Gridlock in Olympia?

Divided government again seems to be the outcome of yesterday's election in Washington State.

There were no surprises in Washington State Senate races. The Democrats picked up one seat and the Republicans another. Still at a Republican majority of 26-23.

The shocker was the State House of Representatives. The House's Democrats well-oiled machine was expected to lose few if any seats. But based on last night's count, Republicans may have picked up 4 seats taking the Democratic advantage down to a few votes.

However, only half the votes are in and a total of 6 seats are within striking distance for either party.   Two are very close. Rep. Larry Seaquist (Bremerton) trails Republican Michelle Caldier by only 78 votes.  In the 28th district, Democratic newcomer Christine Kilduff (University Place) trails Republican Paul Wagemann by a mere 69 votes.  Three Democratic districts are also in play. Kathy Haigh (Shelton) leads by 423 votes, Monica Stonier (Vancouver) trails by 526 votes. and Dawn Morrell (Puyallup) trails by 1,300 votes. The only Republican seat in play could be the open seat in the 41st districts where Democrat Mike Wilson trails Mark Harnsworth by 728 votes.

So what is the bottom line?  House Democrats will hold somewhere between 56 seats and a tie. Most likely outcome?  51-47.  

Washington State Elections - the Battle for the State Senate

The 2014 election in Washington State is simply about control of the Washington State Senate. The Governor is not up for reelection and House Democrats appear firmly in control.  The State Senate is close. The are currently 23 Democrats and 26 members in the Republican Majority Coalition.

The Belleveue/Redmond 48th District of retiring Republican Majority Coalition leader Rodney Tom is almost certain to turn Democratic with Democratic Rep. Cyrus Habib winning 2/3 of the vote in the primary with no serious opposition in the general from the Republican candidate. That takes the count to 24D - 25R. 

To determine which of the remaining races are in play, simply follow the money. The money is being spent in 5 one million dollar plus races: 

• In the 35th district, incumbent and Majority Coalition member Tim Sheldon nearly lost in the primary to a Republican Travis Coture.  However, Sheldon is likely to pick up most of the Republican votes in the general. In this near $1,000,000 race, Sheldon has raised nearly a half a million million compared to Democrat Irene Bowling's $300,000. 

• With the retirement of Democratic leader Tracey Eide, former seven term Democratic legislator Mark Miloscia has switched parties and is running as a Republican against Democrat Shari Song in the Federal Way 30th district. Miloscia is said to have door-belled every residence in the district at least five times  This is yet another million dollar race with Song and Miloscia nearly tied in fundraising.  Miloscia got nearly 60% o the vote in the primary. 

• In the Lakewood/University place 28th district, Republican Senator Steve O'Ban is being challenged by Rep. Tammi Green. O'Ban was appointed to the position in 2013 after serving in the house for one year. Rep. Green has served 5 terms in the House.  O'Ban has outraised Green two to one with $730,000 in contributions at this point. While, O'Ban got 56% of the vote in the primary, Tammi Green has mounted a credible but late campaign. 

• Up in Whatcom County, Incumbent Republican Doug Ericksen has pulled in over a half a million dollars against Democratic challenger Seth Fleetwood.  Erickson got 57% in the primary. 

• Finally, in the Kirland/Eastside 45th district candidates have raised well over $1,500,000. Incumbent Andy Hill has raised the most of any candidate spending well over a million dollars compared to Matt Isenhower's $500,000 - which is also the top dollar amount raised by a Democrat.  Hill got nearly 54% in the primary. 

Republicans have out spent democrats by over a million dollars in these 5 races and it looks like they will win all five races. With the Rodney Tom seat switching to the Democrats, odds are that the Senate will remain 26 R and 23D.  What does this mean for Washington State?  It has something to do with climate change and K12 education funding.

Who's unhappy with the Seattle Minimum Wage Hike proposal

A Region Without Social Capital

This morning's paper was filled with depressing news.  Our Metro Transit services is facing dramatic cuts due to the voters rejection of Proposition 1 on Tuesday. Washington schools are sending out notices to parents that their schools are failing due to the failure of the legislature to come to agreement on teacher performance standards.The key word here is failure. We have bickered and failed to come to agreement on everything from mass transit to school, arena and state roads and highway funding.

The Seattle Metro region ranks is one of the most economically vibrant and resilient metro areas in the country ranking 5th in the nation according to the Institute of Government Studies at the U.C. Berkeley. We also rank 8th in the nation in business environment.  But when it comes to community connectivity (you might call this term social capital) we rank 205th in the nation. When it comes to income equality we rank 105th in the nation.

The bottom line is that the Seattle Region lacks the glue that brings people together. We lack the social capital to get things done.  Our business community lacks the interest in solving big regional problems. Pollsters tell us that we are the most anti-tax blue state in the country. Perhaps much of this has to do with the fact that we are a in-migration state. People come here from elsewhere bringing their education with them and maybe just don't feel invested in our education and governmental institutions. Maybe we are just a bunch of know-it-alls who think we are the only ones with the real answers.

Whatever the cause, I think the real problem is trust.  Our citizens lack both trust in government and in each other. This is a serious and expensive problem. Failure to make long term investments will hurt all of us.

The Future is So Bright, I Gotta Wear Shades

We have been facing two powerful and counteracting economic forces in the last couple of months.  The negative force has been the cuts in government spending resulting from sequestration, the end of the stimulus funds and cuts in state and local government budgets.  This has been accompanied the expiration of the payroll tax cut in January.  The payroll tax increase is a powerful negative stimulus since the gains from the tax cut mostly went to high spending low and middle income families.

The counter-acting force has been a revival of the animal spirits of capitalism.  Business confidence has shot upward and firms have begun to increase investment and hiring after four years of stagnation. This may have started out as the result of pent-up demand in household formation, inventories and aging equipment.  But the good news is that these forces have revived the animal spirits of capitalists.  Companies who were sitting on cash waiting for more certainty in the future, seem to believe that the future is bright.

Right now, the more powerful force is the animal spirits.   The media will take a long time to adjust to reporting good economic news.  The economic story has been bad economic news for so long, analysts will have trouble making the shift to a different mentality.  But eventually, the conventional wisdom will shift and the recovery may actually begin to accelerate. 

The Short Run and the Long Run

One of the biggest points of confusion in the deficit debate is the long run versus the short run.  In the long run we have an entitlement driven budget problem that is solvable but politically problematic. In the short run we have a inadequate effective demand problem is that is related to both tax increases (the payroll taxes) and the animal spirits of consumers and investors (which is resulting in weak spending). 

Most analysts want it one way or another.  Conservatives want to deny the stimulus problem and focus on shrinking government. This is not a surprise, a small government has always been their goal. Many liberals believe the entitlement problem is something that we should ignore for now and would instead focus on job creation. 

Obama has it right in his budget proposal.  Stimulate demand now with infrastructure investments that bolster the long-run economy.  But at the same time, agree to future long-term cuts to entitlements. This has the effective of calming markets and perhaps stimulating the animal spirits of capitalists allowing in an additional increase in investment. 

Complexity and Financial Aid: A Barrier to College Completion

Behavioral factors often play a bigger role in decision-making than financial or economic factors. For example, all of us tend to discount current losses compared to future gains. This factor, known as “hyperbolic discounting,” is true for all of us. We are unlikely to risk 50 cents today for $1.00 next year despite the return on investment.  Consequently, more than 80% of all Americans have a negative personal savings rate.  This tendency becomes magnified for low income families where earnings are barely able to keep up with daily life expenses.

All of us are loss averse. Potential losses loom larger than gains. We overvalue what we already have and discount what we may get in the future.  Research on loss aversion indicates that we require gains equal to double of that of the current loss. That factor is magnified again when the loss is potentially ruinous or your lifestyle is threatened.[1]   Let’s say your income is $45,000 a year, are you willing to lose $35,000 right now in exchange for $15,000 in additional income over the next ten years?  That is the risk many low-income students face.

We also tend to base our decisions on our experiences rather than theoretical projections offered by other people.  Lower-income families have little experience with college and thus the gains seem far more uncertain.  The combination of risk aversion and complexity not only leads to an aversion to borrowing but an aversion to seeking and receiving financial aid.

When confronted with a high risk decisions like investing in college, small barriers can become huge barriers. This starts with the process of seeking financial aid. According to the Advisory Committee on Student Financial Assistance, “Millions of students and adult learners who aspire to college are overwhelmed by the complexity of student aid. Uncertainty and confusion rob them of its significant benefits. Rather than promote access, studies show that aid often creates a series of barriers - a gauntlet that the poorest students must run to get to college.” [2] 

[1] Hahnemann, (2011) Thinking Fast and Slow  Farrar, Strauss and Giroux

[2] Advisory Committee on Student Financial Assistance. (2005). “The Student Aid Gauntlet: Making Access to College Simple and Certain.” Final Report of the Special Study of Simplification Of Need Analysis and Application for Title IV Aid. Washington, D.C.: Department of

Education.