Wed, 24 Sep 2008
Over the past 25 years, as our nation has disassembled its manufacturing base and shipped those jobs elsewhere, we've heard over and over again about how that's ok, because those kind of "old economy" jobs were the thing of the past and the "new economy" would provide lots of jobs in finance, service, software, design, and management. We were all supposed to become "knowledge workers", according to Peter Drucker. In the new economy assets are "minds rather than machines," said George Gilder. The new economy was to be clean, smooth and prosperous.
Admittedly, we haven't heard much about all this lately. Gilder's newsletter and web site empire collapsed after the technology stock crash in 2000-2001. Some of the other cheerleaders have gone to ground, while others have said they were right all along -- about different predictions. But the truth is that the events of the past year, and especially the past week, have made everyone a little skittish about imagining an economic future that depends on finance. (Except securities lawyers, who are going to have a little boom of their own over the next few years as the sub-prime mess gets untangled.)
The other parts of the new economy order are cause for concern, too. Service jobs are, in general, not the kind of high-wage jobs around which much else can be built. The software industry is still not a bad bet, but as big as Microsoft is, the whole industry is still a tiny fraction of the US economy. Combining computer manufacturing, data processing services and software, we're talking a bit less than 3% of the US economy.
So, if the new economy really isn't the pot of gold at the end of the rainbow, and we've already given away most of our manufacturing jobs, what's left? One answer is to look ahead at some new markets that are developing.
In the early 1980's, I worked at the Woods Hole Oceanographic Institution, on issues related to global warming. (We called it the greenhouse effect back then.) At the time, there was little controversy I noticed about whether the effect was real or whether it was manmade. Those were settled issues. The research I helped with (partly funded by oil companies) was all about trying to characterize the rate at which processes on which warming depends can be expected to happen. Now, 26 years later, there's a certain gratification in seeing that what was widely accepted in the world of oceanography back then is gradually gaining acceptance in the rest of the world. Of course the gratification is tempered by astonishment that it's taken so long, but better late than never, I guess.
But now that global warming is on enough people's minds, what can we do about it? And why did the subject change to global warming? Weren't we just talking about manufacturing and the economy?
Well, it's possible that the two subjects can be the same subject. As more and more people become aware of the need to reduce our reliance on carbon-based fuels, it's pretty natural to expect that the demand for wind and solar energy equipment and whatever else comes along will rise. As heating fuel costs go up and up, the payoff for insulating your house gets shorter and shorter. As electricity prices rise, so does the appeal of solar electric panels. The more expensive gas gets, the better-looking one of those electric cars gets.
All of these factors mean that there are opportunities ahead for mechanics who learn how to fix electric cars, for insulation contractors, for shops who can build and market wind turbines, and for companies who will exploit technologies we haven't even thought of yet.
To the extent that these "green" jobs of the future are service jobs, few will be exported to China (you can't ship your front wall over to China for insulation), and to the extent that they're new technologies, they will be fertile ground for entrepreneurs to find and exploit new opportunities quickly.
In 2007, Congress passed the "Green Jobs Act", also known as Title X of the 2007 Energy bill. The bill passed, and is intended to create job-training programs for green jobs, but it's stalled now, while Congress decides whether to fund it or not. Funding this will help, though it's only a beginning. The Federal government provides tremendous subsidies and tax credits every year to the oil, gas and coal industries, and to various aspects of the construction industry, too. These subsidies should be re-engineered to promote the development of the technologies we'll need if we're going to turn back the tide, so to speak. In a state with as much low-lying swamp as we have, this is speaking directly to our future.
This coming Saturday, the 27th of September, from 9:30 to 11:30AM, there will be a conference about "Greening the Rhode Island Economy" at the New England Institute of Technology, 2480 Post Road in Warwick. (The RIPTA service cutbacks haven't hit yet, so the number 14 bus goes right by, even on Saturday.)
Part of a larger national day of action organized by dozens of organizations in a coalition called "Green Jobs Now", the event will have its keynote address from Senator Sheldon Whitehouse, introduced by Providence Mayor David Cicilline. There will be short talks by economists and people working in job training, as well as construction industry representatives and more. The idea is both to educate people who want to learn more about what might be possible in a world with more green jobs, and to pressure Congress to fund the Green Jobs act, and take the next step beyond that. Join us, please.
The event is free, but the organizers ask you to please register at www.GreeningRIEconomy.com.
22:47 - 24 Sep 2008 [/y8/cols]
Sat, 20 Sep 2008
A couple of weeks ago, Bill Connelly, a candidate for state senate district 36 in North Kingstown and Narragansett, handed me a flyer. I put it in my pocket, and checked it out when I got home. It had a nice picture and capsule bio. For policy planks in his platform, it had only four bullet points. I was particularly interested in two: One said, "Increase state aid to education" and right after it was, "Hold the state to spending and taxing limits."
Well, golly, when you put it like that, it sounds pretty good. Easy, too. I mean why didn't anyone think of that before? But why stop there, let's just eliminate all taxes and make the schools better, too. Or maybe offer us all free commuting helicopters? Better yet, free ice cream and cookies at every meal!
Now, in fairness, Bill is a perfectly nice gentleman, and his opponent, incumbent Sen. James Sheehan, though an energetic and effective legislator, is not widely regarded as a fiscal prodigy. But really, candidates shouldn't even think they can run with this kind of empty and self-contradictory platform.
Though my exalted peers at publications further up the journalistic food chain balk at taking it on, it is role of the press to call politicians on stuff like this, and here I am, published in newspapers and online. So this is my challenge to you. In mid-October, I'm going to award prizes for the most absurd campaign literature I run across (2008, Rhode Island general election), and I'm inviting your nominations.
Don't submit any just for bad photos or slogans, please. I'm interested in flyers or letters that promise the unattainable or the contradictory. So when some candidate tries to hand you their flyer, take it, and look it over. If you get a candidate letter in the mail, read it, and if you learn about a candidate's web site, go there and check it out. If you think you've found something that can beat my example here, send it in for judging by a panel of impartial judges I'll appoint. (You can send nominations for judgeships, too. After all, vying for judgeships is traditional in politics.) Send your nominations to me electronically, or c/o The Times Newsroom, 23 Exchange Street, Pawtucket, RI 02860. Enter by October 15 or so. May the best candidate win!
02:08 - 20 Sep 2008 [/y8/cols]
As perhaps you know by now, the state ended the last fiscal year around $33 million in the red, and the accusations and counter-accusations are flying. There are some important misconceptions flying around, though, and it's worth clearing some of them up. So last week I spent some time reading the preliminary financial report for the fiscal year that ended June 30.
For one thing, several reports have pointed out that the Department of Human Services is where the bulk of the overspending seems to have occurred. You might think, "Aha! It's because we still spend too much on social services." But in fact, the overspending appears to be that the DHS administration had promised $19 million in general revenue operational savings that they were unable to achieve. That is, someone high on the chain of command appears to have decided they could peel off that much spending while not affecting service, and it didn't happen. In reality, looking only at state tax dollars, every single division of DHS was under their original budget, except for Medicaid, which was over by $641,000, or less than 0.1%.
But there was overspending in other places. Over in the Department of Health, for example, you can see $8 million excess at the state-run Slater and Zambarano hospitals. This appears to be an admission of failure for anticipated cost-cutting measures in those hospitals. And there were some unanticipated social expenses, too. Over in the Department of Labor and Training, I see about $10 million extra in unemployment and temporary disability insurance payments.
Now I am by nature an optimist and all for optimism in a general sense. But I'm not sure it's such a good idea for budget writers to be as optimistic as they appear to have been. If someone is going to claim savings in a budget, I want them to have a realistic and achievable plan for getting that savings. That appears not to have been the case in several state departments for the last fiscal year, and I fully expect there are more such surprises waiting for us in the current fiscal year.
The truth is that the administration thinks it can do things simply by commanding them to be done. Furlough days? Sure, count them in. Decreasing employee benefits? As good as done. Medicaid savings without a plan to achieve them? No problem.
But this is silly. The governor is not a god-king. There is a reality out there that must be addressed in a realistic fashion. In this case "realistic" means you can't pretend that poor and unemployed people will disappear, you can't pretend that you can simply have your way with the unions, and for better and worse, you can't simply pretend that employees who don't trust you won't act to thwart your intentions. Good managers know these things and account for them. Others simply demand they happen, and then rage at their failures.
So here's the bottom line. Even after the Medicaid, child care, education and local aid cuts of the past couple of years, we're still $33 million in the red for last year. The budget for the year that we're currently in was passed based on savings that will not happen. And so, perhaps you thought last year was rough? Just wait.
02:05 - 20 Sep 2008 [/y8/cols]
Sat, 13 Sep 2008
The primary is behind us and the election looms. This November, you'll see a Rhode Island tradition on the ballot: the Transportation bond. Every two years, since at least the DiPrete administration, Rhode Islanders are asked to approve another huge round of bonds for roads. Ho hum, isn't that how people build roads?
Well no. Virtually no other states fund their roads this way. Sure lots of states borrow for a specific highway here or a bridge there. But we borrow for no specific project, an astonishingly wasteful practice.
At this point, DOT borrows about $40 million a year, no matter what. We use that money to match federal dollars that are awarded on the proviso that the state come up with a 10% or 20% match to the funds. We spend the sum on whatever projects are at the top of the list.
Now there are two legitimate reasons for borrowing. You might want to amortize some expense over several years, like when you buy a house. Or you might expect the investment to have a payoff down the road, as with student loans or business investments. But neither of these apply to our roads. That is, our expenses are already amortized -- at $40 million per year -- and none of the road projects on tap involve expanding our transportation capacity. Mostly they involve repairing or replacing what we've already got.
But we can't ignore an important illegitimate reason for borrowing: to hide the true cost of the government people demand. Compared to many other government services, roads and bridges are popular, if expensive. Cars need them, people demand them, and, oh, boy have we built them. We've almost doubled the length of our road system since 1950 and far more than doubled the capacity with lots of big expensive highways.
From what I can tell from old budget documents and DOT reports, the borrowing habit probably began with the construction of the interstate highways. These were good candidates for funding with debt. They were ambitious undertakings that made a tremendous difference in transportation (good and bad). And they also brought rivers of federal cash flowing down the corridors of the state house.
When those projects were completed in the mid-1970's, the torrent of federal money threatened to turn into a trickle, so apparently budget writers at the statehouse decided to keep on borrowing to keep the federal funds flowing. The Garrahy years were tentative, with a few small bond issues, a couple of which were even voted down, but under Ed DiPrete, we started borrowing serious money.
And what a mess we've made with it. Until quite recently, the feds wouldn't pay for maintenance, only new construction and improvements. So we widened and straightened country roads that only needed repaving, put up pointless street lights, and found excuses to replace bridges that needed repairs. All to keep that river of cash flowing.
The new roads not only made big profits for construction companies, but also for a large number of people who owned suburban land. Land developers, mall owners, farmers who sold off a piece of their fields and many more have cashed in since the early 1980's. Land development was a good substitute for industry. Who'd want to spoil that party by putting a price tag on it? Certainly not Ed DiPrete, Lincoln Almond or Don Carcieri. (Bruce Sundlun wasn't suburban, but he cut the borrowing, too.)
By now, the imperative to keep that river flowing at little cost has made a fiscal disaster. The debt has piled higher every year, and we've used serpentine contortions to avoid dealing with it. For example, when debt service threatened to bring the DOT budget into the red in the 90's, an employee-free department of debt service was created to move these payments to a different page of the budget. At $41 million this year, DOT has far and away the biggest chunk of that department.
Counting debt service paid from within the department's budget, we now pay almost $100 million every year in DOT interest payments. How does that make you feel about borrowing $40 million more next year? Do you think that's a sensible way to run the state?
But the worst part is the cynical packaging of the bond referenda. This year's bond is worth $80 million in DOT borrowing, but on the ballot you'll also see $3.5 million each for RIPTA and for a commuter rail station in North Kingstown. When DEM has two or three different projects to fund, they appear in two or three different ballot questions. These transportation projects (whose proceeds don't even go to the same agency) are put together only because the budget writers calculate that the odds of passage are higher if they include a pittance for public transit with the DOT lard.
So how did we get to this pass? Simple: we allowed politicians to pretend they were managing our finances in a responsible fashion while they borrowed way past any reason to spend freely on expensive roads and bridges while pinching pennies on the public transit that could save us all money and time. I'm tired of these games, and intend to vote no on the transportation bond, this November. Please join me.
00:18 - 13 Sep 2008 [/y8/cols]
Sat, 06 Sep 2008
This week I decided to spend some time researching just why Landmark Medical Center in Woonsocket is in trouble. For those who don't live in Woonsocket, or haven't been paying attention, Landmark is broke. Its CEO has left, and the enterprise is in the hands of a court-appointed "special master" who is trying to keep it afloat while a savior can be recruited.
I quickly learned the troubles extend well beyond Landmark, to the other community hospitals. These troubles are well documented, and were the subject of an extended report a year ago by a blue-ribbon "Community Hospital Task Force", which included staff from the departments of Health and Human Services, the Lt. Governor's staff, various hospitals, the Health Insurance Commissioner and more.
Fairly well masked by the technical language, here's one thing I learned from it: insurers pay hospitals very different rates for exactly the same services. Getting an appendix removed at Rhode Island Hospital costs your insurance company a much different amount than getting it removed at Landmark.
A senior administrator at a hospital who shall remain nameless explained it this way to me. All the prices are negotiated between each insurer and each hospital. Hospitals with lots of leverage can get good reimbursement rates, and those without it can't. Blue Cross can't afford to leave Rhode Island Hospital out of its network, so their reimbursement rates are healthy compared to the rates a small institution like Landmark can get.
What's more, the larger hospitals have unique services, for which they can charge whatever they want. Women and Infants, for example, has the state's only intensive care unit for newborns. A new baby in trouble has nowhere else to go in Rhode Island, and W&I makes sure insurance company negotiators remember that.
The result is large hospitals can rely on high profits from their unique services and relatively comfortable rates for the rest. Smaller hospitals don't have this kind of leverage in negotiations rates, so lose out. (And some rely on more creative strategies. Disgraced former Senator John Celona admitted in court to using his position as chair of the Corporations Committee to strong-arm Blue Cross and United into improving the rates they paid to Roger Williams Hospital.)
How big a difference does this make? It's hard to tell, really. It's actually a challenge to compare rates, since they are billed in different ways. One hospital might charge by the day for some in-patient procedure, while another might charge a set amount for the same procedure. But indications from the Task Force report imply that rates might differ by as much as 60%.
In an attempt to sharpen up these indications, a report was prepared this year by the Department of Health that made direct comparisons of rates, something few (if any) states have done before. My unnamed administrator tells me it confirmed variations of over 50% in rates, but the Health Department won't release it, saying it may contain "errors."
Whatever is going on with the report, the implications of my preview are fairly troubling, so it's hardly shocking there is resistance to releasing it. After all, reimbursement rates are a free market, and it seems that this free market is not operating in your best interest. Some health care providers are charging whatever they can get, while others can't get what they need. The result? Since it's the big hospitals who can charge more, you have much higher prices for health care. Fifty to sixty percent isn't pocket change.
But what about that ol' free market? Isn't it supposed to bring us the low, market-clearing price? Well, in a word, no.
Free markets are not all efficient, and sometimes there is imperfect competition, especially in markets with very few buyers or sellers. Markets are distorted when some of the buyers or sellers have "market power." What's market power? Well, being the most important hospital in the state is nearly a textbook definition. RI Hospital has power it can wield in negotiations with Blue Cross that Landmark simply can't have.
These issues have been part of mainstream economic thought since well before Joan Robinson's ground-breaking "Economics of Imperfect Competition" helped clarify them in 1933. Somehow, though, they never seem to seep into the world of politics, which seems dominated by people who imagine that Economics 101 is the last word on the subject.
In a free market with few buyers and sellers, prices are very likely higher than they would be in a market with more competition. So what can we do? The two best cures to imperfectly competitive markets are either increasing competition or regulation. In this case, increasing competition is probably not possible. We can't wish into existence another hospital with the clout of RI Hospital, and we probably wouldn't want to. That leaves regulating reimbursement rates as the logical step. This makes sense if we want to save the community hospitals, and also if we ever hope to get a handle on the price of health insurance.
Price regulation would not, of course, be popular with the big hospitals and the insurers, whose well-paid executives are doing just fine in the current system. It's also anathema to the economic ideologues who make policy in this Governor's administration, so the report will be defanged before it sees light of day, if it isn't buried altogether. Because remember, according to some politicians, if you uncover a problem with an inconvenient solution, the only sensible thing to do is to ignore it and hope no one else notices.
01:02 - 06 Sep 2008 [/y8/cols]
Fri, 05 Sep 2008
Oh, wait. I meant "MBTA". Darn. Why can't we keep up with Massachusetts on transit?
16:21 - 05 Sep 2008 [/y8/se]
RIPTA got itself a new board chair last week. John Rupp, Governor Carcieri's newest appointment to the board, succeeded Robert Batting, who resigned after being outvoted in an effort to ease the agency's managing director out the door.
These are obviously troubled times at the transit agency, and, as usual, money is at the bottom of it all. The agency is having a bunch of problems all at the same time, which makes it seem like one big fiasco. These are the important parts of the story:
The combination of all these factors, along with some lingering red ink from last year, means RIPTA is looking at a $12 million deficit in the current year out of a budget of around $104 million. They are currently planning to make up this difference in service cuts, but because of rules about how quickly they can change their schedule, they can't start until the middle of the year. So the cuts have to be twice as severe in order to make up the money in half a year. Meanwhile, of course, the agency is suffering record ridership, with most buses full and getting fuller.
Bob Batting, the departed board chair, had a tumultuous ride since his appointment in 2003, and it was worse since he became chair earlier this year. He clashed frequently with RIPTA management, and spent a lot of time isolated from the rest of the board.
Now let's be clear here. It's not always a bad thing for board members of an agency to have a not-necessarily-smooth relationship with the management. After all, the board is supposed to oversee the managers, not always a relationship that leads to lasting mutual affection. But on the other hand, is it asking too much to hope that the board chair of the state's only transit agency be an advocate for public transit?
Batting was never that. His only real relation to RIPTA's services was as a taxpayer. He was quite clear when first appointed that he did not ride buses and his major interest seemed to be cutting costs everywhere. Consequently people viewed him as little more than the Governor's hatchet man, appointed to dismantle a service unimportant to Carcieri's political base. (By his own admission, the new chair never rode the bus before his appointment, either.)
The problem with trying to get RIPTA to run in the black is that, with the possible exception of a couple of subway lines in Tokyo, there isn't a transit agency in the world that operates without subsidy, and expecting RIPTA to run without one is simply not realistic. The fares just went up to $1.75, but to run in the black without subsidy, they'd be more like $8, and that's only if you assume the same number of riders.
What about the way it used to be? Surely the buses and trolley lines in the 1920's and 1930's made money? Why can't they now?
One reason is that before WWII, transit wasn't really competing against cars and highways, but a more important reason is that many of the local trolley lines were operated as loss leaders for some other business. For example, the Red Cars in Los Angeles existed in order to promote Henry Huntington's real estate development interests in the suburbs. In many cities, trolley lines were owned by electric companies, used to persuade those cities to give them a monopoly on electric service. The 1935 act of Congress that allowed electric companies to be regulated by states (not upheld by the Supreme Court until 1946) also forbade the utilities from owning trolleys any more.
But it's not as if they were hot properties. In Washington, DC, it took more than three years to find a buyer for Capital Transit, and then when Louis Wolfson and his brothers bought it, they looted the company of its cash holdings, and slashed service (check out here).
In other words, before the days of public transit subsidies, there were private transit subsidies.
But this is no different than subsidies for roads, airports and harbors, all of which are thought to be acceptable places to spend government money.
RIPTA lurches from crisis to crisis not so much because of bad management, but because their funding was cut. It needs a stable source of revenue in order to provide a valuable public service to our state. Without that, we're not going to have a bus system worth the name any more. In a world with declining oil reserves, increasing oil prices, rising sea levels and more traffic than we know how to handle, that would be the real fiasco.
UPDATE: Due to an arrangement reached this summer, the program cuts in Medicaid won't affect RIPTA's bottom line until FY10, and are not responsible for the current-year deficit.
16:20 - 05 Sep 2008 [/y8/cols]
Mon, 01 Sep 2008
From an Eagle Forum candidate questionnaire in the 2006 Alaska Governor's race:
11. Are you offended by the phrase "Under God" in the Pledge of Allegiance? Why or why not?
The pledge of allegiance was written in 1892 by Francis Bellamy, a minister, and didn't include the words "under God". It was re-drafted a couple of times in the early 20th century, but it wasn't until an act of Congress in 1954 that the words were inserted into the Pledge.
Is it too much to ask that the prospective leaders of our country not be ignorant of its history?
14:23 - 01 Sep 2008 [/y8/se]
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