Daily Archives: October 12, 2011
Infrastructure investment is a state responsibility
By Keith Yost
Last week, President Obama unveiled a $447 billion spending plan. Notice I say “spending plan,” rather than “stimulus plan” or “jobs plan,” because there is a difference. None of the plan’s components, which consist of roughly $250 billion in payroll tax cuts, $60 billion in unemployment insurance, and $140 billion to fund infrastructure (most of it going to a national infrastructure investment bank), can be considered significantly stimulative, and without stimulus, we’re unlikely to see many new jobs.
The plan’s unemployment benefits and tax cuts are largely extensions of existing measures — our economic situation would be much worse if the cuts and benefits were allowed to expire, but these half-measures are not going to push us out of our current, miserable trajectory. And the infrastructure bank promises very little spending in the short term; it’s not an institution tasked with finding shovel-ready, stimulative projects, even if such things existed. This is quite plainly a spending plan in which Obama has tied a pet project that he thinks deserves money (the infrastructure bank) to something that Republicans find fairly unobjectionable.
As a political matter, the future of the plan seems pretty straightforward: Republicans will strip out the infrastructure bits and pass the rest, judging (correctly) that the American public isn’t going to assign blame for the whole economy to the GOP just because they blocked one of Obama’s minor economic proposals. The president probably even prefers it this way because an actual infrastructure bank wouldn’t do much in the short term to help Obama keep his job, but the idea of an infrastructure bank could prove useful on the campaign trail.
That leaves just one question: who is right here? Is an infrastructure bank an idea whose time has come, or is it a dud?
At first glance, a national campaign to invest in infrastructure isn’t a bad proposition. The returns to investment on infrastructure aren’t very impressive, but with the government able to borrow money at two percent interest, and with labor and materials costs at extreme lows, it doesn’t take a very high return to justify infrastructure spending.
On deeper inspection however, a national infrastructure bank is a fatally flawed idea, for one simple reason: forcing the citizens of Texas to pay for a high speed rail line from San Diego to Sacramento is bad government. It invites corruption, pork barrel politics, and misallocation of our society’s resources.
The citizens of, say, Ohio are and will always be in a better position to decide whether it is worth the money to repair a bridge or school in their state. Offering to let them pay for their projects with someone else’s money is not going to lead to better decision-making— instead, it will lead states to cut their own infrastructure spending and turn their beggars cup to the federal government. It will incentive states to represent their infrastructure as worse than it actually is, and pretend that solutions are cheaper than they actually are. And because it isn’t their money at stake, states will have even less inclination than usual to make sure that the projects are managed correctly. The real key to a state’s economic success won’t be the wise decision-making of its leaders, it will be its ability to lobby the federal government for special treatment and trade favors with the party in power.
Perhaps in a few instances, investment in infrastructure at the national level makes sense. Air traffic control, or an interstate network make sense as matters for the national government to manage. But bridges, schools, high speed rail lines, and the vast majority of the projects Obama touts as within the purview of his national infrastructure campaign are best managed at the state or local level. It’s a conclusion so obvious that the idea of national control raises immediate suspicion. Does Obama plan to use the bank to bestow patronage on his supporters (particularly labor unions)? Or did he really manage to forget that state governments already have the power to levy taxes and make repairs?
Democratic activists are thrilled with Obama’s supposedly new “toughness.” But getting tough is only a good strategy if you’ve got an idea that’s actually worth fighting for. Two weeks from now, every leading Republican is going to have worked out the obvious counter-argument to a national infrastructure bank, and two weeks after that they’re going to have integrated the bank into their stump speeches as yet another example of intellectually bankrupt federal overreach.
- Is Obama’s National Infrastructure Bank the Answer on Jobs? (usnews.com)
- No national infrastructure investment bank (tech.mit.edu)
The conservative argument against President Obama’s policies got a boost from an unexpected place Monday: the Nobel Prize committee.
Thomas Sargent, who with Christopher Sims won this year’s Nobel Prize for economics, was rewarded for a body of work that demonstrates the folly of Obamanomics. While it’s not always easy to translate the words of Nobel-winning economists into terms that into the political debates of the day, Sargent spoke plainly enough in an interview last year with Art Rolnick of the Federal Reserve Bank of Minneapolis. (H/T: Ira Stoll at Reason’s Hit and Run blog.)
On taxes (from the interviewer’s summary of Sargent’s “rational expectations” work):
[P]olicymakers can’t manipulate the economy by systematically “tricking” people with policy surprises. Central banks, for example, can’t permanently lower unemployment by easing monetary policy…because people will (rationally) anticipate higher future inflation and will (strategically) insist on higher wages for their labor and higher interest rates for their capital.
“Tricking” is a good way to describe the desired effect of Obama’s policies: The idea behind his original “Making Work Pay” tax cut was that it would be so small that workers wouldn’t even notice the extra cash in their paychecks, and therefore wouldn’t be tempted to save it rather than spend it.
Along with Milton Friedman’s permanent income hypothesis, Sargent’s theory helps us understand why all tax cuts are not created equal: A temporary payroll tax cut provides little incentive for employers to hire, or for workers to spend more, when longer-term tax increases loom over the horizon. That’s why it’s absurd for Obama to talk about using such tax cuts to stimulate the economy, then talk about raising taxes a year or two from now, and then act surprised that job growth has been slow.
On the 2009 stimulus itself:
The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last 60 years of macroeconomic research.
But the most important thing Sargent might have said in the interview, given that long-term joblessness is arguably the biggest long-term economic problem America faces, had to do with social safety nets, particularly for unemployment benefits:
[W]hen people now become unemployed, they’re taking a more or less permanent hit to their level of human capital…. We have a theory that people build up human capital while they’re working on a job, but lose human capital when they’re displaced from a job. … Unemployment compensation systems typically award you compensation that’s linked to your earnings on your last job; those past earnings reflect your past human capital, not your current opportunities or current human capital. That can make collecting unemployment compensation at rates reflecting your past (and now obsolete) human capital more desirable than accepting a job whose earnings reflect a return on your current depreciated level of human capital. …
The prospect that concerns me might sound like I’m hardhearted, but that’s just the opposite of my feelings. What you’ve seen in the recent recession — and it’s quite natural because it’s been so severe — is a tendency of Congress to expand unemployment benefits, over and over again. What [our] theory tells us is that if, in the United States, we create a system where unemployment and disability benefits are permanently extended in their generosity and their duration, we will inadvertently put ourselves into the situation that much of Europe has suffered for three decades.
These extensions might be done, Sargent says, “out of the best of motives,” but they are still likely to have a perverse result. Now, not all of the long-term unemployed are refusing jobs available to them. But to the degree unemployment benefits encourage someone to stay out of work a little longer than necessary, hoping a better opportunity will come along, they are doing that person a disservice in the long run.
What’s more, they are delaying our coming to grips with the fact that the world has changed in ways that mean we won’t just pick back up where we left off. Sargent argues that the erosion of a worker’s skills has become worse during the last 30 years because of “various technological changes going under the umbrella name of ‘globalization.’ ” Like Obama’s stimulus spending, the continual extensions of unemployment benefits require an assumption that better times are on the way, and all that is needed is a government-provided bridge to close the gap between now and then.
If that assumption is wrong, however, and more structural economic changes are needed, government spending and benefits are not going to bridge that gap. They just might widen it.
– By Kyle Wingfield
- Americans Sargent, Sims share economics Nobel (boston.com)
- Thomas Sargent and Christopher Sims win Nobel economics prize (guardian.co.uk)
- Americans Sargent, Sims win Nobel economics prize (usatoday.com)
by Cliff Kincaid
Jumping on the anti-Wall Street media bandwagon, Josh Boak of Politico says Democratic Rep. Peter DeFazio’s measure to tax Wall Street has “newfound momentum.” The Soros-funded Think Progress blog quickly jumped on the report, saying the plan is being seriously considered on the Hill. There is only one problem: DeFazio hasn’t introduced any such bill in the current Congress.
Despite the hype from Politico, the issue is a real one. And the threat is not only a “Wall Street financial transactions tax” that could affect ordinary investors but a global tax to finance various international agencies and causes.
It’s just a “tiny tax,” say proponents, that has the support of billionaire Bill Gates and can generate $100 billion a year. A global tax on financial transactions could generate at least $700 billion a year from the U.S. and other “rich” countries.
One of the groups pushing the tax is National Nurses United, whose Massachusetts affiliate is already putting its political muscle behind radical Massachusetts Democratic Senate candidate Elizabeth Warren. Her speech to the Massachusetts Nurses Association convention was given in front of posters saying, “RNs say Heal America. Tax Wall Street.”
Warren just made big news by raising more money than some presidential candidates did in the last quarter.
Taking Obama’s class warfare rhetoric to a new level, Warren recently said, “There is nobody in this country who got rich on his own. Nobody! You built a factory out there? Good for you! But I want to be clear: You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You, uh, were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory and hire someone to protect against this because of the work the rest of us did.”
At this point, the Capitol Hill “Tax Wall Street” measure has yet to be introduced. Backers are apparently waiting for the “Occupy Wall Street” protests to build, with further help from the media.
“The Oregon Democrat has teamed up with Sen. Tom Harkin (D-IA) to introduce the measure—a sequel to their 2009 bill—before the November G-20 meeting in Cannes, France,” says Boak.
Boak says the DeFazio-Harkin proposal “fizzled two years ago” in the last Congress. The term “fizzled” is an understatement. The House version, H.R. 4191, only had 25 co-sponsors. The DeFazio bill was referred to the Committee on Ways and Means, the Committees on Rules, and the Budget Committee. But no action was taken on it.
Harkin’s Senate version, S. 2927, fared even worse. He had only three co-sponsors: Sherrod Brown (D-OH), Bernard Sanders (I-VT), and Sheldon Whitehouse (D-RI). It was referred to the Committee on Finance, which took no action.
A photo caption for the Politico story refers to Harkin being a sponsor of the bill which “probably” will be offered before the G-20 meeting in November.
So a bill that already had “momentum” may or not be introduced soon. What is going on here?
The Boak story has all the earmarks of a plant by the Institute for Policy Studies (IPS), a Marxist group pushing the tax. IPS held a seminar on the topic at the recent Take Back the American Dream conference in Washington, D.C. It was announced there that a nurses union would be staging a “D.C. action” on November 3 during the G-20 summit being held in France.
Indeed, this is the next phase of “Occupy Wall Street”—a carefully orchestrated attempt to make it seem like people all around the world are clamoring for a tax on Wall Street. Here, National Nurses United (NNU) is leading the charge and will hold its “major action” in front of the U.S. Treasury Department in Washington, D.C. on November 3.
The nurses will wear their nurses’ garb and hold signs proclaiming, “Heal America. Tax Wall Street.” NNU has created a “Protest in the USA” website to help organize the demonstrations.
The “momentum” for the not-yet-introduced proposal is the result of a far-left network that wants to use the current “Occupy Wall Street” protests to push and pass the tax, which could go global.
The effort cannot be dismissed. On the international level, a group called “Make Finance Work for the People and the Planet” boasts 1,000 signatures of economists on a petition for the “Robin Hood tax.”
The IPS released a report last year promoting the tax, noting how it could help pay for U.S. “global commitments around poverty, health and climate.” The report states, “If the U.S. is going to fulfill its commitments to the world’s poorest, it needs to contribute an additional $80 billion in revenues per year.”
Internationally, the campaign is being organized by Public Services International (PSI), with affiliates in Europe, Latin America, Asia, Africa and Arab countries.
U.S. affiliates of PSI, in addition to National Nurses United, are the American Federation of Government Employees, American Federation of State, County, and Municipal Employees (AFSCME), American Federation of Teachers, International Brotherhood of Teamsters, Service Employees International Union (SEIU), United Electrical, Radio and Machine Workers of America (UE), and the Utility Workers Union of America (UWUA).
A “global day of action” for the tax was already held on June 22 but received little attention here. Sympathetic media coverage of the “Occupy Wall Street” protests is sure to generate significant press attention for the November 3 protests.
The media are determined to create a “progressive” version of the Tea Party, even if the bill to tax Wall Street hasn’t been introduced yet. The actual introduction of the measure will be big news on the evening news programs.
After this is accomplished, critics of the “Occupy Wall Street” movement will no longer be able to say that the protesters have no concrete demands. Obama, at the G-20 event, will undoubtedly then “consider” the proposal, even perhaps say some more kind words about the protesters.
We saw this before. In my December 14, 2009, column, “The Secret Plan to Pass a Global Tax,” I noted that there was a push for the DeFazio-Harkin plan at that time.
The difference now is that the “Occupy Wall Street” protesters, assisted by Van Jones, Soros-funded progressives and labor unions, are mounting a major effort to get the measure passed and they have the support of the major media.
Even if they lose the battle in Congress, Obama will have revitalized his base.
By Michael J. Economides
Posted on Oct. 11, 2011
The January 2011 announced discovery of some of the largest offshore natural gas reservoirs in the world, 90 kilometers west of Haifa and not much further than that from Cyprus has created some understandable excitement among Cypriots. The potential for large hydrocarbon accumulations in the same Messinian geologic formation, underlain Cypriot economic zone waters, should now be considered as high possibility. Seismic evidence makes the Cypriot block, named Aphrodite, currently being drilled by Houston’s Noble Energy, to be at least as good and perhaps as much as 50% better than Israel’s Leviathan field. The latter has been confirmed as holding at least 17 Tcf of natural gas.
It is a dream of so many countries to find oil and gas deposits: easy riches the notion goes, a chance to even the field versus big and powerful nations. However, in spite of the occasional jubilation in some parts of the Cypriot and Greek press and thinly disguised wishful thinking by government officials and politicians a dose of reality is in order.
First, this is undeniably good news. The discovery in Israeli-controlled waters is a clear and positive sign. But what are often missed in the debate are two other important elements that turn the good news into not so good and even bad if countries are unprepared or inexperienced.
There is a big disparity between oil and gas in place in a geological structure and having those resources labeled as recoverable reserves. The latter implies technical and economic attractiveness. Hydrocarbons buried under 2,000 meters of water and then another 5,000 meter beneath the bottom of the sea are far more attractive when the price of oil approaches $150 per barrel as it was in July 2008.
Natural gas is even more cumbersome because it cannot be handled readily as oil can and, therefore, its exploitation is even more tenuous. To understand this issue one needs to realize that in the deep waters of the Gulf of Mexico and of more recently emerging offshore Brazil, while oil production has been prolific, virtually no natural gas deposits have been targeted. Gas associated with oil has been produced but in most cases it is used for re-injection to augment oil production and not for sales.
The second issue and one that is likely to prove challenging is that a pipeline from the area of discovery to e.g., Europe is highly unlikely because of the water depth and the underwater terrain. This means that the transportation of gas will have to employ conversion into liquid natural gas (LNG) and, in early time, perhaps compressed natural gas (CNG) transportation.
There is almost a sadistic irony that natural gas of the size being contemplated can be so close and yet so far if the right decisions and the right knowledge are not evident. The size of the resource would require tens of billions of euros. The cost will involve the field development with very expensive wells and facilities and, especially, if LNG will be deployed. In all cases it will take huge companies to do it. Nobody should have the fantasy that the state should or could do it.
There are also plenty of examples from afar to the neighborhood of the difficulty to match local resources with local needs. Trinidad in the Caribbean is a major source of LNG for the US but huge parts of the island have no access to gas. Egypt, a major new player in LNG is faced with increasing local discontent. Cairo and its almost 30 million inhabitants have no gas. If Cyprus wants to use natural gas for its electricity a very viable option would be to buy relatively cheap CNG from Israel.
Greece now gearing up for its own exploration program should take an intense interest in the Cypriot experience and learn from it. For Cyprus the tantalizing and difficult dilemma will emerge after all that gas is proven. The geopolitical re-alignment in Eastern Mediterranean will be a yet another issue and the subject of a forthcoming editorial
- Cyprus to Press Ahead with Offshore Drilling Despite Turkish Objection (mb50.wordpress.com)
- Turkey And Cyprus – Continued Scuffle Over Mediterranean Oil Rights (gcaptain.com)
- Turkish Ship Explores Off Southern Cyprus (online.wsj.com)