Beyond Stage One Politics

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?

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):

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.

From coast to coast, the furor is brewing over the state of Arizona experimenting with policies to attempt to protect its citizens by minimizing the number of illegal aliens within its own borders.

After years of lack of federal action and increasing crime by illegals, Arizonans are fed up. Phoenix is now the kidnapping capital of America; worldwide only second to Mexico City. Ranchers are being harassed and threatened, and one was recently killed by a man authorities believe to be a scout for a drug cartel.

The state has approximately 500,000 illegal immigrants, many of whom come to this country just looking for a way to feed their families. We allow a limited number of them to do this, based upon the needs of our citizens.

Arizona has an unemployment rate of around 9% for citizens. Recently, 300 workers at Pro’s Ranch Markets in AZ were let go when they were found to be working illegally. Now, many hardworking Arizonans among those 9% who also want to feed their families, will be able to find a job.

Liberals don’t seem to care nearly as much about the rights of the law-abiding citizens as the non-citizen lawbreakers, but I think I do have a solution to bring them in on this one – include in the bill the power of authorities to randomly stop anyone suspected of being a US citizen and require them to provide proof of federally-approved health insurance coverage. Sound about right?

by Carolyn Day

For the sake of argument, let’s accept that it is worth doing whatever is possible in order to reduce carbon emissions by whatever amount we’re able, regardless of estimated minimal effect on the rise in global temperatures. As noted in an earlier article, Actual Effects of Global Warming Legislation on Temperature, ceasing all carbon-emitting activity would result in an immediate decrease in temperature of 0.152°C, while the Waxman-Markey climate bill would save us between .112°C and .195°C by 2100.

Here, then, is an investigation of the costs that would be required in order to achieve those minimal reductions in temperature increase.

According to economists, the cost of carbon emissions reduction is about $500 per ton of CO2. If the US were to completely eliminate all carbon emissions immediately, this would amount to $2.9 trillion, or $25,000 for each American household annually. This is, of course, a completely unrealistic scenario (although Waxman-Markey does require an 83% reduction in 2005 levels by 2050).

A system of cap and trade would attempt to use bastardized free-market principles by manipulating supply and demand through artificial limits on supply in order to “naturally” decrease demand. The hope (there’s that word again) is that this would spur development of new energy sources and allow them to become economically viable. Nevertheless, this is a costly proposition.

Most economists believe that a carbon tax would be much more efficient, but politicians know it would never be viable politically – their jobs are already at substantial risk even without anymore new taxes. The alternative is to implement a cap and trade system, which has the same effect as a tax without using that undesirable word.

Taking the Obama administration at its word and using its own analysis (which, by the way, had to be pried out of the hands of “the most open and transparent [administration] in history”), the cost would be $200 billion yearly, or up to $1,761 per American household each year. This would be the equivalent of increasing personal income taxes by about 15%, and make no mistake – a tax is a tax is a tax.

According to our president, costs under his proposed plan “will necessarily skyrocket” and increased costs will be “passed on to consumers.”

The administration claims that with all emission allowances being auctioned, “a cap-and-trade program could generate federal receipts on the order of $100 to $200 billion annually.”

The administration, though, has already promised up to 85% of the permits for free to friends of the legislation (and administration?). If the buying of votes we saw with the Senate health care bill is any indication, the remaining 15% will soon be gone as well.

According to The Heritage Foundation,

In our analysis, the higher energy costs kick in as soon as the bill’s provisions take effect in 2012. For a household of four, energy costs go up $436 that year, and they eventually reach over $1,241 in 2035 and average $829 per year over that span. Electricity costs go up $468, gasoline goes up $565, and natural gas goes up $161 by 2035. That’s a 58 percent increase in gas prices, 90 percent for electricity, and 55 percent for natural gas. Cumulative higher energy costs for a household of four from 2012-2035 would reach nearly $20,000.

As if this weren’t bad enough, these estimates of increased costs only include direct costs, not additional expenses which would be inherent in a new economy under cap and trade. Of course, production costs increase whenever we see rising energy costs, and this would be no exception. Increased production costs would impact the average family of four to the tune of $2,979 annually.

The projected impact on employment is significant and the probability of high levels of job loss directly related to a cap-and-trade system is profound, particularly in an economy already struggling to recover a portion of the 7.2 million jobs lost since 2007. Net job losses are estimated at approximately 1.145 million, even when the creation of new green jobs is taken into account.

According to a newly released study on the impact of clean energy policies over a 20 year period in Germany, “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, again, is after nearly 20 years of development.

The Obama administration was informed that, with regard to such climate change policies, “Economic costs will likely be on the order of 1 percent of GDP, making them equal in scale to all existing environmental regulation.” The Heritage Foundation has also estimated that overall GDP losses will average $491 billion per year from 2012 through 2035, resulting in a total GDP loss of $9.4 trillion during that period.

The German study also found that because more workers are needed to produce a given amount of energy in a green economy than is necessary with traditional energy production, the output potential of the overall economy is diminished, which in turn leads to lower net job creation.

There is also significant risk that countries such as China, India, and Vietnam aren’t willing to substantially curb their economic growth in exchange for feel-good (but do little) greenhouse gas emissions cuts. The net result of our passing this legislation without developing countries curbing their outputs as well is that our decrease in GDP could potentially be much greater than estimated as jobs shift overseas to those countries that don’t tax greenhouse gases.

There are myriad problems with a cap and trade system, not the least of which is that it will do very little to actually impact temperature, while significantly burdening the average American worker. Is it really worth so much to do so little?