Wednesday, November 30, 2016

Trumpocalypse 6: Little pink houses for you and me

I will resist the urge to make a parody of Jack & Diane here as the media celebrates, in its own 'fake news' way, Trump's trip tomorrow to Indiana to announce he has 'saved' 1000 jobs for America.

First off, by the estimates the government uses, 181,000 jobs are being created each month. Saving 1,000 jobs isn't nothing but it isn't much of something, either.

Secondly, the media is ignoring, as always, the larger picture.

Here is the larger picture. Carrier, the company that Trump is 'forcing' to keep some jobs here, is a division of a company called United Technologies Corporation. United is a multinational corporation that engages in everything from military contracting and aerospace to the Otis Elevator company and, yes, Carrier company. It is the 6th largest donor to political campaigns (64% of its contributions go to the GOP, so the fact that it gives 1 in 3 dollars to the Democratic party ought to reinforce what I have been saying about there being little substantive difference between the two parties) and the 38th largest polluter in the world. It employs 196,200 people worldwide.

In February 2016, United Tech announced that two plants in Indiana would move jobs to Mexico, totaling approximately 2,100 jobs. The move, based on regulatory problems, was largely seen as simply a way to cut costs: in Indiana, average hourly wages for union workers are $23/hour; in Mexico they would be $6/hour.  This would translate, per United Tech's CEO, into two cents per share of stock profit.

United Tech's net income in 2015 was $7,608,000,000. It has 823,410,000 shares of stock outstanding. The move to Mexico would represent an additional $16,468,200: that is the 0.2% additional profit. In other words, United Tech's net earnings would go from $7,608,000,000 to $7,624,468,200.

Not nothing, but not really something, either.

While Trump's big move is being heralded, what none of the stories noted so far is:

United Tech's top five executives earn a combined $45,000,000 per year in salaries and other compensation each year.  If you were to impose, say, a 10% pay cut on each of those executives, you would save $4,500,000 per year, and in just four years would have saved the same amount of money that eliminated 2,100 jobs was expected to do.  Cutting 10% of a man's pay, when that man makes $10,537,000 per year, as United Tech's CEO does, does not hurt that man at all, and costs no jobs.

Stockholders, "Wall Street" never seem to demand CEO pay cuts, do they? We hear all the time about "Wall Street" forcing people to do things, about stockholders demanding things. Who are these "stockholders" on "Wall Street"?

According to Morningstar, 18% of the "Wall Street" stockholders in United Tech are "insiders." By comparison, the top institutional investors hold less than 15% of all stock.

Greg Hayes, the CEO, sold 15,000 shares of stock in November 2016. On November 14, 2016, in fact, just about a week before Trump 'forced' the company to stay, at (presumably) a reduction in stock prices.  That's not nothing, but maybe it is something?

Meanwhile, United Tech in the past year or so has imposed a pay cut and furloughs (also unpaid and hence a second cut) in one plant,  laid off 22 people in Peshtigo, Wisconsin, laid off 100 and cut pay in Chula Vista, and also laid off people in New Mexico. Those aren't all, they are just the ones I found in less than a minute of Googling.  (Remember, when you hear people decrying "fake news" on Facebook, it takes less than 1 minute to find out information on your own, and presumably reporters on legitimate news sites could do on their worktime what I did at breakfast today.)

While all that has been going on, consider this: Back in early 2016, Honeywell attempted to take over (or merge with, depending on who you ask) United Tech.  Honeywell offered $108 per share, which United Tech said was "grossly undervalued" for the stock. $108 per share is what United Tech's CEO sold his 15,000 shares of stock for 2 weeks ago. That "grossly undervalued" statement was in fact a statement made by Greg Hayes in a filing with the federal government. Hayes relied, in resisting Honeywell's bid, on a claim that government regulations -- the same regulations Trump has promised to lift, and which Hayes claimed were forcing a move to Mexico -- a claim that government regulations would prevent Honeywell from taking over the company even if it tried. Hayes didn't explain why some regulations are good and some are bad, just as he didn't explain why $108 per share was grossly undervalued in March but perfectly acceptable in November, when he sold out just before announcing a move that would lower stock prices.

Also, United Tech executive pay has risen by just over 9% over the past couple years, while stock prices have plummeted.  Funny that Wall Street doesn't do something about that.

One last thing: while I was typing this post, an update came through on my phone from a news site. It announced that Arrowhead Pharmaceuticals is stopping research on liver drugs, and laying off an estimated 450 people, 30% of its total workforce.   I asked Trump on Twitter whether he would do something about that. He hasn't answered yet.

Monday, November 28, 2016

Trumpocalpyse 5: I want a new drug.

Donald Trump's plan to help fight drug addiction and drug-related problems in the US is primarily to stop drugs from coming into the country. This will be tough to do given his plan to reduce the federal budget by at least 1% each year, leaving entitlements untouched in those cuts.

The current 2017 drug plan calls for $31,100,000,000 to be spent 'fighting drugs,' a generalized statement that encompasses a lot of different approaches. This amount is an increase of 1.7% from the 2016 allocation. Just over 10% -- $4,100,000,000 -- is allocated to interdiction, which is the fancy word for "stopping people from bringing drugs into the country."  Another $1,600,000,000 is planned to use specifically in foreign interventions such as targeting cartels or supporting crops other than drugs.

The General Accounting Office, a nonpartisan government agency, estimated in 1983 that less than 10% of dangerous drugs were seized through interdiction, and recommended changes, many of which were implemented. 10 years later, the GAO found that most drug seizures, rather than being the result of a coordinated effort, were simply made based on random or routine searches.

One growing effort to stop drug abuse-related problems are "drug courts," courts designed to help curb recidivism and provide a framework for drug addicts to get back into society. These have been around since 1993, and while not perfect, have generally reduced recidivism and are less costly than enforcement-and-imprisonment.

Recently, in Wisconsin, two rural counties were given by the federal government a $325,000 grant to jointly administer a drug-court program. Providing federal incentives to drug courts is something Trump promised to do as a candidate, although he didn't say how he would get the money.  The counties in question were Iowa (which went for Hillary by a large margin) and Grant (which narrowly went to Trump.)

Just to keep track: Trump has promised to reduce the federal budget by 1% each year from its current state. He has also promised not to touch entitlements. And he has promised to provide federal money to state and local governments to help establish drug courts.    This creates a series of problems.

The first problem has already been said: Trump cannot continue to increase spending on his projects while also cutting the federal budget by 1% each year. (That promise alone is disingenuous, because federal spending is so ingrained into American life that cutting back in any serious way represents a major shift in governmental policy that likely cannot be accomplished in 1, or even 2, terms.  Much of the increase in federal spending has come under Republican presidents. George W Bush, our worst president [so far] spent more than any of his predecessors in office, increasing the federal budget by fifty-three percent in just 8 years.)

The second problem is that these are not permanent funding sources. When the federal funding is cut off, then either the drug courts stop -- losing the benefit of these programs, which are long-term programs -- or the counties and state must make up the difference.  County spending comes largely from property taxes in Wisconsin. Property taxes are a somewhat-regressive tax that hit poor and middle-class people harder.  State money comes from a variety of taxes such as gasoline tax and income tax, and again these are regressive.

75.6% of housing in Iowa County is owner-occupied; the median property tax bill is $525 for such houses in that county. There are 10,000 or so housing units. If you cut off federal funding of the drug court, Iowa County must come up with $162,500 to run the court, spreading that cost among the 10000 homeowners in the county.  Either that means that Iowa County cuts $162,500 worth of services from something else, or taxes go up, funding drug courts regressively by taking money from the poorest people disproportionately.

When federal spending gets cut, states generally cut programs that relied on federal spending. 31 states cut health care services between 2009 and 2011, among other drastic slashing of social services. This is because it is not popular to raise taxes to keep services going, and the recipients of the services are often the least-represented, politically. Nobody wants to tax the middle-class more; but nobody cares if we cut funding for drug-addicted criminals.

Drug courts, the evidence says, work. Interdiction, the evidence says, does not. Under Trump, we can expect the specifics of his plans to increase interdiction to be met, because that says "tough on crime," and "tough on foreigners," too. We can expect the mealy-mouthed promise to fund drug courts in a nonspecific way to be dropped by the wayside, which means that three years from now, the 40% of people who voted for Trump in Iowa County and the 51% of people who voted for him in Grant County will see a small headline in the local paper that says the drug court programs are ending for lack of funding.  I doubt they will mourn the passing of those programs, but they should: if you are fiscally conservative, drug courts make sense. Every $1 spent on drug court saves $2.17 on other aspects of crime prevention and incarceration.

But "fiscally conservative" takes a back seat to "tough on crime," every time.