There Is No Understanding New York Progressive Thinking

Back in 1994 then New York Governor Mario Cuomo lost his bid for re-election and found himself out of a job.  Shortly he turned up on the doorstep of our law firm, and next thing you know he was one of my partners.  And not long after that he sat down across from me at a partners' lunch and started talking about some of the important things he had done as governor.  At the top of his list was opposition to the North American Free Trade Agreement, which he was describing as some kind of noble battle to save some jobs of steelworkers out in Western New York.

As you might imagine, this was too much for me and I launched into a mini-tirade.  Twenty years after the fact my memory of the details is fuzzy, but the gist was something like this:

You've just come off twelve years as Governor of New York, and yet you seem to know next to nothing about the economy of our state.  The steel mills out in Western New York are a tiny part of our economy and they are dying off quickly no matter what the government does.  The economic engine of this state is the New York City financial and business services community, and that community is fundamentally in the business of internationalizing the world economy.  It lives off international investment and international trade.  If there is one State and one City in the United States that stands to benefit more and be hurt less by free trade agreements, it is the State and City of New York.  And for the Governor of New York to oppose free trade agreements is to display a level of ignorance and incompetence that is completely incomprehensible.

Fast forward twenty years or so, and now it's the Trans Pacific Partnership.  The steel mills in Western New York are long gone.  Check out some photos here of the huge and eerily abandoned former Bethlehem Steel facility in Lackawanna.  New York City is down to a pitiful 75,000 or so manufacturing jobs (out of over 3.6 million private sector jobs total).  The City financial and business services community is bigger and more lucrative than ever, and more involved than ever in international investment and international trade.  The most rapidly growing area of the City's economy is the technology business, which lives on selling apps and ads and programs and designs to the world.  Further freeing up markets in Asia will be a tremendous boon to these growing and dynamic businesses.

So where do our politicians stand on the TPP?  You guessed it.  At least for the Democrats, they're basically all against it.

Start with Senator Schumer, next in line to succeed Harry Reid.  He was officially designated by the Manhattan Contrarian as "The Worst United States Senator" way back in 2012.  And believe me, he hasn't improved since.  His main focus is angling to increase income taxes that will fall disproportionately on his constituents.  Oh, except that he protects the "carried interest" game that his billionaire hedge fund backers live off.  On TPP?  He's against it, of course.  In yesterday's cloture vote that got the bare minimum 60 yea votes needed to proceed, he was of course a nay, and would gladly have sunk the thing.  This man knows full well that the thousands of twenty-something app developers who would benefit from more free trade are too busy working to pay attention to his vote on this thing.  Instead he responds to the now nearly-economically-irrelevant unions who use their last dollars to contribute to his campaigns.  Disgusting.

And our other Senator, Kirsten Gillibrand?  She's against it too.    She's way too busy pushing fake campus rape stories -- even long after they're discredited -- to learn anything about New York's economy.

In the Congressional delegation, some have avoided taking a position, but the New York Democratic Congressional delegation is close to unanimous against.  First, kudos to the lonely Gregory Meeks of Queens, who has actually publicly come out in support of TPP, to harsh criticism from the usual unions.  But how about my own Congressman, Jerrold Nadler, whose district includes the entire Wall Street area of Manhattan?  Against.   Sean Maloney, of the suburban 18th District (and another one of my former work colleagues)?  Against.   In the semi-stand up category is Charles Rangel of Harlem, who has said he is still thinking about it.  Probably that means he's planning to retire at the end of this term.

Oh, and then there's Mayor de Blasio and the New York City Council.  You may think this is none of their business, but of course they have taken the occasion to come out in opposition.  Here is Greg David of Crain's New York Business giving them a very appropriate lecture on economics.

The thing is, it's just not possible to understand much at all about New York's economy and not think that free trade is a huge plus for us.  What does that say about our "progressive" politicians?

Stopping The Trade Deal Will Not Save The Union Movement In The Private Sector

The most interesting aspect of the "Perils of Pauline" progress of the latest free trade bill through Congress is the split between the President and nearly all members of Congress from his party.  While the President begs the Congress to support his signature Trans-Pacific Partnership initiative, and the large majority of Republicans support him, something like 80 to 90 percent of Democrats oppose.  It's clear that the labor movement is pulling out every last stop to try to block the bill.  Kimberley Strassel in today's Wall Street Journal provides some of the background of what happens to a Democrat who supports the bill:

Big Labor waged an unprecedented hit job on this crew, pummeling them with TV ads in their districts. Months ago dozens of unions affiliated with the AFL-CIO instituted a freeze on campaign contributions, making clear that the coffers would only reopen after a fast-track vote, and only to those members who opposed it.

But why would this be such a critical priority for Big Labor?  Isn't their private sector membership almost all gone by now anyway?

To get an idea of why Big Labor is so focused on this, it helps to look in depth at one particular industry.  So I've collected today some statistics from the steel industry.

Back when I was in high school in the 60s, the big steel companies were among the great icons of American industry.  Names like U.S. Steel, Bethlehem Steel, and National Steel had comparable positions in the U.S. economy to the likes of Apple and Google today.  Jobs at these industrial powerhouses were avidly sought by top business school graduates.  According to this piece in Wikipedia, the steel industry in the U.S. employed 521,000 people in 1974.  The majority of those employees were union members.

It's been nearly all downhill since then.  Bethlehem Steel and National Steel went into terminal bankruptcies in the early 2000s, and what wasn't closed got sold off in pieces.  U.S. Steel has been shrinking for decades.  Its annual reports show a string of losses for years.  In March, the Washington Post reported that "U.S. Steel plants are on a layoff spree," attributing that to a world steel glut and burgeoning imports.

A website called unionstats.com has statistics for employment and union membership in the steel industry in the U.S. since the early 80s.  Its categories are not fully comparable to what Wikipedia called the "steel industry" above, but with that caveat, it is clear that employment in this industry has been gradually shrinking, and union membership plummeting, during this 30+ year period.  In 1984 in a category called "blast furnaces, steel works, rolling and finishing mills," they have 371,000 employees and 211,000 union members.  By 1994 it's 356,000 employees and 175,000 union members.  In 2004 the category has changed to "iron and steel mills and steel product manufacturing"; there are 282,000 employees and 91,000 union members.  Of course, that decade is when the likes of Bethlehem and National, along with other smaller players, closed their doors.   In 2014, employment in the category has recovered some to 303,000, but union membership is down to 71,000.  Over 30 years employment fell about 15%, but union membership fell almost 70%, much of that drop caused by major unionized entities going out of business.

Yesterday's Wall Street Journal has a big article comparing what it calls the country's "two remaining major steel producers," U.S. Steel and Nucor.  The huge difference between the two is that U.S. Steel is unionized and Nucor is not.  At two nearby plants outside Birmingham, Alabama, the two produce about the same amount of steel -- but Nucor has only about a third the number of workers.  The article includes the following chart:

Although the two are close in size, non-union Nucor produces substantially more, generates more revenue, and has much more capacity, all with fewer employees.  And also, Nucor had seven times the profits last year.  As it says in the chart, U.S. Steel "is now taking steps to imitate its rival."  But after a long string of losses and then eking out a profit of only $102 million last year, U.S. Steel is at great risk from any prolonged downturn in the industry.  If a shakeout puts one of the two out of business, clearly it will be U.S. Steel.

Frankly, I don't believe that the labor movement will ultimately be able to block the Trans-Pacific Partnership.  But suppose they do.  It's still the case that downturns and shakeouts periodically hit the manufacturing industries where private sector unionism is concentrated.  And when the next downturn or shakeout hits, the unionized companies are in the weaker position and far more likely to get taken down.  Gradually, the unions put their employers out of business.  They're asking the rest of us to give up the benefits of free trade in order to save the unsaveable.

Yes, Pope Francis Will Join The Reprehensible Campaign To Keep The Poor Poor

Sources I have seen indicate that the papal encyclical on climate change will issue on Thursday, that is, tomorrow.   Maybe it's not yet a completely done deal, but at this point any chance of heading this off looks more or less hopeless.

On Monday the Italian newspaper L'Espresso published a leaked version of the encyclical.  Translations of at least substantial sections have appeared on several websites; for example, wattsupwiththat has some large chunks of translation.

I have read some substantial parts of this, and I just can't get my head around what the thinking could possibly be.  Pope Francis:  There are at least a billion people in the world today who don't have electricity.  There are more like two to three billion who are living in what can only be called energy poverty, at least by any standard that would be considered tolerable in America -- unreliable or intermittent electricity, no or limited heat or air conditioning, no refrigeration or other way to preserve food, no mechanized transportation, no mechanized farm equipment, and so forth.  Are these people allowed to get out of their poverty like you have and like most everyone in the West has, or are they condemned to getting forcibly excluded by bureaucratic whim from getting access to affordable and readily available energy?  What is your answer?

So here's the closest thing I can find to his answer:

Climate change is a global problem with serious environmental implications, social, economic, and political distribution, area and are one of the main current challenges for humanity. Impacts heavier probably will fall in the coming decades on developing countries. Many poor people living in particularly affected by phenomena related to heating, and their livelihoods depend heavily from nature reserves and by so-called ecosystem services, such as agriculture, fisheries and forestry. They have no other financial resources and other resources that enable them to adapt to climate impacts or deal with catastrophic situations, and have little access to social services and protection.

Now the translation here is clearly terrible -- it's not possible for the Pope or his people to be as incoherent as this sounds.  But really, no amount of allowances for bad translation can make this anywhere near coherent.  Could you really be saying that because "Impacts [of climate change] heavier probably will fall in the coming decades on developing countries" and because "[m]any poor people . . . their livelihoods depend heavily from nature reserves and by so-called ecosystem services . . .," therefore international bureaucrats should be empowered to prevent these poor people from getting access to the cheapest access to electricity, heating, and transportation and thereby escaping their poverty?  I am one hundred percent certain that, of the three billion or so people in question here, not one single one of them, if given the choice, would give up access to real and cheap electricity because of what you claim as some hypothetical and speculative future damage to "so-called ecosystem services," whatever that means.

Here and there in the text, some lip service is paid to the idea of looking out for the poor.  But somehow when the Pope tries to apply that concept to the real world, he weighs actual real poverty reduction -- like access to electricity or to an automobile -- at zero, and puts huge weight on things like avoiding ecosystem damage, or slowing rising seas.  And what, pray tell, is the actual evidence that ecosystems will be healthier, or sea level rise slower, if we are all forced to use energy that is five or ten times more expensive than the cheapest available, with the poorest priced out of energy entirely?  Can't you open your eyes and look around?  In the United States and Europe, we have power plants everywhere, and we pay exquisite attention to having healthy ecosystems and a clean environment.  Compare that to dirt poor Haiti, where they have next-to-no access to energy, the hills have been denuded of forests and the ecosystems are in collapse.  How does it possibly help the poor of Haiti to force them to have ridiculously expensive intermittent electricity from windmills instead of building a few coal plants?  

And then we have the usual play to guilt:

For poor countries, the priority should be the eradication of poverty and social development of their inhabitants; at the same time the scandalous level of consumption of certain privileged sectors of their population must be considered and better counter corruption.

Well, I have been to the Vatican palaces.  If you are accusing me and my peers of a "scandalous level of consumption," I can assure you that we are a few orders of magnitude of consumption below that of the Vatican.  And I'm not accusing you of anything inappropriate.  You and your predecessors have brought magnificent architecture and art to the world, for the enjoyment of multitudes.  Can others do the same?

If you had asked me whether it would be possible for the international Left to enlist the Pope in the campaign to keep the poor poor, I would have said that such a thing would just not be possible.  But then, I just don't understand the socialist delusion.

Manhattan Contrarian Short Notes

In something I haven't done before, here are a few short notes for the day:

• At the top of my home page, there is a link for "Articles."  I haven't posted anything in that section for a while, but I did post an article this past weekend.  It's a longer piece than the usual blog post, and it is not about current events.  The subject is the changing scene in New York Harbor over the past century and a half.  Lots of pictures.  Also, in another Manhattan Contrarian first, it features a musical performance -- in which I am one of the performers!   This is a link to the article.  Please check it out.
• On Thursday this week, June 18, the Federalist Society is holding a conference in Washington, D.C. at the Mayflower Hotel called the annual Executive Branch Review.  I will be there.  If you can be in Washington, it should be a very interesting event.  Here is a link for more information.
• In news of the SEC trying to support the unsupportable, here is the latest, as reported by Law360:  A company called Timbervest LLC and several of its executives are appealing an August 2014 decision of an SEC Administrative Law Judge named Cameron Elliot, who ordered them to disgorge some $1.9 million that the firm had made on sales of land that the judge found were "conflicted."  The appeal, of course, is to the Commission itself, otherwise known as Judge Elliot's bosses.  The Commission then asked Judge Elliot to put in an affidavit attesting to his impartiality.  Really?  Law360 reports that on Friday Judge Elliot declined.  Did it not even occur to these Commissioners that they were putting the guy in an impossible position?  Now, perhaps the good judge thought that his best approach to try to preserve some semblance of impartiality was to refuse to respond, but of course there is now the implication that he thought that claiming under oath to be impartial would put him in a position of perjury.  Good job, SEC!  The Law360 article also refers to the May 6 Wall Street Journal article that reported how one of the SEC ALJs, Lillian McEwen, once "came under fire" from Chief ALJ Brenda Murray, who "questioned [McEwen's] loyalty" when she ruled too often in favor of defendants.  Really, SEC, I have a good definition for you of the word "impartiality" as applied to somebody who purports to be a federal judge.  It means "appointed by the President, confirmed by the Senate, and serving for life with salary protected against diminution."  Everything else is not impartial.  And if that's the constitutional definition of impartiality, which it is, then Judge Elliot was absolutely right that swearing he was impartial would be perjury.  Whatever it is that these Timbervest guys may have done, it is not remotely in the category of heinousness as what you SEC Commissioners and ALJs are doing by purporting to exercise powers over Americans not granted by the Constitution. 

The "Worst Possible Public Policy" Comes To Westchester County

The editors of the New York Times must have read my piece about "affordable housing" on Friday, because as if on cue they come out with a lead editorial on Saturday excoriating Westchester County Executive Rob Astorino for resisting the expansion of subsidized housing in his jurisdiction.  Their editorial is titled "Westchester's Tortured Road."  

As usual with Pravda, you scratch your head wondering if they have been taken in by the fraud of the government bureaucrats, or if they are actually part of the fraud.  In this case, it's hard to believe that they are part of the fraud, because what benefit does the New York Times get from the subsidized housing game, which is to provide lifetime sinecures to bureaucrats while those bureaucrats imprison the poor in a lifetime of poverty?  That leaves as the only alternative that the editors of Pravda have been taken in, which in turn means that they are incapable of getting outside of their cushy offices and walking a few blocks to the vast public housing tracts located on the West Side of Manhattan to observe those islands of permanent poverty, not to mention racial segregation, plunked into the middle of the richest county in the country.  And did I mention that those Manhattan projects are in the process of a maintenance crisis and financial collapse of a classic socialist death spiral?

So let's force Westchester down the same path!  What is the thought process that could lead someone to advocate expanding New York City's disastrous subsidized housing policies beyond the City limits?  The gist of the Pravda editorial is "fairness" and "opportunity" -- things you could only believe about subsidized housing if you just flatly refuse to observe it with your own eyes.  Here is a key quote:

The county [Westchester] entered into a consent decree in 2009 to build at least 750 units of affordable housing and work to remove the barriers to fair housing that in many villages and towns function as invisible “Whites Only” signs. Its obligations are straightforward and — given the bad behavior that gave rise to the court order — eminently fair. 

On the other hand, I must say that the opponents of subsidized housing seem to have their own messaging problem.  As to Astorino, I can't find him speaking out much at all on the subject.  But Pravda characterizes the debate as "fairness" and "opportunity" on one side, and "privilege" on the other.  If those were actually the real issues, I myself would be a supporter of subsidized housing.  And plenty of opponents of subsidized housing fall into the trap of couching their position in terms that sound very much like "privilege."  For example, the article from The Hill that I linked on Friday quoted extensively from a Congressman named Paul Gosar, Republican of Arizona:

Rep. Paul Gosar (R-Ariz.) . . . argued that the administration “shouldn’t be holding hostage grant monies aimed at community improvement based on its unrealistic utopian ideas of what every community should resemble.  American citizens and communities should be free to choose where they would like to live and not be subject to federal neighborhood engineering at the behest of an overreaching federal government,” said Gosar.

Sorry, Paul, but this argument sounds like "we should be able to keep out anyone we don't like."  It's not just that that's not going to persuade anyone.  More important is that it misses the point, which is that subsidized housing is a disastrous public policy on every front.  It's a disaster for every reason that socialism is a disaster.  It does not help the intended beneficiaries but instead imprisons them, and the projects themselves inevitably go into socialist death spiral.  And thus in the subsidized housing in New York we find:

• The cost of subsidized housing is huge on a per beneficiary basis, and therefore it can only be provided to a relatively tiny number of people.
• The huge expense does not count in the income of the beneficiaries.  They remain poor.
• The asset provided to the beneficiaries, despite its immense cost, cannot be used by the beneficiaries to help extricate themselves from poverty, because it is completely illiquid, and cannot be sold, sublet, mortgaged, etc.
• The supposed benefit of a subsidized housing unit comes attached to poisonous incentives, including making it much more difficult to move for a job (or a better job), together with income restrictions that strongly discourage getting ahead.
• Rents inevitably fail to cover operating expenses, making the projects dependent on subsidies that must ever increase.  It's only a question of time until the units fall into disrepair.  The taxpayer expense increases with every passing year.  No money is available for capital improvements -- even if the project is located in a fancy area where market values would immediately support private renovation at no taxpayer expense.
• The only way the residents can take advantage of their "good fortune" is to remain in the subsidized unit for life and not increase their visible income too much.  The projects become permanent concentrations of poverty and racial segregation.

So, Mr. Astorino, stand up for your position!  The poor need the incentives of capitalism to extricate themselves from their position.  Stand up for them against these predatory federal bureaucrats! 

The "Affordable Housing" Juggernaut Goes National

Really, what is it about "affordable housing"?  I have previously called building "affordable housing" in Manhattan "the worst possible public policy."  I have pointed out that "affordable housing" is "the most expensive possible way to help the smallest number of people" and that it just seems to be "one of those issues on which rational thought is impossible."  Is anybody listening?

And now, to prove my points, along comes the Obama administration, via the Department of Housing and Urban Development, to double, triple and quadruple down on subsidized housing as the way to fix the perceived problem of inequality in our society.  The Hill newspaper reports yesterday that HUD is moving forward this month to finalize its proposed rule with the Orwellian name of Affirmatively Furthering Fair Housing.  Here is the Rule as initially proposed back in 2013.

As usual with stuff coming out of the bureaucracy, this Rule is endless and unreadable.  I certainly would not recommend your trying to get through its 35 three-column pages of fine print.  But the basic idea is to use the threat of withholding government grants to force localities to prepare things called "Assessments of Fair Housing," which would then lead to "Consolidated Plans," "PHA Plans," and "Capital Fund Plans" -- and ultimately to building subsidized housing in places that don't currently have enough of it to please the government overlords.  Here are the key sentences of incomprehensible bureaucrat-speak from the Summary:

HUD proposes an improved structure and process whereby HUD would provide these program participants with guidance, data, and an assessment template from which they would complete an assessment of fair housing (the AFH). This assessment would then link to Consolidated Plans, PHA Plans, and Capital Fund Plans, meaningfully informing resulting investments and related policies to affirmatively further fair housing.

What then is the logic for going national with this huge expansion of the "worst possible public policy"?  The Hill quotes an unnamed HUD spokesman giving the usual justification that if only the government can compel communities to be integrated by building subsidized housing, that will break down the barriers to opportunity and presumably help the poor rise from poverty.

“HUD is working with communities across the country to fulfill the promise of equal opportunity for all,” a HUD spokeswoman said. “The proposed policy seeks to break down barriers to access to opportunity in communities supported by HUD funds.”

Others quoted in the article in The Hill take that argument even farther.  For example, here is Margery Turner of the Urban Institute, from the same article:

“In our country, decades of public policies and institutional practices have built deeply segregated and unequal neighborhoods,” Turner said.  Children growing up in poor communities have less of a chance of succeeding in life, because they face greater exposure to violence and crime, and less access to quality education and health facilities, Turner suggested.  “Segregation is clearly a problem that is blocking upward mobility for children growing up today,” she said.

Some of this might seem at least plausible, except for one small problem.  This has been tried over and over and is a total demonstrated failure. Can anybody please come here to Manhattan and open your eyes and look around?  Manhattan is not some obscure out-of-the-way place.  Probably, it's the most easily accessible place in this country.  All roads lead here, not to mention airline flights.  And we have the highest density of subsidized housing in the country.

And when you come here, here's what you will see.  You will see that Manhattan (New York County) is the wealthiest county in the country (measured by per capita income).  You will see a tremendous business community, with millions of high-end jobs crammed into a few square miles.  You will see some of the wealthiest and most expensive residential neighborhoods in the country.  And literally a stone's throw from these high-end jobs and expensive homes, vast tracts of HUD subsidized housing.  In just low-income housing alone, we have over 50,000 units in Manhattan, housing about 120,000 people, about 7% of the population.  Other forms of subsidized housing bring the proportion of the population receiving housing subsidies of one form or another to well over 10%.

And instead of raising the residents out of poverty, the HUD-supported complexes are in fact concentrated islands of poverty right in the midst of the greatest wealth in the country.  The New York City Housing Authority reports the poverty rate in its projects at 51%.  How is that even possible in the wealthiest county in the country?  Because a NYCHA project comes attached to poisonous incentives that virtually force the residents to remain in a lifetime of poverty in order to keep their specially-located apartment and ridiculously low rent.

If the HUD model of subsidized housing does not work in the wealthiest county with the highest concentration of the best jobs in the country, then it is not going to work anywhere.  And in fact it doesn't just "not work."  It actively traps the residents in poverty, even in the midst of plenty.

The fact is that the interest of the bureaucracy does not lie in raising the poor out of poverty.  The interest of the bureaucracy lies in creating a permanent dependent class that can never shrink and can never get out of poverty, so that the functionaries can forever hold out the poor as a reason to expand their fiefdoms.  Am I the only one who finds their efforts to keep the poor poor to be reprehensible?

New York, of course, is already committed to more and yet more of this "world's worst public policy."  Rest of the country, do yourself a favor and don't take the money.  Congress, how about just zeroing out the HUD budget -- now in the range of $50 billion per year?