James Pethokoukis

Politics and policy from inside Washington

China is booming … unless it stops

Mar 4, 2011 16:42 UTC

If you are looking for something to worry about (via the WSJ), here you go:

wsj

COMMENT

So, it comes Jasmine Revolution.

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Obama vs. Reagan, 20 months in

Mar 4, 2011 16:34 UTC

Great context from the Heritage Foundation:

Since the Obama recovery began 20 months ago, the national unemployment rate has fallen only half a point, from 9.4 percent in July 2009 to 8.9 percent today. Contrast those anemic results with the robust job growth that occurred during the Reagan recovery in the ’80s. By the 20-month mark of the Reagan recovery, unemployment had dropped from 10.8 percent to 7.5 percent – a 3.3-point drop.

So why was the Reagan recovery so strong and why is the Obama recovery so weak? Just look at the best job markets in 2010 according to Gallup: “More than half of the 10 best job markets in 2010 were in energy- and commodity-producing states.” And what has President Obama done to help this job growth spread? Nothing. In fact, his cancellation of drilling permits across the West and his offshore drilling slowdown have undoubtedly slowed job creation in this sector. So what have been the hot job markets in the Obama Recovery? Gallup explains: “Reflecting the growth of the federal government, the District of Columbia was not only the second-best job market but also the second-most improved job market in 2010.” The Department of Labor Statistics confirms Gallup’s analysis: Since President Barack Obama was sworn into office, the private sector workforce has shrunk by 2.6 percent while shedding 2.9 million jobs, but the federal workforce (excluding Census and Postal workers) has grown by 7 percent while adding more than 144,000 jobs.

COMMENT

Infiltrator: Canada’s current Federal corporate tax rate is 16.5%, and is slated to fall to 15% in a year’s time. That isn’t ‘false’ information. Provincial corporate taxes add another 10-15% for a final tax rate of 26.5% to around 32%. The feds are pushing the provinces to lower their corporate rate to a uniform 10%, which would ultimately see Canada’s tax rate at 25% tops. America’s is currently around 40% and yes, I know about deductions &c which lower this rate. The same deductions are available here too so that’s a red herring.

Perhaps Corporate America won’t come stampeding into Canada but, at the margin, a lot of investment has likely come here due to the more welcoming tax environment.

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Some scary numbers about U.S. education

Mar 4, 2011 16:13 UTC

Some devastating factoids on U.S. education from the good folks over at Reason (I have gleaned some numbers from an article well worth reading in whole):

1. According to Department of Education statistics, in 2007-2008 (the latest year available), full-time public school teachers across the country made an average of $53,230 in “total school-year and summer earned income.” That compares favorably to the $39,690 that private school teachers pulled down.

2. According to EducationNext, government employer contribute the equivalent of 14.6 percent of salary to retirement benefits for public school teachers. That compares to 10.4 for private-sector professionals.

3. In 1960-61, public schools spent $2,769 per student, a figure that now totals over $10,000 in real, inflation-adjusted dollars.

4. In 1960, the student-teacher ratio in public schools was 25.8; it’s now at a historic low of 15.

5. In 2007, the percentage of parents with children in assigned public schools who were “very satisfied” with the institution was 52 percent. For parents whose children attended public schools of choice, that figure rose to 62 percent. Parents sending their children to private schools, whether religious or non-sectarian, were “very satisfied” 79 percent of the time.

6.  Despite all the extra resources devoted to public school teachers and students, student achievement has been absolutely flat over the past 40 years.

None of this should be surprising given the lack of productivity and efficiency inherent in government monopolies. As the New America Foundation notes:

The U.S. ranked 68th (out of 139 countries) in terms of wastefulness of government spending in the 2010-11 World Economic Forum report on global competitiveness. Experts put our public-sector productivity about 10 years behind that of the rest of our workforce. If public workers could halve that gap, the annual savings would ring in at $100 billion to $300 billion, according to a new study by the McKinsey Global Institute. That would mean the equivalent of a recurring stimulus package every three to eight years.

Debt ceiling battle could shake markets

Mar 4, 2011 15:53 UTC

“To attract any Republican votes to a debt ceiling increase, you’re going to have to come up with some serious spending reductions and some budget process reforms. There is going to have to be a significant incentive.”

That is from my chat yesterday with Senator John Thune.  Now I think it is even more evident that getting a 2011 budget will be easier than increasing the debt ceiling to pay for it. I will add, however, that I think it is smart to try and use whatever leverage is out there to gain more spending cuts and budgetary reforms.

1. But right now the two issues are on separate tracks — and it looks likely that it will stay that way. The GOP-controlled House, with its complement of small-government Tea Party members, has already passed a bill that would cut domestic spending by $61 billion this year. Such a reduction would slash discretionary programs — everything other than defense and mandatory social spending — by an average of 25 percent. The Senate, run by Democrats, prefers to keep such spending flat.

2. Democrats may have the president in their camp, but more of them face re-election campaigns in 2012 than their Republican opposite numbers. Although another short-term fix is possible, after the give-and-take of a final deal to fund the government could include cuts of around $30 billion.

3. But Republican sources say there’s a long way to go before finding common ground, even within their party, on raising the debt ceiling. Adding to the uncertainty are new polls showing the American public unwilling to accept significant cuts in Social Security and the like. Another variable is a bipartisan group currently conducting closed-door talks to fashion a 10-year “grand compromise” on the budget. Their plan could emerge smack in the middle of the debt ceiling debate.

Bottom line: The path to avoid a debt default remains murky, though both sides know it would be a disaster.

COMMENT

Anyone who thinks Science isn’t political hasn’t heard of research grants and the military-industrial complex. Science gets hugely political. And trashing liberals as part of your statement makes it even less valid, sir.

==RED

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The New Underclass and Barack Obama

Mar 4, 2011 15:47 UTC

Drilling a bit deeper and moving beyond the 8.9 percent unemployment rate and 192,000 jobs created, here is what I found:

  1. The U.S. labor force remains as small as it has been in a generation
  2. More than 5 million Americans have disappeared from the job rolls
  3. If the labor force was currently at 2007 levels, the unemployment rate would be a whopping 12 percent – the worst since the Great Depression.

As it is, the broader unemployment rate, which includes those who are underemployed and discouraged workers, is still an agonizing 15.9 percent. What’s more, the Federal Reserve believes that the high number of people out of work for 27 weeks or longer is creating structural unemployment. (The longer you are out of work, the harder it is to get that next job.) No wonder the Fed now believes the economy’s natural rate of unemployment has increased from a bit under 5 percent to a bit more than 7 percent.

In short, you may have a much larger pool of the long-term unemployed than is historically typical in America, something more akin of what is seen in Old Europe.

This is why it is critical to deal comprehensively with the Axis of Economic Evil: Big deficits, high taxes and onerous regulation. America must get more competitive and productive. I find the below chart from McKinsey particularly scary since it shows how much job growth is happening in unproductive areas of the US economy.

product

COMMENT

What a load of crap…. The problem isnt the corp tax rate ninny. They dont pay as much as they do elsewhere. When the president agreed to lower the corp tax rate and eliminate the loopholes boy did you right wing nuts go silent. I guess you havent heard how well lowering the corp tax rate worked in Ireland. The fact is we have been not only allowing our manufacturing to be shipped overseas to slave labor countries without any regard for their own environment (go run a mile in bejing and breathe in heavy) we have provided tax breaks for them to do so. China doesn’t make products, our companies are making products in china. And now the latest blame on the right is with education as well.. Their answer? Cutbacks to education. How do these people sleep at night.

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5+ questions for … Sen. John Thune

Mar 3, 2011 20:52 UTC

Sen. John Thune isn’t running for president (at least this time around), choosing instead to fight big, wasteful government from his outpost on Capitol Hill.

He’s just reintroduced a sweeping budget reform bill that would make it easier to cut discretionary spending and bring some honest accounting for so-called entitlements. I chatted with the South Dakota Republican earlier today about his bill and the current budget debate. Some excerpts:

First, will the Senate come close to matching the 2011 budget cuts passed by the House?

I hope we can, but it’s really hard to handicap that one because the Democrats haven’t put anything out yet and the president has gone radio silent. I think what Democrats may do is come up with something along the lines of the president’s [discretionary spending] freeze proposal and maybe start there. But I think the Republican House level was reasonable and something we should try to get to in the Senate.

How about raising the debt ceiling?

To attract any Republican votes to a debt ceiling increase, you’re going to have to come up with some serious spending reductions and some budget process reforms. There is going to have to be a significant incentive.

How would the budget process be different under your proposal? Would it have affected the passage of healthcare reform?

It would make it more difficult to abuse the emergency designation which is how a lot of spending has been put through the last couple years. They just waive pay-go and declare an emergency. There’s a lot of abuse of the rules we have today. Clearly what we’ve been doing doesn’t work. We’ve only had four years in the past 34 when all the appropriations bills have been passed on time.

[Regarding healthcare], what we do is prevent the double counting of trust fund revenues, which is how they were able to fund [the plan]. [Democrats] were able to say they were extending the lifespan of Medicare at the same time they were using Medicare payroll tax increases and spending reductions to finance their new entitlement program. So it would have dramatically changed that debate and forced them to come up with real revenue sources instead of the phony revenue sources they used.

Reuters has lots of readers outside the country who must look at this process and think it insane.

The budget process really is a national embarrassment. I was a staffer out here back in the mid-1980s and even at that time I looked at [the budget process] and thought it made no sense whatsoever. You can get through an entire year with a $3.7 trillion enterprise called the federal government and not pass a budget. And there is a pileup with trying to get through 12 appropriations bills every single year. You don’t have any oversight to make sure the money is spent wisely and well. So going to a two-year, biennial budget would help address that.

And right now the budget process actually makes it easier to spend more than to spend less, right?

There is a forward momentum to spend more. When we passed this two-week [continuing resolution] to cut spending by $4 billion, it may be the first time we actually cut spending. [My proposal] requires every budget cycle that Congress actually ratchet spending down. For the first time, [the budget process] would put a straightjacket on Congress and force it to make some of these decisions.

The final nail in the coffin for tax increases

Mar 2, 2011 17:32 UTC

AFGHANISTAN/

OK, so the U.S. government’s auditor has found duplication and overlap that may be wasting $100 billion or more a year, according to the Republican senator who commissioned the study. How can anyone argue for higher taxes as long as Washington is so inefficient? A few points:

1) I mean, no one should expect the feds to be as Six Sigma efficient as FedEx or Wal-Mart. Government doesn’t have the financial discipline from the profit motive. Its priorities are to “insure domestic tranquility” and “secure the blessings of liberty,” as the introduction to America’s 1787 prospectus puts it.

2) But the audit from the GAO gives a feel for the yawning chasm between Washington and those models of corporate efficiency. For instance, the auditor found 82 separate federal programs to improve teacher quality ($4 billion a year), and 20 distinct programs to deal with homelessness ($2.9 billion a year). The GAO also found plenty of waste in the $700 billion military budget, which should open the eyes of Republicans shielding it from the ax. Realistically, the Army and Marine Corp don’t really need to develop separate versions of “mine rollers” to counter roadside explosives.

3) Streamlining redundant programs would be a solid start toward fiscal soundness. A next step might be to downsize the federal civilian workforce, which has so far been spared the cuts seen in the private sector. Trimming the federal headcount by 15 percent — some of which might potentially be done by not replacing retirees — would save nearly $300 billion over the next decade, according to the Congressional Budget Office.

Bottom line: Promised federal pension and healthcare benefits will eventually need to be scaled back. And, in exchange, some taxes might need to rise to spare some Democrat-supported spending. But these big-ticket items are tough to sell with polls showing public trust in the government at its weakest in a half century. Reports like the GAO’s latest won’t help.

Thriftier and more competent government might only save relatively few bucks today, but it would help create the public confidence needed for more radical action tomorrow.

Photo: U.S. Marine Corps prepares a mine roller system for a mission in southern Afghanistan. REUTERS/Shamil Zhumatov

COMMENT

srt

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Why a Mitt Romney-Paul Ryan ticket seems unlikely

Mar 2, 2011 17:22 UTC

USA-BUDGET/At a reporters breakfast meeting with Rep. Paul Ryan today, Ryan spoke mostly about the budget. (He says the GOP version will deal with entitlements.)

He veered into some 2012 territory, too. Ryan repeated that he will not run for president next year, but added that he didn’t think it served the party well to merely nominate the “next person in line.” Most analysts would say that person was Mitt Romney. That does not mean Ryan opposes Romney. Ryan might think Romney would be a fine candidate — but should not get the gig just because he arguably was the 2008 runner up.

But then again Ryan made a few cracks about Romney’s signature public policy achievement, healthcare reform in Massachusetts. He said it was  not “dissimilar” from Obamacare and was heading into a financial “death spiral.” Ouch.

If Romney were to win the nomination and pick Ryan, you could end up with a weird situation where Obama and Romney would support the Massachusetts plan, with Ryan opposing. Politics is a strange business, but I don’t see how that one would work. Then again, finding conservatives who like Romneycare isn’t easy. So where would Team Mitt find its veep?

Photo: U.S. House Budget Committee Chairman Paul Ryan (R-WI). REUTERS/Jason Reed

Why a top CEO rejects “pro-business” Obama

Mar 1, 2011 16:02 UTC

George Buckley, the boss at manufacturing conglomerate 3M, apparently didn’t get the memo about Obama 3.0 (vs. Campaign Obama and New New Deal Obama) being a “pro-business” president.

This new incarnation, the White House tell us, is evidenced by a) the  hiring of lobbyist/rainmaker Bill Daley as Obama’s chief of staff,  b) bringing in GE boss Jeff Immelt to run his new competitiveness council, and c) temporarily abandoning plans to raise income taxes on small business and entrepreneurs.

But Buckley is having none of it, telling the Financial Times that “we know what [Obama’s} instincts are — they are Robin Hood-esque.  He is anti-business. …  Politicians forget that business has choice. We’re not indentured servants and we will do business where it’s good and friendly. If it’s hostile, incrementally, things will slip away. We’ve got a real choice between manufacturing in Canada and Mexico — which tend to be pro-business — or America.”

Buckley has good reason to wonder aloud about Obama’s pre-election year conversion from nemesis to friend of Corporate America. He surely sees Team Obama failing to make obvious moves to boost U.S. global economic competitiveness. The president still supports the new healthcare and financial reform laws. The president still wants to raise taxes. And the president gave the stiff-arm to his own debt panel. So there you have it, the axis of economic evil – taxes, regulation and government spending.

Now America’s best days may lie ahead, as Warren Buffett suggests in his latest letter to Berkshire Hathaway shareholders. But the United States is becoming a less attractive place for multinationals, like 3M, to do business.

In her recent business analysis of “USA Inc.,” technology analyst Mary Meeker of Kleiner Perkins compared America to 20 competitors on a variety of metrics for economic fundamentals, business climate, human capital and infrastructure. Of the 29 attributes, the United States, relative to other countries, improved on none since 2000, stayed the same on nine and deteriorated on 20 including worker quality, taxes, and transportation.

Of course, America isn’t exactly Chad, which is last on the World Bank’s rankings for ease of doing business. Or even China, which can be found way down at number 79. Uncle Sam is an encouraging fifth, though the institution does identify trouble spots such as a creaky and inefficient tax system. Reducing tax complexity and lowering rates, especially for multinationals, would help address that.

The U.S. must also do a better job at attracting and keeping high-skill immigrants. The current visa cap is far too low for tech industry needs. Indeed, a 2010 Federal Reserve study shows such immigrants boosts native worker productivity and income. (Of course, there might be less need if the union-run education system was doing a better job.) America must also continue to reform healthcare to both reduce some $60 trillion in future unfunded liabilities and provide regulatory certainty for business big and small.

All that, not better messaging, is what’s needed to make America the world’s premier location to start and run a business.

COMMENT

SukieTawdry — It has been a common talking point on the right that Canada’s federal tax rate is 15%. But those who want you to believe this are neglecting to add the Provinicial tax rates, which raise Canada’s total corporate tax rate to 34%, which is roughly equal to that of the United States.
The taxes include the cost of Canada’s national health plan, which costs American business billions more.
As to the other “burdens” of paid vacation, maternity leave, social security, pensions, day care, etc, Canadian business all pay more and offer more than American businesses do.
And while wer’re at it, HOW DARE those little worker bees take a paid vacation, ask for a little time off to have a baby, or expect to retire in any sort of comfort! Back to work, you freeloaders!

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