Political Suicide, or Minor Heretic calls the election in May

It’s official: The Vermont Democratic Party would rather see Republican Governor Jim Douglas reelected than give Progressive Anthony Pollina a chance at the office. Democratic Speaker of the House Gaye Symington has declared her candidacy.

Sitting governors in Vermont are more likely to be abducted by aliens after being hit by lightning while redeeming a winning lottery ticket than to be defeated in an election. Nevertheless, Pollina had at least a forlorn hope as long as he was in the field solus. With the entry of Symington, the left hand side of the electorate will be split. Jim Douglas can recite his empty mantra of “affordability” till November and, unless filmed in a motel room doing something unnatural, will stroll away with the election. He can start working on his victory speech now.

I would love to have been a fly on the wall at the relevant top level Vt. Democratic Party strategy session. What were they thinking? Perhaps they saw the gubernatorial race as a lost cause anyway, so why not pitch the retiring Symington onto the upraised spears? It would keep Pollina and the Progressives from getting too major league, and prep Symington on the statewide stage for when Douglas retires. Are they actually deluded enough to think that she has a chance in a left-split race? Is it a misguided attempt at retaining party credibility merely by having someone in the running? Do they simply prefer an enemy to the right in the Governor’s office rather than an enemy to the left? Is their reasoning loony beyond my powers of imagination? Are they just dim?

I should note that I have nothing against Gaye Symington per se. Anyone who seeks the leadership of the junior high school and sausage mill that is the Vermont House has my wary admiration. I am sure she would make a better governor than Jim Douglas, but that is damning with faint praise. One of my mother’s aging pet poodles would be an improvement. They occasionally do something useful, such as chasing squirrels off the feeder.

Anthony Pollina, although a long shot, is interesting. (Full disclosure: Your Minor Heretic sent him some grocery money) He rings all the right bells: Single payer health care, serious investment in energy efficiency and renewable energy, holding the owners of our nuclear plant accountable, and supporting the local farm economy. These are often contentious issues, so I am not sanguine about his chances against a man who has spent his career successfully not offending people.

But I digress…

The point is, the Vermont Democratic Party and the Vermont Progressive Party have to start cooperating, unless they want to have Jim Douglas vetoing everything intelligent and useful for the next six-plus years. That means having a summit every two years and deciding which party gets a crack at the big office. In other countries political parties make deals and alliances all the time. The Democrats have to give up two-party thinking and the Progressives have to get a little political dirt on their pure white consciences.

Instant runoff voting (IRV), where voters get to rank candidates according to preference, would solve the left-split problem. Of course, it would guarantee a non-Republican governor for the foreseeable future and put the Progressives on an even footing with the Democrats, so good luck with passing that.

In the meantime, I am preparing for another two years without a statewide health insurance program, without assurance that Entergy will clean up its nuclear waste, and without a realistic energy policy. I am gritting my teeth and readying myself for two more legislative sessions of vetoes and anemic compromises accompanied by the dull murmur of Douglas’s press conferences. We don’t have time for this kind of screwing around, but Symington and the Democrats have condemned us to it.

Congratulations, Governor.

In praise of material culture

A friend sent me a notice of an auction. The State University sold off the shop that served the agriculture and vocational department. I can’t imagine them auctioning off a shop full of functional tools unless they were discontinuing that area of study. I suppose the reasoning is that nobody actually makes anything around here anymore, so why bother? We can get stuff from China.

Something that disturbs me about the way our society is headed is the loss of individual control over the material world. With the increase in global outsourcing and the increase in both service industries and job specialization, it seems to me that the number of Americans who can actually do things with material objects is decreasing. We are utterly dependent upon an array of machinery and electronics, but only a handful of specialists has the know-how to build or repair them. I’m not expecting the average driver to be a factory trained auto mechanic. I do think that your average driver should have a functional idea of what goes on under the hood. Alas, the set of useful gauges on the dashboard has been replaced by the dreaded “Check Engine” light. Most people turn the ignition key and pray to the car gods that the mysteries under the hood are in harmony.

Sure, there is a do-it-yourself movement out there, spawning woodworking magazines, craft stores, and high tech geek guides such as Make Magazine. However, the implication of identifying someone as a “do-it-yourselfer” is that normal people just buy things.

For most of human history, most people were generalists. With the advent of agricultural society and social hierarchy came specialization, but people still worked directly with their hands on material objects. People associated themselves with a piece of land. Parents passed down broad craft knowledge to their children. This is the way much of the planet still operates, but there is an empty place in the industrialized world.

The way people interact with music is indicative of the general trend. Less than a hundred years ago, most people heard music only when it was performed by musicians in their presence, or when people played or sang themselves. Towns had their own bands. The phonograph and the radio changed this, but listening to music remained a definite activity. 78 RPM records lasted three minutes, so the listener had to be right there, ready to pick up the tone arm and preserve the expendable steel needle. Both the recording medium and the player were fragile, bulky, and expensive. For many decades radio stations were forbidden to play records on the air – music had to be live performance. Music was labor intensive, expensive, and valued. The acquisition and storage of music has reached the point where it essentially costs nothing, takes up no space, and can be continuous and portable. High quality recording equipment has become cheap and ubiquitous, so anybody can produce an album. And anybody has. In one sense, the democratization of music production and distribution is good – it begins to free us from the tyranny of major record labels. In another way, it has devalued music. Why require real quality when it is effortless and disposable? Why understand it when you don't have to make it? Why pay attention to it if there is a seemingly infinite and constant supply?

And so it is with our material goods. Sweat laborers elsewhere in the world churn out cheap plastic crap, particle board furniture, and mayfly electronics that populate our lives. We casually purchase and discard the flimsy drek presented to us by our corporate suppliers, because, well, what else is there? Meanwhile, legions of kids (whose parents can afford it) are spending their time in the virtual world of video games and MySpace.

The Lake Champlain Maritime Museum has a program called Champlain Discovery that teaches kids to build their own kayaks, then teaches them how to handle them, and then takes them out for a week of adventure and education on the lake. For many kids it is a transformative experience, in that for the first time in their lives they have built something with their own hands. Then they take it out in the natural world and rely on it. Every kid should have an experience like this. (Note to adults: There are courses for you, too.) Children would be so much happier if they could get their hands on real things and use their bodies and their imaginations to change their world.

Here's the saying I thought up while building my own house (having never built anything bigger than a shed before that): An ounce of overconfidence is worth a pound of experience. By the time you realize that you can't do it you'll be so far into it that you will have to finish it anyway.

So get out there and make something. Build something, paint something, cook something. It doesn't have to be perfect. It doesn't have to be expensive. It might not even work, in which case you'll have to try again. Read the manual. Open the hood. Get something at a flea market and take it apart. So shut the computer off already.

Saudis Hold Back Oil

(With thanks and a nod to The Oil Drum)

The Kingdom of Saudi Arabia has just made an announcement that changes the Peak Oil scenario, and not for the better. I’ll quote from an article in the Financial Times yesterday:

In a recent interview with Argus, an industry newsletter, Ali Naimi, Saudi Arabia’s energy minister, made clear Saudi Arabia had “no plans" to embark on its next phase of expansion. “We are idling at around 9m bpd and we will reach capacity of 12.5m bpd by 2009.”

King Abdullah of Saudi Arabia concurred. Quoting from the same article:

King Abdullah, reported by the official news agency this month, said: “I keep no secret from you that when there were some new finds, I told them: ‘No, leave it in the ground, with grace from God, our children need it’.”

A brief refresher on peak oil: The oil production in any geographic region (A state, an oil field, a country, the world) tends to start low, then ramp up steeply to a peak production rate. It can plateau for a time, and then irreversibly declines. The peak generally occurs when about half the recoverable oil has been extracted. The world hit a temporary peak in crude and condensate production (“C+C” in industry parlance, which is what actually comes out of oil wells) in May of 2005 at 74.3 million barrels per day (mbpd). Pushing three years later, the world just exceeded that figure by 168,000 bpd, or 0.22%. Pseudo-crude from tar sands in Canada was included in this latest figure, so to some (including this observer) the 2005 peak still stands. As I have written elsewhere, we are on the bumpy plateau of peak oil, waiting for the inevitable decline.

Despite the recent shakes in the U.S. economy and a sense of financial insecurity worldwide, the demand for oil continues to grow. The Saudis are the top producer of crude oil in the world, and for them to look at world demand and say, “Mmmmm…nah,” is a big deal. It is the beginning of what some call the prudential model of oil production.

Ever since the oil embargo in the 1970’s, Saudi Arabia has been relatively cooperative with the West on the subject of oil production. The Kingdom has been cozy with U.S. presidents and has ramped up both production capacity and exports as fast as technically possible. Now we have a situation where the rulers of the world’s premier oil state are making a very public self-interested judgement call about how much oil to export. It marks both a change in Saudi policy and a subtle but seismic change in the power balance between the U.S. and Saudi Arabia.

Some contend that it is not a voluntary change in policy. The largest Saudi oil field, Ghawar, may well be in decline, to such an extent that increases in Saudi production are impossible. See the full technical analysis at The Oil Drum. In that case, the statements about prudential production are just a smokescreen to preserve the illusion that Saudi Arabia can manipulate world output. The political influence of the Saudis rests partly upon that impression.

Whether the Saudis are earnest or bluffing, this represents a loss of power. One scenario is a loss of power by the U.S. and Europe to influence OPEC oil policy. The other is a loss of ability by the human species in general (and the Saudis in particular) to extract oil from the earth at ever increasing rates. Either way, it is yet another signal for us to accelerate our adaptation to a world of declining energy supply.

Livable Wage vs. Standard Deduction

So here it is, April 15th, again. Are you one of the smug, having filed your tax return in February, or one of the frantic, who should be pounding a calculator right now instead of reading this? Either way, there is an oddity in the system I’d like to share with you.

Look on the standard 1040 return, top of the second page, and you will see line 40, the standard deduction, and line 42, the personal exemption. If you are single, the standard deduction ($5350) and the personal exemption ($3400) add up to $8750. The ostensible purpose of these two slices out of your taxable income is to account for the fact that you actually need some money buy the occasional bowl of gruel, a ragged shirt, and a bed for the night. The quite sensible theory is that people, especially poor people, shouldn’t be taxed on income that they actually need to survive.

The problem is that in the modern world it is essentially impossible to live a halfway decent life on $8750 a year. Yes, I have known people who have cut every corner imaginable, been incredibly resourceful, gritted their teeth, and gotten by on such an amount. If you are tempted to say, “I’ve lived on that much!” think about the year you did that and adjust for inflation (and your tolerance for squalor). In many places, especially urban places and cold climates, it is essentially impossible.

This brings me to the concept of a livable (or living) wage, defined as the amount of annual income needed to acquire the basic needs of life. What are the basic needs of life? The answer will vary from person to person, but The Joint Fiscal Office of Vermont Legislature has come up with a definition that includes food, housing, health insurance, child care, transportation, taxes, and basic personal expenses. No vacations, no restaurants, no Christmas gifts, just the necessities. The results will surprise you. Presently, minimum wage in Vermont is $7.53 an hour, or $15,662 annually. According to Vermont’s living wage study, the wage needed to achieve a minimal living standard a single person with no children averages $14.26 an hour, or $29, 653 annually. Of course, many Vermonters don’t earn this much. They survive by doing without basic things such as health insurance or proper health care, by living in substandard housing, and by government subsidies such as food stamps, Medicaid, heating assistance, and housing assistance.

Two things strike me about this situation. One is that in the JFO report, 15% of income is set aside for taxes. The second is that the combined exemptions on the Federal tax form equal only 29% of a livable wage.

This raises several questions in my mind. Why should people on the edge of poverty pay as much in taxes as they do for transportation or child care? Why are we taxing people at all on income they need just to survive? And, of course, why do we mindlessly pay a government subsidy to businesses that are unwilling to pay their employees enough to live on?

But let’s stick to the tax issue. Back in 1913, when the federal income tax was first established, anyone earning less than the equivalent of about $60,000 in today’s dollars was exempt. It was a tax reserved for those who could easily afford to pay. I’d like to see us go back to something like that. The federal government should figure out some regional livable wage scales and increase the personal deduction to match that. Make up the difference by rolling the tax rates on wealthy individuals and corporations back up to the levels of the 1950’s and 60’s. Corporations used to pay a quarter of federal income taxes. Now they pay about 8%, and some of the biggest, most profitable companies manage to pay little or none at all. Same goes for the gazillionaires among us. Fair taxation advocates estimate that we lose about 70 billion dollars a year to millionaire tax cheats, and the marginal tax rates on the likes of Bill Gates are as low as they have been since the Great Depression.

Various politicians and pundits come up with plans to “simplify” the tax code, many of which put the 7/11 clerk in the same tax bracket as the CEO. The Minor Heretic’s tax simplification plan is to exempt the first $30,000 of income for single people with no kids and ramp up the rates in a geometrically increasing curve above that point to make up the difference. The exemption would match the livable wage for whatever family and income category a household is in. Ditch all the complexities of this, that, and the other credit, deduction, and exemption. Combine this with a thorough cleansing of all the various corporate tax shelters and a bump up in the basic corporate tax rate. Multi-millionaires would gnash their teeth. Corporate CEO’s would howl in agony. Most Americans would sigh with relief, fill out their one-page tax forms, and go buy things with their newly regained income. They might even be able to make their mortgage payments.

It's not a mortgage crisis

Back about two hundred years ago, the British army had rigorous standards for its recruits. They were required to have at least two teeth, and those two teeth had to be opposite one another in the front of the man's mouth. I suppose a pulse and four limbs were also required, but this wasn't listed in the rules. Even with the primitive state of dental hygiene in the 18th century this spread the recruiting net wide, which was the point.

So it was in the mortgage industry, up until a short time ago. A pulse and the ability to sign a contract made one a candidate for a mortgage and homeownership. The banks bundled up the resulting loans into so-called Collateralized Debt Obligations, sliced them into shares, got them rated triple-A by complaisant bond rating companies, and sold them to all and sundry. Ever since this scheme started collapsing it has been called “The Mortgage Crisis.” This is akin to calling a head-bashing spree by a pipe wielding maniac “The Fractured Skull Crisis.” We need to go one step back in the process.

Ten years ago the housing industry and the mortgage industry were looking for more customers. One problem was those pesky loan requirements – sufficient income, assets, cash for a down payment. What to do about those marginal, extra risky situations? A sub prime mortgage. Structure the mortgage for low initial payments, even if it means a crippling balloon payment or interest rate jump down the road. Bundle those mortgages and sell them off as noted above. Housing prices were rising, so it was no problem if a few people defaulted. Either these unfortunates could resell their house and pay off the loan, or else the occasional default would be absorbed and hidden by the bulk of the good loans bundled with it. Sadly, even the best scams only last for a while.

The problem was one of income. Selling a few overpriced houses to a few overstretched individuals was not a big deal. When the entire housing market suddenly jumped to almost double its 50 year average it got beyond affordability for many people. It is affordability that puts an upper limit on the value of housing, and the U.S. market overshot that limit. The result has been foreclosures, unsalable homes, and the collapse or near collapse of home builders, banks, and investment firms. It has resulted in “jingle mail,” when a homeowner realizes that the house is worth less than the balance left on the mortgage and walks away, mailing the keys to the bank. It is, ultimately, a home value crisis. If housing was more affordable there would be continued demand, supporting prices. If prices were still going up, or at least steady, the defaulting borrowers could sell out and pay off their mortgages.

Our situation is not without precedent. The present collapse is close to a rerun of the savings and loan fiasco of the late 80's and early 90's, with deregulation, reckless lending, and the bundling and reselling of risky loans. That one cost us about $160 billion. The situation is also comparable to the telecom boom and bust. In the late 90's a cohort of companies installed tens of thousands of miles of fiber optic communications cable in anticipation of unlimited demand. That demand was not forthcoming, so most of them went bankrupt. A second cohort of companies bought the fiber optic lines at fire sale prices and actually made money renting them out. The same process will probably happen with residential housing.

Congress has dithered about this while the Federal Reserve has thrown cash at failing financial institutions. The best our government can come up with for regular folks is a sad little $600 tax rebate. Given that we are in deficit, this means borrowing billions more on international markets, to be paid back later with interest.

I have a couple of suggestions for our elected representatives that attack the value problem behind the mortgage problem.

First, raise the minimum wage. Raise it significantly, and raise it quickly. This will put money in the hands of those who need it and will spend it, boosting the economy without going further in debt to the Chinese. This will also tend to elevate the rest of the wage scale above it, pushing more people into the realm of homeowners.

Second, repeal the Taft-Hartley Act and replace it with legislation more protective of people who want to organize or join unions. Two thirds of Americans want to join unions, according to polls, but many of them are rightly afraid of retaliation from employers. Taft-Hartley is discouraging union membership and therefore denying American workers the higher wages and benefits that come with it. More well-paid union members mean more possible homeowners.

Third, bring our income tax rates back to the levels of the 1950's and 60's. Back then, millionaires and corporations paid a bigger percentage and ordinary working schmoes paid less. Somehow we thrived, despite the dent in the yacht and mansion industries. We had enough tax revenue to build and maintain infrastructure and working people had money in their pockets.

In the long run housing prices are pegged to the number on the average American W-2 form. Eventually they will drop back to something like 60% of what they are now. The graph I linked to above tells the story. Artificial schemes for propping up unsustainable housing prices will fail, costing us both time and money. It is counterproductive to throw driblets of borrowed money at Americans and truckloads of borrowed money at banks. The same goes for lowering interest rates till the dollar crashes. Insulating reckless banks and investment firms from the consequences of their actions will set us up for the next boom and bust scenario.

Perhaps it is asking too much, but it would be useful if Congress could learn a few lessons from its mistakes. Deregulating the financial industry always creates trouble. Booms always become busts. Bailouts encourage risky behavior. The health of the economy is not indicated by the Dow Jones Average but by the economic strength of the average American. The best thing our government can do about the mortgage crisis is to improve the long term economic position of potential home buyers.