We at ILSR are Building Local Power.
Subscribe to the podcast feed: iTunes, Stitcher, or RSS/XML. New episodes are published bi-weekly on Thursdays. Sign up for new podcast notifications and monthly email updates from the Institute for Local Self-Reliance.
Find the transcripts to every single one of our Building Local Power podcasts, you can also click on the navigation below to find the transcript for a specific episode.
- The Dark Store Tax Dodge of Big-Box Retailers
- The True Value of Recycling and the Waste Stream
- Energy Democracy: Customer Control over Renewable Energy
- Powering a Political Revolution, North Dakota’s Non-Partisan League
- Broadband Boosted at the Ballot, An Election Wrap-Up
- Amazon’s Growing Stranglehold
- Composting Cultivates Economic Development
- The Year in Building Local Power
- The Perils of Privatization
- Preemption, Local Authority, & Municipal Broadband
- Bolstering Waste Recovery Through Model Legislation
- The Power and Perils of Cooperatives
- America’s Major Market Power Problem
- Breaking Through Partisanship: Left-Right-Local
- Thank To Your Local Economy, Renewables Aren’t Going Anywhere
- Small Banks, Big Benefits
- How America’s Cities Are Fighting Preemption
- Policies That Make Markets Work, Hello Antitrust
- Creating Community Wealth Through Compost
- Tech Startup Allows Communities to Support Local Businesses
- The Monopolist’s Playbook: Strategies to Retain Overwhelming Economic Power
- Why Local Self-Reliance?
- How Big Businesses Get Big Subsidies
- Local Solar Power: Red Plus Blue Makes a Green Tea Party
- Fishing for Local Power
- Connecting Rural America: Internet Access for All
- What Neighborhood Retail Gets Right
- With Whole Foods Deal, Amazon’s Empire Grows
- Electric Vehicles Use Local Power to Cut Pollution and Driving Costs
- Beating the Monopolies: Barry Lynn Explains How We Will Win
- San Francisco Breaks the Chain Stores, Strengthens Neighborhood Economies
- This Ag Economist Preached Bigger is Better. Now He Says the Evidence Favors Small Farms.
- Supporting Family Farming in the Age of Monopoly with Joe Maxwell
- Internet Connectivity in Indigenous Communities
- Building a Zero Waste World, One Community at a Time
- The Rising Anti-Monopoly Movement
- Want Your City to Prosper? Then Forget Everything You Think You Know about Economic Growth
- Environmental Justice & Local Activism, A Conversation with NAACP Leader Jacqui Patterson
- Colorado State Senator Steve Fenberg on Local Power Versus Corporate Power
- Brendan Greeley on Why We Need a Pro-Competition Political Party
- Paying Taxes Is More Popular Than You Think
Paying Taxes is More Popular Than You Think (Episode 41)
Full blog for this episode available here: https://ilsr.org/popular-taxes-blp-episode-41/.
|Christopher Mitchell:||Hello this is Chris Mitchell with the institute for local self reliance, hosting once again the building local power podcast. Welcome back to another episode, today I am speaking with Vanessa Williamson, a fellow in government studies at the Brookings institution. Welcome to the show.|
|Vanessa Williamson:||Glad to be here.|
|Christopher Mitchell:||We’re going to talk about taxes, today and one of the reasons is because you wrote this book that I think is an eye opener and is highly recommended for people to open. It’s called “Read my Lips why Americans are Proud to Pay Taxes”. Can you just say, maybe a word about why you wrote an entire book about this subject.|
|Vanessa Williamson:||I realized in my previous being on the tea party that there was a lot of work looking at what people on the far right think about taxes or least the extremes of the political spectrum a little bit, maybe. We didn’t actually know very much about what most people think about taxes and I also noticed in trying to look into the question, that we tend to ask American’s the same questions over and over and over again, about taxes that rich people pay. We very rarely ask about taxes most people pay, so I thought there was really room for a much broader and also in a sense a deeper study of what Americans think. Not assuming that they have particular policy knowledge, but actually sort of delving into their experience of tax paying and how that shapes their knowledge.|
|Christopher Mitchell:||What we are going to be talking about, a lot of the opinions, you didn’t just do studies you really did a lot of in depth research over many years to try and just briefly why should people think that you have a good handle on what Americans think about taxes.|
|Vanessa Williamson:||I spent about six years studying the subject, looking at what Americans think about taxes in surveys, in interviews, at the voting booth when they get to vote on state and local tax measures, in public statements and letters to the editor, in basically any handle I could get on an opportunity where individual Americans got to share their views on taxation.|
|Christopher Mitchell:||You convinced me and just to know this is methodology that I’ve seen in other books as well, that really tracked well with getting at a true understanding, not just someone thinking on a survey I’m just going to click a button or something like that. I was wanting to get a couple of quick facts, I think many of us remember that 47% figure from the 2012 elections, suggesting that 47% of Americans just don’t pay taxes. Who pays taxes in the United States of America?|
|Vanessa Williamson:||The 47% statistic is accurate as far as it goes in the sense that 40% of income tax filing households do not have a net federal income tax liability. Right, that’s a lot smaller though then 47% of Americans, in fact because we pay many, many kinds of taxes including income taxes, payroll taxes, sale taxes, gas taxes, property taxes, and many more. Almost every not just American almost every resident of the United States almost every person who goes into a coffee shop and buys a cup of coffee pays taxes, so we’re all taxpayers by any reasonable standard. There is a lot of attention on the Federal income tax and so sometimes people think that if you don’t pay much or you don’t pay anything in Federal income tax you don’t pay taxes at all and that’s just not true.|
|Christopher Mitchell:||One of the things that I found particularly interesting with some of your interviews was the language associated with paying taxes and I wrote a few of them down. People viewed it as an important civic duty, a duty just like voting, an obligation linked to political voice, did any of the interviews really strike you that you still think about in terms of how they viewed paying taxes.|
|Vanessa Williamson:||Yeah, this was something that I wasn’t expecting honestly although the survey data would actually support it but I thought those were weakly held opinions. Again and again when I asked people you know is it your responsibility to pay taxes or is it okay to hold back a little bit here and there especially because the governments so wasteful or something like that. People said no, people really do see in America tax paying is an important civic amendment, because they see it as a symbol of being an upstanding citizen, of being the kind of person who contributes to your community, and you know I was struck by it over and over again all over the political spectrum. I remember speaking to a former Marine who’s actually a very politically progressive person, and I asked what he thought of when he heard the word taxes, and he said oh well it’s the cost of being an American and you know for someone who’s quite obviously made a much larger commitment frankly to America, it really struck me.
I remember I talked to mailman who’s a very conservative guy in Ohio and I asked him so how do you feel when you’re paying your federal income taxes, a very standard question that I would ask and I was expecting you know, an opportunity, this is an opportunity to rail against government but instead he talked about it as part of his duty, as part of his responsibility. He was upholding a responsibility that was his job. I was really surprised by how overwhelming the American commitment is to the idea of tax paying.
|Christopher Mitchell:||That tracks with my experience and I have a somewhat unique experience because I have a business that has income that is not withheld, so I have my job with the institute for local self reliance and then I also run a business doing sport photography for a number of clients. I had a really good year one year and the accountant says Chris I’m sorry but you had a really good year this previous year and I had to write a check that was very large to the Federal government in April and for me I sort of knew it was coming, I didn’t know it would be that large and one of the things that you say in the introduction really struck with me, which is the value of what I’m getting.
I love this country I’ve traveled around the world a fair amount and you talk about how it’s hard to place a value on what people are getting for their taxes, what the value of winning World War II was in terms of relation to Veterans benefits and things like that. I just think that really struck with me because it is painful, I would have rather spent that money on something else probably a brand new lens for my camera, but it was something that really I can’t describe the amount of value I get. I would pay more if I had to stay here, if they said we’re going to double your tax bill or you’re going to leave the country, I would not be happy right, but I would pay twice as much to stay here. That’s just some thoughts that I have about that sort of similar sentiment.
|Vanessa Williamson:||You what struck me is how many Americans hold views that are along those lines, but they think they are alone they think they are the only one in the world holds that sentiment and it’s not always quite as that is a very generous sentiment that you’re expressing. Right? The idea that it’s your job to give something back and you are grateful for things that this country has given you. Americans really believe that and they believe it both widely in a sense that 95% of Americans will agree with the idea that it’s your civic duty to pay your fair share of taxes.
They also agree with it deeply in the sense that I didn’t seek out people’s civic responsibilities when I started this, I actually didn’t, I was cynical about that, I thought that was not a widely held view but people bring it up when you talk to them. One way that you can see it is actually in the amount of anger people express about tax paying, because what they express anger about is not typically the amount they themselves pay, but the idea that someone else isn’t paying their share. That is just the flip side, right, if you think you’re doing your responsible act, right, the idea that someone else is skipping out is really upsetting.
|Christopher Mitchell:||Right and that brings us to in some ways why this is so relevant for the audience that is listening to this as we traditionally conceive of them. We talk a lot about monopolies, and I think we have a sense that monopolies for instance are not paying their fair share. AT&T, Verizon often seem like they go years where they don’t pay any income taxes, I’m trying to be more specific about it because I’m sure they pay some taxes. I hope they pay some taxes but it’s important to think about these feelings because when we’re proposing as we often do on this show government programs to be able to rectify some of the failings of the marketplace or the failings of previous government policies. We need to power the government with something, one of the things that I have heard in terms of relation a solution to monopoly would be government having more independent research that’s not industry funded.
That would cost a lot of money, which would probably come from taxes so ergo taxes are an important piece of the conversation. We believe in economic opportunities for everyone and recognize that some households whether due to historic marginalization, bad luck, or even some bad choices need some form of help. All these reasons are why we need to pay attention to the revenue coming in, one of the things that I’ve heard from people that I respect in response to some of this is well, if people believe so strongly in paying taxes why do we see such a resistance to it and in fact it seems like if you want to attack Democrats you attack them for the way they spend taxpayer dollars and the fact that they are willing to raise it. Republicans have run decades on being a part of that, so that will only ever lower taxes and in fact the one President that was Republican in my lifetime who is somewhat responsible on the deficit. George H.W. Bush is considered a joke and terrible Republican because he dared to raise taxes. So how do we square that circle?
|Vanessa Williamson:||So I think that a common mistake in sort of the way that we talk about politics, is to imagine that our political outcomes represent the views of most people and we know that, that’s not true, when we stopped to examine it. It’s not true on taxes and most Americans are not particularly upset about the amount of taxes that they pay, in fact if you ask people what bothers them about taxes you would get somewhere, I don’t know eight or ten percent of Americans say the amount they pay. 2/3 of Americans say that they’re angry the wealthy or corporations are not paying their share, right, and what did we get, we get a tax bill that cuts taxes at the top and nothing give a break to anyone else anywhere.
So why do we see that? We see that because our government doesn’t do a very good job of representing majority views. Partly it was designed not to do a good job or representing majority views, right, but it’s no less the case that Americans want sensible gun control, simply because we don’t get it, right, it’s not people have strongly held views about for instance raising the minimum wage, that’s not why we don’t get it. The problem in our politics is not best explained by an individual level failure on the part of voters, it is best explained by a series of systematic failures in how we aggregate votes and how we channel the voices of not very powerful individuals into very powerful institutions.
|Christopher Mitchell:||Does it also have an effect that most people seem to think that the wealthy actually pay far less in taxes than they do. We can talk about fair share and where that’s set, but I wonder sometimes when someone like me goes around saying there’s all these loopholes, I feel like actually people that are listening sometimes they overestimate the number of loopholes and the amount that the wealthy pay.|
|Vanessa Williamson:||A majority of Americans in fact a strong majority of Americans support progressive taxation, right, they think that wealthy people should pay more than lower income people and they think they should pay more as a percentage not just as a dollar amount, right. Among people who support a flat tax, a fair amount of that support comes from people who think a flat tax would raise taxes on the rich. Now why? Previous survey work hadn’t been able to figure this out, I looked at it in interviews and it looks pretty convincing to me that one reason for that is because people know that taxes are not only progressive at the Federal income taxes, the progressive tax and that the rate needs to go up, but they think it’s under mind by loopholes, exactly as you say. They think well, if we had a flat tax within the loop holes maybe we’d actually get those rich people who have managed to lower their tax responsibilities to zero in their minds, right.
As a whole the sort of upper income people if your talking about the top 20% of people actually do pay quite a lot in taxes, as a whole our taxes is more progressive than many tax systems in Europe because we rely heavily on an income tax. That’s true right up till you get to the very, very, very, very rich right, so you have 60 million dollars more a year, well okay there is actually being, becomes hard to even measure what someone’s income is right. For the majority of people the tax system is progressive if you make more money, you pay more money and you pay more money as a percentage. I think it is a problem that especially on the left we talk a lot about loopholes and oh loopholes are bad of course loopholes are bad but they don’t actually undermine the progressive tax code, and I think that sometimes we’re actually doing ourselves a damage in terms of talking about who pays what, when we focus so strongly on loopholes.
|Christopher Mitchell:||Your office is here in Northwest Washington D.C. a section of D.C. associated with fairly progressive Liberal ideas and that sort of thing. I’m sure being in Washington D.C. you know a lot of more Liberal type folks. Do these findings about people’s willingness to pay for government and in fact the number one complaint basically being that other people aren’t paying their fair share? Do you feel like you’re a crazy person among a bunch of people where I mean on the left I think there’s a broad idea that most Americans are individualistic, they hate government, they don’t want to deal with government at all and that sort of thing and I agree with you regarding the need to improve the outcomes of government and I agree with your assessment as to why that often doesn’t happen. It does seem to me like the left is convinced and the right also that Americans don’t want government at all almost.|
|Vanessa Williamson:||So I think that it’s fair to say that Americans are what’s called Philosophical conservatives and operational Liberals right, so if you ask people do they think government should be small, they tend to say yes, yes that’s right. But if you ask them should government invest in more in things like social security, medicare, education, helping the poor, people say yes and they even say they’d pay more for it right, so in sort of broad strokes American’s do like the sort of language of individualism.
Yes that’s absolutely true but if you ask them on any specifics, well actually they like a really strong welfare state right, and I think that there is a tendency especially in the kind of place that I live to blame bad political outcomes on sort of a failure of individual people and sort of denigrate the capacity of average American’s to understand politics, to engage in politics and I think that’s a real, that’s the way that I feel like I’m shouting in the wilderness. When I say actually I went around and interviewed and surveyed Americans as close to a representative group as I could manage and I came away impressed and heartened.
|Christopher Mitchell:||Many people are quite reasonable when you talk to them face to face.|
|Vanessa Williamson:||Exactly and it’s absolutely not reflected in our politics, it is true.|
|Christopher Mitchell:||The thing that surprised me the most in your work and research was the extent to which I feel that people who feel that they don’t pay taxes or they don’t pay enough taxes feel like their political voice should not matter. I think I would argue that their voice does not matter and I’m frustrated with that, I want to find ways to fix it. They weren’t arguing my voice doesn’t matter because I’m marginalized, they were arguing I don’t pay much in taxes and there for maybe my views should not matter as much. I found that very disappointing in some ways.|
|Vanessa Williamson:||A side effect of the sort of focus Nationally on the Federal income tax, which is a tax that is progressive and low, or a negative for low income people and high for at least most of the upper income spectrum till you get to the very top. The focus on that taxes the thing that qualifies you as a taxpayer leaves many low income people feeling they don’t deserve to be heard right, and I heard this over and over again. In interviews, I’d be talking to a lower income person, and they would say oh I’m not sure that I’m the best person to talk to, I don’t really pay taxes and sometimes this was with someone who would only a few minutes earlier been talking to me about how hard it was to get the money together to cover the sales tax on their groceries.
If you’re talking about taxes in terms of hardship imposed the 2000 dollars we take out of the person making 20,000 dollars is infinitely more hardship than the taxes I pay, which are of course higher in amount and percentage, but not higher in actual cost.
|Christopher Mitchell:||You make this point very well I think, and I was impressed the extent to which it seems almost every American that’s from a household struggling this way can do the math, immediately in their head and the sales tax right, I mean these are people that are calculating out to the penny what the sales tax would be on these various items in their carts. To the extent that I’m just glad that I don’t have to worry about that anymore.|
|Vanessa Williamson:||Yeah, I mean that was especially in the states that I’ve. You know I love taxes, I’m in favor of taxes my book in front of me right now says I heart taxes and it’s true. There’s two kinds of taxes that I don’t like obviously the poll tax and the tax on groceries. You can’t talk to poor Americans at all about what it’s like to go to a grocery store and not think that it’s shameful that we are taking a months worth of grocery money out of the budget of people who are barely making ends meet. You know the amount of sort of pain that’s involved when people have to think to make those calculations in their head, as you say on their way to the counter so they don’t have the embarrassment of having to put things back, that’s just unconscionable to me.|
|Christopher Mitchell:||Connecting to the previous thought then, and yet they still walk away thinking I don’t pay taxes and there for you know I’m not as important perhaps as someone who pays a lot of taxes.|
|Vanessa Williamson:||I think this is a real that we make. Taxes that are very expensive for many people sales taxes, payroll taxes so invisible and make the Federal income tax so controversial, it really I think misleads people about the distribution of tax responsibility in this country.|
|Christopher Mitchell:||For people who want to read the book, this is the kind of pros that gets summing this up. Because tax paying is seen as a emblem of civic worthiness, denying the poor of the status of tax payers has the effect of denying their political standing. Classing a large percentage of the populist as a kind of second class citizenry is genuinely toxic for Democratic norms, it’s really worth noting as for people who are listening to this show, who are in many cases are involved their communities of how to build movements and things like that. I just feel like it’s really important to address those sorts of issues because we often wonder how these people aren’t more politically active, given the role that government programs play in their lives, the way that these programs are under threat, I think this is part of the explanation.|
|Vanessa Williamson:||I mean I’d like to think so, I certainly wanted the purpose of the book to be to draw attention to the tax paying experience of most Americans which, is not all about April 15th every year. Although actually can be a real boom to low income families. I think that rightly or wrongly American’s see tax paying as this important responsibility that’s tied up with being a citizen. In fact that’s something that’s lasted throughout our history, a piece of work that I have not yet done but is sort of a follow on to the book is looking at how taxpayers have been represented throughout American history. Going back obviously to the founding and taxation and representation, if you look at the women’s movement if you look at the civil rights movement, if you look at immigrants rights movement’s today people who have been refused the status of citizen or full citizen often describe themselves as a taxpayer and use that status as sort of a way of advocating for more complete representation. I think it’s a really important part of our history.|
|Christopher Mitchell:||Absolutely and I’m reminded of a discussion I had with a women on the city counsel of San Antonio where they work without pay and you often hear from constituents, you know I pay your salary and she’s have to remind people actually you don’t, I volunteer in this capacity but nonetheless you are my constituent I take your views seriously, that sort of thing. But you hear that constantly from people who are frustrated with their elected officials, of I pay the bills around here and to some extent they’re certainly right.|
|Vanessa Williamson:||I think that it is good for American’s to think about taxes as the part of their labor that they contribute to the public good. I think that is a powerful way thinking, but you have to remember everyone else is chipping in too. You pay a very marginal amount of any civil servants taxes right, and it doesn’t actually matter how much you’re paying because you’re a citizen and a resident and you deserve to be heard. I think that there is something powerful in the American psyche about the idea that this is the part of my work that I gave to all of us.|
|Christopher Mitchell:||One of the powerful ideas that seems not to go away and is very important is correlated with race and one of the findings that you had, which I did not find surprising unfortunately is that there is a correlation between people who are anti African American who presumably were willing to tell surveys or otherwise be open with those views and being anti tax. In some ways that actually seems like it fits because it also seems like anti American at least in the America that I want to live in.|
|Vanessa Williamson:||This is a long trend in American history, I told the positive stories a second ago about the women’s movement, the civil rights movement right, but the counter movements to all of those movements also talked about taxes. You see anti immigrant activist talk all the time about oh they’re here they’re not paying taxes, which is not true and is in fact. You know my book has a lot of counter intuitive findings but the one that I have consistently had a hard time convincing people who don’t agree with me on, is that undocumented people pay taxes, and that’s just a fact. That’s not a complicated fact there are dollars in the treasury that are the result of undocumented people paying taxes, a lot of those dollars right, this is not nearly as controversial or complicated as anything else I work on, it is so hard to convince people of that.|
|Christopher Mitchell:||For my job applications I never saw an opportunity in the I-9 or whatever the form was to check off the I-4 I forget what it is. You know I am an undocumented immigrant therefore I don’t do any withholding.|
|Vanessa Williamson:||I mean the withholding the particularly payroll taxes, social security benefits, which undocumented people do not qualify, but they chip in, they’re actually helping keep social security a float right now. Sales taxes obviously apply to anyone who’s in the country at the time and in store, these are not taxes that are avoidable and this is a real situation I think that in, which it’s sad to discovery as a researcher and a political scientist. I can come with my pie chart, but it doesn’t actually defeat racism and that is the most disappointing aspect of the work that I did, there was so much positivity and some much to be hopeful about but the strength of anti immigrant sentiment and the racism that embedded in that is maybe the great challenge that we face.|
|Christopher Mitchell:||In your research and in surveying other research in this matter have you seen anything that helps to deal with that? In the specific tax space I don’t want to get into fields that you’re not as much of an expert in.|
|Vanessa Williamson:||I think that on the subject of changing attitudes on taxation, one thing that has at least shown some effect is giving people more information about the taxes they pay. There’s been experiments done for instance in providing people, you may have even received one of these, with a statement that told you how much you paid into social security and how much you could expect to benefit later. They were these green statements that were handed out for a couple of years, the program was unfortunately ended. But they randomized it so you could actually measure whether people who’d received these statements knew more and felt better about things or worse for that matter. What they found was that if you had gotten these statements you were better informed about social security and you felt more positively about the program so there are ways in which government can be respectful to the people who have tipped in all this cash and tell them more about where that money is going, and that may help.
There’s a really long and dark history in this country regarding our capacity to see each other as fellow citizens and an example of that if you go back even to the end of the reconstruction the redemption governments that came into place, the white supremacist governments that came into place at the end of this sort of period of progressive increases in equality across the south. Those governments describe themselves as rule of the taxpayer right, and what they meant by that was rule by white plantation owners and so I’m not sure that the language of tax paying is the answer but I’m sure it’s the field on which our fights about who counts as a citizen are going to be flawed.
|Christopher Mitchell:||One of the hopes that I’ve had in terms of recently technological fixes is video games, in particular participatory budgeting types stuff, where one can try to play around with a budget. Public radio has sometimes hosted these on websites and then help people to get a better sense of where their money’s going. Is there any hope for that or is that something that was just a fad five years ago and has just disappeared?|
|Vanessa Williamson:||I don’t know, I’m a [inaudible 00:24:21] myself, so I tend to be suspicious of all technological solutions, including the ones I eventually can’t do without. I’m perhaps not the person to ask, but I will say that I think that all endeavors that are directed towards better informing the American citizenry are at least worth trying right. Particularly when they come from the perspective of, that the problems that we face as a country come from a shortage of Democracy, a shortage of deliberative deep Democracy as opposed to a problem of people participating too much, and we should just leave it all to the experts. To the extent that we are experimenting with new ways to engage people in the politics genuinely does shape their lives, I think it’s worth trying.|
|Christopher Mitchell:||As we wrap up, I’m curious if you would agree then that for people who for instance the people who might think that the future of solving health care might involve more government and perhaps higher taxes, for people who, I actually think we can solve rural broadband while lowering the tax burden effectively because we have misspent so much money in terms of the subsidies to the big companies in phasing it out. None the less for people who might think that we have to spend more, whether in the Federal or the local level, your impression is that people would be receptive to that if they had a faith that the money was going to be well spent, is my impression at least. That people don’t feel like they couldn’t possibly live if their taxes went up.|
|Vanessa Williamson:||One piece of evidence that suggests that’s the case is if you look at state ballot measures right, so these are measures at the state level if you’re from California like I am you are very familiar with ballot measures, other states also use them. I looked at every state ballot measure that was intended to raise taxes and 40 years ago if you put a measure on the ballot to raise taxes you had about a one in five chance of that measure passing. These are pretty bad odds right, now in the last 15 years if you put a measure on a state ballot anywhere in the country that has them you have about one in two chance of that measure passing, which is extremely good by ballot measure standards right.
This has been a really steady increase over 40 years, so I think what we’re seeing is that if you actually ask voters hey, and if you go to the voters and say hey, I want to protect our nurses and teachers it’s going to cost an extra .25 cents when you buy things at the store or I want to protect nurses and teachers it’s going to involve an increase in our top income tax rate, people sometimes say yes to that. In fact far more often than you might imagine, so I think again instead of evidence that if we’re looking at why our politics don’t reflect most Americans views on taxation the problem is in the systems not in the people.
|Christopher Mitchell:||I think that’s right and I think it’s worth noting there’s hope out there and it’s in some ways an incentive to get it right, because if we fail to enact the programs that we want, to build the society we want to live in is not because it was preordained, because we live in a country that’s anti tax it’s because maybe we didn’t do a good enough job and we need to work hard at making sure that we get the things that we want.|
|Vanessa Williamson:||I think that, that’s right.|
|Christopher Mitchell:||Thank you so much for your time today.|
|Vanessa Williamson:||Thank you.|
|Lisa Gonzalez:||That was Vanessa Williamson joining Christopher Mitchell from the community broadband network initiative here at the Institute for local self reliance, this is episode 41 of the building local power podcast. Please take a moment to help us continue to bring high quality guest like Vanessa to you through this commercial free podcast by donating at ILSR.org/donate. We encourage you to also connect with us on Twitter and Facebook and to subscribe to this podcast and our other podcast local energy rules and the Community Broadband Bits podcast, you can do that on apple podcast, titchy or wherever else you get your podcasts. You can also sign up for our monthly newsletter at ILSR.org. Thanks to disfunction now for the music license through creative commons, the song is funk interlude. I’m Lisa Gonzalez from the Institute for local self reliance, thank you for listening to episode 41 of the building local power podcast.|
Brendan Greeley on Why We Need a Pro-Competition Political Party (Episode 40)
Full blog for this episode available here: https://ilsr.org/competition-party-blp-episode-40/.
|Christopher Mitchell:||Welcome everyone to another episode of the Building Local Power podcast from the Institute for Local Self-Reliance. I’m Chris Mitchell, once again having commandeered the hosting position for this show. We have Stacy Mitchell, one of our regular hosts, back on.
|Stacy Mitchell:||Hi, Chris.|
|Christopher Mitchell:||Stacy directs the Institute for Local Self-Reliance, and I run a program on internet-type broadband access improvement-type stuff.
Today, we’re talking with Brendan Greeley. Welcome to the show Brendan.
|Brendan Greeley:||Thanks, guys.
I would say thanks to Chris who I like to think of as an internet friends because we tweet at each other, but I remember that we met each other a very long time ago before we were internet friends.
|Christopher Mitchell:||Right, and that’s something that I hope to get to at the end, which was one of my favorite stories, which I still google on a regular basis from when you were a staffer at Business Week, which was a story entitled Pssst … Wanna Buy a Law?, and it pulls it up every time from 2011.
But you, more recently, you do an economic research note called All We Know So Far, which I really enjoy. I have to note your Twitter feed’s a little behind because I wanted to share the most recent one, but I’ve not been able to yet.
|Brendan Greeley:||Oh, you know what? Actually, I borrowed some of that data from other economic research notes, and I felt okay putting it in the note, but I didn’t feel okay putting it online. I didn’t want to tempt fair use. I felt that I was within the bounds of fair use, but sometimes you shouldn’t poke the fair use bear.|
|Christopher Mitchell:||Well, it was very good, and it was about where the money from the tax cuts are going, and how that’s okay, but it was very well done. I encourage people to check it out because it describes itself as an economic research note for people. And as a people who has taken macroeconomics but struggled through it, I can say that this is for people, and it’s helpful.|
|Brendan Greeley:||Thank you. The great irony is that I too struggled through macroeconomics. No, actually, got a good grade in macroeconomics. I struggled through micro, but I haven’t actually taken any macro or micro anything since. I do not have a degree in economics. I have a degree in German literature.
I do think, and this is to our broader conversation today, one of my frustrations when I became a correspondent who wrote about economics was that so much of what we remember from school is not really true. If you got a degree in economics or if you took micro and macro in college in the ’80s, or the ’90s, or the early 2000s even, everything you learned then is not really … it’s only a framework that is missing details. Sometimes, I think when we talk about economics more broadly we’re all horrendously misinformed because a lot of stuff has come up, particularly since the recession we’ve learned a lot. Before the recession, there was some experimental research being done that has been borne out by the actual empirical data we have now. So it’s almost as if, when we look at economics, it’s as if we are studying biology as a culture, but we don’t know that it’s possible to sequence the genome. We’re that far behind in economics.
And so, one of the things that I’ve noticed is that economic research for people in finance is very good. It tends to be pretty good because if you get it wrong, you lose even more money. So I’m trying to take that spirit of being completely on top of things for finance and bring it to citizens as well because we tend to be misinformed about economics for a ton of reasons. But I think the debate over economics is much worse than the debate over climate, and the reason it’s much worse is I don’t think most of us even know how polluted the atmosphere is, how little what we’re talking about resembles the cutting edge of the actual social science.
|Christopher Mitchell:||Yeah, I think that resonates with me. I’m very curious to ask Stacy whether she studied economics. Just before we get into the actual meat of the discussion, this is actually a lot of what we’ll be talking about, I think, how the economy works, our understanding of it, how to make it work for more people.
Stacy, before I find out how you did in economics, I just want to say I did really well in micro. I really liked micro. I found that it actually is somewhat useful mostly because it’s a really great idea that seems never to be really particularly practical, but nonetheless, it’s sort of this ideal that I can understand how some people might think things should work even though they don’t because of obvious discrepancies.
But, one of my challenges with macro is that I was on Percocet for most of it because I’d had a major surgery. And three courses in a row and I had to take a Percocet in the middle of the first one, and I would be riding that halfway through the third one. Macro is mostly gone because of this surgery I was recovering from, so it was bad timing, and I blame that.
Stacy, how did you do in economics?
|Stacy Mitchell:||You know I dipped into economics class and a little bit in college, but mostly I sort of decided based on that experience that it wasn’t really going to answer the questions that I have. So I went and moved to history and studied, actually, labor history, which I found to be a good way to understand the economy, particularly how it’s changed and how people can change it through policy.|
|Brendan Greeley:||I think that’s really interesting, and I think that one of the things, and then Chris I promise I’ll let you move onto the thing you actually wanted to talk about, is that you know there’s this idea that economics should inform other social sciences. You know there’s this Freakonomics idea that the things we learn about, human motivation, can be applied elsewhere. What I think that misses is that economics every time it takes in another social science, it gets better. You know people like Daniel Kahneman and Richard Taylor who won their Nobels for behavioral economics, Robert Shiller they took in the lessons from psychology, and it turned out that it helped them understand their actual profession better.
Often, I talk to … I like to call sociological economists or anthropological economists … or, sorry, economic anthropologists because they study the way we use money as groups of people and that turns out that all those traditions about how we use money are every bit as important as the marginal cost benefits that economists would have us calculate. So I think that there’s a lot missing when we just talk about economists. And I think you’re absolutely right, reading back in history longer than the Great Moderation helps us understand a lot of the things that we’re experiencing now as we look back to the late 19th, early 20th centuries.
|Stacy Mitchell:||I’m curious, Brendan. You mentioned that you think since the financial crisis that our understanding of economics has really changed in fundamental ways and maybe behavioral economics you sort of intimated just now maybe is one of those ways. But I was going to ask you; I’m kind of curious what you think some of those big shifts have been?|
|Brendan Greeley:||Yeah, I think the biggest one is something that economists call heterogeneity, and that’s a really fancy way of saying people are different. To make the math easy … Yeah, it’s true. It sounds insane that we didn’t know this already, but economists are sort of just learning this over the last five years or so.
So a lot of … Most economic models rely on a single agent. Sometimes that single agent is also immortal. Right? So, we’re assuming there is one person in the economy making decisions and that person will never die, right? So we’re modeling on somebody who’s god, and that’s not how the real world works. So when you start to build models that have two or three different agents in them, people who are motivated in different ways, you start reflecting the actual economy and the way people respond, in a more accurate way. I’ll give you a specific example of what I’m talking about.
People who have access to credit behave differently than people who don’t have access to credit. So if you have access to credit, you’re not really worried about the present because you can borrow in the present to sort of meet your needs. And so for example, we carry out an austerity policy. The old models didn’t really think about who had access to credit, who could borrow money or not. They assumed that everybody had access to credit because there is credit in the economy and economists have access to credit because they have excellent credit rating scores. Who doesn’t have access to credit?
And so they assumed that in an austere policy gives you confidence about future returns and you base your own decisions right now about future bond market prices in the country that you live in. That’s perfectly rational for an economist. It’s not how any of the rest of us actually think. When you model people, who are wealthy and have access to credit and people who are not wealthy and don’t have access to credit they respond very differently to austerity. It turns out that if you add a little extra money to the economy people who don’t have a ton of money will spend that money immediately. You get very different results.
And so the IMF actually apologized. You know, when the IMF imposed its austerity program on Greece the IMF didn’t want to do as brutal an austerity as Germany did. But the IMF looked at its results and discovered that Greece was not thriving, right? People were not responding as predicted. They did not suddenly feel more confident in future bond prices for their economy and future tax policy [crosstalk 00:09:39]. They felt awful because everything had been drained out of the economy, and nobody was spending any money because nobody had any extra money, and nobody had access to credit. Right?
So, this stuff makes sense intuitively, but the models are very complex, and they make a lot of assumptions. The assumptions, I don’t think they’re maligned, but they do tend to be the same assumptions that economists have for themselves. Right? We model the world. We remake the world in our image. And so that for me is the biggest distinction, which is that if you think about different people responding differently to the same stimulus you get a very different policy prescription, in some cases, massively different. And so this is stuff that we just didn’t think about before the recession. We just didn’t think about it.
I think that economists are recognizing that finance place an important role. Economists used to be disdainful about finance. They thought it was this sort of dirty thing that happened in London and New York and they didn’t have to really about it. They were in Chicago, or Berkeley, or in Massachusetts and you know things were going to be financed however they needed to be. And so long as there was the same amount of capital in the economy how it moved around was not really important for their model. Of course, that turns out not to be true. You can allocate capital in very destabilizing ways. And so the Fed actually had to teach itself finance. You know starting at about 2010, so it could figure out what it had gotten wrong.
So economics is changing. The problem is our popular perception of economics is not changing. And so I don’t think that the recent tax policy was a smart move, the changes that we made. It’s not because it was a mean, it’s because there’s very little, in fact, there’s zero empiric evidence that says it will work, and there’s a ton of empiric evidence that says it won’t work. And so what you have right now in economics is actual experience. You have economists who have used data of things that actually happened, and they are fighting against a much older kind of economics, which makes assumptions about things that will happen. And those two economics are fighting right now. The kind of economics that says, “cut taxes, and they’ll pay for themselves,” that’s not born out with any actual empiric experience of the real world. It’s a thought experiment from a blackboard from 40 years ago. But there’s certain people who want to do it that way and so that why we end up having this fight.
Anyway, the short version of all this is that economists think that they’re physicists, but they’re actually just sociologists watching things and observing them.
|Christopher Mitchell:||Well, and I think one of the things that I think about when I’m about to rage-tweet about something regarding economics, and economists, and the Chicago school or something like that, I send that [inaudible 00:12:24] to pause to remind myself that most economists don’t think like the Wall Street editorial board. Despite the fact that-|
|Brendan Greeley:||None of them do.|
|Christopher Mitchell:||Well, exactly, exactly. And sometimes I get this, I’m like, “Oh, these economists are just so arrogant, and this, and that.” And I have to remind myself, no those are just the ones that have a megaphone, and they have a megaphone for a very specific reason because they are serving the interests of the people that can afford to have lots of megaphones it seems like.|
|Brendan Greeley:||There’s such a small number of people who do this for a living, really small who write for the Wall Street Journal editorial board. I’m coming up with a term for this.
But there’s the academic profession of economics, which is fascinating and varied, and people are having really honest and open discussions about data, this huge movement towards using bigger and better datasets, more computers. They are trying to figure out what they got wrong, and they’re not doing a terrible job of it. Right? If you go to the American Economists Association Conference, I go every year, there are really vibrant, fascinating discussions about how to get this right in the future.
Then we have this parallel discussion of something called “economics,” which is a thought process from about 40 years ago, and that’s the one we legislate by. I don’t know what to call that one, but it’s driven by think-tanks in Washington. It is not driven by academics, and there are a small number of people who have academic degrees, who work in those think-tanks, and they’re the ones … It’s really like five people who write all of these op-eds who actually have PhDs, a very small number of people. And they’re a very small minority within the profession of economics.
|Christopher Mitchell:||We brought this up in a show back, beginning of January, I think, about Paul Krugman had called them the difference between conservatives who are professional economists and professional, conservative economists, the latter being that small group of people.|
|Brendan Greeley:||I think that’s a good distinction. I think Paul Krugman himself has some things to answer for.
Stacy, you asked earlier what are some things that are changing about economics. I think the other thing that is changing is economics for a very long time relied on the mean, they relied on aggregate numbers, and there’s no such thing as an average person. We all do things differently. It turns out that the distribution of the effects of a lot of things that happen in economics are really painful and very targeted. So when you look at things like immigration, yeah, it’s really good for an economy overall, but it can be very expensive for certain, targeted populations. It turns out schools in areas with a lot of immigration end up being strapped for funding. So I think it’s very easy … It has also been easy for left-wing economists to say, “Look, immigration is good.” Of course, it’s good in the aggregate, but ignore the distributional effects.
I think trade is another one. Paul Krugman has always been a strong proponent of trade. We’ve only had the data and the incentive to look at trade having very bad consequences in very specific areas. You know, none of us thinks of ourselves as the average person. We’ll all think of ourselves as a certain person who is doing a certain thing in a certain town, and if that gets taken away because of trade, we don’t really feel any better that the country as a whole is better off.
And so I think that another thing that economists got wrong, that economists, by the way, are fixing but politicians haven’t quite figured out yet is that things that are good for all of us, in general, are often bad for some of us in specific. There’s no politics to address that thing that economists have slowly faded out.
|Christopher Mitchell:||Well, this is something that Stacy has talked about before on the show. And that’s, I think this is relevant, which is that you may take a person who runs a store, a local retail store, and that person … Let’s say that store is driven out of business in part because of Walmart, and that person goes and becomes a manager at Walmart. I think a lot of economists might think, “well, that community is simply the same. Maybe it’s better off for having lower prices for certain items from Walmart.” I’m not going to say anything about the quality of those things or other impacts. Whereas, we look at that, the Institute for Local Self-Reliance, and we say that’s a community that’s in some way’s lost some leadership. It’s lost some prestige. There’s different impacts that have not historically made it into the equation.|
|Brendan Greeley:||Yeah. I think it’s a tyranny of measurements. I think we’ve chosen a few things to measure, and we’re learning that we were measuring the wrong things. Maybe we weren’t measuring the wrong things. Maybe it’s that systems adapt to create what’s being measured, so if what we’re creating is low consumer prices, we did a great job. But, one of the things that we’re recognizing is that even though inflation is down, it’s up a ton in a couple of things that we really care about, healthcare and education. So, even though we’ve done a really good job of managing inflation in the aggregate, our socks are a lot cheaper than they used to be, our TVs are a lot cheaper, so is our furniture, but the stuff that really matters that helps us flourish is not cheaper.
And so to get back to specifically what it was that you got in touch with me about, you had this idea of monopoly, you know, we changed what we were going to measure. In the early ’80s we decided it was no longer necessarily true that monopoly in and of itself created restraint of trade, it prevented new entrance, it drove down labor prices. It has a bunch of bad consequences. We thought, well the only thing we really care about is consumer prices, so if we can prove that consumer prices are going down then monopoly is okay. And so we measured that, and it kind of works, and it turns out to have had all sorts of other consequences. That’s a discussion that I only just now see moving into, I wouldn’t even call it the mainstream, but it is moving into policy circles and out of economic circles.
The word, monopsony, a single buyer of labor was something that you only heard in academic papers starting about two years ago. They started to think, “Well, what’s going wrong? What’s going on? It might be monopsony. You think?” And now, it’s starting to show up in think tank papers, which is a real improvement.
|Christopher Mitchell:||Yeah, one of my colleagues actually corrected a paper in which I had written, or some blog post or something, because she thought that that was not a term. She had never come across it before.|
|Stacy Mitchell:||Brendan, I love this phrase that the tyranny of measurement that you used. I’m really struck, as a lot of people are now, by how different the economy feels for many Americans than what is reported in the numbers. I mean, I think many Americans feel very precarious in their economic situation like they’re working a lot, struggling to their heads above water, and yet we’re in … You know we’ve had … We’re in an upswing in terms of being in a real sweet spot in the economic cycle, and you know stock market has been soaring and so on and so forth.
You know, when you look out there I’m curious what you see in terms of the economy’s structural issues that aren’t working for a lot of Americans? And I guess as part of that question I’m also curious if you think we’re at risk for another kind of economic or financial crisis?
|Brendan Greeley:||I don’t think that we’re at risk of something like what we had in 2000 and 2009. Debt crises are worse than business-cycle collapses. Business-cycle collapse is usually what happens is a bunch of companies that had inflated stock prices lose their value, so people feel less confident about the future. They no longer have those companies as buyers, they no longer have those companies in their stock portfolios, even their 401(k)s, the half of Americans who have 401(k)s, and so they buy less. Right? So there’s an expansion in hope, and there’s a contraction in hope. That’s a normal process.
What we had in 2008 was a collapse in credit, which is something else entirely, and it was centered around people’s houses. And so when you’re borrowed to the hilt on your house, and you lose it, there are all sorts of consequences. A house is not like any other asset. You know, when you hand off those keys you don’t have a place to live. It sounds obvious, but that’s a much bigger deal than declaring a bankruptcy on your credit cards. So I do think that most of the economic indicators that we see say that we are on the backside of this expansion, but not that there’s a recession looming around the corner. But there’s one coming in the next two or three years.
To answer your question about what still feels wrong about this economy, I think if we look back over the last 20 years we have been in a process of replacing wages with credit. We can talk about why wages aren’t growing, but wages are not growing. We’ve seen very little growth in the last 20 years. Median income in the US has been in the mid-50’s. I think it’s $57,000 now, this year, for a household, for decades now. And you know, we’re animals. We’re apes with thumbs. We’re not rational. When we see other people around us getting richer, and we are not we get resentful, and so we took that missing wage growth and replaced it with debt.
So before the crisis, that debt manifested itself in very expensive houses and home equity loans. Since the crisis, we have paid down a lot of our household debt on housing, and we have replaced it with car loans, to some extent credit cards, and definitely student debt. So there’s some evidence that debt is fungible, that you can move it around between accounts, that if you can’t get a home equity loan you might, you might, get a student loan instead. Or, you might get a car loan and use that money that you would have put down on a car to pay for something else. And so what we’re seeing is debt levels approaching where they were, but they consist of different kinds of debt. So the good news is, if that collapses people lose their houses, they lose their cars, and they can’t pay back their student loans, that’s not good, it’s super bad news, but it’s not as bad as news as jingle mail where they don’t have a house anymore. So, that’s to answer to your question about the potential for another crisis.
The problem is we’ve never gotten rid of the fat. We took all that missing wage growth and we replaced it with debt. We’ve never gotten over that. And so, again, rational economists say, “Well, you shouldn’t live beyond your means.” But, you know, we aren’t rational. We’re people, and so we see a certain standard of living. We see a certain growth in our standard of living, and we when we can’t meet that growth that we came to expect, particularly when we’re told the economy’s booming around us even if we aren’t getting wage increases, then we replace those wage increases with credit. And so that’s your answer, I think. The reason things feel precarious is that debt causes physical stress, and we are at a debt level, fairly recently, I think in the last two or three months, we reached a debt level that is the same as the total debt level that we had as households right before the crisis.
|Christopher Mitchell:||Hey, this seems like a good time for a reminder. We support local businesses and hope that you do, too. Think about that when making purchases and whether you’re helping to centralize power or decentralize it.
We also need your support to do research, to provide technical assistance, and record these interviews. Please donate to help us at ILSR.org/donate. That’s I-L-S-R dot org slash donate.
Now, let’s get back to that interview.
|Stacy Mitchell:||How much do you think this increase in debt, that you’ve been describing, in recent decades was driven by changes in the financial industry? I mean to the extent … Is there a connection between the fact that the financial industry is less composed of local and regional community banks that are really tied in their own well being to the well being of their borrowers versus larger financial institutions that may have more incentive to be loose with debt and push debt? Or does that have nothing to do with it?|
|Brendan Greeley:||So, I’ve looked into the difference between small banks and large banks a little bit. It doesn’t sort out, I think, the way we’d prefer it to.
One of the problems is Dodd-Frank, which I thought was very good legislation. I mean it could have been better if it were simpler, but we just don’t do simple legislation anymore. But one consequence of all that complexity is that compliance costs for small banks rose comparatively. So, if you’re Wells Fargo, you don’t really care about the compliance cost because you’ve got a lot of people already doing that sort of thing and you can apportion it out among your branches. If you run a small bank, lower than a $1 million in assets somewhere out in America, you only have five people in your back office. You add two more to meet compliance and that’s a real expense for you.
Perversely, the things that we did to make the system safer have hastened the decline of small banks. That was happening already anyway. Weirdly, there’s a lot of mixed evidence on small banks and loan quality. We find that small banks in rural areas have higher loan quality than small banks in urban areas. I think that the assumption is that might have something to do with that trust ties are bigger in rural areas than they are in urban areas. But I would not lay the increase in debt at the feet of consolidation in the banking industry. I think it is possible to regulate banks in a way that even if we get that natural consolidation that there’s still responsible funding.
I do think that what happened is something that we have no control over, but I wish that we would recognize it for what it is, which is that a ton of money is coming into America from other places. You had, at least in the early 2000s enormous oil wealth coming, looking for a place to safely invest, and that place was America. You had a lot of brand new money from China looking for a place to safely invest. That place was America. So we’re sitting with all of these liabilities, all these loans. People just doing anything to buy a treasury debt from the United States. There’s just always a willing buyer for American debt, and that makes you crazy.
|Christopher Mitchell:||Just very briefly, I think people might not get why the fact that there are people with a lot of money outside the United States that want to bring money into the United States may lead to a person like me taking on more debt. Could you just spell that out for a second? And then we are going to get to some of the politics around this, but I want to make sure we make this connection first.|
|Brendan Greeley:||If I show up with a suitcase full of money that I earned in another country and I want it to be safe I’m going to go to a bank. I’ll deposit it at a bank. The bank has what it considers a liability. It’s got my deposit. So I’m a foreigner. So now the bank’s got to go and create some new assets to match those liabilities. The bank considers a loan that it makes to a consumer an asset. So it get these deposits, that’s a liability because it might have to give the deposits back. What it can do is make loans based on these deposits. Right? So money comes in from abroad as a liability, shows up on the bank’s balance sheet. The bank’s got to create assets.
Here’s the problem. There were not enough good, high-quality assets in America to meet the demand that was created by all the liabilities that showed up on banks’ balance sheets. So then, you had this search for any asset whatsoever of any questionable quality. That’s why we got all these crummy mortgages because banks were desperate to get any kind of asset on the books to match the liabilities that they had.
One of the reasons why all the German regional banks, all the [inaudible 00:28:34] got caught up in this in 2007 was for a technical reason that I won’t get into. They were about to lose their AAA rating, so they had to go out and create a bunch of assets while they still had their AAA rating, had to with European law. So they got caught up in this too for a completely different reason.
If you have a bunch of money coming in, that money wants to make money. Right? You want a return on the money that you’re investing in America, but there just aren’t enough high-quality assets in this economy even though it’s the biggest economy in the world, to create the returns for people coming in from the outside. So that’s a long process. Right?
So when we talk about everything that’s happened over the last 20 years, we saw the sub-prime crisis. Right? So that disappeared. And now, you know that money is going to go into other things. One of the things that we’ve seen in the financial markets is that there’s an increased interest in what we used to call junk bonds. Now we call it high yield debt. Basically, there’s not enough high-quality corporate debt to meet all of this money that’s coming in, to become an asset for this money. So they’re moving up the scale to what we used to call junk bonds, we now call it high-yield because more people are interested in it. This gigantic flood of money coming into America funded a bunch of terrible investments. Just the fact that we had the housing crisis didn’t change the flood of money. It just changed the nature and the makeup of these assets that are being created.
|Christopher Mitchell:||I think that’s a very helpful way to describe some of the pressures. It gets to a different way of thinking about the problem because I think a lot of people think about this problem the same way that led to the establishment of the Tea Party, which the problem was my greedy neighbor, not these larger trends. But I think in some ways, the way that we try to deal with larger trends is by having a political system that has adults in it that are dealing with it.
One of the things that I know I’ve really picked up on your twitter feed and moved you in part from someone that I casually follow to someone that I followed a little bit more closely, so I could respond to you in snarky ways sometimes, was when you made this point that neither political party, the Democrats or the Republicans, and I think we could probably say the Greens and Libertarians also, none of them combine a pro-competition focus with a distrust of big government in maybe overregulation. I’d like you to just talk a little bit about that and how, I think, neither party really has good solution for these issues that we’ve been talking about.
|Brendan Greeley:||I’m obsessed with the idea of competition because, again, it was one of those things that was missing in economists’ models. You know when we make predictions about what’s going to happen in the future for the economy we rely on these models, and those models rely on certain assumptions. We get so used to using the models that we forget that they contain assumptions. One of the assumptions that these models contain because they were all developed originally in the early ’80s is the assumption of perfect competition. No single company can pay its employees less or gouge its suppliers or gouge its customers because no single company has the market power. They’re assuming that you’ve got a good regulatory state that’s going to prevent that from happening.
So, we don’t have that anymore. We changed what we were measuring. We decided we were going to measure consumer prices, and then we kept consumer prices low, and we allowed monopolies to form. Now we have a situation where the models are no longer accurate. The reasons the models are no longer accurate is companies now have market power to do bad things.
What’s fascinating about this, and this is the reason Chris that you and began talking and talk online, is that I started thinking about this problem when I was a tech reporter. I wrote about tech policy, and the reason I moved from tech policy to economics is that I kept on banging up against the exact same problem, which is that tech policy in America is so messed up because we don’t have enough competition. This was insanely difficult to explain to people because I kept on saying, “Prices for all kinds of digital products, prices for fixed internet access, prices for mobile internet access, they’re so much cheaper in Europe.” And people would say, “Well yeah, that’s because they’re socialists. They subsidize them.” And I would say, “No. It’s ’cause they’re capitalists, and they actually create market competition, and market competition drives down your prices, and it also improves your experience.”
One of the things that frustrates me is that internet service providers will do all this analysis and say no, prices really aren’t that different here and elsewhere in the world. One of the things that ignores is that the experience is abysmal. Right? They make it really difficult to compare prices. The support is awful. You know when I tried to change something with T-Mobile, which is one of the more benign of the carriers we have in America, they got a fast-talker on the phone to try and shame me out of the change that I was going to make. This is not things that happen in competitive markets because in competitive markets people are scared of pissing off their customers.
And so, my frustration, you know, I guess seven years ago when you and I first started talking was that I couldn’t do anything about this industry that I was covering because there was much a bigger problem. Which is that the industry that I was in and covering was so crummy because we have a bigger problem in America. Which is we don’t know how to think about competition. Democrats don’t tend to think about that. They think about fairness. Is the economy fair? Does everybody have a fair shake? They just don’t have a framework to think about it. Republicans think, “well if businesses want something then it must be good because businesses want to make profits, and they want to compete.” That’s just not true. That’s the frustrating thing. I, again, I don’t even think it’s malign-intent on the part of the Republicans. Let’s give them the benefit of the doubt. They want commerce to go forward.
I think the thing we’ve lost sight of in America is that we don’t understand that healthy competition creates all the things we love about capitalism. The irony of that is businesses don’t like competition. They hate it. It drives them crazy. They can’t do what they want. And so the most successful businesses will do everything they can to avoid healthy competition, but there’s no framework for that.
I keep talking to my friends who actually are in politics that I want to start a party called the Markets party, or the Competition party. They always say, “You’ll be lonely.” ‘Cause there’s no way to talk about this stuff. That’s what drives me crazy. So the thing that you follow so closely, the market for internet access, is crummy for the same reason that so many things are crummy because we can’t talk about competition in this country.
|Christopher Mitchell:||Competition is miserable for businesses. You stay up late at night. I run a small business, and I’m not even in a particularly super competitive industry, and it’s not even something where if I lost my business my family would miss a meal or anything. But nonetheless, I worry about losing clients, and it’s nerve-wracking, and hard. I just want to note that we have to keep that in mind when we’re talking about a more competitive economy.|
|Stacy Mitchell:||Yeah, I mean I think you see small businesses actually, you know the ones really sweating it to compete, and big companies have kind of rigged the rules in a lot of ways that insulates them from actually having to face that competition.
I think one of the problems in our … and I think Brendan’s … You’re really right about this whole point you’ve made.
I think one of the problems in our politics is that Democrats are nervous about the idea of competition and they’re nervous about business. I think there’s a sort of vaguely held idea that competition is actually the root of the unfairness, and in reality, it’s the centralization of power that’s the root of the unfairness, and that the markets aren’t structured in ways that even the playing field and create opportunity, of course, with an appropriate safety net and regulatory structure and the rest of it. So I think some of it is that Democrats really have an opportunity to rethink how they think about business and the economy, and not just sort of cede a lot of ground to Republicans who’ve really carried a lot of water for big business.
|Brendan Greeley:||What I want is growth Democrats, and I think that you’re absolutely right that they’re missing language to talk about growth. And then there are very old terms that we used to have that we’ve lost. And in order to use them, we have to reintroduce them and explain them to people. Things like monopsony, single buyer. Right? We have single buyers of labor in some towns, and that produces distortion. It’s a very old term. We just haven’t thought about it in a while, and we need to reintroduce it. Restraint of trade is another one. All that trust law that we got in the late 19th century and the early 20th century, it wasn’t about protecting consumers, it was about protecting other market participants who wanted to trade but were restrained from doing so. But nobody talks about that. You certainly don’t get Republicans talking about that.
There’s a very effective defense against that that large businesses have, which is that they have convinced America that regulation is bad. I think the way we talk about regulation in America is that Republicans say regulation is awful, and it curbs growth. And Democrats try to not say the word regulation. When what of course, we need, a regulation is just a law. There are good regulations, and there are bad regulations. What we really should be having is a conversation about what are the good regulations? The ones that encourage competition. The one that discouraged externalities like carbon. What are the good regulations and what are the bad ones? What are the regulations that say if you want to open a hair salon in a town it’s prohibitively costly for you to get licensed? And there is no political language to make that distinction in America.
So let’s take the thing that Chris I know you hold near and dear, which is competition in the telecoms industry. Net neutrality is the smallest concession that you could possibly imagine. Right? Other countries are so far beyond us in terms of requiring that service providers compete. So rather than force them to compete, we’re just asking them for this basic thing where you at least other people to compete over your wires. They say that’s regulation, regulation is bad, ergo we can’t have it. So we don’t have the language to talk about this, and I don’t really know of any Democrats who even know how to have this conversation.
|Stacy Mitchell:||It’s worth noting too, and I think you’re right about we don’t know how to talk about regulation good versus bad, but it’s also true that anti-trust in some way is really a police function. It’s not a regulatory function. It’s about making sure behavior is appropriate and that the market is structured in a way that facilitates competition. You know in the same way that our banking laws for a lot of the 20th century didn’t have to have a lot of incredibly complex regulatory rules, and so forth, and compliance rules because they were more simple and more structural. And said, “Here, banks need stick to their knitting and there’s going to be some geographic restrictions and so on.” And it seems to me that’s there’s a lot to be gained by thinking about the ways in which policy can structure markets as opposed to minutely regulate them.|
|Brendan Greeley:||Yes, I think you are absolutely right about that. I think that we need to think about why do we have markets? Because they give us growth and prosperity. Why do we have politics? Because they protects us from markets. You know Germans have an understanding of this. Right? This idea of ordoliberalism. In Germany, it’s the idea that the government has to create the market so that the market actors can function properly and productively. We don’t have any sense in America of how it is we create good markets.
And the thing you said about simplicity I think is really crucial. This is the reason why Dodd-Frank frustrates me is that I think the aims of it are very good. I’d rather keep it than let go of it. Right? Given the alternative, I’ll take Dodd-Frank. But one way in which Dodd-Frank could have been much better is if it had just been really simple, but we don’t do simple rules in America.
|Stacy Mitchell:||Well, if we wrote simple rules big companies wouldn’t have any room to evade them, and you know.|
|Brendan Greeley:||Oh, yeah. I mean this is a favorite trick that companies do, which is that they lobby for complex regulations. Their lawyers lick their chops, and then they go to the press and say, “Look how many regulations there are. Look how many pages of complex regulation there is. We need to get rid of it.”|
|Christopher Mitchell:||Aside from your economic research note, what do you recommend that a person read or listen to to learn a little bit about this stuff?|
|Brendan Greeley:||So the Chicago Booth School of Business has done a really amazing site called ProCompetition. I think that’s what it’s called. Luigi Zingales-|
|Stacy Mitchell:||I think it’s actually ProMarket, maybe.|
|Brendan Greeley:||ProMarket, thank you, ProMarket. So Luigi Zingales at Chicago, and this is fascinating that it’s the Chicago school that’s doing this, although it’s a business school and not the economics programs. I think what they’re doing is amazing because they are all hard-headed PhD economists who understand that markets need rules to function, and are going through market by market, and saying this is why this market doesn’t work. And so that to me, is an approach that we need, but again I’m going to say the same thing, I’m waiting for a politician to read that, pick it up and say this is my program. This is the thing that we’re missing in America. That I have not seen yet.|
|Christopher Mitchell:||Well, thank you so much, Brendan for coming on. Really enjoyed this conversation.|
|Brendan Greeley:||Thank you, guys. It was great to talk.|
|Christopher Mitchell:||Brendan had to run, but I wanted to just note a couple of things that popped into my head over the course of the interview in terms of recommendations. One was that people should both read and watch The Big Short, the Michael Lewis book and movie. I thought it touched on some of the areas that we just talked about. The other is from the beginning of the interview, a book by David Graeber that was pretty popular recently called The History of Debt. The first few pages of that talk about some of the issues that we talked about right at the very beginning.
Did anything occur to you, before we wrap up?
|Stacy Mitchell:||I’m glad he mentioned the ProMarket site. That’s a really great read, and I’m really glad to see that initiative going, but I’ll just double-down on your suggestion of watching The Big Short. That’s one of my all-time favorite movies in recent years, and it captures so much in such an entertaining and in some ways, moving way.|
|Christopher Mitchell:||Yes. I agree.
Well, thank you, Stacy.
|Stacy Mitchell:||Thanks, Chris. This has been fun.|
|Christopher Mitchell:||Thank you for tuning in to this episode of Building Local Power. You can find links to what we discussed today by going to our website, ILSR.org, that’s I-L-S-R dot org. Look around for the Building Local Power show page. While you’re there, you can sign up for one of our newsletters or all of them, and connect with us on Facebook and Twitter.
Please help us out by rating this podcast, sharing it with your friends, or maybe hire a local pilot to fly one of those airplanes with the message dangling behind it over a beach. I’m sure that’s really great for carbon dioxide emissions.
This show is produced by Lisa Gonzalez and Nick Stumo-Langer. Our theme music is Funk Interlude by Dysfunction_AL.
For the Institute for Local Self-Reliance, I’m Chris Mitchell. I hope you’ll join us again in two weeks for the next episode of Building Local Power. Now get out there and do something. Thanks.
The True Value of Recycling and the Waste Stream (Episode 2)
Full blog for this episode available here: https://ilsr.org/the-true-value-of-recycling-episode-2-of-the-building-local-power-podcast.
|Chris Mitchell:||The recycling movement in the United States not only has created 60,000 companies, a million jobs, and delivers 200 million tons of raw material a year to industry and agriculture, it also produces citizen leaders and national leaders. Welcome back to the second episode of the Building Local Power podcast at the Institute for Local Self-Reliance. I’m Chris Mitchell. I’m the director of our community broadband networks program. Today I’m talking with Neil Seldman, a co-founder of the Institute for Local Self-Reliance and a senior staff member of the Waste to Wealth program. Welcome to the show Neil.
|Neil Seldman:||Thanks Chris. It’s great to be here talking to you.
|Chris Mitchell:||Today we’re going to talk about some of the comments from one of the largest waste disposal companies, but I’d actually like to start be a little bit more broad and ask you just why do we care about the waste stream at all here at ILSR, the Institute for Local Self-Reliance?
|Neil Seldman:||Well there a couple of reasons. One, the waste stream flows through every city. It means resources are flowing through those cities and they’re not being tapped. On top of that cities are paying a great deal of money to have these materials disposed of in facilities, either incinerators or landfills, which continue to pollute and which continue to increase in cost. Since 1995 the cost of recycling has been lower than the cost of garbage disposal, whether it’s landfill or incineration.
|The other reason is that solid waste management is a local area that is under the control of cities exclusively, cites and some counties. As a result of that citizens have an opportunity, the best opportunity in our Republican system, to engage with the local decision makers much more so than at the state and federal level. As a result of that since the early 1970s citizens have been organizing and in effect have gained control over the decision making process on solid waste management and forced cities to adopt recycling and expand [inaudible 00:02:22]. You have now cities in the United States, cities and counties that are over 50%. Many of these cities are aiming for 80 and 90%.
|Chris Mitchell:||Those all sound like really good reasons, but let’s turn to some specific comments about the recycling being uneconomic and the argument from the CEO of Waste Management.
|Neil Seldman:||Well Mr. Steiner offered comments to Waste Dive, which is an electronic newsletter, a trade journal in the waste management field, and he said three things that were very surprising. The first thing he said was that, “Top-down laws are not good for recycling.” This is completely a myth, because laws on recycling have been created at the local level by the grassroots. This has been happening since the 70s and it continues as citizens work with their cities to band Styrofoam, to ban plastic bags, and as well as to increase the levels of recycling.
|Chris Mitchell:||Now, when I hear “top-down” I’m usually thinking about rules that are coming out of Washington DC or someplace far away and not really from a local level, but here this person’s actually critiquing local rules and I think he’s just using the term “top-down” because he thinks it’s going to make people more motivated to oppose those rules.
|Neil Seldman:||Well, I think what you’re saying is true, but I also think that he may be misleading people on purpose. Many people have attacked recycling principally on the right side of our political system as literally a communist plot forcing people, American citizens, to do things that they don’t want to do. This never happened. In fact it’s actually the reverse. These laws have been imposed by citizens to force corporations and cities to do things differently.
|The second thing is that the industry and the big shots in the industry, such as Waste Management Inc. and other national companies, are in a position now where they’re controlling millions and millions of tons of raw material and they cannot make a profit at it. Mr. Steiner has been one of the leaders who have been complaining, I wouldn’t say whining, that they can’t make money off of recycling. When in fact, the way they handle recycling in their business model is the reason why they can’t make money on recycling. Waste management Inc. is a very powerful and wealthy company and their main asset is the landfills they own. Everybody knows in the garbage industry that landfill value today is not nearly what it will be in the future, so if you own a landfill you want that landfill to last as long as possible. By filling it up every day as much as you can put in the landfill is not very helpful.
|In the case of organic food and yard debris, which is maybe 30 to 40% of a typical city or county’s waste stream, Waste Management Inc. wants to put that in their landfill and then later on years later recover methane through tapping the landfill; a very inefficient and very polluting system. On the other hand, if Waste Management Inc. were to set up its landfills to receive yard debris and food waste … By the way are needed for a good recipe for creating a rich compost and topsoil … That landfill will last years if not decades longer by keeping 30 to 40% of the material out of the landfill by processing the material through the facility and retaining the future value of landfill space for the shareholders of the company.
|Chris Mitchell:||Let’s talk for a second about Waste Management. You just mentioned them and also referenced a couple of other companies, but here in the St. Paul I pay a local company to haul my waste away. It’s a small family-owned company. I think waste management is different and operates on an entirely different scale. Are they actually one of the biggest waste haulers in the United States?
|Neil Seldman:||Yes. There are two major national companies, Allied and Waste Management Inc., both of them are conglomerates which have been put together by buyouts over the last 40 or 50 years. Those two companies control about 60% of the solid waste management market; that means recycling, landfilling. Those companies have taken a few steps back from incineration. In the traditional sense they are incinerating garbage in different ways, which I can explain, but for the most part 60% of the market around the country is controlled by those two companies.
|Chris Mitchell:||You’re saying that they actually make most of their money off of the landfill operations, not just moving the waste, but actually where they put it and how they get rid of it.
|Neil Seldman:||Yes. I’m recalling articles from about 10 years ago now where Wall Street analysts estimated that Waste Management Inc. makes about 10 times more money when they put stuff in landfills or incinerators as compared to recycling. Also Wall Street reports have come out again over the last 10 years explaining to shareholders that recycling lowers the value of Waste Management Inc. stock because they’re processing a lot of material and not making as much money as they would if they handled it as garbage.
|Chris Mitchell:||Let me see if I got this right, because I’ve studied a little bit of economics and I find it really fascinating, frankly. Some might say that a company like Waste Management they just can’t make as much money recycling as they can burning it or burying it. Is that just because Waste Management doesn’t have to pay for the externalities, the damage that it causes in terms of air pollution from incineration or groundwater pollution from the landfill leaks or even methane in the atmosphere?
|Neil Seldman:||Yes. Waste Management Inc. and many of the waste companies benefit because they do not pay for these externalities. They lobby a great deal to try to increase the amounts of pollution that they’re allowed [inaudible 00:08:40] of incinerators and landfills. It’s a three-way battle between government regulators, industry lobbyists and grassroots people who want to stop landfilling and incineration. The externalities and garbage are all quite large. Even in economics, the economics of recycling is better than the economics of disposal and pollution coming from recycling is minuscule compared to the pollution that comes from disposal either in landfills or incinerators.
|Chris Mitchell:||I think he also attacked glass very specifically. I’m not an expert in this field, but I would have thought, and it just naively I guess, that paper is probably among the more valuable recycled materials, but that glass would be up there really high too.
|Neil Seldman:||Glass is very valuable. The glass manufacturing industry loves recycled glass because it lowers energy use, lowers pollution and allows their vats to extend their working life by around 20%. On the other hand, the glass industry offers very small amounts of money for glass anywhere from five to 20 to $30 per ton, and yet there are very, very economically useful and lucrative uses of glass as an abrasive in the construction industry. In this article that Mr. Steiner offers he suggests that glass is not economically viable to collect. Well, that’s just not true. Go to any bottle bill state, that’s a state that has a container deposit law, and through that law glass is aggregated and people come and get that material.
|Recently in Houston Waste Management Inc. decided to stop collecting glass. Another company, Strategic Materials, stepped right in and is now collecting glass and doing quite well. I would disagree with you, Chris, in saying that glass or paper is the most valuable.
|Chris Mitchell:||You’re the expert, so please, please go on and correct me.
|Neil Seldman:||Well, it’s not a correction. It’s just another insight as to different types of value. I consider organics the most valuable material in the waste stream because it deals with a problem that is plaguing the United States, and that is the loss of topsoil, in which case organics are invaluable because that’s the only way of replacing that topsoil. If you combine the food waste and the yard debris and soiled paper, as I said, you have 40 to 50% of your waste stream. If you segregate that and deal with it using local markets, because you can’t send compost more than 40 or 50 miles and make money, the demand for compost is year-round and it’s insatiable by farmers and landscape people as well as home gardeners.
|The organics are extremely valuable. They have economic value. Good compost is worth about $75 a ton. In some cases you could process that material into compost teas and vermicomposting feeding it to worms and you could get two or three times the value of straight compost. So I would consider the organics the most valuable because they allow for value added in the local economy. The other very valuable material is electronic scrap, which also allows for tremendous value added and transfer of skills to people that are critical for society.
|Chris Mitchell:||I think that as we’re thinking about building local power, the waste stream it’s important because it’s everywhere. It’s under local control and is something that we can really benefit from when we use it wisely. Throughout this conversation we’ve really focused on items that are in the waste stream, like physical things. After more than 40 years of working in this field though, Neil, you’ve identified additional benefits from the larger recycling movement. What’s happening there?
|Neil Seldman:||Yes. The recycling movement in the United States not only has created 60,000 companies, a million jobs and delivers 200 million tons of raw material a year to industry and agriculture, it also produces citizen leaders and national leaders. The citizens got together on their own. They were appalled at what was happening in landfills and incinerators. In fact, initiating a proposal for incinerators sparked the grassroots anti-incineration movement, which in the mid-70s merged with the burgeoning recycling movement. The determinants here have been active citizens.
|I’ll give two examples only, but I could give you dozens if not scores. Bill Pascrell was a medical doctor in Paterson, New Jersey. They planned an incinerator. He realized how devastating that would be with its air pollution, etc. He became Mayor campaigning against incineration, and now he sits in the House of Representatives representing the Paterson area. The story of Representative Pascrell is indicative of many City Council and County Counsel officials who rose up through the anti-incineration movement.
|My favorite story is of Ms. Penny Wheat who lived in Gainesville, Florida and was a regular citizen until she testified against the incinerator that was planned for that county. She was told to go back to her kitchen, which she probably did, and organized her campaign for County Commissioner. She won that campaign with more votes than any other elected official in the county to that point. She then organized citizens and the local DPW to implement an excellent solid waste management system, which is now at about 50% recycling heading to 75% over the next few years, and the county will be the only county in Florida to reach the state mandated 75% recycling goal without incineration. Unfortunately in Florida incineration counts for recycling.
|The role of the Institute in working with these newly empowered citizens was one, to bring information and the vision of what can happen, and also to organize local people with national experts on landfills, on incineration and the mechanics of recycling. The key to our success has been that we’ve work with groups that are unlikely allies. For example, white environmentalists in LA started working with residents of public housing were Latino and Black. Once the politicians saw that these groups that usually don’t work together were working together to stop incineration, the whole atmosphere changed. Mayors changed their positions, mayors retired, and as a result of these very formidable local groups with the Institute’s help, they stopped the incinerator, these coalitions stayed together to solve the problem.
|There’s a myth, also put out by industry that recycling and government, that recycling is stagnating. Well, recycling is stagnating where cities are stagnating. Every city that has had a proposed incinerator and had an active group fighting it has become one of the leaders in recycling in the United States. I do have to restate that I know of two cities that stopped incinerators where the coalitions did not keep their strength up and that was Philadelphia and Washington. Whereas LA and these other cities that are a very high levels of recycling, Washington and Philadelphia are still below the national average. But in most of the cities that defeated incinerators the coalitions stayed together and help the city solve the problems.
|Chris Mitchell:||I think we need to note that in talking about organizing people we’re actually talking about the communities with the least political power. That’s where the incinerators are often attempted to be sited. It’s in the areas with the lowest incomes, where they have the most people of color. Those are the people, those low income mostly people of color, they’re the people that have been galvanized and organized on these issues. Is that right?
|Neil Seldman:||Yes, I think the recycling movement has shown people who are usually not in power what the potential for acquiring power can be through local organizing and linking up with groups that are organized in different areas that your primary interest is but in areas that overlap with your primary interest. I think that has been the key to grassroots recycling organizing that has crossed gender lines, age lines, race and class lines, ethnic lines, because people from all aspects of life understand recycling, like recycling, and knows that recycling contributes not only to the local economy but it also can alleviate the pressures of climate change.
|Chris Mitchell:||As we wrap up, I had asked you for a book or an article recommendation and it turns out that like Olivia from the first show you actually just read Anna Karenina, but we’re not going to let you reuse that. What would suggest that people give a read to?
|Neil Seldman:||Well, there are two obvious books that beginners in this field and even experts will benefit from. That is from two very close friends of the Institute; Paul Connett, Professor of Chemistry, now retired, he wrote a book called Zero Waste: Untrashing the Planet One Community at a Time. Paul has some wonderful observations, and he has many chapters which are written by experts in the field. The Institute is represented; Brenda Platt has a chapter, I have a chapter. The other excellent book I would read is Plastic Ocean and that is written by Captain Charles Moore. In the mid 1990s Charles and his crew were the first people to discover the level of plastic in the ocean, and that started the movement to start addressing the pollution of plastic in the ocean. I recently interviewed Charles and said, “It’s not only plastic ocean, it’s plastic people because we are now eating the fish that eat the plastic that gets into the ocean.”
|Charles Moore and the Institute are working together on the Save the Albatross coalition, which will put pressure on soda and beverage manufacturers, distributors and manufacturers, to tether the caps to the bottles, because it’s the caps that the albatross is eating and thinking it’s food. I think those two books will give people a good background and a good sense of what challenges are ahead in changing the current solid waste system into a zero waste system.
|Chris Mitchell:||Great. Thank you so much for being on this show today. We’re going to hear from you again in the future as we continue to discuss strategies for building local power. Thank you everyone.
|Neil Seldman:||Great Chris. Thanks so much. It’s always fun talking to you.
|Lisa Gonzales:||That was Neil Seldman visiting with Chris Mitchell for Episode number two of the Building Local Power podcast. Be sure to check out the Waste Wealth Initiative at ilsr.org so you can learn more about the issues Neil discussed, including composting, zero waste and economic development, and the movement to stop incineration.
|Subscribe to this podcast and all the podcasts in the ILSR podcast family on iTunes, Stitcher or wherever else you get your podcasts. Never miss out on our original research by also subscribing to our monthly newsletter at ilsr.org. Thanks to Dysfunction Al for the music, licensed under Creative Commons. The song is Funk Interlude. I’m Lisa Gonzales from the Institute for Local Self-Reliance. Thanks again for listening to the Building Local Power podcast. See you next time.
The Dark Store Tax Dodge of Big-Box Retailers (Episode 1)
Full blog for this episode available here: https://ilsr.org/dark-store-tax-dodge-episode-1-of-building-local-power-podcast.
|Olivia LaVecchia:||They’ve been arguing that because the resale value of the stores are low that cities and towns should value even brand-new stores as though they’re closed, and that’s the dark store behind the name of this tactic.
|Chris Mitchell:||Olivia, let’s talk about building local power.
|Olivia LaVecchia:||That is a lot of the work that we’re doing here at ILSR.
|Chris Mitchell:||I think this would be a great opportunity to talk about one specific instance of local power which has to do with having a good, strong tax base and making sure that businesses are paying their fair sure, making sure that the big businesses are paying the same as the smaller businesses and we don’t have government putting the thumb on the scale.
|Olivia LaVecchia:||Often it doesn’t work out that way. It’s these big companies that are able to find tax loopholes, have a lot of lawyers get out of measures like that, and they end up shifting the tax burden onto other companies that then have to work even harder to compete.
|Chris Mitchell:||We’re going to talk about that in this first episode of Building Local Power, but just for people’s background, I’m Chris Mitchell. I run our work on internet access networks and helping communities to make sure they have that high quality internet access. Olivia, tell us a little bit about yourself.
|Olivia LaVecchia:||I am Olivia LaVecchia, and I work on our community-scaled economy initiative where we challenge the concentrated power of big retail chains and also look at policy measures that lift up locally-owned, independent businesses.
|Chris Mitchell:||We’re representing just two parts of the Institute for Local Self-Reliance. This series, Building Local Power, will be interviewing people from all different angles within the Institute for Local Self-Reliance and talking about hot topics and how we can make sure we have really strong communities. This is the first episode of Building Local Power. We’re going to talk about big box stores. We’re going to talk about this dark store ordinance. What is the concern with big box stores? Why do we not view them as being as useful for a local economy as the local businesses?
|Olivia LaVecchia:||First, it’s just really true about ways that a lot of our systems are set up to privilege big box stores and these bigger companies, and there’s this narrative out there that locally-owned businesses can’t compete when, really, that’s not what’s going on. It’s that they’re competing pretty well considering that they have to swim upstream a lot of the time when things like tax incentives, banking structures, a lot of this structural stuff in our system is really working to stack the deck against them, just to mix my metaphors there.
|Chris Mitchell:||Why should we be concerned if we lose all of our local businesses?
|Olivia LaVecchia:||One of the things is just that big box stores are really expensive for communities. They cost them a lot in services like police forces, infrastructure like new roads, and often, actually, studies have found they cost more to service than they pay in taxes, so they’re a net drain on municipal budgets. That’s just some of the barebones numbers stuff.
|Chris Mitchell:||I think this brings us to just one of these instances, and, in fact, you open up an article you wrote about what we’re going to call this dark store ordinance or dark store approaches, talking about how a local library got screwed and had to close down one day of the week because of the loss of tax revenue from a big box store, which was no longer paying its fair share. What is a dark star ordinance?
|Olivia LaVecchia:||Actually, they’re not ordinances that cities and towns are passing. If there were direct policy around this, I think it would be a lot better. It’s actually this tactic that a number of different big box chains have been using in towns, counties, states around the country, and they’re bringing claims to state tax tribunals, arguing that their property taxes are too high and, in fact, winning judgments that are reducing their property tax assessments by as much as half. Property taxes are the leading source of revenue for all of our public services, and the effects have been really devastating.
|Chris Mitchell:||That’s key point number one, I think, is that you have these very large stores which are, basically, cutting in half the revenue that they’re reimbursing local governments while local governments are paying so much to build roads to them, water systems to them, provide police to them. There’s been recent stories in the news about how the police are called every day to Walmarts in every community; it’s incredible. These communities that are the victim of this tactic, the communities are losing half of the revenue or more sometimes. Then, also, the thing that kills me is back revenue. They have to refund the previous year’s assessments in some cases, which is an incredible amount.
|Olivia LaVecchia:||You mentioned a story I wrote that opened with the library, and I’ll just use that as an example of what this can look like. That was in a township on the upper peninsula of Michigan, Marquette Township. That town really staked its economic development on attracting big box stores. It has a whole row of them on side of town. In 2008 a Lowe’s came in and built a $10 million store, and the local officials really celebrated it. The mayor was at the opening ceremony, all of that. Then less than two years later, Lowe’s went to tax court, and it argued that its valuation should be lower than the $5-some million that it had been assessed at. This brand-new store, and Lowe’s said it should be valued at $2.5 million in 2010, just $2 million in 2011, and down to $1.5 million in 2012, and Lowe’s won.
|When that happened, I talked with the assessor for Marquette Township, and she was saying the township thought it had been a mistake at the time. It still had the building permits saying that this building was worth $10 million. As you were saying, it wasn’t just going forward; the tax judgment covered several years. Marquette had to refund three-quarters of a million dollars that had already been budgeted and spent, and, to do that, it had to shut down a day of service at the library. It had to cut other services, the school district, the fire department. It trickled up to the county, where the county had to close things like a youth home in order to save money. It was really brutal.
|Chris Mitchell:||This is a huge impact. This isn’t just a narrow, boring, who-cares tax policy. This is about whether or not your local government can provide essential services. How does this happen? How is it that they can just magically reduce the value of their store?
|Olivia LaVecchia:||The reasoning behind it is really what drives home how outrageous what’s happening is. It ties into some of the fundamental issues with big box stores where the model for first-tier national chains like Lowe’s is to construct stores that are built to suit. When Lowe’s is ready for a new location, it builds one to meet its needs. When it’s ready to move, it’s usually cheaper to leave that store behind and build a new one. One example is Walmart rolled out a new format in 2007, decided to double its store size, and it left hundreds of vacant stores behind it around the country. Because of this model, it means that when big box stores come onto the market, it’s usually because they’ve already failed or been abandoned by the retailer that built them.
|Chris Mitchell:||When you say, “Come onto the market,” you mean, if I’m just shopping for a big piece of land and I might see a vacant Walmart that used to be there, that’s what you mean. You’re coming onto the market.
|Olivia LaVecchia:||Exactly, right.
|Chris Mitchell:||These big, empty stores, which I just think of them as being generally unusable for anything, although in the event of a natural disaster, I know FEMA will sometimes come in and use those. There’s not a lot of uses, and hopefully you don’t need FEMA to come into your community.
|Olivia LaVecchia:||We see them littering the landscape. A lot of the time they deteriorate into blight because the chain that built this store in the first place has left them behind, and not a lot of other people want them. Because that’s the real estate market that these stores are playing in, they’ve been arguing that, because the resale value of the stores are low, because they’re not worth very much, that cities and towns should value even brand-new stores as though they’re closed. That’s the dark store behind the name of this tactic.
|Chris Mitchell:||I feel like this is like me telling the property assessor that because I’m going to cook crack in my basement my house should be valued less because it will probably burn down soon. That’s a decision that I’ve made, and I don’t feel like I should pay less taxes because I’ve made this very bad decision.
|Olivia LaVecchia:||The stores are deciding to build these stores that are really functionally obsolescent.
|Chris Mitchell:||This is one of the things you cover. They actually restrict who can come in after them, and so they have this model that barely works. There’s very little value for these buildings, and then they say, “We’re going to artificially depress the value of this approach that we’re taking by then choosing that nobody else that might want to use it can use it because they would be a competitor to us.”
|Olivia LaVecchia:||What you’re talking there is this thing that’s known as deed restrictions, where if you’re a Lowe’s, you put a restriction on the sale of the property that no one who moves in can sell the same things that Lowe’s sell. They don’t just mean a Menards or a Home Depot; they mean any store that sells rope or firewood.
|Olivia LaVecchia:||The restrictions lower the value of the property even more. Lowe’s is coming in, putting deed restrictions on a property that it’s leaving behind so that a competitor can’t move in. By doing that, it’s participating in devaluing the property, and then it turns around and argues that its brand-new stores should be compared to that store.
|Chris Mitchell:||It seems like one of those things that you might wish. I’ve often said that I wish that donuts would help me lose weight, and they don’t. I just don’t get to live in a reality in which I can eat donuts and lose weight, but somehow these companies get to do that. I guess, we’ll come to what local governments can do in a second, but I wanted to note first that the Michigan Chamber of Commerce says that you and local governments, you are vilifying some of Michigan’s largest job creators. I’m curious how you respond to that.
|Olivia LaVecchia:||The Michigan Chamber of Commerce has been defending these big box stores and this tactic that they’re using. The thing, I think, that is really often used as a straw man in arguments like this is that big box stores are large job creators. What isn’t acknowledged in that is that retail spending is generally a pretty fixed pie. If a new stores comes to town, people don’t suddenly have a lot more disposable to spend at that store. They just shift their spending around, and the spending that’s happening at big box stores and the jobs that are being created there, that’s coming from somewhere else. In a lot of cases, that’s coming from locally-owned retailers who, because they aren’t headquartered elsewhere, they also are using attorneys in town, management in town, printing services in town. They’re employing a lot more people than these big box stores are. It’s really something of a very misleading tactic by the chamber.
|Chris Mitchell:||This is something that makes my blood boil because, presumably, the majority of people in the Michigan Chamber of Commerce are not big box stores, and they are the ones who have to big up the gap. If the big box stores are not paying their fair share, then all the other businesses … But this is where the chamber model can drive me nuts. You do more work with local chambers. I occasionally intersect with them in my work on internet access related things, and I find that there’s a number of chambers, particularly the larger chambers, the larger cities, the state chambers, certainly the national chamber, they tend to be interested in just what their biggest members are interested in, I feel like. We’re not going to get into this, but this is why we need local businesses to really not be supporting these organizations that are actually working against their interests in many cases.
|Olivia LaVecchia:||I think a lot of the time, just because national chains have wider brand recognition because they’re bigger, they’re in so many places, that translates into more pull, when, really, it’s locally-owned business that are doing a lot more. You touched on something there I just want to draw out, which is the shift in tax burden. When Lowe’s is cutting its property taxes by so much, services are cut, but also other property owners have to pick up some of that slack. In Indiana, county officials did a study that found that, if this kind of dark store valuation becomes the standard, big box retail owners will shift a tax burden of $120 million onto other kinds of taxpayers, in most cases, those who are less equipped to deal with it.
|Chris Mitchell:||How prevalent is this tactic?
|Olivia LaVecchia:||The first cases that we started hearing about came out of Michigan, and since then it’s spread to Indiana. It’s moved to Florida, Alabama, recently Texas. It’s one of the things about these big box retail chains. They’re national, and so they can test something in one location and then spread it very quickly. We’re talking tens of millions of dollars of impact that it’s having in all of these towns and counties.
|Chris Mitchell:||What can a local government do, if you’re faced with a big box store that is suddenly saying, “Hey, we need to reevaluate how much taxes we’re paying”? I know some of the states have tried to deal with this. Maybe we can start there. What are states doing to try to help local governments in this case?
|Olivia LaVecchia:||There are definite policy fixes to this, and some of them are simply just spelling out more directly in state laws how these stores should be valued, saying you should use this valuation method instead of this one. Then, from there, there are smaller escalating steps to take, such as saying the properties are comparing something to … can’t be properties that have had deed restrictions placed on them or can’t be properties that have been vacant for more than a year. Indiana is one of the states that has pursued some of these policy measures, although there some of these were passed in the 2015 legislative session, and even since then these big box stores have been winning some of their valuation battles. More needs to be done, but it’s a start. Then more broadly, it really gets at all levels of government. Economic development should focus more on growing locally-owned businesses than trying to attract and retain big box stores instead, which end up costing communities a lot more.
|Chris Mitchell:||I think that’s really a key takeaway. That’s probably a good place to end the show, although we would be ending the show, if not for the final question, which is to just give me a good article or a good book you’ve read lately that you would recommend.
|Olivia LaVecchia:||I don’t know how interesting this answer is, but the honest answer is that the most recent book I read was Anna Karenina, which is a name that I definitely had heard before I read it. It turns out it was a totally fascinating story that drew me in. It has great passages describing pre-industrial farming methods where the main character’s just out scything in the field, and it’s mesmerizing.
|Chris Mitchell:||Great. It’s one that I have to say I always have to choose. Am I going to like Anna Karenina more than three other books? Because that’s the choice, and so, I have to say, I’ve held off from some of the great historical works of literature because of that, but I’m going to have to get over that at some point.
|Olivia LaVecchia:||Sometimes they really are good stories.
|Chris Mitchell:||Terrific. Thank you for discussing this with us and kicking off our new series of Building Local Power podcast.
|Olivia LaVecchia:||It’s great to be here.
|Lisa Gonzales:||That was Olivia LaVecchia talking with Chris Mitchell for our first episode of the Building Local Power podcast. Learn more about big box retailers’ strategy to cut their tax payments by reading Olivia’s article at ILSR.org titled, “For Cites, Big Box Stores Are Becoming Even More of a Terrible Deal.” If you’re a podcast fan, check out the Local Energy Rules podcast from John Farrell from our Democratic Energy Initiative and our Community Broadband Bits podcast from Christopher Mitchell. Thanks to [Dysfunction Al 00:16:16] for the music licensed under creative commons. The song is “Funk Interlude.” I’m Lisa Gonzales. Be sure to come back every two weeks for more interviews with the people at the Institute for Local Self-Reliance. Thanks again for listening to the Building Local Power podcast, and have a great day.