Beyond Stage One Politics

Carolyn

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.”

This cartoon was originally published in the Chicago Tribune in 1934.

David Horowitz succinctly summed up this seemingly never-ending battle when he explained that our history is one of two “distinct revolutionary traditions,” as opposed to the idea of an old order (conservatism) and a new revolution (progressivism). Our two-hundred year history, that which has shaped our nation, is a history of two disparate revolutionary paths to the modern world, “two different paradigms of the European Enlightenment that took root, respectively, in America and France.”

He goes on to say that, “the radical ethos of the French Revolution became the wellspring of a socialist revolt against bourgeois order that culminated in the creation of the Soviet empire. On the other hand, the libertarian ethos of the American Revolution inspired the conservative opponents of the Soviet tyranny, a counterrevolution based on individual rights, free markets and democratic constitutions.”*

You’d think once the battle had been won by the historic experiences of the past century, the debate would be over; that, unfortunately, would be asking too much. So the same arguments must be won, the same battles must be fought, and the same truths must continuously be told.

*The Politics of Bad Faith, David Horowitz, The Free Press, 1998, p. 142.

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.

Carolyn Day

Among weeks of civil unrest that included at least three deaths, numerous injuries, and widespread property damage, the Greek government has agreed to major economic adjustments in exchange for an IMF rescue. Among the measures required is the opening up of private markets in crucial areas of the economy, namely health care, transportation, and energy.

These steps will be taken in conjunction with tax increases and public sector pay freezes. The ability of the government to lay off public sector workers, whose “low levels of productivity and high wages are a big contributor to Greece’s debt problems,” should also substantially assist the country’s recovery.

It seems like the only part of this equation proposed here in the US, with our debt load ever closely mirroring that of Greece, is the tax increases. According to Art Laffer, our entire federal revenue could be replaced with a flat tax of 11% on individual gross income and 11% on net business income, even without accounting for the greater economic growth and increased revenue which would certainly follow. That solution would be much too simple and would decrease the power of politicians in Washington. It’s much simpler to talk about wealth redistribution and increase the taxes on the already over-taxed, even if it means stunting the longer-term economic growth of our economy.

The greater question is why we’re currently headed in the very direction Greece is being forced to leave because of the structure’s inherent unsustainability. If government-run health care, transportation, and energy are bad for an economy, why are we instituting such systems in our country in the midst of the greatest economic downturn in 80 years? If public sector workers, supported by unions who negotiate with government officials not representing the interests of taxpayers, end up with higher than average pay and benefits ($79,197 for federal workers v. $50,028 for private sector employees; with benefits, $119,982 federal v. $59,909 private) and their ranks are increasing faster than the ranks of those footing the bill, how do we grow ourselves out of a Greek-like mess?

In 1988, the debt was 51% of GDP and by 2020, it’s projected to hit 90%. Either we follow Greece now, before it becomes too late for us, or we just unite as a country, hold hands and chant, “Hope and change.” Surely that will save us.

Carolyn Day

In the shadow of the recently passed healthcare bill, the news that the administration made a $1.2 trillion “mistake” in deficit projections over the next ten years should do nothing to reassure us regarding our country’s fiscal future. Last Thursday, the CBO, after analyzing the Obama 2011 budget, declared that the $8.53 trillion 10-year deficit projection was off by $1.2 trillion.

Now, for many of us, who’ve heard billion and trillion bantered about in Washington recently as though these are pretty standard monetary denominations, let’s be clear about what $1.2 trillion means in real terms, for real people. The GDP (gross domestic product) of the entire country of the US was $14.2 trillion in 2009; a trillion seconds is the equivalent of about 32,000 years; and if you were to have spent $1 million every day since the day Christ was born, you still wouldn’t have spent $1 trillion (only about $750 billion, or 3/4 of $1 trillion).

That additional $1 trillion means another $10,000 per US household is now owed to investors. When President Obama took office, the public debt was approximately $56,000 per household, a total of $6.3 trillion. Today, based on the most recent budget, that amount has jumped to $72,000 per household, or $8.2 trillion, and will reach over $170,000 per household by 2020 (based on the administrations own numbers), for a whopping $20.3 trillion in federal public debt.

Such an astronomical accumulation of debt is completely unsustainable. In the Bush years, through 2008, $2.5 trillion was added to the public debt. In the six years from 2010-2016 (2009 belongs to both Bush and Obama, so isn’t included but amounts to $2.6 trillion), President Obama’s budget would add $4.9 trillion to that debt.

Currently the US has a AAA bond rating, enabling our federal government to borrow money at extremely favorable rates. By 2020, the cost of major federal entitlements in conjunction with servicing the debt will be equivalent to 100% of federal tax revenue, and this is if our credit rating remains stellar. No one believes it will, without major fiscal discipline never before seen in a politician.

If the rate at which our government is able to borrow money were to increase, we would find ourselves in the non-enviable position of Greece in recent months: Unaffordable and unsustainable rates of government entitlement spending, sluggish economic growth, and increasing interest rates as investors decide the risk of default on government bonds is real.

Just this past month, the rating agency Moody’s issued a stern warning to the US and other major Western nations with regard to the unseemly levels of debt currently being amassed.

“Growth alone will not resolve an increasingly complicated debt equation,” Moody’s said. “Preserving debt affordability” — the ratio of interest payments to government revenue — “at levels consistent with Aaa ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.”

While Moody’s said the US credit rating is not currently threatened, it relies on the ability of our leaders “to repair the damage caused by the crisis on public finances.”

We have been warned – budgets must be cut, and in a serious and substantive way, which may cause social cohesion to be threatened. Politicians will certainly use this to their advantage as they try to turn us against each other by encouraging disparate groups to push for the preservation of their favorite entitlement. We can’t allow that to happen.

Our elected leaders, who certainly understand the serious fiscal crisis awaiting us, will most likely do what they’ve always done – put aside the good of the country in order to score cheap political points that in the long run will cost us all far more than we ever imagined. We must work together, “cohesively,” to defeat any who choose to put their personal interest ahead of the interests of this country.

by Carolyn Day

Last week, the issue of Sen. Bunning singlehandedly holding up a bill that would extend jobless benefits and “hurt millions of Americans” was all over the news. The Senator was refusing to budge because Congress had just passed a paygo rule, which would require that any new spending be offset by cuts elsewhere. The very individuals taking credit for passing the rule weren’t supporting Bunning’s stance, and apparently aren’t willing to apply it to any spending programs they happen to like.

According to Senator Bunning, “When 100 senators are for a bill, and we can’t find $10 billion to pay for it, there’s something the matter, seriously the matter, with this body.” Could it be that they aren’t at all interested in actually finding a way to pay for their “gifts” to the American people (taken directly from other Americans, by the way)? Could it be that this paygo rule was just an opportunity for photo ops, creating the illusion of fiscal responsibility while spitting in its face?

In fact, in the midst of the opposition to Senator Bunning’s position, President Obama held a reception at the White House to celebrate paygo. Huh?

Today, the news is out that Louise Slaughter, House Rules Chairwoman, is considering a move to usher the Senate healthcare bill through the House without requiring an actual vote on the bill itself. She knows that the current Senate bill is so unpopular with the American people that there’s a good possibility that even using reconciliation, it may be dead.

The move under consideration would require only a vote on changes to the Senate bill and would presume the Senate version passed if this rule change bill passes, without actually voting on it. This is an absolute end-run around reconciliation, (as well as the Constitution) which requires that any bill using reconciliation be passed in its original form. Once that is done, changes can be made and voted on by both houses of Congress.

Just as with the paygo rule, too many in Congress want to have it both ways. They know the American people are overwhelming against the Senate healthcare proposal. No one in the House wants to be maligned for voting yes on a piece of legislation so poorly pieced together and so widely known to contain outright payoffs to Senators in exchange for their votes.

The supposed solution: Vote for the bill without voting for the bill. This way, as with paygo and jobless benefits, you can pose for the cameras saying one thing while actually doing another. Brilliant way to manipulate, obfuscate, and possibly save your job. Horrendous way to “serve” the American people and our republic.

by Carolyn Day

We keep hearing that the Republicans are the party of “no,” that they are simply obstructionists keeping us from achieving a blissful state of progressive utopia.

The latest example of this is Sen. Jim Bunning, standing in the way of a $10 billion unemployment benefits extension. He says he supports the extension, he just wants to see it paid for by cutting elsewhere rather than adding to an already out-of-control deficit. According to Sen. Bunning, “If we can’t find $10 billion to pay for something we all support, we will never pay for anything on the floor of this U.S. Senate.” The man does have a point.

I seem to remember a similar standoff not so many years ago. Back in 1995/1996, Republicans were blamed for being obstructionists, for punishing those needing federal services over what amounted to a political fight, rather than a matter of principle. Pres. Clinton, at the time, even went so far as to say that, “It was morally indefensible to hold needed government services and hard-working government employees hostages in a political battle.”

After Clinton finally ended the standoff by bowing to Republican demands that he submit a seven year balanced budget scored by the Congressional Budget Office, the LA Times wrote that Democrats denounced the plan as “draconian.”

Is this the same plan that Democrats have been taking credit for ever since? I don’t really care who takes the credit as long as the voting public understands which policies bring prosperity and which will make us look even more like Greece or Italy or one big California.

Greece has had over a week of riots in the streets from government union members as a result of reform attempts to avoid eventual default on the public debt. Their budget deficit in 2009 was 12.7% of GDP and the Greek government has committed to bring it down to 8.7% this year.

The US budget deficit in 2009 was 9.9% and is projected to increase for the foreseeable future. Like the public employee unions in Greece, ours have exerted tremendous pressure on local, state, and federal governments to pay salaries and benefits that are completely unsustainable. I wrote about that last week.

What will it take before our government is also forced to behave responsibly?

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?