The Senators and the Cosa Nostra

Sliding Head First and Finding Out You Are Only on Second Base

This was the week that the Federal Reserve slid headfirst into second base.  As we have been predicting, it sometimes seems forever, the Fed waited as long as it could before finally letting up on what was the most stimulated economy since the Weimar Republic.  We say second base, because as the papers noted today this was far from a grand slam for the easy money guys.  Maybe they were hoping that nobody was looking at anything but the price of hotdogs, hamburger patties and cases of cold ones on this holiday weekend but the news was just not good on the jobs front. First, we found out that the more robust employment numbers that came out earlier in the year were revised downward.  Then for June the figures were a plain anemic 112,000 new jobs.  Even worse, according to the New York Times, wages had once again failed to keep up with inflation over the last year.  Did anyone say "burger flipper"?

This should come as no surprise to DW readers as we've often noted that the US economy needs to churn out an average of 150,000 new jobs per month just to keep pace with new people entering he workforce.  A few months of growth after years of stimulus and job losses does not a robust recovery make.

The Feds problem, however, is more acute; having accommodated the Administration's wish for growth at all cost during this election year (deficits, trade imbalances be damned) by leaving interest rates at a 40 year low even while inflation crept up.  Since we know that there is a lag of nearly six month between rate changes and their impact, the Fed finally felt it was safe to step in and get a hold on the only tested tool in their box,  the interest rate lever.  With the benchmark rate now at 1.25% the Fed has nowhere to go but up and has said so--  and that in the face of what might be the more serious leg of the downturn that occurred four years ago.  After all, deficit spending --in other words, spending money you don't have-- is easy until the piper wants to get paid.  Eventually, even the US government, with the happiest printing presses in the world, has to borrow back that money and becomes a major competitor for investor money.  This demand results in higher interest rates.  And this time around the Fed will not have the ability to counter by lowering its overnight rate, the amount it charges banks, in order to dampen the upward pressure.  This would result in bad news both for the bond market and the stock market... and particularly worrisome news for the many Americans holding variable rate mortgages and credit card debt.

Further, Congress will find it too risky politically to further lower taxes in the face of growing deficits.  So, it is possible that the Fed has waited too long to get rates up to the point where they will have some room back down to counter a slowdown.  We may, as a result, be entering into uncharted territory in the US.  In Japan, faced with a similar problem, the government started running the concrete factories full time.  In other words, if you want to stimulate job growth start building highways, bridges, airports, jersey barriers, whatever, as long as it consumes concrete and steel and can't be done abroad.

The Senators and the Cosa Nostra

The first big concrete and steel build may just occur in or around the nation's capital in the form of a baseball stadium.  How this all works has been an incredible eye-opener.  It appears that the only difference between the way major league baseball and the mob work is that the former is legal.  It appears that the 29 "families" (groups) that own our beloved baseball teams have carved the country up into territories they control.  Sound familiar?  Not only can no outsider compete with them (no, you can't just get together a serious bunch of great athletes and call them a major league team) inside or out of their territories but the teams, themselves, can't get up and move to greener pastures. In baseball, turf is turf.

No, even if you are one of the major TV markets in the country --sixth if you don't count Baltimore just 35 miles up the road, third if you do-- you've got nothing to say unless you come crawling on bloody stumps across a field of rusty nails.  And even then, it seems that if the "boss" up the road who owns you, doesn't get his cut of the action, you still don't have a chance.

And so Washington DC --yes, that's the same city that can't afford to paint or replace broken windows of its schoolhouses, has closed or limited the hours of most of its libraries and perennially finishes down at the bottom of the list for public education, health and safety (more per capita cancer, more TB, more asthma, more children left behind, etc.) has now got into a bidding match against itself.  The big boys of baseball have made it clear that unless Washington is willing to fully pay for a new stadium (over $400 million) it doesn't stand a chance of getting another bunch of Senators from Montreal. The Expos are a team without a home and without owners.  In fact, the 29 families themselves own the team  --If you are interested, there was a thorough article in the Washington Post http://www.washingtonpost.com/wp-dyn/articles/A13386-2004Jun28.html: that explains the amazing ins and outs of the cartel.  In short, what happened is that they really wanted to take the team out to the far edges of the parking lot and make it disappear into the witness protection program.  But, having been caught red-handed, they were trapped in a dilemma that left them holding the bag.  And now four years and multiple deals and broken knees later, what to do?  Create a competitor down the road from the Baltimore capo, Peter Angelos?  That would never do!  Portland is out there but there is the suspicion those guys aren't really dumb enough to go all the way down on their knees. Well how about Las Vegas?  Sure, the bucks were definitely there but so is the betting industry.  And god knows, betting has nothing to do with baseball.  Imagine Pete Rose coaching in Las Vegas!

So that left Washington DC with its big lobbyist law firms, its cash-flush beltway bandits in this era of outsourcing (otherwise known as government contractors) its rabid Redskin fans and its bored bunch of legislators and hangers on.  Could it be that with the mayor assuming the position and over 400 million in new stadium construction money on the table (would the City Council actually approve?) that there might be a way to cut in Angelos on the take and still bring a team in?

Alas, there is an alternative.  Not to be undone, the Commonwealth of Virginia, has also offered a stadium with all the trappings out by Dulles airport, which coincidentally lies approximately the same distance from DC as Baltimore.  Could this be the kind of deal that Tony Soprano and Johnny Sack might work out?

And so we will  have to wait to see where the godfathers come down on this one.  Although, probably not too long given that not one player from the Expos actually made the all-star team this year.  The team is an embarrassment and a basket case that was supposed, like Jimmy Hoffa, to end up encased forever in concrete and is now, instead, facing another kind of exposure.

Do these competing municipalities playing with taxpayer money get to make any demands on the bosses?  Don't kid yourself!  Do the profits from the sale of a team come back to pay for the money invested by taxpayers?  You gotta be joking!  Does baseball generate economic activity that might justify the investment?  Not according to any serious independent study ever made on the subject (see: May the Best Team Win: Baseball Economics and Public Policy by Andrew Zimbalist).  Do the teams let the public get in as investors?  That's about as likely as the Redskins changing their name, speaking of outrageous!  

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