Economy – RI Future

August 30, 2016

Sometimes economic development looks a lot like war and stealing

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Governor Gina Raimondo spent Tuesday traveling around southern Rhode Island celebrating economic victories. But as her visits to Newport and Westerly indicate, not everything that benefits the Ocean State economy is necessary good for the rest of the world.

In Newport, Raimondo spoke at the annual conference of the Southern New England Defense Industry Alliance, a sort of chamber of commerce for the military industrial complex in southern New England. “We need to focus on what we are good at and we are good at defense,” Raimondo told the group at the Newport Hyatt Regency Hotel on Goat Island.

The defense sector is an important economic engine for Rhode Island, to be sure. According to a 2014 report from SENEDIA, there are more than 32,000 defense-related jobs in Rhode Island – about 6 percent of all jobs in the state. But there are obvious downsides to profiting from warfare. Providence-based Textron is the last North American company to still make cluster bombs and these controversial weapons of war are sold to Saudi Arabia and have been used on civilians in Yemen, for example.

“Of course we wish we lived in a world where this isn’t necessary,” Raimondo told me after her speech. “I wish there was no need for any of this. It’s an issue that I think we all grapple with. But the reality is we live in a very unsafe world, so it’s our job to protect our people.”

Later in the day, Raimondo went to Westerly to welcome Ivory Ella, a clothing company, to Rhode Island. The online retailer that employs about 40 people was convinced to relocate from Groton, Connecticut to Westerly with the help of $362,000 in tax credits from Raimondo’s Commerce Corporation.

“My good day today is not a good day for the governor of Connecticut,” Raimondo said to me.

“But,” she added a little later on in our conversation, “I hear your point.”

The point is that when one state pays a company to relocate there, it is also paying that business to damage another state’s economy. There’s been much written and said about states poaching jobs from one another – the Washington Post, the New York Times and the Providence Journal have each documented the downside of the practice.

Raimondo said it isn’t her job as governor of Rhode Island to worry about other state’s economic hardships.

“I’m elected by the people of Rhode Island to take care of Rhode Islanders,” she told me. “I’ve got a mission and my mission is to expand opportunity here.”

In some ways it’s great that Rhode Island has a thriving military industrial complex. And in some ways it’s great that we can poach jobs from Connecticut. But in the grand scheme of things these both seem like bad long term investments for our society, if not our economy. Unless, of course, you assume the United States and Rhode Island will always be at war with other parts of the world, including Connecticut.

August 21, 2016August 22, 2016

Jeff Grybowski: GOP corporate lawyer turned CEO climate hero

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Jeff Grybowski didn’t set out to save the world from climate change. The CEO of Deepwater Wind, which just completed construction of the nation’s first offshore wind farm, wasn’t trying to be the first in the United States to commercially harness the offshore breeze and, in the process, potentially create a new sustainable industry for his home state.

“I freely admit that I didn’t know anything about energy before I started this,” he said, during an interview at Deepwater Wind’s downtown Providence office. “I didn’t think anything of it. I had no opinion.”

The Cumberland native and Brown grad was a corporate attorney in Providence, fresh off serving as chief of staff during conservative Republican Don Carcieri’s first term as governor, when a group from New Jersey approached him about the idea.

“It was the middle of 2008, that summer, when they called me and asked me how do we get a permit to build an offshore wind farm in Rhode Island,” he recalled. “I was doing regulatory law and we all started scratching our heads. But we were lawyers and we wanted to help answer the question.”

The process

Grybowski knew a thing or two about the regulatory process, both from his legal practice and his tenure in the executive branch at the State House, and that proved to be the name of the game.

“For offshore wind in the U.S. it’s never been about construction,” he told me. “It’s always been about the regulations and the legal structure that allows it to happen. Obviously we build things that are as big and as complex as an offshore wind farm. The offshore oil and gas, that stuff is much bigger. The question is can we as a society agree how to build these things, where to build them and what steps you need to take in order to get, let’s call it, community sign off. It was the newness of it, that was the biggest obstacle.”

The Block Island wind farm had to win approval from more than 20 federal, state and local government agencies before construction could start, he said.

“It was great that the U.S. Department of Energy says we think offshore wind is a huge resource and we should develop it,” he said, “but the reality is that really wasn’t as important to us as whether the town of New Shoreham thought it was a good idea.”

Navigating the regulatory process, Grybowski said, is Deepwater Wind’s “core competency.”

He explained, “You need to take it to not only all the agencies of the federal government and people who need to say yes, or who have a veto, and then you bring it down to the state government, all the different agencies, and then down to the local government. And all across that chain you have stakeholders who have the ability to influence the agencies. It’s a huge matrix. You’ve got to find a way to get yourself through that matrix of agencies and stakeholders, and that’s what I did.”

An energy transformation

Along the way, Grybowski also went from being the company’s legal counsel to being the company’s CEO. Eight years after the project was first conceived, Deepwater Wind just finished construction of the first offshore wind farm in the United States. The 5-unit array will produce 30 megawatts of power. Enough, Grybowski said, to power 17,000 average U.S. households.

It’s a relatively small amount of electricity, but Grybowski thinks it’s a big step in what he called an “energy transformation” away from fossil fuels toward renewable energy sources.

“I think offshore wind is about to become a huge component of this energy transformation,” he said. “As a native Rhode Islander I might have been quicker than others to recognize how ideally suited this state was because of our proximity to this enormous resource and because of some of the logistical advantages we have.”

It’s an obvious opportunity for the Ocean State, he thinks.

“We don’t generate a lot of resources locally,” Grybowski explained. “Coal gets shipped in. Gas gets piped in. We’re the end of the line from an energy perspective. But that’s one of the brilliant things about offshore wind for this region. We’re the beginning of the pipeline here because we control the resource. It’s right off our coast. It’s the single biggest natural resource that we have to produce energy in this region.”

The future for offshore wind

Deepwater Wind is already planning its second project. The company has leased 200 miles of ocean about 15 miles southeast of Block Island that could support 200 turbines, compared to the first farm’s five – or 1,000 megawatts compared to just 30. He thinks there is five times that much potential wind farm energy in the vicinity.

“There’s the capacity for 5,000 megawatts of offshore wind out there,” he said. “That’s just in the area that’s been identified in the near term, what could be developed in the next decade or so. That’s certainly not the limit of what we can do.”

Collectively, all the power plant in New England currently generates some 30,000 megawatts of power, Grybowski said. The northeast can expect offshore wind to meet a more substantial portion of its energy needs when it goes even farther offshore.

“That cable really isn’t that expensive,” he said. “It’s copper and plastic, so a little bit more really doesn’t matter that much. The other difference is it becomes deeper the further out you get so the steel structures that you have to use to put these on the ocean floor get taller and heavier. The equipment that you need to install it becomes bigger. Part of the science of the business is where is that sweet spot. Where is the sweet spot of the benefit of the wind versus the downside of the extra costs of getting to that wind.”

Grybowski added, “It’s a lot like the offshore oil business, forget about the resource. It’s the same kind of analysis we go through.”

Much of the offshore wind industry, he noted, is based on the offshore oil and gas industry. Deepwater Wind President Kris Van Beek relocated from the Netherlands to Providence. “He transitioned from offshore oil and gas to offshore wind and he moved to Rhode Island to do that,” Grybowski said. “He knows how to build things in the middle of the ocean.”

Rhode Island, energy exporter

It’s part of the energy transformation he spoke about.

“Unfortunately, the change from a micro-perspective seems really slow but I think the change is pretty inevitable,” Grybowski said. “It’s inevitable that, here in the Northeast, we are going to be building a lot of offshore wind in the coming decade. It’s impossible for us to meet our energy needs, and doubly impossible to address our energy needs and address climate change in a meaningful way, without building a significant amount of offshore wind.”

He was quite confident offshore wind would help us get the Ocean State to sustainability, boasting, “I think Rhode Island – for the first time in, maybe, forever – is going to be an energy exporter.”

September 28, 2015

Three governors were deposed about 38 Studios

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When the cache of documents related to the ongoing 38 Studios lawsuit (click here to view or download) brought by Governor Linc Chafee was released on September 24, a wealth of information was opened up. After years of curiosity, the public was able to see almost totally the chain of events that led to one of the biggest financial boondoggles in Rhode Island history.

After years of spin, lack of comment, and problematic answers, we bring you an analysis of the sworn and true answers of the three public officials to occupy the governor’s office since the deal was struck.

DONALD CARCIERI
After multiple days and 562 pages of deposition testimony, it is clear that former Governor Don Carcieri, the man responsible for the 38 Studios deal as chairman of the EDC, is nervous. Throughout the transcript, he peppers his answers with “you know” – a sign of anxiety.

When Carcieri took office in 2003, he touted himself as a pro-business reform candidate, campaigning on a promise to bring a ‘Big Audit’ to the convoluted state government. One of these moves included merging the Economic Policy Council and a smaller EDC into the single agency that approved the 38 Studios funding package. He says of the decision:

[I]t was a board decision. This was not my decision alone. I mean, this was a quasi-independent corporation. We went through lots of pains to restructure the whole corporation, created a whole new board, and as I said, I felt very pleased at the quality of the people we were able to attract, and I wanted to make sure that they could do their job.

Carcieri thought they had a prize in 38 Studios, a company that would spur the growth seen in the Cambridge, Massachusetts high-tech corridor on Route 128 decades earlier. At one point, Robert Stolzman, now a defendant in the lawsuit, wrote to the governor thanking him for involving him in the 38 Studios issue. With predicted earnings of $50 million by 2015, they believed they were going to be responsible for a high-tech renaissance.

They expected that they had a real winner in terms of a game and what they were doing in developing with a lot of industry expertise in this multi-player game was going to be very well received. They, you know, were supported in that, to my knowledge, by entertainment arts [Electronic Arts video game publishing] who understood the industry as well.

But there were warning signs from the outset that Carcieri refused to heed. One board member at the EDC, Karl Wadensten, voiced concern about the total monies being dedicated towards the project. Rosemary Gallogly, a seasoned adviser with years of experience regarding government accounting, raised multiple red flags that the governor blew off as infrastructural issues, part of the ‘big government’ he had vowed to fight.

-I don’t recall reading the whole [Strategy Analytics] report [regarding risks and possibilities]. Often they have executive summaries is what I would read, then I would skim, possibly, through, but what I’m saying to you is this is not my recollection of what was presented to the board meeting. That there was a slide dec. like all — PowerPoint or something that, you know — the sum and substance was, on balance, positive that’s my recollection, Tom.
-You’re saying your recollection on balance was positive?
-Yeah.
-Of the Strategy Analytics report was positive?
-Yes.
-Now, but you don’t know if you actually read the entire report or not, do you?

Two things become abundantly clear from Carcieri’s testimony.

First, despite boasting about his business savvy, he remained woefully out of touch with the industry he was trying to get involved in and remained so last year when deposed. Throughout the transcript, he consistently confuses the name of EA Games, the third-largest video game firm on earth, calling them ‘Entertainment Arts’ instead of Electronic Arts. When discussing the second title 38 Studios was working on at the time of their bankruptcy, a massive multi-player online game akin to the popular WORLDS OF WARCRAFT, he is hazy on the terms used in distribution, calling the industry-standard subscription-based servicing of those titles a “lease.”

That is a sign of bad business management. The Oracle of Omaha, Warren Buffett, has been very open with how he made his fortune, explaining that, if he cannot understand a prospective investment and how the company works when he sits down at his kitchen table with the spreadsheets, he passes on the investment. Buffett does not have access to the secret formula for Coca-Cola or understand how Dairy Queen produces all their dessert items, but he does understand how to drink soda and take his grandchildren out for ice cream. The trick with smart investment is understanding exactly why a product or service will have success, not due to innovation as much as appeal. In the case of 38 Studios, Curt Schilling could and probably should have done what most sports players do in retirement when they get involved with video games, release a title based on his name recognition and sports career. It may not have been as exciting as the roll-playing fantasies he hoped to develop with sci-fi author RA Salvatore, but no one has seen John Madden crying on the way to the bank. Carcieri and Schilling were both clueless about everything from basic game programming to distribution models. The former Governor was so out of touch he did not even realize that the board he was chair of had not hired IBM and Wells Fargo as consultants! That he did not know he was not the first to talk with Schilling about the venture is merely the pinnacle of his lack of connection, regardless of whether politicians like William Murphy, Gordon Fox, and others lied to him.

Carcieri also seems to have let his ideology get in the way of basic economic logic regarding recovery from a recession. Even though they portrayed themselves as conservatives, Schilling and Carcieri bear all the markings of classical English liberals in the economic sense, fiercely opposed to unions and praising the virtues of so-called ‘free markets’ and supply-side economics. They wanted to create a business boom in the tech sector, which is non-union.

Besides the aforementioned lack of industry literacy, Carcieri and other Rhode Island officials fatally misjudged why the Massachusetts Miracle happened in the first place. In that instance, technology firms since the 1960s had been creating a diverse set of products that reaped millions. And while they did see a particular boom in the 1980s and 1990s with computer software, the vast majority of the products created were technologies used in unionized jobs, such as municipal construction or lighting devices, industries with almost-guaranteed supply-and-demand ratios as opposed to video games, which are wildly uncertain in success based on the nature of customer satisfaction.

The reality is still as John Maynard Keynes told us 80 years ago, the way to get out of a recession is by having a government spend huge amounts on public works and infrastructure projects that create long-lasting, good-paying, unionized jobs. As the workers continue to take home good paychecks over the course of years, they in turn spend their earnings on everything from houses to cars to luxury services that they could not afford previously. That was the reason President Eisenhower, as a Republican, was pro-union and opposed the anti-labor ideologies of Joseph McCarthy and Barry Goldwater. He knew then that the middle class prosperity he oversaw was dependent on organized labor serving as a balance with the controlling powers of big capital. The fact Carcieri mistakenly thought that RISD could perform the same services as MIT and Harvard and that their wildly unpopular former President John Maeda would help foster this boom is the tragically ironic icing on the cake.

LINCOLN CHAFEE
When Lincoln Chafee took the governor’s office in January 2011, the state was in a complete crisis. Municipalities were on the verge of bankruptcy. The pension system was in trouble. And when, during his campaign, he had opposed the passage of the 38 Studios deal, he was blocked from speaking at an EDC meeting and “swatted aside” by a state trooper. He left office as a very unpopular man, with then-Treasurer Gina Raimondo having bad-mouthed him both in the press and during election debates.

I was apprehensive, given my very, very vocal opposition to the deal in the campaign, including going uninvited to an EDC board meeting and being barred from entering, that I could be accused of meddling, micromanaging, interfering. There were still board members that were very- had voted in favor of this deal. The executive director and I had sparred in the course of the campaign, now he was my executive director of the EDC. I was very apprehensive about, as I said, micromanaging or meddling in this. I saw my role as to be supportive and write the checks and hope that that first game was successful… We inherited an inferno.

Now comes the release of his deposition. Of all the motley crew of big-shots and political players, he comes across as not just respectable but actually the closest thing to a hero. I do not agree with all of his policy moves while in office, including the public sector pension reform he oversaw, but it is obvious he did not care about his image, he cared about Rhode Island.

-I did get a call from Providence Equity leadership who experience in this area and shared my initial thoughts and opposition and reinforcing that.
-When you say Providence Equity leadership, is there a particular individual you spoke with?
-My classmate, Jonathan Nelson… I had expressed opposition at that point to the loan, and he said I’m in the business, this business, and you’re right about your opposition.

From day one, Chafee was educating himself about the video game industry and saw a turkey. One of the many exhibits in his deposition is a packet of news articles and analyses that he had in his campaign office, representing the level of research he was doing during a busy election season about an industry he and everyone else knew nothing about.

-Yes, these documents we came upon after the request to make sure we had given everything that we had, and just in further searching, these are the documents that reflected that further search.
-Where were they found?
-Some in my campaign office, which was not my original campaign office that I had during the campaign, but a subsequent mini closet, almost, where we store a number of items, and others were in the governor’s office.
-Okay. The mini campaign office you refer to, where is that located?
-Airport Plaza, Warwick, Rhode Island…
-Did you ask any members of your campaign staff to do any research for you into any issues which may concern this type of potential relationship with a company like 38 Studios?
-I’m sure being a team effort and this being a major item in the news and being, you know, a very, very competitive campaign everybody was involved in finding out as much as they could about all the details of this type of state investment.

In both the deposition and public statements, Curt Schilling and his lawyers have tried to blame Chafee for their failures. They claim the governor’s press statements were the kind of bad publicity that drove away potential investors and ultimately caused the company’s failure. In the deposition, Schilling’s lawyer Michael Sarli repeatedly tries to pigeonhole Chafee and make him seem incompetent, a poor chair of the EDC board that was asleep at the wheel. The question, rephrased and repeated time and again, is contemptuous of the Governor’s office, to the point Max Wistow, the lawyer Chafee hired to represent the EDC and launch the current lawsuit, says “The gentleman is the governor. It is being abusive and argumentative.”

Regardless of how one feels about Chafee, every Rhode Islander should understand that Wistow is not standing up just for one man, he is defending the integrity of the state itself, which Schilling is trying to drag through the gutter. Chafee had no ability to impact the company’s success or failure after taking office. What killed 38 Studios was inherent to Schilling’s management style, the nature of the video game industry, and the economic impact of the 2008 crash. They failed to sell enough copies of their first game because it was a mediocre title and people were tightening their belts due to the recession.

GINA RAIMONDO
The deposition of Gina Raimondo is a one that occupies a unique time and place, having been taken on September 11, 2014, two days after she had won the Democratic primary, but before she won the gubernatorial race and ceased her duties as treasurer. Having emerged from the private sector as a venture capitalist prior to entering politics in 2011, she had a particular level of insight on the issue when news of the 38 Studios deal first broke.

-Well, as a professional in the field of venture capital, did the idea that the state was looking to enter into some sort of an agreement with 38 Studios pique your professional interest at all?
-Yes.
-Did you do anything in follow-up to having that curiosity?
-I did. I wrote that e-mail to Keith Stokes suggesting that, in my opinion, it was a high-risk venture, and if I could — since I had expertise in investing, if I could be of any help, I was here to help.

Raimondo was in the minority of those who expressed concern about the deal after she talked about the issue with her co-workers, who had a history of financing video game firms and did some research on 38 Studios. Before the company moved to Rhode Island, it was based in an area with a high concentration of gaming developers and the venture capital firms that traditionally finance their efforts.

-Okay. So, at least at the time you had knowledge that there were people that you regarded as experts in the gaming business that had decided not to invest and had looked at 38 Studios specifically, fair?
-Yes. Yes. The nature of the way this happens in general is, you know, Monday morning, you have investment committee meetings. You sit around at a table like this, you say, Sean, what do you think — Sean was my partner, who is a… gaming expert, what do you think of this 38 Studios deal? It’s casual chitchat. And so I don’t remember doing that, but the nature of it, the conversation would have been, in the vernacular it’s called shopped, the deal has been shopped around. I don’t remember him saying it, but I’m thinking reading this, he probably said, oh, that’s been shopped all over the place, and everyone’s passed… I didn’t know anything, really, about the deal or anything other than what I read in the paper, but it’s just the general concept that he was a famous baseball player in a really hot area of gaming in the venture capital mecca of America, and if he couldn’t get venture capital money and had to come to the State of Rhode Island for money, hit the pause button. Like, I didn’t know anything just from the outside looking in, if you’re a famous guy in the hottest area of gaming in the hot venture capital market in the world, and you can’t get funded,… what does the State of Rhode Island know that the whole rest of the world doesn’t know? So it was just a general concept of hold your horses.

It is possible that Raimondo will be able to use quotes like this to her advantage in the future. She is on the public record regarding how she said from the outset that this was a bad deal. But as one reads further on in the transcripts, a troubling image emerges. It becomes absolutely clear that this is a cunning and ruthless politician that will sacrifice anyone to get ahead in a political contest. Consider her treatment of Chafee in May of 2012:

-I’m going to direct your attention to the part of this document that follows the header, “A company doesn’t run out of money overnight.” Do you see that
-Yes.
-And there’s a quote attributed to you in this document and it says… ”To me the much bigger question is what’s been happening over the past 17 months.”… ”General Treasurer Gina Raimondo said in an interview on the Dan Yorke show on Wednesday… “How has the governor and his staff in his capacity as chair of the EDC board been monitoring this investment? A company does not run out of money overnight.”… Would you expect that there would be, on a deal like this, when you talk about monitoring the deal, when you use that word, does that mean that at some point the board of EDC is given information as to how this risky loan is performing?
-I have no idea… I do not know, even as I sit here, how the governance of the EDC, I don’t know the ins and outs of how the governance of the EDC works… I don’t know what information the board is supposed to see, Governor sees, counsel sees, executive director sees, I have no idea.

Ergo, she has no idea what she is talking about but does not mind dragging Chafee through the mud to score a political point. That sort of realpolitik is sadly part and parcel of a political system that traffics in media hype rather than actual ideological standards, treating the contestants as rock stars as opposed to political thinkers. Consider Raimondo’s comments about her own education in law, a point emphasized by her political campaigns.

-Okay. If you recall back to those days at Yale when you were in Evidence class, do you remember past recollection recorded?
-I never took Evidence. Don’t you know they don’t actually teach law at Yale?
-What do they teach, networking?
-Pretty much, yeah.

How encouraging.

Raimondo’s private sector line of work is bitterly referred to as ‘vulture capitalism’ by those who have run afoul of people in her line of work. There are success stories, such as when Facebook went from a college start-up to a multi-million dollar company. But there are thousands of shattered dreams and broken lives also, far more than the successes. She has already set her Wall Street cronies loose on the public sector employee pension system. The fact she even allowed PawSox owner Larry Lucchino to entertain the idea of a taxpayer-financed stadium this summer despite economic analyses forecasting doom shows us this is a person who would not blink an eye while selling out her voters as long as she can curry favors. Carcieri may have been foolish and Chafee swamped, but Raimondo is someone who knows how to get ahead regardless of the consequences as long as she can benefit.

LESSONS LEARNED?
There are lessons to be learned from this mess. It may turn out in all probability that Superior Court Judge Michael Silverstein finds for the defendants and rules that the State was not conned by Schilling, they merely made a very bad financial decision. With the disclosure about Chafee’s friend Mr. Nelson and Raimondo’s warnings from the private sector, it seems clear that there was a reasonable level of insight about Schilling and in fact the politicians just let their egos get ahead of them.

But the type of reform really needed goes well beyond political parties and into the realm of revising our basic norms of government. 38 Studios is not an aberration, it is symptomatic of something deeply embedded in the corruption of Rhode Island’s political culture. The one who was the voice of reason and sanity ended up as a reviled one-term politician, now walking a Quixotic trail towards the Presidential primaries with little support or media hype. The majority of the culprits in this rip-off are going to probably get off scot-free. And the type of people that create these kinds of economic nightmares now have one of their own in power, biding her time and eyeing advancement to Washington DC.

Karl Marx, the prophet who told us capital is a system of contradictions leading towards deeper and wider economic disparity, famously told us “Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce.” Unfortunately, the joke is on us.

August 28, 2015

A good year for Grow Smart?

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Scott Wolf, the executive director of Grow Smart Rhode Island, said there were some big wins for sustainable and equitable development in the last legislative session. RhodeMapRI was not one of them, he acknowledged.

Grow Smart RI’s logo, courtesy of http://www.growsmartri.org/

“A lot of the economic development proposals that we thought were good for smart growth passed,” Wolf said. “Those are embodied primarily in Governor Raimondo’s economic development package.”

He mentioned funding to incentivize development on the I-195 land, a fund for streetscape improvements on main streets of cities and towns, special incentives towards transit development, and others.

But the Rebuild RI tax credit could be the most impactful piece of the governor’s economic development package, he said. In its final form, there are opportunities for small historic rehabilitation projects, something that Grow Smart advocated for, and spoke to the Raimondo administration about.

“If the Rebuild RI tax credit does provide significant opportunities for large and small historic rehab projects, then that could be the single most important item,” Wolf said. “It provides continuing state incentives for redeveloping some of our tremendous collection of historic buildings, most of which are located in urban areas, many in distressed urban areas.”

Wolf added that the tax credit program also provides funding for the redevelopment of vacant lots in cities and towns. These lots could be turned into a number of things for public use, but Grow Smart is advocating for some to be converted into grocery stores, as many urbanites have difficulties accessing one.

“As a group that wants to see development occur primarily in cities versus rural areas, we think that this Rebuild RI tax credit is going to stimulate that kind of development,” Wolf said.

Looking toward the future, Grow Smart has plans for the short and long term. For the rest of the year, they’ll be focusing on educating towns and municipalities about the new tools they have, such as the Rebuild RI tax credit, to implement smart growth standards in their public centers.

“Our focus for the next four or five months is going to be to try to make sure that municipalities and developers, both for profit and nonprofit, that are interested in rehabilitating specific historic structures, fully understand how they can facilitate that through the Rebuild RI program,” Wolf said.

During this time, Grow Smart will become a resource for these groups to ensure that their process goes smoothly, but also to get as many historic rehab projects approved as possible. They’ll also be providing assistance for some of the bond issues that were passed last November, especially an environmental bond that includes $5 million for the redevelopment of contaminated sites, or brown fields. Wolf said that this bond is a big step forward, since it’s the first time that state money has gone toward such a project.

Wolf added that Grow Smart also plans to work with the governor’s administration to develop a technical assistance for local governments so they can better use the new tools that have been given to them for redevelopment, such as tax increment financing, which can be used to put the funds together for brownfield development.

In the long term, Wolf said they have several goals, but they all boil down to building a stronger economy, while maintaining Rhode Island’s personality. This all includes employment for city residents, strengthening farms and locally produced agriculture, and a more user-friendly transportation system.

“In a broad sense, our in Rhode Island, and the work nationally in the smart growth movement, is about changing the predominant development pattern in America, which has existed for the past 70 years or so, which has been a very auto dependent, suburban oriented development pattern,” he said. “We’re not anti suburban, and we’re not anti auto, but we think that we need a more balanced approach than what we’ve had in the state and in the country for decades.”

A successful year can’t happen without some marked failures, though. Grow Smart was a staunch supporter of Governor Raimondo’s RhodeWorks legislation, which tore a rift between the House and Senate last session. While the revised bill passed in the Senate, it didn’t even reach the floor in the House, with Speaker Mattiello urging for further study. The bill would use tolls on tractor-trailer trucks to cover the costs of rebuilding deficient bridges, as well as support a more modern transit system.

“We’re disappointed it didn’t pass both houses, but we think there’s a good chance it’s going to be approved either later this year or early next year. We’re working with the Raimondo administration, especially the state department of transportation, on that proposal,” Wolf said.

He was also disappointed that there was not a specific and significant commitment to multi-year funding for historical rehabilitation projects added to the state historic tax credit program.

RhodeMap RI was presented another sticky situation for Grow Smart. While it did pass as legislation, Wolf explained that there was so much controversy around the bill that it became hard to use it as the basis for any policy decisions. The bill included expansions for affordable housing, which conservative activists called “socialist,” fearing the takeover of municipal zoning regulations.

Although the plan was ultimately approved, Grow Smart’s main concern after the public uproar it caused was that it would sit on a shelf and have no policy effect whatsoever. However, Governor Raimondo’s economic development package includes many of the basic priorities that Rhode Map sought to achieve, and which Grow Smart supports.

“Our main commitment was to the goals and the proposed policies of RhodeMap, not to RhodeMap, the name or the brand,” Wolf said. “Our goal this sessions was to get as many of the initiatives that are in the spirit of Rhode Map approved as possible, and a lot of the governor’s economic development package is in that spirit.”

“If decoupling these ideas from RhodeMap is what’s necessary, politically, to have them enacted, then that’s a small price to pay,” Wolf added.

Even with the stigma surrounding RhodeMap, and the limbo that RhodeWorks currently lies in, Wolf said he is still very comfortable calling this legislative session a success for Grow Smart. As far as next year is concerned, their goals are still in the planning stage. For now, Grow Smart celebrates what they’ve already won, and not the battle ahead.

August 13, 2015

Raimondo tours East Providence screen-printing shop, talks jobs plan

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Nelson Silva, the owner of Graphic Ink, a screen-printing and embroidery shop in East Providence, likes to joke that he normally works half days- 6 am to 6 pm. That’s what he told Governor Gina Raimondo Wednesday afternoon when she toured Graphic Ink in an effort to spread information about her different economic initiatives, and how they would help small businesses like Silva’s.

“This business, [with] 17, 18 employees, this is the lifeblood of Rhode Island’s economy. Most Rhode Islanders work for companies just like this, [with] 10, 20, 30, 40, 50 employees,” Raimondo said. “So, as governor, I am very focused on making it easier to do business, less expensive to do business.”

Some of the initiatives that Raimondo spoke about were big parts of the state budget, like the elimination of the sales tax on energy for businesses, as well as decreasing the corporate minimum tax from $500 to $450. Raimondo also took the time to highlight other parts of her jobs plan, such as the streetscape improvement fund, a small business assistance program run by the Commerce Corporation, and a program for “innovation vouchers.”

“Think of it as a coupon,” Raimondo said. “You can come to the Commerce Corporation, get a coupon, and then redeem your coupon at one of our local universities to get access to R&D. If you have a new technology you want to investigate, if you’re a healthcare company, if one of your clients is a healthcare company, a lot of the times they want access to a research team at URI or Brown or RISD or Johnson & Wales. Get the coupon from the Commerce Corporation, check it in with the university, and have special access. We’re trying to promote more innovation.”

Silva, who has owned and operated Graphic Ink since 1997, said that he was very excited for the governor to come visit his shop, and expressed support for her jobs plan.

“I think her plan that she’s launching is right on point with where small businesses need to be, and small businesses are the backbone of the state in my opinion,” Silva said. “It’s very exciting to hear that she is really encouraging to support small businesses.”

Silva said initiatives like the energy sales tax elimination and the roadside improvements continue to make it easier for his business, and businesses like his, to keep employing people, and therefore invest in the local community. He even said that he believes that, because the state is on an economic upturn, that Rhode Islanders are more likely to invest in small businesses.

“I believe she has recharged the state in a way that, there are many people, companies, organizations, colleges, that have a lot of activity going on. We are an event-based business. We produce things for events. There are lots of things going on, which in turn makes us a busy shop,” he said.

According to Silva, this increase in activity, and reinvestment in small businesses, has opened up a lot of jobs in the community, which is looking for skilled workers. In his opinion, now that the economy is beginning to heal, the next logical step is to work on getting vocational education programs out there for students to become trained laborers right out of high school, or in college. Silva said that he is always willing to train an employee on site, but some positions do require skilled labor, such as graphics or design.

With all of these changes, Silva envisions a bright future for small businesses in Rhode Island.

“I see small business, in my case, [becoming] stronger and stronger, as the owners and employees are willing to put some effort into it. As long as we put some effort into it and work hard, hard work pays off.”

July 29, 2015July 30, 2015

How to bring the unions to the stadium opposition

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buildrilogo — Build RI is a labor-management partnership between a variety of trade unions.

My colleague Steve Ahlquist previously posted a great story covering the two meetings on July 27 about the proposed construction of the taxpayer-subsidized stadium. One point that was made at the Providence meeting, worth expanding on here, is the issue of the construction trade unions, which have endorsed this project. This piece will make an effort to appeal to both the general membership and leadership of these unions, who will prove to be some of the most important allies in this struggle and, on the other hand, will perhaps be the make-or-break of this deal.

It is important to empathize with the membership, they are facing a massive drop in employment and job sites, with a huge percentage of the rank-and-file out of work. This project would create jobs for a large swathe of their members, something I do not begrudge them for.

But this is a decision I do not think they have properly contemplated. First, while the governor has previously eluded to a hiring push that would target minority workers, the current contractor participating in this project, Gilbane, has one of the worst records of minority hiring in the nation. That is an important issue to discuss because the disenfranchisement of minority workers is a vital one.

Second, and perhaps more importantly, this stadium could generate short-term gains on one project but may in fact kill development in the I-195 land in the near future. As Kate Bramson reported on May 2, any and all further construction hinges on a super-permit that would install a stormwater mitigation mechanism at the proposed open park. Bramson wrote in that piece:

The master permit hinges on a plan to use parkland within the 195 district for stormwater mitigation. Builders are required to treat a percentage of stormwater on parcels they develop. However, if they can’t meet the entire stormwater requirement on a parcel, the master permit allows them to gain credit from the parkland’s treatment of stormwater.

Given the tides and ebbs of Rhode Island politics, this could end up killing future development on the I-195 corridor for up to five years. And on top of that, recall that the federal government also will need to be involved, prolonging the wait. That of course translates out to a much greater amount of time for unemployed union members to remain so. Between an extended waiting period and a traffic-clogging stadium, potential developers in the bio-med and education sectors might take their business elsewhere, keeping that land vacant for a very long time.

Bucking the trend and opposing an endorsement that has already been made by the union is always a tremendously problematic issue, no doubt. It takes courage, gumption, and being versed in the relevant documentary records so to make a cogent case. I would refer interested parties especially to this slideshow produced already by the I-195 Commission, an outline of proposed development by landscape architects that every taxpayer in the state already funded. Just to re-iterate, the state has already paid three times for this land. First, we paid for the de-comissioning and demolition of the old I-195 highway. Second, we paid to have it zoned and developed by the federal government. Third, we paid for the aforementioned landscape architects and other planners to work out the schematics of the park.

If this ballpark scheme goes through, it will cost taxpayers another three times. First they will need to pay for the stadium’s construction. Second they will pay to re-design the sewer and highway system to accommodate the stadium. Third we need to re-develop another parcel of land as a park should the government refuse to accept the idea of a smaller park on the grounds of the stadium.

There is simply too much risk as opposed to reward in this idea and organized labor should rethink their position, not so to undermine their standing but to promote and improve their reputation. This week Boston Mayor Martin Walsh rejected the move to finance the 2024 Olympics with Beantown tax monies, causing their bid for the Games to be voided. That move has probably bought Walsh another term in office and could very well give him a future bid for higher office. The unions in Rhode Island would be wise to take such logic into consideration. To be clear, I am no opponent of labor unions, I am a member of one and was an eyewitness to the Illinois Caterpillar strike in the 1990’s. But this project, should it come to pass due to labor’s support, will be seen by many as a black mark on its record and will be fantastic fare for union busters on both sides of the aisle.

July 9, 2015

PVD City Council fails to deliver on minimum wage promise in new TSAs

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Last year, after the General Assembly stole away the power of cities and towns in Rhode Island to set their own minimum wages, Providence City Councillor John Igliozzi told a packed room of disappointed hotel workers that the city was not prohibited from imposing higher minimum wage standards via tax stabilization agreements (TSAs), which are contracts between cities and private industry, and cannot be interfered with by the General Assembly.

Igliozzi said then that all future TSAs should include strong minimum wage requirements and many other worker protections and rights.

Igliozzi is the chair of the Providence City Council Finance Committee, so one would expect that he would follow up on this proposal, but so far, nothing like this has been incorporated into the new TSAs being cooked up in City Hall and expected to be voted on this week.

When Jesse Strecker, executive director of RI Jobs with Justice, testified before the Finance Committee of the Providence City Council, he presented a short list of proposals to ensure that whatever TSAs were adopted would truly benefit not just the investors and owners of billion dollar corporations but also the working people and families of Providence.

Strecker’s list included the following:

1. Provide good, career track jobs for Providence residents most in need by utilizing apprenticeship programs and community workforce agreements, hiring at least 50% of their workforce from the most economically distressed communities of Providence, with a substantial portion of that workforce made up of people facing barriers to employment such as being a single parent or homeless, or having a criminal record, offering job training programs so local residents are equipped with the skills necessary to perform the available jobs and hiring responsible contractors who do not break employment and civil rights law;

2. Pay workers a living wage of at least $15 per hour, provide health benefits and 12 paid sick days per year, and practice fair scheduling: offering full time work to existing employees before hiring new part time employees, letting workers know their schedule two weeks in advance, and providing one hour’s pay for every day that workers are forced to be ‘on call’;

3. For commercial projects, create a certain number of permanent, full-time jobs, or for housing developments, ensure that 20% of all units are sold or rented at the HUD defined affordable level. Or, contribute at an equivalent level to a “Community Benefits Fund,” overseen and directed by community members providing funding to create affordable housing, rehabilitate abandoned properties, or finance other community projects such as brown field remediation; and

4. Present projected job creation numbers before approval of the project, and provide monthly reporting on hiring, wages and benefits paid, and other critical pieces of information, to an enforcement officer, overseen by a Tax Incentive Review Board comprised of members of the public and appointees of the city council and mayor, to make sure companies are complying with their agreements, and be subject to subsidy recapture if they do not follow through.

Mayor Jorge Elorza submitted an amendment mandating that under the new TSAs, “projects over $10 million will be eligible for a 15-year tax stabilization agreement that will see no taxes in the first year, base land tax only in years 2-4, a 5% property tax in year 5 and then a gradual annual increase for the remainder of the term.”

In return, the “agreements include women and minority business enterprise incentives as well as apprenticeship requirements for construction and use of the City’s First Source requirements to encourage employment for Providence residents.”

But that short paragraph above contains few of the proposals suggested by Strecker.

Supporting the Jobs with Justice proposals are just about every community group and workers’ rights organization in Providence, including RI Building and Construction Trades Council, Direct Action for Rights and Equality (DARE), UNITE HERE Local 217, IUPAT Local 195 DC 11, District 1199 SEIU New England, RI Progressive Democrats of America, Teamsters Local 251, Fuerza Laboral / Power of Workers, Environmental Justice League of RI, RI Carpenters Local 94, Restaurant Opportunities Center RI (ROC United), Mount Hope Neighborhood Association, American Friends Service Committee, Occupy Providence, Olneyville Neighborhood Association (ONA), Fossil Free RI, Providence Youth Student Movement (PrYSM), Prosperity for RI, and the Brown University Warren Alpert Medical School Prison Health Interest Group.

June 3, 2015June 4, 2015

A higher minimum wage means better economy for all

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The minimum wage in Rhode Island has risen every year since January 2013 and 2016 will be no different, moving up from $9 to $9.60 per hour. The measure passed on the floor of the state Senate in a 34-3 vote, and will soon be enacted into law. But as each year passes, the income gap in Rhode Island only grows larger, even with the minimum wage increases.

Voting against the increase were Republicans Nick Kettle, of Coventry, Mark Gee, of East Greenwich, and Elaine Morgan, of Ashaway.

A study from 2012 conducted by the Center on Budget and Policy Priorities (CBPP) showed that from the 1970’s to the mid-2000s, the income gap has grown 70 percent. The poorest 20 percent of Rhode Islanders have only received a 11.8 percent raise in their household incomes, while the richest 20 percent have seen their income grow 99 percent.

In Connecticut and Massachusetts, the percentages are even more disconcerting. The poorest 20 percent of MA residents have seen no change in their income since the 1970s, but the richest 20 percent have had a 151.9 percent increase. Connecticut’s poorest residents have even seen a drop in their income by 4 percent since the 1970s, and a 9.8 percent drop in the past decade, more than both Rhode Island and Massachusetts.

How did this even happen? Kate Brewster, the executive director of the Economic Progress Institute, believes that trends have lead to the widening income gap.

“Our economy has shifted so dramatically,” she said. Brewster stated that over the years, Rhode Island has seen a move from the manufacturing to the service industry, as well as a decline in unionization among employees. These factors have lead to a decline in the minimum wage’s value.

Senator Erin Lynch (D-District 31), the sponsor of the legislation, said the move to $9.60 is a step in the right direction, even though she originally wanted $10.10.

“I would have loved for it to be $10.10,” she said. “I think any step forward is a good step forward.”

Lynch also added that even though raising the minimum wage is definitely a part of eliminating income inequality, it’s not the only piece of the puzzle.

“We want to continue moving in the direction we’re moving. There’s no one magic bullet. We’re working on all kinds of different things.”

Other pieces of the economic puzzle include workforce development, access to capital, and education. Lynch believes that those together can help to level out incomes in the state, especially because they will be able to help those who are providing for their families. Outside of the state house, Lynch works as a divorce lawyer, and sees the hardships that low wages can take on the family unit.

“I see a lot of parents. I see a lot of people getting second and third jobs. People are doing what they need to do to support their families,” she said.

Currently, Rhode Island has one of the highest minimum wages in the country, but will soon fall behind states like Massachusetts, California, and Washington, DC, as they move their wages upwards of $10 an hour going into 2016.

“An adult needs close to $12 to meet their basic needs,” Brewster said. “$10.10 would have been great, but $9.60 is better than $9.”

Lynch stated that she will continue working to move the state economy forward. Hopefully that means a brighter, more equal future for everyone in Rhode Island.

“This is home,” Lynch said. “We want to make it the best place it can be.”

April 17, 2015April 17, 2015

A progressive plea for a Providence ballpark

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Looking out the window of my office at 10 Davol Square, I can see the empty piece of Providence where they want to build the new baseball stadium.

Just five weeks ago, this particular parcel of land, left vacant by the relocation of a stretch of interstate, wasn’t any more or less interesting to me than any of the other plots in the Jewelry District. Now, of course, it ignites the imagination of this and many other Rhode Island baseball fans on a daily basis.

When the new Pawtucket Red Sox owners’ proposal came out this week, I didn’t have any strong feelings about it. It sounded like a lot of money, sure. But I know that any successful stadium project relies on some form of public subsidy. $4 million a year (net $2 million, if the economic study commissioned by the owners group is accurate) didn’t sound like too steep a price to keep a critical Rhode Island institution.

But my fellow progressives quickly tore into the proposal like rowdy fans heckling the opposing team’s pitcher. Now, negative reactions to the proposal have come from all points along the political spectrum. But while I certainly didn’t expect all of my friends on the left to endorse plan without some criticism, I’ll admit I was surprised by the steady barrage of unequivocal NO!’s that have come from the left.

Instead of taking a thoughtful, considered approach to this proposal, or carefully positioning ourselves to make a reasonable counter-offer, why are so many progressives rejecting the whole plan outright, unwilling to even hear an argument?

“Because we’re fed up!” some of my fellow liberals will undoubtedly say. Hey, I get it. The frustration is understandable and very real. But letting that frustration get the better of us is a huge mistake. Staking out a position of extreme opposition just feeds the worst stereotypes perpetuated about progressives: that we’re out of touch and inflexible. That makes us easy to marginalize and ignore.

This is not 38 Studios. I know, it seems like an easy connection to make–they both have to do with baseball! Except beyond that thin connection, the two scenarios couldn’t be any more different.

Rhode Island made a loan guarantee to a sports hero who had zero experience running a business, he just happened to like video games.

In this case, we’re talking about giving tax breaks to a group of experienced business people who have already proven their success, who clearly know what they are doing, and who are throwing down their own $85 million to get the thing off the ground. Instead of a software company that will employ a handful of people until it inevitably collapses, this time we’re getting a physical sports facility that will enhance our city and state.

Comparing this–or anything–to 38 Studios is the cheapest and easiest piece of political rhetoric that can be employed in Rhode Island. It gets lobbed from the left, the right and the middle. The comparison absolutely does not apply here. I don’t expect that fact to stop people from making it, but I will hope against hope that progressives, at least, can ditch this cliche in favor of something a little more thoughtful.

There will always be “something better” to spend the money on. Yes, I know the schools and the roads and the bridges are literally crumbling. I know the health care system is in shambles. I know that way too many people will sleep on the streets tonight. We absolutely need to make serious investments in all of these areas. But making any of those things an either/or tradeoff against this baseball stadium is wrong-headed and in some ways disingenuous. How often do we criticize conservatives for making the allocation of public funds a zero-sum game? And yet here are doing the same thing.

According to this rationale, we have to have full employment, state of the art schools in every community, 100% graduation rates, free college tuition, zero homelessness, a cure for cancer, all of our energy coming from renewable sources, guaranteed pensions for every Rhode Islander and protected bike lanes in all 39 cities and towns before we can even begin to think about a new baseball stadium. I disagree.

Can we please stop demonizing those we don’t agree with? This does not just apply to some of the personal insults I’ve seen hurled at Mr. Skeffington. This is becoming a really troubling trend among progressives. I know it can be satisfying to go on social media and make public figures out to be villains; it’s also petty, dickish, and the absolute definition of counter-productive. I expect it from right-wing talk radio. I’m appalled and disturbed by it when it comes from liberals and progressives. Please stop.

We have to consider the noneconomic benefits. I recognize that baseball is a business. I also know that baseball is a vital American institution. And whether they’re called the PawSox, ProvSox, RISox or Rhody Sox, our beloved baseball team is a treasure that must be kept in Rhode Island. The proposed new facility will have economic benefits for Providence and Rhode Island. Just as important are the social and cultural benefits which are difficult (if not impossible) to quantify–these cannot be overlooked. Again, it’s not a zero-sum game.

Let’s find a way to make this work. Let’s recognize the importance of professional baseball to our cultural and civic landscape. You don’t have to be a huge fan of the sport to be able to acknowledge the contribution baseball has always made to our history, our society, and our way of life–and to understand that to lose this team would be a devastating psychological blow to the Ocean State. I think most of those who will read this do understand. I think knowing just how much it would hurt to lose our Sox is exactly why the reactions have been so visceral. “How dare these rich people extort us like this!” some say. And rather than be backed into a corner, throw up their hands and say “Fine, take the team somewhere else! We don’t need you!”

Believe me, I do understand this sentiment, even if I don’t agree with the characterization that this is extortion. It’s business, and we’ve been wrestling with the tension between baseball-the-beloved-national-game and baseball-the-money-making-enterprise since the first professional leagues came about. But to dig in and shout “no!” instead of finding a way to move forward is a mistake. To give up on keeping the team because of some misguided principled stand would just feed another pervasive stereotype about those of us on the left: we’re all too ready to cut of our nose to spite our face.

I recognize how difficult it may be for many readers to come around to accepting the team owners’ proposal as it currently exists. That’s fine. But if the root of the word “progressive” is “progress,” then who better than progressives to craft an open, accessible, and constructive dialogue so that we can reach an agreement that benefits us all, rather than just toss our bat and retreat back to dugout just because we didn’t like the look of the first pitch?

April 14, 2015April 14, 2015

Study shows carbon tax would bring 2,000-4,000 jobs to RI

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A new study says a carbon tax in the state would create between 2,000 and 4,000 jobs, as well as create up to $900 million in state revenue by 2040. Scott Nystrom, a senior economic associate and project manager for Regional Economic Models, Inc. presented the study’s findings at Brown University.

Sponsored by the Energize Rhode Island Coalition, REMI’s study examined the possible benefits and consequences of instituting such a tax in the state.

Introduced this year, the Carbon Pricing Act has been tabled for the session but will be resubmitted next year. The bill, if passed, would be the first of its kind in the United States, setting an environmental standard for the rest of the country. More information can be found here.

Energize Rhode Island is currently promoting the Clean Energy Investment and Carbon Pricing Act, which would impose a carbon price (or tax) on all fossil fuels at the first point of sale within the state. The price would be $15 per ton of carbon dioxide for the first year the act is in effect, and raise at a rate of $5 per year.

The Carbon Pricing Act has two main goals – to provide a disincentive for using fossil fuel revenue to compensate for the cost of moving toward green energy. The price would be returned to Rhode Island’s economy in four different ways: a dividend check to households, a dividend to employers based on their share of state employment, a fund for energy efficiency costs, and administrative overhead.

According to REMI’s analysis, Rhode Island would receive positive benefits from implementing a carbon price.

“You actually have more jobs in Rhode Island that you would have otherwise with this policy,” Nystrom said during his presentation. Although the impact is relatively small, only around 1 percent of the jobs in the state, that’s still 2,000 to 4,000 jobs that were not there before. The Coalition says 1,000 of these jobs would be created within the first two years of the price’s introduction.

Total gross state product would rise as well, with the construction industry gaining roughly $86 million. The only industry that takes a serious hit due to the price is chemical manufacturing, which would lose $16 million. Real personal income would also increase between $80 and $100 million dollars during that time.

Nystrom also explained that instituting a carbon price could result in a population increase.

“Because the labor market is stronger, it draws more people to the state to an extent,” he said. “They move into the state as a consequence of the labor market, they buy a house, they settle down, and they increase the state’s population.”

With all of the new jobs and people living in Rhode Island, state revenues would be on the rise as well, earning between $200 and $900 million through the 2030s.

For all these benefits, cost of living would only increase minimally.

“Even though this does increase the cost of energy for states, It’s about a half a percent,” Nystrom said. “This means you have three months of extra inflection between now and 2040 than you would have otherwise.”

Carbon emissions were not the main focus of the study, but Nystrom did add that they would decrease over the course of a few years, and then stabilize.

“Emissions are purely a byproduct,” he said. “This is a result of the model.”

April 9, 2015April 15, 2015

Tip high and tip often, someone’s economic security depends on it

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There are two minimum wages in this state, as in many states. There’s the one you always hear about that applies to almost everyone and every job, which is around $9.00/hr. right now. Then there is the other one, for the people who didn’t have a strong-enough lobby when the minimum wage bill was first written and subsequently modified. They are mainly restaurant servers – waitresses and waiters. Their minimum wage is currently $2.89/hr. in RI. Hence, it is referred to as the sub-minimum wage, or as I like to call it the substandard minimum wage.

Legislation heard last night would raise the sub-minimum wage to be equal the minimum wage over four years, so that in 2020 the sub-minimum wage would effectively be eliminated for servers.

Some of the Big Issues

How does one live on $2.89/hr.? They don’t. The idea is that tips make up the difference between $2.89 and $9.00, and current law in fact states that owners must add to servers’ income whatever is necessary to bring $2.89+tips up to $9.00. For that matter, how does anyone live on $9.00/hr.? Again, they don’t. That’s way below the poverty line. But that’s another story.

Note that tips are supposed to reward good work, above and beyond what is required of the server. At least, that was the original intent, but now they are formally part of ‘regular’ wages. I’ll bet most patrons do not know that. I didn’t.

Does anyone else see a problem with this? Like, what about all of the slow nights when there are hardly any tips? Even including the good nights the typical server’s income is nothing to write home about.

Many numbers for the actual average server wage, including tips, were tossed around last night. About $8.50/hr. seems to be the most believable. But wait: weren’t servers guaranteed to get $9.00/hr.? Unfortunately some wage theft and other unscrupulous practices occur in some restaurants. But, again, I digress.

Another problem: in order to get decent tips, a server has to suck up to her patrons. The servers that look the best, smiles the most, and doesn’t complain, make the most. If you don’t want to fit this picture, tough. Like it or get another job. Several restaurant owners at the hearing actually said things like this.

There is a LOT more to this, which others have or will addressed.

Observations on Dubious Observations

1) One of the senators on the committee hearing the bill asked: If there are thousand(s) of servers in RI, and they support the bill, why aren’t they all here testifying tonight?

Comment: (We ignore the ludicrousness of this question in the first place.) As a testifier pointed out, most servers have to be at work by 4 PM (that was about when the hearing started). But OK, putting that to one side, by the same reasoning, there are hundreds of restaurant owners in RI, why weren’t all of them there last night? After all, they don’t have to start at 4 PM, the servers (and others) are handling the work at their restaurants.

2) Many of the owners took personal offense at the testimony of the supporters of the bill. Many talked of their staff and themselves as “family.” I have no doubt that the vast majority of the owners in that room are sincere, good people with good intentions. I told a couple of them that. They are also small-business owners, and they do have a tough life. My father was self-employed, I know.

Comment: But there are many owners out there who are not good people, and the state needs to protect all workers.

3) Many of the owners testified that their servers like the status quo. The owners know this because they asked their servers about it directly.

Comment: Anyone NOT see a problem with this? If your boss thinks that A is better than B, and (his) money is involved, and asks you, his worker, if you think the same, and you don’t want to risk losing your job or making less, and you do want to feed your family, and you don’t have a contract or tenure and are not married to the owner’s sister, what are you going to tell him?

4) One of the owners told me that he didn’t think that sexual harassment had anything to do with the bill and, implicitly, should not have been brought up by the bill’s supporters.

Comment: Sexual harassment by the patrons is one of the things servers have to put up with to get decent tips. Unfortunately, it doesn’t stop there, but many servers also have to put up with it from their bosses or managers. If a server resists or complains, the offending party can assign her to the low-tipping work in the restaurant, like assigning her to a small section (fewer tables, etc.).

That’s It

Remember: tip high, tip often.

March 9, 2015

Private sector debt dynamics don’t explain RI economic slide

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The central contention of the real Democratic movement in Rhode Island is probably this: Since the right-wing Democrats rose to power under Bill Murphy in 2003, their bad economic policies have driven our economy into the ground. But one niggling alternate possibly has always bothered me. It’s boring and wonkish. It’s also easily checked by looking at the data. And it turns out it’s wrong.

To understand what I’m talking about, we need a little background into the theory of the 2008 economic crisis that’s become broadly accepted, especially among economists affiliated with the Democratic Party.* (Republican economists have some alternate theories, most of which I find pretty kooky.) The basic story is that 2008 was an old-school private sector debt crisis. Private sector debt had risen much higher than public sector debt. (The exact figure depends a lot on how you count.) Most of the debt had piled up in the business sector, especially the banking sector, but there was still an awful lot of debt in the hands of ordinary American families, mostly in the form of mortgages. It was a lot of debt.

Since World War 2, one of the main drivers of aggregate demand in the economy had been an accelerating accumulation of private sector debt. In the 1908s, as public policy grew more conservative, this debt accumulation began to accelerate even faster, supported by an expanding housing bubble.

Unfortunately, the private sector can’t accumulate infinite amounts of debt forever.

When the housing bubble partially popped, households realized their debt loads were too high, and they began paying them down. Instead of spending that money on consumer goods, they paid down debt. This resulted in a massive crash in aggregate demand and a big economic crisis. To make things worse, the federal government hadn’t been providing enough stimulus to support growth, and the economy had been relying on private sector debt to prop it up. So the recovery was pretty slow as the private sector continued to pay down its debt without much help from the government. Now that the private sector has started going into debt again, we’re seeing growth pick up a bit.

Anyway, this is important because it explains why a lot of states had particularly bad experiences in the crash. States like Nevada and California (and to a lesser extent Florida and Arizona) had abnormally high debt loads, and their residents paid down an abnormally large amount of debt. They wound up with abnormally bad crashes.

The textbook case is Nevada. In Nevada, households reduced debt by the most of any state, with the average resident paying down $26,300 from the end of 2008 to the end of 2013. For comparison, the US average was $6,100. Naturally, Nevada’s crash was especially severe, arguably the worst in the country. Now that Nevada’s household debt load has come down to about the US average, and Nevada residents have stopped paying down debt abnormally fast, the state economy is doing a lot better.

Private sector debt, then, can have a big effect on state economies. So I’d always wondered: could Rhode Island have had an abnormally bad crash not just because of right-wing policies but also because of an abnormally high private sector debt load?

When a recent Boston Fed paper mentioned state-level debt statistics, I wrote to the author, Mary Burke, and she helpfully pointed me to a dataset maintained by the New York Fed. Apparently, the New York Fed has been keeping statistics on state-by-state household debt, with the full data series starting in 2004 (before then, they didn’t track student loan debt). Now, they don’t necessarily count all household debt, but they do count mortgage, auto, credit card, and student loan debt, which together cover the vast majority of household debt.

For the purposes of this piece, I’m going to treat the sum of those four sources as total household debt, which isn’t 100% correct but comes close. There’s one other niggle about this dataset. It only counts state by state statistics in the forth quarter of each year, so when I cite years, I’m not talking about a yearly average. The 2014 forth quarter numbers aren’t out yet, so the latest data come from more than a year ago and don’t really capture the recent return to household debt accumulation.

So does Rhode Island have an unusually high debt load? And did we have to pay down an unusually large amount? No and no. In fact, Rhode Island’s peak debt of $48,200 was virtually identical to the national average of 48,100. We reduced debt by only $5,500, which is a little less than the $6,100 national average. So debt cannot explain our abnormally bad crash.

What debt can partially explain is the relatively good performances of our neighboring states. Massachusetts and Connecticut have quite high debt loads, but that at least partially reflects their high per capita income. And relative to the 2008 peak debt, the other states in our region reduced their debt loads a lot less than Rhode Island. This helps explain why our region is doing better than the country as a whole. And it helps explain why we lag behind our neighbors.

But it does not explain why we lag the nation. For that, we really need another explanation. And the right-wing economic policies of the conservative Murphy machine fit the data best.

*The extent to which this theory is fully accepted among Democratic economists is a bit complex. Although it started in a school of thought somewhat to the left of the mainstream, most prominent Democratic macroeconomists have adopted some version of it. The basis of this theory was developed to explain the Great Depression by Hyman Minsky, probably the most important founder of the post-Keynesian school of macroeconomic thought. (Minsky has a bit of a Rhode Island connection. He taught at Brown for a while, and he married a Rhode Islander.) It was later fleshed out by other post-Keynesians, who predicted that the ever increasing private debt would lead to a crash. Broadly speaking, the post-Keynesian movement represents the ideological space to the left of the neo-Keynesians and to the right of the socialists, Marxists, and radicals. Although it’s fully contained within the free market tradition, it tends to generate a lot of scorn from neoclassical economists. Since the crash, however, post-Keynesians have been gaining prominence within the Democratic Party’s policy universe. For instance, prominent post-Keynesian economist Stephanie Kelton was recently appointed the chief Democratic economist for the Senate Budget Committee. Some post-Keynesian ideas remain the subject of fierce debate, but the private sector debt theory of the 2008 collapse has been adopted by more mainstream economists, including Gauti Eggertsson, who is probably the most famous macroeconomist in Rhode Island.

February 28, 2015February 28, 2015

Economic growth, policy and the Pawsox

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The Bureau of Economic Analysis released its new economic growth numbers today and there are a few things I want to ruminate on.

“Real gross domestic product — the value of the production of goods and services in the United States, adjusted for price changes — increased at an annual rate of 2.2 percent in the fourth quarter of 2014, according to the ‘second’ estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 5.0 percent.”

This is a good one. The good times rolled in the third quarter. At 5 percent we could keep up with China. We fell back to earth in the 4th quarter, 2.2 percent, which just so happens to match the growth rate in each of the last 3 years. Interestingly the biggest swings in spending were by the federal government, especially in the defense sector.

Real GDP increased 2.4 percent in 2014 (that is, from the 2013 annual level to the 2014 annual level), compared with an increase of 2.2 percent in 2013.”

The chart that followed also included the 2012 number, 2.3%. GDP growth in the last few years has been remarkably consistent the last few years, 2.2 percent to 2.4 percent. Actually the economy has been averaging something in the low two’s for quite a while. The national average includes things like the fracking boom towns of North Dakota (growth rate in 2013 15 percent) and Texas, the financial and entertainment centers of the universe, and the rural counties of Mississippi.

An honest assessment of Rhode Island puts us slightly below the national average in assets and growth potential. We are not a natural resource boom town, we are not a mega city and financial center. We are an old industrial place that lost out when the nation stopped being water-powered and we were no longer cheap labor. Despite the screams of the John Birchers (I was handed a John Birch Society pamphlet at a public hearing recently), the heroic efforts of the business climate obsessives, and the promises of the legislature the fundamentals of the Rhode Island economy remain those of a post industrial medium sized city that is vulnerable to the vagaries of climate change and the slowing global economy.

But Rhode Island public policy is predicated on rapid growth, 3.2 percent on average. A better understanding of ourselves, especially of how economy works in a 2 percent growth world, would go a long way towards aligning policy with bringing prosperity to our communities rather than just filling the coffers of the few.

The cause du jour for this sermon is the effort by some of the wealthiest men in New England to move the Pawsox to a park in Providence. Rhode Island has a sordid history on this sort of thing, Big money crushing communities and demanding subsidies or threatening to go elsewhere with their money. I do not like the deal, but who cares. The one thing you should care about is making sure that the whole deal gets a very full public airing and that this is followed by a series of public hearings in all the affected communities. Today I have been making calls seeking a hearing and CRMC says it will hold one if they get a formal application, but the effected cities should also hold hearings for the public to air their concerns.

The more I read about the land in question, the less I like the deal. Either stealing public parks and waterfront or admitting that the knowledge district is more fantasy than reality. Neither makes us look good. The first thing the lords of Triple A should do is state that since they believe they are high rent economic development they are willing to pay fair market value for any land they build upon including all of the land they use for parking. Let the public airing truly begin before this develops any momentum and any more palms get greased.

February 11, 2015February 13, 2015

Boston Fed weighs in on why RI economy tanked

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It seems everyone has a theory on why Rhode Island’s economy stinks. Now the Boston Fed has one too.

“This paper seeks to discover why Rhode Island experienced a more severe downturn during the Great Recession than any other New England state and why it continues to lag other states in the region and the nation as a whole in some measures of labor market health,” writes senior economist for the Federal Reserve Bank of Boston Mary A. Burke.

“The three sectors that contributed most to Rhode Island’s poor relative performance in the region were finance, government, and manufacturing, in that order,” Burke writes. “Had Rhode Island performed only as poorly in each of these latter three sectors as Connecticut, the second-worst-performing state in the region, virtually all of the difference … between Rhode Island and Connecticut in terms of peak-to-trough percentage job losses would have been eliminated.”

It’s well-known that Governor Don Carcieri shrank state government right before the crash. Burke says this didn’t help.

“Rhode Island experienced significantly slower growth in government spending than any other state in the region,” she wrote. “And, over the entire period, Rhode Island had the second-lowest cumulative growth rate in government spending in the region, beating out Maine by only a very small margin. Furthermore, prior to the recession, government spending represented a relatively large share of Rhode Island’s gross state product.”

Like most who muse over this question, Burke cites the loss of manufacturing jobs as a contributing factor – though she says globalization was already doing a number on that sector. “The state’s steep manufacturing losses most likely contained a large structural component that was already in force prior to the recession.”

You can see in this chart that unemployment was somewhat steady as manufacturing was steadily dipping, and that unemployment spiked when construction sank.

But there was something to Rhode Island’s relatively uneducated manufacturing sector that didn’t bode well for them when the recession hit.

“…Rhode Island had by far the highest pre-recession concentration of high-school dropouts in its manufacturing sector among the New England states,” Burke writes. “At the national level, high school dropouts in manufacturing were not especially vulnerable to job losses as compared with other manufacturing employees. Therefore, Rhode Island’s high concentration of dropouts in manufacturing, all else being equal, would not have predicted an excess of total manufacturing job losses. However, high school dropouts in Rhode Island’s manufacturing sector experienced job losses in the recession at a rate close to three times the national rate and contributed a full one-third of Rhode Island’s manufacturing job losses, a larger share than in any other New England state.”

Of course, globalization, shrinking government, and a poorly-educated workforce didn’t cause the Great Recession all by themselves. “…the housing bust was stronger in Rhode Island than in any other New England state except Connecticut,” writes Burke.

And the housing bubble, which precluded and ultimately led to the housing burst, was doing a fairly decent job of hiding the damage done to the state’s economy from the flight of manufacturing. When the construction workers started looking for new jobs, things got real bad for the manufacturing workers.

“Once construction activity began to plummet in Rhode Island, displaced manufacturing workers had far worse re-employment prospects than during the construction boom,” she writes.

That was then. Burke says there’s now some reason for optimism. Though I’m inherently skeptical of anything that takes this level of economist-speak to explain. She writes,

“If we compute the fraction of total employment losses (peak-to-trough) that have since been recovered — by taking the difference between the peak-to-trough percentage change in employment and the peak-to-current percentage change inemployment and dividing this difference by the peak-to-trough percentage change — Rhode Island ranks last in the region. However, in terms of jobs recovered since the trough in terms of raw percentage points in relation to the pre-recession peak employment level in a given state — which is the absolute value of the raw difference described in the preceding sentence — Rhode Island ranks second-best.”

In layman’s terms, you can crunch the numbers both ways. But what’s interesting is the report indicates that while the Providence metro area (from roughly Warwick to Fall River) helped the state as a whole fall into the recession, it hasn’t been helping it climb out.

“Providence also places second-last (again behind Norwich) in terms of trough-to-current employment change, even though Rhode Island placed second-best on this score among New England states. Since the trough, then, Rhode Island’s relatively strong performance belies the relative performance of the Providence” area.

November 20, 2014

An open letter to Governor Chafee on the economy

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Dear Governor Chafee,

This is a letter that will be made public. You should know that as you read it.

I doubt that you have been really pleased with the performance of the Rhode Island economy during your term. I do not think anyone has been all that pleased.

You probably do not remember the meeting we had in the spring of 2010 when you were running for governor. I explained where I thought the economy was going and why. You looked absolutely frightened by what I told you and were in no mood to even consider that I might have been correct in my understanding of what Rhode Island faced. You were going to stick by the traditional grow the economy standbys despite the fact that they were designed for a vastly different economy than we face.

I know much more than I did 4 years ago, and have watched the Rhode Island economy continue to struggle. My regret is that if you had been willing to understand what RI faced you could have devised a much better strategy and RI would be a more prosperous place than it is now.

What I told you was that the RI economy was not going to grow much and that we needed to be smart about how to shrink it rather than thrash around for growth. You have given yourself over to the business climate fanatics with the growth plans that no longer work if they ever did. The data is rather clear. You should read the report from Kansas Inc, the Kansas version of the RI Commerce Corporation. http://www.kansasinc.org/pubs/working/Business%20Climate%20Indexes.pdf

Business climate is a meaningless concept created by the pr firms that told us tobacco does not cause cancer and that there is no climate change, or if there is climate change it is not man made. You know better about the climate, even if you have done much too little to help RI prepare for climate change rolling disasters such as the drought in California threatening the food supply. But you have swallowed hook, line, and sinker that if we did what the business climate maniacs want us to do, then growth would follow. You followed the party line. There are still fewer jobs than 6 years ago. The reason RI lags the national job growth averages are inherent in old post industrial places with few fossil fuel and hard metal resources in a world in which resources are limited, sinks are failing, and what growth there is needs to end up in the hands of the poorest, not the richest, if communities are to thrive. There is nothing in the prescriptions offered by the business climate quacks that address our situation. The increases in inequality that cutting taxes on the rich and speeding up destruction of ecosystems brings in an era of job shrinkage due to computers are part of the problem, not the solution.

I also want us to push back the drum beat on regulatory reform and how regulations are supposed to be holding us back. Beyond the simple minded attack on the Clean Air Act and the Clean Water Act that underlies all of the anti regulatory fervor in America we have to remember how often it is the citizens of RI uniting to stop BAD projects that were presented to us as economic nirvanas that have prevented ever greater disasters. You know quite well that if Rhode Island had had a full open discussion of 38 Studios we would not be out $100 million. You might also want to remember that if the public had been shut out and the Mega port at Quonset had been built, it would have opened just as the global economy tanked and cost us $1 billion.

The point you never made, and should have, is that if we are to make permitting easier, everyone wants simple easy to read and fill out forms, we need to make it easier for communities to defend themselves as well. Easy permitting can not be an attack on the environment or our health and safety if it is to actually help our communities achieve prosperity. We have to remember how to subtract as well as add when pondering the economy we want.

You are not the only elected official I have had this conversation with. Several years ago I sat with Speaker Fox and Leader (now Speaker) Mattiello and told them what I knew that day. I did not get the impression that Speaker Mattiello could remove his ideological blinders about the role of ecology and justice in prosperity any better than you. His public statements do not give me much hope.

I helped organize a meeting between Governor elect Raimondo and a number of the leading environmental thinkers in our state about a year ago. Several of us made the point on the importance of ecology and justice in prosperity in an age of shrinking economies in the old industrial west. The next Governor wanted to talk about storm water and solar power, but needs to continue to evolve on Full Cost Accounting, the need for the public to be fully engaged in decisions about economic development in the community, and how climate change changes everything. Food Security may just be the best lens for examining economic development policy under the circumstances.

I had a similar conversation with Mayor Elect Elorza when his campaign was beginning. I hope he remembers that Providence needs to grow 20 times as much food as it is now and that this is a key to our future economy. And using real estate speculation as a stand in for actual economic development in a city that already is too expensive to live in only serves the rich.

I expect you will do some very interesting things once you leave office. I think your best work may be ahead of you. And we all know there is much to do.

July 29, 2014July 29, 2014

The economics of refugee children

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If the most important thing in the world is the Economy and all else is secondary in consideration, then human life is only valuable in as much as it contributes to the efficient maintenance of the Economy. In such a world the makers of things and the investors of Capital are of primary importance, while the takers of things and those incapable of meaningful contribution are at best to be considered luxuries and at worst impediments to our great society.

It is easy to understand why Terry Gorman, founder of nativist hate group RIILE, motivated by racism and misanthropy, would be so outraged by the influx of refugee children that he would hold weekly rallies to announce his special kind of awfulness to the world, but it is harder to understand the rationale of those who maintain that they are not motivated by unreasoning hatred, but by simple considerations of market forces and uncontrollable economic reality.

Justin Katz, appearing on Channel 10’s Wingmen recently, maintained that, “illegal immigrants” will put a burden on schools and other social services, even though the group Katz fronts for, the Rhode Island Center for Freedom and Prosperity, actively seeks to cut funds for schools and social services. In his defense, Katz is merely following his economic ideas to their inevitable conclusion: Since the kinds of policies the Center advocates for have already made it more difficult to adequately care for at-risk children presently living in Rhode Island, how can our state possibly afford to care for even more at-risk children?

What any potential influx of refugee children will reveal about the Rhode Island economy is what economist Robert Reich calls a vicious circle, a complex working of policies that reinforces itself through a feedback loop with ever more negative economic consequences, at least for most of us. (A very few will attain unimaginable wealth.) The rules in Rhode Island have been constructed to deprive the necessities of life to those deemed incapable of meaningful contributions to the all-important Economy. The arrival of hungry children simply makes this fact gallingly apparent.

This is why religious values always fail when stacked up against conservative economic values. Bishop Tobin, of the Providence Catholic Diocese, can quite clearly say, on religious grounds, “If the refugee children come to Rhode Island I hope and pray that all the members of our community will work together, in a thoughtful and compassionate way, to welcome them and care for them to the very best of our ability. The Catholic Church will do its part. Certainly the children should not be the object of our political scorn” but these words are completely ignored by members of groups like RI Taxpayers, who publicly “supports Terry Gorman and his RIILE group.”

Larry Girouard, President of RI Taxpayers, allows his website to carry such pleasantries as, “While the feds may be paying the expenses of these children, we all know it will be a matter of time before that expense will be passed to the state taxpayers. This state is under enough financial pressure with a bloated state budget. This is just another expense the taxpayers didn’t need or expect.”

How small.

What are we to make of an economic system bounded by policies that cannot value the lives of children? Are we to simply shrug our shoulders and resign ourselves to an arbitrary rule system, championed by people like Girouard and Katz, that reduces and dehumanizes refugee children to “objects of our political scorn”? If the rules are such that multitudes of people must suffer so that a very few might live in unimaginable and undeserved opulence, why are we playing by such rules? Why must we reject what is best in ourselves, our empathy, to serve the venal economic wishes of a group of small minded Objectivists more concerned with fostering human greed than human compassion?

Happily, those that would deny food and shelter to refugee children are far outnumbered by the rest of us who see caring for those in need as being essential to our very humanity. Questioning the need to offer assistance to children stuns us. It’s impossible to not see such attitudes as some kind of perverse joke and an abandonment of essential human values. “I’m not going to ruin a perfectly good pair of $200 shoes wading into a puddle to save a drowning two-year old,” is something said by villains, not decent people.

When groups like RI Taxpayers or the RI Center for Freedom and Prosperity tell us what the rules of the economy should be, we hear them talk about fairness and equity, and we assume that they are honest moral players with whom we disagree. When the pain of their policies fall on us, we bear it, because we have been bewildered by their talk of fairness. We believe that our placement in the great Economic game has been determined honestly, and that we are somehow getting what we deserve.

However, at the moment children show up at our door, hungry and without shelter and those that set the rules tell us we are powerless to help, we see the Economy for what it is: a game to keep us poor and powerless.

That’s when we wake up, and tell them we aren’t playing their game anymore.

July 13, 2014July 13, 2014

What’s wrong with supply-side economics

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While zipping through Netflix the other night, I came across a movie about bootleggers–that I wouldn‘t really recommend. As I watched, however, something became very clear.

Demand.

Supply-side economists have this totally absurd notion that supply will create its own demand. That has to be one of the stupidest things I have ever heard. Why are there no Wal-Mart’s in the Yukon territory? Why did buggy-whip manufacturers go belly-up after the auto-mobile became popular? Why are there no stores that sell only items related to Reformation Theology?

Seems like a Wal-Mart should be enough of an attraction to create its own demand. Right?

Seems like a plentiful supply of quality buggy-whips should have enough appeal to create its own demand. Right?

And lots of books and pictures of Thomas Cramner, well, obviously, this is a supply that has to create its own demand. Right?

But then you have Prohibition. What happened there? Supply disappeared, at least in theory. So demand collapsed, because nothing is ever driven by demand. Right?

Except just the opposite happened. Demand created the supply. Just like illegal drugs. With sufficient demand, someone, and even lots of someones, will take great risks to produce a supply.

And yet, star-level economists, especially at the U Chicago insist that demand has no role in economic performance. Cut taxes, cut regulations, free the supply side and demand will follow. It HAS to! Our theory says it will! So it will be so!

Stop me if you’ve heard this one: my grandfather lived through the Depression. He had a line that held more wisdom than all of the collected works of the U Chicago school. My granddaddy had no illusions about “Good Old Days”, when it was all simpler. His line was “Sure, a loaf of bread only cost a nickel. But what the hell. You didn’t have a nickel.”

And there you have it. No matter how cheap a thing, people won’t buy it if a) they don’t want it (see Whips, Buggy above); or b) they don’t have any money.

Which leads to the current state of the economy. Five full years after the crash, a lot of people still don’t have jobs. Or, if they do, they are low-level service jobs that pay between minimum and maybe $10/per hour. $10 per hour grosses just shy of $21k per year. Can you rent for $400 per month? Can you keep a car on the road for $400 per month? Maybe that will cover gas, but you also MUST factor repairs and routine maintenance into that. Can you eat decently on $400 per month? And that means, you know, fresh fruits and veggies. Yes, you can get by on boxed mac-and-cheese, but that takes a horrible toll on your body. So we’re down to something like $500 per month discretionary. (Taking a month as 4.3 weeks). Not saying that’s not enough to get by on. It is. I know because I’ve done it (adjusting for inflation). But let me tell you, don’t plan on buying much.

And there, exactly, is the rub. I get so sick of people who say that employers have the right and the obligation to drive wages into the ground. And then say that workers should be thrilled to have any job,at any wage, no matter how pathetically low. Have to free up the job creators!

But what good does that do? Job creators are more free now than they have been in generations. They’re making huge profits. They’re sitting on piles and piles of money. So, they’re free*. Why don’t they create jobs? Or why don’t they create jobs that pay people a decent wage? Why is there a need to stockpile even more money?
Look, Henry Ford was a Nazi sympathizer. That is not a slur. It’s an historical fact. Go read anything about him and you will find out that he was so virulently anti-communist that he thought the Nazi government was a good thing, at least before the onset of WWII and the Final Solution. He figured out that it was a good idea to pay workers more than starvation wages. He realized that by paying his workers a good wage, he was creating customers.

In other words, he was creating demand for his products. In other words, paying workers more, and making a smaller profit, was in his best self-interest.

We are primed for a terrific natural economic experiment. Massachusetts is going to raise its minimum wage, gradually, to $11 per hour by 2017. The first increase is to $9/hour as of 1/1/15. Since Mass and RI currently have the same minimum wage, this means that millions of jobs will be fleeing from Mass, crossing the border into RI to take advantage of the lower wage. And it means that Mass will be plunged into economic darkness and decay because, everyone knows that a higher–and increasing—minimum wage will cost millions f jobs. By 2018, Mass will look like Detroit on a grand scale.

Everyone knows this. Just like everyone knows that millions of Rhode Islanders have fled to low-tax places like North Dakota and Wyoming. Because that’s what Econ 101 says.

Well, maybe those people should have stuck around for Econ 201, or 301. Maybe they’d have learned there’s more to the story.

And: assuming that my “predictions” don’t come true, and that the economy in Mass actually improves, I will expect a personal apology from every single person who says I’m wrong.

Because, fact of the matter, a higher minimum wage will stimulate demand. People will have money. They will buy more. That means companies will hire more people. And the virtuous cycle continues. If you want proof of this, cross the border into Canada, where the minimum wage is currently $11./hour. And then cross back. It’s like going from a First World country into a Third World country. When you cross back into the US, that is.

And if you don’t believe me, how about this guy?

May 24, 2014May 24, 2014

Happy Memorial Day, or why tourism works for RI

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South County’s dramatic seasonal switchover happens this weekend.

Parking lots from Wickford to Westerly, vacant all winter, will fill with nicer-than-average cars bearing out-of-state plates. Those same cars will help turn otherwise rural routes 1 and 4 into a twice-a-day traffic jam. Every errand will take twice as long. All of a sudden it costs money to go to the best beaches. And your dog is no longer welcome.

For the next 90 days or so, we have to share our coastal paradise with the rest of the world. It’s really a tiny price to pay to get to live in one of the most beautiful corners of the country. “You should see it in September,” a Rhode Islander will inevitably say to someone visiting for a week in July.

With about a fifth of the state’s population, South County is essentially Rhode Island’s company town. The beaches are the Ocean State’s factory. And our chief export is an amazingly healthy and renewable resource: rest, relaxation, good times and memories.

Tourism is Rhode Island’s second biggest industry. It contributes billions annually to the economy and is responsible for almost 10 percent of total employment. It plays to our natural strengths and is a historically strong driver of growth here.

After the Ocean State unsuccessfully tried to boost business by cutting taxes and giving money to a baseball player to develop a video game, Democrats running for governor are beginning to understand tourism’s importance here. Providence Mayor Angel Taveras and General Treasurer Gina Raimondo both recently released plans to reinvigorate the vacation sector.

“A progressive government understands that our tourism industry is more than an amenity – it is crucial to economic development and to Rhode Island’s economic recovery,” said Taveras in his plan to invigorate the tourism economy.

The old Shooters building at the top of Narragansett Bay has inexplicably been vacant for years. (Bob Plain) — Tourism fail?: The old Shooters spot at the top of Narragansett Bay has been vacant for years.

“Tourism can be an incredibly powerful engine of economic growth, and Rhode Island is ideally suited to take advantage of it,” Raimondo said in her tourism proposal released in April.

Each offered similar bullet points to boost out-of-state visitors. Improve infrastructure, market the state better, support the arts and entertainment.

“Our tourism economy is a driving force in our sense of pride and sense of place,” Taveras wrote. “We have so much to be proud of in Rhode Island. It is time to let the world know.”

They each said they could create thousands of new jobs.

Raimondo, who often invokes her family vacations to Sand Hill Cove in stump speeches, said Rhode Island “on the whole spends less on investing in tourism and travel than almost any other state in the country.”

No wonder the Ocean State is mired in a recession! Rhode Island made big bets on tax cuts and Curt Schilling to grow our economy when perhaps we would have been better off doubling down on our natural and historical strong suit: tourism.

We may be the smallest state in the nation, but there’s no good reason we can’t also be America’s best destination.

beavertail — Looking west towards South County from Beavertail State Park in Jamestown.

April 30, 2014May 1, 2014

Why state unemployment doesn’t matter as much as you think

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Everyone knows that Rhode Island has the highest unemployment rate in the nation, right? After a few years of lagging Michigan and sometimes Nevada, we are now the nation’s leaders, despite the rate having ticked down slightly last month.

But consider this: what do you learn by comparing a tiny state like ours to relatively gargantuan states like Michigan and Nevada? Is that comparison useful? Huge parts of Nevada are desert; huge parts of Michigan are farms; there are no huge parts of Rhode Island. Could that be relevant to the three states’ economies?

Comparing states to each other is a decent way to get a handle on differing state policies, but do we think that state policies are at the heart of our high unemployment rate? Are there no other differences you can think of between, say, Texas and Rhode Island? I believe our state’s policies certainly contribute to our economic condition, but sometimes another analysis can be revealing, too.

I looked last week at the unemployment rates for metropolitan areas (“Metropolitan Statistical Area” or MSA), as defined by the Census Bureau, and learned that the Providence MSA (which includes what you think of as greater Providence, as well as stretching out to include Fall River) has unemployment of 9.7%, higher than the statewide rate. We rank 339 out of 372, a pretty dismal showing. But that’s not dead last, so I also learned that there are 32 MSAs in 11 different states that rank lower than ours, including New Bedford, at 11.1%, and bottoming out at Yuma, Arizona, at over 22%. And Westerly and Hopkinton are part of an MSA centered in Connecticut, and their rate is 7.9%, or number 268 on the list. Nothing to be proud of, but better than 104 other places.

Half of the MSAs in California are doing worse than we are, as are three out of five in New Jersey, and four out of 25 in Texas. But those states also contain some high-performing MSAs, so the devastating performance of some areas are washed out in the statewide averages. There are several one-party states in that mix — from both parties — as well as several with divided control of their governments. It seems to me that anyone who wants to claim that Rhode Island’s high unemployment rate is entirely due to state policy has the burden of explaining why we should adopt the tax and regulatory policies that have brought Brownsville, Texas to a 9.8% unemployment rate or Yuma to 22%.

A few years ago I did an analysis that suggested the structure of the labor market might be relevant. Nestled between two richer states, Rhode Island’s white-collar jobs pay comparable wages to those neighbors. Jobs like these are good jobs, for which you might commute a long way, or even move your home. For jobs like being a psychologist, computer programmer, architect, or lawyer, this is pretty much a single job market. An employer in Warwick looking to hire a staff attorney competes for a pool of attorneys who might easily take a job in New London, Attleboro, Sharon, or Boston.

It’s not like that for hiring a cashier in a convenience store. You wouldn’t commute to Boston to work in a deli, and so it turns out that while white-collar wages here are at least comparable to wages for similar jobs in Massachusetts and Connecticut, blue-collar jobs vary much more, and in fact pay much worse here in Rhode Island.

I made a couple of rankings of states based on a selection of job categories, and I learned that some areas ranked high on my white-collar job list and low on my blue-collar list, while in some it was the other way around. (Read more about them in my book, “Ten Things You Don’t Know About Rhode Island.” The table is below, but you’ll have to check out the book to get all the details.)

In truth, I have no idea why these rankings differ, though it is entertaining to speculate. I noticed, for example, that places with a long history of union manufacturing (Ohio, Pennsylvania) pay good blue-collar wages, even for non-manufacturing jobs, and places that are very attractive to live (Hawaii, Oregon) tend to pay relatively poor white-collar wages. Agricultural areas tend to pay poor blue-collar wages, even for non-agricultural jobs. Rhode Island, with high white-collar wages and very low blue-collar wages, is an anomaly in the Northeast, and belongs with the states of the South, Southwest, and California.

Here’s what else I notice: the places that pay the worst blue-collar wages dominate the high end of the unemployment ranking.

This seems counter-intuitive — why would lower wages mean higher unemployment? — but it also seems to be true. On closer examination, maybe it’s not so crazy. People at the low end of the income spectrum tend to spend the money they have because they have to. More money in those people’s hands means more money being spent, so it makes sense that an area with better-off low-wage workers will enjoy higher levels of economic activity. This is just speculation, but it is broadly consistent with the basic Keynesian model of the economy that dominates our economic discourse.

But we can go one step farther, too. If we want to bring state policy into the equation, it seems that the metropolitan areas with the highest unemployment are not only places with low blue-collar wages, but are often in states where taxes on the low end of the wage scale are relatively high. According to the Institute for Taxation and Economic Policy (ITEP), Texas, Arizona, Illinois, and New Jersey are all places where total state and local taxes on the poorest people approach or top 12%, just like here. In other words, these are largely places where poor people are paid badly and taxed at high rates, too.

ITEP tells us that state and local taxes on poor people in Rhode Island average 12.1% of their income, while for people in the top 1%, the average rate is 6.4%. The tax cuts for the rich that we have given year after year have not resulted in lower taxes all around. Rather what has happened is that the state simply shirked its responsibilities to education and local aid. The cities and towns took up the slack by raising their property taxes, which fall most heavily on those with the least ability to pay. Taking money away from people who are most likely to spend it is what you might call the opposite of economic stimulus, so it is little surprise that the result is what you might call the opposite of prosperity.

What could we do about this? Pushing up the minimum wage would be a start. Cracking down on wage theft and the mis-classification of employees might help, too, as well as finally being honest about what we’ve been doing to our cities and towns.

Just something to think about when you read about the unemployment rate. As usual, it seems the things that everyone knows sometimes get in the way of understanding what’s going on.

	White collar		Blue collar
1	NJ	64,053	HI	33,363
2	CA	62,851	NJ	31,976
3	CT	61,435	CT	31,310
4	MA	61,282	AK	31,191
5	DC	60,176	MA	30,045
6	MD	60,074	WA	29,357
7	NV	60,060	IL	29,168
8	RI	59,720	DE	29,094
9	AK	59,492	DC	29,004
10	NY	59,198	NV	28,868
11	MI	58,588	CA	28,705
12	DE	56,932	NY	28,516
13	IL	55,684	PA	27,711
14	AZ	55,680	OR	27,560
15	VA	55,358	MI	27,369
16	GA	55,323	MN	26,989
17	HI	55,231	CO	26,900
18	CO	55,141	MD	26,848
19	NC	54,849	IN	26,777
20	TX	54,734	OH	26,724
21	OR	54,552	NH	26,406
22	PA	54,415	MO	26,152
23	TN	54,110	RI	25,994
24	WA	54,105	VA	25,913
25	MN	54,096	WI	25,903
26	WV	53,906	KS	25,728
27	OH	53,878	AZ	25,445
28	WI	53,769	TN	25,396
29	FL	53,269	IA	25,294
30	IN	52,910	GA	25,153
31	MO	52,649	WY	24,968
32	NH	52,622	VT	24,708
33	UT	52,536	NE	24,635
34	ID	52,128	ID	24,611
35	MS	51,840	SC	24,333
36	AL	51,311	UT	24,299
37	ME	51,104	MT	24,161
38	SD	50,725	ME	24,075
39	AR	50,489	LA	24,004
40	LA	49,971	NC	23,983
41	WY	49,790	KY	23,967
42	VT	49,734	SD	23,850
43	SC	49,478	ND	23,841
44	NM	49,132	OK	23,753
45	KY	48,838	TX	23,502
46	IA	48,564	FL	23,466
47	OK	48,361	WV	23,353
48	ND	48,171	NM	22,634
49	NE	48,039	AR	22,562
50	KS	47,308	AL	22,428
51	MT	46,128	MS	22,097

(Source: SalaryExpert.com, 2005 data, methodology described here)

April 10, 2014

Equal pay for women means real prosperity for middle class

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On Tuesday, I went to the White House where I met President Obama and many extraordinary women who have spent decades advocating for equality. Together, we marked Equal Pay Day, the day to which women have to work in 2014 in order to catch up to what men earned in 2013, by watching the president sign two executive actions designed to remove barriers to equal pay.

Equal pay for equal work is not only a matter of fairness, it’s a matter of rebuilding our economy. What do you get when 52 percent of the population is paid unfairly? You get an economy where 52 percent of the population has diminished buying power. That’s as lousy for business as it is for families. And for women-headed households, particularly single-parent households, the effects are pronounced. We know in Rhode Island women make up the majority of minimum wage workers and are the majority of parents living in poverty.

While the president’s steps this week are important, they won’t solve the problem on their own.

In Rhode Island and nationwide, policymakers must shift our focus to what’s good for the middle class. It’s a strategy that does work: A thriving middle class is widely recognized as one of the key drivers of the prosperity the United States enjoyed in the years after World War II.

Instead of talking about merely creating jobs, we must demand that jobs pay a living and equitable wage, create pathways to success, and recognize the complexity of balancing a career while managing a family. We need economy-boosting jobs, not economy-busting ones.

When I championed Temporary Caregiver Insurance, our state’s new paid family leave insurance, I did so because when a person has to take unpaid leave to care for a family member, that family’s financial security is at risk. Just a few weeks of paid time off means a husband doesn’t need to make the difficult decision between caring for his wife struggling with cancer or paying for groceries. Instead, workers will be able to continue paying bills and putting food on their tables, which in turn helps support our local economy. As of this week, nearly 1,000 Rhode Islanders have used Temporary Caregiver Insurance, including the mother I met recently who had just returned to work after the birth of her baby. Now her husband is home with their daughter for his four weeks of paid leave. That time spent caring for and bonding with their new baby, without forgoing a paycheck, strengthens that family and our state.

When I pushed for the expansion of child care subsidies for people in job training programs, I did so because unemployed people with children are among those who most need to use our job training programs to get ahead. We had set up a system that just didn’t work for parents who are jobless, underemployed or already struggling to pay their bills, and in need of a pathway to a new career. When we talk about rebuilding the economy, we must create programs that work for everyone.

When people work hard, they should be able to get ahead; that’s our American Dream. But unless we demand fair pay for that work, and create a work environment that recognizes that people who go to work still have families and obligations outside of the workplace, it will increasingly become nothing but a dream for most people. We must embrace a strategy that puts people first, strengthens the middle class, and recognizes that businesses will succeed when middle-class families have a little extra in their budgets.

This week, I am joining with state legislators from around the country for a week of action with the theme “Real Prosperity Across America.” By shifting our state’s and nation’s focus to expanding and strengthening the middle class, we can create a Rhode Island – and a country – where we all can work and succeed.

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