Category Archives: markets

Our Economic Future

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James Pethokoukis, at AEIdeas, has some thoughts. Oddly, so do I.

Pethokoukis first. He paraphrases Binyamin Appelbaum in New York Times:

…economist accept slower growth is partly the result of long-term trends…. [Y]ou have (a) the demographically-driven decline in labor force participation and (b) an apparent productivity slowdown starting in the mid-2000s as the pace of technological innovation and diffusion has slowed.

But these two are easily corrected. The “demographically-driven decline in labor force participation” is largely, if not primarily, the retirement of us Baby Boomers without associated replacement from births into existing and new families, much less an increase in that rate. (The long-term departure from the labor force by those who’ve given up finding work in this economy is a separate matter that policy corrections will resolve.)

The US, though, always has relied on high immigration rates, as well as yesterday’s higher birth rates, for our supply of workers at all levels of a company from the janitor/mailroom clerk (no dating me here…) to the President/CEO/Bossman. We don’t have high immigration rates today, so we’re not getting the influx into our labor force that we need. The illegal entry rates don’t make up for much of that at all, and the illegality of their entry serves only to hold them back from full contribution. That dearth is only exacerbated by our lower birth rates; it’s not caused by it.

The productivity slowdown and tech innovation rate is a function of the lack of new ideas, new approaches to old problems, creative approaches to new problems, etc from an entrenched population that’s used to doing things in the business world in a certain way (and that staidness is a fact of human nature). Here, too, immigration has played a major role in our economic vibrancy. Immigrants bring those new ideas, new approaches, new etc. And immigrants start new businesses—become those CEOs/Presidents/Bossmen—all out of proportion to their numbers.

All of which suggests a solution to that “slower growth” bit.

“Green” Energy Loans Have Consequences

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Fisker Automotive—the US electric car company that failed to repay roughly $139 million in federal loans [out of an original loan total of $192 million] before going bankrupt—is now owned by a Chinese company eager to unleash its cut-rate acquisition on the American auto industry.

The company’s assets were acquired earlier this year by China’s biggest auto parts supplier, Wanxiang Group, for $149.2 million in a US bankruptcy auction.

And

Wanxiang acquired A123 Systems [Fisker’s battery supplier] in a 2012 bankruptcy sale, after the company failed to repay millions to the same federal loan program that helped Fisker.

And

[Wanxiang] plans to produce the vehicles in Finland

Despite that wonderful record—which includes two failures in its five loans before the program was suspended—DoE intends to restart the Advanced Technology Vehicles Manufacturing Loan Program that was responsible for those losses. But it’s all good:

The department said it revised the application processes for the Advanced Technology Vehicles Manufacturing Loan Program to speed up reviews, and is reaching out to manufacturers of auto parts and components to participate.

Yet this will allow for even more slip-shod DoE “vetting.” And now they’re actively pushing more loans? See here for how well suited the Federal government is for managing business programs.

And never mind that the Obama administration’s DoE “green” energy loan program is such a success that that American electric car company that defaulted (some might say welched) on a DoE energy loan is now a People’s Republic of China electric car company.

Sort of like the bailout of a couple of failed American car companies was so successful that one of them is now an Italian car company.

An Illustration

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…of why government is unsuited to run what are essentially business operations.

Not to keep picking on Obamacare, but this program really is a poster child for why government can’t do this sort of thing. All year long, the Federal government has been trying to revamp its failed ObamaMart, euphemistically known as Healthcare.gov. Here’s the status of that effort.

  • ObamaMart still is transitioning to new government contractors to manage basic functions. This transition has been going on since the first of the year. They’re not even stable yet on what companies have been hired to do the work.
  • Some back-end functions, including a system to automate payments to insurers, are running behind schedule—still. These functions were supposed to be fully operational last October 1, at the initial deployment of ObamaMart. The revamp can’t get this right, either.
  • [N]ew versions of some functions still will need to be tested with insurers before open enrollment begins 15 Nov. Actual testing is a new wrinkle. Welcome to be sure, but even though CDS has said that ObamaMart was never seriously tested the first time, apparently CDS still is only testing some parts—spot checking.
  • [The] exchange for small businesses, delayed by technical problems last year…will “launch” without some functions.
  • [T]he system to funnel subsidy payments to plan providers for the benefit of plan purchasers (remember that back end?), originally supposed to be ready for the launch in October, then later set for completion by mid-March, is now scheduled to be fully operational in 2015—well after the enrollment period for purchasing 2015 plans has closed.

These highlights demonstrate a terrible performance, by an entity that has no concept of the cost of money and that has none of the performance incentives that a competitive environment in a free market economy provides.

And This Tidbit Re Obamacare—Finding Out More of What Is In It

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Even The New York Times is starting to figure it out.

Many employers had thought they could shift health costs to the government by sending their employees to a health insurance exchange with a tax-free contribution of cash to help pay premiums, but the Obama administration has squelched the idea in a new ruling. Such arrangements do not satisfy the health care law, the administration said, and employers may be subject to a tax penalty of $100 a day—or $36,500 a year—for each employee who goes into the individual marketplace.

The ruling…by the Internal Revenue Service…blocks any wholesale move by employers to dump employees into the exchanges.

Many employers—some that now offer coverage and some that do not—had concluded that it would be cheaper to provide each employee with a lump sum of money to buy insurance on an exchange, instead of providing coverage directly.

And

When employers provide coverage, their contributions, averaging more than $5,000 a year per employee, are not counted as taxable income to workers. But the Internal Revenue Service said employers could not meet their obligations under the health care law by simply reimbursing employees for some or all of their premium costs.

Of course, in a sane world, such reimbursement would be equivalent to providing coverage, just letting the individual

Never mind that such reimbursements are exactly that coverage—especially since the reimbursements are paid only when there’s been a health plan bought: sort of contained in the meaning of “reimbursement.” But then Big Government would have to accept that individuals are fully capable of exercising their own choice—their own judgment—in the matter, rather than needing Momma IRS’ judgment.

There’s more in the NYT‘s piece….

Obamacare—Finding Out More of What Is In It

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Labor is discovering more about Obamacare that isn’t all that.

the law doesn’t take into account that health benefits have been negotiated by employers and unions over decades, and that rewriting plans to meet new requirements can affect wages and other labor terms.

And

Uncertainty about future costs is also hampering negotiations. One of the biggest looming unknowns is the so-called Cadillac tax on high-cost health plans scheduled to take effect in 2018. The provision imposes a 40% tax on the annual cost of health care above $10,200 for individual coverage and $27,500 for family coverage.

The regional transit system in Philadelphia, Septa, estimates the tax will boost its health-care costs by $15 million a year, or 12.5% of the $120 million it currently spends each year on health coverage.

And [emphasis added]

Another provision of the law that eliminates caps on annual and lifetime health-care costs has forced multi-employer plans to purchase their own insurance to prevent potential runaway costs from bankrupting plans.

Jim Ray, a lawyer who represents the Laborers International Union of North America in benefits negotiations, said these provisions have increased construction-industry health plans’ costs by 5% to 10%, and already resulted in lower wages for some laborers. He said employers are frequently seeking contract language to cap their own liability for future cost increases from the law.

“When we first supported the calls for health-care reform, we thought it was going to bring costs down,” he said.

Hmm….