The Problem

Two facts. First, the collective infrastructure in our country is falling apart. Bridges, freeways, railways, schools, water lines, the power grid, nuclear power plants, gas refineries, the bulk of the individual components within this collection of elements that make up our infrastructure are 20 to 50 years old. Second, we are facing a distinct lack of jobs in our country, a condition that has and will continue to repress any attempt at an economic recovery. Nobody disputes these two facts.

The Solution

The Federal government (along with State and local governments) is trying to figure out how to stimulate the economy to create jobs and bring down unemployment. Personally, I feel they are going at it the wrong way. Let’s look at just who is out of work. Granted, this downturn has affected pretty much every sector of the economy, but construction, real estate, banking, and industries that have involvement in that field (i.e. equipment manufacturers, local governments, etc.) have definitely borne the brunt of the job cuts. These are the people who are also having the biggest difficulty finding new work, for two reasons. First, there is little to no activity in this sector. Second, the experience and skills that most of these unemployed have do not lend themselves to easy cross-training into those few areas of the economy that still show signs of life. I’m not saying that we should simply create jobs to give these people an easy way out of unemployment (and I consider myself to be one of “these people”), but there is a genuine need for repair, upgrading, reconstruction, etc. of our infrastructure, and it has the potential to be a long term effort. This is where the key is. It isn’t just a “make work” program like the old Cold War Soviet jokes about people counting trees in Siberia. A lot of it is direct work for government agencies, but the bulk of these facilities are existing, and any new facilities proposed under such a program would likely be justified (new ethanol refineries, new schools, smart grid power distribution, etc.), so it is “legitimate” work. Plus, this gives everyone the opportunity to create, encourage, develop, implement green technologies, increased energy efficiency, and potentially lessen our dependence on foreign oil. Obviously, this will require the spending of massive amounts of public funds, and will likely increase our national debt substantially. The thing a lot of people don’t want to admit is that this is how we’ve managed to recover from pretty much every economic downturn we’ve suffered. The construction of the interstate system. The moon shot and space race. The Cold War. These are all examples of the federal government underwriting the efforts of private companies to develop something, be it a road, a space ship, or a missile defense system. Have there been problems? Of course. Combine money and power and there will always be some people who will try to put themselves ahead of the public good…despite the fact that in most cases these same people would’ve made out nearly as good if they played by the rules, and those who went to prison (looking at you, former US Rep from San Diego, Randy “Duke” Cunningham) ultimately came out far worse than if they’d played by the rules.

How To Do It

There are different nuances that will apply to the different industries…it most certainly isn’t a one-size fits all approach. That being said, for the most part it will not involve government agencies hiring lots of people for their payrolls. As I have noted previously, jobs permanently dependent on public funding (i.e. government employees) are simply not sustainable, so we’re not looking to create massive construction departments within Caltrans or the State University of New York system. Also, we don’t want the government attempting to create industries via direct subsidies. Solyndra is a perfect example of how a government program shouldn’t simply attempt to create an industry.

Regarding the actual construction of the infrastructure, there needs to be a long-term funding program (i.e. a 6 year highway bill) that construction firms can bid on. Private companies generally are more efficient and cost effective than government agencies, and they tend to generate more economic activity. The long-term nature of this program would give them assurance that there would be steady activity that they could bank on…invest in people, invest in equipment, make long-term plans.

Regarding the inevitable “green” element of this, this is where we go back to the space race/Cold War approach. Government provides a description, parameters, whatever for what they’re looking for (smart grid, more efficient cars, whatever), and provide funding for the research and development element of it. This allows companies to figure out what is viable both from a development perspective as well as a use/implementation perspective. The government then has the opportunity to establish the primary demand for the new technology (wind power, hydrogen fuel cell cars, etc.). This serves two purposes. First, it provides a revenue stream for the providers of these new technologies. Second, it provides a sense of stability that encourages a support network to develop around the technology. A prime example of this would be alternative fuel cars. The average car today can drive 300 miles on a tank of fuel, someone is rarely more than a few miles from a refueling station, and it takes just a few minutes to refuel the vehicle and travel another 300 miles. Hydrogen fuel cell cars have the potential to travel 300 miles on a tank, and it takes less than 5 minutes to refuel them. The problem is that hydrogen filling stations are very few and far between. Pure electric vehicles such as the Nissan Leaf or the Tesla Roadster can “refill” (recharge) on pretty much any plug you can find in any building, but their range typically does not exceed 100 miles on a charge and it can take several hours at best to get a partial charge. Government providing a set of standards or operating criteria and letting the auto manufacturers develop products that comply with those criteria would be the preferable step. To provide the proper support and encourage proper establishment of the technology, government would be a primary user/purchaser of the technology. All city and county vehicles would utilize this new technology, and the government would encourage the development of “refueling” facilities in support of this new technology. By providing stability of revenues for the developers and a useability experience consistent with what the general public can be accepting of, it will encourage the widespread implementation of this new technology. Furthermore, private investment (meaning purchase of these new vehicles) will ramp up and lessen the need for continued public underwriting of the effort…much as has occurred with regular gasoline powered cars.

To make all of this work, it will require not just money, but elected officials and policy makers being willing to leave politics behind, as well as investors and business owners willing to not be greedy and actually put the money into development. If we can agree to avoid the short-term, instant gratification disease that usually accompanies these types of efforts (see defense contractors in the 80s and 90s), I genuinely feel that everyone will come out better than they went into it.

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In the midst of all the doom and gloom out there, we are faced with contradictory news that kind of makes you wonder which way to turn to dodge the oncoming train.

Manufacturing – The Great Hope

Despite the unfortunate yet spectacular collapse of Solyndra, manufacturing as a whole actually grew in September.  According to Reuters (via Yahoo news), “(M)anufacturing grew more quickly in September as production and hiring increased, suggesting that factories would help keep the economy from slipping into a new recession.”  The Reuters article continues, citing the Institute for Supply Management’s index of factory activity rising from 50.6 to 51.6, where predictions had the index dropping to 50.5.  In particular, the auto industry is watching sales volume grow for most nameplates.  As reported by Autoblog, the largest slides for year over year by month were shown by Saab (which has been clinging to life support ever since the GM bankruptcy), and Toyota and Honda, both of whom are still working to ramp production levels back to normal after the Japanese earthquake, tsunami, and nuclear reactor meltdown back in March.  Combining its divisions, Chrysler actually managed to top Toyota and regain the #3 sales slot for September, behind Ford and GM.

But back to the Reuters article.  They noted that construction spending had also risen…1.4 percent in August due to state and local government building projects.  They also noted that small business borrowing in August rose to its highest levels since April 2008.  Ultimately, though, they acknowledged manufacturing’s 12% of GDP and 11% of non-farm employment, and the expectation that continued expansion combined with cash-rich businesses spending money on machinery and equipment would stave off a double-dip recession.  As I, and many others have noted in many diverse forums, the potential for manufacturing activity to generate indirect economic activity is great, and any serious job creating efforts must include substantial resources aimed at invigorating and expanding the manufacturing base in this country.

The Great Uncertainty

While the employment figures in the sector are very promising, there are still reasons to be concerned.  First, despite the uptick in manufacturing numbers, orders have declined for three straight months.  If manufacturing output doesn’t begin to grow, those recently hired may not have jobs for too much longer.  Second, the Euro Zone debt crisis isn’t going away.  Discussion regarding Greece has pretty much changed from “if there’s a bankruptcy” to “when there’s a bankruptcy.”  With much of the European banking industry tied up in either Greek government securities or in contributions to the European Financial Stability Facility, a Greek default could trigger a domino effect through first the Euro Zone, then Asia and the US.  Such a banking crisis would effectively be a repeat of the 2008-2009 fiscal meltdown in the US, and drive the world back into a credit crunch and an overall slowdown.  Bank stocks, in fact most global stocks are trading dangerously close to bear market levels.

Obama’s Jobs Bill

As expected, Republicans in the House of Representatives have declared Obama’s jobs bill DOA as a complete package.  As reported by Reuters, not only has the House stated that they would only pass portions of the bill, both Republicans and Democrats in the Senate have stated that the bill is likely to fail there, too.  Personally, I’m not thrilled about the proposed tax increases but the incentives and infrastructure programs appear to be sufficient to offset the likely negative impact of the tax increases.  In any respect, we’re pretty much as the last option before total meltdown and collapse.  With Asia and Europe teetering on their own cliff edges, anything that moves us back from our edge is not only good for the US economy but will likely have a calming effect on the global economy.  And in all honesty, public spending will further increase the national debt, at least in the short term.  Passing tax increases to boost revenue, even a small amount, will help ease credit concerns over our debt load.  Removing those concerns will add to the calm and stability, and maximize the ability to realize the full benefits from the actual economic stimulus activities.  Sadly, the weak link here will be our elected officials.  As I have stated before, our elected officials need to start looking past their own wants and needs and consider the needs of the country.  I think we’ve gotten close enough to the edge of the cliff that ideas solely from one side of the aisle or the other either will not be sufficient on their own, or won’t take hold quickly enough to avert a complete collapse of the economy.  Finding a middle ground where elements from both sides of the aisle can be implemented is what I see as the only way to provide the confidence to stabilize our economy.  And this stability is what will hopefully keep the rest of the global economy from falling into the abyss.

I’m hoping this is the light at the end of the tunnel, but with our elected officials unable to decide which way to steer, if it is the oncoming train then we’re pretty well screwed.

China and Solar and Jobs

Posted: September 19, 2011 in China, Economy, Jobs, Politics

As we are all aware, the Obama administration issued a $500 million loan to a California company called Solyndra.  Solyndra’s business was making solar panels, and the loan was part of Obama’s Green Jobs Initiative.  I say “was” because we are all aware that Solyndra closed its doors, laid off 1100 workers, and filed for bankruptcy protection at the end of August.  Their chief reason behind their actions was that they could not compete with low-cost competitors from China.

American Solar Efforts

According to a paper by the Center for American Progress, the United States is currently ahead of China in installed solar capacity (2.6 GW vs. 700 MW for China), and the U.S. is also ahead of the curve regarding solar equipment, with $1.9 billion in overall net exports in 2010, and a $247 million trade surplus with China, but that is primarily in the raw materials, not in the job-creating manufacturing of finished products.  But U.S. policymakers are gearing up to slash funding for the basic support programs that created this impressive lead, and that means we could easily lose our edge to China.  Compounding this is the failure of not only Solyndra, but several other U.S. solar companies filing bankruptcies recently.  According to a recent NPR interview, even the solar companies that have been established for a while are having a rough time managing their costs, especially compared to their main Chinese competition.

China’s Subsidies

For most of the past decade, the Chinese government has been subsidizing their home-grown solar manufacturers.  They haven’t been working necessarily at innovation but rather at simply providing existing technology at a much lower price than anyone else out there.  This is pattern that has been seen other times in other places.  Japan indirectly subsidized its fledgling auto industry in the 60s, 70s, and 80s, primarily by placing large tariffs on vehicles imported into Japan, requiring compliance with overly stringent regulations, etc.  This allowed their cars to be overly competitive on price, which allowed them to gain market share in the U.S.  Once that market share was established, the subsidies were no longer needed.  China’s auto industry is benefiting from similar regulatory assistance…for U.S. (or other) auto manufacturers to do business in China, they need to enter into an ownership agreement with a Chinese manufacturer.  With regards to solar, the Chinese government is simply subsidizing the companies, allowing them to establish their processes and gain market share without having to worry about cost.  In the aforementioned NPR interview, it was noted that U.S. Department of Energy estimates were that the Chinese government provided more than $30 billion to their solar companies.  Compare that with the $500 million given to Solyndra, as a cornerstone of the Obama administration’s Green Jobs efforts.

What Can Be Done?

Obviously there are as many opinions as there are people with some sort of ability to publicize those opinions (see this blog!), and those opinions are as varied as anything.  Tariffs, regulations, subsidies, further innovation, the suggestions are endless.  Personally, I’m looking at it from the overall economic development (meaning jobs) perspective.  I have argued in this blog, as well as other outlets on the web, that the U.S. really needs to revive, reestablish, restore its manufacturing capacity.  Manufacturing breeds innovation, as evidenced by the innovations we are now seeing coming out of the countries we have outsourced much of our manufacturing to.  We are a country of innovation, and innovation can occur without the symbiotic presence of manufacturing, but where does that leave us?  The U.S. becomes a net exporter of knowledge and innovation…we sell ourselves to the highest bidder and become dependent on others for any and all durable goods.  We effectively become a service economy for others, and not to disparage the service industries, but that is not a recipe for a successful, vibrant, growing economy.  As much as I have been a free market advocate, desperate times do call for desperate measures.  The measures I will outline are desperate and have a slim chance of being implemented, but they are interrelated and offer what I feel is the best chance to not only save the U.S. solar industry, but create green jobs, improve the environment, and stimulate the economy…both directly and as a methodology to apply to other industries within our economy.

First,there needs to be regulatory relief for U.S. firms.  There are many angles to attack in this regard.  The most obvious would be in the form of tariffs on Chinese imports.  Other methods could be in the form of tax benefits, relaxing of labor or environmental regulations, or the imposition of safety/manufacturing standards geared towards U.S. firms.  These sorts of efforts have worked for the Chinese, as well as the Japanese and others.  We know that Chinese environmental protection policy has historically been lax, as evidenced by this Reuters article, and their safety and quality performance hasn’t quite risen to those of the Western economic superpowers.  All one needs to do is hear stories about suicidal working conditions in the plants that make the iPad, or search for Chinese Automotive Crash Test on YouTube to see where they are able to save costs.

Second, I would institute a serious program of subsidies for manufacturing efforts, and by serious I mean on a scale comparable to that of the Chinese.  As the Solyndra case illustrates, there would be an obviously rigorous vetting of applicants, but a major subsidy program is necessary, in my opinion.  China has taken the tack of not going for the innovation initially, but rather letting the companies establish themselves and refine their processes to the point that they can compete with anyone.  As I stated previously, manufacturing does encourage innovation, and the establishment of a stable manufacturing element by the Chinese will only serve to facilitate their own innovations.  Particularly as they gain market share and revenues with which to finance said innovations.  Such a program would be difficult to implement under good economic conditions, but after the debt ceiling debacle in Congress, it would face an extremely rough path.  But as I noted earlier, desperate times call for desperate measures.  Raising the debt ceiling would obviously have to happen.  A comprehensive rewrite of the tax code that standardizes rates, minimizes exemptions and applies to all would probably upset a lot of people, but figuring out the appropriately “fair” rate to apply to everyone would likely improve the tax burden of many while potentially increasing tax revenue to the government.  Pie in the sky thinking, but why not go for a moon shot?

Third, and this would be the most difficult aspect of my glorious program, I would somehow require our elected officials to actually work together.  Our current state of government can barely pass its own budget to stay open, much less agree on a massive financial and regulatory overhaul of international policy.  My inner optimist likes to believe that everyone would recognize how close to the edge we are teetering, recognize that something needs to be done, understand the benefits that can be realized from such a program, and finally come together for the common good to implement such a program.  This is where the public will have to get involved en masse.  We must recognize that a goal of economic development can ultimately benefit everyone individually, as well as their individual projects, goals, and desires.  Everyone needs to compromise a little, with the understanding that success in this endeavor should more than make up for any individual sacrifices that are made.  Once we the people agree on a course of action, we need to decisively act to elect representatives at all governmental levels that will heed our direction and implement these programs.  Extremely uphill battle, but I think we’ve reached the point where we have to make a stand.

Sometimes my inner optimist needs to be slapped in the face with a wet fish, but I want him to be right.

In a previous post, I laid out what I thought would be the best possible jobs program that had the proverbial snowball’s chance of actually creating jobs and generating economic growth. My rationale exhibited elements of both Keynesian thought (government spending) and Reagan-esque/Tea Party mantra (people working will generate revenue which will go back into the economy, thereby creating more jobs, and create more revenue, and so on and so on). I know that Democrats would be less than enthused about the idea of spending the money on private sector firms and letting them do business with as little regulatory impediment as possible. Conversely, I know that Republicans would be every bit as frustrated at the notion of further government spending on giant public works projects. Frankly, it is that element of annoying those on both sides of the aisle that tells me I might actually be onto a workable idea.

So. Having finished up a good workout at the gym, I decided to see what was happening in the world and fired up NPR’s website. The top center article was an article about the SF/Oakland Bay Bridge project undertaken by Caltrans. The focus of the article wasn’t that it was a prime example of the type of long-term infrastructure project that I (and President Obama) have talked about. Rather, the focus of the article was that a good portion of the fabrication and manufacturing work was outsourced to China. In the article, California Assemblyman Luis Alejo (D-Salinas) states, “When you have a project of that size here in California, it has a multiplier effect…it gives thousands of families those jobs, and then those paychecks and their subsequent spending ends up going back into our economy. And so now all that money has permanently disappeared from California.” That certainly sounds familiar…and it’s a Democrat that’s agreeing with me! In the article, it noted that the contractor who won the bid was approximately $400 million cheaper than the next bidder, partially due to the fact that (as an example) Chinese steel polishers make approximately $12 per day. A district director for the United Steelworkers Union noted that it was impossible for American workers to compete with workers earning only $12 per day. And he’s correct.

In the course of dissecting the unemployment figures, there have been discussions floating around the media and the internet (Linkedin is a prime source) as to whether America needs to revive/maintain its manufacturing base. Personally, as you may have surmised, I fall into the camp of revive/maintain. I feel this way for several reasons (many of those out of work come from manufacturing-related industries, manufacturing breeds innovation, without a manufacturing base we become a contributory economy, without manufacturing we become dependent on/at risk from other countries for our manufactured goods, etc.), but I’m not blind to the fact that manufacturing in the US has a hard time competing on a global stage. On one hand, you’ve got places like Malaysia, India, and yes, China paying their workers a microscopic percentage of what US workers make, while the government not only subsidizes the companies’ work but also passes all sorts of regulatory measures designed to maximize protection and competitiveness of those same companies. China even requires foreign companies who want to do business in their markets to enter into an agreement with a local firm (who would otherwise likely be a competitor), usually involving some level of ownership interest by the Chinese firm in the foreign firm (very true in the Chinese automotive industry, for example). On the other hand, businesses actually operating in the US are subject to extremely rigorous regulations in the financial, labor, and environmental elements of business, not to mention much of the manufacturing work is done in union shops. Where other countries minimize restrictions and maximize support, we seem to do the opposite.

It will certainly upset the true believer, free market members on the right, but it may be time to consider some protectionist actions. If nothing else, simply imposing increased import duties on imported products. Possibly even going all the way to sectoral reciprocity, where we would impose regulations/conditions/restrictions on products (for example) from China that were effectively identical to those that China would impose on similar products from the US. On the other hand (see, I’m really good at finding that middle ground that can piss everybody off!), I would certainly look at abolishing the unions. There may have been a time when they were genuinely effective at protecting workers, but the combination of the labor laws that are currently in place, the other regulations that govern the workplace (i.e. safety, environmental, etc.), and the seemingly instant transparency of the media (CNN, TMZ, Drudge Report, internet), I question whether the unions are genuinely necessary to ensure that the workers are not wholesale taken advantage of. On a semi-related note, there have been some new manufacturing jobs created, primarily in the automotive industry. Foreign automotive manufacturers from Toyota to Mercedes Benz to Hyundai to Volkswagen have set up major (and sometimes multiple) manufacturing facilities in the United States. And the one thing that most, if not all of them share…they are not unionized. And despite not being unionized, the workers at these manufacturing facilities don’t seem to be abused, exploited or otherwise placed in harm’s way or taken advantage of. As with other suggestions I’ve made, the majority of the ideas I’ve shared should ultimately be temporary in nature. Once the economy has found its footing and developed positive momentum, these measures should be slowly dialed back so as to restore general market activities.

Ultimately, it boils down to the fact that we are suffering a jobs crisis. Every economy needs some sort of core or base, and a base that consists of manufacturing and other similar/related uses ensures that not just the economy but society as a whole rests on a stable and supportive base. Even on a temporary basis, I believe that these types of measures can definitely have a positive effect and do it quickly

Where to start…

Posted: September 15, 2011 in Economy, Jobs, Politics

It was recently announced that the US House of Representatives was looking into the $528 million loan given to the solar panel company, Solyndra, as part of the Federal Government’s Green Jobs Initiative. Originally, the idea was that low cost loans would be granted to companies that could create the ever-elusive “green jobs” to help kick-start both the overall economy as well as the green economy in particular. Generally, a noble goal. In Solyndra’s case, it was going to hire people to make solar panels designed for both large scale (commercial) and smaller scale (individual residential homes) installations. Again, a noble goal. Unfortunately, and here’s where I do not know all of the information on timing, Chinese firms that manufacture solar panels started undercutting the prices of Solyndra’s panels. I don’t know if it was simply a natural effect in China’s materials cost for the panels (discovery of a large source of the necessary raw materials), or if it was a Chinese government-sponsored effort to reduce their firms’ costs in order to gain market share, but the end result is that Solyndra couldn’t compete on price, laid off their 1100 workers, and closed their doors.

This was an obviously bad series of events on multiple levels. First, 1100 workers were laid off. In and of itself, not a good thing. Second, the company had a manufacturing presence, and manufacturing jobs are truly needed to prop up the base of our economy. Something worthy of a separate post, but if the US divests itself entirely of its manufacturing base, we lose not only blue collar jobs, but we also lose the innovation that tends to accompany manufacturing, and we make ourselves dependent on others for our stuff…in effect we become not only a service economy but we wind up working in service of others. Third, this company was highly touted by Obama as a representative of how the green economy is supposed to develop. Fourth (and related to the third), there are now allegations that the loan was rushed to meet White House timelines for promotions, events, and the like, and may not have been properly vetted. This, of course, serves to give the Administration a black eye and negative publicity to not only the green economy, but to the Administration’s economic stimulus efforts as a whole.

Generally, I am a free-market advocate. Minimize the restrictions and let the business happen. However, that attitude only works when all players are playing by the same set of rules. In the 70s, 80s and 90s, first Japan and then other Asian countries applied government controls to their manufacturing efforts, primarily related to electronics and automobiles. These governmental interventions in the market allowed these foreign firms the ability to price their goods much lower than those produced in US factories, and thus began the decline of our manufacturing capacity, either by outsourcing to overseas locations or by simple decline in market share. We may have reached a point where we need to reapply government controls to our manufacturing market to help reestablish our manufacturing capacity. I’m not talking about blind price subsidies, but a mix of import duties and carefully studied and applied pricing subsidies. A situation where profit-minded companies (which should be all of them!) see a subsidy and see that as an opportunity to charge whatever they’d like, knowing that the subsidy will make up the difference is counter-productive. For better or worse, there is ample evidence that this sort of government policy can work. Look at the Japanese auto manufacturing industry, or the electronic industry in places like Singapore, or even the solar panel industry in China.

Human nature being what it is (at least in the US), any such program of tariffs and subsidies will need to be precisely structured and applied, and those managing and benefiting from the program will need to be closely monitored to minimize the potential for abuse, and there needs to be a defined series of milestones that reduces the level of support over time as the industries become able to stand on their own two feet.

Never Forget

Posted: September 12, 2011 in Never Forget

I may or may not have specifically mentioned it, but I am currently working as a consultant to the US Air Force in Kandahar, Afghanistan. I regularly work with members from all service branches, and military representatives from many of the NATO coalition forces that are deployed here. I get the email traffic directing flags to be lowered to half-staff in honor of a fallen soldier being brought in from the field. I have to duck and cover when insurgents launch rockets at the base (as was done both Saturday and Sunday evenings). I have to put up with the same patchwork communications network if I want to talk to my family and friends back in the States. I know the sacrifices that the military servicemembers make because they volunteered to enlist.

Whether or not you support the war effort, never forget that they are fighting to protect us, from any and all threats, including another 9/11-type event. Also, never forget the law enforcement and first responders who rushed into NYC, rushed into the Pentagon, rushed into buildings as everyone else was rushing out, rush to the aid and protection of regular people every day. They have, and continue to put their lives in harm’s way to protect others. Never forget the courageous passengers of Flight 93, that made their own sacrifice without even knowing who they wound up protecting. Can you imagine just how badly the country would’ve been affected if that plane had actually crashed into the Capitol building as intended? Say what you will about dysfunction within our government, it would have been an unmeasurable order of magnitude worse had the terrorist plot succeeded. And never forget the victims of the 9/11 attacks themselves. All of the passengers and crew of each of the hijacked planes. Those at work in the Pentagon. Those at work in Manhattan. By and large, all of them were simply going about their normal routine for a Tuesday. If anyone can claim to be an innocent victim, it would be them.

As you go about your life, remember that there are many people who have died because of the works of hate, but the love and sacrifice by so many others has made it possible for you can have that freedom.  Never forget.

It’s all about the jobs…

Posted: September 8, 2011 in Economy, Jobs, Politics

Romney’s got a jobs plan.  Cain has a jobs plan.  Obama’s about to lay out his jobs plan.  Hey, that’s progress…they’re at least talking about jobs.  Not that I claim to have the ability to affect legislation (or convince those in power to do so…but it’s such a nice thought!), here’s what I see as a viable way to stimulate the economy in such a way as to create jobs and pay off the debt.

1.  Raise the debt ceiling.  As I (and others) have noted, confidence in both the economy and in our elected (and appointed) officials is shot.  Because of this, despite sitting on record profits and having very low interest rates on borrowing, those who would otherwise have the ability to invest in job creation and/or business expansion simply are not doing so.  That leaves the only entity able to take such action…the Federal government.  The Fed is the only player out there with the ability to absorb the risk of borrowing massive amounts of money to finance economic stimulus.  So step 1 is raise the debt ceiling.  To coincide with this, adding some sort of language that the increase is only valid during times of economic crisis (craft language that properly reflects the economic conditions we’ve been experiencing).  I would also suggest that any jobs that are created as a result of direct stimulus efforts (i.e. engineers/contractors hired to work on California High Speed Rail, or people hired to rehab/reconfigure/repurpose vacant buildings into some new business venture) should have a portion of the payroll taxes and Federal income taxes they generate specifically set aside for debt servicing/debt reduction.

2.  Solicit a mix of large-scale, long-term projects that will generate long-term jobs.  By this I mean projects like: construction of the California (or other area) High Speed Rail system; a repair/rehab/upgrade project for New York City Public Schools (most, if not all of them); a redesign/update/upgrade for local utilities to upgrade the power grid…primarily the distribution system, but generation facilities could be upgraded, or preferably converted/replaced by alternative energy facilities (solar, wind, hydro, etc.); upgrades to the air traffic control system; research and development of alternative energy sources…with particular emphasis on transportation; possibly even looking at some sort of manufacturing component that would help US manufacturers compete with those abroad (i.e. China, India, Mexico). Some of these jobs will be created within the public sector, but creating jobs that are dependent on public funding is not the right course of action.  Most of these jobs should be created by contractors, consulting firms, engineering firms, research labs, and such, where the jobs are funded by the workload.  Unless legitimately necessary, new governmental agencies or departments should NOT be created via this stimulus program…no pork pet projects for members of Congress.  To the extent that an agency has a large scale project or multiple projects to administer, that would be a justification for creation of public sector jobs.

3.  Simplify the tax code.  I would suggest an in-depth study that looks at a) how much income tax revenue is brought in (split between individual and businesses); b) what is the average tax rate paid (both individually and by businesses, taking into account any and all exemptions, deductions, loopholes, etc.); and c) impose a flat tax rate at those averages, while removing the exemptions, loopholes, etc.  Some will pay a little more than previously, others will pay much less than previously, but nominally revenues should at least stay the same, and in all likelihood would increase due to increases in efficiency and confidence, as more people find jobs and more businesses do increased business with those newly employed.  Besides, a flat tax is the most fair way to tax people from varying levels of means and abilities.

As I’ve noted several times before, people and businesses are shell-shocked, and even those with the means to engage in job creation and economic stimulus, are hesitant to.  The Federal government, having the unique ability to print money and borrow on the global stage, needs to take the lead.  There are plenty of areas to focus…the areas I mentioned earlier (school repair, alternative energy, high speed rail, etc.), and I’m sure there are others I haven’t even considered, but the initial phases of this program should focus on infrastructure-oriented jobs.  But these jobs cannot be permanent, public-funded jobs.  Some administrative/managerial positions in the public sector will likely be necessary, but the bulk of the jobs should not be public sector jobs.  The goal is to create self-sustaining economic development activity.  Public sector jobs are not self-sustaining, and creating a full-on (for example) State University of New York construction department is not the way to do it.  These positions must be with private sector firms, contracted to do these infrastructure-oriented projects.

These types of infrastructure jobs create multiple benefits.  First, many if not most of the jobs that have been lost have been related to the real estate industry in one way or another…engineers, construction workers, bankers, etc.  A good number of these cannot easily be retrained into the few job fields that do show signs of life…biotech research, IT, sales, etc., particularly at compensation levels remotely comparable to what they had been earning.  These types of infrastructure jobs will provide job opportunities for those who need them the most.  Second, this type of work is both materials and equipment intensive.  This would serve to create job opportunities for those who may support construction-related industries in addition to any other fields that may fall within their areas of expertise.  Office equipment sales, heavy machinery sales and manufacturing, banking (financing of equipment), and so on, would see a jump.  Third, this type of multi-layered job creation would generate economic stimulus all on its own.  On the private side, people would have jobs and would then feel more secure in spending money.  They might buy a new car, do upgrades to their house, or even go out for dinner a few times.  This activity then generates revenue (income) for those persons/businesses that provide those goods or services, thereby giving them more security and likely generating additional similar activities.  On the public side, each individual job directly related to one of these stimulus projects would generate income tax revenue and payroll tax revenue, which is money going directly back to the government to either fund additional projects or pay down the debt incurred to create the stimulus (as noted in #3).  The individuals’ economic activities mentioned earlier will generate additional public revenue in the form of sales taxes, use taxes, and the like.  On top of this, the secondary/ancillary jobs created as a result of the economic activity from the newly employed also creates payroll/income taxes as well as sales/use taxes.  Fourth, the public agencies that manage the elements of our infrastructure will likely realize savings in costs related to the operation of these infrastructure elements, through increased efficiency of a modern design/modern execution (i.e. materials) to reduced maintenance costs.

The problem to this, obviously, will be the lawmakers’ ability to step outside of their ideological beliefs.  If the right could accept an increase in government spending in the short term, they could likely realize additional funds and leverage to attack the deficit in the long term.  Likewise, if the left can accept private sector involvement in economic stimulus, they would likely realize greater resources for public sector activities in the long run.  In the abstract, my fiscal views tend towards the right, with the idea of smaller government and fewer regulations being the more effective way of operating.  That being said, I lean more to the Keynesian side of things than the current crop of Republicans and Tea Partiers.  The fact of the matter is that there is and will always be a role for the Federal government, and when the private sector is unable to act that’s when the Fed must step in.  Believe me, we have hit that point.  Following the Tea Party mantra, given enough time I’m sure that the economy would turn itself around, and under normal circumstances their policies of cut the deficit, cut spending, etc., can be very effective at encouraging economic activity.  However, we are not under normal circumstances.  Historically, the US has always spent its way out of a recession and worked to pay down the debt as things improved.  The factory push with WWII.  The development of the interstate system.  The Space Race and Moon Shot of the 60s.  The Cold War of the 80s with it’s focus on defense and tech R&D.  That’s how we’ve done it…successfully, I might add…in the past.  We’re currently at war and this isn’t really the type of war that lends itself to the large defense industry/military complex budget as we saw in the 80s.  Plus, with public sentiment firmly behind ending the war and troop reductions under way, that isn’t a viable option.  Which leaves infrastructure, which is primarily managed by government and other public agencies and organizations.  It comes down to tradeoffs.  No spending cuts in the short term (plus for the left) and a large increase in the debt (negative for the right).  And then as economic levels rise and the general economic health of the public at large improves, money goes towards bringing the debt back down and we can then afford to take a serious look at the structural spending issues within our government, and how to address them (plus for the right, probable negative for the left).

I know it is far more complicated than I make it out to be, and I know the likelihood of the denizens of DC putting aside partisan beliefs for the good of the country is a long shot, but it shouldn’t be this difficult.

Priorities, priorities, priorities

Posted: September 4, 2011 in Economy, Politics

I read a recent article by LA’s Mayor, Antonio Villaraigosa, on HuffingtonPost.com. In that article, Mayor Villaraigosa talks about how many Latino children make up the school-age population of California, and how their success is interlinked into California’s success. Because of this relationship, Mr. Villaraigosa argues that it is in California’s best interest to eliminate any and all roadblocks to educating these children, including the signing of California’s Dream Act legislation by Governor Brown.

I have two problems with this line of thought. First, these kids are still illegal immigrants. Regardless of whether they came over themselves, or whether their parents illegally entered this country and brought their young children with them, the fact of the matter is that they are in violation of Federal law (and many California laws) by being in the country. Despite this, California in particular affords these children many opportunities, including the ability to attend California public schools (on the legal residents’ dime). The Dream Act would further these opportunities, including the ability to qualify for financial aid and in-state tuition rates at California State University and University of California campuses. Second, and much more importantly, unless the California legislature (and the Federal government) come up with a legitimate plan to foster job creation and actually follow through on the implementation, there won’t be any revenue to fund these programs…not to mention Medi-Cal, State Disability, Unemployment Insurance, and who knows what other programs.

California is in a much more difficult spot than the Federal government as a whole. The Fed can actually print money, and the State of California (like all other states) relies to a large decree on Federal funds to manage its budget. Granted, some Federal policies place added costs on California (enforcement of the borders, or the lack thereof springs to mind), but California has a structural spending problem in that these programs are utterly dependent on funding sources outside of the State’s normal revenue stream. In the long run, if California is going to avoid or at least minimize the chances of this type of recession happening again, it will have to find a way to cut spending down to genuinely sustainable levels. But more importantly, the State needs to figure out how to remove the impediments to job creation. Because the State can’t print money and is more dependent on borrowing, the ability to deficit-spend their way into job programs is much less at the State level than it is at the Federal level. Even so, the costs to do business in California are much more extreme than in most other areas in the nation. Literal costs including taxes, fuel, housing, land, etc. and policy/regulatory costs (environmental regulations, labor policies, etc.) are things that businesses seriously look at when debating whether to open shop, expand, or even attempt to remain in California. It is no joke that many businesses have closed down in California and relocated to other States, and they’ve taken the jobs with them.

It’s really simple. Government programs require revenue. Revenue is generated by taxes…sales taxes, use taxes, payroll taxes, and income taxes, to name a few. Sales and use taxes are generated when people have money to buy things and engage in activities subject to use taxes. Payroll and income taxes are generated by businesses employing people and paying them money for work. So logically, if you can generate job creating activities, you will generate the revenue needed for your governmental programs. Therefore, minimizing the impediments or dis-incentives to operating businesses will lead to jobs, which will lead to payroll/income tax revenue, which will also lead to sales and use tax revenue. I know I’m coming off as talking down to people, but all you have to do is watch and read what is happening in Sacramento (and Washington, DC, for that matter) and realize that my tone is sadly justified.

Not the best of news…

Posted: September 3, 2011 in Economy, Uncategorized

So. The jobs report came out, and we had a net zero jobs created in the month of August. Zero. None. Nada. To top that tidbit, average hours worked (a metric that reflects overall economic output via both the number of people on the job and the hours they put in) also declined in August. Average hourly pay also declined, and the housing market is still dragging.

I know everyone has been trying to put a positive spin on things over the past few years, calling this a “jobless recovery” while we hear of companies raking in record profits and driving economic growth figures up. The problem with this is that the economic growth was almost entirely dependent on gains in efficiency. While this did push up economic output and growth figures, it was never going to be sustainable. There’s only so much a company can do to increase efficiency, and we’ve pretty much hit the limit. The reason that these gains are unsustainable is that to continue to generate economic output, companies need to generate revenue. As more and more people are laid off and cannot find work, they stop buying things. Those people who still do have jobs see this, and decide that it’s a safer bet to hold onto their money and also not spend.

The end result of all of this is that we are in serious danger of slipping into another official recession. In all reality, we never emerged from the 2007-2009 (or whatever the official dates were) recession. All the talking heads say that the economic growth and output that businesses generated met the empirical criteria for emerging from a recession, but in my personal opinion those metrics are not a true or accurate representation of things. It could be a chicken vs. egg thing, but unemployment is not only a cause of a recession but also an effect of a recession. If a recession is a lack of economic output/growth, one of the causes could be a lack of purchasing power due to high unemployment. Yet that same lack of output causes companies to not be able to afford to hire or retain employees, thereby laying them off and furthering the reduction in purchasing power. So my argument is that any measurement of whether a recession exists or has ended absolutely must include a measurement of employment. It doesn’t matter how much profits are being generated if more and more people are finding themselves unemployed. If consumers have confidence that their jobs are secure, that breeds willingness to consume. A lack of confidence leads to a drop in spending activity, which leads to diminished revenues, which leads to more layoffs, and so on and so on. In short, we never exited the recession, and until there is serious and continuous upward movement on job creation, we will remain in a recession.

Behave Yourselves

Posted: August 16, 2011 in Economy, Politics

As campaign season for 2012 gets into full swing, the rhetoric is flying on both sides. Tea Partiers and Republicans claiming that Obama just wants to impose socialism and tax the wealthy to give it to the poor, the Muslims, and illegal immigrants. Obama and the Democrats claiming that the Tea Partiers and Republicans are willing to let the country fail so they can stick to their principles, and that they couch themselves as true patriots, but that they cherry-pick the parts of the Constitution, Bill of Rights, and Declaration of Independence that they like.

Personally, I started off as a conservative and became even more conservative while in college.  Since then, I have mellowed, particularly on the social side of things.  Our current economic malaise has caused me to start rethinking some of my long-held economic beliefs.  Two points: first, lower taxes and regulatory burdens tend to foster economic growth; second, the US has pulled itself out of previous economic downturns via government spending of one form or another.  Whether it’s a massive public works investment like the interstate system, a technological race like Kennedy’s lunar mission, or one of the many wars of the past hundred years, our government has always racked up huge spending totals and they typically have pulled us out of recession and fostered robust economic growth.  It is this, combined with the specifics of our current downturn that are causing me to rethink some of my beliefs.

The current recession started (at least in my hometown of San Diego) with the real estate crash in 2007.  We had already been at war for nearly 6 years at that point, so going to war again wasn’t an option.  In California and other hot real estate markets, massive numbers of people were being laid off…people with skills and experience that often did not lend itself easily to cross-training into other fields, at least at compensation levels remotely approaching where they had been.  The stimulus programs put forth by both Presidents Bush and Obama were certainly well-intentioned and likely did forestall a complete collapse of our economic infrastructure, but they weren’t geared towards addressing the jobs problem.  Compound that with the problems faced by most State and local government agencies with their own budgets (their own revenue projections were coming up short and the Federal government seemed to be looking to cut funds normally allocated to the States/local governments), and the stimulus funds received typically went mostly for government agencies to preserve their payrolls and not lay anybody off.  Job preservation, perhaps, but certainly not job growth.

As I see it, despite our massive debt and the issues with the debt ceiling, we need to institute a massive public works jobs program combined with serious policy reform in the regulatory, fiscal, and behavioral areas.  First, the public works program.  Nobody can deny that our infrastructure is crumbling.  My hometown of San Diego has suffered numerous water main and sewer main breaks over the past several years, one of which resulted in a hillside failure that wound up condemning several $million-plus homes.  The I-35 bridge collapsed a few years ago outside of Minneapolis.  Pick a city and you will likely find a school district with facilities held together with bandages.  Target the money on these types of projects and we can reap multiple benefits.  First, so many of the currently unemployed are from construction, engineering and other related fields.  While not all of the specializations may directly translate, the basic skill sets allow for a much easier time for someone to cross-train from being an architect into a land acquisition specialist for a state Department of Transportation than it would to go from an architect to a software sales representative.  Furthermore, there have been countless news stories in AP, Time, BusinessWeek, WSJ, etc., stating that so many of the currently unemployed simply do not possess the required skills and knowledge to apply for most of the current job openings.  So the part of the labor force that has taken one of the largest overall employment hits will get an opportunity to get many of its members back to work.  Second, this type of work is not only labor-intensive, but it is also machinery, equipment, and materials-intensive.  This then presents further opportunities for another sector of our labor force which has been taking hits over many years even before our current downturn…the factory workers and manufacturers.  For too long we have been exporting our manufacturing capacity to cheaper locales.  Having a stable manufacturing base is what allowed the US to grow to the level it did, plus the simple act of building something helps foster innovation which can have all sorts of positive economic impacts all on its own.  Third, we get not only the benefit of having safe, efficient, and functional infrastructure, but we would likely realize a healthy amount of budget savings based on both the efficiency and the fact that maintenance costs would obviously drop.

The policy reform is another story, and sadly it will be more difficult to realize.  On the regulatory side of things, the elected officials need to standardize the rules, simplify the rules, and consistently enforce the rules.  Give business owners and entrepreneurs the opportunity to actually anticipate what sort of hurdles they’ll have to leap to engage in whatever business activities they are contemplating.  On the fiscal side, there are a couple of things.  One, and here’s where the Democrats and liberals will need to accept some compromise, we have a structural spending problem.  The debt ceiling deal is certainly talking about budget cuts to discretionary spending (defense, et al), but the structural budget items like Social Security, Medicare, and the like are generally off the table.  Traditionally we have been a country of innovation…surely we can figure out how to provide an appropriate level of service in an efficient yet thorough and caring manner.  On the other hand, Republicans and Tea Partiers will need to accept compromise on both raising the debt ceiling and allowing some movement on taxes.  Ideally, in my little world I would rewrite the tax code into something simple like an across-the-board 15% tax rate for everybody, with no exemptions and no loopholes.  Some people and entities would end up paying more, but I bet a lot of people would wind up paying less, and I also bet that if the right percentage was picked, overall tax revenues would increase.  But even without my little plan, the fact remains that to initiate all of this stimulus spending I’m proposing, the government will need additional revenue.  Frankly, the economy is as shell-shocked as I’ve ever heard, and the actions currently being taken by the Federal Government (tax cuts, low interest rates, etc.) are probably not enough to jolt enough of the entities with the wherewithal to invest and expand to actually do that.  There simply is not enough confidence in our economy, from all corners of our society, so that leaves the Federal government.  Sadly, they are the only entity capable of not only undertaking the risk but also financing the risk.

The third point is also the most complicated, difficult, and likely to fail.  Our elected officials need to wholesale change their attitudes.  First, they all need to stop thinking in absolutes.  We are not in a position where absolutes are able to be considered.  Everything has to be on the table, and open for discussion and compromise.  Second, they need to make these decisions and then stick to their decisions.  The past way of imposing a regulation and instantly granting an exemption to the oil industry or the corn (ethanol) industry will not help our economy.  In the short term it might help those individual beneficiaries, but in the long run it will only serve to drag things down.

So I don’t expect to hear much if any of this discussed by the candidates during this election cycle.  Still, outside of the trying to get the elected officials to “behave” instead of act selfishly, I don’t think I’ve proposed anything particularly radical.  We shall see.