Rout and Route: What Happens to Minnesota Democrats on and After Election day 2022

There is the real possibility that Minnesota politics could be a rout this November.  It would be a rout of

the DFL and a major victory for the Republican party, potentially putting the latter in charge for the first time since 1984-1986 when it was the last time the GOP controlled the state legislature and the governorship.  It might also represent the culmination of the Trump and Republican Party effort that first started in 2016 to flip the Midwest.  Of all that happens, what is the route for the Democrats after election day?

The National Scene
Six months ago it would have been an easy prediction to argue this election cycle nationally and statewide was favorable to Republicans.   Generally the president’s party does badly in midterm elections, losing an average of 26 House seats. Six months ago Biden had approval ratings of about 40%, Voters disapproved of the president’s handling of the economy despite the fact that there was record low unemployment and the strongest labor-wage  market in years. For voters the economy was inflation at the gas pump and grocery store.  Voters were also concerned about crime.

Nationally Democrats had either no narrative or a bad narrative when it came to the economy or crime.  But then the Supreme Court overturned Roe v Wade and abortion saved the Democrats, temporarily.  For several months abortion was the major Democrat talking point nationally and in Minnesota, and it appeared to save them as it motivated many groups, including college educated suburban women.

Until a month ago or even less it looked like abortion would save Democrats. But national polls suggest that abortion has run its course.  The economy or inflation and crime are the top two issues by far, with abortion third or even lower.  This is even true among suburban women.  Polls now suggest that US Senate races where the Democrats were once favored, such as in Georgia, Pennsylvania, and Wisconsin, are tightening and it is possible Republicans could prevail.

Minnesota
Minnesota is an American political microcosm.  MPR and Survey USA (KSTP) polls point to an electorate worried about inflation or the economy and crime.  This includes suburban voters.  Polls suggest a close race for governor’s race, Attorney General, Auditor, and even Secretary of State.  Depending on voter mobilization and how the few undecided voters break, these races could go DFL or GOP.  Many think the GOP will win at least the AG and State Auditor.   The DFL holds a narrow majority in the Minnesota House and the Republicans a small but solid majority in the Senate.  The only real tight Congressional race is in the Second District where DFL incumbent Angie Craig holds (according to internal polls) about a one-point lead over GOP Tyler Kistner.  

While I see no chance for the DFL to flip the Senate I am also doubtful that it will hold the House. It is thus entirely possible for the DFL to get swept out of the four statewide offices and lose the second Congressional District.

Were the above to happen, what went right for the Republicans or wrong for the Democrats?

Messaging and Strategy
One answer is that the results in Minnesota are determined by national trends.  An unpopular president, inflation, and crime are macro forces beyond the control of anyone in Minnesota. Republicans rode the wave and Democrats got buried in it.  But such an explanation ignores too much.

Nationally Democrats had no message or narrative on inflation or crime.  Granted there is little a president can do to address inflation, but the talking points were awful or next to none.  The same is true with crime. Biden and the Democrats could have stolen a page from Bill Clinton  and proposed money to hire 100,000 police but they did not.  Instead, they became painted yet again as soft on crime.
The same problem exists in Minnesota. Walz and the Democrats relied too much on abortion to save them.   They were tagged two years ago as soft on crime with the riots after George Floyd’s death.  They were tagged with the defund the police movement and failed to articulate a narrative of public safety.  In terms of the economy there may be little they can do at the state level to address inflation. But the fact that they failed to craft a narrative is a problem.

Moreover, the strategy was bad.  Walz sat on his lead and cash advantage and avoided debating.  It cost him dearly. Recent KSTP polls point to a weakening of his support in his former First Congressional District.

Effectively, Walz and the Democrats have written off all but the Metro region.  In 2018 Walz won 20 of Minnesota’s counties. In 2016 Clinton won 9 counties, in 2020 Biden won 13 counties and Tina Smith 15 counties.  The base of the DFL is narrow and counts on high mobilization in a few Metro area counties.

I spend a lot of time traveling the state to lecture and give talks.  It is clear the Metro DFL agenda on crime, the environment, and social issues don’t play there.  The Metro area DFL, party activists here, or the convention attendees and activists are out of touch with the rest of the state, and perhaps with many leaning DFL in Greater Minnesota and even in the suburbs.  As noted above, polls suggest erosion of support for the Democrats in most locations across the state, including in the metro suburbs and among college-educated women.

Summary: Rout and Route?
To state clearly–The DFL and Walz may have a message out of touch with most Minnesotans who are nowhere near as progressive as the Metro area or core Twin Cities activists. This in turn  renders their strategy to win difficult because it is one narrowly confined or defined to a narrow base.  Moreover the messaging or narrative fails to understand the depth of concern regarding crime and  the economy and its focuses too much upon an agenda that appeals to the progressive wing of the party.  Couple that with a campaign strategy that aims to mobilize only in a few counties, that fails to counter the GOP narrative, that focuses too much on abortion this year, and which, in the case of Walz, sat on a lead, one then gets the makings for a rout.

If that rout occurs, the question on the day after the election will be to ask what route should the DFL have taken to avoid the rout, and what direction should it take going forward?

America Beyond the 2012 Elections: What the candidates should be discussing

Groucho Marx declared that any club that would have him as a member he would not want to join. His sentiment perhaps captures my attitude toward presidential candidates–anyone who wants to be president I would not want to support! The reason is that with America’s problems so pressing, anyone who wants the job or thinks they have easy solutions to the difficult problems is probably a fool and should not be president.

The same is true this year. While the presidential primary and now general election seem again mired in social issues, the tough issues facing America are left untouched or inadequately discussed.  Yes, there are concerns about the solvency of Social Security and other entitlement programs, and the economy and gas prices loom large, yet there is little serious debate about how to solve these issues, whether the president even has the power to do anything, and also little discussion about a range of other pressing concerns that need to be addressed. Regardless of who wins in November, consider some of the pressing issues that need to be confronted but which are being ignored.

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 (61% say in the wrong direction) and few think we are better off now than four years ago.

However, in recent months the American economy appears to be recovering. The unemployment rate is steadily decreasing, the stock market is at pre-2008 levels, and the housing market appears to be stabilizing This has brought a shift to three other domestic issues—gas prices, debt, and social issues. In 1980 rising energy prices due to two embargoes by oil producing countries had an impact on President Jimmy Carter’s election loss to Ronald Reagan. In 2012 projections are that gas prices may increase from approximately $3.00 per gallon to perhaps $5 by July. These rising prices are already causing a potential worry in terms of their impact on the US economy, and they are the subject of political criticism by Republican presidential candidates who are blaming Barack Obama for the increases.

American Decline?
A second domestic issue is the American budget deficit. The current budget deficit for fiscal year 2013 is projected to be nearly $980 billion with overall nation debt estimated at $15.6 trillion. This debt is a concern for many reasons, some of which is over worry that the United States cannot continue to finance it budget deficits by borrowing. Continued long term US debt affects its credit rating and ability to borrow money from sources, some of which are international. Efforts to reduce the debt and budget deficit potentially have an impact on defense spending and there are some discussions regarding how this might affect US military might. Paul Kennedy describes how one threat to the United States may be that its declining economic strength may compromise its ability to maintain its international military supremacy or standing in the world as it loses it capacity to maintain both hard (military) and soft (economic) hegemony.

Former national security advisor Zbigniew Brzezinski writes in his new book America and the Crisis of Global Power that the budget deficit, an unstable financial system, decaying infrastructure, growing economic equalities, and partisan politics threaten America’s national security and international standing. In many ways his arguments echo what Paul Kennedy had asserted 25 years ago in his influential 1987 "The Rise and Fall of the Great Powers" that the declining economic stature of the United States could have a significant impact upon its geo-global standing. Both books powerfully connect domestic politics to national security and assert that the country must confront certain realities. Yet unlike when Kennedy wrote it appeared America had bipartisan capacity to act, Brzezinski sees the very polarization of our political system as a strategic liability, standing as impediment to solving the other problems that exist.

This polarization affects the capacity to govern. Samuel Huntington and others were roundly criticized over a generation ago for asserting that America faced a governability crisis. Yet now he seems prescient. The list of problems confronting the American political system is endless. There is the growing polarization of the political parties that makes compromise near impossible. Add to that the personalization of political attacks that render compromise after election difficult. But there is also the growing disaffection of the public from the two major parties, the inability of the Democrats and Republicans to escape capture by special interests, the impossibility of the an opportunity for minor parties to emerge. Polls increasingly point to large majorities of the American public expressing dissatisfaction or distrust with Congress and the government overall, and while money in politics has always been a problem, the Supreme Court’s decision in Citizens’ United v Federal Election Commission has exacerbated the impact that wealthy donors and corporations have on the political process. Political scientist E.E. Schattschneider wrote more than 50 years ago that America was in danger of becoming the largest aristocracy in world where political power was stratified by wealth, race, and gender, and that has largely come to be.

But the political divisions are a consequence of another real problem America must confront—the growing gap between the have and have-nots. Mounting evidence demonstrates that the United States has the largest gap between the rich and poor this country has experienced since the 1920s. Since the 1970s repeated studies document declining social mobility for the poor and middle class and a nation where the rich have done will and the rest have not. The United States fares poorly in comparative statistics on equality and mobility compared to other developed countries. The reality is that there is a significant class divide in this country, affecting political engagement, life prospects, health, and a host of other issues.

Domestic Policy: Infrastructure, Health Care, and Gas Prices
Another issue is America’s crumbling infrastructure. It now seems a distant memory that in 2007 a bridge collapsed in Minneapolis. For a few days infrastructure was the word of the day. “Infrastructure” is not a sexy word. Nor is it the type of word that most of us use in everyday conversation, until the Minnesota bridge collapsed. Yet infrastructure—a short hand way of referring to America’s bridges, roads, highways and sewer and water pipes—is important to our everyday lives. Without the basic infrastructure of roads we would never get to work, to school, or go shopping. Without it we could not cross rivers, drink water, or flush our toilets. In 2007 the American Civil Engineering Society estimated a need of at least $2.2 trillion to revitalize America’s aging infrastructure. While no additional bridges have fallen, the aging American infrastructure costs the economy billions in lost competitiveness.

The American health care system is a mess. The United States currently spends nearly 18% of its GDP on health care, far greater than the 10-12% spent by other developed countries. Spending will only grow as the Baby Boomers age. The United States does not have universal coverage and 44 million plus lack basic coverage. Health indices such as infant mortality, life expectancy, and obesity rates compare unfavorably to other nations. Obama’s health care act may not have been an ideal solution, but it tried to do something.  Republican Party repeal or Supreme Court invalidation of the health care act and return to a free market solution will fail to address the problem.

Short term rising gas prices are a problem but the longer term issue is that this country remains wedded to a low cost hydrocarbon economy that is not sustainable. Demands to frack or drill more will do little to depress long term energy prices as worldwide demand increases. In fact, statistical evidence demonstrates that America’s increased production over the years has had little impact on decreasing energy prices. Unlike Germany which is moving rapidly into alternative energy sources, or Europe in general which has adjusted to higher prices, the American economy is not prepared for a new energy future.

Finally, there are significant educational and demographic changes that America needs to face. Educationally, America’s students underperform compared to those in most other developed countries. It is not that teachers are not teaching but that our school system represents a horse and buggy era far too slack on math, science, and other standards. Americans still think that second languages are unnecessary, and ignore the ways that poverty and racism affect learning and outcomes. Demographically, we face a more diverse yet aging society. Future workers will have to support an aging population and these new employees confront a high-tech world where they may not have the skills to compete on a global scale.

All of the above described problems are dire and require money to fix them. This list does not even include the environment and global warming, but the last problem America faces—its budget deficit, as noted—may make that impossible. Continued long term US debt affects its credit rating and ability to borrow money from sources, some of which are international. Efforts to reduce the debt and budget deficit potentially have an impact on defense spending and there are some discussions regarding how this might affect US military might. Both Paul Kennedy and Brzezinski, as noted, describe how one threat to the United States may be that its declining economic strength may compromise its ability to maintain its international military supremacy or standing in the world as it loses it capacity to maintain both hard (military) and soft (economic) hegemony. Together they and others see a need to address the long term fiscal health of the country but alas, the growing political polarization of the United States places a solution beyond immediate grasp.

Foreign Policy
So far in 2012 foreign policy issues have been secondary concerns this year. The United States formally withdrew from Iraq in 2011, leaving this issue as a minor concern for most. However, the United States still has troops in Afghanistan and there are some who criticize President Obama’s intention to phase out the military commitment there.

The Middle East in general is perhaps the primary foreign policy concern for the United States. There is concern over Iran’s nuclear ambitions, defense of Israel, and the latter’s potential bombing of Iran to prevent its access to nuclear weapons. The Obama administration does not presently support military action against Iran but some of the Republican presidential candidates do. The notable exception is Ron Paul who does not see Iran as a security threat to the United States. The United States supports the opposition in Syria but so far official US policy has not endorsement arming them or taking more aggressive military action. Again, some of the Republicans endorse this action.

In addition to the Middle East, North Korea’s stability and nuclear ambitions are of concern. Recently the United States secured some agreements regarding the North Korean nuclear program. Regardless of who is elected president, steps will continue to be taken to address this issue. It is unlikely that the US will return to the rhetoric of George Bush who labeled North Korea one of the “axes of evil.”

Finally, Europe does not seem to factor large in terms of issues dominating the 2012 American elections. This is perplexing given the historical close alliances with Europe and how financial instability across the continent could impact the American economy. Furthermore, Russia does not factor very high in the 2012 presidential debates, although Mitt Romney, the likely Republican Party presidential nominee, has described that country as one of the main competitors and security threats to the United States. China is perceived as more of a rival or threat to US interests than is Russia. Barack Obama shortly after assuming the presidency canceled the missile shield proposal in Europe that his predecessor George Bush was advocating. Were a Republican elected as president it is possible that the missile defense shield proposal might again be resurrected.

Overall, these are the difficult issues confronting America’s future and it does not look like either any of the candidates or political parties are confronting them in a realistic fashion. Nor does it appear that either the media or the public is either.

The Last Word
There is an interesting article in the New York Times discussing how Obama is having a difficulty attracting big donors this election. It notes how over 58% are small donors this time. Big money is going to the GOP.  It seems that after wealthy America threw a party and had to pay the bill, they turned in 2008 to Obama to bail them out. Now that they are bailed out and partying again they have turned their bake on him. There is a message here for Obama and corporate Democrats. The silver lining here is that if Obama gets reelected it will be with small donors and perhaps they will mean a change in politics. But the worry for Obama and the Democrats is that big money is again voting ideological and that is usually a good sign for Republicans.

What Obama Should Do: A Real Jobs Bill for America

President Obama came to Minneapolis to the American Legion Convention talking jobs. . . sort of. As of yet Obama has yet to propose a jobs program and in Minneapolis he spoke of a tax credit to hire a vet. As typical, the proposal was too little, too modest, and lacking vision.

Were the vet tax credit adopted it would help only a small spectrum of those unemployed, pitting other unemployed against vets for jobs, ensuring a resentment of the former against the latter. Moreover, there are questions about the job skills for many of these vets and whether military skills have civilian application. For many, workforce training, medical assistance for war injuries, and serious enforcement of the Sailor and Solder’s Act to prevent employer discrimination against vets would be even a better idea.

Yet the tax credit Obama is proposing is typical of the timidity of his vision. His 2009 stimulus bill, panned as a failure by many, did its job but was probably half the size of what it needed to be to make a real impact according to most experts. The best study of the stimulus bill, “The Net Fiscal Expenditure Stimulus in the U.S., 2008-9: Less than What You Might Think, and Less than the Fiscal Stimuli of Most OECD Countries,” by Joshua Aizenm an and Gurnain Kaur Pasricha, concluded that the federal money made available by the stimulus mostly just replaced budget cuts at the state and local level. All it did was to prevent the Great Recession from getting worse–it merely replaced state money with federal money. No significant stimulus as a result.

Thus, the vet tax break along with his rumored infrastructure bank proposal and his desire to extend the payroll tax break, will be insufficient and short of the mark. Obama will be limited in how much money he can invest in jobs, hemmed in by the constraints of the debt ceiling deal he capitulated to. No, Obama, will propose too little, compromise too much, and in the end, it will die a victim of the 2012 election politics. If by some chance a jobs proposal is adopted, it will have little impact, giving Republicans even more ammunition to argue that Keynesian economics has failed, the government is inept, and that Obama must be thrown out of office, only to be replaced by more of the bankrupt Ayn Rand economics that got America into the mess it currently is in.

The Republicans are not going to do anything to help Obama and the economy. This means instead of proposing anemic measures that will not succeed, propose a grander vision and set of ideas for jobs. Offer the alternative, run on it, and make that the theme for 2012.

What should a broader jobs vision include? Such a vision should recognize the need to produce jobs across several sectors of the economy. It needs to be sufficient in size to make a difference. It must also be sustainable.

So an infrastructure bank to rebuild roads and bridges is good. Ever since the collapse of the I-35 bridge in Minneapolis in 2007, it’s been obvious we need to rebuild our infrastructure. The American Society for Civil Engineering places the price tag for rebuilding this country’s infrastructure at $2.2 trillion dollars. Yet even if money is spent for this, only some will find jobs. Yes construction workers would be helped, but not white collar, older, and many female workers. Face it–56 year-olds unemployed by the recession for over a year are not getting construction jobs. They would be left out. As would young people still looking for a first job.

Moreover, infrastructure would do little to help the housing industry which is still ailing. Latest HUD reports find single-family home building permits down 10% this quarter compared to the same period last year; actual sales of new single-family homes were down 6%; and total delinquencies for all homes stood at 8.32%, up from the last quarter of 2010. Thus, a jobs bill needs to address many aspects of the economy and the diversity of types of people unemployed. Moreover, it needs to be big–big enough to help many of the different sectors. It needs to address infrastructure, workforce development, and housing.

But finally, a jobs program must be sustainable. Sustainable means capable of actually stimulating the economy enough so that it will actually grow. Sustainable also in that it pays for itself in the short and long term. Thus, how to pay for it? Three ideas.

First, Wall Street Journal articles report U.S. companies sitting on nearly $2 trillion in cash, unwilling to invest it in jobs. Second, Bloomberg News and other sources note another $1 trillion in offshore earnings and accounts. In the Iowa debate earlier this month Republicans proposed a tax holiday to bring the money home to invest. Again good theory but the last time the holiday occurred, businesses did not invest in jobs. They spent it on mergers and acquisitions, dividends, stock buybacks, and executive bonuses. None of these is useful for job production. Let’s require companies to use this money to invest in American jobs, or tax it and lend it to businesses that will provide jobs. Use the tax code to make corporations invest in jobs and not rely on taxpayer dollars.

Finally, use treasury bonds to finance capital jobs projects. Bonding is still the best way to pay for long term infrastructure. Demand is still high for treasury bonds-as evidenced by the fact that when Wall Street heaved after the S&P downgrade of the U.S. credit rating, money poured into T-bills.

Thus, here is a proposal for Obama to stimulate job production and the economy.

* Five year $2.2 trillion bonding bill to repair U.S. infrastructure.

* 100% tax credit for solar equipping all homes and buildings (the added bonus here is on energy savings and costs).

* 100% tax credit on all individual workforce training expenses for unemployed workers.

* Principal-only repayment of all existing student loans.

* Principal-only repayment on all FHA, VA, Fannie Mae mortgages.

* 100% tax rate on all cash savings by corporations held domestically unless used to hire, train, or reinvest in workers.

* Tax amnesty on all offshore corporate savings repatriated to the US if used to hire, train, or reinvest in workers. Conversely, impose a tax penalty on US corporations that fail to repatriate and invest in jobs.

The exact details of a proposal like this can be refined, but they addresses many problems ailing the economy, while also drawing significantly upon the private sector to finance or invest in producing jobs.

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.

Producing Jobs and Helping the Minnesota Economy

Jobs, jobs, jobs. This is the mantra of Governor Dayton and the Republican majority as the new legislative session begins. Both want to jump start the economy, make Minnesota more competitive, and produce new jobs now.

Short term, there is not much they can do, however there is a lot wrong that they can do and which should be avoided. In making policy and spending money on economic development, emphasis should be placed on what research shows that works, not on theory or what some hope will happen.

First, the state can do little immediately to increase employment unless it wants to do direct hiring. Short of that, tax incentives and cuts will have minimal impact encouraging new private employment. Research shows taxes are a secondary factor affecting business investment and hiring decisions. They come behind product demand, workforce quality, access to markets and suppliers, and transportation costs. Taxes are not unimportant; they provide marginal incentives to hire, but only if there is a demand for a product or service and other factors affecting production make sense.

Second, a bonding bill as presently proposed by Dayton will have mixed results for immediate job production. It will generate short-term construction jobs, but the real need is targeting those with little education, people of color, and the many white collar jobs lost in the recession. A bonding bill will have a multiplier affect on the economy, but it may not help many of those outside of construction. Also, looking to building a new Vikings stadium as a jobs program is foolish. Overwhelming evidence demonstrates public subsidies for sports are inefficient when compared to other investments in the economy.

Third, significant weakness in the Minnesota economy is tied to problems with the national economy and the collapse of the residential real estate markets. Minnesota can do little about either, thereby making it again difficult to revive the economy and employment quickly.

Short term, there are a couple of things the state can do. One might be an accelerated depreciation for business capital investments in new equipment. Second, any tax cuts should be targeted for job creation. This would be giving tax cuts to employers who hire now and retain workers for a certain period of time. Third, increase and accelerate the Minnesota Working Family Tax credit to give more money to low and moderate income workers. Fourth, restructure the bonding bill to place a more balanced emphasis on job production and retention beyond construction.

While short term that little can be done to help produce jobs, the state can make things worse. It faces a $6.2 billion budget deficit. Simply cutting state spending and services makes things worse. Cuts mean people lose their jobs, such as teachers or health care workers, and that hurts the economy. Cutting back state services at the same time more people are vulnerable and needing help also seems cruel. The state has to balance its budget, but in a way that is economically smarter than slash and burn and does not do long term damage.

Longer term, the state may be able to do more to help the economy. Simplifying the business permitting process as the Republicans propose is a good idea. Minnesota’s competitive advantage historically has been its educated workforce. Investments in education, including early childhood, workforce development, and training, should be enhanced. Infrastructure development including wireless capacity in greater Minnesota is needed. These factors will do more for the long term economic competitiveness of the state than simply cutting taxes and spending.

The reality is that the state’s ability to revive the economy is constrained both by the budget deficit and broader economic forces affecting Minnesota. No one quick and easy fix exists. Choices need to be made in light of what economically makes sense based on realities and evidence, and not on hope and ideology.

Politics and Economics: Magnuson’s Threat and Obama’s Problem

Politics:
The Gubernatorial Recount

The Minnesota Canvassing Board met yesterday (12-3-10) to review ballot challenges during the Minnesota governor’s race recount. Two fascinating things emerged: First the numbers regarding the challenge, second the dialogue between Tom Emmer’s lead lawyer, Eric Magnuson and state Supreme Court Justice Paul Anderson.

First, with almost all of the recount done, Dayton still leads by approximately 8,800 votes. The recount, as of 2 PM yesterday, yielded 2,880 frivolous challenges by either the Dayton or Emmer side, and 909 non-frivolous by the same. The total is 3,579, the bulk of them coming from the Emmer camp. The Dayton camp had then announced it was withdrawing all these challenges.

When the Canvassing Board examined the frivolous challenges, it became clear to all that they were in fact frivolous. For example, in Renville County Emmer people appeared to challenge all ballots where there was a write-in candidate for the school board. Clearly Magnuson when confronted with that fact was embarrassed and had to admit that he needed to withdraw these challenges.

What the review of the ballot challenges demonstrated is a couple of things. First, even if all the challenges by Emmer broke his way he could not eliminate the 8,800 vote lead that Dayton has. Second, the frivolous challenges were just that–frivolous–and they will be rejected. This further narrows any gain that Emmer may have.

Overall, what the recount suggests is that for the most part the Minnesota election system is probably 99.9%+ accurate in reading voter intent and counting. The final vote after the recount will be essentially the same as it was before the recount started.

These facts are increasingly clear to Emmer’s attorney Eric Magnuson. I enjoyed the exchange between them. Anderson first pointed out that lawyers cannot bring frivolous lawsuits (Rule 11 as we all learn as 1L law students). Bringing such suits is sanctionable and unethical for lawyers. Second, Anderson asked Magnuson if he really wanted the Canvassing Board to review all the frivolous challenges even though it would potentially take a lot of time and even if he did prevail, they still would not win.

This is where Magnuson offered a threat. He said that he expected the Board to do its job and review all these ballots in the interest of obtaining an accurate count. He did not address the issue that the numbers do not work for them. His threat seemed to be if you do not examine them now (which could delay finishing the recount and certifying Dayton the winner) then Emmer might have to ask a court to do that later.

Thus, the real strategy emerges–and Anderson pointed it out. Emmer and Magnuson seek to delay the recount process now and perhaps make it difficult for Dayton to take office on January. If the Canvassing Board does not do what they want then they will go to court afterward to raise their legal challenges–even if it does not change the result. There is also no promise that they will not seek to delay now and go to court later. Thus the threat.

As I watched the hearing I thought a lot about legal ethics. I teach professional responsibility or legal ethics to law students. Anderson was correct that lawyers cannot bring frivolous claims and we have an obligation not to use the legal process simply to obstruct justice. That is what is going on here. I thought also about how current Minnesota law allows an election contest almost for any reason. Ethically, lawyers should not be able to bring election contest suits unless they can show that were they to prevail in their arguments the result of the election would have gone the other way (they would have won).

The ethics problem I see here is that even if Emmer could prevail in all his legal arguments, that will not produce enough votes to change the outcome of the race. Dayton still wins. If legal ethics does not prevent bringing this type of suit, counseling a client such as Emmer (who is also a lawyer) that he should not take this type of action because it is purely vindictive should be what we ask of a client. But in the end, I recommend we amend Minnesota election law. The law should say that one does not have an automatic right to file a contest. Instead, there must be a “but for” threshold that needs to be met. By that, an attorney would have to plead that but for the legal mistakes made, the results would have been different. This should be the standard governing frivolous suits. If one cannot show the results would have been different then one should be barred from bringing the suit or judges should be allowed to dismiss on motion. This may still be a possibility for Dayton lawyers should Emmer go to court, but a statutory rule would be better here.

Economics: Obama’s Problem
Three bits of bad economic news this week. First, only 39,000 new jobs were generated for the American economy, pushing the unemployment rate to 9.8%. Second, the Financial Times pointed out this week that in the next few months 6.5 million homes will go into foreclosure. Third, The Economist pointed out that October, 2010 existing home sales dropped by 2% compared to September, and by 26% compared to October, 2009. Sale of foreclosed or distressed homes constituted 34% of all sales in October, 2010.

The US economy remains weak, despite the consumer holiday shopping rush and record profits for corporate America. With an anemic GDP growth rate in the third quarter of 2.5%, unemployment is not turning around soon. Weak employment and home sales (and continued foreclosures) suggest more aggressive measures are needed to help the economy. However, I see little coming from the Obama administration, even without the coming gridlock from a new GOP Congress.

Obama has a problem. Yes “it’s the economy, stupid,” but it is also him. He helped the banks and they are again profitable but he failed to help homeowners and jobseekers very much. Getting extended unemployment benefits is a short term fix, but does not to really help the economy, those looking for work, or those losing their homes. Obama and his economic team never seemed to get it in the first 22 months and they still seem clueless about the need to directly intervene into the mortgage markets to stabilize the economy and to take more direct action to encourage job growth. Simple tax cuts that are not targeted will not solve those problems.

The economy wrecked Bush I when he ran for re-election. This is Obama’s problem now to worry about.

What if they threw an economic recovery but nobody came?

What if they threw an economic recovery but nobody came? This is exactly the news coming out this week when the National Bureau of Economic Research (NBER) declared that the recession ended in July 2009. For most Americans, they were shocked to hear this news especially with near 10% unemployment and 16% underemployment. This declaration by the official gurus of the economy speak to two issues–one economic in terms of how we evaluate economies–and one political–how the declaration hurts Democrats and Obama.

First the economic problem. The declaration of the beginning and ending of recessions is looked at mainly by shrinkage or growth in the GDP. If the economy contracts two or more quarters then a recession is declared. Similarly, when GDP growth reemerges, then it has ended. Sounds simple? Yes and no.

The problem with this measurement is that it fails to look at the distributional issues in the economy–the winners and losers–and how the changes in the GDP are affecting specific people. In English, it fails to look at unemployment, declines in wages, purchasing power, and other similar factors in real fashion. In theory, NBER is supposed to consider unemployment as a factor, but in practice it is given short shrift. What all this means is that once the economy seems to be growing, regardless of who is winning, gaining, or losing, we have ended the recession.

This is a very trickle down theory of economics. It ignores the real world impact of a recession, such as the one we have now. It goes against what most people would say is the mark of an end of recession which is increased hiring, decreased unemployment, more sales, and increased consumer confidence.

Most of us do not think a recession has ended when corporate profits are up due to cost cutting that includes laying off people. It does not include a world where home sales and equity continue to shrink, mortgage delinquencies continue to rise, and credit is hard to get and therefore new investment is marginal. Looking only to gains on Wall Street and corporate profits essentially says middle and working class America does not count. Someday you will gain but not today. This is trickle down economics at its worst and it only creates a sense of skepticism towards economics and government.

This is bad news for Obama too. For a president criticized (rightly or wrongly) as being out of touch with the economy and average America, to declare the recession over is another slap in the face of many. Moreover the message of his town hall meeting–my policies are working, give them time–again suggests a trickle down theory at its worst. “Be patient, the benefits of my helping the banks and Wall Street will eventually reach you.” Or “Stay the course.” This is the Democratic message. Not a good one.

Obama and the Democrats need a different message. I remain convinced that Obama needs to fire his entire economic team. He needs to do that and announce new policies and a direction. Tell the American public that you too are unhappy with the direction of the economy and want a new direction. Announce new policies and force votes before election day. Make it clear by word and deed that you again want change. In effect, show anger with your economic policies and move in a new direction. Change and anger. That is how Obama got elected and that is what he again needs to run on.

Welcome to Hooverville

Whatever the fate the of financial reform bill in Congress, it does little to fix the short term problems with the US economy. Last Friday the news of weak job production followed up stories of declining consumer confidence and weakening new homes sales. Couple these together with signs of increased mortgage foreclosure and all the signs of a double-dipped recession are becoming more clear and real.

So what are Obama and Congress doing about all this? Not much. Obama proposes an anemic jobs bill that Congress cannot pass, new action to extend unemployment insurance is stalled, and there is pressure among deficit hawks to cut government spending now, well in advance of the economy sustaining itself. It seems as if the lessons of John Maynard Keynes have been lost as many rush to join Hoovernomics. Soon I bet we will pass a new version of Smoot-Hartley and we will be completely back to Depression era economics.

It is bad enough that the individual states are hurting recession recovery by cutting spending in order to maintain balanced budgets. These moves, while they sound fiscally smart, actually counteracted the federal stimulus law adopted last year. Instead of creating new spending they merely forestalled state budget cuts which are now coming in force this year.

These cuts will undo or undercut whatever good the federal stimulus did. Now with pressure mounting on the federal government to tackle deficits first, any effort to stimulate the economy at the time it most needs a second bounce will also be damaged. The assumption seems to be worries about inflation and belief that cutting spending and taxes now will free up capital for the private sector to grow. This is still the same old pie in the sky supply-side economics hope and belief that has not worked in the past.

There have been too many roads not taken since 2008 to help the economy. First there was the $150 or so billions stimulus in the spring, 2008. That measure failed as it was too small and too diffuse. I argued then the $150 was a waste and measures should have been taken to directly help the residential mortgage market.

TARP helped banks but did little to address the underlying problems with the mortgage market that caused all the problems. We have yet to address mortgage speculation, subprimes, defaults, and falling or negative equity. Both the short term and long term health of the economy needs to stabilize this market. Several times I have argued that this is a core issue and there still seems to be no clue or effort to address this problem.

The weak housing market is paralleled by a weak jobs market. There is no question that a real job bill (not just milk toast tax breaks for businesses) are needed. My laundry list of legislation for both the mortgage and labor market includes:

• Immediate moratorium on residential foreclosures for one year
• Require banks to renegotiate loans
• Federal support to reduce principal on many residential mortgages
• Federal jobs bill that consists of direct hiring for public works projects (A WPA for 2010 that is not just roads and highways).

My overriding goal? Keep people in their homes and get them to work. These are both good individual goals and socially smart in that they benefit us all. They address personal problems and market failures. Both require serious government investments in the short run before we worry about the longer term problem of deficits and inflation which are still distant issues.

Alas, if we do not do this, as I suspect we will not, we will remain trapped in Hooverville and in the economics that exacerbated the first Depression and which is in danger of doing the same here.

Blogging from Moscow: Waiting for the Revolution

I am live, from Moscow, Russia, blogging at the 8th Annual International Conference "Public Administration in the XXI Century: Traditions and Innovations," organized by the School of Public Administration, Lomonosov Moscow State University.

This is my third trip to Moscow, the second time attending this conference. The first trip to Moscow was in 2007, when I was teaching on my Fulbright at American University in Yerevan, Armenia. I wrote to the faculty at Moscow State and asked if I could take a quick trip from Armenia to Moscow (only three hours as opposed to 12+ from Minnesota) to give some lectures. The second time I visited was in 2008 to attend this conference.



The paper that I gave today was entitled “The Crisis of Public Administration in a Post-Global World.” The thesis of my paper was simple. As I describe it in the introduction of my paper:

Nearly a generation ago and soon after the collapse of Soviet Marxism, writers such as Francis Fukuyma proclaimed in The End of History and the Last Man [1] that western capitalism had won. More specifically, writers such as him and later Thomas Friedman in The World is Flat [2] heralded that free markets had emerged as the winner in the Cold War and that the future was one of less government intervention in the economy in an increasingly globalized capitalist economy. The winners would be those with flat economies fully integrated into the market, the losers those outside.

But the western banking crisis that began in 2008 and the global recession produced as a result is an historic event on two counts. First, state intervention to save the banks and the free market from itself undermine whatever remaining legitimacy there is in the intellectual foundations of neo-liberal ideology, setting the stage for a new vision of the world in ways that have not been seen since the 1930s. Second, the crisis and collapse of the financial sector challenge public administration, specifically the role that the government and government officials have in regulating the economy and in delivering goods and services.

Theories of the economy, state, and public administration are interrelated. As conceptualizations of how markets operate change, so do theories about the role of the state or government in relation to economic activity. This then demands a rethinking of the role of public administrators and government officials. The global recession of 2008 has challenged more than a generation of beliefs about free markets and global trade, thereby necessitating a rethinking about the role of governments in promoting policies such as deregulation and privatization. This article examines the role of public administration in a post-global world. Specifically it asks how prevailing public administration theory–at least in Europe and North America–is challenged and changed by a potentially new global economic order.
Simply put, the collapse of the global economy in 2008 brought with it the demise of the political-economic order of the world that had prevailed since the late 1970s-
80s. Ronald Reagan is dead, and the theory of politics, government, and economics that he and Margaret Thatcher represented, are also dead. The global economic collapse proved the bankruptcy and demise of the prevailing economic order and a new one is needed. Unfortunately, it is not clear that the powers to be realize Reagan is dead and real change is needed. This is beyond the change that Obama promised, it is a demand for a new global restructuring of the world economy to the degree not seen or needed since the Depression of the 1930s and the Bretton Woods Conference of the Post WW II.

My paper was part of a larger panel on public administration in crisis. I was the only American at this conference, with most participants from Russia and the former soviet republics. I find it absolutely interesting to visit this conference and talk to scholars who think about the world in ways so different from that in the USA. They talk of the unity of politics, economics, and public administration in ways that specialization in the United States does not allow.

My paper was well received on two counts. First, its content was provocative, challenging prevailing patterns and assumptions about how governments should respond to the global economic crisis. Second, my style of delivery was different. Most of the presenters use a style which I describe as “Soviet lecture”–straight lectures and little animation and discussion. I am much briefer, more animated, and do more to engage the audience. Their presentation style, much like the teaching I have seen here and in Eastern Europe, shares this lecture style. It is a style from the old Soviet era. After my talk several faculty from schools around Russia asked for my card and I was complimented on the talk. That was nice.

Moscow State is dear to my heart for many reasons. As an undergraduate one of my political science professors taught here on a Fulbright. Ever since then I was to teach or visit here. Moscow State was and is the flagship school of Russia. During the Cold War it was the intellectual center of Soviet science and knowledge. Today it is still the elite school of the country and the students here are the best of the country.

But Moscow State is also dear because while here I am assigned student translators and guides to work with. All have been female students here and the best time I have is walking and talking with them. They have shown me the hidden side of Moscow, told me about their dreams, and in general we have become good friends. Two years ago it was two students each named Anna whom I befriended, this time it is Dasha and Glbova who I spent two days with. After the conference we just sat drinking tea, discussing their views on Russia, America, and on pop culture and life. As I saw elsewhere in the former communist countries, the real revolution here is yet to come. When the older generation dies off and this new generation of those born after 1990 take power, the changes in attitudes and life will produce the real revolution here.

So to me, while my paper is about Reagan dying and the need for a global political-economic revolution, the real revolution emerging is the cultural-generational one. This is the one that I hope produces more change. Witnessing this revolution through the students is the real treat in visiting Moscow, and that is the most important thing I like about my trips here.

Wall Street v. Elm Street

Critics of Congress and the Bush and Obama Administrations want to say that they have favored Wall Street over Main Street with the bank bailouts and loans. The critics have it wrong. The real conflict is favoring Wall Street over Elm Street. Elm Street are the home owners, the workers, the retirees, and all of the other people who have seen their lives, homes, jobs, and retirement dreams destroyed by Wall Street bankers, investment houses, and brokers who gambled with their money and lost. Residents on Elm Street saw trillions spent to help Wall Street, while they were neglected. Now they see the CEOS raking in bonuses and Wall Street making billions, yet little has been done to help them directly.

Three problems directly hurt the residents of Elm Street.

The first problem is an official unemployment rate of 9.7%, with estimates of underemployment hovering at 18%. It is unlikely the 9.7% figure will change much as the economy grows. The reason for this is that all indications are that the recovery might be a jobless one. Companies have improved efficiencies and reduced staff to maintain profits. Unless there is a surprising increase in consumer demand, there is little indication that re-employment will occur in significant numbers. Moreover, as economic capacity increases, new individuals will enter the workforce with the hope of finding work. The result is that high unemployment numbers are probably a feature for the foreseeable future. Finally, because of the high unemployment rate, real wages and income are also unlikely to increase in the near future, again thereby depressing consumer demand.

Elm Street residents are unemployed and if lucky to find a job, are not gaining in income.

The second problem facing Elm Street is the enormous federal budget deficit. The classic Keynesian solution to addressing high unemployment is to stimulate economic demand in the economy. This would necessitate short term deficit spending. However, the bank bailouts and previous stimulus bills have driven the federal deficit to over $1 trillion. Predictions that slow economic growth will persist suggest that mere growth out of the deficit will not occur in the short run. What this means is that the ability of the government to sustain long term deficits without running into dangers of inflation, higher bond rates (to encourage investors to purchase USA debt), or downgraded credit ratings (as just happened with Greece and Portugal) is in doubt. There is a need to reduce the debt, but that also runs the risk of hurting economic growth before the economy is sustainable.

Residents on Elm Street know the debt is unsustainable and worry that they are being asked to pick up the price to stimulate an economy not working for their benefit.

The third problem on Elm Street remains the depressed mortgage and real estate markets. The main reason for the economy tanking in 2008 was the collapse of the real estate mortgage market. Perhaps this collapse is the result of the bursting of the housing bubble, subprime mortgage speculation, or fraud and risky financing by Goldman Sachs and other companies. But whatever the reason, when the housing market crashed so did housing prices. Home owners lost trillions in home equity, and it also threw many into default, including the banks and other institutions that financed or collateralized the mortgages.

Residents on Elm Street are losing their homes.

Over the last two years residents on Elm Street have been ignored, and that is why they are angry, manifesting that ire in Tea parties and anti-incumbent fever. As I have argued consistently for the last two years, the biggest mistake of the Bush and Obama administrations was to bail out the banks and not directly seek to prop up the residential housing market. We would have been far better off spending the first $150 billion stimulus in 2008 on helping home owners than in giving general rebate checks that did little to help the economy. Similarly, the $700 TARP should have been directed towards halting foreclosures as opposed to bailing out banks. The bank bailout rewarded those who caused the problems and it did not correct the underlying economic problems driving the bank failures. During the second 2008 presidential debate in October, McCain almost understood this when he suggested that TARP should have been spent to keep owners in their homes. This was the right answer but McCain never returned to this theme. Finally, some of the Obama stimulus bill in 2009 should have also been directed towards helping homeowners.

Think about a twofold policy that should have been adopted. First, I would have taken an idea that Hilary Clinton proposed during the 2008 campaign–adopt a 90 day moratorium on home foreclosures–and extended it to one year. We are better off keeping people in their homes, making sure that more houses are not dumped on the market, further depressing prices. Second, I would have taken the TARP money to help rewrite many loans so that they would be at lower interest rates. In fact, the government should have directly subsidized many of the loans to reduce them to zero or near zero interest. If the Federal Reserve Bank can loan money to banks at near zero interest it should also do the same for homeowners. Reducing the rates would have helped many owners stay in their homes. But TARP and other money could have also been used to help refinance homes whose value had fallen. In cases it makes sense to do the refinancing, others not, but again this refinancing would have helped stabilize the housing market, thereby also addressing some of the underlying losses banks are now facing.

My point in discussing the above is that helping Wall and not Elm Street was the road not taken. It was helping Wall Street and abandoning not so much Main Street as it was Elm Street. The government simply directed its resources in the wrong direction and while Wall Street is happy, residents on Elm Street are not.

Moving forward, the task for Congress and the president is more than simply regulating banks. Yes this is needed. But it is also doing something significant for Elm Street. It is not too late to address foreclosures, unemployment, and the huge federal debt. But to do that may mean asking the residents on Wall Street to pay for the damage they did to those living on Elm Street.