We Want Our Money Back

Good-governance groups are fighting back against companies that take state subsidies and then head out of town.

One can understand why North Carolinians hold a grudge against Dell Computers. In 2009, the company shuttered its Winston-Salem plant, laid off 900 people, and made off with $6 million in state subsidies and incentives. Most states and cities will do almost anything to induce companies to set up shop within their borders—or to keep them there. It seems no tax incentive is too plush, no subsidy too bountiful. Businesses, in turn, will make grand claims about the jobs and other benefits they bring to a community. But what happens if they renege on the deal and pack up or simply don't live up to their promises? Too often, the answer has been "nothing." States and municipalities are left scrambling to explain why they spent the taxpayers’ money and got nothing in return. Fortunately, this is starting to change. Good-governance groups are putting forth a simple message for businesses that do not deliver on their promises: We want our money back. Nonplussed by lax subsidy standards,...

The Cost of Financial Favoritism

If Republicans and Democrats can't find common ground on giving assistance to small banks and Community Development Financial Institutions, they aren't liable to agree on anything.

A merica’s knack for invention and risk-taking has long been a source of competitive advantage. Entrepreneurs depend not just on ingenuity and nerve but also on capital and credit, which come, or don’t, from a variety of sources, including their own savings, venture capital, as well as loans from banks and other institutions. Until recently, our deep and varied capital markets have complemented America’s entrepreneurial zeal. Investment bankers could help innovators sell shares to the public. Silicon Valley’s technical genius got a huge lift from venture capitalists. However, the extreme financial engineering that ultimately led to the collapse of 2008 has whipsawed America’s entrepreneurs. At first, financial innovation produced a credit boom. But as regulatory and lending standards dropped far below prudent levels and banks became more leveraged, the financial excesses produced first a bubble, then a bust. Bankers and their regulators belatedly turned risk averse, producing a credit...

Freelance Nation

Progressives need to make government work better by helping out entrepreneurs and the self-employed.

The other day, on a Manhattan sidewalk, I ran into a former colleague and asked her what she was doing these days. She shrugged: “I’m in limbo.” When I looked her up later to connect online, her LinkedIn profile listed her as CEO of her own consulting firm. That didn’t sound like limbo to me, until I saw the fine print: “self-employed, myself only.” Scrolling through the rest of my contacts, I noticed that quite a few people in my professional orbit had titles like “president” or “founder” or “principal.” Some of these people, I know, are doing quite well; others are barely making it. These days, being your own boss can mean any number of things: running a thriving business with employees and profits, landing steady gigs as a consultant, working the same job you used to have but with no benefits, or prettified unemployment and a life in limbo. Even government statisticians are hazy about Americans without traditional jobs. The U.S. Department of Labor reports that about 15 million...

Too Small to Bail?

An interview with Sheila Bair.

(Flickr/Civil Rights)
As chair of the Federal Deposit Insurance Corporation ( FDIC ) until last July, Sheila Bair played the role of loyal opposition to the strategy pursued by Treasury Secretary Timothy Geithner of propping up the biggest banks and deferring the issue of systemic reform. Bair argued for helping smaller banks and small businesses as well as breaking up huge banks that were deemed “too big to fail.” Now based at the Pew Charitable Trusts, Bair spoke with Prospect co-editor Robert Kuttner. How are community banks faring in the financial crisis? Not enough people recognize that community banks actually weathered this crisis pretty well and that the risks they had taken were much lower than those of the larger institutions. Fewer than 5 percent have failed, and when they do fail, the FDIC follows a strategy of marketing them to other community banks with ties to the same service area. During my tenure at the FDIC, over 90 percent of the community banks that failed were bought by other...

Economists Project Eight Percent Unemployment by Election Day

(The White House/Flickr)
As far as political news is concerned, I would rate this as considerably more important than the minutae of what happens in the Republican primary elections today: The economists think the unemployment rate will fall from its current 8.3 percent to 8 percent by Election Day. That’s better than their 8.4 percent estimate when surveyed in late December. By the end of 2013, they predict unemployment will drop to 7.4 percent, down from their earlier estimate of 7.8 percent, according to the AP Economy Survey. The U.S. economy has been improving steadily for months. Industrial output jumped in January after surging in December by the most in five years. Auto sales are booming. Consumer confidence has reached its highest point in a year. Even the housing market is showing signs of turning around. That’s from a recently released survey of economists from the Associated Press. As it stands, it wouldn’t take much for the economy to reach 8 percent unemployment by November; according to this...

Europe Teeters on the Edge

Today's Balance Sheet: The times are good for one percenters.

This week's a big one for the future of Europe, as Germany debates supporting the fiscal pact agreed to in Brussels on March 2 and investors sign onto a Greek bond swap that could write off half of the country's €177 billion debt. The success of the fiscal pact—which demands that the 25 signatory countries write balanced budget "golden rules" into their constitutions—could hinge on whether the opposition party's demands for more stimulus measures and less austerity, are met in Germany. "We need an initiative for more growth and we should get the money from financial markets," Sigmar Gabriel, chairman of the opposition Social Democrats party, said. Chancellor Angela Merkel's cabinet plans to meet and discuss the pact tomorrow. The Latest In China, Sobering Signs of Slower Growth The New York Times You Hear That? It's Quiet...Too Quiet The Wall Street Journal Even Senior Citizens Have Student Debt Wonkblog The Lone Tweeter of Deutsche Bank Bloomberg Businessweek Chart of the Day  2010...

Is It Springtime for the Economy?

Today's Balance Sheet: Wages are on the slow and steady rise.

Wages and salaries rose in January by 0.4 percent—up 5 percent from last year—but that extra money has yet to leave consumers' pockets and get back into the economy. Other good economic news was released yesterday, too: Filings for unemployment benefits are at a four-year low. Usually, when wages rise, consumer confidence also goes up, giving the economy a big boost. That hasn't happened yet this time. The Commerce Department said that wages might not be growing enough to push spending, or extenuating factors like rising gas prices may be at play. The Latest A Firewall Full of Holes The Economist AT&T Ends All-You-Can-Eat The Wall Street Journal Where the Jobs Are, the Training May Not Be The New York Times How NBA Fans Cost Their Teams at the Free-Throw Line Bloomberg Businessweek Chart of the Day  A new analysis from the Tax Policy Center shows that Romney's new tax plan is even more regressive than his old one. Unless the details, which have yet to be released, enumerate many...

Geithner's Latest Alibi

(AP Photo/Marco Ugarte)
Treasury Secretary Tim Geithner, chiding Wall Street for trying to undermine enforcement of the Dodd-Frank financial-reform bill, is trying to rewrite history. He would have us believe that regulators lacked the power to prevent the financial collapse. In fact, they had plenty of power. The problem was that Geithner and company were in industry’s pocket, and didn’t use the power they had. Writing in today's Wall Street Journal , in an op-ed piece titled “Financial Crisis Amnesia,” Geithner contends : Regulators did not have the authority they needed….A large shadow banking system had developed without meaningful regulation, using trillions of dollars of short-term debt to fund inherently risky financial activity. The derivatives market grew to over $600 trillion, with little transparency or oversight. Household debt rose….with a large portion of those loans originated with little or no supervision and poor consumer protections. Jesus wept! The amnesia is Geithner’s. Take these in turn...

You Can Eat Whatever You Want

Mark Bittman is apparently a fan of Republican state senator Ronda Storms, who wants to prevent food stamp recipients from buying junk food: When she introduced a bill to prevent people in Florida from spending food stamps on unhealthy items like candy, chips and soda, she broke ranks: few of her party have taken on Big Food. […] Yet she makes sense. “It’s just bad public policy to allow unfettered access to all kinds of food,” she told me over the phone. “Why should we cut all of these programs and continue to pay for people to use food stamps to buy potato chips, Oreos and Mountain Dew? The goal is to feed good food to hungry people.” Bittman goes on to make the argument against added sugar, and describe the nutritional worthlessness of foods that contain it. But that’s not the issue. Whether or not certain foods contain bad things is secondary to the question of whether we should direct the spending habits of people who receive government assistance. I’m not sure that we should...

McMansions on the Cheap

Today's Balance Sheet: Housing prices dropped to 2002 levels in December. 

Although the past few months have brough economic data that hints at recovery, one important statistic hasn't improved: housing prices. The Standard & Poors/Case-Shiller index of property values report of 20 U.S. cities released yesterday shows that national housing prices have dropped to their lowest levels since 2002. “It is hard to get entirely enthusiastic about the recovery when housing prices are still falling,” said Mark Zandi, the chief economist at Moody’s Analytics. In December, the index decreased by 4 percent from a year earlier, and Detroit was the only city to see an increase from 2010. The biggest reasons housing prices continue to drop despite the tax credits and bank incentives offered by the Obama administration are oversupply and expected foreclosures. However, home resales are climbing —up 2 percent in January—and this may be a sign that housing values could rebound soon. As Karl E. Case, a co-creator of the index, points out , “There are some bright spots."...

A German History Lesson

Yesterday, the German Parliament relented and agreed to let the Greek debt restructuring go forward, but only the price of crushing austerity for the Greek economy. This is a widespread attitude in Germany, where aid to the Greeks is unpopular. The other day, Jörg Krämer, chief economist for Commerzbank in Frankfurt, said of the Greeks, “If you live beyond your means, then you can repair your balance sheet only if your consumption goes down.” But the Germans might take a moment and reflect on their own history. In the aftermath of World War II, the Allies, remembering the disastrous consequences of German reparations after the First World War, did not insist on their pound of flesh. The entire Nazi public debt, amounting to over 600 percent of German GDP, was written off. The pre-existing unpaid debt from the Weimar period was written down to a fraction of its original cost. Claims on old debt were strictly segregated from German reconstruction funds. The German Federal Republic...

Keystone Back From the Dead

Today's Balance Sheet: TransCanada's ready to break ground on the Keystone pipeline, and the White House just might give them the permit to do it.

After the Obama administration halted progress on the Keystone XL pipeline in January—stating that the 60-day window of time permitted by Republican legislators was too small for a thorough environmental review—those against the proposal cheered and hoped the pipeline was dead. However, it looks like Keystone is emerging from the grave after only a month, as TransCanada—the company behind the pipeline— moves ahead with plans to build the segment running from Oklahoma to Texas, sections of the pipeline that don't require a federal permit. TransCanada is also in the process of reapplying for the cross-border section of the pipeline—the section for which the administration previously denied a permit. The project now seems to have the White House's support. "Moving oil from the Midwest to the world-class, state-of-the-art refineries on the Gulf Coast will modernize our infrastructure, create jobs, and encourage American energy production," White House Press Secretary Jay Carney said in a...

The Moral Calculus of Online Shopping

Amazon fulfillment center in Scotland (Flickr/Chris Watt)
I don't know too many liberals who shop at Walmart. The primary reason is principle—the company is notoriously cruel to its largely low-wage workforce, works to crush the faintest hint of a desire for collective bargaining with a ferocity that would be the envy of any early 20th century industrialist, and imposes vicious cost-cutting all the way down its supply chain. But not shopping at Walmart is also easy. The stores are rare in the urban areas where lots of liberals live, and elsewhere, there's probably a Target nearby where you can get stuff just about as cheaply (Target's own corporate citizenship is a complicated topic for another day). So it isn't like not shopping at Walmart is some kind of hardship or costs them any money. But what about Amazon? A few months ago, Harold Pollack explained why he no longer shops there: nearly every sin of which Walmart is guilty, Amazon also commits. And the online world has its own particular sweatshop: the fulfillment center, where people...

States Still Fighting Obamacare

Today's Balance Sheet: Affordable Care Act implementation is running into the roadblock of Republican governors.

States have been slow to create the health-insurance exchanges mandated by the Affordable Care Act, most likely because of recalcitrant governors waiting to hear the Supreme Court's decision on whether the law is constitutional. The Urban Institute, a think tank, has found that only 14 states have made significant progress in creating the government-subsidized exchanges while 16 had made little or no progress. The study also showed that the states that have been slowest to move have the most uninsured residents. The National Governors' Association met yesterday, and discussion on the Affordable Care Act broke down along party lines. Democrats like Pat Quinn of Illinois said “It’s already working ... We’re enthusiastic advocates" while Republicans voiced their support for repealing the law. The federal government has already given states $600 million to help create the health-insurance exchanges. The Latest Nothing to Fear but the Lack of Fear Itself The Economist Risk and Riches in...

Kansas GOP: Poor Are Too Rich

Kansas Republicans, under the leadership of “compassionate conservative” Sam Brownback, are working hard to stick it to the poor: A Kansas House tax committee passed a bill in which anyone making less than $25,000 a year — roughly half a million of the state’s 2.9 million residents — will pay an average of $72 more in taxes, while those making more than $250,000 — about 21,000 people — will see a $1,500 cut, according to Kansas Department of Revenue estimates cited by the Kansas City Star. The hike would come from the elimination of tax credits typically benefiting the poor. I can’t help but see this as a continuation of the conservative meme that its the poor who don’t pay their “fair share.” Last fall, as the Occupy movement gained steam, it became common for conservatives to complain about the 47 percent of Americans who “don’t pay taxes.” Presidential candidates like Michele Bachmann and Rick Perry complained about it in speeches and debate performances, while conservative...