Thursday, July 2, 2009

Tilting at Windmill Jobs: The 'stimulus' promised a jobless peak of 8%; it's now 9.5%

Tilting at Windmill Jobs. WSJ Editorial
The 'stimulus' promised a jobless peak of 8%; it's now 9.5%.
The Wall Street Journal, Jul 03, 2009, p A12

About the best we can say about yesterday's June jobs report is that employment is usually a lagging economic indicator. At least we hope it is, because the loss of 467,000 jobs for the month is one more sign that the economy still hasn't hit bottom despite months of epic fiscal and monetary reflation.

The report is in many ways even uglier than the headline numbers. Average hours worked per week dropped to 33, the lowest level in at least 40 years. This means that millions of full-time workers are being downgraded to part-time, as businesses slash labor costs to remain above water. Because people are working less, wages have fallen by 0.3% this year. Factories are operating at only 65% capacity, while the overall jobless rate hit 9.5%. Throw in discouraged workers who want full-time work, and the labor underutilization rate climbed to 16.5%.

The news is even worse for young people, with nearly one in four teenagers unemployed. Congress has scheduled an increase in the minimum wage later this month, which will price even more of these unskilled youths out of a vital start on the career ladder. One useful policy response would be for Congress to rescind the wage hike to $7.25 an hour (from $6.55) that is scheduled for July 24. But the union economic model that now dominates Washington holds that wages only matter for those who already have jobs. The jobs that are never created don't count.

The goods producing sector -- Americans who make things -- shed 223,000 more jobs last month. Asked about these job losses by the Associated Press yesterday, President Obama said Congress should pass his cap-and-tax on carbon energy because "If we're weatherizing every building and home in America, if we are creating windmills and solar panels and biofuel facilities, that is a huge promising area not only for jobs here in the United States, but also for export growth." But even under the most optimistic scenario, not every hard-hat worker in America can make windmill blades and solar panels. With manufacturing on its back, enacting a new energy tax to drive more jobs offshore is crazy even on Keynesian grounds.

Of course, the economy can't keep falling forever, and most forecasters still see a recovery starting this year. The decline in manufacturing slowed last month and housing sales have picked up -- both positive leading indicators. The plunge in inventories means industrial production and durable goods orders are bound to increase. Consumers are also spending more again, albeit with more caution than if gasoline hadn't increased by $1 a gallon in recent months and if they felt more confident about their job security.

The real question is how strong and sustained any expansion will be. If the "stimulus" were working as advertised, it ought to be very strong. Washington has thrown trillions of dollars at this recession, including that famous $787 billion in more spending that was supposed to yield $1.50 in growth for every $1 spent. This followed the $168 billion or so stimulus that George W. Bush and Nancy Pelosi promised in February 2008 would prevent a recession. The jobless rate that month was 4.8%.

Most of this government spending has gone to transfer payments -- Medicaid, jobless benefits and the like -- that do nothing for jobs or growth. The spending that might create jobs -- on roads, say -- is dribbling out with typical government efficiency. Meanwhile, the money for all of this has to come from somewhere, and Democrats are already saying it will require big (unstimulating) tax increases in 2011, and perhaps sooner.

The Administration argues that the recession would be worse without the stimulus, which is impossible to disprove. However, it's worth recalling that Mr. Obama's economists predicted late last year that the stimulus would keep the jobless rate from exceeding 8%. That was a percentage point and a half ago. It's far more likely that the economy would have been better off without the spending, and the higher taxes and debt financing that it implies.

As always, a sustained expansion and job creation must come from private investment and risk-taking. Yet as America's entrepreneurs look at Washington they see uncertainty and higher costs from a $1 trillion health-care bill; higher energy costs from the cap-and-tax bill that just passed the House (see below); new restraints on consumer lending in the financial reform bill; new tariffs and threats of trade protection; limits on compensation and banker baiting; and the possibility of easier unionization, among numerous other Congressional brainstorms.

None of this inspires "animal spirits." The best thing Mr. Obama could do to create jobs would be to declare he's dropping all of this and starting over.

Orszag nails it: The 'largest corporate welfare program' ever

The Carbonated Congress. WSJ Editorial
Orszag nails it: The 'largest corporate welfare program' ever.
The Wall Street Journal, Jul 03, 2009, p A12

President Obama is calling the climate bill that the House passed last week an "extraordinary" achievement, and so it is. The 1,200-page wonder manages the supreme feat of being both hugely expensive while doing almost nothing to reduce carbon emissions.

The Washington press corps is playing the bill's 219-212 passage as a political triumph, even though one of five Democrats voted against it. The real story is what Speaker Nancy Pelosi, House baron Henry Waxman and the President himself had to concede to secure even that eyelash margin among the House's liberal majority. Not even Tom DeLay would have imagined the extravaganza of log-rolling, vote-buying, outright corporate bribes, side deals, subsidies and policy loopholes. Every green goal, even taken on its own terms, was watered down or given up for the sake of political rents.

Begin with the supposed point of the exercise -- i.e., creating an artificial scarcity of carbon in the name of climate change. The House trimmed Mr. Obama's favored 25% reduction by 2020 to 17% in order to win over Democrats leery of imposing a huge upfront tax on their constituents; then they raised the reduction to 83% in the out-years to placate the greens. Even that 17% is not binding, since it would be largely reached with so-called offsets, through which some businesses subsidize others to make emissions reductions that probably would have happened anyway.

Even if the law works as intended, over the next decade or two real U.S. greenhouse emissions might be reduced by 2% compared to business as usual. However, consumers would still face higher prices for electric power, transportation and most goods and services as this inefficient and indirect tax flowed down the energy chain.

The sound bite is that this policy would only cost households "a postage stamp a day." But that's true only as long as the program doesn't really cut emissions. The goal here is to tell voters they'll pay nothing in order to get the cap-and-tax bureaucracy in place -- even though the whole idea is to raise prices to change American behavior. At the same time -- wink, wink -- Democrats tell the greens they can tighten the emissions vise gradually over time.

Meanwhile, Congress had to bribe every business or interest that could afford a competent lobbyist. Carbon permits are valuable, yet the House says only 28% of the allowances would be auctioned off; the rest would be given away. In March, White House budget director Peter Orszag told Congress that "If you didn't auction the permit, it would represent the largest corporate welfare program that has ever been enacted in the history of the United States."

Naturally, Democrats did exactly that. To avoid windfall profits, they then chose to control prices, asking state regulators to require utilities to use the free permits to insulate ratepayers from price increases. (This also obviates the anticarbon incentives, but never mind.) Auctions would reduce political favoritism and interference, as well as provide revenue to cut taxes to offset higher energy costs. But auctions don't buy votes.

Then there was the peace treaty signed with Agriculture Chairman Colin Peterson, which banned the EPA from studying the carbon produced by corn ethanol and transferred farm emissions to the Ag Department, which mainly exists to defend farm subsidies. Not to mention the 310-page trade amendment that was introduced at 3:09 a.m. When Congress voted on the bill later that day, the House clerk didn't even have an official copy.

The revisions were demanded by coal-dependent Rust Belt Democrats to require tariffs on goods from countries that don't also reduce their emissions. Democrats were thus admitting that the critics are right that this new energy tax would send U.S. jobs overseas. But instead of voting no, their price for voting yes is to impose another tax on imports from China and India, among others. So a Smoot-Hawley green tariff is now official Democratic policy.

Mr. Obama's lobbyists first acquiesced to this tariff change to get the bill passed. Afterwards the President said he disliked "sending any protectionist signals" amid a world recession, but he refused to say whether this protectionism was enough to veto the bill. Then in a Saturday victory lap, he talked about green jobs and a new clean energy economy, but he made no reference to cap and trade -- no doubt because he knows that energy taxes are unpopular and that the bill faces an even tougher slog in the Senate.

Mr. Obama wants something tangible to take to the U.N. climate confab in Denmark in December, but the more important issue is what this exercise says about his approach to governance. The President seems to believe that the Carter and Clinton Presidencies failed by fighting too much with Democrats in Congress. So his solution is to abdicate his agenda to Congress -- first the stimulus, now cap and trade, and soon health care. We wish he had told us he was running to be Prime Minister.

The Latest Toxin Activists Want to Ban - BPA

The Latest Toxin Activists Want to Ban. By Elizabeth M. Whelan, Sc.D., M.P.H.
Wednesday, June 24, 2009
This article first appeared on June 24, 2009 on

The "toxin du jour" these days is bisphenol A, otherwise known as BPA. Environmental activists claim BPA harms babies as it dissolves out of the sides of baby bottles and sippy cups, causing everything from cancer to learning disabilities and even obesity. Spurred by consumer groups, Connecticut Attorney General Richard Blumenthal wants Coca-Cola, Del Monte and other companies investigated for trying to stop anti-BPA legislation.

In fact, BPA has been used safely for about 60 years to make plastic bottles hard and shatter-proof, for the coatings of metal food containers and even in cellphones and medical devices. Nonetheless, the California Senate recently passed a law to ban the sale of sippy cups and baby bottles that contain BPA, and Chicago recently banned such products from city shelves.

There are two distinct ways of looking at the hysteria about BPA and the quest to purge it from our universe.

First, we can take the rational, scientific approach. There is no evidence that BPA in consumer products ever harmed a child or adult. The FDA has confirmed the safety of BPA in consumer products, as have scientific bodies around the world. The levels of BPA that may leach into food or liquid are so incredibly small that they can barely be measured.

In fact, even the cautious Centers for Disease Control and Prevention has pointed out that merely detecting a substance in our bodies does not mean that it's harmful or toxic. The only "evidence" that BPA is a hazard comes from high-dose animal studies (which have little relevance for humans) and from studies that measure BPA in urine.

But we can detect minute levels of virtually any chemical in blood and urine, and the presence of such an amount is not synonymous with a hazard. BPA as a health hazard is best described as only a "phantom risk."

But rational, scientific facts have taken a back seat in the debate about BPA and health. That brings us to the second, purely emotional case against the toxin.
Psychiatrists have long told us that we fear what we do not understand and cannot see. Further, parents are instinctively on high alert against potential threats to their infants and children. Thus, if an activist group makes a claim that BPA--or almost any other substance--in bottles poses an imminent danger to an innocent baby, the "fear factor" takes over.

Mom and dad are not familiar with this chemical; they can hardly pronounce it; they cannot see it; thus they fear it. And now they are perfect targets for manipulation by the toxic terrorists. Scientists or FDA officials--and certainly industry spokespeople--who dismiss the scare sound callous and unreliable.

Consider this further irrational dimension of the calls to ban BPA: Few people ever ask what the alternative to BPA would be. In their irrational state, they are willing to purge this chemical--a product with a decades-long safety record--from substances they use and instead accept some unknown, untested substitute without even asking what it might be and what its safety profile is.

Perhaps it is time we started responding to the public's irrational fears differently than we do to rational fears. For example, if you have a fear of flying--not a phobia, but a mild, rational concern--you might have your mind changed by a slew of statistics showing that flying from New York to Los Angeles is far safer than covering the same territory by car. We could reason with you on this issue, discussing your odds of injury and death in each scenario. You would then, most likely, choose to fly.

But a national panic about a "chemical"--be it Alar on apples 20 years ago or phthalates (plastic softeners used in rubber duckies and other products) and BPA today--is a different story.

Irrational fears of the sort conjured up in parents by weird-sounding chemicals do not respond well to a truckload of scientific facts. So what might work?

For one, inform parents that their instinct to protect their children is normal, indeed admirable--but subject to manipulation by agenda-driven activists.

And state the obvious. There is no end in sight to the anti-chemical witch hunt against "toxins" in products. Once BPA is banned, the activists will move onto another scare: Are there trace levels of dioxin in the paper cups your toddler drinks out of? Ban paper cups!

Could there be lead in the playground sand box? Close all sandboxes! If in five years the alternative to BPA is shown to cause cancer in rodents--well, ban that too.

Finally, underscore the fact that chemicals like BPA, which have been used for decades with no deleterious health consequences, may well be safer than hastily introduced alternatives.

Irrational fears need to be recognized for what they are--and treated with compassion and understanding but also a big dose of reality. Caring, loving parents have become victims of fear mongers and that, certainly, is one danger about which they deserve to be warned.

Elizabeth M. Whelan is president of the American Council on Science and Health.

The West must reaffirm its support for Georgia

Russia Is Back on the Warpath. By CATHY YOUNG
The West must reaffirm its support for Georgia.
The Wall Street Journal, Jul 02, 2009, p A11

With President Barack Obama's trip to Moscow on Monday, you might expect Russia to avoid stirring up any trouble. Yet the Russian media are now abuzz with speculation about a new war in Georgia, and some Western analysts are voicing similar concerns. The idea seems insane. Nonetheless, the risk is real.

One danger sign is persistent talk of so-called Georgian aggression against the breakaway regions of Abkhazia and South Ossetia, which Russia recognized as independent states after the war last August. "Georgia is rattling its weapons . . . and has not given up on attempts to solve its territorial problems by any means," Gen. Nikolai Makarov, who commanded Russian troops in Georgia in 2008, told the Novosti news agency on June 17. Similar warnings have been aired repeatedly by the state-controlled media.

Independent Russian commentators, such as columnist Andrei Piontkovsky, note that this has the feel of a propaganda campaign to prepare the public for a second war. Most recently, Moscow has trotted out a Georgian defector, Lt. Alik D. Bzhania, who claims that Georgian President Mikheil Saakashvili "intends to restart the war."

Yet Russia is the one currently engaged in large-scale military exercises in Abkhazia, South Ossetia, and adjacent regions. Russia has also kicked out international observers from the area. On June 15, Moscow vetoed a U.N. Security Council resolution renewing the mandate of U.N. monitors in Abkhazia because it mentioned an earlier resolution affirming Georgia's territorial integrity. Negotiations to extend the mission of monitors for the Organization for Security and Cooperation in Europe have broken down thanks to Russian obstruction. Now, 225 European Union monitors are the only international presence on the disputed borders.

The expulsion of neutral observers seems odd if Russia is worried about Georgian aggression. But it makes sense if Russia is planning an attack.

What would the Kremlin gain? A crushing victory in Georgia would depose the hated Mr. Saakashvili, give Russia control of vital transit routes for additional energy resources that could weaken its hold on the European oil and gas markets, humiliate the U.S., and distract Russians from their economic woes. Mr. Piontkovsky also believes the war drive comes from Russian Prime Minister Vladimir Putin, who is anxious to reassert himself as supreme leader.

Still, the costs would be tremendous. Last year the Kremlin repaired some of the damage to its relations with Europe and the U.S. by portraying the invasion of Georgia as a response to a unique crisis, not part of an imperial strategy. Another war would cripple Russia's quest for respectability in the civilized world, including its vanity project of the 2014 Winter Olympics in Sochi.

And after the patriotic fervor wears off, domestic discontent would likely follow. Moreover, Russia would almost certainly find itself mired in a long guerilla war. This would further destabilize a region where Russia's own provinces, Ingushetia and Dagestan, are plagued by violent turmoil.

Given all this, a war seems unlikely. What's more probable is that Russia will seek to destabilize Georgia without military action. This saber-rattling may be meant to boost Georgian opposition to Mr. Saakashvili.

Still, Moscow's actions are not always rational. If the pro-war faction believes that the Western response to an assault on Georgia would be weak and half-hearted, it could be emboldened. In a June 25 column on the Web site, Russian journalist Yulia Latynina writes that the probability of the war "depends solely on the Kremlin's capacity to convince itself that it can convince the world that the war is its enemies' fault."

That is why it's essential for the United States and the EU to respond now -- by increasing their non-military presence in Georgia, expressing a strong commitment to Georgian sovereignty, and reminding Russia of the consequences of aggression. Such a statement from President Obama in Moscow would go a long way toward preventing the possibility of another tragedy.

Ms. Young is a columnist for and the author of "Growing Up in Moscow" (Ticknor & Fields, 1989).

Wal-Mart buys protection by selling out its competitors

Everyday Low Politics. WSJ Editorial
Wal-Mart buys protection by selling out its competitors.
The Wall Street Journal, Jul 02, 2009, p A12

Corporate America's cheerleading for more government involvement in health care now includes Wal-Mart, that liberal paragon of social irresponsibility. The discount giant's ex-critics probably ought to be more skeptical, given that this seems to be anticompetitive special pleading in progressive drag.

This week the nation's largest employer blessed an employer mandate, aka "pay or play." This would require businesses that do not offer "meaningful coverage" -- i.e., government-approved -- to pay some percentage of their payroll to a federal insurance plan. This mandate is one of the more controversial policies in the Democratic health package, and Wal-Mart's endorsement will help it along, or at least give liberals political cover against business criticism.

Another way of putting it is that Andy Stern finally got his man. Wal-Mart CEO Mike Duke was joined in his show of support by Mr. Stern, president of the Service Employees International Union and probably the most influential U.S. labor leader, as well as by John Podesta, President Clinton's former chief of staff now running the leftward Center for American Progress. Both organizations regularly assail Wal-Mart. The SEIU, having failed in its drive to organize Wal-Mart stores, went on to help fund a harassment group called Wal-Mart Watch. The Podesta outfit provides ammunition for critics about the retailer's supposedly skimpy benefits -- especially health coverage -- and other corporate-greed outrages.

Then the fog of politics set in. Wal-Mart hired Leslie Dach, another former Clinton operative, to give its public image an extreme makeover. It has since rolled out green programs (most of which save it money in any case), and in 2007 the company joined with organized labor to call for universal health care by 2012. Two years before, it plumped for a higher minimum wage.

The employer-mandate endorsement falls into the same self-interest department. A boost in the minimum wage helps Wal-Mart because most of its workers already earn well over the wage floor, and it hurts smaller, less-profitable competitors that can't afford to pay more. On health care, an employer mandate will also reduce the margins of their rivals. This is especially true for businesses of a slightly smaller size that cannot insure on the same scale or currently don't reach the 55% of the 1.4 million Wal-Mart employees who are insured through the company. (Another 40% or so are covered by spouses or the likes of Medicaid.)

The Wal-Mart-Stern-Podesta troika made sure to specify that "shared responsibility" must be "fair and broad in its coverage," with an emphasis on the latter. The Mom & Pop stores that liberals accuse Wal-Mart of running out of town may get hit hardest. Democrats say they'll exempt certain small businesses, size details to be determined. But if the mandate is limited to large employers, it won't reduce the number of uninsured. According to the Kaiser Family Foundation, 99% of firms with more than 200 workers provide health benefits, only 62% of smaller firms.

Businesses are also largely indifferent whether compensation comes in the form of wages or benefits, so an employer mandate -- an indirect tax on employment -- may cause wages to rise more slowly. Or it may simply mean fewer jobs. In a 2007 paper, the economists Katherine Baicker of Harvard and Helen Levy of the University of Michigan estimate that 0.2% of all full-time workers and 1.4% of uninsured workers would lose their lobs because of an employer mandate. Most at risk are the 33% of the uninsured earning within $3 of the minimum wage. Thus many of the same people who shop at Wal-Mart because of its low prices -- and who Democrats claim to speak for -- would be worse off.

An employer pay-or-play tax is not only a revenue grab to fund government health care, but it is also meant to transfer the choices about coverage to government from consumers. Businesses are going along with this and other gambits in part because of a prisoners' dilemma: They're terrified of being shut out of Democratic health negotiations lest they get stuck with the bill. Wal-Mart may also be trying to pre-empt an employer mandate the Senate is considering that would target companies with predominantly low-wage, low-skilled or entry-level work forces.

Other big businesses are also trying to buy protection or some political reprieve. Big Pharma recently promised to reduce the cost of prescription drugs by $80 billion over the next decade, and the physician, hospital and insurance lobbies have made similar offerings. Yet the political class is simply pocketing these concessions and demanding more, hastening the day when government controls most U.S. health dollars -- and the businesses become the equivalent of utilities.

Mr. Stern has been clear that his major goal all along has been to pressure Wal-Mart into endorsing government health insurance. As for Wal-Mart's executives, please don't come running for help when Mr. Stern returns for his next political payoff.

Fuel Standards Are Killing GM

Fuel Standards Are Killing GM. By Alan Reynolds
WSJ,Jul 02, 2009