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The Divide on Income Inequality

21 Jun
by John, posted in #OccupyDenver, #OccupyWallStreet, #OSW, #StandupDenver, Policy, Rural, Urban Policy   |  No Comments

My Second Piece on the Urban Rural Divide in America (First Piece)

Since the Occupy Movement, which I covered back in 2011 it has become fashionable on the Left to point out the divide between rich and poor is widening.  Indeed, you have to go back to the 1920s, the era of Boardwalk Empire, to see such a gap.  But it is a gap that has more dimensions than race and privilege, libertarianism and safety nets, and the all the usual stereotypes.

As I wrote about in Death of Common Sense, the divide between rural and urban is a pervasive one masked behind yelling ideologies.  And the ideologies are disconnected from facts and other people’s view of the facts.  Why is it the income inequality is an issue for the intellectual Left and not the rural Right?

What grand pointy headed French cheese eating Ivy League conspiracy is leading the Left?

I suspect nothing more than the fact that within their communities exists the vast majority of the income inequality problem.  Based on the US Census report on Income Inequality between 2006 – 2010 urban centers, the counties with the largest populations, have the greatest income disparities.  Of course the policy decisions in these urban areas fixate on income inequality.

But at the same time, rural communities are not indifferent to their own income inequality.  There is no hard hearted pioneer culture with a secret urge to starve orphans and freeze the elderly.  The same report points out that rural counties have the least income inequality.  In these counties the plight of the South Side of Chicago or Camden, New Jersey is a distant problem not of their making.

This urban/rural divide then coincidentally or consequentially translates into voting patterns: urban Democratic and rural Republican.  I used Colorado to sort counties and admittedly some counties in Colorado beyond the Front Range cities voted Democratic, but they tended to be ski and resort dominated or Hispanic.  But rather than characterizing urban politicians as elitists and rural politicians as heartless, we see politicians pursuing the problems of their communities.

When I am in New York City I am acutely conscious of how difficult it is to become a billionaire in its hyper-competitive world.  Competition begins as an infant when parents begin applying to elite daycare.  To begin at the bottom in public school with the hope of becoming a billionaire is to face long odds.  Odds that justify social policies from affirmative action to rent control that appear unreal in Beatrice, Nebraska.

I am in Beatrice twice a year.  You can buy the nicest house in town on the golf course for $350,000.  In Boulder, it would sell for $1.5 million and off a golf course in Los Angeles or San Diego many millions.  But in Beatrice, the reach from child of a poor farmhand to that house on the golf course is not so far.  The path is very different from the New York City path.  Perhaps it is a path through the military or community college or serial entrepreneurial ventures.  But in the end, a job as a broker, or a successful farmer, or car dealer may leapfrog income inequality in Beatrice.

They are completely different lives.

These divides in urban and rural America are not rooted in good or evil, but in the particular communities.  In my experience it frankly does not often occur to a Manhattanite or a Cornhusker that they each feel as much revulsion as the other at the thought of trading communities.  But it is the irony of that joint revulsion that dictates so much of US political structure.

It is the greatest argument for letting state legislatures manage the effects of income inequality.  The income inequality between Omaha and Red Cloud, or Manhattan and Binghamton is a question of facts on the ground in those related communities.  I used to wonder why Republicans could convince rural people to vote for a big corporate party – why do they vote against their own economic interest?

In part, because in rural America local income inequality is not a dominant problem. They are not hard hearted. From their perspective the house on the golf course remains in reach.


Meanwhile Back In Blighty The LIBOR Scandal Grows

10 Jul
by John, posted in #OccupyDenver, #OccupyWallStreet, #OSW, business, election, leadership, occupy, OWS, Policy, UK   |  No Comments



With the US Presidential season underway what little attention we pay to the mother country centers on the royal family, not a burgeoning scandal that could rock the entire financial world.  A scandal that also once again calls into question the basic approach of Dodd-Frank, the US legislation designed to avoid the financial bubble at the heart of the 2008-2009 crisis.  Essentially, the major banks of Britain manipulated the LIBOR interest rate.  Why does that matter?

On a very simplistic level, LIBOR is the interest rate that banks charge each other to borrow money.  At some time in the late 1990s LIBOR became the basic interest rate used as a benchmark in every contract I read as an executive.  You might pay LIBOR plus 350 basis points (3.5%) for a bank loan or LIBOR plus 600 basis points on some riskier loan or LIBOR plus 150 basis points on secured receivables to finance a business’s cashflow fluctuation.

LIBOR was the benchmark for everything.  It was the business constant meant to mimic the speed of light in physics.  And at some point in the last few years it became false.

Every contract, every loan, every mortgage, every government contract, every everything that set pricing and terms off a benchmark rate used LIBOR.  And it was all wrong.  Traders in London banks manipulated the rate so they could make technical profits and boost up bank earnings, particularly when the investment banking and other risky sides of the banking business started failing.

Markets depend on certainty and transparency.  People and business have to trust that regardless of the individual failings of banks, businesses, and people the market reveals fraud or negligence and allows investors and traders to sell those bad assets timely, not after a huge bubble has formed.  We now know that the entire world basis for price and terms was fraudulent.

How can we trust the market?

Dodd-Frank and many of the reforms in the UK seek to regulate bankers.  The reforms set up mandatory market mechanisms for derivative trading, dictate how banks will manage their other businesses, regulate pay, and other tactical reforms.  But they do not get at the root cause of the issue.

Banks cannot be retail government insured depository institutions, uninsured investment banks, uninsured insurance companies, and partially insured brokerage houses.  Time and again banks have shown they will use the sharpest minds in law, finance, and lobbying to create new products that skirt the reforms.  And the motive for this behavior is that when the risky and highly profitable branches of the bank (investment banking for example) are down, the banks have got to make up a new way to generate earnings.

The only way to reform the banks is to reverse aspects of the 1990s banking reform at the structural level.  You simply cannot mix banking business lines.  If you do, you inevitably  set up the incentives that lead to 2008-2009 and now LIBOR.  The banks have to be broken up to some extent to avoid the inherent conflicts of interest and market impact of behemoth institutional failure.

Because at this point, no matter how cleverly regulated, how can you trust any bank or any contract?

Why We Should Stop Corporate Cronyism

09 Dec
by John, posted in #OccupyDenver, #OccupyWallStreet, #StandupDenver, competitiveness, Government Spending, innovation, OWS   |  3 Comments

Last week I described the agreement between the OccupyDenver movement and the conservative counter-demonstrators that corporate cronyism was terrible for the country.  But what exactly is corporate cronyism?  Why is it bad for the country?

In my piece I described  Governor Hickenlooper’s grant to Arrow Electronics of $11.4 million as corporate cronyism.  First, let me make clear as a Coloradan how pleased I am that Arrow has consistently grown its presence in Colorado and has now relocated its corporate headquarters here.  Further, nothing I write now or last week is intended to criticize Arrow or to express anything other than gratefulness for the jobs and the type of jobs Arrow has brought here.

If government funds are available and otherwise fit a compelling corporate goal, then of course Arrow is bound by its corporate fiduciary duty to obtain those funds to maximize shareholder value.  But the question for government is, what does a policy of handing out taxpayer funds to a corporation accomplish in a time of mammoth budget cutting to education and other constitutional government duties?

Funds that could be used to put approximately 130 students through the science, engineering, and math degree programs at Colorado’s flagship public university in Boulder.  The type of qualified graduates that entrepreneurs  are telling us we need to remain competitive and create lasting new jobs in America (see my October 9th post).  It is ironic that Arrow’s CEO is actually quoted in the press coverage of the move as saying, “I have one comment when it comes to education and that is, produce more engineers. Produce more people that are technically capable and the state’s problems will take care of themselves.”

Based on the Denver Post’s reporting, Arrow has grown its presence in Colorado for over a decade.  Its CEO has lived in Colorado since 2000 along with many  of its other executives.  Arrow’s CEO was able to hire a local radio executive with access to the Governor, which eventually resulted in the Governor hosting Arrow’s CEO at a dinner at the Governor’s home in Park Hill.  There is of course no way to truly know if Arrow’s move of its corporate headquarters to Colorado along with 1,250 jobs would have occurred naturally without government funding.  Arrow’s CEO, however, is also quoted as saying, “Colorado doesn’t have a lot of incentives compared to other places”.

But in contrast to creating a 130 desperately needed engineers or physicists or physical scientists, the Arrow move does not appear to create any new jobs.  Our Civil War in the 1860’s had many social consequences, but one of its primary results was settling that we are all Americans first and citizens of our respective states second.

I accept Arrow’s CEO’s statements that he is not going to shut down the Long Island office. But I also suspect based on my two decades of experience as a senior executive in large multi-nationals that the CEO and his senior staff’s presence at the Colorado headquarters will steadily erode jobs through attrition in New York.  In other words the Governor’s use of taxpayer money for Colorado will hurt employment in New York.  Merely shifting work around the country may be in the short term interest of Colorado.  But it is not in the best interests of America and it does not create “new” jobs for the national economy.

Worse, those funds distort the level playing field of market forces upon which capitalism depends for democratic legitimacy.  If Arrow had decided on its own to move to Colorado for the business environment, for the high quality employee base, and other reasons, then the loss of jobs in New York would be the result of market forces.  This is the creative destruction aspect of capitalism.  But when the government decides that Arrow is a winner and intervenes in the market it creates an uneven playing field.

Why not offer tax credits to an existing Colorado business or a competitor of Arrow?  Who is the Governor to decide that Arrow is a better business than any other business?  Why should the government lower Arrow’s labor costs but not the costs of another Colorado business?  And whether the facts really support it, the answer we are told to believe is that without the subsidy Arrow would not have moved and 1,250 jobs would not come to Colorado.

But that is precisely the point.  Just as with lobbying in Congress that generates a tax break for one industry or one business over another, these Colorado tax breaks reward those segments of our society with the money and power to gain access to the government.  And that is a central undermining not only of capitalism, but of our democracy.

It is one of the reasons why the Tea Party rose after 2008 and why OccupyDenver is camped out across from the Capital in Denver.  And while the Governor entertained the Arrow CEO , he has still refused to even meet with OccupyDenver.  A scandal that continues to reinforce the view that the Governor is nothing more than a government apparatchik more suitable to Prime Minister’s Putin’s government in Russia than constitutional democracy in America.  As someone who voted for the Governor, that is a view I am waiting for him to disprove through action not platitudes.

A path of  lobbying and subsidies will only accelerate the disillusionment with our government and  free market capitalism. This is supposed to be a government and an economy by and for the people, not just the people government officials are most comfortable inviting over to their house for dinner.

Get Beyond the Bias

04 Dec
by John, posted in #OccupyDenver, #OccupyWallStreet, #OSW, #StandupDenver, Debt, Government Spending, leadership, occupy, Policy   |  10 Comments

I made my third and fourth visits to OccupyDenver last week, including Saturday’s conservative counter-demonstration.  While my visit last Thursday was on an unseasonably warm afternoon, Saturday was bitterly cold after a night of heavy snow fall.  The weather was so miserable that the organizers of the conservative demonstration cancelled it.

Still a rump group of conservatives gathered on the capital steps to listen to informal addresses.  There were about thirty conservatives, twenty state troopers, and a smattering of press and OccupyDenver activists.  Apparently a Democratic Hickenlooper administration focused on costs believes it needs twenty state troopers to guard the capital from thirty conservatives.

It was a respectful gathering that listened to traditional themes of personal responsibility, free market economics, and private charity.  The organizers also invited several OccupyDenver activists to speak and cheered a variety of common themes – love of country and criticism of crony capitalism generated the most enthusiasm.  And there was respectful disagreement as well.

On the conservative side I was particularly impressed with a young conservative radio personality, Jimmy Segenberger. Segenberger offered a critique of student loan debt that both agreed with the OccupyWallStreet movement that a college tuition bubble existed, but differed in seeing federal subsidized student loans as the problem.  Segenberger expressed a belief that the constant increase in federally subsidized student loan availability was driving an increasing demand for college that drove costs skyward. Segenberger focused on the importance of not forgiving loans, personal responsibility, and using his own example of finishing college early in three years as a solution to college debt.  It was eloquent, it was rational, and it may have some legitimacy.

It is just in my four visits to OccupyDenver I have never heard a genuine activist advocate forgiving student loans. Perhaps other Occupy camps are advocating that, but I have not heard OccupyDenver advocating that position.  What I have heard over and over is that the government’s focus on corporate interests is leaving graduates unemployed with heavy debt.

And that really is the rub – if you listen to the OccupyDenver advocates, not the mainstream press and not the mentally ill, high, and other oddities the press obsesses upon you get a coherent message.  It is a message that I often do not share, but it is a very different message than the stereotypes consistently portrayed about OccupyDenver.

Much of the criticism of the movement is that it is dirty, anti-police, violent, and socialist. I spent most of yesterday afternoon reviewing the Denver Post’s and the local television stations’ website coverage of the movement.   Almost every headline and opening of a story is about violence, about filth, about anti-police behavior, about people who are incoherent. And almost always buried at the bottom of the article is a statement from the OccupyDenver activists that the people interviewed or arrested were not associated with OccupyDenver.

None of the serious activists I have spoken to in four separate trips were high or violent. They claimed they were employed with homes.  If you catch them after a night on the sidewalk before they have gone home for clean clothes and a shower, they are disheveled.  Some are indeed socialist, but one female activist that I spoke to at length on last Thursday was quite conservative bordering on libertarian. The only conclusion I can reach is the press likes a good story about violence, drugs, homelessness, and unemployment at the expense of a complete picture including any real coverage of the movement’s basic themes.

My first exposure to this press bias was during a media scrum around Michael Moore’s visit (the subject of my October 30th post).  For over an hour I stood in a crowd of television and print reporters waiting for Moore to arrive.  At no point did any of the mainstream press make any attempt to interview the activists about their views.  But I did listen to two of them (one from the Denver Post and one from the Fox affiliate) openly ridiculing the movement in the now traditional stereotype.

On Thursday I also was able to spend about fifteen minutes speaking with two Denver policemen.  They confirmed to me that since the Mayor ordered the removal of the kitchen, medical clinic, and donation table that crowd had shrunk to mostly genuine activists. The most senior one told me that the activists were not violent, but like the Nazi/skinhead protests of the 1990s in Denver the Occupy movement has drawn violent anarchists.

A critical stereotyping of the OccupyDenver movement is that it is anti-capitalist and has no agenda.  In my four visits I have heard a very clear message each trip from the serious activists.  And it is neither unfocused or reflexively anti-capitalist.  It is strongly against crony capitalism.

The message is relatively simple.  First, corporate money and lobbying are distorting politics.  Polliticians represent corporate interests resulting in bank bailouts, while leaving average Americans to foreclosure and bankruptcy.  Second, the Federal Reserve is operating independent of the people’s government again acting on behalf of corporate and other special interests.  It is a message that is not dissimilar to an early Tea Party message.

Why are they camped out on the sidewalk in front of Civic Center Park?  Rightly or wrongly they believe that the political system is so corrupt that participating in it will result in the system granting them token relief, then absorbing them into the fundamentally corrupt system.  The correct answer to last week’s poll question was Karl Denninger, an early Tea Party activist.   His basic point was the Occupy movement’s refusal to express a specific political agenda allowed it to remain an independent force for change.  That the Tea Party had in large measure been absorbed into the Republican party, had lost control of the message, and been unable to drive real change.  By remaining camped out in front of the symbols of government OccupyDenver seeks to keep the pressure on for real change.

And at some point the the Governor and the Mayor are going to have to realize that while the conservative counter-protesters believe in different remedies, they cannot simply ignore what both sides agree upon.  That the government is operating for special interests.  That it is ineffective policy for the Governor to hand out corporate welfare to companies such as Arrow Electronics, while failing to even meet with the movement or attend one of their General Assemblies.  They are after all his constituents.  He is supposed to work for them, not just the constituents he prefers.

Beyond a disgust with crony capitalism I disagree with much of the Tea Party’s and much of OccupyDenver’s views. But, I do believe the Governor and the mainstream press are tone deaf.  They act like the Pharisees encountering John the Baptist – focused on his odd clothes and diet while missing the importance of his message.

The Governor is for some unfathomable reason proving the point that he works for someone other than all of the people of Colorado.   And as someone that voted for him, I hope he will begin disproving that proposition before the next election.

Occupy Poll

01 Dec
by John, posted in #OccupyDenver, #OccupyWallStreet, #OSW, #StandupDenver, occupy   |  3 Comments


Karl Denninger is correct.  Thanks for participating.