Well, this is encouraging:
U.S. government officials are bracing for the rating agency Standard & Poor’s to downgrade the country’s credit as early as this evening or take other possible action, according to someone familiar with the matter.
Open comment thread to answer the question: How screwed are we?
UPDATE: ABC news adds more:
A government official tells ABC News that the federal government is expecting and preparing for bond rating agency Standard & Poor’s to downgrade the rating of US debt from its current AAA value.
Officials reasons given will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction. A source says Republicans saying that they refuse to accept any tax increases as part of a larger deal will be part of the reason cited. [Emphasis added—Ed.]
So, it’s all your fault, Republicans.
UPDATE II: Politico’s Ben White (@morningmoneyben) tweets, "Senior govt official tells me S&P had planned to downgrade 2nite. And now may not. Weirder and weirder".
UPDATE III: Jake Tapper updated the ABC story above with new developments:
A third official says that S&P made a "serious mistake" in its analysis, "based on flawed math and assumptions," so the Obama administration is pushing back. But even though "S&P has acknowledged its numbers are wrong, it’s unclear what they’re going to do.," the official said.
S&P refused to comment.
What a strange set of developments.
Update IV: The Wall Street Journal provides a clearer look at what’s happening:
A mathematical error discovered late Friday by Treasury Department officials threw into limbo, at least temporarily, plans by ratings firm Standard & Poor’s to downgrade the top-notch AAA credit rating the U.S. has held for 70 years, people familiar with the matter said…
S&P officials notified the Treasury Department early Friday afternoon it was planning to downgrade the debt, a government official said, and the firm presented its report to the White House. S&P has previously warned such a downgrade might come if Washington didn’t move to comprehensively tackle its long-term fiscal woes.
After two hours of analysis, Treasury officials discovered that S&P officials had miscalculated future deficit projections by close to $2 trillion. It immediately notified the company of the mistakes.
S&P officials later called administration officials back to say they agreed about the mistakes, though they didn’t say whether it would affect the rating. White House officials remained waiting Friday evening to see what the company would do.
That’s an enormous mistake for S&P. If you’re about to issue a downgrade to the United States, you’d better check yourself, son. After this, the Treasury Department will go to the wall on S&P if they try to downgrade.
Big black eye for Standard & Poor.
UPDATE V: Holy crap! CBS White House reporter Mark Knoller (@markknoller) just tweeted: “S&P has downgraded US Treasury securities from AAA to AA+. S&P bills downgrade as an ‘unsolicited rating.’" Oh, it’s on now. S&P has got big brass ones, because the Treasury Department and White House will now go 10-8 on their ass, after finding that $2 trillion math error.
UPDATE VI: Well, the first responses for the downgrade are in at Reuters. They seem pretty measured. Optimistic even.
Well, this is interesting. Paul Krugman finally agrees with me:
[W]e already know what isn’t working: the economic policy of the past two years — and the millions of Americans who should have jobs, but don’t."
I’d just like to point out that I knew those economic policies wouldn’t work back in 2009, writing about them here. Since then, I’ve just been watching the kangaroo. So It’s nice to see Krugman joining me in declaring "fail"—though he does so with the advantage of 20/20 hindsight.
I eagerly anticipate my upcoming invitation to Sweden.
Where we diverge is in providing solutions. As always, Krugman’s solution is more spending, and more debt. But with debt already at 100% of GDP, we’re really in uncharted waters, and I have no confidence that more debt is the answer, if the problem is the existing debt overhang.
The real question I’m concentrating on is, "At what point do the markets recognize not only that the debt path we’re on is unsustainable, but that it is going to be impossible to pay it back?" Is that 120% of GDP? 150%? I don’t know. But I fear that we’re going to learn the answer.
On the bright side, I’ll be able to pay off the remaining 19 years of my mortgage for the cost of a nice hat. On the down side, a new Astros baseball cap will cost $200,000. On the bright side, again, the $100,000 from my Nobel will cover half of that, so it’s all good.
James Pethokoukis writes, "Goldman Sachs drops this H-bomb on the Obama campaign:
We have lowered our forecast for US real GDP growth further and now expect real GDP to grow just 2%-2½% through the end of 2012. Our forecast for annual average GDP growth has fallen to 1.7% in 2011 (from 1.8%) and to 2.1% in 2012 (from 3.0%). Since this pace is slightly below the US economy’s potential, we now expect the unemployment rate to be at 9¼% by the end of 2012, slightly above the current level.
Even our new forecast is subject to meaningful downside risk.
So, we got that goin’ for us.
The headline numbers for the the July employment situation show that 117,000 new non-farm payroll jobs were added last month, while the unemployment rate dropped to 9.1%. But, the true story is—as we’ve come to expect—more complicated when you delve below the fold.
Private payrolls rose by 154,000 jobs, while government payrolls declined by 37,000. Average weekly hours were unchanged at 34.3, while hourly earning rose slightly to $23.13.
The decline in the unemployment rate to 9.1 was not a reflection of the increase in non-farm payrolls, but a decline of 193,000 in the labor force, as workers dropped out of the labor market. As a result, the labor force participation rate continued to decline to 63.9%. In addition, the total number of employed persons declined from 139,334,000 to 139,296,000, meaning that 38,000 fewer people were actually working last month, compared to June.
The U-4 unemployment rate, which includes discouraged workers, held steady at 9.8%, while the broadest measure of unemployment/underemployment, the U-6, which includes workers who have part-time jobs for economic reasons, dropped 0.1% to 16.1%.
Overall, the report is not positive. At best, it can be said that we’re about the same last month as we were in June. The trend over the last few months is not good, however, as the table below illustrates.
|Mar 2011||July 2011|
Finally, if we go back to the historical average of labor force participation prior to the recession, which was 66.2%, the proper size of the labor force should be 158,662,000, rather than 153,228,000. Use that figure to calculate the employment rate with the 139,334,000 persons actually employed, and you get an actual unemployment rate of 12.2% for July. The caveat here, of course, is that with the first tranche of Baby Boomers so close to retirement, some number have just retired early and are out of the labor force permanently, so that historical participation rate may no longer be valid.
In any event, once you add in the workers who’ve gotten discouraged, and workers who have part-time jobs because full-time employment isn’t available, this month’s employment report makes it clear that real unemployment is actually back on the rise.
One of the well known institutions that politicians like to point to when things are going well or bad is Wall Street’s stock markets. They’re an indicator that at times are used to point out that things aren’t as bad as they seem and as well as illustrate how bad things really are.
Today is one of those latter examples. The Dow and other indices plunged. The Dow Jones Industrial is off 512 points, its 9th steepest drop ever.
The question of course is “why” and what one has to hope is the answer is something to do with a temporary situation. But it doesn’t appear that’s the case. Looking out at the broad economy, it seems, investors don’t at all like what they see. Add the government’s continued inability to address the debt and deficit and you have what could be the beginning of many down days on the street.
"The conventional wisdom on Wall Street was that the economy was growing — that the worst was behind us," said Peter Schiff, president of Euro Pacific Capital. "Now what people are realizing is the stimulus didn’t work, and we may be headed back to recession."
That’s not what you want to hear when you’re hoping to see investment and an economy turn around. And unfortunately, Wall Street is a place with a herd mentality, and when some investors get spooked, they all get spooked. Yesterday indicated they’re spooked.
There’s "total fear" in the market, said Bob Doll, chief equity strategist at the world’s largest money manager, BlackRock.
European and Japanese policy makers had to step in and shore up their markets as the sell off gained momentum.
"In the last two weeks, we’ve been through the ringer," said Rich Ilczyszyn, market strategist with futures broker Lind-Waldock. "When we start looking at the recovery, there’s nothing to hang our hats on anymore."
So despite assurances that a “deal” to raise the debt limit would have a calming effect on world markets, the reality is it didn’t. And Europe is in pretty deep trouble which is also reflected in this loss. Add in the poor economic reports here that continue to pile one on the other and you have a situation that looks increasingly bleak. The unemployment report today is most likely only going to underline that fact with most economists expect poor job growth to continue and the unemployment rate to stay at 9.2%. And now the Dow has lost all of what it had gained in 2011.
Stay tuned. Rocky road (continues) ahead.
Yes, we’ve finally done it – and almost immediately after the Spender-in-Chief signed the new law:
US debt shot up $238 billion to reach 100 percent of gross domestic project after the government’s debt ceiling was lifted, Treasury figures showed Wednesday.
Treasury borrowing jumped Tuesday, the data showed, immediately after President Barack Obama signed into law an increase in the debt ceiling as the country’s spending commitments reached a breaking point and it threatened to default on its debt.
The new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, and putting it in a league with highly indebted countries like Italy and Belgium.
Public debt subject to the official debt limit — a slightly tighter definition — was $14.53 trillion as of the end of Tuesday, rising from the previous official cap of $14.29 trillion a day earlier.
Treasury had used extraordinary measures to hold under the $14.29 trillion cap since reaching it on May 16, while politicians battled over it and over addressing the country’s bloating deficit.
The official limit was hiked $400 billion on Tuesday and will be increased in stages over the next 18 months.
No linger time there, huh? We now owe more than we produce in a year. And let’s be honest, we didn’t get here just during the last 3 years – although we did switch from a horse-drawn sled to a rocket sled – this has been a long process aided and abetted by both parties. Yes, one has been worse than the others at times, but it pays to remember that George W. Bush gave us Medicare part D and No Child Left Behind … both horribly expensive programs.
But it’s not slowing down is it? And that’s a problem for economic recovery as Dale reminded us:
…a body of peer-reviewed work has been developed (PDF) that shows that an excess of government debt serves as a drag on the economy, shaving at least a full percentage point off of annual GDP growth. And we’ve learned that this negative economic effect has a non-linear effect on economic growth as debt increases.
There seems to be little real recognition of how drastic and the enduring government cuts in spending must be to change this so the debt isn’t a drag on the economy. Granted they must be intelligent so as not to compromise our national security or disrupt what we deem as basic essential services government provides, but that leaves one heck of a lot of the pie to cut. And that would include massive cuts in entitlements. You’re not entitled to something someone else can’t afford. And that’s where we are. I wish we’d quit calling those programs which are pure welfare “entitlements”. There is a difference between paying into something for years and a program in which recipients are getting something for nothing. It is the “getting something for nothing” programs that deserve a first hard look. Unfortunately the programs in which taxpayers were forced to contribute and were subsequently looted by spendthrift politicians need to be reviewed and cut as well.
We can pretend this isn’t a real problem, like most of the politicians in Washington DC, or we can face the reality (and pain) of the situation and start to work doing what is necessary to bring fiscal sanity to our nation’s finances.
A good start would be cleaning the lot of them out DC and starting over. You’re likely to find at least as competent a group as are up there now by randomly picking 535 names from a phone book. Yes, I know that’s not going to happen, but we’ve got to come up with some way to scare those people straight. Suggestions are welcome.
Let’s see how today went, shall we? We got our debt ceiling deal, but the Dow dropped 266 points, and the S&P 500 fell 33 points, so it’s now negative for the year. The yield on the 10-year T-note dropped to 2.61%. Gold, meanwhile, hit a fresh record high of $1,644.50/oz. So, I guess this year’s Recovery Summer is over.
None of this, by the way, has anything to do with the debt limit battle in DC. No one on Wall Street really thought a deal wouldn’t be struck. At the end of the day, everybody was pretty confident that the debt ceiling would be raised, and a default avoided.
Stock prices are volatile, of course, so one day’s movement doesn’t mean much, but we have lost about 800 points on the Dow since 22 July, so the trend isn’t good. What’s worse is the steady decline on treasury yields and the climbing price of gold. When you couple that with the 0.4% 1Q GDP increase, and the danger of downward revisions to the lackluster 2Q GDP over the next two months, the evolving picture doesn’t look pretty. We’ve also has a few weeks of unremittingly bad economic releases, showing the economy might be heading back towards recession, and unemployment getting closer to 10% than 8%.
So then what’s the problem? I mean, we’ve had our big stimulus, and our TARP and our Quantitative Easing I and II, and we’re still not only barely budging into positive GDP territory, but now all the signs are showing the economy slowing. What’s happening? Why isn’t any of this working?
I think the answer can be found in what I wrote in my previous post about debt levels, and how over the last several years…
…a body of peer-reviewed work has been developed (PDF) that shows that an excess of government debt serves as a drag on the economy, shaving at least a full percentage point off of annual GDP growth. And we’ve learned that this negative economic effect has a non-linear effect on economic growth as debt increases.
What seems to happen is that, as you begin to approach a debt-to-GDP ratio of 100%, economic growth slows. As you add debt, there’s a non-linear decrease in economic growth. and each additional increment of debt slows growth more than the last. As I also pointed out, this has some pretty scary implications for Keynesian policies, because as you add debt, you’re no longer stimulating growth, you’re hindering it ever more strongly.
That puts policy makers in a pretty bad spot. For instance, right now, real short-term interest rates are effectively zero, so the interest rate tool is no longer of any use to the Fed. You can’t lower rates below 0%. With that tool gone, the only thing left to try and stimulate the economy is to add more debt. Conversely, cutting spending will result in more government workers and contractors being moved over to the unemployment line, and the economy still slows. It’s a trap, where all the standard policy moves result in a slowing economy.
Back in the 80’s my fellow Econ and Business undergrads would debate about all the debt Reagan was adding, and trying to figure out when all that debt would begin crowding out private investment and slowing economic growth. As it turned out, it took far longer than any of us believed it would, but I think we finally have the answer.
The really scary this is that, if we decided that we had to bite the bullet, and impose some austerity, it really wouldn’t help much. We could cut discretionary spending by half, and all it would do is gain us a few years of breathing space before the coming explosion in Social Security and Medicare entitlements—about $60-76 trillion worth of them—eat up any short-term savings and debt reduction we might acquire. After all, discretionary spending—including defense—is only about 39% of the current budget anyway.
What part does economic growth play in all this? Well, it’s clear that 2% per year isn’t going to help much.
It is a generally accepted truism that the trend rate of growth in a mature economy is 3%. There are a lot of reasons given for this; slower population growth in developed countries, large sunk costs in plant and capital, blah, blah, blah. But why should any of that matter? Just because population growth is slow, it doesn’t necessarily follow that the growth of wealth or human ingenuity is hampered.
Here is a reason for that slow growth that’s almost never given. You see, one of the things that mature economies all seem to have in common is large government expenditures, extensive entitlements, massive regulatory oversight, and increasing debt. All of that is financed by taxation to remove money from the productive portion of the economy. So, one of the primary reasons we have slower economic growth is because we trade it for public goods.
Now, we may love these public goods. And they are certainly nice to have if you can afford them. But the evidence is increasingly that we cannot. if we could, we wouldn’t be racking up a level of peacetime debt that’s nearly 90% of GDP. Not only do we give up a lot of economic growth to sustain these public goods, but, apparently, we eventually give up all of it…at which point, we have to give up the public goods as well.
If we really want to climb out of this hole, then what we really need to do is to radically rethink what government should be, what it should be allowed to do, and how it’s funded. It’s not enough any more to cut budgets, while leaving the regulatory, entitlement, taxation, and spending structure intact. A truly radical solution would be to limit government spending and revenues to no more than 10% of GDP in peacetime. Replace the income tax with a 10% VAT. Eliminate the departments of Education, Commerce, Labor, Transportation and Agriculture. Repeal most Federal criminal laws. Privatize social security. Enforce free markets, rather than the crony capitalism we have now.
No one in our current political class has the slightest interest in any of those suggestions. Drastically reducing the size and scope of government is the only solution that can possibly increase economic growth substantially, and give us a shot at paying off our ever-increasing debt, but our current political class will never embrace that.
The thing is, reality doesn’t care what the political class—or anyone else for that matter—wants. It just is what it is. So, no matter what happens, we won’t have to worry about the deficit or government spending for much longer. Either we’ll fix the problem by electing a political class that’s devoted to cutting government across the board and paying down the debt. Or we won’t fix the problem, and the resulting bankruptcy and hyperinflation will allow us to monetize our debt, wipe out the life savings of every person in the country, and we will start over from scratch with a bright shiny new currency!
But the problem will get solved. The only question is how much control we’ll retain over the process, and how much government we’ll retain at the end of it.
Paul Krugman leads the “reaction” brigade with a lament that says cutting government spending while the economy is deeply depressed is a mistake. I have to say, that is not “unexpected”. Krugman has been a one-trick-pony ever since this recession/depression began. Spend, spend, spend – spend more, spend it even if you don’t have it and keep spending until we spend ourselves out of a recession/depression. For most that simply is counter-intuitive.
Krugman also does another thing that is not unexpected. He attempts to blame all of this turbulence on the Republicans while claiming the Democrats got rolled:
It is, of course, a political catastrophe for Democrats, who just a few weeks ago seemed to have Republicans on the run over their plan to dismantle Medicare; now Mr. Obama has thrown all that away. And the damage isn’t over: there will be more choke points where Republicans can threaten to create a crisis unless the president surrenders, and they can now act with the confident expectation that he will.
In the long run, however, Democrats won’t be the only losers. What Republicans have just gotten away with calls our whole system of government into question. After all, how can American democracy work if whichever party is most prepared to be ruthless, to threaten the nation’s economic security, gets to dictate policy? And the answer is, maybe it can’t.
The Republicans called “our whole system of government into question?” No overstatement there. Actually I saw it as more as the Republicans calling attention to the fact that this spending spree and expansion of government intrusion is anathema to “our whole system of government” as first envisioned and then founded. I think what Krugman really means is the GOP has laid claim to the narrative that the current size and cost of government isn’t at all what the founders established and it is time to get back to that vision.
Wow … terrible, huh?
Then there’s the NY Times editorial page. It too laments the deal. More so it laments the fact that Republicans used the crisis to push their election promise to cut spending. Apparently never letting a crisis go to waste only is good for one side. You have to love the phrasing of the editorial – Democrats apparently held out for a few principles while Republicans were simply political barbarians out to loot, plunder, kill and maim (politically speaking, of course):
For weeks, ever since House Republicans said they would not raise the nation’s debt ceiling without huge spending cuts, Democrats have held out for a few basic principles. There must be new tax revenues in the mix so that the wealthy bear a share of the burden and Medicare cannot be affected.
Those principles were discarded to get a deal that cuts about $2.5 trillion from the deficit over a decade. The first $900 billion to a trillion will come directly from domestic discretionary programs (about a third of it from the Pentagon) and will include no new revenues. The next $1.5 trillion will be determined by a “supercommittee” of 12 lawmakers that could recommend revenues, but is unlikely to do so since half its members will be Republicans.
The only somewhat good thing that came out of it, says the NYT, is the ability to continue to spend on entitlements even though we can’t afford them. And note too, the NYT is certainly not for any sort of a balanced budget. And trying to make government smaller, less intrusive, less costly and to have to live within its means makes the Speaker of the House and the rest of the GOPers who committed to all of that “radicals”. Goodness, if that’s how a radical is now defined, count me in.:
Democrats won a provision drawn from automatic-cut mechanisms in previous decades that exempts low-income entitlement programs. There is no requirement that a balanced-budget amendment pass Congress. There will be no second hostage-taking on the debt ceiling in a few months, as Speaker John Boehner and his band of radicals originally demanded. Democratic negotiators decided that the automatic cut system, as bad as it is, was less of a threat to the economy than another default crisis, and many are counting on future Congresses to undo its arbitrary butchering.
Sadly, in a political environment laced with lunacy, that calculation is probably correct. Some Republicans in the House were inviting a default, hoping that an economic earthquake would shake Washington and the Obama administration beyond recognition. Democrats were right to fear the effects of a default and the impact of a new recession on all Americans.
Well of course they were since they were primarily responsible for doubling the national debt in a few years and adding trillions upon trillions of dollars to it. It is they who ran it up against the debt ceiling in record time and now they want to claim that the GOP held the country hostage instead of letting them again have their way with spending money in the trillions of dollars that we don’t have? Balderdash.
Meanwhile, here is how some Democrats reacted:
* Representative Emanuel Cleaver, Democrat of Missouri: “If I were a Republican, this is a night to party,” he said to MSNBC.
* Representative Raul Grijalva, Democrat of Arizona: “This deal trades people’s livelihoods for the votes of a few unappeasable right-wing radicals, and I will not support it. This deal weakens the Democratic Party as badly as it weakens the country,” he added. “We have given much and received nothing in return. The lesson today is that Republicans can hold their breath long enough to get what they want.”
* Representative Nancy Pelosi of California, the Democratic leader: “I look forward to reviewing the legislation with my caucus to see what level of support we can provide.”
* Donna Brazille, Democratic strategist, via Twitter: “Fellow citizens, good night. The debate was one sided – so no winners, no losers. Claim your JOY! No whining because we’re in this together.”
“The GOP won the debate by playing quick & loose w/the truth. Bullyingeveryone, incl media. Stonewalling. Arrogance. This was unnecessary.”
* Robert Reich, former secretary of labor under Bill Clinton, via Twitter: “The heinous deal is preferable to economic catastrophe. The outrage and shame is it has come to this choice.”
“The radical right has won a huge tactical and strategic victory. Democrats have proven they have no tactics and no strategy.”
“It is not the case that ‘both sides’ gave up ’sacred cows.’ Rs linked the debt ceiling to their demand for smaller govt. They’ve got it.”
Got that folks – the “radical right” linked the debt ceiling increase to a demand for smaller government and got it. Isn’t that what they’d said they’d do? Had something like that have occurred on the left, of course, it wouldn’t have been “radical” and people like Reich would be calling it brilliant politics. Of course in this hyper-partisan atmosphere it mostly comes down to whose ox is being gored to understand which side is the radicals are on and which side has the brilliant politicians (well, at least situationaly brilliant).
Some Republican reactions:
* Representative Allen West of Florida: “At this time I believe this is a good plan for the American people.”
* Jon Huntsman, former governor of Utah and presidential candidate: “While some of my opponents ducked the debate entirely, others would have allowed the nation to slide into default and President Obama refused to offer any plan, I have been proud to stand with congressional Republicans working for these needed and historic cuts. A debt crisis like this is a time for leadership, not a time for waiting to see which way the political winds blow.”
* Representative Michele Bachmann of Minnesota, a presidential candidate: “Throughout this process the President has failed to lead and failed to provide a plan. The ‘deal’ he announced spends too much and doesn’t cut enough. This isn’t the deal the American people ‘preferred’ either, Mr. President. Someone has to say no. I will.”
* Representative Connie Mack, Republican of Florida, On MCNBC: “I don’t think the American people are looking for a deal or a compromise, they are looking for a solution to the problem. At the end of the day, I can’t vote for something that is going to ensure that we have over $17 trillion in debt.”
So, reading most of this, it would appear we can safely conclude no one is satisfied with the deal although given the spin coming from both sides, that most think the GOP got most of what it wanted. OK. And the Democrats are supposedly willing, at least for the most part, to sign on.
That’s “compromise” in today’s politics isn’t it? After all, when the “health care crisis” was upon us a little while back, Democrats certainly weren’t at all concerned with compromise or, for that matter, Republicans in general. Now they have to deal with the pesky bastards and their radical brethren and suddenly life is no longer good or simple.
Tsk, tsk (cue world’s smallest violin).
Oh, and I did love this, speaking of trying out a narrative:
The White House is straining to make the case that they’re playing a long-game. David Axelrod: “In the short term, everyone suffers politically. In the long term, I think the Republicans have done terrible damage to their brand. Because now they’re thoroughly defined by their most strident voices.”
Is that right, Mr. Axelrod? Well this little debacle has also “thoroughly defined” the Democrats and the President, and in a most unflattering light. Spendthrifts with no problem whatsoever in piling mountains of debt on future generations being “led” by an empty suit. Yeah, it’s really hurt the Republican brand to actually try to stand up for the principles they were sent to DC to uphold. They won’t be judged as Axlerod would hope they’ll be judged, but instead on how effective they were in accomplishing those principles
I offer the following:
President Obama, warning that time is running out to lift the federal debt ceiling, said Friday that a House GOP plan has “no chance of becoming law,” and he urged Senate Democrats and Republicans to come together on a “bipartisan compromise.”
Compromise? Where? This isn’t about compromise, this is about political timing. And apparently Obama is willing to see the default deadline pass because a short-term debt limit increase would put him at a political disadvantage next year (I don’t think he realizes what a default will do coupled with a dismal economy and high unemployment rate).
Meanwhile the Democrats still haven’t offered anything concrete. They seem content with the role of feces throwing monkeys. Perhaps they could dump the donkey and adopt that as their party symbol?
This isn’t leadership, it’s simply saying “no” without offering a viable alternative. But that’s nothing new with this president or the Democrats.
Of course what I’m about to cite is an anecdote. It is hard to claim there’s a trend. And we don’t even know if the threat was carried out. On the other hand, we also don’t know how many times the thought process and decision voiced here have been silently made by people who have the ability to hire and expand, but just don’t see the hassle being worth it. And, of course, it doesn’t help that what they’re trying to do is demonized at every step.
The story told below takes place in Birmingham, AL. I love B’ham – spent years and years doing business there. It’s like a second home. Birmingham was once the “Pittsburg” of the South, with a huge and flourishing steel business. Of course that’s gone now, at least most of it. One of the reasons Birmingham was the Pittsburg of the South was because the state had both iron ore and coal deposits. And one of the major coal mining regions is a county just north of Birmingham named Walker County.
He operates coal mines in Alabama. I’d never heard of him until this morning, but after what I saw and heard from him, I’d say he’s a bit like a southern version of Ellis Wyatt from Ayn Rand’s novel. What I saw made an impression on me.
I was at a public hearing in an inner-city Birmingham neighborhood for various government officials to get public input on some local environmental issues. There are several hot topics, but one of the highest-profile disputes is over a proposal for a coal mine near a river that serves as a source of drinking water for parts of the Birmingham metro area. Mine operators and state environmental officials say the mine can be operated without threatening the water supply. Environmentalists claim it will be a threat.
I’m not going to take sides on that environmental issue, because I don’t know enough to stake out an informed opinion. (With most of the people I listened to today, facts didn’t seem to matter as much as emotional implications.) But Ronnie Bryant wasn’t there to talk about that particular mine. As a mine operator in a nearby area, he was attending the meeting to listen to what residents and government officials were saying. He listened to close to two hours of people trashing companies of all types and blaming pollution for random cases of cancer in their families. Several speakers clearly believe that all of the cancer and other deaths they see in their families and communities must be caused by pollution. Why? Who knows? Maybe just because it makes for an emotional story to blame big bad business. It’s hard to say.
After Bryant listened to all of the business-bashing, he finally stood to speak. He sounded a little bit shellshocked, a little bit angry — and a lot frustrated.
My name’s Ronnie Bryant, and I’m a mine operator…. I’ve been issued a [state] permit in the recent past for [waste water] discharge, and after standing in this room today listening to the comments being made by the people…. [pause] Nearly every day without fail — I have a different perspective — men stream to these [mining] operations looking for work in Walker County. They can’t pay their mortgage. They can’t pay their car note. They can’t feed their families. They don’t have health insurance. And as I stand here today, I just … you know … what’s the use?
I got a permit to open up an underground coal mine that would employ probably 125 people. They’d be paid wages from $50,000 to $150,000 a year. We would consume probably $50 million to $60 million in consumables a year, putting more men to work. And my only idea today is to go home. What’s the use? I don’t know. I mean, I see these guys — I see them with tears in their eyes — looking for work. And if there’s so much opposition to these guys making a living, I feel like there’s no need in me putting out the effort to provide work for them. So as I stood against the wall here today, basically what I’ve decided is not to open the mine. I’m just quitting.Thank you.
Whether Ronnie Bryant actually did what he said isn’t known – but his frustration is clear and his decision as stated, warranted.
The question is how many Ronnie Bryant’s are out there right now? How many are tired of the demonization, the taxes, the hassles, the bars government and environmental groups erect that make business difficult if not impossible to conduct? How many have faced men and women with tears in their eyes because they can’t pay the mortgage or feed their family, but know that hiring them would actually be more difficult and costly than just continuing as they are now, or, as Bryant claims, just decide not to open a business because of the intrusion, over-regulation, demonization and the increasing level of obstacles put in the way of business?
That story, at least to me, is a stunning and telling example of the anti-business culture that has been created and nurtured within this country. This isn’t some apocryphal or fictional example to demonstrate a point. This is a man listening and deciding that it just isn’t worth it to open a business that would bring in 125 jobs, consume 50 to 60 million in consumables a year (downstream jobs) and, of course, mean tax revenue to both the city, county and state.
But coal is unpopular. It is demon coal. So an industry that powers the nation and generates the electricity that the complainers in the audience and the government bureaucrats there will use when they go home is trashed in a meeting along with business in general. And a man who could offer something critically needed – jobs – makes the decision that in the climate he observed, it’s just not worth it to open a business up.
How many times in how many local meetings like the one described in Birmingham is there a Ronnie Bryant who just says, after listening to all the trash talk, ‘screw it, I’m not going to bother to open a business’?
Atlas Shrugging – something our lefty friends said was fiction.
Given today’s business climate, it seems more like a self-fulfilling prophesy, doesn’t it?