Is a Balanced Budget Amendment Necessary?

August 6, 2011

G’Day!

Yes, the Constitutional Amendment is necessary given the dysfunctional behavior of our government, and No, it is not necessary (even undesirable) in economic theory because it limits the flexibility of our government. So what should we do??

Given the past and current inability of our Congresses and Presidents, both Democrats and Republicans, to act responsibly regarding fiscal budgets and debt policy for our nation, a “Balanced Budget Amendment” to the Constitution appears to be necessary. This amendment should mandate a federally balanced budget including a federal spending “Cap” of no more than 20% of GDP (preferably less), and with “Safety Valve” exceptions granted only for “War” or “National Emergency”. These exceptions should require a “Supermajority Vote” in Congress to authorize and the signature of the President to enact. Unfortunately, short-term personal political motivations appear to be stronger than the long-term fiscal responsibilities to our national economic needs. Therefore, we do need a “Balanced Budget Amendment” to protect the American People from continued irresponsible and dysfunctional fiscal and debt behavior by our federal legislators and Presidents. If we needed any additional indication of the necessity to curb government spending, the recent federal debt downgrade from AAA to AA+ by Standard & Poor’s should suffice.

Forty-nine States have some version of a balanced budget requirement (only Vermont does not). Interestingly, Germany and Switzerland, both strong financial nations, also have a balanced budget requirement. This forces their legislators to behave in a responsible manner that protects the national fiscal and long-term debt interests of the people they were elected to serve. Without such a constitutionally protected provision, including the “Cap” on federal spending above, lawmakers are prone to ignore the long-term fiscal consequences of the laws they pass and focus on their own short-term reelections. The relentless historical increase in our national debt and especially the current deficit and debt crises are clear evidence of irresponsible short-term decisions by our Federal Government.

Prior to the passage of 16th Amendment in 1913, which permits federal income taxes directly on the people, we had governments that were forced to limit their size and spending to a level reasonably consistent with federal revenues. The funds available required adherence to the provisions for limited federal government defined in our Constitution and required the establishment of appropriate priorities for federal programs and services. In other words, our government was reasonably forced to live within its means. What a revolutionary concept!! After the 16th Amendment, our government could (and did) simply increase income taxes or borrow to meet whatever programs or bureaucracy they deemed desirable, not necessarily important or essential. In 1913 federal spending was less than 3% of GDP. In 2008, President Bush’s last year, federal spending was approximately 20% of GDP and this year under Obama, the federal spending is estimated to be 25% of GDP. This is madness and does not serve the American people.

As mentioned above, since 1913 our elected officials have relied on increasing income taxes on the American people or debt to pay the increased costs of the programs and bureaucracy they desired, regardless of the cost, need, or even importance of these programs to the American people. It is easier for politicians to identify a socially “desirable” program than to identify and justify its costs and priority to the taxpaying public and its overall benefits to society. Our government has merely increased taxes to pay for these new or expanded social entitlement programs or added to our National Debt by borrowing the missing funds (increasingly from foreign sources, like China). In 2008 our National Debt was $10.0 trillion, a $4 trillion increase in eight years under President Bush. Currently, under President Obama in only two and one-half years, our National Debt has increased another $4 trillion (a 40% increase) to $14.3 trillion and, even after this week’s debt agreement, is projected to grow another $8 trillion to approximately $22 trillion over the next 10 years. This is more than 100% of projected GDP, is not sustainable, and must be corrected.

In economic theory (especially Keynesian), a balanced budget amendment would limit our government’s flexibility. It would restrict government fiscal actions to correct imbalances in our economy, such as running “deficits” to stimulate the economy during recessions and the use of “surpluses” to retard excessive and unsustainable growth. In theory, this should smooth economic growth by limiting the magnitude of peaks and valleys in the business cycle. This in turn would restrain “booms”, minimize “busts”, stabilize economic growth to reasonably sustainable levels, and avoid excessive fluctuations in job markets. Nearly all economists believe that prudent use of this power is good but excessive use is bad. All good stuff in theory! Unfortunately, the behavior of our governments and the actual results have not followed the theory. “Excessive use” has repeatedly hurt our economy and job growth starting with FDR in the “Great Depression” and currently with the Obama Administration’s “Stimulus”, expansion of government size, and spending to support his big government agenda. Also, when federal surpluses were possible, as with the Kennedy, Reagan, and Bush tax rate reductions (all of which increased economic growth and tax revenues), Congress quickly initiated new spending programs to use the money (Johnson’s “Great Society”, Bush’s wars, and the Democrat Congress’ Prescription Drug Program in Bush’s second term). As I have repeatedly said, socialism and long-term economic growth are not compatible. Most other nations, including many in Europe, and especially Russia, India, and China, have learned this and are increasingly relying on free market economies and prudent fiscal and monetary policies.

Since the founding of our nation, balanced budget legislation has been discussed. Thomas Jefferson was the first President to think seriously about requiring balanced budget legislation to maintain fiscal discipline and he actually wanted to ban federal borrowing power to limit the potential size of federal government. Ultimately, he concluded this would be too restrictive in times of emergencies, especially wars. For over 200 years our nation has relied on the wisdom and responsibility of our elected officials to act appropriately on behalf of the American people. The introduction of the federal income tax amendment above combined with the evolution of our short-term political reelection process has unfortunately undermined the ability of our legislators to perform their fiscal duties to serve the long-term interests of the American people. It is time to renew the effort to force our federal government to behave responsibly. Clearly, history, since 1913 has shown that they cannot be trusted to do it on their own.

So “Yes”, we do need a Constitutional “Balanced Budget Amendment” with federal spending “Caps” and a “Safety valve” for national emergencies to rein in the reckless fiscal behavior of our elected officials. Our governments are increasingly turning our nation into a centrally controlled socialist debtor nation. These policies are not the foundation of freedoms upon which our country was created and which made America great. It’s time to return our country to the individual liberties, free markets, sound fiscal and monetary policy, economic growth, and limited government upon which it was founded.

The Old Guy PhD


Debt Reduction: Bowles & Simpson Have it Right – Redux!

July 22, 2011

G’Day!

On April 1, I posted the article, “Bowles & Simpson Have it Right!”, suggesting that the Bowles-Simpson Debt Reduction Commission’s proposal was a good solution to our country’s deficit and debt crises. Subsequent articles have repeatedly referred to this proposal as a reasonable bipartisan way to address our federal fiscal problems, especially long-term debt, (see “Obama Ignores Bowles-Simpson Debt Reduction Commission – AGAIN!”, “Is Obama Really Serious about Debt Reduction?”, “Fiscal and Debt Crises – Tax Reform Essential!”). Approximately eight months after publishing the Commission’s preliminary report and 5 months after formal submission to President Obama, the “Gang of Six” in the Senate finally appears to be considering it. Perhaps there is some intelligent life in Washington after all. I hope so.

To resolve our unsustainable deficit and debt crises, we need significant comprehensive changes to improve revenues through comprehensive tax reform, to reduce discretionary spending including defense, and reduction/reform in entitlement programs for Medicare, Medicaid, and Social Security. All of these reforms: taxation, government spending, and entitlements, are essential to a comprehensive solution for our country’s problems and ALL must be addressed if we are to succeed.

Bowles-Simpson, which is still an appropriate bipartisan starting point, addresses all of these issues and was approved by 61% of the commission members. I hope it now gets the attention it deserves. The “Gang of Six” and Bowles-Simpson have identified nearly $4 Trillion in deficit reductions over ten years with an immediate reduction of $500 Billion. Both plans rely on government spending cuts and tax reform to lower tax rates, broaden the tax base, and increase tax revenues. These are all good initial actions and I would also suggest the addition of the House “Cut, Cap, and Balance Act, which specifically “Caps” government spending relative to GDP and includes a “Balanced Budget Amendment” provision to insure that our government performs its future fiscal requirements in a responsible way. Currently, polls indicate that over two-thirds of the American people want a “Balanced Budget Amendment” and do not want a further increase in our National Debt. Now is an appropriate time to deal with these issues to insure not only our own future but also more importantly, the future of our children.

If Congress and the President had seriously considered Bowles-Simpson earlier in the year, the debt crisis could already be resolved. We must bring responsibility to the country back into our government and significantly reduce its size.

The Old Guy PhD

Note: The original Bowles-Simpson article with “links” is repeated below for those who missed it.

Bowles & Simpson Have it Right!

In my previous posts, “Big Government IS Our Problem” and “Is Our Government Broken”, I laid out the current and projected fiscal and debt problems facing our nation and argued that significant contraction in government spending is immediately essential. Also essential is tax reform. Our taxes MUST be simplified, the tax base broadened, and tax rates reduced (especially business taxes), if we are to be able to compete in a global economy.

The Debt Reduction Commission’s “Co-Chair’s Proposal” released in December 2010 by the Co-Chairs, Democrat Erskine Bowles and Republican Alan Simpson and submitted to the President in February 2011, is an excellent and understandable overview of the recommendations, which, with minor modification, were approved by 11 of the 18 bipartisan members (61% approval) in December 2010. Unfortunately, the final vote fell short of the 14 votes necessary for the “Supermajority” needed to directly submit the recommendations to Congress. While the Co-Chair’s Draft Proposal differs slightly from the final report submitted to the President, it is worth reviewing for its importance, focus, clarity, and brevity. They have done an excellent job and their proposal deserves the immediate attention of the President and Congress. While no one will be fully happy with all of the commission’s proposals, rational behavior combined with cooperation and compromise by our elected government is necessary if we are to remain a solvent and great nation. The time for government to act is NOW!

The bipartisan Debt Reduction Commission worked from April – December 2010 to develop and present overall comprehensive recommendations to solve our country’s short and long term fiscal and debt crises. They have done their work well. The report addresses all the necessary areas required to resolve the issues including setting out ten (10) objectives, “Guiding Principles and Values”, beginning with “#1-We have a patriotic duty to come together on a plan that will make America better off tomorrow than it is today”; and “#2-The Problem is REAL – the Solution is Painful – There’s no Easy Way Out – Everything Must Be On the Table – and Washington Must Lead”. The other 8 can be read by clicking the link in paragraph above. After establishing the Guiding Principles, the following comprehensive “Five Part Plan” is recommended:

1.Enact tough discretionary spending caps and provide $200 billion in illustrative domestic and defense savings in 2015.

  1. Pass tax reform that dramatically reduces rates, simplifies the code, broadens the base, and reduces the deficit.
  2. Address the “Doc Fix” not through deficit spending but through savings from payment reforms, cost-sharing, and malpractice reform, and long-term measures to control health care cost growth.
  3. Achieve mandatory savings from farm subsidies, military and civil service retirement.
  4. Ensure Social Security solvency for the next 75 years while reducing poverty among seniors.

Implementation of the comprehensive Five Part Plan is projected to achieve nearly $4 trillion in deficit reduction through 2020, in addition to other specific improvements in debt and budget reductions summarized below:

  • Achieves nearly $4 trillion in deficit reduction through 2020: 50+ specific ways to cut outdated programs and strengthen competitiveness by making Washington cut and invest, not borrow and spend.
  • Reduces the deficit to 2.2% of GDP by 2015, exceeding President’s goal of primary balance (about 3% of GDP).
  • Reduces tax rates, abolishes the AMT, and cuts backdoor spending in the tax code.
  • Caps revenue at or below 21% of GDP and gets spending down to 22% and eventually to 21%.
  • Stabilizes debt by 2014 and reduces debt to 60% of GDP by 2024 and 40% by 2037.
  • Ensures lasting Social Security solvency, prevents projected 22% cuts in 2037, reduces elderly poverty, and distributes burden fairly.

 

The proposal outlines how to achieve the above results through specific recommended actions to improve revenues through “Comprehensive Tax Reform” alternatives, to reduce spending through “Discretionary Budget Options” including Defense cuts, reductions for entitlement programs through “Mandatory Budget Options” for healthcare and “Reforming Social Security”. All of these reforms: taxation, government spending, entitlements for healthcare and social security, are essential to a comprehensive solution for our country’s problems and all must be addressed if we are to succeed.

The Co-Chair’s Proposal is controversial but responsible, realistic, and deserves the serious consideration of the President and Congress, who are currently engaged in irrelevant political bickering over trivial spending cuts instead of the substantive fiscal and debt problems we face. Congress and the President should get together, agree on or revise as appropriate the “Guiding Principles and Values” above, and start to work for the American people and our country. Political posturing for re-election is NOT a valid course of action.

Currently, neither the Congress nor the President is addressing our fiscal and debt crises with any sense of urgency. The President and the Democrats are not only totally ignoring the problem but are fighting to avoid even minimal reductions from the inflated budget spending of the last 2-3 years. Federal Budget inflation nearly tripled our federal deficit from $0.459 trillion in 2008 to $1.3 trillion in 2010 and is expected to increase again to $1.7 trillion this fiscal year. Obama’s recent budget proposal for 2012 continues spending at $3.7 trillion and the deficit at $1.6 trillion. Additionally, Obama’s new budget projects a further cumulative deficit of $7.2 trillion for the next ten years – bringing our debt to approximately $22 trillion! This is not leadership; it is madness! Only the Republicans are even attempting to address the issue and, to date, their proposals are woefully inadequate. To be fair, the House Republicans through Representative Paul Ryan are promising to present a comprehensive budget in April that does address the looming long-term catastrophe we face. I hope they deliver.

Given the magnitude of our fiscal and debt problems, the current congressional squabbling is an inappropriate distraction from solving the overall crises facing our nation! Without an agreement on debt limits and/or spending cuts by April 8, our government may shut down. As noted in “Is Our Government Broken”, except for national security and some essential services, shutting down might actually be a good thing. Our government is too big, too irresponsible, and too self-centered. Can’t our Congress or Administration do math?

Where is President Obama’s leadership in all of this? Actually, at the time of this writing he’s currently travelling again and making speeches at a Democratic Party Fundraiser – big surprise. As usual, when leadership and responsibility for our country are required, Obama is absent. Last week with a national debt deadline imminent, Congress took a week off rather than stay in session to attempt to resolve the current national debt limit issue. Brilliant! Our elected representatives need to make financial solvency and economic growth a priority and get to work NOW!

We are on unsustainable fiscal and debt crises that, if not corrected quickly, will lead to potential financial and economic disaster for our country. Our government is oppressive and out of control, its growth must be stopped, and its intrusion in our lives and businesses reversed. We MUST maintain the entrepreneurial spirit necessary for economic growth and global competitiveness. We need to bring back the constitutional freedoms and personal liberties that led us to become the greatest nation on earth. Our government should immediately take up the Bowles-Simpson Co-Chairs’ Proposal.

The Old Guy PhD


Government Imposed Uncertainties Hurt Economic Growth!

July 7, 2011

G’Day!

In nearly every analysis or survey of why business and financial institutions are not currently hiring or investing in America, the primary reason given is “uncertainties”. While dealing with economic uncertainties is a normal part of business decisions, the Obama Administration and Democrats in Congress have created additional administrative and legislative uncertainties that are unnecessary and detrimental to growth. Removal, or at minimum temporary suspension, of these government obstacles to investment, growth, and job creation would allow business and financial institutions to get America moving again.

Summarized below are the current government-sponsored complications that are discouraging job creation, capital investment, and the economic growth that we would expect from business during a normal expansion. I apologize in advance for its length but the issues are important and merit nominal analysis. Please review the information below and ask yourself, “If I were a business manager or a banker, would I risk my own money to expand, startup a new business, or make loans in this restrictive and uncertain regulatory environment?”

Fiscal Deficit & Debt Crisis: These two related issues are by far our greatest overall national risk! Fortunately we have a very comprehensive, rational, and bipartisan solution available, which was initially sponsored by President Obama. It is the Bowles-Simpson Debt Reduction Commission Report, “The Moment of Truth”. Unfortunately, President Obama and Congress have ignored this proposal since its completion. I have extensively discussed and still support this positive and bipartisan solution, (see “Bowles & Simpson Have it Right!” “Obama Ignores Bowles-Simpson Debt Reduction Commission – Again?” and “Is Obama Really Serious about Debt Reduction?”). The commission’s report, which was approved by a majority of 61% of the bipartisan members, has languished in obscurity since it was completed and presented to President Obama early this year. The recommendations from the commission cover all the necessary aspects of an implementable comprehensive solution to the our fiscal and debt crises including significant tax reform, reductions in discretionary and defense spending, and entitlement reforms including Social Security. For reasons that are a mystery to me, neither Congress nor the President appears to be considering this report in their current discussions. The President and the Democrats are not only totally ignoring a rational solution but have been fighting for months to avoid even minimal reductions from the inflated federal budget spending of the last 2-3 years. How can anyone expect financial institutions or business firms to act positively with these uncertainties hanging over them?

Taxes: As repeatedly discussed in previous articles, both corporate and individual income tax reform is essential for economic growth and investment in our country (see “Fiscal & Debt Crises – Tax Reform Essential!”). We need to raise additional federal revenues by lowering tax rates (especially corporate tax rates), eliminating loopholes, subsidies, and unnecessary “tax expenditures”, broadening the tax base to include more taxpayers, and simplifying the tax code. Currently at 35%, corporate tax rates in America are among the highest in the developed world (corporate taxes in China are 25%, Russia 20%, Germany 15%, and Ireland 12.5%) and foreign profits are penalized if returned to the US. This is ridiculous and encourages job creation and investment overseas, not in the US!

Regarding broadening the tax base, over 51% of US families currently pay no income taxes but receive the benefits paid by taxes from the rest of us, especially the much maligned “wealthy” (who already pay 76% of total income tax revenues). The current Obama proposal is to add more taxes on the “Rich” by rescinding the “Bush Tax Cuts” sooner than they are scheduled to expire. Simple math demonstrates that the “Rich” don’t have enough income to pay for the current and projected Obama deficits. This is nothing but political demagoguery and class warfare in preparation for the next election and is neither rational nor a serious solution to our long-term government overspending problems. If we are to solve our deficit and debt crises, broadening the tax base can and must be accomplished.

In “Fiscal & Debt Crises – Tax Reform Essential!” noted above, I have outlined three overall reform alternatives: 1) Retain but simplify our current “Progressive tax system, 2) Adopt a “Flat Tax” (one tax rate for all), and/or 3) Adopt a “Fair Tax” (a consumption or “VAT” tax). I personally prefer implementation of the “Fair Tax” either alone or in conjunction with one of the other two alternatives.  However, any one or a rational combination of these alternatives will accomplish the necessary tax reform goals and stimulate economic growth. All have detailed proposals available to our government, which are currently being ignored. The current extension of the “Bush Tax Cuts” expires at the end of 2012. Would you hire new employees or invest in your business, if you didn’t know what your taxes would be in eighteen months?

Obamacare: Virtually all independent analysis indicates that implementation of the 2000+ pages of Obamacare will ADD not reduce healthcare costs and will probably result in a single payer government-controlled healthcare system with restricted options and limited services. Small businesses, the job growth engine of our economy, are particularly at risk. At last count, approximately 1450 organizations, including many unions, have been given Obama Administration waivers against required implementation of Obamacare because of the higher costs it demands. Equally importantly, no one really knows all the implications, costs, or unintended consequences of the legislation because the Obama Administration is still writing the rules. In two separate articles, I suggested market-based solutions to our healthcare issues, “How to Solve Healthcare Part I” and “How to Solve Healthcare Part II”. I lived and worked in England for the better part of ten years and can assure you government-run healthcare is costly (through taxation), inefficient, slow, and limited in providing medical services. Think long and hard before you support such a system in the US. Again, if you were a business manager and were faced with the higher costs, more administration, and uncertainties associated about healthcare rules that are still being written by the administration, would you add to your payroll costs by hiring new employees?

Dodd-Frank Financial Regulation: Like Obamacare, this legislation is lengthy, complicated and potentially expensive for the financial services industry and ultimately consumers. No one really knows all the implications or additional regulations of the legislation because they are still being written by the administration and will create many unintended consequences for consumers and the industry. The Act is perhaps the most significant change in financial regulation since FDR. It represents major changes to all financial regulatory agencies and affects most of the nation’s financial industry. Major new agencies have been created: Financial Stability Oversight Council, the Office of Financial Research, and the Bureau of Consumer Financial Protection. Perhaps the most controversial provision is the creation of the potentially big and expensive “Bureau of Consumer Financial Protection” within the Federal Reserve System (FRS). Very importantly, even though the new Bureau is placed within the FRS, it operates INDEPENDENTLY. The FRS is PROHIBITED from interfering with matters before the Director, directing any employee of the Bureau, modifying the functions and responsibilities of the Bureau or impeding an order of the Bureau. With virtually unlimited power and authority to act independently, without oversight, the agency can do whatever it deems appropriate supposedly to protect consumers! WOW! Have we become a potential police state regarding “consumer protection”! What ever happened to “Caveat Emptor” (let the buyer beware) and personal responsibility? Is the government going to protect us from everything and if so, how? How many new public-sector union employees will this take? What will it cost? Ultimately, businesses and consumers will end up paying for this new unlimited-power bureau with sweeping authority to do “whatever it deems appropriate to protect consumers”. This is a scary development and creates endless uncertainties as the bureau writes its new regulations. More government madness and not good for job creation (except in the government)!

Additionally, the “Durbin Amendment” gives the power to regulate debit card interchange fees (prices) to the FRS. Effectively this eliminates free markets for debit cards and allows price fixing by the FRS, which was acted on by the FRS this week!

This is not a good trend for freedoms or free markets and bodes poorly for the other uncertain regulations to follow. If you were a banker faced with these uncertainties and risks, what would you do?

Energy & Environmental Policy: An intelligent national energy policy is vital to support economic growth and minimize the very real and present dangers of disruptions in our essential imports of foreign supplies. This policy must include and recognize America’s economic necessities, national security concerns, and the time required and costs necessary for conversion from any current source to any new technologies without creating growth constrains. It must include ALL possible sources of domestic energy generation including fossil fuels (oil, natural gas, coal), nuclear, as well as green energy sources (wind, solar, biotech).

Obama has no apparent energy policy other than promoting the green energy sources to ostensibly support his “global warming” environmental agenda. This action is happening at a time when more and more evidence is challenging and refuting not only “global warming” theory but also CO2 as a causative agent, and at a time when energy demands and prices for fossil fuels are increasing with NO serious alternatives in sight for decades! Further, the dependency and risks from imports of fossil fuels to the US are staggering and the economic and national security consequences of a stoppage of these imports would be catastrophic for our nation. Obama’s administration is actively working against virtually every effort to explore and develop domestic sources of fossil fuels. Offshore drilling in the continental shelf and interior of the US is being severely restricted even though thousands (perhaps hundreds of thousands) of good jobs could be created by actively pursuing known domestic reserves. Specifically, exploration and development of fossil fuel sources are being stifled by a lack of permits from the Administration and delays forced on development by environmentalists such as the EPA’s recent stoppage of Shell Oil’s permit to drill and develop a 27 billion barrel reserve in the Arctic Ocean off the coast of Alaska. (see “Obama Administration Attacks American Business Again!”)

The EPA is also trying to circumvent Congress’ refusal to pass “Cap and Trade” legislation by “backdooring” the regulations as new rules issued directly from the agency. Also, the EPA has proposed two new “clean coal” regulations regarding the use of coal in power plants that may result in “hundreds of thousands of coal industry jobs lost” and an estimated increase in the cost of coal produced electrical power by 11-23%. It is further estimated by a trade group that, in addition to the above jobs lost, the new regulations will cost the coal industry approximately $180 billion. For information, coal-fired power plants account for approximately half America’s energy supply.

I am not opposed to environmental protection or pursuit of green energy sources but, like many, am not convinced that global warming is actually occurring, and if so, is caused by humans or CO2. A rational and balanced national energy policy is needed. Restricting our domestic economy growth at a time of increasing global competition and increasing our dependency on foreign imports from a very volatile area of the world for the sake of a still unproven theory does not seem to me to be wise. It only creates more costs and uncertainties for our country and harms job growth, especially in the energy sector.

Pro-Union, Anti-Business Activism: The pro-union anti-business biases of the current administration are well documented and are detrimental to job creation, capital investment, and economic growth in America. Obama’s endless campaign speeches to unions, the stream of union activists to the White House, and repeated class warfare attacks on the “wealthy” are sufficient evidence of these biases.

Perhaps the most flagrant current example is the National Labor Relations Board’s (NLRB) anti-business, anti-free market, and pro-union (not pro-labor) socialist attack on the Boeing Corporation and “Right-to-Work” States (see “Attack on American Business by Obama “packed” NLRB!” and “Obama “packed” NLRB Continues Attack on Boeing & Free Markets!”). Under Obama, the NLRB has become a pro-union activist body and is now deliberately attacking job creation and investment in America by attempting to stop Boeing, America’s #1 exporter, from final implementation of the firm’s new “Dreamliner” factory in Charleston, South Carolina. South Carolina is one of 22 “Right-to-Work” States, which don’t require (or prevent) hiring union workers. To date, Boeing has already invested approximately $1 billion and hired approximately 1000 workers in South Carolina. Boeing directly employs over 160,000 workers, and is indirectly responsible for approximately another 1.2 million jobs. Apparently to the NLRB, the only “good” American jobs are union jobs.

For years during and subsequent to the Bush Presidency, union activists and Democrats in Congress have prevented the passage of Free Trade Agreements with South Korea, Columbia, and Panama, which are favorable to American business, American exports, American consumers, and will create American jobs. The unions have delayed passage because imported goods coming into the country at lower prices will displace some workers. Really! This is the global free market at work, expands economic growth, creates wealth and jobs, and benefits all consumers who are provided with more product choices at cheaper prices. Finally, this week the Senate is holding hearings on these bills and hopefully, after years of delays and economic losses, will be passed and signed by the President. Just another uncertainty caused by government interference in the marketplace that has hurt job growth and consumers.

With these pro-union anti-business biases at the very top of our political leadership and government, is it any wonder that business is hesitant to hire and banks to loan?

Conclusion: Government needs to get out of the way! (see “Big Government IS Our Problem”) The above issues and the uncertainties they have imposed on our economy are indications of where Obama’s and the Democrat’s policies are leading us. Socialism and central planning don’t work – just ask the former Soviet Union or India. Free markets and individual freedoms do work! Obama is increasingly turning our nation into a centrally-controlled socialist welfare state with significant pro-union, anti-business biases and uncertainties that hurt us all. These policies are not the foundation of freedoms upon which our country was created and which made America great. It’s time to return to individual liberties, free markets, sound fiscal and monetary policy, and limited government. It is time to take back our country!

The Old Guy PhD

 


Obama “packed” NLRB Continues Attack on Boeing & Free Markets!

June 17, 2011

G’Day!

The Obama Administration and the National Labor Relations Board (NLRB) continue their anti-business, anti-free market, and pro-union (not pro-labor) socialist attack on the Boeing Corporation and “Right-to-Work” States (see “Attack on American Business by Obama “packed” NLRB!”). The NLRB was originally intended to be an impartial arbiter of labor elections and management/labor disputes, if necessary. Under Obama, the NLRB has become a pro-union activist, anti-business organization and is now hurting job creation in America.

How did we reach the situation where the NRLB apparently defines only “union” jobs as “good” jobs and is willing to support union membership over job creation? During the March 2010 Congressional recess, Obama temporarily “packed” the NLRB by filling 2 of the vacant positions with Craig Becker and Mark Pearce without Senate confirmation. Subsequently Pearce and a Republican nominee, Brian Hayes, were confirmed by voice vote in the Senate in June 2010 but Becker was not. Becker, a union activist and former Associate General Counsel of the AFL-CIO & SEIU, remains a temporary voting board member until the end of 2011. Obama also appointed “Acting” General Counsel, Lafe Solomon, during the same Congressional recess. This currently gives the NLRB a majority of members supporting activist union causes and biases their decisions in favor of “union” jobs and against American business.

The International Association of Machinists & Aerospace Workers Union (IAMAWU) are attempting to stop Boeing, America’s #1 exporter, from final implementation of the firm’s new “Dreamliner” factory in Charleston, South Carolina. South Carolina is one of 22 “Right-to-Work” States, which don’t require (or prevent) hiring union workers and account for 7 of the top 10 and 10 of the top 15 in the “2010 Best States for Business” report. To date, Boeing has already invested approximately $1 billion and hired approximately 1000 workers in South Carolina. (Please note: the new workers in South Carolina independently decided to be non-union!) Boeing had $29 billion in exports in 2009 (nearly 2% of our country’s total), directly employs over 160,000 workers, and is indirectly responsible for approximately another 1.2 million jobs.

Boeing is not required to employ union workers in South Carolina or obtain union permission to build a new plant anywhere in the US or the World. However, the history of union disruptions and delays in Washington State could support moving their entire business operation out of Washington State. Boeing has not done this. Instead Boeing is hiring 2000-3000 new union workers in Washington State while adding the new plant in South Carolina. What Boeing has done is to diversify their operations by expanding into a State with a more favorable business environment and reducing their risk of union-motivated business interruptions. Expanding into South Carolina is much better than expanding into South Korea, or Mexico, or China as Boeing could have done. As indicated in the referenced article, this latest attack on business and free markets is another very, very dangerous anti-business precedent being attempted by the unions with NLRB reinforcement to increase both union & government central control over free market business decisions in America. Is anybody in the Obama Administration really interested in economic growth and private-sector job creation in this country?

Not surprisingly, President Obama has been totally silent on this blatantly inappropriate and probably unlawful move by the unions to force private firms to get union approval for the location of business operations throughout our country. This action has now reached the second level in the process where the “Acting” General Counsel, Lafe Solomon, and the NLRB will rule as to the validity of the union’s demands. Given Obama’s bypassing of the Senate confirmation process, the IAMAWU’s complaint is expected to be approved by the “temporary” pro-union membership in the NLRB.  The process will then move into the US court system for appeals, probably all the way to the US Supreme Court. This process may take years to resolve and leave Boeing and other US business with even greater operational uncertainty than already exists under the Obama Administration policies. This is another government and union-imposed dagger in the heart of job creation, economic growth, and the free market decision-making process for American businesses. In the interim, what will be the on-going status of the new Boeing plant, US vs. foreign expansion decisions by other companies, and the domestic job growth they could provide?

If this bogus union complaint is allowed to proceed, businesses in the 22 states with “Right-to-Work” laws are in jeopardy of having union membership forced on them and American businesses throughout our country will be clearly encouraged to locate future business operations and jobs overseas. This is likely to be another inappropriate and unnecessary administration-created “slow-motion train wreck” for the stalled economy. How can President Obama, who now claims “jobs” are his most important priority, permit this disaster in our country?

This is just another example that Obama and his policies are increasingly turning our nation into a centrally controlled socialist welfare state. These policies are not the foundation of freedoms upon which our country was created and which made America great. It’s time to take back our country as soon as possible and return to individual liberties, free markets, economic growth, and limited government.

The Old Guy PhD


Yes, We CAN Grow the Economy & Create Jobs

June 10, 2011

G’Day!

Obama and the Democrats have tried and failed with virtually every centrally controlled socialist alternative to stimulate the economy and create jobs. The only jobs they have really created are in government. The so-called recovery is the weakest in decades and may be about to “double dip”. Big collectivist government solutions have failed miserably (see “Big Government IS Our Problem!”). Obama and the Democrats only answer to this failure has been to blame it all on Bush. They claim that without their $4 trillion dollar taxpayer & debt funded stimulus, nationalization of businesses, increased healthcare regulations and spending, increased financial regulations, and extreme monetary easing by the Federal Reserve, it could be worse. The only thing that worked has been TARP and that was enacted under President Bush! It is time for government to stop regulating, remove the uncertainties facing business, get out of the way, and let the free market and capitalism work. You do not create jobs by taking wealth from those that generate it, siphon off government administration and oversight, and redistribute less of it back into the economy.

Economic growth and job creation is about free markets, minimum regulations, incentives, and opportunities in the private sector. Government doesn’t create jobs; the private sector creates jobs. Government also doesn’t create opportunities but it can discourage or prevent them (think energy policy) and it can and does distort the market through politically motivated subsidies or tax deductions for selected industries. If taxation and regulations are minimized to the level necessary to support the essential role of government as defined in our Constitution, business will take advantage of whatever opportunities are available in the marketplace and the economy will grow. Unfortunately, the Obama administration and the Democrats in Congress do not understand this. They apparently believe that a few “elites” (themselves) in government are smarter than the millions of consumers and business managers throughout the global economy. They have imposed on American business a climate of increasing regulatory restrictions, increasing healthcare costs, high business taxes, and increasing uncertainty as to what they will do next. In this centrally controlled environment, it is no surprise that American businesses are not currently hiring or investing in our country. The regulations and costs just in Obamacare and the Dodd-Frank Financial Regulations Act are particularly harmful and businesses are wisely waiting to see what the government will force on them next.

So what needs to be done to create jobs and get our economy back on track? At least six actions could and should to be taken: 1) Stop/Minimize non-essential regulations, 2) Have a business-friendly government, 3) Reduce tax rates, especially on business, through tax reform, 4) Enact an energy policy that encourages rather than discourages development of domestic sources of traditional energy, 5) Fix the fiscal and debt crises by cutting government spending, revising entitlements, and increasing tax revenues through tax reform, 6) Pass the three pending Free Trade bills and expand them to include other trading partners.

First, a moratorium on new regulations should be declared and all regulations associated with Obamacare and Dodd-Frank (especially the Consumer Protection Agency) halted until after the next election in 2012. The uncertainty overhang from these two bills alone is stifling hiring and investment by business. Ultimately, all regulations, both existing and new, should have a “sunset clause” that requires our government to formally reaffirm their need at pre-set intervals, perhaps every ten years. This would insure that outdated or unnecessary laws do not become permanent.

Second, President Obama needs to realize that his collectivist socialist policies don’t work and become truly business-friendly. It is no secret that the current administration is pro-union, pro-environmentalist, and anti-business as evidenced by numerous actions by himself and the Administration’s Departments and Agencies. The pro-union/anti-Constitution actions by the NLRB against Boeing in South Carolina (see “Attack on American Business by Obama “packed” NLRB!”) and the many actions of environmentalists against any form of energy development (drilling in the Gulf of Mexico, Shell Oil off the coast of Alaska (see “Obama Administration Attacks American Business Again!”) are not conducive to economic growth and job creation. This week the issue of an energy pipeline from Canada to Texas has also come under attack by environmentalists. These and other obviously pro-union and environmentally biased activities against businesses (and some States) should be halted and free markets given an opportunity to function.

Third, tax reform is essential to both economic growth and reduction in the deficit (see “Fiscal & Debt Crises – Tax Reform essential!”). As the referenced article indicates, there are several excellent proposals available and Republican presidential candidate, Tim Pawlenty, just added another this week. All are pro-growth and pro-job creation and all will work by providing incentives for private sector investment IN THIS COUNTRY, not abroad. Naturally, the Democrats, who believe in centralist government solutions and not in free markets, are generally opposed to all of them. Perhaps the easiest, most immediate, and most beneficial tax reform is to reduce (or eliminate) corporate tax rates to a level equal to or less than the major nations with whom we compete and simultaneously eliminate the politically motivated subsidies and deductions that distort the market. Currently US corporate taxes at 35% are highest in the developed world and actually represent double taxation on income, first at corporate level and again at personal level, when distributed as dividends. Additionally, the high US corporate tax rates discourage US based international companies from repatriating foreign profits back into the US because, if returned, they are taxed at the higher US tax rate. Our current tax policy encourages investment abroad and discourages repatriation of profits back into America. This is a job killer, not a job creator. Is our government crazy?

Fourth, enact a domestic energy policy that encourages rather than attacks development of domestic sources for traditional energy. This will create thousands of good jobs in our economy and reduce our dependence on foreign energy supply. For far too long we have allowed the environmentalists to dictate policy and stagnate domestic energy growth. Every rational person knows America will be dependent on fossil fuels for decades. Yes, development of alternative energy forms and technology is important but there is no chance “green energy” is going to be a replacement for traditional energy sources, including nuclear power, any time soon. It is madness to exclude active development of domestic fossil fuel sources and nuclear power from our alternatives just to satisfy a few environmentalists with unproven science and questionable computer projections. If “green energy” was a viable economic solution, we would not need a policy or subsidies to support it. Also, independent of the longer-term cost benefits from domestic production, the extremely high and increasing risk of supply from the foreign sources is a very dangerous national security concern. The Middle East is in turmoil and no one knows how it will turn out. Without domestic alternatives, American could find itself with an energy disaster, which could seriously endanger our economy. We must actively develop domestic energy to create jobs in America, sustain our economy, and reduce our global supply risk.

Fifth, resolve our short and long term deficit and debt crises. We must get government spending and the dual debt and deficit crises under control (see “Bowles & Simpson Have it Right!”, “Obama Ignores Bowles-Simpson Debt Reduction Commission – Again!”, “Is Obama Really Serious about Debt Reduction?”). Our Government is too big, too oppressive, and exercises too much control over the American people and business. The current policies are sucking money from business and taxpayers, adding more public sector union layers of government control, stifling business growth, and reducing America’s ability to grow and prosper. As stated above, in a free market economy with protection for the freedom of individuals and businesses, the private sector creates jobs. Since his election, Obama has expanded the size and scope of government control far beyond the level any freedom-minded citizen would have imagined possible. Simultaneously, Obama has also increased our federal deficit by $4 trillion and increased our national Debt by approximately 40% to $14.3 trillion. Relative to GDP the size of government has increased from approximately 20% of GDP to over 25.5% of GDP, a 5% increase in the size of government relative to our economy in less than three years. Without correction, our deficit next year is expected to be another $1.6 trillion and in ten years our national debt will grow to a staggering $22 trillion! Does anyone think this makes sense? My article last week, “Is Our Government Broken? – Redux!”, provides more information on this critical issue.

Sixth, pass the Free Trade Agreements for South Korea, Columbia, and Panama. These proposals go back to the Bush Administration and should be easy to pass. I believe nearly everyone including the President and many Democrats support them. As usual, politics is holding them up. Free trade works and provides value through additional products and services at lower costs to all American consumers. Only unions are opposed to free trade because, in the short term, it may reduce union jobs in non-competitive industries. Over 200 years ago, Adam Smith established the unchallenged principle that the wealth of a nation was based on the goods and services available to its citizens. Free trade allows this to work for the benefit of all consumers. It’s time for the unions to realize this and support what’s good for the nation over what’s good for the union.

Yes, we CAN solve our problems, if we have the political will to do so. This country was founded and prospered on the principles of individual freedom, free markets, sound fiscal and monetary policy, and limited government. Let’s get back to our foundations and demand that our elected representatives in government get to work.

The Old Guy PhD

 


Obama Administration Attacks American Business Again!

April 29, 2011

G’Day!

In just the last few days, the Obama Administration has directly or indirectly initiated four (see below) separate anti-business actions against American corporations, which interfere with our national economic growth and prosperity. These actions are similar to strong-arm tactics initially used by authoritarian regimes to increase central government control and to decrease individual and economic freedoms. As I said in Tuesday’s OpEd, “Attack on American Business by Obama “packed” NLRB!”, this is a very, very dangerous precedent. The policies of President Obama do not represent the American free market, limited government culture I know and admire. Specifically, the actions taken in the last week are:

1) The National Labor Relations Board (NLRB) has agreed with a union complaint against Boeing and South Carolina to prevent Boeing from opening the nearly completed expansion plant in South Carolina for the 787 Dreamliner.

2) The Environmental Protection Agency (EPA) under Lisa Jackson has stopped a Department of the Interior’s previously approved Shell Oil request to drill and develop a 27 billion barrel oil reserve in the Arctic Ocean off Alaska.

3) The Health and Human Services Department (HHS) under Kathleen Sebelius has demanded the firing of the CEO of Forest Labs, a privately owned firm, under the coercive threat of refusing to do government business with the firm, if the CEO is not replaced.

4) The NLRB (again) is suing Arizona and South Dakota to invalidate a law requiring “secret ballots” for union recognition in those States. Two (2) other States have also passed similar laws. (How silly of me, I thought secret ballots were a fundamental part of our democratic freedoms.)

All of these actions represent intimidation or possibly even extortion by these government departments, agencies, and boards to bully privately owned businesses and even States of the Union to conform to the wishes of the current Administration. This is an unprecedented use of governmental administrative power in peacetime and is not in keeping with the freedoms we have enjoyed in this country for over two hundred (200) years. If this were happening in another country, we might call it “creeping fascism”. I sincerely hope this is not Obama’s intent.

Equally disturbing is the trend by the Obama Administration to bypass Congress and increasingly use administrative force, not legislation, to control and implement the Administration’s agenda and greater centralization of Presidential power. Evident in the actions above is promoting unions over business, environment over energy development, and intimidation of private businesses into conforming to healthcare and other administrative objectives. This centralization and probable misuse of administrative power is not good for our democracy or our nation.

The EPA’s frivolous and damaging action against Shell Oil is worthy of additional comment because of the importance of energy in our economy. This is another questionable environmental complaint by the EPA that forces Shell to abort its approved exploration and development of domestic oil resources in the Arctic Ocean off Alaska. The court ruling on the EPA claim is that the air quality of the remote village of Kaktovik, with less than 250 people and 70 miles away from the drilling site, will be “close to” the air quality standard (not above) based on the greenhouse gas emissions from an icebreaker servicing the site. Also claimed is the site is “too close” to ANWR (but not inside it) and wildlife will be endangered.

This action by the EPA comes at a time when higher domestic oil production is critical to reducing our dependence on vitally necessary oil from questionable foreign sources. The US currently consumes 18.8 million barrels of petroleum per day (approximately 6.8 billion/year) of which approximately 50% is imported. The proven US oil reserves are only 19.1 billion barrels. The Shell project in the Arctic Ocean was expected to add 27 billion barrels and 74 trillion cubic feet of natural gas of new US reserves, which would more than double the current level of US petroleum reserves! Shell has already invested almost $4 billion and over 5 years in the project, $2.2 billion for the leases alone.

This is another deliberate anti-business action by the Obama Administration, this time the EPA, and further stifles economic development, domestic oil production, American job creation, and encourages American businesses to move offshore. We do not need an authoritarian government that dictates to its people and its businesses what they can do, where they can do it, and how they can do it. If this policy is continued, it will restrict economic growth, innovation, job creation, and our personal liberties; AND it will further pressure our American enterprises to move to more business-friendly nations. I believe it was Thomas Jefferson who said, “That government is best which governs least.” This is good advice and should be remembered at the next election.

It’s time to take back our country and return to Constitutionally protected freedoms, free markets, economic growth, and limited government. Let’s get to work!

The Old Guy PhD