The Real Problem With Cap & Trade Legislation

The real problem with the cap and trade legislation is that it's entirely possible that no one person knows everything that is in it. This is particularly sad since 400 or so of our duly elected representatives recently undertook a vote to see if it should become the law of the land.

Here is how Open Congress described the process (emphasis mine):

Complicating matters is the sheer length of the bill — H.R. 2454 weighed in at 1091 pages. The substitute bill that was dropped this week is 1200 pages long! And, as if to add insult to injury, there are 300 pages of material included today [that is Friday, the day of the vote] based upon committee action yesterday.

I wrote last week that OpenCongress can be an incredible resource for citizens, reporters and activists looking for information on Congress, but cautioned that this is only true when Congress makes that information available. With the case of the American Clean Energy And Security Act, this simply wasn’t possible. Members of the House were given precious little time to determine the policy outcomes of this legislation, due to its size, the different versions released, and the time frame provided for action (Speaker Nancy Pelosi had sought a vote before next week’s 4th of July recess). Members of the public were given even less time.

This is an absolutely terrible way to govern. It is especially galling given that President Obama trumpeted transparency during the campaign.

Of course, with so many pages, maybe there are some really great things buried in there and I should stop worrying about the bill's potential cost and criticizing Steve Kagen (D -WI) for his 'yes' vote.

Imagination At Work - Tax Dollars At Risk

It turns out that one of the hastily constructed programs designed to deal with the crashing credit markets last fall has proved to be very beneficial to General Electric. A Pro Publica/Washington Post story details how the corporate behemoth has become the major participant in the FDIC's Temporary Liquidity Guarantee Program (TLGP).

This program allows participating companies to issue debt that is backed by the FDIC, which means it is ultimately backed by the taxpayers. Of the $340 billion guaranteed by the program so far, GE's portion is $74 billion at the end of the first quarter of 2009. The government guarantee has a real benefit to GE since with it they are able to borrow at lower rates.

While GE is well known for household appliances, light bulbs, and NBC, I doubt it comes to mind when one thinks of the major financial institutions of the nation. So how did it end up participating in a government bailout of the banking an finance sector? The answer is at first, it didn't.

From the article:

Though GE Capital owned an FDIC-insured savings and loan and an industrial loan company, they accounted for only 3 percent of GE's assets. Company officials concluded that GE couldn't meet the program's eligibility requirements.

So the company requested that the program "be broadened," GE's Wilkerson said. GE's main argument was fairness: The FDIC was trying to encourage lending, and GE Capital was one of the country's largest business lenders.

GE deployed a team of executives and outside attorneys, including Rodgin Cohen, a banking expert with the New York firm Sullivan & Cromwell....

Two days later, the FDIC announced a new category of eligible applicants – "affiliates" of an FDIC-insured institution. Bair explained that "there may be circumstances where the program should be extended" to keep credit markets flowing. That meant "certain otherwise ineligible holding companies or affiliates that issue debt" could apply, she said.

GE Capital now was eligible.

If there is still anyone that believes wealthy and well connected corporations actually prefer a free and competitive marketplace over one where they manipulate government power for their own advantage, please wake up.

No doubt this type of activity goes on at all levels of government throughout the nation. It is perfectly rational for corporate leaders to pursue a strategy to increase profits by securing advantageous government intervention in the market.

This is why those that govern, at any level, should be held to an extremely high standard of accountability. This, however, is only possible when governing is done in the most transparent way possible. Unfortunately, of late we seem to be suffering from a transparency deficit whose only rival for sheer size might be our budgetary one.

***Update: Dad29 has coverage of the second half of this story. Think our government isn't picking winners and losers in the market? Think again and click the link.

Kagen's Cap & Trade Vote

Of all the descriptions I've heard of Wisconsin Democratic Congressman Steve Kagen, unconventional isn't one of them. Unfortunately for us, he decided the time to disregard conventional wisdom was right before the vote on the cap and trade legislation.

This bill seemed to be one of those occasions where the interests within the Democratic party diverged along geographic lines. Here is how Slate described it:

Despite the landmark passage, roundly heralded as a major victory for President Obama's legislative agenda, the vote pitted liberal coastal Democrats against heartland Democrats whose constituencies depend heavily on manufacturing jobs.

Given this description of the dynamics, how should we interpret Kagen's voting yes on cap and trade?

Perhaps Kagen forgot that he was sent to Congress from the heartland. Maybe he just wishes he was a coastal Democrat. This isn't as far-fetched as it sounds given his fundraiser featuring the Boston Red Sox!

I have routinely seen Kagen described as one of those Democrats from a competitive district that is given latitude by Pelosi and the leadership to stray from the party line due to local concerns. Does this vote mean those days are over? If so, that might indicate the way the Democrats feel about their chances in Wisconsin in 2010 & 2012. Maybe this vote was so close that Kagen didn't make Pelosi's list of 'members free to vote against the party leadership and in their constituents' interest.'

In fairness to Kagen, Wisconsin's other Democrats also voted yes. But there were heartland Democrats that voted no: Three from Illinois; two from Ohio (OK, one of these was Kucinich); two from Indiana; and four from Pennsylvania. So 11 of the 44 Democrats that voted no are from the Great Lakes region. It's too bad Kagen didn't prove his independence from the national Democratic leadership by joining them and opposing cap and trade.

Ron Paul's Fed bill continues to make its way

Open Congress reports that the Ron Paul Fed Bill is continuing to make its way through the legislative process and may get a hearing in the House. (My initial post on it is here, and a follow up here.)

House Financial Services Committee Chairman Rep. Barney Frank [D, MA-4] now seems to be tentatively supporting the bill. Jane Hamsher spoke to Frank and got little more information:

I asked him if he supported the bill. “Not in every exact detail,” he said, but he indicated that he was in favor of giving Congress more ability to oversee the Fed.

I also wanted to know if there would be committee hearings on the bill. He said that before the August recess “there will be a hearing on that particular bill and others,” both in Mel Watt’s Subcommittee on Domestic Monetary Policy and Technology and Dennis Moore’s Subcommittee on Oversight and Investigations.

The report, however, includes this sad note:

It’s also worth mentioning that it’s very unlikely that this bill will get anywhere in the Senate. For one, it only has two co-sponsors in the Senate at this point, even after all the citizen lobbying that has gone into supporting it. Secondly, Fed transparency is basically a populist push, and members of the Senate, needing to be re-elected only every 6 years, are generally less responsive to the people

In general, I think the Senate's more deliberative (and less activist) approach is a good thing. In theory, the Senate should help save us from legislation created in haste, which could possibly be more damaging than whatever perceived ill it is crafted to address. On the other hand, when a deliberative body does little more than preserve the status quo or insure all change is made in microscopic increments, that is definitely not a good thing.

Will a public health plan kill private insurance?

President Obama says no, at least he used to. In many recent appearances the president has derided the notion that inclusion of a public health insurance plan will lead to government takeover of the industry. His argument usually includes a litany of the other challenges he faces (Iraq, Afghanistan, economy in shambles etc.) delivered in an exasperated tone to reassure everyone that he is not planning to take over health care. But unfortunately for the president, his constitutional powers of the veto do not extend to the law of unitended consequences.

The fact of the matter is one can believe the president with regard to his intentions and still believe that he is absolutely wrong about the consequences of the inclusion of a public plan.

Others, have already laid out entirely plausible scenarios where the healthy leave their private insurance and then in the case of a serious medical condition turn to the public option. This could have a double negative effect of causing private insurance to whither and producing a public plan where the majority of participants have massive healthcare bills.

Perhaps even Obama is beginning to rethink what the inclusion of a public option means:

"People have made some pretty compelling arguments to me that if we want to have a system that drives down costs for everybody, then we've got to have healthier people not opt out of the system," the president said in an exclusive interview with ABC's Diane Sawyer today on "Good Morning America."

His solution to this is a government mandate that individuals buy health insurance, with penalties for those that do not. If a successful and sustainable insurance program requires a mix of the healthy and the ill, regardless of who runs it, how else does the insurer attract both types of people? Is a federal law mandating the purchase of health insurance any more oppressive than a state law mandating the purchase of automobile insurance?

Health insurance is an unusual case since healthy people are quite sensitive to price and sick people are rather unsensitive to price. As I've argued before, this seems to be a substantial impediment to the formation of a free market solution to the health insurance question.

What economic recovery?

I don't have the time or training to identify whether or not we are in the midst of recovery, so I try to leave that to the professionals. To that end we have Professor James Hamilton at the informative though somewhat technical Econbrowser (it is replete with charts and graphs which are helpful, I just have to skip the equations with the greek letters in them). The professor takes a look at some of the latest data then ends his post on this somewhat bewildered note:

So maybe we could summarize the recent strength in the leading economic index this way. The main reason we think the economy is improving is because many of us think the economy is improving.

Yes, maybe we could. But as Hamilton points out, stock prices are the leading contributor to gains in the index and stock prices are driven by what people think will happen. The fact is that there is little in the way of objective economic data that is pointing toward recovery. Of course in saying this, the professor tends to employ careful and prudent language.

Those of you that prefer your economic predictions and pronouncements with fewer adverbs never fear!

As recently as Monday, The Winning McCain gave us this:

The recession will get worse, not better, as a result of their policies. After a three-month "sucker rally," the markets are sobering up to the fact that the fundamentals suck. Hello, Weimar America.

It's true that R.S. McCain is not an economist, though he occasionally plays one in the blogosphere. Regardless, are both of these gentlemen actually making the same point? If so, to paraphrase Twain, news of economic recovery may be greatly exaggerated.

Cap & Trade Costs and Wisconsin

***Update 6/26 8:25 PM. Waxman-Markey passes the House. See links below***

Whether you knew it or not, the US Congress is currently considering legislation intended to reduce green house gas emissions and slow global climate change. It is known as the Waxman-Markey bill and its major feature is a cap and trade program.

Cap and trade means the government sets limits on how much pollution industry is allowed to produce (this is the cap part). Credits equal to these limits are then issued to polluters (possibly for free, possibly at a cost, but that does not matter for our purposes). If some business decides it needs to emit more green house gasses than are allowed under the limits, it can do so by buying some of the credits of a business that is going to be under the emission limit (this is the trade part).

The fact of the matter is that you do not have to be a global warming denier to wonder whether or not this bill is a good idea. For one thing, its impact on global warming may be incredibly small. For another it may drastically drive up energy costs. Remember energy costs are more than just your utility bill - it takes energy to make and deliver all of the goods and services that we consume every day.

Recent analyses by the Congressional Budget Office and the Environmental Protection Agency have put these costs at a very reasonable $175 per household in the year 2020 (CBO estimate). This rather benign number has been trumpeted by supporters of Waxman-Markey as proof that we can improve the environment without crushing the average consumer with drastic price increases. Some worry that announcing the cost in a specific year masks the cost of the continuing effort that will be required long after 2020, so costs over the long term will be much higher.

More important to those of us in the industrial midwest are items like this from the EPA analysis [EA]:

Recent, but still unpublished, studies have explored regional differences in the distributional effects of many allowance allocation and revenue distribution options for carbon cap-and-trade policy (Burtraw et al. 2009, Hassett et al. 2007).

Regional differences result from differences in pre-existing policies, consumption levels, pricing of electricity, and the inputs used to produce energy goods (e.g. coal, natural gas).

So areas of the country that have energy infrastructure developed decades ago (like WI) may face regionally higher costs due to "pre-existing policies" and "the inputs used to produce energy goods (i.e. coal)". Whereas states that have seen their populations increase dramatically in the last twenty years or so, may have recently expanded their energy production allowing for the use of improved technology, making them better prepared to thrive under a low emissions regime. In other words, we may see the flow of carbon credits going from the south and west to the midwest and northeast.

A nationwide average cost of $175 may not seem like much, but what happens if this turns into $350 in Green Bay and $0 in Las Vegas? Transitioning from older and more polluting energy production will cost money. To pretend otherwise is foolish. Those that advocate for cap and trade argue that the benefits of stopping climate change will affect us all. It remains to be seen if they are willing to bear the costs as well.

Updates:

Here's Dad29 with a map showing just who will pay and who will benefit from cap and trade.

Jim Manzi sums it up nicely (his emphasis): In short, Waxman-Markey would impose costs at least 10 times as large as its benefits, would not reduce the deficit, and doesn’t even really cap emissions.

Cap & Trade passes the House. Here's coverage from the WSJ & Open Congress. Kagen voted Yes, Petri voted No. Here's the roll call.

Road to Serfdom: 10 Items or Less

In the debate over health care reform, Republicans seem to be casting about for some successful example of a free market system that holds down costs and improves outcomes. Currently, the Safeway grocery store chain is filling that roll. Senate Majority leader Mitch McConnell mentioned Safeway during his appearance on Face the Nation over the weekend and Safeway CEO Steven Burd had a recent Op-Ed in the Wall Street Journal. Mr. Burd describes the key mechanism used by Safeway to control costs:

Safeway's Healthy Measures program is completely voluntary and currently covers 74% of the insured nonunion work force. Employees are tested for the four measures cited above [tobacco usage, healthy weight, blood pressure and cholesterol levels] and receive premium discounts off a "base level" premium for each test they pass. Data is collected by outside parties and not shared with company management. If they pass all four tests, annual premiums are reduced $780 for individuals and $1,560 for families. Should they fail any or all tests, they can be tested again in 12 months. If they pass or have made appropriate progress on something like obesity, the company provides a refund equal to the premium differences established at the beginning of the plan year.

So in this case an employer, Safeway, uses a financial inducement to force employees to submit to invasive health screening and then coerce them into modifying behaviors. Behaviors that no doubt have an impact on the bottom line, but seem to have little or no direct bearing on daily work performance.

I can't for the life of me understand how this type of system can be touted by the Republican party, which bills itself as the party of individual freedom and personal responsibility. Is a workplace nanny state enforced by an employer qualitatively different from a nationwide nanny state enforced by the federal government? One could argue that an employer does not have the power to impose a death sentence or the power to tax. While this is true, I am sure that during the midst of a global economic downturn and unemployment levels not seen for decades, these differences are somewhat diminished. In fact, I would argue that for the average law-abiding non-self employed person, employers have a greater influence over the rhythm and shape of people's daily lives than does the federal government.

While I don't think we all ought to start smoking two packs a day, it might be a good idea for us all to stop and think about just what it is that we are so eager to jettison in pursuit of health care reform. After all, the 'cost' of the Safeway plan isn't entirely reflected in the premium.
_______________________________
For more on health care reform from the RWC blog, click here and here.

Ron Paul's Fed Bill Gaining Momentum

Ron Paul's bill to bring transparency to the actions of the Federal Reserve once seemed an idealistic but unrealistic crusade. Or, at the very best, a remote possibility. Not so any more.

The Open Congress blog reports:

UPDATE 3: The bill has officially reached (and surpassed) majority co-sponsorship status, a just-issued press release from Ron Paul reports:

Audit the Fed Bill Reaches Crucial Benchmark

Washington, D.C. – Congressman Ron Paul’s Federal Reserve Transparency Act, HR 1207, has reached and surpassed the level of 218 cosponsors in the House of Representatives, which means it is now cosponsored by a majority of the members.

The 218th cosponsor was Dennis Kucinich (OH-10), and the bill has since received its 222nd cosponsor.

“The tremendous grass-roots and bipartisan support in Congress for HR 1207 is an indicator of how mainstream America is fed up with Fed secrecy,” said Congressman Paul. “I look forward to this issue receiving greater public exposure.”

Hearings on Federal Reserve transparency are expected within the next month, as part of the Financial Services Committee’s series of hearings on regulatory reform.

This is great news for those that believe the Fed is in need of greater oversight and accountability. If this doesn't include you, watch this video:



Still don't think the Fed needs more oversight?

Public Health Care Option & Competition

There may be compelling arguments for the inclusion of a public plan in health care reform legislation, improving private insurance through competition is not one of them. Unfortunately it is one that the Obama administration and some on the left have used in making the case for a public insurance plan. Obama repeated this notion of a public plan improving private insurance through competition during his visit to Green Bay.

Econ bloggers Tyler Cowen and Megan McArdle both have cast doubt on the likelihood of this improved private insurance through public competition. Primarily due to the fact that any public plan will likely attract those with the greatest medical costs. Removing these people from private insurance rolls should improve the bottom lines of private insurers, but I don't see how it improves private insurance itself.

First, here's Cowen (he ends in his usual thoughtful way, and that is his emphasis):

in many cases the public plan is mainly providing insurance to high-risk customers. There's nothing wrong with that (and indeed it is a major policy goal), but the resulting equilibrium needn't much improve the performance of private health insurance. I file this argument under "not yet established."

McArdle goes one step further to say that healthy people will leave private insurance and go without. Turning to the public option when and if a serious illness arises:

But I think that in many places, at least, the state system is going to find it hard to attract low-cost patients. It seems to me that given the existence of a state program that will not turn patients away, the optimal behavior for someone who is currently basically healthy is not to buy it. Buy some super-cheap catastrophic plan to deal with a car accident or similar, and then enroll in the public plan if and when you get cancer or something longer term.... if the public plan exists, gambling actually becomes more practical. Contra Tyler, I expect that...[a] strong [public] plan would actually hurt private plans as some of their healthiest, youngest patients made the rational decision to join the ranks of the uninsured.

New Candidate for Wisconsin's Eighth Congressional Distirct

The Green Bay Press Gazette is reporting that Brown County Supervisor Andrew Williams is going to enter the Republican primary for the 8th congressional district:

Brown County Supervisor Andy Williams will announce Monday that he'll seek the Republican nomination for the 8th Congressional District election in 2010.

Williams, 40, who represents part of De Pere, said the financial condition of the United States is his primary reason for seeking the seat.

"I'm getting into the race to cut taxes," Williams said. "Everyone recognizes where we're at, how much we're spending and how much the taxes are increasing."

Williams, an attorney, was elected to the County Board in 2007. He plans to make an official announcement at 11 a.m. Monday near the Brown County Veterans Memorial in Ashwaubenon.

This doubles the Republican field to two with Marc Savard previously announcing his candidacy.

Wisconsin Budget Fails to Prepare for the Future

With the Wisconsin legislature poised to vote on the budget bill, analysis from the Legislative Fiscal Bureau highlights the failure of Governor Jim Doyle and the Democratically controlled legislature to put the state's fiscal house in order and leave Wisconsin in a position to face future challenges. You can see the analysis at the WisPolitics budget blog.

As part of their analysis, the LFB looks ahead to the next budget cycle (2011-2013) and estimates the amount of money needed to produce a balanced budget under current law combined with the budget that is about to be enacted. The result is sobering:

for 2011-12, the general fund would need to generate $1,107 million in order to meet current commitments and those of ASA 1 to AB 75, maintain the required statutory balance, and balance the budget for that year. In 2012-13, $1,151 million ($44 million over the $1,107 million in 2011-12) would need to be realized. These amounts could be generated by revenue increases (growth or tax increases), appropriation reductions, or some combination of the two.

That is to say, Wisconsin is digging not one, but two $1.1 billion dollar holes for its future self.

If our governor and legislature are unable to curb spending in the midst of the worst economic crisis since the Great Depression, when will they ever stop spending? Even if you believe deeply in the stimulative power of government spending as antidote to recession, there was a better way for our state to respond. With the federal government engaged in a massive spending spree, Wisconsin could have used this opportunity to put its own fiscal house in order and let the federal government do the spending (and incur the debt) to help offset the economic downturn.

Wisconsin Democrats would have been wise to take a lesson from Rahm Emmanuel and not let this crisis go to waste. Spending should have been slashed and federal stimulus money used to reduce the pain on the most vital areas of spending. Instead, the stimulus money is partially offsetting the tax increases that are necessary to support continued high levels of government spending, but this is a one time only offer.

Filling this future budget hole with growth in the midst of a global economic downturn seems unlikely. The unwillingness to confront excessive government spending now will only make things worse in the future. There will eventually be a day when our state government is no longer able to kick the can down the road, apparently that day is not in 2009. See you in 2011.

David Axelrod revises job numbers upward

On Sunday, Face the Nation aired an interview with Obama Senior Adviser David Axelrod in which he told Harry Smith of CBS that:

The stimulus itself has produced hundreds of thousands of jobs and projects all over this country and it is just now gaining momentum...

This was in response to a question by Smith regarding the persistent poor employment numbers. The video is here. The podcast is here. This line comes at about 11:38 of the podcast.

Up to this point, the White House has been careful to use the phrase "saved or created" when they talk about jobs and the stimulus. Even though he includes, "and projects," Axelrod seems to be way out on a limb to state that the stimulus has, "produced hundreds of thousands of jobs."

Here is Reuters from May 27th:

The U.S. economic stimulus plan has created or saved 150,000 jobs since it was enacted 100 days ago, top White House economic officials said on Wednesday...

And Yahoo news, also from the 27th:

"In these last few months, the American Recovery and Reinvestment Act has saved or created nearly 150,000 jobs," Obama said, touting spending on alternative energy, keeping teachers and police officers in work and small businesses.

Both of these statements would seem to be at odds with Mr. Axelrod's assertion. Perhaps he simply misspoke, and, if given the chance, he would have corrected himself on the spot. Unfortunately, Smith seemed to be simply reading a list of prepared questions and appeared oblivious to Axelrod's answers, so there was no follow-up at the time.

On the other hand, deeply held desires have a way of inoculating American governments against reality. (WMD, anyone?)

The Obama administration isn't entitled to their own facts anymore than the Bush administration was. Mr. Axelrod's claim for the stimulus plan is inaccurate and reflects poorly on him and the President whether it was an outright fabrication or simply sloppy rhetoric.

On Second Thought, We'll Keep Those Toxic Loans

The New York Times is reporting that the FDIC has put a halt to their program to help banks sell off some of the loans that are on their books. These are the so-called legacy loans that were once referred to as toxic. FDIC guaranteed loans were being offered in order to entice buyers to purchase the legacy loans from banks. This was part of the Geithner plan rolled out earlier this year.

The problem appears to be that no banks want to sell the loans for the prices that are being offered:

Many banks have refused to sell their loans, in part because doing so would force them to mark down the value of those loans and book big losses. Even though the government was prepared to prop up prices by offering cheap financing to investors, the prices that banks were demanding have remained far higher than the prices that investors were willing to pay.

The Baseline Scenario is one of the blogs that has been warning that such an outcome was very possible, and it appears they were correct in their forecasting.

The FDIC and other government outlets may attempt to spin this refusal to participate as evidence of a return to health on the part of the banks, but this is unlikely. More likely is that other steps taken over the last eight months have allowed the banks to survive despite the bad decisions they made in entering into these loans.

This would appear to be a realization of the zombie bank scenario many have been warning of.

The toxic, I mean legacy securities program is still going forward, at least as of now.

The story of this program's failure is not particularly spectacular, but the quote that ends the NY Times story is rather provocative [E.A.]:

Diane Casey-Landry, chief operating officer for the American Bankers Association, said the lack of interest in selling the assets stemmed from fears that Congress would impose restrictions on executive pay and other issues for banks and investors in the program. “There’s a lot of uncertainty out there in terms of how the program would operate,” she said. “What we would rather see is the market working.”

Someone ought to tell Ms. Casey-Landry that if the market was working, she would be collecting dramatically fewer dues. Without the extraordinary intervention by the government over the last few months, the American Bankers Association would have undoubtedly seen a dramatic decrease in membership.

What We Can Learn from the Breakdown in the Motor City

Are Michigan's woes a cautionary tale regarding international trade?

Trade between different states within the United States is not exactly analogous to international trade, but there may still be some valuable lessons in such a comparison. The key to understanding why international trade occurs and how countries benefit from it is a concept called comparative advantage.

Imagine two states, Wisconsin and Michigan, making two goods, cheese and cars. It may be the case that MI is actually able to produce both cheese and cars more cheaply than WI (I know, not possible, just go with me, it's a hypothetical), but this does not mean that MI doesn't stand to gain from trade. In this case MI and WI would each be better off if they produce the particular good that they can produce at a lower cost and then trade with each other.

Don't think of lower cost in terms of dollars and cents, but in terms of the other good. If MI is good at making cars relative to cheese, they may only give up a little bit of cheese if they decide to spend their time making cars, this lost cheese is the cost of making a car in MI. Over in WI, they may be better at making cheese relative to cars. This means that if they choose to make cars, they give up more cheese production than MI does. Since every car MI makes costs less in terms of cheese, trade theory tells us that MI should make cars, WI should make cheese, and then they should trade with each other. This way they both have more cheese and more cars than they would if they each made both goods themselves.

Since there is a benefit to trading, both MI and WI will likely do so. As time goes by each state will likely increase its specialization in its one good, meaning that its economy is highly concentrated one sector. An economy that is highly concentrated is obviously less capable of handling a shock to their particular sector. This is what we see in Michigan now.

Here is an item from the Chicago Fed's blog from 2005:

Michigan’s traditional heavy reliance on the domestic auto industry has been troubling its economy over the past five years....job losses are felt more keenly in Michigan since, even among the Midwest troika of auto states, Michigan is by far the most dependent on automotive. Michigan’s job base is 7 times more concentrated than the nation in automotive parts, versus 5 and 3 for Indiana and Ohio.

And that was in 2005, prior to the current recession. For April of 2009, Michigan's unemployment rate was at 12.9%. This is 4% higher than the nation as a whole.

It is definitely the case that the world benefits from international trade, but countries (and states) are weakened when their economies are highly concentrated in one particular sector. The concentration has a double effect in that it means a shock to the sector disproportionately affects the concentrated economy and the concentration is often difficult to dilute in response to the shock, making recovery harder and slower.

As I said though, Michigan's economy is not a microcosm of the U.S. economy. The national economy is enormous and incredibly diverse, right? Here is economist Simon Johnson writing in The Atlantic (E.A.):

From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent.

While concentrated profits is not exactly the kind of concentration found in Michigan and the auto sector, it is a type of concentration. This also makes it clear why a global financial crisis will have a great impact on the American economy.

A country as rich and highly developed as the United States will be better able to weather a crisis than less highly developed nations, even a crisis that affects a sector in which it specializes. But this dependence on financial sector profits may partially explain why a country like Canada would be less affected by a global financial crisis than the U.S.

While protectionism will never solve our economic problems, the U.S. would do well to remember Michigan's example and maintain a high degree of economic diversity.

Kagen's Fundraising So Far

OpenSecrets.org has some great details on campaign fundraising, including for the 2009-2010 cycle. For those of us here in WI-8 the totals as of 3/31/09 are as follows:

• Representative Steve Kagen (D) has raised $231,780
• Candidate Marc Savard (R) has raised $6,550

I realize that our system is tilted in favor of incumbents generally speaking, but this seems like an enormous advantage to me.

On the other hand, it is still quite early and Kagen is also reporting just over $600k in debt.

OpenSecrets has a good level of detail on the data if you want to take a deeper look. Check it out.

Update: That $600k debt link was wrong. It should be fixed now.

Foot In Mouth: Wise Latina Edition

It was practically "all Sotomayor all the time" on the Sunday political talk shows. Many of those that support Sonia Sotomayor's nomination to the Supreme Court, and some of the Sunday program hosts, tried to put her now infamous comments into their context. Trouble is, this doesn't make them look any better.

Here is David Gregory on NBC's Meet The Press:

The comments that she made back in 2001 have captured a lot of people's attention, and I want to put them on the screen here in wider context than we've heard them discussed this week because I think the context is important, and I want to get your reaction. This is what she said: "I...accept that our experiences as women and people of color affect our decisions. The aspiration to impartiality is just that--it's an aspiration because it denies the fact that we are by our experiences making different choices than others. ... Justice O'Connor has often been cited as saying that wise old men and wise old--and a wise old woman will reach the same conclusion in deciding cases. I am...not so sure that I agree with the statement. ... I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion than a white male who wasn't lived that life. ...

It is nonsense to pretend that people are able to simply check all of their closely held notions, bigoted or otherwise, just because they go on the clock. This is the case even if they happen to wear a black robe and swing a gavel for a living.

It is also the case that a Latina woman making a statement like this and David Duke making a similar statement about white men are not the same thing.

But even so, this is an incredibly dumb thing to say, especially for a judge. Someone that ought to have, you know, good judgment.

The attempt to put this comment into wider context simply doesn't help. Maybe the Latina thing was just some overheated rhetoric. But no, Sotomayor couldn't even find enough charity to agree with Sandra Day O'Connor of all people! She couldn't even bring herself to agree that two wise old people of different genders could come to the same conclusion.

I am not sure that type of folksy wisdom makes for good Supreme Court Justices, to be sure; but espousing such notions, especially when they come from a highly respected woman Justice, certainly provides a way for Senators of both parties to give their consent for one's ascent to the highest court in the land.

Too bad Sotomayor couldn't be a little more restrained in her remarks. Since her confirmation is very likely, let's hope she is a little more restrained when speaking from the bench.