Posts tagged ‘Rick Perry’

Fighting Grade Inflation

Rick Perry has an interesting post on a Texas proposal to require that college transcripts show, along with the student's grade in each class, the average grade in the class.

I think this is an excellent idea -- simple and effective -- though I am not big on a state mandate on private institutions but this is totally reasonable for public institutions and would likely force private colleges to follow suit voluntarily.

To the extent that colleges squeal about this, it will be entirely hypocritical.  Why?  Because colleges will not seriously consider the grades on a high school transcript in their admission process without a guide from the school listing such things as average grades.   Colleges demand exactly this type of benchmark for grades, without which a transcript would be almost meaningless.  They should not balk at providing the same.

Republican Branding

Someone from the National Council of Mayors or Cities or some such group called me wanting to meet.  I asked him what he wanted.  Blah blah blah.  I asked him after a bunch of doublespeak about learning about how my great business operates what he really wanted.  He said he wanted to share with me Federal and State and City programs to help my business.  The conversation then went approximately this way:

Me:  I don't want any of that stuff.  I don't want other people to be forced to pay for my business

Caller:  So you are a Republican?

I would love it if Republican's narrowly branded themselves as folks who don't take money by force from others.  I would call myself one.  But unfortunately Republicans and Chamber of Commerce type CEO's who nominally call themselves Republicans wallow all the time in such corporate cronyism.

Further, Republicans spend a lot of time on social crusades that drive me crazy.  The other day at a party, I was talking to a number of entrepreneurs who all should have found a natural home in the Republican party given their economic views.  But they were all Democrats, most of them for the simple reason that they did not want to be associated with Republican social crusades.  I talked to a guy for hours who despised Obamacare but voted for Obama twice because he did not want to be associated, for example, with Republican's anti-gay position (e.g. Rick Perry).

Of course, this is a double edged sword.  There are likely many Republican voters who are fiscally liberal but vote Republican for its commitment to opposing gay marriage and abortion and the like.

PS-  The call actually went on for a while.  He asked me what he could help me with.  What is my number one problem?  I told him, honestly, we have put everything else on hold, all our growth plans have been frozen, until we figure out how to minimize the costs of the PPACA on us.   This was not something he seemed to want to discuss.

Cloudy with 100% Chance of Corporate State

It does not appear that Rick Perry is the guy to dismantle our growing corporate state.

The LA Times investigates the big-money culture of Texas politics, which has gotten even bigger and money-er since Rick Perry became governor:

Perry has received a total of $37 million over the last decade from just 150 individuals and couples, who are likely to form the backbone of his new effort to win the Republican presidential nomination....Nearly half of those mega-donors received hefty business contracts, tax breaks or appointments under Perry, according to a Los Angeles Times analysis.

Perry, campaigning Monday at the Iowa State Fair in Des Moines, declined to comment when asked how he separated the interests of his donors from the needs of his state. His aides vigorously dispute that his contributors received any perks. "They get the same thing that all Texans get," said spokesman Mark Miner.

Nearly half! And this doesn't even include anything about David Nance and the largesse Perry distributes via his $200 million state-managed venture capital slush fund. Doling out political favors in industrial quantities is obviously something that isn't frowned upon by Texas political culture, and Perry has taken it to whole new levels.

Kudos to the LA Times and folks like Kevin Drum for digging this up, but everyone involved should be embarrassed by just how partisan outrage on this kind of thing can be.  The same folks who are rightly upset at Perry actively cheered on Obama as he took ownership of GM away from the secured creditors and handed it to his major campaign supporters in the UAW.  His stimulus program has been a trillion dollar slush fund to pay off nearly every liberal constituency, and while I find the idea of a state-run venture capital fund horrifying, I see no difference here with Obama's green job investments, many of which have gone triends, campaign supporters, and even spouses of prominent administration officials.

As I asked the other day, if the President is really supposed to be our VC in chief (an absurd thought) who in the hell would pick Obama for the job?  As one random example out of my feed reader:

Last year, Seattle Mayor Mike McGinn announced the city had won a coveted $20 million federal grant to invest in weatherization. The unglamorous work of insulating crawl spaces and attics had emerged as a silver bullet in a bleak economy – able to create jobs and shrink carbon footprint – and the announcement came with great fanfare.

McGinn had joined Vice President Joe Biden in the White House to make it. It came on the eve of Earth Day. It had heady goals: creating 2,000 living-wage jobs in Seattle and retrofitting 2,000 homes in poorer neighborhoods.

But more than a year later, Seattle's numbers are lackluster. As of last week, only three homes had been retrofitted and just 14 new jobs have emerged from the program. Many of the jobs are administrative, and not the entry-level pathways once dreamed of for low-income workers. Some people wonder if the original goals are now achievable.

"The jobs haven't surfaced yet," said Michael Woo, director of Got Green, a Seattle community organizing group focused on the environment and social justice.

"It's been a very slow and tedious process. It's almost painful, the number of meetings people have gone to. Those are the people who got jobs. There's been no real investment for the broader public."

At the same time, heavily subsidized Evergreen Solar is going bankrupt.

Bloomberg News reports that the firm Evergreen Solar will file for bankruptcy and close its operation in Midland, Mich. The maker of solar cells cites over-capacity in the industry, competition from China and fewer government subsidies as contributing factors. According to Bloomberg, the firm has 133 employees worldwide.

Given a Michigan location and participation in a politically faddish industry, readers won't be surprised that Evergreen was the beneficiary of special state subsidies and a local tax break. Specifically, three years ago Evergreen Solar was offered a $1.8 million "refundable" tax credit by the Michigan Economic Growth Authority. For firms with little or no tax liability, this amounts to an outright cash subsidy, contingent on attaining certain employment and investment milestones. Evergreen Solar's specific tax liability is not public information.

The deal was based on crystal-ball projections from the Michigan Economic Development Corporation using a software program known as REMI, which predicted that an Evergreen deal would create exactly 596 direct and "spin-off" jobs by 2018, producing $18.5 million in new state tax revenue.

The city of Midland also granted property tax abatements worth $3.9 million over 12 years, according to Mlive.com. It's not known how much, if any, of these subsidies and tax breaks were ever collected by the company.

This actually understates the total subsidies, as it ignores subsidies to its customers, incoluding above market geed-in tariffs, to buy the solar panels.

Closer to home, a Tucson solar panel manufacturer that was opened to great fanfare with the help of Janet Napolitano and Gabby Giffords just closed after being open barely 2 years.  They scored some subsidies, got some large government and utility contracts on the promise of local employment, and then packed up shop for China.  Apparently they were attempting to compete in the commodity solar panel market on a strategy of having a higher fit and finish on their product, a product that sits on the roof and no one ever looks at.  Good plan.

PS-  Yes, private investments fail all the time, but they are 1) not using my money, unless I voluntarily offer it and 2) there are real consequences for those who make bad investments

Jobs and Texas

I barf when politicians take credit for private job creation.  At best, they stay out of the way.  At worst, they erect barriers to make growth and job formation more difficult.  So I am not ready to credit Rick Perry with Texas' economic performance over the last several years.

But despite enormous work on the left to try minimize the Texas performance, it does appear to be very impressive.  The author observes that merely comparing unemployment rates across states masks the huge job growth advantage in Texas.  Texas has higher relative unemployment compared to states like CA not because it is doing poorly, but because hundreds of thousands of people have given up on states like CA and moved to Texas looking for work.

Watch Out - Your Industry May Be Gutted Like A Trout Next

I have written before about the  demagoguing going on about "health insurance profits" and just how BS those charges are.  Here is Obama yet again:

"There have been reports just over the last couple of days of insurance companies making record profits, right now," Obama said during a prime-time news conference. "At a time when everybody's getting hammered, they're making record profits, and premiums are going up. What's the constraint on that? ... Well, part of the way is to make sure that there's some competition out there."

This follows Pelosi saying:

I'm very pleased that our Chair of our Democratic Congressional Campaign Committee and member of the leadership will be talking too about the immoral profits being made by the insurance industry and how those profits have increased in the Bush years. We all believe in the profit motive; we all want to reward success.  But having that success come at the expense of America's working families "” have that success come by withholding care, when a person becomes ill, is just not right and we're going to take this issue in a new direction.

And pundits saying even crazier stuff, including Kevin Drum (who is actually one of the saner members of the left) writing:

It means the health insurance industry is scared that we might actually do something in 2009 and they want to be seen as something other than completely obstructionist. That means only one thing: they've shown fear, and now it's time to bore in for the kill and gut them like trouts. Let's get to it.

Rick Perry links to several posts debunking this claim, and shows a profit margin consistent with what I have found in my research -- about 3.3% of revenues, which my posts (linked above) showed has fallen over the last several years.  This profitability level ranks 86th(!) on the list of American industries, behind such rapacious industries as auto parts wholesalers and confectioners (see table in his post).  Look out everyone, if this industry is too profitable for this administration, then just about every industry in the country is too profitable.  Heck, this margin is even worse than mine, and I operate in an industry universally described as having "thin margins."

What do you call a man who thinks a 3.3% profit margin is too high?  How about "Marxist."

Update: My guess is that there is some health insurer who due to a merger grew larger and therefore made a higher profit in absolute dollar terms, so my guess is that Obama is not flat out lying.  But he is freaking close, given that he credits such profits to fee increases and denying services rather than business growth.  Profitability should be judged on margins, not total dollars (even better, it really should be judged on return on equity or return on assets employed, but that is rocket science to the economic monkeys wielding bone tools we have in the media).

Local Papers and the Growth of Government

In some sort of synergistic relationship I haven't fully figured out, local newspapers love to cheerlead the expansion of government programs.  Here is a great example, via Rick Perry.  The headline in the Detroit Free Press web site reads:

State venture capital funds starting to pay off

But then we go on to read:

Michigan's two venture capital investment funds are starting to generate results, state economic  officials said Monday.

Since their formation in 2006, the $95-million Venture Michigan Fund
and the $109-million Michigan 21st Century Investment Fund have
invested in six venture capital firms with either a headquarters or an office
in the state. These firms have used the money and other capital to
invest in 11 fledgling Michigan companies that have added 40 workers in
recent years.

The two funds have made investment commitments of $116.3 million, or slightly more than half of their total capital.

So out of $204 million in taxpayer funds (why the state has entered the venture capital business with state funds is anybody's guess) the state has invested $116 million to create 40 jobs.  Given that the notion of the government venture fund was to create state jobs, its not clear how $3 million per job is a really good return.  Further, there is no mention of the government has gotten any kind of financial return from this investment, so I will presume it has not. So how can the paper possibly with a straight face say that the funds are "starting to pay off?" 

Eleven companies with an average of 3 employees each somehow each got $10 million in state funds.  I bet it would be fascinating to see just who these 11 companies are, and how their owners are connected into the political power structure. 

Crowding Out Private Alternatives

Due to the very nature of political pressures as well as poor accounting, a lot of government services are provided to the public below their true cost or market clearing price  (there are exceptions, like intra-city mail, but in these cases the government must pass laws to prevent private competition in order to maintain its market share).  When the government provides these below-cost or below-market-price services, it tends to crowd out private options.  So I am wondering why Kevin Drum is so surprised:

I guess rescuing them was the right thing to do. I'm still a little
taken aback by the apparent fact that American banks are now almost
flatly unwilling to make mortgage loans unless they're backed by Fannie
or Freddie, but that seems to be the case whether it takes me aback or
not. So rescue them we must. I suppose my next question is whether it's
worth thinking about how to restructure the American home mortgage
industry so that it can operate efficiently even in the absence of
massive levels of government backup. Or is Fannie/Freddie style backup
just the way the world works these days and there's no point fussing
over it?

As evidenced by the current bailout (and their huge accretion in market share over the last several years), Fannie and Freddie were under-pricing the service they were providing.  So of course, all things equal, bankers will demand the Fannie/Freddie backing because that will be a more profitable product and will be less work for the banker.  This seems like a "duh" kind of thing.  Like the "mystery" of why in Massachussetts, while everyone is obligated to sign up for health insurance, only the ones who were eligeable for free coverage did so.

I have written before of a similar phenomenon in business loans, where loans with SBA backing have crowded out everything else out there, such that a small business really can't find a lender who will make small business loans except with SBA backing.  Bankers are people too, and they can get lazy.  They have come to rely on these government programs, but certainly the lending function would still exist in a robust form if these programs did not exist.  Bankers would have to find other risk-mitigation tools, or else the loans would be more expensive, reflecting that the banks could not get rid of all the risk and had to price that into the loan.

By the way, don't you love the technocratic hubris of "thinking about how to restructure the American home mortgage
industry so that it can operate efficiently even in the absence of
massive levels of government backup."  Why do I, or Drum, or anyone outside of banking have to think about this at all?  I don't personally know the best private alternative to government mortgage gaurantees.  So what?  The financial field has been rife with innovation over the last several decades.  Just remove the government backup and let the the banks figure it out.  And let them go bankrupt when they figure wrong.

Postscript: As an ironic aside, the bank that holds my SBA loans was closed by the FDIC last week, my guess is due to a bad mortgage book in the Las Vegas area.  This doesn't have a lot of impact on me except that as I have paid down my loans, they became wildly overcollateralized, and I was in the process of trying to renegotiate some of my collateral out of the deal.  That will have to be put on hold, I guess.

Update:  More on government crowding out private options, in an entirely different industry:

Basic
dental care in Britain is free to those under 16 or over 60, the
unemployed, students, military veterans and some low-income families.
For others, government dentists offer lower prices than private
practitioners.

However,
the government does not cover cosmetic dentistry, and a recent
reorganization of the way dentists work has prompted many to leave the
public sector. Katherine Murphy, a spokeswoman for The Patients
Association, an advocacy group, said it was proving increasingly
difficult for Britons to get anything beyond basic dental care from
Britain's National Health Service.

Update #2: More on Fannie and Freddie, again via Rick Perry:

The
Fannie Mae-Freddie Mac crisis may have been the most avoidable
financial crisis in history. Economists have long complained that the
risks posed by the government-sponsored enterprises were large relative
to any social benefits.

We
now realize that the overall policy of promoting home ownership was
carried to excess. Even taking as given the goal of expanding home
ownership, the public policy case for subsidizing mortgage finance was
weak. The case for using the GSEs as a vehicle to subsidize mortgage
finance was weaker still. The GSE structure serves to privatize profits and socialize losses.
And even if one thought that home ownership was worth encouraging,
mortgage debt was worth subsidizing, and the GSE structure was viable,
allowing the GSEs to assume a dominant role in mortgage finance was a
mistake. The larger they grew, the more precarious our financial
markets became.