Sunday, February 27, 2011

Controlling Gas Prices and Other Economic Heresies

Economics the topic this week, tackling four issues that ought to be on everyone’s mind. It is a plea to political leaders to have the courage to speak the truth and for citizens to be willing to listen to it.

Gas Prices
$3.50 a gallon for gas! This is some jump in present gas prices based on speculation about the future of Libya and other Middle East oil producing countries. Increased gas costs can justifiably be based on objective factors such as decreased supply, increased demand, exploration and costs in a post-peak world. But surely there is no basis for jacking up the price at the pump premised upon subjective speculative factors? Or is there?

At the root of this debate is a clash between rival economic theories. Current economic orthodoxy is that gas stations, distributors, and oil companies are economically justified to raise prices on current gas and oil based upon speculation by traders about future gas and oil because it necessary for “cost recovery.” As the argument goes, if today the price of a barrel of oil goes up by 10% is it ok to raise the price at the gas pump or at the distribution point equally by 10% or more in order to recover future anticipated costs. This is an interesting theory but it fails to make sense.

Think about an alternative economic theory that is more realistic. Let us say that on February 27, 2011 gas is selling at the pump for $349.9 per gallon. Assume also that the price of crude oil on the commodities market goes up by 10% that day. Should dealers and distributors be permitted to raise gas prices by 10% or more on the gas they already own and have purchased? No. The gas they have in their possession was purchased in the past at a different price P1. The gas sold on February 27, 2011 (T1) should be based on price P1. It is P1–gas purchased in the past but now presently in the distributors’ or stations’ tanks–plus a reasonable profit that should determine the price of gas at T1. It should not matter what speculation is taking place on the commodity markets regarding future gas prices.

Another way of making this argument is to say that if crude oil gas prices are rising, they should not affect current gas prices. Sellers of gas can recover costs on the new price P2, at some future time T2. To allow for “cost recovery”–raising of gas prices on current gas already purchased based upon future speculation really amounts to what used to be called profiteering or price gouging. Moreover, to allow for speculation on future prices of gas to affect the price of current gas already purchased by stations or distributors only helps to encourage gas speculation and price volatility.

We saw a few years ago how crude oil speculation drove gas to $4 gallon plus. There was no decrease in production and proof that it was gouging was that the major oil companies had record profits. The same is already occurring again.

There ought to be a law that prevents the raising of gas or energy prices on current supplies based upon future speculation. Let new supplies, which reflect the new crude oil prices, reflect the new price. This is a better free market theory that does not encourage speculation.

Wisconsin Budget Crisis
Governor Walker contends he needs to strip collective bargaining rights from public employees in order to address the state’s structural deficit. He cites public employee health care and pension costs as the problem. There are several reasons his theory is wrong.

First, even if he is correct, the public employees’ unions have already indicated their willingness to negotiate on these points. That should settle the issue about the need to strip away rights.

Second, Walker is not correct in his linkage, at least to the extent that he asserts. Wisconsin’s deficit, much like many other states, is driven by several factors. 1. There is the recession driving down tax revenues at the same time demand for government services are increasing. 2. Overall health care costs are rising in America in the public and private sectors. Obama’s health care law was originally supposed to address this issue but there really is very little in the 2010 Patient Protection and Affordability Act that does that. Thus, the health cost issue is a more pandemic issue not confined to public employees, unions, and Wisconsin. Blame a mediocre federal health care bill for that issue. 3. Many states have failed to raise taxes for years and in the case of Wisconsin, a tax cut was pushed through. Combine a tax cut with rising health care costs with a recession and a demand for government services and what do you get? You get a state deficit. These are not factors driven but public employees’ collective bargaining rights.

Finally, it should be pointed out that the pension and health care benefits were freely negotiated in the past. Cutting both only leaves these individuals and their families economically worse off in the future. They were promised these benefits as a result of a fair bargain. Stripping away collective bargaining rights is like taking your bat and ball home because you do not like the way the other side is playing the game.

Fixing Social Security
Obama’s budget is a failure and the GOP response is just as bad. Both sides fail to address the real needs to tackle Social Security, Medicare, Medicaid, and the horrible tax structure we have. Throw Michelle Bachmann and the Tea Party in with that too. All of them are dishonest about the budget.

Social Security is easy to fix with two changes. The first is gradually raise the eligibility age to 67 over the next five years to a decade. Second, Social Security taxes are currently capped at approximately $106,000. This means that if you make more than this amount any income above this is not taxed. A simple answer is lift the cap. Turn the current regressive Social Security tax from a regressive to a progressive one. Lifting the cap and raising the age easily solve the Social Security problem for the future.

Fixing Health Care to Cut Costs and Improve Public Health
The 2010 Patient Protection and Affordability Act was a positive social good but a missed opportunity. The good was in extending health insurance to 36 million or more Americans. The missed opportunity was its failure to go far enough to address public health care needs and reduce costs.

According to a CDC or NIH study (I cannot remember which), about ten percent of American’s society’s health is driven by lack of access to health care. Approximately 30% is due to genetic factors, 20% environmental, and another 40% percent by preventable life style choices. Genetic is self-explanatory. Environmental refers to pollution in the air and water and to public safety issues such as guns and crime. But the last category, life-style choices, refers to the fact we eat too much, drink too much, eat the wrong foods, and fail to exercise. All of us have seen the stories about chronic obesity in our society and it, along with American waistlines, are growing every day.

A broader health care plan in the United States need to address the life-style choices. However, as soon as this is talked about one sees annoying commercials sponsored by groups that represent unfoods on TV complaining that this is social engineering or an effort to tell Americans what to eat and drink. Is that not the kettle calling the pot black. This is exactly what they have been doing for years in their ads and now they object to some efforts to counteract their ads.

A good health care (and effectively a good economic) measure needs to address these personal choices.

Finally, there is also the problem of end of life care. We consume the majority of our health care expenditures in the last six months of our life. I am not raising the Sarah Palin ill-informed death panel issue, but clearly we need to address end of life health care. I do not know the solution but we need a more rational solution.

Wednesday, February 23, 2011

Attacking unions: It's not about the money, it's about power

Today's blog appeared in Minnpost as an op-ed.

By David Schultz | Wednesday, Feb. 23, 2011

Efforts to bust collective bargaining rights in Madison are not about the money. Money and budget deficits are the pretext for a larger battle to attack government and break public-sector unions for political reasons.

In many ways, this is the logical continuation of the union-busting battle that began under the Reagan era. What is really going on here is an effort by corporations and the GOP to dismantle one of the few remaining institutions in America that defy their power. It is the battle to restructure labor markets to serve a broader corporate neo-liberal agenda.

Through the early part of the 20th-century unions lacked the legal authority to engage in collective bargaining and strike. Strikes to improve wages and labor conditions were considered restraint of trade or illegal combinations that were fought both by the law and by brute force. The Pinkertons were originally a police force used to break up strikes, and the origins of municipal police departments can be traced to efforts to control unions. Debates surrounding the Sherman Anti-Trust Act often included discussion over whether unions were trusts that should be prevented.

But through the early 20th century workers continued to strike and organize. They organized to earn better wages for their families. They organized to improve deadly labor conditions in mines, mills, and factories. Finally, the Wagner Act — aka the National Labor Relations Act (NLRA) — in 1935 recognized the right to collectively bargain and organize in the private sector. Subsequently, similar rights were extended to workers in the public sector.

The NLRA was a success. By the early 1950s private-sector unions constituted approximately 38 percent of the private-sector workers. Wages, income and working conditions dramatically increased, economic inequalities decreased, work place safety improved, and features such as the eight-hour/40-hour work week emerged.

'A countervailing power'
Yet the 1950s was the high point of unions. Corporations hated them. Unions represented what John Kenneth Galbraith called a "countervailing power" on corporations. Yes, in many cases unions sided with management on protectionist practices (think of the car industry) and had corruption problems (Hoffa and the Teamsters), but they also did a lot of good, by raising the American standard of living. The real problem for corporations, and for Republicans, was that unions supported Democrats. They provided dollars, organizing, and votes for Democrats.

But the Vietnam War and the dual oil embargos in the 1970s precipitated a major fiscal crisis that produced decreased corporate profits. It was at this point that corporate and Republican interests converged to attack labor unions. Restructuring domestic and global labor markets by busting unions and dismantling government regulations would free corporations to cut wages, restore profits, and shift capital across the world. The beginning and most visible effort to break unions and limit their power was the decision by President Reagan to dismantle PATCO in 1981. He busted the air traffic controllers' union and that sent a clear signal that it was OK to go after unions.

Together the GOP and corporations waged a terrific battle against unions, claiming that America's economic decline was rooted in high union wages, inflexible rules, health care and benefits, along with excessive government regulation and taxation. Big government and unions were the cause of American decline. Of course, not all of this is true.

Comparatively, there are higher rates of unionization in Europe — along with higher wages, and these countries, especially Germany, remain very competitive. Yet blame the unions because they form a great scapegoat for American industrial decline. They hide the fact that many corporations failed to invest in new facilities in America and instead bled old ones. They failed to respond to new technological advances by Japan and instead sought restrictive trade policies to prevent foreign competition. One could go on and on, but the short answer is that unions and workers were not the cause for badly designed American products and they were not the reasons for economic outsourcing to China. Increased corporate power, globalization, and the drive to maximize profits, as Bennett Harrison and Barry Bluestone wrote in "The Great U-Turn," were the cause.

Private-sector unions weakened
The war on private-sector unions and government has been a success. Private-sector unions are now relatively weak. They constitute about 8 percent of the private-sector workforce. Their decline correlates with significant increases in economic inequality, declining wealth for the poor and middle class, and the weakening of the Democratic Party. The one stronghold for unions is the public sector. They constitute a larger percentage of the public sector workforce than do unions in the private sector. They generally support Democrats, and in return for lower wages compared to the private sector they have received greater job security and often better benefits. The job security in part was a consequence to prevent the politicization of the government, to protect from political reprisals, and limit patronage and the spoils system.

Public-sector unions are now under attack as governments now face their own version of a fiscal crisis. The battle in Wisconsin is part of a broader agenda to demonize public employees and government. It is easy to fault teachers and tenure for why Johnny can't read. Instead of adequate funding for schools or better social-welfare programs to prepare poor students to go to schools, blame teachers. Say it is their fault and take away tenure, put them on pay for performance, or close schools down.

None of this solves the problem.

Similarly, blame years of regressive tax policies on public-sector unions and fault workers as the cause of structural deficits. It is just so easy. It is a great wedge issue — play the resentment and divide and conquer cards with taxpayers and private-sector workers. Somehow if only corporations, and now government, could be free to hire and fire at will, slash wages, and gut benefits, then we would not need to raise taxes and our deficits would disappear. It is such a simple solution — instead of raising the standard of living for all workers, cut public-sector unions down. Level the playing field by bringing everyone down. This is what the battle in Wisconsin is about.

Thursday, February 17, 2011

Detached Reality and Altered States: The GOP Response to the Dayton Budget

"This budget is detached from the reality every other state has recognized," Minnesota House Speaker Kurt Zellers.

That's how Speaker Zellers describes Governor Dayton’s budget, especially the provision calling for new taxes on the wealthy. Similarly, Senator Amy Koch, majority leader of the Senate, calls it a “job killing budget.”

Job killing and detached from reality. This is the core argument of the GOP against the Dayton budget. Yet behind the name calling one looks in desperation for the Republican alternative and it has yet to emerge. Just last week Dayton vetoed the $1 billion in cuts the GOP had already suggested. Yet that $1 billion was more than $5 billion short of what is needed, and the GOP has yet to propose how they plan to find the additional money.

The truth is they do not have a solution. Yes they will rant and rave about tax hurting the state economy (little evidence that is true), that there is waste and fraud (little evidence that is true), and that the budget is a job killer (even less evidence that is true). However, they do not have a solution and are afraid to offer one. Why? Two reasons.

First, education, health, and public safety constitute 70%+ of the state budget. Any solution that seeks to address the deficit without cutting these items will not work. As Willie Sutton said when asked why he robs banks: “That is where the money is.” These items include K-12 and other popular programs for health. Cuts to them will be unpopular and the GOP does not want to be the party proposing them. They want to be a majority party beyond 2012 and if they get tagged as the ones who threw grandma out of the nursing home and took books away from Suzie, they are dead. They are hoping Dayton and the DFL take the lead on these cuts and then the GOP can escape blame. Moreover, the $1 billion cuts they suggested so far? Simply trial balloons on programs such as LGA to see how Dayton would react. So far, none of their proposals inflict clear pain upon voters.

The other reason they cannot swallow taxes? Their core constituency seems dead set against it. Tax opposition is the cornerstone of the GOP and the Tea party. To raise taxes is to violate a core belief no matter the reality. To raise taxes means the GOP is no different than the Democrats. To raise taxes also risks alienating many fiscal conservatives who might go elsewhere or not vote if the GOP supports taxes.

Thus the rock and hard place for the MN GOP: Be responsible, compromise, and accept some tax increases on the wealthy along with some spending cuts and risk alienating their base. Oppose tax increases and cut spending to popular programs and lose your majority in 2012. All Dayton and the DFL need to do is figure out how make this GOP dilemma work to their advantage.

Some will argue the GOP can make all these cuts without tax increases, without hurting the state, while also making additional tax cuts, and in the process grow the economy. Sound familiar? About 30 years ago Reagan said he could cut taxes, increase defense spending, and grow the economy without hurting the poor. John Anderson, in running for president against Reagan, said the only way that could be done was with “smoke and mirrors.” He was right then, and now. David Stockman confirmed that.

The basic GOP message on the economy, taxes, and the budget has been smoke and mirrors for 30 years. It has been about cost shifting, fund raiding, program bleeding, living on past spending approaches. It has been about blaming government waste, immigrants, and lazy welfare cheats as the cause of the financial problems we face. It has been about ignoring how the demand for tax cuts to benefit the wealthy have forced a hemorrhaging of the deficit at the national level. It has been about Pawlenty pushing through a law counting inflation for revenue purposes but not for the purposes of state expenditures.

It has been about simply being dishonest about the reality of the budget crisis we are facing. It is about constantly postponing to the future the problems with the present budget and spending scenario. It is about them saying that we do not have a revenue problem but a spending problem. It is about them clinging to a faulty supply theory of economics that is no more than a gloss for tax the poor and give the rich a free lunch.

Dayton’s budget reflects compromises, yet I do not see the compromise coming from the GOP. I give Dayton a lot of credit. His budget is grounded in reality. He is saying to those who got the feast it is time for them to pay for the meal. It is telling those best positioned to bear the risk and costs to assume their burden. It is telling people that we need to ask the best advantaged to stop being so greedy and recognize they have a community duty to pay their debts and help others.

Conversely, Obama and the national GOP are equally culpable in creating the Washington mess. Together they extended Bush era tax cuts that added nearly $1 trillion to the deficit and now both sides are whining that they need to make cuts. Last December Jesse Jackson got it right when he said the tax cuts then meant the poor would lose this spring. Even Pat Buchanan agreed. Obama admitted this week his budget did little to address the bigger structural problems with the budget. No one will do this until after 2012, if then. They have all created a mess they are unwilling to fix.

And then there is Bachmann. She continues to run across the country demanding fiscal accountability and cuts, yet she has no track record on delivering either. She seems more interested in worrying about whether women breast feed in public. Terrific! She has now cornered the anti-lactation vote.

I grew up in the home town of Rod Serling and the Twilight Zone. I know something about altered states. I wonder in the end, who is really living in a different reality.

Sunday, February 13, 2011

Tea Party Constitutionalism: What "original intent" would look like

For those interested in thoughts about the Tea Party and the Constitution, take a look at my piece in Salon (13 February, 2011) entitled What "original intent" would look like.

Here is the piece.

With reverence and awe, Michele Bachmann and the Tea Party pay homage to the original Constitution and framers who drafted the document in 1787. The House of Representatives, in a nod to them, began its session this year by reading it. Bachmann even brought Antonin Scalia to a seminar on the Constitution for members of Congress, where the Supreme Court justice instructed members to read the Federalist Papers and follow the framers' original intent. Moreover, many of the Tea Party's political positions, such as opposition to President Obama's healthcare reform program, are rooted in their adherence to the original document.

But what if they actually got their way? If a Tea Party constitutional reading suddenly took sway and we returned to the original document as conceived, what would the American republic look like? Much to the surprise of Bachmann and others, there wouldn't be that much freedom and democracy.

To begin with, the original document was silent on the right to vote. Voting rights were largely a matter of state law, and in 1787 most states limited the franchise to white, male, Protestant property owners, age 21 or older. The original Constitution did not allow for direct popular voting for president or the United States Senate, and there was no clear language even allowing for voting for members of the House of Representatives. It took the 17th Amendment, adopted in 1913, to allow for people to vote for their senators (an amendment many Tea Party activists wish to repeal), and the Supreme Court, in two landmark cases in the 20th century, found that the right to vote for House members and in state and local elections was located in Article I, Section 2 of the Constitution and in the First Amendment.

Today there is still no right to vote directly for president, and it's only by the whim of state legislatures that there is a popular vote for that office. Had an original or plain reading of the Constitution been employed along the lines they advocate, many Tea Party activists would not have been able to vote last November. Finally, the original Constitution was silent on the right of women to vote, and states did deny them the franchise. It wasn't until 1920, with the adoption of the 19th Amendment, that women were given the right to vote. Without this amendment, there is no guarantee that Michele Bachmann would ever have been allowed to vote, let alone run for office.

Continue reading
The original Constitution didn't include a Bill of Rights. Alexander Hamilton, one of the framers and authors of the Federalist Papers, argued against it. The Bill of Rights protects many rights the Tea Party considers hallowed, such as the freedom of speech and assembly and a right to bear arms. Lacking a Bill of Rights, these freedoms wouldn't be protected against limitation by the national government. Moreover, the Tenth Amendment, which declares that "powers not delegated to the United States by the Constitution … are reserved to the states," would not be the law of the land; thus, there would potentially be no limits on what the national government could do.

But even if we consider the Bill of Rights, which was adopted in 1791, to be part of the original Constitution, there are still many limits on its use. Most importantly, as written, the Bill of Rights limited only national power -- not state power. Notice how the First Amendment begins by declaring, "Congress shall make no law … " The most important provisions of the Bill of Rights, as Justice John Marshall stated in the 1833 case Barron v. Baltimore, weren't meant to be a limit on state power. In that case, the Court ruled that a state could take an owner's property through eminent domain without compensating him.

Subscribe to an original intent reading of the Constitution and states are free to disregard individual rights, including free speech, property, religion and others. States did just that in the early years of the Republic and into the 20th century before the Supreme Court used the 14th Amendment to apply Bill of Rights provisions to the states. Most recently, the Supreme Court (with Scalia supporting it) used this incorporation tactic to apply the Second Amendment right to bear arms to states. A Tea Party constitutionalist could not have done this. So much for states as protectors of individual freedom.

And then there's the matter of slavery. Article I, Section 1 of the original Constitution permitted slavery and the slave trade. It referred to "free persons" and those "bound to service." For the purposes of census, apportionment and taxation, Indians and other persons would only be counted as three-fifths of whites. Slavery did not end until the Emancipation Proclamation by Abraham Lincoln in 1863 and the adoption of the 13th Amendment in 1865. The original Constitution lacked an equal protection clause, which bans discrimination. It took the 14th Amendment in 1868 and a Supreme Court decision to create it. Lacking this clause, states were free to discriminate, and they regularly did via segregation laws.

Judicial review, or the power of the courts to declare laws unconstitutional, also wouldn't be permitted under an original intent reading. Tea Party constitutionalists now argue that the courts legislate from the bench when exercising this power, but it was the power of judicial review that made it possible just recently for two federal district court judges to declare the individual mandate in "ObamaCare" unconstitutional.

But nowhere in the original Constitution does it say that the federal courts have the power of judicial review. Alexander Hamilton in the Federalist Papers suggests that the federal court has this power, but it wasn't until 1803 that the Supreme Court actually ruled that this power existed. Hence, a contradiction: Hamilton, a constitutional framer and author of the beloved Federalist Papers, asserts that a power that is not explicitly written in the Constitution exists and a court rules in his favor -- and then, all these years later, Tea Party constitutionalists use that power to invalidate a federal healthcare law on the basis that it violates the Constitution!

Tea Party members say healthcare should be done at the state level. If so, states like Massachusetts have far more authority to mandate individual coverage than does the federal government. The main issue regarding "ObamaCare's" constitutionality is whether the Commerce Clause -- Article I, section 8, clause 3 -- gives Congress the power to mandate that individuals purchase insurance. The Supreme Court will ultimately rule on this. But there is no question that states using what is called their police power authority -- the ability to legislate for the health, safety and welfare of their people -- could adopt an individual mandate.

And let's not forget Alexander Hamilton, who argued against the need for a bill of rights and in favor of judicial review. The famous "Report on Manufactures" and "Report on Public Credit" he prepared as George Washington's treasury secretary argued for an expansive federal government role in assisting the economy -- hardly something the Tea Party constitutionalist would endorse.

It should be clear that many of the liberties and rights today's Tea Partiers demand and benefit from just didn't exist in the original form of the Constitution. It took many amendments and clarification from the courts to secure them. On top of that, if the ideal the Tea Party espouses ever was realized, it would just mean the states would have more authority to suppress rights.

Monday, February 7, 2011

Dumb and Dumber: The Folly of Taxpayer Handouts for Professional Sports

Governor Dayton wants funding for a new Vikings stadium and bond for a new St. Paul Saints Stadium. Mayor Rybak wants money for the Target Center. All told the taxpayer or public support for these projects is well in excess of $1 billion.

Should we do it? Are these subsidies good economic development tools? The simple answer is no. American public policy is cloaked in many myths. There are many ideas recycled from government to government over time with little thought given to the evidence supporting their empirical assumptions or their prospects for success. Like bad meals that repeat on a diner, or a vampire who never dies, these ideas too are recycled and never seem to go away. This is the case with public subsidies for professional sports teams. While it makes no sense to provide bailouts to sports billionaires in general, doing so when Minnesota is $6.2 billion in the hole and it has other pressing needs is even dumber.

Does it make sense for a city or community to fund the construction of a new sports stadium in order to stimulate economic development? Listening to sports reporters, team owners, and many elected officials, the answer is "yes." Yet, while it may be fun to root, root, root, for the old ball team, does it make economic sense for the public to provide tax dollars to pay, pay, pay to for new stadiums? What are the facts and what do we know about the impact of sports stadia on economic development and urban revitalization? The overwhelming evidence is that the public use of tax dollars for a sports stadium is economically inefficient and a bad investment that produces no real net economic benefit to a community. In short, giving money to building stadia is simply sportsfare—welfare for sports.

In general, as one surveys local debates about stadium construction in the United States, three basic arguments are employed to support using public money to build sports stadia. First, proponents claim that building a new stadium will have a big impact on the economy, generating many new jobs and bringing new businesses to the area. However study after study has demonstrated that advocates of public spending on stadia consistently exaggerate the benefits of sports to a local economy.

A 1996 Congressional Research Service (CRS) report, “Tax-Exempt Bonds and the Economics of Professional Sports Stadiums” (Zimmerman 1996) concluded that sports stadia represent a small percentage (generally less than 1%) of a local economy. It also stated that there is little real impact or multiplier effect associated with building sports stadia. By that, if one looks at the economic impact of the dollars invested in sports stadia, the return is significantly smaller than compared to other dollars invested in something else.

Moreover, the building of stadia merely transfers consumption from one area or one type of leisure activity to another, and that overall, sports and stadia contribute little to the local economy and instead represent an investment that costs the public a lot while failing to return the initial investment. Dollar for dollar, the opportunity costs of investing in sports stadia is a terrible option if the goal is economic development, job development, or producing new economic development in a community. In short, the nearly $3 billion in sports subsidies it documented produced little, at the cost of over $120,000 per job.

Literally hundreds of other studies and books by individuals such as long-time sports economists Arthur T. Johnson in Minor League Baseball and Economic Development (1995), Mark Rosentraub in Major League Losers (1997), Kenneth Shropshire in The Sports Franchise Game (1995), and Roger Noll and Andrew Zimbalist in Sports, Jobs, and Taxes (1997), and Michael N. Danielson in Home Team (1997) reach the same conclusion—public support of professional and minor league sports is a bad investment. In practically none of the cities these studies examined did new sports stadia lead to any significant new private investment or provide for any significant economic benefits to the local economy besides the jobs generated by the initial capital construction of the stadia. More importantly, the new stadia generally were not even profitable or self-financing. Nor could cities point to rising land prices or economic development in the surrounding community. Even as tourist attractions, the stadia either simply transferred sales from somewhere else, failed to demonstrate that the local hotels were filled as a result of the sports events. Finally, in terms of the much ballyhooed job production, outside of initial construction and the salaries for the players themselves, part time, seasonal, and no benefit beer and peanut sales jobs were the fare for what the billions of public dollars produced.

A second claim to support public investment in a stadium is that keeping a sports team is necessary to ensure that one remains a first class city. Would the Twin Cities of Minneapolis and St. Paul (which the State Legislature voted in 2006 to authorize a sales tax worth upwards of $300 million for a new stadium) or any city be any worse off by losing a sports team? Without a sports team, most cities would still have parks, museums, zoos, arts facilities, good neighborhoods, schools, and the general quality of life that separates first and second class cities from one another and suburbs.

Moreover, if one accepts this logic of sports being necessary to make a city first class, can we say that New York City became second class when the Giants and Dodgers fled for California in the 1950s, or that Los Angeles became second class when it lost the Angels to Anaheim or the Rams to Saint Louis? The answer is obviously no.

Professional sports are only one small piece of what makes a city first class. Moreover, professional sports are also only a small part of the local entertainment puzzle with many consumers often transferring their consumption to other forms of entertainment, including amateur sports, if pro sports are not available. Similarly, sports are even a smaller piece of the local urban economic pie such that its presence or absence is not significant in the face of other features in a thriving and diverse urban area. In addition, with the cost of attending sports events so high, often approaching or exceeding $200 per game for a family of four, many sporting events are no longer an affordable family entertainment option. Instead, sports owners look to other corporate interests to buy tickets, thereby making sports an aspect of a city’s first class status that is beyond the reach of most of its residents.

Finally, advocates for a publicly-funded stadia say that such funding is necessary to maintain owner’s profits. The issue here is not profitability, but the level or amount of profits the owners want. They want to make more money and who is to blame them for that desire. However, there are a couple of different issues here. First, many owners say that larger stadia with more seats are necessary if they are to make more money. To support that, owners often trot out attendance figures to show declining profits.

Attendance figures tell only part of the story since they are only a small part of the revenue stream for owners. Revenue from luxury sports boxes, corporate sponsorship and ads, television and radio contracts, and promotions make up a far bigger and more profitable part of what owners receive from their sports adventures. Yet even this money is not enough because owners often claim they are not making as much money as other owners and thus, building a new stadium is a key to upping their profits. Clearly the end result of this “keeping up with the Jones” logic is to constantly push up the average profitability of all sports teams such that there will always be some teams below the average demanding financial assistance.

Moreover, professional sports is free enterprise. It is about competition and winning and losing. It is about private initiative and not public handouts. If teams cannot make it on their own then they should move or close down much like any other business would.

Overall, while communities may choose to invest in sports facilities because of the cultural amenities they offer, doing so for economic development reasons is another stupid public policy and political myth that deserves to die. It makes no sense to Minnesota tax dollars on professional sports handouts. This is just dumb and dumber.

Saturday, February 5, 2011

Pawlenty’s Problem: Why the Former Minnesota Governor’s Presidential Campaign is Faltering

Tim Pawlenty has made it clear he wants to be president. Unfortunately for him, despite repeated trips to Iowa, New Hampshire, and other early caucus-primary states, he remains low in the polls, often hovering below undecided or “don’t know” among the GOP polled about their 2012 presidential preferences. These continued low poll numbers and name recognition become evermore worrisome for Pawlenty with the Iowa caucuses merely one year from now.

But what explains his persistent low poll numbers? There are many reasons. The most recent being him becoming the "other Minnesotan” running for president, being eclipsed by Michelle Bachmann in terms of buzz and excitement.

Yet the core reason for Pawlenty’s lack of success is simple–he lacks a narrative.

I have written often about the importance of a narrative in politics. Political narratives are stories you tell about yourself that define who you are, what your vision of the world is, and what you hope to accomplish if elected to office. The narrative is what defines you as unique. Narratives are selling points for candidates similar to story lines for products being sold (sales pitches) or the arguments made when doing fund raising. This is why I argue that candidates are like selling beer. Budweiser tells a good story about its product, why you should drink it, and what kind of person you are if you consume its product.

Political narratives are powerful rhetorical devices. They move voters and set candidates apart from others. In 2008 Obama had a narrative about change, a story about himself as the embodiment of the American dream. In 1980 Reagan told a story about personal initiative, self-reliance, and government, and in 1960 JFK told of a country facing new challenges in a cold war and Sputnik era. All successful candidates have narratives.

Pawlenty’s problem all along has been the missing narrative. The best way to describe this comes from a recent chart that the New York Times constructed (February 4, 2011) that graphically depicted the major GOP contenders along two dimensions–moderate/conservative and inside/outsider. According to the graph, Pawlenty is dead in the center. He is neither insider nor outsider, moderate nor liberal.

For Pawlenty this placement might suggest perfect placement. He is dead center. This may be true, but I think another interpretation is possible. Pawlenty is not the first choice of anyone, he is the second or third (or fourth or lower) choice for most. He is the default candidate behind everyone else. He is not preferred by anyone as their first choice, and he is stuck behind the other first choices of Romney, Huckabee, Palin, and yes, even Bachmann. As Leo Durocher once said: “Coming in second is like kissing your sister.” There is no thrill or excitement here, and that is Pawlenty’s problem.

Pawlenty is a derivative candidate. He has yet to carve out a narrative that distinguishes himself from the other more famous candidates running. He is thus far a boring, bland, GOP governor from somewhere in the upper Midwest; a candidate who never won a majority of the votes as governor.

Pawlenty has tried several narratives for the last couple of years but none seem to work. He is against taxes but so are other candidates. He opposes abortion and same-sex marriage, but so do others. He in so many ways has run for president on the narrative “Me too” when referring to his positions that ape his more famous competitors. Pawlenty has simply failed to carve out a distinct set of political views that distinguish him from the pack.

On top of that, Pawlenty cannot fill in his narrative with his record in office. Maybe he can say no tax increases for eight years, but he left the state with a fiscal mess that is not good. He cannot point to a major turnaround in schools, and he has no other real accomplishments he can point to. A bridge collapsed under his watch and he lost the unallotment case. There is also no evidence of coattails with his victories and instead, he may owe his election to Paul Wellstone’s plane crash in 2002 and the huge turnout for Michelle Bachmann in 2006 that gave him the winning edges.

The personal story of Pawlenty is not really compelling. Yes blue collar roots to governor. At one time he tried the “I am the Sam’s Club Republican.” That did not work either. It is also not working on the book tour. A tour, by the way, following in the path of all other candidates who sort of write a book and go on tour. Again, his tour is derivative of Palin’s right down to the cover design. Finally, few can say that Pawlenty is a compelling or electric speaker compared to a Palin or Bachmann.

Overall, Pawlenty’s problem is the missing narrative. He has tried several and they are not compelling. He has very little time to find one and I doubt it will happen. Iowa is one year away. He needs a good story now and he cannot find one. Without it, he will remain in the center of the GOP chart, no one’s first choice.