Indiana Gov Race: Pence v. Gregg

Having recently attended the Fall 2012 session of the Indiana Economic Development Conference, I had the chance to hear Sue Ellspermann (Mike Pence's (R) running mate) and John Gregg (D) give their thoughts regarding how to improve Indiana's economy.  Below I will outline what I heard, and give my opinion on who has the better direction:

Highlights from Sue Ellspermann for Mike Pence:

In regards to labor force and education, Ellspermann indicated that the Pence campaign wants to strengthen vocational and technical schools by working with high school and employers throughout the State.    They want to eliminate the stigma of these schools and slowly get people to realize that 4-year colleges aren't for everyone and not necessary for many high-paying careers.  While I don't think this focus would work for every State, I do think it's the right one for Indiana given the kind of labor pool and demand we have.  This is in some sense an extension of the what the Daniel's administration has already started, so no marks for originality.  Unlike the Gregg campaign, the Pence campaign wants to reduce education costs mostly by incentivizing students to graduate early or at least on-time by basically paying them to do so.  I don't know how I feel about that.  To me, there's usually a good reason students don't graduate on time.  I'd rather see some of that money being spent on high schools to do a better job of helping students figure out their likes, dislikes, strengths etc.... Grade: B-

In regards to government operations, the campaign wants to have a "moratorium on regulations."  Sue (I'm tired of typing her complicated last name) didn't give any specifics on this, and I consider this to be a throw away item that every politician says.... Grade: F

And of course the Pence campaign wants to support Veterans.  Sue mentioned that the existing unemployment rate is about 15% for Veterans (twice the national average nearly).  She gave no specifics other than wanting to put a Veteran on the IEDC Board.  All in all, I don't see the point of that and consider this to be another throw-away political stance:... Grade: F

Of course, Sue wouldn't be a Republican if the main part of the platform weren't about cutting taxes.  So, the Pence group wants to cut income taxes over 2 years by 10%.   And again, like most Republicans, there was no mention of how this would be paid for (see regulations above).  So, Grade: D

Sue talked about the need to increase exports, particularly with ag.  She went on to talk entrepreneurship and partnering with universities, creating an Indiana jobs cabinet that can be movers and shakers that can spread the word about Indiana's strong business climate, and also talked about hosting a national site selector conference.   Some of this seems like it might be beneficial, but she was a bit vague on specifics, so I'll go with a B-

Regarding energy, the Pence campaign supports an all-the-above strategy - which is the best any politician can do in coal country....no grade on this.

Overall, I was impressed with Sue Ellspermann's presentation (if not a majority of the content) and it is refreshing that she actually has an econ dev background (which I'm sure is why Pence sent her) but it's also disheartening that Pence didn't show up himself - just further exemplifies the fact that he is all social-issues, which is concerning to me.  I think there were a couple good ideas, a lot of old ideas, and some throw-away vagueness.  So, overall grade is a C-

Highlights from John Gregg:

John Gregg showed up on Friday to speak and I was struck my many similarities to the Pence campaign's ideas.  First, some democrats don't realize, but John Gregg is just as (if not more so) conservative when it comes to social issues (which is part of the reason why he chose Vi Simpson as his running mate - to mask that).  But also, on econ dev, there are more similarities than differences with Pence.

The first point he made was about energy - Gregg wants to eliminate the sales tax (not the use tax) on gasoline.  He tried to persuade the audience that the amount of money saved per family is significant, but that is laughable for all but the poorest of families.  Also, while I don't support tax increases on gas like many economists do, I certainly don't support eliminating taxes on them.   This seemed more to me to be a political populist ploy more than anything else, though perhaps he has his heart in the right place, we are never going to close the gap on the clean/coal cost differential if we cut the cost of gas.  Like Pence he claims to have an all-the-above strategy and mentioned something about making more wind turbines here....Grade: D-

Like the Pence camp, he wants to have an 'efficiency audit' which just means he wants to spend a lot of time looking at the regs to see if we can save money.  Given that the Daniel's administration spent 8 years doing that, I don't see the value.   Also, he gave the same talk about Veterans although he didn't mention anything about putting one on the IEDC board.  I'll give this the same grade I gave Sue: F

Regarding specific econ dev stuff, Gregg wants to cut the corporate income tax (with a credit) particularly on HQ relocation to Indiana.  I see two difficulties: one is that we just don't see that many HQs relocating anywhere except for Indianapolis metro or Fort Wayne (so it's hardly a big benefit Statewide), and two is we already have tax credits to do this!  He went on to talk about how he wants to target specific industries like life science and advanced mfg. but again, these are targets the State already has.  He mentioned a tax credit also for companies that relocate jobs from overseas (I think Obama had a similar idea?) Again, while the IEDC doesn't have a credit specific to that, we already have credits we can give companies to relocate back home.  It's REDUNDANT.  My biggest disappointment is he made no mention of his recently announced idea to create a midwest econ dev cooperative (which I love) - so I can't factor that into his grade.  Grade: F

Regarding international trade, again like Pence, he wants to increase exports.  Gregg says he'll accomplish this by creating a new office at IEDC devoted to international strategic exports.  He was very vague on this, but I imagine this might involve expanding our already-existing international office.   He also wants to fight unfair trade practices abroad.  While I applaud that sentiment, that seems like a federal issue.  The US can't get China to change, how in the world is Indiana?  Finally, he wants to create a 'heritage to home' program essentially turning foreign students into ambassadors for the state.  I suppose the idea being he wants all this foreign talent to earn degrees here, then leave, and spread the word about Indiana in India, China....I would rather the focus be on keeping them HERE.  Grade: D-

Unlike Sue's speech (actually the two were very different deliveries, Sue's was polished and professional and Gregg's was very off the cuff and folksy to the point of being obnoxious), Gregg kept preaching to the crowd (of mostly local econ dev officials) that he wants the State to better engage the localities on how to do econ dev.  He gave no specifics and I mostly thought he was just trying to push his populist preaching, but I DO wish the State were more collaborative with local officials.  So, I'll grade that a C.

He ended on education.  His plan to cut costs is to look at our schools and ask the question, 'is that building needed?'  'Is that program redundant with this program?'  Again...fluff.  He wants to give a tax credit or other incentive to keep kids in Indiana after graduation (which to me seems counter to his plan for a foreign ambassador program).  Perhaps his biggest difference with Pence is that he seemed largely resigned to the fact that kids take more than 4 years to graduate these days - it's the new normal.  As such, he has no plans to incentivize on-time graduation.  Grade: C-

Overall, while funny, his speech was a lot like his campaign: lacking a clear direction or focus and overly folksy.  He actually made a point of not asking for anyone's vote, which I found odd to say the least.  Another oddity was that (and yes, I was keeping track), he not only said "IEDC operates good (folksy grammar)" but he also credited Mitch Daniels with 4 things:  Indiana Buy-IN program, BMV makeover, strategic overseas focus, and community college focus.  Gregg kept his best econ dev idea off the table for this group and largely either has a copy of the Pence campaign or imop has some really uninformed ideas.  So, his grade is a D.

So, it's Pence/Sue by a nose -  but certainly nothing to write home about.

Dangerous Precedent: Patenting Cool

Apple vs. Samsung proves that we don't have anywhere close to a free market economy.   We have an economy that has a lot of the negative elements of one: greed and corruption, and an economy that has taken away the ability to have the positive elements: namely, competition.

When you can patent a look, a feel, a size dimension... it erodes competition.   You are eliminating the rights of companies to learn and imitate, which in reality is a much more powerful force than to innovate.   Innovations are a once in a generation find most of the time.   And the catalyst for them are usually not monetary gain - but passion.  Jobs and Wozniak innovated because they were passionate.  Imitation allows companies to learn from each other, and to pass that learning on the customers in the form of lower prices.   Imitation is not just a sufficient condition for competition, it is a necessary one.   When the system takes even the most basic form of imitation away from companies, it takes away the positive power of markets.

If you own Apple stock, you should be happy, but if you own stock in the American dream, you should be very afraid.

Reason over Vitriol

http://www.dailyrepublic.com/opinion/localopinioncolumnists/cant-get-worked-up-over-chick-fil-a/

http://www.chow.com/food-news/121994/chick-fil-a-is-conservative-so-are-a-lot-of-other-restaurants/

http://money.msn.com/politics/post.aspx?post=5546973f-da8f-41e5-b87d-d35257efa6ea

If we truly believe that business institutions are not 'people', then we shouldn't be attacking them for their leader's beliefs.  And if you do believe businesses should be treated like coherent organisms, why stab the heart if it's the head that hurts.

If they break the law or there is evidence of systematic actual job discrimination or customer discrimination / abuse, then that's a different story.   But what we have here is a misdirected attack on an independently operated chain.

And as for the whole Chick-fil-a supports killings gays argument, which seems to be the strongest argument for all the hateful words on this issue, it again is misdirected and has so many degrees of separation that it's nonsensical.

Chick-fil-a leaders decide to provide some profit to a separate non-profit arm WinShape.  WinShape then takes some of its money and donates to the Family Research Council.  FRC then takes some of its money and lobbies the US congress not to denounce Uganda's 'kill the gay' bill - no money is actually directly supporting Uganda's bill - it's being used to not support US denouncement of the bill.  If you even believe that's what the FRC's goal was in the first place....

That is a lot farther and a lot different than "Chick-fil-a supports killing gays."

Privatizing Profits and Socializing Losses

This phrase has become all-to-familiar post-financial crisis with bankers receiving government bailouts and allowed to continue their abhorrent bonus structures and other practices unchecked.

But, if you think about it, this problem is pervasive in our modern economy, even absent government intervention.

Textbook economics assumes perfect competition.  Students are often told, "well, nothing is ever truly perfectly competitive, but capitalism tends towards that."  It's often stated as a truism, even though evidence suggests that our real-life capitalism whether due to some combination of economics of scale, cronyism, information and power asymmetries, etc actually tends toward oligopoly.  Oligopolies have some significant degree of price manipulating power and can actually take losses for years and still not be forced to exit a market.  In oligopolistic economies, price is usually not the factor that businesses in an industry compete on.   Rather, they usually compete over product differentiation and advertising in general.   (A nice example here)

The point is, if an industry or even just an individual firm in that industry is hit by a significant loss (negative profit, say due to a financial crisis, or whatever), oligopolistic firms need not cut their prices in the face of low demand - they can simply cheapen their product, or tack on hidden fees, etc (all the while marketing the fact that their products are new and improved and inexpensive).   The result is that the losses that should at least partially be born by the industry, are actually largely passed on to the masses (the consumers) who are duped (via asymmetric information).  IE, losses are socialized. In the opposite case, due to their market power inherent in their structure, during 'good times', oligopolies can reap huge private profits.

A more obvious way in which losses are socialized is that poor decisions (and by poor, I mean fraudulent in most cases) by the institutional management in a firm creates costs, but those costs are often passed on not via punishments to the bad decision maker but to the employees in the form of pink slips.  Employment in financial and insurance services has fallen 7% from its peak in 2006 - about 400,000 employees.

Bernanke: Misguided, Egomaniac or Weakling?

He's definitely got to be one of the three.  

Bernanke the misguided:
Maybe he truly believes the words that come out of his mouth in these hearing - that the Fed is 'ready to act' as if it has anything it can do at all.   What we've learned is that interest rates matter very little in these kinds of deep financial recessions, and even if they did, the Fed has already pushed even certain mid/long-term rates to record lows.   Is it possible that Bernanke wants to believe that he can help and truly is just misguided.  Perhaps, but I think the probability that he could be duped this easily is low.

Bernanke with the big ego:
Maybe he's fully aware that the Fed's actions are likely to do little to stimulate the economy but he wants to come off to Congress and the American people as someone with a lot of power.  He wants to continue living in a fantasy where everyone hangs on the Fed chair's every word as if at this point it really means anything.   I don't know the man personally, but again, I have a hard time seeing Bernanke being Mankiw-like in this way.

Bernanke the weakling:
At this stage in the history of economic policy, Bernanke has had opportunities to really take it congress, to really express what I must imagine is his and certainly the average Joe's frustration with the deadlock, vitriol, and general dysfunction that defines our legislative branch.   He could talk about how the fiscal dangers are not of 'running out of money' but of failure of the public sector to invest in our future or to help the private sector rebound - leaving employment and with it tax revenues fairly stagnant.  But instead he talks in low tones about 'fiscal cliffs' - he suggests no innovative legislative actions beyond maintaining the status quo (not letting tax cuts expire, and not reducing government-driven demand beyond current levels).  In other words, Bernanke the weakling knows the only potential solution, if there is one, lies with the legislative and executive branches, but he is too scared to push the point.   This sounds like an academic economist - someone who is good at numbers but not good at message.   Could this be the real Bernanke legacy?

Bernanke's response:

I've been assigned to focus on maximum employment and price stability, not to hold threats over Congress’ head. Congress is in charge here, not the Federal Reserve.

I don't know if it's his 'job', but it seems like the right thing to do for the country.

Our Legal System Supports our Crony Capitalism

What's wrong with this picture:

One the one hand we have individual citizens who steal things or money from other individual citizens.   Laws vary from state to state, but here in Indiana for example, theft can get you anywhere between 6 months to 8 years in prison depending on what was stolen and how much of it was stolen etc.   The average American will earn about $1.6 million over their lifetime, and so an individual thief may essentially lose up to 10% of their total lifetime earnings due to loss of income in jail (assuming the average person lives to be about 78 years old).

Now take not a person, but a large bank.   A bank that has  'stolen' millions of dollars through fraudulent and just outright deceitful practices.  This action just isn't one theft like someone stealing a painting or a car: it literally ruins entire families: hundreds or thousands of families across the nation.  Yet, this bank, because of the power granted to them in our supposedly capitalist system, means they get a slap on the wrist of $175M.  A bank like Wells Fargo has aprox. $80 Billion in gross income in one year.  Therefore, Wells Fargo's slap on the wrist equates to about 0.2% of it's annual income.  But wait, that not a good comparison to what Wells Fargo can earn and finance over its life.   If we assumed Wells Fargo's 'life' was 78 years (just like a typical American), Wells Fargo's lifetime earnings would be over $6 Trillion, which makes $175M look like toilet paper.  And Wells can earn exactly the same amount of money at age 78 as at age 20, because unlike individual people, banks never age and never have to worry about things like  healthcare, social security, etc.

Let's recap.  One person loses years of their livelihood and a signification chunk of lifetime earnings and all the family support that could have been provided during that time, all for stealing something as mundane as a car.

One bank, loses less than 1/5 of 1% of it's annual earnings for destroying hundreds or thousands of families across the nation.

Think about that.

Mike Norman on the Fed's Uselessness

I agree.

Hat tip to Mike Valotta.