Economy RSS feed for this section
justin-katz-avatar-smiling

Avoiding Unions for Innovation and Prudent Decisions

Wall Street Journal editorialist Allysia Finley conveys the perspective of Braidy Industries CEO Craig Bouchard, who is opening an aluminum mill in right-to-work Kentucky.  Regarding an earlier company, experience with which soured Bouchard on organized labor:

They sold it for $1.2 billion to the Russian steelmaker Severstal in 2008, shortly before the stock market and steel industry crashed. Thousands of workers subsequently lost their jobs. Mr. Bouchard blames the United Steelworkers. He had first tried to sell a partnership stake in Esmark to the Indian company Essar Steel. But the United Steelworkers sought to force a sale to Severstal, which the union perceived as more labor-friendly. Had the Essar deal been consummated, Mr. Bouchard says, “every one of those people would have their jobs today” because all of the company’s debt would have been paid off.

Obviously, this is one side of that story, but the moral from the CEO’s point of view is that business decisions should be left to business owners.  That includes other pitfalls of unionization, like work rules that constrain activities beyond what the employer and employee would accept if left to their own and other costs, like pensions.

The key part of the op-ed, though, may be the bigger picture.  Bouchard’s new company is built on innovation in the metallurgical sciences.  Our broader tax and regulatory regime slows down that sort of innovation.  Another culprit is an unhealthy aversion (across the ideological spectrum) to allowing “creative destruction” to usher out old technologies and ways of doing things and ushering in the new.

A society should provide leverage for workers as the capitalism charges forward, but labor unions, protectionism, and regulation don’t appear to be sufficiently effective.  What we need is something broader, more cultural — dare I say, more spiritual — that allows us to make individual decisions and negotiations within a framework of mutual respect and support.

mike-stenhouse-avatar

The Budget: RI Government Seeks To Grow Itself, Not the Economy

Should the hopes, dreams, and aspirations of Rhode Island families be limited by an arbitrary, politically-driven budget number at the bottom of a spreadsheet? Unfortunately, our state is now suffering the consequences of such an approach, fueled by the progressive-left’s big-spending agenda.

justin-katz-avatar-smiling

About the Other Stadium…

Tim White raises an important point that seems to have been avoiding discussion related to the PawSox deal:

If approved, there will be another cost associated with building a new stadium in downtown Pawtucket to host the PawSox: tearing down McCoy Stadium.

The city of Pawtucket owns the land that 75-year-old McCoy is on, and officials have indicated there are no plans to keep the ballpark if the PawSox leave, whether by moving across town to the proposed Apex site or out of state.

The options on table range from likely to certain to require more government money and debt.  Rebuilding the high school on the spot will mean a big bond and a state taxpayer fund match and still leave the city with a plot of land to repurpose or dispose of.  A private buyer would probably negotiate and receive subsidies for some part of the property redevelopment.  Or just leaving it alone will mean a tax-free chunk of land in the city.

Whatever the final ask for the new stadium is, don’t forget that the project isn’t done with taxpayers, yet.

justin-katz-avatar-smiling

What Works for the Dead Won’t Work for the Living

A short Wall Street Journal article about a forthcoming Grateful Dead documentary contains the following interesting insight:

The biggest obstacle [to making the documentary], Mr. Bar-Lev says, was the Dead’s communal philosophy, which extended to business decisions. That approach persisted after 1995, when the group ceased to exist following the death of Jerry Garcia, its best-known member. The Grateful Dead organization “moves in an extremely egalitarian, consensus-oriented way, which means that nothing ever happens,” Mr. Bar-Lev says. In addition, the band is “mistrustful of anything that would nail them down to one meaning, so a documentary film had strikes against it right there.” Persistence, a shake-up at a record company and a nod from Martin Scorsese finally cleared the path.

For a labor of love, “an extremely egalitarian, consensus-oriented” methodology is fine, but as an economic plan, not so much.  The whole world can’t depend on being the Grateful Dead; indeed, one could argue that the fact of being unique was key to the Dead’s success.

A “communal philosophy” requires at least one of two preexisting conditions:  either a preexisting conformity of belief that the method of decision making must supersede the community’s ability to accomplish goals (meaning a willingness to suffer for the belief) or sufficient economic potential that much of it can be squandered.

Artists of a certain type will often be willing to suffer for their beliefs, and the Grateful Dead obviously had huge economic potential.  However, just as we shouldn’t go so far as to proclaim that the go-getters have a right to impose their beliefs on the communal types, we can’t insist that everybody conform to the latter’s beliefs.

justin-katz-avatar-smiling

Vistaprint Deal a Great Example of Government Economic Meddling

The GoLocalProv Business Team has a great catch related to the deal that Democrat Governor Gina Raimondo’s Commerce Corp. just made to bribe online printing company Vistaprint to open facilities in the state:

The Raimondo Administration on Wednesday announced that Vistaprint and the potential of 125 new jobs are coming to Rhode Island over the next three years. But, RI Commerce admitted in a phone interview that they were unaware that one of Vistaprint’s competitor Moo.com is already located in Lincoln, Rhode Island. Moo.com is a design driven competitor who has been building its business in RI since 2009.

This discovery gets to the heart of the problem when government decides to be a player in the business world.  An investor picks a company and has no ethical quandary with his or her preferring that company over others.  A representative government respectful of individual rights and the free market isn’t supposed to do that.

State Commerce Secretary Stefan Prior tells GoLocal that Moo.com is free to apply for incentives, too, but what if there’s another Rhode Island company competing in this space?  Or, to take the next, easy step, what about other companies that aren’t in that particular type of business?  Ultimately, they’re all competing for the same dollars, employees, and so on, and taxpayers can’t subsidize every business.

This entire approach to economic development is presumptuous and a shortsighted reach for the headlines.  In the GoLocal article, Raimondo points directly to the problem when she says:

Governor Gina Raimondo said about the announcement of Vistaprint “The economy is growing, and today’s announcement means more good-paying jobs for Rhode Islanders. I’m thrilled that Vistaprint Corporate has chosen Rhode Island for its national sales office. Rhode Island provides exactly what Vistaprint Corporate was looking for-access to talent, a high quality of life, fiscally responsible incentives to make our state competitive during its search and long-term potential for growth.” (Emphasis added.)

That can’t be true.  If it were, the state wouldn’t have to bribe the company.  A better economic development plan would be to make it true by lowering taxes and regulations.

mike-stenhouse-avatar

The Corporate Welfare Strategy Has Failed

The massive budget shortfall is proof that the state government’s corporate welfare strategy has failed. Rhode Island’s current corporate tax-credit economic development strategy is highly inefficient as it creates relatively few jobs at an extremely high cost per job to taxpayers. This targeted ‘advanced industry’ approach does little if anything to improve the overall business climate, which is necessary if organic entrepreneurial growth is to occur on its own. A 3.0% sales tax would disproportionately help low-income families.

justin-katz-avatar-smiling

Not Stating the Obvious on RI Economic News

I noted a couple of days ago URI economic professor Len Lardaro’s witticism at Democrat Governor Gina Raimondo’s suggestion that the state government’s revenue shortfall is a consequence of the Donald Trump presidency.  Lardaro also appears as a stronger-than-others voice of sanity in Patrick Anderson’s Providence Journal article on the same subject:

Leonard Lardaro, economics professor at the University of Rhode Island, said overall revenues falling short by 1.6 percent is “not a crisis,” but may be a sign that the recovery, tepid as it was, may be giving way to a stall in growth.

“The second half of last year was not a terribly favorable one for Rhode Island,” Lardaro said. “The biggest problem is our labor force has been declining since the last recession peak. Rhode Island for a decade should be in crisis mode.”

If anything, Lardaro understates things.  As I’ve written before, employment (Rhode Islanders working) has essentially flatlined since the start of Governor Raimondo’s first full fiscal year in office, and job growth (jobs in the state) has slowed down.  New York Times proclamations notwithstanding, there is no “momentum” in the Rhode Island economy.  And there’s no surprise that revenue growth isn’t materializing.

Why is everybody so hesitant about stating the obvious:  that Governor Raimondo is just making things up?  Is it partly because of glowing political profiles across the nation are a signal to local journalists and commentators about how they should be presenting our governor?  I rather think that pressure should go in the other direction, with the national press looking locally to make sure that they’re not falling for some spin about one of our own politicians.

justin-katz-avatar-smiling

The Mysterious Missing Government Revenue

I’ve got to give it to University of Rhode Island economics professor Len Lardaro.  He issued a good line upon hearing Democrat Governor Gina Raimondo blame the Trump administration for Rhode Island’s just-announced revenue gap:

Revenues are falling because we are looking to Washington? What a joke. Growth is slowing. Does she think it is sunspots, perhaps?

Ted Nesi highlights a big shortfall in the expected corporate income tax revenue, which jibes with my running hypothesis.  Within the last decade, Rhode Island government has made a number of tax changes to make it seem as if politicians were doing something to address our sluggish economy, including to the corporate income tax.  These changes have all been gimmicks, though — lowering rates by shuffling around how taxes are calculated.

My theory is that these reforms weren’t revenue neutral at all, but were instead effectively tax increases.  This made revenue come in higher than expected for a few years, because taxes had been increased, but it actually put more drag on the economy.  Under that scenario, what we’re seeing in Rhode Island is the end of that effect, as projections based on the illusion of growth out-pace the economy.

justin-katz-avatar-smiling

We Had the Logic, Now We Have an Example, Too

Rhode Islanders, especially, should heed the admonition of The American Interest that Puerto Rico may be a final warning lesson to states within the United States:

This [bankruptcy] could have been avoided by sensible and timely cuts, by turning a deaf ear to public sector union demands for wages and salaries, by a series of small but definite steps away from the blue model, welfare state governance. But the press, certainly including the NYT which is now reporting the disaster, would have attacked any politicians taking these steps as “harsh”, or “cruel to the poor”.

Now Puerto Rico is in a deeper hole, with much more suffering than any of the moderate cuts would have imposed.

Just look at the false rhetoric permeating the debate over some overly mild reforms to the disastrous ObamaCare entitlement system for a timely illustration.  Any restraint on government programs is declared to be a “draconian cut” that will hurt or kill people, marking politicians who support reforms as evil.  This will not end well, but just like junkies, supporters of big government just want that one more fix, and let tomorrow take care of itself, somehow.

justin-katz-avatar-smiling

Why Real Insurance Is Preferable to Centrally Managed Health Care

In The Washington Times, Cheryl Chumley tells the 2008 story of her husband’s sudden illness and brush with death.  Her insurer at the time, Blue Cross Blue Shield, didn’t deny any bills, even though the doctors keeping her husband alive told the family to prepare for his imminent death.

It was a few months after my husband left the hospital from his heart attack that we ran into one of the nurses who cared for him — at a presidential campaign event, no less. One chat led to another and the subject of socialized health care was raised. And this is what the nurse said: Had my husband been on Medicare or Medicaid at the time of his heart attack, the doctors would have quit their life-saving efforts long before his 10 comatose days had ended. Why? Because the government health care plan wouldn’t have paid for the around-the-clock intensive care. The situation would’ve quickly evolved into a pull the plug, wait and see what happens type of deal.

It occurs to me that, in a competitive market, of course this would be true.  The insurance companies are selling insurance, which means everybody who buys insurance is thinking of these sorts of horrible circumstances.  If it gets out that a particular insurance company doesn’t cover them, then the value of insurance for that company and generally goes down.

So, it’s in their interest to accurately price risk so as to charge a rate at which they can maintain their value proposition.  They do this with a mix of pricing features, including premiums, deductibles, and maximum out-of-pocket limits.  A consumer with a low tolerance for risk may choose to pay a high premium, while one who wants to save money understands that risk is part of the equation.

Central planning is a completely different thing.  In that scenario, supposed experts are figuring out how best to distribute resources.  They don’t have to have attractive products, because nobody has a choice.  ObamaCare’s hybrid system of planning and choice transforms the insurance incentives into hiding costs, not accurately assigning them.

monique-chartier-avatar

Booze Confirms: Sales Tax Sauce for Art Is Sauce for Everything Else

In case you (especially my fellow tea-totallers) hadn’t heard: in 2013, RI removed the sales tax on wine and spirits.

Coincidentally, that was also the year, at the urging of then-Senate President Teresa Paiva-Weed, the state removed the sales tax on art; more specifically, “original and limited edition works of art sold in the State of Rhode Island” were made exempt from state sales tax.

justin-katz-avatar-smiling

Why Knowledge Is Important (Pre-Existing Conditions)

Josh Blackman highlights one of those political truisms that still surprises when one sees evidence.

First, he cites a 2009 Kaiser Family survey finding that support flips for an ObamaCare provision that makes it difficult “for insurance companies to drop your coverage when you get sick or water it down when you need it the most” when people are informed that it would increase their own premiums.  Next, he cites the same phenomenon in a more recent Cato/YouGov survey, concerning the “community rating” provision that forbids adjusting premiums based on medical history.

This is why it makes a difference how surveys are worded and, even more, what points news stories present.  It makes progressive policies look much, much more attractive if there’s never any cost associated with the feel-good legislation.  Every story should contain a micro-lesson on basic economics.

Making this tendency more tragic, in this case, is that these small populations of exceptions could be addressed in ways that are much more fair and much better economically and with regard to outcomes.

Knowledge, as they say, is power, which is why the Left spent decades corrupting institutions like the media and higher education by which Western Civilization transmits its information.

(Via Instapundit.)

justin-katz-avatar-smiling

What Are Raimondo Campaign Donors Buying from Out of State?

Shortly after adding the certification of school bus drivers to my running list of tasks at which Rhode Island government is failing, my morning reading brought to my attention multiple articles about Democrat Governor Gina Raimondo’s big fundraising take in the first quarter of this calendar year.  Here’s WPRI’s Ted Nesi:

Raimondo continues to demonstrate a fundraising prowess rarely seen in Rhode Island politics, having raised nearly $3 million since becoming governor and millions more before that when she was general treasurer. The state’s last two-term governor, Republican Don Carcieri, had about $275,000 on hand at the same point during his third year in office.

Want a fun fact?  According to the helpful spreadsheets that one can download from the state’s campaign finance search tool, so far in 2017, only 31% of the $570,110 the governor has raised came from people with addresses within Rhode Island.  That does represent a little bit of a change.  Going back to 2009 (the earliest available for her) brings Raimondo’s in-state percentage up to 51%.  Over those seven-plus years, by the way, the governor of Rhode Island has averaged a $541 donation from people out of state, but only $406 from donors in the state.

For comparison’s sake, Cranston’s Republican Mayor Allan Fung, presumed to be Raimondo’s most likely GOP challenger in 2018, has collected 99% of his $30,109 campaign donations so far in 2017 from people with in-state addresses.  If it seems unfair to compare a governor with a mayor, turn to the fundraising record of former Republican Governor Donald Carcieri.  He raised 89% of all of his campaign money from people in Rhode Island, and Rhode Island donors gave him an average $427 donation, versus $397 from each out-of-state-donor.

So what are Raimondo’s out-of-state donors buying with their money?  I’m sure their motivations are manifold, but I can’t help but notice that Wexford Science & Technology is back in the news, having received approval for $13.5 million in taxpayer incentives to do business in RI.  As I highlighted back in December, the interactions of Wexford, the Brookings Institution, and other private organizations are certainly, let’s say, interesting, as is the overlap with Raimondo’s donor base.

justin-katz-avatar-smiling

Obvious Reasoning on “Free Tuition”

George Leef reviews the economics of adding strings to “free tuition” for the Martin Center for Academic Renewal and summarizes the matter very well on National Review Online:

It shifts costs where they don’t belong and interferes with labor market mobility. It also interferes with the market for education by “privileging” (to use a favorite word of the progressives) certain kinds of governmentally-run colleges over all other types of education and training.

States can’t pull themselves up by the bootstraps with “free” education any more than they can with any other socialistic measure. Adam Smith had it right when he wrote, “Little else is required to carry a state to the highest degree of opulence but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about in the natural course of things.” Sadly, that’s a message that most politicians just don’t care to hear.

There’s no shortcut to prosperity.  Or rather, if there is a shortcut, people interacting voluntarily in their own interests and by their own priorities are exponentially more likely to find it than is the government.  Why is this so difficult for people to accept?

mike-stenhouse-avatar

Boom! Wine & Spirits Sales Increased 21.4% After Sales Tax Cut

Imagine the parking lots of Rhode Island retailers filled with cars with Massachusetts license plates. New research from the Center, based on government data, shows that it is very possible. In the two years following the removal of sales tax on wine and spirits, the same level of economic stimulus, as projected by the Center by cutting the state’s overall sales tax, actually occurred! Now, there can be no doubt of our findings. The new research one-pager proves that Rhode Island would experience an ECONOMIC BOOM under a 3.0% sales tax.

Quantcast