Monday, June 25, 2012

HBO's "The Newsroom" - about regaining the ability to function

The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. - F. Scott Fitzgerald
It says more about me than it does about the new HBO series "The Newsroom" that I can say the premise and style expressed in its premier nearly moved me to tears.

I'm old and I started my working life as a newspaper reporter.

I believed and still believe that the United States isn't the greatest country in the world because of what and how it is at any given moment, but rather because most Americans believe it could be and want it to be the greatest country in the world. We want a country that continuously attempts to achieve the impossible ideals:
  • of balancing populist governance against protecting basic rights for all individuals through formal institutions run by relatively small groups of professional and amateur politicians.
  • of a society that offers each of us equally an opportunity to be all that we can be, while protecting each of us not only against physical force from others, but against the abusive accumulation and use of government and economic power by any one or any few of us.
I shared, and still share, Edmond Burke's belief expressed in his 1787 observation to Parliament that "in the Reporters' Gallery" is "a Fourth Estate more important" to our government and society than the relatively small groups of professional and amateur politicians.

And so when a key character in Aaron Sorkin's "The Newsroom" states that the goal is "reclaim journalism as an honorable profession” I was moved.

Never mind the need for me to suspend disbelief at a level generally reserved for science fiction or wild car chase action hero shows.

After all, this show's first episode begins far back in time for Americans to two weeks before a historical event essentially forgotten in the day-to-day discourse of most Americans - the 2010 Deepwater Horizon disaster. It then presents how the story should have been covered by the news media from the beginning instantly creating a newsroom full of "cape crusaders."

Aaron Sorkin was the creator and/or writer of the TV series "Sports Night","The West Wing", and  "Studio 60 on the Sunset Strip" and movies "A Few Good Men",  "The American President", "Charlie Wilson's War", "The Social Network", and "Moneyball". The imprint of show creator Aaron Sorkin is deep in "The Newsroom" with rapid dialog and a fast pace.

The script is tight, the direction is flawless. The principle characters, however, include two flawed heroes, one a reluctant hero played effectively by Jeff Daniels, and the other a scarred action heroine, played also effectively by Emily Mortimer. It is also populated with a number of younger actors, the most obviously winning characters in the pilot played by Alison Pill, Dev Patel, and John Gallagher Jr.

And then there is  the venerable Sam Waterston bringing wit and wisdom to the always slightly inebriated character cable channel president Charlie Skinner who, like me, thinks it's time to try to have somebody on television bringing news that's full of facts (because there is a difference between the facts and spin) and who as a fictional person, unlike me, is in a fictional position to do so.

Sorkin is an anathema to the American ideological far right and he didn't ingratiate himself with the American ideological far left by having his lead character calling them "losers." Which brings me back to the Fitzgerald quote.

It is obvious that today America does not have a collective "first-rate intelligence" the test for the existence of which is "the ability to hold two opposing ideas in mind at the same time and still retain the ability to function."

The premise underlying the show is that at one time we did have such a collective "first-rate intelligence," stimulated and maintained by the likes of Edward R. Murrow, Walter Cronkite, Chet Huntley, and David Brinkley, which if we only could bring back that commitment to "truth, justice, and the American Way" could be recovered. And the character in the show that expresses that goal is ...drum roll... the Brit with a dual citizenship Mackenzie MacHale played by Emily Mortimer.

In Action Comics #900 ...yeah #900 at 100 pages...  Superman renounces his American citizenship saying "truth, justice and the American way- it's not enough anymore."

Aaron Sorkin's two flawed heroes would disagree. Truth, justice and the American way are all that matters and there's nothing "fair and balanced" about that.

Of course, unlike "The West Wing" which informed the broad sweep of Americans from a broadcast network, because American culture today lacks the ability to hold two opposing ideas in mind at the same time while still retaining the ability to function, "The Newsroom" could only be presented through HBO which has the slogan "It's not TV, It's HBO" and only reaches 29 million homes out of the 100+ million homes with TV.

Saturday, June 16, 2012

The Bare Bones Era - 2012: When a "balanced budget" isn't balanced

For those of us who remember the era of Governor Jerry "Moonbeam" Brown 1.0 when we thought the quality of governmental leadership in our State was at an all time low, yesterday set a new standard for low here in the Magic Kingdom.

The etymology of the word leadership tells us that it involves the "characteristics necessary to be a leader."

At one time a "leader" was differentiated from a "follower." Unfortunately, that no longer seems to be the case in California politics (and maybe politics across the U.S.).

It appears that somewhere between the middle of the 20th Century and the first decade of the 21st Century, we have developed a new approach to selecting those who hold elected office in our governmental systems. The term "leadership" is passé, or as the younger generation says, so yesterday.

Today we are offered "celebrityship," from celebrity + -ship which would involves the "characteristics necessary to be a celebrity." Wikipedia tells us that a celebrity "is a person who has a prominent profile and commands a great degree of public fascination and influence in day-to-day media." We also are told:
While people may gain celebrity status as a result of a successful career in a particular field (primarily in the areas pertaining towards sports and entertainment), in other cases, people become celebrities due to media attention for their extravagant lifestyle or wealth (as in the case of a socialite such as Kim Kardashian); for their connection to a famous person (as in the case of a relative of a famous person, such as Chaz Bono); or even for their misdeeds (as in the case of a well-known criminal such as Ronnie Biggs).
California has established that the best qualification for Governor is celebrity status. For instance, Arnold Schwarzenegger was a successful actor who had almost no experience in government at any level. When he first ran for Governor, Jerry Brown had little experience in government but was the son of a Governor.

Let me digress a minute to discuss "celebrityship" in 21st Century politics.

It is fairly clear that if you are competent as an elected officeholder, but lack the style and background to bring you to celebrity status, you won't get much press coverage.

When you're a celebrity the press will cover you because you're a celebrity. Thus, Donald Trump who has become a well-known celebrity because of his family wealth and television success has considered running for President and offers significant political celebrityship despite a background clearly described in Wikipedia (with footnotes) that might otherwise preclude him from being considered for elected public office:
Donald Trump is the son of Fred Trump, a wealthy New York City real-estate developer. He worked for his father's firm, Elizabeth Trump & Son, while attending the Wharton School of the University of Pennsylvania, and in 1968 officially joined the company. He was given control of the company in 1971 and renamed it The Trump Organization....

By 1989, the effects of the recession left Trump unable to meet loan payments. Trump financed the construction of his third casino, the $1 billion Taj Mahal, primarily with high-interest junk bonds. Although he shored up his businesses with additional loans and postponed interest payments, by 1991 increasing debt brought Trump to business bankruptcy and the brink of personal bankruptcy. Banks and bond holders had lost hundreds of millions of dollars, but opted to restructure his debt to avoid the risk of losing more money in court....

On November 2, 1992, the Trump Plaza Hotel was forced to file a prepackaged Chapter 11 bankruptcy protection plan after being unable to make its debt payments....

In January 2002, the Securities and Exchange Commission brought a financial-reporting case against Trump Hotels & Casino Resorts Inc., alleging that it had committed several "misleading statements in the company's third-quarter 1999 earnings release." The matter was settled with the defendant neither admitting nor denying the charge.

...On October 21, 2004, Trump Hotels & Casino Resorts announced a restructuring of its debt. The plan called for Trump's individual ownership to be reduced from 56 percent to 27 percent, with bondholders receiving stock in exchange for surrendering part of the debt. Since then, Trump Hotels has been forced to seek voluntary bankruptcy protection to stay afloat.

...On February 17, 2009 Trump Entertainment Resorts filed for Chapter 11 bankruptcy; Trump stating on February 13 that he would resign from the board. Trump Entertainment Resorts has three properties in Atlantic City. Trump's unsuccessful libel lawsuit against author Timothy L. O'Brien, for O'Brien's estimating his net worth at less than $250 million, was dismissed in 2009. In the lawsuit it was revealed that in 2005, Deutsche Bank valued Trump's net worth at $788 million, to which Trump objected.
People like Trump, a lot of people. They like to follow his activities. He offers celebrityship.

So does Governor Jerry "Moonbeam" Brown 2.0 who, as noted in these posts, gets "good press" and his "spin" on any subject receives coverage no matter how big an untruth it is.

And so yesterday, the Democratic majority in the California Legislature essentially adopted a budget for the fiscal year 2012-13, more or less the same Moonbeam 2.0 balanced budget proposal offered in May. The Democratic Legislative leaders called the adopted version a balanced budget.

Here's how you "balance" a State General Fund budget in California.

In the late fall of 2011, Moonbeam decided he was going to get the voters to approve a tax increase by putting an initiative on the ballot in November 2012. So he estimated how much of a shortfall the budget would have and came up with a plan which, at the time, he determined would "balance" the budget. Later, because he's a celebrity who needs his fans, he compromised with the California Teachers Association, and together they put forward a plan which will be on the ballot in November.

The Legislative Analyst and the Director of Finance are tasked with determining the financial impact of ballot measures in California. Here is what they say about the Moonbeam 2.0 - CTA measure:
Estimates of the revenue increases vary--for 2012-13, from $4.8 billion to $6.9 billion; for 2013-14 through 2015-16, from $5.5 billion to $6.9 billion on average each year; and for 2016-17, from $3.1 billion to $3.4 billion.
The budget as proposed and adopted includes $8 billion in revenue for the General Fund from the proposed tax measure, a law that may or may not be approved by the voters in November (at this point before the anti-tax forces start any attacks, the polls indicate that support for the measure has already dropped to nearly 50%).

The irony here isn't that this $8 billion in "wished for" revenue is included in the balanced General Fund budget. The irony is that it was obvious by late March that the General Fund deficit for 2012-13 was going to be $16± billion.

So that "wished for" $8 billion wasn't enough to balance the budget.

Regardless of the ballot measure, the budget assumptions include about $2 billion in capital gains taxes from Facebook's  IPO without reevaluation after it became obvious in the third week of May that it wasn't the huge success anticipated.

The budget contains $1.4 billion in property tax revenue from local redevelopment agencies that the Legislature abolished last year. No one knows how much money will actually be available. The Legislative Analyst says that number is too high.

The State Air Resources Board this fall plans to auction off cap-and-trade credits for carbon emissions. No one know how much money will be generated. The funds were to help with the State's renewable energy programs. But the balanced budget estimates that the auction will generate $1 billion and transfers half into the General Fund. No one knows if that is legal.

The General Fund budget includes $400 million from the national mortgage banking lawsuit settlement, monies that were to help troubled homeowners.

There are many other "revenue" gimmicks. The General Fund plan includes raiding transportation money and other special funds (i.e., child abuse prevention money from special license plates).

Then there's the expenditure side of the budget. It of course includes delaying payments on loans. It includes delaying funding for schools and other local agencies. It assumes wage cuts in the form of "furlough days" but the Legislature refused to adopt Legislation establishing those furlough days. It assumes significant reductions in persons needing public assistance and medical care even though California's employment situation since the beginning of The Great California Slump clearly shows little or no recovery (click on the graph to see a larger version):

Another irony is that most of the seats in the Legislature also are up for election in November.

Because the winners of our elections will be determined on their celebrityship skills, there will be no significant changes in the membership of the Legislature.

The final irony is that last year the Governor and Legislature simply threw $4 billion extra into "Revenue Not Otherwise Classified" hoping it would materialize, which it didn't. It was promised that if it didn't materialize, someone would spend $4 billion less, but they didn't.

Of course, we don't really want leadership anyway. Leadership this year came from Molly Munger and the California PTA in the form of a ballot measure providing money for education. They know that to keep the employment picture from permanently looking like the graph above, we need to educate and train our children for a 21st Century economy. But for their ballot measure to pass California's upper middle class (those families with incomes between $80,000 and $500,000) would need to overcome its self-involvement addiction and its fascination with celebrityship, with the Donald Trumps whose success comes at the expense of others.

That won't happen because plans providing for the future come from leadership not celebrityship. The last thing California's upper middle class wants is someone telling them to skip upgrading to the soon-to-be-released Chinese-made iPhone 5 and pay some extra taxes.

Moonbeam knows this which is why his inadequate tax measure might pass. Whatever good it might do it will do using the money of "the others," the so-called 1% and the working poor.

Californian's prefer the substance one can find in a moonbeam.

Monday, June 11, 2012

The Bare Bones Era - 2012: Once upon a time...

This coming Friday is the Constitutional deadline for the California Legislature to adopt a balanced budget. Democratic legislative leaders, Democratic Governor Jerry Brown, and their minions are making the final edits on the new fairy tale they'll call a balanced budget.

 Their creation would rival  Hans Christian Andersen's "The Emperor's New Clothes" which is simply the story of a vain Emperor who hires two tailors who promise him the finest suit of clothes from a fabric invisible to anyone unworthy of his position or otherwise hopelessly stupid. When the Emperor "dresses" in the new suit and parades before his subject, a child too young to understand the need to keep up pretenses blurts out the Emperor has no clothes.

Outside the State Capitol Building some people have been blurting out the fact that California's budgets have been unbalanced for years. But the rest of the folks, including those inside the Capitol Building as well as most California voters, keep up the pretense.

The latest to point out the naked obviousness of the California State Budget is the folks at the venerable Standard & Poor's (S&P) rating service. In a 12-page report released today Californian's can learn, but don't want to know, that:
...In our view, whether the state has had a genuinely balanced budget at any point in the past decade or more is debatable. But despite California's recurring budget problems being the subject of considerable news and analytic coverage, we believe their origins are not well understood.

A complex maze of constitutional and statutory provisions governing California's budget process seems to contribute to misconceptions about the state's finances, in our view. Some observers blame the state's fiscal morass on over-spending, large pension and retirement liabilities, or an excessive tax burden, which theoretically could weaken its economic climate. Whether the state's handling of these areas is appropriate public policy is different from the question of whether the state's approach in these areas contributed to its current fiscal position. ...In our view, retirement liabilities have contributed little if anything to California's current budget problems. Spending and taxes relative to the state's economy also do not appear to be causing the recent fiscal imbalance when viewed over the past several decades. Instead, we find that revenue generated by the state's tax system has been growing at a slower rate in recent decades while becoming more volatile. During the same years, the general fund has become the source of payment for an increasing share of the state's educational system as a result of a variety of direct and indirect changes in state law. In our view, it is mostly through these expansions of the general fund's scope of funding responsibility, which we consider particularly inflexible, that spending has contributed to fiscal imbalance....
Those words come from an organization that has no ideological agenda. To summarize, they say that the problem we have with our budget has nothing to do with spending or taxing too much, or from public employee pensions. They explain:
...Total tax revenues generated by the state's tax regime are volatile and insufficient for its current level of spending. But we don't see the state's existing spending level as the key source of its budget distress. In fact, the state is currently spending less as a share of its economy than it has at any point in the past 39 years.
Instead, they tell us that the problem is our tax structure:
...We can infer from these data that in 2010, when the PIT accounted for 51.5% of total general fund revenue, the state relied on the top 1% of taxpayers for 11% of general fund revenues. In 1979, the top 1.05% of taxpayers funded just 2.7% of general fund revenue.

The governor's revised budget proposal for fiscal year 2013 would rely on PIT for 63% of total general fund revenue. Applying the recent income distribution rates would imply that the portion of total general fund revenue from the top 1% of income earners would increase in fiscal 2013 to 13% or more. Sales and use tax, as a source of revenue, has moved in the other direction: it would equal 22% of general fund revenues in fiscal year 2013 (assuming the one-fourth cent SUT increase sought by the governor), down from 38% in 1979.
In great detail they provide a historical analysis offering without judgement data that reflects the fact that it was in 1978 California's voters took charge of the State's finances by approving Proposition 13. Their comment quoted earlier that "the general fund has become the source of payment for an increasing share of the state's educational system" which has "has contributed to fiscal imbalance" reflects, of course, the fact that the voters decided to commit general fund revenues to education through several propositions.

In other words, the people who have incurred incredible amounts of credit card debt buying consumer goods, who bought houses that were overpriced and which they couldn't afford, and who elect legislators and governors who cater to their prejudices really have no idea how to manage the finances of the State of California, home to one of the world's largest economies.

Being aware of the fact that the fairytale budget now being written will depend upon the voters approving a tax initiative measure proposed by the Governor and a teachers union, the S&P writers note:
The governor's tax initiative would temporarily increase income tax rates on the state's high-income earners and would raise the statewide SUT by one-fourth of a cent. Most of the projected revenue increase (93%) would come from the higher income taxes. By boosting total tax revenues, the governor's initiative would alleviate to some degree the budget pressure from the slowing revenue growth. On the other hand, by relying on high-income earners that generate a greater share of their overall income from capital gains, the tax initiative would likely exaggerate the volatility of the state's revenue base. To the extent policymakers used any breathing space afforded by the additional temporary revenue to pursue structural tax reforms, we think the tax initiative could ultimately be beneficial to the state's credit quality. If no reforms were undertaken during this period, the underlying deficit would presumably reemerge once the temporary tax rates expire. Under this scenario, we believe any general fund relief derived from the temporary tax increase could wind up being a missed opportunity.
This is, of course, a polite way of saying that the voters and their legislators are about to make things worse because they won't overhaul the tax system to impose a greater share of the burden on the middle class, particularly the upper middle class, using a stable source of tax revenue, say, oh, I don't know,... property taxes maybe?

Instead, the vast majority of California's voters generally want to tax someone other than themselves, such as the now almost mythical wealthy 1% which in California means all those high tech billionaires.
Economic benefits from the high-technology sector also appear to us to come at the cost of strikingly higher revenue volatility, which coincided with the dot-com boom in the late 1990s. That period, followed by bubble conditions in the housing market, led to a surge of capital gains as a share of income in the state. Windfall revenues from surging capital gains income are unpredictable, but as the state has lurched from one budget crisis to the next, lawmakers have typically spent these gains on recurring expenses. Income tax revenue from capital gains as a share of general fund revenues ranged from 3.0% to 14.8% between 2000 and 2010. In his revised budget proposal, the governor reduced the forecast for capital gains income and assumes essentially no growth in the equity markets for the duration of the calendar year. Although the tempered outlook could make the new revenue forecast more accurate, compared with earlier forecasts, it now includes additional revenue assumed from the recent Facebook initial public offering (IPO). The Facebook-related revenue in the forecast boosts state revenues by $1.5 billion to $1.9 billion, contingent on the outcome of the November 2012 tax initiative. But this revenue is also subject to capital market uncertainties. While setting aside any such revenue in a reserve may comport with a theoretical best practice, we believe that the politics of doing so might be impractical if it required spending cuts beyond those already deemed severe by policymakers. On balance, California's software and biotechnology fields attract significant investment, including, for the fourth year in a row, more venture capital investment than all other states combined. Therefore, we believe the high-technology sector benefits the state's long-term credit quality, but the greater reliance on high-income earners that it brings exposes the general fund to the vagaries of the capital markets.
In other words, funding government using taxes depending upon year-to-year swings in profits made in capital markets is foolish. And what they observe is:
Apart from a resurgent economic-driven change, we believe that the only realistic near-term potential for increased tax revenues under consideration is the governor's tax initiative, which would exaggerate the state's revenue reliance on a portion of the taxpayer base we already consider concentrated.
This is, after all, California where we have Governor Moonbeam and the Democratic Legislature about to publish a fairytale and have the voters help them keep up the pretense of a balanced budget.

In the meantime, the ideological opposition is telling voters solve the budget problems by reducing pensions. The S&P writers note:
The state's pension liabilities, while large, contribute little if anything to its current budget predicament.
We are, after all, the home of the Magic Kingdom and vote as if we live in Fantasyland. And so our story for 2012 begins: "Once upon a time...."