06.14.09
Posted in Research Papers at 8:01 pm by Administrator
The Macroeconomic Benefits of Cooperative vs. Capitalist Ownership
Mondragon: A Better Way to Work?
Abstract: A computer model linking national income and product accounts, input-output structure, the labor market, and consumption data for the U.S. economy is used to compare the effectiveness of traditional macroeconomic policies and alternative forms of business ownership in generating more stable or equitable growth and avoiding business cycle recessions. The instability of the economy is demonstrated to result from underlying structural weaknesses rooted in the capitalist form of ownership.
Typical macroeconomic policy options cause feedback effects via investment or consumption behavior that eventually result in financial crises, making these policies inadequate for long term stabilization and growth. Tax policy favoring business interests can create new investment, but its effect is often defeated by declining consumption demand as a product of wealth redistribution. Relatively faster growth of liquidity also causes a high growth rate of investment, favoring production in the short term, but a falling profit rate leads to riskier financial practices and crisis in the long run. Higher growth of fiscal spending produces a higher growth rate of output and employment but it is disproportionately in low wage and service sector jobs. The profit rate rises steadily but increasing debt creates a liquidity crunch that eventually chokes off new investment. Financial crises also result from increasing the velocity of money, an effect of intensified financial intermediation and financial speculation.
The producer cooperatives of the Mondragon region of Spain offer an example of the economic benefits of an alternative financial and institutional structure based on the cooperative form of ownership. Mondragon businesses are owned and operated by their employees. Management is elected, and the position is rotated among the firm’s employees. Decisions that are made by management in capitalist ownership are often made by democratically elected committees or by direct vote of the employees in cooperatives. Priority is given to the job creation or preservation potential of a business strategy before its potential for profit. The salary ratio between high and low wage jobs is fixed. Profits are only partly distributed to employee-owners, and only then in retirement accounts that can be accessed after retirement. Profits and retirement accounts are used to finance new investment and business start-ups. As a result of these structural differences, there is far less leakage of wealth from the Mondragon economy. A very high proportion of business revenues remains in the local economy and provides for community services and infrastructure development; retirement, health care, and social welfare benefits; employee education and training; and new investment and business development.
The underlying argument is that an economy based on the participation of workers in control and management would be more productive than the existing structure of the U.S. economy. The hypothesis is tested by adapting a structural macroeconomic model of the U.S. with parameter values that reflect cooperative rather than investor ownership. Simulations of the U.S. economy using altered coefficents to represent cooperative business structure but with the same exogenous final demands generate much higher growth without cyclical fluctuation. The consequence of investing directly from earnings rather than from debt or the issuance of stocks and bonds is stable, sustainable growth without financial crises.
If maximizing economic growth and stability are the prime objectives of economic policy, employee ownership with democratic control is demonstrated to be a more effective ownership structure for accomplishing that objective.
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01.16.09
Posted in Research Papers at 8:00 pm by Administrator
An Empirical Model of the Investment–Finance Link and Implications for Public Policy
ABSTRACT: Investment is the primary engine of growth in capitalist economic systems. Investment in plant and equipment leads to growth in output and employment, which results in a higher level of income that is respent by consumers, further boosting demand. The propensity to invest is determined by the expected profit generating potential of an investment, which depends on anticipated future revenues, so that profits, investment, and output form a cumulative loop that feeds on expectations and their fulfillment.
Firms rely on external sources of financing, and consequently investment is affected not only by their own financial condition, but also by that of the banking system and financial markets. Since investment is the foundation supporting every other component of the monetary economy, understanding the cumulative nature of the finance–investment cycle is crucial to correcting the underlying weakness of capitalist economies– the periodic inadequacy of aggregate demand to generate sufficient employment and income to meet basic needs.
The empirical model presented here demonstrates the intimate connection between conditions in financial markets and investment behavior in the postwar U.S. economy. The policy implications that follow from this are clear: to be effective, policy must address risk and uncertainty in capital markets, and attempt to reduce price volatility. The events of 2008 have demonstrated that it is no longer adequate to rely entirely on regulation of financial institutions. Effective policy must do everything possible to reduce or mitigate systemic risk.
Keynes suggested that the best way to mitigate systemic risk is through a tax on transactions in financial markets. The tax could be graduated to match the level of risk of the instrument, and the revenues can be recycled to enhance the capacity to monitor financial markets, institutions, and instruments. Another useful policy would be procyclical modification of capital requirements. Capital requirements could be increased during economic booms to protect the financial system against incremental risk-taking, and reduced during downturns to make credit more widely available when it is needed most.
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Posted in Research Papers at 7:30 pm by Administrator
The Economic Impact of Energy and Environmental Policies Affecting U.S. Electric Utilities
ABSRACT: Utilities generally have in-house models that adequately forecast electricity demand, costs, and revenues in the near term, and facilitate decision-making regarding power supply and resource allocation. The model presented here provides the capability to forecast long-term electricity demand as a function of economic growth, as well as the industry distribution of that growth. This enables a much more accurate assessment of long-run resource requirements, as well as the effects of energy and environmental policy decisions that affect costs and operations for electric utilities.
The model forecasts economic output, income, and employment for 14 industries in each of 3,140 counties to the year 2020. The distribution of growth among counties and industrial sectors is linked to a fully dynamic interindustry model of the national economy, which forecasts growth individually for 350 industries. The national and regional economic models are then linked to a utility model that forecasts residential, commercial, and industrial electricity sales and rates for each of over 3,400 utility service areas nationwide.
The model was used to assess the impact of a $10 fee for each ton of carbon emitted at all fossil fuel power plants nationwide. The results are then aggregated by utility service territory and can also be aggregated by county, state, and nation. These results were compared to two other simulations, one involving a 10% rate increase and another testing 10% rate decrease over the forecast period.
The impact of a carbon emissions fee on U.S. employment, income, and output is negligible. Only electricity sales are affected significantly by energy costs. Overall electricity demand is reduced by about 12% in response to a 10% increase in cost. Due to the near unitary elasticity of electricity demand, the cost to the U.S. economy of a $10 per ton carbon fee is negligible: about $84 billion over 5 years, which amounts to 0.1% of GDP per year. This is about the same impact as the 20% increase in rates that occurred over the same period.
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Posted in Research Papers at 7:00 pm by Administrator
Institutional Investment Theory
Abstract: The financial instability hypothesis and effects on investment and output cycles are conceptually related in institutional theory, though not explicitly. This paper establishes an explicit connection by relating the characteristics and behavior of institutions and economic agents that are associated with investment financing, and then examining their evolution over the course of the business cycle.
Changes in profit flows affect the market value of assets, which influences the demand for credit and interest rates. Shifting liquidity preferences, credit supply, and the market value of debt are also related to the circuit of capital and the rate of new investment. The discussion concludes by discussing policy implications of an evolutionary approach to understanding the link between financial markets and investment behavior.
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Posted in Research Papers at 6:30 pm by Administrator
Has Chaos Killed the Auctioneer?
Abstract: An overview of the ways in which chaos theory has been applied to the analysis of macroeconomic time series is provided. Econometric techniques that attempt to reveal chaos in an apparently random time series overlook fundamental characteristics of chaos which defy analysis, such as infinite variance. Mainstream attempts to explain the business cycle in terms of neoclassical equilibrium carry over to the use of reduced models and ad hoc formulations to explain erratic fluctuation as deterministic chaos in a fundamentally stable economy. By simplifying complex processes, they preclude more realistic explanations for nonlinear patterns.
Alternative theories of the business cycle that rely on dynamic models of endogenous nonlinearity to explain fluctuation are capable of generating deterministic chaos in addition to stable growth cycles. However, there is little attempt on the part of these researchers to follow through with empirical validation. The different methods surveyed arrive at different explanations of the causes of macroeconomic instability based on the approach used to investigate it, rather than expanding on the potential of chaos to deal with the complexity of actual data, as is done in the natural and physical sciences.
The paper concludes with suggestions for a more fruitful direction for research into the applications of chaos theory to business cycle analysis.
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Posted in Research Papers at 6:00 am by Administrator
Industrial Restructuring, Financial Instability, and the Dynamics of the Postwar U.S. Economy
ABSTRACT: The transition from a manufacturing to a service economy has opened new frontiers of economic opportunity, but it has also been associated with a great deal of volatility in financial markets, job layoffs, and social stress. When this transition is complete will we find the overall health of the U.S. economy has improved or declined?
This study is an empirical investigation into the combined effect that financial instability and industrial restructuring have had on postwar economic growth and recessions. The purpose is to shed light on the more fundamental question of whether recent innovations in financial markets are positive for the economy as a whole.
During the postwar period there was a perceptible shift in the approach taken to study the dynamics of the economy, corresponding to a consensus that the economy had stabilized since the crisis of the Great Depression. The movement was away from an inductive method, in which data analysis interacts with formal theory development, toward a deductive approach in which econometrics was called upon to confirm pre-established theories regarding macroeconomic equilibrium.
The emergence of increasing market volatility in recent decades, and new insights into the nature of complexity gained from the study of chaos, have cast doubt on the usefulness of this approach, and a new type of analysis is called for, one that can better accommodate complexity in the modeling of economic dynamics. The book begins with an examination of these methodological issues. A brief history of economic thought relating to business cycles serves as a reminder of the contributions made by researchers who relied on an empirical approach to pull us out of the Great Depression.
Changes in the industrial structure of the economy over the postwar period are then examined to reveal some of the factors responsible for secular changes in employment, wages, productivity, and profitability. Input-output data of interindustry transactions and income distribution is related to NIPA flows of GDP sectors to account for dramatic changes in economic structure. The decline of manufacturing and the rise of service industries is associated with secular changes in the pattern of personal consumption, employment, wages, and productivity, and the impact of these changes on the distribution of income across industries and between profits and wages is examined.
To explain the cyclical nature of investment and output, Institutional theory regarding financial instability is examined in depth and related to investment behavior. An empirical model of this behavior is constructed by linking capital flows (corporate profits, commercial credit, stock prices, and bond yields) to fluctuations of investment and GDP with a nonlinear accelerator, in which the stability conditions of the characteristic equation are evaluated using historical values for the multiplier and accelerator. The effect of changing flows of credit and finance on capital spending simulates the learning and decision processes of investors as they react to conditions in financial markets.
The resulting nonlinear model accurately predicts historical investment and output cycles, and yields stability conditions for different historical periods. The confirmation of a relationship between these stability conditions and postwar economic recessions makes it possible to forecast the timing and severity of recessions, given the current state of financial markets. It is also possible to evaluate various adjustment policies for their effectiveness at optimizing macroeconomic growth and avoiding future recessions.
The model was developed in the sincere hope that it might someday be used for the purpose of avoiding or at least mitigating the devastating economic impacts of financial crises. If we learn from history, future generations need not suffer from the vagaries of an economy that seems beyond control.
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10.14.08
Posted in Climate Change at 9:37 pm by Administrator
Some people question whether climate change is really happening, and whether or not it is caused by human activity. I believe it’s one of the most serious environmental threats we have ever faced. Extreme weather events such as Hurricane Katrina and this year’s “500-year flood” in the Mississippi watershed are just the beginning. I don’t think we want to wait until our coastal cities are underwater before taking meaningful action to reduce carbon emissions.
The global south is already suffering severe consequences. I worked in the Sahel region of West Africa 25 years ago with farmers who were already suffering from climate change. They could no longer grow traditional food crops and their wells were dry. I did what I could to help mitigate the effects by building wells & earthen dams for water supply and irrigation, but it was inadequate. They became “environmental refugees” and had to leave land they had farmed for generations. They moved to shantytowns near the capital city, where jobs were scarce, pay was meager, and living conditions were miserable.
The story is similar throughout the global south. In Bangladesh and other lowland countries, sea level rise has already inundated hundreds of square miles of farmland. Some island nations in the south Pacific have had to relocate entire populations. As the Greenland and Antarctic ice shelves collapse and sea level rises, where will the millions of displaced farmers go?
Here in the northwest, glaciers I climbed five years ago are nearly gone. That’s our water supply. Our rivers have severely reduced flows. Forests to the east of Mt. Rainier are nearly dead from drought and disease. If these trends continue, we too could become environmental refugees.
Some people claim that it will cost too much to control carbon emissions, and it will wreck the economy. I did an extensive analysis of the cost of reducing carbon emissions to 1990 levels at all fossil fuel power plants in the U.S., in order to comply with the Kyoto Protocol. A well funded propaganda campaign funded by the utility industry claimed that it would ruin the economy. My analysis demonstrated the opposite: the cost to the U.S. economy in lost output was about $86 billion over five years. This is less than the cost of Hurricane Katrina, or the Mississippi floods.
My analysis did not factor in the benefits of increased efficiency and productivity, and the development of new technologies and industries that would be required to meet the demand for higher efficiency. When these are factored in, the net impact would be significant economic growth and opportunity.
Energy Secretary Sam Bodman said “Innovation is key to environmental stewardship.” Materials that once were discarded can go into construction projects rather than landfills. Recycled industrial byproducts like coal ash can be made into concrete. Sulfur dioxide can be made into synthetic gypsum used in drywall.
Green industries are among the fastest- growing sectors of the economy, and Washington will benefit by being ahead of the curve and developing this industry as quickly as possible. We need to invest in green-collar job training to prepare Washington’s workforce for clean energy industry and to ensure that green businesses have the skilled workers they need.
We need enforceable limits on global warming pollution. We can conserve a great deal of energy by improving efficiency, changing behaviors, retiring old, dirty energy sources, and producing more renewable energy, all at reasonable cost. All of these solutions need to be incentivized in utility rate structures, to promote rapid implementation. I personally lobbied my legislators in support of I-937.
We also need to take meaningful personal action, and I actively work to reduce my own carbon footprint. I started by commuting to work by bicycle and installing solar heat and hot water in my home. I installed 20” of insulation in my attic, invested in a programmable thermostat and a high efficiency heat pump, and keep the thermostat at 65 degrees in my home. These small changes have reduced my energy consumption more than 50%. With appropriate incentives, every household could adopt similar measures at very low cost.
Legislative solutions that will help reduce carbon emissions and slow the rate of climate change:
A renewable portfolio standard for new sources of electrical generation
“Feed-in rate tariffs” that permit utilities to charge consumers a higher rate for renewable energy
“Renewable energy payments” to homeowners and businesses that sell renewable energy to their utility
Production tax credits that reduce the cost of new investment in renewable energy
Consumer tax credits that speed the adoption of conservation measures and renewable energy technology
Implementing a cap-and-trade system for limiting carbon emissions. This ensures that the needed reductions will actually take place. Past experience with SO2 and NOx emissions trading has shown that it leads to greater reductions in pollutants than either taxes or regulations do.
Auctioning (rather than allocating) permits will establish a meaningful price floor for traded allowances. The cap needs to be reduced over time so that targeted reductions in carbon emissions actually occur.
Prioritize transportation investments that demonstrably reduce greenhouse gas emissions, such as mass transit, carpooling, and high-speed bicycle routes on all major highways.
Reduce single occupancy vehicle miles traveled (VMT) by creating meaningful alternatives to the automobile, especially mass transit and dedicated bicycle routes on major roadways.
The I-5 replacement bridge must be designed to include high capacity transit (light rail or bus rapid transit) and bicycle lanes.
Develop an incentive-based approach to land use planning that encourages higher density development and leaves open spaces for wetlands, wildlife corridors, and greenways.
My opponent Don Benton opposed these solutions to climate change:
Opposed a 2008 House Bill 2815 Addressing greenhouse gas emissions and creating green collar jobs
Opposed a 2008 Senate Bill 6580 Addressing the impacts of climate change
Did not vote on a 2007 House Bill authorizing utilities to engage in environmental mitigation efforts.
Did not vote on a 2005 Senate Bill providing tax incentives for clean and alternative fuel vehicles
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10.08.08
Posted in Energy Independence at 10:02 am by Administrator
Are you worried about the global financial meltdown and its anticipated effects on the local economy? We are already seeing mass layoffs in manufacturing and financial services nationwide, and this will have ripple effects here in Washington.
We’ll lose a lot of jobs in the coming recession, but fortunately we’ll be buffered from the full effects of the economic slowdown because our industries are high-tech and export-oriented. Nonetheless, we should invest in infrastructure and growth industries to soften the recession and ensure a quicker recovery.
On average, 47,000 jobs are created for every $1 billion invested in infrastructure. The Port of Vancouver currently provides about 2,300 direct jobs, $82 million in annual tax revenue, and nearly $99 million in annual payroll income to local residents. Enabling the expansion of the Port and BNSF railway could add 4,000-5,000 jobs in the next 15 years.
We should also move forward with implementing the recommendations of the Columbia River Crossing Task Force for the I-5 replacement bridge. Restricted traffic flows cause delays and inefficiency that hinder economic growth. Expanding freight and passenger capacity along the I-5 corridor will grow Clark County’s economy and pay off for generations to come.
Energy independence is another good way to create great new jobs. Investment in energy efficiency and new technology increases productivity in the same way that investment in computers and the internet enhanced productivity over the last 20 years. Fortunately, our U.S. Senators understand that. Senator Maria Cantwell (D-WA) recently led the effort to pass landmark legislation in Congress that will spark investment in clean and renewable energy industries.
The clean energy legislation passed in the Senate in September by a vote of 93 to 2. It includes many new provisions: an eight year commercial solar and fuel cell investment tax credit; credits for ocean energy projects; tax credits for homeowners who install solar, small wind or geothermal heat pumps; a tax credit up to $7500 for new car buyers who purchase a plug-in electric vehicle, and a new credit for consumers who use alternative methods to heat their homes. The bill also creates an incentive to install new smart meters which empower homeowners to take control of their energy use. The legislation should be complemented by similar legislation here in Washington.
Senator Cantwell’s announcement said, “This landmark package will benefit American families and businesses by creating over half a million high wage jobs right here in America, empower homeowners to reduce their energy bills, and diminish our debilitating overdependence on fossil fuels. As a nation, we must transform the way we generate and consume energy by promoting investments in clean energy generation and increasing our nation’s energy productivity.”
The legislation creates jobs in energy efficiency:
Extends the production credit for electricity produced from renewables, like wind, biomass and incremental hydropower. For the first time these production tax credits are extended to wave, tidal, and hydrokinetic technologies which have particular promise in the Pacific Northwest.
Extends the investment tax credit for solar to eight years, providing the solar industry the market certainty they need to create 440,000 jobs nationally by 2016. In Washington State that translates to more than 10,000 permanent green collar jobs and as many as 15,000 construction jobs.
Extends and expands the Clean Renewable Energy Bonds (CREBs) program that enables public power and consumer-owned utilities that cannot benefit from federal tax credits to reduce their renewable energy investment costs.
In Washington State, 1,000 megawatts of installed wind capacity has already created employment for 2,650 Washingtonians during project construction and an additional 400 permanent jobs for a total economic benefit of $1.1 billion.
Creates high-paying renewable industry jobs in manufacturing (welders, technicians, assembly, averaging $41,000), engineering (averaging $117,000) and non-technical (sales, marketing, development, financial, averaging $52,500).
Provides utilities a tax incentive to put smart meters in Washington homes and businesses to take best advantage of efficient and renewable energy opportunities. Washington State is home to Itron, one of the world’s largest smart meter manufacturers and many leading edge smart grid companies.
Helps homeowners reduce energy expenditures
Helps homeowners generate their own electricity and hot water by providing a 30 percent tax credit towards the installation of solar electric or hot water systems, and expands the credit to cover residential wind generators and geothermal heat pumps. Homeowners utilizing these technologies can reduce a household’s water heating costs by 50 percent.
Consumers can also save up to $500 on their taxes if they install energy efficient products in their homes, such as energy efficient windows and high efficiency heating and cooling equipment.
Provides new car buyers up to $7,500 to buy plug-in electric vehicles, which can achieve over 100 miles per gallon. According to a study by the Pacific Northwest National Laboratory, we can electrify 70% of America’s cars, which would displace 6.5 million barrels of oil each day (50% of oil imports), and cut greenhouse emissions by an estimated 20%. In Washington State, the cost of powering a plug-in vehicle is the equivalent of 70 cents per gallon.
For the first time, energy-efficient biomass fuel stoves are eligible for a consumer tax credit of $300. Sixty percent of wood pellet stoves on the market are manufactured in Washington state.
My opponent Don Benton:
Opposed 2008 House Bill 2815 creating 25,000 green collar jobs
Opposed 2006 Senate Bill 6508 to increase local production of biofuels
Did not vote on a 2007 House Bill authorizing utilities to engage in environmental mitigation efforts.
Did not vote on a 2005 Senate Bill providing tax incentives for clean and alternative fuel vehicles
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09.29.08
Posted in Financial Crisis at 1:47 am by Administrator
We are in the midst of the worst financial crisis since the Great Depression. The commercial and investment banking business was deregulated throughout the 1980s and 90s with the promise that it would lead to greater prosperity. Investors invented fancy new financial instruments to distribute and disguise the risk, and walked away with millions of dollars in profits. Consumers found it easier to get credit, and many spent well beyond their means. Some are now facing foreclosure or bankruptcy.
The biggest investment banks are failing because they have to book those losses. Even safe assets have lost billions of dollars in value. In less than two weeks we saw the five biggest bailouts in history: the world’s biggest insurer, with assets of nearly $1 trillion; two of the world’s biggest investment banks, with combined assets of $1.5 trillion; and the two giants of the mortgage industry, with assets of $1.8 trillion. The total bill so far is about $4.2 trillion- and there may be more coming.
The Federal Reserve and Treasury Department had to act because these failures threaten the stability of the global financial system. Each time another bank or financial institution is bailed out by the government, their financial obligations are absorbed by the U.S. Treasury. At the beginning of the Bush administration, total U.S. government debt was about $4.3 trillion. Two weeks ago it was about $9 trillion. After this it will be upwards of $13 trillion.
Guess who is going to end up paying that debt? Taxpayers will. In just two weeks, each American’s share of the national debt went from $30,000 to about $44,000. We owe much of it to the sovereign wealth funds of nations like China, Dubai, and Saudi Arabia, which lack democratic institutions and could change their mind about the safety of these investments any day. I’ll bet you could think of some better ways to spend your hard-earned money.
The financial innovation of investment banks had very little oversight by regulatory authorities. Most Americans didn’t receive a single dime of the profits, but they got stuck with the costs when they failed. This is corporate welfare at its very worst.
You have heard conservative politicians say that the economy is fundamentally sound and that everything will be fine. That’s nonsense. They want to offer more tax cuts for the wealthy and more deregulation as the remedy. It won’t work: that’s how we got into this mess in the first place.
Deregulation allowed commercial and investment banks to invent ever more complex financial instruments. The investors that bought and sold these products made a lot of money, but all that changed when the underlying assets (including homes) lost value. When confidence in the stability of the financial system was shaken, that deepened the crisis and caused the ensuing financial meltdown.
Many of us suffered the effects of foreclosures, bankruptcies, and deflated house prices. The long-term consequences will be higher interest rates and higher Federal income taxes. These effects will hit hardest at about the same time baby boomers are retiring in huge numbers, our children will be entering the work force, and we’ll be facing a crisis in funding for Medicare, Medicaid, and Social Security.
This may be a national problem, but there are local solutions. What state-level policies could we pursue that would mitigate the effects?
First, we need to do everything possible to keep people in their homes and restore confidence in the banking system. By focusing only on rescuing big banks, the “no strings attached” bailout package implemented by Treasury Secretary Henry Paulson addressed only part of the problem. The financial meltdown will not end until we address the source of the problem: homeowners who are facing foreclosure and bankruptcy. Rescuing banks will not work unless we also rescue homeowners.
Now that Fannie Mae and Freddie Mac are owned by the Federal government, they need to provide low-interest fixed-rate mortgages to creditworthy homeowners facing foreclosure or an interest rate reset on adjustable rate mortgages. This will reduce borrowing costs and risks, make homeownership more affordable, reduce the inventory of unsold homes, and stabilize house prices. This in turn will stabilize the value of the mortgage-backed securities the government is taking over.
Commercial banks are sitting on the cash reserves they’ve built up during this crisis, rather than lending them out. Part of these reserves are funds they’ve received from the Federal Troubled Assets Relief Program (TARP). That was not the purpose TARP funds were intended for. Banks should be required to lend TARP funds to financially distressed homeowners and businesses, or use them to purchase mortgage-backed securities from Freddie Mac and Fannie Mae. Reducing the risk of these securities will cause mortgage interest rates to fall.
Foreclosed and vacant homes should be turned over to community land trusts and resold at a discount to people who have lost their homes. Placing the land in trust and leasing the land back to homeowners reduces the house price and mortgage cost significantly and creates permanently affordable housing.
As for banking and the mortgage lending industry, we need to modify capital requirements- increasing them during economic booms to protect the financial system against incremental risk-taking, and lowering them during downturns to make credit more widely available when it is needed most.
Government’s role is to foster useful innovation, limit greed and speculation, and protect consumers. There should be stricter standards and improved oversight of the banking industry, so that lenders act in the best interest of borrowers and consumers.
My opponent Don Benton opposed the following bills to protect consumers from mortgage scams and predatory lenders:
- Senate Bill 6381 established stricter fiduciary duties for mortgage brokers and required them to act in the best interest of borrowers.
- Senate Bill 6452 required full disclosure of interest rates and yield spread premiums.
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09.22.08
Posted in Economy and Jobs at 10:00 am by Administrator
The economy is a mess and it seems not enough is being done about it. The price of oil peaked at 3 times the price it was when President Bush took office. We have a global financial crisis that keeps getting worse, and the stock market and the dollar have lost more than half their value over that same period.
During the Clinton Administration, 22 million jobs were added to the U.S. economy. During the Bush Administration, only 5 million jobs were added- and then lost again. There was a $160 billion annual federal budget surplus at the end of the Clinton Administration. There is a $500 billion annual deficit at the end of the Bush Administration. It is projected to increase to more than $1 trillion in the current fiscal year.
This sea of red ink has tripled the national debt. Fully 75% of the $9 trillion national debt was created under the watch of just 3 presidents- Reagan and the two Bushes. Each person in America now owes over $30,000 of the national debt, much of it to the sovereign wealth funds of foreign countries. Foreigners are buying up U.S. assets at flea market prices.
One job after another is being outsourced, and entire industries are being relocated to countries with cheap labor. Workers here in the U.S. are pressured to accept reduced wages and benefits, and this often includes basic necessities such as sick leave and health care coverage. Average wages and salaries have barely increased over the last 8 years, while the costs of food, energy, housing, and health care have skyrocketed. Our lower standard of living has undermined the fundamental strength of the economy.
In the midst of this crisis, President Bush presented a record increase in defense spending as part of a $3 trillion budget that would reduce the growth of Medicare and Medicaid and eliminate an array of domestic programs. At a time when we need to be creating jobs and investing in infrastructure, the President called for $1 trillion in tax cuts to people making over $450,000 per year. At a time when so many families are struggling here at home, the President asked for nearly $1 trillion to continue the occupation of Iraq.
The residents of Vancouver spent more on the Iraq war than they spent on public services or education. The Federal government spent an estimated $572 billion on the military in 2007. Direct costs of the Iraq War since the occupation began total about $600 billion. This amounts to about $2,000 for every U.S. resident. That’s more than the combined GDPs of Sweden and Thailand, and eight times federal spending on education. Multiply $2,000 times Vancouver’s population of 144,000, and it comes to $288 million. The annual budget of the City of Vancouver is $241 million. The annual budget of the Evergreen School District is $204 million.
The best estimate of the direct and indirect costs of the war by Nobel Prize Economist Joseph Stiglitz puts the figure at close to $3 trillion. That’s about $10,000 for each U.S. resident. Multiply that number times the population of Vancouver, and you get $1.4 billion.
What are the long-term economic impacts of the war? Military expenditures for the wars in Iraq and Afghanistan, combined with huge tax cuts for the wealthy, caused massive budget deficits. Budget deficits are not free, we must borrow to cover those expenses. The money we borrowed to pay for the war (and for tax cuts and bank bailouts) will have to be paid back to investors by our children.
Not so well known is the fact that ballooning federal budget deficits also contributed to the collapse of the dollar, and that in turn led to higher import prices, especially for oil and commodities. The Iraq war has also made the supply of oil from the Middle East much less reliable, and oil companies passed along the associated “risk premium” to consumers in the price of gas.
Foreign investors who purchase most of our debt are losing confidence in the strength and solvency of the U.S. Treasury, so they demand higher interest rates to cover the higher risk. Higher interest rates mean higher monthly payments on mortgages and credit cards, and that is a factor that precipitated mortgage delinquencies and the banking crisis. Homeowners will suffer the effects of mortgage foreclosures and deflated property values for years to come. That has come full circle and led to lower tax revenues and a serious budget crisis for state and local governments, including Washington State and Vancouver.
What’s the solution? The best way to stop all this economic fallout from doing further damage to the economy is to stop borrowing and spending on the war. Consumers can also help by supporting local industries that provide a sustainable alternative to foreign oil: wind and solar energy; biofuels that use locally available resources such as wood waste and farm waste; energy conservation; and recycling of everything from paper, plastics, and metal to road and construction materials. These energy alternatives will help boost local employment and wages, which will be recirculated back into the local economy and create even more jobs.
Employers should also be required to offer reasonable health care coverage to all employees, with costs shared by employer and employee. Widespread coverage would reduce premiums and medical costs and make our state more competitive in the global economy. Family wages and benefits and good working conditions attract high quality workers and businesses to our state, and provide incentives for higher education and training.
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