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.

Graphic courtesy of the Center on Budget and Policy Priorities
Graphic courtesy of the Center on Budget and Policy Priorities

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.”

RI State Senate floor
RI State Senate floor

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.”

CVS is no corporate saint when it comes to employee pay


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cvsAs President Obama lays out his tax plan for addressing income inequality in tonight’s State of the Union speech, in the first lady’s VIP box will sit a poster child for excessive CEO pay – Rhode Island resident and CVS CEO Larry Merlo.

Merlo got the invite thanks to the fantastic corporate example the Rhode Island-based pharmacy chain set when it stopped selling tobacco products.

“Last year, CVS Caremark President and CEO Larry Merlo announced that CVS would be the first major retail pharmacy to eliminate tobacco sales in all of its stores,” according to a White House item about CVS and Merlo. “Soon after, the company changed its corporate name to CVS Health — a symbol of the organization’s broader commitment to public health.”

CVS certainly deserves tons of applause for this. But CVS has far from warranted corporate sainthood based on the way it pays employees.

Merlo makes $22 million a year, according to CNN Money. He’s the 8th highest paid CEO in America. And he’s number 1 when it comes to making more more than his or her underlings.

“CVS has the greatest disparity between CEO pay and the median wage of its employees among the 100 highest-grossing companies in the U.S.,” Fortune Magazine reports. “You would have to combine the wages of more than 400 CVS Caremark employees to match the salary of the company’s CEO, Larry Merlo.”

On the other end of the salary spectrum at CVS, some low wage employees say annual raises were denied this year to absorb the cost of an increase to the minimum wage. “Salary increases are based on market-based rates and the individual performance of employees, said CVS spokesman Mike DeAngelis when asked about the allegation. “The increase to Rhode Island’s minimum wage does not change this.”

The median CVS employee earns $28,000 a year, according to Fortune Magazine (DeAngelis did not immediately respond to an email yesterday seeking more exact numbers). According to the Economic Progress Institute, this is about $4,000 a year more than a single adult needs to survive in Rhode Island and $31,000 less than a single parent of two would need to pay their basic living expenses.

CVS can and should do better than this.

Like selling cigarettes, there is money to be made by paying employees a pittance. But there’s also very real, if sometimes latent, negative social costs in doing so. For example, we know many CVS employees will require social services to augment their low wages. And we also know low wages lead to poor health decisions.

Most fortunately, CVS has balked at profiteering on activity with a negative social impact. “This is the right thing to do,” said CVS when it stopped selling tobacco products. Just two years after severing its ties to ALEC, this is a hugely promising step for the Woonsocket-based corporation.

Paying a living wage to all employees is also the right thing to do. Let’s hope Michelle Obama impresses upon Merlo that economic security is also an important function of community health as well.

Larry Summers: It’s not the rich, it’s the ROBOTS!


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RobotThe popularity of Thomas Piketty’s Capital in the 21st Century has conservatives and economic elites in a bit of lather. As they try to refute an economic reality that has become obvious to most everybody, they end up making some transparently deceptive arguments.

Take Larry Summers, who headed up the US Treasury Department at the end of the Clinton Administration and has served as a top economic advisor to Barack Obama. This PBS News Hour piece in which Piketty refutes the criticisms quotes Summers, saying:

Even where capital accumulation is concerned, I am not sure that Piketty’s theory emphasizes the right aspects. Looking to the future, my guess is that the main story connecting capital accumulation and inequality will not be Piketty’s tale of amassing fortunes. It will be the devastating consequences of robots, 3-D printing, artificial intelligence, and the like for those who perform routine tasks. Already there are more American men on disability insurance than doing production work in manufacturing. And the trends are all in the wrong direction, particularly for the less skilled, as the capacity of capital embodying artificial intelligence to replace white-collar as well as blue-collar work will increase rapidly in the years ahead.

This argument is specious in the extreme. It says, in essence, “It’s not that elites like me are accumulating all this wealth; it’s that the ROBOTS are making us accumulate all this wealth.” Summers would have us think that robots are marching in from Robotland and taking over factories in some evil plot to destroy the middle class.

The reality is that economic elites have specifically developed these technologies to eliminate paid workers and increase profits for themselves. They know this, and now many other people know this. That second part kind of scares them because if enough people figure this out, they might actually do something about it.

Nota Bene: At no point does Summers actually say that wealth accumulation is not happening or that this factor is not what’s driving economic inequality or that economic inequality is not a big, big problem. He just says that it’s the robots that did it.

SCOTUS McCutcheon ruling further erodes US democracy


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JusticeNot since Roe v. Wade has a  U.S. Supreme Court decision permeated the public consciousness quite like the Citizens United v. Federal Election Commission (FEC) case. In 2010, the nation’s highest court opened the campaign finance floodgates when – in a 5-4 decision – they sided with lawyers for the anti- Hillary Clinton political action committee (PAC) Citizens United who argued that PACs not be required to disclose their donors identities or the amounts of money they had contributed.

Bold and continuing campaign finance reform in our nations capitol began in Washington, D.C., in 1971 and continued until 2002. The 1971 Federal Election Campaign Act required the disclosure of donors’ identities and the amounts they contributed to federal election campaigns.

A little known Supreme Court decision that, at its heart, concluded that the spending of money equals free speech was handed down in 1976. A Supreme Court majority held that a key provision of the Campaign Finance Act, which limited expenditure on election campaigns was “unconstitutional”, and contrary to the First Amendment.

The leading opinion viewed spending money as a form of political “speech” which could not be restricted due to the First Amendment. The only interest was in preventing “corruption or its appearance”, and only personal contributions should be targeted because of the danger of “quid pro quo” exchanges.

The 2002 Bipartisan Campaign Reform Act – better known as the McCain-Feingold Act after the bill’s primary sponsors, Republican John McCain and Democrat Russ Feingold – strengthened restrictions, but did nothing to challenge or reverse the Supreme Court’s previous rulings.

Essentially, the Citizens United case boiled down to this.

According to the U.S. Constitution, corporations are afforded the same rights as people, and therefore should be given the same protections as individuals when it comes to political donations. This decision, by correlation, asserted that the spending of money equates to the exercise of our First Amendment rights to free speech. While the Supreme Court’s decision may be true to the letter of U.S. law, it raised a widespread concern amongst Americans as to whether corporations should, in fact and practice, be afforded the same rights as people, and whether the spending of money constituted free speech.

[vsw id=”xQqzhjstb7E” source=”youtube” width=”550″ height=”400″ autoplay=”no”]

Just this week, the Supreme Court dealt another blow to campaign finance reform advocates in the McCutcheon v. FEC ruling. In essence, the decision did not affect federal campaign finance laws, save for one small factor. Prior to the decision, individuals and PACs were forced to abide by a hard-and-fast limit on aggregated donations to political candidates or PACs in support or opposition to particular legislation or candidates.

Let’s look at it this way.

Prior to the McCutcheon decision, there was a limit as to what I could donate to any and all political campaigns within an election cycle. That cap was $123,200. I could spend that total in any way I saw fit, as long as  I abided by current FEC guidelines of  $2,600 per federal candidate in each primary and general election or $32,400 per PAC in each cycle.

While the Supreme Court’s decision did not eliminate the $2,600 or $32,400 guidelines, it did declare the cap of $123,200 unconstitutional. This means I can donate $2,600 to any candidate in any state, and $32,400 to any PAC in any state, without restrictions, up to infinity dollars.

If I had the money to do this, I would, but therein lies the rub.

I don’t.

You don’t.

98 percent of the people in the U.S. don’t.

The McCutcheon decision has basically told big time donors that they can start buying candidates and PACs throughout the country, and in turn buy legislative influence.

Unfortunately, the U.S. Supreme Court has rightly ruled in both of these cases. As they stand, the only way to rescind these decisions is to amend the U.S. Constitution to say plainly that corporations are not people, and spending money is not free speech. This is where the nationwide movement to amend the U.S. Constitution comes into play.

Amending the U.S. Constitution is no small task. 38 of the 50 states must ratify an amendment. Our first step in Rhode Island is to amend our own constitution. As it stands, the Rhode Island chapter of the Move(ment) to Amend has bills before both the R.I. Senate and House. On their face, these bills do nothing, but when combined with bills in other states, we send a loud and clear message to the U.S. Supreme Court, and our legislators in Washington.

CORPORATIONS ARE NOT PEOPLE.

SPENDING MONEY DOES NOT CONSTITUTE FREE SPEECH.

Please, for the sake of our country, and our children and grandchildren, sign the petition to amend our Constitution today.

Tonight: ‘Inequality for All’ at URI


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inequality‘Inequality for All’ is coming to the University of Rhode Island tonight.

Well, just the blockbuster Robert Reich movie about the phenomenon on rampant income inequality in America. The phenomenon itself has been here for some time now, says Danielle Dirroco, the executive director of URI’s grad school labor union, host of the tonight’s event.

“Wealth inequality is the issue of our time, and we know this all too well here at URI,” she said. “As tuition creeps higher and higher, the opportunity for Rhode Islanders to gain access to a higher education is compromised and our capacity to creatively address our economic woes is undermined. To make any positive change, we have to begin by educating ourselves. Graduate Assistants United is thrilled to put the University of Rhode Island on the map for this nationwide campus event.”

The event starts at 6pm and there will be a special live webcast with Reich in which we can ask him a bunch of Rhode Island-specific questions. Here’s the Facebook event and below is the full press release from the URI Grad School Union:

Graduate Assistants United, URI’s Graduate Employee Labor Union, will be providing its community with the opportunity to view and discuss this award-winning documentary about income inequality in our nation and the way it has shaped our economy and democracy. This event is held in conjunction with a national campus-based event that will include over 150 universities across the country. The University of Rhode Island will be the only university participating in this exciting event in state of Rhode Island.

Co-Sponsors include the URI Graduate Student Association, NewportFILM, the URI Department of Campus Equity and Diversity and SE Greenhouse. Refreshments generously provided by Starbucks Coffee Company.

The event will be held at the College of Biotechnology and Life Sciences Ryan Family Auditorium (CBLS 100). RSVP to Graduate Assistants United: uri.gau@gmail.com.

The American economy is in crisis. Enter Robert Reich: Secretary of Labor under Clinton, revered professor, charismatic pundit and author of thirteen books. “Bob” as he’s referred to in the film, is our hero and guide, shining a light on the urgency of this issue.  Economic imbalances are now at near historically unprecedented levels. In fact, the two years of widest economic inequality of the last century were 1928 and 2007 – the two years just before the greatest economic crashes of modern times. What is the link between high inequality and economic crashes? What happened to the Middle Class?

As Americans, we’ve been taught that there is a basic bargain at the heart of our society: work hard, play by the rules and you can make a better life for yourself.  But over the last 35 years, this bargain has been broken. Middle class incomes have stagnated or dropped over the same period during which the American economy has more than doubled. So where did all that money go? The facts are clear – it went to the top earners.  In 1970 the top 1% of earners took home 9% of the nation’s income. Today they take in approximately 23%. The top 1% holds more than 35% of the nation’s overall wealth, while the bottom 50% controls a meager 2.5%. The last time wealth was this concentrated was in 1928, on the eve of the Great Depression.

What’s the big deal, you may ask? Didn’t the wealthy earn it? INEQUALITY FOR ALL is happy to acknowledge that. There is no vilifying of the rich here.  The problem is that wide income divisions threaten the health of both our economy and our democracy.

When middle class consumers have to tighten their belts, the whole economy suffers.  We saw this in the years before the Great Depression just as we see it today. The middle class represents 70% of spending and is the great stabilizer of our economy. No increase in spending by the rich can make up for it.

This is the moment in history in which we find ourselves: unprecedented income divisions, a wildly fluctuating and unstable economy, and average Americans increasingly frustrated and disillusioned.  The debate about income inequality has become part of the national discussion, and this is a good thing. INEQUALITY FOR ALL connects the dots for viewers, showing why dealing with the widening gap between the rich and everyone else isn’t just about moral fairness.

The issues addressed in this film are arguably the most pressing issue of our times. The film alternates between intimate, approachable sequences and intellectually rigorous arguments helping people with no economic background or education better understand the issues at stake.  INEQUALITY FOR ALL allows viewers to start with little or no understanding of what it means for the U.S. to be economically imbalanced, and walk away with a comprehensive and significantly deeper sense of the issue and what can be done about it.

For more information about INEQUALITY FOR ALL and to view the trailer, please visit InequalityForAll.com  

This event is free to the public. Please RSVP via email to Graduate Assistants United at uri.gau@gmail.com

RI economy improved for 1%, but it got worse for 99%


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one percent epi graphic
Click on the image for a larger version.

Rhode Island’s economy is recovering. But not for the 99 percent it isn’t.

A new report by the Economic Analysis and Research Network shows that between 2009 and 2011, the 99 percent – those Rhode Island’s who make on average $41,958 a year – saw an average decline of 4.1 percent in their earnings.

On the other hand, the one percent in Rhode Island – those who make at least $287,311 a year – did quite well in the same two years. Their earnings increased by 17.3 percent from 2009 to 2011.

“Rhode Island has not escaped the disturbing trend of growing inequality over the past decades,” said Kate Brewster, executive director of The Economic Progress Institute. “Today, the average income of the top one percent is 20.3 times the average income of the bottom 99 percent.  We call on leaders in Washington and here at home to put in place policies that increase income for the majority and help close the income gap.”

Only in four other states – North Dakota, Massachusetts, Texas and Colorado – did the one percent fare better from 2009 to 2011. And only the 99 percent in Nevada fared worse than the 99 percent in Rhode Island did from 2009 to 2011.

Conversely, there was less income disparity between the one percent and the 99 percent in Rhode Island from 1979 and 2007, and Rhode Island had less income disparity than the national average. The richest one percent of Rhode Islanders income grew by 170.3 percent from 1979 to 2007 compared to 40.4 percent for the poorest 99 percent of Rhode Islanders. Nationally during that same time frame, the richest one percent increased their earnings by 200.5 percent and the poorest 99 percent increased by only 18.9 percent.

The change in income distribution coincided with not only the economic collapse but also broad income tax cuts for the top tax bracket in Rhode Island proposed by former Governor Don Carcieri, a tea party Republican, and approved by the General Assembly, which took a hard turn to the right on economic policy during and after the Carcieri era.

From 2005 to 2011, the highest income tax rate in Rhode Island dropped from 9.9 percent to 5.99 percent. And during that same time frame that taxes were lowered on Rhode Island’s richest residents and they simultaneously started to earn a higher percentage of the state’s overall income, the unemployment rate creeped up to among the highest in the nation, further eroding the talking point from the far right and conservative Democrats that tax cuts help create new jobs.

The new report released today does not breaks down the data only into the one percent versus the 99 percent. You can read the full report here. Or check out the online version here. Here’s the Rhode Island-specific data.

In 2007, the one percent in Rhode Island accounted for 18.1 percent of all income. That was up from 1979, when the one percent only accounted for 10.3 percent. In 1928, the one percent in Rhode Island were responsible for 23.6 percent of all income.

Paiva Weed: Senate will focus on poverty this year


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paiva weedSenate President Teresa Paiva Weed said her chamber will focus on addressing poverty as a bottom-up strategy to fixing what ails Rhode Island’s economy this year.

“The Senate’s focus this session on the economy will be inextricably intertwined with the causes of poverty,” she said at a State House vigil yesterday to call attention to poverty in Rhode Island.  “We can’t move the economy forward without addressing the very issues that underline poverty.”

She said the vigil and a screening later in the day of Inequality For All “will set a tone for the year and the message will be carried with us as we work to meet the significant challenges ahead.”

Steve Ahlquist has the video:

Wage Inequality


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inequalityWage inequality has been growing astronomically over the past 30 years. This is a fact. Anyone claiming otherwise is either ignorant or lying or both.

Can you tell I’m getting tired of having to “prove” stuff that is so obviously factual? Well, in case you couldn’t, I am tired of it.

In fact, even the winners in this zero-sum game have tacitly begun to admit that wage inequality is growing. For the last couple of years, the main counter-argument put out by the lackies of the very wealthy has become that, yes, inequality is growing, but it doesn’t matter.

That’s a lie, too.

Growing wage inequality was one of the primary causes of the collapse of 2007/8. It remains a primary cause of the ongoing Great Recession. Since the vast majority of wage earners were finding their salaries stagnant, if not shrinking, these same people had to rely on credit to finance many of their purchases in the so-called “Bush Boom” of the naughts. I say “so called” because, for the first time since the end of WWII, the median salary at the end of the “boom” did not reach the median salary at the end of the previous boom. That is, median salary in 2007 was lower than it was in 2000/01, before the mild recession that occurred at the end of the 1990s. This is stark proof that wages, for the vast majority of people who actually work for a living (as opposed to living off dividend income, or carried-interest) was not growing despite what Republicans were touting as a “booming economy”.

And spare me the morality play about the evils of credit, about how it shows a lack of moral fibre, how it demonstrates that people are too lazy, or too insistent upon immediate gratification, that they can’t wait and save to make purchases, blah, blah, blah.

Here’s a secret: Had people done this in the naughts, there wouldn’t have been enough demand to create even the wimp “Bush Boom”. The US would have remained mired in the recession that started in 2000 throughout Bush’s first term. I can say this with complete confidence because the only thing that fueled the expansion of the economy—such as it was—was that people were buying stuff on credit. This created the demand that created the expansion.

And demand is the key component. Corporations are swimming in money. They have so much money they can’t figure out where or how to spend it. More, they can borrow billions and billions of dollars at de facto negative interest rates. And yet, corporations are not spending money. If “supply-side” economics had any validity, businesses would be spending money like drunken sailors right now, and they would have been doing so for the past five years, ever since we hit the point of negative interest rates. Why haven’t they spent money? No, the answer is not the uncertainty of possible tax or regulatory changes. That is an absolute crock. If you actually read the business press (as opposed to listening to FOX News) you will realize that businesses are reluctant to spend because they do not believe there is sufficient demand for more products.

Demand. There you have it. The engine that truly drives economic expansion. My grandfather had a succinct way of describing conditions during the Great Depression: “Sure, a loaf of bread only cost a nickel. But what the hell, you didn’t have a nickel.”

In case anyone doesn’t get the point: it doesn’t matter how cheap things are because of a large supply. If people still don’t have the cash to buy stuff, it doesn’t get bought.  IOW, there is no demand.

Demand.

And that is what is holding up recovery as the Great Recession enters its fifth—or is it sixth?—year. Got that, people? Sixth year. Lehman Brothers collapsed in 2008, while G. W. Bush was still president. Before Obama had been elected, let alone before he had taken office. Got that? George Bush was president. Hank Paulson, former head of Goldman Sachs was Secretary of the Treasury. Not Obama, not Geithner (although he was President of the NY Fed at the time).

Inequality matters, people. It matters a lot. It keeps demand down. When demand is down, people lose jobs. When people lose jobs, demand drops further, and more people lose jobs. This is called a death spiral. It’s essentially the same phenomenon, but going in the opposite direction, of what caused the inflation of the 1970s. And no, cutting wages DOES NOT HELP. Cutting wages is the equivalent of throwing people out of work. Yes, perhaps fewer people will lose their jobs outright, but demand will still decrease. It may—or may not—take a little longer, but the same result is attained.

So the answer is that people need to make more money. But what is happening instead is that the wages of most people are being cut. It’s the time of the year when a lot of companies are doing compensation planning. For many big companies, this is now a very simple process. A few people, maybe ten percent of the corporation’s employees, will get nice raises, maybe 5%, probably more. The rest will get nothing.

That is, the rest of the employees will get a pay cut. Their pay will remain the same, but even 1-%-2% inflation will erode stagnant pay. The result is a de facto pay cut. The result is a further decrease in demand. Funny: Republicans scream about how tax increases will hurt the economy because they will take money out of people’s pockets. But a pay cut does exactly the same thing, and yet Republicans fall all over themselves to demand—DEMAND—pay cuts.

It’s enough to make you suspect that Republicans don’t care about the economy at all. All they care about is tax cuts. All they care about is making the wealthy even wealthier. Even if it means the rest of us slowly slip into  poverty.

This is because their wealthy corporate masters want tax cuts. So Republicans bow and scrape and say “Yes, Master” and move heaven and earth to give their masters what they want.

The rest of us can pound sand.

Rebuilding Rhode Island’s Economy, Part 1: Economic Development 101


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Unemployment LineI am of the mind that the biggest issue facing the state right now is the sluggish economy.  I know many share this belief.  With that in mind, I will be focusing my (unfortunately limited) time writing specifically on creative strategies to improve Providence’s and the state’s economy, and thinking about it from the perspective of the upcoming gubernatorial and Providence Mayoral campaigns (i.e., what do the candidates have to say about what I write?).  Before I delve into specific suggestions, I believe there are a few items relevant to economic growth that need to be clarified at the outset.

State House

First, there isn’t much the government can do to improve the economy directly, particularly in this climate of economic distress and innovation paralysis.  When the economy is running smoothly, most folks want the government to “stay out of the way.”  But when the economy tanks, policymakers are the first to be blamed (this is a disingenuous and undeserved complaint), and everyone wants them to “fix it.”  First, you can’t have it both ways people.  Second, there is no magic solution to “fixing” the economy.

Second, economic growth takes time, commitment, alignment on a vision, and the autonomy to make things happen.  It is unlikely to see radically positive results in a few months or even a couple years.  Economic development is a decades-long strategy, that often requires partnerships and long-term planning that are challenging for public officials, policymakers, and civil service staff.  While the pain of recessions, joblessness, and foreclosures is real, there are often few options for state and local officials to ease that pain.

Third, everything matters to economic development: education, transportation, infrastructure, workforce, land-use, zoning, existing markets, history, taxes, regulations, natural assets, etc.  But each of these matter to varying degrees depending on the industrial sector and individual businesses.  To assume that “lowering taxes” or “reducing regulations” is the most important of considerations is foolish, ill-advised, offensive, and immeasurably distracting from the various other issues that are generally much more important for long-term economic success.  While everything is important, some things are more important than others.

winner and loserFourth, every strategy comes with trade-offs and there are always winners and losers with any policy change.  Typically, those with wealth and power can influence policy to their benefit.  And while this may benefit them personally, or as a group, there are long-term consequences for the economy that are generally ignored.  The incremental policy decisions that have been made in the past have led to our little state to lack the sufficient resiliency to bounce back from the recent and ongoing depression/recession.  The economic conditions in which Rhode Island finds itself will take many, many years to rectify.

Fifth, demand for goods and services drives the supply of goods and services.  If no one wants to buy stuff, stuff doesn’t get made, and people lose their jobs.  Most tools that are deployed by cities and towns and the state try to stimulate the economy do not address economic demand, and as such they are largely inefficient and/or ineffective.

Sixth, underlying everything is an often ignored but crucial criterion: the importance of inclusive and dispersed economic growth.  The benefits of economic growth need to be broadly shared because the more people who earn money, and the more money that they earn, the higher the level of economic growth.  When economic growth benefits a small (and shrinking) number of people, aggregate demand declines and the economy suffers.  When a rising tide actually lifts all boats, something that the post-WWII economy was notable for, everyone benefits.  When a growing number of boats are chained to the bottom of the ocean, as has been the experience from the mid-1970s onward (with a notable exception during the 1990s), the economy flounders, people fall deeper in debt to maintain their standard of living, and the economy slows.

"I must break you."
“I must break you.”

Seventh, the ONLY way the state (or any state, region, city, etc.) can be successful in the long-run is by improving its competitiveness in particular economic areas.  This can be done by increasing the productivity of existing businesses through innovation or better trained employees or achieving higher workforce participation rates, while ALSO supporting the high and rising wages and living standards of Rhode Islanders.  Period.  This is hard to do, but not impossible.  The role the city and state can play is to lay the groundwork for an iterative process of successive improvements to support business productivity gains and assist with the dispersion of economic benefits.

Eighth, when we discuss economic development, it’s important to differentiate between locally-traded clusters, sectors, and industries and those that are subject to larger markets, regional, national, or global in scope.  The first group includes restaurants, local health services, residential housing construction, etc. while the second group includes software development, manufacturing, higher education, etc.  The success of the first group is largely dependent upon the success of the latter.  To put it another way, an economy can only grow by exporting lots of high-value goods and services and bringing in money to the state from other parts of the country / world.  The degree to which the economy is exposed to and successfully competes in global markets is the single largest factor that explains how successful its local economy is.  This isn’t to say that the local economy isn’t important, just that everyone selling hamburgers to each other does not grow the economy.

Finally, businesses grow at various points over their lifecycle.  The only businesses that are guaranteed to have net positive job growth are new businesses, for the obvious reason that they will employ at minimum the owner of the business and they have no current employees to let go.  Many businesses grow to a certain size and stay there for their entire existence.  Many businesses have dramatic fluctuations in their employment based on seasonal or market demand.  Some businesses have limited but sustained growth.  And only a few businesses experience pronounced growth, and that growth is generally limited to a short period of time.  All of this is important when it comes to growing jobs because there are only limited opportunities to identify and support existing businesses during their growth phases.  But the opportunities are innumerable to support new business growth, and it is new business startups that have been responsible for net new job growth in the past decade.

There are additional factors that contribute or impede economic growth, but in my mind, the 9 above are of paramount importance.  Feel free to bookmark this post as I will update it as I begin listing specific strategies to Rebuild Rhode Island!

Possible vs. probable


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excludeIn my last post, I talked about Clarence Thomas and his truly remarkable rise to a position that his father could never, ever have achieved. Indeed, even a slightly older Mr. Thomas would probably not been able to attain such a truly lofty height.

This all sort of gets to the idea of social mobility. If someone were born into conditions like those into which Mr. Thomas was born, how likely is it for that person to improve his level of economic security? Or, how likely is it for someone born into the upper echelons, such as Mr. Thomas’ children (does he have any?) to fall out of the exalted perch onto which she was born?

America has long perpetuated the ideal that everyone can improve their status. This is still true. It is still possible. But how likely is it? Or, how probable is it? And here, I use ‘probable’ in the technical sense of “Probability and Statistics”, the name of a book on my shelf. “Possible” and “Probable” are two very different words, with enormously different implications. The right wing continues to flog the notion of possibility. Sure, it’s possible. It’s possible that I can throw a ball through a solid wall, too. Or that all the air molecules in a room will suddenly rush into one corner and leave the rest of the room airless. But are these events likely to happen? No. According to the technical definition, that means, that they have an extremely low probability of occurring. Could a high school basketball team beat the Celtics? I suppose it’s possible. But the probability of this occurring is darn close to zero. It may not be exactly zero, but it’s probably (!) close enough to be considered zero in any real-world scenario.

Let’s set this up. Suppose you have been put into a situation in which you must choose one of two balls. One is yellow; the other is green. If you choose the correct ball, you will be given $100 million. If you choose the wrong one, you will have to spend the rest of your days working at a minimum wage job. Of course, you don’t know which ball gives the desired outcome, so you have to guess. And hope. And, as any fool knows, you have a 50/50 chance of getting it right. And an equal chance of getting it wrong. In other words, it’s a coin flip.

But let’s say we change the scenario, and introduce a blue ball. But even given the extra ball, there is still only one ‘correct’ choice. One ball will get you the $100M; either of the other two will get you consigned to the minimum wage. What has happened to your chance of success? It has been diminished. It has gone from 1 in 2, to 1 in 3. That is, rather than a 50% likelihood of success, you have a 33% chance.

For the next iteration, we’re back to two colors, red and green. The red ball gets you the $100M; the green results in the minimum wage job. But you have to pick either of the two balls out of a basket in absolute darkness, so you can’t see which ball is which. We’re back to 50/50. But let’s start adding green balls. If we add two more green balls, for a  total of three green, one red, your chance of success has been cut in half. It’s now 1 in 4, or a 25% chance of success. Starting to look grim, isn’t it? Now let’s bring the total of green balls up to ten. This is a 1 in 11 chance, and suddenly your chances of success drop below 10%.

This is what tax cuts, cutbacks in social spending, cuts in education have been doing: they have been adding green balls into the system. At least, they’ve been adding green balls into the basket from which those on the lower end of the scale have to choose. At the same time, these policy choices—tax cuts, cuts in social spending, cuts to education—have been adding red balls into the basket from which those born into the upper echelon get to choose. In other words, we’ve been increasing the odds against success for those in the bottom half, while increasing them for those at the top. Put another way, we’ve been rigging the game in favor of those at the top. How would you feel about entering the game with the odds of success sitting at 11 to 1 against you? Would you want to take a chance on winning the $100M if there were a 9o% chance of being consigned to the ranks of minimum wage workers?  Kinda stinks, doesn’t it?

This is what I meant in my previous post about my good fortune. I got to pick from a basket that was probably 75% red (good) balls. Yes, I could have failed, made a lot of bad choices, and ended up dropping. But the game was rigged in my favor from the start. Yes, I had to work for what I got, but that does not change the fact that I had an enormous head start over a lot of people.

And that, I think, is the clearest difference between a liberal and a conservative. A liberal recognizes—or never forgets—where she or he started. A liberal is aware that there were, there are always extenuating circumstances. Had Clarence Thomas worked twice as hard, but lived in the wrong place or time, all his effort may have been in vain. A conservative, from what I see, becomes convinced that they made it solely on their own merits. They fail to contextualize their success. They remember the work they put in to getting where they are, and nothing else.  Yes, this is not the whole story of the differences between the two, but I think that it may be the single key difference. Clarence Thomas, or Rush Limbaugh, or—the golden example—George W Bush are all convinced that they did it on their own. No one helped them. They don’t think that the stable family environment, or the genes or temperament that put the grit into their belly to succeed was an advantage that, perhaps, other people don’t have. They don’t see that being in a semi-decent school with semi-decent parents who instill values gives them a big leg up on a lot of other people. They forget that they happened to be born at a good time, or a good place.

So conservatives don’t see why other people might need help. Perhaps growing up they did not have the advantage of government assistance (but they did; they just fail to recognize this, or to acknowledge this), so why should other people get this help? So we continue with the aforementioned policy choices—tax cuts, cuts in social spending, cuts to education— and what we’re doing is increasing the number of people who have to choose from the basket of mostly green (bad) balls. Each cut to Head Start, or SNAP, or job training, or education, we’re both adding to the number of green balls and increasing the number of people choosing from this basket. In other words, we’re stacking the deck against them. Such behavior would get you shot in a lot of gambling establishments. Ask Wild Bill Hickok.

If you don’t believe me, here’s some evidence.

http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Economic_Mobility/PEW_Upward%20EM%2014.pdf

Take a look at the chart on page 10 of the report at the link. For someone born into the bottom income quintile, there is more than a 33% chance that they will end up there. For someone born into the top quintile, the odds are over 37% in favor of them remaining. But it’s worse than that. There is a cumulative probability of 60 percent that someone born in the bottom quintile will stay in one of the bottom two quintiles. That is, they will never be above what the lowest 40% of the country makes. That is, they only have a 40% chance of making it to middle class.

BUT: for each percentage point you move up in the scale, your chances of remaining in the top levels goes up. That is, someone born in the 95th percentile, their chances of staying there are about 75%.

As for where the most people make it, or remain stuck where they are, check out the second link.

http://www.equality-of-opportunity.org/

What you find is that the places with single-digit movement from the bottom to the top are largely in the South. You know, the area of the country where low taxes, low union density and small-but-business-friendly government is attracting lots of Good Jobs. Just gobs and oodles of them! Charlotte, North Carolina is a great example of how this works. Remember, MetLife was planning to move several hundred jobs from RI, and a thousand (or more) from the Northeast to Charlotte, that land of opportunity. See! Charlotte attracts Good Jobs! But, per the second link, of the top 50 metropolitan areas in the US, Charlotte is #49 in inter-generational upward mobility. There, only 4% of those born in the bottom quintile can be reasonably expected to reach the top quintile. And note, that means the 81st percentile. Admission to this is a salary of about $78k per year. We’re not talking about top-flight surgeons, or anything such. We’re talking a solid job, something around what a teacher with ten years experience makes here. So the chance of someone being born into the bottom quintile of ending up with a job with a teacher’s salary is less than 5%, or 1 chance in 20. How would you like to pick from that basket?

As for the idea of talent, well, it ain’t what it used to be. An average student born into a family in the top quintile is several times more likely to graduate college than a bright student born into the bottom three quintiles.  What this means is that the uninspired student from wealth is picking from a basket with lots of red (good) balls in it. And even if someone from the bottom 40% does beat the odds and finish college, that’s not the guarantee of success it once was. Average wages for college grads have been falling over the past 10 years, so I don’t want any nonsense about how all people have to do is pull themselves up by their bootstraps and work their way through college, blah, blah, blah.

Is this the kind of country we want? Where most people are pretty much destined to fail?

 

Pope Francis is a progressive


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Francis-Cartoon-11“Inequality is the root of social ills.” – Pope Francis

On March 13, the day he was first elected CEO of the Catholic Church by its Board of Directors, I posed this question to twitter: “Is Pope Francis a progressive?”

Yesterday the Pope provided pretty conclusive evidence that I was right.

Just as the commandment “Thou shalt not kill” sets a clear limit in order to safeguard the value of human life, today we also have to say “thou shalt not” to an economy of exclusion and inequality. Such an economy kills. How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points? This is a case of exclusion. Can we continue to stand by when food is thrown away while people are starving? This is a case of inequality. Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.

Human beings are themselves considered consumer goods to be used and then discarded. We have created a “disposable” culture which is now spreading. It is no longer simply about exploitation and oppression, but something new. Exclusion ultimately has to do with what it means to be a part of the society in which we live; those excluded are no longer society’s underside or its fringes or its disenfranchised – they are no longer even a part of it. The excluded are not the “exploited” but the outcast, the “leftovers”.

54. In this context, some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting. To sustain a lifestyle which excludes others, or to sustain enthusiasm for that selfish ideal, a globalization of indifference has developed. Almost without being aware of it, we end up being incapable of feeling compassion at the outcry of the poor, weeping for other people’s pain, and feeling a need to help them, as though all this were someone else’s responsibility and not our own. The culture of prosperity deadens us; we are thrilled if the market offers us something new to purchase; and in the meantime all those lives stunted for lack of opportunity seem a mere spectacle; they fail to move us.

In his exhortation, Pope Francis makes direct references to income inequality and how it erodes the social fabric.

When a society – whether local, national or global – is willing to leave a part of itself on the fringes, no political programmes or resources spent on law enforcement or surveillance systems can indefinitely guarantee tranquility. This is not the case simply because inequality provokes a violent reaction from those excluded from the system, but because the socioeconomic system is unjust at its root.

In chapter 4 of his address, he adds:

As long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world’s problems or, for that matter, to any problems. Inequality is the root of social ills.

He writes about the concept of “dignified sustenance for all people.”

We are not simply talking about ensuring nourishment or a “dignified sustenance” for all people, but also their “general temporal welfare and prosperity”. This means education, access to health care, and above all employment, for it is through free, creative, participatory and mutually supportive labour that human beings express and enhance the dignity of their lives.

At times, he seems to speak about issues that matter m0st to Rhode Island progressives, like income tax structure and minimum wage:

It must be reiterated that “the more fortunate should renounce some of their rights so as to place their goods more generously at the service of others”

And:

A just wage enables them to have adequate access to all the other goods which are destined for our common use.

These are the principles the Catholic Church in Rhode Island should spend its time and resources advocating for too. This blog again calls on RI Bishop Thomas Tobin to follow the Pope’s lead in abandoning the politics of discrimination in favor of the politics of lifting people up.

Life at Lifespan: CEO makes $8 million, nurses told no raises


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Rhode Island Hospital (via Brown Med)Hospital employees are furious that Lifespan CEO George Vecchione made almost $8 million in 2011 the same year management asked labor to forgo already-agreed upon raises because of the struggling economy.

“At the same time hospital administrators were demanding caregivers do more with less, the executive board of Lifespan was authorizing a gluttonous golden parachute that would make even the most brazen Wall Street executive blush,” said Helene Macedo, president of the labor union that represents Lifespan employees, in a press release. “This sweetheart deal is nothing less than outrageous, and every Rhode Islander who cares about quality, affordable health care should be angry by Lifespan’s arrogance.”

Vecchoine was paid a total of $7.8 million in 2011, including a $4.4 million retirement bonus, according to a startling news report by WPRI last night.  In July, WPRI reported that revenue was down by 2 percent at Lifespan, which it used to justify a 3 percent decrease in expenses.

Unionized hospital employees and other progressives quickly denounced the revelation.

“We believe that people should be fairly compensated, but this extravagance goes far beyond what any reasonable or responsible non-profit organization should afford, and further demonstrates the executive management’s misplaced priorities,” Macedo said. “It is our hope that the General Assembly will again give serious consideration to legislation that would appropriately curtail these types of lavish deals that sacrifice quality of care for strengthening the ‘one percent.’”

Meanwhile conservatives defended Vecchoine’s lavish salary structure. Justin Katz, of the Center for Freedom and Prosperity, blamed government regulation and former RI GOP chairman Giovanni Cicione blamed “leftist economic policies.”

Health care, medical costs and quick decisions


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healthcareIt’s 7:00 in the evening. You, a Rhode Island resident, are at the mall in Attleboro. You’re out to dinner in Seekonk. You’re on vacation on the Cape. Suddenly, your teen-age child collapses, unconscious.

What do you do?

Do you call an ambulance? The child is unresponsive. His eyes are rolled back in their sockets. He appears to be breathing shallowly. I repeat: what do you do?

Do you call 911? Or do you try to assess whether the situation is dangerous, whether you should try to take him to the hospital yourself, or whether you should just take him home and call a doctor in the morning? Which do you choose? And no, you’re not a doctor, and no, you don’t even play one on TV.

Some would suggest we should choose the latter route. Or, if we decide to go the ambulance route, we should call several providers, trying to see who has the best price, then see if we can haggle it downward a bit. Or maybe ask if they’ll take a chicken as a discount. In the meantime, your child is still unconscious. But being the hyper-rational homo economicus that you are, you pull out the copy of the local yellow pages you always carry in case of situations like this, or you use your smart phone to search the web for the local services, and then you coolly work the market and see what sort of price you can get.

OK, you’ve done that, only to find that the best deal you can get is $2,999.99. Now, you have insurance, but it will only cover 80% of the charge after the deductible is satisfied, and only if the situation is deemed an emergency. Well, your kid is unconscious; does that, in and of itself constitute an emergency? Are you a doctor? No. Do you have a clue whether it’s truly an emergency? No. And, 20% of that ambulance bill still comes to $599.98, assuming that everything goes as planned, that your deductible has been met, and the insurance will actually cover the 80%.

So what do you do? Does this change your behavior?

And remember: you get your insurance through your employer, so it’s not like you can negotiate your own deal with the insurance company. And that’s a good thing.

And what if your checkbook balance is somewhere south of $800 at the moment, and you still have to make the car payment? That $599 will take a pretty good bite out of that. If you’re making RI median, your next check will come in somewhere between $1200 & $1300 (depending on deductions, etc). And remember, this is just the ambulance. If you do go to the ER, there will be a plethora of other charges: for tests, x-rays, CAT scans/MRIs, physician services, and so on.

One thing that’s important to remember is that something like an ambulance, or an ER, has to be staffed and prepared at all times. An ER will probably use its facilities on a fairly constant basis, so there isn’t a lot of down time. That is not necessarily true for an ambulance. Maintaining and staffing that ambulance 24/7 costs money. Now, if you depend on paying for the ambulance by billing the people who use it, a significant part of the bill will be for maintaining that service when it’s not in use. So that means the price has to be a lot higher than just the cost of that particular run. A lot higher.

Now, we could subsidize the ambulance service as a common good; but that means taxes have to go up to pay for that. Since people who decide the level of taxes probably don’t have to worry about a couple of grand if they need an ambulance, they won’t see the point of having to pay taxes all the time to support an ambulance service that they may never need. Let the people who need it pay for it. Sounds ever-so-sensible. So the poor schnooks who do have to worry about having to pay a couple of grand for an ambulance will pay for all that down time out of their pocket.

But that’s fair, isn’t it? If you make the bad choice and get sick, well, hey, you made that choice. No one put a gun to your head and made your kid pass lose consciousness.

So you go that route. You kid goes to the ER, gets half-a-dozen tests, and, thank the Lord, appears to be fine. So you all go about your business for another month or so. And then the bills (note the plural: bills) start to come in. The first is for the ER, and that’s around $4,500. But your insurance works as planned, so your only responsible for $900 (which is 20% of the total). Then there are the bills for the MRI, the blood tests, physician services, yadda yadda yadda. These clock in at another $1,500, so you only have to pay $300. So we’re over a grand already.

Then the ambulance bill comes. Oh, that was out of network. So sorry! You’re not covered!

So now you’re faced with the whole $2,999.99.

And the whole episode cost something like $9000 (Well, technically, $8,999.99, using the figures I’ve presented).

Now, how would you have acted when your kid collapsed? Would you have rationally balanced a potential bill of about $4,300 against some unknown ailment with unknowable consequences? Would you have considered the hole this was going to blow in your budget and said, “well, I have no idea what’s wrong with my kid, but maybe it’s not a big deal?” Or do you go the ambulance/ER route with no clue what it’s going to cost?

Would you have done anything differently?

For MetLife and Rhode Island, size matters


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Downtown Providence from the Providence River. (Photo by Bob Plain)
Downtown Providence from the Providence River. (Photo by Bob Plain)

In the brouhaha about MetLife leaving, I did see and hear people try to blame this on the too-high RI taxes. Of course; it’s always about the taxes, isn’t it? I would like to make one point about that.

For 2012, MetLife reported $1.4 Bn of operating earnings. In comparison, the $80-90 Mn of tax relief that the will receive would just register as a rounding error in any single year. But those tax savings will be spread out over a number of years. As such, they don’t even constitute a rounding error.

Any company, of any size, that makes long-term decisions based on a few years worth of tax savings is not a company that will be around long enough to realize those savings. Only a company in dire straits would make so drastic a move for so little return. Because let’s face it, the up-front investment that is required will more than eat up those tax savings. In such cases, breaking even is a good result in the real world.

No: the savings will come from other areas: lower rent vs what is being paid in the Northeast, in greater Chicago, in the SF Bay area; it will come from lower wages paid to younger workers who do not incur the disability and medical expenses an older workforce will incur; it will come from pension benefits that do not continue to accrue to said older workers, and that will not be paid at all to younger ones. That’s where the money is.

No, RI’s problem is not the tax structure. It’s the size that matters.

The sad fact of the matter is that RI does not have its own economy. RI is a pale reflection of what is happening in Boston. Nor is this a recent development: it was already true in the early 1980s. Look back at the numbers; that was the period when Dukakis was creating (or taking credit for) the “Massachusetts Miracle.” The 128 Loop was America’s Technology Highway, where high tech lived before being superseded by Silicon Valley. Massachusetts recovered sooner than most of the country from the recession of the late 1970s; RI was a couple of years behind.

Then, in the mid-eighties came the phenomenon of Woonsocket turning into a bedroom community for Boston. Same with Nashua NH. Around then the ProJo carried a story of people taking classes to lose their RI accent because they felt that companies in Boston believed that people with an RI accent were less intelligent.

So, no, this is not a new phenomenon. What I have cited is anecdotal; but the numbers in the BLS and Census, etc. will support these contentions.

Also according to the US Census, in 2000, 79% of the population of the US lived in urban areas. In states like Nevada, it’s upwards of 90%. More, 45% of the population of the US now lives in the top 20 urban areas. In the meantime, the Census Bureau also says that one-third of all counties in the country are being drained of population. What does this mean?

It means that the urban concentration that began at the end of the 19th century is continuing. More and more people are living in and around cities while other areas languish. Telecommunication, and telecommuting were supposed to make cities obsolete; the opposite is happening. Telecommuting was all the fad in the late 90s and into the new millennium; now, companies are eliminating it.

It means that, in order to compete, size is a huge factor. Charlotte NC is now the #2 financial center in the country, after NYC. It has surpassed Chicago, with its Mercantile Exchange. It is the #2 center largely because the #1 bank, Bank of America, has its HQ there, and Wells Fargo has its East Coast operations HQ there. The Charlotte Combined Statistical Area has 2.4 million people. This is not rural America anymore.

With a million people, Rhode Island cannot compete with such a center, any more that it can compete with Boston. The advantages of a large educated, concentrated workforce with good infrastructure and a compact geographical footprint are too great to overcome. This is why NYC not only continues to exist, but to thrive, in the face of all the reasons conservatives say it shouldn’t: high taxes, big government, and whatever else they complain about. Half of the wealthiest zip codes in the country are in NY and NJ, both of which are high-tax states.

RI is not losing jobs to lower tax states; RI is losing jobs because the vast majority of jobs are in these concentrated urban areas. If jobs aren’t there already, they’re relocating there. I heard a story on NPR that a growing company in Kansas could not find workers. That’s because no one is willing to relocate to a small town that depends on a single employer; what happens when that employer decides to off-shore the jobs? People are stuck in a small town without prospects. In a larger metro area, there are other jobs, or at least a greater possibility of other jobs.

Size matters. The country is not de-urbanizing. Exactly the opposite.

Addendum: The point is, MetLife made its decision to relocate to NC for its own reasons. Only then did it approach the NC government and see how much it could extort from the state’s taxpayers. In other words, MetLife got money from the state to do exactly what it would have done without the tax breaks. In fact, there have stories to this effect in the North Carolina media, complaints that the state of NC got played for chumps by a large company.

And, btw, NC in general, and Charlotte in particular, have unemployment rates that are only a couple of tenths of a percent lower than what RI and Providence has. It’s not exactly boom-town down there, either.

So, yes, NC is getting the jobs. But they would have gotten the jobs without the subsidies.  So no, it’s not about the tax rates, no matter how often or how loudly conservatives will say it is.

Kids Count: Four Core Cities Are Bane Of RI


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There are two economies in Rhode Island. And they are very different from each other.

There’s the one found in East Greenwich, where everyone has pretty good and probably high-paying jobs and our public schools perform well and prepare our children for college and beyond. Our real estate might be worth a little bit less, but our retirement funds have largely rebounded. The state of the suburbs in Rhode Island is good.

Then there’s the one in Woonsocket. Unemployment is high, and average income is low. The schools are failing financially and academically. Most residents don’t own, they rent and many need assistance just to make ends meet; saving for retirement is an unaffordable luxury. The state of the cities in Rhode Island is abysmal.

You’ve read this theme often on this blog. But this year’s Kids Count Factbook reinforces the point.

Children most at risk of not achieving their full potential are children in poverty. Nearly two-thirds (65%) of Rhode Island’s poor children live in just four cities. These communities (Central Falls, Pawtucket, Providence, and Woonsocket) are the four core cities highlighted throughout this Factbook. Children in poverty live in every community in Rhode Island, but these four communities deserve special attention because they are where child poverty is most concentrated.

More than one of every three children from the four core cities – 35.3 percent – live below the federal poverty level. Across the entire state there are 17.9 percent of children live in poverty but only 9.4 percent outside of the four core cities.

More children from the four core cities receive SNAP food assistance – 39,292 – than the entire rest of the state – 23,934. And there are more homeless children and those living in shelters from the four core cities – 1,042 – than the rest of the state, too: 950.

There are some 65,000 students from low income families in Rhode Island and more than half come from only four of the state’s 39 cities and towns.

Income inequality was also flagged as a growing issue in Rhode Island.

The income gap between Rhode Island’s richest and poorest families is growing, and Rhode Island is among the top ten states with the fastest growing income inequality. The wealthiest 20% of families in Rhode Island have average incomes that are 7.5 times larger than the average incomes of the poorest 20% of families.

While the average income in Rhode Island for families with children is $68,507. In the four core cities it is  $35,946. Conversely, it’s $128,888 in the four most affluent suburbs – East Greenwich, Barrington, Little Compton and Portsmouth. That means three people earning the median income for a family with kids in the four core cities wouldn’t earn what one person earning the median income in the most affluent suburbs earns.

The Jilted Spouse


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Here’s a familiar story. A man and a woman get married when they’re young. Time passes, they age, they grow, and, before you know it, 25 years have passed. Then, one day, with no real warning, the man tells the wife that she’s too old. He’s dumping her for a younger woman who doesn’t have the wife’s expensive tastes. The wife protests, pleads, but to no avail. The husband has made up his mind. He’s leaving, selling the house, and moving out, more or less dumping the wife on the street. T0o bad.

This story is so cliche, so hackneyed, that selling it as a book or movie would be very difficult. However, it’s a story that I believe conservatives, libertarians, and–especially–capitalists love. It’s not just a story for them; it’s a paradigm, an ideal, an aspiration. They look for opportunities to do this, they lust over such opportunities to find a younger, less empowered, more pliable partner that can be browbeaten and coerced more easily than the stronger, more mature woman.

Of course, I’m not talking about marriage. It’s a parable, similar to the one told to King David after he’d arranged for the death of Bathsheba’s husband. The king became outraged, and then he was made to realize that he was the culprit.

The news just broke that yet another large, powerful corporation has decided to dump long-serving employees and replace them with younger, cheaper replacements in a warmer climate.

2o years, 3o years of service? Too bad. You’re out. We want younger, cheaper people somewhere that has a lower standard of living. Your loyalty? Who freaking cares?

When I have suggested that corporations behave in such a manner, I’ve been met with howls of protest from the corporate lackeys, who call me a hater, an anti-corporate socialist (somehow, the lowest form of life). When I provide examples, like the one above, I’m called a liar. And yet there are several hundred (the exact number is hard to pin down) families in RI and environs having grim dinner time conversations because the job that’s been there, to which they’ve given their youth and the best years of their life is being pulled out from under them. There was no warning. Just a hastily-assembled meeting or phone call.

And then there will be those howling that this is what companies have to do to take care of their shareholders. What a load of crap. Moves like this, generally, provide a quick bump in stock price, but have almost zero long-term positive effect on stock price. What they do impact are bonuses; the ones who made the “tough choices” are amply rewarded while those suffering the tough consequences are often left twisting in the wind.

And whatever happened to the employer’s loyalty to its employees? I believe that Econ 101 teaches that an employer will nurture its valuable employees because of the value they add. Funny, the people screaming that minimum wage increases will cost jobs because “that’s just Econ 101” must have been hungover and slept through class the day that employer loyalty was discussed. I keep going back to Henry Ford, but the dude was almost violently anti-communist, and this is why he decided to pay his good employees enough to keep them. He knew he was buying their loyalty, and paying them enough to be able to buy his product.

IOW, he took the long-term view, which today’s short-term managers almost never do. For most of today’s managers–and that’s all that CEOs are, for the most part: hired help, not the steely-eyed builders of a business as per the Ayn Rand fantasy world–are all well-schooled in the I’ll Be Gone school of management. This teaches: “loot the company, make your money, and leave before the chickens come home to roost.”

The other issue that conservatives claim is that people who lose their jobs are responsible. So tell me: how do several hundred people all screw up so badly as individually that they get fired collectively? How does that work? Outside of the Ayn Rand fantasy world? All of them? All at once?

No, their collective sin is that they’ve stayed too long. They’ve been loyal employees, through thick and thin, for better and for worse, in sickness (by coming to work instead of taking care of themselves) and in health, through good times and bad. So their collective reward is to be told that the company is moving south; of course, they’re welcome to apply for their old job, but they might end up with a pay cut.

This, so the company can pay people at the lower end of a lower scale, and, not coincidentally, get rid of older employees whose health has perhaps deteriorated–perhaps because they worked when they should have been home sick–and replace them with employees that are not only younger, but in better health. So they won’t cost so much in sick time or disability leave. And of course, the long-service employees will no longer be able to fund the pension that they were guaranteed when they signed on, limiting future pension liability. And of course, the new hires won’t get anything as archaic as pensions, even though the evidence against the efficacy of 401(k) programs is starting to mount. No, grind out your life working until the magic day you drop dead. And, btw, be so kind as to do that sooner rather than later. The corporate overlords thank you for your consideration.

So welcome to the working world, in this brave new millennium. Because this is exactly how things are, my friends. Welcome to the working world–just don’t expect to stay too long.

John Joyce and Cade Tompkins’ Chair


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Today is John Joyce’s memorial service. He died way too young at age 50 and was a bona fide friend and hero to the people on the streets.

His job, his mission in life, was to connect with the homeless people of Providence. Just to connect with them. After food, water and warmth connection is the most important human need and John Joyce figured if we couldn’t provide the first three he would provide the fourth.

Also today, I saw this short article in the New York Times. It’s about Providence resident and art curator Cade Tomkins. Like Joyce, Tompkins also caters to a specific demographic in Providence. But it isn’t the homeless…

Ms. Tompkins has upholstered a chaise longue with fabric by Serena Perrone, who makes silk-screened photolithographs that meld images recalling Japanese Edo woodcuts with domestic Western objects and architecture. The fabric is called Biwa, after a lake in Japan, and it is hand-printed to order by Ryan Parker and Shelby Donnelly, technicians for the artists, for $495 a yard with a 12-yard minimum.

That’s almost $6,000 for the material alone for a chair that will probably not be sat in all that much. Such a sum could easily provide food, water and warmth for many of Joyce’s constituents.

I don’t know Cade Tomkins, and I definitely do not mean to imply she is doing anything wrong by making an expensive chair. My honest guess is that she is a wonderful person and it surely a beautiful chair.

Whether you want to sit in it or not, that super expensive chair is a really important component of Rhode Island’s economy. So are the homeless, like them or not.

If you can afford to buy this chair, please support a modest income tax increase so Rhode Island can keep John Joyce’s work alive now that he isn’t. What good is it anyways to look at a super beautiful chair at home if you have to see people freezing to death on the way to the Capital Grille?

Arguing With The Tax Policy Switcheroo


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I was or will be on Channel 10’s News Conference Sunday show this week, depending on when you’re reading this.  John Simmons, of the Rhode Island Public Expenditure Council, was a guest with me.  An exchange we had reminds me of many I’ve had recently, including this comment from Dan DaPonte, the Senate Finance Committee chair.

It is an unmistakable fact of legislation that Rhode Island repeatedly cut the income tax in the years 1997-2009.  We cut the tax 10% between 1997 and 2002, we cut the capital gains rate in 2005, and we implemented the “flat” tax option in 2006.  All of these constituted cuts that were either exclusively for the richest of tax payers or predominantly for that top end.  The graph here, an old favorite of mine, shows the effect of the various cuts on the top 1%, and the median taxpayer, along with the unemployment rate during the period, just for fun.

In 2010, the legislature adopted a tax change (for tax year 2011) that froze the flat tax option in place and incorporated it into the tax code, preventing it from being easily repealed.  There were a large number of changes made that year, and the jury is still out on whether that was an advantage for rich people or not.  It was not designed to be, and possibly it was not, though only time will tell for sure.

However, the fact that the 2010 change may have been essentially neutral does not change the fact that the previous 13 years were characterized by repeated tax cuts for rich people.  The Almond cuts alone were worth about $100 million per year by 2002.  Nonetheless, when you complain about tax cuts for rich people, people like Simmons and DaPonte reply that the 2010 changes were not a tax cut for rich people and therefore “progressives are wrong.”  Then they go off into the weeds trying to demonstrate conclusively that the 2010 changes were not tax cuts for the rich.  If you watch the Sunday show, you’ll see John doing exactly that, and then getting miffed when I interrupt to say that the answer he’s giving is irrelevant to the complaint I’m making.

Here’s DaPonte:

I’m still quite honestly confused at the liberal opinion that the 2010 personal income tax reform was a big giveaway to high-income earners. From everyone that I’ve heard from, particularly tax professionals who do this stuff for a living – they have a completely opposing opinion, that that is not, in fact, what we did do.

But what did you do during the previous decade?

Whether you think that tax cuts for rich people constitute enlightened public policy or whether you think that they were a source a source of great inequity in the tax code and a source of real pain for our cities and towns (and the people who pay property taxes), it is tiring to hear people try to deny what actually happened in the last decade and a half or to obfuscate the issue, which is precisely what’s going on here.

The state of Rhode Island gave up a tremendous amount of revenue to these tax cuts.  The cuts produced a tremendous amount of fiscal pain in the cities and towns, and contribute to the fact that so few school systems have anything like a real music program left or new books on their library shelves.  Whether they added something to our economy is debatable (and I’m happy to debate it) but 100% irrelevant to the claim that they happened.

The 2010/11 tax changes are a part of this story only to the extent that they make restoring the status quo ante far more difficult.  Other than that, they have nothing at all to do with the larger offenses against tax equity committed over the last 15 years.  When you talk to people about tax equity, don’t let the subject change.

Community Inequality Is Biggest Economic Obstacle in RI


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Pawtucket Mayor Don Grebien pleads with the members of the Senate Finance Committee to pass legislation that would have helped struggling cities in Rhode Island as Gov. Chafee looks on. (Photo by Bob Plain)

The biggest problem affecting Rhode Island’s economy is not high taxes, pension benefits or special interests. Not even close. It’s the income inequality that exists between the affluent suburbs and the depressed urban areas.

An extremely important post in Pacific Standard today highlights this, in part, by pointing out that while Providence is closing schools and libraries Barrington is increasing funding for both.

In Providence, where I live, the median household income is about $37,000. In Barrington, it is more than $90,000. Housing values mirror the money residents have at their disposal, and as a result Barrington can afford to invest heavily in all sorts of programs that benefit residents and the local (and national) economy. Providence, on the other hand, is facing a dire revenue shortfall and has taken drastic measures to save money, providing only basic services to those in need.

But wealthy or poor, people always seem to think that governments serving poor populations are somehow screwing up; few recognize that communities that are poor or have significant economic inequality (like Providence) are simply being screwed.

I made a similar sort of comparison last year in noting that East Greenwich, the other educationally superior affluent suburb, is considering getting iPads for all of its high school students while in Central Falls, Woonsocket and Pawtucket many students are sharing textbooks.

Much of this inequality is due to Rhode Island’s over-reliance on regressive property taxes and years of using a failed education funding formula. But the problem was inextricably exacerbated when former Gov. Don Carcieri cut state aid to cities and towns in his 2008 budget proposal. It’s literally bankrupting the state’s most struggling communities.

Sam Bell did an excellent seven-part series that dealt a lot with this dynamic in December, and Tom Sgouros has frequently touched upon this issue in RI Future posts. Last year, Libby Kimzey did a public presentation about it. Even RIPEC alluded to it in a report released in April:

Policy choices made by the state – specifically without accompanying mandate relief, and a provision for increasing state intervention for fiscally-stressed communities – increased the responsibility of municipalities to make changes to their fiscal structure. In some cases, municipalities were able to effectively balance their budgets despite cuts to local aid. In other cases, however, municipalities made policy decisions to bridge budgetary gaps that did not result in long-term structural change.

Gov. Chafee is one of the few Rhode Island politicians to pay much attention to this systemic failure. In March, he told me, “It’s no wonder Providence is in trouble, it’s no wonder Pawtucket is having a trouble making payroll, it’s no wonder Central Falls went into bankruptcy. They just couldn’t sustain those kinds of cuts. There is no property tax base to transfer those kinds of cuts onto.”

Last year, he wanted to address the issue by giving struggling cities exemptions from some state mandates. This year, I suspect he will try to affect this problem in a different, more comprehensive manner.

Additionally, it seems to me that state legislators from urban areas could easily form a pretty powerful caucus to advocate for their shared self interest, which in this case amounts to a little less inequality.

Regressive Taxes Now Defines Progressive Victory


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President Obama makes his case for re-election at DNC. (Photo by John McDaid)

Progressives, liberals and Democrats have been getting their political butts kicked for so long that marginal defeats are starting to feel like victories. Such can certainly be said about Obama’s compromise on tax policy.

The president campaigned on reversing tax breaks on those who make more than $250,000 a year. Instead he settled for increases on those who make more than $450,000 and less than $113,000 (yeah, that’s who pays payroll taxes).

According to the New York Times, those who earn between $450,000 and $1 million will see an average income tax increase of about $6,700. Those who earn less than $50,000 will see an increase of about $1,000 in payroll taxes.

While taxes went up on 77 percent of Americans, the roughly 1 percent who makes between $250,000 and a half million were not asked to sacrifice to help the country avoid the fiscal cliff.

I spoke with someone in the enviable position yesterday. It didn’t really occur to them that the fiscal cliff deal had broken in their financial favor. That’s because it won’t have any impact on their spending; when one clears a cool quarter million every year, financial planning about how large you want to live in retirement compared to how much you want to leave to your kids to spend – not about how much or little you will participate in economic transactions.

I’d be willing to bet that the vast majority of Rhode Islanders who were spared a tax increase this week will not notice it one way or another. They will go on vacation, or out to dinner, or renovate their kitchens, or start a small business with little to no regard for what happened – or didn’t happen – in Washington D.C, just like the person with whom I spoke yesterday. I’d also be willing to bet that the vast majority of Rhode Islanders who earn more than $250,000 don’t objected to paying higher taxes, as is also the case with the person I spoke with yesterday.


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