Politics, et Cetera
A publication from The Political Forum, LLC
Tuesday, April 21, 2015
They Said It:
In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle [described as “the inventory of undiscovered embezzlement”] increases rapidly. In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.
John Kenneth Galbraith, The Great Crash, 1929, 1955.
As you may have noticed, the equities markets have been a little jittery over the last couple months or so. Last Friday, for example, markets took quite a tumble – only to rebound quite handsomely yesterday. Investors get nervous and sell, only to abandon their fears a day later and decide that they cannot resist the inexorable lure of easy money and the pull of the crowd. In short, they decide to follow the old market adage and not fight the tape – or “the Fed,” take your pick.
Now, we do not pretend to have great knowledge of the financial markets. Still, the markets’ course strikes us as unsustainable, if for no other reason than the fears that cause the selloffs are real, while the rationalizations that allow those fears to be overcome are not. The world has serious and real problems, while the markets’ rebounds are fueled, almost exclusively, by fiat money.
According to the market gurus, last week’s selloff was precipitated by three factors: the unrest in and the eventual collapse of the Eurozone, due to the ongoing Greek debt crisis; the decision by Chinese banking regulators to shore up the country’s banks by tightening margin requirements; and the inevitable upcoming Fed hike, spurred by new worries over wage inflation. All of these are legitimate concerns, we think, but they are only symptoms of a much more systemic crisis facing the nation over the course of the next several months and years. Among other things, California is gravely ill, upstate New York is dying, and in Oklahoma, a man recently died in a manner that should send shivers down the spine of anyone who wonders what sort of event might precipitate some sort of societal meltdown.
The dead man in question is Eric Courtney Harris, who was shot dead by a law enforcement officer on the streets of Tulsa last week. Harris was black. The man who shot him, Robert Bates, is white. And yet, in spite of the recent hostilities resulting from confrontations between white police and unarmed black men, the “race” angle is the least interesting aspect of this case. CNN tells the story as follows:
The Tulsa County deputy who shot and killed a man instead of using his Taser now faces a manslaughter charge. Video shows Reserve Deputy Robert Bates announcing he is going to deploy his Taser after an undercover weapons sting on April 2, but then shooting Eric Courtney Harris in the back with a handgun.
In a written statement, Tulsa County District Attorney Stephen A. Kunzweiler said Bates is charged with second-degree manslaughter involving culpable negligence. It’s a felony charge that could land the volunteer deputy in prison for up to four years if he’s found guilty. Scott Wood, an attorney who represents Bates, said the shooting was an “excusable homicide.”
“We believe the video itself proves that it was an accident of misfortune that occurred while Deputy Bates was fulfilling his duties as a reserve deputy,” Wood said. “He is not guilty of second-degree manslaughter.”
Investigators’ efforts to defend Bates and the other deputies involved in the arrest have sparked a mounting chorus of criticism online. Harris’ family is demanding an independent investigation of what they call unjustified brutality. They’re also questioning why the 73-year-old Bates – the CEO of an insurance company who volunteers as a certified reserve deputy – was on the scene in such a sensitive and high-risk sting operation.
There are so many things wrong with this case, that we hardly know where to begin. For our purposes today, however, we think that the three key words in the story are “volunteer,” “Tulsa,” and “sting.” This case, you see, is different – radically different – from the any of the other recent police shootings. In each of the previous cases, the suspect/perpetrator/innocent man was shot by a professional police officer. In this case, however, Eric Harris was shot by a 73-year-old professional insurance executive who happened to be acting in his capacity as a Tulsa County Volunteer Deputy. This idea of a “volunteer” deputy armed with deadly force is bizarre all by itself, and is especially so considering the circumstances. And those circumstances are as sad as they are telling.
As it turns out, the state of Oklahoma has had a “volunteer” reserve deputy program since the 1970’s. According to law enforcement officials, the program was designed to help create and maintain a bond between law enforcement and the public it serves. The volunteers are supposed to be a sort of liaison between the police and the people. They are, at least in theory, high-minded, public-spirited individuals who are in favor or fair and just law enforcement and who want to have one foot in each world. In the case of Robert Bates and the Tulsa Sherriff’s Department, though, the program became something else; that being a system by which the department could meet its fiscal needs, by which an old man was permitted to relive his youthful fantasies, and by which the Sherriff of Tulsa County was permitted to dole out favors. Buzzfeed explains:
Bates, an insurance company executive, worked as a police officer more than 50 years ago, but only for a period of 12 months, according to the Tulsa County Police Department. In addition to volunteering as a reserve deputy, campaign finance records obtained by BuzzFeed News confirm that Bates worked as the chair of the reelection campaign for Tulsa Sheriff Stanley Ganz in 2012. In donating $2,500 to the sheriff’s campaign, he was also Ganz’s largest donor, contributing $1,500 more than the second-largest donor.
At least two other people who made contributions to the sheriff’s campaign currently work as reserve deputies, according to records obtained by BuzzFeed News. The Tulsa World also reported that Bates purchased at least five vehicles and surveillance gear for the undercover team he worked with.
Now, in a normal world, we would write this off to petty corruption and then join the rest of you in wondering what on God’s green earth this has to do with anything, much less the markets. Of course, as we’ve said more times than we can count, this is no longer a normal world. There is at least the appearance of corruption here, naturally, but there is a great deal more as well. Think about this: Bates purchased at least five vehicles AND surveillance gear. That would be an enormous donation to an entire Sherriff’s department. But he donated it to ONE unit, a unit that the Sherriff’s department clearly thought it needed but which it could not afford to outfit without Bates’ generosity. All of which brings us to the second of the key words we cited above, “Tulsa.”
It’s unlikely that you recall this, but we do, since we have the good fortune of having written the damn thing. Almost exactly five years ago, we introduced our “resource war” theme with a piece documenting the clash between federal, state, and municipal governments on the one hand and the people they purport to represent on the other. The “star” of that piece, if you will, was the city of Tulsa. We quoted heavily from a Wall Street Journal piece as follows (emphasis added):
It has become a recession mantra: Do more with less. Now, this heartland city [Tulsa, Oklahoma] is testing whether that’s possible when it comes to public safety.
Since January, Tulsa has laid off 89 police officers, 11% of its force. That has pushed the city to the forefront of a national movement, spurred by hard times, to revamp long-held policing strategies. In the crosshairs: community-policing initiatives created over the past two decades, such as having officers work in troubled schools, attend neighborhood watch meetings and help small-business owners address nuisance crimes like graffiti. Such efforts are popular, and some experts credit them with contributing to the steady drop in the national crime rate since 1991. But after years of expanding and taking on new duties, police chiefs say they have little choice but to retrench. . . .
Citizens and officers in Tulsa are finding out together what fewer cops means.
The police have curtailed community outreach, investigations, undercover work, surveillance, even traffic enforcement, and poured many remaining resources into bread-and-butter street patrols. The domestic-violence unit lost two officers, leaving four to handle about 5,000 cases a year. The undercover units that used to focus on armed gangs in public housing projects have disbanded. Veteran narcotics detectives are back in cruisers, answering 911 calls. . . .
In the past four decades, the city’s population has jumped 17% – and the police department budget has soared to $87 million from about $4 million, according to a city council report. The force expanded from 507 sworn officers in 1969 to a high of 829 two years ago, before falling to 702 today. Costs also rose due to union-negotiated salary increases and bonuses. Base pay for a recruit in Tulsa is about $44,000, but officers can take home another $7,000 to $10,000 a year, or more, with overtime and other perks.
The city’s average cost for each fulltime police employee, including salary and benefits, is now 9.5 times what it was in the 1969-70 budget. By comparison, per-employee costs in the fire department are 8.5 times greater and costs for all other employees are about 8 times greater.
Officers get bonuses for longevity and fluency in a second language, and collect equipment allowances for serving in special units. Until this year, officers could drive their patrol cars home after work – with Tulsa taxpayers footing the gas bill – even if they lived miles outside the city.
The Tulsa Police Department has made a concerted effort in the days since Eric Harris was shot and killed to make sure that everyone everywhere knows that it was not involved in the incident and that the Tulsa Sherriff’s department is a distinct and unrelated entity. Moreover, the Tulsa PD has made it clear that it does not participate in a volunteer program of any sort. It’s only connection to the shooter, Robert Bates, is his 1-year term of service more than 50 years ago.
All of this is fair and worth noting. At the same time, it is also worth noting that Robert Bates was, at the time of the shooting, not involved in routine law enforcement or public relations work. He was, rather, part of a sensitive and dangerous operation. Noting our third key-word, “sting,” we note as well that Bates was involved in a high-risk, undercover operation in which the perpetrator/shooting victim Eric Harris allegedly sold a handgun illegally.
Let’s just state the obvious: if a 73 year-old man is involved in a law enforcement sting operation, then the law enforcement agency in question is clearly hurting for personnel. If that 73 year-old also happens to be a volunteer, then personnel conditions are likely quite dire. The notion of putting a volunteer, much less one who has been collecting Social Security for the better part of a decade, in this kind of situation is absurd. The Tulsa Sherriff’s department is currently “reviewing” its procedures, but we can save them some time. A situation such as this one could only have resulted from a combination of negligence, dereliction, and most especially desperation.
Five years ago, when the Journal published its piece on the Tulsa PD, the paper noted that because of the layoffs, Tulsa had only 1.8 officers per 1000 residents, far below the 2.5/1000 that was the goal of the city council and was also the national average. The paper also noted that the local police union had rejected the new mayor’s proposal to keep more officers, but to cut health care benefits some, asking officers to pay a greater share of their premiums.
Today, Tulsa’s population is almost at 400,000, meaning that it has added 15,000 new residents over the last five years. The city has also added 50 new police officers (or rehired officers), but that still leaves the department short of its pre-cut numbers and well short of its officer-to-resident goal. Additionally, and perhaps more to the point, the current police contract still has the city paying for 90% of officers’ health insurance premiums and 75% of the premiums for dependents and families. Additionally, the State of Oklahoma won plaudits from both sides of the political aisle last year, when it enacted sweeping pension reform, ending the state’s traditional defined-benefit plan, creating a new, defined-contribution plan. But of course, teachers, firefighters, and police officers were exempted from the reform.
All of which is to say that Tulsa today remains a fine example of the resource war that is gripping the nation and will determine much of its near-to-medium-term future. The city of Tulsa has too few police officers. It has a growing population. Arrests are down. Crime is up. Those police officers still employed are also still compensated well and have managed to avoid giving up any of their costly benefits. At the same time, “volunteers” help to make up the law enforcement shortfall in the city, helping out the understaffed sheriff’s department and, on occasion, accidentally grabbing their .357s instead of their Tasers.
Back in 2010, we promised that the “‘casualties’ in this war will be largely metaphorical,” and that “there will be little if any bloodshed.” Someone, we suppose, should tell that to the family of Eric Courtney Harris. Who knows? Maybe it’ll make them feel better to know that he was just an aberration.
The fact of the matter is that this resource war we’ve been writing about for the last five years is part and parcel of the collapse of 20th century liberalism, of what Walter Russell Mead calls the “blue model” of social welfare. The blue model was developed and implemented throughout the West in an era very different from the current one. It was developed for peoples and nations with far different demographics than those extant today in the West and in Western-influenced Asia, namely Japan. The blue model depends on an expanding population, on a perpetual influx of workers, on a general population imbalance heavily tilted in the direction of the young over the old. Such conditions no longer exist anywhere in the West. And thus the blue model is collapsing.
In the current demographic state, taxes on the working population can never be high enough to support those who are not working. This applies whether the populations in question exist in Greece or America; in Tulsa or Modesto; in Germany or Detroit. It applies whether the non-working populations are collecting government pensions or government health care, such as Medicare. It applies whether the non-working populations are retired police, retired Greeks, or retired Californians. The math involved is simple and it is irreconcilable. Eventually, the government has to cut services, cut benefits, or raise taxes beyond what is sustainable. In Detroit, the government is trying desperately to cut benefits, but without much luck. In Tulsa, the government cut services and replaced some of those services with “volunteers.” In Greece, the government has done nothing other than insist that its services and benefits must be paid for by the Germans. The Germans will either continue to do so until they no longer can or they will stop. And in either case, the result will be collapse – of Greece first, then of the Eurozone, and eventually of Germany.
The blue model can be moderately successful, even today, but only for a short time and only under specific circumstances. Those specific circumstances vary from location to location, of course, but in all cases, one critical variable is the existence/persistence of at least one large, monstrously successful industry that can slow the collapse and dull its pain.
California, with its increasingly feudal system, provides one example. The state survives and has thus far managed to avoid full-scale collapse largely on the strength of the high-tech industry, the Silicon Valley billionaires who make money by the truckloads, pay taxes by only slightly smaller truckloads and thus support the increasingly poor and increasingly dependent serfs who populate the rest of the state. Even in California, however, the blue model is cracking, and it will, eventually, collapse. In a recent piece, the demographer Joel Kotkin once again described California’s slow-motion collapse into feudalism and the evidence of this collapse in the now-critical drought. To wit:
California has met the future, and it really doesn’t work. As the mounting panic surrounding the drought suggests, the Golden State, once renowned for meeting human and geographic challenges, is losing its ability to cope with crises. As a result, the great American land of opportunity is devolving into something that resembles feudalism, a society dominated by rich and poor, with little opportunity for upward mobility for the state’s middle- and working classes.
The water situation reflects this breakdown in the starkest way. . . .
The biggest reason California has been so slow, and uncharacteristically feckless, in meeting this existential challenge lies with psychology and ends with political power. The generation that built the sinews of modern California—most notably the late Governor Pat Brown Sr., the current governor’s father—sprang from the old progressive spirit which saw in infrastructure development a chance not only to create new wealth, but also provide opportunity to working- and middle-class Californians.
Indeed, if you look at California’s greatest achievements as a society, the Pat Brown legacy stands at the core. The California Aqueduct turned vast stretches of the Central Valley into one of the most productive farming regions in the world. The freeway system, now in often shocking disrepair, allowed for the construction of mass suburbia that offered millions a quality of life never experienced by previous generations. At the same time the development of energy resources — California still boasts the nation’s third-largest oil production — helped create a huge industrial base that included aerospace, semiconductors, and a host of specialized industries, from logistics to garment manufacturing.
In contrast, Jerry Brown has waged a kind of Oedipal struggle against his father’s legacy. . . .
These policies have had numerous impacts, like weakening California’s industrial sector, which cannot afford energy prices that can be twice as high as in competing states. Some of those who might have worked in the factories, warehouses, and farms of California now help swell the numbers of the welfare recipients, who remarkably make up one-third of the nation’s total. As recently as the 1970s and ’80s, the percentage of people living in poverty in California was below the national average; California today, based on cost of living, has the highest poverty rate in the country.
Of course, the rich and entitled, particularly in Silicon Valley have achieved unprecedented riches, but those middle-class Californians once served by Pat have largely been abandoned by his son. California, long a relative beacon of equality and opportunity, now has the fourth-highest rate of inequality in the country. For those who, like me, bought their first home over 30 years ago, high housing prices, exacerbated by regulation, are a personal piggybank. But it’s doubtful either of my daughters will ever be able to buy a house here. . . .
What we are witnessing the breakdown of a once-expansive, open society into one dominated by a small group of plutocrats, largely in Silicon Valley, with an “amen” crew among the low-information donors of Hollywood, the public unions, the green lobby, and wealthy real estate developers favored by Brown’s pro-density policies. This coalition backs Brown and helps maintain the state’s essentially one-party system. No one is more adamant about reducing people’s carbon footprint than the jet set of Silicon Valley or the state’s planning elite, even if they choose not to live in a manner that they instruct all others.
This fundamentally hypocritical regime remains in place because it works — for the powerful and well-placed.
Much the same can be said of New York, where a thriving Wall Street gives the illusion of permanent, self-sufficient blue model endurance, even as it simply masks deep and serious problems that will eventually destabilize the state and cause its financial ruin. Like California, New York is evolving into a feudal state in which the system functions for the well-heeled and well-connected but fails everyone else, producing one of the least-equal and most unstable polities in the country, if not the Western world. The high-earning and high-taxed residents of New York’s gilded class have created their own paradise which is destroying just about the entire rest of the state. Writing last week for the Desert News National, William Tucker, a contributor to the American Media Institute, provided the gory details:
Upstate New York is becoming Detroit with grass.
Binghamton, New York — once a powerhouse of industry — is now approaching Detroit in many economic measures, according to the U.S. Census. In Binghamton, more than 31 percent of city residents are at or below the federal poverty level compared to 38 percent in Detroit. Average household income in Binghamton at $30,179 in 2012 barely outpaces Detroit’s $26,955. By some metrics, Binghamton is behind Detroit. Some 45 percent of Binghamton residents own their dwellings while more than 52 percent of Detroit residents are homeowners. Both “Rust Belt” cities have lost more than 2 percent of their populations.
Binghamton is not alone. Upstate New York — that vast 50,000-square mile region north of New York City — seems to be in an economic death spiral.
The fate of the area is a small scene in a larger story playing out across rural America. As the balance of population shifts from farms to cities, urban elites are increasingly favoring laws and regulations that benefit urban voters over those who live in small towns or out in the country. The implications are more than just economic: it’s a trend that fuels the intense populism and angry politics that has shattered the post-World War II consensus and divided the nation. . . .
[U]pstate New York is tethered to New York City, whose residents overwhelmingly support higher taxes, stricter regulation and bigger spending than the national averages. Those policies are blamed for upstate’s economic woes by many in the region.
“Basically what you’ve got in New York is a state tax code and regulatory regimen written for New York City,” says Joseph Henchman, vice president for state projects at the Tax Foundation in Washington. “Legislators say, `Look, New York is a center of world commerce. Businesses have to be here. It doesn’t matter how high we tax them.’ I hear that a lot. But when you apply that same logic to upstate, the impact is devastating.” . . .
The economic woes of the Empire State trace back to Albany, and a state government that is legendary for its ability to tax and spend. Strict election laws insulate incumbents of both parties, making the state legislature the longest-tenured in the nation. Petitions to put insurgent candidates on the ballot require tens of thousands of signatures and are regularly rebuffed by the courts on technical grounds. Ballot initiatives that have led to tax reform in other states are not permitted. Politicians are protected from voters and have built a spending machine unmatched in virtually any other state. New York, despite its shrinking population, spends more money than all but a handful of states. . . .
States generally have three potential sources of revenue: the income tax, the sales tax and the property tax. “Usually a state will concentrate on one and go low on the other two,” says Joseph Henchman of the Tax Foundation. “New York is in the top six states for all three.”
The Tax Foundation rated New York dead last among the 50 states for business climate in 2013.
As we noted at the top of this piece, last Friday, markets shuddered briefly in response to the situation in Greece, where the ongoing, seemingly perpetual debt crisis threatens the Eurozone and the economic health of Europe more generally. It is worth noting, with the Greek crisis as a backdrop, that the debt crisis in American states and municipalities has not eased markedly and, in many cases, has grown worse since the financial collapse nearly seven years ago. The total state and local pension gap – that is the difference between what the polities owe and what they have set aside to pay their obligations – is estimated to be as high as $4 trillion. Reform efforts have been mixed at best. And the states and municipalities that are most resistant to change are those that are the bluest of the blue – California, New York, Chicago, etc.
Compounding matters is the fact that high stock market returns and artificially low interest rates have actually made the collapse of the blue model far slower, far more complicated, and far less painful than it could have been. This is worth keeping in mind as the Fed begins the slow – but INEVITABLE – process of raising interest rates, presumably this summer. As interest rates rise, as the cost of borrowing rises, and as the rates of return in the equities markets begin to fall back to historical norms, the collapse of the blue model will accelerate and, undoubtedly generate increased pain and suffering. A Mercatus Institute paper published in January notes that most state and local pension funds currently estimate that annual returns will remain in the 8% rage indefinitely. When properly figured using the risk-fee discount rate, pension liabilities are far more significant than they currently appear. Pennsylvania’s real liabilities, for example, are some 82% higher than the “official” projected number using artificially inflated return averages.
What all of this means is that as the world begins – inevitably and unavoidably – to return to normal, as interest rates float higher, and as Fed-goosed stock market gains begin to decline, the collapse of the blue model will accelerate and the resource war will intensify.
Last month, our old friend and onetime colleague Ed Yardeni noted that the world’s central banks are, essentially, fixing the stock markets. “This is not investing,” Ed told CNBC. “This is all about central bankers. These markets are all rigged. And, I don’t say that critically. I say that factually.”
Ed continued, arguing that this is clearly good for stocks and has clearly created considerable paper wealth. And while we agree with Ed about the near-term impact, we can’t help but believe that the long-term result will be a collapse, a crisis that rivals and perhaps even surpasses the 2008 disaster. Yes, central banks have rigged the stock markets, creating wealth for investors, but they have done so largely by creating a façade of economic prosperity and thereby slowing the collapse of the economic model on which the developed world currently depends.
What is frustrating about all of this is the fact that none of this is especially unanticipated. We began writing about the resource wars in May, 2010. Walter Russell Mead began writing about the collapse of the blue model four months earlier. Heck, if you want to go back even further, we began writing about the collapse of the Eurozone almost twenty years ago, before the damnable currency even launched. When the end comes – as it must – no one will be able to say with a straight face that we weren’t warned. Repeatedly.
What is even more frustrating about all of this is the fact that all of these warnings have, more or less, gone unheeded by our ruling class. Even as Barack Obama inserts himself into the debt crisis in Greece, trying desperately to avoid the dreaded “Grexit,” he seems perfectly oblivious to the debt crisis in his hometown, overseen at present by his own former Chief of Staff.
Meanwhile, Hillary Clinton, the presumed frontrunner to replace Obama, spends her time and wastes ours as she rides in a van across country, busing in supporters to serve as impromptu crowds, and then pretending that she is “common” enough to have to fly home from her adventure in the coach section of a commercial flight.
At the same time, Jeb Bush prattles on about immigration and the moral obligations of the United States to illegal immigrants; Chris Christie presides over a state whose debt has just been downgraded again; and entire Republican establishment plans to run a presidential campaign devoid of ideas and dependent on Hillary Clinton’s collapse, rather than its own candidate’s accomplishments.
The only hope, as far as we can tell, are the radicals who owe their careers to the forces that have, over the last few years, rebelled against the ruling class and its fecklessness. The insurgent candidacies of Rand Paul, Ted Cruz, Scott Walker, and Marco Rubio provide at least a faint glimmer of hope that disaster might, conceivably, be averted, or at least handled with some degree of intelligence when it arrives.
Sadly, even if one of these radicals should win, we doubt that he could have much of an impact on a process that is so massive, so corrupt, and so expansive. Not to beat poor old Yeats into the ground, but we strongly suspect, as we have said before, that when things fall apart; the center won’t be able to hold. And eventually, mere anarchy will be loosed upon the world.
If you don’t believe us, you can ask Eric Courtney Harris. Or at least you could have asked him if a volunteer deputy hadn’t shot him dead.