Rogue Columnist

Tax cuts: What went wrong

Zonie readers will have to forgive me. I've reached a point where Arizona's cruelty, narrow-mindedness, magical thinking and self-destructive policies are ... boring. I promise to snap out of this fugue state next week.

John Boehner already is measuring new draperies for the speaker's office and Republicans seem confident of at least retaking the House, if not the whole enchilada in 2010 and then 2012. Their policy prescriptions haven't changed: military adventurism, deregulation, slashing and blocking important domestic investments — now justified by the deficit they ran up — and, especially, tax cuts. Nothing is more Reaganesque than cutting taxes.

According to Republicans, this accomplishes two goods: It raises more tax revenue for the government because it lures capital from shelters into productive uses, and, it encourages more capital formation that creates jobs. Everybody wins. George H.W. Bush derided the first part as "voodoo economics" and Paul Krugman wrote a most convincing takedown in 2003. Even so, tax cutting has been American governing orthodoxy for 30 years. Just the possibility of letting the George W. Bush tax cuts expire or returning to the estate tax that has been in place for nearly a century provokes apoplexy.

The second part of the tax-cut argument had more resonance. Even I once believed that if you really wanted to stick it to the rich, reduce their rates enough to make it impossible for them not to want to invest. Some of that is bad history, of course. The American economy did very well with Eisenhower's 90-percent range top bracket for the wealthiest, and the greatest boom of the 20th century and first surpluses in decades came after Bill Clinton slightly raised taxes. But the final blow to the tax-cut argument came under George W. Bush, as taxes were slashed on the rich, major corporations got away with paying no taxes and the estate tax was whittled to nothing. Yet the Bush years saw a net gain of a mere 1 million jobs, wages stagnated and income inequality hit levels not seen since at least the 1920s. What went wrong?

Doomsday Machine II

While a breathless nation watched natural redhead Lindsay Lohan try to adjust to jail and the most prestigious organ of the American press prominently lamented the failure to regulate Froot Loops, your world and the world for your children and grandchildren changed last week. Reported grudgingly if at all in most of "the media": The death of legislation that would even begin to address climate change. Others have commented on the shameful retreat by the Democratic Congress and White House, and even Tom Friedman had a good column. It included the pungent observation:

We’ve basically decided to keep pumping greenhouse gases into Mother Nature’s operating system and take our chances that the results will be benign — even though a vast majority of scientists warn that this will not be so. Fasten your seat belts. As the environmentalist Rob Watson likes to say: “Mother Nature is just chemistry, biology and physics. That’s all she is.” You cannot sweet-talk her. You cannot spin her. You cannot tell her that the oil companies say climate change is a hoax. No, Mother Nature is going to do whatever chemistry, biology and physics dictate, and “Mother Nature always bats last, and she always bats 1.000,” says Watson. Do not mess with Mother Nature. But that is just what we’re doing.

I'd like to explore the future we're making by our own choice.

Atlas mugged

I've been on a mission for several years to right the wrong done to Charles Erwin Wilson, the president of General Motors from 1941 to 1953. He later served as Defense Secretary under President Eisenhower, a man with a keen interest in the well-being of the military. You know Engine Charlie: He's the one who said, "What's good for General Motors is good for America." The very epitome of the selfish, imperious chief executive. Except he didn't actually say it. His real words were, "for years I thought what was good for the country was good for General Motors and vice versa." In other words, the interests of big business couldn't be divorced from the well-being of the nation. This represented the best ethos of our business leadership when America stood at its zenith.

James Cash Penney, founder of the department store chain, operated not by exotic swindles cooked up by his Ivy League MBAs, but by the golden rule. The vinegary head of National Cash Register, John Henry Patterson, turned his factories into boat-building plants to save residents of Dayton during the 1913 great flood. Henry Ford, crackpot and anti-Semite though he became, established his business on this foundation: "I will build a car for the great multitude. It will be large enough for the family, but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one." In doing so, especially paying good salaries, he made one of the seminal steps to create the modern middle class. Ford also said, "A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large."

Now we have a different breed of cat running our largest companies. Their model is not J.C. Penney or even Henry Ford, but Jack Welch and the moguls of Wal-Mart. And they may be on a mission to sabotage the chief executive of the United States.

Water and Arizona's future

 “There is no lack of water here, unless you try to establish a city where no city should be.” — Edward Abbey

Asked to write about Arizona and water, I fear I will disappoint. My take is now too idiosyncratic, too impossible for the state's residents to even contemplate or for the economic and political elites to allow. Still, a reader asks; I'll deliver and at least start a conversation/argument.

In its particulars, Arizona's water issues are complicated, making them inaccessible to a population with lower levels of education and civic involvement, as well as little connection to the state's history. They did not, as I did, grow up with water — my mother working as part of the effort to win the Central Arizona Project. In general, Arizona's water issues are stark and simple: The state can't sustain double-digit percentage population increases every decade, particularly in subdivisions apart from historic urban footprints. This statement is anathema to the Real Estate Industrial Complex and what passes for an "economy" that Arizonans keep looking to resuscitate. But wait... In reality, Arizona probably doesn't have the water to support its current population for long. Beyond these basics, it's all over but the shouting.

Here's what I don't trust: The state Department of Water Resources or its active water management areas. The risks of compromise to water rules by the development elite is too great, exacerbated by continued under-funding of state government. And the 100-year supply "rule" for new development? Even if it's enforced what does it mean? One thing it does, because water is divorced from land-use regulations, is to cause a land rush to lock up aquifers that have taken eons to create — all to provide the illusion of security so another "master planned community" can expand out beyond the White Tanks. Meanwhile, much of the state lacks even this suspect oversight. Mojave County, notorious for its lack of water, was a hotspot for wildcat exurban sprawl before the housing collapse.

What is to be done?

So this is where we stand: The financial doomsday machine, equal parts the creation of feral greed and deregulation, has been saved by taxpayers and IOUs on our future living standards. With its billions to lobby, it has avoided the prosecutions and re-regulation that followed the laissez-faire-caused crash of 1929. So it continues to gamble with dangerous play money called derivatives and other financial "innovations." Billions more from big business ensure corporate control of a broken government. All of these entities live to send jobs offshore or engage in job-killing mergers, as industries become more consolidated than at any time since the Robber Baron Age. Income inequality has returned to that era, too. And for the first time in history, most of the next generation will see worse prospects than those of their parents.

Twenty-six million workers are unemployed or forced into part-time jobs when they want full-time positions. Five unemployed workers are chasing every available job, and yet the Republican minority, aided by Sen. Ben Nelson of the populous state of Nebraska, continue to deny an extension of jobless aid. Schools, transit, parks, libraries and assistance to the most vulnerable are crumbling. For the first time in a century, the world does not look to the United States to lead the world to recovery. Instead, Asia powers ahead while this shadowy thing called "the markets" holds guns to the heads of Western governments, with elite commentators saying all the public foundations that make an advanced civilization must be ruthlessly slashed. Who are these "markets"? And how do we explain that the zenith of American might was built on much higher taxes for the wealthy and corporations, as well as capital markets that raised money for productive, job-creating businesses? Meanwhile, America is bogged down in endless wars, making more enemies through our military adventures and appetite for oil. Oh, oil. The Gulf of Mexico is perhaps irretrievably damaged by a BP spill that has fallen off the front page. Expect more such events.

After all this, voters seem poised to return control of the House of Representatives, and perhaps the Senate, to the Republicans, the party that wrecked America. Speaker Boehner. It will mean the end of President Obama, a man who somehow has managed to squander America's best and perhaps last chance to right itself. The genuine hope and relief of January 2009 is long gone. In its place is a sentiment I heard from many as the Bush years dragged on — including, in private conversations, from people of national prominence. Their words were always the same: "For the first time in my life, I am afraid for my country."

Will SB 1070 help or hurt?

On Sunday, the Information Center published a 573-word story, accompanied by many graphic and break-out doo-dads, asking: "Will SB 1070 help or hurt the economy." The lede: "Arizona's new immigration law will likely affect a sizable swath of the state's economy, but experts are uncertain whether it will bring overall economic gains or end up scarring the state with losses." I know one thing: These kind of shallow stories are among the many self-inflicted wounds killing journalism. Oh, I forgot, Gannett doesn't do journalism, it is an "information broker."

An old hand once told me, "Immigration isn't the most difficult dilemma facing America. It's worse." It is a result of Americans' insatiable addiction to cheap labor. But it is part of a far more complex set of phenomena involving a Third World nation bordering the First World superpower; globalization's destruction of Mexico's peasant economy; mass migrations on a scale never before seen on an overpopulated planet; corporate greed amid a worldwide glut of labor, and billions of poor living without hope but primed for instability and extremism. The topic deserves at least the kind of sophisticated work done early last decade by The Arizona Republic with the "Dying to Work" series.

The overwhelming evidence is that SB 1070 will be a net economic loser for a state already in a depression. The most comprehensive national work on the public costs of illegals vs. their output for the economy has been done by UCLA's Raul Hinojosa. The verdict: The aliens are a net positive. Nowhere is this more true than Arizona. The anti-immigrant bill is already dearly costing the crucial tourism industry from boycotts. Its explicit political extremism will deter capital formation and investments by quality corporations. To the extent that it causes an exodus of illegal immigrants, it will further erode the tax base, for those aliens pay a disproportionate share of their incomes to Arizona's regressive tax system. Most will stay, even deeper in the shadows and out of the mainstream, adding to the state's lost human capital and talent. Most important is this: No low-wage, easily exploitable migrant labor force, no Growth Machine.

What is the 'free market'?

A new poll on Talking Points Memo finds that 55 percent of likely voters believe President Obama is a "socialist." That's rich on a couple of levels. First, if Mr. Obama were a real social democrat we'd have universal, single-payer health care, a major program to rebuild our nationwide rail system, superior public schools and affordable or free (real) universities, a comprehensive social-safety net and an appropriate tax on the rich and corporations. That we don't says the president is a Clintonian corporatist at best, and millions who voted for change are disappointed and not likely voters. The second laff riot is that these morons polled don't even know what socialism is — and yet, as Arizona can teach the nation — morons vote, feverishly.

"Economic freedom" is code for...what exactly? A selfish nation of dolts that thinks roads and sewage plants are made by elves in the middle of the night, and thus the dolts shouldn't have to pay taxes? Never mind that America pays some of the lowest tax rates in the industrialized world, most major corporations pay none, and we suffer infrastructure, competitive, social and state budget crises as a result. Does it mean you should be allowed to build a toxic waste dump in your backyard — even though you would be the first to report your neighbor's unauthorized paint scheme to the homeowners' association? Economic freedom is the gibberish of the uneducated, the selfish, and aggrieved, all indoctrinated by the ubiquitous Fox "News" and white-right talk radio. Yet it is the phrase of the moment and people mouth it, along with their gun lust, theocracy and hatred of "the other" like 1930s Germans saying "Kinder, Kuche und Kirche!" or "Drang nach Osten!"

As a "socialist," taking away our "economic freedom," Mr. Obama shows his hatred for that sacred American concept, "the Free Market." What does that mean? In the elegant world of theory, it implies that given maximum freedom, human action in the marketplace will produce superior results to any kind of command economy or "industrial policy." Price signals tell producers what customers want and employees where the jobs are. Competition keeps new ideas, products and services coming. The "invisible hand" — Adam Smith uses the phrase only once, and narrowly, in The Wealth of Nations — presides over this mysteriously and effectively but...well, you don't mess with the hand. The theory has been relentlessly pushed down and dumbed down over 30 years so that perhaps a majority believe it as an article of faith. Or better. C.S. Lewis wrote of Christianity something to the effect that "it's just screwy sounding enough to be true." Free market church-goers have a completely closed-loop "proven reality."

This time is different

Anyone who thinks our economy and the rest of America is in a familiar cycle, with perhaps different music and new electronic gadgets, hasn't been paying attention. Unfortunately this includes much of the media and the economic experts they choose to quote. It's like 1981-82. Well, no, even though in severity that event was the worst up to that point since the 1930s. Jobs were shed in this recession at a faster and deeper rate than since statistics began to be kept in the late 1940s, and by this time after the start of the 1981 downturn we had regained virtually all the lost jobs. Now we have nearly 26 million unemployed or underemployed (temps who want full-time work) Americans. Thanks to Republicans in Congress, 2 million have lost their unemployment insurance. In any event, that was a Fed-caused recession to defeat inflation, and the underlying American economy was strong and diverse, with the middle class at its zenith and Wall Street a dowdy joint tasked with raising capital for real productive, job-creating enterprises. None of that is true in this disaster.

It's like the Great Depression. That was an economic collapse fueled by financial speculation and fraud, high leverage, laissez-faire, and extreme income inequality, too. Unfortunately, there the parallels end. America was the world's largest creditor nation, manufacturing exporter and oil producer/exporter, with state-of-the-art factories and a skilled workforce just waiting for an upturn. Government was much smaller at the start of the Depression, allowing FDR plenty of room to experiment; he was not weighed down in the 1930s by two endless colonial conflicts and defense spending greater than all other nations combined. The bad was worse: Unemployment was estimated at 25 percent; poverty was much more widespread; the country was still heavily rural and small-town. And, importantly, the "old order" that brought on the crash was discredited and, for the next several decades, shut out of political power.

It's just a normal business cycle being made worse by government. When people say this, they don't mean that the government has made inadequate and poorly targeted stimulus or helped prop up the Wall Street casino prepping us for another panic. They mean Obama is a "socialist/fascist/communist" and America needs to let the "free market" rule, while slashing "wasteful" government spending. This would be dark comedy if it were not fervently believed by so many voters. It is most definitely not any kind of business cycle we've seen. But this dangerous minority may well get their way come November — they're already getting much of it, with painful consequences.

Phoenix recovery? Part II

The data and just driving around town make it clear that the Phoenix economy is not recovering. That the news snippets and economic forecasts desperately trying to spin things otherwise are almost exclusively focused on real estate is telling. Metro Phoenix so narrowed its economy that it was America's last big factory town, building houses. When this unsustainable game of risk crashed, the region was devastated. But like a dying rattler, it is still snapping its fangs, wildly hanging onto the hope that the Growth Machine can be started up again. It's always worked in the past! This is the forlorn cry of so many caught in past depressions and economic turning points. Buffalo... Youngstown...Detroit...

The old housing economy is not returning. The one based on large-scale output of tract houses built by national builders on a foundation of liar loans, high leverage and vast government subsidies for the suburban or exurban "American dream." Now that dream is a nightmare. The nation is much poorer after the Great Recession, yet the imbalances and high debt remain. Incomes and living standards for average people are in deep trouble. Millions of houses remain to be sold, with many more in the private "shadow inventory" as well as in the toxic "assets" taken off the hands of the banks by the Federal Reserve. Nowhere do these realities operate with more ruinous consequences than Phoenix. Any "new normal" will provide little relief for a regional economy whose business plans were based on an unsustainable profligacy of building and population increases. That little blip that might mean "the bottom" or "stabilization." So?

What's astonishing is the lack of realistic or imaginative thinking on the part of what passes for Arizona leaders faced with this harsh future. Or faced with the mounting evidence of how distorting, costly and damaging to the earnings of average people the real-estate monster had become. Metro Phoenix has never been so dependent on real estate, yet no one seriously wants to break the jones. To understand the future of discontinuity. Pinal County, a national ground zero of exurban crisis, sees only one way out: More sprawl. In fact, Pinal should be returning to agriculture as fast as it can; Arizona needs the exports to a growing Asia, as well as the capacity to feed itself in a high-cost energy future. But the self-destructive hits just keep coming: