Isaac Laquedem

Why forgiving student loans makes the republican party's indentures fall out

The 13th amendment abolished slavery and "indentured servitude" except as punishment for a crime.  The United States succeeded in abolishing slavery.  An economist might look at the vast realignment in the past 40 years not just of wealth but of debt and conclude that indentured servitude has made a comeback.

 

In 1999, near the end of the Clinton administration, the residents of only three states (Hawaii, Maryland, and California) had average household debt that exceeded 1.5 times household income. By 2008, the last full year of the Bush (43) administration, the household debt-to-income ratio was above 1.5 to 1 in 40 states, and above 2 to 1 in 20 states.  The fortunes of American households improved under Bill Clinton Barack Obama [thank you, Diana H.]; in 2016 only two states (Hawaii and Maryland) were above 2 to 1, and 30 states were above 1.5 to 1.  Household debt to income improved under Trump; in 2020 only Hawaii was above 2 to 1 and 21 were above 1.5 to 1.

 

What is astonishing about the statistics is not that household debt-to-income ratios improved somewhat under the Trump administration and through the pandemic, but how much the burden of household debt has increased since the Clinton administration.  It's from that fact that I derive my theory about indentured servitude: the debt burden of the average American household is what compels many adults to work two jobs, to be unable to save, and to accept low wages. The heads of households are effectively in indentured servitude: compelled to work in order to pay interest on debts without making progress on the principal. The genius of private student loan programs is that they have extended indentured servitude upward into the college-educated classes. Not just the plumber but the psychologist must work to service debt and feed the creditor class.

 

It's perhaps for this reason that the republican party so stridently opposes President Biden's forgiveness of student loans, and the concomitant lessening, however slightly, of the financial ties that bind the graduates to their corporate overlords.  Heaven forbid that the masses should be able to pay their bills on time.

Theodore Roosevelt had the root causes of today's inflation pegged -- in 1907

Heather Cox Richardson, a professor of American History at Boston College who is now one of the most followed persons on Facebook, today tied together the consolidation of American and international industry into a few large combines that have an outsize effect on prices (i.e., inflation at the consumer level), against which President Biden now fights.  Do corporations charge high prices to cover their high costs?  Professor Richardson points out that in May Shell reported its largest quarterly profits ever, more than $9 billion.  (Pro tip: instead of buying gasoline, buy the stock.)

Where, then, do the causes of inflation come from?  Let's go back to August 20, 1907, and a speech that President Theodore Roosevelt gave in Provincetown, Massachusetts at the dedication of a monument to the Pilgrims.  The speech itself wouldn't be much remembered today (even Isaac isn't old enough to have been there) but for President Roosevelt having unveiled a phrase that echoes to this day: "malefactors of great wealth."  He meant the robber barons of the era and their successors such as John D. Rockefeller and Andrew Carnegie.  He talked about his administration's efforts to break up industrial combines, of the sorts that Professor Richardson wrote about today.  Here's his descriptor, in context: "It may well be that the determination of the Government (in which, gentlemen, it will not waver), to punish certain malefactors of great wealth, has been responsible for something of the trouble; at least to the extent of having caused these men to combine to bring about as much financial stress as possible, in order to discredit the policy of the Government and thereby secure a reversal of that policy, so that they may enjoy unmolested the fruits of their own evil-doing."

A modern politician wouldn't speak in such complex sentences, but would nevertheless recognize the thought: the oligarchs of the United States seek to strain the public's finances as much as possible so that they can discredit the government and line their pockets, untroubled by subpoenas, surveillance, society, and surtax.

Is William Baxter (1929-1998) the culprit behind today's shortage of baby formula? History and economics say "yes"

On May 12 Heather Cox Richardson published this incisive essay, one of her "Letters from an American" series.  She starts her essay with a short discussion of the involvement of members of the Trump administration in the planning of the January 6 attack on the Capitol, and then moves into a report from the House Select Committee on the Coronavirus Crisis.  The committee's name doesn't describe its full ambit, which is to look into anything related to the federal government's response to the pandemic, including waste and fraud.  Professor Richardson then describes Tyson Foods pushing Secretary of Agriculture Sonny Perdue, and through him Vice President Pence and President Trump, to keep meatpacking workers on the job.  As she reports, "Industry leaders wrote a proposed executive order for Trump to issue, declaring a meat shortage and invoking the Defense Production Act to ensure that the plants continued to operate.  Less than a week later, Trump issued a similar executive order." 

Professor Richardson then ties the consolidation of meat production into the hands of a few gigantic businesses to the shortage of infant formula in the United States that resulted when one producer, Abbott, recalled its production from one factory after test samples were found to be contaminated, and describes the situation as the "larger problem of the consolidation of food production."

The "larger problem of the consolidation of food production" that Professor Richardson describes is significant, but it's only one facet of the very large problem of the consolidation of American and transnational industries in general, which started in the early years of the Reagan Administration.  Having successfully broken up American Telephone & Telegraph on antitrust grounds, the Reagan Administration and its chief antitrust enforcer, William Baxter, declared victory and went home, leaving the rest of American industry to merge and consolidate as it wished on the modest condition of paying a small toll to the government pursuant to the Hart-Scott-Rodino Act of 1976, but unfettered by Section 2 of the Sherman Act of 1890.  Benign neglect remained the policy of the enforcers (the "enablers"?) until 1998 when the Clinton Administration sought to fracture Microsoft - a case that the government won at trial and then ignominiously settled in the second year of the Bush (43) administration.

Since then antitrust enforcement in the context of corporate mergers has ceased to play an important part in corporate America.  By 2017 business professors Gustavo Grullon, Yelena Larkin, and Roni Michaely could write that market concentration as measured by the Herfindahl-Hirschman index (the one the Justice Department uses, when it's on the job) "has systematically increased in over 75% of U.S. industries, and the average increase in concentration levels has reached 90%" measured since about 2000. They also found that in real-dollar terms the average and median size of public corporations ("the largest players in the economy," they wrote) had tripled.  As they demurely put it, "Profit margins and shareholders' wealth gains have increased in proportion to the increase in industry concentration... Increased profit margins are mainly driven by wider operating margins rather than higher operational efficiency."

Translation: as the big got bigger, they used their concentrated market power not to be more efficient, nor to innovate, but to charge higher prices and make more money.  Food production is just one of the industries where the increase in concentration has brought new opportunities for the poor to subsidize the rich.

Justice Alito's draft opinion will hand the Ninth Circuit a powerful tool, if it dares to wield it

Justice Samuel Alito's draft opinion in Dobbs v. Jackson Women's Health Organization, recently leaked to Politico, proposes to overrule Roe v. Wade and Planned Parenthood v. Casey altogether.  The opinion contains some gems of legal thought that the good Justice may not have thought completely through before committing his view to paper.  Here's one of them.

On page 5, Justice Alito states flatly: "We hold that Roe and Casey must be overruled."  He then explains why:  "The Constitution makes no reference to abortion [true], and no such right is implicitly protected by any constitutional provision, including the one on which the defenders of Roe and Casey now chiefly rely - the Due Process Clause of the Fourteenth Amendment.  That provision has been held to guarantee some rights that are not mentioned in the Constitution, but any such right must be 'deeply rooted in this Nation's history and tradition' and 'implicit in the concept of ordered liberty.'"  His quotations are from a 1997 case, Washington v. Glucksberg, in which the Supreme Court held that the Fourteenth Amendment does not bar a state from prohibiting physician-assisted suicide.

Let's talk about whether one current constitutional right is "deeply rooted in this Nation's history and tradition."  I have in mind the right of corporations to enjoy the same constitutional rights as people, upheld most notably in 2009 in Citizens United v. Federal Election Commission, the case that gave corporations the constitutional right of free speech, which they could express through unlimited political spending, unfettered by the FEC.  The right of free speech is certainly deeply rooted in our history and tradition, as it predates the adoption of the First Amendment in 1791.  We can trace the right of free speech, or at least the tradition, back to the libel trial of John Peter Zenger in New York in 1734.

But the rights of corporations are not deeply rooted in our history and tradition.  In fact, when the states came together to form the United States, corporations existed only by the grace and favor of the state legislatures, and before that, by royal charter.  To form a corporation, you needed to petition your state legislators, and possibly to subsidize some of them.  It was not until the 1840s that states began to adopt laws that allowed ordinary people to form corporations. In fact, at the end of 1791 the United States had only 41 corporations.  Thus, if you follow the reasoning of Justice Alito, the constitutional rights of corporations are not deeply rooted in the nation's history and tradition, and thus are not protected by the Due Process Clause of the Fourteenth Amendment.  The court has said that corporations have a constitutional right of free speech under the First Amendment, but the originalists on the bench have to twitch a little when they say that, because the Framers weren't thinking of corporations when they wrote the First Amendment any more than they were thinking of semiautomatic weapons when they drafted the Second Amendment.

Justice Alito's draft opinion overruling Roe v. Wade has been more than ten years in the making - you can see it foreshadowed in the opinion in Citizens United.  If the Supreme Court's final opinion adopts the logic and conclusion of his draft opinion, when the initial shock wears off, look for some of the federal appellate courts, the Ninth Circuit especially, to apply Alito's test for overruling Roe v. Wade as an excuse to disregard or very narrowly interpret other decisions of the Supreme Court that aren't supported by sound reasoning.

Women, children, and CPAs first!

As the S.S. Trumptanic takes on water, the former president's outside accountants have headed to the lifeboats.

The Port of Portland is still bigger than it thinks

Back in 2008, I wrote this post about how The Port of Portland (the "The" is part of its official name) was bigger than it thought.  When the legislature first established the Port nearly 60 years ago to absorb the Portland Dock Commission and run as a state agency, the legislature defined "Portland metropolitan area" in ORS 778.005 to be "the Oregon portion of a standard metropolitan statistical area as designated and published by the United States Bureau of the Budget with an Oregon population of more than 750,000.  The area that qualified consisted of Multnomah, Washington, and Clackamas Counties.  ORS 778.010 then defined the Port district to be the Portland metropolitan area, resulting in the Port district being those three counties.

A funny thing happened in the 1980s.  The federal government did away with the term "standard metropolitan statistical area," replacing it with "metropolitan statistical area."  The federal government also redefined the Portland MSA to include Columbia and Yamhill Counties.

The Port took no notice that the federal government had given it two additional counties, and in 2008 continued to believe that its district included only three counties.  It believes that even today, saying on its website that "at least two commissioners must each live in one of the three counties in the Port district."  Could the federal government add two counties to the Port district by changing the SMSA/MSA definition?  Perhaps not - a Port lawyer might argue that the definition of "Portland metropolitan area" must be read as it was in the 1960s when the legislature created the Port.

However, in 2009 the legislature amended ORS 778.005 to say that "Portland metropolitan area" means "the Oregon portion of a metropolitan statistical area as designated by the United States Office of Management and Budget with an Oregon population of more than 750,000."  In 2009 that sentence described Multnomah, Washington, and Clackamas Counties -- and Columbia and Yamhill Counties also, all of which were in the only metropolitan statistical area with more than 750,000 Oregon residents. 

Whether or not Columbia and Yamhill Counties were in the Port district before the 2009 amendment, the legislature unambiguously brought them into the Port district in 2009.  The legislature may have meant to leave the boundaries unchanged, but when legislation is plain and clear, the intent of the legislators isn't relevant.  As A.P. Herbert famously said about another legislature, "If Parliament does not mean what it says then it should say so."

Is this odd fact significant?  Maybe.  ORS 778.210(1) requires the Governor to appoint two Port commissioners from each county in the district.  Neither the  current governor nor any prior governor has ever appointed the required two commissioners from Columbia County and Yamhill County.  Someone in a battle with the Port might argue that as the Port's commission has not been properly constituted since 2009, perhaps the commission doesn't have the authority to do anything. 

I have no dog in that prospective fight, but if I lived in Yamhill County I might write to the Governor and ask to be appointed to the Port board.

The Oregonian finds what the Bureau of Planning and Sustainability didn't want to look for

It's hard to improve on the Oregonian's headline in today's print edition: "$11.5M city contract awarded to executive with history of fraud."  (The story is available online to subscribers, here.)  The reporter, Shane Dixon Kavanaugh, writes that the directors of the Portland Clean Energy Community Benefits Fund, a city office of some sort, awarded a $11.5 million contract to a newish nonprofit corporation called Diversifying Energy to buy and install portable heat pumps and cooling units inside 15,000 homes and apartments.  (That's about $750 per heat pump or cooling unit.)

The story points out three oddities in the city's choice of a contractor.  First is that Diversifying Energy is not even two years old.  Its president, secretary, and executive director Linda Woodley formed the corporation in July 2020, and originally named "Energizing Diversity."  Its 2020 tax return indicates that it received less than $50,000 from all sources in 2020.  Mr. Kavanaugh reports that the City of Portland did award Diversifying Energy a $198,000 contract in April 2021 to upgrade three buildings for air quality.

Second is that Ms. Woodley is subject to an IRS tax lien for not paying income taxes in 2015, 2016, and 2017, and had been convicted of bankruptcy fraud and tax fraud in 1997.

Third is that city staff who evaluated the applications for the grant had concerns about Diversifying Energy's high personnel costs and recommended that the city accept the competing bid.  The city's grants committee rejected the staff recommendation and recommended that the city offer the contract to Diversifying Energy.  The city council unanimously approved the committee's recommendation, also rejecting the staff advice.

Not mentioned in the story, but odd, is that the IRS determination letter for Diversifying Energy was issued not to Diversifying Energy or its prior name when it was formed, but to "Shades of Green" the month before Energizing Diversity was incorporated.   (A "determination letter" is the letter from the IRS that says that a nonprofit organization qualifies as a 501(c)(3) and that contributions to the organization will be tax-deductible.)  The state had two businesses using the name "Shades of Green."  One was in Klamath County and has been in existence for 20 years.  The other was a for-profit corporation called Prisma Point Incorporated, formed by Ms. Woodley in 2014 and still arounds today, operating from the same office as the nonprofit.  It's extremely unusual for a non-profit to have a determination letter that had been issued to a for-profit corporation; in fact, it's not supposed to happen.

Mr. Kavanaugh's story contains the obligatory disclaimer by city officials (there should be a hotkey for that phrase), that "neither city staffers nor grants committee members knew of Woodley's troubling past, Portland officials told The Oregonian / OregonLive, when the news outlet informed them of reams of public records documenting her financial fraud and unpaid taxes.  Nor were they aware of a series of mischaracterizations and possible outright fabrications in her firm's proposal that The Oregonian / OregonLive found during fact-checking, they said."

What conclusion can we draw from The Oregonian and Mr. Kavanaugh finding information that the city missed?  The obvious one is that when city management determines to award someone a contract, it shuts its collective eye to warning signs.  The less obvious one is that the grants committee, part of the Bureau of Planning and Sustainability, awarded the contract on something other than business history, financial qualification, track record, and economic efficiency.  The City Council should insist that the members of the committee explain their thinking before the city allows them to award any other contracts.

The Laquedem Plan to measure and index the minimum wage

In real-dollar terms, the minimum wage of $7.25/hour is at its lowest point since shortly after its creation in 1938.  It has been $7.25/hour since 2009.  One of our major political parties, fearful of directing money to people who might actually need to spend it, has obstructed efforts to raise the wage to $15.

Isaac has devised a plan to satisfy the Republicans' philosophical objections and honor the memory of St. Ronald Reagan, all in one package.  Let's begin by directing our thoughts to the Reagan administration, the Laffer curve, and the large tax cuts of that era.  The theory of the Reagan tax cuts, honored in two later Republican administrations, is that by reducing income taxes on large corporations the tax savings would become free cash that would trickle down to the people who were actually doing the work. 

That didn't happen.

I'd like to suggest a new metric for measuring the minimum wage, which is to measure it not in dollars but in how many hours of work at the minimum wage equals one year of a Congressional salary.

The base Congressional salary (leaders get more) is $174,000/year.  The minimum wage is $7.25/hour.  One year in Congress carries remuneration equal to 24,000 hours at the minimum wage.

Now go back to the first year of the Reagan era.  Congresspeople received $60,662.50/year.  The minimum wage was $3.35.  One year in Congress in 1981 equaled 18,108 hours at the minimum wage.

The facile interpretation is that our Congresspeople are 33% more productive than they were in 1981, because they now earn 33% more than their predecessors did in 1981, in terms of the minimum wage.  We have only to look at the Senate of the last few years to reject an explanation based on productivity.  So let's go back to trickle-down economics.

If trickle-down economics had worked as Reagan and Laffer had predicted, then there would be few - maybe no - minimum-wage jobs remaining, because the price of labor would be higher in real-dollar terms than it was in 1981.  The plutocrats would have taken the dollars showered upon them by the appreciative Solons and spent them pursuing labor, driving up wages.  That wages did not keep up is a strong mark against the Reagan-Laffer theory.

But let us assume, as Mitch McConnell and his merry band of naysayers must, that the tax cuts in fact trickled down.  In that case there would be no harm in raising the minimum wage to a level that assumes that the tax cuts did in fact trickle down.  That level, I suggest, is the 1981 ratio, when the minimum wage was 1/18,108 of a Congressional salary.  Today that's $9.61/hour. 

If Senator McConnell is willing to adopt standard Republican economic theory, then he should be all in favor of raising the minimum wage to $9.61/hour, and to index it to equal at least 1/18,108 of a Congressional salary.  If he continues to oppose raising the wage to keep up with costs, then we should insist that Congress adopt another Republican principle and tie Congressional salaries to productivity.  One refinement would be to provide that if a session of Congress is less productive than the historical average, its leaders should get not more, but less, than the base salary.  It seems unjust to call Senator McConnell a legislator when he's working as hard as he can not to legislate.

No Peloton for Christmas? Those two contentious jobs at the Port of Portland cast a long shadow

Readers with long memories will recall that in 2014 the ILWU and the electricians' union fought over two jobs at Terminal 6, the Port of Portland's container facility on the Columbia River (pictured).  The question was whether the task of plugging power cords into refrigerated containers was properly allocated to the ILWU (because the containers were sitting on docks) or to the electricians (because the task involved wiring).  The fight between the unions turned into a general slowdown that drove container shipping away from Portland in 2017.  One freight line tenuously returned (one ship a week) in early 2020, just before the pandemic struck. 

The idled union workers might ask their leadership to read this story about the Port of Los Angeles, the busiest port on the west coast.  Shipping times from China to Los Angeles have ballooned from 2 weeks to 7 or 8 weeks.  The ships still chug across the Pacific Ocean at the same speed -- until they get to Los Angeles, where they sit and wait offshore for weeks with their cargoes of Pelotons and other Christmas gifts (now Twelfth Night gifts?) before they can dock and unload.  Everyone involved justly blames the Covid-19 pandemic.  The delays in unloading in Los Angeles are so great that many importers paid extra - a lot extra - to have their goods flown to the United States instead of taking their chances on being marooned offshore.

Consider the Port of Portland's nearly idle Terminal 6, its facility for handling shipping containers.  Certainly the warring unions couldn't have predicted in 2014 that a worldwide pandemic would strike in 2020.  But they might have considered that anything that caused a slowdown at a larger west coast port might encourage freight companies to divert their ships to Terminal 6, and keep their members employed.

Ted Cruz would eat his words, if he had electricity to cook them with

Except now it's Texas that can't perform even basic functions of civilization as millions of Texans are without power because the state elected to go it alone with its electric grid.  Ted Cruz took off for a vacation in Cancun, where the state government is able to provide power and water.