July 31, 2014

Obama’s Latest Jobs Speech: “Stop the political circus,” says the Ring Master.

President Obama and I agree on at least one thing: “Washington hasn’t always put [Americans'] interests first.”

Ain’t that the truth.

With Republicans vying for his job, the economy persistently sluggish, and unemployment relatively unchanged since the Bush Administration, President Obama took to the podium to make “the big speech” before a special Joint Session of Congress to lay out his job plan.

This is not his first job plan. In fact, you’d be hard pressed to find a month where the news has not talked about an Obama job plan.

  • In November of 2008 (“After more than two weeks of virtual silence on the economy, President-elect Barack Obama’s transition team burst on the scene with new ambition and urgency Sunday, demanding swift passage by Congress of a massive two-year spending and tax-cutting recovery program.”)
  • In January of 2009 (“President-elect Obama countered critics with an analysis Saturday by his economic team showing a program of tax cuts and spending like he’s proposed would create as many as 4.1 million jobs, far more than the 3 million he has insisted are needed to lift the country from recession.“)
  • In March of 2009, after its passage (“President Obama on Friday touted the benefits of his economic recovery plan [...] the recently passed $787 billion stimulus package.”)
  • In July of 2009, after the plan failed to stop unemployment from climbing to 9.5% (“Obama, a Democrat, is trying to restore economic growth to the US but his $787-billion economic stimulus plan [...] failed to stop the unemployment rate from rising to 9.5 percent.”)
  • In December of 2009 (“President Barack Obama says his administration needs to “get America back to work” as quickly as it can, and he‘s putting together a list of proposals aimed at doing just that.”)
  • In February of 2010 (“President Obama hit the road again Tuesday to promote the new job-creation program he described as his No. 1 priority, [...]“)
  • September of 2010, just one year ago (“U.S. President Barack Obama will announce on Monday a six-year infrastructure revamp plan with an initial investment of $50 billion to jump-start job creation, a White House official said.”)
  • In February of 2011 (“The Obama administration outlined an “innovation strategy” for US job growth Friday, [...]“)
  • In May of 2011 (“Obama, GOP unveil competing plans for job growth.”)

That’s a lot of talk, but not a lot of change. But don’t lose hope. The President has another plan for you. 

I’ll give him this: Obama’s got a lotta plans. But he isn’t making much headway. Unless, of course, you have managed to convince yourself that he actually staved off a worse disaster.  Maybe, but even President Obama sells his plans not as fingers in the dike, but as reversals.

Anyway, in America we don’t believe in treading water–we believe in winning. Why else would we keep score? 14 million people can’t be wrong–the plans just aren’t working.

So what is he proposing, this time?

Where we agree

First, there are a couple things he said that I liked…assuming he means them:

Economic Growth is  Driven by Business

Those of us here tonight can’t solve all of our nation’s woes. Ultimately, our recovery will be driven not by Washington, but by our businesses and our workers.

Great! But why have all of your plans up to now been focused more on funding the public sector, increasing the debt that must be paid by taxes from individuals and the private sector, and not just decreasing the cost of doing business for “businesses and workers,” as per your speech? Why wait until the 11th hour to come to Jesus?

Infrastructure Helps Business and Employs Construction Workers

Everyone here knows that we have badly decaying roads and bridges all over this country. Our highways are clogged with traffic. Our skies are the most congested in the world.

This is inexcusable. Building a world-class transportation system is part of what made us an economic superpower. And now we’re going to sit back and watch China build newer airports and faster railroads? At a time when millions of unemployed construction workers could build them right here in America?

I like upgrading our roads. But what’s new about this from promised infrastructure fixes over the last three years? What happened to the spending you’ve been talking about since 2009?

OK, so, maybe I agree, but I’m a little distrustful of his sincerity. And that the money is actually going to get the economy going again. Employing workers to build roads and bridges will get cash into the economy, but it alone won’t employ 14 million people, most of who are not construction workers.

Where  He’s Wrong

On the other hand, there are several places that I just flat out think the President is wrong.

Federal Money to Rebuild Schools

And there are schools throughout this country that desperately need renovating. How can we expect our kids to do their best in places that are literally falling apart? This is America. Every child deserves a great school — and we can give it to them, if we act now.

The American Jobs Act will repair and modernize at least 35,000 schools. It will put people to work right now fixing roofs and windows; installing science labs and high-speed Internet in classrooms all across this country.

I’m all about education (even if, as a high school drop-out, I’m not a huge fan of public ed), but I don’t agree that this has anything to do with getting the economy going or creating jobs. Yes, every kid should go to a good school, but no, that has nothing to do with the economy, or with the federal government. That’s the states’ job, and the only thing it does is redistribute money from state A to state B.

So, Mr. President, rather than increase our taxes (or the deficit, but it’s the same thing, in the long term), just let us keep our money in our states, and we’ll fix the schools ourselves.

Federal Money to Hire Teachers

Again, with the education thing.

Pass this jobs bill, and thousands of teachers in every state will go back to work. These are the men and women charged with preparing our children for a world where the competition has never been tougher. But while they’re adding teachers in places like South Korea, we’re laying them off in droves. It’s unfair to our kids. It undermines their future and ours. And it has to stop. Pass this jobs bill, and put our teachers back in the classroom where they belong.

My problem with this is the horribly faulty logic and the blatant pandering to the education unions.  As economist Arnold Kling explains “it assumes that state and local governments need more money in order to keep teachers. They do not. They could reduce compensation and maintain hiring or even increase it.”

In other words, states aren’t firing teachers. Teachers are leaving for better paying jobs, or the states are paying teachers too much (and that’s an entirely different conversation than this one, which is, if you forgot–THE ECONOMY).

A reduction in the number of teachers only indicates that you need more money if the reduction comes from teachers quitting their jobs. If you are laying off teachers, that shows that you are making a choice to keep their compensation too high rather than have more on staff.

Get it? States aren’t firing teachers to make cuts–they are paying them more than they should. They could pay less, and employ more, but (again, enter the unions), that’s not going to happen.

Remember, I’m not saying that what teachers are paid is fair or enough. I’m saying that there’s no correlation, in spite of what President Obama is trying to trick you into believing–that states have fired teachers because of budget crunches.

If you aren’t a teacher, you must be an oil executive

Should we keep tax loopholes for oil companies? Or should we use that money to give small business owners a tax credit when they hire new workers? Because we can’t afford to do both. Should we keep tax breaks for millionaires and billionaires? Or should we put teachers back to work so our kids can graduate ready for college and good jobs? Right now, we can’t afford to do both.

This isn’t political grandstanding. This isn’t class warfare.

Actually, it sounds a lot like class warfare. The 14 million people out there that are unemployed are, for the most part, not former teachers. In fact, education, up until 2010, was the industry that actually increased in employment.

Enter the graphic:

And that was just as of the middle of 2010!

Who are the big losers, then? You wouldn’t know it to listen to the President’s speech, but among the unemployed you can find former professionals and business service providers , construction workers (housing industry, not bridge building, though arguably, they could cross over, I assume), durable goods (like the auto industry) and retail (where shop).

Conclusion: Fail. Just like all the other plans.

I’d like to see the economy rise in the next year, because everyone would win. But what President Obama does get is that he doesn’t get it. Like one candidate said in the Reagan Library Republican Debate Wednesday night, “the President is a nice guy, but he doesn’t have a clue.” And, as another said, “its time to get out from behind the teleprompter.”

Yes, he can speech-ify, but speeches don’t amount to results, as we’ve seen for the last three years. I hope the Congress can find the morsels within the plan that will help, pass them, and move us forward.

On the whole, though, I’m not sanguine. As one Twitter level pundit put it, the speech was not expected to offer anything new. And it didn’t fail to deliver on that point.

[Read the full text here.]

Related articles

Enhanced by Zemanta

Reagan Debate Recap: Perry, Romney and six other candidates

Ah, presidential debates. They have little to do with demonstrating one’s fitness for the highest office in the land, and yet they are often weighed and measured with the highest of stakes.

Such it is for our generation, cultured to see winners and losers after a series of head to head play-offs, championships, and competitions between athletes. We’ve simply transferred those expectations over to the selection process for our chief executive.

Enough philosophizing, though, let’s look at last night. What were the substantive results on the race?

From my perspective (in an arm-chair far from the spin rooms), we are starting to see true colors. Further, with Rick Perry finally in the race and on the podium last night, the race feels full. We’re still missing Sarah Palin, but she’ll show up, if just with her bus as she “tours” America.

Yes, I do think there’s a good chance she’ll get in.

But back to the debate. Since your time is short, here’s the skinny on the “winners” and “losers.” Since his supporters will cry “foul” if he doesn’t get his due for winning the after debate polls, we’ll start with Ron Paul.

  • Ron “if I had a silver dime for every time the press ignores me” Paul: From moments of brilliance (attacking Perry with an ad for his support of Al Gore then going after him on HillaryCare in the debate) to sheer weirdness (gas for a “silver dime”), I both like what he says and shake my head. He’s kaleidoscopic.
  • Mitt “I have a 160-page plan to kick-start the economy” Romney: Coming into the debate as the strongest candidate but down in the polls due to Perry’s entrance to the race, he managed to come off articulate, graceful (especially when the rest of the candidates were piling it on to Perry), and wise (as when he took a Reagan-esc stance on Social Security). While not the clear winner, he remains on his pedestal as the man to beat (Obama in 2012).
  • Rick “We execute bad people” Perry: with expectations set high, Perry came out strong against Ponzi schemes–er, I mean Social Security–but weakened as the others pointed out his weaknesses. Fortunately, for him, it was not an “intellectual discussion,” a term he use dismissively twice, and he’s not Mormon, as Chris Matthews pointed out repeatedly. I couldn’t help but feel like he had all of George W.’s strength, but none of his charm or wit. A pretender.
  • Jon “I can beat Obama if we skip primaries” Huntsman: Trailing (everyone) Huntsman excelled at looking and sounding articulate, but also a bit petty. Huntsman repeatedly drew attention to Utah’s economic success under his term as Governor, but I couldn’t help but wonder why all the Utah State Legislators who served with him  and delivered those bills to his desk are now supporting Romney…
  • Newt “I’m running for Veep” Gingrich: To the press: don’t mess. Gingrich was articulate and reminded us all that he was a part of the Reagan revolution. I couldn’t shake the feeling that he’s shifting to VP candidacy land, though.
  • Herman “9%” Cain: He continues to come up with good one liners, but he’s not making ground.
  • Michelle “SNL” Bachmann. I know SNL was watching, just hoping she’d stay in long enough for them to cast her…in the meanwhile, she’s fading. Perry has stolen her based, Pawlenty was gone for her to fight with, and her performance was next to unremarkable.
  • Rick Santorum: Did you know his parents and grandparents were Italian immigrants? He won’t leave until they stop inviting him, but he’s on stage…for now.
Your take? Is this really already a two-horse race? Can Huntsman pull out a New Hampshire miracle and become relevant in 2012? Will Bachmann find a way to win more than just the Iowa straw poll? Should we care that Ron Paul gets ignored by the media while last place runner Huntsman is their darling?
Official Portrait of President Ronald Reagan

Image via Wikipedia

The biggest loser of the night, as one colleague pointed out to me? Ronald

 Reagan. He’d be a RINO next to these guys, especially Perry and Bachmann (who at points sounded like a psychic trying to channel his spirit). He compromised, raised taxes, grew government to fight the “evil empire,” and, most importantly, inspired Americans to save the economy without the government’s help. Maybe it’s time the candidates stopped trying to be the Gipper and started trying to be themselves.

Also, to beat Obama and get the economy back on track.

And that’s all I have to say about that.

The Debt is Too Darn High

Apparently, that thing about ostriches sticking their head in the sand is no joke. Nor is it without parallel in the human world.

The other day I cited a study by a several prominent economists. Their research argued, quite persuasively, that excessive debt tends to inhibit economic growth. They looked a thirty year period,  included the debt levels of households, corporations and of 18 OECD governments (such as the UK, Australia, Germany, Norway, Portugal, France, Italy…and so on), and analyzed the effect of the debt on economic growth.

It’s a very interesting study, and coming on the heals of the debt ceiling debate, it reiterated, if indirectly, the arguments many people have made: the debt is too high, and it will hurt our economy.

Still, some people managed to dismiss it. Blithely. The following bullet points are their points.

Never mind that the statement is internally contradictory, here are the facts:

After World War II, the US had lost 418,500 persons, or .32% of its population. With the exception of Pearl Harbor, no battles were fought over US soil, our industrial base had been increased over the course of the war, and US debt was held primarily by American citizens. Further, rationing was utilized and women entered the labor force for the first time in high numbers, filling the gap left by men serving in the armed forces.

Logo used on aid delivered to European countri...

Image via Wikipedia

In contrast, while the United States was building its industrial strength, the factories and infrastructure of the rest of the world was collapsing under bombs, bullets, and famine. While only .32% of the US population was killed in World War II (a smaller percentage than even the American Civil War, by the way),  the United Kingdom lost 450,900, or .94% of its population, three times as many killed as US killed. But even  that’s nothing. Recipient countries of the Marshall Plan (Austria, Belgium, Denmark, France, West Germany, the United Kingdom, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Sweden, Switzerland,  and Turkey) , the US’s aid program to rebuild Europe, were hit even worse. Austria lost 5.7% of its workforce, Germany between 8 and 10%, Greece between 4 and 11%, France 1.35%, Italy 1%, and Belgium 1%, to name a few. This doesn’t even account for the Soviet Union and its allies who were precluded from the Marshall Plan, or Japan.

Poland lost almost 17% of its population in the war. Lithuania and the Soviet Union each lost about 14% of their populations. In 1939 USSR terms, that means 23,000,000 total deaths.  China, while only losing between 2 and 4% of its population, still had casualties of over 20,000,000, greater than the combined populations of 1945 New York, Chicago, Philadelphia, Detroit, Los Angeles, Cleveland, Baltimore, St. Louis, and Boston. That to the American total casualties of under 500,000, few of which were civilian deaths.

To sum it up, the US left World War Two with high debt, a relatively untouched industrial base, few casualties compared with the rest of the world, and a global market decimated by  war. Is it any wonder we were able to grow dramatically after World War Two?

  • ” But what about crises? This data doesn’t take consider that were in a major crisis now, and we need to spend to get money into circulation.”

In the words of Bart Simpson, “Au contraire, mon frere.” The data actually controls for banking crises.  In fact, high debt may be the cause of such crises in the first place.

[R]elated to the crisis variable, we note that high levels of debt for a country as a whole or for one of its sectors may be a reason why a country may end up facing a banking crisis. But it may also be the reason why a given downturn, originating from events outside the country or the indebted sector, may turn out to be worse than it could have been otherwise. Using this variable thus allows us to check whether or not the effects of debt on growth are related with periods of financial stress.

Worse than it could have been otherwise…kind of makes you wonder if economic growth, which by all reports is now stalled, might be growing instead.

Ok, so I added that last part. The “evil” part.

As for failed, I’d hardly say that. In fact, that we are in the longest period of recession since the Great Depression, that we are increasing our public, person, and corporate debt at an unsustainable rate, and that economists and the credit rating bureaus are starting to engage in dialogue about unsustainable entitlement programs, all seem to show just one result: we need to change what we are doing.

The debt is just too darn high.

Frankly, this has nothing to do with Republicans or Democrats. It has to do with spending. As anyone who has read here with enough regularity knows, I don’t lay the blame for our high debt at the feet of Democrats alone. The Republicans have their pet projects, too, and neither party’s elected officials stand blameless.

However, I did not approach this as a partisan issue. I approached it from the perspective of reporting a highly credible report that just happens to support Republican stands during the debt ceiling debate.

Again, au contraire. This isn’t about what the government needs to do to help people get back to work. It’s what the government needs to stop doing to prevent them from getting back to work.

Don’t get me wrong. I believe that there is a place for government, that government can and does assist the economy, and that no government is a recipe for Somalia. No, I am not making a “smaller government” argument.

What I am arguing is this: the debt is too darn high.

Do I need to say it again? The DEBT IS TOO DARN HIGH.

And it’s hurting the economy.  Some debt is good. Debt, and My Better-half, put me through law school. But research is showing that at a certain level, too much debt begins to sap economic growth. It is, as the report states, a “double-edged sword.”

Enter the long quote:

As debt levels increase, borrowers’ ability to repay becomes progressively more sensitive to drops in income and sales as well as hikes in the interest rate. For a given shock, higher debt raises the probability of defaulting. Even for a mild shock, highly indebted borrowers may suddenly no longer be regarded as creditworthy. And when lenders stop lending, consumption and investment fall. If the downturn is bad enough, defaults, deficient demand and high unemployment might be the grim result. The higher the level of debt, the bigger the drop for a given size of shock to the economy. And the bigger the drop in aggregate activity, the higher the probability that borrowers will not be able to make payments on their non-state-contingent debt. In other words, higher debt raises real volatility, increases financial fragility and reduces average growth.

Hence, instead of high, stable growth with low, stable inflation, economies experience disruptive financial cycles, alternating between credit-fuelled booms and default-driven busts. When the busts are deep enough, the financial system collapses, bringing down the real economy too.

 So the recommendations?

Back to the study and the economists’ suggestions:

  1. Since aging drives up government expenditure (i.e. non-discretionary spending on Social Security, Medicare, Medicaid, etc), we need to increase our labor base. In other words, we need to streamline immigration. The immigration problem needs to stop being a problem so that people who want to work, pay into the system, and grow the economy are permitted to come here and do that.
  2. The United States—as a people, business environment, and government—needs to  shore up its financial markets so that it remains a low risk investment for emerging economies that have younger populations and higher savings rates.
  3. Free trade. The authors suggest that trade may “reduce the need for more radical changes in the composition of demand that aging otherwise brings.” But then, you  and I both know that free trade, as much as it works, is counterintuitive to the average voter.

What can you do? Save. Save. Save. Because, at the end of it all, savings is the only way out.

As with government debt, we have known for some time that when the private non-financial sector becomes highly indebted, the real economy can suffer.39 But, what should we do about it? Current efforts focus on raising the cost of credit and making funding less readily available to would-be borrowers. Maybe we should go further, reducing both direct government subsidies and the preferential treatment debt receives. In the end, the only way out is to increase saving.

[VIA]

Enhanced by Zemanta

Debt too high saps economic growth.

Debt. You don’t like it. I don’t like it. No one likes it.

And yet, without it, much of the prosperity and technological progress we rely upon would not be possible. Finance and the power of compound interest has thrust our economy forward faster than any in history. Yet, compound interest is not a tool you want to be used against you. As New York Times columnist Carl Richards notes, “It’s always been one of the most powerful forces in the financial universe.”

Don’t think it matters? Just consider the result of the downgrade of American credit:

Think about that for a minute. If those worst-case-scenario interest rates came to pass and persisted, we’d be approaching a trillion dollars in interest payments per year. That’s what compound interest looks like when it’s working against you.

If that trillion dollar number doesn’t do it for you (that’s 1,000,000,000,000), consider it on a more personal scale.

On a personal scale, you get a taste of it every month if you get careless with credit cards. Take a look at a bill. For every month you carry a balance, there’s a minimum payment required.

Use carefully, it’s a great tool for growth.

Without financing, countries–and businesses and families–are poor and stay poor. Whether it’s a student loan to get through college and get a job that pays better, a business loan to cover the cash flow gap between invoice and payment, or money to build infrastructure and fund the armed forces, finance is a necessary part of growth and getting out of poverty.

Yes, taking on debt creates vulnerabilities for any of these parties; however,  debt managed and controlled brings prosperity.

On the other hand, debt out of control creates financial crises. It stops = growth and harms economies.

When the ratio of debt to income rises to a certain level, a new study shows, financial crises–be it household debt, corporate debt, or a national government’s debt–”become both more likely and more severe.” In other words, too much debt is not a good thing.

Well, duh.

The study, entitled blandly but descriptively “The real effects of debt,” was reported by Stephen G. Cecchetti, M.S. Mohanty, and Fabrizio Zampolli, economists at the Bank for International Settlements, at the “Achieving Maximum Long-Run Growth” Symposium in Jackson Hole last week.

I can only imagine that the report’s findings threw a lot of cold water on the “more stimulus/raise the debt ceiling” crowd (aka “New Keynesian orthodoxy” believers, according to the economists), including Fed Chairman Ben Bernanke, fresh back from scolding Republicans for their reticence to raise the debt ceiling.

Why? Because, at least in part, the finding vindicates Republican fears about the malignant effect debt can have, and is having, on the national economy.

From the Introduction:

Our result for public debt has the immediate implication that highly indebted governments should aim not only at stabilising their debt but also at reducing it to sufficiently low levels that do not retard growth. Prudence dictates that governments should also aim to keep their debt well below the estimated thresholds so that even extraordinary events are unlikely to push their debt to levels that become damaging to growth.

Emphasis my own.

Which leads to the question: at what levels does begin to hurt and retard growth? The empirical results of the study, based on review of debt levels in 18 OECD countries from 1980 to 2010, show that:

  • Households can handle a threshold of about 85% of debt to income.
  • For corporations (non-financial), the number is about 90%.
  • Governments can borrow between 80 and 100% of GDP.

But that’s just in the short-term. Looking at advanced economies–in other words, Western Europe and the United States, Japan, and Australia– the problem is

compounded by unfavorable demographics. The ageing of populations and the rise in dependency ratios have also the potential to slow growth, making it more difficult to escape the negative debt dynamics that are now looming.

In other words, in our economy more of our population is getting old and few children are being born, which means that Social Security, Medicare, and Medicaid all have fewer  people paying for them and more and more people drawing on them.

If I’ve learned nothing from leaving the bachelor world for the role of a family man, buying too many Happy Meals for the kids may make me feel good, but it’s more expensive than a BBQ at home, and its less healthy, too. And when costs are going up faster than my income, that’s not the time to go out and get more debt.

What is our current federal debt ratio to GDP, then? Check out the chart below, and how it compares over our history. Note that, prior to recent history, the level of debt is only comparable to times when we have been at war.

World wide war.

In the meantime, we’ve become addicted to the Happy Meals as a national economy. While Social Security, Medicaid, and Medicare were all begun with the laudable, and often successful, goal of caring for the poor, sick, and elderly, they have expanded to bloat our national budget to a place where our ability to help those needy groups will someday become questionable.

And I do emphasis will. It is inevitable that if we continue on our current track we will be unable to aid those in need. The time for reform was last year, and the longer we delay, the more difficult it will be. We’re not getting any younger as a nation, and we’re not getting any richer either.

The debt is just too damn high.

[via CNBC, New York Times, and BIS]

Enhanced by Zemanta

Which is worse on the economy?

Feel free to elaborate on your choice, and why it is a loaded question, in the comments.

In the meantime, chew on this:

Enhanced by Zemanta

In which I express mock surprise at how well it pays to work for the President of the United States

Evidently, these salary increases are not connected to performance.

Gawker tells the story:

The White House says that many of those positions are considered nonpolitical jobs that come with their own pay schedules, and that what matters is that the total budget and average salary are decreasing slightly. But that doesn’t change the fact that White House staffers who stick it out are being rewarded, on average, for their continued service at a rate that far outstrips how the average white-collar worker is doing. The rhetoric behind the White House salary freeze was about making sure that the people engaged in leading the nation out of its economic mess share a sense of what American workers are experiencing. Unless roughly half of American workers saw their paychecks go up by an average of 8% last year (hint—they didn’t), that’s not the case.

Shocker.

Government revenues are down, but employee salaries are up. Well, not every employee’s salary–just those who work in the President’s staff. If this were a business (which it is not, and no, I’m not saying government should be run like a business), this would be the equivalent of the CEO giving his executives big raises while company revenues are falling.

In other words:

http://twitter.com/johnboehner/status/88618213008621568

Lest you think that’s a partisan sentiment:

http://twitter.com/AFLCIO/statuses/88606123711664128

 

I’d love to hear what those highly paid special and deputy assistants advise on that one.

PS: I’m not opposed to government workers receiving compensation commensurate with their qualifications, job description, and market demand. However, I do oppose policies that have done little but strap us with greater spending liabilities with little to no effect on our revenues.

Enhanced by Zemanta

When headlines state the obvious…