Sunbreaks

California won’t “like” this

Among the potential losers from Facebook’s IPO debacle is the California state budget. It’s hard to imagine anything making that budget worse – estimates of its budget deficit have ballooned to $15.7 billion from the $9.2 billion predicted just five months ago.

But the fact that Facebook share prices have fallen from their initial offering price will cut into the revenue that was supposed to be collected via the state capital-gains tax. Facebook share sales were estimated to garner some $1.3 to $1.9 billion for the state, based on a share price of $38. On Friday it closed just under $32, which will mean less in gains from insiders to tax (if it doesn’t bounce back).

As the AP quotes one official: "The potential hit from Facebook's share price is nothing compared to the potential damage from a broader stock slump."

True enough, and a good point to remember when you are trying to maintain budget balance on the backs of wealthy, mobile investors who have discretion over when to take their stock-market gains – or may not have any at all in a bad market. Here in Washington, some progressive outfits argued that the state should have fixed its budget problems by instituting a state capital-gains tax.

Which would have worked, for about five minutes, before the state blew its windfall on some kind of spending program that lasts far longer than a bounce in cap-gains revenue. After all, that’s what happened down south. If cap-gains revenue were a recipe for budget health, California would not be facing the troubles it is.

Lessons from Athens to Olympia

On a cloudy and cool Washington morning, Greece couldn’t seem farther away. But what is happening there provides a lesson worth learning in the U.S. and state capitals across this country.

It’s conventional wisdom that what is going on in Europe right now is “austerity” and that it’s not working and not popular. By extension, the logic is that the opposite needs to be tried: Europe can and should look to its governments to be the engine of economic growth.

There’s not much question – looking at the streets of Europe and the results of its recent elections – that whatever is going on there is not so popular. But it’s not austerity either. A recent editorial in Investor’s Business Daily pointed out that the EU’s own statistics show that the overwhelming majority of EU countries – 23 of 27 last year, 24 of 27 this year – are raising their spending. In the very few where government spending has gone down, it has declined only slightly. See these charts from economist Veronique de Rugy for the proof.

De Rugy and other economists have begun to draw a distinction between types of austerity – austerity for the public sector and austerity for the private sector. In this recent Wall Street Journal op-ed, economist David Malpass explains:

“Economics has often ignored the critical distinction between austerity for the government and government-imposed austerity on the private sector. In the former, governments which are over-budget sell assets, restrain their hiring, and limit their mission to essentials. That’s growth-oriented austerity.

In the private-sector version of austerity, governments impose new taxes and mandates on the private sector while maintaining their own personnel, salaries and pensions. That’s the antigrowth version of austerity prevalent in Europe’s austerity programs.

Europe’s government-imposed austerity programs have required private sectors to pay for debt they didn’t incur so that governments can stay large.”

Here in the U.S., we need to keep these things in mind as we approach a so-called fiscal cliff at the end of 2012, when billions in tax increases will hit at the same time as government spending cuts agreed to as part of the debt-ceiling deal kick in. On the left, we have economists piping up that our ideal top income tax rate should be 70%, and that the reason our economy is sluggish is that our governments have not been spending enough.

In other words, the private sector should pay so that the public sector can stay large, or get even larger. It’s the same debate in state capitals each time the revenues fail to come in where the economists, who believe government spending works as a “stimulus,” predict.

The next Keystone pipeline

The next Keystone pipeline looks to be in my backyard. Environmental groups want to stop the transport of fossil fuels from the places they are extracted to the places where they can be used, but in this case the question centers on rail transport of coal from the Rocky Mountains to Northwest ports rather than a pipeline from Canada.

Right now, there is no place on the west coast of the U.S. from which to export coal; all exports go through British Columbia. Taken together, all of the proposed Northwest coal terminals could handle 50% more coal than was exported from the whole country in 2011. And it will need to be exported, as both Washington and Oregon will shut down their last resident coal-fired power plants over the next decade.

The Seattle Times has a useful graphic here showing a map with the proposed rail routes from Coos Bay in Oregon to Bellingham in Washington.

For a while, it looked as though each of these communities would have had a chance to figure out the potential benefits and nuisances for themselves: Jobs and revenue at newly busy ports versus dust and traffic. Those kinds of tradeoffs do exist, and different communities can easily come to different conclusions about those issues.

(Some of those nuisances, such as coal dust, may be able to be mitigated, although I am decidedly a nonexpert on that issue. For example, the plan for the port in Boardman, Oregon details several ways in which coal dust will be suppressed along the way and at the port site. In fact, this faq suggests that BNSF, owner of the rail line, has a substantial interest in making sure that the dust is suppressed, as it corrodes “rail ballast,” which is the stuff that supports the ties.)

But it looks as though these communities may not have the chance to decide these questions for themselves. Environmentalists have galvanized opposition to the export terminals all along the rail routes and are asking the Army Corps of Engineers – the federal agency that will review the environmental impact of several new port facilities – to consider the impacts of all of the projects together, rather than reviewing one at a time. What’s more, they want the environmental review to include the potential impact of burning the coal in China.

It is not yet clear that the Corps of Engineers will do this, and it is surely a huge and novel expansion of the U.S. regulatory mandate. I’m guessing that it’s a bad sign for the exporters that the Environmental Protection Agency – last seen vowing to “crucify” the coal industry – has weighed in in favor of the expanded review, as have the governors of Oregon and Washington (neither of whom seems to have issues with allowing their states’ power systems to be fueled with out-of-state coal).

 

Don’t tell the 2nd graders, but the butterfly is going to get it

Boys love bugs. So the recent science unit my son’s 2nd grade class has been doing is a big hit. They’ve got mealworms living in a vial on their desks, and they have been observing the transformation of a lowly caterpillar into a Painted Lady butterfly.

So I was a little surprised to learn that instead of a magical spring day when the butterflies would be released into the suburban greenery, that they are headed straight for the freezer. Where they will freeze to death and then be tossed in the trash. I probably shouldn’t be blogging about it, because that is the kind of news that 8-year-olds don’t quite cotton to.

And it’s all in the name of the environment. You see, Painted Ladies are not native to the Pacific Northwest. So they must die, so that the native environment never changes.

I realize we bring creatures into this world in order to kill them all the time; think of all the farming of livestock, poultry and fish. But I have to say this seems a bit gratuitous.

In fact, it seems a little too much like what’s going on in the name of some endangered species right now. Down on the Columbia River, it’s open season on the sea lions that feast on endangered and threatened salmon in the river. At least they’re being nice about how they do it, though, with a lethal injection. And how about the barred owls that are now seen as the main threat to the Northern Spotted Owl’s recovery from “threatened” status? Turns out that the spotted owl, poster bird for the Northwest land-use wars of the 1990s, is threatened in large part because the barred owls, which are bigger and more adaptable, are taking over its habitat. The barred owls will get shot.

We have such a static notion of what our “environment” should look like, as though we have to capture a moment in time forever. But our environment has never been static; it has always been in a state of constant adaptation to changing conditions. That’s an inconvenient truth for the lawmakers and regulators charged with protecting the environment.

Pity the Painted Ladies.

Prepared for a new era?

I read a terrific article in the Weekly Standard by Yuval Levin this morning. It’s a unified theory of what voters are looking for this election season, and how Mitt Romney should get his message together to present himself as the candidate with an answer to the general unease at work in the country:

The persistently weak economy is at the core of that uneasiness: Thirty-five months after the recession technically ended, economic growth remains anemic, and unemployment remains very high. But Americans are nervous not only because the economy has yet to bounce back, but also because we have a sense that the economic order we knew in the second half of the 20th century may not be coming back at all—that we have entered a new era for which we have not been well prepared. (emphasis mine)

The moms I chat with at the playground after school feel this strongly: That what is happening in the six hours a day that our kids spend in the classroom is not what needs to happen to put them on the path to a successful future. This is in a wealthy school district known for having some of the best schools in the state. In spite of the fact that we have chosen to live in a community because of its schools, we also know that private schools and public schools in every country but our own manage to find time to teach two languages. Thanks to the robust immigration of top professionals from around the world in Bellevue, we know that public schools in other countries manage to meet much higher expectations. We know that our schools talk non-stop about “teaching each child” instead of “teaching a class,” but at the same time require everyone to learn the same thing without anyone ever getting ahead of anyone else. We know, again based on personal observations of the lengths some immigrants go to educate their kids, just how much work and energy is being spent in countries around the globe – but especially across the Pacific – to prepare for the future.

It could very well be that this school is good enough, that its consistent requirements of group work and projects presented to the class, are just what the future economy requires: Working as a team and exploring and presenting new ideas. It could be that other countries’ schools mistake quantity of work for quality, and that they need two languages more than we do given our sheer luck to be native speakers of today’s global language. It could be that our fear that even “good” schools still aren’t good enough are today’s equivalent to the 1980’s fear that Japan would one day own the U.S. economy, when in fact it was soon to start a downhill slide from which it has yet to recover. It could be that our country’s entrepreneurial culture, freedom and rule of law will take the products of our school system and whip them into shape, as political commentator Michael Barone argued in his 2003 book, Hard America, Soft America.

Could be. But having spent a small amount of time traveling in Asia, I find it hard to square complacency with our one-size-fits-all school system in which standards are often shifted to make sure enough kids pass with the relentless energy and drive coming from across the Pacific. You cannot be there for long without feeling very strongly that the U.S. takes its success for granted. Doubly so when you look at schools, which almost seem set up to quash change.

Every shortage an opportunity

With one kid just six short years from a potential first day at college, I’ve been following the uproar over the cost and value of a college degree with great interest. This weekend’s New York Times story highlighting the very sad story of a young woman trying to pay off $120,000 in college loans with two restaurant jobs made me wonder how many other people are starting to question the value proposition that college is a necessity for participation in tomorrow’s economy.

Is the market –with a little help from demography -- already at work to solve that problem? The impending retirement of the Baby Boom generation is no big secret. It’s what is driving the feds deep into debt and state budgets to the brink as burgeoning groups of retirees begin to claim their retirement benefits and an aging public workforce collects its seniority-padded paychecks.

But look at it another way. The retirement of the Baby Boom generation may well prove your kid’s ticket out of an expensive college education. Or at least out of a college education that doesn’t pay for itself. Baby boomers are all over the place, as the annual proliferation of Woodstock-nostalgia editions of major newsweeklies suggests. But they are highly concentrated in so-called “mature” industries that are often in the manufacturing sector.

Today’s ZeroHedge blog post (which I found thanks to Instapundit) made this point: While environmentalist doomsayers have been darkly warning us about our “Peak Oil” future of sky-high prices, the real shortage does not seem to be in the oil but in the labor it takes to get it out of the ground. “Time to worry about peak labor?” the post asks.

A separate study by the Petroleum Human Resources Council estimates about 39,000 workers will be needed in Canada alone to replace those who are expected to retire before 2020 just to maintain the status quo. The industry could need as many as 130,000 new hires by the end of the decade with more bullish oil and gas prices.

Already at least one analyst firm is scaling back its drilling activity forecast for 2012, in part because there aren't enough workers who can drill big, complicated wells. For now, NES Global Talent sees a depletion of skilled workers in oil and gas fields in the United States, Great Britain and Australia, three of the busiest oil and gas regions, will become a major problem.

Schlumberger, the largest oilfield services company in the world, sees significant negative effect from peak oil labor manifesting by 2015, a short three years from now, with increasing inexperienced oil professionals, and that the talent problem will only get worse.

Other industries facing the Baby Boom exodus include chemical manufacturing, machinery manufacturing, textile and apparel manufacturing and electrical equipment and appliance manufacturing. Boeing pointed out the trend in its own employee newsletter six years ago. A 2008 Congressional Research Service report highlighted 24 of 51 major industries with about half or more of their workforce nearing retirement age. 12 of those were in manufacturing.

True enough, many of those jobs may be gone for good due to lower labor costs and greater flexibility in other countries. Many companies may shift manufacturing overseas for other reasons, simply because that’s where they are selling the goods. But not all of them. If you want to extract oil, you have to go where the oil is. (If the EPA will let you, but that’s grist for another post). If you want to make chemicals, it makes a lot of sense to be in a country that protects your intellectual property.

There will be a lot of opportunities in these industries, and because they really are just so very uncool to today’s grads, I would bet the wages there will be going up. For the engineers that create these products, the wages have been there all along. A Bureau of Labor Statistics survey puts the starting salary of a petroleum engineer at $114,000. The same survey, however, lists a host of engineering-type jobs that don’t require more than an associate’s degree. All kinds of jobs as electro-mechanical technicians, industrial engineering technicians and drafters can make salaries that are around the U.S. median family income without the four-year college debt.

I think the people of this country who have appeared “left behind” by our supposed transition to a “post-industrial” economy are going to find themselves pleasantly surprised by the opportunities open to them. The kids who never did the math on the relative cost/benefit of their 4-year marketing degree from no-name U are the ones who are sadly being left behind now.

The second largest share of those Baby-Boom-intensive industries highlighted in the CRS report were in the public sector, another place where union benefits have encouraged long-term employment.

One local school reformer, Paul Hill – until his recent retirement head of the University of Washington Bothell’s Center on Reinventing Public Education – has long believed the retirement of the baby boom teacher workforce would present a great opportunity for change. Newer, younger teachers may prove more open to innovation, both in terms of use of technology and possibly even work arrangements. The public-sector workforces will certainly be cheaper, at least for a while. (This trend toward more flexible work arrangements may already be at work, driven by the high cost of benefits and the demand on the part of new parents for part-time work. At my kids’ elementary school, there are already a number of part-time employees for both reasons).

To the market – even the market for public-sector employees – every shortage is an opportunity.

Parents on strike?

News that nearly six hundred Snohomish School District parents (near Everett, WA) are refusing to let their kids take required state school tests was the talk of the Seattle Times yesterday. Their boycott is a protest against Snohomish’s continuing budget cuts.

The parents are complaining that the state tests cost some $37.5 million – and no one even sees the results until the following school year when they are simply too late to be useful. It’s a waste of money, they argue, when budget cuts really are starting to affect kids.

I am not going to argue that schools are starved for cash. The U.S. spends more per student on education than nearly every other developed country than Switzerland, according to OECD statistics. While the state of Washington spends less than the U.S. average of states, it is still easily in line with spending in other wealthy countries.

That said, when the last recession hit, the federal government spent billions to beef up state budgets in an effort to smooth spending over what was supposed to be a short-lived rough patch. Now that “stimulus” money has disappeared, without actually stimulating the economy, school districts around the state have had to adjust suddenly.

Because public school employees have iron-clad contracts that lock in “step increases” in salary as well as raises for seniority, districts have to make “budget cuts” even when revenues are growing – as long as the revenue growth lags behind salary and benefit growth, as it is now.  Those cuts typically come from the things parents want most. The result in Snohomish has been classes as large as 29 kids, no more art classes except for those taught by parent volunteers and a shortened school year.

For my part, I think there is nothing wrong – especially in the elementary school years – with making kids take an annual test of basic skills. Basic reading and math skills are the most important things that elementary schools do, and parents, teachers, administrators and taxpayers all deserve to know where schools are falling short on these crucial measures.

(This is not all that the tests in Washington do. If it were, the state could use a much more economical test that has been around for decades – the Iowa Test of Basic Skills – and be done with it, as the Washington Policy Center’s Liv Finne recommends here. But to the extent that current tests are expensive, take days to complete and many months to score, this is the fault of the education establishment that designed this system.)

The parents, however, have seized on a nugget of truth about testing. About a year ago, when I went to see the anti-testing screed Race to Nowhere, I was amazed when the audience spontaneously erupted in applause for a line criticizing the federal involvement in education. These folks were not complaining about federal money or mandates, but the testing that has come along with George W. Bush’s No Child Left Behind Act.

It’s intentions were nothing but laudable: To expose the public school system’s complete failure to teach even the most basic skills of reading and math to the kids who needed it most, even after decades of spending increases. The law has surely helped focus a spotlight on this failure, and has helped bolster the arguments of those looking for ways to spend education dollars more effectively – rather than simply spend more.

But as I see the law at work in my school district (Bellevue), I see it leading to a dumbed-down curriculum that is required to be used in all schools. For some schools where many kids are struggling readers and failing math tests, maybe these curricula will be just the ticket to success. For others, where kids have their basic grade-level skills more or less from the get-go, they threaten to turn a school day into worksheet prisons. Because of union contract restrictions, principals can’t even require teachers to provide already-purchased enriching materials to kids who might benefit.  Maybe this is the fault of how my school district is implementing this law, but it’s hard not to see the leveling effect it has caused.

Still, there are probably more effective ways to protest cutbacks. In my district, for example, parents strongly pressured the school board to give in to union demands in a 2008 teacher strike that delayed the start of the school year about two weeks. The district agreed to pay hikes that were not supported by the state teacher salary schedule right in the face of a recession. It now has to pay for those higher salaries with expanded class sizes. Maybe if parents brought the opposite kind of pressure to bear on the school board in its next contract negotiations, future budgets wouldn’t see such a squeeze. Perhaps if parents would contact their legislators and show some support for measures to rein in spending on health benefits, kids would enjoy more dollars in the classroom.

Or just maybe, we ought to direct our ire at the folks who borrowed nearly $1 trillion with the claim that it would get the economy back on track. The failure of the economy to snap back the way it usually does after a recession is what is really killing school budgets.

When Julia tried to start a business

You might have read about the Obama campaign’s silly slideshow following the “life of Julia” – a slideshow earnestly depicting how dependent progressives want us all to feel on the government programs they plan and provide.

But I just found out that the Obama campaign missed a chapter of Julia’s life – the part in which she tries to start a retail business. Read through this chapter of her life, and then drive on over (or take public transit if you want the hyper-correct Julia to be your friend) to a retail business and thank them for bothering to try to earn a living bringing you the things you need or want in your daily life.

You can also read some good thorough critiques of the slideshow here and here.

Avoiding the basic questions

I don’t usually write about immigration, not because I don’t think it important, but because I find it pretty hard to have a useful debate on the subject.

In general, I don’t think people should break the law but I also think it’s pretty unrealistic to share a long border with a poor country and expect people not to cross it in search of relatively better economic opportunities. The current lack of which have apparently dried up the flow of illegal border crossings. Phew! Who said a growth recession wasn’t good for anything. Ultimately, there is no “solution” to this issue other than better economic opportunities in countries like Mexico.

But the fetish we make over not giving some officials the right to ask anyone for identification is just plain silly. I recently had to register my son for a new public school. That meant I had to re-submit three types of documentation proving I live in the school district. I was kindly invited to show copies of my utility bills, credit card bills or most recent tax return. Proof of residence such as my driver’s license or passport, which might also indicate my citizenship, went unmentioned.

Seriously? We are so uncomfortable with official power to address legal immigration status that we should happily turn our tax returns and credit card statements over to the school office? The question here has nothing to do with actual immigration enforcement, as it currently does in Arizona. It’s simply a question of making sure that people registering for school actually live in the district.

So I turned in a copy of my driver’s license anyway, along with a water bill and power bill – what I thought to be the least privacy-invading documents I had on hand. It turned out to be perfectly acceptable, which makes the fact that district officials are so afraid of offending someone’s sensibilities all the more ridiculous.

On top of it all, I had the privilege of filling out the state’s highly absurd – and required -- racial classification survey, which I have blogged about before. If I didn’t choose one of the 58 flavors of “race” presented in the survey, the lady in the school office was supposed to give me a look and make her best guess. Which probably would not have been “Cherokee” but all the same, we are supposed to give away intimate details of our financial lives and heritage, but have become terrified of asking the most basic question of our public lives – our membership in the citizenry.

Holding the line

A recent blog post on Forbes.com suggested how important it was to Washington state’s economy that voters two years ago held the line against an income tax by a strong two-thirds majority.

That strong margin (which smothered any hopes of raising taxes with a voter initiative) put together with the legislature’s need for a two-thirds vote to raise taxes itself, forced the state to deal with its budget woes largely without depending on major personal tax increases.

When economist James Glassman compared the economic performance of the nine states with no personal income tax with that of the nine states with the highest personal income taxes, he found what should surprise no one: Those no-income-tax nine states grew faster, enjoyed healthier job markets and… stronger tax revenue growth than the high-tax states.

From 1999-2009, No-income-tax states saw their total output grow by 61%. High-income-tax state output grew by a much slower 45%. No-income-tax states enjoyed job growth of 8%, while high-income tax states had just 0.5% job growth. As for total tax revenues, the no-income-tax states were swimming in twice the revenue growth as high-income tax states, with a 123% increase compared to just 62%.

Glassman notes that while the headlines may be captured by states like California, whose governor is hoping to solve a budget crisis by raising income taxes to to 13.3%, many states from Oklahoma and Kansas to Maine and New Jersey are seeking to lower their income taxes in order to boost growth. Here in Washington, all the energy on the tax issue has been saved for defense: Holding the line against the constant plans to impose a “temporary” sales tax increase, create a state capital-gains tax or to raise revenue by “closing loopholes,” which always sounds terrific until you find out what that actually means.

I think the state could do better with a little offense on tax reform and cuts, in particular in the area of business taxes – the main place taxes have climbed during this budget crisis. All the same, holding the line has been a crucial down payment on Washington’s future.