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    Shouldn't Seattle outpace the sputtering national economy?

    National figures show the economy has hit a slow patch, but is not heading for a double-dip recession. With local large companies like Boeing hiring apace, why is the Washington economy so feeble?

    Amazon's new headquarters in South Lake Union

    Amazon's new headquarters in South Lake Union

    Half way through the year, we are still trying to figure out where the economy is headed — over a cliff or sputtering back to life? An article in The New Republic says the discouraging May jobs report could mean we are entering the second Great Depression unless there are more stimulus programs from Washington. Other economists say one-month changes are unimportant and we need to look to longer trends.

    Another unresolved question is why the Washington economy, seemingly in an advantageous place, is not doing better. More on that below.

    One of the problems with economic statistics is that the ordinary person is lost in the size of the U.S. economy. When prices are measured across 150 million workers in a $13 trillion economy, individual circumstances are drowned in a sea of data.

    Let me illustrate with a little example. I was at a Mariners game a few years ago when the buzz started that Bill Gates was there. The 40,000 or so people who attended that game probably represented a cross section of the region. The crowd probably reflected the per capita personal income of a Seattle-area resident then, about $50,000. They owned homes or rented apartments. They were kids, couples, grandparents, or young adults on a date or with friends.

    Counting homes and other assets, the crowd might have had an average net worth of $250,000 a person. But Bill Gates walks into Safeco Field to watch the game and suddenly things change. With his Microsoft stock alone worth more than $40 billion at that time, average — keep that word in mind — average net worth per Mariners fan that night jumped to $1.25 million.

    The same thing happens to overall economic statistics. When you count so many people, so many businesses, and so many different regions, a couple living in their family home on a fixed income finds their own situation misrepresented by those broad-average economic figures. There is a classic definition of a recession vs. a depression:  A recession is when your neighbor loses a job; a depression is when you lose a job.

    Back to that June 3 jobs report. It points to an economy that is hitting a slow patch.  But it is not an overall economic slump.  In an economy as large as the U.S., the overall picture distorts what might be happening in individual regions; so you need to disaggregate the data. Some regions may be doing better than others. Are we? We ought to be.

    The Federal Reserve puts out its "Beige Book" every six weeks or so.  It is a compilation of reports from the 12 district banks that make up the country’s central bank.  In the Twelfth District, which includes Washington and the West Coast, the June report was upbeat: “Twelfth District economic activity continued to expand at a moderate pace during the reporting period of late April through the end of May.”

    At the Atlanta bank, it was a different story: “Sixth District business contacts reported that economic activity moderated somewhat in April and May. Retailers experienced a deceleration in sales and traffic, which they attributed to periods of adverse weather and high gasoline prices.”

    Overall, here is what the Fed said about the economy: “Reports from the 12 Federal Reserve Districts indicated that economic activity generally continued to expand since the last report, though a few Districts indicated some deceleration. Some slowing in the pace of growth was noted in the New York, Philadelphia, Atlanta, and Chicago Districts. In contrast, Dallas characterized that region's economy as accelerating. Other Districts indicated that growth continued at a steady pace.”

    So if that is true, if places like Seattle and Washington state are doing better than the rest of the nation, then the data should reflect that.  However, that’s not the case.

    The state on Thursday issued another gloomy forecast for the state's economy with the only bright spots in technology and aerospace. Construction in particular remains in a slump, according to the June update. State revenues also are still under pressure. The Economic and Revenue Forecast Council said  that "in the next biennium, weaker near-term revenue growth is expected to bring in $223 million less revenue than forecasted in March."

    On June 15 the state Employment Security Department said that in May, Washington state lost 700 jobs on a seasonally adjusted basis. Even more surprising is the fact that the private sector was down 900 jobs while the public sector added 200 jobs over the month. The national report released earlier this month showed the reverse, with the private sector adding jobs (albeit anemic) while the public sector continued to lose lots of jobs.

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    Posted Mon, Jun 20, 9:41 a.m. Inappropriate

    So WHY isn’t the local economy doing well? Let’s look at tax structures fostered by our state government leaders (and their local enablers). It appears the favorable tax treatment provided to big local companies is helping them succeed, while the taxes targeting individuals and families around here harms them and the local economy.

    Consider the effects of tax policy as they relate to two categories of taxpayers referenced in this piece. The author notes “Boeing, Microsoft, and Amazon” are profitable, and doing some local hiring. Each of them is the recipient of large state and local tax expenditures (aka, preferential tax treatment/engineered loopholes). Moreover, each sells nationally and internationally. That means: 1) it is of no consequence that the local economy has been doing poorly (with high unemployment) for years, and 2) they don’t have to collect and remit high (10%) sales taxes from their customers. That’s a recipe for economic success.

    Now look at a second category of taxpayers referenced in this piece:

    “The 40,000 or so people who attended that [Mariners] game probably represented a cross section of the region. The crowd probably reflected the per capita personal income of a Seattle-area resident then, about $50,000. They owned homes or rented apartments. They were kids, couples, grandparents, or young adults on a date or with friends.”

    That is the demographic targeted for particularly heavy taxing by our government leadership. Around here we have the most regressive tax regimen in the country. The nearly 10% sales tax is designed to hit those with the least the hardest (and a not-insubstantial percentage of the people in those crosshairs can not attend professional baseball games).

    There’s an economics principle called the multiplier effect. Money spent locally sloshes around many times in the local economy. Not enough of that happens here because high regressive taxes act as an economic anchor. Local small businesses can not afford to hire new employees. New businesses will open elsewhere, where the private sector spending is more robust. This dynamic will continue for decades, and get worse and worse because of how regressive taxes are tied to long term bonds whose proceeds don’t do much at all for the local economy.

    The really regressive tax regimen here acts as a heavy, wet blanket on the economic engine that drives other local economies out of recessions: consumer spending.

    Moreover, consider how much of the regressive tax revenue confiscated for “transit” in particular is lost to the local economy, immediately. Sound Transit can’t ship sales tax revenue out of the local private sector fast enough. It makes huge payments to bondholders, non-local contractors, and engineering firms. Vast sums are sent off to BNSF and Amtrak. Oversees contractors get hundreds of millions of dollars for railsets and tunnel boring machines. The size of Sound Transit’s payments to entities such as other local governments, state governments, and indirectly to unions are staggering – far larger than its peers make.

    Two groups of taxpayers are discussed above. The former group is favored by government leaders who set tax policy. The BA’s and MSFT’s receive tax breaks, and their economic success is not dependant on the local economy performing well. The latter group of taxpayers is many, many times larger. However it is targeted with heavy taxes designed to remove large percentages of its discretionary spending power. It is this second, disfavored group (e.g., lower and middle class families and individuals) our government leaders are counting on to bring this region economic prosperity. We’ll see, but as this piece points out things don’t seem to be working out in the way traditional economic theories would suggest. It’s possible the unprecedented high levels of regressive taxing now in place have moved us beyond a bad tipping point.


    Posted Mon, Jun 20, 11:09 a.m. Inappropriate

    "where Greece defaults on its bonds, causing problems in other countries such as Portugal or Ireland. That put pressure on European banks and then U.S. banks.

    Didn't you mean "When Greece defaults on it's bonds"?


    Greece cannot pay it way out of it's debt problem. It's only a matter of when it defaults. All the current plans are "loan more money to Greece, so that they can make payments on current bonds." That's nuts. Greece is going to have to leave the Eurozone, as is Ireland, Portugal, and Spain.

    Already we are seeing depositors flee Greece banks because all Euros are not the same.

    "that put pressure on European banks and then U.S. banks."
    You mean they might have to recognize that the bonds they are holding are not going to be paid out at 100%. This is going to be a serious problem for some major German Banks.

    Anyone who thinks this conflagration is going to skip over the Puget Sound Economy is nuts. Amazon, Starbucks, Boeing et.al. are all dependent on the global economy continuing to humm along and it's not going to keep this up for much longer. Those bad debts have to be marked as such, the bond holders are going to have to take their losses before the economy can recover.


    Posted Mon, Jun 20, 11:11 a.m. Inappropriate

    Oh Crossrip, Amazon collects sales taxes on sales within Washington. So that does help the Puget Sound economy since they have over 7,000 local employees, many of whom shop on line.


    Posted Mon, Jun 20, 11:25 a.m. Inappropriate

    One more thing, Sound Transit's contractors do employ local workers, so that money does stay in the local economy. One might as well rail against auto purchases as well since there are almost no auto parts/subcontractors/manufacturing facilities in Washington State.

    It is important to keep money flowing in the "local" economy, but now-a-days, what is "local?" Starbucks sends money to South America, and Africa for coffee beans. Boeing, Microsoft & Amazon, get some of it back by selling stuff to those regions.

    The true test is whether what we buy from others benefits us in the long run or is only a short term gain. Coffee, is clearly a short term drug fix. While a transportation network, is a much longer term improvement in our ability to organize and mobilize our workforce.


    Posted Mon, Jun 20, 11:35 a.m. Inappropriate

    good and helpful piece.


    Posted Mon, Jun 20, 12:53 p.m. Inappropriate

    Crossrip, you're forgetting that a massive percentage of car-related expenses head out of town -- oil/gasoline, car manufacturing, parts, and so on. Further, there's a hidden "tax" anywhere you see free parking, which costs a massive amount of money.

    One benefit of transit is that it lets users save a ton of money. We then spend that money on other things (and pay taxes on those things). Of course bike riders and pedestrians might cost the public next to nothing for our minimal use of streets, while paying taxes on whatever else we spend our money on.


    Posted Mon, Jun 20, 2:01 p.m. Inappropriate

    Name one shoe manufacturer in town? I can think of only one clothing manufacturer left, Filsons. There is at least two bicycle builders, and maybe 5, but most bicycles are made outside this region as well. (In addition all the tires, chains, brakes, brakepads, bicycle clothing, is manufactured elsewhere. ) (Showers's Pass does it make it's stuff in the Portland area, and there are about a 100 bicycle builders down there, which is sort of our region.)

    So pedestrians & bicyclists are also in the same lump as auto drivers, it's just that the cash flow is much smaller.


    Posted Mon, Jun 20, 3:46 p.m. Inappropriate

    GaryP, is there a brake-pad maker in Seattle? Of course it's a small detail but so is your point.

    Car components and oil are almost universally made elsewhere. If the hypothetical pedestrian doesn't spend on transportation, but instead spends on other things, it seems like a fair bet that those other things include a decent amount of local retailers and producers.


    Posted Mon, Jun 20, 5:31 p.m. Inappropriate

    Mr. Hays,
    Maybe I wasn't writing clearly. Crossrip is contending that one of the problems with the current mass transit system is that all of the tax money collected is flowing away from the region. You and I have correctly pointed out that auto transit has the same problem. What I intended to note, is that almost everything we consume around here is made some where else. Except for a very few things, we tend to either add value, by bending it into another shape, ie Boeing takes Aluminum, carbon fiber etc, and makes airplanes. My other point is that this is not sustainable unless there is some cash inflow from some other business. Amazon's retail business takes in cash and pays employees to run the business here. Those employees spend their earnings locally. Same for Microsoft.

    We used to export lumber, fish, as well from the Puget Sound area, those resources are pretty much spent out. Now we export software, run businesses, like Starbucks.

    It's not a bad thing to send one's money somewhere else the key is to get good value for it. Crossrips main complaint AFAIK is that we have overspent via the bonds, ie we borrowed a lot of money up front and are using the cash flow to pay the interest on those bonds, vs pay as you go, ie, collect some taxes, pay for some transit. And that this was done mainly to enrich the local bond salesmen at the expense of the tax payers. ie we have more than doubled our cost by all of this excess borrowing.

    I don't know if we could have borrowed less up front or not. But since he seems to have done the research I'll believe him for now.

    This has nothing to do with what we built, it has everything to do with how we pay for it. And in the long run the health of the region, as money spent on interest is money we could have used to fix something else.


    Posted Mon, Jun 20, 8:15 p.m. Inappropriate

    The Point is (edit) that the ACTUAL Main Question we must answer REALLY IS about
    WHAT we build - NOT the GaryP viewpoint - that it is ALL about HOW we 'PAY' for it (edit). I repeat, Money Concerns follow Impact, Effectiveness, Whole solution approaches, BETTER Designwork, etc. Leading with the argument of 'MONEY' leaves these more important concerns out of the discussion. How stupid is that?


    Posted Mon, Jun 20, 9:31 p.m. Inappropriate

    Well said, Steve. Valuable analysis.

    Frank Wetzel

    Posted Tue, Jun 21, 11:35 a.m. Inappropriate

    I'm sorry, but money is the fundamental limiting factor in the growth of the local economy. Yes quality of life is very important, and if we could somehow measure how much better life was, that would be great. But if we send all our money outside the state and none comes back to us, we'll look like Detroit pretty soon.

    For example, the Green Line Monorail project failed, not because the voters didn't want a monorail, they did, and voted for it 4 times. But when the actual cost was finally figured out and the long term bonds that would have been necessary to fund it via the financing plan that Joel Horn et.al ginned up, was finally revealed the project was cancelled. No one wanted a 50 year loan to build a transit system. It wasn't a smart way to invest the money.

    This is exactly the same sort of stupid financing that Sound Transit is using that Crossrip has been complaining about forever here.


    Posted Sat, Jun 25, 10:55 a.m. Inappropriate

    GaryP, I'm sorry, but you're wrong. Money is only one factor among many that determine the worthiness of private development and public works projects. The Greenline Monorail was poorly engineered and was rejected for that reason more than because of its high cost. Poor engineering is plainly evident in Seattle's other major public works projects, and so the money issue is dangled before the public to keep the underlying engineering problems (and their costs) out of the discussion. Wsdot is a rogue agency that serves automobile-related business interests in direct defiance of the public interest and well-being.


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