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“Our practical choice is not between a tax-cut deficit and budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve . . . a budget surplus.” John F. Kennedy

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Jul 24 2012

Stimulus and Economic Growth?

C.M. Phippen

According to a recent interview with Larry Kudlow, Alan Greenspan admitted that, much to his surprise, the economic stimulus had a negative effect on the economy. The data showed that not only had it not been stimulative, it was actually detrimental to economic growth. Our government spent nearly $1 trillion and it not only did nothing to “stimulate” growth, it actually hindered it.

That makes sense, based on a little statement by Jared Bernstein a couple of years ago. I wrote about it at the time. Bernstein was the chief economic advisor to Vice President Joe Biden and he stated that the consensus among economists was that unemployment would not rise above 8 percent. This consensus ostensibly existed independent of any plans by the administration to pass a stimulus bill that amounted to nearly $1 trillion of borrowed money, as it existed in the fall of 2008 and prior to Obama entering the White House. Apparently the administration was as surprised as Alan Greenspan to find that the stimulus did precisely opposite what our president told us it would do.

One could expect any open-minded, non-idealogical leader to learn from the events of the past few years and change course; reconsider the policies that have stunted economic growth and harmed millions of Americans.

When asked recently by a reporter why President Obama hadn’t met with his jobs council in over six months, Jay Carney’s response was that the President “has a lot on his plate.” Of course, he has attended over 100 fundraisers and is a prolific golfer and entertainer of celebrities.

But back to the economic reality that the rest of the country must face every day, a recent study by Ernst & Young claims that we will experience a loss of over 700,000 jobs if the Bush tax cuts are not extended for upper income earners. If legislation extending those tax cuts for upper earners crosses his desk, Obama apparently will veto it.

On a number of occasions, when confronted with the evidence that raising certain tax rates reduces federal revenue and cutting those rates increases revenue, Obama’s response has been that he would still raise taxes on the rich for reasons of “fairness.” One must assume he just isn’t interested in the effect of such policies on the broader economy.

Then there’s Sen. Patty Murray’s recent comment that if the Republicans won’t cave to the Democrats by helping them to pass legislation that would exempt top earners from an extension of the Bush tax cuts (remember, costing our economy an additional 700,000 jobs) then the Democrats should allow all of the tax cuts to expire. According to Citigroup, if this were to happen we could expect a 4 percent hit to growth in 2013. Even if Congress extends the “middle-class” income tax cuts and allows all others to expire, we can expect a 2.9 percent decline in growth.

This in an economy that has only been growing at around 1.7 percent for the past two years. Either of these options would most likely swiftly throw us back into recession. But of course in this political machination (most likely non-idealogical), I’m sure Pres. Obama and Sen. Murray are only looking out for the middle class and poor, who actually need a job to get by.

Then there’s this remark from Alan Greenspan in the same interview, where he said that the largest problem with our debt (the Peter G. Peterson Foundation has been telling us this for a very long time) is entitlements, specifically Medicare. The solution to the debt problem for this administration was to add to our entitlements, specifically health care, in such a way that anybody who is capable of performing simple mathematical functions is completely aware will cost us multiple trillions of dollars every decade and most likely many times that.

I’m just wondering, after this administration has, through it’s policies of fairness, pushed more working-class Americans out of jobs, decimating the income of the average consumer as well as wiping out much of the tax base, who’s going to be left to pay for it all?


Jun 2 2012

Get the Job Done or Get Out

C.M. Phippen

Last week I wrote about the fact that President Obama seems to want to make excuses for everything that he deems as getting in the way of him delivering his promised hope and change. Nothing works out quite like he believes it will, and yet he behaves as though there are no other options.

It was interesting then, to hear him criticizing Romney’s experience with Bain Capital. While Romney has a proven track record of turning around companies that are suffering from adverse circumstances brought on by world events, prior poor management, bad luck, structural changes in the economy, etc. Obama looks at these very same types of challenges, throws up his hands and says he can’t.

A friend recently shared with me her husband’s experience working for Bain & Co. many years ago. His job was to turn around companies and make them profitable in under six months, to take them from losing money to earning profits. Of course, as we all know, companies making money tend to hire and/or retain workers; companies losing money tend to lay off workers. And mind you, in under six months.

Admittedly, the US economy is a much larger, more complicated beast, but the principles for success and sustainability are still the same. “If I don’t have this done [the economy fixed] in three years, then this is going to be a one-term proposition.” Apparently, he felt that giving him 500 percent more time than a business consultant would get was adequate to prove the effectiveness of his strategies.

Not only did Bain Capital (the investment firm), under Romney, have a 78 percent save rate with regard to companies that were headed toward bankruptcy before Bain stepped in, but when Bain & Co. (the consulting firm) itself was headed for trouble in the early 90s, Mitt Romney was the person called in to turn around that company. Within a year under Romney’s leadership, Bain & Co. was again profitable and able to grow throughout the 90s at a rate of 25 percent per year, more than doubling the number of offices and increasing the number of employees.

On the other hand, the Obama administration handed out large amounts of money to various failing companies that have continued to fail even after receiving grants and loan guarantees from us, the taxpayers. Marc A. Thiessen had a piece in the Washington Post that outlined Obama’s record of public equity failures. These included:

Abound Solar, Inc. received a $400 million guarantee, drew on $70 million before halting production and laying off 180 workers.

Beacon Power received a $43 million taxpayer loan guarantee and filed for bankruptcy in fall 2011. We can assume loss of jobs for 100% of the workforce.

ECOtality received $126.2 million in taxpayer money. The company has sustained $45 million in losses and claim to have no foreseeable profits anywhere in the future.

First Solar received $3 billion in loan guarantees, yet the company’s trading price fell to record lows this month due to “$401 million in restructuring costs tied to firing 30 percent of its workforce.”

Nevada Geothermal Power (NGP) was given a $98.5 million loan guarantee in 2010. As of October 2011, its own auditor concluded that there was “significant doubt about the company’s ability to continue as a going concern.”

Raser Technologies was given a $33 million grant and filed for bankruptcy protection this year. The plant for which the money was used has fewer than 10 employees and owes $1.5 million in back taxes.

SunPower received a $1.2 billion loan guarantee and now owes more than it’s worth.

Many of the companies this administration chose to invest in were rated as junk bonds. Maybe that’s because “71 percent of the Obama Energy Department’s grants and loans went to ‘individuals who were bundlers, members of Obama’s National Finance Committee, or large donors to the Democratic Party.’” And maybe that’s why over 100 investigations have been launched relating to the Department of Energy’s green energy programs.

If this is what Obama calls capitalism, no wonder he thinks it doesn’t work.

The very things Romney was able to overcome at Bain are the very things Obama claims are outside of his control. Could it be that our president is right, that he just isn’t capable of working through the roadblocks in his way? If so, then I guess it’s time to elect someone who is.


Sep 6 2011

Government Business v. Private Business

C.M. Phippen

We all heard the news last week that yet another company on the President’s tour of success has declared bankruptcy. Solyndra, a solar panel manufacturer and, according to President Obama “a testament to American ingenuity and dynamism,” has sought bankruptcy reorganization.

In December of 2010, with less than one month’s reserves on hand, Solyndra sought to refinance by asking the Energy Department to subordinate $385 million of the $535 million guaranteed by the government. This would allow them to obtain an additional $75 million from outside sources. The Energy Department agreed, putting taxpayers behind new investors if things were to go wrong.

T.J. Rodgers, founder of Cypress Semiconductor and former Chairman of Sunpower, said on The Kudlow Report that on the day of President Obama’s visit to Solyndra in 2010 a secretary asked him what it meant that the President was there, visiting their competitor. He says that his response was, “Set your watch. That company will be out of business in one year.”

According to Solyndra President and CEO, Brian Harrison, “Regulatory and policy uncertainties in recent months created significant near-term excess supply and price erosion.” Regulatory and policy uncertainties? Huh, hadn’t heard that anywhere before. Looks like it might be a deeper problem than that, though.

According to Rodgers, the thin-film technology used by Solyndra is “lousy,” low efficiency and the cost per watt is double other technologies. He noted that the typical Silicon Valley startup is full of great ideas in a “crappy” building; Solyndra, on the other hand, built a palace which, according to reports, cost $700 million. The company also made the mistake of building their manufacturing facility in California, the worst state in the nation to manufacture, Rodgers added.

Solyndra’s cost per job amounted to $1.5 million, and now those workers are without jobs at all. Money well spent, or simply another attempt to override private markets and supplant them with an uninformed bureaucratic vision of utopia?

Rodgers, on the other hand, knows a thing or two about the solar panel business. In 2001, he invested $750,000 in SunPower, a solar panel manufacturer which uses a technology much more efficient and easier to manufacture than most others. Within a matter a months, Cypress Semiconductor, the company he built, had invested $168 million in SunPower, including the purchase of additional plants and equipment (Solyndra’s new plant alone cost $700 million . . . in this economy?). That company, by the way, is still around and growing despite management and R&D shakeups over the past couple of years.

Reminds me of the comment made by the Social Security judge, David Daugherty, who pretty much hands out Social Security Disability like candy (nearly 100% approval rate v. an average of 60%), “Some of these judges act like it’s their own damn money we’re giving away.”


Aug 4 2011

Obama and the Never-Ending Recession

C.M. Phippen

With the debt ceiling debate finally over in Washington, it’s time to take a serious look at where our economy is headed and what are realistic expectations for job creation and growth.

The US federal government has borrowed $4.5 trillion, most likely the biggest Keynesian experiment in the history of the world in a peacetime economy, and economic growth apparently hasn’t been much stimulated. Stephen Moore made this point on The Kudlow Report recently. The response of Dean Baker, echoing once again the tired excuse for failure that has become the mantra of the left, was that things would have been much worse without all that “stimulus.”

Baker makes the assumption that the alternative to borrowing and spending (moving around) $4.5 trillion would have been to do nothing. He then went on to say that the current slowdown in the economy is precisely because government spending has slowed down.

Maybe I’m confused, but I thought the purpose of stimulus was to actually trigger growth, not to simply keep money moving around in the economy. The problem is, that’s all Keynesian economic stimulus actually does.

The theory is based on the idea that deficit-financed funds injected into the economy by government (after being taken out through the purchase of government bonds in the first place) will stimulate growth down the line. In tough economic times, individuals horde money just like the left is accusing large corporations of doing. The US savings rate is at its highest point since the late 1990s, even with high inflation. (Nearly 30 percent from 2010 – 2011). The effect then remains the same as if the original investor had simply placed his money in a bank account; only now our government has new, massive amounts of debt we all get to pay back.

Here’s a hint for Baker: There are other alternatives. A relatively straightforward comparison can be made between Ronald Reagan and Barack Obama. The policy differences between these presidents couldn’t be more stark, nor could the effects of their policies on the growth of the US economy.

Reagan began his presidential term with high unemployment (10.8 percent in 1982), double-digit inflation, a poverty rate that rose significantly (33 percent) through the late 1970s into the early 1980s, a 10 percent drop in real-median family income during that same period, and a Dow Industrial Average that was down 70 percent from 1968.

During the seven year Reagan recovery, the economy grew by nearly a third, private sector employment increased 20 percent, real per capita disposable income grew by 18 percent, the poverty rate declined every year from 1984 through 1989, and the stock market more than tripled from 1980 to 1990.

If we compare the first seven quarters of recovery under Obama with those of Reagan, here is what we find, from Peter Ferrara:

…While the Reagan recovery averaged 7.1% economic growth over the first seven quarters, the Obama recovery has produced less than half that at 2.8%, with the last quarter at a dismal 1.8%. After seven quarters of the Reagan recovery, unemployment had fallen 3.3 percentage points from its peak to 7.5%, with only 18% unemployed long-term for 27 weeks or more. After seven quarters of the Obama recovery, unemployment has fallen only 1.3 percentage points from its peak, with a postwar record 45% long-term unemployed.

One more illustration: