How Not to Create a Job and Spend $447 Billion Doing It

Yesterday the U.S. Census Bureau released its annual report on the state of poverty in America which stated that 46.2 million Americans were poor last year.  That translates into the fact that one in seven of us are living in poverty.

Naturally, the quickest way to lower that number is to get the private sector business environment in gear so that good jobs are available to those in this demographic.  Unfortunately, President Obama's new jobs plan appears to be mostly rehashed spending from the first stimulus law in 2009.  Look inside and you will see (not shovel-ready) infrastructure projects, additional bail-out funds to states, along with subsidies and loan guarantees to fund Green jobs.

One of the proposals in the president's plan is the payroll tax cut.  Congress could do some good by following through on this one and perhaps extending it through 2013.  It's still difficult to see how much benefit can come from a temporary cut, but by having the lower rate in place for two years it would make employers definitely consider it in hiring.  The Republicans proposed this in 2009 as an alternative to Obama's spendathon, but he and his Congressional leaders refused to listen. 

Of course paying for it is problematic.  Obama's plan to raise taxes in 2013 on the very people that he expects to do all this hiring is absolute lunacy.  His plan is pretty straight forward.  To employers he's saying, "please take some money and hire some people, then after you help me get re-elected I'll ask for all that money back".

Better would be to reform the entire tax code into a flatter, wider and simpler system eliminating the massive loopholes in our current system.  This would have the side benefit of eliminating some of the accounting drag on businesses.  A simpler tax code has the same effect as loosening regulations.  It allows more of a business's activities to be about productivity which leads to less overhead, greater profits, greater growth which of course leads to more hiring.

Infrastructure plays a large part in Obama's jobs plan.  But this has no chance of helping create jobs in the near term.  Let's take a step back and evaluate our transportation funding.  For the year 2008, transportation funding was $10.7 billion.  For 2010 funding doubled to $21.3 billion.  On top of this was the $48.1 billion that was part of Stimulus I.  So in two years we increased spending by $58 billion and the president wants to add another $50 billion, which is utter nonsense if he wants the money to be stimulative.  There are not enough good quality projects where we can spend the money already allocated.  It will be years before this new money could be matched up with any projects of value.  You just can't increase spending by ten-fold in this way and expect to see short term results.

Yes we need to work on our infrastructure.  But we need to do it in a frugal manner and while instituting a real long term plan.  There was a large outcry about the Bridge to Nowhere, but how many "bridge to nowhere"-type projects will be wrongly funded as we try to spend money as quick as we can?

As for the Green job funding, keep the name Solyndra in your memory.  You will hear much about it over the next year.  The solar panel manufacturer received over $500 million in loan guarantees from Stimulus I, but went bankrupt recently and 1,100 people lost their jobs.  The FBI raided their offices last week, but recent emails point to the White House pressuring the OMB to make the loan in 2009.  One analyst even stated that Solyndra would run out of money in September 2011.  The date Solyndra filed for bankruptcy - September 6, 2011.

Also not mentioned is that nearly half of the original $36 billion renewable energy loan program in Stimulus I has yet to be given out.  Aside from that we have the millions of dollars spent for energy efficient upgrading and weatherization that have succeeded thus far in creating one job for every $5 million spent.  Pouring anymore down those money pits would be beyond foolish.

Then the president believes we need to send even more tax dollars to states so that they can once again put off making tough decisions.  The truth is a lot of states are in bad financial shape and cuts need to be made - the sooner the better.  A temporary bailout will not eliminate the problem.  When states refuse to make the necessary cuts, the threat of increased taxes loom.  In that environment, businesses are left to worry about those kind of changes to their bottom line.  So where is this type of stimulus creating jobs?

Finally, Obama believes we need to extend unemployment benefits even further.  At the risk of angering some readers, let me say that this is ridiculous.  In what world does the president believe paying people to stay home will get more people working?  If there was any substantial effect from the recipients of government aid helping stimulate the economy, then we wouldn't be in the fix that we find ourselves. 

If it's solely to help the unemployed, then we are doing the opposite of what we should be doing.  Basic economic textbooks, along with real life experience, will tell you that unemployment payments extend unemployment.  Even worse, chronic unemployment makes each potential worker unemployable in the eyes of the men and women who hire.  This is why, even when a government program helps an employer to create jobs, only half of those jobs went to the unemployed.  Instead, employers poached workers from other companies.

Contrary to popular thinking, the solution to our problems today is to simply put into place the type of common sense reforms that will help our economy at any time.  The idea that we need temporary efforts for a temporary problem comes from a misunderstanding of how the economy works.

Last year, the Cash for Clunkers was a good example of a failed temporary policy.  It didn't create new car buyers, but it did cause people who already planned on buying a care to move up the timing of their purchase to qualify.  In the end, it was not an incentive to cause people to purchase a car and the end result was that the price of used cars went up thanks to all the quality used cars that were taken out of circulation.  In effect, the government gave a lot of money to the middle class and affluent to buy a new car and caused the poor to pay more for a used car.

Thanks, but no thanks, Mr. President.  We don't need anymore of that type of help.  Stimulus II: Economic Boogaloo and Cash for Green Clunkers just won't work.  You talked a big game about reforming Washington.  Isn't it time we tried something we know will work, like tax reform?  See Reagan, Ronald Wilson, 1981-1988 in the White House records if you need some pointers on how best to proceed.  We're getting a little bit tired of waiting for you to become the one we've been waiting for.

We Seem to Have Misplaced Your Green Jobs, Mr. President.

There is no Green economy - not today, not tomorrow, not ever. 

Of course, we don't have a carbon economy, either.  The truth is that we just have an economy.  Energy isn't the end all be all of our economy, it's simply the means to an end.

For our widget makers, the greatest consideration on energy is the relationship of cost, efficiency, safety and dependability.  Throughout mankind's development, as we moved from using our natural environment (sun, wind, water) for energy to wood to coal to oil to natural gas to nuclear power, that relationship has been the driver.  Depending on the application, location, the given industrial environment, resource availability, etc., whichever energy source will be used will naturally vary.  At my place of employment, we use charcoal briquettes to light a natural gas-fired lime kiln and natural gas to light a coal-fired lime kiln.

Any attempt to force everyone into using the same energy source no matter the external issues, would be as wrongheaded as telling me to use steam to power my handheld calculator.  I'm quite happy with the solar chip in my calculator and even in my patio lights.  But if cellphones were required to use the same energy source, smartphones would never have been developed.

Solar & Wind - paying more & receiving less

Later this week, President Obama will make a speech to outline his new jobs program.  I expect that we will hear much about Green jobs and the Green economy.  As I said earlier, they don't exist.  What he really means is that we will either a) reorganize the economy to make green energy cheaper by artificially raising the price of using oil and coal or b) spend tax dollars to further subsidize Green businesses that can't compete in the marketplace.

Under the first scenario, it's hard to see job creation when we raise the costs of production and in the second, Obama fails to see that cost is only one part of the consideration on energy use.  Making solar and wind power cheaper will not make it more efficient and dependable which are two very big drawbacks.  Of course when we check the above chart, we see that if you account for the subsidies, solar and wind are over 20 times more expensive than oil and coal.

This past week, Solyndra, a solar energy company closed its doors.  Obama gave them half a billion dollars in loan guarantees from the stimulus package in 2009 to prop up Solyndra as it sought investors.  The president had touted Solyndra as part of the future of the coming Green Economy.  Rich Lowry writes at National Review,

The stakes in the battle to manufacture solar panels are exceedingly small. Solar power accounts for less than 1 percent of the electricity generated in the United States. The Obama administration’s fervency for it has more to do with the romance of its clean, postindustrial image than with economics. Obama said last year, “The true engine of economic growth will always be companies like Solyndra.” If that were so, it never would have needed half a billion of our dollars in the first place.

How did it fail, even with that amount of money?  The real problem was that Solyndra was not a profitable business.  As analyst Peter Lynch told ABC news,

"Here's the bottom line," Lynch said. "It costs them $6 to make a unit. They're selling it for $3. In order to be competitive today, they have to sell it for between $1.5 and $2. That is not a viable business plan."

As the President imagines it, the move to Green Energy is not about cost, efficiency, safety and dependability, it is about fundamentally changing our economy.  He will try to entice us to make the change, but if people must be forced into changing, well, then so be it. 

Why the need for change?  I'm still waiting for someone to explain what pot of gold is waiting for us at the end of the Green Energy rainbow.  The President claims that jobs await us if we make the change, but ask Spain how that worked out for them.  Heck, ask the 1,100 employees who no longer have a job at Solyndra.

We can never forget that what we really have is a $$-based economy.  When the economy ceases to be about the almighty dollar, we cannot expect to see job creation.  On Thursday night, if President Obama's new plans are not about lowering the costs of doing business, but are instead about fundamental change to our economy, we will have a long wait for those new jobs.

Dude, Where's My Recovery? - Part II

Dude, Where's My Recovery - Part I

In Part I, I discussed the errors and mistakes made by the Obama administration to arrest the economic free-fall, that have hindered our recovery.  As awful as those mistakes have been, the President was simply following the time honored tradition of jumping off a bridge because your friend jumped.

In choosing to follow the Keynesian formula, Obama has taken our economies normal recovery time of 18 -24 months and extended it into the 3-5 year range.  Just as we have seen happen before from Japan's lost decade to the Great Depression under FDR, such policies are very good at prolonging the bad times and preventing a quick recovery.

I contrasted our current remedies to Reagan's policies during a similar, if not worse economic predicament.  As the evidence shows, the Reagan recovery took off immediately after the end of the recession and soared in an unprecedented fashion (Obama likes to use the term unprecedented falsely, but in this case the term fits).  Unlike the failed Keynesian model, Reagan's supply side model worked and has been emulated across the globe to great success, especially in the former soviet satellite nations.

Today, we will discuss President Obama's plans to transform our economy.  As his chief of staff Rahm Emmanuel stated, "You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before."  President Obama has definitely used this crisis.

During the 2008 Presidential campaign, all of the candidates made one of the most ridiculous arguments I've heard.  They would all put money into creating Green jobs.  This was worse than the 2000 campaign's obsession with a "lock box".  Every campaign has it's ridiculous issue that seemed to make sense at the time and this was 2008's.  (go back and watch the speeches from previous conventions to see what I mean - Mondale '84 is a hoot)