The real damage in Wisconsin- bad wage growth

A lot of attention has been given to Wisconsin's lousy "40th place in the U.S." jobs record that came out as part of last week's release of the Quarterly Census on Employment and Wages (QCEW). And rightfully so, as Scott Walker was elected in 2010 on a promise to improve the state's economy, and is trying to avoid this fact as he talks up his record to out-of-staters as he campaigns for president. But the other element to that report might deserve even more attention, as Wisconsin was even worse when it came to wage growth (42nd in the nation), with average wages barely keeping pace with inflation, and Wisconsin's middle class being hollowed out. And Walker's recent signing of (right-to) work-for-less legislation will only make this trend of lagging Wisconsin wages even worse.

Here are four statistics form the QCEW that illustrate Wisconsin's awful record on wage levels, and its lack of wage growth.

Average private sector weekly wage, Sept 2014
Ill. $982
Minn $971
Mich $881
Ohio $846
Wis. $809
Ind. $797
Iowa $783

Change in avg. weekly private sector wage, Sept 2013-Sept 2014
Iowa +3.87%
Ohio +3.30%
Ill. +3.15%
Minn +2.75%
Mich +2.44%
Ind. +1.79%
Wis. +1.76%

Sure doesn't look like skyrocketing wages were a problem in Wisconsin, were they? Sure makes you wonder if that was a reason why the Legislature and Walker slammed through work-for-less in the rushed manner that they did. Or maybe it was Walker's desperate attempt to curry the favor of the oligarchs at the 21 Club in NYC, since he and the Legislature changed course on work-for-less right after Scotty hung out with them on one of his campaign trips.

This is especially true when you look at Wisconsin manufacturing, which already paid some of the lowest wages in the Midwest, and those wages weren't going up by very much. In fact, these lists might help explain the fictional Wisconsin "wage gap" that greedy business owners constantly harp about, because the problems these places have in finding workers are really a reflection of the better wages that are paid Wisconsin's neighbors in Illinois and Minnesota attracting talent.

Average weekly wage, manufacturing, Sept 2014
Ill. $1,189
Minn $1,167
Mich $1,157
Ind. $1,050
Ohio $1,048
Wis. $994
Iowa $986

Change in avg. weekly manufacturing wage, Sept 2013-Sept 2014
Ill. +4.76%
Ohio +2.85%
Iowa +1.97%
Ind. +1.94%
Minn +1.92%
Wis. +1.84%
Mich +0.35%

Hmm, how's that "work-for-less" thing working out for Michiganders that work in manufacturing? Oh wait, it's working EXACTLY how the greedheads want it to.

Now combine the weak wage growth with the numerous about of corporate tax cuts that have been handed out by Walker and the Wisconsin GOP over the last four years- tax cuts that are leading to higher-than-expected rent-seeking, and exploding budget deficits. Combine that with the weak wage growth, and it tells you that Wisconsin workers were already being ripped off, with the gains from their productivity being redirected to their bosses, even before work-for-less passed.

The result is the speeding up of a bad trend of increasing inequality in Wisconsin since the start of the Bush years, resulting in the Pew Charitable Trusts releasing information this week showing that Wisconsin has lost more people out of its middle class than any state in the nation since 2000. This "middle-class" figure is defined as households that make between 2/3 and 2 times the median household income, and as you can see, despite real median household income dropping, we still saw this large exodus out of the middle class.

Median household income, Wisconsin, 2013 dollars
2000 $60,344
2013 $51,467

% of households with "middle-class" income
2000 54.6%
2013 48.9%

So explain to me how this trend of stagnant wages and higher inequality is going to be reversed by doubling down on the same anti-worker, trickle-down BS that landed us in the mess we stand in today in Wisconsin? Someone should ask that of our fair Governor as he galavants around the country, since he still, you know, pulls a paycheck from us.

In politics, Menard's gets a great deal from you!

Isn't it sad that it takes national writers to give the real story about what is going on in Wisconsin during the Age of Fitzwalkerstan? That example was borne out today with this story from Michael Isikoff in Yahoo News, who gave us more information about the source of money that was behind Gov Scott Walker's survival in the recall election of 2012, and why there's a John Doe investigation against Walker and his buddies today.

So a little more than three years ago, when Menard wanted to back Wisconsin Gov. Scott Walker — and help advance his pro-business agenda — he found the perfect way to do so without attracting any attention: He wrote more than $1.5 million in checks to a pro-Walker political advocacy group that pledged to keep its donors secret, three sources directly familiar with the transactions told Yahoo News.

Menard’s previously unreported six-figure contributions to the Wisconsin Club for Growth — a group that spent heavily to defend Walker during a bitter 2012 recall election — seem to have paid off for the businessman and his company. In the past two years, Menard’s company has been awarded up to $1.8 million in special tax credits from a state economic development corporation that Walker chairs, according to state records.

And in his five years in office, Walker’s appointees have sharply scaled back enforcement actions by the state Department of Natural Resources — a top Menard priority. The agency had repeatedly clashed with Menard and his company under previous governors over citations for violating state environmental laws and had levied a $1.7 million fine against Menard personally, as well as his company, for illegally dumping hazardous wastes.

Yes, that $1.8 milllion in "special tax credits" that Menard's got was through the Wisconsin Economic Development Corporation (WEDC). Keep that in mind for later.

Isikoff's article goes on to describe the money-laundering operation that Wisconsin Club for Growth ran for Walker, as well as the oligarchs that chipped in to help the cause, without having to sack up and put their names behind their donations.



Now you can't tell me that the Madison and Milwaukee newspapers that have been covering John Doe and WEDC for 4 years didn't have a clue about this. Which makes you ask "Why didn't they report the story?", and did that reason have to do with the promises of millions of dollars of Scott Walker ad money? (looking at Journal Communications' blowout Fourth Quarter earnings from 2014, I'd say signs point to "YES.")

It also reiterated two other themes I have constantly hit on during this disastrous reign in the Age of Fitzwalkerstan.

1. John Doe 2 at its core is a money-laundering case, with the extra bonus of hiding the names of campaign contributors, which keeps people in the dark when they get kickbacks like WEDC tax credits. That's why Club for Growth is fighting it so hard- because any charges and trials that come from it would reveal the money train, and expose the cycle of "campaign donation- tax cut- additional donations" that have helped to increase inequality in this country over the last 35 years.

2. WEDC is an absolute mess, both ethically and in competence of operations. Yes, those paying attention knew that already, but Walker made an incredible statement to the Journal-Sentinel today on the subject (in a story that's conveniently buried in their news feed and off the front page).

In 2013 and 2014, the Wisconsin Economic Development Corp. chaired by Walker awarded Menard's namesake chain of hardware stores up to $1.8 million in tax credits. The governor and his aides responded that he had not been directly involved in those awards.

"I haven't engaged in any of that and there's going to be lots of stories going forward," Walker told a reporter after a meeting of the state Building Commission.

Walker's spokesmodel also is quoted in the Isikoff article claiming that the donation to Club for Growth and the resulting tax cuts were total coincidence. The problem with those statements is that Walker is THE CHAIR OF THE WEDC BOARD and has been since it started in 2011. How the hell wouldn't he know about what he was approving of as the head of the group that signed off on those tax credits. And not having a clue what's going on under your nose really isn't an attractive attribute for someone asking to be president, isn't it?

By the way, WEDC is still literally throwing millions of taxpayer money away without having a clue where it went or what it was ultimately used for, as we saw again last month.

Assembly Minority Leader Peter Barca, D-Kenosha, issued a letter Thursday urging the Wisconsin Economic Development Corp. to hire an acting chief financial officer after previous CFO Stephanie Walker left in January. She was the organization’s fourth CFO since its creation less than four years ago.

Barca said the hire is critical because WEDC has had problems tracking state loans and grants. A May 2013 audit found the quasi-public agency was not following state law in how it was keeping tabs on millions of dollars in taxpayer subsidies, and earlier this week the Milwaukee Journal Sentinel reported that the agency continues to have difficulties despite assurances that the problem had been addressed.

Hmm, untraceable donations to Walker turn into unaccountable millions handed out to Walker donors corporations through WEDC. And as Isikoff's story from today shows, WEDC is still proving to be a nice source for Walker contributors to see some return on their investment, which makes me wonder just how much info is in the unreleased parts of the John Doe investigation that will be discussed before the Wisconsin Supreme Court next month.

Not that I expect the paid-off Wisconsin media to draw these connections too deeply, but maybe Isikoff's article is a sign that the national media will ask the questions that have gone dormant far too long, and perhaps we will see pay-for-play corruption brought into the light that we previously only saw from Illinois (once upon the time, we took pride in our politics being cleaner than what those FIBs did). And if Walker's presidential run starts faltering as the state's economy and budget has faltered, is it possible that some big-name GOPs might throw Scotty overboard before he destroys the GOP on the national ticket in 2016.

A strong dollar and lower rates? Not all that good

A couple of good articles on Econbrowser I want to point you toward from recent days dealing with the always-nerdy but often-important issue of foreign exchange and interest rates.

The first is from UW Professor Menzie Chinn, who talks about the strengthening of the US Dollar over the last 8 months, and why that may not be as good for the economy as that connotation sounds.

The US trade deficit has shrunk considerably since its peak of 5.9% of GDP in 2005Q4. It was 3.1% of GDP as of 2014Q4 (second release). The non-oil trade deficit has exhibited a much smaller decrease; the 3.8% deficit has shrunk to 2.1% as of last quarter. Notice that the real value of the dollar, lagged two years, has an inverse relationship with the trade balance. Hence, eventually, it makes sense that the deficit will eventually deteriorate (relative to counterfactual) as a consequence of the recent appreciation....

As in previous instances, I rely on statistical models of trade flows, taking into account at a superficial level vertical specialization and heterogeneity. Imports depend on domestic GDP and the real value of the currency; exports depend on foreign economic activity and the real value of the currency. Since oil imports and agricultural exports are primarily denominated in dollars, I omit these flows from the calculations. In this paper, I find the long run (in a statistical sense) elasticity of nonagricultural exports of goods with respect to the real exchange rate is 0.690 (Table 2), and nonpetroleum imports of goods elasticity is 0.446 (Table 3). These estimates are obtained using dynamic OLS (DOLS), following Stock and Watson (1993). Assuming the 20% appreciation is sustained, then exports are about 13.8% lower than they otherwise would be, and imports about 8.9% higher.

Given that nonagricultural exports are 1349 billion Chained 2009$ (SAAR), and nonpetroleum imports are 1976 billion Chained 2009$ in 2014Q4, then such changes would be equivalent to 174 and 184 bn Ch.09$ at annual rates. This implies about a 2% decrease in the level of real GDP, relative to what it otherwise would be (assuming a multiplier of unity). Obviously, the impact of the 20% appreciation would take some time to affect flows, so the impact on GDP growth would be relatively small per quarter.

Simply put, the stronger dollar makes imports cheaper, which encourages more of them to come in, and lowers exports for US businesses. We may already be seeing some of that, as January 2015 had a drop of $3.7 billion in exports compared to January 2014, with very little change in overall imports to offset it. To boot, those exports figures were down $5.5 billion (around 4%) on a seasonally-adjusted basis from December 2014. That may be just a one-month blip, but with the dollar staying strong through the middle of March, lets see if February holds up with that trend.

Also on Econbrowser is James Hamilton from UC-San Diego, and he mentions last week's meeting of the Federal Reserve, which cheered markets by seeming to take a wait-and-see approach on raising interest rates off of its current near-zero level.

It’s also worth noting that the median FOMC “longer run” interest rate prediction came out at 3.75% from both the December and the March meetings, though the distribution of the individual “dots” from the latter has clearly drifted down. With a long-run inflation objective of 2%, that implies an equilibrium real interest rate of 1.5-1.75%. Compare that to the yield on a 10-year Treasury inflation-protected security that is now below 20 basis points.

All of which raises the question: does the Fed know something the market doesn’t, or vice versa? Tim Duy concludes “it is now clear the bond market is not moving toward the Fed; the Fed is moving toward the bond market.” But my answer to the question is: a little of both. Based on the historical evidence reviewed here I think it’s reasonable to expect an equilibrium real rate significantly above 0.2% and significantly below 1.5%. But given my own (and everyone else’s) uncertainty about exactly where the number is within that range, it makes sense for the Fed to wait a little longer before raising rates.

And as Menzie pointed out last week, international developments are leaving the Fed little choice. One important channel by which monetary policy can influence the Fed’s targets for output and inflation is through the exchange rate. A higher interest rate in the U.S. than in other countries means a stronger dollar. That makes it harder for the U.S. to export goods and makes imports more attractive, both of which mean a drag on U.S. GDP. And insofar as a stronger dollar means a lower dollar price for internationally traded commodities, it also takes us farther below the Fed’s 2% inflation target. When other countries are lowering their interest rates, that by itself tends to bring down U.S. output and inflation, and mitigates any argument for raising U.S. interest rates.

And note that the yield on the 10-year note has been diving over the last 2 1/2 weeks.

10-year T-bond closing yield
March 6 2.24%
March 23 1.91%

We're now closer to the low of 1.67% that we saw on Feb. 2 than the 2.24% high of March 6. But the strong dollar would indicate that interest rates should go up (because it makes foreign investors less likely to buy our more expensive debt). So does that mean the dollar goes down to match the lower interest rates, or the dollar stays strong, and rates eventually slide up? Or is there a third option, that shows that the economy is slowing down and that there's more slack in the labor market than the Fed originally thought, so they have to keep things low and keep the cocaine party on Wall Street rolling.

I think we're going to find out pretty soon, but there's been an odd push and pull in the currency and debt markets in recent weeks.

UW System cuts having an effect, even before they're law

Even though Gov Walker's debilitating budget has yet to be agreed to by the Wisconsin Legislature or signed into law, that doesn't mean the universities in the System aren't already taking steps to deal with the Governor's pose job. An example showed up in the Eau Claire Leader-Telegram over the weekend, where UWEC administration has reacted to the proposed cut and other revenue reductions by giving buyout offers to 324 faculty and staff.

The separation incentives, which call for an unspecified number of faculty and staff to receive a one-time payment of 50 percent of their base salary in return for voluntarily leaving the university, represent one tool UW-Eau Claire administrators plan to wield in absorbing a massive projected budget cut.

While the Legislature has not made decisions yet on GOP Gov. Scott Walker’s proposed $300 million reduction in UW System funding over the next two years, UW-Eau Claire Chancellor James Schmidt said the time frame is too tight — the new state budget is scheduled to take effect July 1 — to respond after a final budget passes.

UW-Eau Claire is projected to lose $13.74 million in revenue over the next two years, with a $7.6 million decrease next year, under the current formula that divides state funding among universities. That comes after a $4.5 million base reduction the campus already faced from a previous budget cut.

Though Schmidt stressed that he believes cutting higher education funding that much is “terrible public policy,” he told the Leader-Telegram editorial board last week he doesn’t have the luxury of waiting to see how the Legislature might adjust those numbers.

This is the reality of having to run your business while arrogant legislators decide to play around with their funding. In addition to the cuts, another problem is that Gov Walker is proposing to freeze in-state tuition, which causes a double-whammy when funding from the state is being cut at the same time, and costs of everyday operations continue to rise.

So without the revenues and staff, the System can't plan to offer as many classes as normal (this is especially a problem because students have been signing up for Fall classes over the last month), and it jeopardizes other initiatives that the System and the Legislature might want to do. An example is the headline story in today's Wisconsin State Journal, which says that the budget constraints reduces the chances that high schoolers will be able to take classes for college credit next year.

The University of Wisconsin System will no longer cover the cost of a dual-enrollment program for high school students to earn college credit.

The Wisconsin State Journal reports school districts were told by UW System President Ray Cross that they would have to pay for the program next year. The system is facing $300 million in budget cuts in Gov. Scott Walker's proposed budget.

The program, which was approved by lawmakers two years ago, allows students to get college credit for high school courses that match classes at UW campuses. About 7,400 students take part in the program...

Cross said districts, which typically partner with one UW System campus, can negotiate lower tuition costs. The Middleton-Cross Plains Area School District negotiated a rate of about $30 for each credit with UW-Oshkosh, amounting to a cost of $70,000.

"We had already decided that if something didn't change, we would be unable to offer this option for students next year because the cost would have been at least $350,000," Middleton district spokesman Perry Hibner said.

You can bet a lot of other schools won't be able to get or afford the lower rates that the Middleton district is shelling out for, and so the students in those districts won't be able to get a jump in their college careers. This is especially true because Walker's budget is also set to cut aids of $150 a student for K-12 schools, which is leading to massive deficits across the state, and "extras" such as allowing students to grab college credit will likely be one of the first things to go.

So now we have students entering the UW System with fewer credits and college experience to their name, inevitably making them pay for more credits to graduate, and possibly extend their stay in school for another semester or two. Which means more resources are required to teach more students, but the state is refusing to pay their share of those needs, which means it becomes less likely for pay for high-level instructors and offer required classes for the students when they need them. And then the downward cycle repeats.

And for what? So corporations can get another tax cut that leads to more profit hoarding and rent-seeking. And we end up with more stagnant wage growth for future workers that are generated from a declining UW system? How in the world is this the right direction to take?

This is why I got infuriated when I read the tweets from GOP legislators congratulating UW hoops for making their 4th Sweet Sixteen in 5 years, and propping Stevens Point for winning the Division 3 title. Yeah WisGOPs, it is pretty cool to see our college hoops continue to dance in March, but I'd rather see you sticking up for the 140,000 students and tens of thousands of workers at the universities that house those hoops teams, instead of driving down one of the few economic advantages that this state has.

Grumpy NCAA rant on a gloomy Sunday

As I hang around the house on a cold, dreary Sunday waiting for the Badgers to play tonight, these tweets sort of sum up what I'm thinking right now.

@tsnmike There's a happy medium somewhere between 4 games at once and the whole US being forced to watch Duke beat SDSU by 30.

— EricTheRed (@RealEricTheRed) March 22, 2015

and we are now stuck watching a likely Duke blow out with no other options. Tonight we can switch back and forth between good games

— redforeman62 (@redforeman62) March 22, 2015

Sports bar industry has to be hating this, too. The way these game times are set up, it's only worth it to get to sports bars to see multiple games after 5pm on Saturday and Sunday, and a whole lot of people aren't going to make that kind of effort. And why the hell are we having games that tip on 9pm on a SUNDAY? So ratings are manufactured to be 2 points higher in prime time? As I mentioned last year, between that and the extra-long TV timeouts, CAN WE STOP THE GREED ALREADY and not chase the last dollar for once, NCAA?

Sorry, just an "old guy" rant that comes to my mind as it's 3:30 and my only option for March Madness is to see Duke hammer on an overmatched San Diego State team in front of a home crowd in Charlotte.

Why isn't the progressive People's Budget getting press?

Let me jump off of my previous post regarding Paul Krugman's column on the Congressional GOP's fiscal fraud. If you watched the dreck that is Sunday talk shows, you might not think there are other ideas out there on how our federal government should tax and spend. For example, there is The People's Budget, which was released by Rep. Mark Pocan and the rest of the Congressional Progressive Caucus at the same time as the GOP's budgets, and it takes a very different direction than the cynicism and austerity of the GOP budget.

The People’s Budget closes tax loopholes that companies use to ship jobs overseas. It creates fair tax rates for millionaires and provides needed relief to low- and middle-income families. It invests in debt-free college, workforce training and small businesses within our communities, helping return our economy to full employment and giving a raise to Americans who need it most. Investments in The People’s Budget boost employment and wages by addressing some of the biggest challenges of our time: repairing America’s rapidly aging roads and bridges, upgrading our energy systems to address climate change, keeping our communities safe, and preparing our young people to thrive as citizens and workers.

A fair wage is more than the size of a paycheck. It’s having enough hours, paid overtime, sick and parental leave, and affordable health and childcare. It’s being able to afford a good education for your kids and never living in fear that your job will be sent overseas. It’s knowing you can make ends meet at the end of the month. The People’s Budget helps achieve that with a raise for American workers, a raise for struggling families and a boost to America’s long-term global competitiveness.

And oh yeah, the Economic Policy Institute scored the items in the People's Budget and found that not only would the People's Budget add 4.7 million jobs this year through direct investment and hiring, but unlike the GOP's budget, the People's Budget actually will reduce the deficit after that and manage the debt.

Reduce the deficit- in the medium term. The budget increases near-term deficits to boost job creation, but reduces the deficit in FY 2017 and beyond relative to CBO’s current law baseline. The budget would achieve primary budget balance (excluding net interest) and sustainable budget deficits below 2 percent of GDP in FY2017 and beyond.

Target a sustainable debt level. After increasing near-term borrowing to restore full employment, the budget gradually reduces the debt ratio to a fully sustainable 66.0 percent of GDP by Y2025. Relative to current law, the budget would reduce public debt by $3.2 trillion (11.6 percent of GDP).

So explain to me how this proposal and past People's Budgets get little to no media coverage, while Paul Ryan's "magic asterisks" and other absurd, failed assumptions are held up as "deep thoughts worthy of discussion" that get Purty Mouth Pau-Lie a seat at all the Sunday talk shows? Especially when the People's Budget is more fiscally sound and has ideas that are supported by more people when you put the options to them in polls?

The answer to that question lies in who owns the media, and who pays for the ads in the media. And it's why a "balance in media" movement needs to happen sooner than later.

Today's Sunday read- Krugman on GOP fiscal "fraudsters"

Required reading this weekend from the New York Times' Paul Krugman on the absurdity of the recently-released budgets by the House and Senate GOP. Here are just a few samples.

So, about those budgets: both claim drastic reductions in federal spending. Some of those spending reductions are specified: There would be savage cuts in food stamps, similarly savage cuts in Medicaid over and above reversing the recent expansion, and an end to Obamacare’s health insurance subsidies. Rough estimates suggest that either plan would roughly double the number of Americans without health insurance. But both also claim more than a trillion dollars in further cuts to mandatory spending, which would almost surely have to come out of Medicare or Social Security. What form would these further cuts take? We get no hint.

Meanwhile, both budgets call for repeal of the Affordable Care Act, including the taxes that pay for the insurance subsidies. That’s $1 trillion of revenue. Yet both claim to have no effect on tax receipts; somehow, the federal government is supposed to make up for the lost Obamacare revenue. How, exactly? We are, again, given no hint.

And there’s more: The budgets also claim large reductions in spending on other programs. How would these be achieved? You know the answer.

It'll be done by magic, I tell you! Actually, Krugman knows the real answer, as do you- it'll run up the deficit and country's debt to the point that massive cuts in Medicare/Social Security, infrastructure, and regulatory agencies like the EPA and IRS will "have" to happen, making it easier for GOP donators to get what they want. It's classic "starve the beast" cynicism, without having to admit that's what you're doing to the public.

And Krugman wisely says that these moves go past the magical thinking of the Laugher Laffer curve which thinks that tax cuts will somehow raise revenue and "pay for themselves" (we've seen how BS that is here in Wisconsin, as the revenue shortfalls and low wage growth continue to pile up). Instead, Krugman says it's a way to move income and wealth away from the majority of us, and send those gains to the "inner circle" who donate to GOP politicians and run the party.

But I’m partial to a more cynical explanation. Think about what these budgets would do if you ignore the mysterious trillions in unspecified spending cuts and revenue enhancements. What you’re left with is huge transfers of income from the poor and the working class, who would see severe benefit cuts, to the rich, who would see big tax cuts. And the simplest way to understand these budgets is surely to suppose that they are intended to do what they would, in fact, actually do: make the rich richer and ordinary families poorer.

But this is, of course, not a policy direction the public would support if it were clearly explained. So the budgets must be sold as courageous efforts to eliminate deficits and pay down debt — which means that they must include trillions in imaginary, unexplained savings.

Does this mean that all those politicians declaiming about the evils of budget deficits and their determination to end the scourge of debt were never sincere? Yes, it does.

Look, I know that it’s hard to keep up the outrage after so many years of fiscal fraudulence. But please try. We’re looking at an enormous, destructive con job, and you should be very, very angry.

Yes, you should be angry. The fruits of your work ethic are being stolen, but it isn't the poor minorities that are being the takers. We know the corporate media won't say these facts, but maybe some more Dems should do so, and start the fire from below.