Morning Economic News

Morning Must Reads: Business Subsidies and Corporate Tax Loopholes

Recently, Sarah Stecker of New Jersey Policy Perspective noted that Goya Foods will receive $80 million from the State of New Jersey to create nine new jobs.

I immediately thought of the Goya deal when I read Joseph DiStefano's column in The Philadelphia Inquirer this morning.

According to DiStefano, Pennsylvania gave Teva Pharmaceuticals $2.5 million to build a warehouse in Philadelphia that is projected to employee 500 people. Teva Pharmaceuticals over the last several quarters has reported $1.2 BILLION in profits. 

At least the Teva deal wasn’t as bad as the Goya deal, but on the other hand the states are engaged in a race. And it is that race that should scare you.

While recounting the details of the Teva deal, DiStefano relays a conversation he had with Pennsylvania Governor Tom Corbett about another promised state subsidy of $11.5 million for the financial services firm Janney Montgomery Scott.

I told Touhey what Pennsylvania Gov. Tom Corbett answered earlier this month when I asked why he promised brokerage Janney Montgomery Scott $11.5 million for moving its headquarters across Market Street: 'That's what makes this country great: We're not afraid to compete,' Corbett told me.

As Governor, Corbett says he's supposed 'to do one thing: grow jobs, jobs, jobs.' If states didn't compete by cutting deals, 'we'd grow fat and lazy.' By giving away cash, 'we are making Pennsylvania a business-friendly state.'

So there you have it. Based on the business subsidy that Goya Foods got from New Jersey, you the Pennsylvania taxpayer are fat and lazy! You know what this means? It's time shape up and lay off a lot more teachers, so we can give bags of cash to profitable companies to create a couple of jobs.

Taxpayer subsidies targeted at individual businesses do not alter the pace of job growth. They do, however, redistribute taxpayer dollars upward to wealthy business interests. They also reduce the resources available to finance critical public services like education, which can in the long run undermine our actual competitiveness as a state.

Speaking of robbing the taxpayer blind, the Pittsburgh Post-Gazette reports that the Pennsylvania Department of Revenue has concluded that the $10 million in realty transfer taxes that would normally be due on the sale of a building worth $250 million were avoided in a perfectly legal manner by the New York-based real estate investment firm that bought the U.S. Steel Tower.

Morning Must Reads: Bleak Economic Forecasts and State Lawmakers Protect Bond Holders and Gas Drillers

The Philadelphia Inquirer this morning reviews recent economic forecasts and the news is not encouraging. Further evidence of the need for an "American Jobs Act" and a "Pennsylvania Jobs Act." What's that, you ask? What does evidence have to do with public policy?

Forty-five professional economic forecasters surveyed by the Federal Reserve Bank of Philadelphia predicted slower growth and higher unemployment next year and in 2013 than they predicted in August.

A publication by the Federal Reserve Bank of San Francisco said the economic uncertainty spurred by the European debt crisis had increased the odds to more than 50 percent that the United States would fall into recession early next year.

Joseph DiStefano was blunt Monday about who will benefit from a state takeover of Harrisburg: no haircut for bondholders (i.e., write down of incinerator debt as might happen with bankruptcy), but a crew cut for city workers and "other contracts" (e.g., providers of social services). Quick quiz: what will this approach do for job creation in the city? Time for a Harrisburg Jobs Act?

The proposed taxes have been unpopular among the city's largely suburban commuter workforce. To prevent Harrisburg from going into bankruptcy, Gov. Tom Corbett has signed legislation written by suburban lawmakers that would force Harrisburg to follow Philadelphia, Pittsburgh and other big cities in accepting the state's financial oversight. The state's draft plan would sell city parks and other assets and break labor and other contracts to save money without hurting the bondholders or bond advisers.

Thanks to the Pennsylvania Legislature, Christmas for gas drillers may be starting early this year.

Morning Must Reads: Imaginary and Real Threats to Employment Growth

Senator Mike Folmer of Lebanon County has an op-ed in The Patriot-News this morning arguing that unemployment insurance in Pennsylvania is costing the commonwealth jobs.

In fact, if it were not for the unemployment insurance system helping to maintain working families' buying power, joblessness in Pennsylvania would be significantly worse.

In the Senator's Lebanon County, for example, the unemployment rate climbed from 3.8% in December 2007 to just over 7% by the end of 2009. Over that period, transfers (which include unemployment insurance payments) climbed from 17% to 20% of personal income in Lebanon County. In the absence of unemployment insurance income, thousands of Lebanon County residents would have had to reduce their spending further, which would have rippled across the community as another round of layoffs.

The 6.7% unemployment rate in Lebanon County means that the people who lose their jobs each month through no fault of their own face a long queue of people already applying for jobs. With competition for jobs fierce, it takes on average much longer to find a job, and that makes unemployment insurance a vital source of income in these tough times.

What's really endangering jobs in Pennsylvania? As we explained last week, between September 2009 and September 2010, the commonwealth ranked fourth among the states in the number of jobs created and seventh by job growth percentage. But between April and September 2011, Pennsylvania’s job growth ranking slipped to the bottom 10 states.

What happened?

As federal Recovery Act dollars dried up and the national economy slowed over the spring and summer, the state Legislature gave the state another kick while it was down by sharply slashing spending on education and other essential services. As a result, the public sector in Pennsylvania began shedding jobs, adding yet more people to the unemployment lines.

In sum, the real threat to job growth in the Commonwealth is spending cuts — austerity economics — at the national and state level. The last thing in the world we need on top of current cuts is more cuts in unemployment benefits.

Morning Must Reads: Income Inequality and Finally Somebody Speaks Up for the Bankers

The Pittsburgh Post-Gazette has published the first in a series of stories on inequality this morning. The conservative position is apparently "What inequality?" followed by "I'm not conceding there is any inequality, but if there were, I'm sure I like it a lot!" Enjoy.

Morning Must Reads: Frackers Go Shopping, Students See Tuition Rise and the Delaware River Used to Peal Paint Off the Bottom of Boats

A new report sums up campaign contributions from natural gas companies to elected officials in Pennsylvania. I'm sure it is just a coincidence that the state House Finance Committee has settled on a drilling fee that is the equivalent of just 1% over the life of a typical Marcellus Shale gas well.

A four-month study by Common Cause, which calls itself the people's lobby, found that over the past 10 years, natural gas companies have spent more than $747 million across the country on a 'stunningly successful' campaign to win the support of members of Congress and state legislators for 'weak' regulations. The study was released at a news conference in Harrisburg...

For state politicians, Gov. Tom Corbett was far and away the leader, at $1.6 million. Second was state Senate President Pro Tem Joe Scarnati at $282,034; third was state Rep. Dave Reed, R-Indiana, at $105,732. House Republican leader Mike Turzai, R-Bradford Woods, got $79,100. Republican senators Don White, R-Indiana, and Jake Corman, R-Centre, got $69,125 and $65,640 respectively, while GOP House Speaker Sam Smith got $58,000..House Democrat Bill DeWeese, D-Waynesburg, got $53,300...

The groups also criticized a bill that won approval from the House Finance Committee last week and could face a full House vote next week. It would impose a fee on drillers that amounts to 1 percent over the life of a gas well, which could produce $160 million in profits for its company, said Sharon Ward of the Budget and Policy Center.

In totally unrelated news, the Community College of Allegheny County, which provides training to workers in the natural gas industry, has already raised tuition twice this year and looks headed for a third increase if Allegheny County cuts another $7 million from its budget.

Morning Must Reads: Big Gas Gets the Goldmine and Taxpayers Get the Shaft

Natural resource extraction produces wealth, but it also imposes large costs on third parties. For instance, when a Marcellus Shale gas well stops producing, the well must be plugged. But as the many abandoned mines in Pennsylvania illustrate, gas well owners, in the absence of requirements to fully fund the decommission of a mine, often prefer to take their money and run.

Morning Must Reads: Job Openings

Tuesday morning the U.S. Department of Labor released new data on job openings in September. 

Job openings have rebounded from a decade low of 2.1 million in July 2009. But they are well below the 4.4 million advertised in December 2007, when the recession began.

Almost four years later, roughly 14 million people are unemployed. An average 4.2 unemployed workers were competing for each opening in September. That's slightly better than August, but it is still more than twice the 2 to 1 ratio that economists say is healthy.

More openings do not necessarily mean more jobs. Even though job openings rose 22 percent in the past year, hiring has increased only 10 percent, the Labor Department's report shows...

Some employers are likely pickier about who they hire than they have been in the past, economists say. They have more choices with unemployment near 9 percent for the past two years...

In some high-skill industries, such as engineering or information technology, companies could be having trouble finding workers with the right skills.

Some economists say companies aren't offering high enough pay to attract workers they need or are unwilling to train applicants who aren't a precise fit.

Morning Must Reads: J-1 Visas, Teacher Layoffs In Pittsburgh & High Unemployment in Cumberland County

The U.S. State Department has announced that it will not accept new sponsoring organizations and that it will hold the number of J-1 visas steady at 103,000 in 2012.

If that sounds to you like not much of a reform of the J-1 visa program, you are not alone.

It was an existing sponsor of the Council for Educational Travel (CETUSA) and the employers Exel North American Logistics Company, SHS Onsite Solutions and The Hershey Company that are alleged to have violated the law regarding "discrimination, forced labor, substandard conditions of work, wage theft, and infringement on associational rights."

Despite protective measures added to a foreign guest worker program, many international students who came to the U.S. for jobs and culture this year again compared their experiences to slavery...

The new measures fall short, according to a University of Pennsylvania law professor who heads the school’s international human rights and immigration clinic.

'It’s not enough that [the department] has launched an investigation. There has to be transparency and accountability in the process,' Sarah Paoletti said.

She said sponsors like Council for Educational Travel, USA, should be supervised by an independent body that could conduct spot checks and hold exit interviews with students.

Some Summer Work Travel participants have earned as little as $1 an hour, the AP said, and have wound up in homeless shelters during their U.S. stays.

After the Hershey workers' protest, the U.S. Labor Department said it had opened two investigations into conditions at the company's warehouse: one by the Wage and Hour Division, the other by the Occupational Safety and Health Administration.

Morning Must Reads: The Economics of Fracking

Paul Krugman's column this morning offers a primer on the basic economics of fracking — and why the industry should pay the full cost of any environmental damage caused by extracting natural gas.

Economics 101 tells us that an industry imposing large costs on third parties should be required to 'internalize' those costs — that is, to pay for the damage it inflicts, treating that damage as a cost of production. Fracking might still be worth doing given those costs. But no industry should be held harmless from its impacts on the environment and the nation’s infrastructure.

Yet what the industry and its defenders demand is, of course, precisely that it be let off the hook for the damage it causes. Why? Because we need that energy! For example, the industry-backed organization declares that 'there are only two sides in the debate: those who want our oil and natural resources developed in a safe and responsible way; and those who don’t want our oil and natural gas resources developed at all.'

So it’s worth pointing out that special treatment for fracking makes a mockery of free-market principles. Pro-fracking politicians claim to be against subsidies, yet letting an industry impose costs without paying compensation is in effect a huge subsidy. They say they oppose having the government 'pick winners,' yet they demand special treatment for this industry precisely because they claim it will be a winner.

Morning Must Reads - Weekend Edition: Bleak Employment Outlook

More or less in line with the consensus forecast, the U.S. Labor Department reported Friday morning that U.S. nonfarm payrolls grew in October by 80,000 and the unemployment rate fell slightly to 9%. This news comes a week after the Commerce Department reported that Gross Domestic Product (GPD) grew 2.5% in the third quarter of this year.

Both reports represent a relative improvement over previous trends, but as Dean Baker of the Center for Economic Policy Research (CEPR) notes:

At this pace it would take more than 33 years to return to the pre-recession rates of unemployment.

The figure below by Josh Bivens of the Economic Policy Institute plots the contraction in GDP during the Great Recession compared to the 1990 and 2001 recessions and the pace of growth in the recoveries that followed.  As you can see in the figure, the pace of growth in this recovery does lag somewhat the two previous recoveries. But as Dean's startling estimate reveals, the larger problem is how deep the recession was.

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