The Progressive Ensign – Page 6 – insights and analytics to build an economy that works for all

High Tech Behemoths Run State and Local Politics

On September 25, 2018

In Corporate Power, Corporate Reform, Democracy, Housing, Local Politics, Social Responsibility

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: youtube.com

Recently the high technology power houses like Google, Facebook, Uber and Amazon have appeared in the news related to national issues privacy, Russia hacking, driver contractors and conservative viewpoint censorship. There is an even more troubling trend; major high tech corporations are controlling key decisions, policies and direction of development for many major American cities and states. Amazon is throwing its weight around the U.S. in search of a 2^nd corporate headquarters.

Source: LA Times – 1/19/18

Amazon has already received millions of dollars in tax subsidies and compensation for locating warehouses in some regions. The Governor of Maryland has offered a $5 billion package of transportation and tax breaks to the company to locate in Maryland, while Newark and New Jersey have offered a $7 billion package of subsidies. Amazon has been adept at Seattle politics as well, when the city unanimously passed a $275 per employee tax on businesses to pay for homeless shelters and affordable housing. Amazon along with local businesses pushed back and the measure was repealed.

Apple purchased a site previously owned by Hewlett – Packard for its Apple Park spaceship headquarters. The Cupertino city council was delighted with the plan to put 14,000 employees on the site, doubling the number of workers at the large parcel. After the headquarters building was built the local council realized that the traffic congestion around the site and the city was going to be a major problem. The city then proposed a per employee tax to gain revenue of $10 million versus the present tax structure based on square footage would have netted only $800, 000. The proposed funding would have been allocated to buses, road widening, express lanes and other traffic flow enhancements. Apple and other businesses protested so the proposal was tabled until the 2020 election.

Uber has gone into cities all over the country from its base in San Francisco without authorization, creating major competition to local taxi companies. Cab companies in most cities purchase a medallion from the city at great expense, some in the hundreds of thousands of dollars to license them to provide ride services in the city. Uber has run into opposition in some major cities like New York, where the number of cars is capped.

Google has quietly purchased hundreds of acres of land in downtown San Jose, until newspaper stories began to spot light the land purchases. The high tech behemoth plans on deploying up to 20,000 employees around the city hub and train station. Planning for a huge employee center near public transportation makes sense, but local businesses and housing near purchased lots are under pressure to sell to make room for the corporate plan. Local housing groups are concerned about the availability of affordable housing and small business.

Next steps

Our concern is that major corporations, their planning departments and executives have so much power that local elected leaders have little clout to push back on building or development that may not be in the interest of the local community. As local government struggles to gain revenues lost to an Internet based economy, and stiff opposition from local citizens to raising taxes causes local city government power to decline.

Local leaders will need to rethink their base of power in the city, seeking alliances with local businesses while building a base of economic support for city services. Cities and states often interested in luring businesses to their local regions spending hundreds of millions of dollars in the process maybe missing the point of their charter. Building necessary infrastructure, affordable housing, fast transportation systems, healthcare for those not covered and safe streets are their mandate from local citizens. It is a challenging time for local and state governments, yet they need to take up the mantle and assert the policies and programs they were elected to implement. Plus, corporations need to take responsibility for their actions and how they affect building the common good of the community.

Dotcom Crash Déjà Vu

By Patrick Hill

On September 24, 2018

In Tariffs, Trade, Trump Trade War, US - China Trade

Image: investopedia.com

The present euphoria about the U.S. being able t0 win a trade war with China is fueling the stock market to new highs. While, consumers reading the tariff headlines are beginning to pull up purchases scheduled for a later time. This author talked with a consumer who heard that tariffs were going up 25 % in January, 2019 so she wanted to move her purchase of a refrigerator up to now just in case. She didn’t know if refrigerators were even going to be taxed or if the tariffs were going to happen for sure. The tariffs are creating a buying contagion. This buying fever is catching on with businesses too, as the West Coast ports report 4 times the normal amount of freight volume being offloaded last month.

This urgent pulling forward of buying has happened before on a large scale in the U.S. in 1999. The year 2000 fear that software would not be able to handle the switch from 1999 to 2000 due to program limitations triggered both corporate buyers and consumers to purchase new hardware and software that would fix the bug. Sales were pulled forward into 1998 and 1999 then in 2000, sales dropped fast ‘like the lights were turned out’ the CEO of HP, Carly Fiorina said.

Source: Statista, 9/23/18

Computer software and hardware sales in stores fell 20 % by 2000 and another 19 % the following year. Computer and software companies laid off workers, companies with high levels of debt defaulted and a recession ensued. Note that even as sales began to come back up by 2008 another recession hit slowing sales progress until reaching par level with 1998 in 2011.

Consumers and businesses are hit by the tariffs in several ways: first, they see prices go up due to contagion buying from fear of prices going up, second there is a lack of merchandise as suppliers run out of product and finally when tariffs kick in the buyers are hit with another rising price wave.

Next Steps:

We have outlined in earlier posts the disastrous effects of broad trade tariffs with no clear goal in mind hurting consumers and businesses alike with high prices, loss of contracts and reduction in jobs. The latest round of tariffs on $200 billion in Chinese goods is ratcheting up the war to a new level with China retaliating with $60 billion in tariffs against U.S. goods. Plus, many businesses report non-tariff barriers being thrown up by the Chinese; slowing approval of shipments, asking for more paper work, requiring more inspections and delays in communication. Farmers in the Midwest are losing soybean contracts to Russia and Brazil as the Chinese switch suppliers. The consequential damages to the U.S. economy are mounting while the GOP Administration thinks a trade war can be won. Corporations and consumers are accelerating purchases to beat tariff dates which will create a mirage that the tariff policies are working until January 2019 arrives and sales spiral down due to all the advance purchasing.

We appeal to the White House to end the trade war, focus on the use of WTO offices, work with our allies and come up with a negotiated agreement with that is a win-win for all. If China slips into a recession from this trade war or incurs a damaged economy it will not help U.S. businesses who are looking to China as a new high growth opportunity – the Chinese will have limited cash to buy any of our goods or services.

Phoenix Gyms Backed By Koch Brothers Help Addicts Become Sober

By Patrick Hill

On September 20, 2018

In Health, Labor, Opioid Crisis

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Photo: npr.org

The opioid crisis is continuing to grow worse with deaths from fatal drug overdoses up 10 % this past year reports the U.S. Centers for Disease Control. The opioid crisis targets mostly young people in city centers and many rural regions across the country. The wave of addictions through our working age people is damaging our ability to grow our work force to support a robust economy.

Sources: Deutsche Bank, The Wall Street Journal, The Daily Shot – 9/19/18

The Koch Brothers, known for their backing conservative candidates and policy programs have a foundation arm called Stand Together which has invested $2 million to $3 million in “The Phoenix” gyms of Denver. Recovering addicts can come to the gym free, to work out, receive coaching and support during their recovery. Peter Thanos, an addiction researcher at the University of Buffalo, told the Wall Street Journal that persistent exercise has shown to be effective in drug rehabilitation. Drugs hijack the reward system in the brain, Thanos observed. Physical exercise can re direct that reward system. He commented ‘in theory, you should be able to have an effect on drug-seeking” through exercise.

The political advocacy arm of the Koch network, Americans for Prosperity, is working to cut the funding for Medicaid in Utah and Nebraska. Yet, Medicaid is the main source of mental health services funding in the U.S.

We applaud the support of the Koch brothers through their foundation of this innovative effort to attack the opioid crisis. It seems that they need to look at what their advocacy group is doing to undermine the work of the foundation. Does it not make sense to invest in returning thousands of our young people to become sober, taking jobs, raising families, buying houses and buying or using Koch brothers company products? Let’s think about the opioid crisis from a long range point of view by investing in addicted people, bringing them back to productive lives. It does not make sense to hurt this effort, instead we should all be working together to solve all facets of this problem resulting in a higher quality of life and a thriving economy. We need all the workers we can get to be productive in the declining labor force 25- 55 year age group, otherwise we shall go deeper into debt to support our seniors.

Hospitals Cut Non-Compete Deals With Insurers

By Patrick Hill

On September 19, 2018

In Anti Trust, Corporate Power, Corporate Reform, Health, Health insurance, Restraint of Trade, Teacher Wages

Image: wbur.org

Hospitals are the number one cost in health care nationwide at $1 trillion per year. Healthcare is close to 20 % of the U.S. annual GDP. Physician and clinical services are second followed by prescription drugs.

Sources: Centers for Medicare and Medicaid Services, The Wall Street Journal – 9/19/18

Hospitals are at the center of the most intense and high care treatments for surgeries, interventions, procedures and emergency care. Most must take Medicare payments if they are to have a wide enough patient population to support their business. Yet, Medicare reimbursements often don’t cover the actual costs of treatment. Hospitals look to employer – insurer plans and cash customers to make up the difference.

The Wall Street Journal investigated a number of hospital – insurer contracts and found in some cases the hospitals and insurers were cutting contracts which included non-compete clauses. Thus, if a hospital had a dominant position in a patient market, it would require that the insurer not insure patients of their competitor. Clearly, a restraint of trade, causing employer plans to pick up the balance, and in some cases where doctors were affiliated with hospitals employees were having to pick up the extra cost. Employers have seen premiums from insurers going up to handle the extra cost of these sweetheart deals.

These close partnership deals between hospitals and insurers create higher costs where services are much cheaper outside of the hospital in a doctor’s office.

Sources: Health Care Cost Institute, The Wall Street Journal – 9/19/18

Instead of hospitals steering patients to their doctors for many services, they provide the services on an outpatient basis at a much more expensive price. Insurers pick up the outpatient cost and then charge employers and patients higher premiums than necessary.

Next Steps:

We have supported the Affordable Health Care Act provisions requiring insurers to insure all patients with existing conditions, and other patient oriented options. However, this law is only the first step in reforming the healthcare industry, rigorous enforcement of anti-trust laws needs to take place to eliminate practices like these non-compete agreements. We call for transparency in pricing of all drugs, and the relationship between drug manufacturers and pharmacies. We recommended in earlier posts that all Americans should have access to good quality health care, beginning with a healthcare account at birth. Then, as the patient takes a job, employer plans can be used, but always between jobs or disability the patient is covered. Medicare should be the first line of insurance for all from birth with employer plans supplementing the main plan. Medicare should have complete negotiating rights with drug manufacturers to get the best price for all patients. All health care for profit companies should be barred from buying back stock and wasting money on executives which is better spent reducing prices and increasing the quality of care.

Tariff Price Increases Hit Consumers

By Patrick Hill

On September 18, 2018

In Consumer Squeeze, Corporate Power, Tariffs, Trade

Image: powertime.co.za

The tariffs applied last year sheltered the U.S. appliance industry for washers and dryers. What happened is a case study for what is likely to happen in other sheltered industries. Retailers rushed shipments of appliances prior to the tariffs going into effect. Prices were slashed sales went up, bringing demand forward in April. By July of this year sales are down almost 3%. While appliance sales falling can be partly explained by the slowdown in housing sales, this trend does not explain the price increases buyers in the market did experience. Samsung and LG competing with U.S. manufacturers, GE and Whirlpool, increased prices from 4 – 8 % on their models due to the tariffs. U.S. manufacturers raised their prices as well, so consumers ended up paying more anyway. If anything, prices should have been going down with fewer buyers in the market, instead there was a distorted market.

Sources: Department of Commerce, The Wall Street Journal – 9/18/19

The South Korean manufacturers have already made permanent moves to end the price challenge with Samsung producing appliances in a plant near Newbury County, South Carolina beginning this past January. LG is following suit, by opening a plant near Clarksville, Tennessee this fall.

So, what has happened is consumers will pay more for appliances, and jobs will come to the U.S. which the tariffs may have intended. Consumers are paying the price of the switch and it is not clear if the consumer will be better off.

Next Steps:

With the U.S. manufacturers depending on tariff shelter protection, they may not be as competitive as they could be with their competition coming on shore to take them on from a U.S. staging point. Certainly, with plants in the U.S. there is a level playing field for all the appliance companies. Consumers are likely to pay to find out which manufacturer is best and will be around 5 years from now.

We don’t like to see the federal government picking winners and losers in the marketplace. Capitalism, entrepreneurship and innovation should take over providing the best products at the lowest price for consumers. We prefer to see the government ensuring there is a level playing field and true competition. Time will tell us if the tariff move was an good one for consumers and the economy.

Working Class Left Out of Economic Recovery

By Patrick Hill

On September 17, 2018

In Blacks, Heartland Economics, Hispanics, Wages

Photo: thedailybeast.com

As the stock market continues to defy gravity and news stories herald the second longest economic recovery since WWII, yet many working class people are left out of the recovery. A recent report by the St. Louis Federal Reserve shows that non college graduates have lost ground or are just maintaining their economic status since 1998.

Sources: The New York Times, Federal Reserve Bank of St. Louis – 9/14/18

College graduates continue to make strides in income and dramatically increased wealth versus the median since 1989. Though college graduates who were Black or Hispanic actually saw a decline in their wealth levels versus the median. However, non-graduate whites while gaining some income versus the median saw their income largely stagnant and wealth accumulation flat. Non graduate Hispanics and Blacks fared even worse than whites in the case of blacks making zero progress over the median in wealth and half the progress of whites in income over the last 30 years.

William R. Emmons, an economist at the St. Louis Fed and a co-author of its report, noted in a New York Times story, ‘the most striking result was the steep declines among white families headed by someone without a college degree. Members of this group — labeled the white working class — not only were left behind financially, but also lagged in other measures of well-being, like self-reported health, homeownership, and marriage or cohabitation rates.’

Next steps:

We have noted in posts the urgent need for a comprehensive ‘Marshall Plan’ like imitative in our nation’s Heartland. Unemployment is two to three times higher there, high quality education is not as accessible, the opioid epidemic is gripping major sections of the Midwest and rural South while there is a failing infrastructure with slow Internet speeds. All this lack of investment leaves our Heartland citizens out of the economic and career opportunities that other regions have enjoyed since the Great Recession. We recommend that the federal government provide seed funding, borrowing from the successful Silicon Valley mode of venture investment, for partnerships between universities and colleges to develop innovation centers for job training, health services, enhanced apprenticeship programs, startup incubators and installation of high speed internet fiber optic systems. There is no time to waste, this initiative needs to be implemented immediately to prevent even further widening of the economic gap between coastal regions and our Heartland.

What are our goals as Americans?

By Patrick Hill

On September 14, 2018

In Common Good, Democracy, Education, Self Interest, Social Responsibility

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: bu.edu

We need to come together on what we all want if we are to have a government that works for all not just the rich. What are our goals? What is our mission as a country? What binds us together in seeking the common good?

The Preamble to the Constitution provides insights and guidance:

“We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.”

Let’s look at the first phrase ‘ to form a more perfect union’ – this phrase implies that things are not perfect that the country is a work in progress. To ‘establish justice’ for all means not a system of justice just for the top 1 % or the privileged. Justice means that the law is blind to outward power or religion, race, color or other personal factors. Justice says that equality of justice for all under the law needs to happen in applying the law to all, so the poor, black or others don’t feel the weight of justice on them greater than other people. To ‘ensure domestic tranquility’ we won’t enjoy life, raise families, perform in our jobs, or provide service if our country is in constant uproar or unsafe. Peace needs to be protected and available to every citizen, including those living in ‘unsafe areas’, they have a right to live in a safe neighborhood too. Tranquility means the political dialogue between difference points of view is conducted in civility and respect.

To ‘provide for the common defense’ means that we expect our government to keep us safe from foreign aggression and the government – not vigilantes are to keep the peace under the Constitution. To ‘promote the general welfare’. Key environmental elements of our existence we all share; air, water, land means we will be strident in protecting our natural resources. We need to support institutions that sustain the general welfare like federal, state and local agencies that ensure we have access to all these environment elements but also, education, health and freedom to travel.

Finally, to ‘secure the blessings of liberty to ourselves and posterity’ implies that there is equality of opportunity for all. We all have differences, we have the liberty to pursue whatever goals we have for our lives, our families and our friends. We need to ensure that equal opportunities are safeguarded and provided for all regardless of wealth, race, color, religion or orientation. Education is a keystone to our providing a path for those at the lower end of the income scale to apply themselves, get a good education and contribute to our country to the highest level of their ability possible.

Our country thrives as the most prosperous country in the world because we let people be free to follow their dreams and help those who come to our shores to pursue their dreams here. We need to remember the goals the Preamble to the Constitution sets out to establish through a government by the people. We must become united in these shared goals to make real progress in solving the national problems we face.

California Urges World Leaders to Move Fast On Climate Solutions

By Patrick Hill

On September 13, 2018

In Climate Change, Environment, Scientists, Social Responsibility, Solution

Image: globalclimateactionsummit.org

Yesterday, California Gov. Jerry Brown, convened the Global Climate Action Summit in San Francisco. The Summit brought together climate change leaders from around the world in private, government and non – government sectors to focus on action-oriented programs to mitigate the effects of global warming. Just before the meeting started Governor Brown signed into law a goal for the state to be using 100 % electric and renewable energy by 2045.

The conference sponsors focused on urgency in their introduction to the conference:

“The Global Climate Action Summit, happening midway between Paris 2015 and 2020, is timed to provide the confidence to governments to ‘step up’ and trigger this next level of ambition sooner rather than later.

The momentum we generate this year must lead to bending the curve of emissions down by 2020—science advises us that this gives the world the best opportunity to prevent the worst effects of climate change. 2018 therefore must be the beginning of a new phase of action and ambition on climate change.

The Summit will underscore the urgency of the threat of climate change by mobilizing the voices and experience of real people, in real communities already facing real and stark threats. It will challenge and channel the energy and idealism of people everywhere to step up and overcome it.”

The carbonization of our planet is the preeminent challenge of our times, possibly threatening our very existence long term. World-wide temperature records are being set from Tokyo to Washington as the following heat map for 2018 indicates:

Source: The Washington Post – 7/5/18

About 25 % of the heat is being soaked up by the ocean causing algae blooms which can contaminate water and cause wildlife to die. Scientists in the Pacific Northwest have discovered how certain ocean plants can dilute and mitigate water acidity. There are a variety of solutions being developed by governments and private businesses, yet what we need is a coordinated effort focused on those solutions that are most effective, affordable and can be quickly implemented.

We applaud California leaders for taking the initiative on this critical issue of our times to urge world governments to implement solutions to climate change before the problem goes beyond our ability to cope with the effects.

End Offshore Corporate Tax Havens

By Patrick Hill

On September 12, 2018

In Corporate Power, Corporate Reform, Stock Buybacks, Tax Havens

Image: marylandpirg.org

In 2016, multinational U.S. corporations booked over 50 % of their foreign profits in overseas tax havens. Whether the profits are made in Casablanca or Singapore corporations are using lax US tax laws and accommodative offshore tax haven laws to book profits where they can’t be taxed at fair share rates. Note that pre-tax profits viewed as a percentage of wages paid ranged from 200 % in Singapore to 800 % in Ireland!

Sources: The Wall Street Journal, The Daily Shot – 9/12/18

Combine this tax information with the soaring use of stock buybacks by moving dollars from these offshore accounts to juice the price of their stock and we see corporate executives doing a great job of increasing their stock based compensation.

Sources: Compustat, Bloomberg Finance LP, Deutsche Bank, The Wall Street Journal, The Daily Shot – 9/12/18

The US stock market has dramatically diverged from overseas markets where China markets are down in bearish territory at 20 % for the year and emerging markets down close to 18 %. Yet, the S & P 500 Index of U.S. stocks is up 7.4 % for the year. With all the uncertainty in emerging country currencies, trade wars, lack of wages, falling home and care sales, the U.S. stock markets keep rising being propped up by stock buybacks. Nearly $1 trillion of buy backs have been announced for the year. Buy back dollars are not going toward raising employee wages which are 312 times lower than CEO wages.

Sources: The Wall Street Journal, The Daily Shot – 9/12/18

Little wonder workers are not getting a fair wage in many industries with corporate executives stashing money overseas where it is out of reach of U.S. tax laws. Plus, executives are compensated for increasing profits, not increasing wages that would cut into profits.

Next Steps:

Corporations received a windfall from the Tax Bill last year which did not change taxation of U.S. corporate profits overseas, but instead gave corporations a huge one-time tax break on repatriated funds from the listed rate of 35 % to 15.5 % for cash related assets and 8% for illiquid assets. Many corporations did bring funds back to U.S. this year, yet 70 % of the funds were used for dividends and stock buybacks. Only a small percentage of repatriated funds went to raising worker’s wages which is what CEOs promised they would do when lobbying for the Tax Bill.

It is time for corporate leaders to understand they need to start paying their fair share of U.S. taxes for entities overseas, and they need to pay a share of the cost of our armed forces overseas. They benefit directly from having safe countries, government protection through embassies and staff and safe passage of cargo worldwide. Plus, the U.S. government working in partnership with corporations provides businesses opportunities that firms from other countries with less presence don’t enjoy. U.S. corporations need to pay up, and recognize profits in their respective countries where they do business with a share going to the U.S. government for the offshore benefits they receive.

Declining Mobility Limits Millennials Careers, Economy

By Patrick Hill

On September 10, 2018

In Building Progressive Region, Heartland Economics, Housing, Mobility, Wages

Image: dailymail.co.uk

More millennials are living with their parents than ever before due to lack of income, availability of housing and marriage later in life. Moves by people under age 35 are continuing to decline. Seniors are moving a bit more but overall they are staying put in their homes for retirement, as the cost to move to a new home is soaring. Home prices have increased on average by 6.7 % per year over the past five years, skewed toward large square foot homes for upper income buyers.

Source: Trulia – 1/31/2018

Overall Americans are not moving like they used to in the 1990s, and before the Great Recession. In 2017, 34.9 million Americans moved to new residences, translating to a household mobility rate of 10.9%, which is the lowest rate in the last 50 years since the Census Bureau has been tracking this statistic. Lack of mobility is showing up in total household formations including rental units, new and existing home figures. For all of 2017 there were only 400,000 household units formed, notice this is a similar pace to the aftermath of the Great Recession.

Source: Federal Reserve of St. Louis, 1/2018

The mobility that is taking place is from major cities to major cities or coast to coast. We noted in our post on Heartland Economics that one of the issues that faces many rural regions in the South and Midwest is lack of new jobs, digital infrastructure, health and education services. When young people in these regions cannot receive the education they need to build a career where there are jobs in the cities they stay where they are in low wage jobs with few prospects of advancement. The opioid epidemic is worst in rural regions in the country where a sense of hopelessness has set in for many people. While in the last quarter some of these regions have seen an increase in jobs, this increase in economic activity is likely to be a passing surge from a very low economic base to begin with that will not last without long term investment.

Next Steps:

Why should we be concerned with lack of workforce mobility? Because, when people do not move to take on new jobs, or start families or get away from home, home purchases decline, furniture sales drop, appliance sales fall and the overall economic life blood of our economy stagnates. What do we need to do? Raise wages for workers to a decent level in each metro and rural region of the country, so people can build a nest egg and make a down payment on a home. Rental unit pricing needs to be addressed in a way that is fair to the multiunit owner while holding down rental costs. The most recent Tax Bill passed in December of 2017 eliminated the provision for tax deductions by employers or workers for unreimbursed moving expenses. This provision needs to be reinstated to drive the costs of moving down. Interest on first mortgages should be made tax deductible for all regions of the country with a special emphasis on low income first time buyers. In rural regions we recommend special tax zones be established to offer incentives for investors to setup businesses there, with partnerships with local universities to build incubators for startups much along the model pioneered in Silicon Valley yet tuned to the needs of the region. The size of our workforce is declining, we have young people staying at home so we need to address the issue of lack of mobility head on to provide the life opportunities to our young people that earlier generations enjoyed.