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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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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.


May 26 2012

What Is It that Our President Actually Does Know?

C.M. Phippen

The greatest economy the world has ever seen, the one responsible for the majority of the medical and technological innovation of the past century and for leading the way in eradicating 80 percent of the world’s worst poverty in the past 40 years, is being run by a man who claims himself a victim at every turn.

With each succeeding policy failure, President Obama can’t help but claim he just didn’t understand or for some reason he just had no power to overcome the obstacles in his way.

While holding the most powerful office in the world, he is paralyzed by events outside of his control. He blames Pres. Bush, natural disasters, Pres. Bush, Arab Spring, Pres. Bush, bad luck, Pres. Bush. In one of his most astounding excuses yet, he blamed a lack of job creation on greater efficiency (“structural issues”) in the economy.

The difficulties faced by our president are simply a part of the realities of life. Does Obama truly believe that no man before him has ever dealt with a financial crisis, a predecessor whose policies he didn’t agree with, bad luck, a shifting labor market or natural disasters? What if every man before him chose to make the same excuses or to walk away from the real solutions because they weren’t a part of his political strategy?

In every past recession over the previous 100 years, entrepreneurship has led us out and placed us back on the path to greater prosperity. For the first time ever, this is not occurring. Does President Obama even stop to ask why?

Over 4,000 new federal regulations are in the pipeline and “pending major regulations – those costing the economy $100 million or more – have increased 60 percent since 2005.” Recently, “20 percent of small-business owners said ‘government regulations and red tape’ was the single most important problem facing their business,” ranking ahead of anything else, including poor sales.

According to President Obama, because of these structural changes, “. . . what we have to do now . . . is identify[ing] where the jobs for the future are going to be; how do we make sure that there’s a match between what people are getting trained for and the jobs that exist; how do we make sure that capital is flowing into those places with the greatest opportunity.”

Entrepreneurs just figure those things out on their own. They don’t need a government program so that a bureaucrat who’s never run a company, met a payroll or put his life’s savings on the line to start a company can make decisions as to the proper allocation of resources within the economy; let alone rely on that individual to determine where those resources will be most needed at some point in the future. In a dynamic economy, where growth is encouraged, someone will always step up and take a risk as long as that risk has the potential for a commensurate reward in the end.

When has a centrally planned economy, or any variation of it, actually worked?

Here’s a guy who’s admitted that when he entered office his administration had no idea how bad this downturn was, despite the fact that he claimed it was the worst economic crisis since the Great Depression and called it a crisis of historic proportions. Yet he wants us to trust that he and his administration have the expertise to know how to allocate the various resources administered through the federal government in order to adequately train the unemployed to be prepared for the jobs of the future? He doesn’t even understand what the jobs and businesses of the future are.

This is the guy who told us that Solyndra was a model for economic growth, one of those companies of the future. As I wrote in an earlier post, while Obama was touting the “ingenuity and dynamism” of Solyndra, T.J. Rodgers, founder of Cypress Semiconductor, former Chairman of Sunpower and a man who apparently knows what real ingenuity and job creation look like, had a very different take. He has said 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. His response apparently was, “Set your watch. That company will be out of business in one year.” So much for Obama’s ability to judge the future.

This is the same guy who told us that if his massive stimulus of nearly $1 trillion were passed, we wouldn’t see unemployment rise above 8 percent. What we haven’t seen is it actually come down below 8 percent at any point since.

This is the man who told us that recovery summer was two years ago. Most of us are still waiting, as are the many businesses that are choosing to sit on the sidelines with record amounts of cash and not hire new workers in such an uncertain environment. Those threats to tax the rich and blame corporations may actually have a downside.

This is the same guy who said that the healthcare bill “will help reduce our deficit by as much as $1.3 trillion in the coming decades, making it the largest deficit-reduction plan in over a decade.” Updated CBO estimates now project cost increases over 10 years from $938 billion to $1.76 trillion, and that’s before we’ve had to actually start paying. If history is any indication, the cost is likely to be many times greater than even the new estimates.

Yes, still the same guy, the one who said that with his new healthcare bill, “Families will save on their premiums.” Unfortunately, though the CBO initially projected per family premium savings of over $2,500, more recent studies show increases of over $1,500 above what premiums would have been without the legislation.

Exactly what is it this guy actually does know? Maybe this, “We can’t doom another generation of Americans to soaring costs . . . and exploding deficits.” Yep, same guy.


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?


Jul 27 2010

Jobs and Tax Cuts

C.M. Phippen

As earnings reports come out, several companies are beating expectations, not only in bottom-line profits but also in sales. While corporations have had to cut back and trim down in order to pull back on expenditures, many are finally starting to experience some real growth.

Why, then, are they still not hiring? Last week I wrote about the fact that the political environment seems to be less than reassuring for business expansion and hiring. A comment was made by a reader that corporate tax rates are lower now than they were under Ronald Reagan, and I can only assume he was alluding to his belief that the current rates ought to then be good enough to do the trick.

The solution, though, seems to be all about the trajectory, and confidence in the political class going forward. Sir Martin Sowell, Chief Executive Officer of WPP, when asked by Larry Kudlow yesterday how the US can become a “re-emerging” market (in other words, attractive to investors as are the BRIC nations currently), his response was that the US must deal with our upcoming tax increases set for 2011 and our deficit, looking not at increasing taxes, but rather “looking at government spending.”

In a paper written by Christina and David Romer in 2008, they come to the conclusion that “a tax increase of 1% of GDP reduces output over the next three years by nearly 3%.” Christina Romer is the chief economic advisor to President Obama.

Why then, would this Congress allow the Bush tax cuts to expire at the end of this year, and why would the administration not support across-the-board tax cuts? According to Larry Kudlow, when Bill Clinton decreased the capital gains tax rate from 28% to 20%, revenue increased by $80 billion, and when George W. Bush reduced the rate even further, to 15%, revenues went up $85 billion. Couple that with the fact that Obama’s own chief economic advisor recently came to the conclusion that “tax increases have a large negative effect on investment.”

Timothy Geithner has recently stated that the White House would like to see tax rates for the top 2-3% of Americans increase in order to demonstrate to the world our commitment to dealing with our trillion dollar deficit. Heaven forbid we actually cut spending and allow private business expansion through reductions in taxes not only for corporations, but also for top earners. This encourages investors to invest, which thus encourages businesses to expand and ultimately hire more workers.

Is that really so difficult?