James Pethokoukis

Politics and policy from inside Washington

Drill, baby, drill — at least in some places

Mar 31, 2010 19:17 UTC

The new POTUS offshore drilling plan may be more aggravating for what it does not include (drilling in the Pacific, for instance) than pleasing for what it does. And as the Houston Chronicle points out:

But it is unlikely to win strong support from the fiercest drilling advocates in Congress and the energy industry, who have accused the administration of slow-walking conventional oil and gas production. They are expected to oppose many of the administration’s decisions — including the cancellation of planned lease sales in Alaska and potentially years-long waits before new drilling along the East Coast.

Me: And is it, along the WH nuke power plan, to make some version of cap-and-trade palatable? I don’t think it will be enough to get a comprehensive energy bill passed, Here is a bit from my RBV column today:

Even so, America will continue to be depend on imports to meet its vast energy needs. In the case of oil, nearly 60 percent of consumption is supplied internationally, including half from OPEC and a fifth from Canada. Similarly, Obama’s recent announcement of new loan guarantees for nuclear power plant construction is unlikely substantially change that sector’s share of the U.S. energy portfolio. But the White House hopes both efforts will help supply needed momentum to its energy and climate change agenda. Many Republicans and centrist Democrats favor an “all of the above” energy policy. Although a bill containing a nationwide cap-and–trade scheme for limiting carbon emissions passed the House, a parallel effort is dead in the Senate. Such caps are anathema to coal-state members of both parties.

COMMENT

More spin by Hussein. Puts this out there after the Public had been screaming for drilling all year, and he tried to sell Picken’s windmills and Gore’s Global Warming and knows all that stuff is decades away. Like his stimulus which he will claim is adding more jobs, he’ll take credit for the meager few Wells he will allow to be drilled. And speaking of seriously examining the sites for a year is another lie. The entire drilling map has been well documented for decades. Now with California bankrupt and sitting on top of capped oil wells, already dug , does he advocate taking off the caps and spreading the wealth ? When is America going to wise up to this fake ? The biggest scam to be hidden from the electorate , and one that would have made Barnham proud. There’s a Sucker born every minute “.. He never thought that America was a Nation of Suckers . But when he said it, America was full of Americans. Get ready, because Hussein is about to release an Amnesty bill that will unleash 30 million more illegals unto the ” Help Me ” rolls.

Posted by puckster101 | Report as abusive

Preventing the Great Stagnation

Mar 31, 2010 19:14 UTC

David Gitlitz, chief economist at High View Economics, has a thought or two about my “20-year bust” post:

Gordon is very good in his areas of expertise, but you’re right to point out that there’s nothing predetermined about this. Enacting full bore Obanomics would make even Gordon’s outlook look like a day at the beach. On the other hand, adopting a supply-side, free-market growth strategy would put in place the incentives to reinvigorate entrepreneurship and innovation and put us on track to restore at least the historical trend rate of productivity growth.

Me: Markets have a funny way of driving policy. A high-debt, high-tax, high-regulation economy would not be good for the dollar, bonds or stocks. And while we are on the topic, an interesting post from the great Larry Kudlow on where taxes are heading.

Obama and America’s 20-year bust

Mar 31, 2010 11:51 UTC

It is an alarming, jaw-dropping conclusion. The U.S. standard of living, says superstar Northwestern University economist Robert Gordon in a new paper, is about to experience its slowest growth “over any two-decade interval recorded since the inauguration of George Washington.” That’s right, get ready for twenty years of major-league economic suckage. It is an event that would change America’s material expectations, self-identity and political landscape.  Change in the worst way.

Now it’s not so much that the Great Recession will morph into the Long Recession. More like ease into the Great Stagnation. As Gordon calculates it, the economy will average only 2.4 percent annual real GDP growth over that span vs. 3 percent or so during the previous 20 years. On a per capita basis, the economy will grow at just a 1.5 percent average annual rate vs. 2.17 percent between 1929 and 2007.

That might not seem like much of a difference, but it really is. Over time, the power of compounding would create a huge growth gap measured in the trillions of dollars. To look at it another way, assume you had an annual salary of $100,000. If you received a 1.5 percent raise each year, you would be making $134,000 after 20 years, $153,000 after 40 years. But a 2.17 annual raise would boost your income to $153,000 after 20 years and $236,000 after 40 years.

For Gordon, the culprit is weaker productivity. Productivity, economists like to say, isn’t everything — but in the long run it is almost everything. A nation’s GDP growth is little more than a derivative of how many workers the nation has and how much they produce. And if Gordon  is correct, U.S. productivity is about to weaken. He forecasts that over the next two decades, the metric will grow at just a 1.7 percent annual rate. From 1996-2007, economy-wide productivity averaged just over 2 percent with GDP growing at 3.1 percent.

Gordon’s argument is simple: The productivity surge starting in the 1990s was driven primarily by the Internet, though drastic corporate cost-cutting in the early 2000s helped, too. Going forward, though, Gordon thinks the IT revolution will be marked by diminishing returns. He concludes, for instance, that most of the product innovations since 2000, like flat screen TVs and iPods, have been directed at consumer enjoyment rather than business productivity. (Also not helping are a more protectionist trade policy and a tax code where the penalties on savings and investment are about to skyrocket with rates soaring 60 percent on capital gains and 200 percent on dividends.)

All this dovetails nicely with research showing financial crises are followed by negative, long-term side-effects such as slow economic growth and higher interest rates. Lots of debt, too. Indeed, researchers Carmen Reinhart and Kenneth Rogoff find advanced economies with debt-to-GDP ratios above 90 percent grow more slowly than less-indebted ones. (Japan is the classic example.) America is on track to hit that level in 2020, according to the Congressional Budget Office.

But maybe Gordon is wrong. Productivity has been surprisingly robust during the downturn, helping the overall economy (though not the labor market) weather the storm better than most expected. Maybe nanotechnology or genetic engineering will be the next Internet and ignite further creative destruction. Yet even if Gordon is correct, Americans still control their own economic destiny.

Since the 2008 election, American economic policy has been about wealth preservation (keeping the economy from sliding into a depression) and wealth redistribution (healthcare reform.) Wealth creation? Not so much.  That needs to change. Washington needs to focus on growing the economy and competing with the rest of the G20 nations, including the other member of the G2, China. Every policy — from education to trade to the tax code — needs to be seen through that lens.

America faced a similar turning point a generation ago. During the Jimmy Carter years, the Malthusian, Limits to Growth crowd argued that natural-resource constraints meant Americans would have to lower their economic expectations and accept economic stagnation — or worse. Carter more or less accepted an end to American Exceptionalism, but the 1980 presidential election showed few of his countrymen did. They chose growth economics and the economy grew.

Now they face another choice. Preserve wealth, redistribute wealth or create wealth.  Hopefully, President Barack Obama will choose door #3. Investing more in basic research (not just healthcare) would be a start, as would slashing the corporate tax rate. A new consumption tax would be better for growth, but only if it replaced the current wage and investment income taxes. Real entitlement reform would help avoid the Reinhart-Rogoff scenario. The choices made during the next few years could the difference between America in Decline or the American (21st) Century.

COMMENT

This state of affairs are known to many Americans and in general public.
Because of economic slow down, no clear cut policy on major issues,last two years banks financial crisis, not much appreciated exports from America, more expenditure on Iraq/Afghans areas, some misconception on Mr.Obama!s new health care proposals made his downward rating on his policies,actions etc.,from Americans.
Mr.Obama wants to do more welfare measures to native Americans and to others as early as possible.
Those who attracts by his or speeches may be short lived.
America was in very pretty positions and enjoying their wealth for many centuries.
Now, other nations had started moving towards forward journey and getting favorable results from now and then.
If government wants to build more cash reserve, more expenditure on running and sustaining economic and social growth, creating more infrastructure, then, our college economics speaks in real terms.
There is no other ways, only to get more revenue by regulations, more and more exported industries formation,more productive work, increase their standard of income,then, some taxes to be levied and can be collected from many high,upper classes.
Still,some years to go and to find what happens on American soil by Mr.Obama and his team.
These findings may be a search type for any corrections and bring his ratings to upwards.,

Posted by mdspatsy | Report as abusive
  •