“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 26 2012

Obama’s Plan Worked?

C.M. Phippen

What plan was it that “worked”?

The plan where the debt held by the US government increased by an amount greater than the debt accumulated from George Washington’s presidency all the way to Bill Clinton’s?

The plan where US competitiveness fell from 1st to 5th?

The plan where unemployment went up as rapidly as the federal deficit and 700,000 more workers lost their jobs during the Obama recovery (I’d certainly hate to see an Obama recession)?

The plan where already unaffordable worker health insurance costs increased 23 percent?

The plan where the number of Americans in poverty rose by 6.4 million, to the highest level since the start of the war on poverty in 1965; and that is with the safety nets in place that were created by that war?

The plan where the number of Americans on food stamps increased 44%, to the highest rate EVER, all while the government runs ads touting dependence on food stamps to help you “look amazing“?

The results of the plan which lead Henry Waxman to declare this?

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.

Aug 31 2011

Krugman and Irene

C.M. Phippen

Two weeks ago, Paul Krugman was calling for a fake alien invasion to stimulate our economy. I think he’s almost gotten his wish.

Estimates of damage from Hurricane Irene range anywhere from $13 billion to $45 billion. Think of all the jobs that will need to be filled. Better yet, much of the work that needs to be done will be paid for with borrowed government funds – it’s a Keynesian’s dream.

Rebuilding should keep people busy for a little while, and when they’re done up North they can head down to Mississippi and help the rebuilding effort still going on down there, six short years after Hurricane Katrina.

Of course, this is the same Paul Krugman who suggested that in order to replace the Nasdaq bubble of the late 1990s, “Alan Greenspan needs to create a housing bubble.” He saw this as the solution to the lack of corporate spending; “soaring household spending” was, to him, the answer. In other words, moving money around in the economy by creating artificial growth.

In fact, the White House is now defending the idea that government transfers through extended unemployment insurance actually lead to growth. The assumption is that without those transfers, no money would be spent by unemployed individuals and with the transfers, no incentives for less productive behavior are taking place. If both of those things were true, the Obama economic policy might be preferable to nothing. Unfortunately for Team Obama, they’re not.

According to Alan Krueger, Obama’s newly-appointed economic advisor, extended unemployment benefits (wealth transfers) increase length of unemployment and can lead to more layoffs. Studies have shown that the closer one is to the cut-off point for benefits, the longer time spent actually looking for a job.

As far as the White House’s claim that each dollar in unemployment benefits spending leads to $1.73 in short-term economic growth, false assumptions are made which equate each dollar in benefits with one dollar spent. For every dollar in additional unemployment benefits, only $.55 actually makes it into the economy because individuals tend to reduce their reliance on their own savings if the government will pay them and for married individuals, spouses tend to reduce hours worked when benefits are increased.

The past three years have shown us Paul Krugman and the left’s version of economic growth – government jobs, government “investment” and government wealth transfers with weak economic growth and stubbornly high unemployment (but hey, we’ll all have that “free” healthcare soon!). Forget business investment, product development, innovation, increased efficiency; no, this moving money around thing is just working so well.

Sep 14 2010

Unemployment and the Effect of More Benefits

C.M. Phippen

Robert Barro of Harvard University’s business school recently analyzed the impact of the unprecedented extension of unemployment benefits to 99 weeks. In his analysis, he concluded that had unemployment benefits not been extended so drastically, we would probably currently be seeing a rate of unemployment around 7%.

The original estimate by the administration was that unemployment wouldn’t exceed 8%, and they claim that was the high most economists expected even before the passage of the stimulus bill, back in Q4 2008. Seems as though the stimulus has been anything but, and Recovery Summer has been a major bust. The good news out recently is that consumer retail spending increased 0.4% in August, the largest increase in five months. Autos, electronics, and furniture were all down, but apparently back-to-school shopping saved the day and I don’t think the effect will continue into the coming months.

We are currently seeing historically high rates of long-term unemployment, at 46% of all unemployed. This is worsened by the fact that the longer one remains unemployed, the lower the chance of finding work. As discouragement kicks in, many simply give up and stop looking.

In his textbook published last year, Paul Krugman had this to say about generous and long-term benefits, “Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of ‘Eurosclerosis,’ the persistent high unemployment that affects a number of European countries.”

While US benefits are typically 33-50% of worker pay, when adjusted for payroll taxes, child care, transportation, and other expenses of working, it can be economically feasible for many to make the choice to wait a while longer to look for a job. In fact, Mother Jones recently published an article explaining that rates of long-term unemployment among college graduates are substantially lower than among the non-college educated. This is consistent with the idea that when lower income workers adjust their pay for expenses, which eat up a larger percentage of income than for most middle-and upper-class (generally college-educated), staying home a few more months just may make sense.

My husband was recently speaking with an older gentleman who works at a local convenience store. It was late at night, and without any other customers in the store they started talking about their lives. It turns out this man had recently moved from another state after his business of 15 years was destroyed by the recent economic downturn. He sold high-end home furnishings and when people stopped buying and furnishing homes (and started living within their means), his business came to a screeching halt. He lost everything, picked himself up, and moved to a place where he was able to find a job working nights in a convenience store. He’s there most nights, with a better attitude and demeanor than many workers in a whole lot of industries. He’s grateful for a job and for the self-respect that comes from working hard. As the economy turns around, he and people like him will move back up. What of those who don’t work for nearly two years? Many will be left behind permanently.

But hey, the campaign slogans for those politicians who’ve potentially handicapped millions of jobless Americans will be great, won’t they?

Aug 6 2010

Unemployment, With or Without the Stimulus

C.M. Phippen

While listening to an interview with Joe Biden’s chief economic advisor, Jared Bernstein, I heard what sounded like an admission that the White House hadn’t necessarily expected the stimulus bill to hold unemployment at a rate any lower than was already the “consensus” estimated rate.  Larry Kudlow, on The Kudlow Report, asked Bernstein about the promise made by the White House that if the stimulus bill were passed quickly, the unemployment rate would not exceed 8%;  it currently stands around 9.6%.

Mr. Bernstein responded by saying that during the fourth quarter of 2008, the consensus was that 8% would be the height of unemployment in this country.  He went on to say, “We were right with the central forecast.  We did not know that the, nor did any other, hardly any other economists, that the unemployment rate was headed up so quickly, that the economy was headed off a cliff . . .”

Okay, I get it.  You spoke before you realized the extent of the recession, and hey, who knew a consensus could be wrong, right?

But wait, Obama wasn’t yet in office in the fourth quarter of 2008.  The president had not at that time even submitted a stimulus plan to be considered by those formulating the “consensus,” had he?

I’ve attempted to contact the White House to for clarification; I’ve rewound my TiVo and watched it again; I’ve emailed The Kudlow Report to see if they can get clarification.  If this administration made a promise to us that unemployment wouldn’t exceed the level they now claim was the “consensus”  maximum even before a stimulus bill, if we would only spend over $800 billion, then we all just got shafted.

Not only did unemployment far exceed the promised 8% maximum, but I can only assume the administration didn’t  have much confidence in the effectiveness of their own bill, the one that just had to be passed right now!  If they did believe it would actually “create or save” a significant number of jobs, it only makes sense that they would have taken the consensus peak unemployment rate and reduced it by the percentage of jobs they planned on saving or creating.  I understand, though, not wanting to overpromise.

On the other hand, the fact that they took the consensus peak and assured us their $860 billion bill to reduce unemployment would keep us below that already assumed high, and then it still didn’t, doesn’t bode well for all of us who weren’t close enough to the administration to get our own big fat stimulus check.  Nor does it bode well for our children and grandchildren, who will be paying for those checks for years to come.

Watch the video here (the portion I reference starts right around 6:10 if you don’t want to watch the full 12 minutes):

Aug 4 2010

Steve Wynn Doesn’t Trust Washington; Can We?

Take a look at Steve Wynn’s commentary on the destruction currently being foisted on all of us, courtesy of Washington, due to out of control spending and regulatory policies.  Unfortunately, most American businessmen can’t simply relocate a portion of their business overseas to countries with “steady,” “predictable” governments like Macau and China (?!) in order to mitigate the lack of “stability and predictability” in Washington.  I’m afraid the small businessmen are the new “forgotten man,” those who did nothing to contribute to the financial meltdown but who are now being taxed to pay for the bailouts of the guilty and their cohorts in Washington.  All the while, the uncertainty of massive new regulation is strangling innovation and investment.

Jul 20 2010

Blame and Discipline

C.M. Phippen

I heard our president today, complaining that the Republicans are standing in the way of the Democrats’ desire to extend unemployment benefits without paying for it through spending reductions elsewhere or by diverting unused money already set aside for the stimulus. Democrats are refusing; they only want to pass a benefit extension bill that is paid for with newly borrowed funds. In fact, Obama today said, “It’s time to stop holding workers laid off in this recession hostage to Washington politics.” Nice . . .

Am I the only one who remembers 1995? The Republicans controlled Congress for the first time in 40 years and true to the conservative principle of fiscal responsibility (which they adhered to for at least a couple of years), refused to accept the Clinton budget. The Republicans wanted to see more spending cuts, and forced Clinton into a battle of frugality which eventually ended when the administration finally submitted a budget that proposed to eliminate the federal deficit within seven years.

The ensuing firestorm in the media, which blamed the Republicans for victimizing the government workers who were temporarily out of work, never gave them credit for the result of that shutdown – a balanced budget. In fact, most liberals I know love to use that very budget as their greatest (and only) example of fiscal restraint.

Now we have a president who wants to play the same little game, accusing those who are listening to the voice of the people crying out for fiscal responsibility of “holding hostage” the American people. This, from the party which clamored for spending restraints under George W. Bush (most conservatives did, as well) but which has been more than willing to triple our federal deficit, as a percent of GDP, to nearly 11%.

Unless we stop calling names and start controlling the checkbook, we’re going to have a whole lot more to worry about than not being able to pay multi-year unemployment benefits.

Jul 7 2010

Cash and Corporations

C.M. Phippen

My husband was recently speaking with a friend who works for a large venture capital firm. His friend informed him that while companies have mountains of cash right now, no one wants to invest and he’s never seen anything like it in his industry before. The uncertainty of the financial markets, brought on by fear of increased taxes on investments as well as income, is so disconcerting that a state of paralysis has overtaken much of our economy and made growth nearly impossible.

Joe Biden has admitted that “There’s no possibility to restore 8 million jobs lost in the Great Recession.” During the presidential campaign, a common complaint was that Obama had no business experience. I’m afraid that when our country elected a man who, despite all protestations to the contrary, exhibits through his actions the belief that only government can save us, we got exactly what we voted for. Further, this is a man who never had to innovate, never had to make a payroll, and never had to worry about the bottom line; instead, he organized victims in the community, probably paid for by government grants, and then worked as an adjunct college professor with a guaranteed salary. Of course he and Joe can’t figure out how to create jobs (other than those short-term census gigs, but that might have more to do with the founders than this administration).

I know businesspeople who would be glad to hire more workers but they see absolutely no incentive or benefit in taking risks right now. If their gamble is successful, they’ll soon be paying nearly 40% of their increase in income to the federal government, and there’s always the pretty good chance that the economy really isn’t turning around and workers will need to be laid off, resulting in penalties to the employer through increased unemployment premiums. Why bother?

According to Karl Denninger at The Market Ticker, corporations are hoarding cash because they see things getting worse; if they saw growth opportunities, they would certainly be investing in them.

So, buckle up and hold on because this market indicator tells us that it’s going to get a whole lot worse.

Dec 9 2009

Just Another Spending Program?

by Ian Stermer

Obama has just announced a plan to use the $200,000,000,000 in soon-to-be-returned TARP funds to stimulate the economy, specifically jobs. Let me first state I applaud the idea of creating jobs as a path to improving the economy. The current “jobless recovery” leaves as many people homeless, food-less, health care-less, and in need of aid as no recovery would. The last stimulus bill didn’t help, so something new must be tried.

Obama’s plan sounds nice, as long as you don’t think about it much. Use funds due to be paid back to us, rather than go further in debt. In that respect, it is good. Going further in debt is bad. The problem lies in the fact that we are already in debt. With debt comes interest that must be paid. The longer we hold a debt, the more we have to pay in interest. Interest is a huge problem. In Fiscal Year 2009, the government spent $383,000,000,000 on interest payments. Compare that with $53,000,000,000 on education, or $73,000,000,000 for the Department of Transportation.

The TARP bill was set up as a revolving loan program, where repayments were to be funneled back into the program until its end in December 2009 (although expected to be extended until October 2010, at least). At the end of the program, repayments were to be used to pay down the deficit. Unlike the Stimulus Bill, which was a spending bill, TARP was to be a loan. Any questions about repayment should be quelled by Obama’s confidence-inspiring statement “most of the money going to the banks will probably end up being paid back with interest.” My troubled heart is now at rest.

Some justifications could exist for diverting the money; there are times that it is wiser to invest in a new venture rather than to pay down a debt. For example, after college I opted to buy a CD at 5% interest rather than pay down the principle on my 0.5% interest rate student loan. The question here is does Obama’s plan offer more reward than the alternative?

The answer to that lies in how the money would be spent. Obama has laid out three areas to target with the funds: helping small businesses to add staff and grow; updating transportation infrastructure like highways and bridges; and refitting homes to be energy-efficient.

Small business growth is a no-brainer. We want that. Small businesses make up just over half of all US jobs. In the last 15 years, 64% of all new jobs have been in small businesses.

Infrastructure is nice, but it is questionable how much impact it would have long term. It provides short-term jobs to out of work construction workers. While helping these people temporarily, it is unlikely that the increased spending from this sector will do much to solve the big picture.

Likewise, refitting homes could give more construction workers jobs, and the money saved on heating and cooling bills could go to other expenses that would help the economy, but to what degree is debatable.

Wherever it is spent, though, it will be spent; not loaned, not expecting a return. Worse still, Congress seems excited to spend, but doesn’t really know what to do yet. According to Rep. Steny Hoyer of Maryland, the No. 2 Democrat in the House, “100 billion, 150 billion, 75 billion — those are all figures that are being talked about.” Remember the Department of Education budget was only $53 billion.

So this new job creation program will differ from the stimulus package in that it will encourage construction and small businesses. It seems that was the focus of the last Stimulus bill. If that one didn’t create jobs, what does this one promise to do differently?

Dec 1 2009

The Unemployment Problem

C.M. Phippen

Business leaders will meet on Thursday with White House officials in order to “ponder ways to boost employment.” After mistakenly promising unemployment below 8% if the stimulus bill were to pass, this administration has finally determined that maybe those who’ve been creating jobs and wealth might actually know something about . . . creating jobs and wealth.

One would hope that serious consideration would be given to the suggestions made by those whose business is to produce, employ, grow, and make a profit; but this administration’s policies have been consistently unfriendly to small businesses – those that actually create the majority of jobs in this country.

CEOs and business owners, according to the Wall Street Journal, are interested in having a discussion about tax incentives for new hires and eliminating whatever uncertainty can possibly be eliminated in the current climate.

Bills currently under consideration in Congress, including the health care bill and cap-and-trade-type legislation, could potentially increase the costs of doing business so astronomically as to completely shut down the growth of some companies. Until there is a reliable way to project costs, new employees are simply too much of a risk for many businesses in this depressed economy.

The Obama administration is apparently interested in discussing job growth in the clean-tech sector, failing to realize that without the infrastructure to support the industry, few new jobs will be created quickly and the work will go to foreign workers in other countries.

Of the $1.05 billion already given out in clean-energy grants from stimulus cash, 84% has gone to foreign wind companies. While those companies may have subsidiaries in the United States, the numbers of Americans employed as a result of those grants is negligible. Iberdrola Renewables, a subsidiary of a Spanish utility company, has received $545 million alone and was able to announce a $247.4 million profit during the first 9 months of this year. The company employs just 800 individuals throughout the United States.

The bulk of the money made through wind projects is made in the manufacturing of turbines. Nearly 3/4 of the jobs created in this industry is in manufacturing, as opposed to just over 1/4 for the operation, maintenance, and installation of the turbines. It should also be noted that, according to the Renewable Energy Policy Project, for every 1,000 megawatts of wind energy developed there are 4,300 jobs created.

Of the grants given from stimulus funds, 1,763 megawatts of capacity were developed; of those, 1,566 were installed by foreign companies. What this means is that approximately 4,500 jobs were likely created overseas with our tax dollars, at a time when unemployment in our own country has exceeded 10%, and our president claims lowering unemployment (ostensibly with stimulus funds) is a major priority.

Is it too much of a stretch to take our recent experience in renewable energy cost dynamics and draw on it when examining the German experience, nearly 20 years in the making? A final report, issued in October of this year regarding the economic impacts of the promotion of renewable energies in that country, does little to convince that the future holds any greater economic achievements for us down the road than those achieved in Germany.

While job growth projections look appealing, they apparently fail to take into account offsetting job losses which result, including the opportunity cost of investment being diverted from “other, possibly more beneficial investment.”

Additionally, because more workers are needed to produce a given amount of energy than is necessary with traditional energy production, the output potential of the overall economy is diminished. This then leads to lower net job creation. According to the German study, “Significant research shows that initial employment benefits from renewable policies soon turn negative as additional costs are incurred.”

The existence of renewable-energy jobs in Germany has also been found to be completely dependent on government support, and subsidization is as high as US $240,000 per worker. This, after nearly 20 years of development. Our current administration may have to make a decision as to which is more of a priority at this time: clean-energy production or job creation.

There have been laid out for us two conflicting goals, where the evidence points to the fact that pursuit of one will fully undermine the achievement of the other. Failure to acknowledge the existence of a such a conflict does nothing to avoid the problems inherent in it and simply relegates us to repeating mistakes laid bare by the history and experience of others. Let’s learn from history and move forward rather than deny reality and undermine our future.