The Fallacies of the New Economy

As Vermont’s economy continues down its relentless path toward the ashbin of history, at least, um, several Vermonters are advocating for a “new” economy.  What’s the under-pinning of this new economy?  Innovation?  A removal of existing regulatory overheads so high that the state won’t finish building a road it started three decades ago?  A restructuring of its tax burden to entice businesses to move to or invest in the state, to grow an economy that ranks 2nd worst in the country?  A job climate that doesn’t scare college graduates into leaving the state at one of the highest rates in the country?

Nope.  Instead of those things, a group of concerned Vermonters calling themselves “Vermonters for a New Economy” have decided that the primary answer to the problems above is a bank.

Yep.  A bank.  But not just any bank.  A state bank.  Meaning a bank that is funded, and backed, to one degree or another by public funds (the funding issue is just another one of those thorny details that no one really needs to think about, just yet).  Which means, of course, that any risk or liability falls directly upon the shoulders and wallets of those who pay taxes.

And what is their mission statement?  Their raison d’etre?  Here it is:

Vermonters for a New Economy is a coalition of organizations, businesses, and individuals working to create a new economy for Vermont. You can work with us to design and enjoy the new ways we are owning and operating businesses, banking, exchanging goods and services, financing projects, and earning income.  This work enables us to pursue regenerative economic activities that strengthen our food systems, build renewable energy, reuse and recycle byproducts, and foster creativity, culture, and healthy lifestyles.

I must have missed Banking 101, but I’m pretty sure the bank didn’t ask me about my healthy lifestyle choices when I applied for a mortgage.  They wanted some details around income, liabilities, etc., because they’re crazy like that.  But no mention of how their capital would foster my creativity.  Which is mildly disappointing.  It’s also fantastic that they’re allowing Vermonters to work with these New Economists as to how Vermonters earn their own incomes.

That’s generous of them.

But let’s let the New Economy Vermonters provide more of their own detail, in terms of why they think we need a state bank:

Our Planet —  a VT state bank can provide the game-changing, long-term, low-interest financing that will power a transition to a just and sustainable future

Students — to access low interest education loans.

Homeowners — to get mortgages and home loans from the bank.

Entrepreneurs — who need credit lines, loans, and other forms of finance to help their businesses succeed.

Municipalities – the bank can offer competitive interest on public deposits and lower cost financing for public works.

Taxpayers — who will benefit from both the profits the bank makes and the services the bank offers

Well, that’s quite a bit to digest, so let’s take it one at a time:

1.  Our Planet —  a VT state bank can provide the game-changing, long-term, low-interest financing that will power a transition to a just and sustainable future.
The planet.  So the planet needs a Bank?  How did the planet exist, then, before humans evolved?  Did Gaia patiently wait for first humans to evolve, then banking, in order to provide a high enough state of enlightenment before asking for funding?  Gaia’s patience here with us is considerable.
2.  Students — to access low interest education loans.
You mean like those low interest student loans current and former students enjoyed, courtesy of one of the biggest central banks in the world?  Loans that are at higher rates that mortgage rates, but worse, are also subsidized rates?
The last large effort to nationalize the student loan program fell afoul of the same issues around health care, and that plan has now been shelved.
So the federal government can’t do it, with virtually limitless resources, but Vermont can, now, because of one bank?
In fact, VSAC has said it’s “agnostic” on the idea of a state bank.  So why list student loans as a justification, when the one institution that has historically provided student loans doesn’t see the need?

When the CEO of VSAC says they don’t need additional access to capital, maybe you should remove that selling point from your website.

3.  Homeowners — to get mortgages and home loans from the bank.
You can already get loans from banks, easily – they’ll happily lend you money for a house, or equity loans.  It’s how they make money.  For FHA loans, you only need 3.5% down.  Rates for fixed 30-year FHA loans are well under 4%.  Do Vermonters not know how to apply for a loan, and the state bank will save them from their own ignorance?
And why the incentive to increase – via public funds – the number of mortgage lenders, increasing competition, when, in many cases, the same people who tout this state bank (like Bernie Sanders) want to decrease competition in other markets, like health care?  Why is it a good thing to increase competition in one place, but not the other?
4.  Entrepreneurs — who need credit lines, loans, and other forms of finance to help their businesses succeed.
They can get this already from existing banks and investors.  What would a state bank provide that does not already exist?  Other than offering riskier loans that will be backed by taxpayers?  There’s a federal Small Business Administration that offers many channels for funding.  What would this bank offer that’s not already available?
5.  Municipalities – the bank can offer competitive interest on public deposits and lower cost financing for public works.
Municipalities already have access to funding through banks and bonds.  Like the Vermont Municipal Bond Bank, which has been in place since 1970.  If municipalities already have access to low-interest funding source, why do they need another one?
6.  Taxpayers — who will benefit from both the profits the bank makes and the services the bank offers.
You mean like the benefits current federal taxpayers enjoy, like $20 trillion in debt?  The profit the bank makes is the interest on the loan, which, for the federal government, increases as a percentage of total spending, and if the rates increase, even a little bit, will start to crowd out all other discretionary spending.
Which is really the heart of the matter.  The supporters of the state bank are looking for a way to finance spending now that someone else will have to pay for later.  It’s like giving a college student a credit card with no limit.  Sooner or later that bill will come due, and the people who want to create and support that state bank will then be asking taxpayers to bail it out, just like some other large financial institutions, like Freddie and Fannie.  Which have become, more or less, nationalized.
But the worst of the justifications for the proposed bank’s existence are in its own supporting documents, which make a few claims of fact that aren’t supported by reality.  A few examples (page 6):

Assumptions made reality by simply writing them down.

Sub-prime mortgages are what Fannie and Freddie specialized in, and still continue to be the largest generators of these types of loans in the industry.  Taxpayers had to bail out their poor business practices and the fact that they were understating their sub-prime exposure; there is nothing in the call for a state bank that would prevent this from recurring.
Secondly, citing Vermont’s low unemployment rate as evidence of economic stability means they either a) willfully ignore the reality of Vermont’s declining workforce participation rate, or b) don’t understand what they’re talking about.  If they’re using this conclusion (below) as one of the underpinnings of the justification for the need for a state bank, they’re making a significant error:
 That Vermont’s housing prices didn’t tumble doesn’t mean anything about “integrity” of anything, and neither does unemployment.  As has been repeatedly shown, Vermont’s unemployment is low primarily because the workforce is shrinking, not because of new jobs created.  As the report’s earlier statements argue, correlation does not equal causation.

Well, it does when we argue that the state’s economy is in great shape based on unemployment data. Then it’s ok to make that correlation argument.

If anything, the state’s demographics and the general leveling off of already-high housing prices won’t require a state bank to support increased demand for mortgages.   In fact, the reason housing prices are (relatively) level is because demand isn’t increasing.  There are simply fewer Vermonters looking to buy homes:
Vermont’s economy, and its housing market, are clearly not divorced from national trends. But our housing market seems to be under performing the national housing market, which is worrisome. Over the last two years, Vermont’s housing market, at least measured by prices, has gone nowhere. Nationally, prices are up 7 percent over the same period—not great, but at least it’s a positive number.

One of the reasons for our weak housing market is our underlying demographics. First-time home buyers tend to be in their 30s and early 40s. That’s precisely the demographic that’s shrinking in Vermont. And if there are fewer first-time home buyers, people trying to sell their houses and trade up to more expensive homes can’t find buyers. That clogs up both sides of the home-buying and home-selling market, limiting both sales and price appreciation.

The New Economy site also encourages readers to read the study that justifies the new state bank.  Hilariously, the study recommends that the state not implement a state bank.  That the capital needs are already met.  That the current options available for financing are just fine.  From page 3:

So…we *don’t* need a state bank, then?  Oopsy!

Then what is the purpose of the New Economy site?  To ignore the realities of Vermont’s business climate, Vermonters’ incomes, the demographic changes, and historical policy overhangs that make the state a lousy place to do business?  Another bank won’t fix that.  Another bank can’t fix that.
Only Vermonters can fix Vermont, by dismantling the policies and governmental apparatus that have put them in the place they are today.  If that’s part of the New Vermont Economy, then maybe things will start to change.

Peter’s Paralysis

Winners.  They do whatever it takes to win.  If that fails, then they go back and try to change the rules so they can win again.  Putney’s semi-favorite son, Governor Peter Shumlin, recently suggested that Vermont change its Constitution so big guys like Peter who can’t seem to convince Vermonters as to how fantastic a job they’ve done as governor can get a pass when it comes to, well, getting elected:

Hey, those tax revenues are looking great!

Hey, those tax revenues are looking great!

The Vermont Constitution should be changed according to Governor Peter Shumlin, D-Vermont.

He made the comment after the tight race for governor that will be decided by lawmakers. Shumlin suggests that any statewide candidate who wins a plurality over 40 percent is deemed elected. The current law is 50 percent. And since Shumlin did not get there on election night, lawmakers will decide the winner on Thursday. Shumlin also questions whether Republican Scott Milne is prepared to govern if he wins the legislative vote.

Hey, don’t let a little thing like people voting get in the way of you staying governor, Peter.  As massively ego-centric a desire this is, what’s truly stunning is that it comes just weeks after this same Peter, the guy who says he cares so much about Vermonters that he spent 141 days out of Vermont from January 2013 through September 2014, said that last fall’s election results left him “humbled”.

So quotes from just a few months ago like this one, from the guy who in 2012 won 57.8 percent of the vote

“We have faced our share of setbacks in the past couple of years, and I know people are disappointed in how I have handled some issues,” Shumlin said. “I recognize I have work to do to regain the confidence of many Vermonters in the coming weeks and months. I will work with my team as well as legislators from all political parties to assess our coming legislative agenda to ensure that we are representing the will of Vermont voters.”

– is now using this convincing language (below) to tell us all how critical it is that he get back to the fine work of dismantling the state’s economy, er, passing a budget:

“I mean I gotta tell you, how hard we’re working here to try to get a sensible budget, we put together a team before we got here, but we would be scrambling to put a team together, Government would literally be paralyzed while this candidate tried to suddenly pull it all together in a really short time,” said Shumlin.  

Is this the team that "scrambled" to put the last budget together?

Is this the team that “scrambled” to put the original budget together?

Then let’s take a look at the last budget Shumlin put together, since he thinks it’s critical that he does this again, because, y’know, he’s got a “team” and all.  The same budget that, based on the Governor’s own proposed budget assumptions, forced the legislature back into session one month after the budget was passed to make budget cuts, cuts forced by declining tax revenues that stubbornly refused to adhere to the governor’s forecast.  That budget was built on the consensus budget, one using forecasted revenue growth percentages that can only be described as “optimistic”.  Another way of describing them might be “catastrophically stupid”, and the result has been yet another call to cut the budget.  The same budget that Peter so proudly touted last year, and now Peter says his experience in putting a budget together is the reason to vote for him over Milne?

Since Shumlin’s going to tout his simply fantastic record – a record that earned him just a bare percentage point or two more votes than his competition, compared to a couple of years ago when he was winning by 10-20 basis points – let’s look at the latest unemployment numbers (prepare to put on your shocked face).

While the unemployment rate dropped a tenth of a percent from October to November 2014, and the number of unemployed is down, there are still 100 more people unemployed in November 2014 than there were in November 2013.  Shumlin’s economic miracle, perhaps, or perhaps his current budget is on fire because he has no idea what he’s doing:

Mediocrity unchained.

Mediocrity unchained.

Vermont’s legislature will now be forced to vote for Vermont’s next governor because the sitting governor, the incumbent, couldn’t muster enough votes, after getting his signature legislation passed and put into place, to beat a Republican candidate who came in very late in the race, had just a fraction of Shumlin’s campaign spending to rely on, and had little name recognition.

Shumlin fears that government would be “paralyzed” if Milne were elected.  What Shumlin fails to understand, and never will understand, is that a government that does less – especially as Shumlin’s destructive record attests – might be the best thing to happen to Vermonters in the last 4 years.  Funny how Shumlin never seemed to be paralyzed when it came to raising money for his campaign, and traveling all around the country seeking out-of-state donations.

I guess being “personally humbled” means something different to Shumlin than it does to the rest of us.  As Calvin Coolidge once said, “No man ever listened himself out of a job.”  If Shumlin heard a message loud and clear last November, as he told us he did, then why is he almost out of a job?

Unions United

Well, unions aren't people, either, but their money is OK to give to Democrats?

Well, unions aren’t people, either, but their money is OK to give if it’s to Democrats only?

The Vermont Senate, fresh from not doing much to address Vermont’s longtime flailing economy, recently voted 25-2 to call for a US Constitutional Convention. Why? What nation-shattering event has caused Democrats to rally to Montpelier?

Well, the Citizens United decision, of course – the Supreme Court decision that upheld the ability of corporations,  and unions – to spend monies on political campaigns. One wonders if the Senators realize that the prime beneficiary of Citizens United is not corporations, but unions. The same unions that routinely donate, in overwhelming percentages, to Democrat candidates and causes.

But let’s let a Democrat speak for herself on this critical issue:

“We’re sending a strong message to our Congress and to other states that we would like to see changes to overturn the Citizens United decision. It’s upsetting the balance of our electoral process,” said Sen. Virginia Lyons, D-Chittenden, lead sponsor of the resolution. “It’s our generation’s greatest responsibility to restore free elections.”

I thought our generation’s greatest responsibility was to establish universal health care, but it’s so hard to keep Democrat’s claims to our nation’s greatest responsibilities straight these days. Given Lyons’ voting record, it seems she’s only interested in raising taxes, and forcing non-union workers to pay fees to unions.

Which leads a Vermonter to conclude that Lyons only real concerns about Citizens United are how best to use the phrase “Citizens United” as a political performance vehicle, rather than any real concern over the influence of money in politics. If that were her concern, why is her second largest donation sector listed as “Public Sector Unions”?

Given the scope of Citizens United, one might think Lyons is on the wrong side of the argument, but since that decision has been painted as some kind of corporate fascism by the Left, it’s easy to demagogue – if you ignore the inconvenient facts staring you in the face.

Facts which seem to be easy to ignore for the overwhelming number of Democrats in the Vermont Senate.