Borders Closing and the New Economy

The somewhat surprising - and disheartening to book lovers - failure of Borders Books to reorganize and emerge from bankruptcy represents a bellwether of the new economy as a result of the creative destruction that comes from improvements in technology. The failure of this business wasn't about corporate taxes or the national debt or a decline in literacy habits or poor management decisions. It was bound to happen the minute Amazon arrived on the scene - and Congress exempted online retailers from any state taxes where they didn't have a physical presence. Ultimately, brick and mortar retailers face an incredible challenge to compete against companies with much lower cost overhead - or underfoot as the case may be.

The closing of the Borders simply represents a new direction in a new economy that has yet to really define itself. Who knows what the landscape is going to look like as companies like Amazon continue to take more of the retail effort? Who knows where the people who worked at Borders are going to work? Who knows how an entire corporate structure simply vanishes and leaves in its wake a group of people and a pile of assets that must be reapportioned around the economy?

Even now as Congress begins serious discussion of a national solution to the online retail tax issue, the economy is unfolding and redefining itself. It is going to be uncomfortable and confusing and messy, but it is the new face of the retail world.

Debt Ceiling Referendum

Well, I did my part.

Yesterday I called my senators and congressman and informed them of my desires as a voter in regards to the debt ceiling hike and deficit reduction plans being debated in Congress. At heart, I am worried about a government default and the loss of our AAA-rating - which is probably a lost cause at this point. Thus, like a majority of Americans I simply want a deal done, and I expect that it include a plan for long-term spending cuts. At the same time I am not opposed to revenue increases - though I would prefer them to come through the end of some deductions and subsidies, rather than any rate increases. In fact, the 2001/03 tax cuts will expire next year anyway, so there is no need to do anything with rates right now. The one thing that needs to be done is the debt ceiling needs to be raised - and it should be raised by at least $2 trillion to prevent another crisis just around the corner.

One idea that I proposed to my representatives is that a deal should simply be made to increase the debt ceiling devoid of any other plan. This plan would be intended to simply alleviate the immediate fiscal crisis and then set up the debt ceiling issue as a referendum in 2012. Make next year's election a referendum on the debt ceiling. I am sure President Obama and the Democrats would be willing to accept this deal. And many pragmatic Republicans probably would, too. The problem is GOP members who fear such a compromise in their next primaries. That is really sad. They believe that absolute rigidity on taxes is the only way they can survive challenges from their own party and their own voting base. Reagan would be saddened by such intransigence.

The reality is that the debt ceiling absolutely and unequivocally must be raised, now. And any sort of crisis is being created by people who refuse to accept that reality.

Freedom from Pledges

Have to admit I heard a valid point from Bill Mahr the other night.

Politicians who sign pledges are sacrificing the very freedom they tout as the foundation of this country. Thus, the pledge that Grover Norquist and his gang have used to tie the hands of GOP candidates in Congress over taxes has actually stripped them of their freedom to vote their consciences or adapt to each and every unique situation.

Pledges are for wimps who are afraid to stand on their own.

Debt Ceiling Absurdity

OK, now I am officially nervous about this impasse on raising the debt ceiling.

A majority of Americans in countless polls want debt and deficit reduction. A similar majority want it without cuts to Social Security or Medicare. And a similar majority want the deficit and debt reduction to come from a mix of spending cuts - though where is the question - and, AND, tax increases. Yet, we are at a stalemate because the GOP leadership appears just crazier enough to risk worldwide economic calamity and a staggering unprecedented default on the most trusted debt in the world simply because they won't agree to any, ANY, tax increase. Even a tax increase that is matched three-to-one on spending cuts. A majority of Americans want this as the plan, a majority of Americans simply want the deal done, nearly all interested parties from the Chamber of Commerce to the ratings agencies say this is the only answer. And, yet, the GOP balks.

I am nervous, and this is a damn shame.

Unemployment from Convenience

On a recent trip to the city of Chicago, I encountered two situations which clarified the idea of creative destruction and its role in unemployment. We decided to enjoy a day at the races, so a trip to Arlington Park Race Track was in order. And I realized how long it has been since I went to the track when I ran in to trouble trying to place a bet. The problem? No cashiers.

The clerks at the betting windows have been replaced by computerized machines where you insert some cash and push a few buttons for the bet. And it was actually kind of complicated ... and you get a voucher for any money you don't spend .... and you can't ask any questions or get any feedback on how to make various bets ... and it was a bit disappointing. How many people lost their jobs for the convenience of computerized betting?

The unemployment became more clear on a trip into the city when I visited one the numerous city parking garages. There is not a clerk to be found. And that is quite frustrating when I pulled into the wrong garage and attempted to turn around. The machine wouldn't let me out for less than fourteen dollars .... after turning around thirty seconds after entering the garage. Who are you going to appeal to? No cops, no attendants, no cashiers. I wonder how many city attendants have been laid off.

Of course, that's the nature of creative destruction. And I'm sure these people who formerly had jobs took advantage of their unemployment to return to school for graduate degrees or, better yet, probably went out and started their own businesses.

Now, do I think the race track or city owed these people jobs for life? No. But is this sort of automation part of our problem? Oh yeah.

Thoughts?

No Hiring Not about Govt

Well, it's official. Even the Wall Street Journal is arguing that the stagnant employment numbers have everything to do with a lack of consumer demand. Well, duh. Businesses hire when business expands and they need to produce more product and/or service. Period. It's, for the most part, that simple.

Yet, for the same twisted ideological reasons that influence most of their naivete about the economy, many "conservatives" argue that business are simply uncertain about government policies and taxes - so they are delaying hiring.

Yeah, right.

As if a business would turn down increased commerce and orders resulting from demand because they are worried about taxes going up. It's supply and demand, people. And demand impacts hiring. That's the way it works.

Great Resort in the Perfect Mountain Town

I love Breckenridge, Colorado.

I mean I know we all do - but for me I think it goes beyond that. Since moving to Colorado eight years ago, Breckenridge has been my family's choice to celebrate the Fourth of July holiday. From its festive parade and run/bike race activities to the kids water fight courtesy of the fire department to coffee and pie at Clint's to wading in the river all afternoon to the free concert and fireworks on the Town Center lawn, an Independence Day in Breckenridge is a truly wonderful experience.

Each year, we drive up for the day and then head back down the mountain with the crowds. This year we decided to stay for a couple days and check out a time-share opportunity at the new Grand Lodge of Peak 7. Having toured it a bit last summer after eating at Sevens Restaurant, we conceded to take a closer look at the resort - and, alas, we became time share owners in Breckenridge. Despite never believing that we could, should, or would buy a place in Breck, the Grand Lodge enabled us to take our first step to becoming more regular visitors and potential long-term residents of Colorado's perfect mountain town.

In addition to having a week-long stay at a great mountain resort in one of my favorite parts of the world, being owners at the Grand Lodge offers us opportunities to use the resort any time we take a day trip to Breck, as well as providing great discount prices for stays outside of our normal time slot. The prices beat any other accommodations we would find in the area, and we're paying less for a condo suite than we would for a hotel room. Additionally, because Breckenridge is such a desirable vacation destination, we have some great bartering room to exchange our time for any of 2,600 resorts worldwide. That seems like a deal we will most likely take, considering we can access rooms at the resort for great prices anyway.

Thus, if you happen to be in Colorado, I highly recommend taking advantage of a great deal to stay two nights in Breck and tour the fabulous accommodations and vacation living at the Grand Lodge of Peak 7.

Haters on My Tax Argument

As you can probably imagine, the email responses to my article on taxes in Colorado were heated. Sadly, many people felt that because I am an English teacher, I have no right to voice an opinion about tax policy - or that my argument could have merit. Many called me a "union thug," though I am not in a union. Others charged me with corrupting the youth with liberal propaganda - though my piece was in a newspaper and not even during the school year. The reality is I made a simple argument about one temporary tax increase proposal and its effect on Colorado.

I wonder if any people bothered to read the study commissioned by the CSPR whose findings I challenged I read the study. I also called the economist and quizzed him on his conclusions for more than an hour. The "economist" predicted that this 0.5% income tax increase and 0.1% sales tax increase - for an expiring limited three-year window - will cause thousands of wealthy Coloradans to literally pack up and leave the state. Do you seriously believe that? He extrapolated their exodus - including any businesses and personal money they spend - to have a subsequent effect of additional tens of thousands of job losses. Do you seriously believe that? If so, then we can dispense with much conversation - because it is an absurd conclusion that thousands of Coloradans will move out of state to avoid these minor taxes that expire in three years.

I challenged the "study" by the CSPR precisely because of the lack of causation that it was "a proven job killer. This point which was conceded to me by the economist when, after reading the actual study, I called him and had an hour-long conversation with him. During this conversation, he acknowledged my point about the lack of causation. He could, in fact, provide no justification in terms of his algorithms, and he backed away from the assertions made by the CSPR. Thus, I'm pretty confident in my criticism of the study.

After my research, I composed my credible argument by citing specific facts about economic growth and taxes during the past forty years. As I noted in my commentary, tax policy cannot be expected to influence the economy in any predictable way. Case in point about those most responsible for stimulating the economy - In 2004, corporations were given a one-year tax amnesty program to repatriate billions of cash reserves held abroad with the expectation that they would "stimulate the economy" by hiring people. Pfizer brought home more than a billion dollars, and then proceeded to cut 10,000 jobs in the next two years. That was two years before the '08 meltdown. GE did the same thing. They dropped their tax burden to effectively zero and cuts thousands of jobs. After the recent 66% tax increase in Illinois, United Airlines moved 1300 back home to Chicago - many came from their offices in "no-tax" Houston. It's not so simple - and thus my point about a lack of causation is pretty indisputable. Wouldn't you agree?

Colorado is not heading the same way as California or Illinois with a modest and expiring tax increase - for our government spending is still quite limited, and no one in the GOP could identify cuts. Thus, I ask my critics: where are your facts? What is your model? Where is the causation? We can go tit-for-tat on states that add and cut jobs, but as I argued very effectively, that is a fallacy about correlation and causation. The economy is far more complex, and you can't count on companies to hire simply because taxes are low - or stop hiring if they go up. It doesn't work that way. Thus, voters and politicians should consider the needs of the community and stop trying to play the "grow the economy" game.

I made a basic argument about how an incredibly small sales and income tax increase for a couple years in Colorado won't cause a determined number of job losses - especially a 150,000. I stand by my assertion.

GOP is Not Normal

David Brooks points out some depressing absurdities among that GOP in its approach - or lack of one - to the debt ceiling talks.

Republican leaders have also proved to be effective negotiators. They have been tough and inflexible and forced the Democrats to come to them. The Democrats have agreed to tie budget cuts to the debt ceiling bill. They have agreed not to raise tax rates. They have agreed to a roughly 3-to-1 rate of spending cuts to revenue increases, an astonishing concession.

Moreover, many important Democrats are open to a truly large budget deal. The Senate majority leader, Harry Reid, has talked about supporting a debt reduction measure of $3 trillion or even $4 trillion if the Republicans meet him part way.

If the Republican Party were a normal party, it would take advantage of this amazing moment. It is being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred billion dollars of revenue increases.

A normal Republican Party would seize the opportunity to put a long-term limit on the growth of government. It would seize the opportunity to put the country on a sound fiscal footing. It would seize the opportunity to do these things without putting any real crimp in economic growth.

The party is not being asked to raise marginal tax rates in a way that might pervert incentives. On the contrary, Republicans are merely being asked to close loopholes and eliminate tax expenditures that are themselves distortionary.

But we can have no confidence that the Republicans will seize this opportunity. That’s because the Republican Party may no longer be a normal party. Over the past few years, it has been infected by a faction that is more of a psychological protest than a practical, governing alternative.

And then there is this - which is exactly what I argued in my last piece of commentary in the Post:

The members of this movement have no economic theory worthy of the name. Economists have identified many factors that contribute to economic growth, ranging from the productivity of the work force to the share of private savings that is available for private investment. Tax levels matter, but they are far from the only or even the most important factor.

These harsh realities are what make it so difficult for rational and pragmatic moderates and independents to support the GOP these days. This ideological rigidity - one which has basically made the Republican Party subservient to the demands of one man named Grover Norquist - is not good for America. While it is easy to simply criticize spending and cross their arms over their chests about taxes, the GOP leadership is ignoring the role of governing. The government needs to govern - not refuse to do anything.

Taxes Don't Cause Job Losses

In response to a recent "study" about taxes and jobs in Colorado, I composed the following piece of commentary, which was featured today in the Denver Post.

Let’s be clear: taxes have one purpose – funding government responsibilities. Period. Taxes aren’t meant to manipulate the economy or employment, and don’t reliably impact either. Thus, Colorado voters shouldn’t try predicting potential job gains/losses from the small, temporary sales and income tax increase proposed by Senator Rollie Heath. Despite warnings from some conservative groups, tax rates don’t influence job choices or migration for average Americans.

When I relocated my family to Colorado from Illinois, the primary reasons were lifestyle – outdoor living, great schools, and cultural experiences. So, while statistics indicate we moved from a high-tax to a low-tax state, taxes had nothing to do with our decision. In fact, as I consider the migrations of many former Illinois residents I know in Colorado, the reasons were education, employment, and lifestyle. Taxes were never a factor.

Recently, the Common Sense Policy Roundtable, a local think tank, published a study warning of job losses in Colorado if Senator Heath’s proposal succeeds. However, the conclusions are hardly definitive. Voters should remember that correlation doesn’t equal causation, and the CSPR study proved no causation between tax increases and job losses. Illinois passed a 66% income tax increase last year, yet its unemployment figures are comparable to Colorado’s. Florida and Nevada, with no state income tax, are in worse shape. Additionally, studies confirm that infrastructure and education spending are far more significant in business location than tax rates. Thus, Colorado could see more growth by sustaining its infrastructure and schools than by cutting funding.

In a desire to connect low taxes and economic growth, many conservative pundits praise low-tax Texas for leading the nation in job growth. Actually, it leads the nation in minimum-wage jobs with no benefits, as well as the percentage of children without health insurance. Texas has one of the worst education records, its unemployment numbers are rising, and it’s facing a $20 billion deficit. Even when jobs and population grow, a myriad of factors are involved. Texas, for example, has lower property values and cost of living, and much of its growth is linked to oil reserves.

Economic systems are far more complex than any single tax rate, and voters are naïve to think otherwise. The Bush tax cuts produced a “jobless” recovery and no net job growth after a decade. By contrast, Clinton’s tax hike coincided with America’s greatest economic expansion. Neither situation resulted from tax policy. The 1980s saw two tax cuts and six tax increases. Yet, drops in inflation, interest rates, and oil prices predominantly influenced the decade’s growth. And the Reagan Era also saw a Wall Street meltdown, a housing bubble, a major banking scandal, and a subsequent recession. Clearly, tax policy was not the primary factor of these events.

Voters should make tax policy decisions based on one priority – the needs of the community. Colorado’s strained state budget resulted from revenue drops – not out-of-control spending. In fact, in the last gubernatorial election, Republican candidates couldn’t identify any specific cuts to the Colorado budget, despite repeated media requests. In reality, Colorado’s modest government requires more revenue to meet its communities’ needs. In this regard, Senator Heath’s minor tax increase is actually quite pragmatic precisely because it expires, allowing time for economic recovery. By maintaining well-funded schools, Colorado can continue to promote itself as a great place to relocate businesses and families.

Despite the wishes of conservative groups, government cannot cease functioning when the economy struggles. Regardless of Wall Street drops or rising unemployment, children still go to school, crimes still occur, roads still wear down. Natural forces don’t wait for good economic times, and nature doesn’t limit snowfall based on budget projections. So, even in a downturn the forest department might need more funds for firefighting or CDOT might need more funds for plowing and repairs. In fact, when the economy tanks, the government often needs to sustain spending until the private sector rebounds.

Despite the ideology of groups like the CSPR, tax policy doesn’t drive the economy. And in reviewing predictions about job growth from the economist commissioned by the CSPR, voters should recall the tongue-in-cheek wisdom of Nobel-prize winning economist Paul Samuelson – “Economists have successfully predicted nine of the last five recessions.”

The ideological debate about taxes and economic growth is not going to end - I'm just seeking to promote reasoned and well-informed discussion.