Yet More on the Gas Tax: We Ought to Be In This One Together

July 2nd, 2014 at 9:36 pm

OK, perhaps I’m the slightest bit obsessed by the issue of the federal gas tax and the shrinking Highway Trust Fund.  But I’ve got my reasons: policy, political, and personal.

On the policy side, raise your hand if you think we can maintain a safe and productive transportation infrastructure on the back of a federal gas tax that has held fast at 18.4 cents/gallon for over twenty years.  (Anyone who raised their hand, use that hand to smack yourself in the head until you’ve changed your mind.)   It’s not been raised for inflation, for better mileage of the fleet on the road, nor for the fact that people are driving less and using more mass transit (about 15% of the fund supports mass transit).

On the personal side, every morning when I drive to work in DC for the past five or six months, I and everyone else swerves around this pothole in the 3rd Street Tunnel, about two blocks from the Capitol building.  Actually, it started out as two potholes but they’ve gotten married and are probably about to start a family.  And that just really irks me.

Finally, there’s the political, upon which I’d like to dwell a bit.  In an earlier piece, I criticized the White House for rejecting a bipartisan proposal to replenish the trust fund in perpetuity by raising the federal gas tax by 12 cents over two years and then indexing it to inflation.  It’s not a perfect proposal, but it’s an excellent place to start the debate.  So I was quite disappointed when the administration appeared to shoot it down.

Today, press secretary Josh Earnest was pressed a bit more on this point, and while he touted the administration’s preferred idea to pay for infrastructure spending—closing corporate tax loopholes “that benefit the wealthy”—he left the door open at least a crack, saying something like, “If there are other people that have other ideas, we’ll certainly evaluate them as they move through the process.  But we’ve been very clear about what we support.”

Now, anyone who knows my work at all knows I’m no apologist for “the wealthy.”  Though the economic incentives may point in that direction, I do not feel the slightest bit compelled to defend the top 1%.  In fact, I recently wrote that I don’t see how we help the poor more without taxing the rich more.

But I don’t think every single tax must assiduously avoid those in the bottom 99%, especially one like the federal gas tax that works much like a user fee.  We who use roads and transit know who we are and there’s nothing wrong with making the case that we should help support their upkeep.  There’s no need to put this solely on the wealthy.  I’m confident that most of us are smart and fair-minded enough to readily understand that the fund can’t function on a tax that’s gone unadjusted for 21 years.

It’s true that the gas tax is regressive, and that’s all the more reason to maintain and increase the progressivity of other parts of the tax code, much as the administration has argued.  We should absolutely close those corporate loopholes Earnest referenced.  But if a few more cents per gallon is what it will take to maintain our highway infrastructure, then IMHO it’s the job of our leaders to make that case to the non-wealthy along with the rich.

The President is particularly eloquent and convincing in pointing out how we’re in this together.  Here’s a case where we can put that into action.  Not: “let’s get together and tax someone else for something we all use,” but “if you’re a driver, then I think you’ll understand that after 21 years, I need to ask you to kick up your contribution to the infrastructure upon which we all depend.”

I can’t be sure it will work, but it’s the right argument.

Dr. John, Ph.D. on the Spate of Current Economic Indicators: “Refried Confusion is Making Itself Clear”

July 2nd, 2014 at 3:14 pm

I often cite the great New Orleans pianist/composer at moments like this, when the economic data are jumping around this way and that.

Most analysts, myself included, agreed that first quarter GDP was a large outlier, but not to put too fine a point on it, that -2.9% was just a crap number (here’s my take).  This morning’s ADP jobs report, on the other hand, reports 281K net jobs created in the private sector last month.  Tomorrow, in a rare Thursday edition, we’ll get the BLS jobs report; expectations are at about 210K for payrolls, right in the middle of the underlying trend, which is running about 200-220K.

My forecast model spits out 215K, but I tweaked it a bit to downweight the ADP number which seems a bit high to me.  Still, I’d guess there’s upside risk to my forecast and if total payrolls come in at 240K, I wouldn’t be surprised.

One observation here is that the GDP and the jobs numbers can’t both be right because sharply declining output amidst moderate/decent job growth implies collapsing productivity, which is implausible (slowing, maybe; collapsing, no).

Another confusing dynamic in the data stream is bond yields.  They tend to rise as the economy heats up because investors see some inflation coming (against which they want some protection) and because they migrate over to higher-yielding stocks, sending bond prices down (bond yields move opposite to their prices).  As the figure below reveals, 10-year Treasury rates have come down about 50 bps this year, the opposite of the “growth-is-about-to-bust-out-everywhere” narrative.

And sure, deep Federal Reserve intervention is obviously helping to keep rates low, but that too should be pushing the other way this year, what with the taper.

Yes, there’s a bit more inflation, as both yr/yr core CPI (1.9%) and core PCE (1.5%) have accelerated some.  But that’s a good thing, evidence of signs of economic life.  The Fed’s target of 2% core inflation (and they’re typically thinking about the PCE) is not a ceiling; it’s where they’d like prices to settle, which doesn’t preclude going above 2% in the interest of closing remaining output gaps.  And importantly, wage pressures remain to be seen.

I’ll be at my battle station tomorrow AM, ready to see if the job numbers can help un-fry some of this confusion.



A Few More Thoughts on the Ex-Im Bank

July 2nd, 2014 at 9:27 am

I was out of the box early on the dust-up around the survival of the Export-Import Bank, but haven’t weighed in since it’s heated up, so allow me to briefly revisit.  (You’ll recall that the Ex-Im Bank provides government-backed guarantees to private loans made to other countries under the condition that they use the credit to buy our exports.)

Note the figure in the link above, showing a pretty remarkable drop in Boeing’s share price on the day of Rep. Cantor’s surprise loss to Dave Brat (Cantor’s a supporter of the bank, and Boeing depends on the bank to boost its international sales; Brat’s a strong opponent).  That blip says a lot: Brat had a point when he connected Cantor to Wall St., and Boeing is clearly dependent on the Ex-Im Bank.

Brat and the Tea Party are by no means alone in their opposition to the bank’s reauthorization.  From what I’ve seen in recent days, punditry opposition from left, right, and center is outpacing support by a wide margin.  At this point, I’m not sure if even Tim Howard could save the bank.

Not that the bank obviously needs saving, but neither is the case against it as slamdunkity as opponents claim.  For example, running through the critiques is the assertion that the subsidies which the bank provides to American exporters are wasted: they’d make the same sales without them.

That may be the case, but I’ve seen nothing but assertions and no analysis.  Keith Henessey, who doesn’t just want to end the bank—he wants to “Kill” it!—makes a point I’ve made as well: “Deep and liquid private credit markets exist today that did not exist when the Export-Import Bank was created in the 1930s.”

Certainly true.  The global supply of loanable funds is much greater and cheaper than it was in the past.  But neither he nor I nor anyone else knows if that means a developing economy can get an affordable loan of the magnitude needed to buy US-made airplanes.  The Ex-Im Bank exists to offset the premium associated with that credit risk and it has done so effectively, in the sense of pricing its loan guarantees to account for the risk (i.e., it has not, on net, lost money on defaults).

That doesn’t mean it’s efficient or even that it deserves to live on.  I join the opposition in their major critiques: it’s not clear why Boeing, GE, and other large American exporters need the subsidy, nor why rich countries need the USG to backstop their loans.

But assertion is not proof, and it would be better to test the international credit waters rather than do an experiment with full withdrawal, especially at a time when we very much need the labor demand generated by exports–and remember, we’re talking manufactured goods.  Phase-out is also a better strategy given the other main defense of the bank, which is that as long as our competitors for international sales keep their similar credit-providing institutions up and running, we’re at a disadvantage if we drop out of this market.  As one critic wrote, that’s not a principled defense, but I think it’s a pragmatic one.

SCOTUS and the Unions: “Come On and Take a Free Ride!”

June 30th, 2014 at 5:00 pm

The Supreme Court’s majority opinion out today in Harris v. Quinn represents an important defeat for the “hundreds of thousands of home care and child care workers who have managed to improve their work lives through collective bargaining” as EPI’s Ross Eisenbrey wrote earlier today.  The Court majority ruled that these health-care workers cannot be required to contribute to a union, even if they benefit from its collective bargaining.

Sticking with Ross’s take:

Thanks to union contracts that include anti-free-rider provisions, this almost entirely female workforce has made huge improvements in wages and benefits, in training, and in respect in the states that provide for collective bargaining. The Court gives this no value and says the right of the free riders to have the benefits of union contracts without having to pay anything for them is the preeminent constitutional value. The Court majority’s balancing of interests is skewed: the right to vote democratically for a union contract that holds everyone to the same obligation and makes improved wages and working conditions possible is more important than the right to get something for nothing.

I’ll leave the legal analysis to others (though I’ll get back to that a bit below), but let’s look at the political economy of what I think is going on here.  Start from the presumption that a long-term goal of conservative policy is to weaken unions and a potentially effective way of doing so is repealing the anti-free-rider provisions Ross notes above.  Now, look at the figure below.

Private sector unions have consistently declined to the point where they now represent less than 7% of the workforce.  Part of that is a function of our shifting industrial structure away from manufacturing—a sector with high union density—to services.  But that’s not the whole story.  Over the last 30 years, the share of workers in manufacturing fell from around 20% to 10%.  But even within the factory sector, the unionization rate fell from 27% to 10%, an even larger decline than that of manufacturing’s share of the workforce.

Still, while private unions have been slammed, the public sector has held up extremely well, in no small part because the sector is insulated from the anti-union tactics that are both effective and pervasive in the private sector.  And that has made the publics a prime target.

Those hoping to take down public-sector unions wanted a more sweeping decision from their friends on the court today, one that went beyond the home-health aids to all public-sector workers by reversing the earlier Abood decision that protects the right of public unions to collect fees from non-members who benefit from collective bargaining.

Instead, the ruling was narrower.  As Justice Kagan noted in dissent: “The good news out of this case is clear: The majority declined that radical request. The Court did not, as the petitioners wanted, deprive every state and local government, in the management of their employees and programs, of the tool that many have thought necessary and appropriate to make collective bargaining work.”

But I agree with Adam Serwer, who views this silver lining as awfully thin.  This looks like a pretty classic Roberts’ court two-step: use a specific case that affects a smaller group to cast doubt on a broader principle, then follow that up later with a repeal of the broader principle, affecting far more people.

The Roberts court has in the past offered warnings of its future intentions to gut prior precedents or laws that have been upheld, such as when it upheld a key section of the Voting Rights Act in 2009 before striking it down in 2013. By calling the Abood decision “questionable,” the conservative majority may very well be signaling its intention to overrule it in the future.

Powerful forces really hate that straight line in the figure below and I’m sure they will keep pressing to make it move like the private sector line.  Which begs the broader question: whose fighting for the other side?  Why is capital so much stronger than labor?  That already large imbalance got a bit more so today.