Friday, December 30, 2011

Countdown to Iowa

The Iowa caucuses are just a few days away. As it approaches it appears that the state is up for grabs with varying polls placing Romney and Paul in the lead. A few quick observations and thoughts.

Bachmann’s collapse.
This is one of the interesting stories to tell, tracing her victory in the August straw poll to what is certain to be poor finish on Tuesday. She is hoping that the 45% undecided break and that she is the recipient. No chance. The numbers do not suggest it. As Gingrich has faded his support has gone in three directions–Paul, Santorum, and Romney. Moreover, she has little chance to recapture the momentum after her manager defected. Bachmann is already a political zombie–walking dead–before Tuesday and really cannot not do much next Wednesday baring a miracle. Even then, she has no infrastructure to go beyond Iowa.

Paul’s day in the sun.
Paul will do well and still may beat Romney. He has a loyal following of young much like Obama 08 and one issue will be whether with school out that helps or hurts him. Paul’s GOTV is terrific and it may carry the day. He has taken a hit with his 1990s newsletter but it is not clear what impact that will have. Paul will have legs beyond Iowa and he may be a gnat to Romney as the latter seeks to consolidate.

Gingrich as Mr. Nice Guy.
Who would have ever thought of Gingrich as Mr. Nice Guy? The attack ads worked on him and he did not respond. He failed to remember the rule–define or be defined. He let his past define him and has lost momentum in the polls.

Santorum’s surge?
One poll has Santorum in third. He has benefitted from the other conservatives collapse (including Bachmann) but does he have the organization actually to deliver bodies on Tuesday?

Romney’s resurgence?
Iowa was a loser for Mitt but now he has a chance to win it and then New Hampshire the next week. He benefits from the mistakes of others and by being the consistent second choice of everyone else. In a field where there is some disarray perhaps simply holding on to 25% is enough.

Perry's Irrelevance.
What is left to say? He has put his foot in his mouth so many times his breath must smell like shoe polish. He has no momentum and appears to be spending all his money here with hopes like Bachmann that something breaks for him.

Are the GOP in trouble?
One dumb headline this past week said that there was a crisis with the GOP because going into Iowa there was no clear frontrunner or choice. Is it not the purpose of the primary and caucus system to select the nominee? It used to be that the conventions selected nominees and the crisis was if there were no clear favorite then. Then the fear was that going into the convention there was no clear favorite. Now it seems that there is a crisis if there is no favorite going into the caucuses and primaries. This is jumping the gun. Think of Iowa as the start of a decision-making process that is supposed to produce a nominee. The nominee is not supposed to be decided before the process starts.

Yet the GOP still face problems in terms of a message, perhaps nominating another Goldwater like candidate, and also via lack of support among Hispanics, Blacks, and other key constituencies in some swing states.

Obama’s problem.
Remember once a Democratic candidate running for reelection with high unemployment, slow growth, a large deficit, and rising gas prices? This was Carter in 80. We all know the economy is not a great issue for Obama but gas prices may also hurt him, too. Reports this week suggest $4 gallon gas this summer. Spikes in gas prices will not help him. Look to see another potential tapping of the Strategic Oil Reserve this summer.

Saturday, December 24, 2011

Obama’s Christmas Present

Christmas came early for Barack Obama as Republican prospects to pick up the presidency took a major hit this week. A series of events again demonstrated that Obama cannot win but the Republicans certainly can also lose the presidency.

Miscalculating the Payroll Tax
The most glaring event of the week was the misplaying of the House GOP vote on the extension of the payroll tax. In principle they may have been correct that a one year deal is preferable to a two month extension but they needed to act but did not. Perhaps they thought Obama would again capitulate like he did in August with the debt deal but the politics was very different then as opposed to now. In August failure to reach agreement meant a government shutdown, making Obama look hapless. This time no deal meant tax increases on the middle class and that would have stuck to the Republicans. Moreover, even the Senate Republicans–including Mitch McConnell and John McCain–pressured the House to assent to the deal. The House GOP here simply overplayed their hand and lost.

Obama the Economist Populist
Contributing to the miscalculation is the traction Obama has received in running as an economic populist. He has given two major speeches in the last few months describing himself as a man for the people. The first was his $450 billion jobs speech a few months ago and the other was his recent Osawatomie, Kansas speech. In both he talked of the need to help the middle class. Both were fine speeches, but talk is cheap.

Obama rightly so should be criticized as the Democrat who abandoned the middle class and the poor. He continued the Bush policy of bailing out the banks and he has put more emphasis on stabilizing the financial sector than he did in helping home owners and the working class. While his original stimulus bill did help, I argued after the 2010 elections that his failure has been to appear to side more with the banks than the people. Given how much he took from Wall Street in 2008 to finance his campaign, no surprise here.

But Obama has been lucky. Occupy Wall Street and the “We are the other 99%” campaign have helped him. Both shifted focus to the Republicans in Congress and running for president that there is a clear class divide in America. Previous blogs of mine have attested to this fact and the growing economic divide in America over the last 30 years. Congressional refusal to raise taxes, a Republican presidential debate revealing no candidate willing to raise one dollar in taxes for every ten dollars in spending cuts, and the failure of Congress to enact Obama paltry $450 billion jobs bill all make it clear that they do not care about the American people (had they enacted the bill they could have disarmed the president and still pointed to how they supported the president on all his major economic programs but they still failed).

The point is that Obama can look like an economic populist because of the failures of Congress and the GOP to offer a credible alternative and to play politics in a way that makes them look like they care for anyone besides the top 1%. Obama is winning because of the implosion of the Republicans.

The Dismal Presidential Choices
Obama is also benefitting from a Republican presidential field that is not a varsity or junior varsity but the freshman team. It is a team running increasingly further and further to the right. A team that is further to the right than the Reagan Party–it is the Palin Party still as I wrote about several times t his year. It is a party that has flirted with several conservatives–Bachmann, Perry Cain, Gingrich, and now maybe Paul as the preferred choice over the more moderate but lackluster and passionless Romney. They seem out of touch with America in their talk of tax cuts, privatization, and return to the gold standard.

Now with little more than a week before Iowa, the race is definitely up in the air. Recent polls confirm what I asserted in an interview last week that Paul, Gingrich, and Romney will be the order in Iowa come January 3. But even if Paul does not win, his ascendency is a problem for the Republicans. If he does well in Iowa is libertarianism will play even better in New Hampshire and Romney needs to worry about a relative poor showing there on his part. This year with the Republican primaries and caucuses allocating delegates not by winner-take-all but proportionally, unless there is a quick kill by one candidate in January, look to a long primary and a potential brokered convention.

So What Does All this Mean for Obama?
Obama is now in much better shape in the polls for reelection than he was a few weeks ago. Polls have his approval rating up to 49% and it now exceeds is disapproval rating. He has a 7 point lead over Romney and much larger leads over the other Republican candidates. Congress’s approval is under 10% and public approval of the Tea Party has weakened. There are small signs of economic improvement but certainly no indication of real growth or significant decreases in unemployment in 2012. The economic news and prospects should doom him and the Electoral College road to reelection is complicated, but Obama now has a clear lead in Florida.

But compared to the Republicans running for president and those in Congress, he looks good. Obama can run for reelection on a slogan of “No matter how bad I am look at the alternative.”

Merry Christmas President Obama! Your present came wrapped with Republicans in a box they are building themselves in.

Thursday, December 22, 2011

Gingrich and Koch: Character Matters

This essay originally appeared in the December 21, 2011 edition of Politics in Minnesota. This is an abbreviated version of that essay.

Does character count? Stories of New Gingrich’s three marriages and Minnesota Senator Amy Koch’s “inappropriate relationship” with a staffer have again thrown that issue into the news. Whether these private acts or activities should be considered when evaluating public officials fitness for office raises difficult questions about where personal character fits in. Is there no privacy for public officials? Is everything fair game for the voters to ponder when selecting or judging candidates for public office? The simple answer is that character matters, but how and under what circumstances is really the issue.

“Character” is an elusive term. In political parlance it seems to refer to many variables including one’s personal conduct and morality. Supposedly Gingrich’s three marriages and Koch’s inappropriate relationship tell us something about fitness for public office. Maybe simply being unethical in one’s private life is enough to exclude one from public office. But it is not always clear how public and private morality connect.

Character, as Aristotle would declare, refers to habits. To do something once–steal–does not make one an unethical person. We all err. None of us are perfect. But occasional falls from grace do not render us ethically bad. However at some point acts become habits–what we do is a reflection of who we are–and we then can be judged to be unethical or bad when it speaks to our character–when it is a habit of the heart.

But judging when transgressions are habits that form character and when they apply to fitness for office is complex. One of the worst forms of character assassination is dredging up something from a candidate’s past as a way to judge them presently. All of us do dumb things when younger that we regret and the mark of maturity is learning and growing from them. We cannot judge our life as if all our choices were made at the present time.

Past choices might tell us something about the present, but they need to be assessed in terms of how we have grown from them. Not to do that condemns all of us to be ever judged from our youth or an earlier point in time that we may or may not have growth from.

When do past bad ethics form a basis of a present unethical character? Here is where the issue of judgment fits in. Many jobs have technical skills that are required for proficiency. Being a doctor, plumber, or electrician come to mind. But many also require the capacity to make good judgments–often ethical choices. This is the case with elected officials called upon to make decisions about public welfare and the common good. Elected officials are not simply delegates voted into office to do the bidding of the majority. They are elected in part as Edmund Burke pointed out to make good judgments on behalf of their constituents. Citizens are not fully informed about all issues because of time and other factors. The purpose of a representative system is to allow public officials to serve as trustees for the people–rendering their judgments in a way that they can act in the public interest. This trustee relationship necessitates good judgment.

The public is most certainly entitled to consider character as it relates to making good judgment when it comes to determining fitness for office. Here is where personal morality comes in.

Does Gingrich’s three marriages speak to his fitness to be president? Maybe. If those marriages speak to his present character and judgment as president then yes. But even more needs to be asked. Americans rightly hate hypocrisy. Saying one thing and doing another is hypocritical. Making oneself an exception to rules of conduct that is expected of others is the core of being unethical and hypocritical. Gingrich’s 1994 Contract for America demanding that Congress be held to the same standards of conduct others are expected to follow was correct. The problem for Gingrich is that his views on marriage, gay rights, and perhaps even abortion seem at odds with his own personal life. His personal character places into play the right of the public to ask how he can reconcile his own personal code of conduct with the political positions he espouses. This connects to his judgment and the former House Speaker should as part of his campaign clarify how all of these relate to his capacity to make good judgments as president.

Similarly, Amy Koch’s behavior speaks to her fitness for office in at least a couple of ways. The allegations are that the inappropriate behavior implicates a sexual relationship with a Senate staffer. Most of us have learned at work that supervisors should not date subordinates since such relationships raise concerns of favoritism, sexual harassment, and hostile work environments. Senator Koch should understand that. Not to do so and to engage in an ostensible sexual relationship with a subordinate raises questions about good judgment.

But more importantly, Senator Koch is married and she led a Republican chamber last spring that adopted and sent to the voters a constitutional amendment banning same-sex marriages. That amendment rendered a judgment about marriage and the personal morality of others. It is hypocritical that while this amendment was being debated she might have been engaged in a inappropriate relationship at work. Unlike Gingrich where his three marriages and affairs took place in the past and presumably he might have grown and learn from them and he is now a changed person–as he contends–Koch’s behavior is not in the past but now, merging her private and public lives but in terms of the judgments she is making presently as senator and also because of the relationship taking place with a Senate staffer and subordinate. It is all of these facts coming together that place her character and judgment in play.

Wednesday, December 14, 2011

Random Ruminations on the Republican Rumble

So what are we to make of the latest stories about the Republican presidential contest showing a surging Gingrich in Iowa and across the country, a slipping Romney, and a not so surprising rise of Ron Paul? Some quick thoughts here.
  • Iowa polls show a state up for play. Romney and Perry are dumping millions in to the state in a battle that is less about substance and policy than character. Character looms larger because the real policy differences among the candidates are trivial.
  • Bachmann’s Saturday debate line of casting Gingrich and Romney together as “New Romney” was politically brilliant. It turns Gingrich into a moderate and makes her the sole conservative alternative. She will drive this message home for the next few weeks.
  • Gingrich is the repentant sinner. What better way to make political advantage out of one’s character flaws by admitting the errors, admitting one’s sins, and asking forgiveness. The repentant sinner plays well with religious conservatives.
  • Ron Paul wins Iowa? It can happen. He almost won the straw poll in August and he has a strong dedicated group of followers. He has money and organization. Is he the new flavor of the month emerging? Look to see a potential surprise victory her and if so, look to see him do well in New Hampshire–a state more supportive of his libertarian views. Again do nor rule out a Paul third party bid.
  • Huntsman as Gingrich’s VP? Yes, the two person debate demonstrated they can work together. Huntsman is the favorite Republican of Democrats and he appeals to swings. He appeals to westerners and moderate east coast Republicans.
  • Romney: I bet you $10,000 that he damaged himself on Saturday and now that he is part of the fray he will get bloodied by the character battles. He needs to change is narrative and fortunes and that is not coming soon.
  • Bachmann has a trickle of an opening after Saturday and her 99 county tour of Iowa is meant to whip up political support and recapture lost conservatives. Media profile is good but Iowa is about delivering real bodies on caucus night and get out the vote efforts and ground wars are more important now than airwars.

Thursday, December 8, 2011

The Republican Choice: Why Gingrich?

Is Newt for real? This is the question increasingly asked as polls indicate that former House Speaker Newt Gingrich has taken the lead among the Republican presidential contenders. The simple answer may be yes, boding badly the for campaign of Mitt Romney who has struggled for months to be the inevitable last choice candidate once all the others have faded. But Newt’s rebirth and Romney’s campaign strategy are linked, pitting inevitability against reliability.

Don’t Hate Me Because I’m Mitt

Mitt Romney has had an identity problem from the get go. Best summed with the label “Multiple Choice Mitt,” Romney faces an initial problem that no one knows where he really stands on the issues. He is a former moderate Massachusetts governor who supported reproductive rights, gay rights, and he signed into law a health care bill essentially identical to Obamacare. Romney is a skilled businessperson and politician who saved the 2002 Olympics. He knows how to get things done. This should be his political narrative for his presidential campaign. But it’s not.

In 2008 Mitt ran away from this narrative. He pandered to the conservative base of the party, renouncing his moderate positions. Yet given the global economic collapse and John McCain’s avowal that he did not understand economics, had Romney stressed his business experience then he might have won the nomination. Now in 2012 as the Republican Party has moved further to the right Romney has abandoned even more of this narrative, seeking to out-duel the other presidential contenders in terms of xenophobia against immigrants, bashing gays, abortion rights, and taxes, or in renouncing health care reform. Mitt both wants to be the can do governor and businessman and the right wing extremist. No one really trusts him anymore–especially the Tea Party base–thus the moniker Multiple Choice Mitt.

But Mitt also suffers from another flaw–he is a pretty boy. Pantene shampoo famously featured a 1990 commercial with Kelly LeBrock who cooed “Don’t hate me because I am beautiful.” Mitt may be hated for that reason. He is rich, handsome, has perfect hair, and a trophy wife. All reasons to hate him because he has it all. Few can identify with him because of that. Voters bonding with presidential candidates is important. In 2004 voters preferred Bush over Kerry because the latter came across as an aloof prig.

Mitt also has another identify problem–no charisma. He is wonkish and more of a technocrat. He is reminiscent of another former Massachusetts governor–Michael Dukakis–who was similarly skilled but also boring. Politics is about passion and no one can really get passionate over Mitt.

Romney, though, has labored to make a virtue out of all of this. Be the viable second choice who outlasts everyone else in the race. Manage the best campaign, raise the most money, site the most offices, and script the best choreographed speeches. Romney’s strategy is to be the “steady Eddy”; be the one true love or candidate who is there for you after the quick romances and one night stands for the others pass by. Romney’s strategy–Mr. Inevitable.

But why Newt?

He’s not Romney. That is only part of the appeal. The other part of the appeal is that he is the last candidate standing. Gingrich appeared to flame out early before it became fashionable for the other Republican contenders to do so. Stories of infidelity, million dollar credit lines at Tiffanys, growling at the media, and a campaign staff quitting en masse; Newt was just ahead of his time. Since then we have see the other flavors of the month, as the media calls them, rise and fall. Trump. Bachmann. Perry. Cain. Each had an Andy Warhol 15 minutes but each faded as the presidential debates and vetting process grinded on. But eventually each undid themselves. Who was the last one standing? Not Romney, but Gingrich.

Most importantly, Gingrich is actually Mr. Reliable. Unlike Romney where no one knows where he really stands, everyone knows Gingrich and his views. His reliability is a political virtue compared to claims of inevitability. Gingrich was there with the Contract for America in 1994. He led the impeachment against Clinton in 1998. He carries the mantle of the Reagan brand. He is a known and dependable conservative. Yes he is full of warts, but unlike Cain and others, he admits them and says it’s time to move on. Americans hate denial or lying but can accept sinners and that is what Gingrich understands.

Conservative Republicans distrustful of Romney and not liking the other choices finally came back to Gingrich. He is more than the flavor of the month. But even if he is, it is good to be the flavor when it is your month and with it being T-minus less than a month to the Iowa caucuses. The timing is great. Gingrich leads in Iowa, South Carolina, and Florida, three of the first four contests. He is behind in New Hampshire but picked up the critical Union Leader newspaper endorsement. Romney was expected to win big in New Hampshire. He may still win but unless it is a blowout he will look vulnerable.

What is happening now with Gingrich is different than what transpired with Bachmann, Perry, and Cain. What is now occurring is the coalescing of the party around him. Cain’s endorsement is a sign, look to see others also endorse him as they leave the race early in January (except for Ron Paul who will potentially run again as the third party Libertarian candidate and complicate GOP strategy). By the end of that month look to see a race between Gingrich and Romney. Beyond January, the task will be organization, money, and momentum. Right now Romney has the first two but not the third. Gingrich has the third but not the first two. His challenge is taking his momentum and the passion around him to create the organization and money he needs to win the nomination. If he can do that, Romney is done.

Wednesday, December 7, 2011

Statistics mask reality: Unemployment isn't going down, and Minnesota doesn't have a budget surplus

Today's blog appeared in Minnpost as an editorial on December 7.

"Lies, damn lies, and statistics." Proof that this adage rings true can be seen in two recent stories declaring the national unemployment rate had dropped to 8.6 percent and that the State of Minnesota had a budget surplus of $876 million. While many herald these numbers as signs that the American and Minnesota economies are improving, the truth is that both mask a reality that is far grimmer than the statistics reveal.

The meek jobless recovery from the 2008 recession persists. With unemployment hovering around 9 percent, the American economy seems stuck in terms of job production. Obama had proposed a series of tax cuts and projects to stimulate hiring, but their fate in Congress during a presidential election has doomed them. Even if passed, the original September $450 billion jobs plan would do little to encourage business hiring. That will not occur until consumers are willing to spend enough money on goods and services to make it profitable for businesses to hire. As late as just a few weeks ago the Federal Reserve Board predicted that well into next year unemployment would not fall below 8.5 percent. Such a number poses a political problem for Obama – with the exception of FDR, no president has been reelected with an unemployment rate greater than 8 percent.

The surprising drop in the unemployment rate from 9 percent to 8.6 percent in November appeared to be good political and economic news. Yet it is not for several reasons. First, the rate reflected less a robust growth in the economy than many individuals leaving the workforce because they could not find work. The official unemployment rate calculates only those actively looking for work. If you cannot find work and have stopped looking, you are not counted among the ranks of the unemployed. Buried in recent unemployment figures was evidence that the workforce was contracting — many individuals have simply stopped looking for work. Perhaps half if not more of the drop in the rate in the last month was due to this fact.

Low rate of job creation

Yes, the economy produced 120,000 new jobs. That appears to be good news, but not really. The country is millions of jobs away from re-creating all of the positions lost since 2008. Millions of additional jobs are also required for new workers entering the labor force. The economy needs to produce perhaps 300,000 or more new jobs per month for several years before the loses of 2008 are recaptured. This would require economic growth far greater than the 2–2.5 percent increase projected for the near future.

There is little sign of significant turnaround for the American economy. Consumer debt remains high – nearly $830 billion – and student-loan debt will soon be $1 trillion. Housing prices and sales remain flat, consumer confidence low, and despite some bright signs that Black Friday and Cyber Monday were good, few are foretelling a serious consumer economic boom. The 8.6 percent unemployment rate fails to capture all this.

Minnesota: In the money?

If the 8.6 percent unemployment rate is a lie, news of the $876 million budget surplus is even more so. With predictions prior to the announcement last week that the state was up to at least $1 billion in the red, news of the surplus was greeted as proof that the Minnesota had turned the corner. Republicans cheered the news as proof that balancing the budget with cuts alone and no tax increases was correct. Dayton, with nodding approval of Zygi Wilf, hoped that the surplus would make public financing of a new Vikings stadium more salable. But despite claims by all that a surplus exists, the reality is: It does not.

First, recall the budget deal from last July to end the government shutdown. It came with $2.2 billion taken from K-12, and $700 million in borrowing off of Minnesota’s tobacco endowment. This was on top of other budget cuts to vital programs.

The reality is that the balanced budget was achieved by serious debt financing.

Second, the budget projection benefits from a law that calculates inflation when it comes to state revenue but ignores it for obligations. This means that the actual projection released last week is distorted by overestimating income and underestimating obligations.

Third, the budget agreement from July required that approximately the first $900 million of surplus must be used to replenish the state budget reserves and rainy-day funds. Thus, this $876 million is already called for and not available for spending.

One-time fixes

Fourth, whatever the reality of the current state budget, the fixes, such as borrowing to balance it last July, were one-timers. They failed to address to long-term fiscal imbalances in state financing, setting up the next biennial budget to again be several billions of dollars in the hole.

Finally, whatever the fiscal forecast stated, another one is due at the end of February 2012. That is the one that will be used by legislators to make the budget. It is still not clear whether it will be as optimistic as the one just released, especially if the state and national economies fail to recover.

Minnesota really does not have a surplus. Nor is the United States experiencing a serious decrease in unemployment. These two statistics mask a reality that shows how numbers do not always tell the truth.

Friday, December 2, 2011

Top Ten Things That Should or Should Not be Done with Minnesota Unexpected Budget Surplus

A surprise for all–Minnesota appears to have a $876 million budget surplus. Santa came early and now the talk at the state capitol will be over how to spend the money. Here is my short list on some good and not so good ideas.

My suggestions are in descending order from good to bad ideas. Expect debate in MN to focus more on the bad as opposed to the good ideas.
  1. Do nothing. The surplus is illusionary and may vanish or change dramatically before the next fiscal forecast by the end of February, 2012.
  2. Save it. Bring up the state’s rainy day fund.
  3. Save it for the deficit in 2013-14 budget.
  4. Use the money to pay off the interest and borrowing off of the tobacco endowment.
  5. Repay the money borrowed from K-12.
  6. Restore the cuts to the homestead tax credit.
  7. Restore local government aid funding.
  8. Restore health and human services cuts.
  9. Tax cuts for businesses and wealthy to create jobs.
  10. Money for the Vikings stadium.
Bonus suggestion: Provide a down payment on Zygi Wilf's next townhouse.

Thursday, December 1, 2011

The Collapsing Business Plan of American Higher Education

The dominant business model for American higher education has collapsed, taking with it the financial integrity, academic quality, access, and independence that college and universities once enjoyed.

Since the end of World War II two business models have defined the operations of American higher education. The first was the Dewey model that lasted until the 1970s. The second, a corporate model, flourished until the economic crash in 2008. What the new business model for higher education will be is uncertain, but from the ashes of the status quo we see emerging one that returns to an era before World War II when only the affluent could afford college and access was limited to the privileged few.

Model I: The Dewey University

The first post-World War II business model began with the return of military veterans after 1945 and it lasted though the matriculation of the Baby Boomers from college in the 1970s. This was a model that produced an ever expanding number of colleges for a growing population seeking to secure a college degree. It was a model that coincided with the height of the Cold War where public funding for state schools was regarded as part of an important effort to achieve technological and political supremacy over communism. It also represented the expansion of more and more middle and working class students entering college. This was higher education’s greatest moment. It was the democratization of college, made possible by expansion of inexpensive public universities, generous grants and scholarships, and low interest loans.

Public institutions were key to this model. They were public in the sense that they received most if not all of their money either from tax dollars to subsidize tuition and costs or federal money in terms of research grants for faculty. The business model then was simply–public tax dollars, federal aid, and an expanding population of often first generation students attending public institutions at low tuition in state institutions. Let us call this the Dewey business model, named after John Dewey, whose theories on education emphasized the democratic functions of education, seeking to inculcate citizenship values though schools.

Model II: The Corporate University

Yet the Dewey model began to collapse in middle of the 1970s. Perhaps it was the retrenchment of the SUNY and CUNY systems in New York under Governor Hugh Carey in 1976 that began the end of the democratic university. What caused its retrenchment was the fiscal crisis of the 1970s.

The fiscal crisis of the 1970s was born of numerous problems. Inflationary pressures caused by Vietnam and the energy embargoes of the 1970s, and recessionary forces from relative declines in American economic productivity produced significant economic shocks, including to the public sector where many state and local governments edged toward bankruptcy.

Efforts to relieve declining corporate profits and productivity initiated efforts to restructure the economy, including cutting back on government services. The response, first in England under Margaret Thatcher and then in the United States under Ronald Reagan, was an effort to retrench the state by a package that included decreases in government expenditures for social welfare programs, cutbacks on business regulations, resistance to labor rights, and tax cuts. Collectively these proposals are referred to as Neo-liberalism and their aim was to restore profitability and autonomy to free markets with the belief that unfettered by the government that would restore productivity.

Neo-liberalism had a major impact on higher education. First beginning under President Carter and then more so under Ronald Reagan, the federal and state governments cut taxes and public expenditures. The combination of the two meant a halt to the Dewey business model as support for public institutions decreased and federal money dried up.

From a high in the 1960s and early 70s when states and the federal government provided generous funding to expand their public systems to educate the Baby Boomers, state universities now receive only a small percentage of their money from the government. In 2004, the State of New York constituted only 29% of SUNY’s funding and 31% for CUNY. As of 1998, New York spent more on its prisons than on higher education. In 1991, 74% of the funding for public universities came from states, in 2004; it was down to 64%, with state systems in Illinois, Michigan and Virginia down to 25%, 18%, and 8% respectively. Since then, the percentages have shrunk even more, rendering state universities public institutions more in name than in funding.

Higher education under Neo-liberalism needed a new business model and it found it in the corporate university. The corporate university is one where colleges increasingly use corporate structures and management styles to run the university. This includes abandoning the American Association of University Professors (AAUP) shared governance model where faculty had an equal voice in the running of the school, including over curriculum, selection of department chairs, deans, and presidents, and determination of many of the other policies affecting the academy. The corporate university replaced the shared governance model with one more typical of a business corporation.

For the corporate university, many decisions, including increasingly those affecting curriculum, are determined by a top-down pyramid style of authority. University administration often composed not of typical academics but those with business or corporate backgrounds had pre-empted many of the decisions faculty used to make. Under a corporate model, the trustees, increasingly composed of more business leaders than before, select, often with minimal input from the faculty, the president who, in turn, again with minimal or no faculty voice, select the deans, department heads, and other administrative personnel.

The corporate university took control of the curriculum in several ways in order to generate revenue. The new business model found its most powerful income stream in profession education. Professional education, such as in public or business administration, or law school, became the cash cow of colleges and universities. This was especially true with MBA programs. Universities, including traditional ones that once only offered undergraduate programs, saw that there was an appetite for MBA programs. The number of these programs rapidly expanded with high-priced tuition. They were sold to applicants that the price would more than be made up in terms of future income earnings by graduates.

This business model thus used tuition from graduate professional programs to finance the rest of the university. Students either were able to secure government or market loans or those from their educational institution to finance their training. Further, the business model relied heavily upon attracting foreign students, returning older Baby Boom students in need of additional credentials, and recent graduates part of the Baby Boomlet seeking professional degrees as a short-circuit to advancement.

This model accelerated with the emergence of the Internet, on-line classes, and was especially perfected with the propriety for-profit schools. In the case of the expansion of on-line programs over the Web or internet, a specialist designs the curriculum for courses, sells it to the school, and then the university hires adjuncts to deliver the canned class. Here, the costs of offering a class are reduced, the potential size of the classes are maximized, and if and when the curriculum needs to be changed to reflect new market needs or preferences, it is simple to accomplish. Traditional schools, seeing this model flourish, began emulating it, expanding on-line programs, often with minimal investments in faculty.

A second way higher education became corporatized was in the increased funding streams from corporations. These funding streams became necessary as a result of decreased public support funding for higher education. One way schools have become more dependent upon private funding is simply by turning to corporate donors either to contribute directing to them, or by way of naming, that is, giving private corporations the right to donate in exchange for naming some part of a school after them. For example, in recent years many business schools have adopted famous names of companies in return for donations or sponsorships.

Overall, the new business model relied heavily upon the expansion of pricey professional programs sold to traditional and non-traditional students who financed their education with student loans. This model took off with the Internet, and was facilitated by a management structure and partnering that drew higher education into closer collaboration and dependence upon corporate America.

The Collapse of the Corporate University

The corporate business model worked–until 2008–when it died along with the Neo-Liberal economic policies that had nourished it since the late 1970s. The global economic collapse produced even more pressures on the government to shrink educational expenditures. But the high and persistent unemployment also yielded something not previously seen–the decline of students seeking more education. The decline came for two major reasons. First, Baby Boomer were aging out into retirement, no longer needing educational training. With that, the Baby Boomlet had run its peak, with the American pool of potential students rapidly decreasingly. In effect, the demand for education had dropped.

Second, traditionally MBA and other professional degrees flourished in tough economic times as individuals used their unemployment as the opportunity to get retrained. But since 2008 that has not happened, in part because of the persistent high unemployment and rise of consumer debt.

Unlike previous post World War II recessions, the most recent one has dramatically wipe out the wealth of consumers–some $13 trillion in wealth was lost–and consumer debt has skyrocketed. Student loan debt has also ballooned and is now greater than personal consumer debt–$829 billion compared to $826 billion. The average student loan debt for a graduate of the class of 2010 exceeds $25,000. In effect, potential students are tapped out–they have no money to finance further education, they see that companies are not hiring, and overall, find little incentive to debt finance for jobs that may not exist. The result? A crash in applications to graduate professional programs including MBA and law schools. From 2009 to 2010, MBA and law school applications declined by 10% for full time programs.

The corporate business model has crashed. It was a bubble that burst much like the real estate one that burst in 2008. But in actually, it was a model waiting to burst. The corporate business model functioned as education Ponzi scheme. Higher education paid for programs by raked in dollars from rapidly expanding professional programs and selling degrees on the promise that the high tuition costs would be worth it to students. But as all Ponzi schemes go, they soon collapse and that is what higher education is now experiencing.

The Next Business Model?

But what is the next business model? In a foreseeable era of high unemployment, decreasing public funding for education, and persistent consumer debt, significant retrenchment will occur along a few models. For one, a few elite universities will continue to exist, serving elites who can afford to pay the privilege of attending them. This model negates the democratic function of higher education that existed since World War II.

Second, expect significant collapse and merger of weaker institutions as they seek to find ways to complete for a dwindling student population and resources. This model decreases access to higher education as the range of college and university choices decrease.

Third, while many for-profit institutions may not be able to withstand market pressures, look to see many traditional colleges and universities will have no choice but to emulate that management style. It may not be a viable business model but given economic pressures for the future, that may be the only one that exists, rewarding a few schools that are able to provide a curriculum that is cheap enough that students want to attend. In effect, the new business model is a hyper-extension of the current model. This may mean even more alliance with corporate America along with curriculum pressures that further de-emphasize traditional liberal arts studies in place of professional education. One sign of that already is the movement to take professional degrees such as MBAs and now offer BBAs instead.

Likely business models for higher education are not good. They threaten to erode the strengths that American higher education enjoyed for years, while at the same time not articulating a plan that is financially sustainable.

Sunday, November 27, 2011

Defining Obama: Presidential Image and Narrative in the 2012 Elections

In so many ways it may already be too late for President Obama. It may be too late for him to construct an alternative narrative about his successes and accomplishments that he can use on the campaign trail to support his re-election. For many Americans, the narratives have already stuck that his presidency and policies are a failure.

Two rules that every successful presidential candidate remembers are that “politics is like selling beer” and that “define or be defined.” The first rule refers to the power of political narratives, the second to the constructing your own image–creating an image–or having someone else do it for you. Both of these are rules about constructively using the media–generally in an aggressive and proactive way to do messaging.

This blog has repeatedly discussed the power of political narratives. Candidates need a compelling narrative that describes who they are, their vision for the future, and what they want their presidency to look like. The narrative is their reason for running for office (“I am running for president because...”) and the direction they want to take their presidency and the American public. George W. Bush was chided for lacking that “vision thing” and rightly so, but he still won in 1988 for other reasons (see below).

The way of persuasion is about having a narrative. We tell stories about ourselves when job hunting (the cover letter and resume), we tell stories to do fund raising (“Send money to feed the homeless”), and businesses sell products by telling stories (“Drink this soda and you too will be cool.”). It is less reason and facts that move people than it is narratives, with the best being about the future, messages that are optimistic, and those which inspire passion.

The great narratives of our time were Ronald Reagan’s “It’s morning in America” and Bill Clinton’s appropriation of Fleetwood Mack’s Don’t Stop Thinking About Tomorrow. Both were brilliant narratives about hope and the future. They were narratives that promised a better tomorrow; they appealed to America’s sense of progress, optimism, and that the future will be better than the past. Perhaps one of the most famous lines in movie history–Scarlet O’Hara’s “Tomorrow is another day” from Gone with the Wind captures the compelling nature of this American belief in a better future.

The 2008 presidential race witnessed dueling narratives of John McCain and Barack Obama. McCain’s narrative spoke of the world being a dangerous place and that we should not trust enemies. He touted his military experience to keep us safe and he sought to get America to forget that he was a Republican wanting to the keep the White House in his party’s hands after a failed eight years under George Bush. McCain’s narrative sought to channel the Reagan brand one more time but it failed. It failed to an Obama narrative of change. A narrative of hope for the future, of an appeal to a new generation wanting their turn at power. Obama simply had a great narrative. He also had the fortune of a collapsing economy that worked to his favor, and a Republican vice-presidential candidate in Sarah Palin who few thought was qualified to be president in the event of McCain’s death.

But beyond the narrative, Obama also understood the power of define or be defined. In politics, you need to define who you and your opponents are before they do that to you. Remember the famous 1990 Andre Agassi Canon commercial–“Image is Everything”–that captures the point.

Image construction is important to politics, especially if you can do it to your opponents. On Labor Day 1988 Michael Dukakis had a 18 point lead over George Bush. Bush used Willie Horton, references to the ACLU, and stories about the Massachusetts’ governor not wanting to kill someone who hypothetically raped his wife to cast him as a pinko who was soft on crime. Bush went to win the presidency by three points.

In 1992, when allegations of marital infidelity nearly wrecked Bill Clinton’s campaign, his staff used the latest technology of the day–the fax machine–to proactively counter stories. Finally, in 2004, the Bush campaign brilliantly defined John Kerry as an elitist coward who purposively injured himself three times to get out of Vietnam early. The genius in transforming a three-time Purple Heart winner into a coward was amazing; thus the power of narratives.

Again in 2008 Obama understood the charm of definition. He defined himself as the candidate of hope and change, of McCain the candidate of the old an stodgy, and he also successfully declared Ronald Reagan and his narrative to be dead. Obama brought narrative and definition together to create an amazing campaign story about himself and his opponents.

But the brilliance of 2008 rapidly faded. All that was done so well in 2008 failed Obama and the Democrats in 2010. They lost the narrative and definition. Palin mocked Obama by asking how we liked the “hopey-changey stuff?” The Republicans tied TARP to Obama and not Bush. They decried that the stimulus bill was a failure (even though it did work but was insufficient to address the real depth of recession the economy was in), and they questioned his competence and leadership. All of this has stuck. In part it stuck because there was some truth to many of the accusations, but still the Republicans were lethal after being trounced in 2008. They went on the attack from January 20, 2009 and redefined Obama as a failure.

Now think about where Obama is as 2012 is about to begin. Obama’s successes are defined as failures. The stimulus did help, TARP made money (Yes, it was a Bush program), and he did deliver on many other promises. Health care reform is decried as Obamacare and bank regulation as killing the economy. Obama’s narrative of change has degenerated into “It could have been worse” as described so many times in this blog. Obama still lacks a narrative and worse, he is defined as a failure and as unable to rescue the economy. Again, there is much evidence that this is accurate, but even if not, Obama has been defined by a narrative that he cannot escape. Obama needs to escape the economy and run against a do-nothing unpopular Congress. He needs to cast himself as an economist populist that fights for the other 99%. In short, Obama needs a complete makeover.

It will be hard to do this now that he has already been defined by the Republicans for the last four years. But even if not for the last four years, clearly in the last few months the Republican presidential debates have been influential in doing that. While Obama does his presidential thing, the GOP candidates debate and get press. They get air time attacking the president and he does not respond. The candidates collectively have succeeded in crafting an image of Obama that has stuck. While four years ago content analysis of media coverage of Obama demonstrated overwhelming positive images, were a similar study done today the hypotheses today would be of just the opposite–overwhelming images. Obama has been defined–his narrative for him written by his opponents.

Obama at least has one advantage–the image and narrative for his Republican opponents is being written and it is a negative one. Palin never had a chance to run for the presidency with over 60% of the public thinking her too dumb or unqualified to be president. Now think about the other Republican contenders–Romney as a boring multiple choice Mick–Bachmann as a religious zealot–Perry as a lightweight cowboy–Cain as a lightweight sexual predator–and Gingrich as a cranky, adulterer, arrogant, hypocrite. These are largely self-defined images reenforced by the media. Hardly the images that are winning presidential formulae.

As the Iowa caucuses loom it will be telling to see how Obama tries to remake his image and narrative. Again, it may be too late to do that but with the narratives and images of his opponents equally dismal Obama might be able to pull off a second term with a slogan reminiscent of we chanted when Richard Nixon was running for a second term: “Don’t change dicks in the middle of a screw, vote for Nixon in 72.” Better the devil we know than the one we do not. That may be Obama’s best hope for a narrative.

Bonus quiz and word association time: When I mention Obama or any of his GOP rivals, what words or images come to your mind? Let me know your suggestions.

Thursday, November 17, 2011

Occupy Wall Street highlights documented structural and political inequalities

This blog post originally appeared on Minnpost on November 17, 2011.

Occupy Wall Street (OWS) is a cacophony of voices speaking a simple message about the structural economic and political inequalities in America and around the world. Sharing affinities to the 1999 World Trade Organization protests against globalization, OWS looks to the growing power of global financial institutions and their stranglehold on governments around the world.

OWS points to how the Bush and the Obama administrations loaned or credited trillions to banks and the too-big-to-fails to bail them out after they gambled on Wall Street, only to see homeowners face record losses in their houses and illegal foreclosures by these institutions. Tax breaks and loans were provided to the big auto companies but little was done to help the unemployed. The banks of Europe were recapitalized by the International Monetary Fund and the European Central Bank, but Greece and Italy was compelled to take the so-called "haircuts." Democracy has taken a backseat to saving capitalism. This is the message of OWS.

While Rome and the rest of the world burn, Nero fiddles. At least in this case, the fiddling is done by the Republican presidential candidates, who assert that all that ails the economy can be cured by more tax cuts and free markets. But while the GOP fiddles, a host of interesting studies have come out documenting and criticizing the ideology of Herman Cain, Michele Bachmann and company, as well as offering some insights into the state of the American economy. These reports are worth noting since they have received scant notice in the mainstream media.

The rich are getting richer, the poor poorer, no matter how you examine it.

In October a Congressional Budget Office report documented the growth in income in the United States from 1979 to 2007. For those in the top 1 percent bracket, their income increased by 275 percent. For those in the top 20 percent, it increased by 65 percent, for the middle incomes it was a 40 percent increase, and for those in the bottom 20 percent it was scant 18 percent. In 2010, the census reported the richest 5 percent of the population accounted for 21 percent of the income, with the top 20 percent receiving over 50 percent of the total income in the country.

Moreover, the latest census figures point to a poverty rate in 2010 of 15.1 percent, representing a record 46 million people in poverty. But earlier this month the US Census Bureau issued a new report recalculating what constitutes poverty — noting that current estimates are based on an outdated methodology from 1960s. This measure for calculating poverty did not include government transfers (welfare) or tax cuts when making estimates, and it also did not reflect the current spending patterns of Americans. Using new measurement tools, which the Census Bureau calls the "supplemental measure of poverty," the study concluded that the poverty rate is actually 16 percent — higher than the old estimate — constituting more than 49 million individuals in poverty. So much for welfare queens getting rich on the system.

The rich and poor live in separate worlds.

There is a geographic basis to poverty. Generally the assumption is that poverty is concentrated to the urban cores of major cities. One way to measure the spatial dimension to poverty is to use census data. Census tracts where 25 percent or more of the households live in poverty are referred to as high-poverty neighborhoods, and those with 40 percent or more of the households in poverty are referred to as extreme-poverty neighborhoods. Concentrated poverty is a problem because of the issues surrounding low economic opportunity, high government social service costs, and crime.

Looking at concentrated poverty across the United States, the Brookings Institution recently concluded that 10.5 percent of all individuals lived in extreme-poverty neighborhoods, up from 9.1 percent in 2000. Estimates are that more than 15 percent overall live in concentrated-poverty neighborhoods, with the most rapid growth occurring in the suburbs. The Twin Cities metro region is not immune, with 9.4 percent of the population living in concentrated poverty neighborhoods that include some suburbs but mostly the Minneapolis-St Paul urban cores. These trends parallel 2000 census data demonstrating the gravitation of poverty from the cities to the inner ring suburbs, creating really a two-tiered metro region marked by affluence and poverty.

Similarly, in the just released Stanford University/Russell Sage Foundation’s “Growth in the Residential Segregation of Families by Income, 1970-2009,” researchers found that America was becoming increasingly segregated by income. In 1970 only 15 percent of families were living in affluent or poor neighborhoods, but in 2007 it was 31 percent. They researchers also found that high-income households were less likely to be found in mixed-income neighborhoods than the rest of the population. In general the percentage of Americans dwelling in middle-income neighborhoods was dwindling and, in fact, these types of residential neighborhoods were shrinking.

Overall the study noted the increased economic and racial segregation in this country, with individuals of different classes less and less likely to come into contact with those from other social-economic backgrounds. America has become a tale of two cities.

Taxes really are not job killers.

The canned line from the Republican candidates has been this: high taxes are killing the economy and forcing companies out of business. Three reports again reject this contention.

The Bureau of Labor Statistics compiles data on reasons for mass layoffs. In its most recently survey, which covers 2010 and 2011, factors such as cancellation of a contract or order for goods, insufficient demand for products and increased automation account for the vast majority of layoffs. High taxes do not even appear on the list as a reason.

Second, the National Federation of Independent Business (NFIB) recently completed a survey asking small businesses to identify the single biggest problem they face. Taxes came in third, with poor sales listed as the biggest issue.

Third, the Citizens for Tax Justice recently released a report, “Corporate Taxpayers & Corporate Tax Dodgers,” documenting the biggest businesses that have failed to pay their fair share of taxes. Among the worst offenders, corporations such as GE, DuPont, Boeing, and Wells Fargo paid no income taxes from 2008-2010, let alone the theoretical 35 percent statutory corporate rate. The Citizens for Tax Justice report documents scores of blue-chip American companies that failed to pay any taxes during these three years, questioning the claim that high taxes are depressing employment and their economic growth.

Moreover, in addressing the arguments made by Herman Cain and others that high corporate tax rates discourage American companies from repatriating $1.2 trillion in money being held overseas, the Corporate Taxpayers study points out that corporate tax rates in other countries are often significantly higher. Additionally, if there is a tax advantage to off-shoring jobs it comes only because American law allows for a permanent deferral on foreign profits. The solution is simple: repeal the deferral and do not allow corporations to use the tax code as an incentive to out-source. Overall, the United States government is facilitating this problem by adopting policies that encourage evasion.

The message from all these studies point to a nation increasingly divided by income, region, and class. They point to a country where the rich pay little taxes or better yet, are able to use the tax code to their advantage — and to a world where in reality, unemployment and slow economic growth are not due to high taxes but to other factors.

Occupy Wall Street is about highlighting these facts, seeking to reintroduce the simple concept that capitalism is meant to facilitate democracy and not vice versa.

Saturday, November 12, 2011

The Clock Ticks: History, Unemployment, and Presidential Elections

Less than one year to the 2012 elections. Less than 60 days to the New Hampshire primary. Barely 50 days to the Iowa caucuses. The official presidential race is upon us. But as the clock ticks, time is running out for Obama and history is against him.

The basic problem is the economy. Only 80,000 jobs were added in October, placing the unemployment rate at 9.0%. The Federal Reserve Board projects slow economic growth next year–2-2.5%–with the unemployment rate settling in at about 8.5% by election time. Of course these numbers are bad for all those looking for jobs or businesses hoping to grow, yet for Obama it is a real problem.

Since 1932 only two presidents have ever won re-election when the unemployment rate was above 6%. In 1936 and 1940 Franklin Roosevelt won reelection with unemployment rates of 17% and 14.6%, but both of these elections should be treated as outliers or oddities. In 1936 the unemployment rate had dropped from nearly 24% to 17% and the economy was growing at an annual rate of 14%. In 1940 World War II was upon America and with patriotism high, support for Roosevelt was strong. More importantly, the economy was growing at 10% but the perception was that the president had the country going in the right direction.

In 1984 Ronald Reagan won re-election with an unemployment rate of 7.5%. Yet his victory occurred when the economy was growing at more than 11% and gas prices were tumbling from then record highs. Reagan definitely benefited from the perception that it truly was morning in America, especially after the unemployment rate tumbled from around 10% in 1982 and 1983.

But FDR and Reagan aside, high unemployment–six percent or more–is the death knell for a presidential re-election bid. In 1976 Gerald Ford ran for re-election when the unemployment rate was 7.7%–he lost to Jimmy Carter. Four years later the unemployment rate was 7.1% when Carter ran for a second term against Reagan. He lost to the tune of Reagan asking Americans if they were better off now than they were four years ago. In 1992 George Bush sought a second term with an unemployment rate of 7.5%–he lost to a Bill Clinton reminding the voters that it was “the economy stupid.” Conversely, Nixon won with an unemployment rate of 5.6% in 1972, Clinton 5.4% in 1996, Bush in 2004 with 5.5%, Eisenhower 4.1% in 1956, and Truman in 1948 with 3.8%.

Key to a presidential re-election is the actual unemployment rate. But economic, and the reality or perception that it is moving in the right direction, is also important. If there are not significant declines in unemployment along with economic growth and a perception that the economy is moving in the right direction, presidents are not given a second term.

Obama faces an economy where the best projection is of high unemployment and low economic growth. But there is more. Home values remain about 25% or more below what they were in 2008, consumer and now student debt is high, and many people have already blown through their unemployment benefits and face an uncertain future. Consumer confidence remains near historic lows, suggesting little chance that retail sales and spending for the coming holidays and into next year will revive the economy. The public just does not believe the country is headed in the right direction and few think we are better off now than four years ago.

History suggests Obama will lose. This assumes the Republicans put up a viable candidate with a compelling narrative. Yet so far that task seems elusive. Bachmann has come and gone. Perry has gaffed himself to death. Cain’s numbers place him in the GOP lead, but his negatives are escalating as it becomes more apparent that he is a misogynist who treats every woman in a demeaning fashion. Romney is boring and the Republican base does not really know where “multiple choice Mitt” stands on the issues. Gingrich is too acerbic. Congressional approval is less than 10%, with the public placing more blame on the Republicans than Obama for the gridlock in Washington. In short, the Republicans have the Democrats' disease—they are poised to snatch defeat from the jaws of victory. Obama can still win—he has money, the bully pulpit, and demographics that place perhaps as many as 200 or more electoral votes in easily into his presidential win column without too much effort. Now all he needs is the narrative for his re-election.

Obama hopes for a rerun of the 1948 Truman surprise victory over Dewey, campaigning hard as an economist populist against a hapless elitist. Yet the 1948 campaign featured an economy far better than 2012 so the parallels here might not be good.

Obama is also running on the fear factor—Hope that the American public will be afraid of an extremist Republican president presiding over a Republican Congress. Fear came be a powerful too, but 1980 demonstrated with Carter was up for re-election, fear of a crazy Reagan who would blow up the world was pushed aside by the desire for change and disgust with the status quo. Obama knows the public wants change—as he promised in 2008—but it is hard to run on that narrative when you an incumbent seeking re-election. He needs to navigate a message that promises change while staying the course with him. It’s a hard task—made only more difficult by the unemployment numbers—but Reagan and FDR did it, and now Obama needs to figure out how to channel their magic to do the same.

Saturday, November 5, 2011

The Legal Football Field: Forcing the Vikings to Stay in Minnesota

Does a snow-collapsed Metrodome mean the Vikings are on the hook for another season in Minnesota? Quite possibly according to the 1979 contract between the team and the Metropolitan Sports Facilities Commission (MSFC). Yet while the news of the day suggests this is the case, as does the 2002 litigation surrounding the Twins and the Dome, there is no certainty that a court would force the team to stay on another year. At stake here are complex legal issues and principles worth reviewing and clarifying.

The crux of the issue here is the expiration of the Vikings lease-contract with the MSFC at the end of the current football season and rumors that unless public financing is forthcoming to build a new stadium, the Vikings are leaving. In the last couple of days the original lease agreement was reviewed and an interesting contract clause was located. It states in section 15:3:

"For each football season, or part of football season, while this Agreement is suspended, the term of this Agreement ... shall be extended by one football season."

The occasion for invocation of this clause is the collapse of the Dome earlier this year due to snow and the playing of home games at TCF Bank stadium (UMN) and then in Detroit.

Now under the normal rules of contract law, parties generally are not in breach if they are unable to perform for reasons beyond their control. Impossibility to perform is generally accepted as a defense against claims of breach of contract. However, section 15.3 appears within a part of the contract titled as “force majeure.”

Generally force majeure refers to acts of God–acts that are beyond the control of parties such as severe weather, floods, wars, or other acts unforseen by the parties. Normally a roof collapse due to snow would qualify as force majeure. Yet 15.3 also covers this issue and states that: “In the event of a total or partial destruction rendering the stadium not suitable for playing home games...” Thus, the contract appears to define force majeure here, meaning that the collapse of the Dome might well require the Vikings to stay on another year.

But there is still another legal issue at stake here–the concept of specific performance. Generally if contracts are breached the courts do not order specific performance–that is they do not order that the breaching party must actually perform the contract. Instead, the remedies for contract breaches generally are monetary–one pays money. Now there are several formula to calculate damages and they will be ignored here. However, the point is that there are very few instances in Minnesota law where specific damages are awarded.

Specific performance is not generally awarded in personal service contracts or in the case of commercial leases. Landlords usually cannot compel a tenant to stay on and the reverse is usually true too–a tenant cannot require owners to rent to them. Specific performance is ordered only when there is no way to measure or monetize the damages (figure out how to place a cash value on the damages), when the performance called for is something unique–the transaction of real estate for example–,or when the contract contemplates or calls for specific performance.

In the case of the Vikings agreement with the MSFC, one could argue that the agreement itself allows for specific performance by the fact that section 15.3 defines force majeure and what should happen when the team cannot play in the Dome due to its incapacity. Moreover, section 20.8 of the Agreement also provides that the parties can insist upon the “strict and prompt performance of the terms of this Agreement.” Arguably, this clause permits specific performance.

Additionally, one could argue that the nature of the contract–compelling performance of a professional sports franchise–involves something so unique that monetary damages cannot replace the loss. In effect, losing a pro football franchise is something that cannot be replaced with normal contract money damages and therefore specific performance is required. Don’t bet on this as a winning argument.

Furthermore supporters of specific performance can turn to the case of Metropolitan Sports Facilities Com'n v. Minnesota Twins Partnership, 638 N.W.2d 214 (Minn.App. 2002). Here the Twins were required to remain playing in the Dome after major league baseball wanted to contract the league and shutdown the Twins. That case involved an injunction to prevent the contraction. Unlike the Vikings’ lease, the Twins’ had an obligation to play in the Dome unless their force majeure clause applied. It excused them from performance if they were unable to play a home game for a reason beyond the Team’s and the Commission’s control, including strikes, an act of God, a natural casualty, or a court order. Contraction was not force majeure.

The facts in that case are very different from the one with the Vikings. Here, the issue is not contraction but possible breach of contract. Moreover, the Twins case was about a temporary injunction to prevent a team from being eliminated and not simply leaving town. With the Twins, if they were contracted the harm was permanent and it might not be possible to collect money damages. Here, the possibility to collect money damages does exist.

Overall, the Vikings’ agreement with the MSFC gives the latter and the state a new legal tool to use for bargaining. Whether a court would actually enforce it may be immaterial to the uncertainty of how a judge might interpret it and how the agreement might provide a leverage for negotiation.

Monday, October 31, 2011

The Hype on Taxes: They Don’t Matter Much

Taxes impede economic growth. This is the belief among the Republican presidential contenders as they offer plans to cut taxes as a panacea to stimulate the economy. Herman Cain’s “9-9-9” assumes lower income tax rates for corporations and individuals will stimulate the economy. Newt Gingrich wants to cap top rates at 15% and Rick Perry has called for a national flat tax of 20%. Mitt Romney has a 59 point plan that includes tax cuts. Ron Paul wants a constitutional amendment to eliminate income and estate taxes. Michele Bachmann wants a return to the Reagan era tax cuts. All want to make the Bush era tax cuts permanent.

Yet do high taxes really hurt the economy as much as they believe, and will lowering them have much of an impact on stimulating it? The economic literature is clear — tax breaks to encourage economic relocation or investment decisions are inefficient and wasteful. Hundreds of studies reach this conclusion. When businesses are surveyed regarding factors important to their investment decisions, taxes often come in behind proximity to markets, suppliers, and the quality of the labor force. These other factors occupy a larger percentage of a business's budget than do taxes, and all of them are far more critical to long-term success than are taxes. Businesses occasionally admit this. Nearly 62 percent of those interviewed in a California study on hiring tax credits indicated that they had never or rarely affected their decision to employ individuals. Speaking at a recent chamber of commerce event, I asked business leaders whether the Obama tax cuts would encourage them to hire. Unanimously the response was no—they were unwilling to hire until such time that consumers were willing to buy their products and services.

Anecdotal stories and illustrations also confirm the tax fallacy. High tax states such as Minnesota have generally fared better in terms of economic growth, unemployment, median family incomes, and location of Fortune 500 companies, than low tax ones such as Mississippi and Alabama. In many situations high taxes, and with that, government expenditures on education, workforce training, and infrastructure, correlate positively with income, low unemployment, and business retention. One needs to look not just a one side of the equation—taxes—but the other side too—what taxes buy—to see what value businesses get out of them in terms of educated workforces and infrastructure investments. Most debates fail to do this.

Bureau of Economic Analysis statistics demonstrate how economic growth is related to tax rates. One can compare annual economic growth as measured by the percent change in the gross domestic product (GDP) percent based on current dollars to the highest federal individual tax rate and the top corporate tax rate since 1930. If taxes are a factor affecting economic growth, one should see an inverse relationship between growth of the U.S. economy and higher tax rates. The GDP should grow more quickly when top individual and corporate tax rates are lower. If taxes are a major factor deterring economic growth, lines on a graph should go in opposite directions: As tax rates go up the GDP should go down.

No such pattern emerges between high taxes and GDP growth over 80 years. During the Depression of the 1930s corporate and individual taxes rates increased, but in 1934 through 1937 the GDP grew by 17%, 11%, and 14% annually. Top corporate tax rates climbed to over 50% through the 1960s, again with no discernable pattern associated with decreased economic growth. The same is true with top tax rates on the richest which were 91% into the 1960s. Conversely, since the 1980s after Kemp-Roth and then after 2001 with the Bush era tax cuts, there is no evidence that the economy grew more rapidly than in eras with significantly higher tax rates on the wealthy and corporations. Looking at time periods when tax rates were at their highest, GDP often grew more robustly than when taxes were cut. Visually, the attached graph simply fails to demonstrate that tax rates negatively impact economic growth. (Click on the graph to get a better view of it).

Pictures are worth a thousand words, but statistics are priceless. Statistically, if a tax hurts economic growth, the correction with it is -1. If they positively facilitate growth the relationship is 1, and if they have no impact the relationship is 0. The correlation between GDP and top individual taxes is 0.29, between GDP and top corporate taxes is 0.32, and among the three it is 0.14. Statistically, there is a slight positive impact on either top individual or corporate taxes or economic growth, but overall almost no connection between tax rates on the wealthy and corporations and economic growth in the United States.

But what about taxes as job killers? Again running similar statistical tests, there is little connection. Using Bureau of Labor Statistics data on unemployment rates since 1940, the correlation among top individual and corporate taxes and the annual unemployment rate is -0.02—essentially no connection at all.

The simple claim of Perry, Cain, and others that high tax rates on the wealthy and corporations hurt economic growth and job production is false. The evidence is simply not there to support assertions that high taxes alone hurt the economy or that cutting them will have the stimulus effect asserted.

Friday, October 28, 2011

A plea for fact-based policymaking in an era of political myths

Comedian George Carlin quipped that "business ethics" was an oxymoron. The same can now be said about reasonable politics. Politics and the making of policy seems less to rest upon reasoned debate, social-science evidence, and facts than upon hope and belief. Rep. Michele Bachmann panders to ignorance when decrying vaccines as causing retardation. She, along with Herman Cain, Gov. Rick Perry, and most of the other Republican presidential hopefuls deny global warning, evolution, and a host of other well-established facts, preferring to base their candidacies and appeals on propositions lacking rational or empirical support.

Ronald Reagan famously misspoke: "Facts are stupid things." He seems to have gotten it right when it comes to political debate, pointing to how truth takes a backseat to myth or worse — lies. Two of Reagan's myths — welfare queens exploding the federal budget deficit, and supply side economics as trickling down to benefit us all – both failed truth tests. But that did not matter then or now; people bought them as simple answers to complex problems.

Today, untested or worse, crackpot or refuted ideas dominate political debate. Nationally, we hear rants about how illegal aliens are a drain on the economy and that they take jobs from Americans, when in fact the evidence suggests otherwise and that they are net contributors to our country. Taxes are assailed as job killers when evidence suggests that they are a marginal factor behind workforce quality, access to supplies and consumers, and transportation costs as more important factors affecting business location and expansion decisions. Conversely, little evidence supports the idea that tax holidays to repatriate corporate savings back to the United States will yield job production. Herman Cain more or less admits that his "9-9-9" was conceived as a bold political idea that was not based on any real evidence of its impact.

A bevy of other stupid public policies and political myths dominate the American political landscape. Wrongly we believe that welfare migration is a major problem in the country. Some contend that teaching sex education to teenagers encourages promiscuity, that we can pray away homosexuality, or that same-sex marriage hurts traditional matrimony. Never mind what the best research and facts state.

Both parties indulge
Myth-based politics does not seem confined to one party. Gov. Mark Dayton is determined to secure funding for a new Vikings stadium even though the economic evidence is overwhelming that public subsidies for this purpose are one of the worst uses of tax dollars there is as a tool for economic development. Conversely, the Minnesota Majority continues to beat the drum of voter fraud as stealing elections when the absolute best research suggests that in-person election fraud is negligible, that there is no evidence that it has affected the outcome of any recent election, and that voter-identification laws will not prevent this fraud and instead will disenfranchise many individuals.

As a professor who has taught public policy for nearly 25 years and a former government administrator and planner who worked in the world of facts, evidence and research, I find all this frustrating, especially when called upon to testify before the Legislature. Seldom have I seen facts — and not ideology or prejudice — move elected officials.

My students are not given the liberty simply to assert opinions unless they can support them with evidence. We should ask no less of our politicians and government officials. Reporters do not press candidates to substantiate their claims, and the public often gives them a free pass, letting emotion, anger or frustration guide decision-making. What results are bad laws and foolish policies that do not work, waste taxpayer money, and often make the problems worse than before.

Evidence dismissed
Recently I gave a talk to a local Rotary Club about the 2012 elections. When I finished, a minister came up to me and asked where I stood on voter-ID laws. I told him that I had researched and written on the subject extensively and that the evidence of fraud was negligible. He dismissed my statement, declaring: "I am from Milwaukee, I know about voter fraud. They bring busloads of those folks up from Chicago all the time to vote in our elections."

I shook my head in disbelief. "Those people?" He might as well as said blacks, because that is what he meant. I am not sure what disappointed me more — the racism, the dismissal of the facts or that he was a minister. Why he asked my opinion I do not know — except to confirm his prejudices. It was clear his mind was made up and no amount of facts would change it. He embodied all that is wrong with contemporary politics — one not of evidence-based policy making but one dominated by blind ideology, ignorance or willful disregard of the facts

Today's blog appeared in the Friday, October, 28, 2011 Minnpost.

Saturday, October 22, 2011

Michele Bachmann's Meltdown

The Iowa presidential caucuses of January 3, 2012 are less than 75 days away and their outcome are more in doubt today than ever. What once looked like a certain victory for Michele Bachmann now looks less and less likely, and talk of her presidential prospects sounds more like a deathwatch especially in light of the resignation of her New Hampshire staff.

August 13, 2011 seems so distant now. Barely nine weeks ago Bachmann surprised many by winning the Ames straw poll. She was on top of the world, leading the GOP pack as the darling of the Tea Party. But then came the collapse. Rick Perry entered the race eating at her conservative base. Bachmann was unable to move to the center given her rhetoric and positions, and she disavowed any intention to do so. Media attention and scrutiny mounted, missteps and statements about HPV and retardation damaged her, and the cycle of decline began.

In the last few weeks numerous problems have mounted. Declining poll numbers followed with dismal debate performances that revealed no more than canned vacuous answers. All this was followed by poor third quarter fund raising and campaign debt and now her New Hampshire staff has stepped out.

Is Bachmann done?
Essentially, yes. As noted in several of my blogs, her campaign rested upon an Iowa strategy that is faltering even now. The belief before was that a victory in Iowa would be the springboard to success in other states such as New Hampshire and South Carolina. But she never did much to campaign there and her presence and infrastructure there was always weak. But now with Nevada and Florida moving up their delegate selection, Bachmann’s campaign was damaged even more because she did not have staff there to help her. The point here is that the Iowa strategy presupposed that she had money and structure in place in other states to take advantage of the Iowa victory. But she did not have this and thus, even if Iowa does still become a victory for her, she will be unable to take advantage of it. (Here are similar comments of mine in a story about Bachmann).

But now she is losing even in Iowa. Evidence is seen in the polls and in other candidates now returning to it to campaign with the belief they can win the state. She is falling back in the pack. She increasingly looks more like Rick Santorium than a leader in Iowa. She gives speeches to a few faithful but continues to slip in the polls. She has little new to say and the buzz she once had is gone. She has been unable to take advantage of Perry’s drop and instead Cain has benefitted. While potentially she can recover to win Iowa, the new January 3 date gives her less time to do that. Thus, an earlier Iowa date gives Bachmann too little time to recover and her dismal fund raising and failure to plan beyond Iowa make it unlikely she can go much further beyond Iowa.

Lessons Learned
What we learn from Bachmann’s collapse in part is that her great congressional campaign machine was unable to transition to a presidential level. You cannot win the presidency with a $40 average campaign contribution and an unwillingness to grow and expand a base, especially when others are also competing for that base. Bachmann took for granted that she owned the Tea Party–never do that.

In addition, her electoral skills were always vastly over-rated. She had a plus-6 GOP district in Minnesota–a district tailored to her. Her victories were over weak opponents or took place in the banner Republican year of 2010. In many ways, she looked stronger than she really was and perhaps she believed she was the star that the media had declared. While I always thought she had a chance to do well as an Iowa candidate and perhaps beyond, what is most striking is how amateurish she turned out to be as a candidate. That is the product of never facing a serious primary for Congress nor a serious contest in the general election.

Bachmann’s Clouded Future
So what next for Bachmann? Does her December book even have value now? Hard to say and it is unlikely it will save her campaign. Do we see her move on to CNN or another network with her own show? Her increasingly collapsing campaign makes that even less of an option.

Does Bachmann return to run for her congressional seat again? Maybe, she has until June to decide. But redistricting uncertainty and the prospects of a less friendly set of lines for the sixth district pose challenges. Moreover, the worse her presidential campaign looks the more it makes her potentially vulnerable to a primary challenge. Bachmann has never attracted big donors and if she were to run for Congress again her small donors may be tapped out or unwilling to give. She is in a bad situation right now and her options are ticking away along with the clock to Iowa.

Tuesday, October 18, 2011

Class divides America -- and conflicts reflect a broader battle

This blog originally in Minnpost on October 17, 2011.

A line in the sand of American politics is being drawn. It is a line that cut through Madison, Wis., last spring in the debate over unions. It is a line being cut through Wall Street over the role of banks and hedge-fund managers in destroying the American economy in 2008. And it is a line cutting though Washington, D.C., in Congress over how to produce jobs, regulate banks, reduce the deficit and debt, and provide health care to those who need it. That line is about class in America.

There is a basic belief in America that we are all in it together. We are one big happy middle class where the interests of the rich and poor are not in conflict. Rising tides lift all boats, as Ronald Reagan used to say. There are no class conflicts in this world. That what is good for GM is good for America, and that we live in a society where all of us can be winners with no losers in the economic marketplace. The promise of America is of a non-zero-sum game — some do not have to lose for others to win. The truth is far uglier.

America is a nation characterized by increasing class divides. In 2010 the Census reports the richest 5 percent of the population accounted for 21 percent of the income, with the top 20 percent receiving over 50 percent of the total income in the country. This compares to the bottom quintile accounting for about 3 percent of the total income.

Congressional Budget Office research found that the income gap between the top 1 percent of the population and everyone else more than tripled since 1973. After-tax income for the top 1 percent increased by 281 percent between 1973 and 2007, while for middle class or middle quintile it increased by 25 percent, and for the bottom quintile it was merely 16 percent.

Looking beyond income to wealth, the maldistribution has not been this bad since the 1920s. According to the Institute for Policy Studies, in 2007 the top 1 percent controlled almost 34 percent of the wealth in the country, with half of the population possessing less than 3 percent. The racial disparities for wealth mirror those of income. Studies such as the Survey of Consumer Finances by the Federal Reserve Board have similarly concluded that the wealth gap has increased since the 1980s.

Record numbers in poverty
Social mobility in America has ground to a halt. A 2010 Organization for Economic Cooperation and Development study found that social mobility in the United States ranked far below that of many other developed countries. Other studies, including those in 2005 and 2010 in the Economist, similarly point to declining social mobility in the United States that makes it difficult for individuals to rise from one social economic status to a better one. In fact, there is better than a 95 percent chance that children will not improve their social economic status in comparison to their parents. Finally, the latest Census figures point to a poverty rate in 2010 of 15.1 percent, representing a record 46 million people in poverty. The numbers are equally grim when one looks at women, children, and people of color in poverty — all record or near-record numbers. Few really can move on up to live the American dream.

The reality is that America is a zero sum game. There are winners and losers. What is good for corporate America is not benefitting most Americans, and it is increasingly clear that in simple terms the rich are getting richer, the poor poorer. The reality is, we are not all in it together and class divides America. We see the divide in where individuals live, what they eat, and the entertainment they consume. It is seen in who votes, runs for office, and in political contributions. It is reflected in our tax code, criminal-justice system, and educational opportunities.

Class exists. The problem is, few want to acknowledge it. And when someone talks of economic redistribution, bailing out homeowners and not banks, taxing millionaires, or blaming Wall Street and not the government for the economic problems that ail America, cries of class warfare are raised. Or worse — Herman Cain "McCarthyited" the Wall Street protesters as "Anti-American," invoking the ugliest of all political epithets to assail opponents.

Protests are symptoms
Yes, class conflict exists in America. Protests in Wisconsin over attacks on unions or on Wall Street to challenge the power of banks reflect this. But they are merely symptoms of the broader battle over a simple question: "Why government?" It is a debate over whether free-market fundamentalism prevails as a means to provide order and declare winners and losers in America versus letting the government correct the imperfections and errors that capitalism has produced. It is between saying that the direction of the country is decided by "one dollar one vote" or by "one person one vote." It a battle over whether the government serves the interests of corporations and the rich or the rest of us.

Class exists in America, as it does in all other nations of the world. Like it or not, there are diametrically opposed interests in this country and the real questions are whether the government and politicians should do anything about it and whose interests they should serve.

Sunday, October 16, 2011

Presidential Politics: It’s about the money

The third quarter presidential financial reports are in and this is a good time to string together some thoughts about the candidates.

“Money is the mother’s milk of politics,” said former California Assembly Speaker Jesse Unruh.

Money is what it is all about in campaigns, especially presidential politics, as they have evolved into hundreds-of-million dollar businesses, replete with fundraisers, media consultants, travel consultants, pollsters, and a host of other specialists. The days of candidate door-knocking and Lincoln-Douglas debates are part of a quaint Norman Rockwell past. Modern presidential campaigns are won or lost with money.

Third quarter reports are in and we can learn a lot about candidate prospects by examining their fund-raising balance sheets. Of most interest, Michelle Bachmann’s along with those of Obama, Romney, and Cain.

Bachmann is dead financially and it confirms her descent in the polls. In the third quarter she raised $4.2 million, suggesting that her congressional money machine was not equipped to make the presidential leap. Yet her second quarter produced barely $4 million, and she spent nearly $6 M. This is embarrassing and bad news for her.

Embarrassing–She rails against government deficits and need to live within our means yet she cannot do that with her own campaign. She has proved to be a bad steward of her own money–how can we trust her with the public treasury? Her credibility on the budget is gone.

Bad News–Bachmann’s financial woes confirm her poll problems and fall from grace. Think about it–the 3Q should have been a slot machine for her. In August she was at the top of the polls and had won the Iowa straw poll. She had a massive donor list and money should have poured in. Yet it did not. Perry clearly hurt her as did her bad debate performances and gaffes. She failed to capitalize on her opportunities.

But that is not the end of it. Bachmann has not been to New Hampshire since June. She has little or no organization outside of Iowa where she continues to camp out. Her poll numbers are bad and hurt fund-raising, and now this news about the 3Q only makes it harder to generate cash.

Even if Bachmann wins Iowa in January it will not be enough to save her. Everyone expects her to do well there so she will not get much of a bounce even my winning. But assume she wins, what then? With no organization in other states she will not be able to capitalize on the win there to help her move forward. Her financial number reveal a candidate who will meet her Waterloo one way or the other in Iowa. She lacks an infrastructure in other battle ground states and thus she may be a one-state candidate.

How long will Bachmann last? I think she makes it through Iowa at most. At the least she stays in the campaign through December because she has a book coming out then. Is she counting on the book bolstering her campaign? No–Bachmann is now in it for herself. She is using her presidential campaign and her supporters for the personal benefit if herself. An active campaign makes for books sales and for money in her own pocket.

Call me cynical but it is now clear Bachmann does not care about the presidency or her supporters. She is in it for the money. Watch her make a few million on her book, leave her creditors on the hook, and she walks away from politics rich and her supporters used.

Obama and Romney
Obama raised a ton of 3Q money, dwarfing all of the GOP. Good for him–he will need it if he wants to win reelection. Money, the power of incumbency, an unpopular Congress, and the penchant of the Republicans to want to nominate a candidate so conservative that no swing voter will support them (Think Goldwater and 1964) may overshadow the 9% unemployment rate. Obama still lacks a narrative for reelection and GOP will run on the mantra of “change” against him.

Romney hangs tough with $14 million, but GOP polls continue to place him at about 25%–a spot that has not changed for months. He seems stuck, unable to gain more support as the different flavors of the month–Trump, Bachmann, Perry, and now Cain–seem to come and go. Romney may have the best shot of all to beat Obama but he generates little excitement. His problem is that he is like the guy who reminds a woman of her first husband. He has the same problem with the Republicans. He generates little excitement and affection. His boringness is why other candidates look good to the Republicans–they are searching for something more exciting and for someone who will fulfill their fantasies. Romney is out of place with the current version of the Republican Party. If he does get the nomination he will generate little excitement among the Tea Party folks. Remember, Rod Stewart is right–it is about passion–especially in politics–and Romney lacks it.

Wall Street, Obama, and Romney
If you want loyalty and a friend, get a dog. This is what Obama must be thinking about Wall Street. They were his friends in 08 when they needed him and they gave to his campaign. Now Romney is out-pacing him when it comes to Wall Street money. Why?

Wall street got what it wanted from Obama–the bailouts–and they do not need him anymore. Obama was played like a violin–he bailed them out before getting anything from them and now that they are fat with cash again they cast him aside for someone else. No surprise.

Cain and Final Thoughts
Cain might be the flavor of the month but it is good to be the flavor when it is close to the real start of the primary season, which is just a few weeks from now. His poll numbers are great but his fund-raising is lackluster at less than $3 million (which includes a ton of his own money). In the last few days the media has poured scrutiny on him–look to see more of that in the coming weeks.

His 9-9-9 will come under huge analysis. Cain admits that 9-9-9 was conceived of as a bold idea. Bold it is, smart it is not. It is not based on any real economics but instead it captures the attention of those who want quick simple solutions.

Wait to people begin to think about the 9% federal sales tax. I am sure consumers and businesses will love it. Plus 9-9-9 will force massive budget cuts and fail to generate the revenue needed to address the debt. Look to see 9-9-9 lampooned soon.