Morning Economic News

Morning Must Reads: Tax Benefits For Corporations, Health Care and Prevailing Wage

Toll Bros., the Pennsylvania-based homebuilder that benefited mightily from the housing bubble, also managed to benefit handsomely from you the taxpayer. This morning, The Philadelphia Inquirer reports that company profits are down from the previous period in part because the company claimed an eye-popping $59.9 million tax benefit in the 4th quarter of last year.

You can't open the opinion pages without coming across an article from the business lobby claiming businesses need more tax breaks. The fact is these companies got huge breaks that helped boost CEO pay but haven't translated into robust job growth.

Morning Must Reads: It Pays to Be a Privatizer

The Associated Press reports this morning that Gov. Tom Corbett just hired the investment banking firm that employs former Gov. Ed Rendell to assist the current Governor's privatization council. The firm will receive $150,000 for the first three months plus undetermined payments beyond that.

Morning Must Reads: The Failure of School Choice and the Food Industry Eats Your Tax Dollars

An op-ed in The New York Times this morning points out that "school choice" has increased educational inequality.

If you want to see the direction that education reform is taking the country, pay a visit to my leafy, majority-black neighborhood in Washington. While we have lived in the same house since our 11-year-old son was born, he’s been assigned to three different elementary schools as one after the other has been shuttered. Now it’s time for middle school, and there’s been no neighborhood option available.

Meanwhile, across Rock Creek Park in a wealthy, majority-white community, there is a sparkling new neighborhood middle school, with rugby, fencing, an international baccalaureate curriculum and all the other amenities that make people pay top dollar to live there.

Such inequities are the perverse result of a 'reform' process intended to bring choice and accountability to the school system. Instead, it has destroyed community-based education for working-class families, even as it has funneled resources toward a few better-off, exclusive, institutions.

On Sunday, another op-ed detailed how food manufacturers and food service companies are allegedly fleecing taxpayers while delivering food with little or no nutritional content. 

The money is ill spent. The Center for Science in the Public Interest has warned that sending food to be processed often means lower nutritional value and noted that 'many schools continue to exceed the standards for fat, saturated fat and sodium.' A 2008 study by the Robert Wood Johnson Foundation found that by the time many healthier commodities reach students, 'they have about the same nutritional value as junk foods.' ...

Roland Zullo, a researcher at the University of Michigan, found in 2008 that Michigan schools that hired private food-service management firms spent less on labor and food but more on fees and supplies, yielding 'no substantive economic savings.' Alarmingly, he even found that privatization was associated with lower test scores, hypothesizing that the high-fat and high-sugar foods served by the companies might be the cause. In a later study, in 2010, Dr. Zullo found that Chartwells was able to trim costs by cutting benefits for workers in Ann Arbor schools, but that the schools didn’t end up realizing any savings.

The Pittsburgh Post-Gazette continues its series on inequality this morning with a review of the impact of the recession on African-American households.

Morning Must Reads: Retired Business Editor To Unemployed Youth "Get Off My Lawn!"

Jack Markowitz, a retired editor, has a column in the Pittsburgh Tribune-Review this morning where he argues that high unemployment among today's youth is the result of poor personal habits and values. Markowitz bases this argument on a story he tells about two young men — one employed with a failed marriage and living with his parents rent free, and the other an unemployed ex-convict. Markowitz is, in effect, arguing that the rise in unemployment is the result of a wholesale outbreak of vice among the young which happened to coincide with the beginning of the recession.

This is absurd. Youth unemployment is at record highs because unemployment generally in the economy is at record highs.

Morning Must Reads: Economic Austerity and School Lunch

More evidence of the lingering effects of economic austerity: Allegheny County looks headed for a property tax increase.

A tax hike appears likely for Allegheny County property owners next year after a county council committee recommended raising the real estate millage rate...

If the tax-rate increase to 5.69 mills is approved by a two-thirds majority of council, the owners of a property assessed at $100,000 will see their county tax bill rise $100, from $469 this year to $569 next year.

It would be the first millage increase under the 12-year-old executive-council form of government.

The New York Times this morning reports that the number of students participating in the subsidized school lunch program has risen sharply. The story is based on new data. Graphed below is older data for Pennsylvania and the U.S.

Steve Hebert, The New York TimesLine Grows Long for Free Meals at U.S. Schools:

Since 2007, the proportion of fourth graders eligible for free or reduced-price lunches through the federal government’s school meals program has increased nationwide to 52 percent, from 46 percent.

Below is a map from The New York Times story showing in which states more than half of all students are so poor they are eligible for a subsidized lunch (the darker red states). Remember this map next time a member of the business lobby tells you that economic policy in Pennsylvania should be more like economic policy in Southern states. The business lobby believes in low wages and free lunches.

Morning Must Reads: Banks Profit From Secret Loans

After a lengthy battle failed to prevent publication, Bloomberg Markets Magazine has released an analysis of data obtained from the Federal Reserve on previously undisclosed loans the Fed made to banks during the financial crisis. As of March 2009, the Fed provided $7.7 trillion in loans and guarantees to troubled banks, according to Bloomberg, which also reported that the bank bailout lasted from August 2007 to April 2010.  By comparison the Troubled Asset Relief Program (TARP) of the U.S. Treasury was just $700 billion.

Morning Must Reads: Fiscal Austerity Means Higher Taxes, Job Losses, Fewer Resources to Help Abused Kids

The Congressional Budget Office (CBO) has released new estimates of the American Recovery and Reinvestment Act's impact on employment and output (the quantity of goods and services in the economy). Commenting on the new ARRA estimates, Paul Krugman argues that the U.S. has been practicing austerity since the middle of 2010.

  • Paul Krugman, The Conscience of a Liberal — The Big Drag:

...the U.S. federal government has been practicing destructive fiscal austerity since the middle of 2010 (and that’s not even talking about what’s happening at the state and local level). Here’s the average of CBO's high and low estimates of the impact of the ARRA on the level (not the rate of growth) of [Gross Domestic Product] by quarter:

Failing to do more to boost employment growth means tax revenues remain depressed for state and local governments. And this means higher local taxes and more layoffs at a time when the unemployment rate remains higher in most cities and counties in Pennsylvania than it was even at the worst of the last two recessions.

Morning Must Reads: CEO Pay, Manufacturing Pay and Austerity Economics In Action

The Pittsburgh Tribune-Review reports this morning that the Pittsburgh-based retailer American Eagle Outfitters has hired a new CEO. So what is it like to be the CEO of the company most responsible for millions of tweens wearing sweat pants in locations other than the gym?

Well, for starters, you get a nice signing bonus and $15,000 for your lawyer to review your contract, a luxury car and a severance package equal to two years of your salary plus your stock options should things not work out.

The new CEO made $2.6 million a year at Levi Strauss, so he just got a 242% raise. As King Louis XVI of France was fond of saying, it's good to be king.

American Eagle Outfitters Inc.'s new CEO Robert L. Hanson could make as much as $26.7 million over his first three years with the company, the South Side clothing retailer disclosed in a Securities and Exchange Commission filing.

Averaged over the three-year contract, the $8.9 million a year Hanson could make leading American Eagle would rank him near the top 10 CEOs in Pittsburgh for annual compensation in 2010.

If you are concerned about a lack of good jobs for the 99%, one positive development is that Governor Tom Corbett has formed an advisory council to be housed at the Team PA Foundation to focus on issues important to manufacturing. On average, manufacturing jobs pay better than jobs in the service sector (especially at the low end, see the chart) so it makes sense to do what can be done to expand manufacturing employment.

Morning Must Reads: What Went Wrong and the Confidence Fairy Is Back!

Over the next year, The Philadelphia Inquirer will be updating a series from 1991 titled "America: What Went Wrong," by Donald L. Barlett and James B. Steele. This morning, Barlett and Steele take on the legacy of Apple Computers. 

The death of Steve Jobs was followed by an avalanche of superlatives — brilliant, genius, and visionary among the more common. He was likened to Leonardo da Vinci, Albert Einstein, and Thomas Edison.

But in the case of Edison, there was one significant difference that went unmentioned. For more than a century, just one of Edison's inventions alone — the incandescent lightbulb — was manufactured at numerous locations in the United States, providing employment for millions of Americans across family generations.

The Apple home computer, not at all. After only one generation, all the Apple manufacturing jobs in America disappeared, as the work of building and assembling the machines was turned over to laborers in sweatshops in China and other countries. Jobs that should have provided employment for Americans for decades to come were terminated

While Barlett and Steele explore what went wrong, the Pittsburgh Post-Gazette's series Middle of Nowhere continues today with a survey of major events and policy choices that are thought to be important to creating the middle class in America.

Morning Must Reads: Job Numbers, Property Taxes and Smart Growth

The Pennsylvania Department of Labor and Industry reported Thursday that the number of jobs in the commonwealth grew by 13,800 in October, as the unemployment rate fell slightly to 8.1%. A key factor in October's relatively good performance was a pause in public-sector job losses.

So the good news is we had one positive month; the bad news is unless we have more months like October, the labor market is more or less stuck in neutral. Back in January, we estimated that the jobs deficit in Pennsylvania was 257,000 jobs (this is the number of jobs Pennsylvania needs to get back to full employment). The October jobs deficit is just over 237,000 jobs. In other words, the pace of job growth is such that we are back to full employment in more than eight and half years.

Weak job growth also means less revenue for local governments. Lackawanna County is set to raise property taxes by 38%.

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