Tag Archives: economics

Progressives Need to Quit Complaining and Start Cooperating with the Republicans

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Sally Kohn, a Fox News contributor, offered a response to President Barack Obama’s Tuesday State of the Union address.  Herewith, I offer my response to her and to Obama.

Tonight, the president of the United States of America and the leader of the party that won the Presidential election in 2012 while losing the Congressional and State House elections set forward a plan not only for the next four years but the next four decades of American decline.

It is a plan that purports to build our economy from the middle class out and not just from the top-down, while ignoring the poor and their fading opportunities for upward mobility.

It is a plan that purports to believe American workers can get the skills they need for the 21st century and American companies can compete in the global marketplace.

It is a plan that creates a false choice between helping our students and seniors and creating jobs for everyone else in between on the one hand and cuts to spending on the other.

It is a plan that ignores the lessons of American history and the traditions of our founding values of limited government and personal opportunity and choice and personal responsibility.  And it is a plan that has already failed multiple times in this President’s administration and in those of prior Presidents’—and a plan that the American do not support!

Nine in 10 Americans—and eight in 10 Republicans and independents—agree that we need to create a road to citizenship for the hardworking, aspiring Americans who are so vital to our economy and our communities.  Over 85% of voters believe we need to strengthen the manufacturing industry in America.  A majority of voters support improving our roads and schools and creating jobs primarily through private enterprise and that where taxes are necessary for public infrastructure improvement, these should be minimal and temporary.  A wide majority of gun owners—and NRA members!—support common sense violence prevention measures like keeping weapons out of the hands of felons and those convicted of domestic violence actions.  A growing majority of scientists note that human activity as a driving cause of climate change is not supported by the evidence.  More and more Americans are recognizing that singling out particular companies—even whole industries—as “winners” outside the results of free market competition is wasteful of taxpayers’ money.   And most Americans recognize that inequality in America is a major problem and that our government’s distortion of  our economy unfairly favors that government’s chosen.

Americans understand the tight linkages between our enormous deficits and exploding debt on the one hand and jobs and our economy’s health on the other.  They also recognize that the latter cannot be repaired until the former is fixed.

A strong majority of Americans recognize the straw man Obama put forward that equates reforming Medicaid, Medicare, and Social Security so that they are made stronger and preserved for our children and grandchildren with cuts to these programs.  And they recognize the false choice that Obama made between reforming and strengthening our social safety net or cutting defense.

In other words, every single idea and initiative that President Obama outlined in his State of the Union Address is not only additional spending that our nation cannot afford and additional taxes that our citizens cannot afford—especially after the $600 billion tax increase passed with the fiscal cliff deal just concluded—but also directly contradicts the values and priorities of the majority of American voters: it’s the government as the solution rather than the strength and collective wisdom of Americans acting on their own priorities.  Those trying to argue otherwise are obviously intoxicated by the recycled air of their own ideological bubble.

 

In crafting his Republican response, Senator Marco Rubio (R, FL) noted that he and his fellow conservatives are the defenders of working people and immigrants.  And while Rubio repeatedly suggested Republicans agree with President Obama’s assessment of the problems we face as a nation, he repeatedly made clear Progressives remain opposed to any reasonable solutions.

The Democratic Party should be less worried about demagoguery and more worried about their substance.  No party that offers “jobs” bills built on failed—repeatedly!—Keynesian spend, borrow and tax…stimulus…, sends up legislation that purports to address violence direct against women but that only increases spending without addressing causes of violence, and offers an immigration act that is nothing more than amnesty for illegal behavior can claim to represent mainstream America, let alone a governing majority.

For crying out loud, Progressives in the chamber—including Obama and his Attorney General Eric Holder—couldn’t even manage to support protecting voting right protection with simple things like voter ID requirements or and helping kids go to pre-school in effective programs.  Instead of continuing to oppose everything conservatives stand for, Progressives should explain to the American people why the only thing Democrats seem to consistently stand for—higher taxes, more spending, increased borrowing, and coddled favored entities—didn’t ward off our financial crisis or create jobs with  those increases and coddlings in place.

Of course the irony in all this is had Republicans eked out a presidential victory with even a fraction of the margin President Obama enjoyed, they would be reforming and strengthening our social safety net along with repealing and replacing Obamacare and enjoying a broad and mainstream mandate to do so with strong public opinion favoring that action.  Instead, the Progressives’ present course consists of doing nothing, allowing these programs to fail, and allowing Obamacare to increase the cost of health insurance—for those who still can afford any coverage at all.

So the fact that President Obama continues to advance the plan for the nation that he does is evidence of either a deep and unyielding disdain for free markets and the power of the collective action of individual Americans without government involvement or a fundamental failure to grasp reality.  Or maybe both.

In every sense imaginable, America is stagnating, if not in decline.  Our economy is not recovering and we are in retreat from world.  Our demographics are evolving; our politics must keep up.

President Obama articulated a plan that is rich in spending and taxes, which any sensible Republican true to his principles and to the mandates of his constituency over the last two elections must be highly inclined to prevent.  The American people chose their path and elected—and reelected—a Republican House, with losses in the Senate smaller than is normal for a Presidential reelection.  Democrats would be wise to stop with the blanket criticisms and start finding a way to work with Republicans on real economic plans and social safety net reform.

Odd, isn’t it, how completely the Progressive plaint applies to openly, proudly “my way, or else” Progressives?

Obama’s Minimum Wage

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In his Tuesday State of the Union speech, President Barack Obama, among other spending demands, called for a boost to the Federal minimum wage from the current $7.25/hr to $9/hr.

Obama insists such a wage boost will “take millions of Americans out of poverty.”  However, this 24% increase in hourly wage represents a 24% increase in the cost of labor to an employer or potential employer.  This hinders employment; it doesn’t help it: that 24% is money with which an employer could do a number of other things: more product development, more advertising, more capital plant improvement, all of which lead to more hiring, or more hiring directly.

Worse, a government-mandated minimum wage increase is a permanent drag on employment and on our economy.  The ones who are the most hurt by this thing—the ones who will be laid off because the value of an hour of their work doesn’t reach $9 or those who won’t be hired in the first place, because the job available isn’t worth $9—are those who can least afford the damage.  Our youth, teens and early-20-yr-olds, already are suffering 20%-plus unemployment (almost 38% among black teens, a sharp increase during Obama’s administration), and have done for a number of years.  This is experience and job skills these people are not accumulating, and so future wage gains—even future jobs—they’re denied for that lack of experience/skill.  They’ll always be behind where they could have been had they been employable at a wage an employer could afford (which is based not just on a company’s top line, but also on those alternative uses for the money).

That lack of experience, with its concomitant loss of income potential, virtually locks those folks into their poverty condition—which represents an additional drain on our nation’s resources in the form of higher welfare support costs.

It also represents lost opportunities for our society, our nation, in the form of foregone creativity, productivity, innovation that these folks might have been able to provide had they only been employable early enough in their lives that they could have developed the knowledge base and the skills to generate these.

No, instead, we don’t have enough people employed, so we’ll raise the price of employment.  Yeah.  That’s the ticket.  We’ll go with that.  And we’ll ignore the inherently racist nature of minimum wages (or don’t disparate outcomes apply here?).

Farm Subsidies

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The US spent $277 billion last year on farm subsidies of all stripes; the amount includes $37 billion for conservation payments, most of which goes to large agribusiness.

The EU is learning about the costs of farm subsidies; it’s time we did, too.  The article at the link has a lot of environmental items in it; I’ll generally deal with the fiscal items.

The European Union plans to spend about €60 billion, or about 40% of the entire EU budget, on agriculture this year alone.  It’s a lot of money for an economic sector that generates less than 2% of the bloc’s gross domestic product and employs less than 6% of its workforce.

Individual (small) farmers can get €10,000 ($13,500), or more, from the EU’s spending.  However,

[t]he main beneficiaries of this policy, according to the authors of the journal Der Kritischer Agrarbericht (Critical Agricultural Report), are “large-scale, streamlined farming operations, which receive annual payments of up to €120,000 ($162,000) per employee.”

(That’s a helluva salary, were the money actually going to the employees.)

And

In Germany, 1.9% of businesses collect about 30% of payments, and they are not always farms.  Ice hockey clubs, aristocratic families and companies like candy maker Haribo and sugar producers Südzucker and Nordzucker also benefit from EU agricultural subsidies.  In 2009, defense contractor Rheinmetall also received a hefty sum of cash—for planting trees in a former tank training area.

Sound familiar?

While the EU is trying to tie continuance of these subsidies to environmental questions (a forced set-aside of 7% of farmland, for instance, since the claim is that plowing that land releases massive amounts of CO2), this won’t solve the underlying problems.

Farm subsidies of such magnitude (indeed, of any size, as is the case with all subsidies) drive up the cost of food for the consumer.  Taxpayers pay those subsidies, those wealth transfers, and so taxpayers are paying twice for those artificially inflated prices—once with the subsidy, and again when they buy the food being subsidized.  Further, those inflated prices drive the demand for food stamps.

Budgets, Deficits, and Debt

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In his press announcement last week, President Barack Obama made a lot of…interesting…comments.  Here are some, with some editorial remarks associated.

We’ve created more than 6 million jobs in the last 35 months.

However, if our economy were undergoing the recovery he promised his stimulus spending would produce, it would have produced 8 million jobs in that time, and we wouldn’t have fewer Americans working today than at the start of that spending.  If we were undergoing a normal recovery, we’d have even more jobs “saved or created” by now.

But we’ve also seen the effects political dysfunction can have on our economic progress.  The drawn out process for resolving the fiscal cliff hurt consumer confidence.  The threat of massive automatic cuts have already started to affect business decisions.

And

Deep, indiscriminate cuts to things like education and training, energy, and national security will cost us jobs and will slow down our recovery.

True enough.  But given that, he shouldn’t have demanded such indiscriminacy in his sequester demand of 2011.  Today, he needs to get out of the way and let budgets be passed that cut spending responsibly and in a carefully targeted manner.  More, he needs actively to help this process by requiring his Party-controlled Senate to put House-passed budgets (see below) up for vote and passage.

[W]e’ve been reminded that while it’s critical for us to cut wasteful spending, we can’t just cut our way to prosperity.

As someone said repeatedly in 2008, “Yes, we can.”

He also had this riff:

Democrats and Republicans have been able to come together and cut the deficit by more than $2.5 trillion….  [A] balanced approach [of tax increases and spending cuts] have achieved $2.5 trillion in deficit reduction.  That’s more than half way toward…$4 trillion in deficit reduction…required to stabilize our debt.

And

There’s no reason why we should keep [loopholes and deductions] at a time when we’re trying to cut down on our deficit.

And

If we’re serious about paying down the deficit, the savings we achieve from tax reform should be used to pay down the deficit.

Notice that: deficit, and not debt.  Obama cares not a fig for the magnitude of our national debt—100% of our GDP today, including all of our national debt, not just the publicly held portion—and its rapid growth.  “Reducing” our deficit leaves a continuously growing debt—not stabilization.

He also was careful to include his stock demand for higher taxes as a quid pro quo for even token spending reductions:

And I still believe that we can finish the job with a balanced mix of spending cuts and tax reform.

Obama’s speech adds up to an ignorance of how a free market economy actually works that’s breathtaking in its scope.  Or a cynical disdain for free markets and the associated individual freedoms.

The WSJ noted,

House Democrats have drafted a plan to replace all of the March 1 spending cuts with a plan that calls for both tax increases and spending cuts.  The proposal, drafted by rep. Chris Van Hollen (D, MD), calls for tax increases on the wealthy, reducing tax breaks for oil and gas companies and a reduction in farm subsidies.

Notice this, too: more tax increases, especially on the hated wealthy, and the Progressives’ standard singling out of evil oil and gas producers.  Van Hollen carefully is seeking to protect “green” energy companies (I hesitate to call them producers) from a similar reduction in tax breaks or subsidies for “green” energy companies.  The Progressives—not just Obama—are busy designating winners and losers in our economy.

There are, though, some in Congress (not on the left side, alas) who do understand.  House Ways and Means Committee Chairman Dave Camp (R, MI), for instance:

Tax reform should be about making the code simpler and fairer for American families and helping employers create more jobs.  The president’s proposal is nothing more than another tax hike to pay for more Washington spending.

House Speaker John Boehner (R, OH) said before Obama’s speech,

Republicans have twice voted to replace these arbitrary cuts [Obama’s sequester] with common-sense cuts and reforms that protect our national defense.  We believe there is a better way to reduce the deficit, but Americans do not support sacrificing real spending cuts for more tax hikes.  The president’s sequester should be replaced with spending cuts and reforms that will start us on the path to balancing the budget in 10 years.

Because balancing the budget—actually eliminating the deficit, not just “paying it down”—is a critical first step to reducing—paying down—our debt.  After all, the CBO says that

continuing large deficits would push the level of government debt held by the public—a commonly used measure that excludes the US Treasury bonds held in Social Security and various trust funds—to 76.3% of GDP at the end of September, the highest level since 1950.

and

[Failure to fix will cause] the gross domestic product, the value of all goods and services produced in the US, to grow by just 1.4% this year, measured from the fourth quarter of 2012 to the fourth quarter of 2013.

That’s less than last year’s 1.9% growth.  And full employment won’t be reached before 2017, the CBO says.

Artificially Low Interest Rates

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When the financial markets aren’t allowed to influence interest rates in accordance with market forces, there are wide-ranging consequences.  Here‘s one.

Ford Motor Co expects to spend $5 billion this year shoring up its pension funds, almost as much as the auto maker spent last year building plants, buying equipment and developing new cars.

The nation’s second-largest auto maker is one of a who’s who of US companies pouring cash into pension plans now being battered by record low interest rates.  Verizon Communications Inc contributed $1.7 billion to its pension plan in the fourth quarter and—highlighting companies’ sensitivity to this issue—Boeing Co now reports “core earnings” to separate out pension expenses.

Leaving aside the wisdom of defined benefit plans like pensions vs defined contribution plans like 401(k)s, and even assuming that interest rate assumptions underlying pension contributions in normal times are reasonable, this is money that would be better spent on capital plant, product development (both existing and new), hiring more workers, and so on.

Sort of like Ford did last year, but cannot use for this year’s priorities.