Continued References to Economic Recovery Are Weird

Fewer Americans were employed in December 2013 than were employed in either December 2006 or December 2007.  The percentage of non-institutionalized adults employed both in December 2012 and December 2013 was far lower than in December 2006 and December 2007.

 Over and over we hear that the economy is recovering, albeit slowly.  We have heard this throughout 2012 and 2013.  But note that the percentage of working age Americans employed in December 2011, 2012, and 2013 has been stuck at 58.6%.  This is 4.8% below the employment percentage of December 2006, which was just before the sudden cost of oil increase in early 2007 and before the subsequent financial crisis in 2008.

This is an incredible degree of employment stagnation.  Yes, 58.6% is above the low 58.2% of December 2009, but the 0.4% increase relative to that low point is only a fraction of the total December 2009 loss relative to December 2006 of 0.4% / 5.2% = 0.077.  In other words, for all intents and purposes, from 2009 through 2013 the employment situation has been essentially unchanged and awful.

We need to have 11.843 million more jobs to have the same percentage employment we had in December 2006.  Because of the big government policies of George W. Bush prior to Obama, that December 2006 employment percentage was already lower than it had been in December 1999.  Our jobs stagnation problem actually began at the start of this century.

Apparently a government jobs program, consisting of

• bailouts, 
• stimulus programs, 
• Food Stamp increases,
• Social Security Disability increases,
• Extended Unemployment Benefits, 
• ObamaCare, 
• Dodd-Frank and other financial regulations,
• Tax increases,
• Increased fossil fuel sourced energy costs (recently moderated by shale oil and gas increased production on private lands, while extensive federal land and off-shore oil and gas were denied development), and
• Subsidized so-called green energy,

has not been very effective in increasing employment.

But then a program to take people out of the private sector workforce, to transfer money from the private sector to the government sector, and to limit the options of the private sector's entrepreneurs and consumers could have no other outcome.  It is not as though this sort of program has not been tried before and been found to fail disastrously.  But those who believe in the efficacy of big government will not learn from history.

As a result, we have had at least 5 years of a jobs depression.  Given Obama's wrongheadedness and pigheadedness, we are likely to see this continue for at least another 4 years.  Four years being 3 more years of Obama and one year for a more rational and less abusive President to return control of the economy to the private sector.

Obama's Glass House: His Investments Abroad

Obama and Biden like to claim that Bain Capital had the companies it invested in make investments abroad, especially in China or Mexico.  It turns out that they count heavily on the main stream leftist media to protect their glass house from stone throwers.

Thanks to Obama's insistence that the government take a big stake in the bankrupt GM after its restructuring as a government and union owned company, it is fully fair to look at its investments abroad if one is going to cast aspersions on those of Bain Capital abroad.

According to China Daily, GM is expanding its investment in China from its current $1 billion a year to $1.5 billion a year to make a total investment in China's 12th Five-Year Plan (2011-2015) of $7 billion.  GM hopes to increase its sales in China from 2.35 million vehicles in 2010 to 5 million by 2015.  To do this, it is designing and developing new models in China.  GM production plants in China are joint ventures with the Chinese Communist Government.

GM announced in 2011 the investment of $540 million in a plant in Mexico to make engines.  In July of this year, it announced the planned investment of $420 million in two factories to make the Chevrolet Trax and full-sized trucks.

How about Obama's promise to create American jobs of the future in green energy?  This effort was promoted by Section 48C Advanced Energy Manufacturing Tax Credits.  41% of its awards went to foreign-based companies who were awarded an average of $20 million compared to an average of $11 million for U.S.-based companies!  17 of the 25 foreign-based companies receiving Obama awards are or have plans to set up wind or solar manufacturing facilities in low-wage countries.  Those 17 foreign-based companies manufacturing in low-wage countries accounted for $406 million, so a super premium award averaging $23.9 million goes to those manufacturing in low-wage countries.  Six of the U.S.-based companies with awards are also planning to manufacture their products in low-wage countries.

As almost everyone now knows, Obama only picks the loser green energy companies for awards.  As these companies have gone bankrupt, their assets are often picked up on the cheap by foreign investors or companies.

Miasole, a U.S. solar energy company, received $101.8 million in tax credits.  In October 2012, it was sold to China's Hanergy Holding Company for a mere $30 million.

Ener1 was approved for $118.5 million of 48C tax credits in 2009 for its batteries.  Biden toured its plant in Indiana just after Obama announced his plan to have 1 million electric vehicles operating by 2015.  In January 2011, the same month as the Biden tour, Ener1 entered into a joint venture with Wanxiang Electric Vehicle Co. to make lithium-ion batteries for Chinese cars.  Ener1 moved some of its engineers to China along with some of its manufacturing equipment to ramp up the Chinese production.  In 2010, Ener1 lost $165 million.  In January 2012, Ener1 declared bankruptcy.  Its remains were bought by a Russian businessman with close ties to the Russian President Dmitry Medvedev, who Obama patted on the knee and told he would be more flexible after the election.  Perhaps in addition to giving the Russians what they want on missile defense, he also plans to give them more American green energy businesses nurtured on 48C tax credits.

Smith Electric Vehicles was awarded $32 million of American Recovery and Reinvestment Act money.  Its losses since 2009 have been $128 million.  In February 2011, it teamed with Wanxiang Electric Vehicle Co. to make school buses.  Their agreement had Wanxiang make a $25 million equity investment in Smith Electric Vehicles and an investment of $75 million to develop and manufacture school buses and other electric vehicles in China.

Cardinal Fastener received $480,000 from Obama's 48C tax credit program to make fasteners for wind energy generators.  Obama visited their factory in Bedford Heights, Ohio and promised American green energy jobs, as he always does.  Soon afterward, Cardinal Fastener released 12% of its workforce.  In June 2011, it filed for Chapter 11 bankruptcy.  Germany's Wurth Group acquired it in January 2012 for a mere $3.9 million.

Remembering Obama's not so ready shovel-ready infrastructure projects, some wound up being  managed and supplied by foreign companies.  ABC News highlighted a $400 million bridge renovation project in New York, the new $7.2 billion Bay Bridge from San Francisco to Oakland, and a $190 million project in Alaska which were to be managed by foreign firms.  Parts of the San Francisco - Oakland bridge were manufactured in China.  The state of California had to reject some of the federal money so they could keep their Chinese contractor.

Finally, if you want to encourage American companies to invest in plants and facilities abroad and to train workers there rather than in the U.S., leave the developed world's highest corporate tax rate where it is as the trend in the rest of the developed world is to decrease corporation taxes.  You can export even more jobs by raising the long-term capital gains tax from an already high 20.0% to 23.8% as required by ObamaUncaringTax in 2013.  Add a 4.7% tax increase for Medicare to high paid managers so small and medium businesses will be discouraged from expanding operations in the U.S.  Follow this up with another 80,000 pages of new business regulations and add the regulations of ObamaCare and Dodd-Frank Too-Big-to-Fail to that.  Then throw in a slew of EPA rulings to take effect after the election, several of which are designed to keep us from using coal for anything, thus driving up our electricity costs and making vital electricity less dependable.  Export American jobs so they can use cheap coal-fired power plants abroad.

To top this all off, the gift for a 10-year veteran of the Obama Veterans Administration is a pen set made in China.

Obama's complaints about Bain Capital foreign investments are a case of incredible hypocrisy.  Obama is a con man, but how he can even dream that this level of hypocrisy will go undetected by Americans is beyond me.  Or maybe not.  He does think we are incredibly, stone-like stupid.  For that reason alone, we should vote him out of office.

An outline of my approach to reviving the economy

In mentioning that the Obama economy made it much more difficult for small businesses such as my materials analysis laboratory to continue to operate, a scientist with whom I had been corresponding about his analytical needs claimed that no one could do the job of reviving the economy better than Obama.  He then asked what I would do.  Here is my 13-point reply with minor embellishments:


1)  Kill ObamaUncaringTax, too nicely called ObamaCare.

2)  Kill the Dodd-Frank Too-Big-to-Fail Act which is stultifying the loan markets and setting up the next colossal financial bubble.

3)  Enforce the work requirement on government charity programs and begin rapidly phasing them out.  The private sector can pick up whatever programs it wants to.

4)  Stop the EPA's vendetta against the use of coal.  The mercury and other pollution arguments are greatly exaggerated and really mostly an excuse to act on the failed hypothesis that man's CO2 emissions are causing a catastrophic global warming.

5)  Recognizing that the catastrophic man-made global warming hypothesis is wrong, stop discouraging other fossil fuel use and freely allow the development of new sources of oil and gas. Open up leases on federal land and offshore for development.  End federal subsidies and mandates for green energy development. 

6) Kill the federal CAFE requirement for 54.5 mpg by 2025 or any other date.

7)  Authorize the building of the Keystone XL pipeline so the Gulf of Mexico refineries are fed plenty of Bakken shale oil and Albertan tar sands oil.

8)  Increase the retirement age for Social Security and the coverage age for Medicare.

9)  Eliminate the Dept. of Education, the Dept. of Energy, the Dept. of Housing and Urban Development, the Labor Dept., most of the functions of the Dept. of Health and Human Services, the Agriculture Dept., reduce the Dept. of the Interior, eliminate the Transportation Dept., and reduce the Dept. of Homeland Security.  Fold the legitimate functions of the Labor, Agriculture, and Transportation Departments into the Commerce Dept.  Eliminate corporate welfare programs in the Commerce Dept., as well as the labor union welfare programs now in the Labor Dept.  Kill the Davis-Bacon Act and federal requirements that union wages be paid on federal contracts.

10)  Convert the Medicare program into a defined benefits program so that Medicare patients care about how much they spend and will not allow overcharging.  All government fraud, waste, and abuse programs are a pretense and are only used selectively to occasionally prosecute someone who is not playing the game to the liking of the powers that be in government.

11)  Sell most of the federal lands with mineral rights and use payments to pay down the debt.  The main purpose of this is to see that the land will be used more productively.

12)  Convert the Social Security program over time from a Ponzi scheme to a tax-deferred personal investment program with the investment truly held by the investing individual.

13) Reduce tax revenues as drastic spending cuts are enacted and simplify the tax laws and codes.  Preferably move to consumption taxes as opposed to taxes that inhibit production.  Consumption taxes will eliminate almost all reporting of financial information to the government.  Eliminate Sarbanes-Oxley.  Government spending will be quickly reduced to 18% or less of GDP and then cuts will continue until it is no more than 10% of GDP.  The economy will grow by leaps and bounds as the cost of government is kept growing somewhere between the rate of population increase and the rate of GDP increase, but definitely significantly less than the rate of GDP increase.

That is the gist of my program to transform the American economy consistent with the American Principle of government limited to the protection of our equal, sovereign individual rights to life, liberty, property, the ownership of our minds, bodies, and labor, and the pursuit of happiness.  The key to the preservation of our rights is a rich and vibrant private sector where we are free to pursue our own values, to trade goods, services, and ideas, and to associate with others of our choice for the purposes of our choice.

There are many other reforms needed to fully protect all of the rights of the individual.  Some of these will have major economic implications as well.  For instance, all education should become private education.  It is not the business of the government to educate the people, since that would be an infringement of the rights of many and government has a very serious conflict-of-interest problem with respect to teaching about its legitimate functions, about ethical matters that must enter into issues affecting the freedom of conscience of the People, and about the history of failure of big government and the success of highly limited government.  Much more needs to be done to protect privacy, the freedom of movement, freedom of speech and the written word whether in press or on the Internet, freedom of assembly, freedom of association, freedom of contract, freedom of trade and the ownership of one's own labor and its fruits, the freedom to create a domestic partnership contract with any consenting adults of one's choice, and the freedom of property ownership, including that in one's mind and body.

Actions Speak Louder than Words: Obama Hates Small Business

For each of the last five months, the National Federation of Independent Businesses (NFIB) has found that the business optimism of small business owners has fallen.  With First Quarter 2011 GDP growth dropped to 0.4% and Second Quarter GDP growth presently said to be 1.3%, some earlier optimism that this never-ending Great Socialist Recession was showing some signs of recovery has vanished.  Indeed, it is not even clear that if price inflation were taken into account properly that the so-called growth of the first two quarters of this year was not really a contraction of the economy.  We may very well actually have had the second dip of this recession already.  The Manufacturing Index has also been very disappointing.  Real estate values show no sign of recovery and consumer spending is still limping along.

Every time Obama and the Democrats push to provide extended unemployment benefits to the unemployed, the states have to continue using much higher than normal unemployment tax rates on the employees of businesses.  My company's rate in 2010 and 2011 is 7.33 times higher than it was 2008, despite our never having let an employee go who was eligible to collect unemployment insurance benefits.  This is not an incentive to small businesses to hire more employees and makes it harder to keep the employees they have.  Being forced to let a good employee go is definitely an optimism killer when you are running a small business.

Small businesses are also hit by the increased costs and bureaucracy they will have to expect with ObamaCare.  The Dodd-Frank financial industry reform bill has especially cut them off from the big lenders with assets in excess of $100 billion.  The increased regulatory burdens imposed by Obama's EPA, FDA, FTC, DOD, FDIC, Consumer Protection Agency, the NLRB, and the restrictions on oil and gas drilling have been hardest on small businesses who cannot afford legions of lawyers to deal with the government bureaucracy.  When the FDA or DOD require a business to become ISO-certified as proof of quality controls, that cost is proportionally much greater on a small business than on a larger business.  This is a very real discrimination against small businesses and often has only cosmetic effects on real quality controls since the business owner and upper management in a small firm are much more likely to be on top of quality issues than the corresponding management is in a big business.  New FDA oversight of small food retailers and producers is another major cost escalator for many small businesses.  Since few people were dying of food poisoning, there is no significant benefit to this new Obama cost.

Falling demand has been the biggest problem for small businesses which are less likely to participate heavily in the export markets as the large multinational companies do.  There are better opportunities for profits and sales abroad in many areas than here in the U.S., thanks to the Obama administration economy-wrecking policies.  Small business owners are also very worried about the uncertainties caused by excessive government spending and the rapid increase in the national debt.  The more spending government does, the more it interferes with business activity.  Since 2001, the GDP has grown by 46%, but the national debt has grown by 146%!  The Federal Reserve bought about three-quarters of U.S. Treasury Bonds in 2009 and 2010, thereby increasing its balance sheet from $896 billion in August 2007 at the start of the housing bubble collapse to $2.9 trillion now.  This is clearly not sustainable, yet there is no end in sight to this method of "covering" the absurd spending of the government.  The excessive spending and debt both cause pressure of increased taxes or inflation in the near future.  Business taxes are already much too high.

While only about 8% of small businesses name access to credit as their primary problem in NFIB surveys, it is clear that the credit needs of many small businesses are not being met.  Interest rates were increased on many lines of credit, business loans, and business credit cards.  40% of small businesses attempting to borrow in 2009 were able to meet their credit needs, 10% had most of their needs met, 21% had some, and 23% had none of their credit needs met.  With the gathering worries of satisfying the Dodd-Frank finance reform bill, this situation is becoming worse as this recession drags on and on and on.  Small businesses commonly do not have the resources to last through multiple years of recession.  Banks are especially refusing to lend money to fill in cash flow problems.

Small business owners generally own real estate.  In the NFIB 2009 study, 95% had real estate.  The fact that most real estate has lost considerable value has deprived many small business owners of the collateral they would commonly use to secure credit.  13% of small business owners had at least one property worth less than what they owed on it.  The loss of property values has left many small businesses much more vulnerable.

Into this sorry picture of woes for small businesses, the Obama administration FDIC has been squeezing banks to loan less money to small businesses, which it regards as less credit worthy as a group.  On that they may be right, but as is the rule with government, the assessment is a one-size-fits-all assessment.  Main Street Bank of Kingwood, Texas specializes in small business loans.  Main Street Bank has a $175 million loan portfolio and 90% of it goes to small businesses.  Most of these businesses have annual revenue less than $1 million.  The average loan size is $100,000.  Main Street had a profit of $1 million in the Second Quarter and wrote off 1.25% of its loans as bad.  The failure rate of loans in the FDIC insured banks in the First Quarter was 1.82%.  The FDIC has not released the bad loan rate for the Second Quarter yet.  Government is slow.

Despite the success of Main Street Bank in its small business loan strategy, the FDIC slapped it in July 2010 with an order to increase its capital and reduce the proportion of its small business loans from 90% to 25%.  The bank was also ordered to hire another bank executive.  It had to sell a business and shrink its loan portfolio to meet the increased capitalization requirement.  This increase in capitalization was a large one, from 9.5% in June 2010 to 17.3% in June 2011.  As a result of this FDIC interference in their business, Main Street Bank is working hard to turn in its bank charter.  A new company is being set up, Ascentium Capital, which will have backing from a private group of investors and will no longer take customer deposits.  This business will not be regulated and will be able to continue to specialize in small business loans.  They plan to increase the loan portfolio to $500 million.

The reduction from 90% of Main Street Bank loans to 25% for small businesses, removed $114 million of small business credit from the market.  Now imagine this kind of thing happening all over the country as the FDIC goes from bank to bank and prescribes lowered small business loan exposure.  The impact on small business credit will be huge.  This is very important, because a large fraction of American workers are employed by small firms and much innovation occurs in these companies.  A lack of access to credit during an extended recession makes these myriad small businesses more likely to fail.  The Obama administration policy is clearly to subsidize and bailout big businesses, but to slash and plunder small businesses.

Interestingly enough, the Small Business Administration has been repeatedly cited for guaranteeing lenders loans at 85% of the loan for which the lenders are considered to be at high risk in 80% of SBA 7(a) loans.  Their loan failures run many times higher than those of Main Street Bank!  While their loans go to only 0.2% of small businesses, they have an outlandish failure rate of 19.4%.  Perhaps the Obama crew should be more concerned with controlling this loan failure rate than that of a private bank which knows its business very well.

That tendency to plunder small business could not be made more clear than by Obama's constant effort to raise taxes on those earning more than something between $200,000 and $250,000 a year.  His efforts to widen the death tax is another indicator of his evil intentions with respect to small businesses.  It is politically much easier to plunder small businesses than it is to tackle big businesses with their many savvy lawyers and lobbyists.  It is also easier to over-regulate small businesses.  Socialists do not like business owners and managers.  They are equated with labor exploiters, no matter how many goods and services they produce for free consumers and no matter how many jobs they may provide.  Obama and his crew of insiders are nothing if they are not true socialists.  Small businesses are made to pay a heavy price as a result of their present power.