Is it not possible to reroute the Keystone XL pipeline?

President Obama has just rejected the construction of the Keystone XL pipeline from Canada to the Gulf of Mexico. Recall that Obama initially tried to postpone a decision on the pipeline until 2013--a cowardly move intended to avoid angering either of two big Democratic special interest groups (environmentalists and unions) before the election. When forced to make a decision by Congress, he decided to reject the pipeline. Newsweek, not exactly known as a right-wing publication, called it an "act of national insanity."

The Newsweek article correctly points out that environmentalists concerned about global warming emissions get nothing from this except for a symbolic PR victory. Canada has already committed to extracting the oil from the tar sands in Alberta, and they will now most likely build a pipeline to the Pacific for export to Asia. By rejecting the pipeline, Obama antagonizes a strong ally and sacrifices tens of thousands of new American jobs. The pipeline would also lower fuel prices and reduce our dependence on foreign oil.

There is, however, one very legitimate concern about Keystone XL. The proposed pipeline would have gone over the Ogallala Aquifer, a vast underground water source that makes most of Midwestern agriculture possible. Contamination of the Ogallala could have devastating effects on the region's agriculture and drinking water. While it is true that there are already numerous pipelines going over the aquifer, I would imagine that leaks are much more likely in a new pipeline (because of possible structural flaws, engineering problems, etc) than in one that has been working leak-free for decades.

The solution, then, seems obvious: reroute the pipeline around the aquifer. But that wouldn't satisfy environmental groups, who sometimes seem to want to roll back industrial society. Some would argue that they just want to switch from fossil fuels to wind and solar. But the fact remains that wind and solar are currently unreliable and not at all cost-effective. Plus, even wind and solar are vulnerable to environmentalist and NIMBY opposition--a salient example being the decade-long controversy over an offshore wind farm on Cape Cod. If people oppose even wind energy, then (assuming they are not currently living off the land in a technology-free community) where in the world do they think they can get their energy from?

Anyway, it seems that appeasing environmental special-interest groups is a bigger priority for Obama than jobs, fuel prices, or energy independence.

The case for a scaled tariff

Obviously, the jobs situation in the United States right now is not pretty. Unemployment remains high (and of course that does not include people who have stopped looking for work). Median inflation-adjusted wages have been stagnant for at least the past 10 years, if not the past 30. Income inequality is at an almost all-time high. Part of the current employment crisis stems from the Great Recession and the stalled recovery, but things have been trending badly for lower-middle-class workers since well before then.

Those on the right tend to blame excessive taxes and regulations which have hurt business, and they definitely have a point. But it's only half the picture. The other half is simple economics: if business owners can reduce costs by using automated labor or outsourcing their labor overseas instead of hiring American workers, they probably will. And they have. The manufacturing sector, in particular, has declined from 26% of all employment to 13% in the past 40 years, largely a result of technology and outsourcing. Some on the left gloomily predict that technology and globalization will lead to a steady decline in working-class jobs (leaving only a middling number of higher-paying jobs for well-educated or highly trained people) and result in cataclysmic income inequality. Predictably, they call for a large federal entitlement for everyone to "solve" the problem.

Clearly, a large new entitlement would result in much more centralized power, less economic freedom, and less incentive to work. Trying to curtail technological innovation would have the same effect. And according to classical economic theory, high tariffs only serve to protect inefficient import-competing industries while inviting retaliatory tariffs that hurt more efficient exporting industries.

The thing is, that theory only holds when trade is fairly balanced. The problem is that the US has a massive trade deficit with a number of developing countries (led by China) who limit their imports. So while we lose lots of jobs to outsourcing and imports from countries with lower labor costs, because of the trade deficit we gain a comparatively tiny number of jobs in exporting industries.

One possible solution, proposed by two authors at the American Thinker, is called a scaled tariff (look at the end of the article). In a scaled tariff, the tariff rate for each country is proportional to our trade deficit with that country. Thus the tariff would disappear once trade is balanced. Balancing trade might be one way to preserve our manufacturing jobs and our status as the world's dominant economic power.

Obama: A President For the Big Guys

By his own account, Obama is a protector of the little guy. However, when you look at who has actually benefited the most during his administration, the exact opposite becomes true. The two clear winners of the Obama presidency have been big government and Wall Street. The losers? Workers, small businesses, and small banks.

While Obama may denigrate Wall Street as "fat cat bankers," according to the Washington Post he has raised more from Wall Street than all of the Republican candidates combined. Not only that, Wall Street firms have earned more in the first 2 1/2 years of the Obama administration than they did during the eight years of the Bush administration. Think about that for a second. Under Obama, Wall Street has made three times as much money per year in a historically bad economy than they did under Bush in a generally good economy.

Smaller banks? They haven't fared as well. Regulations like Dodd-Frank are far too watered-down to prevent the problems that caused the 2008 financial crisis, but they are complex enough to force small banks to spend inordinate amounts of money on compliance.

And then there's big government, which now employs 140,800 more people than at the beginning of Obama's tenure. Obamacare has given unprecedented power to government officials--however, its passage in March 2010 was followed by a sudden halt in private-sector hiring. I don't see this as a coincidence. Again, big businesses have the resources to give government-approved health insurance to all their workers. But small businesses--the country's top job creators--often do not. The thing is, small businesses are only exempted from Obamacare cost burdens if they have less than 50 workers. So basically, Obama's message to small companies with 30-40 workers is "Don't expand, and stop hiring." Interesting message coming from a president who claims his top priority is jobs.

Speaking of jobs, a Canadian company wants to build a pipeline from Alberta to Texas that would employ over 20,000 workers. Obama, however, announced that he is delaying approval until 2013--after the elections. It seems that appeasing environmental activists in an election year is actually more important to Obama than jobs. I would almost understand it if he killed the project because he truly thought that a pipeline would do too much damage to the environment. But punting until 2013 just gives the impression that he is too cowardly to make a decision that might offend special interest groups. Winner? The environmental lobby. Loser? Once again, American workers.

NLRB vs. jobs

In the words of the Chicago Tribune: "You have to wonder about a federal agency that sticks it to an American manufacturer creating thousands of good-paying jobs inside the nation's borders, instead of overseas.

Last week, President Obama gave a long speech about job creation. Boeing, however, has done more than give speeches: it is trying to create thousands of jobs--and not minimum wage jobs, either--by opening a new 787 assembly plant in South Carolina. Those jobs are in some danger, however, because of charges brought by the NLRB under the direction of the very same President Obama. The NLRB's complaint? Boeing is opening its new plant in South Carolina, a right-to-work state, rather than Washington where it has its headquarters. Never mind that no workers in Washington are going to be fired. The NLRB somehow thinks that it can tell companies where to build new plants.According to a poll by the Tarrance Group, 78% of Americans disagree and side with Boeing.

This leads one to wonder how much Obama actually does want to create jobs. If it was a priority of his, then it seems he would at least make sure that no part of the executive branch did anything to hinder job creation. Based on the actions of the NLRB, power, not jobs, seems to be Obama's chief concern. He seems to only be interested in creating jobs if the jobs are somehow under his control.

To stop the NLRB's overreach, Republicans in Congress have introduced legislation that prevents the NLRB from ordering employees to close plants or relocate employment. If that is vetoed or falls in the Senate, they may resort to stall tactics. According to the same Tribune article, Obama's recess appointment of board member Craig Becker runs out Dec. 31. and his departure would leave just two of the board's five seats occupied. So in the absence of any new appointments — which Republicans have vowed to block — the board will fall short of a quorum.

So what we have here is a federal agency trying to blatantly overstep its bounds and destroy thousands of jobs in the middle of a recession. Furthermore, Congress may not be able to stop it without effectively shutting the NLRB down completely, preventing it from performing its legitimate functions of investigating unfair labor practices. What a mess. 

Is "shovel-ready" still possible with today's regulations?

In the 1930's, FDR was able to create thousands upon thousands of jobs and stimulate the economy through infrastructure projects such as the Hoover Dam. In 2009, a similar attempt by Obama fell flat. Projects that were said to be "shovel-ready" were in fact nowhere near. According to this Wall Street Journal article, those projects failed to get off the ground largely because of a maze of environmental regulations and bureaucratic procedures that did not exist in the New Deal era. The effect of these regulations is substantial; according to a firm that advises on public works projects, a new bridge or a road through an urban area often requires five to seven years of planning before it is ready for a shovel. It is possible, says the author, that the Hoover Dam could not even be built today.

Obama is pushing for a new round of infrastructure spending to stimulate the economy, but any stimulus is unlikely to happen as long as these delays remain in place. I can't help but wonder what will happen to the country's infrastructure if it takes five years of bureaucratic haggling to even get started on a project.

Republicans, inexplicably, want payroll tax cut to expire

Last December, Congress passed a bill that reduced the workers' portion of the payroll tax from 6.2% to 4.2% for one year. There is naturally a partisan disagreement in Congress over whether to renew the tax cut or let it expire. Some are arguing that the tax increase would hurt workers and the economy overall, while others are saying that the revenue is needed to balance the budget.

Surprisingly, however, the Republicans are the party that wants the tax cut to expire--a tax increase by their definition. This makes absolutely no sense to me. The GOP is fresh off a tense budget battle in which they fought vigorously to avoid any tax increases whatsoever. And now they are changing their tune?

Apparently so. According to the Associated Press (see above link), Republican congressman David Camp opposes extending the tax cuts because of the deficit, and Eric Cantor "has never believed that this type of temporary tax relief is the best way to grow the economy."

Wait a minute. I thought the Republicans believed that tax cuts were the BEST way to grow the economy. If they oppose "temporary" tax relief, then make it last 10 years instead of 1.

Mitt Romney did not come out for or against extending the tax cut, but said he would rather have the cut on the employer's side to spur job growth. I agree. However, why not cut both sides of the payroll tax? Better yet, why not eliminate the payroll tax altogether and replace the lost revenue by closing loopholes or raising the capital gains tax. The payroll tax discourages hiring and hits both employers and low-wage earners fairly hard.

I am completely baffled as to why many Republicans suddenly want to increase taxes on all working Americans. It almost seems to validate the progressives' claim that Republicans only care about rich people and corporations.

$20 million for a green jobs program, but only 14 new jobs

Last year, Seattle won a $20 million federal grant to invest in weatherizing homes in poorer neighborhoods. The goal was to create 2000 jobs in Seattle and shrink carbon footprint.

More than a year later, only 14 jobs have been created--and worse, they are almost all administrative jobs. (That's $1.4 million per job, by the way). Community organizers are making various excuses and calling for more money. Perhaps if they get another $5 million, they can create three more jobs.

Could it be any clearer that job creation needs to be led by the private sector, and that the government--particularly the federal government--is just NOT GOOD at directly creating jobs?

Now is the time for tax reform

The United States is currently in an unenviable situation. The economic slump is approaching the end of its third year. At the same time, sky-high deficits and debt have resulted in a credit downgrade and a bitter partisan fight in Washington. Clearly, a return to economic growth would help solve both these problems.

Where will the growth come from, though? Stimulus spending has been tried--and has failed. Pro-growth tax cuts like those in 1961 and 1981 would not be politically feasible because of deficit concerns. One possible answer, suggested by WSJ columnist Stephen Moore, is revenue-neutral tax reform.

As Moore points out, a similar deal was struck in 1986, when the top income tax rate was lowered to 28%, which was balanced out by eliminating a host of deductions. The deal resulted in an estimated $1 trillion of economy-wide gains. This time, rather than lowering the marginal income tax rate (which was already done under Bush), a better idea would be to lower the corporate tax rate. Combining state and federal taxes, the US corporate tax rate is currently 39%, which is far higher than almost all other countries, and gives US companies a clear disadvantage in the global market. The employer portion of the payroll tax, which is basically a direct tax on hiring, also needs to disappear ASAP. If we want more hiring (which clearly we do), we shouldn't be taxing it.

How can we balance this out? For one thing, aggressively close off loopholes and tax subsidies. The real sad part of our corporate tax policy is that the largest corporations can hire armies of lawyers to figure out how to best exploit the loopholes--but mid-size businesses, without the ability to hire those lawyers, get hit with the full effect of the tax. That needs to end. Similarly, the favors to special industries (agriculture, hedge funds, green energy, etc) in the tax code need to be cut. Ethanol was a good start.

And if that doesn't balance the revenue effects of cutting the corporate and payroll taxes? Raise taxes on large high-yield capital gains, or put a tax on derivatives transactions. Unlike business, Wall Street does not create jobs or produce goods that add value to the economy. Large capital gains and derivatives are almost exclusively the province of the rich. And such a tax could discourage the kind of high-risk speculation that resulted in the 2008 crisis.

California's insane attempt to tax products sold on the Internet

In a latest effort to avoid dealing with their spending problems, California has decided to try to collect sales tax on products sold over the Internet. Never mind that it would lead to significant lost business for thousands of marketing affiliates--individuals and small businesses--that partner with online retailers. Never mind that it would most likely cause more unemployment in a state already struggling with joblessness. Never mind that it almost certainly violates a 1992 Supreme Court ruling. It allows Sacramento politicians to keep $200 million in pension benefits, social programs, and other pet projects--so it's clearly worth it.

The Obamacare Effect On Employment

Obamacare was signed into law on March 23, 2010. As shown in the following chart, the job market recovery basically stopped the following month:



Coincidence? Somehow I doubt it. A few reasons why Obamacare discourages hiring, according to this Weekly Standard article:

• “Businesses with fewer than 50 workers have a strong incentive to maintain this size, which allows them to avoid the mandate to provide government-approved health coverage or face a penalty;

• “Businesses with more than 50 workers will see their costs for health coverage rise — they must purchase more expensive government-approved insurance or pay a penalty; and

• “Employers face considerable uncertainty about what constitutes qualifying health coverage and what it will cost. They also do not know what the health care market or their health care costs will look like in four years. This makes planning for the future difficult.”

Why we need a (low) minimum wage

I was recently asked why I believe in minimum wage laws, since they seem to violate free-market principles. The short answer is that the labor market is not a completely free market. Workers cannot simply change jobs whenever and wherever they want. Moving to a new location is difficult and costly. Workers with two jobs who want to leave one of them have to find a new job that fits into their same schedule. People who live paycheck-to-paycheck will be unwilling face the uncertainty of being "between jobs" for any significant length of time.

The labor market thus has some elements of a free market and some elements of a captive market. It is thus possible for businesses to take advantage of this inertia in the labor market and reduce wages to a level that is far below the value of the employees' work. In a worst-case scenario (e.g. a city with very high unemployment), some companies could theoretically reduce wages to starvation levels in order to maximize profits. We need a minimum wage to guard against this possibility. The United States' inability to enforce its immigration laws only adds to this problem because illegal immigrants can flood the labor market.

When the United States transitioned from a society of independent farmers to an industrial society, we made an important trade-off. While we gained efficiency, wealth, and longer lives, we ceded some control of our individual livelihoods to corporations. Because of this loss of control, we need measures in place to prevent corporations from exploiting individuals.

At the same time, if minimum wage laws force companies to pay employees more than the value of their work, those employees will not be hired. Clearly this is another scenario that needs to be avoided as much as possible. Employers do not have a duty to pay their employees a "living wage" (an extremely ambiguous concept in itself). That is why the minimum wage needs to be kept low so as to not drive up unemployment, but cannot be eliminated altogether.

Obama's dismal performance on jobs

Obama came into office saying that he would revive the economy and create jobs, but at this point his handling of jobs and the economy has pretty much been a complete failure, as this article explains quite well.

The White House Council of Economic Advisers' latest report showed that the so-called stimulus created or saved only 2.4 million jobs, at a cost to the taxpayer of $250,000 per job. That doesn't exactly inspire confidence in our leadership or the economy. As the author of the article says, it is "difficult to rally around what looks like foolishness."

Then, with the economy still down, the Democrats forced through ObamaCare. This was despite the fact that arguably the most liberal state in the country (Massachusetts) voted for a senator (Scott Brown) whose platform centered around his opposition to ObamaCare and the fact that he would be the crucial 41st vote needed to block it in the Senate. The health care law imposed a litany of new taxes and regulations on small businesses that drive up the cost of employment. Environmental regulations heaped further costs onto business, particularly manufacturing. Is it any surprise that the private sector is not eager to start hiring?

It seems that Obama thinks that jobs are created by government, not by entrepreneurs. The current economic slump has been a testament to that delusion.

Why the obsession over the deficit?

Obviously, the national debt is something that needs to be fixed in the medium term. We can't just keep spending like drunken sailors and leaving future generations with the bill. However, with unemployment still a major problem, is this really the time to crack down on deficit spending?

Let me use an analogy here. Suppose you are the coach of a pro sports team. One of your star players comes to training camp out of shape and having gained 15 pounds, and on the first day of practice he slightly tears the meniscus in his knee. Clearly, the best course of action would be to first repair his knee, then after his knee has healed get him back into shape. It seems like the Republicans, however, believe that it is best to immediately get him back into shape and pray that the knee doesn't get any worse. Major budget cuts certainly won't help employment, and they might make it worse. Is it really the right time to start making deep budget cuts?

Of course, the question that remains is how to fix private-sector unemployment. I can think of a few possible ways:

1. Cut corporate income taxes, while closing loopholes.
2. Eliminate some of the regulations that are most burdensome and expensive for businesses.
3. Declare a one-year payroll tax holiday, or eliminate it altogether (since the payroll tax is basically a tax on hiring).
4. Implement a tax credit or subsidy for buying American goods.
5. Invest in maintaining American infrastructure (which the 2009 stimulus somehow failed to do).

Naturally, none of these are very popular with partisans on Capitol Hill. #1 and #2 are anathema to Democrats, while #4 would be a tough sell to Republicans. #5 is not likely to survive the political process without being turned into something more "glamorous" (like a new museum) that a representative can show off to people in his/her district. And that is probably why the economy has been in a slump for nearly three years now and Congress still hasn't implemented even a half-decent solution.