Free Markets, Free People


GOP–pay attention to this poll

Pay attention to this because it is important:

The portion of Americans who say they believe the U.S. is on the wrong track is higher than it was at any point during Ronald Reagan’s presidency, when unemployment peaked at 10.8 percent after the 1981-82 recession, according to an ABC News/Washington Post poll. The ABC poll showed the wrong-track number during Reagan’s first term peaking at 57 percent in October 1982. The Bloomberg poll shows 66 percent of Americans think the U.S. is going in the wrong direction now.

This is the number I continue to talk about because to me it is the truest indication of the mood of the country.  The mood is obviously critical to the re-election, and wrong track polling has consistently indicated the way previous elections are going to go.  There is a threshold that portends bad news for the incumbent, and we’re well past that.  The question is, will it stay there?  The answer seems to be, by all indications and forecasts, yes.

As the public grasps for solutions, the Republican Party is breaking through in the message war on the budget and economy. A majority of Americans say job growth would best be revived with prescriptions favored by the party: cuts in government spending and taxes, the Bloomberg Poll shows. Even 40 percent of Democrats share that view.

This should be something every GOP politician should have tattooed on his or her inner eyelid to help them focus.  Concentrate on the message about the economy – it’s a winner.  Wander off into wedge issues and you give your opponent an opening and a way to distract the public.   If you do that you deserve to lose.


Twitter: @McQandO

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Repatriating corporate profits with tax breaks

It’s under consideration, and if you read the article, the NYT isn’t particularly thrilled about it.

Why?  Because those nasty corporations didn’t create jobs the last time this was done:

But that’s not how it worked last time. Congress and the Bush administration offered companies a similar tax incentive, in 2005, in hopes of spurring domestic hiring and investment, and 800 took advantage.

Though the tax break lured them into bringing $312 billion back to the United States, 92 percent of that money was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research.

This money comes from overseas operations and in some cases accounting maneuvers that shift domestic profits to low-tax countries. The study concluded that the program “did not increase domestic investment, employment or research and development.”

My question is, it didn’t increase “domestic investment, employment or research and development” where?  Because unless the stockholders took their money and buried it in a coffee can in the back yard, that’s most likely exactly where it went – via a more circuitous route that the NBER didn’t bother to follow.  That money didn’t just disappear when it went to share holders.  Where did it go?

Well, first remember that share holders are what?  Investors.   So even if all they did was let that money ride, it was “invested”. 

If, in fact, it was invested elsewhere, then one would assume that those companies in which the investment was made may have increased employment or R &D.  But you have to chase the money to find that out.

Bottom line, repatriation of overseas profits means more tax revenues, even at the reduced rate that would be found in a “holiday” as is being proposed.   And even if shareholders get the lion’s share of the money (and that’s why they’re called “shareholders” NYT, because they own a share of that money), they’re going to spend it, save it or invest it themselves.  

If one could get past the first step in the process and look at how money usually flows and is used, they’d realize that whining about “shareholders” getting most of the money is about as ignorant as complaining that if government gives taxpayers a tax break we wouldn’t spend the money properly, ala Bill Clinton.

Injecting billions of dollars of private money into the private economy in times like this isn’t going to hurt anything.  But it stands a great chance of helping.   But hey, those damn corporations wouldn’t spend it the way the NYT thinks they should, so they’re against it.


Twitter: @McQandO

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New CAFE standards could cost a quarter million jobs

When is a "green job" not a job? When you lose yours because of the initiative:

The Detroit News’s dogged David Shepardson has unearthed a study by one of world’s most respected automotive research firms that reveals that President Obama’s radical CAFE mandate that vehicles average — average! — 62 MPG by 2025 “could force vehicle prices up by nearly $10,000, reduce sales by 5.5 million vehicles annually, and eliminate more than 260,000 jobs.”

Shepardson is quoting from the Michigan-based Center for Automotive Research and the 260,000 job loss figure (consistent with past job losses from CAFE rule hikes) is another dent in White House’s propaganda that Green creates jobs.

The CAR study also reveals that Obama’s NHTSA and EPA have been gaming the figures when it comes to the cost of their new rules. The center’s study predicts it will cost between $3,744 and $9,790 per vehicle, while the agencies have low-balled the figure at $770 to $3,500 per vehicle.

The resulting costs would shrink the new-car market, with 5.5 million potential buyers disappearing (and manufacturing jobs with them) by 2025. That assumes that the auto fleet can even be built to meet such an absurd spec. Currently, no car — much less the average — meets 62 mpg. Indeed, only a handful of small vehicles meet the 35-mpg fleet-wide standard mandated in just five years.

Yes friends, just like the story I covered the other day, we have an administration which is more agenda driven than reality driven. We’re in the middle of a horrible recession, unemployment hasn’t really moved in over a year, the future doesn’t look much better, but the agenda to raise the price of energy (at the cost of jobs) and CAFE standards (at the cost of even more jobs) continues apace.

If you’ve ever wondered what market distortion and intrusion by government looks like, this is a good example.  And this intrusion will cost hundreds of thousands of jobs and price many consumers out of the new car market (again, this administration sees that as a feature, not a bug). 

Another in a litany of reasons Mr. Obama needs to be retired in 2012.


Twitter: @McQandO

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So why aren’t businesses hiring?

For a number of reasons actually.  Some numbers tell the story:

Two years into the recovery, hiring is still painfully slow. The economy is producing as much as it was before the downturn, but with seven million fewer jobs. Since the recovery began, businesses’ spending on employees has grown 2 percent as equipment and software spending has swelled 26 percent, according to the Commerce Department. A capital rebound that sharp and a labor rebound that slow have been recorded only once before — after the 1982 recession.

Demand has increased enough that business is producing at least as much as it was before the recession, according to the NYT, but businesses aren’t hiring.  Why?

Well, in lean times, headcount is the first casualty.  Layoffs are the rule.  That’s the fastest way to reduce the bottom line and either cut the losses being suffered to a manageable level or eek out a profit.

But, you say, once the recession is over, shouldn’t they rehire?   Well, like all markets, not if the cost of the commodity is too high (labor) and an acceptable alternative is available (equipment).  In this case that appears to be software in many cases.  

So – business cuts back during bad times, finds it can either get along without the extra headcount or finds a technological alternative (equipment) and when a level of prosperity returns, doesn’t hire (although I’m not sure I’d agree a proper level of prosperity has returned at this point, but I think it is clear that much more employment was expected by now, which is why we see the word “unexpected” appended to every down employment report).

Why is this happening?  Well in addition to the above, there’s an added problem that is often ignored or not mentioned.  Government tax policies.  In the case of equipment buying, the government has incentivized such purchases to the detriment of another – namely employment (labor).

With equipment prices dropping, and tax incentives to subsidize capital investments, these trends seem likely to continue.

“Firms are just responding to incentives,” said Dean Maki, chief United States economist at Barclays Capital. “And capital has gotten much cheaper relative to labor.”

Indeed, equipment and software prices have dipped 2.4 percent since the recovery began, thanks largely to foreign manufacturing. Labor costs, on the other hand, have risen 6.7 percent, according to the Labor Department. The rising compensation costs are driven in large part by costlier health care benefits, so those lucky workers who do have jobs do not exactly feel richer.

There’s your choice as a business – lower prices and tax incentives to purchase software and equipment or higher labor costs for workers.  If the machine can do the job, the business doesn’t have to pay healthcare, payroll, payroll taxes, etc.  In fact, the machine gives them a bottom line write off on their tax bill.  It’s a no-brainer.


Twitter: @McQandO

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In the midst of terrible economic times, let’s raise energy prices dramatically and lay people off …

“Never let the reality of the situation stand in the way of a political agenda”, ought to be the slogan of the Obama reelection campaign.

In the midst of the worst economic downturn the executive branch of the Federal Government (the Obama administration), under the guise of the EPA is ratcheting up standards that will shut down many coal fired plants and their jobs as well as cost billions for utilities to keep other coal plants open.  Result:

Consumers could see their electricity bills jump an estimated 40 to 60 percent in the next few years.

The reason: Pending environmental regulations will make coal-fired generating plants, which produce about half the nation’s electricity, more expensive to operate. Many are expected to be shuttered.

Of course the timing of the increase is predictable:

The increases are expected to begin to appear in 2014, and policymakers already are scrambling to find cheap and reliable alternative power sources. If they are unsuccessful, consumers can expect further increases as ore expensive forms of generation take on a greater share of the electricity load.

Yup, safely reelected (he hopes), Mr. Obama will smile benignly as he watches more of you hard earned money go for what should be cheap and plentiful energy based on incredibly abundant coal.  Instead we’ll be chasing “reliable alternate power sources”.   One would like to believe we’d go to natural gas, but then those abundant finds are also being slow walked through the red tape of the government approval process.

More than 8,000 megawatts of coal-fired generation capacity has been retired in the U.S. since 2005, according to data from industrial software company Ventyx. Generators have announced they plan to retire another 21,000 megawatts in the near future, and some industry consultant studies estimate 60,000 megawatts of power, enough for 60 million homes, will be taken offline by 2017.

This in the midst of projected energy shortages as demand increases while we shut down power generation assets.

Certainly we may want to, at some time in the future, shut down all coal fired plants.  We may collectively wish to see other energy sources used as well.  But that would require a coherent transition plan, viable alternatives, phasing and a little common sense (or essentially being in touch with the reality that one finds around them).

This is  a agenda driven, safely-after-the-election, regulatory fiat that will cost workers their jobs and consumers a higher portion of their earned income in poor economic times.

Another, among a myriad of reasons why the man in the White House needs to be in his own house come 2014.


Twitter: @McQandO

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Unemployment: The real numbers and the real problem

Not only the real numbers, but the real reason:

Labor-force participation, the share of Americans who are working or looking for jobs, has fallen to its lowest percentage since the mid-1980s. That’s partly because people have grown discouraged about their ability to find jobs and have given up looking. With those workers on the sidelines, the unemployment rate has been lower than it otherwise would be.

The official unemployment rate hit 9.1% in May. Including all of those who had part-time jobs but wanted to work full-time as well as those who want to work but had given up searching, the rate was 15.8%.

Of course Dale has been saying that for some time with his own calculations.   Discouraged workers, however, may also have taken another option – retirement – since it is the age of Baby Boomer retirement.   So it’s not clear yet how many of those who were workers and lost their jobs are “discouraged” workers or retired workers.  Bottom line, though – a lot of people have seen their lives drastically changed.

Here’s the inherent problem in long-term unemployment:

[T]he odds of finding a job steadily decreased the longer someone was out of work. Some 30% of Americans who had been out of work for less than five weeks found new jobs last year.

Those odds deteriorated for the long-term unemployed. Of those who had been unemployed for more than six months, slightly more than 10% found new jobs. Nearly 19% dropped out of the workforce.

The problem endures this year: As of May, 6.2 million had been out of work for more than six months and more than 4 million haven’t work in more than a year.

And the outlook, at least at the moment, doesn’t look like it will change anytime soon.

This is Obama’s political Achilles heel.  This is what gets incumbent presidents an early retirement.  I’m not hoping that this persists through the 2012 election, I’m suggesting that there is nothing to indicate it won’t.  

That is Obama’s challenge.  And it is also the GOP’s attack line.  This is Obama’s record – something he has to run on for the very first time.  Time to begin pointing it out now.


Twitter: @McQandO

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Top 10 cities with the most pink slips and the 5 worst states to do business in

What do they have in common?  Well, you tell me (but my guess is onerous taxation, over-regulation and an anti-business climate).  Here are the cities that have lost the most jobs recently according to the Daily Mail?

  1. Los Angeles, California, 17,393 workers
  2. New York, New York, 14,312
  3. Chicago, Illinois, 7,835
  4. San Francisco, California, 5,117
  5. Riverside, California, 4,852
  6. San Diego, California, 4,382
  7. Philadelphia, Pennsylvania, 2,747
  8. Seattle, Washington, 2,601
  9. Sacramento, California, 2,467
  10. Pittsburgh, Pennsylvania, 2,205

OK, you say, LA has a lot more jobs to lose than say, Montgomery AL.   True and understood.  But, there’s more.  Take a look at the states in which you find the job losses.  Now peruse the list of the “best/worst states to do business in”.

Bottom 5?

46 Michigan

47 New Jersey

48 Illinois

49 New York

50 California

All deep blue states.  If you’re wondering, PA comes in at 39th just ahead of OH, WV, HI, CT and MA and behind MS.  Yeah, that’s right, MS.  Everyone’s 50th state in most every other comparison.  WA was 34th.

Contrast that with the top 5 states  – TX, NC, FL, TN and GA.  All red, all right to work states, all southern states.  Draw your own conclusions.  By the way, the ratings of the “best/worst states” came from a group of people who ought to know and be able to make such a determination as it relates to business.  The rankings are the product of surveying 550 CEOs.

And, as they indicate, it isn’t rocket science needed to attract and keep businesses in a state:

Business leaders graded the states on a variety of categories grouped under taxation and regulation, workforce quality and living environment. “Do not overtax business,” offered one CEO. “Make sure your tax scheme does not drive business to another state. Have a regulatory environment and regulators that encourage good business—not one that punishes businesses for minor infractions. Good employment laws help too. Let companies decide what benefits and terms will attract and keep the quality of employee they need. Rules that make it hard, if not impossible, to separate from a non-productive employee make companies fearful to hire or locate in a state.”

That, in my estimation, is the primary difference between Texas and California, and why Texas is booming and California is drowning.

Food for thought.


Twitter: @McQandO

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Revisiting the Obama administration’s unemployment promise

The folks at e21 remind us of something that should be at the forefront of every person’s memory as they consider what this administration has and hasn’t accomplished in its promise to “stimulate” the economy and create jobs.   I call it the “big promise”.  I don’t call it a “lie” since I use the traditional definition of a lie (a known falsehood) vs. the more modern one in use today by activists on both sides (being wrong about something).  But that’s fodder for a future post. 

In this one I want to issue a reminder of what was promised and what has been delivered.  Promise:

Back in January 2009, Christina Romer and Jared Bernstein produced a report estimating future unemployment rates with and without a stimulus plan. Their estimates, which were widely circulated, projected that unemployment would approach 9% without a stimulus, but would never exceed 8% with the plan.

They got their “stimulus” – $800 plus billion in mostly borrowed money with which they were to stem the tide of unemployment then rising and keep it under 8% as promised.


updated unemployment stimulus graph


The result wasn’t even close.  In fact, other than two months of this year, the unemployment rate has stayed above 9%.  By this time, according to the administrations plan, we were told we’d be at about 6.5%.

So it is clear that the “plan” was a total and unmitigated but costly failure.

What’s their explanation for such a huge miscalculation? 

Romer and Bernstein defend their estimates with the argument that the economic situation turned out worse than they had anticipated; and so the economy would have done even worse without a stimulus.

Is that so?  Then, as e21 says, they owe us a much deeper explanation of why that was so and why they considered their solution at the time to be the proper thing to do.  Because it is seeming more and more like a very expensive boondoggle at the moment:

The recession “officially” ended two years ago, yet the first quarter of 2011 only saw 1.8% growth. The Administration and Congress should have a more robust discussion about their self-proclaimed “2010 Recovery Summer” – if for no other reason than to better inform the public about the recovery challenges the U.S. still faces in 2011.

For example, there is new research that suggests that the stimulus may actually have resulted in a net loss of jobs. Regardless of the exact number of jobs lost or created, however, the fact that some economists are even arguing that it had a negative impact tells you that the stimulus may very well have been a wash overall.

Larry Lindsey offered his own review of the stimulus this week, arguing that it failed what’s colloquially known as the Sharp Pencil Test. As he explains, “if you sit down and do a back of the envelope calculation of the [stimulus] program’s costs and benefits, there is no way to conjure up numbers that allow it to make sense.”

Lindsey went on to offer this analysis:

[E]ven if you buy the White House’s argument that the $800 billion package created 3 million jobs, that works out to $266,000 per job. Taxing or borrowing $266,000 from the private sector to create a single job is simply not a cost effective way of putting America back to work. The long-term debt burden of that $266,000 swamps any benefit that the single job created might provide.

The 3 million claim is dubious at best  with no mention of the type, quality or sector these jobs were supposed “saved or created” (the stimulus propped up a lot of state budgets which helped delay layoffs to government workers).  And as Lindsey points out, the cost of what can only be a temporary “save” are way out of whack with the benefit.  Instead, it appears the stimulus was a giant waste of money that did little if anything to create jobs in the private sector and mostly benefited government at a huge cost per job.

I’m not sure how anyone could economically justify such an outcome.  But I sure would like to hear them try.   I think they owe us some answers on this.   And I’d like to see the GOP begin asking those questions.   This is one part of the Obama record they need to pound on – starting now.


Twitter: @McQandO

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Does the economy doom Obama’s re-election hopes?

I’m beginning to wonder if the Republicans can run just about anyone for President (note the qualifier – “just about” – not everyone, even among the declared candidates) and win given this economy and this president:

Americans’ disapproval of how President Barack Obama is handling the economy and its growing budget deficit has reached new highs amid broad frustration over the slow pace of economic recovery, according to a Washington Post-ABC New poll released on Tuesday.

The ratings boost Obama received after the killing of Osama bin Laden has dissipated with his job approval rating back to 47 percent. Forty-nine percent disapprove of his performance.

Obama’s approval rating bounced to 56 immediately after bin Laden was killed last month.

But it went back to a plurality very quickly.  On the key issue, however, it hasn’t returned to a particular percentage – it’s gotten worse.  Much worse:

Fifty-nine percent, a new high, gave Obama negative marks for his handling of the economy, up from 55 percent a month earlier.

Obama’s approval rating on the deficit issue hit a new low of 33 percent, down 6 points since April.

Anyone who doesn’t understand that is where the election will be decided hasn’t been paying attention to politics very long.  Bill Clinton knew it when he rode to victory on his “It’s the economy, stupid”.   Ronald Reagan knew it when he continually asked, “are you better off now than you were 4 years ago”?   And Barack Obama would probably kill to have the economic problems Jimmy Carter faced – not that he’d do any better than Carter.

The point is, in bad economic times, incumbents have a tough road ahead of them at election time.  That’s because economic issues, joblessness, insecurity and fear are felt and understood by everyone.   Pocketbook issues are personal issues.   And the public has always voted those issues in general elections – much to the disadvantage of incumbent politicians, especially presidents.  There’s a number going around out there which claims that no president  since FDR has been re-elected with unemployment over 7.2% .  Of course keep in mind only a some of them since then have run for re-election and not all of them had bad unemployment numbers at the time.   The point, however, is that this sort of issue is critical to re-election chances.

The survey reflects a broadly pessimistic public mood as high gasoline prices, sliding home values and high unemployment numbers raised concerns about the pace of the U.S. economic recovery, The Washington Post said.

Eighty-nine percent of Americans say the economy is in bad shape; 57 percent say the recovery has not started and 66 percent said the United States was seriously on the wrong track.

Forty-five percent said they trust congressional Republicans over Obama to handle the economy, up 11 points since March.

If much of what is listed in the first paragraph isn’t improving fairly dramatically when 2012 arrives, Obama is in for a long year and, just guessing here, an “upset” loss.  The shine has worn off.  The cache of electing a black president has run its course.  History has been made.  And now the results part of the show come to bear.   Having been a moment in history won’t save Obama if the economy still sucks as badly as it does now.

My dad used to always tell us boys, “you live between your ears”, meaning attitude was critical to how you approached life and overcame obstacles.  Attitude is also critical in economies.  Pessimism isn’t the predominant mood one wants within the citizenry when they’re hoping to see it turn around.   And it certainly isn’t the mood a president wants through out the lane when he’s running for re-election.

Yeah, this is going to be an interesting year and a half until election day 2012.  I’m betting it’s not better economically and, again depending on who the GOP eventually nominates, Republicans stand to win the election.  Or, and you heard it here first with all the caveats – it is most likely the Republican’s election to lose.

Of course, knowing them, I have little doubt they can manage to do that.


Twitter: @McQandO

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Employment: Why “government spending” should be shelved in favor of encouraging private investment

In macro terms its really fairly simple.  We have always come out of busts with booms.  Wondering what the next boom is going to be and how to help it launch itself is where government should be looking and trying to act  – not at deficit funding government make work projects and future energy schemes still some decades from reality.

For instance – a little look into the not to distant future and a scenario that would help us in both the balance of trade and employment, arenas (the latter almost immediately).

But also, we will help to satisfy burgeoning demand for petroleum in Asia, South America and Africa. Yes, the US is an oil importer. But if we import less, that will help to satisfy world demand just as much as if a new exporter appeared on the market. If we import a billion barrels a year (2.74 million barrels a day) less, at current prices that works out to $100 billion off of our huge trade deficit. This could also be a huge engine of job growth. We now have about 2,000 rigs drilling, and more are being added all the time. For each rig there are the roughnecks, the service companies, the drilling pipe and casing producers, the local service providers, etc. It is big business, and growing fast.

Fortunately, we have lots of places to drill, in various shale formations around the country. (It’s not “shale oil” in the classic sense, better to call it, “shale associated oil”). For those who think that Yankee ingenuity is a thing of the past, just look at our oil and gas industry. It serves as a powerful testament to the power of the free enterprise system that a great many people chipping away at the same problem can come up with creative new ways of extracting oil from the earth that a centralized government program of oil production would never (and has never) originated. You don’t see these new drilling techniques coming from Russia, which is still sadly statist in its efforts to exploit natural resources.

We have the resources, we could be exploiting them now (relatively speaking) and have them benefit our economy while we do the pie-in-the-sky energy research the Democrats think is the panacea to all our problems.  I’ve never understood their insistence on ‘either/or’ in that regard.  Why can’t we do both simultaneously – which seems both logical and would help do exactly what they claim they want – employ Americans. 

Timothy Siegel’s point about innovation is well taken as well.  One of the reasons we’re moving past the peak oil predictions of the past is because of innovation from private oil companies that is allowing them to extract harder to reach and exploit oil and gas at a reasonable price.   We, as a nation, should be encouraging that instead of doing everything in our power to cripple such innovation.

Instead we get solutions like those below from the left.  Government should spend money when one of the greatest engines for economic revival is left sitting at idle while the administration figures out how to get more sugar in its gas tank.

It’s freakin’ nuts.


Twitter: @McQandO

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