How Congress is harming the economy

February 5, 2009

 Diana Furchtgott-Roth– Diana Furchtgott-Roth, is a senior fellow at the Hudson Institute and former chief economist at the U.S. Department of Labor. The views expressed are her own. –

At the very time that the Senate is debating whether to spend $800 billion or $900 billion to stimulate the economy, the government is considering other legislative and regulatory initiatives that would impede economic recovery.

Growing Protectionism

By inserting protectionist provisions that require some goods financed by the stimulus bill to be made in America, Congress is risking a trade war with important trading partners in Europe and Asia. A trade war would reduce exports, potentially destroying millions of American jobs.

Cutting Defense Spending

Although Congress is trying to revive the economy by expanding domestic spending, the Pentagon is reportedly facing budget cuts next year. But with President Obama promising to deploy more troops to Afghanistan, America needs more defense spending, not less.

America needs to purchase more weapons, ordnance, vehicles, and body armor so that our troops have the best equipment possible. Defense supplies are generally made in America, and production employs Americans with a wide range of skills.

If America increases regular forces by 100,000 and hires 100,000 more civilians to support them, these individuals would acquire useful skills when they leave the Defense Department for the private sector. Their presence would enable the Pentagon to bring home reserve and National Guard troops, some of whom have been deployed for over a year.

Individual Emissions Standards for States

Earlier this week auto companies revealed that sales had reached a 27-year low. Yet, under a new directive from President Obama, states such as California would be able to set their own emissions standards, which will be—you guessed it—stricter than federal law. This would complicate engineering and production, raise costs, and send the industry into an even greater decline.

Since California is America’s largest car market, companies would have to make lighter, more fuel-efficient cars that consumers might not want to purchase. Domestic companies would be particularly hard-hit because they make larger cars. It makes no sense for Congress to bail out Detroit with loans and give tax deductions for purchases of new cars and trucks, while at the same time decimating the market of the Big Three. More red ink for the auto industry, and more layoffs across America.

Employee Free Choice Act

This misnamed bill would change the law to allow workplaces to be unionized without secret ballots. A workplace could be unionized if a majority of workers sign an open card in favor of unionization — a process known as “card check,” exposing workers to union intimidation. This bill passed the House in the 110th Congress and will be soon brought up in this congressional session.

One of the bill’s House sponsors was House Committee on Education and Labor Chairman George Miller. In 2001, he and five colleagues wrote to the state arbitration board of Puebla, Mexico, saying, “we feel that the secret ballot is absolutely necessary in order to ensure that workers are not intimidated into voting for a union they might not otherwise choose.” If Mexicans deserve a secret ballot, so do Americans.

States where employees do not have to join a union in order to work have lower average unemployment rates than other states, so it would not be surprising if increased unionization would raise unemployment rates.

As well as protectionism, cuts in defense spending, unionization by intimidation, and arbitrary environmental standards, the economic stimulus bill would open the floodgates of deficit spending. The ensuing debt would burden Americans far into the future.

The Democrats, who control both the White House and Congress, should know better. No wonder consumers are scared, financial markets are tumbling, and unemployment continues to rise.

Diana Furchtgott-Roth can be reached at dfr@hudson.org. For previous columns, click here.

99 comments

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Diana Furchtgott-Roth is spouting the mirage of added costs for domestic vehicles manufacturers if they have to make cars to meet California’s stricter emissions guidelines like it was the end of the conversation.

The solution: make ALL vehicles to meet the strictest standards. Not one vehicle for California and one for Mississippi. Japanese cars regularly get 35MPG NOW, and are stylish, well-built, and last a long time with little maintenance.

But oh, wait, everyone already knows that. It’s time to take your head out of the sand. We ALL want to breathe clean air, and it shouldn’t be up for debate, unless anyone thinks southern California wants to return to the horrible smog-filled days that blocked the sun (like Beijing now).

Posted by Robert Pratt | Report as abusive

Remarkable amount of ad hominem amongst commentators. This is the lowest form of criticism. Readers, raise your standards! Can you not comment on the points made in the article with reason, rather than vituperative?

Well, I guess I’ve had enough of conservatives telling us how the economy is supposed to work when they’re the ones who have created the economy that’s now crashing. Isn’t it convenient how their economic theories just happen to be really good for the rich as well as, supposedly, the poor and working class? I believed you for a long time but, sorry, I think I’ll take my chances with the compassionate liberals instead of the opulent conservative elite this time around.

Posted by Dan | Report as abusive

Ms. what’s-her-name could not be more inaccurate. I’m very familiar with the Hudson Institute. One of the most conservative right wing organizations on the planet. They and the American Enterprise Institute work the numbers like an evangelist works the crowd in the tent.

Wake up madam, the old world is gone…and your GOP buddies destroyed it. Rather than fielding an instrument to support your goofy theories, field an accurate one. You will be surprised with the outcome.

Posted by Drefus Smith | Report as abusive

Forget Politics for a second,
The biggest decisions of this financial crisis have just been made. Did you miss it? GM, Ford, Toyota, and others have just begun the biggest event since the space race between the USA & Russia, the biggest change since the Model T Ford.
They have all embarked on the challenge of dumping gas guzzlers,and electrifying the transport industry. The Government & BIG business has finally plugged-in, and the auto-makers have switched on. The question is who will win??? The Chinese, the Japanese, the Russians, the Middle East, or will the US prevail??
Mark my words.
This will be the biggest decision made in this Century. I can’t wait. LET THE RACE BEGIN!!!!!!

Posted by Brad | Report as abusive

I read Furchtgott-Roth strictly for the comedy content. She’s a perfect example of a Rack Jite quote:
Conservatives haven’t had a new idea since they discovered they could buy women instead of clubbing them over the head and dragging them back to the cave.

Posted by Ray | Report as abusive

Why do we need DTV; we have cable that is costing a fortune.

Sorry forgot to mention Nissan before,
Yet another auto maker in the race for the EV. This is truly the start of this milleniums revolution. It’s a revolution that has at its core renewable technolgy, energy. Renewable technology, fuel, energy, is the answer to renew our economies. It has to be because the earth isn’t. It is the only way forward, and thank God it is happening. All those who say it’s too expensive, or it can’t be done will be proven wrong. They are just scared because they will have to change. The fact is it will get smaller, cheaper, and easier once we take it and run with it. Look at the first cars, the first space rockets, aeroplanes, phones, computers. The first computer took up an office block, now it fits in the palm of your hand, and continues to astound us every day. The first planes were nothing more than a glider strapped to a man. Now we can break the sound barrier, and send people on holidays to the moon.
A world full of renewables will hapen, it is happening, and not a moment too soon. Get on board before the intergalactic train leaves. Don’t get left behind. Lead the way.
Brad

Posted by Brad | Report as abusive

Most Dems see the current crisis as either a Republican caused problem or a problem with capitalism. People need to realize there was nothing fiscally conservative that either party was doing in the last 8 years. I haven’t voted republican in a long time but I will likely start because they are the only party even talking about fiscal responsibility even if they don’t practice it.

Posted by John | Report as abusive

Obama talks about greater transparency– wonderful… So the only REAL difference between him and Bush is that he’s going to let us know how badly he’s raping our wallets and how the money is being misspent, whereas Bush tried to do things a bit more surreptitiously?

Right wing hack. It is your solutions that have us where we are now.

Posted by Alan | Report as abusive

We are reaping the whirlwind of that swindle called “Free Trade”.

The “Free Trade” hacks continue to refuse to acknowledge the economic devastation their misguided and naive theories have caused.

They continue to screed that it’s an all or nothing situation, with respect to globalized trade, moreso in the face of the devastated local economies all across the USA – local economies that will NEVER recover – that “Free Trade” destroyed.

The hubris of the “Free Trade” economists has turned them into dangerous fools.

The USA economy is not going to recover until the failed experiment of “Free Trade” is ended, commercial regulation is re-installed and the perpetrators of this mass criminal enterprise are locked up.

Posted by RFL | Report as abusive

Those people who blames Detroit for building “gas guzzlers”. They built them because you(consumers) wanted them. All these emphasis media and government puts on hybrids and electrics are ridiculous. People won’t buy them because they don’t make sense.
Let’s do the math. Average Americans drive 20 miles a day and compare a hybrid Prius and similar sized and shaped gasoline vehicle such as Honda Civic. Prius gets 48 MPG in city and Civic gets 25 MPG. Let’s assume gasoline was at its worst point which was $4 per gallon and do the math.
Prius owner would spend $608 a year on gasoline. A Civic owner would spend $1168 a year. Saving of $560 a year. And remember this is at $4 a gallon. If at $2 a gallon like it is now, you would be saving $280 per year.
Now, would you buy $22,000 Prius or $15,000 Civic (both minimum MSRP)? To get that extra $7,000 return, you would have to drive Prius for 12 years at $4 a gallon or 25 years at $2 a gallon.
Point I’m trying to make is that consumers can choose to buy small gasoline vehicle to save gas instead of buying big SUV’s and trucks. And I used Honda as example because its shape is similar to Prius but Detroit makes small gasoline cars too. But you… consumers chose to buy SUV’s and you are blaming Detroit.

And too add, the trouble Detroit is in is because they can’t sell their cars but people have wrong ideas as to why they can’t sell. It’s not because they didn’t build fuel efficient cars. It’s because the banks are not financing. Without financing, people just don’t walk into dealers and pay cash for cars.

Going back to this article which I disagree mostly.

Growing Protectionism: We import more than we export. Just look around in your house and see where they’re made. “Buy American” would bring manufacturing back to America which is what we need.

Cutting Defense Spending: It is fact that defense contractors are the most inefficient industry. They get penalized for coming UNDER the budget so they waste time and money instead of finding ways to save money. This is more so true now since Bush administration eliminated competition and spending actually skyrocketed. The money is better spent in fair market manufacturing.

Emission standard: I agree to some degree since I believe Detroit should spend more money on improving quality and therefore raising resale value of their vehicles instead of hybrid and electric vehicles but this applies to imports as well. This will hurt imports as much as domestic so I don’t believe this is detrimental as she described.

Union: American automakers spend average of $2,000 more on manufacturing their vehicles because of the UAW. This presents unfair competition and something must be done. I believe Union out-lived its purpose and its hurting the industry more than it’s helping. I don’t necessarily agree with the method but it is another attempt to unionize the Japanese plants which I believe would help Detroit.

Brian Choi,
You obviously have something to lose when the world goes electric. There’s no point ‘doing the math’ on current costs of these electric & hybrid vehicles yet as the demand is too low obviously. However once they become main stream they will blow the detroit made gas guzzlers out of the water. What you can do the math on his how many jobs this will create, and the future dominance of whichever company gets there first. That’s easy to work out. You can also ‘do the math’ on the savings to the environment and your own health in the future. You can also figure out that if you don’t have to buy as much oil from your enemy then you won’t have to spend as much on fighting the middle east in pointless wars, because they aint going to buy too much war with sand, are they?

Posted by Brad | Report as abusive

It’s a Catch 22. The only way to stimulate the economy is to get the banks to loan. Because of fractional banking whee the Fed can lend out 33 dollars for every dollar it won’t lend a cent when people en masse electronically withdraw all their money because of scare tactics. The economy runs on fear. Do away with the Fed

Brad, I’m not sure how much of sci-fi you’re being but in near future, fully electric will never become mainstream. Driving for 2 hours and having to recharge for 6 hours will not cut it. Plug-in hybrid, may have more potential but the price will never come down to gasoline vehicle level.
One thing proponents of electric always say is how environmental friendly it is. Have you considered what would happen to all the batteries? Doesn’t sound like a problem now but imagine all the cars in the world running on batteries. We already have recycling disaster with existing batteries we’re throwing away. Dell alone threw away 2 billion used lithium ion batteries in 2006 instead of recycling them because cost of recycling is much greater than making new ones. Lithium ion batteries are declared non-hazard material in landfill but are considered hazard in waters.
So government will have to mandate recycling of used batteries in electric vehicles which will increase the cost.

Sure… you’ll say recycling technology will improve in the future. It may, but until it is proven to be economically viable, it is sci-fi.

My original point was not necessarily about gasoline vs. electric but rather, that we can significantly reduce consumption of oil by purchasing compact vehicles instead of criticizing Detroit for building gas guzzlers because they didn’t force it down your throat. The people driving them chose to buy them. Detroit makes plenty fuel efficient compact vehicles too… and if you didn’t know, Toyota makes gas guzzlers as well. Current crisis in Detroit has nothing to do with fuel efficient vehicles. It’s financing issue.

I wrote a column on electric cars saying much the same as Brian. It received many comments, and can be seen here:
http://blogs.reuters.com/great-debate/20 08/12/18/electric-cars-will-not-cure-env ironmental-woes/

Posted by Diana Furchtgott-Roth | Report as abusive