Austerity versus rot: Government capacity

The austerity neoliberal policy introduced into the US by Ronald Reagan took a long while to show serious repercussions.  I argued that impact of reducing government workers and capacity didn't show so much because the US had overinvested in capacity previously.

The failure of FEMA in dealing with the post-Katrina aftermath in New Orleans under George W. Bush was to me, the first glaring example of the impact of austerity.  Although this was accentuated by the agency having poor leadership as well.  (Since then FEMA has performed badly under Republican administrations, specifically Trump, "A Post-Katrina Law Guards FEMA Resources. Why Hasn’t It Stopped Noem?," New York Times.)

Writing in The Atlantic, "U.S. Capabilities Are Showing Signs of Rot," military historian Phillips O'Brien makes the point that firing capable officials, and installing ideologically acceptable but less skilled people in their place creates "Rot."  And that Rot is now very apparent in the US military, as shown by the performance in the current War against Iran.

Also in DHS under Noem, ICE ("Leaked Documents Show a Border Patrol Remade in the Image of Gregory Bovino," American Prospect), and the FBI, "How Kash Patel Wrecked FBI’s Ability to Stop an Espionage Attack," New Republic, among others. Tulsi Gabbard as Director of National Intelligence during war time is another example of rot.  Richard Grenell at the Kennedy Center, most of the Secretaries in the Cabinet, etc.

The first Trump Administration's response to covid is another example of rot.  This rot has been deepened by appointing anti-medicine people in high positions at the FDA and CDC, and with RFK Jr.--who believes his voice dysphonia was caused by the flu vaccine--the Secretary of HHS!

WRT to war, sure the US and Israel can pummel Iran at will, but expending million dollar missiles to shoot down $50,000 drones is a cost-benefit ratio that is unsustainable.  Trump, who treats Ukraine like s***, has reached out to them for technical advice on dealing with drones.  In effect, Ukraine has provided more aid in dollar value to the US than Trump's Administration has provided to Ukraine as it fights Russia's invasion of the country.  (Fortunately, the US still shares intelligence with Iran.  But in general it does everything in its power to promote Russia.)

From the article:

On multiple occasions after President Trump launched a massive air campaign against Iran this past weekend, retaliatory attacks by simply constructed Iranian drones have penetrated American defenses with serious results. For example, at least six U.S. soldiers died, and others were wounded, in an Iranian strike Sunday on a command facility in Kuwait. CNN reported that the Americans received no warning of the incoming drone. According to CBS News, the fortifications around the facility protected it from car bombs but not from a direct overhead strike. “We basically had no drone defeat capability,” an unnamed military official told the network.

... When a complex system starts to decay, the first signs are usually subtle. In the third century, after the Roman empire had reached its geographic maximum, literacy began to decline across Roman society. Education levels fell not only among soldiers, but among officers, aristocrats, and even emperors. The Roman army still looked formidable for years afterward. It had good equipment and could march well. Yet it was no longer as advanced relative to Rome’s enemies as it had once been. It fought as hard as ever, but less effectively.

... The U.S. military’s supremacy over foreign rivals is built on intensive training and the manipulation of advanced technology. By contrast, Hegseth has been stressing lethality and a warrior ethos instead of learning and reflection, to the point of blocking U.S. military personnel from taking courses at the most elite American universities. Yet the events of the past week underscore how shows of force alone may not defeat even militarily inferior enemies.

In Bahrain, a lone Iranian drone penetrated the headquarters of the U.S. Fifth Fleet, which oversees 2.5 million square miles of the world’s oceans. The incoming weapon destroyed an AN/TPS-59 radar unit intended to provide 360-degree air surveillance for U.S. forces. In a moment, Iranian equipment that cost perhaps $30,000 devastated a piece of U.S. military hardware estimated to be worth tens of millions of dollars.

Another term for this is "capital shallowing" or disinvestment.  It's the opposite of "capital deepening" or investing ("Capital shallowing: the effect of disinvestment on government functioning").

Efforts to exempt owner occupied houses from taxes in Florida and California

This house cost $50 million.  If it is the primary residence of the owner, it could be exempt from property taxes.

Cities rely on property taxes for the bulk of their revenue.  

Anti-tax fever in Florida, which already doesn't have an income tax, calls for eliminating property taxes on "homestead properties," that is owner-occupied housing ("Looming tax reform has Fort Lauderdale thinking about worst-case scenarios," South Florida Sun-Sentinel).

Fort Lauderdale officials say they are well aware of the fiscal fallout that might be coming and are already making plans for what could be a worst-case scenario: A staggering $72.8 million shaved from the city’s day-to-day budget.

DeSantis has called for the elimination of property taxes, referring to them as a burden that forces homeowners to pay perpetual “rent” to the government. Property tax reform would require a constitutional amendment passed by 60% of the voters.

If voters approve tax reform in November, cities across the state would likely have no choice but to slash budgets, with one caveat. They’d be prohibited from cutting spending on fire-rescue and police departments below current levels.

The anti-tax fever led primarily by Republicans increasingly leaves governments strapped for cash.  In Florida, this measure would take away billions of dollars in local revenue, with no replacement.  While school taxes would still have to be paid, according to the Pensacola News-Journal ("Florida House passes property tax proposal. Here's what it does"):

House staff have estimated that beginning in fiscal year 2027, the amendment will have a negative cash impact of $14.7 billion on local non-school property tax revenues. ...

What services would be at risk? Florida property taxes go toward critical infrastructure and services that are used by or impact taxpayers on a daily basis. These include things like: 

• Law enforcement
• Social services
• Parks
• Environmental programs
• Fire districts 
• Emergency medical services 
• Schools 
• Roads

The bill calls for a referendum, but I'm sure people who don't want to pay taxes will outnumber those who care about good government when it comes to a vote.

It reminds me of the disaster in Kansas, when then Governor Sam Brownback enacted supply side tax policies which posit that when you lower taxes, people and businesses are motivated to work, spend, and invest more. 

So far, Kansas did not achieve that outcome ("‘The Kansas experiment’ should be a warning to Republicans touting Trump’s big, beautiful bill," Boston Globe, "The Tax Experiment that Failed, Independent Lens/PBS, "Kansas abandons massive tax cuts that provided model for Trump's plan," Guardian).  

It definitely didn't in Kansas, where public reaction led to voting in a Democratic governor, and electing enough Democrats to the State Legislature so that the Republicans no longer had a super majority.

Besides raising sales taxes and fees, the primary course of action would be to cut back on government significantly, comparable to how UK local governments, with up to 3/4 of their revenues slashed by the national government, take austerity planning and governance to new levels, levels which significantly impact quality of life in negative ways.

California has a similar proposal moving to referendum, eliminating property taxes on homes lived in for 5-10 years ("California ballot proposal would exempt seniors from paying property taxes," ABC10).  Local governments already have austerity from Proposition 13 (Common Claims About Proposition 13, California State Legislature, "The Taxpayers Revolt! How Prop 13 Transformed California," KQED/PBS, "Prop 13: Winners and Losers From America’s Legendary Taxpayer Revolt," Trulia, "How California voters can update, improve Prop. 13," San Jose Mercury-News).  This would make it worse.

From the last article (the revision didn't pass):

California voters have an opportunity this November to correct decades-old legislation that has resulted in deteriorated public institutions and services throughout our state. It’s time to challenge the divisive and widespread anti-tax sentiment promulgated by powerful interest groups bankrolled by wealthy donors.

The California Schools and Local Communities Funding Act is a proposed constitutional amendment that would update and improve Proposition 13, the 1978 tax law that fundamentally crippled local governments.

A contributing factor to Prop. 13’s passage was the sentiment that older Californians should not be priced out of their homes through high property taxes. However, the proposition’s underreported giveaways to big business and corporations have exacerbated inequity and inefficiency in the state’s tax structure.

The new law would keep tax rates the same for individual homeowners, but would close the business loophole. It will periodically reassess commercial and industrial properties to full market value, while safeguarding homeowners, renters and agricultural land.

Brand America 2025

During the first Trump Administration, I wrote to Simon Anholt, the author of Brand America: Mother of All Brands, stating that Trump's brand for America was:

Can't Do.  Won't Do. You Do.  Fuck You.

It will get worse this go around.

An interesting story in the Financial Times, "What makes the US truly exceptional: Are American pathologies the necessary price of economic dynamism?."  From the article:

It is the best of countries, it is the worst of countries, or at least of the high-income ones. The US stands out for its prosperity and its brutality. 

This is how I have felt about it since I visited in 1966 and lived there throughout the 1970s. The sustained prosperity of the US is astounding. A few western countries have even higher real incomes per head: Switzerland is one. But real GDP per head in the larger high-income countries is below the US average. 

... Not surprisingly, the US economy also remains far more innovative than other large high-income economies. Just look at its leading companies. These are not only far more valuable than those in Europe, but far more concentrated in the digital economy... 

... The US then is an economic powerhouse, so much so that it has persistently run a large deficit in its capital account. Donald Trump protests. Yet this is a powerful vote of confidence. 

... So, how can such an economic marvel also be “the worst of countries”? Well, its homicide rate of 6.8 per 100,000 inhabitants in 2021 was almost six times as high as that of the UK and 30 times that of Japan. 

... More broadly, what does US prosperity mean when combined with such potent indicators of low welfare? These outcomes are the result of high inequality, poor personal choices and crazy social ones. Some 400mn guns are apparently in circulation. This surely is insane. 

... Then there is a related question, which is whether the relatively high inequality of the US and the insecurity of those in the bottom and middle of the income distribution inevitably lead to what I called “pluto-populism” in 2006: the political marriage of the ultra-rich, seeking deregulation and low taxes, with the insecure and angry middle and lower middle, seeking people to blame for what is going wrong for them. If so, what made the US dynamic, at least in this age of deindustrialisation and unbridled finance, led to the rise of Trump and so to a shift to a dangerous new demagogic autocracy. A big question for non-Americans, notably Europeans, is whether these pathologies are the necessary price of economic dynamism? Logically, it is not clear why an innovative economy cannot be combined with a more harmonious and healthier society. Denmark would suggest so. One might hope that the scale of the US market, its relatively light regulation, the quality of its science and its attractions to high-quality immigrants are the explanations. But there is this lingering fear that the technologically dynamic society Draghi and other Europeans now seek might require the rugged, nay dog-eats-dog, individualism of the US. It is a sobering possibility.

FWIW, I don't think pathology is necessary to economic dynamism.  We have a super conflicting element in American society, rank individualism ("Toward the Land of Self-Defeat," New York Times) versus a more communitarian approach.

But individualism is the side for people who want it all, don't want to share, don't believe in mutually beneficial outcomes.  And too much has changed in the economy, from neoliberalism to financialization, a winner take all economy, oligopoly, and the belief by Republicans that taxes are bad.

This extends to the social sphere by denying the value of the safety net, government action of any kind, building the wealth of of the nation by investing in people, etc.

It was pointed out that Reagan's plan was a form of austerity comparable to that of UK's Tories.  For a couple decades, because the US had previously overinvested in government and public goods, that could be withstanded.

It ended with the multiple failures of the Bush Administration.

It's amazing that the Trump posse is so focused on the destruction of America, not building its public investment ("Capital shallowing: the effect of disinvestment on government functioning").

We're in for it.

Capital shallowing: the effect of disinvestment on government functioning

Is a term that I am sad to say that I haven't come across.  (Although I have seen the term "capital deepening" applied to the increased income of neighborhoods as demographics change and the neighborhood becomes more attractive at the scale of the metropolitan residential landscape.)

It has so much explanatory power.

It's used in a Financial Times article about the National Health Service in Britain, how with decreased funding and investment, the amount of capital to support each worker, and each facility, declines in systematic ways that often reduce the ability to provide proper care ("NHS capital investment cuts leave England’s hospitals crumbling").

The article argues that while the facilities are declining and the waitlists lengthening, care is still okay.

In the basement pharmacy at St Mary’s Hospital in London, part of the world-renowned Imperial College Healthcare NHS Trust, senior pharmacist Michele Garwood has placed plastic trays beneath the ceiling in an attempt to protect her stock of medicines from regular flooding. 

Elsewhere, on Albert ward, one of five lavatories has been out of use for three months after a hole opened up in the floor, exposing it to the car park below, and rotted floor joists in patient bays, temporarily taped over, represent a constant trip hazard. 

We “still provide the best care we can” but some patients are so horrified by their surroundings that they discharge themselves, said matron Marta Calvo Hernandez. St Mary’s is one example of how a longstanding lack of capital spending is being felt across the NHS. The service is struggling with an accumulated maintenance backlog estimated to be worth more than £10bn, the highest since records began. 

Stephen Rocks, an economist with the Health Foundation, a research organisation, said there had been “a very sustained under-investment in capital” over the austerity years of the 2010s, which had “left the NHS with insufficient capital investment to deliver the care patients need”.  

Rocks suggested this was part of the reason that a growth in staffing levels in the health service did not seem to have translated into a corresponding increase in activity. “We’ve seen a ‘capital shallowing’, with less capital per worker, and that does have a very direct read across to productivity,” he said. 

As a term, apparently it was coined in development economics, making the point that as countries grow in population, there is less money invested in per capita ("Population Pressures, Saving, and Investment in the Third World: Some Puzzles," Economic Development and Cultural Change, 1988).

I wish I had known this concept earlier, because it explains points I've made in various areas.

First, the impact of neoliberal induced disinvestment in government--the US could "slide" for a long time with denigration and disinvestment in government because in the decades before it overinvested. 

But the failures with FEMA and disaster response after Hurricane Katrina and under Trump with Puerto Rico and Houston are a good example.  But I don't know if the failure of the Army Corps of Engineers and levees was about capital shallowing or just politics, failure to adequately address risk, budget shortfalls, etc.

And the failure of the Trump Administration to properly respond to covid.  And the serious problems of the US public health infrastructure to respond to covid after decades of declining budgets ("COVID-19 and Underinvestment in the Public Health Infrastructure of the United States," Milbank Quarterly, 2020).

Of course, the Conservative Party austerity agenda in the UK for the last ten years has had the same kind of debilitating effect ("Austerity urbanism in England: the 'regressive redistribution' of local government services and the impact on the poor and marginalised," Environment and Planning A, 2017).  With covid, policing, transit, health care as mentioned above, care for the aging, defunding of local government, parks, libraries, etc.

Second, with the tax cutting fervor in growing places like Utah--"let's share the benefits of growth"--when growth imposes more costs, not fewer, and by cutting taxes you have less revenue to invest, or a capital shallowing ("A Robust Economy, State of Utah press release).

A third example would be the impact on local governments of declining budgets.  This has been particularly pronounced in Toronto, where the previous mayor refused to raise taxes beyond the inflation rate, even though costs increased at a greater percentage than inflation, with serious negative impact on the quality of municipal services ("Brutal performance art criticism of Toronto's Mayor, John Tory, and his "austerity" agenda").

It can be difficult to separate the effects of neoliberalism, say with the water quality failures in the UK ("Water companies are playing dirty over sewage. That’s why 20 million of us are taking them to court" Guardian) from capital shallowing--the budget of the UK Department of Environment is only £11.47 million FOR THE ENTIRE COUNTRY--and capital shallowing.  

I think they are mutually reinforcing, especially when it comes to "advanced economies" as opposed to developing economies for which the concept was coined.

Is this a fix for U.S. teen mass shooters? We are losing our 18-year-olds, especially men. A universal ‘gap year’ could help

Headline and subhead taken from the Will Bunch newsletter

Before the 2020 election, reading all the polls that called for a Democratic landslide, feeling optimistic, I started writing a piece on the necessity of refocusing on civic engagement and development of a sense of community and collective purpose ("Civic involvement and national service as a way to rebuild a sense of collective community").

But other than Trump losing to Biden, the election results were dismal.  Mostly, Democrats loss key seats--barely holding on to the House and seemingly not getting control of the Senate*. So I was seriously "depressed" and didn't finish the piece.

I do need to get back to it, although the way our system privileges minoritarian control of the Senate, Electoral College, and now the Supreme Court, I am not particularly hopeful anymore about the prospect and promise of "America"--although I still feel compelled to try to improve things. 

One reason to finish the piece is because Will Bunch, the opinion columnist for the Philadelphia Inquirer, makes a brilliant point in this week's e-letter, that a way to deal with the anomie of young men is a national gap year ("Is this a fix for U.S. teen mass shooters?").  From the article:

But today I want to focus on the other commonality — that each of these mass murderers was a young man in the 18-21 age bracket, and that each had a similar biography in which their time after high school seemed a descent into an abyss of domestic violence at home and weird conspiracy theorizing or posturing on the internet. ...

America’s young men didn’t always go off the grid so easily and so often. A few decades ago, in a time when the rate of college attendance was lower, there were also more decent, better-paying job opportunities for teens looking to enter the workforce, which fostered the ability to establish a home or get married at a younger age, in working-class communities that felt more stable. Today, this cohort is increasingly lost and in crisis. ...

Young people who don’t attend college — but again, especially men — also are increasingly prone to so-called “deaths of despair” from drug overdoses, suicide, or alcohol abuse. Yet many young people who do better academically are also stressed out to the max from the pressure they feel to get into “the right college,” or because of the exorbitant loans many need to pay for it. Even an elite campus like the University of Pennsylvania can struggle with suicide.

Part of the issue might be what I sometimes call “the college problem” in America — a shorthand for how the dream of higher education instead became a source of resentment for some and anxiety for others, and how these bitter reactions have fueled our political divide. But calling it a “college problem” undersells the real issue: the U.S. abandons its young citizens at age 18.

We need to broaden our ideas of what higher education — both in terms of job training, including trade school, but also critical thinking — can become, and to make this a “public good” like K-12 education. That could take the form of a so-called “gap year” for 18-year-olds of universal, mostly civilian (such as working on environmental projects or in public schools) national service, funded by the government.

The benefits of such a program would run well beyond spruced-up national parks. Instead of falling off the grid, 18-year-olds would be getting a helping hand to find themselves and maybe find something they love. The widespread acceptance of a “gap year” could encourage us to stop putting so much pressure on these teens to “figure it all out” their senior year of high school. If well run, programs like the proposed Civilian Climate Corps would bring together young people from the silos they now live in — including, yes, “red states” and “blue states” — and have them working toward a common purpose.

“We need to be reintroduced to each other in a place where we are all on the same team,” the University of Maryland professor Lilliana Mason wrote in a 2019 essay, along with her observation that a study showed Korean War veterans who fought in newly desegregated units came home scoring higher in racial tolerance than those who did not. Today, we’re very good at knowing everything that’s wrong with America, and terrible at doing anything about it. Universal civilian national service is one way of doing something about it.

 You should be reading Will Bunch anyway, but in particular this is a brilliant insight.  It's the basic argument in my half-written piece, about connection between otherwise dissimilar people, but I hadn't made the leap to the violence, adoption of conspiratorial outlooks, etc., that is fostered by this, especially by the people who don't go to college, and in the interim, aren't doing much else.,

Apparently Will Bunch's forthcoming book, After the Ivory Tower Falls: How College Broke the American Dream and Blew Up Our Politics — And How To Fix It, has a chapter on national service.

======

* It seemed likely the Democrats would lose the Senate because while both Senate seats in Georgia were thrown into a runoff because of a fluke, previously Democrats pretty much lost in runoffs.  But it turned out on January 5th both Democratic candidates won.  Halelulah.  

The next day was the Insurrection, so I returned to my political depression, which has only been made worse by Krysten Sinema ("Democratic Sen. Kyrsten Sinema More Popular With Republicans Than Her Own Party, Polls Suggest," Forbes) and Joe Manchin ("Manchin says he won’t support new climate spending or tax hikes on wealthy," Washington Post) basically handing control of the Senate to the Republicans, and the rise of the theocratic majority on the Supreme Court.   

Manchin and Sinema basically doom the Midterms--I see the Democrats losing both the Senate and House, in part because of inflation, but also because of the failure to move a Democratic agenda forward + the Supreme Court.

Congressional dysfunction isn't battering the Washington area economy, it's the anti-government perspective of the Republicans

Washingtonian Magazine has an article, "Congress’s Dysfunction May Already Be Battering the DC Area’s Economy," about how the metropolitan economy is being diminished because of "Congressional dysfunction."

While the magazine is right that the Washington economy is collateral damage, they are wrong to attribute this to Congress.

Government shrinkage is a deliberate strategy emanating from anti-government policies of the Trump Administration.

Sure, the Tea Party types in Congress keep attacking government, but they can't knee-cap the agencies the way the Executive Branch can. Although maybe the headline is right in some respects because with a Republican controlled (albeit dysfunctional) legislative branch there are no checks on the Executive Branch.

It happens today I am doing some "processing" of stuff I clipped back in 2011, like the Republican House's attempt to cut the budget of the Corporation for Public Broadcasting or to eliminate the National Endowment of the Arts and the National Endowment of the Humanities. The headlines of the articles are comparable to the headlines today.

The difference then was you had a Democratic majority in the Senate and a Democratic President.

Today, an anti-government party in control of the Executive and Legislative branches has few checks. As the Wall Street Journal wrote recently about the director of the Office of Management and Budget, "Mulvaney's Real Target: Government, Not Deficits." From the article:

In fact, Mr. Mulvaney is not really a deficit hawk. He is a spending hawk, motivated less by an abhorrence of debt than of big government. Small government is a longstanding and principled goal of Republicans. But big government is not why deficits are about to explode. Republicans have already shrunk government quite a lot. And much of the remainder is now off limits: defense, homeland security, veterans, the elderly.

... In 2011, he helped take the federal government to the brink of default on its obligations by opposing a higher debt limit. To resolve that crisis, Republicans forced Mr. Obama to accept tight caps over discretionary spending (the sort Congress must approve each year, unlike open-ended entitlements such as Social Security and Medicare). And in 2013 those caps were tightened even further with across-the-board spending cuts called a sequester.

Congress first loosened those caps later in 2013, and again last week, drawing plenty of finger-wagging from deficit scolds across the political spectrum. Mr. Mulvaney says he probably would have voted against it. Mr. Trump blamed it on Democrats insisting on more domestic spending in return for a bigger military budget.

There is something surreal about the angst. Even with the higher cap, domestic discretionary spending in fiscal 2019 will be less than in 2012, without adjusting for inflation. At less than 3% of GDP, it would be near the lowest in at least 50 years. This category encompasses almost everything other than defense and entitlements, from environmental protection to education and research grants. In that narrow sense, the federal government is getting smaller. Its civilian workforce today is the smallest as a share of total employment since World War II.

So where is the federal government getting bigger? The safety net did grow under Mr. Obama, but mostly because of the Affordable Care Act. Food stamps, welfare and other programs targeted at the poor, sick and unemployed consume the same share of GDP today that they did under Bill Clinton and George W. Bush.

The real growth has been in the big entitlements: Social Security, Medicare and Medicaid, and the ACA, and much of this is the unavoidable consequence of an aging population. Mr. Trump, like Mr. Obama before him, has ruled out cutting Social Security and Medicare benefits. ... 

with taxes and most federal spending off the table, the room for Mr. Mulvaney to meaningfully cut the deficit is small. But talking about the deficit helps keep the pressure on those parts of the government that aren't off limits.

Even if it becomes impossible to cut social programs, it's always possible to cut government agencies, especially if Congress is inclined to go along. 

And that has major impact on the Washington area economy.

The Republicans have been fighting investing in government agencies for a long time, see this 2014 blog entry about the slowdown in federal agency property development, "New Year's Post #3: an illustration of the decline of the federal role in DC's real estate market (at least right now)."

But today with a Republican President who is anti-government, somewhat of a figurehead, but who has empowered anti-government zealots like Mick Mulvaney and Scott Pruitt, and put into power people who are willing to carry out directives for cutting agencies such as Betty DeVos, Rick Perry, and Rex Tillerson, agencies are getting "thinned out."

The Department of Energy is cutting units and employees ("Trump aims deep cuts at energy agency that helped make solar power affordable," Washington Post).

So is the Department of Education ("Inside Betsy DeVos's efforts to shrink the Education Department," Post).

The State Department ("State Department to Offer Buyouts in Effort to Cut Staff," New York Times).

The Department of Labor, the Environmental Protection Agency ("Success: EPA set to reduce staff 50% in Trump's first term," Washington Examiner), the Department of Agriculture ("Dismantling the USDA from within," Federal News Radio), the Department of Interior ("Interior chief wants to shed 4,000 employees in department shake-up," Post).

Etc.

The various downsizing efforts across government agencies emanates from the Administration, not Congress, although the Republican controlled House and Senate are happy to smite what they think of as the Leviathan.