Christian Schneider

Author, Columnist

Category: Economics (page 1 of 2)

The Story of Business: Competing For a Future

A national watchdog group called Bankrupting America has put together an outstanding series of films that highlight the hurdles Wisconsin businesses are facing in trying to grow their workforces.

This once, called “Competing for a Future,” highlights MCM Composites in Manitowoc:

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And this one, called “Moving Forward in Uncertain Times,” features Great Lakes Calcium, a small business in Green Bay, Wisconsin that makes the compound in Tums.

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Real or Fake?

A stimulus quiz from Bankrupting America:

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Cloudy With a Chance of Crony Capitalism

Last weekend, I took some time out from teaching my kids how to make daddy a martini long enough to let them watch the movie “Cloudy With a Chance of Meatballs.”  As I’m certain you recall, the movie features a young inventor, Flint Lockwood, who devises a machine that makes it rain cheeseburgers, pizza, and, yes, meatballs.  (The movie also features the much-awaited voiceover return of Mr. T, who was robbed when the Oscar nominations were announced.)

Spoiler alert: As the movie goes on, Lockwood’s machine goes on the fritz from overuse.  The city government of Swallow Falls, sensing a huge impending windfall from tourists wanting to see food fall from the sky, forces him to overextend the machine’s capabilities, leading to unanticipated consequences.  Those consequences come when the food gets larger and larger, leading to giant pancakes falling from the sky and crushing buildings underneath.  The island of Swallow Falls is buried under giant donuts, hamburgers, and steaks.

At the end of the movie, Flint flies a homemade spaceship into the middle of a giant meatball and manages to disarm his invention.  When he gets back to the town, they treat him like a hero – even though it was his invention that caused all the problems to begin with.

Now shift ahead to today, where an even more implausible event took place: Governor Jim Doyle thinks he created some jobs.

Yesterday, Doyle announced a $1.5 million loan to the Marquis Yacht Company in Pulaski, in order to save 315 jobs.  Marquis’ parent company filed for bankruptcy last year, and now Doyle’s Department of Commerce is ready to swoop in and aid the yacht maker.

But in the spirit of Flint Lockwood, we don’t need to guess how this all started:

1.  Wisconsin’s high taxes and anti-business climate cost companies millions of dollars;

2.  Additionally, high taxes prevent individuals from buying big-ticket items, like yachts;

3.  Business owner says he or she can’t afford to pay their workers, as profits are tanking;

4.  Jim Doyle swoops in to help only those businesses he deems worthy of block grant money, thereby “saving” jobs.

Sure, it’s not as dramatic as saving humanity from destruction by 50-foot bananas, but it’s the same concept.  Doyle expects us to give him credit for saving jobs that he, in effect, forced from the state.  And the only way for a business to be deemed worthy of a bailout is to drive down to Madison, pucker up, and smooch the posterior of of the outgoing executive.

So just like the movie, maybe we should send Mr. T to the Capitol to smack some people around.  Clearly, he does not pity the fool who costs Wisconsin jobs.

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How Eric Davis can Save America

davis1987 was a big year for the Cincinnati Reds’ athletic young star Eric Davis. The graceful, lithe outfielder was coming off a breakout season in which he hit 27 home runs and stole 80 bases. He was a combination of power and speed the league hadn’t seen in some time (and wouldn’t see for at least one more year, when a skinny rookie named Barry Bonds would make his debut.) In their 1987 season preview, Sports Illustrated called Davis “the Michael Jordan of baseball.”

It just so happened that Eric Davis’ emergence coincided with the explosion of the baseball card industry in the late 1980s. Baseball cards had been around in some form for over a century; but a variety of factors (most notably the loosening of the Topps card company’s monopoly on card production) propelled baseball card trading into a lucrative investment opportunity for kids and adults alike. By 1987, a Don Mattingly rookie card, issued only three years earlier, could fetch $90. After his historic 49 home run rookie season, Mark McGwire’s 1985 Topps Olympic rookie card shot up to 30 bucks apiece.

This is why, in 1987, I went to a baseball card show and shelled out $13 for a 1985 Topps Eric Davis rookie card. I checked the card’s value religiously from month to month. The value continued to climb as Davis hit 37 home runs and drove in 100 runs in 1987 – MVP-type numbers in the pre-steroid era. I felt I was sitting on a gold mine. I was already planning what type of Porsche I would buy on my 30th birthday and Davis was on his way to the Hall of Fame.

Full of pride at my purchase, I sought out my Dad, in order to brag. I told him I had a card that was worth twenty bucks. It was then he said something that would remain with me for the rest of my life:

“It’s only a piece of cardboard until someone’s willing to pay you 20 bucks for it.”

And there you have it – market economics summed up in one sentence. You can spend a lifetime reading Friedman, Hayek, or Von Mises; but if you want to save yourself days off your life, just heed my Dad’s advice. Nothing has an economic value beyond what someone is willing to pay for it. “Value” is simply an implicit contract between the buyer and seller. The same holds true for employment – nobody is really “underpaid.” You either work for what your boss is willing to pay you, or you don’t. That’s your “value.”

(Comedian George Carlin summed this up nicely when he observed that most people “do just enough work so they don’t get fired, and get paid just enough so they don’t quit.”)

I suppose it could be argued that everything I know about markets and economics came from baseball card collecting. At age 14, I had a massive collection, complete with card value spreadsheets and the like. My card trading negotiations with my friends likely resembled the Iranian hostage negotiations. They often dragged on for days, and involved insults, flattery, and every other negotiating tactic one can invoke. Thank God I hadn’t heard of waterboarding.

I bought Mike Greenwell rookie cards in the way Warren Buffett snatches up undervalued stocks. I tucked them all away, waiting for them to appreciate in value, as they almost certainly had to. When I finally took a class in college on investing in stocks, I just said “ooooh, it’s just like baseball cards.” Only a little less cutthroat.
In the late 1980s, major newspapers noticed the link between stocks and baseball cards. As documented in Dave Jamieson’s excellent book Mint Condition: How Baseball Cards Became an American Obsession, newspapers ran stories like “Turning Cardboard into Cash: These are Boom Days for Baseball Cards (The Washington Post), “A Grand Slam Profit May Be in the Cards” (The New York Times), and “Cards Put Gold, Stocks to Shame as Investment” (The Orange County Register).

Unfortunately, as happens in the stock market, baseball cards in the 1980s were riding a wave of irrational exuberance. The values were inflated well beyond a level that could be sustained – by 1991, an industry researcher estimated that $1.4 billion was spent on wholesale sports cards for the year ending in June.

But soon, it all came crashing down. The number of new card companies that flooded the market severely depressed the value of existing cards. The cost of card packs soared from around fifty cents per pack to over four dollars a pack in many cases, leaving young boys in the cold. Plus, as Jamieson notes, the 1994 Major League Baseball strike left a lot of uncertainty in the card market, and a lot of animosity towards baseball in general.

As unthinkable as it was just five years before, baseball card dealers couldn’t move any of their product. Card stores went out of business en masse – they are exceedingly difficult to find to this day, and when they exist, they deal primarily in memorabilia. Stock in the Topps company quickly dropped from its high of over $20 per share in 1992 to $4.25 in 1996.

As it turns out, the cards were just cardboard – when the desire of purchasers to pay $50 for a 1987 Fleer Barry Bonds rookie card (which I own) disappeared, the industry came crashing down, leaving many investors broke. (Current listed value of the Bonds card: $12.00)

This is not at all unlike the crashes suffered by the U.S. stock market in 2001 when the tech bubble burst, or in 2008 when the U.S. housing market deflated. In each instance, a crippling downturn was preceded by the same kind of irrational short-term thinking. Greed and myopic thinking caused investors to be overextended and caused them to expose themselves to an inordinate amount of risk. If only Wall Street bankers had collected baseball cards as children – they’d have learned their lessons.

A quick eBay check shows me that my Eric Davis card is selling these days for a cool $2.00. But the lesson Eric Davis taught me in investing is worth at least an extra fifty cents. Maybe one of these days, Congress will get around to having a hearing.

So go ahead, make an offer.

Taxpayers are Getting Jobbed

It’s the oldest political trick in the book: If you’re a lawmaker, you figure out what a piece of your legislation does, and give it a name that conveys the exact opposite of the bill’s intent.  If you’re a Republican that wants to preserve the right to smoke in Wisconsin restaurants, you introduce a bill and call it the “Smoke Free Dining Act.”  For Democrats, taxpayer funding of campaigns becomes the “Clean Elections Bill,” and censorship of conservative talk radio becomes “The Fairness Doctrine.” (If Barack Obama were President during Hurricane Katrina, he would have called it the “Bayou Modernization Act.”)

In recent months, Democrats have been taking a beating at the polls – despite spending hundreds of billions of dollars on “stimulus” spending, U.S. unemployment continues to hover in the double digits.  Recent reports show that all this spending hasn’t actually created any jobs – and voters appear to be fed up, seeing as how they are now electing Republicans to statewide office in Massachusetts. (Which is a bit like Tim Tebow being elected president of Planned Parenthood.)

(Democrats argue that had the stimulus not passed, things would have been much worse – a fact that can’t be proven.  They might as well say that the stimulus saved the Earth from being encased in lime jello.  What we can prove is that their supposed “jobs” bill actually had nothing to do with creating jobs.)

Which brings us to this week, where both President Obama and Wisconsin Governor Jim Doyle spent a substantial portion of their “States of” speeches to discuss the new fad in mis-naming bills: “Green Jobs.”

Democrats have figured out that in order to counter the perception that they are responsible for dramatic job loss, they have to throw the word “jobs” in front of every bill they offer.  When they introduce a bill that will raise energy costs on everyone on the state, they call it a “green jobs” bill.  Doyle insists his “green jobs” bill will create 15,000 new positions – about the attendance of a Wednesday night Milwaukee Bucks game – by 2025.  It appears many of these new jobs will be the result of funneling money to politically connected lobbyists, whose businesses stand to profit directly from the legislation. (In some cases, they even get to write the bills themselves.)

In the meantime, our study here at the Wisconsin Policy Research Institute has demonstrated how higher energy costs will force current employers to cut nearly 43,000 jobs – and that estimate is as conservative as possible.

If a bill written by special interests to pad their own wallets at the expense of utility rate payers statewide is a “jobs” bill, then literally anything is a jobs bill.  Spending a billion on new trains to run all over the state?  It’s a JOBS bill.

Democrats are currently pushing a medical marijuana bill – how is that not a jobs bill under their definition?  (And a true “green” jobs bill at that.) Marijuana users get hungry and buy a lot of Cheetos – won’t their bill keep Chester the Cheetah employed here in the state?  (Last week, Chester was indicted on three counts of providing kickbacks to federal judges.)

This whole “jobs” crazy among Democrats is simply naked image rehabilitation – no different than John Edwards’ trip to Haiti with a personal videographer.  It’s a verbal sleight of hand that has no basis in reality, and only serves to confuse the public.

To gauge the true effect of the bill, one needs only to listen to the businesses that actually create the jobs here in Wisconsin – who are nearly universally opposed to the climate change plan (except for those who State Rep. Cory Mason allows to write the bill to line their own pockets.)  They argue, persuasively, that by jacking up energy costs, businesses will have less money to hire workers and re-invest in their communities.

On the other hand, the bill’s proponents want you to believe them because they…well… they belong to the Sierra Club.  And their newsletter has a quote from Leonardo DiCaprio, saying climate change is bad.

(Incidentally, environmental groups are the best at mis-naming bills for their benefit.  For instance, take the “Independent DNR Secretary Bill,” which eliminates the governor’s ability to choose the Department of Natural Resources Secretary.  Because nothing says “independent” more than a cabinet secretary chosen by an unelected board of environmental activists.)

Asking liberal politicians to grow jobs in a bad economy is like trusting a doctor who amputated the wrong leg to get it right the next time.  This climate change bill is nothing more than throwing good money after bad – giving Democrats an escape hatch from their disastrous job creation efforts of 2009.

Government and Labor: A More Perfect Union

In the last issue of WI Magazine, my end column explained how the traditional stereotype of union workers has become obsolete.  While the idea of the typical union worker had always been a fat, mustachioed guy with work boots and a hard hat, union membership has fallen off significantly in the private sector.  Thus the new typical union worker tends to be a high-earning, college educated female working in government – namely, teachers and librarians.  Even more surprising is how fiscally conservative these new union members tend to be.

From my column:

Even more intriguing, the typical union household is much more fiscally conservative than traditional stereotypes would suggest. Among union members, 52% listed either “holding the line on taxes and government spending” or “improving the state’s economy and protecting jobs” as the top priority of the Legislature. Traditional union priorities, such as making health care and prescription drugs more affordable (12%), scored much lower than expected.

Among union households, President Obama is still popular, with a 64% approval rating. Yet Gov. Jim Doyle, who is to Wisconsin unions what Hugh Hefner is to teenage boys, actually has a high unfavorability rating, with 49.7% rating him “somewhat” or “very” unfavorably. This is even higher than the 47.4% unfavorable rating Doyle received from the public at large.

On Monday, the New York Times ran an article that also noted the shift in union workers to the public sector:

For the first time in American history, a majority of union members are government workers rather than private-sector employees, the Bureau of Labor Statistics announced on Friday.

In its annual report on union membership, the bureau undercut the longstanding notion that union members are overwhelmingly blue-collar factory workers. It found that membership fell so fast in the private sector in 2009 that the 7.9 million unionized public-sector workers easily outnumbered those in the private sector, where labor’s ranks shrank to 7.4 million, from 8.2 million in 2008.

The article also notes what we already knew: that despite the recession, the total number government employment grew last year, inching up 16,000, to 22,516,000.

A Tale of Two Economies

Earlier this week, I linked to a column by Steve Malanga that detailed the history of the U.S. government’s attempts to expand homeownership to those who may not be ready to afford it.

Today, Malanga is back with an outstanding article in the Wall Street Journal that recaps the growth in union influence within government:

Call it a tale of two economies. Private-sector workers — unionized and nonunion alike — can largely see that without compromises they may be forced to join unemployment lines. Not so in the public sector.

Government unions used their influence this winter in Washington to ensure that a healthy chunk of the federal stimulus package was sent to states and cities to preserve public jobs. Now they are fighting tenacious and largely successful local battles to safeguard salaries and benefits. Their gains, of course, can only come at the expense of taxpayers, which is one reason why states and cities are approving tens of billions of dollars in tax increases.

[…]

The results of such efforts are evident in the rich rewards that public-sector employees now enjoy. A study in 2005 by the nonpartisan Employee Benefit Research Institute estimated that the average public-sector worker earned 46% more in salary and benefits than comparable private-sector workers. The gap has only continued to grow. For example, state and local worker pay and benefits rose 3.1% in the last year, compared to 1.9% in the private sector, according to the Bureau of Labor Statistics (BLS).

But the real power of the public sector is showing through in this economic crisis. Some five million private-sector workers have lost their jobs in the last year alone, and their unemployment rate is above 9% according to the BLS. By contrast, public-sector employment has grown in virtually every month of the recession, and the jobless rate for government workers is a mere 2.8%. For anyone who thinks such low unemployment numbers are good news, remember that the bulging public sector must be paid for with revenues that most governments don’t currently have. This is one reason for a spate of state and local tax increases, such as $5 billion in tax increases New York state passed in April, and $12 billion in tax increases California’s legislature agreed to in February that will only become law if voters pass a series of ballot initiatives next week.

The whole article is certainly worth the read.

What Happens When the Dog Stops Barking

Ahhhh, yes.  The Summer of 2008.  I remember it so well.  Michael Phelps was spending more time in the water than he was pouring bongwater.  The Milwaukee Brewers were on their way to their first playoff appearance in 26 years.  Brett Favre was in the midst of the second of what would become his six retirements from football.  George W. Bush was still president, but Republican candidates at all levels were pretending that his name was as obscure as the leader of the German Bundestag.*  (“George Bush?  Never heard of him.  Is this some kind of trick question?”)

You may also recall the one issue that had America in the grips of panic, as the economy chugged along at a weaker, but still resonable pace. Gas prices hovered at over $4.00 per gallon, causing riots in the streets. Elected officials broke into tears when telling the story of “price gouging” by big oil.  Congress planned on rewriting the U.S. tax code to stick it to gas companies.  Local television stations routinely broke into their prime time lineup to announce that an area gas station had lowered their cost of gas per gallon by a nickel. The public couldn’t believe that Big Oil would have the onions to charge them what they would gladly pay for a gallon of gas.  America was in the grips of mass hysteria.

But a strange thing has happened since that national nightmare.  Gas prices have been cut nearly in half.  At one point, they were down to about $1.50 a gallon.  And suddenly, nobody really cares about gas prices anymore.  Nobody makes any effort at all to understand why the price of gas has dropped – we only care when the dog is barking, and gas prices are high.  Clearly, Big Oil is only useful to our elected officials when they are there to be the subject of demagoguery. 

Back in the Summer of 2008, we saw article upon article about why gas prices were up.  Has anyone seen a single article trying to explain why prices are now down?  Do we even care, as long as we’re paying less?

As I see it, oil companies did one of two things:

1.  Dropped prices in response to global demand and world economic conditions, or;

2.  They decided to stop being greedy d-bags.

Which is your guess? 

So while we blame oil companies for gouging us when they increase gas prices, I would like to take a moment to thank Big Oil for keeping gas prices down.  Here’s a big atta-boy.  Your willingness to forgo record profits over the past nine months has kept money in the pockets of working class people, allowing them to buy more groceries and lottery tickets.  Your perfectly reasonable and rational response to a bad economy (lowering prices) has saved regular folks the headache of learning how supply and demand works, and allowed them to store up their energy to start complaining again when the market forces prices back up.

Now we can all get back to watching American Idol.

*Answer: Dr. Norbert Lammert

Deja Vu All Over Again

Steven Malanga has written a must-read piece in this month’s City Journal Magazine that provides some historical background to the current housing crisis and how it has affected the American economy.  Malanga goes back and demonstrates that each and every time the government has gotten involved in attempting to expand home ownership, the economy has suffered badly:

In December, the New York Times published a 5,100-word article charging that the Bush administration’s housing policies had “stoked” the foreclosure crisis-and thus the financial meltdown. By pushing for lax lending standards, encouraging government enterprises to make mortgages more available, and leaning on private lenders to come up with innovative ways to lend to ever more Americans-using “the mighty muscle of the federal government,” as the president himself put it-Bush had lured millions of people into bad mortgages that they ultimately couldn’t afford, the Times said.

Yet almost everything that the Times accused the Bush administration of doing has been pursued many times by earlier administrations, both Democratic and Republican-and often with calamitous results. The Times’s analysis exemplified our collective amnesia about Washington’s repeated attempts to expand homeownership and the disasters they’ve caused. The ideal of homeownership has become so sacrosanct, it seems, that we never learn from these disasters. Instead, we clean them up and then-as if under some strange compulsion-set in motion the mechanisms of the next housing catastrophe.

After detailing each housing collapse and how our lawmakers caused them, Malanga points out that we’re headed down the same road again:

Yet before we’ve even worked our way through this crisis, elected officials and policymakers are busy readying the next. Barney Frank, the Massachusetts congressman who serves as chair of the House Financial Services Committee, has balked at proposals to privatize Fannie Mae and Freddie Mac, which would eliminate their risk to taxpayers and their susceptibility to political machinations. Why? Simple: the government uses them to subsidize the affordable-housing programs that Frank supports. California congressman Joe Baca, head of the Congressional Hispanic Caucus, also opposes reining in affordable housing lending. “We need to keep credit easily accessible to our minority communities,” he asserts. Republicans and Democrats, meanwhile, have scrambled to reignite the housing market through ill-conceived tax credits and renewed federal subsidies for mortgages, including the Obama administration’s mortgage bailout plan, which recalls the New Deal’s HOLC. As Harvard economist and City Journal contributing editor Edward Glaeser has observed, mortgage lenders have finally “recovered their sanity”-only to have government dangling subsidized low interest rates and tax credits in front of them and their potential customers all over again. Behind these efforts is a fundamental misconception among politicians that housing drives the American economy and therefore demands subsidy at virtually any cost.

Changing notions of fairness and equity also cloud policymakers’ minds. Our praiseworthy initial efforts-to eliminate housing discrimination and provide all Americans an equal opportunity to buy a home-were eventually turned on their heads by advocates and politicians, who instead tried to ensure equality of outcomes.

It’s a lengthy article, but well worth your time.

An Imperfect Union

Most large special interest groups have their “Capitol days,” in which they bus their members to Madison, arm them with printed talking points, flood legislative offices, and attempt to get their legislator to support their cause.  (Or as the Democratic Party of Wisconsin calls it, engage in “grassroots activism.”)

Today was AFL-CIO day at the Wisconsin Capitol, as evidenced by the hundreds of union members milling about the statehouse and the legislative press releases sucking up to those union members.

In fairness to the union members, most of them are good, hard-working people that think they’re bettering their situation by allowing themselves to be herded down to Madison.  Most aren’t particularly well versed in the issues floating around the Capitol these days, but they recognize that showing up in large numbers lends their cause credibility.

On the other hand, there are the union leaders who speak out openly without knowing what they’re talking about.  And after some of the meetings today, I heard from several staffers that wanted to pass on some of the discussions they had with their AFL-CIO members.

Take this one:

Me: We’re against tax increases. We should just spend less. This budget has $5 billion in new spending.

AFL-CIO representative: Well there is a deficit, so obviously there is obviously a need for the extra spending.

Or this one:

A GUY WHO REPRESENTS HARLEY WORKERS was talking about how “bad actor” corporations (WalMart, et al) dodge taxes with the “Las Vegas loophole.” I didn’t want to extend the meeting by asking if Harley was a bad actor. But I would’ve asked if he was talking about the same Harley Davidson that is losing profit and laying off workers BECAUSE OF THE @#%ING “TAX LOOPHOLE CLOSURE” HE IS SUPPORTING!”

(Quoting a news article detailing the Harley layoffs)
“Thursday’s announcement came after Harley reported a 37% drop in first-quarter profit because of a sluggish motorcycle market, restructuring costs and a change in Wisconsin tax laws.

Then there’s this one:

The union leaders were complaining about “undermarket wages” and the need for prevailing wage to be on any local project. I chose not to suggest that (probably non-union) Employee X willing to work for Wage Y from Employer Z was precisely a market wage because that’s exactly how the market works. Employee X may want more money (who doesn’t?), but if he accepts an offered wage, guess what – that’s the market wage.

Not to mention the fact that requiring higher wages on building projects may simply deter builders from taking on projects.  So jobs that may have been created to build a new condo won’t exist, and unemployment will remain high.  Vacant lots will remain vacant, but union members won’t blame their own actions for their lack of jobs.

Also on the talking points was the “American Jobs Act,” which would prevent the State of Wisconsin from contracting with any business that contracts with overseas businesses.  This, of course, could vastly increase the cost of government, and force higher taxes to pay for these services.  Taking more taxes from businesses (via things like combined reporting) actually cost us jobs, as businesses have to cut costs. (I have argued that given the state’s dire economic situation, we should be looking for even more ways to cut costs, including expanding outsourcing.)  As one staffer told me, the response to his skepticism over the American Jobs Act was simply “HOW COULD ANYONE OPPOSE AMERICAN JOBS FOR AMERICANS?”

In normal years, these groups come and go without leaving much of a dent.  But now, their favored politicians run every aspect of state government – and with an equal level of sophistication and economic wherewithal.  If all of the tax changes they’re pushing actually pass, you can bet their entourage for Capitol Day 2010 will be a lot smaller – since a lot more of them will be out of work.  They should be a little more careful what they ask for.

Today’s Dad E-mail: Friedman v. Donahue

Let me be clear – I love my Dad.  I owe everything I have to him.  But if I could hire someone to block him from sending me ten junk e-mails a day, I would.  God bless his heart, but if I get one more dopey chain e-mail from my dad, I am going to strangle him.

That being said, I have to give him credit for this one today.  It’s an interview between Milton Friedman and Phil Donahue from 1979, in which the Nobel Prize winning economist destroys the dopey lefty talk show host.

As All American Burger manager Brad Hamilton tells Spicoli with regard to the “No Shirt, No Shoes, No Service” sign in “Fast Times at Ridgemont High:”

“Learn it.  Know it.  Live it.”

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UPDATE:  This one is even better, although it clocks in at a half hour.  It’s shocking to see someone communicate a message of limited government and freedom in such a clear and concise manner.  Something no modern conservative politician seems to be able to do.

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Having a Gay Time in Milwaukee

When the new census figures are released, Milwaukee elected officials must cover their eyes. Once a vibrant, populous city, Milwaukee has been hemorrhaging residents for the past decade, as more and more citizens head for the suburbs, taking their jobs and wealth with them. This leaves lower income residents in the city to pick up an increasing share of the double digit tax increases foisted on them annually by barely competent elected officials.

Yet many cities are finding urban revitalization in an unexpected area. Specifically, they are counting on the Love that Dare Not Speak its Name to provide a spark.

Cities across the country have begun to openly cater to gays and lesbians, in an attempt to attract their wealth and lifestyle. In many cases, gay neighborhoods account for the highest property values and the greatest per capita wealth in inner city settings. They also provide centers of creativity, artistry, and innovation in urban areas desperately in need of revitalization.

This theory was famously detailed in the book “The Rise of the Creative Class: And How It’s Transforming Work, Leisure, Community and Everyday Life,” by George Mason professor Richard Florida. Florida argues that as cities lose artists and gays, they also lose significant wealth. Florida actually ranks cities based on a “creativity index” to ascertain which urban areas do the best job of catering to their gay populations – Milwaukee ranks in the middle. (On the other hand, Madison, just an hour west, is number one in the “small city” category.)

Florida later published a study titled “There Goes the Neighborhood: How and Why Bohemians, Artists and Gays Effect Regional Housing Values,” in which he demonstrated (via his new “Gay-Bohemian Index”) how creative neighborhoods boost property values in inner cities. Florida argues that gay and artistic neighborhoods cultivate a “tolerance” and “open culture” premium that is attractive to high-income gay and straight residents alike.

Milwaukee already has several neighborhoods with significant gay populations. The revitalized Third Ward District and Sherman Park both cater to gays, while a conglomeration of gay bars can be found at Walker’s Point on the south side. But the race to attract gay and lesbian residents is on, and Milwaukee is falling behind. In Chicago, Mayor Richard Daley has recognized the value of gay neighborhoods – in 2006, he agreed to endorse and host the Gay Games in Boystown, which claims to be America’s first officially recognized gay village.

But what can a city really do to be more accommodating to gay residents? It would seem that many gay neighborhoods grow organically, rather than being foisted on a city. In an effort to revitalize a portion of their inner city in 2004, Oakland tried to set up a gay neighborhood, with mixed results. Plus, it seems any attempt to institute gay-friendly surroundings by elected officials would seem exceedingly stereotypical. A Milwaukee city council meeting where they discuss the types of things gays like would be comedy of the highest order. (A friend of mine with knowledge of Washington, D.C. gay neighborhoods suggested implementing Mazda Miata-only parking as a start.)

Sure, some religious and culturally conservative groups would have a problem with a city openly attempting to attract gay residents. But let’s be honest here – those groups most likely fled the city long ago. If you don’t want to visit a gay neighborhood, don’t visit a gay neighborhood. Those condemning for moral depravity in the inner city should see the gay lifestyle as a significant upgrade – at the very least, gay couples (generally) don’t produce fatherless children that go on to terrorize our streets. Plus, it’s not like the preponderance of art galleries and coffee houses makes anyone gay any more than there mere presence of a church in a neighborhood makes anyone Catholic.

So while state and local governments continue to pump billions of dollars into “economic development” programs in the inner city, we may be missing out on a valuable resource that can spur urban revitalization. When seeking out greater wealth and a more solid property tax base, the city should begin to look in new directions. Sadly, it just so happens that the city’s life preserver might be a little too “fabulous” for Milwaukee residents to tolerate.

-October 23, 2008

Local Government Debt Piling Up

Excellent article by Vikki Kratz in this week’s Isthmus regarding the increasing tendency of Madison-area governments to use debt to finance ongoing spending.  As I’m sure everyone remembers, WPRI issued a report last year that documented the increased use of debt to finance government on the state level.

From the Isthmus article:

Dane County Executive Kathleen Falk bills herself as a fiscal conservative who keeps property taxes low while maximizing services. But some members of the County Board say Falk is living beyond her means, borrowing money to pay for basic needs — and sending the county dangerously into debt.

[…]

The county typically borrows money in its capital budget to pay for new buildings, roads or parkland. And it traditionally only borrows money for projects that cost more than $50,000. But Wiganowsky and others say Falk often bundles small projects together and sticks them in the capital budget, instead of paying for them outright using property tax dollars.

[…]

…Falk’s critics note that Dane County’s capital budget has increased substantially since she took office 11 years ago. Her first capital budget, in 1998, was $9.3 million. In 2008, it was $21 million. Last week, Falk proposed a $42 million capital budget for 2009, which includes $15 million for flood prevention initiatives and purchases of wetlands.

And it’s not just Dane County government taking on more debt: the City of Madison is also in on the act:

The city of Madison is also facing huge debt payments as a consequence of large capital budgets in past years. In 2008, the city’s capital budget was a record $92.7 million. For 2009, Mayor Dave Cieslewicz has proposed a capital budget of more than $76 million.

Right now, the city pays about $21 million a year toward its $213 million total debt. If the city borrows as planned for 2009, says comptroller Dean Brasser, that payment will jump to $26 million. By 2010, it will hit $34 million, and by 2015, the city could be paying as much as $52 million a year toward its debt.

Naturally, there can be reasonable ideological disagreement about how to mitigate the debt problem: liberals would want to see ongoing programs funded with tax revenue, while conservatives would argue that much of the funding is unnecessary.  But both should be in agreement that driving these governments deeper into debt causes significant problems in the future – just ask Wall Street.

Will Sniff You For Food

High gas prices pinching your wallet?  Slow economy got you down?  Well, you have no idea how bad it can really get – just ask your dog.

According to the Rock County Humane Society, a slow economy is tough on pets, since people start dumping them on the side of the road when times get tough.  From the Beloit Daily News:

Economic challenges hard on pets

Last month, someone dumped a mother cat and 24 kittens in a ditch in Newark Township.

Two litters of kittens were less than a week old, another two litters were 3 to 5 weeks old and kittens in the last litter were about 9 weeks old. A Rock County Sheriff\’s Deputy brought the kittens to the Rock County Humane Society, but only the mother and three of the older kittens were able to be saved. The rest died because they were in bad shape due to flees [sic] and dehydration.

\”God only knows how long they had been in the ditch,\” said Rock County Humane Society Executive Director Chris Kometski. \”That was 25 cats dumped in a ditch.\”

Kometski said the humane society has noticed a \”remarkable\” increase in the number of animals being abandoned or brought to the shelter because people are losing their housing or can\’t afford to take care of their pets any longer. The increase has been happening since last fall, Kometski said.

In an anonymous letter to the Beloit Daily News, a resident of Avon Township told the paper more and more people are dumping their pets along country roads in the township. The resident had personally taken in three abandoned dogs and had tried to catch a kitten.

Look, I know the Humane Society has every right to use whatever angle they feel necessary to find more homes for the kitties – but come on.  So the U.S. economy grows at 1.9%, instead of 3%, and suddenly everybody\’s dumping their \”expensive\” cats on the side of the road?

What happens when gas prices spike later in the year?  Are you going to see an epidemic of wives driving up to Minocqua to drop their husbands off on the side of a dirt road somewhere?  Seriously – once gas hits $4.25 a gallon, that\’s entirely likely.  (Ask my wife, and she\’d probably suggest $3.00 a gallon as the threshold.)

Of course, it would have been nice for the article to have one opinion that was mildly skeptical of these claims – instead, the short Beloit Daily News piece managed to cram in 18 quotes from the Humane Society representative.  It\’s essentially just a transcript of the reporter\’s phone conversation with Chris Kometski.

But remember – when hard economic times hit, just think of the puppies.  Don\’t be surprised on your next rip up north if you see a couple basset hound hobos with \”Will Poop for Food\” signs on the side of the road.

The “Fiscal Wake Up Tour” Hits Wisconsin

Yesterday, I headed down to Discovery World on Milwaukee’s lakefront to catch the Concord Coalition’s “Fiscal Wake Up Tour.” The Coalition is made up of members of both left-leaning and right-leaning national think tanks who all agree that federal entitlement programs and government debt are going to swallow us whole in the decades to come if nothing is done to rectify the situation. Their panel was joined onstage by fiscal dreamboat Congressman Paul Ryan, whose “Roadmap for America’s Future” attempts to deal with the looming budgetary apocalypse.

For some background on the issue, watch this outstanding “60 Minutes” piece on former U.S. Comptroller General David Walker, who is heading up the Coalition’s education effort:

The panelists each made their case for changing the way government handles its entitlement plans, so the programs can remain fiscally solvent for our children. Each provided powerpoint presentations to make their points. They can be viewed here:

Saving Our Future Requires Tough Choices Today,” By David Walker, President and CEO of the Peter G. Peterson Foundation

Fiscal Wake-Up Tour Introduction (PowerPoint Presentation),” By Robert Bixby, Executive Director, The Concord Coalition

The Budget and Entitlements: Time to Take Action (PowerPoint Presentation),” By Stuart Butler, Vice President for Domestic and Policy Studies, The Heritage Foundation

Since members of the coalition have different ideological backgrounds, naturally they didn’t completely agree on the measures necessary to remedy the budget imbalance. Alice Rivlin of the liberal Brookings Institution advocated for some targeted tax increases to boost federal revenue. Some of the conservatives conceded that a future plan will likely see a mix of revenue increases and spending constraints. Even Paul Ryan’s plan contains some provisions to raise revenue, which drew him a sharp rebuke from a Libertarian in the crowd, who called his plan “the Communist Manifesto.” During question time, Ryan also earned a harsh rebuke from a liberal in the crowd, which had people squirming in their seats. (And me considering crying and yelling “LEAVE PAUL RYAN ALONE!”)

Each panelist agreed that Social Security was going to be a lot easier to fix than Medicaid and Medicare. Social Security, while a big program, has a straightforward formula that sends money to recipients. In order to control costs, the remedies are clear.

Health care, on the other hand, is infinitely more complex. In order to control health care costs, you have to get a handle on a number of things – most of which, lawmakers can’t agree are actually causing cost overruns. Is it too much competition (duplication of services)? Is it not enough competition? Is it people not having the incentive to take care of themselves? Is it government not spending the money wisely?

It appears that video of the event will be available on WisconsinEye at some point, and I’ll link to it when it goes up.

My only complaint of the day was that it was held right next to Summerfest, which made parking impossible. According to the panel’s estimates, by the time I parked and walked to the event, the federal debt had increased by $100 trillion. They should have just consolidated venues and put the Fiscal Wake Up Tour on one of the Summerfest stages. Then again, the tour’s groupies might have gotten out of hand, as they normally do.

ANNOUNCER: “MILWAUKEE! ARE YOU READY FOR SOME FISCAL RESPONSIBILITY?”

CROWD (TOGETHER): “WE WANT SOCIAL SECURITY SOLVENCY! AND MORE BEER! PREFERABLY MORE BEER, IF WE’RE BEING HONEST ABOUT IT!”

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