all this.
@danarohrabacher CA-46 is preparing for climate change. Long Beach sees water supply impact.http://goo.gl/rQQE1 Denial doesn't help.

Here's a quick run down of why his arguments—that global warming is caused by the sun, the climate's changed before, and that Mars is also warming—are all bunk.

Looking Glass Economics

| Mon Feb. 28, 2011 2:51 PM EST

So far austerity isn't working out too well for Britain and Germany. But how about America? How will it work out here? Well, as you'll recall, Goldman Sachs thinks the Republican budget cutting plan would reduce economic growth by two percentage points. Mark Zandi of Moody's Analytics figures the loss at 0.5 percentage points this year and another 0.2 next year. Economists at the Center for American Progress estimate the cuts would lead to nearly a million jobs lost. Steve Benen is nonplussed:

How is it this isn't at the heart of the debate over the budget? How far off track is the public discourse when an entire chamber of Congress, in the midst of a jobs crisis, approves a plan to make the crisis much worse, and this is considered only tangentially relevant?

I just spent the past hour on a call-in show out of New Orleans, and it was pretty clear that the callers didn't think too highly of my claim that income distribution depends not just on the economy, but also on deliberate political decisions. And I admit that it's a hard point to get across in a concrete way. But how much more concrete could our current situation be? Republicans — and, unfortunately, some Democrats too — are pushing for an economic austerity plan that will keep unemployment high and the job market loose. The result is downward pressure on wages, which keeps middle-class incomes stagnant and corporate profits high. This benefits the executive and investor class, and while it's a shortsighted benefit, it's a benefit nonetheless. And it's not thanks to globalization or returns to education or anything like that. It's due to a deliberate political decision that favors the rich at the expense of everyone else. That's as concrete as Hoover Dam.

Obama Calls the Republican Healthcare Bluff

| Mon Feb. 28, 2011 1:58 PM EST

The New York Times reports that President Obama plans to endorse a change to the healthcare reform law that would allow states to opt out from the start, rather than having to wait three years:

Senior administration officials said Mr. Obama would reveal to the National Governors Association in a speech on Monday morning that he backs legislation that would enable states to request federal permission to withdraw from the law’s mandates in 2014 rather than in 2017. The earlier date is when many of the act’s central provisions take effect, including requirements that most individuals obtain health insurance and that employers of a certain size offer coverage to workers or pay a penalty.

....The legislation would allow states to opt out earlier from various requirements if they could demonstrate that other methods would allow them to cover as many people, with insurance that is as comprehensive and affordable, as provided by the new law....If states can meet those standards, they can ask to circumvent minimum benefit levels, structural requirements for insurance exchanges and the mandates that most individuals obtain coverage and that employers provide it.

Italics mine. I suspect this is not as big a deal as it seems. Basically, Obama is calling the bluff of Republicans who insist that they can build a healthcare system that's as extensive and affordable as PPACA using some combination of tea party-approved "free market" principles. He's telling them to put their money (or, rather, money from the feds) where their mouths are, which will probably demonstrate fairly conclusively that they can't do it. It's possible that a state like Oregon might enact a more liberal plan that meets PPACA standards, but I doubt that Alabama or Tennessee can do it just with HSAs and high-deductible health plans.

Still, we'll see. This is a chance for conservatives to show that they have a better healthcare answer in the real world, not just as talking points at a tea party rally. Obama is betting they'll fail, and he's also betting they'll tear each other apart arguing over details while they do it. Life is easy when all you have to do is yell "Repeal Obamacare!" but it gets a lot harder when you have to produce an actual plan.

UPDATE: Ezra Klein suggests that Republicans have no intention of supporting this legislation: "Now that Obama has admitted it's not a threat to the Affordable Care Act, a lot of the appeal for Republicans dissipates." But it does become a way for Obama to demonstrate how reasonable he is. See, we gave them a chance to implement their own policies, but they turned us down. Maybe so.

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Ron Paul and Herman Cain: Tea Party 2012 Dream Team

| Mon Feb. 28, 2011 1:42 PM EST

Over the weekend, the Tea Party Patriots held its first national "policy summit" in Phoenix, Arizona. The nation's largest tea party umbrella organization managed to get about 1,600 activists to show up at the Phoenix convention center to hear from a line up of B-list pundits (Dick Morris), no-name right wing pseudo-academics, and a handful of Congress's most out-there members (Rep. Louie "terror babies" Gohmert (R-Texas)). At the last minute, TPP managed to snag presidential contender and former Minnesota governor Tim Pawlenty, who, according to Politico, gave a firey speech calling on tea partiers to "rise up" against the union-coddling Obama administration.

But Pawlenty's speech wasn't enough to put him over the top in the event's two straw polls, one held in person and the other online. As with so many of these conservative straw polls, the winner of the online vote was Rep. Ron Paul (R-Texas), who also spoke at the event. But winning the in-person balloting was former Godfather pizza founder Herman Cain, who has become a regular on the tea party circuit. Tea partiers have long insisted that they aren't, as some in the media have suggested, a bunch of racists, so perhaps Cain offered them a chance to prove that there is a black man in politics they could vote for. (He got an enthusiastic response from the audience when he told stories of other African-Americans criticizing him for criticizing Obama: "Some black people can think for themselves," he declared.)

But more likely, Cain won their hearts with his tremendously funny political delivery, if not with his policy prescriptions. Cain, most recently working as a motivational speaker, riled up the crowd with talk of American exceptionalism and Gipper references. But his solutions for the nation's most urgent problems were vague, thin, and hardly original. They were essentially the fantasy of any corporate executive. He called for lowering the tax rate from 35 to 25 percent and for reducing capital gains taxes to zero. "These are not rocket science ideas," he noted.

Still, even with that thin gruel, Cain cleanly trounced both Pawlenty and Sarah Palin (who endorsed the summit but didn't attend), suggesting that tea partiers would prefer an outsider in the White House to any of the current contenders. But given that their leading preferences are Cain and Paul (a candidate whose prospects were roundly dissed by none other than Donald Trump last month), you do have to wonder how much impact the tea party may ultimately have on the 2012 election. A Cain/Paul ticket has about as much chance of winning the election as a Democratic one headed by Michael Moore and Alan Grayson. Anyway, check out Cain's speech to see the man for yourself:

 

Obama Wants to Relax Medicaid Rules—But Not Too Much

| Mon Feb. 28, 2011 1:21 PM EST

Trying to outflank a potential GOP push to gut Medicaid, President Obama announced Monday that he'll throw his weight behind a change to federal health reform that would make it easier for states to opt out of some of the new rules. Obama embraced an amendment first proposed by Sen. Ron Wyden (D-Ore.) and Scott Brown (R-Mass.) that would allow states to petition the federal government to exempt them from some of the Medicaid requirements beginning in 2014, rather than 2017. The New York Times explains:

The legislation would allow states to opt out earlier…if they could demonstrate that other methods would allow them to cover as many people, with insurance that is as comprehensive and affordable, as provided by the new law. The changes also must not increase the federal deficit. 

If states can meet those standards, they can ask to circumvent minimum benefit levels, structural requirements for insurance exchanges and the mandates that most individuals obtain coverage and that employers provide it. 

As the Times points out, it's the first significant change to federal health reform that Obama has supported. The move is meant to address complaints from state officials that expansion of Medicaid under federal health reform and rising health care costs are killing state budgets. But it's unlikely to quell objections from both Republican governors and members of Congress, who are proposING far more radical changes to the federal health program for the country's poorest. 

While he's been pushing to curb union benefits and collective bargaining rights in Wisconsin, Gov. Scott Walker also wants to take a buzzsaw to Medicaid—permanently. At the National Governors Association's winter meeting this weekend, Walker—the new chair of the group's health committee—said that he wanted to push for a "block grant" system for Medicaid. As I reported recently, the radical proposal would likely slash both federal and state spending on the program drastically. Other Republican governors at the meeting echoed Walker's call. And it's likely to embolden congressional Republicans who've been quietly preparing to gut the program by making it far easier for states to pare benefits and kick beneficiaries off the rolls.

Obama's proposed change, by contrast, would prohibit states from providing less comprehensive care or covering fewer people—a constraint that the GOP will certainly resist. Democrats, anticipating such objections, are already calling out the GOP for wanting to ambush the program. Asked about the GOP block grant proposal this weekend, Gov. Dan Malloy (D-Conn.) told Politico: "Look at who is asking? People who are against the program. Who is saying don't do block grants? People who support the program. The reason people who don't support the program want block grants is they want to kill the program."

Chart of the Day: The Real Pension Story

| Mon Feb. 28, 2011 12:10 PM EST

Via Paul Krugman, Dean Baker has a paper out today that explains why state pension funds are in trouble: It's the recession, stupid. The entire shortfall can be attributed to stock market losses and underfunding in just the past four years:

Figure 1 below projects pension fund assets if pensions had continued to earn on average a 4.5 percent nominal rate of return in the period since the end of 2007. Under this  assumption, state and local pension fund assets would have been $857 billion higher at the end of the third quarter of 2010.

.... In the period since the beginning of the recession, annual payments into state and local pension funds have averaged $6.9 billion less than withdrawals. By contrast, in the three years prior to the downturn, payments averaged $18.4 billion more than withdrawals. If state and local governments had continued to contribute to their pensions at the same rate as they had in the prior three years, then the total assets of these funds would be $77 billion higher than was reported at the end of the third quarter of 2010. Adding this to the $857 billion figure above results in an additional $934 billion in pension funds, a figure far higher than most estimates of the size of state and local government shortfalls.

Dean calculates that if pension funds continue to invest in a basket of assets that includes equities, and economic performance remains at historical levels, most states have a pension shortfall of less than 0.2% of income. If this is right, then either modest changes in state contributions or modest changes in employee contributions (or a combination of both) are all that's necessary to eliminate the pension shortfall entirely. It's just not as big a problem as critics are suggesting.

An Orchestra of Elephants

| Mon Feb. 28, 2011 7:45 AM EST
Prateedah the elephant plays the drum.

Imagine building a xylophone for a 6,000-pound mammal. Columbia University neuroscientist slash experimental musician David Soldier (aka David Sulzer) teamed up with elephant expert Richard Lair, and did just that. At the Thai Elephant Conservation Center (TECC), in Lampang, Thailand, the two men taught elephants to play oversized xylophones, drums, chimes, and even harmonicas. An American expat, Lair knew about Ruby, an elephant that had famously learned how to paint pictures. He also understood that elephants loved music. After meeting Soldier, he asked him to join the Thai Elephant Orchestra project, an endeavor that, beyond science and art, was intended to draw attention to the elephants' plight.