Even Obama’s Make-Believe Jobs Are Not Real
The White House recently began claiming that the “Recovery Act” had “created or saved” 640,000-plus jobs. This turns out to have been a political mistake, in part because even sympathetic reporters understand that the “jobs saved” measure allows for creative accounting. But the White House also erred by providing (supposed) details about the jobs that were created. This made it very easy for reporters and other curious people to do a bit of fact checking, which has generated a spate of stories showing that the White House’s numbers are wrong, even using make-believe methodology. The Washington Examiner has put together a very useful interactive map which links to many of the news reports debunking the Administration’s fraudulent numbers.
Filed under: Government and Politics; Tax and Budget Policy
Imports Wrongly Blamed for Unemployment
Import competition can throw Americans out of work. Even advocates of free trade like me will readily acknowledge that fact. And nobody needs to remind the people of Hickory, North Carolina.
On the front page of the Washington Post this morning, under the headline, “In N.C., damage not easily mended: Globalization drives unemployment to 15% in one corner of state,” the paper reports in detail how the people of that community are struggling to adjust to a more open U.S. economy:
The region has lost more of its jobs to international competition than just about anywhere else in the nation, according to federal trade-assistance statistics, as textile mills have closed, furniture factories have dwindled and even the fiber-optic plants have undergone mass layoffs. The unemployment rate is one of the highest in the nation–about 15 percent.
Nobody wants to lose their job involuntarily, but a story like this needs to be read in perspective. As I document in my new Cato book Mad about Trade, the large majority of Americans who lose their jobs each year are not displaced by trade. Technology is the great job disruptor, but Americans also lose their jobs because of domestic competition, changing consumer tastes, and recessions.
For every person who loses their job because of globalization, I estimate there are 30 who have lost their jobs for other reasons. I’m waiting for a front-page story on all the newspaper workers who have lost their jobs because of the Internet, or the 30,000 workers laid off by Kodak in the past 5 years because of the spread of digital cameras and plunging film sales, or the book stores and record stores that have shut down and laid off workers because of Amazon.com and iTunes.
Trade is not a cause of higher unemployment nationwide, either, as the Post story seems to imply. Imports have fallen sharply during the latest recession along with the trade deficit. In contrast, imports were rising at double-digit rates when the unemployment rate was below 5 percent. Like technology, trade can put people out of work, but it also creates new and generally better paying opportunities for employment, while raising our overall standard of living.
Federal Wages Fly High
Yahoo News is highlighting the story “10 Jobs With High Pay and Minimal Schooling.” Topping the list: air traffic controllers, who work for the federal government.
These workers make sure airplanes land and take off safely, and they typically top lists of this nature. The median 50% earned between $86,860-142,210, with good benefits. Air traffic controllers are eligible to retire at age 50 with 20 years of service, or after 25 years at any age.
Huge salaries and retirement after 20 years — sweet deal!
Air traffic controllers seem to provide a good illustration of my general claim that federal workers are overpaid.
I don’t know what the proper pay level for controllers is, but I do know that we should privatize the system, as Canada has, and let the market figure it out.
Degree Disaster Behind The Great Wall
Based on my regular reading on education, but not China specifically, I know that the world’s most populous nation has had a lot of trouble finding jobs for its throngs of recent college graduates. I wrote a bit about that yesterday, pointing out that the important higher education lesson from China is that pumping out more college grads is meaningless if they don’t have skills that are in demand. Well, thanks to a very helpful Cato@Liberty reader who actually lives in China (and wishes to remain anonymous) I now have a much better idea just how important that lesson is. He directed me to this Asia Times article that includes, among many fascinating tidbits, this startling revelation:
An explosive report released by the Chinese Academy of Social Sciences (CASS) in September said earnings of graduates were now at par and even lower than those of migrant laborers [italics added].
Wow! If this report is accurate, until now I have had no idea how truly ridiculous Washington’s obsession with pumping out more degrees to keep up with the Chinese has been — and I’ve been pretty sure it’s ridiculous! Much more troubling, if I’ve had little clue about the true extent of the absurdity, imagine how far from grasping it our government-loving federal politicians have been! Of course, as I wrote yesterday, even if they did know it, they probably wouldn’t let on.
Filed under: Education and Child Policy; Tax and Budget Policy
Stimulus Jobs Reporting Charade
I have been reluctant to engage in the squabbling over the accuracy of the stimulus job “creation” figures because I believe it is more important to focus attention on the underlying “rob Peter to pay Paul” reality of Washington’s endeavor. As I mentioned yesterday, the government cannot “create” anything without also inflicting economic damage because the money ultimately comes at the expense of the private sector via taxation. There are countless other problems with government job “creation” efforts, including economic miscalculation, inefficiency, waste, etc. — not to mention the immorality of robbing poor Peter.
Yesterday, the White House issued a defense in response to an Associated Press finding that previously released numbers were overstated. The following sentence raised my eyebrow:
The reports are not from the government, but from the very people putting Recovery Act funds to work — governors, mayors, county executives, private businesses and community organizations across the country.
Today the federal government is supposed to release new job creation figures. I believe most of the numbers will originate with state government officials tasked with collecting and reporting jobs “created” with the stimulus dollars that passed through their state. Based on my own experience as an ex–state government employee responsible for collecting and reporting data purporting to show how well state programs were performing, I feel compelled to comment on the accuracy of today’s release.
Not only will today’s state-reported numbers be impossible to prove, they will be flush with erroneous, deceptive, and as Reason’s Sam Staley says, bogus claims. As Sam notes:
The numbers of jobs created or “saved” are simply counts provided by state agencies spending stimulus money. They simply record the number of people hired under the contract or for the project. They are not the result of investigative follow up, or a consistent methodology for identifying real jobs created or saved. (Indeed, these methodological problems have plagued economic development program evaluations for decades as states have claimed jobs were created by various tax incentive programs but no real way to verify the accuracy of the numbers.)
When I worked in Indiana’s state Office of Management and Budget, part of my job was to collect “performance measures” from state agencies. The idea was to offer Indiana taxpayers the appearance that the governor was holding state agencies accountable for how they spent money. In reality, we had no idea if the numbers state agencies gave us were accurate. There were no audits, and once the agencies figured out the whole effort was really a political gimmick, they often just gave us self-serving nonsense. Nonetheless, the numbers were pawned off on the public because it served political ends.
The Obama administration will continue to trumpet the number of jobs the stimulus package “created.” It will brag that the government’s efforts were not only successful, but that they were conducted with unprecedented transparency and accountability. But taxpayers and citizens should not buy into these claims. The stimulus jobs report is simply political theater: a charade intended to maintain public support for, or acquiescence to, Washington’s multiplying encroachments.
Dismal Jobs Report
The loss of 263,000 nonfarm jobs is another depressing economic statistic reinforcing the prospects of a jobless and joyless economic recovery. Job losses were widespread, but concentrated in construction, manufacturing, retail trade and government.
Employers want to fire, not hire. The reasons for this lie in Washington, where lawmakers are busy piling on spending, taxes, and mandates. From an employer’s perspective, each new hire is a liability. The Obama administration’s economic recovery plan, which was centered on job creation, is now a manifest failure. The stimulus brew it concocted has proven to be an economic depressant.
In an op-ed in today’s Wall Street Journal, Meredith Whitney highlights another serious economic drag on the economy: a continuing credit crunch. All the Obama Treasury and Fed lending programs have only served to direct credit to large companies, while small business — the engine of economic growth and job creation — has been starved of credit. The Treasury and Fed have a corporatist economic model, in which the favored few are benefited at the expense of the many. Their credit allocation policies have worked as a further drag on job creation.
Bob McDonnell: The Modern Republican
This is from the Reagan administration’s deregulatory 1981 energy plan: “All Americans are involved in making energy policy. When individual choices are made with a maximum of personal understanding and a minimum of government restraints, the result is the most appropriate energy policy.”
Many modern Republicans claim devotion to Ronald Reagan’s ideas, but they often seem to forget about the “minimum of government” thing. The following points are from Republican Virginia gubernatorial candidate Bob McDonnell’s “More Energy, More Jobs” plan:
- “McDonnell was the chief sponsor of legislation creating the Virginia Hydrogen Energy Plan.”
- “McDonnell also supported grant programs for solar photovoltaic manufacturing, tax exemptions for solar energy and recycling property, and tax credits for solar energy equipment.”
- “In order to protect Virginia’s citizens from the skyrocketing wholesale prices of electricity seen in other states, McDonnell brought together all the necessary stake holders to re-regulate electricity in Virginia.”
- “Currently, Virginia is the second largest importer of electricity behind California. This is unacceptable.”
- “Bob McDonnell will establish Virginia as a Green Jobs Zone to incentivize companies to create quality green jobs. Qualified businesses would be eligible to receive an income tax credit equal to $500 per position created per year for the first five years.”
- “The Virginia Alternative Fuels Revolving Fund was established to assist local governments that convert to alternative fuel systems . . . Bob McDonnell will expand the purpose of this fund to include infrastructure such as refueling stations, provide seed money and aggressively pursue additional grants.”
- “Bob McDonnell will make Southwest and Southside Virginia the nation’s hub for traditional and alternative energy research and development…To assist with the attraction, building and operation of major energy facilities in Southside and Southwest Virginia, we will also support the establishment of the Center for Energy.”
- “To help Virginia universities gain access to federal stimulus money, as Governor, Bob McDonnell will establish the Virginia Universities Clean Energy Development and Economic Stimulus Foundation.”
- “As Governor, Bob McDonnell will leverage stimulus funding to incentivize individuals and businesses to conduct energy audits and encourage public private partnerships between small businesses and government.”
It’s true that McDonnell’s plan has some free market elements, and also that Ronald Reagan supported some wasteful energy boondoggles. However, the degree to which the modern Republican wants to micromanage and manipulate the energy industry is remarkable. McDonnell is almost setting out a Soviet five-year plan for a substantial part of the Virginia economy. For goodness sakes, he wants to treat Virginia like a separate country and try to fix the supposed problem that it is “importing” too much energy from other states!
It’s not just energy. Look at the top-down central planning ideas that McDonnell has for “creating jobs”:
Filed under: Energy and Environment; General; Government and Politics
A Harsh Climate for Trade
Although it has very much taken a back-seat to health care, and a press report [$] today say it could be bumped down yet another notch on the administration’s hierarchy of goals, climate change is shaping up to be a major battle if the others don’t prove to be prohibitively exhausting. So today I am weighing in on the debate by releasing my new paper on the dangers of using trade measures as a tool of climate policy.
The Democrats were keen to pass a climate change bill in advance of the December meeting in Copenhagen designed to agree on a successor regime to the Kyoto protocol, which expires in 2012. However, opposition from a number of quarters and the fear of health-care-town-halls-mark-II has cooled their heels. Senate leaders have pushed back the deadline for passing bills out of committees a number of times.
The reason why climate change legislation has become so controversial is that businesses and consumers are, quite understandably, fearful about any policies that threaten to increase their costs. I’ll leave it to others to blog about the effect of emissions-reductions policies on jobs and profits, but even the fear of losses has led to calls for special deals for “vulnerable industries”, in the form of free emission permits and/or protection from imports that are sourced from countries that purportedly take insufficient steps to limit emissions.
H.R. 2454, the so called Waxman-Markey bill passed by the House in June, contains both free permits and provisions for carbon tariffs. I’ve blogged before about the efforts of trade-skeptic senators to introduce the same kinds of protections in the senate bill. To that end, Sen. Sherrod Brown (D, OH) is reportedly meeting with Sen. Barbara Boxer, Chairwoman of the Senate Environment and Public Works Committee next week about trade protections for manufacturing industries. As my paper makes clear, I think these efforts are misguidedly ineffective at best, and harmful at worst.
I’m looking forward to discussing these issues in more detail tomorrow at a Hill briefing in Washington DC. Registration for the event was closed very early because of overwhelming demand, but you can watch the event when the video becomes available on the Cato website.
Filed under: Energy and Environment; Trade and Immigration
Does the Government Need More Employees?
The Washington Post reports on the results of a survey of federal agencies on their hiring needs conducted by the Partnership for Public Service:
The federal government needs to hire more than 270,000 workers for ‘mission-critical’ jobs over the next three years… Mission-critical jobs are those positions identified by the agencies as being essential for carrying out their services. The study estimates that the federal government will need to hire nearly 600,000 people for all positions over President Obama’s four years — increasing the current workforce by nearly one-third.
Given the mind-set of most government managers I’ve encountered, I’m a little surprised they didn’t define all 600,000 as “mission critical.” But 270,000 or 600,000, that’s a lot more folks living at the expense of the economically productive class of people in this country called taxpayers.
According to the Post:
The nation’s unsettled economy and high unemployment rate may ease the government’s task, as workers turn to the federal sector for job security and good benefits.
As my colleague Chris Edwards has been pointing out, the average federal employee is doing quite well in comparison to the average private sector employee when it comes to compensation. See here, here, and here.
But here’s the line that made my skin crawl:
It [federal government] has to win the war for talent in order to win the multiple wars it’s fighting for the American people,’ said Max Stier, president and chief executive of the Partnership for Public Service, the think tank that conducted the survey of 35 federal agencies, representing nearly 99 percent of the federal workforce.
I could be wrong but I don’t think Stier is referring to Afghanistan and Iraq, so what are these “wars” for the American people? Is he talking about the government’s counterproductive “war” on poverty? Its failed “war” on drugs? Its “war” on [insert societal ill here]? There’s a war going on alright: it’s the federal government’s war against the productive men and women out there who have the fruits of their efforts gobbled up by that Leviathan on the Potomac. The last thing the economy needs are the best and brightest this country has to offer wasting their abilities in some bureaucracy when they could be out starting businesses, creating new technologies, etc., etc. As Chris Edwards likes to point out, would we rather Bill Gates had put his talents to work at the U.S. Department of Commerce?
Federal Pay: Response to the Critics
My post yesterday on federal worker pay generated a large and aggressive response from federal workers, both in my inbox and on websites such as Fedsmith.com. (See also Federal Times and Govexec). Here are four points raised in criticism:
First, people accuse me of producing distorted data somehow. Actually, it’s essentially just raw Bureau of Economic Analysis data, but the data is usually overlooked by the media because I don’t think the BEA puts out a press release on it. Anyway, the average wage data is from BEA Table 6.6D. The average compensation data is simply total compensation (Table 6.2D) divided by the number of workers (Table 6.5D).
Second, people argue that reporting overall averages for wages and compensation is somehow illegitimate. People email me comments like “my federal salary is only $50,000, yet you claim that federal workers make $79,000.” All I can say to folks like this is that there must be a federal worker out there making $108,000 who balances you off.
Third, people argue that a better analysis would be to compare similar jobs in the private and public sectors, rather than looking at overall averages. I agree that that would be very useful. Unfortunately, the BEA data is not broken down that way. At the same time, the BEA data provides the most comprehensive accounting for the value of employee benefits of any data source. Benefits are a very important part of federal compensation, and so that’s why I look to the BEA data.
Fourth, many people argue that the federal government has an elite workforce with many highly educated people. Certainly, that’s an important factor to consider. However, that is the reason why I focused on the pay trend over the last eight years. The federal worker compensation advantage rose from 66 percent in 2000 to 100 percent in 2008. Has the composition of the federal workforce really changed that much in just eight years to justify such a big relative gain? I doubt it.
A final consideration is to look at a “market test” of the adequacy of compensation in the public sector–the quit rate. The voluntary quit rate in the federal government is just one-third or less the quit rate in the private sector (Table 16 near the bottom here).
That is strongly suggestive of ”golden handcuffs” in federal employment. While many federal workers probably grumble about their jobs (as many private sector workers do), they know that the overall package of wages, benefits, and extreme job security (Table 18 here) is very hard to match in the competitive private market, and so they stay put.
Filed under: Government and Politics; Tax and Budget Policy
Have Mexican Dishwashers Brought California to Its Knees?
An article published this week by National Review magazine blames the many problems of California on—take a guess—high taxes, over-regulation of business, runaway state spending, an expansive welfare state? Try none of the above. The article, by Alex Alexiev of the Hudson Institute, puts the blame on the backs of low-skilled, illegal immigrants from Mexico and the federal government for not keeping them out.
Titled “Catching Up to Mexico: Illegal immigration is depleting California’s human capital and ravaging its economy,” the article endorses high-skilled immigration to the state while rejecting the influx of “the poorly educated, the unskilled, and the illiterate” immigrants that enter illegally from Mexico and elsewhere in Latin America.
Before swallowing the article’s thesis, consider two thoughts:
One, if low-skilled, illegal immigration is the single greatest cause of California’s woes, how does the author explain the relative success of Texas? As a survey in the July 11 issue of The Economist magazine explained, smaller-government Texas has avoided many of the problems of California while outperforming most of the rest of the country in job creation and economic growth. And Texas has managed to do this with an illegal immigrant population that rivals California’s as a share of its population.
Two, low-skilled immigrants actually enhance the human capital of native-born Americans by allowing us to move up the occupational ladder to jobs that are more productive and better paying. In a new study from the Cato Institute, titled “Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform,” this phenomenon is called the “occupational mix effect” and it translates into tens of billions of dollars of benefits to U.S. households.
Our new study, authored by economists Peter Dixon and Maureen Rimmer, found that legalization of low-skilled immigration would boost the incomes of American households by $180 billion, while further restricting such immigration would reduce the incomes of U.S. families by $80 billion.
That is a quarter of a trillion dollar difference between following the policy advice of National Review and that of the Cato Institute. Last time I checked, that is still real money, even in Washington.
Obama Administration Sides With Special Interests and Status Quo on Sugar Imports
Pardon me while I pile on the post earlier today by my colleague Sallie James about the Obama administration refusing to allow more sugar to be imported to the United States. The U.S. Department of Agriculture this week declined to relax the quotas the federal government imposes on imported sugar despite soaring domestic prices and understandable complaints from U.S. confectioners and other sugar-consuming businesses about potential shortages.
For all his talk about change, President Barack Obama has shown no inclination to pursue meaningful reform of U.S. agricultural programs. He supported the subsidy-laden and protectionist farm bill that finally passed Congress in 2008. On the eve of the U.S. presidential election in October 2008, he wrote a letter to the U.S. sugar industry reminding growers that they were one special interest that had nothing to fear from an Obama administration.
In his letter, he offered the sugar lobby this assurance:
With respect to the sugar program specifically, while it’s true I have had concerns about the program, I will commit to listening and working with you in the future to ensure that we have a safety net that works for all of agriculture.
He then went on to criticize his opponent John McCain for opposing the farm bill and voting consistently against the sugar program (or, as Obama put it, “against sugar growers”).
In my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, I call the sugar program “the poster boy for self-damaging protectionism.” As I write in the book,
When the program is not raising prices for consumers at the store, it is savaging the bottom line for American companies. Artificially high domestic sugar prices raise the cost of production for refined sugar, candy and other confectionary products, chocolate and cocoa products, chewing gum, bread and other bakery products, cookies and crackers, and frozen bakery goods. Higher costs cut into profits and competitiveness, putting thousands of jobs in jeopardy.
If the president is looking for good bedtime reading on why he should dump the sugar program, I suggest he go straight to pages 147, 154-55, 160-62, and 170-72.
Is Buying an iPod Un-American?
We own three iPods at my house, including a recently purchased iPod Touch. Since many of the iPod parts are made abroad, is my family guilty of allowing our consumer spending to “leak” abroad, depriving the American economy of the consumer stimulus we are told it so desperately needs? If you believe the “Buy American” lectures and legislation coming out of Washington, the answer must be yes.
Our friends at ReasonTV have just posted a brilliant video short, “Is Your iPod Unpatriotic?” With government requiring its contractors to buy American-made steel, iron, and manufactured products, is it only a matter of time before the iPod—“Assembled in China,” of all places—comes under scrutiny? You can view the video here:
In my upcoming Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization, I talk about how American companies are moving to the upper regions of the “smiley curve.” The smiley curve is a way of thinking about global supply chains where Americans reap the most value at the beginning and the end of the production process while China and other low-wage countries perform the low-value assembly in the middle. In the book, I hold up our family’s iPods as an example of the unappreciated benefits of a more globalized American economy:
The lesson of the smiley curve was brought home to me after a recent Christmas when I was admiring my two teen-age sons’ new iPod Nanos. Inscribed on the back was the telling label, “Designed by Apple in California. Assembled in China.” To the skeptics of trade, an imported Nano only adds to our disturbingly large bilateral trade deficit with China in “advanced technology products,” but here in the palm of a teenager’s hand was a perfect symbol of the win-win nature of our trade with China.
Assembling iPods obviously creates jobs for Chinese workers, jobs that probably pay higher-than-average wages in that country even though they labor in the lowest regions of the smiley curve. But Americans benefit even more from the deal. A team of economists from the Paul Merage School of Business at the University of California-Irvine applied the smiley curve to a typical $299 iPod and found just what you might suspect: Americans reap most of the value from its production. Although assembled in China, an American company supplies the processing chips, a Korean company the memory chip, and Japanese companies the hard drive and display screen. According to the authors, “The value added to the product through assembly in China is probably a few dollars at most.”
The biggest winner? Apple and its distributors. Standing atop the value chain, Apple reaps $80 in profit for each unit sold—an amount higher than the cost of any single component. Its distributors, on the opposite high end of the smiley curve, make another $75. And of course, American owners of the more than 100 million iPods sold since 2001—my teen-age sons included—pocket far more enjoyment from the devices than the Chinese workers who assembled them.
To learn a whole lot more about how American middle-class families benefit from trade and globalization, you can now pre-order the book at Amazon.com.
The Failure of Do-Nothing Policies
A news story from today in a slightly alternate universe:
Jobless Rate at 26-Year High
Employers kept slashing jobs at a furious pace in June as the unemployment rate edged ever closer to double-digit levels, undermining signs of progress in the economy, and making clear that the job market remains in terrible shape.
The number of jobs on employers’ payrolls fell by 467,000, the Labor Department said. That is many more jobs than were shed in May and far worse than the 350,000 job losses that economists were forecasting.
Job losses peaked in January and had declined every month until June. The steep losses show that even as there are signs that total economic activity may level off or begin growing later this year, the nation’s employers are still pulling back.
White House press secretary Robert Gibbs said, “President Obama proposed a $787 billion stimulus program to get this country moving again. He tried to save the jobs at GM and Chrysler. But the do-nothing Republicans filibustered and blocked that progressive legislation, and these are the results.”
House Speaker Nancy Pelosi said at a press conference, “We begged President Bush to save Fannie Mae, Merrill Lynch, Bank of America, AIG, the rest of Wall Street, the banks, and the automobile industry. We begged him to spend $700 billion of taxpayers’ money to bail out America’s great companies. We begged him to ignore the deficit and spend more money we don’t have. But did he listen? No, he just sat there wearing his Adam Smith tie and refused to spend even a single trillion to save jobs. And now unemployment is at 9.5 percent. I hope he’s happy.”
Democrats on Capitol Hill agreed that the “do-nothing” response to the financial crisis had led to rising unemployment and a sluggish economy. If the Bush and Obama administrations had been willing to invest in American companies, run the deficit up to $1.8 trillion, and talk about all sorts of new taxes, regulations, and spending programs, then certainly the economy would be recovering by now, they said.
Filed under: Finance, Banking & Monetary Policy; Government and Politics; Tax and Budget Policy; Trade and Immigration
Higher Taxes for Health Care, Fewer Jobs
President Obama broke his pledge not to raise taxes on lower- and middle-income families with his large tobacco tax increase back in February. It appears that the increase is not just hurting tobacco consumers, but also hurting workers in the cigar industry. From Tampa Bay Online:
Tampa will lose part of its cigar heritage in August when Hav-A-Tampa shuts its factory near Seffner and lays off about 495 employees, closing a factory that has been operating since 1902.
Several things conspired to hurt Altadis’ sales, McKenzie said, including the recession and the growth of indoor smoking bans. The bans have especially hurt sales in cold-weather states, where it’s impractical to smoke a cigar outdoors in the winter, he said.
However, the company attributed much of its trouble to the State Children’s Health Insurance Program, or SCHIP, a federal program that provides health insurance to low-income children. It is funded, in part, by a new federal tax on cigars and cigarettes. McKenzie couldn’t say how much sales of Hav-A-Tampa cigars had fallen off, but the numbers have dropped significantly, he said.
Previously, federal excise taxes on cigars were limited to no more than a nickel, said Norman Sharp, president of the Cigar Association of America trade group. The tax increase, which took effect April 1, raises the maximum tax on cigars to about 40 cents, Sharp said.
This health-tobacco legislation raised taxes $65 billion over 10 years. Imagine the damage that would be caused by the giant health bill currently moving through Congress, which will cost $1 trillion or more over 10 years.
Hat Tip: Tad DeHaven
Filed under: Health, Welfare & Entitlements; Regulatory Studies
States “Creating” Jobs – One Corndog at a Time
A couple weeks ago, I blogged about the foolishness of press release economics: states “creating” jobs by handing out taxpayer money to select businesses. I concluded by saying that “journalists should be on the lookout for more press-release economics schemes coming from the states as revenues remain tight and politicians become desperate to demonstrate they’re “doing something.” Journalists should examine a state’s tax structure when a taxpayer giveaway is announced to see if perhaps the governor is masking economic-unfriendly fiscal policies.”
Sure enough, the Pew Center’s Stateline.org has an article up detailing the efforts of state governors dealing with the recession by giving businesses taxpayer money to “create” jobs. Of course, it would make more sense for a state to simply reduce the tax and regulatory burden on a businesses looking to expand or relocate operations within its borders. But then state politicians might miss out on the short-term benefit of issuing fluffy press releases that are particularly helpful when a state is bleeding jobs.
Stateline notes that “You’d never know Michigan has the nation’s highest unemployment by visiting the Michigan Economic Development Corporation’s Web site, which trumpets a string of successes in recent months that have resulted in thousands of jobs in a state battered by the decline of auto manufacturing.” And in neighboring Indiana, the state’s economic central planners are celebrating the “creation” of 50 jobs at a corndog and fritter manufacturer. Anyone familiar with Hoosier waistlines knows there’s no shortage of corndogs in the state to justify taxpayers having to subsidize their production.
However, Stateline reports that Wisconsin officials are targeting Minneapolis-St. Paul manufacturers with a study that shows relocating to west central Wisconsin would save the Minnesota businesses millions of dollars due to lower worker’s compensation costs, corporate income taxes, and property taxes. Whatever else Wisconsin’s economic development bureaucrats are up to, this is the right idea.
Public Tires of Wasteful “Stimulus” Spending
The president may believe that he’s created thousands (or is that millions?) of jobs, but the public doesn’t believe him. In fact, according to Rasmussen Reports, a plurality of the public wants to drop the rest of the “stimulus” spending while keeping the tax cuts:
Forty-five percent (45%) of Americans say the rest of the new government spending authorized in the $787-billion economic stimulus plan should now be canceled. A new Rasmussen Reports national telephone survey found that just 36% disagree and 20% are not sure.
…
Just 20% of adults say the tax cuts included in the stimulus plan should be canceled while 55% disagree. The stimulus plan includes $288 billion in tax cuts.
While there is a wide partisan gap on the question of stimulus spending, there is little partisan disagreement on maintaining the tax cuts.
President Obama on Monday vowed to speed up the pace of stimulus spending and said the money will help “create or save” 600,000 more jobs this summer.
However, only 31% of Americans believe the new government spending in the stimulus package creates new jobs. Forty-eight percent (48%) say the stimulus spending does not create jobs, and 21% are not sure.
This is certainly a better approach for growing the economy. The people are proving to be a lot smarter than their governors in Washington.
Filed under: Finance, Banking & Monetary Policy; Tax and Budget Policy
How Many Jobs Saved? We Do Not Know
In the past couple of days the administration has been discussing the employment impact of its stimulus package. Employment has declined steadily since adoption of the package, so it might seem odd to claim that it has already had beneficial impacts. The administration’s response is that employment would have declined even faster without the stimulus, so hundreds of thousands of jobs have been saved.
The administration might be right, but how can we know? The short answer is, we cannot know with any confidence because we cannot know what employment would have been in the absence of the stimulus. Thus, the concept of “jobs saved” is problematic; it allows the administration to conclude, no matter how bad things get, that the stimulus worked because the economy would have been even worse without the stimulus.
Filed under: Government and Politics; Trade and Immigration
Buy American Hurts Most Americans
Earlier today, Doug Bandow weighed in with some commentary on the problems that Buy American provisions are creating for both Canadian and American businesses. Let me reinforce his view that such rules are anachronistic and self-defeating with some thoughts from a forthcoming paper of mine about the incongruity between modern commercial reality and trade policies that have failed to keep pace.
Even though President Obama implored, “If you are considering buying a car, I hope it will be an American car,” it is nearly impossible to determine objectively what makes an American car. The auto industry provides a famous example, but is really just one of many that transcends national boundaries and renders obsolete the notion of international competition as a contest between “our” producers and “their” producers. The same holds true for industries throughout the manufacturing sector.
Dell is a well known American brand and Nokia a popular Finnish brand, but neither makes its products in the United States or Finland, respectively. Some components of products bearing the logos of these internationally recognized brands might be produced in the “home country.” But with much greater frequency nowadays, component production and assembly operations are performed in different locations across the global factory floor. As IBM’s chief executive officer put it: “State borders define less and less the boundaries of corporate thinking or practice.”
The distinction between what is and what isn’t American or Finnish or Chinese or Indian has been blurred by foreign direct investment, cross-ownership, equity tie-ins, and transnational supply chains. In the United States, foreign and domestic value-added is so entangled in so many different products that even the Buy American provisions in the recently-enacted American Recovery and Reinvestment Act of 2009, struggle to define an American product without conceding the inanity of the objective.
The Buy American Act restricts the purchase of supplies that are not domestic end products. For manufactured end products, the Buy American Act uses a two-part test to define a domestic end product: (1) The article must be manufactured in the United States; and (2) The cost of domestic components must exceed 50 percent of the cost of all the components. Thus, the operational definition of an American product includes the recognition that “purebred” American products are increasingly rare.
Shake your head and chuckle as you learn that even the “DNA” of the U.S. steel industry, which pushed for adoption of the most restrictive Buy American provisions and which has been the manufacturing sector’s most vocal proponent of trade barriers over the years, is difficult to decipher nowadays. The largest U.S. producer of steel is the majority Indian-owned company Arcelor-Mittal. The largest “German” producer, Thyssen-Krupp, is in the process of completing a $3.7 billion green field investment in a carbon and stainless steel production facility in Alabama, which will create an estimated 2,700 permanent jobs. And most of the carbon steel shipped from U.S. rolling mills—as finished hot-rolled or cold-rolled steel, or as pipe and tube—is produced in places like Canada, Brazil and Russia, and as such is disqualified from use in U.S. government procurement projects for failure to meet the statutory definition of American-made steel.
Whereas a generation ago the cost of a product bearing the logo of an American company may have comprised exclusively U.S. labor, materials, and overhead, today that is much less likely to be the case. Today, that product is more likely to reflect foreign value-added, regardless of whether the product was “completed” in the United States or abroad. Accordingly, Buy American rules and trade barriers of any kind (as appealing to politicians as they may be) hurt most American businesses, workers, and consumers.
It’s time to wake up and scrap these stupid rules.
Echoes of Smoot-Hawley
President Barack Obama appears to have learned something compared to candidate Obama: protectionism isn’t to America’s advantage. Unfortunately, it is not clear that Congress has learned the same lesson. Three free trade agreements negotiated by the Bush administration remain in limbo, while no one is pushing to reinstate the president’s so-called fast track negotiating authority.
And past protectionist actions are now bearing ill fruit. The “stimulus” bill required that construction money be spent in the U.S. Although the provision was amended in response to foreign criticism, some Canadian firms have been adversely affected. So Canadian cities have begun boycotting American products.
Canadian municipal leaders threatened to retaliate against the “Buy America” movement in the United States on Saturday, warning trade restrictions will hurt both countries’ economies.
The Federation of Canadian Municipalities endorsed a controversial proposal to support communities that refuse to buy products from countries that put trade restrictions on products and services from Canada.
The measure is a response to a provision in the U.S. economic stimulus package passed by Congress in February that says public works projects should use iron, steel and other goods made in the United States.
The United States is Canada’s largest trading partner, and Canadians have complained the restrictions will bar their companies from billions of dollars in business that they have previously had access to.
“This U.S. protectionist policy is hurting Canadian firms, costing Canadian jobs and damaging Canadian efforts to grow our economy in the midst of a worldwide recession,” said Sherbrooke, Quebec, Mayor Jean Perrault, also president of the federation that represents cities and towns across Canada.
The municipal officials meeting at the federation’s convention in Whistler, British Columbia, endorsed the measure despite complaints by Canadian trade officials.
Trade Minister Stockwell Day told the group on Friday that Ottawa was actively negotiating with Washington to get the “Buy American” restrictions removed.
Thankfully, this bilateral spat isn’t likely to spark another Great Depression. However, it illustrates how protectionism is self-defeating. Other countries will not stand by silently as American legislators attempt to bar their products from the American market. And U.S. workers will be the ultimate victims as the cycle of retaliation spreads.
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